Rae Woods (00:01): Hey, it's me, Rae. You're about to hear a conversation that we actually recorded live at an event that Optum held a couple of weeks ago. This is a very special conversation and an intimate conversation, dare I say, with the authors of the book, Why Not Better and Cheaper. Twin Brothers, Bob and Jim Rebitzer. (00:23): This is such a good conversation about how we actually get to our shared goal as an industry. I can't recommend their book enough. I joked with the two of them that this is a book for people like you and me. It's written for the nerds. This conversation gives you a lot of context about what is in that text, but I've added a link to the show notes so that you can get it yourself. All right, here we go. (00:49): I will admit immediately that there's a trick that I do in podcasting when we're not in person, when we're at home in our sweatpants, and that is that I ask my guests and I prompt them specifically with their name so that the audience can associate their name with their voice. That's not going to work. Bob Rebitzer (01:10): That's not going to work. Rae Woods (01:11): That's not going to work so well for our guests at home because I've got identical twin brothers with me right now. Bob and Jim Rebitzer, welcome to Radio Advisory. Bob Rebitzer (01:21): Thank you. It's a delight to be here. Rae Woods (01:22): Thank you. I want to give some context as to why we've come together. Optum has brought a small group of leaders together to talk about the fact that the healthcare industry needs to change. This idea that the industry and healthcare business must change frankly, is something that I hear every single time I'm in front of a group of folks. In fact, the group here today really decided that healthcare must change radically. (01:48): Here's the thing, I don't think that we can radically change anything until we figure out how to innovate in a way that provides more value and that does so in a way that reduces cost. That is precisely why the two of you are here, because you two wrote a book about this precise challenge. It is a seemingly simple ideal in healthcare, a seemingly simple question, why isn't healthcare better and why isn't it cheaper? Well, it turns out the answer to that question is actually extraordinarily complicated. First thing I want to ask the two of you is, how did you come together as brothers as thought leaders? One an economist, one a healthcare consultant. How did you- Bob Rebitzer (02:28): He's a consultant. Rae Woods (02:29): I've done it backwards already. What is it that brought you two together to actually address this problem? Jim Rebitzer (02:37): Bob was working for a... He was doing some consulting work for an organization in California that was trying to find ways to deliver low-cost care to low-income populations. He calls me up, he tells me about the project, and then he says, "It's really a shame that nobody can make any money doing anything cheaper in healthcare." And I said, "That doesn't make any sense." Rae Woods (03:03): It doesn't have to be this way. Jim Rebitzer (03:05): I know it was. I said, "No, you're talking nonsense." So we spent about a month, as we do, sort of noodling around. Trying out different ideas and me telling him why what he's saying can't possibly be right and him responding. At the end of that conversation I said, "I think we've got a book here." Rae Woods (03:24): And you agreed, Bob. Bob Rebitzer (03:25): I agreed. I generally agree with my brother here. Rae Woods (03:28): Were there any sibling rivalries? Bob Rebitzer (03:30): Well, we had some disagreements. One was about the title, the working title for the years that we were working on this book together, the working title that Jimmy came up with was Innovation's Arrow. I'm thinking to myself- Jim Rebitzer (03:47): It was a bad title. Bob Rebitzer (03:48): ... who's innovation? Rae Woods (03:49): Yeah, Jim, that's not a good title. Bob Rebitzer (03:50): I said, "Who's innovation and why does he have an arrow?" But I kept that to myself until three weeks before we submitted the book to the publisher, the final submission. I said to Jim, "We can't go with this title." Then we started our thing, we go back and forth for a couple of weeks and finally I came up with it, "Well, why don't we say Why Not Better and Cheaper?" But Jim says, "But they won't know it's about healthcare." So we went back and forth on that and we came up with a subtitle. Rae Woods (04:21): Well, I have to say, Bob, you saved the day. Bob Rebitzer (04:23): Thank you. Rae Woods (04:24): Innovation's Arrow was definitely not the right title. I do appreciate, because the title Why Not Better and Cheaper gets straight to the Point. Because the thesis of your book is that the healthcare industry has actually failed to do what so many other industries have done, which is continue to innovate so that their products get better for the consumer and ultimately so that their products get cheaper. The example that you give literally on page one of the book is the cell phone. I have to ask, why does it seem to be that healthcare is different? Why haven't we been able to do this thus far? Bob Rebitzer (04:55): The book is basically an answer to the question is, how come healthcare doesn't get better and cheaper like the cell phones that we carry in our pockets? Our answer is, that it's too easy to make money with low value innovation and too hard to make