Free Lunch (31 page)

When Alderson refused to play ball, he was fired. That would have been the end of it, except that Alderson
learned about a way that a private citizen can bring a lawsuit on behalf of the government. It is called a
qui tam
suit.

For years Alderson worked alone, unable
under
qui tam
rules to tell anyone what he was doing. At one point, out of work and
facing financial ruin, Alderson hired a former Medicare auditor named Nicholas L. Bourdeau to help him turn the complex billing
records into something that would make sense to Justice Department lawyers and FBI agents. Bourdeau was astonished at what
the stacks of boxes in Alderson's home held. “I couldn't believe what I was seeing,” Bourdeau said years later. “I thought it was a
Medicare auditor's worst nightmare. It was an organized system to take advantage of the Medicare system.”

Years later three Columbia/HCA executives went to prison. Scott was ousted as chief executive. Penalties of
almost a billion dollars were paid, part of the money going to Alderson as a reward for his service to the taxpayers. However, the
government was so lenient that the penalties for this widespread, orchestrated scheme amounted to far less than the amount
stolen.

Congress responded to these scandals by giving the FBI more than $100 million a year
extra to investigate health care fraud. There had been little need for such an investigative budget when hospitals were mostly
nonprofit.

The funding for FBI investigations may seem like a lot of money, but it is tiny
compared to the size of the problem. In 2008 the nearly half a trillion dollar cost of Medicare and Medicaid combined will equal
about $150 per month for every man, woman, and child in the country. By the same measure, the FBI budget to hunt for health care
fraud works out to three cents per month.

Looked at another way, the cost of Medicare and
Medicaid equaled all the income taxes Americans paid from January through July of 2004, but the FBI health care fraud budget
equaled the income taxes Americans paid in about the first hour of the year.

With a $114 million
budget for health care fraud the FBI was expected to produce big cases. Yet the FBI did so few health care fraud investigations that
Congress asked the Government Accountability Office to find out why. The answer? The money was diverted. The FBI “was unable
to track overall costs related to health care fraud investigations” and had “no effective mechanism in place'' to detect fraud, the
accountability office investigators concluded in 2005, nine years after Congress had ordered the crackdown.

The FBI did not even keep proper track of where it diverted the money. Its estimates of how the money was
actually spent were “reported from memory,” according to a congressional report. The FBI said it could not determine how a fourth
of the money was spent, though perhaps the proper explanation would be to change the verb and observe that the FBI
would not
explain.

In health care fraud the chances of
getting caught are tiny and the financial penalties typically are just a cost of doing business, not a deterrent. “It's a bizarre world,”
says Jim Plonsey, president of Medicare Training & Consulting, a cost-report specialty firm. “There is an incentive to abuse
the system and wait for Medicare to catch you. And there has been no penalty for doing it.”

At
least one state, New York, institutionalized fraudulent payments in the name of efficiency. Health care industry literature is filled
with studies on how computerized billing systems can save money by cutting back on paperwork jobs. But in New York State one
out of every five dollars paid this way—with a computer ordering checks cut because it is too costly to have a human review the
invoices—goes for services that were not needed or not performed, an investigation by
The New York
Times
found. The state comptroller said that estimate sounded just about right.

All of this, from the bargain basement prices paid for HMO assets, to spending fewer premium dollars on care
so CEOs can get rich, to the spread of organized Medicare fraud, to the FBI's dishonest behavior, grows from the idea that market
forces were the efficient way to rein in the escalating costs of health care and that competition would work its magic to deliver a
high-quality product to consumers. The idea, Nixon's tape recorded voice shows, was a fraud from the beginning.

Instead what we got is a horribly distorted marketplace where the health care companies, engorged by
unchecked greed, ration health care. That is a crucial point to keep in mind when opponents of
universal health service
assert that the health care systems in other countries ration health
care. Our corporate health care system does, too, and at vastly greater expense. We deliver the best care to those able to pay a
high premium or who have one paid for them, like our representatives and senators, while delivering paperwork, delays, anxiety,
and sometimes death-for-profit to those of less than grand means.

Americans are less healthy
even though we spend far more, according to the 2007 McKinsey Global Institute report cited earlier. McKinsey compared 124
countries. It found that our system's inefficiencies and waste costs us an extra half trillion dollars a year. This excess cost works
out to $1.3 billion every day. The study concluded that $75 billion of this was due solely to the fact that these other countries had
public health systems. Despite what we are spending, we live shorter lives than the Canadians and the Britons.

