Newt Gingrich: How much is health care really worth? Patients, not bureaucrats, should decide |

When I met with several Republican senators this week, it was clear that they recognize Americans’ desire to have practical solutions for the cost of health care. The combination of pressure from constituents and a direct challenge from President Trump is focusing their attention on immediate reforms which could be enacted – even with a Democratic House.  Republicans also realize their alternative to “Medicare for All” must be built on a larger, positive vision. It is clear that fixing health care may be the biggest issue in the 2020 election.

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The second is to fix the underlying structural problems in the health care system which are at the root of the health inflation problem.

On this latter priority, it is important that we define the problem that must be fixed. In fact, our most fundamental challenge is not that we pay too much for health care – but that we have no idea how much health care is worth.

In a normal marketplace, as Edward Deming wrote, innovators create products and customers define value. An innovator may create something they think is impressive, but it is the customer who gets to decide how much they are willing to pay for it. They make this decision based on how much they value the product over other ways to spend their money. It is this interplay between innovators creating new products and customers defining their value, which makes the magic of the marketplace work. It is why in most free markets with sound intellectual property protections, we get a continuing virtuous cycle of innovation which leads to higher quality and lower cost.

Health care, however, is not a normal market.

It is not normal because the consumer of the product, the patient, is not the one purchasing the health care (deductibles, co-insurance, and co-pays notwithstanding). Instead, the purchaser is the insurer, employer, or the government from whom the patient receives health coverage.

So, in health care, who is the customer – the payer or the patient? And who should determine value?

I believe, and I think most Americans would agree, that the patient’s voice should be more important than the payer’s. This is especially true because the patient is usually directly or indirectly the source of money for the payer. Since the patient is the one receiving the health care, we want the patient defining value.

That’s why I advocate eliminating third-party payments in health care as much as possible. The rise of direct primary care practices, for example, is a promising development which liberates doctors to be accountable directly to their patients by replacing third-party payers with direct payment by patients.

Still, the unpredictable nature of life requires some sort of health insurance for unexpected, large medical expenses. This means that for a significant portion of the health marketplace, the third-party payment model is unavoidable.

The question then becomes: How do we make this third-party payment system as accountable as possible to the patients, so they can define value even though a third-party is paying?

The answer is by making that interplay between the patient, payer, and provider as simple and transparent as possible. Establishing this right to know begins to improve the value of the system.

Unfortunately, for the past 40 years, most health reforms in Washington have taken the opposite approach. They have led to more middlemen, more opacity, and more complexity in the system. It is no surprise then that as the patient’s ability to determine value was submerged in a mountain of bureaucracy, that the health inflation problem became worse, not better.

Author's comments:

Newt Gingrich has hit the nail on the head. Health care economics has never been an elastic model. Supply and demand have little relationship.  The demand for health care approaches infinity. Rising costs do not eliminate or lessen the need for treatment of disease, except perhaps for cosmetic procedures which obey the normal rules since they are a cash commodity.

Our health system needs to be simplified.  Universal Payer is advocated by many.  It's success will be in the details and several questions need to be addressed going forward.  Universal payer does not address who the payer is. Will it be government, will it be framed around medicare?

There is no necessity that it be 'run' by the government.  In the U.K. a National Trust was formed and it became the administrative body for health care.  It is tightly regulated and one step removed from 'government' although most call it socialized medicine.  The true meaning of socialism is the government owns the assets.  

In the United States, there is a polyglot system of hospital and provider ownership, private, federal, state, government and large health systems.  There is a network of VA hospitals, Military hospitals, and non-profit hospitals.

With a universal payer system, are we talking about just payments or ownership? Patients' fear is rationing care, procedures lack of choice, and little control of what they desire.

Undoubtedly this will be a top priority during the 2020 elections. I expect to see little progress in such a divided and polarized Congress, which emphasizes byte sized slogans.