money with innovations that reduce cost. The reasons for that have to do with the incentives that are at play in healthcare, the social and professional norms that surround our healthcare system and are the basis in which it operates, and then the way markets work or sometimes fail to work in healthcare. Those three things come together to produce the problem. Rae Woods (05:33): Those are the root causes of why we're at this problem. I want to get at those and start to give our listeners some advice on how to address those root causes. But before we get there, I want to acknowledge the fact that the folks that listen to this podcast are the healthcare business leaders, and they get this problem, this speaks to them as business leaders. But you also make a point in the book to describe that this innovation issue also impacts patients. In fact, I wrote this down. You said that, "The result of this problem is a society that is poorer and less healthy, and business that is profusely innovative, yet remarkably ineffective at delivering increased value at low cost." "Profusely innovative," was the word that you used. I have to ask, what is it that we mean when we talk about innovation? Jim Rebitzer (06:20): Oh, I'm sorry. I thought you were going to ask me to defend profusely and that would be a problem. Rae Woods (06:25): Always. The professor in you is coming out a little bit there. Jim Rebitzer (06:29): Well, I think it's probably easiest to think about this in terms of some stories. Let's think about our patent system. When people think about innovation in healthcare, they often go to drugs, which our notion of innovation is much broader than that. But they often go to drugs and the patent system. So if you think about the patent system, a very important feature of the patent system, is that it has a market test built into it. You could come up with an innovation, a device and patent it, but if nobody wants to use it, that patent's not going to be very rewarding. You won't get very much for it. And that's a really important and very... There's not a bureaucrat, there's not a general, there's not a politician saying, "I think this is a cool idea." If people are willing to use it and pay for it, then it's a valuable innovation and you'll make your money. Think about from that general perspective, think about the problem of antibiotics. We have lots and lots, a growing problem of antibiotic-resistant drugs. You'd think, well, all of modern medicine essentially depends on effective antibiotics. Rae Woods (07:42): Yes. Jim Rebitzer (07:42): No chemotherapy, no surgeries. In danger of having your cavities treated if you don't have reasonable antibiotics. You'd think therefore that the patent system would be just a perfect place to reward new antibiotics. But it turns out that we've learned over the last 40 years, 50, 60 years, that it's actually a really bad business. That every time somebody comes up with a new antibiotic, they lose money. So the question is why? If you think about it for a moment, there's actually a remarkably straightforward explanation for it. A new antibiotic tends to be more expensive than the existing ones, and no more effective against the drugs that are currently prevailing. They only really are good- Rae Woods (08:29): At least until there's resistance. Jim Rebitzer (08:30): Until there's resistance. The first thing you do if you're interested in why stewardship of these valuable molecules, is you come up with a new antibiotic and nobody should buy them. You should keep them on the shelf. You could see that how that immediately conflicts with the market test incentives that are otherwise so important and valuable in the patent system, there's no way to make money on it. (08:53): It turns out that that's just one example of many that we talk about in the book where the market tests in the patent system or the incentives in the patent system, diverge from creating a lot of social value that would make people, society, the healthcare system, better off. But I don't want to leave this only thinking about patents and drugs and devices because we also think about innovation in terms... And perhaps even more importantly in terms of processes. Rae Woods (09:25): Wait, wait, say that again? We have to remember that we think about innovation not just in terms of drugs and devices, but in terms of processes. Jim Rebitzer (09:31): Processes, yes. Rae Woods (09:33): I love that. Because I think in today's day and age, we tend to think about the big shiny thing as an innovation and not necessarily on the processes that to your point, Bob, we need to make sure that we have the right kind of business model in place that we can profit off of. You're describing for me, honestly, why I find it amazing that once you came to this problem, you still continue to want to write this book, because as you're starting to describe, the solutions are far from simple. I want to come back to this challenge that you're grappling with, which is that healthcare generates the wrong kind of innovation. (10:05): I want to ask the question that I bet is at the front of our audience's mind, which is, are there any exceptions to this? Everyone wants to talk about two big innovations right now. They want to talk about innovations in generative artificial intelligence and they want to talk about advances in the drug space, particularly weight loss drugs, weight management drugs and cell