Book SummaryAn American Sickness, by Elisabeth Rosenthal

1-Page Summary1-Page Book Summary of An American Sickness

It’s commonly known that US healthcare costs 18% of the country’s GDP, or $3 trillion a year. Overall health outcomes are mediocre compared to other developed countries, which generally spend half of that amount per person.

Despite the high amounts we spend on healthcare, it’s never quite clear what we’re paying for, because the billing practices are incomprehensible. It’s especially bad when compared to other things we’re used to paying for.

And it’s not clear why things cost so much. Why does getting a few stitches in an ER cost $5,000? Why does a pill of Tylenol in the hospital cost $55?

In summary, US healthcare is a dysfunctional market. The normal economic laws of supply and demand, and of competition and pricing, are not operating here.

The author presents ten rules of this distorted market:

1. Always opt for more treatment. Choose the most expensive option that’s available.
2. Being treated for a disease over a lifetime is better than a one-time cure.
3. For hospitals and providers, providing good care is less important than good amenities and marketing.
4. Over time, as a technology ages, the treatment can get more expensive rather than cheaper.
5. There is little competition in the market. Patients have little choice in what providers they can go to.
6. Having more competitors doesn’t mean lower prices. In healthcare, more competitors can actually drive prices up.
7. Large providers don’t use their economies of scale to lower costs and prices. Instead, they simply take advantage of their local monopoly to demand more.
8. There are no fixed prices for medical procedures or tests.
9. Billing practices are out of control. Providers will bill for anything they possibly can.
10. Vendors will charge the maximum prices the market will bear.

The Basics of Healthcare and Incentives

The major blocs in healthcare are:

• Providers/vendors: they provide medical care and get reimbursed by insurers.
  • Hospitals
  • Doctors
  • Pharmaceuticals
  • Medical devices
• Insurers (eg Blue Cross): they receive premiums and pay vendors for healthcare
• Employers: in the US, they are the major payers to insurers
• Patients: people who receive medical care

Each bloc has opposing interests:

• Providers want to get paid more for doing less work.
• Insurers want to get paid more premiums and pay less in medical care.
• Employers want to pay lower premiums and get happier employees.
• Patients want to pay less and get more healthcare and flexibility.

No matter how the incentives are set, participants in healthcare will generally exploit the incentives to their maximum. And if the incentives don’t align with quality and cost-effectiveness, you don’t get quality and cost-effectiveness.

This profit-seeking behavior manifests across all stakeholders:

• Hospitals and doctors bill for everything they can possibly get reimbursed for. They push for higher-cost care and the most expensive technology, despite lacking proof of better outcomes.
• Doctors get paid according to procedure time and complication (RVUs), without consideration of cost efficiency or outcome. Furthermore, they lobby to protect their own responsibilities, such as limiting the prescription power of pharmacists, and to cap the number of medical residents trained per year.
• Pharmaceutical companies extend patent lifespans through several strategies (discussed in the full summary). They restrict competition with generics by gaming prescribing law.
• Insurers push higher costs into premiums, co-pays, and deductibles for employers and patients.
• Patients don’t directly pay for care, so they often push for the higher-priced, more technologically advanced option.
• Even non-profit disease foundations are funded by pharma and invest in startups. A diabetes foundation may own shares in a company that produces a diabetes treatment, thus complicating its incentives to push for...

An American Sickness Summary Introduction

It’s commonly known that US healthcare costs 18% of the country’s GDP, or $3 trillion a year. Overall health outcomes are mediocre compared to other developed countries, which generally spend half of that amount per person.

Despite the high amounts we spend on healthcare, it’s never quite clear what we’re paying for, because the billing practices are incomprehensible. It’s especially bad when compared to other things we’re used to paying for.

For example, in healthcare, multiple doctors send separate bills with huge amounts, then insurance pays a fraction of the amounts. What if you took a flight and got separate bills from the airline, the pilot, and the flight attendants?

Further, the price for the same procedure costs different amounts depending on where it’s done, who’s doing it, and what insurer you have. What if you paid twice as much for a Toyota Camry in New Jersey as for one in California?

And it’s not clear why things cost so much. Why does getting a few stitches in an ER cost $5,000?

This book is an attempt to answer these questions. Over time, the healthcare market has become dysfunctional. The author presents **ten...

An American Sickness Summary Part I: History | Chapter 1: Problems with Insurance

The first and major part of An American Sickness covers the major segments and industries of healthcare. Each chapter contains a history of the industry and how well-meaning policies turned into current perverse incentives.

History of Health Insurance in the US

In the late 1800s, healthcare was unscientific and ineffective. Diseases took a long time to recover from, and people paid for their own healthcare. Health insurance as we know it today didn’t really exist.

The earliest health insurance policies compensated people for income lost while they were sick. Some employers also paid for doctors to be on retainer to care for employees, since long illness absences were a problem.

