1. Fortress and Frontier: Different but Not Less
  2. Fortress and Frontier: A Second Conversation with Temple Grandin
  3. Fortress and Frontier: What the Data Say About COVID-19
  4. Fortress and Frontier: The Narayana System and Innovations in Healthcare
  5. Fortress and Frontier: Healthcare’s Reluctant Revolution
  6. Fortress and Frontier: Price Transparency in Healthcare
  7. Fortress and Frontier: The Disruptive Innovator
  8. Fortress and Frontier: Healthcare Policymakers Should Worship Change, Not Stasis


In this eighth installment of the Fortress and Frontier series on Discourse Magazine Podcast, Robert Graboyes, a senior research fellow at the Mercatus Center, speaks with David Goldhill about how to fix the incentives in healthcare, why the insurance system is outdated, why the government is a poor regulator in this industry, and much more. Goldhill is an American business executive and writer on healthcare policy. He co-founded and runs the independent healthcare marketplace organization Sesame.

ROBERT GRABOYES: Welcome to all of our listeners and a really warm welcome to David Goldhill, who’s been a friend and colleague for quite a few years now. When I first met David, he was president and CEO of GSN, which marketed video games and operated television’s Game Show Network. He also founded the TV-3 Russia national broadcast network. These days, David is CEO and co-founder of Sesame, an online marketplace for discounted healthcare services.

He is also board chair with The Leapfrog Group, a watchdog organization focused on hospital and medical safety. As an undergraduate, I was an English literature major, so I’m especially happy to note that David’s education was also in the humanities: a B.A. in history from Harvard, and a master’s in history from New York University. David, it’s a real pleasure to have you with us today.

DAVID GOLDHILL: Thanks, Bob. Great to be with you.

GRABOYES: As a health economist, people often ask me to recommend books that will give them a quick and high-quality understanding of healthcare and healthcare policy, and especially of American healthcare. I have an easy time naming my top five books. Three of them are by Dr. Eric Topol, who appeared on my podcast in July. One book is by Clayton Christensen, Jerome Grossman and Jason Hwang. Jason, who’s the only surviving member of that trio of co-authors, appeared on my podcast in early October. Now I’m finishing off my top five book series by interviewing David Goldhill.

Personal tragedy had led David to write a cover story for The Atlantic magazine titled “How American Healthcare Killed My Father.” That quietly explosive essay led to David’s 2013 book titled “Catastrophic Care: Why Everything We Think We Know about Health Care Is Wrong.” Ultimately, that book led David to found Sesame Care, a company that combines elements of healthcare and communications. David, welcome to the podcast. First, was my introduction all correct? Did I leave out anything important?

GOLDHILL: Absolutely nothing important. I’m thrilled to be in the company of those other authors. Those are all really terrific works.

Personal History With the Healthcare System

GRABOYES: Well, you earned it. Let’s start with the heavy-duty part of your story, the saga that precipitated your deep dive into healthcare, the death of your father. Could you please tell us about your father and about what happened to him in the hospital?

GOLDHILL: Well, my father was a psychiatrist and still in private practice on the day that he felt a little shortness of breath. After work, felt a little disorientation, walked into a local hospital in New York City. And they kept him under observation, called my mother; my mother went to see him. They said they would keep him there for the night and he probably would be released in the morning. By the next morning, for reasons that we really still never have uncovered, someone who put a central line in him—he got an infection from a central line, apparently was at that point in septic shock, and essentially never recovered. He died five weeks later, having not left the hospital.

In fact, I don’t recall ever having left the ICU. It was quite a shock. Obviously, at my father’s age, you are vulnerable to a long range of illnesses that can suddenly cause a change in health. As we understood, the major health issue had been the infection he got in the hospital. As I found out very shortly after my father’s death, this was something that was incredibly common. I’d had really very few interactions with the healthcare system personally. My mother had cancer and had treatment for that, so we’ve been obviously involved with that.

Finding out that not just hospital infections were very common—and were also a common cause of death, particularly in people my father’s age—but that many of them were regarded as preventable was fundamentally shocking to me. Obviously that shock, combined with the tremendous grief I felt for losing my father and the surprise of how quickly his health deteriorated, led to my interest in and involvement in healthcare issues.

GRABOYES: You may have said it, but how old was he?

GOLDHILL: He was 82.

GRABOYES: 82, okay. It’s still too early. There you are grieving for your father. How did the Atlantic essay come about? Did you approach them? Did they approach you?

GOLDHILL: No, actually what happened is, The New Yorker published a piece by Atul Gawande—one of his many excellent and extraordinary pieces—this one about the prevalence of medical error, specifically hospital-acquired infections, and how a number of physicians had proposed ways to meaningfully reduce the number of infections—mostly a combination of sanitary checklists, a little bit of other procedures.

There was a specific doctor, Peter Pronovost, who had led this campaign, and how difficult a time he was having getting hospitals to adopt these protocols, even though at hospitals that had seen their death rates decline by half, two-thirds, three-quarters. Just to give a sense of the data at the time, the estimate was that as many as 200,000 people a year might be either killed or seriously injured by these infections. If you start applying 65%, 75% prevention rates to that, you realize you’re looking at the greatest number of preventable deaths imaginable from this one thing.

What’s Wrong With the Incentives in Healthcare?

GOLDHILL: Reading that, and again, dealing with feelings I had about my father and being an outsider in healthcare, I asked myself a question, which was, how are you not incented to adopt this? Forget about the regulation of care, which is the first place you’d look—why doesn’t the government do something? Or forget about doctor’s responsibility or the institution’s responsibility.

Just the economic incentives. If the cost of adopting this was so low and the benefit was so great, what does it say to us about a private industrial activity where the incentive isn’t, “Hey, let’s just adopt the safety provision?” I tried to think about anything else in life where such a big benefit at such a low cost wouldn’t be automatically adopted, just through the normal commercial and economic incentives.

