Catastrophic Care — Book Review & Quotes

Review

One of the most obvious statements of the last 20 years: Healthcare is an incredibly complex industry. My dad spent 25 years as executive at healthcare companies, and described the industry as riddled by a lack of understanding and misaligned incentives that leads to a purely reactive environment. His Yelp review is 1.5 stars.

My first exposure to this book was listening to Bill Gurley talk about it on the Ezra Klein Show. Especially as we head into an election year, the more I listen to people talk about the healthcare market, the more I appreciate the people trying to solve these problems. That being said, I struggle to be one of them. I don’t know what we should do, and as an investor I gravitate towards markets with opportunities for innovation rather than massive barriers. But watching for and supporting solutions in this space is absolutely important.

Some Highlighted Quotes From The Book

“Many of us believe that health care is fundamentally different and that applying experiences and standards from the rest of the economy makes no sense in matters of life and death. But health care is an industry. And the persistence of bad practices seems beyond all normal industrial logic. There must be a business reason that this industry, year in and year out, is able to get away with poor customer service, unaffordable prices, and uneven results — and even a business reason that my father and so many others are unnecessarily killed.”

“I’m a Democrat and once held views about health care common in my party. But the more I’ve looked at our system, the more I’ve come to believe that the obsessions of our political debate — universal access, health insurance regulation, cost control — are irrelevant to the real problems that have created our mess. Despite the partisan screaming, I suspect all Americans have the same goal: high-quality, safe health care that is affordable for all. And yet the frustrating reality is that despite more than sixty years of government efforts — representing the work of both political parties — we are moving further and further away from what we want. Prices are higher, more people are excluded from needed care, more excess treatments are performed, and more people die from preventable errors. Why?”

“Over time, I’ve come to believe that health care is indeed different from other industries, but primarily because we insist on treating it as different. Everything about health care — how we pay for it, how we regulate it, how we judge its effectiveness, how we’re willing to accept low standards from it, even how we talk about it — exists on a separate island from the mainland of every other service or product in our economy.”

“Every business would like to get away with high prices, poor quality, and miserable service, but this behavior carries an unacceptable cost: lost customers, lost revenue, lost profits. In health care, bad behavior doesn’t produce these bad results; bad behavior is often rewarded with additional revenue, and efficiency is penalized with less. All of the actors in health care want to serve patients well, but understandably most respond rationally to the backward economic incentives baked into the system.”

“Each of the many notes like hers confirmed what my father’s death had already seared in me — fixing our health care system is about much more than money and politics. A call for true health care overhaul may have no natural constituency among the interests fighting over health care policy, but it should have an ally in the largest and ultimately the most important interest group: patients. And that includes every single one of us.”

“The underlying insurance-based structure of our health care system drives excess treatment, cost inflation, and medical errors.”

“We’re surrounded by complex things made simple. I don’t really understand how this laptop I’m writing on works. Or how a GPS knows where I am when I drive. Or how an ATM handles cash deposits. Or how I can instantly change TV channels beamed to me from a satellite. In each of these examples, some company profited by taking something complex and making it simple for me to use. In health care, no one — including our politicians — profits by making it easier for us.”

“We should have a national cradle-to-grave safety net, but one that covers only truly insurable events: health crises that are major, rare, and unpredictable.”

“We will need to confine insurance to what it does efficiently (protect us against catastrophe) and remove it from what it does disastrously (serve as the payment system for all care). Only then will we align health care incentives with our interests.”

“Health is about probabilities, not certainties; health care, at its best, is about efforts to influence those probabilities to our benefit. We’ve all heard of that two-pack-a-day smoker still going strong in her nineties and that fitness fanatic who suddenly dropped dead at forty. But exercise is far more likely to increase your life span, and smoking to reduce it. And both are far more likely to determine your health than health care.”

“There are many unknowns in health care, but if we better appreciated its real limitations, would we still be willing to spend $ 2.5 trillion a year on it? By what mechanism does society determine that an extra, say, $ 100 billion for health care will make us healthier than would $ 10 billion for cleaner air or water, or $ 25 billion for better nutrition, or $ 5 billion for parks, or $ 10 billion for recreation, or $ 50 billion in additional vacation time — or all of those alternatives combined?”

“The factors that most predict your health are your wealth, education, and lifestyle — not your access to health care.† These personal and societal investments are the real “preventive” care, yet they are buried under our growing demand for tests and procedures.”

“We’ve become so accustomed to our setup that we no longer recognize how unusual it is. On the Mainland, we would never attempt to pay for tune-ups with our auto insurance policy or for a paint job with our homeowners’ insurance. But on the Island, we all assume that our regular checkups and dental cleanings will be covered at least partially by insurance. Most pregnancies are planned, and deliveries are predictable many months in advance, yet they’re financed the same way we finance fixing a car after a wreck — through an insurance claim. For all of life’s other necessities — shelter, food, clothing, and education — we accept that a variety of funding mechanisms are appropriate. Not with health care. Anything we spend out of our own pockets is considered an inadequacy of our insurance plan.”

“The ACA is fundamentally a health insurance bill, not a real piece of health care reform legislation, focusing as it does on the wrapper of insurance rather than on the complex and dysfunctional system inside.”

“If health insurance isn’t real insurance, then what is it? Fundamentally, it’s the payment mechanism for health care. Health insurers are essentially giant intermediaries between consumers and the health care system, negotiating charges, checking bills, assuring payment — basically shifting money around from consumers and taxpayers to providers. They perform this function at an almost inconceivable level of complexity and expense. U.S. health insurance companies employ over half a million workers. That’s one worker for every two doctors. The administrative cost of managing our system of health care payments alone is almost $ 1,000 a year per American household.§ So for most Americans, their annual share of this administrative cost exceeds the amount of actual health care they use in a typical year.”

“we’ve come to equate health care with these treatments and procedures. At the end of the day, the family doctor who has the time to recommend a broad range of lifestyle changes and medical approaches to address your risk of heart disease — and has the time to oversee your progress — is practicing more sophisticated medicine than the one who merely prescribes you drugs. But our priorities become clear when you look at what we’re willing to pay for. Although we’ll happily reimburse both doctors for the EKGs they perform and the pills they prescribe, we won’t reimburse the first doctor for the extra ten minutes he spends with you, the phone calls he makes to follow up, or his responses to your e-mails.”

“We patients have mostly bought into this model, demanding useless antibiotics for viral infections, tests to rule out improbable diagnoses, surgical solutions to lifestyle issues.”

“How is it possible that technology has made easier and cheaper almost every aspect of our everyday lives, yet on the Island, we all simply accept the conventional wisdom that high-tech medicine is driving high prices?”

“When your child starts sneezing, taking him to the doctor’s office and being reassured that it is, in fact, just a cold somehow makes everyone healthier. This beneficial feeling of being cared for — not necessarily being cured — is one of medicine’s great contributions to our life and well-being. It’s also a major reason we seek so much health care.”

“It is estimated that over the next decade the ACA will cost the government at least $ 1 trillion and the uninsured themselves at least the same amount. So my question was whether the additional short-term security of guaranteed health insurance would be worth the longer-term cost in lower rates of job creation, wage growth, and after-tax income. Simply put, would those whom the bill intended to help actually benefit when all of the legislation’s effects on their lives were considered? I don’t know the answer to the question, but I can’t find any evidence that it was ever even asked by the bill’s proponents.”

