Today, we kick off the first of a special four-episodes series where we share insights and predictions from our nation’s leading healthcare economists, including from the minds behind the individual mandate and Massachusetts Romneycare. Today, I’m joined by renowned health economist, Dr. Mark Pauly, the Bendheim Professor at the Wharton School of the University of Pennsylvania. Mark and I served together on the Health Affairs Council on healthcare spending and value and I always learn something new from each of our mini conversations.
Dr. Pauly has made significant contributions to the fields of medical economics and health insurance. His classic study on the economics of moral hazard was the first to point out how health insurance coverage may affect patients use of medical services. He is considered one of the original architects of the individual mandate and presented it in fact as an option to President George H.W. Bush in the 1980s. Dr. Pauly is a former commissioner on the Physician Payment Review Commission and the coeditor and chief of the Springer International Journal of Healthcare, Finance and Economics.
Bill Frist: Mark, let me jump right in, a health economist so our listers will fully understand sort of where you come from and who you are. And I want to come back a little bit later in our discussion to talk about your past, but the history of health economics, give us a little primer on that.
Mark Pauly: Okay. Well, when I started and I was one of the first in the area, Medical Economics actually was a magazine that doctors got that advise them on how to invest their money and where to buy a vacation property.
Bill Frist: Literally.
Mark Pauly: It still exists I believe. It wasn’t really a discipline and well, for one obvious reason that the healthcare sector, industry or field, whatever you want to call it, doesn’t look like ordinary industries. And so, I think economists believe that well, this is too complicated, but I’ve taken the point of view in my career and I think a lot of economists have since, we’re sort of intellectual imperialists that you can use economics to explain a lot of things that doesn’t seem to be a suitable for economics that the radio programs kind of the embodiment of it.
Mark Pauly: And so, at least what I’ve been trying to do with my career is to see how far I can get in using economics to explain what happens in the healthcare sector. It doesn’t explain everything, but it’s explains a lot more I think than people thought at the beginning.
Bill Frist: It certainly gives a framework and a discipline for everybody, even if you’re not an economist to compare to, contrast to. So, who are some of the early people? You are. You’re a pioneer there.
Mark Pauly: Yes. And one of the other pioneers, a professor who just retired at Columbia … City University rather named Mike Grossman, gave us his presidential address to the Health Economics Association. It’s not as important to be right as it is to be first. So, that’s probably true of me too. Although Mike was always right, I don’t know if I always was.
Mark Pauly: But the early people who worked in the area who kind of called economists’ attention to it and I guess called the areas attention to economists, Victor Fuchs, who is the author of the still best-selling and I think extremely important book, Who Shall Live?, was one of the pioneers. And then the other was Ken Arrow, who just passed away, won the Nobel Prize, was asked actually I think by Victor and by the one of the foundations to write an essay on the economics of the healthcare industry. And I’ve talked to him about it before he died and he said he didn’t know anything about the healthcare industry, but thought that there were some interesting things that could be brought under the purview of economics.
Mark Pauly: Like the idea that, well, when you have odd things like risk and imperfect information, you can still use economics to understand how people cope with those things. For example, we cope with risk by insurance. We cope with imperfect information by things like professional licensure. So, you can least be sure that the person who’s treating you knows something and things like that.
Mark Pauly: And so, Ken actually kind of got us all started on thinking that you actually could use economics expanded from the simple supply and demand widget model to explain what goes on in healthcare goods and services. And I think it’s turned out, we actually I think have been able to generate pretty good explanations of almost everything in healthcare except for, the big exception is we still don’t understand how physicians behave. I mean, for example, you pay them more, they do more. You pay them less, they do more.
Bill Frist: [crosstalk 00:05:50].
