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This is another in my series of bad high school book reports on nonfiction books that I have read recently.

Name of book:

The Price We Pay – What Broke American Health Care–and How to Fix It by Marty Makary, (Bloomsbury Publishing 2019)

Why I read it:

This is the second in the series of books where I attempt to improve my understanding of the American health care system and health care economics. This book was a best seller and I was told that it was an easy read and interesting. So, I bit.

I had not heard of Makary, a Johns Hopkins MD with a national reputation as a cancer surgeon, who has authored several popular books on medicine and health care. This book is intended to dig into and reveal the “business side” of medicine and its problems. It’s a dramatic change from the first book I read in the series, Uwe Reinhardt’s book.

What I found interesting or worth writing about:

The book (Part I) starts with a collection of anecdotes or stories documenting problems on how American health care is delivered and financed. Makary pins responsibility for high health care costs in the US largely on a combination of:

• Entities who provide care (e.g., hospitals, physicians, administrators, and air ambulance companies) and seek to maximize profits, often in ethically questionable ways, or who simply do not carefully and systematically follow best practices; and
• Health care businesses, typically low-profile middlemen (PBMs, GPOs, insurance brokers, etc.), who use their positions in the complex US health care system to derive unreasonable profits in Makary’s view.

Oversimplifying things, Makary’s view is that the “health care cost crisis” is due to: 

• Overtreatment and inappropriate treatment – lots of procedures or drugs that are, at best, unnecessary or inappropriate or, at worst, life threatening; and
• Various forms of price gouging and other questionable business practices by various participants that are possible because of the lack of transparency in pricing, third party payment, and the proliferation of various middlemen (PBMs, GPOs, insurance brokers, etc.) in the complicated U.S. “health care system.”

His proposed fixes are a combination of prodding providers to work better and smarter (Part II) or to make pricing more open and transparent (Part III) so that providers and consumers of care make better informed decisions and gaming by miscreants is minimized. In short, his view seems premised on a notion that the market doesn’t work (too much is spent wastefully) because of a lack of good information by the people making the key decisions – patients and physicians – and that with more transparency on multiple levels and education this can be fixed.

The book’s strength is its readability and storytelling; its anecdotes make clear many of the flaws and fobiles that the structure of American health care finance and delivery systems have created. After reading it, you will have to conclude that is a quasi-private market system that is not functioning well.

What disappointed me about the book:

The book’s strengthen is also its weakness; it’s all about revealing the problems with system through compelling vignettes, but despite its subtitle (“and How to Fix It”) it really doesn’t propose in my judgment any realistic solutions.  All the things he proposes are sensible and probably should be done, but they will not measurably move the dial, at least in my judgment.

More troubling to me is his propensity to suggest that he is the one who discovered many of these stories, when in fact some of his specific examples appear to have been previously documented by the mainstream media, as my notes below suggest (e.g., NPR’s story on the helicopter ambulance business and the NY Times on the Carlsbad hospital’s pricing and debt collection, two of Makary’s anecdotes).  His lack of clear crediting of those stories seems borderline unethical (at least I did not notice him credit the stories, which appear to predate his personal experiences). They just happened to be ones that I was aware of and it made me wonder if most of his compelling stories had not, in fact, been dredged up by a research assistant and Makary, then, headed to scene to provide his first-person narratives.

In reading the book (a few months ago), I took notes on each chapter, which I haves copied below for anyone who wants the excruciating details.

Part I:

Chapter 1: Health Fair

The center piece example in this chapter is the use by vascular surgeons of health fairs at African American churches in the DC area to promote inappropriate and unnecessary use of angioplasty and stents in leg arteries. It is a pretty clear and outrageous abuse that is enabled by the fact that third parties (insurers, self-insured employers, or government programs like Medicare, Medicaid, and Tricare) pay for most health care in the US.  The subtext is when others are paying unscrupulous providers can easily use their authority, knowledge, and lay people’s deference to them to provide expensive and very profitable and unnecessary services.

