Summary of The Price We Pay

I picked up Marty Makary’s book The Price We Pay as I started looking into the price transparency problem in the USA. Family members, friends, and many colleagues complained about the surprise bills when they received care in America. I thought this was a big enough problem for me to apply some entrepreneurial chops to try and solve. The book gave me plenty of insights and ideas, and gave me a great place to start digging. For those that don’t have an idea of how problematic the space is, I would recommend it.

Top takeaway: Price transparency and benchmarking are some of the best ways to lower healthcare costs in the US. I don’t necessarily agree but Marty makes some decent arguments. See below or skip to the bottom section called “So why is health care in the US so damn expensive?”

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Part One: Gold Rush

• Marty starts by telling a story about how some doctors have offered free screening programs at churches. While it looks great on the outside, many of those people screened end up becoming patients who then pay the same doctors for finding problems they didn’t think about. It’s a whole ‘try before you buy’ scheme and churches have been falling for it.
• The big problem here is ‘overscreening’ and how it leads to people feeling initially safer that they are being checked, but eventually screwed because of unnecessary problems they find.
• Marty also does a great job establishing early on that he has many years of surgical and medical experience, and has multiple resources from John Hopkins. This allows him to get lots of data and build strong relationships with the right people
• Insurance providers and hospitals are stuck playing ‘the game’. For the outside observer of the US healthcare system, this seems obvious. Hospitals and healthcare providers charge higher prices, and insurances fight for greater discounts. Each hospital negotiates these prices and discounts with different insurers. This is one reason why the same procedure costs a different amount based on hospital and insurance provider.

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

• Marty is terrific in putting these complex problems into easy to understand solutions. One great example he brings up is how different prices are charged based on your condition. Paraphrased ‘ imagine asking a waiter at the restaurant for a menu, only to be asked who is your employer before the menu arrives. Then you learn the prices vary are much higher on you menu because of your employer.’
• For every 10 doctors, there are 7 people in the billing department.
• Hospitals have also been extremely unfair to patients. Carlsbad, a city with one main hospital has sued and garnished wages of a large majority of it’s citizens. This has put lots of pressure on the city’s legal departments, as 95% of claims are coming from the hospital.
• Hospitals complete the procedure and then charge an extremely high price. When a patient can’t pay, they offer ‘financial aid’ which is still very steep for most people. If the patient can’t pay, or refuses to, the claim gets taken to court, and the judges almost always rule in favour of the hospital. This forces people to take on multiple jobs and suffer economically.
• The equivalent here would be ordering food when you are really hungry from the restaurant, only to find out the owner charged you an incredibly high amount after you finished eating.
• What is happening in Carlsbad isn’t happening everywhere. He cites hospitals in other cities have leveraged their monopoly power to not only showcase their prices, but also keep the discount rates from insurances the same across the board.
• Private equity companies boosting the price of air ambulances. He states that many air ambulance calls used to be non-critical, and sometimes even loss leaders for hospitals. Now however ambulance and especially air ambulance has become so expensive, that it doesn’t make sense to use it. He even states some insurances won’t cover the cost.
• This is why you see Uber and Lyft taking patients to hospitals instead of ambulances — cost savings.

Part Two: Improving Wisely

• Doctors sometimes use simple nudges to convince pregnant patients to conduct a Cesarian section. These C-sections are not only more profitable, but the proof that they are better is not clear.
• One solution Marty and his team have come up with is to compare certain surgeries per clinician to the average. By creating this benchmark, it helps clinicians improve but also helps hospital admin make sure they are being fair and not profit oriented. The solution is called Improving Wisely.
• There is a need for metrics and measurements, so we can make improvements in healthcare. We should take these benchmark scores and apply them to every medical procedure to make sure we avoid overtreatment. Sometimes clinicians break down operations that should be done in one day, into three days. Benchmarking can pick up on these things.
• One big area where these benchmarks play a role is in drug prescriptions, specifically opioids. If we could benchmark which surgeries need opioids, and how often patients used these drugs post surgery, we could limit how much clinicians prescribe.
• Overtreatment is a big problem. The book uses many examples but the point is simple — measure so you can improve.