and gene therapy. Are these, or is there any other kind of innovation that you would say is an exception to this problem that we generate the wrong kinds of things in healthcare? Bob Rebitzer (10:35): Yeah, there are exceptions, but they often don't rely on financial incentives. In fact, sometimes they fly in the face of the financial incentives. I'll give you... I want to talk about a bright spot, an innovation that took hold. I am sure your audience is familiar with palliative care. Palliative care is a way of caring for seriously ill patients. A better way of caring for seriously ill patients often with multiple disease states, disease conditions. (11:06): A small group of innovators in the 1990s led by a woman named Diane Meyer, but there are many other names and advocates who were involved, came up with this new way of delivering care, palliative care, a new care model. They did this on the basis of, it appealed to physicians and nurses and other caregivers desire to deliver the best kind of care for their sickest patients. It started at zero in the early nineties and it took off. And today there isn't a major hospital in the United States, and most small hospitals in the United States also have some version of a palliative care program. Rae Woods (11:46): This is a bright spot that you talk about in the book. Bob Rebitzer (11:48): That's right. Rae Woods (11:49): But importantly, it wasn't a slam dunk, it wasn't an easy win. Like you said, it started with appealing to the hearts and minds of the physicians and nurses. Bob Rebitzer (11:58): Right. Which is an enormously powerful resource for socially positive innovation. Now, like most powerful tools, it cuts both ways. Jim Rebitzer (12:08): Think about many clinics, healthcare has hard problems and are simple problems. If you could separate them out, you could get a lot of efficiencies, because you give the simple problems to less trained people and reserve the highly skilled people for the really hard problems. Minute clinics were a great advance in trying to do that. You could get inexpensive care quickly. So ask yourself the question, why were minute clinics developed by pharmacies and not by medical providers? Why did that happen? Well, it turns out that when minute clinics were first introduced, the physician groups mobilized against it because the idea... And they almost won. Their motivation was that it violated central norms and narratives of the autonomous practice of medicine, to risk the professional societies- Rae Woods (12:58): I remember being in rooms in front of physicians where they were saying it can't possibly be that these convenient care clinics are safe places to deliver care. Honestly, that wasn't that long ago. I remember having those conversations in 2016, now you can't. They're not even called minute clinics anymore, they're called health hubs. I don't think you can sneeze in most cities without running into one. Jim Rebitzer (13:18): Exactly. Right. This is an example where these norms and narratives, which are so powerful in medicine, can be a case of palliative care, they can be a facilitator of change, but they could also be an obstruction of change. Rae Woods (13:31): Yes. Jim Rebitzer (13:32): But let me give you another example of a success story that's kind of interesting, it has interesting general lessons. This is not in the book, but it's cool. Hospital at home. Hospital at home- Rae Woods (13:43): Big topic today. Jim Rebitzer (13:44): It's a big topic today. For those who don't know, and I'm not a clinician, so you could say I don't know either, but it is really a way of delivering hospital style care to patients at home using telemetry and other things to monitor and get nurses there when you need them. It seems there haven't been good randomized trials, but it seems that it reduces costs and people seem to like it, the patients seem to like. It certainly reduces large capital costs of expanding hospital capacity. If you could take some of that and load it for the right patients, deliver their care at home. First experiments were the 1970s- Rae Woods (14:21): No way. I wouldn't have believed that. Jim Rebitzer (14:23): It kind of went nowhere. And then- Rae Woods (14:25): Until Covid. Jim Rebitzer (14:28): Until Covid. Then the CMS approved a new set of funding rules that suddenly made it possible. Rae Woods (14:33): Which is a similar story in palliative care. It took the combination of the positive social norm and the right incentives. Jim Rebitzer (14:39): Yes. But in the case of hospital at home, you have to ask yourself the question, we have this huge private sector of payers, and why were they sitting around dragging their feet around this feasible innovation that people have been talking about forever? And why did they wait until CMS, this large, cumbersome bureaucracy, made its change before they decided it was a good idea? Here's an example of a private sector initiative where they just sat on their hands and waited for the government to jumpstart it. And the answer- Rae Woods (15:12): A consistent story in healthcare. Jim Rebitzer (15:14): It's a very consistent story. What we spend a lot of time talking about in the book, is that the problem is when you have an innovation that requires a big upfront investment, the innovator's going to need to be compensated for that. Rae Woods (15:24): Yes. Jim Rebitzer (15:26): If there are a lot of people who could benefit