Flatlined: Resuscitating American Medicine

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Flatlined

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Flatlined Resuscitating American Medicine

GUY L. CLIFTON, M.D.

RUTGERS UNIVERSITY PRESS NEW BRUNSWICK, NEW JERSEY, AND LONDON

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LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA

Clifton, Guy L., 1949– Flatlined : resuscitating American medicine / Guy L. Clifton. p. ; cm. Includes bibliographical references and index. ISBN 978–0–8135–4428–1 (hardcover : alk. paper) 1. Health care reform—United States. 2. Medical policy—United States. I. Title. [DNLM: 1. Health Care Reform—United States. 2. Economics, Medical—trends—United States. 3. Emergency Medical Services—organization & administration—United States. 4. Hospitals—trends—United States. 5. Insurance, Health—trends—United States. WA 540 AA1 C639f 2009] RA395.A3C618 2009 362.10973—dc22 2008011239 A British Cataloging-in-Publication record for this book is available from the British Library. Figures 4.1 and 12.2 were reproduced with permission from the Henry J. Kaiser Family Foundation. The Kaiser Family Foundation, based in Menlo Park, California, is a nonprofit, privately operating foundation focusing on the major health care issues facing the nation and is not associated with Kaiser Permanente or Kaiser Industries. The author is donating his proceeds from this book to San Jose Clinic, Houston, Texas. Copyright © 2009 by Guy L. Clifton, M.D. All rights reserved No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical, or by any information storage and retrieval system, without written permission from the publisher. Please contact Rutgers University Press, 100 Joyce Kilmer Avenue, Piscataway, NJ 08854–8099. The only exception to this prohibition is “fair use” as defined by U.S. copyright law. Visit our Web site: http://rutgerspress.rutgers.edu Manufactured in the United States of America

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To my wife, Karen, my mother, Marjorie, and the memory of my father, O. B. Clifton

Do not remember the former things, or consider the things of old. I am about to do a new thing; now it springs forth, do you not perceive it? I will make a way in the wilderness and rivers in the desert. —Isaiah 43: 18–19

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CONTENTS

List of Figures and Tables

ix

Preface

xi

Acknowledgments

xvii

PART ONE

Why the Uninsured Should Be Covered 1

Not Business As Usual

2

Unreliable Emergency Services

10

3

An Eroding Infrastructure

16

4

Fifteen Years Lost

25

5

Handed Health Care’s Leftovers

35

3

PART TWO

Why Health Care Is So Expensive 6

Where We Are Headed

49

7

30 Percent Waste—or 50?

57

8

Poor-Quality Primary Care

67

9

Dangerous Hospitals

77

10

Violation of Dignity: The End of Life

94

11

Unnecessary Surgery

103

12

Perverse Payment Incentives

120

13

Three Pathways to Hospital Profitability

139

vii

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14 15

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Pharmaceuticals: Remarkable Innovation, Shameless Puffery

157

Private Health Insurance: No Added Value

170

PART THREE

Reforming American Health Care 16

Three Options for Covering the Uninsured

179

17

No Coverage Expansion without Cost Control

201

18

A Workable Plan for Reform

212

19

Establishing Standards

224

20

Prioritizing Primary Care

232

21

Reducing Spending on Hospitals and Specialists

243

22

Positioning of an American Medical Quality System

261

Notes

275

Index

313

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FIGURES AND TABLES

Figure 3.1 4.1

Number of U.S. emergency room visits

22

Percentage increase in cost of health insurance premiums, 1988–2006

32

7.1

Components of U.S. gross domestic product, 2006

65

8.1

Relationship between quality and Medicare spending as expressed by overall quality ranking, 2000–2001

75

9.1

Typical handwritten patient progress note

91

9.2

Typical physician’s order sheet

93

11.1

Cross-sections of spine

112

11.2

Surgical spine procedures on the low back

113

11.3

Spinal surgery as a percentage of U.S. hospital charges

11.4

116

Number of U.S. hospital admissions with coronary catheter procedures

12.1

Annual changes in Medicare spending per beneficiary with federal actions

12.2

Table 12.1 12.2

122

Annual changes in private per-capita national health spending with federal actions

16.1

118

123

Hospital payment-to-cost ratios for private payers, Medicare, and Medicaid

190

Generalists’ Income and Annual Workload

128

Specialists’ Income and Annual Workload

128

ix

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PREFACE

I am a neurosurgeon, perhaps the last person you might expect to write a book calling for reform of the medical industry. Yet despite all the good in medicine, I have witnessed bedside tragedies that no one would expect in the United States. After studying the U.S. health care system, I became so disturbed by my discoveries and experiences that I left my practice and my home to undertake a yearlong stint as a Senate staffer, focusing my efforts on health care reform. I also decided to write this book. In Flatlined I have worked to make my ideas understandable to a person whose only experience of health care is as a patient. You will find no unexplained medical jargon or highly technical terminology, just the stories and the necessary facts that describe the current—and unacceptable—state of affairs in American medicine. The stories are all real events or composites of real events that I have seen unfold. During my thirty years of medical practice, I have found doctors, nurses, and the staff and administrators of hospitals to be unusually principled people, and I have always been proud to be among their ranks. My stories are not about bad people but about good people working in bad systems. The term flatlined refers to loss of the heart and brain’s normal, rhythmic electrical signal when a patient hooked up to a machine dies. Between 1999 and 2005 I watched patients die of injuries that should not have killed them. They were flatlined by the failures of the medical system. At present, being insured does not guarantee timely care or protection. An ambulance is waved away from an American emergency room every minute without regard for who is inside the vehicle. This situation will only grow worse without immediate reform. Flatlining also faces the U.S. health care system as a whole if it continues on its present trajectory. In 2007 Medicare and Medicaid xi

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accounted for 23 percent of the federal budget and are on track to consume one-third of it by 2018. At any given time, 47 million Americans are without coverage or access to standard medical care, but that figure understates the problem. More than one-third of the non-elderly population—82 million people—has either insufficient, unstable, or no health insurance coverage. As a percent of wages, business spending on health care is at an all-time high; and small businesses are dropping coverage because they have been priced out. Health care costs are growing at twice the rate of the economy; meanwhile, American businesses face relentless global competition from companies that do not bear such costs. The overall budget for health care is already exorbitant. But at least 30 percent (about 700 billion dollars) of all delivered health care services are unnecessary for treating illness or ensuring wellness. Many procedures are also harmful. There is no just reason for a country as wealthy as ours to be delivering and consuming large quantities of wasted medical services when so many of its citizens have insufficient or unstable access to standard medical care. There is no excuse for disenfranchising so many people from medical services when they could be covered by the simple creation of a more efficient system. Full-access coverage and the reform of medical practice to reduce waste would also improve the quality of medical care. Too many people are victims, both the insured who get excessive or poor-quality medicine and the uninsured who get too little care, too late. Medical waste is a moral issue: it is the wrong use of money, and it hurts innocent people. When I began considering the best manner of paying for and providing health care in the United States, I did not begin with any biases. I have visited Canadian hospitals, and I know many Canadian doctors. I have a good opinion of that country’s health care system, which is managed through the government as the single payer. But the United States, with more than 300 million people, is not Canada, whose population is only about 34 million; moreover, their cultures are different. After spending a year in a Senate office watching the inner workings of Medicare payment policy, I cannot support a single-payer system. In the short run such a plan would reduce the considerable health care administrative waste, but in the long run there is no doubt that it would bankrupt the United States

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unless it is managed very differently from Medicare. Medicare must be reformed because it already poses a serious fiscal threat to the country. Another option is to patch the existing system. Large businesses consider the provision of health benefits to their employees a key strategy, although they have been unable to manage health care cost. Small businesses, however, are dropping coverage because they can’t afford it and want out of employer-based health care. Thus there is an impasse. The other alternative is to disconnect insurance from employment and to subsidize individuals in their direct purchase of insurance in a competitive national insurance market, opposed by large businesses and insurers. The underlying principle of this plan is that individuals will have enough personal financial investment in the purchase of health care so that consumer pressure will reduce health care costs. But market forces will not be enough to make health care affordable. Reducing the cost of health care will require the efforts of private industry, government, and the American people. Hospitals function as regional monopolies or oligopolies, and doctors are mired in historic modes of practice that are inefficient and mediocre in quality. Doctors and hospitals will not, and cannot, reinvent themselves without the cooperation of the buyers of health care: the public. People will have to submit to the care of a single doctor who coordinates and ensures the quality of their care. There must also be patient accountability. If individuals want procedures and treatments that are proven to have little value, they will have to pay for some of the cost. The problem of waste in medicine is collectively owned by doctors and patients. The problems of insurance coverage and of the cost of health care are two separate but related topics requiring separate federal policy initiatives. The magnitude of waste is so large and the prospects for savings and improved quality are so great that the only way to significantly reduce health care cost is to follow a targeted, federally led initiative to reduce waste. Such an initiative would provide the information and leadership necessary to establish benchmarks for quality medical care, discover and teach efficient processes of care, and change the method of paying doctors and hospitals to one that shares with them the savings from efficient practice.

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THE SEVEN POINTS OF HEALTH CARE REFORM 1.

Every American should have access to adequate and affordable health insurance regardless of their health or job status.

2. Individuals should directly pay for enough of their health insurance premium or health care cost to have a sense of stewardship. 3.

Insurance premiums should be the same for the healthy and the ill.

4. The health insurance industry should be reformed so that competition among insurers reduces the cost and improves the quality of health care. 5. A primary care doctor of the patient’s choosing should be the first point of contact with the medical system and should coordinate care and manage chronic illnesses. 6. The adherence of doctors and hospitals to benchmarks of quality should be reported to them and to the public. 7.

Doctors and hospitals should be paid based on the quality not the quantity of care they deliver and the savings from efficient practice shared with them.

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The United States pays at least two times more per unit of health care services than any other country in the world. Why shouldn’t the nation develop the first high-performance health care system in the world since it is already paying for one? Before assuming that these proposals are too radical, too drastic a shift, consider the financial industry itself as a model for balanced regulation. Reforming U.S. medicine is like turning a giant aircraft carrier; compare it to the process of banking reform begun after the Depression. It will take time; and if we do not start now, we may be too late. When the Federal Reserve System was established in 1913, it was designed as a quasi-public institution with both private and government arms of oversight and management. Its functions have changed over the years but always with a single purpose: maintaining a stable financial system. I propose a similar model for health care, the creation of an American Medical Quality System responsible for providing the information necessary to reduce waste and improve the quality of U.S. medicine in each area of the country. The objective is to reduce the cost of health care so that it is affordable for individuals, families, and the national economy. Cutting the waste in health care will also free up money that can be used for coverage of the uninsured. The only obstruction to reforming American medicine is lack of political will, but both raw statistics and unnecessary individual tragedies justify change. My hope is that Flatlined will contribute to public understanding and ownership of our nation’s health care problems. My only goals are accountability and justice. Americans want change, but we must rise to the challenge because our problems do not belong to someone else. We all must be willing to accept responsibility. With clear direction and sufficient political will, more than enough wasted money can be extracted from U.S. health care to cover all the uninsured, improve everyone’s quality of care, and permanently reduce the cost of American medicine.

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ACKNOWLEDGMENTS

It was my great good fortune to work with Marilyn Alice McDonald almost daily for thirteen years, and for three of those years she toiled shoulder to shoulder with me on this book, as dedicated to its completion as I was. Together we undertook the primary research, and we constantly debated our findings and conclusions. Her conservative midwestern judgment and keen intellect kept the book’s content grounded. I alone am responsible for its errors, as Marilyn rarely makes any. Sister Margaret Byrne of New Orleans and now Houston is a dear friend who in 2001 directed me through the Ignation Spiritual Exercises that led me down the unexpected and dangerous path of attempting to reform U.S. health care. I thank her for the wake-up call. My father, O. B. Clifton, whom we lost while I was writing this book, and my mother, Marjorie Jean Clifton, taught me and my brothers the principles and the faith that have guided our lives. God smiled upon our families through our parents. I was indeed fortunate in marriage. My wife of thirty-one years, Karen Florance Clifton, insisted that I had to try to do something about health care, not knowing that in the process she would be uprooted from her home, her friends, and her family. She never wavered, simply stating that we had an obligation to do whatever needed to be done. Karen has been my constant companion and support and, from my first sight of her, the love of my life. She gave up three years of weekends as I researched and wrote this book, and she read each version, encouraging me to keep going until I got it right. I interviewed a number of people, all of whom were open and generous with their time. They include Joe Antos, scholar at the American Enterprise Institute; Judith Cahill, executive director of the Academy of xvii

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Managed Care Pharmacy; Carolyn Clancy, director of the Agency for Healthcare Research and Quality; Terry Clemmer, director of Critical Care Medicine at LDS Hospital, part of the Intermountain Health Care System of Salt Lake City; Janet Corrigan, president and CEO of the National Quality Forum; Helen Darling, president of the National Business Group on Health; Karen Davis, president of the Commonwealth Fund; Suzanne Delbanco, CEO of the Leapfrog Group; Carol Diamond, managing director of the health program at the Markle Foundation; Judy Feder, dean of the Georgetown Public Policy Institute; Herb Fritch, chairman, president, and CEO of HealthSpring; James K. Geraughty, chief medical officer of HealthSpring; Paul Ginsburg, president of the Center for Studying Health System Change; K. Lance Gould, professor and Martin Bucksbaum Distinguished Chair in Cardiology at the University of Texas Medical School at Houston; Stuart Guterman, senior program director for Medicare’s future at the Commonwealth Fund; Bill Hermelin, director of government affairs and general counsel at the Academy of Managed Care Pharmacy; Ada Sue Hinshaw, professor and former dean at the University of Michigan School of Nursing; George Isham, medical director at HealthPartners; Brent James, executive director at the Intermountain Institute for Health Care Delivery Research; Arthur Kellerman, professor in the Department of Emergency Medicine and associate dean for health policy at Emory University School of Medicine; Sid King, managing partner at the Sumner Medical Group; Richard Kronick, professor and chief of the Division of Health Care Sciences in the Department of Preventive and Family Medicine at the University of California San Diego School of Medicine,; Lucian Leape, adjunct professor of health policy in the Department of Health Policy and Management at Harvard University; Jack Meyer, principal of Health Management Associates; Robert E. Moffit, director of the Center for Health Policy Studies at the Heritage Foundation; Marilyn Moon, vice president and director of health programs at the American Institutes for Research; Len Nichols, director of the health policy program at the New America Foundation; Nina Owcharenko, senior policy analyst in the Center for Health Policy Studies at the Heritage Foundation; Jeffrey S. Passel, senior research associate at the Pew Hispanic Center; Steve E. Phurrough, director of the Coverage and Analysis Group at the Centers for Medicare and Medicaid Services

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(his comments were personal, not official); Eugene Rich, Tenet Healthcare Endowed Chair and professor of medicine at the Creighton University Medical Center; Sean Tunis, director of the Center for Medical Technology Policy; Andrew Webber, president and CEO of the National Business Coalition on Health; John G. West, surgical director of the Breast Care and Imaging Center of Orange County; and Dan Wolterman, president and CEO of the Memorial Hermann Healthcare System. Michie I. Hunt incisively synthesized the literature on managed care, international health care, and pharmaceutical costs. Tom Reynolds of the University of Texas School of Public Health assisted with primary research in the Healthcare Cost and Utilization Project database. Roy Prichard of the Graphic Communications Department of the University of Texas Medical School at Houston created the illustrations. In the fall of 2006 I received a Robert Wood Johnson health policy fellowship, which each year allows a few health professionals to study health policymaking from the inside. Marie Michnich is responsible for the management and content of this excellent program. Between August and December 2006, six other medical professionals and I listened to private presentations and then peppered more than seventy leaders in health policy with questions. We were then given the opportunity to work in congressional offices. I spent one year working as a fellow in the office of Senator Orrin G. Hatch under the direction of his health policy director, Pattie DeLoatche. It was an extraordinary opportunity. The public is fortunate to have such people looking out for our interests. Despite all my assistance from these various people and organizations, I want to clarify that none of the opinions expressed in this book reflect the opinions of the University of Texas Health Science Center at Houston, the Robert Wood Johnson Foundation, the Robert Wood Johnson Health Policy Fellowship Program, Senator Hatch or his staff members, or any of the people I interviewed. All opinions and conclusions are mine alone. Finally, creating a book that is not quite an academic book and not quite a trade publication requires a lot of editing. The book’s first editor was my longtime friend and teacher of English, Dr. Charles Novo. Rose Vines, whose specialty is technical writing, performed major surgery on an early version of Flatlined, expunging hundreds of pages of gratuitous

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information. Jerry Gross, who usually edits novels, helped organize the cadence and transitions for the lay reader. My colleague, Dr. Len Nichols, a leading health economist and policy analyst at the New America Foundation, critiqued the policy sections, offering invaluable advice. I owe the title Flatlined to Lawrence Wright, who won the 2007 Pulitzer Prize for A Looming Tower. My son Dr. Guy Travis Clifton refined medical aspects of the work. My editor at Rutgers University Press, Doreen Valentine, was the first enthusiastic supporter of this project in the publishing world and provided insightful advice on organization and skillfully edited the final drafts of the book. This book had many midwives, and I am grateful to all of them.

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PART ONE

Why the Uninsured Should Be Covered

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1 Not Business As Usual

I witnessed a series of personal tragedies that began to morph into an alarming overall picture.

One hot Saturday afternoon in the summer of 1999 I was on neurosurgery call at Memorial Hermann Hospital in Houston, Texas, one of the largest trauma centers in the United States. Houston is the fourth-largest city in the country, and its metropolitan area is home to 5 million people. The page operator connected me with an emergency room doctor in the little town of Lake Jackson, fifty miles south of Houston, and we began a routine conversation for a busy on-call weekend. “Dr. Clifton, I have a forty-year-old woman who has a brain hemorrhage. The car she was driving struck a tree. She is unconscious but moving everything. Can I send her to you?” “We’ll send the helicopter to get her,” I responded. “Is she intubated?” Intubation is a procedure in which a tube is put into the airway to control breathing and is standard practice in an unconscious patient. “Yes, I intubated her and gave her mannitol as well.” Mannitol is a sugar solution that extracts water from the brain and decreases brain pressure for a little while until surgery can be performed to evacuate the blood clot. The doctor in Lake Jackson was competent. Hospital conversations between two doctors about a transfer are always recorded and silently monitored by a nurse in the transfer center. The recorded conversation provides proof of compliance with federal law that governs the transfer of patients between hospitals. “Dr. Clifton,” the transfer center broke in, “We do not have any ICU [intensive care unit] beds. We are on diversion.” 3

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These were not words I had heard before, and my instant response was a question: “What do you mean we don’t have any ICU beds?” “Dr. Clifton, we are full.” After a moment’s thought I said, “Let me go through the unit; I am sure I can move someone out. . . . Doc, I will call you back.” The term diversion is used when a hospital’s emergency room turns away ambulances because either the ER or the hospital is full and cannot accept any more patients. But at that time, it was a new word to me. Memorial Hermann Hospital’s neuroscience ICU has twenty-eight beds and is one of the largest of its sort in the country. The hospital has always cared for the region’s worst neurosurgical emergencies—any time, every day—flying them over the city’s clogged streets by helicopter. The hospital’s ICU is the city’s core resource for emergencies of the brain and spine. The charge nurse and I walked past one patient after another— ventilators pumping, heads wrapped, oxygen hissing, tubes projecting from natural body openings and from openings we had made. “Can this one be moved to the regular ward?” “No, Dr. Clifton—too unstable.” “What about this one?” “No, she just had surgery.” In every bed lay patients too sick to move. I had been chief of the neurosurgery service at Memorial Hermann Hospital for ten years, and this was the first time I had ever turned down a patient for lack of a bed. I thought the situation was strange. I redialed the doctor in Lake Jackson. “Doctor, I went through our ICU, and I can’t move anyone. I don’t have anyplace to put the patient.” Through the phone I could feel his anger. “Dr. Clifton, I have been turned down by three other hospitals. I cannot find a bed. What am I going to do? This lady needs surgery and she needs it soon!” I gave him the name of two large nearby hospitals with neurosurgeons and said, “I am sure they will help.” He curtly responded, “Okay, I hope she lasts.” Several weeks later I was talking to Dr. Greg Bonnen, a neurosurgeon who practiced at the University of Texas Medical Branch in Galveston (UTMB) near Lake Jackson. “Greg,” I asked, “Is UTMB turning away transfers?”

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“Yeah, all the time now,” he answered. “I operated on a lady a few weeks ago, ten hours after she was injured. You would not believe what they did to get her in.” Greg told me that the patient’s doctor in Lake Jackson could not find a neurosurgeon-staffed hospital with an available bed. He reasoned that if a call were made to one of the big hospitals from the scene of an accident rather than from his emergency room, then the hospital would fly a helicopter for a pickup even though it was full. No hospital would leave a patient dying at the roadside. According to Greg Bonnen, the emergency room doctor had put the patient into an ambulance and sent it to the tiny local airport. At the airport, the ambulance crew called UTMB saying they were at the scene of an accident with a patient and asking if a helicopter be sent right away. At that time UTMB’s policy was always to accept a patient from the scene of an accident, regardless of the availability of beds. The helicopter flew, and the patient was retrieved. I asked Greg, “So what happened?” “She herniated before she got there.* She ended up in a vegetative state in a nursing home—left three children at home. It was pretty sad.”

From Barbarism to Sophistication As a neurosurgeon who has also been a medical school faculty member for twenty-five years, I have operated on more than 6,000 patients in my career, undertaking everything from complex brain surgery to procedures on the spinal cord and the back. But when I was a medical student in the early seventies, I remember watching the neurosurgeons at work and thinking, “This specialty has no place to go but up; it’s fascinating but it’s barbaric.” The claim sounds like a cliché, but doctors do go into medicine because they want to help people. In the early days of neurosurgery, however, doctors could not get too close to the patients or their families.

* Herniation takes place when a blood clot in the brain causes so much pressure within the skull that it steadily squeezes a small but critical part of the brain, called the brainstem, down through a hole in the base of the skull. Both Greg and I understood that if the patient had been operated on to remove the blood clot within two hours after the accident, she would likely have returned home to care for her children.

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We knew that the majority of our patients would die or be severely disabled and that our treatments were not very effective and often painful. At the time we could not change those outcomes. Patients arrived in dizzying numbers, some of whom had invited disaster by drinking and speeding, others of them innocents selected by fate. Our best encouragement was that sometimes a patient we all thought would do badly woke up in a few days and went home. Thirty years later, I still remember the faces of such patients. Until 1976 there was no computerized axial tomographic (CT) scan to determine who needed surgery. In the hospital where I trained, a neurosurgeon determined if a patient had a mass in her head by rushing her into a dark little X-ray room with a heavy metal table in its center, its chipped paint a sign of heavy use. The patient was hastily laid on the table and covered with a sheet. Then the neurosurgeon would loudly instruct the confused patient not to move while he (at that time neurosurgeons were almost always male) plunged a large needle through her neck into an artery. An accurate penetration produced a two-foot stream of squirting blood. I practiced this and became expert at impaling the artery with only one or two quick thrusts. Dye was then injected into the needle by hand, and it streamed into the brain’s blood vessels. X-rays showed the shifting of the vessels by the mass, so the surgeon could tell if its location was right or left, front or back. But he could tell little else. No one could actually see what was inside or how far it extended; so scalp incisions were a foot long, and we made an opening as big as one-fourth of the skull so as not to miss the mass. Sometimes patients would be strapped into an ugly green metal chair, also with chipped enamel but equipped with worn leather restraints, for a procedure called a pneumoencephalogram. I had never seen an electric chair, but I imagined that the devices were similar. We performed a spinal tap through a hole in the back of the chair—patients squirming, with their arms, legs, and head strapped to the chair; the surgeon yelling at them to keep still so they would not be injured by the procedure. Air was then injected into the spinal column through the needle. The patients always groaned as the air bubbled over the brain, an action that produced a blinding headache followed by waves of nausea. The chair was then turned upside down so the air would stream into the

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right compartment in the brain. In our hospital an average of one patient a year died during this procedure because the air allowed unexpectedly large brain tumors to shift within the skull. It was good fortune for me and for the patients that technology transformed neurosurgery in the next thirty years. These days, with CT and magnetic resonance imaging (MRI) scans, neurosurgeons can determine if a mass is a blood clot or a tumor, what kind of tumor it is, how close it is to speech and movement centers, and how it is affecting the surrounding brain. The patient is simply required to remain still for a few minutes without additional discomfort from the imaging procedure. The mass can then be removed through a tiny opening in the skull while the surgeon watches on an MRI exactly where he is in the brain, sometimes with the patient awake.† There is a night-and-day difference between what was and what is for neurosurgical patients. I have seen medicine advance from groundbreaking diagnostic imaging scans such as CTs and MRIs in the 1970s and 1980s, to revolutionary instrumentation

such

as

implantable

deep-brain

stimulators

for

Parkinson’s disease in the 1990s, to recent fundamental discoveries such as stem cell biology. This pace of discovery and development is so rapid and unprecedented that its implications and applications overwhelm us. For almost every disease we treat in medicine, the history of technological change is similar. Health economists debate about how much medical technology has added to the length and quality of life and what it is worth in dollars.1 I’m not going to discuss what medical science has given us. Most Americans understand medical advances and value them. What I will discuss is how the public values them indiscriminately.

Health Care in Decline During my years of practice I was allowed into the lives of both the poor and the very wealthy at the worst times of their lives as well as when they

†

It bothers me that there is no gender-neutral pronoun for a human being. Women now make up half of all medical school classes and perform any job in medicine that a man ever did. I use “he” or “his” to refer to both genders unless I am obviously referring to a specific person.

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were liberated from disease. I also saw a darker side of medicine, and I have watched trends develop that I now believe to be inexorable unless change takes place at the federal level. ■

I saw the educated and affluent undergo risky procedures that they did not need, although they believed they were receiving the best care available.

■

I saw the uninsured, 1 million of them, systematically denied all but emergency care in the fourth-largest city in the nation.

■

I saw both the uninsured and the insured suffer death and disability from easily preventable diseases because they were ignorant about basic preventive care, did not have access to it, did not know how to get access to it, or their doctors did not provide it.

■

I saw both the insured and uninsured suffer preventable medical errors that they did not know about—errors that hospital administrators, nurses, and doctors viewed as a condition of medical practice.

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I saw the insured and uninsured die from delays in emergency care in overloaded hospitals.

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I saw patients whom I knew had no chance of recovery treated intensively for days because the technology was available.

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I saw culture and mass communication legitimize an obesity epidemic that is estimated to account for more than one-quarter of the yearly increase in the cost of health care.

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I saw the development of a medical industry that so favors the unfettered use of expensive technology that it is pricing working families out of health care and sealing the fate of the country’s 47 million uninsured.

These are all symptoms of a health care industry that is so sated with wealth that many of the people who populate its protected interests have forgotten their purpose for coming to work. Health care has become a consumer good with a price tag so high that it is only affordable if someone else pays—an employer, a state government, or a federal government. For many of us, no one else pays. The “haves” consume the health care of the “have-nots,” to the disadvantage of both. The term structural violence describes social structures that harm some members of society. A society that indulges in excessive consumption of health care services at the

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expense of its low-wage workers and their families, who cannot afford even basic services, is committing structural violence. This is what I see happening in the United States. I reluctantly concluded that health care’s problems transcend state and local government after spending several futile years working to help the uninsured gain access to health care services in Houston and stimulate the development of a safe emergency services system for the region. To address these two problems we created councils, performed studies, released white papers, and acquired some funding. Although the community felt better, in the end our efforts to stabilize the region’s emergency services did little more to protect its citizens than the levees did to protect New Orleans. None of these conclusions were evident when the crisis began; their implications dawned on me slowly as I witnessed a series of personal tragedies that began to morph into an alarming overall picture.

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2 Unreliable Emergency Services

The public should not look to the medical industry or to organized medicine for leadership in solving medicine’s problems.

In the late 1970s, I was a resident physician training in a public hospital. My colleagues and I had become furious at groups of neurosurgeons in two Texas towns who often referred to us patients with problems that they said were too complicated to manage in their hospitals. Hours later, we would go down to the emergency room to receive some poor soul who was often medically unstable and had been transferred at his peril only because he lacked health insurance and could not pay. These abuses became so outrageous and widespread that the media took notice and alerted the public, which was shocked. A woman in active labor whose fetus did not have enough oxygen was dismissed from the emergency room of a private hospital and told to go to a county hospital across town, where her baby died because of the delay in care. An injured patient bled to death after the emergency room of a private hospital transferred him in shock with low blood pressure to a county hospital only because he was uninsured. But these were not isolated stories.1 This so-called “dumping” of uninsured patients was a widespread practice before the Emergency Medical Treatment and Active Labor Act (EMTALA) was signed into law in 1986. EMTALA ended these practices by forbidding hospital personnel from even inquiring about insurance in an emergency situation and prohibiting hospitals and doctors from refusing emergency care to anyone at all. In a properly handled emergency, no one has time to ask about insurance, and the information is often not available anyway. We all look alike when we are injured, undressed, and covered in blood. 10

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EMTALA has two qualifiers that relieve the doctor and the hospital of responsibility for emergency care. A hospital is only required to accept patients who have an emergency if it has the capability and the capacity to deal with that emergency. Capability means that if the hospital provides the service on a regular basis, it must provide the service on an emergency basis. For example, if the hospital provides brain surgery during the day, then it must provide it around the clock. Capacity means that emergency patients must be admitted if the hospital has room but not if it is full. When hospitals are over capacity, they typically send out a diversion signal to notify ambulances that they cannot take any more patients. Simultaneous diversion signals from every major hospital in the region doomed the woman from Lake Jackson to end her days in a nursing home, vegetative and tube-fed. Federal law makes an important distinction between emergency and non-emergency care. No hospital or doctor is compelled by law to provide care to a patient with a medical problem that is judged by medical personnel not to be an emergency, defined as a condition that, if not treated promptly, is likely to place the patient in serious jeopardy. Routine medical care of the uninsured is rationed and isolated from routine care of the insured. For emergencies, however, there can be no distinction, a situation that has led to a growing problem for all members of society.

More Preventable Deaths By 2001 Houston and San Antonio trauma centers were on diversion 30 percent of the time, with the problem becoming steadily worse. The day after Halloween in 2001, I got a call from a neurosurgeon of long acquaintance. Had I heard about Bill Huntsman (not his real name)? He was a twenty-one-year-old man from Katy, a bedroom community near Houston. On Halloween night in the early evening, Bill had left work and was walking home along the edge of a busy road. A car swerved and hit him from behind. Unconscious and badly broken up, he was taken by ambulance to nearby Katy Memorial Hospital, a small community hospital with eighty-eight beds and an emergency room more accustomed to treating stomach pain, asthma attacks, and broken noses than lifethreatening trauma.

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The mnemonic for the priorities of trauma care is ABC: airway, breathing, circulation. That is, make sure that the airway is open, that breathing is adequate, and that the blood pressure is sufficient. The emergency room doctors quickly intubated, ventilated, and administered intravenous fluids to Bill Huntsman. He had a severe brain injury with coma, injuries to his chest, and broken legs. The doctors in Katy did not possess the technology to determine if there were injuries to his major arteries or his abdomen, and they did not have the capability to repair them. Their only purpose was to stabilize him for transport to a trauma center where surgery and intensive care could be performed, a practice that should happen within about one hour of injury—the sooner the better. Bill’s father quickly came to the Katy emergency room to behold an unimaginable horror. Michael Huntsman is an engineer, and I later listened to him describe with precision the experience of watching his son’s body systems fail one by one as laboring doctors attempted to reverse the course of the injuries. He listened helplessly as one hospital after another, when contacted by the Katy doctors, refused his son admittance. Finally, hours after his injury, Bill Huntsman was shipped by helicopter to Austin’s major trauma center, 150 miles from Katy, where he died the next day. No one really knows if the delay in his care caused his death: whether it did or not, he never had a chance. Michael Huntsman confided to a friend of mine that he believed his son would have found a bed in Houston if he had still been covered by his father’s insurance. I never got the message to him that insurance would have made no difference; I did not think he wanted to talk to any more trauma doctors. The genesis of the problem was that Texas’s trauma centers were losing more than 200 million dollars per year from care of uninsured trauma patients. Because of EMTALA, if a hospital has an active emergency room, the mix of patients it admits reflects the uninsured rate in the community, with attendant losses from large numbers of uninsured. In 2001 Texas had the second-highest uninsured rate in the nation: more than 23 percent.2 Half of the state’s trauma centers were either turning down or delaying acceptance of transfers. There were several causes: too few intensive care beds, too few nurses, insufficient emergency room capacity, and too few specialists willing to take call. The problem was not limited to the trauma centers; all

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Houston area hospitals were on diversion an average of 14 percent of the time, usually due to a shortage of beds. Patients in need of transfer from small to large hospitals were in particular danger. An emergency patient needing more specialized care should be transferred within two hours, at the outside limit. Only onethird of area hospitals could meet that standard, and delays in transfer of more than six hours were common. Every small hospital in the area reported that its patients were frequently endangered by transfer delays.3 It was clear that the handful of preventable deaths that we knew about were just that—only the ones we knew about. Dr. Charles Begley, my colleague at the nearby University of Texas School of Public Health, soon attached a number to the risk from diversion. He examined the mortality rate from severe trauma for patients who were brought straight from the accident scene to one of the city’s trauma centers. For these patients, ambulances ignored the diversion status of the trauma centers. He compared this rate to the mortality rate of patients transferred from small hospitals into one of the trauma centers, patients such as Bill Huntsman and the woman from Lake Jackson, who were likely to wait too long for treatment. Begley found that on days when both of the major trauma centers were on diversion for at least eight hours, the mortality rate of severely injured patients who needed transfer was nearly doubled.4

Fragmentation No organization was empowered to address the problem of emergency services failure. So as the crisis worsened, two Houston businessmen and I formed SAVE OUR ERS and organized a community-based board. SAVE OUR ERS sponsored the studies of emergency services in Houston and other parts of Texas that gave us the necessary critical insights to approach the Texas legislature. The data from Houston could not be ignored in Austin, the state capital, but the emergency room crisis in Texas was coincident with the most severe state budget crisis since World War II. Like most states, Texas is constitutionally bound to a balanced budget. An estimated 5 billion dollar shortfall on a state biennial budget of 117 billion dollars turned into a 10 billion dollar deficit. Most of the Republicancontrolled house and senate as well as the governor had run on a “no new

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taxes” platform. SAVE OUR ERS retained two of the most effective lobbyists in the state and then began to build statewide support for a bill providing for uninsured trauma care. Our reasoning was that if we could find 200 million dollars, existing trauma centers would voluntarily expand capacity, and more hospitals would elect to become trauma centers. I mistakenly believed that all of the state’s trauma doctors, nurses, and hospital CEOs would support a bill to pay for uninsured trauma care; after all, they had acknowledged to me that their trauma centers were not able to meet their community’s needs and that diversion was a statewide problem. But when it came time to talk about these matters publicly, many became silent, embarrassed to air dirty linen. Others had their own ideas of how to raise the money and were unwilling to compromise on the method. I learned a critical lesson: one reason explaining why we had such poor health care policy in Texas was the fragmentation of the health care industry. The industry’s components—big hospitals, little hospitals, statewide medical societies, and specialty medical societies—would reliably protect their own interests first, seldom taking a unified position. I later found that this is also the case in Washington, D.C. I remembered a management adage my father had taught me in college when I questioned him about the actions of a university department. “The first energies of any organization are used for its self-preservation.” In other words, the public should not look to the medical industry or to organized medicine for leadership in solving medicine’s problems.

The Implosion Begins The legislative session was scheduled to conclude in two months, and the torpor of both hospitals and doctors cross-checked each plan that our committee suggested. Then, unexpectedly, the numbers I had been studying for two years compiled into their inevitable conclusion. Texarkana, the only major trauma center in northeast Texas, downgraded its level of trauma care because it could not afford to pay on-call physicians. One of the three major trauma centers in Dallas, home to 1.2 million people, threatened to quit seeing trauma patients; and a second said, “If they go, so do we.” One of the key hospitals in rural east Texas near Louisiana closed to trauma. Emergency patients were being flown from El Paso,

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on the Mexican border, to San Antonio, more than three hundred miles away. In Austin, at the center of the state, headlines announced that the city’s only major trauma center had signaled diversion for the first time. The attention of the state’s legislators was now secured; they and their loved ones were at risk. Meanwhile, there were more stories. We knew of ten deaths in the Houston area, and no one doubted that there were many more. The implosion of the trauma system hit the state’s newspapers within the week. Doctors and hospital administrators were scared and uttered the word “crisis.” The state’s legislators were suddenly barraged with their calls. State representative Dianne Delisi and her staff found model legislation from New Jersey and applied it to Texas’s problem. House Bill 3588 would raise 180 million dollars per year to pay for uninsured trauma care by fining habitual bad drivers, and the bill ultimately passed. I never imagined that a bill to fund uninsured trauma care by taxing bad drivers would be opposed by Democrats and supported by Republicans, but that is what happened. The Democrats’ opinion was that the bill was punitive to the poor. They rejected my responses that poor people do not have to drive drunk and that paying for trauma care for the uninsured benefited everyone. In the foyer of the Texas House I was profanely accused by a prominent Democrat of being a toady for wealthy hospitals. After these experiences I resolved to remain a political independent for as long as I could. Two years after passage of House Bill 3588, the Texas legislature nearly gutted the bill by appropriating its funding to the state’s general revenue instead of to hospitals. I watched as area hospitals took the money and put it into their general coffers without using it to increase the number of trauma patients they could care for. Houston’s ambulance diversion rate stabilized permanently at a dangerous 25 percent of all hours per hospital. At this point I began to look around the country and talk to my colleagues. If the problem were structural, Houston could not be alone. I soon found that the city’s story was no anomaly. Emergency rooms were failing spectacularly all over the southern and western United States, including Florida and California and up the east coast. Once a community experienced emergency room failure, the problem rarely disappeared.

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3 An Eroding Infrastructure

Treatment within the Golden Hour after a medical emergency is becoming an impossible standard as we witness the progressive structural failure of American medicine.

The value of treating emergency patients within the Golden Hour has been drilled into me since the day I began my surgical residency in 1975. The term refers to surgeons’ brief window of opportunity for saving trauma patients, and the concept has been the linchpin of what is the best emergency services system in the world, matched only by Germany’s. Yet the Golden Hour is not only metaphor but also an outside limit: the sooner bleeding is surgically stopped and blood replaced, the greater the likelihood the patient will be saved. This insight came slowly, and its implications have only lately shifted thinking about what is logistically possible. Military medicine led the way. In World War II, 30 percent of injured soldiers died; 24 percent died in the Vietnam War. By the time of the Afghanistan War and the second U.S. invasion of Iraq, the mortality rate for combat injuries had fallen to an astonishingly low 10 percent. The key seems to be very early surgery and blood replacement as well as better body armor. Now the field hospital has moved to the soldier. In the current Iraq War, forward surgical teams in Humvees quickly assemble tent hospitals behind the troops and operate to stop blood loss within moments of combat injuries, leaving the wounds packed open for closure later. They then transfer the soldiers to hospitals out of the country to be put back together physically and mentally. As a consequence, the mortality rate of injured soldiers has fallen to the lowest percentage in history.1 16

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America’s emergency services and trauma care system developed after the Vietnam War. When military surgeons returned to practice in their communities, they found that injured civilians in the United States were at greater risk than injured soldiers in the jungles of Vietnam. In the central Texas town where I grew up in the 1960s, hearses, sometimes driven by high school students, doubled as ambulances. All over the country injured patients were taken to the nearest hospital, and these hospitals were often not equipped or staffed to provide care for them. In the 1970s the American College of Surgeons’ Committee on Trauma, made up of ex-military surgeons, determined to see that civilian patients were cared for by military standards. The committee began to push for designated trauma hospitals. Although this proposal met predictable resistance from local medical communities, it eventually crumbled under the weight of the hard data collected and put forward by these heroes of medicine. Dr. John West was at the center of this transforming initiative. I interviewed West in his busy breast-care clinic in Orange County, California, thirty years after the fact. He is a lean, fit man in his sixties: a brisk speaker, mover, and thinker. West finished his surgical residency in 1974 at the University of California in San Francisco, operating at the San Francisco General Hospital, the publicly funded hospital that cares for the city’s uninsured. He related that in those days, the ambulance crews in San Francisco had all agreed to transport seriously injured patients directly to the county hospital from the scene of injury. At San Francisco General Hospital the patients received military-style care under the direction of the chairman of the American College of Surgeons’ Committee on Trauma, Dr. Donald Trunkey. Trunkey was also leading the committee’s effort for establishment of trauma centers nationally, but he had little hope of success. West had become used to excellent trauma care during his training, but when he arrived in Orange County to set up his practice he found that twenty-five of the thirty-three hospitals in the county were physicianowned, each competing aggressively for all patients, including trauma patients. The young surgeon was repulsed by what he saw. A wallet biopsy is a common medical term not found in any medical glossary. It refers to the practice of determining whether or not a patient

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has insurance before deciding to treat. A positive wallet biopsy means that the patient has insurance and will be treated. A negative wallet biopsy means that the patient is uninsured and will be transferred. At that time it was not illegal to deny emergency care to an uninsured patient; it is now. West said, “They would do wallet biopsies on the patients, and if a patient had insurance the doctors did X-rays, blood work, you name it.” He then related the story of a patient he still remembers thirty years later. A nine-year-old boy with a scalp laceration was brought into a nearby hospital after a car accident. It was sewn up, and the boy was discharged. The child later hemorrhaged to death from a ruptured kidney, a detail missed in the emergency room. He was uninsured and had received an inadequate examination after a negative wallet biopsy. At the time Orange County was proud to possess one of the first organized ambulance services in the country, and the Board of Supervisors was discussing how to use county ambulances to lower the rate of deaths from cardiac arrest. West appeared at the public meeting and explained that the lives saved from improving cardiac arrest care were nothing compared to those that could be saved by addressing trauma care. He commented, “I didn’t know that someone from the Register was in the back of the room, and I found myself in the paper the next day. I didn’t have any choice but to prove it after that.” West’s unwelcome allegations created a violent reaction in the medical community. He recalled one meeting in which six doctors stood outside the Orange County Medical Society and berated him for going to the press. In another, a drunken surgeon stood on a desk and called him names. He attended medical gatherings where murder-for-hire was mentioned, presumably in jest. The only way to prove that patients were dying because of disorganized trauma care was to examine the autopsy records of those who had died in Orange County. This investigation was conducted entirely from West’s medical office with no outside funding. West and Trunkey at San Francisco General Hospital collaborated, examining the autopsy and medical records of ninety trauma patients who had died in San Francisco compared to ninety-two in Orange County. Two-thirds of the patients who had died from trauma in Orange County were judged to have died unnecessarily from delayed care, while only one such death occurred in

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San Francisco.2 The story was picked up by Associated Press and became the subject of national attention. The Orange County doctors challenged the study’s validity, and the Rand Corporation was retained to independently examine the data. West said, “They concluded that we got it wrong—Trunkey and I had underestimated the number of preventable deaths in Orange County. After this, all the opposition was silenced.” The concept of the Golden Hour was born from this study. To reliably provide trauma patients with care in the Golden Hour after injury, trauma and emergency service systems were rapidly organized throughout the country. Hospital-based helicopters flew the most seriously injured patients over traffic jams to specially designated trauma centers that provide emergency services to patients with stroke, heart attacks, and a variety of other time-sensitive emergencies. Today 84 percent of U.S. residents live within sixty minutes of a major trauma center. Yet in the coming years American trauma hospitals are estimated to lose 1 billion dollars per year and to pay medical staff 485 million dollars per year to take call.3 The advance of science has outstripped the nation’s ability to deliver medical care. Treatments rendered within the Golden Hour can save the lives of patients with trauma, stroke, heart attack, and cardiac arrest; but for patients with stroke, cardiac arrest, and trauma, care is suffering. A minuscule percentage of stroke patients receive such therapies. Science is moving into the next millennium, while the way we finance health care is taking emergency medicine back to the sixties—with the biting difference that we in medicine now know for certain the right way to do things. The Golden Hour after an emergency is becoming an impossible standard as we witness the progressive structural failure of American medicine.

The Golden Hour Turns to Lead Ambulance diversion was not a serious problem in the United States before 1999, but by 2001 it was occurring throughout the country and has never receded. An ambulance is diverted from an emergency room once every minute in the United States. Diversion is not evenly distributed geographically or among hospitals. The southern and western states, where

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uninsured rates are more than 20 percent, are most affected. For instance, in four populous regions of California, including Los Angeles County, hospitals diverted ambulances about one-quarter of the time in 2005.4 Ambulance diversion is concentrated in large emergency hospitals and trauma centers, where hours on diversion are often much higher than they are in non-emergency hospitals.5 The very emergency conditions that tend to kill you if you receive late care are the ones treated only in large emergency hospitals. Pray that such hospitals are not on diversion on the day you need them. The Institute of Medicine provides science-based advice to the federal government using panels of medical experts to develop its conclusions and recommendations. The institute’s findings are devoid of politics because it does not depend upon any federal appropriation and is scrupulous in maintaining its objectivity. In June 2006 it released a three hundred–page analysis entitled Hospital-Based Emergency Care: At the Breaking Point that called for nationwide coordination of emergency services. Echoing conclusions that I had already reached, the report declared: “The emergency system itself appears to be crumbling in major cities. In Los Angeles, for example, eight hospital emergency departments have closed since 2003, bringing the total closed countywide to over sixty in the last decade.”6 Dr. Arthur Kellerman, then chief of the Department of Emergency Medicine at Emory University, co-chaired the report. He and I discussed the risk of being sued for medical malpractice from mistakes caused by the dysfunctional environment in chaotic, stressed emergency rooms. He told me that he had never been sued but that, as the world of emergency medicine became more unsafe, he had begun to pray for the welfare of his patients before he went to work each day. He also told me that no federal agency in Washington seemed particularly concerned about the report.

Fatal Delays Ambulance diversion is dangerous. Chuck Begley’s research, which showed a 78-percent increase in mortality for serious injuries needing transfer when ambulances were diverted in Houston, has been echoed by Dr. Linda Green’s in New York City. In the boroughs, where more than 20 percent of

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emergency department time was spent on ambulance diversion, the mortality rate for heart attacks in 1999–2000 was increased by 47 percent.7 Rapid access to definitive therapies is the reason that the death rate from trauma and heart attack has plummeted over the years, so the cause of the fatalities is sure to be delayed care. An ambulance driving around looking for the right hospital is a death sentence for these patients and for others with time-sensitive emergencies. When ambulances are diverted from emergency rooms, critically ill patients are also turned down for transfer from small hospitals to large emergency hospitals. Ambulance crews routinely take serious emergencies such as the woman from Lake Jackson and Bill Huntsman to the nearest hospital for stabilization. If the patient needs specialized care, such as cardiac or neurosurgical attention, the smaller hospital is often unable to transfer the patient to a larger hospital for the same reason that ambulances are on diversion: full beds. The patient needing transfer just waits as the blood clot expands or the heart attack becomes irreversible. If a delay in care injures the patient, the family is unlikely to know. If a patient dies from a delay and the family does find out about it, there is no one to sue: all the medical personnel did the best they could under the circumstances. Two million people a year are transferred from one hospital to another that offers specialized care. If our experience in Houston is representative, this figure hides a tragedy in regions that are diverting ambulances. In the Houston region in 2005, 15 percent of patients requiring transfer to a specialized hospital waited for more than eight hours. Every small hospital in the region reported that patients were routinely endangered by delays in transfer. Only 30 percent of patients could be transferred within the recommended two hours.8

Decreased Supply Meets Increased Demand With the worst possible timing, declining hospital capacity has been met with an increase in demand for emergency services, the result of bad personal behaviors such as overeating and inactivity and a shift away from preventive care by a generalist. In the decade before 2003, the United States experienced a 26 percent increase in emergency room visits with

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118.3

120 Emergency room visits (in millions)

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111.1

112.6

105.6 103.1

102

99.5

97 94.7

93.1 92.8

94.8

91 85 80

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 FIGURE 3.1 Number of U.S. emergency room visits

Source: Health Forum, “Hospital Statistics” (Chicago, American Hospital Association, various editions).

only an 11 percent increase in population accompanied by a 12 percent decrease in the number of emergency rooms.9 Figure 3.1 shows the steady and dramatic increase in emergency room visits nationally beginning in 1999. The surge in visits is coincident with the progressive failure of the emergency services system.

Displaced Patients The first notion of most observers was that the increase in emergency room visits was simply a flood of uninsured who had no place to go for primary care. The data, however, show that the uninsured and the insured visit emergency rooms with about equal frequency. In contrast, the uninsured visit clinics much less often than the insured do; emergency rooms are often their only source of care. A recent survey, in fact, found that the uninsured are less likely than either Medicare or Medicaid patients to visit emergency rooms, probably to avoid the expense. Communities with the highest emergency room use are not those with the highest uninsured rates but those with the longest waiting times for clinic appointments.10 The surge in emergency room visits is driven by everyone: the privately insured, Medicare patients, Medicaid patients, and the uninsured.11

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It is no wonder—anyone who calls a doctor’s office at 5:00 P.M. or on weekends hears the same recording: “If you think you have an emergency, call 911 or go to your nearest emergency room.” In almost every survey, about 40 percent of emergency room visits are non-urgent or semi-urgent, and only Medicaid patients stand out in their use of the emergency room both for both urgent and non-urgent care.12 Not only are Americans displaced from regular medical care, but they also appear to have gotten sicker over the past decade.

Increased Real Emergencies Of the people who come to an emergency room, 12 to 14 percent are so sick that they require hospital admission. This percentage has been stable at least since 1993.13 In some regions the situation is worse. In the Houston area the percentage of emergency room patients who require hospital admission is 22 percent, almost twice the national average. In California emergency rooms, the percentage of true emergencies increased by 59 percent between 1990 and 1999.14 Further evidence that people are sicker than used to be is that the percentage of people ages thirty to forty-nine who are disabled increased by 50 percent from 1980 to 2000.15 The prevalence of diabetes has increased by 53 percent over the past twenty years, related to a doubling in the prevalence of obesity. Kenneth Thorpe, professor at the Rollins School of Public Health at Emory University, believes that 27 percent of the growth in health spending in the past twenty years is accounted for by the rise in obesity. The prevalence of lung disease has shown a similar trend.16 An increase in disease among Americans, heavily driven by personal sloth, collided with another event that proved to be a one-two health care punch. In the early 1990s a botched version of an insurance product called managed care was widely instituted to control health care costs. Managed care is a financing mechanism that rewards either an insurance company or a doctor for coordinating care and controlling the amount of technology applied to patients. If done well, managed care is a physiciandriven system that results in an improvement in quality of care and reduced cost; if done badly, it is performed by an insurance clerk and limits access to appropriate care. What was billed as managed care in the

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1990s was care provided by doctors and hospitals who had taken a 30 percent cut in pay. The only pretense of coordinated patient management was the intrusion of an insurance company’s employees between the doctor and the patient. Managed care was summarily rejected by both physicians and patients but not before it financially destabilized hospitals and doctors. When Americans rejected it, they found themselves displaced from medical care and often really sick. Now when they seek emergency care, they are often faced with overcrowded emergency rooms and hospitals that are turning patients away. The United States has paid a high price for the managed care fiasco.

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4 Fifteen Years Lost

America has lost fifteen years that could have been used to improve the way the medical industry delivers care.

Hospitals are primarily financed by private and public health insurance. Their revenues come from care of patients with (1) private insurance, (2) Medicare, and (3) Medicaid and its affiliated programs. Hospitals earn income from investment of their profits and from services such as cafeterias, parking, and medical services that they contract out, but patient care is the core business. Private hospitals finance the care of the uninsured and low-paying publicly insured patients (Medicaid) by shifting their losses to increased prices for privately insured patients. Many hospitals also receive funds from a federal program called the Disproportionate Share Hospital (DSH) program, which is aimed at hospitals that care for a disproportionate share of low-income patients and is a substantial source of hospital revenue. The only hospitals that receive direct tax revenue are public hospitals, which account for 16 percent of hospital beds in the United States.1 While only 6 percent of the services that hospitals provide nationally are to the uninsured, a few hospitals in each region provide most of that care; these are usually emergency hospitals, and they are often financially unstable. By the late 1990s Medicare’s cost to the federal government had been growing so fast that it threatened to bankrupt the Medicare program within the foreseeable future and push the country further into debt. Funds from two public programs, Medicare and Medicaid, account for half of hospital revenue.2 Beginning in 1999, the Balanced Budget Act of 1997 reduced DSH funds by 17 percent and also sharply cut hospital payments for Medicare patients. These cuts crippled some key emergency hospitals. For example, 25

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Ben Taub General Hospital in Houston, Texas, is a tax-supported hospital for the uninsured and also one of two major trauma hospitals that serve the region. By 2001 Ben Taub had suffered a 10 percent cut in operating revenue because of DSH cuts, precipitating bed closures and the Houston emergency services crisis that first became critical in that year. But the Balanced Budget Act was not enough to cause widespread emergency medical system failure nationally. By the time the act arrived on the scene, hospitals and doctors had been reeling since the early 1990s from the effects of the managed care measures taken by employer-based insurance to control costs. These two events were the genesis of the emergency medical services failure seen today and the trigger for the health care cost escalation that now troubles the country.

Fee-for-Service Medicine The managed care era cannot be understood without understanding how doctors are paid. Insurers and government programs pay doctors directly for each service they render, and they are paid separately from hospitals. Years ago a group at Harvard University developed a payment system called the relative value scale that is used by the Medicare program and almost all insurers to determine physician fees. By means of this scale, each of the thousands of services that doctors provide is assigned a numerical level of difficulty for performance; and the American Medical Association regularly updates the scale. The level of difficulty for a routine office visit is low, that for heart surgery or brain surgery is high. The performance of procedures is always assigned a greater number on the scale than is management of a patient’s health. A generalist managing a patient with diabetes in a medical office is paid about the cost of a good restaurant meal for that service; a heart surgeon or a brain surgeon can make a down payment on a car for performing an operation on the same patient. Doctors contract with insurers, including Medicare. Their contract agrees to a specific dollar figure that is then multiplied by the numerical level of difficulty from the relative value scale for each service the doctor delivers. Medicare and Medicaid’s multiplier is set by law; the multiplier doctors accept from private insurers is a matter of negotiation. The product of the multiplier and the scale’s numerical level of difficulty determines what the doctor is paid for each service. The dollar

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multiplier may be high or low. Medicaid’s multiplier is always the lowest, Medicare’s is higher, and private insurers are usually higher still. Medicare is the index against which all other insurers are compared. For instance, when doctors negotiate contracts with insurers we routinely calculate their rates as Medicare plus X percent. A doctor’s income depends on three factors: the number of services provided, the level of difficulty of the services, and the doctor’s overheads such as office costs and malpractice insurance expense. The most lucrative practices provide a high volume of complex procedures, such as brain or heart surgery, to patients whose insurers pay high multipliers. Paying for each service performed is called fee-for-service medicine. Fee-for-service medicine thus encourages the delivery of an abundance of technology and especially the delivery of complicated technology. Practiced outside of any system that evaluates the appropriateness of care, fee-for-service medicine causes medical waste. It also makes highquality procedures readily available to those with insurance, the strength of the U.S. method of financing and practicing medicine. Fee-for-service medicine lends itself to fragmented medical practice because nothing about it rewards systems of patient management. Medicine in the United States is practiced in hundreds of thousands of independent small businesses. Only 12 percent of medical practices are comprised of ten or more physicians, and these are usually single-specialty practices.3 In the early twentieth century a few models of a different kind of practice developed, in which physicians were salaried, worked in integrated groups, and focused their primary efforts on disease prevention and disease management. The managed care era of the mid-1990s borrowed from the success of these models but never got it right. That is a story that the United States cannot afford to repeat.

HMOs: A Good Idea, Badly Executed The resistance of the public and of doctors to organized systems of care has contributed to our medical predicament today. The idea of coordinated care delivered by salaried physicians who are employees of a clinic is an idea that emerged early in unlikely places. Prominent examples are the Mayo Clinic formed by two surgeons, the Mayo brothers, in Rochester, Minnesota, in 1888 and Kaiser Permanente founded in California in 1933

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by industrialist Henry J. Kaiser. In New York, Seattle, and Washington, D.C., groups of workers formed their own large group-practice clinics. All of these group practices developed with common themes. The care was provided by a multi-specialty group of doctors who were employed by the clinic, and the members paid a flat amount per year for the care they received. These two characteristics gave the original name to these arrangements: prepaid group practice. Usually a non-physician board, often made up of plan subscribers, governed these clinics; and these practices were all committed to comprehensive care including disease prevention and coordinated management. At the time, prepaid group practices were not cheaper than conventional health policies, but they offered a much richer benefit package to their members, primarily laborers and government employees, who felt ownership in the arrangement. The American Medical Association opposed prepaid group practices because they were not physician-controlled. But it did not like them even when they were controlled by doctors. In 1947 the Supreme Court upheld the AMA’s indictment and conviction under the Sherman Antitrust Act for its steps to squash prepaid group practice. The Court rejected the AMA’s position that medicine was a profession, not a trade. Practices that led to the AMA’s conviction were expulsion of physicians who participated in prepaid group practice from local medical societies and persuading hospitals to deny them admitting privileges.4 The methods may have been illegal, but they were effective. By the 1970s a few remaining prepaid group practice plans had spent years quietly developing their methods and expanding their membership, but the techniques had not spread. In the 1970s U.S. health care faced many of the same issues it does today. Paul Ellwood, M.D., of Minneapolis had coined the term health maintenance organizations (HMOs) to describe prepaid group practice, arguing that traditional fee-for-service medicine was the barrier to health care reform. His voice was heard in Washington, and his terminology stuck. The Nixon administration established planning grants, loan guarantees, and legislation that superseded those state laws that prohibited HMOs. Federal law required companies with at least 25 employees to offer a federally qualified HMO.5 Because doctors were salaried and the practices were paid a flat amount for care of patients each year, doctors had no stimulus to provide

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unnecessary procedures and good reason not to. Extra medical procedures would only cost the practice money. Protocols of treatment were adopted to ensure that patients were not undertreated and that management was reasonably uniform among the clinic’s doctors. In the ensuing years prepaid group practices were convincingly shown to save money by reducing hospitalization, a feat accomplished by keeping patients well and managing their diseases before they became emergencies.6

Employers Take Action The 1980s brought an acceleration of health care costs, which became less tolerable as the country entered a recession in 1990. Unemployment rates were high, so businesses had little trouble finding labor. Business growth was low, and high health care costs threatened business profitability. The priority of most businesses tilted toward controlling these costs rather than retaining employees. Businesses and the insurance industry seized upon the principles of prepaid group practice as their salvation from high health care costs. Health economists had long known that the cost of health care in one place might be double what it was in another state or region and that most of the differences were in the number of medical services provided, not higher prices. Economists also knew that patients in regions with increased medical services did not enjoy improved outcomes. (In fact, patients were later shown to suffer from poorer-quality care and worse outcomes in regions that used high levels of medical services.) Insurers understood the magnitude of medical waste but had no reason to act on the information as long as businesses tolerated it. So in the early 1990s, American business took action. Originally known as prepaid group practice and then as HMOs, managed care became the rubric for waste elimination in health care. By 1996 nearly three-quarters of the employer market was part of some form of managed care, an increase from 27 percent only eight years earlier.7 The primary cost-reducing feature of managed care was advertised as decreased hospitalizations and procedures produced by coordinated preventive medical care. But the managed care of the 1990s was a bastardized incarnation of prepaid group practice, forced onto a health care industry that neither wanted it nor was organizationally capable of implementing it.

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Kaiser Permanente and others of the old prepaid group practices owned clinic buildings and hospitals, employed a single medical record for each patient, and audited the care of patients. They employed salaried staff physicians who enjoyed practicing in a cost- and quality-conscious organizational culture. Treatment protocols were established by consensus among the clinic’s physicians, not externally imposed. Importantly, by the 1990s the patients of the established prepaid group practice models had often been born into these systems and were accustomed to their methods. Prepaid group practices also had had sixty years to develop their techniques. In the managed care wave of the 1990s, solo practitioners and stand-alone hospitals were expected to adapt to managed care techniques within a few months. The 1990s version of managed care ranged from hastily established HMOs that housed newly recruited practitioners in freshly painted buildings to arrangements in which solo practitioners were paid deeply discounted fees-for-service and then subjected to an insurance company’s management protocols. These protocols were often purchased off the shelf from commercial firms, and the physicians on whom they were imposed had never seen them and were offended by them. Patients could be “managed” by nurses employed by the insurance company or by an insurance clerk reading a script from a computer screen. The measures to control use of services could vary from a clerk’s refusal to allow a doctor to order a test to a physician-gatekeeper hired by the insurance company with whom a specialist must talk to gain approval for a procedure. The most restricted forms of managed care resulted in a 30 to 40 percent reduction in health care spending, and it is likely that in some of the better arrangements played a role in creating savings. In Massachusetts, however, only about 5 percent of savings were from decreased use of services; 45 percent were from reduced prices, and the remainder came from caring for patients who were not as sick as the patients of the plan’s competitors.8 Doctors and hospitals did not willingly participate in managed care; they were forced to do so by a wave of consolidation in the insurance industry. Simultaneously hospital and physician leaders convinced their colleagues that there were too many specialists, too few generalists, too much hospitalization, too many procedures, and not enough preventive

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medical care, all of which was true. In many markets two or three insurers dominated a region and could drive a hard bargain because they controlled so many patients. Physicians felt they had no choice but to accept sharply reduced fees because, after all, there were too many specialists. Hospitals were in no better position than doctors. In the early 1990s hospitals usually stood alone and could not face down an insurer that controlled one-quarter of a region’s commercially insured patients; therefore, hospitals agreed to sharp price reductions. Before managed care in 1993, commercial insurers paid hospitals 30 percent above their cost of care, but by 1998 the figure was only 14 percent.9 Profit margins were so low that money normally used to fund the care of uninsured emergency patients evaporated. Hospitals posted losses beginning in the early 1990s and continuing into at least 2003.10 The Balanced Budget Act, which took effect in 1999, was the coup de grace for hospitals and directly led to the emergency medical services crisis. In addition to reducing health care prices, managed care briefly did two good things. For the first time in U.S. history every physician and hospital became aware that resources were limited. As if by common consent, they placed a lid on the use of medical services, and there is no evidence that any population was harmed by it. The second achievement was that patient care was coordinated, however intrusively. Managed care was the right concept badly executed, and it was firmly rejected. Neither specialists nor generalists were prepared to deal with a third party inserted between them and their patients’ care. Patients were not prepared for restrictions in selection of their doctors. By 1999 business was good, unemployment was low, and the labor supply was tight. Destabilized hospitals, angry physicians, and disenchanted patients rebelled; and by 1999 businesses and insurers had publicly abandoned the most restrictive forms of managed care. Legislatures followed the winds of popular change by passing patients’ bills of rights that held insurers liable for restrictions in care. Managed care had proven, however, that costs could be controlled without hurting patients. Hospital spending actually decreased for the first time in U.S. history. Before managed care, overall health care cost growth was in double digits, and it dipped to less than 1 percent by the mid-1990s. Yet the subsequent disassembly of managed care let the genie out of the

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20 18.0 18

Health insurance premiums Workers’ earnings Overall inflation

16

13.9

14.0

14 Percent

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10.9

10 8

8.5

8.2

9.2 7.7 6.1

6 5.3

4

3.7 2.6

2 0.8 0

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

FIGURE 4.1 Percentage increase in cost of health insurance premiums, 1988–2006

Source: Kaiser Family Foundation and the Health Research and Educational Trust, “Employer Health Benefits, 2007 Annual Survey” (Menlo Park, Calif., September 2007).

bottle. By 2003 the medical industry’s cost was again growing at doubledigit annual rates and has remained elevated ever since. Throughout the past decade, inflation and growth in workers’ earnings have remained far below health care cost growth. Figure 4.1 illustrates the percentage annual increase in cost of health insurance premiums from 1988 to 2006, showing the dramatic decrease in premiums that managed care produced and the equally explosive cost growth when those controls were released. The rate of growth in workers’ earnings and the general inflation rate were far below the annual growth in health care costs in this period and at present. Managed care’s poor implementation and its subsequent rejection had pernicious effects. Doctors’ fee-for-service rates were undercut by managed care and have never recovered. Doctors responded to decreased payment for services by doing more procedures, ordering more tests, and seeking income by referring their patients to facilities they owned, all of which helped fuel today’s resurgence of insurance premium growth. Hospitals reacted to managed care by consolidating into regional monopolies that could stand up to consolidated insurers and leverage high prices. In the 1990s hospitals learned how to reduce their exposure to the uninsured by necessity, but many continue that practice in better financial times. Patients reacted to their release from the restrictions of managed care by doctor shopping and self-management; these behaviors paralleled an

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increasing indulgence in unhealthy life styles as the nation’s wealth grew to unprecedented levels. The net result was increased disease and the willing participation of patients to consume excess medical procedures and tests. Today’s emergency services and health care cost problems are the legacy of managed care and its rejection. America has lost fifteen years that could have been used to improve how the medical industry delivers care. We are further behind than we were in 1990 and now must play catch-up.

Revelations We know more about ambulance diversion in Houston than in most other large cities because of the work of SAVE OUR ERS and its offspring organizations. The Houston region has sixty-eight hospitals. Within the city of Houston is the Texas Medical Center, an eight hundred–acre concentration of forty-two institutions including thirteen hospitals totaling 6,344 hospital beds, two medical schools, and eleven educational and research institutions. For years the majority of the region’s residents have come to Texas Medical Center for treatment for complicated medical conditions. The center was built by big-thinking wildcatters with oil money and by big-thinking surgeons with money from the invention of heart surgery. As a child, fascinated with medicine, I thought this was the center of the universe. I wanted to be a big doctor in this very spot, and I eventually was. In 2006 I wrote this section of the book in my office, looking down on Fannin Street, a mile-long corridor that runs through the medical center, lined on one side by four massive hospital complexes facing a continuous row of office towers and outpatient centers on the other side of the street. The hospitals are connected to their affiliated skyscrapers by a series of skywalks that bridge the street. Out the window of my office I could see under construction along Fannin three new multistory professional buildings, a new heart institute, and a new medical school building; the whirring and hammering was constantly audible through the window. Behind the line of hospitals on Fannin Street is M. D. Anderson Cancer Center, which, like the disease it treats, grew without normal control mechanisms and occupies three square city blocks. When I took a break from writing and drove around town, I saw three physician-owned specialty hospitals being finished: one for spine surgery and two for

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orthopedic procedures. I knew that twenty-two physician-owned hospitals were in different stages of development in the area. Hospital financing was clearly not a problem in Houston. A similar hospital building boom is going on all over the United States. If they have insurance or cash, Americans can be treated with the best medical technology in the world. I should not have been surprised, therefore, when our 2005 studies of the Houston area emergency services system found that the region had more than enough hospital beds: 3.2 per 1,000 people, when the national average is 2.8.11 Houston does not have a problem with hospital capacity, just a problem with hospital capacity for emergency patients. I suspect the same is true in every major city where ambulance diversion and emergency room overcrowding are routine. Hospitals in urban areas all over the United States are adding beds for insured patients with non-emergency conditions that require knee replacements, hip replacements, heart procedures, back surgery, diagnostic studies, and the like. I suspect that they are not adding ICU beds and emergency rooms in areas of the country where people with emergencies are likely to be uninsured. The problem with hospital capacity for emergency patients would dissolve if every American had an insurance policy. There is also a moral argument for covering the uninsured. I once made the following statement to two conservative friends who were both knowledgeable and concerned about Houston’s health care problems: “Everyone in America deserves health insurance.” They both said no. I then reworded the statement: “We should provide health insurance to every American.” They both said yes. I repeated the word experiment with many other people. Conservatives acknowledged our obligation but not their right. More liberal friends said yes to both statements. Both groups reached the same conclusion but in different ways. The sharp differences in opinion over what should be done about the uninsured are not differences in what injustice looks like but diverging views on the action required to rectify it. That divergence of opinion does not excuse the lack of action, however. Lack of insurance is unjust because the uninsured get miserable medical care.

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5 Handed Health Care’s Leftovers

It is an injustice for uninsured Americans to go without medical care that is standard for the insured and for citizens of other developed countries.

One Sunday afternoon in 2004, I sat with other members of a panel on a dais before a large audience in a Houston church auditorium, listening as a group of people without health insurance shared their experiences. I heard two stories that illustrate the predicament of the uninsured. The first was told by an attractive woman, about forty years old and a single working mother. Speaking in Spanish, she told her tale with composure but with controlled anger. Her older son was serving on the front lines in Iraq. Her eleven-year-old son had recently lost his eligibility for the State Children’s Health Insurance Program (SCHIP), a combined federal and state program providing health insurance for poor and near-poor children. His asthma attacks went untreated because without insurance she could not afford to pay for care. She feared losing one son in war and the other from asthma. She concluded by saying that she felt betrayed. The second speaker was also a mother—an Anglo about fifty years of age. She was clearly embarrassed to be standing at the podium in the public eye but nevertheless resolutely told her story. Her husband, a technical writer, had lost his job when his company laid off three-quarters of its employees. Since then he had supported the family by contract jobs, earning on average 50,000 dollars per year. He had not found full-time work, and she believed this was because employers did not want to pay for family health insurance. The speaker herself would have raised the health insurance rates of a small firm: she could not work outside the home 35

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because of a chronic medical condition. Initially the family bought individually purchased insurance at 325 dollars per month, a premium that increased to 725 dollars per month within two years. By 2004 the deductible was 2,000 dollars, and coverage was not affordable for all family members. What else could she and her husband do but drop it? She concluded her talk with “I have a little seven-year-old with a respiratory condition, and I am worried.”

No Small Problem These are common stories. On any given day there are more uninsured people in the United States—47 million—than there are people in all of Central America or in the combined populations of our nation’s three largest metropolitan areas: New York, Los Angeles, and Chicago. In other words, 15 percent of the population is uninsured. One-third of the nonelderly population (82 million people) loses insurance at some time during a two-year period.1 According to Jeffrey Passel at the Pew Hispanic Center, only 12.5 percent of the uninsured are illegal immigrants, although that percentage is much higher in states such as Arizona, Texas, and California. Mostly the uninsured are the working poor. Eight in ten live in working families. More than half cannot afford to purchase insurance, and their employers do not provide it, while 20 percent earn enough money to purchase insurance but choose not to do so.2 Twenty-five percent of the uninsured are eligible for public programs but are not enrolled. Most low-income parents know about Medicaid, the combined federal and state program that provides health insurance for poor children in all states and their parents in some states, but many fail to sign up because they think they are ineligible or cannot manage the enrollment hassles. For example, leaving work on a weekday every six months to spend all day at the Medicaid office would cost a janitor a day’s pay or his job. Contrast this situation with Medicare, where everyone eligible for Social Security receives an enrollment package in the mail at age sixty-five. States do not go looking for people who are eligible for public programs such as Medicaid and the State Children’s Health Insurance Program, and many states deliberately erect barriers, such as requiring

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frequent face-to-face reenrollment. The states pay 30 to 40 percent of the cost of these programs, the federal government covering the balance, and full enrollment is a state-budget buster. The year 2003 was the first time that total state health care costs had ever exceeded the cost of elementary and secondary education.3 It’s not only the working poor who are uninsured. In fact, moderateincome adults (those with annual incomes of 20,000 to 34,999 dollars per year) now account for most of the increase in the uninsured, rising from 28 to 41 percent of the uninsured between 2001 and 2005. About half of personal bankruptcies involve illnesses, and these primarily take place in insured middle-class families.4 Middle-class families do not like what they find when they seek care without coverage. For example, uninsured patients do not receive lifesaving procedures after a heart attack as often as insured patients do.5 This can be a death sentence, as it was for Juan Olivas, whom you will hear about next.

Misplaced Trust I have set a number of stories in the fictional Episcopal Hospital, a large private hospital in Los Angeles, and the equally fictitious Bayview County Hospital nearby. My character Simon Brown, a cardiac surgeon who works at both hospitals, appears in several stories. Although the stories are fictions, they are faithful to events I have witnessed and that occur every day. Juan Olivas had managed a group of laborers in a warehouse for ten years and faced a dilemma when he received a memo about the following year’s benefits. The family’s combined income was 50,000 dollars, which included his wife’s part-time job in the church office. (They still had a high-school-aged daughter at home who needed supervision.) The family had been covered by Medicaid when the children were young, but now their income was too high. The company’s new policy required Olivas to pay 20 percent of the 10,000-dollar family premium, but with a 5,000-dollar deductible that would amount to 15 percent of the family’s combined pretax income if they used the deductible. Olivas knew that one hospitalization or two diagnostic procedures would require him to pay all the deductible, and his medications were very expensive. He dropped insurance

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rather than sell the house, borrow money, or take his older daughter out of college. He also stopped taking his blood pressure medication, and over the next year his blood pressure reached dangerous levels but with no traceable symptoms. Juan Olivas’s heart attack started as a vague internal uneasiness that swelled to constrict his chest and finally prostrated him on the warehouse loading dock. The ambulance took him to the nearby large private hospital, Episcopal Hospital, where he was quickly diagnosed with a heart attack and placed in the coronary intensive care unit. Had a dark-skinned man named Olivas had a heart attack at home or on the street, the ambulance crew would have assumed he was uninsured and taken him directly to Bayview. Since he was at work and therefore likely to be insured, the ambulance took him to the Episcopal. Olivas stabilized after a few days and underwent a cardiac catheterization. In this procedure a thin plastic tube is threaded up to the heart through an artery in the groin to look for blockages. The artery that had caused the heart attack was completely blocked and could not be opened. The heart was mildly damaged. But another artery of the heart was also severely narrowed; this was the left main coronary artery, and it had not caused this heart attack. Patients with narrowing of this artery live an average of only six more years unless they have open heart surgery, but they can live an average of thirteen more years if they have surgery to bypass the blockage. When the left main artery occludes, the result is usually fatal. Therefore, blockages of this artery are normally operated on at the same hospitalization in which they are diagnosed.6 In this case, however, no such treatment was offered because Olivas could not pay for major surgery and had no insurance. EMTALA required the Episcopal to treat the emergency condition (the heart attack), but it did not require the hospital to provide non-emergency care. Olivas’s chance of dying over a several-year period did not constitute a medical emergency, and legally the hospital was not required to do more than it did. One month later, Olivas had a follow-up appointment at Bayview County Hospital in the general medicine clinic. A young intern fresh out of medical school reviewed the cardiac catheterization results. “Mr. Olivas, are you having any chest pain?” queried Dr. Prater.

