US Healthcare isn't Capitalistic Enough

This is an article I wrote a little while back while reading David Goldhill's book "Catastrophic Care". I thought I would share it here. It's probably one of the longest pieces I will post on my blog.

It’s no secret that the cost of healthcare has become the subject of widespread public vitriol and contempt. Americans spend twice as much on healthcare compared to other OECD countries but rank lowest in numerous quality of care rankings. Affordable healthcare remains out of reach for more than 30 million Americans, with around 66% of personal bankruptcies being due to medical costs. It’s one of the largest consumer spending segments (18% of the GDP and rising) yet still has one of the worst customer experiences. So despite the trillions of dollars poured into the market, why, in 2021, is medical care so shitty?

The fundamental problem is that in its current state,  the US healthcare market is the least consumer centric of any customer service industry. While other consumer-facing industries (think restaurants, hotels, airlines) rely on a “customer comes first” or “user-centric” mindset to succeed, the US healthcare system rarely thinks of patients as customers. Incentives for patients and practitioners for high quality treatment are fundamentally misaligned. The US healthcare market, while far from a single payer system, is not a true free market. Ironically, we’ll need to solve high prices and poor quality with more capitalism.[1]

Wait but why breaks this down pretty well. This is how a true free market is supposed to look like.


The modern healthcare system however, looks more like this. 

The consumer is often not the one paying for care. They also have no way to evaluate prices or look for better deals. The system essentially has the worst of both worlds. It has the illusion of a regulated market and a free market without the benefits of either.

Think about the things that you associate with going to the doctor’s office for an appointment. What comes to mind? Probably long wait times, stark fluorescent lighting and passive aggressive administrative staff. Not very pleasant. [2]

Now think about the last time you went to a local restaurant. You probably have much happier memories. This is because a restaurant operates on the principles of a basic free-market interaction. The incentives of the customer (you) and the business (restaurant) are aligned. If the restaurant wants to get what it wants (revenue), it has to make sure it’s customers (you) get what they want - good food at a reasonable price.

The US healthcare system ignores this idea completely. Patients aren’t treated like customers because they aren’t. While healthcare providers are paid each time you visit, a majority of the provider’s payments come from insurance companies, who get most of their payments from employers. In fact, about half of all Americans receive health insurance through their employer. (Hancock, 2018) This means that for most healthcare providers and doctors, a higher quality of care for a specific patient does not guarantee a proportional financial benefit. This also leads to poor transparency of prices and restriction on optionality for patients as they are not the real customers and decision makers. Instead, prices are often negotiated directly between insurance providers and clinics without patient input.

Poor transparency and time is not the only inconvenience. Healthcare is also absent of many modern conveniences that are common in many other industries like online booking, flexible operating hours and direct communication through email or text.

So what should be done? In his book, Catastrophic Care, David Goldhill offers a potential solution: [3]

“…a guiding principle of any reform should be to put the consumer, not the insurer or the government, at the center of the system. I believe if the government took on the goal of better supporting consumers-by bringing greater transparency and competition to the health-care industry, and by directly subsidizing those who can’t afford care-we’d find that consumers could buy much more of their care directly than we might initially think, and that over time we’d see better care and better service, at lower cost, as a result.”

Goldhill is claiming that placing patients at the forefront of care and truly valuing them what they are - customers - will lead to happier, healthier patients and lower costs. The good news is that we are already heading in this direction. Advancements in technology, increasing digitization, information transparency, regulatory changes and increasing consumer frustration are pushing forward an exciting transformation in American healthcare.

Service providers that adopt this “customer first” mantra will be able to offer unmatched convenience, informational transparency, and patient satisfaction. Adopting this mentality will allow them to provide higher quality care at lower and lower costs. Providers that are unwilling to acclimate to this new normal will lose customers to the more nimble and responsive providers.

Take for example health insurer startups Oscar Health, Bright Health and Devoted Health. Each has raised huge rounds (Oscar:IPO, Devoted Health: $300MM Series B, Bright: $635MM Series D) and are primed to battle with incumbent providers. They differ with traditional providers on a couple important points.

All three companies sell directly to consumers instead of to employers. Due to this, they have an intense focus on customer experience. Instead of making money through scale, they make money by providing top notch care only when patients need it. 

All three companies also offer concierge services which help patients with things like booking rides, following up on appointments or answering questions about care options. This white glove service is intended to build loyalty (keep customers coming back each year) and reduce costs (healthier patients mean less hospital visits).

I will note however, that this system is still not perfect. Not just a consumer-centric model, but a capitalistic model as a whole. Most would consider healthcare as a fundamental human right, and the idea that we would charge people for access to health and happiness as horribly cruel and cold. I don’t disagree completely with the notion. It will leave certain groups behind and disadvantage others. However, I believe that change takes time.

With the current social and economic structures in the US,transitioning instantly to a single payer healthcare system is simply not affordable. Countries with true single payer systems are only able to maintain lower costs than the US by limiting access and coverage for intensive and high technology medicines. (Blank, 2012) Instead, a transition to consumer centric healthcare is a necessary step to single payer care. Even in countries such as Canada, two-thirds of the population hold private insurance (Glied, 2019). Good private healthcare is an essential part of a single payer system. While we wait for the government to reform legislation, we need to make sure that private healthcare is the best it can be. Both parts will need to work together to ensure higher quality care for all.

While it’s still yet to be seen if this model’s unit economics will hold out in the long run, it is an enticing look at the future of cheaper, higher quality care. When patient and provider incentives are aligned, everyone benefits. These startups are signs that for the first time, the US healthcare consumer is emerging as a “true shopper” and a system in which patients and providers win. This is a future that I’m willing to bet on.

Footnotes:

[1] As a Canadian, I feel this statement automatically qualifies me for a green card.

[2] I firmly believe that crappy doctors appointments is the singular reason for WebMD’s entire success. People would rather be told that they have every type of cancer than go see their family doctor.

[3] Is it funny for anyone else that a guy called Goldhill wrote a piece in favour of more free-market capitalism in a notoriously profit driven industry? Just me? Okay.