Can the Inflation Reduction Act build back medicine better and reduce climate change? [PODCAST]

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“There is great hope for this bill to accomplish the stated goals in the medical and energy worlds. There are many excellent summaries regarding this bill, and I would urge any interested readers to find a review of the bill and read through it. We will hear much more about these initiatives in the future.”

Chris Kager is a neurosurgeon.

He shares his story and discusses his KevinMD article, “The Inflation Reduction Act: Can it build back medicine better and reduce climate change?”

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Transcript

Kevin Pho: Hi, and welcome to the show, where we share the stories of the many who intersect with our health care system but are rarely heard from. My name is Kevin Pho, founder and editor of KevinMD. Rate and review the show at KevinMD.com/rate. Subscribe at KevinMD.com/podcast. Today we welcome back on the show Chris Kager. He’s a neurosurgeon, and his latest KevinMD article, which we’ll talk about today, is titled “The Inflation Reduction Act: Can it build back medicine better and reduce climate change?” Chris, welcome back to the show.

Chris Kager: Thanks for having me.

Kevin Pho: So for those who get a chance to listen to our first episode, and we talked about it almost two years ago, right, just briefly share your story and journey to where you are today.

Chris Kager: Sure. So I’m actually a full-time clinical neurosurgeon, but over the last 10 years I became interested in investing and private equity. I ended up joining an angel investment group and learning a lot more about investing and venture capital, and then about three and a half, almost four years ago, I became a partner in a venture capital fund, Global Health Impact Fund, out of California, that is focused mainly on medical technology and digital health.

During the pandemic I also completed an MBA to give me a little more baseline knowledge, and I still look for companies, even outside of our fund, that are interesting companies and impact companies. So I ended up becoming connected with a company in the sort of renewable energy and hydrogen space that we’ll touch on.

Kevin Pho: For those who are interested in moving into that venture capital space, I know there are a lot of doctors, especially over the last few years during the pandemic, who realize that clinical medicine isn’t as secure as it used to be, and they want to branch out. What kind of advice do you have for them?

Chris Kager: Read all you can, learn all you can, and get some experience. It’s very hard, I think, to transition from a full-time clinical physician directly into venture capital, but there are venture capital funds and other investment vehicles that are looking for people who have clinical experience along with some type of business background. So you can learn a lot just by reading and going on different platforms.

Some people ask, “Is it necessary that I get an MBA?” And although I don’t think it’s necessary, I think for me it provided me with some baseline level of financial knowledge.

Kevin Pho: So let’s talk about the most recent act that was passed, the Inflation Reduction Act. I know it has wide-reaching consequences. You ask, can it build back medicine better and reduce climate change, in your most recent KevinMD article. So walk my audience through it, and share the story of why you decided to write it.

Chris Kager: Sure. First of all, like a lot of things that are done in Washington, it’s a fairly complicated bill. There are a lot of areas that it touches on. So I wanted, for my own edification, to read through the summary. I did not read all 750 pages of the bill, but I really wanted to focus on two things that, for me, impact us the most, and me in particular with regard to green energy.

But also, interestingly, the name of it is somewhat misleading, the Inflation Reduction Act, but there are some very specific impacts in medicine. And this goes back to a year ago, when they were talking about passing the Build Back Better Act, and some of those same clauses were in that original bill that did not pass. So anyway, I wanted to take a look and just give an overview of what those items would be in medicine, and then as well as clean energy.

Kevin Pho: All right, so let’s go into more detail. Tell us, how does the Inflation Reduction Act affect clinicians and medicine?

Chris Kager: The first thing is that there is some debate over whether it’s actually going to help inflation, but there are some economists who believe that the long-term effects of this will actually reduce inflation and set us on a better pathway with regard to these other issues.

First of all, for the medical field, with this bill, bipartisan calculations have come up with a number: They believe it’s going to save Medicare about 288 billion dollars over the next 10 years. So from a system effect alone, that is quite a good start. Then when you get into the pieces of how it affects patients and physicians, one of the provisions in the bill is that it caps out-of-pocket prescription expenses for Medicare individuals at 2,000 dollars a year.

