Marty Makary on the Price We Pay
Feb 10 2020

The-Price-We-Pay-198x300.jpg Physician and author Marty Makary of Johns Hopkins University talks about his book The Price We Pay with EconTalk host Russ Roberts. Makary highlights some of the stranger aspects of our current health care system including the encouragement of unnecessary or even harmful procedures and the predatory behavior of some hospitals who sue patients and garnish their wages to recover fees that are secret until after the procedure is completed. Makary favors requiring hospitals to make their prices transparent. He also discusses a number of ways that employers and patients are trying to avoid the worst aspects of the current system.

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Explore audio highlights, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.

READER COMMENTS

Michael Pettengill
Feb 10 2020 at 1:28pm

A half century ago, James Squires, looked at the better mess and acted, creating the HMO Matthew Thornton Health Plan, aided by the Nixon signed “HMO Act”.

See https://www.nashuatelegraph.com/news/business/2013/12/18/nashua-20-20-legacy-jim-squires-founder-of-first-hmo-in-nh/https://www.nhbr.com/qa-with-endowment-for-healths-james-squires/

Everyone I know picked MTHP because it was better by far than all alternatives.

There was one price: the monthly cost to have ALL care provided with modest copays for actions initiated by patients, eg, $10 to make a doctor appoint, $50 to go to ER without calling MTHP first.

It was founded by doctors, run by doctors, acting as a group overseeing themselves. It was a public corporation like the Blues back then, serving the public, thus getting tax exemptions, overseen by the same insurance regulator as BCBS.

As a patient, doctors explained why tests were done, and why the testing was stopped or reduced based on research studies and the HMO’s data as reviewed by the doctors in the group with expertise.

Patient records were computerized and detailed to allow any doc to do follow up, as well as measure results of the group agreed standard care, very advanced in the 80s.

Doctors referred patients to hospitals, specialists and paid the Bill’s. But with those actions and costs visible, the docs decided to bring much of that work in house. In the 70s and 80s, out patient surgery was cutting edge with many claiming patients would suffer and die. The HMO opened up part of the facility after hours for “urgent care” to eliminate ER trips – call the HMO is your kid is sick, you sliced your hand, etc, and they will get you in, or send you to the hospital ER, no $50 copay. (Obviously, not breathing, blood gushing, car crash, you call 911, and for those no $50 copay.)

The HMO had it’s own labs, etc.

The docs knew each other in their teams and related ones, so, consultations were often done on the spot.

No possibility of surprise billing. The docs collectively knew who the good outside specialists were in hospitals in NH and Boston, etc.

Other than the Reagan “tax reform” making HMOs illegal to by fair to for profit insurers, Marty would be able to set up an HMO with all the fed op doctors and replicate MTHP and what Dr Squires created in the 70.

Note, Israel effectively has four competing HMOs that Israelis must sign up for, though I believe one has been managed the best and dominates. The NHS is effectively an HMO with budget on a per capita basis for each hospital/clinic group.

I see buying medical care by shopping on price/performance a la carte like buying a car in pieces: to buy a car you go to a dealer and order the body from Ford, the engine from Chevy, the brakes from Chrysler, the seats for Corvette,… in the 50s, lots of cars were bought a la carte, until the Japanese had to make most stuff standard because ordering a car custom from a Japanese factory was logistically impossible.

The current disaster was made by mostly conservatives trying to cut health costs by using profits and pricing and “skin in the game” charges to people who know very little so they “shop around”. I argue you would make smarter shopping decisions shopping for the CPU chip, gpu chip, screens, wifi chips, GSM chips in your next iPhone or Android from Samsung because so many geeks write about it all on the web listing the brand names.

Floccina
Feb 13 2020 at 4:34pm

Healthcare is more like the car repair business than the kit car business.

I’d assume that if our GP’s knew we were paying out of pocket, like our car mechanics, they’d tell us, I know this guy who does a good lumpectomy for cheap. The auto repair business doesn’t work great but seems far less crazy than healthcare.

I also like the HMO’s as you described them, I think it odd that the huge hospital that my wife works for uses Blue cross for their employees.

All of this reminds me of Robin Hanson’s contention in this econtak here that something else is going on because we would never have settled on the current system for anything other than healthcare. We seem to be willfully blind on healthcare.

Mike Moore
Feb 14 2020 at 7:36pm

“Half a century ago…”

That would be 1970, if my math is correct.

“Patient records were computerized and detailed to allow any doc to do follow up…”

Sounds like you’re having a Joe Biden “when the stock market crashed, Franklin Roosevelt got on the television” moment.

 

Even in the 1980s, computers weren’t in wide enough use in physician offices to allow “any doc” to access records from a computer.

Fred Giertz
Feb 10 2020 at 2:01pm

I was surprised by Markary’s gratuitous reference to “Roundup pesticide (sic).”  It is actually a herbicide:

“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.”

This is clearly a controversial issue in that the allegation is considered junk science by many knowledgeable scientists.  It weakens his overall credibility by inserting this extraneous opinion without further support.

