Can Free Markets Repair a Broken Healthcare System?

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As a health services administration graduate student at the University of San Francisco in 2006, I felt like a lone voice among my colleagues in championing a free market healthcare system. Despite the release that same year of  Redefining Health Care: Creating Value-Based Competition On Results - a book by noted Harvard professor Michael Porter – the overall tenor and conversation around a competitive healthcare marketplace resembled the noise of crickets in the countryside.

Four years later, the Affordable Care Act, a.k.a. Obamacare, was signed into law by President Barack Obama. Unsurprisingly since that landmark legislation, the U.S. healthcare system has continued to spiral out of control. And as of this writing, amid recent news of crumbling state healthcare exchanges and word of the largest insurer’s anticipated exit from the program, Obamacare is arguably on life support. This has led to calls on the part of a small but vocal lobby to discard this failing model and pursue instead a fresh set of free market healthcare strategies.

A friend of mine who was frustrated by the lack of affordable options, turned me on to TruPrice, a startup firm seeking to develop a real alternative to the current healthcare crisis. Founder and President Mark Gantner believes that the current ACA model is unsustainable and that without alternatives, it will result in louder calls for a single payer system. In his view, this represents a significant constitutional threat; one that has the potential to erode the basis of personal freedoms upon which this country was founded.

A practicing anesthesiologist and entrepreneur, Mark has become a fervent evangelist behind the movement for a free market system; one predicated on providing consumers with real-time, user-friendly pricing information on common medical procedures and physician quality measures. Recently, he took a few minutes from his busy schedule to share with me his vision and to explain why he believes it’s important for the future of healthcare delivery in the U.S.

Mark, can you offer a brief snapshot on the current state of the U.S. healthcare system?

You bet. Well, things certainly changed dramatically with the passage of the Affordable Care Act. One of the biggest problems at present is the massive, unprecedented consolidation taking place at an accelerated rate among large hospital systems and organizations, including the insurance industry. This is one of the primary factors behind the continued rise in health insurance costs, because free market competition is being eliminated with these massive mergers and consolidations.

Why is this approach being taken?

Michael, the primary reason is because it’s a great way for these organizations to secure enhanced insurance reimbursement rates. Basically, the bigger you are and the bigger your market share, the better your insurance reimbursements will be.

Then what needs to occur instead?

Great question. For starters, we need to reduce this need for consolidations in the marketplace. Secondly, we’ve got to jump-start a business model where private practices and small groups can continue to survive. If we continue down the trajectory we are currently on, the age of the independent physician in private practice is going to end, because it simply will not be possible for this group to gain the level of reimbursement necessary for sustainability; that is unless they combine with a larger organization which has the effect of less competition and higher prices.

Sounds like you are alluding to more of a free market model here?

You nailed it. Ultimately, the focus should be on creating a marketplace that emphasizes price and quality versus market share or negotiation expertise.  Placing physicians in a free market environment allows for a shift in this direction.

This sounds all well and good, but why has this free market concept struggled to gain traction?

One factor is that medical school students are not really trained in business and free market principles. They face a marketplace that is dominated by an insurance industry that’s not interested in free markets, because for them it’s all about control and market share. So there is a hesitancy among physicians, because they have not had to compete and be transparent in their pricing.

What do physicians have to say about all of this?

I’ve heard some say that it will lead to a race to the bottom on pricing. What this tells me is that they don’t really understand the free market. I tell physicians “If this were a race to the bottom, then Hyundai would dominate the auto industry by virtue of having the cheapest automobile.” What we know from research is that if we give consumers a choice between a $1,000 charge offered by a five-star doctor for a procedure or a $600 charge from a two-star doctor, the vast majority of consumers are going to choose the five-star doctor because quality is exceedingly important to them. In the end, we all want the highest quality doctor at the best possible price.

 Sounds reasonable. But in reality, how will this occur?

At our firm TruPrice Healthcare, we’ve developed what we call a True Value score, a combination of medical quality, outcome and price data. This score provides a mechanism for a consumer to choose a high quality doctor at a better price. This lets consumers compare similar quality physicians and facilities and choose the best value among them. This is a key factor in creating the type of competition among higher quality physicians and facilities that will lead to a lowering of prices.

 So the consumer can access this information through a one-stop online portal?

Exactly. Just think of an AirBNB or Orbitz model for the healthcare consumer. They can search by body part, type of surgery or provider.

How do healthcare provider’s benefit?

Great question. One of the things we know, Michael, is that 30% of all healthcare expenditures in the U.S. consist of insurance, administrative and billing costs. It’s a tremendous overhead and imposition. Providers have to jump through hoops for every single procedure they perform. In other words, they have to code it, bill it and get authorizations for care. There are even times when they literally have to battle with insurance companies that make it difficult for them to obtain a patient approval. We propose to take all of this off the table for the physician so that they can focus exclusively on delivering high quality cost-effective care.

In the end, it sounds like this radical shift will have a huge impact on how health insurance is viewed?

Exactly. The goal is not to replace insurance. Rather, we’re here to put it back in its proper place. Take, for example, car insurance. If it covered things like tire changes, replacing your spark plugs, oil changes and repairing your leather seats, the monthly premiums would be astronomical. Unfortunately, this is exactly where we are with medicine. That’s why a model is needed where small, episodic items are paid out-of-pocket, leaving more catastrophic hospital type care to the insurance industry.

One of the problematic aspects of the insurance marketplace is the policy limitations that many consumers face. How can this be addressed?  

Yes, many consumers have found that policies purchased from an affordable healthcare website often lack out-of-network benefits. So, you the consumer are stuck with a very small and restricted network of providers and hospitals from which to choose. And if you attempt to go outside of the network, there is no way to control your costs. The same scenario exists with many employers. They are still offering fairly good health benefits to employees who are able to stay within the restricted network. But the downside here is that the out-of-network costs for the typical employee are punitive. That’s why we are going to approach self-employed companies and their employees with this proposition: “Sure you have insurance, but in the event that you want to go out-of-network for your physician and/or hospital services, we offer a cost-control option that’s either at the same cost or at a lower one than your current network options.”

Any final thoughts about free market approaches to our current healthcare crisis?

I think that free markets are simply the best way to address this mess we’re in. What’s remarkable to me is that people are apt to question it as an option for medicine, and yet they don’t question it anywhere else. As a practicing physician, I personally believe that the ACA model was never intended to be sustainable. That’s just my opinion, but the market is currently proving me right. I have no qualms in saying that we need a new solution that will allow us to steer clear of a centralized model. Otherwise, I think we are destined to end up with some kind of single payer system in the U.S., because things will become so out of control that people will say “Just let the government take care of it.” As I see it, free markets are a time-tested and proven model that – amid the current environment of unaffordable care – can significantly reduce costs while balancing supply and demand within our healthcare system.

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