|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.
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.
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.
|Roe vs. Wade|
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.
Cost analysts maintain it really does cost ten dollars to write a simple business letter, so maybe 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 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, these are discounts to insurance companies.
Why do hospitals raise prices, then turn around and discount them? Why do they overcharge, then call it a loss when they write it off?
It's 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 to pay are charged more than those who can.
The old-time system of hospital wards to care for people who couldn't pay have been replaced by collection departments and hospitals are very aggressive in pursuing the the very people who can least afford to pay, and who are grossly overcharged in the first place.
Health savings accounts with high deductibles were conceived as a way for people to self insure but they have been thwarted by hospital overcharges. Since HSA deductibles are guaranteed, hospitals perpetuate their present largest source of loss -- unpaid deductibles. So why do hospitals continue to post abusively-high prices for patients without large-insurance-company coverage?
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. The 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?
All current plans for "reforming" health care involve providing government-paid insurance to those without. Will the result be to permanently institutionalize the artificially-high public prices to be paid in full by the government? If so, you can well understand why hospitals support these "reforms".
So hospitals are no better than stores that mark up their prices and then loudly proclaim that they will give you a discount. 200% mark-up, 10% off; terrific.
|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.
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 intern, to tell you what to look for and what to avoid. If every doctor in a hospital is making a dozen internal referrals a day, the cumulative effect on quality of the whole institution is dramatic -- when they have had sufficient past involvement in the specialties to which they now only refer patients. Some specialists will become popular and rich; others will sulk around unnoticed for a while, then go elsewhere. This process of course occurs everywhere; what's institutionally distinct is the culture underlying the standards for preferences.
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 must 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.
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 for 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 Hhealth 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 deductable 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 plan¿½s 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 encouraged to purchase a policy, which will increase the size of the risk pool and lower the risk, which will also make more small business companies 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 a retiree, your healthcare savings account can pay for your Medicare premiums and retiree health insurance premiums, other than Medi-gap.
- 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 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 nearly 14% of the Gross Domestic Product and growing. To address the continuing rising healthcare cost it 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?
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 to 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.
How many people have signed up for HSA??
- On January 1, 2013, there were nine million Health Savings Accounts.
"SUPPLY SIDE" HEALTH INSURANCE REFORM
a) reduced small-claims insurance costs
b) reduced "moral hazard" over utilization costs
c) compounded internal investment of reserves
d) utilization of the now-wasted labor potential of young retirees
It does not aim directly at the goal of reducing the number of uninsured, except on the principle that if something becomes cheaper, more people can afford it.
1. HIGH DEDUCTIBLE. The annual deductible of health insurance should be high, in the range of $ 3000 per year. The main reason for a high deductible is to make health insurance premiums cheaper, especially for currently uninsured people. But high deductibles serve other important purposes. 80% of costs concentrate in the most expensive 20% of illness episodes, but these "big ticket" expenses generate far less than 80% of administrative costs. The cost of healthcare to society can be markedly reduced (at least 30%) by eliminating small-claims administrative costs, as well as the disproportionate "moral hazard" costs of minor illnesses. "Moral hazard" includes wasteful utilization of services and insensitivity to price, both deriving from interposing insurance "third parties" rather than paying the providers directly. Note: the advantages of deductibles are not present in "co-pay" features, which in fact increase administrative costs, particularly when a second, or coinsurance, policy is employed to cover them.
2. COVER DEDUCTIBLE PORTION WITH MEDICAL SAVINGS ACCOUNT. Because high-deductible insurance may give poor people a financial barrier to access, the 2003 Law encourages linking high-deductible policies to a tax-sheltered Medical Savings Account, renamed Health Savings Accounts. Thus, although medical bills (up to the deductible threshold) require cash, reimbursement reserves are supplied by the individual's Account.
These reserves also create new and unexpected value, including portability between jobs, a more level playing field for tax preferences, a longer horizon for health coverage than traditional one-year policies, and neutrality of employers to individual employee health preferences. Although conventional health insurance could be paid for by credit or debit cards, it has somehow never been conventional to use them. Medical Savings Accounts, by contrast, commonly use credit cards, because they simplify record-keeping for the deductible.
What is the source of the money in Medical Savings Accounts? High-deductible premiums are roughly a third of conventional health insurance, depending on the individual's age. The remaining two thirds go into the tax-deductible savings account. Current law permits additional contributions (out of pocket, but tax-exempt), scaled to the individual's age. If the account is mostly untouched by a healthy person for two years, it becomes increasingly difficult to exhaust it later because of a) its internal income generation, and b) the top limit on expenditures created by the insurance policy. For low-income individuals, funding might be public supported.
3. NOTICE THE TWO DIFFERING PROVIDER PAYMENT-METHODOLOGIES. The level of $3000 annual deductible was chosen as within the current band of outpatient-inpatient price separation, and requires an inflation adjustment clause to keep it there. One of the chief advantages is to permit two different reimbursement approaches to co-exist, one for outpatients and one for inpatients, without mandating either one.
A high deductible is intended to save cost, preserve individual choices, and to restore consumer negotiating power: consumers gain control to negotiate prices for better service. They can readily observe what is happening, and can readily move to another provider.
However, for incapacitated patients within an inpatient complex, such advantages become unrealistic. Their bundled services (psychiatry may be an exception) should be priced by diagnosis. Although the present DRG (Diagnosis Related Group) system badly needs revision, its introduction by Medicare in 1983 proved so superior to item reimbursement and cost reimbursement, that almost all health insurers employ it.
Moral hazard, which is much lessened for services within the deductible, reappears when the deductible is satisfied, especially when the decision is made to enter the hospital. A financial incentive exists for patients to prefer more expensive but fully insured inpatient care. 1) Accordingly, it would be wise to allow the deductible threshold to rise when excess funds appear in the Medical Savings Account; since that would lower the insurance premium further, the individual has some incentive to agree to it. 2) The patients who select more economical care should share the savings they create. Therefore, policy makers (and providers) should reconsider their instinct to limit benefits of health insurance strictly to health expenditures. 3) To this end, Medical Savings Accounts should be unified with some or all federal, and federal qualified, tax-preference funds, including possibly Social Security itself. 4) In order to sharpen the focus of cost concern to the matters where moral hazard is greatest, a series of insurance carve-outs should be added. These carve-outs would focus on issues where other concerns are greater than the moral hazard feature, for example, obstetrics and terminal care, or where the moral hazard is significantly different, as in home care and durable medical equipment.
In all efforts to structure incentives away from moral hazard concerns, it should be remembered that draconian countermeasures have already been tested and failed. If individuals desire care-managers to work on their behalf, they should be charged for that unbundled service out of their Medical Savings Accounts, shifting the risk it will lower their medical costs, and the profit if it does, to themselves. Rationing has been firmly rejected by the public, as well as deliberate limitation of medical facilities in order to ration by shortages. All of these approaches are bad politics. Finally, it should be noted that the preference for insured inpatient services has historically been addressed by expanding the limits of insurance to include outpatient care and home care. This might be good politics, but it is not good arithmetic, since it has been one of the main sources of healthcare inflation in recent years.
4. LIFETIME COSTS RATHER THAN ANNUAL COSTS. BEGIN WITH TERMINAL CARE. Medical costs are rapidly concentrating in two places: the first year of life and the last year of life. Because of the technology cost to achieve that transition, it make take several decades for it to become obvious. Meanwhile, the design of health insurance should begin the process, incrementally, of moving to lifetime health insurance instead of annual insurance. Eventually, it can be expected that the cost of living too long will be equal to the cost of dying too soon, but cost predictions are presently difficult. We could rather easily begin the process -- by carving out the cost of terminal care, insuring it separately from the rest of Medicare, and demonstrating to the public the remarkable power of COMPOUND INTEREST ON INTERNAL INSURANCE RESERVES. For example, it has been loosely stated that two thousand dollars invested at birth, compounded tax free, would roughly pay for an average lifetime's medical expenses.
Carving out terminal care could be accomplished without the public much noticing it, by the following means. Medical care would continue to be paid for by conventional methods, but all costs which fall in the last year of life would be designated "terminal care" and retrospectively reimbursed to the insurance entity which paid them. Since substantial proportions of Medicare funds are now being paid out during the last year of someone's life, the reduction of Medicare's pay-as-you-go "premium" would be considerable. Accordingly, a comparable amount could be set aside from Social Security payroll taxes, invested at compound interest, and eventually made available to pay the individual's terminal care. Transition costs, future cost projections, interest rate risks, and methodology of investment are set aside in this discussion, since this project would have to develop some actual experience before final design is possible.
5. CARVE-OUTS. By limiting health insurance premiums to the current year, the uncertainty of future medical cost inflation is addressed. However, this insurance advantage is confounded by treating all medical costs as if they were random events, including many costs which can be deferred into a different premium year, and other costs (like birth and death) which lack the individual potential for occurring randomly in multiple years. To the degree that such medical costs can be teased out of their mixture with more random risks, opportunities for patients, providers and insurers to game the system are reduced.
A carve-out system for terminal care has been mentioned, as well as a carve-out of managed care management costs. The latter might be paid for outside of the Medical Savings Account, just as investment advice is often paid for outside an IRA, in order to preserve tax exempt funds. (The same may be true for preventive care costs). If managed-care management advice actually saved money, fee-based advice might be a prudent option to adopt. It seems very likely that prescription drug costs will be handled as a carve-out. Psychiatry has long proved unsuitable for payment by diagnosis; failure to confess to this has almost destroyed inpatient psychiatry, and there is some urgency to carve out and significantly revise psychiatric care reimbursement. The same applies to home care, durable medical equipment, and probably other areas of healthcare. No reimbursement system can be carried to the present extreme of "one size fits all, let's extend it to other things."
A carve-out of the COST OF OBSTETRICS AND POSTNATAL CARE sounds radical, but could be mostly transparent, as well. It is more likely to provoke political resistance, however, since it represents a reversal of parents paying for children, to individuals paying their own birth costs. One birth cost per person, paid for by health insurance in the usual way, and repaid to that health insurance like a mortgage, or a tax on the Medical Savings Account. Just as is true of a mortgage prepayment, the individual would have various options for early, average, or late repayments, reflecting the accumulated funds in his account.
PREVENTIVE, OPTIONAL, COSMETIC AND OTHER ELECTIVE MEDICAL COSTS should also be carved out, for the reason that present rules excluding them from coverage are unworkable. (Preventive care has already been carved out of Health Savings Accounts by excluding them from the deductible; it might be wise to demand proof of effectiveness before making this sweepingly inclusive). It would be equally unworkable to insure them all. It seems better to create a carve-out insurance for these costs, provided with funding that does not affect traditional healthcare premiums. Such a system would provide a funding mechanism which must be paid for, rather than the present system of futilely insisting that these costs are illegitimate when in fact they are not. The main argument against using insurance to pay for preventive care is that there is no risk, everyone ought to have it. So the insurance just adds unnecessary costs. When Medical Savings Accounts become more widely adopted, this issue may disappear.
