How to run the U.S. health care system like a business

May 15, 2014

FORTUNE – Reports that corporations are looking to dump high-cost employees off their private health care plans and onto Obamacare reminds us yet again just how costly American health care is.

To understand why, take a look at one of the glittering monuments to both the greatness and dysfunction of America’s health care industry: The Proton Beam Accelerator, a high-tech machine that sends a beam of ionized protons into cancerous tumors, while limiting damage to surrounding tissue. It’s ideal for treating certain brain tumors and delicate work close to the spinal columns of babies; the machine is massive, costing hospitals about $100 million. Medicare reimburses about $32,000 for this therapy.

The trouble is that if you spend so much on a machine, you certainly don’t want it sitting idle – especially if you can bill tens of thousands of dollars for each therapy. As a result,a number of hospitals have widened its mission to include the treatment of prostate cancer. And now prostate cases account in some hospitals for 70% of the massive machine’s work load.

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It just so happens that there’s another procedure for prostate cancer. It’s called Intensity Modulated Radiation Therapy (IMRT), and it costs a little more than half as much. Studies have shown that it is just as effective. Nevertheless, a lot of patients and their doctors opt for the proton beam, and it’s easy to understand why. If you’re dealing with surgery in a highly sensitive area of your body, wouldn’t you choose the Rolls Royce, the beam that can needle into the spinal column of an infant?

Well, if price is no object … sure!

And that’s the heart of the problem in health care, a $2.7 billion industry that was wildly wasteful and dysfunctional long before Obamacare, and remains to this day stubbornly impervious to reform. All too often, price is no object. For insured patients, the price often isn’t even a part of the decision making process. It’s usually shrouded in mystery. Only weeks later, when patients’ finally see the hideous numbers, do they shudder and pray that the insurer will make them disappear.

This is a market--using the term very loosely--in which the more expensive option wins out, in great part, because it’s more expensive! We consumers depend on this service for our lives, but we have little choice in the matter and often don’t see the money being spent. And that’s why rising spending on health care threatens to devour America’s economy.

How do we change this? My answer is to enlist a new force for change: The public. The key is to give people more choices, along with an economic stake in the reform. For example, what if Medicare offered a prostate patient a share of the savings – say $10,000 – if he switched from the proton beam to the cheaper IMRT? I’m betting that a lot of people would take that deal. It would save taxpayer money while creating a bloc of citizens who benefit from reform. Curious where would the $10K come from?

In that hypothetical transaction, the person is given a choice, a more expensive option versus a cheaper one. We face such choices every day, whether we’re deciding between a Lexus and a Ford Focus or a slab of swordfish and filleted tilapia. We shop. We pride ourselves on the choices we make, and those choices represent formidable power. We force companies to bend to our needs and desires, and to our budgets. Our shopping choices kill big companies and create new giants. They also drive innovation. They create the market economy.

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This is precisely what health care needs. However, health care, as it exists today, is the antithesis of a market. Consumer information is scarce. Prices are hidden. A host of incumbents, from leading research hospitals to the government, preserves this lucrative status quo. Patients? They’re virtually powerless, and treated largely as problems to fix and procedures to bill for.

It doesn’t have to be this way. If we demand choices, along with the information we need to make them, we can turn health care into a real marketplace, with competition, innovation and sustainable economics. Only by shopping will we get the health care we want and deserve.

Jonathan Bush is CEO and President of athenahealth, Inc. and author of Where Does it Hurt?: An Entrepreneur’s Guide to Fixing Health Care (Penguin, May 15, 2014). Follow him @Jonathan_Bush

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