Episode 210 Scott Adams: Talking to Dr. Shiva About How to Lower Healthcare Costs
Date: 2018-09-07 | Duration: 56:18
Topics
Dr. Shiva suing to be included in debates with Elizabeth Warren Options to lower healthcare costs and improve quality of care Direct pay models provide better care and lower costs Current 200 “GPOs” Group Purchasing Organizations artificially inflate costs Originally a cost reduction concept Now an unchallenged source of insanely inflated prices There’s only 3 GPOs, and they’re planning to merge with the big insurance companies NIH funding system and peer review journals need to be changed Einstein’s opinion: Peers are the biggest critics of innovation Peer review journal system is anti-innovation Laws and incentives drive a lack of primary care physicians Incentives drive physicians to join large medical organizations State and Fed law changes to increase independent doctors Dr. Shiva: Medical cannabis should be decriminalized and studied
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## Transcript
## [Introduction and the Simultaneous Sip](https://www.youtube.com/watch?v=_ftTpimuXdo&t=8s)
Hey everybody, come on in here. If you get in here quickly, you can be part of the simultaneous sip. Hey Kitten, hey Tom, Olga, come on in. As soon as we get to a thousand, we're going to boot off our exciting morning program. We're almost there.
Everybody, go get your coffee, get your mug, your vessel, your glass here filled with the beverage of your choice. As soon as we get a thousand—which is going to be in about 30 seconds—we're going to enjoy this simultaneous sip, and then we're going to hear from Dr. Shiva some ideas on lowering healthcare costs. But first, get ready. Grab your glass, your mug. Get ready. Let's do it now. Simultaneous sip.
Oh, that was good. I'd like to introduce Dr. Shiva.
## [Dr. Shiva vs. Elizabeth Warren and the Debate Lawsuit](https://www.youtube.com/watch?v=_ftTpimuXdo&t=69s)
I’d like to introduce Dr. Shiva. Most of you have already seen our first program, but we're going to do a little deeper dive into healthcare and healthcare costs. Dr. Shiva, you are running against Elizabeth Warren for the Senate in Massachusetts, correct?
**Dr. Shiva:** Yes, I am, Scott. In fact, we're already on the ballot. We’re running as independents. The establishment Republican and Democratic parties had their primaries on September 4th. What's interesting is, literally on the midnight of the primaries, Elizabeth Warren said she was agreeing to three debates, but only with the Republican. I’ve been completely excluded from the debate.
As a few people have seen on Twitter, we're about to sue the University of Massachusetts, which is a government-funded public institution that colluded with Warren to allow this to occur. We're not going to let them get away with it because obviously, if I'm on the debate stage, I know I would give Warren a run for her money. I’d be able to expose her on many levels, particularly on healthcare and how she's colluded with Big Pharma, big hospitals, and big research to keep the cost of healthcare high.
**Scott Adams:** I, for one, would not want to be on the debate stage with you as my opponent. Now, if you can do this as modestly as possible—because I think it's important for context—just list your academic credentials. When we start talking about healthcare, people are going to say, "Well, what do you know about things?" This will help give us some context. Could you just list your degrees?
## [Dr. Shiva’s Academic Talent Stack](https://www.youtube.com/watch?v=_ftTpimuXdo&t=132s)
**Dr. Shiva:** Sure. My degrees are from MIT. My undergraduate degree is in Electrical Engineering and Computer Science. My graduate degrees include two Master’s degrees: one is in Applied Mechanics from the Department of Mechanical Engineering, and the other is in Architecture and Design out of the MIT Media Lab. My fourth degree, which is my PhD, is in the field of health and what's called Biological Engineering or Systems Biology.
**Scott Adams:** I talk about the talent stack all the time. If you combine the right set of talents, you can get something special. You've combined not only the engineering way of thinking—what you might call a systems way of thinking, a very rigorous way of analyzing problems and solutions—with a pretty vast knowledge of the healthcare situation. Would that be fair to say?
**Dr. Shiva:** I grew up in India as a kid. India has the Western system of healthcare, but it also has the traditional Eastern systems. My grandmother actually practiced in a small village, and I saw her empirically heal hundreds of thousands of people. I was very interested in healthcare as a child. When I came to the United States in 1970, by the time I was 14, I was doing medical research in what is now known as Rutgers Medical School. When I came to MIT, my entire search was to look at the healthcare situation from a systems approach. In 2003, I had the opportunity to come back to MIT to do my PhD in systems biology.