Our expensive, inefficient health care system is also making us less competitive in an increasingly
competitive world. Toyota rejected offers from Alabama and other states for extremely generous subsidies and tax breaks in 2005
that basically amounted to giving the company a free factory if it would locate there. A nearly free factory, Toyota concluded, was
worth less than avoiding the continuing cost of health care for the factory workers. Health care costs the Detroit automakers more
than the steel in cars. By some estimates health care accounts for as much as $1,600 of the cost of a new American
car.

Toyota chose Canada. And there lies a secondary component to the Toyota story. As
health care costs head toward a fifth of the American economy by 2015, they are squeezing out other spending. One of the big
losers is education. That, too, played a role in Toyota's decision. Canadian factory hands are so much better educated that Toyota
estimated the costs of training workers there would be significantly less. Toyota could rely on verbal instructions and written
manuals with Canadian workers, rather than color-coded cards it would need to train some of the reading-challenged workforce in
the southern states that had offered subsidies.

The business of health has created a massive
makework program, run by health insurance companies, whose purpose is to justify denying care. That in turn has forced
physicians, hospitals, laboratories, and others to employ their own armies of paper pushers to fight for payment, not to mention all
the grief and anguish endured by individual patients and their families.

Now a new industry is
emerging: consultants who examine claims denials to help people fight for payment. That service is a boon to the individuals it
helps, but just another deadweight loss to the economy.

In short, our government's blind faith
in the wisdom of the market has created the most expensive and inefficient health care system in the world without making us
healthier. Among those who have denounced this system's waste and how the market gives us less health care at higher prices is
Robert Gumbiner, the Orange County doctor who grew rich from FHP, the health maintenance organization he bought for a fraction
of its value.

“The present orientation towards greed is a national catastrophe, as far as I can
see,” Gumbiner said when he sat down for an oral history project sponsored by the University of California. “The feeling is, it's
okay to be greedy and it's okay to exploit your fellow man just to line your pockets. To me, there is something wrong with
that.”

Gumbiner spoke these words after he had become ill and FHP was sold. It is not without
irony that Gumbiner sued over the sale, saying he was cheated. To make FHP more attractive in a sale, Gumbiner charged, Merrill
Lynch investment managers handling the sale fired a third of the doctors. The progressive medical policies that made FHP
attractive to subscribers were stopped. No chance to cut was overlooked. The investment bankers, he charged, even had all potted
plants in offices gathered up and put in a dark closet to die to eliminate the cost of watering them.

“Quality and investment return are antithetical,” Gumbiner concluded, “because in order to generate
short-term profits, the company cannot put money into research and development, new long-range concepts, management
training, and all the things that will build a long-term successful organization. People who strictly have investors' return as their
motive are not interested in long-term corporate guarantees.”

Well put, Dr.
Gumbiner.

Next, a look at how the Bush White House and Republicans in Congress worked
behind closed doors to funnel hundreds of billions of dollars in subsidy money to for-profit health care companies—and hide what
they were doing.

O
N THE GROUND FLOOR OF THE CAPITOL, NEAR A BUST OF
RAOUL
Wallenberg, lies an unmarked corridor. A guard stands watch, making sure
no tourists enter. Beyond the guard the drab, eerily silent hallway meanders through the building until it ends at a set of
cream-colored, saloon-style swinging doors.

Not just tourists were unwelcome. So were some
members of Congress. This is a room for those whom the man who controlled it for five years called “the coalition of the willing.”
The willing, in this case, meant a willingness to engage in a particularly underhanded scheme to take from the many to benefit the
few while appearing to do the opposite.

This room served as the private hideaway for
Representative Bill Thomas of California, who ruled the House Ways and Means Committee with an iron fist from 2001 until he left
Congress in 2007.

Thomas was known for three things. First, he was so faithful in delivering
President Bush's messages on tax cuts and Social Security privatization that even his Republican colleagues called him the White
House mailman. Second, he was shrewd, a tactician of the first order. Third, he was a short-tempered bully who was voted the
meanest man in Congress in a
Washingtonian
magazine poll of Capitol Hill
staffers.

Thomas's imperiousness got out of hand one Friday in July 2003 when a pension bill
came before the Ways and Means Committee, which controls the nation's tax laws. The Democrats were not allowed to see the
latest version of the bill until the hearing began. To stall for time, they employed a parliamentary trick. They ordered that the bill, all
200 pages of it, be read into the record. Then all but one of them retired to an anteroom to plot strategy.

