This post is a summary of my thoughts after reading The Price We Pay by Marty Makary.

The US healthcare industry has been a giant black box to me. I have never spent time in it and found it difficult to deeply understand without an inside connection. Additionally, my family and I have been healthy so we haven’t experienced any direct pain points. I’ve been somewhat ignorant because it has only been a news story to me. I never bothered to understand the issues beyond face value.

Makary noted that he admired how The Big Short explained the 2008 Financial Crisis in a way that the average American could understand. His goal for The Price We Pay was to do the same for the problems with US healthcare. My opinion is he did an outstanding job of that.

My biggest takeaway was that there is no room for debate on the question of “How do we fund healthcare?”. It’s just the wrong question to be asking. The system is broken at every possible step. Funding a broken system is a losing battle - changing the system will yield real results.

I was surprised to see how misaligned the incentives are at nearly every possible part. Regulation (bad or lacking), market forces, and lack of competition are all factors that create the wrong incentives - which create the mess. These misaligned incentives are behind the two main healthcare cost drivers:

  1. Appropriateness of care
  2. Pricing failures

Appropriateness of Care
There are many examples of bad actors prescribing unnecessary care. The simple reason is that it pays better. Some doctors steer patients to elect a procedure for their own financial benefit. Although insurance may cover it, it increases the total insurance payout. The result: higher premiums for everyone.

Pricing Failures
The actual cost of anything is almost impossible for patients to figure out. Care providers inflate their prices and they negotiate steep discounts with insurance companies. And all of these numbers are kept secret. Patients will be unable to get a price before a procedure and the provider can charge whatever they want! In a happy path, the insurance discount covers most of it, but there are way too many edge cases to call it effective.

While reading, I kept thinking, “Is this a blatant failure of Capitalism?”. While tempting to think that because of all the perverse financial incentives, I don’t think so. The market is not able to function properly. The lack of pricing transparency breaks the natural economic forces that keep costs low and competitive.

The book outlines ways that research centers and the private sector are trying to improve care and reduce costs. Here are two examples I really liked:

Improving Wisely and Practicing Wisely
A research program that uses data science techniques to measure individual physicians. These programs have identified physicians prescribing unnecessary care for their own financial benefit. The data from these programs hold people accountable and have already saved millions.

Iora Health
A private medical group that correctly aligned the incentives for patients under care. They have a net promoter score of 90 against an industry average of below 30 - and they’ve done this with lower operating costs! One cool aspect is how each patient is assigned a health coach to advocate on their behalf.

The hottest topic in politics is about funding healthcare. My opinion is that the government should step in, but I’m not excited by a government-run system. The private market can work if it can be set up properly. Here are two things that would make a real impact:

  1. Create regulation that aligns incentives with the desired outcomes
  2. Use antitrust law to break up oligopolies that have eliminated competition. The DOJ has investigated PBMs but done nothing.

Here are some notable highlights (I had a lot):

“Entrenched stakeholders in medicine fend off criticism by claiming these highly complex systems should be left to the experts. ‘You wouldn’t understand … leave it to us.’”

“[He] explained that churches hold community health fairs at which doctors show up and perform predatory screenings [using] tests [that] should not be performed unless a patient has serious symptoms […] For anyone else, it’s likely to lead to medical care they don’t need. […] She would be responsible for a small portion of the cost, but all of us would pay for the rest of her bill through the Medicare program.”

“Doing a procedure pays well, but taking time to explain the importance of exercise, which increases leg circulation, pays poorly. Leg artery procedures can generate $100,000 in one day when a doctor owns the facility.”

“He was flabbergasted. ‘We don’t know the medical science,’ he said. ‘We just wanted to serve our community and invite people into our church.’

“For the car dealer, getting people to pay sticker price can mean making 15% more off the sale. But for a hospital, gouging the sick and injured can mean making 1,000% more.”

“Hospital officials confessed that they inflate bills more and more each year to generate more revenue since their insurance companies pay only part of the sticker prices. Insurers confessed they demand bigger and bigger discounts in their contracts with hospitals in order to keep up. Both acknowledged that they pass on higher hospital bills to the public in the form of higher insurance premiums.”

“‘Insurers fight for a bigger discount every time they renew a contract with a hospital. Then hospitals go around and inflate their prices. It’s a game.’”

“[It’s] impossible for patients to know in advance what they will pay, but it enables insurance companies to have an agreed-upon discount rate on hospital bills.”

“Hospitals use software called the ‘chargemaster’ that automatically inflates prices to achieve a desired margin.”

“Half of the Amish people we interviewed [in Pennsylvania] said that when they or a relative gets a serious sickness, they take the Amtrak train to Mexico [because] the prices are fair and disclosed up front.”

“She got smacked with a $10,000 bill. It included an $87 charge for blankets.”

“‘The law allows us to charge whatever we want. If we want to charge a million dollars, she has to pay it.’” - a hospital administrator

“One study found that for every ten doctors, the average U.S. hospital has seven nonclinical full-time-equivalent (FTE) staff working on billing and insurance functions.”

“Predatory billing practices are rare in the few health care sectors that have already adopted real price transparency, including cosmetic surgery, in vitro fertilization, and LASIK surgery.”