In the 1920s, Baylor University Medical Center offered a local teachers’ union a catastrophic health plan for $6 per year per person. This included a 21-day stay in the hospital after a deductible of a week. A day in the hospital cost just $5/day, or $105 in today’s dollars. This plan became popular, signing 3 million insured by 1939, and led to the non-profit Blue Cross Plans.

In the 1930s, medical technology improved. Anesthesia, [restricted term], and ventilators were discovered. This...

An American Sickness Summary Chapter 2: Problems with Hospitals

Hospital costs have grown faster than other segments of healthcare, growing 149% from 1997 to 2012, compared to 55% for physician services.

Today, 10-15% of hospital revenue goes to billing administrators and claims processing. In today’s system, it costs a lot to get paid.

A Brief History of Hospitals

Many hospitals began with religious roots (hence the many hospitals with the name Baptist or Presbyterian). They had general social good as their mission.

In the 20th century, health insurance coverage broadened. In the 1960s, Medicare arrived and covered hospital payments. In 1980, 80% of Americans under 65 were covered by insurance.

At this time, reimbursement was generally fee-for-service. Providers charged as much as they could, and insurers generally paid it out. From 1967 to 1983, Medicare payments to hospitals increased from $3 to $37 billion.

With more money rolling in, hospitals hired administrators, who helped steer the organization toward financial performance. Physicians were influenced to focus on more profitable care, told what procedures to perform, given bonuses scaling with revenue they brought in, compared publicly to other doctors...

An American Sickness Summary Chapter 3: Problems with Physicians

Physicians take care of patients, but they’re no less concerned with boosting their own pay as the other members of the ecosystem. As we’ll learn, doctors bill in ways to maximize their pay.

Primary care physicians in the United States make 40% more than Germans; orthopedic surgeons make 100% more.

An Aggrieved Profession

Part of the problem may be medical school debt. In the United States, medical school costs between $120k to $220k (with state schools at the lower range and private schools at the higher range), while it’s free or cheap in many other countries. Medical students graduate with a mean debt of $170k, some of it from undergrad.

The author argues that this debt burden pushes some students into more lucrative specialties, like dermatology and ophthalmology, rather than what they would naturally prefer to practice.

But all this pay may not be enough. One medical student comments that doctors feel a “bizarre martyr complex” where they feel they’re working harder for less money than the rest of America. The author argues this is a symptom of the corporatization of healthcare—doctors are getting less satisfaction from patient care, so they’re...

An American Sickness Summary Chapter 4: Problems with Pharmaceuticals

History of Pharma

Here’s an abbreviated history of pharmaceutical companies in the US:

• 1906: The Wiley Act gave the US Bureau of Chemistry regulation power over drug safety. Since few medicines did anything of note, the focus was on preventing harm.
• 1937: [restricted term] (an antibiotic for strep throat) was mixed with diethylene glycol and killed 100+ people. This prompted...
• 1938: The Food Drug and Cosmetic Act required testing before drugs could be marketed, and it prohibited false therapeutic claims.
• 1960: The anti-nausea medication [restricted term] was given to pregnant women, but it caused birth defects in over 10,000 children in Europe with only 50% surviving. This tragedy led to...
• 1962: The FDA now enforced methods for clinical testing and required medicines to be proven “safe and effective” beyond placebo.
  • Importantly, concerns about relative value were not addressed here—there was no need to be “safe and effective beyond existing drugs” or to be cost-effective.
• 1984: Drug companies complain that the drug approval process takes time away from the 20-year patent protection...

An American Sickness Summary Chapter 5: Problems with Medical Devices

The medical device industry is dominated by a few major players: Medtronic, St. Jude Medical, Boston Scientific, Stryker, and Zimmer Biomet. Like other segments of healthcare, they have consolidated over time.

Brief History of Medical Devices

Many device makers began in hardware or consumer electronics. Medtronic started in 1949 as a medical equipment repair shop

In 1969, surgeon Denton Cooley implanted the first artificial heart in a patient for 3 days without FDA approval.

In 1976, the FDA defined three classes of devices that need different levels of approval.

• Class 1: These cause little risk and deserve little scrutiny, like tongue depressors.
• Class 3: These are life-sustaining or potentially life-threatening, thus requiring extensive testing. This includes pacemakers.
• Class 2 is in between, and it’s governed by a program called 510(k)

The scrutiny in class 2 is so much lower that most devices are submitted under this designation, including devices you might consider to be potentially life-threatening such as joint replacements and surgery clips. Class 2 applications outnumber class 3 by 60 times.

Class 2...

An American Sickness Summary Chapter 6: Problems with Testing and Ancillary Services

As payers tightened up their spending, providers looked for other ways to increase billing. One opportunity came in testing and ancillary services, where they restructured the business models to better profit. The doctor, hospital, and staff all benefit from increased testing.

