The Hospital That Ate Chicago (1)

George Ross Fisher M.D III

One evening in 1979 my visiting son, puzzled by health financing, asked me to explain. A decade of asking myself the same question led to the prompt reply that there seemed to be two central problems, both of them man-made. It's axiomatic in our family that man-made problems can have man-made solutions.

I believed you adequately understood health care financing if you understood the price reduction which hospitals give to subscribers of Blue Cross but not to subscribers of their competitors, and if you also understood the income tax dodge which the Federal government gives to salaried, but not to self-employed people who buy health insurance.

He asked how in the world these two subsidies were defended, and I told him. He then asked how these monopoly-inducing subsidies related to other weird quirks of health finance, and I told him that, too. He listened quietly for thirty minutes, and then exclaimed, "Wow. That's really the Hospital that Ate Chicago!"

So he went to bed, while I stayed up and wrote a short fancy for the New England Journal of Medicine, called, "The Hospital That Ate Chicago". Next morning I polished it a little, and sent it off to the editor. Within a few days it was accepted. Six weeks later it was in print.

The Nation's Future Health Profile

As the nation's health steadily improves, it's going to cause some problems of a social nature.

The most astoundingly good news about health is frightening, precisely because it is so astoundingly good. The average life expectancy of Americans has increased by three years during the last decade. That's right, we got thirteen years for the price of ten. Most of that improvement has come from taking daily aspirin tablets, or from taking the anti-cholesterol "statin" drugs, with a resulting decrease in the death rate from heart attacks and strokes by roughly 30%. It seems possible to hope for another three-year extension of lifespan in the next decade; when statin drugs lose their patent protection they will become a lot cheaper, and many more people will take them regularly. It seems churlish to emphasize the negatives of such a miracle, but unfortunately it's questionable if our political and financial mechanisms can readjust to such an unprecedented commotion.

It could get much worse. The improvements in cancer treatment have lately been much slower and more expensive. If someone invented a treatment for malignancy which proved to be safe and cheap, we could get another five years, followed by still another five years as the patents run out and doctors get the hang of using it. Everybody could then reasonably expect to live to be ninety. What the Social Security and Medicare budgets would look like under those circumstances, must simply boggle the mind. If people mostly lived to be ninety, comparatively few of them would have much serious illness before they were sixty-five. The vast bulk of medical expense, for practical purposes almost all of it except obstetrics and psychiatry, would become Medicare expense. People would of course eventually die of something, and all of those terminal care costs would be Medicare costs. Government would of course begin to see what is happening and attempt to change the political arrangements for financing it, but that would be resisted bitterly, and it would be slow. What would not be slow would be the decision by employers that there is no sense in accepting financial responsibility for health costs which no longer have much impact on working people. Right now, health insurance amounts to forcing employees under the age of forty to subsidize the costs of other employees between the ages of forty to sixty-five. If that curve shifts to the point where everybody under sixty-five is essentially subsidizing people on Medicare, well, say goodbye to employer-based health insurance. Not later, right now. At the end of whatever calendar year employers all wake up together and start a stampede out the door.

The first issue, of course, is not how to shift around the costs of medical care, but how to pay for staying alive. We can raise the age for beginning Social Security benefits, but that doesn't create money, it just shifts retirement cost from the government to the individual. What matters is that people must keep working longer, earning at least enough to support themselves; and that implies greater competition with younger people for available work. It may mean greater resistance to immigration, particularly illegal immigration, and a greater appreciation for frugal living. But shifts of twenty or thirty percent in the workforce within a decade probably cannot be accomplished, any more than they could be accomplished in Africa after the elimination of epidemic diarrhea and other tropical diseases. Genocide as an avocation does not seem very appealing, either. One suspects something similar happened to India with British colonial rule, better water and drains, and all that. And one has to speculate that something like that is being concealed in China, for all its vaunted growth in Gross Domestic Product. Selectively killing all girl babies at birth, and all boy babies after the first one, seems more drastic than we would accept. But we must eventually do something, with the first step being a general appreciation of the problem. Overpopulation may or may not be the problem; the problem is too many healthy people past the traditional age of employment.

Somewhere in the writings of Aristotle is the maxim that all culture comes out of the wealthy classes, because only the wealthy have time for it. Aristotle is obviously now out of date on that topic, because we can easily foresee a population of healthy old folks with time on their hands. Our cultural institutions seem painfully slow to recognize, not just their new customer base, but the potential creative base. Surely, Grandma Moses is not the only artistic self-promoter in her age group. And surely, adolescent love affairs are not the only topic capable of attracting a mass audience. Improved cataract extractions, better hearing aides, and outstanding dentistry will surely make it possible to foresee more grown-up tastes in music, the visual arts, and culinary skills. Once these old folks stop predicting their own impending deaths and face a twenty-five year future on the golf course, a flowering transformation of the arts is safely predictable.

But that's not enough. Most people were not born with the talent to carry a musical tune or draw a straight line, and many of those who do have some talent feel the arts are trivial. For most people, the way to fill up a quarter of a century is to go back to work. I didn't say it was easy. There is just no feasible alternative.

Abortion

Roe vs. Wade

The official position of the Pennsylvania Medical Society on the topic of abortion is, we have no position on abortion. I ought to know, because I was the author of this position, proposed at a moment when the PA Medical House of Delegates was obviously going nowhere. After two hours of angry debate we had to stop before we split into two warring medical societies. The Pennsylvania delegation to the AMA was then obliged to hold the same no-position on a national level. As I recall, our position was likewise greeted by the AMA House of Delegates with great relief, and word quickly circulated in the corridors that Pennsylvania had a position everyone could endorse for the good of the organization. For several years, this no-position position was widely referred to whenever the topic threatened to arise. It almost invariably stopped discussion in its tracks, as it was intended to do. In going back over the minutes, it would appear the AMA never actually voted to adopt a no-position motion, a discovery that surprised but did not change the basic determination to let the rest of the nation settle this. We were going to stay out of it.

Because, one hundred forty years earlier, we started it. If you actually read Justice Blackmun's opinion for the majority in Roe v. Wade, as very few agitated proponents seem to have done, the original medical origin is clearly laid out. Blackmun had been a lawyer for the Mayo Clinic before his appointment to the Supreme Court, acquiring unusual medical resources and experiences for a lawyer. Now prepare for a logical leap, to the The Gross Clinic, Thomas Eakins masterpiece painting of Philadelphia's pre-eminent surgeon in black frock coat, holding a dripping crimson scalpel in his bare hand, encapsulates the original situation. Note carefully that anesthesia is being given to the patient, but the surgeon is not wearing a cap, mask, gown, or rubber gloves.

