The U.S. healthcare system ranks last in quality and first in cost. But who’s to blame? First, let me clarify those statistics. Our ranking in cost is pretty widely accepted. If you look at total dollars, per capita dollars, unit cost, lifetime cost and on and on, the U.S. is first. That is the less controversial metric. But when I talk with benefit plan sponsors about where we rank in terms of quality, I often get more pushback.

The World Health Organization ranks us 37th, well below all other industrialized worlds. The Commonwealth Fund ranks us 11th (on a list of 11). How can this be in a country that spends so much, has so much access to care, and the cutting edge medical technologies?

It comes down to a matter of incentives. A healthcare system is not profitable with a population of well people. A healthcare system is not profitable in our current model if they are highly efficient at diagnosing and treating care. Our system (from the system’s perspective) works best with layers of complexity, administration, fear of malpractice, and, most importantly, uneducated, uninformed, and unincentivized employees (patients).

David Contorno
David Contorno

When a system is set up to be most profitable under these metrics, that is the system it will become. Looking back, it was almost preordained decades ago, although never more so than when HMOs exploded in popularity. HMOs were supposed to be the savior to our system, creating networks of providers willing to accept discounted rates in exchange for volume of patients from an insurance carrier. Sounded great at the time. Why didn’t it work? For the same reason that a drug typically costs significantly less at a pharmacy when employees pay cash versus what employers and their insurance company pay for the exact same drug when employees show their ID card – when employees pay cash, the person paying for it is the same person deciding where to spend the money. This breeds a far more competitive marketplace. But when a third-party is paying the bill, and yet the employee is deciding where that money gets spent, “fair and reasonable pricing” is not relevant.

Below is a transcript from a 60 Minutes story on the high price of cancer drugs.

John Castellani is president and CEO of PhRMA, the drug industry's trade and lobbying group in Washington.

Lesley Stahl: If you are taking a drug that's no better than another drug already on the market and charging twice as much, and everybody thought the original drug was too much...

John Castellani: We don't set the prices on what the patient pays. What a patient pays is determined by his or her insurance.

Lesley Stahl: Are you saying that the pharmaceutical company's not to blame for how much the patient is paying? You're saying it's the insurance company?

John Castellani: I'm saying the insurance model makes the medicine seem artificially expensive for the patient.

He's talking about the high co-pay for cancer drugs. If you're on Medicare, you pay 20%.

Lesley Stahl: Twenty percent of $11,000 a month is a heck of a lot more than 20% of $5,000 a month.

John Castellani: But why should it be 20% instead of 5%?

Lesley Stahl: Why should it be $11,000 a month?

John Castellani: Because the cost of developing these therapies is so expensive.

Lesley Stahl: Then why did Sanofi cut it in half when they got some bad publicity?

When I saw this story, I almost fell over. How can we not be outraged that one of the largest lobbying organizations in Washington thinks that insurance is making the prices seem artificially high and that if insurance covered more, all would be happy? Covering 80% vs. 95% doesn’t make it seem artificially high – the price they charge for the drug is what makes it seem artificially high! Doesn’t he realize a large part of the problem in this country is the cost of insurance, which is directly related to the cost of goods and services it is paying for?

We have a market in which the incentives are aligned to sell more quantity and at a higher price, which sounds like every single other manufacturer of goods and services in this world. Doesn’t everyone want to sell more of whatever they are making and do so at a higher price? So what keeps this in check almost everywhere else? The answer is simple: the consumer. The consumer does not spend their money if what they are buying does not provide “value” (the intersection of cost and quality). And what speaks louder to someone selling something than no one buying it? But employees generally use none of those metrics when consuming healthcare. If they ever ask about cost, it is “how much do I owe under my health insurance plan?”

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"There is no Yelp for healthcare. But part of the reason for that is because there is no demand for that information."

And the metrics? Well let’s face it, we use none. CMS ranks all hospitals on a 5-star system. Patients have a 71% greater likelihood of dying at a 1-star hospital over a 5-star. How man stars did the last hospital have that you walked into? No one has ever been able to answer that and I have asked thousands of people. But they can usually tell me how man stars on Yelp the last burger joint they went to has. Does anyone else see a major problem with this?

We Americans spend wantonly on our healthcare and expect insurance to pay for anything our doctors even hint will make us better, without ever asking about the total cost or alternatives, and then we get mad when our insurance rates go up. I am not here defending insurance companies. Nor am I claiming insurance is not part of the problem. What I am saying is that our complicated, complex, invasive and expensive health insurance is a result of the problem, not the cause. How can we ever expect insurance to be high quality and low cost when the very thing it is paying for is the opposite?

Being a good consumer in the healthcare space is not easy. And of course there are situations where it simply cannot be done (like true emergencies, the elderly, the young, etc.) But if we did it when and where we could, I truly believe the whole system would become more aligned and improve everywhere, and that all would benefit.

I am not saying this is easy. There is no Yelp for healthcare. But part of the reason for that is because there is no demand for that information either. What comes first? The supply of that info or the demand for it? I choose to focus on the demand side. If we refused to consume care until we could be told in advance how well the facility does what we need done and how much they charge, and shopped that around, then innovation would occur that would make that data more readily accessible with consistent comparison metrics. Where else do we buy anything without knowing price and quality? Imagine sitting down at a new restaurant and there are no prices on the menu. When you inquire about what’s good and how much it costs, the server responds with “You’ll find out what’s good after you eat it and how much it costs when you get the bill.” Would you ever order anything?

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