An American Sickness: How Healthcare Became Big Business and How You Can Take It Back

Rosenthal discusses the case of Dr. Jeffrey Kivi, a high school chemistry teacher who has debilitating psoriatic arthritis. His rheumatologist, Dr. Paula Rackoff, encouraged him to participate in a trial for Remicade, a promising new drug. Since Kivi was an employee of New York City, he had access to a top tier insurance policy which covered the entirety of his trial visits, amounting to $19,000 per session. Access to the new medication allowed him to comfortably be on his feet for the entirety of the school day, thus transforming his life. When Dr. Rackoff moved her practice to a new clinic run by NYU Langone Medical Center, Kivi noticed that his insurance company was paying significantly more money, despite no major change in his treatment. His insurance company paid $98,575.98 and $110,410.82 for his first two infusions, and $132,791.04 per subsequent visit.

Rosenthal helped Kivi investigate the reasons behind these skyrocketing costs, and the two quickly fell down the “rabbit hole of medical pricing,” finding that “things only got darker and darker” (13). They discovered that NYU Langone possessed a financial stake in Remicade. One of the drug’s inventors is a professor at NYU who donated a portion of his patent royalties to the college. As a result, NYU is compensated every time the cost of a Remicade infusion rises above an undisclosed threshold. The implications are dire: Since Kivi used a civil servant insurance plan, NYU was getting wealthier at taxpayers’ expense. Kivi eventually decided to switch to a less-effective drug that he could administer on his own. This story serves as a segue into the history of the health insurance industry and the medical industrial complex.

In pre-insurance America, medical care was mostly overseen by religious charities. Though treatment itself was cheaper, simplistic and under-researched medicines meant that their patients remained sicker for longer periods of time. The very first insurance plans were developed at the Baylor University Medical Center in Dallas, Texas, as a response to a sudden influx of unpaid medical bills at the Texas Baptist Memorial Sanitarium. To combat this, Justin Ford Kimball, Baylor’s vice president, offered a medical subscription program for the local teacher’s union. For $6 a year, participating teachers were eligible for a 21-day cost-free stay in the hospital. These plans were eventually run by Blue Cross and Blue Shield and were known as the Blue Cross Plans. At the time, The Blues were nonprofit. Rosenthal writes that the initial aim of insurance was “not to make money, but to protect patient savings and keep hospitals—and the charitable religious groups that funded them—afloat” (16). Without the presence of government plans like Medicare and Medicaid, these plans were widely utilized across industries and prevented workers from losing valuable hours to long and costly hospital visits.

The demand for insurance plans skyrocketed at the onset of the polio outbreak. A combination of increased need and evolution of medical technologies meant that the previous parameters for insurance plans were no longer sufficient. The rising costs of plans and the National War Labor Board’s choice to freeze salaries during World War II drove employers to begin offering their own health insurance plans to entice prospective employees. These early employee plans only provided coverage for extensive hospital stays due to serious illness or injury. They were only meant to “mitigate financial disasters brought about by a serious illness, such as losing your home or your job,” not making “healthcare cheap or serve as a tool for cost control” (17). This set a precedent for how the healthcare industry operates today.

As the 20th century pressed on, continued advancements in medical technology caused an interest in insurance plans that offered more. Executives recognized that “the new demand for health insurance presented a business opportunity and an emerging market with other motivations” (17). This led to the insurance industry abandoning its charitable roots as for-profit companies began rising in prominence. These new companies were defined by their new focus on younger, healthier patients, abandoning set rates, and creating different policy options. This proved to be challenging for The Blues, who, as nonprofits, were often relegated to the poorest and sickest patients. In the 1990s, The Blues voted to adopt a for-profit model in order to overcome their growing financial deficits. They currently operate under the name Anthem Blue Cross.

Today, the for-profit model incentivizes companies like Anthem to cater to the financial wellbeing of stakeholders and investors, as opposed to patients and plan holders. This has led to a significant increase in premiums. Anthem is a notable offender. After an attempt to raise California residents’ premiums by 39% was blocked by the state’s attorney general in 2010, Anthem successfully raised premiums by 25% in 2015. Though Dave Jones, California’s insurance commissioner, continually objected to this hike, he had no actual power to block the new rates.

