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Why US Healthcare Is So Broken — Transcript

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0:00December 4th, 2024.
0:02Midtown Manhattan.
0:04Early in the morning, Brian Thompson,
0:06the CEO of United Health
0:08Care, is gunned down.
0:09Inscribed into the bullets.
0:11Deny, depose and defend.
0:14A reference to the tactics
0:16used by health care companies
0:17to increase profits. To the media’s
0:19surprise
0:20Americans show little empathy
0:22towards the victim,
0:23and instead, a country wide
0:25discussion begins
0:26on the state of universal health care.
0:28Today, Americans spend more on health
0:31care than every country on Earth
0:33and by a wide margin.
0:35Worse yet,
0:36Americans spend more
0:37even though they see a doctor 50% less
0:41than other wealthy nations
0:43and the cherry on top?
0:44The average US life
0:46expectancy is three years
0:47lower than comparable countries.
0:49What went wrong?
0:51This is US health care,
0:53an American sickness.
0:56The US
0:57spends nearly $5
0:58trillion on health care every year.
1:00This represents almost 18% of GDP.
1:04However, for all of this money,
1:06the US gets very little.
1:08And ranks
1:08last among ten high income countries
1:11for health outcomes and access.
1:13Even when looking at it
1:14from a purely financial point of view.
1:17Improving the US health care system
1:19could save Americans
1:20nearly $2.5 trillion.
1:24That's enough
1:24to exceed the mandate of Doge
1:26in one year.
1:28To understand
1:29what's driving these high costs
1:30and poor outcomes,
1:31we need to break out
1:32the different components
1:34of the US health care system.
1:35Insurance, health care providers
1:38and pharma.
1:39Let's start off
1:40with health care insurance.
1:4392% of all Americans
1:45have some form of health insurance.
1:47Generally, it's
1:48broken down into employer
1:50sponsored programs.
1:51Government programs,
1:52and individual plans.
1:54Unlike most of the developed world,
1:56when Americans have insurance,
1:58they can select
1:58from multiple providers.
2:00This introduces choice,
2:02which some argue is nice
2:03and allows the consumer
2:05to decide what's best for them.
2:07However, it also introduces complexity.
2:10Each insurance payer can have different
2:12billing codes,
2:13payment processes,
2:15prior authorization protocols,
2:17service levels,
2:18doctor networks,
2:19pharmacy networks, PBMs, and more.
2:22The outcome
2:23providing care becomes
2:25a lot less about medicine
2:27and much more about
2:28administrative functions.
2:30According to the AHA, 40% of total expenses
2:34incurred by hospitals
2:35are related
2:36to administrative functions.
2:38Not medicine. Not care.
2:40Not surgery.
2:41No admin.
2:43In fact, when you compare the U.S.
2:45with other developed
2:45nations, 30% of the difference in cost
2:49is directly due
2:50to administrative overhead
2:52introduced by the insurance regime.
2:55But money isn't everything.
2:56To truly understand the impact.
2:58We need to look at patient outcomes.
3:01U.S.
3:01health insurance
3:02companies deny 16% of all claims,
3:06with companies
3:06like UnitedHealthCare and Medica
3:08denying 32 and 27%, respectively.
3:12This means that a doctor
3:13seeking to provide care
3:14is being rejected
3:15by an insurance company.
3:17nearly one out of every five times.
3:20Ultimately,
3:21this leads to patients
3:22having to make tough decisions
3:24of paying out of pocket
3:26or not pursuing care at all.
3:28For those paying out of pocket,
3:29it could mean taking on large
3:31sums of debt,
3:32often with costs so high that 67%
3:35of all US bankruptcies
3:37are healthcare related,
3:39or they can join the nearly 40%
3:42of Americans
3:42who have or know a family member
3:45who has delayed medical care
3:46due to cost,
3:48often paying the ultimate price.
3:50Health insurance
3:51companies argue
3:52that they do this
3:53to control costs for patients
3:55and ensure that hospitals
3:56aren't being overzealous,
3:58which is partially true.
4:00But these insurance companies
4:02are increasing
4:03the rate of denials over time
4:05and employing new technologies
4:07to quickly reject claims.
