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Jason Hartman: Good day and welcome to another edition of The Creating Wealth Show. This is Show No. 124, and I’m your host, Jason Hartman. I’m glad you joined us today.
We have listeners from all over the world and I just want to say welcome to everybody from 26 countries worldwide. Isn’t that amazing? The power of the internet; I’m so glad Al Gore invented it. Just kidding. Of course, Al Gore did not invent the internet, but he occasionally takes credit for it.

Today, we are going to have an unusual show, and I know we only do the unusual show things on the “zero” shows or every tenth show, and those aren’t unusual actually. Many of you have written us with very, very nice comments about every tenth show and you’ve said you enjoyed those a lot. I have to put this one ahead. It almost could be a “zero” show or every tenth show type of show, but because this is so much in the public eye, I thought we should cover it today. And yes, it is that all-important subject of healthcare. This is such a major importance. Why is it of such major importance? Why does it have to do with creating wealth?

Well, it has a lot to do with it. No. 1, it has to do with it because if you don’t have your health, you don’t have anything. And No. 2, it has to do with it because we are talking about money. The healthcare debate that rages on here in the U.S. is representative of about 15 – 17 percent of the entire economy, about 15 – 17 percent of the entire country’s GDP. What does that add up to? Well, I’m going to say that’s around $2 trillion annually, somewhere around there.

So, this is a lot of money. This is a big deal, folks. It is critically, critically important, so we need to talk about it, and I thought I’d get a guy on the show, who has an incredible resume. He is a doctor. He is a professor. He teaches all kinds of interesting subjects. He’s deep into the pharmacology side of medicine, doing clinical trials, and all of this stuff. So I’ll let him explain his resume, but it is pretty incredible.

I had him come in from UCI, University of California-Irvine, which is a rather renowned medical school, or I should say hospital actually, and it’s right here locally in Orange County. So I thought this would be interesting. It’s an interesting topic definitely, and this guy is very knowledgeable. It’s Dr. Nagourney and he will be with us here in just a few moments.

But before we get into that, let’s talk about what is going on out there. Well, I tend to be a bit of a packrat, I hate to say, or I guess I like to say. I’m not sure which. And this morning at the coffee shop, I was reading Conde′ Nast Portfolio Magazine, which is an interesting magazine. I really kind of want to recommend this magazine. I was reading an older edition of it because I had it in my car and I just picked it up and tried to get these magazines cleaned out and caught up. And what’s interesting about reading these older magazines is you really sort of look at stuff in kind of a perspective. Now, this isn’t that old. It’s only May 2009 and we are here in October 2009.

But I flipped open, I was looking through the magazine, and I was looking through this article about all of the sort of corporate crooks. “We the Jury” is the name of the article. And it has kind of a little exposé here on five of the different big corporate crooks, “Who Goes,” “Who Stays,” “Our Panelists and Their Predictions.” “Which of the meltdown’s disgraced CEOs are most vulnerable to prosecution? What will be the government’s next challenge?”

And folks, really, with Wall Street and big business, and I’m no fan of big business and I’m certainly no fan of Wall Street, as you know, and I’m no fan of really big anything. I don’t like big government, I don’t like big business because I think the old saying is very true that power corrupts, and absolute power corrupts absolutely.
Well, here we have the big business crooks, and these are the crooks, but there is a lot of legalized crookery because basically, Wall Street has purchased the United States Senate and they’re getting all the laws made in their favor. That’s why we think you should be a direct investor, obviously.

But just to profile a few of these real quickly, I thought this was kind of interesting. There’s Dick Fuld. Well, you know who he is, the former CEO of Lehman Brothers. “He made bullish comments about the company right before its swift demise. Was he hiding something? Possible charges: Securities, mail, and wire fraud. His possible PR headache is Fuld’s Darth Vader-like profile. He has become the face of corporate irresponsibility and he’d make a prosecutor’s perfect fall guy.

The investigation: Federal prosecutors have subpoenaed Fuld and other Lehman executives to appear before a grand jury. Now, this has unfolded in the past few months, so I’m not giving you the latest here. But this is just interesting kind of looking back. Odds of prosecution: Four to one. Fuld tops our short list of prosecution, but the case will be tough to prove.”
Next one, Jimmy Cayne and Ellen Schwartz, Bear Stearns last two CEOs. “Legal issue: During the week leading up to the Bear Stearns fire sale to JP Morgan/Chase, Schwartz, who succeeded Cayne as CEO in 2008, repeatedly assured investors that the firm had ample liquidity. Possible charges: Securities, mail, and wire fraud. PR headache: As the first big firm to fail, Bear Stearns will become synonymous with the meltdown.

The investigation: Two Bear hedge funds managers under indictment for making sunny statements to investigators, while privately expressing doubts. Odds of prosecution: Two to three. Verdict: The notion that Bear was a victim of short-sellers might save these two from prosecution.” Isn’t that great?

You know, all of these people, it seems like no matter what they do, they never lose their money. Even if they go to jail for a while, they still come out, just like Michael Milken did years ago, as very, very wealthy people. Even Bernie Madoff’s wife, Ruth, remember her? You’ve heard her in the news. She still has a bunch of money hiding out there.

“Martin Sullivan, former CEO of AIG. Legal issue: The size of the company’s loss is nearly $100 billion in just one year, 2008; signals of either gross incompetence or a massive fraud that has come undone. Possible charges: Security, mail, and wire fraud.”

Anyway, I won’t go into all the details of all of these, but odds of prosecution, three to two. Anthony Mozilo, you know him; Countrywide. “Legal issue: The company faces predatory lending charges from about 11 state attorneys general. Mozilo is accused of fraudulently misleading investors about credit risk. Possible charges: Securities, fraud, and insider trading.” Folks, isn’t it ridiculous? These are the smartest guys in the room, as the saying goes. “Odds of prosecution: Four to one. The verdict: Smart Money bets against Mozilo.”

And then there’s the guy I always love to make an example of, who’s that? You’ve heard me talk about him many times before, and that is John Thain. You remember him. The former CEO of Merrill Lynch. Merrill Lynch, poster child for the company that says, “We should give them our money so they can invest for us.” Their symbol is the bull, yet they seem to be full of bull over and over again, and it’s not just John Thain, folks. They have a history of CEOs and questionable dealings.