“What kind of insurance system needs $ 1.2 million in contributions from everyone when the most catastrophic imaginable risk costs $ 2.1 million? One that spends most of its money on managing noncatastrophic claims and associated administrative expenses”

“At the very least, shoveling ever more money into health care causes a shift in job creation, to health care jobs from everything-else jobs. To the extent these jobs achieve slower gains in productivity, national income will grow more slowly. More important, to the extent health care jobs offer less utility — less improvement in our lives — than other uses of the same labor, our quality of life will decline, whatever the statistics say (and haven’t we seen some of that over the past decade as the growth of health care has outpaced everything else?).”

“Our policy to have employers provide most health insurance is distortive. It saddles companies with a significant administrative burden, which is more affordable by larger employers than smaller ones. If the ACA mandate is effective, it will spread this job tax to employers not currently bearing it — especially companies in low-wage and low-margin industries. ACA’s proponents see this as “leveling the playing field,” but making both IBM and a small janitorial company pay for health insurance doesn’t make the labor market more fair: it simply means fewer janitorial jobs.”

“Kirsch explained to me that the point of affordable care is not necessarily low prices but a low payment made by the consumer-patient at the time of delivery of care. The concept is that no consumer should have to forgo needed treatment because his payment at the moment of getting treatment is too high.”

“Kirsch isn’t saying that the consumer wouldn’t ultimately bear the full cost of care; rather, because the consumer would bear this cost later and in another form — such as increased insurance premiums, higher income taxes, bigger Medicare payments — it wouldn’t affect his decision to seek treatment. In other words, just like with the deceptive financial practices prohibited by Dodd-Frank, consumers would purchase services precisely because they wouldn’t understand what those services would really cost them.”

“If McDonald’s offered cheeseburgers for twenty-five cents, you may well consider that a “Super Value.” But if McDonald’s charged your employer a $ 1,000 membership fee before letting you in, used taxpayer funds to pay their workers, grazed their cattle on your front lawn, and sent you a bill to cover their air-conditioning costs, that twenty-five-cent cheeseburger might seem a little less affordable.”

“The more health insurance costs us, the less our company can afford to pay out to Becky or to any employee as salary or wages. Of course, all Becky knows is that her salary is $ 35,000.”

“But over time — and over the whole economy — the effect is accepted by economists of all ideologies: the more companies shell out for health care, the less they pay in salaries and wages.”

“Becky has no idea she’s spending anywhere near this amount on health care. But the math is simple: if our society is going to spend 18 percent of our income on health care — and assume some of the burden for the lowest-income people — then almost all working people must bear a burden greater than 18 percent of their income. How else could an expense that large be paid for? Of course, most of us think of our health care benefits, not our health care costs. And that is the key to why Becky and the rest of us pay so much.”

“When we shift our focus from individual households to our entire society, the cost of the Beast’s growth becomes even more shocking. If health care expenses had grown only at the general rate of inflation since the inception of Medicare, America could afford to double our spending on education, buy five times as many new clothes and cars, triple our spending on entertainment and recreation, or wage another war or two. Every single year.”

“Only one sector added significant jobs in the Great Recession: health care, which took on 732,000 new employees while everyone else was handing out pink slips. If you’re a politician, you may think this is great news: “Our dynamic health care sector continued to create good jobs for Americans even during tough times.” But step back and think about what really happened and what it says about the structure of our economy. Even during a crisis, when all of us are focused on tightening our belts, health care demands a greater share of our money. Did we make a conscious decision to expand health care while reducing everything else? Or did it just happen automatically?”

“In its 2009 “Economic Case for Health Reform,” the CEA includes a chart which it says shows that the bulk of growth in compensation costs in the decade 1996–2006 went to employer health premiums; in other words, spending on health insurance crowded out growth in wages. The CEA projected that more than 100 percent of the growth in future compensation could go to higher premiums. In other words, wages could actually decline over time to compensate for higher employer health costs.”

“When I tell friends the story of our MRI price shopping, I get an almost identical reaction: “You can do that? Doctors will negotiate price with you?””

“This theory — that the Surrogates are more effective health consumers than we as individuals are — is the most important structural foundation of our health care system. It’s what justifies having all health care expenses — no matter how routine or trivial — “ covered” by insurance or Medicare. It’s also the reason that every government solution to the problems plaguing our system involves relying even more on these intermediaries.”

“On the Mainland, we consumers — operating as a disorganized and often unthinking mass — exercise highly effective discipline over the industries that produce the goods and services we consume. We’re the ones who punish the expensive, the careless, the low quality, and the wasteful. By disconnecting us consumers from the Island economy of health care, the Surrogates’ very existence has removed the greatest incentives for good behavior.”

“On the Mainland, Anna’s story is also remarkable, but for the opposite reason: it’s amazing that we needed to call so many people to get a 75 percent discount. Isn’t it odd that a doctor who could make a profit from a discount MRI didn’t seek us out? In what other business does a discounter not advertise loudly to potential consumers that he has lower prices? Where was the ad for the Dr. Crazy Eddie of MRIs, whose prices are so low he’s practically giving MRIs away?”

“What benefit does a health care provider receive from being the low-price leader, the quality leader, the safety leader, the comfort leader, and so on? None. And more than any other reason, this is why our health care industry does not bother to meet our demands for lower prices, higher quality, less waste, or greater safety. They are too busy serving the quite different interests of their real customers: the Surrogates.”

“All over the developed world, insurance-based systems dominate the financing of health care, which suggests that there is something fundamentally necessary about using insurance to fund care and intermediaries to negotiate prices. On the Island, every expert agrees that the unique nature of health care requires insurance funding. In the words of the great historian Paul Starr: “In any given year, the most costly 5 percent of people account for more than 50 percent of health-care costs, and the top 10 percent of people account for 70 percent of costs.” Insurance is therefore the best mechanism for moving funds from the many well to the few ill. At a conference of Island experts, no other statement is more certain to get you universal nods of agreement. Hold on. It’s true that “in any given year” health care costs are very concentrated. But the sad reality is that we are all virtually certain to be in that 10 percent high-use bracket for one or more years over the course of our lives. Returning to the Mainland allows us to put this in perspective. Health care is a very expensive service that all of us will need. At certain times in our lives, we’ll need it often. At other times, we’ll require it only rarely. Well, guess what? That’s true of all expensive goods and services that are universally used. Think health care is special? Only 11 percent of American households buy a car in any given year, even though almost all of us will purchase at least one over the course of a lifetime. Less than 10 percent buy a refrigerator in any given year. Half of marriages end in divorce, but only half a percent of Americans use a divorce lawyer in any given year. Houses, college education, weddings, you name it: a small percentage of people do all the buying in any given year. In many of these Mainland industries — where annual utilization is far more concentrated than in health care — we use a variety of techniques to spread expenses over many years, but needless to say, in none of them do we rely on insurance to fund purchases.”

“health insurers can achieve long-term profit growth only if the amount of money spent on health care increases. Forty-five years of health care inflation has not hurt health insurers’ profits; rather, it has fueled profit growth. Private insurers’ profit margins are at the lower range of American corporations (ranging between only 3 and 6 percent of revenues in recent years), so providing returns to shareholders has depended on the massive growth of total revenues — now $ 850 billion a year.”