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Part Three: Redesigning Health Care

• Marty starts by comparing healthcare today to buying a car. The price you see is never the price you get. It always involves haggling, and everyone selling is on commission. He uses Iora Health as an example of a company making a change. They are focused on delivering care and prevention without charging insanely high prices.
• Marty then talks about a friend who he helped with an emergency bill. He starts by asking why out of network hospitals charge so much, but also focuses on the language they use in the contracts they ask you to sign.

[The agreement] would say she agrees to pay 100% of whatever is charged. […] Federal law requires a hospital to care for urgent and emergent patients whether they have agreed to pay or not (the EMTALA law). […] The price a patient will pay is not shared before the treatment takes place.”

• Imagine going into a hospital for an emergency and having to sign these contracts. In some cases they can be modified so you don’t have to agree to pay 100%.
• Multiple bureaucratic processes make finding line items or exact bill prices extremely difficult.
• This is like an Egyptian bazaar. The merchants at the bazaar know the exact price of what they are selling. They charge an incredibly high amount and then reduce based on negotiations. In the end a $1 item can be priced at $100 and sold to a happy customer for $50.
• There are websites like the Healthcare Bluebook and others to make this sort of pricing information apparent. Having used the site, I think it’s still not as accurate or user friendly as it should be.
• There are also issues with the process of negotiating and buying insurance from different brokers. These brokers serve a purpose and that is to explain the the benefits and help employers and people decide what is best for them. However, the financial incentives they are offered make it hard to be fair in deciding what is really the best.

“The way brokers are paid is one reason people are paying too much for health insurance, and I can’t believe no one is talking about it” Phil said. Throughout his career, he had regularly been offered hundreds of kickbacks from insurance companies ranging from $30,000 to $100,000 (often referred to in the industry as ‘bonuses,’ ‘overrides,’ […] or ‘contingency income’.)”

• Imagine you were 15 and you agreed to a deal with some milk suppliers that you’d help them sell ice cream. Then you went to your school and nearby schools to become the sole distributor of ice cream. After a while, competition started brewing, so the milk producers gave you extra money to keep these schools on board. You would convince the schools that your ice cream was better. You’d tell them its complicated to switch etc. You wouldn’t care as much about the quality you were selling, since the only thing that mattered to you was the additional capital from the producers.
• To counter this, there are some providers that are not working on a commission or being open about the kickbacks. One example is Epowered Benefits.
• There is also a company called Health Rosetta that is trying to create certifications around full transparency for those selling health insurance. By creating transparency in the brokerage marketplace, Health Rosetta hopes it will create fair pricing that will eventually reduce the rising employer healthcare costs.
• Another set of greedy middle men are the PBMs. Imagine a dad (the PBM) who wants to sell his daughters girl scouts cookies (pharma products) at an employer. The employees get a massive discount on the cookie purchase, but when the employer gets charged, it’s a huge cost. The dad makes a large amount of money by saying he has negotiated the lowest price, and since there is little drug price transparency, the employer can do nothing but assume it’s correct.
• Companies like Timber Ridge Consultants help employers negotiate better rates with PBMs for a flat fee. While this adds another middle man, it helps employers get a better deal overall.
• With the recent mergers & acquisitions taking place in the insurance world, PBMs are owned by insurance companies and heavily embedded in this market. Even if you could create price transparency, the best way to solve this is on a policy level that restricts PBM kickbacks.

“It’s not so simple. The PBM is the middleman, so if the pharmacy charges $10 for the medication, the PBM might bill the employer $50 and pocket the extra $40 — thats ‘the spread’”.

• Another area that adds costs to the hospital system are Group Purchasing Organizations — GPOs. These organizations are responsible for cataloguing medical equipment from manufactures in order to sell to hospitals. Usually the GPOs negotiate these prices with hospitals and other teams with little input from clinical staff. As long as devices are ‘clinically acceptable’ they are purchased.
• Manufactures can also offer a kickback to GPOs to promote specific products. Since Doctors and Surgeons barely have a say in what is being purchased, the equipment is either low quality or rarely used.
• Hospitals should avoid GPOs that use sole supplier contracting and try to get a better idea of the kickbacks.

“Many GPOs began requiring manufacturers to pay them fees to be listed in their catalogue. Over time, these fees kept going up, especially as competition among manufacturers increased and the number of dominant GPOs decreased.”

