Intro. [Recording date: May 27th, 2020.]
Russ Roberts: Today is May 27th, 2020, and my guest is author and physician, Vivian Lee. She is President of Health Platforms at Verily Life Sciences, an Alphabet company whose mission is to apply digital solutions that enable people to enjoy healthier lives. Her book is The Long Fix, which is our topic for today. Vivian, welcome to EconTalk.
Vivian Lee: Hey, great to be with you. Thank you for having me.
Russ Roberts: Vivian, your book starts off with what I think you call, and what I would call, the central problem in American healthcare: Doctors paid to do stuff to us, rather than to take care of us. What’s wrong with this picture?
Vivian Lee: Well, you know, that is really the fundamental question, I think, in healthcare right now. The fact that we are paid to do things to people means that, like in the time of crisis, instead of focusing on areas like prevention and public health, we are focused on generating fees. That means we invest our resources in things like operating rooms, imagining, centers and the like.
And, when we are incentivized to do that, even though most physicians, I believe at certainly my own practice, try to do the right thing, nevertheless the system is incentivizing us to do more to people, regardless of whether they actually improve health outcomes.
When you have that as a driver in the healthcare system, the counterbalance is really now the insurance company or the payer. So, the insurance company or payer says ‘No, we don’t want you to spend that much money. We need to put in some controls.’ And, the controls they put in are things like barriers. They are denials of coverage. They are prior authorization, for example. So, your doctor might order an MRI [Magnetic Resonance Image], and they’ll say, ‘No, no, no, you need to fill out all this paperwork in order to get that approved.’
So, the two behemoths of healthcare, priority[inaudible 00:02:26] systems, insurance, fighting back and forth, back and forth, wasting, by the way, an enormous amount of money just on the administrative work–8% of the healthcare dollar, right now, is being spent on administration alone, compared to 3% for OECD [Organisation for Economic Co-operation and Development] nations, other OECD nations.
Russ Roberts: And, that estimate–
Vivian Lee: A lot of waste, a lot of frustration.
And, then, when the camera’s off[?], it falls down to patients in balance billing or surprise billing, which we hear a lot about in the headlines.
So, we have a pretty dysfunctional system that leads to over-treatment and over-diagnosis and just simply overdoing, at the expense of better health.
Russ Roberts: Yeah. I think the waste you talk about, I think you said 8% for the administrative burden. One, I suspect that’s an underestimate. I think that’s probably a formal measure of salaries of people in the business of keeping track of stuff, as opposed to the distraction to doctors to have to always show that they’ve met some standard or justify a code that’s in the data.
To me, the biggest, “waste,” is the over-testing–the over-diagnosis, the over-treatment.
And, as we know, a lot of that even preventive care, especially some preventive care–I’m thinking of various scans and checks–it’s not even–it’s not just that it’s a waste: Some of it is harmful to health.
Vivian Lee: That’s exactly right. In fact, when I was writing this book, one of the really surprising statistics that I share with readers is the fact that medical mistakes are the third leading cause of death in this country. The third leading cause of death in this country. Estimates are over a couple of hundred people a year in the United States die from medical mistakes. That’s really one of the consequences of a healthcare system that is focused so much on simply doing things to people regardless of outcome.
I know you’re a card-carrying economist, so I say what I’m about to say with some trepidation, but I do feel like our healthcare system is designed to fly into the headwinds of capitalism, in that we are incentivizing people to use all of their innovative and competitive, kind of all of the characteristics that really have driven more value in most other industries, and in our case, are simply driving us to over-treatment, over-diagnosis, overdoing, instead of having really capitalism in our tailwinds, where we could be driving towards better health.
And, we have some really fantastic examples in the country of where we do have much better alignment in terms of our incentives and what we’re trying to deliver, and my hope is that we can actually start to take some of those examples and spread them more widely across the country.
Russ Roberts: And, we’ll be talking about that. But, I think your just general point about headwinds, basically in the current system, we’ve cut all the feedback loops that normally encourage good performance, where people have skin in the game. You buy something; if you don’t like it, you don’t buy it again. You tell your friends. But you pay with your own money. The people who provide you that service have a profit motive and an eagerness to avoid loss, and that’s missing from the healthcare system for a variety of reasons, for most patients. Not all, of course, but for most patients. For most patients, it’s a third-party payment, so the customer for the hospital or the doctors’ perspective is the insurance company or the government, rather than the person who is consuming the care.
And, the patient is sort of like an input–I started to think of it this way–an input into the process. It’s necessary, of course, to run the tests. It’s awkward to run the tests if no ones in the CAT scan [Computed Tomography scan] or in the ICU [Intensive Care Unit] bed, but basically it’s the medical system reaching into my pocket as a taxpayer, to do stuff on people who often sometimes don’t need it and sometimes it makes them worse. So, that’s the most cynical way I think you can put it.
Vivian Lee: Well, I think one realization that I really hope most people walk away from this booking having, is the fact that even though many of us don’t go to see our physician all that often, or if we do, maybe we pay $20 out of our pocket. We don’t tend to think that we are paying for healthcare, because it’s covered by insurance or it’s covered by the government.
In fact, as you know, and as you’re eluding to, we actually pay for it multiple times, in multiple different ways. So, we do pay for those co-pays, and actually increasingly, our share of those co-payments has been sneaking upwards. So, latest data show that we’re actually paying about 30% of our healthcare payments, even when we are, quote, “insured” by our employer. And, then of course, we pay for it out of our taxes for Medicare, Medicaid and other programs like that.
And, then finally, I think, the most insidious factor, which has been hidden from us, is the fact that it’s really coming out of our wages. That, over the last 50 to 60 years, while the economy has grown–our overall GDP [Gross Domestic Product] has increased–the take-home, what we’re actually making as a country, has really not improved at all. And, the delta–the difference between how the economies really been taking off and what we’re taking home as a population–that delta has really all gone to healthcare.
And, then most worrying to me was the statistic that I discovered that we’re actually also losing in terms of our retirement monies. So, increasingly, our employees are having to take out of our retirement money for the future and use that just simply to cover today’s healthcare costs.
