On December 4, 2024, Brian Thompson, the chief executive of UnitedHealthcare, was shot and killed outside a hotel in Midtown Manhattan. Investigators subsequently discovered words associated with health insurance claim-denial tactics on ammunition recovered after the shooting. The murder was indefensible, but the public reaction revealed something deeply troubling about American healthcare. Instead of responding only with sympathy for the victim, many Americans began sharing stories about rejected insurance claims, unaffordable treatments, unexpected hospital bills, and experiences of struggling to obtain medical care.
The reaction exposed a profound loss of trust in institutions responsible for protecting people’s health. Patients described insurers challenging treatments recommended by their doctors, hospitals charging amounts they could not understand, and pharmaceutical companies demanding extraordinary prices for essential medicines. The discussion soon moved beyond one company or executive to a much broader question about the American healthcare system itself.
The United States possesses some of the world’s most advanced hospitals, leading medical research institutions, highly trained specialists, and groundbreaking pharmaceutical technologies. American physicians can perform extraordinarily complex surgeries, researchers develop treatments used around the world, and patients with sufficient resources can access exceptional medical care. Yet the country also has a healthcare system that routinely leaves people struggling with costs, delayed treatment, administrative obstacles, and financial insecurity.
What makes this contradiction especially striking is how much Americans spend. The United States devotes more money to healthcare than any comparable wealthy country, without achieving consistently superior outcomes. Understanding why requires looking beyond the familiar argument about whether healthcare should be public or private. The deeper problem lies in how insurers, hospitals, doctors, pharmaceutical manufacturers, and investors earn money, negotiate prices, and respond to incentives that do not always align with the interests of patients.
America Spends More Without Getting More Care
The scale of American healthcare expenditure is extraordinary. According to the Centers for Medicare & Medicaid Services’ national health expenditure figures, the United States spent approximately $5.3 trillion on healthcare in 2024, representing roughly 18% of its gross domestic product. That means nearly one-fifth of the country’s economic output was devoted to medical services, insurance administration, pharmaceuticals, and other healthcare activities.
Such enormous spending might be reasonable if the country consistently enjoyed the world’s best health outcomes. However, international comparisons reveal a far less impressive picture. A 2026 Commonwealth Fund comparison of wealthy healthcare systems found that Americans continue to experience unusually high costs, incomplete insurance coverage, difficulties accessing primary care, and disappointing outcomes on several important population-level measures.
American life expectancy was approximately 79 years in 2024, around two years below the OECD average. The United States also performs poorly on several measures of avoidable or treatable mortality compared with similarly wealthy countries. These differences are particularly concerning because American healthcare spending per person is substantially higher than in countries that achieve better overall results.
Nevertheless, life expectancy should not be treated as a direct measure of hospital performance alone. Mortality also depends on factors such as violence, traffic accidents, addiction, obesity, poverty, diet, housing, and public-health conditions. A country could improve its hospitals considerably without eliminating every difference in life expectancy. Similarly, some American medical specialties, screening programmes, advanced procedures, and emergency treatments perform exceptionally well.
The more revealing question is whether Americans consume significantly more healthcare than people elsewhere. If Americans visited doctors much more frequently, underwent far more operations, or spent considerably longer in hospitals, higher expenditure might partly reflect greater use. However, comparative research suggests that unusually high prices, administrative costs, pharmaceutical expenditure, and professional compensation explain much of the difference. Americans often pay considerably more for comparable services rather than simply receiving more treatment.
A procedure that costs one amount in a European healthcare system can generate a substantially larger bill in an American hospital. The same medicine can carry different prices depending on the country, insurer, pharmacy, and purchasing arrangement. Even routine medical services may involve negotiations among multiple organisations before anyone determines what the final payment should be.
This is why the American healthcare paradox cannot be reduced to the claim that American medicine is inferior. The United States has helped produce some of the most important medical innovations in modern history, but technical excellence does not guarantee efficient financing or affordable access. The country has developed extraordinary capabilities for treating illness without creating an equally effective system for ensuring that people can benefit from them.
The explanation begins with the institutions that determine whether medical treatment will be covered and how much will be paid for it.
The Insurance Gatekeepers: Denials, Delays and Appeals
Health insurance exists for a compelling reason. Medical emergencies are unpredictable, and the cost of serious illness can exceed what most households could reasonably afford. By pooling financial risk across many people, insurance makes it possible for individuals to receive expensive treatments without having to personally finance every procedure.
However, insurance also introduces an institution between the patient and the healthcare provider. The insurer decides which services are covered, what documentation is necessary, which physicians belong to approved networks, and how much it will reimburse. Because insurers must manage finite resources, they need mechanisms to prevent unnecessary expenditure, fraudulent billing, and treatments that do not meet established clinical standards.
The fundamental conflict is that controlling unnecessary spending and refusing to pay legitimate expenses can sometimes look financially similar from an insurer’s perspective. Reducing payouts may help keep premiums affordable, but it can also improve financial performance at the expense of patients who require treatment. The challenge is to distinguish responsible utilization management from administrative practices that create unnecessary barriers to care.