4:09From 2022 to 2023,
4:11care denials increased 20 and 56%
4:15for commercial
4:16and Medicare Advantage
4:17claims, respectively.
4:19They do this
4:19because less than 1% of
4:21all claims are appealed.
4:23This isn't because patients
4:24don't believe they need care,
4:26but appealing is costly.
4:28complicated and very time consuming.
4:31Remember, deny, depose and defend.
4:34To make matters worse, 75%
4:37of all Medicare Advantage
4:39denials were overturned.
4:41That's 216,000 denials.
4:45The misalignment of incentives
4:47is so clear and abundant
4:49that it is shocking
4:51that this continues.
4:52It is absolutely in the insurance
4:54company's best interest
4:56to deny as often as legally possible,
4:59regardless of the claim.
5:01But let's not forget
5:03this isn't a rejection
5:04of auto insurance.
5:06This is possibly preventing a human
5:08being in their most vulnerable state
5:10from receiving care that they need.
5:13But if we dig deeper,
5:14it continues to get worse.
5:17Prior
5:17authorizations are a form of approval
5:19that insurance companies must provide
5:21for certain types of care.
5:23This means that if a doctor requires
5:25a certain type of care
5:26for their patient
5:27before they can proceed,
5:29they must get approval
5:30from the insurance company.
5:31Again,
5:32insurance payers claim
5:34that this is to ensure
5:35that care being provided
5:37is actually needed, but often it leads
5:40to extremely negative consequences.
5:42For instance,
5:4330% of radiation oncologists
5:46have had a patient
5:47admitted into the emergency room
5:49or have permanent disability
5:52due to prior authorizations.
5:54This means that a patient was prevented
5:56from getting care in a timely manner
5:59because of the administrative burden
6:01of prior authorizations,
6:02and the outcome was life changing
6:05to receive authorization.
6:07These oncologists need to draft
6:09an explanation
6:10for the insurance companies
6:12that is reviewed by a doctor,
6:13referred to as a peer.
6:15However, 35%
6:17of these peers aren't oncologists,
6:21but this isn't solely an issue
6:23for oncology.
6:24Across all specialties, doctors claim
6:27that peers are only qualified
6:2915% of the time.
6:32One of the reasons
6:33the insurance companies
6:34are able to behave this way
6:36is because of market concentration.
6:3873% of commercial markets, 71%
6:41of Medicare Advantage
6:42markets, and 90% of ACA
6:45markets are considered
6:46highly concentrated.
6:47Some would argue this is a good thing,
6:50because theoretically it would mean
6:51that these insurance companies
6:53can negotiate
6:53better rates with hospitals,
6:55and a smaller
6:56number of payers
6:57would lower administrative burden.
6:59But in reality, this is just not true.
7:02Multiple mergers
7:04have been studied over the years,
7:05including Aetna and Prudential,
7:07UnitedHealth and Sierra and more.
7:09When studied, the results are almost
7:11always the same.
7:13Premiums rise
7:14as the market consolidates.
7:16Instead of passing on savings
7:18to customers,
7:19insurers take advantage
7:20of their market dominance
7:21and increase prices and profits.
7:24And this competitive positioning
7:25is very hard to usurp.
7:28The barrier
7:28to entry of launching
7:29a new paper
7:30is very high due
7:31to regulatory requirements.
7:33Anti-competitive practices and scale.
7:36These insurance companies
7:37have gone a step further
7:39and have begun to vertically integrate
7:41in 2010.
7:42The Affordable Care Act
7:43effectively capped insurance
7:44profit margins
7:46by requiring
7:46that insurers spend 80 to 85%
7:49of what they collect
7:50on medical services.
7:52While this sounds nice in theory,
7:54in practice
7:54it led to insurance
7:56companies seeking profits elsewhere.
7:58For example, UnitedHealth directly
8:01employs 10,000 physicians
8:03and has commercial ties
8:05to an additional 80,000, combined
8:08that is 10% of all American doctors.
8:11Again, this might sound nice,
8:13but as you concentrate more power
8:15into the hands of a few payers,
8:17the ability to increase prices
8:19and generate greater profits
8:21also rises.
8:22This again
8:23is at odds
8:24with the goal of achieving
8:25better health outcomes.