So, we are all paying for this. I mean, there’s an example that I use, Len Saltz told me this story. He’s a physician at Memorial Sloan Kettering. And he said, ‘You know, Vivian, healthcare is like surf and turf. It’s the surf and turn situation.’ I said, ‘Tell me what you mean by that, Len.’ He said, ‘Well, you go out to dinner with a whole group of people, and you know you’re going to split the bill at the end, so you’re looking at the menu: I could get a hamburger, I could get a steak. We’re splitting the bill–I’ll get the steak. Then what happens? We all get the steak. That’s the bill that we’re paying it for in healthcare. It’s the surf and turf problem.’
Russ Roberts: I wrote a story about that. I saw that example in your book, and a long time ago, I wrote a piece in the Wall Street Journal called “If you’re paying, I’ll have sirloin,” which is the same point. It was a statement about this idea that, ‘Well it’s true that what you’re doing with government money is wasteful; but I get my share, too.’ As if that makes it okay. It doesn’t. If you do it badly, if it’s incentivized badly, everybody’s going to be worse off because they’re paying in total for something they don’t value as much as it costs.
Russ Roberts: I think the point about health care’s effect on wages, I think is extremely important. We’ve talked a little bit about it on the program before. I think it would be okay if we were getting value for what we spent. If we were getting better health, rather than just more health care–and I think that latter is the real problem.
I want to talk about a personal example and get your reaction to it. Let me[?] see if I have this right. My father passed away a couple of months ago, and the last five days he was in the ICU, and we were with him most of the time. And, I was struck by how heroic and really beautiful the health care he received was. And, my joke was that he got the same healthcare as the President of the United States would have got. In fact, I think he got better healthcare, because I think some of the doctors probably wouldn’t have been so excited about taking care of the current President–but put that to the side.
He was 89. They spared no expense to try and get rid of the sepsis and the infections he had generally. He had a kidney issue; and people say ‘What did he die of?’ He died of being 89. He had a lot of things wrong with him. And, when we got into the ICU, they said, ‘We have to be honest with you: we don’t think he’s going to make it.’ And, we said, ‘Well let’s give it a shot.’ And, he rallied for a while; there was a chance; they even got a little more optimistic. But tragically or sadly he did not make it. But, during those five days, it was extraordinary, and that was my thought at the time. They did a chest-ray every day. Maybe more than once a day. They did tests every day. They had five tubes going into him with every drug possibly imaginable to try to reduce his infection chances and to improve his kidney function, etc., etc.
And, so, at the time I thought, this is really extraordinary. Later I thought–I was aware of this because I’m an economist–but I was thinking we weren’t making that decision. Who was making that decision? The answer, of course, is that Medicare was making that decision. All of that expense was paid for by taxpayers. And, there’s something really extraordinary beautiful about it, that even when you’re 89, we don’t want you to go. But it’s unbelievably expensive; and no one in that setting had any incentive to take care of it. What are your thoughts on that?
Vivian Lee: Well, first of all, I’m sorry for your loss, and I really appreciate you sharing that story with us.
It’s a very complicated question that you’re raising. Maybe I’ll just highlight a couple of reactions to hearing the story. I think, first of all, most physicians–when I was the Dean of Medical School, for example, I relived my experience again as a trainee. Most students and trainees are really taught to try to do everything we can to save lives.
Russ Roberts: Of course.
Vivian Lee: That’s our primary goal . And one of the reasons why I wrote this book actually was because I realized that in the course of going through all of my training, it was so focused on diagnosing and then treating and hopefully healing people that I never was taught about how healthcare really works and how the system works and the business of healthcare, for example.
And, that’s still true today. So, from the perspective of those who are providing care for your father, I don’t think that they were necessarily financially thinking about how their hospital might make more money because they ordered another x-ray. I think they were genuinely thinking, ‘What can we do to save your father’s life?’
Russ Roberts: Sure.
Vivian Lee: And, I agree that they were not aware, or probably not thinking about the costs, not constrained in any way by cost either, but I don’t think that they were necessarily–I don’t know, but I would assume, given my years in practice, I would assume that they were not personally incentivized by that at all.
I do think that at the end of life, there are many decisions that individuals and families need to think about if they can, to talk about just how much intervention they really want. We do know that many more people die in hospitals than intensive care units than would like to. Most people would prefer to die at home. But on the other hand, I’ve also seen so many people who’s lived were saved in intensive care units–including today, with COVID [COrona VIrus Disease].
So, these are very personal questions and very complicated questions. I do feel, though–outside of the context of, let’s say, your father and the ICU–I think generally speaking, in our experience and my experience at the University of Utah, for example, it is very helpful for physicians to understand what the costs are of the care that they are providing, because in the absence of knowing about the cost, it’s as if you invited somebody to come over and cater a dinner for you, and you send them to the grocery store, and there were no prices on anything.
Russ Roberts: Yeah. ‘Go for it.’
Vivian Lee: Now, you could be pretty assured of a very nice meal, but probably the person could produce just as good of a meal at a lower cost if they actually knew about the prices of what they were shopping for.
So, I feel the same way about healthcare. And we saw it when I was at the University of Utah, because we went through this period when, all of a sudden, we discovered–this was when I became the CEO [Chief Executive Officer], a couple of years after; I was the CEO at the University of Utah Health–we discovered that we were going to be faced with a very different payment model for Medicaid for the state, where we would only get paid a fixed amount of money per patient per year.
So, the previous year, for example, we had a woman who had been in our emergency room for 52 times. And in the previous year, because Medicaid was fee-for-service, every time she came in, we billed Medicaid and we got paid. Now we knew that probably wasn’t the best–
Russ Roberts: And, said, ‘See you soon’–
Vivian Lee: way to care for her. It wasn’t the best way to care for her, but we also had a lot of other things we were working on. So, she wasn’t our top priority, probably. But, as soon as we were told by Medicaid, ‘Hey, you know, next year, to care for that same women, you’re going to get paid this fixed amount of money, and if you end up spending more, that’s going to be your loss,’–well, now all of a sudden, we started paying a lot more attention to what it was actually costing us to care for patients.