That’s the question that set me off on my interest in healthcare. Pretty much everything in the Atlantic article is pulling on that thread. What does it tell us about real economic and business incentives in healthcare? Thinking as a businessperson that something like big-picture, big-impact safety isn’t adopted, and when you look at the rest of the issues in healthcare, value and price and transparency, what does it tell us about the real economic incentives that govern those areas? That’s what I wrote about in the Atlantic piece.

GRABOYES: It’s a theme that comes up in my work all the time. A couple of months ago on this podcast, I interviewed Dr. Devi Shetty from Narayana system in India. His hospitals there famously eradicated bedsores, almost 100%, simply by using low-tech, inexpensive techniques, checklists and whatever, highly informed by cleaning crew and nurses and low-level staffers who had thoughts on it. Another story, which . . . actually, I’ve just written an op-ed with Eric Topol, and we’ll mention this in there.

I had some conversations with Cerner a few years ago. The then CEO of Cerner had a relative who went through basically the same experience as your father, a hospital-borne infection that unnecessarily took her out. I think it was his sister-in-law. He ordered the company to develop some sort of an algorithm, a software piece that would serve as a sniffer in hospital rooms. This thing would detect—probably six to eight hours before any human would realize anything was wrong—it would sense from the patient’s telemetry that there was a bug in the room that was going to pose a major threat to the hospital.

Cerner made the decision to give this stuff away. They did not charge for it. They just said, “Every hospital should have this; we’ll give it out.” Some of his officials there told me that the big problem is, they would give it to them and they would just never turn it on. They could show, “Look, here are the data. If you turn it on, this is by how much your death rates and your infection rates are going to plunge.” They would say thank you and then still not turn it on. That was for them the most frustrating aspect of it.

GOLDHILL: I think that’s a really interesting point that you raised, because one of the things that’s very confusing to analysts of healthcare is that we have a lot of science in healthcare. Almost everybody goes into healthcare to save lives, to help people, to make humankind better off. That’s terrific and explains a lot of what happens.

The reality is there’s no hospital board that ever says, “Oh, let’s de-emphasize safety. Let’s not do anything about infections.” But economic incentives matter. They matter a lot because when that hospital board meets, everybody on the board wants the hospital to be safer. But it’s item number 38 on the agenda, and you don’t get to item 38 because economic incentives matter. I think one of the things that I’ve tried to bring to the writing of this as a businessperson is, “Wonderful we have all these saints, wonderful they want to do something good, or a lot of good. You have to get the economic incentives right, though, to rely on this massive complex producing the outcomes you want.”

Rethinking Core Assumptions

GRABOYES: Let me pull up a couple of quotes. Atlantic essay comes out and—I met you not too long after that. I met you; I can’t remember if the book was out or whether it was about to be out, but I know it made a big stir. I went to the source of all information, Wikipedia, and I pulled out a couple of quotes about that essay. David Brooks from The New York Times wrote, “If I were magically given an hour to help Barack Obama prepare for his healthcare speech next week, the first thing I’d do is ask him to read David Goldhill’s essay.”

CNN’s Fareed Zakaria called it “the best article I have read on American healthcare.” John Schwenker of the American Conservative referred to it as “maybe the best writing on healthcare.” As these quotes indicate, your essay earned plaudits from both sides of the political aisle, which was certainly no easy feat, especially during that politically contentious time. Could you summarize the essay for—what were the main points that a reader would learn from reading it? I hope some of them will read it after hearing this.

GOLDHILL: Your last point is spot on, which is, this was a very politicized moment because of the debate over what ultimately became the Affordable Care Act, which was just being formulated then. We got into one of these terrible binary partisan debates. Does the Affordable Care Act save humanity or destroy it? My article steps completely away from that and just says, “American healthcare is an office tower whose foundations are crumbling, and so arguing over how many floors we should add to it is entirely a temporary solution at best.”

What I said is that much of our knowledge about healthcare was based on the mid-20th century, ’50s, ’60s time when all of the world healthcare systems were created. They were created around a type of healthcare which was very, very active, very major, where the patient knew nothing, based a lot on the famous economics work that had been done, that patients had not nearly enough knowledge to exercise the normal discipline on the healthcare system. It had to be managed centrally by someone other than the patient, and that the alternative had proven far worse.

Because we were missing all the benefit of having patients as consumers, that we had confused the social desire to provide a safety net for everybody with the very different thing of substituting for everybody as the customer. That we had created a system where the customers of the system were in absolute control of the economy, but the customers weren’t us, they were Medicare and large insurance companies, and that their goals and objectives were very different than what ours were, and that disconnect was growing.

Basically, if I could summarize in a sentence, it’s that the assumptions on which healthcare policy in the U.S. and everywhere else were of a specific time. And a combination of healthcare and healthcare needs, technology, information technology and all the other stuff about the consumer world had changed so much that it was time to completely rethink those core assumptions.

It was far enough away from the partisan debate for both right and left to see things they’re interested in. The right, obviously interested in getting market forces more powerful in healthcare, and the left to some extent attracted by what I was saying, which is government’s probably not going to be a great regulator when it’s the industry’s business partner. Right now, the government is the industry’s business partner. I think that explains why regulation and healthcare doesn’t accomplish what we want it to, in terms of safety and transparency and other traditional regulatory issues.

The Outdated Healthcare System

GRABOYES: That prompts a couple of thoughts in my head, which is a lot of the rules that we live by really baked in when modern medicine was extraordinarily new. One of the best books on healthcare, one of the most thoughtful books I ever read, was a little book by Lewis Thomas. I forget—he was at Yale, and he ran Sloan Kettering, and he was a brilliant essayist—wrote a little book called “The Fragile Species.”

He talked about—there was about a 1600-year period when it was all bloodletting and leaches. Then in around the 1830s, the medical profession realized, “We’re terrible. We do more harm than good. We need to stop doing everything.” I have to think—there’s a term for the—“therapeutic nihilism,” they called it.

