Chapter 10

POLICY

SOME TIME WITHIN THE NEXT TWENTY YEARS OR so, health care spending could consume about 30 percent of American GDP, or roughly twice its current share. Analysts have long been raising alarm at that prospect, but rather in the manner of Mao’s dogs barking after the passing wagon train. Health care’s growth momentum is now so powerful that there is no possibility of its being reversed in the foreseeable future.

Nor is it obvious that we should want to slow health care’s growth. We can well afford it, and its effects on American jobs and overseas deficits will be much more positive than those from buying more Asian-made iPods and plasma televisions. As I will show below, even at very modest levels of economic growth, we could double the resources going into health care and still spend more on houses, video games, and SUVs, although the rate of spending growth for such items would slow.

To say that we can afford to ratchet up the rate of health care spending, however, doesn’t answer the question of how we’re going to finance it. Under the pressures of global competition, the traditional American method of paying for health care as part of the employment benefit package has been visibly breaking down, and tens of millions of working families now have no coverage at all.

No one can predict the final shape of a new American health care financing dispensation, but the alignment of interests is such that one is virtually certain to emerge. Health care is now the country’s largest private sector industry, and comprises much more than drug companies and hospital chains. American business icons like GE, IBM, 3M, Hewlett-Packard, and Intel are all making major bets on health care, and health care and biotechnology are among the hottest of targets for venture capital investors. Beyond that, the entire business community has an interest in better health care financing solutions, as both Ford’s chairman, William Clay Ford, Jr., and Starbuck’s CEO, Howard Schultz, have recently made clear. Congress, moreover, loves health care and has been single-mindedly pushing its expansion for more than sixty years. The most conservative, antientitlement administration and Congress in decades took control of the government in 2001; through 2006, its only significant health care initiative has been a major increase in Medicare benefits that was heavily lobbied by the pharmaceutical industry. In another striking demonstration of the clout of the medical-industrial complex, in 2002 Medicare approved final reimbursement rules for the drug-eluting stent a full nine months before the FDA even approved its use.

There are still reasons to worry about continued rapid expansion of the health care sector. Its extraordinary technical achievements are among the nation’s glories—we’ve seen some of them in this book. But operationally, the system is an expensive, paper-laden mess. Worse, our priorities appear hopelessly skewed toward the high-tech, high-glamour treatment sectors to the detriment of the important, dull parts—like prenatal care, childhood vaccinations, access to family doctors, and, for the chronically ill, tracking compliance with treatment regimens that prevent catastrophic flare-ups. In short, it’s not the economic and financial implications of health care’s growth that are troublesome, but the danger that rapid growth will make the current snarls even more intractable.

In the remainder of this chapter, I will first look at the forces driving health care’s expansion and the implications for the national economy. Then I will summarize what I think are some of the most important managerial and policy challenges, and conclude with some speculations on potential financing solutions.

The Health Care Imperative

Few people seem to realize what a dynamic sector of the American economy health care has become. Companies like GE Healthcare (imaging, diagnostics, pharmaceutical manufacturing systems, patient monitoring systems, 45,000 employees, $15 billion in sales) are world leaders. Health care is an important driver of advances in electronics and biotechnology, is not especially susceptible to outsourcing, and is a positive offset to America’s international fiscal deficits. It is also a generally good employer that pays above-average wages. The perfusionists at Columbia-Presbyterian are just one example of the burgeoning new professional and semiprofessional careers in health care, which include physicians’ and surgeons’ assistants, many varieties of imaging technicians, inhalation therapists, physical therapists, nurse-anesthestists, dental hygienists, and many, many more. One sign of the times: some of the deepest coverage of the late-2006 flap over possible complications from drug-eluting stents was in the business press rather than the science and health sections.

Despite the lamentations over “rising health care costs,” procedure by procedure, technological advances are generally reducing costs, often by quite striking amounts, while bringing very large benefits in terms of extended, active, life spans. The very sharp drop in the death rate from heart attacks, for example, is substantially attributable to improvements in the technology of cardiac interventions. Modern pharmaceuticals are making major inroads in the treatment of depression, hypertension, diabetes, arthritis, and other chronic diseases, as well as steady advances against cancer. Surgical interventions to remove cataracts, or to replace hips, knees, or eye and ear parts, help people stay active and live longer. At the same time, laparoscopic and other microsurgical techniques make interventions cheaper, quicker, safer, and shorten recovery times. MRIs have replaced older invasive, often dangerous, diagnostic procedures, while advanced PET-and CAT-scanning systems facilitate far more informed interventions against cancers and heart and brain disease.

