The literal and metaphorical accuracy of the headline for this piece is hopefully not lost on the reader, even though it may be repugnant to some. And who am I to take such aggressive liberties with your sensibilities? I’m just one more voice, not a minted expert in the field. But from my perspective as an aging (experienced) healthcare system consumer, and as the head of HR for a global company, I think I have some basis for my comments.
Case in point: my recent colonoscopy.
First, a little history of the healthcare market.
Before the middle of the last century, healthcare was provided by doctors, nurses and hospitals to patients, who paid directly for the services. Consumers were in control of who they chose to serve them, and often negotiated payment terms depending upon their ability to pay in cash, chickens or services traded. With the advent of company-provided healthcare insurance, subsidized by the employer, the first step was taken to remove the consumer from the transaction decisions. Unions also got involved. To help control the escalating costs, contracting organizations were introduced who took a fee to lower costs: Preferred Provider Organizations. Health Maintenance Organizations were sanctioned to again try to control cost escalation. Government got into the game directly as well, with Medicare and Medicaid programs soon becoming the largest buyers of healthcare, on behalf of the citizens eligible for those systems. So the people who receive the services have not been in control of the transaction decisions for many decades. And when consumers have no direct negotiating power, the open market doesn’t function very well.
When I take my car into the shop for repairs, the law requires my mechanic to give me a good-faith estimate of what the charges will be, and I have to sign off on that estimate. Then, if the charges look like they’ll be more, the shop must get my approval before proceeding. These laws were put in place to protect people from unscrupulous repair shops who held your vehicle ransom until you agreed to the extra work, which may or may not have been necessary. Sound familiar to you healthcare users out there?
The photograph above shows what I encountered when I went in for my ten-year pipe inspection. I asked the medical assistant at the counter if I could see what the various providers would likely charge, before I submitted myself to the examination. She said that she wasn’t able to do that because she worked for the endoscopy facility, not for the various parties who would be using the facility on my behalf. I could have asked each of the providers for an estimate, but I feel quite certain the response would have been, “Uh, we don’t do that. We negotiate our rates with the insurance carriers through the PPO.”
The fees come from multiple entities, each of which is formed as a separate business to protect the interests and reduce the liabilities of the healthcare professionals involved. The fees are negotiated in advance by entities who have been selected by my employer to negotiate on my behalf. (Ironic that my “employer”, in this case, is actually me. More on that later.).
Because I selected the plan from options that my employer (me, again) chose to offer, I know what my deductible and co-pay will be, as a ratio and fee per service, respectively. But I don’t know the actual dollar value because I can’t get an up-front quote. I can’t go shopping for other quotes unless they are within the PPO “network” of contracted relationships among providers. Even if I did, I’d get the same responses that I got at the endoscopy counter.
My employer (me) is similarly unable to truly go shopping for better deals. When I look at the market for service providers, the options are limited. Insurance companies are restricted to operating where they are licensed, state by state. It’s expensive to get that licensing and maintain the necessary compliance standards of each state. And carriers can decide whether or not to operate in a given state, which limits the number of options an employer can choose from. Typically, I have only three quotes each year to choose from, provided by insurance companies willing and licensed to operate in the states where we have employees in the U.S. The options are few.
On the other side of the story is the fact that in terms of setting pricing according to value received, the healthcare value proposition is essentially infinite. How valuable is your life? What would you pay to retain it? To extend it? And when pharmaceutical, diagnostic and medical device companies realized that they had the negotiating power due to this limitless value, they also understood that investors would want to own a piece of that cash flow. So public offerings for healthcare companies went through the roof in the last fifty years. The money raised in those offerings went for high salaries for the executives, researchers, and professionals. And of course to the providers to the industry: lawyers, accountants, real estate developers, investment banks, commercial insurance carriers, equipment manufacturers, etc.
The public companies so formed are found in every one of our retirement plans, because our pension and 401K money is spread across funds that all have a healthcare component to the holdings. And as future retirees, we want double-digit returns on those funds so we can truly enjoy our final years with financial security. We, the disenfranchised consumers of healthcare, who no longer have any negotiating power in the transactions, are directly benefiting by the out-of-control escalation in healthcare costs through our retirement programs. (Side note here: 80% of the U.S equity markets is owned by 10% of the population, so most of the public is benefiting very little by this circular return on costs.)
Thirteen out of 14 of the other countries where my company has employees have nationalized healthcare. Those have their own problems, and I won’t enumerate them here. I do think that the free market approach would be better than government-controlled systems. But we don’t have a free market system.
If I were King for a day, I would offer the following as some steps we could take towards reversing this madness. They are simple to say, incredibly difficult to implement:
1. Stop healthcare companies from going public.
This would moderate the insatiable appetite for profit growth in an industry where the value proposition is infinite. I know the response: without public offering funding, private companies would not have the ability to raise the money necessary for research and development. Well, there are always corporate debt offerings or guaranteed dividends, which would appeal to the investors who want stable, long-term cash flow. The investors who want ten times their investment within three to five years (venture capital and private equity) through a public offering or a sale to a larger fish, would find other industries.
2. Allow national competition across state lines for insurance companies; one licensing method that qualifies for the whole country.
This would increase competition and thus create downward pressure on costs to consumers.
3. Require the prescribing healthcare provider to give good-faith estimates to the patient, well in advance of the service to be provided, with timing exceptions for imminent, life-threatening situations requiring immediate medical interventions.
This would include all service providers, not just the prescribing party. My mechanic has to give me an estimate that includes the costs of parts provided by others and sub-contracted services. My doctor should be able to figure out how to do what my car repair shop has been doing for decades.
4. Create no-fault liability insurance that both providers and consumers buy in cases of malpractice claims
This takes the speculation by attorneys out of the cost structure. Ambulance chasing would be greatly reduced, and insurance premiums would fall. The premiums would be split between the provider (75%) and the consumer (25%) at the time of service provision, tacked onto the service fee.
5. Eliminate “retail” pricing
The people who lose their homes and go into poverty due to health problems are the ones who don’t have the umbrella protection of an insurance plan that caps costs to the insured. The pricing game in healthcare is the same as in other product and service industries. You raise the price for advertising, then discount it according to your negotiated agreements. “Only fools pay retail” is the mantra of the savvy consumer. As said earlier, in healthcare the consumer doesn’t have any negotiating power. So if healthcare providers are only able to provide one pricing list, that everybody can see and compare, we wouldn’t need PPOs to negotiate for us, and therefore we wouldn’t need to pay the PPO fees. Nor would the most unfortunate of us be stuck with the pricing that the wealthiest of us couldn’t even afford.
There are a few more notions I could offer, but that would be taking my delusion that anything along these lines will be done to an extreme. I’d settle for 2 out of 5 of the options above. It would be a start.