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When Saving a Child's Life for Free is Bad News

Summary:
Drug manufacturers, health insurers, hospitals, and medical vendors don’t always inspire sympathy, but sometimes, what’s portrayed as disturbing is actually pretty inspiring—or at least justifiable. In late April, the “Bill of the Month” feature produced by National Public Radio (NPR) and Kaiser Health News (KHN) ran a story, “Summer Bummer: A Young Camper's 2,938 Snakebite.” NPR’s audio broadcast and accompanying article describe the monstrous medical bill a family received after their child was bitten at summer camp by a snake—likely a copperhead—and airlifted to a hospital, where doctors administered four vials of the antivenom CroFab. Websites worldwide picked up the story, variously describing the bill as “whopping,” “jaw-dropping,” and the work of “serpent profiteers.” KHN’s

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Drug manufacturers, health insurers, hospitals, and medical vendors don’t always inspire sympathy, but sometimes, what’s portrayed as disturbing is actually pretty inspiring—or at least justifiable.

In late April, the “Bill of the Month” feature produced by National Public Radio (NPR) and Kaiser Health News (KHN) ran a story, “Summer Bummer: A Young Camper's $142,938 Snakebite.” NPR’s audio broadcast and accompanying article describe the monstrous medical bill a family received after their child was bitten at summer camp by a snake—likely a copperhead—and airlifted to a hospital, where doctors administered four vials of the antivenom CroFab.

Websites worldwide picked up the story, variously describing the bill as “whopping,” “jaw-dropping,” and the work of “serpent profiteers.” KHN’s slightly edited version subtitled the story, “The snake struck a 9-year-old hiker at dusk on a nature trail. The outrageous bills struck her parents a few weeks later.”

But the title could just as easily have been, “Summer Miracle: Helicopter, Hospital, and Rare Serum Save 9-Year-Old’s Life—for Free.” As we learn near the end of the story, the family’s health insurer negotiated charges down to $107,863.33, and the camp’s insurer paid $7,286.34 to cover the deductible and coinsurance the parents would otherwise have paid. According to the report, the family paid zero.

So, the story seems to have two points. First, it’s awful that a family received a terrifyingly large bill and had to wait nervously until insurers wiped the slate clean. Second, the helicopter and antivenom cost far more than they should.

I have no quarrel with the article’s first point. It’s easy to sympathize with this family receiving a $142,938 statement and agonizing over it until it went away. Similar mailings spooked my parents during their late-life illnesses. Statements often said, “This is not a bill,” but those words hardly calmed our nerves.

So how about one simple, costless reform that could instantly reduce Americans’ healthcare angst: don’t send patients any billing statements until insurers and providers have concluded their negotiations. And when you do, put the bottom line right up top. If this family had received only one statement, reading: “You owe $0, but your insurer paid $107,863.33,” would this have been a news story?

It probably would have, since much of the story attempts to build the case that the costs were excessive, regardless of who paid. But the story doesn’t successfully make that second point. Let’s unpack the numbers.

Were The Costs Excessive?

NPR describes the nine-year-old’s terrible day: deadly snakebite at summer camp, desperate helicopter flight to the trauma center, four vials of antivenom, recovery and departure from the hospital a day later. Weeks later, the family received bills totaling $142,938, including $55,577.64 for the helicopter and $67,957 for the antivenom. The remainder consisted of physician, hospital, and ground ambulance charges.

The broadcast’s financial analysis came from Dr. Elisabeth Rosenthal, a non-practicing physician and KHN’s editor-in-chief. She said a much cheaper alternative is available in Mexico and offered her ideas on why the charges were so high in this case:

We’ve talked about high air ambulance prices before. . . When your kid gets a poisonous snakebite, they’ll die without rapid treatment, so you’re vulnerable to financial extortion. . . [T]he drugmaker in this case had a monopoly on the product. . . The hospital has a captive audience here and can mark up with abandon. . . When your insurer and your company jumps in to save you from these extortionate bills, . . . premiums in your company are likely to go up the next year.”

