The Missing Link in Healthcare: Price
The missing link in healthcare: price…..
Bill Frezza is an entrepreneur who is a fellow at the Competitive Enterprise Institute and who writes for an on-line magazine, BioIT World. The bioinformatics world these days is all about a push towards personalized medicine. However, the concept that medical care might be personalized the same way that your daily news and internet buying options has hit a wall-the FDA. In fact it’s more than just the FDA, it’s also the ACA (Affordable Care Act). Both regulatory concepts espouse centralized control of mass market products and services as if it were the early 60s. This is despite the rest of the world having moved on to an increasingly customized 21st century.
Bill just wrote a great piece called, “How the FDA Stymies Progress-and How to Get Around It“. Here he describes how the current regulatory concepts for personalized cell based medicine have pushed innovation out of the U.S. He brings up our move of Regenexx-C out of the U.S. and a new therapy center opening in the Bahamas. As an outsider in the medical world, Bill brings the pragmatism of an entrepreneur to his musings, something that makes him at times like a fish out of water in the morass that has become modern medicine. Case in point is another piece called, “Everything You Know is Wrong”. In this article Bill makes the point that price is a critical metric of a functioning economy. It’s a sort of code that lets you measure the economic success of a product or service. High price means high demand and limited supply, low price means low demand and high supply. In every other field except for healthcare, you can use price in this way. However in the “Alice in Wonderland” world of healthcare there is no connection between price and demand or quality. In fact, third party payors have inserted artificially fixed prices into the equation that are disconnected from the consumer. If you ask a patient how much their MRI cost-they’re likely to answer, “I don’t know”. Regrettably our recent healthcare reform law will make that disconnect much worse by trying to fix the problem. The ACA contains provisions that build in an artifical price swing on top of fixed prices based on “quality”. So if your doctor hits an artificial quality metric he will be compensated more and if he doesn’t he will be penalized. Sound reasonable? Maybe, until you ask yourself who determines what is quality healthcare? Government panels of course. Who’s on the panels? Whomever can afford the price of admission to the table-namely representatives of big pharma companies.
What would happen in the real world outside healthcare, if a committee determined quality? Think about it. You buy a car now based on your sense of it and maybe some reviews about the car. Perhaps it’s because your best friend owns one and loves the car or you were impressed by a test drive. This demand versus it’s supply determines it’s price. A car that has high demand and low supply costs more. However, what if the price was instead determined by a government panel? What if the government panel developed metrics for what it thought was quality and set the price accordingly? How long would it be before the connection between supply and demand was severed? This disconnect happened in healthcare a long time ago with payment from third parties and it’s like a narcotic most physicians can’t kick. To take this thought experiment further, what if the car, prior to it’s introduction to the market had to be tested by a government panel and approved through a ten year testing period? After all, cars can kill! In 2011 alone there we 32,000 deaths and more than 2 million injuries requiring a physician’s visit caused by cars. Just think how much safer we’d all be! Also think how much more cars would cost. The average price of a car in the US was $30,748 in 2012. With this new approval system, the average cost would easily be ten times that, or about $300,000. We’d have to come up with some very creative ways for most people to afford cars, perhaps an insurance type program? The innovation in cars would also be glacially slow, so you can bet that your new car today would still look like a boxy Volvo from the 1980’s. Sound familiar?
Some in academia have even suggested that discussing price in healthcare is bad, claiming that if patients pay for their care that’s wrong. Not of course realizing that we all pay for inflated healthcare costs because patients pay health insurance premiums. These insurance policies support the price disconnect in healthcare, as the patient is not a consumer of healthcare. In fact, this entire system of demonizing and disconnecting consumers from price in healthcare is the root of the problem. What’s the real cost of an MRI when the market decides? Whatever you would be willing to pay out of pocket or through a health savings account. Maybe $200? The real price of a blockbuster drug? Maybe $50 a month. We missed a huge opportunity with the ACA to finally assert the “Frezza code” into healthcare, which would have fixed the whole system. We missed a critical opportunity to let the market decide what our services are worth.