What a Denied Claim Actually Means
A health insurance claim is a request for payment for medical services. After a patient receives treatment, the provider generally submits information about the service, diagnosis, procedure, and amount charged. The insurer reviews the submission against the patient’s coverage and its own payment rules before determining what it will reimburse.
A claim can be denied for several reasons. A service might fall outside the patient’s benefits, involve an out-of-network provider, lack required documentation, contain a coding error, or fail to satisfy an insurer’s medical-necessity criteria. Some denials therefore reflect administrative mistakes or genuine coverage limitations rather than an insurer deciding that a patient should never have received treatment.
Nevertheless, the frequency of denials raises legitimate concerns. According to KFF’s analysis of 2024 Affordable Care Act marketplace claims, insurers denied approximately 19% of in-network claims submitted to HealthCare.gov marketplace plans. Denial rates varied considerably among insurers, demonstrating that patients could experience very different payment outcomes depending on their coverage.
This figure does not mean that American insurance companies reject 19% of all medical treatment nationwide. It applies to a particular insurance market and measures claims rather than individual patients or treatment decisions. Employer-sponsored plans, Medicare Advantage, Medicaid, and other insurance arrangements operate under different rules and cannot automatically be assigned the same denial rate.
One particularly important finding is that fewer than 1% of denied marketplace claims were appealed. Insurance decisions can often be challenged, and some claims are eventually accepted after additional information is submitted. However, the theoretical availability of an appeal does not mean that patients can navigate the process easily.
Appealing a denial may involve obtaining medical records, requesting supporting letters, contacting billing departments, understanding insurance terminology, meeting deadlines, and repeatedly communicating with the insurer. A physician’s office might employ staff specifically to handle these disputes, while an individual patient may have to manage the process without professional assistance. For someone recovering from surgery, undergoing chemotherapy, or caring for a sick family member, the administrative effort can become overwhelming.
The low appeal rate also affects incentives. When only a tiny share of rejected claims receives a formal challenge, questionable decisions may face relatively limited scrutiny. This does not establish that every denial is deliberate or improper, but it does mean that errors and unreasonable decisions can remain uncorrected simply because patients lack the resources to contest them.
A denied reimbursement claim also creates financial uncertainty after treatment has already occurred. Depending on the circumstances, a hospital may revise its bill, resubmit the claim, appeal the decision, or seek payment from the patient. The patient may consequently become responsible for expenses that were neither clearly explained nor anticipated when treatment began.
When Prior Authorization Delays Treatment
Prior authorization creates a different problem because it occurs before certain treatments are provided. Under this system, a doctor must obtain approval from an insurer before prescribing particular medications, ordering certain diagnostic tests, arranging procedures, or providing other covered services. The requirement is intended to prevent unnecessary treatment, encourage clinically appropriate alternatives, and control healthcare spending.
The rationale is not inherently unreasonable. Some medical procedures offer limited benefits in particular circumstances, while certain expensive drugs may have equally effective and less costly alternatives. Without mechanisms to assess necessity, healthcare providers could face incentives to prescribe more services than patients actually need.
The difficulty arises when approval requirements interfere with timely medical judgment. A physician may determine that a particular treatment is appropriate after examining the patient, only to discover that the insurer requires additional documentation or a separate review. The decision then becomes dependent on an administrative process that may involve people who have not personally evaluated the patient.
The scale of this process is substantial. KFF’s analysis of Medicare Advantage prior authorization found that private Medicare plans made nearly 53 million prior-authorization determinations in 2024. Approximately 7.7% of requests were denied, and 80.7% of denials that were appealed were subsequently overturned.
The distinction between those figures is essential. The high overturn rate applies to denied requests that actually entered the appeals process, not to every denial issued by Medicare Advantage insurers. Only a minority of denials were appealed, so the findings cannot establish that most denied requests nationwide would necessarily have been reversed.
Still, the figures raise questions about the accuracy and accountability of initial decisions. If a substantial proportion of challenged denials is overturned, the quality of the original review process deserves scrutiny. Moreover, a successful appeal does not necessarily eliminate the consequences of the delay that occurred before approval.
Those consequences can be especially serious in cancer treatment. A 2024 survey by the American Society for Radiation Oncology documented physicians’ reports of treatment delays, disruptions, and cases in which authorization problems contributed to hospitalization or permanent harm. Radiation oncologists also raised concerns about the clinical expertise of some professionals reviewing their treatment requests.
The survey reflects the experiences reported by participating physicians rather than a nationwide audit of individual patient records. It should therefore not be interpreted as evidence that every prior-authorization requirement causes harm. Nevertheless, it illustrates the risks of inserting administrative delays into medical decisions where treatment timing can materially influence outcomes.