“When traditional health reformers talk about insurers’ incentives to see customers take better care of themselves, I shake my head in disbelief. It sounds good, but the healthier we are, the less we’ll spend on health care. And the less we spend on health care, the less we’ll spend on health insurance. That may be a good thing for the country, but why would it be good for insurers?”

“For every hundred dollars spent on health care in the United States, the patient acting as consumer pays only eleven dollars;”

“We have extensive evidence that the very availability of insurance pushes up the amount of treatment, as well as its price. For example, Medicare spends almost twice as much per patient in Miami, where there is a surplus of doctors and care facilities, as it does in San Francisco, where supply is tighter. Why? Because to make use of spare capacity, doctors in surplus areas order far more procedures than do those in shortage areas. Note that this is the exact opposite of what we experience in any other industry, where excess capacity drives prices down.”

“Our ignorance — our irrelevance — as consumers is the answer to many of the questions regarding dysfunction in health care. The only real reason doctors haven’t invested in information technology while dry cleaners have is that doctors can use ridiculous paper files without losing patients. The only real reason the wait is so long at the doctor’s office but not at the dentist’s is because doctors can get away with it but dentists — most of whose patients pay for their own treatments — can’t. The only real reason hospital food is so bad, the decor is so ugly, and the entertainment options are so limited is because they can be — hospitals don’t lose patients on this basis. And yes, the reason hospitals kill so many patients is that they can — killing patients doesn’t mean they have less loyal customers or that profits decline.”

“In the grand scheme of things, it truly doesn’t matter whose paper is the thickest, the softest, the most absorbent, or even the cheapest. But providing those choices — allowing toilet paper manufacturers to chase consumers on whatever basis they choose — has resulted in all toilet paper (even the unbranded generic product) being thicker, softer, more absorbent, and cheaper than the Soviet one-size-fits-all solution.”

“When your city’s safest hospital advertises its success on highway billboards, all hospitals in your city will kill fewer patients.”

“Our health care policymakers have experimented with countless approaches to improving the quality of health care, reducing the price, and disciplining errors. Why not ask them to try something new? Want providers to offer safer care, lower prices, and better service? Make them chase us.”

“Imagine an alternative: instead of paying the hospital, Medicare or your insurer pays you, and you pay the hospital. Don’t you suspect that the hospital would be far more active in keeping you informed on what was happening with your loved one and explaining his treatment options? How much personalization of treatment do we give up to avoid personalization of payment?”

“Yes, Arrow is right that consumers don’t have enough information to be good consumers. But the agents we’ve designated to act on our behalf have proved to be worse. When it comes to regulating the health care system — providing real discipline on quality, excess, price, and safety — there is no real surrogate. It’s a job that only we can do.”

“On the Island, the explanations for the growth of health care all have to do either with health or with care: we’re getting older or we have more chronic diseases; effective new treatments cost more than less effective previous ones. But the real explanation is industrial: the health care industry has responded to our willingness to pay for anything labeled “health care” by continuously expanding the definition of health care. As discussed in the previous chapter, we built the Surrogates with the mandate to fund all the health care we need. The ensuing forty-five years have taught us that need isn’t independent of payment. That is, as we’ve shifted more of the direct cost away from patients, providers have less of a hurdle to clear in convincing us that we need more care.”

“And most of this stuff is probably doing people some good. But “doing some good” and “need” are not the same thing. Food and clothing are needs, but that doesn’t mean that restaurants and designer jeans are. Yet we could all be easily convinced of their necessity if someone else were paying the bill. That’s why no matter how much we keep spending on health care, we never seem to catch up to “need.””

“In short, the growth of chronic conditions is really the march of reclassification: many chronic conditions are simply medicalized terms for the various types of discomfort and risk that people have been dealing with forever. So we now think of these issues as medical ones — as health care problems — even though, in the CDC’s words, “four modifiable health risk behaviors — lack of physical activity, poor nutrition, tobacco use, and excessive alcohol consumption — are responsible for much of the illness, suffering, and early death related to chronic diseases.””

“To many people, the big drug companies are the chief villains of our health care mess. They convince consumers and doctors to overuse their products. They invest research funds into me-too drugs rather than breakthrough treatments. They maintain absurdly high prices — as is evident when their patent protections expire and generics sell at an average discount of 67 percent. All of these accusations ring true, but pharmaceutical companies are merely behaving rationally in response to the incentives our system provides. They may be the easiest target for criticism in the system, but that’s because, unlike most other health care businesses, they sell an actual identifiable product at an actual price (i.e., not bundled with other services like devices or hospital rooms). The drug business may be the most straightforward example of how our refusal to use price to regulate supply and demand creates excesses in both and discourages innovation.”

“Preventive care has become the flavor of the day among health care experts. In fact, the ACA mandates that anything considered preventive be covered 100 percent by insurers. Needless to say, this policy has already set off a scramble in the industry to ensure that all variety of tests and procedures will qualify under this provision. So what’s the problem with some extra screening? Can’t hurt, can it? The ACA policy is based on a fantasy that preventive care somehow saves the health care system money. For people with symptoms or clear risk factors, this may even be true; it usually is cheaper — and definitely safer — to head off heart disease than to treat the victim of a heart attack. But even for at-risk people, studies suggest that much of the benefit has been derived from doctors scaring patients into losing weight, exercising, quitting smoking or drug use, and cutting back on drinking. Society would save a lot of money by paying best friends to perform the same service. And as preventive care has expanded — in Beast-style — to include testing everyone for everything, it can only add massive costs to the system.”

“As Shannon Brownlee points out in her book Overtreated, recent studies suggest that having a full-body CT scan every year for fifteen years itself creates a 0.4 percent risk of dying from radiation-related cancer — roughly the same risk of dying in an auto accident.”

“We’re so used to the language of preventive care that we sometimes forget that high cholesterol isn’t actually heart disease, that above-average blood sugar isn’t actually diabetes, and that a diagnosis of low bone density — even if it’s now called osteoporosis — is not the same as actually having the symptoms of osteoporosis.”

“The same incentives that discourage a hospital from checking with Walter to see if he needs his wheelchair also discourage them from evaluating whether the risk-reward balance of major treatment is sensible for a man his age. The same weak Medicare oversight that allows for the full purchase of a never used wheelchair also enables an incalculable amount of excess medicine to be delivered in facilities plagued by serious medical errors. And unlike the unnecessary wheelchair, all these excess procedures can harm Walter — or even kill him.”

“How is it possible that the healthiest generation in the history of mankind needs so much more health care upon retirement than any previous generation? The answer is that Medicare itself has created an overwhelming economic incentive for providers to find “need” and to treat it.”

“My mom’s sister once told me, “Every year, I go into my GP’s office a healthy senior and come out of his office a broken-down woman with every illness known to humans.” Among seniors, the medicalization of senior years is the rule, not the exception.”

“All this adds up to $ 550 billion spent a year on Medicare — and we’ve spent almost $ 6 trillion since the program’s inception. Most of us assume that this increase in usage of health services is one of the benefits of Medicare. It has allowed seniors to consult with doctors more, to manage their chronic issues, and to catch potentially serious health problems earlier. It may well be that seniors feel they are better off for all this explosion in treatment, but in fact there is little evidence that the improvements in their quality of life can be attributed to all the health care they’re receiving.”

