Abbott Laboratories Settles, Again

In 2007, we discussed a scheme that Abbott Laboratories seemed to be using to boost the price of Kaletra, a combination of two protease inhibitors it markets to treat HIV and AIDS. Kaletra is a combination of rinoavir (Norvir, sold by Abbott as a single drug), and leponavir. Kaletra was apparently losing sales to the combination of Norvir with Reyataz (atazanavir), made by Bristol-Myers-Squibb. So Abbott increased the price of Norvir by 400%.

As reported so far only by Bloomberg, Abbott just settled a class-action lawsuit alleging that its price hike for Norvir was anti-competitive.

Abbott Laboratories agreed to pay $52 million to resolve claims by direct drug buyers that it tried to harm competition when it quadrupled the price of its HIV medicine Norvir in 2003.

The settlement, which is subject to court approval, would resolve a class-action lawsuit filed on behalf of Abbott customers that purchased Norvir, a boosting agent for other HIV drugs, and a second medicine Kaletra, which includes Norvir, according to an April 8 filing in federal court in Oakland, California. Abbott denied wrongdoing, according to the accord.

Abbott increased the wholesale price of a Norvir capsule containing 100 milligrams to $8.57 from $1.71, the Abbott Park, Illinois-based company said in court documents. GlaxoSmithKline Plc and drug retailers and distributors sued, claiming other drugmakers that used Norvir in their medicines couldn’t compete on price with Kaletra, and the price increase penalized drug customers that wanted to buy medicines that competed with Kaletra.

Note that, as we discussed here, this is the third significant settlement by Abbott in the last six months. In December, 2010, the company settled claims that it defrauded Medicare and Medicaid for $421 million, and claims that a subsidiary paid kickbacks to doctors to sell its products for $41 million. For other discussion of Abbott's recent misbehavior, look here.

So while we were discussing other issues, the parade of legal settlements continued. It is beginning to seem like every major pharmaceutical/ device/ and biotechnology company has settled or pleaded guilty to multiple allegations of significantly bad behavior in the last few years. This suggests how bad the leadership of most of these companies has become.

Nonetheless, in the current case, like nearly all others, the penalties were paid by the companies themselves, not the people who authorized, directed or implemented the bad behavior. We and others have commented repeatedly that the resulting relative impunity of leaders of health care organizations will hardly deter future bad behavior. (Note that this impunity seems similar to that employed by leaders of finance after the global financial collapse/ Great Recession.) Not only do the leaders not pay penalties, but they continue to become hugely rich at the expense of their companies. For example, Abbott CEO Miles D White enjoyed total compensation of $25,564,283 in 2010, down only slightly from the 26,213,996 he received in 2009, according to the 2011 Abbott proxy statement (available here). Threats by government officials to start to employ the "Responsible Corporate Officer Doctrine," (available since 1943) to hold individuals accountable for health care organizations' misdeeds so far appear to be empty (see this post).

So to repeat Cassandra-like,  we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Noticing the Elephant in the Room: Bigger Hospital Networks Charge More for the Same Service

We recently discussed a report on hospital prices here in Rhode Island, which showed that hospitals that are part of hospital systems were paid more for the same services than independent hospitals.  The price differences could not be explained by quality of care or severity of illness.  The results suggested that market power determines the price of hospital services, and that increasing concentration of power in hospital networks is likely to further increase costs, without improving quality of care. 

The end of last week, a similar report out of the neighboring state of Massachusetts was announced.  As reported by Liz Kowalczyk in the Boston Globe,

Massachusetts insurance companies pay some hospitals and doctors twice as much money as others for essentially the same patient care, according to a preliminary report by Attorney General Martha Coakley. It points to the market clout of the best-paid providers as a main driver of the state’s spiraling health care costs.

The yearlong investigation, set to be released today, found no evidence that the higher pay was a reward for better quality work or for treating sicker patients. In fact, eight of the 10 best-paid hospitals in one insurer’s network were community hospitals, which tend to have less complicated cases than teaching hospitals and do not bear the extra cost of training future physicians.

Coakley’s staff found that payments were most closely tied to market leverage, with the largest hospitals and physician groups, those with brand-name recognition, and those that are geographically isolated able to demand the most money.

While market power predicted pricing, quality of care and severity of illness did not.

The report shows that a small group of about 10 hospitals statewide command significantly higher payments than the other 55, ranging from 10 to 100 percent more than their competitors for similar work.

While academic medical centers are widely thought to be the most costly, the report noted that one major teaching hospital that treats some of the state’s sickest patients was paid less than dozens of others with healthier patients.

The investigation also discovered that hospitals that treat large numbers of poor patients, who can be more expensive to care for, are as a group paid 10 percent to 25 percent less than average by commercial insurers.

Finally, the report showed that increasing prices per unit of service, not increasing amounts of service, accounted for most of the rising costs of hospital care.

Coakley’s investigators found that Massachusetts health care costs, which are growing by 7.5 percent annually, are mostly the result of rising prices, not patients getting more imaging tests, surgery, and other procedures. For one major insurer, provider price increases accounted for 80 percent of the total growth in medical expenses between 2006 and 2009.

We have tried to encapsulate the concerns that motivated starting the Health Care Renewal blog as "concentration and abuse of power" in health care. Here is a stark of example of that.

Lots of hospital insiders have tried to sell increasing concentration of power among hospitals as a way to decrease costs, improve quality, and improve access. The American experience going back to the 19th century, however, has been that market concentration increases costs regardless of quality or access. The two reports from Rhode Island and Massachusetts suggest that as hospitals combine in hospital systems, and these systems become more oligopolistic, costs, but not quality or access increase.  Of course, the insiders within the system are likely to keep selling the idea, because their pay doubtless goes up as the system gets bigger.

As I have said many times, real health care reform will require reversing the trend towards concentrated power, maybe most directly by breaking up oligopolies such as large hospital systems, and changing health care organizations' leadership and governance to reduce the incentives to expand regardless of how expansion affects patient care.