8:27The problem
8:27with the current US health
8:28care insurance regime is that success
8:31for insurance
8:32companies is not success
8:33for the patients.
8:35The unnecessary complexity
8:36of the regime,
8:37mixed with the consolidated power
8:39of the major players, has failed
8:42to lower costs
8:43or improve patient outcomes.
8:45Put simply, it is fundamentally broken.
8:51We've
8:51talked a lot about US
8:52health insurance companies,
8:54but they aren't
8:55the only reason
8:56the health care system is broken.
8:58Health care
8:58providers are also
8:59a part of the problem.
9:01Let's start off with doctors.
9:03This might be hard
9:04for some to believe,
9:05but US doctors are a major contributor
9:08to the overpriced healthcare system.
9:10Take a look at this chart.
9:12It shows the compensation for US
9:14doctors compared
9:15to doctors of other countries.
9:17There are many reasons
9:18why doctors in the US are paid more,
9:20but one of the primary drivers
9:22is the low supply of doctors.
9:24The US has 2.6 practicing physicians
9:27per 1000 people,
9:29compared to the OECD average of 3.7.
9:32But why are there so few doctors
9:34in the US? Simple.
9:36The American Medical Association
9:38artificially constrained supply.
9:4120 years ago,
9:42the AMA
9:43lobbied to reduce
9:44the number of medical schools,
9:46cap federal funding for residencies,
9:48and cut a quarter
9:49of all residency positions.
9:52Because, I quote, they were worried
9:54of an impending surplus of physicians.
9:57This disgusting
9:59move of regulatory capture,
10:00influenced by greed,
10:02meant
10:02the number of medical school
10:03graduates in 1980 was the same as 2005,
10:08even though the US population
10:10increased by 30%.
10:13Now it isn't all the doctor's fault.
10:15Hospital groups
10:16and investors are also a big problem.
10:19Similar to insurance, consolidation
10:21in hospitals
10:22and physician practices is very common.
10:25One of the key drivers
10:26for consolidation is the high
10:28administrative burden
10:29for physicians to remain independent.
10:31Managing all the complexity
10:33of a US
10:33healthcare system
10:34can not only be time consuming,
10:36but costly. By joining larger groups
10:39physicians are often able
10:40to avoid dealing
10:41with administrative headache
10:43that comes with a smaller practice.
10:45Over the past 20 years,
10:46there have been 1000 mergers
10:48among the country's
10:495000 hospitals,
10:51and this extends beyond hospitals.
10:53Today, three out of every four doctors
10:56now works for a corporate group
10:57or hospital.
10:59Much of this has been executed
11:01by private equity firms.
11:02The one benefit of private equity
11:04is that it
11:04generally lowers costs
11:05within practices,
11:07which should, in theory,
11:08lead to lower prices for patients.
11:10However, given patients
11:12are captive customers,
11:13private equity groups
11:14are fully incentivized
11:16to increase prices.
11:17It's the perfect investment.
11:20Based on a recent study.
11:21When PE firms control
11:22more than 30% of a market.
11:24Prices rise meaningfully.
11:26Specifically, the study saw price
11:28rises of 18%, 16%, and 13%
11:33for Gastro
11:34OBGYN and dermatological practices,
11:36respectively.
11:37One of the most egregious
11:39examples of price rises
11:41was US Anesthesia Partners.
11:43After achieving
11:44significant market
11:45concentration in Denver.
11:47USAP was noted as charging
11:49reimbursement rates
11:5030 to 40% higher than competing groups.
11:54By acquiring a large
11:55share of anesthesiologists
11:57in the Denver area,
11:59payers and patients
12:00had little to no choice
12:02but to pay whatever USAP asked.
12:05All of this
12:06while USAP lowered their own costs.
12:10The saddest part?
12:11Quality of care doesn't increase
12:14and might actually decrease.
12:16A University of Chicago study
12:18found that PE ownership
12:20of nursing homes led to a 10% rise
12:23in short term mortality rates.
12:26Another Harvard study
12:27found that quality of care
12:28declined once
12:30a hospital was acquired by PE firms.
12:32They noted a 25% increase
12:35in hospital complications
12:36and a 38% increase
12:38in bloodstream infections.
