Paradigm Shift In Healthcare: Single-Payer Is A Red Herring

|
Includes: AMZN, BRK.A, BRK.B, CMG, MCD, TSLA, YUM
by: Rogier van Vlissingen
Summary

The discussion of the single payer health-care model is advancing, but in many ways it is no more than a red herring.

An alternative model emphasizes healthcare over sick care, addresses fundamental reform, and has been explored by some employers.

While a single payer model is potentially more efficient, it amounts to majoring in a minor - attacking administrative cost, not fixing the problem.

Patient empowerment and relatively high deductibles are the model of the altnernative plans which rely on the fact that lifestyle changes can improve health outcomes.

The major issue is that in our health system the perverse incentives are that money is made by treating disease, not by achieving health.

Recently, a fellow SA author ventured into the discussion about single-payer healthcare (Single Payer, Medicare-For-All And The Investment Implications) and reasoned that it was becoming more likely and politically feasible. Obviously, at least in theory, it could make things more efficient, however in practice the efficiencies are being sought in the wrong areas, e.g. lowering administrative costs and drug costs, and all the familiar scaling arguments. In practice, it makes no sense to optimize a model that is more part of the problem set than it is part of the solution set - making a bad system cheaper makes the problem only more entrenched and harder to fix.

The thinking of Sen. Bernie Sanders of "healthcare" as a "right" is certain to create an even bigger crisis down the road, which is different from saying we should not create a humane solution as a society, but nationalizing and institutionalizing a bad system is not it. As long as the government subsidizes the bad foods that makes people ill, and recommends bad diet via the USDA's MyPlate, the health care system will continue to spiral out of control, regardless of how it is paid for. What masquerades as health care in the USA and most developed countries is in fact sick care, and the money is in keeping people well enough to get back to work and to pay the bills, but it is definitely not in keeping them healthy on a lifetime basis. Yet, in spite of much counterproductive political meddling, alternatives are slowly emerging. There already is life insurance for healthy living, and some interesting experiments in the health care field are afoot.

The Whole Foods and GEICO Experiences

Whole Foods now part of Amazon (AMZN), has been at this for a long time. Redesign of their health plan started in 2003, when they found their old plan was essentially broke. Here is a 2009 review of their high deductible plan. Evidently, they have kept working away at it, and the plan has continued to evolve in a direction that could become a trend setter, since it includes training employees to adopt a #WFPB ((Whole Foods Plant-Based)) diet.

This summer, Whole Foods CEO John Mackey spoke about their health plan at the Plantstock 2017 conference. Whole Foods sends whole groups of enrolled employees to a one week immersion course on living a Whole Foods, Plant-Based lifestyle in an effort to help teach them a healthy lifestyle and to take responsibility for their health. John Mackey also authored a book on it (with two MD co-authors), titled The Whole Foods Diet: The Lifesaving Plan for Health and Longevity.

Documentation on the Whole Foods Health plan can be found here, the program in its current form includes training in the Whole Foods Plant-Based diet and having employees take responsibility for their own health in that way. The plan has a fairly high deductible that is in-line with that philosophy. In some ways the GEICO (BRK.A) (NYSE:BRK.B) case is more interesting because it is not in any way in the health business, except arguably indirectly in its life insurance business. The first published study on their program goes back to 2010, and can be found here: Geico Study on PCRM. It was followed up with a multi-site study in 2013, and finally, a conclusion of sorts was published in 2015, on the website of the George Washington University School of Medicine and Health Sciences. GEICO keeps their financials on the matter to themselves, but suffice it to say, that according to the latest reports, the program appears to be still going strong.

These are just two pioneers in the field. There is bound to be more where that came from. There are numerous indications that the trend is compelling and gaining traction, because it is at the confluence of several major issues which are mutually reinforcing. One major indicator is the World Health Organization declaring processed meats to be a type one carcinogen, classifying sausage and bacon with smoking and asbestos. The experience around the world is that with the import of American fast food, Western-style health problems are skyrocketing and many countries, including Germany and China are starting to steer away from meat to one degree or another. Another issue is the environmental issues associated with animal husbandry, best summed up in the linked 2015 PubMed study as follows:

RESULTS:

To produce 1 kg of protein from kidney beans required approximately eighteen times less land, ten times less water, nine times less fuel, twelve times less fertilizer and ten times less pesticide in comparison to producing 1 kg of protein from beef. Compared with producing 1 kg of protein from chicken and eggs, beef generated five to six times more waste (manure) to produce 1 kg of protein.

