Episode 122: Katherine Baicker

Jim Baer: Welcome to the Puck Venture Capital and Beyond, a show that examines the changing landscape of our world. Before we dive in, a quick word about who I am and why we're here. I'm Jim Baer, corporate lawyer and restructuring professional. I've spent the last two decades helping companies navigate their toughest transitions. And about eight years ago, I found myself having fascinating conversations with clients and friends about everything from venture capital to the broader shifts happening in our economy and society. Those discussions were simply too good. So the Puck was born. Now, while we started on venture capital, hence the podcast name the Puck Venture Capital and Beyond, we've naturally evolved to focus more on the and beyond portion of the title. Today we explore how business intersects with the bigger forces shaping our world. I still run my restructuring practice by day, but now I get to host these conversations by night. It has become one of the most rewarding parts of my life. Today's guest continues that tradition.

Katherine Baicker: I think emergency rooms are not required to provide the level of care that you would get if you were insured. There's all sorts of evidence that uninsured people get systematically worse health care and less health care than insured people. So you are much better off being insured then uninsured.

Jim Baer: Today we're joined by Katherine Baker, a leading health economist known for a rigorous, data driven and pragmatic approach to the US Healthcare policy in America today. Kathryn Baker, welcome to the Puck.

Katherine Baicker: I'm delighted to talk with you.

Jim Baer: So I want to jump in because let's shake this up a little. I mean, we. What is your, uh, unbiased assessment of the current state of the US Healthcare system? What's working and what isn't?

Katherine Baicker: Well, I think one thing that's not working is we are spending a huge amount of money on healthcare that is producing questionable health benefits for people. And that means we are spending more than we need to to achieve the health we're achieving. Or put another way, we should be getting a lot more health for all of our dollars spent. One thing that is working very well is we're generating a lot of medical innovation that I think is poised to make real transformative breakthroughs for human health and well being. We just have to make sure that we maintain the incentives for that innovation while promoting access to that care for as many people as we can.

Jim Baer: Okay, and that makes sense, but I think you've also said that if we give everyone what they want and their full comprehensive care, it would be more than 100% of our GDP. So how do we, how do you calculate and how do we actually get this into a, uh, framework that we can actually understand and pay for?

Katherine Baicker: Yeah, that goes back to the first point, that I think we're spending a lot of money on care that is a very questionable health benefit, and we simply can't afford to do that in general and in particular for public programs that are financed by taxpayer dollars. The reason I, uh, have quipped that that would be more than 100% of GDP is that when you think about the amazing armamentarium of potential health interventions, there is so much health care available that is appropriate for only a small share of the population, but could be applied to everyone, that if we had no limits on the amount of health care that people received, that could be all of the resources that we have and more so.

Jim Baer: But, Kathryn, I understand that we can't give everyone everything, and that's obviously the case. And we understand we're spending a lot of money and we're not quite where we're supposed to be. Where do you see the biggest disconnect right now? What's causing this problem?

Katherine Baicker: Well, I think part of the problem is our patchwork and incoherent insurance system that most people get their healthcare through insurance. And the pricing that we see for healthcare is predicated on that insurance coverage. We have some programs like Medicare, traditional fee for service, which used to be all of Medicare but now is less than half that pays for pretty much any care that is approved to be delivered to people in the US without really any utilization limits, but with limits on how much providers are getting paid for that care. Then we have, uh, private insurance plans, some of which have very expansive networks and some of which have very narrow networks and increasing use of prior authorization and other tools for utilization management. Then you, uh, have Medicaid that has very little active management of care, but pays very low rates in some states less so in other states. You put that patchwork together, and there is a very limited rational sense of what care is of high value to patients and what care is not, and which care should be paid for with public dollars and which care should not. And that's why I think we see at the same time in the US Overuse of some care that is a very questionable medical benefit and underuse of, uh, other care that is of extremely high medical benefit. So it's not simply that we're using too much health care or too little health care. We're using too much of some care and too little of other care.

Jim Baer: So at a time when Washington can't seem to have discussions about complex issues and work together as a team. I mean, how do we accomplish this? For instance, is there any state that is dealing with this where there's a partnership between private insurance and the way they're dealing with their public insurance so that we can get some idea from an incubator perspective of what might work?