from it, say all the other payers who might benefit from building a hospital at home capacity inside a hospital, well they don't want to carry all the upfront costs which are going to benefit the other payers. So absent some sort of coordination amongst the payers, their best move is just to wait. There's a name for this in economics called a common agency problem. This common agency problem is ubiquitous in healthcare. So what the solution to it or a solution to it, is to have a jump-starter. A large purchaser who makes an upfront commitment to the change. Being a jump-starter of last resort is one of the key, I think, innovative functions of Medicare and the federal government and largely overlooked. Bob Rebitzer (16:17): Though it doesn't need to be a government. In a local market, for example, that may be dominated by a large payer, a large private sector payer can be the jump-starter. The key is that whoever, to be the jump-starter, you got to have a large share of the market and then if you move first, you'll be followed. Rae Woods (16:37): Hold on a second. Neither of you jumped on the carrot that I held out for you. Jim Rebitzer (16:42): Which carrot? Rae Woods (16:44): Which actually might be an interesting teaching point. Because you two are talking about clinical models and you're talking about processes, and both of those as being these innovations. Those were both the success stories that you ran to. I mentioned AI, which is the thing everyone wants to talk about, I mentioned cell and gene therapy, and neither of you mentioned that as an exception to the challenges that we're talking about. Bob Rebitzer (17:05): When thinking about AAA, it's sometimes helpful to think about older innovations in healthcare. So Jim and I wrote an article that was in the Harvard Business Review online about this. We looked at two therapies, two innovations, contrasting innovations that came out about the same time. One was electronic medical records and the other one was laparoscopic removal of gallbladder surgeries. Electronic medical records only took about 30 years to catch on, and- Rae Woods (17:35): Only about 30 years. Bob Rebitzer (17:36): ... aided by I think tens of billions of dollars in government subsidies through- Jim Rebitzer (17:41): The Stimulus Act. Bob Rebitzer (17:42): What's that? Jim Rebitzer (17:43): Obama's Stimulus Act. Bob Rebitzer (17:44): Through the stimulus Act. In contrast, laparoscopic removal of gallbladders took about three years to take over. It also involves a lot of upfront costs, physicians had to be retrained, operating rooms had to be retooled, capital equipment had to be purchased, but it took three years. So why the difference between the two? The way we understand it is, that electronic medical records involved a great deal of... What's the phrase, Jim, that we like to- Jim Rebitzer (18:17): Switchover disruptions. Bob Rebitzer (18:18): Switchover disruptions. And switchover disruptions are what happens when you've got one way of doing things and you have to switch over to another way of doing things. If there's a lot of disruption involved in that, entrenched incumbent players who don't face a lot of competitive pressure will slow walk that if they make that move at all. The reason for it's because they're disrupting profitable operations. No one really wants to do that, they'd rather put that off for another day. (18:45): In contrast, laparoscopic removal of gallbladders, the switchover disruptions were relatively small, even though there was a lot of expenditure involved. That was because surgeons were still surgeons, nurses were still nurses, and they got to do what they were trained and like to do, which is remove gallbladders, but they got to do it better, faster, cheaper, and that went very easily. Rae Woods (19:07): Will AI face the same switchover disruptions as the EMR or will it be- Jim Rebitzer (19:10): Depends how you do it. Bob Rebitzer (19:11): Right. And we're with you on that. There are ways to implement AI where we can make the switchover disruptions high, like in electronic medical records. If we go that route, I think it's going to be a slow-moving innovation. But there are ways to go the other route. So what would be ways to think about AI in those terms? One way to think about it is that you've got to implement artificial intelligence applications in a way that builds trust with two really important constituencies, providers and with patients. Rae Woods (19:47): Which by the way gets us back to social norms- Bob Rebitzer (19:49): Exactly. Rae Woods (19:50): Which you said is one of the main root causes that we need to solve. Bob Rebitzer (19:52): Right. Exactly. How do we build trust while we're using AI to reduce transcription and paperwork loads on providers would be a really great way to begin. Rae Woods (20:05): I am also a healthcare consultant. The phrase that I hate but that comes to mind is, people want to go after the low-hanging fruit. I go after the lowest switching costs first. (20:16): There's another key teaching in your book that you just sparked my memory of when you said slow-moving innovation. It's this concept of actually a missing innovation. This was something that I swear I circled a thousand times in the book, because what you describe is that there are examples of cost-reducing innovations that are successful. They do not fail. But where the problem is, they don't take root, they