Intro. [Recording date: December 13, 2019.]
Russ Roberts: Today is December 13th, 2019 and my guest is doctor and author Marty Makary. He is Professor of Surgery at Johns Hopkins School of Medicine, Professor of Health Policy and Management at Johns Hopkins University School of Public Health, and he is the author of The Price We Pay: What Broke American Health Care and How to Fix It, which is our topic for today's conversation. Marty, welcome to EconTalk.
Marty Makary: Great to be with you, Russ.
Russ Roberts: So let's start with a problem that I think is under-appreciated. I think a lot of people are under the impression that that medical care is--in economics jargon, there's an inelastic demand. Meaning: you just have to have it, no matter what the price. You'll pay anything. So, we can't ever have prices for medical care. And your book opens with an example of a phenomenon we've been talking about quite a bit on the program that sometimes more information is not always better.
In particular, medical screening often has consequences that people underestimate; but I think there's a natural bias toward thinking, 'Well, I need to--a test would be good; and then I'll know something I didn't already know and I can make a decision.' You talk about some of the challenges of using that wisely. So, talk about that example.
Marty Makary: One of the two big stories in healthcare that nobody is talking about that we need to talk about as it relates to the cost crisis is that we have too much medical care. We've got the problem of too much medical care and too little care or access issues. But by far the problem of too much care dominates our problem in healthcare today. We're talking about over-screening, over-testing, over-diagnosing--the medicalization of ordinary life. We did a survey of U.S. doctors asking them to estimate the magnitude of this problem and they say 21% of all medical care is unnecessary.
That's the voice of frontline docs. That's not my opinion. 2100 U.S. docs, 70% response rate. We published this study. They said 25% of diagnostic testing, 22% of meds, 11% of medical procedures. We just as an example--
Russ Roberts: Are unnecessary.
Marty Makary: Are unnecessary.
Russ Roberts: Or harmful actually.
Marty Makary: Or harmful.
Look at the opioid epidemic, that is just one medication that we were massively overdoing. Maybe with good intent and bad science, but look at the one story of one medication. Five years ago, we were prescribing 2.4 billion meds. Sorry, 10 years ago, we were prescribing 2.4 billion meds. Last year it hit 5 billion.
Did disease really double in the last 5, 10 years? No. We have a crisis of appropriateness. And we've seen it. Doctors are speaking out about it. There's organizations and movements of physicians now who are talking about this problem. There's a website for patients to look at called Choosingwisely.org where they can look at what doctors believe to be the most overdone things in their little area of medicine. So, in 80 different areas of medicine, you can see what the 5 most overdone things are.
And we all know it's happening, right? It's a combination of bad judgment, cutting corners, corporate medicine, a consumerist culture where people come in now demanding things. I mean, I've got patients that come in sometimes demanding a scan they don't need. I mean, that's the kind of stuff that's driving it--in addition to the obvious, which is our fee-for-service system that rewards quantity over quality.
Russ Roberts: Yeah. That consumer approach is easy when you're not paying for it. So, a lot of--as listeners know, a lot of the things that I worry about come from the fact that people are not spending their own money. They don't have any skin in the game.
Now, a lot of procedures are no fun. So, there is--there are a lot of procedures I'd rather not have even when they're free. In fact, they'd have to pay me to undergo them if I was healthy. But a lot of them, of course, are relatively painless. And if I get someone else to pay for them and then what comes after that.
So you give the example in the book of plaque screening--which is a plaque, not teeth, but in the arteries for--churchgoers, right? It seems like a wonderful human, humanitarian activity, but maybe it wasn't so great.
Marty Makary: Yeah. Our research shows, Russ that the safer a procedure is, the more it's vastly over overused and abused. Median meniscectomies, which is an arthroscopic knee procedure is one example. Endoscopy, biopsies during endoscopy, skin cancer surgery.
And this procedure you're talking about was one of them we studied and it is so-called blockages of the leg artery. Sort of like heart arteries get blocked? In the words of one of the cardiologists I interviewed, he says, 'Leg is the new heart.' And with really no good science to support it, they're going in. Docs are going in and stenting and ballooning these inconsequential, benign plaques of the leg arteries.
By the way, if you look for plaques in the leg arteries of 75-, 80-year old folks, you're going to find it invariably. I mean you're going to find a lot of them. It doesn't mean they need anything.
And this idea that, 'Oh, we have to open any blockage we find,' is an example of what I call predatory screening.
And they were finding patients, recruiting them, in churches. Here in Prince George's County and the African-American suburb, we went to these all black churches, me and my student team of Millennials, mind you, who, for whom--I applaud them--social justice is a generational value--
Russ Roberts: No doubt--
Marty Makary: And they said, 'We're coming with you.' And we went to these churches where we've found doctors in the fellowship hall during a health fair that the local cardiology group and other doctors' groups would sponsor with an ultrasound probe telling patients, 'Let's take a look and see if we see a blockage.' And then before you know it, 'Come to our center because we want to do an angiogram,' which is sort of a more definitive test. And then, 'Good news, we found a blockage but opened it during the procedure,' and they come back in six weeks for repeat procedures.
Medicare is funding all of this. And so, the reason--I thought this was worth sort of an opening conversation--is that the idea that we just need to throw more money into the broken system does not address the real issue that we have of inappropriate care. Number one big issue that no one's talking about, we need to talk about. And number two, pricing failures.
Russ Roberts: Yeah. We'll turn to pricing failures in a minute. I want to just stick with the screening for a minute. And listeners will remember episodes with Jacob Stegenga; and I'm [?] on these issues of so many procedures that are prescribed--either don't work or actually harmful. In this case, a blockage in a leg artery? I mean, that could lead to a heart attack. Isn't it better safe than sorry?
Marty Makary: So the stents actually create a new risk and that is something called in-stent restenosis.
And now we have studied this to death, no pun intended, in heart vessels. Okay.
Heart stents, we initially thought: every blockage, we've got to open it up. And then the research came out. And then the stories of over-stenting were coming out. And the cardiology community to their credit really tightened up and clamped down and created a registry and guidelines and appropriateness criteria.
But do you know that no study has ever shown that heart stents increased survival outside of an acute coronary syndrome, which is basically an active heart attack?
Now, if you have symptoms of angina--that is chest pain from exertion --they can improve with stenting. But let's be honest: Most people who got stents were just told, 'Oh, there's some narrowing. We're going to open it up.' That stent now puts bare metal where there was normally a lining that promotes blood flow in the heart vessel. And the phenomena of in-stent stenosis can actually negate any benefit of increasing the diameter of the passage or create a new, added risk. And by the way, you go on blood thinners when you're on these stents, sometimes for a long time. As surgeons, we see a lot of GI [Gastro-Intestinal] bleeding complications.
Falls are one of the big stories nobody talks about. When a senior falls, it's devastating. And that single fall can precipitate a whole host of health complications. Those falls become massive bleeds when people are on these blood thinners.
So, just stenting every blockage we see, we have now learned we don't need to be doing. If there's one theme in the medical literature in the last five years, it's been that we have been doing too much. Indications for things that we thought were appropriate, we now realize were too broad and we are narrowing indications for all kinds of conditions. And that is the theme in the medical literature. It's called precision medicine; it's called appropriateness. It's just called good sound clinical judgment, also.
Russ Roberts: You have a great line in the book which I just--well, you were talking about the phenomenon that a lot of people, not all people, but many people have a natural trust of their doctor and the doctor can use language in various ways to encourage a procedure versus not encourage a procedure. You use some examples in the book; but the part I like is they say, you say,
Nudges from doctors can be as powerful as IV sedation. Sometimes we steer patients towards what's best for them. Sometimes we steer patients toward what's best for us.
And that's hard. That was a hard sentence maybe to write for you. I mean, a lot of people have romance about their doctors. What do you mean, what's good for you?
It's like a teacher, right? I think people romanticize teachers, they romanticize doctors. They don't romanticize economists. Maybe it's something to strive for. They know economists are dangerous, but they tend to have trust in doctors and in teachers, so that kind of use of language to encourage a procedure that might be good for the bottom line of that doctor and is uncertain or maybe even harmful for the bottom line of the patient might be easier for that doctor to evoke and to encourage.
