The Peter Attia Drive
#327 - Choices, costs, and challenges in US healthcare: insurance intricacies, drug pricing, economic impacts, and potential reforms | Saum Sutaria, M.D.
Mon, 02 Dec 2024
View the Show Notes Page for This Episode Become a Member to Receive Exclusive Content Sign Up to Receive Peter’s Weekly Newsletter Dr. Saum Sutaria is the Chairman and CEO of Tenet Healthcare and a former leader in McKinsey & Company’s Healthcare and Private Equity Practices, where he spent almost two decades shaping the field. In this episode, Saum unpacks the complexities of the U.S. healthcare system, providing a detailed overview of its structure, financial flows, and historical evolution. They delve into topics such as private insurance, Medicare, Medicaid, employer-sponsored coverage, drug pricing, PBMs and the administrative burdens impacting the system. Saum’s insights help connect healthcare spending to broader economic issues while exploring potential reforms and the role of technology in improving efficiency. Saum highlights how choice and innovation distinguish the U.S. healthcare system, explores the reasons behind exorbitant drug prices, and examines the potential solutions, challenges, and trade-offs involved in lowering costs while striving to improve access, quality, and affordability. The opinions expressed by Saum in this episode are his own and do not represent the views of his employer. We discuss: The US healthcare system: financial scale, integration with economy, and unique challenges [5:00]; Overview of how the US healthcare system currently works and how we got here [9:45]; The huge growth and price impact due to the transition from out-of-pocket payments in the 1950s to the modern, third-party payer model [18:30]; The unique structure and challenges of the US healthcare system compared to other developed nations [22:00]; Overview of Medicare and Medicaid: who they cover, purpose, and impact on healthcare spending [27:45]; Why the US kept a employer-sponsored insurance system rather than pursue universal healthcare [32:00]; The evolution of healthcare insurance: from catastrophic coverage to chronic disease management [36:00]; The challenge of managing healthcare costs while expanding access and meeting increased demand for chronic illness care [44:15]; Balancing cost, choice, and access: how the US healthcare system compares to Canada [48:45]; The role of the US in pharmaceutical innovation, it’s impact on drug pricing, and the potential effects of price controls on innovation and healthcare costs [56:15]; How misaligned incentives have driven up drug prices in the US [1:05:00]; The cost of innovation and choice, and the sustainability of the current healthcare cost expenditures in the US in the face of a shrinking workforce and aging population [1:11:30]; Health outcomes: why life expectancy is lower in the US despite excelling at extending lifespan beyond 70 [1:18:45]; Potential solutions and challenges to controlling drugs costs in the US while balancing choice and access and preserving innovation [1:26:15]; Balancing GLP-1 drug innovation with affordability and healthcare spending sustainability [1:40:00]; Reducing healthcare spending: complexities, trade offs, and implications of making needed cuts to healthcare expenditures [1:46:45]; The role of government regulation, opportunities for cost savings, and more [1:56:15]; Hospital billing: costs, charges, complexities, and paths to simplification [2:01:15]; How prioritizing access and choice increased expenditures: reviewing the impact of healthcare exchanges and the Affordable Care Act [2:08:00]; Feasibility of a universal Medicare program, and what a real path to sustainable healthcare looks like [2:15:45]; The challenge of long-term care and the potential of innovation, like device-based therapies and AI, to improve health [2:23:15]; and More. Connect With Peter on Twitter, Instagram, Facebook and YouTube
Chapter 1: What are the complexities of the US healthcare system?
They don't try to cover everything. If you have a child that's born with the most obscure congenital cardiovascular malformation, they might just say, you know what, that's something we will just send up to UCSF because they've got the right person there.
I mean, my personal example, my mother had a rare form of brain cancer. We had terrific oncologists at Kaiser who were incredibly dedicated and knowledgeable about oncologic care, who without hesitation sought expertise from UCSF. when they needed it for the more sophisticated parts of her care, including letting her go there.
So my personal belief from personal experience is that clinicians do make a lot of the choices at Kaiser. They get knocked sometimes that somehow there's a corporation sitting there telling them what to do. And yes, it is managed care. And yes, there are restrictions on, in some ways, how they construct their system. But when you have an esoteric problem,
No one stops a physician from sending you to the right place there, in my experience. And all systems that are in managed care have out-of-network expenditure for rare things. I think that's a really important point and worth bringing up from that perspective. But you have these systems then that work in certain places and don't work in other places that effectively.
The vast majority of the country today, from an employer-sponsored standpoint, is working in some form or another of a PPO system where people have choice because that's what they want. And again, that choice comes with a cost, as we've talked about, that maybe explains some of the differences between us and other countries.
I grew up in Canada, and I still have experience with the Canadian healthcare system because my entire family is there. And I don't know if you have experience there previously, because I know at McKinsey, you did a lot of work for different provinces and stuff like that, and obviously through the NHS. Here's my take. And again, it's so anecdotal that I'm curious if it's reflective.
My take is that if you needed heart surgery, if you need a aortic valve replacement and a root repair and a cabbage, there is a surgeon in Canada that's just as good as the surgeon in the US, meaning the top 10% of the surgeons in Canada and the top 10% of the surgeons in the US are going to be indistinguishable in that regard. You're really going to get great care in that regard.
The difference is you're going to wait a heck of a lot longer. The hospital experience could be entirely different. Obviously, you're not paying for it.
Well, I think you have to be careful about that. You're paying- You're paying for it, of course, through your taxes.
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Chapter 2: How did the US healthcare system evolve over time?