And, I had this really remarkable moment when I realized that we didn’t actually know how much it cost us to run the business. Not what we’re charging, right? But just: What does it cost us to run the business?
Now, all hospitals–of course we know how much it costs to run the business as a whole. We know how much we spend on labor and on supplies and pharmacy. But for each individual patient, to care for them–we had never worked that accounting out.
And, in fact, I discovered that almost no hospitals had actually worked that out. We were not the only ones.
And, so, we really focused on doing that, and once we started doing that, we shared the cost information–again, not what we were billing, but just how much did it cost for every catheter that we bought or hip prosthesis or how much did it cost for every minute in the operating room or minute in the emergency room? And, as physicians, it was just completely eye-opening.
Our orthopedic surgeons–I’ll never forget when we discovered that the hip prosthesis that they were using to put in, the artificial hips, there was a three-fold difference in cost for those artificial hips. And, of course, the patient outcomes: Guess what? No significant difference.
So, once we can start to see that, it’s just like seeing the prices in the grocery store. All of a sudden you say, ‘Well, you know what? I can get just as a good of an outcome for this as that.’ Or, ‘I can negotiate a better deal with that supplier.’ It really just changes the economics. So, I think there are a lot of lessons learned there, a lot of opportunities.
Russ Roberts: Yeah. I want to make clear that I think the–coming back to my dad for a minute–the healthcare that most people in the United States receive is extraordinary. And I think that’s often lost in our sadness and despair over the pricing and the tax bill and the future and all that. My dad was, as I said, treated incredibly well with unbelievable–the technology in that room was just, its mind blowing. The bed itself is a marvel. The drugs that were dripping into his veins are a triumph of science. The diagnostic devices–it’s an amazing, amazing thing to be a patient in an American hospital as long–as they don’t make a mistake. Which you talk about in your book. Mistakes get made in every kind of hospital. But, my point is that if you are covered, if you’re an old person, or if you have a good corporate insurance, health insurance program, this is the gold standard. I think we often forget that.
The problem is, is that as I alluded to earlier, I don’t think we get what we pay for. And we’re buying the fanciest ingredients in that grocery aisle that don’t impact necessarily outcomes.
And, coming back to this question of–I didn’t mean to suggest that the head of the ICU was, you know, ‘Ooh, we’re going to run some more tests today. More money for us.’ But of course, the hospital often has an incentive to create programs and protocols and norms that do that.
I mean, on example that drives me crazy is the administration of, say, chemo [chemotherapy], not in the ICU, but elsewhere–the doctor who administers that chemo is going to get more money than if they sign the person out. And, sometimes it’s okay that it’s in their office. But, just the idea that that’s all hidden from us and we don’t see it–just the fact that we don’t, as patients, ask about it–and, even when we do ask, as you point out and as we’ve talked about before, the hospital can’t even tell us what the costs are, is the source of, I think, a lot of dysfunctions.
I don’t think it’s a–there’s nothing nefarious about it. But the current system is really not incentivized to be wise. It’s incentivized to be active. Which is really the point of the opening of your book.
Russ Roberts: Let’s turn to pricing generally. It’s something that we talked a lot with Marty Makary about when we talked about his book, The Price We Pay. And as an economist, it’s something on my mind. And, we also talked about it with Keith Smith, who runs a surgical center in Oklahoma that posts its prices on the Internet. There’s no secrets, there’s no surprise billing, there’s no, quote, “add-in network. They only take cash.” It’s a phenomenal thing.
Let’s start, and I wanted to draw on your experience not just what–you have a fantastic chapter in the book about it, but also your experience as the CEO of Utah Health. Give readers, listeners some idea of the Chargemaster, which is a hilarious word. It should be called the retail price list, but ‘Chargemaster’ sounds like a Marvel Comics hero. Tell us about the Chargemaster and the role it plays in hospital life.
Vivian Lee: The Chargemaster is an area that I focus on in the book because I think that when we talk about price transparency, I’d love us to focus on the Chargemaster.
The Chargemaster is a list of all services that are provided by a given hospital. And, the official full price–not the discounted, not negotiating anything, but just whatever is the official list price. It’s like the list price of that service. It may include some supplies; it may include, overall, a whole set of procedures, for example, that might roll up to a particular condition. It’s basically this list.
And, in many states, in the effort to try to get more price transparency, they’ve been mandating that these Chargemasters be made public.
So, you can go onto the internet and you can look up all of the Chargemasters of the hospitals, for example, in California, if you’re curious about that.
And, the law mandated that they actually become public, and states moved at variant paces to implement that. What it didn’t require was that they be understandable or standardized. They had to be in machine-readable format. So, they are PDFs [Portable Document Format] for the most part, or spreadsheets. And what’s remarkable about them is that they’re completely inconsistent, and they’re in a lot of short-hand code that is really indecipherable to just about anybody.
In fact, I couldn’t understand most of the Chargemasters myself, and I’ve been in healthcare for more than two decades. I point out a few examples, notable examples in my book, but you get the general idea.
Now, some of them, some of these hospitals might list two or 3,000 items on their Chargemaster. Some might list eight or 10,000 on the Chargemaster. So there’s not even consistency in terms of, you know, you go in and you get an MRI [Magnetic Resonance Image], you think, ‘Okay, I’m getting an MRI of the brain. How hard can that be to compare one hospital’s charge for an MRI of the brain with another hospital’s charge with the MRI brain?’
But, just the MRI of the brain, there might be 15 or 20 different flavors of it. With or without contrast, with or without an angiogram, with or without–and, most people really wouldn’t understand those nuances at all. And so it makes the opportunity to compare or do anything in terms of price transparency, it just makes it really pretty meaningless.
And, that the Chargemaster.