Marty Makary: I get patients who come in and say, as I'm trying to explain the logic for what we want to do, they'll say, 'Look doc, just do whatever you think I need done.' They don't want to hear it. And then I get other patients who come in with a giant stack of Google printouts and they say, 'I've done some research and I have a bunch of questions.' We want informed consumers, and if you're out there, Google things before you have major things done; and we want people to be educated.
But these nudge terms can be very powerful in swaying people, and sometimes doctors can actually manipulate patients. Don't get me wrong, I love being a doctor. Most doctors do the right thing and always try to. Most of them do, but a fraction--and in our research it's between 7% and 8% to 15% depending on the area.
Once again, the safer the procedure, the more abuse we find. We'll actually, steer patients tho things they shouldn't have or there's no science to support it. And it could be for any one of a number of reasons--consumerism, the payment system--but these nudge terms push people into it.
For example, if you tell a woman in labor anywhere in the world during labor, a C-section, quote-unquote, "might be safer for the baby," unquote. 100% of them are going to say, 'Do the C-section.' If you tell somebody with some knee pain, 'Hey, you've got bone on bone.' Yeah--it's like, 'Then replace it, right? Just replace it.' That's what they're going to tell you. The reality is that bone normally is on bone, right? There is some cartilage there and there's varying degrees of where, but there are these terms that are used to nudge and push patients, and that is what promotes some of the abuse. And that's what people should be educated on.
Russ Roberts: Yeah, so that's the first part of the book. It'll be eye-opening for some of us to read that. Not so much for me, as listeners know. I'm kind of way too on top of this, probably.
But I think the more devastating part of the book, and I want to make it clear to listeners that this book is a little bit frightening, and the frightening part of it is about the pricing system, which we've started to delve into in this program, and the way hospitals and insurance companies interact with each other. So, in many ways this is going to be a reinforcement of some of the conversation we had recently with Keith Smith, but we're going to go deeper into some of the challenges of the existing system.
So let's start with variation in prices. If want to get an oil change for your car, you could shop around. There will be differences in price. You can go to Jiffy Lube, a chain. You can go to your local mechanic, you might have a relationship with.
When you do that, you will be told, you will be told, you'll be nudged, 'Gee, this air filter is filthy.' There are things that they do and a thoughtful consumer is aware of them. But ultimately in those cases we're typically paying with our own money. We typically know what the price is up front. What's amazing about hospital pricing right now and to some extent medical pricing generally is that you can't even discover the price. Forget about comparing prices and being curious as to why some might be higher, whether you're getting higher quality or not. The variations, it's just hard to believe.
Marty Makary: You're absolutely right, Russ. Look, if airlines had no prices for their flights--if you went to a travel website and there was a flight with no price and instead the airlines argued, 'We have to bill you after the flight. We just can't possibly know if the flight's going to be diverted or delayed or the pilot might have to bill more because there'll be turbulence, and we don't know if you'll consume a beverage during the flight.' If that was the argument, guess what? Airlines would be gouging all over America. You'd be flying to Chicago and get a surprise bill for $8,000 and a flurry of bills would trickle in later from other. This is the nonsense of why the market is incompetent in healthcare.
Now, the critics will tell you not everybody uses price information. And that is true. And if you are not paying, there is a tendency to choose--an uninformed consumer to choose the more expensive service.
Russ Roberts: 'Can I get that seat that reclines all the way back? I really liked those.'
Marty Makary: But, proxy shoppers are driving the market in healthcare. I don't penny shop when I go to the grocery store. Okay? Life has been good to me. My mom--it's funny, life has been good to her too--but, she penny shops in the grocery store. And every lemon and orange, she is comparing to the other grocery stores in town.
Well, her and the 10% of shoppers like her that are penny shopping, keep markets in check for the rest of us. And the proxy shoppers in healthcare are not just those paying out of pocket--and the high deductible era is here, by the way. 82% of Americans have a high deductible plan. The deductibles now are so high, people are basically are only covered with catastrophic coverage in some cases. The health plans--and the employers who are doing employer-sponsored healthcare are those proxy agents. They would love to see which hospitals are charging $70,000 for the baby delivery and which are charging $4,000 among the good hospitals. Harvard, one of their hospitals charges $41,000. Another one of their hospitals charges $7,000. Both Harvard hospitals. Is one really that much better than the other? No, this is the game.
This is the crazy game that was, in my opinion, described best in a research study by the University of Iowa where a heart surgeon called a hundred hospitals that do heart surgery saying, 'I'm thinking about having a cabbage [CABG, Coronary Artery Bypass Graft] open heart surgery. How much will it be?' After fighting, and they hung up on him, and made them hold and all this stuff, he finally, after doing all this intense research, got a price from 50 out of the 100 hospitals. The price ranged from $44,000 to half a million dollars.
He then took those prices and compared them to the outcomes in what is the most mature quality registry in all of healthcare. It is for heart surgery. It's well known as the most mature and comprehensive quality. It's endorsed by all the doctors. Guess what? No correlation whatsoever between price and quality. Some of the best hospitals where some of the cheapest.
We then took those prices, compared them to so-called charity care: no correlation.
So, the prices are random; they're haphazard, and this is the insanity of what we are all paying for.
Russ Roberts: I want to--I want to push back on one phrase you use without rewinding the tape. You said something like, 'This is why the market for healthcare doesn't work.' I would say, 'This is why the currently structured market for healthcare doesn't work,' which is a market that is unlike any other market in America. It's highly subsidized by aid to the poor, aid to the elderly, and aid to people working for large employers who get a subsidy through the tax system in the provision of benefits and the tax treatment of that.
Most of us are not like your mom. Your mom--and you said she's well off now. I suspect there was a part in her life where she wasn't so well off. And that set in motion a set of habits about how to treat money and how to treat prices, and how to treat alternative providers in a certain way.
Most of us have not grown up in that world. We've grown up in a different world, a world where someone else pays for my healthcare. And to question that--an example I don't think I've ever given on the program: I'm getting my teeth cleaned and all of a sudden my hygienist is doing something weird in my mouth and I said, 'What's that?' 'Oh, don't worry. I'm just checking for oral cancer.' 'I don't want you to.' 'Well, why not?' 'Well, for starters, I don't know who's paying for it. Number two, I'm not sure I want the information. And three, and four, or five.' But the idea that you would just invade someone like that--right? And pregnancy is full of those. 'What are you doing?' 'Oh, this is the standard test.' 'I might not want it.' 'Oh no, it's good. You'll learn about--' 'I'm not going to use that information.' 'Oh, that's okay. We always do it.'
I've mentioned on here a hundred times: When I get a physical, I tell my doctor I do not want a PSA [prostate specific antigen] score for my prostate, a risk of prostate cancer. And, obviously I'm not expecting I'm going to save any money. I just don't want the information. Often it's generated anyway. I say to my doctor, 'What happened?' 'Oh, they sometimes just--.' I guess they would. Right? There's no one overseeing that process.
So, it's not a normal market. We don't know what a market for healthcare would look like except descriptions of older times when we have something closer to a market. But in the current situation, one of the non-market parts about it that's rather extraordinary is the lack of competition between hospitals and the lack of competition between insurance providers.
So I want to start with hospitals. Normally, somebody charges $71,000 for a delivery of a healthy child and somebody else charges $4000, and the quality seems to be pretty much the same. Nobody goes to the $71. So how is it that anyone is paying those prices? And where does the $71 come from? If no one's paying that, because, and of course we'll get in a minute to the fact that actually some people are actually paying those high list prices. But if no one's paying it, why did they pick a $71? Why do they pick such large numbers if no one pays them?
Marty Makary: Yeah. So, first of all, you're right. My mom did grow up in a village in North Africa and I think that's where she gets that frugal nature from, but her and her friends keep markets in check for the rest of us that are not penny shopping in those grocery stores. You're absolutely right.