Thomas grew increasingly annoyed as he sat on the dais. Before long he called the Capitol Police to evict the
Democrats. Thomas later tried to lie and deny his way out of it, saying he only wanted to restore order because of some foul
language by the one Democrat left behind in the hearing room, Fortney “Pete” Stark, another combative Californian. Five days later
on the House floor, at the urging of his party leaders, Thomas confessed. He admitted that he indeed wanted to break up the
minority party's meeting. He took action that he described, tears running down his cheeks, as stupid, but not wrong.

As much as Thomas was a partisan, and even though decades of worsening partisanship on both sides have
made Congress less and less functional, the real split on Capitol Hill is not between the Ds and the Rs. The real split is shown by
who was welcome in that hideaway Thomas kept beyond the saloon-style doors.

The
dominant group is thick with politicians like Thomas. In public they speak of free enterprise and the virtues of competition. Behind
closed doors, however, they work to create a paradise of corporate socialism for the few. Their reward comes when their days as
lawmakers are done and they can easily move on to new careers that pay extraordinarily well, helping industries and individual
companies pillage that “largesse out of the public treasury” that Ronald Reagan often talked about.

These are the Washington corporatists, whose hearts bleed for every company and industry complaining
that the rules, and often the market, are unfair. Every issue must be filtered through the lens of big business profits, as if that were
the only aspect of a sound economy that matters.

Except for the better newspapers and the
dry policy magazines, the press ignores this public Jekyll and backroom Hyde dichotomy most of the time. Even when the
contradiction between public positions and backroom actions are reported, the presentation tends to be devoid of human drama
and lacking a larger context about the influence of the political donor class on government decision making. From reviewing
thousands of pages of news clips going back to the late nineteenth century, it is clear that the definition of news has changed.
Today a politician is far more likely to get attention for personal acts that belie a public image of a virtuous life than for promising to
protect voter's purses while working stealthily to pick them. And that goes triple for television, which most people say is their
primary source of news.

The minority group in Washington is composed of Republicans and
Democrats who agree on almost nothing except their Adam Smithian belief that business is at all times engaged in a conspiracy
against the public that ought not to be aided by government policies.

At one end is
Representative Ron Paul, a libertarian Republican from Texas. He believes that the income tax violates the Thirteenth Amendment
prohibition against slavery because the government requires people to do the work of filling out their tax returns. To Paul that is a
form of involuntary servitude, while filling out a form for, say, a driver's license is not because you are not required to have a
driver's license (unless you want to drive).

At the other end is Senator Bernie Sanders of
Vermont, the only socialist in Congress, though he caucuses with the Democrats. Sanders rails about a government that lavishes
welfare on corporations, but not on children born into poverty.

While their views run the gamut
from left to right, these politicians share a belief that government should be run mostly to maintain the people and their liberties and
that corporate interests are too powerful, too doted upon. And while they are not pure in their approach, their leanings tend to be
away from corporate interests and toward the people. We will call them the peoplists.

So it was
that one late September morning in 2003, one television camera was present to record a clash between the corporatists and the
peoplists. It took place in that hallway where a Capitol police officer stands guard beside the bust of the Swedish diplomat who
saved many Hungarian Jews from the Nazi death camps before he was “disappeared.”

Events
began with a bit of impromptu political theater staged by Representative Charles Rangel, a New York Democrat who usually aligns
himself with the peoplists, though at times he has been known to perform duties for Wall Street, home of the greatest cathedral in
the House of Mammon. Rangel is every bit as partisan as Thomas, but much more affable. Rangel had been named to a conference
committee to work out differences between the House and Senate versions of a bill giving older Americans a prescription drug
benefit program. Thomas was also on that bipartisan committee.

President Bush, who wants
to end Social Security as we know it, sponsored this drug plan. That might seem an ideological non sequitur for a Republican
president who calls himself a fiscal conservative. Yet Bush proposed the greatest expansion in socialized health care for the
elderly since Medicare was enacted in 1965. It looked like a smart way to win the votes of older Americans, the group most likely to
turn out at the polls.

The proposal brought forth all sorts of support and opposition. But the
prescription drug benefit bill was not so much a divider of Democrats and Republicans as a perfect illustration of the divide
between the corporatists and the peoplists. It was also a window on subsidy politics in Washington and why so many who pose as
protectors of the public purse are so willing to raid it.

The bill was written in a way that looked
out first for the interests of drug makers and health insurance companies that sell prescription drug plans. The elderly were simply
a tool to that end. The effort to conceal what was really going on was multipronged.

One key
provision prohibited the government from negotiating for the lowest possible prices. Negotiating for low prices when buying in
bulk is standard practice. That is what Veterans Affairs does. That is what every business owner does. So does every other
industrial nation for their universal health care plans for their citizens. Negotiating for the lowest price would seem to be an obvious
choice for those in both parties who talk about running government like a business, promising voters that if elected they will work
tirelessly to replace waste with efficiency.