“Medicare’s cost advantage over the private sector, but I prefer to concede the point of Medicare’s supporters: Medicare is cheaper to run than private insurance. So what? Cheaper doesn’t mean more efficient. It may be cheaper to run banks without security guards, hotels without housekeepers, and manufacturers without accountants, but that wouldn’t make those businesses more efficient. Cheaper administration is only more efficient if it’s able to accomplish the managerial responsibilities fulfilled in more costly administration. And this is where Medicare fails.”

“Though we discuss health care as a national issue, the atlas recognizes a key reality of the industry: most health care markets are local. Almost all of us see doctors, get tests, and use hospitals in our immediate vicinity.”

“Why do some regions spend so much more than others on treatment for a particular diagnosis? A variety of factors are responsible, of course, but there is one characteristic common to high-cost areas: the supply of doctors and hospital beds. If you took introductory economics in high school, you would probably assume this means that areas with excess supply of doctors and beds had lower care costs and that areas with tight supply had higher costs. But you — and the laws of economics — would have been wrong. What the atlas consistently seems to demonstrate is that areas with excess doctors and beds spend more money per Medicare beneficiary.”

“Unbelievably, Medicare even pays for screenings for the terminally ill; 15 percent of terminally ill men were screened for prostate cancer, while a similar share of terminally ill women received mammograms. I’m not sure what’s scarier — that these suffering people were given tests or that they may have been further treated in response to the results. Even where Medicare has identified a clear and serious problem, it lacks the administrative capacity to fix it. For example, more than 5 percent of Medicare patients receiving CT scans of the chest get scanned twice, even though guidelines state that double scans should rarely be used; the percentage has not declined despite Medicare’s identifying the procedure as an example of dangerous medical excess.”

“The study also showed that 1.5 percent of Medicare hospital patients die as a result of a hospital care event. Let’s put that number in perspective. Approximately two million U.S. men and women have served in our conflicts in Iraq and Afghanistan; as of this writing, 6,365 have lost their lives. Our hospitals are so dangerous for Medicare beneficiaries that a senior has a greater chance of losing his life from a health care event at a hospital than a soldier has from serving our country in combat.”

“Excess care, unnecessary procedures, and sloppy treatment are not side effects of an otherwise well-functioning program; they are inherent in a system that emphasizes and incentivizes quantity over all else.”

“Medicare is incapable of functioning according to patient preference. The idea of health care being a want — even a serious want — rather than a need is completely foreign. But with end-of-life care, there can be no disguise — fundamentally, it’s all about wants. Since Medicare structurally can’t accept that there is no one correct medical answer to the question of how much end-of-life care any single person gets, it has accidentally committed assault on our seniors by pretending there is one. The result is that our seniors are getting a lot of end-of-life care today, much of which is in excess of their wishes and ignores their best interests or comfort. Several studies have shown that many physicians rarely discuss preferences with their seriously ill patients and that many patients who express a strong desire to die at home wind up dying in a hospital.”

“In 1970, the federal government added less than a billion dollars to payroll taxes and premiums to subsidize Medicare; this year it will contribute $ 250 billion.”

“It would be hard to exaggerate the speed at which Medicare’s spending has metastasized. In 1970, the program spent $ 7.5 billion on twenty million beneficiaries; this year it will spend $ 550 billion on forty-eight million people. This means that Medicare’s spending per person has grown by more than five times in that period, even after stripping out inflation. In the past decade, our economy grew by only 20 percent after inflation; Medicare’s inflation-adjusted total spending more than doubled, and real spending per enrollee increased by 80 percent.”

“After all, essentially every government projection of health care spending has proved far too low, beginning with the estimate made by the Congress that passed Medicare in 1965 that Medicare spending in 1990 would be $ 12 billion (it was actually $ 110 billion). All these estimates have the same problem: they assume that there’s a fixed amount of health care that seniors will need, rather than that the definition of “need” will continuously expand.”

“Before Medicare, when seniors paid almost all of their own health care costs, they had as much as 90 percent of their income to spend on things other than health care. Today, when the government pays for almost all of their health care spending, that little sliver that seniors pay out of their own pockets leaves them only 80 percent of their income for other things. After forty-five years of Medicare — and more than $ 6 trillion of spending on the program — how many seniors feel more secure about the affordability of health care than their predecessors did?”

“A friend recently told me that another argument in favor of Medicare’s extraordinary level of spending is that it advances the introduction of lifesaving technologies faster than an unsubsidized market would. Fortuitously, that same day, The New York Times ran a story about a more effective blood-clotting treatment widely used on the battlefield but barely at all in U.S. hospitals. The problem? The new treatment was too inexpensive to be of interest. Medicare’s incentives don’t drive better care; they drive more costly care.”

“We should keep in mind that our seniors are more vulnerable than younger people to the harm of overtreatment. They recover more slowly from procedures, are more likely to suffer side effects, and unfortunately have less time to enjoy whatever benefit treatment may provide. In other words, their risk-reward calculation should often suggest that they receive less treatment than the younger populations, not more.”

“Doctors and hospitals may well have been corrupted by Medicare’s perverse incentives, but that doesn’t mean they always know they’ve been corrupted. Economic incentives work powerfully but often quietly. As Atul Gawande showed in his brilliant New Yorker essay “The Cost Conundrum,” the incentive for excess medicine can pervert the very professional culture of medicine in a community. Doctors and institutions respond to competitive pressures and Medicare’s incentives to practice more aggressive treatment; over time, this begins to feel like necessary treatment. If you live in McAllen, Texas, you might not know that your hospital performs more procedures per patient than anywhere else in the country. Until Gawande’s article, even your doctor might have been unaware of this, having grown accustomed to the local way of doing things.”

“If more hospital beds are available in an area, local care patterns unconsciously adapt to this higher care capacity, and patients are more likely to be admitted. Similarly, research has shown that when ICU beds are readily available, more patients who are less severely ill will be admitted, and they will stay longer. Yet greater use of the hospital or ICU as a site of care does not lead to better outcomes on average.”

“Price isn’t a matter of efficiency but rather of how efficiency is translated into price through the dynamics of competition. Since these are broken in health care, efforts to make care more efficient have little impact on our total bill. The Island’s obsession with costs is more than misplaced; by focusing relentlessly on the cost of care, we actually drive it up — a sort of health care Heisenberg principle.”

“A recent Economist article on dialysis perfectly illustrates the inflationary impact of cost-plus pricing. Since U.S. clinics are paid on a cost-plus basis, they prefer to use expensive drugs rather than cheaper ones. In fact, many appear to order drugs in units that exceed what a standard dosage requires because they can charge the government for the wastage. Quoting a stock research firm, the article noted that many clinics preferred an injected drug with a price of $ 4,100 a year over the identical drug in oral form, priced at only $ 450 a year. Not surprisingly, the manufacturer of the oral drug responded by increasing its price above that of the injected version to make it more competitive!”

“The Surrogates claim to exercise their pricing power by paying as little as possible above cost. This concept may be fundamental to our entire health care system, but it’s based on a false assumption. We may all think of cost as something fixed — lemons, sugar, glasses, and the lemonade stand — but that’s only correct as a snapshot. Prices change constantly in response to value and to other prices. In the context of health care, with our willingness to pay for any care we need, cost can only go in one direction — up.”

