The Peter Attia Drive - #327 - Choices, costs, and challenges in US healthcare： insurance intricacies, drug pricing, economic impacts, and potential reforms

00:00:00.000 Hey, everyone. Welcome to the Drive podcast. I'm your host, Peter Atiyah. This podcast,

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00:01:04.220 My guest this week is Dr. Sam Sutaria. Sam is the CEO of Tenet Health, a healthcare service

00:01:09.400 company that owns and operates hospitals, ambulatory surgery centers, diagnostic imaging centers, and

00:01:14.880 other healthcare facilities. Sam joined Tenet in 2019 after working for two decades at McKinsey & Company,

00:01:22.380 where he was the leader of the healthcare and private equity practice. I should note that Sam

00:01:27.920 was also one of my most important mentors at McKinsey and was the individual that recruited me

00:01:33.600 out of my residency at Hopkins to join McKinsey in 2006. Sam previously held an associate clinical and

00:01:41.000 faculty appointment at the University of California at San Francisco, where he also engaged in postgraduate

00:01:45.680 training with a focus on internal medicine and cardiology. I wanted to have Sam on this podcast to

00:01:51.180 discuss the U.S. healthcare system for a long time. And the reason is, this is one of the most

00:01:58.940 complicated systems in the United States. And it's one that I just didn't feel I had a great

00:02:05.460 understanding of. I certainly understood parts of it, but I couldn't put it all together. And of

00:02:11.860 course, part of this is that I didn't actually spend an enormous amount of time working on healthcare

00:02:15.800 when I was at McKinsey. Even though I was recruited to do it and spend some time on it, I actually

00:02:19.640 spent more of my time in financial services and banking. I never really got the education

00:02:24.560 maybe that I wish I did. And more importantly, enough has changed in the time that I've left

00:02:28.800 that I think it was time to have this discussion from scratch. Now, my hypothesis going into this

00:02:33.780 podcast was that if you understood all the dollars that flowed into the system and all the dollars

00:02:39.600 that flowed out of the system, you would understand the system. And I will tell you now that that is

00:02:44.280 exactly what happened. I came away from this discussion with a really thorough understanding

00:02:49.480 of this, and it has actually made it much easier for me to engage in the subsequent discussions

00:02:55.080 that I've had with leaders in this field. And it's made it much easier for me to digest the

00:02:59.440 information that I've been reading. And I suppose you'll be able to tell by the end of this podcast,

00:03:03.480 this has become a real obsession of mine, is truly understanding US healthcare from a cost

00:03:08.120 perspective, a quality perspective, and access perspective, and trying to understand what it will

00:03:12.180 take to make this better. In this discussion, we begin with the overview of how the US healthcare

00:03:16.740 system currently works, how it is structured, and how these costs flow. We also do a little bit of

00:03:23.440 a comparison to how the United States compares to other developed nations. We also talk a little bit

00:03:30.240 about the history of how we got here. I think until I understood the history of this, going back to the

00:03:36.560 1950s and the 1960s, it was impossible for me to understand some of the baggage that we have in the

00:03:43.500 current system. We looked at the intricacies of insurance, looking at private insurance, Medicare,

00:03:48.680 Medicaid, and the challenges of employer-sponsored coverage in the United States. We speak, of course,

00:03:54.180 about drug pricing because this is one of the major areas where the United States is at a supreme

00:03:59.700 disadvantage compared to other countries. We talk about the impact drug pricing has on pharmaceutical

00:04:04.520 innovation and, of course, the role of PBMs, in addition to the administrative burdens and what

00:04:09.740 role technology may play in these areas going forward. We connect healthcare spending to the broader

00:04:15.720 topic of economic issues and discuss potential reforms to the system, considering what might be

00:04:21.360 possible in the future. I came away from this, again, I make the point in the podcast with at least

00:04:26.200 my objectives met, which were I wanted to emerge from this podcast with the ability to sit down with

00:04:32.700 anybody, regardless of their level of sophistication, and explain what is going on with the US healthcare

00:04:38.580 system economically. And as I said, I came away from this feeling that my needs were met, and that

00:04:43.600 is entirely a credit to Sam's ability to understand and deconstruct all components of the system. His

00:04:50.740 breadth of knowledge is virtually unparalleled in this regard, and I am forever in Sam's gratitude.

00:04:55.480 So without further delay, please enjoy my conversation with Sam Sutaria.

00:05:02.700 Sam, thank you so much for coming down to Austin to have this discussion.

00:05:09.900 I appreciate the opportunity.

00:05:11.380 Yeah, this is a conversation I've wanted to have for a long time, both for my edification,

00:05:18.060 but also because I think it's such an important topic. And interestingly, for whatever reason,

00:05:22.680 it waxes and wanes in public consciousness over time. There are periods of time when healthcare is on

00:05:29.500 the forefront of everybody's mind in some aspect, right? It can either be cost or quality or access.

00:05:35.620 For what it's worth at this moment, it seems to be dwarfed by other affairs, but that doesn't mean

00:05:40.040 that it's not going to be front and center in six months or a year or whatever. And therefore,

00:05:43.960 I think in many ways, this discussion today, my hope is serves as the masterclass on the United States

00:05:50.540 healthcare system. One other point I think I would make just for the listeners to understand is

00:05:55.200 I fashion myself as a person who tends to get deep into things and then quickly come to an

00:06:00.660 understanding of them. I have been rather unsuccessful in understanding healthcare.

00:06:06.060 I'm sure my understanding is greater than the average person. It still feels woefully inept

00:06:11.900 relative to the effort I put into understanding it. So I'm personally just looking forward to how

00:06:17.580 much more I'm going to understand this in a few hours than I do today.

00:06:21.060 Well, I'm sure with good questions, I'm going to learn a lot too. So I'm looking forward to it as well.

00:06:24.480 We're going to talk about the things that people care about, which is why is it so expensive?

00:06:29.520 Why isn't everybody covered? Why do we not have the best life expectancy? In fact, on average,

00:06:34.600 why do we have horrible life expectancy despite spending twice as much as anybody else? But we can't

00:06:39.280 have that discussion if people don't understand the system. And that gets to what I just said a

00:06:43.800 minute ago. It's a really complicated system. You're one of the most structured thinkers I know

00:06:49.840 of. So I'm going to actually just defer to you as to what framework do you want to put to this

00:06:54.960 for people to understand how so many trillions of dollars flow in, how many so many trillions of

00:07:02.020 dollars flow out, who's paying, who's receiving, how is this thing organized, and why are we different

00:07:08.040 than every other country on the planet?

00:07:10.140 So let's start with how the system works from a financing perspective. And then I think we can

00:07:16.620 talk about how that's different than other countries. We can talk about the impact on

00:07:20.480 outcomes. And we can probably even start to set up the framework on, as you say, the things people

00:07:25.720 are interested in why and what can we do about it. But it's hard to start anywhere other than this is

00:07:31.880 now close to 20% of the U.S. economy, healthcare, 17, 18% currently.

00:07:38.340 But let's give a number to that. People don't understand how big the U.S. economy is. So how

00:07:41.840 many dollars are we talking about?

00:07:42.920 Yeah, we're talking about a U.S. economy, gross domestic product, that's probably $28 trillion.

00:07:48.240 That's 20% of the world, 25% of the world's economy.

00:07:52.040 With about 7% or less. And another way to think about it, that's almost $90,000 per person

00:07:57.940 in the U.S. We spend $11,000 to $12,000 per person in the U.S. on total healthcare expenditure.

00:08:04.900 Just to put that in context, $4 trillion of expenditure in the healthcare sector. If you

00:08:12.280 added up all of the exports that the United States sends out across all industries, you're

00:08:17.680 talking about $3 trillion. We import more than we export. We're a consumer culture. That's close

00:08:23.500 to $4 trillion, but not quite at $4 trillion today. I mean, you just put that in context

00:08:28.180 in terms of how much we spend in healthcare in the U.S. It's a huge number. And I appreciate

00:08:34.320 the comments about how healthcare as a topic waxes and wanes with respect to being top of

00:08:40.640 mind. But any discussion about the economy, about inflation, about jobs, you're really talking

00:08:47.480 about healthcare in many ways. It may not be as direct as talking about healthcare policy,

00:08:51.720 but you're really talking about healthcare given that it's almost 20% of the economy and

00:08:56.000 there's no escaping that.

00:08:57.660 Do we know that it represents roughly 20% of the workforce as well?

00:09:02.180 Well, it probably represents in terms of wages a little bit more than that because the average

00:09:07.100 wage in healthcare is higher than in other areas. And this is something that as we get

00:09:10.880 into how you think about the future, we should talk about because as healthcare, as a percentage

00:09:17.280 of the U.S. economy grows, you can't have that happen without considering what it does

00:09:22.100 to the rest of the economy. And that's going to be an important discussion around U.S. competitiveness,

00:09:26.560 U.S. affordability, U.S. coverage, et cetera, given the nature of healthcare and healthcare

00:09:32.060 issues today.

00:09:33.600 Do you think it makes sense, Sam, and feel free to shoot this idea down, does it make sense

00:09:37.480 to go back to the 1950s to start with Hillburton, to start with, and then progress into Medicare

00:09:44.400 and Medicaid? Does historical context give people a sense of what happened after World

00:09:49.420 War II?

00:09:50.300 Let's do that because I think we can do it quickly and give people a sense of what happened,

00:09:54.040 but let's just start with painting the picture of where we are today and then let's back up

00:09:57.720 and say, how did we get here? So $4 trillion, just to keep this simple, about a trillion of

00:10:03.720 that, okay, one-fourth, comes from consumers. Some of that is spent in you and I both would

00:10:10.340 contribute to the insurance we procure, and some of that we're directly consuming healthcare

00:10:15.860 by spending money on healthcare services out of our pockets. But think about it as one-fourth

00:10:20.160 or one trillion. Employers put another trillion into the system. So how do they do that? Largely

00:10:27.740 through employer-sponsored insurance. So that's the second trillion. So now you've accounted

00:10:31.700 only for half of it. So where's the other half coming from? The other half is coming

00:10:35.700 from government. Federal government and state government. These days, a lot of it is federal

00:10:40.800 government. And the federal government contributes in two different ways. Direct expenditures, and

00:10:46.860 as we'll get into when we start talking about history, employer-sponsored coverage being the

00:10:52.920 dominant source of coverage is unique to the United States, which is that your employer procures

00:10:58.600 health insurance for employees, which then provides a form of coverage. That's relatively

00:11:04.200 unique. Let's make sure that people appreciate that because someone listening to this might say,

00:11:09.700 I have a health insurance card and it says Blue Shield on it. So doesn't Blue Shield provide my

00:11:14.580 insurance? That's correct, but it's coming through your employer. And most people would recognize that

00:11:19.300 because of their annual enrollment. So they're picking Blue Shield or Aetna or Cigna or United,

00:11:24.940 or if they're in a Medicare plan, they may be looking at Humana or other blues plans.

00:11:30.320 But the point is that the Humana, the Aetna, the whoever is on the card is usually providing an

00:11:36.940 administrative service only if the employer is large enough that the employer is bearing the risk,

00:11:42.460 which maybe we'll get into that. Maybe we should explain that a little more.

00:11:45.540 So you've got a fourth that people are spending out of pocket in one form or another. Some of it,

00:11:50.380 of course, to subsidize their ability to buy insurance. A fourth that's coming from employers

00:11:55.160 directly out of their profits. Now, think about that trillion dollars for one second.

00:12:00.260 Total U.S. corporate profits are about, interestingly, coincidentally, just south of four

00:12:05.700 trillion. Really? Corporate profits. Okay. Post-tax. So the expenditure in healthcare is pretty

00:12:12.720 significant when you think about it that way. Now, off of total revenues, of course, it's a lot lower

00:12:17.240 as a percentage. But if you think about it from the perspective of total corporate profits, that's a

00:12:21.800 big, big number. The U.S. consumer spends, you should think of it this way, for that $1 trillion.

00:12:30.380 If you have a $20 bill, $1 of that is going into direct healthcare expenditure, like 5% of someone's

00:12:36.940 expenditure in an annual average basis. And then you've got the government. The government's spending

00:12:42.140 about $2 trillion. Again, it's direct spend plus there's tax subsidy for employer-sponsored insurance.

00:12:47.880 We'll get into that because that's a unique feature. When you talk about 1950s, 1954, the tax

00:12:53.920 benefits for providing employer-sponsored insurance were codified into law. By the way, going back to

00:13:00.000 that $1 trillion that employers are spending, that is a pre-tax benefit basically to employees.

00:13:09.340 And that's the incentive. And that's the incentive that started back in 1954, which is that giving

00:13:15.460 people healthcare coverage through group-purchased insurance by your employer is a pre-tax benefit

00:13:21.980 rather than a post-tax benefit. So it created an incentive for employer-sponsored insurance to

00:13:27.240 grow and now, of course, ultimately become the dominant form of which people procure insurance

00:13:32.520 today outside of government.

00:13:33.860 What's the approximate cutoff in company size, at which point it makes sense to self-insure,

00:13:41.300 which is what you're describing?

00:13:42.620 Oh, I think it's, to your point, it's mostly larger companies that do that. But, you know,

00:13:46.220 the definition of large isn't that large. I mean, there are entities-

00:13:51.020 500 people?

00:13:51.580 Yeah, there are entities with less than 500 employees that self-insure at times. Not that common,

00:13:57.000 but certainly as you get above that level, it makes sense. Let's for a second put the federal

00:14:01.140 spending in context. I mean, close to, with the direct and the tax in-kind contribution to healthcare

00:14:08.700 the federal government is making, you're getting close to $2 trillion, $1.82 trillion. Defense

00:14:14.900 spending, let's just put that in context. That's about a trillion. Social security, $1.2 trillion today.

00:14:22.100 Social security doesn't come out of tax revenue directly.

00:14:25.360 That's correct.

00:14:25.960 The number that I keep thinking of, Sam, is the government collects $5 trillion a year in taxes.

00:14:31.440 That's the government's income, is $5 trillion. And we're putting 40% of that right back into

00:14:37.620 healthcare, if I'm understanding this correctly?

00:14:39.420 Well, yeah. I mean, that may be what we collect, but obviously the government is spending closer

00:14:43.280 to $6.8 trillion or something like that.

00:14:45.340 That's right. There's a deficit.

00:14:46.460 Yeah.

00:14:46.600 So this is the other thing that we were talking about the other day that just blows my mind,

00:14:51.560 which is we collect $5 trillion a year. We spend $7 trillion a year. So we have a deficit of $2

00:14:58.260 trillion a year in perpetuity. Oh, and by the way, we're sitting on $35 trillion of debt.

00:15:04.300 Total debt.

00:15:04.720 We're going to come back to this point. I'm going to borrow from Paul Tudor Jones

00:15:07.960 on his very eloquent explanation for how do you put that in context?

00:15:11.320 Yeah. I mean, ultimately, that is, I think, the question when healthcare is such a large

00:15:16.460 part of the economy, how sustainable is it, what we're doing in healthcare expenditure?

00:15:21.720 So you take all that money and financing, and then in the US, there's a system that it

00:15:27.380 goes into, right? You got $4 trillion, a quarter, a quarter and half from government,

00:15:31.580 and you're flowing it into a system. And in our system, about $2.5 trillion of that,

00:15:36.980 plus some from the government, is flowing into private insurance. They're covering what we

00:15:42.860 would traditionally call commercial insurance, but the private insurance community is also covering

00:15:47.360 a bit of Medicare and Medicaid, increasingly large proportions of that.

00:15:52.120 That's through programs like Medicare Advantage and things like that.

00:15:54.580 Medicare Advantage or Manage Medicaid or other things like that, that allow for theoretically better

00:16:00.760 choice, better benefits, and other things, and maybe even cost control. And then there is a retail

00:16:05.800 component. And then obviously, the government does pay directly to providers through Medicare and

00:16:10.580 Medicaid some amount of money, and that's about a trillion dollars. So the split and flow, you can

00:16:16.680 break it down pretty simply from that perspective. When I look at how the money's spent in a way that

00:16:23.040 people can understand, I think of very simple rules. We'll get into this, which is administrative

00:16:27.880 cost in the US is probably one of the biggest gaps to what we see in the rest of the world. And that can

00:16:33.780 be good or bad. You have to make a judgment about whether all that administrative spend

00:16:37.320 is creating a better system with more choice and better outcomes or not. But we do spend that. And

00:16:44.440 that takes up close to 10% to 15% of the total pool of dollars. When you think about that number

00:16:49.600 on $4 trillion, that's a huge amount of money going into administration. We'll talk about that.

00:16:55.120 For the remaining dollars, about a third goes into hospitals, hospitals and infrastructure-based care.

00:17:00.580 About a third goes into physicians' offices and other clinic-type activities. And about a third

00:17:06.440 goes into drugs. Again, simplification from that perspective. In the drug, and I would add to that

00:17:12.000 maybe drug and device category, I'm including the cost of pharmaceuticals that might be administered in

00:17:18.540 a doctor's office or a hospital. So just think about it as a third, a third, a third. And that's how

00:17:23.440 people can think about it. When I go spend my money or I go into the healthcare system and I'm spending

00:17:28.500 money, on average, a third, a third, a third is happening there. Obviously, some people never end

00:17:33.220 up in the hospital. A small proportion of people end up costing us a lot in hospitals, for example.

00:17:38.520 Some people are not on any drugs. Some people may be on five or six drugs. The system has a variety of

00:17:43.500 what I call cross-subsidies in it. And just so that folks who are maybe thinking about other ways that

00:17:49.040 they've heard this, because I know you've described it this way, which is it's often presented as half of

00:17:54.300 healthcare dollars are flowing into the facilities. One third of the doc is going into payroll and

00:18:00.180 physicians, and then one sixth is going into drugs. That's right.

00:18:04.200 But the problem with that view, and the reason I like your one third, one third, one third better,

00:18:08.820 is it's more transparent, which is in the previous world where we say half goes into the facilities,

00:18:13.620 we're discounting how much of that contains physician salary and how much of that also contains

00:18:18.420 pharma. So when you strip that out, it's actually more elegant to point out. It's one third,

00:18:22.520 one third, one third. The delivery industry is a pass-through to other things in some ways.

00:18:26.480 And the 3-2-1 framework was probably an older framework. If you look at the rise of the total

00:18:32.040 drug costs, which I'm sure we'll get into, the third, a third, a third is absolutely a more

00:18:36.080 transparent and simplified way of looking at how we're spending our dollars.

00:18:40.100 Okay. That's where we are today. Let's go back. It's 1950. Someone comes home, you know,

00:18:45.540 it's late 40s, early 50s. The U.S. is on top of the world. We're the greatest country in the world.