Now, I am optimistic about healthcare despite this giant mess because people are disrupting it and that was the privilege of getting to hear their stories and doing this book project. This guy in Boston who sees the spread and how much he as a company is paying for these baby deliveries, they're self-funded. In other words, they bypass insurance. They haven't funded it. They just pay the--
Russ Roberts: The employer.
Marty Makary: The employer. They're paying the bills through an outside service that just processes the bills, called a Third Party Administrator or TPA. He sees the prices and he says, 'Both the $41,000 and the $7,000 hospitals are great hospitals to deliver babies. I would like my employees to go to the $7,000 hospital, but I don't want to tell them where they can and can't go. I want to be a benevolent employer.' So, he then says, 'If they go to the $7,000 hospitals, he will give them free diapers and wipes for a year.' And guess what? Everybody is going there. He's saved over a million dollars.
Russ Roberts: This is by the way, Adam Russo.
Marty Makary: Adam Russo.
Russ Roberts: And I know the name only because Keith Smith mentioned him. He's an interesting guy, obviously.
Marty Makary: He's an interesting guy. This is an example of how now these innovators are changing the alignment of incentives.
Before people get totally depressed about how messy healthcare is, I think we have to remember that we have good people in healthcare. We're all attracted at every level to healthcare, nursing, hospital administration at every level out of a sense of compassion. Being a part of something larger than ourselves. Sort of like the millennials who come with me to these church fairs and now to the courtrooms. They want to be a part of something larger. We have good people in healthcare working in a bad system. We have good people who have inherited this crazy game of inflating prices for the purpose of offering secret insurance discounts selectively to different groups. That crazy game was never intended to get this exaggerated where the prices now are laughable and the hospital CEOs [Chief Executive Officers] themselves can't interpret these bills.
Russ Roberts: But, why would I--I'm running a hospital. The insurance company negotiates an independent discount for every hospital, if I'm not mistaken, and I assume that also means that for every hospital, the multiple insurances I take all get a different discount. Correct?
Marty Makary: Yep. And look at the Cleveland--obviously, we were talking about this earlier. I've been involved in the Executive Order that the White House put out. Alex Azar, our Secretary of Health and Human Services, they have announced that the secret insurance discounts between hospitals and insurance companies need to be public information if they want to participate in ERISA [Employee Retirement Income Security Act of 1974] plans or in Medicare.
So, that would be a game changer because now you've got competition. Why do you think the insurance companies and hospitals don't want those discounts disclosed? It would create competition.
Look at the three areas of medicine that have had transparent pricing for decades: LASIK [laser-assisted in situ keratomileusis] eye surgery, IVF [In Vitro Fertilization] treatments, and cosmetic procedures. They have had a global reduction in pricing over the last three years--
Russ Roberts: And not covered by health insurance typically. Right? So people are paying out with their own money.
Marty Makary: With their own money. And they have had a global reduction in pricing over the last three decades. At the same time, medical prices in general have outpaced inflation and are the fastest growing area for price inflation out of any area in the economy.
So we have seen the results already. We see it with the price of an airline ticket from Washington, DC to Miami was $76 in 1978. Today, it's about $112 in a non-off-peak. You're talking about a good, reasonable price inflation over decades. I mean free markets, open markets, and pricing information, keep markets in check. They've kept it in check for LASIK eye surgery, IVF, and cosmetic procedures. They can and will do the same for the 300 common shoppable services that we got into that Executive Order so that people will have now honest pricing to accompany honest bedside care.
Russ Roberts: So, I'm going to push back against two parts of that, although it doesn't come naturally to me. Marty, I'm just going to be painful, but I have to.
The first is, when I talk about LASIK--and market oriented people love to talk about LASIK. It's a wonderful story. It's something akin to what's happened to, say, the price of a phone. And people have argued, John Cochrane on this program actually, that we can unleash that innovation throughout the medical care system. We'd obviously either have a lot less cost in the system or we'd have much better quality.
Not everything gets cheaper. You can pay more for a television today than you paid in 1970 because it's enormous and phenomenal and never breaks. You can pay a lot less, too--in real terms and even actually sometimes in nominal terms because the effectiveness of innovation and competition.
But when I think about that, I always wonder what about veterinary services. They've grown and they've gotten more expensive and people don't have third party payments for their pets. That hasn't been a--competition there isn't working so well.
Marty Makary: Well, first of all, there is price gouging with veterinary services. They will run this battery of tests without explaining the cost and come back and, you know, 'Here's the bill.' Or, 'We're just going to take the animal in, check the animal out and get back to you.' And before you know it, they've done $4,000 in testing. So, there is gouging going on, fed off of a lack of transparency and opacity in pricing.
Russ Roberts: But why isn't competition there, which it does everywhere else in the economy?
Actually, let me back up a little bit. I talked, after the Keith Smith episode, to a hospital administrator--foolishly talked to them. He's a fine person. He was sympathetic to Keith Smith's story in many ways, but he said, 'Some of the things that Keith Smith said are not a hundred percent accurate. I want to clear the record. I want you to understand it.' And I thought 'I do need to understand it. That's great.' He tried to explain to me how prices get set. I couldn't quite grasp it. Maybe I need more education, but--doubt it. Too much already.
But what he told me was that, 'Oh, it's really simple, what hospitals do. They take the Medicare price, they just multiply it times five. Sometimes it's four, and sometimes it's--it's gone up over time.'
Now, that's a practice that wouldn't persist in a normal market, if it wasn't justified by cost, because competition would enter in.
This non-transparency in, say, veterinary services and treatment of pets, you'd think there would be vets that would open up that would say, 'I'm transparent.' Just like Keith Smith did, and destroy that opportunity to gouge.
Marty Makary: And there are. And there are. But, what is happening in this marketplace different from other markets is you have price gouging, taking advantage of people at a time when they are vulnerable.
When people come to a hospital, they are vulnerable. They come to us and our great medical heritage of taking care of anybody that comes to a doctor and we take care of them. That is our heritage.
Hospitals were built to be a safe haven for the sick and injured, not to price gouge them and engage in predatory billing after they come to us for help. That violates the public trust. We should be different. We should be better. But look at the three areas of healthcare that have had transparent pricing and look what's happened to prices over time.
The Cleveland Clinic complained about the Executive Order on Price Transparency. By the way, it's been bipartisan, right? It came out of the Department of Health and Human Services in the current administration. No Democrats have spoken against it. Right? Who's against price transparency?--
Russ Roberts: Some economists are. We'll talk about that--that was my other challenge; I haven't offered it yet--
Marty Makary: Some are, and we can chat about that, but it's been this special interest. It's been the American Hospital Association. Once again, good people working in a bad system, in my opinion. They've inherited a crazy game. They're protecting this crazy game. Americans are getting burned and they're getting taken advantage of at a time when they're vulnerable. It's a disgrace. The Cleveland Clinic says, 'We can't tell you what our secret negotiated discount is with insurance companies or employers. We have over 3,000 different contracts with different groups.'
Russ Roberts: You think you'd be imposing a terrible cost on us to just gather that information.
Marty Makary: 'Oh, what a burden. You pull up 3,000 files and look at the PDFs [portable document format] to see that.'
That is the problem. Why do you have 3,000 prices for the same service? Those doctors at the Cleveland Clinic are good doctors. I know those surgeons. They are ashamed of what they said. I mean, that's a disgrace. How much does this silly game costs? The game of negotiating secret discounts, renegotiating them, engaging in out-of-network, in-network distinctions, sending them to collections, garnishing their wages in court. I mean, this crazy game costs money. And if we can just do direct contracting like General Motors just did with Henry Ford Health System, and go to Keith Smith and these centers that are offering transparent pricing.
My research team at Hopkins did a study of centers that went from the old way of doing business with the price run-around--you know, 'How much does this cost?' 'Oh, maybe your insurance will take care of it.' The typical run-around that Americans had been getting from for 50 years from hospitals ; and saw what happened for the centers that adopted price transparency. Their business surged. Patient satisfaction went way up. There is something about it being a surrogate of honest medical care. Patients did not worry about feeling violated financially. Billing quality is medical quality, and financial toxicity is a medical complication.
