Coming up with “A Bitter Pill”
For the past 10 days I’ve been interviewed on various television and radio shows about the article I wrote for the March 4 issue of Time, called “A Bitter Pill.” It’s all about how exorbitant prices and profits are at the core of the crisis America uniquely faces when it comes to financing healthcare, the cost of which now accounts for roughly a fifth of our gross domestic product. The article took a new approach to reporting on an overreported issue by avoiding “on the one hand, on the other hand” policy analysis. Instead, I took actual medical bills and dissected them line by line.
Invariably a question has come up in these interviews about how I thought of that approach. So, since this is supposed to be a column about good story ideas, I think I’ll use it to explain the genesis of “A Bitter Pill” in more detail than I’ve been able to on the talk show circuit.
I always tell the students in a journalism seminar I teach at Yale that the best stories come from what you’re most curious about. Because I’m interested in business (as well as legal and political issues), questions about business and money often are what make me most curious, sometimes to the point of idiosyncrasy. For example, when I read last week that Jeff Zeleny, a star political reporter for the New York Times, had been hired away by ABC News, one of my first thoughts was that I’d like to see a story detailing how much more money he’ll be making – I bet it’s as much as twice his Times salary – and perhaps analyzing whether for Zeleny and other journalists his move represented a wrenching market misallocation of talent, given that his work is likely to have more impact, not to mention space, in the Times than on network television.
Similarly, during the long debate over President Barack Obama’s health insurance reform proposals, a question kept nagging at me: Everyone on all sides seemed to accept as a given that healthcare was wildly expensive, and the only debate seemed to be over who should pay for it. I wondered: Well, why is it so expensive in the first place?
At about the same time, a relative suffered a series of medical crises that produced hundreds of thousands of dollars in bills. For him, it was no problem because he had Medicare and terrific insurance to supplement what Medicare didn’t cover, leaving him on the hook for just a few hundred dollars. But again, I wondered, why were the bills so high?
What finally got me to act on that curiosity and turn it into a reporting project was a chance event, which I recounted in the Time article as follows:
I got the idea for this article when I was visiting Rice University last year. As I was leaving the campus, which is just outside the central business district of Houston, I noticed a group of glass skyscrapers about a mile away lighting up the evening sky. The scene looked like Dubai. I was looking at the Texas Medical Center, a nearly 1,300-acre, 280-building complex of hospitals and related medical facilities, of which MD Anderson [Cancer Center] is the lead brand name. Medicine had obviously become a huge business. (In fact, of Houston’s top 10 employers, five are hospitals, including MD Anderson with 19,000 employees; three, led by ExxonMobil with 14,000 employees, are energy companies.) How did that happen, I wondered. Where’s all that money coming from? And where is it going?
I had no idea what the answers were. But it seemed obvious that there was only one way to find out: If you want to know why something is so expensive, figure out every element of its costs. In other words, follow the money.
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, non-profit 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.
In other words, everyone along the supply chain – from hospital administrators (who enjoy multimillion-dollar salaries) to the salesmen, executives and shareholders of drug and equipment makers ‑ was reaping a bonanza. The only exceptions, I found, were those actually treating the patients ‑ the nurses and doctors (unless the doctors were gaming the system by reaping consulting fees from drug or device makers or setting up diagnostic clinics in their practices in order to steer patients there for expensive tests).
It really mattered that I was so curious about all this, and that I became almost obsessively curious as I began to discover what was behind these bills. For there was a mountain of grunt work involved in following the money line by line, from the patient, to the doctor’s office or the clinic or the hospital, and then back to supplier.
That brings to mind another lesson I push on my students, which, because they are a bunch of smart Yalies, sometimes rubs them the wrong way: In journalism, hard work is a lot more important than a high IQ.