Medicine went into this period of therapeutic nihilism. When Lewis Thomas was at Harvard Medical School in the mid-1930s, he said that was still in effect. We were basically taught our job is to keep our hands off of the patient and to observe them, to advise them, to tell the family what’s going on and perhaps to hire a nurse and ease pain, but not to do anything because we don’t know what we’re doing.

Of course, the 1930s is when we get penicillin, and it really gets rolling in World War II. It’s not much more than a decade later that I’m born. Basically, my life begins not much more than 10 years into what we would call modern medicine, which is about when we start laying down policies that create the financial incentives that we’re still living with. A lot of what we’re dealing with, it is things that were when essentially medicine was a brand-new field, and we’re stuck with it.

GOLDHILL: I think that’s right. This is an area that desperately needs an intellectual revolution, and a big part of that revolution will be—and I can say this now that I’m 60—stop worshiping the old. Old is bad. Healthcare is an economy. It’s massive, complex, huge numbers of individual conditions, treatments, technologies, et cetera. It is the most complex sector we have to deal with. How do we manage it, how do we allocate capital, how do we price, are not easily centrally planned.

Beyond that, all of those things are constantly changing. When I hear someone talk about the NHS as if it’s some church, the British healthcare system, or Medicare as a sacred commitment, I think, “Really, they’re old, and they can’t possibly work anymore.” How, in the late 1940s for the NHS or the mid-1960s for Medicare and Medicaid, could you have possibly anticipated all of the change in demographics, healthcare need, healthcare technology and associated treatments that we would see 60 years later? How could you have possibly planned correctly for that?

What you did is, you said, “Gee, most of it seems to be major, unanticipated and financially ruinous. We built a system around that.” Somewhere between 75% and 85% of every healthcare dollar is now spent on something that is a long-term chronic treatment. How does that work in an insurance system? It doesn’t, period, full stop. It doesn’t. You would never have built an insurance system to manage that type of spending. You built it to manage a different type of spending.

Here’s what gets worse. The technologies we’re developing around artificial intelligence, around genetic knowledge, around remote treatment, around targeted pharmaceuticals, means that healthcare is going to get ever more personalized in its treatments, almost certainly. Now, I know predicting these things is always a risk, but certainly there’s so much work around that.

How can you build an insurance system that covers that? You can’t; you wouldn’t. It would never occur to anyone. What we do in the rest of the economy is we say, “Hey, when we move from physical mail to email, we don’t insist the post office deliver the email. When we move from stores to online, we don’t insist you go into Sears to place your Amazon orders.” We change. We build enough dynamism into the system so that it can respond to changing human needs and the changing ways that we’re addressing those human needs. In healthcare, almost every single healthcare reform can be read as, “How do I protect these ideas I came up with in 1940, 1950 and 1960 now that they’re no longer relevant or work?”

I guess the biggest thing I would argue is, start with worshiping change and dynamism, not ancient and static. That’s a great place—and fundamentally, as I realized what all my writings have been about, which is things change. Why doesn’t healthcare?


Evolving Technologies

GRABOYES: In information technology, if we had spent the last 40 to 50 years debating over how to allocate time on mainframe computers and how to pay for that time . . .

GOLDHILL: To that very point, I’ve already said I’m 60. My mom is older than I am but like two or three years. My mom carries a supercomputer around with her everywhere and uses it for everything. If in 1965 when Medicare was passed you’d said to people, “Grandmothers are going to carry around supercomputers only 60 years from now,” a healthcare economist would say, “We’re really going to get all of them computer science Ph.D.s? It’s going to be incredibly expensive.”

Of course, it’s a little bit silly but not completely. In computing and mobile telephony and information technology, we’ve said it’s okay for companies to figure out way to serve this human need, to the point where grandmothers carry around supercomputers and use them without any problem. In healthcare, we said, “Let’s freeze in place all of these industrial structures from the ’60s.” And guess what? We have a healthcare system horrifically mismatched for current human needs and treatment opportunities.

It’s exactly your point, which is that in healthcare we reflexively say, “Oh, if that change is going to happen, we have to plan for it. We have to manage it. We have to allocate mainframe resources.” And, of course, in the rest of the economy that’s not what’s happening at all.

GRABOYES: I just had a conversation the other day on this. People were saying telemedicine, well, there are a lot of people who aren’t really going to be able to figure it out. There’s an equity problem; old people aren’t going to be able to . . . What I always do then is I send a link to a YouTube video; it’s in around 1940. The Bell system produced a 20-minute video explaining how to use rotary telephones because it was absolutely terrifying a large segment of the population. “How will we ever be able to do this?”

GOLDHILL: Where do you find this stuff? How do you always find this stuff?

GRABOYES: That’s what I do in life! I’ll send you that one too. . . . I don’t know, like this old character who’s the grandfather with the Vermont accent. “We don’t need these newfangled phones here.” They felt the need to do a 20-minute video because this was so complex and so frightening.

GOLDHILL: Whereas millions and millions of grandparents were using FaceTime and other technologies to talk to their grandkids everywhere, and somehow they figured it out.

GRABOYES: I don’t even know if you know this story, but my mother narrowly averted your father’s fate when she was 92. She was talking FaceTime with my nephew, who is an emergency room doctor. She was sitting alone in her apartment. He asked, “How are you doing, Grandma?” She said, “I’m pretty good for an old lady.” My mother was extremely sharp. Her mind was undimmed, and she was just using her iPad.

She said, “The only thing bothering me is on my bottom here. I have this sore and it’s hurting and it’s not getting better. But I’m going to make an appointment to go see the doctor in a week.” My nephew picked up on some cues and looked at her. He was watching her breathing and watching her face. “Grandma, I hate to ask you this, but do you mind showing me the wound?”