Katherine Baicker: I think we see some glimmers of hope from different states in different dimensions. And I'll talk about what those are. But I think it's important your question surfaces a really important issue that we do not have one health care system in the US we do not have one health insurance system in the US it looks very different state to state, partly because the population needs look very different and the distribution of health care resources looks very different, but also because each state has its own Medicaid program and its own regulation of private insurance rates and its own regulation of, uh, provider payment rates. So we have a. The good news is we have a plethora of experiments at the state level. The bad news is we don't have a coherent way to manage people's care over their lifetimes, particularly if they change jobs or move between state lines. So where do I see some glimmers of hope? Let's take an example from innovation in medications. When hepatitis C drugs first came on the market, they were extremely expensive, especially the first one. The first one is very expensive. And there was real debate about whether this drug was worthwhile. Now, here's an example of something that I think is very expensive and very high value. It cures hepatitis C. Hepatitis C leads to all sorts of serious adverse health consequences, including the need for liver transplants. If you can cure hepatitis C, that is an amazing health benefit. And if you can cure hepatitis C in a critical mass of the population, you can really almost eradicate it. So some states took an innovative approach with pharmaceutical manufacturers to purchase almost a subscription model to Hep C drugs to treat their entire Medicaid population. Because this is a disproportionate health burden for Medicaid enrollees, and those states were able to afford the treatment and do enormous benefit to this population with high health need. Of course, then, uh, competition is also really important. When the second Hep C drug comes on the market, prices start getting bid down. Eventually these drugs become generic. And so you want to think about the long arc of this and. But there's an example of innovative contracting that works. Some other states are experimenting with allowing people to port their health insurance benefits from Medicaid to health insurance exchanges or health care marketplaces. One of the challenges with managing long term chronic disease is that people move around between insurers, which requires them to move around between doctors. And then the management of chronic health conditions falls through the cracks and you end up with worse health outcomes in the long run and greater health expense in the long run. Trying to promote that seamless transition between insurance pools to let you keep your insurance product and keep your doctor is a uh, great way to try to manage those transitions. And we're seeing some states experimenting with that.

Jim Baer: So if you had a wish list in terms of what the next evolution would be that we could focus on and improve, what would it be?

Katherine Baicker: Well, I would love to preserve those incentives for innovation that have, huh, generated so many medical breakthroughs while making sure that people have access to care that is of uh, known health benefit. And one way to do that would be to design public insurance plans that are not exactly like Medicaid today and not exactly like Medicare today, but a combination of both for non Medicare populations. You can leave Medicare alone if you like, but you could uh, have a safety net, uh, program that looked more like Medicaid for all that covered care that had health benefit that was sufficiently great for the price. And that's a tricky thing. You need medical experts to say what the health benefit of each type of care is in each situation. But I would want a plan that covered both high cost and low cost care as long as it was of sufficient health benefit and didn't cover care that was of uh, much smaller incremental health benefit and make that available to everyone and then let higher income people buy supplemental coverage that would cover that care that is of uh, maybe more unknown value, experimental care, care that is of small health benefit but worth it to those people. And that combination I think could offer the opportunity to continue to drive innovation because there would still be paying customers for breakthrough care while making sure that care that was of known high benefit was available to everyone. That's one possibility. How that could actually happen that is beyond the capability of a mere health economist.

Jim Baer: Well yeah, I mean because again, and I'm not trying to throw up a roadblock, but as soon as you start talking about, you know, changing Social Security or Medicare, or you start talking about taking people's benefits away or rationing health care, you know, there's certain things where politicians heads explode. I hate to go there, but sometimes it takes a crisis for people to be willing to take the political capital to make the changes. But they need to know that there are changes that can be made that people like you Start educating them about so that when we, when we're ready, it's actually there.

Katherine Baicker: Yes. And I think I would definitely not advocate for limiting the health care that's available to people that they can purchase on their own. I think some systems that have universal coverage want everyone to be in the same plan. That's not what I'm suggesting. I'm suggesting a safety net program that's available for everyone, but individuals are free to buy more care. And I think that's really important because people have different priorities and values and what's important to them they should be able to purchase. And I don't think that a safety net program should interfere with that. That said, I think we've had, you know, you point to the need. What drives reform is often crisis for a while. For the last 10 or 15 years, I think there's been a moderation in the growth of health care expenses. If you look back at the 80s, early 90s, I think we thought healthcare was going to bankrupt us all much sooner than it. And we did see a, um, slowing down in the growth rate of health care expenditures, both in dollar terms and as a share of gdp. And that's been an active research area. Why did it slow down? And some of it might be more utilization management, more of these narrow networks and prior authorization. Some of it might have been innovative contracting and a move towards more value based purchasing versus volume based purchasing. It's not clear how long that will continue. In the last couple of years we've seen the growth rate tick up again. I do think healthcare spending is going to continue to grow in part because I think there are a lot of new treatments that are coming available that are doing things we never thought were possible before. That will drive increases in spending and put us back in the need to have that very difficult conversation about what public programs should cover and what they shouldn't. And uh, sorry, one more point in response to your question. You brought up the R word rationing. And everyone is understandably very loath to have a system that rations care, except we already ration care. It's just not based on the actual value of the care and it's not based on a shared understanding of public priorities for what care should be available to all people. We ration it right now, uh, partly based on ability to pay, partly based on ability to navigate insurance roadblocks, partly based on what state you live in. We are rationing healthcare every day. We're just not doing it in a very rational way.

