The case for health care pricing literacy, and more insights from Dr. Marty Makary

One of the biggest challenges with the U.S. health care system is simply understanding how it works. And that’s the call that Dr. Marty Makary, a Johns Hopkins Hospital surgeon researcher and author of the new book, “The Price We Pay,” is trying to answer. 

Understanding the industry’s money games, as Makary calls them, can help patients make smarter, more informed choices about their health care. “Sixty-percent of medical care is shoppable,” he told me last week during a video interview. “That means we should be able to provide honest pricing like we provide honest health care.”

Makary argues that transparency of medical prices, like the Surgery Center of Oklahoma’s decision to publish its surgical prices on its website, is key to lowering health care costs across the board. 

You can read the entire, edited transcript of the interview below, and then let me know your take on price transparency in health care in the comments. 

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Jaimy Lee: You're a surgeon. When did the cost issue first grab your attention?

Dr. Marty Makary: Well, you know, I had a neighbor who got hammered with a medical bill at another hospital, and I was embarrassed. What's happening right now with price gouging and predatory billing in health care, it's a disgrace. American hospitals were built with a charter dedicating them to be a safe haven for their communities. Most of these hospitals were built by their communities, many by churches, to serve the sick and injured. Most of them were floated by a charity. Many of our great leaders in American medicine historically have taken care of anybody regardless of their ability to pay or their race or creed. That's our great medical heritage.

When Salk sold the polio vaccine, when the virus had committed 20,000 people to an iron lung, he said this would be a gift to humanity. He insisted that he'd not get a patent on it, so as many people could get it as possible. That is our great medical heritage, and today that wonderful public trust in America's hospitals and the medical profession—my profession—is being threatened by predatory billing and price gouging. We need to recognize that billing quality is medical quality. Financial toxicity is a medical complication. Taking care of a patient is taking care of the entire person.

So, most of the time when I talk to doctors and let them know, “Hey, this patient of yours got sued by the hospital and had their minimum wage paycheck as a waitress garnished by your hospital in court,” they are outraged. They feel that it violates the public trust. They don't know about this. They feel, “Hey, the patients came to me as a physician for care. They didn't come to the billing office for care and they are ruining their life financially.”

Most of the medical bills in health care are overpriced. And, in fact, when we show these overpriced bills to hospital leaders, who, by the way, are good people working in a bad system, they will often say, “Look, nobody's expected to pay that sticker price.” It's a money game. Those sticker prices are inflated to create discounts for insurance companies. It's been going on for a long time. It's a system we inherited. It's a terrible system, and it doesn't show prices ahead of time.

Now I'm a surgeon. Look, we're not going to give you a price if you come in as a trauma victim or if you're shot in the chest. But 60% of medical care is shoppable. That means we should be able to provide honest pricing like we provide honest health care. Imagine a travel website where you would look at the flights and there were no prices and the airlines would just bill you afterward and they might argue, “Hey, we can't give you a price. We don't know if your flight is going to be delayed or canceled or you might consume a beverage on the flight. We can't give you a price.” And then they would price gouge people with bills after flights.

We would say that the marketplace is incompetent and the inefficiencies of a lack of showing prices, of price opacity, is enabling price gouging with airline tickets. That's what we would all conclude and what's happened with showing prices is the market stays in check. Now, not everybody in health care, not all patients, are going to shop or use pricing information, but those who do will be proxy shoppers to keep markets in check. The proxy shoppers who have high deductibles, which is a growing group in the United States that are paying out of pocket, those out of network, they can serve as proxy shoppers. Just like when my mom shops at the grocery store, she is price shopping. I personally don't price shop when I go to the grocery store. She does. Her and her friends keep markets in check for the rest of us.

Lee: But I think the idea is also that shopping for health care when you have a potentially life-changing illness versus buying milk or bread or whatever it is is a different experience. So, how do you reconcile the emotion of having an illness and trying to figure out the right price?