My mother was a character and said something along the lines of, “Heck, I’m 92 years old. What do I care?” She swung the camera down and showed him. He said, “Let me call you back in a few minutes,” and he called my brother, who’s also an ER doctor. He said, “I think she’s going into septic shock.” He said, “I think we need to get her to a hospital this minute.” He called her back and sent my niece over to pick her up, I think.

I forget how they got her there, but they got her to the hospital. And indeed, I’m pretty sure it was a MRSA infection, and it was touch and go. They barely saved her, but she managed to get another year and a half of good life out of it. It was that sort of thing, and my mother was no technologist, but somehow that little device—she liked it, and it saved her life.

Do Innovations Have To Work for Everyone?

GOLDHILL: I think that’s—you never did tell me that story before. That is an incredible story. There’s also something in the previous statement that I think relates to one of the big things we need to have an intellectual revolution about. We need to worship change, and we need to stop looking for solutions that fit everybody. There are so many times you’ll hear criticism of an innovation, including a meaningful cost-saving innovation, of “everybody can’t use that.”

The way we get to “everybody can use something” is not to dumb everything down to a level where it’s useless, but rather to get something that works, that gives people an incentive to figure out how to use it. The idea that “only 75% of the population has access to this” is an argument against doing it has really harmed innovation in healthcare.

Telemed being one of the most obvious things, where we’re now celebrating this innovation that is literally 20 years old and the rest of our lives and is now brand-new in healthcare because we finally have rules to reimburse it.

I think we’ve got to get used to this idea that in the real economy, one of the things that drives innovation isn’t that I found something that works for everybody, but that I found something that works for some identifiable somebodies. The somebodies like it. It enables me to have enough of a business model to extend the functionality. And eventually I’m teaching grandmothers how to use supercomputers, and it takes three minutes to figure it out. It doesn’t come all at once, and one of these straitjackets in healthcare—and I understand the desire for greater social access. It’s a desirable and commendable one, but it’s defeating when it prevents innovation from happening because sometimes innovation happens only amongst the few.

Once you’ve got success there, you have the tools to spread it more generally in society. That tends to work much better. These arguments we have in healthcare, which we think are about virtue and social goals, wind up just putting us further and further behind the rest of the economy. I think fundamentally healthcare is our biggest consumer industry. It’s just not run like a consumer industry, but it can be—which doesn’t mean it only is, it just means it has more consumer elements that have worked so well in the rest of the economy.

Private Versus Government Action

GRABOYES: Your essay came out in The Atlantic, and it became a big thing. Was there a moment and epiphany when you realized someone said something that this is going to be big? Was there some reaction that you remember that someone had?

GOLDHILL: I think when that David Brooks piece came out. It was obviously very unusual for something like The New York Times to basically tell people to go read an article at a different thing. I realized that that was very good, and there was some other very well-known paper said this is really interesting. I realized that I had struck a chord, and I think it struck a chord because, let’s face it, most of healthcare conversation is, “The government should do this; the government should do that.” Different ideological sides that all starts from the government should do this. And here was somebody saying, “Look, it’s all about private incentives.”

Big programs never work if the private incentives argue against them. I think the fundamental incentive in the system is a disincentive, which is there is no reason for anybody to invest in cost-saving technologies, techniques or processes. The only reason people invest in cost-saving technologies is to get more customers by lowering the prices. Since nobody in healthcare gets more customers by lowering their prices, nobody is going to invest in that.

I can’t tell you how much—I’ve had aimless numbers of debates with healthcare experts who say, “Here’s a great idea for reducing costs,” and I will say, “Yes, but if you force companies to do it or hospitals to do it, or the drug companies, whoever you’re trying to force this on, they’ll do it, but they’re not going to lower prices. That’s a different thing.” Prices don’t come down with costs; costs come down with prices. If I’ve got to cut my price to get customers, I’ll figure out a way to reduce my costs. If you just reduce my costs and there’s no competition for price, I just have a bigger profit margin.

Bob, I’m going to say something very insulting here, so you can hang up on me. It is amazing to me how few healthcare economists seem to have the economist in their description. It’s as if they’re on this island, and everything they see in the rest of the day, everything else they’ve studied outside of healthcare, suddenly no longer applies. We live on an island where none of the rules apply. Even though I went shopping this morning and picked up my dry cleaning and went to Starbucks and paid a lease payment on my car, et cetera, none of that am I going to think about when I think about how healthcare has to work. That has always struck me as just bizarre.

GRABOYES: I agree.

GOLDHILL: Present company excluded.

GRABOYES: Yes, absolutely. The ideological end of it’s enjoyable. One of my stock phrases is that the left side of the spectrum believes that the role of the federal government should be to stamp out competition and obstruct innovation. Whereas the conservative side of the aisle believes that the job of stamping out competition and obstructing innovation should be best left to the states.


GOLDHILL: I think in healthcare, you’re right, is that both parties—this is a bipartisan issue. I’m not particularly partisan about it because reforms on both sides, whether they seem more market-flavored or more state-flavored, have ultimately the same effect, which is one size fits all. Let’s protect this old, existing system we built that’s no longer relevant to how people really live.

GRABOYES: We move on to the book. This essay grew into a book. How’d that come about, and where does the book go that the essay didn’t?

GOLDHILL: I think it’s much broader. The essay really is specifically about our belief—because President Obama had discussed some of the principles that he was thinking about for what became Affordable Care Act—that we can solve the affordability problem with what is essentially financial engineering. The essay is very tight on here’s the discussion we’re having. Here’s probably why it doesn’t work because it doesn’t materially change the incentives.

The book steps back a bit further and asks more broadly, what are the fundamental underlying issues? That’s where I think I talk more about how the system no longer works—this role of the insurer or Medicare as customer has not disciplined the system the way individual consumers do—and looks more broadly at potential solutions to the problem. It also gets more into the issues of regulation and how regulation is compromised by the government being partner-customer of the industry.

