Transcript for EP420: Paying Cash for Generic Drugs—Some Finer Points That Had Totally Gone Over My Head, With Ge Bai, PhD, CPA

Introduction and Overview

[00:00:05] Stacey Richter: EP420: Paying Cash for Generic Drugs—Some Finer Points That Had Totally Gone Over My Head

Today I speak with Ge Bai, PhD, CPA

American Healthcare Entrepreneurs and Executives. You Want to Know Talking. 

Relentlessly Seeking Value.  

This show is a very natural follow on to episode 418 with Mark Cuban and Ferrin Williams. This show is the how, as in how did everything that we talked about in the earlier show wind up the way it did, and it also proves it with data. 

Understanding the Cash Pay System for Generic Drugs

[00:00:48] Stacey Richter: I gotta say I never quite understood the finer points of the rationale of a cash pay system for minor expenses. Expenses like generic drugs. I always framed this whole thing in the context of a senior on a fixed income taking like 10 drugs, as my grandma did. And even if each of those drugs was only $5 or $10 a month. 

That's enough beans a month that it was a big deal for her to swing. So I have always had this thought that these drugs should be covered by her insurance so she and everybody else living on a fixed income trying to make ends meet could get them and take them and not die from complications of diabetes or high blood pressure. 

Now, the counter argument to the above, which I have certainly heard more than once, is to offer member slash patients HSAs, Health Savings Accounts, and have them buy stuff with their HSA. My knee jerk there is, yeah. But I can barely figure out the deal with HSAs. Most Americans don't even know what a deductible is, let alone an HSA. 

This approach just feels like it demands a lot of health literacy. So that's the place I was when I walked into this conversation today with Ge Bai. Here's two facts that got me inching away from my original position. Fact number one, generic drugs are cheap. There is already competition in the manufacturing marketplace that holds these prices down. 

The Role of PBMs and Insurance in Drug Pricing

[00:02:17] Stacey Richter: Here's fact two, PBMs and insurance are devices to pool risk. If you have a high expense, that expense gets spread out over the rest of the insured population, i.e. the risk pool. This whole spreading out of the risk is arduous to pull off and requires a level of administrative costs. So, let's break this down. 

In terms of number one fact, that generic drugs are cheap, let's think about the value prop of PBMs. It's to throw their market power around to lower drug prices. But, oh wait, the prices of cheap generics are already cheap, so not much need for market power? Yeah, that's a fact. One of the studies that I talk about today with Ge Bai quantifies that. 

For patients in their deductible phase, actually, 79% of the time. Paying cash is cheaper than if the patient had used their insurance and gotten the price in air quotes negotiated by their PBM. Link in the show notes to that study.  

The Impact of PBMs on Generic Drug Prices

[00:03:20] Stacey Richter: So yeah, anytime pretty much anybody can wander in and get a better price than a Fortune 15 PBM, it's pretty clear that market power is not overly required here. 

In fact, getting PBMs in the mix just seems to make the drug prices higher for patients. Alright, now, moving to my fact number two I talked about earlier, which is what is the point of insurance, and PBMs are a derivative of insurance. The point with them is to pool risk, to spread out the cost of something over the entire risk pool. 

So yeah, drug costs $3. What is the administrative burden that goes into spreading $3 across a risk pool? Is it worth it? Or is the admin cost burden more burdensome than the actual cost burden of the cost of the drug, and all we're doing here is driving up the price of healthcare, which ultimately might throw more financial burden back on the patient through higher premiums or out of pockets? 

That's the second study that I talk about today with Ge Bai and it quantifies exactly how much that administrative burden is when it comes to generic drugs. Because you know who makes the most money in a generic drug transaction? No, it's not the pharma manufacturer if that's what you were thinking. It's not the pharmacy. 

It's not the wholesaler. Yeah, it's the PBM. The PBM by a margin of 10 points makes the most money. The administrative cost burden is actually the most expensive part of buying a generic drug using your insurance and going through that PBM. Link to a bar chart visualizing these proportions is in the show notes. 

Also links in the show notes to these studies. But while I'm on a roll here, here's a number three fact that speaks to my concerns about HSAs that I raised at the beginning and the financial literacy required to use them. Health insurance is already super complicated and no one can understand it.  

The Reality of Health Insurance and Drug Affordability

[00:05:10] Stacey Richter: And here's a number four, let's talk about the real world facts. 