Mark Pauly: So, behavior’s not super consistent there, but at least a lot of the description of behavior I think we can do. Martin Feldstein actually wrote his PhD thesis on the British National Health Service and was very important in kind of uplifting the standards of health economics. And then I got in the area largely based purely on self-interest at the time it came for me to write my thesis, there was money available from the newly created research institute that was created along with Medicare to fund research. And my thesis advisor and I thought, well, we could take some ideas that I’d actually been working on in education and apply them to healthcare. And we got a grant and ever after that, I followed my notes.
Bill Frist: That’s pretty good.
Mark Pauly: Yeah.
Bill Frist: So, we’ve had about a 50-year history of as a discipline, and an evolving discipline about health economics. Uwe Reinhardt, we’ve talked about many, many times before who made contributions and making it really understandable to a lot of people.
Mark Pauly: A lot of people, yeah.
Bill Frist: Not just as students but people around the world.
Mark Pauly: Yeah.
Bill Frist: I’ve heard you say this so many times and so often the lead paragraph of a New York Times story or Washington Post or Nashville Tennessean would be the United States of America is a percent of GDP or as a percentage of GDP per capita spends twice as much on average as other developed countries coupled with the fact that our outcomes generally are not as good, and without going into all of that. And therefore, we need an Obamacare, Nixoncare, universal healthcare, whatever the flavor of the day is.
Mark Pauly: Something needs to be done.
Bill Frist: Let’s go back to the first part of that because we all use it and as a young boy, it was 5% GDP. It was spent on healthcare in my case, and now it’s what, 18.6%.
Mark Pauly: About 18%.
Bill Frist: But how useful is the percent GDP as a measure of where we are as a country in our healthcare?
Mark Pauly: Well, I think the intent is praiseworthy. It’s an attempt to get some idea of the burden, if you will, or the displacement of other things that people might want to do that’s caused by healthcare spending. And measuring healthcare spending per se, I have no problems with. It’s dividing it by GDP I think that … Well, I have one problem that I’ll mention, but one problem is dividing it by GDP. So, that’s a ratio. And so, the ratio can go up if healthcare spending grows faster than GDP, but that may be the fault of the fed, not the fault of people in healthcare. And in fact, historically healthcare spending has moved ahead at a growth rate higher than GDP, but pretty stable, bounces round some but pretty stably higher. Whereas the growth of GDP bounces around a lot.
Mark Pauly: And interestingly enough, if you look at the evolution of the share of GDP in the US, it tends to rise in periods of recession. For obvious reasons, GDP stops growing. That’s the definition of recession. But healthcare spending keeps increasing. Then after the economy recovers from recession, it levels out and we’ve had it at 17, 18% ever since the great recession ended. But if you actually look at the pattern, there was a jump in the recession of the 1987, it’s about every 10 years, there was a jump in the year 2000, there was a jump in the great recession. And then after that, it levels out. So, one objection is GDP is not really … It’s sort of creating more noise than it’s creating light.
Bill Frist: But doesn’t it tell you that as a society of all of our spending, the fact that we’re spending almost a fifth of it on healthcare, A, that health is important and we’ve chosen to be important. But it seems to me it can get to a level where it does crowd out education or infrastructure or military or spending. And is that the right way to think of that?
Mark Pauly: It is a right way to think about it. But you need to think of the right numbers. So, there’s a problem with the numerator which is spending.
Bill Frist: Yeah.
Mark Pauly: And the problem is actually one that our dear friend, Uwe, talked about too, that spending is not the same as using resources. Part of spending, of course that goes into healthcare, represents a compensation for the real resources that have been drawn into healthcare from elsewhere in the economy. If you want to build a hospital, you’ve got to buy land and you’re going to have to pay for that. But a lot of the difference between us and the rest of the world is because we pay higher prices in wages than they do in the rest of the world. And for an economist, the difference is that that is just a transfer really from Americans as consumers of healthcare to Americans who either produce healthcare or produce drugs or provide healthcare in other ways.
