I am working on a thematic investing approach this year and my interests have been guided towards the healthcare industry. Probably because I am a masochist. I picked up the book The Price We Pay- by Marty Makary after it was recommended to me by TX Zhuo over at Fika Ventures. It does an incredible job breaking down in layman’s terms the institutional rot which is the healthcare system. In short- every major stakeholder is to blame on this one. These are the three things I learned about why the healthcare system is broken.

Price Gouging

First, let’s talk about price gouging. Healthcare providers mark up their bills to extreme amounts to accept the mark downs the insurance companies pay them. For example, a patient could receive a bill of $10,000 for a procedure that costs the hospital only $2,000 to perform. In the end, insurance companies negotiate the price down, but the patient is still left with an exorbitant bill. This is why it’s crucial to have transparency in the system to ensure that patients aren’t being taken advantage of.

Over Treatment

Secondly, Americans are over-treated. The book provides staggering statistics that show how many Americans receive unnecessary medical care. For example, 1 in 3 mammograms is unnecessary and 1 in 7 surgeries is completely avoidable. The problem lies in the fact that doctors are often paid based on how many procedures they perform, not on how well they treat their patients. This leads to a “more is better” mentality, where doctors do not consider the harm that over-treatment can cause to the patient.

Third Party Players that Subtract Value

Lastly, middlemen/women cause institutional bloat that makes the system incredibly expensive. These middlemen include health insurance brokers, PBMs, and healthcare buying groups. PBMs, or Pharmacy Benefit Managers, are third-party administrators of prescription drug programs for commercial health plans. They insert themselves between the drug manufacturers and the consumers and take a cut of the profits. This leads to an increase in drug prices for consumers. Healthcare buying groups are organizations that negotiate with healthcare providers and manufacturers on behalf of employers, health plans, and other purchasers. These groups also take a cut of the profits for their services and drive up costs in the process.

In conclusion, “The Price We Pay” by Marty Makary highlights the three major reasons why the healthcare system is broken. Price gouging, over-treatment, and institutional bloat caused by middlemen/women are all contributing factors to the high cost of healthcare in America. As a founder or venture capitalist, it’s important to understand these issues so that we can work towards finding solutions to make healthcare more affordable and accessible for all. The healthcare system needs to be reformed so that patients are not left with huge bills and doctors prioritize patient care and health over profits.