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

Dr. Denise Faustman, a tenured professor at Harvard Medical School, has been researching type 1 diabetes since the late 1980s. After several setbacks, she eventually discovered a drug that could stimulate the body’s natural insulin production. Best of all, it was already on the market: Bacillus Calmette-Guérin (BCG), an old, generic tuberculosis vaccine whose safety was long established. Her research was met with excitement from the academic community, but pharmaceutical companies declined to sponsor human trials for her cure because it would not be profitable and would kill a variety of treatments and devices that keep the industry afloat. Diabetes, after all, is an expensive disease to have, requiring a host of drugs and medical devices. Undeterred, she sought out philanthropy groups, who rejected her as well. This is because these groups have redefined their purpose and began directing their efforts to becoming “investors in new treatments” (184). Faustman was forced to crowdfund her research, which finally began in 2015.

The original patent for insulin was filed in the early 1920s by a research team led by Frederick Banting. Banting licensed the original patent for one dollar, considering it his “gift to humanity” (184). His work is what made type 1 diabetes a survivable disease. This led to the foundation of charitable foundations that catered to research for a specific disease, such as The March of Dimes, which covered the majority of the development costs for the polio vaccine. Many foundations tried to distance themselves from the pharmaceutical industry when it began veering blatantly towards the pursuit of profit. However, both parties conveniently found common ground once pharmaceutical companies began offering corporate money.

Rosenthal noticed the effect of pharmaceutical pursuit of profit when visiting the Children with Diabetes Foundation’s Friends for Life meeting, which is held at Disney World in Orlando, Florida. Attending children are able to participate in an exhibition where they write their wish for the future of diabetes. Though the most common answer is “a cure,” the conference is often sponsored by corporations focused on peddling treatment options and supplies. The cure is closer than many of these children know, but it is out of their hands.

Venture philanthropy refers to a new business model many foundations have adopted in recent years. This entails “investing money in drug[s], device[s], and biotech companies with the expectation of financial return” (187). This essentially gives foundations the opportunity to reap the benefits of corporate profits while keeping their charitable reputation intact. The Cystic Fibrosis Foundation (CFF) was the first charity to adopt this model after they received an unexpected $3.3 billion from previous investments in a biotech firm. They invested some of this money into Vertex Pharmaceuticals, which then produced Kalydeco, the first mainstream drug that could treat cystic fibrosis. However, due to its effectiveness and rarity, Vertex priced this drug at $300,000 per year, a decision experts called “unconscionable” (187). As the CFF received royalties from sales of this drug, their leadership denounced the price but did not move to stabilize it. This allowed Vertex to develop subsequent drugs and continue perpetuating this cycle.

The partnership between the CFF and Vertex led to many nonprofits seeking out executives with business expertise that could help them adopt this model. One key change that these new entrepreneurial leadership boards made was to prioritize treatment as much as research. This would allow them to continue investing in treatments and reaping the benefit of royalties. One doctor cynically described the situation with an analogy, stating “If the March of Dimes was operating according to today’s foundation models, we’d have iron lungs in five different colors controlled by iPhone apps, but we wouldn’t have a cheap polio vaccine” (189).

These philanthropic organizations manage their money through questionable means. The American Board of Internal Medicine (ABIM) is an offshoot of a nonprofit group who works to certify medical doctors. Despite being relatively unglamorous, they declared $58 million in revenue in 2015. Tax records show that much of their revenue goes to the ABIM Foundation; a secondary nonprofit created to promote “medical professionalism.” ABIM nonprofits are also registered as being located in Iowa, despite having property in Pennsylvania. Secondary nonprofits are common, but sometimes they have the appearance of being no more than “outposts for vanity projects or just places to keep cash” (193).

The ABIM foundation has a luxury condo in Philadelphia, which was given official purposes on paper, such as hosting meetings. Over the years, ABIM has increased its testing requirements and requires occasional re-certification. Many doctors have pulled support from the organization, citing concerns over where exactly their finances were going. However, ABIM is hard to escape, as participating in their program gives doctors the opportunity to receive additional Medicare payments.