 

Kent Lyon
Feb 10 2020 at 9:00pm

It strikes me that this discussion did not include such things as the RBRVS formula that Dr. Hsaio promulgated under the GHW Bush administration in the early 1990s. That formula purported to “calculate” the value of any and all medical services. Stunningly, it calculated the very prices that were being charged at the time, including the large differential between cognitive and procedural services. Those “prices” were then locked in for Medicare reimbursement.  They were then ratcheted downward by federal fiat if Medicare expenditures exceeded the prior year’s expenditures, at the same percentage. This threatened to so drastically lower physician payment that a “doc fix” had to be passed by Congress on a yearly basis until that feature of price control was removed. There is no such thing as a market system influencing prices in healthcare.

Which highlights a problem with this discussion. Russ understands the problems much better than the good doctor, in my view. A third party payment system is at the root of the problem, but direct government involvement in the system is the Great Exacerbator of the healthcare financing fiasco. Dr. Makary says something more telling that he perhaps intends when he describes healthcare financing as akin to the Mortgage markets that led to the financial meltdown. Those markets were driven by government policy, specifically HUD requirements for increasing the number of subprime mortgages then, which were laundered through Fannie Mae and Freddie Mac, participating with Mortage Lenders (Country wide) and Wall Street banks to form tranches of MBS’s and then insured via Credit Default Swaps. See Peter Wallison’s great book on that mess, “Hidden in Plain Sight.”

Remember, the Golden Financial Age of Medicine occurred immediately after the implementation of Medicare. With no controls on the system, whatever Medicare bill was submitted was paid. Physicians and hospitals could charge whatever they wanted, no questions asked, and they were paid. Physicians and hospitals, to say the least, exploited the system shamelessly. Everyone wanted to build a hospital, since hospitals functioned as entities that directly extracted unlimited reimbursements from the federal government. Medical inflation went to 30% a year.  That’s when certificates of need for more hospitals came into being. They were a direct result of Medicare. Russ, as well as the good Docter, seems unaware of the connection. Excessive utilization and unnecessary care became the norm. I recall reading the study in the NEJM in the 1990s with bare metal coronary stents The study looked at patients with stable angina and compared standard medical treatment with bare metal stunting of coronary arteries, and showed that patients that were medically treated couldn’t go as far on a treadmill test as the patients who had bare metal stents. The conclusion was that bare metal stents should be used for stable angina. The problem was that the study was a 6 month long study. It actually appeared to be planned that way, because at the time it was known that the peak incidence of restenosis fo stetted arteries occurred at 12 months after placement of the stents. In actuality, bare metal stenting was increasing the incidence of heart attacks, but the study, published in such a prestigious journal, was used as the basis for doing stunting of coronary arteries for stable angina.

But the problem has even earlier roots, and that is in the third party payment system that was, for all intents and purposes, begun in 1929 at the Baylor Hospital in Dallas, TX, where the first Blue Cross insurance system was set up. This was established because the hospital was struggling financially, and the insurance program was a solution to the financial problems of the hospital. Physicians and hospital administrators set up the system and ran it. Unsurprisingly, with these new insurance administrators paying themselves out of a pot of money they controlled, fees rose, and have been rising ever since.The financial benefit to hospitals and doctors (not the benefit to patients per se) fueled the rapid expansion of such insurance systems to every state in the Union.  The system was markedly expanded by an historical accident, eg, WWII, when wage and price controls were instituted, and a worker shortage existed due to the War. Large corporations wanted to provide incentives to attract good workers, but couldn’t raise salaries, so they petitioned Congress to allow provision of health insurance (tax advantaged to the corporation, of course) to employees. So a third party system became a fourth party system, in which incentives to watch costs were diluted. Costs rose, again much faster than general inflation. Soon the elderly, retired, disabled, etc, were priced out of the insurance market. Into that breach leapt Lyndon Johnson to create the Golden Financial Age of Medicine in the 70s, which the Reagan and Bush administrations tried to get under control.  Am I the only one that remembers the famous words of Gale Wilensky, then head of Medicare services in the Reagan administration, when, in Congressional testimony, she referenced “…the perverse incentives inherent in a fee-for-service system”? She sounded like a Soviet commissar. And the Reagan administration proceeded to regulate medical markets in a way that can only be described as an application of the National Industrial Recovery Act to the Healthcare sector.

(the NIRA was, famously, laughed out of the Supreme Court on a 9-0 decision regarding a kosher chicken purveyor from Brooklyn who went to jail for allowing his clients to pick their preferred chicken).  Dr. Makary sort of recognizes that now Medicare pricing forms the basis for all medical pricing, even thought some of the time that pricing is many multiples of the Medicare price. Most of the time it is a fractional multiple above the Medicare price.

One of the galling aspects of Medicine today is that we are all required to use the ICD10, CPT and HCPCS code books from Medicare to code all diseases and services and equipment (for non medicare as well as Medicare beneficiaries. Most galling of all is that the AMA writes those code books under contract from CMS, but the, unlike any other federal contractor, the AMA is allowed to copyright those code books and make (no one knows how much) tens to hundreds of millions of dollars annually from those copyrights. To add insult to injury, the AMA controls the committees that set Medicare reimbursement. Any wonder doctors are no longer joining the AMA. If there is any truly corrupt organization in healthcare, it is the AMA. The retired Air Force Surgeon General hired to clean up the AMA a number of years ago quit in frustration after 6 months, seeing the task to be impossible.

Yet, the Journal of the American Medical Association is where Dr. Makary is publishing his articles. Something is awry here.

