Healthcare, Meet Capitalism
Self-described “lunatic-fringe disruptors” depict U.S. healthcare like one of Ayn Rand’s dystopias. The $2.7 trillion industry lacks accountability for exorbitant costs. The system incentivizes doctors (and hospitals) to do tests and procedures, instead of paying them to do their jobs—keeping people healthy. It’s like paying carpenters to use nails.
“I believe we are on the cusp of an oil rush—a fabulous revolution of profit-making and cost-saving in health care,” disruptor Jonathan Bush told a rapt audience at the Aspen Ideas Festival last week. In the Rand comparison, Bush might be John Galt—were he not exuding as much benevolence as relentless capitalism. And he’s not giving up on the system; he’s trying to upend it.
Last week I moderated a discussion that became heated—by moderated-panel standards, and by no part of mine—between Bush, Toby Cosgrove (CEO of the Cleveland Clinic), Rushika Fernandopulle (CEO of Iora Health), and Dena Bravata (CMO of Castlight Health). It ended in an emphatic plea by Bush to never donate money to a hospital.
That was met with equal parts laughter and applause. From Cosgrove, seated three inches to his right, neither.
To Bush, CEO and co-founder of the $4.2 billion health-technology company athenahealth healthcare is a business, driven by markets like any other. Altruism and profit-driven business need not be at odds. It’s incomprehensible and unsustainable that people have no idea what their care costs and have no incentive to consider cheaper options.
“Profit is a dirty word among the corduroy-elbow crowd in the research hospitals and foundations,” Bush wrote in his recently-released book, Where Does It Hurt? “But just like any business, from Samsung to Dogfish Head Brewery, this industry will grow and innovate by figuring out what we need and want, and selling it to us at prices we’re willing and able to pay.”
In Aspen, Bush mentioned Invisalign braces and LASIK surgery as procedures that have been driven by the free market. These things started off exorbitantly expensive, but prices fell and fell. For LASIK, the procedure was “$2,800 per eye [in the 1990s]; now it’s $200 per eye, including a ride to and from the procedure.”
The oft-cited, disquieting numbers—the U.S. spends the largest percentage of its GDP on healthcare of any country (by far) but ranks 42nd in global life expectancy and similarly underwhelms in many other health metrics—are projected to worsen. Massive hospitals systems are buying out their competition across the country, charging exorbitant premiums without incentive to cut costs or optimize the care they provide. Bush’s gushing proposition is that when patients can “shop” for healthcare based on quality and price, it will drive innovation and better care. Innovation will inevitably disrupt the bloated status quo. But the current system has to be allowed to fail. That might sound bleak, but to innovators like Bush, Fernandopulle, and Bravata, it’s an opportunity for reinvention.
Forecasting of this sort is the currency of the Aspen conference (hosted by the Aspen Institute and The Atlantic), but Bush has the infectious passion that makes it feel like he’s one of those people who, while giving a keynote on the need for change, is already halfway out the door to make something happen.
Here’s the second half of the discussion, which neatly explains some fundamental problems with healthcare delivery:
From left, the author James Hamblin, Rushika Fernandopulle, Dena Bravata, Toby Cosgrove, and Jonathan Bush at Aspen Ideas Festival, June 25, 2014
Dena Bravata is the chief medical officer of Castlight, whose platform helps patients compare cost and quality to make informed healthcare decisions—shifting incentives for doctors toward lower-cost, higher-quality care.
Rushika Fernandopulle is a primary care physician and co-founder of a small company called Iora Health that is trying to fix healthcare from the bottom up.
“We start by changing the payment system,” Fernandopulle said, “which I think is part of the problem. Instead of getting paid fee-for-service, we blow that up and say we should get a fixed fee for what we do. That allows us to care for a population, and our job is to keep them healthy. If you believe that, you completely change the delivery model.”
Iora assigns each patient a personal health coach who does the blocking and tackling in dealing with the healthcare system. They interact by email and video chat, reaching out to patients instead of leaving the onus on the patient to follow up on their care. In Fernandopulle’s view, athenahealth, which is still contingent on the current fee-for-service model, is something of a dinosaur. Fernandopulle is a disruptor of disruptors.
Toby Cosgrove, the former surgeon and current CEO of one of the largest healthcare systems in the U.S., the Cleveland Clinic, cites redundancy: “What we need to understand is that not all hospitals can be all things to all people.” The Cleveland Clinic, for example, has become expert in cardiothoracic surgery, drawing patients from across the country. In Cosgrove’s model, there might be only one hospital in the country that does a certain complex procedure—but it does the procedure extremely well, efficiently, and on a scale that is maximally cost-effective. Drawing on his experience in Vietnam evacuating injured soldiers, Cosgrove argued for moving patients to expert physicians, rather than trying to have sub-sub-specialized experts everywhere.
So the future of U.S. healthcare will not come in the form of more hospitals. As Cosgrove noted, we already have plenty. Hospital occupancy in the U.S. right now is 65 percent. “Twenty years ago [the U.S.] had a million hospital beds, Cosgrove said. “There are now 800,000, and we still have too many.”
Bush recognizes that the core of healthcare is the relationship between the doctor and the patient. He says that any successful health-business model will be predicated on maximizing the act of total presence during a doctor visit. Ancillary staff will do the busy work that might keep a physician away from her patients. The doctor’s undivided attention is what patients want, and giving it is what makes a doctor’s job meaningful and effective. Despite demand from patients and doctors for more time together, Bush notes, the average visit is eight minutes.
When large hospital systems leverage their market position and brand names to overcharge for basic services, they not only subsidize research, but they perpetuate inefficiency. A cornered market favors complacency and maintenance of the status quo. In every other industry, if you’re still using a pager in 2014—as many doctors are—your business fails when your clients go to Iora Health, where they can video chat.
In his book, Bush calculated the fortune that could be made if a person wanted to start their own MRI business. At Massachusetts General Hospital, an MRI can be billed to an insured patient for $5,315. Bush proposes that an industrious person could rent an MRI machine for around $8,000 per month, a suburban park office for $1,000, two technicians for $6,500 each (including benefits), and around $3,000 for taxes and fees. That’s $25,000 per month in cost. If you can do three scans per hour and run twelve hours per day, you’d break even at $28 per MRI.
“The biggest lie that we baked into our thinking,” Bush said in Aspen, is that “starting in 1958, in the wake of World War II, the government wanted to control wage inflation, so they let employers provide healthcare as an incentive (What could go wrong? It’s 1958!)—was this idea that healthcare itself is just a monolithic, identical thing. That there’s no value in price shopping. That there’s no value in choosing whether or not to get [a certain health service]. We act, as a society, on the unconscious level, like we’re not in charge. This is a massive problem. Not just because we utilize expensive things, but because we give up the opportunity for those things to get better.”