Chapter 2: Welcome to the Game

This chapter delves into the bizarre pricing used in the US health care industry, where hospitals and other providers use a wide variety of prices – their “rack” price (or the “out of network” price that the uninsured individual who walks in off the street pays), various negotiated discounted prices charged to insurers, the Medicare price (set by the federal government), and the Medicaid price (set by some combination of federal and state government); these prices are typically opaque – i.e., not only are they not disclosed or they may be almost impossible to find out.  Doctors, nurses, and many administrators often do not know what the price is and cannot or will not tell when the question is asked. Makary tells the story of a French national who has a heart attack when he brought his son to college in DC.  The hospital tells him the price of a bypass surgery is $150K but starts cutting it when the administrator realizes that he will go back to France, where the price will be much lower. The final reduction to $30K is still higher than the French price and the Americans lose the sale.

My take: Makary finds price discrimination and opaqueness to a big indictment of the health care system. The typical person would likely agree. But how is that different from what occurs in other well-functioning, competitive markets? For example, the same charge could be made about how airline tickets and cars (new and used) are priced and sold – in both cases, there is rampant price discrimination (buyers of the same car or ticket paying wildly different prices) and a fair degree of opaqueness.[Note: MSRPs for new cars are an exception. I think the law requires that and there is no guarantee, though, that you can purchase a car for the MSRP if demand exceeds supply by a lot.] We don’t consider that to be a policy problem or a cause for government regulation.  Why is health care different? Makary never addresses that issue. It strikes me that analogizing from Lasik and cosmetic surgery to more general health care is fraught with problems – these are elective decisions for nonessential purposes (not like cancer treatment, e.g.) that are typically made occasionally by middle- and upper-income consumers.

Makary also uses the pricing of emergency room visits and surprise billing (when you discover one of the providers in your in-network hospital is actually out-of-network) and contrasts it with the way Lasik and cosmetic surgery is typically priced in a transparent way and patients/customers make informed decisions that take price into account.  The markets for Lasik and cosmetic surgery typically do not involve third-party payers – patients/customers pay cash. These markets probably are effective and well-functioning. But unlike most health care these services are discretionary, nonemergency, and the quality of their results are more easily evaluated by informed lay persons. I consider them to be more like getting a haircut than treating your cancer, so I think his analogy is not very apt.

Chapter 3: Carlsbad

This chapter details how the only hospital in a small city (Carlsbad, New Mexico) uses a combination of high prices (probably common for hospitals for their out-of-network patients) and routinely sues patients who fail to promptly pay their bills.  Many of his example patients have insurance, but still cannot pay. The hospital regularly sues them, gets de fault judgments, and, then, garnishes their wages. The folks in his examples are typically working poor or low-income individuals. He does not say this, but I assume the increases in deductibles and the spread of “high deductible” HSA plans probably mean that more people with insurance have very large medical bills as a result of these high prices and end up in medical debt as a result.  (The hospital in the next closest city – still far away since this is NM – has lower prices, he notes.)  He details this in a colorful way and finds that the hospital (part of a for-profit chain) is probably not an outlier. 

This tendency of health care providers to sue nonpayers and garnish wages has been documented by the media. A recent Pro Publica story about Coffeyville, Kansas and the widespread use of the contempt power (i.e., the ability to throw nonpayers in jail) is particularly shocking.  This suggests that our health care system as it applies to low-income families who do not qualify for Medicaid is verging on becoming Dickensian if it hasn’t already crossed over to that in some states or localities.  In fact, the NY Times covered the exact example Markey uses (Carlsbad New Mexico) in a 2015 story.  This is another instance where Markey creates the impression that he has uncovered an example that previously was the subject a national, mainstream media story.

Chapter 4: Two Americas

This chapter documents that Carlsbad practice (high prices, suing patients that do not pay, and garnishing wages for nonpayment) extends to the nonprofit sector as well.  Makary notes that this tends to hit lower-income workers (of course) – hence, the chapter title (Two Americas).