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“No, sir, I am walking three miles a day, and I feel fine. Can I go back to work now?” responded Olivas. The young doctor knew that severe narrowing of the left main coronary artery was a time bomb. He also knew that all the specialty clinics and operating rooms at County Hospital were backed up for more than six months. He called the surgery clinic. “I have a fifty-year-old Hispanic male who had an MI [myocardial infarction, or heart attack] one month ago. He has a 70 percent stenosis [narrowing] of his left main. How soon can you get him in for a surgery appointment?” “Our next available appointment in clinic for a new patient is in four months. I cannot tell you about a surgery date,” the clerk said. Prater responded, “Let me talk to the clinic manager.” Olivas was in luck; few of the interns would have bucked the entrenched bureaucracy of the hospital. Dr. Simon Brown happened to be teaching in the cardiac surgery clinic on the day Olivas was seen one week later, and the resident staff presented his case to Dr. Brown. Brown stood a head taller than Olivas and was as pale as Olivas was dark. He looked down at Olivas and said in a bass voice, “Mr. Olivas, you have a critical blockage of one of the arteries in your heart, and it needs to be bypassed. We have only one problem. There is no time in the operating room to do this procedure. The operating room is often full of emergencies, and it may be a while before we can get your procedure done.” The waiting list for non-emergency surgery at Bayview was six months long, which practically meant that such surgeries were not available. The occasional non-emergency case was scheduled by calling in the patient if there happened to be a quiet day in the operating room; twenty-four hours was all the advance notice a patient could get. In private hospitals, non-emergency cases are scheduled weeks ahead. Brown felt that it would have been cruel to tell Juan Olivas that he had a fair chance of dying before the procedure was ever performed. He did not tell Olivas that he would probably have performed his surgery at the Episcopal if Olivas had been insured. Dr. Brown did not feel responsible for this unseemly paradox, though it bothered him. The uninsured were a large societal problem; and as a responsible physician, he did all he could for Olivas. Brown had carved

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enough money out of his department’s budget to buy pagers for fifteen patients who needed, but could not get, emergency heart surgery at Bayview. A handwritten list on a yellow pad on the corner of Brown’s desk contained the name, pager number, date of last clinic visit, and description of the heart problem of each patient who was waiting for heart surgery. “Take this pager, Mr. Olivas. Do not give the number to anyone else. When it goes off, my office will be calling you to tell you that we can do your surgery the next day.” Mrs. Olivas responded, “Thank you very much, Doctor. We are so grateful to you. We will wait for your call.” After the Olivas family had left the examining room, Brown turned to the pack of young doctors and medical students trailing behind him and said, “You do understand, don’t you, that at any private hospital an insured patient with this problem would never have left the hospital without surgery?” About four months after his heart attack, while supervising the unloading of a truck, Juan Olivas again felt crushing shortness of breath, as if something alive were trying to crawl out of his chest. This time, however, his heart fibrillated so that it writhed rather than pumped blood, and he lay gasping for air on the loading dock as his world became dark. Mrs. Olivas returned the pager to Dr. Brown’s office as soon as she had buried her husband. Dr. Brown’s secretary told him what had happened to Mr. Olivas, and he marked the event as yet another one of the tragedies he saw ever more frequently at Bayview.

Too Little, Too Late At one time there was a debate about whether the way to provide better care for the uninsured was to create more public facilities for their care or to insure them. That debate ended some time ago. Within the past two decades the number of uninsured has overwhelmed public facilities. For example, Houston’s two public hospitals and seventeen charity clinics have the capacity to care for only about one-quarter of its 1 million uninsured. The city’s two public hospitals have only twenty-six operating rooms for 1.2 million uninsured.7 To understand these numbers, think of a town of 38,000 inhabitants with one clinic and one operating room for

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all medical services except emergencies. This is why an uninsured woman with a lump in her breast usually waits six months for a biopsy in Houston and another six months for radiation therapy. This situation is not unique to Houston; it is ubiquitous. Nationally, half as much is spent per capita on the health care of the uninsured as on the insured and, for the chronically ill, only one-third as much. These trends are worsening. Federal spending on the uninsured fell by 9 percent per person between 2001 and 2004, pushing the costs off to municipalities that do not have the tax base to make up the differences.8

Society-Approved Medical Malpractice The health outcomes of the uninsured are predictably poor, which is embarrassing in a country as rich and educated as the United States. The lack of health insurance alone results in preventable deaths estimated to account for 22,000 in 2006. The effects of poverty and preexisting illness are factored in, so the deaths are not caused only by being poor. In the ten years before people turn sixty-five, the risk of death from lack of insurance is nearly doubled.9 The reasons are lack of preventive care, lack of early diagnosis, and substandard treatment. For example, the uninsured are less likely to have Pap tests for cervical cancer, breast exams and mammography for breast cancer, colonoscopies for colon cancer, blood pressure checkups, and measurement of blood cholesterol. Their high blood pressure goes out of control when they lose insurance. One-fourth of uninsured diabetics do not even have a routine check up every two years, and 12 percent of non-elderly adults with diabetes are uninsured.10 The uninsured suffer high cancer mortality from late diagnosis and undertreatment. Nationally, uninsured women with breast cancer are 30 to 50 percent more likely to die. The mortality rate for colorectal cancer is increased by 64 percent. Uninsured men with prostate cancer are more likely to be diagnosed late and to die with advanced disease.11 Patients with malignant melanoma are more likely to have advanced disease when they are diagnosed.12 From personal experience I can tell you why. For several years I bought delicate jewelry made of Venetian glass and fine mineral stones for my wife, my mother, and my daughters from a delightful middle-aged woman named Anne Casey. (I have changed

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her name.) Her craft supplements her income as a caregiver to the elderly. I would sit in her home studio in downtown Houston on a Saturday morning and pick out materials, and then she would create striking pieces. Not only did the women in my family like my gifts, but I looked forward to the process because I enjoyed chatting with her over coffee about her materials. I was introduced to Anne by my wife’s close friend, Phyllis (I have not changed her name), who was Anne’s high school classmate. I was disturbed when Phyllis told me this story. One day in early 2007 a black lump appeared on Anne Casey’s neck; she had the fair Irish skin that is prone to cancers. Because she could not afford insurance, she paid cash for a dermatologist to biopsy it. The dermatologist was notably agitated after he looked at the biopsy under a microscope (he saw malignant cancer cells) and told her she needed surgery right away but that he could not do it. Anne had malignant melanoma, a potentially fatal skin cancer that is normally removed as rapidly as possible to prevent its spread throughout the body. Her problem was that the down payment alone for a hospital admission would have been 10,000 dollars, which she did not have. I suspected that this was why the doctor could not do the surgery. Fearing for her life, Anne Casey began the process of obtaining a “gold card” that would permit her to enter the Houston public hospital system. Four weeks later she got the card and four weeks after that a clinic appointment. In order to find out how extensive the cancer was, the doctors needed to perform an MRI and other tests before doing surgery. The larger of Houston’s two public hospitals sits in forlorn isolation in the back of the massive Texas Medical Center, like the servant’s entrance to a large Victorian house. It contains the only MRI in the county’s public hospital system. Anne was admitted to the hospital for the MRI and other tests normally performed as outpatient procedures. She lay in the hospital for six days waiting for an MRI as the hospital diverted ambulances because it had no available beds. Phyllis, who each day was growing more anxious about Anne, called a doctor friend who owns an MRI facility and he agreed to perform an MRI for free. Anne left the hospital to undergo the donated MRI scan. Meanwhile the black cancer was getting larger every week as the two friends watched in horror, helpless. Weeks passed without the anticipated call to come in for surgery. Finally Phyllis, desperate to help her friend,

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called the doctor who had performed the biopsy and insisted that he telephone the doctors at the public hospital to expedite the process. Phyllis and her friends made calls directly to the CEO of the hospital district on Anne’s behalf. Four months after the diagnosis of a life-threatening malignancy, Anne Casey finally underwent surgery to remove a visibly growing cancer. She told me that she felt she had received excellent care and was glad for it. She could not know that the delay had increased her chance of dying of the cancer. Anne had the advantages of being educated and having influential friends; her care was expedited. If she had been insured and her surgery had been delayed for four months for any preventable reason, the responsible doctor would have had no defense if she had later developed widespread cancer. Her care would have been medical malpractice. Yet in present-day America, Anne Casey’s care was better than what many of the uninsured can expect. The uninsured problem has grown so large that it is now fully prevalent in the middle class. Everyone, regardless of income, knows someone who has played by the rules, like Anne Casey, yet is without health insurance. Given current health care cost trends, all of us should care about the uninsured because we ourselves may be next.

The Mystery of Public Indifference Doctors who work in public clinics and hospitals are puzzled about why the public seems indifferent to the substandard care delivered to the uninsured. There are many theories. Some medical professionals think that maybe the uninsured seem undeserving or are thought to be lazy. Another is that the public can take only so much bad news, which is why a beached whale draws sympathy but genocide in Africa is met with indifference. My own theory is that people are not prone to be generous with others unless they themselves have known vulnerability—if they have been powerless. Conversely I have observed that those who have never known powerlessness consider that it can always be avoided if one exerts enough personal initiative. They are not willing to calculate the tangible and intangible advantages that an accident of birth may have given them.

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The most likely explanation of all, however, is that people are simply uninformed about how bad the problem is—and I do not mean just average people. On July 10, 2007, President George W. Bush said “The immediate goal is to make sure there are more people on private insurance plans. I mean, people have access to health care in America. After all, you can just go to an emergency room.”13

Incensed Doctor Doctors who work in public clinics and hospitals feel more strongly than the public does about the injustice of uninsured care. The problem becomes an urgent matter when, as a doctor, you make a referral for someone to be seen in a specialty clinic, knowing that she cannot get in for six months; or you tell a patient without money that she cannot get a treatment that she needs; or to avoid that conversation, you just order the test, knowing that she will never get it and will never be back to see you. These things do not bother people who do not have to do them, so it is easier to brush them aside or work to remain ignorant about the real situation. Doctors often play games with the system rather than leave their patients to their fates. A friend of mine who is a primary care doctor in Houston told me of two patients he had seen recently with hernias so large that they could not button their trousers. Both hernias were painless and produced no symptoms other than their size. One of the patients had lost his job because of the hernia and could not get new employment because of it. My friend referred his patients to the surgery clinic of his own medical school at the public hospital. The patients were given appointments for surgeries one year later because there was no space in the operating rooms. My friend then coached the two patients on how to answer medical questions about the hernias when they went to the emergency room. The doctor told the patients to give the emergency room staff a history of constant and worsening abdominal pain, a sign that the hernia is becoming life-threatening. He taught the patients to groan and wince when a doctor pressed on the bulging hernia sac, a warning signs that bowel is trapped in the hernia. He then instructed the patients to go to the emergency

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room, now fully coached on what to say and do. Both were admitted and operated on promptly. One procured a job some months later. I did not see many uninsured patients in my clinic, though I cared for many when I was on emergency call. When I did see an uninsured patient in clinic who clearly needed surgery but was not an emergency case and could not afford it, we developed a set routine. I or my colleague of many years, a physician’s assistant, would teach the patients in our clinic to come to the emergency room at an appointed time in the early morning when it is usually quiet. The patient was then instructed to lie to the emergency medicine doctor in a precise way, describing steadily worsening neurological symptoms consistent with the patient’s primary problem. On a few occasions I think we even taught the patients how to feign weakness when examined. This combination of contrived history and examination would guarantee the patient’s emergency admission at the hospital’s expense. We would also tell the patient not to eat after midnight the night before so he would be ready for surgery on the day of our scheduled emergency admission. I then operated on the patient that same day. I never lost sleep over this deception because I felt I was acting in the patients’ best interest. It cannot be credibly argued that the uninsured in America receive acceptable health care, a problem that is inextricably linked to its high cost.

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PART T WO

Why Health Care Is So Expensive

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6 Where We Are Headed

“Rising health care costs and their consequences for federal health insurance programs constitute the nation’s central fiscal challenge.” —–The Congressional Budget Office, 2008

Medicare provides health insurance to seniors, regardless of income. The program’s cost has grown so much over the years that it will soon either burden taxpayers or place allocations such as defense spending, foreign investment, and education at risk. As happy as Medicare beneficiaries are with their Medicare, it cannot and will not continue on its current trajectory of spending. Congress has tried to control the program’s cost growth by cutting fee-for-service payments to hospitals and nursing homes, but this method will not work for much longer. Cuts in hospital payments were partly to blame for the emergency room failure that began in the early days of this millennium. Congress is trying desperately to avoid cutting physician payments but will soon find itself in the unenviable position of choosing between paying doctors and raising taxes. The matter of how Medicare pays physicians illustrates the dilemma of Medicare cost growth and why the program’s growth is not sustainable for much longer. The Medicare sustainable growth rate formula is Congress’s attempt to budget spending on physician services by setting their growth rate at a level judged to be economically sustainable. That is, as long as the growth in volume of physician services multiplied by the federally set payments for those services does not grow excessively, the formula calls for doctors to get a cost-of-living increase in their Medicare payments each year. But if total physician spending exceeds the target called for by the sustainable 49

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growth rate, then the formula adjusts Medicare payment rates to doctors downward. The only way the target can be exceeded is if the growth in the number and complexity of physician services exceeds the number judged to be fiscally sustainable. The overall growth in physician services has been so great that the formula had to call for a pay cut to physicians beginning in 2002. Four times, including in 2007, Congress overrode the formula and held physician payment levels or allocated an increase.1 The net result is that the growth rate of physician services is unsustainable because it can never match the levels called for by the sustainable growth rate formula. Congress is only delaying an unpleasant, politically risky, and complicated decision—to change the way physicians are paid by Medicare. Politicians do not know how to do it, and neither do the doctors. The Senate Finance Committee is responsible for the Medicare and the Medicaid programs. On March 1, 2007, committee chair Senator Max Baucus of Montana held a hearing on the sustainable growth rate in the Dirksen Building near the Capitol in Washington, D.C. Four witnesses testified: Glenn Hackbarth, the director of the Medicare Payment Advisory Commission (MedPAC); Dr. Cecil Wilson, president of the American Medical Association (AMA); Dr. Byron Thames, a member of the board of directors of AARP; and Dr. Peter Orszag, director of the Congressional Budget Office, the independent budget advisor to Congress. The geography of the room was fascinating. Twenty-one senators sat next to each other at a sixty-foot-long horseshoe-shaped desk in a room with two-story ceilings like a church. In the center of the horseshoe and positioned about two heads lower than the senators, the four witnesses sat at a narrow rectangular table, looking up into glaring lights as they were questioned. They reminded me of mice encircled by cats. The AMA’s president, Dr. Wilson, solemnly and slowly said that his organization supported changing the system to pay doctors by annually increasing the Medicare fee schedule to account for medical inflation and ignoring the growth in complexity and volume of services that physicians were providing. Dr. Orszag said that implementing the AMA plan without decreasing the volume of services would result in annual outlays for physician services increasing by almost three times that called for by the formula.

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He testified that the AMA’s plan would cost 252 billion dollars between 2007 and 2017. Even by Washington standards, this is a big number. Dr. Thames of AARP pointed out that Medicare patients’ premium payments had already doubled since 2000, partly to pay for physician services, and that 21 percent of beneficiaries report that they have to cut back on groceries in order to afford their premiums, co-pays, and other health care expenses, which average 25 percent of income.2 Every senator seemed to swallow hard at these numbers. All the witnesses testified that this was not the way to pay doctors. Glenn Hackbarth of MedPAC gave the senators three other options: regional caps on physician expenditures, a state-based sustainable growth rate, or a completely different way of paying physicians based upon as yet undefined performance targets.3 There were no details about this new method, only vague platitudes about a diaphanous concept. Everyone knew that if the doctors’ pay were reduced too much, Medicare patients would have trouble finding a doctor. There was no question that doctors were going to get their pay increase and that this scenario would play out again until it finally hit bottom. By the end of the hearing, I thought that the cats had no fangs and the mice had grown to be rodents of unusual size.

The Medicare Time Bomb Non-elected government officials have been trying, mostly in vain, to get the public to pay attention to Medicare’s perilous situation. Elected officials have mostly been silent, realizing that speaking out would be highly unpopular with seniors. Besides, no one really knows what to do about Medicare’s cost problem, and it is one of stunning magnitude. Medicare Part A is the hospital insurance program that pays for inpatient hospitalization. Part A is financed by a 1.45-percent payroll tax paid by the employee and the employer. Medicare payroll taxes are put into a Medicare Hospital Insurance Trust Fund that draws interest. The fund is overseen by appointed trustees, two from the public sector and four from the administration. Medicare’s hospital costs are paid out of the fund; and if hospital spending exceeds the trust fund’s resources, the difference must be made up by general tax revenue. Seventy-five percent of Medicare Part B (physician and outpatient services) and Part D (prescription drug) benefits are paid for by general

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tax revenue, the remainder by premiums. Therefore, federal tax revenue is a major portion of Medicare spending—soon more than 45 percent of Medicare’s outlays. The 2007 Medicare trustees’ report, “A Message to the Public,” concludes that Medicare’s costs will exhaust the trust fund by 2019, at which time its costs will exceed its revenues by 20 percent. In the words of one trustee, Thomas Saving, “Medicare and Social Security combined are on track to eat up the entire federal budget.”4 The implication of these figures is stark: Medicare and Medicaid together accounted for 22.9 percent of the entire federal budget in 2007 and are on track to consume some 30 percent of it by 2018.5 The Congressional Budget Office is the budget arm that provides Congress with estimates of the present and future costs of its legislation. Its analysts have this to say about the cost of health care to the federal government: “Rising health care costs and their consequences for federal health insurance programs constitute the nation’s central fiscal challenge.”6 Eventually, if Medicare is not reformed, Congress will have to cut payments to hospitals and doctors in order to avoid a tax increase of intolerable size. Let’s take a short trip into the future to see what’s in store for Medicare patients under the current scheme.

Medicare in 2019 The scattered warnings from health economists and civil servants that Medicare’s costs were unsustainable went unnoticed and unheeded until 2019. No policymaker intending to remain in office could discuss the status of Medicare financing with any force because there was no answer for it, and any hint of rationing care to elders was political suicide. Action a decade earlier would have averted disaster, but in 2019 Congress’s choice was to allow Medicare to draw 73 billion dollars per year (in 2005 dollars) from the government’s general tax revenue, a figure that would rapidly increase each year, or to cut the rates paid to doctors and hospitals.7 It chose the latter and finally cut the Medicare fee schedule. As a result, many doctors no longer took Medicare patients or took no new ones. In 2019 52 million seniors—16 percent of Americans—suddenly found themselves unwelcome at the country’s best hospitals and doctors’ offices.8

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Ellen Howard’s Colon Cancer in 2019 Ellen Howard was in her mid-seventies and had been widowed for a decade. The morning she noticed blood in her stools she cried quietly, remembering her husband’s death from cancer. Now it seemed that no doctor was seeing new Medicare patients. Ellen called the new Medicare help line, and after a few transfers she heard, “Bayview County Hospital, may I help you?” Bayview had served mostly the uninsured and Medicaid patients in the past, but now it was a refuge for Medicare patients who could not find a doctor. “I need to see a doctor, please.” After another succession of transfers, she provided her insurance information to a clerk and was given an appointment to the general medicine clinic in a month. After what seemed an interminable wait, Ellen’s scheduled day arrived. A young doctor in a white coat followed by two medical students came into the windowless examination room where she sat alone. “Hello, Mrs. Howard, could you tell me about your problem?” The doctor was her grandson’s age. She explained the symptoms. “I will need to do a physical exam, if you could change into this gown.” Naked and shivering under a thin cotton gown that was open in the back, she felt his cold instruments and rough rectal exam. The young doctor had not found hemorrhoids or any other cause of the bleeding. She needed a colonoscopy. “What is a colonoscopy, doctor?” “Well, they pass a fiberoptic colonoscope up to the ileocecal value and examine the mucousa. One of the gastroenterologists will do it. This is the way we tell if there is cancer.” This word rolled off his tongue without hesitation, producing in her a deep chill and the taste of metal. The clerk at the front desk scheduled the procedure. “But don’t you have an appointment before October? That is three months away.” Ellen felt dismayed. “I am sorry, ma’am, that is the first available.” This was a long time to wonder if you had cancer. Dr. Somak Chatterjee had been recruited for the Bayview County Hospital surgical residency program from Calcutta. Hospitals that took care of large numbers of Medicare and Medicaid patients were chronically underfinanced, so they did not attract many graduates of U.S. medical schools. The hospital had even paid for Chatterjee to prepare for and

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then complete the required licensing tests. In past years foreign medical graduates went looking for U.S. training programs; now U.S. training programs went looking for them. Bayview was not one of the better surgical residencies, and Chatterjee knew it. But he was glad to be in America. There was little supervision of surgery by experienced physicians at this public hospital. The senior surgeons would scrub in on a portion of most cases but only long enough to say that they had been there. The hospital was chronically underfinanced. Time in the operating rooms was rationed. Chatterjee’s service operated only on Mondays and Tuesdays, and it was already booked for the next three months. Ellen Howard’s colonoscopy and MRI had shown a colon cancer extending through the wall of the large intestine. Chatterjee explained to her about the waiting list for the operating room, and she left that day with the surgery scheduled for three months later. When her turn came, Dr. Chatterjee, assisted by a young doctor who had himself only just finished training, operated on Ellen Howard. Chatterjee carefully excised two inches of colon on both sides of the mass along with the attached fat and lymph nodes. However, because the dissection had come close to the aorta (the main trunk of arterial blood located in the abdomen), the inexperienced surgeons had become timid, fearful of causing bleeding from aortic branches. They left cancer-laden lymph nodes in the remaining fatty tissue. Ellen Howard returned home after an uneventful surgical recovery. But she still harbored the cancer that the team had missed. It would only have been removed during a determined dissection by an experienced surgeon. Despite chemotherapy and radiation treatment, the missed lymph nodes spread the cancer throughout Ellen Howard’s abdomen. Neither she nor Dr. Chatterjee ever knew this. Nor did they know that the cancer would have been contained within the colon had Mrs. Howard undergone surgery seven months earlier, when her rectal bleeding started. Over time, a pattern of increasing cancer mortality rates began to emerge in Medicare beneficiaries and it became clear that the reductions in payment were causing more than just an inconvenience for seniors. The story of Ellen Howard is not demagoguery designed to scare by exaggeration. If it is in error, it is only in predicting that Medicare’s problems will wait until 2019. Already today there are underfunded public programs such as Medicaid that limit access to medical care.

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Medicaid provides insurance for 51 million poor Americans, half of them children. Medicaid controls its costs by underpaying doctors and hospitals in almost every state. Texas Medicaid pays physicians at the median national Medicaid rate, which is sixty-nine percent of the Medicare fee schedule. A survey in 2005 found that half of the family doctors, pediatricians, and general internists in Texas would not take new Medicaid patients. Nationally, 30 percent of physicians will not take new Medicaid patients.9 Now, in 2008, family doctors and general internists are closing their practices to new Medicare patients, too, a trend that will worsen dramatically if Medicare payments are cut once more. Unless Medicare is reformed it will remain a looming threat to the federal budget or a threat to Medicare patients. The program cannot go on as it is.

Rising Costs Create Uninsured The position of business is not much better than that of the federal government. The 2007 average annual premium for employer-based insurance was 4,479 dollars for an individual and 12,106 dollars for a family. Health insurance premiums grew at three times the rate of inflation from 1988 to 2006, while workers’ wages grew at the same rate as inflation. Businesses’ health care spending as a percentage of payroll reached a high of 9.9 percent in 2006, increased from 1.2 percent in 1960. This figure understates the problem, however, because it includes workers and firms that do not participate in employer-based health care. Business spending as a percentage of payroll for workers who were enrolled in employerbased insurance was 18.3 percent in 2006, an all-time high.10 Almost all large firms (those with more than two hundred workers) still offer insurance; but as premiums began to rise after managed care, small businesses began to drop coverage because they could not afford it. Small businesses employ half of U.S. workers, and by 2007 only 59 percent of them covered their employees, down from 68 percent in 2000. Many of those uninsured workers and their children then became eligible for Medicaid, contributing to a 70 percent increase in the percentage of the U.S. population covered by Medicaid from 1989 to 2003.11 As employerbased insurance is eroding in the small business market, public insurance

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is expanding but still not fast enough to keep up with the decline in employer-based coverage. The result is growing uninsured.

A Reverberating Circuit Over many years, as the cost of health care to businesses has increased, the number of uninsured has increased proportionally in a predictable mathematical relationship.12 Yet as the numbers of uninsured has risen, the cost of their care has driven up the cost of commercial insurance in a never-ending cycle. One group calculated that more than 8 percent of the cost of health insurance premiums has been the result of hospitals shifting their losses from care of the uninsured by increasing charges to private insurance. In states with high uninsured rates such as New Mexico, West Virginia, Oklahoma, Montana, Texas, and Arkansas, the portion of insurance premiums accounted for by cost shifting were found to be up to double the average figure.13 There will be no end to this vortex until health care costs are reined in and the uninsured covered.

A New Problem High health care costs have created a new phenomenon, the underinsured. In order to keep premiums affordable, individuals and businesses are purchasing policies that have high deductibles and co-pays. From 2001 to 2004, deductibles in the least restrictive kinds of employer-based insurance rose by 40 percent as employers shared the high cost of health care. Some people think they have insurance but do not when they buy “mini-med” policies that may cover only the first 10,000 dollars of care. All forms of cost shifting to employees have been on the rise since 2000. When medical costs exceed 10 percent of an average family’s income, researchers consider that family underinsured; and an estimated 16 million people are underinsured in the United States. Eighty-two million people lose insurance sometime in a two-year period.14 Forty-seven million are uninsured on any given day. These figures mean that more than onethird of the U.S. non-elderly population has either insufficient, unstable, or no health insurance coverage. Something must change because these trends cannot continue.

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7 30 Percent Waste—or 50?

If the behaviors of patients are added to the behaviors of providers, total waste in medicine cannot be less than 50 percent.

Hospitals, doctors, drugs, and outpatient tests and procedures account for most of health care spending. Hospital spending predominates at approximately 31 percent of all health care expenditures, followed by payments for physician and clinical services (21 percent) and prescription drugs (10 percent).1 Despite the overuse of emergency rooms, their cost is only a small percentage of health care spending; but the cost of patients admitted to the hospital from emergency rooms is embedded in hospital spending, and it is substantial. Outpatient tests and procedures are estimated to account for 9.8 percent of health care costs and are the fastest growing component.2 The remaining expenditures include dental services, retail purchase of over-the-counter drugs, nursing home care, home health care, and miscellaneous categories.

Wasteful Medical Practice How many of these health care services are wasteful? I attended a conference on the use of information technology in hospitals and doctors’ offices. The audience was a mixed group of lay people and health care professionals scattered among tables in a hotel ballroom and pushing around overdone chicken on cold plates. The speaker was Dr. Carol Diamond of the Markel Foundation, who had observed so much waste and error in her practice of intensive care that she was resolved to see medicine change. The Markel Foundation focuses on the savings and improved quality that 57

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information technology might bring to medicine. After Dr. Diamond discussed the barriers to adopting information technology in medicine, a puzzled audience member asked, “If information technology would save money, why is the health care industry so far behind every other industry?” Dr. Diamond’s one-sentence response was “Wasted money is someone’s bottom line.” What is waste to an insurer, a business, a taxpayer, or an individual purchaser of insurance is profit to a doctor, a hospital, a pharmaceutical company, or a medical device manufacturer. Over the past three years I have routinely asked doctors and hospital administrators to estimate how much of the health care services that we provide is pure waste. They usually paused to think. When I suggested, “Thirty percent?” they invariably responded, “Oh, at least that.” There is evidence to support the assertion that at least one-third of what is done in medicine does not help patients. Under Dr. John Wennberg, investigators at the Dartmouth Institute for Health Policy and Clinical Practice in Hanover, New Hampshire, have devised a technique for determining usage rates of specific Medicare services in various U.S. regions. Wennberg and his colleagues (Dr. Elliott Fisher, an internist, and Dr. Jonathan Skinner, a health economist) have had access to the Medicare database for years. For this study, they divided the United States into 306 hospital referral regions where patients live and receive their medical care. Medicare pays a uniform rate across the nation, adjusted for regional cost differences, so the investigators adjusted for price differences and then examined the outcomes and care of all Medicare patients admitted with hip fractures, colorectal cancer, and heart attacks from 1993 to 1995 in all 306 regions. When Medicare spending in a region is high, the reason is increased use of services, not increased price of services. In high-spending areas Medicare spent 60 percent more per capita on patients with these three conditions than it did in low-spending areas. For example, for the same condition, Medicare paid for 2.5 times more procedures per Medicare beneficiary in Miami than it did in Minneapolis.3 Doctors in high-spending areas hospitalized patients more often, saw them in the clinic more often, ordered more tests, and performed more minor procedures. At the end of life, patients in low-spending areas spent an average of six days in the hospital, whereas patients in high-spending areas spent twenty days.4

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The result of the increased use of medical services in high-spending areas was not improved outcomes, as might be expected. Patients cared for in those regions were at a significantly increased risk of dying over the five years after the initial hospital admission. More medical care not only worsened outcome, but it also failed to increase patients’ satisfaction with their care or to improve their functional status. One might assume that academic medical centers, which are supposed to be the best health care facilities, are more uniform in their care. But in high-spending areas, academic doctors behaved just like their peers in the same region. In the first six months after a hip fracture, patients cared for in academic medical centers in high-spending areas visited their doctors 82 percent more often, underwent 26 percent more imaging studies, 90 percent more diagnostic tests, and 46 percent more minor surgery than did patients in academic medical centers in lowspending regions.5 What explains this astonishing regional variation in care? The only variables that predicted high-spending versus low-spending regions were an increased concentration of specialists and hospitals. Wennberg stated, “High-rate regions had thirty-two percent more hospital beds per capita, thirty-one percent more physicians, sixty-five percent more medical specialists, seventy-five percent more general internists, and thirty-seven percent more surgeons. Low-rate regions had twenty-five percent more family practice physicians than high-rate regions.” Variations in the degree of illness among regions explained only 27 percent of the differences, whereas the local supply of hospital beds and specialists accounted for 42 percent.6 When the study group examined the overall picture that emerged from its findings, investigators concluded that low-spending areas should be the benchmark because patient satisfaction and functional status are the same as they are in high-spending areas while mortality is improved. If doctors in high-spending areas practiced like doctors in low-spending regions, Medicare cost could be reduced by 28.9 percent with improved quality.7 These savings would not require any rationing of needed care; they would not create waiting lists or delay anyone’s access to a doctor, a test, or a procedure. They are savings that would improve the quality of medical care.

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Doctors do not sit together in a room and decide to build more hospital beds so they can admit more patients, collude to order more diagnostic tests, agree to perform more minor procedures so they can make more money, or keep patients in the hospital longer when they are dying. In fact, practicing physicians are unaware of these regional differences and of their role in producing them. Rather, this wastage reflects the unrestricted application of medical services without public reporting, without uniform standards of medical practice, and without a full understanding of which patients benefit from which tests and procedures. The differences reflect local custom. The habits and circumstances of Minnesota physicians are not the same as those of Florida physicians. For instance, there are no national standards for how often a patient should be seen after a heart attack or for heart trouble. If a town is home to many cardiologists, they naturally want to be busy. They all fully book their clinics, so patients with heart trouble in that community are seen more often than they might be in another community. A doctor who is liberal with patient visits is liberal with tests—and the more a doctor looks for, the more a doctor finds. Thus, excessive testing leads to unnecessary procedures. Half the variation among regions in the number of visits to cardiologists is explained by the number of cardiologists in the community.8

Wasteful Patient Behaviors The Dartmouth group attributed variations in care around the United States to poor management of health care, falsely optimistic assumptions about the benefits of aggressive treatment of the severely ill, and limited evidence about the kinds of care that benefit the chronically ill.9 These estimates do not consider the other reason for excess use of services: preventable illnesses. Doctors are used to having patients who do not take prescribed medications or fail to follow recommended diet and exercise regimens, but no one knows what those behaviors cost in preventable illnesses. Nonetheless, numbers can be attached to two behaviors. In the mid-1990s, the consequences of smoking accounted for 7 percent and obesity accounted for 9 percent of health care costs in the United States.10 Added together, the consequences of these two behaviors were responsible for 16 percent of entirely preventable health care spending.

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I could generally tell at surgery if a patient were a chronic smoker: the tissue did not bleed normally when cut and would fall apart when picked up with little tweezers, and the neck bones were often dry and hard. When surgeries required a fusion of bone, the risk that the bones would not fuse, requiring a second operation, was doubled because of smoking. I would always discuss this risk in the clinic before surgery, and many patients accepted medication to help stop smoking, saying, “I have needed to stop smoking; this sounds like a good time to do it.” Smoking damages almost every organ in the body, causing heart disease, lung disease, and lung cancer. It is the leading cause of preventable disease in the United States, accounting for more than 400,000 deaths per year. Public education campaigns, physician counseling, and cigarette taxes are credited with reducing the percentage of smoking adults from 40 percent in the 1960s to 21 percent in 2006.11 The number of smokers that I saw in clinic decreased over the years; and like most doctors, I was unprepared for a new epidemic: obesity. I rarely saw an extremely obese patient before 2000, but I now frequently began to see patients weighing more than three hundred pounds. The percentage of obese adults has doubled since the 1980s. By 2000 nearly one in three U.S. adults was obese. Eleven percent of U.S. children are obese, and one-quarter are overweight. The cost of health care for an obese child is three times the cost of that for an average child.12 To deal with this epidemic, I needed to change a number of my practice’s procedures. Most of the imaging equipment is not designed for patients weighing more than three hundred pounds, so diagnostic studies were delayed as we shopped for facilities with equipment to accommodate these individuals. Even then the imaging studies were substandard because the layers of fat distorted the penetration of the magnetic waves or X rays. During spine surgeries, we often placed a patient’s body face down on a frame that allows the abdomen to hang in the air above the operating table (because pressure on the abdomen causes surgical bleeding). But now I frequently saw patients who were so large that the table frames could not withstand their weight. This meant we had to use a riskier sitting position for their surgeries. The patients were also at greater risk for wound problems and stayed in the hospital longer after surgery because their obesity made it difficult for them to get out of bed and move around.

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But the real cost of obesity is that it produces chronic diseases. Obesity causes diabetes, hypertension, and high cholesterol, all of which are epidemic in the United States. Seven percent of the population has diabetes, and 80 percent of diabetics are obese. Obesity has been estimated to account for as much as 27 percent of the escalation in health care costs over the past twenty years.13 One argument, however, is that reducing the prevalence of obesity will improve the health of the public but will only reduce health care costs in the short run. A study based upon data from the Netherlands concluded that health care costs of people who were obese at age twenty increased until they were fifty-six, but after that their costs were lower than those of people with healthier lifestyles because the obese died five years younger. Lifetime health care costs were the lowest for smokers because, compared to the obese and to people with healthier lifestyles, smokers had the shortest life expectancy.14 If the behaviors of patients are added to the behaviors of providers, total waste in medicine, at least in the short run, cannot be less than 50 percent. Yet while the United States is not alone in inefficient medicine or bad personal behaviors that drive medical costs, it does stand alone in some other ways. The nation spent more than 15 percent of its GDP on health care in 2005. The next-highest level in a developed country was 11.6 percent in Switzerland, while the average for industrialized countries was 8.4 percent. In 2006 health care grew to 16.5 percent of America’s GDP.15 Since wasteful medical services are more or less a feature of every health care system in the world, I thought the aging of America might account for the high percentage of U.S. spending. Yet I found out that, compared to other industrialized countries, the United States has fewer seniors. In 2002, 12 percent of the U.S. population was over age sixty-five, contrasted with 19 percent of Japanese, 18 percent of Germans, 16 percent of Britons, and 13 percent of Canadians.16 The United States has far more malpractice claims filed per capita than do Canada, the United Kingdom, and Australia; so I imagined that medical malpractice risk would explain much of the difference in spending. But claims are more likely to be dropped in the United States, and the average U.S. malpractice settlement is smaller than either Canada’s or the United Kingdom’s.17

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The United States spends 2,797 dollars more per capita on health care than do other industrialized countries. Awards, legal fees, and underwriting costs of medical malpractice litigation account for only about twenty-two dollars of the per capita cost. The practice of defensive medicine (ordering unnecessary tests and procedures to avoid a lawsuit) accounts for 3 to 9 percent of spending, so any differences in the practice of defensive medicine would be only a component of an overall attack on cost.18 I found that wasteful spending is a feature of all health care systems. The United Kingdom, Canada, the United States, New Zealand, and Australia all report an unacceptable level of medical errors, problems with access to care, poor coordination of care, and poor physician-patient interaction. One-third of Americans, Australians, and New Zealanders think their entire health system needs change.19 I always imagined that the United States had vastly more hospital beds, more MRI and CT scans, and more doctors per capita than did other industrialized countries. The resulting overuse would explain the high cost of U.S. health care. Our nation, however, has fewer physicians per capita than do France and Germany and only slightly more than Canada does. U.S. patients visit a doctor 3.6 times per year compared to 6.2 times a year in other industrialized countries. Americans spend far fewer days in the hospital than do Germans, Japanese, Canadians, and Britons. The United States has fewer hospital beds and ranks in the middle in the number of CT scanners per capita among industrialized countries. Seven of thirty industrialized countries have more MRIs per capita.20 I thought that the queues in which people wait for certain procedures in other countries would explain the cost differences. But the procedures for which there are queues in other countries account for only 3 percent of US spending.21 The United States does have a fondness for high-tech medical procedures. For all the weaknesses of the our medical industry, its great strength is the ready availability of high-quality procedures for the insured and the rapid development of new medical technology. The United States exceeds the average number of heart procedures in other countries by several times. It is 50 percent above the median of industrialized countries in knee replacements; and Americans are far more likely to undergo

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heart, liver, and kidney transplants than are residents of any other industrialized country.22 What stands out, however, is the price we pay for medical care.23 Americans pay 2.7 times more than Canadians per day of hospitalization, 5.6 times more than the Japanese, and four times more than Germans. In 2003 the United States spent 1,271 dollars per capita on physician services compared to the median of 428 dollars in other industrialized countries and 287 dollars in Canada.24 But for all our spending on physician services, American generalists have the same income as Canadian generalists, whereas American surgeons are paid about 50 percent more than their counterparts in Canada. In 2005 the average income of American surgeons (general surgery, neurosurgery, thoracic surgery, plastic surgery, orthopedic surgery, and ophthalmology) was 437,000 dollars, whereas the average income of Canadians in the same surgical specialties was about 300,000 dollars.25 High spending on U.S. physician services has three causes. The nation has somewhat more doctors than Canada (2.3 doctors per 1,000 people, as opposed to 2.1).26 Higher specialist incomes also account for some of the difference, but a major cause is administrative waste. In 1999 U.S. doctors spent 29.6 percent of their gross income on administrative overhead such as billing and collections, medical malpractice insurance, office staff, and office rental. The figure in Canada was 16.1 percent.27 The price of pharmaceuticals has been a hot topic in the past few years, but these prices only parrot the prices of doctors and hospitals. In 2003, the United States spent 728 dollars per person on pharmaceuticals, more than twice the median for other industrialized countries. Some of the difference came from the nation’s increased consumption, but much of the difference was in pricing. A market basket of thirty drugs costs 47 to 59 percent more in the United States than do the same drugs in Canada, France, and the United Kingdom.28

Where Is the Breaking Point? Some economists argue that there is no practical limit on what the private sector can spend on health care. These proponents of unlimited spending (which they see as unlimited investment) say that even if health care

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grows to consume 20 percent of GDP—more than the federal government’s average annual share of GDP—the income available for people to use for other purposes would still grow by one-third. I hope they are right because if health care spending continues to grow at its historic rate, it is projected to increase to 25 percent of GDP by 2025.29 The argument is that as long as consumers would prefer to spend their money on health care rather than something else and the revenue stays in the United States where it creates jobs and purchasing power, there is no practical limit to what percentage of GDP health care spending can safely occupy. In the view of these economists, as long as spending fuels technology advances and does not displace other personal spending, there is no problem. In 2006 food and housing were each about 10 percent of GDP. The combined spending for national defense, motor vehicles, and energy also totaled about 10 percent. Health care spending at more than 16 percent was the largest single component of GDP.30 Figure 7.1 illustrates these relationships.

18 16.5 15

Percent of GDP

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12 10.5 9.6 9

6 4.6 3.4 3

0

National Housing health expenditure

Food

National defense

2.8

Motor Gasoline, vehicles fuel oil, and and other energy parts goods

FIGURE 7.1 Components of U.S. gross domestic product, 2006

Source: Medical Cost Reference Guide (Chicago: Blue Cross/Blue Shield Association, 2007).

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Yet according to another group of notable health care economists, unless the United States reduces the rate of health care cost escalation to 1 percent above real GDP growth (adjusted for inflation), health care will displace other personal spending by 2039. From 1990 to 2002, real GDP grew at 1.9 percent, while health care spending grew at 3.7 percent. This group’s argument seems reasonable because the United States is now seeing three all-time highs in health spending: as a percentage of individual income, of government revenue, and of business wages.31 Economists at the Federal Reserve Board see a somewhat different picture. They conclude that if health care continues to grow at its present level, it will force large increases in public sector financing before it erodes consumer spending.32 Given the threat that Medicare poses to the U.S. budget, this is an equally unwelcome consequence. Health care costs could be sharply reduced and care improved by reducing the waste in medicine. Inefficiency and poor quality stem from insufficient preventive medical care, lack of coordinated management of chronic diseases, poorly managed care at the end of life, errors and waste in hospitals, unnecessary surgery, and excess performance of diagnostic tests and procedures.

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8 Poor-Quality Primary Care

The overfinancing of specialty care and the underfinancing of primary care buys the United States some very expensive hospitalizations.

Although the story that follows is fiction, it is an accurate depiction of the results of a medical system in which patients are managed by a number of doctors, all of whom may be good at what they do. From the patient’s point of view, however, the results are not so good. The problem is a system one. At age seventy Ed Fitzsimmons suffered from heart disease, high blood pressure, and high cholesterol complicated by diabetes. One evening his wife heard him say, “Elaine, maybe we better go to the ER—my stomach doesn’t feel right.” The triage nurse in the overloaded emergency room of the Episcopal Hospital believed that Ed most likely had indigestion, so he and his wife sat in the crowded waiting area for ten hours that night as uniformed crews rushed patients past them. By morning Ed’s pain had become more intense, and Elaine, frustrated, strode to the front desk. “My husband is feeling worse, and we have been here all night. When will he be seen by the doctor?” “Ma’am, we have had a very busy night,” the clerk announced as she filled out forms. The hospital staff was doing everything it could to avoid going on diversion that night, and this included quickly deciding who most needed treatment. Some minutes later, when Ed’s heart attack made him fall from his chair, he was hurried into the emergency room and then immediately admitted to the last open bed in the Coronary Care Unit, where he died 67

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some days later. Had the medical staff correctly diagnosed him and treated him in the emergency room with intravenous clot-busting drugs within two hours of the onset of pain, he would have been discharged three days later at a fraction of the cost incurred by the hospital and paid by Medicare. Elaine’s grief, however, could not be so easily quantified. If the emergency room had been functioning properly that night, the same medical staff that failed to treat him would have made the correct diagnosis and provided treatment. But the reality is that Ed Fitzsimmons was one of 11,000 Americans in 2000 who had a heart attack but was misdiagnosed. As a result, about five hundred of them died. The problem is so common that a 2004 article in the Wall Street Journal told readers how to reduce the chance that it would happen to them.1 Ed’s wife and family never knew about the emergency room’s error, but that was only one of the lapses in his management. The other lapse was a medical system that did not pay doctors for prevention of illness or coordinated management of chronic disease. Ed Fitzsimmons had managed his health care with the aid of six doctors. One-third of Medicare patients in Los Angeles have at least as many doctors.2 A single attentive doctor’s strict management of Ed’s diabetes, high cholesterol, and high blood pressure would have delayed his heart attack by years. Measuring by the yardstick of American health care today, Ed received effective treatment. Judging by cause and effect, he did not.

Why Ed Fitzsimmons Died Too Soon About 15 percent of Medicare patients have diabetes, which results when the body cannot produce enough insulin or, as is the case with obesity, the tissues become resistant to its effects. The insulin deficiency or tissue resistance, in turn, causes high blood glucose. Diabetes is managed by injections of insulin, oral medications that cause insulin release, and lowsugar diets. The condition causes damage to the eyes, the kidneys, the feet, and the blood vessels. Every diabetic should receive three examinations that can help prevent or detect serious complications from diabetes: eye examinations (once each year), foot examinations (once each year), and measurement of hemoglobin A1C (every six months).3 Measurement of blood glucose gives the value only at the moment of measurement, and

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the blood test known as hemoglobin A1C is the best index of how well blood glucose is being controlled over a period of time. Every Medicare patient should also have regular tests of blood cholesterol because, like diabetes, high cholesterol aggravates hardening of the arteries. Cholesterol can be lowered by medications and a low-fat diet. Research is demonstrating more clearly every year that treatments to keep the levels of glucose, cholesterol, and blood pressure to near normal levels are powerful in preventing the complications of heart disease and diabetes. In the years before Ed’s death Dr. Susan Greenberg was his diabetes doctor. Sometimes Ed had difficulty getting an appointment; and when he did, the waiting room was packed with fidgeting patients. Over the years Dr. Greenberg had found herself being paid 40 percent less to see 50 percent more patients. Medicare paid only sixty-five dollars for a moderately complex clinic visit and nothing for patient education. So after covering practice overhead, paying malpractice premiums, seeing thirty-five to forty patients a day four and a half days a week, and working sixty hours per week, Dr. Greenberg had to do more each year to maintain her income of 150,000 dollars per year. She had not undergone nine years of training to work in an assembly line practice analogous to a 1950s Detroit car factory. At age fifty-five, Greenberg had become dispirited. She and her partner both felt they were marking time until retirement. First, they stopped taking patient calls after hours: the practice’s answering machine was turned on at 4:00

P.M.

each weekday and full time on weekends and holi-

days. Its recorded message advised, “If you believe you have an emergency, go to your nearest emergency room.” Most other doctors were following the same protocol, one reason for the city’s overcrowded emergency rooms. Dr. Greenberg and her many colleagues did not intend to burden the city’s emergency resources. She was worn out after thirty-five years of school, training, and practice. Now, in middle age, she was faced with being paid less to do more. She liked medical practice; but for the first time she realized that her friends in business were paid more to do less as their businesses matured and they got older. They made money while they slept, and she now earned less per hour than she had in her youth. Many of her business friends had even been able to retire by her age, and this soured her. Like taking time to educate her patients, she was not paid to

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take after-hours phone calls. These were courtesies, and the time for courtesies was long past. At appointments Greenberg would spend about fifteen minutes with Ed Fitzsimmons, using much of that time to review his chart. She would typically say, “Ed, your A1C is too high. I am going to increase your diabetes medicine, and you need to eat fewer carbohydrates. Come see me in six months.” She repeated these remarks as she stared down at Ed’s chart. Ed’s cardiologist, whom Greenberg knew only casually, typically said to him, “Your cholesterol is too high, so let’s increase your cholesterol medicines. You need to eat less fat. Let me see you in a year.” But Ed never found a palatable diet that was low in both fat and carbohydrates. His glucose was never well controlled because one of the drugs that the cardiologist had prescribed to lower cholesterol prevented the intestine from absorbing a drug that Greenberg had prescribed to lower glucose. Both doctors, on the run, had prescribed blood pressure medicine and cholesterol medication without knowing that another physician was duplicating treatment of the same disease. Neither had a holistic understanding of his history. Neither had tight control of Ed’s hypertension or increased cholesterol as a goal of management, even though the difference between a blood pressure of 130/85 and 130/95 is a 50 percent increase in risk of heart attack or stroke. The seemingly small difference between a blood cholesterol of 180 and one of 200 milligrams per deciliter is a 20 percent increase in risk.4 Yet Ed’s medical management was better than the care of at least 50 percent of Medicare patients and probably equal to most of the other 50 percent. He died seven years earlier than he would have if his health been rigorously managed. Yet if Ed had been an adult in 1955, he would never have lived to age seventy. Medical science has developed stunning technology, but it could be applied better. For this the United States needs a different mix of doctors paid differently as well. The high prices paid for U.S. medicine should be buying high-quality medical care, but the data indicate the opposite.

The Devaluation of Primary Care Medical doctors fall into two categories: primary care doctors and specialists. Primary care is usually provided by family practitioners,

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pediatricians, and general internists. Specialists may also deliver primary care when they are not acting as proceduralists but actually managing disease. Primary care has three goals: ■

Preventing people from crossing the line from health to disease and then developing chronic conditions

■

Managing chronic diseases once they develop in order to prevent flare-ups

■

Diagnosing and treating short-term illnesses before they become severe.

Measures to prevent chronic disease may be as simple as immunizations and encouraging weight loss, or they may be more complex like control of elevated cholesterol and blood pressure. Specialty care is provided by specialists such as cardiologists, gastroenterologists, and surgeons. These specialties all have one thing in common: their practitioners perform procedures and are paid very well for performing them. Exactly how many primary care doctors are needed to care for a large population of patients is determined by how medicine is practiced. If there is no interest in disease prevention, then not so many are needed. The Kaiser Permanente prepaid group practice is primary-care based and focuses on prevention. Half of Kaiser’s physicians have practiced primary care. On average, however, specialists form 65 percent of the physician workforce and primary care physicians only 35 percent, a proportion that has steadily declined from 50 percent in the 1960s.5 Not only has the proportion of doctors practicing primary care decreased but so has the number of U.S. medical school graduates who choose it. In 1998, 50 percent of U.S. graduates picked primary care; this declined to 40 percent in 2004. Graduates of foreign medical schools now make up more than 60 percent of family practitioners in training, though they form only 20 percent of physicians entering practice.6 In my practice many patients never consulted a primary care doctor before seeing me and had little use for one unless they needed a prescription or a form completed. I knew they chose other doctors in the same way: patients were coordinating their own care without a medical degree.

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The condition of primary care is so discouraging that the American College of Physicians has concluded that it is “on the verge of collapse.” The Society of General Internal Medicine’s position is that today’s medical care is characterized by “chaos and dysfunction.”7 What young American medical student wants to enter a field in decline? Chaos and dysfunction sound much like the circumstances of emergency medicine, which, in contrast, is growing apace. The difference is that demand for emergency physicians is high, so they are paid almost double what the average generalist earns. The reason for the rise in specialists is no mystery. Primary care doctors do not perform procedures; they manage patient’s medical problems and are poorly paid for it. In 2005 Medicare in Houston paid a primary care physician fifty-three dollars for a routine office visit, and a doctor can only see so many patients in one day. Specialists have a much better financial arrangement. A primary care doctor who diagnoses a breast cancer is paid for a routine office visit, while the specialist in Houston who removes the cancer is paid by Medicare 1,234 dollars for an hour-long operation. A gastroenterologist is paid 464 dollars for a colonoscopy that can be performed in fifteen to thirty minutes (recommended every five years for people over age fifty to detect colon cancer). A neurosurgeon receives 3,651 dollars for a complex brain surgery that takes three to four hours. A cardiologist earns 1,555 dollars for a four-vessel cardiac catheter procedure, and a cardiovascular surgeon makes 2,154 dollars for a fourvessel heart bypass operation. Specialists’ incomes are two to five times greater than primary care doctors’ for equivalent hours worked. The overfinancing of specialty care and the underfinancing of primary care buys the United States some very expensive hospitalizations.

Avoidable Hospitalizations Avoidable hospitalizations are hospital admissions that could be avoided if preventive measures had been taken before the problem became an emergency. Minorities and the uninsured are always at more risk for avoidable hospitalizations, but the single factor that dwarfs all others in causing avoidable hospitalizations is lack of access to primary care. One-third of children’s admissions to the hospital and the ICU could have

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been avoided by primary care. About 15 percent of adult hospital and ICU admissions are avoidable.8 Preventable hospitalizations account for about 6 percent of hospital spending. Comparing avoidable hospitalizations in Canada (where everyone has access to primary care) to those in the United States (where many do not), I estimate that the incidence of avoidable hospitalizations in the United States could be reduced as much as tenfold simply by providing universal access to a primary care doctor.9

Poor Quality Care The devaluation of primary care has had a predictable effect on its quality. More than half the time in 1990–91, Medicare patients with diabetes failed to receive Hemoglobin A1C testing, cholesterol screening, and eye exams. A more depressing figure is that only 15 percent of diabetics receive all of the recommended measures.10 A 1994–96 survey of Medicare patients found that fewer than two-thirds of those surveyed received sixteen of forty standard preventive tests, medications, or examinations when they went to the doctor. The status was better by 2001 but still not acceptable.11 Poorly treated high blood pressure causes stroke and heart attacks; keeping it under control with medicine reverses those risks. Almost half of U.S. patients with hypertension are not treated, and only 23 percent are well controlled.12 When Dr. Elizabeth McGlynn of the Rand Corporation published a 2003 report on preventive care in the New England Journal of Medicine, the media took notice.13 Unlike other reports, this one had a national purview and obtained its data by starting with a random selection of patients rather than a selection of doctors’ offices that could skew its findings. Dr. McGlynn’s study incorporated all diseases, all patients, and all types of preventive care in the clinic and has been accepted as an accurate measure of the quality of medical practice around the country. According to the report, in twelve U.S. metropolitan areas, 13,000 people received only 55 percent of recommended care when they went to the doctor. Extrapolated, these findings could account for 211,000 preventable deaths per year from diabetes, hypertension, heart attacks, pneumonia, and colon cancer and more than 30,000 from blindness or kidney failure.14

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The quality of medical care does not respect the source of payment. Uninsured and Medicaid patients have less access to care than do Medicare and privately insured patients; but when they go to the doctor, all four groups, regardless of race and economic status, have about the same 54 to 57 percent chance of getting recommended care.15 The United States ranks last among industrialized countries in its percentage of low-birth-weight infants and infant mortality, but I have never known whether the fault was just lack of insurance or also the effect of poverty. When infant mortality was examined among states, an increase of only one primary care doctor per 10,000 people was associated with a 2.5 percent reduction in infant mortality and in low birth weight. Poverty is a hard thing to fix, but there is strong evidence from several studies that access to primary care mitigates the effects of poverty on health of patients of all ages.16 Irrespective of other factors, the United States looks bad on international comparisons of deaths from diseases that are preventable or treatable by primary care such as asthma, pneumonia, and cardiovascular disease, even when adjusted for the effects of factors such as wealth and smoking. In 1998 the U.S. mortality rate from thirty-four such diseases was sixteenth among nineteen industrialized countries, whereas Canada ranked fourth. By 2003 the United States had dropped to dead last in international rankings of deaths that can be prevented by primary care.17

Practicing Medicine Backward A higher concentration of primary care doctors in a community lowers the mortality rate from chronic diseases and helps prevent illness, but a higher concentration of specialists has no effect on mortality rates.18 Primary care doctors prevent disease when they can and manage it to avoid flare-ups when they cannot. These results are corroborated by stateto-state comparisons of treatments for pneumonia, diabetes, heart attacks, breast cancer, heart failure, and stroke. A study of Medicare beneficiaries for 2000 and 2001 examined twenty-four measures that either prevent or treat these diseases.19 They included immunizing elderly patients against pneumonia before they leave the hospital, administering drugs within twenty-four hours of a heart attack to decrease risk of death, instituting eye examinations for

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diabetics every two years to detect eye disease before it becomes untreatable, and discontinuing after hospital admission certain heart medications that can make a stroke worse or fatal. All twenty-four measures are inexpensive, safe, and highly effective; and all require a doctor to order them. In some states 95 percent of patients received them, in others only 11 percent. Low-population states and the northeast ranked the best; high-population states and the southeast consistently ranked the worst. What can possibly explain why only 58 percent of Alabamans but 86 percent of New Hampshire residents ever received a drug that reduces the mortality from a heart attack by 15 percent? A second group of investigators decided to find out. They designated states with high quality of care as those in which patients received a high percentage of the twenty-four life-saving treatments. A ranking of 1 designates a state in which a high percentage of patients received the twenty-four measures; a ranking of 51 is where this measure of quality is lowest. The relationship between quality and spending was a straight line—in the wrong direction. The highestspending states provided the poorest care, low-spending states the best care. Figure 8.1 shows the results.

1

Overall quality ranking by state

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NH VT ME UT ND IA WI CO CT 11 CA MN NE MT DE MA HI RI VA 21 SDWA AT IO NC NY MI MD IN MO AZ KS 31 PA SC AK WV NV NM CH TN 41 KY FL AL NJ CA IL OK AR LA TX 51 MS LA 3,000 4,000 5,000 6,000 7,000 8,000 Annual medicare spending per beneficiary (in dollars)

FIGURE 8.1 Relationship between quality and Medicare spending as expressed by

overall quality ranking, 2000–2001 Source: Katherine Baiker and Amitabh Chandra, “Medicare Spending, the Physician Workforce, and Beneficiaries’ Quality of Care,” Health Affairs Web Exclusive, April 7, 2004, www.healthaffairs.org. Reprinted by permission of Project HOPE/Health Affairs.

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The composition of the physician workforce explained 42 percent of the variation among states. The quality of care was better and the cost of care cheaper in states where more primary care doctors practiced. High-spending states were home to more specialists who ordered more tests and treatments at more expense but failed to provide simple measures to prevent disease. An increase in the number of primary care doctors in a state by 1 per 10,000 residents increased a state’s overall rank by ten places; the same increase in specialists dropped the state’s ranking by nine places. The specialists provided procedures, and the primary care doctors provided prevention.20 In the medical industry, more spending does not buy better health care, just more health care.

A Few Sick People U.S. medicine has badly apportioned its resources, and it should turn its attention to high-cost patients. Health spending is concentrated on a few people: 5 percent of patients account for 50 percent of health spending, 10 percent account for 70 percent of expenditures.21 Doctors can readily predict who these big spenders are. They are not necessarily the elderly; they are the chronically ill. In fact, fewer really elderly people are disabled today, and their dying process costs less than that of sixty-five-year-olds: they do not linger. While 70 percent of those over age sixty-five have more than one chronic condition, 50 percent of middle-aged adults do also.22 The cost of care skyrockets as the number of chronic conditions increases. In 1999 the per capita cost of care of Medicare patients without chronic conditions was only 211 dollars, while for those with four chronic conditions it was 13,973 dollars. Lung diseases, heart disease, and diabetes account for the majority of Medicare spending; yet their management is grossly uncoordinated in the United States.23

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9 Dangerous Hospitals

A hospitalized patient has a vastly greater chance of being the subject of a medical error than of having his bag misplaced by an airline.

Poor management of medical resources is not only expensive but dangerous. In 1999 the Institute of Medicine published To Err Is Human, a landmark book based on a study of medical errors.1 The institute concluded that medical errors in hospitals kill between 44,000 and 98,000 people per year. According to the authors, this number of deaths is equivalent to the death toll from the crash of one jumbo jet per day, making medical error in the United States the fifth-leading cause of death (if we apply the larger estimate of victims). They also concluded that the primary problem was not bad doctors but bad systems. The Institute of Medicine’s conclusions were based upon studies that reviewed the medical records of 30,121 patients in New York in 1984 and 15,000 patients in Colorado and Utah in 1992.2 While these figures were old when To Err Is Human was published in 1999, everyone believed that they had remained accurate, although critics argued that the numbers were inflated because some of the patients would have died anyway—cold comfort to the patients.3 As a consequence of this study, the institute set a five-year goal of reducing death from medical error by 50 percent. Though there has been some progress from voluntary programs, no one believes that this goal has been met.

Errors of Omission, Lapses in Quality The Institute of Medicine based its conclusions upon studies that primarily examined errors of commission—that is, of doing something wrong. 77

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It did not calculate the results of errors of omission—the failure to do something needed. In a hospital, an error of commission might be a blood-stream infection caused by inserting an intravenous line or giving a patient the wrong dose or the wrong medication. An error of omission might be to fail to recognize that a patient is getting into trouble from a blood clot in the wound after surgery or failing to prescribe a medication to prevent a second heart attack at the time of the patient’s hospital discharge. In the most recent systematic data on hospital error, investigators who added the number of errors of commission and omission estimated 2004’s preventable death toll at 284,000.4 If this is true, then error in hospitals is the third-leading cause of death in the United States behind heart disease and cancer. In 2007 the airline industry reported a rate of misplaced bags of 7.93 mishandled bags per 1,000 passengers, increased from 3.84 bags per 1,000 passengers in 2002. In 2007 the Institute of Medicine estimated that hospitalized patients are the subject of one medication error per day—and medication errors are just one kind of error.5 A hospitalized patient has a vastly greater chance of being the subject of a medical error than of having his bag misplaced by an airline.

Financially Unstable and Particularly Dangerous In all the hospitals where I worked, safety fluctuated with the hospital’s financial status. It was always worse when the books did not balance. When hospitals are financially distressed, operational procedures break down. There is little in the literature to back up this statement, but experience bears it out. When hospitals are under financial distress, they invariably lose their regular nursing staff because one of a hospital’s first reactions to a budget shortfall is to force nurses to double up on the number of patients they care for. (More than half of a hospital’s cost is for personnel, mostly nurses, so labor costs have to be cut.) When this happens, regular nurses quickly burn out because they are overworked and feel they cannot do a good job for their patients. Then regular nurses are replaced with temporary nurses or new hires. My colleagues and I always dreaded working with temporary nurses because they did not know the hospital’s procedures.

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The medical literature has established a clear relationship between patient mortality, low nurse-staffing levels, and deficient nursing education.6 High personnel turnover in hospitals is literally the kiss of death. I have seen many examples of the relationship between hospital safety and financial instability. For instance, in my years as service chief I always insisted that any patient who underwent neurosurgery go from the operative suites to our special neurosurgery ward. The nurses there were trained to watch out for postoperative complications, were familiar with the surgeries and the surgeons, and were attentive to the patients when they were most vulnerable—the night after surgery. We worked hard to develop an effective team. During the 1990s, at a period of financial upheaval related to managed care, our neurosurgery floor fell apart. The number of nurses on our ward was cut in half without a reduction in the number of patients. Nurses were laid off throughout the hospital in order to save money. Experienced nurses left because they were overworked, and empty positions were filled with temporary employees who were hastily oriented to the hospital’s procedures. In order to keep all beds full, the hospital administrators directed the nursing staff, without the doctors’ knowledge, to fill vacant beds on any surgical ward (for example, neurosurgery, orthopedic surgery, general surgery, or plastic surgery) with any surgical patient regardless of whether or not that ward specialized in postoperative care of that particular patient. The surgeons were all anxious during this period, and with good reason. One day I operated on the neck of a lovely elderly woman. After surgery, she was sent to a ward not used for neurosurgery patients. That evening when I began to make rounds, I failed to find the patient on the neurosurgery floor, which was now filled with patients from other services. I discovered her and her family comfortably settled into a room in another area of the hospital. She was at low risk for problems; she seemed to be doing well, and our ward was full. There was little choice but to leave her there. Sometime during the night a temporary nurse injected a drug for nausea into an intravenous line, and the drug leaked through the vein into the tissues of her arm. Immediately the patient complained of excruciating pain in her right hand, which during the next hour became darkened. During most of that same night I was in the neuroscience ICU on the floor below with another patient and was never notified of this emergency.

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The temporary nurse twice paged the wrong doctor, who was not available to answer; then the nurse gave up. The patient remained in agony all night as the blood vessels to her hand constricted and finally closed off. By morning when I saw her, her right hand was dark blue. Only her little finger was spared. As I walked in, her husband said to me without anger but with great disappointment, “Dr. Clifton, where were you? They could not find you all night.” A quick response would likely have saved her hand, and he knew that. She left the hospital with only her little finger connected to a sliver of hand that projected like a pencil from her wrist, a bizarre and useless appendage. Disgusted, I moved my regular practice to another hospital for two years, returning only when there was enough money for the hospital to have put its systems back into order. Hospitals are at their best when they function like military operations, with rules that are followed, provisions for the unexpected, and advance planning. A doctor or nurse never knows when a critical piece of equipment, a supply, or a medication will be needed immediately. Human bodies do not behave like machines; their responses to injury, illness, and surgery cannot be perfectly predicted. For these reasons a hospital only functions safely if its staffing is adequate for the inevitable ebbs and flows of patients’ needs, if its staff is trained, if its facilities are sufficient, and if its rules are followed. In financially unstable hospitals patients may lose more than their hands. Stories such as the following are not unusual when hospitals are overloaded.

M & M at Bayview Dr. Simon Brown had been the personification of order at both the Episcopal and Bayview County Hospital. The recent death of Juan Olivas, an uninsured man who died of untreated heart disease, was fresh on Brown’s mind when he attended the monthly morbidity and mortality conference at Bayview. All surgery training programs have morbidity and mortality conferences, usually referred to as M & Ms. At these conferences all deaths in the hospital and all hospital-acquired complications of management are reviewed. One purpose is to teach staff members who may have erred as well as other attendees; the other is to prevent morbidity and mortality in

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the hospital by exposing system problems. M & Ms have been likened to confessions in church. We all feel better when we have gotten our sins off our chest, have been forgiven, and can go on about our business. M & Ms are usually held monthly and are closed to everyone, including nurses, except for doctors in training and the staff doctors who are doing the training. At a good M & M, blame is assigned, usually to one doctor. To this day I vividly remember presenting the surgical complication of a patient I operated on as an intern before a group of white-coated attending doctors. M & M proceedings are usually closed so that hospital staff do not misunderstand or openly repeat what is said or quietly call a malpractice attorney, who might then contact the family of the patient under discussion. They are generally held in a cramped, windowless room so that X-rays are easily visible and with fewer than twenty attendees who all know and depend upon each other’s integrity. Usually the junior residents present cases. In this case the senior resident presented, so Brown wondered what was up. “This is the case of a twenty-year-old white male who was struck by a car when he was crossing the street at Wheat University at 7:00 P.M. on Friday.” Wheat University was an exclusive private college only a few blocks from Bayview. Entrance requirements were high, and the students had brainy reputations. Brown’s daughter had graduated from Wheat the year before. The resident continued, “The patient was brought to the Bayview ER from the scene by city EMS. After evaluation his only injury was a skull fracture. He was confused but alert. His CT scan showed only mild subarachnoid hemorrhage.” Subarachnoid hemorrhage is the presence of tinges of blood in the spinal fluid spaces in the brain and is found on CT scans of 80 percent of trauma patients. Its only significance is that it is a sign that the brain has been jostled around in the skull. “The patient was admitted to SICU for observation.” The surgical intensive care unit (SICU) was reserved for patients with injuries of the chest, abdomen, and extremities. Patients with head injuries were always to be admitted to the neuro ICU (neuroscience intensive care unit), where they could be watched by nurses with special training. This patient had been admitted to the wrong unit.

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Brown interrupted the resident: “Tom, why was he admitted to SICU instead of neuro ICU?” The resident responded, “Dr. Brown, we had patients stacked up in the ER Friday and Saturday night, and the only ICU bed in the house was in SICU when this patient was admitted.” Brown nodded, and the resident continued, “The patient was alert and disoriented until about 3:00 A.M. and then became very agitated. Our on-call resident was called by the nurses who had restrained the patient, and the resident ordered Versed for sedation.” Versed is a sedative that makes a patient drowsy and therefore easier to manage if he is agitated. But before giving a sedative for agitation, the cause of the agitation should be determined. The most likely causes of agitation after a brain injury can be the mental confusion from the brain injury itself, a lung problem resulting in insufficient blood oxygen, or a developing blood clot that compresses the brain. A sedative can only be safely given to a patient with a brain injury if the cause of the agitation proves to be confusion from the brain injury itself and not decreased oxygen in the blood or a developing blood clot. The latter two are fatal unless their primary cause is treated. The patient should have had a CT scan of his brain and an assessment of his blood’s oxygenation to diagnose the cause of the agitation rather than being given a sedative. The chief resident continued, “On Saturday morning rounds the patient was noted to have unreactive pupils and would not move to sternal pain.” This examination describes a deep, usually fatal coma that everyone at the conference knew could only be from a structural problem in the brain or lack of oxygen to the brain. It was not the effect of the sedative. The young college student had become agitated because of a blood clot developing between his skull and his brain. The nurse and the on-call resident had misjudged the situation and worsened the problem by sedating the patient. Tom continued, “A CT scan showed a large right-sided epidural hematoma with shift. Neurosurgery was called. The patient was taken to the OR and then admitted to the neuro ICU but was declared brain-dead the next day.”

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Tom, the chief resident, had described a very large blood clot compressing the brain that had been recognized and removed much too late. It was disturbing that this had happened not only in the hospital but in a hospital ICU, whose central purpose includes early detection of complications in vulnerable patients. It was clear to everyone that if the patient been in the neuro ICU, the nurses there would have contacted the neurosurgery resident on call when the patient became agitated, a CT scan would likely have been ordered, and the patient would have been promptly taken to surgery. On the neurosurgery service everyone knew that an agitated patient probably meant a developing blood clot. In the SICU, where there were normally no patients with head injuries and half the nurses were temporary nursing staff, no one understood this distinction. Brown’s next question was “Who would give Versed to a patient with a brain injury who was under observation?” Tom covered for his junior resident, who sat in the back of the room wanting to crawl under his chair. “Dr. Brown, on the night this patient was admitted I was in the OR or the ER all night and the junior resident never left the ER. We did not have enough ICU beds in the hospital, and we could not even clear the trauma rooms in the ER fast enough to make room for the next patient. It was like we were the only trauma center in town. We should have evaluated the patient at 3:00 A.M. and done a CT then rather than sedating him, but we could not physically leave the other patients to evaluate him.” In fact, most of the other trauma centers were on diversion that evening. In the midst of the warlike scene in the overburdened trauma room, a patient who became agitated in an ICU was prioritized as a common and insignificant problem. Everyone knew that, with the closure of so many emergency rooms in Los Angeles, patients with lesser injuries that could have been cared for in the nearest emergency room were all being shipped to the trauma centers. The residents on call during the night were faced with an impossible task. At this M & M there were no accusations. The resident’s mistake was acknowledged. The nurse’s mistake was not worth bringing up; a nurse only lasted on average about one year at the hospital anyway. The two residents

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were among the best in the program. The system’s problems were beyond solution. Brown said nothing more.

My Experience with Error My observations about error and its prevention come directly from my experiences as chief of the neurosurgery service in three hospitals during more than thirty years of practice. In this capacity I was responsible for investigating any error involving a staff neurosurgeon. Although I worked constantly with hospitals and medical schools to keep them as safe and efficient as possible, my efforts yielded only temporary improvements. Safety and quality were rarely institutional priorities, and I reached several conclusions: ■

Financially unstable hospitals are dangerous places.

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Error is the product of a series of misjudgments and failures.

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Hospitals put little money and effort into error prevention, and they differ widely in their approach to error.

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Medical malpractice suits have almost no effect on a hospital’s policies toward error, but adverse publicity has a galvanizing effect.

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The use of information technology (computerized data management) in hospitals is years behind its use in other industries, and that absence is a setup for error and a barrier to its reduction.

System Failure Error is the product of a series of misjudgments and failures. One major contribution of the Institute of Medicine study has been its success in shifting our thinking about error in medicine from the concept of individual blame to one of institutional failure. I agree with the physician leader who has said that “good people will routinely be defeated by bad systems, no matter how well-meaning or hard-working they are.”7 Over the years, I have investigated any number of errors involving surgeons, and I have lived with my own mistakes. In every case, a series of mistakes or mischances permitted the final error to occur. In one case an experienced and dedicated surgeon, a close personal friend, performed an emergency procedure to remove half of a young

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woman’s skull in order to relieve pressure in her brain after a severe stroke. The patient was deteriorating rapidly and was rushed from the intensive care unit to the operating room. The surgeon hastily left one operating room and immediately started this case in an adjacent one. CT scans of the brain are displayed on an X-ray view box in the operating room so that the surgeon can evaluate what he is seeing at surgery. In this case one of the operating-room staff put up the films backward. The only way the surgeon would have known about the error was to notice that the small print on the films had been reversed. But although the images were visible from across the room, the print was not. In the rush to relieve the pressure and save the patient, the surgeon removed the skull on the wrong side and did not find out about the mistake until the patient was back in the ICU. Nothing seen at surgery would have indicated to the surgeon that anything was amiss. When the patient’s family members learned about the error, they sued the doctor and were later paid, although the patient did not suffer any ill effects. Removing the bone, even in the wrong spot, did relieve the pressure. The error was the surgeon’s, but the failure was also procedural: everyone should routinely stop before the skin is cut to double-check the correct side of surgery (right or left) and the location (front or back). A thirtysecond pause so that everyone in the room could check the X-rays and the records would have prevented the error. But this double-check procedure was not implemented in the hospital for another three years—not until the federal agency that regulates hospital functions required it. I conclude that only external forces will compel hospitals to reduce error, and the two most effective are government regulation and public reporting. In another case a young woman with a broken neck was admitted on a very busy Saturday afternoon. The patient’s spinal cord was not injured, and she had a normal physical examination, her only complaint being neck pain. A device that looks like ice tongs was attached to her skull, and weights were then attached to the tongs by a nylon rope, pulling on the head to keep the neck straight and immovable. Although the preliminaries were all properly managed, the patient was admitted to the general surgery ICU instead of the neuroscience ICU, a step necessitated by that day’s heavy emergency traffic. The neurosurgeon who attended the patient was in either the operating room or the neuro ICU with one

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patient after another all day and night until Monday morning, when he finally saw her again. On Monday morning, he found the patient quadriplegic. The bones in her neck had moved sometime over the weekend, compressing the spinal cord, a fact that no one had noticed for twentyfour hours; she was permanently paralyzed. The surgeon’s error was that he did not see the patient Saturday evening and Sunday when the problem could have been identified early and corrected. He also did not sleep Saturday night because he was operating. The hospital’s system error was that the patient was admitted to the wrong ICU because the hospital was overloaded. Had the patient been admitted to the neuro ICU, where she was supposed to be, the surgeon would have monitored her throughout the weekend because he was either there or in the operating room almost continuously. The nurses in the neuro ICU were used to the neurosurgical regime and would likely have quickly detected the change in the patient’s neurological status when it could have been reversed. The only change made as a result of this error was that we established a backup call schedule in case a weekend got too busy for one surgeon. The basic problem of overloaded trauma hospitals continues in many trauma centers, and there are innumerable examples of related or comparable errors. I knew and worked with both of these doctors, and they were responsible, caring, and proficient. They made mistakes, and the people that worked with them made mistakes. This will happen. The errors, however, could be prevented or diminished if doctors and hospital administrators emphasized error prevention and designed systems to reduce mistakes and complications. The lack of consistency and will is the problem.

Indifferent Hospitals Hospitals put little money and effort into error prevention, and they differ widely in their approach to error. Some hospitals where I worked were much more serious about quality and error than others were. National data now show what is described as a “quality chasm” between the best U.S. hospitals and the others.8 A mistake I never made (and always feared) was to operate on the wrong patient or on the wrong side of the right patient. Doing so inadvertently

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is easier than might seem possible but nevertheless is rare. The specialties where this error is most likely (in decreasing order) are orthopedic surgery, general surgery, neurosurgery, and urologic surgery. Wrong site and wrong patient surgery are uncommon errors but ones without defense.9 Yet only in 2004, when the accrediting body for hospitals, the Joint Commission on Accreditation of Healthcare Facilities, required hospitals to institute procedures to eliminate wrong site, wrong procedure, and wrong patient surgery, did anything happen about this phenomenon throughout the hospital industry. Before the Joint Commission mandated standardized procedures, I observed very different attitudes among hospitals about this well-known problem. Before patients are brought into the operating room and put to sleep, they lie undressed and covered with thin sheets on wheeled gurneys lined up side by side in a holding area. Here a nurse asks each person who he is and matches the answer against the bracelet on the patient’s arm. The patients are also quizzed about what surgery they are having and who is going to perform it. In one hospital where I worked, the patients would not be wheeled back to the operating room until the surgeon had personally talked to the patient, confirmed that this was the correct patient, and confirmed the procedure with both the patient and the nurses. Deliberate confirmation before the patient is allowed into the operating room is the proper procedure. Just down the street in another hospital, the patient would be anesthetized and positioned before the surgeon ever saw the patient, and the procedure was never confirmed with the surgeon. At this hospital one of my patients had a near miss. She was rolled into the wrong operating room and was then told that Dr. Jenkins was ready to perform her surgery. Despite sedation she was able to ask for the identity of Dr. Jenkins since Dr. Clifton was supposed to do her surgery. Had she been too sleepy to answer, I think she would have had a knee operation rather than the warranted back operation. Years later, the patient still has flashbacks of the event.

