# The Price We Pay  ## Metadata - Author: [[Marty Makary]] - Full Title: The Price We Pay - Category: #books - Summary: Patients are sharing stories of how the business side of medicine is negatively impacting their lives. Some doctors and hospital leaders are working to make medical billing more transparent and fair. Physicians are urged to prioritize patient care over profit in the healthcare industry. ## Highlights - I worked with my Johns Hopkins colleagues to estimate the percentage of medical care that is unnecessary by sending an anonymous survey to a sample of 3,000 doctors across America and had 2,100 respond. The doctors replied that, on average, they believe 21% of everything done in medicine is unnecessary.[4](#chapter1-4) Breaking it down further, the doctors in that survey estimated that 22% of prescription medications, 25% of medical tests, and 11% of procedures are unnecessary. Literally billions of dollars are spent on care we don’t need. ([View Highlight](https://read.readwise.io/read/01hxap18sffc2gcp659fwe1qv4)) - The politicians debated how to fund health care, but what we really need to talk about is how to fix health care. ([View Highlight](https://read.readwise.io/read/01hxdc4rhz2fgcyszkaacvztxm)) - Hospital officials confessed that they inflate bills more and more each year to generate more revenue since their insurance companies pay only part of the sticker prices. Insurers confessed they demand bigger and bigger discounts in their contracts with hospitals in order to keep up. Both acknowledged that they pass on higher hospital bills to the public in the form of higher insurance premiums. ([View Highlight](https://read.readwise.io/read/01hxde7hda384r72n11f1j0vgg)) - Dr. René Lerer, the president of the large insurance company GuideWell Florida Blue, silenced the room with his honesty: “Insurers fight for a bigger discount every time they renew a contract with a hospital. Then hospitals go around and inflate their prices. It’s a game.” He seemed disgusted by the markup-discount games everyone in health care has come to accept as standard operating procedure. “We play it, you play it, we all play it. Let’s not fool ourselves,” he added. “It’s a stupid game. We can do better.” ([View Highlight](https://read.readwise.io/read/01hxde9tn72vvjw6d05dc8d3tc)) - it enables insurance companies to have an agreed-upon discount rate on hospital bills. That discount rate is different for every hospital and a highly guarded trade secret. From talking to enough people in the industry, I learned that the secret discount that an insurance company gets ranges from 4 to 90%. ([View Highlight](https://read.readwise.io/read/01hxded9006rpmx4ggpvt7chvp)) - Most of the time, the insurance companies don’t let hospitals show their negotiated prices; they’ve made the hospital sign a nondisclosure clause in their operating agreement. ([View Highlight](https://read.readwise.io/read/01hxdeejem60rvgz9z40j03880)) - Hospitals, in order to ensure they have enough cash on hand on a macro level, spend a lot of energy playing the markup and discount game. In fact, they are consumed by it. For example, if a hospital made $100 million the prior year, dialing up all bills by 5% as their expenses go up by 4% is a safe bet without having to accurately itemize every service. Hospitals use software called the “chargemaster” that automatically inflates prices to achieve a desired margin. ([View Highlight](https://read.readwise.io/read/01hxdefgbjfn27jbfe7vds1azm)) - Markups are now so high that they are embarrassing for doctors and hospitals. ([View Highlight](https://read.readwise.io/read/01hxdeh4r8zz7jjmbkaxgmh7e0)) - That’s when he got a bill for $11,000. Suddenly he was light-headed again. He was outraged for good reason. My hospital in Baltimore, for example, would charge $800 for the same service. Why was the bill marked up? Did the hospital by the Vail ski resort take care of so many low-income and uninsured skiers that it had to make up for all its charity care? No, Fred was the victim of a business model that has become all too common in American medicine: price gouging. ([View Highlight](https://read.readwise.io/read/01hxdejzj99t8dpgfsqy0xe1r8)) - When discussing astronomical medical costs, hospital CEOs often tell me, “Marty, nobody pays those chargemaster prices.” They point out that insurance companies have discounts. “Those are just the sticker prices. You