00:18:51.140 Our GDP as a percentage of global GDP has never been higher and may never be higher again. In fact,

00:18:57.720 even today, by the way, I just looked this up because I was so interested. If you look at the

00:19:01.640 percentage of global GDP that is the U.S.'s, today it's, quote, only 20 to 25%, which is still

00:19:07.960 staggering. It was close to 40% post-World War II. So what's happened over the last 20 years

00:19:13.760 is China's GDP has expanded so much that as much as we continue to grow, our relative share has gone

00:19:20.840 down. So economically, we've never been more dominant than we were post-World War II.

00:19:25.360 What is true of healthcare? How does a person take care of themselves?

00:19:30.220 The one piece of context I would add to that introduction is that at the same time,

00:19:34.300 the U.S. economy has grown robustly since then. Proportionally, I think that's an important factor

00:19:39.520 in affordability, which is had the U.S. economy stagnated and others grown, this affordability

00:19:45.280 question would be a very different question than what we've seen happen, which is the U.S. economy

00:19:49.460 has grown incredibly robustly. But if you go back to the 1950s, and by the way, this is a global

00:19:55.520 phenomenon. In and around the late 40s and let's say into the late 1950s, in many places, significant

00:20:05.240 investments in social welfare programs and healthcare were made. So we'll talk about the U.S., but

00:20:10.280 just as context, the NHS in the U.K. was created in 1948, okay? So the systems that were designed

00:20:18.340 to increase coverage originated in that timeframe, roughly. Now, for us, it was 1965 when Medicare

00:20:25.060 and Medicaid came into being, but it was somewhere in that range. So you go back to the 1950s. I mean,

00:20:30.580 first of all, we were spending less than 5% of GDP on healthcare, okay? Put that in context versus

00:20:38.200 17 and a half. Yeah, we're almost 20 at this point. Almost 20 from that perspective. More than half of

00:20:43.580 those dollars were spent out of pocket, meaning you went to the doctor. Which is today 25%.

00:20:49.940 Which is today 25%. And actually, if you look at direct expenditures where the dollars, some of the

00:20:55.800 dollars that you're putting in are going to cover your insurance premium, it's really 15%. So your

00:21:01.900 direct exposure, what you see and feel in terms of what you're spending on healthcare is down to 15%.

00:21:09.640 That's important because the socialization of coverage of costs has made the American consumer

00:21:18.340 less sensitive to the price points that they're seeing for everything, for drugs, for doctor's

00:21:23.420 offices, for hospitalizations, etc. The other thing that's interesting is today, that means 85%

00:21:30.520 of healthcare expenditures are covered by a third party, whereas it used to be about 50%. So again,

00:21:36.500 that sensitization phenomenon is real. The federal government contributed about, say, 12 and a half

00:21:43.200 percent to expenditures back then. Today, it's north of 35%. We've already been through that. When you add

00:21:48.660 direct spend plus tax benefits and other things that lost taxes for the federal government, etc.,

00:21:54.220 when you look at that, you're about a third of the expenditure being the federal government. So the

00:21:57.460 rise of the federal government's role in healthcare has been material and almost as rapid as the rise in

00:22:05.440 healthcare costs from that perspective. So it's a very different system of consumption.

00:22:10.820 Do we have a sense historically why as the NHS is coming into its existence in the UK and as most

00:22:21.020 developed nations are developing systems that look far more like the NHS than what we've done,

00:22:26.920 was there something about our geography being much more vast than, say, England was in the 1940s

00:22:34.100 that led itself to this? Was it the nature of states' rights versus federal power? Like,

00:22:41.320 what was the difference?

00:22:42.320 Yeah, I think there are all kinds of things in the ecosystem, including geographic diversity,

00:22:47.600 state versus federal rights, and even fundamentally the drive that the American consumer has in

00:22:55.440 determining their own outcome. If you look at our system today, much of its construct

00:23:01.100 is based on a desire for consumer choice. Many of these programs, these coverage programs,

00:23:08.080 or some would say welfare programs that evolved, like Medicare and Medicaid, were designed to solve

00:23:12.400 some substantial problem. So if you go back, what happened at that time? Two things happened in

00:23:16.960 the 1950s. One was there was a significant commitment to investment in hospital capacity at the time. I mean,

00:23:24.320 there were people in America, not just rural, but suburban, that did not have easy access to acute

00:23:30.440 hospitalization. And the technology and ability to intervene and save lives in that setting

00:23:35.180 was improving significantly. And I think at the time, there was a belief that it wasn't fair or

00:23:40.660 equitable that that access wouldn't exist. That's called the Hill-Burton Act, you referred to it

00:23:45.620 earlier, which if I think about it in simple terms, it guaranteed a hospital within every 10 or 15 miles

00:23:52.220 of every American in concept. And that's what happened. And that legislation drove our thinking in

00:23:58.440 terms of access all the way until it expired in close to 2000, 1997, if I recall, from that

00:24:04.320 perspective. So we made a massive investment in infrastructure from that perspective to provide

00:24:09.360 people access. Okay, and that's important. The second thing that happened, of course, is that by the

00:24:14.500 time you were in the 1960s, there really wasn't a coverage mechanism for seniors. I mean, there was

00:24:19.460 patchwork stuff, and there wasn't really a coverage mechanism for those with less means, what we

00:24:24.680 today call Medicaid. And it got to the point, especially with the importance of the seniors'

00:24:31.280 power, not only of the purse, but from a political standpoint, where on average, seniors were spending

00:24:38.640 a quarter of their retirement income from Social Security on healthcare. That wasn't sustainable. So

00:24:44.300 they neither had consistent coverage. It was inequitable. And on average, a quarter of the Social

00:24:49.100 Security check was being spent on healthcare. And so why Medicare and ultimately Medicaid associated

00:24:56.680 with it was you had a country whose economy was growing rapidly. We could afford to take care of

00:25:02.620 our seniors. And that was the decision at the time. And it was met with great support, obviously,

00:25:07.360 at the time. And so you created a system in which that coverage existed, and therefore the federal

00:25:12.340 government's expenditure jumped up significantly. Now, why did we not do with Medicare what was done

00:25:17.900 with Social Security? In other words, my understanding, which again, I'm embarrassed to say

00:25:22.240 how little I understand this, but my understanding is Social Security is funded directly. It is not a

00:25:27.500 budget line item. When I pay my Social Security on my paycheck, it's directly going to pay somebody,

00:25:33.860 correct? It's not like building up a war chest that the government has to use to be paying down in

00:25:38.640 the future. But Medicare works not the way Social Security does. But I still make a Medicare payment

00:25:44.520 every month. So in other words, why haven't we at least been able to eliminate the challenge of

00:25:49.520 Medicare and make it more like Social Security? Yeah. Well, we do pay Medicare taxes today. I mean,

00:25:53.820 now there are special taxes to help fund Medicare, but it's really, it's a solvency issue.

00:25:58.520 Well, then it's a fungibility issue as well. You can use a Medicare tax to do something else.

00:26:01.900 Absolutely. In hindsight, it's 100% clear. If you think about when the legislation was put in,

00:26:06.000 I'd say in 1950, we were like four and a half percent of GDP in healthcare. At the time,

00:26:11.340 Medicare came about in 1965, that number was in the mid sixes, mid to upper sixes at best. So who

00:26:17.860 would have guessed that it would have risen to 17, 18, potentially in the future, 20%? I think,

00:26:25.140 I mean, the U.S. healthcare system in many ways is a story, an optimistic story of well-intended

00:26:31.720 policies that now are questioned based upon the way the expenditures have increased.

00:26:39.080 There's another thing that's important to understand, which is as the U.S. healthcare

00:26:43.940 expenditures increased as a percentage GDP, so did the rest of the developed world. So every developed

00:26:49.360 nation that put in place programs, their version of Medicare and Medicaid, I understand more state

00:26:54.780 run than privately run, their expenditures increased. They started like us in the fours,

00:27:00.560 and they've landed in the 11 to 12% range. We've just accelerated up to 17, 18%. Think about it this

00:27:08.040 way. From that time forward, the U.S. economy relative to the healthcare economy, the healthcare

00:27:14.900 economy has grown roughly 2% per year faster than the U.S. economy. And the U.S. economy has grown

00:27:23.240 robustly, better than the rest of the world. So that's why the expenditures have gotten so high.

00:27:28.540 And there have been periods where that's been slower, and there have been periods where that's been

00:27:32.360 faster. Every time there's a new coverage event, Medicare or Medicaid, some of what happened with

00:27:38.220 the Medicare Modernization Act in 2000, we'll get into that when we talk about drug costs, and then

00:27:43.000 obviously the Affordable Care Act, which created significantly more coverage, that rate of increase

00:27:49.740 for healthcare expenditures relative to GDP growth has widened. We're taking some things for granted

00:27:56.120 here. Tell people what CMS is, what Medicare and Medicaid actually do. Who do they cover?

00:28:00.940 Yeah, yeah. CMS, the Center for Medicare and Medicaid Services, as it's called. Medicare covers

00:28:05.680 people over the age of 65, and a bunch of special categories of people with severe chronic illness

00:28:11.560 take dialysis as an example, that it might be hard to find coverage on the private market over a long

00:28:17.000 period of time, given their needs. It is more than what I would describe as a safety net program.

00:28:22.300 It's a coverage program for people over the age of 65.

00:28:26.440 How long does one have to have paid into it to qualify for it?

00:28:29.780 Everybody qualifies for Medicare at the age of 65.

00:28:33.040 It's not like Social Security where you had to-

00:28:34.460 It's not like Social Security. The benefit doesn't vary.

00:28:36.360 Anyone who is a US citizen will qualify.

00:28:39.140 That's right. And so Medicare, another interesting piece of context, think about life expectancy. I mean,

00:28:45.240 we're going to get into life expectancy differences in the US. I mean, the fact is-

00:28:49.740 What was life expectancy in 1965?

00:28:52.180 Yeah, and I don't know what the exact number was in 1950 or 65. It wasn't what it is today.

00:28:55.860 And the other thing you would say is that, look, I think you would agree, over the last 100 years,

00:29:00.360 in the broad context and scheme of things, life expectancy in the developed world has improved

00:29:06.880 remarkably, 2x. And yes, there are now differences at the top of the spectrum between the US and

00:29:13.320 others, which we'll get into. But this is in the context of a very, very rapid improvement in

00:29:19.260 overall life expectancy. Health status may be a different thing. And I think that's also something

00:29:24.220 to talk about.

00:29:25.740 And Medicaid, just to round that out.

00:29:27.100 Okay. So Medicaid is a safety net program. It is a program designed for individuals below

00:29:34.480 different definitions, state by state, of certain measures of federal poverty level. And the idea

00:29:41.100 behind the coverage is that for those people, not only are their needs unique, but their ability to

00:29:47.380 access healthcare services can be challenged. And the benefit of having programs like Medicaid

00:29:53.920 is it increases, I won't say it makes it entirely equitable, it increases their ability to access

00:30:00.320 the healthcare system in a reasonable manner with a coverage system that avoids taking those

00:30:07.000 least fortunate down a path of severe medical debt that would be overwhelming to their personal

00:30:12.980 financial situation. That's how I think of Medicaid.

00:30:15.760 Do you have a ballpark sense of where those cutoffs are?

00:30:18.160 The cutoffs range somewhere between 100 and 200% plus of federal poverty level. And we'll get

00:30:25.140 into maybe with the Affordable Care Act, the exchanges and whatnot. Medicaid covers a lot of people. If

00:30:29.980 you think about this, it now today covers 90 million people in the U.S. more than Medicare.

00:30:35.120 Medicaid covers 90 million people today in the U.S. Some states, almost a third of those covered,

00:30:45.480 think Rust Belt states, are Medicaid today. So this is a very large program. Medicare covers probably,

00:30:51.320 I would guess, 65 million or so today and growing. As the population ages, we forecast that that 65

00:30:57.260 million will become close to 90 million at the peak of the baby boomer aging, which is around 2032

00:31:03.900 in terms of timeframe. But Medicaid today covers about 90 million people. That's a big number.

00:31:09.240 What is the federal poverty level today?

00:31:10.860 I don't know. We can look that up in terms. I can tell you that the income level that defines

00:31:16.360 federal poverty is pretty low. You or I would not consider that to be a reasonable living wage or

00:31:22.140 income for a family in this environment with the cost of goods being what they are today.

00:31:26.980 Yeah. In other words, there are people who will not meet the criteria for poverty who maybe should

00:31:32.040 based on purchasing power.

00:31:34.140 And who will be underinsured. And that's where things like the exchanges from the Affordable Care Act

00:31:38.620 have stepped in to provide at least options for additional coverage so that people's health care costs

00:31:45.420 can be offset.

00:31:46.660 Okay. That's helped bringing back to Medicare and Medicaid. So if you really look at, you have these

00:31:50.080 programs that came into play. So what drove the rapid expansion? Another view of the world would

00:31:54.500 have been that you had this coverage, the health care system stood still, and maybe the costs

00:31:59.740 increased, but they didn't increase beyond 6, 7, 8% of GDP.

00:32:04.120 Now, let me ask you a question. I'm sorry to interrupt you, and you can tell me to just punt this and

00:32:07.660 come back to it. I want to go back to the 1960s. We go to the great lengths to create Medicare and

00:32:13.020 Medicaid. Why did we not at that moment say, hey, why don't we just roll this out for everybody just

00:32:20.960 as the NHS has done? Why did we instead continue to keep two completely different worlds, which is

00:32:28.080 we have a government funded system for people of low socioeconomic status. We have a government

00:32:34.340 funded system for people over 65 or with very chronic conditions. But for everybody else,

00:32:39.700 we're going to do this crazy thing where your employer takes care of you.

00:32:43.580 The employer sponsored insurance system was already entrenched because of the tax benefits

00:32:49.520 that existed.

00:32:50.040 I see. So that was a decade earlier.

00:32:51.800 That is right. And so that was entrenched. And why does that matter? I think this is an important

00:32:56.540 point about our belief in consumerism and choice. The marketplace provides choice in a way that many

00:33:05.740 of the nationalized health care systems that exist in other countries don't. And if you really look at

00:33:11.660 many of those other countries, while they have a nationalized health care system that purportedly

00:33:16.000 has universal coverage, they also have a private system, no differently than ours, where people with

00:33:21.780 more means can procure better insurance and better access and a private health care system, etc. It's

00:33:27.940 just not as widespread as it is here. In this country, there was a belief that was institutionalized

00:33:34.680 by incentives that employer sponsored insurance was working. And remember, at that time, it wasn't that

00:33:40.140 expensive, meaning employers often covered 100% of the premium. So the employee did not end up having to

00:33:47.980 contribute like they do today to the cost of their insurance as an employee that they're receiving

00:33:53.920 from their employer. It was a comfortable system, if you imagine, at the time. And based upon the system,

00:34:00.720 you got choice. Which product do I want? What kind of network do I want? Et cetera. What happened as a

00:34:06.300 result of that expanding, especially employer-sponsored insurance expanding, is that insurance moved from

00:34:15.240 being an individual product based upon your or my individual risk to group insurance. What are you

00:34:22.240 doing with employer-sponsored insurance? You're aggregating all the employees and all their risk,

00:34:28.240 and you're socializing that risk among the whole group and saying, look, in order to protect each of

00:34:32.780 you individually, we're going to share the risk as a group, we're going to buy the insurance collectively,

00:34:37.980 and it'll spread the risk among us to avoid individual catastrophic loss from a health care

00:34:44.240 perspective. That's what we did. We socialized in group insurance. That was a big move in the

00:34:50.960 insurance industry as employer-sponsored insurance took off. Of course, Medicare, the concept of

00:34:56.380 Medicare itself, by bringing all seniors together, was also socialization of health care costs across

00:35:02.880 all seniors. Not all seniors spend equivalently, as you can imagine. So that was one. What happened on the

00:35:08.580 other side is absolutely a story of incredible innovation over the last 50 to 75 years in health

00:35:17.120 care. And we can all debate what's resulted from that, but development and maturity of the pharmaceutical

00:35:24.540 industry, development and maturity of the medical device industry, innovation in procedures and services

00:35:32.460 that have allowed people to have invasive procedures in manners that used to hospitalize people for

00:35:40.800 three weeks, and now it could be three days. And in some cases, if you're having a knee or hip

00:35:44.920 replaced, it's at best three hours in and out the door is amazing. And yet the impact of that, along with the

00:35:52.800 socialization of health care costs, and therefore removing the individual from understanding or feeling that

00:35:58.500 cost directly because they're insured, together was a virtuous cycle that just drove up consumption.

00:36:05.460 I'm not an economist, but people would look at this and say, okay, there's moral hazard and concepts

00:36:10.160 like that that exist with an insurance system like that. And we should spend a minute on what was

00:36:15.100 insurance designed for back then and what is it now?

00:36:18.420 I loved your analogy there. I've told this story before on the podcast, but assuming someone's listening

00:36:24.460 who hasn't heard it, it's a great example. So I had a friend who is American, but he lived and worked

00:36:29.820 most of the year in Riyadh in Saudi Arabia. And I was out visiting him in Saudi Arabia. This was 15

00:36:36.340 years ago. And we're at his flat and it was in the spring and he was just kind of getting ready to head

00:36:41.740 back to DC where he lived. And so I said to him, I said, God, you know, I can only imagine how hot it

00:36:46.320 gets in Riyadh in the summer. So if you leave here in May, you come back in September. How hot is your

00:36:52.820 apartment when you get back? Just out of curiosity, like, is it a sauna? And he goes, no, 70 degrees.

00:36:58.480 I'm like, what do you mean? He goes, I leave the air conditioning on the whole summer. I'm like,

00:37:02.360 you leave your house and leave the air conditioning on for four months? He goes, yeah. I go, that's

00:37:07.660 crazy. He goes, I'm not paying for it. The government subsidizes all of our energy costs here.

00:37:11.600 I pay the equivalent of a few cents per whatever it is. Like it was, he pays a few dollars over the

00:37:18.140 summer to air condition his place. This is the exact point. When you don't have skin in the game,

00:37:22.820 you can't make rational economic decisions. I shouldn't say that it's a rational economic

00:37:26.860 decision for him, but you can't make decisions that are wise in the context of resources. Yeah.

00:37:31.900 I think that if you look at the concept of insurance, I mean, insurance is for random,

00:37:36.620 infrequent and unpredictable events. And when the primary role of insurance was to prevent

00:37:42.680 catastrophic loss, if you had a heart attack or you had an accident or you had an appendicitis

00:37:48.040 or yes, or you had a cancer, which back in those days was less of a chronic disease,

00:37:52.440 the concept of insurance made some sense. Now, if you look at what drives expenditures from

00:37:59.260 a health status standpoint, it's a lot of chronic illness. And in many cases, it's multiple chronic

00:38:04.340 illness. We'll get into obesity, diabetes, heart disease, lung disease, even the innovation

00:38:10.540 in HIV care in this country. AIDS has become a chronic disease. Cancer is becoming more of a

00:38:16.520 chronic disease. We try to insure somewhat uninsurable events. You don't wake up every

00:38:22.120 morning and think, oh, I've got car insurance. Let me go figure out how to use my car insurance to

00:38:26.320 get an oil change. But when we think about we're going to go to the doctor to get a preventative

00:38:30.900 checkup or refill my regular diabetes medicine, which I'm going to be on for the rest of my life,

00:38:35.700 we think insurance. But it's not really an insurable event. Insurance today is a discount card.

