SALMAN KHAN: I'm here
with Doctor Laurence Baker from Stanford
Medical School, and we're going to talk about
health care costs, or health care economics, which
you're an expert in. LAURENCE BAKER: I like to spend
a lot of time thinking about-- [INTERPOSING VOICES] SALMAN KHAN: So all
of these charts, which all seem to have
a similar shape here, these are, essentially,
measures of how much we're spending on health care. So this first one right
here, what's this? Total health spending 1960-2009. And it says, United States. LAURENCE BAKER: This
is the United States. This is data that's compiled
by the federal government every year since, well,
1960 and this figure is-- SALMAN KHAN: And this isn't
adjusted for inflation. LAURENCE BAKER: That's
not adjusted for anything. That's the total dollar
value that the folks in the federal government who
like to calculate this number have come up with
for the amount we spend on health care in a year. SALMAN KHAN: OK. So someone looking just at
this data point might say, OK. Maybe it's not
inflation-adjusted. Maybe the inflation curve is
also growing at some rate here. But the absolute numbers
do seem to be large. By 2009, I guess it's
already-- well, 2009. We're already several
years passed that. two and a half
trillion dollars just to get people clear to
what we're talking about. This is in billions. This is 2,486 billion. So that's $2.4
trillion, and then that's predicted to
almost double by 2019. And our GDP is on the
order of $15 trillion. So it's a significant chunk
of everything that we produce. LAURENCE BAKER: That's a big
chunk of everything we produce. Yeah, going up rapidly. Hard to predict a little
bit, but all the trends are up and so we're
worried about-- SALMAN KHAN: And this is
on a per capita basis. So I guess there's
two ways to think about why costs are going up. One is that maybe we just
have a lot more people or, that on a per person
basis, we are spending more. And this chart seems
to imply the latter. LAURENCE BAKER: This says,
on a per person basis, we're spending more. Still not inflation
adjusted in this chart. But going from
$100 or so in 1960 to $8,000 in the last
couple of years-- and you can see the trend
since, say, 2005 in there. It's up and it's up
pretty steeply just in the last little bit. And headed for maybe
$13,000 or $14,000. SALMAN KHAN: $13,000 or $14,000. That's a nice sub-compact
car one could buy. Not to say what's
more important. And so this next
chart right over here is actually that calculation
as a percentage of GDP. And, to me, this is, maybe, one
of the most relevant things, because that
adjusted for things. It doesn't directly
adjust for inflation but it says, as a percentage of
all of the goods and services as an economy that we are
doing, this is a percentage. So this is an interesting
one right here. So in 1960, roughly
5% of everything that all the goods and
services Americans produced, 1 in 20 of that,
of our energies, was spent towards health care. And now it's looking like,
in the next few years, it's going to be
approaching 20%. It's already in the upper teens. LAURENCE BAKER: Yeah, its past
15%, 16%, and we're headed up. The last year or so, maybe,
it was a little slower growth, but you can see the trend over
the last decade or two decades. It's up up and up. So you're right. When health
economists, when people who think about
this more deeply, want to think about
health care spending two and a half trillion
is an interesting number. 8,000 is an interesting number. But this one captures
population growth to a large extent,
captures inflation. And the fact that we're
spending one seventh, roughly, of our productive capacity on
health care is interesting-- SALMAN KHAN: And closely
approaching-- actually, it's already one sixth
and approaching one fifth of everything that
we do is about health care. And I guess there's a
couple of things there. Maybe we're getting healthier,
I guess, is one possibility. Or maybe we aren't and
then something is weird. LAURENCE BAKER: Well, that's
the really interesting question. We can think about
why this is going up, but at the end of
the day, you're happy if we're
spending this much and if we're spending
more than other countries, we're spending more
than we did last year, if we're getting
healthier because of it or if we're getting happier. Interesting question if we
want to count happiness. It doesn't make us healthy,
but if we're getting something we value, and we're getting
worried, and we get worried-- SALMAN KHAN: There are
many forms of happiness that do not make you healthy. [LAUGHTER] LAURENCE BAKER: At
the end of the day, this may be our
biggest question. SALMAN KHAN: Some will act
directly against your health. And that goes straight
into this chart which you're talking about. Maybe we should or maybe we
shouldn't compare ourselves to other countries. And this is comparing
ourselves to other countries. So this chart right over here. This is the blue graph. So we are this light
blue [INAUDIBLE] same. So this is us. This is the United
States right over here. That is us, the United States. And if we compare to other
developed countries with, I guess, not too
different demographics-- LAURENCE BAKER: Yeah, the
overall developed countries, industrialized
countries, countries where the standard of living
is in pretty good shape. SALMAN KHAN: They have a
broad-- it's not a homogeneous-- LAURENCE BAKER: Not
entirely homogeneous. Some people will argue the
US is more diverse than-- SALMAN KHAN: The United
Kingdom is quite-- LAURENCE BAKER: --pretty
diverse countries, generally. Certainly countries
