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David Cutler: David Cutler. I’m Professor of Economics at Harvard.

Question: What must healthcare reform accomplish?

 

David Cutler: I think of what reform has to accomplish is three things.  One is it has to cover everybody. Both for moral reasons as well as economic reasons, it’s untenable to be in a society where any change in your circumstance, like, for example, a recession, can mean you’re out of the health care system.

Second, is it has to modernize the health care systems so that we really get money for what we put into it—we really get value for what we put into it.  The misconception that you referenced is that the idea, the goal, is to save money.  The goal is not to save money, the goal is to do things where they’re appropriate, and not do them where they’re not appropriate. Which is a way of looking at it that’s much more consistent with where people are and the values that we have.

And then the third thing that we need in reform is, we need a public health system that actually works to keep us healthy—to keep us safe—that reinforces our medical care system from things like H1N1 Flu, to Avian Flu, to food and water safety, to obesity and smoking cessation.

 

Question: What do people need to understand about the healthcare debate?

 

David Cutler: What people need to understand about health care reform is that we can improve the quality of care and lower spending at the same time. Think about those patients with chronic disease who are not getting treated appropriately. Treat them more appropriately, they don’t go to the hospital, they spend less and their quality of life—their length of life is increased.  That’s what we can do if we really do it right.  So, yes we need to save money, but we will save money as a by-product of having a system that works better. 

We are not going to save money by taking a meat axe and just clawing off some part of health care spending.  That’s what a lot of the alternative is, if we don’t do this, what’s going to happen?  Probably, a lot of the employers will just say “Hey, you know what, we’re just going to stick you in health plan with very high cost sharing—you go out and deal with it.” Everything we know is that people will stop taking their medications to save money and their health will deteriorate. 

We have to find a way, and we believe there are ways, where we can save money and we can improve health. And people know this, people know that the healthcare system costs more than it should and a part of that is because the thing doesn’t work right job and you wind up having people in very expensive circumstances after-the-fact, when you could have prevented it.

 So, I don’t think that convincing people of that presumption is that hard. I think what we have to do is: one, make sure we do that, make sure that we put the steps in place to do that; and second, is we need to make sure we don’t demagogue it, so we just say to people ‘Oh, what the President wants is to ration your care; or what Senator Kennedy wants is to make sure you don’t get some.’ We need to get away from that, because… its complicated enough, no one’s going to understand all of the details, and if people hear those things and they get scared then they will be tempted to back off—and that would be the worst of all situations. 

Question: Why is their so much waste in our healthcare system?

David Cutler: Let me give you three examples of why we have waste, and how you could get rid of them.  The first example is, look at what actual providers are doing on a moment-to-moment basis. So if you...people have done studies where you follow nurses in a hospital with stop watches, or you have them carry a Palm Pilot where they record everything that they do.  The most common thing that a nurse in a hospital does, is document things.  She takes the printouts from electrical equipment, gets it on paper, reenters it into the computer.  That’s a third of the time that doesn’t need to happen—no other industry does that.  That’s probably thirty billion dollars  a year spent on that.  So that’s one example.

There all sorts of other examples, ranging from infections that are not prevented and so driving up spending, to doctors who spend Seventy-Thousand dollars a year on the telephone with the insurance companies and pharmacies, and their staff doing that.  So the first item is just money spent to doing things than no other industry do we tolerate—which is why productivity is very low in health care.

You could get rid of that with information technology, both what we have, and what we can expect, in the reasonably near future.  You could get rid of that with the payment changes, you could get rid of that through organizational changes. 

The second area is insurance companies that drive up spending a lot by separating out who’s helping and who’s sick.  So they spend a lot of money figuring out who the healthy people are and who the sick people are, and how to ensure only the healthy people.  That is a big, big loss for society. Of course someone has to pay for the sick people, they’re not going to pay for hundred of thousands of dollars on their own; so me and you are going to pay for it through tax dollars or through other programs.  The money spent shuffling them around is just a complete waste, and many of the insurance company recognize this and are willing to do something about it.  So that’s the second example. 