00:38:41.960 It's not insurance in healthcare. Insurance traditionally would be in other parts of your

00:38:47.460 life where you procure insurance for random, infrequent, and unpredictable events.

00:38:52.360 Is this manifested in the financials? So if you look at the insurance companies and you strip out

00:38:58.560 their ASO business, the part I referenced earlier about the administrative part where they administer

00:39:02.720 insurance to the employers. But if you look at the part of their book of business where they bear

00:39:07.820 the risk, do they look like travelers? Do they look like Geico? Do they look like the types of

00:39:15.060 companies that Warren Buffett is obsessed with because of float? Or do they just totally function

00:39:20.000 different from that? No, no. They function differently from that perspective. I mean,

00:39:22.720 obviously they have a tremendous amount of expertise in managing risk, but the nature of that risk they

00:39:27.400 understand isn't random, infrequent, and unpredictable events. It's not car insurance. It's not life act.

00:39:33.700 It's not death. It's not disability. That's right. The fundamental understanding,

00:39:37.580 that the insurance companies have to have to be successful in their risk business is understanding

00:39:42.380 their risk pool. So you're going to have a thousand people in insurance. 5% may cost you 50%

00:39:48.520 of your total spend. 20% may be 85% of your total spend. And then you'll have a large group of people

00:39:54.360 that really on a unit basis don't spend very much. And they have to understand that risk pool.

00:39:59.380 If you and I wanted to start an insurance company tomorrow, I'm going to hang up everything I'm

00:40:03.360 doing. You're going to hang up everything we're doing. We're going to go start the Peter Somm

00:40:05.780 insurance company where we take risk. We don't have an ASO business. What would it take for us

00:40:11.240 to be successful?

00:40:11.920 It's very hard because the number one thing that would create the foundation beyond all of the

00:40:18.500 infrastructure and systems and other things required to function in a complex ecosystem

00:40:23.420 would be a large enough population of patients with a risk pool that you can understand.

00:40:28.440 I mean, look at all of the folks who've gotten into the newest exchange products that offered an

00:40:33.020 opportunity to do that are the exchanges that have come out of the Affordable Care Act.

00:40:39.000 And there have been insurance companies that have popped up and have failed. And there have been

00:40:43.700 some that have struggled but still exist. And there have been some that have been gobbled up.

00:40:48.080 The vast majority of success on the exchanges has been through traditional insurers who have the

00:40:54.100 foundation of the systems to do so. And the innovation in that space has come from the Medicaid

00:40:59.600 insurers who adapted their processes and systems to be able to come onto the exchanges at a lower

00:41:08.340 cost point. So it would be very hard. It would be very hard to do that. Remember, the other thing

00:41:13.860 you'd have to have if you had an insurance pool, given that you have to make payments timely,

00:41:17.460 is you've got to have enough capital backing the insurance risk. And so where do you raise all

00:41:23.260 that capital? That's another thing.

00:41:24.900 There's so many more questions I have on that, that I'll punt for when we get to the ACA.

00:41:29.700 So the two things, we got a $4 trillion system, it's almost 20% of our GDP. It was not anything

00:41:37.380 like that in the 1950s. There are a number of coverage welfare programs, if you will, that have

00:41:42.760 been put into place, many of them done in that context in that time, not only with good intention,

00:41:48.840 but reasonable projections that things would not have grown like this. Medical innovation. I mean,

00:41:55.940 just look at the number of patents in the industry and how they've grown. The combination of medical

00:42:00.700 innovation, drugs, devices, service innovation, procedures, along with coverage, coverage that

00:42:07.640 was disconnected from individual accountability, created a virtuous cycle of spend increase that has

00:42:13.260 gotten us to this place. And it has been faster than GDP. And at the same time, it hasn't broken

00:42:20.100 the system because the US economy has been thriving. I mean, the arguments about affordability that we

00:42:26.120 may get into would be, well, at this level of expenditure, it's draining the US economy from

00:42:31.980 being competitive. Well, I'm not sure that that's actually true yet. And we can get into forecasting

00:42:37.440 where it's going to go. I'm not sure that's true yet. All of the dollars and benefits that have gone

00:42:42.640 into creating a healthcare system have created millions and millions of jobs. If you look back

00:42:47.440 over the last 20 years, healthcare has probably created more jobs as a sector than in any other

00:42:54.100 sector in the United States. Yeah. I was trying to think of that some. The only two things that I

00:42:59.580 could even put alongside it as huge sectors probably still don't create as many jobs would be energy and

00:43:07.520 agriculture. Those would be the only two industries that could even come close to being in the same zip

00:43:12.460 code as healthcare. And what's unique about those three, putting aside the defense industry,

00:43:17.620 energy, agriculture, and healthcare are the three most subsidized industries by the government.

00:43:24.060 Three most subsidized industries by the government. By far, right? I mean, agriculture has been for a

00:43:28.500 long time. Energy is very much so today, not just from a national security perspective,

00:43:32.540 but in terms of the innovation needed there. And healthcare has been so, again, as we said,

00:43:36.940 in the US probably since the early 1950s, certainly since 1965 when you had Medicare and Medicaid come

00:43:43.620 about. And so the expenditures have just grown. Obviously, aging contributes a bit to that. There

00:43:49.300 are some differences we can outline with other countries if we have an interest in it, but aging

00:43:54.000 contributes a little bit to that. And then obviously, as business has grown, the value of this pre-tax benefit

00:44:00.080 as more and more people are employed has grown to continue employer-sponsored insurance as a vehicle

00:44:06.220 of private insurance to match the public programs, Medicare, Medicaid, and otherwise. And so the

00:44:11.700 expenditures have grown significantly. One of the things that comes up is what have the industry

00:44:18.820 participants done to actually help with this problem? And the argument will always get made,

00:44:24.600 well, it's grown so quickly they've done nothing. And I don't think that's even remotely true.

00:44:28.140 Sadly, I think you could be in a situation where expenditures would have grown even faster.

00:44:33.600 So think about this. From a hospitalization perspective, the number of bed days per thousand,

00:44:40.820 so how many hospital days per thousand population have fallen by a half since 1980? The number of

00:44:47.240 physicians per thousand people has more than doubled. The industry has added significant physician

00:44:53.740 capacity in order to help with access. Do we have shortages still in certain areas? Of course we

00:44:59.520 do. But the number of physicians has doubled from about one and a half per thousand to 2.8 per thousand.

00:45:08.300 So the industry has expanded its capacity. The insurance companies, through their managed care

00:45:14.260 programs, have demonstrated the ability to manage cost. If the consumer were accepting of some of that

00:45:21.980 management, that's a different issue to get into, which is how to do managed care in a way

00:45:26.180 where it doesn't reduce and frustrate consumers or physicians with respect to choice and professional

00:45:32.560 freedom. But make no mistake about it, tight managed care has controlled costs for a short period of time

00:45:38.340 until there's been a bit of a revolt in terms of that. And product choice within insurance companies

00:45:45.500 has created choice. So if you go back, you had Medicare for a very long time. Sometime around

00:45:50.900 the late 90s, 2000, Medicare Advantage really took off. Why did Medicare Advantage get created?

00:45:57.600 Medicare Advantage was a way to create product and benefit choice for seniors that wasn't just

00:46:04.880 traditional Medicare. It's sort of the equivalent of the private insurance in the NHS system where

00:46:09.360 you get the state-sponsored thing, but you want more choice.

00:46:12.640 Right. And the government gave an incentive. I mean, I think that

00:46:15.500 payments to private insurers as an incentive to get into the Medicare space were almost 115%

00:46:21.960 of regular Medicare expenditures because they were trying to incentivize bringing people into the

00:46:26.560 system, privatizing part of the system, providing better benefits, giving them choice, and ultimately

00:46:33.220 have that managed care hopefully reduce cost. And the jury's out on that in terms of whether it's

00:46:38.440 really reduced cost or shifted cost or whatever. But it is a highly functional, private

00:46:44.840 system built on government dollars called Medicare Advantage. And increasingly managed Medicaid is

00:46:51.140 doing the same thing. So the industry participants have done a lot in many ways over the last, in

00:46:57.220 particular, 30 years in this space to try to curb costs without necessarily reducing this fundamental

00:47:04.680 driver that defines our healthcare system, which is the desire for immediate access and choice.

00:47:11.080 I would even add another point to that because we're going to go deeper on those two, but you even

00:47:21.380 mentioned that the number of physicians has doubled basically over the last 40 years, while the number

00:47:26.160 of hospital bed days has fallen in half. Yeah. And the number of hospitals has declined.

00:47:30.380 The other thing to keep in mind is physicians in this country spend infinitely more than in any other

00:47:35.600 country to become educated. And therefore the debt that they assume upon completion is also a big part

00:47:41.680 of what drives, presumably we must have the highest physician salaries in this country.

00:47:46.060 Yeah. The U.S. has the highest physician salaries relative to other countries, but I would tell you

00:47:50.660 that physician compensation on a real basis since the 1990s has been flat or declining. That is a stunning

00:47:57.960 fact. It grew rapidly from the 1950s roughly until the early nineties. But since then, physician

00:48:05.600 compensation has been flat or in many cases declining. That has a lot of implications given the medical

00:48:12.660 training debt that you're describing about our ability to continue to grow the pool of physicians

00:48:17.880 to meet the growing demand of healthcare services as the population is still aging, but also aging with

00:48:25.500 chronic illness so that their needs are more intensive rather than not. And I'm not even yet getting

00:48:30.680 into mental health, which has been an area that's been underinvested in for the better part of three

00:48:36.940 or four generations, which, you know, as we now realize actually costs a lot, not just for mental

00:48:42.780 health, but the impact on physical health, which drives our healthcare costs, especially in the context

00:48:47.600 of chronic illness. We've been talking a lot about choice, but is it worth maybe spending a minute to

00:48:52.580 explain to people some of the terms that I'm sure they've heard, but might not fully understand? Like

00:48:56.680 what's a PPO? What's an HMO? What's value-based care? How does Kaiser work? Can you explain what those

00:49:03.900 things are so that people understand when they're making their selection at open enrollment, they get a sense

00:49:09.240 of what those things are?

00:49:09.680 Yeah. The way I would think about a PPO plan is it's one in which you're procuring insurance where you have

00:49:14.520 relatively open network choice. Okay. So there may be a preferred network where you get somewhat of a

00:49:21.240 discount, but you have the choice to go wherever you want, however you want, et cetera. HMO, a health

00:49:27.280 management organization, is one in which that choice is narrowed. You're making a choice upfront to come

00:49:33.760 into a program with less options such that the penalty for going out of that set of options is high

00:49:41.060 and theoretically comes at a lower cost. And then you have systems within those that kind of operate

00:49:48.840 in the frame of one of those two models, if you will. In the US, the PPO business has been growing

00:49:55.640 significantly faster than the HMO business, back to the point around choice. Let's use the right

00:50:00.740 word. It's more important than cost right now and has been more important than cost to consumers.

00:50:06.160 That's not to say that people aren't feeling the costs of healthcare increasing and the burden of

00:50:11.460 healthcare costs increasing in the way that they're getting their healthcare, but they're choosing PPO

00:50:16.180 more than not. The marketplace is speaking. The simple answer on an example like Kaiser,

00:50:23.600 Kaiser is largely a closed network health management organization where what you're doing is you're

00:50:30.640 buying an insurance product through Kaiser. It's a not-for-profit that you're buying an insurance

00:50:37.860 product through Kaiser, and you're agreeing to stay within their network of hospitals, doctors,

00:50:44.260 doctors, et cetera. They have a physician group that is largely bilaterally aligned to them

00:50:51.720 on an exclusive basis that's a for-profit entity, the physician group. And the two of them together

00:50:57.720 produce a product that ought to cover the vast majority of your healthcare needs. And in theory,

00:51:03.680 based upon that integration of care, you either get lower cost or better outcomes or both.

00:51:08.820 And again, I think the jury from a long-term perspective relative to other models is out,

00:51:15.020 but it's innovative. And it's worked in some places really, really well.

00:51:18.680 And they don't try to cover everything, right? So if you have a child that's born with the most

00:51:22.840 obscure congenital cardiovascular malformation, they might just say, you know what, that's something

00:51:28.380 we will just send up to UCSF because they've got the right person there.

00:51:32.180 I mean, my personal example, my mother had a rare form of brain cancer. We had terrific oncologists

00:51:37.660 at Kaiser who were incredibly dedicated and knowledgeable about oncologic care, who without

00:51:45.260 hesitation sought expertise from UCSF when they needed it for the more sophisticated parts of her

00:51:50.860 care, including letting her go there. So my personal belief from personal experience is that

00:51:57.100 clinicians do make a lot of the choices at Kaiser. They get knocked sometimes that somehow there's

00:52:03.840 a corporation sitting there telling them what to do. And yes, it is managed care. And yes,

00:52:09.320 there are restrictions on, in some ways, how they construct their system. But when you have an

00:52:16.240 esoteric problem, no one stops a physician from sending you to the right place there, in my experience.

00:52:21.980 And all systems that are in managed care have out-of-network expenditure for rare things.

00:52:27.920 I think that's a really important point and worth bringing up from that perspective. But you have

00:52:31.880 these systems then that work in certain places and don't work in other places that effectively.

00:52:37.320 The vast majority of the country today, from an employer-sponsored standpoint,

00:52:41.720 is working in some form or another of a PPO system where people have choice because that's what they want.

00:52:46.460 And again, that choice comes with a cost, as we've talked about, that maybe explains some of the

00:52:53.540 differences between us and other countries.

00:52:56.880 I grew up in Canada and I still have experience with the Canadian healthcare system because my

00:53:00.660 entire family is there. And I don't know if you have experience there previously, because I know

00:53:05.540 at McKinsey, you did a lot of work for different provinces and stuff like that, and obviously through

00:53:09.880 the NHS. Here's my take. And again, it's so anecdotal that I'm curious if it's reflective.

00:53:13.940 My take is that if you needed heart surgery, if you need a aortic valve replacement and

00:53:20.500 a root repair and a cabbage, there is a surgeon in Canada that's just as good as

00:53:24.960 the surgeon in the US. Meaning the top 10% of the surgeons in Canada and the top 10% of the

00:53:29.480 surgeons in the US are going to be indistinguishable in that regard. You're really going to get great

00:53:33.240 care in that regard. The difference is you're going to wait a heck of a lot longer. The hospital

00:53:37.260 experience could be entirely different. Obviously, you're not paying for it.

00:53:41.460 Well, I think you have to be careful about that. You're paying-

00:53:42.960 You're paying for it, of course, through your taxes. Yes. Yeah. It's not coming out of your

00:53:45.940 wages directly. And you're not paying out of pocket, to your point. Again, you're shielded.

00:53:49.460 You're more shielded from the cost. But boy, if you're dealing with something like you've injured

00:53:56.020 your knee and you need an MRI, the difference in how long you will wait to get that, it's immense.

00:54:02.760 The speed, the choice, the access is really what goes down. The quality is not really the thing

00:54:08.300 that has, at least in my experience, been degraded in a system like Canada.

00:54:12.660 I think there are excellent physicians around the world and developed countries all over the

00:54:17.380 place. There's no question about that. I would tend to agree with your description of the top

00:54:21.680 physicians in both places. I would draw one distinction, which is I think emergency care

00:54:28.020 is accessible on an emergent, immediate basis in most developed countries. Now, the interventions that

00:54:34.300 they may take, how interventional it may be, how aggressive they may be using the most modern

00:54:39.080 technologies or modern devices or whatever may be different. But emergency care is available.

00:54:45.700 If you had a heart attack immediately in Canada, went to the emergency room, you're going to get

00:54:50.580 treated very well. I think where things change is the elective care. And by the way, heart surgery

00:54:54.760 can be an elective because you might think of elective as cosmetic surgery. No. A hip replacement,

00:54:59.700 a knee replacement when you can't walk, a cataract replacement when you're half blind,

00:55:04.780 or heart surgery can be elective. You're just scheduling it in advance. And you're absolutely

00:55:09.620 right. In many parts of the world, the wait times for those things are much longer. The cynical view

00:55:14.620 of that is, of course, that it's a cost management system. But what I would say is they've made a

00:55:20.160 choice. It's an infrastructure. It's an infrastructure choice. So the way you would describe this in

00:55:24.460 economic terms is that you have universal coverage, which creates the same moral hazard

00:55:30.580 problem that we described here. People would consume infinitely, but they choose to cap it

00:55:35.120 with supply side interventions, constricting the supply or available supply of services in order

00:55:42.100 to manage the demand. And what does that do? It creates wait times, right? Or accessibility problems.

00:55:48.040 And you have a lot of Canadians who come into the US for healthcare on a more immediate basis,

00:55:52.480 or they buy private insurance, which can reduce the wait times from that perspective if they can

00:55:58.140 afford it. I mean, for better or for worse, right or wrong, nowhere in the world, no matter what

00:56:03.900 healthcare system you're in, in a developed country, do you have fully equitable access? Those with means

00:56:10.640 there is always a system to procure better access from that perspective. The thing that's different

00:56:16.760 in the United States at scale that I think is interesting is not just the focus on consumer

00:56:24.060 choice, but the United States has become comfortable in healthcare being the driver and leader of

00:56:30.600 innovation. So in healthcare services, that is the proliferation of academic health science centers

00:56:37.040 that conduct research, much of which used to be supported exclusively by the NIH, which is a brilliant

00:56:43.540 construct over the history of the United States, to really fund basic research and innovation,

00:56:49.840 now clinical research and innovation, and increasingly funded through private industry.

00:56:56.320 And that has driven a large proportion of the innovation in the world. The science that supports

00:57:02.920 pharmaceutical development, for example, comes out of US academic health science centers,

00:57:07.580 largely speaking. And then you have US-based pharmaceutical companies that develop 75-80%

00:57:14.260 of the world's pharmaceuticals, and you can keep going and we can get into drug costs. But it is a

00:57:19.020 unique feature of this country that we have chosen to make that investment for the rest of the world.

00:57:24.560 As I said the other day, it's no differently than we've seems to have made that choice in defense.

00:57:29.480 And there are differences between the two.

00:57:32.080 And this is what I want to come back to. So we're going to go into PBMs because I'm amazed

00:57:36.680 we are as far into this podcast as we are, and we haven't discussed PBMs. So we're going to get

00:57:41.520 right to it for the people who are listening to us going, how have you not talked about drugs yet?

