Why our healthcare system looks like CBGB’s bathroom.

Supply of Physicians

Our healthcare system is now made up of 75% expensive specialists and 25% primary care docs. Other countries, ranked much better than our 37th in the world, with high functioning healthcare systems are exactly opposite: 75% primary care docs and 25% specialists. We are years and years behind the ball on this one and there is no quick way to increase the supply of primary care physicians, short of importing foreign physicians. Over 20 years ago, specialists who do procedures started making at least double what a primary care physician makes. There is a committee within the American Medical Association called the RUC. They decide how much Medicare reimburses physicians for what they do. For at least the past 20 years, they’ve been systematically devaluing primary care services. The committee is made up of 29 doctors, 25 of which are specialists who watch out for their own. Doctors choose the money. Hence, the number of residents graduating and going into primary care is now about 5 to 7%.

Demand for Physicians

Doctors are experts in creating demand for your own healthcare. They are professionals who know more than you about healthcare language and can order/spend whatever they want, and you have very little expertise to argue. Compound this with an aging population and a population with expensive chronic illness rather than quickly managed acute illness, and it’s a perfect setup for being in the business of medicine. In the past 100 years, we’ve managed to increase the life expectancy of the average adult by only six years (if you survive childhood). Therefore, the return on the investment in battling chronic disease that mostly stems from poor lifestyle choices is very low, if any. Short of changing unhealthy behavior en masse, our huge investment in putting band-aids on chronic disease is bankrupting our country. But because the healthcare system profits massively from band-aids, we will invent and produce as many band-aids as we can. Those institutions trying to intelligently restrict their use of band-aids simply limit their potential revenue. So the healthcare for a community starts looking like CBGBs bathroom, plastered with an endless array of stickers.

Supply of Medical Services

When doctors are paid to do as much as they can, the supply of procedures and office visits skyrockets. Since doctors decide what gets done, they create demand for the services they provide. As procedures become more and more high tech, they get more expensive. And as more and more services are rendered by expensive specialists instead of generalists, costs increase. Combine this with a system that only gets paid for delivering sick care, not prevention, and the incentives are aligned to do as much expensive sick care as patients’ bodies will allow. And don’t forget about doctors’ fear of being sued. So they order and do everything they can to disprove the reason you could have for suing them. They order every test under the sun to protect themselves in court. This is called “defensive medicine” and it’s estimated that 40% of our healthcare expenses stem from this practice. However, the total cost of malpractice premiums and payouts in America is only about 2% of the $2.5 trillion spent on health care every year in America.

Demand for Medical Services

“Do everything doc” is the culture of medicine in America. The Doctor has created an illusion of superiority and invincibility that has contributed to the fear of death in America. When 80% of your entire lifetime healthcare expenses occur in the last 2 years of your life, we spend our final days hopped up on a cocktail of pharmaceuticals and golden devices powering our vital organs that have failed due to our own unhealthy lifestyle. But then again, aging and longevity have much to do with the complexity of our 30,000 genes that we don’t yet understand. So we disregard our genes and how they interact with our pharmaceutical cocktail. Many daily medications for chronic disease are produced to treat the “average” patient. They don’t take into account how this drug interacts with your body and your genes. Therefore, it is estimated that in any one individual, you have a 33% chance that the drug is helping you, a 33% chance that the drug is doing nothing for you, and a 33% chance that the drug is harming you. But our aging, chronic disease-laden population still comes from the golden era of medicine where Doctors know best and “we’ll have an anti-cancer pill by 1984” and see Walt Disney unfrozen and walking among us “before I die” because “we are America.” So doctors and patients, together, in unison, demand it all.

Supply of Health Insurance

There is an endless supply of health insurance. But modern health insurance is not insurance. In addition to protecting you from financial ruin, it is also the micro-manager of every aspect of your healthcare expenses. The definition of health insurance has become “I want free doctor visits, hospital bills, and medications.” In reality, it has become poorly managed, bureacratic, increasingly inaccessible healthcare purchased for you in bulk at prices that are twice as much as they should be. If you, as an individual or as a group, want to purchase helath insurance, there are a few choices you have from a dwindling number of health insurance oligopolies. But the cost of health insurance has risen from 17% of your pre-tax income in 2000 to 25% in 2008. In the next 8 years, it will again rise another 100% and will be 41% of your pre-tax income in 2016. This cost is typically shared between you and your employer. But your employer typically isn’t getting more and more profitable every 8 years so they are increasingly shifting these costs to you. Health insurance brokers sell to employers. They make their money on commission. The more expensive the plan they sell to your employer, the more money they make.

Demand for Health Insurance

The demand for today’s overly expensive health insurance plans will decrease significantly due to the cost of micro-managed health care. Businesses simply will not be able to afford today’s insurance. Today, healthy people are way overinsured and it is considered a “perk” to have the most expensive plan. In reality, this is simply a handout to the insurance industry because the majority of healthy working Americans use very little health care and the smartest thing to do to keep money away from the CEOs of United, Aetna, and Blue Cross is to use a high deductible plan. We should be demanding the best insurance for us, as individuals, rather than the most insurance for us. As your employer increasingly shifts costs to you, demand for the most apppropriate policies will start to take hold due to basic consumerism. But this can only happen if there are insurance brokers who are willing to deal in high volume, lower commission high deductible sales. Health insurance sales is a business model ripe for disruption.

Supply of Healthcare Information Technology

The internet has changed everything for consumers. But there is one internet-based company selling healthcare IT to independent physicians. The rest is closed, proprietary Windows 95 looking things. However, there is an abundance of computer programs to help hospitals and providers bill insurance companies. Acquiring them often costs about $25,000 per physician per year. They are simply billing engines focused on maximizing their reimbursement by making a visit or procedure seem to the insurance company more complex than what was actually delivered. Insurance companies often counteract electronic reimbursement submissions by downgrading the reported complexity (and therefore the reimbursement). It’s a cat and mouse game that eventually leads to the most important problem of all – computers are way too expensive and there is no return on their investment with the current business model for individual and small group doctors, which are the majority of physicians in America. Therefore, 17% of our GDP runs on handwritten notes because only 1 in 10 doctors use computers in their practice.

Demand for Healthcare Information Technology

Very little. They’re way too expensive. They look and function like Windows 95. They’re meant to maximize reimbursement but only have a return on investment for large institutions who can buy this ancient technology in bulk. Therefore, a higher fraction of doctors who work for large institutions use these systems. The business model that’s still currently in use is from the 1980s. A technology company comes in and customizes a siloed system for every customer they have. They also charge a multi-million dollar per year support contract to continue customizing, fixing, and making it more siloed and less interoperative. But most importantly, the entire industry is functioning with a business model that went out of vogue 20 years ago, prior to the internet. This is best understood by the following article:

“Newcomers to the health IT business, whether individual reporters or giant companies like Microsoft, often find themselves in a time warp. It’s always 1986 in the health IT business. By that I mean there is an enormous and growing ecosystem of consultants, suppliers, software, service and peripherals outfits the likes of which has not existed in the mainstream PC business for over 20 years.”