In 1850 medical science had progressed into a forty-year time window when anesthesia made abortions painless, but Pasteur had still not identified bacteria, and Lister had not devised a way to cope with them. Abortions, common in ancient Greece but forbidden by Hippocrates, suddenly were widely demanded by 19th Century women in a situation when their judgment was vulnerable. Abortions were easy to do, all right, but women died like flies from the resulting infections, and the American Medical Association was distraught about it. The Oath of Hippocrates was brought forward to emphasize its prohibition of abortion, and the performance was made unethical for a member of the Association, sufficient cause to warrant expulsion. When that proved inadequate, the delegates agreed to go to their local state legislatures and seek legislation prohibiting the performance of abortion by anyone, member or non-member of the Association. These laws were quickly passed, and it was the Texas version which was overturned by Roe v. Wade as an unconstitutional denial of privacy. Roe was a pseudonym for the patient, and Wade was then Attorney General of Texas, the officer charged with enforcing Texas law. By 1900 abortions became both easy and safe for the mother, and by 1911 the AMA had reversed its position. The scientific surgical situation is well illustrated by a later famous painting about Philadelphia surgery by Thomas Eakins, the Agnew Clinic, in which the surgical team is portrayed in its modern costume of sterile gowns and rubber gloves. But it didn't matter, since by that time various churches had hardened their doctrines. Religious leaders and their constituent politicians simply no longer cared what the medical profession thought about it. For at least the following century, ideological combatants were plainly only interested in whether physician opinion might advance one side or the other of their argument with useful official statements. Our real position, if anyone cares, is that we started out seeking protection for the safety of the mother, but the issue got twisted by others into disputes about the welfare of the unborn fetus.

Since this is the case, there plainly may be reason for state legislatures to reconsider the state laws they passed in the 19th Century, during that forty-year window of time when the scientific facts were in transition. But when a leap is made by the appointed referees of the federal government to overturn state laws, even about a basically medical issue, there has to be some legal reason to intervene; a medical reason somehow doesn't count. Justice Blackmun's discovery of an unnoticed right to "privacy" in the Constitution, where the word does not appear, is just too hard for us non-lawyers to deal with. Suppose we leave the fine points of the Bill of Rights to those constitutional lawyers. What's at stake here, among other things of course, is whether the Federal Courts are justified in overturning well-intentioned state laws which had served well for at least fifty years -- simply out of impatience with the sluggishness and political timidness of state legislatures to revise obsolete laws. That's unbalancing the Constitution for comparatively minor cause. Even major cause is something we have agreed to adjust in other ways, by amendment, not judicial opinion. And that's my opinion, having comparatively little to do with abortion.

Why Are Hospital Prices So Artificially High?

Aspirin

Cost analysts maintain it really costs ten dollars to write a simple business letter, so it's no surprise when hospitals charge ten dollars to administer an aspirin tablet. But there's also another form of hospital overcharging. Mark-ups of prices (publicly listed, at least) of several hundred percent over audited costs are routine in hospital bills. These are not hidden cross-subsidies, either; they emerge on the yearly audit as multi-million dollar "losses", neatly balanced by "contractual allowances". Translated, they are discounts to insurance companies. My daughter, armed with several accounting degrees, spoke out recently at a hospital board meeting, "Why do you do this? Why do you raise prices, then turn around and discount them? Why do you overcharge, then call it a loss when you write it off?" The replies to her question, she recalls, were mumbles.

Hospice

This is an important question, because it results in confronting patients without insurance with much larger bills than the effective price to insured ones; patients who can't afford things are charged more than those who can. Every time a hospital takes an uninsured patient to court to collect such kited charges, the publicity for the hospital is highly negative. Health savings accounts with high deductibles are thwarted by facing such overcharges, and it makes people mad. Two or three million HSA arrangements will be started in 2005, but without this obstacle to jump, several times as many would probably be issued. Since HSA deductibles are guaranteed money in the bank, hospitals thwarting HSAs perpetuate their present largest source of loss -- unpaid deductibles. So why do hospitals continue to post these largely fictional prices?

Until hospital officials come forward with a coherent defense of their practices, outsiders can only guess at motives. Start with the old legal approach of "Cui bono?" (Who might have a motive?) and divide the answers into those with a motive and those with the means (but no visible motive.) The police line-up will then consist of hospitals, insurance companies, limited-license practitioners, and the state government. Limited licensees, acupuncturists and the like, surely must hate high-deductible health insurance because their fees mainly fall below the two or three thousand annual deductible. Old-line health insurance companies also have plenty of motive to keep out competitors, fearing antitrust action if they get too obvious. That leaves the state government.

States have ample power over hospitals. Substantial annual payments are negotiated with hospitals for Medicaid services, charity care, and educational grants and subsidies. Tax exemptions are repeatedly challenged and re-negotiated, and overall non-profit corporations are entirely creations of the state legislature. So, unless it is a violation of federal law, state government has the means to compel hospitals to do anything. Power, yes, but where is the incentive for states to wish for exorbitant hospital prices? Or confer monopoly status on certain insurance vendors by according them sweetheart discounts?

Specialized Surgeons

Regina E. Herzlinger

Local attitudes always somewhat persist among migrants from home. What's distinctive about the Philadelphia diaspora is how unconscious most of them are about still carrying the hometown mark. Philadelphia leaves a prominent birthmark, but it's sort of back between your shoulder blades and you forget it's there. What occasions this observation is a Christmas call from a prominent California surgeon who was once my roommate, back in the days when residents were actually resident in the hospital. More than fifty years ago Bill Doane also served as best man at my wedding. Our conversation turned to clots in the lung, and he related a story. He had once fixed a hernia for a 22-year old girl in the days when it was customary to keep hernia cases in bed for a while. Getting out of bed for the first time, she coughed and turned blue, suddenly on the edge of death. Taken back to the operating room, her chest was opened, and Bill removed a clot which was essentially a cast of the blood vessels of one entire lung. As surgeons like to say, she then did very well.

One doctor can tell such a story to another doctor in four sentences, while lay people who overhear it miss the whole point. The fact is, not one surgeon in ten thousand today could carry this off. Nowadays we train thoracic surgeons to open lungs; they never repair hernias. Conversely, we train hernia surgeons to fix a dozen hernias daily through a little telescope; they never open a patient's chest. So it is hard to imagine many contemporary surgeons who could recognize this disastrous complication of hernia repair, then fix it themselves in time to rescue the patient. Although this disheartening decline into repetitive super specialties has been forty years in the making, it has been recently popularized with the general public by Regina E. Herzlinger, a Harvard business professor. Writing books and speaking to businessmen groups, she has popularized the proposal to outsource the general hospital into what she calls "focused factories." She rightly characterizes the medical profession as reluctant. She's a nice person, and undoubtedly sincerely believes focused factories will save money, improve quality. But we must not let this idea take hold.

Pennyslvania Hospital

Specialty hospitals have actually been given more than a fair try. About a hundred years ago, the landscape was peppered with casualty hospitals, receiving hospitals, stomach hospitals, skin and cancer hospitals, lying-in hospitals, contagious disease hospitals, and a dozen other medical specialty boutiques. With a few notable exceptions, they all failed for the same reason. Sooner or later they found they could not adequately service their specialty without the backup of a full hospital service. Children's hospitals do thrive, but they have patients who are generally of the wrong physical size to fit adult hospital facilities and equipment. There are plenty of things to regret about general hospitals' design, but the inescapable fact is they all must have a very wide range of services to perform any mission, no matter how discrete. It would be still better if the doctors had an equally wide range of skills in their own heads, but the avalanche of innovation and lawsuits has forced sub-specialization, compartmentalizing, and narrowness of viewpoint. Circumstances have forced the profession to hunker down, but that trend must be resisted, not celebrated.