Health insurance and paying for drugs is already pretty unaffordable for lots of people. So I guess in theory, it would be amazing if we could have our drugs paid for so they could be affordable. And if that were true, and things were a little complicated, okay, trade-offs and all that. But right now, the situation is that drugs can be pretty unaffordable, including cheap and air quotes, "generics", and getting them covered is complicated. 

So, bar is pretty low to do better by patients, is my point.  

And this is what I talk about with, as aforementioned, my guest today, Ge Bai.  

Introduction to Guest Speaker: Ge Bai

[00:05:48] Stacey Richter: Ge Bai probably needs no introduction. She is a professor of accounting at Johns Hopkins Carey Business School and also a professor of health policy and management at Johns Hopkins Bloomberg School of Public Health. 

As she says, she studies nothing but healthcare dollars.  

My name is Stacey Richter. This podcast is sponsored by Aventria Health Group.  

Ge Bai, welcome to Relentless Health Value.  

[00:06:11] Ge Bai: Thank you so much, Stacey. What an honor.  

Discussion on Healthcare Dollars with Ge Bai

[00:06:13] Stacey Richter: You have said you study nothing but health care dollars. So let's talk about what's up with those health care dollars. 

Understanding the Current Situation of Generic Drugs

[00:06:18] Stacey Richter: First of all, let's talk about the dollars currently on or about generic drugs. So if we were just thinking about this from a very top level perspective, what is the situation analysis? What's the background that we need to know here? Relative to generic drugs.  

[00:06:32] Ge Bai: So 90 percent of the prescriptions written in the United States are actually for generics. 

That's about 5 billion scripts a year.  

[00:06:39] Stacey Richter: Yeah, so that's some striking stats. 5 billion with a B, scripts per year. Anybody who's interested in these stats and more, listen to the show with Dr. Steve Quimby. That is episode 344.  

[00:06:50] Ge Bai: Steven Quimby, he mentioned that actually generic drugs are touching many more lives in the United States than new branded drugs. 

So, generic drugs are everywhere. We often use generic drugs, but the question is, do we have affordability with generic drugs?  

The Affordability of Generic Drugs: A Closer Look

[00:07:09] Stacey Richter: So, do we have affordability with generic drugs?  

[00:07:12] Ge Bai: Manufacturers actually get, in general, lower revenue in the United States for generic drugs than from other countries. We have a very affordable generic drugs from the manufacturer's perspective, but probably not from the patient's perspective. 

[00:07:27] Stacey Richter: Nine out of ten drugs patients are taking are going to be for some kind of generic. These are drugs that have gone off patent. They are manufactured by a generic manufacturer. I mean, so there's no, Oh, you have to pay for research and development here. You know, like that was. done by somebody else. So this manufacturer is simply manufacturing a pill that somebody else figured out what the recipe was. 

The prices should be really cheap. In fact, you just said these generic drugs can be purchased for a lower price in this country and this is kind of shocking than in other countries. So generics are actually quite inexpensive for somebody to get from a manufacturer. Did I get that right?  

[00:08:08] Ge Bai: Right, so we have a pretty good competitive market from the manufacturer's perspective. 

Competition among them drives down the pricing, again, from their perspective. So they're not happy, right? We have a drug shortage problem. Manufacturers are saying we don't get enough payment because our competition is too fierce.  

The Discrepancy Between Manufacturer and Patient Costs

[00:08:27] Stacey Richter: Would it be logical to say that since these drugs are being sold for a pretty cheap price that patients are paying a pretty cheap price? 

[00:08:34] Ge Bai: That's not true.  

The Reality of Out-of-Pocket Payments for Generic Drugs

[00:08:35] Ge Bai: The evidence after evidence showing that the patient actually pay a very high out of pocket for generic drugs and in many cases higher than what they would have been paying if they do cash, so direct pay without insurance. I want to introduce two recent studies with very concrete evidence showing how much money patient payers can save. 

The Role of PBMs in Generic Drug Transactions

[00:09:00] Ge Bai: So first one is our study of the lead officer is Julie Martin from University of Utah. So we look at the Medicare spending, we look at the 25 most commonly used high utilization generic drugs. Guess what? For every $100 spent by the Medicare Part D plans, $41 go to PBM spread pricing, $17 go to pharmacy, $12 go to wholesaler, and the remaining $30 go to manufacturers as manufacturer's revenue. 

So that's not the manufacturer's profit. Remember, manufacturers still incur also some expense.  