The third example is people who have more very acute episodes than they need to. And when they have those episodes they cost more than they should.  An example: diabetic patients were not treated well and an outpatient basis wind up going into the hospital with kidney failure, immediate amputations of extremities, going blind with heart attacks.  Why? Because we couldn’t get it together to treat them better when they had diabetes without those complications. And then when they have the complications, of course, we don’t manage it very well. They go into the hospital, they come out of the hospital—they don’t get a doctor’s appointment, they don’t see the nurse right away, they wind up coming back into the hospital three weeks later with further complications.  All of that is expense that doesn’t need to happen.

And if we do a better job coordinating care for people; better job managing them when in their less acute states; better job of dealing with them throughout the course of their illness rather than just that the very end—we can save an enormous amount of that expense as well.

Question: What can healthcare learn from other industries?

David Cutler: Healthcare is the most information—intensive industry in the economy, and it uses information technology the least of any industry in the economy.  So if you think about where do we need information the most, it’s going to be healthcare—you need to know what’s going on with the patient, what they’re allergic to, what kinds of issues they have, what treatment options. And yet, we still do things by paper and pencil, storing things in huge stacks where you can’t retrieve them and they’re not there when you need them.

Health care is amongst the lowest productivity industries in the economy.  If you look at the well performing industries, they tend to have three features—the productive industries tend to have three features. First, they use information technology a lot. They know who’s doing what, why they’re doing it, how rapidly they’re doing it, what the outcome is, how to improve it. They’re always thinking about that, they use information technology a lot; in healthcare we don’t.

Second, they have compensation arrangements that are tied to improving value. When employees create value they get paid more, when they do things that don’t create value then don’t get paid as much.  In healthcare you get paid for doing things for volume but not for value. 

And third, is they decentralize it so that changes are made by workers—workers have authority. The famous Toyota model, any worker can stop the production line.  Why? Because he or she has the right information and the right incentives to make sure that the cars are coming out with the quality that they need to. 

In healthcare, the frontline workers are so busy just getting by, that they don’t have the opportunity to do better.  If you take those nurses who are spending a third of their time documenting things, and say, well, couldn’t we do better, they’d say yes, but I just don’t have the time to figure it out—I’m so rushed I can’t figure it out.

Healthcare has got to get better, it’s got to get better in the information end, where we’ve made a good start with the recent American Recovery and Reinvestment Act—which is spending thirty billion dollars on health IT; compensation changes which need to follow that—hopefully, in the healthcare legislation that comes this fall—will say we pay more for value and not just for volume, and organizational changes freeing up organizations and helping them learn from each other so that they say, ‘Hey! You know what? I really can make this a high performing enterprise; this doesn’t have to be an enterprise that’s got low productivity.  We’re going to need all of those—they all have to happen over the next decade or else we’ll find ourselves in the same situation in a decade from now as we are now.

Question: What key changes can innovation bring to the healthcare system?                       

 Again, come back to the most productive businesses, the ones that have increasingly lower costs: those are businesses that are actually the most innovative, not the least innovative. If you look at the most productive industries in the economy, they’re industries like information technology, like retail trade, like agriculture, that use technology the most, but they direct it the right way.

 For people to think that healthcare reform is going to involve stifling innovation is just absolutely wrong. If we do it right, we’re going to open the possibilities for an enormous amount of innovation.  Let me just give you a different example than what we have seen.  Take an anti-depressant drug as just one example.  It is a well-known fact that anti depressant drugs, the same drug, will work on some patients and not work on others.  Just give people Paxil or give people Prozac or give them Celexa; whatever it is, some patients respond to it, other patients don’t. And it is different, some people respond to one medication, and some people respond to another, and some people respond to a third but not to the others.  Why is that?  Well, we don’t know. There’s surely something biological about it. When you switch people from one drug to another you wind up, sometimes, getting them to respond and getting better. 

