Dr. Saum Sutaria is the Chairman and CEO of Tenet Healthcare and a former leader in McKinsey & Company’s Healthcare and Private Equity Practices, where he spent almost two decades shaping the field. In this episode, Saum unpacks the complexities of the U.S. healthcare system, providing a detailed overview of its structure, financial flows, and historical evolution. They delve into topics such as private insurance, Medicare, Medicaid, employer-sponsored coverage, drug pricing, PBMs and the administrative burdens impacting the system. Saum’s insights help connect healthcare spending to broader economic issues while exploring potential reforms and the role of technology in improving efficiency. Saum highlights how choice and innovation distinguish the U.S. healthcare system, explores the reasons behind exorbitant drug prices, and examines the potential solutions, challenges, and trade-offs involved in lowering costs while striving to improve access, quality, and affordability. The opinions expressed by Saum in this episode are his own and do not represent the views of his employer.
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We discuss:
- The US healthcare system: financial scale, integration with economy, and unique challenges [5:00];
- Overview of how the US healthcare system currently works and how we got here [9:45];
- The huge growth and price impact due to the transition from out-of-pocket payments in the 1950s to the modern, third-party payer model [18:30];
- The unique structure and challenges of the US healthcare system compared to other developed nations [22:00];
- Overview of Medicare and Medicaid: who they cover, purpose, and impact on healthcare spending [27:45];
- Why the US kept a employer-sponsored insurance system rather than pursue universal healthcare [32:00];
- The evolution of healthcare insurance: from catastrophic coverage to chronic disease management [36:00];
- The challenge of managing healthcare costs while expanding access and meeting increased demand for chronic illness care [44:15];
- Balancing cost, choice, and access: how the US healthcare system compares to Canada [48:45];
- The role of the US in pharmaceutical innovation, it’s impact on drug pricing, and the potential effects of price controls on innovation and healthcare costs [56:15];
- How misaligned incentives have driven up drug prices in the US [1:05:00];
- The cost of innovation and choice, and the sustainability of the current healthcare cost expenditures in the US in the face of a shrinking workforce and aging population [1:11:30];
- Health outcomes: why life expectancy is lower in the US despite excelling at extending lifespan beyond 70 [1:18:45];
- Potential solutions and challenges to controlling drugs costs in the US while balancing choice and access and preserving innovation [1:26:15];
- Balancing GLP-1 drug innovation with affordability and healthcare spending sustainability [1:40:00];
- Reducing healthcare spending: complexities, trade offs, and implications of making needed cuts to healthcare expenditures [1:46:45];
- The role of government regulation, opportunities for cost savings, and more [1:56:15];
- Hospital billing: costs, charges, complexities, and paths to simplification [2:01:15];
- How prioritizing access and choice increased expenditures: reviewing the impact of healthcare exchanges and the Affordable Care Act [2:08:00];
- Feasibility of a universal Medicare program, and what a real path to sustainable healthcare looks like [2:15:45];
- The challenge of long-term care and the potential of innovation, like device-based therapies and AI, to improve health [2:23:15]; and
- More.
Show Notes
The US healthcare system: financial scale, integration with economy, and unique challenges [5:00]
- Peter hopes this conversation serves as the masterclass on the United States Healthcare System
- He thinks of himself as someone who tends to get deep into things and then quickly come to an understanding of them
- But he has been rather unsuccessful in understanding healthcare, and he’s looking forward to how much he’s going to learn in the next few hours
- We are going to talk about things that people care about
- Why is it so expensive?
- Why isn’t everybody covered?
- Why do we not have the best life expectancy?
- On average, why do we have horrible life expectancy despite spending twice as much as anybody else?
- We can’t have that discussion if people don’t understand the system, and it’s a really complicated system
- Saum is one of the most structured thinkers Peter knows
Saum’s framework for understanding healthcare in the US and why we are different than every other country on the planet
From a finance perspective
- Healthcare comprises close to 20% of the US economy
- The US economy gross domestic product that’s probably $28 trillion
- That’s 25% of the world’s economy
- Another way to think about it, that’s almost $90,000 per person in the US
- We spend $11 to $12,000 per person in the US on total healthcare expenditure
- $4 trillion of expenditure in the healthcare sector
- If you added up all of the exports that the United States sends out across all industries, you’re talking about $3 trillion
- We import more than we export
- A consumer culture, that’s close to but not quite $4 trillion today
Put that in context in terms of how much we spend in healthcare in the US, it’s a huge number
“Any discussion about the economy, about inflation, about jobs, you’re really talking about healthcare in many ways… given that it’s almost 20% of the economy.”‒ Saum Sutaria qtk
Peter asks, “Do we know that it represents roughly 20% of the workforce as well?”
- In terms of wages, it probably represents a little bit more than that because the average wage in healthcare is higher than in other areas
- As healthcare as a percentage of the US economy grows, you can’t have that happen without considering what it does to the rest of the economy
- That’s going to be an important discussion around US competitiveness, US affordability, US coverage, etc. given the nature of healthcare and healthcare issues today
Does it make sense to go back to the 1950s to start with Hill-Burton to start with, and then progress into Medicare and Medicaid?
Does historical context give people a sense of what happened after World War II?
Overview of how the US healthcare system currently works and how we got here [9:45]
Let’s start with painting the picture of where we are today, and then let’s back up and say how did we get here?
- $4 trillion (just to keep this simple)
- About $1 trillion of that (1/4th) comes from consumers
- Some of that is spent on what people contribute to the insurance they procure
- Some of that we’re spending directly on consuming healthcare, out of our pockets
{end of show notes preview}
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Saum Sutaria, M.D.
Saum Sutaria earned a Bachelor’s degree in Molecular and Cellular Biology and also in Economics from the University of California, Berkeley. He earned a medical degree from the University of California, San Diego. He then completed postgraduate training in internal medicine, and had a focus in cardiovascular medicine at the University of California, San Francisco. Dr. Sutaria worked for nearly two decades at McKinsey & Company where he was a leader in healthcare and private equity practices, advising clients on strategic operational and financial matters. Currently, Dr. Sutaria is the Chairman of the Board and CEO of Tenet Healthcare. [Tenet Health]