For a patient with a progressing tumour, severe pain, or a condition requiring urgent intervention, the difference between approval today and approval weeks later can be significant. What appears to an insurer as an unresolved administrative request may represent continued suffering, disease progression, or a missed opportunity for effective care.
Insurance companies need to control waste, but effective cost management requires more than minimizing approved expenditure. A system that saves money by delaying necessary treatment may generate greater costs later when a manageable condition becomes an emergency. More importantly, the patient bears risks that cannot always be measured through the insurer’s financial accounts.
How Fragmentation Became an Administrative Industry
American healthcare insurance is not administered through one unified arrangement. Coverage may come through an employer, Medicare, Medicaid, an Affordable Care Act marketplace, a military programme, or an individually purchased plan. Within those arrangements, patients may choose among insurers offering different premiums, deductibles, copayments, physician networks, drug formularies, and reimbursement conditions.
This variety creates some genuine advantages. Different plans can offer different combinations of benefits and prices, and competition may encourage insurers to develop more efficient services. However, the existence of multiple insurers also requires healthcare providers to navigate numerous separate administrative systems.
Consider a doctor who treats two patients with the same condition using the same medical procedure. One patient’s insurer may approve the treatment automatically, while another requires prior authorization. The reimbursement rate, billing documentation, copayment, approved facility, and treatment alternatives may differ even though the underlying medical problem is identical.
Hospitals must therefore maintain extensive systems for billing, coding, contract negotiations, claims management, utilization review, compliance, and collections. Insurers operate their own corresponding departments to process claims, investigate potential fraud, manage networks, and review appeals. Healthcare professionals also spend substantial time completing documentation that has little to do with directly examining or treating patients.
Some of this administrative work is indispensable. Medical records support continuity of care, financial controls help prevent fraud, and quality oversight protects patients from unsafe or unnecessary procedures. The problem is not that administration exists, but that a fragmented payment system creates substantial duplication and negotiation around activities that should primarily be concerned with providing healthcare.
Research examining the role of administrative costs in excessive American health expenditure has identified billing complexity, insurance-related processes, and fragmented payment arrangements as important sources of waste. These costs extend beyond the salaries of administrative employees. They also include software, compliance systems, physicians’ lost clinical time, and the resources required to resolve payment disagreements.
The burden is particularly difficult for independent medical practices. A small clinic may need employees dedicated to communicating with insurers, submitting claims, securing approvals, and challenging rejections. Joining a larger hospital system or corporate medical group can relieve some of that burden because administrative expenses can be distributed across more physicians and patients.
This creates an important feedback mechanism. The complexity of the insurance system can encourage the consolidation of healthcare providers, even though consolidation may subsequently give those providers greater bargaining power and allow them to negotiate higher prices.
Fragmentation also does not guarantee vigorous competition among insurance companies. In many local markets, a relatively small number of major insurers controls substantial market share. Large insurers may negotiate favourable rates with hospitals, spread financial risks across more customers, and invest in technology that smaller competitors cannot afford.
Those potential efficiencies are real, but savings do not necessarily reach patients. A dominant insurer may gain bargaining advantages while retaining more of the financial benefits, limiting networks, or imposing stricter contractual requirements. Research into insurance mergers has raised concerns that consolidation can increase premiums without delivering corresponding improvements in affordability or quality.
Major insurers have also expanded into businesses traditionally considered separate from insurance. UnitedHealth Group, for example, operates a wide range of healthcare services through its Optum businesses, including physician practices, pharmacy benefit management, and related healthcare operations. Other large healthcare corporations have similarly developed relationships connecting insurance, pharmacies, medical providers, and information systems.
Such vertical integration can improve coordination. When insurers, physicians, pharmacies, and technology platforms operate within connected organisations, they may be able to exchange information more efficiently, reduce duplication, and manage treatment across different settings. However, the same structure can create conflicts when a company deciding how much to pay for care also owns businesses receiving those payments.
An integrated insurer may direct patients towards affiliated providers, negotiate payments involving related companies, or obtain competitive advantages unavailable to independent medical practices. The organisation may benefit not only from controlling insurance claims but also from generating revenue through pharmacies, clinics, data services, and other healthcare activities.
The Affordable Care Act attempted to constrain excessive insurance spending and profits through medical-loss-ratio requirements. Under CMS’s medical-loss-ratio rules, relevant insurance products generally must devote at least 80% or 85% of premium revenue, depending on the market, to medical care and activities improving healthcare quality. These rules limit how much premium revenue can be devoted to certain administrative expenses and profit within the regulated insurance business.
However, regulating the insurance portion of a corporation does not eliminate incentives to earn money elsewhere in the healthcare supply chain. When the same corporate group participates in insurance, medical services, pharmacy operations, and other activities, its financial interests become more complicated than simply accepting premiums and paying claims.
The result is a system that combines enormous administrative fragmentation with significant corporate concentration. Patients face different rules across insurance products, while increasingly powerful organisations control multiple stages of the healthcare process. The costs and complexity of these arrangements influence how medicine is delivered long before anyone receives a final bill.
