This is our third episode of a special four part series where we share insights and predictions from our nation’s leading healthcare economists. Today, I’m excited to be joined by the brilliant Doctor David Cutler, the Otto Eckstein Professor of Applied Economics in the Department of Economics in the Kennedy School of Government at Harvard University. David’s research has directly impacted state and federal health policy. He was a key advisor in the formulation of Romneycare, advised presidential candidates on healthcare spending including Barack Obama, and played a leading role in the formulation of the recent cost control legislation in Massachusetts.
He also served on the Council of Economic Advisors and the National Economic Council during the Clinton administration and has held positions at the NIH, National Academy if Sciences, and currently at the National Bureau of Economic Research. Professor Cutler is beloved by his students for his outstanding mentorship.
Bill Frist: David, I can think of nobody more appropriate to have with us today than you as we discuss this intersection between policy, and government, and this interaction with health, and healthcare, and science and wellbeing. A Second Opinion podcast is very much about that, looking at this intersection, this nexus between health, and medicine, and policy, and innovation.
Bill Frist: Where did you get this first interest of policy? Was it something that happened when you were very young? I mean go way back. Was it in high school or college, and began to focus on this intersection of policy and how it impacts health?
David Cutler: Well, I love that you’re doing this. I think it’s great. I was always interested in public policy, although what’s interesting is I have never enjoyed the politics part.
Bill Frist: Yeah.
David Cutler: The sort of how do you deal with the politics and so on was never really my thing.
Bill Frist: The partisan get down there and campaigns and all that.
David Cutler: The partisan … yeah. I kind of like when people will different points of view can sit down and try and figure out, okay, what do we believe is the truth, and then how to do it.
Bill Frist: Yeah.
David Cutler: I was interested in that, and really it wasn’t until college when I kind of figured out that both economics is a good tool that lets one do that and in particular that there were areas that were in great need of people who could do as you were saying, which is do serious analysis of issues that are important and then say, “Okay. How do I take that and turn that into policy?”
David Cutler: The first experience I had in college, one of my advisors was Larry Summers, who you obviously know extremely well. Larry was and remains one of the great people at taking academic insights, distilling them down, and saying, “What does that really imply for the country, and what we should do, and how we can help people?” Based on his example and other people like him, Marty Feldstein who was at Harvard at the time and just recently passed away, a number of other people provided these examples of how you could do that. They weren’t all by the way people who I agreed with on all the issues, but they were people who said, “This is how you can really try and improve people’s lives and try and make a difference for folks in the world.”
Bill Frist: Yeah.
David Cutler: I got involved in that. My leanings have always been more on the left side than yours and than many peoples, so I wound up working … I was a PhD student in the 1980s, early 1990s.
Bill Frist: Right.
David Cutler: I then had some involvement with the Clinton presidential campaign. I wound up going to Washington in 1993 to spend a year working on the Clinton administration health plan.
Bill Frist: Right.
David Cutler: Boy, that almost beat all the good feelings out of me. It took me a few years to recover from that. I mean obviously it was not a very well run process, as people said, and it didn’t work well, but also just the raw politics of it.
Bill Frist: Yeah, yeah.
David Cutler: Since then, it sort of took me, as I said, a few years to recover. Since then, I’ve sort of tried to figure out how to try and hit a spot where at least you think you can make some progress.
Bill Frist: Right.
David Cutler: Not be too grandiose that you’re going to lose everybody, but I also don’t like diversion of policy which is try and find the least common denominator, because then you’re really not doing very much.
Bill Frist: Yeah. Things get dumbed down.
David Cutler: Things get dumbed … right.
Bill Frist: It doesn’t have any true impact over time.
David Cutler: After the Clinton administration, I got involved in a couple things. One is I was senior healthcare advisor for Barack Obama in his presidential campaign and I helped him come up with some of the ideas that became the Affordable Care Act. There were very explicit discussions about what’s going too far, what would one ideally do if you were starting over versus what do you do where you are now.
David Cutler: One of the things I feel least good about is that that never become more bipartisan, never became more sort of accepted in the middle. I think that a lot of people, including me, deserve a little bit of blame for that.
Bill Frist: Yeah. But going back to that, because with the Clinton years and healthcare, you saw how politics, it is tough and it is rough.
David Cutler: Yeah.
Bill Frist: Policymakers, most would just kind of run from that, because why get involved with that?