Poorly Targeted Lawsuits Medical malpractice suits have almost no effect on a hospital’s policies toward error, but adverse publicity has a galvanizing effect.

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Medical malpractice lawsuits have three purposes: (1) to punish the offender, (2) to compensate the victim, and (3) to reduce negligent error. In practice, lawsuits punish as many non-offenders as offenders, do not compensate most of the victims of medical negligence, and have almost no effect on the safety practices of hospitals. Only 3 to 5 percent of negligent injuries result in claims, and 37 to 83 percent of claims do not involve errors.10 Plaintiffs’ attorneys think that they police the medical industry. Just before the Texas legislature passed a law that capped the damages that could be awarded to a patient in a medical malpractice suit, an acquaintance who is a prominent plaintiff’s attorney told me angrily, “If they do this, the hospitals and doctors will just do anything because there are no consequences. They won’t care.” He was, however, wrong. The doctors and the hospitals are not much more or less careful about avoiding error based upon their exposure to litigation. Because negligence rarely results in a suit and claims and judgments occur with about equal frequency when there is a bad result, whether or not there has been an error, hospitals and doctors simply view lawsuits as a cost of doing business, although one to be avoided. The only proven way to avoid a patient’s lawsuit is for a doctor to spend considerable time talking to the patient and her family. The only proven way to reduce the chance of losing once a lawsuit has been filed is to have documented beforehand everything said or done to a patient. But the best way for a doctor to avoid being sued at all is not to be the one who taking care of a patient with a bad treatment result. One approach is to avoid operating on patients who are at high risk of complications—to let someone else do it. The problem for doctors and hospitals is that no matter how careful anyone is, there is an irreducible rate of bad results and complications. Despite my years of experience and a concerted personal effort to perfect my operations, 2 percent of my patients had a surgical complication—about four patients per year. My risk of lawsuits lay with those four patients, and there was nothing I could do to mitigate that risk other than to talk with them beforehand and carefully document that I had discussed possible problems of surgery. Doctors react to the threat of lawsuits by avoiding patients who are likely to have a bad result—just the patients who most need a good

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doctor. But hospitals cannot avoid really sick patients, so they just accept the inevitability of suits. Lawsuits are blunt instruments, and their cost to a hospital is manageable; therefore, hospitals have no financial justification to expensively reengineer processes and practices to avoid being sued. This means that the role of the legal system in error prevention in medicine, particularly in hospitals, is negligible.

The Galvanizing Effect of Publicity What does bring about quick changes in hospital procedures is the threat of publicity. In one hospital where I worked, we constantly battled infections in our large intensive care unit. The patients were comatose, and the pneumonia rate was 60 percent. Academic hospitals began to compare their infection rates, and we found that some had reduced their pneumonia rates to levels that were low in comparison to ours. A consortium of businesses in Houston learned this information, and we were told to expect our mortality and infection rates to be published in the local newspaper with comparisons to national benchmarks and other hospitals in the city. At about this time the hospital assigned a nurse and an infectious disease doctor to work in our neuroscience ICU to assist us in lowering our infection rates. They watched our procedures; cultured our hands, noses, and equipment; and monitored our adherence to standard protocols such as hand washing. They then provided regular reports on both infection rates and our adherence to procedures. Infection rates dropped as attention was called to the problem: it was only the threat of publicity that led the hospital to allocate these resources (temporarily). This observation bears on a key policy change that I will recommend to improve hospital quality—measure it carefully and publicly report it regularly. Medicare has already made a good start with its “Hospital Compare” website.

Primitive Technology and Loose Systems The use of information technology (computerized data management) in hospitals is years behind its use in other industries, and that absence is a setup for error and a barrier to its reduction.

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Each patient in our hospital had a paper chart. When we arrived on the ward for rounds, these charts could be in the patient’s room, at the nursing station, with another doctor, or misplaced. Doctors, nurses, and therapists wrote their notes, often unreadable, in longhand. A doctor in a hurry sometimes simply issued a verbal order, later recorded by a nurse. I did so many times. Each doctor and nurse who came on duty had to either read these notes or talk to someone to understand the patient’s issues. Such are the antiquated systems used in most hospitals. Nothing could be more conducive to error, and such methods cannot be replaced soon enough. Although nearly one-quarter of hospital chief information officers (CIOs) report they have fully operational electronic medical records and another 40 percent say they have signed contracts for such services, I am skeptical about the accuracy of such self-reported data in the absence of good definition of a fully operational electronic medical record.11 How many hospital CIOs would say that they either do not use or have no plans for a fully operational electronic medical record? The hospital industry is a long way from replacing paper records. Figure 9.1 shows a typical handwritten patient progress note. Doctors and nurses record the details of a patient’s medical progress daily. The notes are handwritten and often cannot be deciphered, as in this example. Interpreting these illegible notes becomes important in the event of a lawsuit. The usual rule in such suits is that if it was not recorded, it did not happen. Progress notes thus serve two purposes—communication among medical staff and their legal protection—so they can be lengthy. The problem is that they do not perform either function very well. I know from working in hospitals that serious medication errors occur every day, and they are largely preventable with information technology and attention to the problem. In the course of writing this chapter, I was called by a Houston hospital representative about the case of an elderly woman who was given another patient’s blood thinner. The result was a fatal brain hemorrhage. The representative asked, “Could the hemorrhage have happened anyway?” I advised the hospital’s legal department to settle. Such experiences are ubiquitous in all hospitals. Twenty percent of all complications in hospitalized patients are from medications, and almost one-third of these are preventable. The estimates of preventable

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FIGURE 9.1 Typical handwritten patient progress note

Source: Anonymous hospital record, 2006.

medication errors in hospitals range from 380,000 to 450,000, but the Institute of Medicine committee that released the 2006 report “Preventing Medication Errors” believes these numbers to be underestimates and has concluded that a hospitalized patient can expect to be subjected to more than one medication error each day.12 Preventable medication errors occur most commonly during administration of the medication, frequently because the nurse or pharmacist misreads a written

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order. Once the medication is given, errors result most commonly from the wrong dose. When physicians enter their medication orders on computers, the rate of serious medication errors is reduced by 50 percent.13 Computerized physician order entry is the industry term for a medical staff’s use of computers to order medications and treatments. In a technique pioneered by the Veterans Administration, bar codes match the medication dose to the patient. The nurse administering a medication then matches the medication bar code to a bar code on the patient’s wrist bracelet. According to one Veterans Administration hospital, when bar codes are combined with computerized physician order, medication errors are reduced by up to 75 percent. Still, the matter is as much about culture as about tools: with structured attention to medication errors and without information technology, harmful medication errors were reduced eightfold in one community hospital.14 The medical industry suffers from lack of a clear vision or standard for what a fully integrated information system in a hospital should look like and how it could be integrated with clinical practice. As I will discuss, there is no business case for the use of information technology because of the way in which hospitals are paid. For these reasons, use of that technology among various hospital departments varies widely. For instance, most hospitals record the results of blood work from their laboratories electronically because information systems naturally integrate with laboratory machinery. Integrating information technology with people is a more arduous task, so other hospital departments are less likely to employ it. All hospitals have incorporated computerized billing systems for years: collections are a priority. When strict criteria are applied, only 5 percent of U.S. hospitals have fully implemented computerized physician order entry, eliminating handwritten orders such as those in figure 9.2. About one-third of U.S. hospitals are believed to have adopted some form of electronic medical records. Nonetheless, the charts in three-quarters of doctors’ offices and at least two-thirds of hospitals look like the handwritten progress note illustrated in figure 9.1.15 Figure 9.2 shows a typical physician handwritten order sheet. The only way to know who wrote these orders is to be familiar with the doctor’s

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FIGURE 9.2 Typical physician’s order sheet

Source: Anonymous hospital record, 2006.

signature. Note the printed phrase at the bottom instructing physicians to print their name and pager number under each order. Note that these instructions were ignored. This kind of technology makes the old joke about a doctor’s handwriting no joke at all.

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10 Violation of Dignity The End of Life

Given everything else wrong with U.S. healthcare, it is not surprising that patients have no more than an even chance of having their wishes respected at the end of life.

Not only are patients’ rights at the end of life often violated, but money is also wasted. Indeed, at least a quarter of Medicare costs are spent on the last year of life.1 This in itself is not necessarily a bad thing, but how the money is spent is another matter. The manner of Ed Fitzsimmons’s death, the patient we met in Chapter 8, illustrates the point. Shortly after Ed suffered his heart attack in the Episcopal’s ER waiting room, his breathing became so rapid that a tube was put into his airway and a ventilator attached, and he was rushed to the cardiac ICU. Elaine Fitzsimmons suspected then that her husband was dying. The doctors in the ICU took three-day rotations. Dr. Parsons, the physician on duty when Ed arrived, was a fastidious person, so precise in speech, appearance, and bearing that even his expressions of concern seemed studied. He attended, even fussed, over every detail of management. After his first heart attack Ed had specifically told Elaine that he did not want intensive care if he could not come out of it with high odds of being able to walk outside and live without assistance. To be sure that his wishes were met, he had filled out a standard advance directive: “If at any time I should have an incurable condition caused by injury, disease, or illness certified to be a terminal condition by two physicians, and if the applications of life-sustaining procedures would serve only to artificially 94

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postpone the moment of my death, I direct that those procedures be withheld or withdrawn and that I be permitted to die naturally.” He assumed that this directive would clearly tell his doctors what he wanted. Unfortunately, advance directives are not specific documents and do not provide doctors with precise information. No reasonable person would wish to be kept alive if they were inevitably to die during a hospitalization, so the language in Ed’s advance directive told physicians only what they already inherently understood: that he did not wish to be kept alive if the prospect of recovery was hopeless. But left undefined were the terms prospect of recovery and hopeless. One person might want everything done, no matter the cost and consequences to his family, for a slight chance of high-functioning recovery, even when the downside is a very high chance of living in dependence, severely disabled. Another might view those odds with more horror than a certain death. Much depends upon how a patient views his life before the hospitalization and what he is willing to accept after it. Doctors mostly rely upon their own judgment and the wishes of the family in deciding on life assistance or its withdrawal. That judgment depends upon doctors’ views of life and death but also upon their habits of practice. Some doctors think about such matters and make careful individual judgments, but many simply apply technology by reflex. And Ed Fitzsimmons’s physician, Dr. Parsons, would not let anyone die on his service if he could prevent it. Under sedation and with tubes projecting from his mouth, Ed was mute. Nurses pushed his bed down to X ray day after day for new studies; more tubes each day exited his arms, mouth, penis, and chest. On the sixth day of Ed’s hospitalization, his fingers and toes had taken on a blue tinge, and the family requested a meeting with Dr. Parsons. “Well,” Dr. Parsons began, “he is not doing very well today. His heart failure is worse. We’re using high doses of dobutamine for blood pressure support. He has some peripheral ischemia. This is why his fingers and toes are cyanotic.” “Dr. Parsons,” Elaine interrupted, “do you really think that my husband can survive this?” “Well,” Parsons responded, “he is very sick, but we have to keep working to turn his heart around.”

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“But what are his chances, Doctor? We don’t know if he would want this,” interjected Jennifer Allen, the Fitzsimmons’s oldest grandchild. Dr. Parsons’s response was “His chances are not very good, but there is always hope. He could turn around.” Just as Parsons applied his skills without much thought for the consequences, he spoke with families without the ability to imagine himself in their place. Doctors vary in their ability to make value judgments. Most get better at such value judgments as they gain more life experience, but Parsons was not among them. His statements were technically true, if sometimes undecipherable. Ed’s condition at this time statistically yielded a probable survival rate of 5 percent. If he lived, his remaining cardiac function would permit only the exertion that walking around the house at a slow pace would afford. Parsons’s view was that this constituted hope, not to mention an opportunity for himself to use his considerable abilities. Family members did not know how to ask for the explicit detail that would have allowed them to make an informed decision, and Dr. Parsons did not volunteer it. But they suspected that Ed was dying, no matter what the doctors might do. Elaine took charge of the situation: “Let us talk about it among ourselves, Dr. Parsons.” After Parsons left, the family conferred with Ed’s nurse, who had attended the session. She told Elaine confidentially that Dr. Parsons never took anyone off life support and that the family was correct in the judgment that Ed was dying. The nurse explained the process of withdrawal of care and told them that he would probably live only a short time without the ventilator and the drugs, but he would not be in pain or suffer. The family spent two days comparing their observations of Ed’s physiologic state as they stared at the monitors. During visiting hours they made mental notes of his heart rate, his blood pressure, his response to medications. Each day brought worse numbers; and after a resigned family meeting and reassurances from his nurse that he was dying, the family simply asked the nurse to convey to Dr. Parsons their wish that the breathing tube be removed and the medications stopped. The scene was a common one in the ICU’s small pods: a family transfixed around a bed in suspense that each unnatural gasp would be the last. The older grandchildren were sobbing, having never imagined anything like this. The adults worked to bring

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dignity to Ed’s death by retaining their composure. Finally Elaine whispered to him, “Ed, let go, it’s all right,” after which he died. Ed Fitzsimmons, against his wishes, had expended more than 50,000 dollars in medical costs during the ten days of his ICU stay and had undergone a series of fruitless medical interventions that he did not want but was powerless to deny.2 From the moment his heart failure became so bad that he required a ventilator and his blood pressure so low that medications were required to support it, his outcome was certain. Ed Fitzsimmons’s stay in the ICU had consumed enough resources to provide health insurance for a year to thirty-three uninsured children. Had he been able to discuss his options with his physician in an office setting before his heart attack, the doctor would have told him that his heart disease was so severe that his likelihood of dying or needing a ventilator if he had another heart attack was 95 percent, with severely limited independence if he should survive. Ed would have responded that he wanted everything done up to the point of being put on a ventilator, but no more. The family endured ten days of gnawing anxiety and powerlessness that robbed their grief of peace and left unresolved doubt in the family. Whether they had done the right thing was a topic of family discussion for the next year.

Experiences in the Hospital The issue of managing ICU care at the end of life occupied my constant attention when I was chief of the neurosurgery service at Memorial Hermann Hospital, and my present attitude toward the problem developed out of that experience. Over the fifteen years of my practice in this hospital, the demographics of our patients changed. The use of seat belts, air bags, and more strict enforcement of driving-when-intoxicated laws decreased the number of severely injured youths that we admitted. The aging of the population, however, dramatically increased the number of seventy- and eighty-year-olds with brain hemorrhages. During many of these years we were regularly turning away emergency patients, old and young, because our beds were full. By 2003 I had developed a complete understanding of the region’s dysfunctional emergency services system, and every time we refused a patient I pictured what was happening in the little emergency room that had tried to refer the patient to us and also the

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responses of our sister hospitals as they, too, turned the patient down. I had either worked in or visited most of these hospitals and had spoken to the referring physicians many times, so the scenes in my mind were very specific. As the incidence of slowly dying patients in their seventies and eighties intersected with the crisis of the uninsured, my own emotional and ethical resources were taxed. The nurses almost always knew when it was time to stop treatment or when ICU care should not be started in the first place. Our nurses would often come to me, frustrated, when a doctor, often one of the younger ones, would neither stop care nor take the time to explain to the families that further care was futile. At our regular service meetings I would emphasize the need to clarify early decisions about withdrawal of care when care was futile. I would discuss how a doctor should talk frankly to a family. I would tell the doctors that they should recommend a course of action to the family and defend it, an approach that helps to relieve family members of guilt and dissension later. As soon as my attention turned to other matters, however, care of the terminally ill drifted back to its baseline state. There was a good reason: all of doctors’ financial incentives and training made it more natural for them to apply their skills than to take the time to help families work through emotionally difficult decisions at the end of life. Some of the surgeons were eager to operate and eager to cure. They were good at both. The families were always stunned in such emergencies, unable to absorb their potential loss. Conversations occurred hurriedly in the emergency room or in the cold, tomblike consultation room of the ICU. The matter would be presented to the family as “We have to perform surgery right away or your father will die.” In these situations, a family usually says, “Whatever you think, Doctor.” If families are told in understandable terms about the best and worst cases for disability, their response is usually “Oh, he would never want that.” Without this conversation, they typically embark upon the long road to a slow death. People who talk about this problem believe that an unreasonable public demands excessive care in the face of hopeless injury; yet the medical literature indicates that this happens in only about 4 percent of cases, and my experience is the same.3 I only remember three or four cases out of maybe a thousand that I managed in which a family insisted that we

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continue intensive care on someone who was hopelessly damaged for an indefinite period. It was usual for a family to want a day or two to think about what they had been told or to wait for a relative to arrive. In most cases the family would make the decision to withdraw care within hours, particularly in older patients.

No Personal Autonomy The problem here is not with the families. It is with the doctors, which should surprise no one. My observation is that doctors, or at least surgeons, have been drilled since medical school on not making mistakes, on death as the enemy, on the assumption that a bad result is the doctor’s fault except in the most hopeless cases. When skills are developed and the doctor is paid to employ them, what else is he to do? This attitude is one explanation for why the best of American medicine is among the best medicine anywhere. Doctors do not easily move from an ingrained lifesaving mode of action to the recognition that they have nothing to offer. Doing so is an acquired skill that some never acquire. In a life-threatening condition only the patient knows how much treatment she desires. When people who are not patients are asked if they would want life-sustaining treatment in the event of coma with the chance of recovery, 43 percent want treatment, and 15 percent want everything done even when the outcome is dementia.4 When 9,000 hospitalized patients were asked whether they were willing to live in a nursing home, slightly more than half were unwilling or preferred death. A family’s and a physician’s ability to predict patients’ wishes are no better than chance.5

The Failure of Advance Directives Advance directives are documents that make provisions for a patient’s wishes about medical care when the patient cannot communicate or make decisions. The directives try either to specify that the treatments should be proportional to the outcome or to designate someone to make health care decisions for the patient. In 1991 federal legislation mandated that hospitals receiving Medicare and Medicaid funds should determine whether their patients had or wished to have advance directives.

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By 1992 every state had some legislation legalizing advance directives, and such regimens are widely used. Yet for several reasons, advance directives have not had the hoped-for impact on end of life care. Many patients do not have them, or they get lost in the hospital.6 Their language is vague, and physicians do not pay attention to them. One-third of physicians say they will continue life support even when they know the patient does not want it, and the majority of physicians will decide on their own to withhold or withdraw life support if they judge it to be futile. Physician judgment is biased by the patient’s diagnosis or the physician’s own religious or ethical practice or lack thereof.7 Doctors, whether old or young, may professionally view death as the enemy. Like Dr. Parsons, they may feel they have in some measure failed if a patient dies on their watch. Young doctors may not have seen enough of life to understand that there are human conditions worse than death. Sometimes doctors make independent judgments about ending or continuing care out of arrogance, as a way of avoiding having to talk with the family or because they underestimate the ability of normal people to process medical probabilities. Biases about the outcomes of given diseases are common. I know many neurosurgeons who view a patient with a severe brain injury as a hopeless case, recommending withdrawal of care for patients whom I would expend all resources to save. But I have spent my professional career trying to improve the outcomes for patients with severe brain injury, whereas my colleagues who seldom care for such patients may only remember the vegetative survivors, not the ones who return to work. As a combined result of these complex and very human reasons, advance directives have not saved money.8

An Important Experiment A study called SUPPORT dispelled any illusions that money could be saved and patient autonomy preserved by encouraging doctors in hospitals to use intensive care more judiciously. By the early 1990s researchers had made the puzzling observation that death rates for the same conditions varied widely among U.S. hospitals. The corollary was that no one knew what the death rate for various conditions ought to be. Without measures that allowed prediction of terminal illnesses, researchers could not

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determine which hospitals were doing better jobs of managing patients. Permitting patients who were inevitably going to die to do so in the hospital rather than later in a nursing home after much care might accord with the patient’s wishes and be better medicine, but the practice would increase a hospital’s mortality rate. In many conditions a high mortality rate is bad; in the case of an inevitably terminal illness, it is not. For two years, eight SUPPORT investigators funded by the Robert Wood Johnson Foundation studied the outcomes and interviewed the families of 4,301 patients in advanced stages of nine diseases who were admitted to one of five large hospitals in different metropolitan areas. When someone’s heart or breathing fails in a hospital, the nurses must instantly “call a code” unless the patient has “do not resuscitate” (DNR) orders. When a code is called, a system is initiated that brings anesthesiologists, cardiologists, electrocardiogram (EKG) technicians, radiology technicians, and any nearby medical personnel running to the patient to conduct cardiopulmonary resuscitation (CPR). It is a frightening scene; the bed is completely enclosed by a white-coated horde thumping the chest, drawing blood, and inserting tubes. The SUPPORT investigators found that doctors wrote DNR orders for only half of the patients who did not want CPR if their heart or breathing stopped. Half of the patients’ doctors did not know their patients’ preferences. SUPPORT found that 38 percent of the patients who died spent at least ten days in ICU and that dying patients were in pain at least half of that time.9 The investigators then tested the effect of a program of educating doctors, patients, and families in order to improve management of lifesustaining treatments. Nearly 5,000 patients in the same hospitals were divided into two groups: control and intervention. For the intervention group, the investigators provided doctors with a statistical prediction of whether a patient would live in the event that intensive care was required. The investigators documented patients’ and families’ preferences on care and also educated families about prognosis and treatment options. Nurses working for the study organized these conversations. The control group was managed in the usual way without the extra educational activities. Surprisingly, the study found no difference between the groups in the number of patients who received unwanted CPR and intensive care as well as no difference from the original observational study. Of 479 patients in

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SUPPORT who lived through their first hospitalization and then died within six months, 81 percent wanted to die at home, but only about half got their wish.10 SUPPORT’s extensive on-site and real-time physician education had no effect whatsoever on physician behavior toward patients at the end of life. Reading between the lines of these scientific papers, I felt the investigators’ anguish. I think these researchers did not want to believe the results they were reporting but knew they were accurate.

Unwanted Intervention: Filling Empty Beds When the investigators at the Dartmouth Institute for Health Policy and Clinical Practice examined regional differences in Medicare spending for patients who were hospitalized with the diagnoses of hip fracture, heart attack, or colorectal cancer, they found that in regions with high bed counts 54 percent of patients died in the hospital. In regions with lower bed counts, 23 percent died in the hospital. Personal preference did not influence the place of death at all. Similar variation in end-of-life care is found even among the nation’s top hospitals.11 In many regions of the country, the only advantage of increased medical interventions applied to patients at the end of life goes to the doctors and the hospitals paid to perform them. There is a straightforward solution to the problem of unwanted endof-life care. Most patients who die suffer from chronic illnesses. Doctors can predict the proximity of death in such patients. The core principle is that end-of-life decisions must be made before hospitalization—in the calm of a physician’s office, in the presence of family, and with full information. If that decision is delayed until hospitalization or left to advance directives, then the patient loses control and becomes subject to inexorable, impersonal, technological intervention. Yet the devaluation of primary care in the United States has left most patients without a relationship with a doctor whom they would trust to engage in such a conversation. Thus, the twofold solution to the problem is (1) more primary care physicians who provide coordinated management of patients with chronic diseases and manage or coordinate end-of-life care and (2) alteration of medical practice so that doctors who manage patients help them make end-of-life decisions before they are hospitalized.

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11 Unnecessary Surgery

The filter for the application of new technology in the United States is ten doctors at Medicare’s headquarters in Baltimore and a scattered group of insurance doctors.

In my clinic I repeatedly saw unfortunate patients whose stories precisely matched this fictional one. Jennifer Allen’s story helps explain why there is such a thing as unnecessary surgery. Back trouble ran in Jennifer’s family, and she first began having midline low back pain when she was thirty. After this episode physical therapy had helped; but because of two young children and the boring routine of regular exercise, she had not kept up with her therapy. Her back pain grew steadily worse with frequent flare-ups, and her family doctor ordered an MRI. When the report came back showing bulging, degenerated discs, the doctor referred Jennifer to Dr. Raymond Alford at the Episcopal Hospital. Alford had the reputation of being one of the best neurosurgeons in town. After briefly examining Jennifer and then reviewing the MRI in his office, he came back into the small examination room and said, “Jennifer, you have a degenerative condition in the discs in your back, and the vertebrae are causing pressure. You are going to have back pain until we relieve the pressure. We do this by fusing the spinal vertebrae, which will stop the movement in your back. The disc bulges are also exerting pressure on your nerves, and we will have to remove enough bone to get the pressure off the nerves.” Alford detailed the procedure: “We will place metal screws about the size of your little finger on both sides of three of your vertebrae. The 103

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screws on each side will be connected by a rod so that nothing moves.” He showed her a plastic model of a normal spine, without the two pounds of hardware he would install, pointing with a pencil where each screw would go. “We will take bone from your hip and lay it over the vertebrae, and after about six months the bones will grow together. I think there is an 85 percent chance that your back pain will be much better, but there is a small chance you could be worse.” Jennifer considered the surgery for two weeks. Her condition did not sound good: pressure on nerves and degenerated discs. Finally, she called Alford’s office to schedule the procedure. Waking up after surgery, Jennifer knew that she had undergone a major operation. She was in agony; morphine barely took the edge off the pain. The next day she shuffled a few steps, wincing with each effort. After five days in the hospital she could feed herself, manage the bathroom, and circle the nurse’s station. Six months after the operation, Jennifer was still recovering. Even worse, the pain which had been intermittent before surgery was now constant. On her last visit to Dr. Alford, he dismissed her from care. Their relationship had become strained by her insistence that she was worse and by his counters that he had performed a perfect operation. When he spoke to her, he no longer addressed her by her first name. “Mrs. Allen,” he informed her, “I cannot do anything more for you. Your fusion is solid. Your X rays look fine. There is no reason to remove the hardware. You are just going to have to learn to live with some pain.” Tears welled in Jennifer’s eyes as she thought of the consequences of this judgment for herself and her family. She blinked them back and asked, “May I have something for the pain?” “Narcotics are not the answer here. I will refer you to a pain center. With biofeedback and injections I am sure you will improve over time.” The referral was made, and Jennifer now became a back cripple, dependent on narcotics, repeated back injections, electrical stimulators, psychological counseling, and pool therapy. She was able to raise her children, but her marriage became a hollow shell and gradually dissolved. She avoided sexual relations and focused her energy on two things: the children and managing her back pain. Her story, which is a common one, illustrates that surgery is sometimes better left undone.

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Potentially or overtly unnecessary surgery comes in two forms: (1) procedures of unknown benefit and (2) procedures of such marginal benefit that many fully informed patients would not choose them. Jennifer had no way of knowing a few crucial things. She did not know that a high percentage of people over thirty-five years of age have degenerated or bulging discs and evidence on imaging studies of some pressure on nerves, even though they have no symptoms. She had no way of knowing that fusion for degenerative discs without slippage of the spine has never been proven to improve back pain, although it is commonly performed for that reason. And she could not have known that this surgery is widely performed because it is a lucrative procedure for the providers. Dr. Alford’s fee from the insurance company was 8,000 dollars for the procedure, and he could complete an uncomplicated fusion in three hours, skin to skin. Alford was technically proficient; in fact, he had a low complication rate. His judgment had become clouded by the allure of money and the absence of objective data about the results of his work. In the absence of any evidence to the contrary, he never questioned the procedure’s effectiveness. In truth, he began to believe in it. As his identity and personal fortunes came to depend upon back fusion, he began to remember the good results and to forget the bad results. In any event he only followed the patients for the usual ninety days after surgery. Not only was his view of the benefits of surgery skewed because he saw only its short-term results, but he soon became incapable of objective judgment. As his complication rate improved with experience, he began to see indications for the procedure’s performance in more and more patients, which pleased the administrators of the Episcopal Hospital. The hospital made the performance of such procedures as easy as possible for surgeons. For Jennifer Allen’s surgery the hospital was paid 60,000 dollars, generating 9,000 dollars per case in profit. At a 16 percent profit margin, spine surgeries were second only to cardiac surgery in profitability and more than double the profit made by hospitals for non-surgical patients.1 The hospital had special wards with an increased number of nursing staff just for fusion patients, operating room time was made easily available for surgeons who did such procedures, and beds were always open. The hospital built new cardiac and orthopedic towers to better accommodate the surgeons and their patients.

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Jennifer also did not know that an equipment manufacturer paid Dr. Alford a generous “consulting fee” every time he placed the company’s hardware in a patient’s back. Although it is illegal for a manufacturer to pay a surgeon a kickback for implanting a device, medical device manufacturers have gotten around this law by paying so-called consulting or research fees to some doctors who implant their devices. It is difficult to distinguish between doctors who provide legitimate advice to manufacturers for which they are legitimately paid from those who receive payments as a legalized kickback. Alford was in the latter camp: he was paid for quickly completing a surgical opinion form that no one from the company ever looked at.

Reasonable and Necessary Because Medicare is the largest single purchaser of health care in the United States, every insurer follows its lead in the services it pays for and the rates it pays for those services. If Medicare refuses or agrees to pay for a procedure, almost every insurer in the country rapidly follows suit. Since the program’s establishment in 1965, Medicare coverage decisions have been based on section 1862(a)(1)(A) of the Social Security Act, which states that Medicare will pay for “reasonable and necessary” services. The program was enacted over the opposition of organized medicine, which feared government intervention in the practice of medicine and had threatened a boycott of Medicare patients. Therefore, since the program’s inception, federal officials have actively avoided any practice that could be construed to limit a physician’s ability to practice unfettered medicine. “Reasonable and necessary” simply means that any doctor can apply any treatment or device paid for by Medicare to any patient who wants it as often as both parties want it to be applied. Medicare and most insurers only deny coverage for a medical procedure when there is incontrovertible evidence that a treatment has no effect. Such evidence rarely exists because most procedures help some groups of patients and are then automatically assumed to help others. Only the treating physician can decide. And the cost of a procedure to Medicare is not a consideration. No one in government wishes to be accused of rationing care by the 41 million

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Medicare beneficiaries. As a result, almost all procedures have been approved by Medicare no matter how expensive, how marginal their contribution to health, or how inadequately they have been investigated. The Food and Drug Administration (FDA) must approve a device before it can be marketed, but this review is a device’s first—and usually last—point of examination. The agency’s standard of effectiveness for approving a medical device is not rigorous, requiring only that it be equivalent to other approved devices or shown to offer potential benefit in a single group of patients. Once a device is FDA-approved for any group of patients, the door is open to its wide promulgation. Spinal fusion is an example. The screws used in back fusion were approved in the mid-1980s for use in the tail bone or sacrum only.2 Though manufacturers can only market their devices for FDAapproved indications, once the agency approves a device for any indication, doctors are free to use it anywhere in the body for any patients they wish for any condition. After the FDA approved bone screws for use in the sacrum, manufacturers began to devise and promote similar devices for installation up and down the spine, and surgeons routinely began to apply them. By 1998 such devices were being implanted in thousands of patients each year for a wide variety of indications. Bowing to that fact, the FDA reviewed the surgical literature and approved the marketing of bone screws for use anywhere in the low back but just for patients with fractures and slippage of the spine. By slippage I refer to a condition in which the bones of the spine are not stacked one on top of the other but have slipped forward, one over the other, an uncommon condition that can either be congenital or degenerative. Fractures of the spine are even less common. In justifying its approval without requiring formal testing of effectiveness, the FDA stated that it was required to provide “reasonable assurance, not absolute proof.” What began as an important tool for use in a small group of patients with fractures and slippage of the spine has now become a multibillion-dollar business.3 Without benefit of proof, surgeons are now routinely performing back fusions with spinal screws for a wide range of indications other than fractures and slippage, and Medicare pays for all of them. In late 2006, I interviewed Dr. Steven Phurrough, director of coverage policy and analysis for the Medicare program at its Baltimore headquarters.

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Dr. Phurrough’s group determines which new medical procedures the Medicare program will pay for. I first explained to the doctor that I believed that about one-third of the procedures, tests, and hospitalizations done in medicine do not benefit the patients. He motioned with his upturned thumb and said, “I think it is higher.” Dr. Phurrough told me he wished he had more objective evidence to use in making coverage decisions. When his group had hard data that a procedure was effective in only one set of patients but not another, the issue then underwent a process of provisionary rule making and public comment. After that step, the procedure was approved for Medicare coverage only for patients in whom it was proven to be effective. But the doctor said that the availability of such information is rare. As a result, Medicare pays for most new procedures and treatments that are FDAapproved for use in any group of patients. But the review process that Dr. Phurrough described is limited in yet another way. The ten doctors and ten support staff of the Coverage Policy and Analysis Group in Baltimore are able to evaluate only about 10 percent of the new services that are devised each year. The other 90 percent are approved in regional offices by far less qualified people. Medicare manages its regional operations by contracting with vendors who process claims. The regional offices do not employ professionals skilled in reviewing new procedures; rather, they employ administrative staff. Ninety percent of Medicare’s coverage decisions are the result of reviews by the medical directors of these regional insurance vendors. If a procedure is approved by any regional office, it is usually approved by all others; and every insurer follows Medicare’s coverage and payment decisions. It is no exaggeration to say that the filter for the application of new technology in the United States is ten doctors at Medicare’s headquarters in Baltimore and a scattered group of insurance doctors.

Procedures of Unknown Benefit Many of the most expensive and common procedures in medicine have no proven value for numbers of the patients who receive them. Investigators at the Dartmouth Institute for Health Policy and Clinical Practice (the group that established the spending variations in different

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U.S. regions) have divided surgeries into those that are always indicated when they are performed and preference-sensitive surgeries whose use depends on the surgeon’s opinion and the patient’s wishes. While preference-sensitive surgeries are always valuable in some group of patients, their value in other groups is untested and unknown. Preference-sensitive procedures have another characteristic: their frequency of performance varies considerably among hospital referral regions. Procedures that are always indicated, such as surgical repair of hip fractures or removal of colon cancer, vary in frequency by a factor of two to four among regions. But in 2003 preference-sensitive surgeries such as heart bypass operations, knee and hip replacements, surgery for vascular problems of the legs, and prostate surgery varied in frequency among regions by factors ranging from four to twelve. Back fusion is among the most highly variable of procedures. For example, the frequency of performance of spinal back fusion varied by seven times more than the frequency of hospitalization for hip fracture among hospital referral regions in southern Florida.4 If there are best practices for these procedures, no one knows what they are. When I examined the costs of hospitalization in the United States for 2002, I found that the classes of procedures that the Dartmouth investigators consider to be preference-sensitive accounted for 18.3 percent of the total charges of hospitalization for all causes, and these are not the only such procedures in medicine. According to an estimate based upon a review of the medical literature and the cost of preference-sensitive surgery, as little as 4 percent and as much as 8 percent of U.S. hospital spending is for surgery that might be unnecessary or unwanted if patients and doctors were to have full information. In the absence of definite information about who does and does not benefit from a procedure, doctors rely on their own experience and judgment. Such conclusions can be colored by self-interest, limited by personal experience, and complicated by a lack of big-picture information, including an understanding of a problem’s natural history without the treatment in question. And sometimes surgeons like Raymond Alford just decide to get very busy. In areas where Medicare spending is high, concentrations of specialists hospitalize patients with chronic diseases, test them extensively,

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examine them in clinic often, and perform minor procedures on them. But regions where specialists abound and Medicare spending is high are not necessarily the same regions where major surgeries or surgeons are concentrated. A high rate of preference-sensitive surgeries in a region often indicates the presence of only a few surgeons rather than a community with many surgeons. This finding raises the question of just whose preference chooses preference-sensitive surgery. It is not likely to be the patients. As a surgeon faced with presenting facts to patients who were scared, hurting, and vulnerable, I came to understand the power of my tone and attitude. For all but a few patients, the tone I used in presenting a surgical decision determined whether or not they would agree to it. If I seemed reticent, patients rarely opted for surgery. If I seemed decisive, they were sometimes reluctant at first but usually agreed to undergo the recommended procedure. Patients who were unaffected by my tone were not only scared and hurting but also suspicious and confused, often having trolled the Internet and talked to myriad doctors. One surgical friend told me, “Why, I could convince a patient that I should cut off his head, and he would not know the difference.” This remark is only a slight exaggeration of a surgeon’s powerful influence on patient decision making.

The Spinal Fusion Epidemic Large-scale clinical trials that formally test a new or established procedure against a standard treatment may sound like a good solution, but the results of such trials cannot be applied by rote to every patient. After years of practice a doctor picks up subtleties by instinct or wisdom that no experiment could detect. But 95 percent of medicine is straightforward; no more than a few cases require artful management. Thus, the subtleties of medicine do not excuse or explain the extreme variability in how it is practiced. Spine fusion is a useful example of a commonly performed, poorly evaluated procedure that has unknown effectiveness in many patients. In 2005 spinal procedures accounted for 3 percent of all U.S. hospital charges, and the majority of these came from spinal fusion for degenerative diseases. Yet two recent reviews have concluded there is no objective evidence of the effectiveness of spinal fusion for degenerative changes of

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the back. In fact, the only two reasonably objective studies of fusion for low-back pain versus physical therapy came to opposite conclusions.5 Back fusion has been proven to make one group of patients with degenerative spine disease better: those with a mechanical slippage of the vertebrae in their low backs.6 Spinal fusions with hardware have been such a breakthrough in the treatment of spinal fractures that no reputable doctor would consider large-scale testing of fusion surgery with instrumentation versus surgery without instrumentation. I performed more than 1,000 fusions of the neck (called cervical fusions) and thought that my patients benefited from them. Like most surgeons, I maintain that I never performed a procedure on a patient if I did not believe that person would benefit from it. That said, however, I relied upon the incomplete information of personal experience. During my three decades of practice, spinal surgery changed radically without any formal evaluation of the effectiveness of those changes. Twenty years ago surgeons treated spinal degenerative conditions that produced nerve pain by removing bone or disc material that pressured the spinal cord or nerves—procedures called decompressions. With reasonable certainty, clinical trials have proven common decompressions of the low back to be more effective than nonsurgical management.7 While surgeons still perform these simple operations, half of all spine surgeries are now fusions, usually performed along with decompression. Before discussing how simple procedures have been converted to much larger ones without benefit of evidence, let’s take a look at how the two procedures differ. Figure 11.1 illustrates a normal spinal vertebra in the low back in cross-section, as if one were looking down on the spine from above. The roof covering the fluid-filled nerve sac is the bony prominence of the spine that can be felt under the skin in the middle of the back. The round block of bone in the front is called a vertebral body, and it supports the weight of the body above it and projects into the abdominal cavity. It cannot be removed because of its load-bearing function. The nerve sac is the stippled triangle in the middle of the vertebra, each nerve a black dot floating in white spinal fluid. The nerve sac has ample room to accommodate the bundle of nerves and the surrounding fluid. In the cross-section of the compressed spine, the nerve sac is flattened and the spinal fluid squeezed out so the nerves have no room, causing

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Vertebral body

Nerve sac

Roof

Normal vertebra

Compressed nerve sac

Decompressed nerve sac

Decompressed nerve sac and fused vertebrae

FIGURE 11.1 Cross-sections of spine

Source: Roy Prichard, Office of Communications, University of Texas Medical School, Houston.

back pain, leg pain, and weakness. The decompression procedure involves removing the roof. As a result, the nerve sac bulges out of the new opening, and the fluid level bathing the nerves is restored. As surprising as this seems, only a few patients suffer weakening of the back as a result of such decompressions. Decompression with spinal fusion goes a step further. Large screws are placed into the vertebrae. At least two pairs of screw heads are inserted, one set in each vertebra. The screws in the successive vertebrae are held together from top to bottom by steel rods attached to the screw heads. Bone from the hip is molded around the screw heads, and over time the bone grows together. The hardware alone is insufficient to stabilize the spine. Figure 11.2 shows the view of a lower back from behind as if looking at someone’s back. On the left is a normal spine with the roof covering the spinal sac. The section marked decompression shows what the surgeon sees

Screws

Rod

Nerve sac

Source: Roy Prichard, Office of Communications, University of Texas Medical School, Houston.

FIGURE 11.2 Surgical spine procedures on the low back

Sacrum

Roof of spine

Roof of spine removed

Nerve sac

With decompression and fusion

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3 Vertebrae

Nerve sac

With decompression

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after removing the roof of the spine that compresses the spinal sac. The section marked decompression and fusion shows the surgeon’s view after screws and rods are added to the decompression. The internally implanted devices hold the spine immobile while the bones grow together. Without the stability provided by the hardware, the fusion rate is low. The hardware’s contribution to surgery was to dramatically increase the rate at which bone implanted in the back turns into a solid fusion. It is not difficult to understand why a surgeon would be paid more for a decompression and fusion than for a decompression alone: the procedure involves more than twice the work. But one of the rationales for fusing a back without a slippage is faulty, and the other is unproven. One common justification for fusion and decompression of the low back is to prevent the decompressive surgery from destabilizing the spine. But only about 2 percent of decompressions weaken the back, and the complication rate of fusion is several times higher than that—with the side-effect of leaving the patient with an immobile spine. Knowing those odds, who would want this operation? Another more common rationale for fusion is the assertion that eliminating the spine’s ability to bend and turn will relieve pain, an untested idea and the one used to justify Jennifer Allen’s surgery. The opposite may as likely be true: fusion in people without slippage may cause low-back pain. Nearly one in five adults has back pain sometime during a one-year period. One-third of asymptomatic individuals over forty years of age have degenerative changes in their cervical spine. A 1994 study showed that 64 percent of people without back pain show degenerative changes in their low backs on MRI. Only 6 percent of women and 1 percent of men have slippage of the bones in their back, and many of them have no symptoms.8 The human spine is therefore a fertile area for surgeons with an operation to cure back pain, no matter that the proven indications are narrow. My analysis of U.S. hospital data shows that, in 2005, 44 percent of the patients who underwent back fusion had either a slippage or a traumatic injury. The remainder underwent back fusion for unproven indications. Cervical fusion has never been studied in the way that lumbar fusion for spondylolisthesis has, yet cervical fusions made up about 40 percent of all spinal fusions performed in 2005. So in that year 62 percent

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of patients who had spinal fusion surgery (250,362 people) underwent a major procedure that has never been subjected to adequate testing of efficacy for many of the affected patient groups. Undoubtedly many of those surgeries were beneficial, but no one knows how many and in whom because no one has ever definitively asked whether or not patients with degenerative conditions of the low back but without fractures or slipped vertebrae and patients with neck pain but without neurological deficits benefit from fusions. Powerful financial stimuli drive these operations. For decompression of the back or neck, commercial insurance pays a surgeon approximately 2,500 dollars; for neck fusion with decompression, 6,000 dollars; for back fusion with decompression, 10,000 dollars. The growth in the number of fusions performed is stimulated by outsized payment rates to doctors, hospitals, and the medical device industry, rates that far exceed those for decompression. Growth is also fueled by the perception of improved patient results from the larger procedures, and financial incentives are a powerful motive for such perceptions. One group of venture capital investors projects that the number of spinal fusions will increase to 1.1 million in 2014 with sales increasing tenfold to 25 billion dollars per year, enough to fund insurance for one-quarter of the country’s uninsured in today’s dollars.9 The financial interests of doctors, hospitals, and device manufacturers, along with the lack of scientific information, have produced a surgical epidemic of spinal fusions. Indeed, the number performed in the United States more than tripled in the decade from 1996 to 2005, with 91,375 in 1996 and 331,674 in 2005. At the same time, the number of decompressions fell by 16 percent. This shift has increased the overall cost of spinal surgery from 1.6 percent of hospital charges in 1996 to 3 percent in 2003. Figure 11.3 graphs decompressions and fusions as a percentage of all U.S. hospital charges from 1993 to 2005, a period when simple spinal decompressions decreased as decompressions with fusions increased. Spinal fusions carry significant risk for patients, including failure of fusion, nerve injury, and wound infections. Patients hospitalized for such procedures are also prone to complications such as bladder and bloodstream infections and reactions to medications. In 2005 hospitals charged about 6 billion dollars for admissions for back fusion without complication

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2.5

Percent of U.S. hospital charges

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2.0

er rg

n

1.5

1.0

sio

y

su

Fu

Decompressive su

rgery

0.5

0.0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 FIGURE 11.3 Spinal surgery as a percentage of U.S. hospital charges

Source: Author’s compilation of data from the Agency for Healthcare Research and Quality, “Hospital Cost and Utilization Project, Nationwide Inpatient Sample,” 1993–2005.

and the same amount for hospitalizations with some hospital-acquired complication.10 The conclusion is that many patients are being subjected to major fusion surgeries for which there is no proven justification and that result in a high rate of complications during hospitalization.

Procedures of Marginal Benefit The coronary arteries are blood vessels the size of a pencil that feed blood to the beating heart. A patient becomes aware of blockages in the coronary arteries in two ways: through a heart attack or through chest pain, called angina. Twenty years ago, an open-heart surgery called coronary artery bypass surgery was the only way to treat such blockages. By 1992 new catheter techniques were treating as many blockages because these newer procedures were far less invasive and safer. By 1996 the number of bypass surgeries began to fall, replaced by catheter procedures.11 Catheter techniques cost one-third less than coronary artery bypass surgery does; but while they do not carry many of the risks of open heart surgery, they do not keep the blocked arteries open as long as surgical

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bypasses do.12 To accomplish the procedures, a catheter is inserted in an artery in the groin and threaded up through the internal blood vessels under X-ray guidance until the tip of the catheter enters the coronary arteries. Devices on the end of the catheter are used either to dilate the blocked artery in the heart or to place a stent to hold it open. Either a catheter procedure or coronary artery bypass surgery is beneficial in patients who have just had, are having, or are about to have a heart attack, if such treatment is quickly provided. There is no debate in cardiology about that fact. But for more than ten years the use of catheter procedures in patients who have chest pain with exertion but are not having a heart attack (called stable angina) has been in question. Such patients typically have no chest pain at rest but after walking a variable distance get chest pain because the blood flow to the heart is restricted and is insufficient as the heart does more work. When they sit down the chest pain goes away. A number of randomized clinical trials (half the patients being treated with surgery and half medically) compared the effectiveness of diet, exercise, and drugs that lower cholesterol with the use of surgical or catheter procedures for stable angina. These studies all used much less rigorous and effective medical management than is available now. This comparatively weak medical management should have given catheter procedures the advantage, but none of the studies showed that the procedures decreased the risk of heart attack or death.13 Catheter procedures relieved angina (the chest pain with exertion) faster than weak medical management did. That was the procedure’s only potential benefit. One might think that the invention of a procedure one-third less expensive than coronary artery bypass surgery would have reduced the cost of treating heart disease. If medicine were like the car industry, where new technology lowers cost, it would have. Yet although the incidence of more expensive heart bypass procedures has decreased, the overall cost of treating heart patients has gone up, not down, while the mortality rate from heart disease has remained unchanged.14 I examined data from hospital admissions for heart catheter procedures from 1996 (at which date they were well developed and widely employed) through 2005. I divided hospital admissions into two categories: catheter procedures for patients admitted with a current or imminent

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Hospital admissions (in thousands)

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500 475 450 425 400 375 350 325 300 275 250 225 200 175 150 125 100 75 50 25 0

Marginal benefit

Proven benefit

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

FIGURE 11.4 Number of U.S. hospital admissions with coronary catheter procedures

Source: Author’s compilation of data from the Agency for Healthcare Research and Quality, “Hospital Cost and Utilization Project, Nationwide Inpatient Sample,” 1996–2005.

heart attack (proven benefit) and those for patients admitted with stable chest pain (marginal benefit).15 Figure 11.4 shows the number of U.S. hospital admissions for both types of patients. Since 1996, the number of catheter procedures performed for stable angina has remained at double the number performed for heart attacks, suggesting that the indications for performance have changed little over a long period of time, despite a decade of randomized trials showing that catheter procedures for heart attack have effect on the rate of heart attack. The figure illustrates why new technology, even if it is less expensive and more effective than older technology, increases the cost of medical care. On March 27, 2007, a group of investigators funded by the Veterans Administration published a study of 2,287 patients with stable angina from heart disease. They compared aggressive medical management plus the most advanced catheter procedures available versus aggressive medical management alone. Like all previous studies, this one found no difference in the future rate of heart attack and death.16 Catheter procedures decreased the percentage of patients with symptoms of angina by 13 percent in the first year. (Sixty-six percent of medically treated patients still had anginal symptoms versus 58 percent in the group treated with

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catheters.) This small effect decreased each year, and by five years there was no difference in the rate of angina between the two groups. Like all previous studies, however, these findings are not likely to have a great effect on the proliferation of these expensive procedures. According to the Washington Post, the cost of each of the catheter procedures is 50,000 dollars.17 More than 484,000 catheter procedures of marginal benefit were performed in 2005, with a total cost of 25 billion dollars. Now consider the situation of the State Children’s Health Insurance Program (SCHIP), which is similar to Medicaid and provides health insurance to poor children. In 2007 the program only had enough federally allocated money to cover about 70 percent of eligible children, leaving 2 to 3 million uninsured but eligible children unenrolled in the program. The annual cost to the federal government of insuring those missing children plus all eligible children for one year is about 12 billion dollars. A bill to fully fund this program was vetoed twice by President George W. Bush. In 2007 the bill failed to pass the House and the Senate with a veto-proof majority primarily because of the cost, leaving at least 2 million children eligible for coverage but without enough money to cover them. How is it right that so much money was wasted on procedures of marginal value while there was not enough money to insure poor children? Medical waste in the form of unnecessary procedures is an issue of justice as well a disservice to those who undergo them. Later in this book I will propose steps to decrease the rate of dissemination of such procedures. But I will not propose that any third party insinuate itself between the doctor and the patient in judging who needs procedures that are likely to have marginal benefit; such matters are not always black and white. For instance, in some clinical trials, as many as 60 percent of patients with angina have symptoms so severe that they cannot walk over two blocks without chest pain. Many but not all can be treated effectively with medical management. After weighing the complication rate of the catheter procedure, which is a 0.4- to 4.9-percent rate of heart attack, against a chance of being free of symptoms, those with severe symptoms might opt for surgery.18 Why are doctors and hospitals so aggressive about promoting poorly evaluated procedures and those with marginal benefits over medical management? The reason is the perverse financial incentives provided by feefor-service medicine and unexamined medical practice.

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12 Perverse Payment Incentives

Fee-for-service medicine combined with poorly evaluated technology has produced a medical arms race.

Medicare and private insurance pay doctors for each service they provide, no matter the circumstances or the results. Both have historically controlled their costs by setting the price they will pay doctors per service and then cutting prices across the board when the number of services becomes excessive (regardless of whether the services are required by the patient’s condition or are just medical waste). This fee-for-service payment system has created perverse incentives in medicine. It could also be called fee-for-process. Everyone is familiar with how cars are priced. But what if cars were priced like health care services? Imagine that each step involved in making a car is priced at a fixed rate, as each medical service is priced by Medicare. Rather than paying for the car itself, each consumer pays for the number and the complexity of processes that went into making the car: the more complicated and numerous the processes, the higher priced the car. Do you think a car manufacturer would produce a car as efficiently as possible or try to exploit such a payment system by adding processes? Manufacturers of cars produced under a fee-for-process payment system would drive up car prices by adding unnecessary steps until cars became unaffordable. If the car industry were like Medicare, then the government would be forced to take action to limit the prices that manufacturers can charge for each process so that the public can afford to buy cars. The car industry would then respond by adapting its manufacturing so that the steps in making a car are more complex and numerous. This 120

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escalation of processes would continue until the cost of cars became unsustainable. Government price cutting could never keep up with the innovative ways that car manufacturers find to inflate the number of their processes and invent new ones. Cars might get steadily better, like health care has, but their cost would be out of line with their quality, as health care’s has become. This is the model that the United States and many other countries use to pay for health care services, and it makes no more sense in the medical industry than it would in the car industry. The fee-for-service payment system is a relic of a time when doctors could not do much to help patients. It is unsuitable for a twenty-first-century medical industry in which new technology is being rapidly created and indiscriminately applied at about the same rate of speed. Figures 12.1 and 12.2 make three important points: (1) price cutting in fee-for-service medicine never controls health care costs for long, (2) federal intervention is the only action that has ever controlled health care costs even temporarily (except for managed care), and (3) there is little performance difference between Medicare and private payers. Figure 12.1 graphs the annual rate of escalation in Medicare’s cost per beneficiary, adjusted for inflation over thirty-two years, beginning in the first year for which there is data. The program’s growth is a seesaw pattern of declines (when federal action reduces prices) and rebounds (as patients are subjected to more medical interventions). In 1971 Medicare costs decreased when the Nixon administration applied price controls to the broad economy, including Medicare. Program spending quickly rebounded when the disabled poor were covered in 1972. Its growth remained in double digits until 1979, when the Voluntary Effort brought cost escalation down. This effort, which took place between 1978 and 1980, was the hospital industry’s response to the Carter administration’s threat to impose federal price controls to reduce hospital prices. In this period Medicare paid doctors and hospitals reasonable and customary charges: that is, it paid whatever they charged unless the costs looked crazy. In 1983, responding to a resurgence of cost escalation, Congress fixed the prices that Medicare paid to hospitals; and in 1992, it fixed the prices paid to doctors. Hospitals and doctors responded by increasing the number of interventions to Medicare beneficiaries, and

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12

Permanently disabled covered 10.3

10

8.6 7.5

8

5.7

6 Percent

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4 2 0 ⫺2

⫺1.9 Wage and price controls

⫺4 ⫺6 ⫺8

1.7 Voluntary Effort

1.3

1970

1975

1980

1.0 Fixed payments to hospitals

1985

Fixed payments to doctors

1990

⫺1.4 Price cuts to hospitals and nursing homes

1995

2000 2002

FIGURE 12.1 Annual changes in Medicare spending per beneficiary with federal

actions Source: Author’s compilation of data from the Centers for Medicare and Medicaid Services, “Per Enrollee Expenditures and Growth in Medicare Spending and in Private Health Insurance Premiums: Calendar Years 1969–2004” (Baltimore, 2005); Louis D. Johnston and Samuel H. Williamson, “The Annual Real and Nominal GDP for the United States, 1790–Present” (Oxford, Ohio: Economic History Services, October 2005), http://www.eh.net/hmit/gdp/.

cost escalation surged until 1997. The Balanced Budget Act of 1997 cut the prices that Medicare paid to hospitals and nursing homes, bringing the program’s cost growth into negative numbers. This legislation, combined with the payment cuts of managed care during the 1990s, precipitated the emergency room failures we experience today. I once imagined that insurers and businesses that operate in a competitive market were more nimble than federal or state governments in controlling their health care costs. I thought that large employers that do business in a globally competitive world understood how to create a competitive environment for medicine. On the contrary, with the single exception of managed care in the 1990s, only government intervention has decreased the growth of private insurance spending, just as it did in the Medicare program. And in the same way, after each round of price controls, doctors and hospitals just increased the number of interventions they provided to patients, meaning that prices were never controlled for

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9.0 8

8.3 6.7

123

Average annual change in private per capita national health 8.9 spending, adjusted for inflation (3.7%) 6.4

12

7.0 6.0

4.9 Percent

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4 3.5

3.8 2.9 1.1

0

⫺0.2 Voluntary Effort ⫺1.5 Wage and ⫺3.0 ⫺4 price controls Medicare and medicaid implemented ⫺8

0.9

1.9

0.5

⫺1.2 Managed care and threat of health reform

1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2004

FIGURE 12.2 Annual changes in private per-capita national health spending with federal actions

Source: Kaiser Family Foundation, “Trends and Indicators in the Changing Health Care Marketplace” (Menlo Park, Calif., May 2005).

long. Figure 12.2 graphs the annual escalation in private insurance spending over forty-two years. The first decrease in private spending came with the 1965 creation of Medicare and Medicaid during the Johnson administration. Private health insurance spending fell because businesses no longer bore the full costs of their retirees’ health care. The wage and price controls of the Nixon administration brought down private health care spending, just as they did for Medicare spending. Except for a period during World War II, this was the only time that economy-wide price controls were ever applied. They lasted until 1974, and the reduction in health care cost escalation also lasted only that long. The hospital industry dismantled its self-imposed Voluntary Effort in the 1980s, and health care inflation rapidly escalated. The government’s next initiative, the proposed Health Security Act, took place during Bill Clinton’s administration and was an effort to implement federally mandated managed care coupled with mandated insurance coverage of the entire U.S. population. The act was a creation of

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health care economists, who estimated that health care costs could be reduced by 30 percent if they were managed. Of course, they were right. The Health Security Act did not become law because of Republican opposition, political mismanagement, a 50-million-dollar advertising campaign by the health insurance industry, physician opposition, business opposition, and public fear of allowing a new unresponsive federal bureaucracy to manage their health care. Still, it had sweeping effects on the private insurance market because it stimulated the rush to cut health care prices in the name of managed care. Nonetheless, health care prices were muted for only a few years.1 Those who fear any form of government intervention in controlling health care costs should look at history. No other action has ever managed the cost escalation of either government- or privately financed health care. Those who think that fee-for-service medicine is a sustainable way of paying doctors should consider its forty-year record in Medicare and Medicaid. And those who believe that the private insurance industry as it currently functions controls cost better than governmentfinanced health care should compare the two. There is not much difference. Clearly, we must refigure how doctors and hospitals are paid and how the insurance industry functions. The question of how to reduce health care cost usually devolves into an argument over a single-payer versus a private health care market. However, that is the wrong question. Based upon the past history of Medicare and private insurance, neither public nor private payers have been able to manage a cost that grows at double the rate of the economy. The critical questions are what services are paid for and how providers are paid for providing them. Paying doctors and hospitals by fee-for-service with price cutting to manage cost has not only failed to control health care cost, it has devalued primary care and produced a destructive change in the culture of medicine.

Caught in the Middle Since my childhood, I have wanted to invent new treatments for diseases. I was attracted to surgery and research when I was in high school. After thirteen rigorous years of college, medical school, and residency, I found myself at age thirty with a wife, beautiful both inside and out, who had

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dedicated herself to supporting me and the lives of our children. Within the next ten years we had a household of five children, making our home life eventful and dynamic. Looking back, I see that my marriage and children were my best accomplishments; but throughout those years, I also remained committed to my work. My first job was at Ben Taub Hospital in Houston, a public facility. For the next decade I worked in either public or Veterans Administration hospitals as a medical school faculty member. In these settings I was free to develop treatments for neurosurgical diseases as well as to operate without the time constraints of private practice. My work allowed me to apply for federal and private grants, pursue research studies, yet maintain a steady operative schedule. I focused on treatments for patients in coma from brain injuries and those with severe spinal cord injuries. These jobs paid about half of what I could have made in equivalent private-practice neurosurgery. I regularly worked eighty or more hours each week, while my wife took primary responsibility for raising the children and managing almost every other part of life at home. Few would have endured what she did in those years. I did have some success in developing treatments and am still conducting a clinical trial that tests the cooling of patients with brain injuries. My studies during those years allowed me to fly all over the world presenting my data and teaching new methodologies to other physicians. At age forty, however, I found myself with five growing children, no retirement income, no savings, a low-paying neurosurgical job, and no opportunities to increase my salary. I decided to take a job managing an academic department at the University of Texas Medical School in Houston, with the idea that I could pursue research but also double my income by performing a lot of surgery. I calculated how many cases a year would be required to bring my income to a level that would allow us to live near the hospital in a nice home, pay for top-notch education for our children, and yield enough savings for a comfortable retirement. We never had a second home, live-in help, or country-club memberships. I spent four years working at this pace. Then managed care hit Houston, and I found that two hundred operations per year (a typical busy neurosurgeon’s caseload) suddenly yielded one-third less income than it

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had before the advent of managed care. So I worked harder, increasing my caseload by a third, a pace that taxed both me and my family. My colleagues and I felt used, especially when we realized that this unexpected reduction in payment rates was permanent. In those years I was doing a great deal of epilepsy surgery. Many patients who suffer from poorly controlled epilepsy can be cured by surgery that removes the section of the brain that generates the seizures. Because this section is usually already damaged, it can be safely removed without causing loss of function. After surgery, the patients would come back to the clinic freed from years of debilitating seizures. They would often hug me, and we would chat about how they were adapting to their new life. I loved the surgery and the patients because people who have survived with disabilities view risk and adversity through a unique lens. They take in stride what would destabilize people who have never lived with a disability. These operations, however, took about five hours to perform. Because most of the patients were on disability and therefore insured by Medicare or Medicaid, the arduous surgeries paid poorly; and as a result, my income fell substantially. With real anguish I abandoned epilepsy surgery, giving it to another doctor who then performed many fewer such surgeries per year than I had—probably for the same reason I had dropped it. I knew that I could more than double my revenues per hour of surgery by performing spinal fusions yet still have time for research and to see my family. So I focused on spinal surgery of the neck. Did all the neck fusions I performed help the patients? In the short term, I thought they did. I never knew for sure because, as is usual practice, I only saw the patients for about three months after surgery. Even more importantly, I never knew because there were no data comparing the long-term results of fusion surgery with decompressive, nonfusion surgery. The patients clearly had less postoperative pain from fusion surgery than they did from decompressive surgery, and fusion surgeries paid twice what nonfusion surgery did for the same hours worked. The fee-for-service payment system inherently compels the promotion of poorly evaluated medical procedures, and efforts to control health care costs by reducing fee-for-service payments only accelerates the proliferation of these procedures. I saw this in my own practice, and my behaviors were mirrored by those of other neurosurgeons and specialists.

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I never operated on a patient who, in my judgment, did not need surgery. Nor do most surgeons. But our medical judgment may not always be as objective as we like to believe. Health economists calculate that a reduction in Medicare fees results in only 50 percent of the expected decrease in Medicare revenue to physicians. The reason is that doctors perform more procedures and choose more complicated procedures to make up for the lost revenue from the fee reductions.2 The phenomenon applies even to major surgery. For example, reducing the fees for orthopedic surgery, thoracic surgery, and obstetrics/gynecology only yields 25 percent of expected savings because surgeons perform more procedures in response.3 As payment rates go down, it is not unusual for doctors to operate on patients they otherwise would not in order to make their house payments. This may not be a deliberate act but a subtle shift in judgment. If doctors knew which procedures work in which patients and reported their patterns of practice, such biases would be less likely.

Unhappy U.S. Doctors Managed care in the mid-1990s reduced health care costs primarily by cutting payments to doctors and hospitals. But when it was dismantled near the end of that decade, its effects on physician incomes remained: doctors had received a permanent pay cut. Hospitals consolidated to counter their low payments, but doctors remained solo or in small group practices and did not have enough leverage with insurers to negotiate their fees back to previous levels. Although specialists earn on average 2.5 times more than primary care doctors do, the income of generalists—family practitioners, internists, and pediatricians—increased by about 7 percent between 1990 (before managed care) to 2005 (fifteen years later). But this required considerable work. The way to make money in medicine is to perform procedures, and specialists are not the only doctors who can perform them. Primary care doctors did not increase the number of patients they saw in clinics, but they more than doubled the number they hospitalized and the procedures they performed over the fifteen-year period.4 Performing procedures and hospitalizing patients rather than referring them to a hospital-based specialist may disrupt

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TABLE 12.1

Generalists’ Income and Annual Workload

Mean income (in 2005 dollars) Number of clinic visits Number of hospital encounters

1990

1995

2000

2005

$168,835

$181,319

$176,868

$180,490

4,553

4,529

4,307

4,182

341

680

917

841

Source: Medical Group Management Association, “Physician Compensation and Production Survey” (Washington, D.C., 1991, 1996, 2001, 2006).

TABLE 12.2

Specialists’ Income and Annual Workload

Mean income (in 2005 dollars) Number of clinic visits Number of hospital encounters

1990

1995

2000

2005

$475,237

$455,431

$450,116

$460,464

1,975

1,880

1,863

1,882

538

1,125

1,284

1,193

Source: Medical Group Management Association, “Physician Compensation and Production Survey” (Washington, D.C., 1991, 1996, 2001, 2006).

an office-based practice, but it is also more lucrative. Table 12.1 illustrates the mean income of primary care doctors in 2005 dollars (adjusted for inflation) and their median number of clinic visits in 1990, 1995, 2000, and 2005. It also shows that the number of hospital encounters and anesthesia cases, which I use as a proxy for procedures, more than doubled. Like primary care doctors, specialists tried to keep their incomes on par with inflation: they more than doubled their number of procedures and hospitalizations between 1990 and 2005. Nonetheless, their incomes fell. Table 12.2 shows average salaries of cardiologists, gastroenterologists,

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cardiovascular surgeons, and general surgeons and workload from 1990 to 2005, following the same format as table 12.1. The Center for Studying Health System Change examined physician income in twelve U.S. cities and found that their average income, adjusted for inflation, fell 7 percent from 1995 to 2003. Other professionals such as lawyers, however, saw a 7-percent increase in inflation-adjusted income during the same period.5 One-third of primary care doctors are unhappy with the practice of medicine because they are disgruntled about not being paid enough to do what they were trained to do: manage patients in the clinic. But why are 40 percent of surgeons with a 460,000-dollar average income unhappy with the practice of medicine? 6 Judging from my own reaction and that of my surgical colleagues, they feel like rodents on a wheel, and the wheel won’t turn any faster. But I also believe that a change in the culture of U.S. medicine explains why so many doctors are unhappy with their practices.

A Business Culture Medicine has developed into a business culture, one in which the business of medicine has trumped the vocation. This phenomenon reflects the American consumer society in which doctors live and practice. It is also driven by the attitude of patients who view themselves as consumers of medical services rather than patients of a given doctor. The problem started with managed care in the mid-1990s. Managed care arrangements always featured patients’ restricted access to a small group of doctors, a feature that aided in cost control. Unfortunately, many patient-doctor relationships that had developed over years were abruptly severed. I remember sad conversations in which I advised long-time patients whom I had come to know personally about which neurosurgeon on their new plan would take the best care of them. The sudden reduction in fees and abrupt patient displacement broke a financial and social contract between doctors and patients all over the United States. A severing of accountability and responsibility accompanied this new relationship, first evidenced when specialists began to refuse to take emergency call. Since my training days, there had been an unspoken understanding that staff doctors at a hospital took call for emergencies

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every night, weekend, and holiday of the year. It was part of our job to keep the emergency room covered by each specialty all the time. But call has downsides that go beyond simply being in the hospital when most people are home with their families or asleep. The patients whom surgeons admit when they are on call are usually in a critical state and may remain in the hospital for days or weeks. Many are uninsured. Surgeons on call only earn significant income when they operate on insured emergency patients, and surgery accounts for only a small part of on-call work; most time is spent going in and out of the emergency room to evaluate either a mortally wounded patient who cannot be helped or someone who proves to have a minor injury who does not need help. When I took neurosurgery call, these evaluations went on day and night, and they were exhausting. Another deterrent is the belief among surgeons that a doctor is more likely to be sued by emergency patients than by patients who come through the office, though the evidence, at least in neurosurgery, is to the contrary. But regardless of these downsides, we were all trained to take call, and the job had to be done—until sometime in the late 1990s, concurrent with fee reductions, when surgeons and other specialists concluded that it did not have to be done. When the Texas emergency services system imploded during the middle of the 2003 legislative session, a crisis that led to passage of a bill funding uninsured trauma care, hospitals’ refusal to meet neurosurgeons’ demands for substantial on-call payments in three different Texas cities had precipitated a simultaneous near-closure of several trauma centers. The hospitals were already faced with losses from uninsured trauma care and balked at accepting the new, large, ongoing expense of paying doctors to take call. The problem is national in scope. For example, one morning in 2004 I received a telephone call from a representative of a hospital in Orlando, the only level 1 trauma center in all of central Florida. The hospital’s entire neurosurgery staff had refused to take call unless they were paid 3,000 dollars a day at a yearly cost of 1.1 million dollars to the hospital. A major trauma center cannot function without neurosurgeons, so their ultimatum to the hospital was to either pay or close to trauma. I advised the hospital’s administrators to meet the demand because they would have difficulty recruiting neurosurgeons to replace this group. The

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administrators knew that if their hospital closed to major trauma, central Florida’s large population would be left without this essential service. I was taken aback to realize that the neurosurgeons were prepared to let that happen—another manifestation of a business culture in medicine. According to a 2007 report, specialists’ refusal to take call in twelve large cities nationwide is steadily worsening. The death or disability of 21 percent of patients injured by delayed emergency-room care has been attributed to the absence of on-call specialists.7 What has happened to the Hippocratic oath?

Conflict of Interest A second telephone call removed any doubts I may have had about whether or not the business of medicine has trumped vocation. In 2004 a friend who is a spine surgeon called me to say, “Guy, have you heard about the new spine hospital that is going up?” I had not, so he continued, “If you put in 40,000 dollars, you can make 40,000 dollars a month from owning a share of the hospital. Most of the doctors you know are going in as partners.” He then gave me a long list of some of the busiest neurosurgeons and orthopedic spine surgeons in Houston. I asked, “What’s the downside?” He responded, “It’s unlikely to fail, but we would all be on the hook if it should.” My next question was “Do I have to operate on my patients there?” After a long pause he said, “You don’t have to, but you would probably want to.” He said this because he knew that a physician-owned specialty hospital has several advantages for its doctor-owners. Efficiency of practice drives physician ownership of hospitals at least as much as direct financial incentives. A surgeon’s life revolves around access to the operating room, and a surgeon can usually perform several times more surgeries per day in a hospital he or she owns. Another attraction is that most doctors believe that nursing care is better in physician-controlled hospitals. Also by operating in hospitals they own, doctors can avoid taking care of the uninsured: the emergency rooms of such hospitals exist in name only. Finally, physician-owned hospitals are lucrative.

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After several specialty hospitals opened in Houston, the operating rooms at our hospital became unusually quiet because many orthopedic surgeons and neurosurgeons had moved their practices to their own specialty hospitals. The exodus had two effects: less revenue for the hospital to shift to the cost of care of uninsured emergency patients and more trouble covering the call schedule. Community hospitals, of course, strongly oppose physician-owned specialty hospitals. Specialty hospitals concentrate on the same high-profit procedures that full-service hospitals covet, such as orthopedics, spine, and cardiac procedures. Seventy percent of them are physician-owned.8 The profits from these facilities can double a surgeon’s income. Insurance pays the doctor for the surgery and then pays the hospital for use of the facility (usually about twice the amount of the surgical fee). I know of a number of surgical groups that make at least 60 percent of their income from the facilities they work in and own rather than from the surgical services they perform. But the procedures feed the overall profit margin, thus creating a double incentive to care for insured surgical candidates rather than the low-margin chronically ill or uninsured. Physician-owners of specialty hospitals have maintained that such financial incentives do not cloud their clinical judgment. Yet a March 2007 report in the Journal of the American Medical Association found that the opening of a cardiac specialty hospital more than doubled the rate of cardiac procedures on Medicare patients within four years of its opening. According to the investigators, the opening of a physician-owned hospital accelerated performance much more than did the opening of new cardiac units in a non-physician–owned general hospital in a community.9 I was acquainted with almost all of the surgeons who invested in the new hospital in Houston. I knew some to be highly skilled and prone to use exceptionally good judgment. I knew others who operated at the mere mention of pain; their patients never knew about alternatives such as therapy or medication or learned if a simpler procedure would suffice when a major one was offered. I thought the allure of being paid twice might tempt good surgeons to fall into the second category. I did not invest. Proven overuse of services in certain physician-owned facilities precipitated passage of the Stark Law in 1989, which prohibits physicians from referring Medicare patients to facilities in which they or family

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members have ownership if those facilities provide laboratory services, physical or occupational therapy, radiology, or radiation therapy. There are few other restrictions on physician ownership of facilities because, when these laws were passed, there were only data relating physician ownership to overuse of these services. Quite a bit has changed since 1989, though the law has not. I interviewed two radiologists from a western state who told me what had happened to their practices. Orthopedic surgeons are now getting into the radiology business. Although it is illegal for doctors to refer their patients to outside radiology facilities that they own, it is legal for a doctor to install imaging in his office and refer his patients for studies there. One of the radiologists told me about a large orthopedic group in her community: The orthopedic surgeons buy cheap MRIs [which also produce poor-quality images] and then image their patients in their office. Now my husband is an orthopedic surgeon, and he will not image anyone with a painful knee unless the pain persists for at least three weeks. This group of orthopods immediately images anyone who comes to their office with a sore knee. They send the images to us to be read after collecting the technical fee. The images are so poor that if they sent a patient to us and we gave them an image like that, they would be howling. Our imaging volume is down because so many surgeons are doing this.

Another setup for conflict of interest is ambulatory surgery centers that offer minor surgical procedures or invasive diagnostic tests in an outpatient facility. Medicare pays ambulatory surgery centers less than it would a full-service hospital for the same procedure because their overhead is lower. The longest patient stay in such centers is overnight. The growth of ambulatory surgical centers has been astronomical: in 2003, there were 3,375, and physicians had ownership in at least 80 percent of them. In comparison, there are about 5,000 hospitals in the United States. The percentage of surgical procedures performed in outpatient facilities has tripled in the past two decades, and Medicare payments to ambulatory surgical centers have tripled in one decade.10 Does this growth rate show that procedures are being performed in efficient ambulatory surgical centers rather than in more expensive full-service

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hospitals? Or are the physicians who own these centers telling their patients what medical services should be performed in them? Is their growth fueled in part by the performance of procedures that have questionable value? Physician-owned ambulatory surgical centers increase the total volume of outpatient surgeries in a community by about 9 percent. Further, the procedures performed in them have not slowed the growth of Medicare’s cost or the frequency of hospitalization per beneficiary.11 How many procedures performed in physician-owned ambulatory surgery centers are necessary? How many are not? The answers are unknown, but the data raise the suspicion that the number of unnecessary procedures could be significant. The problem of conflict of interest extends to all forms of medicine, including cancer care and treatment of kidney disease. Doctors buy drugs for cancer and kidney failure, mark up the price, and then administer them to patients in their office. The profits from drug administration often account for the majority of cancer doctors’ income. Questions have long been raised about the appropriateness of care rendered with such financial incentives. A study of Medicare patients in Massachusetts and California found that one-third of cancer patients received chemotherapy in the last six months of life and that patients with cancers known to be unresponsive to chemotherapy (that is, the drugs were useless for slowing the cancer) were as likely to receive chemotherapy as patients with cancers known to be responsive to this treatment.12 A New York Times story reported on a group of six cancer doctors who received 2.7 million dollars in rebates for prescribing 9 million dollars in drugs administered. A similar pattern of apparent overprescribing and huge rebates occurs in the treatment of anemia for renal failure.13 Conflicts of interest clearly drive medical waste, and so does fee-forservice medicine. It is against human nature for doctors to practice efficient medicine when they are paid so well for inefficient medicine. Several reforms are needed, but one is paramount. The payment system must be changed so that a doctor who is managing a patient shares in the savings from efficient, high-quality medical practice (better outcomes) rather than profits from inefficient practice (more use). Inefficient doctors should lose money in such a payment system. A core purpose of this book is to show how to accomplish this goal.