This narrative clearly implies that the costs were excessive and abusive. From Rosenthal’s quotes, we can discern four culprits. Let’s examine each:

The Helicopter Company

The story suggests that the child might have died without the helicopter. But helicopters and supporting infrastructure aren’t cheap. A Managed Care article, “Air Ambulance Turbulence: Consolidation, Cost Shifting, and Surprise Billing,” explores whether helicopter costs are excessive. Their answer is, effectively, “maybe yes, maybe no.” At the very least, the manpower needs are eye-opening:

Keeping a single air ambulance helicopter ready 24 hours a day requires 13 people—four pilots, four nurses, four paramedics, and a mechanic, a big national operator told GAO. The agency said based on cost figures from eight air transport providers, the average cost per flight in 2016 ranged from $6,000 to $13,000.”

Why was the cost so much higher in this case? Here are two conjectures: perhaps the 160-mile roundtrip was much farther and more time-consuming than average flights. Or perhaps air ambulance flights around Evansville, Indiana are infrequent, requiring the company to spread fixed costs over relatively few patients. The helicopter company’s explanation would be interesting.

The Drug Manufacturer

Part of the antivenom charge is the enormous cost of developing any drug and obtaining Food and Drug Administration (FDA) approval. That process can take more than a decade and can cost over $2.5 billion. Plus, not many people suffer venomous snakebites. BTG (CroFab’s manufacturer) says the drug has been used on 50,000 patients over 15 years. $2.5 billion (if that’s what BTG spent) spread over 50,000 cases is $50,000 per patient—just to cover research and development costs.

No doubt, the company has sold many times that number of vials to stock pharmacy shelves. (Its shelf life is only 30 months.) This certainly helps explain why CroFab’s wholesale price is $3,200 per vial—far below that conjectural $50,000 figure.

The Hospital

NPR notes that hospitals usually charge patients around $16,000 for four vials of CroFab. The story never suggests that BTG charged the hospital, St. Vincent Evansville, more than the usual wholesale price. The hospital, it seems, was primarily responsible for the much higher charge. What can explain that sort of markup?

Let’s assume hospital pharmacies buy enough CroFab to cover the manufacturer’s development, approval, and production costs. But in 15 years, they’ve only been reimbursed for those vials that went to 50,000 actual snakebite patients. If every patient used four vials, for example, that would total only $640 million—far less than a typical drug’s development and approval costs. Who pays the difference?

Perhaps St. Vincent Evansville rolled the costs of unused vials onto the bills of snakebite victims or onto the bills of patients who’ve never been near a venomous snake. (This hints at a possible answer to the question, “Why did some hospital charge $50 for an aspirin?”) Hospital charges are also mires of cross-subsidies, so perhaps St. Vincent’s accounting system rolls other costs—personnel, equipment, administration, and charity care—into the antivenom charge. This is only my speculation, but it would be nice to ask the hospital whether that’s the case.

Then there’s the fact that the “charges” patients initially receive are mostly accounting fictions that no one will ever pay. In fact, the insurer here negotiated the CroFab price down to $44,092.87. For those who blame American healthcare’s ills on “profits” (like the website that blamed “serpent profiteers”), note that that St. Vincent Evansville is a not-for-profit, religious-affiliated hospital.

The bottom line is that the billions it takes to bring a drug like CroFab to market will ultimately come from someone’s pocket—patients, providers, insurers, or taxpayers. Perhaps the $44,092.87 charge here was excessive, but the story lacks sufficient information to warrant that conclusion.

The Insurers

When critics of American healthcare round up the usual suspects, insurers are often the first in the squad car. In this story, however, insurers negotiated the bills downward and, according to the story, paid every penny. The story notes that large changes, such as the one described here, cause insurance premiums to rise. That’s true, but again, someone—patients, providers, insurers, taxpayers—have to pay.

Here are a few worthwhile questions beyond the scope of NPR’s story:

What would happen if we didn’t pay “outrageous” amounts to air ambulance services?