The middle men that both gentlemen decry were created by federal  policy and law, that, under the Reagan administration, encouraged private markets to develop HMOs, PPOs, etc (some described in an above post from the Nison era) These all functioned under federal law, which, in attempting to control the operation of these entities, provided opportunities for such entities as pharmacy benefit managers (PBM’s) which would not exist if not for the complex federal requirements regulating these entities. Such PBMs were further driven by the regulatory expansion that occurred with Medicare Part D (with the infamous donut hole, which, contrary to plan, drove prices up and drove transparency completely underground).

Dr. Makary and his eager Millenials, I would argue, have a deficit of historical information on how we got in the mess Dr. Makary describes. He is correct that expanding to Medicare for all would more likely reprise the fiasco that resulted in massive cost increases under original Medicare. If it does not, the problem will be limited access, rationing, delays in care, and possibly staunching of innovation as Russ notes.

I do not share Dr. Makary’s optimism about our health care system. I have seen too many abuses from the inside, from doctors, hospitals, insurance companies, pharmaceutical companies, organized medicine, politicians, etc. Look at the deal the Obama administration cut with Pharma (negotiated by Billy Tausin, former Congressman from Chack Bay, Louisiana) wherein Pharma agreed to spend $150 million on an ad campaign advocating for Obamacare in exchange for the Obma administration NOT using Medicare market clout to drive down drug prices, and continuing to disallow reimportation of drugs from Canada, that would reduce drug prices to pennies on the dollar of US prices.  I practiced in a city once where every single physician in the city signed an PPO contract that obligated them (written in black and white in the contract) to pay a kickback to the insurance administrator, a percentage of the reimbursement the doctor was paid for services. When I pointed out the problem, the insurance administator induced a state representative from the city to try to eliminate the anti-kickback statutes in the State to allow the insurance administrator to extract kickbacks from doctors. When I pointed out that problem, the legislator threatened to kill me. Such is the perverse state of healthcare financing in America.

Russ will likely censor this post, as he tends to do on my posts, for straying too far from the topic, or being too offensive. I’ll be surprised to see this post survive.

[Kent: Russ doesn’t censor your posts. If you are offensive or off topic, the comments are not allowed by our comment policies, so I don’t publish them. The only problem with this particular comment was it was very long, so it took me a while to read it.–Econlib Ed.]

Jenny
Feb 10 2020 at 11:45pm

I listened to this on my way to the doctor. Like Russ, I have a high deductible plan. So I asked the fee. They had no idea.

I agree that price transparency the various reforms Russ and Marty discuss will help (eliminate certificate of need, less third party subsidization, banning of blind balance billing), at the margins.

However, I don’t think it gets at the issues. When I was in the industry, 80% of costs were in the last 6 months of life. Many of these patients are not capable of shopping for price, and while there is still reasonable hope, families are willing to pay an enormous amount. I wished that Russ and Marty explored the vet world analogy deeper – families can be exploited because they are at such a vulnerable time. Why don’t the less exploitative providers do better in the marketplace? That seems important.

My friends in the insurance industry feel that the rising cost of pharmaceuticals, especially where there is no good substitute, is a significant contributer.

I have serious concerns about Medicare for all. (How do you price new services?) I hate the idea of state imposed rationing. But seeing how other countries do vs the US, maybe it works better than our system.

Mike
Feb 14 2020 at 7:50pm

“…and while there is still reasonable hope, families are willing to pay an enormous amount.”

I agree that a disproportionate percentage of our nation’s health care dollars are expended in the final year of life (whether that’s 3 or 6 or 12 months makes no difference). However, I disagree that families are willing to pay an enormous amount…unless you tack on the phrase “of other people’s money.” As I’m sure your aware, these are Medicare dollars being spent, not dollars out of the families’ – or even the patients’ – pockets. And that’s a big part of the problem. Because patients and their families aren’t forced to deal with the trade off of having the money versus some slim chance of “surviving” (and it’s often miserable) an additional month or so, they put off making those tough decisions. The care being delivered is not free – somebody is paying for it, i.e. the patient’s grandkids – and I’m sure granny would object!

 

Bob
Feb 11 2020 at 6:45am

Mr. Makary never answered Russ’ question about why we don’t see more price posting and competition in the veterinary industry where insurance and employer-pay are generally not factors. Too bad. An exploration of that issue might have shed light on why we don’t see much in the medical care industry. My suspicion is that for now, both industries, and similar industries with relatively low insurance participation, such as dental surgery, get away with it only because they can. People in need of medical, dental surgery and veterinary care are often in urgent or semi-urgent situations where emotion rather than reason drives the decision. Routine care is often avoided altogether except by those for whom price is not a major factor. Bring on the competition.

Seth
Feb 14 2020 at 3:51pm

I was also not satisfied with that part of the discussion. Though, I also question how much the price in vet services have increased.

This says it’s gone up 4.4% per year since 2000.  Higher than inflation, but not too drastic.

I wonder how much of that is demand as folks may have become more willing and able  to spend on their pets’ health.

Randy
Feb 17 2020 at 12:43pm

A quick internet search suggests that the cost for a dog spay (ovariohysterectomy) at a veterinary practice is $150-350. This is an abdominal surgery in which internal organs are removed. This cost covers the pre-operative exam, the surgical procedure, anesthesia, intravenous fluids, and post-operative care including antibiotics. It is difficult to view this as “price gouging.”