Mark Pauly: So, it’s not necessarily bad for the economy as a whole. It’s not necessarily a tapeworm eating the health of the American economy as Warren Buffet says. It depends on who you like. And of course, as consumers, we all wish healthcare were cheaper, but at least from the point of view of the economy as a whole, and I married a doctor’s daughter, so I’m conflicted on this, a payment to the providers of healthcare is also important. And so, the corrective, I think, and I’ve done work on this that Uwe has mentioned, is to look at real resources like labor. So, we have about the same fraction of our workforce working in healthcare as most of our OACD partners do, around nine 10%.
Mark Pauly: They’re paying better that’s why we spend more.
Bill Frist: They’re paid better in this country.
Mark Pauly: They’re paid better in this country.
Bill Frist: And why is that?
Mark Pauly: Well, it’s partly because economists believe, especially physicians, I’m sad to say this, have achieved some market power by colluding with politicians through licensure and so forth, restricting the number of fellowships and residencies and things like that. And of course, it’s also because our drugs, the expensive ones are patent protected. The government actually enforces intellectual property laws. And then the politicians get furious.
Bill Frist: But the economist wouldn’t say that’s a good or a bad.
Mark Pauly: No. Well, the reason of course for that, we don’t want to get too sidetracked, is to motivate innovation.
Bill Frist: Right.
Mark Pauly: And I don’t know, but I do know nobody else knows whether we’ve got that calibrator right or wrong,
Bill Frist: But it is. So much of what we do on this podcast is look at this intersection of health policy with the healthcare and outcomes with innovation. And so, really, it’s something I’d like to spend a little bit more time on because if you have longer patents, it gives an incentive for to be more innovation at least conceptually. But the policymaker has to say, is that 5 years or is that 12 years? There’s a constant recalibration.
Mark Pauly: It could be. And at least my simplistic viewpoint being an academic not a politician is to say, “Rather than complain about high drug prices, Senator, you should change the either the terms of patent protection. That’s kind of hard to do because there’s international agreements. But you can certainly tell the FDA to not grant such long periods of exclusivity which help to prop up prices if you think that the consequence of lower prices will be to do more good by making drugs inexpensive than it does harm by discouraging the discovery of new drugs.”
Bill Frist: But the economist will get into that or will not get into that value side of it.
Mark Pauly: Well, I have been arguing that in principle, you could know whether we’re at the right point or not. You need to look at the drugs that either just made or just missed the cut in terms of investment and see how valuable they are and then sort of compare that to how much good or how much harm it does by charging extra high prices. That discourage a lot of access. You could at least think of quantifying those tradeoffs.
Mark Pauly: But at the moment, nobody has a clue as to what that is. So, at the moment, of course the drug industry reaction to any proposal to limit prices is to say you’re going to stop discovery, which is true. On the other hand, the question is, well, what discovery will you stop and how much is that worth relative to the benefits from having greater access.
Bill Frist: Coming back to the-
Mark Pauly: So, economists are big on tradeoffs and the tradeoff here is good drugs, a lot of good drugs or a lot of cheap drugs, which would you rather have?
Bill Frist: Yeah, yeah. You mentioned physicians, there’s some constriction in supply because our physicians working with policymakers do limit either by specialty or in the aggregate, how many physicians there are. Do you believe or would the economists say if you produce twice as many physicians that prices would fall or the labor price of physicians would fall over time?
Mark Pauly: Well, either the price would fall or the quality would improve. So, you might pay the same price, but you could get doctors to make house calls or something like that. But that’s what we think. And again, I said to you before, I said we don’t understand physician behavior. We certainly know if you restrict a number of hospitals, prices rise and if there’s good competition among hospitals, prices fall. And I guess we believe the same would eventually be true amongst physicians.
Bill Frist: And that would carry over as the consolidation or the vertical consolidation we have today in hospital.
Mark Pauly: Presumably so, yeah.
Bill Frist: Tell me, you’ve been at this intersection again of policy and health and healthcare because you’ve operated there. It’s this intersection, which is this discussion is all about as a podcast. Go back a little bit in history. What policymakers did you first work with? If I remember President Herbert Walker Bush, you had presented a plan to an element of a plan, but tell me a little bit about.