So, the legal issue: “The size and the timing of Merrill Lynch bonuses and Thain’s disclosure of losses, while negotiating its sale to Bank of America.” Remember how that happened really fast over a weekend, and then we heard about it Sunday afternoon that suddenly they had sold out to Bank of America? I don’t know how many losses B of A can absorb. They have Countrywide with their crooked CEO, Anthony Mozilo. Then they have Merrill Lynch with John Thain and his questionable stuff. Remember Thain? He paid himself – what was it — $72 million his first year working there or something like that? He redecorated his office, not the building, just his personal office, for a cost of about $1.4 million on Merrill Lynch’s money.

Investors in the company lost fortunes, and the irony of the Merrill Lynch thing is not only how they run their own business, but, of course, their investments. They can’t even handle their own investments. But they think we should invest with them. It’s disgusting. “Odds of prosecution: One to four. Verdict: The civil litigation will be a nightmare, but don’t expect to see Thain before a criminal jury any time soon.” So he’ll probably get away with it.

Folks, the moral of the story is be a direct investor. Don’t trust other people. Don’t put your financial future in anybody else’s hands. Control that which you invest in. Buy some rental properties. Put them in diverse markets. Finance them right. Buy them in the right markets at the right time, and wait and manage your investments. And suddenly, before you know it, five years will pass, seven years will pass, ten years will pass in the blink of an eye, as it always does, and you will be wealthy. Hasn’t that worked for tens of millions of people? Sure, it has. All we have to do is look at the last few decades to see how that’s worked.

We want you to sign up for our Coaching Program. You will receive four special reports when you join us in a private coaching program. One is entitled “Thriving in the Midst of Chaos; Protecting Your Family and Your Finances in Uncertain Times.” Another one is “Financial Survival in a Post-Socialist World, Profiting from the Prosperity Collapse.” And another special report we have for you, and by the way, we gave this out at the Masters Weekend as a sample, “Don’t Let Me Lose Control, Why Direct Control of Your Investments is Paramount.” And the last of the four is “The Commodity of Success, Wrapping Your Investments around Commodities to Fight Inflation.”

You get all four of those special reports if you become a coaching client, as well as many other bonuses that we’ve discussed before. Our next event is on November 14. That’s the Creating Wealth Bootcamp. Again, it’s an extended enhanced version of the Creating Wealth Seminar. We have, I believe, our local market specialist from Kansas City flying out for that. And then we also, I think, although this is not confirmed, we will have our local market specialist from our new market, Orlando, Florida.

Yes, it’s time to be looking at Orlando. The prices have been cut way down. I looked at one property there that just about a year and a half ago sold for $210,000. You could buy it for $53,000. It needs about $7,000 in rehab, for $60,000. And the RV ratio is really fantastic. That property will rent for about $950 per month. So it’s really tough to lose on these deals. Even if you buy them with all cash, there’s some good money to be made out there. Buy when there’s blood in the streets. We think Orlando is pretty darn beat up, so it’s a good time to look at it.

Healthcare: 15 – 17 percent of our national economy. I hate to bring them up again. Actually, I like to bring them up. Sorry. But that’s Richard Lillycrop, our client who came out from England, and he came out for Masters Weekend, as I mentioned before. I asked him at lunch, when we went to lunch the day before, I say, hey, Richard, this healthcare debate is going on in the U.S. How is the healthcare in England? And he said it’s awful. He said if you want good healthcare, you have to pay for private healthcare. Kind of like the schools here in the Los Angeles and many Southern California areas, if you want good schools, you pay in property taxes, you’re paying for the government schools, but you have to send your kid to a private school anyway and pay a whole bunch of extra money.

That’s the way it is in healthcare in most socialized countries because folks, if you want anything done wrong, just give it to the government. They have a track record of failure and inefficiency and corruption. That’s the way it is.

So I am not in favor of socialized healthcare and our President says that, hey, you can go to your doctor, you can go to your same doctor, but as soon as a public option is instituted, what will happen is the reality of the market is yes, you could have other providers. Sure. But what will really happen in real life is the government can out-compete any private entity. Why is that? Because they’re not tied to responsibility like the rest of us private business people. They can print money, they can spend money; they can do what they want. They can make laws in their favor and, folks; it’s not a level playing field. And that is the problem when you hear all this stuff about how you can still choose your own doctor. You can still have your own insurance company. The reality is that in practice, they won’t be able to compete with a public option, and that is why a public option is de facto socialized healthcare, even if it doesn’t have that name.

Enough of me blabbering on about this. Let’s go to the interview with Dr. Nagourney. No matter what you think about this issue, I think you’ll find this very interesting. And you’re also going to hear about some progressive health solutions here and you’re going to hear about what goes on in the pharmaceutical world and drug development and clinical trials. This is just a really interesting

interview. I learned a lot, so let’s listen in.

Interview with Dr. Robert Nagourney

Jason Hartman: Today, we’re bringing you something quite different. It’s my pleasure to have in studio Dr. Robert Nagourney, who has an incredible resume′ in the healthcare field. And today, we are going to talk about the issue that is so in the news, the issue of government involvement in healthcare, some of the economics in healthcare, the social issues, issues of better treatment. We’re going to talk a little bit about cancer treatment especially, and just kind of get into this subject. It’s very top-of-mind nowadays, so we thought we’d bring you something a little different today.

Dr. Nagourney, welcome to the show.

Dr. Nagourney: Thank you very much, Jason.

Jason Hartman: Well, it’s good to have you here. Give everyone a little background on your work and your resume′, if you will.

Dr. Nagourney: I was born in Connecticut. I went to school in Boston and ultimately graduated from medical school in Montreal. I trained in Medical Oncology at Georgetown University after a residency here in California at UC Irvine. I went on to a second fellowship at the Scripps Clinic in La Jolla and then joined the faculty at UC Irvine, where I continue now only to teach pharmacology to the second-year medical school.

I’m also the director and founder of Rational Therapeutics, which is a developmental therapy program located in Long Beach, and I do see patients through the Memorial Medical Center in Long Beach, California.

