Healthcare is getting really expensive.
Starbucks spends more on healthcare than coffee beans.
General Motors spends more on healthcare than steel.
If you think this doesn’t impact you as you have a good employer-paid health insurance plan, think again: your employer is paying more and more every year, which equals less money for salary raises and bonuses. And if you’re paying taxes, rising Medicare costs kind of are your problem.
I learned this and more from The Price We Pay, a fascinating book on the healthcare industry in the US and what’s wrong with it
The Price We Pay: What Broke American Health Care--And How to Fix It, by Dr. Marty Makary (288 pages)
Rating: 4/5
Who should read it: Anyone interested in healthcare, medicine, economics, or why your wages aren’t going up as much as you’d like
Summary
The book is a deep-dive into all the ways that the US healthcare system is inefficient and costs way too much. Let’s say you go to the doctor with some issue:
First, the doctor may overprescribe care (unnecessary medication, some kind of scan, might even recommend doing a procedure). They might do this because “it’s always been done this way” or what they’re used to. But a few doctors might be doing it to make more money, as certain procedures can be very lucrative for them1. Doctors, unlike many other professions, can can create demand for their own services.
As Makary mentions, doctors are experts in saying tiny phrases that can nudge people to elect more care or purchase more services: “it might be safer for the baby,” (=C-section) or “your knee is bone-on-bone” (sounds painful, better get surgery)
If your insurance doesn’t cover the service or you are paying out of pocket, the hospital can charge you whatever it wants for the service. Unlike virtually any other product / service in the world, you don’t see the price before “buying” healthcare. And hospitals sometimes charge exorbitant fees on uninsured people, just because they can. He even talks about a hospital that has successfully sued and garnished wages from one in five people in the small town it served
The actual equipment / materials used to provide healthcare are more expensive now as well. Hospitals buy through GPOs (group purchasing orgs), which negotiate on their behalf. But according to Makary, some GPOs exist to enrich themselves, taking fees from suppliers to be in the catalog (similar to how grocery stores charge food manufacturers fees to be on their shelves in The Secret Life of Groceries), and make supplies more expensive for hospitals
There are plenty of consequences of this:
First, we all make less money as the above makes health insurance more expensive, leaving less money for employee cash compensation. We also spend more money on copays, deductibles etc.
In many cases, we also get worse care - a mother might get an un-necessary C section because the doctor wants to be home for dinner by 5pm (a true story he mentions in the book)
As a second order effect, people are probably unhealthier because they are scared of getting care and being stuck with a huge hospital or doctor bill
Key takeaways
You can almost think of this book as an “applied economics and psychology” study of the healthcare industry. Makary doesn’t given any grand or unifying theory of why things are like they are, but a few themes emerge:
Focus on the important stuff: There is lots of talk in Washington and policy circles about fixing healthcare, but much of this centers around 1) how to pay for healthcare as opposed to making it cost less, and 2) small incremental cost savings, like reducing infections in surgery. While these are great, moving the needle requires structural change and difficult conversations with hospital and doctors
Lack of transparency: Unlike other goods, nobody knows how much medical care cost, which makes it hard to price shop. And even once you’ve been billed, it’s hard to understand what exactly you’re paying for, as Makary shows when we tried to get an itemized bill:
I called the hospital on Heather’s behalf and asked them to explain to me, a surgeon, why was general anesthesia required for a procedure that could have been done with local numbing medication? And why did her blankets cost $87? The representative who picked up the phone insisted that Heather and I complete a patient privacy authorization form, which we did. They accept these forms only by fax…Once I called to confirm that the authorization form had been received, I requested an itemized bill. I was told this had to be done in writing by ground mail…Two months after I sent my letter requesting an itemized bill by ground mail, I received in my mailbox a letter from the hospital explaining that there is a $25 fee to receive a copy of the itemized bill. The letter went on to explain that the request had to be sent by mail (no self-addressed envelope was included) and that the $25 had to be paid with a paper check.
Reliance on experts who might have their own incentives: While most doctors are good, we are still reliant on them to guide us. The incentives that guide how they treat patients go beyond the obvious. Take why they tend to prescribe 30+ opiod pills post-surgery:
One of them pointed out that our electronic health record, EPIC, had an e-prescribing default that recommended a 30-day supply. An intern also explained, “Some chief residents will yell at us if we prescribe anything below 30 pills.” A different resident said prescribing too few could result in calls during off hours when it’s inconvenient to prescribe more. These reasons were frustrating to hear, but they were honest. I knew these unwritten rules from my “residency survival manual.”