Just as in other markets, however, better, cheaper health care products almost always increase total spending. Most gall bladder surgery, for example, is now performed on an outpatient basis: it’s cheaper, requires minimal incisions, and gets you back to work sooner. Doctors are therefore more apt to recommend it, so total gall bladder spending is now higher than with the old, “expensive,” full-surgery, inpatient methods. That same cycle whereby lower prices and better results increase spending can be seen in a long list of other standard therapies—cataract surgery is now a simple outpatient procedure that costs a fraction of what it used to, so millions of Americans have had it. Hip operations are surer, safer, with rapidly improving recovery times, so they are almost a rite de passage for senior golfers. LVADs and other heart-assist devices will soon be moving along a similar path.

The hard truth about health care is that death is usually the lowest-cost outcome. Twenty years or so ago, people in their seventies and above were considered too old for heart surgery; now they make up most of the patients, with very high success rates. Similarly, the raw number of annual deaths from cancer has been falling in the United States, even as the vulnerable population increases apace. But every victory that health care wins over traditional killers like heart disease and cancer preserves its best customers, and leads to years of more spending. The quickest way to reduce future Medicare costs would be to induce a lot more Americans to take up heavy smoking.*

That steady expansion of health care’s share of national spending, however, is quite consistent with the large sectoral shifts that have been a continuing feature of American growth. In the nineteenth century, most Americans worked on farms, compared to only about 2 percent today, although we produce and eat far more food. Fifty years ago, about a third of all workers were employed in manufacturing, compared to only 10 percent now, but the United States is still the world leader in real manufacturing output, and far ahead of China, which has six times as many manufacturing workers. Economic theory, in fact, suggests that health care should be expanding rapidly. The richer you get, the more you are likely to favor life-extending spending over additional consumption. The extra enjoyment from one more toy, in other words, can’t begin to match up against an extra year of life to enjoy all of your toys.

But what about affordability? Could we really double health care’s share of national product over the next twenty years without crippling the rest of the economy? That would depend on how fast the overall economy was growing. Consider three cases with twenty-year growth rates of 3 percent, 2 percent, and 1 percent annually after inflation. At the 3 percent growth rate, health care would have to grow at 6.6 percent a year, about its current rate, to double its overall share, while the growth rate for everything else would be limited to about 2 percent. (Within that 2 percent, of course, some sectors would be declining rapidly, while some others would probably grow even faster than health care.) But if overall economic growth was only 2 percent per year, and health care doubled its share, the rest of the economy could grow at a rate of only 1 percent. And if the overall growth rate dropped to only 1 percent a year, the rest of the economy would need to stay essentially flat to accommodate health care’s doubling.

Is it reasonable to expect the economy to grow at a 2 or 3 percent rate for the next twenty years? We can look at the record. Since 1929, there have been 67 ten-year periods* and 57 twenty-year periods. The average growth rate of the ten-year periods is 3.9 percent, and only one of the 67 was below 1 percent (1929–1939 tolled in at a dismal 0.9 percent). One other was 1.3 percent, nine others were between 2 and 3 percent, and the remaining 56 were all over 3 percent. Of the 57 twenty-year periods, only five came in below 3 percent, with the lowest at 2.2 percent. The average of all 57 was 3.7 percent. A 2 or 3 percent growth-rate assumption for the next twenty years is therefore well below the trend line. But even at those growth rates, health care could double its share of the economy and still allow continued growth in everything else.

Continued rapid growth in the health care sector, in short, would not only be economically affordable, but arguably a very positive development. It is an important driver of the high-technology industries that play to U.S. strengths. It is a good employer with multiple career ladders, and is pouring out an almost endless stream of new products and technologies that work and which people badly want. And to top it off, the spending mostly stays at home. That is a lot to like.

But there is another side to the story.