David Cutler: Right, right.
Bill Frist: You want substance. You want to bring people together. You want to do what’s good for many people, lift everybody up. Politics you’d like to think does that, but the reality is not there. That’s why I admire you and others who participate. It doesn’t matter which side. Just participate, because it is tough to do that. But it does show again, you look today and we’ll jump way ahead here in a little bit, but how important it is for people to work together. Otherwise, good policy is lost along the way.
David Cutler: Some of the interesting things about healthcare is when I talk with people across the spectrum, we almost always agree on what our goals are. Our goals are to cover people. Our goals are to make quality be affordable for people. Our goals are to improve the population’s health and so on. Where we then differ is, what are the steps that will do that?
Bill Frist: Yeah, yeah.
David Cutler: I think some of what being a policy person is about is saying, “Well, if you’re not sure, how do you try and incorporate a number of different ideas?” Don’t have a religious attachment to something saying, “Well, it’s either my way or the highway.” Try and be inclusive in terms of, “Yeah, this could be a good idea, and it could work,” and so on.
David Cutler: I think sometimes when it then hits the politics of it, it then gets very difficult because sometimes you’re sort of saying things that really violently disagree with a lot of people. A number of aspects of the Affordable Care Act did that.
Bill Frist: Yeah, yeah. Well, we may come back to that, because I think especially with a number of people who are listening to us are in the education field, in the policy field, running businesses, in government, and they are curious from the insider, because you have been an insider, of how we can make that system better. Let’s come back to that.
Bill Frist: Then you did with the Obamacare, worked with President Obama. Then during that time or what other things have you done in terms of the policy?
David Cutler: Yeah, yeah. Actually, I never joined the Obama administration, but I was advisor to them. I’ve been quite involved in Massachusetts. In Massachusetts, we had what people sometimes call Romneycare, which is Universal Coverage of Massachusetts in the mid 2000s where I was a little bit involved. Then that led to an emphasis on how do we save money, because once you’ve covered people, you now say, “How are we going to afford it?”
Bill Frist: The Romneycare or the reform in Massachusetts, again we’ll probably need to get a little bit in that, but initially it was an access bill. It was to give more coverage.
David Cutler: It was really an access bill.
Bill Frist: Yeah.
David Cutler: We had always thought that healthcare would have two parts to it. The first part would be covering people. Massachusetts had money we had stolen from the federal government. The federal government wanted it back. An agreement was reached that we could keep the money if we used it for a purpose, which was something like covering people. A plan was put together to do that, and it was really, really focused on access.
Bill Frist: That was at the same time that the Obamacare, Affordable Care Act, was being formulated or was it before that?
David Cutler: A little bit before that.
Bill Frist: A little before that.
David Cutler: It was a little bit before.
Bill Frist: When people say that Romneycare was sort of a setup, or a good example, or a first step for Obamacare, that’s right?
David Cutler: That’s correct. We had the early experience from Massachusetts. That was sort of proof of concept that it really could work.
Bill Frist: Then in the campaign, Hillary Clinton, back when she ran against soon-to-be President Obama, she talked very much about access, and President Obama talked about, or soon-to-be President Obama talked about cost. Then there was a switch. By the time legislation was being formulated, President Obama had talked or had a focus of access and coverage.
David Cutler: Yeah, yeah, yeah.
Bill Frist: What caused that switch?
David Cutler: As a substantive matter, we experts know much better how to cover people than how to reduce costs in a good way.
Bill Frist: Yeah, really interesting.
David Cutler: If you say, “Do you know how to cover people?” like it’s not hard as an economist or a health policy researcher conceptually to figure out how to do that. I know how. I mean the implementation was obviously very rocky, but as a conceptual matter.
David Cutler: In terms of reducing the cost, improving the value, that’s a very, very hard technical thing. If you think about your time as a doctor, it’s kind of like saying we want you to practice better, operate on the right people, do the operation without any mistakes, so on and so forth. We’re not so great at how to actually do that.
David Cutler: What happened was as things made their way along, the thing we know how to do got more attention and the thing that we didn’t know how to do got a little bit less attention.
Bill Frist: Yeah. No, that’s fascinating, because I’ve always been curious. I have to say it’s politics. It was sort of the more popular thing to do. Take us back to the state effort in Massachusetts, because it’s a little bit the same thing in that you did access the things. You could sit down. You knew something about it. You knew how to do it. You knew what levers to pull. Then cost did become a big issue.