**Scott Adams:** Before we get into it, just note how important this is. Normally when you're talking about healthcare, you're listening to just a politician or maybe just a doctor. You rarely get this many skills in the same person. You should pay attention to what Dr. Shiva has to tell us today. Jump right in. Tell us what's broken about healthcare or what your ideal solution would be. How can we get to a better situation?
## [Introduction to Systems Thinking](https://www.youtube.com/watch?v=_ftTpimuXdo&t=316s)
**Dr. Shiva:** I want to start by helping the viewers understand how you actually look at healthcare. We call it the healthcare system. In the modern world, we have to recognize that the problems we have are very complex. I want to take a few minutes to give a two-year course in systems thinking at MIT in less than a minute.
We need to be systems thinkers. We can't be like the story of the king who brings six blind men to look at the elephant. Each person touches a part of the elephant and has an erroneous view of what they're looking at. One guy touches the tusk and thinks it's a spear; another touches the tail and thinks it's a brush. That's how politicians and lawyer-lobbyists want us to look at the healthcare system. They want us to look only at the parts that are convenient for them at that point and then direct us to "solutions" which really don't get us anywhere.
A system is bigger than the sum of its parts. More importantly, it's the interconnections of the parts where you actually find the truth. Complexity is a function of the interconnections. That's where truth emerges.
## [The Reality of Healthcare Spending and Costs](https://www.youtube.com/watch?v=_ftTpimuXdo&t=499s)
**Dr. Shiva:** To create a system to solve a problem, you have to have a goal. You have to look at what properties you want in that system. Let's take a big view at what the cost is. The cost of healthcare was about $1.2 trillion in 2000. It jumped to around $2.6 trillion in 2011. We're at about $3.3 trillion now. By 2040, it's expected that one out of every three dollars we spend will be for healthcare. Today, that $3.3 trillion is roughly 18% of our GDP.
When we talk about healthcare costs, it's not just Medicare and Medicaid. A person may be serviced by Medicaid, Medicare, out-of-pocket, or supplementary insurance. Scott, you asked me earlier, "Isn't the cost of healthcare mostly end-of-life care?" Politicians have always said we have to control that specific high-cost area to solve healthcare.
In 2011, there was excellent research looking at the cost of end-of-life care. We have about 300 million people in the United States. It turns out that about 18 million people—roughly 5% of the public—consume 60% of the cost. Nearly $1 trillion goes into that.
If you break down that high-cost group, only 10% (2 million people) are actually at the end of life. 50% (9 million people) had catastrophic events like a sudden heart attack or kidney disease, and 40% were chronic. Only 10% of that high-cost group were people who had one year left to live.
**Scott Adams:** Is the bottom line that everything we're hearing about the costs being in end-of-life care is deeply exaggerated?
**Dr. Shiva:** Deeply exaggerated. It’s based on the blind men touching parts of the elephant. People like to divert the issues. End-of-life care is where specialization is at its highest—an 82-year-old in the U.S. is on average on 12 different drugs. But the 50% of people who had a catastrophic event in a year are people who can rebound if they get on good health programs and change diets. They can reduce costs into the lower percentile very quickly. Much of this can be addressed through prevention.
## [The Failure of Medical Innovation](https://www.youtube.com/watch?v=_ftTpimuXdo&t=807s)
**Dr. Shiva:** Let's talk about innovation. This system is not innovative. We spend 30% more every year on funding for pharmaceutical drug development, but we are finding fewer and fewer new discoveries. The FDA is approving fewer new drugs. It’s a broken system.
**Scott Adams:** Is there anything to the fact that maybe the easy stuff was found first, and now it's just harder to find new things?
**Dr. Shiva:** The way drug development works in the modern Western world is based on a single synthetic compound. We have a library of around 30,000 synthetic compounds. They test it in a test tube, then kill a bunch of animals—that's preclinical work, which takes around six years. Then you file for FDA approval to do clinical trials (Phase 1, 2, and 3), which takes another nine years. Only 20% of the drugs make it. The bottom line is it costs $5 billion for a single drug, and a lot of what comes out has side effects.
The big area of research now is combination therapy or "cocktails," but the current system of innovation cannot handle combinations. If you did combinations of three or four drugs, the amount of test tube trials and animal testing would be a factorial problem. The system was designed 100 years ago; it cannot handle combination therapy.
Furthermore, the third leading cause of death is medical errors. You go into a hospital and you have to be careful. Because of the big hospital environment, the kind of mistakes that can occur are significant.