12:40Although this may seem
12:41surprising to some,
12:42it makes perfect sense.
12:44To maximize profits,
12:46the best course of action
12:47is to increase the revenue
12:49per patient, per doctor.
12:51This operating leverage
12:52will definitely increase margins,
12:54but may compromise the quality of care.
12:57And since most PE deals are financed
12:59with large sums of debt,
13:01investors are under pressure
13:02to generate additional free cash flow
13:04to pay down the debt.
13:06This might mean cutting corners
13:08to stay afloat,
13:09but it isn't just private hospitals
13:11or PE back rooms
13:12that are part of the problem.
13:14Even nonprofits
13:15hospitals are exemplifying
13:17extreme greed.
13:19For example, the former CEO of UPMC,
13:22a nonprofit hospital, made nearly
13:24$13 million in fiscal year 2022.
13:29Yes, the head of a nonprofit
13:31hospital made nearly $13 million.
13:35When asked about his compensation,
13:37this is what he had to say.
13:38Well, that's your judgment of it.
13:40I think my board determines
13:43what the appropriate
13:44compensation is for me
13:45and for all the other executives.
13:47The conclusion for health care
13:48providers, again, is simple
13:50the pursuit of controlling supply
13:53has led to the ability
13:54to drive up price
13:55without concerns for quality of care.
13:58This applies to doctors
13:59who have artificially lowered
14:01their numbers, and clinic groups
14:02who continue to consolidate
14:04doctors and power.
14:08The last element we
14:10will explore is pharma.
14:11The United States represents
14:13approximately 44% of the world's
14:15pharmaceutical market.
14:17That's over
14:17$600 billion on a per capita basis.
14:21The US spends more on drugs
14:22than anyone else, spending nearly 50%
14:25more than the next highest
14:26country, Germany.
14:28But why? Is the US
14:29just buying different,
14:30better medicines?
14:32No.
14:32In fact,
14:33they're buying
14:34the exact same medicines.
14:36But just paying a lot more.
14:39When Bloomberg analyzed
14:40eight of the best
14:41selling drivers in the US,
14:42even after applying discounts,
14:45all but one or more expensive in the US
14:47than any other major country,
14:50and generally by a wide margin.
14:53One of the more extreme
14:54examples is for the chronic
14:56myeloid leukemia pill Gleevec,
14:58which costs $90,000 a year more
15:01in the US
15:02than the rest of the world, on average.
15:04The craziest part about this, though?
15:06The difference in
15:07price is not just limited
15:08to the US and other countries.
15:10Even within states and counties,
15:13people pay different prices.
15:15Take a commonly used generic versions
15:17of a prostate cancer treatment, Zytiga
15:20they have more than 2200 prices
15:22in Medicare plans.
15:24For example, in Northern Michigan
15:26you'll pay $815,
15:28but hop around to Lake Michigan
15:31and it jumps to nearly $3,400.
15:35One of the reasons given
15:36by pharmaceutical companies
15:37as to the high price of drugs
15:39is R&D costs.
15:40R&D is often the largest expense
15:42for pharma companies,
15:44generally comprising
15:4520 to 40% of revenues.
15:47In addition,
15:48the vast majority of all drug ideas
15:50fail,
15:51making the process
15:52to identify and commercialize
15:53a new drug
15:54extremely time consuming and risky.
15:58However, pharma
15:58companies still generate
16:00substantial margins
16:01and returns on invested capital
16:03as outside of R&D.
16:05These pharma companies
16:06are extremely capital efficient,
16:08and clearly pharma companies
16:10are charging less to other countries.
16:12The main reason medicine in the US is
16:14so expensive
16:15is because,
16:16unlike the rest of the developed world,
16:18the US government does
16:19not negotiate directly
16:21with pharma companies.
16:22In fact, they aren't even allowed to,
16:24as per
16:25the Medicare Noninterference clause,
16:28by spreading the negotiating power
16:29across payers.
16:31The US is unable to realize the scale
16:33benefits that it has.
16:35This negotiating power
16:36was further eroded
16:38when the Medicaid drug
16:39rebate program was put in place.
16:41In essence, the program
16:42set a maximum
16:43price for drugs within Medicaid.
16:45But in doing so,
16:46pharma companies
16:47made up for the lost
16:48revenue with other payers.