Dr. Christopher Dibble, a New York cardiologist, says that programs cost thousands of dollars, but that Medicare will not accept other options. He believes it is a “conflict of interest” and “feels like extortion” (194). Eventually, ABIM was investigated by Charles Kroll, a forensic accountant, who discovered they were actually drowning in debt. It had resorted to operating a Ponzi scheme-esque plan, in which it would continue adding evaluation courses and increasing their fees in hopes of eventually breaking even.

The emergence of specialty medical groups focused on specific fields has dwarfed the popularity of the American Medical Association, a well-established nonprofit. These groups are fundraising powerhouses and work decisively to represent their special interests in Congress, which has led the medical industry to become “the country’s biggest lobbying force, spending nearly half a billion dollars each year” (198). Specialty medical groups often form PACs (political action committees) that politicians are desperate to court. On paper, these groups work “toward the betterment of business conditions for a particular trade or community” (198). They have worked to unseat the pharmaceutical industry as a whole as the primary political force in the medical industry. However, this has led to some PACs advocating for their sector’s monetary interests. Their influence is particularly noticeable in the case of a proposed bill that failed the Illinois State Senate. If passed, this 2012 bill would have required doctors to tell patients whether they were in-network before administering treatment. It failed after the Illinois State Medical Society recruited doctors to testify that this disclosure could lead to care delays and harm patients.

However, the real harm to patients comes from doctors willing to exploit medical guidelines for profit. This is what Dr. Scott Norton learned after observing an evaluation for Mohs surgery, an expensive dermatology surgery that removes benign skin tumors. Medicare identified it as a procedure with the highest likelihood of being marked with improper CPT codes. Mohs surgery increased in popularity amongst Medicare patients despite no proof that it was more effective than other cheaper procedures. When Dr. Norton was asked to sit on a panel that was tasked with deciding when Mohs surgery was in a patient’s best interest, he noticed that “the questions and methodology were designed to capture the largest range and the biggest market” (201). After the survey was completed, the panel manipulated the data further by adjusting lukewarm answers to support their desired outcome, yielding a unanimous vote. Dr. Norton wondered how frequently “unanimous” votes were used to justify new medical developments.

After this vote, the American Academy of Dermatology and the American College of Mohs Surgery touted the results in academic journals and in conversations with insurers, leading the procedure to skyrocket in popularity. This exposes a major conflict of interest in the pursuit of evidence-based medicine: specialists who seek to profit from certain procedures are able to set the standard for circumstances in which they are performed. 

Sutter Health is one of many recent examples of hospitals consolidating and taking away much of insurers’ negotiating power. While the mergers are justified as ways to further coordinate a patient’s care, multiple studies have demonstrated that hospital conglomerates drastically reduce competition within the industry. When multiple hospitals band together to make demands of manufacturers and insurers, it is incredibly difficult to say no. For this reason, the rise of hospital conglomerates have exacerbated the profit problems that dominate the industry. San Francisco, an area predominantly served by Sutter Health, reported premiums that were 9% higher compared to those in Los Angeles because the Los Angeles market offers consumers more choice.

Sutter Health rose to prominence via an old crop of community hospitals that catered to miners. In 1996, the original Sutter Health facility in Sacramento banded with the California Healthcare System in the Bay Area to form the foundation for the modern-day Sutter Health conglomerate. The two hospitals believed they could form a partnership in order to take advantage of emerging medical technologies. Other small hospitals felt financially pressured to join to keep up with rising costs. Many hospitals that joined Sutter Health also catered to communities of low-income patients, who relied on them for care. Sutter offered deals that were compelling and profitable for struggling hospitals, “restructuring and charging patients far more for services” (209). As of 2014, Sutter Health operates “twenty-four hospitals, thirty-four outpatient surgicenters, nine cancer centers, and […] thousands of affiliated doctor practices” (209). Sutter’s success also gave out-of-network hospitals grounds to raise the price of their services due to the utter lack of competition in Sutter-dominated areas.

