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Healthcare Costs: No Transparency and Ready for Massive Disruption

Healthcare costs are out of control and, in particular, negatively impact those of us whose healthcare is individually insured in the United States (the U.S. Census Bureau states that approximately 9% of we 323.1 million Americans are individually insured or uninsured).

There is no pricing transparency and healthcare is not a free market.

Whether it is the wildly differing prices of an MRI to our costs for pharmaceuticals being among the highest in the world, the fact that there is no transparency, near-zero alternatives, little power to drive costs lower as consumers, and that most of the health-insured in America don’t shop around since they are only responsible for a low co-pay amount, this is a market ready for massive disruption.

This massive disruption may start with Amazon inserting itself in to the drug supply chain and disrupting it as you’ll see below.

My post from yesterday about Why Trump and the GOP’s Healthcare Approach is a Barrier to Entrepreneurs compelled me to add something today about healthcare costs, specifically because our current president and Congressional leadership are doing nothing about controlling costs of pharmaceuticals, wildly different prices for procedures, and positioning consumers to shop around for lowest prices in order to create an actual free market.

This Wikipedia article points out why U.S. healthcare costs are so high and that it’s not a free market and outcomes are lacking:

Unlike most markets for consumer services in the United States, the health care market generally lacks transparent market-based pricing. Patients are typically not able to comparison shop for medical services based on price, as medical service providers do not typically disclose prices prior to service. Government mandated critical care and government insurance programs like Medicare also impact market pricing of U.S. health care. According to the New York Times in 2011, “the United States is far and away the world leader in medical spending, even though numerous studies have concluded that Americans do not get better care” and prices are the highest in the world.

As patients we generally do not have access to pricing information until after medical services have been rendered which is fundamentally flawed and goes against everything I believe in when it comes to the free market.

Would you buy ANYTHING if the manufacturer or retailer didn’t tell you until AFTER the purchase how much it would cost? Of course you wouldn’t. But that is EXACTLY what happens when you have a co-pay and figure that you’ll let the insurance company and provider fight it out over price since you only have to pay some nominal amount.

Here’s one example which, if you had to buy it yourself (like I would since our family is individually insured), is a reason I’m so up-in-arms about healthcare costs: A chest MRI in Minneapolis (where I’m from) is available from standalone MRI businesses for $460. One hospital here charges $2,026 for the same MRI! (from this article).

It gets worse with pharmaceuticals but maybe Amazon will come to the rescue.

A Forbes article less than a month ago said it best about the current state of our pharmaceutical market had this delightful opening paragraph pointing out how crazy our current pharma market is (I added “in Alice the Wonderland”):

Imagine a pharmaceutical market designed by Lewis Carroll’s Mad Hatter (in Alice the Wonderland). In contrast to almost every other market, he might begin by charging wholesale prices that are higher than retail prices. He would then make sure that the higher wholesale price goes, the lower retail prices can become. And finally, he would ensure that not everyone could purchase their medicines at the low retail prices – although the reason why would be convoluted and random.

Our current non-free-market in pharmaceuticals is that ludicrous and crazy. Pharmacy Benefit Managers (PBMs) are hindering, and not helping, drug prices to go down, but there is a possible savior on the horizon.

AMAZON TO CUT OUT THE MIDDLEMEN?


Let’s hope this is true and Jeff Bezos disrupts pharma in the same way they’ve disrupted our over-retailed American landscape. There are many articles about Goldman Sachs August released report highlighting what Amazon is doing to break in to the healthcare market:

Amazon is speeding its efforts to crack the health care market, hiring a number of high-profile executives, testing Echo technology in top hospitals and creating a secret “1492” team dedicated to health-technology opportunities like telemedicine and electronic medical records.

Amazon is in talks with pharmacy benefits managers (PBMs) now. PBMs are, in effect, middlemen between the pharmaceutical manufacturers and health plans. They claim that they help drive down prices, but from everything I’ve read they also recently pushed “big-pharma” hard in order to accelerate what they receive in the form of rebates, effectively increasing overall drug prices.

According to this article in Fierce Pharma, Leerink Partners has stated that Amazon is in talks with mid-size PBMs “in an effort to get into various contract arrangements,” and that:

There’s plenty of reason Amazon might want to get into the drug supply chain. According to the Goldman Sachs analysis, the field is worth $125 billion each year, or 30% of U.S. net pharma spending.

If Amazon could wrest control of this market — or at least point the way for disruption — then we might have a fighting chance to finally see U.S. pharmaceutical costs begin to go down. It might also begin to sway our Congress-critters to actually assist the American people vs. paying lip service to us about “how great” our medical system is while helping to maintain the status quo of a broken, non-free-market system.

About Steve Borsch

I’m CEO of Marketing Directions, Inc., a trend forecasting, consulting and publishing firm in Minnesota. Prior to that I was Vice President, Strategic Alliances at Lawson Software in St. Paul where I was responsible for all partnerships at this major vendor of enterprise resource planning software products and services. Read more about me here unless you’re already weary of me telling you how incredible and awesome I am.

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