wouldn’t ever be asked to pay that price.” ([View Highlight](https://read.readwise.io/read/01hxdep8qdk43eje4w1srqs55c)) - Our next stop was the local Amtrak train station where we learned that some trains are half-full of Amish people taking the six-day ride to Mexico for medical care. Mexican hospitals even advertise in the Amtrak magazine. It’s incredible how far people will go for honest medical pricing. ([View Highlight](https://read.readwise.io/read/01hxdetpwpszac1exr657khevf)) - Then there are the “surprise” bills—bills for costs a patient presumed were covered by insurance but were not. About half of these bills are for lab work, facility charges, or imaging tests.[6](#chapter2-6) The other half of surprise bills are generated by doctors working behind the scenes, such as pathologists or radiologists, who may be out of your insurance network, meaning they don’t have a negotiated discount rate with your insurance company. The same could be true for your emergency room physician, or the lab that processes your blood tests, or the anesthesiologist who puts you to sleep. Your primary surgeon or obstetrician may be in-network, but you could have an out-of-network doctor put in your epidural or perform the pediatric hearing test on your newborn. You may not realize that a doctor or lab didn’t have a discount contract with your insurance company until weeks later. And those surprise bills are issued at the inflated sticker price. ([View Highlight](https://read.readwise.io/read/01hxdex0xksz10h8xmhg3qc6q1)) - In 2015, the Consumer Reports National Research Center estimated that 30% of Americans received a surprise medical bill. But just three years later, another study found it was about double that figure. The University of Chicago reported that 57% of Americans received a surprise bill in the previous year.[7](#chapter2-7) Another study of New Mexico residents found that more than half of people who had gone to the emergency room got a surprise bill.[8](#chapter2-8) ([View Highlight](https://read.readwise.io/read/01hxdey1v94gzdenfy4sz3gg9v)) - The markups certainly did not correlate with the amount of free medical care the hospital was providing, or with how poor the patient population was. ([View Highlight](https://read.readwise.io/read/01hxdf4eexmg5yr4tr4z5n82d2)) -  If a genius like Tim can’t understand how medical bills are created, the average patient doesn’t stand a chance. ([View Highlight](https://read.readwise.io/read/01hxdf5zmk2pxkesr5t7nzx5sg)) - Half of metastatic (Stage 4) breast cancer patients in the United States report being pursued by a collection agency for their medical bills, according to a large study conducted in 41 states.[10](#chapter2-10) As a cancer surgeon, hearing the details made me sick to my stomach. Is this what the noble profession of cancer care has become? Is this really how our society now treats breast cancer patients at the end of their life? ([View Highlight](https://read.readwise.io/read/01hxdfgdk0n11019g7y03yycdh)) - In addition to the collection side, hospitals and insurers have small armies of business people who negotiate discounts. Doctors and nurses don’t see these people. Their offices are off campus, even tucked away in the tallest skyscrapers in some big cities. Some doctors complain about the growth in hospital administration. But hospitals have to hire a lot of business people to participate in the game. ([View Highlight](https://read.readwise.io/read/01hxdfhdd4yz912rm2pqhjkp56)) - The game creates a giant middle layer of health care: the repricing industry, dedicated to negotiating bills among three or four parties after care is delivered. As I learned when attending one of their conferences, it has thousands of consultants and vendors, and well-paid middlemen. The bureaucracy on the hospital side is also large. One study found that for every ten doctors, the average U.S. hospital has seven nonclinical full-time-equivalent (FTE) staff working on billing and insurance functions.[13](#chapter2-13) ([View Highlight](https://read.readwise.io/read/01hxdftwr3zdfy80bf4tjnhaer)) - It’s the reason hospitals are on a buying spree, snapping up private practices and other hospitals.