The Impact of PBM Spread Pricing on Generic Drug Costs

[00:09:37] Ge Bai: So that tells us $41 is spread pricing. We are paying $40 out of the $100 total spending to just cover that PBM spread price itself. And that's already higher than the manufacturer's cash in growth.  

[00:09:55] Stacey Richter: Yeah. So let me just review those numbers again because wow. 

So of every $100 that Medicare Part D plans spend, we have $41 going to the PBM, the pharmacy benefit manager—$41. Correct. $17 to the pharmacy, who is actually dispensing the drug. Uh, we have $12 to the wholesaler and then $30 to the manufacturer who's actually creating the drug. That's correct. So the by far biggest proportion here by more than 10 points is going to the pharmacy benefit managers and just in case anyone is unfamiliar with the term spread pricing, it means that the PBM is paying the pharmacy, whatever, some by low number. 

But charging the plan sponsor, the Medicare D plan, the Medicaid plan, some high, sell high number. The spread is basically you could say their profit margin maybe, the difference between what they're buying or what they're paying somebody else for the drugs, their cost of goods, if you will, and then what they're charging the plan sponsor. 

Some may also call it arbitrage. I mean, granted, they're adjudicating the transactions, but you have, I mean, the comparator that's always given is like, yeah, but credit card. Companies adjudicate transactions for like cents, actually pennies.  

[00:11:12] Ge Bai: Right. And then people might say these are only 45 drugs in Medicare. 

That's not very convincing. Then let's look at this summer, a study published in Annals of Internal Medicine. They found among the 20 most prescribed generic drugs, 43% of them actually will have a higher out of pocket payment than the GoodRx. That's 43 percent of the prescriptions.  

[00:11:42] Stacey Richter: So these 43 percent of patients will pay less if they don't use their insurance but go through GoodRx. 

[00:11:47] Ge Bai: Now if you look at the prescriptions in the deductible phase, almost 80%, 79 percent of the prescriptions would have a higher out-of-pocket payment than the GoodRx. We found similar results for Amazon Pharmacy. But overall, I would suggest something's taking the money out, that is really the most part, the PBMs. 

[00:12:07] Stacey Richter: And so let me just reiterate that, but then also make a point. I mean, we have at this juncture, the big three PBMs, all of them have gotten themselves in the top 15 of the fortune 500, right? So like they have become Fortune 15 companies here with billions and billions of dollars in profit. And I guess my big takeaway from this whole conversation is you can see where it's coming from. 

Um, I mean, I'm not in whole, but certainly this is a, as a contributor, when you start digging into the micro, the macro starts to make a whole lot of sense, but just reiterating what you said there. So this is a study from the Annals of Internal Medicine and basically across the board. The study determines that 43 percent of the time, so for patients in their deductible and for patients not in their deductible, 43 percent of the time, which is approaching half of the time here. 

[00:13:03] Ge Bai: Exactly.  

[00:13:03] Stacey Richter: A patient can get a cheaper price for the med not using their insurance. And 79 percent of the time, if the patient is in their deductible phase, they can get a cheaper price for the med, again, not using their insurance. So almost 80 percent of the time, if a patient is in their deductible phase, which, you know, you start thinking about this and there's a lot of patients who never reach their deductible every year. 

So I'm not sure exactly what the numbers are here, but if a patient doesn't reach their deductible 80 percent of the time, their meds are. Cheaper if they don't use the insurance that they're paying a premium every month to have access to.  

[00:13:40] Ge Bai: Exactly. So that shows us how much inefficiencies there are in the transaction for genetic drugs. 

In my opinion, there's no sin, there's no villain in healthcare, everybody's trying to make money. And the PBM, given the assumption that generic drugs must be covered by insurance, PBM is a product of market, right? However, it is not efficient fundamentally when it comes to generic drugs. It's not PBM's fault, it's just a fundamental structural problem, what I call policy failure that leads to this. 

No matter how hard we fine tune the PBM transaction, the market, or disclosure, or transparency, It won't change the fact that this complex arrangement for genetic drugs will always bring loss, always bring waste, wasteful spending for payers and patients.  

[00:14:35] Stacey Richter: So you just were talking about wasteful spending there and you can't solve for greed. 