I think also attempts to get at what I call “island thinking” in healthcare, like I just mentioned. Somehow the rules in healthcare are totally different than anything else and that this belief we had—Kenneth Arrow famously wrote about it, that since healthcare had to be different, healthcare had to be different. All the changes that have happened that have enabled us to make healthcare more normal, we’ve ignored.

High-Deductible Healthcare Plans

GRABOYES: The book’s now eight-years old, so is there anything you’ve learned in those years that would lead you to change what you wrote back then? Has anything surprised you for the better or for the worse since you wrote “Catastrophic Care?”

GOLDHILL: A bunch of things. I think I have more of a historical sense around this and more of an international sense around this. Specifically, I think that the U.S. healthcare economy, because it drives innovation in a way that others do not, can’t easily be compared to other healthcare economies. And all of these things we do—on the right, asking why we can’t be more like Singapore; on the left, maybe asking why we can’t be more like the U.K. or Canada—is really a bit of an apples-and-oranges comparison. The U.S. is the absolute dynamic engine of the world of healthcare innovation, and that’s been a big change.

I think, specifically, though, like many others at the time, I thought that moving more cash directly to consumers in the form of high-deductible accounts would more rapidly transform the healthcare system. Fundamentally, looking for greater market forces in care, what you really need is a customer who cares about the stuff we care about, and that’s us. We care about price, we care about value, we care about safety, we care about all those things in a way that intermediators cannot.

The idea behind all these high deductibles were, we’ll have the patient be responsible for more of their spending, and you’ll have markets develop. What I didn’t anticipate were two things. One, the most important thing—which is outrageous, and if I have the government do one thing, I would have to do this—is that insurers have weirdly insisted on the same control over your deductible spending as the nondeductible spending. Even though they’re not reimbursing you, they tell you what doctors you can go to, they tell you what prices you have to pay, they tell you what’s approved as a deductible expense and isn’t.

It is utterly absurd. It’s the worst of both worlds. You have the consumer writing the check but, unlike anything else in life, being told they can’t shop around. Really, the way shopping around works, of course, is that the consumers aren’t supposed to do anything. Providers are supposed to desperately try to take their business. There’s about $130 billion of deductible business. That’s a lot of business. No provider has any incentive at all to try to get you to shop with them for your deductible spending, because the insurer insists on controlling all of it. It is how—we see a lot of it in healthcare, how one small detail can undermine a huge public policy goal all by itself.

High-deductible plans don’t work because they’re subject to insurance networks, which makes no sense at all. How self-insured companies have allowed this to happen, I have no idea, but it’s appalling. That’s the one—and it means that this architecture around high deductibles fails, as it has.

Incentives To Lower Costs

GRABOYES: Again, going back to Narayana, when I interviewed Shetty, I had talked to some members of his organization a few years back. They opened a hospital in collaboration with the American Ascension system, and they opened it in the Caymans. It’s much lower prices than here, guaranteed prices. The example was $100,000 for a bypass here. In India, at his hospitals there, it’s under $2,000, but in the Caribbean, it was about $30,000. I asked them, I said, “Well, you’re aiming for an American clientele. Have you ever talked to American insurers and said maybe you can send people down here?” And he started laughing.

He said, “We’ve had that conversation many times.” I said, “What’s the problem?” He said, “They get very excited. They look at our costs, and they think, ‘Wow, this is fantastic.’ Then they get to a certain point, they say, ‘By the way, if we send our patients down here, will you be able to give us a breakdown of the costs?’ We tell them, ‘No, what we’ll tell you is the operation will cost $31,000, and that’s the only number you’ll get.’ They said, ‘Well, but is there any way you could break out how much of that is going to the surgeon? How much is going to the nurse? How much to the floor space, whatever?’ ‘No, we just tell you it’s $31,000.’

‘We’re very accustomed to having a breakdown.’ He said, ‘Well, we can give it to you, but that will require us to construct a new building, fill it with accountants, coders, computers, whatever. And then we can give you the breakdown, but the bypass will cost $100,000. We can give you the breakdown for $100,000, or we give it to you without the breakdown for $31,000. Which do you want?’ Then they shake their heads and said, ‘We really like having the breakdown,’” and then that’s the end of the discussion. It’s just maddening and crazy.

GOLDHILL: The whole presumption that an insurance company is going to want to save money on healthcare spending is absurd. Particularly post-ACA, we limit their profits to 15% of what they spend. That’s not exactly a massive benefit to reduce spending. I think a lot of people are confused at the fact that we have a lot of for-profit entities in healthcare, it means we have some sort of free-market healthcare, but we don’t. Things like pharmacy benefit managers aren’t free market. Things like insurers told that they charge on a cost-plus basis aren’t free market.

These are not competitive, properly incented institutions. They’re working within a set of rules that encourages a lot of bad behavior. I think the example you use—here’s an insurance company that could, in theory in your example, save $70,000 for surgery. “Not worth it,” whereas I suspect if the patient was you or I, we would say, “I could live without the itemized bill and save the $70,000.” Fundamentally, what people don’t get is the former is inevitable when you put intermediaries, particularly cost-plus intermediaries, in charge of the healthcare economy, the consumer function. And when you put you and I in charge of the consumer function, which is, “$70,000 off, I can live without an itemized bill.”

That lack of flexibility and all that—all of that is missing in a system where you say it’s got to be top-down controlled. Then, of course, a lot of the real incentives are hidden. A huge number of very well-informed politicians truly believe insurance companies are out there desperately trying to control costs. They’ve just been unlucky for the last 70 years.

GRABOYES: I’m just fundamentally a lazy person. I don’t want an itemized bill. Just give me one number. I don’t want to think about two numbers or 40 numbers.

GOLDHILL: We would insist that we charge them if they insisted on giving us an itemized bill. These entities aren’t us, and that’s fundamentally the point. There’s just a different economy you develop from that big picture to the little picture when you’re serving actual consumers.

Is Healthcare Different?

