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Question: What inspired you to write your article on healthcare?

David Goldhill: I had always had like, like many politically involved people, an interest in healthcare; it's obviously such an enormous part of our budget. And as a businessman, you can't help but have been aware over the last 15 years or so of running companies of the cost of healthcare, both to a company and to your employees. But I think for me the real catalyst is what happened to my father, because I had a lot of thoughts about what was right and wrong about our healthcare system.

My father is an 82-year-old man who walked into a hospital with pneumonia and like most men his age certainly was vulnerable. But what I saw in his five weeks in the hospital, five weeks that ended in his death, was very surprising to me. As a business person, as a very aware consumer at those moments, because obviously the care was so crucial to my father's hope of survival.

My father died of an infection he acquired in the hospital. That's not unusual; although, at the time, I didn't realize how ordinary that is. A few weeks after his death, Atul Gawande happened to publish a piece in the New Yorker in which he talked about the estimated hundred thousand deaths a year from infections.  The number just astonished me; I mean, a hundred thousand. You think of 5,000 people losing their lives in Iraq and Afghanistan and how big a number that feels. This is an annual loss of life in this country. I thought to myself, "That's extraordinary, that that's not a front and center of national debate. It's almost background noise."

But what his article is about was even more interesting. It was about a doctor who had developed a series of sterility protocols and was running around the country trying to convince hospitals to adopt them. They were basically costless:  a matter of how you organize work rather than any actual spending. He was having a hard time getting through hospital bureaucracies and their relationships with physicians. That's what really set me off because I had seen in the ICU of a well-regarded, non-profit hospital an enormous amount of sloppiness and poor use of technology--in some cases no use of technology. My father twice was actually taken for procedures meant for other patients. A few hours before he died, when he was unfortunately well beyond the hope of recovering and it was very clear that he had only a few hours left to live, they came in to do a blood test. I remember saying, "Why are you doing a blood test?" It was clear that it was auto-piloted. So much was auto-pilot. You understand that perhaps at a local Burger King, you really don’t understand that at a hospital dealing with life and death issues.

But getting back to Gawandi’s piece, I thought to myself, there’s got to be a business reason that this happens. You know, I’ve run a bunch of different types of businesses in technology and media, and in all of them, for bad things to persist, poor products, bad customer service, high prices, any of the realms of inefficiency, something needs to structural explain it, a lack of competitors, a company structure that favors management or employees over customers. And for it to occur in an entire industry, it’s got to tell you something about the incentives and relationships between employees, professionals if you will, in the provider world--the institutions and customers--because for this to persist for such a long time, from a businessman’s perspective, means there is something wrong in the underlying structure and the underlying incentives.

And so, I spent a lot of time, probably close to a year and a-half, thinking about our healthcare issues, the bigger ones and the smaller ones from that perspective. And it really is eye-opening when you step back from what I think is a lot of people’s perspective about healthcare, which is this is something we need; how do we get it? To looking at it as a series of businesses and asking how well do they serve the customer in terms of quality of care, accountability of care, basic service, and of course pricing? And what you see in almost all of those areas is very significant deterioration over the last 30 or 40 years.

And so, instead of doing the sort of detailed ‘what,’ that I think a lot of people who have devoted their lives to healthcare have been doing, and its of great value; I did a little more of a ‘why.’ And a ‘why’ from the perspective of a patient and a person who runs businesses outside of healthcare rather than as a perspective of a healthcare expert.

Question: What is the problem with the conventional wisdom on healthcare?

David Goldhill: I think the conventional wisdom on healthcare starts with a misconception that is probably 100 years old, which is--I think of it as the lump of healthcare fallacy, or the public policy model of healthcare--you get hit by a bus, you are diagnosed with cancer, you have a serious illness, you need care. There is an amount of care you need. And it starts from that. That’s a big fallacy, right? Because what has happened since that was, what drove a lot of us to look at ways outside of a market to finance healthcare, getting the states involved, insuring, and all of the rest, is that, in fact, a very large percentage of our lives have become medicalized. And it’s very hard not to see that what healthcare is today is this very broad spectrum that ranges from the absolutely urgent, the person genuinely hit by a bus, genuinely finding late state cancer, and the completely elective. And a broad spectrum in between not just in terms of the nature and illnesses but that in the alternative treatments and approaches to handling those illnesses. There’s an enormous amount of choice, options, and decisions made in everyday healthcare decisions, and everyday healthcare decisions are an increasing part of our lives. And when we start thinking about health insurance, most births and deaths were not medicalized. We are so used to every aspect of our lives, physical lives, having interaction with the healthcare system that we may have forgotten that the models in which we designed both insurance as a form of financing and often government aide as a form of financing existed in a very different world. Healthcare was a rare and small part of our lives. I think that's first.