The Chargemaster is also the starting point for negotiating prices and that’s another reason why I think it deserves a lot of focus and attention, because it’s the full price but no payer, or I would say very few insurers, would actually pay that price because they’ve negotiated it down. The only people who might possibly have to pay that full rate are those who can least afford it–the uninsured.
Russ Roberts: Right . But they don’t pay it generally.
Vivian Lee: Some hospitals–
Russ Roberts: And, then sometimes they’re sued. Sometimes it’s just written off as bad debt.
Vivian Lee: That’s right. That’s right. Some hospitals–I mean, our hospital gave a fixed pretty significant discount off of that price, but that practice varies considerably across the countries.
So, one effort, and there’s been a lot in the news about price transparency and requiring hospitals to post their negotiated rates with insurers, for example, and make that public. And, I’m not sure if that’s actually going to go through or not. But one thing that really could make a huge difference in my view, in terms of making the market function more like a market, is for hospitals to have to standardize their Chargemasters. Just standard codes for every procedure and every supply that’s used–
Russ Roberts: Yeah. Interesting.
Vivian Lee: It wouldn’t be unusual in any other industry, but it would be very unusual in healthcare.
And, what that would enable is not necessarily consumers to be more effective. I mean, individuals to be more effective consumers. But, the people who negotiate on their behalf–could be employers, insurance companies, you know, business-to-business kind of work. And, I think that’s actually a huge opportunity in healthcare.
Russ Roberts: So, let me ask a couple of clarifying questions. Every health insurer has a different discount, even with the same hospital. So, if I’m a hospital, the price that Blue Shield gets, is not the same price as Aetna, correct? Because that’s been negotiated.
Vivian Lee: That would be correct.
Russ Roberts: Is it true across–is the discount–let’s start within an insurer. If I’m Blue Shield, is the discount off the chargemaster the same for every item on the chargemaster or is it individually negotiated?
Vivian Lee: That also varies.
Russ Roberts: Really? So, that’s really bizarre. So, there’s 10,000 prices. Blue Shield might say, ‘We want a special deal on hip replacement of this kind, this flavor, this variation?’
Vivian Lee: Typically, we wouldn’t be negotiating each line, but there are areas where, for example, if you have the only neurosurgeon in town, who is the only person can remove brain tumors, it’s pretty unlikely that that neurosurgeon is going to take any discounts, or much of a significant discount.
Russ Roberts: Yeah. So, that’s one of the other challenges, of course, that Certificate of Need, which is a requirement in I think 36 states, that if you’re opening a hospital, you have to get the permission of other hospitals in the area. A really lovely idea–a horrible idea. And so there are a lot of areas that have limited competition. And so they are able to price accordingly, discount accordingly, etc.
Vivian Lee: Well, I’d say, actually, the position that I have about standardizing the Chargemaster and standardizing services in the hospital, also really applies across the industry. I think we need to standardize health insurance and the offerings within health plans, because I think it’s very difficult for us as consumers.
I don’t know about you, but when it comes time around to figure out which plan that my employer is offering that I should choose, I’m actually as mystified as anybody is. I sit there and I try to read through the fine print. Again, I’ve been in this field for a long time. It’s very confusing. It’s very confusing.
Russ Roberts: Well, I only have a Ph.D. in Economics, so I can’t understand it either. I’m serious: I’m just like you. Something is deeply wrong when a somewhat intelligent person with some education, which would be the two of us, have trouble figuring it out, and that includes how to–I’m 65, and I did not register for Medicare and I’m scared about it. I have a Health Savings Account; supposedly if you have one, you don’t have to register, but if you don’t–if you do have to register and you don’t, you get in big trouble. It’s remarkably difficult to figure out what you’re supposed to do. And, I don’t know–it’s a bad system.
Let’s go back to the chargemaster for a little bit more, though. I know this is not an easy question to answer and I’ve asked it to some very smart people, and they can’t answer it; but I’m going to give you a shot.
Russ Roberts: Brace yourself.
Russ Roberts: Okay, here we go. How does a hospital decide what to write down in the chargemaster next to Procedure 473? Let’s say it’s the–
Vivian Lee: How much to charge for it?
Russ Roberts: Yeah, in other words, the MRI, with contrast, no angiogram–that’s the line and it’s got this horrible three-digit code, seven digit, whatever it is, anagram, thing to describe it. Somebody has got to write down in the chargemaster what number, that list price, that undiscounted retail price is. Who decides that and how do they decide what number to put there? I have my own theory, but I want to hear yours.
Vivian Lee: Oh. Yeah. Well, my rather lighthearted answer to a very serious question, but my lighthearted answer is they write down whatever the number was last year, and they apply a small percentage increase to it.
Russ Roberts: Right. But in my experience, reading in your book, for example, and talking to other people, it tends to be about, quote, “three times what Medicare reimburses people for.” Is that generally true?
Vivian Lee: Actually, there was a paper that came out maybe in the last couple of years that looked at the overall rate that commercial insurers paid, compared to Medicare, for most services; and the average was around two and a half to three times more. So, what they actually paid, not the list price, but what they actually paid–
Russ Roberts: Oh, okay. Sorry, yeah.
Vivian Lee: compared to Medicare was a multiplier. And it varied pretty considerably; there was a really a pretty wide range. In some places they paid maybe close to what Medicare was paying, and in other places they paid a lot more.
Russ Roberts: But, the chargemaster is a lot higher than that is what you’re saying?
Vivian Lee: The chargemaster can be higher. It varies quite a lot.
Russ Roberts: So, going back to that ‘how many angles can dance on a head of pin’ question, so besides the fact that you take what last year’s was and you make it a little bit higher, is it just sort of custom of what that starting number is?
Because it’s kind of irrelevant, except that for the people who–as we talked about–who can’t pay, then they could be on the hook for it. Excuse me–people who don’t have insurance could be on the hook for it. It allows, as some have suggested on the program, it allows the insurer to brag about, ‘Oh, we did really well for your employees. We got a big discount for you.’ Is there anything more to it than that?