00:57:46.040 But here's the fundamental difference. You made a great point. So post-World War II,

00:57:51.200 Bretton Woods Accord, the US makes a deal with the rest of the world effectively,

00:57:54.920 which says there's a Cold War coming. And if you choose to be our ally, we will provide you security.

00:58:02.900 Specifically through our Navy, we will ensure that your ships can pass freely throughout this entire

00:58:09.260 world. We will not plant a flag on your soil. We might use military base. We're not here to be

00:58:15.540 conquerors. We're not here to be emperors. But if you pick our side, we will assure your security.

00:58:22.080 And so that's an example of how we greatly subsidized defense for the world, but we got

00:58:28.160 something out of it. Now, when we are subsidizing drug costs for the rest of the world, because as

00:58:35.640 you point out, we develop all the drugs. It's not like we get different drugs than everybody else.

00:58:40.420 Everybody else in the world gets the same drugs we developed. Everywhere else in the world has price

00:58:45.760 controls that lower the cost of that. And in true economic fashion, it's sort of like somebody is

00:58:52.780 squeezing down on the tube of toothpaste. All that toothpaste is exploding in the United States.

00:58:58.160 with drug costs. So the question becomes, what are we getting for subsidizing the rest of the

00:59:04.660 world's drug price?

00:59:06.820 Well, first, I think you got to look at this in the context of when it developed. You're back to

00:59:10.280 the question of, could anybody have predicted that we were going to go from 4%, 5% of GDP to 17? Could

00:59:16.800 anybody have predicted that the drugs that were going to be developed and the advances in science

00:59:22.260 would result in multiple therapies for common diseases and orphan diseases, which are rare

00:59:27.780 diseases? That might cost over a million dollars a year. Could anybody have predicted that? I think

00:59:33.300 the system as it was set up, especially because drug development at that time was new, in particular

00:59:39.640 small molecule development. And then somewhere in the late 70s, early 80s, you had the advent of

00:59:44.520 biologics, which then grew into commercial products, especially in the mid-90s, raised the bar on

00:59:50.620 innovation pretty significantly. And also, everything that happened with respect to genetics opened up

00:59:57.420 a whole broad range of therapeutics that didn't really exist before when you were just taking

01:00:03.000 small molecules and, at scale, testing them against targets. Now, the cost of drug development

01:00:08.820 went way up. Therefore, the price of drugs went way up, at least in the United States where you have

01:00:14.400 a market. Now, you end up in a situation, if you just fast forward to what people are thinking

01:00:19.140 about today, especially because it's all over the news, you've got GLP drugs that may have broad

01:00:23.500 benefit, okay, for the population in one form or another. Why? Fundamentally, the drugs may be

01:00:31.020 effective, but it's because our health status is poor. In a country where the health status wasn't so

01:00:36.120 poor as it is in the United States, which chronic illness, the cost of those GLP drugs might not be

01:00:42.040 projected to be so high because less people would need them. And we can get into that a little bit

01:00:46.500 around healthcare policy and what the national objectives for health would be, but you have

01:00:51.120 common drugs now for common conditions that are extraordinarily expensive. I mean, there are

01:00:58.020 alternatives that are much cheaper that might do a significant fraction, if not for many people,

01:01:03.640 all of the job. Metformin would be a simple, generic example that might take care of many of those

01:01:09.460 things for people at a price point that's a thousandth of what. But nevertheless, you have this

01:01:13.580 innovation and you have also a culture that's obsessed with things like medical approaches

01:01:19.060 to weight loss that has proven to be difficult to achieve through other means.

01:01:24.600 What's the closest the U.S. has come to trying to enforce some measure of price control in pharma

01:01:31.100 in the U.S.?

01:01:32.260 Well, remember, there's one thing that's important to understand is that the Medicare Modernization Act

01:01:37.400 that was passed in circa 2000, okay, which we've talked about some of the other aspects of it,

01:01:44.180 forbade HHS from negotiating for drugs as an entity, as CMS. I mean, we legislated that.

01:01:51.000 Right. We gave away negotiating power.

01:01:53.300 Yes. The Inflation Reduction Act, which was passed in the Biden administration, has

01:01:57.160 cracked that door open a bit for negotiation because the dynamics of drug pricing, the nature of the drugs.

01:02:04.620 Just go back to 2000. Did the U.S. government, at least for Medicare, say,

01:02:10.640 we will resign the right to ever negotiate?

01:02:14.040 Explicitly.

01:02:14.640 Was that a concession to pharma to get something else?

01:02:16.900 Well, how it came about in the lobby, I don't know the details. But it was an absolute direct

01:02:21.640 concession that forbade HHS from negotiating this.

01:02:25.340 Yes. But what did they get in return for that concession?

01:02:27.040 Well, there were a whole set of other things that were part of the Medicare Modernization Act that we

01:02:31.260 talked about, like Medicare Advantage was created and scaled up, which created a way to potentially

01:02:36.460 have managed care, maybe manage the utilization of drugs, and therefore maybe curb the expenditures,

01:02:43.220 create formularies that might encourage people to use generics rather than branded drugs if they

01:02:49.180 were equivalent. There were other mechanisms put in place to try to control what people did

01:02:55.160 understand as rising drug costs. They've just risen more substantially in the future. Again,

01:02:59.740 I go back to context at the time, what should have been well-intended, and what were the

01:03:04.800 unpredictable consequences in some ways.

01:03:06.580 Because the cynic is going to say, you know, Sam, that sounds to me like pharma had better

01:03:09.640 lobbyists than anybody else.

01:03:11.700 I mean, we live in a political system in which our representatives that we elect vote for us,

01:03:18.400 and they are subject to lobbying. That's the nature you would hope that that would be superseded by

01:03:23.640 good policy decisions at some point in time. And I'm not saying Medicare Modernization Act wasn't a

01:03:28.740 good policy decision, but I don't think it was a predicted effect what would happen. And so I

01:03:34.000 think cracking that door open is good. Look, we get into these philosophical debates about

01:03:37.760 we're a free economy, a free market economy. The government should not be engaged in price

01:03:42.940 controls. But think about this. Doctors are price takers from Medicare. Medicare sets their

01:03:49.800 reimbursement. It's price control.

01:03:52.380 They're price takers from private insurance, for the most part.

01:03:56.120 Hospitals take Medicare prices as they're given. So Medicare is a monopsonist. They're a monopsonist.

01:04:03.720 At the end of the day, they've applied it to doctors and to hospitals and other infrastructure-based

01:04:09.160 care where they set the prices based upon their purchasing power. It just hasn't happened yet on

01:04:13.920 the drug side. And you have to think, obviously, the debate is, how do you do that in a way that

01:04:19.620 doesn't deter innovation? Is there a sharing with the rest of the world that needs to happen? Or how

01:04:24.680 do you do it in a way where if it's just the U.S., it doesn't deter innovation? Because that innovation

01:04:29.040 has been incredibly beneficial to us in a number of different ways. And again, we're going to get

01:04:33.260 into health status and outcomes and why there aren't so good. But it has been helpful. And at the same

01:04:38.880 time, leave enough of a return that actually the innovation won't stop and start to take advantage of

01:04:44.860 some of that purchasing power. And I think that that's going to be an ongoing policy debate now that that

01:04:49.900 door has been cracked open. And I think what's new is that both the more, and I really don't want to get

01:04:55.920 into politics, but both the more populist brand of Republicans and Democrats seem to have

01:05:03.800 understanding drug prices are on their radar screen on both sides, maybe in different ways.

01:05:09.660 The industry will evolve and we'll see how that goes. Let's talk about this drug thing because

01:05:14.760 going back to the very beginning of the discussion, a third of the 85%, so again, I always like to anchor

01:05:22.200 people to it. We're spending $4 trillion a year on healthcare. 15% of that is administration.

01:05:28.020 That's something that exists virtually nowhere else. Of the 85% of that $4 trillion that's not

01:05:33.760 administration. Roughly a third of that is drugs and devices, and more of that is drugs than devices.

01:05:39.940 So drugs are a really, really, really expensive part of the US healthcare system. It also should

01:05:46.140 be patently clear to anybody listening to us right now that we in this country are singularly paying

01:05:51.720 infinitely more for every given drug than our peers are elsewhere for the exact same drug.

01:05:57.220 Let us now talk about the elephant in the room, the blessed PBM.

01:06:01.600 Oh, PBMs. Okay. So let's talk about what a PBM is because there's two issues

01:06:05.800 with the PBMs that we should talk about. One is what do they do and how effective are they? Let's

01:06:11.060 start there. Then there's the question of who owns them and how do they work and is that vertical

01:06:15.220 integration helpful or not helpful to the system, which we can get into. But the PBMs in essence

01:06:21.640 are organizations that formed as intermediaries between pharma companies, insurers, and pharmacies,

01:06:31.120 where you get much of your medication, in order to help manage an increasingly large complexity

01:06:38.600 of drugs. I mean, today there are probably 15,000 pharmaceuticals available. The PBMs were designed

01:06:46.080 to do a few things. Understand the market for those drugs. Make formularies that were either broad or

01:06:55.000 restrictive. Manage benefit plans for employers who were looking to have preferred pricing on certain

01:07:02.820 drugs versus other drugs. So they were created to try to say, okay, we've got a lot of expenditure here

01:07:09.620 in the drug arena. The choices are complex. The number of drugs has gone up 15 or 16,000, whatever that

01:07:16.740 number may be. And we need entities that help people make more informed decisions in some ways at scale

01:07:23.920 through employers or insurers. And in some ways at the retail pharmacy level, when individuals are

01:07:28.920 going to fill prescriptions, by the way, which includes things like generic substitution and

01:07:34.480 things of that nature when that's appropriate and is allowed. That's what they were created to do.

01:07:40.180 What did that create? It created a complex payment system because it used to be you buy a drug,

01:07:44.620 the money goes to the pharma company from the pharmacy. The pharmacy buys a drug, they pay the pharma

01:07:48.460 company, you have a direct interaction. In a hospital, you get a payment, the hospital buys

01:07:53.980 the drug from the pharma company, you pay them something for that drug, you administer the drug,

01:07:58.400 and you get paid as part of your global fee for taking care of that patient, whatever the case may

01:08:02.260 be. The PBMs came in the middle. When did they show up? PBMs showed up, forms of them showed up in

01:08:07.960 the 80s, but the growth of PBMs has been in the last 20, 25 years and really has taken off recently for

01:08:13.880 reasons that we'll get into about their ownership structure, if you think about it that way,

01:08:19.320 which has brought more scrutiny to them than used to be there. You've created a system in which now

01:08:25.680 money is flowing less directly in many cases through the PBMs. The pharma companies may sell

01:08:31.700 product, but depending on what the PBM is doing in terms of committing market share to the pharma

01:08:38.820 company, the PBM may earn a rebate. So you have a rebate that the PBM can earn. Now that rebate,

01:08:45.120 the PBM may share with the insurance company or the employer who's signing up for that PBM service

01:08:52.580 because they're saving them money through that rebate. So you have this new flow of dollars.

01:08:57.660 Again, the idea behind this was to have better formularies, better understanding,

01:09:02.460 allow people to have choice. Do you want a broad formulary? Do you want a narrow formulary?

01:09:06.360 Of course, incentives are incentives. And part of what's happened is that with a rebate structure,

01:09:13.380 you can imagine incentives can exist for higher price product to move through a PBM and pass through

01:09:20.340 and some of that being offset with rebates on both ends.

01:09:24.080 This is the classic example of, and I'm sure, I don't know who said it first, but it's been said

01:09:28.380 a million times. Show me how a man gets paid and I'll tell you exactly how he's going to act.

01:09:33.320 This is straight from the horse's mouth. I will not identify this individual other than to say it

01:09:38.060 is the CEO of a major pharma company who shared with me that he wanted to price one of his drugs

01:09:44.540 at a low level. He wanted to undercut similar products on the market and come in at a lower price.

01:09:53.080 The PBMs flatly told him, we will not put your drug on the formulary until you triple the price.

01:10:00.740 Don't worry, we will make it up to you with a rebate. I mean, I don't even know how this is

01:10:06.420 legal. I mean, you understand why that is happening from the incentive system? How is this legal?

01:10:12.480 How do these things exist?

01:10:14.400 I think in some ways, it's what we've said about most of the US healthcare system,

01:10:18.860 which is well-intended, reasonably constructed structures that might have been effective in

01:10:24.860 one setting as things have changed, become less successful in this setting. And economic incentives

01:10:29.820 can sometimes change to drive behaviors like you're describing, which I hope is not the norm.

01:10:36.220 But even if it's not as overt as a situation like that, subconsciously, what we've done is removed

01:10:43.020 any incentive for a drug company to be concerned with the sticker value of the price of their drug.

01:10:50.140 It's a meaningless entity because of these machinations and payments that you've outlined

01:10:56.200 where rebates and kickbacks completely change the economics. Again, the system was so opaque to begin

01:11:04.560 with. You've already outlined this idea where we're so uncoupled from our decisions. I don't just

01:11:10.860 mean as patients, I mean as doctors. We have no earthly clue what a drug costs when we prescribe it.

01:11:17.740 If I'm trying to decide to write somebody for resuvastatin versus atorvastatin,

01:11:22.220 it couldn't possibly enter my stream of consciousness why one of those might be 10 times

01:11:26.700 more than the other. And yet we continue to just add unnecessary cost to a system.

01:11:33.300 Well, I think you're getting at some of the more fundamental questions around what is innovation.

01:11:37.880 So do we reward the innovation of a statin itself as the innovation,

01:11:44.300 or do we reward the me-toos that come after it, which sometimes grow to be larger than the original

01:11:50.320 statin. And sometimes they're better. Terzepatide is better than semaglutide.

01:11:54.460 Absolutely. They could be better. But how do we reward that innovation? What happens oftentimes is a

01:12:00.000 floor is set in terms of the reward for the initial innovation. As things get better,

01:12:04.460 rather than competition with more molecules driving price down, it often drives price up because the

01:12:10.940 market moves to the better and better product. I mean, this gets back to supply-side intervention

01:12:16.020 in other countries.

01:12:17.560 I never thought of it that way, which is how much they throttle supply in a system where demand could

01:12:25.040 be unlimited and they have no control over demand.

01:12:27.320 Well, and in some of those countries, they will just say, look, 90% of the benefit is accrued with

01:12:30.640 simvastatin, which was one of the original drugs. You're not going to prescribe atorvastatin or

01:12:35.320 rosuvastatin. That's just not going to happen. And so there's a limit. And you have to qualify

01:12:41.060 with certain criteria that are stringent to get to that more expensive for the incremental 10%

01:12:47.560 benefit. We don't work that way in this country. Physician choice around physician decision-making

01:12:52.520 around those choices. And we've made the decision that we want to be able to afford that type of

01:12:57.300 choice for the incrementally better drugs, sometimes better from a side effect profile standpoint.

01:13:02.780 It can drive some of these decisions. We've made that decision on an individual basis rather

01:13:08.080 than a population basis. And I think the point that we're talking about today is it's getting

01:13:12.580 expensive. And it's getting expensive to the point where 17, 18, approaching 20% of the GDP

01:13:20.240 may be okay. But the next 50 to 75 years, if that grows to 35% of the US economy, I think then you have

01:13:29.620 some very, very serious arguments about how sustainable is that if the US economy doesn't

01:13:35.220 grow as rapidly as it has been growing. Well, now I'll bring up my favorite thing I've heard

01:13:39.960 recently when Paul Tudor Jones was speaking with Andrew Ross Sorkin. He wanted to put it into just

01:13:45.420 the simplest terms for why there was no rational argument why anybody should buy a US treasury,

01:13:50.740 which was imagine I have $700,000 of debt. You've lent me $700,000. My income is $100,000 a year. So

01:14:01.180 what does that mean? He's taking that from $35 trillion of debt currently and $5 trillion of tax

01:14:09.340 revenue. So my income is one seventh my debt. And as you pointed out, I'm going to continue to assume

01:14:15.840 $2 trillion of debt a year in perpetuity. And I'm saying to you, the US bondholder, the person who's

01:14:22.860 going to buy a 30 year treasury, I have $700,000 of debt. I make a hundred grand a year. I want you

01:14:29.620 to lend me 40 grand a year for the next 30 years. And I promise you at the end of 30 years, I'm going

01:14:34.040 to pay it all back. I mean, what do you have to believe for that to be true? You really have to

01:14:38.640 believe I'm going to have a remarkable growth of income or a remarkable reduction of cost somewhere

01:14:44.900 along the lines or a devaluation of the currency. Yeah. I'm going to have to inflate my way out of

01:14:49.200 this thing. And again, none of these things are desirable, but when you say healthcare costs over

01:14:54.940 the next two decades can potentially go from 20% to a third, how in the world could we imagine that

01:15:01.300 the other costs contract to accommodate that? That's right. And that's the issue, right? Which

01:15:05.640 is that ultimately that's a very difficult proposition to actually get your head around and

01:15:11.260 believe. And in particular, I think we should get into the outcomes in the U.S. to explain what we're

01:15:17.300 getting for all those dollars. You're right. It's very difficult to fathom expenditures getting to that

01:15:23.700 level. Now, one optimistic point of view on healthcare expenditure growth out there is that if you just

01:15:31.100 look at the aging curve of the population, in particular, the boomers and how they're growing, and even

01:15:35.980 with increasing lifespan, the aging of the population in the U.S. peaks at about 2032-ish

01:15:42.720 timeframe. You can look at different projections. So in the next eight years, we're going to kind of

01:15:47.060 reach the peak of aging. In other words, when I say aging, the number of people will grow every year

01:15:52.720 that enter the above 65 Medicare world. And that number will peak and then we'll start to come down.

01:16:00.980 So you and I will be right there.

01:16:01.940 We will be right there. That's right. And then that number will start to come down. It's not just

01:16:06.080 the boomers, obviously, but I'm just giving you the demographic. And the question is, when that comes

01:16:10.880 down, will that mitigate this long-term trend of healthcare expenditure growth? So that's the

01:16:17.580 optimistic view, that there is a mitigant built into the system just with the aging of the population.

01:16:23.380 Now, think about all of what you do. If at the same time, the consciousness and awareness

01:16:28.480 of just basic interventions in health status can improve health status even a little bit

01:16:35.380 from a chronic condition standpoint, because that's not going to be a one-year or two-year

01:16:39.060 phenomenon. It takes a decade. Those two could together make a big difference in U.S. healthcare

01:16:44.200 cost expenditures. The challenge in terms of what's happening on the other side, especially

01:16:50.040 in this context of debate around immigration, is we're not growing the population of people under

01:16:56.060 65 who generate the economic productivity to fund the system to get to 2032. If you go back a number

01:17:03.900 of years, like the 80s, and you look at the number of people pre-Medicare, so call it 40 to 65 years old

01:17:10.780 to Medicare, it was two times the population. Two to one.