6. CCRC Retirement communities should be encouraged to become the center of health care delivery in their regions, by removing regulatory or tax obstacles, particularly the IRS opposition to accumulating healthcare volunteer activity credits against later healthcare needs of their own. Tax and regulatory obstacles to the use of vacant infirmary and outpatient facilities, community physician and laboratory/x-ray facilities, and pharmacy/durable equipment providers, should be removed. Since this trend conflicts with locally established providers, mechanisms should at least be developed to match these transitions to the migrations of elderly populations in any particular region. * * *
IN SUMMARY, this whole scheme can be described as "SUPPLY SIDE" HEALTH INSURANCE REFORM. It generates new funds for healthcare by a) reduced small-claims insurance costs b) reduced "moral hazard" over utilization costs c) compounded internal investment of reserves and d) utilization of the now-wasted labor potential of young retirees. It does not aim directly at the goal of reducing the number of uninsured, except on the principle that if something becomes cheaper, more people can afford it.
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.
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.
|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" just as Philadelphia means "city of brotherly love", but still that foreign 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. A blood test was devised, which detected signs of previous Legionella infection. One third of the residents of Australia who were systematically tested were found to have evidence of previous Legionella infection. A far worse epidemic apparently occurred in the Netherlands, at the flower exhibition. Lots of smaller outbreaks in other cities were eventually 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 hauntedness.
|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.
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."
The 1937 Supreme Court (Owen Roberts, for the majority) allowed Franklin Roosevelt's New Deal to place the federal government in charge of all American commerce, not merely interstate commerce as the "commerce" clause of the Constitution provides. 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 commerce they are in charge of. Out of this peculiar political anomaly, grows the present uncomfortably deep penetration of the local insurance industry into state politics. And over time, the unanticipated deep penetration of state politics into insurance.
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, eventually raises premium prices, and overall, broadcasts moral hazard. That is, it doesn't matter how badly they behave, their competitors will have to pay for their mistakes. Moral hazard is the most insidious form of political corruption, because it is so seldom punished.
Politically inclined state insurance commissioners have other favors to extend. Malpractice companies work in an environment with a peculiarly long tail. (Translation: 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 announce how briefly 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, it might be supposed a company seeking long-term profitability would 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. This paradox rests on the quick accumulation of big-ticket premiums from a mere handful of clients. Competitors are prompted to suspect companies with that behavior 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, all the other competing 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 as "windfall profits", money was made and lost in the stock market, and when 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, most judges are lawyers. As are most legislators. And Insurance Commissioners. These particular lawyers may not have participated in the problem, but only they are in a position to fix it.
|Wall Street Journal 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?
|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.
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.
To understand the dynamics of the following medical anecdote, the reader should understand the thrust 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 an outgrowth of a gap between what they do and what they expected to do. From the time they entered high school, future doctors have been taught to expect workaholic employment conditions, and while more normal people haven't been taught that message, that's irrelevant. The situation is aggravated by the increased admission of women to the profession, who for their part have been taught to expect a breathless race between finishing their work and getting home to relieve the baby-sitter. Perhaps in time the newly invented specialty of "hospitalists" will get established and accepted, along with accident room work as another harrowing occupation which abruptly ends its day by the clock rather than the backlogs. At the moment the pioneers must overcome the suspicion, only partly fair, 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 unsuspected 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 little self-indulgent, 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 recognized the signs of a silent shared 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.
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,
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
|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.
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.
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,
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.
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.
HSA 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, HSA 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
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 so there can be no legitimate excuses for performance that isn't absolutely tip-top. It seems much more likely that this intensely competitive training environment has pushed medical standards to overly exacting levels of constant self-criticism, which is cited by censorious expert witnesses to imply that only a scoundrel would fail to measure up. In fact, most of the problems grow out of the snide comments of economic competitors, advertising their differing positions in the chain of information transfer.
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 apparently 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 annually 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 we 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. In almost every state every year, the number of lawyers disbarred is many fewer than the number of physicians losing their licenses. To imply that the standards for admission to Medicine are lower than the standards of admission to law school, is not a statement supported by evidence. Nor is there evidence that self-policing by a conscience-driven profession is less effective than persecution by those who are paid to be censorious. Some research institution is challenged to examine a view widely held by the physician community: the graduates of mainly low-ranked law schools are chiefly responsible for attacking the performance of graduates of the highest-ranking medical schools, so class warfare also infiltrates this issue. These are all perhaps unhelpful rejoinders, and the risk of their further escalation is itself major justification for shifting priority from long-term reform, toward quickly cooling things off.
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.
|Blue Cross and Blue Shield|
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 getting rich without taking big risks. We learned about premium cycles, and reserving philosophy, and dual systems (GAP and SAP) of insurance accounting. We learned appalling things about re-insurance, especially finite reinsurance. We learned about the politics of legislative insurance committees, and the politics of insurance commissioners. We learned, in short, that it's a cruel world out there, and that it's very easy to get lost in complicated details. Insurance companies create lots of problems, but we came to feel it was unfair to say malpractice insurance was unfordable because insurers were getting easy rich, that it was unacceptable to drive them out of business, and (quite unlike their cousin, health insurance) the solution to physicians' malpractice problem probably did not lie in reforming the insurance companies, however useful that might otherwise be. In fact, when the highly cyclic malpractice insurance industry just happened to be unusually profitable, the word "contraries" came up, and the day soon followed when I raised my hand and said, Let's just sell this company.
One important step is reducing the financial incentives for plaintiffs to sue
In a situation as complex as the medical malpractice crisis, it's hard to know where to begin, and how far to go. We argue here for reducing the financial incentives for plaintiff's to sue. Of the various steps which would accomplish that, the one with proven effectiveness is to place an upper limit of $250,000 on awards for non-economic damages, mainly pain and suffering. Another step which is easy to explain is to allow juries to know about (and take into consideration) the economic damages which have already been paid by another insurance, like Blue Cross or Worker's Compensation. A third world be to pay out damages for support and disability month by month instead of in a big lump sum which may never be used. These financially-oriented changes, particularly the cap on pain and suffering awards, would be sufficient to stabilize the present chaotic situation for perhaps as long as ten years. During that period of respite, more basic reforms could be examined and tested. It would definitely be better not to get into many of the fundamental issues, just now.
-- The present tort system is said to have been invented by Charlemagne in the 8th Century, to put a stop to private settlement of disputes by duels and revenge fights. It has evolved into a system which attempts to place a dollar value on every injury and compensate the injured party. It must be obvious that some injuries do not have any equivalent in dollars, and few injuries are much improved by being paid for. Society needs a long period of reexamination of how we can best compensate those who would benefit from financial compensation, and then what to do about problems that money will not solve. We need a new system that is less expensive to operate, gets better results quicker, and has less tendency to provoke dissention. To do that well, will first require at least ten years of stability, not likely unless we do something first to stabilize.
-- Too many other issues are crowding the attention of our legislators. A related issue, product liability, has greater power to gain attention, regardless of its relative merit. Our medical leaders need to acknowledge that product liability reforms may get ahead of medical malpractice in the Congress if we dither, and therefore sweeping medical reform proposals will then require appreciable modification before they can pass.
-- Similarly, the public is presently dismayed to see the governance of major corporations needs fundamental reappraisal, along with difficult decisions about accounting methods within businesses in general. It is not sensible to respond drastically to the disruptions of hospital governance caused by malpractice-induced upheavals, when there looms ahead some unknowable organizational rearrangement of corporations in general.
-- What is being proposed as a simple stop-gap -- is to make a change in the court system, in order to rescue a different profession, the insurance system. Never mind that the courts provoked this problem in the first place, courts will nonetheless prefer insurance to seek an insurance solution to its difficulties. Furthermore, it is a federal approach to what has traditionally been a state matter, both in trials of tort, and in the business of insurance. Such an approach is not easy to accomplish, and must contend with every competitive proposal made by those who would lose from it. All of the alternatives have already been examined and are truly not feasible, but they must have a hearing. Ultimately, it may require political brute force to pass this simple measure, and that has a political cost to be considered.
-- Once the public fully realizes that this problem has a lot to do with rising levels of health insurance, and that universal health insurance would thoroughly confound its solution, many people will have to reconsider their deeply-held opinions. The steps taken to stabilize this situation must be simple, easily understood, and adopted soon. There is more to be said, but it's better to stick with a simple point, and adopt a solution that can demonstrate twenty-five years of success in several states.
To summarize the present medical malpractice snarl, particularly what the 2005 Congress should do about fixing it, please tolerate first a bit of naval history from 1777. Speculative Philadelphians rowed across the Delaware River to New Jersey and as far up the Jersey creeks as they could go. Walking a mile or so East, they reached the bustling shipyards of privateer captains, at the headwaters of creeks running the other way, out to sea. The speculators bought shares in the vessels of likely-looking captains, their money bought supplies and sign-on inducements for the crew. The captains then sailed out to blue water through the coastal creeks and bays, and if they came back, paid off the shareholders. If they never came back, the shareholders lost their money, the sailors including the captain, lost their lives. When ships were lost, it was presumed to be the captain's fault, but he risked his own life in the process, so utmost diligence in a chancy business was fairly confidently presumed. That's the way the "captain-of-the-ship" idea evolved when corporations, especially hospitals, emerged in the following century. And that's the origin of the belief that the responsibility of the stockholder was limited to his investment, and supervision of the captain was very limited. As business corporations evolved out of this model, the stockholders took some responsibility, and the captain-like C.E.O. took considerably less personal responsibility for mistakes of employees doing what they were told to do. Eventually stockholders were assigned the whole cost of corporate damage awards, gaining very little true control in the process. Hospitals, possessing charitable immunity, were just about the last to go down this trail, so many principles of the captain of the ship idea persisted, both confounding the hospital-physician relationship in court, and the mutual rights and responsibilities in actual medical care delivery, when charitable immunity was suddenly withdrawn. Using every argument weak and strong, and exploiting every legal ambiguity, the trial bar then unwittingly brought this disruption of essential services to the point where something absolutely must be done about it, and soon.
Unfortunately, redesigning responsibilities in the whole corporate structure of America is too heavy a topic for this spring's debate on medical malpractice. We're certainly moving in some direction, with criminal lawsuits now in process personally against the C.E.O.s of some of our largest corporations for transgressions that may not be medical, but nevertheless leave undigested implications from the recent Sarbanes-Oxley Act concerning for-profit corporate governance. No one is willing to permit so unique a corporation as a hospital undoubtedly is, to establish principles of law governing the entire economy. Herein lies one of the main arguments in favor of stop-gap legislation, rather than get-to-the root-of-it legislative statesmanship about MICRA, or whatever we call medical malpractice legislation on a federal level.
The second argument for a patchwork solution lies in the vexing entanglement of the medical malpractice crisis with other inflammatory national medical questions: what should we do about employer-based third-party health insurance, or even health insurance in general? The wounds are too sore from the 1993 Clinton proposal, and from the subsequent managed-care fiasco, or the more recent prescription drug tangle, for there to be any hope of keeping those echoes out of a medical malpractice debate. Employers are deeply involved in product liability questions at the same time they are heavily invested in employee health insurance. If we force them to choose between their conflicting interests in these two areas, they may decide the net balance of their Washington interests favors a course of action on medical malpractice which makes the malpractice crisis worse. Notice that malpractice awards are pretty much confined within the limits of malpractice insurance, with a major role of moral hazard making things worse. Malpractice insurance, particularly the hospital part, is almost entirely financed out of health insurance. And rising costs of malpractice awards are thus a major source of rising malpractice insurance premium rates, while rising malpractice premiums put upward pressure on health insurance premiums. Round and round it goes, making it impossible to establish a new theory of one form of insurance without a new theory of managing the other one. The situation cries out for a workable stop gap, followed by a period of calm rumination.