Jason Hartman: Fantastic. What are your thoughts on what is going on in the news nowadays and in Washington? Healthcare is something we will all use at some time or another in our lives, and it’s about 15 percent of the economy. It’s a pretty big deal, for sure. Give us maybe your broad stroke thoughts.

Dr. Nagourney: Well, I think we are confronting some problems in the American medical system. It’s not perfect by any stretch of the imagination. But it does provide care to everyone who needs it. If you are at a major hospital in America, you will see a mixture of patients, some of whom are insured and some who aren’t. What we do tend to do is provide the same care to everyone at a very high cost. One of the things that the governmental programs are designed to do is to provide care to what they describe as the uninsured, and this figure is bandied about, anywhere from about 30 – 47 million. I think that’s a grossly overestimated number. In fact, when you begin to really drill down on that number, you find that the actual number of people who are truly, truly uninsured, who are not illegal immigrants, or have not personally not to be insured despite the fact that they have the money, it’s probably in the 10 – 20 million, if that.

Jason Hartman: So you’re taking out the people who have specifically chosen not to buy insurance.

Dr. Nagourney: Or those who have an income that is greater than 300 percent of the poverty level, who could afford insurance, or those who are single without children, who have just chosen not to cover, figuring that they will take their chances.

Jason Hartman: Young people who feel they’re bulletproof.

Dr. Nagourney: Or people who qualify for insurance that they just simply haven’t taken the time to sign up for. There’s CHIP Fund and other Medicaid programs that people, many people, up to 10 – 12 million people just haven’t taken the trouble to sign up for, even though they qualify.

Dr. Nagourney: So, Dr. Nagourney, the real problem in the U.S. is sort of this catch-22. If people aren’t insured, everyone has the right to care, at least on an emergency basis, of course. And so, don’t they become a bigger burden on the system? That’s how you hear this rationalization of why everyone should be provided insurance because if they’re using the emergency room as their general care doctor, it is a much more expensive way to provide care. You’ve heard this argument before I’m sure.

Dr. Nagourney: Oh, of course. I think that the problem is what we’re trying to do is instead of provide care for those that are currently uninsured and allow people who are insured to get good care, we’re going to sort of regress to the mean and we’re going to have everybody getting less good care so that some 10 or 12 or 15 million people, who are currently not getting care, can get covered. As a result of that, I think that these broad-brush solutions may not solve what it seeks out to solve, particularly cost containment. There’s no way that you can expand coverage to tens of millions more people without increasing cost at some level. So the concept that this will not be a large additional expense I think is untrue.

I think it will also restrict access to developmental therapies and innovations. I think we will see increasing diminution in access to novel therapeutics, and as that occurs, people who are prepared to and want to pay for better care, may be penalized for trying to maintain what they’re now calling “Gold Plated Insurance” or “Platinum Policies,” whatever the vernacular.

Jason Hartman: When you say that, you mean the kind of thing British people do. The public healthcare is so bad in Britain and virtually everybody tells me that, and if you want good healthcare, you just need a private option. They take advantage of that, if they can afford it. But is there less innovation in maybe the Canadian or the British system or some of the Scandinavian countries? Even though you have the option to pay for private care, maybe that private care isn’t as innovative because of the way the whole system is structured.

Dr. Nagourney: Well, first of all, the British system and the Canadian system provide adequate care for most people. But luckily, most people don’t need a lot of medical care. The average 30 or 40-year-old is maybe once a year seeing a doctor. They may have an occasional respiratory infection or urinary tract infection. But for the most part, they’re not very expensive, so the adequate care provided by the English or Canadian system is in fact just that; adequate.

The times that you get into trouble and the places where American care really excels are in the very sophisticated and newer areas of cancer therapeutics or neurosurgery or cardiovascular disease, where the true innovation is coming from centers that are well funded and are being well supported.

Now, up until the last decade, America was by far the leading center for much of this work and it was because the most funding was coming through the American government, through the American insurance systems, and through reimbursement to doctors to pursue those levels of innovation. As we are now restricting access to funds and as the insurance reimbursements dry up, I think some of that innovation and access to those innovative therapies will diminish.

Jason Hartman: Let’s go back to the issue of just simple math for a moment. Some people say that there are about 47 – 50 million people that aren’t covered under the current system. Maybe it’s 10 – 20 million. All debatable. But here’s the thing that really gets me when I hear the proponents of this nationalized healthcare in whatever permutation. The simple math, I hear there are about 800,000 doctors in the United States, and it already takes two weeks for most of us to get in to see our doctor, to get an appointment. How could 800,000 doctors possibly cover an additional 10, 20, or 47 million people? Would they be importing lower quality doctors from other countries that have lower educational backgrounds or lower standards of board certification?

Dr. Nagourney: We’re already seeing it. There, for some reason, has been a very forceful intent on the part of the governmental programs to punish specialists. The feeling is the specialists are overpaid and therefore, they want to really compensate the primary care physicians and lower the compensation to specialists.

Well, the specialists are the ones who are the innovators and the experts. They’re the ones who go to school for the longest periods of time and the ones who spend the greatest amount of their time training, preparing, and developing their skills. So the quality of care in America will rapidly diminish if you do not compensate people for their expertise.

Medicine is an interesting field. It’s the only field where people regulate the amount of money you can make and do not allow you to make more for being good. If you’re a really qualified businessman, you’re compensated in return for your business acumen. If you’re a very skilled lawyer, you can charge a higher hourly fee. But if you’re an incredibly skilled physician, you get exactly the same amount of money from Medicare for saving someone’s life as you would if you were a flunky out of medical school, who barely limped over the line of graduating out of medical school. We do not have any mechanism to compensate people for expertise and ability.

Jason Hartman: But that’s in the Medicare side of things. When that doctor is a specialist, and if they’re a neurosurgeon and there’s a certain group of clientele that’s wealthy enough to pay for the very best neurosurgeon or cardiothoracic surgeon, that person has a waiting list of patients, right? So that’s how they’re compensated.