Jim Baer: So, okay, so let's stay with that for a second, which is actuarially sound. When you buy car insurance, if you have a certain type of driving record and you get tickets, your rates go up. If you're buying life insurance, you know, they look at risk profiles and so forth. I understand exempting pre existing conditions. I understand the notion of covering, you know, things at a modest level for people. But with an aging population, with a closed border and with fewer and fewer young people that don't need health care as much as the older people, how do you make a system that has got some kind of actuarially sound and also where you get buy in from the people that actually get insurance that don't really need it as much, but just like Social Security, they're paying into the system because ultimately they're going to need it.

Katherine Baicker: This is such an important topic and I think some people might find it dry. I actually find it crucial. And so I'm going to stick with it as long as you will tolerate because I do have some strong views on this.

Jim Baer: Well, and drying crucial can be, you know, are not inconsistent. Right. I mean, you know, that uh, you

Katherine Baicker: know, and it's actually, I think it's kind of fascinating, but that's why I'm in. The job I'm in is I find it really compelling.

Jim Baer: Right, right.

Katherine Baicker: How we do risk adjustment drives so much of the distribution of resources and which kinds of products are going to work or not work. So we really need a good risk adjustment system. We have some of it, but we don't have all of the pieces that we need. So I want to start by differentiating between two types of public insurance or social insurance and private insurance. Insurance is all about pooling risk. People sometimes say, you know, the people who need health insurance the most are sick people. No, sick people need health care. They don't need health insurance. There's nothing to insure anymore once you've already had the bad thing happen. So it's like saying the people who need homeowners insurance the most are the people whose homes have burned down. No, those people need homes. You need homeowners insurance before the bad thing has happened, where you pool risk and you know, we all buy homeowners insurance and then a very unlucky person's house burns down and the premiums from the lucky people subsidize the new home for the person who was unlucky. That's how insurance works. Private insurance markets do that just fine. Under certain circumstances where there's no private information, where the contracts can be well written, etc, etc. For health insurance. What that translates to is, ideally we would all buy health insurance when we are healthy. And then the unlucky people who have an adverse circumstance revealed, who get sick, who get injured, they get health care that's financed by the premiums of the lucky people who didn't get sick or get injured. Great. There are all sorts of reasons though that that doesn't function perfectly in the real world and why you might need public policy to help support that risk pooling. That's private insurance. Private insurance cannot redistribute income. It cannot redistribute money between people ex post. So once it is revealed that you are sick, it is not sustainable for an insurer to write an insurance policy for you that costs less than your expected health care expenses. We can't expect the private market to take care of that. Similarly, if you are born with a health condition that requires a lifetime of health care, there is no way for you to have done that before your health condition was revealed. So there is a strong need for social insurance that redistributes money from high income people to low income people. There's no low income insurance. You can't go buy insurance to increase your income when your income is already low. That's why we pool risk for things like unemployment insurance or for welfare or other forms of income redistribution. Public policy can redistribute income, can redistribute money from people who are, you know, born with high known health care needs to people who are born with high known health care needs from healthier people, etc. So we need both, we need well functioning private markets and we need social insurance to do redistribution. Now how do you get those well functioning private markets? The challenge there is that once you're sick, as a society, we have made the, I would say laudable decision that we are not going to let people die on the street who have treatable health conditions because they do not have health insurance. As a society, we've said there is some minimum amount of health care to be debated what that minimum is that people are entitled to as citizens of the U.S. for example, once you've made that decision, then there's an incentive problem where people could say, well, maybe it's not worth getting insurance because I know if I get sick, somebody's going to take care of me. So to solve that problem, you either need to mandate that people have insurance or have sort of a mandatory, uh, risk pooling through a public insurance program. But you can no longer rely on Private markets without public policy to get that risk pooling.

Jim Baer: Yeah, let's stay with that for a second because I'm dying to ask the question, which is, you know, forget politics. But I understand that when Obamacare originally got passed, there was this issue where if you didn't have a lot of money, you would get a subsidy to get insurance. And that, that makes total sense to me. And how you come up with that money, whether or not it's from rich people or raising taxes or otherwise, but people were not forced to get insurance like that. They couldn't get that politically across the line. So it seems to me like you created the perfect storm and everyone can get a subsidy. Right. But no one has to buy into the system. We know you can go to the emergency room and get care. We know you can get Medicaid or, you know, if you're, if you're poor. So at the end of the day, we expanded health care to all these people by giving them all these subsidies. But we didn't create any requirement to buy insurance. It just doesn't make any sense. I mean, we, we have requirements. You buy car insurance if you're going to drive in California, for instance. We, if you're going to go to the emergency room, if you're going to have health care in this country, why can't we have a discussion about that? Everyone has to have insurance.