The for-profit model also encourages companies to spend less money on the medical loss ratio, which is the amount they spend on patient care. While the average medical loss ratio of The Blues began at 95 cents per dollar, they began to re-orient their budgets around advertising and amenities. While this allowed them to attract more patients, it decreased the quality of care. The new medical loss ratio is now around 80 cents per dollar. The Texas Blues, the original pioneers of insurance, have a medical loss ratio of 64 cents per dollar as of 2010. The Affordable Care Act slightly curbed this trajectory by mandating that private insurers spend 80 to 85% of their premium dollars exclusively on patient care, but this still pales in comparison to Medicare, which spends 98% of its funds on its patients’ treatments.

This provides insight into why Kivi’s insurer agreed to spend so much money on his treatments. Refusing to pay would mean losing NYU, a wealthy and high-profile client. The ACA provision mandating an 85% medical loss ratio also incentivizes them to spend more on costly treatments. A more logical decision for them is spending money on fewer patients so that they have more left over to pay their employees. Any shortfall is covered by raising premiums on other patients. Though insurers may benefit from negotiating better rates for individual patients, they have gotten to a point where they are simply “too big to care about you” (20). These provisions have actually led to insurers agreeing to pay drastically larger sums for covered programs, because it allows them to invest in messaging that inspires customer loyalty. This usually comes at a cost of bargaining for lower prices. Rosenthal uses a hypothetical example of an insurance company negotiating to lower the price of a hospital visit from $99,469 to $68,240 and requiring a patient to contribute $3,018 (21). Though the insurance county can tout comparatively lower rates, customers are still being burdened with high financial costs.

Rosenthal begins the chapter with a testimonial from Heather Pearce Campbell, an attorney from Seattle. In 2014, a routine prenatal visit to Swedish Medical Center revealed that her second pregnancy was ectopic, meaning that the embryo was growing inside a fallopian tube. This required her to undergo surgery to remove the tube, the embryo, and a portion of her uterus. While this procedure required her to stay in the hospital for less than a day, she ended up with a bill of $44,873.90—a cost far greater than the $25,000 she had paid for a two-day C-section visit. The bill noted that Aetna, her insurer, negotiated a discounted rate of $17,265.56 and requested that she provide an additional $875. To complicate matters even further, her entire stay was labeled as “miscellaneous.” When she requested an itemized breakdown of her bill, Swedish refused, stating that it wasn’t part of their normal customer protocol. Campbell refused to pay the bill until she received this documentation from the hospital but eventually acquiesced out of threat of being turned over to collections. She filed a complaint with the Washington attorney general accusing Swedish of “deceptive and obstructive billing practices” (23). Rosenthal reveals that stories like Campbell’s are growing more and more common as the prices for hospital services are skyrocketing. In the time period from 1997 to 2012, the cost of hospital visits have grown by 149%. The average daily cost of a hospital stay in America is $4,300. Rosenthal states that this is because hospitals are able to implement costs without much regulation due to their status as nonprofit institutions. Excess income is often spent on amenities.

Providence Portland Medical Center is a case study of this. It began as a religious charity and has enduring ties with the Catholic Church. Much like other religiously inspired hospitals, Providence garnered a reputation of guiding its practices based on community care and catering to a wide variety of patients. This is what initially attracted Dr. Frank McCullar, who joined Providence’s outpatient department in 1977. He was also pleased to have the opportunity to work with superstar doctors like Dr. Albert Starr, who was a co-inventor and early user of the artificial heart valve. McCullar was surprised that his colleague was never on a billboard or any advertising for the hospital, however, the board stated that this kind of marketing went against Catholic traditions. This mindset, as it turns out, would change drastically during McCullar’s tenure at the hospital.

