An American Sickness

Why does American healthcare cost so much and feel so opaque? The book argues that it’s because medicine has evolved from a social service into a multi-layered market where every actor—from insurers to hospitals to device makers—competes not to lower prices but to capture payment flows. This transformation unfolded across decades, turning what began as charitable, patient-centered institutions into complex profit-seeking systems that thrive on opacity, scale, and distorted incentives.

From charity to commerce

In the early 20th century, hospitals like those run by nuns or civic boards existed primarily for healing and charity. Baylor University’s $6-a-year hospital plan for teachers and the first Blue Cross arrangements aimed to protect families from financial ruin, not enrich providers. But when employer-based insurance became the system’s backbone after World War II wage freezes and IRS tax-rule changes, coverage expanded—and price discipline vanished. Once money flowed through third-party payers, patients stopped seeing real prices, and hospitals, drug firms, and insurers learned to maximize revenue rather than reduce costs.

The insurer’s paradox

Insurers originally existed to protect against catastrophic losses. Over time, they became daily payment buffers—paying for routine visits, drugs, and tests. This insulation from direct pricing let providers inflate charges without pushback. When regulators, through the Affordable Care Act, required medical-loss ratios (forcing insurers to spend 80–85% of premiums on care), companies responded perversely: they allowed provider costs to rise since their fixed profit was a percentage of total spending. This mechanism explains why bills like Jeffrey Kivi’s $132,000 Remicade infusion are paid quietly, folded into premiums, and normalized.

Hospitals reinvented as revenue engines

Hospitals were once community pillars; now they operate like corporations. Providence Health’s transition from nuns to CFOs mirrors the national shift. Granite lobbies replaced wards, and finance departments began “optimization” through chargemasters and facility fees. Consultants taught executives to shift losses into reimbursable codes. Mergers and acquisitions gave big systems—Sutter, UPMC, HCA—monopoly leverage, enabling them to dictate prices. Nonprofit status persisted, but charity care often shrank to a symbolic percentage even as revenues soared. (Note: economists find that consolidation usually raises prices rather than improves efficiency.)

Physicians in the coding maze

Doctors appear independent but are enmeshed in the system. The Medicare-created RBRVS and RVUs system—shaped by the AMA’s RUC committee—rewards procedures over thoughtful diagnosis. Upcoding, productivity bonuses, and physician-owned surgery centers (ASCs) tie personal income to bill-generating behavior. Specialists profit more than primary care, pushing new doctors toward procedural fields. Patients encounter unseen contractors—pathologists, anesthesiologists, and radiologists—who bill separately, sometimes out-of-network, producing “surprise bills” like Lee Schaefer’s $10,000 neonatal add-on.

Pharmaceutical and device games

Drug pricing follows similar logic. Old medicines such as Asacol for ulcerative colitis reemerge as new brands (Delzicol, Asacol HD) after trivial tweaks that reset patents. The 1984 Hatch–Waxman Act intended to balance innovation and competition but instead invited “pay-for-delay” and “product hopping.” Devices like Stryker’s Rejuvenate hip or Edwards’s annuloplasty ring illustrate regulatory gaps: under the FDA’s 510(k) program, products gain approval by mirroring a predecessor—even if that predecessor was recalled. Each part of the system thus monetizes risk and confusion rather than clarity.

A market without price signals

Across these industries, the defining principle holds: when insurance guarantees payment, when hospitals control local monopolies, and when doctors’ incomes depend on billing codes, prices rise untethered to actual cost or value. For patients, that means every “discounted” bill reflects baked-in inflation. The Remicade infusion, the $772 vitamin D test, or the $300,000 cystic fibrosis drug Kalydeco—each reveals a price created not by science, but by market engineering.

What this means for you

This book’s unifying claim is that American healthcare isn’t irrational—it’s rational for the actors who profit from it. That logic explains everything from outpatient facility fees to venture-philanthropy investments. You live inside a market designed to capture payment, not efficiency. Recognizing that structure lets you act strategically: ask for itemized bills, check device safety, question formularies, shop for bundled prices, and join movements for transparency and antitrust enforcement. Reform begins with comprehension—and the courage to ask who benefits from every dollar you spend.

Hospitals are the financial heart of healthcare. Once built as charities serving local needs, they now function as multi-billion-dollar corporations where branding, mergers, and real estate matter as much as medicine. You can see this evolution from Providence Portland’s marble entries to the national giants like HCA, Sutter, and UPMC, where 'nonprofit' status hides vast investment portfolios and executive pay rivaling private firms.

Facility fees and consolidation

Hospitals invented facility fees to monetize outpatient care. A simple blood draw billed at $20 in an office became hundreds once the setting was classified 'hospital-based.' When hospitals buy independent practices, those fees follow patients home. Consolidation amplifies this: after Sutter acquired regional hospitals, prices rose sharply while smaller units lost surgery and maternity wards. Mergers intended for efficiency instead deliver market leverage—the ability to demand higher rates from insurers and patients alike.

