SJK Consulting
Making IT Happen
Making IT Happen
April, 2014
April, 2017
It's the Prices, Stupid!
Americans pay twice as much for the same medical services as their counterparts in other rich countries.  Huh?


Brent was a 39-year-old, former Air Force Captain that had graduated in the top 1% of his Air Force Academy class.  During active duty, he was an administrator at Air Force medical facilities – some near combat zones.  He also had a nose for finding good deals.  He decided he wanted to correct his vision with Lasik surgery, did his research and found what he considered to be the best deal in Denver – good-quality work at a good price from a local Lasik center.  The center had a splashy website with endorsements from local celebrities.  But Brent was savvy enough to ignore the marketing glitz.  

The first surgery didn’t take, and after his eyes had healed enough to handle it, he had to return for a second, “corrective” surgery.   After the second surgery, he was in severe pain for eight hours – able only to lie in his dark bedroom with eyes covered, waiting for the pain to subside.   The doctor simply said afterward, “Sorry about that, different people react differently and heal differently.”  And he could have added, “And thanks for the upfront payment.” 

Brent’s experience with the US health care system is not uncommon.  Every day, Americans search for high-value health care with hit-or-miss results while the doctors and hospitals charge twice what their counterparts do in other rich countries.   In the market-driven, for-profit US health care system, nobody knows how much anything costs nor who does or doesn’t do good work.  That’s like sending a batter to the plate wearing a blindfold.  Even someone as bright as Brent couldn’t figure it out. 

There’s a simple way to address this problem and strip a third of the costs out of the system in the process – it’s called Transparent Price Competition.  Let’s face it, US health care costs are ridiculous with Americans paying twice as much as people in other rich countries.  A Johns Hopkins study tells us that even though Americans use fewer medical services, they pay significantly more for their health care.  The underlying and simple reason for this is the higher prices that Americans pay for identical services.  Other industry researchers tell us that the wasteful and unnecessary care delivered in the US ranges from 25 to 50 percent of total spending.  Americans are paying sometimes twice the price for services that they don’t need. 

And don’t believe industry claims that Americans pay more because they receive higher-quality care.  Pundits tell us that people from around the globe seek out the “best health care in the world”.  Yet the facts don’t back up these misleading and self-serving claims.  The World Health Organization (WHO) ranked the US health care system 37th in the world.  But that was back in 2000.  My more recent research, using data from the Organization of Economic Co-operation and Development and the WHO, puts the US dead last among select rich countries – even behind the frequently-criticized health care systems in Canada and the United Kingdom. 

With Costs accounting for only 25 percent of my weighted rankings, the US is last overall.  It is last as well in the categories of Mortality and Patient Experience.  Of the fifteen countries in my study, America ranks no higher than seventh place in Patient Safety, Resource Density, and Costs.   So, just because Americans are paying more, doesn’t mean they are getting more. 

If you can find medical prices, they’re all over the board.  In Modesto, California, for example, a hospital charges $13,000 for a colonoscopy while a clinic down the street charges $850.  In Harrisburg, Pennsylvania, it’s $6,600 versus $575.  Across the US the price of a mammogram ranges from $230 to $1,200 depending where you go.  Only in American health care can a business charge five to fifteen times more than the guy down the street and not only survive, but flourish.  Why?  Because they can.   Because nobody knows how much anything costs.  And as rising insurance premiums drive consumers into higher deductibles and co-insurances, families spend more of their take-home pay on those high-priced health care services.    

With Transparent Price Competition Americans would pay health care providers by the illness, or episode of care, based on results – not for piece-work charged by the procedure or the drug.  If the US creates a true, consumer-level competitive landscape, then the laws of supply and demand will clean up this mess.  Open competition will drive out at least 30% of today’s health care system costs, and maintain or improve quality of care in the bargain.  To realize this solution Americans require access to published doctor and hospital price-performance information so they can find the high-value providers.   This wouldn’t be easy, but it’s technically possible.  If Google can track millions of mouse clicks a minute or United Parcel Service can track the status of 17 million packages a day, the American health care industry can figure out how to track the price and quality of 75 million medical events a month. 

The larger obstacle to overcome is industry resistance.  Industry lobbyists spend many millions of dollars monthly to maintain today’s expensive, wasteful and very profitable status quo.  About 20 million Americans that work in and around the US health care industry would suffer economically as 30 percent of the dollars flowing through the system evaporates over time.  But the other 300 million Americans paying the tab for America’s overpriced health care would come out winners.  Transparent Price Competition is simple math for me.  

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