Katherine Baicker: These are great questions and there are a couple of things to unpack there. First of all, I'm totally with you. We need a system where everyone gets insured. You can have a debate about whether the best way to do that is with carrots or with sticks. Sticks is mandate. You have to get insured. If you don't get insured, we throw you in jail. You know, you can have as big a stick as you want. Carat is. We subsidize it to the point that it is such a good deal. Maybe we subsidize it all the way to free for very low income people. So everybody volunteers because it's such a good deal. And there are challenges to both of those approaches. I myself have no problem with a mandate to get insurance as long as we make sure that the insurance is of high value to people. If the insurance product is designed well, I have no problem mandating insurance because I also have no problem saying as a society, we are going to take care of low income people who have high health needs. In which case we can mandate that people get insurance as long as it's an affordable product for them. You could say well, forget the mandate. Just go with the carrot of making insurance so desirable that people just take it up voluntarily. That's a challenge. In practical terms, I think there are a lot of people who maybe don't perceive the value of insurance until it's too late. Go back to my homeowner's example. I think a lot of people who purchase insurance and then don't end up needing any health care think, oh, well, that insurance premium was wasted. Well, it wasn't wasted. It protected you against risk. The risk didn't happen to happen. Great, you're healthy, count yourself lucky. Don't be worried about insurance premiums being wasted. But I think that that's not necessarily how everyone perceives it. So there's a, uh, behavioral economics challenge. There's. Which I think then leads back to the value of a mandate coupled with subsidies such that the thing we're mandating you to buy is something you can afford to buy. It would be no good to mandate that you buy a $10,000 insurance policy when you only have $8,000 of income. That's not helpful. So you need, I think both of those together. I do want to come back to something you said about emergency rooms, though. There is of course, emtala, this regulation that says emergency rooms cannot turn away people just because they can't pay or uninsured. I think that can create the perception that everybody can get all the care they want in emergency rooms. That's not the case. I think emergency rooms are not required to provide the level of care that you would get if you were insured. There's all sorts of evidence that uninsured people get systematically worse health care and less health care than insured people. So you are much better off being insured than uninsured. And I think if we mandate the people that have insurance coverage and we make that coverage affordable to everyone based on their income, you would have a world with much better risk pooling.

Jim Baer: Well, and we already do it with Medicare and Social Security.

Katherine Baicker: Well, okay, let me come back to your Medicaid point though. Sorry, going back one more sec. You said and low income people can get Medicaid. Not necessarily true. Eligibility varies state to state. Pre Obamacare meant most states did not have Medicaid eligibility for able bodied people who didn't fall into particular demographic groups even if they're below 100% of the poverty level. So in every state, federal regulation requires that pregnant women below a certain income threshold, kids below a certain age and income disabled people, they're demographically categorically eligible populations for Medicaid. But then states had the choice to cover anyone who didn't fall into those groups. So if you were an able bodied adult below the poverty level in the majority of states pre aca, you were not covered by Medicaid. Then Obamacare or the Affordable Care act said that states had to expand up, uh, to 130% of the poverty level. But then the Supreme Court said no, in fact it's optional. And some states expanded and some states didn't. Over the years, more and more states have been covering all people under 133% of poverty. But there are still several states that don't, despite the fact that the cost of that incremental population largely falls on the federal government and therefore federal taxpayers. Not taxpayers, just in your state. So that is uh, an interesting political economy question. Now you can go back to Medicare

Jim Baer: and Social Security and that's helpful. And again, you know, it's uh, from a political perspective, I mean when we look at what shut the government down and the fighting over how we're allocating money, I mean it's, at the end of the day it's a lot of this is political, but the question is you get a certain amount of money. The question is how do you allocate that money in the most economically practical way possible? We can leave the politics aside, but it sounds like from your perspective we're not even doing a good job in terms of how we're allocating the money that we do have.

Katherine Baicker: I think that's right. I think we have uh, too much use in some areas, too little use in others. And there's all sorts of evidence that we don't have the health outcomes that we would like to have. Now some of that when you do comparisons to other countries, for example, people say we spend twice as much of our GDP as a share on health care as some of our European trading partners do. And our outcomes do not look better than theirs. In fact, in some cases they look worse. That is true. On the other hand, our population looks very different from those countries. It's much more heterogeneous. We have a, um, much wider income distribution. We know that lower income populations have worse health outcomes for lots of reasons. And so it's an apples to oranges comparison. We're entering the healthcare system oftentimes sicker than our European counterparts and with fewer income resources to bring to bear. So it's not so surprising that our outcomes don't look the same. But that said, uh, I think even within the US you can see there are parts of the country where we spend two or three times as much on a Medicare beneficiary who's even in the same insurance program as a counterpart in another part of the country where we spend much less and they don't start out sicker and they don't end up healthier. So I think there is lots of evidence of misallocation of resources within the

Jim Baer: US and when you look at us being less healthy, I mean, again, how do you keep away from politics? Because, you know, you've got people like Robert Kennedy and half the country hates him because they think his position on vaccines crazy. Half the country loves him because they think his position on processed foods and overpricing from big pharmas. I mean, how do you actually, you know, work your way through the weeds and actually arrive at the truth in terms of what is making us less healthy than our peers? And what can we as a society do to become healthier?