01:17:15.200 Two times we're paying in to...

01:17:17.120 Well, I'm roughly saying highest economic productivity is 40 to 65.

01:17:22.020 Two times the number of people as you had Medicare. That number is trending towards 1.0

01:17:27.180 by the time we hit 2032. So the generators of economic activity... And you know, economists will

01:17:35.440 get into this discussion of, well, one of the reasons the U.S. can afford to spend more on

01:17:38.560 healthcare is we tend to work longer than much of the rest of the developed world. 65, people talk

01:17:43.940 about working into their low 70s and others. So we generate more economic wealth to subsidize this

01:17:49.740 healthcare system and other things that we may want to subsidize in the country.

01:17:54.080 But that drop from two to one is significant. And that's happening at the same time that we

01:17:59.420 continue to have this aging. So while it's interesting to think 20 years out, I actually

01:18:03.960 do think for the next 10 years, we've got a problem. We've got expenditures that we know

01:18:07.680 will grow because of the continued aging. The demographics are clear, and we have a reduction.

01:18:13.900 The only way to fill that is, of course, to have the U.S. economy still be an attractive

01:18:17.860 place for immigrants to come and work of all types at all levels of work in order to fill

01:18:23.820 that demographic hole. And we've got to get our head around that problem. I mean, who would

01:18:28.040 have thought immigration is related to healthcare? We talked about this election. People are talking

01:18:31.780 more about immigration than healthcare. Actually, it's relevant to healthcare because healthcare

01:18:35.560 is such a large part of the economy. Everything comes back to it in the end when you think about

01:18:39.980 it at a macroeconomic level.

01:18:42.000 One of the things you pointed out that I was unaware of, although it totally makes sense,

01:18:46.240 and we could argue it's another potentially shining spot, is most people are very familiar

01:18:51.640 with the fact that relative to our peers as developed nations, the U.S. has a pretty

01:18:56.760 paltry life expectancy in aggregate. Most people can point to two things that tend to be the biggest

01:19:03.280 drag on this. So the first has to do with fetal maternal health. The second has to do with

01:19:10.240 overdoses in middle-aged men. And we spent time on both of these. These are related to both access

01:19:18.500 to health and deaths of despair, respectively. But the point you made was, once you reach about the

01:19:23.920 age of 70, your life expectancy in the U.S. exceeds that of any other nation. To your point,

01:19:28.640 that's when the system actually kicks in, in terms of dragging out life pretty well.

01:19:33.240 Let's talk about life expectancy. And I think the most important context to consider here

01:19:39.380 is that whether you look over the last 50 to 75 years, we've used 1950 as a marker,

01:19:45.240 or 100 years, life expectancy has improved remarkably. A lot of that has to do with

01:19:49.400 infectious disease and other things, and that's fine. So when we say our life expectancies in

01:19:53.480 the U.S. are paltry, I think what we're really asking is, why are we three years-ish?

01:19:58.300 Behind everybody else.

01:19:59.440 Behind everybody else, right?

01:20:00.220 Especially when we're spending 60 to 100% more, yeah.

01:20:03.840 And I think you make a really good point, which we've talked about before, which is

01:20:07.300 somewhere between 60 and 75, the equation slip. We go from dead last to first because the medical

01:20:13.700 system we've created that optimizes for access, quality, sophistication, technology, the best drugs,

01:20:23.020 flips. And it's actually quite effective at creating longevity from that standpoint. We can all

01:20:29.260 discuss whether or not, to use your language, the lifespan is improving with or without the health

01:20:34.300 span. But nevertheless, the lifespan is the best in the developed world. So what's going on in the

01:20:40.360 younger population? I think you hit on some of it. Look, infant mortality is two to three times

01:20:44.420 the rate that we see in the rest of the world. Why? We have a higher rate of teen pregnancies.

01:20:49.780 There's a higher rate of sexually transmitted diseases. You've got drug and substance abuse issues

01:20:55.360 that play into that. And some of it is just, again, going back to this notion of access for care

01:21:00.600 in the prenatal window. And that's really important. Two, which you didn't really touch on,

01:21:07.980 I would describe as broadly speaking, injuries and homicides. I mean, the rate of those in the U.S.

01:21:14.460 is significantly higher. I mean, homicides seven times the rest of the developed world. I mean,

01:21:20.740 some of that goes back to gun violence, of course, that's unique in the United States

01:21:25.040 versus others. If you look at this over a long period of time, by the way, some of the mortality

01:21:30.020 in the younger generations had to do with wars. But put that aside is not something as relevant

01:21:35.100 today. Drug and substance abuse issues and just the flow of things like fentanyl and others that

01:21:39.780 are creating a different generational impact of mortality is quite significant. Obviously,

01:21:45.540 the penetration of things like HIV and AIDS. And even though that's become a chronic disease

01:21:50.660 over the last 25 years, it's been a significant driver of mortality. So you have these features

01:21:56.140 that create excess mortality in the U.S., especially under the age of 65. Now, when you combine that

01:22:03.220 with the fact that our rates of obesity leading to things like diabetes and heart disease when you're

01:22:11.200 older are higher than the rest of the developed world, you have these unique issues. Plus,

01:22:16.880 you have a fundamental health status issue that we're now recognizing costs the healthcare system

01:22:22.580 money. Obesity and its consequences don't just emerge when you have out-of-control diabetes 15,

01:22:29.140 20 years later. The expenditures, the lost productivity in the workplace, all of those things

01:22:33.820 happen earlier. So when you put those two together, you have a health status problem. And by the way,

01:22:38.460 they overcome and overwhelm the things we're better at. I mean, oddly enough, we're better at getting

01:22:43.060 our vaccinations. We're better at cancer screening. We're better at treating blood pressure and

01:22:47.620 cholesterol in this country. Back to the pharmaceutical culture, we smoke less significantly

01:22:53.140 than other parts of the developed world. But guess what? That's being overwhelmed by these other factors,

01:22:57.700 in particular under the age of 65 or 70, whatever that range may be. And if you look at those

01:23:03.840 conditions, unlike how effective the public health model was in infectious disease, in reducing mortality

01:23:10.960 over the last 100 years, it's kind of been ineffective. I mean, the combination of public

01:23:14.640 health and nutritional science together in the way that they've evolved in the last 25, 30 years have

01:23:20.480 been ineffective in managing or dealing with these issues. Now, you can get into debates about

01:23:25.860 were they adequately funded or not funded and the quality of the science and all that. But the fact is,

01:23:30.580 they haven't been that effective relative to other interventions. And we've got to deal with that.

01:23:36.720 This isn't an insurance coverage problem. I mean, we pretty much cover everybody other than

01:23:41.980 undocumented today in the US or people that choose not to get covered because there are options now for

01:23:47.240 everybody. And in some states, we're even covering undocumented. It's not a coverage problem. This isn't a

01:23:53.080 system problem in many ways. The healthcare system can accommodate the illness. It's the question of what

01:24:00.220 led up to the illness that we haven't really fully dealt with in the country. And there's two forms,

01:24:05.600 again, societal issues, whether that be gun violence or poverty leading to bad access to prenatal care,

01:24:13.460 injuries, etc. Or the chronic diseases that seem to be more prevalent here. How you fix that,

01:24:20.620 you and I've talked about this for years. I mean, it's hard to change behavior. If you really want to

01:24:25.540 change trajectory, you really want to improve health span, it's hard to change behavior. And

01:24:31.200 the more of that that can get built into the background that just changes the way people eat

01:24:36.780 or changes the way people engage in physical activity, which could mean designing cities where

01:24:42.800 you have to walk to work the vast majority of time rather than drive, like many European nations have

01:24:47.560 done. Those interventions themselves must have some benefit because you're seeing different outcomes

01:24:53.400 between the countries. And it overwhelms all these other factors. I don't know that the healthcare

01:24:59.800 system as it stands today is going to solve our cost problem that's driven by the factors I just

01:25:06.580 described. It's certainly not going to change materially our outcome problem. Tinkering with the

01:25:12.980 different parts of the system, we might be able to affect cost. The outcome problem is a more

01:25:17.440 fundamental problem.

01:25:18.400 Yeah. There's so much you've said there is pretty typical of your brilliance, which is

01:25:23.160 you'll say something for 10 straight minutes. And at the end, I'll be like, that's a thesis that

01:25:28.920 might've taken me a year to come up with. What I took away from that, that's just very insightful is

01:25:33.900 prior to the age of 65, the reason that we're in last place is a few of these things that are

01:25:40.560 unfortunately more American than they should be. So we talked about access to guns, a culture of

01:25:47.140 violence, things you haven't even alluded to, but greater mental health crises that just go

01:25:51.400 hand in hand with all these things, poor access to prenatal care relative to other developed nations

01:25:57.580 that's leading to a far higher degree of infant mortality. And these things just add up. We talked

01:26:02.740 about the drugs. I mean, for heaven's sakes, we have a fentanyl pipeline coming into this country.

01:26:06.840 That's an embarrassment. And as a result, a hundred thousand people a year, more than that now

01:26:12.120 are overdosing. By the way, it gets back to this issue. The border is a healthcare issue.

01:26:17.960 It just is. You can't escape it. Everything ties back in one form or another to healthcare.

01:26:22.480 What I really thought was interesting is I talk about it in terms of medicine 2.0 and medicine

01:26:26.480 3.0. And I've talked about how our system is really good medicine 2.0, right? It's really good

01:26:32.260 at treating chronic problems and grinding out incremental years of life when you're chronically

01:26:39.220 ill. And that shines so much when you become a senior citizen. And that's how we leapfrog

01:26:45.840 every other country between ages 60 to 75. We go from last place in life expectancy to first

01:26:51.940 because our machine shines. It really kicks in. And of course it begs the question, why can't we

01:26:58.480 have the best of both worlds? Like these don't have to be mutually exclusive. You can preserve the

01:27:03.580 latter, which is we have all of these remarkable pieces of technology and innovation and access and

01:27:09.660 infrastructure and quality that give us that boost of life expectancy at the end. Why don't we

01:27:15.520 increase the number of people that enter that sixth, that seventh decade of life? Let's increase that

01:27:20.500 by 10% by applying better medicine 3.0 and access early in life. And by the way, I think you would

01:27:25.360 increase it by more than 10%. The other thing that I keep playing back in my head is I've always

01:27:31.340 talked about these as three variables. So when I've talked about this, I've always talked about

01:27:35.280 three variables. I've always talked about quality, cost, and access. But you've made me realize that

01:27:41.340 choice is a part of that as well. And that's the part that I think is also very American. And I don't

01:27:47.700 think we should be apologetic for it. It is just our culture. It is who we are. We want the best and we

01:27:53.060 want to be able to pick what we want. And that fourth variable puts even more pressure on the one that is

01:27:59.340 unconstrained. So cost is unconstrained. We have said we want maximum quality. We want access. And meaning

01:28:05.740 when I want it, I want it now. And I want to choose where I go. If I control those and I leave one to

01:28:13.220 balloon, and that one is cost, away it goes. The other systems, as we've discussed, have said no, cost is

01:28:18.360 constraint. Cost is a capped resource. Now you see what's going to happen to the others. And that's where we get

01:28:23.840 into the supply side throttle to lower access. Let's eliminate choice, and you'll still get decent

01:28:30.260 quality. That seems to be the choice that the rest of the world has made.

01:28:33.980 That is right. And I think you can't underestimate the power. I think, by the way, choice sort of fits in a

01:28:39.900 broad framework of access. If you have enough access points, and they're differentiated, that allows choice.

01:28:46.740 I actually like to keep them separate. Even though in my former model, they were the same. I think the way you've

01:28:51.380 described it is better. Because choice also means you have more drugs than you know what to do with.

01:28:57.320 You have a formulary with how many thousands of drugs?

01:29:00.120 I mean, there are probably 15,000 pharmaceuticals available today. One form or another. Some of them

01:29:04.200 are repeats, but my point is there's a lot of choice.

01:29:06.600 Right. And we'll do meniscectomies. We'll do meniscus repair surgeries. We'll do hip resurfacing.

01:29:13.780 We'll do hip replacements. I mean, we'll do PRP. We'll do anything and everything. You have more

01:29:18.820 choice here. This is the biggest buffet on the planet when it comes to healthcare.

01:29:23.180 Why is that is one of the questions that I think comes up. So I think, first of all,

01:29:27.080 I agree with you. We cannot underestimate the power of choice. I mean, we learned that in the

01:29:30.960 90s with managed care when it was quite constraining. And by the way, as I said before,

01:29:36.400 that system lowered healthcare inflation. It only proved it for a short time because the backlash

01:29:41.480 was so vicious against it. And I don't think we can go back there. Politically, even from the

01:29:47.220 standpoint of not politically, but just the way the system has evolved to create more options and

01:29:52.660 more choice, it will be difficult to go back there. Limited supply-side constraints, I think,

01:29:58.640 at this stage, have and are becoming a part of the dialogue. As I said, Medicare sets prices

01:30:03.820 for doctors and hospitals. They probably will start doing so for certain drugs. Okay. It's purchasing

01:30:09.560 power. And one could argue that in some ways, that's a form of supply-side constraint.

01:30:14.080 Let's even start with the choice before that, because I always think we should start with

01:30:17.140 the null choice, which is we can do absolutely nothing. We can sit here and say, Peter, Psalm,

01:30:24.100 thank you for explaining this system. Actually, you have a better understanding of it now.

01:30:28.740 I want maximum choice, maximum access, maximum quality, let cost be damned. Let's just leave it

01:30:35.360 alone. Let's revisit it in five years. How about that? Let's just come back in five years and tell me

01:30:40.400 if it's 22%. Tell me if it's 23% of GDP. Once it hits 25, we want to do something about it.

01:30:46.420 We could literally just be ostriches and put our head in the sand and ignore this. Okay. Let's put

01:30:50.680 that aside and say, no, most people at this point probably think we should at least have some ideas

01:30:56.580 for how we can manage this. Now, that's your first point, which is Medicare has made the hospital and

01:31:02.920 the physician a price taker. Shouldn't it be able to do that to pharma? Now, let's talk about what's going

01:31:08.840 to happen because now you just added one more squeeze on the toothpaste tube while you're taking

01:31:14.960 the cap off. Because if Europe and Canada and CMS force pharma to be price takers, what's going to

01:31:23.760 happen to drug prices that are outside of CMS in the US? I think we have to avoid looking at extremes.

01:31:31.320 But is that an extreme? Well, I would say this. I don't think the people who are talking about this

01:31:35.600 in a rational way in terms of actual pricing, which is not you or me really in terms of the policy.

01:31:42.260 I don't think anybody's saying, let's bring it down to the average of the OECD,

01:31:46.080 et cetera, from where drugs are priced. The question is, are there ways to start to curb

01:31:51.100 the inflation rate of price and actually rationalize some group purchasing capability?

01:31:56.900 I think that the challenge with accepting the extremes is it will only fuel the discussion of

01:32:02.920 innovation will stop. Nothing will happen any further. And that's not going to happen.

01:32:08.260 No, I agree. But someone will have to make a concession. And I think that somebody is actually

01:32:12.720 the shareholder because I agree with you. I do not think innovation stops. And it's because

01:32:17.640 innovation isn't even happening at those companies anymore anyway. Innovation is the biotech's job at this

01:32:22.140 point. But think about, again, what you just said. That may be true in the short term, but the hallmark

01:32:26.960 of American ingenuity is to take externalities. This is an externality that might be relevant.

01:32:33.560 Take that pressure. In that ecosystem, better models emerge. More efficient drug development

01:32:38.880 will emerge. More efficient distribution mechanisms. More efficient sales and marketing,

01:32:43.500 et cetera, will emerge. You're saying the shareholders shouldn't actually even be forced

01:32:47.000 to suffer here. I mean, it's always the case as companies have life cycles that shareholders succeed

01:32:52.060 and at times suffer. But the innovators come out the back end stronger. And sometimes there are new

01:32:57.780 entrants, which changed again. I mean, that's the hallmark of the free market economy.

01:33:01.860 So how do we reconcile that, Sam? Because on the one hand, you're saying if pharma,

01:33:07.080 if drug development and distribution had to become more economical, we are innovative enough as a

01:33:13.640 country to do that. But at the same time, the whole reason we're saying that has to happen is we

01:33:18.680 must have some measure of price control and drugs, which feels like a very anti-American thing.

01:33:23.480 Yeah, right. I mean, this is what people get into. But there's two issues there. First of all,

01:33:27.260 I don't think that... Remember, we took all the time to describe the entire complex pharma ecosystem.

01:33:32.760 It's not just the pharmacos. There are companies that do basic research. There are pharmacos. There

01:33:38.560 are PBMs. There are pharmacies. There's insurance. By the way, the insurance companies own the biggest

01:33:43.820 PBMs. So there's a vertical integration point there that is important to understand. My point

01:33:49.400 is that when you talk about this in terms of Medicare purchasing drugs with their scale,

01:33:55.460 it is absolutely the case that that can be done in a market-based way. By the way, Walmart is one of

01:34:01.800 the biggest retailers in the country. Arguably, they have one of the best procurement functions

01:34:06.980 based upon the scale of what they're purchasing that gets them better pricing from their suppliers.

01:34:12.860 Auto manufacturers manage this in auto parts suppliers. It's not un-American to use scale,

01:34:21.000 as long as that scale is not anti-competitive, to drive better pricing in what you purchase. It

01:34:27.140 creates innovation across the entire value chain. Medicare, in this case, because it has become

01:34:33.560 such a large source of expenditure in a private healthcare marketplace, behaving more like a primary

01:34:41.220 buyer at scale is not anti-American. How it gets implemented and how they do it could turn anti-American.

01:34:49.360 I'm using your term anti-American, free market versus not. But purchasing at scale is not an anti-American

01:34:55.780 or anti-competitive concept. Do you think it is reasonable that Americans could expect to pay

01:35:03.500 for drugs what their European and Canadian counterparts? I think it'd be very difficult to move in one move to

01:35:12.220 that level of purchasing price, given what the starting point is in the marketplace. I don't see

01:35:18.420 how you could do that without really having a shock to the industry. I mean, let's remember, I think 80%

01:35:23.820 of the pharmaceutical industry resides and generates profits in the U.S. as large employers, but not just

01:35:32.200 large employers, large magnets for talent coming out of our universities. We have to remember, between

01:35:38.060 them and their supply chain, they create a lot of innovation. I mean, a tremendous amount of innovation

01:35:44.320 in this country that has advanced, you can call it health 2.0, but it's advanced health 2.0 because

01:35:50.220 that's the construct we have. So this has to be balanced. But the concept that a purchaser at scale

01:35:57.060 can achieve better pricing, I would argue the time for that legislation from the 2000s to be revisited

01:36:05.020 is here. I wasn't aware of this, but you said that the Inflation Reduction Act cracked the door on that.