Dr. Nagourney: But again, the compensation, if you are participating in insurance, which tethers itself to the Medicare system, Medicare sets fees. The private insurers will attach themselves usually with an up-charge allowing them up to slightly greater amounts than Medicare or Medicaid. But the private insurers still fix their fees at a discounted amount from the doctor’s charge. So if you’re a very skilled neurosurgeon and you’re a participant in Blue Cross/Blue Shield, Aetna, or any of the current insurance policies, you are going to have to take what they pay you, and it will be a fraction of what you actually charge.

Jason Hartman: And that’s because it’s almost as if the government plan is sort of the base from which they determine reimbursements?

Dr. Nagourney: Well, I think the real problem is that we have allowed medical insurance to distance the consumer of medical service from those who provide the medical service.

Jason Hartman: Couldn’t agree more.

Dr. Nagourney: So as a result of this, you have someone standing between you and your doctor, and they want to save money at your expense. Good medicine requires that good doctors, capable doctors with good track records, be compensated at a higher level. That is not part of the current system and will become even worse if this system goes forward as we see it today.

Jason Hartman: Are the best doctors then not participating in Medicare type of environments?

Dr. Nagourney: Increasingly, you’re seeing the exodus of really skilled physicians from Medicare and private insurance. In fact, the movement afoot today is called Concierge’s Care. Concierge’s Care is where you pay an up-charge to your doctor. It restricts the number of patients that will go into his practice and you pay him an extra $2,000 – 3,000 a year for his cell phone number.

Jason Hartman: Yeah, I know a doctor that does this. He charges $2,500 a year and he’s a general practitioner, but it’s a guy you can really call all the time. The appointments are longer than 15 minutes. It’s more like real healthcare.

Dr. Nagourney: Exactly. And the danger in American medicine is that we have removed the market from the American medical system. We are afraid of allowing the market to take place. Now, I am fully in favor of there being a safety net for people who truly cannot afford any form of insurance. We currently have mechanisms like that. We have the Medicaid. We have the VA system. I did some of my training at the VA. And for better or worse, I thought the VA doctors that I worked with were terrific. It was a very appealing system, whereby sophisticated, academic physicians, who were interested in conducting research, became the professors to a collection of trainees.
I think one of the solutions to the current problem is to borrow from that system and to eliminate training programs from the very sophisticated, very high-priced medical centers, and turn all trainees into indentured servants. And if you want to get the degree that allows you to go on and become an exquisitely skilled and high-paid gastroenterologist in Beverly Hills –

Jason Hartman: You do your time.

Dr. Nagourney: You do your time. And that time keeps a collection, a coterie of doctors always going through training, and the doctors, at that point, if you take a medical student who’s in debt and you give him $25,000 – $30,000 a year or $40,000 a year, that’s more money than he’s ever made in his life and he spends his time doing internship and residency. If he decides that’s enough, then he goes out and gets into practice, pays back his loans, and goes forward. But he can do so in the private practice environment charging what would be a fair return.
Currently, we have all these residents and interns at very sophisticated hospitals. It is preventing the people who need the care from getting it from these “trainees” because you’re not going to see a lot of indigent people at Lennox Hill Hospital or as many as you might at Cedar Sinai in L.A. So I think there ought to be facilities where the trainees do their time. And when they finish, they can charge what is a fair fee for their expertise.

Jason Hartman: And when you say, “put in their time there,” is that beyond residency and internship?

Dr. Nagourney: No, it’s residency and internship and fellowship, just like it is now, but if you want to go out and practice and recoup the monies you might want to get, then you will do so by spending the time in the beginning training. When I was an intern, I got $16,800 a year. When I was a fellow at Georgetown University, I got $15,000 a year. This is Washington D.C. in the mid-’80s. It was a very, very minimal amount of money, but to get the fellowship from the program I wanted to graduate from, I bit the bullet.

Jason Hartman: You paid your dues.

Dr. Nagourney: I paid my dues and then I got out, and had I gone into a private practice environment to generate income, I would have at least had the credentials to do so. I pursued more academic pursuits. But in fact, that training came at my expense. Now, it’s ridiculous to punish these doctors for having made those commitments by not allowing them to get compensated for their expertise once they’re out.

Jason Hartman: The doctors that I know, the doctors that I have as friends, really don’t get to start their career until they’re about 30 – 32 years old. And when they start it, they have $100,000, $150,000, maybe $200,000 in student loans that they need to pay for. And then they’re earning maybe $40,000 – $60,000 a year, and it ramps up by the time they’re in their late 30s to where they’re earning $200,000 plus, and life starts getting pretty good then.

But it seems to me that if we want to regulate what doctors get paid, we want to force them to become part of any sort of governmental system that is looking to control costs, the insurance companies even doing it as well, as you mentioned, no one is going to pay the price to do that. They’re going to go the route of instant gratification, where maybe they go to college for four years or not at all and pursue a whole other field, where they can start making money quickly. Why would they delay gratification is there’s no big light at the end of the tunnel, if there’s no big prize at the end of the tunnel?

Dr. Nagourney: I think you’re exactly right. I think you will see the disappearance of specialists, and everyone will get adequate care right up until they need something more than that, and then there will be no next step. There will not be the specialist available to them. We’re going to see the disappearance of the pulmonologists and the gastroenterologists and oncologists. We’re already seeing it.

Medical oncology is not a procedure-oriented specialty. As a result of that, the income generated is purely intellectual commitment and time. We do not compensate doctors for their abilities. So as a result of that, the medical oncology field, which is compensated purely based on your intelligence, your ability, your insight, your scientific knowledge, medical oncology fellowships are not filling any longer. No one wants to go into this hard field that doesn’t get compensated.

Jason Hartman: And let me just ask you about that because I don’t have an understanding of how this works, but that’s interesting what you said when you say it’s not a procedure-oriented or procedure-compensated practice. So in a normal thing, if a doctor gives someone a checkup, they get X. If they give someone a treadmill test, moving EKG, they get X amount. If they give someone chemotherapy, do they get X amount or is there a lot more gray in that?