Mark Pauly: Yeah. So, that was actually an outgrowth I like to think of my PhD thesis, but also according to my mother of common sense, which was to say, “Well, let’s have government help people who most need help with their health spending with insurance when they most need the help.” And that would mean low income people or middle income people with catastrophic health expenses, let’s not be too concerned about making care free for upper middle class people because actually economists know based on hardcore research that that we, those upper middle class people, will use a lot more care. Don’t worry doc, insurance will pay for it.
Mark Pauly: But we don’t want to encourage that. But we do want to help people who really need both the help in affording beneficial healthcare and a financial protection. So, that was kind of what a group of health economists proposed. The Heritage Foundation actually had a very similar proposal, so great minds run in the same channels. And it was proposed to George H.W. Bush really as an alternative to Senator Kennedy’s proposal for kind of the Sanders model, universal healthcare free for everybody like the UK. The democrats declared a dead on arrival of course. But then that eventually became Romneycare and then Romneycare was kind of repackaged to become Obamacare of where, of course the republicans then declared it dead on arrival, but it squeaks through.
Bill Frist: So, that underlying theme throughout was what?
Mark Pauly: It was condition subsidies basically on need or to put it the other way round, which is a little more pejorative of a term, means tested subsidies. So, you wouldn’t want to subsidize what the government actually does now. You wouldn’t want to subsidize the insurance coverage of upper middle class people except to make sure they get at least catastrophic insurance if you need a subsidy for that. Although I believe you could just use a mandate for that.
Mark Pauly: But you do want to subsidize at least health insurance that move people toward more cost-effective care for lower, middle income people who are high risks and for lower income people across the board. So, that’s sort of the model and it is really I think pretty much the structure of Obamacare. So, I actually found myself having to, fortunately, I’m a member of no organized political party at the moment, but saying I support Obamacare, I think it’s a sensible strategy for devoting government’s resources to where they will be most good.
Bill Frist: Was there any element of Obamacare recognizing that when Obamacare, before it started uninsured at 18% and now it’s down to 8%.
Mark Pauly: Eight percent, yeah.
Bill Frist: Or as of today, 8.5%.
Mark Pauly: Yeah.
Bill Frist: So, maybe prices were driven up some, but if you look at the uninsured and the access for the people that you say insurance should be for or be able to cover, it’s successful there.
Mark Pauly: It’s successful, although there’s still another shoe to drop. And I give a sermonette on this subject to health economics PhD students all the time, although in a way it’s not an economics issue. But somebody should prove that in enhancing insurance coverage actually make substantial improvements in health outcomes.
Bill Frist: Yeah.
Mark Pauly: And that’s actually been a challenge to do. We certainly can show that enhancing people’s health insurance makes them use more care, have more access to care, even care that health professionals say is important. But when you let the dust clear and say, well, are there some indicators of health outcomes that improve dramatically? That’s been much harder to prove.
Mark Pauly: I personally believe the problem is our indicators of health outcomes are so crude, it’s hard to move them around with anything because for one thing, they’re influenced much more by your lifestyle, which is part why the US does so poorly relative to other countries incidentally as opposed to your medical care. But I believe that it can be shown, but so far, if you wanted to convince a sympathetic skeptic, we need a hammer.
Bill Frist: So, this coverage to just having more people insured doesn’t necessarily translate or there’s not really good data yet or maybe there’s just not that exist that that translates into better health.
Mark Pauly: Yeah. Now, the absence of evidence is not the same as evidence of absence.
Bill Frist: Exactly.
Mark Pauly: We always say that to students.
Bill Frist: But there’d been a number of studies.