The instant and successful repair of pulmonary embolism makes a dramatic illustration, but the reasons for broad medical training are more extensive than that. In the first place, it is much cheaper to use the generalist office than to bounce people to a gastroenterologist for heartburn, a psychiatrist for anxiety, and a dermatologist for pimples. The American employer community is desperate for a way to reduce its burden of employee health costs, and flocks back to their nurturing business schools for advice. They would do better to seek repeal of the tax dodges which tempted them into their present muddle, of course. But in any event they must be persuaded to recall the disaster of managed care and at least, avoid meddling in hospital design.

That's the cost issue, where specialization surely raises costs. Constant repetition of the same procedure seems superior to first-time fumbling, although it is questionable how long it takes a well-trained surgeon to pick up a new procedure and do it well. But for this system to work, the referring physicians need to be more skillful, not less, in choosing a good one to refer to. There's just nothing like the experience of working for a few weeks in the specialty as a rotating Internet, to tell you what to look for and what to avoid. If every doctor in a hospital is making a dozen referrals a day, the cumulative effect on quality of the whole institution is dramatic.

We'll talk later about the Doane brothers of Bucks County, who were judged to be too handsome to hang. Right now, the point of this story can be summarized by the old Pennsylvania Hospital adage, that you should first be a good doctor before you can be a good specialist. Not only was the Pennsylvania Hospital the first in the nation. For sixty years it was the only hospital in the nation, and for decades after that it was the only hospital in Pennsylvania. In medical history circles it is said that the history of American medicine, is the history of the Pennsylvania Hospital.

Medicare/Health Savings Accounts Legislation

Why is it so important?

• The Medicare/HSA Law is an historic and transformational step for the American system of health and healthcare. For the first time since in 1965, seniors will now have a prescription drug benefit as part of Medicare.
• It returns decision-making control to the individual by allowing individual to put money into an IRA-like tax free account to be used for health related expenses.
• Like traditional Medicare, the new Medicare/HSA law will take care of seniors who are already sick but it takes the next step to help keep them from getting sick in the first place.
• The new Medicare /HSA law begins to transform healthcare into a 21st Century model that is market mediated yet still government regulated that will lead to higher quality care, with greater choice at lower cost.

What if I like the Medicare program I am currently enrolled in, do I have to switch?

• No, it completely voluntary. You can stay in the traditional Medicare program and keep your Medi-gap insurance if you choose. However, seniors will now be able to choose other plans that better fit their unique healthcare needs.

I am not a senior but a young worker, why does this matter to me?

• Young working now have an incredible opportunity to accumulate substantial health dollars in a personal health savings account (HSA) over a lifetime of work their healthcare expenses after they retire.

What is an HSA?

• HSA's are the most important change in financing healthcare since the advent of employer-based healthcare system in 1943.
• An HSA is a Hwealth Ssaving Aaccount that allows an individual to contribute pre-tax dollars that can grow tax free while earning interest. The money in the account can be used to pay health related expenses also without paying a tax.

Who owns the accounts?

• HSA's are like an IRA or a 401K, they are owned by the individual.
• They are real assets that can be passed on to loved ones as part of an estate if account beneficiary were to die.

Who can contribute to my health savings account?

• Individuals, their employers, and family members so long as they cannot claim you as tax dependent.

Who decides how my HSA health dollars can be spent?

• You will control your health dollars as long as they are used for qualified health related expenses.
• HSA's return the individual to the proper market role of the customer so that healthcare provides will complete for health dollars. This completion will improve service and quality and lead to greater choices and lower costs for every American.
• HSA's are encourage every American to become a wise consumer of healthcare, which will lead to more knowledge healthcare consumers who are able to make better decisions about their own health, their treatment options, and staying healthy.

What if I change jobs, what happen to the money in my health savings account?

• HSA's are completely portable, and because you own them and control them they follow you from job to job and into your retirement.

What expenses can I use my health dollars to cover?

• HSA dollars can be withdrawn tax-free to pay for qualified medical expenses, such as prescription drugs, doctor visits, health insurance for the unemployed including COBRA and long term care insurance and services.

What if there is money left over at the end of the year in my HSA, do I get to keep it?

• Yes, the money invented in an HSA is just like money invested in an IRA or 401K, it may earn interest and will rollover from year to year allowing you to accumulate health dollars for retirement.

How do I qualify for HSA?

• To qualify you simply purchase a health insurance plan with a minimum dedication of $1,000 for an individual or $2,000 for a family.

How much can I contribute to my HSA?

• You can contribute up to 100% of the insurance plainż½s deductible amount but not to exceed $2,600 for an individual or $5,150 for a family.

If I am over 55, will HSA's be significant to me?

• Yes, if you are between the ages of 55-65, you can make additional pre-tax contributions of up to $500 annually starting in 2004 and $600 in 2005 and an additional $100 more per year to a maximum of $1,000 per year in 2009. This will allow you to accelerate the growth of your health dollars for retirement.

How does this new law help the working uninsured?

• This legislation will make health insurance more affordable because it provides incentives for people to get insurance so they can realize the tax-free savings benefit.
• Insurance plans with higher deductible are more affordable and because more people who may now be playing the healthcare lottery by not having insurance will be encourage to purchase a policy will increase the size of the risk pool and will lower the risk which will also make health insurance more small business companies to offer insurance as a benefit. Moreover, competition for your HSA healthcare dollars will drive down cost for everyone.

What if I suffer from multiple diseases, such as obesity and diabetes, how will I benefit from this Legislation?

• Because 5% of the entire Medicare population with an average of 5-7 diseases spends 50% of Medicare dollars or19 times more money per person, patients with multiple diseases will finally have access to coordinated care among all their care providers, thus reducing unnecessary, duplicate treatments, or dangerous combinations of prescription drugs. That will allow for better quality of care, dramatically higher safely at lower cost.

What happens to my HSA when I die?

• When you die, your health savings account can be passed on to your surviving family member as part of your estate.

Can I pay for my healthcare premium from my health savings account?

• If you are retiree, your healthcare savings account can pay for retiree health insurance premiums, other than Medi-gap, and your Medicare premiums.
• If you are not a retiree however, your health savings account cannot be used to pay your health premiums, but you can still use your money to for other health related services such as prescription drugs costs.

Will this new Medicare/HSA law really lower the cost of my prescription drugs?

• Yes, in 2004, every senior citizen who chooses one, will be given a discount drug card allowing them to save significant amounts of money on their prescription drugs.

What about those with lower incomes, how will they be helped?

• In 2004, low-income senior will receive an additional $600 credit on their drug card to be used for their prescription drug program.

$400 billion dollars is a lot of Money, doesn't this mean bigger government?

• Healthcare is neatly 14% of the Gross Domestic Product and growing. To address the continuing rising healthcare cost is necessary to make an investment into improving and changing the current system of health. This Legislation for the first time puts the consumer at the center of their own care and gives them more choices. Choice creates competition and that drives down costs while improving the quality of services not only for seniors, but for every American.
• Moreover, for a reasonable cost, seniors will for the first time have a prescription drug benefit. Today, prescriptions drugs are indispensable in order to keep people healthy and out of the hospital. They also in many causes eliminate more expensive treatments if the drugs were not available.

Are preventative care services subject to my deductible?