And as I have said any number of times on this podcast, someone's wasteful spending is somebody else's profit margin. And if we're talking about 5 billion prescriptions here, even if a PBM is able to increase the price that patients and their plans are paying by $1, $2, $3, like that adds up to literally billions of dollars in additional profit. So, you know, if there's no constraint on what the ceiling is there, then I mean, it's not a mystery why there would be a huge market incentive to drive up patient costs. 

So we definitely have market forces at play that enable these gigantic behemoths in the marketplace that have so much leverage and know how to use it in such a way that doesn't create a win win with patients 43 to 79 percent of the time where they are in fact paying more money to get their generic drug through the entity that's supposed to be making the prices lower. 

I was going to ask you what the why is, but it sounds like there's one of them that you've already mentioned, which is that there's a policy failure here. Do you want to just dig into that?  

The Need for a Shift in Health Policy

[00:15:55] Ge Bai: I believe that for the past several decades, our public health policy, one of the goals is to expand health insurance. 

So let's go back to the fundamental purpose of insurance. Insurance is really good at risk pooling, reduce individual patients or consumers risk exposure. But what do we mean by risk? Risk means the chance for a bad thing to happen in the future. The bad thing has to be some substantial financial implication, right, in order for it to be a risk. 

Like we don't call replacement of my faucet. The huge risk, that's why we do not see home insurers to cover repayment or forcing, right? Because these things, it will be better arranged through a cash pay, direct pay market, than going through a very complex insurer. So sending in claims, getting paid, or waiting for a long time, going through that process. 

However, for some reason, policymakers and in due to a large part of the public, Believe that we should use insurance to cover everything. That's why we end up in this situation.

 That's what I call policy failure and the structural problem that we must face, we must overcome if we want to improve affordability. 

[00:17:09] Stacey Richter: So, what you're saying there, if you're thinking about insurance as a way to pull risk, which is kind of like the definition of insurance, that's what it's supposed to be doing. That because we're not using insurance to cover things like getting your faucet fixed in your house or whatnot, that those same rules should apply in the healthcare space. 

And I could push back on that and say, if you have a patient who is on social security and they have, they're making choices whether to pay for their statin or their high blood pressure med or eat. And that is in fact an issue in this country. Taxpayers are going to pay for it if that person doesn't take their high blood pressure med and then winds up on dialysis which happens often enough for all kinds of reasons. 

Not only cost, but cost is a factor here. It would be one thing if using the insurance system enabled those patients to get the meds for free or for a really, really low cost, but that it's almost like we're getting the worst of both worlds, that we're paying a lot that's going into somebody's pocket that is not actually creating patient affordability. 

And it's creating this weird perverse incentive that market players are taking advantage of and it's costing a fortune. If we're trying to solve the underlying cause here and if everybody just paid cash, it would remove a gigantic incentive and ability for these players to take advantage of everybody, which is maybe one way to frame it. 

The Benefits and Challenges of a Cash Pay System

[00:18:38] Ge Bai: Right. And, and I would say for the patients who are really sick and financially disadvantaged, the problems right now, we have no controllable spending for healthcare. That's why we have a huge health equity issue here. Let's say I'm a Medicaid covered patient. I want to see a great doctor. The doctor won't even see me because my insurance pay a lower price. 

But how about if I pay the same price as other people? Guess what? The doctor will see me.  

The Role of Health Savings Accounts in Drug Affordability

[00:19:05] Ge Bai: So the point, I believe, is to let people have more money to spend. That will be a much better outcome arrangement than helping them pay for everything. Again, I'm talking about low cost, frequent, and very affordable things, just like genetic drugs. 

[00:19:24] Stacey Richter: Yeah. And I think the point that you're making is that, and this is where theory hits reality, right? And we are in fact living in the real world here. If you know, you say to a Medicaid patient like, Oh, Hey, you, you have, here's your insurance card. There's a difference between health insurance and health care. 

And if no one will take that insurance card, then you're not getting any health care. There's a lot of things to really be thought through here. And what seems to work on a piece of paper. Might require a little bit of data analytics to look at what's actually going on in the real world and to try to find something which “theoretically” might seem to be a little less intuitive. But actually might be the better way to solve what is happening in the actual world I could also see that the You know, FTC here, the Federal Trade Commission, could have, it's often said, you know, there's monopoly, but then there's, I forget what the word is, monopsony. 

Is that the right word? Monopsony. You have monopolies, but then you also have monopsonies. And monopsonies are when you only have a very small number of buyers. Monopoly is when you have only a few number of sellers. And it almost feels like the PBM industry with these gigantic behemoth three big PBMs. 

