The American healthcare system is broken. Its biggest problem is the ridiculous cost that makes healthcare and coverage unaffordable or even inaccessible for many Americans.
The figures are staggering: Healthcare expenditures have increased by 50%, adjusted for inflation, over the last decade and now make up nearly one-fifth of the American economy. Routine care regularly costs five figures. Employer-sponsored family health insurance premiums average $22,463 per year. Due to these expenses, roughly 100 million Americans have medical debt. The financial burden on patients with rare and chronic diseases is especially heavy.
There’s a bipartisan consensus that reform is needed to make the system affordable. And yet, year after year, nothing meaningful gets done to reverse costs. Washington’s inertia and massive industry lobbying block substantive policy change. According to data from Open Secrets, seven out of the top 20 highest-spending special interest groups in 2022 were healthcare lobbies, collectively paying $146 million to maintain the profitable status quo.
Fighting for policy change remains essential, but the best opportunity for effective reform comes from disrupters outside Washington. Healthcare requires the same type of creative destruction that revolutionized other high-cost industries. Think of what Uber did to the Taxi industry. What streaming has done to the cable. And (for older readers) what cell phones did to long-distance phone plans.
Nascent healthcare disrupters, including providers, insurers, and pharmacies, already exist. They offer greater hope than Beltway bureaucrats to make healthcare affordable and accessible. If they can scale and grow before lobbyists demand new regulations that put them out of business, they have the potential to fix American healthcare.
Provider disrupters
Consider the healthcare providers sidestepping the traditional inflationary payment model and offering direct care to patients at a fraction of the price. These include independent physician, surgical, imaging, and lab centers that charge affordable prices and operate apart from expensive insurance networks and claims adjusters.
For example, direct primary care doctors offer families all their primary care needs for around $100 a month – no insurance required. Some specialists such as obstetricians are moving to a similar Netflix-style payment model.
Independent surgical centers such as the Surgery Center of Oklahoma offer procedures for around half the cost of what big hospitals charge. SCO provides knee replacements for $18,000 versus roughly $40,000 at hospitals. Cash-based imaging centers such as Express MRI offer MRIs for $500, up to ten times less than what hospitals charge.
How can these providers offer care at such affordable prices? Because they obviate the healthcare industrial complex characterized by inflationary kickbacks, secret deals, high administrative costs, and aggressive pricing.
Of course, some patients can’t afford care even at these reduced prices – for example, those with rare and chronic diseases who require frequent treatments. Yet these costs can be made even cheaper by health insurance disrupters that provide coverage based on these discounted charges.
Insurance disrupters
Observe Sidecar Health, an innovative health insurer that reimburses policyholders for care at a fixed dollar amount per treatment no matter what the provider charges. Contrast this clear approach with the complicated insurance claims model based on a secret percentage of “in-network” providers’ inflated rates.
This model incentivizes patients to shop for the cheapest price, exposing providers to the same market pressures that all other businesses face. Sidecar issues policyholders a debit card to pay for care directly to eliminate administrative costs. There are no networks, open enrollments, continuous employment requirements, deductibles, copays, or coinsurance.
Monthly premiums cost $300 a month for up to $2 million in annual coverage, dramatic savings from the four-figure monthly premiums most Americans pay.
Most Americans under the age of 65 receive their health coverage through their employer, and some businesses are disrupting this expensive coverage model. They refuse to give their plan administrators a blank check in return for complicated coverage plans that cost more and more while delivering less and less.
Employers like Schaefer Autobody in St. Louis, Kenny Pipe and Supply in Nashville, and John Soules Food in Tyler, TX, are creating their own networks of direct contracts with local providers, from primary care to hospitals, without conflicted intermediaries that drive up prices.
This disruption has led to significant savings for health plans and employees. For instance, Shaefer Autobody went from paying around $2 million per year under its old insurance plan to $1 million on its direct contract model without skimping on coverage. Kenny Pipe and Supply saved 27% in the year after it made the change.
Skyrocketing health plan costs are forcing more American businesses to follow these disrupters’ lead. Workers and their families will benefit from lower premiums and better coverage.
Pharmacy disrupters
Disrupters are also revolutionizing the prescription drug market. As a result of anticompetitive medication supply-chain middlemen known as pharmacy benefit managers, about one in every four times we visit the pharmacy counter, prescriptions cost more paying with insurance than just paying cash.
I recently experienced this bizarre drug pricing dynamic when I went to my local CVS to pick up a prescription for my son’s generic ear medication. My copay with health insurance was $210.57 versus a cash price of only $80.17. (Walmart offered a cash price of just $70.25.)
Disrupters like Mark Cuban’s Cost-Plus Drug Company are sidestepping PBMs’ rebate schemes and spread pricing that drive up medication prices and purchasing drugs directly from pharmaceutical manufacturers, then selling them to patients at wholesale prices plus 15%.
This efficient arrangement allows Cuban’s pharmacy to offer the leukemia treatment imatinib, which has a retail price of $2,503 a month, for a cash price of only $12 per month. It provides the ulcerative colitis medication mesalamine, which retails for $767, for just $27. And it sells the high blood pressure drug lisinopril, which retails for $24, for $4.
A Harvard Medical School study finds Medicare could save $3.6 billion (37%) by purchasing generic medications from Cuban’s pharmacy. A University of Southern California study finds Medicare could save $2.6 billion by purchasing generics from Costco, which along with many direct primary care doctors, is also purchasing directly from drug companies and offering medications at steep discounts.
Employer and private insurance plans can cut medication costs even further by ignoring the rebate-laden PBM model and providing coverage based on the affordable prices offered by these pharmacy disrupters.
Patients fed up with ridiculous healthcare costs should continue fighting for reform in Washington and state capitals. But policy victories will likely only help on the margins – like trying to improve taxis by getting them to accept credit cards or turn down their radios. These are band-aids on a bullet-ridden U.S. healthcare system.
To achieve meaningful change, massive disruption and creative destruction are needed. The U.S. healthcare system’s immense costs are depressing, but the provider, insurance, and pharmacy disrupters making healthcare affordable and accessible offer a significant reason for optimism.