Mark Pauly: But it sure would be nice to have a really well-designed study that showed real health benefits because that would help you for one thing, if you turned back and said, well, I was a god, let this not happen, but if I was put in charge of Obamacare, how would I redesign the subsidies? Well, I really want to know, well, if I do what say Vice President Biden is proposing extend the subsidies further up the income distribution, would I really get much of a bump in health of those middle income people or alternatively if I made them even more generous at lower middle income levels because a lot of the lower middle income people are choosing the bronze plans, which subject them to a lot of out of pocket payment, if I made things more generous so they didn’t have to do that, could I prove that I’d get a big increase in their health outcomes? So, I think that would help to tell you whether you want to change things or not.
Bill Frist: Because the Obamacare did take up to 130, by 130%
Mark Pauly: Yeah, but as far as I can tell, the parameters of what income levels got, what subsidies were pretty much made up, not based on any evidence or even consideration of what impact they might have either on health outcomes.
Bill Frist: And what was the failure in that do you think? You have the policymakers and obviously politics gets involved in the policy itself. You have imperfect measures of health or health outcomes. You can measure from the economy’s standpoint inputs and to a certain extent outputs, but where was the failure there and is it just a political failure?
Mark Pauly: Well, part of it is what I just said that I think if there had been stronger evidence that this was really going to improve health, you could have convinced more people in John McCain to favor Obamacare and not favor repealing it.
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Bill Frist: You mentioned today the social determinant, that true healthcare is not health and that health in large part more than the doctor in the hospital and the insurance is determined by how we behave.
Mark Pauly: Yeah.
Bill Frist: So, the social determinants, does the economics, does the economists take all that? Are they able to take all of that and plug it into this healthcare versus health equation?
Mark Pauly: Yes and no. I mean, we can certainly observe and say and statistically analyze the evidence for the proposition that health outcomes for people depend mostly on their social determinants, not on their access to medical care. It matters to have access or to put it a little differently, it matters not to have access at all. But at the margin, the contribution of greater or less use of medical care to outcomes for a population is awful hard to determine. And Victor Fuchs, one of his famous examples of us comparing health outcomes in Nevada and Utah and they were much better in Utah, spending was also much lower there. But that wasn’t because of the healthcare system. That was because of Mormons issuing strong drink and smoking and Nevada of course kind of going the other direction.
Mark Pauly: So, that’s the challenge, not just for economists, but I think for everybody is it’s easy enough to put your finger on social determinants, but it’s a little hard to move them. So, how do we get people to change their behavior or how do we get something we need to think is important. The crime rate in neighborhood of an elderly black woman can have adverse effects on our health. Well, it’s not exactly the bailiwick of the medical care sector to lower crime rates.
Bill Frist: It does for us though. I think you agree that the 20% of our economy that is doing healthcare, if you basically make the case that health is not determined by healthcare and if you’re going to be in the health business, it’s your responsibility to get involved.
Mark Pauly: Yeah.
Bill Frist: So, there’s substitutes.
Mark Pauly: Yeah. There’s certainly been a trend as I know you are aware of health insurers and even freestanding companies to say kind of, we’re in the social determinants business as well as the health insurance business and we’re going to try to produce some changes. Now, so far, we’re waiting to see big results, but some of it is sort of sensible, like an insurance company might say, well, we’re going to pay for people pay in for an Uber to bring people in to see the doctor when they’ve got a scheduled visit. So, they don’t miss scheduled visits. And that would seem like a sensible thing to do.
Mark Pauly: Economists believe, and we’ve done work on this at Penn, that you can get people to do things like stop smoking by paying them to stop smoking. Although it-
Bill Frist: What about taxes there?
Mark Pauly: Well, taxes have worked for smoking.
Bill Frist: Well, taxes have worked.
Mark Pauly: Yeah.
Bill Frist: Do you like using taxes to change behavior as an economist? Not that you like it, but how do you feel about it? Because it does work, in that case.
Mark Pauly: Yeah. Compared to nothing, yes. Compared to something it might be a little more discriminating, I guess I’d favor that. I’m not sure there’s much discrimination for smoking, but for enjoyment of fine wines, I’m not sure that we need to. Well, there may be a more sensible way to tax those, to discourage alcoholism without discouraging consumption of something that can be valuable. And of course, well, we have prohibition to tell us that trying to be too heavy handed with your … Can do more harm.