The thing that's different in the United States at scale that I think is interesting is not just the focus on consumer choice, but the United States has become comfortable in healthcare being the driver and leader of innovation.
So in healthcare services, that is the proliferation of academic health science centers that conduct research, much of which used to be supported exclusively by the NIH, which is a brilliant construct over the history of the United States, to really fund basic research and innovation, now clinical research and innovation, and increasingly funded through private industry.
And that has driven a large proportion of the innovation in the world. The science that supports pharmaceutical development, for example, comes out of U.S. academic health science centers, largely speaking. And then you have U.S.-based pharmaceutical companies that develop 75, 80 percent of the world's pharmaceuticals. And you can keep going and we can get into drug costs.
But it is a unique feature of this country. that we have chosen to make that investment for the rest of the world. As I said the other day, it's no differently than we've seems to have made that choice in defense. And there are differences between the two.
And this is what I want to come back to. So we're going to go into PBMs because I'm amazed we are as far into this podcast as we are and we haven't discussed PBMs. So we're going to get right to it for the people who are listening to us going, how have you not talked about drugs yet? But here's the fundamental difference. You made a great point.
So post-World War II, Bretton Woods Accord, the US makes a deal with the rest of the world effectively. which says, there's a cold war coming. And if you choose to be our ally, we will provide you security. Specifically through our Navy, we will ensure that your ships can pass freely throughout this entire world. We will not plant a flag on your soil. We might use military base.
We're not here to be conquerors. We're not here to be emperors. But if you pick our side, we will assure your security. And so that's an example of how we greatly subsidized defense for the world, but we got something out of it. Now, when we are subsidizing drug costs for the rest of the world, because as you point out, we develop all the drugs.
It's not like we get different drugs than everybody else. Everybody else in the world gets the same drugs we developed. Everywhere else in the world has price controls that lower the cost of that. And in true economic fashion, it's sort of like somebody is squeezing down on the tube of toothpaste. All that toothpaste is exploding in the United States with drug costs.
So the question becomes, what are we getting for subsidizing the rest of the world's drug price?
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Chapter 3: What are the challenges of drug pricing in the US?
Chapter 4: Why is employer-sponsored insurance prevalent in the US?
Chapter 5: What are the differences between Medicare and Medicaid?
Chapter 6: How does the US healthcare system compare to other countries?
It's a really complicated system.
You're one of the most structured thinkers I know of, so I'm going to actually just defer to you as to what framework do you want to put to this for people to understand how so many trillions of dollars flow in, how many so many trillions of dollars flow out, who's paying, who's receiving, how is this thing organized, and why are we different than every other country on the planet?
Let's start with how the system works from a financing perspective, and then I think we can talk about how that's different than other countries. We can talk about the impact on outcomes, and we can probably even start to set up the framework on, as you say, the things people are interested in, why, and what can we do about it.
But it's hard to start anywhere other than this is now close to 20% of the US economy, healthcare, 17, 18% currently.
But let's give a number to that. People don't understand how big the US economy is. So how many dollars are we talking about?
Yeah, we're talking about a US economy gross domestic product that's probably $28 trillion. That's 20% of the world, 25% of the world's economy. With about 7% or less. And another way to think about it, that's almost $90,000 per person in the US. We spend $11,000 to $12,000 per person in the US on total healthcare expenditure.
Just to put that in context, $4 trillion of expenditure in the healthcare sector. If you added up all of the exports that the United States sends out across all industries, you're talking about $3 trillion. We import more than we export. We're a consumer culture. That's close to $4 trillion, but not quite at $4 trillion today.
I mean, you just put that in context in terms of how much we spend in healthcare in the US. It's a huge... huge number. And I appreciate the comments about how healthcare is a topic waxes and wanes with respect to being top of mind. But any discussion about the economy, about inflation, about jobs, you're really talking about healthcare in many ways.
It may not be as direct as talking about healthcare policy, but you're really talking about healthcare given that it's almost 20% of the economy. And there's no escaping that.
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Chapter 7: What are the future implications of rising healthcare costs?
Chapter 8: What role do PBMs play in drug pricing?
So I'm making a note here to myself. I'm just listing out the players in the system, the government, the employers and the payers. I'm going to lump them as one. The consumer, the medical system that I'm just going to call hospital, ambulatory center, physicians, the staff, the delivery system of healthcare, and then pharma. And I don't really know where to put the PBM.
Would you make them their own separate thing as a system or would you put them in with the payer or where would you put them in with pharma?
Well, they're owned by the payers.
Okay. So if we were somehow given the ability to do anything we wanted and we said, we want to keep quality essentially where it is, maybe restrict choice a tiny bit, kind of leave access where it is, but we want to shrink cost by 25%. Is that metaphysically possible? And if so, how does that list of participants play a role in that?
Well, 25% is a big number.
No, it's a huge contraction. It's a huge contraction. 25% over the next X years. It's not going to be an overnight 25% reduction, which by the way, let's just make sure people understand this. A 25% reduction in our healthcare spend would still have us being the most expensive country of healthcare in the world. We're not even getting to cost parity with other developed nations.
But I'm just thinking about, I'd like to get it closer to 3 trillion than 4 trillion. That's all I'm saying. Sure.
I think the concept of absolute cost reduction is very different than bending the trend. And we can get into whether there are absolute cost reductions that we can think about within the current system and what they would mean and what they would require.
But I think the other way to ask the question longer term is can healthcare inflation mimic GDP inflation as opposed to being 2% faster or could it fall below it? But just getting it to that level of being at the same level of GDP inflation would be an enormous, enormous move and curbing of the healthcare expenditures.
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