Well, with the little bit of innovation, we’ll be able to figure out which patients will respond better to which drugs. As a result we can avoid giving people drugs they’re not going to respond to. Wasting money, wasting treatment to people who don’t come back because the thing is not working; even worse, with some kind of chemotherapy agents, where the patient dies in the interim. With innovation we’ll be able to figure out how to tailor what you get to what you need, in addition to all the other things we’re talking about, so, we’ll actually have a medical care system that is customized for you, not just for something generic, and not just ‘Hey, we start on this because this is what we do and if you don’t respond better its your responsibility for figuring out how to do something different.’ That’s just one example where we are going to need a lot of innovation.  Healthcare reform has to encourage innovation across the board or else it’s not going to succeed.

Question: What role will innovation play in solving our healthcare problems?

David Cutler: I think innovation is going to be key to healthcare and if you say to me, ‘What’s going to solve the healthcare problem?’ It’s going to be innovation.  There are different kinds of innovation.  There innovations in medical devices and drugs and so on. Many of them add to expense but they may improve health by quite a lot.  But there’s another kind of innovation that doesn’t get touched on as much, which I think it worth highlighting: which is innovation in the way we go about providing medical care. 

There’s an old TV show Marcus Welby that probably the older listeners will have seen and the younger viewer will not.  Marcus Welby practiced medicine I think, it was the Nineteen-Fifties or so.  There is nothing that is done in the medical system today that Marcus Welby would recognize.  No procedure, no pills, nothing.  But he would completely recognize how medical care is delivered. It’s a doctor, in an office, with a patient, and that’s what happens. So, almost nothing is the same in the world today, as it was in the nineteen-fifties, except the fact that we go about providing medical care in the same way.

Let me just take one example of why that is so harmful. If you look at patients with chronic disease, diabetes, or hypertension, or high cholesterol, many of them do not take the medications that the doctor recommends because they don’t know what they’re supposed to do, or they have side effects and they don’t know how to deal with them. It’s very easy to help them, nurse practitioners can help them, physician’s assistants—it does not have to be a doctor. We do not pay for that, we do not recognize that, we do not allow that in most circumstances and the result is that those people are not treated well. They wind up with complications with very severe effects afterwards, and the whole system just functions poorly. We need a healthcare system that’s focused around helping the patient, and if that means that there’s a nurse practitioner who’s there to help you out, hey great! If that means that there’s a physician’s assistant, or a group visit with lots of other people who’ve figured out how to do that, then that’s what we have to enable.

So far, we almost prohibit it. We don’t help it, we’re not even neutral, we basically say we’re not going to allow that; which is just a huge, huge mistake, and it’s something that’s going to have to be very different or else we’re never going to make a lot of progress.

 

Question: What areas in healthcare are generating the most promising innovation?

 

A lot of the innovation in health care recently have come from a couple of places. One is the kind of analyst community, where there’s been a wholesale change in thinking since the past reform effort sixteen years ago, where we have much more attention to information technology and how you’d eliminate waste, and so on—none of which you saw. 

And then, what’s very interesting is the provider community has a number—and insurance company for that matter—has a number of very progressive elements.  Groups that are out there saying “You know what, we’re not just going to tolerate patients getting sub standard care, care that’s not good as it should be.  And so you have the Mayo Clinics and the Cleveland Clinics and the Kaisers and the Group Health Cooperatives and the HealthPartners and the Geisinger Healthcares and the Intermountain Healthcares and Virginia Mason.

All of those examples, those are companies that said—and you know, they’re insurance companies, there are provider groups, there are doctor groups—they said that, “You know, we’re just not going to take it anymore.”  And many of them put themselves at financial risk by doing better.  They got in situations where they were preventing readmissions to the hospitals, enough so that they nearly went under.  And some of them have to go begging and pleading to Medicare saying “Can’t we work out some arrangement where when we improve quality and lower cost, we don’t suffer so much?”  And that’s actually provided a lot of the example that we have, so when we talk to people now about health care reform, it’s not hypothetical, it’s real—it’s this works, and we see it work, and you can have it too.

And I think between the kind of analyst thinking and what’s going on at the most progressive places, you will really have this model out there, and this framework for what to do, and it’s very, very helpful.  