And look, I've got friends that did a lot of cancer surgery at Johns Hopkins, still do surgery, but before we got these grants, when I was operating four days a week or so, I went to our cancer research group meetings at Hopkins and my colleagues came up to me recently and said, 'Marty, why don't you come to our cancer meetings anymore? And what is all this stuff you're working on, billing and pricing? What is this stuff?' And I tell them--
Russ Roberts: 'Don't you care about people? Why aren't you doing these--you're a surgeon. You can actually help people.'
Marty Makary: Well, I tell them, 'Look, if we have the cure for pancreas cancer, but 68% of the public doesn't trust us'--and that's what the numbers show right now. U.S. polls, 68% of the public says that they have avoided or delayed medical care for fear of the bill. Gallup just came out with another poll. Very recently, 29% of Americans with a very serious condition say that they have avoided care for fear of the bills. If half the public doesn't trust us, our cures are no good. Our operations are no good. And we have a public trust problem. And that's why I've committed all of our research and effort and advocacy to rebuilding the public trust of American hospitals.
Russ Roberts: So, the problem for me is that as a free market-oriented economist who is suspicious of pretty much all executive orders actually is not a good thing. But, putting that aside as a political science question.
Normally, when people complain about pricing, I'm the first person to say, 'Hey, that's what markets do. They allocate resources, they ration scarcity. So when there's surge pricing under Uber, it's phenomenal, because it encourages supply to go toward where people need something, want something, demand something.' It has problems, high prices, because some people they can't afford it. We need to think about what the implications of that are.
But you don't want to compare it to a world where you don't have any prices, because that's a differently horrible, much more horrible world in my view. And I've written way too much about why price gouging in general is not what people think it is.
This case feels differently to me. And so I'm a little bit uneasy talking about it. But I think it is a problem. And in particular, I actually naively believe, I'd say even a couple of years ago, that, 'Well, the health insurance industry has an incentive to make sure the tests that are not worth it don't get done. I mean, they don't want to pay for things that don't have good health care. So, it's true that I as the consumer don't pay any attention to all those crazy prices. But the health insurance that I pay for it, they'll do it.'
And so as a middleman--which I'm usually defending; I like middle men. They're usually there for a reason. But in this case, this is like they're doing something actually destructive for the consumer. And I suspect it's because they're not very competitive. There's a lot of restrictions on entering the health insurance business. And, in addition, they can just raise their premiums and nobody's--really, there's not an easy mechanism for getting rid of that. So I'm curious. React to that.
Marty Makary: Well, I agree with you in this sense, that there's a purist economic theory out there that: Just let everybody fend for themselves and pay out of pocket for everything and they will feel the pain of the higher prices and they will steer and reward the high value services in the market.
Russ Roberts: Okay. That was great. And it's been--I hope everyone's enjoyed the episode--
Marty Makary: No. Hah, hah, hah--
Russ Roberts: So, that is my--that is my view. More or less. I recognize that there are people who will struggle to afford healthcare. We want to have different ways we could think of helping those people. But it seems to me that a major problem we have is not enough skin in the game.
Marty Makary: Yeah, well, certainly that's the leading theory out there. And those principles do hold true.
However, not everybody is created equal in terms of their health. Why should somebody with a genetic abnormality or who was born in unfortunate circumstances or who developed lymphoma because they were exposed to Roundup pesticide--a lot of folks that develop a toxicity-related, exposure-related cancers tend to come from minority communities in poor areas. That's--that is out there; that's known. Do we really expect that person to feel more pain because of a condition that they've inherited? No. We generally as a country, we have agreed--bipartisan Republicans and Democrats--that preexisting conditions should not be a gauge for having health insurance coverage. We've decided that we should take care of one another.
Now, the idea that they have to see the prices is superseded by the notion of proxy shopper. So, health plans and employers and those shopping out-of-network and out-of-pocket, like my mom who had price-shops, they drive markets and keep them competitive for everyone. I have no problem with one hospital charging triple what another good hospital charges if they're triple as good.
But what we have now is irrational pricing that is taking advantage of people at a time when they're vulnerable; and then going after them on the back end with these surprise bills.
Surprise bills are the game of taking your services off the master hospital bill, billing around insurance: 'Gotcha. It's not covered.' And you can collect more as a business, as a healthcare business, doing that.
Our ambulances have done it, labs have done it, doctors groups have done it. 'We're going to go around it, bill a patient directly.'
And the ugliest side of balanced billing in the United States is this practice that we uncovered, which is suing patients to garnish their wages.
Russ Roberts: Yeah, we're going to talk about that in a minute. But before we do, I just want to--and I joked that you said only special interests are posting transparency. But of course, economists were quoted when that Executive Order was first discussed saying, 'Well, if we have transparency, that's actually going to be bad for consumers because then hospitals will know what each other are charging and they can form some kind of anti-competitive or cartel group.' I have my own thoughts on what's wrong with that argument, but what are yours?
Marty Makary: Well, by and large, every major incredible economist that I have talked to or have read what they have said, has said that in no market have we moved to transparent pricing, said, 'This is a bad idea, let's go back.'
And so, the idea that economists are divided, that is not true.
There are some economists who are referring to this practice of price collusion, and that's what can happen with shadow pricing. If one bottle of beer goes up, spikes up to $20, the only competitor in the market can say, 'Well, I'm going to take mine up to $19.' Well, that--there's price collusion sometimes there, and by and large, markets move towards stable pricing. That's what we have already seen with LASIK eye surgery, IVF and cosmetic procedures. That's what we've seen in every other market.
You know, when we demanded nutrition labels on food, in public health, the industry cried out, 'There will be price spikes. And there will be famine and food will be unaffordable,' and, you know, people would be dying. It was all nonsense. We got food labeling. Guess what we have now? We have competition on the ingredients, on health and on nutrition.
Every other market has had a positive benefit of price transparency except for one tiny little market, which is the one that is cited in that CBO [Congressional Budget Office] assessment. And I wasn't too happy about this, but they cited the two cement companies in the Danish market; and they showed how one made their prices public; the other did shadow pricing.
Well that was--there's only two companies that make cement in that entire country. Obviously, that was price collusion. Obviously, it was a one-off. That is not the norm. You don't say, 'Oh, the earth is cooling because here are two temperature readings in two different parts of the world in two different time points.' No, the scientific community does not accept that the world is cooling and to suggest that they're divided, they're split--like the scientists are split--economists believe in the power of markets.
Russ Roberts: It's interesting you mentioned the Danish cement companies because one of the problems that I--your book made me more aware of--is the number of towns that have a limited number of hospitals where it is, I think, an issue. I don't actually think transparency is going to be a problem. I think it's probably a good idea. I think it will lead to some more competition.
But there are situations, probably, where there's a limited number of hospitals. And one of the challenges that these kind of mandated market forces approach is that instead of having the incentives emerge from the bottom up, they get imposed from the top down. They don't always work the way they do when they emerge from the bottom up.
And in particular I would rather see us find ways to create more competition among hospitals that made it easier for hospitals to begin, easier for surgery centers to be created. A lot of barriers to that. A lot of barriers to health insurance provision, also, which makes that business relatively uncompetitive, especially at the national level. And I think that's a huge, huge problem. But I want to get to your--
Marty Makary: And real quick on that. We already have competition in healthcare. But the competition is at the level of advertisements that the NFL [National Football League] games and valet parking. That's how these hospitals are competing.
How about competing on value? We need competition based on price and quality.
Russ Roberts: So, my only response to that is that we need to think about why they're not doing that right now.
And of course I think the reason is they don't have to. Recent episode of a podcast--I don't listen to many podcasts, even my own, but I just listened to this episode to prepare for this conversation. And the podcast is called An Arm and a Leg. And it's about a woman whose son gets a knee injury playing around. Needs stitches. They go to their minute clinic where it's going to be under a hundred dollars, if I remember correctly; and they don't have the anesthetic on hand. And that's kind of unpleasant. So, they decided they'd go to the emergency room.