They have both a monopoly on the selling side, but also a monopsony on the buying side. If you're a manufacturer, because like you can get threatened by these big buyers. I mean, they're kind of like, well, you know, unless you play by our rules, I'm not going to buy your product. And then whoopsie, you lose 33 percent of your market share or whatever if you've got three of these.  

[00:20:55] Ge Bai: I believe the size of the PBM is required by their business model, right? They need a big size to accumulate enough negotiating power to go into war against pharmacies, against manufacturers. So there will be some downside if, let's say, all the other PBMs are split into, by force, by government force, into small players. 

So I do think in order to make this market dynamic, we have to fundamentally let the PBMs do what they do best. The expensive drugs, the drugs that we need their max power to go there to negotiate. Versus the generic drugs, especially the low cost generic drugs, that really does not need them to go there and increase price. 

Sometimes it can be double to deliver to patients.  

[00:21:47] Stacey Richter: Yeah. Okay. So I see what you mean. The use case is not the same for expensive branded meds as it is for very, very cheap generics where no negotiating leverage is needed because the manufacturing market is dynamic enough to keep the prices down already, I guess, Martin Shkreli's aside. 

So, for these cheap generics, the goal should be just to keep the admin costs as low as possible because all it's doing here is increasing the price for little gain. You were talking also about pooling risk earlier.  

[00:22:17] Ge Bai: The benefit of pooling risk works best when we talk about expensive services. And the benefit of pulling the risk will be minimal, actually negative if we take into account the complexity added by the insurance process. 

And that's why we have this conversation about the low cost generic drugs.  

[00:22:36] Stacey Richter: Yeah, okay, so I'm gaining a fuller understanding of what you were talking about when you were talking about pooling risk, that if you have a huge expense, you need to take a branded medication that costs $700 a month, then it makes sense, the insurance model makes sense because you have $700 a month or whatever it is, and that gets spread out across the whole risk pool. 

But if you're talking about a drug that costs $3 a month, then what are you spreading out? So basically you're getting all of this administrative complexity to add up, toad up all of the $3 a month and then get everybody to pay for it. It would seem to make a lot more sense when the, the costs are, you know, in air quotes minimal like that to have a way. 

Where you don't have to go through huge administrative complexity to try to figure out how to spread out $3. 

[00:23:26] Ge Bai: If we go to cash pay, you know what, we'll have a very dynamic competitive market. Right now, in the insurance market, there's not much competition. You have to go through your insurance company, who has already captured you as a client. 

So you have no choice. Whenever we have no competition, we'll see high price. That's exactly what's happening.  

[00:23:45] Stacey Richter: And as we just talked about, we have no competition on a number of levels, both the buying side and the selling side. If we think about, okay, let's just say that all across the country, we go to, if you're taking generic meds, you're going to pay cash. 

Then again, though, I would like to dig in a little bit more on, you're going to have people who either can't afford it or like, Oh well, now the price is a barrier because some of the generics are certainly you can get them in that Amazon list and as many as you want for $5. There's any number of $4 a month programs, right? 

Like there's some of them that are very cheap. There's others that are more expensive. And especially if you start adding up, well, I think the average senior takes six or nine drugs, right? Like, I mean, that can wind up actually being a barrier. So you've got financial barriers, but then also you've got the health literacy barrier. 

At this juncture, you have 86 percent of patients, and this was as per, you had mentioned Dr. Steve Quimby before. There was a study, and it was several years ago, and it was also before Mark Cuban started stumping and talking about this, and GoodRx has obviously done a ton of marketing, so maybe this number has eroded somewhat. 

But a couple of years ago, 86 percent of Americans thought that going through their insurance was always the cheapest way to get a med. So, like, there's a health literacy component here and it would require patients, plan members to know a little bit more. I mean, nobody even understands what a deductible is. 

So, if we make this too complicated, then even if there is financial support, nobody will be able to figure out how to get it and then we're still kind of back in the same situation that we have. I mean, obviously, these drugs were prescribed for a reason and therefore, there's consequences when patients either can't figure out how to get them or it's too costly. 

And then we also have the provider behavior. And it is actually something to mention that if a patient can shop around, the doctor has to write the electronic script. You know, you have to write the script. And you have to pick the pharmacy at that point of prescribing. So you start thinking about what's going on in that exam room, like, is the doctor going to be like, okay, I'm prescribing this med, let's shop together and figure out where you can get it for the cheapest price and then I'll write it there. 