Kyle
Feb 11 2020 at 12:11pm

I’d be elated if one in every four podcasts was about this issue. It’s unreal how distorted this “market” has become, and equally fascinating that people are voting to subsidize it in full rather than tackle the fundamental problems making it unaffordable.

Alan Goldhammer
Feb 11 2020 at 3:57pm

There was so much wrong with this podcast that I could go on for three times the length of Kent Lyons and still not cover everything. Russ does not have to have a PSA test done at all. He can request that his physician not put this in the lab order. Dr. Makary works at an interesting institution that is buying up hospitals, ambulatory surgery centers, and MD practices in the Baltimore/Washington area. I would hope they provide pricing transparency but that’s not the entire issue. It’s reducing competition through consolidation (the same thing is happening in California with Sutter Healthcare who are buying up hospitals). Most people who need to go to ERs are not in a great position to negotiate pricing for either MD, lab, or hospital charges. The overhead cost of billing departments in MD offices as well as hospitals is a colossal waste of money but pretty much exists in order to get reimbursed. As was noted in the podcast, if you don’t have insurance, you don’t get the “good” price.

I was around when Elwood and Einthoven through Jackson Hole meetings argued for more managed care organizations along the lines of Kaiser Permaente whieh was established way back in 1945. There are some well run HMOs but most of them are regional and there are large parts of the country where there are not any. Most of the managed care efforts did not succeed but the real outcome has been the negotiated networks of MDs and hospitals that give preferential pricing. If you go out of network, things can get ugly in a hurry depending on what services you are billed for.

Pricing of on-patent pharmaceuticals is rising faster than the rate of inflation and it’s not uncommon to see top line therapy price increases of 10% a year. The discount and rebate system is totally opaque to anyone not on the inside.

Russ noted that he has a high deductible policy as well as an HSA. Not everyone can or is knowledgeable enough to go that route. It works fine as long as one (or a family member) doesn’t have major medical issues. I’m on Medicare these days which is not free and is also means tested depending on one’s income, a fact that almost everyone under the age of 65 doesn’t know. I also have a Medigap policy through my former employer that I purchase at the employee rate (25% of the total premium) that includes pharmaceutical coverage so I don’t need Part D. I probably pay about what Russ pays when one includes long term care insurance. Of course this does not cover deductibles and co-pays.

Is it any wonder why Medicare for All resonates with so many Americans?

Jerry
Feb 11 2020 at 4:00pm

The late health care economist Uwe Reinhardt published substantial research linking the high spending on health care specifically high prices rather than over utilization of services.

https://www.healthaffairs.org/doi/pdf/10.1377/hlthaff.2018.05144

Clearly this episode did focus on prices for services and issues of transparency revolving around pricing.  However,  there was limited discussion regarding two substantial drivers of US high prices.  First is the increasing monopoly power of large health care systems which have been aided and abetted by regulatory barriers to entry (for example certificate of need).   Second is the different payment systems for hospitals vs. other providers by governmental payers ( for example 340b drug pricing for infusional drugs which give hospitals a 30-40% or more discount BY law that non-hospital providers do not get). This differential regulatory pricing leads to more of the increasing monopoly pricing as the hospital systems buy more local providers.   In addition to this monopoly power forcing up high prices it is also having effects in the health care labor market  (not that there is a lot of crying about physician pay!).

I was wondering if Russ could do a podcast in the future on the role that monopoly/oligopoly power has in setting US prices for health care and why there is limited response to the increasing consolidation in the industry.

A second topic (but much more “in the weeds)” is the role of 340b pricing in the role of increasing oncology drug prices.   A further topic is a look at how expensive DRG exempt cancer hospitals are is also elucidating in terms of how incentives matter.

 

Joseph Coco
Feb 11 2020 at 4:17pm

Regarding veterinarians taking advantage of people when they’re vulnerable, I haven’t personally experienced this (though pet hospital bills were 10-15% more or less at the end of treatment than what was quoted to me before treatment), but I have heard of this in the funeral home industry. Have funeral home service prices also exceeded inflation?

I still need to read the other comments, particularly the one I saw while skimming that said, “Russ will likely censor this post”, lol.

Gw
Feb 11 2020 at 6:58pm

As a Canadian it’s fascinating to hear about the issues about American health care system. The single payer system isn’t perfect, but it works the way it intends to – get people the care they need without worrying about the cost. I don’t believe market competition should drive essential services such as policing and health care.

Mike
Feb 14 2020 at 7:53pm

Perhaps the USA should pass a law banning Canadians from obtaining medical care in the US. I’m sure our Canadian pals would agree as this would bolster the Canadian economy and Canadians are getting the health care they need under their own system.

Patrick Foran
Feb 11 2020 at 6:59pm

I just want to say thanks for this episode.

I do support Medicare for All, but I love nuanced, ambitious, and important conversations; particularly ones that I disagree with. I also think that Marty Makary is a hero for taking on pro bono hospitals. The issue is personal for me and I thank him.

Doug Iliff
Feb 11 2020 at 9:11pm

The podcast was great.  The comments, not so much.  Russ, you are doing God’s work in bringing nibbles of the solution to the attention of the public through interviews with outstanding guests.

Today my head nurse was struggling to get knee surgery for an employed cook without insurance.  The projected bill was $3K for the surgeon and $30K for the hospital.  The real bill would have been more.  However, because I listened to your interview with Keith Smith, I pointed her to the Surgery Center of Oklahoma, where the guaranteed bill was $3700.  So, thanks.