Well, they walk in the door: There's a fee, which they don't know. There should be a turnstile there where you have to put your credit card in. Right? Talk about transparency where you'd find out what that is. She asked. The guy at the gate, wherever this was said, 'It's $600. Just by walking in here, you're out 600 bucks.' It turned out it was $4,200.
Marty Makary: It's what the CIA [Central Intelligence Agency] calls a 'low reliable source.'
Russ Roberts: Exactly. Even though it was an employee of the hospital who was in, like, some kind of concierge-type reception position--billing position.
And so what that episode is about--it's short, it's worthwhile--is to try to figure out: Why would they--that person said $600, as you point out, not a bad person, didn't know. Literally didn't know, didn't have an incentive to know. And so, they look at the question: Why don't they know that number? Why don't hospitals know that number? Why don't they publicize that number?
And the answer they came back with, which was not satisfying to me, but it was interesting exploration was: 'It's really hard to figure out what that number is, right? What it could be, what it should be. It's expensive for hospitals to determine their prices. They'd have to have a team of,' they said, I think, 'five or six people who would be constantly measuring and trying to assess.'
Well, I'll let you answer that. It's a horrible argument. But it sounds reasonable.
Marty Makary: I know for about 14 years of doing busy pancreatic surgery at Johns Hopkins, specialized in that operation, I could tell you 5,000 things about the pancreas with authority, except for one: the price of it. I couldn't tell you what the price costs. It has not been in our workflow. It has not been--the, like, hospitals, once again, good people working in a bad system--have been the only business that really just eyeballs revenue and eyeballs expenses on a global level. Our revenue is coming in at $1.1 billion. Our expenses are $1 billion. So we're on track for a $100 million dollar margin. It's never been itemized. And that's work. And to be fair to the hospitals, they have been busy meeting regulatory requirements, taking care of patients, staffing the hospital with nurses and HR [Human Resources].
So they've been busy. It's never been required by the market.
And now that these high deductible plans are unveiling the true insanity of the inflation discount game of hospitals and insurance companies and how exaggerated it's become, it is time for price transparency.
They can do it. We've already seen it. We've talked to Keith Smith. It is doable. And it's ironic that American academic medical centers are the bastion of scientific genius, and we can't even tell you what a service costs? I mean, this is doable. It's achievable. Just like we got nutrition labels. We can do this. And we have to because we have to restore the public trust in the profession. It's being damaged right now.
Russ Roberts: So, and I apologize to you and Marty and to our listeners to some extent, because we're now about 45 minutes into this conversation and we're now going to get to what I think is the most dramatic, important thing I learned from your book. Which kind of shocked me.
Which is that, so let's say, you have that knee surgery, those stitches; that turned out to be a bill in the thousands of dollars. Of course, the mom didn't know that going in, wasn't told that at the time. When asked for that price, wasn't told it; was told it couldn't be told. And then received what you talked about: the surprise billing. They kept coming, by the way. And some of them threaten you. They say things like, 'It's $300 if you pay right now, but if you don't, it's $3,000.'
It's like, 'How could this be legal? How could this be possible?'
And of course, when you check into a hospital, you basically sign a piece of paper that says, 'You can do whatever you want to me, both medically and financially.' It is extraordinary. So, what happens, this is--I mean, it's so hard to believe that this happens in America today. But what happens is there's this so-called sticker price--let's say for this, whether it's a baby delivery, stitches on the knee, or something more serious--pancreatic cancer surgery. Let's say it's a six figure number. It's $100,000. 'Oh, well, nobody really pays that. Because first of all, Medicare pays maybe $18. Blue Shield has negotiated a payment of $20. So, the hospital, it says a hundred but it's not going to really get a hundred. It's going to get $20 and that's life.' And I thought, 'Yeah, that's probably true.' There's some reason they inflate these numbers, they want to brag about their discount, Keith Smith said. The insurance company wants to brag to the employer, 'I got such a big discount.' There's a question of whether you can get credit for uncompensated care. I'm not sure that's right, but I'm looking into it. But that's really not the most important thing that's going on. And that's what you discovered. So describe that.
Marty Makary: Yeah. So, the inflation discount game, if that's what you're referring to, that is this game where the stakeholders like to go and boast about how they've cut a deal and the insurance companies go to the employers, say, 'Look, we got to this big discount.' It goes on with pharmacy plans, too. And I get into that with pharmacy benefit managers. Most businesses in America are getting ripped off on their health plans and their pharmacy benefit plans in a way that they can renegotiate, redo those contracts and save a lot of money.
And I go through businesses that did that in the book, and they saved half a million dollars. They didn't have to lay people off. They could provide better benefits, increase wages, because that industry that sells health insurance, that sells health plans, sells pharmacy plans to employers is managed by brokers.
I've never met a doctor in the United States when I asked them, 'Hey, do you know how our services are sold to businesses in the form of health plans and pharmacy plans?' I've never met a doctor who said, 'Oh yeah, it's sold through a middle industry called the health insurance broker industry, and they take commissions for life many times.' In New York, it's regulated at 4%. They take 4% of every dollar you as a business and your employees spend health insurance premiums. They take 4% for life. For what? For telling you, 'Hey, I would go with this Anthem plan or this BUCA [Blue Cross, United, Cigna, Aetna] plan.'
And then on top of that, they get kickbacks on the back end from the insurance plans. 'Hey, keep this business with us. We're going to give you a nice little bonus at the end of the year. Don't let them go.' And then, 'Hey, surprise, there's a 14% increase in premiums.'
The broker goes to work, 'Hey, sorry about this.' They start blaming everybody--blame Obama and [?] and everybody. The blame game goes around, right? 'You had $1 million patient last year in your health plan; that was expensive.'
And every now and then a business will say, 'This is baloney. I want to put it out to bed. I want to switch health plans.' Health insurance company in one case came back said, 'Oh, I'll tell you what, we'll only make it a 9% increase this year. See if they'll go for that.' And this middle industry of health insurance brokers--and there's many honest ones that are not doing commission based, and that's the exciting disruption in that space.
But that industry is as corrupted as the mortgage insurance broker industry was in the subprime market. Except that people are being not only skimmed money in the commissions for life, but they're put into plans they shouldn't be in and then they're spending too much.
Russ Roberts: But that's not the most depressing thing. They're not even close. I'm uncertain about that. I'm interested in it. We've had Robin Feldman on here talking about the PBM problem, the Pharmacy Benefit Management [PBM], and some of those kickbacks and also the secrecy there. And whether that's frightening or not. It seems a little frightening. But I'm open minded; I'm agnostic on that so far.
The part that really terrifies--not terrifies, horrifies me--and that I found most shocking in reading your book are the patients who get hit with a bill for $100,000 because they don't have insurance. They didn't get that discount, that Blue Shield negotiated. And instead, they get a bill for $100,000. And, one option, of course, is not to pay. I think the presumption I've heard from many economists, 'Oh yeah, sure. Well, yeah, they don't collect all their bills.' And, 'That's part of the reason they have to charge a high price is to make up for the non-payers, the people who were uninsured, the homeless, and so on. And emergency rooms lose a lot of money and that's just part of the deal.' And so, 'the actual prices that people collect have to compensate and carry that. There's some risks and cross-subsidization going on,' is the technical term.
But that's not the problem. The problem is, is that they come after you.
Marty Makary: They come after you, dirty.
Russ Roberts: It's hard to believe. So, talk about what happens to these people in towns where there might be one hospital. And, instead of saying, 'Oh, it's a community institution'--it's a nonprofit after all, right? Usually. 'Aren't you there to--?' good people in a bad system. It's a really bad system. So, talk about what they do.
Marty Makary: So, for the last three years I've been researching, me and my team at Hopkins, the question that hospitals put out there that, 'Oh, don't worry. Nobody pays these bills, the sticker price. No one pays them.' And we started funding--
Russ Roberts: 'It's just an accounting convention. It's not important for actual outcomes. It's not really--you think that's part of the high cost of healthcare? But nobody pays that.'