The implementation of Medicare in the 1960s and the expansion of private insurance through the 1980s meant hospitals were set to make less money off patients. This led to hospitals charging for every service and every professional encounter. Increased profits required an increase in administrative staff. For Providence, their presence led to a bureaucratization of what was once a charitably minded religious organization. McCullar notes that “they paid more attention to the bottom line than to the condition of medicine” (26). Eventually, their influence grew so much that physicians began receiving encouragement to focus more on performances that would maximize hospital revenue. When doctors began receiving itemized statements, they began to worry about the amounts the hospital was billing Medicare and the prospect of overcharging. This culminated in Providence’s decision to treating doctors as independent contractors. Despite doctors’ personal share of profits decreasing, Providence seemingly had endless money for adding amenities like marble countertops and elaborate fountains. McCullar eventually felt “embarrassed to have poor patients come here” (27).

The Providence hospital chain has come to represent an untraditional combination of religious charity and venture capitalism. In recent years, Providence has done anything from “donating $250,000 to help build a new teaching hospital in Haiti” to launching “a $150 million venture capital fund, led by a former Amazon executive” (28). Its financial prowess also allowed it to enforce religious doctrines within the medical community, sometimes to extremes. Notably, when Providence acquired Swedish Medical Center in 2012, the hospital stopped offering abortion, with the exception of women visiting for life threatening complications. Campbell believes this is why her procedure was billed as “miscellaneous” as opposed to “termination of pregnancy.”

In the 1980s and 1990s, many hospitals adopted a business model outlined in The Financial Management of Hospitals by Howard J. Berman and Lewis E. Weeks. Berman and Weeks argued that “hospitals are big businesses” and could no longer afford to operate exclusively with philanthropic support (29). This led to many existing positions becoming bureaucratized. For example, head nurses became financial managers with little to no experience in medical care. This led to a bias towards profit and less support and advocacy for patients, especially ones who were financially insecure. New positions were invented as well, most notably the Chief Medical Officer (CMO). CMOs replaced physicians in chief and surgeons in chief and were tasked with making medical care as profitable as possible. This included new practices such as shortening hospital stays and encouraging doctors to use specific medical equipment and generic drugs.

Hospitals can fund this trend towards bureaucratization after Medicare began paying for claims based on a patient’s diagnosis related group (DRG). This created a system of fixed rates for specific diagnoses. While not all private insurers followed suit, they made comparable changes by staffing care managers and negotiators to ensure they would pay as little as possible. The change in insurer policy catalyzed hospitals to treat patients as quickly and effectively as possible. Hospitals realized they did not have the leverage to force Medicare or large private insurers to cover more costs and expected patients to pick up the remainder.

In 1974, Congress passed a law stating that all state health agencies must approve any given hospital’s proposal to expand their facilities or invest in costly technology. The idea was that curbing excessive spending from the hospital would lower what patients and insurers had to spend on care. This law was repealed in 1987, which encouraged hospitals to enter into a “medical arms race” to attract patients and prestige (33). This led to an emerging demand for medical consultants.

One of the first consulting firms to step into this expanding market was Deloitte & Touche. Early models for this industry involved hospitals paying Deloitte (or any other consulting firm) a percentage of any revenue that could be directly tied to the implementation of their advice. This proved particularly fruitful for both firms and hospitals with the introduction of “strategic pricing,” which essentially involved changing billing operations.

Hospitals began to fully realize the value of partnering with consultants and began seeking opportunities to strengthen their relationships. This decision was mutual: in 2005, Deloitte hired Tommy Thompson to act as chairman of its global healthcare division. Thompson had previously served under George W. Bush as the Secretary of Health and Human Services, thereby lending Deloitte additional credibility in the industry. With this added legitimacy, hospitals, especially those struggling financially, began flocking to firms like Deloitte to seek assistance in how to boost their reputation in cost-effective ways.

The arrival of consultants turned hospital reimbursement into a “strategic puzzle,” in which every new procedure or investment in additional technology meant continually adjusting prices to maximize profits (34). This meant occasionally trying to work around specific parameters set by an insurer. For example, Medicare has a cost-to-charge ratio that hospitals must meet in order to be available in its network. Firms like Deloitte can research these ratios and advise hospitals to “stop billing for items like gauze rolls, which insurers rarely or never reimbursed, and to boost charges for services like OR time, oxygen therapy, and prescription drugs” (34). This adds a layer to the bureaucratic trend of treating patients as quickly and effectively as possible—it also incentivizes hospitals to try to maximize profits. Therefore, consultants’ advice contributed to hospitals encouraging shorter stays to see more patients and more money. Former Deloitte consultant Kristen Zeff considers this “ethically dubious and not good for patients” (34).