CONCLUSIONS:

The substitution of beef with beans in meal patterns will significantly reduce the environmental footprint worldwide and should also be encouraged to reduce the prevalence of non-communicable chronic diseases. Societies must work together to change the perception that red meat (e.g. beef) is the mainstay of an affluent and healthy diet

An Ounce of Prevention is Worth a Pound of Cure

Let food be thy medicine.
Hippocrates

The new nutritional paradigm, which originates from the nutritional research of T. Colin Campbell ("The China Study" and "Whole"), proposes that overconsumption of protein, and in particular animal protein is the main problem in our Western diet. Colin Campbell's Whole Foods Plant Based nutritional paradigm is summarized very efficiently on the website for his Center for Nutrition Studies. The Whole Foods, Plant-Based diet, without added oils or sugar, should provide abundant nutrition. It is a complete paradigm shift in nutrition. The only possible exception is a small amount of B12 supplementation that is desirable, typically every other day or so. The combination of Campbell's nutritional research and the clinical experience in this area from Dr. Esselstyn of the Cleveland Clinic and many others (including among others doctors McDougall, Greger, Ornish), a growing phenomenon in nutrition is now increasingly getting traction.

Most recently, AMA and the American College of Cardiology both recommend hospitals to offer Whole Foods Plant-Based entries as an option at every meal, and many large hospitals are already doing this for some time (e.g. Montefiore, a five hospital system in the Bronx). Medical schools are increasingly integrating this new paradigm in their teaching. Organizations active in this field include the PCRM (Physician's Committee for Responsible Medicine) which promotes "prevention before pills" and advocates for a proper plant-based diet, and also ACLM (American College of Lifestyle Medicine), which is a professional association helping doctors transition to the new plant-based model focusing on prevention over cure.

Another important voice is that of ND and Nutritionist Pam Popper of Ohio, with her books Food over Medicine, and Solving America's Healthcare Crisis. Veganism as a whole has grown 500% since 2014, but the cautionary observation is that most vegans are nutritionally naive. The action is really with the nutritionally sound programs advocated by PCRM, the American College for Lifestyle Medicine, T. Colin Campbell's Center for Nutrition Studies, and others, for it is the nutrition-to-health nexus which will increasingly drive the bus.

The Sick-Care Model is Failing

Looking at it as an economist might, it is obvious that our existing healthcare model is sick. We have the most expensive system in the world by at least a factor of two and our health outcomes are at a third world level - you can find some interesting summaries on the site of the Peterson Foundation, here. The system is also made for financial fraud. Simply put, doctors make their money treating illness, not by healing patients, insurance companies put on a show of managing costs, but in the end have the same incentive. They merely can't be worse than the competition at managing costs, but the whole system is a sick care system, not a healthcare system. Consumers are being trained by big pharma to ask for a pill for every ill, so they are part of the problem until they decide they don't like pills anymore, for their comes a point when it becomes counter productive to spend your time worrying about the side effects of medication when you could just eating healthy food instead.

Dr. Caldwell Esselstyn likes to refer to the industrial medical system as "pharmageddon," and indeed it is, for all the pressures seem to be towards symptom suppression, and not dealing with the cause of the illnesses that are being treated. The results are that people in effect save up disease until they retire, when they are least able to deal with it, financially and otherwise. The problems that have been postponed for a lifetime compound and in the end they manifest in chronic illness. One wonderful summary of that problem can be found in the discussion of antacids in the book Your Body's Many Cries for Water, by Dr. Batmanghelidj - postponing treating the cause, simply leads to cascading consequences later on. As a society, we are literally moving the proverbial deck chairs on the Titanic, and the so-called medical system does about the same as the slave traders did, dressing up their cargo for sale with some cocoabutter, so they looked good long enough at the auction.