GRABOYES: Somewhere in my file cabinet, I have the bill that my parents received when I was born. It was just a little one-sheet thing that said—I forget how much it was. You have to include inflation, but it was like $20 or $80, something like that. With inflation, it would be about probably 10 to 15 times that. Nevertheless, it was just a nice little one sheet of paper with a couple of handwritten numbers on it. It was very nice.

I loved what you said there about—somehow people think, including economists, the laws of economics just stop at the boundaries of healthcare. Supply and demand ceases to work. Concepts like competition simply can’t function in healthcare.

I always argue that markets and competition can and do yield improvements in healthcare, but bad public policies render the results anemic. That’s a big mouthful, which is why when I don’t want to say all these words, I’m going to go steal David Goldhill’s quote from his book—and I love it—which is, “Healthcare is indeed different, but primarily because we insist on treating it as different.” Can you elaborate on that wonderful quote, which I use all the time?

GOLDHILL: I think when you get into the rules of healthcare—when we talk about my new company, Sesame, just an example of this—you realize that almost everything you’re required to do in healthcare is designed to protect something in this crazy system of insurance-based covering everything that we’ve built. That very little of it makes sense on its own. It’s all designed to keep this ridiculous, and now totally out-of-date, edifice standing.

So much of the stuff that is unusual about healthcare—that some people on the left will say is about healthcare itself; some people on the right will say, “Oh, it’s about state control”—is, in fact, just all about this original sin of everything in healthcare must be different from everything else and needs this massive structure to be managed and paid. Look, just the numbers, the payment system in healthcare, just managing all the money flowing from consumer and taxpayer to healthcare provider is estimated to be somewhere around $300 billion a year.

There are more people who work on figuring out healthcare bills—adjusting them, up-coding them, down-coding them, reviewing the coding—than there are doctors. All of that to do what? To protect us? We got to pay for those million people who work. When you start unraveling this and unravel it from first principles, which is, we as a society are committed to universal healthcare. We don’t want people not having access to care they could get. Maybe not 100% of us feel that way, but it’s some number deep into the 90s. We don’t want your ability to get healthcare dependent solely on your bank account or your income.

We want to see healthcare technology advance because we all understand that the greatest good in healthcare is achieved by the things that haven’t been invented yet. That was the case a generation ago or two generations ago. It will be hopefully the case for a long time. That advancing technology is so important for humankind. We want people treated fairly. Strangely enough, we’ve insisted that there’s only one way to manage all of those things together.

Despite tens of thousands, if not hundreds of thousands, of what would be called SKUs in other industries, the most unimaginable variety of healthcare needs and specific conditions and different preferences and all the rest, we’ve said “Let’s build a one size fits all around this.” The question is, “Am I more likely to accomplish those goals by having markets run most of healthcare, and having government intervene to do what only it can do—provide the ultimate safety net, regulate as a regulator and not as a business partner, ensure competition—or am I better off achieving what I’ve achieved now?” I don’t know how many more decades of failure we need to give something else to try, something more normal a try.

Then lastly, to add to that, healthcare is changing. My use of the system 50, 60 years ago was about if I was unfortunate enough to have a heart attack, and I needed emergency, whatever—cancer was an emergency procedure. It’s not that people don’t have heart attacks now, but the overwhelming bulk of healthcare is about managing long-term conditions. The patient is actively involved in that, both as the manager, as the person who makes the ultimate decision with a doctor, as to what course of action I’m going to use here. There’s almost always choice now. You can do this, you can do this.

We still have the system based on, “Oh my god, I have a heart attack and I’m unconscious, and I need an ambulance.” There’s so many more possibilities to create something more consumer-friendly, more flexible and more diverse, and instead, we’re looking backwards instead of looking forwards. That’s what I’m saying, is that it’s not that healthcare is fundamentally different. It’s that the way we answered these questions 60 years ago prevents us from answering the questions today in a more flexible, dynamic way, reflecting a very different world.

How Should U.S. Healthcare Change?

GRABOYES: Absolutely. If you had a magic wand—I don’t think you have one, but if you had one—what would be one or two things that you would just change totally about American healthcare?

GOLDHILL: I think I would probably go the opposite direction of the Affordable Care Act in terms of insurance. I would encourage massive diversity in insurance products, rather than try to get everybody having the same insurance or three or four different types of insurance that we could all price-compare, because that is not a way to create actual price competition. I would have the safety net work around parts of insurance that were not economically priced.

I would love to see extreme catastrophic plans. I would love to see the broadest variety of possible insurance in the hope of moving insurance towards what it does really well, which is help you plan for the unanticipated, major and catastrophic, and take it out of what it does incredibly badly, which is to be the customer in the system.

I think another small step, which I mentioned before, but I think it can have very powerful consequences, is to prohibit insurers from regulating deductible spending. It’s your own money. You want to set a limit as to at what point I can be covered, that’s fine. But the reality is patients are going to be far more careful about spending their own money.

If you don’t believe that, then it’s absurd to believe in high deductibles to begin with. The idea of saying, “We will allow markets for customers to exist here, but only on the demand side, not on the supply side. Providers can compete, but patients should feel free to shop around.” That has worked terribly and is a disaster, and that would be my big and little. As I mentioned, intellectually trying to have the conversation move from how do we protect the old to how do we create dynamism in the system. New ideas, not one size fits all. Not just accept change, but embrace change.

How do you get the Amazons and the Apples and the Teslas of healthcare? You get it by giving them someone to sell to. Right now, no innovator can sell to an insurance company or Medicare. The innovator can only sell to a customer. We need to get real customers back.

Government as Healthcare Regulator

GRABOYES: Yes. I will just note as a public service, someone listening to this might say, “Oh, okay, so Goldhill is one of these typical conservative guys.” What you’re saying really has nothing to do with your overall political philosophy and where you position yourself. You’re one of the most iconoclastic guys politically that I’ve known.