Vivian Lee: I think it’s a pretty common business practice, right? You mark it up to mark it down. And, as you say, they can brag that they’ve done something great for their customers. Same thing is true for list prices for pharmaceuticals. The PBMs [Pharmaceutical Benefit Managers] can offer a huge discount against the list price.
Russ Roberts: That’s the Pharmaceutical Benefit Managers.
Vivian Lee: I think a couple of important–right, Pharmaceutical Benefit Managers.
Russ Roberts: Sorry.
Vivian Lee: And, I think a couple of points that are maybe relevant to make about that are that, at least when I was at the University of Utah, we had to provide an enormous amount of charity care and uncompensated care. One of the consequences of having a population that’s not insured is that you have a lot of patients who show up in your emergency room who just frankly don’t have insurance. And we have to provide care for them. We want to provide care for them. But, that care is costly. We as physicians do not know a person’s, mostly do not know a person’s insurance in the hospital when we’re caring for them. I think it’s a very closely-held principle. We all swear to the Hippocratic Oath. We care for people regardless of their insurance status. Within the hospital, we try to provide very good care. And so as a result, every year, there was a pretty significant amount of [inaudible 00:32:38] charity care that we had to cover.
So, there is a fair amount of cost shifting in healthcare, where the commercial insurers or[?] those who pay a little bit more for services, those dollars are used to subsidize the underpayment on the other side. It’s really not an ideal system in any way, shape, or form. And there are, as I said, definitely ways that we could be doing it better.
We’re seeing, for example, these better systems, much more resilient in the face of COVID-19. Our VA [Veterans’ Administration] system that pays for VA hospitals; our Department of Defense that pays for the military health system–all of our military hospitals–some of our Medicare Advantage programs that are funding new kinds of clinics in the private sector: They’re all demonstrating a significantly more resilient response to COVID than our fee-for-service practice we’ve[?] talked about so far.
So, I hope that we’ll be able to, in the face of this crisis, really accelerate some of the movement to more robust and more sensible, frankly, business practices for healthcare.
Russ Roberts: I’m glad you brought up about uncompensated care, because that was my next question. Keith Smith, of the Surgery Center of Oklahoma, suggested that there was at least a time in health policy where hospitals were compensated by federal government for uncompensated care, and that the calculation of that amount that they were due was related to the discount off that list price. Do you think that’s true?
Vivian Lee: There are some programs that–
Russ Roberts: Because that’s a really bad incentive–
Vivian Lee: There are some programs that try to support hospitals that provide a disproportionate amount of care to the uninsured. And they’re designed in different ways. One of them is to provide discounted pharmaceuticals to those hospitals.
I think a more direct form of support–for example, having more people frankly have health insurance to begin with–would probably be a much more sensible way of managing.
Russ Roberts: But, I mention that because that’s such a perverse incentive, if true, that you would be incentivized to post a high list price to make it look like you were losing more money than you otherwise would on paying patients. It seems like a really weird thing. It’s another area where I’ve tried to find out if that’s true, and it’s almost impossible to discover–
Vivian Lee: Whether the people are intentionally posting higher list prices, in order to claim that?
Russ Roberts: Not literally. No: Whether they have an incentive to, even if they don’t literally calculate that number. The program we’re talking about of compensated, for people without insurance, I think it’s called DSH, [Disproportionate Share Hospital, pronounced ‘dish’], D-S-H, right?
Russ Roberts: And, the administration of that, how that actually works, is so opaque, I cannot get anyone yet to explain it to me. I’m not suggesting you should do that now, Vivian, if you do understand it.
But, my point is, is that it would be a unfortunate thing if it turned out that the larger your list price, the easier it was to collect money from the Federal Government for care that you provided with no compensation.
So, a homeless person walks in, needs emergency surgery, gets it. If the amount that you would get back from the Federal Government, because you lived in a neighborhood, as you say, that had a disproportionate–because your hospital was in a neighborhood with a disproportionate share of uninsured people–that the amount that you would get back from that program would be related to how much you pretended to charge, which was the claim, would be very disturbing. I don’t know if that’s true. That’s what I’m trying to find out. Any thoughts on that?
Vivian Lee: I don’t really have any thoughts on that.
I know that we provided over $100 million of charity and uncompensated care when I was with the University of Utah. I really–I can’t address what you’ve just asked. I don’t know if–
Russ Roberts: But, when you use that phrase–go ahead, sorry.
Vivian Lee: Well, the other comment that I was going to make is that many of the systems who provide a disproportionate amount of care to the uninsured are academic medical systems. And many of these academic systems also are very closely affiliated with county hospitals, city hospitals, for example, where, again, a disproportionate number of people who are uninsured get their care.
And, as an academic medical system, in addition to providing care to anybody who arrives, as a public academic system, we also bore the responsibility of training and conducting research.
And, so, a lot of our–any–we actually had to rely on clinical funds to also support training, because training is really underfunded as well.
So, the cost-shifting within healthcare is very complicated and is underwriting so much of our future, in terms of both research and education. And I think that untangling the spaghetti would be really a hugely important first step in getting to a more rational healthcare system.
Russ Roberts: Agreed. But, you mentioned, without–the words rolled off your tongue effortlessly. You said, ‘We provided,’ I think you said hundreds of millions of dollars of uncompensated care. That calculation has to be made to get the compensation from the government in this program. How do you–
Vivian Lee: Actually no: We weren’t compensated for that from the government.
Russ Roberts: You were not?
Russ Roberts: No, but some systems are. And I think the challenge is, the phrase ‘We spent all this money,’ you have to know your costs for that–I don’t know how that–that’s where the, the Byzantine part of this, is that that number is not easily calculated. Because, as you say, often the hospital can’t tell you the price. I’m not sure they can tell you the cost. We can leave it alone, but I think that calculation is what is–is probably what’s at stake here in this issue of incentives.
Vivian Lee: Well, it is complicated. I think the longer view is how can we get to a point where healthcare is affordable for everybody.
Russ Roberts: Yeah, and I would emphasize–
Vivian Lee: That at the end of the day is really what we’re trying to achieve.