## [GPOs, PBMs, and the Middleman Markup](https://www.youtube.com/watch?v=_ftTpimuXdo&t=1051s)
**Dr. Shiva:** In the ER, you will pay $30 for one aspirin pill that you can get at CVS for $5 for a whole bottle. You can extrapolate this: every supply coming into a hospital, from staplers to catheters to saline bags, is being marked up 2x to 200x.
**Scott Adams:** But is the hospital just spreading their overhead across all their costs? Even if we passed a law saying they couldn't overcharge for pills, wouldn't they just move that charge to something else?
**Dr. Shiva:** Irrespective of that, there is something rarely talked about in the media: GPOs and PBMs. In the 1970s, a bunch of hospitals got together to do group purchasing, like Costco. These Group Purchasing Organizations (GPOs) were supposed to buy in bulk so hospitals could pass savings to patients.
In the 90s, laws were passed that allowed GPOs to flip the model. Because they controlled the supply chain, they started artificially cranking up the costs. Those costs today add another half-trillion dollars to the total. A GPO doesn't create, produce, or even distribute anything. They just write the contracts between the supplier and the distributors.
In the 1990s, GPOs were allowed to get and give kickbacks. Hospital administrators get seven-star hotel stays and perks which they call "rebates," which is a code word for kickbacks. The supply chain is owned and maintained by GPOs and PBMs.
**Scott Adams:** So the middleman, which was supposed to be the solution for bulk purchasing, became the problem.
**Dr. Shiva:** Exactly. Think about generic drugs. After 20 years, the cost of a drug should go lower because many people can manufacture it. But when GPOs got involved, they wrote exclusive contracts. Only one supplier gets access to the supply chain, which means they can crack up the cost of a $2 generic to $20, $30, or $1,000.
## [Objectives for a Better Healthcare System](https://www.youtube.com/watch?v=_ftTpimuXdo&t=1416s)
**Dr. Shiva:** The maternal mortality rate in the United States is the highest among all developed nations—26 out of 100,000. Others in the developed world are at 8.4. On infant mortality, the U.S. is at 6 out of 1,000, while others are at 3.6. For the $3.3 trillion we're spending, we're not getting amazing healthcare.
In an ideal system, we want low cost, high innovation, and responsive care. We want to feel like the doctor is really taking care of you. We don’t want care to always be crisis-driven or specialized. We want to focus on prevention. Currently, we have high costs, reduced innovation, and we spend a lot on specialty and very little on prevention.
## [The Direct Pay Solution](https://www.youtube.com/watch?v=_ftTpimuXdo&t=1600s)
**Dr. Shiva:** Right now, to get access to a doctor or medicine, you have to go through a huge layering of middlemen: insurance companies, PBMs, and GPOs. New technology allows for a direct relationship. The patient should be able to go directly to a doctor.
The conventional medical model is always focused on crisis and specialization. If you have a headache, you might see a neurologist, an endocrinologist, and a psychiatrist. However, there is a growing movement called "direct pay" where people recognize that 80% of healthcare needs can be handled by a primary care physician. Only 20% is the specialty stuff. If you get a heart attack, you need specialized care, but the majority can be handled locally.
Our modern system came out of wartime medicine—antibiotics, steroids, surgery to get the soldier back on the field. It wasn't based on prevention.
There are primary care physicians now doing direct pay. This isn't concierge service for the wealthy. You pay a doctor $50 to $75 a month. You can call, Skype, email, or chat with him whenever you need. This model bypasses the collusion between big insurance, Big Pharma, and big hospitals.
Currently, I pay about $800 a month for insurance I don't even use. In the new model, you have direct pay for that 80% of needs, and then you have catastrophic insurance as reinsurance. Some estimates say that catastrophic coverage can be as low as $120 a month.
**Scott Adams:** Let's pause. In your model, if someone pays $75 a month for a doctor and $120 for catastrophic insurance, they're under $300 for what might have cost $800. That number knocks my socks off. I’m already on your side. I want that to be true.
## [The Innovation Collusion: NIH and Peer-Reviewed Journals](https://www.youtube.com/watch?v=_ftTpimuXdo&t=2155s)
**Dr. Shiva:** There are only three GPOs in the United States. It's a monopoly. These three GPOs will soon be merging with the three biggest insurance companies. This collusion will become institutionalized. Elizabeth Warren knows about this. She is okay with GPOs getting kickbacks. Both political parties are. Trump was the first guy to bring this out to the public.
**Scott Adams:** If you're trying to convince people, you have to start with the outcome: "I think I can take your insurance from $800 a month down to $300." Then tell them why. Most people can't handle the complexity, but they’ll agree because they want to pay less.