Medical Testing

Tests done in hospitals are more expensive than those at third-party labs (eg Quest). However, as a patient, you often don’t get the choice of where to send your tests, and the options aren’t often clear.

Testing in general in the United States has inflated pricing. An MRI costs $160 in Japan. It costs $3500 in a US hospital.

The incentives to increase billing for testing trickle down to doctors, who get rewarded through bonuses for billing. Hospitals are complicit. One doctor ordered EEGs for kids to detect undiagnosed seizures, until most patients turned out not to have seizures at all.

Increasing Testing Count

The more tests a doctor orders, the more she can bill. This has changed medical practice to heighten the testing done:

• Physician extenders can order tests before the patients see doctors. They are also more likely to order tests...

An American Sickness Summary Chapter 7: Problems with Contractors

Billing codes have gotten so complex that both insurers and providers have outsourced claims to third-party contractors. They help handle billing, coding, and collections, and they often get paid a percentage of the billing they obtain.

Brief History of Billing

Disease codes were first used for epidemiological purposes. The WHO created the ICD to formalize the classification of conditions.

In 1979, the US used ICD codes for Medicare/Medicaid claims, creating their own version of ICD, the ICD-CM.

Getting a code for a condition is a big deal, because it becomes classified as a formal disease, and it obligates insurers to pay for it. Obesity got its code in 2013.

Three types of billing codes are now prevalent: CPT, HCPCS, and ICD.

Because medicine advances quickly, codes often change. This has spawned an industry dedicated to billing codes, with contractors arising both to help providers bill for more and to help insurers pay less.

How Codes Help Billing

The key to maximizing billing is to understand that different billing codes have different prices.

• The code for “acute systolic heart failure” pays...

An American Sickness Summary Chapter 8: Problems with Research and Non-Profits

According to An American Sickness, medicine’s history began with more moral ambitions and less profit motive.

• In the early 1920s, scientist Frederick Banting isolated [restricted term] and licensed the patent for only $1 “as a gift to humanity.”
• In the mid-1900s, the March of Dimes raised money for polio vaccines without trying to profit from each inoculation.
• Blue Cross Blue Shield began as a nonprofit.

A massive change happened when the Cystic Fibrosis Foundation (CFF) sold its rights to drug royalties for $3.3 billion. In 2000, the CFF invested in Aurora Biosciences, which was then acquired by Vertex Pharmaceuticals. The company released a new drug [restricted term], which was FDA approved in 2012 and cost $300,000 per year. Two years later, the CFF cashed in its rights to drug royalties and received over $3 billion.

This provoked non-profit organizations to embrace a new business model: “venture philanthropy.” They now invest in pharma and device companies expecting to earn a financial profit. For example, the Juvenile Diabetes Research Fund invested $17 million in Medtronic for a glucose sensor, invested another $4.3 million in BD, and formed a new...

An American Sickness Summary Chapter 9: Problems with Conglomerates

Healthcare systems in local regions have consolidated to provide negotiating power against employers and insurers.

Say you’re the only major medical provider in town—you might have literally the only maternity ward in the region. The local patient population needs access to you. Therefore, employers have to buy insurance that provides you in-network. Therefore, insurers have to meet your demands, especially around pricing, to sign you.

The pricing effect is real—studies show that hospital mergers in concentrated markets cause prices to increase by over 20%. Low-competition areas show symptoms of higher premiums, higher medical prices, and possibly suboptimal care and overtreatment

Counter-intuitively, the prices may not be lowered with competition. The large players might set a high price, which emboldens smaller players to raise the prices as well. This is just one way that the healthcare market is dysfunctional, compared to the idealized economics free market.

The Advantages of Large

Large health systems span a huge range of services and consist of hospitals, ambulatory care clinics, nursing...

An American Sickness Summary Chapter 11: Problems with the Affordable Care Act

(Shortform note: If you’ve noticed we’ve skipped Chapter 10, that’s because it’s about healthcare as a business, and we’ve integrated its points into previous chapters.)

One of Obama’s hallmark achievements was passing the Affordable Care Act. While it made good progress in some areas, it ultimately fell very far from its original sweeping vision. Here’s a discussion of its achievements and its pitfalls.

Achievements of the Affordable Care Act

Here’s how the Affordable Care Act succeeded:

• It barred insurers from denying coverage to people with preexisting conditions.
• It banned lifetime limits on insurance payouts.
• It defined essential health benefits that insurers had to cover, like maternity care and screening procedures
• It allowed adult children to stay on family health insurance until age 26.
• It capped annual out-of-pocket spending per person (to around $7,000) as long as the patient stayed in-network. The aim was to limit bankruptcy...

