“This is the evidence to me that is pretty clear that we have a pricing failure where our prices are completely untethered to the underlying cost structure. And this suggests to me that the root cause of it’s the prices is the failure of our market to adequately provide that discipline to bring those prices in line. When we think about this, what is it that we need for a healthy market to function? We kind of think of this as three aspects of it.
“A market to function, you need it to be informed. So this is it needs to be transparent. People need to have the appropriate information in order to make decisions.
“You need to have competition. You have to have choices. You can have all the information in the world, but if you don’t have a choice to act on it with, you just know how badly you’re getting hosed. And this is kind of that college textbook example.
“And the last thing is it needs to be accountable. You need to have the right incentive structure set up. and those incentives need to be aligned so that everybody is working towards the same goal.
“Those are those are the three big factors. When we talk about informed and transparency, that’s where a lot of the attention has has focused. The state has done good work. There’s still problems. Employers report difficulty getting access to their own data in order to make the decisions that they need to make on behalf of their employees. A lot of price transparency efforts have been going out. There’s progress there. There are still widespread reports of usability, maybe lack of compliance in some scenarios, but the usefulness of that could be improved.
“When we talk about consolidation and competitive lack of choices, there’s going to be a lot of folks up here today talking about how consolidation has occurred. And that has happened both horizontally, meaning you have mergers of hospitals with hospitals, insurers with insurers, doctor groups with doctor groups, but also vertically. And that’s where you have different aspects of the system buying up different parts. And that vertical integration now really starts to talk about maybe more of the misaligned incentives. When you have vertically integrated units, you now have a situation where the opportunity for misaligned incentives compounds.
“These misaligned incentives — I think a lot of a lot of us intuitively understand when we’re working with somebody else whose incentive is aren’t aligned with us. The real problem occurs when we give someone else the discretion to make decisions on our behalf and they don’t have the same incentive structure we do. If somebody else has the authority and the discretion to make those decisions that will impact us and we think that they have their own personal motive for doing something different. This is a breakdown in the system and that breakdown of incentive structure is everywhere.”