I think the second misconception is that there is something inherent in healthcare that explains higher prices. That it is fundamentally different. I think perhaps the most sophisticated version of this is, new technologies have really created new products. So it's not so much that the price of things are going up, as [it is] that our ability to do things is expanding and that is drawing in more of our income to pay for those new and better things. And I think there's an important element of truth in that. I think the broader sense, or the political sense is that technology drives up prices. That when you move from more personal care, physician-oriented care, let's say, to big diagnostic machines, you inevitably have to have higher prices. That statement I think the rest of the economy shows isn't true, but I think it's an underlying assumption in the conventional wisdom.

I think a third aspect of that is, and it's interesting in healthcare and we never talk about prices, we talk about costs as if its – these are from the Moon rocks that we got, we have only a limited number of them and its somehow exogenous to the forces of supply and demand that work in every other industry. That's another issue. It's funny, you almost never hear anybody talk about healthcare prices. And the problem there is, in healthcare, ultimately every element of the price, or cost if you will, is somebody's paycheck or somebody’s dividend check. There really aren't moon rocks that we have only a limited supply of.

Every good in healthcare, whether it’s a new drug, or a new machine, or a physician services, or what we’re going to pay the Nurse’s Union, depends on how much revenue is coming in. Not on some element of cost that's independent of that. And I think that's been one of the big misunderstandings in healthcare, and probably related to the fact that most people who work on healthcare work just on healthcare and don't have what I call the perspective of the mainland, they just have the perspective of the island that healthcare has become in our economy.

Question: How are American lifestyles affecting the cost of healthcare?

David Goldhill: I think the reality is that we now have a situation where almost more than half of deaths every year occur for reasons that probably relate more to lifestyle than to healthcare. We’ve medicalized them. But fundamentally. to treat them, there has got to be changes to lifestyle, or influences [on] lifestyle.

I think nutrition is one, which Michael pointed out. And there are a variety of others, frankly, I mean there are all sorts of things that are environmental, that relate to our work lives, relate to our commutes, that relate to education, that impact health. And I think the broader point is a crucial one which is society has chosen for healthcare to be a favored good. Healthcare is not health. And in my article, I remind [readers that] my Grandmother always used to say, “Money is honey, but health is wealth.” And we’ve added a word to that, health care is wealth. And it may well be that in doing so, and making healthcare a favored good, we’ve changed people’s individual incentives to take care of themselves. Which is going to be fundamental to further advance this.

There’s been an extraordinary amount of advance, obviously, in healthcare in the last century and a-half. It’s enabled us to eliminate many infectious diseases, change both the incidence and probably results of things like heart attacks, and starting to have some impact on survivability from cancer. You can’t underestimate how important that has been to extending lives and improving of quality of lives. But it’s part of a much bigger issue. And it’s interesting when commentators point out that the United States ranks fairly low by most health statistics that you can do, whether it is lifespan, or preventable deaths, or others. Many traditional experts say, “Well, that’s not the problem of the healthcare system, that’s because we’re overweight, we’re live unhealthy lives, we don’t exercise...” and what have you. There’s an irony there, of course, which is the way that we try to fix all of that stuff is healthcare. One of the difficulties I have with a non-consumer based system, is I don’t know we’re making choices. How did we get to spend $2.5 trillion on healthcare? Who decided that was better than more parks, or a better environment, or more time off, or better educational system, or more recreational resources, or even more entertainment? Who made the decision that it was better for us – let’s narrow it. Who made the decision that it was better for our health? And the reality is, nobody did.

Question: What historical parallels are there to today’s healthcare crisis?

David Goldhill: You know, one of the parallels I see here, which is rarely remarked on because again, most people who look at healthcare look at just healthcare, is what happened in housing. It’s roughly the same time that the government said that housing is an undersupplied good that people can’t afford. Let’s help them afford it. And also engaged in a lot of different way of subsidizing housing, tax break of course we know about, creating Fannie and Freddie, and Ginny to give low-cost capital. Favoring loans made to construct house. Why am I discussing this? I am discussing this because what happened in housing is interesting. During the entire period that the government subsidized – almost the entire period – the price of housing kept going up. And every year Fannie and Freddie would come to Congress and say, we’re doing a great job of making housing more affordable, but the price of housing is going up, we need more subsidy. We need to secure more loans. Nobody every said, "Is it possible these things that we are doing to make housing more affordable is causing the price to go up?"

Now, in housing of course, we were capable of having a crash. At some point, the price of houses was beyond what the average person could afford. Even if you lent them more than 100% of the money, which is of course what we wound up doing. And there’s a lesson in that. Which is, we can see an undersupplied good, but if we create a system that endlessly subsidizes it and if we fix the negative results of that system by increasing the subsidy, and if we put the subsidy in a lot of different places, what we’re likely to do is no longer make the choice of, in that case, do we need more housing, or do we need more education, or recreation, or people living close to their jobs, or better transportation. And we’re doing the same thing in healthcare. We have gotten to 20% of our GEP without any mechanism for figuring out what would have been a better number. There are two mechanisms to do so. The government just mandates it, and I am skeptical that they can do a good job based on what we’ve seen in Medicare, or consumers do it by making the tradeoffs in their own lives. And we are not doing either system, and we are suffering as a result.

Recorded on: September 11, 2009

 

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