01:36:10.420 Yeah, cracked the door open for certain drugs. And I think we'll see how that goes. I mean,

01:36:14.020 this is going to get mired in politics and lobbying and all kinds of things that you described. But if you

01:36:18.380 step back and look at the big picture of where healthcare expenditures are going, let's just step back

01:36:24.420 and actually look at just pharmaceutical expenditures rather than healthcare expenditures. In addition to

01:36:28.680 extraordinarily expensive drugs that have broad application like the GLPs, you have a broad range of orphan

01:36:35.100 drugs that have been developed, that orphan drugs, meaning for rare diseases for very few people, sometimes

01:36:40.660 miraculous benefit for them at extraordinarily high price. It goes back to what you said about

01:36:46.320 we want choice and access and we value saving as Americans that life more than what other countries

01:36:53.540 may do in not saving that life and looking at it societally. And then the third thing is if you look

01:37:00.960 at the pipeline of drugs for the next 10 years, I've done this, look at the pedophilist or whatever at

01:37:06.280 the FDA, the number of unique biologic infusible drugs in particular for autoimmune disease and cancer

01:37:14.860 that are slated to go through the process and get approved, which again, not having seen the data, it's hard

01:37:21.180 to know whether they'll transform the care of those diseases or marginally improve them. But if they get

01:37:26.640 approved, they'll be doing some benefit will create another massive explosion of drug costs here. So the

01:37:34.300 proportion that's going to hospitals and doctors relative to drugs, if you look out over the next decade, is

01:37:41.820 poised to change again based upon the pipelines. Meaning the third that's currently drugs is going

01:37:48.180 to go up relative to the rest of the pie. Yeah. The inclusive version of the third where it's

01:37:52.500 everything and yeah. And that's something we're going to have to grapple with. But that's going to

01:37:56.540 widen the gap between us and the rest of the world. The current insurance model, that's right. It's going to

01:38:00.540 widen the gap. And also the current insurance model may not be designed to accommodate that cost

01:38:07.580 without passing it back to employers and Medicare. And so then there's going to be a question again,

01:38:14.180 what are we going to cover? What are we not going to cover? The way that healthcare costs are rising,

01:38:18.060 we're being pushed to ask the supply side questions that the rest of the world has already asked and

01:38:22.940 answered. We're just grappling with it. And it's hard because of what we've talked about. We don't want

01:38:28.600 to give up choice and access in the process of grappling with those decisions. For other countries,

01:38:34.840 when new drugs come online, it's easy for them. They have an established framework.

01:38:38.020 Yeah, they have a dollar amount.

01:38:39.080 Yeah, it's an established framework. The citizens are used to that established framework.

01:38:43.960 Here, we haven't established the framework. I mean, this goes to the point of it's not obvious

01:38:48.600 that we have national health goals, a different topic. And I know that gets a little bit up in the

01:38:53.440 sky a bit. But we're at a point where what we spend and what we get for what we spend is really,

01:38:58.940 really good in some ways. Obviously, not so good in other ways when you look at some of the outcomes.

01:39:03.340 But many of those outcomes are not driven by the healthcare system, as we've talked about.

01:39:08.580 And so the question is, where are we going to put our incremental dollars? That's the question.

01:39:13.720 Because the incremental dollars going straight into the current system, which I'm a participant

01:39:18.120 in and everybody else, that's going to be necessary just because the population's aging.

01:39:22.680 Fact of life, we're going to have more demand for roughly the next decade. But are we going to do

01:39:27.320 that at the exclusion of resources into these other things? Which, again, in your language,

01:39:32.820 impacts healthspan. In my language, it impacts the two things which sit in the background that

01:39:39.600 seem to be different than the rest of the world, which is just basic nutrition and basic physical

01:39:45.260 activity that seem to be major differences in how the U.S. works versus others. Some of it because

01:39:51.260 of geography, some of it because of our obsession with driving cars and whatever the case may be.

01:39:56.020 It's not clear how we're going to approach that over the next decade because we don't have a choice

01:40:00.740 but to spend for the people that are going to continue aging in. After 2032, 2033, if the

01:40:06.740 pressure on the aging portion reduces, we may have some choices. But we got to get there first.

01:40:13.740 While the aging pressure might be taking a little bit of air out of the balloon, it's hard for me to

01:40:20.840 imagine that it's taking more air out of the balloon than that which is being put in with the

01:40:25.960 rising burden of obesity and type 2 diabetes. Let's talk about that for a moment. We haven't

01:40:30.640 really explicitly and directly spoken about that. So you and I used to mark our birth years roughly

01:40:35.740 sometime in the 70s and talk about what the prevalence of diabetes or obesity was then

01:40:40.840 relative to now. It's what, three, four fold up? Obesity maybe, but type 2 diabetes,

01:40:45.500 the year we were born is 1%. And today, 12 to 15%. Yeah, 10 to 15%. Right. Much more then.

01:40:53.480 Yeah. Very conservatively, a single log fold, but likely more.

01:40:57.780 We've talked about it. I mean, it's a generational failure of nutritional science to really understand

01:41:01.700 what creates obesity and its sequela. Yeah. So here's the question. We have drugs now.

01:41:08.960 They seem pretty remarkable. These GLP-1 agonists are doing something we have never seen before.

01:41:15.300 Which is simultaneously delivering the best efficacy we've ever seen, coupled with what appears to be

01:41:24.000 remarkable safety. So maybe there's some marginal edge cases, but this is not fen-fen. This is not

01:41:29.200 stimulants. Right. Right. We are dealing with truly efficacious, truly safe drugs. The problem is

01:41:36.620 they cost so much money. I'd love to hear what you're reading about this because what I'm reading

01:41:43.460 is two different types of things, right? I'm reading on the one hand, the bull case that says

01:41:49.420 this is going to change the world. We are finally going to address the burden of obesity and type 2

01:41:56.340 diabetes and metabolic disease with these drugs. Cause now all we got to do is give these drugs to

01:42:00.340 everybody. And then the bear case says that might be medically true, but economically, if you run the

01:42:07.460 math, we're going to take a system on the verge of bankruptcy and bankrupt it if we have to rely

01:42:12.660 on those drugs. I generally agree that these drugs are very effective. I get concerned about muscle loss

01:42:19.140 in particular, when I think about consequences for elderly people, especially from an orthopedic,

01:42:25.740 everybody knows that, you know, a hip fracture or whatever due to muscle loss creates a very high

01:42:29.940 degree of mortality. But in general, I agree with the concept that these drugs are very effective.

01:42:34.460 Now, if you look at this from a crass economic point of view, remember, what's the fundamental

01:42:39.780 problem we have in terms of generating the wealth to pay for the system is that we've moved from a

01:42:45.720 period where we had twice the number of economically productive people from 40 to 65 and above to now the

01:42:53.700 ratio approaching one to one. So the best application of the drugs, if the idea is to improve health status,

01:43:01.920 which then could improve economic productivity to support the system, would be applying them to the

01:43:08.520 people who could still work, not the people over 65. Not that people can't work over 65, but generally,

01:43:14.460 if you take that as a mindset of a period of retirement.

01:43:17.900 I don't even know the dollar numbers, but let's just assume that the drug is $15,000 a year for one

01:43:22.820 of these drugs. You're saying you have to get a multiple of $15,000 a year of productivity out of it

01:43:29.540 from the individual who's now more able to work because their knee doesn't hurt as much,

01:43:34.160 their back doesn't hurt as much due to the sequelae of obesity.

01:43:37.540 I think if you're looking at it from the perspective of today's conversation around

01:43:40.340 the cost of the U.S. healthcare system and how it interacts with the rest of the

01:43:43.840 U.S. healthcare economy, that's the math. And over 65, arguably, you may reduce the burden of

01:43:51.120 disease, but you may increase longevity, which as we know, creates additional cost over time

01:43:56.840 because it's kind of unknown whether you can stay on these drugs or whether people will stay on the

01:44:01.580 drugs above 70, 80, into their 90s. And will there be a reversion? In other words, are you just

01:44:07.540 delaying the spend or are you actually avoiding the spend? We don't know. What little I know about

01:44:12.980 how these drugs work is that when you would draw them, there is a negative effect from that

01:44:16.720 perspective. How persistent that is and how that'll change over time, I guess, with new drugs,

01:44:21.980 we'll find out. I go back to the notion, though, that I think it's fundamentally not the right answer

01:44:27.760 to wish that nobody innovated these drugs. I think that's crazy. And again, you can get into

01:44:32.700 what it costs and who paid for it and who is paying for it given the price differences between

01:44:36.740 here and the rest of the world. I will also say the prices for these drugs are too high.

01:44:41.060 My view, personal view, they're too high. I also believe that they won't stay this high

01:44:46.660 as the penetration grows across newer and newer indications and the population.

01:44:52.500 Even though, as you pointed out earlier, the Me Too train on this class of drugs is so long,

01:45:00.600 I can't see the caboose at this point. When you actually look at the pipeline of GLP, GIP,

01:45:08.120 glucagon, and other incretins out there, we've got 25 of these things in the pipeline.

01:45:14.000 And will it simply be, if we go back into the American ethos of choice, quality, best, best,

01:45:21.440 best, are they just always going to be priced so high? And maybe you're right. Maybe semaglutide

01:45:26.840 trades at a discount and nobody wants it because that's so 2020.

01:45:31.460 Right. Well, I think the reality is that because they're so visible, they have ended up generating a

01:45:38.580 lot of political attention. And I think this gets back to a lot of things in the free market

01:45:43.560 culture that we live in, which is we have wide operating parameters in a free market,

01:45:48.420 but at times when things go outside of those parameters, it's not entirely a free market.

01:45:53.820 It's just a wide parameter free market. When things goes outside of those parameters,

01:45:58.120 people take notice and that leaves organizations with the choice. Do they proactively move themselves

01:46:03.680 back into some acceptable parameters or do they wait for somebody to do it to them? And by the way,

01:46:08.320 the US government, like any government does have a history of moving things back into reasonable

01:46:13.140 parameters. I mean, there's no such thing as a hundred percent free market economy from that

01:46:18.360 standpoint, especially when we've described our own healthcare system as being somewhat free market

01:46:24.240 and choice driven. But the economic flows essentially shield the consumer from the actual cost of the

01:46:31.200 care that they're consuming, meaning the insurance scheme and other things. So it is a difficult

01:46:35.640 problem to solve. I understand your point about follow-ons, but I suspect that in some ways this

01:46:41.080 will come back into some reasonable parameters. So I'm making a note here to myself. I'm just

01:46:46.600 listing out the players in the system, the government, the employers and the payers. I'm going to lump them

01:46:52.100 as one, the consumer, the medical system that I'm just going to call hospital, ambulatory center,

01:46:58.840 physicians, the staff, the delivery system of healthcare, and then pharma. And I don't really know where

01:47:04.760 to put the PBM. Would you make them their own separate thing as a system or would you put them

01:47:07.900 in with the payer or where would you put them in with pharma? Well, they're owned by the payers.

01:47:10.920 Okay. So if we were somehow given the ability to do anything we wanted and we said, we want to

01:47:18.140 keep quality essentially where it is, maybe restrict choice a tiny bit, kind of leave access where it

01:47:25.720 is, but we want to shrink cost by 25%. Is that metaphysically possible? And if so,

01:47:33.000 how does that list of participants play a role in that?

01:47:36.800 Well, 25% is a big number.

01:47:38.140 No, it's a huge contraction.

01:47:39.160 It's a huge contraction.

01:47:40.400 25% over the next X years. Like it's not going to be an overnight 25% reduction,

01:47:45.360 which by the way, let's just make sure people understand this. A 25% reduction in our healthcare

01:47:50.640 spend would still have us being the most expensive country of healthcare in the world. We're not even

01:47:55.720 getting to cost parity with other developed nations, but I'm just thinking about, I'd like to

01:48:01.200 get it closer to 3 trillion than 4 trillion. That's all I'm saying.

01:48:04.500 I think the concept of absolute, absolute cost reduction is very different than bending the trend.

01:48:10.800 And we can get into whether there are absolute cost reductions that we can think about within the

01:48:15.580 current system and what they would mean and what they would require. But I think the other way to ask

01:48:19.940 the question longer term is, can healthcare inflation mimic GDP inflation as opposed to

01:48:25.400 being 2% faster or could it fall below it? But just getting it to that level of being at the same

01:48:31.060 level of GDP inflation would be an enormous, enormous move and curbing of the healthcare expenditures.

01:48:37.800 So look, the first thing is the number one deterrent to absolute cut 25% out of the system

01:48:45.320 is the extraordinarily negative shock on the economy of that type of job loss.

01:48:52.200 So what you're basically saying-

01:48:53.560 It's not healthcare. It's not insurance.

01:48:55.560 You can't do this without cutting jobs.

01:48:58.380 You cannot do this without cutting jobs. The US actually spends less on infrastructure

01:49:02.240 as a proportion in healthcare services, buildings and whatnot than many other countries actually.

01:49:08.560 But the people aspect of this, both the number of jobs and also the fact that our doctors,

01:49:17.020 nurses, et cetera, are on a real wage basis paid higher than in other countries, the two

01:49:21.800 of those together and other healthcare workers, they contribute to the gap. The administrative

01:49:26.560 side is the biggest gap.

01:49:27.220 I was just about to say the administrative piece is how much of that is payroll. That's mostly

01:49:31.600 payroll, isn't it?

01:49:32.720 No, no. The administrative payroll meaning people?

01:49:34.820 Yes.

01:49:35.080 Yeah. But it's the system of having to adjudicate claims and all that. Yeah. But it is mostly

01:49:40.420 a people-based system.

01:49:40.960 By the way, why isn't AI doing that, Sam?

01:49:42.980 Well, it's increasingly doing that. I mean, those of us who have more exposure to sophisticated,

01:49:48.700 scaled businesses that work in the revenue cycle or the insurers who are increasingly

01:49:53.600 doing this are using it.

01:49:55.700 Isn't that the poster child indication for AI?

01:49:58.640 It's the poster child indication for more automation that requires controls. Okay. And the government,

01:50:04.820 of course, AI is new and usually regulation doesn't catch up as quickly as the technology

01:50:10.020 moves. So look at the last just seven days. You have an article in, I think, ProPublica that

01:50:18.420 talked about a business that is using AI and denying claims at an extraordinary rate because

01:50:26.080 of the AI algorithms that are built in. All the insurers buy it, et cetera, et cetera.

01:50:31.680 And is this just due to bad training?

01:50:34.280 Well, I think it's a question of how the system is being used today. I don't think the system was

01:50:39.180 originally created to do that, most likely. I mean, there is a balance between cost management

01:50:45.240 and denying people what they need on an indications basis. I always think about the organizations and

01:50:50.820 the ecosystem as starting with good intentions, but things can get away from people. If you read

01:50:55.580 what's in there and it's true, it's gotten out of hand. And I think many people, doctors, providers,

01:51:00.480 et cetera, might feel that issues with preauthorization and denials and other things have gotten out of

01:51:05.900 hand. And I'm not here to represent one side or the other, despite what I do. Look at the flip side.

01:51:10.720 You had a major insurance company come out and say that, look, coding is getting aggressive.

01:51:16.140 That's the provider side that maybe is pushing the envelope in a way that they see all the data and

01:51:21.080 all the systems. And they're seeing something. I don't know how true it is any more than I know how true

01:51:25.420 this other one is. Checks and balances in the system, when you have a private system, are required.

01:51:31.980 AI can either be an accelerant to reducing cost and being more efficient and effective, or if not

01:51:38.680 controlled, could take one side or the other and move them in a direction that actually have negative

01:51:44.700 consequences, over-coding or under-authorization of what people need, as an example.

01:51:49.860 So we have to work better as an industry to actually get the right balance here. And that's

01:51:56.180 why there's a lot of attention to this right now, because the balance is off. And you can't

01:51:59.940 unilaterally blame one side or the other from that perspective, is my general viewpoint as I approach

01:52:05.700 this problem. So if you think about the administrative cost side of it, yes, it's all people. Yes, it's built

01:52:10.520 on a system that has gotten infinitely more complex in terms of paying and submitting and getting paid

01:52:15.780 for claims, both with government and with private insurance and a whole bunch of other administrivia

01:52:21.360 that does have an opportunity to be fixed. At this point, collaboration between the two sides

01:52:27.120 doesn't seem as high. Technology has the potential of reducing that cost, but it is at the expense of

01:52:32.520 job loss if it happens.

01:52:34.020 And I guess your point that you made at the very outset of our discussion is,

01:52:37.880 we always hear administration and we think, that's garbage, cut it. But the truth of it is,

01:52:42.320 that administration is the price we pay to have the choice we have.

01:52:46.080 That is right.

01:52:46.620 We couldn't have the environment of choice if we didn't have the administration to adjudicate.

01:52:51.780 Yes. And does it have to be as large? No. But there would have to be some administration.

01:52:55.500 But the reason everybody else gets to avoid administration is it's draconian.

01:52:58.720 Well, everybody else has administration. It's just sitting in their government and it's in

01:53:01.140 one entity rather than 50 entities.

01:53:03.180 And it also limits choice by just saying there's not going to be a line by line adjudication of this.

01:53:07.840 That's right.

01:53:08.120 It is what it is.

01:53:08.820 It is what it is.

01:53:09.460 Here are your three drugs.

01:53:09.920 Right. So then you have the other three components of the spend. And those are all

01:53:15.200 essentially people or somewhat people-based. And the profiles of the three businesses are very

01:53:22.220 different. So the only way you're going to actually, if you wanted to absolutely cut costs,

01:53:27.260 I mean, you're talking about supply-side intervention and price restriction or caps.

01:53:31.700 Some states have tried inflation caps. We're not going to go up more than 3% per year,

01:53:37.040 4% per year, et cetera. There has been no discussion of, okay, we're just going to cut

01:53:42.760 a quarter of the spend out of the healthcare system. Again, because I think it would be

01:53:46.400 catastrophic in terms of access and other things. That's not to say that we didn't wish we ended up

01:53:51.800 at $3 trillion rather than $4 trillion. If you look back 50 to 75 years, but we're not there.

01:53:56.160 Why hasn't this been a higher priority? So if we go back-

01:53:59.560 Because the economy has done so well. One of the important things that's critical is the U.S.