GOLDHILL: To me, it’s not, “Let’s embrace markets because markets are always better and the government is always bad.” In fact, my belief is, there are some things in healthcare government must do, but we’ve compromised its ability to do well. The safety net has to be provided by the government in my mind, and there’s meaningful regulation that needs to be accomplished by the government. I think we’re doing both quite poorly. The safety net is way too expensive without being close to universal.

Regulation is very, very spotty because if a government tries to fine a hospital, if the government tries to fine the hospital for bad behavior, the hospital says, “I’m treating 10,000 Medicaid patients and 20,000 Medicare patients, and so now I have less money to do so.” The government is like, “Oh, well, we’ll make it up to you somewhere else.” That’s not the best way to regulate. I would like to see the government get out of the business of healthcare so that it can regulate better. It’s not an ideological thing.

For me, the issue of markets is really simple, which is healthcare is a consumer business. It is. That’s how it has to relate to customers because customers—now that we’re in the chronic condition era and about to be in the personalized medicine era—it cannot get their needs satisfied any other way than through the complexity and diversity and heterogeneity of a consumer business. That’s what you need. That’s going to be better care, and there’s no way to get there without markets.

From the little thing—to give you the tiniest example—there are no pediatricians working at 10:00 PM. Have you ever had a newborn—and I now have a three-year-old, so I’m a couple of years away from it. The first time she gets sick, you want to take her to the pediatrician, and the first time they get sick is always at eleven o’clock at night. Why are there no late-night pediatricians? Why is your only choice the emergency room, which is terrible for a newborn? Well, your only choice is because reimbursors say there’s no difference between the inputs used at eleven o’clock at night and eleven o’clock in the morning. Therefore, the price at eleven o’clock at night is the same as eleven o’clock in the morning. Therefore no one works at eleven o’clock at night.

If you had markets operating, there’s going to be some late-night pediatrician in every city in the country who charges 1.5X her regular rate. Parents are going to be happy, babies are going to be better off—maybe yes, maybe no. The doctor is better off. Those positive somethings can never happen in a centralized, one-size-fits-all economy. Because healthcare is now a consumer industry, we need lots of those things to happen in order to satisfy the range of human demands that exist today.

Creating a Healthcare Marketplace

GRABOYES: Of course, I know that you are busy trying to form markets, be a marketplace, so you co-founded Sesame, and you’re the company CEO. Tell us all about Sesame. What do you hope to do? I’ll throw in there, when you get through telling us that, I know there are others who’ve tried to go down similar roads. For example, Amazon, Berkshire Hathaway and JPMorgan Chase formed Haven, which was supposed to somehow harness the power of markets for the benefit of their employees, and maybe for others, but then it eventually folded. What is Sesame, and how is it different from Haven or other attempts to do this? Where do you want to go with it?

GOLDHILL: Sesame is—which you can find at Sesamecare.com—is, in a way, one of the simplest ideas on the internet. It is a marketplace for buyers and sellers, in this case, of healthcare. What we have is 17,000 doctors and other providers list their services for sale: telemed, urgent care, consultations in person or telemed with specialists, primary care physicians. We have a pharmacy, we have labs, we have imaging. We’ve got a wide range of outpatient procedures, and they’re all priced, and you buy them.

It’s a traditional idea on the internet but revolutionary for healthcare, which is that, for the corner of the market we serve, which is called the direct-pay market—where you’re not using insurance, either because you don’t expect to get reimbursed because your deductible is too high or because you’re uninsured or your insurance doesn’t have a particular service—you’re a cash-price payer, whether you know it or not. You can come to Sesame and do what you do everywhere else, which is look at the price. Look at—as importantly—the exact nature of the service the providers are offering. There are no insurance codes on our platform.

The doctors say, “Here’s what I’ll offer in an appointment. Here’s what I’m doing in this procedure. Here’s the price, here’s the time.” It’s one of those things that, again, really old in the internet. I was on the board of Expedia, which was something like this at the very early days. It brings markets to things where there had previously been confusion or lack of clarity, or inability to simply transact on your own as a customer, to healthcare. What we see is something really interesting. We see very, very low prices. Prices that are usually 20, 30, 40% below what insurers called their discount prices.

Providers get paid up front, which is very important because it’s a long, boring topic, but high deductibles have basically created a lot of what’s called credit risk and collections risk for providers. They can avoid that through Sesame. Our patients pay up front, in return for which they get and lock in a great price.

What’s interesting is it’s a positive for both sides. For our doctors, it’s a source of new customers. It’s a way of getting those customers without the credit risk I mentioned. It saves them an enormous amount of time and administrative expense. If you talk to a typical independent doctor’s practice, they’ll say the cost of taking insurance is 20, 30, 40 cents out of every dollar of revenue. When you serve a direct-pay customer, you don’t bear that expense, and you get paid up front.

We’ve been in business, we relaunched about—we had done an experiment a couple of years ago, and then we relaunched last year after the pandemic allowed us to. It’s grown enormously, and what’s interesting is how it’s grown. We’ve seen lots of doctors reduce their prices, because as Sesame has gained volume—and we’ve served over a hundred thousand patients—there’s a reason to reduce your prices. I’m going to get a whole bunch of patients. Many of our doctors get 20, 30, 40, 50 appointments a month. They haven’t just reduced their prices—which is great—but they’ve also redefined their services.

We see packages existing on Sesame that haven’t existed anywhere. We see what’s called dynamic pricing, which is a different price for a different time of the day, reflecting the doctor’s busyness or lack of busyness or desirability of an appointment. All the things that you see in a normal economy, you see in healthcare on Sesame, and that’s our goal. It’s a business, and we think ultimately a very, very good business. It’s also obviously proving out this thesis that consumers have really been harmed by the lack of market dynamics in healthcare.