This proved true in the case of Patricia Kaufman, who was required to undergo multiple upper back surgeries for a congenital spine condition. Long Island Jewish Medical Center, the hospital that oversaw her procedures, was also a partner of Deloitte. While Kaufman was pleased with the outcomes of her surgeries and her overall experience at the hospital, she has noticed drastic price fluctuations in her billing. Most recently, she was charged an additional $250,000 because her wound was closed by a plastic surgeon as opposed to a resident. This is an example of strategic billing in action: Deloitte likely encouraged Long Island Jewish Medical Center to outsource this step of Kaufman’s procedure in order to increase the profits they could make off of a fairly routine surgery.

The implementation of the facility fee is another facet of strategic billing. This refers to the charge associated with using a hospital’s rooms and equipment. The facility fee was created in response to certain medical technologies advancing to a point where the outpatient period could be expanded. In other words, hospital visits were getting shorter. Since hospitals used to exclusively charge per day, facility fees were considered a logical evolution of their billing model and are still accepted by major insurers. The nebulous nature of these fees means that they can be abused. There are instances in which hospitals have justified a facility fee based on the total time spent in a given hospital suite without considering how much of that time was spent actually administering a procedure. Similarly, it incentivizes doctors to carry out more procedures within a specific surgical center.

Consultants played a huge role in the corporate restructuring of hospitals. Beginning in the early 2000s, hospitals were pressured to maximize the profitability of all departments. Any department that was deemed wasteful faced the threat of being cut. This meant hospitals diverted resources away from necessary but unprofitable departments such as the emergency room, labor units, dialysis programs, substance abuse treatment programs, and clinics serving low-income areas. Instead, they poured money into what financial reviews suggested would be well utilized. This led to a boom in orthopedics, cardiac care, stroke recovery centers, and cancer treatments.

New medical technology was introduced based on what consultants determined would be most profitable. Rosenthal uses the example of obesity treatment to demonstrate this trend. In the early 2000s, obesity rates in America were skyrocketing. Consultants identified this as a profitable treatment area. As a result, many hospitals began to invest in equipment that could accommodate obese patients. In many cases, the financial returns were well worth the investment.

On the other hand, treatments like dialysis are now largely left to private corporations such as DaVita and Fresenius. Since Medicare will cover the bulk of the cost of these procedures, it is more difficult for hospitals to make significant profits off of them. Patients are still negatively impacted by this privatization. Consultants such as Innovative Health Strategies broker deals between hospitals and for-profit dialysis centers, essentially selling patients for anywhere between $40,000 to $70,000. While firms like Innovative argue that patients can receive better care at these centers, many patients report feeling unsatisfied with their treatment. This is because in order to save money, centers will utilize under-trained technicians instead of nurses.

Residencies, a crucial part of medical school in which a doctor receives their training, have morphed into another source of income for hospitals. One of Medicare’s founding provisions stated that a certain amount of federal and state funds should be used to cover the cost of training doctors. In 2014, most hospitals were given approximately $15 billion a year in government subsidies to fund residency programs. This money was divided between “direct payments” to compensate instructing physicians and “indirect payments” for any “institutional sacrifice[s]” that could hypothetically come from any hiccups in training (43). There is no proof that stays at hospitals with residency programs are any longer than those without. Supervising doctors are classified as “voluntary faculty” and do not usually receive compensation for their time.

Residents provide the bulk of the training to medical students and are usually the ones to greet patients in the ER and perform basic procedures and care. This has effectively classified them as cheap and accessible labor. As of 2013, the price of having residents usually comes out to $134,803, with the federal government covering approximately $100,000 of that total. However, the value of a resident’s labor is double that, equating approximately $232,726. Instating residency programs can prove to be an extremely cost-effective move for a hospital to make, which explains their 20% rise between 2003 and 2012.