David Cutler: Yes.
Bill Frist: Did cost go up? You had the recession. You had other things going on, but tell us a little bit about what evolved in terms of access versus cost, because now clearly Massachusetts is addressing both.
David Cutler: Yes. Massachusetts was always the most expensive state in the country, and as best we can tell the most expensive healthcare place in the known universe, probably the unknown universe too.
Bill Frist: Yeah, yeah, yeah.
David Cutler: It was super expensive. What really hit the state very hard was the recession. The recession obviously hit the government revenues a lot, so we had to cut, but we couldn’t cut healthcare because we had this commitment to cover people. Everyone agreed that that couldn’t be … that wasn’t sustainable. Plus, we had always deferred the cost savings part, because we knew that that had to come. That got rushed forward.
Bill Frist: The we, because there are 10 people sitting around a table in Massachusetts, because a lot of states don’t have that.
David Cutler: Yeah, yeah.
Bill Frist: They don’t have the leadership. They don’t have the people such as yourself there. Is the we five or 10 people?
David Cutler: Yeah. It’s sort of both the governor, the legislature, and the leader of the health system, both the insurers and the providers, as well as big businesses.
Bill Frist: And they’ve stayed at the table.
David Cutler: They stayed at the table.
Bill Frist: All right, so then you came into the cost, and then what’d you do? It was the recession. It was that you had expanded coverage, so it has to be more expensive than it was. What else?
David Cutler: Businesses saying, “We understand you, government, have a cost problem. Is all you do is cut Medicaid, that’s going to raise our costs. You can’t do that to us, because we’ll either go out of business, we’ll have to move somewhere else. You, government, have to find a way to address this that brings down costs for all of us.”
David Cutler: What’s interesting is the medical system and the insurers. As you know, in the national debate, sometimes you hear, “Oh, there’s no problem,” or, “Yeah, but we can deal with it down the road. We don’t know what to do.” Some of what’s interesting about Massachusetts is a lot of the research on how costs are too high and how we can do better has come in the past decade from researchers at academic medical centers, particularly places like Partners Healthcare, Harvard Medical School, BU Medical School, Tufts, UMass, places in Massachusetts. As a result, within these organizations, there were researchers and clinicians saying, “Yeah, actually we’ve written about how we can do better.”
David Cutler: Now they’re sitting at the table and their own institution is saying, “We can do better.” That really brings things forward, because there’s no one … We’ve covered everybody, so you’re not going to say we can’t do this because the uninsured will suffer.
Bill Frist: Right, yeah.
David Cutler: You can’t say there’s no problem, because your own institution says there’s a problem. It’s all about how do you design the solution.
Bill Frist: Yeah.
David Cutler: The discussion became how do you design the solution, not is this the right way to go, should we do this five years from now, we don’t know enough to do something, and so on.
Bill Frist: You had the uniqueness of having the great sort of academic places, both on the policy and the real clinical side right there together, a state that is fairly wealthy but now is spending.
David Cutler: Yes.
Bill Frist: That kept people at the table.
David Cutler: Yes.
Bill Frist: A lot of states can’t keep people to the table.
David Cutler: Yes.
Bill Frist: Then with that, what were the cost sort of things that you addressed? You had the access there. You didn’t want the uninsured to increase. What cost issues did you put on the table and are on the table now?
David Cutler: Yeah. We did a few different things. I’ll give three of them, which I think have been most important. One is we have a target for the growth of medical spending in the state. It’s not a budget that you can’t exceed, but it’s a target that we measure ourselves by. Every year, we report on it. We report on are there some provider systems that are going up more rapidly. If so, what’s creating them?
Bill Frist: A target like you say 2% growth across the board or 2% growth for a hospital or for providers.
David Cutler: Yep, that’s right. The target started off as 3.6% per capita growth.
Bill Frist: Per capita.
David Cutler: It’s now fallen to 3.1% per capita. That’s our official target.
Bill Frist: You’re sitting around a table and you’re looking at the numbers in the past.
David Cutler: Yep, yep.
Bill Frist: Then your gut kind of tells you and your brain kind of tells you these are the things that we could do.