Like that, I mean, you've got seven minutes you want to spend... You could probably spend 20 minutes shopping. So I definitely see a lot of just operational challenges here. How do you see all this?  

[00:26:12] Ge Bai: Yeah, great questions, Stacey. So the first one I want to mention is this kind of approach only works for low cost drugs. 

As you mentioned before, as the price goes up, then the insurance, the insurance arrangements benefit will increase, right? That will make this arrangement less and less effective. So we're talking about low cost drugs, and actually that is the most commonly used drugs affecting most Americans, and much more than the expensive generic drugs. 

So illiteracy actually happens more with insurance. If you look at all the terms people are not familiar with, they almost always involve insurance. But there's nothing complex regarding the cash price. And if, let's say, this drug go to cash price, we'll see just like over the counter drugs, we don't have over the counter drug pricing issue. 

Because patients directly pay out of pocket, they get the price, because of competition, no pharmacy there to price out. Because if they priced out people will know immediately they pay out of their pocket. They see the price so everybody has to make sure their price is compatible. Think about large large self-insuring employers. They can make some arrangement get it reimbursed, right? 

Okay, get the patient's cash pay reimbursed for those drugs or arrange some kind of reward right if you get this get the drugs through cash pay, we can split the savings, something like that. So the key is for patients to You have to control their spending and also receive the reward. Well, we can also go through HSA, health savings account, that employers put the savings from the health insurance, right? 

They have lower premium, put the savings in the HSA. So I think that will completely change the market. And of course, we'll receive a lot of pushback from, um, insurance companies.  

[00:28:01] Stacey Richter: So the solves that you're talking about here, you need competition, because for a market to function, there must be competition. 

So if the pharmacies are competing against each other, similarly to how they compete against each other for OTC, over the counter meds, right, everybody knows where the cheapest place is to get Tylenol, because if the price goes up too high, then people will just go someplace else to get their over the counter meds. 

So there could actually at this time be competition amongst pharmacies. So if you get plan members who are finding the lowest cost meds, wherever they happen to be finding them, then the market forces can be dynamic. The issue then becomes kind of what I teed up before you may have patients or you will have patients actually who do have affordability challenges. 

So you'd want to solve that on the back end. So how do we solidify again?  

[00:28:56] Ge Bai: Government and even individuals should subsidize, not through broader coverage, but through contribution to the HSA account. Let's say there's a financial disadvantage or serious ill patient. The government should put the contribution directly to the HSA account. 

So the patient will have a direct control of the HSA account. So there's no affordability issue. However, the patient will directly see savings and can have the flexibility of using the cash, whatever they want. That will be a much more efficient arrangement for taxpayers and for the patients.  

[00:29:31] Stacey Richter: So what would happen would be patient would go to pick a pharmacy and they would get their $5 subscription or whatever they chose to do. 

Then on the backend they would have a HSA wallet, um, and they could say, exactly, I wanna apply my wallet dollars to this, this pharmacy charge. It sounds like that's how this would work.  

[00:29:53] Ge Bai: Yes, and let's say it's a well funded HSA account. They can even use that for educational, social determinants of health, right? 

We talk about this a lot. Healthcare only actually count 10 percent of mortality. 90 percent of mortality is caused by things outside the healthcare. So young people use the government subsidy, uh, through their HSA account to have a better control and use in the way they believe will improve their health. 

Then we'll have a paradigm shift in this month.  

[00:30:20] Stacey Richter: Understood. And I guess like my visceral reaction is, oh this sounds complicated, but at the same time I'm, I'm like checking that because it's complicated now. I just remember sitting with my grandma trying to figure out her bills. I mean it's not like it's Shangri La at this moment in time. 

I remember every single January, she would wind up because she'd be in the deductible phase and all of a sudden she'd have hundreds of dollars out of pocket for all kinds of stuff, you know, diabetes. And every single January, we'd have to figure out, oh, she's got this deductible. So it's not like there was no, and she had a good Medicare Part D plan. 

So, I guess the point being, it's, it's like there's always going to be some complexity. And if, if you have complexity and the taxpayers and the patients are paying a fortune or you can have some complexity and actually save a ton of money, I, you know, like that's what we're weighing here.  

[00:31:13] Ge Bai: Stacey, that's why you're an expert. 