Another signifier of this shift is the rise of single rooms. In the past, single rooms were only used for patients who were either immunocompromised or potentially contagious. Within the last 25 years, hospitals have started placing most of their patients in singles. Insurers will not always cover them, so patients are often stuck paying hefty fines for rooms that are not medically necessary. This is reflective of an incentive to divert money into expanding hospitals rather than reducing treatment prices. Despite their prices, single rooms also often lead to higher scores on patient surveys, which can allow hospitals to qualify for additional Medicare subsidies.

These gave hospital executives ample opportunities to raise their own salaries. Many of America’s hospitals are nonprofit and are therefore subjected to certain financial regulations, but CEOs can increase their profits by appointing their own compensation consultants and hand-selecting board members. This means that hospital executives are amongst the highest paid nonprofit workers, with salaries amounting to billions of dollars. This is reflected in the case of the University of Pittsburgh Medical Center (UPMC). The hospital is the city’s largest employer and is renowned internationally, and yet, due to its nonprofit status, it pays next to nothing on property and payroll taxes. This is a leftover precedent from the years prior to the 1960s, in which hospitals followed ethical codes mandating treatment for everyone regardless of their ability to pay. However, as more Americans gained health insurance, the IRS stated that all hospitals that wanted to keep their tax-exempt status must provide “charity care and community benefit” (49). As a result, hospital consultants began working to spend as little as possible while still maintaining these standards. They operate under a very specific structure that keeps them equally as profitable as corporate hospitals.

Ethical duties are the only acts that fall neatly under the designation of charity care and community benefit. Other services are more difficult to classify, and therefore more difficult for the IRS to investigate. On certain occasions, they did not even try. Some hospitals simply “[attached] brochures to their tax returns to illustrate what they were doing,” which the IRS considered an acceptable effort.

The 2010 passage of the ACA ushered in slightly more accountability. A new provision empowered the IRS to request specific records of charitable actions from hospitals. Hospitals now must fill out a Schedule H form, in which they present a specific number for what they spent on unprofitable services. Recent studies demonstrate that these numbers are staggeringly low and suggest that the tax-exempt status should be reconsidered. For example, a survey overseen by the California Nurses Association “concluded that 196 hospitals received $3.3 billion state and federal tax exemptions” while spending just “$1.4 billion on charity care—a gap of 1.9 billion” (50).

The effects of this came to head with a 2013 legal battle between Pittsburgh and UMPC when the city sued the hospital for six years of back taxes and the loss of their tax-exempt status. The decision in this case had the potential to set a new precedent, as hospitals have massive financial power because of their status. They are eligible for tax deductible donations and write tax exempt bonds for expansions. Luke Ravenstahl, the mayor of Pittsburgh at the time, described the situation as one of “the David vs. the Goliath,” with the Goliath being the hospital (49).

Investigations occurring alongside the trial corroborated much of the data from the CNA study. While UMPC unwaveringly stands by the idea that it was a nonprofit deserving of tax exemptions, a large source of its money comes from partnering with foreign billionaires in order to bring its services to other countries. The hospital argued that it spent approximately 11% of its budget on charity care and community benefit but cites nebulous claims of “spur[ring] the economy” (51). As expected, the only specific community benefit listed is offering treatment to Medicare patients. UMPC’s high powered lawyers eventually shut down the case via a federal countersuit alleging that its right to due process had been violated, which led to a judge ruling that the real target of Pittsburgh’s ire should be individual hospitals under the UMPC umbrella. Future disputes were solved with private meetings between both parties.

The American medical field is incredibly profitable for those who can weather it. Enrolling in medical school is incredibly costly, with tuition levels in the hundreds of thousands that leave many students saddled with large amounts of debt. After completing medical school, doctors begin their residencies, which can last for about three to seven years. Residencies are incredibly grueling and can land a student with even more debt should they choose to pursue certain specialty fields. Thus, many full-fledged doctors enter their first careers with debt on their minds. When doctors became privy to the amount of money hospital administrators were making, they became curious as to how they could find the same success.