Sutter often approaches physicians in hopes of integrating their practices into their network. However, for doctors that pride themselves on running small, community-based practice, this can turn out to be disastrous. This was the case for Dr. Alexander Lakowsky. Dr. Lakowsky was enticed by Sutter’s promise to increase his profits and allow him more time to spend at home with his young kids. However, once Sutter took charge of his revenue, they raised his prices by hundreds of dollars. Insurers, knowing their influence, would agree to pay them. Unfortunately, Dr. Lakowsky noticed that his patients with higher copays were struggling after this switch. He also felt immense pressure to refer his patients to other Sutter services, even if he knew cheaper options. He said that Sutter’s oversight made him feel like he “wasn’t really able to be [his] patient’s advocate” (210). Eventually, he severed ties with Sutter in favor of an alliance of independent physicians who touted better care for a fraction of the cost. While these aspirations are noble, it is incredibly difficult for independent practices to survive in Sutter-dominated areas. Even Dr. Lakowsky’s independent physicians’ group signed an agreement with Sutter to treat their overflow patients.

Sutter has leveraged new technology to preserve its market. All of Sutter’s patient records are electronic medical records (EMRs). Sutter Community Connect, the system that evolved from it, ended up blocking competitors from accessing cheaper ancillary services. All Sutter doctors already direct their patients to other Sutter-owned services. However, due to agreements like the one Dr. Lakowsky signed to keep Sutter patients on his roster, he had to use their EMR system to track their lab results. He was charged several thousands of dollars to gain access to their EMR system. When he used it to order tests or scans, the program would initially recommend Sutter-managed medical centers. This puts smaller competitors at risk of shutdown. For example, Peninsula Diagnostic Imaging cannot input patient data into Sutter EMR, and has to call their doctors instead.

These additional tests can cause roadblocks in determining treatment for a patient. When Peninsula Diagnostic Imaging tried to join Sutter EMR to keep up with demand, they were asked to pay $100,000. Peninsula Diagnostic Imaging cannot solve this problem by joining a different EMR, because not all of them interact properly. Most tech companies that manufacture them are not incentivized to remedy this to keep their products distinct.

Sutter Health grew by employing a merger strategy called “regionalization.” This entailed further consolidating Sutter’s power by transferring ownership of affiliate hospitals to regional Sutter corporations. Many of these hospitals were the only care providers for their area, as was the case for Coast Hospital in Crescent City, California. The relationship was harmonious in the years prior to regionalization: Dr. Greg Duncan, an orthopedist at Coast, reflected that “They made sure we had good equipment and were very supportive of the docs” (214).

However, as Sutter grew, prices kept rising. Certain insurance providers, such as Blue Cross Blue Shield, tried to back out of deals with Sutter, but ended up signing solely because not doing so would leave large swaths of patients completely helpless, as Sutter was the only available option in some areas. As Coast became Sutter Coast, Dr. Duncan noticed drastic changes within his patients. Some of his patients were beginning to drive to cities hundreds of miles away for access to cheaper care. When Dr. Duncan mentioned this to Sutter executives, they said they would lower prices for non-emergency care, since patients needing urgent help would have no choice but to seek care locally.

Dr. Duncan was eventually elected medical chief of staff and began attending Sutter board meetings. There, he heard executives blatantly confess to prioritizing control and profits. This reached a boiling point when Sutter converted Coast into a critical access hospital, which would decrease its medical capacity. Sutter continued shuttering parts of Coast until it proposed getting rid of obstetrical services since it was losing profit. Dr. Duncan and Crescent City community members protested the board since Coast was the only local place mothers could go to deliver. While Sutter eventually conceded, its board did vote to censure Dr. Duncan.

As it turns out, the critical access designation was Sutter’s way of gaining more profits. Medicare paid additional for hospitals with this status in order to keep smaller hospitals functional for their community. A hospital in this classification is also not subjected to normal billing restrictions. Doctors at Sutter Coast believed that Sutter was exploiting this designation for money, as it had done so previously in other California towns. Other hospitals have copied aspects of the Sutter model to various levels of success.

Sutter Health’s proliferation across Northern California set a precedent where “conglomerates beget conglomerates” (222). Other medical sectors have followed the hospitals’ suits. Medical device companies have been purchasing each other to have a greater command over the market. Insurance titans Aetna and Anthem recently moved to purchase Humana and Cigna, respectively, knocking two major players out of the private insurance industry.