The corporatists said that negotiating for lower drug
prices was an abuse of government power. They called negotiating a euphemism for government price controls. And they said it
would mean less money to invest in new drugs, delaying advances in pharmaceuticals.

To the
peoplists, the ban on price negotiation was a stealth plan to make the drug benefit so costly it would cause the whole system of
socialized medicine for the elderly to collapse. This political paranoia was not without some basis in fact.

On the first issue, no company wants to discount prices. Companies cut prices only when the discipline of
the market forces them to take less. Adam Smith would not have approved of government staying the invisible hand by having
government pay anything but the lowest possible price. “The natural price, or the price of free competition,” Smith wrote, “is the
lowest which can be taken, not upon every occasion indeed, but for any considerable time together…. [It] is the lowest which the
sellers can commonly afford to take, and at the same time continue their business.”

Getting top
prices while dealing in volume guarantees fat profits, even by the famously lush standards of the pharmaceutical industry, which
ranks second only to the military-industrial complex companies in profitability. Huge and easy profits for both drug and health
insurance companies meant that the price of their stocks would rise. That, in turn, meant that the stock options given to executives
would soar in value. And as a side benefit it would, in time, enrich some lawmakers and their staffs when they left the public payroll
to seek work in the private sector. But first the bill had to garner 51 votes in the Senate and 218 votes in the House before any of
this could come to pass.

Rangel was in a jovial mood that September morning when he met
with a pack of journalists, including a camera crew from CNN. Rangel explained that he was the one House Democrat on the
conference committee named to work out the final version of the prescription drug bill. He said that while the bill's supporters
would tell him where to go, they would not tell him where to go to attend the conference committee meetings. But Rangel had an
idea about where he could find the conferees. Camera crew in tow, Rangel waved the entourage past the guard and down the
hallway.

They came to a halt outside the swinging doors. An ornate chandelier lit the
salmon-hued room beyond. Voices could be heard. Heads and feet were visible above and below the doors. Thomas's staff peeked
out from a side door to find out who had descended on their boss.

“I'm charging the room,”
Rangel said, mugging for the camera. He knocked; the scene quickly became a parody of the old
Saturday Night Live
“Land Shark” skits.

Even though he
had been alerted that it was Rangel outside, Thomas called out, “Who is it?”

“It's the
postman,” Rangel replied with glee. The journalists and Rangel aides in the hallway guffawed. Thomas told Rangel to
enter.

Inside were Thomas; Senator Max Baucus, a Montana Democrat; and two politicians
from Louisiana, Senator John Breaux, another Democrat, and Representative Billy Tauzin, a Republican. They were corporatists
all.

Baucus and Breaux, looking sheepish, mumbled hellos.

“I'm here to negotiate,” Rangel announced.

“This meeting,” Thomas
replied, “is only open to the coalition of the willing.”

Baucus, Breaux, and Tauzin slipped out a
side door. Then Thomas begged off, leaving Rangel standing with a handful of reporters in Thomas's den.

The locations of meetings were not the only things the bill's backers were hiding. The Bush White House said
the drug benefit would cost $400 billion in the first 10 years. That was an important number because some conservative House
Republicans said they would not vote for the bill if the costs exceeded $400 billion, a number with no apparent significance other
than being round.

Cybele Bjorklund of Rangel's staff suspected the number was low. She
asked Richard Foster, the Medicare chief actuary, for his analysis. Foster said he had the numbers, but that his boss, Thomas A.
Scully, the Medicare administrator, would fire him if he told what he knew. Scully later denied he had threatened Foster with firing,
but did admit he tried to keep the cost figures secret. But then an e-mail, written by one of Scully's aides to Foster, was leaked. It
showed that he had threatened Foster with dismissal for insubordination if any numbers got to Congress: “Please work up the
numbers and share them with Tom Scully only, no one else,” the e-mail said, adding, “The consequences for insubordination are
extremely severe.”

In the summer and fall of 2003, Scully told everyone the $400 billion figure
was solid. He even wrote a letter to the editor, published in
The New York Times
a few
days before the vote on the drug bill, which stated flatly, “We are spending $400 billion.”

Even
so, when the bill came up for a vote on the House floor, it was in danger of going down. Many members suspected the cost was
higher, but they lacked the data needed for debate. The vote began at three in the morning on November 22. Under House rules
votes can take no more than fifteen minutes. House Speaker Dennis Hastert and his whip, Tom DeLay, kept the vote open for
almost three hours, the longest vote in the history of the House.