This is a letter I sent to Gary Cohn, appointed by President Trump to head the National Economic Council and, among other things, come up with a plan for reforming healthcare. Formerly president of Goldman Sachs, Cohn may be a wizard at finance, but healthcare economics are wildly different and famously opaque. So I thought I would help him out.]
Subject: A brief on healthcare economics. (8 minutes)
o Why healthcare economics are different.
o Why the ACA is failing.
o What would work.
Who I am (credentials): Independent healthcare author and analyst since Jimmy Carter’s administration. Speaker, consultant across the industry at all levels, including insurers, hospitals, device manufacturers, employers, Veterans, pharma, World Health Organization, Department of Defense. Look me up: ImagineWhatIf.com. Books on Amazon.
Core problem: The core problem in healthcare reform is the actual cost of medical care.
o Healthcare in the U.S. by any measure costs about twice what it should.
o Medical prices are completely disconnected from the cost of production.
o Few medical providers even know the true cost of ownership of their products.
o By a number of analyses at least one third of that (well over $1 trillion this year) is waste, paying for things that we don’t need and that don’t help.
o Solving just the federal part of this would completely wipe out the deficit.
Trying to “take care of everybody” will always be impossible politically and economically as long as healthcare costs twice what it should and wastes trillions of dollars.
Solvable: This is a solvable problem. Change the relationship of the sector to its true customers by shifting the payment structure, prompting business model innovation. Stop paying for waste, and $1 trillion/year in unneeded overtreatment will disappear. Prices will drop to something like a true market price. This will not happen overnight, but it could happen over five years with vigorous implementation.
Why does it cost so much?
No price signals: The structure of the U.S. healthcare market since the early 1980s has made it opaque to price signals. Customers in healthcare ask a different question than customers in most markets. Whether hospitals (as customers of suppliers) or individuals needing an operation, healthcare customers mostly don’t ask, “Can we afford it?” Or even, “What’s the best value for the money?” They ask, “Is it covered? Can we get reimbursed for this?” And the reimbursement or coverage is set by complex non-market mechanisms that in most parts of the market are themselves opaque to the customer. So there is no real customer and no real price signal in most relationships throughout the market.