Perhaps doctors were overcharging and making out like bandits while the rest of us suffered. Maybe the unions representing nurses and other hospital workers were so strong that they were driving sky-high prices at hospitals, which I had always thought of as benevolent, nonprofit pillars of our communities. This was something I was particularly inclined to suspect because I’d recently written a book about how the teachers’ unions had made public education so cost-inefficient.
Maybe the reason drugs cost so much was because the process of inventing them is such a crapshoot that research and development expenses really do, as the pharmaceutical companies argue, justify the price tag for the drugs that end up on the market.
Perhaps inflated insurance company profits were the culprit.
Maybe it was all of these factors. Or could it be some combination of them, plus the fact that American healthcare is so much more meticulous and effective that the high cost is simply the product of caring for the sick better than any other country does?
The truth is, I had no idea. But I thought I could find out if I could dissect a bunch of bills, then trace the money back to who got paid what and look at who was making what levels of profit or sustaining what levels of losses.
As those who have read the article or heard about it now know, I found that all my initial suspicions were wrong. By following the money, I discovered that our healthcare prices are out of whack for a reason that was hiding in plain sight — a reason that should be obvious to anyone who has ever been a healthcare consumer, which means all of us: There is no such thing as a free market in healthcare, if one defines a free market as a place where there is some balance of power between the buyer and the seller. Instead, healthcare is — except when Medicare is the buyer — a lopsided seller’s market. That became clear at both ends of the money trails I followed — from the patients’ lack of any knowledge of what they were buying or its prices, much less any leverage to bargain over it, to the sellers’ ability and willingness to charge absurdly high prices on everything from gauze pads to ambulance services to cancer wonder drugs.
To take one example, when I decoded a line in one bill to find that $1.50 was being charged for a generic version of Tylenol, while Amazon sells bottles of 100 for $1.49, the explanation offered by the MD Anderson Cancer Center was that the profit on the pill helped defray the costs of all the other care involved in housing and treating the patient. That seemed logical enough until I found another line item for $1,791 just for each night of the patient’s stay, along with dozens of other ridiculously high charges for everything from blood tests to cotton swabs. But the best evidence — what allowed for a final verdict — was found at the bottom line, in the financial report the hospital has to file with the government every year. The revered nonprofit Houston cancer center had an operating profit of $531 million — an astounding 26 percent margin. That certainly meant they could have thrown in the Tylenol with the $1,791 room charge.
When I followed the money trail behind the drugs, medical devices, or CT scan equipment that the patients or their insurance companies were billed for, the profit margins for the hospitals that supplied them, as high as they were, were eclipsed by the margins of the manufacturers that sold them to the hospitals. In the case of the drug companies, their research and development costs, it turned out when their securities filings were examined, were not nearly high enough to justify prices whose only real justification seemed to be that in the United States, unlike other developed countries that control drug prices, they can charge whatever they want because their patents give them a legal monopoly.