Health Care: You Are Not the Customer (David Goldhill)

David Gold Hills father died of a hospital-acquired infection after the experience Gold Hill tried to find out why markets don't work properly in health care he published what he discovered in the Atlantic Monthly September 2009 cover story how American health care killed my father we all are used to this idea that health care something of an island it's not a good or service like all the other things we buy are like all other things are it's not subject to the same laws when we need it we need it urgently there's no real choice and we have created a system that really enshrines that that the health care is funded differently it's accounted for differently it's every aspect of it is and part of it is of course that health care is a system where most expenses are paid for at least partially by somebody other than the consumer one of the questions I asked in my article and really it is stuff is the fundamental question that an outsider should ask is in health care in Island because it must be an island it must be different than everything else or is it an island because the assumption that it's different from everything else has caused us to do a lot of things in the way we fund it the way we regulate it in the way we hold it accountable then if separated it more from the rest of of what we do at the mainland of our economy if you will you know my answer is health care is less different than we think it is but we've made it more different than it needs to be and that that cost is extraordinary not just in terms of money although in money it is obviously astronomical but also in terms of quality and the signals that exist in any in any system any system is complex it something we thought about healthcare is if it's one product it's the largest series of products and conditions and treatments imaginable but those signals are missing that explain why we see things like poor adoption of information technology I I joke that this hospital you know was less computerized than my dry cleaner and it's a true statement my dry cleaner is concerned enough about losing charts that these fully computerized and the hospital is not as concerned losing lives why is that well why weren't those investments made why do they need to be made by the government you know we talk about an unrelenting rise in prices which we talk about as costs in healthcare which hasn't occurred anywhere else in our economy even though many of the inputs are the same we talk about technology driving up costs and health care when it's driven down costs and improve quality everywhere in our lives now you can take the position at this point feels like an almost religious position to me that look health care is just different it can't be compared to anything else and maybe that's right but I think it's much more valuable to say what have we done to health care so that all the benefits we could have gotten out of technology massive increases in productivity all of the things we've learned in the rest of our economy about how to provide better quality better service be more aware of the specific needs of the individual consumer why haven't those things occurred in this thing that's now almost 20% of our economy and I think if you approach it from that latter perspective you come up with very different answers well I think a lot of people who talk about information technology in healthcare are not as familiar with how it works outside of healthcare the reason my local sushi bar gave its waiters handheld ordering devices was not because of the national Tsushima Act passed by Congress that I didn't pass it's because they want to get the orders right quickly they capture some of that benefit and by the way the customer captures some of the benefit right of that fairly simple thing the lack of information technology investment in healthcare is not the problem it's a symptom throughout the entire rest of our economy no matter how prosaic how simple the business or how complex the business information technology has revolutionized service quality and cost the fact that in healthcare you can have things such as a ran study that says we spend forty billion dollars in information technology we're likely to save thirty thirty five billion a year maybe more is treated as oh so that's the answer less than forty billion on information technology instead of what it really is which is what kind of industry with an 80% return on capital isn't making the investment and why information technology is all about application it's not about putting a box on someone's desk it's how they're used what the lack of investment in this industry and this industry pretty much alone among all industries tells you is that nobody is in an economic position to capture the benefits of higher quality lower costs more portability of records why is no one in the position to capture that we have a supposedly private sector healthcare business or industry I should say industries if you have a symptom that screams nobody benefits enough from this to invest in it you better figure out what the underlying disease is before you throw a bunch of boxes on people's desks and unfortunately the reaction has been more oh we spend 40 billion on health care technology there's 40 billion of savings a year that's not what's gonna happen the same people who weren't incented to benefit from quality service and lower costs are still not it's nted to benefit from those just cuz you throw a box on their desk well you know insurance is another case where health care is an island insurance is a financial product right it's a way of financing something really spreading risk and throughout the rest of our economy insurance is used for things that are rare unpredictable and major that's it you can't insure against ordinary expenses or things you can plant even even life insurance you're not insuring against time you're insuring against time young and that's important because insurance is very expensive from an administrative perspective and involves enormous amounts of moral hazard which is when you have insurance you're more likely to engage in whatever it is you're insuring against if you don't it's just known throughout everything which is why you you can't get you can't get redecoration insurance for your house because you'd redecorate every year now in healthcare insurance has gone from what it started out being which is protection against the very rare very major medical events that can change your family's financial and obviously physical well-being to something we now use to fund basically ever expense in fact when people talk about health care the increasingly are talking about health insurance how many times we've heard a politician say 15% of the country has no health care when they being they have no health insurance unfortunately all of the perverse effects of insurance that explain why it's not used outside of health care for anything but the catastrophic take place in health care because we use it for everything look I can tell you I've been uninsured and insured throughout my career when I'm uninsured I am very careful about what I spend I negotiate with doctors and providers I'm much I demand to see the bill ahead of time I want to know what something charges when I get referred for a procedure I want to know that it's the cheapest procedure not just the one owned by the doctor and when I'm insured I don't care and I can admit that for myself it's not a matter of as many think look you have no choice whether or not you get cancer if you get cancer you need you need care that's obviously true but at the margin and the margin is very very big with health care ensuring everything takes away one of the key disciplines in health care and in anything else which is a consumer who's paying attention to price I you know have negotiated tons of health care treatments I've had one shirt and I can tell you that this is a system that relies very heavily on somebody else is always paying and you know many of us we go to the doctor now we ask the doctor now what does it cost but what's my share and what's my share of leads two very different decisions we know there's a lot of excess health care in this country I've seen estimates anywhere from a quarter to a third of our health care is unnecessary and by the way unnecessary doesn't just mean a waste of money it also means subjecting people to procedures all of which have potential complications and potential side effects that are negative what is going to get that extra care out of the system governments haven't done it insurers haven't done it employers haven't done it the way it works the rest of our economy is insurers have a little more individuals excuse me have more skin in the game they're the only ones who probably can bring that discipline to the system David gold Hill is CEO of the game show network and author of The Atlantic Monthly cover story how American health care killed my father his October 1st 2009 Capitol Hill briefing is available for download at Cato org


  1. I think some of you are missing the point. What's driving the cost of health insurance is the actual cost of medical expenses. Because the prices are so astronomically high for no apparent reason other than that the market has been left to develop on its own without regulation, healthcare has become unaffordable without a third-party payer in the United States.

    Government intervention is needed in healthcare markets, not health insurance, so it reflects behavior similar to other markets.

  2. The biggest problem is often that people hold insurance accountable for things we should be holding doctors accountable. Yet the medical administrators and doctors can increase their costs at will, since they know someone will pay for it even if the patient can't.

  3. There is no right to be free from poverty. But we should help people in their time of need. The US donates more time, and money to charity than any nation on Earth. People should help each other because they feel it is right; not by force. In the US poor people can pull themselves from poverty through education. It happens everyday; look at Barack Obama or a dozen more other US presidents that were born into poverty. Many people in the US pull themselves out of poverty thanks to the system

  4. A "right" by definition is a claim guaranteed by government. This is fine when that claim is philosophical (e.g. right to free speech, freedom of religion, freedom from discrimination, etc) but when you claim something tangible, like healthcare, as a right then someone else gets stuck providing it whether they want to or not which is a violation of THEIR freedom. Enslaving people through taxes (taxpayer) or regulation (healthcare providers) is a violation of human rights.

  5. David Goldhill says "… hasn't occurred anywhere else in our economy," regarding healthcare unrelenting increases in cost. This isn't completely true. Two things in our economy fail to provide increases in economic efficiency with technological advancement. Healthcare and government have an insatiable appetite for private and public funds.

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