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By January 24, 2022June 10th, 2024No Comments

Chapter 3 of Butchered by “Healthcare,” available on

Cui Bono, the Latin phrase meaning “who benefits,” says the motive for an act or event likely lies with the person who has something to gain.

Healthcare costs started growing nearly exponentially when social support programs and private insurance fueled it in the 1960s. US costs are now $4 trillion (2020), almost a fifth of our gross domestic product (GDP), and twice what other developed countries are paying per capita.

Our medical sector spends more than the total revenues of banking ($477 billion), oil and gas ($181 billion), and military ($600-800 billion). We spend more on healthcare than the next ten countries combined—more than France, Spain, China, Japan, Brazil, Germany, Italy, Canada, Australia, and the United Kingdom. Wealthy Singapore pays only a mid-single-figure percent of its GDP, and many others spend about ten percent.

Could the rest of the world be missing out? Are there advantages of more pills, surgeries, and doctor care? How is it even possible to spend this much money? Our academics know the answer: excess healthcare makes providers money but is a net harm for patients.

All that spending attracted scammers and entrepreneurs, and they have pursued profits at the expense of patients. As a result, half of medical care is now ineffective, of unknown effectiveness, or harmful. Americans are less healthy and die sooner than people in other developed countries. Our average life expectancy is only 43rd in the world.

The excess spending damages our economy. Warren Buffett said healthcare is “The tapeworm of the American economy… the number 1 problem of America and of American business.” Economist Peter Orszag agrees: “The United States’ standing in the world depends on its success in constraining this healthcare cost explosion; unless it does, the country will eventually face a severe fiscal crisis or a crippling inability to invest in other areas.”


Note: Insurance companies, government, and corporate employers are “third-party payers.” The first and second “parties” are the providers and the patients, who respectively give and receive care.

Step one: Easy money from insurance and government led to a gold rush. Insurance companies administrate nearly the entire circus, producing astounding waste. These corporations skim off roughly 20 percent of all healthcare revenue (they oversee Medicare also) for their profits, lobbying, overhead, advertising, investor dividends, interior decorating, and stratospheric executive salaries. The remaining 80 percent goes to hospitals, doctors, and other providers so they can perform patient care. This is the “Medical Loss Ratio.”

As a benchmark, in 2011, the Affordable Care Act (ACA) mandated these insurance expenses must be less than 20 percent. The insurance industry lobbied ferociously for more. The ACA does not apply to companies that self-fund healthcare coverage, where the percentage eaten by the insurance administration may be much higher. For example, in 2010, the Texas Blue Cross and Blue Shield expenses were 36 percent before they paid out anything for patients. Some say Medicare has held its insurance administration close to 10 percent, but this is disputed, and others claim the costs per person are even higher than for private insurance. Elisabeth Rosenthal, in An American Sickness (2017), wrote that insurance administration costs now average 20 percent.

After insurance grabs its share, before anything goes for patient care, providers spend another 15 to 30 percent on their own internal profits, billing, advertising, and administrative costs. To distribute all the money, a costly appendage of codes, billing specialists, and supporting infrastructure grew up.

This system produces astronomical expenses. A 2020 study in Annals of Internal Medicine by David Himmelstein claims that in 2017, the total overhead was 31 percent. A NY Times (2018) estimate by Austin Frakt was 30 percent. But given the complexity and the figures above, these estimates must be low.

Worse, ineffective services and outright frauds account for at least half of all medical care costs. We barely recognize these, so we do not count them as overhead.

When someone else pays, patients see it as a gift and devalue it. When someone else pays, doctors have no qualms about recommending the most expensive options—which are often the most profitable for them. When someone else pays, useless but lucrative tests and treatments become commonplace because there is no incentive to be sensible.