Bill Frist: The question that I’ve always had, how can basic economic one-on-one principles work when you have a doctor or a provider who has all the information and you have a consumer and it’s getting less so today because consumers are getting information quickly.
Mark Pauly: Yeah, from a lot of others.
Bill Frist: But 10, 15 years ago, how can markets work if I’ve got all the information, you don’t have it and to think that you can be a prudent shopper of either information or care or outcome, how would the economist address that?
Mark Pauly: Well, there’s a kind of a theoretical answer and an empirical answer. I’ll do the empirical one first. So, consumers still have control over whether or not they initiate a process of care, whether or not you used to be, you pick up the telephone, I guess now you go to your computer or maybe you go to the ER, but whatever it is, get a car and go to the ER.
Mark Pauly: And a famous RAND Health Insurance Experiment actually showed that when people had to pay more out of pocket, they were more sensible. They didn’t go to the ER for example for sore throat or upset stomach. They did go to the ER for things like coughing up blood. And of course they were taking there if they were comatose. And so, consumers were actually able to make at least some sensible decisions. But what the experiment also showed was in a sense once they got in the clutches of the system, they were all treated the same regardless of what they wanted. And that is the part that I think has proven much more challenging.
Mark Pauly: Now, the way I see that potentially being solved is something we are seeing, which is people, consumers are sorting themselves across insurers into insurers that have deals with different doctors and hospitals that do different things. In a sense, if I’m buying into an insurance with a particular network of doctors and hospitals, I’m having my insurer do my questioning of the doctor for me.
Bill Frist: On your behalf.
Mark Pauly: On my behalf and saying, doctor, do you really need … The insurance do say this.
Bill Frist: And employers, would you put them in the same?
Mark Pauly: Yeah, I think so. I mean, I believe employers, they make more money if they keep their employees happy with their health insurance. So, the smartest thing for them to do is to try to offer the health insurance that their employees really want given of course the amount they’d have to take out of what would otherwise been money wages to pay for it.
Mark Pauly: So, you can have a very lavish health insurance. I have one as a professor at Penn, but partly I’m in favor of that because I get a big tax break. I don’t have to pay taxes. This is a tax exclusion, but also because I guess University of Pennsylvania has actually a benefits-heavy, cash-poor employer in Philadelphia as a whole. But different people, different consumers, I think have different preferences as to how much they want to be in their take home pay and how much they want to be in their health insurance. And golly, they should try to get what they want
Bill Frist: From the economic standpoint, I know that’s what we believe or say or teach, but for the typical person who’s sitting there just lucky to have a job, they probably don’t think in the aggregate of how much the insurance-
Mark Pauly: Well, employers certainly think that their benefit offerings affect their ability to attract and retain workers. So, they believe employees pay attention. Now, not every employee pays attention these days. Of course, it’s not so much that you’re lucky to have a job. There’s a lot of jobs. If only I knew how to drive an 18-wheeler, I could have a second career, figure.
Mark Pauly: But the punchline I think is that, well consumers, if they do want something different from their healthcare, different ones when something different, they either have to express it as individuals where they’re likely to be not that well informed or the alternative is to let their employers kind of do the shopping for them, which I think is probably the best you can know for.
Bill Frist: Well, we have 160 million people getting their insurance through employers. It’s nice to have at least employers more actively participating.
Mark Pauly: Plus, as I’m sure you know, the federal government offers literally dozens of different health plans to its workers and figures that helps to keep them happy rather than just offering one.
Bill Frist: Yeah, I had that for quite a period of time. Was there any pivotal moments in your career that radically or substantively changed either your trajectory in your career or your way of thinking about who you are, what you’re doing, how you’re spending your time?