Dr. Nagourney: Well, there was a time some 10 or 20 years ago, chemotherapy was compensated as sort of a cost-plus. So when the doctors gave chemotherapy, they were compensated above and beyond the cost of the drugs, in part, for whatever time they put into it, and in part, for the cost of administration and support for the patients. Over the last few years, with some very prominent articles, like the New York Times called it the Chemotherapy Concession, the medical oncology reimbursements got to the point where now, physicians are compensated less money than it costs to buy the drugs.

Jason Hartman: That’s crazy!

Dr. Nagourney: Exactly. These are the broad-brush solutions that government bureaucracies bring into play. So as a result of that, people lose money on administering chemotherapy. As a result of that, medical oncology practices have completely abandoned administering Medicare patients’ chemotherapies in their offices. They just don’t do it anymore. So they move them all into municipal facilities or they move them all into hospital facilities, and the hospitals eat the costs on every patient, at somewhere in the vicinity of 5 percent loss per patient treated.

Jason Hartman: That’s unbelievable! So the thing that is literally going to save your life is a loss leader, as it were.

Dr. Nagourney: Exactly. And the hospitals can make it up because they make more money on diagnostics and they make more money on inpatient surgery. So the cost shifting that takes place is now to defray the cost of chemotherapy, as it’s no longer compensated adequately.

Now, I never particularly gave chemotherapies, so it was never really a moneymaker for me, but I can see medical oncologists increasingly watching their incomes disappear. This is one of the hardest fields of medicine.

Jason Hartman: Does this happen with radiation as well?

Dr. Nagourney: It’s in the process of happening with radiation. The radiation oncologists have continued through their procedural oriented capabilities to get fair and actually very good reimbursement. But the radiation oncology and diagnostic radiology is now on the chopping block for between 25 and 49 percent cutbacks in their compensation.

Jason Hartman: So how can it be that this government bureaucracy can dictate those fees? Don’t all of the oncologists go and say to the bureaucrats, look, you’re not reimbursing us enough to give this treatment. You have to give us more.

Dr. Nagourney: Yes, there are many medical oncology societies that continually petition and lobby Washington D.C., and it largely falls on deaf ears. The governmental policies change when there are crises. So far, the doctors have continued to absorb these costs. Most of the medial oncologists that I know, in the last ten years, have seen 25 – 50 percent erosion in their incomes. That doesn’t mean they had to go to school for a shorter period of time. No one is going to put them in a time machine and give them back several years of their lives for the specialty training that they took to qualify for this. So they’re just watching an erosion of their income.

Now, you can argue that people who are doing very high volume chemotherapy and were making exorbitant amounts of margins on chemotherapies were abusing the system. I think there probably was abuse.

Jason Hartman: Back when?

Dr. Nagourney: This was 10 years ago, 15 years ago. Some of the drug reimbursements were really, I think, maybe excessive. But to correct this, this current crude broad-brush approach on the part of our governmental bureaucracy, is now damaging the practice of oncology because medical oncologists want to get out in droves. They want out. They don’t want to continue to work this hard. It’s a very difficult field. It’s an emotionally draining field. And so when you get all the work that oncologists have to confront, and then you find that your reimbursement is being so reduced, it makes it a much less appealing specialty.

Jason Hartman: You know what I always say? You have these groups out there, particularly – and I hate to make it political – but particularly on the left side of the spectrum that are attacking, whether it be Hillary Clinton attacking the pharmaceutical companies, whether it be Obama attacking the credit card companies. My statement for this is whatever the government attacks you’ll have less of it. So if you want fewer credit cards, fewer choices, if you want less in the way of pharmacology, attack it. It just seems at some point, people, companies, they just kind of go on strike. They look for a better deal elsewhere. They look for a better set of circumstances where they can operate and profit and grow and follow their passions. True or false?

Dr. Nagourney: Well, I think that regulated markets don’t work. Medicine is already a highly regulated market. If we further regulate medicine, the quality of medical care, the availability of medical care, the innovation in medical care will diminish. I’m a believer in Adam Smith and I believe that markets drive appropriate costs and availabilities of services and goods. It has never been improved upon. The market works. Medicine has not been a free market for many, many, many years.

Some years ago, there was a study by New England Internal Medicine where they showed that 94 percent of doctors still granted charitable care. Most doctors grant a great deal of charitable care. They will do it. But charity at gunpoint is no longer charity.

Jason Hartman: It’s extortion.

Dr. Nagourney: What we’re seeing now is people extorting medical care from doctors. Doctors are increasingly forced to provide this care, and as we see this movement afoot, I think doctors will be forced to provide care that they’re not compensated for, and as the compensations diminish, doctors will simply leave the field.

Jason Hartman: Whatever you attack, you get less of. I think that’s exactly what occurs finally. And it takes some time for this to happen, so there’s always sort of a lag time in process and I think that’s why some people – they don’t notice it because it doesn’t happen instantly. It happens eventually as people make new plans and as people maybe try the new system and eventually get fed up with it.

Well, what do we do? What is the answer? People are crying out there, saying everybody deserves healthcare as a basic human right. Some will say that it is immoral that a nation as rich as America not provide it for everyone. Of course, on the face of it, I agree with those statements, but it’s a very slippery slope and the law of unintended consequences comes right into play, as we’ve really already discussed.

Dr. Nagourney: I think that medical care should be available to people in need. I think the problem right now is that we feel that everyone should have equal access to all levels of medical care, regardless of their ability to pay for it. Now, we do make available to people shelter, and we make available to people food. But the food that we make available in the form of food stamps and the shelter that we make available are not the Hilton, it’s not filet mignon. It is adequate food provided to those who need sustenance, but really don’t get luxury.

The medical system today is providing people with no money, luxurious care. Memorial Medical Center is a very fine hospital in Long Beach, California. If an indigent person shows up at that hospital, they’re going to get in and they’re going to wind up on the same ward as a multi-billionaire because we have facilities that are being utilized very inefficiently. I would say that the way out of this to some degree is to create just what we spoke of. Take the model of the VA system. The VA system provides surprisingly good care. I was a trainee in the VA. We were great doctors.

Jason Hartman: I’m not sure which VA hospital you’re referring to.

Dr. Nagourney: I was at Long Beach VA.