with immigration issues that the US has,
countries with lower income and higher income
populations that the US does. So they're pretty diverse. SALMAN KHAN: Right, I mean,
when you look at this, maybe this is the
real chart to look at, because this is the
percentage of GDP but also puts it in
context of other countries. And that's where they're all
kind of bundled around in this, I don't know, the low end. What is this, actually,
the UK-- I didn't realize-- is actually at the low end
as a percentage of GDP. And France is at
the high end of GDP. LAURENCE BAKER: Yeah, so
I've done a little picking and choosing of the
European countries. Yeah, there are some
that are a little higher, but nobody comes
close to the US. These are the big ones. UK is the lowest in
the world, really, of the developed countries,
the European countries. And France, Germany,
Canada, are commonly compared to the
US at 10% or 11%. So we're 50% higher,
60% higher than those double what's
going on in the UK. SALMAN KHAN: And do we
know why we're doing this? Where is that going? Where are we spending money that
these other countries aren't? LAURENCE BAKER:
Right, so two places. Ultimately, the
economics of it would say, if you're spending
more than somebody else, how much stuff you buying, what
kind of things you're buying, and then the price that
you're paying per thing. So we're talking either
about prices or quantities. So it's a little bit of both. If you compare us
across countries, we buy more of some
kinds of services than other countries buy. There's some interesting
comparisons-- SALMAN KHAN: So we might
get more MRI's per person or something like that. LAURENCE BAKER: We certainly
do get more MRI's per person. It's interesting. It's not that we have more
doctors per capita, say, or more hospital
beds per capita. It's not that we get more
primary care visits in the US. It's actually true that,
in many European countries, you get more primary
care visits, more time with your primary care
doctor then we get in the US. But if you were
picking a poster child, it might be the MRI or
something more sophisticated, something more expensive,
specialists visits, lots of tests, and
things like that, that we buy in the United States
that they don't buy in Europe. And that drives up
our health care costs. SALMAN KHAN: So we
definitely are buying more and it's costing us more for-- LAURENCE BAKER: And
the price is also different in the United States. There's some people who
have done studies of this. There's always
little bits of debate about how you define
these prices exactly, but we pay doctors--
if you're finding doctors' annual
incomes, they're going to be higher in
the United States. That is to say, we're paying,
in some sense, a higher price for a year of work from a
doctor than they pay in Europe. We're paying a higher price for
our hospital administration, for our staff in the hospitals,
things we tend to pay more. So we buy more things. We tend to buy more of
the more expensive things. And we tend to pay
a higher price. SALMAN KHAN: Do
you know, roughly, how much of the
health care dollar goes towards salaries
versus drugs versus things like MRI's and the kind of fixed
costs like MRI's and hospital beds and things like that? LAURENCE BAKER: Yeah, so some
of this you can figure out. We could almost put another
slide up on there on the screen there. The US health accounts
will tell you something like doctors and hospitals
and drugs-- drugs, 10% or 15%, a little less than that. I would have to go back and
look at the data on physicians. But physicians-- let's say that
hospitals and physicians are 20% or 30%-- I hesitate to
give you look the number. SALMAN KHAN: It's not 90% LAURENCE BAKER: It's not 90%. SALMAN KHAN: When
we say hospitals-- so that includes
outpatient and inpatient? LAURENCE BAKER:
Yeah, so there's lots of ways these health
accounts get broken up, physicians, hospitals, emergency
departments, different kinds of equipment and things that
get purchased, there's research and there's buildings,
and all that-- SALMAN KHAN: So just
[INAUDIBLE] none of these things do make up the bulk of it. We had a video
about drug pricing, but drug pricing by
itself is not the reason why we're out here. And physician pay by
itself is not the reason why we're out there. All of these are contributing. All of these we're getting
more of and we're paying for. LAURENCE BAKER: It's a mix. At the end of the
day, it's going to be a bunch of things like
this all thrown together. We buy more stuff. We tend to buy more
expensive stuff. We buy it from people
who we pay a lot. We buy more specialist visits. For example, in the
US, we pay specialists a higher annual salary
than we pay generalists, and that comes
out in the prices. SALMAN KHAN: They don't
do that in Europe? LAURENCE BAKER:
Europe does pay more, but everybody is shifted down. All the physicians
are shifted down. And I think the
specialists are probably shifted down more in Europe
than the generalists are. We pay more for our
prescription drugs here. We pay more for-- SALMAN KHAN: Now,
what are we getting in terms-- other than more
Mercedes in the doctors' parking lots. I'm kidding. I'm kidding. Although, you do
see a lot of those. It seems to be the car of
choice when I visit the doctor. And my wife's a physician. Obviously we all work
with many, so, they've worked very hard
so, I'm not going to make any statement about
they're underpaid or overpaid, especially relative to some
people I knew in the finance world, I would say that
they're definitely underpaid. LAURENCE BAKER: Possibly, yes. SALMAN KHAN: Yes. They're above Mercedes