“Nothing against Starbucks, but the coffee industry isn’t particularly complex; yet even here it’s impossible to imagine any central price fixer being able to respond to all the changes that Starbucks, its competition, bean traders, the makers of home coffee machines, and milk suppliers do as their full-time jobs. The very power of prices results from their being flexible, with the decisions to charge and pay them spread over an unimaginably large group of decision makers.”

“That’s good in theory, but in health care don’t we all benefit from more stable prices? No. Health care is infinitely more complicated and dynamic than coffee. In what other industry is customer demand so individual, innovation so constant, the requirements of cooperation so complex, and skilled labor so transferrable? All this complexity means that imbalances between supply and demand, between resource allocation and need, between technology and price, between demand and quality, will crop up faster in health care than in other industries. And so the impact of turning away from flexible pricing — this powerful tool of rebalancing — has been devastating to health care access, quality, and cost.”

“Wouldn’t it be great if you didn’t have to know the price of anything? On the Island, the answer is yes; our entire health care system is designed to shield patients from the pressure of being consumers. Unfortunately, a world without prices is also one that can’t achieve the purpose of prices. As I’ve explained, prices are the tools by which modern economies allocate resources to match what consumers want, understanding that those wants are constantly changing. And a health care system without prices can’t adjust to changes in our health needs.”

“Similarly, many claim that the drug industry is underinvesting in research for new antibiotics to combat infections resistant to older drugs. Again, drug companies’ investment priorities are blamed: finding a pill that can be prescribed for years to treat a chronic condition is more profitable than developing a short-term course. In other words, drugs that work partially are more profitable than drugs that work completely. But isn’t this fundamentally a pricing problem? In the same way that our administered pricing prevents me-too chronic care treatments from declining in price, it prevents effective antibiotics from climbing in price enough to provide a competitive return on capital. We may feel good about low-cost antibiotics, but it’s a shortsighted victory if not enough are produced.”

“Administered pricing also explains why our health care industry has so massively underinvested in information technology. Your dry cleaner computerized his inventory system to reduce the amount of lost clothing. Losing a customer’s shirt may mean a loss of that customer; at the very least, it requires a refund. Alternatively, a dry cleaner with efficient service could maintain the highest prices. But a doctor who invests in state-of-the-art patient data management can’t charge higher prices; insurers won’t pay. Nor is there a market mechanism to force hospitals that use paper records to accept lower prices. Without a flexible price system, those benefits never work their way into providers’ calculations. So these invaluable investments are never made.”

“Proponents of a single-payer health care system (sometimes called “Medicare for all”) argue that having a single powerful customer — presumably a government agency — would give us the benefits of maximum competition among suppliers and the massive leverage necessary to drive down prices. That’s simply not realistic, as our current system proves. True, it’s not single-payer, but for most health services, ours is already a few-payer system. In many regions, there are only one or two private insurers operating, which means that for most medical services, a hospital, physician, or clinic may have only three or four customers: the insurer( s), Medicare, and the state Medicaid agency. Medicare is already especially powerful; it provides 20 percent of the money spent on patient care, and its system of coding services for billing is now the standard for all other payers. For many hospital services, Medicare’s customer share is so large that the other payers essentially set their prices in reference to Medicare’s payments. I’m pretty sure I’ve never heard a single-payer proponent cite the success of the single-payer model in the defense industry, but I suspect the experience here — where the U.S. government is essentially the only customer for advanced weapons systems — should be sobering. The private defense industry has met the challenge of dealing with one customer through endless consolidation. On most major projects, only two suppliers compete — and they tend to compete on features rather than price. National security considerations may require a nonmarket defense procurement system, but does anyone believe that the United States is getting the best possible prices for military hardware as a result?”

“On the Island, it’s obvious that the only way to handle such complexity is through a central authority (and that is the role of the Surrogates). But as health care consumers, we see a different reality. In almost every interaction with the health care system, we see how inflexible rules interact with the always varying real world of human needs to create irrational and self-defeating complexity.”

“We are fortunate to have extraordinary people in positions of responsibility throughout our health care system. But we’re going to have to face an uncomfortable fact: even the most motivated and highly knowledgeable health experts cannot overcome the dysfunction that arises from perverse incentives. Indeed, many of the biggest problems in health care today result from the very efforts of these smart and dedicated people. How can this be? Because their efforts are confined to the impossible task of overcoming the negative effects of bad incentives without changing the fundamentals of the system.”

“In America, there are approximately one million physicians in forty-one specialties, 5,754 hospitals, 12,751 FDA-approved prescription pharmaceuticals, and several hundred thousand Class III medical devices all treating 14,568 possible diagnoses in 310 million patients. John Goodman* estimates that Medicare sets six billion individual prices. When you appreciate how difficult it has been for the government to effectively regulate the supply and prices in the electric power industry — an industry with few providers and a single product that never changes — doesn’t it appear impossible to govern this most complex and innovative of industries through centralized purchasing and regulation?”

“Unfortunately, rules — no matter how precisely designed — never function only as intended in a system as complex as health care. Imposing these rules creates a new reality and a new series of incentives, which often lead to even more imbalance, which then must be addressed by yet more rules.”

“Rules favor uniformity, not flexibility. And the administrative burdens of a rules-based system favor those with the resources to manage complex reporting requirements, and, in turn, disadvantage doctors, clinics, and innovators. Substituting rules for consumer feedback makes our system less responsive to the needs of patients and providers and less comprehensible to us. And all this seeming addiction to complexity has a high social cost — not just in our difficulty in navigating the system as patients but in our ability as a society to understand and fix what’s truly wrong.”

“A shortage of primary care physicians has a meaningful impact on the way our system delivers care. Health issues best addressed through lifestyle changes (recommended by primary care physicians) are now treated by medical procedures (performed by specialists). No one makes the connections between disparate symptoms, which is of particular concern to our seniors, who often have related symptoms missed by specialists. Your specialist is less likely to tell you that a symptom is better left to work itself out, that surgery is too dangerous, or that a procedure is an unnecessary risk.”

“But unfortunately, as the above demonstrates, the real problem with an inflexible administered price system is its effect on care itself. Because our Surrogates have so much pricing power, we have fewer primary care physicians, who, in turn, have less time to spend with their patients. We have more physicians incented to order too many tests and too many procedures. And more of our care is delivered by large institutions, with their associated problems of safety and service. That’s the health impact of getting just one administered price wrong. Make just one mistake and it will set off a chain reaction and be compounded by the lack of the natural feedback loop that on the Mainland we call the market.”

“A final irony: the government’s insistence that providers give Medicaid the lowest prices has the accidental effect of discouraging any discounting at all to anyone else. In Clayton Christensen’s words: Most Medicaid programs stipulate that, at the end of each quarter, the prices they pay to suppliers must be written down to the lowest prices charged to any other customer. While this ostensibly ensures that Medicaid automatically pays the lowest price for everything it buys, its inadvertent effect is to make discounting extremely expensive for providers of health-care products and services. It instills extraordinary pricing “discipline” among competitors in the hospital, pharmaceutical, and medical device industries that executives in other industries … can only dream about.”

“But if we’ve learned anything from health care’s history, it’s that undermining an incentive to be disciplined leads to inflation in the price of care.”