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A Hardening of Attitude: Medical Malpractice If payment trends were not enough to change doctors’ thinking, in 2002 the United States entered a period of rapidly increasing medical malpractice premiums. No neurosurgeon could write about medical malpractice suits with detachment because almost all of us have had some experience with these claims. For fifteen years of medical practice, I was never named in a lawsuit. Then in 1990 I moved my family to Houston, unaware that the city was regarded in Texas medicine as a hotbed of medical malpractice litigation. My first suit came in 1992, and it was frivolous. Nonetheless, it occupied my attention and stole my time intermittently for a year. I was subsequently sued several other times (all suits were eventually dropped), culminating in a week in court in 2001. My debut in court was a lawsuit by a patient who had rolled into my clinic partially paralyzed in a wheelchair. Six months after I performed a complicated operation through his chest to remove pressure on his spinal cord, the man walked and returned to work. But even though he was cured, he filed suit because another of his doctors, an internist, had misread his postoperative X rays and then mischievously told him that I had operated at the wrong level. The lead plaintiff’s attorney was a large, imposing, and well-spoken man. I will never forget his opening statement. He rocked back on his heels, hands on his hips, and solemnly pronounced to the prospective jurors, “It was to be a normal day in the operating room but then things went badly wrong. . . .” Listening to his turgid introduction, I imagined I was on the set of B movie until I realized he was talking about me. Four days later, after forty-five minutes of deliberation, the jury found in my favor—but not before the patient’s attorneys claimed that I was not only derelict in my duty and incompetent in my technique but had also directed a conspiracy among the operating-room staff to suppress the truth about my so-called error. After this weeklong ordeal, I began to look at patients first as potential lawsuits and second as patients. I could not help it: my practice changed and my attitude hardened as a result of medical malpractice suits. I became more careful in recording details in the medical record; but rather than altering how I took care of patients, I altered what I was willing to do for them. I often avoided patients who needed risky

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operations. So while I labor to consider the issue of medical malpractice litigation dispassionately in this book, I approach the problem from the perspective of a practicing doctor who has always viewed most such litigation, but not all of it, as abusive. The United States has had three waves of sharply increasing medical malpractice premiums interspersed with periods of declining costs. The probable cause of oscillating premiums is the insurance underwriting cycle. That is, insurers keep premiums down when they have cash on hand. When they do not, premiums increase, regardless of whether the result is poorly performing investments or large claim payouts. In perfect timing with physicians’ awareness that their fee-for-service payments would never recover from managed care’s reductions, a third malpractice crisis began in 2002 with an average escalation in premiums of 10 percent.14 The premiums of high-risk specialists such as neurosurgeons

and

obstetricians

(commonly 100,000

to

200,000

dollars

per year) typically rose far more than 10 percent during this period. In 2002 and 2003 some Texas neurosurgeons and obstetricians moved their practices from highly litigious communities where juries were known to be unsympathetic to doctors, leaving them without those specialties. But I never believed it was simply the cost of malpractice premiums that drove specialists away. If a practice is collecting 1 million dollars per year, common for some surgical specialties, an additional 50,000 dollars in overhead for malpractice premiums would not compel anyone to move. I think specialists got tired of being harassed by frivolous suits and living in fear of being tagged with a career-ending, multimillion dollar judgment. That was certainly my attitude. States have reacted to these periodic spikes in malpractice premiums by capping the size of awards. Punitive damages are the awards that a jury levies to punish a doctor or a hospital, and they can be large if a jury is outraged. States have commonly placed limits on punitive damages: Texas set the limit at 250,000 dollars in 2005, and California has had a similar cap since the 1970s. If medical malpractice were the major driver of health care costs and caps on punitive damages were the answer, then California should offer the cheapest health care in the United States. But it does not. The best evidence is that state caps on damage awards do

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reduce the frequency of suits, the size of awards, and insurance premiums and may increase the number of doctors in the state.15 The other component of an award is money used to care for a patient’s needs as a result of the medical injury. Such awards may be small in older patients with short life expectancies, even though their life may have been shortened by a mistake or possibly an egregious medical error. When the award for damages from a medical error is small because a patient won’t live very long, older patients and those without money to pay for a lawsuit may not be able to find a lawyer to represent them in states where punitive damages are capped. The cost of conducting the suit may be too great in proportion to the expected award. Such caps, in other words, solve one problem but create another. The evidence is that litigation does increase health care costs but not nearly as much as is popularly imagined.

Blaming It All on Defensive Medicine When doctors are accused of wasting resources, they blame medical malpractice litigation. Members of the public repeat what they have heard doctors say. But the data do not support the position that defensive medicine is the main reason behind high health care costs. The term defensive medicine refers to the ordering of images and laboratory tests and the performance of invasive testing procedures (such as biopsies) only to reduce a doctor’s risk of being sued or losing a malpractice suit. The most common defensive act is to use excessive diagnostic techniques to avoid missing a low-probability condition—for example, cancer or a heart attack. Imaging accounts for 25 percent of outpatient costs, driven heavily by MRI and CT scans.16 No one can say how much of this outpatient imaging is appropriate use of services and how much is overuse. In only a few areas, such as cardiac catheterization studies for the heart, do we even have a yardstick to determine which patient should undergo diagnostic imaging. In highly litigious states almost all specialists say they practice defensive medicine.17 Three-quarters of U.S. physicians say that they order unnecessary tests and make unnecessary referrals, and half suggest unnecessary biopsies as a means of protecting themselves. Almost all physicians, nurses, and hospital administrators believe that defensive medicine is a significant contributor to health care costs.18

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A recent analysis examined all health care costs in the twenty-eight states that have enacted limits on medical malpractice payments, comparing them with states without such caps. After correcting for other drivers of health care spending, the study’s investigators concluded that laws limiting malpractice payments lower state health care costs by no more than 3 to 4 percent. A similar study, but older and more limited in scope, found an increase in hospital spending of 5 to 9 percent in states without caps. The other cost of malpractice litigation, malpractice premiums, accounted for 0.46 percent of total health spending in 2001.19 The key to controlling health care costs is changing the behavior of physicians. After all hospitals, pharmaceutical companies, and medical device manufacturers do not practice medicine. In the United States, medicine is now a business culture, a reflection of American consumer society, and that is not likely to change. So the keys to changing physician behavior are (1) to replace the fee-for-service payment system with one in which physicians share in the savings from efficient medicine, (2) to establish standards of practice so that there is some index of which procedures are needed and which are not, (3) to hold physicians harmless for failure to diagnose if they complete a standard workup, and (4) to monitor and publicly report physician performance. If medical practice is going to be primarily a business, then let it be a business that delivers value. One-third of health care spending is for the costs of hospitalization. By my calculations, at minimum 4 to 8 percent of hospital spending is for surgeries of unknown effectiveness or proven ineffectiveness and 6 to 15 percent for illnesses that are preventable by primary care. Unwanted endof-life care accounts for another large unquantified amount. But even when hospitalization is needed, it can be expensive. Hospital costs are high because hospitals are inefficient. They are victims of an artificial labor shortage and, by consolidating, have been able to shield themselves from forces would drive down their cost structure. An educated guess is that 15 percent of hospital cost is the result of inefficient processes. By combining unnecessary admissions, inefficient processes, and artificially high prices, one sees that a great deal of money can be saved in hospitals by improving care and by transparent pricing.

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13 Three Pathways to Hospital Profitability

Hospitals have three pathways to profitability: they must gain market leverage in the community, promote highly paid procedures, and avoid the uninsured. Efficiency is not profitable.

This story illustrates one of the undesirable effects of rational business decisions that hospital administrators must make in order to maintain solvent hospitals. The problem is not bad people but good people working in bad systems that reward the wrong decisions. Jack Devoe had been the chief operating officer of a financial services company in southern California for fifteen years and was vigorous at age forty-five. After spending years in a wholly profit-driven industry, he had cashed out and now welcomed the prospect of starting anew and serving the common good. In 1998 he eagerly accepted the top financial job at the Episcopal Hospital. When Jack was recruited, he was assured that a hospital’s financial principles are not much different from those of any other business. The Episcopal’s reputation had been built on its ability to provide high-tech surgery services, which attracted patients both in the California market and worldwide. The hospital had one of the best reputations in southern California and, at 1,000 beds, was one of the region’s biggest facilities. Yet despite its size and reputation, it had been posting financial losses since the advent of managed care in 1994. Because the hospital was a not-for-profit institution (that is, any excess revenues had to be used for charity care, research, or education) and several bishops 139

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served on the hospital board, Jack concluded that it must possess purity of purpose. Jack found a friend on the board—cardiac surgeon Simon Brown. He was one of the few physicians on the Episcopal board and was widely respected, if not widely loved, by the hospital staff. Brown did not gracefully tolerate mediocre performance. He had been one of the hospital’s top-ten producers for years, was a professor at the medical school, and also taught residents and medical students at nearby Bayview County Hospital. (Both the Episcopal and Bayview served as teaching hospitals for the medical school.) Brown had managed to bridge the opposing camps of the medical school, the hospital, and the private doctors by always coming down on the side of good patient care, no matter what the dispute. In his new job Jack began to calculate the winning and losing cost centers dispassionately and accurately, just as he had done in industry; and his regular meetings with Brown provided critical insights into the Episcopal’s workings. Sixty percent of the hospital’s patients were commercially insured, 25 percent had Medicare, and the remainder were either uninsured or insured by Medi-Cal (California’s Medicaid program). Three groups were responsible for the hospital’s financial losses: emergency Medicare patients, Medi-Cal patients, and uninsured patients. In Los Angeles County, 20 percent of the public was uninsured and 24 percent were on Medi-Cal; and numbers of people from both groups appeared in the hospital’s emergency room. The Episcopal could encourage profitability by caring for privately insured patients and Medicare patients who needed total knee and hip replacements, back fusions, and heart procedures and by avoiding Medicare emergencies. The trick therefore was first to reduce the volume of emergency Medicare business and eliminate Medi-Cal and uninsured business without compromising the hospital’s non-emergency business and then to promote surgeries in the freed-up space. An analysis of the hospital’s intensive care units identified the sources of profit and loss. The ICUs for heart and transplant surgery were profitable. The neurosurgeons’ patients were mostly non-emergencies and not very sick, so a small ICU that functioned more like an observation unit than an ICU sufficed for their care. This little ICU offered a positive financial profile, and both Jack and the neurosurgeons wanted to avoid

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emergencies. Expanding the unit would make room for them, so there was no consideration of enlarging it. The units showing major losses tended to be the medical ICUs, which housed older patients with heart failure, diabetes, stroke, lung failure, and infections and usually served emergencies. Jack’s first recommendation was to halve the number of medical intensive care beds and to freeze or increase the capacity of the specialized surgery units. It was not possible to close the emergency room: hospitals are required to have them, and the Episcopal’s commercially insured patients needed emergency services. So he proposed to keep the emergency room at its current size, despite increased demand, and to maintain only two ambulance bays for unloading patients. A temporary chain-link fence that had originally marked a construction site was left permanently in the driveway to further complicate ambulance access. When either the emergency room stretchers or the ambulance bays were full, the hospital would simply announce itself to be on emergency room diversion. When Jack’s suggestions were implemented, the Episcopal began to post a profit. From his fourteenth-floor office, Jack looked out of his window and dreamed good dreams of service to the community coupled with rational profitability. He wasn’t alone: similar decisions were being enacted all over Los Angeles County.

Taylor Albritton on a Bad Day Taylor Albritton lived in Los Angeles. At age sixty-six he was fit, though he was not as healthy as he looked. He had run his small family-owned investment firm for years, managing retirement accounts and investments for moderately high-net-worth Angelinos. His clients were mostly midlevel executives in the entertainment industry, but he was never solidly in their social loop. He and his wife, Marcia, had worked hard to raise their four children in LA’s challenging commercial atmosphere. They were very comfortable but not quite wealthy by local standards. Six months ago, Taylor had sold his business. The proceeds permitted the couple to move into a nice but small home on large grounds in a quiet area in West San Fernando Valley. Their plan was to take care of Taylor’s health and enjoy an active retirement in this beautiful setting. He and

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Marcia also hoped to travel and play tennis. Retirement was a longawaited reward for both of them. Taylor had undergone one heart surgery already and had managed his insulin-dependent diabetes with scrupulous attention to detail since he had developed the disease in his twenties. Recently, however, he had developed an irregular heart rate; and one of the complications of this condition was that his heart could throw off blood clots. He prevented this problem by taking powerful blood thinners daily. Yet for reasons that his doctors could not explain, the dose of the blood thinner had to be continually changed. On one day his blood might clot normally, as if his body were immune to the medications; on the next day, he was overthinned and at risk of hemorrhage. So in addition to paying close attention to his diabetes, Taylor had to carefully monitor the condition of his blood. Though he regularly saw a doctor at nearby Foothills Regional Hospital, a small facility, Taylor already knew so much about his own health that the doctors acted almost as consultants to him. Since his retirement, Taylor’s habit each morning was to sit on his open patio, where he would drink coffee, watch the jays squawk in the cedars, and listen to the LA traffic reports with a sense of satisfaction about no longer needing them. Marcia would sit next to him and read the paper. On a Sunday morning in 2007, however, he noticed a dull headache. By the time he had finished his second cup of coffee, the headache had become so severe that he mentioned it to Marcia. Within half an hour his speech had became garbled. His wife called 911, and an ambulance promptly took him to Foothills. The Albrittons had no way of knowing that, at this time, San Fernando Valley had the highest ambulance diversion rates in the state.1 Typically, big hospitals with large emergency rooms and full technological capability were the ones most often on diversion. At small Foothills, a one-hundred-bed community hospital, the cause of Taylor’s headache could be diagnosed but not treated. Dr. William Garza had been an emergency room doctor at Foothills for ten years. His greatest frustration lay in the problems he encountered when trying to transfer seriously injured or ill patients. He never got used to contacting one LA hospital after and being told that there were no beds “but we will call if one opens up.” Eventually a bed always did open up,

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but frequently the call came too late. Dr. Garza knew good medicine from bad medicine, and he resented being implicated in the practice of bad medicine. He was powerless to do more than care for each patient as well as he could. Marcia Albritton sat in the busy waiting room, alone and helpless, while Garza worked. An emergency CT scan of her husband showed a subdural hematoma: a blood clot between the brain and the skull, a critical surgical emergency. In one of its wide swings, the blood thinner had overthinned Taylor’s blood; and as frequently happens in such cases, a small blood vessel had burst on the surface of the brain. Garza immediately gave him a drug to counteract the blood thinner in order to stop further bleeding, but he needed a neurosurgeon to remove the blood clot. In an attempt to transfer Taylor to a facility with a neurosurgeon, Garza made calls to eight LA hospitals but was turned down by one after another. He knew the Episcopal did not like emergencies, but it was his ninth and last option. He telephoned and asked, “May I speak to the neurosurgeon on call? This is Dr. Garza at Foothills.” Within a few minutes, Dr. Raymond Alford identified himself as the neurosurgeon on call. Garza continued, “Sir, this is William Garza. I have an elderly male with a subdural hematoma and a declining level of consciousness who came into our ER this morning. He is on Coumadin, but I have reversed it with factor 7.” Curtly, Alford responded, “I do not have any ICU beds. I cannot help you. If a bed opens up, we will call you.” He hung up before Garza could plead further. Dr. Garza went back to evaluate Taylor Albritton, who had slipped into a coma that was rapidly becoming irreversible. He intubated Taylor to support his breathing and decided that he needed to talk to Marcia Albritton about the problem. He walked into the emergency room’s waiting area, called her name, and then led her to the sidewalk outside so that their conversation would not be overheard in the crowded room. Because of Garza’s sense of urgency, he had not even stopped to use one of the hospital’s quiet little consultation rooms for this conversation. “Mrs. Albritton, the headache that Mr. Albritton developed was from a blood clot on the surface of the brain. He has gotten worse since he arrived, and I have had to put a tube in his windpipe. The problem is that

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I cannot find a hospital staffed with a neurosurgeon that has a bed. I have called eight hospitals in LA that are full, and I am waiting on a return call from the last one.” Disturbed, Marcia Albritton thought quickly. Clearly, this matter was out of even the doctor’s control. But she knew people who might be able to help. “Dr. Garza,” she asked, “can you see if Taylor’s cell phone is with his clothes? He usually keeps it in his pocket.” Together they walked back into the ER, where Marcia saw her husband lying on a narrow gurney with a tube the width of a garden hose in his windpipe. She felt more alone and scared than she had ever felt before. Marcia knew that Taylor had managed Dr. Simon Brown’s investments and that they had been occasional tennis partners. She found his number on Taylor’s cell phone and made the call. Brown then called Jack Devoe at home, who in turn telephoned Raymond Alford, the neurosurgeon on call at the Episcopal that weekend. Alford was instructed to find a bed for Taylor Albritton. Alford called the ICU and transferred a patient who was not very sick out to the ward to open a bed for Taylor. The ICU was full because it was small and also because the neurosurgeons were blocking beds: that is, they were keeping non-acutely ill patients in the ICU instead of the ward to prevent an emergency patient (who might be uninsured) from filling the bed. This practice guarantees an ICU bed for next week’s scheduled cases. A helicopter was dispatched from the Episcopal to Foothills, and Taylor was in Alford’s operating room two hours later, eight hours after the onset of his headache. If he had had surgery within an hour or two of lapsing into a coma, he probably would have survived. But the surgery was too late. For a week Taylor remained in the Episcopal ICU on a ventilator, deeply comatose, before he was allowed to die. Each day Brown went into the ICU to check on his friend; and as the week progressed, he became more and more disturbed. He recalled his recent experiences with Juan Olivas, the uninsured man who had died before Brown could operate on his heart, and the young college student who died because Bayview Hospital had been overloaded, and he began to integrate those memories with the ensuing death of Taylor Albritton. Raymond Alford, however, did not give the matter any thought. Jack Devoe did drop by to speak with Marcia Albritton, but he was a numbers man, not a systems man, and

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never made the link between his moves to protect the Episcopal’s bottom line and the death of Taylor Albritton. After her husband’s death, Marcia Albritton, devastated and quite alone, sold their home and moved to live near one of her daughters in a Dallas suburb. Despite the fact that she had known someone in the hospital business, her actions had not been enough to save him. Only a properly functioning emergency services system could have done so. Position and connections are no insulation against the failures of the medical system. My fictional character Taylor Albritton is based on a real-life patient with the same problem and the same outcome. In 2003, this man was transferred three hundred miles by air to Houston for surgery because there was no bed in any nearby hospital that had a neurosurgeon. The patient and his wife had retired from the California information technology industry and had settled in the temperate and inexpensive Texas Valley. After the patient’s death I talked with his wife, who had no idea that her husband could have been saved if he had been treated promptly. She was packing to return to California.

Hospital Profits The functioning of the medical industry, like that of most other industries, is driven by financial incentives. People think that health care is expensive because of hospitals’, insurers’, and pharmaceutical companies’ excessive profit making. The evidence does not support that contention, at least with regard to hospitals and insurers. Hospital profits are healthy but not excessive when compared with those of other industries. For example, in 2004 hospital profits averaged 5.2 percent. In the same year the net profit margin of Wal-Mart was 3.5 percent; Exxon, 8.5 percent; Microsoft, 22.17 percent; and Dell, 6.38 percent.2 But while hospital profit margins as a percent of revenues may not be excessive, hospitals do undeniably sell excess products at excessive prices. Why? Because for a hospital to be profitable, it needs to do just three things: ■

Gain a monopoly or market leverage in the community

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Avoid the uninsured

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Promote the performance of highly paid procedures.

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Note that efficiency is not a requirement for profitability.

Market Leverage in the Community By the first decade of the new millennium, the nation’s hospital CEOs had learned an important lesson from their close call with managed care: there is strength in size. If hospitals aggregate into systems in a community, they cannot be forced to accept rates that are too near their operating costs. Of the 5,000 hospitals in the United States, 85 percent are not-forprofits, meaning that their profits must be used for research, education, and the public good—all loosely defined. In 2002, these not-for-profit hospitals earned tax breaks amounting to 12.6 billion dollars annually.3 To put this figure into perspective, SCHIP has insured 6 million poor children, and the federal portion of this program was 5 billion dollars annually from 1998 to 2007. For-profit hospitals, on the other hand, do not receive tax breaks and can use their profits for any purpose. There is no functional distinction between the two groups; they even care for about the same percentage of uninsured.4 Houston’s Hermann Hospital, a not-for-profit, was particularly unsettled during the managed care era because it was nearly insolvent. But when the country’s largest for-profit hospital company tried to buy it, the hospital’s trustees said they would close the hospital first because they believed that its founding mission to serve the public would be compromised. One evening I found myself in the living room of one of Hermann’s key board members, a respected community leader, urging her to find a way to merge the hospital with the nearby Memorial System before Hermann went under. “But Guy,” she said, “they don’t want us.” I responded, “Please try again. You have to make them want us. It’s our only chance.” The subsequent merger of Hermann Hospital with the Memorial System and other acquisitions created the largest not-for-profit hospital system in Texas. No insurer could do business in Houston without the Memorial Hermann System. After the merger the hospital said no to more discounts, its profit margin increased to a safe level, and its functioning vastly improved.

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Some version of this story has played itself out locally all over the country.5 Between 1994 and 2000, nine hundred mergers took place. When one hospital system dominates a region, it functions as a monopoly. When two dominate, they function as an oligopoly (defined as a small group of sellers). Both monopolies and oligopolies can drive up costs because they have little or no competition. A third hospital system in a community generates competition, but a fourth creates little more competition than three.6 Hospital monopolies and oligopolies can negotiate very high prices. In markets with many hospitals and hospital systems, such as Los Angeles and San Diego, hospital consolidation is estimated to account for only 5 to 10 percent of hospital pricing power. But when three hospitals in a community become two, as they did in San Luis Obispo, California, hospital prices can rise by 50 percent. Mergers of hospitals in geographic proximity are highly inflationary, increasing prices by 40 percent.* Hospital consolidation does not inherently improve quality, reduce cost, or improve efficiency, but it does improve profitability.7 Do not think I am advocating the disbanding of hospital systems. Regional hospital monopolies include some of the better U.S. hospitals and also house leaders in biomedical research. My point is that the public should expect more transparent pricing from an industry that receives a handsome tax subsidy in repayment for ill-defined and unmeasured public services.8 The Federal Trade Commission (FTC) is well aware of the effect of hospital monopolies on health care costs, but it has had little success in controlling them. Between 1991 and 1998 the FTC was one-for-seven in trying to prevent mergers that would produce extreme hospital monopolies or oligopolies.9 I asked a former federal prosecutor for the agency why the FTC had lost so many cases. His response was “The lead prosecutor says that the only two possible explanations for our failure are either that

* Some metropolitan areas are dominated by only two hospital systems where little competition can be expected. Examples are San Francisco (Sutter Health and University of California San Francisco Medical Center), Pittsburgh (University of Pittsburgh Medical Center and West Penn Allegheny Health System), Minneapolis (Fairview Health Services and Allina Hospitals and Clinics), Cleveland (Cleveland Clinic Health System and University Hospitals of Cleveland), and Boston (Partners Healthcare System and Care Group).

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we did a bad job or that the federal judges that ruled had friends on the local hospital boards and did not like outsiders coming into town.” At least one presiding judge expressed great faith in the board of a consolidated local hospital system, declaring that it would never allow the hospital to overcharge. After all, the system was a not-for-profit with a community board.10 I am not confident, however, that the well-heeled (and well-healed) board members of not-for-profit hospitals effectively shield the community against overcharging. The structure of hospitals’ group purchasing organizations is another reason to conclude that hospitals are not competitive in the usual business sense. These purchasing organizations contract for supplies on behalf of a group of hospitals with the purported object of buying at the lowest prices. But the sellers (medical device and supply companies), not the purchasers (the hospitals), manage the organizations and pay significant sums of money for their operation. Group purchasing organizations avoid violating the federal anti-kickback statute of the Social Security Act only because of exemptions in a 1986 federal law. You might expect that such arrangements would diminish expected savings. You also might conjecture that, because large suppliers pay the bulk of the operations fees, small suppliers, even those with innovative products, would have limited access to hospitals. There is considerable evidence that this is exactly what happens.11

Avoid the Uninsured Consolidation works to maintain profits, but hospitals must also avoid uninsured patients to maintain profitability. Only about half of hospitals make a profit caring for patients, earning their margins instead from investments and services such as parking and cafeterias. For years, the average hospital profit margin for care of patients has actually been a loss of between 2 and 4 percent.12 Among the 5,000 hospitals in the United States, 670 so-called safety net hospitals care for the majority of the uninsured. These institutions are in worse financial shape than most other hospitals because every year they care for a larger share of the uninsured as more profitable hospitals avoid them. In Texas, California, Georgia, Indiana, and Florida, the group

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of private not-for-profit hospitals that care for the most uninsured delivered four times more uninsured care (as a percentage of total revenue) than did the group of private hospitals that provided the least.13 Yet all have the same tax-exempt status. The safety net hospitals are not average for other reasons. Half are trauma centers, three-quarters are key centers for care of high-risk neonates and psychiatric emergencies, and many are academic medical centers.14 The financial failure of such hospitals endangers the entire community because anyone needing high-level emergency care is taken to one of them. These hospitals often have profit margins below the magic 2-percent figure for solvency.15 Yet remember that private not-for-profit safety net hospitals care for many more insured than uninsured patients, and an underfinanced, overloaded hospital is not safe for anyone. Hospital pricing practices also have a pernicious effect on the uninsured. When the uninsured can pay, they often pay much more than the insured do.16 When a hospital admits an uninsured emergency patient, a financial counselor meets with the patient or her family. If they judge that patient is indigent and can never pay, then the hospital writes off the charges. If, however, the uninsured patient has resources, they are charged and may be expected to pay at the full rate, which is three to six times what any insurer pays. One Sunday afternoon, my son, then twenty-two years old, called me from the waiting room of an urgent care clinic in Arizona. He was accompanying a young uninsured laborer who had a severe sore throat. According to my son, the only other person in the waiting room had been there for four hours with a leg that was “bent the wrong way” after a car accident; she told the boys that she had no insurance. Hours before, my son had observed staff members ushering the presumably insured occupant of the other car out of the waiting room into the clinic’s examination room. He was calling to ask me how much the visit would cost his friend and wondering if they also would have to wait for four hours. I told him to ask the desk clerk if they could have a Medicare rate and to tell the clerk that they would pay cash up front. In a few minutes my son called back and said, “Dad, she looked at me like I was crazy. She said that Medicare rates are only for Medicare and Blue Cross patients.” When the boy’s parents called the front desk with a credit card number, however,

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he was instantly ushered into an examination room, leaving the woman with the leg bent the wrong way sitting in the waiting room. She must not have had a credit card.

Promote Surgery Hospital profitability depends on encouraging doctors to perform highly paid procedures. A hospital’s patients come in two varieties: those admitted for procedures (surgical patients) and those admitted because their conditions need acute medical management (medical patients). Medical patients usually have heart failure, pneumonia, or respiratory failure and are admitted for therapies such as intravenous fluids, ventilation, and medications when their conditions are not manageable in the clinic or at home. Doctors and hospitals that care for medical patients are paid feefor-service. (In the case of Medicare, hospitals are paid a flat rate that is increased if the patient has had procedures and complications at the time of discharge.) The fee-for-service payment system is based upon the manual difficulty of delivering a service, not the cognitive difficulty and certainly not the outcomes of care. The more manually involved a medical service, the higher the payment. I cannot defend such a payment policy because it makes no economic sense. For instance, it is much harder work to take care of a sick trauma patient in the ICU, for which a neurosurgeon is paid 100 dollars a day, than to perform a two-hour spine procedure, for which a neurosurgeon is paid 2,500 dollars. Because of this payment policy, medical patients contribute half as much as surgical patients to a hospital’s bottom line. In 1999 about 40 percent of U.S. hospital admissions came through emergency rooms, and more than 70 percent of them were low-profit medical patients with fewer than 10 percent needing procedures.17 Surgical patients, on the other hand, are admitted to a hospital to have prescheduled, non-emergency procedures and are always insured. These patients form one-third of U.S. hospital admissions, half of hospital charges, and probably well over half of hospital profits.18 In short, emergency rooms cost hospitals money for two reasons: they care for the uninsured, and they expose hospitals to lowmargin medical patients. The profit margin from care of medical patients is so narrow that a hospital would not be economically viable if it did not

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also perform high-tech procedures. The entire payment system is tilted to the performance of procedures, rewarding hospitals just as it rewards doctors. This double stimulus gives hospitals a ready source of profits and encourages them to act with doctors to generate the need for procedures. I was service chief of neurosurgery at Memorial Hermann Hospital in Houston for fourteen years. Hospital service chiefs are doctors designated by the hospital or elected by other doctors to represent all members of their specialty in negotiations with hospital administration. It is also their job to ensure quality of care among doctors in their specialty. A hospital service chief’s most important duty comes at the beginning of the hospital’s fiscal year. This is when service chiefs vie for resources, but it’s a zero-sum game. That is, the hospital has only a certain amount of money for equipment purchases and a specific number of hospital beds and operating rooms to apportion among the various services, so the doctors are fighting for limited resources. We all knew that the most profitable services always got the most resources. For years I was frustrated because I could not compel the hospital to build a new neuroscience ICU even though ours was cramped. My efforts had been stalled for years by successive hospital administrators, but one year a palatial cardiac ICU was quickly constructed and new cardiac surgeons were recruited into the same building with lavish contract packages. I am a realist, but I could not understand why they had been awarded these resources: I knew that the neurosurgery department’s profit per patient was almost the same as the cardiac surgeons’. The Health Care Advisory Board gave me the answer. The board is a Washington, D.C.–based hospital industry consulting group that analyzes industry trends and advises hospitals on how to maintain profitability. According to the advisory board, although neurosurgery is equally profitable per patient, it is far below cardiac surgery in the potential number of patients that the specialty can bring to a hospital because more patients have cardiac surgery problems than have neurosurgical problems. Yet my specialty received more hospital space and equipment than certain other specialties did, which my buddies in medical neurology (a specialty that takes care of neurological patients without surgery) were quick to point out. As the advisory board’s glossy gold volumes show, medical neurology has much lower profitability per patient because these

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neurologists do not perform procedures. So when it came to getting hospital resources, my friends in medical neurology never had a chance. In a 2001 publication, the advisory board ranked specialties as “most favored,” “preferred,” and “least favored” based on their profitability. High-end, high-volume procedural specialties such as cardiac surgery and neurosurgery generated nearly 1,000 dollars per day per patient in hospital profits. Cognitive doctors who manage patients without procedures, who include “least favored” practitioners such as medical oncologists and primary care physicians, generated half that much. By referring to these statistics, I was able to explain every hospital and medical school resource decision during a fifteen-year period.19 The entire health care industry is tilted toward performance of procedures, not prevention of disease or its management.

Captive Local Markets Medicine is not a national market like the car industry, and one reason is because cars can be shipped to and from anywhere. Patients cannot drive to the cheapest hospital in town or to another city when they think they have an emergency. Patients needing non-emergency procedures can and do fly to hospitals and doctors that they believe can deliver superior care. They could also choose to travel to lower-cost providers and create price competition, though at some inconvenience to their families and themselves. But because most insured patients pay only a small percentage of the cost of their health care, they have no reason to travel for discounts alone. Emergency admissions account for at least 40 percent of hospitalizations. Health care is regional, and it is not discretionary. When you need it, you have to have it; and if possible, you would prefer to have it close to home. Even hospitals that are not consolidated can exert considerable pricing leverage in the community, especially in a small one. Like the electric company, hospitals are essential. A car dealer cannot simply raise the price of cars as a way of guaranteeing better pay. If prices are too high, people will go to another dealership. On average, however, the more hospitals charge, the more they are paid.20 They remain busy and full regardless of the prices they charge because patients have nowhere else to go. In 2003 and 2004 hospitals

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charged roughly 244 percent above their costs. The forty most expensive U.S. hospitals marked up operating room use, drugs, and medical supplies by 1,000 to 5,000 percent.21 When California required its hospitals to publish their prices, journalists and health economists had a festival with the information. The charge for a chest X-ray, for example, varied from 100 dollars in San Francisco to 1,500 dollars in Modesto.22

Efficiency Disconnected from Profits Efficiency has nothing to do with hospital profitability. In fact, in today’s setting, efficient hospitals may even be penalized. John Wennberg of the Dartmouth Institute for Health Policy and Clinical Practice, who established that 30 percent of Medicare spending is waste, took his research to California, where hospital charges may vary tenfold from hospital to hospital. He examined the cost to Medicare of patients who were hospitalized at any time in their last two years of life. Sacramento hospitals and doctors were the most efficient, Los Angeles hospitals and doctors the least efficient. In Los Angeles the probability of dying in an ICU was 33 percent, in Sacramento only 19 percent. Compared to Sacramento patients, Los Angeles patients spent more than twice as many days in the ICU. As a result of these frequent and prolonged hospitalizations, the cost of care in the last two years of life was nearly 70 percent higher in Los Angeles than it was in Sacramento. Adding to the cost, Medicare paid some Los Angeles hospitals at a higher rate per patient than it did Sacramento hospitals—because Medicare pays more for hospitals with a history of charging more and that function in high-cost areas.23 Inefficiency in the operating room drove many surgeons to start their own hospitals in Houston. In all the hospitals where I have worked, it was commonplace for surgeons and anesthesiologists to wait for more than an hour between cases as operating room nurses who earn 70,000 dollars a year drank coffee in the adjoining lounge. Surgeons and nurses were all waiting for minimum-wage housekeeping crews to show up to clean the operating room between surgical cases. The housekeeping department, which supervised the cleaners, had little interest in the efficiency of the operating room. I once calculated the cost of this practice at 250 dollars per minute, and that was without considering utilities.

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On the neurosurgery wards of every hospital where I have worked, the nurses spent at least one-third of their time meticulously handwriting notes. They abhorred the time they spent away from their patients, and the patients suffered for it. Electronic charting would have saved time and money and reduced errors. Over the years the only performance measure that every hospital routinely provided to the neurosurgery service was length of hospital stay. This was because the longer a Medicare patient with a given condition stays, the more money a hospital loses. Infection rates, complication rates, and outcomes of treatment require hospital resources if they are to be reported regularly; so over the years we only sporadically saw such information. Complications are also very expensive, but preventing them received little consistent attention because they do not cost hospitals money, just the insurers. Hospitals are paid more for patients with complications—though now Medicare and some insurers are no longer paying for some complications. Hospital inefficiency is not the only culprit. A significant amount of money could be saved if hospitals and their doctors had the same financial incentives. Doctors, however, are paid for different services and in different ways. The longer a Medicare patient stays in the hospital, the higher the cost to the hospital. But doctors have no reason to care how long a patient’s stays in the hospital because it has no influence on their payment. I saw this payment dichotomy result in spectacular waste and even reduced access to needed treatment. Here is one example. Although removal of an epileptic area in the brain cures many patients of seizures and transforms their lives, they must endure three to ten days of monitoring with electrodes in their brains while they lie in a hospital bed. Specialized nurses closely watch them on television monitors; million-dollar equipment simultaneously records and analyzes their brain waves. These epilepsy monitoring units with their specially trained staff consume immense resources and cannot be used very well for any purpose other than treating epilepsy. Our hospital’s unit lay vacant or barely used on weekends and holidays because the neurologists and neurosurgeons responsible for these patients organized their schedules around a Monday-through-Friday work week. Meanwhile, there was a six-month queue of patients waiting to be admitted. Hospital administrators could

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never compel doctors to write discharge orders early in the day to free up needed beds. For hours, fully clothed patients sat among flowers in their rooms waiting for doctors to write simple discharge orders. All the while, sick patients needing admission languished on stretchers in the emergency room, not always safely, for lack of a hospital bed.

High Labor Costs and an Artificial Nursing Shortage Fifty-seven percent of a hospital’s costs go toward personnel wages and benefits, and the majority of that is for nurses. Yet labor costs are inflated by an artificial nursing shortage. In 2001 hospitals had a mean nursing vacancy rate of 13 percent—126,000 vacant positions nationwide. High nursing demand was estimated to have increased nursing salaries by 10 percent in 2002.24 But there is a false reality at play. Dr. Ada Sue Henshaw was dean of the School of Nursing at the University of Michigan for many years and also founded the National Institute of Nursing Research at the National Institutes of Health, a prodigious accomplishment for the nursing profession. Dr. Henshaw told me that the present nursing shortage has three causes: ■

Insufficient faculty to train qualified nursing students

■

Insufficient clinical sites for the training of nursing students

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Dissatisfaction with the hospital work environment Although the total number of nursing graduates has been steadily

decreasing since 1995, nursing schools do not suffer from a shortage of qualified applicants. In 2005, 37,514 out of about 100,000 qualified applicants for nursing schools were turned away because of a faculty shortage. The reason for the faculty shortage is that master’s- and doctorate-level nursing faculty members are paid about 25 percent less than they could make from working in hospitals.25 According to surveys, hospital nurses’ chief sources of dissatisfaction are stressful working conditions and long hours; only 18 percent are dissatisfied with salaries. The nursing shortage has driven up wages and required hospitals to use temporary employees who are often paid at twice the cost of full-time employees.26 In every area of hospital function, from laboratory services to the pharmacy, the labor shortage is caused by an artificial bottleneck in training, not from lack of qualified applicants.

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These personnel shortages require a solution, not only because they drive up hospital costs. Undertrained and overworked nurses in understaffed hospitals increase error rates precipitously. An insufficient ratio of nurses to patients increases surgical mortality rates and nursing burnout.27 In my experience, nurses, not doctors, are the people who make hospitals work. Failing to train nurses who want to work is almost suicidal. The overall picture is that hospitals are largely insulated from competitive pressure by their privileged position as essential community resources. They are able to gain inflated payments simply by charging inflated prices. In a perfect partnership with doctors, they can increase their profits by promoting procedures. But they also depend on inflated prices and the profit from procedures to cost-shift their losses from uninsured patients admitted through their emergency rooms. Their cost structure is increased by an artificial labor shortage created by the failure of schools of nursing and allied health sciences to pay their faculty competitive wages and to find enough hospitals in which to train their students. Hospitals are paid in a way that promotes inefficiency and high cost. The more things done to a human body in them, the more both hospitals and their doctors are paid. So of course, they are expensive, inefficient, and often dangerous. And of course, they are not rushing to purchase and implement information technology. There is no business case for the use of information technology because there is no business case for efficiency. I have reached several conclusions. First, the uninsured will have to be covered in order to create efficient hospitals. Otherwise, it will be impossible to drive down waste. Second, for hospitals to have any financial incentive for efficiency, they, like doctors, must be paid for the final product of care, not for the number of processes performed. Third, if doctors and hospitals are not paid out of the same pot of money, their incentives will never be aligned and efficiency will be elusive. Fourth, the labor bottleneck must be opened for prices to come down and quality to improve. Fifth, hospitals will always be expensive places; therefore, the best way to save money is to use them like a sharp scalpel—only when absolutely necessary. Finally, there is real danger for patients in allowing current trends to continue because the business decisions that hospitals are forced to make are often not in the best interests of the community.

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14 Pharmaceuticals Remarkable Innovation, Shameless Puffery

The pharmaceutical industry makes a sizable percentage of its profits from developing and promoting drugs of doubtful value as replacements for older, cheaper drugs.

Americans’ average life span has increased by twenty-five years since 1900. The Centers for Disease Control concludes that twenty of those years are the result of simple measures such as sanitation, clean food and water, decent housing, and vaccination. Five years and three months of the increase are attributed to medical care, and pharmaceuticals contribute to nearly half of those five years. When doctors were asked to name the thirty most important medical therapies, they identified four classes of pharmaceuticals among the top-ten breakthroughs in medicine.1 In their judgment, prescription drugs have played a large role in medical progress. Heavily subsidized by federally funded research, the scientists, marketers, and administrators of the pharmaceutical industry have transformed the treatment of human disease. Yet the industry has been harshly criticized for high costs, deceptive marketing practices, and lack of transparency. These accusations could be leveled just as easily at doctors and hospitals; but compared to more than 5,000 hospitals and 900,000 doctors, pharmaceutical manufacturers are a concentrated target. Public ire is also high because individuals pay for one-quarter of the prescription drugs sold, and for many Americans the cost is not episodic but a daily expense.2 High prices become an immediate concern when the payments come from your own pocket. 157

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Each segment of the medical industry generates excess cost in a different way: hospitals by inefficiency, excessive pricing, and promotion of unnecessary procedures; doctors by inefficiency and provision of unnecessary services and procedures; the pharmaceutical industry by creating a sense of need for products of marginal value, which results in their overuse and justifies their overpricing. Compared to older, cheaper versions of the same drugs, three-quarters of new prescription medications probably have little or no additional value, although they are marketed and priced like essential breakthroughs.

Vioxx, Celebrex, and Bextra The painkillers Vioxx and Celebrex came to the U.S. market in 1999, and Bextra arrived in 2001. By 2001 the annual sales of these drugs totaled 4.7 billion dollars, or 3.4 percent of all U.S. prescription drug sales.3 Much of this money was wasted; and I, too, contributed to the waste because I frequently prescribed Vioxx and Celebrex in my clinic. But I was not the one seduced by pharmaceutical marketing: my patients were, and I was an accomplice. Unless the problem obviously required surgery, my standard regimen for patients with pinched neck or back nerves was to treat them for about three months with physical therapy and medications called non-steroidal anti-inflammatory drugs (NSAIDs) such as the over-the-counter medications Aleve and Motrin and the prescription drugs Vioxx and Celebrex. About half of patients with pinched nerves are effectively cured by simply taking medication, and for years I had recommended Naprosyn (sold over the counter as Aleve) and Ibuprofen (sold over the counter as Motrin or Advil) as the two NSAIDs of choice. These older medications carry about a 3-percent risk of gastrointestinal bleeding after four months of use, a risk that is higher in patients who have a history of ulcer disease or take aspirin or blood thinners. I always asked the patients about these risk factors and, for the one in twenty who was at risk, I did not prescribe an NSAID. In 1999 a Merck representative left samples of a new drug, Vioxx, at the clinic and told me it was a completely new class of NSAID, a medicine called a COX-2 inhibitor, with a smaller risk of producing gastrointestinal hemorrhage. I thought that Vioxx might be useful for the occasional

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patient who had a history of ulcer disease or was on blood-thinning medications. Several years later Pfizer released Celebrex and then Bextra, both of which acted by the same biochemical mechanism as Vioxx did. Because I prescribed these drugs infrequently, I never thought about their cost until almost every patient began to request a prescription for Vioxx or Celebrex rather than Aleve or Motrin. The patients seemed as familiar with the names of these two drugs as they might have been with the names of their children. At the time I did not know that television was blanketed with paid testimonials from middle-aged athletes such as Dorothy Hamill, the 1976 Olympic figure skating medalist, shown still happily skating thanks to COX-2 inhibitors.4 Around this time I had also concluded that the insured were eating up the medical care of the uninsured, and I began trying to reduce waste in my practice. As my prescribing habits changed in response to patients’ demands, I decided to investigate the price of these drugs. One day’s worth of over-the-counter Aleve cost twenty-four cents. At the CVS pharmacy, an equivalent dose of Celebrex was $2.10, and Bextra cost $3.53.5 Armed with price information, I began to urge patients without risk factors for gastrointestinal bleeding to use cheaper medication. My conversations followed a uniform pattern. At the end of each clinic visit, while the patient and I stood at the checkout desk, I said, prescription pad in hand, “I usually prescribe Aleve or Motrin as anti-inflammatories because they work well without many side-effects and they’re inexpensive.” Invariably, the patient’s response was “Could I have [Celebrex, Vioxx, Bextra] instead?” “Yes, but it costs ten times more than Aleve or Motrin.” “It doesn’t matter. I have a prescription drug plan.” If I had insisted on Aleve or Motrin and the patient had had any sideeffects or failed to improve, she would have questioned my judgment. So because the clinic was busy and I had no time to waste, I would drop the matter with a cheerful, “Okay.” But patients without a prescription drug plan always took my advice and chose over-the-counter NSAIDS. I estimate that over a five-year period I wasted about 500,000 dollars prescribing COX-2 inhibitors when over-the-counter NSAIDs would have sufficed. Ironically, I was unable to peddle COX-2 inhibitors for the one indication in which they were superior: no patient with a history of

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gastrointestinal bleeding would try any NSAID, preferring to tough it out rather than risk bleeding.

The Pharmaceutical Marketing Machine But wasting money is not the only thing we’ve learned from Vioxx and Celebrex. The pharmaceutical marketing machine is astonishingly effective in America, and the same machine that so effectively sells drugs of marginal benefit also goes to great lengths to keep them on the market. The FDA must approve the safety and effectiveness of any medication marketed in the United States. The agency’s decisions are based on pharma-sponsored clinical trials that compare outcomes in patients treated with the new drug to those treated with a placebo (a sugar pill). The FDA does not require new drugs to be compared in effectiveness to similar medications for the same disease: approved drugs do not have to be better, just different and better than nothing. Once a drug is approved, the manufacturer is free to market it to both consumers and doctors for the approved use, though doctors commonly use drugs for indications other than those approved by the FDA. It would be difficult to practice otherwise. The result, however, is that once a drug is approved for any indication, it may be used for others; FDA approval is just the start of the drug marketing process. Television is blanketed with commercials extolling the virtues of a particular prescription medication for one or another common illness. The industry’s marketing technique is to convince both doctors and patients that a drug is the best in its class for a given medical condition. The ad’s sunny images and soothing words do not tell the viewer if the drug is the only treatment for a condition, the best treatment for a condition, or just one of many equivalent treatments. As it turns out, often no one really knows, which is not information that pharmaceutical advertisers are likely to reveal. Ninety-one percent of U.S. magazine ads for prescription drugs fail to discuss the possibility of treatment failure, and 71 percent do not discuss alternative treatments.6 In 2000 direct-to-consumer advertising composed only 15 percent of the industry’s advertising budget, and it was reserved for only the most highly promoted drugs. About one in ten people asks his doctor for the

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drug after seeing a prescription drug ad. In 1997 the FDA issued a guidance that allowed manufacturers to identify specific products in direct-toconsumer advertisements. From 1999 to 2000, the fifty drugs that were most heavily advertised to consumers accounted for almost half the increase in sales of prescription drugs.7 A study by the U.S. Government Accountability Office found that pharma’s spending on direct-to-consumer advertising increased twice as fast from 1997 through 2005 as did spending on research and spending on promotion to physicians. The funds were well invested. For each dollar spent on direct-to-consumer advertising, pharma enjoyed a $2.20 increase in sales. The volume of advertising is so great that it has overwhelmed the FDA’s ability to police it.8 Such marketing was particularly effective for the COX-2 inhibitors. In 2000 Merck spent 160 million dollars marketing Vioxx. In contrast, Pfizer spent 71.2 million dollars marketing Celebrex to consumers during the first nine months of 2004. The funds were well invested. Merck sold 1.5 billion dollars’ worth of Vioxx, and Pfizer sold 2 billion dollars’ worth of Celebrex within a year of their introduction.9 Most of the billions of dollars in sales of COX-2 inhibitors were waste. Soon after FDA approval of the drugs, researchers clearly established that COX-2 inhibitors do not offer better pain relief than older, cheaper drugs do. Such quick, well-established findings are not typical of other drug classes. But even at the time of approval, the data showing that COX-2 inhibitors better reduced the risk of gastrointestinal bleeding were so doubtful that the FDA did not allow the companies to make that claim on their labels.10 But like me, most doctors give patients what they ask for if it is suitable for their condition.11 If the patient has prescription drug coverage and is not required to pay part of the cost of the prescription, neither doctors nor patients care about the cost of the drug. In 2007, 90 percent of Medicare beneficiaries had prescription drug coverage, and 98 percent of employer-based insurance plans offered the benefit. The Medicare patients most likely to receive COX-2 inhibitors were not those with risk factors for gastrointestinal hemorrhage; rather, they were patients with prescription drug coverage.12 In May 1999 the FDA approved the marketing of Vioxx for treatment of the common arthritis that affects aging knees, hips, shoulders, and

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spines and for pain associated with menstrual cycles.13 Arthritic aches and pains are a ubiquitous part of the human condition, and there is no telling how much money might have been spent on these drugs if a problem had not been discovered after their widespread dissemination. In 1999 Merck sought to expand its approval, hoping to market the drug for treatment of rheumatoid arthritis, a common and disabling condition in which the body attacks its own joints. It launched a study of more than 8,000 patients, comparing the effectiveness of Vioxx to prescriptionstrength Aleve in relieving pain. Although Vioxx was found not to be more effective than Aleve in pain relief, the study showed that it decreased the risk of gastrointestinal hemorrhage. But it also showed that patients treated with Vioxx had an increased risk of heart attack. In a conjecture that went far beyond the strength of the data, the authors promoted the idea that Aleve prevented heart attacks rather than concluding that Vioxx produced them.14 They seem to have gotten away with that conclusion because the FDA approved Vioxx for treatment of rheumatoid arthritis. Five years and many billions of dollars of drug sales later, the editors of the New England Journal of Medicine, publisher of the Vioxx study on rheumatoid arthritis, found evidence in an internal memorandum made public in Vioxx litigation suggesting that the authors knew of data from three patients that were not included in the published analysis. Inclusion of those data in the publication would have further demonstrated Vioxx’s cardiovascular risk, and their absence led journal editors to question “the integrity of the data on adverse cardiovascular events in this article.”15 In 2003 Vioxx constituted 11 percent of Merck’s revenue, so the company resisted removing it from the market. But when a study testing Vioxx for prevention of precancerous colon polyps showed an 80-percent increase in risk of stroke and heart attack when the drug was taken for eighteen months, the company voluntarily withdrew it. In the meantime, however, there were more allegations that the company had been involved in deliberate statistical manipulations that favored the drug in this study.16 In 2004 the FDA asked Pfizer to voluntarily suspend direct-toconsumer advertising of Celebrex and in 2005 asked the company to withdraw its other COX-2 inhibitor, Bextra, from the market because of evidence of cardiovascular risk in other clinical trials. Yet in fact, when it comes to knowing about the effectiveness of new prescription drugs

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compared to older, cheaper drugs, these three COX-2 inhibitors are a best-case scenario. Most other new drugs are never systematically tested against older drugs in the way that Vioxx and Celebrex were tested against older NSAIDs.

Creating and Promoting Me-Too Drugs The pharmaceutical industry makes a sizable percentage of its profits from developing and promoting drugs of doubtful value as replacements for older, cheaper drugs. The FDA sorts drugs it will evaluate for approval into three categories: generics, priority drugs, and standard drugs. Generics are old prescription drugs whose patent life has expired (such as Aleve and Motrin) or drugs that were never patented. Because more than one company can market generic drugs, they are cheaper than patented drugs. They account for 19.4 percent of prescription drug spending.17 Priority drugs are those for which the FDA grants an expedited review because they appear to offer clinical improvement over existing treatments. Priority drugs are usually an entirely new chemical formula for treatment of a disease or a change that substantially improves the delivery of an existing drug (for example, a pill that lasts all day instead of requiring three or more doses in one day). Both Vioxx and Celebrex were rated priority drugs because they worked by a unique biochemical mechanism for NSAIDs. A patented pharmaceutical that appears to FDA examiners to offer little additional benefit over existing treatments is termed a standard drug. Standard drugs undergo a slower review process than priority drugs do. They are usually combinations of two other drugs in one pill, slow-release formulations, or slightly tweaked formulas of existing drugs. Standard drugs have also been called me-too drugs because they are patented copies of something that already exists. Between 1989 and 2000, 76 percent of all new drugs approved were rated standard.18 But new drugs, whether priority or standard, are often priced and marketed as if they have unique patient value. The pharmaceutical industry is focusing immense energy on the creation and mass marketing of me-too drugs. From 1995 to 2000, new standard-rated drugs accounted for 67 percent of the increase in

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pharmaceutical spending.19 One reason is that companies are able to sell new me-too drugs at much higher prices than older drugs and often at the same prices as priority-rated drugs. In 2000 the average price per prescription of new chemical formulations that had been rated priority was $91.20, while those rated standard was nearly the same at $81.92. The price of older standard drugs was $37.20 per prescription. The price spread between priority- and standard-rated combinations of drugs or slowrelease formulas (not new chemical formulas) was greater, but standard drugs in this class were still priced more than 50 percent higher than older drugs.20 Both standard- and priority-rated drugs are generally advertised and priced as medical breakthroughs; and in the absence of data about their value relative to existing drugs, who can tell the difference?

Drug Importation: Not much to Offer In 1999 the prices of patented drugs without generic competitors were 28 to 42 percent lower in other countries than they were in the United States.21 There are two schools of thought on this difference. Either the United States pays too much for prescription drugs, or the rest of the world pays too little. A major reason for the price differential is that a government agency is the primary purchaser of medications in most foreign countries, and the volume of purchase is so great that the pharmaceutical manufacturer must deal if it wants to do business. Governments keep drug prices low in three ways: by purchasing large volumes of medications, which results in discounts; by setting price ceilings for what they will pay; and by refusing to purchase every available drug. According to basic supply-demand economics, a purchaser who must have a drug will pay a high price for it. For example, biopharmaceuticals are a class of drugs derived from the body’s own proteins. They treat conditions such as anemia, multiple sclerosis, and cancer. These drugs are so complicated to invent and produce that they are usually the only pharmaceutical that acts in their own particular way, so generic formulations are uncommon. Their price averages 71,000 dollars per patient per year. Biopharmaceuticals and other drugs in their class comprise about 14 percent of U.S. pharmaceutical sales.22 If a car dealer knows that a person has to buy her vehicle and cannot walk away, why will she lower

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the price? The situation is the same for drugs, so the prices of unique specialty drugs are about the same in foreign countries as they are in the United States. Our nation, however, spends twice as much per capita on such pharmaceuticals because of greater use.23 But for most drugs, foreign governments pay less. In Canada, for example, drug prices are regulated by the Patented Medicine Prices Review Board, which establishes a national ceiling on prescription drug prices based upon the average price in seven other countries—France, Germany, Italy, Sweden, Switzerland, the United Kingdom, and the United States. Canada’s national insurance program does not provide drug coverage, but all Canadian provinces provide some prescription drug plan, at least for seniors. The provincial governments purchase 42 percent of all pharmaceuticals bought in Canada, so they buy large quantities of drugs. Because of the federal price ceiling and the purchase volume, the provinces get better prices than U.S. consumers do.24 U.S. consumers pay such high prices for drugs partly because they are willing to pay through the nose for me-too drugs that countries buying drugs for their populace often will not purchase at all. Such countries, as well as pharmacy benefits managers that purchase drugs, have a formulary (a preferred list of drugs) that limits the number of drugs covered by a prescription drug plan and therefore the number of drugs available to a patient. Unless an insurer or a government is authorized to have a formulary that excludes many drugs in a therapeutic class, it has no basis for negotiating a lower drug price. Of 250 leading active pharmaceuticals, 2,196 different presentations (which might be, for instance, one drug’s combination with another in a single pill) were purchased from nineteen U.S. manufacturers. For the same 250 active pharmaceuticals, residents of Canada, Chile, France, Italy, Japan, Mexico, and the United Kingdom consumed half that number of presentations, which they purchased from fewer than seven manufacturers.25 New me-too drugs cost more than older drugs, and many of the drugs Americans purchase are more expensive only because they are offered as “the latest thing.” The Medicare Prescription Drug Improvement and Modernization Act (MMA) of 2003 permits importation of drugs from Canada if the secretary of the Department of Health and Human Services certifies that

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the practice is safe and saves significant money. The secretary, however, has never provided such certification. The pharmaceutical industry opposes drug importation because it views the practice as de facto price setting in the United States, though their official position is aligned with the FDA’s, which opposes importation because the agency has no way of guaranteeing the origin or safety of imported drugs. The Congressional Budget Office (CBO) is a politically neutral agency comprised of specialized budget analysts supported by advisory boards of national experts in every area. The CBO provides members of Congress with the projected costs of their legislative proposals and enacted legislation. A congressional committee that asks the CBO for an opinion had better be confident about its inquiry because the budget office releases its answer regardless of whether or not it is the answer the committee desired. Regarding drug importation from other countries, CBO experts have estimated that it would reduce U.S. pharmaceutical costs by only 1 percent. They conclude that if the United States attempted to import drugs on any scale, drug makers would contractually exclude medications that they sell outside the United States from being imported into the country at lower prices. The CBO has also determined that, because of the size of the U.S. market, America could not import from just one country. For example, Canada’s population is about one-tenth that of the United States, so only large-volume importation would produce any savings.26 In short, importation would be a legally complicated undertaking, difficult to regulate and fraught with safety concerns about counterfeit drugs. Drug importation is also not practical because the U.S. pattern of drug use is different from that of other industrialized countries. Canadians, the French, Germans, and the British consume about the same amount of drugs per capita as Americans do, but Europeans’ use of new drugs is onethird less expensive per capita. Compared to Canadians, Germans, and the French, Americans consume about twice as many new drugs (those less than five years old).27 European countries are not willing to buy metoo drugs at a premium when older, cheaper drugs will suffice; therefore, many of the drugs that U.S. direct-to-consumer marketing so effectively promotes would be unavailable for importation. American consumers would have to wean themselves from a cafeteria of me-too drugs to consider drug importation on a large scale. But even then the safety issues

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seem insurmountable. Clearly, drug importation is not the way out of high drug prices.

Can the Government Find the Right Price? The Republican idea is that private business can manage health benefits better than the government can. Republicans do not like the idea that Medicare directly pays doctors and hospitals for medical services. They would prefer insurers or managed care organizations to handle payment and manage benefits. The MMA, which was promoted and enacted by a Republican Congress and president, established the prescription drug benefit along Republicans’ preferred lines. Medicare directly pays the managed care organization that the beneficiary chooses to manage his benefit. If the program had been designed like traditional Medicare, the government would be directly buying drugs for Medicare beneficiaries, a prospect dreaded by the pharmaceutical industry. Medicare may not have a formulary, but every pharmaceutical managed care organization does. Republicans hoped that, by privatizing the program, they would prove that costs could be controlled without direct government intervention. And they may have been on to something. The program came in 30 percent below its projected cost in its first year. Nevertheless, the implementation of Medicare Part D resulted in a large increase in pharmaceutical spending in 2006.28 The MMA also prohibits the secretary of health and human services from negotiating the purchase of drugs for Medicare patients or establishing a formulary, thus effectively prohibiting the government practices used in most other industrialized nations to control drug costs. But U.S. drug prices are still above those of other countries, leaving the question “What is the right price for a medication, and how should it be determined?” The pharmaceutical industry claims that if Medicare paid the same prices as the governments of foreign countries, pharmaceutical innovation would grind to a halt. The industry notes that from 1992 to 2002 the U.S. share of pharmaceutical industry profit grew from 47 to 62 percent while the European Union’s share fell from 35 to 18 percent.29 The industry depends heavily on the U.S. market for its 18-percent profit margin and, so companies claim, for research revenues too.

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But proponents of price controls point out that the pharmaceutical industry spends 32 percent of its revenue on marketing, advertising, and administration and only 14 percent on research. Five of the seven top U.S. pharmaceutical companies spent twice as much on marketing as on research in 2004. In 2001 the industry employed 81 percent more people in marketing than it did in research, a gap that is only growing.30 If the U.S. government were to set Medicare prices for prescription drugs, its most likely methods would be (1) indexing the prices to those paid by the governments of a group of other countries, as Canada does, or (2) negotiating a profit margin with pharmaceutical manufacturers, as the United Kingdom’s National Health Service does.31 Either approach would require a law change so that Medicare could directly buy drugs as it buys other medical supplies and services. The drug benefits of most people in the United States are administered by managed care organizations. These organizations in turn are advised by pharmacy and therapeutics committees, groups of experts whose identities are protected to keep pharmaceutical manufacturers from trying to influence their decisions. These committees objectively evaluate the strength of the evidence about the effectiveness of new drugs. The managed care organizations negotiate prices and make formulary decisions based upon the relative value of a new drug as determined by their pharmacy and therapeutics committees. Performed soon after FDA approval, independently conducted, properly designed clinical trials to determine the relative effectiveness and risks of new drugs could reduce drug costs and would almost certainly improve the quality of clinical care (as illustrated by the Vioxx and Celebrex story) by providing critical information to pharmacy and therapeutics committees and to doctors. The judgments of these committees are only as complete as the data that are available to them for evaluation. For example, an early trial testing Vioxx versus Celebrex versus Aleve would likely have found that they were equivalent in managing arthritis pain, that the cardiovascular risk of Vioxx was out of proportion to its benefits in reducing gastrointestinal hemorrhage, and that the increased risk of stroke and heart attack with Celebrex was acceptable only in those few patients at high risk of gastrointestinal hemorrhage from NSAIDs.32 The result of such information might have been the inclusion of Celebrex

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in all formularies, with its use limited only to high-risk patients. While such a trial (or trials) would have cost millions of dollars, it would have saved billions. If you doubt the need for such a trial, consider the position of any managed care organization that had questioned the safety and effectiveness of Celebrex and Vioxx and had chosen not to purchase them for its formulary in 1999 or 2000. Expert opinion already suggested that Vioxx carried excessive cardiovascular risk, but the first clinical trials were not designed to detect such risk and so underestimated it. Moreover, the information may have been suppressed anyway.33 At the time there was insufficient proof to convince the FDA’s examiners that the drug actually decreased the risk of gastrointestinal hemorrhage. Yet even with such weak proof of COX-2 inhibitors’ effectiveness, what would have happened to any managed care organization that decided to save money by not covering Vioxx and Celebrex, limiting their use to high-risk patients, or threatening to leave Vioxx off its formulary and purchase only Celebrex unless the manufacturer accepted a lower price? In the face of a 160-million-dollarper-year direct-to-consumer advertising campaign, whoever made this decision would have endured a beneficiary and provider revolt over a drug that proved to be worse than worthless.34 While the Vioxx and Celebrex story is revealing, uncertainty about relative effectiveness and relative risk exists for many groups of highly touted pharmaceuticals. The data are lacking that would allow managed care organizations to further narrow their formularies or approved uses of pharmaceuticals without being pilloried by both pharma and beneficiaries. Better to get accurate information on what a drug is really worth and how safe and effective it is so that prices and inclusion in formularies can be negotiated based upon fact, not the puffery of advertising or the results of deceptively designed clinical trials.

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15 Private Health Insurance No Added Value

The creation of a competitive health insurance market may be the only way to reduce health care costs short of a single-payer system, though competition among insurers will not be enough to accomplish it.

What has the health insurance industry contributed to U.S. health care? It enjoys a bountiful profit simply by passing along costs. In 2006 the American public, reeling from high health care costs and anxious about the nation’s 47 million uninsured people, learned that UnitedHealth CEO Dr. William McGuire had been forced to resign after allegations of stock option backdating, although he had earned more than 500 million dollars in total pay from 1992 to 2005 and held more than 1 billion dollars in stock options. The fact that he had led the company to record size and profits did not improve his appearance, and stories like his have done little to engender public support for the health insurance industry.1 Insurers make money by underwriting and managing the health care benefits of beneficiaries. They collect premiums from businesses and individuals, select networks of doctors and hospitals, negotiate contracts with the parties involved, and then pay for medical services. Insurers are not protected from losses due to high-cost patients; so in an effort to reduce these losses, they sometimes coordinate the management of beneficiaries with chronic diseases. If any facet of the medical industry has an incentive to reduce costs and improve the quality of U.S. health care, this is the one. Reducing costs 170

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should result in higher profits and more business for insurers, whose core business is to broker the sale of health care services and then manage them. The fact that insurers have not taken the initiative to control health care costs and improve quality more effectively indicates that they are in a relatively noncompetitive business. In fact, between 2000 and 2003, as the cost of their insurance product grew, so did their profits. In 2003, when the premiums charged by insurers such as Aetna and UnitedHealth grew by 12.7 percent, their profits grew by 8.5 percent. In a more usual business, when the cost of goods sold increases, profits decrease. Medicine is not, however, a usual business. It is a business in which profits are disconnected from cost and inefficiency is rewarded by increased revenues. We are not in this situation because the health insurance industry cannot reduce health care costs. It has the market power to drive down costs because it consolidated to implement the managed care plans of the 1990s and has been consolidating ever since. If we were to consider the nonprofit Blue Cross/Blue Shield plans, which are state-based but cooperate across state lines, to be a single firm, we would say that it controls 31 percent of the U.S. market. Wellpoint, UnitedHealth, Aetna, and CIGNA are the four largest for-profit firms; and most of the U.S. health care insurance market is controlled by these four firms and the not-for-profit Blue Cross/Blue Shield plans. Together they control more than 60 percent of the market in thirty-four states. In sixteen states the one largest firm controls more than half of the market. WellPoint and UnitedHealth insure more than 50 million people. That is real market leverage.2 In the United States, the existence of multiple health care payers results in administrative waste among hospitals, doctors, and insurers. One reason for high medicals costs is the fact that doctors and hospitals must complete a different set of paper forms or computerized screens for each insurer. Insurers impose a series of barriers before doctors and hospitals can collect for services they render. Providers are forced to spend hours and resources on revising claim forms, offering additional information, or justifying the provision of a service to a patient. For high-dollar procedures, a doctor’s staff may repeatedly negotiate with insurance clerks before finally, and belatedly, being paid. In the practice I managed, three months was the usual turnaround time for a medical claim submitted to

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a private insurer. We estimated that our practice lost about 10 percent of its earned income due to the cost of increased staff and physician time required to keep up with this cat-and-mouse game. That cost was not offset by the increase in revenues. It was simple waste. The average doctor’s office devotes more than half of its overhead expense just to getting paid.3 The insurance industry’s administrative cost has averaged at 12 percent of premiums for years. Although Medicare’s administrative cost is one-fourth of that percentage, private insurers argue that if the federal program allocated more resources to administration, its costs might decrease because of more efficient patient management. This argument is undermined by the fact that billing- and collection-related functions account for 85 percent of both Medicare’s and private insurance’s overhead yet Medicare’s overall administrative cost is far less.4 Medicare adds little to overhead because it does not erect barriers to payment: doctors and hospitals must enter their claims electronically using one standardized screen; then payment is automatic. Heavy research and auditing is reserved only for hospitals and doctors subsequently suspected of fraud. However I examine the matter, I find it hard to justify the profits and overhead of the health insurance industry. In comparison to Canada, the U.S. industry as a whole has wasted 286 billion dollars, a statistic that some use as an argument in support of a single-payer system in the United States.5 But while a single-payer system is the only way to achieve administrative savings of this magnitude, there are other options for reducing waste. For example, a group of hospital CIOs has told me that, though federal law has attempted to standardize the process, an insurance claim form can vary in 1,200 ways. Such variability adds many layers of redundancy and waste to the collection process. According to one proposed reform plan, eliminating insurance broker and agent fees and medical underwriting costs, even without standardized claim processing, would save an estimated 29.8 billion dollars in administrative costs.6 In 1999, for which the most recent data were examined, the United States spent 1,059 dollars per capita on administrative costs across all facets of the health care industry, not just among insurers. That figure equals 31 percent of health care spending. Compare those statistics to Canada’s 307 dollars per capita, or 16.7 percent of health care spending.7 According to a California study, moving money among employers,

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hospitals, doctors, and insurers consumes 21 percent of every private health insurance dollar, leaving only 66 percent for medical care. The 13-percent remainder is allocated to profit and to administrative overhead not involved with moving money.8 The act of moving money from payer to provider is a prime area for reducing administrative waste in American medicine. During the past thirty years, there has been no measurable difference in cost escalation between the performance of the health insurance industry and Medicare. So how does the private health insurance industry justify its cost? Medicare and private insurers cover the same services. Both make high-quality, high-tech services readily available to their beneficiaries. Neither has managed to provide efficient medical care. Both marginalize preventive care and medical management. The cost growth of both has increased at nearly double the rate of economic growth for many years. The question is not whether the insurance industry can take steps to decrease cost. Rather, what would compel them to do it? Insurers and employers were pilloried during the managed care era for placing brakes on the use of medical services, and insurers have not forgotten this lesson. As a group, they could almost certainly reduce the administrative costs of health care and the costs of care itself if the public were willing to accept the measures required to accomplish these reductions. But the vast majority of the insured in the United States do not directly pay for their health care, so why would they cooperate with cost-saving measures that they might view as intrusive, even if those measures would improve quality?

Creating Competition The key policy question is how to create cost competition among insurers that will flow down to create cost competition among providers. The goal of consumer-directed health care is to make people more judicious in their use of medical services because it requires them to pay directly for the first several thousand dollars of services used each year. Proponents of free markets in health care have seized on this idea. Its shortcoming is that such policies force the individual to make decisions about needed

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medical services that only a doctor should make, such as “Should I fill this prescription for high blood pressure or not?” or “Should I really get the 1,200 dollar CT scan that the doctor ordered for my headache?” or “Should I pay the cost of going to the doctor to check on my high cholesterol and blood pressure when I feel fine?” Consumer-directed health care pairs a high-deductible health insurance policy (a deductible of at least 1,100 dollars in 2007) with a taxadvantaged health savings account that can be used to pay for the deductible. America’s Health Insurance Plans reported that in January 2007, 4.5 million out of more than 200 million privately insured Americans were enrolled in these plans, which were first allowed in 2004.9 According to this line of thinking, because policyholders must pay for the first services they use, they will be more judicious; therefore, health care cost escalation will be controlled. Early experience with high-deductible policies shows that consumers use fewer services and pay smaller premiums than they do with traditional plans. The results on quality, however, are mixed.10 For healthy individuals, such policies make sense: they reduce cost by decreasing frivolous use of medical services such as unneeded emergency room visits. But for the 12 percent of Americans who are hospitalized each year, that deductible is gone within days. And for the chronically ill, who are responsible for 75 percent of health care costs, such policies can be dangerous.11 The idea for high-deductible policies was derived from a 1970 study, the largest insurance experiment ever conducted.12 It showed that the higher the co-pay, the less often people use health care services, except perhaps for hospitalization. Even better, it showed that most patients are not hurt by forgoing services. The exception is patients with chronic illnesses, especially if they are poor. Both the 1970 study and subsequent research found that high-deductible policies lead such patients to decrease their use of drugs and office visits while increasing their hospitalizations.13 A poor man’s 1,000 dollars is equivalent to a rich man’s 10,000 dollars. As a result, the poor and the chronically ill forgo both needed services and frivolous services, whether or not they can tell the difference. It is no mystery why consumers say that they do not have enough information to make educated decisions about use of medical services. What patient really knows if he needs both the CT scan and the MRI study

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that a doctor orders for a headache or whether he needs either imaging study in the first place? Depending upon its character, the headache could be a simple tension headache or the herald of a brain hemorrhage that needs immediate intervention. The scans cost 1,200 dollars each, consuming a patient’s deductible. This kind of judgment cannot be gleaned from the Wall Street Journal or a Google search. Few patients know what services they really need; and when a patient is chronically ill, the consequence of making the wrong choice is high. Insurers say that they have redesigned high-deductible policies so that the patient has no out-of-pocket cost for preventive services or management of chronic diseases. They believe the concept may yet prove useful in creating patient accountability for overuse of medical services. But given the high cost of chronic diseases, the powerful stimulus of fee-for-service medicine, and the fact that consumers are not doctors, high-deductible plans will be at best a single arrow among the quiver full needed to permanently reduce the cost of health care. Yet it is a mistake to discount the idea of consumer responsibility, which is an essential component of any effort to reduce U.S. health care cost and expand coverage. The creation of a competitive health insurance market may be the only way to reduce health care costs short of a singlepayer system, though a competitive market alone is not sufficient. In the current climate, why should the average consumer really care about the cost of health care when she pays only a small percent of those costs directly? On average, in 2005, individuals directly paid 15 percent of the total amount spent on all of their health care goods and services.14 Of course, people already pay for health insurance in the form of taxes or reduced wages, but their source of payment is so remote from purchase that its true cost is largely unrecognized by them. Consumerdirected health care is the right idea, but people could better engage in managing cost if the cost-sharing were not for the first services but for marginally-beneficial services. For instance, requiring that individuals share the cost (adjusted for their income) for a marginally-effective procedure such as a coronary catheter procedure for mild stable angina or a back fusion for low back pain engages consumers in helping manage the cost of their care but does not encourage them to forgo needed services. Such cost sharing could be done in public programs, individually-purchased

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insurance, and employer-based health care. For this kind of cost sharing to be implemented, however, there must first be benchmarks of medical practice and the grading of medical services as necessary, unnecessary, or marginal. Such standards of medical practice do not now exist for most conditions. Reforming the insurance industry so that it competes on cost and quality will require a change in its regulation from the state to the federal level. Because insurance is regulated differently in each state, insurers function as state-based oligopolies. They make profits by estimating the likely cost of an individual beneficiary or group of beneficiaries based upon their age and medical history or by excluding pre-existing conditions. If insurers set their premiums high enough so that they do not lose money, profits are assured; there is little if any price competition. If the insurance industry were regulated nationally so that insurers could operate in any regional market under the same regulations and with similar distributions of high-cost and low-cost beneficiaries among plans, then there should be competition. This goal, resisted by insurers, is entwined with the decision about how the country will cover its uninsured.

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PART THREE

Reforming American Health Care

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16 Three Options for Covering the Uninsured

Employer-based health care financing subsidizes the health insurance of 60 percent of the population while leaving more than half of the uninsured, who are ineligible for public programs and cannot afford insurance, to pay full price.

To achieve a high-performance health care system, the United States must do two things: (1) cover the uninsured and (2) reform the medical industry. The two are interrelated but separate policy undertakings. First, let’s consider the expansion of insurance coverage.

A Federal Problem: The Uninsured The problem of the uninsured will not solve itself. Nonetheless, many in Washington circles, including members of Congress, believe that the states will take responsibility for covering their uninsured where the federal government has not. This delusion is fueled by a gridlock in federal policymaking and has been encouraged by Massachusetts’s recently enacted plan to cover nearly all its uninsured. But what is possible in a handful of northeastern and midwestern states with small percentages of low-wage workers and uninsured residents is not possible in more populous states with very different demographics (California, Texas, and Florida, for example). For instance, a plan that cost Massachusetts 132 million dollars in new expenditures was projected to cost California about 9 billion dollars.1 The reason for the difference in 179

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cost is that in 2006 only 11 percent of the non-elderly population of Massachusetts was uninsured, and 40 percent of these people were in families with incomes at more than twice the federal poverty level (a low cutoff point for affordability of insurance). By contrast, among the non-elderly population of California, 21 percent were uninsured, and only one-third of them lived in families with incomes at more than twice the federal poverty level. In Massachusetts 79 percent of people in families with at least one full-time worker were covered by employer-based insurance; in California the figure was 62 percent in 2006. Governor Arnold Schwarzenegger’s effort to lead California to cover the majority of its uninsured failed in large part because of a projected annual cost of 14.9 billion dollars in the face of a 14.5-billion-dollar budget deficit.2 The only workable solutions to America’s health care problems are federal. There are three options for covering the uninsured in the United States: ■

Expanding present financing methods

■

Implementing a single-payer system analogous to Medicare for all

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Creating a reformed insurance market that protects individuals who directly purchase their health insurance.