Mark Pauly: Well, I think this sermonette I was talking about is probably partly a matter of getting older and wondering what you’ve done with your life and so forth. But I think the emphasis on the health benefits of helping other people is important. And actually, back in my PhD thesis, the sort of key assumption I started with is that the reason people either donate for healthcare to nonprofit hospitals or are willing to pay taxes is because they not only care about their health, they care about other people’s health.
Mark Pauly: There’s a kind of altruism there, which is not just the general idea that I’d like you to be happy. It’s that I’d like you to be healthy because it really bothers me if you’re not and I think we need to tap and channel that better. Now as I said, there’s a kind of mea culpa here. I can’t prove to you if you have those sensibilities that actually paying big taxes additionally to subsidize more people will produce at the moment that much of an improvement in health. But I want you to believe me that it will. At least we have pretty good evidence now that it produces an improvement in wealth or at least in the stability of wealth. So, when people have insurance, they don’t go broke or they don’t have huge bills to pay off.
Bill Frist: For young people today, a lot of people are listening to us now who aspirationally are saying, this is the direction I want to go in. Should I go in that direction or not given the changes that have occurred both recently, but the changes that we’ll see in the next few years, what advice would you give a young sort of aggressive, dynamic, hardworking young person today who’s interested in health or healthcare or in the economics of healthcare?
Mark Pauly: Well, there’s different roles for different people. There need to be some preachers, but there also need to be some people writing down the facts. And that’s what economists do. So, the point of departure here is that it’s not enough to be outraged, that you also have to have some facts to back up the idea that your proposal will produce an improvement in the thing that you’re so upset about. And that’s what economists do. And partly, it’s because it’s not always obvious what produces improvements.
Mark Pauly: For example, back to health insurance, there’s a correlation between health insurance and good health outcomes. But when people have experimentally tried to see whether it makes a big difference, they haven’t found that, nearly as much or much at all. And lots of other things that people have assumed to be true about how people behave in healthcare have turned out not to be true.
Mark Pauly: For example, I think most people would believe, maybe hope that nonprofit hospitals will treat patients better and treat more needy patients and for-profit firms. But the data really don’t show that clearly. They do show that nonprofit hospitals tend to be located in areas where there are more poor people. But that’s because that’s where they were founded. For-profit firms in the suburbs treat as many needy people as a nonprofit firms do and they charge about the same price and so forth.
Bill Frist: And nonprofits doesn’t mean there’s no surplus, everybody is in the business.
Mark Pauly: Right. And even, I mean some nonprofit hospitals kind of are god’s monopolists. They may be behaving just like a monopolist in terms of pricing, then the money may go to the missions in Peru. That is probably better than going into the pockets of fat cats, but depending on your point of view, but it’s not exactly the most efficient way to organize this thing.
Bill Frist: You’d been really generous with your time today, really appreciate it. But if you had to wave a magic wand in this whole healthcare health world and with all the things that you’ve seen over the years and the thousands of students that you’ve taught and they’ve gone on to well, start companies or treat people, is there one particular policy out there that incrementally has a special appeal and having an impact?
Mark Pauly: Well, the one thing that I think pretty much all not just health economists and economists can agree on is take my tax subsidy please. So, I figure I, University of Pennsylvania, pays for health insurance for me and my wife. Well, $18,000 is the average premium. We’re older, so, we probably use more than that. But anyway, we get that at benefit and it’s totally tax free.
Mark Pauly: Now, our friend, Uwe, used to say he would send a Christmas card to the treasury thanking them for this tax break. I don’t do that, but I do wonder what is the value of subsidizing overly generous health insurance for upper middle income people? And it is our overly generous insurance, I believe which in part is responsible for pushing up prices and making healthcare more expensive for everybody because we can afford it, partly because we’re not paying with 100 cents of our own money. It gets expensive for everybody. So, I’m not sure that actually would cause you to amount of white charger and head off, but I think that’s one thing I’d say.