• NO.

What technology and Innovations enhancements were added to the Medicare bill?

• The new Medicare/HSA law includes incentives for electronic prescription, grants to pay for physicians to implement a prescription drug program, pay for performance demonstration projects, and incentives for hospitals invest in life-saving IT and reports quality outcomes.

What will the law mean for my local hospital?

• Hospitals will receive additional reimbursement for providing quality information for 35 indicators. This will allow consumers to choose a hospital based on their quality of service.

Or, A Few Bad Apples?

Surgeons

Plaintiff lawyers and physicians do occasionally meet socially. A common way to skirt the awkwardness is to nod agreement that the malpractice problem is caused by a few bad apples in both professions. As competitors, physicians can be censorious; doctors who have never been sued find it easy to accept that those who do get sued must be substandard. This contention has been examined many times, and it is pretty firmly established that doctors who are sued are at least as competent as those who are not. While it's undeniable that sociopaths can creep into any profession, this truism has led to few reform proposals of any great promise. It's not true that every doctor gets sued at least once, but in some specialties like obstetrics a majority are sued, and those specialties soon develop shortages. Certain cities and states have a greatly increased incidence of suit. Put that together, and you can safely predict impending shortages of particular specialties within certain zip codes. It would be a simple matter to examine the quality of particular medical specialists in those zip codes, and then for fairness examine the local legal climates. The outcome of such a study is rather easily predictable.

Napoleon

To assess the matter in a less confrontational way, look at insurance premiums for malpractice coverage. Doctors with a single case in their history can usually obtain insurance at standard rates, but premiums go up considerably after a history of two or more claims. Shopping the market through a broker will usually not discover an insurance company which will yield on this point. All states permit higher premiums for applicants with a history of multiple claims. Since insurance companies keep careful statistics and analyze them constantly, it seems likely they do have proof that one predictor of future claims is a history of having prior claims. There are other predictors, not necessarily marks of criticism: practicing in certain states or cities is risky. Working in certain surgical specialties is a risk. The bigger a doctor's practice, the more opportunity for claims to arise. Mix all this together, correct one factor against another with computers, and you seem to find a small proportion of cases concentrated in an unlucky few physicians. No further tweaking of the data will specify any characteristics of the suit-prone group. Since that leaves you with the conclusion that the only way to identify the suit-prone is to wait for three or four suits, the matter must be approached with resignation. Fortunately, the contribution of these people to the problem, while undeniable, is small.

In desperation, some even suggest an approach once adopted by Napoleon. He said he didn't like unlucky generals, and fired them summarily. The managers and coaches of sports teams are similarly treated, and somehow we accept the injustice of it. But regardless of the merits of such pragmatism in win-lose team encounters, it misses a central point in negligence suits.

The patient, counseled by his lawyer, makes the decision to sue. Studies of many hospitalizations reveal the cases brought to law are not materially different from many other cases that do not result in lawsuit. The cases brought to court seem chosen by anger, mendacity, or just bad luck. Their grievance may or may not be justified, but it is not degree of justification which distinguishes them from 90% of similar cases. Many studies of suit-prone physicians have been made, but it's uncomfortable to conduct studies of suit-prone patients. Who can doubt that identifiable suit-prone patients would discover they had difficulty finding a doctor? In summary of this point, the published levels of malpractice premiums are reasonably good measures of multiple suits. Since some regions have vastly higher premiums than others, it remains to be demonstrated whether those areas somehow have a vastly increased number of suit-provocative doctors. Or whether the variability is more fairly described as a local legal one.

Philadelphia in 1976: Legionaire's Disease

The Yellow Fever

No other city in America is remembered for an epidemic; Philadelphia is remembered for two of them. The Yellow Fever epidemic, for one, that finished any Philadelphia's hopes for a re-run as the nation's capital. And Legionnaire's Disease, that ruined the 1976 bicentennial celebration. One is a virus disease spread by mosquitoes, the other a bacterial disease spread by water cooled air conditioners. Neither epidemic was the worst in the world of its kind, neither disease is particularly characteristic of Philadelphia. Both of them particularly affected groups of people who were guests of the city at the time; French refugees from Haiti and attendees at an American Legion convention.

In 1976, dozens of conventions and national celebrations were scheduled to take place in Philadelphia as part of a hoped-for repeat of the hugely successful centennial of a century earlier. Suddenly, an epidemic of respiratory disease of unknown cause struck 231 people within a short time, and 34 of them died. Every known antibiotic was tried, mostly unsuccessfully, although erythromycin seemed to help somewhat. The victims were predominantly male, members of the American Legion of a certain age, somewhat inclined to drink excessively, and staying in the Bellevue Stratford Hotel, one of the last of the grand hotels. Within weeks, it was identified that a new bacterium was evidently the source of the disease, and it was named Legionella Pneumophila. Pneumophila means "love of the lungs" and Philadelphia means "city of brotherly love", but still the Latin name seemed to imply that someone was trying to hang it on us. Eventually, the epidemic went away, but so did all of those out-of-town visitors. The bicentennial was an entertainment flop and a financial disaster.

Since that time, we have learned a little. One third of Australians who were systematically tested were found to have evidence of previous Legionella infection. A far worse epidemic occurred in the Netherlands, at the flower exhibition. Lots of smaller outbreaks in other cities were recognized and reported. It becomes clear that Legionnaire's disease has been around for a very long time, but because the bacteria are "fastidious", growing poorly on the usual culture media, had been unrecognized. And, although the bacteria were fastidious, they were found in great abundance in the water-cooled air conditioning pipes of the Bellevue Stratford Hotel. Even though the air conditioning was promptly replaced, everybody avoided the hotel and it went bankrupt. When it reopened, 560 rooms had shrunk to 170, and it still struggled. Although there is little question that lots of other water-cooled air conditioning systems were quietly ripped out and replaced, all over the world, the image remains that it was the Bellevue, not its type of plumbing, that was a haunted house. There is even a website devoted to its handedness.

Please Don't Lose Any Sleep Over This

Dr. Charles Czeisler

The Institute for Experimental Psychiatry Research Foundation meets alternatively in Boston and Philadelphia, in recognition of its rather complicated historical relationship with Harvard and Penn. The Spring 2005 trustees meeting was held in Boston, with Dr. Charles Czeisler of the Brigham and Women's Hospital making a presentation of his work with sleepy resident physicians. Sleep is now a central focus of the work of the Institute, particularly the effect of lack of sleep on performance. Resident physicians are a group with lots of experience with sleep loss, so much that such experiences as residents are a central imprinting in the lifelong brotherhood of the profession. The public tends to regard the torment of protracted craving for sleep as some kind of dangerous hazing inflicted on professional newcomers by sophomoric seniors. Every once in a while, someone gets hurt by these games. That seems to be general public reaction. For the most part, by contrast, members of the profession who have themselves undergone the experience turn away silently from such unfeeling remarks. As the old contraceptive joke about the Pope has it, if you don't play the game, don't make the rules.