Seen in this light, the opioid crisis is merely the tip of the iceberg - it is simply the most extreme consequence of a healthcare system that dispenses pills for everything instead of helping people to be healthy. It is no different to say that FDIC insurance makes bankers irresponsible (it does), to say that cheap "healthcare" makes patients irresponsible, to the point they often act against their own long term financial interest. In simple stats: annual deaths from CVD (cardiovascular disease) according to CDC are 610,000, which is 1,671 per day and yet all the political spectacle is about opioids, at a mere 150-200 deaths per day (According to CNN drug overdose deaths in the first nine months of 2016 were 52,404, which, annualized, adds up to 191 per day). By the way, if CVD is the leading cause of premature death, iatrogenic illness is the third leading cause. So the healthcare conversation needs to shift to how to fix the system and not how to pay for evermore bad health outcomes.

The Emerging New Healthcare Model

Cardiovascular disease is a toothless paper tiger, that doesn't even exist. Caldwell B. Esselstyn, MD.

In other words, CVD is entirely preventable, or reversible with diet, and therefore you only need for a cardiologist is in a few acute cases. Not to mention statins, and treatments for ED (erectile dysfunction) would become obsolete. Similarly, it is now a proven case that some 75% of diabetics can reverse or cure their condition with a whole foods plant-based diet. Dr. Neal Barnard is one of the leading experts on using #WFPB to prevent and reverse diabetes. The new documentary Code Blue will put MS (multiple sclerosis) on the agenda as well, but in the end almost all of the degenerative diseases that now eat our healthcare dollars are susceptible to better outcomes with better nutrition. CodeBlue is the story of Saray Stancic, MD, who after twelve years with crippling MS, a drug regimen enough to kill a horse and side effects of side effects, finally switched to a #WFPB regimen and is free of MS, and has switched fields to open a practice in lifestyle medicine. So, before you invest in that hot new start-up for MS treatments, make sure you see this film.

Notably, Kaiser Permanente does advocate plant based nutrition, as can be seen from this 2013 article in the Permanente Journal. There are other insurers who are beginning to address the issue as well and, as noted above, there are a few employers who are active in this area. For Whole Foods, it might seem a natural because of the business they are in. But there are some very main-stream employers who have become trailblazers in this area, including GEICO insurance, already mentioned above.

Clearly, once we understand the importance of lifestyle changes on health outcomes (both diet and exercise!), we must recognize the importance of education and economic incentives to empower people to take responsibility for their health. The new models we see at Whole Foods and GEICO begin to do that and clearly more work in this area is in order. I have recently spoken with one MD who works with an insurer who seem to be proactive in encouraging healthy lifestyles, specifically including a plant-based option. In my own case, I switched my Primary Care Physician to one who is associated with the American College for Lifestyle Medicine after arguing with my previous doctor that his pressure to have me do a colonoscopy was misguided based on the statistics: three years on a WFPB diet puts me in a low risk category for colon cancer (and my last colonoscopy was perfect), clearly the risk of not having a colonoscopy outweighs the risks of having it (if in doubt, read up on punctured colons during colonoscopies). I simply decided I needed a physician who understands what I am doing.

The concept that emerges from the examples I have adduced above is one of prevention over pills, and taking personal responsibility in which healthcare should include a modicum of preventive measures that reinforce healthy lifestyles, combined with a fairly high deductible, and insurance for catastrophic illness. Such a system should strike a balance so that people are responsible in those areas where they can make a meaningful difference, education should be used to make that successful, for unfortunately, "main stream" nutrition and medical advice are very counter productive in this area. It is materially important that education in this area be expanded, as is now happening in public schools in LA County and in Brooklyn, as well as in a growing number of hospitals and health centers.