Health Care’s Operational Tangle

The splendid American silos of excellence in cardiology and cardiac surgery, cancer treatment, and spine and brain disorders unfortunately operate in a world apart from the disgraceful mess on the ground. Consider a few recent research highlights. A high percentage of hospital discharge tests either never get to, or are never read by, the treating physician. There is only a weak correlation between a doctor’s confidence in a diagnosis and its accuracy. A large number of physicians either aren’t aware of, don’t agree with, or don’t follow currently accepted best practices in their specialties. Most physicians admit to little or no interest in quality control techniques. Only about a third have access to quality control data on their own practices or on the specialists they send patients to.

Despite spending, on average, about twice as much per capita as other industrialized countries, American primary care doctors are the least likely to have electronic recordkeeping systems, and among the least likely to be able to order a prescription electronically or to access a patient’s test results or hospital records. American doctors are also two to three times more likely to repeat a test because they can’t get access to the previous test’s results. On average, only half of Americans hospitalized for heart failure get written discharge instructions. And compared to patients in other countries, Americans are the most likely to use emergency rooms because they can’t reach their usual doctor, and if they have a chronic disease, they are among the least likely to receive disease management oversight.

Most health care resources are consumed by a relatively small number of patients with one or more chronic diseases—heart disease, cancer, depression, diabetes, arthritis, or cognitive disorders. About a fifth of Medicare patients have five such disorders and, on average, have fourteen different physicians. Medicare itself concedes that it provides neither incentives nor facilities for coordinating interspecialty services. One study of American cardiac patients not only found very wide cost and quality gaps among different regions of the country, but also found that the regions with more slowly rising costs had fewer physicians per case, and better adherence to case management and follow-up protocols. That makes sense. Good case management and stable physician oversight means fewer big-ticket crisis interventions. Confusion costs.

Well-intended attempts to “improve coordination” or “realign incentives” may just make things worse. Bureaucratic paper processing, much of it related to reimbursement systems, already consumes as much as 20 percent of all health care resources. Payment systems are also shot through with perversities. The primary care physicians, the front-line docs who are supposed to shepherd their patients through the copious wonders of modern medicine, have been among the hardest hit by the compression of medical fees over the past decade or so. The standard ten-or fifteen-minute office visit may be enough for healthy people, but it can’t begin to get the job done for the chronically ill, who tend to bounce from specialist to specialist pretty much on their own.

Payment systems also tend to reward procedures. Cardiology became a much more lucrative profession once cardiologists went into the angioplasty and stent business. Oncologists can make large profits on the difference between Medicare chemotherapy drug payment rates and their actual costs, and there is evidence that the size of the profit opportunity may affect the choice of drug. Dermatology, with its huge kit of office-based procedures, is reputedly one of the most lucrative of the medical professions.

TMR, or transmyocardial revascularization, is a good example of the procedure as money-spinner. It is a method of improving coronary perfusion by using lasers to burn microscopic channels in heart muscle. Much of the development was done at Columbia-Presbyterian; Craig Smith filed some of the early patents. TMR was approved by the FDA in 1998 based on clinical trials in which treated patients reported relief of angina pain, even though the mechanism of action was unclear.* The procedure is almost never used at Columbia-Presbyterian, however, because Smith and his colleagues are convinced that the positive trial results are classic subjective, placebo-effectlike phenomena. But since TMR has been approved by the FDA, almost all medical plans will pay for it, and fee-hungry cardiac surgeons are enthusiastically adopting it in their practices.

The defects of American health care are the flip side of its virtues. The deep commitment to technological innovation, the penchant for rich and complex service arrays, the ease with which patients can shop among specialists and treatment options, are all unique, and have generated an extraordinary record of accomplishment in cutting-edge medicine. But along with that comes a free-wheeling approach to the introduction of new, often unproven technologies, hit-or-miss coordination of services, and very high costs—at least 25 percent higher than in any other industrialized country. It is a system that seems designed for the affluent, educated patient with the most comprehensive insurance coverage. But for the working stiff with minimum coverage it can be confusing, difficult to access, and possibly even dangerous.