Makary: Look. No doctor or hospital should be ashamed of a high price if it's proportional to the quality, or if it's even maybe proportional over the charity care. The reality of the business of medicine 101 is that is not what's happening in the United States today. And the reason I wrote the book, “The Price We Pay,” is to create basic health care literacy in the United States for everybody to understand this industry and its money games so they can make better choices.

Probably the study of the year was a study done [in 2016] at the University of Iowa College of Medicine where a researcher called 100 hospitals that do open-heart surgery, a standard CABG [coronary artery bypass grafting], and asked, “Can I get a price before coming there?” Only half of the hospitals could give them a price after he tried very hard to use every channel. Of those who gave him a price, the price range was from $44,000 to half a million dollars with everything spread in between.

He then took those prices and correlated them with the Society of Thoracic Surgery database, which is the most mature quality registry in all of health care. And guess what? No correlation whatsoever. It was the Wild West. It's price gouging. It's prices that were created for insurers and payers for secret discounts and were never really intended for patients. No wonder we have so many inefficiencies and waste. No wonder we've had to create a middle industry called the repricing industry to simply manage this back and forth. It makes no sense. We're spending too much money on health care, and enough is enough. People need to know what's happening.

The federal government doesn't just spend money on Medicare and Medicaid. Forty-eight percent of the entire federal spending of the U.S. government goes to health care, according to a new report we have coming out of Johns Hopkins. It's up to half of Social Security checks people receive they're having to use now for their co-pays and deductibles with Medicare.

It's also the Veterans Affairs health system. It's the Defense Department's own health system. It's Tricare. It's the entire 9 million lives covered with insurance by the Office of Personnel Management and interest on the debt is in part interest on the health care debt. In total, it's 48% of federal spending that goes to health care. It's consuming all of our other national priorities. We've got to look at these money games and say, “How can we create broad health care literacy so people can make good decisions? How can we help businesses that are getting ripped off on their pharmacy plan and health insurance plans? And how can we restore medicine back to its mission?”

Lee: So, what role do doctors have in this? What role do you see them playing going forward, and how has that changed?

Makary: We doctors have lost control of a lot of the billing and the processes downstream to our care. Think of it this way, Jaimy. As a physician, I might see a patient in the clinic, but unlike the old days where there might have been an interaction in which patients who could pay or an insurer would pay on their behalf, now our services as physicians are being bought and sold on a grid like power. It's illogical. You wouldn't go to a restaurant, look at a menu, and say, “Can I see a menu with prices?” And the ma?tre d' would say, “Who's your employer? Well, this is the menu for you, and by the way, you're gagged. It has to be secret. You can't see that the table next to you is paying half the price.”

Small rural hospitals are getting clobbered as giant large hospitals systems are on track for record margins this year. And the other stakeholder that's getting hammered is the patient, the one with probably the weakest voice in Washington, D.C. We as physicians historically have been patient advocates. That's our heritage. That's who we are. That's the medicine my dad practiced when he was in practice. We're advocates for the vulnerable. We are advocates for the sick and injured. We're advocates for the disadvantaged.

A great quote that I love is, “Who else is better suited to be an advocate than the witnesses of birth and death?” Physicians see equality in society, and that is our great medical heritage and we've got to reclaim it. We've got to restore medicine back to its mission and cut through these money games and the first step is to understand them.

Lee: Do doctors understand the cost structure in health care right now?

Makary: I've never met a physician that even knows how health care is sold to businesses. Take, for example, that little piece, the broker industry, that sells health care to businesses. They're paid a commission, which is perpetual in most cases. It's a lifelong 5%, 3%, 6%. All the money spent on health care by that business goes to the broker right off the top. Then the insurance company will often pay a kickback to the broker, which is sometimes disclosed and often undisclosed and has many forms.