Jason Hartman: Okay because I’ve certainly read and heard horror stories about VA hospitals, so is this a rare, great VA hospital?

Dr. Nagourney: No, it’s the largest, but I think the horror stories about VA hospitals may in some way reflect the bureaucracy and the inefficiency of the system, people waiting for long periods of time. But I would say the doctors, the medical doctors that I interacted with in the VA system, in my experience, were excellent. VA, like any bureaucracy, has lots of shortcomings.

Jason Hartman: It just begs the question, why would a great, talented, ambitious doctor work at a VA hospital? Now, true, they might do their training there like you talked about.

Dr. Nagourney: They do train. But the other reason that the attending –

Jason Hartman: But build a career?

Dr. Nagourney: Well, remember there are different things that drive people. First of all, VA attending physicians make pretty good salaries and could get good benefits. The attending physicians at the VA also have access to large numbers of patients who are undergoing care that can be monitored and studied as part of research. Many people in academia do not pursue money so much as they pursue scientific advancement and accolades from their colleagues. And the VA is a wonderful – VA, like hospitals, are wonderful places for those sorts of experiences.

Jason Hartman: For peer review and recognition.

Dr. Nagourney: And so you could take an example like the VA system. It doesn’t have to be the VA system, but it used to be the old form of training, where doctors who wanted to get their training, who wanted to get their degrees, who wanted to go on with their fellowships, would be putting in their time, delivering care often to indigent people, like the USC system, like when I was in Montreal when I was in training at the Montreal General Hospital. We were training the best surgeons for the whole country, but as they were coming through, we were taking care of anybody that ambled in the door.

And I think those sorts of municipal hospital programs could provide indigent care and it would be tiered. The higher end hospitals, the more sophisticated private hospitals, would have private practice physicians charging fair fees for their excellent care. And then you would have the trainees providing good care under the tutelage of sophisticated academic physicians, who themselves were getting the value added by doing their academic pursuits, their research, their developmental work, perhaps developing techniques that they were trying and applying in these settings.
If we do not come up with some mechanism to provide sort of tiered care in America, then we will be creating a low level of adequate care for everyone, contrary to everything that drives America.

Jason Hartman: Well, there’s that old saying, socialism is trickle-up poverty. And it spreads the misery rather than spreading the wealth its proponents might originally think it is doing. What do you say when you hear these statements, like people under socialized systems basically die waiting in line? Is that true or is that a lot of hype?

Dr. Nagourney: I think that the market would dictate that if you restrict compensation for services and goods, those goods, when sought after, will become scarce. It’s not rocket science. And so, if doctors are not compensated for their time, they will no longer provide their services. If goods are not paid for, if medications are not covered, there will be shortages. This isn’t brand new. This is a well-established phenomenon in simple economics 101 and it will occur in medicine. If we make it impossible for people to be compensated for their time and their goods, those goods and services will not be available.

Jason Hartman: And it’s been proven historically over and over and over again. So why is that people that propose these bureaucratic systems, how do they not know this? It seems so simple. It seems so obvious.

Dr. Nagourney: Well, there are many reasons why we’re undergoing the current shakeup in medicine. I’m not sure that a lot of them have to do with medicine as a practice. I think what you’re confronting is the bureaucracies only have very crude and blunt instruments to determine quality return on investment. So the American governmental plan that we’re seeing put into place is trying to come up with metrics to gauge what is going to be the way we’re going to know that people are getting the care they need. The metrics that we apply are these very simple things, like how many people are getting vaccinated, or how many people are developing nosocomial infections? I understand them, but they are not measures of true excellence. They’re sort of broad-brush assessments of global care delivery.

The current ones that are in use – I think it’s called evidence-based medicine, which is a big popular area right now and they want to prove beyond a shadow of a doubt that everything works absolutely before it gets adopted – but evidence-based medicine would insist that every single technique and every single procedure prove beyond a shadow of a doubt that it works. And that’s contrary to most innovative care today.

The other one that’s being touted is comparative effectiveness. And in these comparative effectiveness’s, you have to show that your new approach is demonstrably better than anything else available. And so, these two sort of blunt instruments are being applied increasingly, but they are really poorly applied to medicine. For example, if you look at the New England Journal of Medicine, which recently analyzed the comparative effectiveness programs that the government is going to sponsor – there were 193 programs – 101 of them goes to things like healthcare delivery and racial disparities. Well, only about 17 percent go to cardiology and oncology, which are the leading causes of death in America.

So the government is going to fund us to study the study of medicine. We’re going to spend money on the study of the study of medicine, and we’re going to get really expert on care delivery and really expert on efficiencies, and we’re not going to be delivering care. So it’s a classic bureaucratic mindset that they want to develop all these metrics and tools without really worrying about what those tools apply toward or provide.

Jason Hartman: You mentioned vaccinations and I just have to ask you because we’re coming into that season, and everywhere I go, I’m seeing signs, “Get your flu shot.” I’m hearing about the H1N1, and I personally am opting out. I don’t want to do it. There are people that say that the government should not be telling us that we have to take this vaccination. What do you think about all this, whether it be swine flu, bird flu, all of the other ones? Are these overblown or are these really very serious things that we should all be concerned about?

Dr. Nagourney: Infectious disease is the leading ultimate mode of demise in most patients, whether you have severe cardiac disease or cancer. The mode of exit for most people is some form of overwhelming infection. So we know that we live in a world of infectious agents. Influenza and other infections are worrisome. I think that people should have available to them vaccines, both for the annual flues and also the H1N1. But I think that to insist or force people to be vaccinated is an intrusion into individual rights. I don’t think people should be forced to take injections.

If there is a tiny risk and you force someone to undergo it, then you have done something that is somewhat contrary to the dictates of the American system, which is where people have ultimate freedom over themselves and their own bodies. I encourage people to take flu shots, vaccinations, if they are concerned or if they fit into a risk group. I’m not afraid of the flu vaccinations. I am recommending them for many of my patients. After all, I have patients who are immune compromised and I think that they can benefit from them.

But I think the moment that you insist people do this, we have moved out of what I would consider the dictates of the American Constitution and into a different country.