The Doctor Shortage and the Power of Hospital Systems
Insurance companies are only one side of healthcare pricing. Hospitals, physician groups, specialist practices, nursing facilities, and other providers also negotiate payment rates and make commercial decisions. In many regions, these organisations possess enough market power to demand significantly higher payments without facing the competitive pressure that exists in ordinary consumer markets.
Healthcare is particularly vulnerable to concentrated pricing power because patients cannot always choose when or where they need treatment. Someone experiencing a medical emergency is unlikely to compare several hospitals, negotiate an anesthesia fee, or postpone surgery to obtain a better price. Even insurers may struggle to exclude a dominant hospital system from their networks if doing so would leave customers without access to essential local services.
The Residency Bottleneck
American physicians are generally compensated more highly than doctors in many other wealthy countries, particularly in lucrative medical specialties. Professional compensation contributes to healthcare costs, but understanding the difference requires examining how physicians are trained and how many are available to provide care.
The United States has fewer practising physicians per person than the OECD average. Shortages are especially concerning in primary care, psychiatry, rural medicine, and underserved communities. The problem is not simply that the country lacks doctors overall; it also involves where doctors work, which specialties they enter, and whether healthcare organisations can attract them to places where demand is greatest.
Training a physician is a long and expensive process. Students must complete medical education and then undertake supervised postgraduate training through residency programmes before independently practising in their chosen specialties. Medical schools can increase their enrolment, but those graduates still require sufficient residency opportunities.
The modern training bottleneck partly reflects decisions made decades ago. During the late twentieth century, influential forecasts warned that the United States might face an oversupply of physicians. Professional organisations, policymakers, medical schools, hospitals, and government agencies responded within an environment that placed less emphasis on rapidly expanding physician numbers.
A particularly important policy decision came with the Balanced Budget Act of 1997, which limited Medicare funding for many graduate medical education positions. Medicare finances a substantial share of residency training, so restrictions on federally supported positions affected the ability of hospitals to expand their training programmes. A JAMA analysis of residency training and federal funding restrictions examined how these policies constrained the physician training pipeline.
Medical schools subsequently expanded enrolment, but residency capacity did not necessarily increase at the same pace or in the specialties and locations with the greatest need. This can produce a situation in which the country graduates more aspiring doctors without creating sufficient training opportunities to address workforce shortages effectively.
Restricting physician supply can increase the bargaining power of existing doctors and specialist groups. It may also lead to higher workloads, longer appointment waiting times, and greater difficulties recruiting physicians to smaller communities. When patients have few realistic alternatives, providers face less pressure to compete on price or convenience.
However, it would be misleading to attribute the shortage entirely to the American Medical Association or suggest that individual doctors deliberately created it to protect their incomes. Federal financing rules, historical workforce forecasts, medical education capacity, hospital decisions, specialty preferences, and geographic distribution all contribute to the problem.
American physicians also face substantial training expenses, educational debt, demanding workloads, malpractice concerns, and administrative obligations. Their compensation cannot be assessed meaningfully without considering those factors. The stronger criticism is institutional: the country has allowed essential medical workforce bottlenecks to persist despite rising and unevenly distributed demand for care.
Why Consolidation Raises Prices
The shortage of physicians is only part of the provider-side problem. American hospitals and medical practices have undergone extensive consolidation, creating organisations that can dominate local healthcare markets. An independent physician who previously operated a small practice may now work for a hospital system, national medical group, or corporate healthcare organisation.
Some consolidation reflects the difficulty of remaining independent. Physicians must manage electronic medical records, insurance billing, privacy requirements, employment costs, technology systems, and changing regulatory obligations. Becoming part of a larger organisation can provide administrative support, improved equipment, access to additional specialists, and more reliable financing.
Nevertheless, consolidation can also change how medical services are priced. A hospital system employing many specialists may negotiate more favourable contracts with insurers because excluding those physicians from an insurance network would make the plan less attractive to customers.
The Government Accountability Office’s review of healthcare consolidation reported that at least 47% of physicians were employed by or affiliated with hospital systems in 2024, compared with less than 30% in 2012. This reflects a substantial shift in how medical care is organised and how providers negotiate with insurers.
Large hospital systems can possess tremendous leverage in local markets. If one organisation controls the major trauma centre, maternity facilities, cancer services, and specialist practices in a region, an insurer may have little practical choice but to accept its negotiated rates. The provider can demand higher payments because the alternative is offering an insurance product without access to essential medical services.
Ownership changes may also alter billing arrangements. A procedure previously performed at an independent physician’s office may become associated with a hospital-owned facility, potentially generating higher reimbursement or additional facility fees. The medical service itself may remain similar even though its billing structure and negotiated price have changed.
Not every merger is harmful. Large hospitals can spread expensive equipment costs across more patients, share specialist expertise, coordinate treatment, reduce duplicated services, and support facilities that might otherwise struggle financially. These advantages can be especially important in complex medical care that requires substantial capital investment.