01:54:04.660 economy has outperformed the rest of the world and the rest of developed countries. And we've done it

01:54:09.440 despite the more rapid expansion of healthcare costs than any other country. Arguably, an economist

01:54:16.640 would say that as healthcare as a percentage of GDP and as a percent of expenditures, I mean,

01:54:21.760 we talked very beginning how much of the consumer spend it is, employer spend it is, would have

01:54:26.940 materially suppressed wages. But let's ask the question, if it has suppressed wages because money

01:54:33.440 has gone into that with this tax incentive, has that actually made in some ways the U.S. economy

01:54:38.040 more competitive? With wages that have been, again, somewhat suppressed, which makes the American

01:54:44.900 worker more competitive for various types of things that have a global labor footprint rather than just

01:54:51.260 domestic. I don't think it's a given yet that healthcare costs on a net basis increasing to

01:54:58.800 where they have have been a negative for the U.S. economy. I mean, facts that are hard to escape

01:55:02.640 from. The U.S. economy is stronger and has grown more than other developed countries. Fact, the

01:55:07.120 expenditure rate in healthcare is higher. Put aside outcomes for a second, depending on what we want.

01:55:11.940 Our access and choice, which we prioritize, are better. In fact, the diversity of what the U.S.

01:55:18.180 workforce is doing today is probably more than it was a decade ago. There's more manufacturing

01:55:23.860 return, you know, things like that. I think wage suppression may play a role in that. Again,

01:55:28.480 you'd have to talk to an economist to really understand the quantitative effects there.

01:55:32.800 But I don't think we've reached the point yet where these healthcare expenditures at a macroeconomic

01:55:38.720 level have deterred the U.S. economy. I think we're in this conversation because the question is,

01:55:43.100 will it? That's exactly right, Sam. My view is we all know when Noah built the ark. And I feel like

01:55:49.240 it's important to have these discussions before we're driving off the cliff because nothing that

01:55:54.700 we're talking about can be fixed quickly. I'm having this discussion because I want to understand it and

01:55:59.460 I really hope that people far smarter than us, who are far more influential and far more important

01:56:03.940 purchase, are putting as much thought into this as they are into whatever other important policy

01:56:10.600 decisions are out there because it's very difficult to imagine that the private sector alone would

01:56:14.420 solve this. Yeah, well, I think that's an important point. Look, the role of government we haven't

01:56:19.060 talked about. I would argue from my experience, healthcare is overregulated by a lot. But you have

01:56:24.560 to give the government credit when they work to create quality standards that people had to meet,

01:56:29.620 things like sepsis, when they work to create safety standards around basic problems that you see

01:56:35.480 in healthcare. Those regulations have improved the consistency of performance of the U.S. healthcare system.

01:56:40.320 CMS-regulated operating room. You have a great operating room.

01:56:43.800 Right. So some fraction of what they've done has really, really helped. And you can't argue with

01:56:48.080 that. And similarly, regulations that have been placed in other parts of the industry. So

01:56:53.140 we may be overregulated, but you can't discount the value of some of that regulation.

01:56:57.560 Where do you think the overregulation is being counterproductive in healthcare?

01:56:59.440 You asked a question earlier about what is value-based care. One of the things that I think we get

01:57:05.080 very much caught up in is the concept that our system, which is more of a fee-for-service system

01:57:12.140 versus some kind of value-based population health system would be the change that would be required.

01:57:18.220 And the interpretation is always, well, all these other countries who spend less,

01:57:21.300 they must be a population health system or a value-based care system because everybody's in

01:57:26.600 one insurance pool. What we've said in our discussion is, no, it's a supply-side intervention.

01:57:31.380 They just constrain and limit cost and infrastructure or whatever. They just decide

01:57:35.960 what's going to be accessible. That's what drives the difference in their cost.

01:57:40.160 And by the way, for all those economies, again, remember, their healthcare expenditures went from

01:57:44.200 four to 11 or 12. That's a massive increase for those countries too. It's just not as big as ours.

01:57:49.760 So I think the concept here, you have to put this in perspective. The interventions that have

01:57:57.300 fundamentally tried to change the workflow in healthcare, value-based care, most of them

01:58:03.260 haven't succeeded. I mean, look at the companies and other organizations that have been in this

01:58:07.300 space. Despite the best of creative intentions, many of them have not succeeded. I would argue

01:58:13.480 Medicare Advantage is the most important at-scale value-based construct that has been somewhat

01:58:19.500 successful. But most of the innovation in and around that has not been very successful.

01:58:25.900 And that doesn't mean it's not going to get there at some point. Part of American ingenuity

01:58:30.000 is trying and failing and trying and failing and trying and failing until you find a model that

01:58:33.940 works. And credit to those that are trying to do that. But it hasn't succeeded.

01:58:38.120 Where I think there are opportunities that are more direct is modernizing where we perform

01:58:45.560 healthcare services into a lower cost setting. That's direct cost savings. We built with the

01:58:51.460 Hill-Burton Act, all this infrastructure that is hospitals, okay? Let's point the figure at the

01:58:55.820 industry that I'm most closely associated with. And it has been happening. Some of that work is and

01:59:01.100 could come out of hospitals into a lower cost setting.

01:59:03.840 Let's just give an example. Give an example of a procedure that is done in hospitals and out of

01:59:09.460 hospitals and give an example of the cost delta.

01:59:12.680 I would give you the biggest example that has probably had the most impact on health status and

01:59:17.200 colorectal cancer is that if you go back 20 years, most colonoscopies were done in a hospital

01:59:21.780 setting. Sometimes people stayed overnight for them, right? Just think about that. And they moved

01:59:27.560 into an outpatient setting. You're in and out in 45 minutes plus recovery time from whatever

01:59:32.340 anesthesia you have. What did that do to the hospital industry? Yes, it moved business out of

01:59:36.960 one setting into another setting. But that's not what really happened. What happened is when it got

01:59:41.700 into a more convenient, quick, high service, manageable setting, more people in the US started

01:59:48.520 getting colonoscopies because it was easy and it had a screening benefit that's enormous. I credit

01:59:54.760 the ambulatory surgery industry with actually preventing more colon cancers than any innovation

02:00:02.660 in gastroenterology over the last 20, because it's now normal to get these.

02:00:07.040 Just to make sure I understand the implication of that, it's twofold. One, we've lowered the cost

02:00:11.900 of each colonoscopy, but we've probably flattened or even raised the total cost because now more

02:00:17.200 people are doing it. Oh, I think the total cost is probably much higher.

02:00:19.540 The per unit cost went way down. Per unit cost went way down and everybody got access,

02:00:23.960 so to speak. More people got access and it prevented more cancers, which have lots of downstream costs.

02:00:29.580 So the idea of moving things into lower cost setting as appropriate is something we generally have to

02:00:35.200 embrace as a way to manage the total cost, especially if the demand on hospitals is going

02:00:40.500 to go up with the aging. So what's the next version of that? The next version of that that

02:00:44.300 we're in the middle of is, look, a hip and a knee replacement used to be a four-day hospital stay.

02:00:49.120 Now a lot of it is done on a same-day basis in the hospital, but you can also do it in an

02:00:52.980 ambulatory surgery center in an hour. And again, you recover and you walk out the same day and you go

02:00:58.720 home and you do your PT at home and other things.

02:01:01.420 What is the difference there in the payer rate for those two?

02:01:04.200 It's about half. Costs about half. That's a big difference. You got your 25%. It's significantly

02:01:09.640 different. One of the interesting questions is why does the device not cost less in one setting or

02:01:15.460 another, but the total payment is half? Let's spend a minute on this. This is another one of those

02:01:20.740 great, great opacities in the healthcare system. So I need a heart surgery. So I need a

02:01:29.340 coronary artery bypass and maybe throw in an aortic valve replacement. I've got aortic stenosis.

02:01:34.740 I go to the hospital that is within my PPO network to get that procedure done. How do the economics of

02:01:42.000 that work? Does the hospital act as the single entity that bills the insurance company for everything?

02:01:48.920 The surgeon's professional fee, the hospital fee, the device fee for the valve, the drugs,

02:01:54.720 the ICU stay? How does it work? Is it bundled? Sometimes with choice comes complexity. You're

02:02:00.280 getting into medical billing, which has some complexity. At the simplest level, we break

02:02:05.940 things into professional and technical expenses. Okay. And I'm going to define technical, but

02:02:11.520 professional may be easier to understand. The surgeon who operates on you gets paid a fee to operate on

02:02:17.420 you for their skill and training and other things. And that is their professional fee.

02:02:21.800 Does the anesthesiologist also have a pro fee in there?

02:02:24.540 There are others involved in the surgery. Okay.

02:02:26.280 The anesthesiologist who is, again, trained to provide incredibly sophisticated anesthesia to go

02:02:32.000 on heart bypass, et cetera, gets paid a professional fee for that service, their personal fee for their

02:02:39.320 time. The technical fee is the fee for having the surgery in the building and setting called a

02:02:46.900 hospital in an operating room. And in that setting, you may use the operating room. You may stay in a

02:02:53.740 hospital bed for three days. You may be in the ICU for a day. You may be given a bunch of drugs and

02:02:59.540 medications that are important for that. All of that cost goes into one bundle called the hospital

02:03:05.380 DRG. In general, the reimbursement system, which used to fragment all that stuff, has moved into an

02:03:13.640 element of single reimbursement called a DRG, diagnosis-related group. By the way, a government

02:03:20.740 innovation from Medicare that applies in much of the commercial world today. And you get paid a fee

02:03:26.600 for all that stuff. Now, we make our lives a little bit complex because we often send patients

02:03:31.940 confusing bills that lists everything that they had in that DRG and an individual price for each one of

02:03:40.240 those things, even though at the end of the day, what's going to get adjudicated is one payment,

02:03:44.920 very simple, and one copay, if it even exists. But we make it very complicated by sending this

02:03:51.420 entire list of everything you had, which you can imagine as a patient who's just coming out of and

02:03:56.060 recovering from heart surgery, the last thing you want to see is a line item of 60 different things

02:04:01.060 that you had done and what the cost of those were, especially when those costs bear no connection to

02:04:06.660 what your insurance company or Medicare may have actually paid. It's a complicated system.

02:04:11.180 What would be the single reimbursement on the three-vessel cabbage AVR, aortic valve replacement?

02:04:17.940 Oh, it's highly, highly variable.

02:04:19.760 But pick an average payer.

02:04:21.380 Medicare, somebody's going to reimburse, let's say, 20-something thousand,

02:04:25.620 some number for that hospitalization.

02:04:27.420 And how much of that is pro-fee? How much of that is technical fee?

02:04:29.880 Well, the pro-fee is, like I said, that's U.S. the hospital fee. The pro-fee may be separate.

02:04:33.120 I mean, what a physician gets paid to do that could be $750 or $1,000, let's say.

02:04:38.600 Isn't that kind of amazing when people think about how low that is as a pro-fee?

02:04:42.600 Yeah. I mean, again, the number could be higher with other insurance companies and whatnot. But

02:04:46.100 the point is, yeah, there's a big difference.

02:04:48.140 I think what people can't fathom is that the cardiac surgeon who's operating on your heart

02:04:54.020 might have a pro-fee of $2,000.

02:04:56.500 People can't fathom that.

02:04:57.400 People can't fathom how low that is. Because that also bundles them seeing you in clinic,

02:05:02.340 them taking care of you for the five days in the hospital when they're in the ICU and they're

02:05:07.200 on the floor. And again, it could be lower. Medicare might be below $2,000.

02:05:11.140 Sure. But Peter, healthcare, the utility that people, again, using an economic term,

02:05:15.700 the utility that people gain from interactions with different parts of the healthcare system

02:05:21.280 vary greatly relative to the actual payments that are made.

02:05:26.780 Another way to say what I said is this is why the American consumer trusts their doctor.

02:05:33.620 When you ask-

02:05:34.200 Much more than the hospital.

02:05:34.820 Much more than anybody else in the system, doctor and nurse, the next would be their hospital

02:05:39.760 where they had their care. The least would be the insurance company. That doesn't mean

02:05:43.400 the economics flow that way within that. But the utility, which obviously has a qualitative

02:05:49.300 personal component, is somewhat disconnected from those payments.

02:05:53.620 But if we look at now that $25,000 of technical fee to the hospital, I've seen some of these

02:06:00.360 bills and I don't know what to make of them because it seems like, yeah, the hospital collected

02:06:06.480 a lot, but they're getting ripped off on paying things. This is where you hear the stories of

02:06:10.500 like the gauze costs $16. The little piece of four by four gauze that you have tens of those

02:06:17.120 that you're going to go through in the case. It's almost like you're back in PBM land.

02:06:20.560 Yeah, but I think that's a bit of a red herring. I think that when you say the cost,

02:06:25.160 so now we have this complexity of you have cost, you have price, and you have charge.

02:06:32.200 So let me explain this. And again, I think this has almost no bearing on macro healthcare costs.

02:06:37.360 The cost of the gauze is what the manufacturer who makes gauze charges the hospital to buy it.

02:06:43.420 It is not $16 for a piece of gauze. Of course, it's super cheap, as is a Tylenol pill or whatever.

02:06:49.600 The price is bundled into that group payment that I said. So you're not really getting paid

02:06:54.560 that much more than cost for the thing. The charge is this artificial construct created by the way in

02:07:02.180 which we bill because of the way insurance billing is constructed that results in the perennial $16

02:07:09.260 gauze or $4 Tylenol pill or whatever the case may be. Nobody's being paid that amount.

02:07:13.960 So why does that even exist?

02:07:15.540 It exists because every hospital by federal regulation is required to have a charge master,

02:07:21.760 by the way, so is every doctor's office, that has charges off of which the free market

02:07:28.420 negotiates contracted rates and brings that $4 Tylenol down to 20 cents or the $16 gauze down to,

02:07:35.500 I'm making it up because I don't know, whatever it is, cents. And that's what happens. This gets

02:07:41.000 administrative costs. The system has evolved certain ways in which the administrative costs support

02:07:47.940 nonsense like this at the end of the day. Remember what I said about insurance. It's not insurance

02:07:53.820 in healthcare. It's a discount card, meaning you're getting the value of group purchasing. So you buy

02:07:59.380 things at a lower cost. If you apply that in this setting, if you come in to the hospital without

02:08:05.640 insurance, you're not getting that group discount. That's the bargain made between insurers and

02:08:11.860 providers that you're going to get a better deal. It's a discount card. So if you come in without

02:08:16.340 insurance, uh-oh, you're going to be exposed to the $4 Tylenol or the $16 gauze. And the reality is

02:08:24.400 that's what turns into something that we never really talked about, which is bad debt. There's a

02:08:28.900 lot of healthcare that's provided that has a charge associated with it nobody ever pays. Billions and

02:08:35.560 billions of dollars. In fact, I think it's about $40 billion a year or more. And then there's, of course,

02:08:41.060 under insurance where people don't pay their portion of what they owe. And again, with those

02:08:46.780 kind of prices, you can understand some of that. When last I looked at this statistic,

02:08:52.180 medical expenses were the leading cause of personal bankruptcy. Yes, that may be the case. I don't know

02:08:57.960 that for a fact, but I think the concept that medical expenses lead to medical debt that lead to

02:09:04.520 personal bankruptcy is another difficult topic within this area. And it's difficult based on what you just

02:09:10.520 said, though, Psalm. It's difficult based on the idea that this uninsured individual... Now, I want to

02:09:15.440 come back to why is anybody uninsured in 2024, 2025? Let's come back to the ACA. But you're uninsured,

02:09:21.900 and maybe it's because you made a risk-adjusted calculation, which is, hey, insurance is going to

02:09:26.120 cost me this many thousands of dollars a year. I'm young. I'm healthy. I don't need it. In an ideal

02:09:31.120 world, I wish I had some catastrophic coverage. Now, lo and behold, I'm... Again, guess what? I'm

02:09:35.900 getting charged $4 for Tylenol, $16 for gauze. And all of a sudden, I've got a $250,000 bill that if

02:09:42.580 we weren't playing with stupid monopoly money would be $14,000, and I could manage that.

02:09:47.860 Right.

02:09:48.140 That's the problem.

02:09:48.880 And I think what happens as a result is that it either goes to nothing because people don't pay,

02:09:54.380 or most healthcare, organized healthcare systems have the equivalent of a compact with the uninsured

02:09:59.820 that rapidly discounts that price, often by tenfold, in order to adjudicate that. And I

02:10:05.220 think that's very appropriate. Yet, you still have these unfortunate cases. The healthcare system

02:10:11.800 today, the insurance system today, the cost of drugs today, and the structure that's been created

02:10:19.160 works a lot better if you're in the system, not out of the system.

02:10:23.260 Out of the system is uninsured.

02:10:24.640 Yeah. And the uninsured today, with the Affordable Care Act, the uninsured rates have come way down.

02:10:30.100 Because it expanded Medicaid, so the people who could qualify due to whatever percentage of the

02:10:35.260 federal poverty level. Employment has expanded. The job market's been good, so more people have

02:10:40.340 insurance through that. We've already talked about Medicare is growing rapidly because of aging.

02:10:44.740 Medicaid has already hit 90 million people with that expansion. And then there's this gap where

02:10:49.800 people, their employers may be too small to offer insurance. They don't qualify for Medicaid because

02:10:55.720 they make too much money. And we created these things called the exchanges. And what that is,

02:11:01.020 is the way to take that market and socialize the risk away from individual risk to group risk and

02:11:06.660 make it more affordable. And so a lot of people have been covered through that. Now, we had a bunch

02:11:10.540 of legal debate. The idea was you would do that, and then you'd have this thing called the individual

02:11:14.400 mandate, which meant you're going to be forced to get into something. And again, that got legally

02:11:19.120 challenged. It's important to do that if you're truly trying to manage risk, because if you don't

02:11:26.640 have an individual mandate, and we can talk about whether or not that's a fair thing to ask, but if

02:11:31.980 you're just putting on your risk hat, an individual mandate is essential because you cannot have adverse

02:11:37.700 selection into your risk pool.

02:11:39.020 Right. And that, again, requires an acceptance that there are many, many people who will sign up

02:11:45.240 for insurance that won't need it, and they're subsidizing those that need it. The argument

02:11:49.620 can be made. That's true in Medicare already.

02:11:51.740 Why do people not fight about individual mandates and car insurance?

02:11:55.260 Well, that's my point. I think that the legal challenges that occurred to individual mandate

02:11:59.360 and ultimately disabled it, if you will. I'm not an expert on the legal issues, but from the

02:12:04.800 perspective of what we were trying to do as a society, it didn't help the system. Nevertheless,

02:12:09.840 the exchanges have grown. They've been more expensive than people thought.

02:12:13.700 Because of the risk?

02:12:14.420 A little bit because of the risk pool. Some of it because of the pricing of those insurance

02:12:18.200 products. Some of it because of whether they look a little bit more like commercial insurance

02:12:23.200 versus Medicaid. There's two flavors out there. A lot of complexity. But the fact is they've

02:12:28.020 created coverage and access for a lot of people. And more importantly, they have created coverage

02:12:33.360 and access for working class, generally voting American citizens. And that means it's a powerful

02:12:42.060 group that has access to this insurance coverage. And so them losing it or losing their subsidies

02:12:47.840 becomes a real issue for everybody who's in the environment that has to make decisions on this.