David Cutler: Yep, these are things we could do. When I was involved with it, I used to describe it as the equivalent as running a good 10K race. It’s not winning the marathon or being Usain Bolt, beating Usain Bolt in the finals of the Olympics, but it’s also not a stroll down the street.
Bill Frist: Right.
David Cutler: It’s you have to work to get it, but this is not so hard that you’re never going to reach it.
Bill Frist: Step back just a second and comment federal reform versus state reform, because you’ve had this federal experience in the past and you’ll have it in the future, and you have the state reform. What is the biggest difference between the two? Is one easier? Is one a more incrementally impactful place for an economist to spend time? But again for our listeners, what’s the contrast between federal reform and and state reform?
David Cutler: Some of it obviously varies by state. In Massachusetts, as you said, as we were talking about, everyone is at the table and wants to succeed in it, which is a little different than federally where there’s less agreement.
Bill Frist: I’ll say.
David Cutler: The state conversation is somewhat easier. It’s also more immediate, because states can’t run deficits the way the federal government can.
Bill Frist: They have to balance the budget.
David Cutler: But there is actually an interesting interaction between then. In Massachusetts, what the providers said is, “We can do this, and we can particularly do it if the payment is not do more and get paid more, because that’s a hard … Telling us to then do less and get paid less is kind of hard. We need systems that say if you do better, you can share in the savings.”
Bill Frist: Right.
David Cutler: They said, “We need these shared savings,” which is totally right. Until the Affordable Care Act, Medicare couldn’t be involved in that.
Bill Frist: Yeah, yeah.
David Cutler: You would then be dealing with 60% of the medical system and leaving out 40%. That would be a nightmare.
Bill Frist: Right.
David Cutler: The ACA made it possible for us to pick up the football and run with it-
Bill Frist: Right, yeah.
David Cutler: In a way that we couldn’t have done without the ACA.
Bill Frist: Yeah. Is that at risk now as the ACA, or as President Trump tries to dismantle the ACA?
David Cutler: Yes.
Bill Frist: Do you lose all of that, or does that underline more comprehensive, more people at the table? Will that last?
David Cutler: When the ACA repeal was being debated, there was a lot of discussion in Massachusetts about whether that would mean that the programs we had been engaged in couldn’t happen because they were relying on a federal government program that was going to disappear.
Bill Frist: Yeah.
David Cutler: So far, what the Trump administration has done has been more administrative, but it hasn’t knocked out those parts. Secretary Azar has said that he’s committed to those parts. At least on that count, we’re doing okay. I mean other things that they’re doing about the ACA and sort of making it harder for signups and so on really do hurt, but at least on the cost part we’re kind of okay.
Bill Frist: Right, yeah, yeah, with the continuation. Are you still involved at the state level right now?
David Cutler: Yes, I am.
Bill Frist: Then today we have states, North Carolina’s probably the one that’s out there you hear the most about in terms of not necessarily using government, but addressing in a statewide way. Are there other states that have made progress? Maryland is one that sort of comes to mind.
David Cutler: Yes.
Bill Frist: But paint a portrait a little bit on state activity.
David Cutler: Yeah, yeah, yeah. In fact, things are going on in all states, red states, blue states, purple states, all of them. North Carolina is an example. A few states are not following the Massachusetts model but trying to borrow some parts of it. Delaware is doing so. Rhode Island is doing so. California is thinking of a different sort of way, going after things like pharmaceutical prices. The governor has various proposals for that. There’s the sort of Massachusetts model. There’s what California may do. Maryland has a model which is more in the sort of all payer rate setting approach, which they’ve souped-up and they’re doing things on that.
Bill Frist: Is there any advice> Because I know people come to you all the time.
David Cutler: Yeah.
Bill Frist: Every state’s different, and Massachusetts is really a unique state and very different than Tennessee where I’m from. Are there any basic principles when you’re talking to either state legislators or business people that say, “Listen, Massachusetts, I don’t even agree with what you’ve done there, but you’ve done something and it seems to be working”? Are there two or three principles that you tell people?
David Cutler: Yeah. I do tell them that what works in Massachusetts may not work elsewhere.
Bill Frist: Yeah, yeah, yeah.
David Cutler: Particularly in a smaller state where you don’t have the resources to do things or in a state where the providers are not the way that they are in Massachusetts. One of the things that I say, coming back to the targets, we’ve had more success with that than I would have guessed. I say trying to be explicit about what your goals for the medical system are. That is, can everyone agree our goals are that we maintain coverage and that our cost growth come in line with the growth of our state economy? If we can agree on that, that’s a very big deal.
