From Prisoner to Customer to Sophisticated Consumer

As previously predicted an appeal has been filed to the pricing transparency legislation. So now it’s time for everyone to ask “what is the healthcare industry hiding?” Recently, we’ve become very interested in the company, GoodRx. For those unfamiliar with this organization. It is a consumer deluxe organization. The business is to help consumers find discounted prices on pharmaceuticals. Ironically, my first experience with the organization was when a friend needed to buy cancer drugs for her dog. With the GoodRx card 75% discount. That’s right 7…..5…..Percent!!!


Upon exploring the GoodRx website, over the course of the business they’ve helped consumer save $15 billion on drug purchases. This is over and above insurance savings. That’s a significant number.Which again begs the question, “Aren’t insurance companies suppose to have their policyholders’ best financial interests in mind?”Surprisingly, no. Because insurance companies along with third party administrative companies, are mostly publicly traded, their number one priority is shareholders and number two priority is executive compensation. Policyholders’ financial interest rank third at best. On average this has become about a $24,000 annual financial issue for the family of 4. Since stimulus checks are top-of-mind for many people these days. Think about this. It would take a monthly stimulus check of $2,000 to cover the annual healthcare premium for a family of 4. In many cases it will take $1,000 up to $5,000  to cover the deductible for just 1 hospitalization event.


In looking at the many issues surrounding the healthcare pricing transparency issue and being baffled by the amount of resistance it is encountering, we have come to the conclusion there’s more than meets the eye. One can read all the healthcare industry’s defense of the current system. Most of which applied to any other consumer area sounds ridiculous if not out right stupid. One of the few airline companies that seems like it will survive the Covid virus, Southwest, was built on consumer pricing transparency.Their original business model focused on making air transportation affordable for the non-flying customer.


Here’s some unusual facts about healthcare. Most healthcare providers don’t know what their services or procedures actually cost to perform. Why? Because implementing cost accounting systems in healthcare organizations is very difficult. Second, Peter Drucker, a world-class business consultant, promoted the concept, “price led costing” vs “cost led pricing.” As it turns out healthcare doesn’t use either of these concepts. Healthcare providers use a complex concept of “reimbursement focused pricing.” This methodology ignores both what procedures actually cost and what is a marketplace accepted price. This methodology uses sophisticated technology to arrive at prices that produce optimum reimbursement levels under government contracts and insurance contracts taken in aggregate. To explain it more simply, this is the methodology that recently created the discovery of the $10,000 toilet seat cover by the Air Force. Pulling back the curtain on years and years of this type of pricing strategy is sure to produce many of these similar type of pricing discoveries. For the insurance companies, they’ve built in discounting tools in their own technology packages that discount these prices by as much as 90%.


So GoodRx has pulled back the curtain on a segment of the healthcare industry, pharmaceuticals. But at best this probably represents only about one quarter to one third  of the US healthcare spend. There are several trillion dollars that haven’t gone under any type of third party consumer microscope. And remember the vast majority of hospitals are still tax-exempt, community supporting organizations. Or at least that’s what they were once upon a time. Stay tuned as this is bound to get very interesting.

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