Marty Makary: That's what they say. 'Nobody pays that.' Well, guess what? I grew up in near Amish country in Pennsylvania. Those Amish people show up, and bags of cash, with bags of cash from the farmer's market to pay the bills in full. And so, the out-of-network--the Amish, the faith-based co-ops, the uninsured, which is still a big portion of folks in America--there are a lot of people who are asked to pay that sticker price. And when they don't, what we found is some hospitals will sue them in court to garnish their wages.
The most common business whose employer gets sued is Walmart, followed by postal workers, food service workers. These are not people like me and you. Life has been good to us. Half of America has less than $400 of cash in their savings account. They live paycheck-to-paycheck at their homes.
Russ Roberts: I don't think that's true. I don't think that's true, but that's neither here nor there. It doesn't matter. There's still a large group of people who don't have insurance, show up unknowingly at the mercy of this billing system, and are hit with a bill that is tens of thousands, often more.
And I always thought--you'd say, 'Well, just give me the cash price,' or 'Just give me the price that the insurance company negotiates. I'm happy to pay that.' They don't care. They don't say, 'Yeah, we'll work it out.' They're going to come after you.
Marty Makary: We defend these people in court and I am learning about this half of America that doesn't live like me. And I will defend any patient who is sued by their hospital for an egregious bill pro bono as their expert, even though it kills my schedule to do it. And, we travel around the country. My millennial students come with me, and we begged these hospitals to stop. And we read the charters of the hospital back to the judges and to the hospital lawyer in court, that they're supposed to be a safe haven and a refuge. In one hospital, it says to take care of all those regardless of their race, creed, or ability to pay. And we tell the judges, 'I can't show up and mow your lawn and send you a bill for $10,000. Where's the contract? Show me the contract that this person'--
Russ Roberts: How is this Constitutional? I want somebody to challenge it in court.
Marty Makary: We're doing that. We win 100% of these cases, Russ. We lost one case deliberately in order to take it to Appeals Court. We have a legal theory that I believe is true and that is: that without a written agreement, the hospital has no right to come after you and garnish your paycheck, put a lien on your home, or deduct your state income tax, which is what is happening at about 20% of U.S. hospitals, including some of the biggest names out there.
Russ Roberts: So a lot of people would say, 'Oh, come on. Garnish people's wages?' A person who works as a barista who falls down, gets driven to the emergency room by an ambulance, by a friend who calls 911, and gets a $25,000 bill for the combination of that trip to the hospital in a very well-equipped ambulance and a night in a hospital room that has unbelievable technology and they get it built. That's $25,000.
Marty Makary: Yeah. Most hospitals are compassionate and will forgive you or just put you in collections.
Russ Roberts: Or give you a reduced fee in some cases.
Marty Makary: Yeah, but be careful at that reduced fee. If it's marked up 500% and they say, 'Oh, we're going to knock 10% off. You just pay us every day for the rest of your living time on Earth,' that is not compassion. That violates the public trust.
The hospital that sued 25,000 people in a town that by census data had 28,000 people in it, paid no taxes. They're a nonprofit. We defended their patients in court. We got 100% of them off. I went to the CEO and begged him to stop suing patients. That hospital has announced they will stop all lawsuits against patients. VCU [Virginia Commonwealth University] followed--
Russ Roberts: Virginia Commonwealth?
Marty Makary: VCU, Virginia Commonwealth University. We found this rampant patch in Virginia. We found it in New Mexico. We're asking community health systems to do the same. Community health systems in UVA [U. of Virginia] have reduced the number of lawsuits out of their institutions. We want them to stop. We want them to stop.
Russ Roberts: I just want to make it clear. I want people to understand what we're talking about here. This is a situation where a person in extremis, a person in trouble, a person who may be at risk of death is taken care of--which a beautiful thing--by a hospital or a surgeon or just a medical-care person. And they get a bill that they couldn't be told what the price was. And their credit rating is ruined; they're sued; and then their wages are garnished for--again, I want to make it clear. It's not like, 'Yeah. Well, for six months that person had a hard time because they didn't --'.
When you went to this town in New Mexico--was it Carlsbad?--
Russ Roberts: where people were coming up to you with tears in their eyes because you were there to solve a problem that every single one of them had had some--not literally every single one, but many, many. Again, it's not like, 'Yeah, there was this one person, once,' but numerous people are having their lives ruined for a procedure that they had no idea was going to cost them.
Marty Makary: They come to the doctor when they're sick and vulnerable and they get gout. Let's call it what it is. If we could change the lexicon in healthcare to talk about it--let's not talk about costs, healthcare costs. Let's talk about medical prices. Okay: We have a medical price crisis right now, and politicians aren't even talking about it. I watched the Democrat candidate debates. No one is talking about medical prices and price in the hospital.
Russ Roberts: They don't want to, because hospitals are often the largest employer in a district. A lot of medical people working in the medical field. It's a good ride for some people.
Marty Makary: Half a billion dollars in lobbying spend in one year.
Look, everyone in healthcare is making a lot of money except for one person, the patient. They're getting gouged and fleeced.
I would also add to that: rural hospitals are getting hammered as the large hospitals are making a record margin this year. They're on track for a 5.1% margin, up from 4.5% last year. They insist they got to go after these patients, these people and that work at Walmart. And their own housekeeping staff sometimes get sued. I mean, this is crazy, right? And I tell them--
Russ Roberts: You're saying of the hospital? The hospital staff gets sued, right?
Marty Makary: Yeah, hospital employees. It's like the old coal towns in Pennsylvania where I'm from.
And so I've showed them from our research--we wrote the first paper on this topic this last summer in JAMA, Journal of the American Medical Association, and we found it's less than the CEO pay at the hospital. All the money they collect from garnishing the wages of these people that live paycheck-to-paycheck, less than half the CEO pay at that institution. They don't have to do this.
And most hospitals don't. Most hospitals do the right thing.
So we are trying to create public accountability. We've created five measures of billing quality that are about to come out in the Journal of the American Medical Association. These are metrics of billing quality. Billing quality is medical quality.
And when you google a hospital, it shouldn't just say the name and address. And we've told this to Google; and we're going back out there to meet with them. It should say the hospital name, the hospital address and phone number, their average markup, and their billing quality score. Are they charging people for complications? Do they provide prompt service to address an error that you perceive in your bill? Investigate that concern and close the loop? Do they give you a price for a common, shoppable service?
Not: Getting shot in the chest and being in the ICU [Intensive Care Unit]; we're not going to give you a price for that. Okay, we're not going to give you a price for that. But, people want to know what an MRI [magnetic resonance image] costs or a C-section or--then we should be able to offer that.
And so, we have metrics of billing quality. Does the hospital sue patients? And, using this simple system that is being adopted now by many of the hospital ratings groups--we've met with them ahead of the publication in JAMA--we can create public accountability to rebuild the public trust in American hospitals.
Russ Roberts: My only disagreement, and I'm sure hardcore free-marketers--of which I still am one--will wonder why I am so outraged again by "high prices." I mean, that's just a part of the market process.
I just want to emphasize, it's not normal market. Not for the reasons that people usually say, which is, 'Oh, how are you going to have a customer make an informed decision when they get shot in the chest?' We're not talking about that.
We're talking about the person who has knee pain, goes in for an arthritic, or a knee replacement, or some kind of procedure. Whether that's a good deal or not for the patient, if they had to pay their own money, the answer would probably be 'No,' but they do it anyway because the doctor tells them it's a good idea and someone else is paying for it.
Then you say, 'Well, why is someone paying for it if it doesn't work so well?' And the answer would be because they really don't care. They pass it on the form of higher premiums.
So, that whole system that we're talking about is wrong. It's not a good system. It goes back to the--when you say, 'Our hospital is dedicated to compassion,' you shouldn't do this.
Now my question is: So, why are they? And one answer is: Because they can. And then the question would be, 'Well, why can they?' And the answer is because there's not enough competition. There's not enough people spending their own money. There aren't those shoppers who are keeping the prices down. And there's no demand for that.