Bill Frist: Yeah.
David Cutler: Then we can use naming power, shaming authority, urging. We’ll help you reach that. The way we help you reach that may differ across areas. In some ways, in some places it may be more of, “Okay, you can do this with an incentive contract.”
Bill Frist: Right, right.
David Cutler: In other areas, it may be more of, “No. We need help dealing with social determinants in poor areas, because we’ve got huge problems there.” Then the state says, “Fine. We can help with that.
Bill Frist: Yeah, yeah.
David Cutler: In some areas, it may be more rate setting, because that’s the way the state is set up, or it may be more community based models. It’s going to differ across areas, but I think having that commitment to say, “We’re going to judge ourselves as successful or unsuccessful if we do this,” is really quite helpful.
Bill Frist: It has to be more than legislators.
David Cutler: That’s correct.
Bill Frist: You have sort of policymakers. You have legislators. You have the business community, obviously the philanthropic community. How important is the business community in participating?
David Cutler: Business community is very important. One of the difficult things about Massachusetts is during this period of time, big businesses were in some cases leaving Massachusetts. For example, they were bought by headquarters elsewhere. Many of the big businesses have ties to the medical system. They’re insurance companies. They’re medical care providers. They’re universities with a hospital and so on. It became harder to do, because business … Fortunately there’s still some, but the business community was dwindling.
David Cutler: One of the things I’ve noticed across the country is that medical care seems to be run better in areas where there still is big business. I look, for example you see a number of very good examples of good provider systems in say Seattle. You say, “Well, why Seattle?” Well, it turns out there’s a lot of manufacturing that’s still in Seattle. You see the direct influence of that. In other areas where there’s manufacturing that’s going on, you see that spill over and the people saying-
Bill Frist: Really interesting, yeah.
David Cutler: “Look, I wouldn’t tolerate that in my business. Why do you tolerate it in yours?”
Bill Frist: Yeah, yeah. As you look through your career, are there pivotal moments or is there an example of something that either happened to you either as an economist or as a teacher … I’ll have to add now again for our listeners that you are actively teaching and engaging young people today, and inspiring them, and have many numerous awards in terms of being recognized for your teaching. As you look at your own career, then you look at the careers of others coming along, is there a pivotal moment in your career either in terms of a realization, either from a career or a personal standpoint, that changed your trajectory?
David Cutler: I’ll give two things I think. One is one of the lessons I learned from the Clinton debacle on healthcare is don’t ever think that you have the right answer even if you’re the so called expert. Be willing to say, “You know, maybe I don’t have the right answer.”
David Cutler: When reporters call me and say, “Well, how would you grade So-and-so’s health proposal?” as they do during elections and so on, I’d say, “Well, I’ll tell you what I think, but I also want to tell you before I even tell you that, I don’t think that I’m 100% right.”
Bill Frist: Yeah, yeah.
David Cutler: “They’re people with other ideas, and they may be right and I may be wrong. I’m not going to say this is bad. I’m going to say, gee, my reading of the evidence would have gone slightly differently.”
Bill Frist: Yeah, yeah, yeah.
David Cutler: The other thing that’s interesting to me is behind the scenes of the big political fights on healthcare, which have dominated healthcare in the past few years and obviously at various points do, there’s a general agreement about areas that we should go. When you and I talk or when you talk with people on the other side of the aisle who are as far to the other side as you are on your side, there’s often an agreement about, “Well, here’s some areas we could work on that I think we could do good things.”
David Cutler: An example is the Alexander-Murray efforts of this year, which may or may not happen. What was interesting to me about that is obviously it wasn’t transformative in a major sense, but it was actually … Those proposals are more involved and deeper than I would have guessed.
Bill Frist: Explain that just again for our viewers.
David Cutler: Yeah, yeah. Senator Alexander and Senator Murray said, “What could we do that would affect cost? We’re not going to deal with coverage, because that’s going to get us into all of the ACA fights all over again, and neither of us want to do that.” They had a series of hearings where they invited people like me, said, “Come in. Give us your ideas what we could do as a Congress.”
David Cutler: They then went and they took those ideas and they said the same to interest groups and so on. “Give us all your ideas.” Then they said, “Where could we find agreement? Not just us, but where do we think there could be agreement?”