Still, there are mysteries.  How is Russ paying $20K (including employer contribution) for a $7K deductible policy when I pay $4K for a $10K deductible?  Is that the difference between Kansas and Washington D.C.?

And where does all the largess go?  Most hospitals are nonprofit, and have to file public returns.  Administrators may be overpaid, but that is a tiny proportion of hospital expenses. True, they compete with valet parking, but that is also trivial.  In the army we had 4 bed wards, and that must have been cheaper and more efficient for nurses than present suites— is that the rat hole down which the dollars spiral?  The rest just seems to be equipment and staff.

Transparent pricing is one knife applied to this  Gorgian knot. When high deductible health plans arrived as a concept two decades ago, I thought they would be the salvation of medicine if applied universally; my HSA, which now holds $76K, certainly gives me the opportunity to apply dime-store pricing, and the $10K deductible protects me against bankruptcy.  Good luck, Dr. Makary.

Kevin Sunday
Feb 12 2020 at 11:39am

Second on the question of “where does the largess go”?

When I heard Mr. Makary say last year hospital margins were the highest ever, I was prepared to hear some show-stopping number, like 30%. But then he said it was 4.5 or 5%. That hardly seems like gouging to me?

The National Association of Insurance Commissioners reported a 3.3% profit margin for insurance companies in 2018. US GAO pegs pharma margins at the high teens. This Axios Health report has hospital margins at 7%.

Perhaps there are better sources with other numbers, but assume these are correct. I am all for transparency and competition, but what is the cause of high expenses on that side of the ledger?

Mike
Feb 14 2020 at 8:08pm

Stating that margins are in the 4-5% range is deceiving in terms of understanding whether or not certain people are financially abusing they artificial system that is (government) subsidized medical care.

Here’s an example: Let’s say a hospital’s gross is $100M and its expenses are $95M. Five percent profit margin doesn’t sound too greedy, does it? But let’s dig deeper. Suppose we learn that the hospital CEO and CFO had salaries of $5M and $4M respectively and two of the employed surgeons had salaries in excess of $3M each. Suddenly, we have a much different picture.

 

Anthony DiGiorgio
Feb 12 2020 at 6:32pm

“In the army we had 4 bed wards, and that must have been cheaper and more efficient for nurses than present suites— is that the rat hole down which the dollars spiral?”

Yes.  Part of the ACA/MACRA legislation included reimbursement on quality metrics.  One of the quality metrics which influences hospital reimbursement is patient satisfaction.  Hospitals realized that the factors which influence patient satisfaction are things like single suite rooms, large fancy lobbys and nice cafeterias.  Renovating the physical plant takes money, so that is where much of our healthcare dollars go.

 

Luke
Feb 11 2020 at 9:44pm

Has anyone been able to find the Johns Hopkins University study mentioned in this podcast that calculated that 48% of all federal expenditures were spent on healthcare? I’d be interested to read it and could not find it via some internet searching and looking on Dr. Makary’s homepage or twitter feed.

Shayne Cook
Feb 13 2020 at 3:24am

Luke:

Not specifically broken down to “health care”, but indicative and with references that can be traced, there is this …

http://conversableeconomist.blogspot.com/2020/02/the-transformation-of-federal-spending.html

Russ Roberts
Feb 13 2020 at 6:32pm

You can find that study, here.

Russ Roberts
Feb 13 2020 at 9:37pm

Missed the link somehow. It’s here!

Dennis Waters
Feb 12 2020 at 7:46am

There was a brief discussion of a possible counterexample, which is veterinary medicine.

I would be curious to learn if the cost increases in veterinary medicine are spread evenly across both large-animal and small-animal vets. My intuition would be that large-animal vets would have less pricing power because their customers take a more utilitarian view of their animals and, of course, have many more of them.  Small-animal vets mostly deal with pet owners and presumably gain pricing power from their customers’ emotional attachment to their animals.

But as usual with EconTalk, I am prepared to have my intuitions shattered.

Alan Goldhammer
Feb 12 2020 at 8:23am

I forgot to add to my earlier post – TR Reid’s fine book, “The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care” is well worth reading these days.  Although it was published back in 2010, the lessons it outlines are useful in the current debate.  Reid was a foreign correspondent for the Washington Post; he and his family had experience with several foreign health care systems.  He discusses in great detail his experience in looking for treatment for a balky shoulder that was the result of a long ago injury.

Regarding “having skin in the game,” Reid notes that Japan has the greatest utilization of health care services of all the countries he looked at and they still have a very low cost system.

The book is an easy read and those who are skeptical of foreign country healthcare systems would do well to read it.

Todd Kreider
Feb 12 2020 at 4:33pm

Regarding “having skin in the game,” Reid notes that Japan has the greatest utilization of health care services of all the countries he looked at and they still have a very low cost system.

T. R. Reid’s book is mostly anecdotal and doesn’t show that “Japan has the greatest utilization of health care services.” Reid points out that Japan has a higher life expectancy than the U.S. and other countries that he profiled but 1) doesn’t mention that when auto accidents and murder rates are accounted for, the U.S. life expectancy is a little higher than Japan’s. 2) Reid doesn’t mention that Japanese American’s have a notably higher life expectancy than the Japanese. 3) A review at Amazon says Reid doesn’t mention obesity rates that are ten times higher in the U.S. than in Japan. Fun fact: Americans drink ten times as much soda as Japanese do.

