Qualy #85 - The past, present, and future of medicine, hospitals, and healthcare
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Summary
Health care is one of the least disrupted industries by technology, but is it also the most lucrative? In this episode of the Qualies podcast, we discuss the pros and cons of the health care industry, including the benefits and risks of investing in it.
Transcript
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welcome to the qualies a subscriber exclusive podcast qualies is just a shorthand slang for
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a qualification round which is something you do prior to the race just a little bit quicker
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subscribe so without further delay i hope you enjoy today's quali you know it's interesting when you
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look at all of the businesses that have been disrupted by the internet and contrast it with
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those that have not right so you've just given us a very eloquent description of how the music industry
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was disrupted but you also pointed out something interesting which is it wasn't just the internet
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that disrupted it was the desperation that followed the decimation that permitted the restructuring
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of course then you can rattle off all the glib and obvious examples right what amazon has done to
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retail what netflix has done to you know blockbuster and you know stores on the side of the street
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what uber has done to taxis what you know all of the travel sites have done to travel agents i mean
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it's been incredibly disruptive and yet when i think about medicine it's like one of the least
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disrupted industries by technology and you know you basically still have hospitals eat all the rent
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payers although most people generally perceive them as bad guys generally don't get paid that much
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providers get less and less on a per encounter basis and it's you know overall a pretty much
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similar system to what it was 20 years ago and that's i don't know i mean i guess i'd have to think
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about it but i can't think of too many industries that are as unchanged in the presence of this
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revolution as health care no i think you're right the appeal of investing in health care is exactly what
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you just expressed and that's what drew me into it several years ago and what i've learned since then
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has been slightly disillusioning but i'll give you my take on it the first thing i would say is that
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health care is still an industry that largely gets paid through labor so most of the money
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ultimately goes to labor goes to doctors it goes to health care personnel the hospitals don't make
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that much money they're not that great a business you know if you look at kaiser for example which is
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an integrated payer provider you know in california i think they have a three or four percent gross margin
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it's not a phenomenal business the payers to your point have very low margins they in fact have
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legally imposed limits on the amount of gross margin that they can generate which you know you can argue
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about the ethics of the pharmaceutical companies who everyone hates seemingly extract enormous profits
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on the other hand it's a very competitive industry and apart from the legalized monopoly given to
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them via patents on new drugs they are the only companies sort of as i said about record labels
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they're the only ones who are out here designing new solutions and taking an enormous risk taking an
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enormous risk and their shareholders are taking that risk now whether they're being overpaid or
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underpaid to take that risk is totally debatable the other thing is that it's unclear where technology
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can deliver dividends in terms of human health and so we're thinking about medicine at a moment in
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which we as a species have already made enormous progress i mean whatever we've doubled or tripled
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lifespan and you know i mean you know these numbers better than i do but even if you get rid of the infant
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mortality factor and these other things that distort the numbers people are living quite a bit longer on
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average than they were even seemingly 30 years ago that's especially true of affluent societies until they
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get afflicted by the diseases of affluence so where can we get more life from or where can we reduce
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suffering and disease by way of technology is a little unclear there are all sorts of things that we
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could of course do to make hospitals more efficient and to spend less than we do on things like end of
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life care that maybe aren't a good use of capital but there's not so obviously a spotify of health care
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waiting to happen it's more like there are a million little it operating efficiencies that mckinsey
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consultants will over the next several decades implement in large health organizations and then
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the big promise is around new types of medicine that i think will arise in the biotechnology industry
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and that's where i'm now spending a lot of my time and attention yeah it's sort of interesting because
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i think one of the challenges of health care and i think this was most evident during the debates many
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years ago not many but what i call it eight ten years ago around the aca and around complete
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revisiting a restructuring of health care and one of the things i found a little painful in listening
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to politicians talk about health care was they spoke about it like there was just one problem to be
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solved but the way i sort of think about it is there are at least three completely separate but highly
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related problems which is you know quality of care and that can be broken down into two levels you can
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sort of have it as just keeping people from dying versus like generating alpha so you know really
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improving quality there's cost which is just the cost to the system and about 90 percent of the dollars