David Cutler: The areas in which they thought they could find agreement, really they’re pretty big. Some of them are pretty big. Out-of-network billing, which is a huge issue. People who go to an emergency department and think it’s in network but then get a bill from an out-of-network radiologist for 25,000 dollars.
Bill Frist: Yeah, yeah, yeah.
David Cutler: Other things on antitrust and so on where they’re going. That suggests once you keep it out of the headlines, “We’re going to refight the ACA. We’re going to refight whatever it is,” you can actually make progress. Things like that encourage me.
Bill Frist: You know, I’m glad you mentioned that, because having spent 12 years in Washington and 20 years in medicine and then now the last 12 years in the private sector building companies, a little bit of distance on Washington. You say they’ve lost their minds. It is so partisan that you don’t have people who want to work together. The fact that Lamar Alexander, a Republic, and Patty Murray, a Democrat, both leaving the HELP committee, the Health Education Labor Pension committee, started with these basic premises and very quietly. They’ve demonstrated it before. They did it with an education bill. They did it with the 21st Century Cures Act. That’s going on even today in Washington, and we’ll see what the outcome is.
Bill Frist: But this idea of in a very partisan world of identifying common goals, which you mentioned earlier, and then number two, the issues themselves bringing people together in a very deliberative way is going on. A, you don’t see it all the time, but B, it is the most effective way to legislate and to lead.
Bill Frist: Again, going back to the younger people and influencing them, the advice that you give them generally is what? Again, you’re seeing hundreds and hundreds and you’ve had impact on probably hundreds of thousands of people through your teaching over the years. What general advice do you give them? I’m thinking, man, we have our listeners right now who are saying, “I want to have an impact. I’m a hard worker. I’m industrious. I want to do it in the health world.” What would you say?
David Cutler: Number one is you have to know the substance. If you’re interested in the health world, you have to both understand how the programs work, like what are the details, but you also have to understand, what it is that a physician is thinking? What is a hospital administrator thinking? How is an insurance company thinking? Not in the politics way, like how do I company-opt their thinking, but okay, I need to work with them. This isn’t going to get better unless everyone does this, so I need to understand what their thinking is.
Bill Frist: Yeah.
David Cutler: Number two, I would say many people tend towards regulation. That’s a sort of common thing. “Well, we don’t like X. Well, fine. Let’s say you can’t do X.” Regulation is often not the best way to do things. Regulations are sort of burdensome. They involve enormous time, people saying, “Why are you wasting my time?”
David Cutler: I think one way to think about it is in healthcare, our house has cracks in the walls. The things isn’t working right. Regulation’s kind of putting a wallpaper over that.
Bill Frist: Yeah, yeah.
David Cutler: Painting over it and saying, “Look, we’re going to get rid of this.”
Bill Frist: It looks better, yeah.
David Cutler: It looks much better. But in reality, you haven’t done anything to address it structurally. You have to think about structurally. You have to say, “Okay, this is going on because the incentives are messed up, or because they’re worried about uninsured people, so we’d better deal with the uninsured people.” Think about how you can design something incrementally to work better, whether that’s changing the incentives, or whether that’s fixing a problem that’s like the sort of sand in the gears that’s slowing the whole thing down. Say, “Okay, fine. I can get rid of that.”
Bill Frist: Yeah, yeah. If you had a magic wand and you could wave it in health today, and again it’s really an unfair question, but it’s an interesting question, is there one area that you would focus on that could have an incremental impact that would be far beyond what others do?
David Cutler: I think there are two areas that I’ve encouraged people to be interested in now as a first step towards doing big things, that are themselves big. They’re areas of cost that we could absolutely take out of the system. One is administrative expenses where everyone hates it. Practicing clinicians hate it, and insurance companies hate it, and patients, oh my God do they hate it. We ought to be able to do something about administrative costs.
Bill Frist: Administrative costs … We’ll come to your second one, but the administrative costs are insurance and billing, conflicting regulations, the chaos that a consumer or a patient goes through.
David Cutler: Yeah, yeah. It’s estimated that one out of every four dollars in medical care is spent on administration.
Bill Frist: Yeah, yeah.
David Cutler: Only three of the four are actually going to caring for the patient.
Bill Frist: Yeah, one out of four.
David Cutler: That’s a lot of money to waste.