don't spread. Essentially they go missing. Actually, this is an example of where you talk about IT. I'll quote your book again, you said, "Any IT adoption process that is measured in decades, indicates that valuable innovations have gone missing." You brought up the EMR, my friend. There are a lot of health system leaders, a lot of hospital leaders that are measuring their EMR implementation processes in decades. Are there other examples of missing innovations that we should name and how do we go find them again? Bob Rebitzer (21:13): One that I really love is a whole category of innovation that we have trouble even holding in our heads. It makes our heads explode in US healthcare, which is the idea of slightly worse but much cheaper innovations. No one knows what to deal with that. Physicians by virtue of their training and the best aspects of their nature think, "How in the world can I justify offering a patient something that's slightly worse but much cheaper? That's not what I trained to do in medical school. (21:43): Let me give you an example of one that is in recent memory, the rapid tests for Covid. There are two tests for Covid. What types of tests for Covid? One are the so-called molecular tests, which are definitive and their gold standard, and they tell you do you have Covid or have you had Covid or do you have Covid in your system or not? That's the gold test. Physicians understood that right away and were rapid adopters and users of that test. (22:10): There's another type of tests which are the rapid tests which work in a different mechanism, and they're slightly worse, meaning that they can produce a higher degree of false positives. They're not as reliable in telling you if you actually have Covid. They aren't very reliable. They actually answer a different question. They don't say, "Do you or do you not have Covid?" They ask you answer the question, "Are you, are you not infectious at this moment?" Which is for some purposes more valuable question, but there are much cheaper. American physicians struggled to adopt the rapid tests and incorporate into their practice, and I still to this day have physicians who come up to me and say, "I really feel uncomfortable about using these tests." Rae Woods (22:51): Well, wait, hold on. From the consumer's perspective though, there is quite a difference in these. Because one is a test I can take at home. If you think about all of the boxes that have been mailed to us or what you can pick up at a local pharmacy for that moment where you're going, "I've got to travel, I need to get this test, I need to get approved." Versus scheduling an appointment even at a convenient care clinic, getting that appointment time, getting still nose swabbed and getting the results two to three days later. From the consumer's perspective, they want the rapid answer. Bob Rebitzer (23:21): Exactly. Right. I think slightly worse, but much cheaper can also be much better. Rae Woods (23:27): Depending on who we're talking to. Yes. Exactly. Bob Rebitzer (23:29): And for what purpose. Another example, this is one I think is appropriate at a conference sponsored by a division of United Healthcare. And I say this with affection as a former vice president in what was then called United Behavioral Health, so I am a fan of the insurance industry. But why are we still paying insurance claims? Where else... When you go to the hardware store, do I submit a claim for the hammer and the hardware store waits for a third party to adjudicate whether or not I'm entitled to pay this amount, or that amount or they're entitled to receive this amount or that amount for the claim. It's a ridiculous way to manage payments. One can conceive of all sorts of alternatives, all of which you have fallen to the switch-over disruptions that my brother talked about. But we stick with the system we have. That's in my view, an example of a missing innovation in the field of financial intermediation in the healthcare space. Rae Woods (26:00): We've got low value innovations, we've got missing innovations. I want to make sure we're saving enough time to talk about what we want health leaders and our listeners to actually do. Again, you named three root causes of the problem, we need to address incentives, we need to address norms and we need to address competition. You're not really making it easy on anyone because one of the lessons is, you actually have to do all of these things at the same time, you can't just tackle one at a time. We've spent a little bit of time talking about norms and how norms can either be a wind at your back or it can be something that you're really struggling against. (26:37): Let's talk about incentives. Everybody wants to blame incentives. Everybody knows that there are systems set up in American healthcare that maybe don't feel fair. A lot of folks tend to blame immediately fee-for-service here. You by the way, are no exceptions to that. You write in the book that there are several failures of fee-for-service, no one in our audience would disagree with that. But you also say, and this is important, that merely transitioning to value is an ineffective solution. Why is value-based care and more specifically shared savings, not going to be enough to get us to better cheaper innovations? Jim Rebitzer (27:17): We already hinted at two of the reasons. One has to do with this time horizon problem, and this is particularly important when you're