**Dr. Shiva:** There is also an "innovation collusion." There is a deep collusion between the NIH (National Institutes of Health), which funds billions in research, the big universities (Yale, Harvard, MIT, Stanford), and peer-reviewed journals.
If you are a researcher, your future is determined by how many papers you publish in these journals and how much NIH funding you get. That determines if you become a tenured professor. To get an NIH grant, you have to show that you've already basically done the work. It’s called "Specific Aim One." You submit preliminary data to show you’re going to achieve it. They don’t support new, uncertain research. It’s a non-innovative system.
Einstein never published a single paper in a peer-reviewed journal. He thought the concept of peer review was a way of choking scientific innovation. He said when you do innovative work, your peers are the first ones who will be against it.
We need to look at open-source publishing. Currently, research on things like Alzheimer’s is controlled by a few who control the narrative. If you’re at the head of a journal, you are fearful of a new theory that might oust you. It's a medieval, feudal model of innovation.
## [Reform of Medical Education and Accreditation](https://www.youtube.com/watch?v=_ftTpimuXdo&t=2521s)
**Scott Adams:** Given all this, is there anything the government even needs to do? I haven't seen a role for government yet, other than getting out of the way.
**Dr. Shiva:** We have about 972,000 doctors in the U.S. The average doctor goes through four years of university, four years of medical school, and two to four years of specialization. One of my solutions is to eliminate the need for the four years of university. We don't produce enough primary care physicians, and the cost to become one is too high.
My sister went to Harvard Medical School. She says the regulations are so massive they "incent" her to join a big hospital. They also have massive debt. In many countries, you go from high school right to medical training.
**Scott Adams:** Who is stopping that? Is there a law?
**Dr. Shiva:** The Educational-Industrial Complex. To go to medical school, you have to pass the MCATs, and they force you into the university system for organic chemistry and other prerequisites. The American Medical Association (AMA) is one of the strongest lobbies in the world and controls these processes.
Government can eliminate those barriers—specifically regarding accreditation. These rules put up barriers that prevent a frictionless process. Medicine is, in many ways, vocational training, just like engineering.
## [Summary: Lowering Monthly Costs to $200](https://www.youtube.com/watch?v=_ftTpimuXdo&t=2831s)
**Dr. Shiva:** The key is bringing the cost down from $800 a month to $200. That solution involves people taking control of their own healthcare through direct pay with doctors and having a separate form of crisis care. We have to recognize that middlemen control the flow of supplies and drugs, cranking up the costs to exorbitant levels.
Government should incentivize parallel development processes—startups that offer the ability for patients to go direct to medicines and doctors. 80% of your healthcare should be done through a primary care physician.
**Scott Adams:** If we lowered individual costs that much, would the system produce enough excess to cover everybody? Could you get to something like universal health coverage through cost reductions without increasing anyone's taxes?
**Dr. Shiva:** When I do the numbers as an engineer, I see we can do both. It involves unleashing innovation to lower costs and eliminating corruption. It’s not outlandish. It's completely feasible.
## [Cannabis Research and Closing Thoughts](https://www.youtube.com/watch?v=_ftTpimuXdo&t=3016s)
**Scott Adams:** A couple of quick questions. Legalization or decriminalization of marijuana? Yes or no?
**Dr. Shiva:** My sister was one of the top cannabis doctors in the country. We should definitely decriminalize it, but we also need to put a lot more research into cannabis as a medicine. There are about 880 different cannabinoids and molecular substances in cannabis, and we don’t even understand all the functional uses. I'm a big proponent of legalizing for medical use and decriminalization.
**Scott Adams:** What do you think of the Bezos, Buffett, JP Morgan healthcare initiative?
**Dr. Shiva:** My concern is whether it’s just "Version 2.0" of a GPO—merging to become a more efficient middleman. Bezos is very good at controlling supply chains.
**Scott Adams:** Regarding the Senate—even if a voter preferred Elizabeth Warren’s social preferences, it doesn't make sense to have everyone in the Senate be the same kind of person. You have to diversify the talent stack within the Senate to get anything done. That's why I'm appreciative of Rand Paul; he brings something the mix didn't already have. I see that in you. If you want the Senate to work, you have to inject new thinking.
**Dr. Shiva:** The problems of the world are not going to be solved by politicians who are essentially retail checkout clerks serving special interests. My goal is to solve problems. That can only be done with a systems approach. Americans deserve this kind of conversation with their elected officials.
**Scott Adams:** Thank you so much. I think people are going to agree this was insanely useful. I feel like I made a huge move forward in my understanding. I'll look for your comments on Twitter. I hope this was as useful to you as it was to me. Bye for now.