“For example, many insurers are experimenting with wellness programs that give discounts to beneficiaries who don’t smoke, who maintain healthy weights, or who commit to an exercise program. Should the money spent to fund these programs be included in the definition of benefits, even though that would reduce the amount actually spent on care? If regulators rule against inclusion of wellness programs, insurers will likely drop them and society will lose the beneficial effects of these initiatives. If regulators decide to allow inclusion, insurers may well overinvest in wellness programs beyond their beneficial effects.”

“One could write a separate book just on such stories of dysfunctional health care rules. But what’s the alternative to a rules-based system? Flexibility. The average supermarket stocks 48,750 items and gives its employees rules as to how to order these items and where to place them on the shelves. But what’s most important is the possibility of change: that faster-moving items will get more shelf space in more prominent locations. That prices will change. And that new items will be added and old ones dropped. Supermarkets — like all businesses on the Mainland — are in the one-size-fits-only-some business.”

“Essentially, everything we’ve done in health care points in the other direction — toward more uniformity. It’s an inevitable consequence of our greater reliance on the Surrogates to serve our role; they can’t deal with us — or represent our needs — as individuals. They need rules. The only way around this is to get rid of the Surrogates and embrace the flexibility, dynamism, and accountability provided by real customers.”

“Indeed, the ACA’s most obvious characteristic is its continuity with our existing system: a continued reliance on insurance as the funding mechanism for all care.”

“So despite all the noise, all the drama, all the promises of paradise and the warnings of apocalypse, I suspect the most accurate description of the ACA is that it is profoundly old-fashioned.”

“The explosion in the cost of care over the past four decades now means that having insurance is no guarantee of either access or affordability. Insurers are an easy political target, but it’s absurd to believe that health insurance can somehow be made affordable when health care isn’t. So to achieve its twin goals of affordable insurance for all without anyone seeming to pay more for care, the ACA is fundamentally an exercise in Rube Goldberg–like financial engineering.”

“Supporters may believe that all the costs, complications, and mistakes of the ACA are worth it if the bill merely expands our insurance system to cover many of those not covered. But the bottom line should be health and health care, not the quantity of insurance.”

“To those needy Americans who would benefit most from a straightforward and predictable assistance program, Medicaid has instead offered an almost incomprehensible patchwork of eligibility rules, coverage guidelines, and service providers.”

“Essentially, their view is that because Medicaid is usually a direct purchaser of care, the distortive effects of its cost-savings measures and the inflexibility of its rules can have such a deleterious effect on care that a patient would be better off negotiating directly with providers. This, they argue, explains why so many who are eligible for Medicaid have not actually enrolled in the program. Interestingly, much of the response to this argument has focused on Medicaid beneficiaries’ greater access to preventive care — most of which, by definition, goes to the healthy.”

“Even after forty-five years of an insurance-dominated health system, we don’t actually know if having insurance saves any lives.”

“lacking insurance truly isn’t the same thing as lacking health care, no matter what the politicians say; the real issue is to what extent being uninsured means actually receiving insufficient or inadequate care that meaningfully affects health.”

“If viewing the uninsured as a monolithic high-risk group clouds our understanding of the issue, viewing them as having no access to care is even more deceptive. Because whatever the political rhetoric, lacking health insurance is not the same as lacking health care.”

“Island experts insist that emergency care is the most expensive type of care, whereas anyone visiting an actual emergency room — with its fixed-salary employees, trainstation-like waiting rooms, interminable delays, shared resources, and minimal amenities — is pretty certain it must be the least costly. Hospitals have every incentive to load costs onto their emergency and uncompensated operations, as their losses provide support for special treatment from legislators and regulators.”

“The biggest problem in finding a simple connection is that the most vulnerable uninsured are most vulnerable not just because of health issues but because of low incomes, financial insecurity, and the lifestyle choices and stress associated with poverty. To the extent the uninsured have higher incapacity and even death rates, it is mostly because they are poor and have unhealthy lifestyles, not because they lack insurance.”

“Ignore the rhetoric: the ACA is not about the health issues of the poor, much less the underlying lifestyle issues frequently associated with poor health. The ACA is only about insurance, as we could expect from an alliance between experts stuck in the belief that coverage and care are identical and more practical industrial interests looking to protect their business models. Coverage, not health or even health care, is the metric by which the ACA’s sponsors measured their success.”

“In a normal market, we would be confident that, over time, supply would expand as more consumers had more money to spend. However, in health care, we can have no such confidence.”

“To those who think health care should never be a matter of money, I can only ask: Can you think of any other use of $ 200 billion a year that would have less of an impact on the lives, not to mention the health, of these mostly low-income Americans? The $ 100 billion a year in government spending could lift the disposable incomes of ten million American families with children by 20 percent. It could buy a gym membership for forty-two million Americans and pay them ten dollars an hour to exercise three times a week. It could put fresh vegetables on the table daily for every child in America. These figures don’t even include the $ 100 billion now in their pockets that the ACA will make them spend on health insurance!”

“Long-term care is one of the most important health issues that seniors face, just because of their age. It can be the difference between an ever larger share of our population continuing to function in society and their abandonment to incapacity.”

“To fix our health care system, we’ll have to start by facing reality. Our society can easily afford a lot of health care for every American, almost certainly enough to meet any objective need. But paradoxically, the only sustainable way we can meet those needs is to wind down health care’s special treatment in our society. Since we are unable to repeal the economic laws of gravity in health care, it’s time to embrace them, to build a more normal system of financing care — and a more normal system of weighing its value and holding its providers accountable. Only by embracing such normal reality can we develop an alternative to our current system that is financially sustainable, dynamically disciplined, and flexible enough to allow the true innovation that offers so much promise for our future.”

“On leaving office, CMS head Donald Berwick said 20 to 35 percent of health care spending is waste, including inefficiency and bureaucratic cost. “Much is done that does not help patients at all,” Dr. Berwick said, “and many physicians know it””

“A series of studies using data from the 1980s did suggest that lack of insurance contributed to a higher death rate. An Urban Institute report in 2008 updated these studies to produce an estimate of twenty thousand incremental deaths among the uninsured annually — a statistic regularly quoted in the debate over the ACA. But as Megan McArdle argued in The Atlantic, the original studies on which all later estimates were based have a fundamental problem: they didn’t properly control for other factors that significantly affect the death rate with or without insurance (“ Myth Diagnosis,” March 2010). In other words, the higher death rate was likely to be attributable to being poor, lifestyle choices, and unemployment. These high-risk factors are more prevalent among the uninsured but are not a result of being uninsured. McArdle notes that the one study that controlled for these factors showed no difference at all in death rate from lack of insurance.”

“If you’re an Island resident, you might be rolling your eyes at Bill’s complaint. After all, he was correctly diagnosed and got the right treatment, and his condition is under control. Isn’t that all that matters? This is health care, not the Four Seasons. But as I’ve argued, service is not an extraneous detail in health care, or in anything else. It’s a key component of provider responsiveness to customer need, an indication of quality of care and accountability.”

“Singapore’s system of care is unique and doesn’t fit into neat ideological categories. There are three characteristics that differentiate its approach. First, for all types of care — regardless of provider or funder — patients make a meaningful financial contribution at the point of purchase. Individuals are the direct purchasers of care even when insurance or state subsidy is involved. In our terms, all patients in Singapore have a lot of skin in the game. Second, all health care is not treated the same, with a single payment model covering all treatment. As will be discussed below, the type of financing available for care depends on the nature of care. Further, providers of acute care vary charges based on level of service provided to the patient, a policy encouraged even in the structure of the government’s subsidy programs. Third, the government itself directly provides care through its own facilities alongside the private sector. Not only does this have the effect of guaranteeing care for all, but it provides a powerful low-price competitor to the private providers.”