My take: He draws examples from Virginia (close to Hopkins’ home in Baltimore), rather than Maryland.  Maryland (a blue state) opted into ACA’s expansion of Medicaid; Virginia (Republicans controlled state government or had a veto over opting in) did not. He says nary a word about Virginia’s failure to opt into the ACA’s expansion, although I suspect you could find similar examples in Maryland. But for those with income below the ACA’s Medicaid limit, this is the elephant in the room, in addition to the inexorable movement to high deductible plans. If Virginia had opted in, I assume the effect for these folks (unclear how many of Makary examples, though) would be to (1) constrain the high prices, because Medicaid would dictate them and (2) eliminate the problem of suing the working poor for nonpayment.  Of course, it would do nothing for people with incomes above the Medicaid income limit and high deductible policies.

Chapter 5: Ride

This chapter details another niche of excess in American health practices: the excessive use and high pricing of air ambulances (helicopters) that is spawned by the system of third-party payment.  Of course, the fact that the ambulance is often “out-of-network” or not covered by government plans (Medicare, Medicaid, or Tricare) means yet more medical debt and financial pain for ordinary folks. Again, the media (e.g., NPR story about high prices) has documented this phenomenon; see this NPR story about how the problem (high prices that often fall on the individual, rather than an insurer or government plan) has led to a subscription model with its own abuses.  Makary doesn’t discuss that angle.

My take: Wasteful air ambulance use, excessively high prices, and too many providers undoubtedly push up overall health care costs and bankrupt individuals who get caught in the trap of using them unnecessarily. In the larger scheme of things (i.e., relative to total national health care expenditures), the effects are trivial. But measures should be taken to mitigate the effects. State laws dictating that the maximum price is some percentage of the Medicare rate (125%?) would likely do the trick, but good luck getting that through state legislatures.

Part II: Improving Wisely

Chapter 6: Woman in Labor

This chapter is the first in the second section of the book, which focuses on how to improve health care practices. It focuses on inappropriate use of C sections, a widely recognized problem that varies a lot from place to practice and practice to practice.  C sections have the twin problems of high cost and poor outcomes (when done unnecessarily). Makary leads with an anecdote about “Dinner Doctor,” a physician who performs C sections to accommodate his (one assume only a male would do this) personal schedule (being home in time for dinner) and more generally how C sections performed rise on Fridays, etc. He extends the examples to include unnecessary use of blood transfusions and, one presumes if you knew more about medical practice, many other instances could be found. Much of this is unconscious, due to inattention, reflects poor management, etc. He suggests sensible management techniques (e.g., peer comparisons to nudge physicians to improve) for making improvements.

My take: Similar inefficiencies are likely found in all sectors of economy, including ones subject to more competitive market pressures than health care providers. But the fact that the health care is pretty much immune to competitive evaluations of relative prices and quality likely makes it worse – just a guess since measuring this would seem to be incredibly difficult, if not impossible. The fact that physicians are subject to professional ethics and that his examples imply compromising them makes the examples seem more outrageous.

Chapter 7: Dear Doctor

This chapter extends the previous chapter’s discussion by describing similar problems with a common technique for removing skin cancers (referred to by the acronym MOHS). This involves removing skin cancer, doing a biopsy to determine if the surgery got all the cancer (are there positive margins?), and if not repeating the process.  The physician is reimbursed at a higher rate if the process is required to be repeated, not surprisingly because more time/work is required. Statistical analysis shows that some doctors consistently do multiple procedures, receiving more compensation (and causing more pain for their patients) – i.e., they are at the right tail of the distribution. One assumes that this is unconscious and reflects inattention, poor technique etc. Marary’s point is that simply informing physicians of how they are doing relative to their peers will stimulate significant improvements – better outcomes at lower cost. That may be the case simply because it stimulates physicians to work harder or smarter or because they have been consciously or semi-consciously been gaming the system and now fear they will be fingered (Makary doesn’t say the latter).

My take: This seems an obvious thing to do, but the current pricing model does not encourage it and rewards looking the other way. A natural question is whether the pricing should be changed to increase the basic price and not paying more for excising additional blocks of tissue. One would need to be an MOHS expert to judge if that makes sense (e.g., would it lead to counterproductive excising of too much on average, are some situations more prone to judging how much to excise so that some practitioners would be systematically disfavored, etc.?) or how to do it.

