How Medicine Makes Money
The Incentives That Shape Your Care
The Core Problem
Medicine in America isn't designed to make you healthy. It's designed to treat you when you're sick.
That's not a conspiracy — it's just how the money flows. Doctors, hospitals, and drug companies get paid when you need something done to you. They don't get paid to keep you from needing it in the first place.
This creates a system optimized for intervention, not prevention. For treatment, not cure. For managing chronic conditions, not resolving them.
Understanding how the money moves explains why the system behaves the way it does — and why your interests often diverge from everyone else's at the table.
Fee-for-Service — The Engine of More
The dominant payment model in American healthcare is fee-for-service (FFS). It works exactly like it sounds: providers get paid for each service they perform.
What generates revenue:
- • More visits
- • More tests
- • More procedures
- • More drugs
What doesn't generate revenue:
- • Keeping you healthy so you don't need visits
- • Telling you to wait and see if it resolves
- • Recommending lifestyle changes instead of medication
- • A 30-minute conversation that prevents a surgery
The incentive isn't to do what's best. It's to do what's billable.
A doctor who spends an hour educating you about diet and exercise gets paid less than one who spends 10 minutes writing a prescription. The system has decided which one it values.
Specialists vs. Primary Care — Follow the Money
America has a shortage of primary care doctors and a surplus of specialists. This isn't an accident.
| Specialty | Average Compensation |
|---|---|
| Family Medicine | ~$260,000 |
| Internal Medicine | ~$275,000 |
| Pediatrics | ~$250,000 |
| Orthopedic Surgery | ~$560,000 |
| Cardiology | ~$510,000 |
| Gastroenterology | ~$490,000 |
| Dermatology | ~$450,000 |
Medical students graduate with $200,000+ in debt. They're not stupid — they can see which specialties pay double or triple.
The system is designed to create more surgeons and fewer people keeping you out of surgery.
Why Prevention Doesn't Pay
If a doctor prevents your heart attack through years of careful management, counseling, and medication adjustment — they get paid modest fees for routine visits.
If they fail to prevent it and you have the heart attack — the system generates:
- • ER visit: $5,000 - $15,000
- • Cardiac catheterization: $30,000 - $50,000
- • Stent placement: $40,000 - $70,000
- • Hospital stay: $10,000 - $30,000
- • Cardiac rehab: $5,000 - $10,000
- • Follow-up cardiology visits for years
The heart attack is worth $100,000+ to the system. Prevention is worth almost nothing.
No one gets rich keeping you healthy. Plenty of people get rich when you're not.
Hospital Economics — Heads in Beds
Hospitals are businesses. Non-profit status doesn't change this — it just changes what they do with the surplus.
How hospitals make money:
- • Filling beds (occupancy)
- • Performing procedures (especially surgical)
- • Billing for facility fees on top of physician fees
- • Acquiring physician practices and adding hospital markup
- • Extending length of stay for complex (high-paying) cases
How hospitals lose money:
- • Empty beds
- • Patients who don't need admission
- • Quick, efficient discharges
- • Uninsured patients (cost-shifted to everyone else)
- • Prevention programs that keep people out of the hospital
A hospital administrator who reduces admissions by 20% through community health programs would be fired. A hospital administrator who increases surgical volume by 20% gets a bonus.
The Consolidation Game
Over the past two decades, hospitals have aggressively acquired physician practices, competing hospitals, and outpatient facilities.
Why?
Market power
Fewer competitors = higher prices. Consolidated systems can demand higher rates from insurers.
Facility fees
When a hospital buys a doctor's office, the same visit now includes a "facility fee" — often doubling the cost with no change in care.
Referral capture
Employed physicians refer within the system. Your primary care doctor sends you to the system's specialists, the system's imaging center, the system's surgery center.
340B arbitrage
Hospitals qualifying for drug discount programs can buy low and bill high.
You're paying for their market power, not better medicine.
Pharma — The $500 Billion Machine
The pharmaceutical industry operates on a simple model: patented drugs generate enormous margins; generics don't.
The playbook:
- 1. Develop drug (often building on publicly-funded research)
- 2. Get patent protection (20 years of monopoly)
- 3. Price based on "value" (what the market will bear), not cost
- 4. Market aggressively to doctors and consumers
- 5. Extend patents through minor modifications ("evergreening")
- 6. When patents expire, launch a "new and improved" version and shift patients over
- 7. Fight generic competition through legal and regulatory maneuvers
Where the money goes:
- • Marketing and administration: Often exceeds R&D spending
- • Stock buybacks and dividends: Returning profits to shareholders
- • Executive compensation: Pharma CEOs among highest paid
- • Lobbying: More lobbyists than members of Congress
- • R&D: Real, but less than the industry claims as justification for prices
The drug you're prescribed may not be the most effective option — it may be the most profitable one.
Insurance — The Middleman's Cut
Health insurers sit between you and your care, taking a percentage of every healthcare dollar.
How they make money:
- • Premiums minus claims paid = profit (for-profit) or surplus (non-profit)
- • Investment income on reserves
- • Administrative fees on self-insured employer plans
Their incentives:
- • Short term: Deny claims, delay payments, create friction that discourages utilization
- • Long term: Doesn't exist. You might switch plans next year. Why invest in your long-term health?
Your insurance company doesn't care if you're healthy in 2035. They care if you're profitable in 2025.