in that world. And so are we getting
anything in exchange for this? Are we getting less wait times? Are we getting better
access to our doctors? What are we getting or
what do we know about that? LAURENCE BAKER: Well,
so this is the debate. This is in, maybe, a microcosm
one of the big debates we're having in
the US right now. We're spending more every year. We're spending more
than other countries. If it was clear we were twice
as well off, twice as happy-- SALMAN KHAN: And
we're growing faster. LAURENCE BAKER: And
we're growing-- yes, it depends on how you
look at the timing, but we're growing a little
faster in some years. Our health care costs go up 10%. If we knew we were 10% happier
this year with our health care system, we would be happy. And that's the big debate. There are some cases
where the US-- there are things you can point to. We have fewer waiting
lines for some services, and some of the
countries that keep the costs down have more lines. It's also not the
case that they have waiting lines for everything
and the really serious stuff doesn't tend to have
long waiting lines. We get easier access to some
of the high tech stuff, which we like it, and so that
drives up our spending but maybe makes us happy. SALMAN KHAN: It may or may
not lead to better outcomes. So it makes us
happy that we feel like we're getting
better customer service. Instead of waiting three
months for a procedure, we're getting it in three weeks,
which would make me happier. I mean, objectively, I would
be much happier about that. But what happens when we
look at the overall outcomes? Life expectancy, and people
dying from heart disease, or whatever? LAURENCE BAKER: This
is kind of a mixed bag. Some of the most
commonly cited figures are cases where
the US doesn't do as well as some
European countries. We spend a lot more and we don't
do better on life expectancy. We don't do better
an infant mortality. There are some cases where
the US does really well, especially things where
access to the high end stuff can make a difference. And so there are
some situations where it looks like we buy the kinds
of things that are really going to make us healthier. But it's not across the board. And some of the really
interesting ones are cases where there's
fairly inexpensive stuff that looks like it would work
well and improve outcomes, and sometimes we're not
doing the inexpensive stuff that other countries are doing. And it's coming out
to maybe hurt us. We wouldn't be having the debate
if we were clearly better off, but it's really the case that,
in only some of the measures, do we end up better off. We don't always
vaccinate our kids more. We don't always get
people screened more for cancers and
things like that. But sometimes we do. So there are success
stories here. SALMAN KHAN: Now,
one thing that's interesting about looking
at this chart a little bit deeper is that it doesn't
look like this is something that, you know, since
the American Revolution that we've been spending
double as a percentage of GDP relative to everyone else. I mean if I just look at
this chart right here, it seems like us and
Canada, we were right along very similar to each other
to about the early '70s. And then we're still
in kind of that pack with Germany and France. I guess, relative to the
UK, we actually always have been higher. But then right around
this time period, the late '70s,
early '80s-- that's where we really
started to break off. Was there some
policy shift there? LAURENCE BAKER: So there's not
a tangible, specific policy shift. What starts happening in the
US there is we start adopting and we start shifting toward
the higher-end stuff more. And some of that's the part-- SALMAN KHAN: That's where
the technology started to really get-- LAURENCE BAKER: I think
that's mainly the story. We started to
really-- the research in things, the development that
went on in the world, really from 1940, '50, '60, started
to produce the capacity to do new and expensive things. And the US grabbed those and
other countries in the world were less quick to
grab them, maybe, you would say more careful. Maybe you would say
too careful, too slow. But the US, as you see
there, really quickly started to put up specialized
hospitals, started to buy the fancy
equipment, and you can see what kind
of came out of it. SALMAN KHAN: And to some degree,
probably, the whole world benefited from that because
you're going back to the drug pricing or the MRI manufacturers
were able to get those returns and, hopefully,
much of that they're able to reinvest and not spend
too much on other things. But it is fueling-- LAURENCE BAKER: Yeah,
the innovation-- there's always these kinds of questions
that swirl around here. If the US pays a lot
of money and that comes back into innovation
then everybody benefits from, including us, maybe it's OK. I think there are people
who debate whether we got enough innovation,
enough benefits that's tangibly related to our spending
to make our spending worth it, but there are some cases
where that probably happened. And so there's some
subtlety to the question. I always say, if
you're the Yankees and you're going to pay the
huge amount for the big payroll and the big stars, people
expect you to win every time. And that's the US's challenge. If we're going to
pay the big bucks-- SALMAN KHAN: We
should show results. LAURENCE BAKER:
--we really like we want to show results every time. And sometimes we
do get the results, but it's not often enough. SALMAN KHAN: It's not ambiguous. We're not winning the
championship every year. Very interesting.