In 2009, actress Natasha Richardson died after a skiing accident in Canada, where provincial governments pays for healthcare. According to an AP report at the time:

The province of Quebec lacks a medical helicopter system, common in the United States and other parts of Canada, to airlift stricken patients to major trauma centers. Montreal's top head trauma doctor said Friday that may have played a role in Richardson's death.

The Globe and Mail added:

The Quebec government is making no excuses for the lack of a helicopter air ambulance service to transport trauma patients such as actress Natasha Richardson. . . Purchasing a helicopter ambulance is not a priority and there are no plans to acquire one, a government spokeswoman said yesterday.

So, the good news is that, in 2009, no one in Quebec faced an unexpected $55,577.64 air ambulance bill. But the bad news is that if your life depended on such a service, you’d be dead.

Rosenthal suggests, “This kind of case is exactly why other countries do regulate drug prices.” Would such a policy yield cheaper antivenom?

Rosenthal said a much-cheaper drug was available in Mexico, but this seems irrelevant to the story. Hospitals can only use those drugs approved by the U.S. Food and Drug Administration (FDA). According to this story, CroFab was the only FDA-approved antivenom when this child was bitten. NPR said a second serum, Anavip, has since gained FDA approval—but not for copperhead bites.

So, maybe Anavip wouldn’t have saved this the child’s life.

Or maybe Anavip would have saved her, but the FDA has been sluggish in granting approval. My Mercatus colleague, Alex Tabarrok, once wrote “the FDA has an incentive to delay the introduction of new drugs because approving a bad drug. . . has more severe consequences for the FDA than does failing to approve a good drug. . . In the former case at least some victims are identifiable and the New York Times writes stories about them and how they died because the FDA failed. In the latter case, when the FDA fails to approve a good drug, people die but the bodies are buried in an invisible graveyard.”

Or maybe the FDA has been prompt and efficient, but Anavip’s manufacturer hasn’t made an adequate case.

Or maybe the FDA and the manufacturers of Anavip and CroFab have done all they can, and the high cost simply reflects the fact that producing antivenom is an expensive endeavor. NPR’s account doesn’t provide any grounds for choosing among these conjectures.

The US is the world’s premier pharmaceutical developer in part because under our less-regulated price system, manufacturers stand a chance of recouping costs. To a considerable extent, other countries free ride on the higher prices Americans pay. If the federal government mandates that our prices drop to European or Canadian levels, will we get cheaper antivenom, or will manufacturers simply stop developing drugs like CroFab or Anavip? (The absence of air ambulances in Quebec hints at an unpleasant answer.)

Are there, in fact, unlucky families who receive gigantic medical bills for snakebites and actually have to pay that amount?

Rosenthal said, “These guys were lucky.” Both parents work at Indiana University Bloomington. Though unmentioned in the story, the mother is an elected official and two-time congressional nominee. Almost certainly, their jobs provide them with top-of-the-line health insurance. My employer does the same for me and for my colleagues. In fact, a large percentage of Americans are similarly “lucky.”  

But some Americans aren’t so lucky. Some lack insurance, and some have lower-quality insurance. While federal law gives all Americans guaranteed access to emergency care, regardless of ability to pay, it would be interesting to know whether others in Bloomington, Indiana, are “unlucky” and would have been financially destroyed by the same copperhead bite at the same place. Does that happen? If so, that’s a really powerful story.  

Conclusion

NPR raises excellent questions but paints an exceedingly dark impression of American healthcare. But, a different spin on the story’s facts puts American healthcare in extraordinarily favorable light:

In the glass-half-full version, America is a place where: (1) For-profit corporations spend vast sums to develop lifesaving drugs that very few people will ever need. (2) Helicopters stand ready at all hours to transport grievously wounded people. (3) Hospitals are perpetually ready to provide labor, resources, and know-how to save people from the jaws of death. And (4) insurance companies sometimes pay every cent of the cost of such miracles.

For those who imagine that savings lie in price controls and government financing, picture yourself, grievously injured, atop a mountain in Quebec.

Photo Credit: rawpixel.com/Pexels.

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