Chapter 8: Scaling Improvement

This chapter details more opportunities for curtailing expensive overtreatment – elective back surgery, lumpectomies for breast cancers, etc. He concludes “That overtreatment penetrates most corners of medicine.” (p. 120)  He does concede that many of the suggestions that he got from fellow physicians for improvements would not have been so easy to implement (as his examples are) because they did not lend themselves to clear measurements or agreements by the professional groups (maybe for political or other reasons?).

My take: In general, one of Makary’s consistent themes is that overtreatment (too many procedures) is a major cause of our high health care costs. I am sure that large savings could be realized by reducing the unnecessary services (in the billions every year, I am sure).  But international comparisons, per Reinhardt (“It’s the Prices, Stupid”), suggest that numbers of procedures do not explain why the US spends such a larger share of its economic output on health care than other developed nations.

Chapter 9: Opioids

Makary discusses how he and other surgical practices inattentively over prescribed opioids – as I read it, this occurred, because they never really bothered to put much effort in rigorously determining what a good default rule should be based on the likely severity of the pain for varying types of surgery.  When the growing attention on the opioid crisis induced them to do this, they discovered that they were mindlessly over prescribing opioids. (The implication is that his Hopkins practice has addressed this, but many other surgical practices have not?) Obviously, this increased health care costs – probably the direct costs were modest, but if those practices really were major contributors to the opioid crisis (I have no idea whether that is true or not and if Makary does, he doesn’t provide any evidence of it) the social costs are immense and they probably contributed to growing health care costs, since opioid addicts likely consume a lot of health care and addiction yields many other personal and social costs aside from the burden on health care.

Chapter 10: Overtreating Patients Like Me

More details are presented on overtreatment using examples drawn from his personal (not professional) experience – using Nexium (a heartburn drug) and statins rather than making diet and lifestyle changes or recognizing that the risks being addressed don’t need to be.

This is the last chapter of the part of the book that largely focuses on medical practice dynamics and includes a bunch of quotes about how overtreatment is a serious (perhaps the most important?) component of the health care cost crisis.  Here’s a sampling:

In recent years, a plethora of studies have shown that doctors have been overtesting, overmedicating, and over-operating. (p. 144)

Overtreatment is not just a side issue in medicine. It is the root cause of our greatest public health crisis. (p. 146) [Note to be fair to him: this is not necessary about costs, since outcomes are involved too – e.g., the problem with opioids, antibiotic resistance, and so forth. He notes a Korean example of overtreating thyroid cancer.]

Makary cites estimates of overtreatment elsewhere in the developed world.  Since all other developed nations spend so much less of their economic output on health care, that may suggest (given Reinhardt’s point that it’s the prices) that overtreatment isn’t the explanation for the US’s spending so much more than everyone else. Rather, overspending is probably an international problem; perhaps it is simply inherent to health care – a combination of high demand (i.e., health care being a superior good) and the difficulty of evaluating what is a cost-effective treatment.  Marary describes even more outrageous examples of overtreatment in the developing world that verge on or clearly are outright fraud – providing unneeded treatment that at best is inappropriate and at worst is life threatening.

Part III: Redesigning Health Care

Chapter 11: Starting from Scratch

One of Makary’s general themes is that the health care business needs disrupting (following I guess the high-tech business cliché – Uber etc). He turns to the example of Telsa’s marketing practices – transparent pricing and no haggling, I guess (maybe coming around to my point that there are similarities between the price and selling of cars and medical care). He holds out a specific Arizona clinical practice model, IORA, as a disrupter.  Although he isn’t very explicitly about exactly how the clinic works, it appears to be a staff model HMO that uses capitation pricing and strongly focuses on attempting to move its customers/patients into a more cost effective (e.g., life style changes) treatment by relying on a team of providers who work collaboratively.