And so what I see when I look at the landscape here--and we're obviously at a time of innovation despite the restraints on the system. We have people like Keith Smith who are going out and saying, 'Actually, you can set a price. Here's what it is. Most of the time. This is what it is every time.' We have people doing all kinds of innovative ways of providing healthcare. The employer-provided health care that you referred to, we mentioned Adam Russo. We mentioned the example of that on this program recently where, a). Employer pays its--pays--its employees to go to Mexico for a surgery. 'I'm going to make you fly to Mexico.' 'Really?' 'Yeah. That's the bad news. The good news is: your doctors[?] will be trained at the Mayo Clinic and we're going to give you a $5,000 cash bonus.' Even better than free diapers and wipes per year. And people are doing that.
So it's all these little tinkerings around the edges, people trying to do an end-around an incredibly inept and inefficient system.
Is that going to work? What do we need to do? I'm not sure. I think the transparency Executive Order is a good idea. Maybe it is, maybe it isn't.
But I'm really interested in trying to create these alternatives and spreading the word about them.
There's another movement, Direct Primary Care, which is the equivalent of a concierge of medicine for "blue collar" people, not rich people. There's dozens and dozens--not thousands of thousands, alas--but dozens and dozens of people trying to get around this bad system.
Is there a set of things we can do to help that, policy-wise? And what are your thoughts on whether we're going to make it or not?
Marty Makary: So, I'm optimistic. This Executive Order--by the way, you're not hearing any opposition from the other party because it's an American idea. And you're not seeing any media coverage also, because it's an American idea. And so, the idea of exposing the price inflation markup discount game, which costs a lot of money and creates a middle industry, that can be addressed with that Order.
Russ Roberts: It might work. Let's put that to the side. Let's pretend it doesn't work. What else can we do? 'We,' meaning policy, not 'we, as shoppers.' There's a lot we can do with shoppers, obviously. Not a lot, but there's some things we can do.
But in terms of policy, what can we do to--like, for me, I want to get rid of Certificate of Need that makes it hard for a hospital to start, and compete, because it's under the--in many states, the existing hospitals decide whether there's a need for a new hospital. That's nuts. It should be unconstitutional.
I want to get away from third-party subsidies. I want to get away from the artificial subsidies insurance. I want people to spend their own money.
So, I have lots of things. But I'm a radical. What do you favor outside of mandated transparency? I mean, I'd like transparency to emerge from a more competitive environment; and it's starting to. Keith Smith is an example of that and there are [?] people like him, but it's happening.
Marty Makary: Yep. It's happening. I couldn't agree more.
Look, I love what's happening with shedding light on the secret discount game.
But let's talk about what's happening in the market regardless of what the government does or doesn't do. MDSave, other websites like Sesame Health, are now creating a marketplace like Kayak or Travelocity; and people are using these sites. And people are using Fairhealth.org, a group that I advise; and other companies that are telling you what the reference-based price is.
People are asking. When enough people asked in restaurants if food was organic, guess what? The market responded. When enough people wanted foods in the grocery store with low sugar or no added sugar, the market responded. And people are now asking.
And the reason I wrote this book is to create mass healthcare literacy so businesses can be informed, consumers can shop better; people can know what to do and what to sign and not sign when they negotiate their bill before, during, and after the care.
We need an informed consumer. And, let's agree to turn off cable news and shut down this artificial facade, polarized debate that was invented by the media and politicians that we're a divided country on healthcare. No, we're united. We think surprise billing violates the public trust. We think suing patients has gone too far. Hospitals that pay no taxes and price-gouge at a time when people are vulnerable violates the mission of our great profession. There's so much consensus about the garbage money-games that are going on in healthcare. Let's talk about these solutions in a way where we can put aside this polarized debate that healthcare has reduced to being pro- or anti- some piece of legislation.
The politicians talk about: How do we pay for healthcare? How do we finance the broken healthcare system? We need to talk about: How do we fix the broken healthcare system. And the way to fix it is to address inappropriate care and pricing failures.
Russ Roberts: So, let me raise a possibility I haven't thought of it before, but it dawns on me that your point about high deductibles--by the way, after the Keith Smith episode, people demanded--some people who were hostile to it--wanted to know what my personal healthcare opportunities were because 'obviously I'm biased.' Which I am. I am biased. I like to admit that. I think it's a good idea. But, just for the record, I have a high deductible Blue Shield policy of--I think my family deductible is $6000 or $7,000 per year. I fund that with a Health Savings Account [HSA] card, which is fantastic. At least it seems to be--I don't know if it really is. But it seems like a plus on this for me personally. Meaning I get to use a pre-tax dollars to fund that. So I have a pretty good deal. And Stanford, my employer, pays a huge amount. So, there's a hidden--my monthly fee is about, I think--I want to say it's about $500 for my healthcare. So I'm paying about $6,000 for the insurance itself, and Stanford is paying a lot more than that. The total cost is about $20-something.
So that's the current system. Even in that system, which is pretty generous for me--I'm lucky, as you say--I shop around. I really am offended because I don't always hit that deductible in a given year. I might be lucky. And so I look around.
When my doctor says that you need an MRI, I say, 'Are you sure?' And, I don't just go to where he says, because where he says is not necessarily the cheapest. And in my experience, MRIs are--they've all got a pretty good machine. The quality is pretty much a constant.
So the real puzzle is, are some of these innovations we're talking about here, like the employer-provided healthcare, employer-provided insurance, these clinics that have transparent pricing, these websites that offer information about the range of prices available where you live--are these a response perhaps to the incentives that these higher deductible policies are encouraging?
Marty Makary: Yeah. Employers are pissed off at our broken healthcare system. They're footing the bill. And I know you said it in good faith, and I'm not disagreeing with you, but when you said, 'I'm paying about $5,000 and my employer pays $15,000.' Really--
Russ Roberts: I'm paying all $20,000, of course. It's in the form of lower wages. Absolutely.
Marty Makary: You know that, and many people don't appreciate that. Right?
Russ Roberts: I meant: who sends in the money?
Marty Makary: Exactly. And I knew what you meant.
But, right now we just had a study come out at Johns Hopkins that 48% of all federal spending goes to healthcare in its many hidden forms. It's up to half of Social Security spending goes to Medicare, copays, deductibles, coinsurance, and out-of-network costs.
The Defense Department has its own healthcare system, which is about 8% of its budget. The VA [Veterans' Administration] health system is separate. That's about 4 1/2% of all federal spending. We cover healthcare for 9.1 million Federal workers and retirees and beneficiaries. That's about 1.2% of all Federal spending. And interest on the debt is in part interest on the healthcare spending debt.
We're spending 48% of federal spending on healthcare, and then you're spending--
Russ Roberts: 'It's not enough. It's the most important thing. What can be more important than health?'
Marty Makary: And then you're spending $20,000 on health insurance. And then you're told a bill is not covered and they're going to sue you in court?
This system is so crazy. There are some times things need to shatter before we realize we need to pick up the pieces and start over. And that is what's happening right now with employers that are doing direct contracting, patients steering from their own primary care clinics, direct primary care.
Steering is one of the great holy grails, I think, of healthcare. If we can have steering from primary care, from employers and even health plans to high-value centers and high-value doctors, recognizing we need good care in rural areas, we can actually create demand around value.
And we're seeing employers now--Walmart just announced they're opening up a clinic. What do you think is going on with some of that logic? They will be able to control referrals. And, by controlling referrals, that means their doctors can refer to the other specialist doctors--which tend to be the expensive documents--that are doing appropriate care with fair pricing. We've seen it with ChenMed, we see it with Iora, we see it with large employers doing DPC or Direct Primary Care. It's one of the great bright spots going on right now.