However, research generally finds that greater provider concentration is associated with higher prices, while the effects on quality are more mixed. Some consolidated systems improve coordination or invest in advanced treatment, whereas others gain pricing power without producing clear improvements in patient outcomes.
The consequences eventually reach households. Higher hospital prices increase insurers’ expenses, contributing to pressure on premiums, deductibles, networks, and reimbursement policies. Employers may spend more on employee benefits, governments may face larger programme costs, and workers may indirectly absorb some expenses through wages that are lower than they otherwise would have been.
The connection is not always visible on a patient’s hospital bill. Costs can pass through employers, insurers, and public budgets before affecting individuals. Nevertheless, greater provider market power can increase the overall financial burden of American healthcare even when patients never negotiate directly with the hospitals responsible for the higher charges.
Private Equity and Patient Safety
Private-equity investors have also recognised the commercial attractions of healthcare. Demand for medical treatment is relatively persistent, patients often have limited alternatives, and insurance companies or public programmes pay substantial portions of many bills. Numerous independent medical practices also create opportunities for investors to acquire businesses and combine them into larger organisations.
A common private-equity strategy involves purchasing a business, frequently using borrowed money, improving its financial performance, and eventually selling it at a higher valuation. In healthcare, operational improvements might include better scheduling, more efficient purchasing, improved technology, or stronger administrative management.
Those changes can be beneficial. A poorly managed clinic might provide better service after adopting modern systems, and coordinated purchasing could reduce unnecessary expenditure. The ownership model becomes more concerning when financial returns depend heavily on raising prices, treating more patients with fewer employees, or reducing spending on services that affect clinical quality.
Debt creates additional pressure. An organisation acquired through substantial borrowing must generate enough cash to cover ordinary operations and financing obligations. Management may therefore face strong incentives to increase revenue quickly, eliminate less profitable services, reduce staffing, or push clinicians to see more patients.
The clinical consequences deserve careful attention. A JAMA study of hospital-acquired adverse events following private-equity acquisitions found increases in certain complications, including infections and falls, after acquisition. These findings raise concerns about how ownership changes may influence staffing, infection prevention, patient supervision, and other operational decisions affecting safety.
However, the study does not establish that every private-equity-owned hospital provides inferior care. Private-equity investment spans hospitals, nursing homes, anesthesia groups, emergency medicine, dermatology, dentistry, and other services with substantially different business models. Results observed in one type of facility cannot automatically be extended to every other setting.
Research involving private-equity-owned nursing homes has also raised concerns about staffing, treatment quality, and mortality. These findings matter because nursing homes depend heavily on continuous personal care and adequate staffing, but they should be understood within the distinct characteristics of long-term care rather than simply merged with hospital findings.
The underlying concern is that decisions classified as financial efficiencies may directly affect patients. Reducing administrative waste can improve an organisation without compromising care, while cutting nurse staffing, shortening patient encounters, or limiting infection-control resources may create risks that are difficult to measure immediately through financial accounts.
Profit incentives are not exclusive to private-equity firms or shareholder-owned hospitals. Nonprofit hospitals can also pursue revenue growth, expansion, stronger bargaining positions, and substantial executive compensation. Their nonprofit designation changes the rules governing ownership and distribution of surplus, but it does not automatically eliminate commercial behaviour.
The relevant distinction is therefore not simply between nonprofit and for-profit ownership. It is whether an organisation’s pursuit of financial stability and revenue is balanced by accountability for patient safety, affordability, and appropriate treatment. When consolidation reduces competition and patients have little ability to leave, that accountability becomes especially important.
The Pharmaceutical Price Maze
Prescription medicines provide one of the clearest illustrations of how American healthcare prices can diverge from those in other wealthy countries. Hospitals and clinical services account for a larger share of total American healthcare expenditure, but drug pricing exposes the unusual bargaining arrangements that operate throughout the system.
The same branded medicine may be manufactured by the same company, contain the same active ingredient, and serve the same medical purpose in several countries while being sold at dramatically different prices. The explanation is not necessarily that Americans receive a better product. It often lies in how governments, insurers, manufacturers, intermediaries, and patients negotiate or regulate payment.
Drug Innovation and International Price Gaps
Pharmaceutical companies argue that high medicine prices are necessary to support research and development. Discovering a drug, testing it for safety and effectiveness, conducting clinical trials, obtaining regulatory approval, and maintaining manufacturing standards can require substantial financial investment over many years.
The process also involves significant uncertainty. Many potential medicines fail during laboratory development or clinical trials, meaning successful products must help finance research that never produces commercial revenue. Strong patent protections and potential profits can encourage investors to support risky discoveries that may ultimately deliver enormous medical benefits.
These arguments should not be dismissed. Pharmaceutical innovation has produced lifesaving treatments for cancers, infectious diseases, chronic illnesses, and many other conditions. The United States plays an important role in supporting the global pharmaceutical industry and the research institutions that contribute to its discoveries.