dealing with chronic care or with these genetic diseases where you have treatments up front and a stream of benefits down the road, how do you allocate over time the benefits in a way so the savings can be shared? That's one problem. (27:38): The second problem is a common agency problem that we talked about in the case of hospital at home, that there's a tendency for people to lag and you need a jump-starter to coordinate all the payers at one time. There's a third problem with incentives that we haven't talked about, but I think is really important, which is quality metrics. Rae Woods (27:58): Yes. Jim Rebitzer (27:58): It's really dangerous in healthcare to introduce cost-saving, shared savings, incentives in the absence of really good quality measures. It turns out the quality's really hard to measure in healthcare. Rae Woods (28:15): It's really hard to measure and we don't have the data infrastructure that's connected to be able to measure it consistently. Jim Rebitzer (28:21): Exactly. Let me give you a story, it always helps to connect this stuff with a story, private equity purchasing nursing homes. There was a study done recently and it was written up in the popular press about private equity purchasing nursing homes. If you look across lots of nursing homes, you see a very substantial increase in mortality. Now, mortality's not a hard thing to measure, right? Rae Woods (28:43): There are lots of panic headlines about this. Yes. Jim Rebitzer (28:45): There a lot of panic... So what's going on? Are the managers of these nursing homes sociopaths? Some maybe. Some are people wanting to look the other way. Some maybe. But the fundamental problem is a quality measurement problem. It's not hard to tell whether somebody's dying. It's hard to tell why they died. In the language of statistics, it's a noisy measure. (29:09): If you've got a nursing home with a hundred beds, it's going to take you 20 years of data to clearly identify that there's a 10% increase in mortality as a result of the changes that we're introducing here in staffing or whatever to try to squeeze a few more pennies out. How do you solve that problem? Well, it's a difficult problem to solve. Maybe you pool across lots of facilities, but that creates problems. It needs fancy statistics. It's a difficult problem to solve. In the absence of good quality measures, this jacked up cost-saving incentives ended up doing what I think nobody involved would've actually wanted to do, had they understood the implications of these cost-savings. Rae Woods (29:53): I do want to take a moment and connect incentives and norms. Because one of the stories that you tell in the book that I think will relate to folks in the audience, is this idea that it can be really hard to get physicians to change their behavior when it comes to cost-savings, because they're certainly not the ones who are going to benefit from that. That's the incentive problem. The purchaser of the health plan is the one that is going to benefit from it. But how you can then leverage and start to shift physician behavior with social norms, the combination of incentives and end norms. Which is why, again, you've made our job very hard in saying that we have to do all of this at once. (30:29): The third root cause that you talk about is markets and competition. I want to resist the urge to be too black and white here, but forgive me, because I'm going to do that a little bit. The question that's top of mind for me is, can incumbents, particularly powerful incumbents, actually be a force for innovation, or will it only happen when it's forced upon them? It's forced upon them by a policy change. It's forced upon them by, I also hate this word, a disruptor. What's the nuance that we should look at when we think about power and competition? Jim Rebitzer (31:03): I think the way I would answer it, the way I think about it is, that when you have a powerful incumbent, they want to preserve their current powerful position and they want to avoid these disruptions that come from bringing in transformative new technologies, because those are very costly. We've always talked about that. But if a technology is coming in that threatens their dominant position, they're capable of moving with its extraordinary speed. The economics would say that they'll drag their feet about innovations that improve quality or reduce costs, so long as their dominant position is not threatened. But if the new innovator threatens their dominant position, they're capable of moving with extraordinary speed. Rae Woods (31:46): We need to put a little bit of pressure, we need for these powerful incumbents to feel some urgency to act, because when they do feel that they will act quickly. Bob Rebitzer (31:54): I think that's right. Let me flip it and make it a bit of advice. What that suggests is that if you're an innovator, look for places in the market where those competitive pressures are at play, and then you'll find you won't have the customer problem that we talked about before, you'll find a ready customer for an innovation where people are looking for a solution to preserve their business model. Rae Woods (32:16): One of the things that I find really refreshing about your book is that you're talking about the combination of better and cheaper at the same time. We have to talk about both of those. I do want to get a layer deeper when we talk about cheaper innovations. There are a lot