George
Feb 12 2020 at 2:19pm

Here is another timely example of a medical cost work-a-round. Recent article on how Utah is sending people to Mexico to fill their Rx — yes, this is official policy for the state’s public employees.

https://www.sltrib.com/mexico-pharmacy-tourism/

Richie Wohlers
Feb 12 2020 at 5:31pm

Did I miss it, or did Mr Makary ever explain why he is optimistic about our health care system?

Anthony DiGiorgio
Feb 12 2020 at 6:23pm

This was a wonderful episode about healthcare pricing and the insane system in the United States. I agree with nearly all of it and commend Dr. Makary for his work.
However, I take issue with the repeated use of the word “value.” It’s used often but I wish Russ would call his guests out on it. When we talk about high value care in medicine, that is an ambiguous term and needs better definition. Value is highly subjective.
Forcing patients to pay money for services (skin in the game as Russ often mentions), it wouldn’t necessarily cut down “low value” care as defined by professionals. For example, many patients would still want antibiotics for viral infections, even if they had to pay a nominal fee. Dr. Makary even points out that we are a consumerist society. People already spend inordinate amounts of money on worthless treatments. Just look at the supplement industry or Gwenyth Paltro’s “Goop.” Forcing patients to pay for care will not eliminate low value care. In fact, there is research showing that giving patients what they want is associated with increased mortality.
What about having employers shop for health care services, as suggested on the episode? This is happening now. It’s surely beneficial for driving down costs. But what about when the values of the employer and the employee don’t align? Americans are not going to be happy with employers deciding what “high value” care is.
The last option is having guidelines regarding high value care set from the top down. Specialty societies are good at this and have made extensive recommendations for many procedures. Yet, they are also often wrong. There are countless examples of the ivory tower committees being horrifically incorrect. For example, the Joint Commission recommended long acting opioids for pain because there is “little chance of addiction.” Another example is spine surgery, where there are reams of conflicting data on its effectiveness. Even high-quality randomized trials (such as the SPORT trial) can be interpreted both for and against surgical intervention.
In the end, I want doctors to do the right thing and I want to empower patients to make the best choices. We should stop trying to define what “value” is, realizing that different patients, providers and payors will define “high value” care in completely different ways. Let each patient decide on what is valuable in a relationship with their physician. The doctor-patient relationship should be the crux of the healthcare decision and we should avoid paternalistic attempts to interfere.

Nick Ronalds
Feb 13 2020 at 10:31am

Wow, another highly enlightening discussion unpacking the reasons for the crazy and dysfunctional pricing of the U.S. medical system–with some hopeful hints toward solutions. The Econtalk episodes on healthcare have clarified for me the nature of the dysfunction in healthcare pricing more than anything else I’ve read or heard over decades. If these episodes contribute toward better understanding of the problems and help nudge things toward solutions even a bit, you’ll have performed a valuable service, Russ..

Mark Bunch
Feb 13 2020 at 1:25pm

This was an excellent & provocative episode: The comments alone are worth the price of admission (though I haven’t yet read them all).

I would like to quickly add my two bits on a well-intentioned & unfortunately necessary, yet somewhat pernicious and generally overlooked effect of government involvement in healthcare: The advent of CPT (and other similar) system for charging services. If healthcare providers choose to participate in Medicare (i.e., accept Medicare payment), they are required to submit their billings in CPT terms; they are also required submit their billings to other payers (self pay as well as third party pay) in the same terms, and to make the same up-front charges to all payers.

CPT coding, while ostensibly a good thing in terms of standardization, adds a layer of complexity and opacity to charging/billing for a great number of healthcare services. Providers send their coding/billing staff to trainings for CPT coding (the CPT updates every year), and the best coders have actual coding certifications. Imagine (most people don’t really have to imagine) the confusion of a typical healthcare recipient when receiving an itemized bill coded in CPT terms!

Surgery centers that take cash payments up front (and thus have no need to participate with Medicare) can bill for their services in whatever format they like; hospitals with emergency rooms have no choice but to bill in CPT format (they will have Medicare patients in the ER and thus will need to bill ALL payers, for ALL services provided, in CPT format).

Standardized billing seems like a necessary evil (I would emphasize “necessary” over “evil”) of government involvement (and 3rd party involvement generally) in healthcare — I don’t see how to get around that. Yet the current standard seems unnecessarily complicated. I suppose one way to deal with this situation from a consumer perspective would be to advise all prospective healthcare consumers to get training/certification in CPT coding. A better solution might be to encourage the adoption of optional, alternative, simplified (and hopefully well chosen) billing/coding standards.

Mike
Feb 14 2020 at 8:22pm

Dr. Makari was quick to correct Russ that when your employer pays $15K for your insurance, it’s really coming out of your pocket and not the employer’s pocket.

Yet, soon thereafter, he stated that “a study…at Johns Hopkins (showed) that 48% of all federal spending goes to healthcare in its many hidden forms. The Defense Department has its own healthcare system, which is about 8% of its budget.”

If the $15K that Stanford pays for Russ’ health insurance really comes from Russ’ pocket, i.e. it was part of Russ’ “hidden” salary, then by the same (correct) reasoning, those DoD dollars spent on health care for our military are not really federal spending on health care, but rather they are federal spending on our military (which, unlike spending on health care for the general population, is a power specifically granted to the federal government by the US Constitution).