Russ Roberts: And, I would emphasize health care, not healthcare insurance, which often are treated as if they’re the same thing.
Russ Roberts: Let’s talk about some of the things you highlight in the book–and there are many–that I would call sources of optimism. Things that you see happening that are getting us to both better outcomes and more wiser outcomes in terms of how money is spent. You talk about telemedicine, you talk about the VA, as you mentioned, and I think the other impetus is things like looking at quality of life years and quality of care rather than fee for service. Talk about how we’re moving in those directions. Medicare Advantage would be another example. Talk about some of those changes that are happening now as people are trying to get to a better system.
Vivian Lee: Sure. Medicare Advantage is a great story that I think is gaining momentum and is really demonstrating some real advantages during this COVID crisis.
So, with Medicare–Medicare, government-run program, largest single payer in this country–has really traditionally been fee-for-service. So, if you’re a Medicare, a senior, who comes into our clinic, we bill Medicare for every procedure that we do and every study that we do, for example–until this new Medicare Advantage model came about.
So, in Medicare Advantage–it’s now about a third of all Medicare patients–in a subset of those, so it’s not in all Medicare Advantage, but in subset of Medicare Advantage–there are special contracts that have been designed between medical groups, groups of doctors, and Medicare. And, the arrangement is such that Medicare pays that group of physicians to care for their patients with a fixed amount of money per year. And they define that amount of money based on how sick or healthy the patient is. If they’re more complicated, they pay more.
Now, over the course of the year, the medical group is responsible for keeping that individual healthy. And satisfied. Actually patient satisfaction scores are very important in their evaluation. And, at the end of the year, if the patient has stayed healthy, meaning–and out of the hospital, which is probably the best measure of that–then the medical group actually can save money. And, if the patient has had to go into the emergency room and hospital multiple times, the medical group has to pay those bills.
So, it’s a model where the physicians, who are actually directly incentivized to keep patients healthy and not necessarily over-treat or over-diagnose, but to do the right amount of treatment.
And, what’s happened as a result of that, has been really fascinating–is the groups that have taken this on over the last 5 to 10 years, have completely reinvented primary care. They’ve really focused on what seniors need to stay healthy. They know that they need to be seen and they need a reasonable amount of time in the clinic in their appointments. So, instead of rushing through 8- to 10-minute visits, they get 30 minutes, even an hour, as a new patient. They need to be seen. So, if they have transportation problems, they offer a shuttle or a car service, transportation services for example, to get to and from clinic. They have onsite pharmacies. Falls-prevention is a huge topic for seniors, so they offer yoga and Tai Chi. And they even have social nights and events just to combat loneliness and social isolation that affects so many seniors, so many people really.
And, so, as a result, the data are really impressive. They are able to, even those they spend more money on primary care, they really do reduce the hospitalizations considerably.
And, no senior goes into a hospital coming out–very few come out that much better. So, reducing hospitalizations is really a huge factor in terms of improving independence.
And, overall, when we take it all together, they save money. So, these programs, these clinics like ChenMed and Iora Health and Leon Med and CareMore, they’re really starting to proliferate across the country, and I really hope that seniors will, that they will act in their best interest and try to identify these clinics because they’re a much more promising model for the future for primary care.
Russ Roberts: And, they’re essentially in competition with each other to attract those Medicare Advantage patients, is that right?
Vivian Lee: Sure. They’re in competition to keep those Medicare patients on their rolls year after year. Medicare patients can change their mind and they can move their business, bring their care elsewhere. And so they are in competition, yes.
Russ Roberts: Is this much different than an HMO [Health Maintenance Organization]? Doesn’t this sound like an HMO, a Health Maintenance Organization, but it’s funded by government rather than by, say, an employer or individuals?
Vivian Lee: It’s pretty similar. It’s pretty similar. I think that what we’re seeing in terms of the way in which these are rolling out, there’s been, I think, more latitude, more innovation in the way in which these medical groups are actually rolling out these models, and there are efforts, for example, in Iora Health, to extend these two groups of employers, for example, and their employees. So, kind of extending the model, so I think there’s the opportunity for a wider-spread adoption with these kinds of changes.
Russ Roberts: So, I mentioned the Surgery Center of Oklahoma, which posts prices on the internet, cash only, no insurance. It’s also an enormous, I hope, growing thing called Direct Primary Care, which is just, you go in and you pay cash and it’s cheap; and they don’t everything for you, but they can do a lot of things, the doctors who run those programs. Are these programs a way to, again, to introduce a little bit of sanity into how we–as that gap grows of wastefulness and administrative care, it opens the door for other models to get it.
Vivian Lee: I think we are starting to see enough potentially disruptive forces in primary care between the Oklahoma Surgery model, between some of these Medicare Advantage models, and Direct.
What’s going to be really interesting in the next few years is the degree to which this kind of mindset can extend to secondary, tertiary care, to hospitalizations, and to rehabilitation. That’s really where more of the dollars are spent right now. The opportunities in primary care are really around prevention. So, prevention is by far the most cost-effective investment, of course, and so I’m very optimistic about those extending and spreading.
And, what’s going to be really interesting is whether we can enable the same kind of changes to start to happen in our hospital systems, which are going to be much more difficult. It’s a much more complicated environment. Hospitals have larger fixed costs, they have thin margins. The average margin for a hospital was 2% last year. So, much more risk averse in terms of thinking about trying new payment models.
But, I think Churchill said, ‘Never to waste a good crisis.’ So, there is a moment now that we’re facing with the COVID crisis where we may be able to see some innovation, some willingness between payers and provider systems to partner more effectively, to try out some new models.
Russ Roberts: So, it strikes me–you mention hospitals. It seems to me–I’m an advocate for a much more free market system, an idea whose time will probably never come–but I like thinking about it anyway. It seems to me one of the challenges to my view, and to your hopefulness about other ways to get there from here, of avoiding the fee-for-service, is that there’s a big difference between going into the doctor for a blood test–your primary care physician, say–or going into your primary care physician for a sprained ankle or broken finger, verses going into a surgery center for a hip replacement. Those are all kind of similar, because you kind of know the hernia, the appendicitis–they’re surprises, but the standard of care is pretty straightforward.