Same thing with pharmacy plans. People are angry about how much their insulin costs. A study just came out of JAMA Internal Medicine that one-quarter of people who have diabetes admits to having rationed their insulin because of costs. That's a disgrace. [Frederick Banting] sold the patent [for insulin] for $1 in 1924. That's a disgrace. And you look at the system, there's a middleman called a PBM, a pharmacy benefit manager. We’re the only country in the world that has this middleman. Other health care systems run fine without it. And they basically say, “We're going to charge the employer for every medication their employees take, and we're going to set up a co-pay with the employee.” And there's a money game flooded by these kickbacks called rebates, PBM rebates, which is not a rebate on cornflakes. This is a kickback to the middleman, and they give the employer or the patient a part of it and that's why they call it a rebate. It's really a kickback.

The movie, “The Big Short,” made the banking industry relatable and understandable. It created mass education in the public around how the banking industry works, what their money games were, and how we need to avoid them. That's what I tried to do in “The Price We Pay,” create health care literacy for all so everyday people can understand exactly what a PBM is with a simple story, exactly how health insurance is sold, exactly why drug prices are so high, exactly why doctors and hospitals are seeing mass shortages of saline and propofol and inexpensive things that have been around for 50 years. People need to understand these things.

And I think when they do, there's broad consensus about the solutions. It is not the polarized debate that we've witnessed on cable news about healthcare. I believe there's broad consensus if you can explain things in a simple way.

Lee: And do you think it's dependent on patients understanding this, by having a better health literacy? Or is it the physicians who need to guide them? Would it ever come from a hospital administrator?

Makary: As a matter of fact, in the book, I've tried to present a solution or an example of a disruptor who's really pushing health care and saying, “Look, there's an opportunity here. We're going to make the market efficient. We're going to provide honesty in pricing. We're going to provide quality transparency.”

In Oklahoma City, a doctor decided to post for his surgery center the prices of his center's operations. They've got over 25 surgeons. You can have orthopedic knee surgery or you name it. A broad list of surgical services with a menu of prices. You can go online, the Surgery Center of Oklahoma, and you will see those prices. It's the same price if you're an insurance company, a [third-party administrator], an employer, or a patient. And that is honesty in pricing.

Guess what? A lot of the stakeholders don't like him. Because 200 Canadians went to see him. Why would someone from Canada fly to Oklahoma City out of all cities in the United States to get great health care? Because people are hungry for honesty in pricing.

We're seeing it with labor and delivery, with not only the price of an uncomplicated labor and delivery, but the C-section rate and a series of other metrics. And when you have quality transparency being so immature and stagnant as it is today in America, price transparency is a way to usher in better quality metrics.

Price transparency ushers in quality transparency and advances it like nothing else. If you have to buy a television set and that television set is $500 at the only store in town that sells TVs and there's one TV to pick from, your brain thinks, “Do I buy the TV or not for $500?” But now there are two TVs and the other is $560, and your first question is, “What are the differences?” Your brain automatically goes to, “I want to know all the specs and features to make a decision if it's worth another $60.” And that's what happens when we get price transparency.

Lee: Let's talk a little bit about overtreatment, which you look at in your book. You had a study out of Johns Hopkins that doctors think 20% of everything in medicine is unnecessary. What role does overtreatment play when it comes down to cost?

Makary: There are a lot of estimates about how much of medical care is unnecessary. For example, with the opioid epidemic, there's a broad consensus that most of those were unnecessary. I feel bad myself as a surgeon. I feel terrible. I prescribed opioids for people who didn't need them or too many when they didn't need them. And so the overtreatment problem is one of the three root drivers of our health care cost crisis that I identify in the book, and that all of our research has been based on in my research center at Hopkins for the last five years.

They are middlemen, pricing failures, and inappropriate care—three root drivers of our cost crisis with no controversy about that. That's not Obamacare, anti-Obamacare. Those are the root issues here. And so right now, if we could talk honestly about overtreatment, there are two problems: undertreatment and access, and overtreatment or too much care. Both are problems. But by far overtreatment dominates our health care system today in the opinion of physicians. That's not my opinion or assessment. At Hopkins, in a national survey [in 2017], 2,100 physicians from across the country randomly selected were asked, “What percent of medical care in your opinion is unnecessary?” They responded with an average of 21%. Now, in any industry, if one in five services are unnecessary, we'd say there's a lot of waste that needs to be cleaned up.