Bill Frist: Yeah. When you have three and a half trillion dollars, and you’re saying that one out of four is wasted.
David Cutler: Yeah, one out of four is wasted.
Bill Frist: Yeah, on these administrative.
David Cutler: The second area I would go after is parts of pharmaceuticals. There’s a huge pharmaceutical issue, but the parts that I’m thinking of that are easier are for example firms that buy up old drugs and then jack up the price. You’re not encouraging innovation. It’s just I want to take advantage of the fact that people need this drug, so I’m going to price it higher. I want to avoid the innovation fight and deal with the fairness issue about, is it really right that someone buys a drug which was going along comfortably at two dollars and pill and now charges 200 dollars a pill?
Bill Frist: Yeah, yeah.
David Cutler: That’s just not doing anything.
Bill Frist: Are there lots of examples? The pharmaceutical, there’s a lot of drug pricing and the cost, the expense is getting a lot of attention today. Are there lots of things like that in this larger discussion?
David Cutler: There are. Some of the out-of-network billing looks like that where the doc is going to charge some exorbitant fee, not quite collect it all, but collect a lot, and the patient’s going to go through hell in terms of paying for it. People need to know that if their child gets sick, they can afford to get care for their child.
David Cutler: The stories that make people feel the worst are, “I had to give insulin only every other day to my child because I couldn’t afford every day.” I mean those kinds of things are really just horrible. I mean and they rightly shock people. Dealing with those aspects where the medical system doesn’t have a good enough floor and so people are falling through ought to be a really high priority, and you can do those are relatively low cost. You don’t have to address everything in healthcare.
Bill Frist: Yeah. Do you see most reform over the next five years being at the state level or at the federal level?
David Cutler: I think it’ll be two sorts of things. One is at the state level, but second is administrative at the federal level. There are a lot of things that the Department of Health and Human Services can do on its own. For example, we were talking about different payment models. It can do that. The administrative cost that Medicare generates, it can deal with that. Things about licensing, and so on and so forth. I think administratively HHS, federal HHS can do a lot, and then I think a lot of it’s going to be at the state level.
Bill Frist: Yeah, yeah. Really fascinating. Let’s just close on one topic, and that is health and equity and income levels. I know that you speak a lot about it. You study it. For our listeners, is there any way to encapsulate that, what your findings have been? Because I find that one of the more important things as we address coverage, as we address cost, and we address spending, the issues of equity and what it means really should be brought at the forefront and begin any discussion with that. What have you found?
David Cutler: I ask my classes a question. I say, “Well, I want you to think about how long people live as a function of their income.” We know that hire income people live longer than lower income people. Presumably, there’s some income above which you don’t live longer if you’re at there. There must be five million dollars a year, whatever it is, some income at which you don’t live longer if you’re above that. What income level do you think that is?
Bill Frist: Are you asking them or are you asking me? Because I have no idea, but I would guess 75,000 dollars.
David Cutler: It turns out there is no income in the US at which having more income is not associated with living longer. People who earn five million dollars a year have lower mortality than people who earn four million dollars a year.
Bill Frist: That’s fascinating. Wow.
David Cutler: There’s an absolute continuous relationship in the US, not causal. Like I’m not sure that the five million buys you anything that the four million can’t, but it’s associated with something.
Bill Frist: All right, tell me about it. What have you found? What is it?
David Cutler: A lot of it’s associated with behavioral things. If you look, for example smoking rates are higher in the less educated population, obesity in the lower income populations and so on, but there’s actually things beyond that. Probably some of it is the stress associated with life at different income levels. 20,000 dollars of income is associated with much more stress than 40,000, and then 60,000 and so on.
David Cutler: One of the things I think we’re going to have to do is try and figure out how to address not just smoking, anti-smoking policies, and obesity policies, and drug policies and so on, but try and address the stress of life and the chronic stress that comes from that. I think that’s going to be a really, really tough but important issue for us to say, “How do we create something?”
David Cutler: One of the things that’s interesting to me just on this, once one reaches age 65, life is a lot more secure than before then. The areas of the population group that’s doing the worse is the population say 40 to 60 where there’s not that safety net, where incomes are falling, where access to medical care is hard, access to good jobs is very hard, and life is really stressful. Saying, “Well, hold on till 65.” Well okay, there’s something, but there’s a lot of years in between.