Once you get into the ICU, and you get into complications in post-surgery stuff, the menu of stuff you can do or try–I mean, it’s again, a glorious testament to human creativity and innovation–but you can have whatever you want. You can do so many diagnostic tests, and it’s not always clear what the right–it’s not like replacing the hip, there’s so much variation. It seems to me, that’s going to be a big challenge in any of these ways to make things better.
Vivian Lee: I think it’s a challenge. It’s also an opportunity. One of the lessons that I try to talk about in this book, The Long Fix, is the opportunity to create what we call a ‘learning health system.’ We are beginning to see the rewards of investing in digitizing all of our health data in hospitals through these electronic medical records. In the beginning, I believe that they have been primarily used as very expensive billing and coding machines, but over time, I think we are starting to see–starting to see–that there’s a lot that can be learned from experiences with very complicated patients with very complicated conditions.
One area, for example, that I have thought about a lot is my own. I’m an MRI radiologist, and reading MRI studies from patients who have a whole wide range of diagnosis and conditions, I get very little feedback over the years in terms of just, ‘What actually happened with that patient? Was that diagnosis that I made correct or not?’ Or, ‘If they diagnosis was correct, which hopefully it was, what happened to that patient with the different therapies that were tried?’ That information is actually all in those electronic medical records, and the question is, how can we extract useful insights from it?
That would be the case, I think, in the intensive care unit more than anyplace. We have pretty good understanding, as you said, of how to care for a patient who might need an artificial hip or caring for a patient with appendicitis. For patients with sepsis, very complicated. All different kinds of sepsis. Sepsis really isn’t one diagnosis. So, how can we learn more about that? And, there’s been some really interesting research that’s shown with Artificial Intelligence [AI] that we can actually start to detect sepsis much earlier with these automated algorithms. They can use AI to identify earlier than we would ordinarily be able to detect as clinicians. Those kinds of capabilities, I think, are just in their infancy. So I hope that our investment in digitizing our healthcare system is going to finally pay off there.
Russ Roberts: What’s your feeling about top-down mandates to spread that information or standardize it? We talked a little bit about price transparency. There’s an Executive Order–I think it goes into effect December 31st of this year, in theory; I heard you say, ‘Well, maybe, maybe not’–but that would require more transparency, from the Federal Government imposed on the system. Obviously, we can impose the sharing of information, like you’re talking about. And, it’s true that the digital world gives us a chance to do that, but do you think it should be mandated? Do you think that’s a good idea?
Vivian Lee: I think if you want the healthcare system to operate with free-market advantages, then you need to enable that market to be a free market. So, I think it is really important to have transparency and standardization go hand-in-hand. As we talked about with the Chargemaster, you can have as much transparency of the chargemaster as you want. It doesn’t do anyone any good when it’s not standard–
Russ Roberts: You can’t understand it.
Vivian Lee: Because it doesn’t mean anything to anybody.
So, I think that not everything can be standardized, as you pointed out. But many things can. And where they can be standardized, I think standardization is going to be very helpful. It’s helpful for business-to-business interactions in healthcare, hospitals or health plans that need to negotiate with pharmaceutical companies or Pharmaceutical Benefit Managers on prices that they’re willing to pay for medication. You need transparency about the effectiveness of those medication in order to be an effective negotiator at that. And, when it comes to negotiating between hospitals and insurance plans about services, you need some standardization of what services you’re negotiating over.
I think those are actually going to be important.
Whether they should be top-down or include the voices of those who are on the front lines actually providing care, or even better, including some patient voices into how we should be thinking about some of the standards–I think those are all up for discussion.
Russ Roberts: So, one of the positive results of the pandemic, for me, as someone who cares about more competition, is that, at least some states, maybe all states, have relaxed some of their occupational licensing restrictions to allow nurses, say, from outside New York, because New York was hit so hard. I’d love to see those kind of restrictions permanently lifted. The use of telemedicine, which you talk about in the book–obviously the opportunity to be able to do telemedicine, either as a Medicare patient or as a health insurance patient across state lines–it’s a huge game-changer. Obviously, that market is very embryonic. It hasn’t really evolved. But it would evolve, I think, very quickly if it was allowed legally to be used that way. Do you think that’s important? Do you think there’s some important stuff there that could happen?
Vivian Lee: Absolutely. I think that’s really been a silver lining to this COVID crisis, is the ability to really tear down many of these barriers. Telehealth has actually been around for a long time. More than 20 years ago, radiology was doing telehealth via teleradiology. You could transmit the digital images, and I could read MRIs from Michigan, or California, Wisconsin, even though I was sitting in New York. Now, in order to do so, I had to be licensed in each of those states. So, I remember filling out stacks of paperwork–and literally it was stacks of real paper that then had to be scanned and transmitted–and every document about my training, ever, accumulated. Incredibly inefficient, incredibly costly, and kind of wasteful, really–
Russ Roberts: I think that was the idea–
Vivian Lee: So, with telehealth, the new regulations around COVID, now that barrier has been lifted completely. And we’re really seeing–not only has COVID reduced the administrative burdens, but it’s also done a couple of other very important things.
One, it has agreed to reimburse for telehealth, and two it’s really encouraged culture change.
So, so many physicians and patients, I think, would have been doubtful about the use of tele-, tele-everything, until now. It’s really changed our whole society.
And we’re seeing–for example, one of the products that we have in our company is a product that is a virtual diabetes clinic, that we had of course, before COVID. It’s for patients who have Type Two diabetes. And, of course, patients with Type Two diabetes are at increased risk of COVID, as you know, along with people who have other chronic diseases.