And they can take time to get into your chronic illness, because they're paid on a global capitation. They're not doing the billing through-put model of primary care, which is so broken and so ridiculous. Patients hate it. We doctors hate it. Our burnout rates as doctors are at record highs. Why are we doing it? It's so broken. To see a patient for 10 minutes and spend 5 minutes billing and coding--a study came out showing that we doctors are doing our charting on nights and Saturdays. That's how much this crazy coding billing game is. These clinics are saying, 'No more billing. We're going to convert our billing room into a cooking class for patients with diabetes. We're going to talk about treating back pain with ice and physical therapy instead of surgery and opioids. We're going to look at the specialists in our community and refer to the ones that are doing high value care and don't do those unnecessary nudges, and leg stents, and endoscopies, and knee arthroscopies that don't have any benefit.' That is the great-value marketplace that is already being carved out by some of these employers. That is one of the great reasons I'm optimistic about healthcare and the real privilege of profiling these innovators in the book, The Price We Pay.
Russ Roberts: So, a lot of people would respond to that--not this one sitting across from you as we record this at the Hoover Institution, so Washington, DC office--but a lot of people would respond to that by saying, 'I'm trying to fix a healthcare system that ultimately has profit at its root, is a mistake. We need,' I don't know what this phrase actually means in real life, 'Medicare for all.'
But the idea would be--I'll give you an example. Some listeners may know my father is in the hospital this week. I tweeted about it because there was a moment of--I had to make a decision, and it wasn't clear to me what the right decision was, and I thought I'd crowdsource the answer.
He went in on a Sunday. Today is Friday. He's still there. I have no idea what that bill is. I do know one thing: I'm not paying it. And he isn't paying it. Not because we're going to stand up and fight for justice. It's that we're never going to see it. He's 89 years old; he's on Medicare. Let me just take care of him. There's no incentive to send him home if they could. This is still too high, this is still too low. Whatever it is, he's just going to stay there. It's very pleasant. It's dangerous, right? There's a lot of infection running around in that hospital, of course. There's challenges to hospital life. But, it's--my mom is really appreciating it. It's been taken care of. That's a, that's our current system for all people. We need that for everybody and none of this rigmarole--a word I don't use it very often--rigmarole about this pricing game.
'Yeah, let's get rid of the whole thing.' You just get rid of it. You just have doctors doing what they should be doing--taking care of people, regardless of ability to pay and providing first-class healthcare out of the goodness of their heart, funded by all of us, which is how it should be. And it's like okay, stay away from any details of how this should actually be implemented. But isn't that the direction that we should be going?
Marty Makary: By the way, your Dad making it to 89, and we say in our field that he won, getting to 89.
Russ Roberts: Yeah.
Marty Makary: And you're not old until you have to bend over to tie shoes and ask, 'What else can I do while I'm down here?' So, anyway, we talked about your father. I wish him the best luck.
Look, I get the appeal of Medicare for All by some folks because they're so angry at all the middlemen and the money games, it's seen as a cure-all pill. The problem is: Let's look at the fiscal responsibility of the proposal. We are spending 48% of all federal spending on healthcare according to our Hopkins study. What are we--
Russ Roberts: Even if that study is not correct, it's still a large number. A lot of people would say it's 20 %, 18%, whatever. But let's say it's bigger because there's some hidden things. But either way it's a lot of money.
Marty Makary: You're a good academic skeptic. I appreciate it.
Russ Roberts: It's my job.
Marty Makary: So our study shows 48%. So what are we proposing these--what are these Medicare for all advocates? Who I acknowledge have a good heart, right? They want to do something good. They want to expand coverage. Who doesn't want that? What are they proposing we increase the 48% number to? 90%, 100%? Do we cancel all other national spending and priorities to increase Medicare coverage? Well, that won't even do it: if we increase--
Russ Roberts: No, but their claim--that's not fair to their claim. Their claim is: 'We're going to save money; we're not going to have all these billing costs. We're going to be like the NHS [National Health Service, United Kingdom] or Canada. They spend a fraction of what we spend. Our results are no better than theirs for the money we spend. So those systems will be better. We'd save a huge amount of money and we'd have the same level of health.'
Marty Makary: If you--let's just look at what the CBO [Congressional Budget Office] is projecting. If you--
Russ Roberts: Congressional Budget Office.
Marty Makary: If you want to fund a Medicare For All system and still have hospitals that are open, we are talking about tens of thousands of percent increase in our current healthcare spending as a government.
The premiums for Medicare come--15% of our Medicare spending is from the premiums. That comes right out of Social Security. So, we, if we're spending 48% on healthcare--and I've told the Democrat candidates exactly this, 'Okay, nice idea. We're at 48%. What do we go to, 70%, 90%? Because you won't get enough beneficiaries on there to get Medicare For All and still have hospitals open.' So, I think the finances just are not there. It's fiscally irresponsible. Look, we could say, we want everyone to get a Ph.D. in the United States. Nice idea. Where's the money? The Medicare Trust Fund is already on fumes. Let's just look at the actual numbers.
Russ Roberts: Well, their answer would be, I think that: 'Okay, it's that whole--the way we funded Medicare and all that, it's just wrong. We need to fix that.'
I think the deeper problem, for me, is that--what's interesting about this debate is that if you talk to somebody from England, they're very proud of their healthcare system. As long as they haven't lived in the United States. Same with Canadians. They love their system. They're very proud of it. It's not just, 'Yeah, it's worked well for me.' They have an emotional attachment to it. Just like we do in America, I think, for many things--at some point our healthcare system.
I did actually have a British person, an English person telling me that he knew that America was a bad country because he'd seen Breaking Bad. And I thought, 'Maybe not the best source of information about the state of American life, but okay.' But he meant that about healthcare insurance. So, here's a person who got a bad medical diagnosis, couldn't afford it, and became, started into a lot of illegal activities.
But I think what's interesting for me is that a lot of people in other countries--I think there's two things that we should worry about. One is: there's a lot of rationing in those systems that doesn't take place here--for better, for worse.
It's hard to get many things in England. They're not available. 'You're not on the list. You can't get this drug. You can't get that treatment.' One, argument is that that's probably for the best: A lot of these things don't work. But, it's not a comforting strategy in general.
Second thing I think to remember is that the pharmaceutical industry, which I think still remains a place of great promise, even though its pricing is a little bit not so good sometimes, because of legislation that's protected them from, say, generics and other things--they make all their money here. Whether they're an American company or a German pharmaceutical company, if we take the profit out of this market there is going to be less innovation.
The challenge is how to find a way to keep that innovation across the board in healthcare, to me, and at the same time introduce enough competition to make it affordable.
Marty Makary: We--our best hospitals, are best hospitals in the world. And our research is the envy of the entire planet. But our crazy money games--
Russ Roberts: We know that. We know that because Keith Richards came here for his heart valve. He didn't stay in England, by the way. Just for the record, an anecdote. It's a lousy piece of data, I agree. It's an anecdote that I love.
Marty Makary: And your friend who watches Breaking Bad, tell him not to watch The Wire. Stay clear.
Let's say that the Chinese magically loan us $3 trillion dollars to increase the number of beneficiaries we have on Medicare. Okay. Let's say that fantasy money that the politicians, you know, sort of dream up, just magically appears that's not there.
Governments invariably over time, 100% of the time in every example in the world, dialed down their overall healthcare expenditure year-to-year with a broad minor tightening of the belt. And 10 or 20 years down the road, you are left with sometimes a dilapidated system. At minimum, it's underfunded.
Look at our own Medicare system. They have cuts, year-to-year, that basically relative to inflation and talk to doctors about their payments from Medicare. And these sort of--the tightening of the belt--goes on invariably. Governments cannot resist. It is a massive expenditure and when there are other national priorities, there is an across the board tightening of the belt.
And so I worry about our great hospitals down the road 10 and 20 years with an underfunded system.
So, there are a number of problems that I see in the Medicare For All finances.
But, I think we need to stop this polarized debate of pro versus con. Can we start with basic transparency for services? Can we give free markets a chance? Can we let transparency work?
And if we can cut the waste instead of throwing good money after bad into a broken system, I think you'll start to see magical things happening. And so I'm optimistic about healthcare. I think we need to talk about cutting the waste rather than just throwing good money after bad into this broken system.
Russ Roberts: My guest today has been Marty Makary. His book is The Price We Pay. Marty, thanks for being part of EconTalk.
Marty Makary: Great to be with you, Russ.