Bill Frist: Does that intertwine with this larger field of non-medical determinants or social determinants?
David Cutler: Yes. Yes.
Bill Frist: Okay.
David Cutler: We’re really going to have to think about that. Traditionally, we’ve thought about it for the down and out population, homeless populations, people with very low incomes, very unstable food supply. I think what we’re learning is that that’s not just for the down and out population. That even people we think of solidly in the middle class are feeling the consequences of a society that’s changing and a system that hasn’t kept up with it.
Bill Frist: Is that peculiar to the United States?
David Cutler: It is. It turns out that people in other countries live longer, like in European countries live longer than people in the US. Mostly where they’re living longer is 30, 40,000 dollars of income where people … You take someone say at the 20th percentile at the income distribution in Norway. That person lives as long as someone at the 60th percentile in the US. It’s like going from 20,000 dollars a year to maybe 60,000 dollars a year. It’s just this phenomenal gap in kind of the low middle, middle, upper middle income populations where in other countries people live much longer.
Bill Frist: In this 40 to 65, are there policy implications? Are there levers to pull? The observation, now that you’ve identified that, are there-
David Cutler: Yeah, yeah.
Bill Frist: What sort of things come to mind?
David Cutler: Some of it is sort of destructive public policies like around opioids and things like that, which are a very big cause of death. Other parts of it are things having to do with for example your old profession, heart disease, which figuring out how to help people manage to control their heart disease better, that’s a sort of active thing that the medical community can look out for, which is we know there are people in this income range who are having difficulty there. How can we help set up things to help them out, both medical community and the insurance company?
David Cutler: Then part of it might require some rethinking of the social safety net. What happens when you’re earning 60,000 dollars a year and your job disappears and now what you can earn is 45,000 dollars a year? Which is unfortunately all too common. That is an enormous hit on a family, so figuring out how to help that family is something that we need to put more effort into.
Bill Frist: Yeah. I guess in closing, our conversation really does drive home the fact of people, bringing people together and just your last sort of statement and sort of paragraph shows the importance of having policymakers sit side-by-side with nurses, and physicians, and nonprofit community leaders. Especially in healthcare because of the complexity, the size, the 18% of the economy, but also when people such as yourself can identify these subsets that we know that there are answers to but the answers are going to require more than just another hospital, or another doctor, or another insurance carrier, or another plan, but really is going to take the people involved in, it might be housing, and it might be food, and it might be behavior change.
Bill Frist: In some ways, that makes me a little optimistic, because it means that once we get people together, keep them together, like at a parallel way you were able and others were able to do in Massachusetts, that there’s some answers. In closing, from when you started all this, are you more optimistic or pessimistic, or what’s the direction over the next five, 10 years?
David Cutler: I often ask my friends. I say, “10 years from now, will we look back and think that we did better than we thought in the past 10 years or worse than we thought?” My hope is that, and belief is that we’ll think we did better than we thought. We’ve just come through a period of just terrible fighting, lack of productivity at the federal level on things. Hopefully, what people will say is, “You know, we can’t keep doing that. That’s not working for any of us.” Maybe we can make, as we said, some progress on some of these problems and then come back to others later. My belief, I’m not exactly sure how we get there, is that the world will be better a decade from now than it is now.
Bill Frist: Yeah, yeah. David, you’re an inspiration. I’m jealous of all the students who get to sit through your seminars and classes-
David Cutler: Well, thank you.
Bill Frist: As you bring your substantive academic experience, but also your rich policy experience. Because as we talk a lot about on this particular podcast, the real answers I think lie at that understanding of health, and healthcare, and medicine, and science, and that intersection with policy, and then that third category of innovation where we’ve got to be thinking of new ideas all the time. Thank you for being with us today, and I look forward to many conversations in the future with you. Thank you.
David Cutler: Thank you so much.
Bill Frist: Okay, thank you.
Bill Frist: This episode of A Second Opinion was produced by Todd Schlosser, the Motus Creative Group, and Snapshot Interactive. You can subscribe to A Second Opinion on Apple Podcast or wherever you’re listening right now. Be sure to rate and review A Second Opinion so we can continue to bring you great content. You can get more information about the show and our guest and sponsors at asecondopinionpodcast.com. A Second Opinion broadcasts from Nashville, Tennessee, the nation’s Silicon Valley of health services, where we engage at the intersection of policy, medicine, and innovation.