The 15-Minute Visit
Ever wonder why your doctor seems rushed?
The math:
- • A primary care doctor needs to see 20-25 patients per day to cover overhead and make a viable income
- • 8 hours of patient time ÷ 20 patients = 24 minutes per patient
- • Subtract documentation, prior authorizations, phone calls, inbox messages
- • Actual face time: 10-15 minutes
What gets cut:
- • The deeper conversation about what's really going on
- • Lifestyle factors that might be root causes
- • Time to explain alternatives to medication
- • Shared decision-making about your preferences
- • The question you forgot to ask until the door was closing
The system has decided your health is worth 15 minutes. Not because that's enough — because that's what's billable.
When "Standard of Care" Almost Cost Me My Leg
They wanted to replace my left femur with a titanium rod. I had the worst tumor there — the most painful one. My oncologist was adamant. We scheduled a meeting with the orthopedic surgeon.
By the time that meeting happened, the pain was lessening. I was taking fewer oxys per day. To me, this was a sign — my leg was healing. Pain was my compass.
The doctors were still adamant. They talked about how fast and easy the surgery was. How normal. How routine.
I said no. I'll wait until the next scans.
Three months later, that tumor was pretty much gone. They stopped talking about the surgery.
Then they started discussing removing my adrenal gland — the last area lighting up on the scans. They were adamant again. My blood tumor markers were negative. I was off oxys. But they still wanted to cut.
They said it was no big deal. I have two, the other one will compensate, I'm young, no problem.
I went to my original oncology surgeon — she'd been my ally. But when my medical oncologist called her into an appointment, she didn't back me up. She waited. She wouldn't contradict him in person.
We waited three months. The new scans showed almost nothing. A surgery would have been pointless.
They wanted to take my femur. Then they wanted to harvest an organ. Both times, waiting and watching proved them wrong.
The Bias Toward Action
This isn't a story about bad doctors. It's a story about a system that's wired to do something.
The bias toward intervention is built into everything:
- • Doing something feels like helping. Waiting feels like abandoning.
- • If they operate and you're fine, they saved you. If they wait and something goes wrong, they failed you.
- • Surgery is billable. Watchful waiting is not.
- • "We did everything we could" protects them legally. "We decided to wait" does not.
- • Medical training emphasizes action. "Don't just stand there, do something."
Key insight: Nobody gets sued for operating. They get sued for not operating when they "should have."
So the system defaults to intervention — even when the evidence is ambiguous, even when the patient's own body is sending signals that things are improving.
My pain was decreasing. My tumor markers were negative. My scans were improving. And they still wanted to cut. Because that's what the system does. It cuts.
Why Your Doctor Orders That Test
When your doctor orders a test, there are several possible reasons:
- 1. Clinically necessary: They genuinely need the information to treat you
- 2. Defensive medicine: They're protecting themselves from lawsuits, not finding information they expect to use
- 3. Patient expectation: You expect "something to be done" and a test satisfies that
- 4. Revenue: The practice profits from in-house testing
- 5. Protocol: It's what the guideline says, regardless of whether it applies to you
- 6. Habit: It's what they've always done
Studies suggest 20-30% of medical care is unnecessary — it doesn't improve outcomes and may cause harm. But unnecessary care is still billable care.
The 20% You're Wasting
Research consistently shows that roughly 20-30% of U.S. healthcare spending is waste:
Unnecessary services
Tests, procedures, and visits that don't improve outcomes
Administrative complexity
Billing, coding, prior authorizations, insurance bureaucracy
Inflated prices
Paying more than other countries for identical drugs and devices
Fraud and abuse
Billing for services not rendered or upcoding
Care fragmentation
Duplication and lack of coordination between providers
Failure of prevention
Treating expensive crises that could have been prevented
That's roughly $1 trillion per year — wasted in ways that don't make anyone healthier.
But here's the thing: that waste is someone's revenue. Every unnecessary MRI is a radiology center's income. Every inflated drug price is a pharma company's profit. Every administrative job exists because the complexity requires it. The system doesn't eliminate waste because too many people profit from it.
What This Means for You
None of this means your doctor is corrupt or that you should refuse treatment. Most healthcare workers are doing their best inside a broken system.
But it does mean:
Your interests and the system's interests are not the same:
The System:
- • Profits from your sickness
- • Profits from more treatment
- • Profits from expensive interventions
- • Profits from chronic management
You:
- • Profit from your health
- • Profit from the right amount
- • Profit from whatever works
- • Profit from resolution
You need to be an active participant, not a passive recipient:
- • Ask why this test, this drug, this procedure is recommended
- • Ask about alternatives, including doing nothing
- • Ask who benefits financially from each recommendation
- • Ask what the evidence shows, not just what's standard practice
- • Get second opinions, especially for major interventions
- • Remember that "more" isn't always better
The system won't optimize for you. You have to do it yourself.
The Bottom Line
American healthcare is not a system designed to maximize health. It's a system designed to maximize revenue from sickness.
The people inside it are mostly well-intentioned. The incentives they operate under are not.
When you understand how the money flows, the system's behavior stops being confusing. It's not random. It's not incompetent. It's doing exactly what it's designed to do.
Your job is to get what you need from it without being consumed by it.
The system will always have an answer for "what else can we do?" It will never have an answer for "what's the least we can do and still get the outcome?" You have to ask that question yourself.