Kevin Pho: Now what are the specific ways? How does it go about saving Medicare that amount of money?

Chris Kager: So we’ll get into that. That’s one of these other items that come up for discussion. That was just the overview number, that all these clauses will save about 288 billion dollars. So in the bill itself, there’s actually a provision that Medicare is then required to negotiate the costs of prescription medication, and they’re very specific about what they require, and it’ll affect probably about 20-plus of the most common and highest-cost medications to Medicare.

The other part of that is that the drug companies are somewhat capped in what they can charge Medicare, to no higher a raise than the rate of inflation, and if it rises faster than that, then they’re required to give essentially a rebate back. So that alone is a big chunk of this, as far as how it’s going to save the Medicare system that much money. And then there’s some thought that this will spill over into commercial and private payers as well.

Then there’s actually a provision in this that will help increase access. So I don’t know if you knew that there were some plans on the Affordable Care Act Marketplace that were basically set to expire, and for the next three years it will actually expand access by keeping those subsidies in place as well.

Kevin Pho: So in terms of the impact that these cost savings have, how many years do you think it’ll be before we notice it, just me and a patient in the exam room?

Chris Kager: So most of these provisions phase in over the next couple of years. The cap will be, I believe, as early as 2024. So it’ll be relative. It won’t be tomorrow, but it’ll be over the next year or two. And as far as these other things, they all phase in over a 10-year time period.

Kevin Pho: And from your perspective, having a toe in both the medical and the financial world, what’s your take on these changes to our health care system?

Chris Kager: I mean, I think in general it was a good direction. It wasn’t quite as all-encompassing as the Build Back Better Act was, which was actually a two trillion dollar bill that was originally floated back at the end of 2021. But I think it may have more of an effect on an individual patient and perhaps less of an effect on the system, but still a relatively good start, especially for those patients who require a fairly extensive number of prescriptions.

Kevin Pho: So you mentioned, as you were talking about this act, that there’s a question of whether in fact it will reduce inflation. Why is that?

Chris Kager: If you’re looking at the bill as a whole, you’re not talking about a huge amount of money for the overall government, but there are also some spending provisions in this as well. So you’re talking about cutting prescription costs, that’s great, but then you’re also using some of that money to expand access and keep the Affordable Care Act in place. So it’s a little bit of taking money from one spot to pay for the other.

But right now we were just talking about the medical provisions. There’s a thought that some of the investments that they’re going to make in other areas may actually spur growth and spur the economy to reduce the costs that they’re using to spur that.

Kevin Pho: So what are the other major areas of this act? Of course, there is its impact on climate change. So talk more about that.

Chris Kager: So I think we’re living in a great time. This is actually the largest single piece of legislation ever passed to try to reduce or reverse climate change. This goes back all the way to the early 2000s, with the Paris meetings and the Paris Accord. So there is a thought that this act in general will reduce U.S. greenhouse gas production, so that everything’s earmarked or compared to 2005, because that’s when the first agreements were in place.

So between 2005 and 2030, a 25-year time period, with what was already in place, they predicted only a 20 to 25 percent overall reduction in greenhouse gas production, and this single piece of legislation, they think, pushes that to over a 40 percent total reduction in greenhouse gases. So pretty impactful, if it all turns out to work as planned.

There are, again, some specific provisions that are fairly deeply buried in these, but there’s a provision for tax credits to switch to clean energy. So that includes up to a 7,500 dollar credit for electric vehicle purchase, and there are some interesting provisions even within that part of this, that it has to be manufactured or assembled in the United States. So there’s already been some debate about the total number of electric vehicles that actually would qualify under this bill.

And then there are incentives for commercial buildings. It’s actually a two-prong approach, so there are mandates, and then there are incentives for commercial buildings to switch over to cleaner, green energy as well. And then there’s a total of 369 billion dollars available for climate change initiatives, including carbon capture, which is becoming a bit more popular to be discussed, and also green hydrogen production. And that includes, for green hydrogen companies, up to a three dollar per kilogram production credit for green hydrogen.

Kevin Pho: You mentioned that the Inflation Reduction Act didn’t get everything that was initially proposed in the Build Back Better Act. So when it comes to climate change, what didn’t get included?

