The following is a guest article by Zach Markin, Co-Founder and CEO at HTD Health
American healthcare is the most dysfunctional industry in our country. Historically, it is the most prolific driver of family bankruptcy, and now it is on its way to bankrupting our country collectively. A major justification for President Biden’s tax hike proposal is to shore up the tenuous finances of Medicare whose trust fund is forecasted to be depleted by 2028. While this is important, such efforts address the symptoms of a dysfunctional industry rather than the root causes.
While the near-term liquidity and long-term financial health of critical (and exceedingly popular) programs are important, this theater fails to address the underlying drivers of the crisis and amounts to nothing more than moving money from one of our nation’s collective pockets to another — deckchairs on the Titanic and all that. For decades, healthcare spending has continuously increased both on a per capita basis and as a percentage of GDP. Healthcare is arguably the only industry to have been made less productive by the introduction of technology. With an aging population that has 10,000 people turning 65 every day, this problem will only get worse by the day as baby boomers age into Medicare benefits over the coming decades.
Is there something unique that prevents healthcare from functioning like any other industry? Why has the quality of services and goods improved continuously in other industries such as food, travel, and entertainment with lower costs to consumers while the opposite has occurred in healthcare? Healthcare services is a broken market so distorted by a mix of regulatory capture and perverse incentives that classic economic forces simply do not work. Artificial constraints on supply, price controls, and a regulatory environment benefiting incumbents has led to the breakdown of traditional price and value signals and stymied progress toward improvements in the quality, accessibility, and value of care.
Despite the energetic efforts of millions of hardworking, innovative, capable, and passionate individuals who work in this industry, the situation continues to get worse every year. It is time for policymakers to rectify market distortions so that the hardworking individuals who show up every day driven to improve the human condition can do exactly that.
I suggest focusing on these three egregious market distortions to start with: (1) stop artificially constraining the supply of clinical services and eliminate barriers such as state licensure that limit supply liquidity; (2) remove pricing and risk distortions that exist in the insurance industry and make create mechanisms that make financial risk for insurance companies more accurately reflect and manage risks that actually impact health; and (3) eliminate the influence of interested parties who control the fundamental payment mechanisms in care delivery.
While market distortions in healthcare are rife, a few of the most egregious could be rectified through policy changes. Let’s start with Economics 101 — What is the best way to decrease the price of a product or service? If you said, “increase supply,” you are correct. In the US, the supply of doctors and nurses is constrained and controlled by medical and nursing schools who, rather than being motivated to improve the supply of medical professionals, are locked in a never-ending battle of vanity to secure “elite” status through high rankings and low admission rates. Anyone who has encountered an antsy university sophomore can speak to the angst “pre-meds” feel about the competitive environment, yet factors associated with competitive medical school applications such as MCAT scores, medical volunteering, and other measures of social privilege might not matter at all to the millions of patients who simply would like to see a physician or specialist more quickly or closer to home in order to get prescriptions, consultations, and other basics of care access.
The Association of American Medical Colleges (AAMC) projects that by 2034 the US will face a shortage of between 37,800 and 124,000 physicians — such shortages will be even more acute within specific subspecialty areas of care such as within neurological, gastroenterology, and auto-immune care among others. Further exacerbating constraints on the absolute supply of medical labor are constraints on the liquidity of medical labor supply —antiquated state licensure laws that prevent doctors and nurses from practicing even virtual medicine with patients located in another state. A doctor who sees a patient during a lunch break in Manhattan cannot consult with that patient after their evening commute home to New Jersey or prescribe them medication via tele-consult. Reform to medical school credentialing, creating incentives to grow medical and nursing school class sizes, making it easier for trained healthcare professionals to immigrate to the US and become credentialed, and getting rid of antiquated state licensure requirements would go a long way towards increasing the supply of healthcare practitioners and ultimately result in more affordable care.
In terms of payments, we rely on insurance companies to act as a counterbalance to health systems and provider organizations in negotiating quality services at fair prices. In reality, however, insurance companies are fundamentally in the business of managing risk, while quality and price are secondary factors that may or may not be relevant. Due to regulation, insurance companies are prevented from capturing profits in excess of a certain percentage of total premiums paid in a given year. This is known as the medical loss ratio (MLR).
While the spirit of the MLR is noble — to prevent payors from capturing an unfair level of profit from patients in aggregate — in reality, it creates a perverse incentive for the industry as a whole. By limiting insurance profit to effectively be a percent of total healthcare spend, it means that insurance companies are incentivized not to demand better care at lower prices but to provide any care at predictably higher prices every year and this is exactly what has occurred! Policymakers should do away with the MLR and introduce insurance mechanisms that extend payor risk over a longer time horizon beyond a single calendar year. This would create an incentive for payors to maintain patient satisfaction and invest in interventions that improve their health over the long run.
When healthcare professionals seek to be reimbursed for the services they’ve provided, they submit insurance claims using Current Procedural Terminology (CPT) codes. These codes are created by the American Medical Association which also funded Health 2047, a for-profit healthcare investment firm. Another major partner in Health 2047 is UnitedHealth Group — one of the largest private insurance companies and care delivery organizations through subsidiary provider groups. Critical components of healthcare delivery payment and reimbursement should not be controlled by interested parties such as the AMA which has been described as a guild or “a sovereign profession”.
The AMA has worked since its foundation to elevate the social position and aggregate income of physicians, and as a result is fundamentally conflicted as a party controlling the fundamental payment mechanisms of care delivery. Regulatory changes should be introduced which allow for market mechanisms to prevail. Some might argue that the life-and-death nature of healthcare services requires an interested party like the AMA to regulate service delivery. While this may have been true during the snake oil days of the AMA’s founding, more recent government innovations such as the Food and Drug Administration (FDA) have shown that the government can play a role in protecting consumers from harm while still allowing free markets to function.
Our policymakers today are more focused on anti-competitive behavior than at any other time in recent history. I encourage them to take a good hard look at America’s healthcare industry.
About Zach Markin
Alongside HTD Health, Zach Markin, CEO and Co-Founder, built a next-generation governance risk and compliance SaaS company called Exos which he sold to a leading compliant cloud provider in 2022. Zach is currently CEO at HTD Health which has broadened its focus to support care delivery organizations, device companies, life sciences organizations, and SaaS for healthcare.
