Podcast Summary: "Why is Healthcare Not Better and Cheaper?" Is Business Broken?
Host: Kurt Nickish
Guests: Jim Rebitzer, Professor of Markets, Public Policy and Law at BU Questrom School of Business; Bob Rebitzer, National Advisor at Manat Health
Release Date: March 20, 2025

1. Introduction

In the March 20, 2025 episode of Is Business Broken?, host Kurt Nickish engages in a deep conversation with Jim and Bob Rebitzer, authors of the book "Why is Healthcare Not Better and Cheaper?". The episode delves into the intricate challenges hindering innovation in the healthcare sector, exploring systemic barriers, financial incentives, and social norms that collectively impede the advancement of more effective and affordable healthcare solutions.

2. The Core Problem: Innovation Barriers in Healthcare

Jim Rebitzer opens the discussion by highlighting a perplexing question: "How come healthcare doesn't get better and cheaper like our cell phones do?" [01:23]. The Rebitzer brothers argue that the core issue lies in the financial incentives within the healthcare system, which favor low-value innovations over those that could reduce costs and enhance quality.

Jim explains, "The way financial incentives work in healthcare, the way professional and social norms operate, and the issue of reluctant incumbents create the problem." [01:42]. These factors collectively make it too easy to profit from marginal advancements while making significant cost-reducing innovations financially unattractive.

3. Defining Innovation in Healthcare

When defining innovation, Bob Rebitzer emphasizes a broad perspective, using antibiotics as a prime example. "Antibiotics are essential to modern medicine... the pipeline of antibiotics has become dangerously thin." [03:38]. He underscores the paradox where, despite a high societal need and potential benefits, the financial incentives for developing new antibiotics are misaligned, leading to a scarcity of new drugs.

4. Financial Incentives and the Patent System

The patent system is a focal point in the discussion. Bob articulates a key dilemma: "If you develop something that people want to use, you get a monopoly... But in the case of antibiotics, wise stewardship by physicians places enormous pressure on prescribers not to prescribe the new antibiotics." [05:59]. This stewardship, while socially beneficial, reduces the commercial viability of developing new antibiotics, as high prices coupled with limited usage deter investment.

Bob further elaborates on the temporal constraints: "It takes 10 years to develop the antibiotic... but the period to recoup costs gets shorter and shorter." [06:20]. This shrinking window diminishes the financial incentives for pharmaceutical companies to invest in new, socially valuable antibiotics.

5. Reluctant Incumbents and Switchover Disruptions

The Rebitzer brothers introduce the concept of "reluctant incumbents," entities within the healthcare system resistant to adopting transformative innovations. Jim shares a personal anecdote about a gait-altering technology designed to reduce knee pressure, highlighting the absence of a clear customer within the existing healthcare ecosystem [07:55].

Bob contrasts different transformative innovations to explain "switchover disruptions"—the significant operational changes required to implement new technologies. "Electronic health records took 20 years to implement because the switchover disruptions were large," he notes [19:31]. In contrast, minimally invasive gallbladder surgery was rapidly adopted due to minimal disruption [20:03].

6. Social and Professional Norms Impacting Innovation

Social norms and professional identities significantly influence innovation adoption. Bob discusses how norms around professional autonomy among physicians impeded the establishment of mini clinics by pharmacies [15:42]. Despite the value these clinics provided, professional resistance from the medical community stifled their wider adoption.

Jim provides an optimistic example with the advent of palliative care: "Diane Meyer and her colleagues transformed medical practice without financial incentives by mobilizing the values of healthcare professionals to relieve patient suffering." [13:08]. This case illustrates how aligned social values can drive meaningful innovation even in the absence of direct financial rewards.

7. Insights from Daron Acemoglu

The episode also references insights from Daron Acemoglu, an MIT Institute Professor and Nobel laureate in Economic Sciences. Acemoglu points out that innovation alone cannot solve human-made problems without considering the broader societal and economic contexts [11:17]. He highlights issues like externalities and the difficulty in monetizing public health gains, which skew innovation towards serving affluent populations [15:54].