However, development costs alone do not explain why American purchasers often pay substantially more than purchasers in other wealthy countries for medicines that already exist. Once a pharmaceutical company has developed and obtained approval for a drug, the scientific product does not become fundamentally different when sold in another country.
A RAND international comparison of prescription drug prices found that American prices were substantially higher than those in comparison countries, especially for branded originator medicines. The situation was different for unbranded generic drugs, demonstrating that it is misleading to claim that every medicine is more expensive in the United States.
Patent protection and competition help explain that distinction. Manufacturers of innovative branded treatments may possess significant pricing power while their medicines remain protected from comparable competition. Generic markets often involve multiple suppliers competing after relevant exclusivities expire, which can produce much lower prices.
Many other wealthy countries use centralized negotiation, reimbursement controls, health technology assessments, or national purchasing arrangements to limit pharmaceutical prices. Some evaluate whether a medicine offers enough additional clinical benefit to justify its cost, while others negotiate confidential discounts or establish limits on public reimbursement.
American purchasing has historically been much more fragmented. Private insurers, employers, hospitals, Medicare plans, Medicaid programmes, and pharmacy benefit managers negotiate through different arrangements. This creates numerous prices and discounts rather than one straightforward national purchasing agreement.
The price printed by a manufacturer may also differ significantly from the amount eventually received after rebates and discounts. Patients, however, may face deductibles, coinsurance requirements, or pharmacy charges calculated under arrangements that do not pass all negotiated savings directly to them. As a result, even insured Americans can encounter substantial out-of-pocket expenses for medicines.
This tension has become especially visible with GLP-1 medications used for diabetes and weight management. These treatments demonstrate how a major medical breakthrough can create difficult questions about affordability, insurance eligibility, and who should pay for long-term care. The broader economic and social implications of GLP-1 drug pricing and access illustrate why innovation and accessibility cannot be treated as separate concerns.
Pharmacy Benefit Managers and Medicare Negotiation
One reason American prescription pricing is difficult to understand is the involvement of pharmacy benefit managers, commonly known as PBMs. These companies help administer prescription drug benefits for insurers, employers, and other healthcare purchasers. Their responsibilities may include negotiating manufacturer rebates, establishing formularies, managing pharmacy networks, and processing drug claims.
In principle, PBMs can use the purchasing power of large groups to negotiate lower costs. By representing substantial numbers of patients, they may secure manufacturer discounts and encourage the use of clinically appropriate lower-priced alternatives. Their services can also reduce some administrative burdens for insurers and employers.
However, PBM compensation and corporate ownership arrangements can create conflicts. Some benefit managers are connected to major insurers, pharmacies, or other healthcare businesses. Depending on contractual arrangements, their revenue can be influenced by rebates, fees, pharmacy reimbursements, or transactions involving affiliated companies.
This raises an important question about whose interests guide drug purchasing decisions. A formulary might favour one medicine over another because it offers better clinical value, but financial arrangements can also influence which products receive favourable placement. Similarly, the amount a PBM charges an insurer may differ from the amount a pharmacy receives, depending on the business model involved.
A 2025 Federal Trade Commission staff report on prescription drug middlemen identified significant markups on certain specialty generic medicines dispensed through pharmacies affiliated with major PBMs. The findings concerned a specific segment of the pharmaceutical market rather than every prescription filled in the United States, but they illustrated how vertically integrated businesses can earn revenue across several stages of drug distribution.
The resulting pricing structure can be extraordinarily opaque. Manufacturers may publish list prices, insurers may receive rebates, benefit managers may collect fees, pharmacies may receive different reimbursements, and patients may pay amounts determined by their particular insurance design. The final out-of-pocket expense can therefore vary dramatically even when the prescribed medicine is identical.
Government purchasing policy adds another important dimension. Historically, the Medicare Part D prescription drug programme operated under a federal noninterference provision that restricted direct government negotiation of drug prices for the programme as a whole. Private prescription drug plans and their benefit managers negotiated separately instead.
That arrangement has begun to change. The Inflation Reduction Act established Medicare’s Drug Price Negotiation Program, allowing the federal government to negotiate prices for selected eligible medicines. According to CMS’s initial Medicare drug negotiation programme, negotiated prices for the first ten selected drugs took effect on January 1, 2026.
This represents a significant policy development, but it is not a universal national pricing system. The programme initially applies to a limited group of qualifying high-expenditure medicines and does not establish one government-negotiated price for every prescription drug purchased by Americans. Private insurers, employers, and other purchasers continue operating through their own arrangements.
Its long-term effects will require continued evaluation. Supporters argue that stronger public bargaining power can reduce excessive prices and improve affordability, while pharmaceutical manufacturers warn that reduced future revenues may discourage investment in certain new treatments. The appropriate assessment must consider actual effects on prices, access, innovation, and health outcomes rather than assuming that negotiation is either universally beneficial or inherently destructive.
