Qualy #85 - The past, present, and future of medicine, hospitals, and healthcare

**Peter Attia** (0:05)
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You know, it's interesting when you look at all of the businesses that have been disrupted by the internet and contrast it with those that have not, right? So you've just given us a very eloquent description of how the music industry was disrupted, but you also pointed out something interesting, which is it wasn't just the internet that disrupted, it was the desperation that followed the decimation that permitted the restructuring.
Of course, then you can rattle off all the glib and obvious examples, right? What Amazon has done to retail, what Netflix has done to blockbuster and stores on the side of the street, what Uber has done to taxis, what all of the travel sites have done to travel agents. I mean, it's been incredibly disruptive. And yet, when I think about medicine, it's like one of the least disrupted industries by technology. And you basically still have hospitals eat all the rent, payers, although most people generally perceive them as bad guys, generally don't get paid that much. Providers get less and less on a per encounter basis.
And it's overall a pretty much similar system to what it was 20 years ago. And that's, I don't know, I mean, I guess I'd have to think about it, but I can't think of too many industries that are as unchanged in the presence of this revolution as healthcare.

**D.A. Wallach** (2:20)
No, I think you're right.
The appeal of investing in healthcare is exactly what you just expressed, and that's what drew me into it several years ago.
And what I've learned since then has been slightly disillusioning, but I'll give you my take on it.
The first thing I would say is that healthcare is still an industry that largely gets paid through labor. So most of the money ultimately goes to labor. It goes to doctors, it goes to healthcare personnel. The hospitals don't make that much money. They're not that great a business. If you look at Kaiser, for example, which is an integrated payer provider in California, I think they have a three or 4% gross margin. It's not a phenomenal business. The payers, to your point, have very low margins. They in fact have legally imposed limits on the amount of gross margin that they can generate, which you can argue about the ethics of. The pharmaceutical companies, who everyone hates, seemingly extract enormous profits. On the other hand, it's a very competitive industry. And apart from the legalized monopoly given to them via patents on new drugs, they are the only companies, sort of as I said about record labels, they're the only ones who are out here designing new solutions.

**Peter Attia** (3:49)
And taking an enormous risk.

**D.A. Wallach** (3:51)
Taking an enormous risk, and their shareholders are taking that risk. Now, whether they're being overpaid or underpaid to take that risk is totally debatable.
The other thing is that it's unclear where technology can deliver dividends in terms of human health. And so we're thinking about medicine at a moment in which we as a species have already made enormous progress. I mean, whatever we've doubled or tripled lifespan and I mean, you know these numbers better than I do, but even if you get rid of the infant mortality factor and these other things that distort the numbers, people are living quite a bit longer on average than they were even seemingly 30 years ago. And that's especially true of affluent societies until they get afflicted by the diseases of affluence.
So where can we get more life from or where can we reduce suffering and disease by way of technology is a little unclear. There are all sorts of things that we could, of course, do to make hospitals more efficient and to spend less than we do on things like end of life care that maybe aren't a good use of capital. But there's not so obviously a Spotify of healthcare waiting to happen. It's more like there are a million little IT operating efficiencies that McKinsey consultants will over the next several decades implement in large health organizations. And then the big promise is around new types of medicine that I think will arise in the biotechnology industry. And that's where I'm now spending a lot of my time and attention.