The fascination with cutting-edge technologies is evident in the government’s research priorities. Half of the federal basic and applied research budget goes to health care, far more than to any other function. The director of the National Institutes of Health recently estimated total federal health care research outlays over the past thirty years at nearly $400 billion, more than $30 billion of which went to cardiovascular research. Current research priorities are decidedly forward-looking—breakthroughs in genomics, in microsurgery, in new classes of pharmaceuticals, all of which may someday feed into blockbuster new products for drug and medical device companies. And consider the spectacle of states, with generally poor records in vaccinations and child and maternal health programs, competing with each other to mount multibillion-dollar stem cell research programs.

In such an environment, it should be no surprise that the United States has such a high-cost health care system. American payers, including Medicare, pretty much pay for any treatment that has been approved by the FDA, or is otherwise part of standard medicine, leaving the question of appropriateness up to the individual doctor. A senior executive at Guidant, one of the leading competitors in stents, said that in Europe, “when a new therapy is trying to find a reimbursement budget, the money has to come from other therapies…. So it’s a very slow process. We know that innovative devices do get accepted, but it’s done at a very slow rate.” America, by contrast, is the device maker’s dream market, and the pace of adoption of drug-eluting stents (DES) has been almost frenzied. In just a couple of years, the total number of stents placed roughly doubled, with almost all of them the more expensive DES versions. By 2005, American usage of DES was more than twice that in the advanced countries of Europe. Safe use of DES, however, requires prolonged anticlotting medications, usually both aspirin and Plavix, an expensive drug.* The explosion in DES placement also means that many more heart surgery patients have been on prolonged anticlotting therapies, which has been a major factor in the increased use of aprotinin in heart surgery. And so the expense impact ripples on.

The recent—and still inconclusive—revelations of possible long-term problems with DES, however, suggest that explosive growth may not always be in the best interest of patients. And it is interesting that European cardiologists, who were more cautious in adopting DES in the first place, have been much quicker than Americans to pull back. In the wake of suggestions at a late-2006 FDA advisory committee hearing that DES may be inappropriate for many current patients, the business press was quick to reassure investors that the effect on American practice would be small. In my own unscientific sample of a half-dozen Web-based continuing medical education programs on DES in the wake of the FDA meeting (on Web pages festooned with the logos of stent makers), the consistent advice seemed to be “don’t change current practice.” (In a spring 2007 presentation, however, Marty Leon specifically endorsed a pullback in DES usage, in part because of the dangers of prolonging antiplatelet therapy to prevent clotting events.) The same kind of frenzied proliferation was seen during the explosive growth phase of CABG surgery forty years ago, and of laparascopic surgery twenty years ago. Over the longer haul, both made substantial contributions to the health of Americans, but few would dispute that the breakneck pace of the rollouts quickly outstripped the capabilities of physicians, or the understanding of the procedures, and that many patients were placed in harm’s way as a consequence.

A distinguishing feature of the current era, however, is that as the cornucopia of available treatments keeps expanding, the high-cost, leading-edge-only, American style of care delivery is becoming unaffordable even for the strongest companies. The first reaction, in the 1990s, was to slow cost growth by clogging the system with paperwork—HMO horror stories became staple fare for late-night television comics. More recently, companies have been shedding costs by shifting them to workers, outsourcing functions to lower-cost vendors with limited benefits, or simply eliminating the health care benefit altogether.

The result is a dreadful muddle—swamps of paperwork, spotty coverage for almost everyone but the higher-strata employees at the larger companies, growing numbers of working people with no coverage at all, and an ever-richer and more complex array of services that is difficult even for healthy people to navigate on their own, much less the old and chronically ill.

The paperwork morass is aggravated by the strange proclivity of American analysts and pundits to focus almost exclusively on the payment system as the agent of change. David Cutler, one of the finest of American health care economists, in discussing the gaping regional differences in American care proposes to solve the problem by “experiments with financial incentives” for both patients and providers. And the economist and New York Times columnist David Leonhardt, after reviewing evidence of overuse of stents, concluded that “sometimes, Medicare or an insurance policy should nudge people away from the latest, greatest treatment.” Sounds simple, right? Use your payment power to “nudge” people in the right direction. Now imagine trying to draft the payment regulations and supporting documentation required to do that. And also consider how irrelevant all the multiple payment systems are in determining how the surgeons at Columbia Presbyterian run their practices (see Chapter 9). I don’t mean to single out Cutler and Leonhardt, for dozens and dozens of policy articles take a similar line. But a little common sense should suggest that payment systems are hopelessly blunt tools, and any attempts to fine-tune them to drive specific behavior is likely to end in yet more muddle.*