They broke it down for us: 25% of diagnostic tests, 22% of medications, 11% of medical procedures. Most doctors do the right thing and always try to. I firmly believe that. We have an incredible profession and an incredible heritage of public trust. But a fraction is responding to a consumerist culture, [patients who are] demanding antibiotics for their kid with sniffles, demanding an MRI when they don't need it, sometimes demanding minor procedures. There's also the perverse financial incentive of the fee-for-service system. Let's be very honest about it. Doctors identified that as one of the causes in our study.

So in order to talk about health care honestly, we have to also talk about unnecessary care. If we could reduce half of that 21% of medical care that's unnecessary, what do you think the financial implications would be? We would halt medical inflation overnight and make health care more affordable.

The opioid epidemic was just one piece of our overtreatment crisis. There are other medications out there like opioids that are similarly overmarketed and overused. And so that was a bit of a wake-up call. But to really talk about health care in a way that's honest, we need to not just talk about how to finance the broken health care system, which is what the politicians talk about, we need to talk about how to fix the broken health care system. That means getting at the root issues.

Lee: So what does price transparency look like to you?

Makary: Well, to me, it looks like a travel website where you go on there and see prices and it's not this fantasy idea that can happen 50 years down the road. It's already out there today. It's called MDsave. It's called ClearHealthCosts. It's called Fair Health. [Makary is an advisor to Fair Health.] These are the sites that are right now getting reference-based pricing or real prices. Real prices are much better than reference-based prices. But you can go to Healthcare Bluebook, you can see what the going rate is. Go to CMS Procedure Price Lookup.

And we're seeing this growth of tools in patient navigation, tools that actually are creating a competitive marketplace. Surgery Price, for example, is a surgery center online platform for employers to see where they can go for honest pricing. There's no one silver bullet in health care. Let's not fool ourselves. But price transparency is an important next step to get where we want to today.

I visited Carlsbad Medical Center and heard about the price gouging going on there. This is a small town in New Mexico, a town where the hospital has sued thousands of people and garnished their paychecks. I had heard so many stories of predatory billing, if I can call a spade a spade. I went down to the radiology department and asked the person at the counter, “If I want to get a CT scan right now, how much will it cost?”

The person told me, “It's about $5,000. But if you go on MDsave.com, the hospital offers it for about $500.” The same hospital, the same hospital, same scanners, same radiologist reading it. What did MDsave create? It created an open marketplace where competition keeps prices in check and that price transparency will usher in good quality transparency.

Lee: What do you see as the biggest holdups to price transparency right now?

Makary: I really believe we have good people in health care working in a bad system. So we need to reexamine the status quo and shake it up like the disruptors are. 

Employers are in an incredible position to disrupt health care by the way that they buy services for their beneficiaries. You see employers now doing direct primary care, and General Motors doing a direct contract with Henry Ford Health System. You see great relationship-based clinics popping up around the country where they're saying, “Hey, we want to practice medicine the way we've always wanted to practice it. The way that we think is best for patients. In a relationship. Taking time.” I profile Iora Health, which basically said we want to get rid of billing. It's like a dream for us physicians, right? No billing. We're going to convert the billing room to a community room or a patient care room. We're going to manage early diabetes with cooking classes. We're going to treat back pain with physical therapy and ice rather than surgery and opioids for everybody. And we're going to look at the root causes of illness.

And what you're seeing is this incredible resurgence of our medical lineage coming up with a new way to deliver care. Redesigning it from scratch. And that's the story of Iora Health and Oak Street Health and GenCare and ChenMed and Landmark Health. And they're popping up all over the country and they're growing like crazy. If you're a Medicare beneficiary, sign up for one of these clinics. You can do that.

I mean, shame on us in health care. Most of America does not live like me and my colleagues and those other experts in health care that sit on the panels at the conferences. God's been good to me. Most of America has less than $400 of cash on hand in the bank account. That's 50% of America. When they get a surprise bill, it's devastating. I think we need to think about these disruptors and how they can serve a broader audience.

This interview has been edited for clarity.