Helpless Employers U.S. health care is broken, and continuing to finance and manage it by the current model presents a number of challenges. It is, however, the most politically palatable. In 2005, 158 million Americans were insured through their employers. Fourteen million purchased their own insurance (called individual insurance), and 47 million were left uninsured. Seventy-five million were covered by public programs.3 Remember that 82 million people lose coverage sometime in a two-year period, and 16 million are underinsured, totaling more than one-third of the non-elderly U.S. population. Expanding the present system has the advantage of not interfering with the coverage of 70 percent of the American public who are secure in their Medicare or private coverage. Businesses finance the largest number of insured Americans, so why have they been unable to control health care cost? The answer is that no one business, however large, can face off against the medical industry

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because no business has enough employees to exert competitive pressure. Businesses also lack the time and resources to fully understand and confront the problems of medicine. They must focus on generating revenue, not solving their problems with medicine.

An Unjust Tax Code The existing structure of health care financing is propped up by a tax code that was enacted for reasons that no longer exist. During World War II employers used health insurance benefits to reward employees because they could not legally increase wages. The National War Labor Board exempted health benefits from wage and price freezes in 1942, and the Internal Revenue Service exempted employer-purchased group health insurance from taxable gross income in 1943. Employer-based health insurance grew from 12 million people in 1940 to 159 million (64 percent) of the non-elderly in 2003.4 On average, businesses pay 80 percent of their employees’ health insurance premiums. Businesses add their health care contributions to the overall cost of doing business, paying taxes only on the business’s net income. But the primary source of the tax benefit is that employees who receive employer-based health care do not pay taxes on this form of income. They are paid with tax-free health insurance. The taxes that would normally be paid in such an exchange of funds were worth an estimated 200 billion dollars in 2006—essentially, a federal subsidy of the employer-based insurance system.5 The uninsured could be covered for what the federal government uses to subsidize the employed members of society when it makes health insurance tax-free. The tax code creates income for the employee whose employer offers health insurance. But pity the poor individual whose employer does not. That person pays 100 percent of his family’s health insurance premium with after-tax dollars, if he can afford to pay for it at all. Most high-income employees work for firms that provide insurance, while fewer low-income employees do. Therefore, the tax benefit inherently discriminates against those who can least afford to pay the full cost of health care. Because fewer employers of low-wage workers offer insurance and wealthier people pay higher income taxes, the existing federal tax code provides an

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average subsidy of 2,780 dollars for families with incomes over 100,000 dollars and an average subsidy of 102 dollars for families with incomes less than 10,000 dollars.6 The tax code is also unfair to self-employed and contract workers. They pay full cost for their health insurance while their counterparts who perform similar jobs for big businesses are subsidized by federal tax dollars that the self-employed pay. Employer-based health care financing subsidizes the health insurance of 60 percent of the population while leaving more than half of the uninsured, who are ineligible for public programs and cannot afford insurance, to pay full price.

Big Business Holds On Big business is propping up the present dysfunctional structure of health care financing, but it is increasingly difficult to understand why. In 2005 General Motors, the nation’s largest private provider of employer-based health care benefits, announced that its health care costs had risen from 4.5 billion dollars in 2002 to 5.6 billion dollars in 2005.7 With increasing global competition, such timing was bad. Thirty-nine percent of a 2005 GM employee’s hourly wage cost was devoted to the cost of health care (including the cost of retirees’ health care).8 Rick Wagoner, GM’s CEO, has called for a national focus on health care because he thinks it impairs America’s global competitiveness. In September 2007 the company relieved itself of its health care obligations to retirees by agreeing to pay 35 billion dollars into a trust fund in exchange for transferring retiree coverage to the United Auto Workers’ Union. According to the Washington Post, GM’s retiree health care liability, 51 billion dollars, was more than twice the company’s 21-billion-dollar market capitalization.9 Lee Iacocca, former CEO of Chrysler Corporation, is quoted as saying, “It is a well known fact that the U.S. automobile industry spends more per car on health care ($1,525) than on steel.” He has publicly advocated for national health care. A McKinsey Quarterly report states that the employee benefits costs of some Fortune 500 companies will exceed their profits within a few years.10 Regardless, a recent McKinsey survey found no urge among the CEOs of American companies to withdraw from providing health care. In fact, almost all of them regard the provision of employer-based insurance as

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a key strategy for employee recruitment and retention.11 Either business profitability has not yet been affected by high health care costs, or business leaders do not want to appear to abandon their employees’ interests by signaling a wish to flee the employer-based health care system. But there is no one business group; rather, there are disparate interests. Helen Darling of the National Business Group on Health divides employers who offer health insurance into three groups with distinctly different health care interests. Unionized businesses with high retiree costs (such as General Motors and airplane manufacturers) represent one segment. The unions that work in these industries oppose any hint that business might leave the health care market, however fervently the businesses are looking for relief. Another group is retailers (such as Safeway and Wal-Mart), who are at a disadvantage because either they spend more on health care than their competitors do or they do not want to spend more. The third group (including businesses such as Microsoft and Dell) is content with the employer-based system because its businesses have no legacy costs and young, highly educated employees. According to Darling, these industries manage health care tightly and spend about 30 percent less than the others do on health care. So no consensus has yet emerged among big businesses as to whether or not the employer-based system should be retained. They are mostly afraid of health care reform that requires them to pay for their employees’ health care but removes their control over spending.

Increasing Small Business Coverage Insurance is regulated at both state and federal levels. Fifty-five percent of employer-based insurance is provided not by insurers but by large businesses that self-insure.12 This is because self-funded employer plans are regulated at the federal level, so the regulations are the same in every state where a large business operates. Small businesses cannot afford to self-insure. Individuals who purchase insurance are subject to state regulation, and their insurance is not portable from state to state because insurance is subject to fifty different sets of requirements. State policy initiatives that aggregate small businesses into large purchasing pools or mandate that businesses provide coverage have failed to

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expand coverage. Most of the uninsured are in families in which at least one person is employed by a small business. When firms with fewer than fifty employees buy insurance, the average premiums they pay are not higher than larger firms; but the benefits of such policies are stripped down and the deductibles and co-pays are high. Premiums have escalated faster in the small business market than they have for larger businesses, and premiums may be stratospheric for businesses with small workforces of older employees. For example, firms with ten or fewer employees may pay a premium that is twice the amount a larger employer would pay when they have only one employee with a chronic condition.13 Insurers have a good reason for levying high premiums on small firms, if state laws permit. Small group markets have high administrative costs without the economies of scale that transpire from insuring employees of large businesses. Another problem is that the pool of beneficiaries in small group markets is unstable. An insurer’s ability to predict the incidence of disease in an insured population is critical to the survival of its business. Seventy percent of health care costs are concentrated in 10 percent of the population, so a few unhealthy employees in a small group can cost an insurer dearly. Insurers are able to judge their risk accurately with large firms because, even though employees come and go, the pool of insured is so large that there is little variation in the cost of illness from year to year. Even when state laws have aggregated small businesses into purchasing pools, insurers find these pools unattractive. Small group markets are unstable; businesses constantly rotate in and out of the pools, creating risk for the insurance company. An insurer that cannot judge the stability of a large pool of beneficiaries and accepts more than its share of sick patients must raise premiums across the board, risking its business—a situation the industry picturesquely terms the death spiral.14 Therefore, the small group market is not of much interest to insurers. Our fragmented system of financing health care prevents the pooling of risk, which is the basis of insurance. Medium- and low-wage businesses cannot afford health insurance premiums at today’s prices, so mandating that businesses provide coverage has proven politically impossible. In 2007, employers paid an average of $2.21 per hour for health insurance.15 State laws mandating that

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employers provide insurance have been enacted in California, Hawaii, Oregon, Massachusetts, and Washington. With the exception of Hawaii, they have all been either repealed or unimplemented.16 Even if it were possible to reform the small business market, most low-wage workers would not have stable insurance coverage because they rotate in and out of coverage as they change jobs. Only 24 percent are employed full time for a forty-eight-month period.17 The migration of lowwage workers in and out of employment would only aggravate the problem of unstable insurance risk pools. In 2005, about 19 percent of the U.S. workforce was either part time or temporary, a figure that is expected to rise in coming years.18 For low-wage and part-time workers, insurance must be portable from job to job.

Individuals on Their Own In our employer-based market, individuals who are self-employed are not much better off than those working in small businesses. Just 7 percent of the population under age sixty-five purchases individual private health insurance.19 The premiums of individual policies are, on average, the same as those for employer-based insurance. But as with small-business policies, benefits are reduced and out-of-pocket costs are high so that in the event of serious illness the cost in co-pays and deductibles can be considerable.20 Even worse, however, when the owner of such a policy gets sick and needs ongoing care, the insurance company can legally increase renewal rates to unaffordable levels in many states. This circumstance is probably the precursor of most of the medical bankruptcies in middleincome families. I have personal experience with the individual insurance market. On July 27, 2006, I received the call every parent dreads. My daughter Marjorie had been involved in a near-fatal car accident outside of San Francisco. The car she was driving was hit by an oncoming vehicle at seventy-five miles an hour, flipping her car several times, denuding it of sheet metal, and leaving her suspended in the upturned car. She was saved by a seat belt, air bags, and the extra framing of her Toyota Forerunner. Miraculously she walked away, but the accident led us to reexamine her health care coverage. For the previous three years, she had purchased individual

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insurance while working as an independent consultant and contractor. We realized, however, that if she had sustained long-term injuries, she would have been uninsurable in the individual insurance market. As a result of this discovery, she decided to work for a business where she was protected under a corporate policy. Only five states compel insurers to offer coverage regardless of health status.21 Nineteen states do not limit the ability of insurers to exclude preexisting conditions. Insurance in the individual market only protects you if you are in good health and stay that way. In 2001 the Kaiser Family Foundation commissioned an experiment in which seven hypothetical individuals or families applied to nineteen insurance companies in eight state markets around the United States, totaling sixty applications per person.22 The project’s goal was to get a realistic picture of what individuals face when they must purchase their own health insurance. Three of the seven applicants are representative: ■

Greg was a thirty-six-year-old writer who was HIV positive. He was uninsurable in all markets.

■

The Cranes were a thirty-six-year-old married couple with a ten-yearold daughter and a twelve-year-old son who had asthma and recurring ear infections. They received sixty offers, but nine excluded their son. Most of the policies excluded the son’s ears or respiratory system. Seventeen offers increased the family’s rate by 20 to 50 percent because of the ear infections and asthma.

■

Denise was a forty-eight-year-old actress and a seven-year breast cancer survivor. She was rejected twenty-six times and received eleven clean offers. Half of the offers had riders excluding cancer treatment of any kind or mastectomy treatment. Overall, the premiums of the seven applicants were increased by an

average of 38 percent because of their medical conditions. The study’s conclusion was that anyone with a health condition either faces difficulty or is uninsurable outside of the employer-based system. The chronically ill, therefore, may have no choice but to do whatever is required to maintain their employer-based coverage. A friend of mine manages a business and suffers from a chronic illness that affects mobility. The disease is treated with 15,000 dollars’ worth of medicine per year. He told me, “I have no business working, but I have to last until I am sixty-five

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because otherwise my family and I are uninsured.” Individually purchased insurance would be unaffordable, so he continues to work, walking with a cane and putting his health at further risk.

Vouchers for Purchase of Insurance In the present system the most feasible means of covering the uninsured is to offer them publicly funded vouchers or tax credits to purchase insurance in the individual market. But unless these vouchers cover nearly the entire cost of the premium, most people will not use them. More than half of the uninsured are members of poor families whose employers do not offer health insurance and who cannot afford to purchase it themselves. When the poor must spend 5 percent of their income to pay for an insurance premium, only one-quarter of them enroll. At present one-third of the uninsured are healthy nineteen- to twenty-nine-year-olds who are not likely to buy health insurance unless it is fully paid for or its purchase mandated.23 On the other hand, the chronically ill in the individual insurance market face very high rates, if they are insurable at all, even with vouchers. The use of vouchers or tax credits to federally mandate the purchase of individual insurance would be complicated by state insurance regulation because people would be thrown into dysfunctional markets with others who purchase their own insurance. How can anyone be subsidized and mandated to purchase insurance when most states do not guarantee that a person with illnesses can purchase insurance or if states permit insurers to raise rates to unaffordable levels for people with illnesses or to exclude preexisting conditions? One solution, proposed by Representative John Shadegg and Senator James DeMint, is to enact federal legislation that allows insurers to offer individual insurance anywhere in the United States based upon the insurance regulations of any state they choose.24 Such a law would help lower costs because insurers could avoid states that mandate them to provide rich and expensive benefit packages. It would not, however, solve the problem of the chronically ill, who would be left out in the cold. Insurers would gravitate to states in which they could offer the cheapest insurance—not likely to be states where insurance regulation is friendly

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to those with preexisting conditions. It would be a race to the bottom, where only the healthy are insurable.

Expanding Medicaid The other means of leveraging the existing system is to expand eligibility for federal health care programs. Medicaid is a joint federal and state health insurance program that provides coverage for the poor—mainly children, elderly, and the disabled. More than half of Medicaid enrollees are children, about 23 percent are adults, 10 percent are elderly, and 15 percent are disabled adults.25 SCHIP, a twin federal and state health insurance program, is designed to cover poor children whose families earn too much money to be eligible for Medicaid but not enough to afford health insurance. A key feature of both Medicaid and SCHIP is that is that they are statemanaged and partly state-financed. On average, the federal government funds 57 percent of the costs of Medicaid and 70 percent of the costs of SCHIP, with the individual states funding the remaining portion. So it is clearly impossible to expand coverage through these programs unless the federal government pays the full cost. Twenty-five percent of the 47 million uninsured are eligible for Medicaid and SCHIP yet are not enrolled.26 States will find and enroll only as many eligible residents as they can afford because they do not have enough money to cover everyone. For instance, between 2003 and 2005 Texas chose to turn down 536 million dollars in federal money and dropped 175,204 children from health insurance enrollment in order to save about 200 million dollars in state expenditures. The maneuver was accomplished by enacting enrollment policies that acted as barriers: for instance, face-to-face reenrollment every six months rather than yearly. In fact, during its 2003 state budget crisis, Texas was responsible for half of all children who were taken off the SCHIP rolls nationally. The state was extraordinary in its zeal but not alone in cutting back some elements of its public programs: in 2003, many of the states’ health care costs exceeded their educational costs for the first time in their history.27 The poor are not easy to find and keep enrolled because they are often not able to comply with usual enrollment procedures. For instance,

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a one-day enrollment process every six months might cost a janitor her job or two days of badly needed wages each year. But simplifying enrollment procedures would only be a useful way of increasing enrollment in Medicaid and SCHIP if the states had the money to pay for those who enrolled. Another problem with expanding Medicaid involves a phenomenon known as “crowd out.” When the jobs of the poor do offer insurance coverage that pays a percentage of the family’s premium cost, the poor will drop private coverage and enroll in public coverage when such programs are offered because public coverage costs them less. This phenomenon is uncommon among the very poor, whose jobs rarely offer coverage. At higher income levels, however, as many as 60 percent of those on public programs may have dropped private coverage for public coverage, which shifts health care spending from the private to the public sector.28 Finally, states keep down their costs by underpaying doctors and hospitals. Medicaid pays doctors only 69 percent of the Medicare rate, which in turn pays doctors less than private insurance does. Therefore, Medicaid patients are kept out of many doctors’ offices by whatever means possible, giving Medicaid beneficiaries limited access to both primary and specialty care.29 A physician who works in a public clinic recently told me that she cannot get a Medicaid patient in to see any orthopedic surgeon in Houston. In my experience, most neurosurgeons in Houston will not see a Medicaid patient in their offices. For this reason, these patients congregate in public hospitals and clinics, where doctors are willing to see them if the patients can get in. In states such as Texas, California, and Florida, where Medicaid beneficiaries have the worst access to care, patients must shop around for months to find a doctor who will take them. The care of Medicaid patients with mental illness is documented as substandard nationally.30 Doctors avoid Medicaid patients, but hospitals shift their losses from Medicaid to private insurance. They recover about half of their Medicaid losses by increasing charges to private insurers.31 Converting the uninsured to Medicaid patients is not likely to contribute to the moderation of health insurance premiums because cost shifting would continue. The uninsured account for a significant portion of employer-based insurance premiums, but they are not the only source of hospital cost shifting.

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140 Private payer 130 120 Percent

110

Medicare

100 90 Medicaid

80 70

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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FIGURE 16.1

Hospital payment-to-cost ratios for private payers, Medicare, and

Medicaid Source: Health Forum, “Hospital Statistics” (Chicago: American Hospital Association, various editions).

Figure 16.1 shows the reciprocal relationship between Medicare and Medicaid payment rates since 1980. As the payment rates of public programs go down, the cost of private insurance increases proportionally. This relationship means that employers are the final payers for all health care losses, whether from the uninsured, Medicare patients, or Medicaid patients. There is no better reason than this one for employers to find an exit from employer-based health care or at least to seek a limit on their liability for financing it. To summarize, preserving the existing methods of health care financing is the least attractive public policy for several reasons: ■

If Medicaid were used to expand coverage, the states would limit enrollment and still have many uninsured residents.

■

Medicaid expansion would probably not lower private insurance premiums because hospitals would still cost-shift their losses.

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Medicaid patients, like the uninsured, receive substandard care.

■

Use of vouchers or tax credits to cover the poor would still leave many people uninsured unless the vouchers covered the entire premium or purchase was mandatory.

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Under current insurance laws those who purchased insurance with vouchers would be subject to the same state insurance regulations that doom anyone to uninsurability if they become ill.

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Even so, the health care industry has promoted Medicaid/SCHIP expansion and vouchers as a means of covering the uninsured. For two years members of the Healthcare Coverage Coalition for the Uninsured met in secret before releasing their agreement on January 18, 2007. This group was known in Washington as “the strange bedfellows.” When I analyzed the membership, I concluded that the group was really not all that strange: it included the entire health care industry plus Families USA (a group that advocates for the poor) and the U.S. Chamber of Commerce. The group’s health care members were the AARP (a health insurer through its Medigap policies), the organized hospital industry, the organized physician industry, the organized health insurance industry, and members of the pharmaceutical and medical supply industries. The group proposed to expand eligibility of Medicaid/SCHIP for the poor with simplified eligibility procedures. It suggested refundable tax credits toward the purchase of insurance for the near poor (those at 100 to 200 percent of the federal poverty level). When you think about it, from the medical industry’s vantage point, what’s not to like about the way things are? Currently hospitals can make profits of 5.2 percent, insurers 6.8 percent, and pharmaceutical manufacturers 18 percent without much connection between price and the quality and value of their products. So there are two functional alternatives to expanding the existing method of financing: either single-payer coverage analogous to Medicare for everyone or an insurance market disconnected from employment. Both have disadvantages and advantages; but with the present method of fragmented health care financing, we have so many players that no one of them can effectively control overall U.S. health care costs. This development has allowed the medical industry to effectively inflate its cost structure and insulate its performance from its payment. Either government purchase or individual purchase could provide a better means of controlling health care costs. Either way, the largest single industry in America cannot be tamed without some form of serious government intervention.

Medicare for All In the 2005–6 and 2006–7 congressional sessions, Senator Edward Kennedy (Democrat from Massachusetts) and Representative John Dingell

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(Democrat from Michigan) introduced the Medicare for All Act. In both sessions Representative Pete Stark (Democrat from California) also introduced his AmeriCare Health Act. These bills offer Medicare coverage to all of the U.S. population or at least double the size of the current program.32 But Medicare’s track record, like that of the entire U.S. health care industry, has a history of unsustainable spending increases. In fact, it cannot continue to be managed as it has been, even if the program is limited to seniors. In its current structure the program will break the federal bank. Other countries have controlled health care costs by setting a health care budget and forcing their medical industries to live within it, something the United States cannot avoid if Medicare for All becomes the answer. Such programs have their advantages and disadvantages. Canada’s national health program, also called Medicare, is an example of what U.S. Medicare for All might look like and illustrates what the nation would have to do to create a workable public health care system. Canada’s national health insurance is funded by block grants to the provinces and can be supplemented by provincial taxes. Provincial governments manage costs by fixing annual operating budgets for hospitals and controlling hospital building expansions and equipment purchases. Canadian administrative costs are low compared to those in the United States, one benefit of a single-payer system. Although Canadian physicians are paid fee-forservice, their fees are negotiated with provincial governments; and expenditures for physician services are capped, as is the upper limit of physician income in some provinces. Additionally, health insurance can only be purchased for services not provided by public programs, so there is no competition between programs or cost shifting from public to private programs. Hospital budgets are fixed; therefore, if the demand for certain procedures exceeds the expected number, patients are assigned to a waiting list, with their care prioritized by physicians based upon medical need. Canadian physicians rate access to emergency services and routine diagnostic services as good; but most rate access to advanced diagnostic services, orthopedic surgeons, and hospital care for elective procedures as only fair or poor.33 The Canadian system has three strengths: (1) its cost is low relative to care in the United States, (2) everyone is insured, and (3) it is oriented toward primary care and emphasizes disease prevention and

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management.34 Primary care physicians make up half of the Canadian physician workforce but only one-third of the U.S. physician workforce. The 2000 World Health Report, which ranked nineteen countries by their mortality rates from diseases amenable to health care, listed Canada as fourth overall in mortality from diseases such as cancer, tuberculosis, diabetes, epilepsy, hypertension, and pneumonia. The United States ranked sixteenth. By 2004 it ranked dead last.35 From a patient’s perspective, the biggest difference between Canadian and U.S. health care is waiting time. In Canada and most single-payer systems, waiting times are the result of the rationing of specialty services. If a doctor told a Canadian that he would need to wait for ten months before getting a hip or a knee replacement or one month before receiving radiation therapy, the Canadian would wait. An insured American would find another doctor. An uninsured American, however, would rejoice because in the United States he would not get the hip replacement at all and might wait half a year for radiation therapy or not get it at all. Insured Americans generally don’t wait long for specialty services because specialists and technology are plentiful and plentifully used. In 2003 Canadians commonly waited four weeks for specialized services, just under five weeks for non-emergency surgery, and three weeks for a diagnostic test. But 10 to 20 percent waited longer than three months for services. Nonetheless, over time Canadians have systematically reduced waiting times: in western Canada, the waiting time for hip and knee replacements has been reduced from ten months to one.36 Despite the Canadian focus on primary care, access to such care is about equal in the United States and Canada. Sixty percent of Canadians and Americans with above-average incomes have difficulty getting care on nights, weekends, and holidays. One-quarter of Canadians and Americans with below-average incomes wait six days or more for an appointment, though only a small percentage of higher-income Americans wait to see a doctor.37 In my own practice, new patients usually would wait two weeks for an appointment before seeking another neurosurgeon. If appropriate care is rationed excessively, then the outcomes of illness are worse for people who wait too long, whether or not large-scale mortality studies identify the differences. For years the British National Health Service has been trying to reduce waiting times for cancer diagnosis and

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treatment. Nonetheless, in 2005 more than half of patients diagnosed with cancer in England, 74 percent in Wales, and 44 percent in Scotland waited more than the recommended twenty-eight days for radiation therapy.38 Insured Americans probably have the world’s best access to highquality technology. This access and, until recently, the availability of superior emergency services have been the strengths of our health care system. But several factors drive down U.S. performance in international rankings of disease-specific mortality rates, including the devaluation of primary care and the presence of so many uninsured residents with limited access to routine care and non-emergency specialty services. International comparisons do not measure access to technology and prompt emergency services, so the United States usually does not rank well on its ability to prevent and treat chronic diseases. The Canadian system of budget setting has controlled costs, but it also has its own set of problems. Because the provinces fix the budget for physician services, Canadian physicians who want to protect their incomes have made it difficult for new doctors to practice. As a result, Canadians in some provinces perceive that they do not have enough physicians. Only one-fifth of Canadian family physicians are taking new patients, so it is no surprise that one-half of Canadian emergency room visits are for routine care, as in the United States. Like all other industrialized countries, Canada now faces cost-escalation problems, although from a much lower cost basis than the United States. Yet our nation does not have a monopoly on inefficiency or safety concerns: they are features of every other health care system in the world.39 Advocates of a single-payer system emphasize low U.S. rankings in infant mortality and mortality of diseases preventable by medical care. But the real question is not “Which country’s health statistics look better?” but “In our particular form of government, is it possible to run an efficient health care system that is federally managed?” When I came to Washington to work on Medicare policy as a U.S. Senate staff member, my mind was open about the question of a singlepayer system. In the course of my medical research I have visited a number of Canadian hospitals and worked with many Canadian physicians, and I have a good opinion of that county’s health care. The waiting lists that worry Americans seem to be mostly a personal inconvenience that

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Canadians accept in the interest of equitable health care. A physician in Calgary told me that his province has worked hard to shorten waiting lists for surgery, and they are not regarded as a problem in Alberta. So I was ready to believe that something similar might work in the United States. But one year in Washington changed my mind. Reforming the Medicare program is the greatest domestic policy challenge facing the U.S. government, and Medicare for All would be managed like Medicare. Medicare’s administrators calculate the price to pay doctors, hospitals, pharmaceutical companies, and medical suppliers so that, on average, they have an adequate profit margin. The same base rate is paid across the United States but is modified to take into account differences in wages and cost of living. There are three problems with this payment policy. First, the program is underadministered. The program and its advisory groups do not have the resources to keep up with the detailed information needed to properly set payment rates for individual items, so over- and underpayment are ubiquitous (as judged by providers with an average profit margin on Medicare goods and services outside the 2- to 6-percent range). Second, because Medicare pays by fee-for-service, providers can quickly find a way to subvert the program’s efforts to manage its costs. For example, physicians increase the volume of their services in response to decreased payments (and contribute to Medicare’s 30-percent waste) through unnecessary tests, hospitalizations, and minor procedures. Third, Congress routinely subverts rational decisions made by Medicare’s administrators because of old-fashioned politics. The first two problems can be fixed, but the third is a condition of a publicly managed health insurance program in which beneficiaries, providers, and industries are all constituents. During the 2006–7 legislative session, I worked as a staff fellow in a congressional office, and I spent another half-year listening to experts in health policy. In my staff capacity, I attended many bipartisan meetings at which Medicare was discussed, and I asked questions. More than a hundred industry lobbyists and constituents representing different facets of the medical industry visited our congressional office, all seeking new legislation that would increase their Medicare payments or would overrule an administrative decision to cut those payments. After these visits, we commonly fielded calls from bewildered seniors who had been told that

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Congress was going to cut their Medicare benefits. Sometimes we were deluged with letters from frightened beneficiaries. Medicare headquarters receive tens of thousands of letters a year from members of Congress who are protesting one or another payment decision. If administrators do not respond, a law is sometimes passed reversing their decision. In other words, most payment policy is not made in Medicare’s Baltimore headquarters but on Capitol Hill, where the program’s long-term fiscal condition is not the primary consideration. Congress functions like the board of directors of the public insurance company known as Medicare, but these directors inevitably have serious conflicts of interest. Following are a few routine examples. In 2004 about one-quarter of the occupants of rehabilitation facilities were older, short-term patients who had undergone hip and knee replacements, and Medicare’s cost of rehabilitative services was increasing at 15 percent per year.40 Meanwhile, nursing homes were performing the same services at much lower cost with no indications of inferior quality. Equalizing the payment for these patients between nursing homes and rehabilitation hospitals, along with temporarily freezing payment increases to rehabilitation facilities, was estimated to save 2.4 billion dollars over five years.41 But influential members of the 110th Congress opposed efforts to enact such legislation because the home offices of rehabilitation chains were in their states, so no corrections were made. Small local businesses in rural states provide home oxygen services to chronically ill Medicare patients. I have heard the owners of such businesses called “oxygen millionaires” because Medicare pays them 7,200 dollars over three years for equipment that costs only 700 dollars.42 In a rural state, a small group of noisy constituents can create a lot of trouble for a member of Congress. Fearing the ire of these oxygen millionaires, many members of the 110th Congress had little choice but to oppose correction of this payment distortion, so no corrections were made. Manufacturers of implantable medical devices pay consulting fees to doctors for legitimate purposes such as providing advice on product design. They are suspected, however, of also paying fees as a means of encouraging surgeons to implant their devices, which is illegal. According to the Wall Street Journal, after the U.S. attorney’s office in New Jersey investigated kickbacks, five orthopedic device manufacturers agreed to

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publicly post payments to doctors as part of a settlement.43 But members of Congress from states where device manufacturers were headquartered opposed an effort to require all doctors who contract with Medicare to publicly post their consulting agreements, and such legislation was never enacted. The medical industry certainly does not always get its way with Congress, and Medicare’s administrators are not always correct. They are subject to the presidential administration and its politics. Congress sometimes rectifies poor administrative decisions, but it also overrides good decisions because it is difficult, if not politically suicidal, for members to support policies that decrease the profits of industries concentrated in their home states. These industries are economic engines, and they employ constituents. The New York Times has quoted former senator Alan K. Simpson (Republican of Wyoming) as saying, “[Medical] industries rely on a basic threat: If you mess with us we can turn the seniors against you. Angering seniors is the quickest route to political suicide.”44 So when congressional staffers are negotiating Medicare payment policy in late-night meetings, you can be certain that that the program’s long-term fiscal condition is the last thing they are thinking about. Rather, their objective is to maintain Medicare beneficiaries’ access to all services, avoid antagonizing the medical industries in their member’s state, and avoid making decisions that would cut jobs in that state. The staffers are not doing anything wrong; this is how the process is designed to work. In sum, because Medicare is a public program, its payment policies are as much about politics as about policy. And unless management of the program is restructured to insulate it from the political process, Medicare for All would certainly be a reprise of Medicare. My experiences in Washington led me to conclude that the United States can never afford Medicare for All because it cannot afford Medicare as it is presently managed. The alternative is the private purchase of insurance.

Individual Purchase of Insurance The end of the employer-based tax deduction may be an idea whose time is coming. Under the name “Better Healthcare Together,” Service Employees

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International Union, Wal-Mart, Intel, Qwest, Embarq Communications, AT&T, Kelly Services, the Communications Workers of America, the Center for American Progress, the Howard H. Baker, Jr., Center for Public Policy, and the Committee for Economic Development (a business coalition) have teamed up to find ways to fix our broken health care system. This is the group I would call “strange bedfellows”—two of the largest labor unions and some of the largest businesses in America, along with a progressive policy institute and two think tanks. The group had made no specific proposal, but it has developed four principles: (1) every American should be covered by health insurance, (2) the value of health care services should be improved, (3) individuals should be responsible for maintaining their own health, and (4) everyone—businesses, individuals, and government— should financially contribute.45 The group’s public comments indicate that some of its member unions and companies are looking for a way out of employer-based health care. Kelly Services president Carl Camden has said, “Our WW II vintage health care insurance system is woefully out of step with the global economy and the needs of more than twenty-two million free-agent workers who prefer a more flexible approach to work. Current workforce trends will only re-enforce the movement away from traditional employeremployee relationships.”46 In 2007 senators Ron Wyden (Democrat from Oregon) and Robert Bennett (Republican from Utah) introduced bipartisan legislation that would disconnect health insurance from employment. Their proposed Healthy Americans Act is the first bipartisan health reform plan in memory, and its detailed provisions and cost estimates have been made publicly available. The plan preserves Medicare but does away with most of the Medicaid program and with the personal and corporate tax exemption for employee health care benefits. Instead, that tax exemption would go to the individual. In addition, the plan provides sliding-scale premium subsidies for the purchase of private insurance, with higher subsidies going to lowincome individuals. The upper limit for subsidized purchase is 400 percent of the federal poverty level. For example, a single individual with a yearly income of 10,210 dollars (100 percent of the 2007 federal poverty level) would be fully subsidized, and a single person making 40,000 dollars would be partially subsidized. Above that income there would be no subsidy.

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To ensure the quality of coverage, the plan mandates that all insurers provide a level of insurance equal to that of federal employees. Administrative cost is reduced by establishing Health Help agencies that connect individuals with insurers and handle premiums. Employers still aid their employees in selecting a plan and pay between 2 and 25 percent of the cost of the average regional premium per employee. The plan is funded by decreased Medicaid spending, decreased insurance administrative costs, removal of the tax subsidy for employer-based insurance, and the market effect of having 247 million individuals purchase insurance in a national insurance market. A health care bill that disconnects insurance from employment and provides a tax credit to individuals and families for the purchase of insurance was also introduced in the 2006–7 legislative session by Senator Tom Coburn (Republican from Oklahoma), also a doctor. Unlike the WydenBennett bill it allows the states to continue regulating insurance but allows insurance to be purchased across state lines. But although it permits portability, Coburn’s bill leaves individuals subject to state insurance regulation, thus offering little protection from unaffordable rate increases or denial of coverage because of preexisting conditions.47 Other groups are also concerned about health care reform, and what employers are saying is not as important as what they are doing. The Committee for Economic Development represents a diverse group of employers, including pharmaceutical manufacturers, for-profit hospitals, data management companies, and banks. In 2002 the committee proposed a restructuring of the employer-based system, but employers were making so little progress in managing health care costs that in 2007 the group called for mandated individual purchase of insurance with regulation of the insurance market. This idea is similar to the Wyden-Bennett plan.48 In sum, to force the insurance industry to earn its profits by decreasing the cost and improving the quality of health care rather than by cherry picking healthy people, the industry must be federally regulated. Only in this way can individuals have portable insurance that is both affordable and available for those with medical conditions. Only by covering the uninsured and patients currently funded by SCHIP and Medicaid with private insurance equivalent to everyone else’s will everyone else be relieved

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of paying for hospital losses by way of increased premiums. Only if individuals pick their policy with full knowledge of their choices and then write the check for a major portion of the cost will they ever care enough about the cost of health care to cooperate with efforts to reduce it. Only the purchasing power of hundreds of millions of people buying insurance in the same market has much of a chance against a medical industry that is recalcitrant to change. Health care costs must be controlled, and the uninsured must be covered. The solution is simply a matter of deciding which forces should take charge: individuals, the federal government, or both. I think the problem is big enough to require both.

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17 No Coverage Expansion without Cost Control

The inability to manage health care cost may be a greater obstruction to covering the uninsured than any other single cause.

The cost of providing health insurance for the uninsured is not trivial, but it amounts to less federal money than is spent on any other single federal program or industry subsidy. In addition to what hospitals, doctors, the public, and the uninsured themselves already spend on the uninsured, the United States could cover them for an estimated 73 to 100 billion dollars (in 2004 funds).1 Consider that the nation spent 2 trillion dollars on health care in 2004; less than 4 percent of that figure would be sufficient to cover all of the uninsured. The cost is less than the federal portions of Medicare and Medicaid and less than half the tax subsidy for employer-based coverage.2 Unnecessary hospital and doctor services account for one-third of Medicare spending. If this figure is extrapolated to the 2 trillion dollars spent annually on U.S. health care, then 700 billion dollars a year are wasted—money enough to cover the uninsured seven times over. Clearly, in the large scheme, covering the uninsured is not a particularly large cost. But as with the proposed Medicare for All Act, using federal money to cover the uninsured could be a fiscal bomb if it is not combined with a serious effort to reduce health care costs. Before the passage of Medicare, only about one-quarter of seniors were insured, meaning that hospitals lost money caring for seniors as they do today caring for the uninsured. 201

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Therefore, the hospital industry tacitly approved, or at least did not oppose, the creation of Medicare. The American Medical Association, on the other hand, pulled out all stops to oppose its passage, believing that government intervention would ultimately cost doctors their independence. Fearing government control, the AMA threatened a boycott if Medicare were enacted, which gave rise to the “reasonable and necessary” criterion for covered services—in other words, anything a doctor wants. The hospital industry made a wise choice in not opposing Medicare. The research of Dr. Amy Finkelstein has found that Medicare’s cash infusion resulted in a 37-percent increase in hospital spending in the first four years after its enactment. Half of the growth was from new hospitals and half from increased use of existing hospitals.3 Finkelstein believes that Medicare’s great contribution was to reduce the risk of out-of-pocket spending that could bankrupt the elderly. It also increased their life expectancy. She estimates that covering the uninsured today would reduce a state’s fraction of uninsured by about the same amount as Medicare did forty-three years ago.4 Today’s uninsured are younger and healthier than the patients who entered Medicare in 1965, so they might not increase hospital spending as much as Medicare did. Nonetheless, Finkelstein’s data raise the question of whether or not covering the uninsured would further escalate all health care spending by fueling the profitability and expansion of the entire industry. My conclusion is that coverage of the uninsured must be accompanied by a serious effort to manage the cost of the entire U.S. medical industry. Despite the additional cost and aside from any moral or ethical considerations, the uninsured should be covered sooner rather than later for four reasons: ■

Hospitals pay for uninsured care by cost shifting, thereby increasing insurance premiums.

■

Too many uninsured make key hospitals financially unstable and dangerous.

■

Too many uninsured cause emergency services failure.

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The medical care of the uninsured is substandard, leading to higher health costs in the long run.

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Who Really Cares? During my year and a half in Washington, D.C., I listened to members of Congress, analysts from think tanks, and lobbyists talk about health care financing and the uninsured. I heard three explanations of why the uninsured have not been covered in the United States: differing partisan political ideologies, public apathy, and lack of anyone willing to pay. All three reasons were discussed at a March 2007 hearing of the Senate Finance Committee on Health Care Reform. Sitting on the dais behind the senators, I observed that three of the committee’s four witnesses looked comfortable, not quite bored. The committee had carefully chosen these witnesses: the three almost-bored ones were health care leaders with three or more decades of experience with reform efforts, and had all testified before. The remaining witness, who looked more uneasy, was a public appointee who had just finished a multiyear project studying public reactions to the idea of health reform. The first speaker was Dr. James J. Mongan, president of Partners HealthCare, Boston’s dominant hospital system, founded by Massachusetts General Hospital and the Brigham and Women’s Hospital. According to him, health reform had not happened for two reasons—one fiscal, the other political. It would cost 70 to 100 billion tax dollars a year to cover the uninsured, and no one wanted to pay. Republicans favor a market approach and Democrats a government-managed approach, and Mongan did not believe either would compromise. His statement was not accusatory, just fact, and no senator challenged it.5 Next was Dr. Stuart H. Altman, professor of national health policy at Brandeis University. He began by quoting what he called Altman’s law: “Almost every American and advocacy group supports some form of universal health insurance. But if it’s not their preferred version, their second-best alternative is to maintain the status quo.” He also said that expanding coverage and reducing cost required two different legislative reform plans.6 I liked hearing this because I had reached the same conclusion. Altman, who had been a principal in the Clintons’ Health Security Act, more or less said that he had given up on health reform. His tone revealed his weary frustration. After a career devoted to improving the delivery of U.S. health care and repeated unproductive testimonies

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before Congress, he seemed resigned to believing that the impediments to change are insurmountable. The next witness was John Sheils, vice president of the Lewin Group, a well-known health care consulting firm. He told the senators that more people every day were being priced out of health care and that the costs of the uninsured were being shifted to the insured, thereby further increasing cost.7 He succinctly concluded that something would have to be done to control costs sooner rather than later. The last witness was Dr. Richard G. Frank, professor of health economics at Harvard Medical School and vice chair of the Citizens’ Health Care Working Group, which had been commissioned by Congress in 2003 to research public opinion on health care reform. According to Frank, his group had synthesized information from eighty-four meetings with 6,650 attendees, 20,000 polls and questionnaires, 900 individual experiences with the health care system, and 7,300 individual e-mails or written comments. He said a clear majority of Americans favored some form of insurance coverage for all citizens, without identifying any particular model, and that most people believed that there was enough waste in the system to fund the uninsured without requiring any new money. Most wanted insurance that would cross state lines and would not change with their job. They wanted health care reform now and a defined core benefits package that constituted insurance.8 When the senators revealed that, on the previous evening, while Franks was flying from Boston to Washington, the Bush administration had released a position paper disagreeing with the working group’s key recommendations, the witness seemed taken aback. The session ended with open-ended questions from the few senators who remained at the hearing (questions posed out of politeness, it seemed), and then it adjourned, almost as if it had been held for show. I had arrived on the scene fresh from the front lines of patient care, its bloody realities still vivid in my mind. The incongruity of the proceedings saddened me. But later that year I did witness some conspicuous examples of political leadership. Senators Ron Wyden and Robert Bennett introduced the only bipartisan health reform bill in memory. Republican senators Orrin Hatch and Charles Grassley selflessly championed the State Children’s Health Insurance Program in the face of opposition from the Bush administration

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and many of their Republican colleagues. This was not the first time that Hatch had broken ranks on issues of personal principle. In 1997 he bucked both his Republican colleagues and many of his Utah constituents when he and Senator Edward Kennedy introduced SCHIP. I concluded that health reform would happen only as a result of sustained external pressure, but I also saw that it would require bipartisan congressional leadership because a partisan health care reform initiative is dead on arrival.

Competing Visions but Fluid Ideology Republicans believe that the purchase of health insurance should be voluntary and that individuals should buy it in the private sector rather than require the government to pay for it. Republicans would never support covering the uninsured with federally managed programs, but they might support using public money to allow individuals to purchase insurance. They generally believe that decisions on the kinds of services a commercial policy covers should be left to individuals and insurers without federal or state mandates. Most Republicans also understand that the poor cannot afford to buy insurance without federal money, but they vary in their willingness to use federal money to aid the poor in purchasing private insurance. The sad story of SCHIP in the 110th Congress (2006–7) exemplifies conspicuous leadership within the legislature and a failure of leadership in the presidency. While SCHIP had been successful in improving the health of 6 million children, it had not been allocated enough money when it was enacted in 1997 to cover another 2 to 2.8 million children who were eligible but not enrolled. It was in a sense a false offer of insurance because for a decade, while inflation increased, the program’s tax allotment was never greater than its 1997 figure. In the 2007 negotiation over the program’s reauthorization, the primary point of disagreement between Republicans and Democrats was the size of the appropriation, not whether or not all eligible children should be covered. Senate Democrats did want to expand the program from coverage of children in families making less than twice the federal poverty level (for example, a family of four making 40,000 dollars a year) to families at somewhat higher income levels and to parents of children covered by SCHIP. A significant minority of Republicans wanted

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the program to cover all children for whom it had originally been designed (those from families earning below 200 percent of the federal poverty level) but only these children, not their parents or higher-income children. Many Republicans favored allocating 7 billion dollars of additional money per year to cover all eligible children, whereas the majority of Democrats favored allocating an additional 10 billion dollars per year to cover higherincome children and adults. After months of tense negotiations, senators Max Baucus, Charles Grassley, Orrin Hatch, and Jay Rockefeller, in an act of conspicuous leadership in the public interest, produced a bill that passed both the House and the Senate with comfortable majorities. The bill included enough money to cover all eligible children at the lower amount favored by those Republicans who had supported the program. Key to Republican support and to the bill’s passage was that states could use the funds for either public insurance or the purchase of private insurance and the bill remained within acceptable fiscal bounds. The task of producing a bipartisan bill was complicated by the administration of George W. Bush, which had already granted waivers to a number of states permitting them to use SCHIP funds to cover adults and children from higher-income families. Including adults in SCHIP was a source of major disagreement between Republicans and Democrats because it would have increased the cost of the bill. The bipartisan bill allocated just enough money to cover all poor and near-poor children but not adults and higher-income children. Bush, however, vetoed the bipartisan bill not once but twice, leaving the program without the funds to cover 2 to 2.8 million eligible children. The House could not muster up the necessary Republican votes to override the presidential veto. I concluded that bipartisan health care reform is certainly possible but only with a U.S. president who supports the process. There are divisions among Republicans on the issue of health care spending, just as there are among Democrats, but those divisions arise over how much money to spend rather than how to spend it. Republicans uniformly support the use of public money to purchase private insurance and just as uniformly oppose any expansion of government-managed programs. They say they are less willing to spend new money on health care than Democrats are, but six years of Republican control of Congress

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and the presidency belie that claim. The Medicare Modernization Act of 2003 was devised, promoted, and enacted by a Republican president and Congress. The Medicare prescription drug benefit increased Medicare’s long-term cost overrun by 30 percent, a shift from private to public spending unprecedented since the program’s enactment. David Walker, U.S. comptroller general, directs the Government Accountability Office (GAO), a large federal agency charged with investigating the functioning of other government agencies. The GAO is nonpartisan, and its director has a thirteen-year appointment, permitting him to speak freely. According to Walker, “The prescription drug bill is probably the most fiscally irresponsible piece of legislation since the 1960s because we promise way more than we can afford to keep.” Analysts point out that 73 to 75 percent of Medicare beneficiaries already had prescription drug coverage at all income levels before the bill’s enactment.9 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 sought to insert the private insurance market into Medicare, as did Medicare Advantage, another component of the 2003 bill. Medicare Advantage provides incentives and rules by which beneficiaries can select a health insurer to manage their Medicare benefits. As in other private health insurance policies, Medicare Advantage insurers select a network of doctors and hospitals, negotiate contracts with them, and accept the financial risk if premiums do not cover the cost of beneficiaries’ care. In traditional Medicare the government pays providers directly. In Medicare Advantage the government combines the premiums that the patient normally pays for traditional Medicare with a government-funded premium paid to the insurer for the patient-selected insurance. As of December 2006, 16.7 million Medicare patients had signed up for the prescription drug benefit, and another 7.6 million had signed up for Medicare Advantage, out of a total of 44 million Medicare beneficiaries.10 By assigning their Medicare benefits to an insurer, beneficiaries reduce their own costs more than they would with traditional Medicare and sometimes improve coordination of their care. But the government could not attract insurers to Medicare Advantage without paying them 12 percent more than traditional fee-for-service Medicare, thus aggravating rather than diminishing Medicare’s cost problem.11 Republicans lavished public money on seniors through Medicare Part D and Medicare

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Advantage, sacrificing their long-espoused devotion to fiscal conservatism for the higher calling of private-sector management of health care. At this point, the party can no longer credibly argue fiscal conservatism as its opposition to health care reform. In fact, Republican actions have made reform to manage cost more urgent. Private health insurance’s track record is no better than fee-for-service Medicare, so the probability that Medicare Advantage will decrease the Medicare program’s long-term cost is low unless there is a change in how private insurance works. The Democrats lost control of the House and the Senate in 1994. They regained the Senate in 2001, lost it again in 2002, and then gained control of both houses in 2006. Thus, their recent track record on health care is spotty. Democrats generally take one of two positions: Medicare for All or private coverage (usually mandated rather than voluntary and either through employment or disconnected from it.). The party’s final two 2008 presidential candidates, senators Barack Obama and Hillary Clinton, have espoused approaches that preserve private insurance and expand public insurance. Democratic ideology embraces both government- and privately-managed proposals. Thus, the party has no unified position on how to expand coverage; it just declares that it should be done and places less emphasis on short-term fiscal cost than Republicans do. Every politician, no matter what party, agrees that health care costs must come down in the long term. Democrats tend to emphasize the control of costs by federal action; Republicans emphasize market forces. But both are necessary. Neither one alone is sufficient.

Public Apathy Members of Congress can only go as far as the public mood permits. After all, Congress is distributing public money. Regarding health care, I would not characterize the American mood as disinterested; rather, the insured public is intent on retaining benefits and is annoyed by cost. In recent surveys, people rank their concern about health care just below the economy and defense. In 2003, 66 percent were not happy with health care, an increase from 53 percent in 2000. As public priorities, cost is first, the uninsured second.12 The low quality of health care scarcely ranks as a concern, but that may change as access to primary care degenerates.

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The public is almost evenly divided on whether to enact a single-payer system or to preserve the insurance industry in some way. This lack of consensus has persisted for years. In 2006, 85 percent of the public thought the government should do something to cover the uninsured. But when people are asked what they are willing to give up to pay for the uninsured, only about half support a substantial tax increase to make sure that everyone can get health care services.13 People are less certain about giving up some of their own health benefits to cover the uninsured. Groups of Minnesotans were asked, “What health coverage are you willing to give up for your family in order to provide it to the uninsured in our community?” Initially, 46 percent were unwilling to give up anything. After group discussion, two-thirds compromised on their benefits to cover children, and one-third willingly decreased their benefits to cover children and adults. But one-third was still unwilling to give up anything.14 The public will sacrifice but has a limit on how much.

Lack of a Common Vision People are full of internal conflict. They are afraid to make a move. They want to cover the uninsured, are split on how to do it, are willing to pay for their coverage, but are only willing to pay so much. Everyone in America knows someone who has played by the rules yet is uninsured. But insured employees and Medicare patients, who make up about two-thirds of the population, are happy with their insurance and reluctant to change it, though annoyed with its cost. The majority of businesses understand that they cannot control health care costs and many want out of employer-based health care. But they worry that their employees will be poorly served by what comes next and fear that business will be left paying for health care but have no levers to control its cost. Republicans acknowledge the need to cover the uninsured, will only support it in the private market, and, just as a dry alcoholic won’t touch a drink, are now seized with fiscal conservatism. Democrats are willing to spend public money to cover the uninsured and are open about how to do it; yet no one in either party knows how to deal with the fact that, at

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present rates of escalation, Medicare and Medicaid will consume the entire federal budget or cause it to double by 2050.15 I think that these conflicts and inconsistencies express something people sense but don’t articulate. We have no common vision of what might work properly in health care yet remain affordable. All we have is the reality of a very expensive health care industry with the looming possibility that it will soon become unaffordable, and we have no idea of what to do about it. It will be easier to cover the uninsured if the country simultaneously takes serious steps to reduce the cost and improve the quality of health care—when we have a common vision of a high-performance health care system. It should be possible in time to fund the uninsured and improve the quality of health care by extracting some portion of the 700 billion dollars in waste from the industry. It is unlikely that the uninsured will see coverage until the public and elected officials have some reason to believe that health care costs can be controlled.

A Coordinated Solution Changing the financing of health care to include the uninsured and reforming the medical industry are two different issues, but they beg for a coordinated solution because what is done to address one issue affects the other. Covering the uninsured will be expensive, perhaps impossible, without reforming medical practice. Reforming medical practice will be impeded by the presence of so many uninsured. For example, if the public is to be protected and costs are to be controlled, then all hospitals should meet a high standard of safety and efficiency. How can academic medical centers or major emergency hospitals that struggle to maintain a 2-percent profit margin be held to the same safety and quality standards as hospitals that are flush with cash when the reason for the difference in margin is that one avoids the uninsured and Medicaid patients and the other does not? And how can anyone talk about cutting fat out of hospitals that depend upon that fat to balance losses incurred by caring for the uninsured? Without covering the uninsured, the financial chasm between hospitals will act as a dead weight on the reform of the medical industry.

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Comprehensive management and disease prevention are only platitudes if many of the primary care doctors who are expected to implement the concepts are overburdened, underfinanced, and overwhelmed with uninsured and Medicaid patients. How can a publicly funded clinic that cannot even order specialized diagnostic tests for its patients and barely make its budget from month to month be held to same quality standard as a private medical practice? The business adage “no margin, no mission” applies to the reform of medical practice. Without coverage of the uninsured, key participants in reform—hospitals and doctors—will have no margin and will laugh at what they are being asked to do. Reforming the medical industry to reduce cost and improve quality is a matter of changing the orientation and the payment method of an entire industry—of changing its culture.

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18 A Workable Plan for Reform

Consumers will need some help from the federal government to keep health care costs manageable.

If I believed that the unaided market forces of 247 million people (the U.S. population minus those enrolled in Medicare) would drive down the cost of health care and extract waste, I would not have been impelled to write this book. But the medical industry does not operate like a conventional market. Lowering cost and improving quality are not as simple as unleashing market forces. As I have shown in previous chapters, waste and poor quality thrive because the health care system is highly insulated against external pressure. Hospitals by their nature enjoy a privileged position in the community; they are regional monopolies or oligopolies. If market forces were at work in medicine, an empty hospital bed would sit idle until the price was right, but an empty bed always gets filled. If the sale of hospital services were like the sale of cars, then hospital revenues would not increase just because prices were increased. Regions of the country with a plethora of hospital beds and specialists spend 60 percent more for the same care at lower quality than do regions with the fewest beds and specialists. In a standard business model, the demand for services drives the supply of those services. In medicine, the standard relationship is reversed: increased supply produces increased demand and use. In two situations—urban monopolies and rural shortages—competitive hospital pricing is probably impossible to achieve by consumer power. In large cities, oligopolies can be created when only two hospital systems control health care rather than a larger group of hospitals and hospital 212

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systems, and the result can be particularly inflated prices and little consumer choice. On the other hand, 15 percent of Americans live in rural areas where they are lucky if they have access to a hospital. Rural hospitals barely hang on financially because they cannot pick and choose the most profitable patients like their big-city cousins can. For instance, bigcity hospitals can increase their margins by promoting the performance of highly paid procedures and discouraging admission of low-paying patients who need medical, not procedural, management. Rural hospitals admit everyone in their community but lose high-margin procedures to big-city hospitals. They suffer high overhead because they are small and have no economies of scale. Rural hospitals are regional monopolies, but they can’t always price-gouge because they are money-losing community resources. Thus, there are some inherent limits on the ability of competitive pressure to drive hospital performance. Doctors have a monopoly on information because they know what patients don’t. Doctors are able to promote the application of technology by the information they present to patients and how they present it. Although excess treatment is not entirely to blame, 46 percent of the increase in health care costs from 2000 to 2003 was the result of increased application of technology per capita.1 In a perfect market, if individuals paid for medical services, doctors would be forced to compete with each other on price and perhaps quality as well. But as a patient, who knows whether or not she really needs a procedure? A treatment or test can be prescribed or performed for just about any ailment. The matter is more complicated because a patient whose life is in a doctor’s hands must be comfortable with the doctor. Finding the right doctor is not like shopping for a car. It is more like seeking a relationship, and relationships are difficult to price. The resistance of doctors and hospitals to the consolidated power of insurers and employers is another testament to medicine’s rigid opposition to change. Insurance is more consolidated than any other segment of the medical industry, yet it has been unable to reduce health care costs. Fifty-five percent of those with employer-based health insurance are directly funded by their employers, with no insurance middleman.2 Even self-funded large employers have been unable to bring health care costs within bounds. Despite these failures, there are powerful reasons to turn

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direct responsibility for the purchase of health care over to the individual backed by the government, but not to the government alone. Patients must cooperate with the steps that have to be taken to reduce health care costs. Government cannot compel individuals to comply with efforts to reduce these costs; only self-interest can. Unless people are directly paying a significant portion of their health insurance, they have no reason to put up with inconvenience, if that is the price they must pay for reducing health care costs. And health care costs cannot be brought down without inconveniencing consumers. Twenty-seven percent of the escalation of health care costs is driven by obesity. Smoking accounts for 7 percent.3 Smoking and the behaviors that produce obesity will have to be modified or paid for in the form of increased insurance premiums if costs are to be reduced. People will be inconvenienced because there can be no meaningful health care reform unless patients are subject to coordinated medical management. They must submit to allowing one doctor to coordinate and manage their care and ensure its quality. People can no longer agree to undergo procedures of marginally increased value over medical management unless they are willing to pay part of the cost or buy an expensive insurance policy that provides everything without significant co-pays. People will have to be informed and understand the nature of marginally versus highly effective procedures. Putting the brakes on the excess application of technology must take place at the level of the provider and the patient. In fee-for-service medicine, doctors’ financial incentives are to perform procedures and provide services. When a third party pays for the majority of health care costs, the patient’s incentives are to willingly accept whatever the doctor recommends and in fact often ask for more. Until the financial incentives of doctors and patients are aligned, we cannot manage health care costs. But consumers will need some help from the federal government to keep health care costs manageable. If the baseline practice of medicine in this country were improved in a way that reduced medical waste by half, not considering the costs of obesity and smoking, health care costs would be reduced by 15 percent. Such a goal will require the reform of medical practice. The medical system is unlikely to respond to competitive pressure

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as much because it does not know how to reduce its costs as because it is organized to effectively resist doing so. Consumers can neither force nor teach doctors how to practice efficient medicine. That is where federal action is needed. While walking the halls of hospitals in the course of my practice, I tried to imagine what federal initiatives could change the workings of doctors’ offices, hospitals, and outpatient facilities. I knew that the members of the medical industry, including myself, have a finely honed capacity for getting around the intent of payment rules made in Washington and in the central offices of insurers. Who but a treating doctor can certify that a treatment or a test is medically necessary? Having lived through the wholesale disruption that a decrease in medical pricing had had on the medical industry in the 1990s, I was clear that reducing the prices paid to doctors and hospitals is no way to reduce health care costs. So my conclusion was that saving money by reducing waste is the only means available to us. The twofold regional variations in the amount of services that are supplied to patients, which have been so thoroughly documented by the Dartmouth Institute for Health Policy and Clinical Practice, illustrate the magnitude of the problem. I have lived in the profligate world of medicine for thirty years, so the findings of that group were no surprise to me.

Reducing Variation Variations in medical practice are rife. At the end of life, patients in Ogden, Utah, spend an average of 4.6 days in the hospital, whereas in Newark, New Jersey, they stay for twenty-one days. Miami doctors apply two and a half times more interventions to Medicare patients than do Minneapolis doctors. Surgeons in Birmingham, Alabama, perform three times more heart surgeries per capita than do surgeons in Albuquerque, New Mexico. Hysterectomies were so frequent in one Maine community that researchers concluded that 70 percent of the women in town would have no uterus by the age of seventy-five.4 Doctors practice differently from one another because they lack information, there are no standards against which to compare their practices, some own facilities that they must keep full, they wish to conform

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to regional norms of practice, their concern about malpractice liability varies, and they differ in what they are willing to do to keep busy. Reducing variation in medical practice will reduce waste and improve quality. Regions with the least use of medical resources for patients with hip fractures, colon cancer, and heart disease are the regions with the lowest mortality rates. My own experience in practice is that efficient medicine is invariably the best medicine. The lack of information necessary to create standards of practice against which to judge the appropriateness of variations in care among doctors, hospitals, and regions is a core health care problem. But just providing doctors with information will not reduce the variation in their practices. Many would simply ignore best practices, as they do now. Under the limited circumstances in which such agreed-upon standards exist, many doctors simply ignore best practices. In a 1981 study, 17 percent of coronary angiographies, 32 percent of carotid endartarectomies, and 17 percent of gastrointestinal tract endoscopies were found to be inappropriate. In 1979, 1989, and 1982, 30 percent of coronary artery bypass surgeries in three hospitals were performed for equivocal reasons and 14 percent for inappropriate reasons. In a 1993 study, 16 percent of women in seven managed care organizations underwent hysterectomies for inappropriate reasons. In a 1993–95 study, an expert physician panel judged that 70 percent of 497 hysterectomies were performed for inappropriate reasons. In a 1990 study of 1,306 patients in New York State, 38 percent of coronary catheter procedures were judged of uncertain benefit and 4 percent inappropriate. For money to be saved, doctors have to do what works, only what works, and do it efficiently.5 Doctors practice inefficient medicine because care is fragmented, fee-for-service payment drives inefficiency, and no one seems to care if practitioners are good at managing resources. But waste also ensues when doctors willfully do what is not in a patient’s best interest or when their index of what is in the patient’s best interest becomes subtly corrupted. Sometimes the motivations are mixed, as in my story about Dr. Raymond Alford’s unnecessary surgery. All the information and standards of practice in the world won’t reduce health care costs unless payment incentives are aligned to reward efficiency and performance is measured.

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HMOs meet the criteria I describe. They reduce waste by using protocols and coordinating care. They operate by being paid a flat amount for a patient’s annual care, so they have a financial reason to encourage efficiency. In theory, if everyone in the United States were in an HMO, waste and cost would be reduced. But while there are some good HMOs, I have shown what happened when such techniques were abruptly imposed upon the medical community in the 1990s and badly implemented. There are three limitations to medical reform in America. First, no third party must be inserted between a doctor and a patient. From my managed care days, I know why doctors resent anyone who tries to tell them how to practice medicine. Doctors don’t like to be second-guessed and cannot do a very good job managing a patient when they are. Countries that put their health care systems on a budget interfere with medical practice by limiting access to specialists, equipment, and facilities rather than by directly intervening between a doctor and a patient. Second, patients must be freely able to pick their doctor within reasonable limits. As a practitioner, I know why doctors hated the feature of managed care that forced patients to see a particular doctor rather than allowed them some choice. Trust is difficult to create in a forced relationship. In practice, 57 percent of those with employer-based health insurance are in plans that restrict the doctors they may see without being responsible for a higher co-pay, and 21 percent are in HMOs that offer care only by a closed panel of physicians.6 Third, doctors will not cooperate with the wholesale reorganization of medical practice. HMOs work well for some doctors, but many would not practice in them. Managed care abruptly reorganized medical practice, but physician resistance led to its downfall. When doctors are paid with incentives that reward efficient practice, they will find that they can make more money and do a better job by using information technology, organizing into groups, and affiliating with specific hospitals. But doctors, not external parties, must be the ones to make those decisions because physicians have to live with the circumstances of their practice. Medical practice cannot be reformed unless doctors and patients cooperate. These three restrictions are the limits on their cooperation.

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The Three Principles of Cost Reduction There are three steps to achieving a high-performance health care system in medicine in America. First, develop agreed-upon standards of medical practice based upon research. Doctors now can substantially influence the course of human disease, and they have a wide range of treatments to choose from. The problem is that once technology is developed and found to be effective for anything, it is released for use for everything. Fee-forservice medicine combined with poorly evaluated new technology produces a medical arms race. New technology has developed rapidly without parallel mechanisms to evaluate it and manage its use. Penicillin became available during World War II. Now the FDA approves seventy to one hundred new drugs a year, but we do not know whether the majority of them are better than existing drugs. The first diagnostic catheter procedure for the heart was performed in 1958, but now a high percentage of their use is for doubtful indications. The first CT scan was installed in our hospital when I was a resident in training in 1976. In 2008 CT scans are used so frequently that they are expected to increase cancer risk, but there are no standards by which anyone can evaluate the appropriateness of their use. MRIs became available for diagnostic use in the mid-1980s and are one of the fastestescalating health care costs. As with CT scans, it is impossible to sort appropriate from inappropriate use because there are no standards for MRI use. Large-scale studies completed in the 1970s and 1980s showed that high blood pressure caused stroke and heart disease. Yet as medicine is currently practiced, nearly half of people with high blood pressure are not medically managed.7 The implanted instrumentation that allowed spinal fusion of the neck and lower back were perfected in the late 1990s, but in 2008 no one knows whether or not the majority of patients are helped by the procedures over the long term. Coronary catheter procedures that replaced many open heart surgeries were FDA-approved in 1994. In 2003, two-thirds of the patients who received them benefited very little from them, with no consequences for either the patients or the doctors. New technology is developed now at incredible speed, yet medical practice is a swamp of poorly evaluated and indiscriminately applied technology.

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Payment policy should reflect standards. The purpose of creating standards is to reduce variations in management among regions of the country, hospitals, and doctors. I do not propose to restrict or interfere with a doctor’s ability to care for an individual patient or to in any way restrict the application of technology that is proven to be effective. I do propose that payers refuse to pay for excess diagnostic testing and ineffective procedures, require patients to pay a significant portion of procedures that are marginally effective, and publicly report and perhaps restrict Medicare participation of doctors whose practice deviates far from norms. For common straightforward conditions such as the workup of a headache, a backache, or abdominal pain, payers should consider limiting payment for diagnostic procedures to a standard workup unless the physician can justify a more extensive one. Physicians who follow such standards should be given legal protection from failure to diagnose. At present, extensive testing for the rare condition is routine. With the lack of any workup standards and in the U.S. legal climate, a doctor would be lax to do anything else. Payers should refuse to pay for procedures that are proven to be ineffective in a given group of patients. Who would want such a procedure anyway? For example, if back fusion in patients with degenerative conditions without slippage or trauma should prove to be no better or worse than physical therapy alone, insurers should not pay for it. Every medical procedure is effective in some group of patients, like catheter procedures for victims of a heart attack and back fusion for patients with spinal fractures and slippage of the vertebra. But every medical procedure is not effective in all the patients, or even the majority of patients, who receive them. Just as the pharmaceutical industry promotes poorly evaluated drugs, the medical industry promotes poorly evaluated procedures for widespread use. One is recognized as exploitive; the other is not. At present there is limited knowledge as to which procedures are highly effective, marginally effective, or ineffective in different groups of patients. Yet we treat all these procedures as if they were proven and reliable for all applications. Neither doctors nor patients would agree to outright restrictions on marginally effective procedures, but such procedures are candidates for tiered payment. That is, an insurer might require a co-payment equal to 25 percent of the cost of the procedure for marginally effective procedures

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indexed to a person’s income. A person could have the procedure, but he would have to want it badly enough to pay part of the cost. The other way to avoid paying for expensive procedures of marginal value is to inform patients. Before undergoing such a procedure, they could be required to view a video that explains the state of knowledge about a procedure or to say that they do not wish to view it. Because a trusted doctor who is promoting a procedure of marginal effectiveness can easily convince his patient not to view such a video or to discount what it says, insurers could restrict the participation of doctors who are outliers. A doctor who is performing an unusually high number of marginal procedures is probably misrepresenting them to patients, and insurers might choose to remove such a physician from their panel of providers. Doctors and hospitals should be paid so that the savings from efficient medical practice are shared with them. Before World War II, when a doctor had little control over the outcome of disease, the only feasible approach was to pay him fee-for-service. For example, antibiotics only became widely available during war, so infectious diseases could not be effectively treated. Paying a doctor for the outcome, efficiency, or quality of care would be absurd when he could do so little. Times have changed rapidly, but payment systems have not; and feefor-service medicine has outlived its usefulness. If money is to be saved, doctors (not insurance administrators) will have to figure out how, and they will have to be paid for it. As we have seen, fee-for-service medicine drives excess use and provides financial disincentives for hospitals and doctors to work to drive down complication rates and search for efficiencies in the course of treatment. Fee-for-service medicine should be replaced with a payment model of shared savings, in which primary care physicians would share in the savings resulting from their management of patients. If good control of diabetes, heart disease, and lung disease in the clinic reduces hospitalizations and overall cost of care, the primary care physician shares in the savings with the insurer. Payment to hospitals and specialists should be for an episode of care—from admission to the hospital or surgery center until discharge home—rather than for each moment and service along the way. This payment method should reduce cost because doctors and hospitals would have a good reason to be efficient: both would make more money.

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Specialists should be paid together with their hospital or surgery center; otherwise, the two groups will have conflicting financial incentives. I have shown how little reason doctors have to care about reducing hospital waste; it costs them nothing if a hospital is inefficient. Unless physicians and institutions are paid out of the same pool of money, their incentives will never be aligned. At least four groups of laws would probably have to be changed to permit such arrangements. Among them are provisions in the Stark laws, which prohibit physicians from referring patients to facilities they own for X-rays and physical therapy, but also the civil monetary penalty statute, 42 U.S.C., secs. 1320a–27a, which prohibits gain-sharing arrangements, as well the Internal Revenue Code governing not-for-profit hospitals and federal anti-kickback statutes.8 The quality of care should be continuously monitored in a payment system that shares savings with doctors, hospitals, and ambulatory surgery centers. If doctors and hospitals were paid a flat rate for the whole continuum of care, specialists might undertreat a patient during a hospitalization rather than overtreat as they tend to do now. Generalists, who share in the decreased cost of care, might systematically skimp on tests and minor procedures and fail to refer to specialists when they should. The problem would be the opposite of fee-for-service medicine, where technology is overused and preventive measures underused—meaning that, for example, only 50 percent of patients who go the doctor ever get recommended tests and treatments. In a monitoring system, doctors’ practice patterns would be individually measured and reported against both standards of practice and their peers. For instance, a primary care doctor would deal with reports concerning how many of her patients had received all of the recommended tests and treatments. But such a reporting system could only work if a patient were cared for by one doctor; otherwise, no one would know whose responsibility it was to provide a given treatment or test. The objective of measuring a doctor’s adherence to standards of practice is to reduce variation around the standard and thereby reduce cost and improve quality. A certain range of practice is expected. Just showing a doctor his practice pattern in comparison to those of others will affect variation. Most doctors do not want to practice outside the mainstream. Thus, standards of practice could provide four controls on overuse of procedures of marginal value: high co-payments, standardized patient education

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before surgery, comparing a doctor’s practice patterns with those of others, and removing doctors who conspicuously deviate from norms of practice from participation in insurance contracts. Who would perform the research needed to determine which common procedures are of no benefit and which are marginally beneficial? Who would study the effects of medical practice to determine what treatments work best and what diagnostic tests are sufficient for a given condition? Who would gain agreement from the medical profession for approval and promulgation of standards? How would shared savings payment concepts be tested? Who would learn the methods of efficient hospitals and doctors, and who would teach them to others? The only insurer in any position to conduct such large-scale payment experiments is Medicare; it is the largest insurer in America, and others follow its lead. After a year in a congressional office, however, I found out how much power the medical industry exerts on Medicare payment policy. My conclusion was that no federal agency, certainly not Medicare, could conduct the necessary work to establish standards of practice, measure those standards, and test new payment policies. The effort would be stopped or adulterated. The same could be said of any existing federal agency. So something new is needed to guide U.S. medicine through such a change. What I propose here is an American Medical Quality System (AMQS) with the job of reducing waste and improving the quality of health care. It is loosely modeled on the Federal Reserve System, which was established in 1913 by an act of Congress as an oversight entity to regulate the nation’s banking system. Like the Federal Reserve, the AMQS would have a board in Washington as well as regional or state boards. It would be insulated from congressional and industry influence on its day-to-day operations, choice of projects, and dissemination of results but would depend on public money. (I will explain later how this could be accomplished.) The AMQS would perform field research in the Medicare program on how to pay doctors and hospitals. It would evaluate the effectiveness of medical technology and make its findings widely known to the public. It would make recommendations to insurers and Medicare on how to pay doctors and hospitals and what to pay them for, but it would not regulate insurance or determine Medicare payment policy. It would create a group of high-performance hospitals and clinics in every region of the United

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States. Collectively, the AMQS would provide the information and the payment models needed to alter insurance payment policy nationally and the reporting and education needed to inform the public.

It’s Either Efficiency or Rationing If what I propose in this book is not the best way to reduce waste in U.S. health care, then we should find some other way to cut it because there is really no other good option other than to become efficient. The periodic reduction of payments by Medicare and private insurers without constraints on use has not controlled costs. For both the consumer and the federal government, there are only two ways to control health care costs: (1) price controls with rationing of resources (the method used in most industrialized countries) or (2) increased efficiency (not used in medicine in any country). The United States has to choose one of the two because there will be no moderation of health care costs without reducing use. Most industrialized countries combine rationing of resources and price controls to manage cost. But even these countries are now faced with U.S.style health care cost escalation, though their rate of health care growth rises from a much lower unit cost. Rationing is defined as the provision of “a fixed amount of anything allowed for a certain amount of time.”9 When applied to medicine, the word implies the limiting of needed services. When no one can separate essential from superfluous services, rationing is risky business because both kinds of services may be limited. Americans think that rationing is un-American, but our society does it all the time to the uninsured. I am not the only one who thinks that the insured are in for rationing, too, if another way of managing health care costs cannot be implemented. David Cutler, the Otto Eckstein Professor of Applied Economics at Harvard University, has studied the U.S. health care system throughout his seventeen-year career. He succinctly expresses consumers’ choices: “The issue of efficiency improvement is fundamental to any health care reform. Without explicit rationing, it is the only hope we have of saving money in medicine.”10 Considering the options, creating an efficient health care system is the only way out; and the United States should be the first country to do so.

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19 Establishing Standards

The first step in managing the cost of health care is to develop standards for the application of procedures, the treatment and prevention of diseases, and diagnostic workups.

It is ridiculous that people today are undergoing medical procedures of unknown or marginal value. Even worse, such procedures—many of them probably completely unnecessary—accounted for 4 to 8 percent of hospital spending in 2005, according to my calculations.

Evaluating Common Procedures and Treatment Methods When researchers have doubts about the effectiveness of a common procedure in a given group of patients, a randomized clinical trial (in which half the participants get standard treatment, half the new treatment) is one way to find the answer. Such studies proved that back fusion was effective in the treatment of patients with slippage of vertebrae and that catheter procedures for stable angina are only marginally effective. There are other and faster ways of determining the results of common procedures, but all involve a laborious process of collecting data on complication rates and outcomes. The only existing federal agency with money enough to perform such clinical studies is the National Institutes of Health (NIH). But when the NIH funds clinical trials, its motive is scientific, usually the result of interest by a cutting-edge investigator in a medical school, rather than a desire to answer the more mundane question of how best to use existing technology. When I serve on NIH scientific panels that review proposals to 224

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fund clinical trials, we are routinely instructed to ignore the cost of a treatment that is being proposed for testing. The culture of the NIH, its very DNA, is to create new treatments, not to perform studies that would limit the use of new treatments. The majority of its funds are expended in laboratory research, and any clinical research is an extension of its basic research, which aims to bring discoveries from the bench to the bedside. The systematic evaluation of common procedures and the gathering of data and creation of consensus to establish standards of medical practice are not NIH missions, and it could not do them without compromising its primary mission—new science. My proposed American Medical Quality System, on the other hand, would conduct or sponsor clinical studies of procedures to determine which patients need them and which do not. Common and expensive procedures would be first on the list—for example, neck and back fusion in patients without slippage of vertebrae and procedures on the Dartmouth Atlas list of “preference sensitive procedures,” which include hip and knee replacements, procedures to unclog blocked arteries, several forms of prostate surgery, and heart surgery. Standards are needed for treatment methods as well as procedures. For example, patients with no kidney function must undergo a procedure called hemodialysis to remove the toxins in their blood. This procedure is normally done in outpatient centers designed for that purpose. In a hemodialysis procedure, the patient lies on a couch while a machine circulates blood through a filtration device that cleans the blood like a kidney would. Most patients require hemodialysis three times a week, the only alternative being kidney transplantation. Medicare pays for kidney dialysis and transplants regardless of a patient’s age, a bill that in 2004 accounted for 6.7 percent of the Medicare budget and 66,650 dollars in Medicare expenditures per dialysis patient per year.1 Inexplicably, after adjusting for differences in age and complicating medical conditions, the mortality rate of U.S. patients with kidney failure who undergo dialysis is one-third greater than it is in Europe.2 A 1983 study sponsored by the NIH found that longer periods of dialysis were no more effective than shorter periods, which were then in vogue in the United States. The study, however, narrowly missed reaching the opposite conclusion, so its published results have been in doubt. Nephrologists have

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questioned whether shortcuts in care explain the high U.S. mortality rate, but a decade of subsequent research has presented conflicting opinions.3 A 2006 report comparing 22,000 patients in Europe, Japan, and the United States found that the longer the duration of dialysis, the lower the mortality rate. The study showed that the United States had not only the highest mortality rate but also the shortest duration of dialysis. The authors called for a definitive formal study to answer the question of whether or not the mortality rate of patients with renal failure is reduced by longer periods of dialysis.4 What is not disputed is that finances account for short dialysis times in the United States. Dialysis facilities are paid by the number of patients they put into the dialysis chair, not by the duration of dialysis. While the situation is not necessarily a matter of cost, it is certainly a matter of quality: we must determine the optimal duration of dialysis and then pay for it. We need a systematic approach to determining best practices with an eye to cost and quality. The AMQS would fund such research.