of folks that are very quick to talk about US healthcare spend. They're very quick to reference the percentage of GDP that goes to healthcare in the United States, but for a lot of us, what that means is the intuitive response is, bend the cost curve. We need to curb our spend. (32:44): One of the things that struck me about your book is that your take is slightly more nuanced than that. You described that our goal should be to make the healthcare system more efficient at converting that consumption into improved outcomes. Why is it important to talk about the difference between those? Bob Rebitzer (33:02): There are two healthcare cost problems. One gets a lot of attention, is that the level of spend in the US is an outlier. We spend a lot more than comparable countries do, and we don't get outcomes commensurate with our higher spend. Rae Woods (33:17): Correct. Bob Rebitzer (33:17): That's one cost problem. There's a second cost problem. By the way, that first cost problem is a uniquely US problem, the level problem. There's a second problem, which is a problem of trend. That is not a uniquely US problem. The problem of trend is shared by all advanced economies. The trend is similar across the board and probably everybody feels uncomfortable with its sustainability across the board. We think innovation is key to managing the trend problem, and that you need a robust pipeline of innovations that make things better and cheaper to manage the trend problem. Jim Rebitzer (34:02): But the reason to do that is not to spend less on healthcare. Imagine a society that's growing, but it's a single person and they're trying to make a decision, Do I eat another doughnut or do I buy another MRI machine?" Rae Woods (34:16): Right. Jim Rebitzer (34:17): If we are better, if the innovation system is better at creating something that is, because it costs less or because it delivers qualitatively better care, more attractive than the doughnut, it's very possible that healthcare, that society will decide, "I'm going to pass up on the doughnut and buy more healthcare." The reason that we want to have a system that produces more, better and cheaper innovations is not necessarily to cut down on healthcare spend, it's to make people better off. Rae Woods (34:49): It's to improve outcomes. Jim Rebitzer (34:50): That can may very well involve more spending on healthcare and everybody being better off for it. Rae Woods (34:57): Which is the first problem that you just mentioned, Bob. We spend more than other countries with no change or perhaps even worse outcomes. It's okay you're saying, Jim, if we have a little bit more spend if the outcomes are better. Jim Rebitzer (35:08): Yeah, people are better off. Who's to complain? 80 years and out, 85 years and out, no one's going to complain about that if it's good in 85 years. Rae Woods (35:15): Yeah. You've given some specific recommendations around the three root causes, around incentives, around norms and around markets and competition. But you also zoom out and give two central recommendations in the book. Two central recommendations for healthcare leaders in healthcare business. One we've touched on which is actually changing the patent system. The other is making it easier for implementers, the implementers to be the ones that can make money from cost-reducing innovations. Why these two? Tell me more about how we can harness these two goals. Bob Rebitzer (35:49): The first one has to do with the role of jump-starting. There are a lot of issues in healthcare that really boil down to this common agency problem my brother described. Just as we've done in similar periods where there's great change required, we have to make that part of the mandate of government. Which is when we identify an issue that requires a jump-start, that it's permissible for the government to step in and do the jump-start. (36:14): I'd say the second thing is that we need the data infrastructure that is aligned with the quality problem, that my brother outlined. If we don't have a data infrastructure that makes it easy, it doesn't require a bespoke ten-year study to figure out what the quality consequences are of this change or that change. But we make it easy through the new AI tools and through a much better coordination of data, make it easier for people to make those assessments. That would be a second really big innovation. (36:44): I think the third thing that would make it easier for people to make money by cost reduction is, that we have to look at the way we train medical professionals. We do an exquisite job of training, highly skilled and capable physicians, and we engage in their moral education as well and we teach them to be advocates for their patient's interests and they're great at it. But what we don't do, is we don't teach physicians and other providers how to participate in the innovation process, so therefore a lot of innovation is kind of beside the point because it's clinically irrelevant. (37:18): There's a gap in the moral education of providers. We don't teach people what is the ethical requirements of their role, not only is patient advocate of the individual patient in front of them, but as a steward of scarce social resources. They have an important role to play there, and we kind of let them... They're on their own. We don't give them any training guidance, we don't develop an ethical framework that they can operate in for them to do