A number of earnest proposals have been made in the last forty years, and almost none of them has had any effect. The defense bar, putting forth a succession of obscure legal doctrines to make it easier to defend cases, has not been a productive source of ideas. Since only a small proportion of very similar medical mishaps trigger a lawsuit, all those well-meant ideas for arbitration or alternative dispute resolution raise the specter of creating a staggeringly huge entitlement for a particular sort of injury. Carry that further to all injuries caused by anybody, and you can't tell where you would be going, but you know for certain it would be more expensive than even the present crazy system.
In all the wrangling and experimentation about medical malpractice which has been going on for two generations, only one general approach has been demonstrated to work quickly and surely: reduce the financial incentives of plaintiffs and their representatives. California and Indiana provide twenty-year demonstration projects on the consequences of placing a $250,000 cap on non-economic damages, generally known as awards for pain and suffering. Legislation which includes a provision that juries be told that health insurance has already paid for injury repair (repealing the Collateral Source Rule) or that a widower has since remarried and does not need supplementary child care, or similar circumstances, would probably get attached to such legislation without great debate. Structured (rather than lump-sum) payment of damages is another legal term for reform of a "money issue" which would probably pass any session of Congress willing to pass a cap on pain and suffering.
So let's get on with it. Put a reasonable cap on pain and suffering, attach a few other legal obscurities, and bring this malpractice issue to a screeching halt. And then, in the ten or twenty years of respite it would provide, thrash out all those fundamental questions of corporate governance and responsibility, of non-adversarial dispute resolution, of party politics, and universal health insurance. There's a fair chance those questions can never be satisfactorily resolved. But even if they can be, this malpractice matter won't allow you to wait for it.
Defense lawyers frequently suggest reforms of the law which would make their job easier
It seems entirely possible that malpractice insurance, by creating an irresistibly attractive "deep pocket", might well be the root cause of the malpractice crisis. Insurance can certainly cause harm, at times. It can induce people to do unnatural things, like suing their own brother. Graphically termed "the moral hazard of insurance," perverse incentives create a principle: society must be vigilant against insurance benefits becoming more attractive than the covered event. It's unsafe to assume people will never sink ships or torch houses to collect insurance. If they are over-insured there is still greater temptation. Meanwhile, salesmen have a commission incentive to sell more coverage. Frightened physicians would buy unlimited malpractice coverage if they could get it.
So, it is legitimate to wonder if excessive malpractice insurance might actually have stimulated malpractice claims, converting over-insured physicians into attractive targets. One of the clear duties of insurance regulators is to forestall such effects. That can be achieved by imposing top limits on insurance coverage, regardless of outcry to buy more, or eagerness of insurers to provide it. In the past thirty years, however, state insurance commissioners have undoubtedly turned away from their traditional goal of preventing insurance company default, and now somewhat adopt the role of consumer advocate, holding down premiums. By itself, the resulting impairment of insurance reserves may have contributed to waves of market exodus during dips in the premium cycle. Permitting unwisely higher levels of coverage to be sold to worried customers may then have been an extended consequence. Regardless of the causative effect of these changes, however, they are too politically charged, too difficult to prove, and too far advanced to reverse in any reasonable time, for relief of the present malpractice difficulties.
A number of other problems exist in the malpractice insurance mechanism, which will be discussed next. However, they all are too intertwined with conflicting issues to have realistic hope of fixing them. Compared with a mandatory cap on pain and suffering, insurance tinkering is unlikely to have useful effect very soon.
Mandatory Coverage. Unfortunately, many states have sought to create more insurance coverage, not less, an unfortunate stimulus if overgenerous insurance is already creating enticement to sue. The commonest method is to make insurance coverage mandatory for those holding a license to practice. Using the self-defeating argument that the public needs to be promised restitution, mandatory coverage surely dispenses with sales resistance. It imposes premium charges on people whose personal assessment is they don't need insurance, and raises the potential limits of coverage on those who feel they can't afford more. It thus spreads premium costs from people truly at risk, out to bystanders. But insuring people unnecessarily may itself create a risk of their now becoming the target of suit.
The claims-made type of policy. Under this system, there are really two policies -- one for any claims made (filed) during the current year, and a second "tail" policy for claims that straggle in later. Whether by genius or accident, malpractice insurance companies introduced this technical "reform" on their own devising, and like most solutions, it generates new issues. The idea revolves around a peculiarity of professional liability insurance: few malpractice claims are ever filed during the first year after the event.
That makes the premium charged for the first year pretty arbitrary. Potentially, it's a loss-leader to attract new sales, or an emergency solution for some political crisis. Therefore, "claims-made" policies obscure underlying cost trends. Deferring the rest of the premium into a second ("tail") policy reduces the amount available for investment, and therefore increases the final total cost. Those are the bad features, which are emphasized by discovering instances when the tail is more than four times as large as the "basic" policy.
On the other hand, the risks for the insurance company are greatly reduced by the potential to adjust most of the premium in retrospect. An industry subject to demolition every thirty years surely needs some reduction of risk. It's true that much of the risk is transferred from the company to the doctors, but ultimately the customers do pay for all costs of any vendor. By smoothing out unexpected volatility in the court environment, the legitimate costs of financing this lottery are actually reduced, although it is not known by how much. Since 60% of malpractice insurance is sold by companies owned by medical societies, reduction of company cost probably mostly comes back to the doctors.
However, that may be too complacent a view. Individual doctors come and go as customers, and an opportunity to game the system is potentially created. Long-term deferral of true costs can be adjusted to some degree, creating a temptation to market-time investments but prove wrong in the timing. Timing of these revenue flows can be used to out-guess the tax system, and creates the opportunity to squeeze out competitors who have less capital. Since the tail is seldom accumulated as a single payment, but is rather fed out in partial surcharges to future basic premiums, the companies have the latitude to forgive the tail completely if they happen to choose. Since the companies are comparatively small, the potential is there for intergenerational cost-shifting, or cross-specialty subsidies, raising an issue of how the officers are chosen. In short, this complicated obscurity can get doctors involved in considerations they do not understand, making decisions for which they have no training, amateurs playing poker with professional card sharks. For emphasis, throw in some tricky accounting, with GAP for one set of books and SAP for another, and you begin to wonder why you ever got involved. It's a way to lose your shirt, ending up with the blame for ruining your own respected profession.
The insurance company antitrust exemption. Considerable uneasiness revolves around the position of the insurance industry and its federal antitrust exemption, effectively established in 1945 by the Scarring Ferguson Act. No federal agency (the Justice Department and the Federal Trade Commission in particular) may interfere in the business of insurance except "to the extent such business is not regulated by State law." All states passed regulatory laws, but for twenty years there were loopholes of one sort or another, gradually closed. We now face the fact that repeal of this law, which is generally an undesirable one, would very likely generate another long period of loophole closures. Whatever the merits of repeal in other fields of insurance, the potential for regulatory turmoil in professional liability insurance seem to outweigh the desirability of introducing this issue. In particular, repeal might lead to subsidies of states with unsatisfactory court systems, by states with good ones. No one would claim that repeal of the Act would solve the malpractice problem, or that passage of the law caused it. There's quite a difference between noticing the existence of insurance created a very tempting target, and hoping the correction of flaws in insurance management, however numerous, would help very much.
Linking Malpractice Insurance to Health Insurance: Don't Even Consider It.
While tinkering with insurance cannot rescue this problem, one wrong kind of tinkering could utterly disrupt the three professions in conflict. From time to time, a lawyer will suggest to a physician that we could all be friends again if we just got health insurance companies to pay malpractice premiums as a "pass through." The lawyers would then have a direct pipeline into the insurance companies or better still Medicare, and the physicians wouldn't have to care how much the awards were. Strictly no hard feelings, and we all march arm in arm to the bank. Such proposals actually do get floated in medical society meetings, and there are people so desperate they actually consider them. However imperfect other proposals may be, they do not compare with this one in betrayal of the public.
Don't get to the root of it, please. If we were writing a scholarly thesis about the root causes of the malpractice crisis, instead of just trying to keep it from wrecking the health delivery system, the surmises might go as follows. The malpractice insurance business is inherently cyclic, and tends to drive nearly every insurance company out of the field, about every thirty years. That strongly suggests the insurers are undercapitalized, unable to accumulate adequate reserves for severe downturns in the lean years. And the reason for this is probably political. The reserves needed to withstand cyclic downturns cannot be accumulated during the fat years when state governments (in the form of the Insurance Commissioners) experience strong political pressure to force premiums down. State involvement in the Medicaid system possibly provides special incentives to hold down overhead costs like malpractice premiums, and competition from insurers based outside the state boundaries may provide another. If this analysis is near the correct explanation, unravelling it entails an impossibly complex agenda. At a time when straight-forward limitation of non-economic awards is probably adequate for the purpose at hand, a top-to-bottom insurance reform would involve repeal of the McCarran Ferguson Act, higher premiums in the face of huge existing reserves, a reversal of attitudes by fifty state governments, revision of the Medicaid financing process, and patient re-education of the public to accept all this. Such an agenda is so ambitious it amounts to a decision in advance to do nothing effective about the problem.
Furthermore, the internal problems of the insurance industry are probably only part of the main causes for instability.
Pointing fingers and blaming others is considered counter-productive in solving problems, but that's not always so. "Getting to the root of it" is often quite a good way to isolate a single simple cause to be remedied. In the case of medical ability, the root cause may well have been the creation of malpractice insurance, but that analysis leads nowhere. Physicians eagerly purchased the insurance when it was cheap, and would now quit practice rather than go without it. Placing a cap on pain and suffering awards is not only politically achievable, it has a proven record of success in California and Indiana. At the moment, we are more in need of something which will work than something which advances the borders of justice. If we get twenty years of respite, perhaps pell-Melli medical progress will slow down, so we can learn whether the drugs in common use have unanticipated good or bad effects, and how best to use them. Or perhaps some genius will devise a fair and reasonable judicial approach. In football, that's what is known as playing for the breaks. An insurance approach to what may well be mostly an insurance problem, is not presently visible.
Desirable Technical Reforms of the Tort System Itself
This paper takes the position that procedural reforms, whether in the insurance industry or the legal system are not likely to be much help in bringing the disrupted system to prompt stability, or will not do so in reasonable time. Compared with a cap on pain and suffering, small reforms are not worth the political cost of fighting for them. However, there are a few other reforms that are desirable in themselves, and since they involve money, might just prove to contribute importantly to a a quick stabilization.
Pre-trial awards bargaining. Those who might prefer caps on insurance coverage to caps on awards, should be aware of some practices which undercut the practicality of simply limiting total awards without first subdividing them into economic and non-economic components. It is not unusual for both sides in a court case to agree in advance of the trial to setting both maximum and minimum awards. The maximum is usually the utmost limit of insurance coverage, paid if the jury finds for the plaintiff. If the jury rules in favor of the defendant, an agreed minimum amount is nevertheless paid to the plaintiff. This system holds out the promise that the actual award will not attack the defendant's personal assets even if he loses the case, in return for which he agrees to let his insurance company pay consolation awards to the plaintiff and his attorney, if they lose. This seemingly collusive arrangement is justified by arguing that the minimum amount is specifically aimed at the economic damages, leaving the pain and suffering part for the jury to decide.
Unfortunately what it does is increase the willingness of both sides to go to trial, and it drives the award to the extreme upper limits of the policy. It has the additional bad feature of rewarding the plantiff's attorney whether he wins or loses the case, this creating an incentive to take weak cases to court. Speaking broadly, this system has the effect of letting the insurance limits set the award, and behind that, the insurance commissioner setting the policy limits, artificially high because of the political pressures on him. The objective fact is that plaintiff attorneys are overwhelmingly members of one political party, and heavy contributors to it. Election of a governor (who appoints the insurance commissioner) from that party results in a safe prediction of higher coverage limits, awards, and premiums. This subtlety could not continue without at least the tacit permission of the insurance industry to the pre-trial agreements.