In the first place, it is wrong to suggest that resident physicians are somehow helpless victims of authority, abused slaves of somebody's profit motive, or warped masochists enduring the process in order to inflict it on someone else. Perhaps the example of my classmate Seibert is useful. As a freshman medical student, Seibert was so overwhelmed by the volume of facts he was expected to learn, that he decided to give up sleep entirely. Seibert, by the way, was no moron; he was an honors graduate of a very selective Ivy League university. And he actually did stop sleeping for more than two weeks until he collapsed and had to be stopped. This was his own choice, gamely adopted in spite of general ridicule. And to show that over achieving is not limited to physicians, there was my oriental patient, the daughter of the President of her country. She related that as a graduate student she did not go to bed for three years; during all that time, she sat at her desk, slapping her face to keep awake. What we are talking about here is a self-selected group of committed and dedicated people, perhaps overly shamed by the specter of failure.

The work of our Institute has helped document and understand the injurious effect of sleep loss on performance; no one can go very long without sleep before responses and vigilance begin to deteriorate. A great many vehicle accidents are caused by drowsy drivers; it is a concern that pilots of airplanes on long distance flights are to some provable degree less competent to land the plane. Therefore, it is not completely surprising to find that interns on protracted duty do make 20% more errors in medication orders, and nearly 50% more diagnostic errors. It is jarring to discover a measurable increase in the number of intern auto accidents, particularly when driving home from work. Maybe we ought to pass a law about it.

Commiseration is one thing; proposals to interfere are quite another. For one thing, the time-honored protection against the harm of this problem is redundancy. The complex, fast-paced and dangerous environment of a hospital, like that of an airline cockpit , has very little tolerance for lack of vigilance. Our solution has been to do everything three times, with overlapping responsibilities and repeated opportunity for catching errors before they get through to the patient. Although the malpractice lawyer seeks to pin the whole blame on some person, particularly one who is covered by insurance, the reaction of doctors to adverse events is to presume that at least three people must have cooperated in letting it slip through. At night and on weekends, the reduced staff tends to weaken the defensive network . But by every assessment, the greatest threat to our protective screen of redundancy is cost control. Any manager of managed care can find duplication and overlap in ten minutes of searching for it in a hospital; redundancy is a big factor in the high cost of running a hospital. The law of decreasing returns will dictate that it becomes very expensive to eliminate the last one percent of errors. To state it in reverse: it is very tempting to save a bundle of money in a competitive world, by accepting only a small increase in the errors. Since it is a matter of opinion, physicians are grimly determined that it shall be physicians who strike that balance. Those who press for more punitive treatment of physicians in the matter of errors should reflect that it surely will convince physicians to flee the risk of responsibility for the decision of where to strike the balance.

If you bend metal repeatedly it will crack; if you stretch a rope too hard it will snap. These unfortunate events are not called errors, and it is improper to search for blame in them. The medical profession is aghast that the public does not seem to appreciate that average life expectancy has increased by thirty years in the past century. That's not ancient history; life expectancy has increased by thee years in the past ten. A system that produces a result like that is entitled to a certain amount of tolerance for its errors, if we must call them errors. In other environments, that's known as pushing the envelope. Anyone who thinks it's fun to stand on your feet for thirty-six consecutive hours -- hasn't tried it.

Surgeons are perhaps somewhat more conscious of the need to train young professionals to drive themselves beyond ordinary endurance. After all, if an operation is unexpectedly prolonged, the surgeon can't just quit, he must finish. Neurosurgeons, with their fourteen hour procedures, are particularly vehement on the topic. But it is true of every physician, too. When the telephone rings in the middle of the night, will this young fellow haul himself out of bed, or will he tell the patient to take an aspirin and call again in the morning? Increasingly, we hear complaints from patients that other doctors didn't even take the trouble to examine them; the implication that we are somehow not like that is very flattering. Part of the training is forbearance, too. At three in the morning, it is very easy to feel sorry for yourself, and to reflect that an administrator with four times your income is home in his nice warm bed. The fact is, that if the person who is up and on his feet doesn't do the job, no one will.

Cadwalader

Some incomprehension from bystanders must simply be endured with patience. Beyond that, it could be futile to seek complete understanding. Quite recently, I was explaining to a young lady in a tailored suit who Thomas Cadwalader was. His portrait, beneath which we were standing, hangs in the great hall of the Pennsylvania Hospital. Although he died in 1789, Dr. Cadwalader is still famous for his remarkable, unfailing courtesy. A sailor in a tavern on Eighth Street once waved a gun and announced to the crowd he was going out the swinging doors to shoot the first man he met. The first man happened to be Dr. Cadwalader, who tipped his hat and said, "Good morning, sir." So, the sailor shot the second man he met.

The young lady in the tailored suit brightened up. "The moral of that story, " she said, "Is always wear a hat."

Malpractice: Insurance War Stories

ROBERTS

The 1937 Supreme Court (Owen Roberts, for the majority) allowed Franklin Roosevelt's New Deal to regard the federal government as in charge of all American commerce, not merely interstate commerce. Congress, however, soon exempted the insurance industry from that federal control by passing the McCarran Ferguson Act. States were thus put back in charge of insurance, and it's about the only thing they are in charge of. Out of this peculiar political anomaly, grows the present unusually deep involvement of the local insurance industry into state politics.

In return, state governments have conferred at least one favor on insurance lobbyists unwisely. If an insurance company fails, subscribers angrily find themselves stranded. The patchwork solution arises, of assigning the obligations of a failed company to its surviving competitors. With no immediately visible cost to the taxpayers, that seems to rescue the subscribers. But it removes any point to competition, probably soon raises prices, and surely broadcasts moral hazard. That is, it doesn't matter how badly you behave, your competitors will have to pay for your mistakes.

Politically inclined state insurance commissioners have other favors to extend. Malpractice companies work in an environment with a peculiarly long tail. (Explanation: It's at least six years before the average case is finally settled and paid.) A brand new insurance company collects premiums for six years before paying out much for claims. True, with unrealistically low premiums they are destined to go bust in six years, but there's a free ride in the meantime, including an available punt in the stock market with unspent cash. Investment income during those six years is chancy, making survival a gamble after six years. Lately, the true finances can be obscured by "finite reinsurance", which guarantees to absorb heavy losses, but often neglects to say how long it will do so. It's the job of the Insurance Commissioner to decide whether premiums are realistic, the job of the auditors to assure that the complexities are transparent, the job of the competitors to complain if premiums are too low, and the moral hazard for the Insurance Commissioner arises -- from knowing in the worst case it won't matter to the subscribers, the competitors will bear the cost. Since Insurance Commissioners are usually politically appointed young lawyers, competing insurance companies are actually in political competition, not economic competition. As we say in Pennsylvania, you must Pay to play.

These seamy realities can unexpectedly exploit premium differentials between medical specialties. There are a lot of lawsuits against obstetricians, neurosurgeons and orthopedists; consequently the premiums for these specialties are quite high. Pediatricians and general practitioners have low premiums reflecting infrequent lawsuits. Now, a company seeking long-term profitability would naturally prefer to insure clients who don't get sued. But here and there you can be surprised to see a new company with great eagerness for high-risk clients, people who get sued a lot. Competitors are prompted to suspect such companies are looking to accumulate as much premium revenue as possible during a six-year free ride, even lowering premiums somewhat to generate business. But if they misjudge the stock market during those six years, the other companies will likely be forced to pay for the gamble.