You are the top player in your game. Nobody can say it's better than you. So, you know, healthcare insurance is not the same as health. And as you said, we have seen that the hard truth, hard reality, we have actually having a broader and broader health coverage if you look at the past several decades. But then we are seeing lower and lower health status, lower and lower life expectancy, and higher and higher health spending. 

So I think fundamentally, it's because we have been misled to believe broader health insurance coverage will equal always better health. We realize that we have been depriving individual patients, American people, from being in control of their own health, being in control of their own money. So let them control their pocketbook. 

Let's get rid of the complexity. I think that will give them a huge incentive, and then that will change both their health spending and their health status.  

[00:32:15] Stacey Richter: First of all, thank you for the lovely compliment. But to the point that you're making, I think it's become very clear that patients and members, whether we want to acknowledge it or not, are always in control of their own health spending.

The Importance of Transparency in Healthcare

[00:32:31] Stacey Richter: And it, it's this.  Kind of weird, like we always talk about paternalism in medicine, but we probably also could talk about paternalism and health insurance and just this idea that if there's another entity out there that's doing X, Y, and Z on behalf of patients, that patients will fall in line, and I think we found out through the pandemic and through just the way that the market is working, that patients will do what they wanna do. 

And so therefore, seeding some of this control back to the patient is, is kind of just making it maybe more in aligned with the reality.  

[00:33:05] Ge Bai: Yes, absolutely. If I may add, even for insurance companies, as I said earlier, there's no... if we change the market dynamic as I suggested. The insurance company will focus on designing better products, so that will actually be very innovative and beneficial to patients because we'll have a lot of very good insurance products that will better align what patients need and then eventually bring financial interest to the insurance companies and improve patients’ self interest. So I think that's a win win situation.  

[00:33:37] Stacey Richter: Yeah, I mean, I would agree that some, some policy is not good policy. 

Some policy was written by the lobbyists and actually deepens and broadens the market dominance of some of these entities. On the other hand, as with everything in healthcare, it's very nuanced. There is policy which is necessary in order to curb and control some of this bad behavior when it exceeds the ability of the market to do so. 

[00:34:04] Ge Bai: Yes, Stacey. You know, if I'm an insurance company, I'm a drug company or a hospital, whatever. If most of my revenue comes from government regulation, or directly affected by government regulation, well, the only way I can improve my revenue is through lobbying, right? To change, influence government policy. 

In other words, bribing government. But if most of my revenue actually comes from the market without company intervention, then the only way to improve my revenue is to bribe my patient, bribe the consumer. How can I do that? Better quality, lower price. That's the way we should go.  

[00:34:36] Stacey Richter: I was talking to Andrew Gordon, who has done a lot of work studying transparency and one point that he made. 

Which I thought was really interesting is can transparency be a business model because currently in health care it's the prevailing wisdom that you have to hide things and hide what you're doing vis a vis, you know arbitrage because there's so much money that's floating around in this unseen middle space. And to the exact point that you're making, if you actually are transparent on the patient side, and patients can see what you're doing, how much of a business model is that? 

And can we convince the industry that there is a very viable way to go?  

[00:35:17] Ge Bai: All the providers dealing with patient directed pay, direct arrangements, are voluntarily disclosing their price in the most patient friendly way. Look at the plastic surgery, look at the over-the-counter drugs. Right, look at the, uh, ambulatory surgical center dealing with patient pay cash. 

These places, without any government regulation intervention, they voluntarily disclosing their price. Why? Because the market force dictates it. So the, you know, that's why once we address the market inefficiencies, we have the combination there. Transparency will flow automatically.  

[00:35:52] Stacey Richter: Dr. Ge Bai, is there anything I neglected to ask you that you want to mention here? 

Conclusion and Final Thoughts

[00:35:55] Ge Bai: I believe we have to let the truth and reality and evidence be our best friend. We have to recognize that our spending has been increasing every year, and what we got is extremely bad, right? Life expectancy, life health status are dropping. So it's time for us to reflect and think whether there is a better way to try. 

[00:36:17] Stacey Richter: Where can people learn more about your work, Dr. Ge Bai?  

[00:36:20] Ge Bai: I post my research and my comments often on LinkedIn and Twitter.  

[00:36:25] Stacey Richter: Thank you so much for being on Relentless Health Value.  

[00:36:28] Ge Bai: Thank you very much, Stacey.  

[00:36:30] Stacey Richter: So let's talk about going over to our website and typing your email address in the box to get the weekly email about the show that has come out. 

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