Prior to the advent of widespread insurance, doctors were predominantly paid out of pocket. Doctors, adhering to ethical codes, would usually charge on a sliding scale depending on a patient’s income. Once people began to have access to insurance through Medicare or their employers, doctors experienced a huge increase in profits, since corporate and federal insurers could cover much more than patients ever had. Insurance payments were determined by what was “usual and customary.” This was easily manipulated based on a variety of factors. In the case of a gallbladder surgery, “‘usual’ was defined as the mean charge of five surgeons and ‘customary’ was defined as the level that insurers would typically reimburse” (60). This established a connection between future payments and current pricing, which led to extreme gaps in fees and coverage between practices.

Medicare tried to address this issue by implementing set amounts of what it would pay, regardless of what a doctor chose to bill. Congress joined the fight in 1986 and recruited Dr. William Hsiao, a Harvard health economist, to calculate the true costs of doctors’ labor. Hsiao’s scale is known as the resource-based relative value scale (RBRVS). It uses relative value units (RVUs), which considers the time a doctor actually spends on a procedure, overhead costs of service, any costs a doctor might incur training to perform a certain service, and any malpractice expenses. This number is then assigned a dollar value. Medicare officially adopted this scale in 1992, and it is frequently used by private insurers as well. However, the RBRVS proved to be a double-edged sword. Since Medicare’s budget is legally capped and must retain neutrality, prices for services are all tied to each other. Dropping the value of one procedure means that another one will rise in its place. This led to doctors being rewarded for the time it takes to learn a procedure instead of “cognitive skills” like identifying the signs of an oncoming stroke (62).

Medicare tasked the management of this new system to the American Medical Association. The Relative Value Scale Update Committee (RVUC) convenes three times a year to alter previously assigned code values in meetings that can prove to be contentious. There is usually tension between insurance companies and doctors, with the former arguing that current codes should be lowered and the latter arguing that they ought to be raised. The AMA’s involvement in this sector is considered dubious. Rosenthal likens their ability to control doctors’ pay to “letting the American Petroleum Institute decide what BP and shell and Exxon Mobil can charge [...] not just for gas, but [...] for wind and solar power as well” (63).

Another cause for concern is that doctors of all specialties get equal votes. This leads to skewed favorability to doctors in smaller, less populated fields that require dedication to learning specific codes. The RUC also values procedures based on whichever existing ones pay the highest, regardless of how closely they are related. Though doctors are some of the highest earners in America, they often balk at Medicare’s attempts to rein them in. There is some animosity between the two, as doctors have considered themselves “under siege” from Medicare due to previous attempts to reduce the amount they would pay them.

Some doctors, finding themselves thwarted by Medicare, have sought additional income elsewhere. Some doctors take advantage of the rise of facility fees to collect extra profits by establishing and/or investing in Ambulatory Service Centers (ASCs). ASCs are incredibly popular amongst patients due to their comfort. Health policy experts also initially approved because they are, in theory, cheaper than hospitals. However, the facility fee complicates this. Medicare often covers a smaller portion of facility fees, so investors in ASCs are able to make more money from this setup. The practice becomes more dubious when considering that doctors can refer patients to their own ASCs for treatments. The government attempted to regulate this practice by forcing doctors to disclose any ownership stake they might have in an ASC, but such statements are frequently relegated to the fine print of any visit-related paperwork.

Physicians that patients do not get to choose, such as emergency medicine doctors and anesthesiologists, are known as no patient contact (NPC) specialists. Patients usually only see them in very specific hospital settings and have no personal or professional relationship with them. Prior to the bureaucratization of hospitals, fees associated with NPC specialists were usually factored into a patient’s overall hospital bill. Beginning in the 1980s, NPC specialists began conducting some of their work in an outpatient setting. This allowed doctors to have more control over their individual pricing but proved difficult for patients who were left with yet another bill to deal with. Eventually, these doctors stopped working with insurers, raising the cost of treatment. Patients do not usually think to look for NPC specialists who are in-network, because they are not always aware that they are operating as a separate entity.