Topic: How to balance innovation and full coverage

Two parts have to go together, the covering people and the modernizing the health care system—you cannot do one without the other.  In Massachusetts, we covered people without doing anything about the cost. We decided we wanted to cover people first, and we would deal with the cause later.  Now we’re stuck dealing with the cost, the system costs more than we know how to finance, just because all the medical care costs more than we know how to finance. So we have got to come back and we’re now trying to deal with the cost. 

In the national level, people talk about saving money first and then covering people, but nobody wants to see the implications of a healthcare system that tries to save money when there are fifty million people without coverage, and another fifty million people who are in and out of coverage during a year, it would just be an epic disaster.  So they have to go together. The key to it has got to be innovation.

Question: Can the U.S. solve healthcare?

David Cutler:  The US is uniquely bad at some things.  Dealing with big social problems is an area where we tend to be bad. We have a very pluralistic society and people have difficulty wrapping their minds around it.  I think, as I look at the debate, I’m hopeful. And, in part, I’m hopeful because I think most people have the best intentions at heart.  So if you look, for example, at many of the Republicans in congress, I don’t know a single one whom I’ve heard say, ‘Gee, it would be a shame if everybody have insurance coverage.’ You don’t see that. What you see are people struggling to find an answer. And the struggles are in different sort of ways

Now, people on the left and the right differ about all sorts of matters, they differ about the proper role of government in market, okay fine.  They differ about how to finance things, okay fine. In the past, what’s happened is that a lot of those disagreements have overcome—have overshadowed—those areas of agreement. And then you throw in some politics, and some re-election things and so on, and they’ve all come to overshadow it. I think what we are seeing this time is somewhat different. I think what we are seeing is people really trying very hard to say, ‘OK, I’m going to put all that aside and I’m going to try see where there is consensus.’ And, you know, they’re actually following the President, who in his presidential campaign said “I’m going to gather everyone around the table, and I’m going to try and see where we can agree about what to do.”

This is a very, very hard policy problem, it’s probably the hardest policy problem we have had today. And what people are trying to do is gather around and see can they produce some consensus that really makes sense. And I’m somewhat hopeful that this time we’ll do it, even if in the past we’ve been unable to.

Question: Will private industry and government be able to collaborate on a healthcare solution?

David Cutler: Two examples where they have: one is the insurance companies have come together and said ‘you know what, we’ll get rid of the practice of under-writing people and denying them coverage when they are sick of not renewing and all of that, if you can make sure that everybody really will buy insurance.’ And second—so that was one example—and second, they came to the president along with other insurance groups in early May and said ‘you know what, we believe through a variety of reforms we can save two trillion dollars over the next decade.” About six hundred billion dollars in the public sector to be used for health care reform. With just huge, huge steps that they’ve taken—maybe they didn’t go far enough, whatever—but huge, huge steps that they’ve taken.

Why is that? I think partly, the insurance companies know that the system can’t go on much longer. Again, going on where we are without change is just not a real viable option. The system is falling apart. Our solution to cost control now, is you throw two million people into the uninsured ranks every year. That just cannot go on.

And the question that all insurance groups that have to face is, do you want to be part of the solution or do you want to be perceived as part of the problem? And every interest group has had to ask themselves that.  The President has been very, very open about saying to every group, ‘If you want to be part of the solution, I want to work with you.’  Congress has been very open about saying to the interest groups, ‘If you want to be part of the solution, we will work with you.’

So, the President on the one hand, says ‘Look, I am not going to tolerate a healthcare system where the people get denied coverage because they’re sick.”  And on the other hand, he says, to the insurance companies, ‘if you are willing to work with me and talk to me, then I am willing to work with you.’  And he says that openly and very sincerely.  And I think is what these groups are saying.  They know in their hearts, they know as a business model that they can’t continue and they have a President and a political process that is saying “Come to the table now and let’s all figure out how we can get this done.”  And that’s, I think, the dynamic that has taken hold. 

Recorded on: July 06, 2009

 

 

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