Mark Pauly: And then the other thing is a little more wimpy, but I actually think it’s important. If you look at the situation in healthcare now, it’s actually better than it has been in many years. The number of percent uninsured is low as it’s ever been, 8%. It’s kind of bottomed out there, but that’s what it is. Healthcare spending is still growing faster than GDP, but it used to grow twice as fast and now it only grows 50% faster. So, there’s progress there. And of course, it depends on what your pick, but certainly some new discoveries like the medicines for hepatitis C or the medicines for psoriatic arthritis and all the other autoimmune diseases are improving the quality and quantity of people’s lives.
Mark Pauly: So, objectively, I would look at the health system and say as long as I’ve been studying it, it’s in about as good a shape as it’s ever been, which is a little surprising because everybody’s now all anxious about it. But I think that’s politically generated anxiety and at least one sentiment I have thought of is maybe we ought to just let healthcare alone for a while.
Bill Frist: From a policy standpoint.
Mark Pauly: From a policy standpoint, yeah. And concentrate on things where we know there are problems which either government caused or it could solve like immigration, the environment and so forth. It may be that where we are in healthcare, although we all always look for improvement, there may not be, at least I don’t see any huge improvements that are just hanging there ready to be plugged.
Bill Frist: So, you’re fairly optimistic about where we are today based on the past. It’s gotten progressively better.
Mark Pauly: Yeah, now of course spending can continue to grow faster than GDP forever. It’s going to bite into other things. But as the economist, Herb Stein, much funnier than his son Ben Stein, the comedian Herb used to say, “If it can’t go on like this forever, it won’t.” And so eventually, healthcare, either GDP growth will catch up to healthcare spending growth or healthcare spending growth will be brought in line with GDP growth. But for the moment, I guess, maybe it’s because I like in this part of my life to be less upset, but I think healthcare is doing a lot better than a lot of other parts of the economy.
Mark Pauly: And to some extent the attention I would like this political attention if I, now I’m just talking as a citizen, what do I know about politics? But I would like to see devoted to issues, problems where we know what to do, we know what not to do and we could do it as opposed to a setting where of course, everybody would like healthcare to be really good and really cheap, but that’s not in the cards. And we may be at a place where-
Bill Frist: How many people [crosstalk] over the years.
Mark Pauly: Well-
Bill Frist: I know in the aggregate because you’ve written so much.
Mark Pauly: Well, that’s awful hard to say, 120 undergraduates a year for 30 years, that’s probably pretty many.
Bill Frist: Once upon a time you had a guy by the name of Larry Van Horn.
Mark Pauly: Yeah. Well, so Larry was a PhD student and about four years ago, they had a celebration, not really for me, but for this Leonard Davis Institute at Penn. It was its 50th anniversary. But I got recognition and so my PhD students came and a person said, “We’re going to have a group picture of you with all your students.” And it was in the National Constitution Center and we’re down on the ground floor and everybody had been up on the second floor and I heard this trampling of feet. It sounded like elephant stampede. That was all my PhD students. So, that was the most heartwarming thing actually when I heard of my PhD students came down the stairs to get their picture taken with me.
Bill Frist: Well, it’s a huge contribution.
Mark Pauly: Yeah.
Bill Frist: It leaves a real legacy as people go out and do their own teaching of so many.
Mark Pauly: Well, try not to mess them up. That’s the best part.
Bill Frist: Well, thank you very much for being with us today. Looking forward to continuing this conversation in the future.
Mark Pauly: All right, great.
Bill Frist: Thank you very much.
Mark Pauly: Sure.
Bill Frist: This episode of A Second Opinion was produced by Todd Schlosser, the Modus Creative, and Snapshot Interactive. You can subscribe to A Second Opinion on Apple podcast or wherever you’re listening right now. And 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.
Bill Frist: Be sure to join us for our second episode in our four-part healthcare economist series where we are joined by Dr. Sherry Glied, Dean of New York University’s Robert F. Wagner Graduate School of Public Health. A Second Opinion broadcast from Nashville, Tennessee, the nation’s Silicon Valley of health services, where we engage at the intersection of policy, medicine and innovation.