Buying power / leverage: Unlike comparing how much almond milk costs on instacart between stores (a key pastime in our house), it’s really tough to price shop if you have a health emergency or need to be seen quickly. If you go to the ER, you get a form that says “I will pay whatever I am charged.” What, are you not going to sign it?2
Everything has a cost: Even though you think you might not be paying for healthcare costs, you are through insurance, as mentioned above. Even other people’s costs matter given our health insurance system
How can we fix healthcare?
Drive transparency: to address some doctors overtreating patients, he and his team simply sent a letter to 100s of doctors in a field saying, “the average doctor in your field performs this number of procedures per patient, this is your number.” Simply doing that drove doctors to be more judicious with their procedures and reduce wasteful spending. The trick here is to not do it in an accusatory way. This can also work on oneself - simply tracking basic data (your weight, your step count, how much time you spend on certain apps / day) can drive behavior change
He suggests there should be regulation requiring healthcare providers to disclose costs to customers ahead of time. This already exists for funeral homes - why wouldn’t you extend it to the living as well?
Question received wisdom: See the point about opioid prescriptions above. In every field, we are probably doing some things just because we were trained that way
Thoughts and reactions
I really liked the book - lots of concrete examples, compelling, and told with a strong point of view / opinion. There’s lots of interesting content in here I didn’t even touch on: the “air ambulance” industry, corporate wellness programs and how they fail, how doctors are trained. Highly recommended.
That being said, a few additional points I wish Makary had raised or made more explicit:
A lot of these issues aren’t anybody’s fault, but the result of complicated systems and “people doing their jobs,” and kludge / sludge. (see my review of Sludge). Makary repeats how doctors are shocked to hear how much their patients are being charged. No one goes into hospital administration to sue their patients, though - I’m sure many pricing decisions are made by someone doing excel in an office somewhere who’s never seen patients and who is being told to help the hospital make money and assumes nobody will actually pay this. Even when doctors systematically oversubscribe care, it might be due to inertia in their field as opposed to laziness or malice (and Makary should get a ton of credit for shaking things up). These systems are hard to unwind as they are kludges - fixes put on top of fixes put on top of fixes.
Hanlon’s razor states: “never attribute to malice that which is adequately explained by stupidity.” I would amend it to “never attribute to malice that which can be explained by large complex institutions with lots of different interests.”
Part of what’s driving high costs might also be the limited supply of doctors, which is controlled by…doctors. The American Medical Association credentials medical schools and doctors, so has an incentive to train less doctors (= less competition for existing ones = higher wages). You are seeing this being addressed by nurse practitioners, etc, but still was surprised this wasn’t addressed explicitly3
I wonder how much of costs are driven by us: our sedentary lifestyles, unhealthy diets, inadequate sleep, etc. If the average American went from taking 4,000 to 6,000 steps a day and ate 5% less calories, what would our healthcare system look like? Obviously, that is highly unlikely to happen for plenty of reasons, but is an interesting thought experiment nonetheless
Was also surprised that he didn’t speak about end of life care. We spend a lot of money caring for people in the last months of their lives, and it’s fair to ask if extending someone’s low quality of life for 2 months is worth it at any price. Which brings us to our last point…
…Everybody agrees we should be judicial with medical care until it’s for them. If getting an MRI for, say, back pain isn’t helpful on a statistical basis, you might still want the MRI in case you are the 1 person out of 100 who it will help. And even if you agree theoretically that we should spend less on end-of-life care, you might react differently when it the decision is about your parent and how much care should be expended on them in at the end of their lives. How do you persuade people not to pursue low-value spending?
Additional reading
One structural economic reason healthcare (+ childcare + education) are getting so expensive is Baumol’s cost disease. In 3 bullets:
Workers that make “stuff” (cars, clothing, whatever) are becoming more productive over time due to technology. As a result, their wages go up. But they are each making more stuff, so costs don’t go up much
Workers like nurses / doctors, teachers, and daycare workers aren’t becoming more productive over time: a daycare worker in 2022 can’t take care of twice as many kids as they could in 1972.
But these workers still need to be paid more (otherwise they’ll go to a “stuff” industry for a raise) - as a result, you have flat productivity per worker and higher wages per worker = why your healthcare, college tuition, and daycare are so expensive!
The main piece of medical career advice I got growing up was “focus on procedures…”
Most ERs / hospitals will give you one document that says you agree 1) to be treated and 2) to pay 100% of what you are charged. Makary recommends crossing out the language for #2 before signing
This isn’t specific to doctors: most occupations have some licensing organization which exists in part to limit competition