Jason Hartman: I agree with you. However, playing the devil’s advocate, wouldn’t it be like the secondhand smoke argument, where these are infectious things and if I’m going to be out in public, I’m sort of spreading my germs and my secondhand smoke, if you care to make that analogy? And it affects other people, right?

Dr. Nagourney: I think that we have gone to the point with secondhand smoke we are not allowed to smoke on the beach in Santa Monica. I can’t really personally see how anyone is going to get cancer from your smoking on the beach in Santa Monica, but once you start that trike a-rolling, people will begin to control whatever they can control.

Jason Hartman: Everything.

Dr. Nagourney: Exactly. So yes, I think that if you have the flu, you should stay out of public. I think that people should use scrupulous hand washing. I think that if you are concerned about getting a flu, you should wear a mask. But flu has been around for a long time. People generally survive them. I think it’s a good idea for people to take the flu shot. I think they should be readily available. But I think that once you start insisting that people do this, you have crossed a line.

Jason Hartman: A couple more things before you go, talk to us a little bit, if you would, about the development of drugs and the approval process and the FDA, and kind of what’s going on there. Is the FDA helping us get new, good quality drugs to market, or are they hindering that process?

Dr. Nagourney: Well, my particular area of work is cancer therapy development. We’re engaged in developmental therapeutics. In essence, we are slow to develop new cancer therapies. It turns out that it costs about $1 billion with a B to develop a drug from concept to clinical approval. The process takes about 11 years. Drugs that are moved along to the point where they’re being tried in people in what’s known as a Phase 1 trial, only 8 percent of those drugs ever see approval through the FDA, and 50 percent of the drugs that get all the way up to the last stage, which is called Phase 3, wherein they’re being already tested, already found safe, and are now being compared to the best available treatments, 50 percent of drugs fail at that late stage.

Jason Hartman: And how long did that take to get it there?

Dr. Nagourney: It usually takes about eight or ten years to get to that point. And these drugs are failing at that point. Now, there are hundreds of millions of dollars dedicated to those drugs by the time they get there. We have been very interested in streamlining that process, and I think this is, in a way, as I mentioned to you, a microcosm for what we’re dealing with in medicine in general. We have very broad-brush approaches to cancer drug development, which is true of probably every field of medicine. Today, a drug that looks sort of interesting and gets tested in some animals winds up in a small number of people to see if it’s safe to give.

At that point, we start spending hundreds of millions of dollars to large academic institutions, paying each doctor between $3,000 and $20,000 each time a patient goes on a treatment.

Jason Hartman: And are those hundreds of millions of dollars, are those spent by pharmaceutical companies?

Dr. Nagourney: Well, mostly it’s about – 33 percent is governmental. About 55 percent is pharmaceutical and about 10 percent is philanthropic.

Jason Hartman: So the pharmaceutical companies are taking the biggest load of the burden for R & D.

Dr. Nagourney: Absolutely, by far. The largest amount of money spent in drug development, according to Joanne Woodcock from the FDA is pharmaceutical.

Jason Hartman: So a billion dollar drug, Pfizer or Merck or whomever, spent $550 million to bring it to market.

Dr. Nagourney: No, no, I’m saying the drugs that are developed; over 50 percent of the costs of drug development are pharmaceutical. Many drugs are start-to- finish funded by a pharmaceutical company.

Jason Hartman: Oh, 100 percent.

Dr. Nagourney: Yeah, from the beginning. It’s not divided up. Some 33 percent of the cost overall, if you just take the overall cost, about one-third of it is governmental. Ten percent and the remainder is pharmaceutical. Now, the problem there is that when these drugs, particularly in the cancer field, which is my area, these drugs are farmed out to large institutions. The large institutions are not incentivized for good outcome. A physician at a major institution, a university hospital, is given the same amount of money to give a drug to a patient whether the drug works or not. Well, in that circumstance, the doctor isn’t particularly incentivized to see you get well, so long as he can see you get treated.

Jason Hartman: Focus on the process rather than the result.

Dr. Nagourney: Well, yeah, and therein lies what we’re looking at in terms of the current medical system. We have developed a platform where we can actually guide therapy, so if the drug looks interesting, we can tell you who should get it. And we’ve approximately doubled and almost tripled the response rate in many common malignancies, including lung, colorectal, ovarian, recurrent breast, and others.

But the problem is that we do kind of disrupt this tidy little relationship between the academic community and the pharmaceuticals. And I’m not even sure the pharmaceuticals are the ones that want to play ball here. They’re held hostage by an academic community, who isn’t basically shaking down the pharmas. And they’re saying if you want your drug to be carried across the river to the FDA approval, you’re going to have to pay the piper. And it’s academia who is really shaking down pharma.

Jason Hartman: Oh, really. I had no idea. So you’re saying the universities are –

Dr. Nagourney: I’m saying the academic institutions are making hand over fist testing drugs.

Jason Hartman: Doing clinical trials.

Dr. Nagourney: Clinical trials, many of which are fruitless. According to a study from the University of Florida, only 1 out of 7 clinical trials in cancer today, 1 out of 7 is successful. That means treatment A is better than treatment B. And only 1 out of 14 provides a survival advantage to the people who actually get better that’s 50 percent or better. That’s days, sometimes weeks, rarely months, and never years. We’re squandering money on a lot of useless therapies.

Jason Hartman: Why does academia have a monopoly on clinical trials?

Dr. Nagourney: Because in order to get a drug through the Office of Drug Development, the ODAC, which is the Oncology Drug Committee, the academic physicians have to smile on them. They have to say this drug is a good drug and I approve it. I give you my stamp of approval from whatever major institution. We tested 570 patients and 240 got a little better, so you should approve this. And they will submit information that can be taken forth to the FDA.

The worst example of this is a very large clinical trial conducted by an international clinical trial – 4,312 women with advanced ovarian cancer were operated upon, went on to a clinical trial that was all over the world. At the end of the trial, all of the five arms, the comparative arms for this trial were equivalent – equivalent. That means that those women were martyred for no apparent evidence. This was a large international ovarian cancer trial. It was published in March of 2009 and I consider it to be a damnation of the current system. We are not making headway.