Rosenthal frames this issue by comparing her own experience with that of Olga Baker, a California woman with no medical experience. Rosenthal’s daughter Cara was admitted to a New York City hospital after having a seizure at school. The hospital conducted a scan and found a large tumor. Rosenthal’s neurosurgeon suggested emergency surgery. However, Rosenthal’s experience as a physician drove her to consult her existing network of doctors before agreeing to subject her daughter to this treatment. The neurologists and neurosurgeons that she knew assured her that her daughter could simply receive a scan to determine whether the tumor was malignant, and that brain tumor removal is never considered an emergency. Cara only proceeded with the surgery after multiple doctors reviewed her files and Rosenthal selected a trusted pediatric neurosurgeon. The tumor was benign, and the surgery occurred without issue.

Baker’s experience was radically different. In 2012, Baker’s daughter was diagnosed with brain cancer after being admitted to the ER for a headache. The doctors told Baker that her daughter’s surgery was an emergency, and that they needed to operate right away. However, this surgery was a failure. Baker discovered that the surgeon that had operated on her daughter was an “out of network ‘subcontractor’” with an “exclusive deal with the hospital but no particular expertise in brain tumors (70). Despite this, her insurer was still expected to pay $97,000 in full for the surgery since it was designated as an emergency. This reflects the evolving business relationship between doctors and hospitals.

The government, hoping to stave off this trend, passed a statute in 1986 entitled the Emergency Medical Treatment and Labor Act (EMTALA). EMTALA requires hospitals to accept all patients, regardless of their ability to pay. This law does not extend to physicians. Hospitals were still obligated to provide services, but doctors could seek out patients who needed the costliest care and take advantage of their fears to “up[sell] questionable procedures in a hurry” (71).

As hospitals have grown, doctors are often encouraged to see more patients than they might be able to handle. This created a market for physician extenders, which is a broad term that describes any ancillary professionals that aid in patient care, such as a nurse practitioner or surgical technician. American law requires that they work under the supervision of a practicing MD, despite the fact that they are capable of working independently. This designation gives doctors the excuse to bill for the work ancillaries do on their behalf.

The concept of the physician extender emerged in the 1970s due to concern over a potential doctor shortage. As this was unfolding, combat medics returning from the Vietnam War began searching for opportunities to put their training to good use. This led to the establishment of some of the first physician assistant training programs. In the 1980s, extenders would take on a role similar to a resident. They worked in teaching hospitals and primarily assisted doctors, taught medical students, and aided in surgeries. Since these tasks were done on behalf of a doctor, many physicians started considering these billable hours, thereby setting a new precedent. Many specialist doctors are able to make a base pay in the 200,000s by supervising technicians through a “remote work” setup. Doctors can increase this profit even further by having additional satellite locations run by qualified technicians and can bill patients without ever even physically meeting them.

This can cause patients to get caught up in bitter trade wars between physicians and extenders. This is particularly predominant in the field of anesthesiology. Many routine practices necessitating anesthesia can be done quickly by nurse-anesthetists, who then usually spend the bulk of their days monitoring patients who are under sedation. Nurse-anesthetists argue that they are entitled to a bigger piece of the pie, since anesthesiologists are often compensated generously for “monitoring” multiple rooms at a time. Medicare briefly ruled that anesthesiologists could monitor no more than four operating rooms at once but dropped it after medical interest groups lobbied for its removal. After that, they tried to instate a 50/50 split between both parties, but this proportion was altered. Many private insurers do not even check these bills. This enables a nurse to make approximately $150,000 while a “ghost doctor” makes an additional $500,000 for the same procedure (74). Some states have begun to allow nurse-anesthetists to run their own practices, but anesthesia societies pushed back, claiming that patients will be unsafe without their oversight. Once again, Medicare attempted to curb this habit, stating that surgeons must be present for all work they bill in their own names. This only applies to “key parts” of a procedure, which offers loopholes.