Observation status and chargemaster trickery

The chargemaster lists every service and object—a thermometer, an IV line—as a separate charge. Consultants like Deloitte help hospitals 'optimize' these lists to move revenue from loss centers into billable categories. Administrative coding tricks such as 'observation status' let hospitals bill inpatient rooms at outpatient rates, shifting costs to patients while avoiding regulatory penalties. These maneuvers explain why ordinary visits balloon into five-figure totals even for insured patients.

The nonprofit illusion

Tax-exempt hospitals promise community benefit yet often report charity care as single-digit percentages while claiming 'economic development' or 'healing gardens' as justification. UPMC’s 11% charity figure amid global expansion illustrates how nonprofit status can function as a loophole. For you, that means your taxes subsidize institutions that operate like luxury hotels, with fountains and concierge services, while genuine aid remains scarce. The hospital landscape is not just medical—it’s financial terrain shaped by mergers, marketing, and tax strategy.

Insurance defines modern healthcare behavior. It was intended as a shield; now it is a complex market designed for predictability and profit. This chapter reveals how insurer incentives, cost-shifting, and policy frameworks like the Affordable Care Act (ACA) both mitigate and magnify distortions in pricing.

Why insurers pay high prices

Insurers seldom fight outrageous hospital bills because denying claims risks losing members. They tolerate inflated prices, then raise premiums. The ACA’s medical loss ratio rule unintentionally increased their tolerance: if profits are capped as a fraction of total spending, companies simply expand total spending. Thus several forces—competition for network breadth, regulatory math, and marketing—align to sustain high prices rather than restrain them.

Cost-shifting to consumers

High-deductible plans exploded as insurers sought to control premiums. Patients became de facto self-insured for the first thousand dollars or more. Yet few could shop for value because price data remained hidden. ACA co-ops that aimed for consumer-centered design collapsed under political and financial pressure, revealing how fragile reforms are when they threaten entrenched interests.

Reference pricing and bundling

Bright spots exist. CalPERS, California’s state employee program, used reference pricing—setting fixed benchmark costs for surgeries like hip replacements. Facilities that met the price thrived, others lowered charges, and savings reached millions without harming care. Bundled payments for full episodes of care likewise align incentives with outcomes instead of volume. If more employers and regulators demanded these methods, insurers might finally compete on value.

Understanding these forces lets you shop smarter: confirm networks directly, check formularies carefully, evaluate total annual out-of-pocket costs, and support policies that reward transparency and competition. Insurance is not a neutral buffer; it’s an economic actor shaping how and where dollars flow.

Drug innovation captivates—but behind every breakthrough lies a pricing strategy. The pharmaceutical industry perfected the art of keeping prices high through patent manipulation, exclusivity extensions, and opaque rebate systems. This section exposes how companies extend monopolies and how middlemen like pharmacy benefit managers (PBMs) deepen opacity.

Patent manipulation and 'evergreening'

Drugs like mesalamine (Asacol, Delzicol) exemplify 'product hopping': minor formulation changes earn new patents while old versions vanish. Hatch–Waxman’s goal to balance generics and brands backfired as firms exploited secondary patents, pediatric extensions, and pay-for-delay settlements to block competition. The result—a cycle of old drugs in new wrappers sold at multiples of their former cost.

Middlemen and subsidies

PBMs negotiate secret rebates between insurers and drugmakers, profiting from price gaps instead of eliminating them. Patient-assistance foundations funded by manufacturers mask true costs and keep consumers loyal to premium-priced treatments. Even coupons that ease co-pays serve as marketing tools keeping list prices sky-high for everyone else.

Hemophilia as a microcosm

Hemophilia drugs show how scientific progress meets financial engineering. Recombinant factor VIII transformed care but turned patients into million-dollar annual revenue streams. Brand extensions for longer-acting versions doubled costs; home-care delivery firms earned per-unit pay. Innovation benefited lives while turning rare diseases into lucrative market niches—a pattern echoed across oncology and specialty drugs.

To protect yourself, ask about generics, compare cash and international prices, and back policies enabling Medicare negotiation and patent reform. The pharmaceutical story isn’t only greed—it’s systemic design rewarding monopoly and opacity over public health.

Medical devices and ancillary services are invisible drivers of cost. You rarely know what implant goes into your body or how much the lab test on your chart costs, yet these can produce huge bills. Their shared traits: fragmented oversight, opaque supply chains, and incentive networks favoring volume over safety or value.