“As a doctor who recently switched to a no-insurance practice told me, “I’ve lost some patients who wouldn’t think twice about dropping three hundred dollars on a hairdresser once a month but couldn’t conceive of paying two hundred and fifty out of pocket once a year to see the physician of her choice.””

“Island experts would argue that expanding security beyond true catastrophic risks to cover mere certainties is a matter of societal generosity. But the past forty-five years suggests they are wrong: protecting against catastrophic risk and protecting against certainties are trade-offs.”

“Becky’s system asks insurance to do only what insurance can do (cover true risk) and not what insurance can’t do without massive distortion (protect against certainty).”

“In the past couple of decades, billions of dollars of value have been created by Apple, Amazon, Ikea, FedEx, Southwest Airlines, Google, all the major credit card companies, and countless others simplifying something complicated. In health care, no company in any sector can make this claim — or even seems interested in pursuing the goal. The Island experts revel in our system’s complexity like priests of ancient religions, jealously guarding their exclusive relationship with the gods.”

“As a customer — as the new boss — Becky Jr. is likely to insist on several features totally foreign to our current system. One is accessibility. Becky herself is used to information being accessible every second, from her up-to-the-minute credit card balance to the precise location of a gift she’s shipping to a friend.”

“Becky is also used to choice among a wide and easily searchable list of alternatives, whether for entertainment, clothing, housing, or potential dates.”

“This is all good for Junior, but in designing our health system, we as a society would add a couple of other principles. Related to the idea of security is a society’s obligation to all citizens. Any acceptable health system should offer to all in society who are ill the resources to cure or at least alleviate their suffering. So it’s not enough that Becky’s system works for Junior; it has to be applicable and beneficial to everyone.”

“As in Becky’s system, any system that accepts a responsibility for all citizens must also require participation by all.”

“For some of us, health is a matter of luck (or the predetermination of our individual genetic makeups). But much is attributable to how well we care for ourselves — our diet, physical activity, risk-taking, avoidance of excess, ability to eliminate or manage stress. On average, people choosing healthy lifestyles will need less health care and will thus have more of their Health Account money to devote to other things.”

“In our current health care system, we rely on only two forms of finance: insurance, which pays for most of our services, and out-of-pocket expenditures (aka income), which pay for the small balance. On the Mainland, consumers use five basic financial tools to pay for goods and services.”

“Income is the default financing mechanism.”

“Savings are used as either a rainy day fund for any unexpected cost”

“Debt also typically has two purposes: as a short-term bridge to spread out payments on a higher-ticket item (such as when a credit card is used to buy a dress) or as a long-term arrangement to supplement savings in buying a very expensive item with long-term value (like a car or a house).”

“Insurance is used to finance major, unpredictable costs (such as an accident or theft).”

“Insurance is highly inefficient at financing certainty because it adds so much administrative cost; it can efficiently fund only those costs that are unexpected.”

“Debt: Outside of credit cards, we don’t have much debt financing available for health care. In part, this is because health services lack an associated tangible long-term asset — such as a car — that can secure a loan. But if possible, using debt for someone with inadequate health savings in health care would be a much cheaper way to finance small but unexpected expenses, such as a broken bone, a child with pneumonia, or even a pregnancy”

“If you’re stuck in our current mind-set, this all sounds nuts. Pay for end-of-life care out of savings? That can cost $ 100,000 — who has that kind of savings? Borrow to finance a pregnancy? Now you have to bear the burden of a new family and pay off a loan? Pay for your statins out of pocket? Where can you find the extra $ 100 a month? But of course, that ignores the key to Becky’s system, which is to take the massive amount of money you’re already paying for health care — but don’t realize it — and put it in your bank account. And with all of us spending the money directly, what do you think would happen to these absurd prices?”

“The first ingredient in rebuilding our health care system is patience. It has taken us forty-five years to build this behemoth; it will take a generation to rebuild it in a sensible way. We will need a long transition period. But unlike with highway repair, even the first steps to a more responsive health care system could produce benefits that exceed the initial inconvenience. America remains an extraordinarily dynamic nation, and amid the rot of our health care system are promising developments that — with the right encouragement — portend a much brighter future.”

“But although there are many good new ideas about how to enhance health care — ideas that could reduce costs, drive efficiency, improve results, and expand accountability — none have achieved anything on the scale of the success of “big ideas” in other industries.”

“Unfortunately, the best form of help that government can give to these green shoots is the one most inconsistent with current health care policy: room to experiment.”

“Historically, the actual provisioning of health care has been a local business: a person’s use of services was limited to her local doctors, hospitals, and clinics. But increasing consumer responsibility for costs has opened up the field of “medical tourism” — traveling, often great distances, to obtain procedures of similar quality at much lower prices. Reliable statistics don’t yet exist, but an estimated one million Americans a year now travel abroad for medical treatment. They travel to a variety of locations, including India, Singapore, Mexico, Argentina, and South Africa for procedures as major and diverse as heart valve replacements, transplants, and orthopedic surgery. Prices for these major operations are as low as 5 percent of those in the United States.”

“Medical tourism is possible because so many major procedures are now relatively routine, with short procedure and recovery times, limited use of resources, and very predictable results.”

“Several Internet sites have attempted to provide competitive price data, but they also have trouble getting the information from providers. Each of these start-up sites faces a common challenge: no provider has an incentive to publish its best prices unless it is ensured a high volume of referrals from the site. And without best prices, it’s difficult for the site to attract enough customer-patients to deliver to the provider. There’s an additional problem: KonnectMD, an online marketplace in Houston, has found that providers can’t post prices low enough to appeal to cash-paying customers because they would be required to retroactively offer Medicaid the same discount.”

“The barrier isn’t that doctors hesitate to use the Internet for business. The website ZocDoc enables patients to book appointments with a broad range of physicians in a variety of specialties. But rather than post prices, the site merely confirms that your specific insurance plan is accepted by the practice.”

“According to a recent Wall Street Journal article, a “small but growing number of consumers are skipping the time and expense of seeing physicians and are ordering up their own tests, with heart-related assays among the most popular.” Many of these tests can be directly ordered from online labs, avoiding state regulations that require physician referral for tests. Some of the more basic tests, such as for total cholesterol or lipids, can even be performed by consumers themselves. Self-administered or self-ordered testing is not the same as self-medicine; most patients-consumers can use the tests to monitor conditions identified by a physician but without paying for an office visit each time they need a test. In addition, some employers are offering on-site testing, reducing costs while ensuring that employees with high deductibles don’t skimp on the essential preventive services.”

“PinnacleCare, which offers a complete personal health record available online, easy scheduling across an extensive network of doctors, and medical travel preparation, has annual membership fees ranging from $2,500 to $30,000 and says it now serves thirty-six hundred customers.”