Prescription drugs have proven to be another arena for doctors to make money. While they are most commonly administered through pharmacists, some of them are given in outpatient settings as injections. As previously discussed, outpatient settings are subject to fewer regulations, hence providing another loophole doctors can capitalize on. Rosenthal uses the example of Lupron to demonstrate this. Lupron is an FDA approved drug that went into circulation in 1985. Its purpose was to treat late-stage prostate exams in men by blocking male hormones produced by the testicles that can exacerbate existing cancerous growths. At the time, it was exclusively a self-administered daily injection into the skin, which many potential patients balked at. Eventually, Lupron was altered to become a monthly drug injected deep into the muscle, thus requiring aid from technicians. This shift proved to attract more patients and be beneficial for doctors. They were given “a new ‘procedure’ to bill for in office, and the chance to make money by charging for the drug” (77).

After other drugmakers moved to make cheaper alternatives for Lupron, its manufacturer, TAP Pharmaceuticals, created a business model where doctors could receive free samples that could be billed at full price. TAP was eventually forced to plead guilty to a “nationwide conspiracy” for the implementation of this plan and was forced to pay an $885 million settlement. Despite this, similar models were used for other intravenous medications such as asthma drug Xolair. The practice of purchasing discounted drugs and administering them at a high markup came to be known as “buy and bill.”

Medicare and private insurers tried and failed to hold doctors accountable for “buy and bill.” After many noted cases of “buy and bill” in the oncology sector, Medicare sought to implement stringent guidelines that defined what exactly oncologists could bill for administering chemotherapy infusions. Medicare stated that in order to bill, doctors must be present for the first 15 minutes of treatment, as there was a correlation between high payments and time spent receiving an infusion. When some doctors tried to slow the infusion process to maintain their profits, Medicare changed regulations to ensure that sessions could only be billed for an hour and a half, with subsequent fees for any encroachment into the next hour. After that, some doctors billed sessions as 91 minutes.

This strategy has remained a mainstay within the medical industry because oftentimes, patients are not privy to the wholesale cost of drugs and reasonable pricing. Even in cases where buy and bill is evident from the standpoint of an insurer, patients might not think to report any wrongdoing until it is too late.

Many patients are offered pricey upgrades for routine surgeries. This is particularly evident in the ophthalmology sector. When Barbara Bennion, an active and healthy woman in her eighties, sought a consultation for cataract surgery, she was given three options to choose from. Her surgeon was insistent that she choose one that involved a laser, which she was told would be the safest. It was a higher price than what Medicare would cover. Even with a good supplemental plan, it would cost over $4,000 per eye.

Bennion’s story is commonplace amongst ophthalmology patients, who have been sold on shiny new technologies to fix any problems. In particular, laser-based treatments have risen in prominence. This is not an entirely negative development—new technologies have made these surgeries more efficient and easier to recover from. Such innovations initially drove down the cost of these procedures. Medicare took note of this and began offering fewer reimbursements for these procedures. Doctors responded by billing privately insured patients at a higher cost, but this did not make up for their loss of income from patients over sixty-five.

Their solution came from adding “upgrades” to surgeries. A notable one was Toric, an asymmetrical, astigmatism-correcting lens that could be custom fit to a patient’s eye. While Medicare usually included the cost of lenses in cataract surgery, as they were a necessary part of recovery, they conceded to pay extra for Toric since they supposedly eschewed the need for glasses post-surgery. Doctors would then buy and bill, purchasing Toric lenses for around $500 and selling them to patients at a significant markup. Another example of an upgrade was femtosecond lasers. Since Medicare normally considered laser surgery incision based and therefore part of the surgery fee, doctors would charge “upgrade fees” to finance their machines.

On April 10, 2014, a study was released stating how much money donors to the American College of Physicians were paid. The results proved that gripes from doctors about being underpaid were misplaced, demonstrating that “thousands of physicians made more than $1 million each from Medicare in 2012 and dozens more than $10 million” (84). Doctors that pursue loopholes in regulations, it seems, are often rewarded for them. Conversely, doctors who try their best to maintain ethical practices outside the realm of commercialization often end up struggling.

Rosenthal does not believe that any significant change will come from the healthcare industry being allowed to play a part in its own regulation. Consumers must push for stronger laws to ensure that they are receiving the care they deserve.