Once in a while, the totally unexpected happens. For example, some years ago thirteen judges in one city went to jail for accepting bribes. The Republicans wouldn't appoint Democrat judges, and the Democrats wouldn't confirm Republican appointees to fill the vacancies. During this impasse, Congress happened to pass a law leap-frogging drug offender cases ahead of everything else on court dockets; the unanticipated consequence was an eight-year period without malpractice trials. It became a sort of judicial coiled spring. Insurance companies accumulated huge reserves, the politicians squeezed down the excessive premiums, money was made and lost in the stock market, and then finally the judicial logjam was broken, the cases had to be paid. Guess what. There wasn't enough money to pay the claims, and premiums took a big jump. Doctors and lawyers bellowed at each other that it was the other profession's fault. In a sense, that wasn't fair either way, although, come to think of it a most judges are lawyers.

Malpractice: Reported Medical Errors

A recent article in the Wall Street Journal reports the state of Minnesota releasing a survey of 378,544 surgeries performed in the hospitals of that state in a 15-month period. During that time, 99 serious medical errors were found, 21 of which resulted in the death of the patient. One error in about four thousand surgeries, and one death in twenty thousand. Because of understandable reluctance to self-report mistakes, assume this incidence of negligent errors is a bare minimum level of true incidence. But arbitrarily doubling that to a rate of one death in ten thousand, would be a safety record that calls the malpractice crisis to account. Minnesota is somewhat special, to be sure, frequently held out as demonstrating the lowest medical costs in the country. So go on, then, say the rest of the country has one death in five thousand surgeries. You might be very risk-averse to feel such an incidence warrants destroying our present medical system, imposing some new one with unknowable risk content. That's especially true if you recognize that average American life expectancy got four months longer during those fifteen months. One way to reduce the number of errors would be to perform fewer surgeries, but there are ways of measuring the harm that would do. It's not ever comfortable to defend any error, but it really is necessary to examine the full consequences of any proposal about them.

Let's extend these examples. Since there were only five fatal medication errors in 400,000 Minnesota surgeries, then fatal medication errors must be impossibly rare. An event that only occurs once in eighty thousand cases must represent very special circumstances when it does happen. If people are of the mindset to take 79,000 successful surgeries for granted, while applying the most pejorative scrutiny to one case that was unusual, there is no way statistics can change a mindset that the medical system is riddled with error.

My own reaction to these bare statistics is that if there really was only one death from medication error, there must have been five hundred near-misses. I would conjecture the persons making these mistakes probably caught them before they got serious most of the time, perhaps four hundred times. And then one or two other people caught it most of the rest of the time, leaving the last few cases to escape by pure luck, and one unlucky person making it through to the statistical report. Over a period of two centuries, the hospital has developed systems for catching errors, and most of the systems depend on redundancy. We in hospitals do almost everything three times, screening out a huge amount of human error under stress. Any efficiency expert worth his stop-watch can see repetition and overlap, redundancy, and\waste. Focused factories, as Professor Herzlinger of Harvard styles them, can easily save money by enforcing a discipline of doing it once, and doing it right the first time. That saves money, and that's not a minor issue. But if we yield too far to this pressure, some of those other five hundred medication errors are likely to prove fatal.

A modern hospital employs several thousand employees, of varying levels of skill and training, with a great deal of employee turnover. An occasional incorrigibly incompetent employee can occasionally do real damage before being identified and dismissed. In recent years professional shortages in critical areas can force some substandard employees to be tolerated longer than they should be. By encouraging longer stretches of employment, a congenial slow-paced environment can reduce the incidence of errors, but then look out for those efficiency experts. And crowded, tense anthills of activity must perform all day and all night, weekends and holidays. Emergencies appear out of nowhere, the door to the ambulance entrance banging open to a cluster of shouting excited firemen. They can appear at a moment when every single employee is lashed to a heaving deck of other necessities, or wearily starting out the door at the end of a tumultuous day. Some other pious professor or earnest newspaper columnist offers the non-helpful suggestion that we would perform better if we got more rest. What suggestions might be valuable to reduce stress when the loud speaker blares, Code Blue?

Malpractice: State or Federal Problem?

McCarran Ferguson Act

The 1945 McCarran Ferguson Act prohibited federal agencies from regulating the business of insurance whenever individual states had passed laws on the topic. However, Congress can always modify its own laws, so McCarran Ferguson is not a serious obstacle to a federal tort reform law. Legislative interference in the judicial branch is admittedly somewhat more sensitive, particularly if the U.S. Supreme Court resists. However, the Supreme Court would have to be feeling especially prickly to block Congressional action whose effect is to increase the authority of the federal over the state courts, particularly in circumstances where the state courts appear to be failing.

Proponents of tort reform, the American Medical Association in particular, very much prefer one federal law to fifty state reform laws. Not only does it simplify the scrambling around, but the federal Congress is likely to be more sympathetic to this particular issue. Sixty years of state politics have saturated the various state legislatures with trial lawyers, building up a formidable example of conflict of interest. After all, since 1937 the legislatures have had comparatively little to occupy their attention except insurance. At one point, the Pennsylvania legislature found itself with the speaker, vice speaker, majority leader, and chairmen of both judicial committees all trial lawyers.

Bill Frist

And then there are personal circumstances of leadership. The U.S. Senate Majority Leader in 2005 was William Frist, M.D., a distinguished cardiac surgeon. Cardiac surgery is one of the specialties with the highest risk of lawsuit, and the highest malpractice insurance premiums. His predecessor, Robert Dole, had been openly critical of the trial lawyers as a factor in Senate politics, an attitude that seems to come with the job. For balance, the 2004 President of the AMA, Donald Palmisano, M.D. was a lawyer.

Back of this line-up is the history that a cap on pain and suffering had been passed by the U.S. House of Representatives seven times in the last ten years (only to fail in the Senate), and most of the supporters are still in office. Proponents of tort reform, and opponents too, regard the matter as a foregone conclusion in the House. It's the Senate where it will be decided, requiring 60 votes to overcome a filibuster. Meanwhile, President George Bush, a notably vigorous political partisan, has announced early support. From the Republican point of view, trouncing the trial lawyers would be a delicious thing, but both sides must be wary of public annoyance at partisan behavior.

So, what about Constitutional issues? There really can be no argument about the jurisdiction for tort cases; they are tried in state courts, and no one proposes shifting to federal court. The Ninth and Tenth Amendments, plus two centuries of tradition place tort cases within state courts. The states have seemingly made a mess of the matter, but nevertheless we are surely going to hear a lot about states rights when this matter comes up in the Senate. Justices Rehnquist and O'Connor have historically been strong advocates of states rights.

The strongest argument for a federal solution, in Congress or in the Supreme Court, lies in the discordance between states repeatedly imposed by individual state constitutions. In this area, the trial lawyer lobby might have over-reached. It can be terribly difficult to amend a state constitution, sometimes requiring super-majorities of both legislative houses in two successive years. When one faction achieves a brief but overwhelming dominance it can sometimes pass constitutional amendments that are very difficult to overturn even when the political climate significantly changes. The consequence: it is comparatively easy to pass tort reform laws in some states, next to impossible to do so in others. Add to that the matter of interpretation of these constitutions by state supreme courts that are often strongly partisan, and you can have a highly inequitable inter-state situation that is nearly impossible to change. One of the main functions of the U.S. Supreme Court is to settle conflicts between jurisdictions. When some states have firm limitations on non-economic awards, while other states effectively prohibit legislation on the subject, it is time to look at a national solution if we are to remain a single nation.