Evaluating Pharmaceuticals Three-quarters of the new drugs that the FDA approves for marketing are rated standard by the agency, and they probably offer little improvement over existing drugs. Yet they account for the majority of pharmaceutical sales. In my proposed system, after FDA approval of new standard-rated pharmaceuticals, the AMQS would fund clinical trials to compare them with older, cheaper drugs and with other drugs in the same class. Unlike medical services, drugs are commodities. There is already evidence that market forces can reduce their cost. But we need information that compares the effectiveness of new drugs so that pricing can be based upon actual value, not the value assigned by billion-dollar, direct-toconsumer marketing campaigns, and so that the safety and effectiveness of new drugs are better understood. Almost everyone covered by employer-based insurance has prescription drug benefits, as do more than three-quarters of Medicare beneficiaries.5 Drug benefits are typically managed by managed care organizations, who can purchase drugs at reduced prices by limiting the number of drugs provided to their beneficiaries (in other words, by limiting their

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formularies). They can also reduce spending by requiring beneficiaries to pay a significant portion of the cost of drugs of marginal value. Thus, better information would probably lead to lower spending for me-too drugs. As exemplified by the Vioxx and Celebrex story, such research would improve care. The pharmaceutical studies conducted by AMQS would not necessarily always result in information that would reduce pharmaceutical expenditures, just wasteful pharmaceutical expenditures. In some cases pharmaceutical spending might be increased. For example, a study in five communities enrolled 256 diabetic patients in a program in which the patients’ employers paid community pharmacists to regularly meet with and educate the patients and coordinate with treating physicians. The patients’ compliance with their pharmaceutical regimens improved so much that over the ten months of the program their A1C values (an index of how well blood glucose is controlled) improved by 8 percent, their blood cholesterols decreased by 33 percent, and their blood pressures decreased by 15 percent. The patients’ nutrition improved, and their weight decreased. Before the program, 69 percent of medical costs were for inpatient and outpatient care and 33 percent for medications. By the end of the program, medical services accounted for only 56 percent of spending while spending on medications had increased to 44 percent. Nevertheless, this created a net savings of 918 dollars per patient, a 10.8 percent reduction in cost of care.6 Increased spending on the right pharmaceuticals can improve outcome and decrease cost.

Standardizing Diagnostic Workups Standards are needed in diagnostic workups. Outpatient services such as MRI and CT scans, colonoscopies, and outpatient surgeries are Medicare’s fastest-growing component. Such services account for nearly 10 percent of health care spending, and in 2005 medical imaging accounted for about one-quarter of outpatient spending.7 Doctors may ascribe their overuse of tests and procedures to fear of lawsuits; but patient demand, disorganized medical practice, financial self-interest, and local habits of practice drive excess testing as much as avoidance of litigation does. For instance, I saw about thirty-five patients

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every Wednesday in clinic, and every patient came with an MRI under his arm. Two-thirds of the studies were of such marginal quality that I simply ordered a new MRI or a study called a myelogram (in which a spinal tap injects dye into the spinal fluid) before making a surgical decision. The patients’ first MRIs were usually of poor quality because the referring doctor had ordered them to be done on the nearest equipment, often cheap units housed in mobile trucks that visited their clinic’s parking lot once a week. My patients were often from small towns where such units seemed to be ubiquitous. These MRI scanners had insufficient power to detect the anatomic distinctions I needed to make a surgical decision. But the cost to Medicare and to commercial insurers for a good-quality MRI is exactly the same as the cost of a poor one. Sometimes the studies were of good quality, but I could not decipher the labeling on the images because there are no standards for labeling. The only agreed-upon convention in radiology is that right and left are standard on all films. If I could not decipher the labeling on the images, I could not afford to guess. So I never thought twice about ordering duplicate studies. The cost of the images I reordered in each clinic was about 24,000 dollars per clinic or about 1,152,000 dollars per year in duplicated studies. During the fifteen years I ran those clinics, I was responsible for more than 17 million dollars in studies that from a systems perspective were unnecessary. I can assure you that I was not alone in this behavior. Ideally, I might have called the referring physician and recommended that she not image the patients she was sending me so that I could order my own. But I did not always know who the referring doctor was, and she probably would not have desisted if I had called anyway. A doctor in a small town uses such imaging studies to determine whether to trouble the patient with a referral to Houston; the patients expect them. In 2003, a law was passed that reduced Medicare’s payment for CT scans and MRIs by 30 percent because imaging volume was growing faster than any other service in Medicare. Although Senate staff widely understood that a high percentage of such imaging was waste, who could sort the wheat from the chaff? Even the doctors could not tell, so how could congressional staff members? When the prospect of further imaging cuts was raised in the 110th Congress, I spoke, as a Senate staffer, with innumerable representatives from imaging companies and with radiologists.

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They told me that, as a result of the 2003 payment cuts, they were operating on thin margins and that further reductions would destabilize their businesses. The injustice is that radiologists order only a small percentage of studies, but they are usually the ones who must accept decreased payments. Doctors who manage the patients order most studies. I knew that my practice of ordering so many studies, no matter the cause, had contributed to decreasing radiologists’ payment rates. Both the radiologists and the lobbyists for imaging companies begged for imaging standards so that volume could be reduced by excluding wasteful tests; consequently, payment rates would remain at a level that would support their businesses. But who in Washington has the staff, the money, or the mission to determine the necessary reasons for an MRI or a CT scan? The AMQS would fund research to generate the missing information needed to create such guidelines and protocols, and there is quite a bit of missing information. Another example from my own practice is patients who suffer a concussion. Such patients are briefly knocked out, and then awaken, and it is exceedingly rare for them to have any medical complications; they are usually sent home from the emergency room with their families. Nonetheless, most doctors perform a CT scan, which is invariably negative. By keeping records on several thousand patients with concussions who have CT scans, AMQS-funded research could determine how many serious conditions are picked up and whether the scan is necessary at all. Another common example is the diagnostic workup of patients who throw out their back. Most of these patients undergo MRI scanning for what is most often a muscle sprain that resolves within a week. Rarely does an MRI affect management. Which patients with the abrupt onset of back pain need an MRI? Do they only need one if the pain does not resolve in a week? An examination of the clinical yield from routine MRI scanning of acute low back pain would provide the answer. The findings of such studies would be used to establish guidelines for a wide range of conditions. But do not expect guidelines alone to alter practice. Two policies would have changed my clinic practice. A regular report about how far I had deviated from the standard would have kept the matter on my mind, but that would not have been enough. Surgeons mostly endure long clinics because this is how they find people who need

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surgery. Operating is what surgeons enjoy. I used the screening MRIs done by the referring doctors much as those doctors did. I would not allow a patient to make an appointment with me without an imaging study in hand because I did not want my clinic to be clogged with nonsurgical patients. In this circumstance neither I nor the referring doctors would have paid attention to reports of our imaging practices unless we were paying a financial price for them. For instance, taking the cost of excess studies out of our Medicare payments at the end of the year would have quickly generated some policy changes in our clinics. Standards for diagnostic workups could serve another purpose as well. Doctors don’t perform major procedures, especially marginally indicated ones, to avoid lawsuits; rather, they over-order images, blood tests, and diagnostic procedures such as biopsies. One-third of malpractice cases are for failure to diagnose.8 A doctor who adhered to a standard protocol for a diagnostic workup could be held harmless for failure to diagnose. Such a law, combined with a financial penalty for waste, would be a powerful motivator for efficiency and still leave control of patient care in the hands of doctors. If a doctor or a hospital has no financial consequences for failing to follow standards, then it does not matter who establishes those standards. On the other hand, if standards can affect payment, the manner of their creation must not only be objective but must also appear to be objective. Currently, standard setting appears to have a conflict of interest. For instance, the body that promulgates the most widely accepted guidelines for renal dialysis, the National Kidney Foundation, receives 57 percent of its funding from industries that directly profit from renal dialysis.9 The 2004–5 annual report of the American Heart Association, the body that issues standards for management of heart disease and stroke, lists twenty-one donors that contributed between 1 million and 4.9 million dollars. Twenty were industries that have something to gain from a decision of the American Heart Association.10 The AMQS would work with specialty societies and perform primary research to establish standards for diagnostic workups and treatment. One of the reasons to establish standards is to reduce variation; another is to protect patients. Fee-for-service medicine rewards doctors for doing more. A shared savings payment model reward doctors for doing less in a

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better way. The continuous monitoring of standards of practice would be necessary in a shared savings payment system to be sure that doctors did not save money by withholding necessary procedures and treatments. One key objective of a new payment model is provide the information and the incentives for primary care doctors to reduce medical spending by coordinating the management of patients to reduce hospitalizations and the application of unnecessary technology.

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20 Prioritizing Primary Care

Primary care doctors should be paid so that the savings from efficient medical practice are shared with them, and their quality of care should be monitored.

The Sumner Clinic is not much to look at from the outside. It is located in a strip shopping center on a busy street in the small town of Gallatin, Tennessee, about thirty miles northeast of Nashville. The clinic is managed by a general internist, Dr. Sid King. When I entered for my meeting with King, I was greeted by a trim, smartly dressed elderly woman sitting in a rocking chair near the front door of an expansive room. She was one among several patients who volunteer as greeters at the clinic. Inside, the Sumner Clinic did not resemble any doctor’s office I had ever seen. It was not posh, but it was spacious with a large, simply decorated waiting room. The floors were linoleum, the walls accented with faux wood. Two computer terminals and several telephones for the patients’ use were scattered among rocking chairs and upholstered chairs. A patient in a wheelchair could easily navigate the room, and one older woman in a wheelchair was logging onto her email account. In the middle of the room was a fireplace open on two sides. On the right was an open kitchen with a long dining table, where two elderly African American women were in deep conversation. The room adjacent to the kitchen was set up like a classroom so the clinic’s nurse and a dietician could teach patients healthy cooking and eating skills. On the left side of the waiting room was the ubiquitous check-in counter, not enclosed in glass but open. The staff often came into the waiting room to greet patients by name. 232

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At the time of my visit, the only patients using the services of the Sumner Clinic’s internists were 1,200 Medicare beneficiaries who had signed up with a Medicare Advantage Plan offered by HealthSpring, a Nashville-based managed care organization. Seniors enroll in such plans so they do not have to bear the expense of purchasing a Medicare supplemental policy (which pays for the 20 percent of outpatient services not covered by Medicare) and because their co-payments and deductibles are lower than those with fee-for-service Medicare. Medicare pays HealthSpring, and HealthSpring pays the doctors and hospitals, keeping any remainder as profit. Republicans had hoped that this program, intended to demonstrate the private sector’s better coordination of care, would eventually result in cost savings to Medicare. But in order to get insurers interested, the new program had to pay them 12 percent more than traditional fee-for-service rates. Judging from the Sumner Clinic, the Republicans had not hoped in vain. What happens in this clinic is remarkable. Dr. James Geraughty, who is chief quality officer for HealthSpring, told me about the clinic when I visited his company’s Nashville offices. HealthSpring had enlisted the Sumner Medical Group to care for its Medicare Advantage patients in the Gallatin area. Geraughty explained that their target was to take care of Medicare patients for about 82 percent of what Medicare paid, though for most practices the number was closer to 87 percent. The remaining 18 percent is available to pay company overhead and profit, typically distributed as 10 percent for operations and 8 percent as profit. Medicare pays insurers based upon a patient’s severity of illness, so there is little reason for any insurer to hustle healthy Medicare patients in order to improve earnings. Geraughty had hired a nearby firm that specializes in management of chronic diseases to keep HealthSpring’s patients out of the hospital by improving their medical management. This firm’s nurses would phone the Sumner Clinic’s patients and ask why they had missed an appointment, inquire into their compliance with a dietary recommendation, or tell them how to change their medications. When I interviewed Sid King in his Gallatin clinic, he said that he had objected to this practice because it interfered with his management and that the patients did not pay much attention to a call from an insurance company’s nurses anyway.

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So King and Geraughty struck a deal. King said that if HealthSpring would pay his medical practice what they were paying the disease management company, Sumner Clinic would take over the job and do it better. King wanted HealthSpring to provide a nurse, but Herb Fritch, HealthSpring’s CEO, had to be convinced. He was concerned because, at the start of this experiment, the cost to the company for care of the clinic’s patients was leaving a relatively small profit margin for HealthSpring. But eventually the company agreed to pay the salary of a nurse at Sumner Clinic. No one thought collaborating with a nurse would save money, but everyone figured it would improve care. Using the Sumner doctors’ protocols, the nurse took over coordination of care and patient education. The doctors created standing orders so that the nurse would not have to talk with them if a patient needed a routine test or procedure. Collaborating with the nurse-coordinator and creating standing orders and management protocols were the keys to what happened over the next six months. Variation in doctors’ practice decreased, their practice of medicine improved, and patients’ compliance with their medical care improved. HealthSpring’s standard arrangement with doctors is to pay them a bonus of 20 percent more than Medicare’s fee-for-service payment if they reach 90-percent compliance with twenty-five measures of quality for care of diabetes, heart failure, and lung failure. By contrast, traditional Medicare’s performance bonus is 1.5 percent above usual fee-for-service payments, hardly enough to justify the recordkeeping the program entails. HealthSpring’s quality measures are not limited to whether or not doctors order a medication or test. They also consider whether or not outcomes improve—for instance, if a diabetic’s blood glucose or a cardiac patient’s high blood pressure is reduced. Patient satisfaction is measured with questions such as “Do you understand your disease?” and “Did you have a good experience?” If patients do not keep their appointments, practices are dinged for low quality, just as they are if a doctor fails to order a medication for a patient who comes to the clinic. King told me that each time his group sees a patient, the clinic’s nurse-coordinator places a big sheet of paper on top of the chart telling the doctor what tests are missing and listing any major problems.

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The regulations of Medicare Advantage permit an insurer to share savings with doctors up to a limit after a specified amount is returned to the federal government. A generous share of any savings must be offered to the patients in increased benefits or decreased payments. According to King, for a primary care doctor to make an income of 150,000 dollars per year at traditional Medicare fee-for-service rates, she must see forty or more patients a day, spending only a few minutes with each. King and Geraughty both said that a rushed fifteen-minute visit makes it impossible for a doctor to know whether or not a patient has received all necessary tests, much less to educate him. Primary care doctors’ current payment policy produces a frantic schedule and is probably the reason why only 50 percent of patients get recommended care when they go to the doctor. At the Sumner Clinic, the actions of the nurse-coordinator and the use of standing orders and management protocols meant that quality measures in the practice shifted from the usual 50-percent compliance to nearly 90-percent compliance. Emergency room visits decreased by 23 percent, and hospital admissions decreased by 16 percent but with increased spending on tests, imaging, and rehabilitation. Within six months of implementing this program, HealthSpring was spending only 77 percent of what Medicare was paying HealthSpring for the Sumner Clinic’s patients, down from 87 percent at the start of the experiment. The savings arose from decreased hospitalizations and emergency room visits. Sid King said that he told Geraughty, “Don’t get excited by this. It cannot work.” But six months later the total medical cost to HealthSpring of the Sumner Clinic’s patients fell to 69 percent of Medicare payments, where it has stabilized for the past two years. At the Sumner Clinic, all these changes were initiated with paper records. Only after the numbers stabilized did HealthSpring expand the clinic and install a system for maintaining electronic medical records. As required by law, patients see savings in the form of increased benefits or lower premiums. They also receive demonstrably better health care than they otherwise would. The doctors have higher incomes and the satisfaction of practicing high-quality medicine. HealthSpring has a larger profit margin. The lesson for the Medicare program is that by allowing doctors to share in the savings from efficient practice, a great deal of money can be saved—enough to lower Medicare’s cost yet pay doctors better.

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Would insurers still manage such programs if Medicare were to pay 100 percent of fee-for-service rather than an average of 112 percent? I cannot answer that question. But with a cost that is nearly 69 percent of Medicare’s payment, the Sumner Clinic experiment suggests that some money spent on managing such a program might substantially reduce overall spending for some of Medicare’s costliest patients—those with chronic diseases. Sid King told me, “Now I can spend whatever time I need with the patients because I see twenty a day rather than forty.” I asked Jim Geraughty about the key to establishing a practice that can accomplish such things. He said, “A doctor has to get it. It’s all about physician leadership.” He also told me that he was hesitant to enter any shared savings arrangement with a medical practice without verifiable measures of quality practice. I understood why: it would be too easy for doctors to free up money for insurers and themselves by cutting corners on care rather than improving management. That reputation—sometimes deserved, sometimes not—led to the demise of HMOs. The Sumner Clinic’s numbers surprised Geraughty, King, and Fritch, but I was not so surprised. I think primary care doctors in the United States have gotten so beaten down that they have no idea what they can do if given the chance. But they had better be given the chance to be paid in a new way. I have been told by doctors from Utah to California that primary care practices are closing to new Medicare patients. As Jim Geraughty put it, “Everyone in primary care is trying to get out of Medicare.” Both public and private programs can be efficient. Community Care of North Carolina is a Medicaid program managed by the state, and its hinge is clinics such as the Sumner Clinic. North Carolina’s 1.6 million Medicaid beneficiaries were assigned such a clinic in each region of the state. Patients go to the doctors in those clinics as their first point of contact with the medical system. Doctors are paid at an increased fee-forservice rate rather than at Medicaid’s usual underpayment, and additional money is allocated for the management of chronically ill patients. The doctors work with a team of social workers, nurses, and therapists. Although the program cost the state 8.1 million dollars to implement, in one year it saved more than 240 million dollars by improving care.1

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Dr. Allen Dobson is a North Carolina primary care physician who is the assistant secretary for the North Carolina Department of Health and Human Services and manages the program for the state. He observed that the savings came not from five 50-million dollar decisions but from 125 painstaking 2-million dollar decisions. He believes that local physician management and patience were the keys to the program’s success. Sumner Clinic and Community Care of North Carolina are both examples of what primary care doctors call a medical home: a clinic where each patient has a personal physician who coordinates care through a multidisciplinary team and is the first point of contact with the medical system. It resembles the old-fashioned system in which a patient went to his doctor to get medical advice and treatment rather than talked to the neighbor and picked out a specialist or two. Generalists believe that if every patient consulted his primary care physician before seeing a specialist and if patients were subject to coordinated medical care, 67 billion dollars could be saved—5.6 percent of health care costs.2 The primary care doctors may have undersold themselves, however, for they could save medicine even more money. That’s because there are three main functions of primary care. Management of chronic diseases is one. Early detection and treatment of acute illnesses is another. (For instance, a generalist who detects and treats pneumonia before the chest X ray shows a change can save an elderly patient a hospitalization, if not her life.) The management of patients who are still healthy so that they do not develop chronic diseases is a third function. One of the smartest people I know has for years routinely made judgments that affect whole industries. She is also obese. One day, when we were eating lunch, she said to me, “So what is the top number of blood pressure supposed to be?” I said, “Not over 120.” She responded, “Good, mine runs 130.” I told her, “Sarah, I think you had better see your doctor. You should get it down. When did you last have your cholesterol checked?” “I can’t remember, but I’m feeling fine,” she said. “I don’t really have a doctor, but maybe I will go sometime.” To the layperson, a sustained systolic blood pressure of 130 millimeters of mercury sounds close to the normal systolic blood pressure of 120

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(the top number of in a blood pressure measurement). But in fact, it is the precursor to heart disease, an eventuality that can be prevented by medication, diet, and moderate exercise. Obesity produces diabetes and high blood pressure. I imagined Sarah in ten years with diabetes and heart disease. “What a waste,” I thought, “No one else could do what she does the way she does it.” People like Sarah need a doctor whom they respect and who will help them stop the quiet erosion of their bodies by educating, regularly testing, and treating them. In my view, primary care has yet a fourth function. Primary care doctors should be paid to keep people out of hospitals and out of the hands of specialists—not for necessary care, but for unnecessary care. Some creative tension is needed, but it should be among doctors, not between doctors and insurers. Patients need education, and primary care doctors should be paid to provide it. The establishment of standards for specialty procedures would give generalists adequate information for making decisions. For instance, a cardiologist might present a patient with the idea of a catheter procedure for the treatment of stable angina like this: “Mr. Gonzalez, your chest pain is caused by heart disease, and you need a procedure to open up the arteries. You could have a heart attack if we don’t treat it.” What is the patient to say? Who wants a heart attack? The information the cardiologist provides is all true, but it is also misleading. A primary care doctor armed with full information would probably introduce the same procedure like this: “Mr. Gonzalez, your chest pain is caused by heart disease. I will prescribe medication and diet, which are likely to reverse the heart disease if we watch it closely and keep your cholesterol numbers low. A catheter procedure relieves chest pain faster than medication alone in about 10 percent of patients, but it carries a 2-percent risk of serious complications. You need to think about whether your chest pain restricts your activity enough for you to undergo such a procedure or whether you can wait for medical management to relieve your symptoms. If you are interested I can refer you to a specialist for the procedure.” This information, combined with an educational video, would guarantee Mr. Gonzalez’s ability to make an informed decision. A primary care doctor should act as a patient advocate as the patient enters the hungry world of specialty medicine. It follows, then, that in order to reap the benefits of good primary care, each patient should have

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one doctor rather than decide for himself which specialist to see or, like Ed Fitzsimmons in our story of the best of Medicare, be managed by a selfselected panel of specialists.

The Medical Home Model Why has this medical home model not been implemented across the United States? The answer is that past experimentation with chronic disease management has shown improvement only in the management of a few chronic conditions without saving money in any disease. But most of the studies had methodological flaws or were not designed to examine cost savings.3 Even the Sumner Clinic evidence would not be sufficient to change Medicare payment policy because its results were not compared in real time with those of similar Medicare patients who were going from doctor to doctor without coordinated management. The conclusion is not that disease management fails to save money but that it has never been given a real chance. Medicare conducted a program in order to solve these problems, contracting with eight insurers to test the disease management concept in 30,000 patients; but the program had major design problems, and two insurers withdrew within the first six months.4 Medicare is limited in its ability to conduct such experiments. They are a sideline for the agency and in any event must cost no more to conduct than fee-for-service Medicare does. For instance, in its chronic disease pilot program, insurers were paid about 5 percent of savings compared to unmanaged patients. If insurers failed to reduce costs, they had to pay back the money—which no doubt explains why two insurers quit. The requirement of revenue neutrality also meant that there was no money to hire a nurse, as HealthSpring did for the Sumner Clinic, or to install health information technology in a doctor’s office. Medicare is neither staffed nor funded to conduct such critical experiments properly, and in any case they are not the program’s focus, which is paying for services provided to Medicare patients. My observations are that Medicare is underadministered anyway. A series of poorly designed Medicare demonstration projects with negative results could set payment reform back many years. America’s primary care doctors have been calling for widespread implementation of the medical home model for several years. But when

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they pitch their ideas to Congress, both the members and their staff can only see doctors asking for more money, a yearly occurrence. Nothing the medical industry has asked Medicare to fund has ever saved it money, so the doctors don’t get very far. But the coordinated management model has many opportunities for savings. For example, managing care at the end of life is not a feature of disease management programs, but it certainly is a cost driver. At least one-quarter of Medicare spending takes place in the last year of life, much of it in the hospital. A study of where patients die has shown that, in regions with high bed counts, 54 percent of patients died in the hospital. In regions with lower bed counts, only 23 percent did, with the remainder dying in their own homes or in nursing homes. Personal preference had no influence on the place of death.5 So the key to end-of-life management is to allow patients to make decisions beforehand.

Improving Care at the End of Life A program in Oregon solved the problem by going to the root of the issue— asking patients’ specific wishes in advance and enforcing their decision. In 1999, the percentage of Oregon patients who died in the hospital rather than at home was the lowest in the nation at 31 percent; the national average was 56 percent. Oregon’s plan was straightforward, but it did not happen overnight.6 In 1991 a statewide group of ethics committees concluded that residents shared the ubiquitous American problem of dying. The task force determined that it was not so hard to determine who was nearing the end of life: they were patients in nursing homes and the frail elderly with multiple chronic conditions. Needed were standard hospital orders, filled out ahead of time and signed by a physician or a nurse practitioner, that specified exactly the limits of treatment when a patient entered a hospital. The state Medicaid program paid doctors to meet with patients and their families in a quiet office setting and discuss just how far they wanted doctors in hospitals to go should they require admission. Some did not want hospital admission at all unless their pain could not be controlled. The committee devised and piloted a standard set of orders, which were completed and signed by the doctor or nurse practitioner in a patient’s presence. These orders specified, for instance, whether the

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patient wanted cardiopulmonary resuscitation, intravenous fluids, ventilators, antibiotics, or nutritional support. Nothing was left to any doctor’s imagination. The orders, called Physician Orders for Life-Sustaining Treatment (POLST), were to accompany any patient likely to be near the end of life as that person was transferred or discharged from a nursing home or a home. After five years of refinement the concept was tested statewide in eight long-term-care facilities. The results were remarkable. No patient received unwanted cardiopulmonary resuscitation or artificial ventilation. Of 183 patients in the statewide test, twenty-four were hospitalized only because the nursing homes could not control suffering. For the others, the nursing homes could fulfill patients’ medical orders. Before statewide implementation, Oregon law was changed to protect emergency medical service providers who followed the POLST orders in the field—for instance, protecting them from litigation should they not provide cardiopulmonary resuscitation in compliance with a patient’s POLST orders. The orders were made bright orange so that no one could miss them, and the public was extensively educated. As a result, Oregon has reported the lowest rate of Medicare in-hospital expenditures in the last six months of life—6,198 dollars per enrollee in Bend, Oregon, versus 17,797 dollars in New York City.7 Ed Fitzsimmons would have died quietly and probably quickly in a private hospital room without a ventilator, tubes in his body, or thousands of dollars of unwanted tests had he lived in Oregon instead of California. Had he been a patient of the Sumner Clinic he might have lived for many more years. The AMQS would organize and conduct Medicare demonstration projects of the medical home model and incorporate the Oregon model of end-of-life care and other successful end-of-life programs. AMQS regional boards would manage these programs in primary care practices in urban and rural areas and in solo and group practices throughout the United States. The information learned in one region would be shared with others. The AMQS would install information systems in participating doctors’ offices to help them manage patients and to aid the AMQS in monitoring quality of care and developing measures of quality. It would provide some of the up-front cost of care coordination, such as a nursing salary for large group practices. No one should expect an immediate

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result; rather, everyone would work by trial and error until the program could stand alone in reducing cost and improving quality. AMQS staff would work with doctors as if they were colleagues in a national learning experiment until everyone could understand which critical behaviors and performance measures were producing reduced cost along with increased quality. When the details were clear and widely disseminated, the AMQS would recommend to Medicare that it change payment policy nationally. The AMQS would report on the quality of its clinics using a method similar to the one used by Minnesota Community Measurement. This group is a not-for-profit whose member organizations are Minnesota insurers and the Minnesota Medical Society. It assesses the quality of care of asthma, diabetes, high blood pressure, colds, sore throats, well-child visits, and cancer screening in Minnesota clinics. Compiling data collected from health plan claims and medical records, the group’s website (www.mnhealthcare.org) provides user-friendly information. What the public sees is the grade (from “below average” to “above average”) of each participating clinic. And the information is easy to find. According to the Sumner Clinic model, a primary care doctor practicing for fifty hours a week should be expected to earn at least 250,000 dollars a year. Current average income for generalists is 180,000 dollars. The increased income is from payments for quality and shared savings. If a primary care doctor seeing 140 patients a week could not prevent one 70,000dollar hospitalization in a year to justify her bonus, I would be surprised. The shortage of generalists would quickly dissipate as soon as twentyfive-year-old medical students understood that primary care is important to American medicine and that they could make at least as much money as an office dermatologist or an emergency medicine physician and still practice primary care, which many doctors love. The disincentives just have to be removed.

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21 Reducing Spending on Hospitals and Specialists

The way to pay specialists and hospitals so that they reduce waste is to bundle together their payment in a flat rate for an entire episode of care—from admission to return home—and to monitor quality.

The United States is paying for high-performance hospitals but not getting them. What would a true high-performance hospital look like? I interviewed Dr. Lucian Leape, adjunct professor of health policy at Harvard School of Public Health, who is a pioneer in hospital safety and quality. When I asked how he framed the difference between safety and quality, Leape said that they are always found together. He thinks of quality as involving process measures: for instance, did a patient get antibiotics before surgery? He thinks of safety as the outcome measure of quality: for instance, did the patient have a wound infection? According to Leape, two U.S. hospitals best exemplify safe, high-quality hospitals: Latter Day Saints (LDS) Hospital in Salt Lake City, Utah, and the Mayo Clinic in Rochester, Minnesota. I flew to Salt Lake City to interview one of the leaders in the quality movement, Dr. Brent James, who was a cancer surgeon before he became consumed with creating quality health care systems. James came from Harvard to LDS Hospital in 1986. But even before his arrival, the hospital had been concerned about quality: as early as 1964, a visionary had outfitted the LDS intensive care units with computers that filled seven office-sized rooms. LDS is part of Intermountain Healthcare, a statewide group of hospitals and clinics. At LDS, James met Steve Busboom, 243

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Intermountain’s vice president of finances, who was struggling to find a system to bill insurers more accurately. All hospitals have a list of billable services called a charge master, and Busboom was struggling with the 25,000 items on the LDS charge master. James and Busboom joined forces to examine not only the variations in care but also the cost of these variations. When I asked who had paid for that work, James told me, “Steve and I talked the system into it. He was working on billing, so they thought they might save some money.” James studied the work of John Wennberg and his colleagues at the Dartmouth Institute for Health Policy and Clinical Practice. This group’s work revealed the 160-percent regional variation in Medicare spending and demonstrated that high-cost areas were also low-quality areas with increased mortality rates. James expected to find variations among practices within the same hospital, so his first study was to examine six common procedures. He said, “I had no appreciation of how common [these] common procedures are.” A small number of procedures and diagnoses consumes a vast amount of hospital resources, a situation analogous to the health care system as a whole, where 10 percent of patients consume 70 percent of resources. For instance, consider a transurethral prostatectomy (TURP), a common procedure performed in elderly men whose prostate glands enlarge and obstruct the urinary tract, preventing or slowing urination. To perform a TURP, a urologist inserts a narrow tube up the penis and then removes a portion of the prostate gland to increase urination, boring an opening for the urine to pass through the prostate gland. James and his investigators analyzed the variations in care among TURP patients and found ninety separate factors. Although patient selection and performance of the procedure are as standardized as any intervention in medicine, James said the closest pattern for any two patients was a 60-percent variation from high to low. (That is, if one physician was using ten of something to get the job done, the closest any other physician came was to use sixteen of the same thing.) The widest range of variation among physicians performing a TURP was 460 percent (ten versus fifty-six of the same thing). The average pattern for any two patients was a 160-percent variation among the ninety factors. James said, “I could scarcely figure out what a TURP was.” The investigators also found a 100-percent difference

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in the cost of care, with variations spanning a spectrum from “very high” to “very low.” James said he had always believed that some surgeons were just naturally better than others, a view I had also held. But the LDS investigators found that in no area of management was one surgeon always the best. Length of TURP procedures varied from thirty-eight to ninety minutes, the key variable. The slow surgeons’ patients had more complications and cost more. As it turned out, the faster the surgeon, the more prostate tissue he removed—varying from thirteen grams for slow surgeons to fortytwo grams for fast surgeons. This finding was counterintuitive: one would expect a slower surgeon to operate more thoroughly. The more prostate that surgeons removed, the fewer incidents they had of postoperative obstruction of the urinary tract, requiring additional interventions, longer hospital stays, and thus more cost. Investigators presented these data to the urologists, who could identify their own behaviors but not other surgeons’. The group did not tell the urologists what to do with the data. James said he was sure that the slowest surgeon would never talk to him again, but some time later that surgeon called him and thanked him. The doctor’s comment was “I talked with my colleagues and found that they could tell where they were by observing the nature of the prostate tissue they were resecting. I had been picking my way more slowly and actually could not remove as much tissue safely. I adopted their technique.” One year later, when new data from the same surgeons were examined, the slow surgeons had become faster, were removing more tissue, and had patients with fewer complications. The range of variation among the ninety factors was less, complications had decreased, and cost was significantly reduced. The surgeons had learned from one another. As James’s work continued, LDS hospital culture began to change, service by service. The Intermountain Healthcare administration got behind him when his method showed the board how to reduce the cost of hip replacements from 12,000 to 8,000 dollars. At about the same time, another group of investigators at the hospital showed that wound infections were increased by 240 percent if surgical patients received their antibiotics after surgery rather than before. The hospital made administration of presurgery antibiotics standard practice, saving large sums and

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reducing infections.1 By 1992 James’s operation changed from being a research unit within the hospital to being a management tool. Money was being saved, and patient outcomes were improving. During our interview, James commented on how hospitals adopt changes. In 1987 he attended a four-day conference led by W. Edwards Deming, where he began to ponder how to convert Deming’s concepts on variability to medicine. Deming was the mind behind Japan’s manufacturing and business transformation in the years after World War II. His great contribution had been to conduct a Japanese national experiment on whether or not the money and effort expended to reduce variation in manufacturing processes saved money in the end. The answer was yes: Japanese manufacturers earned a great deal of money because the value of their products had improved so much. At one time variance in the measurements of a Japanese engine part was half that of a corresponding American engine part. The manufacturing processes that led to the development of Toyota and Lexus cars, which consistently earn very high quality ratings, stemmed directly from ideas championed by Deming—they used processes that reduced variability. According to James, Deming found that if the behaviors of the square root of the number of people in any group changed, then the behaviors of the whole group would change. That is, to change the behaviors of a group of nine people, three had to be turned. James said, “It works better in medicine if it is the right three people.” He emphasized that no doctor’s behavior can be changed by force for very long; the key to changing physicians’ behavior in the long term is to give them information. One of James’s experiences provides an example. Delivery of babies is the most common procedure performed at Intermountain Healthcare’s hospitals, so James’s research group turned its focus to deliveries. Induction of labor is a procedure in which a hormone is administered that causes a pregnant woman’s uterus to contract, bringing on labor and causing delivery. The most common reason for induction is when medical conditions or an overdue fetus make immediate delivery safer than waiting for natural labor to begin. The American College of Obstetricians and Gynecologists recommends induction of labor only when the baby is fully developed (at least thirty-nine weeks) and when the woman’s cervix (the opening of the womb) is ready.

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Induction is not benign because it leads to hard labor that can increase the chance of injury to the fetus. Nationally, use of induction more than doubled between 1989 and 2001, from 9 percent of deliveries to 20.5 percent. In upstate New York in 2001, 25 percent of inductions had no apparent medical basis, and the induction rate of laboring women varied from 10 to 39 percent among hospitals.2 Like many things in medicine, numerous factors enter into the decision to induce. One of them, however, is not medical: it may be more convenient to the doctor or the mother to have a prescheduled delivery rather than wait for labor to begin spontaneously. If the procedure were being done for strictly medical reasons, the variation in induction rates should not be so great, a thesis analogous to Wennberg’s regional variation data but played out in one hospital. James’s group found astonishing variation in the rates of induction among practice groups, among hospitals in the Intermountain system, and among physicians within groups. These data showed that, among hospitals, 28 percent of inductions were inappropriate according to the American College of Obstetricians and Gynecologists’ guidelines and that induction was associated with a high rate of preterm deliveries and admissions to the neonatal intensive care unit.3 Investigators presented their data to the system’s obstetricians, asking them to change guidelines as they saw fit but to reach an agreement. The consensus among the obstetricians was to decrease the percentage of inductions from 27 to 5 percent of births, a goal they accomplished within three years. James told me that he simply kept giving data to the obstetricians. He noted that one group held out against altering its procedures, but after a few years peer pressure forced even this recalcitrant group to conform. He said this is how change happens. At first 5 percent of doctors buy in, then more, and eventually the last 5 percent are brought in by peer pressure. James emphasized that neither he nor anyone else ever tells a doctor what to do. When a standard protocol is developed, he disseminates it among participating doctors, asking them to change the protocol as they see fit, not to approve or disapprove of it. He has learned again and again that best management arises when the ones who deliver care design the protocol. In James’s view, his function is to provide the framework and the information needed to standardize management and to report regularly

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on compliance with that management. He believes that for efficiency in medical practice to become permanent, not just the result of eternal vigilance, payment policy must be aligned with quality practice.

It’s about Culture, Not Computers After talking with Brent James, I walked up the hill from the Intermountain corporate offices to LDS Hospital to interview Dr. Terry Clemmer, professor of internal medicine at the University of Utah and director of critical care medicine at the hospital. Clemmer is not only a health care researcher but also a frontline physician who cares for the sickest patients in the hospital, those in the ICUs. We talked in his small windowless office next to one of those units. I was curious to hear his views on Intermountain’s quality and information technology process because he has to live with it as he takes care of patients. Clemmer told me that by the 1980s the hospital already had a sophisticated information system; and coincident with James’s arrival, his critical care group had decided to move into protocols of management of ventilated patients. Previously, each doctor had managed ventilated patients as she saw fit, the normal way of practicing medicine. Now Clemmer and his colleagues assigned ventilated patients into one of two groups, one of which was managed by the doctors with the aid of a computerized physician support tool. The support tool displayed information on computer screens at the bedside, advising the managing physician, for example, that if A exists, then do B. These computerized tools are experimental and have generally not improved management, but they do necessitate the development of a standardized protocol for managing a particular kind of patient. Clemmer’s group tested such a protocol. He told me, “We decreased the mortality rate in both groups of patients by four times, and we concluded that management protocols improve care whether a computer is used to remind doctors or not.” I had heard such a story before. It seems to be a common lesson that computers in medicine are better at measuring and recording processes and providing feedback than they are at aiding physicians in their decision making. Clemmer’s investigators learned other lessons. Although Clemmer and James both told me that protocols have to be developed at the level

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of those who manage the patients, each doctor meant something different. James is an administrator and a researcher; he meant that the frontline doctors, not the administrators, have to design processes. Clemmer meant that nurses, pharmacists, and respiratory therapists at the bedside— not necessarily the doctors—need to design them. For example, he told me that his physicians developed a protocol for managing patients on ventilators for lung failure. But when the doctors presented the protocol to the respiratory therapists, they all laughed. He said, “We changed the protocol because they were right and also because they are at the bedside and they had to buy into it.” Clemmer gave another example of where good protocols come from. High blood-glucose levels cause all manner of complications and are very common in ICU patients. Insulin is the treatment, but its use is tricky because patients vary in their response to it; and lowering the glucose too much can cause insulin shock, which can be fatal. A somewhat high glucose, however, exerts its bad effects over a period of time without any immediate danger to the patient, so the understandable tendency in hospitals is to err on the side of too high rather than too low. Clemmer credited managing blood glucose in a lower range with reducing the mortality rate in the hospital’s ICUs. Such a protocol does not require more effort from the doctors but more attention from the bedside nurses, who must frequently check the glucose values, alter the insulin dose, recheck the blood glucose, and then instantly respond if the insulin overshoots and drops glucose to dangerous levels. Clemmer turned to his computer screen as we talked and pulled up the blood-glucose profiles of every patient in the LDS Hospital ICUs during the past twenty-four hours. At a glance he could tell it staff members were following the protocol. He summarized his view of hospital quality: “It’s a matter of being consistent, reliable, and doing what you say you are going to do.” When I asked if the hospital had saved money on its quality effort, Clemmer said that, by reducing complications and mortality, LDS had reduced the cost of ICU patients by 2 million dollars a month. “But we do not get to keep the money,” he explained. Medicare pays hospitals by the discharge diagnosis, and most insurers simply pay by the number of interventions to which a patient is subject. Hospitals get paid more if, upon

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discharge, a patient has had a lot of complications. For instance, a hospital is paid a certain amount for a patient with heart disease who is admitted for a coronary artery bypass. If the patient is discharged with no complications, the hospital is paid less than it would have been if she had had a myriad of complications. More work earns more pay from Medicare and much more from private insurers, even if sloppy medical care is the cause of the additional work. This approach leaves hospitals and doctors without the slightest financial incentive to reduce complications and a powerful incentive to tacitly allow them. The payment system pits a basic tenet of medical practice, “first, do no harm,” against the self-interest of doctors and hospitals. LDS partially solved this problem by becoming an insurer so that, at least for its own beneficiaries, good medicine is not unprofitable medicine. A hospital payment system that rewards complications, as the U.S. system does, is perverse. The United States is getting what it is paying for in every area: quantity, not quality. I asked Clemmer if the work he does at Intermountain would be possible without fully functional electronic medical records. He said that computers were necessary but not sufficient. What is needed are both computers and the will to use them—an information system without a culture of safety and efficiency is wasted money. He advised me to look into a story that is now famous in quality circles, the Cedars-Sinai story.4 A stone’s throw from Beverly Hills, Cedars-Sinai, a hospital in southern California, has a cutting-edge reputation. In 2002, it seemed characteristic of the hospital to invest 34 million dollars on an information system; at the time it already had several computerized patient care areas. But when the process was extended throughout the hospital, the medical staff revolted. The system had been programmed not to accept a medication order from a doctor if that medication interacted with one the patient was already taking. But doctors frequently and deliberately combine drugs that interact, so the computer stopped them cold. This was not the only problem. Even when executing uncomplicated orders, the doctors had to slow down to answer numbers of questions before the computer would accept their orders. Only a fraction of the 2,000 doctors with privileges at the hospital had been involved in the development of the information system; and within three months of installation, the hospital shelved it.

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Clearly, until doctors and hospitals have a business case to use information technology, it will be an add-on, not an integral part of practice. Payment should be changed so that doctors and hospitals are paid for efficiency. Then they would have a business case to use information technology.

Paying for Outcomes, not Processes There are only so many ways in which to pay hospitals. Private insurers pay by the number of tests and procedures performed and the intensity of care required during hospitalization. Medicare pays a flat rate based upon the number of complications the patient develops during the course of care as well as whether or not he undergoes procedures during hospitalization. That is, the flat rate is determined by what happens during the course of hospitalization more than upon admitting status. Both methods tend to reward complications and inefficiencies. Medicare has implemented a new policy in which it does not pay for care of certain hospitalacquired complications, which is a good move toward change. Nonetheless, both methods pay hospitals more if they do more things to patients, so they promote inefficiency. Medicare’s payment system is routinely gamed when hospitals open their own rehabilitation units and long-term care facilities. Here’s an example of how the gaming works. A long-term care facility is an intermediate entity between a nursing home and a hospital. A hospital opens such a facility inside its existing structure, or it buys one. It does the same for a rehabilitation unit. Ideally, patients needing rehabilitation or longterm care are subject to strict medical entry criteria. But hospitals are paid independently for each of the facilities, so with a little ingenuity a hospital can triple-dip by a liberal interpretation of the admission criteria. One calculation estimates that if all Medicare admissions to longterm care facilities were audited for appropriateness and Medicare were paid back for inappropriate admissions, the program would recoup more than 200 million dollars per year.5 The answer is to pay hospitals a flat rate for an entire episode of care—from admission to return home, regardless of long-term care, rehabilitation stays, or any intermediate steps. Specialists would bundle their

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payment with the hospitals’. Let the anesthesiologists, surgeons, intensivists, radiologists, and other hospital-based specialists work out their own payment arrangements with hospitals, based upon their value to the process of care as well as their performance. The hospital and its affiliated doctors would bear the cost of repeat surgeries and complications because they would all be in the same financial boat. Everyone would have an interest in preventing complications and reducing cost. Such an arrangement is currently legally questionable. The justification for legal barriers is that competition between hospitals and doctors protects patients’ interests. I agree that an independent relationship does permit a doctor to practice at another hospital if he believes its approach to care is better; I have taken this step myself in the past. But nothing in my proposal would prevent a doctor from working with multiple hospitals. The only difference is a reformed financial arrangement, and I have found an example of such a payment system. Dr. Denton Cooley is a legend at the Texas Medical Center in Houston. I saw him operate when I was a medical student, and even a novice could tell that he operated like a musician plays an instrument— smoothly, economically, and quickly. His dexterity and his surgical results were world-famous. I was enthralled. In 1968 Cooley performed the first successful heart transplant in the United States, and he made major contributions to reducing the mortality rate from adult and pediatric heart surgery. But years later, when Cooley was nearing the end of his career, I heard him say that he thought his greatest contribution to medicine was the development of a bundled pricing model for heart surgery. The Texas Heart Institute where Cooley was chief worked like a machine for patients needing heart surgery. Every step was preplanned. There were so many postoperative heart surgery patients in the ICUs, for instance, that every detail of their management was on protocol. The nurses were so used to caring for them that they could sense a problem before it happened. Specialists were versed in the particularities of how the organ system of their interest responded to heart surgery. Once, when the institute was seeing more infections than expected, a rapid analysis that would have taken a year to accomplish in any other setting found that the use of a safety razor on the chest before surgery was the cause. Because of the hospital culture that Cooley initiated, almost every aspect of cardiac

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patient care at the Texas Heart Institute is still managed by protocol. It has ranked among the top-ten heart centers in the country for sixteen consecutive years. In 1992 the institute could offer heart surgery for 27,040 dollars, whereas the national average was 43,370 dollars. All physician fees were included in the price. Although the necessary legislation to make the arrangement available to insurers died in Congress, the idea was right.6 The Texas Heart Institute could offer such a price because Cooley and his team had determined the critical elements to reduce complications and cost and delivered them reliably. Such a bundled payment model would drive efficiency if it were used. AMQS regional boards would work with a series of affiliated hospitals in their state or region to determine the key process measures that improve outcomes in specific patient groups, just as Cooley did with his heart patients. As in AMQS clinics, information would be shared among hospitals in this national learning experiment. After enough was known, hospitals would be paid a flat rate that was high enough for them to profit for quality care but low enough to save Medicare money, as in the Texas Heart Institute model. The hospitals and doctors affiliated with AMQS would teach the methods of these high-performance hospitals to others in each region; and at the appropriate time, the AMQS would advise Medicare to alter its payment policy nationally one procedure at a time.

Measuring Standards The AMQS would fund the use of information technology in its highperformance hospitals because discovering standards and measuring them with paper records is slow and expensive. As Brent James explained, when doctors receive information about their processes of care, they respond, unless they have powerful reasons not to (as in my case of excess imaging). Our hospital once provided us with reports on the length of stay of our spinal surgery patients. Four of us had high-volume practices that could be compared. One of the surgeons had the shortest length of stay, while mine was one of the longest, though my complication rate was low. I asked my friend how he kept his patient stays so short.

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“Simple,” he said, “I stop their morphine the morning after surgery and give them oral pain meds. As soon as they find out they are not getting any more narcotics, they go home. The more morphine you give them, the more they vomit.” I had been in the habit of using morphine for days after surgery, giving an anti-nausea medication to combat this side-effect. After this conversation, I switched to a regular intravenous injection of a non-narcotic pain reliever, stopped morphine the morning after surgery, and began to apply cooling packs to the wounds, which also decreased pain. In no time my length of stay was cut in half, cost was reduced, and the patients were happier. Creating efficiencies and making hospitals safe are the same undertakings under different names. Both require setting standards, measuring standards, and paying for outcomes. The current method of paying for performance does not take the concept far enough because it just preserves fee-for-service medicine and pays doctors and hospitals a small bonus for doing what they should do anyway. It meagerly rewards the processes of care, not the outcomes of care, and is therefore of limited value.

Making Hospitals Safer More than one hundred quality programs are currently paying doctors and hospitals a bonus of a few percent over usual charges to practice good medicine.7 But being paid a small bonus to do what you should do anyway is a performance improvement program that might be applied to a retail clerk for improved courtesy. It shouldn’t be implemented as a critical component in the delivery of health care. The Joint Commission is the entity that certifies most U.S. hospitals and requires them to satisfy minimal standards of quality and safety. Hospitals must comply with Joint Commission standards to qualify to care for Medicare patients; and few, if any, hospitals would be viable without access to these patients. The Joint Commission and Medicare have collaborated in requiring hospitals to report on standard measures of quality medical practice. Examples include giving aspirin after a heart attack, promptly administering antibiotics once pneumonia is diagnosed, administering antibiotics before surgery (when they prevent wound infections)

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rather than after (when they do not), and vaccinating elderly patients to prevent pneumonia. Between 2004 and 2007, hospitals that failed to report received a 0.4-percent reduction in their annual Medicare payments, so most of them complied and documented their best practices. Between 2002 and 2006, hospital performance improved. For example, the appropriate care of heart attack improved from 86.9 to 90 percent. For heart failure the improvement was from 60.7 to 76 percent; for pneumonia, from 72.3 to 81 percent.8 Still, performance was highly variable. Hospitals in the midwest and the northeast outperformed those in the west and the south. The percentage of hospitals that were providing life-saving catheter procedures within 120 minutes of a heart attack varied among states by almost 50 percent.9 The greatest limitation of the Joint Commission’s program is that good standard medical practice has had little influence on the mortality rate of patients, though it may yet.10 Other, more complex factors were at work. For instance, what urologist would have suggested the removal of at least forty-two grams of prostate gland as a quality measure for prostate surgery? What obstetrician would have believed that so many colleagues were inducing delivery rather than letting it occur naturally? What doctor would have imagined that a series of simple hygiene measures and control of blood glucose would have wiped out hospital-acquired pneumonia and reduced ICU mortality rates fourfold at LDS Hospital? I do not take away from the importance of measuring and reporting quality; in fact, I promote it. Such measures do not, however, get to the key processes that result in improved outcome. Further, paying a small bonus for quality measures is not a sustainable way to pay hospitals for quality. I attended a conference at which a doctor who manages a quality program funded by Medicare’s 1.5-percent bonus payment reported savings and decreased mortality in his hospital. I asked him if his hospital got to keep the savings. His response was that the bonus just paid for the reporting. This method is no way to create high-performance hospitals. Regional AMQS boards would work with high-performance hospitals to determine processes and methods that enhance patient safety until enough is known to standardize hospital function and transfer the technology to other hospitals. As these hospitals became independent of AMQS support, financing would be freed up to expand to other hospitals

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in each region. In this way, AMQS would lead medicine through a fundamental change, one group of hospitals at a time, until payment and quality adjust nationally for all hospitals and specialists. If we follow the logic of Deming’s findings, seventy hospitals out of the current 5,000 and 1,000 doctors out of the current 900,000 would be enough to initiate the process of reform in the United States. Over time, the majority of U.S. hospitals would become high-performance hospitals with standardized processes and measurable outcomes. The other hospital safety issue is unreliable emergency services. A recurring theme of this book is that the development of new technology has outstripped our ability to use it, and the situation is no different for emergency services. In the past twenty years a scientific revolution has provided one life-saving emergency treatment after another, but those treatments work only if rendered a short time after onset of the emergency. Many people do not receive them. Clot-busting drugs, for example, if given within three hours of a stroke, increase the chance of survival with a slight or no deficit by 30 percent. The treatment was proven to work in 1993, and its use has been endorsed by groups such as the American Stroke Association. But fewer than 10 percent of eligible patients ever receive treatment.11 The reason is that neurologists who normally treat stroke are mostly diagnosticians who are used to working during office hours and have not organized to come to the emergency room within the short time frame needed for treatment. Also, even though treatment improves outcome, one of its complications is bleeding in the brain, so emergency doctors will not administer it. The problem is aggravated because doctors are not paid to administer the drugs. A global payment for the treatment of stroke, in combination with public reporting of the percentage of patients in each region who receive it, would increase the use of this therapy and protect the public’s interests. Administration of clot-busting drugs or catheter procedures reduce the chance of death by one-third if applied within twelve hours of a heart attack, and the sooner the better. Two-thirds of patients do receive these procedures within twelve hours of hospital admission.12 These technologies have been long established and are one of the standards of quality reported by the Joint Commission. The performance of individual hospitals on this quality measure can be accessed on the Joint Commission’s website,

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probably one of the reasons that two-thirds of patients receive the drug. But one-third of people do not. Induction of hypothermia shortly after cardiac arrest increases the rate of survival with good neurological recovery by at least one-third. This relatively new treatment was reported in 2002, but it is highly effective with a low complication rate and endorsed by specialty societies. In 2005, however, only 13 percent of emergency medicine physicians, critical care physicians, and cardiologists had ever used the therapy or knew much about it.13 The Joint Commission is a central organization whose findings are publicly available but not publicly known. If it used its ability to sanction hospitals, denying them access to Medicare patients by setting high standards nationally, it would close too many hospitals. Further, its rules have to recognize the limits of hospital financing. What is missing in emergency services in many areas is any responsible regional entity that could hold competing doctors and hospitals accountable to the local community for the quality of service. Emergency services in a community are typically delivered by multiple ambulance services and hospitals, all functioning in their own worlds without awareness of the context in which they operate. Without local leadership that transcends individual hospitals, these circumstances are not likely to change. There is no forum in most regions where doctors and hospitals come together to discuss emergency services. AMQS regional boards would enquire about why all patients do not receive appropriate emergency treatment, provide a forum for discussion and planning, work with doctors and hospitals to improve performance, and report to the public. It would facilitate and report, not regulate. AMQS would make grants to municipalities and local governments to support three-year pilot projects to establish something similar to airtraffic control systems for ambulances throughout the United States. These coordinating bodies would report upon the availability of these and other emergency services and try to improve them. In Houston, where such a system was attempted, the total cost of a coordinating center for the thirteen counties that account for 20 percent of Texas’s population was only about 2 million dollars per year. This idea is modeled on a project piloted by Dr. David Persse, director of emergency medical services in Houston. During hurricanes Katrina

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and Rita, 5,000 to 10,000 people with medical needs from Louisiana and East Texas were displaced into Houston hospitals, nursing homes, and clinics.14 By coordinating ambulance traffic for the entire region from a command center, the right patients from the flooded areas got to the right hospitals in Houston. The miracle was that patients were so evenly spread among area hospitals than not one scheduled surgery in a Houston hospital was cancelled because of patient overflow. This concept could be executed anywhere with off-the-shelf communications systems, and its example is one of the reasons that I say it is absurdly easy to correct many of the problems in medicine. We just have to blow through the resistance to change.

Reducing Hospital Prices Labor costs are at least half of a hospital’s expenses.15 One means of reducing hospital cost and improving safety is to ease the nursing and hospital personnel shortage. The nursing shortage has three causes. First, nursing school faculty salaries are mostly paid by the states through hidebound institutions of higher learning. Teachers of nursing are locked into academic pay scales that are not competitive with equivalent clinical nursing jobs. Second, schools of nursing cannot find enough hospital affiliates to train their students. And third, nurses have poor working conditions. This last problem is aggravated by job stress from the nursing shortage, so increasing the pool of nurses should improve job satisfaction. The only way the faculty shortage can be alleviated is to pay teachers of nursing better. A problem often gets solved when it is measured and reported. AMQS regional boards would be responsible for analyzing and reporting steps that could be taken to alleviate the nursing shortage. For a small amount of state money to increase salaries of teachers of nursing, we might substantially relieve the nursing shortage and reduce hospital overhead in a region. The transformation of high-performance hospitals should make the hospital environment better for nurses because they would surely take a leadership role in most of the changes I envision. As in the case of primary care physicians, empowerment improves job satisfaction. Like many problems in medicine, no one owns the problem of the current

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hospital labor shortage; and some simple steps in each region might permanently relieve it. Between 2000 and 2003, 27 percent of the growth in health care costs was due to prices in excess of inflation.16 This figure bolsters the case that medicine functions as a regional monopoly. AMQS would examine hospital pricing regionally to identify areas in which high pricing appears to be the result of regional monopolies. There is nothing wrong with a monopoly as long as its pricing is fair; but if it gouges its customers, people should be informed. Since not-for-profit hospitals receive a tax subsidy for the public good that they do, they should publicly report their prices.

Empowering Consumers Physician and hospital participation in AMQS would be voluntary, but public reporting of provider- and hospital-specific data would be a requirement for participation. Over time, as the system’s brand came to mean quality and safety, the number of participating hospitals and clinics could expand to include most in the country. AMQS would make the results of its evaluations of drugs and procedures known in ways that the public could understand. It would inform the public about the state of health care services in each region. The idea is to change medical culture in every way possible, and public education is a sure way of doing it. Another way of educating the public is to teach them about procedures that they are to undergo. When straightforward videos and readable information are presented to patients who are faced with a medical decision, more than one-quarter fewer of them choose surgical procedures.17 Choosing treatment for prostate cancer illustrates why patients should be taught by a neutral source. In 2005, more than 200,000 men were diagnosed with prostate cancer, and 30,000 died from it. There are four treatments for prostate cancer when it is localized within the prostate gland: watchful waiting, surgical removal, hormone therapy, and radiation therapy. Researchers have not found much difference between the long-term results of radiation therapy and surgery, but their complications are different.18 Each patient must make his own treatment decision. The usual way is to talk to a urologist about surgery and to a radiation oncologist about radiation therapy. A 1999 survey found that 93 percent of urologists

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recommended surgery as the preferred treatment, while 72 percent of radiation oncologists believed that surgery and radiation treatment were equivalent in effectiveness.19 An article in Oncology Times reported that a Texas firm is placing radiation therapy devices for prostate cancer in urologists’ offices at a cost to each practice of 3 to 5 million dollars. The article contains testimonials about the effectiveness of radiation therapy from urologists who have made such investments. The article also notes that the surgical fee for prostatectomy is from 5,000 to 6,000 dollars per case and that a full course of radiation therapy pays a practitioner 36,000 to 41,000 dollars. Therefore, a machine must irradiate 120 patients per year for the procedure to be robustly profitable.20 A urology practice that makes a multimillion dollar investment in radiation therapy equipment cannot be a source of neutral advice about the treatment options. Doctors may present marginally effective procedures to patients as if they were highly effective, or doctors may not discuss the matter at all. AMQS would provide a decision aid for every patient to use before undergoing any non-emergency medical procedure. Viewing a presentation describing the state of knowledge about a procedure might be made a requirement for Medicare payment of non-emergency procedures. Most doctors would not object to the use of decision aids for two reasons. First, the videos would be created by doctors, not bureaucrats, and be based upon the best available information. Second, they would be a substantive legal protection for physicians against a patient’s claim that he was not fully informed about the risks of a procedure. The concepts I present here about the effectiveness of medical treatments will seem strange to people. How is it possible that my doctor does not know what works best? The time at which a patient is considering a procedure is a teachable moment. AMQS educational tools would not only ensure that patients have full information but also educate them in a broader sense about the state of medical knowledge so that they are more comfortable with the process of technology evaluation and the inevitable limitations on use of ineffective and marginally effective procedures.

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22 Positioning of an American Medical Quality System

The American Medical Quality System would provide the information and the payment models needed to alter insurance payment policy nationally and the reporting and education needed to inform the public.

The concept of a center that evaluates technology is not new. Support for the idea has been steadily building in the insurance industry and among many policy groups in Washington.1 What is new—and essential— is the concept of an entity that also reforms the medical industry by performing experiments in health care financing and delving into the functions of hospitals and clinics to discover efficient processes and then facilitates the teaching of how to implement these processes. What is also new is the concept of an entity that systematically fills in the gaps in knowledge needed to set benchmarks and then generates a medical consensus to establish standards of quality medical practice. A technology assessment center alone will not save much money. In fact, the Congressional Budget Office has judged that a center that merely compares the effectiveness of treatments would save only about 6 billion dollars over ten years.2 The scope of the U.S. medical problem requires bigger thinking and bigger action, but even an institute restricted to measuring the effectiveness of medical interventions is controversial. So you can imagine the resistance to what I propose here. Everyone supports technology development because there are no losers, but technology assessment is not very popular because there are 261

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losers. The 700 billion dollars in waste associated with unnecessary treatments has to come out of someone’s pocket. NIH research helps develop new technology, and the agency enjoys vastly more funding than its sister agencies—about four times more than the CDC and fifteen times more than the FDA. The NIH has the support of industry, medical schools, scientific societies, and disease societies such as the American Cancer Society and the American Heart Association. All profit from its work. It has no opponents and few detractors. What other federal agency can make that claim? Yet in 2003 only about 5 percent of the money allocated by the federal government to medical research was used to determine how best to deliver medical services.3 Research to find out what works in medicine had no status until 1989, when legislation established the Agency for Health Care Policy and Research with the mission to research the outcomes of medical treatment, develop guidelines for best medical practices, and advise Medicare on payment policy. But two simultaneous events in 1994 nearly cost the agency its life.4 The first was that it began to do its job. A review of the data on spine fusion had found there was no evidence that back fusion, a widely performed procedure, was effective and that it had a high complication rate. Agency staff proposed studies to find out more, but a professional society of spine surgeons, the North American Spine Society, attacked their conclusions. Moreover, a back surgeon from northern Virginia, Dr. Neil Kahanovitz, formed the Center for Patient Advocacy, which organized a letter-writing campaign to Congress. Through personal contacts in the House of Representatives, he succeeded in convincing a number of representatives that the agency’s position on back surgery was based on unsound research and was a waste of taxpayers’ money. Kahanovitz’s efforts were perfectly timed with a second 1994 event: Republican control of the House. As a federal body managed by the executive branch, the agency had naturally provided information and analyses to support the Clinton administration’s Health Security Act. But now its association with the executive branch made it vulnerable to enemies. Fueled by Kahanovitz’s lobbying, members of Congress accused it of “wastefulness and unwarranted interference in the practice of medicine.”5

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The Agency for Health Care Policy and Research barely survived the attack. It was dealt a 21-percent budget cut and renamed the Agency for Healthcare Research and Quality after its teeth were filed to nubs. Its successor agency was forced to abandon controversial topics that might affect payment policy. Its current budget is

1 100

th that of the NIH.

The country depends upon the Federal Reserve System for objective financial decisions. AMQS’s dynamics should be the same. It must make neutral decisions based upon incontrovertible data. It will be recommending courses of action to Congress and commercial insurers; so its day-to-day decisions cannot be unduly influenced by Congress, a presidential administration, or an industry. History has shown that when a federal agency’s findings threaten an industry’s profits, that agency may go out of business or be tamed. Therefore, what I propose cannot be a federal agency. For the AMQS to function, it must, like the Federal Reserve System, have an appointed board independent from Congress and the administration and be rigorously nonpartisan. But unlike the Federal Reserve System, which is chartered by Congress but self-supporting, the AMQS will require taxpayer dollars. The FDA receives a significant proportion of its funds from industry to approve new drugs, and allegations of excessive industry influence plague it. An American Medical Quality System needs a significant portion of its financing to be independent of industry and of congressional and industry interference with its findings. Otherwise, industry will contaminate or stop its actions by lobbying Congress, as Kahanovitz did and as industry does for Medicare policy every day. There is a precedent for congressional approval of a process without congressional involvement in the details. Closing military bases is an essential means of managing the military, but bases bring so much money into congressional districts that members must try to stop a base closure there even if they know that closure is in the national interest. I can imagine the same dynamic when a major industry residing in a member’s home district is threatened by an AMQS finding. Congress uses the Defense Base Closure and Realignment Commission to make individual closure decisions, retaining the option of disbanding the commission but not of altering its decisions. Members of Congress are thus protected in their home districts from politically unpopular decisions

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that are nevertheless necessary. Congress’s problem in health care is analogous.

The Federal Reserve System There is a useful and familiar precedent for modernizing an industry and making it efficient—the reform of the banking industry. The Federal Reserve System was created by the Federal Reserve Act of 1913 to prevent bank failures and panics, which were common in the late nineteenth century. In a bank panic, depositors would rush to their bank to withdraw their money, like the citizens of Bedford Falls do to Jimmy Stewart’s George Bailey in It’s a Wonderful Life. The banking panic that led to the establishment of the Federal Reserve System occurred in 1907, and the worst panics occurred during the Depression years of 1930 to 1933. The Fed sat idle during the Depression but in its aftermath gained new powers and a new mandate as the federal government shifted its role in managing the economy from laissez-faire to active intervention. The Fed has been juggling interest rates and currency supply ever since and has facilitated the banking industry’s transformation from small regional banks relying on paper transactions to well-capitalized banking systems that depend upon instantaneous information and transaction processing for competitive advantage. Unexpectedly, its unprecedented actions to loan money to investment firms (not just banks) and to underwrite the sale of Bear Stearns may have prevented another run on banks in 2007.6 The Federal Reserve System was created as an independent body to prevent monetary policy from being politicized, and its revenue comes from services that it provides for regional banks rather than from taxes. Its structure was the result of a compromise between progressive interests led by William Jennings Bryan, who feared a banker-dominated board, and bankers who feared government intervention. It has wide latitude in its actions, but its goals are set by Congress. The Fed is led by a board of governors, each serving a staggered fourteen-year term. The president makes the appointments with the Senate’s advice and consent. A governor can only be removed for cause, not for political differences or for being disagreeable. Twelve regional Federal Reserve Banks were created to prevent the concentration of financial power in New York. Each regional bank is a

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private operation owned by its member banks and is led by a nine-member board of directors, some selected by member banks and others by the board of governors. Regional banks store excess currency and provide common services to member banks, such as the processing of checks. They sell Treasury securities and perform economic research in their region. I conceive of an American Medical Quality System in Washington, D.C., modeled on the governance of the Federal Reserve System, with Medical Quality Boards in every region of the country. Its business would be to change the practice of medicine in the United States. It is not just a physician’s conjecture that the measures I propose here could reduce health care cost. The Commonwealth Fund contracted with an independent health care consultant, the Lewin Group, to estimate the savings from a number of measures, such as public health programs to decrease smoking and obesity and also including industry-wide controls on medical prices. Many of the measures that I propose here were a component of the analysis and, extrapolated out to ten years, were estimated to save more than 100 billion dollars per year.7 This estimate is realistic if there is no change in the U.S. culture of medicine. But if doctors begin to take pride in delivering cost-effective and quality medicine, if the uninsured are covered so that hospitals don’t rely on wasteful practices to balance their books, and if consumers accept ownership of some of the problems, the savings figure could conceivably be closer to 700 billion dollars.

Change in Culture or Regulation? In a national consumer market created by disconnecting insurance from employment, health insurance would have to be regulated so that consumers get a fair deal. The AMQS would make specific recommendations on payment policy to Medicare and insurers, which they can accept or reject. It follows that insurance regulation should not be done by the same entity that provides recommendations on payment policy; otherwise, its findings and judgments would be de facto payment mandates. Consumers should decide what services they wish to pay for when they purchase insurance. Congress, not the AMQS, should decide what Medicare pays for.

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I do not propose a regulatory function for AMQS also because Medicare and commercial insurers have all the necessary tools to force change in the medical industry if they choose to do so. After all, they pay for health care services. Medicare has two hammers: its own payment policies and the accreditation actions of the Joint Commission. But Medicare’s payment policy is the sledgehammer. The program is the single largest insurer in the country, and it can institute industry-wide changes simply by altering what it chooses to pay for and how it will pay. My proposed American Medical Quality System will only reduce health care costs if Medicare adopts its findings, which will then inevitably be adopted by private health insurers. Those policies are political decisions made by Congress and the administration; and if either political will or impeccable information is lacking, nothing will happen because those decisions must survive an industry onslaught. Congress functions as the Medicare’s board of directors. Industry does not go to Medicare’s administrators when they want to influence payment policy; they go directly to Congress. For example, when Congress is faced with making its annual decision to override the reduction in physician payment called for by the sustainable growth-rate calculation, legions of doctors from members’ home states visit congressional offices. Groups of doctors huddle around the lone legislative staffer or member of Congress in each office, insisting that they cannot take a pay cut and need a pay hike. Otherwise, they say, Medicare patients will not find a doctor when they need one. The doctors are sometimes accompanied by lobbyists who may have generously contributed to the member’s reelection. Sometimes campaigns back home are organized around these visits in order to scare Medicare patients. In the days after the doctors leave the congressional office, frightened constituents punctuate their visits by calling to urge the member not to cut their Medicare. But no one, including the doctors, knows which 60 to 70 percent of physician services are essential and which 30 to 40 percent are superfluous; and no one in Congress or in Medicare’s administration has any way to find out. Congress’s choice is to override the formula, which always calls for a cut in physician pay, knowing that the decision is inflationary, or risk allowing Medicare patients to lose access to doctors. Members find themselves in a no-win situation. Current Medicare payment policy is indiscriminate

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because no one can distinguish appropriate from inappropriate medical use. Congress may have the hammer to make needed change in Medicare payment, but it keeps missing the nail because it is blindfolded. We need to bring light to the process and tear off the blindfold.

Political Realities The deck is stacked against the establishment of an American Medical Quality System because no industry reforms itself. The pharmaceutical industry spent 800 million dollars lobbying federal and state governments over a seven-year period; 116 million dollars of that sum made sure that the Medicare Modernization and Improvement Act of 2003 would suit their needs. Of the 1,291 pharmaceutical lobbyists, 52 percent have been federal officials.8 The CEO of the main drug lobby, PhRMA, was a member of the House of Representatives for twenty-five years and an author of the Medicare Modernization Act of 2003, which includes a prescription drug benefit. The pharmaceutical industry is likely to oppose head-to-head testing of drugs by anyone other than a pharmaceutical company, and its tentacles reach deep into congressional offices. The medical device industry similarly opposes testing of its products’ effectiveness. The hospital industry will object to the idea that AMQS will expose excess hospital prices, but its members may not oppose accepting grants for information technology and process improvements. Hospitals function well with profit margins of no less than 2 percent and need profits of no more than about 6 percent. If some prospect of covering the uninsured along with cost savings from improved efficiency can stabilize the function of not-for-profit hospitals at the upper limit of that range, they might go along with such a reform effort. The disease-based advocacy groups are a wild card. Many of these organizations accept significant support from the industries that stand to profit from the guidelines they sponsor, especially the pharmaceutical industry.9 Advocacy groups could oppose the notion of allowing a neutral entity to work with medical societies to establish practice guidelines, and they might join specialty medical societies and their industry supporters in opposing AMQS. This combination could be deadly because patients who may or may not have a full understanding of the issue will be

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involved. Although the insurance industry will probably support the aspects of this proposal that would help them do their job better, it is impossible to judge how strong their support will be.

The Role of Business The uninsured can be covered and health care cost reduced only if business supports and drives the effort. No other force in America can trump the medical industry’s lobbies and compel Congress to act. Medical practice cannot be adequately reformed to reduce cost and improve quality without also covering the uninsured. Most are members of working families; but their employers have not been compelled to provide coverage, and many businesses cannot afford to do so. American business did not ask to be left holding the health care bag, but that is who is holding it. Big business in particular is not only the solution; it is also part of the problem. After the recession of 2003, the rise in uninsured resulted mostly from the actions of small businesses that were dropping coverage. But trends in the preceding years show that big business must share the blame. From 1987 to 2001, the proportion of uninsured who worked for big businesses rose from 25 to 32 percent of the uninsured. In addition, retiree benefits of big business have been steadily decreasing since the 1990s, and these businesses have increasingly shifted health care expenses to their employees.10

The Role of the Medical Profession Doctors have good reason to support change. In 2009, they are scheduled to take a 10-percent cut in their Medicare payments, and sooner or later Congress will be unable to override the sustainable growth-rate formula that sets the yardstick for physician payment. To delink the cost and volume of physician services will cost 262 billion dollars over ten years, a large sum. Sooner or later Congress will be unable to come up with that kind of money, and doctors will be paid less than they are now. The medical argument against my proposition is that AMQS is an unwarranted intrusion into the practice of medicine. While I agree that it is an intrusion, I also believe it is warranted. Yet it will not interfere with

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a doctor’s ability to take care of an individual patient, nor will it interfere with a patient’s ability to choose an individual doctor. What I propose will require more work from doctors—and work different from what they are used to doing. They will have to consider the cost of their actions and the evidence that supports those actions. They will have to accept a performance report card. They will have to help discover efficient means of practice in clinics and hospitals and then adopt those methods. But who is better suited than doctors to create such reforms? The added work and adaptation to change are prices they must pay for retaining some measure of control over the process of reducing cost and improving quality. The alternative is to have little control, like physicians in single-payer systems. Some doctors like to own ambulatory surgery centers and hospitals. Under the payment system I propose, they still could. If everyone were covered by insurance, community hospitals would have no reason to object to specialty hospitals because community hospitals would have no reason to cost-shift their losses from the uninsured. If a physician-owned facility could complete an episode of medical care cheaper and with equal or better quality than a community hospital could, then it would make more money than the community hospital would. Doctors in both community and specialty hospitals would be held to patterns of practice using the appropriate indications for surgery. All my life I have heard the argument “you can’t practice cookbook medicine.” But I am sure that 95 percent of the time you can practice standard medicine because I did it. Doctors can certainly practice evidence-based medicine, especially if they are the ones to generate the evidence. This requires a new way of thinking about medical practice, but that thinking keeps step with the advancement of technology. I expect pediatricians, family doctors, emergency medicine doctors, general internists, and doctors who practice in public hospitals to have no objection to my proposals. They would probably be paid better and have more satisfying professional lives. According to my proposal, fewer specialists would perform fewer procedures in fewer hospitals and ambulatory surgery centers. This would create savings, but specialists and hospitals would also be adequately paid for their services. The leaders of the specialty societies are politically

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savvy and understand the financial forces that their specialties face. I think they understand that their efforts to keep payment levels up cannot continue to succeed under current circumstances. Some specialty societies may be willing to support something similar to my proposal. But individual specialists will strike hard at these ideas. Like Neil Kahanovitz, who nearly brought down the Agency for Healthcare Research and Quality, some specialists will say that spending public money to evaluate their technology or limit its use is unwarranted—even wrong. Imagine how Dr. Raymond Alford, the character in my story of unnecessary surgery, would react to what I propose. He would have too much invested in his one operation to risk change, and he would have enough money to work against such change. But personal beliefs based upon unexamined individual experience, even if they are sincere, can be wrong as often as they are right. I remember a scene in the basement of an NIH building on Wisconsin Avenue in Bethesda, Maryland, twenty-five years ago. Those were the days before we had any proven treatments that reduced the neurological damage from stroke, brain injury, spinal cord injury, or cardiac arrest. I had just completed my residency and was on a panel with more senior neurosurgeons discussing the design of a clinical trial of a drug called a steroid, which would be tested for the treatment of spinal cord injury. Back in the early 1960s, a neurosurgeon named Lyle French at the University of Minnesota had been searching for a way to get chemotherapy into brain tumors. I helped care for his patients when I was an intern in 1975. The brain has a microscopic barrier that excludes pharmaceuticals from entering it, so French gave a steroid to a comatose patient in hopes that it would open the brain’s barrier to the chemotherapeutic agents. When he came back to give the chemotherapy, he found the patient awake. After more such experiences, neurosurgeons everywhere began to use steroids to decrease the swelling of the brain caused by brain tumors. There was no need for any randomized trial here. The results were analogous to administering penicillin for pneumonia: patients got better before the doctors’ eyes. As a result of this success, neurosurgeons began to use steroids for every neurosurgical disease they treated, though the results of treatment were not immediately evident in injured patients, who did not wake up

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like tumor patients did. But doctors continued to assume that because steroids were effective in tumors, they were also effective in brain and spinal cord injuries. Subsequent laboratory research found that steroids did improve the outcome of spinal cord injury but only if given in a higher-than-common dose very soon after injury. Now doctors needed a clinical trial to determine the right dose. The question before our panel was whether to give one group of patients with spinal cord injury the usual steroid dose and the other the high dose or whether to administer a placebo to one group and compare it to high-dose steroids. The latter was the better design because objective analysis of the data demonstrated that no one knew whether or not steroids had any effect on spinal cord injury. The room was tense as the ten or so doctors sat around the conference table discussing the two options. Two or three of the doctors held back; but when the decision to test a placebo versus high-dose steroids appeared to be the probable consensus, they began to react. One red-faced doctor stood up, waving his arms in agitation, and passionately declared that it would be “immoral” not to use steroids in both groups of patients: we knew that they were effective; what we didn’t know was which dose was more effective. His two supporters became equally animated; and before the meeting was over, they had prevailed. The study was completed with high- and low-dose steroids, and it was completely negative. The matter became so confused that years later another large trial was conducted, testing a placebo versus a dose of steroids tenfold higher than that used in the original study. The result was a weak treatment effect but only if the drug was given within eight hours of injury. Clearly, unexamined personal experience is no way to make conclusions about what works in medicine, no matter how passionately one holds those beliefs.