02:12:54.020 So what that leaves you with for uninsured, obviously undocumented people that don't have

02:12:58.740 U.S. citizenship or some legal ability to work here. And two is there are obviously people who

02:13:04.920 choose. They just decide, hey, I'm young and healthy. I don't want to buy on this thing.

02:13:08.020 Right. I'm young. I'm healthy. I'd make far too much to qualify for Medicaid. And my employer

02:13:12.660 doesn't give me a health insurance. I'm choosing not to buy. How many people is that today?

02:13:16.680 I don't know. It's not a large number, but it probably would be somewhere in the millions.

02:13:21.380 So a silly semantic question. The ACA is the Affordable Care Act. It seems like an odd name

02:13:27.480 given that its mandate was not to address price, but to address access. And if anything,

02:13:33.340 it drove up price. It drove up cost. It's just silly. But was there an attempt? What was the view

02:13:39.180 that the ACA was not only going to address what it clearly set out to address, which was access,

02:13:44.680 but that in doing so, it would reduce cost? First of all, it's a political name. It's a

02:13:48.780 bill that went through Congress and it's a political name. I'm just such a literal person.

02:13:52.500 I think it's a more respectful way to talk about it than the way people talk about it as Obamacare.

02:13:56.040 I think it's a more respectable way to talk about it as the Affordable Care Act.

02:13:59.180 I would just call it the Access Care Act is all I'm saying.

02:14:01.700 It is. It's the Coverage Care Act, right? Yeah. I mean, that's really what it is in terms of what it

02:14:06.440 eventually did. I think there were a lot of big ideas thrown about, mostly by academics and others,

02:14:11.740 that some of the policies within the Affordable Care Act would include affordability and lower

02:14:17.000 cost. I mean, I just don't think it ended up happening that way for a few reasons. And then

02:14:21.300 people will point at each other about, well, the legal challenges affected this. The reality is that

02:14:26.040 it has increased expenditures because we know coverage at a group level that removes you from

02:14:34.260 the direct exposure to the cost of care creates demand and higher expenditures. We saw that with

02:14:40.860 Medicare comes back to the same principles. And most of these exchange products have generally

02:14:45.980 good physician and other choice associated with them. Some are narrow networks. Many of them have

02:14:51.440 a lot of choice. So again, you prioritize choice and access. The costs could be higher than one may

02:14:56.140 have guessed. On the other hand, they have been, again, as I said, incredibly powerful tools to

02:15:04.040 provide coverage because that was the purported goal of the act for those that didn't have it when

02:15:09.140 combined with Medicaid expansion. Not all states have expanded Medicaid, by the way, either.

02:15:14.100 All right. I mean, that was a state-based thing. But in aggregate, more people have been covered

02:15:18.820 after the Affordable Care Act and therefore expenditures also went up, which is what you

02:15:22.900 would expect at a simple level. We also talked about the fact that some of the value-based care

02:15:27.340 constructs that they had haven't been successful. I mean, CMS has spent more money in their Medicare

02:15:33.960 innovation arm, CMMMI, in creating the constructs of innovation than they actually saved in the

02:15:39.820 programs they launched. So it hasn't really worked yet. Again, American ingenuity, right? You keep

02:15:44.720 trying and failing, trying and failing, and maybe one day you'll get it right. It just hasn't worked yet.

02:15:48.980 Has there been any credible proposal put forth to create a Medicare program that covers everyone?

02:15:57.500 What would be required to make that happen?

02:15:59.180 Well, I think the first question would be, do you want the federal government covering everybody

02:16:04.300 when the whole purpose of the employer-sponsored system is to have choice and to have access to

02:16:09.760 different networks that you can pick from? I don't know that a one-size-fits-all model would work.

02:16:14.920 I think the second thing, and probably from my perspective, the more important thing is that

02:16:19.860 if what we've talked about here today bears some degree of accuracy around what the drivers of

02:16:25.980 healthcare costs are now and are going to be, it's really about health status, chronic disease,

02:16:33.300 aging, drug costs related to the chronic disease, the demand. Coverage is not what's lacking today.

02:16:41.560 Models of coverage is not what's lacking today.

02:16:44.640 So Medicare for everybody, it's solving the problem we don't have that much anymore.

02:16:48.320 What you would rather call that would be price controls. If your argument is you want to put

02:16:53.640 them on Medicare because Medicare reimburses less than everybody else, commercial insurance or

02:16:59.360 whatever costs, yeah, then you should just call it, we're going to have a price control. But then

02:17:02.940 we're moving to a supply-side intervention. That's a supply-side intervention says we're going to

02:17:06.840 constrain everybody's access and choice. The reimbursement is going to come down and the

02:17:11.360 infrastructure will survive or not survive and what's left will be what you can access.

02:17:16.440 That's a different choice because that's what it would do. It'd be a buy-down.

02:17:19.540 Remember one thing, and we haven't really talked about it that much. This system is built on a lot

02:17:24.480 of cross-subsidies. Healthy people in our model of insurance cross-subsidize our fellow citizens who

02:17:31.540 happen to be ill in some period of time. In the same way, employer-sponsored insurance,

02:17:38.260 which reimburses healthcare at a higher level than Medicare or Medicaid, overcomes the unit cost

02:17:44.980 under-reimbursement of government healthcare. This goes back to the concept, the government

02:17:50.180 already behaves as a monopsony here. They under-reimburse what you get paid from Medicaid

02:17:55.440 if you're a doctor or Medicare may be below your cost relative. It's cross-subsidized.

02:18:03.020 So corporate profitability is subsidizing the government.

02:18:05.420 A hundred percent. A hundred percent. And that cross-subsidy creates this dynamic where you can't

02:18:12.000 have one go away without the other. That's why I'm so concerned about the notion that our number

02:18:17.160 of 40 to 65-year-olds relative to the people that are getting the benefit from government

02:18:22.340 that somewhat under-reimburses unit care of cost is going down. The people generating the economic

02:18:29.240 rents to cross-subsidize the other side is going down. And what does that mean for our economy if

02:18:36.020 healthcare expenditures are growing this quickly? I mean, that's the essence of this discussion.

02:18:39.640 And by the way, I haven't answered your question with any reasonable solution to how to cut 25%.

02:18:46.100 I mean, you probably need somebody from totally outside the system to come up with an idea for

02:18:51.120 that kind of cut. I am much more optimistic about the notion that healthcare expenditure inflation

02:18:56.640 could be reduced to a level that is somewhat closer to GDP growth.

02:19:03.360 And your argument is, look, we've made it this far. If healthcare is 18% of GDP,

02:19:08.980 as long as we make sure it never exceeds 18% of GDP, even though the absolute dollars will go from

02:19:15.440 four to four and a half to five trillion, we're going to tolerate that because our economy is going

02:19:21.800 to grow proportionately, not less. And that's the price that the United States is willing to pay

02:19:28.280 to be first in class for choice, access, and quality. We're willing to pay that price.

02:19:35.020 That sounds a little fatalist in terms of where we are. I mean, my framing would be,

02:19:39.580 we value quality, access, choice, and innovation, and we're willing to pay for it. It has not deterred

02:19:47.620 the U.S. economy to date in terms of being not only the leading, but the fastest growing economy.

02:19:54.040 And our problem that we need to solve societally is about, in the U.S., it's about two things,

02:20:00.600 as we outlined. It's about the burden of chronic illness and aging, and all of these factors that

02:20:06.700 drive worse outcomes that really aren't healthcare factors. Again, we talked about the infant mortality

02:20:11.500 issues, the drug and drug access issues, and the mortality associated with that, homicides,

02:20:17.540 violence, injuries, et cetera. Working on those things, plus the chronic illness side from the

02:20:23.640 medical perspective, are not anymore about insurance or coverage or whatever. They're

02:20:29.900 about addressing those issues directly. But to your point, public health has been an

02:20:34.340 abject failure when it comes to dealing with these things. That's right. I mean, I'm not saying

02:20:38.140 that the solution is public health. I mean, I think the success that public health, the current

02:20:41.800 model in public health had in infectious disease over the last 75 to 100 years hasn't worked in this

02:20:46.820 setting. I mean, even COVID is a good example of that. So much debate exists about what happened

02:20:51.780 there. Why was U.S. mortality higher than most other developed countries in COVID? I mean,

02:20:56.360 the most effective thing that happened during COVID was the development of the vaccines,

02:21:00.040 which was, again, U.S. ingenuity, innovation, and spread around the world in many, many ways.

02:21:04.420 And so I think we have to rethink these models. And before we give them more funding, we need to make

02:21:09.180 sure that they're doing the right thing for us. But if we can bring those things in line,

02:21:12.860 I think we can make a difference. I come back to, which I learned from you more than anybody else,

02:21:17.140 the background nutritional environment, if it changed, could make a big difference over a 10-year

02:21:23.380 period. And if you add to that, incorporating a degree of physical activity, as we all know,

02:21:29.300 this isn't about going from being sedentary to running marathons. It's about being sedentary to

02:21:34.660 some physical activity. And it has a huge potential benefit on the types of healthcare costs that come

02:21:40.520 from chronic illness. And those two things together, and addressing some of the U.S. unique

02:21:45.980 issues, could bring healthcare expenditures in line with GDP growth pretty quickly. But you have

02:21:52.700 to have that goal over a 10-year period. If it's a one or two or three-year goal, we will fail and give

02:21:57.560 up before we try. But you can do it over a 10-year period, I think. And that's where my optimism comes

02:22:02.420 from. But anything that's going to be done over a 10-year period has to be government-run. There's no

02:22:07.640 employer or individual who can subsidize something where the remuneration is that far out.

02:22:14.240 Well, I think you have to start by having a discussion around what's our national health

02:22:18.200 objective. We don't have a national health objective right now that seems obvious. And

02:22:24.180 again, unless you just say by default, the national health objective is the ultimate in access and

02:22:31.040 choice. And if that continues to be our objective, the system is designed to produce that. My point is

02:22:37.400 that we can have access and choice and incrementally put dollars into these other things and make a

02:22:43.580 difference to both without radically cutting access and choice. That's what we have to get our head

02:22:49.640 around from a long-term perspective. You're right. Short-term interests from all kinds of industry

02:22:55.000 participants and public participants as well may run counter to that 10-year goal. That's why establishing

02:23:01.280 that goal, the question is, go back to your point around what we did after World War II. It was a

02:23:06.100 national goal to have an ecosystem of countries that stood for democracy and protected security

02:23:12.440 around the world. And we were willing to invest in it. This may not be an international problem,

02:23:16.260 but it is a national problem. And so we got to rally around that.

02:23:19.860 Sam, I've got all my charts here that I've been studying to prep for this. And one of the things

02:23:23.840 that stood out to me is one area where we actually spend less than the other developed nations,

02:23:28.220 because we're spending about 2x what they are on everything. We spend less on long-term care.

02:23:33.260 So I guess my question for you is why? Secondly, we haven't talked about one specific disease that

02:23:39.980 is also increasing in prevalence, which is dementia. So those two are pretty linked. What

02:23:45.700 do you have to say about that with respect to future costs? I think our biggest challenge in

02:23:50.420 innovation for the next 20 years is the management and care of neurocognitive decline, whether you

02:23:58.180 formally have dementia or not. One thing is true. When you age, people live longer, they inevitably

02:24:03.460 have neurocognitive decline, and they require more care. The culture in this country, just to address

02:24:09.320 the long-term care expenditure piece pretty directly, I think there are many positive aspects of the

02:24:14.160 culture of family taking care of generations, and that being something that's passed from generation

02:24:20.880 to generation. We spend less in institutionalized long-term care because a lot of that work is done by

02:24:27.000 families. Now, that's also a burden. As people live longer and the cost and complexity of their care

02:24:32.600 as they decline gets higher, the cost of providing that care is not just the direct cost, but it's

02:24:38.760 lost wages and productivity in the economy as people, often women, come out of the workforce to take care

02:24:45.380 of the elderly from that perspective. So this problem is not just a healthcare problem. It could become a

02:24:50.580 macroeconomic problem based upon feeding the workforce and lost productivity. The second reason I think

02:24:57.140 this is a huge problem, we won't get too technical, simple issue of blood-brain barrier. The traditional

02:25:03.440 pharmaceutical model to care for these diseases may not work once there's onset of disease because of

02:25:10.880 the blood-brain barrier. And the concept there is that drugs which go into the body don't get through

02:25:15.680 effectively the barrier between the blood and the brain to be able to treat brain diseases.

02:25:21.260 We need new forms of innovation. And this is where I think you will see the prominence of

02:25:27.380 engineering-based solutions rather than drug discovery-based solutions grow materially

02:25:33.960 to help with these diseases. Think about what we do today with stimulation and neurostimulation

02:25:40.160 in Parkinson's. That's a device-based therapy. I think the role of engineers in healthcare has an

02:25:46.740 infinite future and upside for us because of neurological diseases. And we've got to pivot

02:25:51.900 our model, our research, our funding to deal with this issue because we're going to go from 65 million-ish

02:25:59.680 people in Medicare today to 90 million by the mid-2030s. And again, go back to my point before of the

02:26:07.340 number of people pre-Medicare declining that's going to help finance the care for those people.

02:26:13.180 So we need models for custodial care, meaning where to take care of them and how, that isn't

02:26:18.460 a nursing home or long-term care, which is too expensive. You got to make that job easier in the

02:26:23.340 household. And we need innovative engineering-based solutions that help improve their cognitive function

02:26:30.320 to make them more self-sufficient, to deal with their dementia for a longer period of time so that

02:26:37.260 they're more self-sufficient and less dependent. And solving that problem, I think, is one of the

02:26:42.980 grand frontiers in medicine over the next 10 to 20 years, given the aging of the population.

02:26:48.540 Because remember, we're going to age up through 2032, 2033, but those people are then going to live

02:26:52.700 10, 15 years. This is a 25-year problem. And I don't know that we've found the solution to that.

02:26:58.060 On that thread of technology, we touched on it really briefly in terms of how AI can help with

02:27:04.000 the absolute messiness of reconciliation and adjudication. But we didn't talk about technology

02:27:10.800 in other ways and we didn't talk about AI in other ways. So what are your broad stroke thoughts on the

02:27:15.540 role of technology in any of the variables we've talked about, but obviously in cost reduction being

02:27:20.980 that it's the elephant in the room? Yeah. I mean, I think today, if we look at the system

02:27:25.480 and what's being developed in AI, administrative cost is the easiest and first application,

02:27:31.080 I think, where you can actually see real cost reduction potential. So I think we hit that

02:27:35.860 correctly. I think in the clinical realm, the electronic medical record, which has been a

02:27:40.340 massive industry expense, what it has done is created a much more organized system of record,

02:27:46.200 but it hasn't really fully translated to a system of engagement for all the stakeholders.

02:27:50.900 And I would argue hasn't really been transformative in improving the quality of care relative to

02:27:57.520 other things. And it certainly hasn't really improved access or choice in any way from that

02:28:02.640 perspective. But taking that foundation and building in the potential benefits of AI in better

02:28:09.180 clinical care, better understanding of evidence-based medicine, that has potential from the foundation.

02:28:15.060 So while I'm not a big proponent of the fact that the foundation that's been very expensive has a

02:28:19.880 huge return on investment that the industry has seen, it has had an organizing effect, almost table

02:28:25.400 stakes that were required to get off paper to enable things like AI to make a difference in the future.

02:28:31.780 And you know, what's going to be interesting is it'll remain to be seen. Do the traditional

02:28:35.480 EMR participants or do new entrants really build the AI that does that? And I think there's a lot of work

02:28:41.680 going on in that area. I think it's early. I think the hype is seriously overblown in the near term

02:28:47.600 in terms of the value that it will have. But from a long-term perspective, conceptually,

02:28:52.980 the power of the tool to really improve care, not just administrative cost, I'm optimistic about.

02:28:59.920 So some three hours ago, we started talking and I said, I had hoped that by the end I would have,

02:29:04.560 and by extension, the listeners would have a better understanding of the US healthcare system.

02:29:08.440 I can't speak for them, but I do speak for myself when I say, I honestly think I understand this

02:29:12.640 better than I ever have. I appreciate that.

02:29:15.040 And that's a clear testament to you. Maybe just to spend one moment on the personal,

02:29:19.940 I've talked a lot about my time at McKinsey as a great chapter of my life. When I left medicine,

02:29:25.780 didn't know what I wanted to do, but knew I didn't want to do clinical medicine at the time.

02:29:29.920 What probably many don't know is you were single-handedly the person that plucked me out of

02:29:34.140 Johns Hopkins and brought me out to San Francisco. And you, along with Hamid Samandari were the two

02:29:39.640 single most important mentors I had there. I owe you such a debt, Sam, and it is such a pleasure to

02:29:45.040 be sitting down with you today. I wouldn't be where I am today without you. Your influence on me is

02:29:49.440 hard to overstate.

02:29:50.220 I appreciate that. It's incredibly kind, but the reality is that you know this,

02:29:54.640 the pride that we have in what you've built and I have and my family has is incredible. And the

02:30:01.200 thing about you from my perspective that I can't say about virtually anybody else is that what you

02:30:08.120 have built has been purely based upon your intellectual curiosity, creativity, and drive

02:30:15.900 to know the truth as opposed to anything to do with your personal gain. I've known you from day one

02:30:23.900 as having worked in that way in the environment that we were in together and all of the different

02:30:28.600 things that you went to do after that in various, I mean, I remember algae, but the point is it was

02:30:34.520 always driven by that intellectual curiosity. And that's something that I wish more people had.

02:30:40.160 And I think if there's any benefit of this conversation of us talking about this,

02:30:43.740 somewhere out there in your audience, there's another person like you who will hopefully solve

02:30:48.120 these problems because they're just as intellectually curious as you. It's a gift that the world will

02:30:52.660 never understand the benefit of from what you're doing.

02:30:55.140 I appreciate that, Sam. And thank you for this incredible, truly masterclass on a complicated

02:31:00.900 system. I will say this, the single most optimistic thing I take away from this is we might not have

02:31:06.440 to slash the cost by something dramatic like 25%. If we can enact the right combination of policies,

02:31:14.020 technologies, perturbations in behaviors and incentives that simply bend the cost curve towards GDP growth,

02:31:22.560 we might actually be fine in the long run. I think that's true. Thank you for the opportunity.

02:31:26.520 Thank you for listening to this week's episode of The Drive. Head over to peteratiamd.com forward slash

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The Peter Attia Drive - December 02, 2024

#327 - Choices, costs, and challenges in US healthcare： insurance intricacies, drug pricing, economic impacts, and potential reforms ｜ Saum Sutaria, M.D.

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