Medical Generation Gap

To understand the dynamics of the following medical anecdote, the reader should know the meaning of Miriam's First Rule of Management. Miriam is my oldest daughter, with long experience managing many firms, large and small. Her rule is that when an employee starts misbehaving for no good reason, eliminate the position. Invariably, well almost invariably, an employee who starts acting out doesn't have enough work to do. If you are managing a large organization, you should also consider firing the supervisor of that person, on the grounds the supervisor should have noticed there was not enough work for the employee to do, and is probably covering up.

My anecdote concerns a session at the 2006 annual meeting of the American College of Physicians, ostensibly devoted to conflict between generations of doctors. It didn't take long before the meeting turned into an uproar about the new work rules which prohibit a resident physician from working more than 80 hours a week. That's supposed to protect patients against mistakes of sleepy doctors, although some suspect it is mainly intended to provide full-time employment for an itinerant band of doctors who wander around from hospital to hospital doing unsupervised work at night and on weekends. Perhaps in time the newly invented specialty of "hospitalists" will get established and accepted, but at the moment the pioneers must overcome the suspicion that Miriam's First Rule applies to them.

If not, that Rule clearly does apply to the youngsters who now must go home to spend quality time with their families, because they are not allowed to exceed the new work rules. At the ACP meeting, a dozen of us Civil War veterans were treated to an appalling amount of teenage mumbo jumbo apparently emanating from the present warfare between Generation X and the Baby Boomers, their supervisors, mentors, and colleagues. All of us Civil War veterans held the private opinion that Baby Boomers were a lazy lot, but in the eyes of Gen Xers the boomers are workaholic fanatics, incapable of relaxing even for a moment in order to enjoy the life of the good, the true and the beautiful.

As we passed out of the room at the end of the session, one of the silent gentlemen with white hair came over to me. We didn't know each other, but we knew the silent opinion. The old doctor leaned over to me and muttered, "They offer nothing, but they want everything." I smiled, and we parted. I guess I might have told him about Miriam's First Rule, but it would have taken too much explaining.

Medical Tort Reform

The U.S. House of Representatives will soon consider a medical malpractice reform (limiting awards for pain and suffering to $250.000) which it adopted seven times in the last ten years. Following almost certain House passage, the proposal will then confront the Senate,

cartoon malpractice

where it has failed seven times. The politics of the two chambers are not chief concerns of this paper, which strongly advocates passage. The paper contends that unwise incentives for patients to bring suit are important causes of present difficulty, and reducing such incentives offers a comparatively simple opportunity to bring the complex issue to quick stability. Stability is essential before more sweeping changes can be examined. The collection of data in certain areas would reduce the scope for vituperation and ideology, another important step toward a solution. Full recognition must eventually be given to the intertwined complexity of: industrial product liability, the McCarran Ferguson Act, hospital and corporate governance in general, the tort system, pass-through of Medicare and Medicaid overhead reimbursement to malpractice premiums, even universal health insurance. Some small step must begin such an interlocked rearrangement, and a cap on pain and suffering has the major advantage of being successfully tested by twenty-five years of experience in California and Indiana.

This paper makes no claim of identifying all the root causes, or predicting all the calamitous consequences of inaction. Advocating passage of national laws to reduce plaintiff incentive to sue, it chiefly focuses on the chief arguments historically made against the present proposal, offers some comparatively novel insights in favor, and makes suggestions for collecting data to reduce the latitude for disagreement.

Congress will again take up malpractice tort reform (MICRA) in 2005. perhaps successfully. The 2004 outcome was close. Since the Republicans subsequently made electoral gains in both House and Senate, the leadership is considered likely to re-introduce the same bill and try to hammer it through. The bill's medical essence is to limit awards for "pain and suffering" to $250,000, contrasting strongly with recent escalating awards which have sometimes reached $100 million. Newcomers to the issue may be surprised that so much emphasis gets placed on this point, but thirty years of wrangling experiences in state legislatures have produced this reform alone with proven effectiveness. In the coarse and semi-jocular language of politics, "nothing helps the malpractice problem unless it involves on

The Blue Cross Discount (6)

Blue Cross Blue Shield

Since I've alluded to the two basic problems in health financing today, perhaps I need to explain them. What's known in hospital circles as the Blue Cross discount refers to the wide disparity between what the hospital will accept from an insurance company and what they will demand in payment from someone who has no insurance. It's often double the price. It's a tragedy that forty million Americans don't have health insurance, all right, because it costs them twice as much. It's a punishment for the terrible crime of not buying insurance, to call a spade a spade.

That sounds like a pretty easy problem to fix, doesn't it? Stop overcharging them, and half of the problem of the uninsured would go away.

Furthermore, most of the people who do have health insurance are effectively able to buy it at seventy cents on the dollar, because they don't pay income tax on the money that goes for "health benefits" which is to say health insurance premiums.

Taken together, most people thus pay seventy cents for health care which will cost uninsured people two dollars. Most people would suppose that we ought to give a break to some poor devil who can't afford insurance, but in fact we skin him alive financially. It's impossible to name any other necessity of life that's treated this way, and it's hard to think of any other problem that would be so easy to solve -- just charge everybody the same amount. If you are really bighearted, charge poor people just a little less,

Now, I refuse to get drawn into a history of the origin of these egregious situations. It has to do with price controls during World War II and the fact that investment capital for the health system was impossible to raise during the depression of the 1930s. But it doesn't matter in the slightest how this came about. What matters is how to make it go away.

Health Care Rationing, American Style

The 2006 annual scientific meeting of the American College of Physicians used six or eight auditoriums simultaneously over a three-day period, to accommodate the gratifying number of new advances in medical science. I wandered into one session devoted to pulmonary embolism, because it affects a close member of my family. But every citizen ought to ponder the non-scientific message of this session. Indeed, the anti-scientific message.

It turns out that 1% of the relatives of patients with pulmonary embolism will test positive for inheriting a gene that promotes this often fatal disease. But the speaker, invited as a national authority to speak for the College, cautioned the audience that it would be wrong to test the relatives of their patients with pulmonary embolism for the possibility of running a significant risk of this disease themselves. Why so? We have a pretty good way of preventing this often-fatal disease, by giving blood-thinners, and blood thinners are getting better all the time. So, naturally there were questions from the audience of doctors. Why in the world wouldn't you test people for this preventable condition?

With obvious discomfort, the speaker did a little tap-dancing in his answers; but here is the substance of it. There is a risk of complications from the therapy, of about 5% a year so you must choose carefully among those who have a positive test. If the individual tests positive but is not treated, he may develop an embolism and sue you for not having treated him. Even if he doesn't develop the condition, he will probably be stigmatized for life and find that health insurance is overpriced or unobtainable. If you treat everybody, you will cause problems more often than the disorder would. So, don't test. If you don't know about the problem, you can't get into trouble for acting in an ambiguous situation.