 

 

Robert Mounger
Feb 15 2020 at 9:49am

http://archive.is/gzpng

Your former guest Dean Baker sees American medicine as a nest of cartels. The link above is how the Doctor part of the cartel is worked. He links in the article to a piece by the American Enterprise Institute who arrive at the same conclusion.

Summary: American doctors serve an apprenticeship called a residency. Residencies are paid for out of US federal government Medicare.

There is a panel of docs & bureaucrats that decide how much gets put in the residency bucket => how many residencies => how many slots in med school.

Constrain the supply, drive up the price.

 

Ajit
Feb 15 2020 at 7:11pm

Russ,

I appreciate this podcast and the Kieth Smith one, but I feel like in both, you acknowledge the elephant in the room but continue to talk around it. I wish you would devote an entire podcast discussing how to address the elephant.

And the elephant is …what do we do about the people who cannot afford the hospital bills even if they were commensurately lower in Libertarian Nirvana land. All of this nightmarish overgrowth has sprouted from this central germ.

 

I am curious what others reading this think is the best solution to this problem?

Peter
Feb 18 2020 at 12:29am

Ajit: There is no elephant in the room here, you either means test it (medicaid generally works well unlike medicare; notice how nobody in these conversations critiques medicaid nor wants medicaid for all. Yes I know that is state-to-state)  or let them die.  Both options aren’t politically palatable.   The humane way would be the former but generally today we intentionally do a bad job of means testing  for ANY government benefit to effectively allow anybody to qualify for it which is the problem with that method. If we are going to means test it, then we need to do it strictly.  The latter option though will drive down prices to the point people could afford it as long as we accept there will alway been deaths at the margins mostly because of their refusal to make responsible decisions, i.e. I could have bought insurance but choice not to as for those with assets to protect or care about their lives, catastrophic insurance pre-Obamacare was the norm and cheap.

I remember in the 90’s having a fifteen thousand deductible with effectively unlimited top for one hundred a month private insurance which I could afford just on my minimum wage fast food job.  Would I have rather spend that hundred on more cocaine like my peers, sure.  But then who would have ate my bill when I OD’ed?  Not sure the taxpayers should have to pay adverse drug reactions from my cocaine usage because I was means tested “poor” yet somehow afforded cocaine weekly just fine lol.

Ajit
Feb 18 2020 at 12:07pm

You are right, right now we do no means testing which is why the free market healthcare will never get into the conversation because it inevitably means there will be means testing. Nobody will go into the private exchanges if the government funded charity care provides 0 out of pocket expenses. Making feel the wrath of the demand curve forces economization. But there are unpleasant consequences which are visible today(as opposed the current system which has the pain forestalled).

There will always be a person on the margins who will not get the same treatment as a rich person. And that is not a reality the skeptic will ever be willing to accept(until the country is literally out of money) nor will they even entertain a world where charity might make up the difference.

 

John T
Feb 17 2020 at 9:01pm

Dr Makary,

 

As a fellow surgeon who deals with relatively large operations for heterogenous tumors/patients with variable recovery courses (your Whipple for pancreas cancer or my APR with colostomy or low anterior resection after radiation), I am curious how you would determine a “price”?

It is important for me to stress that I ask this with genuine interest.  After hearing you with Peter Attia and now with Russ (my two favorite podcasts), I am considering approaching my own hospital about considering a “radical” change.

thanks and keep up the great work!

 

John T

Peter
Feb 18 2020 at 12:07am

So this is more a generally commentary towards Russ but three things that always jumps to mind when he interviews doctors:

 

(1) I always hate how he gives doctors a free pass. It’s always the “system”, insurance providers, hospitals, etc.  To invoke Godwin here, it’s Bernie Sanders railing against the rich on his first-class flight between his multiple mansions or a death camp guard crying about the system.  I’ve never met a poor doctor, private practice or employee (once they hit mid-career) though I’m sure black swans exist.  Drive thru any hospital doctor reserved parking and you see luxury after luxury after luxury.  Do we care to wager what Mr. Makary’s income and assets are?  Nothing stopping him from quitting or him and his peers striking to demand the hospitals charge less.  Nothing stops him in private practice from not taking insurance and simply charging reasonable rates.  But nope easier to cry about it while reaping the benefits.  He complains about working late or weekends, join the club.  And unlike the poor person trying to work two jobs to make rent, nobody making Mr. Makary work late but Mr. Makary.  Put your money where your mouth is Mr. Makary.

 

You want to claim “crazy billing” try my primary care (private practice) who recently charged me $250 a visit for eight visits in a month because I had diarrhea, that was four individual tests plus four result discussions rather than just do all four at once and charge me at most for two visits (tests plus results); oh wait yeah they have to milk it out after all to avoid the scourge of “overtesting”.  And lets not forget his medical assistant had to re-triage me each time so he could charge that too.  And that is my normal experience with every I have had in my life.  I love when people say “you have options”, no you don’t.  Tell your PCP you refuse to follow their recommendation or see their medical assistant and see how fast you are fired as a patient.  That isn’t a hospital, that isn’t a system, that is literally doctors. I love when Mr. Makary complains patients “demand” tests, yeah and how often do you execute those demands; I can tell you in my fifty years I’ve never once had a doctor acquiesce to anything I suggested.   And besides god forbid a paying customer “demand” something, it’s almost like they you going to McDonalds and daring not not just take what they give you. The gall of consumers, the GALL!!