Shortform Exercise: Reflect On Your Healthcare

Now that you understand the healthcare system more, reflect on problems you’ve personally encountered.

What are some grievances or complaints you’ve had about the healthcare you’ve received?

An American Sickness Summary Part II: Treatment | Chapter 12: Healthcare Systems

Now that you understand why and how American healthcare is so dysfunctional, what can you do about it?

Part II of An American Sickness discusses steps you can take to improve your personal healthcare and possibly make a dent in the American healthcare system. Each following chapter contains 1) practical tips on how to make medicine personally better for you, and 2) legal reforms that, if passed, would lead to more systemic change.

Healthcare Systems in Other Countries

This chapter describes healthcare systems in other developed countries, ranging in the degree of government intervention. Generally, they show better quality for lower cost compared to the US healthcare system.

National fee schedules and price negotiations

What it is: National governments set fees for health services and negotiate prices with vendors.

Where: In Germany, Japan, Belgium

Benefits:

• This lower prices through large national negotiating leverage. As an example, a...

An American Sickness Summary Chapter 13: What to Do About Doctors’ Bills

What You Can Start Doing Now

• Ask questions about what the care will cost you, before you make your decision.
• Questions to ask a new doctor
  • Is the practice a surgery center or owned by a hospital? Will facility fees be charged?
  • Will you refer me only to providers in my insurance network?
  • Can you send my testing to an in-network lab?
  • What extra fees are there? Phone calls, annual fees?
  • Will you see me in the hospital if I’m hospitalized? Can I reach you on weekends?
• Questions to ask during a visit
  • How much will this treatment cost? Then when you get home, search online for a ballpark range for your local area.
  • How will this test/exam/surgery change my treatment?
    • If there’s no reasonable justification, pass on treatment.
  • Where will this test/exam/surgery be performed, and how does that affect the price?
    • Are you an owner of the place you’re referring me to?
  • ...

An American Sickness Summary Chapter 14: What to Do About Hospital Bills

What You Can Start Doing Now

• Vet the hospital. Use these sources of information:
  • US News & World Report
  • Leapfrog Group on patient safety
  • Medicare’s Hospital Compare program
  • The New York Times’ Medicare payment database
  • Look at the hospital’s IRS Form 990, the required financial reporting form for non-profits. See if they’re a hospital that compensates executives highly or earns large profits.
• As a patient in the hospital
  • When admitted, you’ll be asked to accept financial responsibility for charges not covered by your insurer. Write in “as long as the providers are in my insurance network.”
  • If you’re put in a private room, ask “will insurance cover this private room, or will there be a supplement fee?” If there is a fee, ask how much it is, then consider asking for a shared room with no fee.
  • If staying in the hospital, ask if you are being admitted or held under observation.
    • If you’re under observation, you’ll be classified as an outpatient, which means higher...

An American Sickness Summary Chapter 15: What to Do About Insurance Costs

What You Can Start Doing Now

• Look at all the costs of insurance.
  • Premiums
    • Figure out what % you have to cover. If it’s deducted automatically from your paycheck, you don’t feel the full extent of the cost.
  • Deductibles
    • Are these calculated per person or for the whole family?
    • Are there separate deductibles for in-network vs out-of-network care?
  • Co-pays
    • These are now often a % of the bill.
    • For doctors, are the copays different for generalists vs specialists?
    • For medicine, does the co-pay differ depending on whether it’s in the formulary or not?
  • Out-of-pocket maximum
    • Does this include drug costs?
    • Will you be asked for co-pays even after meeting this number?
  • Find the insurance with the lowest total cost for your typical needs.
• Choose between networks.
  • Work backwards from your goals to choose the best option.
    • Which doctors do you currently see and want to keep?
    • Will your child go to college out of state - and will your insurance cover her?
    • Which conditions are you most afraid of, and...

An American Sickness Summary Chapter 16: What to Do About Drug and Device Costs

According to An American Sickness, many Americans don’t fill prescriptions because of cost. Why? It’s difficult to do price comparisons, prices can change from month to month, and, depending on your insurance, it’s unclear what things will cost.

What You Can Start Doing Now

• Find good substitutes for your medicines.
  • Avoid fancy formulations without clear benefit. This includes combinations of two generic medicines (like [restricted term]), extended-release tablets, and creams.
  • Get different doses that are cheaper, then change the number of pills you take. For example, you can get a double dose pill and cut pills in half.
• Shop at GoodRx.com for out-of-pocket cash prices of medicine. It may actually be cheaper than your copay.
  • You are not required to use your insurance to buy medicine, despite what they tell you.
  • GoodRx also has a Medicare drug pricing tool. Unfortunately, it has no private insurance cost data, because commercial insurers consider pricing data to be proprietary information.
• Consider buying medicine outside the US. This is technically against the law, but rarely prosecuted.
  • Refill prescribed...