This technology includes not only the ability to do telecommunications, to do video conferencing with a physician and chatting with a coach, but it actually also has a sensor–a device that’s about the size of a keyfob that’s a continuous glucose monitor that you can put on your arm or on your abdomen. And now, instead of having to prick your finger to check your blood, or to go in to the doctor to have a blood test, you can actually monitor your blood sugar 24/7 and have your blood sugar transmit to the app on your phone. You can see how your sugars are changing 24/7 with respect to the meals that you’re eating and how you’re exercising. And, instead of keeping a food log, which is really tedious and almost nobody does that who is a diabetic, you actually can take pictures of your meals and snacks–
Russ Roberts: Yes!–
Vivian Lee: And, the artificial intelligence actually even recognizes the meals. Which is pretty remarkable.
So, now instead of being lectured, you know, ‘Vivian, you really shouldn’t eat that second slice of pecan pie,’ it actually shows you ‘Well, you want to do it, this is the last three times you did that; here’s what it did to your blood sugar. And, by the way, when you exercise, here’s some good things that happen.’ Or, ‘Next time you eat that big hamburger, take the top bun off. Let’s just try that.’ You know, it makes recommendations. It’s actually really engaging. So, I think the ability to provide care virtually, we’re learning you don’t have to be in the four walls of the clinic or the four walls of the hospital to get that care. And, in making that transition and in providing insurance coverage now, which really wasn’t possible–Medicare didn’t cover the continuous glucose monitors until very recently–I think we’re going to start to see some of that digital health, digital technology liberated. Which has a lot of, a lot of potentially really good implications downstream for people.
Russ Roberts: That’s extraordinary. And we’ve had Eric Topol on the program a number of times talking about some of the revolution that’s going on there in that world.
Of course, some of it is slowed by regulation. Some of it is an end-around trying to avoid any issues related to regulation. But the current system is very sclerotic. It’s kind of designed to move very, very slowly.
Russ Roberts: So, let’s close talking about maybe your optimism, and you seem to have some. It’s called The Long Fix, but I think you imply somewhere in the book, it’s only 10 years. That would be amazing, if it’s only 10 years. I’d be so excited if we have a better health care system in 10 years.
But, talk about you, and your journey. You’ve had an extraordinary career. You’ve been a practicing radiologist. You’ve run a healthcare system. And now you’re doing this very different thing that I’m sure some people thought you were crazy. Maybe family member, maybe friends. You’ve leapt, leaped into this very different world. Talk about that experience for you and where you see Verily, which is the company you’re with now–which is very different than being a healthcare administrator, I think, but correct me if I’m wrong–where you see that taking the healthcare system, what role it can play in the future.
Vivian Lee: I did have a fair number of mixed opinions about the decision to leave healthcare and academic medicine, actually, and to move into digital technology.
Russ Roberts: Sure. ‘Traitor.’
Vivian Lee: Mostly actually, encouraging. No–actually really encouraging. Because the thought was–here was the advice that was given to me–if you go and become a CEO [Chief Executive Officer] of another healthcare system, which is where I was headed–if you’re lucky, you will have a good experience there and you’ll be able to influence that community for the good–along with thousands of other people, of course, in that healthcare system.
The opportunity in a digital technology company like Verily is to really have that impact at scale. And the virtual diabetes clinic is an example of that. Because, what you’re talking about there is a technology that anybody who has a smartphone or access to the internet can use. It addresses the issue of the lack of availability of healthcare in rural and underserved areas. When I was in Utah, we covered vast amounts of America in Idaho, Wyoming, Montana with very few physicians or nurses, and so this kind of technology supports care there.
And it’s also–what’s remarkable about it is that it is really personalized in a way that healthcare isn’t. We still mostly do a one-size-fits-all when we practice medicine. I mean, we talk a lot about gender, just simply: Do our research studies have woman versus men? Well, that is one difference between people. But actually I would say that we are all very individual in our biology and our sociology and in our psychology. And, technologies like this really understand–understand that–in ways that just leapfrog anything that we’re doing in healthcare.
So, if I have Type Two Diabetes, I’m actually looking at my own physiology. We’re actually seeing, for example, that if you and I both had a banana, how it would affect our blood sugar, actually it would be very different. And, so, the data that are being provided to people to care for their own health is personalized–really, really personalized. And, the ways in which we can incentivize or motivate people or engage them in caring about their health and in doing better for themselves, is, I think, much more powerful at a personal level. Especially when it’s on their time and at their convenience.
So, I’m very optimistic about the role of technology in helping us move forward. Of course, like all things, it could be used for good, it could be used for bad. But this is a time where, I think, if we have enough people who do come from the healthcare side, who really understand the good that we are trying to achieve, that this can be a force multiplier–that we can really start to leapfrog and maybe accelerate that long fix and make it just a little bit less long and a little bit faster.
Russ Roberts: Let’s close with the one thing you would do if you could, to make innovation easier, to make a transformation to a better health care system easier. You have a lot of recommendations in the book. At the end of each chapter, you have really interesting ideas about how to make things better on the part of patients, physicians, policy makers. But of course, some of those are just ideals, like: People should care more about X. Those are hard to implement. They’re not really implementable. Can you pick a thing or two that you would do and that you think would make a transition to make that long fix a little shorter to get to?
Vivian Lee: I think the most important thing that has to be done is we have to articulate it as a nation that we are going to prioritize health and move our payment model forward towards value-based payment in an accelerated fashion. To really put a stake in the ground and set some deadlines and say, ‘As of this date, 2022, we’re going to achieve this; and by 2024 we’re going to achieve that.’ The whole system will respond. It already has been moving. It’s been moving under each Administration, as you know, Obamacare was Romneycare and now actually, Secretary Azar and Seema Verma are actually continuing to move forward that value agenda. It has been bi-partisan, actually, and we just need to accelerate that change and put a stake in the ground and declare: We are going to pay for better health. We’re not going to be fee-for-service anymore. The days of fee-for-service are numbered. Let the tailwinds of capitalism push this forward.
Russ Roberts: My guest today has been Vivian Lee. Her book is The Long Fix. Vivian, thanks for being part of EconTalk.
Vivian Lee: Hey, thanks so much for having me.