The United States is “the most expensive place in the world to get sick.”1 Why? One big reason is that providers routinely game the payment system. Drug companies are experts at this. Chapter 1 describes how they first gain strangleholds on supply. Chapter 2 describes how they then charge whatever they want, knowing the payment system imposes no restraint on prices. Chapter 3 shows that shady conduct occurs at every point in the drug distribution chain and often involves the willing participation of pharmacists and physicians who profit by exploiting existing payment arrangements. It is easy to see why spending on prescription drugs, new and old, has gone through the roof.
Doctors game the payment system too. As Chapters 4 and 5 show, they deliver an ocean of services that patients don’t need, such as excessive numbers of stents and cesarean deliveries. Chapter 6 describes how doctors regularly perform treatments that haven’t been proven to work, many of which are found to be ineffective or harmful when they are finally studied with care.
Chapter 7 explains how public officials get in on the action. In return for sizable campaign contributions from health care providers and their lobbyists, they let the flow of cash into the health care sector continue and look for ways to increase it. When the campaign contributions are large enough, elected officials even go to bat for corrupt providers who face fraud investigations.
Some hospitals and doctors aren’t satisfied with excess payments for garden-variety overuse and unnecessary care, and they turn to a life of crime—or at least abuse. Chapter 8 explains how hospitals “upcode” treatments, invent secondary conditions that patients don’t have, and concoct phony bills. Chapter 9 shows how hospitals also conspire with doctors to maximize their revenues by capturing differences in payments based on the site of service, tacking on absurd charges, and gouging patients who are uninsured or treated by out-of-network physicians at their facilities. Chapter 10 describes how hospices, nursing homes, and home health care services play similar games and frequently charge for services that were never delivered.
Chapter 11 shows how some doctors operate pill mills that supply the street with dangerous drugs—likely contributing to the rising death toll from overuse of prescription narcotics. Ambulance companies and durable medical equipment suppliers cheat the system regularly too, as do domestic and international criminal gangs. As Chapter 12 explains, there are far too many malefactors for the police to catch. For every one police put away, two more pop up. That is why the same types of fraud succeed again and again and again.
Chapter 13 explains that the quality of health care is often dangerously low because the payment system pays providers regardless of how well or poorly their patients fare. In fact, it often doles out more money to providers when patients experience complications than when they get well. Chapter 14 explains how incumbent health care providers have stifled competition so successfully that the government has to pay them extra to improve. In other industries, competition forces existing business to bear the costs of improving their products.
Although there have been repeated attempts to address these problems, all have failed because they have not changed the core incentives driving the system. We address that problem in Part 2.