Double-dipping true economic damages ( The Collateral Source Rule). Even a quick look at medical malpractice data shows the non-economic awards called "pain and suffering" are as preponderant as they are nebulous. Some describe awards for pain and suffering as capricious and arbitrary, but at the least they appear emotional. Awards correlate better with the degree of disability than with the degree of negligence. Awards for true economic damages are viewed more sympathetically by the public, who are unaware they are mostly already covered by health insurance, a doubling effect which juries are not permitted to know. Furthermore, in the settlements which determine most of the overall costs of this process, the amount set aside for pain and suffering is traditionally a multiple (seven or eight times) of the "medicals". Since, if you dig into it, it can easily be shown that hospital, drug and equipment charges are already highly inflated above cost, there is a serious multiplier effect at work with the "economic damages".
The outcome of these technical quirks is that both economic and non-economic damages are often excessive, but for different reasons under differing circumstances. For this reason, it is not a completely satisfactory solution to place a single combined top limit on overall awards, or on insurance coverage limits.
Structured Payment of Damages (Periodic Payments).
The payment of damages is an attempt to put a money value on injuries so that dispute will come to an end. When a plaintiff is disabled, however, it is not possible to know in advance how long he will live, and what he will need. Calculations are therefore made about probable life expectancy, and probable costs of long-term disability care. The resulting damage award can sometimes be very large, be paid in a lump sum, and the plaintiff attorney be awarded a third of it. However, the plaintiff has the responsibility to save the money and invest it wisely, but that does not always happen. An insurance company is understandably unhappy to pay out an award which is invested to return less money than the insurance company was earning through its own investment department. And the defense side is even more understandably upset when the plaintiff dies in a few months, but his estate retains large sums that were calculated for his care but now will be spent at the pleasure of the heirs. It would be of value to have longitudinal studies of the disposition of these awards, for the guidance of future courts. Current awards could just as easily prove to be too small as too large.
Assuming the money could be placed in safe hands, it seems likely to be invested better and last a longer period of time, if the money calculated to be a certain amount each month, were actually paid out at that rate, month by month, instead of in a lump sum. A more careful and more efficient system would surely prove to lower costs.
Fifty years ago, only three American universities, Harvard, Yale and Princeton, were considered world-class. The benchmarks for them were Oxford and Cambridge Universities; both British universities had long history and great prestige. Making allowance for wartime disruption, it was also considered pretty classy to study at the Sorbonne, or Humboldt University in Berlin. Sweden, Vienna, Rome were right up there in prestige.
By 2004, a London magazine was offering its view there were thirty American Universities better than anything in the European Community, in particular Oxford and Cambridge. We'll pass over the Economist's anguished analysis of what's wrong in old Europe, and focus here on what American universities are doing right. They certainly do seem to be doing something right, but nevertheless it's still possible to be uneasy about where they are going.
For example, the top three all have more than ten billion dollars apiece in their endowment funds, and thus each perpetually generates roughly half a billion annually in disposable income from passive sources. You can accomplish a lot of worthwhile academic things with that much money. Operating revenue like student tuition, fees, research grants and royalties should support normal running expenses, so endowment income is available for new frontiers of learning, research, and social endeavor. These well-run institutions unquestionably do accomplish many innovative and important advances, to the point where it is simply trivial to point out a few areas of waste or misjudgment. Multiplying their annual discretionary funds by thirty offers an overwhelming force for good in the nation, and in the world.
The other twenty-seven premier research universities may not all have ten billion dollars apiece, but they have the Avis, or we-try-harder motivation that may make up for it. The nation really does appreciate their worth. Applications for admission outnumber available places twenty to one, would be even greater if more people thought they had a chance to get in. Outstanding professors are in scant supply, commanding higher and higher salaries. In fact, a patient of mine who is a trust and estate lawyer tells me he gets a little uneasy about the growing number of university professors he sees with million dollar estates. A calm view would be that the nation recognizes the value of superior education, and is forcing the pace for a greater supply of it. Unless our economy experiences a disastrous decline, it is reasonable to expect a hundred universities to migrate up the quality chain in the next generation; most of those eligible for it are grimly determined to see it happen. China can make all the widgets it pleases, but that won't make them catch up with this champion competitor. The French can maybe make better wine, but unless they pep up their schools, they're going to have no shot at glory.
Whew. That's intentionally laying it on thick, because American academic triumphalism has a darker side to give one pause. In the first place, the arrogance of it shows. Even the European aristocrats, formerly world experts in flaunted put-downs, are irritated; and red America is really sore at blue America. Sprinkling a few research universities into Arkansas and Idaho might relieve regional divisiveness somewhat, but lasting social peace can only derive from starting in the third grade of, say, north Philadelphia, Kensington and Norristown . In economic downturns, the country would have big trouble financing universal, bottom up, academic excellence. The tragedy is that money isn't the main problem in the science classes of the thirty research universities we already have; an alarming number of those seats are filled with foreign born students, not even to mention the honors students.
Secondly, the system is already under strain. The families of students are hard pressed by tuitions of fifty thousand dollars a year, and increasingly ready to complain about the inability, of classes of three hundred taught by non-tenured teachers, to justify to them such breath-taking fees. They may not understand educational financing, but they can count, and then multiply two numbers together. Faculty rewards favor research, not teaching, and teaching is what the students think they are paying for, their parents think they are sacrificing for. If what they are truly paying for are just credentials, they worry that affirmative action will cheapen the credentials. One clear sign of unease is the tendency of children from wealthy families to walk about the campus in torn overalls. This may be more than just a fad, it may be a sign they hope to hide from the university's system of redistributive taxation. Some people pay those high tuitions, but mostly tuitions are discounted for the eager family's ability to pay. Wearing blue jeans won't help, the universities demand to see the family's audited tax returns. In my presence, a university president remarked that the system was designed to extract the last dime from every student. The whole middle class is being asked to give until it hurts, for the unspoken goal of elevating a hundred more research universities to world class. Very few question the premise that unmatchable universities are the key to American world eminence. Quite a few, however, have anxiety that it may not work out for each individual. It may only be a lottery with slightly better odds.
Now, let's get to the research part of the research university. In the past ten years, American universities have collectively received six or seven billion in commercial patent royalties; the aggregate now runs appreciably more than a billion dollars a year and it's growing.
The normal arrangement is to give 20% of royalty income to the professor whose name is on the patent. Since most research is performed by large teams, it is possible to imagine considerable inequity and academic bad feeling in this system. In other walks of life, striving for a bigger share of two hundred million a year would cause differences of opinion about fairness. Here and there, you read articles by participants in this system who are concerned over the message it is sending to the students about personal values. Universities that began with a mission to educate the clergy are now seemingly overpraising the big payoffs.
Many business analysts feel that a successful corporation needs to spend 10% of its revenues on research and development. Behind that is realization that prices and profit margins are largest for new inventions, steadily declining as the new invention attracts competition and eventually becomes a mere commodity. The scientific term entropy is a perfect description of the way world economies seemingly work, like clocks gradually winding down. So businessmen get rid of old products and look for new ones, and the universities are the source of most new ideas and products. Put every last cent into R & D for new products, while the developing countries grind out widgets. If we eventually graduate hundreds of thousands of Americans from unmatchably excellent research universities, the outcome will take care of itself. Even flying airplanes into our tall buildings can't make much difference in this academic arms race. It's essentially how Ronald Reagan defeated the Soviet Union, and it's discouragingly difficult to argue it is totally wrong.
However, you can imagine ways that it might all fall apart. The source of at least half the capital now pouring into the research universities comes from the federal government, particularly the National Institutes of Health, the National Science Foundation and the Department of Defense. It only takes fifty-one votes in the U.S. Senate to change that suddenly, for reasons of national defense, to defend the value of the dollar, to combat inflation, or lots of other reasons. Even now, universities often face annual crises at the end of a funding cycle, when projects have been awarded, people hired, but funding is delayed for uncertain periods of time because of distant political wrangles within the budget process.
That's known as a cash flow problem, and even it is trivial compared with what would happen if federal research funding were delayed a full year. Just look at any university and see all the big tall buildings. They have largely been built to house research activity, and the university would have big difficulty selling them if they were empty. They've usually been paid for with mortgages, and it costs a lot of money to heat, air condition, clean and repair them. Just cut off the cash flow long enough, and you will see how risky it was to get into the research arms race.
|Specialty Care In The Era Of Managed Care|
University Hospitals of Cleveland
John A. Kastor, M.D.
The Johns Hopkins University Press
Abraham Flexner's 1910 Report practically canonized the notion that medical schools must be owned by universities. Forty years later, Dwight Eisenhower firmly disagreed. Asked why ever would he give up the pleasant life of Columbia University president to get into the nastiness of national politics, he replied, "The White House doesn't run a medical school." During the same era, Secretary of State Dean Acheson and Senator Robert Taft, political enemies but personal friends, were riding to New Haven together to a Yale trustee meeting. The two agreed it was unfair for 40% of university budget to be spent on 1% of the student body, and decided Yale should get rid of its medical school. Their subsequent motion failed by only one vote at the meeting. And as a final Flexner footnote, Princeton University which shrewdly never owned a medical school, is now nonetheless in the news over the central underlying discordance -- managing huge sums which, either by contract or donor restriction, are inflexibly assigned to a single department, thus substituting the donor's priorities for those of the University president. Medical school ownership of teaching hospitals raises the same issue except in reverse. It is politically impossible to treat an affiliate as a cash cow without learning the harsh reality of the Golden Rule: the affiliate with the gold will promptly remake the rules.
Understanding these issues but seldom emphasizing them, John A. Kastor has done us all a great favor by studying and publishing the unseemly disorders which result, in many cities and institutions. His particular focus in this book is on Cleveland, where all that matters medically is the prospering Cleveland Clinic and its struggling rival, Case Western Reserve. The book is mainly focused on a particular question: under managed care, should teaching hospitals adopt the Cleveland Clinic's style and organization, in order to prosper as they do? In the end, he cannot quite bring himself to recommend it. Essentially, the Clinic is run by doctors, for doctors. The clinic pays salaries, but (so far) bills fee-for-service. The over-reimbursed procedural specialties such as surgery subsidize the under-reimbursed cognitive specialties (prompting East Coast colleagues to sneer at "organized fee-splitting".) Cleveland's Clinic, like all group practices, must devise strategies to a)induce acquiescence to the subsidy of internists by surgeons, b)discourage physicians from starting competitive practices in the neighborhood or c)turning their salaried incentive into an instant 40-hour week. Not everyone will submit to what is between the lines, most notably at the Clinic's Florida satellite. But since the alternative is to hire non-physicians with concealed animosities to doctors to run hospitals and medical schools, all physicians who actually treat patients must give the physician-run group practice model some thought based on experience with its alternative.
