A copperhead snake shows its fangs.James Robinson/The Fayetteville Observer/AP
When a copperhead sank its fangs into Eric Ferguson last August, the printing-equipment salesman knew he needed treatment immediately.
He got it at the Lake Norman Regional Medical Center in Mooresville, N.C., about 30 miles north of Charlotte. He received four intravenous vials of CroFab, an antivenin harvested from the blood of toxin-exposed sheep. After 18 hours of observation, he got a clean bill of health — and a bill for $81,151.16, or more than $20,000 per vial.
“The staff there were second to none,” Ferguson said. “They did save my life.”
Still, when he got the bill, “my wife and I thought somebody slipped a decimal point,” he said.
CroFab sells for about $2,200 per vial, according to Ashley Tapp, a London-based spokesman for the manufacturer, BTG International.
A similar story made global headlines in 2012, when Marcie Edmonds of Phoenix was stung by a scorpion and billed $83,056 for a four-vial course of antivenom called Anascorp — nearly $21,000 per vial. But the drug maker’s price is only about $3,400 per vial, said Jude McNally, spokesman for the manufacturer, Rare Disease Therapeutics, in Tucson, Ariz. More telling: Anascorp is based on a Mexican product that sells for about $100 a dose.
Extreme as these cases seem, they are examples of a medical payment structure in the United States gone awry. It is a system that has led to shortages of vital drugs, wildly varied costs and confused consumers. It involves hospitals and other medical providers, insurers, manufacturers, group purchasing organizations and distributors that funnel drugs to hospitals and pharmacies.
The cases are “illustrative of a general problem that there is for all drugs, part and parcel of what’s wrong with the U.S. medical payment system,” said Dr. Leslie Boyer, the Tucson research scientist who led the team that got Anascorp approved for the U.S. market.
But how does the price tag for potentially lifesaving treatment skyrocket on the way from the manufacturer to the patient?
The drug industry often blames government regulations for the cost of medicine.
McNally said Anascorp is based on Alacramyn, a product made by Bioclon, a Mexican company. But the FDA did not approve Alacramyn, and even though it and Anascorp are produced at the same site, Anascorp is manufactured separately to meet FDA standards for sale in the United States. Anascorp is so much more expensive than the Mexican product because of the cost of clinical trials, liability insurance, fees manufacturers pay to the FDA, distributor costs and the relatively small demand for the drug, McNally said.
Drugs are often expensive to produce, but there’s another reason behind high prices: Companies are in business to make money. For years critics have complained about high drug prices. The pharmaceutical industry racked up $83.9 billion in profit in 2012, according to the advocacy group Health Care for America Now.
The industry argues profit drives innovation, giving the world groundbreaking drugs such as Prozac and Viagra. The trade group PhRMA (Pharmaceutical Research and Manufacturers of America) says the industry spent more than $48.5 billion to develop new drugs in 2012 alone — a number that critics say is unverified and greatly exaggerated. The industry is developing more than 5,000 new drugs and supports 3.4 million jobs across the U.S., PhRMA says.
But the drug industry is not the only player in a crazy-quilt system in which what patients and insurers end up paying can vary by tenfold or more.
The logic of what patients get charged and what they eventually end up paying can be hard to follow.
After bad publicity as a result of Edmonds’ scorpion-venom bill, Chandler Regional Medical Center settled with her. Spokeswoman Julie Graham said the amount is confidential but acknowledged the hospital knocked the per-vial charge for Anascorp down to $7,560.
Despite the buzz that stories like Edmonds’ create, the astronomical bills haven’t gone away. In 2012 a New Mexico man was charged six figures for snakebite antivenom: $186,000, according to the Santa Fe New Mexican.
In September insurance broker Wendy Feldman-Kerr of Queen Creek, Ariz., was stung by a scorpion and quickly began to feel the effects of the poison. Nearby Gilbert Hospital billed her $47,719.96. She paid only $347.17; insurance covered the rest. “You saved $47,371.79,” her Blue Cross Blue Shield of Arizona statement read.