Chapter 12: Disruption

This chapter returns to the price discrimination theme – the example he uses is an out-of-network emergency room treatment of a friend (“Dina”). The fact that it is out-of-network means that the highest Chargemaster price will apply. The consent forms a patient must sign to receive treatment includes an agreement to pay whatever these prices are. [Note: This is where my analogy to pricing of cars breaks down a bit (a lot?) in that medical care is often purchased/consumed before the price is revealed at all. That is not the case with car and truck sales or with airline tickets. That element of health care purchasing is part of a broader point relating to the complexity and often emergency nature of individual’s health care decision making; when authorizing treatment, one may not know exactly or even generally  what treatment will consists of or what the alternatives are (much less any of the relevant prices), This is one of the reasons why the competitive market model, in my judgment, will always have severe challenges as a way to allocate efficiently resources to health care.]  (Makary thwarts this by making them print out the form and crossing out that portion of the agreement – not something that would be possible if she had signed it electronically. He knows that federal law requires the hospital to treat her.)  The price they attempt to charge her is, of course, ridiculously high ($60K for some sort of minor surgery for which the in-network price was $12K).

The disruption in the chapter title refers to an individual, Jeffrey Rice, who created a business, Healthcare Blue Book, like the Kelly Blue Book car pricing service. It publishes the various prices of health care prices for procedures charged by providers and sells services to self-insured employers who attempt to steer their employees to use lower cost providers by providing various incentives and disincentives. Makary cites a recently enacted Florida law which requires providers (some or all?) to publicly disclose what they are actually paid for procedures. In Makary’s view (p. 175) the difference between Chargermaster prices and what is received is “at the dark heart of health care’s cost crisis.”

Reinhardt’s book refers to Maryland’s all payer law – i.e., a state regulation that requires some providers to charge everyone the same price – Makary, despite practicing in Maryland and despite the fact that this is squarely on topic with his critique of price discrimination and lack of transparency, never even mentions this.  Not sure why – maybe because it is inconsistent with his bias toward “market” (rather than regulatory) solutions or because it is controversial (read: partisan or opposed by his fellow providers?).

Makary cites a “large Rand study” about consumer/patient behavior when individuals are not responsible for paying for the cost of health care services. He says this study found that they (probably perversely, although he doesn’t explicitly say that) opt for the more expensive services on theory that they are better –  there is evidence for this in other contexts (e.g., how consumers use price as a proxy for quality – automatically thinking that high priced wine is better is the example I remember).  Makary does not explicitly ID this study, but I’m guessing it’s the one done back in the 1980s summarized here.  I was not aware that it showed the perverse price effect that he cites – rather that it just shows that overall consumption drops some as prices rise.  A more recent Rand study of the ACA (addressing health insurance choices) is more optimistic.  He does not cite the NBER paper that Reinhardt relies on to reject the efficacy of using “skin-in-the-game” to constrain high health costs.

Chapter 13: Buying Health Insurance

This chapter focuses on brokers who sell insurance to employers and how the typical financial arrangements (i.e., the way insurers compensate brokers) create conflicts of interest and may/will interfere with the recommendations that brokers make to employers.  Makary advocates for a flat fee (I suppose more accurately a model where the advisor provides services to the employer and is paid for those services unrelated to the amount paid for or the type of insurance purchased). This seems sensible and is like the recommendation that individuals should not rely on financial advisors who receive commissions based on the investments or other financial products they buy but should rather hire fee-only advisors. Undoubtedly, the model he disparages likely drives up the cost of health insurance. The ACA attempted to address this by allowing small employer coverage to be sold on the exchanges. But I assume (w/o knowing) that that has not worked because of the complexity of the products and the relationships between brokers and employers (as Makary points out) causes most employers to simply relying on the brokers that they have always used and trusted (perhaps misleadingly). As an aside, Makary rarely discusses the ACA, even if it seems relevant to the points he’s making.  I assume that he is trying to avoid touching a political hot stove or he is a conservative Republican.