We all have an unfortunate tendency to assume that weakness of character is the main cause of the executive misbehavior so widely observable in all corporate environments. In the medical world, a much more powerful force is generated by shifting quirks of reimbursement. Once the pecking order is established between hospital and school, medical school and university, it gets violently upended by the underdog suddenly getting riches from the Senate Finance Committee, then upended again by Ways and Means a few years later. Or bureaucrats in Rockville, in Baltimore, or the Executive Office Building. Eisenhower was wrong, the White House does run medical schools and hospitals, when they would very likely be better run by physicians. In fact, Flexner's offhand interposition of the University into this dogfight seems a little quaint. Just to mention the indirect residency reimbursement program, the institutional research overhead allowance, the old cost-plus reimbursement of hospitals, the institutional patent revisions, is to start a list which can get to be quite long. In most of these cases, an institutional component which needed to be subsidized in the past has now become prosperous and is asked to return the subsidy. The chief executive is then caught between duty to his institution, the threat of investigation if funds shifting is suspected, and his own sense of fairness. That these upheavals are so frequently pacified without serious harm to the patients, is a credit too seldom given.
Dr. Kastor's writing is somewhat hampered by a need to footnote, document and defend everything he says. Nevertheless, the book will be read by physicians like a novel with a great many villains. It's encouraged reading. One hopes that the next book in the Kastor series will examine the Florida satellite clinics of the Cleveland Clinic and of the Mayo Clinic, one making money and the other losing money. Maybe some basic issues of effective medical organization can be resolved by making different comparisons.
But don't expect permanent axioms to emerge; Medicare Risk contracts are coming. Under capitated systems, administrative incentives are slanted to discourage expense, especially expensive surgical procedures. Perhaps group practices will soon face a need to have their internists subsidize their surgeons, reversing the traditional arrangement. The threat to colleagiality, so evident in this book, is destined to continue.
Over thirty Quaker retirement villages scatter through America, more than twenty in the suburbs of Philadelphia -- "under the care of the Yearly Meeting", as their expression has it. But for some people, community living seems unattractive. It does not speak to their condition.
For one thing, it may not be affordable.
Or the style of may seem too fancy, or too plain, for some tastes regardless of cost. The increasing emotional rigidity of growing older is a factor; by the time people get to be seventy-five, they had better make this decision or forget it. Plenty of people are hale and hearty at ninety, but they establish pretty firm ideas about the sort of person they want for neighbors while they are still in the workforce. Quite often it's just a habit, people have lived in their home for several generations and cannot imagine another neighborhood, lifestyle, or environment. This is home, and they intend to die there.
So, to address this need, or market, a group of Quakers conceived of a retirement village without walls. Live in your own home and someone will come oversee things, will know what to do if there is an emergency, and may eventually make the decision for you that you absolutely must go somewhere else. All of this is wrapped within an insurance vehicle, to recognize the fixed incomes of retired people, the inevitability of terminal illnesses, and the occasional risk of monumental medical expenses. At present, about 1600 people in Philadelphia are enrolled in the unique plan of Friends Lifecare at Home, making it one of the largest retirement communities in the country. The organization receives universal praise for its imaginative responses, as well as the dependability and high quality of the people it sends out to the homes of subscribers. Friends Lifecare is a pioneer, and it is gradually weeding out the ideas that didn't work, and adding new features that were not originally contemplated. One of its greatest challenges is the need to adapt to unexpected and uncontrollable changes in the Medicare program. Slashes in the Medicare program could bankrupt Friends Lifecare, and even sudden windfalls like the Medicare Drug Benefit create management problems. There can be no doubt that one element of trust exists for which there is no substitute; Philadelphians know that the invisible support of the community and its Quaker core is behind them. If anyone can possibly preserve a moral commitment to the elderly, it will be the Quakers.
Ultimately, the commitment is not so much to 1600 subscribers as to the notion of finding out what works. Life expectancy has extended by three additional years, during the past ten; that's a joy, but it's a problem to finance. The optimum size of the organization is also an unsettled question. Although this program is relatively large by comparison with individual retirement villages, it may not be large enough to have spare capacity to cope with influenza epidemics or record-breaking spells of bad weather. Since it's the only one of its kind, it is vexed by popularity in ever-widening geographic areas. It must grow to some reasonable size in one area before it can spread its resources to another. By the same reasoning, it must have a reasonable number of prosperous subscribers if it is to accept even a limited number of poor ones.
The idea of creating a seamless partnership with the residential-type retirement villages is certainly attractive, but Friends Lifecare must be careful to avoid becoming too much of a life raft for other people's problems. When the resale price of residential housing rises in a housing bubble, people wish to cling to a rising investment. During the same economic period, the entry and rental price of residential villages also rises. With a great many uncertainties that are specific to this pioneering effort, it is hard to know what policies to develop to insulate the lifecare environment from speculation in the mortgage and housing markets. Or, right now, high-rise apartment development. All of this creates a need for clear minds in the governance, determined to see and acknowledge difficult reality. If anyone can do it, Quakers can.
An editorial in the April 7, 2006 Wall Street Journal rouses a proposal germinating in my mind for twenty years, a new compassionate status of pharmaceutical regulation for dangerous but effective new therapeutic agents, not presently provided for in law.
The editorial concerned a new drug treatment for multiple sclerosis, a crippling and usually ultimately fatal condition which destroys the nervous system. In hearing of the tests of this new drug, we hear numbers like 85% total remission. Unfortunately, we also hear of four patients who died, quite possibly from the treatment. From that point on, you could write the reports from memory. Patients come forward, declaring their willingness to run any risk to get the drug; politicians are sympathetic. The Food and Drug Administration feels forced to withhold the drug from the market until the situation is clarified; other politicians are sympathetic. We are reminded of thalidomide, which was luckily withheld from the American market until the German experience showed that pregnant women who took thalidomide could have babies without arms or legs. This lucky illustration of the value of bureaucratic procrastination gave Senator Kefauver the strength to push through an amendment bearing his name, demanding proof of efficacy, something quite irrelevant to the safety of thalidomide. Seldom mentioned is the fact that thalidomide has since proved to be quite useful for the bone cancer called Multiple Myeloma; this value took a very long time to surface, under the circumstances. The efficacy rule accomplished the purpose, however, by delaying all drug approvals, unfortunately also shortening the time left for patent coverage, and vastly increasing the cost of drugs by shortening the time on patent to recover development costs. After thirty years of hearing the same arias re-echoing about one drug introduction after another, it begins to look unlikely that Congress will ever be able to stand the political heat which would be generated by a serious attempt to fix this problem. But surely that can't be allowed to continue forever.
Taking the multiple sclerosis treatment as an example, the patients want the drug, and their doctors want to use the drug but they don't want to be sued or prosecuted. It's almost certain that most of these patients would sign anything, accept any risk, even agree to a shortened life expectancy in return for an 85% chance of stopping the disease in its tracks. All the doctors want is to be held harmless by the courts for exercising reasonable care under the circumstances. The same is probably true in a political sense, for the FDA and Congress, who surely would be satisfied to have the doctors take the blame for any problems encountered. The drug companies want to preserve their patent protection, surely that can be accommodated. Perhaps they should be asked to contribute to a fund for the victims of unforeseen accidents; they would probably agree. What would satisfy the trial bar is less certain; they should be asked to stipulate something. As a matter of fact, anyone at all who has qualms about such a system of special defined exemptions, should be asked to come forward with serious suggestions. There would then ensue a lengthy and ultimately tedious debate about details.
This would all take some time; at the end of it someone would have to make some arbitrary decisions. But at least we could expect more progress than we have seen in the last thirty years of indecision.
When confronted with any complicated and contentious issue like medical malpractice, the instinct of Congress is to ask for an impartial survey of the available literature on the topic from GAO. The Government Accountability Office has produced several well-balanced analysis of the situation, readily available to the public on its website. These cautiously worded reports complain that much information on this topic was collected for other purposes. For example, interstate malpractice insurance companies commonly collect information about classes of injury and types of subscribers, but often do not subdivide the information by state of origin. Therefore, it is sometimes not possible to be confident what effect varying state policies or laws may have had. Some of this data deficiency is being corrected, but has not had time to accumulate into useful patterns. And divulging some data, like each company's investment performance on its reserves, is resisted as proprietary. After forty years of heated accusations between the medical and legal professions, this is disappointing.
The chief example of this sad situation is judging managed Care's effect on patient-doctor relations. Since reports like the Harvard study of medical negligence in New York demonstrate that disputes which result in lawsuits are less than ten percent of comparable maloccurrences, patient animosity may be as important a stimulus to suit as severity of injury or the degree of negligence. Until hard data is produced, the issue is open to adversary rhetoric. The uncomfortable thing about Managed Careis its tendency to transfer doctor selection to a remote third party. The consequence, at least to some degree, is throwing doctors and patients together who do not like each other very much. Carried to extreme, it would then be plausible for the degree of negligence to have less to do with triggering later lawsuits than does personal friction between patient and doctor. If you like him, you forgive; if you dislike him, you sue.
During the most recent period when malpractice suits, awards and premiums rose to a level provably causing some physicians to abandon practice, managed care simultaneously rose to become a dominant factor. It is safe to say many patients and many physicians hated being in this arrangement, because it was essentially imposed on them both by employer group purchasers. There is some hope that some malpractice insurers have maintained records of their experiences, categorized by the type of health insurance of the plaintiff. These databases might establish whether managed care is responsible for increasing the number and cost of suits; it might assist other policy decisions as well. Those who scoff at the cost of tort litigation do not adequately acknowledge these far-reaching implications of many aspects of the issue.
Until 1939, there was a legal doctrine of Charitable Immunity, which universally shielded hospitals and other charitable institutions from negligence lawsuits. No doubt the underlying reasoning was that charities possess limited funds for unlimited demands, and must be forgiven for imperfect compromises in the face of scarcity. To threaten them in court for falling short of perfection might drive charitable efforts away entirely. Since many professionals donated their services to the common effort, there was some spill-over protection for individual professionals, but this centuries old doctrine applied to institutions more than individuals. There can be little doubt that improved financing of hospitals by health insurance and government programs resulted in both higher standards and lessened public tolerance for imperfection. One might say that twentieth century America decided it could afford better care, supplied the money for it, and expected to see results. It might also be commented that Medicare and Medicaid were significantly over funded at first, but with time have become painfully underfunded, particularly by Medicaid.
The New Hampshire Supreme Court, against all prevailing doctrine of the time, held in 1939 that hospitals in that state should no longer be broadly shielded from liability by the doctrine of charitable immunity. By 1991, this new legal view had extended to the point where the Pennsylvania Supreme Court felt a need to define Corporate Negligence, emphasizing a hospital's duty to ensure a patient's safety while in the hospital. The court specified the duty to provide safe facilities, to select and retain only competent physicians, to oversee all persons who practice medicine within the walls, and to formulate and enforce adequate rules of behavior. Looking back, legal scholars point to two particularly significant intervening court decisions. In 1957, eight years before Medicare, the New York Court of Appeals declared that to say the doctor is the captain of the ship, acting on his own responsibility, no longer fits the facts. The court bore down hard on the existence of salaried physicians, and the illuminating fact that hospitals were openly sending out bills for medical services. In 1973, the Superior Court of Delaware deliberately and consciously extended the New York doctrine from salaried physicians to independent contractors working within the hospital. But independent contractors are still working for pay; the courts have been more hesitant to extend the idea of corporate control to volunteers who work without pay of any sort. But the movement is in that direction, so it is increasingly difficult to find anyone to volunteer. The American instinct to volunteer is still very great, as the response in 2005 to the South Asian tidal wave demonstrated, with relief agencies forced to send out appeals for the flood of volunteers please to stay home. But the central fact remains that the original premise was limited resources for unlimited needs; Medicare and Medicaid temporarily made it seem resources would be infinite, so why should an injured patient forgive a volunteer. As it becomes increasingly evident that the 1965 federal promises of infinite support are unsustainable, the invalidation of charitable immunity deserves to be re-examined.