that well in the United States. Those are the three things I would do in terms of the cost reduction side. Jim Rebitzer (37:48): The problem with the patent system has to do with the inadequacies of the market test that's built into the patent system. One issue, for example, with antibiotics that we talked about before, would be in the case of antibiotics to try to separate the payment to the innovator from the sale of the drug. So one way to do that. Then there was a bill called the Pasteur Act, I think it was in Congress that didn't go anywhere, but almost did. That would've set a different payment system for new antibiotics. That would be an upfront fixed payment. And then the things- Rae Woods (38:24): To reward the innovator. Jim Rebitzer (38:25): To reward the innovator with, they call it a Netflix model. You pay for access and capacity, then pay marginal cost for the antibiotic itself. That by separating out the sales from the return to the innovator, you could make it easier for people to make money from developing new antibiotics. There are other things too, that you could do in the patent system. One of the problems with the patent system is that it's a market test, and markets tend to focus on rich consumers in rich countries. In most things we don't care that much about it, but we do care about it in healthcare. (39:03): I was thinking about that with some of this orphan drugs. We were talking about diseases with extremely expensive treatments for very small numbers of people where in poor countries, diseases affecting large numbers of people aren't getting nearly the sort of attention from the pharmaceutical companies. How do you deal with that kind of problem? Well, one way to deal with it is through something called advanced market commitments. Nobel Prize winner, Mike Kramer use this to try to promote development of pneumococcal vaccines in developing countries. You basically guarantee a market of a certain size to an innovator who comes up with drugs who meet a particular set of criteria. But this is not only good for developing countries, though it's very good for that. We saw it here in the United States in the case of the Covid vaccines. The operation... What was it called? Rae Woods (39:48): Warp speed. Jim Rebitzer (39:49): Warp speed, was essentially an advanced market commitment along the lines of the things that Mike Kramer had been writing about for years. It accelerated a kind of innovation, that because it was a new virus, but also because vaccines tend to be under-priced, for reasons that we don't have to go into, it made possible much more rapid innovation than otherwise would've happened or returns to the innovators. Rae Woods (40:15): Well, this conversation should make it clear to our listeners just how rich this text is and how much detail you gave truly in terms of what we can do next as different health leaders, as health influencers, as policymakers, as drug makers, as device makers. My very last question for you is, how do you want folks to use this book? How do you want them to use what you've written and take back to their home institutions? Jim Rebitzer (40:40): We live in a remarkable time. The book is not a downer. The book is an embrace of innovation. We live in a time where the possibilities for innovation in healthcare are just magnificent. The takeaway from the book is not to not appreciate and try to find ways to use these innovations. It's not just to get distracted by the magical nature of the new things we can do in a way that stops you from thinking about, what are the incentives for diffusion and adoption? What are the social norms and narratives that this treatment may or may not run against? What are the competitive realities and competitive realities and switch over disruptions? Don't lose sight of that, because if you lose sight of that, then it's going to be really hard for the people doing the tremendous work of trying to bring these new innovations to the healthcare system and to patients. It's going to be hard for them to realize the value of these innovations. Rae Woods (41:43): Bob, how do you want folks to use the book? Bob Rebitzer (41:45): I think Jim got it right. If I had to say it as advice for managers, don't focus on the features and functions of the innovation alone, also focus on who's going to use it? What are the incentives for them to use it? What are the norms that determine how they're going to feel about what they're doing? And think about the market setting in which it's operating. Jim Rebitzer (42:08): Nicely done. Rae Woods (42:09): Well, Bob, Jim, thank you so much for coming on Radio Advisory. Bob Rebitzer (42:12): It's a pleasure. I'm delighted to be here. Jim Rebitzer (42:13): Thank you. Thank you. Really fun. Rae Woods (42:16): I get to add one more thing, which is at the request of my husband. I'm going to look on this side. Which is, I'm supposed to say, "Go BU." Seriously. Thank you. Thank you both for sticking around. (43:01): If you like Radio Advisory, please share it with your networks, subscribe wherever you get your podcasts, and leave a rating and a review. Radio. Advisory is a production of Advisory Board. This episode was produced by me, Rae Woods, as well as Abby Burns, Kristin Myers and Atticus Raasch. The episode was edited by Katy Anderson with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Carson Sisk, Leanne Elston, and Erin Collins. We'll see you next week.