Chapter 14: Pharmacy Hieroglyphics

This chapter goes after Pharmacy Benefits Management (PBM) companies as another explanation for high US health costs. Again, Makary thinks their fees (the structures for which are opaque and complex) lead to conflicts of interest and drive up costs. This industry is concentrated, so oligopolistic (“obligopsopic” – making up a new word – since PBMs are purchasers not producers) behavior might be going on here. None of this is obvious to me – i.e., why PBMs drive up the prices, rather than help hold them down. I assume that the entities (employers or insurers) that contract with them are sophisticated and can judge whether they are getting value for what they pay. Makary largely fingers PBMs, rather than the drug companies themselves, who are typically considered a logical culprit for high drug costs.  They obviously have a legal monopoly (patents) and other methods for milking the system even after the drugs are off patent to maximize profits. Makary may simply perceive that (bad Big Pharma) is a well-accepted public narrative and he is trying to demonstrate that PBMs are also a problem? I am not convinced by his arguments.  I know that Big Pharma tends to point a finger at PBMs when their own pricing practices are questioned.

Reinhardt’s book has a good graphic (Figure 1.9; p. 35) that shows the nature of these arrangements.

Chapter 15: 4K Screens

Moving on to another miscreant who may be responsible for high costs, Makary takes on GPOs, entities that I was unaware of. They are General Purchasing Organizations and either directly or indirectly buy or select the medical supplies and equipment that hospitals and clinics typically purchase. Again, this is a concentration and monopsony type problem that, in his view, drives up prices and stifles innovation in medical supplies and equipment. Federal law apparently provides an exemption for them from anti-kickback rules, heightening his suspicions. This seems counter intuitive to me. I can see a myriad of reasons why there is market failure in delivering health care services (lack of information, third party payments, consumers who don’t have the knowledge or expertise to make informed choices, etc.), but most of those do not apply to institutions contracting with service providers like GPOs as he describes them.

Chapter 16: Diagnosis: Overwellnessed

In this chapter, Makary takes on the wellness industry, i.e., the army of consultants and providers selling “wellness services” to employers – i.e., companies who try to get employees to make lifestyle changes (stopping smoking, exercising more, improving their diets, and so forth). Studies have shown his point is well taken. He also takes on genetic and biometric screening as a problem of “fishing for diseases” that probably are best left untreated. As usual, he has some good examples. He points out the problematic practice of using these programs to collect health data that, then, is sold without the subjects being aware of it.

Again, I assume that the dollar amounts involved are peanuts in the larger scheme of things. I also assume that employers will wise up or maybe employees view some of these incentives as valuable compensation. But all this stuff does add up eventually. One must wonder whether there is something about the US health care system that makes it particularly susceptible to this stuff. Are other developed countries similarly wasting their money?

Chapter 17: The Words We Use

Here Makary addresses medical education and how (in his opinion) it wastes a lot of time and money on stuff that is not helpful to practicing physicians and how it fails to train doctors in some key skills that they need to succeed – being good listeners, working well on teams, being empathetic, etc.  My observation is that these complaints probably echo those made about other types of professional education (i.e., they are similar to what I regularly heard about legal education from lawyers and how law schools fail to teach many practical skills lawyers really need to practice effectively, leaving that to law firms).  He makes some good points obviously, but none of this is likely to bend the cost curve, as they say. [Note: I thought his ideas about screening potential med students for the desired personal qualifies after they meet minimum (but high) intellectual requirements make sense. But of course, then, potential students will start figuring out how to game those criteria, I suppose.]

Makary makes a more general point (as suggested by the chapter title) that word selection matters a lot and that the profession needs to talk more simply and clearly. Some of his specific suggestions puzzle me and some of them are clearly slanted toward his analysis of what is wrong with the system (i.e., paying too much to brokers, PBMs, GPOs, etc.).

Chapter 18: What We Can Do

His underlying prescription/theme is that if the health care system has more transparency in its pricing and responsibility many (most?) of the problems (high costs) would go away. “Most of health care can behave like any other marketplace in any other industry: it responds to customer demands for non-urgent services, which account for most health care services.” (p. 245)