The Kaiser-Permanente programs are one of the few American health care systems that do a reasonably good job of maintaining high-quality practice standards while resisting the introduction of new technologies of dubious benefit. But they don’t do it with payment tweaks; instead, they establish and enforce explicit practice rules. If the internal practice-standard committees are not convinced of the value of TMR, say, then plan physicians may not use it. And if the committees deem that 90 percent beta-blocker compliance should be standard for cardiac patients, they have the clout to enforce it. The distinguishing feature of the Kaiser-Permanente plans, however, is that there is a medical management layer. Doctors are supervising other doctors to ensure that they are providing treatment in accord with agreed standards. The cherished myth of the American independent practitioner is that every doctor keeps up with best practices all by herself. But as the survey data cited earlier suggest, it is a myth—a myth on the same scale as the hopelessly doomed notion that one can somehow create good medical management by fine-tuning payment systems.

Can We Do Better?

The American political process, unlike some European parliamentary systems, is built to resist sweeping change. Although basic interest alignments are pointing toward a major reorganization of American health care, it is likely to happen incrementally and take a long time. Liberals should stop hoping for radical change, like a shift to the Canadian “single-payer” model of health insurance, while conservatives should drop favorite fetishes, like that of a “private-sector” health care system, which is already a fiction. More than half of all health care costs are now paid by the government, and demographic and technological trends are likely to push that number into the two-thirds range within the foreseeable future.

What follows is a not a set of recommendations, but a rough forecast of what I think is likely to evolve from a rolling series of health care minicrises over the next couple of decades:

The federal government will establish a minimum standard Basic Health Plan. Offering the plan would be mandatory for all employers above a very low minimum size. The Basic Plan would also replace Medicaid and Medicare.

All qualified insurance vendors could market and service the plans. They would compete on price and service rather than on the benefit provisions.*

Limits on both covered procedures and treatment costs would be maintained by a system of national and regional committees comprising medical, financial, and business representation. Copays, deductibles, and similar devices would be applied to ensure efficient use of resources.

No doctors would be obligated to participate in the plan. But those who wish to do so would join one or more physician networks; would agree to comprehensive data exchange, electronic record-keeping, and similar standards; and would comply with protocol-and quality-oriented standards for chronic disease management, childhood health maintenance, and other treatment processes. All physician quality outcomes and protocol compliance would be tracked by network managers.

The cost of coverage would be contributory for employers and employees subject to a wage-based sliding scale. Premiums for low-wage employees, the elderly, and the unemployed would be subsidized by the federal government. An employer’s premium for the basic plan might also be capped (subsidized) to maintain competitiveness in a global marketplace.

Insurance companies would be free to offer carriage-trade luxury plans for favored employee groups or supplemental coverage for Basic Plan enrollees. But only the Basic Plan payments would be tax-advantaged.

Government subventions would be covered by a dedicated, progressive, broad-based tax. The program would therefore have substantial redistributive elements. Note, however, that virtually all tax proceeds would be immediately recycled into the private health care economy.

Some parallel developments that would also be helpful:

A substantial conversion of NIH and related federal research dollars from disease-focused research to the development of the data-mining technologies and quality protocols required for high-technology medicine.

Development of a cadre of medical managers to develop and maintain quality systems. Managerial overhead may possibly increase, but the dead weight of meaningless paper shuffling would be mostly eliminated, so the net effect may be small.

Development of much more powerful industry-government quality inspection and error-detection systems. It will be essential to replace the current medical malpractice system with a workmen’s-compensationlike system based on expert inquiry.

A system of industry-government review panels to monitor current therapies and technologies, establish allowability within the Basic Plan, and maintain best-practice protocols.

The proposals above are merely suggestive, and the universe of reasonable variations is very large. And it will take a long time: the near-term possibility of comprehensive restructuring is probably close to nil. But thoroughgoing reform will come, because, quite separately from its glorious technologies, American health care is careening toward a slow-motion political and administrative debacle, and too many powerful economic stakeholders have too much at risk to allow that to happen.