 

(2) Related and maybe DC is a mecca for medical laws (or maybe Hawaii is uniquely bad) but I loved it here when Russ was like “I shop around for my MRI facilities”.  Yeah anywhere I have lived medical imaging, like labs, requires effectively an optician like contacts prescription (i.e. vendor lock in).  Your doctor will write you a order to “MRI facility X” and (a) they won’t write you one of your choice and; (b) other facilities won’t take it as it’s not for them.  And equally I have been fired as a patient for daring to ask and I no others whom have been as well.

 

What this goes back to is it blows my mind (related to 1) on how Russ, for libertarian leanings, is always very supportive of doctor paternalism.  Once again, the problem here is doctors.  You want to see prices drop and open up competition, well you get them out of the prescription business hard stop.  Not just drugs but ANY medical device, test, procedure, etc outside their labor.  Doctors are the keepers to the kingdom hence how they enforce their cartel.  You want to know if you have cancer? Well tough, go spend a couple thousand getting through your PCP first just to get to the point where you can spend a couple more thousand to on specialists (whom require a referral even though paying cash) to only spend a couple thousand more on radiological oncologists when I should have just been able to go to “Labs R Us” and order a “cancer panel” on my own, head over to “Cheap MRI’s” and do the same, and then go shop around for both a radiologists and a oncologists to figure out the results.  But nope, got to have a PCP and specialist gatekeep after all how else they going to afford that Maserati?  That isn’t hospitals, that isn’t insurance, that is big pharma, that’s doctors.  Say it with me, DOCTORS.

 

(3)  How about interview somebody else for once that is in the trenches here in the medical industry.  Like billing specialists, nurses, medical assistants, etc.  Why does anybody care what a doctor has to say on anything that isn’t medical related or, more acutely, has special insight.  I know for a fact when I ask to speak with the medical billing specialist in any private practice (or hospital even) I visit or the office manager they can always give me a price and quit rapidly (for non-emergency care).  In hospital settings why would I expect the doctor to know the price anymore than the janitor would know it?  I don’t expect farm hands to know the price the factory sells a bushel of corn for nor, if he did know, care what his opinion is on about it.  “I get paid $12 an hour to reap that, what to you mean they are charging $5000 an hour effectively for my work!!!!”.  Only time a doctor should know is in private practice and even then that is questionable as really the “practice” is the office manager, the doctor just works for her even if he owns the company.

 

If you want to interview a doctor about pricing, then get some PRIVATE PRACTICE doctors on here and then ask them “So why is it you are railing against the price of medicine yet bill $300 to patients for ten minutes of work”. Because all I hear from folk like Mr. Makary is the standard “I’m crying because I don’t get to see enough of the profits”.  It’s like when the contractor labor force at my work cries about “it’s not right, you pay the company $250 an hour and they pay us $45!!!  You are overpaying them!!!!”.  You would be amazed how fast they shut up if we take their advice, cut that to $150, and they see their hour wage fall to $30.  They aren’t upset about $250 an hour, they are upset about their percentage of the cut.  Bezos’s just gave 8% of his wealth to fight climate change and made front page news.  My mother gave 25% of her assets and nobody cares.  Same diff here.

 

I like Russ but of all the podcasts he does anytime he has a doctor on it sets my blood boiling more than any other guest he has.  I’m not saying don’t have them as all of them generally are interesting and often good info but same time let’s quit treating them like princesses.  They, often his very guests, are the problem. Not the insurance companies, not the industry, not the hospitals, but doctors.   And no most of them aren’t good or trying to do the right thing, that myth was dispelled long ago yet Russ seems to want to hang on to it with his dying breath.

Brian Schwartz
Feb 18 2020 at 11:27pm

Dr. Makary says that there’s no correlation of price and quality for standard coronary bypass (CABG) surgery. Here’s the research he’s referring to, or at least his book cites it:

Association of Hospital Prices for Coronary Artery Bypass Grafting With Hospital Quality and Reimbursement, The American Journal of Cardiology, Volume 117, Issue 7, 1 April 2016, Pages 1101-1106.

https://www.sciencedirect.com/science/article/abs/pii/S0002914916300133

In conclusion, the price of CABG varied more than 10-fold across US hospitals. There was no correlation between price information obtained from hospitals and the average reimbursement from major insurers in the same market. We also found no evidence to suggest that hospitals that charge higher prices provide better quality of care.

Anthony Vo
Feb 19 2020 at 11:21pm

Marty Makary: … 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.

Could you go into this a little more? I hear this statistic (or some variation of it) quite a bit and I was wondering to what extent it was true. Hopefully I’ve found the source to the statistic:

https://www.federalreserve.gov/publications/files/2018-report-economic-well-being-us-households-201905.pdf

Comments are closed.


DELVE DEEPER

This week's guest:

This week's focus:

Additional ideas and people mentioned in this podcast episode:

A few more readings and background resources:

A few more EconTalk podcast episodes:


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AUDIO HIGHLIGHTS
TimePodcast Episode Highlights
0:33

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.

6:57

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.

12:13

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.

17:16

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.

24:53

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.

31:47

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.

36:24

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.

44:07

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.

49:57

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?--

Marty Makary: Yup.

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.

58:36

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.

1:04:48

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.

1:10:28

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.


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