Katherine Baicker: I think there is all sorts of evidence that the social determinants of health are very important. The conditions in which you live, your access to healthy food, your ability and understanding about exercise, uh, the environment, you know, what you're exposed to. And then being low income is very hard on your health for lots of reasons in terms of the work that you need to do and in terms of the lifestyle that you're able to afford. I think our very wide income distribution is mirrored in our very wide health outcomes distribution. So there's no denying the importance of the social determinants of health. That said, uh, I think there's also no denying the inefficiency of our distribution of health resources. So I think that appreciating all of the things that go into your health before you walk through the doctor's office or hospital door doesn't take away from the fact that we could be doing even more once you arrive in the healthcare system to spend our dollars wisely in promoting health. Uh, I keep coming back to innovation, though. I talked about the places where our healthcare system looks to fall short relative to counterparties. But there are so many places where our health system excels. We drive so much of the medical innovation that you see. It's through the fundamental science that we do in universities and elsewhere. It is through the translation of those discoveries, through research and development into things that are actually available to patients. If you have a serious or complicated health condition, you want to be treated in the US High income people from other countries that have restrictions on access to care come to the US to get their Intensive, often expensive care that does remarkable things for health outcomes. So all of the solutions that we consider to making sure we're spending dollars wisely and that access to care meets the requirements that we impose as, uh, a society, we don't want those to interfere with that innovation engine, because I think we actually do exceptional work in driving the medical breakthroughs that are going to make us all live healthier and longer. Longer if we can just get them distributed.

Jim Baer: It's funny, as I'm listening to you say this, it reminds me of my Saturday night dinner. And there were six of us, which was healthy.

Katherine Baicker: Dinner.

Jim Baer: I'm sure it was reasonably healthy.

Katherine Baicker: Yes.

Jim Baer: Uh, mostly fish. And there was a discussion at the table where somebody was saying how the income inequality in our country is so terrible. And then this other person was saying, yes, but everyone's still coming to America. And at the end of the day, if you have grit, you can still become successful. And, and I didn't say anything. I was sitting there in the middle like my pod as a podcast host. And it's like, you're right, you're right. You both can't be right. And what was missing was, okay, guys. And I woke up in the middle of my thing about this. But, guys, what about homelessness? Like, if we're going to be the richest country in the world and we're going to have billionaires, okay, and then we're going to let anyone come up the American ladder, we still have to have a certain level of dignity and character for our people and some absolute basic level of protection for people. And we're not having that discussion. And I hear, I hear you saying that we don't want to throw the baby out with the bathwater. We do want rich people to pay more. We do want to continue to have the Harvards and the, you know, the MIT's and the Chicago's. The Chicago's. Right, exactly. But by the same token, if we're going to be stepping over homeless people on the sidewalk because they can't get proper mental care and, and drug interdiction and a roof over their head, how do we rationalize the two? And so I guess from a healthcare perspective, how do we come up with a balanced, humane way to treat those that have less?

Katherine Baicker: And that is exactly the kind of conversation that we need the body politic to wrestle with. And I, I share your feeling that right now the nuanced debate about what social priorities are, are, is not often what I hear in that public discourse on either side. I think the bumper sticker slogans on both sides, on either side of any issue rarely capture the very difficult trade off required to make good public policy in that area. So, for example, for healthcare, I talked about having a universally available basic insurance program that is a social safety net program that's available for everyone. It can't cover everything. It has to have limits. If it covered everything, it would be all of the federal budget and more. So it has to have limits to coverage. And we have to decide as voters and citizens what we think that, um, minimum floor is. People say the question is, is health care a right or not? That's the wrong question. The question is how much health care is a right. So to your example of homelessness, we might decide as a society, and I would be in that camp, that everybody should have shelter and a safe home. That doesn't mean everybody has to live in the same kind of house. And it doesn't mean that rich people's housing is not going to be nicer than lower income people's housing. We have to decide as a society, what's the floor? What's the threshold? We want everyone to have a home. We have to decide how much housing we want everyone to have. In the same way, we have to decide, uh, how much health care do we think is a fundamental entitlement to every American and make sure that we have the funding available to cover that. And then I would say let people buy as much more than that as they would like. That's a very tough political conversation to have because it brings to the foreground the reality that high income people will have more health care and better health outcomes than lower income, um, people. And that is a real ethical debate to be had. Like, is that something that we're okay with as a society? My sense is that high income people are going to have more of everything than low income people based on what their preferences are. And making sure that we have sufficient resources to meet that societal imperative for a floor requires wrestling with that uncomfortable reality. I don't hear a lot of that in the public debate, and I don't know how we get there, but I think we need to.

Jim Baer: Well, America has a culture. We can debate what it is, but certainly people think of us as a capitalistic country where we encourage people to make a lot of money. I mean, that is certainly part of freedom to pursue the American dream, so to speak. And it's a messy process, but I don't think people want us to be like the Scandinavian countries. They're not. They're, they're coming here for a reason. And to me, a lot of this is that social media and algorithms have, have just created politics as a sport for everybody. I mean, my brother just reminded me that when we were growing up, you got at the most 20 minutes of news with Walter Cronkite because you had 30 minutes of news. There were commercials.