[14](#chapter2-14) It explains insurance company mergers. The players need power when they clash in the markup-discount game. It explains why health care stakeholders spent $514 million lobbying Congress in 2016. They need to keep their footing on the playing field. ([View Highlight](https://read.readwise.io/read/01hxdfxak740a6aay10mec4xgk)) - When people wonder why health care costs so much in the United States, they must remember that the cost of the giant repricing industry is built into the cost of medical services. The question no one in the health care establishment has been asking is: Do we really need it? ([View Highlight](https://read.readwise.io/read/01hxdfy62271wtg62rbhyhrm8x)) - The American people are hungry for real prices, not the inflated “chargemaster” prices. Making real prices public would infuse much-needed competition into health care’s bloated $3.5 trillion market. ([View Highlight](https://read.readwise.io/read/01hxhvq1t0re43v1x09d6j6dap)) - To manage rising hospital prices, insurers have responded by designing plans with higher deductibles and copays. ([View Highlight](https://read.readwise.io/read/01hxhvqj9ym9b2s987mywwm4jc)) - predatory billing practices are rare in the few health care sectors that have already adopted real price transparency, including cosmetic surgery, in vitro fertilization, and LASIK surgery. In these markets, true competition has resulted in a global reduction in prices over time and has appropriately rewarded high-quality physicians. ([View Highlight](https://read.readwise.io/read/01hxhvskq2thwx2789hnvx3kzj)) - Proxy shoppers are common in other businesses. Think about what happens in the grocery business. Only some customers at a grocery store look at the price of produce and comparison shop, oranges to oranges, with other stores. Yet those who aggressively comparison shop create the demand for grocery stores to keep their prices competitive in order to retain the business of the small fraction who price shop, which in turn benefits all shoppers. ([View Highlight](https://read.readwise.io/read/01hxhvx24699qhs44tevqwxc7y)) - We had gone into medicine to take care of the sick and injured, not to take advantage of them. ([View Highlight](https://read.readwise.io/read/01hxhw1tc0r0de9fd3twnfrzds)) - His surgery center is especially popular among employers who self-fund their employee’s medical care, since they are protected from price gouging. ([View Highlight](https://read.readwise.io/read/01hxj30yzm9wkb5azxkn24xz1t)) - Insurance companies like having secret discounts and networks.[16](#chapter2-16) Those secret discounts are what insurance companies sell to employers who are essentially buying hospital services in bulk through an insurance company. Hospitals, in turn, rely on insurance companies to send them a steady stream of business. The self-preservation efforts of the stakeholders are so strong that California lawmakers had to pass a law to prevent insurance companies from retaliating against hospitals that disclose prices. ([View Highlight](https://read.readwise.io/read/01hxj32dxz79kdrybjbsfpdv28)) - Centers that initiated full price transparency saw a 50% increase in patient volume, a 30% increase in revenue, and an increase in patient satisfaction.[17](#chapter2-17) People are sick and tired of the game. ([View Highlight](https://read.readwise.io/read/01hxj33z2ske8wj3j6ve7chd7n)) - Mike said the hospital doesn’t waste its time and resources playing price games with insurance companies. There is pretty much one price per procedure, which anyone can look up on his hospital website. He offers every insurance company a minimum discount of 4%, no exceptions: “We don’t play that game where one insurance carrier gets a secret 20% discount and the other one gets a 5% discount.” ([View Highlight](https://read.readwise.io/read/01hxj7tptwr1yjan93qfza95jk)) - Mike reduced his costs by keeping his middle management to essential personnel while investing in the people who worked there with good pay and benefits. At a time when hospitals struggle to staff their wards with nurses and doctors, Mike had set up extra rotations for nursing and medical students and residents. ([View Highlight](https://read.readwise.io/read/01hxj7vyyfr7n12xzxk2mb8dea)) - The final straw was when she watched a doctor seeing patients for 15-minute visits with an egg timer on his desk. “We’ll talk until the timer goes off,” Cabou recalled his telling patients. “Fee-for-service medicine values quantity, not quality,” she said. ([View Highlight](https://read.readwise.io/read/01hxjckhjs4jm043pkj3tx6jd0)) - As a busy doc myself, I’m convinced there