Restructure Medicare & Medicaid: Economic Factors—
Poor Information & Lack of Price Transparency Make it Harder for Consumers to “Comparison Shop”
Patients are at a healthcare information disadvantage in two respects’:
¢ Lack of transparency:
>» Its harder for consumers to compare prices of healthcare services from different healthcare providers than in other consumer markets given the complexity of healthcare market.
> With employer- / government-subsidized insurance, many patients are ‘locked in’ with their insurance plans that do not incentivize “shopping around.”
* Knowledge gap: > Unlike other markets where consumers tend to use their own information and preferences, consumers depend more on the advice and guidance of physicians or other healthcare suppliers.
> Unlike other “merchandise,” healthcare is literally of life-and-death importance to consumers, making risk aversion — and price insensitivity — higher. This price insensitivity is exacerbated because the
consumer, in effect, gets it at a discounted price anyway. KP Source: 1) Accounting for the cost of US healthcare, McKinsey Global institute www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 301
Restructure Medicare & Medicaid: Economic Factors—
Consumers Increasingly Demand Expensive Treatment and Are Able to Pay for it With Government Subsidies
Total High-End Surgeries up 50x from 1970-2004, Driven by Medical Advancements + Consumer Ability to Spend Assisted by Government Payments
# of Patients (Aged 50+) Undergoing Typical Costs per
Advanced Procedures in USA Procedure ($) 1970 2004 Coronary Procedures ice tla <20,000 1.1 million $12,000 Implantation Pacemaker / ICD‘ <10,000 350,000 $15-34,000 Bypass <10,000 220,000 $28,000 Dialysis Procedures <10,000 480,000 ee nal Joint Replacement Procedures Hip <20,000 390,000 $12,500 Knee on 440,000 $12,500 Note: 1) ICD is Implantable Cardioverter Defibrillator, which is similar to a pacemaker but for a heart rhythm that beats too fast. Cost of procedure approximated by Medicare reimbursement. (@E) www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 302
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