Katherine Baicker: Y' all sat on the couch in a row looking at the same screen

Jim Baer: and there was commercials. And then how much of it was national government politics? Like three minutes. Okay, now everybody is a CNN correspondence on the front lines of everything, right? Whether or not it's what's going on in Europe, the Middle East, Ukraine, Minnesota, it's so everybody's become like, you know, a Dodger fan or, uh, a Yankees fans. And like, so we've created this environment where everyone wants to participate. And then you've got algorithms getting everybody angry, saying, your team's cheating and my team's the best. And so what we're at the puck trying to do is it's like, look, guys, you know, you can have your favorite team, you can have your debate, but where can you actually come and have a critical thinking discussion about not throwing the baby out with the bathwater? How do we actually come up with a practical solution? And so, you know, I mean, I think as, as Americans, we're going to have to adjust to this new reality that we're all being manipulated by AI and social media.

Katherine Baicker: This is something that I worry about a lot. I'm in the expertise business. My whole world is in generating rigorous, rational analysis of problems that advances human understanding and allows for better decision making. And if we're in a world where people don't first of all feel that they can rely on that expertise and second, value that specialized knowledge, that's a real challenge for so much of what I hold dear. And so I'm very much with you in trying to, uh, in wrestling with the question of how do we bring people together around a reasoned set of evidence, grounded facts that can then inform real debate about priorities. I think none of what I've said about health care tells you as a voter how much you value the health care consumed by other people in the US doesn't tell you how much of public taxpayer dollars you want to spend on health care versus education versus housing versus, you know, return, not, not taxing in the first place. That's about public priorities, and we should have a real debate about that. But it should be grounded in evidence and in rational analysis. And I would love to find additional ways to move us back towards that?

Jim Baer: Well, uh, as an economist, and when you look at people in your field, I mean, are there mechanisms where consensus can be built and statements can be put out, like, what was it? Project. What was the Project 25 or whatever it was? I mean, like, can there be a Project Healthcare that you and your fellow economists put together to start educating us like a white paper as to what our alternatives are that we can, as a nation, start to discuss?

Katherine Baicker: Honestly, I don't think the issue is a shortage of that kind of analysis. We spend a lot of time talking to each other in health economics land about these different policies and about what the evidence shows. We have our own echo chamber. That alone is not sufficient to get it propagated out into the debate. And I think what we're missing are those bigger forums that bring people together and especially across differences. And that is something that we spend a lot of time attending to at the University of Chicago. In particular, where I am is that airing of very different viewpoints in a forum that is conducive to that rational debate and analysis where people can engage with people with different viewpoints to find the commonalities and to find the differences and then have a discussion about how public policy, or whatever the question of the day is, might land based on a different set of priorities or a different set of preferences. That kind of rational dialogue across difference, I think is sorely missing. And I know I'm biased, but I think economics in particular provides us with a toolkit to do that. When I sit down with a health economist and we have different views on something, we can almost always boil it down to a different viewing of particular kinds of evidence. Ah, I think this piece of evidence is stronger. And you think that piece is stronger. What would be the definitive study to see which one of us is right, or it comes down to a difference in preferences? I put a greater weight on this outcome. You, um, put a greater weight on that outcome. There's no evidence that's going to change that. I have my priorities, you have yours. Let's both go vote. And so I think being able to have a framework to boil things down that way is incredibly valuable. Economics, I find very useful for that. And I think there is an opportunity for us to do more translational work. Getting back to your original question, from analysis that lives in academia or think tanks or areas of expertise into public dialogue, um, on the questions that should really inform voters and therefore policymakers, we need more of that.

Jim Baer: And in terms of what we need more of, where do you come out on this whole notion of how much time we should be spending on prevention,

Katherine Baicker: I think prevention is great. I think people probably overestimate the potential cost savings from prevention. There's this notion that if we just spent enough on prevention up front, we would all live forever and save lots of money. And that would be lovely. And when there are examples of things that both improve health and save money, we should for sure be doing those. But I think that there is a much wider class of things that improves health and costs some money. And then we're back in the realm of deciding whether the health improvement is worth the dollars spent most. Prevention, I think, falls in that category of improving health and longevity and costing positive dollars. It doesn't save money, it costs money. And we have to decide if it's worth it or not. And a lot of it is worth it, but not because it saves money, because it improves health at a good price. I think the reason people anchor on this prevention question is that in this world of political contestation, it would be awfully nice to find policies that are all benefit and no cost. And you don't have to wrestle with the question of how much money should we be spending on safety net health programs. If it's free, there's no problem. Same thing with expanding insurance coverage. There was a line of argument that said if we expand Medicaid, we will keep people out of the emergency room. It will be so much more effective that we'll actually save money because people go to the doctor, they'll have, they'll get preventive care. They won't consume this expensive emergency room care. So their health will be better and will save money in Medicaid. That would be lovely if it were true. My reading of the evidence is that it's not true that when you expand insurance, people are better off. They get more access to health care, they use more health care, their health improves, and it costs money. It doesn't save money. And so we are back in the much messier world of, uh, something that has positive, positive health benefits for some people and costs money often for other people. And then it's a political question of whether the people who are ultimately paying for the health care in the form of higher taxes value the health improvement of, uh, beneficiaries enough to warrant that expense.