Now, when we approached these large institutions and said please allow us to apply our platform, please allow this platform that could cut through all this, and stop randomizing patients, they said no, thank you. So I think that the motivations are clear.

Jason Hartman: It reminds me of – I remember I was out with a friend of mine one night, who was an employee of the American Cancer Society, and this just kind of goes to the concept of every organization, it seems as though the goal of any organization that eventually becomes somewhat of a bureaucracy, whether it be private or public –

Dr. Nagourney: It’s perpetuation.

Jason Hartman: It would perpetuate itself and expand its power and influence. And I’ll tell you what happened. I was out with my friend one night and I mentioned to her that I wanted to get home early. She wanted to go to another place. We were kind of going around having drinks and stuff. And I said I’m going to run the Susan G. Komen 5K in the morning. And she says, “Oh, my boss wanted me to go see that because they’re our competitor.”

I kind of thought about that afterwards. I thought here are two cancer charities that consider themselves competitors, and I guess a little healthy competition is good because you’ll try to raise more money than the other, outdo the other, and that’s kind of a market situation. But it sort of struck me almost as that the goal is not to really solve the problem. The goal is to perpetuate existence of the organization. That may be unfair to some extent. I don’t know the details of either of these charities. It’s just sort of anecdotal comment.

Dr. Nagourney: People working for not-for-profit organizations live very comfortably and these organizations, I remember some years ago, there was an analysis on the American Cancer Society and they found that only 12 percent of the American Cancer Society raised money was actually going to patient care. So 88 percent of money was going to run the bureaucracy, raise more money, fund basic research perhaps, but people who were giving that money think that they, at the end of the day, will somehow see some benefit in a clinical sense, and a lot of that just isn’t coming to fruition.

Jason Hartman: That’s scary. Well, look, we’ve discussed a lot of issues here today, and these are big, big, big issues. What do we do? You’re a doctor. What’s your prescription?

Dr. Nagourney: I think doctors have to be turned loose to practice medicine the way they were trained to practice it. I like to think that we will work smarter rather than harder. We have developed innovations in cancer therapy that can demonstrably curtail costs, demonstrably improve outcomes, and avoid futile care. This is a very valuable sort of approach and it isn’t seeing the light of day because it’s disruptive to the tidy system that’s been accepted and promoted.

I think the problem is innovation will be squelched. Smart ideas will be squelched if you move forward in these glacial systems, rather than allowing smart, capable people to seek solutions. That sort of entrepreneurial ability is being squelched out of medicine. And the whole spirit that made America great and innovative is that sort of individual seeing solutions to problems no one else can see, and when we stop allowing people to do that, and stop allowing them to develop those expertise and apply them, I think we’re going to suffer for it.

From a standpoint of how do we fix the medical system in a general sense, I think that we ought to reintroduce the market. I think the Concierge’s Care system is an outgrowth of the fact that the dumbing down of reimbursement policies, such that doctors get paid the same amount whether they’re good or bad, will be avoided by the good doctors who will step out of the insurance system and extract their price for the quality of their care. If we just allow the system to compensate people for expertise, allow doctors to charge at different levels for qualities of their care, people would see out the best that they could afford. I think we should certainly have a way to catch those who have no other way to cover it, but they don’t necessarily go to the Taj Mahal for cancer therapy. They have to go to the center that will provide them care.

I spent time in China. I lectured in Hong Kong and I lectured in Beijing and I traveled and I went to medical centers around China. Did you know that in China the cancer patients buy their own chemotherapy drugs and bring them to the doctor’s office? The doctors will not accept the cost of the care. For as much as we look to China as a communist nation, it is incredibly capitalistic with regard to its medical care delivery. They have a very low-level basic care that they will provide to people and it’s not very appealing. And then the next tiers up you pay for. And that’s Communist China.

So I think that America could learn from Communist China how to avoid making these socialist mistakes.

Jason Hartman: I think they could do that in a lot of the areas in business as well because oddly enough, “Communist” China is much freer than the modern day U.S. in many ways.

Dr. Nagourney: And medicine is following rapidly.

Jason Hartman: Doctor, just in closing, what would you like people to do, any action steps after listening to this interview? What should people do? It seems that Washington has been sort of bought out by special interests and entrenched groups and so forth. Do you write your Congressman? What do you do?

Dr. Nagourney: I think to some degree, you have to make it very clear that this current system that’s being promoted does not meet many of the needs of the people who are paying the taxes and running the businesses in America. And I think that, ultimately, Congress and the Senate are responsive to their electorate. Perhaps not right now in the middle of an election cycle, but by 2010, a lot of these people will hear from their electorate about the displeasure of their forcing this medical system upon what I perceive to be a majority of people who don’t want it.

Jason Hartman: Are there any websites or resources where you’d like people to go? I just thought I’d ask that question. Your website or whatever.

Dr. Nagourney: Again, we have developed, particularly the area of cancer therapy, which I think is exactly along the lines of what people ought to be thinking about, smart, better, faster, smarter ways to manage a difficult problem. We’re at Rational Therapeutics, which is RationalTherapeutics.com, and you can Google my name, Robert Nagourney, or find us on RationalTherapeutics.com, and we outline ways for cancer patients to smartly get better, very often with less toxicity, and certainly, overall, with less cost.

I think from the standpoint of other websites, I’m not really in the medical policy field, so I’m not sure I can really point you toward any particular ones, but I think that a well-informed public will be a better and more responsive public, and I think that we all should make the effort to keep ourselves informed on these policy issues. I think if people are interested, they should look into the origins and applications of things like evidence-based medicine. I think the more you hear terms like evidence-based medicine, the more important it is for people to know what that is.
I also think people ought to look up these comparative effectiveness studies, in particular, the July issue of the New England Journal of Medicine by Engelhart, who analyzed this. Right there in bar graphs is an example of how this bureaucracy is redirecting funds away from care toward policy and the study of the study of medicine.

Jason Hartman: Dr. Robert Nagourney, thank you so much for joining us today. This has really been very enlightening. A lot of stuff I didn’t know. I learned a lot and I’m sure our listeners did, too. Thank you.

Dr. Nagourney: Thank you very much.

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Duration: 60 minutes