16:50The problem with pharma
16:52is not only about prices,
16:53but it's also about ethics.
16:55In 2014,
16:56the open Payments
16:57Database was launched to disclose
16:59financial relationships
17:01between health care providers
17:02and pharma companies.
17:04Now, you might ask,
17:05outside of employment,
17:06why would pharma companies pay doctors?
17:09Very simple.
17:10Pharma companies
17:11want people to use their medicines,
17:13and the only thing in their way
17:15is a doctor prescribing it.
17:17To this end,
17:17they offer illegal kickbacks
17:19and other incentives
17:20to ensure
17:21that doctors recommend their drug
17:23and not someone else's.
17:24Sadly, this behavior is on the rise.
17:27Since
17:272014, payments have grown from 6.5
17:30billion to $12.8 billion.
17:34Not all of this is illegal,
17:36but in our view,
17:37almost all of it is a gray area.
17:39How can you be sure
17:40that a doctor will be objective
17:42if they have pharma companies
17:44supporting their research,
17:45giving them speaking fees,
17:47hiring them as consultants?
17:48And most atrocious
17:49of all, paying them kickbacks.
17:52There are dozens of examples
17:53of bad behavior.
17:54Novartis in 2010, Pfizer in 2014,
17:58and then more recently, Purdue Pharma
18:00with the opioid crisis.
18:02This is not a financial crime.
18:04Rather, it is a crime against humanity.
18:07The pharma system is very, very broken.
18:10Not only do Americans
18:11pay exorbitant amounts
18:13for the same drug,
18:14but they can't even be sure
18:15that they are being prescribed
18:16the right medicines.
18:21Now, that was a ton of information.
18:23And frankly,
18:24we cut out a lot,
18:25including the impact of PBMs,
18:27hidden fees, price transparency.
18:30The problems with Medicare Advantage,
18:32the destruction of rural hospitals,
18:34and more.
18:35Simply put,
18:36the US health care
18:37system is a behemoth,
18:38and it is very complicated.
18:41But from this complexity rises
18:43extreme inefficiency
18:44and the failure
18:45to achieve the right health outcomes.
18:47That said,
18:48if you are wealthy
18:49and financially stable,
18:51the US health care system
18:52is likely the best on Earth.
18:55The US has the most advanced
18:56technologies,
18:57the most advanced facilities,
18:59arguably the best doctors in the world.
19:02The catch?
19:03You must be able
19:04and willing to pay for it.
19:06The US health care
19:07system is a Lamborghini.
19:09Yes, it is capable, but at what cost?
19:12Would we accept
19:13a world
19:14where the only car you can drive
19:16was a luxury vehicle?
19:18No.
19:19Medicine is an enterprise.
19:20Sure.
19:21But it's different.
19:22It's not about selling
19:24the tastiest cheeseburger.
19:25Nor is it about changing your car tire,
19:28so you can get to work.
19:29It is life or death.
19:31It is as human as it gets.
19:33And even if
19:34you are opposed to a government run
19:36health care model,
19:37you have to admit that those models
19:40are still better
19:41than what the US has today.
19:43Not only is the US
19:44the most expensive in the world,
19:47but it also has
19:48some of the worst outcomes
19:50in the developed world.
19:51If you have watched our channel
19:52for a while,
19:53you might have ascertained
19:55that we're not exactly socialist.
19:57In fact,
19:58you might argue
19:59we are quite pro-business.
20:02But don't let that fool you.
20:03Above everything else,
20:04we care about ethics and outcomes.
20:07And to us, it doesn't matter
20:09whether the US system is public
20:11or private.
20:12The fact of the matter is,
20:14it is a disaster.
20:16It is a system that would reject care
20:18to a sick child
20:20because of prior authorization.
20:22It is a system
20:23that would increase
20:24emergency medicine fees
20:25and surprise recovering patients
20:27with an insurmountable bill.
20:29It is a system where costs continue
20:32to rise, outcomes continue to decline,
20:35and nothing seems to improve.
20:37So we must ask ourselves, is
20:39greed always good?
20:42Thank you for watching.
20:44Subscribe to 2&20
20:45for more on business, economics
20:48and politics.

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