Jim Baer: So you brought up the hepatitis C example. I can think of flu shots. I can think of vaccinations as being an area like that.

Katherine Baicker: And those are examples, by the way, of sorry to cut you off, but those are examples of prevention that probably does Save money. So I said most prevention. But there's some examples like flu shots.

Jim Baer: But no, but, but those, but those cost money.

Katherine Baicker: No, but they avoid more in future health. Yeah, but that's a small share of prevention falls into that category where, yeah, the shot costs a dollar and it staves off in expected value $5 of health expenses. So it actually saves money over a reasonable time period. That's only a small share of prevention.

Jim Baer: So you're making a distinction between spending money for prevention and spending money for what? Health care, like insurance?

Katherine Baicker: I am not making a distinction there for all of these things. I'm putting them in the same category of, uh, saying how much health improvement do I get for each dollar of spending for a flu shot? In fact, I get health improvement and avoided future health expenses expenses. So flu shot, especially for toddlers, for example, in the end the total amount you spend goes down and health improves. So uh, boy, is that cost effective. It's saving money and saving lives. Most items of health care have some positive health expense associated with them. They don't save money in the end and they improve health by some amount. And you're evaluating the value of that dollar of spending. And in some ways then I think prevention is a label we put on some items of health care, but it's not particularly meaningful in terms of evaluating the value of health per dollar spent. We're using the same formula for all of them.

Jim Baer: So can you give me some examples of things where you think we're spending money on things that we shouldn't be spending money on, for instance, that are not cost effective?

Katherine Baicker: Well, sure. I mean, there are lots of examples of things we spend money on that have, uh, maybe zero health benefit. Another simple example would be antibiotics for viral ear infections for kids. Like, it's not going to clear up the ear infection and in fact it's probably going to contribute to antibiotic resistant strains of bugs. And so you're actually worse off and we really shouldn't be spending money on that. So I can give you low cost things that are both very, uh, much worth it. Flu shots and very much not worth it. Antibiotics for viral ear infections. Then there are expensive things that are very much worth it and others that are very much not worth it. So hep C expensive, but improves health by a lot. MRIs for low back pain. There are a few examples where it's actually warranted. There's some red flag signals where you say, okay, in this case you really ought to have the MRI for the low back pain. Back pain. But a lot of MRIs for low back pain are not indicated as beneficial and are sometimes contraindicated. That's a much more expensive thing that we spend a lot of money on. That is just not improving health at all.

Jim Baer: That's helpful. It's interesting. I have a friend who had some psychological issues but did not take care of himself and then ended up having a, uh, stroke. And he's in a Medicaid Medicare facility where for thousands if not millions of dollars, if he lives for the next 15 years. And it is an example where if he had controlled his diabetes or his BL pressure, you know, and so there are prevention things like that, but again, not something that the insurance industry can handle so much as just we have to be personally responsible. And you know, there's, there's only so much the government can do. But it is crazy when you see how we are having these extremely expensive outcomes that could have been prevented.

Katherine Baicker: So there, there are two follow up points I want to make to that really salient anecdote. The first is there are lots of examples of things that could have been prevented with earlier intervention that are still not cost effective evaluated as earlier interventions. So for example, healthy food for diabetic patients. If you could stave off the future adverse cardiovascular event, the future leg amputation for a diabetic patient by having healthier eating ahead of time, that seems really worth it. If you add up all the cost of the meals versus the cost of that really expensive adverse cardiovascular event, that seems worth it. But the issue is you don't get to know who that person is ahead of time. You have to provide healthy meals to thousands and thousands of people to avoid those outcomes because ahead of time people don't come labeled with I'm going to have a stroke in the future. So you have to use, use that preventive care on many, many people. It's called the number needed to treat to avoid one adverse outcome. So it looks cost effective if you knew which one person to give it to, but you don't. And it does not look so cost effective when you consider that number needed to treat. So that's an important thing to take into account when you look at individual examples like that. Another question about how our healthcare system can handle these long arcs, uh, of contributions to downstream expensive care needed. I think one of the reasons that we don't spend as much on preventive care as we should is that any given insurer may not be on the hook for your future stroke or heart attack at the time that they are managing your diabetes Maybe you're going to have a stroke in 15 years. You're going to be on Medicare's time at that point point. So the insurance company of today has a limited incentive to try to mitigate your adverse event way downstream when you're going to be somebody else's problem. So how do we fix that? It goes back to our old friend risk management, where you can say a risk adjustment, you can say, you know what if an insurer does a really good job at managing your future risk, which we can now assess using all of the modern data tools that we have, machine learning, artificial intelligence, we can do a pretty good job of predicting your risk of future heart attack or stroke. If an insurance company does a good job at managing your future risk, maybe that insurance company gets a bonus add on. And if another insurance company does a less good job at managing its population's future health risk, maybe they get an assessment that pays the first insurer. So through side payments between insurers, we could actually incentivize investment in long term health outcomes. That's the kind of reform I'd like to see of our insurance system.