Personally, I doubt that. If the person has an embolism, a keen lawyer can ask if any relatives ever had the same thing, and if so, the other doctor can be sued for not testing the relatives, hence not discovering, and not preventing the present sad, sad, situation. I'd like to think the rest of the medical profession will join me in disregarding this preposterous advice, testing these families to identify the people who are at risk, and then treating them with the best method then available.

But, you know, in the present climate of managed care and lawsuits, I'm not so sure that's what will happen. Meanwhile, my own children are all going to be urged to go get themselves tested, whether the test is covered by insurance or not.

Health Savings Accounts

The legislation removes the hampering restrictions of the 1995 Law. What follows is a brief outline of the main features of the HSA/MSA clause in the 2003 law,

U.S. Capital

as published by the main authorizing committee, the House of Representatives, Committee on Ways and Means. From this point forward, more specifics of the program will probably be written by the Executive Branch, and published in the Federal Register. The Ways and Means Committee will continue to exercise oversight authority, however, in conjunction with the Senate Finance Committee. As a consequence, statutory modifications of the program are likely to appear in future annual budget reconciliation acts, or else in any new Medicare amendments. The legislative route map becomes more understandable when it is recalled that Medicare itself is considered to be an amendment (Title XVIII) of the Social Security Act.

Committee on Ways and Means
Medicare Prescription Drugs, Improvement And Modernization Act of 2003

Health Savings Accounts (HSA's)
Lifetime savings for Health Care

Working under the age of 65 can accumulate tax-free savings for lifetime health can needs if they have qualified health plans.

A qualified health plan has a minimum deductible of $1,000 with $5,000 cap on out-of-pocket expenses for self-only policies. These amount are doubled for family policies.

Preventive care services are not subject to the deductible.

Individuals can make pre-tax contributions of up to 100% of the health plan deductibles. The maximum annual contributions is $2,600 for individuals with self-only policies and $5,150 for families (indexed annually for inflation).

Pre-tax contributions can be made by individuals, their employers and family members.

Individuals age 55-65 can make additional pre-tax "catch up" contributions of up to $1,000 annually (phased in).

Tax-free distributions are allowed for health care needs covered by the insurance policy. Tax-free distributions can also be made for continuation coverage required by Federal law (i.e., COBRA), health insurance fro the unemployed, and long-term care insurance.

The individual owns the account. The savings follow the individual from job to job and into retirement.

HAS savings can be drawn down to pay for retiree health care once an individuals reaches Medicare eligibility age.

Catch-up contributions during peak savings years allow individuals to build a nest egg to pay for retiree health needs. Catch-up contributions allow a married couple to save an additional $2,000 annually (once fully phased in if both spouses are at least 55.

Tax-free distributions can be used to pay for retiree health insurance (with no minimum deductible requirements), Medicare expenses, prescriptions drugs, and long-term care services, among other retiree health care expenses.

Upon death, HAS ownership may be transferred to the spouse on a tax-free basis.

Contain rising medical costs- HSA's will encourage individuals to buy health plans that better suit their needs so that insurance kicks in only when it is truly needed. Moreover, individuals will make cost-conscious decisions if they are spending their own money rather than someone else's.

Tax-free asset accumulation- Contributions are pre-tax, earnings are tax-free, and distributions are tax-free if used to pay for qualified, medical expenses.

Portability- Assets belong to the individual; they can be carried from job to job and into retirement.

Benefits for Medicare beneficiaries- HSA's can be used during retirement to pay for retiree health care, Medicare expenses and prescription drugs. HSA's will provide the most benefits to seniors who are unlikely to have employer-provided health care during retirement. During their peak saving years,individuals can make pre-tax catch-up contributions.

Chairman Bill Thomas Committee on Ways and Means 11/19/2003 12:56 PM

Malpractice Epidemic?

The best way to avoid malpractice suits is to avoid committing malpractice in the first place

The Tort Bar

Plaintiff lawyers, responding to increasingly effective attacks by the medical profession, retort the best way to avoid malpractice suits is to avoid committing malpractice in the first place. That's more jibe than serious argument. But if it seriously intends the implication that increased volumes of medical malpractice cases signify increased levels of incompetence, that is unlikely to be true. Medical school applications have become almost incredibly selective for talent (sometimes reaching a level of 12,000 applicants for 200 places), the duration of postgraduate medical training is regularly protracted by several years after the four years of medical school, and legislation is actually being considered to compel these over-achieving trainees to work shorter hours. It seems much more likely that this intensely competitive educational environment has pushed medical standards to overly exacting levels of constant self-criticism.

As far as net effectiveness is concerned, the basic goal for medical care is to prolong human life. Whatever the medical profession has been doing during this alleged epidemic of negligence, people are living longer in spite of it. In 1900, life expectancy at birth in retrospect was forty-seven years. In 2005, it is predicted to be seventy seven years for infants born today, a gain of thirty years in a century. So to speak, the average person lived 16 months when predicted at birth to live only 12, and kept it up every year for a lifetime. During no other century has that ever been true. Despite an alleged malpractice epidemic, remember, allegedly getting worse every year.

So the medical profession takes offense at the surge in malpractice lawsuits, which they feel are unwarranted and ungracious. Congress and the public also need to see that rousing a respected profession to offended self-pity makes it much more difficult for leaders of the medical and legal professions to work together for dispute resolution, continuing quality improvement and effective peer review. The leadership of the medical profession has come to feel that the leadership of the legal profession has neglected its own self-policing duty. These are unhelpful attitudes, and the risk of their further escalation is itself major justification for shifting priority from long-term reform, toward quickly cooling things off.

Malpractice: Blame Insurance Companies?

Physicians are in a mood to dislike the insurance industry indiscriminately. Health insurance was once provider-dominated, but now is employer-dominated. Since that didn't happen voluntarily, it's a grievance. With health insurance the main source of relentlessly squeezed physician income, insurance middle-men are an unfocused target of antagonism. Unfortunately, irritation unfairly spills over to malpractice insurance, which however is an entirely different thing, run by an essentially different industry with its own principles and belief systems. There is one common historical feature, however. In both cases, health insurance and professional liability insurance, a health-related industry abandoned its field when it became unprofitable, and physicians then had to start their own insurance companies to cope with the resulting vacuum. When the insurance became profitable again, the commercial insurers wanted it back, and this annoying experience dramatized an essential conflict of attitudes. Physicians are in the medical business for life, in good times or bad; the sick are always with us. Businessmen however think it's normal economic behavior to drop unprofitable products. Since both sides stumbled into this situation without fully understanding its implications, it is not yet clear how to compromise two legitimate positions without disrupting an essential public service. If insurance will not play by our rules, perhaps we must reluctantly play by theirs.

We should examine the origins of provider-dominated health insurance, eighty years ago, some other time. In essence however, physicians and hospitals started Blue Cross and Blue Shield because commercial insurers avoided the task. The commercial medical liability insurance industry, our present central topic, abandoned its field in 1974. By that time the cat was out of the bag, with physicians feeling endangered, or even prohibited by law, from practicing medicine without liability insurance. So physicians put up the money and started their own insurance companies, nick-named bedpan mutuals. That accidental foray into high finance put physicians on the inside of the industry's secrets, and very quickly put an end to their idea insurance companies were getti