are so many aspects of a physician’s job that can be done by a highly motivated helper. With the right attitude, a reliable assistant can make all the difference in the world, regardless of their level of formal schooling. For example, I could train a highly dedicated college graduate to manage medication compliance, do nutrition teaching, and follow up on tasks. This kind of trained help allows doctors to concentrate on the critical decision making at the heart of the practice of medicine. ([View Highlight](https://read.readwise.io/read/01hxjd4rkyrr2z7mm55qgjbh6e)) - do we really think doctors can manage overlapping chronic diseases with a couple of 15-minute visits per year? ([View Highlight](https://read.readwise.io/read/01hxjd7xn4fpsfy7j319q1q9js)) - The current health care system is like a game of whack-a-mole. ([View Highlight](https://read.readwise.io/read/01hxjd84wj1ze3xkadhv7p948g)) - Given the high cost of an ER visit or hospitalization, it’s no surprise that well-designed care has a strong value proposition. The model works, and other primary care groups like ChenMed, a Florida-based group, and Oak Street Health, an Illinois-based group, are having great success using it as well. ([View Highlight](https://read.readwise.io/read/01hxjddnfyfc7jdfzthwg5dvnx)) - Iora and other disrupters that are laser-focused on putting the patients at the center of their efforts are becoming the Tesla of health care. ([View Highlight](https://read.readwise.io/read/01hxjdd235ngyp8efvdmehg2qm)) - Imagine you see an orange in the supermarket with no price on it. You take it to the register to get a price check. “How much for the orange?” “You have to buy it to find out,” the cashier says. You’re hungry, so you buy the orange. But you recoil when you see the cashier has charged your credit card $500. And there are no returns. ([View Highlight](https://read.readwise.io/read/01hxjg93mdwab48ewh9ds4hghr)) - Jeffrey mulled over the experience in the following months. He couldn’t let it go. The first price quote had been almost 25 times as much as he eventually paid for the same procedure. He had medical and legal degrees and had worked in both hospital and health plan administration, and he had barely managed to navigate the system to get a fair price. How would anyone else have a chance? ([View Highlight](https://read.readwise.io/read/01hxjgfx7yaa6wy52x7mjc71qc)) - Chargemaster prices are imaginary numbers that rarely get paid ([View Highlight](https://read.readwise.io/read/01hxjgsvs4xk5fs4jqtpk06azn)) - We spend enough money on health care in the United States that we should be able to cover every citizen. “It’s the waste that strains the system,” Sprowls added. ([View Highlight](https://read.readwise.io/read/01hxjgt748hqqx8p93vss8x46y)) - getting price transparency right is the first step in fixing health care because it ushers in quality transparency. We need to see prices, so patients and health plans can determine which facilities are operating in a way that’s efficient, and which are just trying to maximize their profit. It’s common sense. ([View Highlight](https://read.readwise.io/read/01hxmvp3e2fm0s4bpwqp8f6yfb)) - He was about to retire so he wasn’t worried about breaking the code of silence. He said he simply couldn’t stand it anymore. “I went into this business because I thought it was noble to advise employers on the right health insurance coverage for their employees. But this business is not what I thought it was.” ([View Highlight](https://read.readwise.io/read/01hxmw8heae316enqep8wf2amf)) - I realized that brokers are often the shepherds leading the sheep. They can convince an employer to buy an overpriced plan or a great value plan. ([View Highlight](https://read.readwise.io/read/01hxmw6xsdm7p3nrzx2qckaqwx)) - At the Orlando conference, I heard story after story of companies calling brokers to dangle a big bonus in front of them if they kept an employer on the hook. ([View Highlight](https://read.readwise.io/read/01hxmw7p3xvwxka6r4fkcc4xa7)) - “The way brokers are paid is one reason people are paying too much for health insurance, and I can’t believe no one is talking about it.” Phil said. Throughout his career, he had regularly been offered hundreds of kickbacks from insurance companies, ranging from $30,000 to $100,000 ([View Highlight](https://read.readwise.io/read/01hxmwaa559we1gekv67bnbb3a)) - Brokers told me if they lost a key employer, an