Why the U.S. Healthcare System Is Failing & What We Can Do
I'm not particularly excited to tell you how wasteful and inefficient the U.S. healthcare system is. I am a fourth-generation American, and I’ve been involved in healthcare in one way or another for nearly 30 years.
I’d love to brag about a system that delivers affordable, high-quality care to all Americans. But I can’t—because we’ve managed to create the world’s least efficient healthcare system. The waste alone is so excessive that we could potentially balance the U.S. budget each year using healthcare waste alone.
What would happen if the U.S. transformed healthcare delivery into a more efficient system?
There would be more access to affordable healthcare and prescription drugs.
There would be increased transparency, choice, and competition.
The long-term sustainability of Medicare would be assured.
And on average, every one of us could enjoy five more years of sunsets, family gatherings, friendship, and community.
I’ve read the Democratic and Republican platforms for healthcare, as well as every major institute and think tank publication related to healthcare reform or transformation. While each contains worthwhile ideas, in my view they are overwhelmingly light on substance. And more importantly, there appears to be little appetite for the kind of fundamental, far-reaching transformation the U.S. healthcare system desperately needs.
I firmly believe healthcare reform can be a bipartisan effort. Conservatives and progressives may have different spending priorities, but improving the efficiency of our healthcare system is one goal we should all agree on. Regardless of political persuasion, it’s easy to imagine productive ways to reinvest the savings generated by eliminating waste.
What makes the U.S. healthcare system so wildly inefficient? The answer is straightforward: third-party payments—and the poor incentives they create.
When third parties dominate payment decisions, no one has a strong incentive to limit costs or avoid wasteful spending.
Money doesn’t flow from first parties (patients) to second parties (providers). It flows from third parties—Medicare, Medicaid, and private insurers—to doctors, urgent care clinics, imaging centers, hospitals, long-term care facilities, labs, and more. In every case, payments that come from third parties weaken the incentive for providers to deliver what patients actually want: high-quality care at a reasonable cost.
Our reliance on third-party payments encourages overspending by all three groups and discourages patients from comparison shopping.
Good decisions require good information. Yet the third-party payer system routinely places payment authority in the hands of those with the least information.
The two people who know the most about a patient’s condition—the patient and the physician—are not the ones making the final call. Instead, that authority rests with distant bureaucracies and large insurance companies, none of which have the capacity to gather all relevant details about each individual patient.
The information needed to make good decisions does exist—patients and doctors have it. But in a third-party payer system, neither has an incentive to restrain spending. As a result, patients and providers overspend, and third parties approve spending because they lack the data to determine when costs outweigh benefits.
The end result is waste and inefficiency on a massive, systemic scale.