The 1973 date of the Delaware decision is probably significant, because that was a time of abandonment of malpractice coverage by insurance companies. If you couldn't sue doctors, and you feel you must sue somebody, plaintiffs were in effect told to sue the hospitals. With charitable immunity, hospitals didn't carry insurance, but they immediately searched for it. And thus, a bigger, far juicier deep pocket was created. Physician malpractice premiums, outside of California, were approximately $100 a year. Those rates proved to be far too low. The temporary collapse and disappearance of malpractice insurance companies took place in 1975. It is very hard to blame the actuaries of a malpractice company in say, California, for failing to take fully into account a decision by the Superior Court of Delaware in their premium-setting.
Before this revolutionary upheaval, a volunteer chief of medical staff was (nominally) in charge of every mistake made by any employee, and that was pretty unfair if he got sued. The captain of the ship idea devolved to department heads, or perhaps just the responsible surgeon in the operating room. If the scrub nurse counted sponges wrong and left one behind in the patient, the responsibility passed upward to one of these captains or sub captains. The manifest unfairness of demanding damages from someone six or more steps removed from the incident, particularly one who had a largely honorary title and no real control, exercised a restraint of sorts on lawsuits. Once the blame was shifted to a nebulous legal entity known as the corporation, blameless blame transformed into corporate financial liability. The average size of awards against institutions escalated upward, raising the size of claims for similar injuries against individual physicians. Add to that the growing fact that hospital revenues are almost exclusively derived from insurance third parties, and thus the premiums for hospital insurance could only come from insurance as an automatic pass-through. Disaster looms if the intermediate parties have nothing to lose, and the public pays all the cost through health insurance or taxes. None of this adversary system, including the whole tort system and the whole malpractice insurance system, was designed to cope with a financially pain-free defense posture. One paradox of the situation is that the admirers of the plaintiff viewpoint are typically also sympathizers with universal health insurance. The two are utterly incompatible under any set of proposals, so far offered.
If matters had stopped at that point, well, it's only money. But obviously the counter pressure on health insurers to hold down these costs was inevitable. Hospitals were practically under court order to make rules (the hospital associations would be happy to construct a model set of rules) and enforce them on their attending physicians, to pay professionals salaries wherever possible as a time-tested means of encouraging obedience, and to reorganize themselves as corporations practicing medicine rather than hotels providing space and services. (There are legal barriers, of course. Numerous state constitutions awkwardly state "No person may practice medicine in this state without a license so to do.") Needless to say, physicians resisted this trend toward the corporate practice of medicine, even though its early forms only took the shape of placing the hospital lawyer in charge of conferences about "risk" prevention. Since the lawyer knew very little about the topic, the discussion tends to focus on horror stories of suits that were lost or are in litigation.
This struggle between physicians and administrators for control of the hospital, using malpractice as a debating point, is bad enough. Far worse is the slanting of the system of actual medical organization of the staff. Hospitals now often have thousands of nurses and hundreds of doctors, each reporting upward within two guild structures. You would think the chief of surgery would have a lot to say about the selection of the nursing supervisor in the operating room, but heaven forbid. Nurses are hired and fired through the nursing hierarchy, not the department hierarchy which would cross guild lines. It's sometimes hard to say who is on which side of this issue, and probably everybody is on both sides, sufficient to paralyze rational discussion. Everybody involved wants to diffuse blame for an error through the whole organization, and so resists having responsibility conferred in any consistent way. The chief of surgery, for example, is ambivalent about whether he wants nursing errors legally passed back to him, and thus tends to retreat from asserting himself. It can sometimes be hard to specify the ways this chaos expresses itself in poor quality or higher costs, but it would certainly be remarkable if it didn't.
|Milton S. Hershey|
On several occasions, Richard A. Kern M.D. (1891-1982) told the story of his part in the founding of the Hershey School of Medicine. Dick Kern was a distinguished professor of Medicine at Temple University, well known for his contributions in the field of asthma and allergy, a past president of the College of Physicians of Philadelphia, and a former Grand Master of Pennsylvania Freemasonry. The Milton S. Hershey School was considering the creation of a medical school and needed advice.
Milton Hershey had been a strict Mennonite, which is closely related to Quakerism, and had accumulated a huge fortune making chocolate candy. He left generous trusts to endow a theater and various other public services in the town of Hershey, but his ownership shares in the chocolate company had been left to the Hershey School for orphans. The value of the shares had far outgrown the ability of the school to employ them usefully, and they were considering a medical school. In 1963, as at present, everybody else was wondering how to get out from under the crushing cost of running a medical school. The sudden inquiry from a donor both willing and able to start a whole new medical school from scratch was an opportunity not likely to appear again soon. Kern carefully considered the options, including the danger of scaring off the naive potential donors with too high a price. Finally, he screwed up his courage and suggested a price to the trustees, of fifty million. The prompt answer was, done, you've got your medical school.
In due course, Kern found himself on the platform at the inaugural ceremonies of the school, sitting next to the guest of honor, that man who had made such an instant decision. Chatting amiably, Kern mentioned that he had always wondered how high the Hershey Foundation would have been willing to go. The answer was just as prompt as the original one. "Hundred-twenty."
|Dr. Jock Murray|
Dr. Jock Murray has recently been Chairman of the American College of Physicians. He is also a Canadian. Recently, he was invited to address the College of Physicians of Philadelphia on an evaluation of the lessons to be learned from comparing the health systems of the two neighboring nations. It was an excellent, fair, and well-balanced address. The man who introduced him referred jokingly to the American non-system, and Dr. Murray emphasized two epigrams about national systems in general. No nation on earth can afford to fill all of the health demands of all its people. So, all nations confront the three main demands, to deliver everything, to deliver it to everyone, and to do so immediately (ie without waiting lists). Fulfilling any two of these three demands is possible, but to deliver all three is impossible. Comparison of health systems in various countries amounts to identifying which two of the three they have chosen to have, which one they choose to surrender. I hope and believe Dr. Murray would mostly agree to this caricature of his remarks.
As a member of his audience, it does seem to me fair to acknowledge we have a non-system, and probably even fair to go further and observe we fundamentally resist those irksome constraints implicit in having a planned system. No organized system, and proud of it. But we do have something else. Let's call it a vision.
Without formally stating it, or even widely acknowledging it, Americans seem to have embraced a dream that we can indeed have everything for everybody right away. Yes, we can. The method available is to gamble that research can eliminate disease. We hope, although we know it is not certain, that cancer, schizophrenia and Alzheimer's disease will reduce the cost of care. Our model exists in Rheumatic Fever and poliomyelitis, for which there are essentially no remaining treatment costs. We know that everyone ultimately dies of something; we assume we are already paying everybody's terminal costs. Eliminating diseases postpones terminal costs, but surely does not add to them.
We have knowingly and recklessly embarked on a program of pouring huge amounts of money into medical research. I believe the public mostly suspects that much of our present high cost of health insurance eventually finds its way into supporting research, and the public mostly acquiesces in whatever cost-shfting is involved. The people who devote their lives to research in turn vaguely recognize that we might reach a point where the country cannot afford this gamble any longer, and they could have half-wasted a career. We all vaguely understand it's a gamble; major elimination of disease might not be just over the horizon, and might lead us on to indefinite postponement of a foolish dream.
But those are the chances you take; we seem resolved to take them. We are going to give it a go. If we can, we are going to spend whatever it takes to give everything to everybody, right away. We are going to eliminate diseases, on the unproved but plausible assumption that doing so will eventually bring costs down.
America's health care crisis may well be solved by curing all disease
America seems determined to invest whatever it may cost to eliminate diseases through medical research. It's pretty hard to know which diseases will experience a miracle cure, and how soon. So it's difficult to make major changes in the system in anticipation of what we all hope for. But it's not so hard to predict what will happen if we are successful.
Health insurance will progressively seem less necessary, and that will prove particularly true for young and middle-aged people. Since our present system of health insurance is largely based on employer-based groups, employers can be expected to become particularly restless about paying for it. Long before all diseases of working people have been completely eliminated, some clumsy political intervention could well cause a stampede among employers -- for the exits.
Even if everyone in the unions and in government is circumspect about alarming the mullets, a steady erosion of disease costs among workers will lead to a steady migration of costs to retirees. For practical purposes, that raises the possibility that essentially all medical costs will become the responsibility of Medicare. Since it is universally agreed that demographics will make Medicare expenses unbearable for the national budget in ten or fifteen years, a shift of even more expenses toward the retiree group would be even harder to deal with. It's pretty hard to wish for some particular solution to a problem, when no one has even made a plausible suggestion about it.
So let's focus on the problem which is most likely coming first. Employer based health insurance, and even health insurance in general, may well be a thing of the past -- reasonably soon. The main component of it which will not be eliminated is the cost of obstetrics, the cost of perpetuating the human race. The charges being made for this normal and essential process are so burdened with liability risks that it is tempting to blame them all on lawyers. Cost-shifting to other activities and other age groups, however, is also pretty likely. If the concentration of overhead costs on obstetrics goes beyond a certain point, however, I would predict we will see a migration of obstetrics out of the general hospital environment into specialized birthing centers. That's not entirely desirable, because all specialty care is safer when conducted within reach of the whole range of supporting specialties. But if the financial pressure gets great enough, we will surely see a migration back to the specialty hospitals so common in the early 20th Century, then abandoned in the middle of the same century.
Worker's Compensation is another carve-out which will relieve a central anxiety of employers, and hence hasten their indifference to general health insurance for their employees. And scandals in the health insurance industry are just going to accelerate the dissolution of support which is inherent in medical progress. Anyone who reads the papers carefully can name at least three billionaires among the ranks of health insurance CEOs.
The pace of coming medical progress is hard to predict, so it is daunting to propose a solution to the problems it will create. That includes proposals which many people would like to advance, like universal health coverage. Patchwork makeshift for uninsured people seems timid and defective. But grandiose proposals for fundamental reform of the whole system are simply foolhardy, at a time when health insurance may well become an obsolete concept, and far greater problems could be made much worse.
Kim Hill had the misfortune to develop leukemia, but the great luck to have Fred Hill of the Philadelphia Eagles football team for a father. Driven by gratitude for the treatment at St. Christopher's Hospital for Children
Fred demanded to be told what he could do, and was referred to Dr. Audrey Evans. This world-famous pediatric oncologist was well known for her philanthropic activities, and had frequently expressed the need for a temporary residence for families of children needing protracted medical treatments. Young children have young parents, whose savings are soon exhausted by travel, hotel and other non-insured costs related to a seriously sick child. The Hills had just been through such an experience and grasped the problem immediately, adding to it the discomfort and loneliness of families in such a situation. Fred Hill quickly enlisted the enthusiastic support of the whole professional football organization, and Jim Murray the Eagles' general manager recruited Don Tuckerman from their advertising agency, who got to Ed Rensi, the regional manager of McDonald's. Together, they got the project financed and started with a seven-bed facility near Children's Hospital of Philadelphia.