Regulatory gaps and the 510(k) shortcut

The FDA’s 510(k) process lets manufacturers approve new devices by showing 'substantial equivalence' to earlier models—no human trials needed. That’s how Stryker’s flawed hip implant entered the market and why patients like Barbara Baxter faced costly revision surgeries. Predicate devices can even be recalled, yet successors slide through. Safety oversight remains lax until widespread harm prompts litigation.

Markup chains and physician incentives

Devices pass through distributors, hospital procurement, and sales reps—each adding markup. Some doctors form physician-owned distributors (PODs) or collect royalties on products they implant. Coupled with hospital contracts, these arrangements create hidden conflicts between financial and clinical interests. (Compare Atul Gawande’s warnings about procedural incentives.)

Ancillaries and add-ons

Labs, imaging, PT, and durable medical equipment operate as revenue appendages. A vitamin D test costing $16 at a local lab becomes $700 in a hospital charge. PT units billed in fifteen-minute increments multiply costs for simple exercises. After surgery, leased devices like ice-vibration machines can cost patients thousands when insurers refuse coverage. These services epitomize how modern medicine monetizes every interaction.

The takeaway: ask for itemized bills, check device provenance, and challenge unnecessary ancillary rentals. Transparency begins with demanding information about every physical item and test connected to your care.

Every dollar in medicine flows through codes. ICD, CPT, and HCPCS coding systems were created to measure care but turned into engines for billing optimization and debt collection. Behind the screen of administrative duty lies a massive for-profit industry built on translating medical actions into revenue streams.

From epidemiology to profit language

ICD’s roots in public health data gradually yielded to the CPT revenue language. Consultants train hospitals and doctors to upcode—select higher-complexity codes for ordinary encounters. Modifier 59, meant to distinguish legitimately separate procedures, is repeatedly misused to permit duplicate billing. When ICD systems update (as with ICD-10), coders, vendors, and EMR companies profit from retraining and compliance contracts.

Debt collection and patient harm

Wanda Wickizer’s ordeal—half a million dollars in charges after a brain hemorrhage—shows what happens when hospitals treat patients as debtors. University of Virginia outsourced collection to aggressive legal firms threatening liens and ruining credit. Hospitals often reject payment plans in favor of litigation, a symptom of medicine’s transformation into financial enforcement.

Administrative bottlenecks

Insurers outsource prior authorizations to contractors like CareCore, whose denials create friction and delay necessary tests. Audit firms profit from policing compliance. In such a system, even modest payment disputes spawn additional industries—each prospering from inefficiency.

Learn to navigate the bureaucracy: request CPT/ICD codes, demand itemized bills, and document correspondence. Understand that the system treats coding as capital, not clerical work, and use transparency to reclaim some control.

Charity once drove discovery; now philanthropy acts like venture capital. Foundations invest in drugs and devices, sometimes profiting from high prices that burden patients. This evolution illustrates how even 'benevolent' institutions mirror market logic.

When cures lack business models

Dr. Denise Faustman’s BCG vaccine trials for type 1 diabetes showed promise but lacked commercial upside—so major funders declined support. Crowdfunding replaced grants, revealing how nonprofitable cures can wither. Without financial viability, science stalls.

Venture philanthropy and conflicts

The Cystic Fibrosis Foundation invested $150 million in Vertex’s drug Kalydeco, earning $3.3 billion in royalties. That success underscored a tension: high patient cost equaled high foundation profit. When charities hold equity, advocacy for affordability weakens. Disease-specific groups increasingly fund industrial partners, aligning with markets instead of consumers.

You can press foundations to tie investment to access requirements, support public trials for unprofitable cures, and advocate government funding for neglected diseases. The research sphere now runs on market logic; acknowledging that helps realign it toward public welfare.

You can’t single-handedly reform healthcare’s logic, but you can defend yourself and press for change. The final chapters outline both practical and systemic strategies—individual vigilance plus collective advocacy.

Ask, compare, negotiate

Before care, ask for price estimates, provider networks, and facility fees. Afterward, demand itemized bills. Online tools—Healthcare Bluebook, ClearHealthCosts, FAIR Health—help benchmark fair charges. Many hospitals discount bills when confronted with documentation or media exposure. Eileen Debold’s X-ray fee drop and Ann Winters’ surgical-bill correction show how persistence works.

Document and escalate

Use written protests, send letters to insurers and regulators, and cite Medicare rates as benchmarks. Templates (illustrated in appendices) teach effective phrasing. Public attention—local press, attorney general complaints—can resolve egregious claims quickly.

Systemic levers

Support antitrust scrutiny of mergers, demand transparent tax filings from nonprofits, and back bundled or reference pricing reforms. Advocacy for patent, PBM, and device-regulation reform links personal frustration to political power.

The lesson: being a 'difficult' patient is rational. The earlier you ask, compare, and protest, the more chance you have of avoiding the system’s traps. Individual vigilance coupled with civic engagement creates leverage—the only effective counterweight against a market optimized for profit rather than care.