Chris Kager: The scope of the bill was very similar. It was more a matter of the amount of funding that they had for the bill.

Kevin Pho: And in our current political climate, where it’s very difficult to get anything passed, just in your opinion, do you think that the Inflation Reduction Act was the best that could have been done in this current political climate?

Chris Kager: I’m shocked it got passed, and it required a lot of maneuvering and negotiation to do it, and it basically came down to two senators, Senator Manchin and Senator Sinema, who got it done basically at midnight. So I don’t know if it was the best, but I think it was close to what we could expect, and it was really a one-vote decision.

Kevin Pho: Now let’s go back to its effect on clinicians in the health care system. Do any of the effects from this act telegraph a road map going forward, in terms of further impacts that can happen to our health care system?

Chris Kager: So you said it’s very polarized, and I would agree with that, although there’s definitely enough support for this movement. I don’t think it signals anything specific, but I think it does signal that there’s at least an initiative to be a little bit more liberal on spending when it comes to health care. So I don’t think it’s going to telegraph any one specific movement. For example, there’s zero chance that this is telegraphing a single-payer system. I get what you’re saying, and I think that there’s some leeway as things become a bit more progressive.

Kevin Pho: Now you mentioned one possibility when it comes to Medicare negotiating drug prices, that it could spread to the private payers as well. What are your thoughts on the chance of something like that happening?

Chris Kager: I think the private payers are always looking for a chance to reduce their payments, and at least in my world as a surgeon, anytime Medicare reduces a payment, the private payers are lining up behind them to do the same. So I think it’s really only a matter of time until there’s some movement on the private side to do that as well.

Kevin Pho: We’re talking to Chris Kager. He is a neurosurgeon, and his KevinMD article, which we’re talking about today, is “The Inflation Reduction Act: Can it build back medicine better and reduce climate change?” Chris, if you were in charge of the United States government, when it comes to health care and climate change, in your ideal world, what would you like to see as the immediate next steps?

Chris Kager: I think, even as a surgeon, a bit more of an emphasis on primary care and health and illness prevention is where you probably get a higher impact for your investments. My generation is probably a little older, but I don’t think the current generation of clinicians coming through is against the single-payer system. And in the right case and in the right format, I think people have some concern about having the government design that and implement that, but I think that a single-payer system could help eliminate a lot of the cost and a lot of bureaucracy, hopefully without creating more bureaucracy, because the administrative cost in medicine is huge.

As far as clean or renewable energy, that’s a bit tougher, because I think that’s a bit more of a private sector problem. I think they’re doing what they can to spur investment and innovation. The DOE has been very aggressive at promoting this. So as part of the DOE program for renewable energy, they introduced, I think it’s an eight billion dollar amount of funding for what they are calling hydrogen hubs.

So we really get to discuss hydrogen a lot, but there’s been this thought that hydrogen may be an ideal energy carrier. It’s had its waves in the past and has never really fully developed, but Europe is certainly much more developed than we are. And so what the Department of Energy wants to do is establish seven or eight main sites of hydrogen production and distribution. It’s a bit of a chicken-and-egg problem. You want to promote hydrogen, but you don’t have hydrogen filling stations, and you want to promote hydrogen, but you don’t have hydrogen vehicles because there are no hydrogen fueling stations. You have to come up with either a distribution plan where you basically have to build everything out together. So by starting with a hub model, I think that’s what they’re trying to spur.

Kevin Pho: And my final question: What are some of the take-home messages you want to leave with the KevinMD audience?

Chris Kager: Yeah, so take-home messages. Although a bill like this can appear simple, it’s 755 pages, so there is a lot of complexity to this. I think there are a lot of stakeholders on all sides, particularly in medicine. It’s not going to be a problem where we wake up one day, five years from now or ten years from now, and something looks necessarily radically different. I think that our best hope along the way is somewhat incremental change.

When you think about how they’re looking at this, there are actually graphs where they look at projected climate change and temperature changes, and it’s a really slow downward curve of reducing greenhouse gas emissions. So again, it’s not going to be something that’s revolutionary. I think for both health care and clean energy, it’s more of an evolution.

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