insurance company might “fire” them from their entire book of business. That means the broker would be cut off from the gravy train—the 1 to 5% commission on every premium dollar the broker had brought to that company. ([View Highlight](https://read.readwise.io/read/01hxmwbe9412k0rzz9v8z6we2j)) - Where does the health insurance company get the money to pay the brokers so well for so long? They build it into the price of health insurance. In other words, that money comes from you. ([View Highlight](https://read.readwise.io/read/01hxmwhq7zxnzrmqh7jqntnpqz)) - Employers have similar problems understanding the health insurance products they purchase. They are designed to be complicated so employers won’t try to figure out where their money is going. ([View Highlight](https://read.readwise.io/read/01hxmwpjzybdwspnd0dp74a47f)) - I asked ten doctors: Have you ever heard of a health insurance broker? All said “no.” Nor did any of them know how health insurance was sold in the United States. I was struck by the disconnect between those who deliver health care and those who sell it. ([View Highlight](https://read.readwise.io/read/01hxn0x3ydxyqtcq4047r8957w)) - Frist said doctors are educated in medicine but not in health care. I was seeing afresh how right he was. ([View Highlight](https://read.readwise.io/read/01hxn0xg50vygdjpyphdd7rzaa)) - Nearly half of the nation’s businesses buy insurance from brokers. ([View Highlight](https://read.readwise.io/read/01hxn0y53d3pdcxrwwg6wpkvfj)) - Brandon told me he generally recommends that employers self-fund (self-insure) their benefits. That means the employer is the one who pays the health care bills, not an insurance company. Instead of paying premiums, the employer and employees pay into an escrow account that funds the plan. The employer hires a company called a third party administrator to manage the plans. Many traditional insurance companies offer administrative services. Brandon then makes sure that an employer has catastrophic insurance to cover any massive bills, maybe anything over $80,000 or $100,000. ([View Highlight](https://read.readwise.io/read/01hxn12jskryq040y0v9g5286g)) - In most cases, bypassing traditional health insurance and self-funding is the best value for employers. ([View Highlight](https://read.readwise.io/read/01hxn12xhdszm0yy5qk6d0qxsj)) - American employers spent an estimated $738 billion on health benefits in 2018, a figure that has been rising about 5% annually in recent years.[3](#chapter13-3) The average premiums for a family reached almost $20,000, according to the Kaiser Family Foundation.[4](#chapter13-4) If employers could provide their excellent benefits for less, it would save billions. ([View Highlight](https://read.readwise.io/read/01hxn4yybrezn9c4h05zcpkdz8)) - The employers pay for health benefits out of the pool of money they use for worker compensation. Therefore, that compensation allocated to rising health care costs is not going toward increasing an employee’s wages. In other words, it’s coming right out of the employee’s pocket. ([View Highlight](https://read.readwise.io/read/01hxn50pdhwt5hvkxkb4y7b9wk)) - Toth detailed how a giant industry of middlemen called pharmacy benefit managers—PBMs for short—are systematically gouging American businesses. ([View Highlight](https://read.readwise.io/read/01hxn76amrt2zw6v6jm2azycc1)) - I recalled the research advice many pharmacists have whispered to me over the years: “You should take a look at PBMs. Their margins are sick.” ([View Highlight](https://read.readwise.io/read/01hxn71672459y02ad9r3xvh2j)) - “The spread” is the difference between what the PBM pays a pharmacy for a medication and what they invoice an employer or health plan for that same medication. ([View Highlight](https://read.readwise.io/read/01hxn71nnnwg39d5jtp25h0yxn)) - The PBMs have gone to great lengths to keep the real prices secret, using a fog of fees, rebates, and discounts that make a true value too complicated for anyone to determine. ([View Highlight](https://read.readwise.io/read/01hxncmsm9gybhna10t28gn88f)) - Health care is typically the second largest expenditure for most businesses after wages. ([View Highlight](https://read.readwise.io/read/01hxncnsqdsannvjr5qbjh9wz2)) - pharmacists are gagged under their PBM contract to not disclose what they are paid by the PBM. ([View Highlight](https://read.readwise.io/read/01hxncpzdnea65nafpehwvf342))