The two root issues driving health care’s cost crisis—the appropriateness of care and pricing failures
Marty Makary MD
3 Lessons
- The driving root causes of surging medical prices are 1) excessively high costs of procedures and 2) the number of unnecessary procedures that are performed.
- The unnecessarily high costs are due to a lack of pricing transparency, a sort of tug-of-war (the discount-markup game) between hospitals and insurance companies, and the number of unnecessary and predatory middle-men.
- A large percentage of healthcare procedures are unnecessary. They are either performed for predatory profiteering reasons or more commonly because of a lack of standards between physicians of the same specialty.
3 Actionable Takeaways
- If you are in an emergency situation, all you have to sign is the informed consent form. You technically do not have to sign and can even strike out the portion that says you will be liable for all payment.
- Using a site like Healthcare Bluebook is a great way for patients to shop around for better-priced healthcare and create more of a free market
- The downfalls of the healthcare industry aren’t simply greedy people at the top. It’s a whole system that is bloated in multiple areas with too many middlemen, a lack of price transparency to stimulate a free market, and too many unnecessary procedures. The author has promising hope for the future as there are companies now that are starting to disrupt the status quo. The book ends in a hopeful manner saying that change is in the future.
Summary – Why is Healthcare So Expensive
Screenings
- Early screening can be an effective way to catch diseases in their early stages, however, over-screening for disease can paradoxically become a bad thing. Vascular surgeons are a perfect example of this. Many times they will have screenings at places like churches and recruit patients for procedures. Oftentimes these procedures are based on questionable tests that are positive in a large number of people who don’t neccessarily need the procedure (high false positive rate). Dr. Makary says that surgeons can get isolated in their own ways. When two surgeons become isolated one may be performing surgeries on a large percentage of people that don’t need it without even being aware of this problem. He calls for benchmarks so that doctors should be informed if their rates of certain surgeries are deviated from an expected standard, indicating they may be performing unnecessary procedures.
Inflate–Discount Game with Insurance companies
- Because insurance companies pay for so many procedures, hospitals give insurance companies a discount on their services. Hospitals often raise their prices yearly to combat this issue, and in response the insurance company requests a steeper discount percentage. This cycle continues year after year causing the sticker prices of services to skyrocket. While an insurance company may only pay $5,000 for a surgery, the sticker price may be upwards of $25,000
PE firms and air ambulances
- This is an example of privatization gone wrong. Hostpitals used to own their helicopters but it was extremely expensive to run an air ambulance program. Eventually private equity companies took over this industry and developed a monopoly. Prices have raised to astronomical rates, causing patients to have to pay upwards of $50,000 for certain flights. These companies operate at a monstrous profit margin due to the lack of competition in the space.
Lack of Benchmarks i.e. caesereans on Fridays
- As mentioned before, Dr. Makary calls for the use of benchmarks to hold physicians accountable and inform them of their patterns. For example, physicians rates of caesareans were monitored and found to have a soaring rate on late friday afternoons. Is there a physiological reason for needed ceasareans at this time, or do doctors just want to get home on time on Friday? I have my guess. This isn’t even neccessarily malevolent. It may simply be unconscious bias in decision making but taking the massive amount of data we have and creating benchmarks for physicians can help inform doctors of times they may be performing innapropriate care.
Prescription benchmarks
- Opioid prescription is all over the place and physicians don’t have a good standard to look to when prescribing. One would think that specific surgeries have a set amount of opioids to prescribe, but the truth is it depends on the physician. To be quite frank, it often depends on when the doctor went to medical school and what was taught. This is crazy to me and seems like a simple reform. Dr. Makary said that their are organizations looking into creating prescription standards for different procedures so that there would be some level of standardization of care.
The Middlemen
- Pharmaceutical Benefits Managers (PBMs) are companies that manage the pharmaceutical benefit plans provided by Health Insurance. They are paid by the insurance company to negotiate deals with pharmaceutical companies and create a pricing structure that the health insurance will use for their patients. PBMs get paid for their services and they also make money on the spread. The spread is the markup from the price they paid the pharmaceutical company for a medication to the price they charge the insurance company. Dr. Makary says that this can soar up to 500% at times; meaning that a PBM may pay $10 for a drug and charge the Health Insurance (an indirectly the policy holder) $50 and pocket the spread of $40. He says that PBMs have clever ways to hide the spread and basically make it very hard for anyone to see this massive markup.
- Group Purchasing Organizations (GPOs) are companies that combine the purchasing power of companies and buy in bulk to get discounts on various equipment. For example, a GPO would negotiate with a hospital bed manufacturer to get the beds in bulk for many hospitals at a discounted price. This, in theory, could lower healthcare practice but in practice actually does the opposite. Manufacturers actually end up paying the GPOs to keep their equipment catalogued, raising the price of the product. As competition gets stiffer in an industry the manufacturer has to pay the GPO more and more to keep market share, continuously raising the price. In addition, since this is just a numbers game for the GPO, doctor’s get less and less say about the quality of their equipment. If an innnovative product comes onto the scene that a doctor wants, they better hope that the manufacturer has the massive capital to pay the GPO to catalogue it. Instead the mass of the GPOs usually just maintain the status quo.