Understanding Health care’s myths

Square Pegs and Round Holes: Mistaken Assumptions of Health Care 

As the Affordable Care Act rolls out and millions of dollars in investment capital continue to navigate the healthcare industry, it’s time to examine several of the false assumptions driving the market.

  • Health Insurance = Healthcare.  Perhaps the greatest fallacy underlying the federal healthcare reform bill is that it was reform.  The Affordable Care Act was in fact not reform at all.  In fact, the ACA’s proponents merely doubled down on the old system of third party health insurance.  Ironically, or perhaps cynically, ACA proponents blamed this system as manifesting need for reform, but ultimately, with some tweaks both good  and bad, merely made the old system larger.   How?  By exacerbating the same flaws which plagued the pre-ACA healthcare industry.


In fact, health insurance does not equal healthcare.  The supposed great abuse of hospital emergency rooms by the uninsured which was a driving “need” for the ACA is a great example.  Federal law requires every emergency room provider, both hospital and physician, to treat everyone in an emergency, regardless of their ability to pay.  This means they get healthcare, but not health insurance.  Another wonderful example is the underlying premise of the ACA.  As has recently dominated the national news coverage, the ACA depends on a mix of young and old, sick and healthy, participating in order to balance the risk pools.  Put bluntly, the pools need younger and healthier people to purchase insurance to subsidize the less healthy who will consume more services than they pay in premiums.  Or stated differently, the ACA needs healthy people to buy health insurance but not use healthcare.  The confluence of these two concepts distorts the debate because it assumes the only reforms or fixes available, must be framed within the third party payer context. 


In particular, the third-party payer system is a poor environment for reform because it dislocates the normal incentives which operate in markets to create high value at lower cost.  Amazon.com flourishes because they offer the consumer high value at low cost.   But the key is that an Amazon consumer is also the payer.   In healthcare, the patient is the consumer of the service, but isn’t the payer and, therefore, isn’t the client.  Every business needs to satisfy its clients and healthcare is no different.  Providers (hospitals, physicians, etc) operate in a manner that attracts the most clients, not the most patients/consumers.  Thus, long waiting room delays exist because the client, the insurer paying the bills, doesn’t really care about wait times.  The payer cares about costs.  Cynics and some ACA extremists scoff and say markets don’t work and that the healthcare “cost crisis” proved it.  To the contrary, the pre-ACA market proved the third party payer system to be inefficient, but there are real world examples which demonstrate that healthcare can and does work very well when markets flourish.


One area of the economy, and particularly the healthcare economy, has no inflation: Elective and cosmetic surgery. The cosmetic surgery market, from plastic surgery to laser eye treatment is marked by falling costs and increasing quality.  Why?  Certainly, technological advances play a part.  But the biggest driver in these areas is that they are market responsive.  In other words, a person shopping for Lasik eye surgery, or a face lift, or a breast enhancement, is a self payer; insurance doesn’t cover such things.  The cosmetic surgery market is uber-competitive.  Patients shop for the best quality at the lowest price and providers are forced to compete for first-party dollars to survive.  Thus, several things have occurred.  Providers obtain the best technology and utilize best practices to deliver high value at the most efficient price the market will bear, and as a necessity, providers deliver price transparency.  Price transparency is a key to effective markets.  Who buys a television w/out knowing the cost?  Yet everyday in the third-party payer world, patients enter a hospital to obtain a vastly more expensive service, essentially without knowing the price.  This does two things: it incentives hospitals and other providers to operate based on principles other than customer satisfaction, and it encourages unwise use and over-utilization by patients.  Markets are responsive; they work.


But cosmetic surgery is a luxury market, it can’t possibly work for ordinary Americans?  Wrong.  Direct Primary Care (“DPC”) is leading the way.


DPC is a modern twist on the oldest healthcare relationship of all.  It’s the idea that you pay your primary physician directly.  But instead of paying fee for service, DPC patients pay a fixed amount per month.  Companies such as MedLion and Atlas MD are leading a healthcare revolution by providing patients  with primary care at an affordable rate, e.g., $79/month).  Because a DPC practice has to attract patients in order to succeed, DPC practices are typically notable for a higher level of customer service including less waiting times and longer appointments.  Again, market imperatives, the need to attract a paying patient willing to spend their own healthcare dollar is the driver in the contours of the relationship.  A DPC practice which doesn’t price their fees efficiently, or which doesn’t provide a desirable customer experience goes broke in the same way an overpriced, inferior quality automobile does.          



  • Fee for Service ruined the healthcare system.  Much attention is devoted to the Fee-For Service system and its tendency to cause overutilization, deservedly and appropriately so.  For many healthcare services, including particularly primary care physician services, FFS is an inefficient payment model and encourages over-utilization.  DPC and managed care organizations are much more effective at delivering these kinds of services for less cost.  However, FFS has a place, particularly for specialists and hospitals.  A pediatric neurosurgeon for example, is a highly trained professional whose services are needed only in specific circumstances.  It wouldn’t make sense to pay such a person a capitation rate or membership fee where utilization per individual is likely very low.  For such services the FFS system is simply better suited.  The specialist will price his or her service based on supply and demand, and payers will respond accordingly, i.e., by seeking an increase in supply and/or a decrease in rate in order to obtain an efficient market price.  Rather than impugning the entire FFS system, reform should focus on utilizing it as a payment model only where it makes economic sense.  In other words, it makes economic sense to pay FFS for infrequently used services.  Most patients will rarely see a specialist or hospital; paying for such services on an as needed basis makes legitimate economic sense.  In contrast, primary care is more commonly utilized and would benefit from a different reimbursement model such as managed care capitation and DPC.         


  • Telemedicine will save the world.  Millions of dollars of venture capital and much journalistic ink has been recently devoted to the idea of “telemedicine.”  Be it emailing or texting your doctor, robot physicians in rural hospitals, or physician by Skype, telemedicine is all the rage.  Indeed, in a modern world with terrific technology and a shortage of physicians, telemedicine should have a prime seat at the table.   It is not a panacea however.    First, most insurers and government payers won’t reimburse for telemedicine, though Medicare recently announced a pilot project to do just that.  Second, are privacy concerns.  The early round of patient portals varied in quality, but were vulnerable to HIPAA issues.  More recently, the field has evolved and good products to ensure encryption in email and text and videoconferencing have emerged.  However, the remaining drawback still lurks, human nature. 


By definition, patients who are comfortable texting or emailing their doctor, will.  This poses operational hurdles for physicians, but manageable ones with good policies and technology.  What it does not solve is the fact that a patient comfortable w/ email will use it, even when they should really come to the office.  For example, a patient comfortable with email may well email their doctor when they have a pain in their left arm and other signs of cardiac arrest.  Thus the great sleeper in telemedicine is medical malpractice liability.  For telemedicine to succeed, we need a system which keeps the lawyers at bay.