“Centers that initiated full price transparency saw a 50% increase in patient volume, a 30% increase in revenue, and an increase in patient satisfaction.”

“The pediatrician documented in her daughter’s medical record that the hospital had caused the infection […] and the hospital sued them again. And they garnished Jennifer’s husband’s paycheck a second time.”

“She could not get basic answers to her questions: ‘Can I get an itemized bill?’. ‘We can’t answer your question, you just need to pay.’”

“The interest and court fees amounted to 60% of the principal. That sounds less like a hospital that’s there to serve and more like a payday lender”

“Between 2007 and 2016 alone, the average price of an air ambulance transport charged by one company went from $13,000 to $50,000 […] In one instance, seven helicopters arrived at a car accident scene, apparently looking for customers.”

“While there are many social injustices in this world, the reason I’m so appalled at predatory medical billing is that it’s done to people when they are at their most vulnerable.”

“The companies know how much each flight costs, he said, but they don’t give a price to patients when they make them sign the legal paperwork.”

“Insurance companies examine only deviations in the care of an individual patient, not patterns based on groups of patients […] We focus on the results of a procedure, not on whether the procedure was appropriate.”

“Without looking at patterns, a reviewer would not be able to discern from the patient’s record whether or not it was unnecessary. Each case would have documentation of soft criteria for surgery.”

“The question ‘How often did the hospital staff do everything they could to help you with your pain?’ became a measuring stick [that] created a perverse incentive to distribute excessive opioids […] The opioid crisis was unique to American medicine.”

“We can start by changing perverse financial incentives. It is difficult to find doctors interested in carefully managing a patient’s pain medications because doing so pays so little.”

“The law is clear in the United States. Hospitals are required to treat patients during an emergency, regardless of insurance status […] Why does our health care system treat ordinary people like criminals when they are out-of-network?”

“The single document was really two contracts blended together for a reason. First, that she agrees to be treated. No problem there. Second, it would say she agrees to pay 100% of whatever is charged […] she would sign away her financial life before seeing any of the bills.”

“Patients should obviously pay a fair price for their treatment, but too often this is a rigged game. The hospital charges don’t have to be reality-based. The amounts they accept from insurance companies don’t have to be disclosed. The price the patient will pay is not shared before treatment takes place.”

“Imagine you see an orange in the supermarket with no price on it. You take it to the register to get a price check. ‘How much for the orange?’ ‘You have to buy it to find out,’ […] [they] charge your credit card $500. And there are no returns.”

“When patients who are not paying for their medical care can choose between lower-cost and higher-cost care, they choose the more expensive care. They assume the more expensive, the better.”

“Insurance brokers get kickbacks for selling health insurance and pharmacy benefit manager plans to employers […] He had regularly been offered hundreds of kickbacks from insurance companies, ranging from $30,000 to $100,000. [The bonuses] pushed [him] to put employers into plans that were way too expensive for them.”

“They were not bad people. They are just responding rationally to market forces.”

“The employers pay for health benefits out of the pool of money they use for worker compensation. Therefore, that compensation allocated to rising health care costs is not going toward increasing an employee’s wages. In other words, it’s coming right out of the employee’s pocket.”

“‘The spread’ is the difference between what the PBM pays a pharmacy for a medication and what they invoice an employer or health plan for that same medication. He had data examples in which employers were paying their PBM 5 to 20 times more than what the PBM was paying a pharmacy for the medication.”

“A PBM can set any copay for patients regardless of the medication or the true cost. One patient paid a $285 copay for a $40 medication.”

“The PBMs have gone to great lengths to keep the real prices secret, using a fog of fees, rebates, and discounts that make a true value too complicated for anyone to determine - [and] there are thousands of these meds. Secrecy is how everyone in the drug supply chain makes so much money.”

“Together, the big three PBMs—OptumRx, Express Scripts, and CVS Caremark—control approximately 85% of the U.S. market.”

“The four largest GPOs [group purchasing organizations] in the United States dominate 90% of the market.”

“Group purchasers were granted an exception to the antikickback law, known as a safe harbor exemption. It’s the same exemption that allows PBMs to receive kickbacks from the pharma companies they buy from […] [which are] opaque drivers of price distortion.”

“The new ACA health care law had inserted in it the “Safeway Amendment,” which allowed employers to use up to 30% of the cost of an employee’s health coverage as a ‘reward’ to induce the employee to take part in the program. If you don’t participate, you pay a lot more for your health insurance. That’s how wellness programs proliferated in America.”

“So why do people want to focus on things like lowering central line infections by using the surgery checklist and Safeway model? I think it’s because the real drivers of health care costs are legacy stakeholders, like hospitals, insurance companies, or drug companies, or all the middlemen I’m exposing in this book. There are so many hands taking money out of the system that there’s no silver bullet solution to save money. To lower costs, we must take on the powerful stakeholders.”

“We have competition in health care, but that competition has been at the wrong level. Medical centers have been competing on parking, billboards, and appointment scheduling ease. Medical centers should be competing on value (quality and price), not just on conveniences.”

“One simple thing you can do: ask for a price every time you are considering a medical service.”

“The prerequisite of any free market is viewable pricing information—not just inflated charges, but the actual amounts of settled bills.”