In 25 years, the Philadelphia Ronald McDonald House has grown to a capacity of 44 families, in a century-old mansion at 39th and Chestnut Streets filled with Mercer tiles and the like. The operation uses eighteen volunteers at all times, runs two jitney buses, and is one huge teeming family home for people confronting a common issue, supporting each other through a wrenching emotional experience. Although it actually costs about $65 a day per family, the charge is $15 and over half of the clients cannot afford even that. Although an effort is made to have family cooking, the McDonald's restaurant chain supplies 20% of the budget along with generous help with exigencies and in-kind assistance with such things as clowns for the entertainment program, birthdays and the like. Although McDonalds's is probably the world's premier franchising corporation, every one of the 300 world-wide Ronald McDonald Houses is an independent local organization, run without a central headquarters or any sort of standards-setting and the like. Every one of the other 299 Houses got the idea from Philadelphia but proceeds in its own way. Philadelphia created it, but Philadelphia does not own the idea.
In this connection, it is probably worth reflecting on the history of this topic. When Benjamin Franklin and Dr. Thomas Bond started the Pennsylvania Hospital in 1751 at Eighth and Spruce Streets, it was the custom to be diagnosed, treated, be born and to die in your own house. The unique perception behind the nation's first hospital was that poor people generally did not have home facilities that were adequate to support home care. In Franklin's own handwriting the purpose of the Pennsylvania Hospital was stated to be "for the sick poor, and if there is room, for those who can pay." It was understood that poor sick people needed a place to take care of them, not merely for their surgery and overwhelming illness,
|Philadelphia Ronald Mc Donald's House|
but for convalescence and rehabilitation as well. Two centuries later, in the first thrill of founding the Medicare and Medicaid programs, it was imagined that things would remain exactly the same, only paid for by the Government. But after four or five years, it became abundantly clear that it was far too expensive to use hospitals in that way. The very act of federally paying for the program undermined its volunteer spirit, raised its mandated standards, and made it financially unsustainable. And so, although the 1965 Amendments to the Social Security Act insisted, and still pretend, that no change was to be made to the delivery of care, the delivery of care simply had to be changed. Not only was domiciliary and custodial care to be excluded, but heroic efforts were to be made to reduce the length of stay in the hospital to what would once have been regarded as special intensive care. In effect, if a type of service could normally be handled at home by non-indigent people, it was to be prohibited for everybody. Since the cost of care in hospital has continued to escalate far in excess of the cost of living, it seems unlikely we will ever go back to the days of rest and in-hospital recuperation.
So, just as Dr. Bond recognized the problem and went to Ben Franklin to handle the philanthropy, Dr. Evans had the idea and Fred Hill made it work. Around the Ronald McDonald house the idea is frequently heard expressed that every hospital needs such a place nearby, for people of all ages. Perhaps that is workable, but it offhand seems more likely that Retirement Villages, so-called CCRC, will be called on to supply this badly needed service, at least for senior citizens. And that what we now call hospitals will evolve into the scientific "focused factories" so popular in the minds at the Harvard Business School.
In 1904, first in McClure's Magazine and then in the book Shame of the Cities, Lincoln Steffens described the root cause of Philadelphia's bad local politics as failure of the people to turn out to vote.
The Philadelphia machine isn't the best. It isn't sound, and I doubt if it would stand in New York or Chicago. The enduring strength of the typical American political machines is that it is a natural growth -- a sucker, but deep-rooted in the people. The New Yorkers vote for Tammany Hall. The Philadelphians do not vote; they are disfranchised, and their disfranchisement is one anchor of the foundation of the Philadelphia organization."
Just exactly a century later, a Republican member of the Legislature coined a phrase:
Asked to comment, a Democratic politician on the inside replied:
"That isn't precisely so. The precise way of stating it is that, to be elected a judge has two basic requirements. The first is the approval of a local ward leader. The second is the expenditure of between seventy and a hundred-thirty thousand dollars. With these two requirements fulfilled, just about anyone can be elected judge, regardless of legal qualification."
Is it a mystery why we have a malpractice crisis? Other explanations are offered, but this one, the system of "elected" judges, must be examined first.
In a few years, the baby boomers will retire and two things will happen. They will have to retire later in life, and the country will have to borrow money to pay for the rest.
In 2004, the Nobel Prize in economics was shared by Edward C. Prescott and Finn E. Kydland, for advancing the concept that business cycles are caused as much by what people expect to happen as by what actually does happen. By this reasoning, myriads of individual decisions are constantly made in the direction suggested by simple undeniable truths. What truths face us? Demographic facts related to how many people have already been born, and how fast they are dying, force everyone to acknowledge that both Social Security and Medicare are seriously underfunded. Consequently, it seems inescapable that the boomers must work longer and retire later. To whatever degree they don't, the country must go deeper into debt.
Prescott, writing in the December, 2006 Wall Street Journal, stated this truism slightly differently to reach the next step: the national debt must increase. Increasing the national debt raises interest rates, which is good for savers. At the moment, the main savers are American retirees and foreign governments. However, the bond market is and always has been, a zero-sum game. What's good for American retirees is bad for American business. And mortgage-holders. And everyone else who is in debt. Higher interest rates, which are seemingly inevitable, encourage saving and discourage borrowing. Prescott seemingly welcomes those features, because he is remarkably cheerful about the inevitable coming demographic crunch.
There are at least two things about it which should be bothersome. The first is that the boomers will not be borrowing money from their own generation, but from their children. Getting the chance to live longer than their parents, they seemingly want to retire at the same age or earlier, asking their children to pay for the unearned twenty-year vacation. Boomers simply must be shamed into later retirements. The American Gross Domestic Product has a long term growth rate of about 3% per year; 2% of that total comes from increased productivity, about 1% from population growth. Extending domestic working years has the same economic effect as, say, illegal immigration; it's good for the whole country to make this nativist substitution.
The other disturbing consequence of borrowing our way out of debt is the effect on banks. That's harder to explain, but the interest rates we have been describing are long-term rates, established by the world marketplace. Short-term rates are independently set by the Federal Reserve to control (or "target") inflation, and currently they are higher than market-set long term rates. Any sensible saver will therefore use moneymarket funds rather than buy bonds. That's mostly bad for banks, because their profit largely derives from "borrowing short and lending long". The so-called inverted yield curve, then, is good for old folks and bad for banks. If the Treasury fails to issue enough long term bond debt, or the Federal Reserve fails to issue enough short-term debt, banks are in danger of going broke. To summarize the whole puzzle, the government clearly will become more deeply indebted, but it must preserve a proper balance between short-term and long-term borrowing. Otherwise, either a bank crisis or inflation will sink us.
As a guess, I would say that banks are the likeliest to fail. They are in precarious condition anyway because of wrenching changes in technology. And they are in the process of discrediting themselves by failing to pass along the currently soaring short-term rate bonanza to the public. Just compare your own money-market interest rate with the 5.25% which the Federal Reserve has dumped on the banking system, and see if your blood doesn't boil a little. If this pick-pocketing continues much longer, banks will be in a bad public relations position when they must come to the public with hat in hand.
So, there's only one defensible response to this demographic retirement problem. The baby boomers, having been handed several years of unexpected longevity, must spend a portion of it working longer.
In 1965, Lyndon Johnson caused the enactment of two amendments to the Social Security Act, Titles 18 and 19. Title 18 is now called Medicare (for the elderly), and Title 19 is called Medicaid (for poor people). These two laws were cobbled together as negotiated compromises; the history of this contraption no longer concerns us. The outcome is that Congress created a Federal program for the elderly, and a state-administered program for the poor, partly financed by the states but mostly financed by federal taxes. The states howl that Medicaid is an unfunded mandate, and the Federal bureaucracy snarls that the states are mismanaging someone else's money. The welfare patients are bitter about second-class treatment, and doctors have as little to do with this system as possible. The focus of this article however is on the harmful effect of Medicaid on hospitals. Of all the stakeholders affected by Medicaid, the hospitals have historically been the best treated. Nevertheless, it has brought them to the brink of ruin, most of them acknowledge it, and matters are so hopelessly snarled that it is time to call for transfer of the medical components of Medicaid to Medicare. In plain language, that means replacing state administration with federal Medicare management.
It may seem peculiar to call for extracting the medical components from a medical program. Forty years of creeping modifications in fifty different state directions have resulted in many state Medicaid programs spending more on nursing homes, home care, and various educational programs -- than on the activities of doctors and hospitals as originally intended. After forty years, this creeping mandate shows no sign of abating. It may never abate, but certain parts of it could rather easily be transferred to federal Medicare program, leaving the innovative fringes to fight their own battles with state legislatures, arguing those merits independently of this issue.
From the hospital point of view, Medicaid pays substantially (20-40%) less than the costs it claims to cover. The chiseling is worse in some states than others, but it is hard to find a single state Medicaid program which clearly pays its costs in full. Medicare is pretty tight-fisted, too, but at least a majority of knowledgeable insiders would admit it comes pretty close to paying its audited costs. Everybody else pays more than costs, but for this discussion that is irrelevant. Government as a whole is not paying its fair share, the state-administered portion is responsible, and there was never any non-political justification for having two programs. So, combine them. Other components of Medicaid, however worthy in intent or effect, are the responsibility of the various states which created them. When the states have got non-hospital, non-doctor issues carved out and audited, the merits of federal funding can be examined.
Two other features of the Medicaid mess can be mentioned, so long as they are not allowed to befuddle the main message of program consolidation. In general, the proportion of elderly or poor clients in rural hospitals does not materially differ from the proportion of such clients in urban hospitals. There is institutional variation, of course, but the principal distinguishing feature is that small rural hospitals are necessarily semi-monopolies within fifty-mile districts, whereas urban hospitals face competition more directly. State governments therefore are unable to impose discounts on rural hospitals with the same leverage and severity. Seeing this, urban hospitals have often applied political pressure on the legislature to extend comparable relief to them. Since local labor and living costs are lower in rural areas, an excuse is created to word regulations and state laws in a way which recognizes parity in the ratio of audited costs to charges rather than the charges or costs themselves. Quite often, hospital accountants can outwit legislatures in these obscurities, leading to rather obscenely high list prices for hospital services, to shift the ratio. Although it has the temporary advantage of further obscuring public market prices for such services, it constitutes a serious injury to uninsured patients. Other persons, who might perceive no personal need for insurance, are driven to buy it in order to protect themselves from gouging.
Medicare itself is certainly not perfect. The largest remaining issue confounding hospital charges can be traced back to weaknesses of a 1983 Medicare law, the Budget Reconciliation Act. Reimbursement legislation traditionally overpays initially, with every intention of paring prices down later. The providers, hardened to this maneuver, try to stonewall all subsequent amendments as long as they can. In this case, the overpayments have persisted so long they have become basic assumptions, triggering internal re-adjustments which make resolution still more difficult. A number of hospitals have been severely fined for violating the spirit of this law, however close they may come to obeying the letter of it. On the other hand, other courts have held that a situation which has been allowed to persist so long can be deemed to be settled law. The result is a predicament which is quite unnecessary, and might be rather readily corrected.
But let's not wander too far from the basic proposal. The corresponding (doctor and hospital) portions of Medicaid should be consolidated into Medicare, with remaining issues settled independently. Consolidating two government programs may not quite be the "single payer" concept that others had in mind, but it resolves most of the legitimate problems which provoked that mysterious slogan.