Bob concurs, emphasizing that "there are lots of important areas where the incentive structure actually gets in the way of developing socially valuable innovations." [17:01]. This observation aligns with Acemoglu's critique of the current incentive systems in healthcare.

8. Case Studies and Examples

The Rebitzer brothers discuss several case studies to illustrate their points:

• Antibiotics Development: High societal need but low commercial incentives due to stewardship and limited usage [05:59].

• Electronic Health Records (EHR): Slow adoption due to significant switchover disruptions requiring extensive investment and systemic changes [19:31].

• Minimally Invasive Surgery: Rapid implementation with minimal disruption, showcasing how certain innovations can swiftly transform healthcare when barriers are low [20:03].

• Semaglutides (GLP-1s): These weight-loss drugs by Novo Nordisk are priced high, limiting accessibility despite their effectiveness. This leads to shortages and rapid generic competition [25:23].

9. Proposed Solutions

To address the misalignment of incentives and foster more socially beneficial innovations, the Rebitzer brothers propose several solutions:

• Aligning Patent Incentives: Introducing mechanisms like advanced market commitments, buyouts, and auctions. Bob illustrates this with the concept of auctioning drug patents to set market prices that ensure accessibility while rewarding innovators [25:40].

  • "The auction determines the market price of the drug, and most drugs are then sold at marginal costs, allowing innovators to receive a significant reward without impeding utilization." [28:46].

• Mobilizing Social and Professional Norms: Encouraging the integration of healthcare professionals in the innovation process. Jim advocates for training physicians and nurses to actively participate in innovation and stewardship of healthcare resources [29:07].

  • "We need to equip practitioners with the tools and ethical frameworks to engage in innovation, unleashing positive advancements without relying solely on financial incentives." [29:51].

• Reducing Market Concentration: Jim and Bob argue for increasing competition within the healthcare market to minimize resistance from dominant players [35:36].

  • "If we have less market power concentrated in a few entities, there will be fewer barriers to adopting transformative technologies." [35:42].

10. Vision for the Future and Concluding Thoughts

Looking ahead, the Rebitzer brothers are optimistic about the potential for more effective and affordable healthcare through strategic changes in incentives and norms. Bob emphasizes the importance of "thinking in a clear-headed way about the incentives and social norms to expand the policy space and overcome political gridlock" [32:57].

Jim shares his excitement about the possibilities of innovation: "I'm excited about the potential of new ideas, technologies, and business models to make life better for patients and society." [31:58]. He envisions a healthcare system where innovations are designed and implemented in ways that maximize societal benefits.

When addressing critiques that the system is overly profit-driven, the brothers clarify that the issue is not greed per se but the misalignment of incentives. Bob distinguishes between malicious greed and rational responses to incentive structures, advocating for "clear-headed, non-moralistic analysis to understand and change these incentives." [34:41].

Jim concludes by cautioning against the monopolization of the healthcare market: "Relying on market incentives without addressing concentration leads to less effective innovation and impedes societal benefits." [35:30]. Instead, fostering a competitive environment is essential for enhancing innovation and accessibility.

Key Quotes:

• "How come healthcare doesn't get better and cheaper like our cell phones do?" — Jim Rebitzer [01:23]

• "Developing new antibiotics would be a very profitable business... But we have this paradox." — Bob Rebitzer [05:59]

• "We don't teach physicians how to engage in the process of innovation." — Jim Rebitzer [29:53]

• "If we have less market power concentrated in a few entities, there will be fewer barriers to adopting transformative technologies." — Jim and Bob Rebitzer [35:36]

• "Imagine if we could align the patent system with societal value, ensuring that innovations are both rewarded and accessible." — Bob Rebitzer [25:40]

This episode of Is Business Broken? provides a comprehensive exploration of the multifaceted barriers to innovation in healthcare. Through insightful dialogue and real-world examples, Jim and Bob Rebitzer illuminate the complex interplay of financial incentives, social norms, and systemic inertia that hinder the development and adoption of cost-effective and high-quality healthcare solutions. Their proposed solutions offer a roadmap towards a more innovative and equitable healthcare system.