“Qliance, for instance, is a new concierge-type service for middle-class consumers, focusing exclusively on primary care. Patients pay a monthly fee of $59 to $169, which covers all of their primary care at a Qliance clinic. Members are guaranteed appointments within one day and “unhurried” consultations with salaried physicians (including phone and e-mail follow-up). How can this possibly work? Qliance doesn’t take insurance. According to its marketing materials, administrative costs of insurance eat up 40 percent of revenues in a typical primary care practice, so Qliance can invest some of these real cost savings in better service and better pricing.”

“The venture-capital-backed One Medical Group also offers membership-based concierge service, for an annual fee of up to $200. Members are guaranteed immediate appointments, responsive doctors, and an integrated approach to care. Operating in three cities, the firm pledges that its physicians will see no more than sixteen patients a day to allow ample time for each consultation.”

“GracePointe Healthcare in Franklin, Tennessee, is a single practice featuring “self-pay” (that is, no insurance) monthly plans at $49 or $99. Both plans guarantee $40 consultations, $10 to $25 basic tests, and house calls. The more expensive plan offers 24/7 access to a physician. Sprig Health, a network of providers in Portland, Oregon, allows users to book online appointments with cash-only providers in a variety of specialties. MediBid encourages cash-only patients to shop around for low-cost providers as “domestic” medical tourists. Dartmouth College and Iora Health have partnered on a new primary care model: the college pays a flat annual fee to Iora for each of its employees to cover all their primary care services. For an annual family fee of $129, Brighter.com provides bookings within their network of dentists at published discounted prices.”

“Island experts often criticize new models by pointing out that most people can’t afford to pay more out of pocket to see doctors who won’t join their insurers’ provider networks or to pay the membership fees at even middle-class concierge primary care clinics. But they miss the point: the reason so many Americans can’t afford more out-of-pocket payments is that the standard insurance system takes so much of their money for administrative costs. For the “benefit” of having the direct costs of their care hidden through insurance, they bear longer waits for appointments and spend less time with their physicians.”

“Health care information has been a staple of the Internet since the medium first became popular, but its growth continues to be staggering. Each month, roughly two-thirds of Americans now seek health information online, mostly on symptoms and conditions. WebMD, the most successful early Internet health information company, serves 18.5 million visitors a month. The National Institutes of Health’s site serves 12 million, and the Mayo Clinic’s serves another 8 million. Insurers increasingly provide health information online; Aetna’s InteliHealth serves 125,000 users a month.”

“Government policy hasn’t encouraged green shoots in the hope that one of them proves to be the shipping container of health care; its greater effect has been to freeze existing arrangements in place.”

“Green shoots will continue to exist in health care: markets will always crop up wherever human needs go unsatisfied. But creative destruction — the transformation of health care to produce truly better medicine at lower cost and risk — will almost certainly have to wait until consumers are in charge.”

“Castlight Health is a start-up that attempts to bridge this price information gap through its access to actual reimbursement data provided by corporate clients. Castlight provides clients’ employees with an aggregated database that compares reimbursed prices received by local physicians, clinics, and hospitals. The start-up has some prominent investors, industry partners, and customers, but its success is likely to hinge on how many employers will be willing to use their leverage with insurers. To date, some insurers have been reluctant to share reimbursement information with a third-party service, even when requested to do so by a corporate client. Yet as greater numbers of employees move into high-deductible or consumer-directed plans, the demand for price information will certainly grow.”

“ClearHealthCosts, a site founded by a New York Times journalist, encourages patients themselves to share price information about their procedures in its quest to build a transparent marketplace in the New York region.”

“I agree with the left that we need a true cradle-to-grave safety net for every American — simple, straightforward, and reliable. But the right is correct that we are unlikely to build an innovative, high-quality, accountable system of care at sustainably affordable prices unless we leave most of it to market incentives.”

“As quickly as possible we must divert as much of the resources spent on noncatastrophic care into individual accounts. The faster this happens, the more quickly the health care industry will reorganize itself to serve consumer, rather than Surrogate, needs. And the faster that happens, the more quickly we all will see the benefits of an industry competing on price, quality, and service — just like everyone else does today on the Mainland.”

“We have only three possible options: increase the amount we put into health care above $2.5 trillion and save that incremental amount; reduce the amount of health care provided to some people so that others may build savings; or cut our current spending in a way that doesn’t affect the quality of care and transfer that amount to savings. I believe only the third course is acceptable.”

“There are three major components of what I’ll call the Balanced Health System (BALANCE): health accounts, health loans, and catastrophic insurance with a very high deductible (TruCat). Essentially, all the money that now goes into the insurance system or for out-of-pocket payments (and, as I’ll show later, the government money that now runs through Medicare and Medicaid) will run through your individual Health Account.”

“TruCat represents a radical approach to controlling health care costs — something we haven’t tried. For the first time ever, a government program will attempt to control health care spending by spending less money on health care.”

“The individual components of BALANCE look unattractive on their own; only together do they produce a better result for all of us. Health Loans are a perfect example. The reason they work is that they transfer money from our future selves to our current selves without the intervention of the insurance system. Since the insurance system takes somewhere around twenty cents out of every dollar every year for its own costs and profit (and then wastes a large amount in medical excess), it’s a very expensive alternative to debt. This, of course, is why no one outside of health care uses insurance to transfer money from their future self to their present self.”

“One of the many misleading “truisms” in health care today is that group insurance should be cheaper than individual insurance because health risks are pooled. So your company policy should carry a lower premium than your individual policy. Perhaps this was true as a general rule in the recent past, but the growing sophistication of data analysis means that merely establishing a group of people won’t reduce risk. Would you charge a lower premium to one healthy, nonsmoking, physically fit young man (i.e., no prospective pregnancy) whose parents lived into their nineties or to a company with a thousand employees with an average smoking and obesity rate?”

“Powerful data-mining and analytic tools will make discrimination in insurance ever easier. But the greater risk is our increasing knowledge of genetic factors in disease. As the ability to target genetic disposition to specific ailments expands, future diseases will appear as “preexisting conditions” from an insurer’s perspective. I suspect the only way to guarantee nondiscrimination in our TruCat pool is by establishing one pool that includes all of us.”

“When the facts change, I change my mind. What do you do, sir?” (John Maynard Keynes)

“In response, we as a society are still in the “more” stage in health care, just like we were in housing. We believe we can make health care more affordable by spending more on health care. We counter forty-five years of failure by the Surrogates by giving them more control over the health economy. We address the inability of regulators to drive efficiency centrally by mandating that they do more to drive efficiency. And we meet the challenges of staggering industry complexity by passing the ACA, a bill so complicated that many supporters privately admit they don’t understand its workings. Will there be the equivalent of the housing crash in health care? Perhaps it will be the coming unaffordability of Medicare (which not only has no hope of maintaining service levels for future beneficiaries but is increasingly unlikely to meet the perceived needs of current beneficiaries) or of Medicaid (in which the burgeoning demand for services of this bizarrely constructed safety net was already breaking state budgets before the ACA mandated a 40 percent expansion).”

“Health care experts want us to believe that health care is too complicated for patients-consumers to serve as an effective disciplinary force. But what’s the alternative? With my father, I saw the alternative in action. It is wasteful, expensive, erratic, unresponsive, and often unsafe. We’re stuck in a vicious cycle in health care. The more we try to protect ourselves from the realities of care, the more complex and unconnected from us the system becomes. We respond to these problems problems by seeking greater protection, further distancing this system from our real needs.”