The result is that self-styled providers spend recklessly in a dysfunctional, pseudo-capitalistic gold-rush. Nursing homes, device manufacturers, hospital executives, and big pharmaceutical firms are all at the feeding trough with the doctors. Care-givers and patients alike act as if they were at a buffet, eating until they get sick. This is free enterprise combined with remote payment: a large-scale, uniquely American disaster. It creates a savage cycle of escalating costs and declining standards.

Insurance companies waste much of their effort trying to keep rapacious providers from gulping down the whole pie. They must play games, such as arbitrarily switching billing codes or denying payments. Physicians in private practice who do not study the continually shifting reimbursement schemes make little money. Others who spend more time on billing than medical education make millions.

Higher and higher taxes and premiums pass the costs through to the rest of us. The system does not reward insurance companies to limit expenses because their share is a big slice right off of the top.

Step two: All that money caused corruption. The insurance system was conceived in good faith to supply vital care. But the gargantuan fountain of tax and insurance loot cannot be monitored.

Third-party payment combined with free-market profits encourages overuse of anything a provider can stick a bill on. Everyone is compensated by piecemeal and submits separate, competing charges, resulting in a frenzy of exaggerated and fraudulent invoices. The system allows payment for any covered medical treatment, so there is no upper limit on the total.

Since severe illnesses justify more reimbursement, hospitals and doctors do unnecessary lab tests and x-rays under the pretext that they suspect dangerous conditions. These create more bills and support invoices for extensive evaluations. Complicated, expensive treatments follow, which doctors order even if they are ineffective or damaging. Agatha Christie said, “When large sums of money are involved, it is advisable to trust nobody.” She might have added, “Not even your doctor or hospital.”

The Center for Responsive Politics reports that this industry, including doctors, spent $5.36 billion from 1998 to 2006 on Congressional lobbying. It was far more than the combined spending of defense and aerospace ($1.53 billion), plus oil and natural gas interests ($1.3 billion) during the same period.

These industries have promotional budgets like this because their money came from government payments, subsidies, or tax breaks—ultimately, the taxpayers. All of us fund this lobbying.

As I uncovered story after story of physicians’ and industry’s ethical perversions, I understood Cicero’s maxim: “Nothing is so strongly fortified that it cannot be taken with money.” Business people understand this, but physicians, who are trained more like academics, are able to pretend their behavior is kosher.

Step three: Ever since profit became the primary goal, patient welfare is neglected, and half of our care became ineffective or harmful. This is the worst of the three, but it is almost unrecognized.

A Scientific American article (2011) describes the failure: “We could accurately say, ‘Half of what physicians do is wrong,’ or ‘Less than 20 percent of what physicians do has solid research to support it.’ Although these claims sound absurd, they are solidly supported by research that is largely agreed upon by experts. Yet these claims are rarely discussed publicly. It would be political suicide…”

The British Medical Journal Clinical Evidence survey found that only 35 percent of 3000 medical practices were effective, 15 percent were damaging, and 50 percent of unknown usefulness. Other sources roughly agree, including Vinay Prasad (academic oncologist/epidemiologist at UCSF), the Robert Woods Johnson Foundation, and the Institute of Medicine.

The Congressional Budget Office estimates 30 percent of medical care is unnecessary. Other authorities using the “Milliman Health Waste Calculator” say useless therapeutic activities are 48 percent. John Ioannidis, MD, the Stanford statistician, asks, “How many contemporary medical practices are worse than doing nothing or doing less?” and concludes there has been a “decade of reversal” in therapies.

I once thought the system put patients first. But I learned the brutal reality—almost everyone puts money first. The medical companies saw our blend of capitalism, insurance, and financial support for the needy and moved in.

These corporations routinely buy their way out of colossal criminal accusations by paying fines up to hundreds of millions or even billions of dollars. A lot of what they do would be illegal or unethical for people, but it is within the letter of the law for corporations.

The following chapters tell the mind-bending tale of doctors, hospitals, and pharmaceutical and device companies heedlessly chasing trillions of dollars. It happened in an industry led by doctors, considered by many the best-trained, most ethical, and most intellectual group in America.

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