Everyone Gives Something It is in no one’s best interest for matters to continue as they are. Doctors will be paid progressively less for their services as costs rise and payers vainly attempt to reduce expenses by reducing fee-for-service payments. Medicare patients in some areas are already facing access problems for primary care services, and the problem will worsen as Medicare

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reduces physician payments. The country faces a Medicare fiscal crisis that our political leaders are ignoring. The pharmaceutical industry can ride its current wave of profits based on marketing and producing over-hyped me-too drugs for only so long. It is courting federally imposed price controls in the United States, a situation it already faces in other countries. Hospitals can never deliver high-quality of services so long as they must balance their books by cost shifting, avoiding the uninsured, and aggressively promoting procedures of uncertain benefit. Hospitals are increasingly divided into the rich and the poor, and poor hospitals are often key community resources for emergency care. The insurance industry must rejuvenate itself with new tools to decrease cost and increase quality, and it must partner with physicians. Otherwise, it faces replacement. The public is not well served by the present order. Small businesses must watch their employees’ families go bankrupt as a result of medical costs or beg for services at overburdened public facilities. Big businesses must constantly balance their health care spending between the primacies of profitability and employee satisfaction yet have no control over costs as they enter a pitiless global economy. Individuals who can afford to purchase insurance must hope that they never get sick and really need it. Otherwise, they will join the ranks of the medically bankrupt or the uninsured and uninsurable. The working poor are exploited by a tax code that subsidizes the affluent in purchasing insurance and a society that does not allocate resources for their care until their untreated conditions become lifethreatening emergencies. Lack of insurance is now reaching deep into the middle class. Until recently, the United States probably had the best emergency services system in the world. Now the number of uninsured is so great that emergency care has become unreliable nationwide—even for the insured. This is the most telling evidence that we have entered a new era. The matter is not hopeless, just big. If every part of the medical industry gives something, then it is certainly possible to carve hundreds of billions of dollars out of health care spending, use the proceeds to cover the uninsured, and improve the care of the insured.

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Sometimes the lives of nations, like the lives of individuals, require radical change. That change is painful, but the consequences of failing to act are reliably worse. America needs real change in its health care system—not necessarily abruptly but relentlessly—and reform must start now. The consequences of delay are likely to create deeper divisions in American society as the cost of health care further delineates the “haves” (the insured) and the “have-nots” (the uninsured). Quality of care will deteriorate for both groups, and more working people will go without reliable insurance. No one can name the date when the health care crisis will be upon us, triggering massive reform; but given current trends, the moment is less than a decade away. We’ll know we’re in crisis when ■

Medicare patients lose access to good doctors because of payment cuts

■

A large tax increase is levied to prevent Medicare insolvency

■

Too many businesses walk away from health care financing

■

Insurance coverage of the middle class becomes unstable Poor-quality health care, deaths from emergency services breakdown,

and an increased number of low-wage uninsured are not likely to trigger reform. After all, Texas is managing even though one-third of its big-city population is uninsured and the state has an unreliable emergency services system. California is not in much better shape. The United States has sometimes done the right thing just because it is the right thing. My parents told me when I was a young man growing up in the south that segregation was not automatically right just because the country had always been racially segregated. The United States did away with this practice, which was a national cancer. The inequity of health care is another affliction on the soul of the nation. Health care reform is a matter of justice, and all the rational, economic arguments for it are nothing more than words unless the nation can recognize what is wrong and fix it. Just about everyone who practices medicine realizes that something must be done about U.S. health care, starting now. We must take action because we are quickly racing toward chaos or a deeply destructive societal division. Americans are all complicit in the failure of the health care system, and we must all act to repair

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it. We are running out of time to reform this massive system with forethought and planning rather than under duress. I cannot be sure what will turn the tide of medical care in America, but I have faith in the country. That faith is strengthened by the many sons and daughters of U.S. families who have joined the military in recent years. There are so many people of good will; I have worked with them in medicine, in Congress, and in business. The views of the coming generations are too fresh and untarnished to be without optimism. And my generation, the baby boomers, though jaded after forty years of materialism, must still remember the 1960s when America changed direction. Our nation has the tools, the know-how, and the resources to develop a high-performance health care system that delivers quality care at lower cost to all its citizens. It is time for America to roll up its sleeves and begin this task with focus and commitment.

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NOTES

CHAPTER 1

NOT BUSINESS AS USUAL

1. David M. Cutler and Mark McClellan, “Is Technological Change in Medicine Worth It?” Health Affairs 20 (September–October 2001):11–29. CHAPTER 2

UNRELIABLE EMERGENCY SERVICES

1. Mark M. Moy, The EMTALA Answer Book (Gaithersburg, Md.: Aspen, 1999). 2. Robert J. Mills, “Health Insurance Coverage: 2001,” in U.S. Census Bureau, Current Population Reports (Washington, D.C., September 2002), 10. 3. Abaris Group for SAVE OUR ERS, “An Assessment of Houston Area EDs” (Houston, May 2002). 4. Charles E. Begley, Yu-Chia Chang, Robert C. Wood, et al., “Emergency Department Diversion and Trauma Mortality: Evidence from Houston, Texas,” Journal of Trauma 57 (December 2004): 1260–65. CHAPTER 3

AN ERODING INFRASTRUCTURE

1. Atul Gawande, “Casualties of War—Military Care for the Wounded from Iraq and Afghanistan,” New England Journal of Medicine, December 9, 2004, pp. 2471–475. 2. John G. West, Donald D. Trunkey, and Robert C. Lim, “Systems of Trauma Care: A Study of Two Counties,” Archives of Surgery 114 (April 1979): 1033–35. 3. Charles C. Branas, Ellen J. MacKenzie, Justin C. Williams, et al., “Access to Trauma Centers in the United States,” Journal of the American Medical Association, June 1, 2005, pp. 2626–33; National Foundation for Trauma Care, “U.S. Trauma Center Crisis: Lost in the Scramble for Terror Resources” (Las Cruces, N.M., May 2004). 4. U.S. General Accounting Office, “Hospital Emergency Departments: Crowded Conditions Vary among Hospitals and Communities” (Washington, D.C., March 2003); Catharine W. Burt, Linda F. McCaig, Roberto H. Valverde, “Analysis of Ambulance Transports and Diversions among U.S. Emergency Departments,” Annals of Emergency Medicine 47 (April 2006): 317–26; American 275

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Hospital Association, “Taking the Pulse: The State of America’s Hospitals” (2005), http://www.hospitalconnect.com/ahapolicyforum/resources/content/ TakingthePulse.pdf; Lewin Group, “Emergency Department Overload: A Growing Crisis. The Results of the AHA Survey of Emergency Department and Hospital Capacity” (Falls Church, Va., April 2002); Abaris Group for the California Health Care Foundation, “California Emergency Department Diversion Project, Report 1” (Walnut Creek, Calif., March 19, 2007). 5. American Hospital Association, “Taking the Pulse.” 6. Institute of Medicine, Committee on the Future of Emergency Care in the U.S. Health System, Hospital-Based Emergency Care: At the Breaking Point, (Washington, D.C.: National Academies Press, 2006), 19. 7. Linda Green, Shelly Glied, and Morgan Grams, “Ambulance Diversion and Myocardial Infarction Mortality” (New York: Columbia University Business School, 2005). 8. Abaris Group, “Houston-Galveston Area Council Emergency Health Care Study” (December 5, 2005); Linda F. McCaig and Catharine W. Burt, “National Hospital Ambulatory Medical Care Survey: 2003 Emergency Department Summary,” Advance Data from Vital and Health Statistics 358 (2005): 1–2; Catharine W. Burt and Linda F. McCaig, “Trends in Hospital Emergency Department Utilization: United States, 1992–1999,” National Center for Health Statistics. Vital and

Health

Statistics

13

(November

2001),

http://www.cdc.gov/

nchs/data/series/sr_13/sr13_150.pdf. 9. Ann S. O’Malley, Anneliese M. Gerland, Hoangmai H. Pham, et al., “Rising Pressure: Hospital Emergency Departments As Barometers of the Health Care System” (Washington, D.C.: Center for Studying Health System Change, November 2005); McCaig and Burt, “National Hospital Ambulatory Medical Care Survey: 2003.” 10. American Hospital Association, “Emergency Departments Provide an Important Access Point for Traditionally Underserved Populations,” Trend Watch 3 (March 2001): 1–2; Peter J. Cunningham, “What Accounts for Differences in the Use of Hospital Emergency Departments Across U.S. Communities?” Health Affairs

Web

Exclusive,

July 18,

2006,

http://content.healthaffairs.org/

cgi/reprint/25/5/w324. 11. Peter J. Cunningham and Jessica H. May, “Insured Americans Drive Surge in Emergency Department Visits” (Washington, D.C.: Center for Studying Health System Change, October 2003). 12. McCaig and Burt, “National Hospital Ambulatory Medical Care Survey: 2003.” 13. Eric W. Nawar, Richard W. Niska, and Jianmin Xu, “National Hospital Ambulatory Medical Care Survey: 2005 Emergency Department Summary” (Hyattsville, Md.: Centers for Disease Control and Prevention, June 29, 2007). 14. Abaris Group, “Houston-Galveston Area Council Emergency Health Care Study”; Susan Lambe, Donna L. Washington, Arlene Fink, et al., “Trends in the

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Use and Capacity of California’s Emergency Departments, 1990–1999,” Annals of Emergency Medicine 39 (April 2002): 389–96. 15. Darius N. Lakdawalla, Dana P. Goldman, and Baoping Shang, “The Health and Cost Consequences of Obesity Among the Future Elderly,” Health Affairs Web Exclusive, September 26, 2005, http://content.healthaffairs.org/cgi/reprint/ hlthaff.w5.r30v1. 16. Kenneth E. Thorpe, Curtis S. Florence, David H. Hammond, et al., “The Impact of Obesity on Rising Medical Spending,” Health Affairs Web Exclusive (October 2004), http://content.healthaffairs.org/cgi/reprint/hlthaff.w4.480v1.

CHAPTER 4

FIFTEEN YEARS LOST

1. Robert E. Mechanic, “Medicaid’s Disproportionate Share Hospital Program: Complex Structure, Critical Payments” (Washington, D.C.: National Health Policy Forum, September 14, 2004); Kaiser Family Foundation, “Hospital Beds per 1,000 Population by Ownership Type, 2005,” http://statehealthfacts.org/ comparebar.jsp?ind=385&cat=8. 2. U.S. Census Bureau, “Press Release: Health Care and Social Assistance Revenues Reach $1.3 Trillion” (Washington, D.C., November 2004). 3. Guillermo Barreto-Vega, “Medical Clinic/Physician Office” (San Antonio, Tex.: Small Business Development Center, National Information Clearinghouse, November 15, 2004); Alain C. Enthoven and Laura A. Tollen, eds., Toward a 21st Century Health System. (San Francisco: Jossey-Bass, 2004). 4. Tufts Managed Care Institute, “A Brief History of Managed Care” (Boston, 1998). 5. Ibid. 6. Lisa Backus, Marie Moron, Peter Bacchetti, et al., “Effect of Managed Care on Preventable Hospitalization Rates in California,” Medical Care 40 (April 2002): 315–24; Chunliu Zhan, Marlene R. Miller, Herbert Wong, et al., “The Effects of HMO Penetration on Preventable Hospitalizations,” Health Services Research 39 (April 2004): 345–61. 7. Paul B. Ginsburg, “Competition in Health Care: Its Evolution over the Past Decade,” Health Affairs 24 (November–December 2005), 1512–22. 8. Ibid; Daniel Altman, David Cutler, and Richard Zeckhauser, “Enrollee Mix, Treatment Intensity, and Cost in Competing Indemnity and HMO Plans,” Journal of Health Economics 22 (January 2003): 23–45; David M. Cutler, Mark McClellan, and Joseph P. Newhouse, “How Does Managed Care Do It?” Rand Journal of Economics 31 (fall 2000): 526–48. 9. Ginsburg, “Competition in Health Care.” 10. American Hospital Association, “The Fragile State of Hospital Finances” (March 2005), http://www.aha.org/aha/content/2005/pdf/05fragilehosps.pdf; American Hospital Association, “The State of America’s Hospitals—Taking the Pulse” (Chicago, 2005).

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11. Abaris Group, “Houston-Galveston Area Council Emergency Health Care System Study.” CHAPTER 5

HANDED HEALTH CARE’S LEFTOVERS

1. U.S. Census Bureau, “Income Climbs, Poverty Stabilizes, Uninsured Rate Increases” (Washington, D.C., August 29, 2006); Families USA, “One in Three: Non-Elderly Americans without Health Insurance, 2002–2003” (Washington, D.C., June 2, 2004). 2. Kaiser Family Foundation, “The Uninsured, A Primer” (October 2006), http://www.kff.org/uninsured/7451.cfm; Lisa Dubay, John Holahan, and Allison Cook, “The Uninsured and the Affordability of Health Insurance Coverage,” Health Affairs Web Exclusive, November 30, 2006, http://content.healthaffairs. org/cgi/reprint/26/1/w22. 3. National Association of State Budget Officers, “2004 State Expenditure Report” (2005), http://www.nasbo.org/Publications/PDFs/2004ExpendReport.pdf. 4. Sara R. Collins, Karen Davis, Michelle M. Doty, et al., “Gaps in Health Insurance: An All-American Problem” (New York: Commonwealth Fund, April 2006); David U. Himmelstein, Elizabeth Warren, Deborah Thorne, et al., “Discounting the Debtors Will Not Make Medical Bankruptcy Disappear,” Health Affairs Web Exclusive, February 28, 2006, http://content.healthaffairs. org/cgi/ reprint/25/2/w84. 5. John G. Canto, William J. Rogers, William J. French, et al., “Payer Status and the Utilization of Hospital Resources in Acute Myocardial Infarction: A Report from the National Registry of Myocardial Infarction 2,” Archives of Internal Medicine, March 27, 2000. 6. Eugene A. Caracciolo, Kathryn B. Davis, George Sopko, et al., “Comparison of Surgical and Medical Group Survival in Patients with Left Main Coronary Artery Disease,” Circulation, May 19, 1995, pp. 817–23. 7. George Masi, Harris County Hospital District chief operating officer, personal communication, November 12, 2006. 8. Jack Hadley and John Holahan, “How Much Medical Care Do the Uninsured Use, and Who Pays for It?” Health Affairs Web Exclusive, February 12, 2003, http://content.healthaffairs.org/cgi/reprint/hlthaff.w3.66v1; Marc L. Berk and Alan C. Monheit, “The Concentration of Health Care Expenditures, Revisited,” Health Affairs 20 (March–April 2001): 9–18; Jack Hadley, Matthew Cravens, Terri Coughlin, et al., “Federal Spending on the Health Care Safety Net from 2001–2004: Has Spending Kept Pace with the Growth in the Uninsured?” (November 2005), http://www.kff.org/uninsured/7425.cfm. 9. Stan Dorn, “Uninsured and Dying because of It: Updating the Institute of Medicine Analysis of the Impact of Uninsurance on Mortality,” January 8, 2008, http://www.urban.org/url.cfm?ID=41158; Karen Davis, “The Costs and Consequences of Being Uninsured,” Medical Care Research and Review 60

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(June 2003): 89S–99S; J. Michael McWilliams, Alan M. Zaslavsky, Ellen Meara, et al., “Health Insurance Coverage and Mortality Among the Near-Elderly,” Health Affairs 23 (July–August 2004): 223–33. 10. Institute of Medicine, Care Without Coverage: Too Little, Too Late (Washington, D.C.: National Academies Press, 2002), 48–49; N. Lurie, N. B. Ward, M. F. Shapiro, et al., “Termination from Medi-Cal Benefits: A Follow-up Study One Year Later,” New England Journal of Medicine, May 8, 1986, pp. 1266–68; Maureen I. Harris, “Racial and Ethnic Differences in Health Insurance Coverage for Adults with Diabetes,” Diabetes Care 22 (October 1999: 1679–82; John Z. Ayanian, Joel S. Weissman, Eric C. Schneider, et al., “Unmet Health Needs of Uninsured Adults in the United States,” Journal of the American Medical Association, October 25, 2000, pp. 2061–69. 11. Institute of Medicine, Care without Coverage, 54; Richard G. Roetzheim, Naazneen Pal, Eduardo C. Gonzalez, et al., “Effects of Health Insurance and Race on Colorectal Cancer Treatments and Outcome,” American Journal of Public Health 90, no. 11 (2000). 12. Richard G. Rotzheim, Naazneen Pal, Colleen Tennant, et al., “Effects of Health Insurance and Race on Early Detection of Cancer,” Journal of the National Cancer Institute, August 18, 1999, pp. 1409–15. 13. George W. Bush, White House press release of a speech to the Cleveland Chamber of Commerce, Cleveland, Ohio (July 10, 2007), www.whitehouse.gov/news/ releases/2007/07/20070710-6.html#. CHAPTER 6

WHERE WE ARE HEADED

1. Medicare Payment Advisory Commission, “Report to Congress: Growth in the Volume of Physician Services” (December 2004), http://www.medpac.gov/ publications/congressional_reports/Dec04_PhysVolume.pdf; Peter R. Orszag, testimony before the U.S. Senate, Committee on Finance, March 1, 2007, http://www.cbo.gov/ftpdocs/78xx/doc7832/03-01-SGR.pdf. 2. Byron Thames, testimony before the U.S. Senate, Committee on Finance, March 1, 2007, http://www.senate.gov/~finance/hearings/testimony/2007test/ 030107bttest.pdf. 3. Glenn M. Hackbarth, testimony before the U.S. Senate, Committee on Finance, March 1, 2007, http://www.medpac.gov/publications/congressional_ testimony/030107_Finance_testimony_SGR.pdf?CFID=2196161&CFTOKEN= 21917649. 4. Thomas R. Saving, “Medicare Meltdown,” Wall Street Journal, May 9, 2007, p. A17. 5. Congressional Budget Office, “The Budget and Economic Outlook: Fiscal Years 2008 to 2018” (Washington, D.C., January 2008). 6. Peter Orszag, testimony before the U.S. Senate, Committee on the Budget, June 21, 2007.

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7. Medicare hospital spending in 2005 was 180 billion dollars. The program historically grows at GDP plus 2.5 percent. At 5.5-percent annual growth, hospital spending in 2018 would be 367 billion dollars; 73 billion dollars is 20 percent of that figure. 8. U.S. Census Bureau, “Projections of the Total Resident Population by 5-Year Age Groups, and Sex with Special Age Categories: Middle Series, 2016 to 2020,” January 13, 2000, http://www.census.gov/population/projections/nation/ summary/np-t3-e.txt. 9. Texas Primary Care Coalition, “Press Release: New Poll Finds Texas Medicaid Patients Unable to Find Primary Care Physicians” (Austin, Tex., April 5, 2005); Project HOPE, Center for Health Affairs for the Medicare Payment Advisory Commission, “2002 Survey of Physicians about the Medicare Program” (March 2003),

http://www.medpac.gov/publications/contractor_reports/Mar03_

02PhysSurv_summary2.pdf. 10. Stephen Zuckerman, Joshua McFeeters, Peter Cunningham, et al., “Changes in Medicaid Physician Fees, 1998–2003; Implications for Physician Participation,” Health Affairs Web Exclusive, June 23, 2003, http://content.healthaffairs. org/cgi/reprint/hlthaff.w4.374v1; Kaiser Family Foundation and Health Research and Educational Trust, “2007 Annual Employer Health Benefits Survey: Summary of Findings” (May 2007), http://www.kff.org/insurance/7672/; Len M. Nichols and Sarah Axeen, “Employer Health Costs in a Global Economy: A Competitive Disadvantage for U.S. Firms” (Washington, D.C.: New America Foundation, May 2008). 11. “2007 Annual Employer Health Benefits Survey;” Richard Kronick and David Rousseau, “Is Medicaid Sustainable? Spending Projections for the Program’s Second 40 Years,” Health Affairs Web Exclusive, February 23, 2007, http://content.healthaffairs.org/cgi/reprint/ hlthaff. 26.2.w271v1. 12. Todd Gilmer and Richard Kronick, “It’s the Premiums, Stupid: Projections of the Uninsured Through 2013,” Health Affairs Web Exclusive, April 5, 2005, http://content.healthaffairs.org/cgi/reprint/hlthaff.w5.143v1; Todd Gilmer and Richard Kronick, “Calm before the Storm: Expected Increase in the Number of Uninsured Americans,” Health Affairs 20 (November–December 2001): 207–10. 13. Families USA, “Paying a Premium: The Added Cost of Care for the Uninsured” (Washington, D.C., June 2005). 14. Kaiser Family Foundation and Health Research and Educational Trust, “2004 Annual Employer Health Benefits Survey: Summary of Findings” (September 2004),

http://kff.org/insurance/7148/upload/employer_health_benefits_

survey_2004_section7.pdf; Cathy Schoen, Michelle M. Doty, Sara R. Collins, et al., “Insured but Not Protected: How Many Adults Are Underinsured?” Health Affairs Web Exclusive, June 14, 2005, http://content.healthaffairs.org/cgi/ reprint/hlthaff.w5.289v1; Families USA, “One in Three: Non-Elderly Americans without Health Insurance, 2002–2003” (Washington, D.C., June 2, 2004).

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281

30 PERCENT WASTE—OR 50?

1. Centers for Medicare and Medicaid Services, “National Health Expenditures Aggregate Amounts and Average Annual Percent Change, by Type of Expenditure: Selected Calendar Years, 1960—2006,” http://www.cms.hhs.gov/ NationalHealthExpendData/downloads/tables.pdf. 2. David Kashihara and Kelly Carper, “National Health Care Expenses in the U.S. Civilian Noninstitutionalized Population, 2003” (Rockville, Md.: Agency for Healthcare Research and Quality, November 2005). 3. John E. Wennberg, Elliott S. Fisher, Jonathan S. Skinner, “Geography and the Debate Over Medicare Reform,” Health Affairs Web Exclusive, February 13, 2002, http://content.healthaffairs.org/cgi/reprint/hlthaff.w2.96v1. 4. John E. Wennberg, “Variation in Use of Medicare Services among Regions and Selected Academic Medical Centers: Is More Better?” (New York: Commonwealth Fund, December 2005). 5. Elliott S. Fisher, David E. Wennberg, Therese A. Stukel, et al., “Variations in the Longitudinal Efficiency of Academic Medical Centers,” Health Affairs Web Exclusive, October 7, 2004, http://content.healthaffairs.org/cgi/reprint/hlthaff. var.19v1.pdf. 6. Elliott S. Fisher, David E. Wennberg, Therese A. Stukel, et al., “Implications of Regional Variations in Medicare Spending,” Annals of Internal Medicine 138, no. 4 (2003): 273–87, 288–98; Wennberg, “Variation in Use of Medicare Services,” 11. 7. Wennberg et al., “Geography and the Debate over Medicare Reform.” 8. Wennberg, “Variation in Use of Medicare Services.” 9. Robert Wood Johnson Foundation, “Press Release: New Study Shows Need for a Major Overhaul of How United States Manages Chronic Illness” (Princeton, N.J., May 16, 2006). 10. Centers for Disease Control and Prevention, “Medical Care Expenditures Attributable to Cigarette Smoking—United States, 1993, Morbidity and Mortality Weekly Report, July 8, 1994, pp. 469–72; Eric A. Finkelstein, Ian C. Flebelkorn, and Guijing Wang, “National Medical Spending Attributable to Overweight and Obesity: How Much, and Who’s Paying?” Health Affairs Web Exclusive, May 14, 2003, http://content.healthaffairs.org/cgi/reprint/hlthaff.w3.219v1. 11. Centers for Disease Control and Prevention, “Annual Smoking-Attributable Mortality, Years of Potential Life Lost, and Productivity Losses—United States, 1997–2001,” Morbidity and Mortality Weekly Report, July 1, 2005, pp. 625–28; David P. Hopkins, Peter A. Briss, Connie J. Ricard, et al., “Reviews of Evidence Regarding Interventions to Reduce Tobacco Use and Exposure to Environmental Tobacco Smoke,” American Journal of Preventive Medicine 20, no. 2S (2001): 16–66; Centers for Disease Control and Prevention, “Cigarette Smoking among Adults—United States, 2006,” Morbidity and Mortality Weekly Report, November 9, 2007, pp. 1157–61.

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12. Mahshid Dehghan, Noori Akhtar-Danesh, and Anwar T. Merchant, “Childhood Obesity: Prevalence and Prevention,” Nutrition Journal, September 2, 2005, pp. 1–8; Weight-Control Information Network, “Statistics Related to Overweight and Obesity” (Bethesda, Md.: National Institute of Diabetes and Digestive and Kidney Diseases, October 2006); William D. Marder and Stella Chang, “Childhood Obesity: Costs, Treatment Patterns, Disparities in Care, and Prevalent Medical Conditions” (Washington, D.C.: Thomson Medstat, December 5, 2005). 13. Ali H. Mokdad, Barbara A. Bowman, Earl S. Ford, et al., “The Continuing Epidemics of Obesity and Diabetes in the United States,” Journal of the American Medical Association, September 12, 2001, pp. 1195–2000; “Study of Obese Diabetics Explains Why Low-Carb Diets Produce Fast Results” (April 8, 2005), http://www.sciencedaily.com/releases/2005/03/050326095632.htm; Kenneth E. Thorpe, Curtis S. Florence, David H. Howard, et al., “The Impact of Obesity on Rising Medical Spending,” Health Affairs Web Exclusive, October 20, 2004, http://content.healthaffairs.org/cgi/reprint/hlthaff.w4.480v1. 14. Pieter H. M. van Baal, Johan J. Polder, G. Ardine de Wit, et al. “Lifetime Medical Costs of Obesity: Prevention No Cure for Increasing Health Expenditure,” PLoS Medicine 5 (February, 2008): 1–2. 15. Organisation for Economic Cooperation and Development, “Total Expenditure on Health, Percent Gross Domestic Product” (2007), http://www.oecd.org/ dataoecd/46/36/38979632.xls; Blue Cross/Blue Shield Association, “National Healthcare Trends,” in 2007 Medical Cost Reference Guide (Chicago, 2007), 5–13. 16. Organisation for Economic Cooperation and Development, “Percentage of Elderly Population” (2006), http://caliban.sourceoecd.org/vl=15858669/ cl=42/nw=1/rpsv/fact2006/01-02-02-g01a.htm. 17. Gerard F. Anderson, Peter S. Hussey, Bianca K. Frogner, et al., “Health Spending in the United States and the Rest of the Industrialized World,” Health Affairs 24 (July–August 2005): 903–14. 18. Uwe E. Reinhardt, Peter S. Hussey, and Gerard F. Anderson, “U.S. Health Spending in an International Context,” Health Affairs 23 (May–June 2004): 10–25; Anderson et al., “Health Spending”; Fred J. Hellinger and William E. Encinosa, “The Impact of State Laws Limiting Malpractice Damage Awards on Health Care Expenditures,” American Journal of Public Health 96 (August 2006): 1375–81; Daniel P. Kessler and Mark McClellan, “Do Doctors Practice Defensive Medicine?” (Cambridge, Mass.: National Bureau of Economic Research, February 1996). 19. Robert J. Blendon, Cathy Schoen, Catherine DesRoches, et al., “Common Concerns amid Diverse Systems: Health Care Experiences in Five Countries,” Health Affairs 22 (May–June 2003): 106–21; Cathy Schoen, Robin Osborn, Phuong Trang Huynh, et al., “Taking the Pulse of Health Care Systems: Experiences of Patients with Health Problems in Six Countries,” Health Affairs Web

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Exclusive, November 3, 2005, http://content.healthaffairs.org/cgi/reprint/ hlthaff.w5.509v3; Karen Donelan, Robert J. Blendon, Cathy Schoen, et al., “The Cost of Health System Change: Public Discontent in Five Nations,” Health Affairs 18 (May–June 1999): 206–16. 20. Anderson et al., “Health Spending.” 21. Ibid. 22. Bianca K. Frogner and Gerard F. Anderson, “Multinational Comparisons of Health Systems Data” (New York: Commonwealth Fund, April 2006). 23. Gerard F. Anderson, Uwe E. Reinhardt, Peter S. Hussey, et al., “It’s the Prices, Stupid: Why the United States Is So Different from Other Countries,” Health Affairs 22 (May–June 2003): 89–105. 24. Frogner and Anderson, “Multinational Comparisons of Health Systems Data.” 25. Medical Group Management Association, “Physician Compensation and Production Report” (Englewood, Colo., 2005); Canadian Institute for Health Information, “Average Payment per Physician Report, Fee-for-Service Physicians in Canada, 2004–2005” (Ottawa, December 20, 2006). 26. Frogner and Anderson, “Multinational Comparisons of Health Systems Data.” 27. Steffie Woolhandler, Terry Campbell, and David U. Himmelstein, “Costs of Health Care Administration in the U.S. and Canada,” New England Journal of Medicine, August 21, 2003, pp. 768–75. 28. Gerard F. Anderson, Dennis G. Shea, Peter S. Hussey, et al., “Market Watch: Doughnut Holes and Price Controls,” Health Affairs Web Exclusive, July 21, 2004, http://content.healthaffairs.org/cgi/reprint/hlthaff.w4.396v1. 29. Henry J. Aaron, “Should Public Policy Seek to Control the Growth of Health Care Spending?” Health Affairs Web Exclusive, January 8, 2003, http:// content.healthaffairs.org/cgi/reprint/hlthaff.w3.28v1; Congressional Budget Office, “The Long Term Outlook for Health Care Spending” (Washington, D.C., November 2007). 30. Blue Cross/Blue Shield Association, “Components of Gross Domestic Product, 2003,” in Medical Cost Reference Guide (Chicago, 2004), 6–8. 31. Michael E. Chernew, Richard A. Hirth, and David M. Cutler, “Increased Spending on Health Care: How Much Can the United States Afford”? Health Affairs 22 (July–August 2003): 15–25; Technical Review Panel of the Medicare Trustees Report, “Review of the Assumptions and Methods of the Medicare Trustees’ Financial Projections” (Baltimore, December 2004); Cathy A. Cowan and Micah B. Hartman, “Financing Health Care: Businesses, Households, and Governments, 1987–2003,” Health Care Financing Review Web Exclusive (July 2005), http://www.cms.hhs.gov/NationalHealthExpendData/downloads/ bhg-article-04.pdf. 32. Glenn Follette and Louise Sheiner, “The Sustainability of Health Spending Growth” (Washington, D.C.: Federal Reserve Board, September 26, 2005).

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CHAPTER 8

POOR-QUALITY PRIMARY CARE

1. J. Hector Pope, Tom P. Aufderheide, Robin Ruthazer, et al., “Missed Diagnosis of Cardiac Ischemia in the Emergency Department,” New England Journal of Medicine, April 20, 2000, p. 1163; Kevin Helliker, “Indigestion or Heart Attack? Patients Can Help ER Docs Get It Right,” Wall Street Journal, May 11, 2005, http://www.post-gazette.com. 2. Elliott S. Fisher, “Bending the Cost Curve: Achieving Accountability for Quality and Costs,” presentation at the Health Care Summit, Killington, Vermont, October 17, 2005. 3. National Diabetes Education Program, “If You Have Diabetes . . . Know Your Blood Sugar Numbers” (Bethesda, Md.: National Institutes of Health, July 2005). 4. S. MacMahon, R. Peto, J. Cutler, et al., “Blood Pressure, Stroke, and Coronary Heart Disease. Part 1, Prolonged Differences in Blood Pressure: Prospective Observational Studies Corrected for the Regression Dilution Bias,” Lancet, March 31,1990, pp. 765–64; Steven Haffner, “Rationale for New American Diabetes Association Guidelines: Are National Cholesterol Education Program Goals Adequate for the Patient with Diabetes Mellitus?” American Journal of Cardiology, August 22, 2005, pp. 33E–36E. 5. Jonathan P. Weiner, “Forecasting the Effects of Health Reform on U.S. Physician Workforce Requirement: Evidence from HMO Staffing Patterns,” Journal of the American Medical Association, July 20, 1994, pp. 222–30; Robert L. Phillips, Marty S. Dodo, and Larry A. Green, “Adding More Specialists Is Not Likely to Improve Population Health: Is Anybody Listening?” Health Affairs Web Exclusive, March 15, 2005, http://content.healthaffairs.org/cgi/reprint/hlthaff. w5.111v1. 6. Mark D. Schwartz, William T. Basco, Michael R. Grey, et al., “Rekindling Student Interest in Generalist Careers,” Annals of Internal Medicine, April 19, 2005, pp. 715–24; “Who Filled First-Year Family Medicine Residency Positions from 1991–2004?” American Family Physician, August 1, 2005, p. 392; Jordan J. Cohen, “A Word from the President: Filling the Workforce Gap,” AAMC Reporter (April 2005), http://www.aamc.org/newsroom/reporter/april05/word.htm. 7. American College of Physicians, “The Impending Collapse of Primary Care Medicine and Its Implications for the State of the Nation’s Health Care” (January 30, 2006), http://www.acponline.org/hpp/statehc06_1.pdf.http:// www.msnbc.com/id/11102388/; Eric Larson, Lynne Kirk, Wendy Levinson, et al., “The Future of General Internal Medicine” (August 2003), http://www.sgim. org/futureofGIM.pdf. 8. Andrew B. Bindman, Kevin Grumbach, Dennis Osmond, et al., “Preventable Hospitalizations and Access to Health Care,” Journal of the American Medical Association, July 26, 1995, pp. 305–11; Michael L. Parchman and Steven D. Culler, “Preventable Hospitalizations in Primary Care Shortage Areas: An Analysis

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Beneficiaries,”

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Archives

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Family

Medicine

8 (November–December 1999): 487–91; James M. Laditka, Sarah B. Laditka, and Melanie P. Mastanduno, “Hospital Utilization for Ambulatory Care Sensitive Conditions: Health Outcome Disparities Associated with Race and Ethnicity,” Social Science and Medicine 57 (October 2003): 1429–41; John Billings, Geoffrey M. Anderson, and Laurie S. Newman, “Recent Findings on Preventable Hospitalizations,” Health Affairs 15 (fall 1996): 239–49; Asha Garg, Janice C. Probst, Trina Sease, et al., “Potentially Preventable Care: Ambulatory Care-Sensitive Pediatric Hospitalizations in South Carolina in 1998.” Southern Medical Journal 96 (September 2003): 850–58; Glenn Flores, Milagros Abrew, Christine E. Chaisson, et al., “Keeping Children Out of Hospitals: Parents’ and Physicians’ Perspectives on How Pediatric Hospitalizations for Ambulatory Care-Sensitive Conditions Can Be Avoided,” Pediatrics 112 (November 2003): 1021–30; John F. Steiner, Patricia A. Braun, Paul Melinkovich, et al., “Primary-Care Visits and Hospitalizations for Ambulatory-Care-Sensitive Conditions in an Inner-City Health Care System,” Ambulatory Pediatrics 3 (November–December 2003): 324–28; Gregory Pappas, Wilbur C. Hadden, Lola Jean Kozak, et al., “Potentially Avoidable Hospitalizations: Inequalities in Rates Between U.S. Socioeconomic Groups,” American Journal of Public Health 87 (May 1997): 811–16; John Burr, Glenda Sherman, Donna Prentice, et al., “Ambulatory Care-Sensitive Conditions: Clinical Outcomes on ICU Resource Use,” Southern Medical Journal 96 (February 2003): 172–78. 9. Richard B. Siegrist and Nancy M. Kane, “Exploring the Relationship between Inpatient Hospital Costs and Quality of Care,” American Journal of Managed Care 9 (June 2003): SP43–49; Billings et al., “Recent Findings on Preventable Hospitalizations”; Leslie L. Roos, Randy Walld, Julia Uhanova, et al., “Physician Visits, Hospitalizations, and Socioeconomic Status: Ambulatory Care Sensitive Conditions in a Canadian Setting,” Health Services Research 40 (August 2005): 953–56. 10. Jonathan P. Weiner, Stephen T. Parente, Deborah W. Garnick, et al., “Variation in Office-Based Quality: A Claims-Based Profile of Care Provided to Medicare Patients with Diabetes,” Journal of the American Medical Association, May 17, 1995, pp. 1503–8; Louis H. Diamond, M.D., personal communication, November 2005. 11. Stephen F. Jencks, Edwin D. Huff, and Timothy Cuerdon, “Change in the Quality of Care Delivered to Medicare Beneficiaries, 1998–1999 to 2000–2001,” Journal of the American Medical Association, May 28, 2002, pp. 305–12. 12. David J. Hyman and Valory N. Pavlik, “Characteristics of Patients with Uncontrolled Hypertension in the United States,” New England Journal of Medicine, August 16, 2001, pp. 479–86. 13. Elizabeth A. McGlynn, Steven M. Asch, John Adams, et al., “The Quality of Health Care Delivered to Adults in the United States,” New England Journal of Medicine, June 26, 2003, pp. 2635–45.

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14. Rand Corporation, “The First National Report Card on Quality of Health Care in America” (2004), http://www.rand.org/pubs/research_briefs/RB9053–1/ RB9053–1.pdf. 15. Steven M. Asch, Eve A. Kerr, Joan Keesey, et al., “Who Is at Greatest Risk for Receiving Poor-Quality Health Care?” New England Journal of Medicine, March 16, 2006, pp. 1147–56. 16. Barbara Starfield, “Is U.S. Health Really the Best in the World?” Journal of the American Medical Association, July 26, 2000, pp. 483–85; Leiyu Shi, James Macinko, Barbara Starfield, et al., “Primary Care, Infant Mortality, and Low Birth Weight in the States of the USA,” Journal of Epidemiology and Community Health 58 (2003): 374–80; Leiyu Shi, Barbara Starfield, Bryan Kennedy, et al., “Income Inequality, Primary Care, and Health Indicators,” Journal of Family Practice (April 1999): 275–84; Leiyu Shi and Barbara Starfield, “The Effect of Primary Care Physician Supply and Income Inequality on Mortality among Blacks and Whites in U.S. Metropolitan Areas,” American Journal of Public Health 91 (August 2001): 1246–50. 17. Ellen Nolte and Martin McKee, “Measuring the Health of Nations: Analysis of Mortality Amenable to Health Care,” British Medical Journal, November 15, 2003, p. 1129; James Macinko, Barbara Starfield, and Leiyu Shi, “The Contribution of Primary Care Systems to Health Outcomes within OECD Countries, 1970–1998,” Health Services Research 38 ( June 2003); Ellen Nolte and C. Martin McKee, “Measuring the Health of Nations: Updating an Earlier Analysis,” Health Affairs 27 ( January–February 2008): 58–71. 18. Barbara Starfield, Leiyu Shi, Atul Grover, et al., “The Effects of Specialist Supply on Population’s Health: Assessing the Evidence,” Health Affairs Web Exclusive, March 15, 2005, http://content.healthaffairs.org/cgi/reprint/hlthaff. w5.97v1; Barbara Starfield, Leiyu Shi, James Macinko, “Contribution of Primary Care to Health Systems and Health,” Milbank Quarterly 83, no. 3 (2005): 457–502. 19. Stephen Jencks, Edwin Huff, and Timothy Cuerdon, “Change in the Quality of Care Delivered to Medicare Beneficiaries: 1998–1999 to 2000–2001,” Journal of the American Medical Association, January 15, 2003, pp. 305–12. 20. Katherine Baiker and Amitabh Chandra, “Medicare Spending, the Physician Workforce, and Beneficiaries’ Quality of Care,” Health Affairs Web Exclusive, April 7, 2004, http://content.healthaffairs.org/cgi/reprint/hlthaff.w4.184v1. 21. Mark W. Stanton, “The High Concentration of U.S. Health Care Expenditures” (Rockville, Md.: Agency for Health Care Research and Quality, June 2006). 22. Dorothy P. Rice and Norman Fineman, “Economic Implications of Increased Longevity in the United States,” Annual Review of Public Health 25 (2004): 457–53; Andrew J. Rettenmaier and Zijun Wang, “Explaining the Growth of Medicare: Part II” (Washington, D.C.: National Center for Policy Analysis, August 6, 2002); Christine Hoffman, Dorothy Rice, and Hai-Yen Sung, “Persons

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with Chronic Conditions: Their Prevalence and Costs,” Journal of the American Medical Association, November 13, 1997, pp. 1473–79. 23. Jennifer L. Wolff, Barbara Starfield, and Gerald Anderson, “Prevalence, Expenditures, and Complications of Multiple Chronic Conditions in the Elderly,” Archives of Internal Medicine, November 11, 2002, pp. 2269–76; Congressional Budget Office, “High-Cost Medicare Beneficiaries” (Washington, D.C., May 2005). CHAPTER 9

DANGEROUS HOSPITALS

1. Linda T. Kohn, Janet M. Corrigan, and Molla S. Donaldson, eds., To Err Is Human: Building a Safer Health System (Washington, D.C.: National Academies Press, 2000). 2. Troyen A. Brennan, Lucian L. Leape, Nan M. Laird, et al., “Incidence of Adverse Events and Negligence in Hospitalized Patients: Results of the Harvard Medical Practice Study I, 1991,” Quality and Safety in Health Care 13 (April 2004): 145–51; Atul A. Gawande, Eric J. Thomas, Michael J. Zinner, et al., “The Incidence and Nature of Surgical Adverse Events in Colorado and Utah in 1992,” Surgery 126 (July 1999): 66–75. 3. Rodney A. Hayward and Timothy P. Hofer, “Estimating Hospital Deaths Due to Medical Errors: Preventability Is in the Eye of the Reviewer,” Journal of the American Medical Association, December 12, 2001, pp. 2813–14. 4. Starfield, “Is U.S. Health Really the Best in the World?” 5. Jonathan Mummolo and Del Quentin Wilber, “Now Arriving at Carousel 1, Far Fewer of Your Bags” (October 1, 2007), http://www.washingtonpost.com/ wp-dyn/content/article/2007/09/30/AR2007093001653_pf.html; Institute of Medicine, “Preventing Medication Errors” (July 2006), http://www.iom.edu/ Object.File/Master/35/943/medication%20errors%20new.pdf. 6. Linda H. Aiken, Sean P. Clarke, Robin B. Cheung, et al., “Educational Levels of Hospital Nurses and Surgical Patient Mortality,” Journal of the American Medical Association, September 24, 2003, pp. 1617–23; Jack Needleman, Peter Buerhaus, Soeren Mattke, et al., “Nurse-Staffing Levels and the Quality of Care in Hospitals,” New England Journal of Medicine, May 30, 2002, pp. 1715–22. 7. James H. Thrall, “Quality and Safety Revolution in Health Care,” Radiology 233 (October 2004): 4. 8. Health Grades, “The Eighth Annual Health Grades Hospital Quality in America Study” (October 2005), http://www.healthgrades.com/media/dms/pdf/HospQualityinAmericaStudy2006Oct17.pdf. 9. American Academy of Orthopaedic Surgeons, “Report of the Task Force on Wrong-Site Surgery” (Memphis, Tenn., February 1998). 10. Thomas H. Gallagher and Wendy Levinson, “Disclosing Harmful Medical Errors to Patients: A Time for Professional Action,” Archives of Internal Medicine,

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September 12, 2005, pp. 1819–24; A. Russe ll Localio, Ann G. Lawthers, Troyen A. Brennan, et al., “Relation between Malpractice Claims and Adverse Events Due to Negligence: Results of the Harvard Medical Practice Study III,” New England Journal of Medicine, July 25, 1991, pp. 245–51; Troyen A. Brennan and Michelle M. Mello, “Patient Safety and Medical Malpractice: A Case Study,” Annals of Internal Medicine, August 19, 2003, pp. 267–73; David M. Studdert, Michelle M. Mello, Atul A. Gawande, et al., “Claims, Errors, and Compensation Payments in Medical Malpractice Litigation,” New England Journal of Medicine, May 11, 2006, pp. 2024–33. 11. Stacy Lawrence, “Survey: Hospital CIOs Want Electronic Medical Records,” EWeek Enterprise News and Reviews (February 16, 2006), http://www.eweek. com/article2/0%2C1895%2C1927818%2C00.asp. 12. David W. Bates, David J. Cullen, Nan Laird, et al., “Incidence of Adverse Drug Events,” Journal of the American Medical Association, July 5,1995, pp. 29–34; Lucien L. Leape, Troyen A. Brennan, Nan Laird, et al., “The Nature of Adverse Event in Hospitalized Patients,” New England Journal of Medicine, February 7, 1991, pp. 377–84; Institute of Medicine, “Preventing Medication Errors” (July 2006), http://www.iom.edu/Object.File/Master/35/943/medication%20errors% 20new.pdf. 13. David W. Bates, Lucien L. Leape, David J. Cullen, et al., “Effect of Computerized Physician Order Entry and a Team Intervention on Prevention of Serious Medication Errors,” Journal of the American Medical Association, October 21, 1998, pp. 1311–16. 14. Connie L. Johnson, Russell A. Carlson, Chris L. Tucker, et al., “Using BCMA Software to Improve Patient Safety in Veterans Administration Medical Centers,” Journal of Healthcare Information Management 16 (winter 2002): 46–51; Max M. Cohen, N. L. Kimmel, M. K. Benage, et al., “Medication Safety Program Reduces Adverse Drug Event in a Community Hospital,” Quality and Safety in Health Care, June 14, 2005, pp. 169–74. 15. David M. Cutler, Naomi E. Feldman, and Jill R. Horwitz, “Adoption of Computerized Physician Order Entry Systems,” Health Affairs 24 (November–December 2005): 1663–64; Kateryna Fonkych and Roger Taylor, “The State and Pattern of Health

Information

Technology

Adoption”

(September

2005),

http://www.rand.org/pubs/monographs/2005/RAND_MG409.pdf; Ashish K. Jha, Timothy G. Ferris, Karen Donelan, et al., “How Common Are Electronic Health Records in the United States? A Summary of the Evidence,” Health Affairs Web Exclusive, October 11, 2006, http://content.healthaffairs.org/ cgi/reprint/25/6/w496. CHAPTER 10

VIOLATION OF DIGNITY: THE END OF LIFE

1. Christopher Hogan, June Lunney, Jon Gabel, et al., “Medicare Beneficiaries’ Costs of Care in the Last Year of Life,” Health Affairs 20 (July–August 2001): 188–95.

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2. Matthew R. Williams, Rachel B. Wellner, Elizabeth A. Hartnett, et al., “LongTerm Survival and Quality of Life in Cardiac Surgical Patients with Prolonged Intensive Care Unit Length of Stay,” Annals of Thoracic Surgery 73 (May 2002): 1472–78. 3. Thomas J. Prendergast and John M. Luce, “Increasing Incidence of Withholding and Withdrawal of Life Support from the Critically Ill,” American Journal of Respiratory and Critical Care Medicine 155 (January 1997): 15–20. 4. Linda L. Emanuel, Michael J. Barry, John D. Stoeckle, et al., “Advance Directives for Medical Care—A Case for Greater Use,” New England Journal of Medicine, March 28, 1991, pp. 889–95. 5. Thomas J. Mattimore, Neil S. Wenger, Norman A. Desbiens, et al., “Surrogate and Physician Understanding of Patients’ Preferences for Living Permanently in a Nursing Home,” Journal of the American Geriatric Society 45 (July 1997): 818–24; Neil S. Wenger, Russell S. Phillips, Joan M. Teno, et al., “Physician Understanding of Patient Resuscitation Preferences: Insights and Clinical Implications,” Journal of the American Geriatric Society 48, no. 5, supp. (2000): S44–51. 6. Susan W. Tolle, Virginia P. Tilden, Anne G. Rosenfeld, et al., “Family Reports on Barriers to Optimal Care of the Dying,” Nursing Research 49 (November–December 2000): 310–17; Laura C. Hanson and Eric Rodgman, “The Use of Living Wills at the End of Life: A National Study,” Archives of Internal Medicine, May 13, 1996, pp. 1018–22; Rolfe Sean Morrison, Ellen Olson, K. R. Mertz, et al., “The Inaccessibility of Advanced Directives on Transfer from Ambulatory to Acute Care Settings,” Journal of the American Medical Association, August 9, 1995, pp. 478–82. 7. Joan M. Teno, Elliott S. Fisher, Mary Beth Hamel, et al., “Medical Care Inconsistent with Patients’ Treatment Goals: Association with 1-Year Medicare Resource Use and Survival,” Journal of the American Geriatric Society 50 (March 2002): 496–500; Jean-Louis Vincent, Jacques Berre, and Jacques Creteur, “Withholding and Withdrawing Life Prolonging Treatment in the Intensive Care Unit: A Current European Perspective,” Chronic Respiratory Disease 1, no. 2 (2004): 115–20. 8. Alfred Maksoud, D. W. Jahnigen, and C. I. Sibinski, “Do Not Resuscitate Orders and the Cost of Death,” Archives of Internal Medicine, May 24, 1993, pp. 1240–53; Lawrence J. Schneiderman, Richard Kronick, Robert M. Kaplan, et al., “Effects of Offering Advance Directives on Medical Treatments and Costs,” Annals of Internal Medicine, October 1, 1992, pp. 599–606. 9. SUPPORT Principal Investigators, “A Controlled Trial to Improve Care for Seriously Ill Hospitalized Patients: The Study to Understand Prognoses and Preferences for Outcomes and Risks of Treatments (SUPPORT),” Journal of the American Medical Association, November 22, 1995, pp. 1591–98. 10. Ibid.; Robert S. Pritchard, Elliott S. Fisher, Joan M. Teno, et al., “Influence of Patient Preferences and Local Health System Characteristics on the Place of

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Death: SUPPORT Investigators’ Study to Understand Prognoses and Preferences for Risks and Outcomes of Treatment,” Journal of the American Geriatric Society 46 (October 1998): 1242–50. 11. Pritchard et al., “Influence of Patient Preferences and Local Health System Characteristics on the Place of Death”; Thomas J. Prendergast, Michael T. Claessens, and John M. Luce, “A National Survey of End of Life Care for Critically Ill Patients,” American Journal of Respiratory and Critical Care Medicine 158 (October 1998): 1163–67; John E. Wennberg, Elliott S. Fisher, Thérèse A. Stukel, et al., “Use of Hospitals, Physician Visits, and Hospice Care during Last Six Months of Life among Cohorts Loyal to Highly Respected Hospitals in the United States,” British Medical Journal, March 13, 2004, p. 607. CHAPTER 11

UNNECESSARY SURGERY

1. Advisory Board Company, “Best of OI: Neuroscience Centers, New Opportunities for Growth” (Washington, D.C., May 6, 2004). 2. Steven R. Garfin and Hansen A. Yuan, “Food and Drug Administration Regulation of Spinal Implant Fixation Devices,” Clinical Orthopaedics and Related Research 335 (February 1997): 32–38. 3. “Orthopedic Devices: Classification and Reclassification of Pedicle Screw Spinal Systems,” Federal Register, July 27, 1998, 21CFR, part 888; Richard A. Deyo, “Back Surgery—Who Needs It?” New England Journal of Medicine, May 31, 2007, pp. 2239–43. 4. James N. Weinstein, Kristen K. Bronner, Tamara Shawver Morgan, et al., “Trends and Geographic Variations in Major Surgery for Degenerative Diseases of the Hip, Knee, and Spine,” Health Affairs Web Exclusive, October 7, 2004, http:// content.healthaffairs.org/cgi/reprint/hlthaff.var.81v1; Dartmouth Atlas of Health Care, http://cecsweb.dartmouth.edu/atlas08/datatools/datatb_s1.php. 5. Christopher M. Bono and Casey K. Lee, “Critical Analysis of Trends in Fusion for Degenerative Disc Disease over the Past 20 Years: Influence of Technique on Fusion Rate and Clinical Outcome,” Spine, February 15, 2004, pp. 455–63; J. N. Alastair Gibson and Gordon Waddell, “Surgery for Degenerative Lumbar Spondylosis,” Cochrane Database of Systematic Reviews 19 (October 2005): CD001352; Jens Ivar Brox, Roger Sorensen, Astrid Friis, et al., “Randomized Clinical Trial of Lumbar Instrumented Fusion and Cognitive Intervention and Exercises in Patients with Chronic Low Back Pain and Disc Degeneration,” Spine, September 1, 2003, pp. 1913–21; Peter Fritzell, Olle Hagg, Dick Jonsson, et al., “Cost-Effectiveness of Lumbar Fusion and Nonsurgical Treatment for Chronic Low Back Pain in the Swedish Lumbar Spine Study: A Multicenter, Randomized, Controlled Trial from the Swedish Lumbar Spine Study Group,” Spine, February 15, 2004, pp. 421–34. 6. James N. Weinstein, Jon D. Lurie, Tor D. Tosteson, et al., “Surgical Versus Nonsurgical Treatment for Lumbar Degenerative Spondylolisthesis,” New England Journal of Medicine, May 31, 2007, pp. 2257–70.

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7. Deyo, “Back Surgery—Who Needs It?”; James N. Weinstein, Tor D. Tosteson, Jon D. Lurie, et al. “Surgical versus Nonsurgical Therapy for Lumbar Spinal Stenosis,” New England Journal of Medicine, February 21, 2008; American Medical Association, International Classification of Diseases, 9th rev., vols. 1, 2, and 3 (Chicago: AMA Press, 2005, procedure codes for discectomy and decompression: 03.01, 03.02, 03.09, 80.50, 80.51, 80.52, 80.59; for cervical and lumbar fusion: 81.04, 81.05, 81.06, 81.07, 81.08, 81.61, 81.62, 81.63, 81.64, 84.51,81.30, 81.30, 81.34, 81.35, 81.36, 81.37, 81.38. 8. Devon I. Rubin, “Epidemiology and Risk Factors for Spine Pain,” Neurologic Clinics 25 (May 2007): 353–71; Scott D. Boden, P. R. McCowin, David O. Davis, et al., “Abnormal Magnetic-Resonance Scans of the Cervical Spine in Asymptomatic Subjects,” Journal of Bone and Joint Surgery American 72 (August 1991): 1178–84; Maureen C. Jensen, Michael Brant-Zawadski, Nancy Obuchowski, et al., “Magnetic Resonance Imaging of the Lumbar Spine in People without Back Pain,” New England Journal of Medicine, July 14, 1994, pp. 69–73; Steffen Jacobsen, Stig Sonne-Holm, Hans Rovsing, et al., “Degenerative Lumbar Spondylolisthesis, an Epidemiological Perspective: The Copenhagen Oseteoarthritis Study,” Spine, January 1, 2007, pp. 120–25. 9. Robin Young, “When Is the Spine Bubble Going to Burst?” address presented at the InSpine Conference, Dallas, November 2004, http://www.healthpointcapital. com/research/2004/11/22/when_is_the_spine_bubble_going_to_burst/. 10. Agency for Healthcare Research and Quality, “Hospital Cost and Utilization Project, 2003,” nationwide inpatient sample compiled by the author, 2007. 11. “Coronary Revascularization: Coronary Artery Bypass Grafting and Percutaneous Coronary Interventions” (2005), http://www.dartmouthatlas.org/ atlases/Cardiac_report_2005.pdf. 12. Mark A. Hlatky, William J. Rogers, Iain Johnstone, et al., “Medical Care Costs and Quality of Life after Randomization to Coronary Angioplasty or Coronary Bypass Surgery: Bypass Angioplasty Revascularization Investigation (BARI) Investigators,” New England Journal of Medicine, January 9, 1997, pp. 92–99. 13. David T. Nash, “The Case for Medical Treatment in Chronic Stable Coronary Artery Disease,” Archives of Internal Medicine, December 12, 2005, pp. 2587–89. 14. Jonathan Skinner, Douglas Staiger, and Elliott Fisher, “Is Technological Change in Medicine Always Worth It? The Case of Acute Myocardial Infarction,” Health Affairs Web Exclusive 25 (2006), http://content.healthaffairs.org/cgi/reprint/ 25/2/w34. 15. American Medical Association, International Classification of Diseases, procedure codes: 00.66, 36.01, 36.02, 36.03, 36.04, 36.05, 36.06, 36.07, and 36.09; diagnostic codes MI-410, MI-411; diagnostic codes for stable angina: 413, 412, and 414. 16. William E. Boden, Robert A. O’Rourke, and Koon K. Teo, “Optimal Medical Therapy with or without PCI for Stable Coronary Disease,” New England Journal of Medicine, April 12, 2007, pp. 1503–16.

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17. Rob Stein, “Heart Attack Study Casts Doubt on Routine Use of Angioplasty,” Washington Post, March 27, 2007, http://www.washingtonpost.com/wpdyn/ content/article/2007/03/26/AR2007032600700_pf.html. 18. Kim A. Eagle, Robert A. Guyton, Ravid Davidoff, et al., “ACC/AHA 2004 Guideline Update for Coronary Artery Bypass Graft Surgery,” Circulation 110 (2004): E340–E437; Sidney C. Smith, Jr., Ted E. Feldman, John W. Hirshfeld, et al., “ACC/AHA/SCAI 2005 Guideline Update for Percutaneous Coronary Intervention,” Circulation 113 (2006): E166–E286. CHAPTER 12

PERVERSE PAYMENT INCENTIVES

1. Peter P. Budetti, “10 Years beyond the Health Security Act Failure: Subsequent Developments and Persistent Problems,” Journal of the American Medical Association, October 27, 2004, pp. 2000–2006. 2. Centers for Medicare and Medicaid Services, “Memorandum: Physician Volume and Intensity Response” (August 13, 1998), http://www.cms.hhs.gov/ActuarialStudies/downloads/PhysicianResponse.pdf. 3. Stephen Zuckerman, Steven A. Norton, and Diana Verilli, “Price Controls and Medicare Spending: Assessing the Volume Offset Assumption,” Medical Care Research and Review 55 (December 1998): 457–78. 4. Author analysis of Medical Group Management Association physician income data, 1990–2005. 5. Ha T. Tu and Paul B. Ginsburg, “Losing Ground: Physician Income, 1995–2003” (Washington, D.C.: Center for Studying Health System Change, June 2006). 6. Bruce E. Landon, James Reschovsky, and David Blumenthal, “Changes in Career Satisfaction among Primary Care and Specialist Physicians, 1997–2001,” Journal of the American Medical Association, January 22, 2003, pp. 442–49. 7. Ann S. O’Malley, Debra A. Draper, and Laurie E. Felland, “Hospital Emergency On-Call Coverage: Is There a Doctor in the House?” (Washington, D.C.: Center for Studying Health System Change, November 2007). 8. John K. Inglehart, “The Emergence of Physician-Owned Specialty Hospitals,” New England Journal of Medicine, January 6, 2005, pp. 78–84. 9. Brahmajee K. Nallamothu, Mary A. M. Rogers, Michael E. Chernew, et al., “Opening of Specialty Cardiac Hospitals and Use of Coronary Revascularization in Medicare Beneficiaries,” Journal of the American Medical Association, March 7, 2007, pp. 962–68. 10. Medicare Payment Advisory Commission, “Report to Congress: Ambulatory Surgical Center Services” (Washington, D.C.: March 2004), sec. 3F; Keith Hearle, Lane Loinig, Allen Dobson, et al., “Study of Healthcare Outpatient Cost Drivers” (October 16, 2002), http://www.bcbs.com/coststudies/reports/6_Outpatient_Report.pdf. 11. William J. Lynk and Carina S. Lonley, “The Effect of Physician-Owned Surgicenters on Hospital Outpatient Surgery,” Health Affairs 21 (July–August

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2002): 215–21; Medicare Payment Advisory Committee, “A Data Book: Healthcare Spending and the Medicare Program” (Washington, D.C., June 2007). 12. Ezekiel Emanuel, “Medicare Drug Reimbursements: A Broken System for Patients and Taxpayers,” testimony before the U.S. House of Representatives, Committee on Energy and Commerce, September 21, 2001, http://energycommerce.house.gov/107/action/107-65.pdf. 13. Alex Berenson and Andrew Pollack, “Doctors Reaping Millions for Use of Anemia Drugs,” New York Times, May 9, 2007, http://www.nytimes.com/2007/05/ 09/business/09anemia.html. 14. Marc A. Rodwin, Hak J. Chang, and Jeffrey Clausen, “Malpractice Premiums and Physicians Income: Perceptions of a Crisis Conflict with Empirical Evidence,” Health Affairs 25 (May–June 2006): 750–58. 15. Congressional Budget Office, “The Effects of Tort Reform: Evidence from the States” (Washington, D.C., June 2004); John Donnelly, “Malpractice Curbs Hailed, Faulted: Texas Law Draws Doctors, Frustrates Some Claimants,” Boston Globe, November 26, 2007, http://www.boston.com/news/nation/articles/ 2007/11/26/malpractice_curbs_hailed_faulted/?page=2. 16. Pricewaterhouse Coopers, “The Factors Fueling Rising Health Care Costs” (Washington, D.C.: American Association of Health Plans, April 2002); Medicare Payment Advisory Commission, “Healthcare Spending and the Medicare Program,” in MedPac Data Book (Washington, D.C., June 2006), sec. 8. 17. David M. Studdert, Michelle M. Mello, William M. Sage, et al., “Defensive Medicine among High-Risk Specialist Physicians in a Volatile Malpractice Environment,” Journal of the American Medical Association, June 1, 2005, pp. 2609–17. 18. “Most Doctors Report Fear of Malpractice Liability Has Harmed Their Ability to Provide Quality Care,” Harris Interactive Health Care News, May 16, 2002, http://harrisdealerpoll.com/news/newsletters/healthnews/HI_HealthCareNews2002Vol2_Iss10.pdf. 19. Fred J. Hellinger and William E. Encinosa, “The Impact of State Laws Limiting Malpractice Damage Awards on Health Care Expenditures,” American Journal of Public Health 96 (August 2006); Daniel P. Kessler and Mark McClellan, “Do Doctors Practice Defensive Medicine?” (Cambridge, Mass.: National Bureau of Economic Research, February 1996); Gerard F. Anderson, Peter S. Hussey, Bianca K. Frogner, et al., “Health Spending in the United States and the Rest of the Industrialized World,” Health Affairs 24 (July–August 2005): 903–14. CHAPTER 13

THREE PATHWAYS TO HOSPITAL PROFITABILITY

1. Natasha Mihal and Renee Moilanen, “When Emergency Rooms Close: Ambulance Diversion in the West San Fernando Valley” (Los Angeles: University of California, Lewis Center for Regional Policy Studies, 2005). 2. Gerald F. Anderson, “From ‘Soak the Rich’ to ‘Soak the Poor’: Recent Trends in Hospital Pricing,” Health Affairs 26 (May/–June 2007): 780–89; author’s analysis of key ratios and net margins on http://morningstar.com, 2007.

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3. Eileen Salinsky, “What Have You Done for Me Lately? Assessing Hospital Community Benefit” (April 19, 2007), http://www.nhpf.org/pdfs_ib/IB821_HospitalCommBenefit_04-19-07.pdf. 4. David M. Walker, “Nonprofit, For-Profit, and Government Hospitals: Uncompensated Care and Other Community Benefits,” testimony before the U.S. House of Representatives, Committee on Ways and Means, May 26, 2005. 5. Ginsburg, “Competition in Health Care.” 6. Jean M. Abraham, Martin S. Gaynor, and William B. Vogt, “Entry and Competition in Local Hospital Markets” (Cambridge, Mass.: National Bureau of Economic Research, September 2005). 7. Claudia H. Williams, William B. Vogt, and Robert Town, “How Has Hospital Consolidation Affected the Price and Quality of Hospital Care?” (February 2006), http://www.rwjf.org/publications/synthesis/reports_and_briefs/pdf/ no9_policybrief.pdf. 8. Walker, “Nonprofit, For-Profit, and Government Hospitals.” 9. Anthony J. Culyer and Joseph P. Newhouse, eds., Handbook of Health Economics (Amsterdam: Elsevier/North-Holland, 2001), 1:1422 10. Robert F. Leibenluft, “Antitrust Enforcement and Hospital Mergers: A Closer Look” (Washington, D.C.: Federal Trade Commission, July 5, 1998). 11. Michael E. Porter and Elizabeth Olmsted Teisberg, Redefining Health Care: Creating Value-Based Competition on Results (Boston: Harvard Business School Press, 2006); Hal J. Singer, “The Budgetary Impact of Eliminating the GPOs’ Safe Harbor Exemption from the Anti-Kickback Statue of the Social Security Act” (Washington, D.C.: Criterion Economics, June 2006). 12. James D. Bentley, senior vice president for strategic policy planning, American Hospital Association, personal communication, 2006; American Hospital Association, “Trends in Hospital Financing” (April 2007), http://www. aha.org/aha/research-and-trends/trendwatch/2007chartbook.html. 13. Dennis P. Andrulis and Lisa M. Duchon, “Hospital Care in the 100 Largest Cities and Their Suburbs, 1996–2002: Implications for the Future of the Hospital Safety Net in Metropolitan America” (Brooklyn, N.Y.: SUNY Downstate Medical Center, August 2005); Joel S. Weissman, Darrell J. Gaskin, and J. Reuter, “Hospitals’ Care of Uninsured Patients during the 1990s: The Relation of Teaching Status and Managed Care to Changes in Market Share and Market Concentration,” Inquiry 40 (spring 2003): 84–93; Walker, “Nonprofit, For-Profit, and Government Hospitals.” 14. Stephen Zuckerman, Gloria Bazzoli, Amy Davidoff, et al., “How Did Safety-Net Hospitals Cope in the 1990s?” Health Affairs 20 (July–August 2001): 159–68. 15. Linda E. Fishman, “What Types of Hospitals Form the Safety Net?” Health Affairs 16 (July–August 1997): 215–22.

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16. Reed Abelson and Jonathan D. Glater, “Suits Challenge Hospital Bills of Uninsured,” New York Times, June 17, 2004, http://query.nytimes.com/gst/fullpage.html?res=9405E0DE1639F934A25755C0A9629C8B63&sec=&spon=&pag ewanted=2; Anderson, “From ‘Soak the Rich’ to ‘Soak the Poor.’ ” 17. Health Care Advisory Board, “A Delicate Balance: Managing the Inpatient Enterprise for Profitable Growth” (Washington, D.C., 2001). 18. “Healthcare Cost and Utilization Project,” data compiled by the author, 2006. 19. Health Care Advisory Board, “A Delicate Balance.” 20. Lewin Group, “A Study of Hospital Charge Setting Practices” (Falls Church, Va., December 2005); Institute for Health and Socioeconomic Policy, “The Third Annual IHSP Hospital 200: The Nation’s Most and Least Expensive Hospitals, Fiscal Year 2003/2004” (Orinda, Calif., December 13, 2005). 21. Institute for Health and Socioeconomic Policy, “The Third Annual IHSP Hospital 200.” 22. Uwe E. Reinhardt, “The Pricing of U.S. Hospital Services: Chaos behind a Veil of Secrecy,” Health Affairs 25 (January–February 2006): 57–69. 23. John E. Wennberg, Elliott S. Fisher, Laurence Baker, et al., “Evaluating the Efficiency of California Providers in Caring for Patients with Chronic Illnesses,” Health Affairs Web Exclusive, November 16, 2005, http://content.healthaffairs.org/cgi/reprint/hlthaff.w5.526v1.pdf. 24. Mireille M. Goetghebeur, Sharon Forrest, and Joel W. Hay, “Understanding the Underlying Drivers of Inpatient Cost Growth: A Literature Review,” American Journal of Managed Care, June 9, 2003, pp. SP3–12; Jack Needleman, Peter Buerhaus, Soeren Mattke, et al., “Nurse-Staffing Levels and the Quality of Care in Hospitals,” New England Journal of Medicine, May 30, 2002, pp. 1715–22; Sharon Forrest, Mireille Goetghebeur, and Joel Hay, “Forces Influencing Inpatient Hospital Costs in the United States” (Chicago: Blue Cross/Blue Shield Association, October 16, 2002). 25. American Association of Colleges of Nursing, “Press Release: With Enrollments Rising for the 5th Consecutive Year, U.S. Nursing Schools Turn Away More than 30,000 Qualified Applications in 2005” (Washington, D.C., December 12, 2005); American Federation of Teachers, “Press Release: Serious Nurse Faculty Shortage Exacerbating Nurse Shortage, AFT calls for Higher Salaries, More Funding for Nursing Programs” (Washington, D.C., December 21, 2005). 26. William J. Scanlon, “Nursing Workforce: Recruitment and Retention of Nurses and Nurse Aides is a Growing Concern,” testimony before the U.S. Senate, Committee on Health, Education, Labor, and Pensions, May 17, 2001; Pricewaterhouse Coopers, “Cost of Caring: Key Drivers of Growth in Spending on Hospital Care” (Washington, D.C.: American Hospital Association and Federation of American Hospitals, February 19, 2003). 27. Ann E. Tourangeau, Lisa A. Cranley, and Lianne Jeffs, “Impact of Nursing on Hospital Patient Mortality: A Focused Review and Related Policy Implications,”

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Quality and Safety in Health Care 15 (February 2006): 4–8; Linda H. Aiken, Sean P. Clarke, Douglas M. Sloane, et al., “Hospital Nurse Staffing and Patient Mortality, Nurse Burnout, and Job Dissatisfaction,” Journal of the American Medical Association, October 23, 2002, pp. 1987–93; Forrest et al., “Forces Influencing Inpatient Hospital Costs in the United States.”

CHAPTER 14

PHARMACEUTICALS: REMARKABLE INNOVATION, SHAMELESS PUFFERY

1. Centers for Disease Control, “Ten Great Public Health Achievements—United States, 1900–1999,” Morbidity and Mortality Weekly Report, April 2, 1999, pp. 241–43; John P. Bunker, Howard S. Frazier, and Frederick Mosteller, “Improving Health: Measuring Effects of Medical Care,” Milbank Quarterly 72, no. 2 (1994): 225–58; John P. Bunker, “The Role of Medical Care in Contributing to Health Improvements within Societies,” International Journal of Epidemiology 30 (December 2001): 1260–63; Victor R. Fuchs and Harold C. Sox, Jr., “Physicians’ Views of the Relative Importance of Thirty Medical Innovations,” Health Affairs 20 (September–October 2001): 30–42. 2. U.S. Census Bureau, “Facts for Features” (April 29, 2005), http://www.census.gov/Press-Release/www/releases/archives/cb05-ffse.02.pdf;

American

Medical Association, “Total Physicians by Race/Ethnicity—2005” (2007), http://www.ama-assn.org/ama/pub/category/12930.html; Ernst R. Berndt, “The U.S. Pharmaceutical Industry: Why Major Growth in Times of Cost Containment?” Health Affairs 20 (March–April 2001): 100–114. 3. Debabrata Mukherjee and Eric J. Topol, “Commentary, Cyclooxygenase-2: Where Are We in 2003? Cardiovascular Risk and COX-2 Inhibitors,” Arthritis Research and Therapy, 5, no. 1 (2003): 8–11; Centers for Medicare and Medicaid Services, “National Health Expenditures by Source of Funds and Type of Expenditure: Calendar Years 2000–2005,” http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf. 4. Barry Meier, “Medicine Fueled by Marketing Intensified Trouble for Pain Pills,” New York Times, December 19, 2004, http://www.nytimes.com/ 2004/12/19/business/19drug.html. 5. Drug prices obtained by the author from http://www.drugstore.com, 2005. 6. Robert A. Bell, Michael S. Wilkes, and Richard L. Kravitz, “The Educational Value of Consumer-Targeted Prescription Drug Print Advertising,” Journal of Family Practice 49 (December 2000): 1092–98. 7. Meredith B. Rosenthal, Ernst R. Berndt, Julie M. Donohue, et al., “Promotion of Prescription Drugs to Consumers,” New England Journal of Medicine, February 14, 2002, pp. 498–505; National Institute for Health Care Management, “Prescription Drugs and Mass Media Advertising, 2000” (November 2001), http://www.nihcm.org/~nihcmor/pdf/DTCbrief2001.pdf.

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8. U.S. Government Accountability Office, “Prescription Drugs: Improvements Needed in FDA’s Oversight of Direct-to-Consumer Advertising” (Washington, D.C., November 2006). 9. Meier, “Medicine Fueled by Marketing Intensified Trouble for Pain Pills”; National Institute for Health Care Management, “Prescription Drugs and Mass Media Advertising, 2000”; Merrill Goozner, The $800 Million Pill: The Truth behind the Cost of New Drugs, (Berkeley: University of California Press, 2004), 226. 10. Mark Helfand and Kim Peterson, “Drug Class Review on Cyclo-oxygenase (COX)-2 Inhibitors and Non-steroidal Anti-inflammatory Drugs (NSAIDS),” (Portland: Oregon Health and Science University, Evidence-Based Practice Centers, May 2004); Meier, “Medicine Fueled by Marketing Intensified Trouble for Pain Pills.” 11. Barbara Mintzes, Morris L. Barer, Richard L. Kravitz, et al., “Influence of Direct to Consumer Pharmaceutical Advertising and Patients’ Requests on Prescribing Decisions: Two Site Cross Sectional Survey,” British Medical Journal, February 2, 2002, pp. 278–79. 12. Kaiser Family Foundation and the Health Research and Educational Trust, “Prescription Drug Benefits: Employer Health Benefits, 2007 Annual Survey” (Menlo Park, Calif., 2007); Jalpa A. Doshi, Nicole Brandt, and Bruce Stuart, “The Impact of Drug Coverage on COX-2 Inhibitor Use in Medicare,” Health Affairs Web Exclusive, February 18, 2004, http://content.healthaffairs.org/cgi/ reprint/hlthaff.w4.94v1.pdf. 13. Sandra Kweder, statement from the U.S. Food and Drug Administration’s Center for Drug Evaluation and Research before the U.S. Senate, Committee on Finance, November 18, 2004. 14. Claire Bombardier, Loren Lane, Alise Reicin, et al., “Comparison of Upper Gastrointestinal Toxicity of Rofecoxib and Naproxen in Patients with Rheumatoid Arthritis,” New England Journal of Medicine, November 23, 2000, pp. 1520–28. 15. Gregory D. Curfman, Stephen Morrissey, and Jeffrey M. Drazen, “Expression of Concern: Bombardier et al., ‘Comparison of Upper Gastrointestinal Toxicity of Rofecoxib and Naproxen in Patients with Rheumatoid Arthritis,’ N Engl J Med 2000;343:1520–8,” New England Journal of Medicine, December 29, 2005, pp. 2813–14. 16. Robert S. Bresalier, Robert S. Sandler, Hui Quan, et al., “Cardiovascular Events Associated with Rofecoxib in a Colorectal Adenoma Chemoprevention Trial,” New England Journal of Medicine, March 17, 2005, pp. 1092–1102; Gina Kolata, “Merck and Vioxx: The Overview; A Widely Used Arthritis Drug Is Withdrawn,” New York Times, October 1, 2004, http://www.nytimes.com/2004/10/01/business/01drug.html; Harlan M. Krumholz, Joseph S. Ross, Amos H. Presler, et al.,

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“What Have We Learnt from Vioxx?” British Medical Journal, January 20, 2007, pp. 120–23. 17. Patricia M. Danzon and Michael F. Furukawa, “International Prices and Availability of Pharmaceuticals in 2005,” Health Affairs 27 (January–February 2008): 221–23. 18. National Institute for Health Care Management Research and Educational Foundation, “Changing Patterns of Pharmaceutical Innovation” (May 2002), http://www.nihcm.org/~nihcmor/pdf/innovations.pdf. 19. Ibid. 20. Ibid. 21. Patricia M. Danzon and Michael F. Furukawa, “Prices and Availability of Pharmaceuticals: Evidence from Nine Countries,” Health Affairs Web Exclusive, October 29, 2003, http://content.healthaffairs.org/cfi/reprint/h/thaff.w. 3.52ivi.pdf. 22. C. Daniel Mullins, Andrea R. DeVries, Van Doren Hsu, et al., “Variability and Growth in Spending for Outpatient Specialty Pharmaceuticals,” Health Affairs 24 (July–August 2005): 1117–27. 23. Patricia M. Danzon, “Prices and Availability of Biopharmaceuticals: An International Comparison,” Health Affairs 25 (September–October 2006): 1353–62. 24. Steven G. Morgan, Morris L. Barer, and Jonathan D. Agnew, “Whither Seniors’ Pharmacare: Lessons from (and for) Canada,” Health Affairs 22 (May–June 2003): 49–59. 25. Danzon and Furukawa, “Prices and Availability of Pharmaceuticals: Evidence from Nine Countries.” 26. Congressional Budget Office, “Would Prescription Drug Importation Reduce U.S. Drug Spending?” (Washington, D.C., April 29, 2004). 27. Danzon and Furukawa, “Prices and Availability of Pharmaceuticals: Evidence from Nine Countries”; Jim Gilbert and Paul Rosenberg, “Addressing the Innovation Divide: Imbalanced Innovation,” presented at the 2004 annual meeting of governors of the World Economic Forum for Healthcare, Davos, Switzerland, January 22, 2004; Danzon and Furukawa, “International Prices and Availability of Pharmaceuticals in 2005.” 28. “Medicare Prescription Drug Benefit Cost Almost $13B Less in 2006 Than Expected, According to CMS,” Medical News Today, December 1, 2006, http:// www.medicalnewstoday.com/articles/57760.php; Aaron Catlin, Cathy Cowan, Micah Hartman, et al. “National Health Spending in 2006: A Year of Change for Prescription Drugs,” Health Affairs 27 (January/–February, 2008): 14–29. 29. Gilbert and Rosenberg, “Addressing the Innovation Divide.” 30. Families USA, “The Choice: Health Care for People or Drug Industry Profits” (Washington, D.C., 2005); Alan Sager and Deborah Socolar, “Drug Industry Marketing Staff Soars While Research Staffing Stagnates” (Boston: Boston University, School of Public Health, 2001).