Industry Payments and Prescribing Ethics
Drug manufacturers do not influence healthcare only through pricing. They also maintain financial relationships with physicians, researchers, hospitals, universities, and professional organisations. Some relationships support legitimate medical research and education, while others create potential conflicts between commercial interests and independent clinical judgment.
The federal government established the Open Payments programme to improve transparency around many of these relationships. The CMS Open Payments database contains information about categories such as research funding, consulting fees, speaking payments, meals, travel, royalties, and ownership interests.
The scale of these transactions is substantial. CMS’s 2026 publication reported approximately $14.67 billion in disclosed payments and financial relationships across the programme’s reporting categories. However, the total should not be mistaken for a measure of illegal payments or improper prescribing.
A pharmaceutical company may legitimately compensate a physician for contributing specialized knowledge to a clinical trial, license a medical invention, or fund research conducted under appropriate institutional safeguards. These activities can contribute to scientific progress and better treatment options. A payment does not automatically establish that the recipient violated professional obligations or prescribed an inappropriate medicine.
At the same time, commercial relationships can influence behaviour in ways that are difficult to identify. A doctor participating in manufacturer-sponsored research may sincerely believe in a treatment’s effectiveness, while repeated exposure to a company’s products and representatives may shape familiarity, trust, and perceptions of competing evidence.
This is why disclosure matters even when no law has been broken. Patients and medical institutions benefit from understanding whether people recommending, evaluating, or researching treatments have financial relationships with the companies selling them. Transparency does not eliminate all conflicts, but it makes those relationships easier to examine.
Illegal kickbacks represent a more direct violation. These occur when prohibited financial inducements are used to encourage referrals or prescribing decisions, and pharmaceutical companies have faced enforcement actions involving unlawful promotional and payment practices. Such cases require specific evidence and cannot be used to characterize every research grant, speaking engagement, or consulting arrangement as criminal.
The pharmaceutical problem therefore involves more than high prices. It concerns the interaction of innovation incentives, patents, fragmented purchasing power, intermediary arrangements, and the influence of commercial relationships on medical decisions. A system can produce genuinely valuable medicines while still struggling to ensure that they are prescribed appropriately and made affordable to the patients who need them.
World-Class Treatment, Unequal Access
The contradictions of American healthcare become most visible when comparing the experiences of different patients. Someone with excellent insurance, substantial savings, access to leading medical centres, and the ability to navigate complex institutions may receive outstanding treatment. The United States has renowned cancer hospitals, transplant centres, research universities, specialist physicians, advanced medical devices, and an important role in developing new therapies.
In certain areas of medicine, American patients can benefit from sophisticated technologies and highly specialized expertise that represent the frontier of medical science. Major academic hospitals may offer advanced procedures, innovative treatment approaches, and participation in clinical research. These capabilities are real achievements and should not be dismissed simply because the broader healthcare system performs poorly on other measures.
The problem is that the ability to benefit from such excellence is not distributed equally. Insurance coverage, household income, geography, employment, disability, race, education, family support, and familiarity with healthcare administration can all influence whether patients receive timely and appropriate treatment.
A financially secure professional may be able to travel to a leading specialist, pay for treatment outside an insurance network, take time away from work, or absorb a substantial deductible. Someone with fewer resources may face difficult choices between medical care, rent, food, transportation, and other essential expenses.
Even possessing insurance does not eliminate those choices. Plans can contain significant deductibles, copayments, coinsurance obligations, restricted physician networks, and exclusions that leave patients exposed to unexpected costs. A patient may have nominal coverage but still be unable to afford the out-of-pocket expenditure required to begin or continue treatment.
Employment can create additional vulnerability. Workers who obtain insurance through their jobs may face changes in coverage when they become unemployed, change employers, or experience other disruptions. A person who develops a serious illness may simultaneously confront medical expenses, reduced earnings, and uncertainty about the insurance arrangements supporting their care.
Geography also affects access. Residents of large metropolitan areas may have several hospitals and specialists nearby, whereas people in rural communities can face long journeys for diagnostic tests, specialist consultations, maternity care, or emergency services. Facilities serving smaller or less affluent populations may struggle financially, even while large urban hospital systems continue expanding.
Affordability influences whether patients seek care in the first place. KFF’s research on Americans’ healthcare costs documents the difficulties people face paying medical bills and obtaining recommended treatment. Patients may delay appointments, postpone tests, avoid filling prescriptions, or abandon care because they are uncertain whether they can afford the expense.
Such decisions can create both human and financial consequences. A manageable chronic condition may deteriorate without appropriate medication, a missed screening may delay diagnosis, and untreated symptoms may eventually require emergency intervention. Avoiding an immediate medical expense can sometimes lead to much greater treatment needs later.
Medical debt introduces further harm even when treatment succeeds. Families may struggle with repayments, credit problems, housing insecurity, or financial decisions shaped by outstanding healthcare expenses. The consequences can also affect future behaviour, making patients reluctant to seek additional care because they fear another unpredictable bill.