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are basically spent by three entities the government the employer and the payer depending on who's at risk
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the consumer is on the hook for about 10 percent of that cost so how could you reduce the cost
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and then the third leg of that stool is access how do you ensure access and so when we talk about
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technology disrupting health care it's like where do you start right because you know for me i can
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see things where technology can be quite helpful on quality of care not entirely obvious to me how to
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leverage technology to lower cost people much smarter than me i'm sure think about that and not entirely
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clear at least at a practical level how it can drive access although in theory that should be the
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first place you'd want to go after leveraging technology but i think i'm trying to think about
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what you said about how spotify went about it and trying to see is there a parallel there because
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the thing with spotify that was hard was you had multiple constituents right you have artists you have
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labels you have consumers and they all kind of want something a little different and that speaks of an
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optimization problem which is clearly what health care is but going on what you said a moment ago it
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sounds like today you're a little less encouraged than you would have been four years ago and you're
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thinking on this problem well let me try and recapitulate your three legs of the stool and in one
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simple framework which is something that we should all be aiming for is to generate universal access
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to the current best available health care that anyone in the world receives you know one of my
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favorite quotes i always forget whose quote it is but venture capitalists talk about it a lot which is
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that the future is already here it's just not evenly distributed and i think that's almost always true
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look at what rich people are doing and assume that in 20 or 30 years everybody will have that
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and so what are rich people doing right now well they're paying doctors like you a lot of money
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to do very bespoke types of medicine that leverage all sorts of deep biometric analyses of their bodies
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a lot of thinking by you and your team and a lot of spend on the usage of what are currently
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expensive machines mri machines to do preventative screening for tumors every year things like this
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that if you're really rich you know you might as well go get an mri every year get a full body mri
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every year i mean just see if there's anything going on why not and so what stands between today
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and orphans in somalia receiving that level of care and what stands in the way i think is to some degree
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a level of technological leverage what is happening in your head when you look at a patient's blood tests
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and try to gel that with your biophysiological mental models
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is something that i believe computers will be able to do in the future
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and so right now we use physicians for thinking and for bedside manner and for guidance
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and then we use some physicians like surgeons for physical procedures that they're essentially athletes at
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you know you want high performing athletes who don't mess up who are very precise who've done it a million
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well the roboticization of physical medicine like surgery is something that i believe will just
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continue to get better and better it may take longer it may not be replaceable immediately but
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that will you know we will be primarily doing robotic surgeries 100 years from now the cognitive work
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that physicians do will i believe largely be replaced by computational systems that can
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leverage the same types of theoretical frameworks that our minds are utilizing to make good decisions
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and what you're left with is all the touchy-feely personal stuff that you as a physician and any other
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physician knows really matters it's not superficial the ability to help someone make good decisions about
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their own health to make someone care about their physical health to help them navigate difficult
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decisions that aren't straightforward that involve trade-offs are the sort of things that physicians
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right now don't have the time to do that they did when they were taking their medicine bag around to
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people's houses and hanging out for a couple hours and so in a certain way we may go back to an older style of medicine
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but the people who do that may look more like highly skilled nurses than like physicians so i believe that
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what you'll see is globally a lot more technology involved in the deployment of medicine and a shift in the
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composition of the labor market around medicine towards something that looks more like a large population of
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highly skilled nurses fewer overpaid or appropriately paid but maybe over trained physicians that right now
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are very scarce that only rich people can access and then most excitingly you're going to see a lot of new
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medicine that's the stuff i'm focused on now as an investor and that's the stuff that i think is going to be
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the most game-changing that's the stuff that's going to buy us years of additional life
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i hope you enjoyed today's quali now sit tight for that legal disclaimer this podcast is for general
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for any medical condition they have and should seek the assistance of their health care professionals
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for any such conditions lastly and perhaps most importantly i take conflicts of interest very
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seriously for all of my disclosures the companies i invest in and or advise please visit