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31. Richard T. Rapp and Adam Lloyd, “Civilized Pharmaceutical Price Regulations: Can the U.S. Have It Too?” Regulation 17 (spring 1994): 72–82. 32. Patricia McGettigan and David Henry, “Cardiovascular Risk and Inhibition of Cyclooxygenase,” Journal of the American Medical Association, October 4, 2006, pp. 1633–44; David J. Graham, “COX-2 Inhibitors, Other NSAIDs, and Cardiovascular Risk” (September 12, 2006), http://journal of the american medical association.ama-assn.org/cgi/reprint/296.13.jed60058v1. 33. Krumholz et al., “What Have We Learnt from Vioxx?” 34. Rosenthal et al., “Promotion of Prescription Drugs to Consumers.” CHAPTER 15

PRIVATE HEALTH INSURANCE: NO ADDED VALUE

1. Eric Dash and Milt Freudenheim, “ Chief Executive at Health Insurer Is Forced Out in Options Inquiry,” New York Times, October 16, 2006, http://www. nytimes.com/2006/10/16/business/16united.html. 2. James C. Robinson, “Consolidation and the Transformation of Competition in Health Insurance,” Health Affairs 23 (November–December 2004): 11–24. 3. James G. Kahn, Richard Kronick, Mary Kreger, et al., “The Cost of Health Insurance Administration in California: Estimates for Insurers, Physicians, and Hospitals,” Health Affairs 24 (November–December 2005): 1629–39. 4. Jeff Lemieux, “Perspective: Administrative Costs of Private Health Insurance Plans” (Washington, D.C.: Center for Policy and Research, 2005); Kahn et al., “The Cost of Health Insurance Administration in California.” 5. David U. Himmelstein, Steffie Woolhandler, and Sidney M. Wolfe, “Administrative Waste in the U.S. Health Care System in 2003,” International Journal of Health Services 34, no. 1 (2004): 79–86. 6. John Sheils, Randall Haught, and Evelyn Murphy, “Cost and Coverage Estimates for the ‘Healthy Americans Act’ ” (Falls Church, Va.: Lewin Group, December 12, 2006). 7. Steffie Woolhandler, Terry Campbell, and David U. Himmelstein, “Cost of Health Care Administration in the United States and Canada,” New England Journal of Medicine, August 21, 2003, pp. 768–75. 8. Kahn et al., “The Cost of Health Insurance Administration in California.” 9. Center for Policy and Research, “January 2007 Census Shows 4.5 Million People Covered by HSA/High-Deductible Health Plans” (April 2007), http://www.ahipresearch.org/PDFs/FINAL%20AHIP_HSAReport.pdf; U.S. Census Bureau, “Health Insurance Coverage: 2006,” August 28, 2007, http://www. census.gov/hhes/www/hlthins/hlthin06/hlth06asc.html. 10. Melinda Beeuwkes Buntin, Cheryl Damberg, Amelia Haviland, et al., “Consumer-Directed Health Care: Early Evidence about Effects on Cost and Quality,” Health Affairs Web Exclusive, October 24, 2006, http://content.healthaffairs. org/cgi/reprint/25/6/w516.

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11. J. Frank Wharam, Bruce E. Landon, Alison A. Galbraith, et al., “Emergency Department Use and Subsequent Hospitalizations among Members of a HighDeductible Health Plan,” Journal of the American Medical Association, March 14, 2007, pp. 1093–1102; Elizabeth Docteur, Hannes Suppanz, and Jaejoon Woo, “The U.S. Health System: An Assessment and Prospective Directions for Reform” (Paris: Organisation for Economic Cooperation and Development, February 27, 2003); Partnership to Fight Chronic Disease, “The Chronic Disease Crisis” (2007), http://www.fightchronicdisease.org/crisis/index.cfm. 12. Joseph P. Newhouse and the Insurance Experiment Group, Free for All? Lessons from

the

RAND

Health

Insurance

Experiment

(Cambridge,

Mass.:

Harvard University Press, 1994). 13. Jonathan Gruber, “The Role of Consumer Co-payments for Health Care: Lessons from the RAND Health Insurance Experiment and Beyond” (Menlo Park, Calif.: Kaiser Family Foundation and the Health Research and Education Trust, October 2006); John Hsu, Mary Price, Jie Huang, et al., “Unintended Consequences of Caps on Medicare Drug Benefits,” New England Journal of Medicine, June 1, 2006, pp. 3249–59. 14. Centers for Medicare and Medicaid Services, “Personal Health Care Expenditures Aggregate, Per Capita Amounts, and Percent Distribution, by Source of Funds: Selected Calendar Years, 1970–2005,” http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf. CHAPTER 16

THREE OPTIONS FOR COVERING THE UNINSURED

1. California Healthcare Foundation, “Massachusetts Style Coverage Expansion: What Would It Cost in California?” (April 2006), http://www.ihps.org/pubs/ 2006_Apr_CHCF_MA_Style_Brief_Final.pdf. 2. Kaiser Family Foundation, “Health Insurance Coverage of Nonelderly 0–64, States (2005–2006), U.S. (2006),” “Distribution of the Nonelderly Uninsured by Federal Poverty Level (FPL), States (2005–2006), U.S. (2006),” and “Employer-Sponsored Coverage Rates for the Nonelderly by Family Work Status, States (2005–2006), U.S. (2006),” all at http://statehealthfacts.org/; Aurelio Rojas, “Health Plan Defeated,” Sacramento Bee, January 29, 2008, p. A1. 3. Kaiser Family Foundation, “Health Insurance Coverage of the Total Population, States (2004–2005), U.S. (2005),” http://statehealthfacts.org. 4. Melissa Thomasson, “Health Insurance in the United States” (April 18, 2003), http://www.eh.net/encyclopedia/article/thomasson.insurance.health.us. 5. John Sheils and Randall Haught, “The Cost of Tax-Exempt Health Benefits in 2004,” Health Affairs Web Exclusive, February 25, 2004, http://content. healthaffairs.org/cgi/reprint/hlthaff.w4.106v1.pdf. 6. Ibid. 7. George Will, “What Ails GM,” Washington Post, May 1, 2005, http://washingtonpost.com.

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8. Jeffrey McCracken, “A Middle Class Made by Detroit Is Now Threatened by Its Slump,” Wall Street Journal, November 14, 2005, p. A1. 9. Sholnn Freeman and Frank Ahrens, “GM, Union Agree on Contract to End Strike,” Washington Post, September 27, 2007, p. A1. 10. David Blumenthal, “Employer-Sponsored Insurance—Riding the Health Care Tiger,” New England Journal of Medicine, July 13, 2006, p. 195; James Kalamas, Gene Kuo, and Drew Ungerman, “Designing Better Employee Benefits,” McKinsey Quarterly (June 2005), http://www.mckinseyquarterly.com/Health_ Care/Designing_better_employee_benefits_1624_abstract. 11. “An Executive Perspective on Employee Benefits: A McKinsey Survey,” McKinsey Quarterly (June 2006), http://www.mckinseyquarterly.com/Health_ Care/Strategy_Analysis/An_executive_perspective_on_employee_benefits_A_ McKinsey_Survey_1776_abstract; Heidi Whitmore, Sara R. Collins, Jon Gabel, et al., “Employers’ Views on Incremental Measures to Expand Health Coverage,” Health Affairs 25 (November–December 2006): 1668–78. 12. Kaiser Family Foundation and the Health Research and Educational Trust, “Percentage of Covered Workers in Partially or Completely Self-Funded Plans by Firm Size, 1999–2007” (Washington, D.C., 2007). 13. U.S. General Accounting Office, “Private Health Insurance: Small Employers Continue to Face Challenges in Providing Coverage,” report to the U.S. Senate, Committee on Small Business and Entrepreneurship, October 2001; Claudia Williams and Jason Lee, “Are Insurance Premiums Higher for Small Firms?” (Princeton, N.J.: Robert Wood Johnson Foundation. September 2002); Joel Popkin and Company, “Cost of Employee Benefits in Small and Large Businesses” (Washington, D.C.: Small Business Association, Office of Advocacy, August 2005). 14. Gary Claxton, “How Private Insurance Works: A Primer” (Menlo Park, Calif.: Kaiser Family Foundation and the Health Research and Education Trust, April 2002). 15. U.S. Department of Labor, Bureau of Labor Statistics, “Employer Costs per Hour Worked for Employee Compensation and Costs As a Percent of Total Compensation: Civilian Workers, by Major Occupational and Industry Group,” Bureau of Labor Statistics News (December 2007), table 1, http://www. bls.gov/news.release/ecec.t01.htm. 16. California Health Care Foundation, “State Employer Health Insurance Mandates: A Brief History” (March 2004), http://www.eric.org/forms/uploadFiles/ 61CF00000097.filename.CHCF_-_Employer_Insurance_Mandates.pdf. 17. Michelle M. Doty and Alyssa L. Holmgren, “Unequal Access: Insurance Instability among Low-Income Workers and Minorities” (New York: Commonwealth Fund, April 2004). 18. U.S. Department of Labor, Bureau of Labor Statistics, “Press Release: Contingent and Alternative Employment Arrangements, February 2005” (Washington, D.C., July 27, 2005).

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19. Rand Corporation, “Consumer Decisionmaking in the Insurance Market” (2006), http://www.rand.org/pubs/research_briefs/2006/RAND_RB9151.pdf . 20. Kaiser Family Foundation and eHealthInsurance, “Update on Individual Health Insurance” (August 2004), http://www.kff.org/insurance/upload/ Update-on-Individual-Health-Insurance.pdf. 21. Mila Kofman and Karen Pollitz, “Health Insurance Regulation by States and the Federal Government: A Review of Current Approaches and Proposals for Change” (Washington, D.C.: Georgetown University, Health Policy Institute, April 2006). 22. Karen Pollitz, Richard Sorian, and Kathy Thomas, “How Accessible Is Individual Health Insurance for Consumers in Less-Than-Perfect Health?” (Menlo Park, Calif.: Kaiser Family Foundation and the Health Research and Education Trust, June 2001). 23. Stan Dorn, Janet Varon, and Fouad Pervez, “Limited Take-Up of Health Coverage Tax Credits: A Challenge to Future Tax Credit Design” (New York: Commonwealth Fund, October 2005); Sara R. Collins, Cathy Schoen, Jennifer L. Kriss, et al., “Rite of Passage? Why Young Adults Become Uninsured and How New Policies Can Help” (New York: Commonwealth Fund, May 2006). 24. “Shadegg and DeMint Introduce Health Care Choice Act,” (December 17, 2007), http://www.healthdecisions.org/News/default.aspx?doc_id=145320. 25. Kaiser Family Foundation, “Distribution of Medicaid Enrollees by Enrollment Group, FY 2004” (2007), http://statehealthfacts.org. 26. Lisa Dubay, John Holohan, and Allison Cook, “The Uninsured and the Affordability of Health Insurance Coverage,” Health Affairs Web Exclusive, November 30, 2006, http://content.healthaffairs.org/cgi/reprint/26/1/w22. 27. Theresa A. Coughlin and Stephen Zuckerman, “Three Years of State Fiscal Struggles: How Did Medicaid and SCHIP Fare?” Health Affairs Web Exclusive, August 16, 2005, http://content.healthaffairs.org/cgi/reprint/hlthaff.w5.385v1; Kaiser Commission on Medicaid Facts, “State Fiscal Conditions and Medicaid” (Menlo Park, Calif.: Kaiser Family Foundation and the Health Research and Education Trust, October 2006). 28. Congressional Budget Office, “The State Children’s Health Insurance Program” (Washington, D.C., May 2007). 29. Stuart H. Altman, David Schactman, and Efrat Eilat, “Could U.S. Hospitals Go the Way of U.S. Airlines?” Health Affairs 25 (January–February 2006): 11–21; Stephen Zuckerman, Joshua McFeeters, Peter Cunningham, et al., “Changes in Medicaid Physician Fees, 1998–2003: Implications for Physician Participation,” Health Affairs Web Exclusive, June 23, 2004, http://content.healthaffairs.org/cgi/reprint/hlthaff.w4.374v1.pdf; Marsha Gold, Sylvia Kuo, and Erin Fries Taylor, “Translating Research to Action: Improving Physician Access in Public Insurance,” Journal of Ambulatory Care Management 29 (January–March 2006): 36–50.

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30. Teresa A. Coughlin and Sharon K. Long, “Adult Health Care Access and Use under Medicaid: Does It Vary by State?” Journal of Health Care for the Poor and Underserved 14 (May 2003): 208–28; Catherine A. Melfi, Thomas W. Croghan, and Mark P. Hanna, “Access to Treatment for Depression in a Medicaid Population,” Journal of Health Care for the Poor and Underserved 10 (May 1999): 201–15. 31. David Dranove, “Pricing by Non-Profit Institutions: The Case of Hospital Cost Shifting,” Journal of Health Economics 7 (March 1988): 47–57; Frank A. Sloan and Edmund R. Becker, “Cross Subsidies and Payment for Hospital Care. Journal of Health Politics, Policy, and Law 8 (winter 1984): 660–85; Sheils et al., “Cost and Coverage Estimates for the ‘Healthy Americans Act.’ ” 32. Sara R. Collins, Karen Davis, and Jennifer L. Kriss, “An Analysis of Leading Congressional Health Care Bills, 2005–2007: Part I, Insurance Coverage” (New York: Commonwealth Fund, March 2007). 33. Laurence A. Graig, Health of Nations: An International Perspective on U.S. Health Care Reform, 3d ed. (Washington, D.C.: Congressional Quarterly, 1999); Canadian Medical Association, “Pulse on Access to Health Services for Patients” (2004), http://www.cma.ca/index.cfm/ci_id/46794/la_id/1.htm; “Family Physicians Rate Patients’ Access to Care,” Canadian Family Physician 52 (December 2006), http://www.nationalphysiciansurvey.ca/nps/reports/PDF-e/janus_snapshot_dec.06.pdf. 34. Gerald Anderson and Peter Sotir Hussey, “Comparing Health System Performance in OECD Countries,” Health Affairs 20 (May–June 2001): 219–32. 35. Ellen Nolte and Martin McKee, “Measuring the Health of Nations: Analysis of Mortality Amenable to Health Care,” British Medical Journal, November 15, 2003, p. 1129; Gerald H. Anderson, Bianca K. Frogner, and Uwe E. Heinhardt, “Health Spending in OECD Countries in 2004: An Update,” Health Affairs 26 (September–October): 1481–89. 36. Claudia Sanmartin, Francois Gendron, Jean-Marie Berthelot, et al., “Access to Health Care Services in Canada, 2003” (2004), http://www.statcan.ca/english/freepub/82-575-XIE/2003001/pdf/report.pdf; “Alberta Hip and Knee Replacement Project” ( June 2007), http://www.albertaboneandjoint.com/ hipandknee.asp. 37. Phuong Trang Huynh, Cathy Schoen, Robin Osborn, et al., “The U.S. Health Care Divide: Disparities in Primary Care Experiences by Income” (New York: Commonwealth Fund, April 2006). 38. Marshall V. Williams, E. T. Summers, K. Drinkwater, et al., “Radiotherapy Dose Fractionation, Access and Waiting Times in the Countries of the U.K. in 2005,” Clinical Oncology 19 (June 2007): 273–86. 39. Graig, Health of Nations; Anderson et al., “Health Spending in the United States and the Rest of the Industrialized World”; Cathy Schoen, Robin Osborn, Phuong Trang Huynh, et al., “On the Front Lines of Care: Primary Care Doctors’ Office Systems, Experiences, and Views in Seven Countries,” Health Affairs Web

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Exclusive, November 2, 2006, http://content.healthaffairs.org/cgi/reprint/ hlthaff. 25.w555v1.pdf; Cathy Schoen, Robin Osborn, Phuong Trang Huynh, et al., “Taking the Pulse of Health Care Systems: Experiences of Patients with Health Problems in Six Countries,” Health Affairs Web Exclusive, November 3, 2005, http://content.healthaffairs.org/cgi/reprint/hlthaff.w5. 509v3. 40. Medicare Payment Advisory Commission, “Inpatient Rehabilitation Facility Services,” report to the U.S. Congress, March 2006, http://www.medpac.gov/ documents/Mar06_EntireReport.pdf. 41. Congressional Budget Office, letter to the Honorable Pete Stark, July 25, 2007. 42. U.S. House of Representatives, Committee on Ways and Means, report on “Rental and Purchase of Oxygen Equipment,” sec. 609 of the Children’s Health and Medicare Protection Act of 2007, July 31, 2007. 43. David Armstrong, “Your Doctor’s Business Is Your Business,” Wall Street Journal, November 20, 2007, p. D1. 44. Charles Duhigg, “Oxygen Suppliers Fight to Keep a Medicare Boon,” New York Times, November 30, 2007, http://www.nytimes.com/2007/11/30/business/ 30golden.html. 45. Kelly Services, “Press Release: Better Health Care Together Campaign” (February 7, 2007), http://phx.corporate-ir.net/phoenix.zhtml?c=113058&p= irol-newsArticle&ID=960781&highlight=. 46. Ibid. 47. Universal Health Care Choice and Access Act (S.1019), proposed legislation on Senator Tom Coburn’s website, March 2008, http://coburn.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=3cc9a655-27ed-401a-9dff2c47e8cabdf6. 48. Committee for Economic Development, “Quality, Affordable Health Care for All: Moving beyond the Employer-Based Health-Insurance System” (Washington, D.C., 2007).

CHAPTER 17

NO COVERAGE EXPANSION WITHOUT COST CONTROL

1. Jack Hadley and John Holahan, “Covering the Uninsured: How Much Would It Cost?” Health Affairs Web Exclusive, June 4, 2003, http://content.healthaffairs.org/cgi/reprint/hlthaff.w3.250v1.pdf. 2. Thomas M. Selden and Bradley M. Gray, “Tax Subsidies for EmploymentRelated

Health

Insurance:

Estimates

for

2006,”

Health

Affairs

25

(November–December 2006): 1568–79; Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, annual report (Washington, D.C., 2006); Centers for Medicare and Medicaid

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Services, “National Health Expenditures by Type of Service and Source of Funds, CY 1960–2005.” (Baltimore, 2006). 3. Amy Finkelstein, “The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare,” Quarterly Journal of Economics 122 (February 2007): 1–37. 4. Amy Finkelstein, “The Cost of Coverage,” Wall Street Journal, February 26, 2007, http://online.wsj.com/article/SB117263512395121711.html; Amy Finkelstein and Robin McKnight, “What Did Medicare Do (and Was It Worth It)?” (Cambridge, Mass.: National Bureau of Economic Research, September 2005). 5. James J. Mongan, testimony before the U.S. Senate, Committee on Finance, March 14, 2007. 6. Stuart H. Altman, testimony before the U.S. Senate, Committee on Finance, March 14, 2007. 7. John Sheils, testimony before the U.S. Senate, Committee on Finance, March 14, 2007. 8. Richard G. Frank, testimony before the U.S. Senate, Committee on Finance, March 14, 2007. 9. David Walker, quoted on 60 Minutes, CBS News (March 4, 2007), http://www.cbsnews.com/stories/2007/03/01/60minutes/main2528226.shtml; Mark V. Pauly, “Medicare Drug Coverage and Moral Hazard,” Health Affairs 23 (January–February 2004): 113–22. 10. Marsha Gold, “Private Plans in Medicare: A 2007 Update” (Menlo Park, Calif.: Kaiser Family Foundation, March 2007); Kaiser Family Foundation and the Health Research and Educational Trust, “Medicare: A Primer” (Menlo Park, Calif., March 2007). 11. Medicare Payment Advisory Commission, “Report to Congress: Update on Medicare Private Plans” (Washington, D.C., March 2007). 12. Robert J. Blendon, John M. Benson, and Catherine M. Des Roches, “Americans’ Views of the Uninsured: An Era for Hybrid Proposals,” Health Affairs Web Exclusive, August 27, 2003, http://content.healthaffairs.org/cgi/reprint/ hlthaff.w3.405v1.pdf; Drew E. Altman, Mollyann Brodie, Claudia Deane, et al., “The Public’s Health Care Agenda for the New Congress and Presidential Campaign” (Boston: Kaiser Family Foundation and Harvard School of Public Health, December 2006). 13. Blendon et al., “Americans’ Views of the Uninsured”; Altman et al., “The Public’s Health Care Agenda for the New Congress and Presidential Campaign”; Jennifer Cummings, “Higher Premiums for Those with Unhealthy Lifestyles Supported by 53 Percent of U.S. Adults, According to Poll by WSJ.com and Harris Interactive,” Wall Street Journal/Harris Interactive Health-Care online poll, July 11–13, 2006, http://www.harrisinteractive.com/NEWS/allnewsbydate.asp? NewsID=1076.

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14. Susan Dorr Goold, Stephen A. Green, Andrea K. Biddle, et al., “Will Uninsured Citizens Give Up Benefit Coverage to Include the Uninsured?” Journal of General Internal Medicine 19 (August 2004): 868–74. 15. Douglas Holtz-Eakin, testimony of Congressional Budget Office director before the U.S. House, Committee on Ways and Means, May 2005. CHAPTER 18

A WORKABLE PLAN FOR REFORM

1. Richard S. Foster and Stephen Heffler, “Building the Foundation: Health Care Costs,” presentation to the Centers for Medicare and Medicaid Services, Citizens’ Health Care Working Group, May 13, 2005. 2. Kaiser Family Foundation and Health Research and Educational Trust, “Percentage of Covered Workers in Partially or Completely Self-Funded Plans by Firm Size, 1999–2007” (2007), http://www.kff.org/insurance/7672/upload/ 76723.pdf. 3. Kenneth E. Thorpe, “What Accounts for the Rise in Health Care Spending?” presentation at the Conference of the Council on Health Care Economics and Policy, Princeton, N.J., May 24, 2006; Centers for Disease Control and Prevention, “Medical Care Expenditures Attributable to Cigarette Smoking—United States, 1993,” Morbidity and Mortality Weekly Report, July 8, 1994, pp. 469–72. 4. Carolyn Newbergh, “The Dartmouth Atlas of Health Care,” in To Improve Health and

Health

Care,

ed.

Stephen

L.

Isaacs

and

James

R.

Knickman

(Princeton, N.J.: Robert Wood Johnson Foundation, October 2006), vol. 10, chap.

2,

http://www.rwjf.org/files/publications/books/2007/AnthologyX_

CH02.pdf. 5. Mark R. Chassin, J. Kosecoff, Rolla E. Park, et al., “Does Inappropriate Use Explain Geographic Variations in the Use of Health Care Services? A Study of Three Procedures,” Journal of the American Medical Association, November 13, 1987, pp. 2533–37; C. M. Winslow, J. B. Kossecoff, Mark R. Chassin, et al., “The Appropriateness of Performing Coronary Artery Bypass Surgery,” Journal of the American Medical Association, July 22–29, 1988, pp. 505–9; Steven J. Bernstein, Elizabeth A. McGlynn, Albert L. Siu, et al., “The Appropriateness of Hysterectomy: A Comparison of Care in Seven Health Plans,” Journal of the American Medical Association, May 12, 1993, pp. 2398–2402; Michael S. Broder, David E. Jabiysem, Brian S. Mittman, et al., “The Appropriateness of Recommendations for Hysterectomy,” Obstetrics and Gynecology 95 (February 2000): 199–205; Lee H. Hilborne, Lucian L. Leape, Steven J. Bernstein, et al., “The Appropriateness of Use of Percutaneous Transluminal Coronary Angioplasty in New York State,” Journal of the American Medical Association, February 10, 1993, pp. 761–65. 6. Gary Claxton, Bianca DiJulio, Benjamin Finder, et al., “Employer Health Benefits, 2007 Annual Survey” (Menlo Park, Calif.: Kaiser Family Foundation and the Health Research and Educational Trust, 2007).

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7. David J. Hyman and Valory N. Pavlik, “Characteristics of Patients with Uncontrolled Hypertension in the United States,” New England Journal of Medicine, August 16, 2001, pp. 479–86. 8. J. D. Kleinke, Oxymorons: The Myth of the U.S. Health Care System (San Francisco: Jossey-Bass, 2002). 9. Webster’s Dictionary of American English, ed. Gerard M. Dalgish (New York: Random House, 1997), 611. 10. David M. Cutler, “Making Sense of Medical Technology,” Health Affairs Web Exclusive, February 7, 2006, http://content.healthaffairs.org/cgi/reprint/25/ 2/w48.

CHAPTER 19

ESTABLISHING STANDARDS

1. Robert N Foley and Allan J. Collins, “End-Stage Renal Disease in the United States: An Update from the United States Renal Data System,” Journal of the American Society of Nephrology 18 (October 2007): 2644–48. 2. David A. Goodkin, Jennifer L. Bragg-Gresham, K. G. Koenig, et al., “Association of Comorbid Conditions and Mortality in Hemodialysis Patients in Europe, Japan, and the United States; The Dialysis Outcomes and Practice Patterns Study,” Journal of the American Society of Nephrology 14 (December 2003): 3270–77. 3. T. F. Parker, L. M. Laird, and E. G. Lowrie, “Comparison of the Study Groups in the National Cooperative Dialysis Study and a Description of Morbidity, Mortality, and Patient Withdrawal,” Kidney International, supp. 13 (April 1983): S42–49; H. R. Harter, “Review of Significant Findings from the National Cooperative Dialysis Study and Recommendations,” Kidney International supp. 13 (April 1983): S107–12; Zbylut J. Twardowski, “Treatment Time and Ultrafiltration Rate Are More Important in Dialysis Prescription Than Small Molecule Clearance,” Blood Purification, December 14, 2007, pp. 90–98. 4. Rajiv Saran, Jennifer L. Bragg-Gresham, Nathan W. Levin, et al., “Longer Treatment Time and Slower Ultrafiltration in Hemodialysis: Associations with Reduced Mortality in the DOPPS,” Kidney International 69 (April 2006): 1222–28. 5. Kaiser Family Foundation, “Fact Sheet: Medicare Prescription Drug Benefit” (Washington, D.C., October 2007); Kaiser Family Foundation and the Health Research and Educational Trust, “Prescription Drug Benefits” (2007), http://www.kff.org/insurance/7672/upload/76723.pdf. 6. Daniel G. Garrett and Benjamin M. Bluml, “Patient Self-Management Program for Diabetes: First-Year Clinical, Humanistic, and Economic Outcomes,” Journal of the American Pharmacists Association 45 (March–April 2005): 130–37. 7. Medicare Payment Advisory Commission, “A Data Book: Healthcare Spending and the Medicare Program” (June 2007), http://www.medpac.gov/documents/Jun07DataBook_Entire_report.pdf; David Kashihara and Kelly Carper,

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“National Health Care Expenses in the U.S. Civilian Noninstitutionalized Population, 2003” (Rockville, Md.: Medical Expenditure Panel, November 2005). 8. Studdert et al., “Claims, Errors, and Compensation Practices in Medical Malpractice Litigation.” 9. Robert Steinbrook, “Hemoglobin Concentrations in Chronic Kidney Disease,” Lancet, December 23–30, 2006, pp. 2191–93. 10. American Heart Association, annual report (Dallas, 2004–5). CHAPTER 20

PRIORITIZING PRIMARY CARE

1. Community Care of North Carolina, program overview (2007), http://www. communitycarenc.com. 2. Stephen J. Spann, “Task Force Report 6: Report on Financing the New Model of Family Medicine,” Annals of Family Medicine 2, supp. 3 (November– December 2004): S1–21; Michael Barr and Jack Ginsburg, “The Advanced Medical Home: A Patient-Centered, Physician-Guided Model of Health Care” (Philadelphia: American College of Physicians, January 2006). 3. Douglas Holtz-Eakin, “An Analysis of the Literature on Disease Management Programs,” report from the Congressional Budget Office to the U.S. Senate, Committee on the Budget, October 13, 2004; Alison Johnson, “Disease Management: The Programs and the Promise” (May 2003), http://www. milliman.com/expertise/healthcare/publications/rr/pdfs/Disease-Mangement-Programs-Promise-RR.pdf; Ron Z. Goetzel, Ronald J. Ozminkowski, Victor G. Villagra, et al., “Return on Investment in Disease Management: A Review,” Health Care Financing Review 26 (summer 2005): 1–19; Soeren Mattke, Michael Seid, and Sai Ma, “Evidence for the Effect of Disease Management: Is $1 Billion a Year a Good Investment?” American Journal of Managed Care 13 (December 2007): 670–76. 4. Nancy McCall, Jerry Cromwell, and Shulamit Bernard, “Evaluation of Phase I Medicare Health Support Pilot Program under Traditional Fee-for-Service Medicare,” report to the U.S. Congress, June 2007. 5. Robert S. Pritchard, Elliott S. Fisher, Joan M. Teno, et al., “Influence of Patient Preferences and Local Health System Characteristics on the Place of Death,” Journal of the American Geriatric Society 46 (October 1998): 1242–50. 6. Susan W. Tolle and Virginia P. Tilden, “Changing End-of-Life Planning: The Oregon Experience,” Journal of Palliative Medicine 5 (April 2002): 311–17. 7. Ibid. CHAPTER 21

REDUCING SPENDING ON HOSPITALS AND SPECIALISTS

1. David C. Classen, R. Scott Evans, Stanley L. Pestotnik, et al., “The Timing of Prophylactic Administration of Antibiotics and the Risk of Surgical-Wound Infection,” New England Journal of Medicine, January 30, 1992, pp. 281–86.

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2. Joyce A. Martin, Brady E. Hamilton, Stephanie J. Ventura, et al., “Births: Final Data for 2001,” National Vital Statistics Reports, December 18, 2002, p. 3; J. Christopher Glantz, “Labor Induction Rate Variation in Upstate New York: What Is the Difference?” Birth 30 (September 2003): 168–74. 3. Commonwealth Fund, “Reducing Inappropriate Induction of Labor: Case Study Intermountain Health Care,” November 29, 2004, http://www.commonwealthfund.org/innovations/innovations_show.htm?doc_id=250148. 4. Ceci Connolly, “Cedars-Sinai Doctors Cling to Pen and Paper,” Washington Post. March 21, 2005, p. A1. 5. Congressional Budget Office, estimate of the Medicaid, Medicare and SCHIP Extension Act of 2007, http://www.cbo.gov/ftpdocs/88xx/doc8898/SFC_MMS_ ExtensionGOE07D03.pdf. 6. Michael E. Porter and Elizabeth Olmsted Teisberg, Redefining Health Care: Creating Value-Based Competition on Results (Boston: Harvard Business School Press, 2006). 7. Robert K. Smoldt and Denis A. Cortese, “Pay–for-Performance or Pay for Value?” Mayo Clinic Proceedings 82 (February 2007): 210–13. 8. Joint Commission, “Improving America’s Hospitals: The Joint Commission’s Annual Report on Quality and Safety 2007,” http://www.jointcommissionreport.org/performanceresults/keyperformance.aspx. 9. Ahsish K. Jha, Zhonghe Li, E. John Orav, et al., “Care in U.S. Hospitals—The Hospital Quality Alliance Program,” New England Journal of Medicine, July 21, 2005, pp. 265–74; W. Douglas Weaver, R. John Simes, Amadeo Betriu, et al., “Comparison of Primary Coronary Angioplasty and Intravenous Thrombolytic Therapy for Acute Myocardial Infarction: A Quantitative Review,” Journal of the American Medical Association, December 17, 1997, pp. 2093–98. 10. Elizabeth H. Bradley, Jeph Herrin, Brian Elbel, et al., “Hospital Quality for Acute Myocardial Infarction,” Journal of the American Medical Association, July 5, 2006, pp. 72–78; Gregg C. Fonarow, William T. Abraham, Nancy M. Albert, et al., “Association between Performance Measures and Clinical Outcomes for Patients Hospitalized with Heart Failure,” Journal of the American Medical Association, January 3, 2007, pp. 61–70. 11. Matthew J. Reeves, Shalini Auarora, Jospeh P. Broderick, et al., “Acute Stroke Care in the U.S.: Results from 4 Pilot Prototypes of the Paul Coverdell National Acute Stroke Registry,” Stroke 36 (June 2005): 1232–40. 12. Gerald T. O’Connor, Hebe B. Quinto, Neal D. Traven, et al., “Geographic Variation in the Treatment of Acute Myocardial Infraction: The Cooperative Cardiovascular Project,” Journal of the American Medical Association, February 17, 1999, pp. 627–33. 13. Benjamin S. Abella, James W. Rhee, Kuang-Ning Huang, et al., “Induced Hypothermia Is Underused after Resuscitation from Cardiac Arrest: A Current Practice Survey,” Resuscitation 64 (February 2005): 181–86; Hypothermia after

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Cardiac Arrest Study Group, “Mild Therapeutic Hypothermia to Improve the Neurologic Outcome after Cardiac Stroke,” New England Journal of Medicine, February 21, 2002, pp. 549–56; Stephen A. Bernard, Timothy W. Gray, Michael D. Buist, et al., “Treatment of Comatose Survivors of Out-of-Hospital Cardiac Arrest with Induced Hypothermia,” New England Journal of Medicine, February 21, 2002, pp. 557–63. 14. David Persse, personal communication, June 1, 2007. According to Dr. Persse, no data were compiled on the number of people with medical needs who were displaced to Houston during these hurricanes, except for the 3,000 patients who were placed by the Catastrophic Medical Operations Center, A reasonable estimate would add several thousand more. 15. Paul Gaughan, “Quarterly Data Show Cost Impact on Operating Revenue,” Healthcare Financial Management (November 2005), http://www.solucient. com/articles/1105_Data%20Trends.pdf. 16. Richard Foster and Stephen Heffler, “Building the Foundation: Health Care Costs,” presentation to the Citizens’ Health Care Working Group, May 13, 2005. 17. Annette M. O’Connor, Dawn Stacey, David Rovner, et al., “Decision Aids for People Facing Health Treatment or Screening Decisions,” Cochrane Database System Reviews 3 (2001): CD001431. 18. Jonathan D. Tward, Christopher M. Lee, Lisa M. Pappas, et al., “Survival of Men with Clinically Localized Prostate Cancer Treated with Prostatectomy,” Cancer, November 15, 2006, pp. 2392–2400. 19. Floyd J. Fowler, Mary McNaughton Collins, and Peter C. Albertsen, “Comparison of Recommendations by Urologists and Radiation Oncologists for Treatment of Clinically Localized Prostate Cancer,” Journal of the American Medical Association, June 23, 2000, pp. 3217–22. 20. Eric T. Rosenthal, “Prostate Cancer: The Pros and Cons of the Integration of Urology and IMRT Services in Community Practice,” Oncology Times, August 26, 2006, p. 19. CHAPTER 22

POSITIONING OF AN AMERICAN MEDICAL QUALITY SYSTEM

1. Gail R. Wilensky, “Developing a Center for Comparative Effectiveness Information,” Health Affairs Web Exclusive, November 7, 2006, http://content. healthaffairs.org/cgi/reprint/25/6/w572; “Placement, Coordination, and Funding of Health Services Research within the Federal Government,” Academy Health Report (September 2005): 1–16; Institute of Medicine, Roundtable on Evidence-based Medicine, Washington, D.C., March 19, 2007; Blue Cross/Blue Shield Association, “Improving Health Care Value: Quality and Cost” (Chicago, September 25, 2007). 2. Peter Orszag, letter to the Honorable Pete Stark, September 5, 2007.

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3. Academy Health, “Placement, Coordination, and Funding of Health Services Research within the Federal Government” (September 2005), http://www. academyhealth.org/publications/placementreport.pdf. 4. Bradford H. Gray, Michael K. Gusmano, and Sara R. Collins, “AHCPR and the Changing Politics of Health Services Research,” Health Affairs Web Exclusive, June 25, 2003, http://content.healthaffairs.org/cgi/reprint/hlthaff.w3.283v1. 5. Ibid. 6. Neil Irwin and David Cho, “Fed Takes Broad Action to Avert Financial Crisis,” Washington Post, March 17, 2008, p. A1. 7. Cathy Schoen, Stuart Guterman, Anthony Shih, et al., “Bending the Curve: Options for Achieving Savings and Improving Value in U.S. Health Spending” (New York: Commonwealth Fund, December 2007). 8. M. Asif Ismail, “Drug Lobby Second to None” (July 7, 2005), http://www. publicintegrity.org/rx/report.aspx?aid=723. 9. Samuel S. Epstein, “American Cancer Society: The World’s Wealthiest ‘Nonprofit’ Institution,” International Journal of Health Services 29, no. 3 (1999): 565–78. 10. Sherry Glied, Jeanne M. Lambrew, and Sarah Little, “The Growing Share of Ininsured Workers Employed in Large Firms” (New York: Commonwealth Fund, October 2003); Thomas Buchmueller, Richard W. Johnson, and Anthony T. Lo Sasso, “Trends in Retiree Health Insurance, 1997–2003,” Health Affairs 25 (November–December 2006): 1507–16.

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INDEX

Page numbers in italics refer to figures.

AARP, 50, 191 ABC. See airway, breathing, circulation academic medical centers. See hospitals, academic medical centers advance directive, 94–95, 99–100, 102 advertising pharmaceuticals, 160–163, 166 Advil, 158 Aetna, 171 Afghanistan War, 16 age, 57, 137, 202 Agency for Health care Policy and Research. See Agency for Healthcare Research and Quality Agency for Healthcare Research and Quality, 262–263, 270 aging of population, 62, 97 air bags, use of, 97 airway, breathing, circulation (ABC), 12 Aleve, 158, 159, 162, 163, 168 Allina Hospitals and Clinics (MN), 147 Altman, Stuart H., 203–204 Altman’s law, 203 ambulance services, 17–21, 33, 142, 257–258 ambulatory surgery centers, 133–134, 221, 269 American Cancer Society, 262 American College of Obstetricians and Gynecologists, 246, 247 American College of Physicians, 72 American College of Surgeons’ Committee on Trauma, 17 American Heart Association, 230, 262 American Medical Association, 26, 28, 50, 202 American Medical Quality System (AMQS): alleviating nursing shortage, 258–259; creation of, xv; educational tools for the public, 259–260;

evaluating common procedures/ treatment methods, 224–226; evaluating pharmaceuticals, 226–227; measuring standards, 253–254; medical home model, 239–240; Medicare demonstration projects, 241; payment policy, 265; positioning of, 261–274; process measures in specific patient groups, 253; quality improvement, 222; reporting techniques, 242, 254–258; standardize diagnostic workups, 227–231; standardize hospital functions, 255–258; waste reduction, 222. See also health care reform American Stroke Association, 256 Americare Health Act, 192 AMQS. See American Medical Quality System angina, 116, 117 anti-kickback statutes, 148, 221 A1C values, 227 Arkansas, high uninsured population, 56 arteries, hardening of, 69, 225 arthritis, 161–162, 168 asthma, 74 AT&T, 198 Australia, 62, 63 back fusion. See spinal fusion back pain, 229 backup call schedule, 86 Baker, Center for Public Policy, Howard H., 198 Balanced Budget Act, 25–26, 31, 122 banking panic, 265 bar codes and medication administration, 92 Baucus, Max, 50, 206 Begley, Charles, 13, 20

313

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Bennett, Robert, 198, 199, 204 best practices, 216 Better Healthcare Together, 197 Bextra, 158–160, 162 biopharmaceuticals. See pharmaceuticals, biopharmaceuticals birth weight, 74 blindness, 73 blood pressure, 41, 73, 237–238 blood test, 68–69 Blue Cross/Blue Shield, 149, 171 bone screws, 107 Bonnen, Greg, 4–5 Boston, MA, 147 brain hemorrhage, 97 brain injury, 100, 125 brain surgery, 72 breast cancer, 41, 74 breast exam, 41 Brigham and Women’s Hospital, 203 British National Health Service, 193–194 Bryan, William Jennings, 265 bundled pricing model, 252 Busboom, Steve, 243–244 Bush, George W., 44, 119, 204, 206 business, 129–131, 268, 272 California, 179–180, 185 call a code, 101 call schedule, 132 Camden, Carl, 198 Canada, 62–64, 73–74, 165–166, 168, 172, 192–196 cancer, 41, 78, 134, 193. See also specific cancers capability, hospital, 11 capacity, hospital, 11, 21–22, 34 cardiac catheterization, 38, 72, 137 cardiac surgery, 152 cardiologists. See doctors, specialists cardiopulmonary resuscitation (CPR), 101 cardiovascular disease, 74 Care Group (MA), 147 carotid endartarectomies, 216 Carter, Jimmy, 121 Catastrophic Medical Operations Center, 310n14 CAT scan. See computerized axial tomographic scan catheter techniques, 116–119, 118 CBO. See Congressional Budget Office Cedars-Sinai, 250 Celebrex, 158–160, 162–163, 168–169, 227 Center for American Progress, 198 Center for Patient Advocacy, 262 Center for Studying Health System Change, 129 Centers for Disease Control, 157, 262

cervical cancer, 41 cervical fusion, 111–112, 114–115, 126, 225 charge master, 244 chemotherapy, 270 chief information officers (CIOs), 90 children, 72–73. See also State Children’s Health Insurance Program Chile, 165 cholesterol, 41, 62, 69, 73 Chrysler Corporation, 182 CIGNA, 171 CIOs. See chief information officers Citizen’s Health Care Working Group, 204 civil monetary penalty statute, 221 Clemmer, Terry, 248 Cleveland Clinic Health System, 147 Cleveland, OH, 147 clinical trials, 160, 168–169, 224–225 Clinton, Bill, 123, 203, 262 Clinton, Hillary, 208 clot-busting drugs, 256 Coburn, Tom, 199 cognitive doctors, 152 colon cancer, 73, 109, 216 colonoscopy, 41, 72 colon polyps, 162 colorectal cancer, 41, 102 Committee for Economic Development, 198, 199 Commonwealth Fund, 265 Communications Workers of America, 198 Community Care of North Carolina, 236–239 community hospitals. See hospitals, community complication rates, 154 computerized axial tomographic (CAT) scan, 6, 137, 227–229 computerized data management: billing systems, 92; computerized physician order entry, 91–92; operational electronic medical records, 90; paper patient charts vs., 90–93, 154, 235, 250–251; physician support tool, 248; primitive nature in hospitals, 84, 89–93; systems integration, 92. See also medical technology concussion, 229 conflict of interest, 131–134 Congressional Budget Office (CBO), 50, 52, 166 consulting fee, 106, 196 consumers, empowering, 259–260 contract workers, 182 Cooley, Denton, 252–253 co-pay. See health insurance, co-pay coronary angiographies, 216 coronary artery bypass surgery, 116–119, 216

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coronary catheter procedures, 118, 216 COX-2 inhibitor, 158–159, 161, 162–163, 169 CPR. See cardiopulmonary resuscitation crowd out, 189 Cutler, David, 223 Darling, Helen, 183 Dartmouth Institute for Health Policy and Clinical Practice: division of surgeries, 108–109, 225; regional variation in care/spending, 58–60, 102, 109, 215, 219, 230, 244, 247; usage rates of specific Medicare services, 58 deaths, 11–13, 18–19, 41, 73–74, 78 death spiral, 184 deductible. See health insurance, deductible Defense Base Closure and Realignment Commission, 263 defensive medicine, 63, 137–138 deliberate confirmation of procedure, 87 Delisi, Dianne, 15 Dell, 145, 183 dementia, 99 Deming, W. Edwards, 246, 256 Democratic Party, 205–208 Department of Health and Human Services, 165–166 diabetes: Canada’s mortality ranking, 193; examinations, 68, 73; medical ICUs and—patients, 141; obesity and—, 62, 68; percent of Medicare patients, 68; prevalence of, 23; prevention, 73, 74; quality care, 234; uninsured patients, 41 diagnosis, workups, 41, 227–231 Diamond, Carol, 57–58 dignity and end-of-life care, 94–102 Dingell, John, 191 direct-to-consumer advertising, 160–161, 162, 166 disease: management of chronic—, 66, 175, 237, 239; mortality rankings, 194; prevention, 73; rise in, 23, 33 Disproportionate Share Hospital (DSH) share, 25 diversion: ambulance service, 19–21, 33, 142; described, 4; emergency room, 141; ICU, 3–4; mortality rate from, 13; trauma center, 11–13, 15, 83 DNR order. See do not resuscitate order Dobson, Allen, 237 doctors: avoidance of Medicaid patients, 189; categories of, 70; changing behavior of, 138, 246; computerized support tool, 248; consulting fee, 106, 196; cost-of-living-increase, 49–50;

315

feelings toward uninsured, 44–45; financial interests, 115, 154, 156; fragmentation of care, 216; generalist (see doctors, primary care); income, 26–27, 72, 127–129, 128, 138, 230; information to, 246; leadership, 236; malpractice suits, 135–137; managed care participation, 30–31; medical waste, 57–60; Medicare payments to, 72; monitor and report performance, 138; number per capita, 63; ownership of hospitals, 34, 131–134; patient interaction, 63; patients managed by several, 67–68; patient’s medical records, 89–93, 91, 93; payments to, 127, 243–260; physician-directed, consumer-chosen health care, 175; practice patterns compared, 222; primary care, 64, 70–72, 127–129, 128, 152, 175, 220, 236, 238–239; promotion of technology, 213; role in health care reform, 268–271; shared saving payment model, 220–221; specialists, 64, 70–72, 127–129, 128, 136, 221, 251–252; spending, 57, 243–260; standards to reduce variations, 215–216, 218, 230, 248–249; underpaid by Medicaid, 55, 189; unhappy, 127–129 do not resuscitate (DNR) order, 101 driving-when-intoxicated laws, 97 drugs. See pharmaceuticals DSH share. See Disproportionate Share Hospital share electronic charting, 154, 235. See also computerized data management Ellwood, Paul, 28 Embarq Communications, 198 emergency call, 129–130 Emergency Medical Treatment and Active Labor Act (EMTALA), 10–11, 38 emergency rooms, 22, 22, 34, 57, 141, 150. See also emergency services emergency services: current state of, 272; demand increase, 21–22; development of, 17; increase in real emergencies, 23–24; nationwide coordination of, 20; patient’s qualification for, 11; requirement for appropriate treatment, 257; studies of, 13; uninsured population, 44–45; unreliable, 10–15, 130, 256; vs. nonemergency care, 11. See also hospitals Emory University, 20; Rollins School of Public Health, 23 employer-based, health insurance. See health insurance, employer-based EMTALA. See Emergency Medical Treatment and Active Labor Act

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end-of-life care: dignity and—, 94–102; families and—, 98–99; improvements to, 240–242; management of, 66; standard set of orders, 240–242; unwanted, 102, 138 England. See United Kingdom epilepsy, 126, 154–155, 193 equipment manufacturers, 106–107, 115, 196–197 errors. See medical errors European Union, 167 eye examinations, 68, 73, 74–75 Exxon, 145 Fairview Health Services (MN), 147 families and end-of-life care, 98–99 Families USA, 191 family practitioners. See doctors, primary care FDA. See Food and Drug Administration Federal Reserve Act, 265 Federal Reserve Banks, 264–265 Federal Reserve Board, 66 Federal Reserve System, 222, 263, 264–265 Federal Trade Commission (FTC), 147 fee-for-service medicine: described, 26–27; managed care undercutting, 32; Medicare cuts to, 49; perverse payment incentives, 120–138, 214, 216, 220, 230; price cutting of, 121, 122, 123; replacement of, 138 Finkelstein, Amy, 202 Fisher, Elliott, 58 flatlined, reference to term, xi Food and Drug Administration (FDA), 107, 160–161, 166, 168–169, 218, 226, 262 foot examinations, 68 for-profit institutions, 146 France, 63, 64, 165, 166 Frank, Richard G., 204 French, Lyle, 270 Fritch, Herb, 234, 236 FTC. See Federal Trade Commission gain-sharing arrangements, 221 GAO. See Government Accountability Office gastroenterologists. See doctors, specialists gastrointestinal bleeding, 158–162, 169 gastrointestinal tract endoscopies, 216 gatekeepers. See doctors, primary care GDP. See gross domestic product general internists. See doctors, primary care General Motors, 182–183 generic drugs. See pharmaceuticals, generics

Geraughty, James, 233–236 Germany, 62, 63, 64, 165, 166 glucose, measurement of, 68–69, 249 Golden Hour, 16, 19–20 Government Accountability Office (GAO), 207 grants, 125 Grassley, Charles, 204, 206 Green, Linda, 20 gross domestic product (GDP), health care costs, 65–66, 66 Hackbarth, Glenn, 50–51 Hamill, Dorothy, 159 Harvard University, 223: development of relative value scale, 26; Medical School, 204; School of Public Health, 243 Hatch, Orrin, 204–205, 206 Hawaii, 185 health care: access to, 63; consumerdirected, 174–175; controlling costs, 138, 218–223, 223; coordination of, 63; cost of, 63–66, 137–138, 156, 201–211, 214; current state of, 271–272; in decline, 7–9; eroding infrastructure, 16–24; fragmentation of, 13–14; high-spending vs. lowspending areas, 59; increased efficiency, 233; lifetime costs, 62; price controls, 121, 122, 123, 223; pricing with managed care, 31; quality, 75, 75, 156; rationing resources, 223; regional, 152–153; regional variation in, 58–60, 102, 215, 219, 230; system failures, 84–86 Health Care Advisory Board, 151–152 Healthcare Coverage Coalition for the Uninsured, 191 health care reform: coverage expansion and cost control, 201–211; ending employer-based tax subsidy, 179–200; establishing standards, 224–231, 261; federal intervention, 121, 122, 123; financing, 261; future of care, 49–56; justice and—, 273–274; limitations to, 217; medical industry cost management, 202; Medicare and—, xiii, 49–56, 195; physician-directed, consumer-chosen, 175; political realities, 267–268; primary care prioritized, 232–242; protocols for diagnosis/management, 175–176, 210–211, 224–226; public education, 261; public opinion on, 204; reducing hospital prices, 258–259; role of business, 268; role of medical profession, 268–271; seven points of, xiv; spending reductions, 243–260;

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standardize hospital functions, 255–258; steps to, 179; tax-advantaged health saving account, 174; workable plan, 212–223. See also American Medical Quality System Health Help agencies, 199 health insurance: administrative costs, 171–173; agent, 172; broker, 172; claim form, 172; co-pay, 56, 221; costs of, 170–171, 173; current state of industry, 272; deductible, 56, 174–175; employer-based, 55–56, 161, 176, 179–200, 201, 213; impact on preventable death, 41; individual purchase of, 197–200, 214; mandated coverage, 123, 184–185; noncompetitive business, 171, 173–176; out-of-pocket costs, 175, 202; portability, 183, 199; premiums, 32, 32, 170, 184, 198; private, 25, 123, 170–176, 180, 189–190, 190, 208; profits, 171; purchased by individuals, xiii; reform, xiii; standardize claim process, 172; subsidy to low-income population, xiii; tax credit, 199; underwriting costs, 172; waste reduction, 172; voucher system, 187–188, 190–191. See also underinsured population; uninsured population health maintenance organization (HMO), 27–29, 176, 217. See also managed care Health Security Act, 123–124, 203, 262 HealthSpring (managed care organization), 233–234, 239 Healthy Americans Act, 198, 199 heart attack: blood pressure testing, 73; increased risk with Vioxx, 162, 168–169; induction of hypothermia, 257; mortality rate, 21; prevention, 73, 74; regional differences in care, 102 heart bypass operations, 109 heart disease, 78, 216, 238 heart failure, 74, 141, 150, 234 heart procedures, 63–64, 225, 252 helicopter, hospital-based, 19 hemodialysis, 225–226 hemoglobin A1C, measurement of, 68–69, 73 Henshaw, Ada Sue, 155 herniation, 5 high-risk neonates, 149 hip fracture, 102, 109, 216 Hippocratic oath, 131 hip replacement, 109, 196, 225 HMO. See health maintenance organization hospitals: academic medical centers, 59, 89, 149; avoidable use, 72–73; building boom, 33–34; cafeteria, 148;

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capacity, declining, 21–22; charges, 153; community, 132, 269; consolidation, 32, 146–148; cost and inefficient processes, 138; current state of, 272; dangerous, 77–93; efficiency, 146, 254; emergency services demand, 21–22; end-of-life care, 97–99; financial instability, 78–80, 84; financial interests, 115; financing of, 25; for-profit, 146; group purchasing organization, 148; housekeeping department, 153; indifferent—, 86–87; labor costs, 155–156; lawsuits, 84, 87–89; length of stay, 63, 154; managed care participation, 30–31, 32, 139; management tool, 246; market leverage in the community, 139, 145, 146–148; Medicaid patients, 189; medical practice reform, 210–211; Medicare creation, 202; Medicare payments to, 121–122; mortality rate, 101; not-for-profit, 139, 146; nursing shortage, 155–156, 258–259; operating rooms, 153; parking facilities, 148; payment-to-cost ratios, 189–190, 190; payments to, 127, 156, 243–260; performance measures, 154; physician-owned, 34, 131–134; pricing practices, 149, 153, 212; primitive technology, 89–93; private, 149; procedures, promotion of, 139, 145, 150–152; profitability, pathways to, 139–156; profit margin, 105; public, 25, 125; publication of prices, 153; publicity, effect on—, 89; quality, 243; regional monopoly/oligopoly, 32, 212, 259; rural shortages, 212–213; safety, 243, 254–258; safety net, 148–149; shared saving payment model, 220–221; specialty, 21, 132; spending, 57, 243–260; standardize—functions, 255–258; system failures, 84–86; teaching, 140; underpaid by Medicaid, 55; uninsured, avoidance of, 139, 145, 148–150, 156. See also emergency rooms; emergency services; trauma centers Hospital-Based Emergency Care: At the Breaking Point, 20 Houston, TX, 3–4, 97, 146, 151, 257–258 Hurricane Katrina, 257–258, 310n14 Hurricane Rita, 258, 310n14 hypertension, 62, 73, 193 hypothermia, induction of, 257 hysterectomies, 216 Iacocca, Lee, 182 Ibuprofen, 158 ICU. See intensive care unit

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illegal immigrants, 36 implantable deep-brain stimulator, 7 individual insurance. See health insurance, private infant mortality, 74, 194 infections, 89, 141, 154 Institute of Medicine, 20, 77, 84, 91 insulin, 249 insurance. See health insurance insurance industry. See health insurance Intel, 198 intensive care unit (ICU), 3, 97–99, 140, 141 Intermountain Healthcare (UT), 243–250 Internal Revenue Service, 181, 221 interventions to beneficiaries, 121–122 intubation, 3 Iraq War, 16 Italy, 165 James, Brent, 243–248, 249, 253 Japan, 62–64, 165, 226, 246 Johnson, Lyndon, 123 Johnson Foundation, Robert Wood, 101 Joint Commission on Accreditation of Healthcare Facilities, 87, 254–257 Journal of the American Medical Association, 132 Kahanovitz, Neil, 262, 270 Kaiser, Henry J., 28 Kaiser Family Foundation, 186 Kaiser Permanente, 27–28, 30, 71 Katy Memorial Hospital (Katy, TX), 11–12 Kellerman, Arthur, 20 Kelly Services, 198 Kennedy, Edward, 191, 205 kickbacks, 196–197, 221 kidney disease, 134 kidney failure, 73, 225–226 kidney transplant, 225 King, Sid, 232–236 knee replacement, 63–64, 109, 196, 225 labor, induction of, 246–247 Latter Day Saints (LDS) Hospital, 243–248 LDS Hospital. See Latter Day Saints Hospital Leape, Lucian, 243 legs, vascular problems of, 109 Lewin Group, 204, 265 life expectancy. See age life support, 96, 100 life-sustaining treatment, management of, 101–102 long-term care facility, 251 Los Angeles, CA, 20, 147, 153

lung disease, rise in, 23 lung failure, 141, 234 magnetic resonance imaging (MRI) scan, 7, 137, 227–229 malignant melanoma, 41–43 malpractice, 43, 62, 84, 87–89, 135–138 mammography, 41 managed care: costs, 127; described, 23–24; doctor and hospital participation, 30–31; employer market participation, 29; fee-for-service medicine undercut, 32; financial losses, 139; mandated, 123; payment for doctors, 26. See also fee-for-service medicine mannitol, 3 Markel Foundation, 57 market leverage in the community, 139, 145, 146–148 markets, captive local, 152–153 Massachusetts, 179–180, 185 Massachusetts General Hospital, 203 Mayo, Charles Horace, 27 Mayo, William James, 27 Mayo Clinic (Rochester, MN), 27, 243 McGlynn, Elizabeth, 73 McGuire, William, 170 McKinsey Quarterly, 182 Medicaid: advance directives, 99; avoidance of—patients, 189; eligibility, 36–37, 55, 140, 191; emergency room visits, 22; enrollment limitations, 190; expansion, 190, 191; federal government cost, xi–xii, 25, 52, 201, 210; hospital revenue generated from, 25, 189–190, 190; low-income population, 36; mental illness patients, 189; substandard care, 189, 190; underpayment to doctors and hospitals, 55, 189 Medi-Cal (California’s Medicaid program), 140 medical errors, 63, 66, 77–93 medical home model, 239–240 medical neurology, 151–152 medical oncologists, 152 medical practice, reforms, 175–176, 210–211 medical procedures and tests: deliberate confirmation, 87; errors, 85; excessive performance of, 66; government regulation, 85; harmful, xii; hospital promotion of, 139, 145, 150–152; of marginal benefit, 116–119; poorly evaluated, 126, 219–220; public reporting, 85; specialty hospitals and—, 132; spending, 57, 119; standards of practice, 138, 216,

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224–226, 238–239, 261; of unknown benefits, 108–111. See also surgery Medical Quality Boards, 265 medical records. See also computerized data management medical supplies, 153 medical technology: debate about, 7; development and assessment, 261–262; doctor promotion of, 213; high-quality, 194; physician support tool, 248; primitive, 84, 89–93; systems integration, 92; wasteful practices, 57–60. See also computerized data management medical waste, xii, 27, 57–66, 119, 216 Medicare: administrative costs, 172; advance directives, 99; Advantage Plan, 207–208, 233, 235; ambulatory surgery centers, payments to, 133–134; annual rate of cost escalation, 121, 122; chronic disease pilot program, 239; cost increase, 49, 134, 173; cost reduction, 59; Coverage Policy and Analysis Group, 108; creation of, 123, 201–202; diabetic patients, 68, 73; eligibility expansion, 188–191; emergency room visits, 22; end-of-life care, 94–102; fee-for-service cuts, 49, 127; fees for services, 72; federal government cost, xi–xii, 25, 52, 66, 201, 210; fiscal crisis, 272; future of, 52–55; Hospital Compare website, 89; hospital requirement to report measures of quality, 254–258; hospital revenue generated from, 25, 149, 189–190, 190; out-of-pocket costs to elderly, 202; Part A (inpatient hospitalization), 51, 241; Part B (physician and outpatient services), 51–52, 227–229; Part D (prescription drug), 51–52, 159, 161, 167–168, 207–208, 226; payment experiments, 222; payment policy, 265; payments for complications, 154; payments to doctors/hospitals, 72, 167, 251–253, 271–272; performance difference between private payers, 121, 122, 123; price fixing, 121; quality care and— spending, 75, 75; reform, xiii, 49–56, 195; refusal to pay for procedure, 106–108; regional variation in care/spending, 58–60, 102, 109, 215, 219, 230, 244, 247; rehabilitative services costs, 196; relative value scale, 26; senior citizens, 49; spending, 123, 280n7; sustainable growth rate formula, 49–51, 266, 268; usage rates of specific services, 58 Medicare (Canada). See Canada

319

Medicare for All Act, 191–197, 201, 208 Medicare Hospital Insurance Trust Fund, 51 Medicare Payment Advisory Commission (MedPAC), 50 Medicare Prescription Drug Improvement and Modernization Act (MMA), 165–166, 167, 207, 267 medication, 91–92, 134, 153. See also pharmaceuticals medicine as business culture, 129–131 Medigap policies, 191 MedPAC. See Medicare Payment Advisory Commission Memorial-Hermann Hospital (Houston, TX), 3–4, 97, 146, 151 mental illness, Medicaid coverage, 189 Merck, 158, 161, 162 me-too drug. See pharmaceuticals, standard drug Mexico, 165 Microsoft, 145, 183 middle class. See uninsured population, middle class military medicine, 16–17 “mini-med” policy, 56 Minneapolis, MN, 147 Minnesota, 209 Minnesota Community Measurement, 242 minorities and access to primary care, 72 MMA. See Medicare Prescription Drug Improvement and Modernization Act Mongan, James J., 203 monopoly, hospital, 147, 212, 259 Montana, high uninsured population, 56 mortality rates: ambulance diversion, 20–21; cancer and uninsured, 41; California, 153; Canada, 74, 193; countries ranked by, 193–194; heart surgery, 252; hospital’s, 101; infant, 74, 194; injured soldiers, 16–17; kidney failure, 225–226; regional variation, 216; relationship between—and nurses, 79–80, 249; risk from diversion, 13 Motrin, 158, 159, 163 MRI scan. See magnetic resonance imaging scan multiplier in fee-for-service medicine, 26–27 myelogram, 228 Naprosyn, 158 National Business Group on Health, 183 National Institute of Nursing Research, 155 National Institutes of Heath, 155, 224, 225, 262, 270 National Kidney Foundation, 230

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National War Labor Board, 181 neck, fusion of. See cervical fusion the Netherlands, 62 neuro ICU. See neuroscience intensive care unit neuroscience intensive care unit (neuro ICU) neurosurgery, 5–7, 152 New England Journal of Medicine, 73, 162 New Jersey, 15 New Mexico, 56 New York Times, 134, 197 New Zealand, 63 Nixon, Richard, 28, 121, 123 non-elderly population. See uninsured population, non-elderly non-steroidal anti-inflammatory drugs (NSAIDs), 158–159, 162–163, 168. See also pharmaceuticals North American Spine Society, 262 not-for-profit institution, 139, 146 NSAIDs. See non-steroidal anti-inflammatory drugs nursing home, 99, 121–122, 196, 251 nurses: burnout, 78, 156; collaboration with, 234; deficient education, 79–80; faculty shortage, 155, 258–259; high turnover rates, 79–80, 83; low staffing levels, 79–80, 155–156, 258–259; maintenance of patients’ charts, 154, 235, 250–251; relationship between—and patient mortality, 79–80, 249; temporary, 78–80; working conditions, 258–259 Obama, Barack, 208 obesity, 23, 61–62, 68, 214, 237–238 obstetrics/gynecology, 127 Oklahoma, high uninsured population, 56 oligopoly, hospital, 147, 212 Oncology Times, 260 operating rooms, 153 order sheet, 92–93, 93 Orange County, CA: ambulance service, 17–19; Medical Society, 18 Oregon, 185, 240–241 Orszag, Peter, 50 orthopedic surgery, 127 outpatient facility, 133 outpatient surgery. See surgery, outpatient over-the-counter medications, 158. See also pharmaceuticals oxygen millionaires, 196 Pap test, 41 Parkinson’s disease, 7 Partners Healthcare System (MA), 147, 203 Passel, Jeffrey, 36

Patented Medicine Prices Review Board (Canada), 165 patients: administration of medication, 91–92; charts, 90–93, 154, 235, 250–251; coordinated care, 31; displaced, 22–23;–doctor interaction, 63; education, 238; high-risk—, 88–89; managed by several doctors, 67–68; medical waste, 60–64; order sheet, 92–93, 93; progress notes, 90, 91; rights, 94–102; standardized education, 221–222; wrong, 87 patient’s bill of rights, 31 payment incentives, 120–138 pediatricians. See doctors, primary care performance measures, hospital, 154 Persse, David, 257–258, 310n14 Pew Hispanic Center, 36 Pfizer, 159, 161, 162 pharmaceuticals: biopharmaceuticals, 164–165; clot-busting, 256; contribution to medical progress, 157–169; cost of, 157, 167–168; current state of industry, 272; evaluating, 226–227; generics, 163; importation of, 164–167; marketing of, 160–163, 166, 168; prescription drug coverage, 159, 161, 163, 226; price controls, 168; price of, 64, 167; priority drugs, 163, 164; research, 168; slow-release formulas, 164; spending, 57, 167–168; standard (me-too) drug 163–164, 165. See also specific pharmaceuticals PhRMA, 267 Phurrough, Steven, 107–108 Physician Orders for Life-Sustaining Treatment (POLST), 241 physician-owned hospitals. See hospitals, physician-owned physicians. See doctors Pittsburgh, PA, 147 pneumoencephalogram, 6 pneumonia, 73, 74, 89, 150, 193 POLST. See Physician Orders for Life-Sustaining Treatment poverty, 74, 180 preference-sensitive surgery. See surgery, preference-sensitive premiums. See health insurance, premiums prepaid group practice. See health maintenance organization prescription drugs. See pharmaceuticals “Preventing Medication Errors,” 91 preventive care, 41, 66, 175 price controls, 121, 122, 123 pricing model, 252 primary care, 67–76, 232–242. See also doctors, primary care

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priority drugs. See pharmaceuticals, priority drugs private health insurance. See health insurance, private private hospitals. See hospitals, private private sector and health care costs, 64–66 procedures. See medical procedures and tests progress notes, patient’s, 90, 91 prostate cancer, 41, 259–260 prostate surgery, 109, 225 protocols for diagnosis/management, 175–176 psychiatric emergencies, 149 publicity, effect on hospitals, 89 public opinion: current state of, 272; educating, 259–260; on health care reform, 204, 208–209; indifference to uninsured, 43–44, 203; on kickbacks, 196–197; punitive damages, 136–137 quality care: errors of omission and lapses in—, 77–78; hospitals serious about, 86; improvement of, 216; lapses in, 77–78; Medicare spending and—, 75, 75; monitoring, 221; payment system and—, 134, 138; requirement to report measures of—, 254–258 quality chasm, 86 Qwest, 198 radiology, 133 Rand Corporation, 19, 73 reasonable and customary charges, 121 reasonable and necessary criterion, 106–108, 202 relative value scale, 26 renal dialysis, 230 Republican Party, 167, 205–208 research, 261–264 research fee. See consulting fee respiratory failure, 150 rheumatoid arthritis, 162 Rockefeller, Jay, 206 Sacramento, CA, 151 safety net hospitals. See hospitals, safety net Safeway, 183 San Diego, CA, 147 San Francisco, CA, 17–19, 147 San Francisco General Hospital, 17–18 San Luis Obispo, CA, 147 SAVE OUR ERS, 13–14, 33 Saving, Thomas, 52 SCHIP. See State Children’s Health Insurance Program Schwarzenegger, Arnold, 180

321

Scotland. See United Kingdom seat belts, use of, 97 self-employed workers, 182, 185–187 Senate Finance Committee: Health Care Reform, 203; Medicare and Medicaid responsiblities, 50 senior citizens, provision of health care. See Medicare Service Employees International Union, 197–198 shared saving payment model, 220–221 Sheils, John, 204 Sherman Antitrust Act, 28 SICU. See surgical intensive care unit Simpson, Alan K., 197 single-payer system, xii–xiii, 172, 180, 194, 209 skin cancer. See malignant melanoma Skinner, Jonathan, 58 small business, increasing coverage, 183–185 smoking habits, 61–62, 214 Social Security Act, 106, 148 Society of General Internal Medicine, 72 soldiers, mortality rate, 16–17 specialists. See doctors, specialists specialty care, 71–72 specialty hospitals. See hospitals, specialty spinal fusion, 107–116, 113, 114, 116, 126, 223, 262 spinal vertebra, 111, 112, 113, 225 spine, slippage of, 107, 114, 225 stable angina, 117 standard drug. See pharmaceuticals, standard drug standards of practice: in controlling costs, 138, 218; establishing, 224–231; health care reform and—, 248–249, 261; measuring, 253–254; to reduce variation, 215–216 Stark, Pete, 192 Stark Law, 132–133, 221 State Children’s Health Insurance Program (SCHIP): bipartisan health reform, 204–206; eligibility, 35, 36–37, 188, 191; enrollment barriers, 188–189; expansion, 191; funds to cover, 119, 146; state managed, 188 stem cell biology, 7 steroids, 270–271 strange bedfellows, 191, 198 stroke, 73–74, 141, 162, 168, 256 structural violence, 8–9 subarachnoid hemorrhage, 81 Sumner Clinic (Gallatin, TN), 232–237, 242 SUPPORT (study), 100

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Supreme Court, ruling on prepaid group practice, 28 surgeons. See doctors, specialists surgery: division of, 109, 225; errors in, 87; hospital promotion of, 150–152; outpatient, 227; preference-sensitive, 109–110, 225; profitability, 140; unnecessary, 66, 103–119; wrong patient, 87; wrong site, 87. See also medical procedures and tests; specific surgery surgical intensive care unit (SICU), 81 sustainable growth rate, 49–50, 266, 268 Sutter Health (CA), 147 Sweden, 165 Switzerland, 62, 165 Taub General Hospital (Houston, TX), Ben, 26, 125 tax credit, 199 tax subsidy for employer-based insurance, 181–182, 198–200, 201. See also health insurance, employer-based teaching hospitals. See hospitals, teaching technology. See medical technology television commercials, 160 tests. See medical procedures and tests Texas, 15, 56, 130, 188 Texas Medical Center, 42; Anderson Cancer Center, M. D., 33; Heart Institute, 252–253 Thames, Byron, 50–51 thoracic surgery, 127 Thorpe, Kenneth, 23 To Err Is Human, 77 transurethral prostatectomy (TURP), 244–245 trauma centers, 11–13, 15, 17, 83, 130, 149. See also emergency rooms; emergency services; hospitals Trunkey, Donald 17–19 tuberculosis, 193 TURP. See transurethral prostatectomy underinsured population, 56, 180 uninsured population: access to primary care, 72; coverage of, 156, 179–180, 201–211; created by rising costs, 55–56; diabetics, 41; doctors in public clinics feelings toward, 44–45; dumping of, 10; early diagnosis, lack of, 41; emergency room visits, 22, 44–45; federal health care spending on, 41–43; financial incentive to treat, 12; health outcomes of, 41; hospital avoidance of, 139, 145, 148–150; Medicare eligibility expansion, 188–191; middle class, 37, 43; mortality rate and cancer patients, 4; non-elderly, 36; percent of population,

xii; predicament of, 35–45; preventive care, lack of, 41; public indifference to, 43–44; states with high—, 56; statistics, 36; substandard treatment, 41–44; trauma center care, 130; voucher system for insurance, 187–188, 190–191; working poor, 36, 37, 272 unions, 183, 197–198 United Auto Workers union, 182 UnitedHealth, 170, 171 United Kingdom, 62–64, 165–166, 168, 194 University of California–San Francisco, 17, 147 University Hospitals of Cleveland, 147 University of Michigan, 155 University of Minnesota, 270 University of Pittsburgh Medical Center, 147 University of Texas: Medical Branch (UTMB), 4; Medical School, 125; School of Public Health, 13 University of Utah, 248 U.S. Chamber of Commerce, 191 U.S. Government Accountability Office, 161 UTMB. See University of Texas Medical Branch vascular problems, 109 Versed, 82 Veterans Administration, 92, 125 videos as public education tool, 259–260 Vietnam War, 16–17 Vioxx, 158–160, 162–163, 168–169, 227 Voluntary Effort, 121, 123 voucher system, 187–188, 190–191 Wagoner, Rick, 182 Wales. See United Kingdom Walker, David, 207 wallet biopsy, 17–18 Wall Street Journal, 68, 196 Wal-Mart, 145, 183, 198 Washington (state) , 185 Washington Post, 119, 182 waste. See medical waste Wellpoint, 171 Wennberg, John, 58, 244, 247 West, John, 17–19 West Penn Allegheny Health System (PA), 147 West Virginia, high uninsured population, 56 Wilson, Cecil, 50 working poor. See uninsured population, working poor World Health Report, 193 World War II, 16 Wyden, Ron, 198, 199, 204

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ABOUT THE AUTHOR

GUY CLIFTON is a neurosurgeon and clinical investigator. A native Texan, he was founding chairman of the Department of Neurosurgery at the University of Texas Health Science Center at Houston and holds the Runnells Distinguished Chair in Neurosurgery. His clinical research focuses on hypothermia as a treatment for severe brain injury, and he has written more than a hundred scientific publications. Dr. Clifton has served on the editorial boards of numerous professional journals and as a reviewer and study section member for the National Institutes of Health. He was founder and chairman of “Save Our ERs,” a coalition of Houston business and health professionals that took a statewide leadership role to provide funding for uninsured trauma care in Texas. A 2006–7 Robert Wood Johnson Foundation health policy fellow, he is currently a professor of neurosurgery at the University of Texas Health Science Center at Houston. He and his wife, Karen, are the parents of five children. Visit his Web site at www.Flatlined.org.

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