This is why assessments of healthcare quality cannot focus exclusively on medical technology or the skill of individual physicians. A hospital may perform a technically brilliant operation while the patient later struggles to obtain affordable rehabilitation, follow-up appointments, or medication. A sophisticated treatment is of limited practical benefit to someone who cannot reach the facility where it is available.
The distinction is between a country’s ability to provide excellent medicine and its ability to deliver appropriate care reliably across its population. The United States possesses extraordinary medical resources, but access to those resources often depends heavily on circumstances outside the patient’s medical needs.
The Incentives a Better System Must Change
American healthcare can appear irrational when judged by the experience of patients and the country’s enormous expenditure. Yet many of its outcomes become more understandable when viewed from the perspective of the institutions operating within it. Each organisation responds to financial pressures and incentives that may be individually rational without producing an efficient system overall.
An insurer benefits from controlling payouts, negotiating lower reimbursements, and discouraging unnecessary treatment. These activities can protect customers from wasteful expenditure, but they can also create incentives to impose burdensome restrictions when patients lack the resources to challenge inappropriate decisions.
A hospital benefits from attracting patients, acquiring valuable facilities, employing specialists, and negotiating favourable payment arrangements. Expansion may support investment and improve clinical coordination, but greater market concentration can also allow hospitals to charge more without delivering corresponding improvements in quality.
A private-equity investor may improve the operations of a medical organisation through better management and cost control. However, financial leverage and pressure for rapid returns may encourage practices that reduce spending at the expense of staffing, patient experience, or clinical safeguards.
A pharmaceutical manufacturer benefits from patents, successful research, strong demand, and prices that support future development. Those incentives can produce revolutionary medicines, but they can also encourage pricing strategies that place essential treatments beyond the reach of some patients.
The deeper problem emerges because these incentives reinforce one another. Higher hospital prices increase insurance costs, encouraging insurers to raise premiums or impose stricter coverage controls. More complicated insurance administration makes independent medical practices harder to operate, encouraging physicians to join larger corporate organisations.
As medical providers consolidate, their bargaining power increases, potentially allowing them to negotiate still higher payments. Expensive medicines encourage insurers to strengthen formulary restrictions and prior-authorization requirements, adding further complexity for patients and doctors. Corporate integration can then concentrate insurance, medical provision, pharmaceutical distribution, and administrative services within increasingly powerful organisations.
The patient experiences this entire chain as one healthcare system, even though responsibility is distributed across numerous separate businesses and public institutions. A delayed appointment, denied claim, unaffordable prescription, or unexpected hospital bill may result from decisions made by organisations that do not directly coordinate around the patient’s overall interests.
This is why assigning responsibility exclusively to insurers, pharmaceutical manufacturers, hospitals, doctors, investors, or government agencies cannot fully explain the problem. Each contributes to different parts of the system, and their interactions create outcomes that may be worse than those any single institution intended.
The public-versus-private debate is also insufficient on its own. Government healthcare programmes can suffer from bureaucracy, inefficient allocation, political constraints, and inadequate financing. Private organisations can develop innovative treatments, improve operational efficiency, and deliver excellent services, but they can also exploit concentrated market power and information advantages.
A better healthcare system must therefore be judged by what its rules and institutions encourage. Insurance review should distinguish inappropriate expenditure from necessary treatment while making decisions transparent and reasonably appealable. Administrative systems should support care rather than repeatedly require patients and physicians to navigate incompatible payment processes.
Expanding physician training opportunities and improving their geographic distribution could address important access constraints. Stronger scrutiny of hospital mergers and vertically integrated healthcare businesses could limit situations in which organisations raise prices primarily because patients and insurers lack alternatives.
Pharmaceutical policy must similarly balance the need to reward medical innovation with the public interest in affordable medicines. More effective purchasing arrangements, transparent intermediary practices, and careful evaluation of conflicts of interest can help ensure that financial incentives do not unnecessarily undermine access or clinical judgment.
None of these reforms eliminates the unavoidable trade-offs in medicine. Resources remain limited, not every treatment provides sufficient benefit to justify its cost, and healthcare institutions need sustainable financing. The objective is not to remove financial decisions from healthcare, but to make those decisions more accountable to the people whose health depends on them.
The ultimate measure of success should be whether patients receive appropriate care when they need it, whether prices reflect reasonable value, whether harmful decisions can be challenged, and whether the population becomes healthier without healthcare consuming an ever-growing share of national wealth.
The United States has demonstrated an extraordinary capacity to advance medicine, develop new treatments, and build sophisticated healthcare institutions. Its central challenge is to create a system in which those achievements translate more consistently into accessible, affordable, and effective care. Until the incentives governing American healthcare are better aligned with that purpose, the country can continue spending more than everyone else without ensuring that its people receive the benefits they should reasonably expect.
Last Updated on October 20, 2026 by Aseem Gupta