How Much Is Heath Care Really Worth? Patients, Not Bureaucrats, Should Decide


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How Much Is Heath Care Really Worth? Patients, Not Bureaucrats, Should Decide.

USA – -( 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.

Republicans should think of this health care challenge in two boxes.

  • The first is to provide immediate relief to constituents worried about coverage for those with pre-existing conditions, few choices and high premiums in the individual marketplace, and high out of pocket costs for individuals who need to use their insurance.
  • 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 will really begin 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.

Health Chart Source: Foundation For Economic Education
Health Chart Source: Foundation For Economic Education

So, as we evaluate possible reforms, we need to establish the “Patient Power Test.” It asks a simple question: Does the reform increase or decrease the patient’s power to define value?

I will be returning to this idea several times over the next few months. But for now, let’s apply this test to some of the proposed reforms to lower drug prices.

I have written before about the Trump administration’s proposal in Medicare Part D to require all discounts and rebates provided by drug manufacturers to pharmacy benefit managers be passed directly to patients at the pharmacy counter. There is now legislation in Congress to do the same in the private marketplace.

By making the result of the negotiations between manufacturers and PBMs more visible and responsive to the patient through their out-of-pocket costs, it helps break up the cycle of drug price inflation caused by manufacturers responding to PBMs’ desire to seek bigger discounts and rebates they use to pad their bottom line.

This reform increases the patient’s ability to define value, because his or her out-of-pocket expenses for the drugs are based on the actual price of the drug rather than an inflated list price. It saves patients money and passes the Patient Power Test.

Contrast this reform with two similar efforts to reduce drug spending in Medicare.

One is a proposal being floated by Speaker Pelosi to have a so-called neutral arbiter have the final say on prices in Medicare. Currently, Medicare prices are based on what insurers negotiate with drug manufacturers in the private marketplace. As we’ve discussed, the private marketplace has its issues and needs reform. But since patients often choose their insurance based on the availability of their medications, that private marketplace incorporates some of the patients’ needs into the value of a drug.

Pelosi’s arbitration idea, by contrast, is totally removed from the real-world input of the patient in a marketplace. It has the same problem as Obamacare’s Independent Payment Advisory Board, which earned the incendiary moniker of a “death panel.” The board was officially repealed on a bipartisan basis in 2018. Americans do not believe that unelected bureaucrats should be the ones to determine whether a drug or medical procedure that could save or dramatically improve their lives is worth the taxpayer money it would cost.

By removing the patient entirely from the process of determining the value of a drug in Medicare Part B, arbitration fails the Patient Power Test.

Another set of somewhat similar proposals that fail this test are those put forth to base Medicare Part B prices on what other countries pay for drugs. I have been very supportive of the steps Secretary Azar and the President have been taking to reform health care, but both the HHS and similar proposals in the Senate miss the mark.

International reference pricing has all the problems of arbitration and IPAB – and then adds the fact that the unelected bureaucrats deciding the value of the therapies are in foreign countries. This model is even further disconnected from the needs of the American patients Medicare Part B is serving.

Health care is extremely complex, and there are many things to consider when trying to enact fundamental reform. However, as Republicans develop their health platform, they should be sure to not let this complexity distract them from basic principles of what works and what doesn’t. The Patient Power Test is a good place to start.

Your Friend,

Newt’s World Ep 9: The Immortals — Ben Franklin

In this week's episode of my Newt's World podcast, I look at the life and legacy of Benjamin Franklin and discuss what we can learn from his leadership today.

Newt Gingrich
Newt Gingrich

P.S. My new book, Trump's America: The Truth About Our Nation's Great Comeback is out and available for order.

About Newt Gingrich

Newt Gingrich is well-known as the architect of the “Contract with America” that led the Republican Party to victory in 1994 by capturing the majority in the U.S. House of Representatives for the first time in forty years. After he was elected Speaker, he disrupted the status quo by moving power out of Washington and back to the American people.

Gingrich Productions is a performance and production company featuring the work of Newt Gingrich and Callista Gingrich. Visit :

  • 8 thoughts on “How Much Is Heath Care Really Worth? Patients, Not Bureaucrats, Should Decide

    1. Sounds like Newt half supports government mucking about in the private market. Government involvement is the core problem and must be eliminated.

    2. A while back I had to have an IV antibiotic but it was not the same situation I have had in prior IV’s. The new rule provides a “per diem” charge to the company that provides the antibiotic. They charge over eleven dollars per day just to send you the medication (cost of medicine on top of that). Prior to starting this they gave me an itemized statement of what it was going to cost me and what they expected from the insurance company. It ended up costing me over two hundred dollars for nine days of this and I had no choice but to pay it. Somebody got into congress and changed the rules and the patient got screwed in the end. The name of the company that put it to me is ContinuumRX and they are nationwide. Beware of them. I had written to them several times and they were determined to get their whole expected amount. Of course this was put on front of me at seven o’clock in the evening, returning home from the hospital, and I was due for the next dose of medication, so I had no choice. Government involved in healthcare, not good.

    3. The graphic in this article pretty much sums up the problem with our healthcare system. Insurance companies are administrators and should not be put in charge of deciding who gets treatment and does not. Newt is correct, our medical care has evolved and become extremely complex and expensive. However, insurance companies moved in with their managed care approach, which allowed them to have the ability to take control of groups and decide levels of medical necessity and how doctors and hospitals would deliver their healthcare. Gradually, control by insurance companies has caused more physicians to retire early and sell their practices, and fewer people are seeking the goal of being a physician. Now, general practice primary care physicians have changed their business models to take in more patients because their communities do not have enough physicians to support them. More and more physician’s assistants and nurse practitioners are filling in to take up many of the roles that were performed by physicians in the past. Insurance companies are not interested challenging the pharmacy companies, otherwise it would have been done already.

      1. The root cause of the medical crisis is the same cause for many other problems for private citizens; the insurance industry, which has the largest single Washington D.C. lobby and contributes more money to politicians, both Democrat and Republican, than the next 3 lobbies combined. They were the driving force behind Obamacare, are responsible for the high price of medical care and prescription medicine and a major source of the loss of personal freedoms in this nation (pricing gun show sponsors out of business, taking $ out of the hands of retirees to pay outrageous premiums, forcing needless “safety” restraints/conditions – more expense upon small businesses, etc.) and they need to be shut down and/or reigned in. Congress (mostly owned by insurance companies) will never do it as clearly demonstrated by the AIG bailout fiasco and will have to come from us (citizens).

    4. The increase, or lack thereof, is controlled by the AMA. If there were 100,000 mentally and educationally qualified applicants for medical school, in the US, in any given year. The AMA artificially and arbitrarily limits new med school students to 10, 000. This controls competition and insures that MD earning do not diminish.

    5. By the chart shown, it looks like the paper pushers are the ones driving up the costs, not the doctors. Our health care will suffer while pencil necks get rich.

    6. The Fed has no Constitutional authority to be involved in Healthcare or any number of other issues. Until we can educate the populace, and especially the Republicans, into reality our Federal Government will continue to be our most dangerous foe.

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