• Another area of higher cost is wellness, or as Marty says, overwellness. This is where we try to diagnose issues ourselves and ask for additional tests when they are not necessary. It is also when we buy products that are geared to improving our wellness but don’t really have an impact.
• We need to ask ourselves do some of the ‘wellness’ products and programs we have actually benefit us? Things like biometric screening at workplaces for people of any age — is that really useful? Marty would argue it is not, because it creates panic and is a poor use of clinician time and resources.
• We touched earlier on nudges or hints that clinicians give to convince patients to choose one procedure over another. The words used are important as it sets the tone for the conversation and builds trust. Right now the US, and I’d argue many other parts of the world, doesn’t trust the healthcare system. Much of this comes down to what is said, and who it is said to.

What Can be Done

• The last chapter focuses on what can be done to fix these problems. In every chapter Marty suggests things that individuals, businesses, governments, and employers can do to change the broken system. I’ll summarize some of these ideas below.
• Hospital admins: Create or use some metrics to assess how clinicians are behaving. Consider revealing your prices so everyone knows what they are getting. Join (along with clinicians) many of the projects under way to improve metrics and track healthcare outcomes like Improving Wisely.
• Clinicians: Watch the words you use and remember your job is to deliver health, not earn a larger income. Find areas where you can improve, and understand the medical billing problems your patients have. Marty argues many clinicians didn’t even know their patients were being charged such high prices or being sued. I find that hard to believe, but if that is true, I would suppose clinicians should make sure they are working in a system whose values are aligned to their own.
• Policies: Changing policies to disallow kickbacks and rebates to PBMs, GPOs and other vultures in the system. Surprisingly Marty never mentions Trump’s executive order on Improving Price and Quality Transparency. Even his endnotes suggest the articles he used go up to May 2018, conveniently one month before the announcement. I am curious why such a big policy change was not mentioned in the book, or after the fact. Marty also has various policy suggestions for financial aid, billing, and specific stakeholders like drug companies.
• Patients: There is lots of good advice given to patients in the book. Things like how to find the cheapest drug (using GoodRx or online discounts) to where to get a second opinion. He mentions companies he is advising like FairHealth.org to get a better sense of prices. He urges patients to consider writing to their policy makers, and overall questioning screening and other wellness programs. The biggest suggestion he has is around some of the forms hospitals give to patients that seem mandatory but are not. He suggests patients can modify certain elements of the form which require them to pay irrespective of price, as that is not a contractual clause.
• Employers: With healthcare costs rising and taking up the largest expense for many companies, Marty urges employers to really research their insurance companies and PBMs. He asks employers to understand what the kickbacks are, and identify providers that have a high level of transparency.
• Inventors/Entrepreneurs: I wish there was more content here but if you’re like me and looking for an interesting problem, this book is a good place to get a broad overview.

So why is health care in the US so damn expensive?

• Clinicians recommend expensive surgeries, conduct unnecessary screens, and talk at the patients
• Hospitals continue to charge higher to insurance companies and individuals
• Legal systems are used to sue patients when they can’t pay, having hospitals foot the bills
• Insurance companies have to work hard to negotiate and keep track of discounts
• The game between hospital prices and insurance discounts makes it hard to figure out general prices
• Middle men/vultures exist everywhere from PBMs who raise the drug costs, to GPOs who raise the device costs (or lower the device quality raising overall costs)
• Patients are overtreated or overly worried about receiving the best care
• Finally, and Marty might argue this is the biggest point, that price transparency and metrics don’t exist in a way that is usable and acceptable by the public. When you can’t measure something, you can’t regulate it. When you can’t regulate it, you create an atmosphere of predatory pricing and poor quality health.

I hope reading this summary was helpful in providing some context behind the sheer number of problems in the space. There have been many arguments on both sides of the price transparency debate and it’s clear Marty (and the Trump government) support this cause. Those against price transparency usually cite the NYT article on cement prices in Denmark going up as a result of everyone knowing the costs. It’s hard to see which side is right, but right now its incredibly unfair how people in the US are being price gouged when they need care. I left out a number of heartfelt stories and experiences that Marty does a exceptional job of conveying. These stories drive home the need for a better solution, and really showcase the problem.

I have spoken to a number of people on this topic and they point me to an idea similar to a “Yelp for shoppable medical procedures”. After reading this book I realized it is not that simple. I think any business, especially one routed in technology or data science, must have a seat at the negotiating table. Only there can you make real change. I have some ideas I am validating in the space, and if you’re interested, I’d love to chat with you.

Thanks for your time!