Jim Baer: And we're doing some of that with it with the hospitals. Right? Like if you don't come back to the hospital, if you're, if you're on, if you're getting, you know, Medicare, for instance, I mean I did legal work for a hospital for years and there was a lot of stuff in terms of, you know, you could get higher payouts, higher percentages for good care, so to speak, and how long, how quickly you got them out of the hospital and how long you kept them out of the hospital. So, uh, people, it sounds like people are at least talking about this. We're going in the right direction.

Katherine Baicker: Yes. And I think we can do a much more sophisticated job of those quality adjusted payments. You know, in Medicare you've got the star rating and you've got the readmissions, penalties. And I think the early incarnations of that had a little bit of a teaching to the test problem. If you measure four things, then you're going to get those four things and maybe it's going to be at the expense of other things. So you don't want such high powered incentives over a narrow set of outcomes that hospitals are paying attention just to those and missing on other important things. But I think we're now in a world where we can measure a whole suite of things pretty well and we can pay hospitals accordingly and other providers, doctors, outpatient facilities, etc. And the trick is to just be sure that we're not penalizing the under resourced places or the places that are serving higher need populations. So say you look at mortality rate in the hospital, certainly we want hospitals to be minimizing mortality. And there are some instances, some deaths are unavoidable, but some deaths can be prevented with higher quality care. And you want hospitals doing all that they can to prevent avoidable deaths. But uh, if you have a hospital that's treating a very high need population with a higher mortality rate and you penalize them because more of their patients died and then they have even fewer resources, you're working counter to your actual goals. So you have to be sure that you're measuring the patient's risk well enough not to penalize the hospital hospitals that are taking on the sickest, neediest patients, but then you want to reward them doing as much as possible with those resources to achieve the outcomes that patients really care about. Death is one, there are many others.

Jim Baer: So you are reinforcing how complicated this is. Should we be optimistic that with AI getting better and better, that a lot of these complex issues and a lot of these things that we're trying to do, including tracking healthcare information and transferring it with you so that it travels with you from doctor, doctor insurance to insurance, are you cautiously optimistic that AI will help make your job easier?

Katherine Baicker: I am optimistic and I think AI can help us on multiple fronts. And obviously with all of the caveats about being sure that we're not, that we're being very safe with patients information and that we are not propagating biases and inequities that are already in the data that we have, et cetera, et cetera. But with those caveats noted, I think AI, uh, can speed medical discovery for sure. And we are already seeing that, uh, it can speed our assessment of those discoveries to speed them to bedside faster by speeding up uh, clinical trial enrollment and outcome assessment, etc. It can help target treatments to the right patients. I talked before about how we overuse some care and underuse others. Harnessing the data that's available will let us target care to the patients who will benefit from it the most and stop using it in the patients where it's not beneficial. And so that will stretch every dollar that we have further. It'll help us detect earlier patients who are at high risk. So that number needed to treat that we were talking about, if you can figure out much better which patient is most likely to have that adverse adverse future event, you can shrink that number needed to treat and turn a lot of interventions that were unaffordable into ones that are affordable or that are high value. So I think there are numerous opportunities to harness the data that is newly available and the data analytics that are newly available to get a lot more out of our healthcare system. So I'm more than cautiously optimistic about that. Maybe I'll just end with reiterating something you said that having venues like the Puck where you can actually dive into nuanced issues that have real trade offs that matter so much for people's lives in a dispassionate, analytical way, I think that contributes a lot towards getting us to evidence based policy that's actually to the public good.

Jim Baer: Well, uh, we agree and it is a process and you know, I wish people would spend less time, you know, just going from social media, media, you know, algorithm to the next and, and for people to realize that they are being manipulated because our advertisers make a lot more money making you angry and afraid. And you know, you have, you have to take control of your life to be able to kind of take the time to listen to discussions like this, you know, and then if you find a platform like this where there's information you can benefit, use AI to summarize it and use it to help you figure out you want to listen to and what you don't and then, you know, use your time valuably. But we as consumers have to get smarter in terms of how we educate ourselves.

Katherine Baicker: Well, thank you for the opportunity to discuss these important issues.

Jim Baer: Katherine, thanks for coming. The Puck Venture Capital and Beyond is produced by CBG Advisors. If you enjoyed the conversation today and haven't yet subscribed to our show, you can find us on itunes, Apple Podcasts and SoundCloud. Feel free to leave a review while you are there and maybe even a 5 star rating. Thanks for listening. We'll be back soon with a new episode.