Our providers aren’t rigorously competing with each other, but they certainly understand that if they have five hours free and they want to do telemed tonight and somebody else is pricing those at $25, pricing at $45, you’re going to get a lot fewer patients. You might get more because they like your particular practice or they like your quality ratings or what have you.

The last thing I would mention is that a key part of Sesame is that what’s being communicated between doctor and patient, seller and buyer, is value, which is not just price. It’s the quality of the physician, years of experience, location in some cases, nature of the specialty, natures of the packages and treatment packages that are offered. And that is the most important thing. It’s understanding that on a healthcare marketplace, it’s never going to be just about the price. It’s going to be about this bigger issue of value.

Sesame Versus Other Marketplaces

GRABOYES: So where are you different from, say, Haven or some of the others who’ve tried this?

GOLDHILL: Well, but Haven really hasn’t—it wasn’t clear to me what Haven was trying, but Haven is based on—

GRABOYES: That was a problem too.

GOLDHILL: That was a big problem. But Haven was based on a premise that is fundamentally wrong in healthcare, which is that a big intermediary has leverage. Public policy says, “Oh, employers really care about the cost of healthcare. They’re the ones who are going to drive down the cost of healthcare.” Employers have now been providing most of healthcare funds for almost 70 years. At what point do you give up an idea that doesn’t work? There’s a good reason employers can’t drive down the cost of healthcare. It’s because when it comes to healthcare, they’ve got a very complex agenda.

A lot of it is about employee relations. A lot of it is about not doing anything wrong or a mistake or what have you. The reality is if you’re a big enough employer, you know very well that the cost of care is really coming directly out of the cost of compensation, not coming out of your bottom line. You don’t have this simple thing which the consumer has, which is, “I want to pay less for that,” period. If you are the head of HR at a very big company in America, you are not getting promoted to CEO because you saved your company money on healthcare expenses.

You can only get fired for employees complaining about you depriving them of necessary care, and so the employer incentives are very, very complicated. I’ve been an employer or CEO for a long time, and one who’s very interested in benefits. The fact is I want our benefits to be competitive but not excessive, controlled but I don’t want people not getting the care that they need. I don’t have a simple objective, and neither do America’s employers. It’s the wrong place to look for reform, yet we continue to do so.

I don’t know about Haven, but I do know that no employer in America has leverage over the healthcare system. I don’t care if you’ve got a million employees, you don’t have a million employees in one market with one hospital. It’s just not how it works. Again, your employees are very sensitive to the quality of their benefits. You can only go wrong by trying new things. Hats off to those companies that are trying to do innovative things because it takes a lot of courage in this market to do so. But at the end of the day, companies have too complicated a set of objectives to be good performers.

GRABOYES: I often make the same argument about Medicare because I’m always hearing, “Medicare—we can harness the enormous power and the enormous market share of the federal government.” My response is usually as simple: “Do you believe the same is true with the Defense Department?

GOLDHILL: Yes, exactly, it’s such a good analogy, and that’s— [crosstalk]

GRABOYES: We wrote an article on that together, I remember that.

GOLDHILL: Yes, but there’s another element of that too, which is Medicare is an entitlement. If I don’t have a budget, am I really going to try to save money? Is that really going to be my—I have a budget at home, and I’m not always great at saving money. Can I really count on a government agency that doesn’t have a budget to do a great—it’s absurd.

What’s interesting about this is, apart from the specific arguments, it’s just there’s this crazy intellectual assumption in healthcare, that something that hasn’t worked for 50, 60, 70 years—pick which institution we’re talking about—is somehow suddenly going to work. Employers have never been able to control the cost of healthcare. Neither have insurers; neither has Medicare. That’s going to change now because of what? There’s no answer to that question; it’s blind faith.


GRABOYES: We’re coming up on the end of our time, but I did want to throw—I always like to throw out the question that I used to throw out to my students on day one of our classes, which is, I would ask a student, what’s the single most interesting thing about you or something really interesting? Sometimes they told me about a personal accomplishment or a famous relative or somewhere they had been or something that had happened. Tell us something that will really interest the audience out there.

GOLDHILL: Well, Bob, you’ve known me for a long time. You know there’s nothing interesting about me. I will try to come up with something. I think the thing that’s most interesting about me that is relevant is that I met my wife in the restroom of a bar. We had maybe—yes, it was a unisex restroom—and we had maybe a 15, 20, 30-second interaction. If I’d had to go to the restroom five minutes later or she had to go five minutes earlier or whatever, three kids are not born. I bring this up because it drives me crazy to get into an elevator now and see all the young single people on their phones. The love of their life is standing across from them, and they’re never going to meet them.

One of the great joys of life, and I think I certainly missed it during the COVID lockdowns, is just strangers, and chance interactions, chance meetings, learning something from somebody you’re never going to see again—or maybe you make an effort to see again. I’m really lucky in that the person who I formed my life with, I just so happen to intersect that one moment in that one restroom at that one bar. There are endless numbers of those things in all of our lives. And maybe it’s not always as crucially important to the future as that interaction happened to be, but it has really governed me for the rest of my life. It’s that leave yourself open to the spontaneous and unexpected.

GRABOYES: Well, I’ve met my wife, you know, I met Alanna through similar circumstances. She wandered into a little cafe where I was having breakfast, and I handed her a line. I looked at her and I said, “Don’t you play in the orchestra?” She looked with—“No, do you?” I said, “Yes, I do.” She said, “What do you play?” I said, “French horn.” Anyway, I told her later on, I said, “I knew very well that you didn’t play in it, but I thought it was a weird enough question and intriguing enough that you would want to sit and have breakfast with me.” Anyway, it’s 41 years later, but yes, I agree, the serendipity is so much.

GOLDHILL: So much a part of life, yes.

GRABOYES: Well, David, as always, it is a pleasure. It has been a pleasure. This is a great conversation. When I haven’t talked to you for a while, I forget just how interesting you are. This was great.

GOLDHILL: Thanks for the time today, Bob. It’s great to spend time.


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