Ferguson, who is covered by Blue Cross Blue Shield of North Carolina, paid about $5,400.
The discrepancies illustrate how widely health costs can vary and how much depends on an institution’s negotiating power.
In the wake of media reports — on a woman’s stitches costing $2,229, a 321 percent difference in asthma and bronchitis treatment between two New York City hospitals and a pacemaker implantation costing $127,038 in one Florida hospital but only $66,030 at another less than 1,000 feet away — the federal government last year published hospital charges for the 100 most common inpatient services and 30 common outpatient ones.
The list shows that treatment for a seizure can come to $7,837 in Maryland but $25,968 in Texas. Simple pneumonia and pleurisy without major complications will cost $8,912 in North Dakota but $12,046 in Delaware and $34,476 in California. A major bowel procedure will set you back $128,872 in Mississippi but only $89,293 in Massachusetts.
An oft-cited reason for these disparities: clout or lack thereof.
“The dramatic variation in prices from one hospital to another points to the significant market power of certain hospitals to command high prices, even in markets with a dominant insurer,” according to researcher Chapin White, who led a study last year for the Center for Studying Health System Change, which has since merged with Mathematica Policy Group in Washington, D.C.
Negotiating muscle comes from increasing consolidation in the hospital industry, said Clare Krusing, deputy press secretary for the industry group America’s Health Insurance Plans. Hospital mergers and buyouts of physician practices mean higher costs with no improvements in the quality of care, she said.
And there is yet another player on this confusing field: group purchasing organizations, or GPOs, used by hospitals, nursing homes and other medical providers to negotiate with drug makers and distributors. GPOs account for more than 70 percent of hospital purchasing, according to the industry’s trade group, the Healthcare Supply Chain Association (HSCA).
Several members of Congress have blamed GPOs for high prices and more. They’ve also been pointed to for shortages of about 300 drugs, from chemotherapy medications to antibiotics and even saline solution.
The HSCA blames manufacturing problems for the short supplies. Group spokesman Gordon Neal points to the shortage of the cancer drug Doxil.
“The manufacturer, Ben Venue, voluntarily shut down manufacturing in 2011 after an FDA inspection turned up a number of infractions,” he said.
However, GPOs have been blamed for shortfalls by, among others, a group called Physicians Against Drug Shortages. Maryland anesthesiologist Dr. Mollyann March, a co-chair of the group, and Phillip L. Zweig, its executive director, say six large companies use exclusive no-bid contracts, fees squeezed from vendors, a legal exemption from anti-kickback laws, and other anti-competitive practices to keep generic versions of medications hard to find. GPOs have cut drug makers’ profit margins and forced manufacturers out of the market, they say.
The shortages force some doctors to seek medicines on a gray market of secondary distributors and compounding pharmacies, Zweig has said. He blames the little-regulated market for 2012’s 20-state outbreak of fungal meningitis, caused by contaminated back-pain medications produced by the New England Compounding Center. The company agreed in December to a $100 million settlement to compensate creditors and more than 700 victims, including the survivors of more than 60 who died from the injections.
Companies’ pursuit of profit is unlikely to wane, and efforts to make the system more transparent are new, with an uncertain impact.
In addition to publishing the range of rates for common procedures, the Obama administration recently launched Physician Compare, a site to help consumers shop for doctors on the basis of their participation in Medicare, but the website has drawn its share of complaints. The College of American Pathologists has said the data for half its members is wrong. And the site doesn’t include rate information.
Ferguson, the copperhead bite victim, takes a broad view of the situation. He appreciates the quality of care he received, but his hospital-bill experience and the cost is something else.
“Every person needs to be their own health care advocate,” he said, acknowledging that he and his wife had their eyes opened because of his billing experience. “A lot of people, including ourselves, walked around with blinders on. That’s done.”
This story has been updated to clarify Phillip L. Zweig's position on group purchasing organizations, and to remove an incorrect reference to Zweig having testified before Congress.