What are the implications for investors

Obviously, there is no way for the US to remain competitive with healthcare costs rising from 5% of GDP in 1970 to 20% today, with health outcomes dropping to 37th place in the world, amidst emerging economies. It is clear the trend is in the wrong direction, and the straw man argument about administrative costs, combating "waste," etc. diverts attention from the real problem. Meanwhile, there are a growing list of very vocal celebrities, including athletes who have switched to plant-based nutrition, including the Williams sisters, and some NFL and NBA players. Besides, it is catching on, in particular in the tech world - if in doubt, take a look at this summary I was given by PCRM:

Ø Alphabet Inc.’s Executive Chairman, Eric Schmidt, named plant-based proteins as a ‘game changing’ trend of the future in a speech to investors and executives, and Google attempted to purchase Impossible Foods in 2015. Google also opened a ‘veggie lab’ called Relish in California, to provide plant-based options for employees. Google’s cafeteria puts healthy foods in green or transparent containers and unhealthy foods in red or opaque containers.

Ø Biz Stone, the co-founder of Twitter, has been vegan for over a decade and collaborates with Farm Sanctuary. He has also helped fund Beyond Meat.

Ø John Mackey, the CEO of Whole Foods, adopted a plant-based diet, which helped him reach his high school weight, lower his blood pressure, and improve his cholesterol. He also recently published a book called “The Whole Foods Diet,” which advocates a plant-based diet.

Ø Other execs who tout the health benefits of a vegan diet include Russell Simmons (record label, entrepreneur), Steve Wynn (Vegas casinos), Mort Zuckerman (real estate magnate), and Bill Ford (Executive Chairman of Ford Motors).

Ø Beyoncé and Jay-Z took part in a 22-Day Revolution plant based program, and worked with Marco Borges to formulate the 22 Days Nutrition plant-based meal delivery service.

Ø Tom Brady, while not fully vegan, promotes his Purple Carrot vegan delivery service and published a plant-based cookbook.

Ø Richard Branson continues to speak out about investing in environmentally-friendly options, like Beyond Meat, to feed the world.

Ø Bill Gates also invested in Beyond Meat. A video from 2012 highlights Bill Gates talking about his 5-year projection for the future of agriculture: “It’s completely not part of the mainstream dialogue. In five years from now, the whole view of what agriculture needs to do will be more positive because we’ll see what the innovation will cause.” (He is right: According to Google trends, the search terms for “vegan diet” doubled over the past five years. The search terms for “plant based” increased five-fold over this time. Both search terms are about equally as popular today.)

Clearly, the idea is catching on, as can be seen from cases just as the LA County school district, and the experience of Brooklyn Borough President Eric Adams, who reversed his diabetes with the plant-based diet and who brings his own food to all public functions where he is expected to eat. And from personal conversation I see two groups where the change is happening fastest: younger people, who are now starting to learn the alternative in school, and older people, who in many cases get off of handfuls of medications in short order. The 86% of healthcare dollars we spend on preventable chronic degenerative diseases can be reduced by 75% with lifestyle changes, plus it will do more for the environment than buying a Tesla (TSLA), which is a net environmental negative, displacing, but not solving green house gas emissions.

What it means for investors

Here is some guidance on what areas are going to be affected in the future:

  • The environmental argument will shift to food, not transportation. This simple dietary switch solves our environmental problems and our healthcare problems in one fell swoop. This is an emerging trend.
  • Pharmaceuticals: entire classes of pharmaceuticals will become superfluous, even if it will take a long time. Cardiologists who work in this area report greater improvement from dietary changes than from statins and seldom use them any longer, as I heard again at the Montefiore Preventive Cardiology Conference last week. The groups of drugs that will become superfluous includes cholesterol lowering drugs (statins etc.), and ED treatments (ED is the canary in the coal mine for CVD, and suppressing the symptoms without addressing the cause sets the patient up for a heart attack later). Antacids are not needed with better diet and drinking adequate water, and the list goes on.
  • In the food sector, the packaged food industry will have to change radically. The nominally "vegan" (free of animal proteins) products of today, are frequently unhealthy by #WFPB standards.
  • Fast food is the biggest problem, and is optimized to deliver unhealthy food with high efficiency. The new McVegan burger has not even reached Peoria, IL yet from its debut in Finland. Apparently McDonald's (MCD) in France now offers a "vegetarian" burger. Vegetarians are mainly would be vegans who don't understand plant-based nutrition. These remain unhealthy products. Arguably, some fast food and casual dining places are better suited to an eventual transition, which will happen as the demand grows. One of the best summaries of your current dining out options can be found here, and it shows the dismal state of the industry. Au Bon Pain is by far the best, but they suffer from using main stream nutritionists who are a long way from understanding the new nutritional paradigm. I explored these issues recently in an article on the sector. "Vegan" is a marketing label that is about as nutritionally meaningless as "halal." Vegan does not connote healthy food at all. Chains like Chipotle (CMG) and Taco Bell (YUM) are some of the best candidates to start offering legitimate plant-based options, but so far there are no signs they see what is happening around them. Au Bon Pain or Panera are good candidates if they wanted.
  • The medical and pharmaceutical industries. Pharmageddon is one fifth of GDP, and 50% of it is simply going to become unnecessary, slowly, as we learn to prevent the majority of old-age problems that are all diet-related. It is starting to happen one patient at a time. The so-called bio-sciences sector is suspect as a whole, and the markets for many products simply will fade away as the lifestyle medicine model takes hold. The change will obviously take one or two generations, but the economic incentive is so powerful that this sea change will happen - we simply cannot survive with our current model.
  • The healthcare insurance industry has all the wrong incentives, making their money off of making a bad system more efficient. Clearly, change here will be driven by some employers who take a long term view of healthcare costs, rather than saving a few percentage points here or there, such as the Whole Foods and GEICO examples. No doubt we will see consumer groups who follow the lifestyle medicine model eventually creating their own group insurance plans rather than continue to struggle with a medical establishment that is woefully ignorant of the nexus of nutrition and health.
  • The supplement industry will be affected. For under a #WFPB regime, food is so nutritionally plentiful that essentially all supplements except Vitamin B12 are unnecessary. Meanwhile there is a growing body of evidence to say that all nutrients are better absorbed from food than from a pill, and even are often counter-productive in pill form. T. Colin Campbell is one of the leading experts in this area.
  • Vertical agriculture will bloom. This is THE sector to watch, as highlighted by CNBC here, and a fascinating report on MarketWatch suggest 25% CAGR in the sector through 2022. In short, it pays to watch who is making moves in this sector. There are actually two things driving it: increased disaster preparedness argues against trucking spinach from say California to New York, so growing more produce locally will become a trend. Again, Brooklyn leads the way, where the Borough President helped arrange funding for a greenhouse in a housing project, see here:

To expand Growing Brooklyn’s Future, an urban farming education initiative that he launched last year with 12 schools across Bedford-Stuyvesant, Brownsville, Canarsie, Cypress Hills, and East New York, Borough President Adams designated an additional $560,000 to support greenhouse studies at four institutions. The schools earning funds for this effort are PS 599 Brooklyn Landmark School in Bedford-Stuyvesant, which obtained $200,000 for a STEM lab and greenhouse; PS 146 The Brooklyn New School in Carroll Gardens, which took in $115,000 for a green roof classroom; Franklin Delano Roosevelt High School in Mapleton, which received $200,000 for their greenhouse project, and IS 278 Marine Park in Marine Park, which got $45,000 to transform a science classroom into a hydroponic farm.

Conclusion

The food, agriculture and medical and pharmaceutical industries all remains focused on becoming more efficient at producing more bad food, bad medicine and health problems, just at a time when a counter trend is developing and gaining traction very rapidly. The current approach is thoroughly inept. There is a paradigm shift under way that is no less dramatic than finding out the earth is round when you thought it was flat.

Vertical farming is going to be a trend for the foreseeable future, and whichever one of the casual dining or fast food industries decides to lead in the wooing this emerging group of customers with legitimate healthy vegan options could easily build a devastating lead, since most fast-food chains in particular simply do not lend themselves to adopting healthy foods because of their business processes. Clearly some have thought about it, they just have not yet figured out which way the wind is blowing.

Disclosure: I am/we are short TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.