It seems fair to say that America is nearly desperate to find a successful way to eliminate the illegal narcotic trade. We've had a war on drugs, which seems to have three components, all failures. We have an occupying army in Afghanista where most heroin comes from. We've sprayed weed killers on Bolivia, Colombia, Mexico, and found various other ways to assist local narcotic agents in their efforts to break up the planting of cocaine in Latin America. We've got high speed patrol boats and helicopter patrols around southern Florida. Spies of all sorts have been hired to infiltrate the distribution channels. We've spent other tons of money educating school children that experiments with chemical recreation are risky, immoral, dumb, whatever. Sly, naughty allusions to drugs with cute code names have been pretty well driven off television, night club acts, and even glitzy cocktail parties in the advertising business. Ronald Reagan had a simple solution --"Lock 'em up" which led to the passage of a national law, leap-frogging the trials of drug offenses ahead of all other criminal offenses. The consequence was that prisons filled up and overcrowded conditions became a scandal. It may cost more to send someone to jail than to send them to Harvard, but the situation seemed to require us to ignore the cost, get them off the street, bring this problem to an end. If any of this worked, or if all of it collectively worked, it didn't work very well. This is a very big problem that seems to defy solution.
So, one of the desperate ideas put forward has been to decriminalize drugs. That is, stop making their sale and use illegal. Abundant drugs would become cheap, cheap prices would eliminate the drug dealers' profit, and lack of a supply of pushers would cause the supply to dry up. That is, no one would bring the heroin from Afghanistan, or the cocaine from Bolivia -- because there was so much of it around that the profit disappeared. Wait a minute. Did you just say that no one would import expensive narcotic because we would already have so much cheap narcotic? Somehow, it isn't persuasive that decriminalizing drugs would eliminate addiction. So, what other methods can claim proven success?
Let's try Philadelphia's system, by which I mean Philadelphia from 1940 to 1960. I graduated from medical school in 1948, filled with instruction about how to recognize the signs of drug addiction, how to detoxify, what precautions you ought to take to keep the student nurses from stealing the ward morphine supply, how carefully you had to monitor the pharmacy and anesthesia departments. Our older instructors were full of anecdotes about how clever the addicts were in fooling the doctor, how they themselves had been tricked or almost tricked, medical friends they knew who got hooked. Bad business, and it's important that every new innocent doctor be warned about how prevalent and how deceptive it was. Just read detective novels by Conan Doyle, who was a physician, addict, or De Quincey confessing to be an opium eater, or Coleridge writing Kubla Khan while in a drug stupor.
So, my teaching and mentoring prepared me to believe that narcotic addiction was rampant before 1940. But when I came to Philadelphia I absolutely never encountered any of it, or at least until about 1970 when the Beatles and the Flower Children of California made it a deliciously tempting adventure. And I spent most mornings during that period doing teaching and charity work at Philadelphia General Hospital for thousands of indigents. If drug addiction had been anywhere in the city, it seems to me it would have been at PGH. We had thousands of cases of alcoholism, of tuberculosis, of syphilis in all its forms, suicides, homicides, bullet wounds, a prison ward full of manacled prisoners. But no drugs, nossir. It was a nice situation, and after a little while you stop wondering about dogs that don't bark, and drug addicts that don't come in the accident room door. But a couple of decades later, when we had lines of heroin addicts waiting for their treatment, it all came back to us that we had experienced a remarkable absence of what was now quite common again. It had apparently been prevalent, it disappeared for twenty years, and then it came back. It now seems quite evident that we were enjoying a two-decade drug holiday, but what isn't so clear is what caused it. Whatever could have caused this remarkable temporary disappearance of illicit drugs?
Well, I don't know; and when you say that, you invite everybody to make some wild conjecture. So let me make my own well-ruminated guess, first. It seems worth investigating whether Angelo Bruno, the head of the mob, did it. It is a widely-held belief that Bruno hated the narcotic trade, and issued orders that there was to be none of it in his territory. It's quite possible that this was a purely business decision, since there was plenty of money to be made from bootlegging and loan-sharking, whereas the narcotics business got you a lot of unwelcome heat from the police that would interfere with your profitability. By that reasoning, perhaps the war on drugs did have a beneficial effect, but it operated indirectly on the mob boss. Who was in a position to know what was going on in his territory, who was responsible, and what methods might be effective in discouraging the trade. But that explanation assumes the worst possible motives on Bruno's part.
Let's at least consider the possibility that Bruno had a large streak of decency in him, and really didn't like the narcotics racket even if it cost his organization money to get rid of it. And got his head blown off when greedier folk decided to eliminate this obstacle to their prosperity.
So, by that analysis, you have the Philadelphia System for a drug-free city. A system of proven effectiveness, when every other proposal has failed. Just pass the word that nobody will bother you in your loan-sharking and bootlegging, just so the distribution of illegal drugs stops completely. How you accomplish this is up to you.
shrewdly observed that people could and would restrain state taxation by moving to a neighboring state. The founding fathers never contemplated health insurance or Medicaid, of course, but the same principle applies there in reverse. If one state gets too generous with health and welfare benefits, people in neighboring states will nowadays hear of it and get on a bus to relocate advantageously. A flood of new low-income citizens may or may not be what a particular state wants, depending on local economic conditions.
For example during the great depression of the 1930s,
|The Great Depression|
Unemployment was so widespread that no state dared attract still more of it with generous welfare benefits. On the other hand, during the recovery period that followed World War II, the industrial northern states definitely did attract cheap labor from the southern states, using better health care, freely available, along with better unemployment benefits. In each case, employers alternate between wanting cheap labor or low taxes, while labor representatives relax or toughen their resistance to cheap competition. Politicians are always looking for the argument that carries the most votes. If you want to understand the persistance of employer-based health insurance alongside unobtainable health insurance for others, look into this trio of motivations.
While it's true state legislatures must tend to the infrastructure, crime conditions and education, they can in the main be regarded as debating societies between employers and labor. There is some, but not much, difference between Republicans and Democrats on the Medicaid issue. A Democratic Governor will welcome an influx of low-income voters who will normally vote for his party, but labor unions will soon remind him that enough is enough. A Republican Governor will gladly supply cheap labor for the state's employers, until rising taxes bring an end to his support. Since the financial stability of the local hospital can be badly jarred by instability of Medicaid payments, doctors soon get annoyed with the misallignment between state motives and the welfare of their patients. It is not much of an exaggeration, that state coffers might be overflowing with surplus, but the budget of Medicaid will not rise a penny if it would attract poverty migrants from neighboring states during a period of high unemployment.
The obvious solution is a federal one, imposing uniform standards. But think that over a little before you jump at it. If the federal government pays all of Medicaid costs, it is going to want to administer the program. All states resist that idea, more so if local and federal political domination is in conflict. Small states will universally be fearful of being overwhelmed by large neighbors, particularly when they have achieved advantageous niches. The disastrous condition of the auto industry might persuade Michigan to agree, but Tennessee and other states with Japanese car plants might disagree. As you get close to the border of large states, hospitals near the border can often attract many patients from the other state; strange political bedfellows can link arms in Congress when you might not expect it.
None of this, absolutely none of it, has to do directly with medical care. But the quality of health care is strongly affected, and doctors are sick of hearing about poor sick folks when the real issue is labor availability. The voice is Jacob's voice, but the hand -- is the hand of Esau.
An article in the Wall Street Journal by Amy Finkelstein of MIT describes evidence that Medicare seemingly produced no provable increase in longevity during the period she studied, which was 1965 to 1975. Thinking back to that time in the practice of Medicine, the conclusion while surprising seems entirely plausible after a little reflection. Our system of charity care was good enough so I really doubt if very many people were allowed to die prematurely because of poverty in 1965, at least in Philadelphia. Charity took care of them. Elective repairs were an entirely different matter, however. Working in charity clinics at the time, I well remember that almost every patient seemed to have bad teeth, an unrepaired hernia, untreated varicose veins, or a positive Wasserman and similar threatening but non-fatal conditions. There existed a vast backlog of untreated non-fatal conditions, almost to the point where it seemed we would never catch up, but of course we did eventually catch up. Whatever the costs of the government health programs during that decade, they mainly reflect that huge backlog project of correcting health impairments which were nevertheless not an immediate threat to life, in addition to lifting the former financial burden from our charity institutions of treating conditions which were undeniably life-threatening.
From this historical experience it can be deduced that any new proposals for modifying or reforming the medical system should start with the medical situation as we happen to find it. If a great many people are dying of treatable conditions as they are in Asia and Africa today, then it is likely that extra finance will promptly reflect itself as improved population longevity. If that's not the case and other institutions are providing emergency care, you must then look among the backlogs of untreated conditions -- in that locality -- for a justification of new costs and disruption. Since even the non-urgent backlog in America has now been almost totally eliminated, something else must be proposed as a goal for legitimate improvement. Otherwise, you would have to be so far-sighted that you make a decision to spend an extra 10% or so of the Gross Domestic Product for benefits, every year for ten years, until some unpredictable long-term benefits appear. It's difficult to imagine our political process launching forth on such an adventure.
However, let's continue to look at what did happen, to see what arguments we might have been imaginative enough to adopt. First of all, we can see that the quality of life of the elderly generation, the one I now belong to, has been enormously enhanced by joint replacement and cataract repair --significantly reducing wheelchair crippling and blindness. Neither of these benefactions can be said to result from a brilliant insight by a genius, but rather a slow, incremental process of adding small enhancements until the desirable result becomes standard practice. This sort of development, as in research and development, is very likely a response to a general increase in the funding of the provider community, as contrasted with targetted extra appropriations to the NIH for example. A plausible case can be made for asserting that the undesignated increased funding of the early Medicare program gave tens of thousands of elderly people -- in the next generation -- a comfortable life rather than a miserable one, several decades sooner than a more frugal medical system would have done.
Secondly, life expectancy did finally increase substantially, perhaps extending an average of ten or more years of life in the period subsequent to the enactment of the Medicare Act. But it did so only after a fifteen or twenty-year lag. It's uncertain how much we may credit Medicare with this benefit, however; the increased basic research funding of the National Institutes of Health seems plausibly responsible. However, at least half of the longevity benefit must be credited to research efforts in the private pharmaceutical industry, which was funded in large measure by Medicare dollars, recirculated through drug purchases. But there's restrained exuberance about even these miracles, which were surely the greatest medical advances in human history.
We have greatly extended the comfortable, useful life of our population, but now must grudgingly admit we directed these benefits to a group of people who are no longer engaged in economic activity. Unemployable people have been transformed into employable ones, but sadly we have mainly given a twenty year vacation to people who are capable of doing productive work, but don't. Instead, we import millions of foreigners to do the work, or outsource it, which accomplishes much the same result without the demographic disruptions. Worse still, we may find these people will often outlive their savings, so the extra longevity could result in years of economic misery and dispair, not necessarily an improvement on the physical and medical varieties. In other words, if we had possessed the foresight to see that ultimately improved longevity and life quality was a worthwhile goal, we should then have simultaneously taken the steps to improve economic circumstances which make that medical miracle seem worthwhile.
As we now consider further steps to over fund medical care, or reform it, or make it universal or whatever, perhaps there will be time to consider whether other improvements in American life are needed before there is a net beneficial effect. Either undertaken simultaneously with the health care financing initiatives, or even possibly, instead of them.
|Sir Michael Marmont|
In 2007, the Sonia Isard Lecture was delivered at the College of Physicians of Philadelphia by Professor Sir Michael Marmot on the topic of Health in an Unequal World . Sir Michael is the Director of the International Institute for Science and Health, and MRC Research Professor of Epidemiology and Public Health, at University College, London.
His starting point is the commonly accepted view that the richer you are, the better your health. Life expectancy of the poorest level of society is almost everywhere seen to be shorter than the local average. In less developed countries and in children, the excess mortality is concentrated in infectious diseases. However, in more affluent nations, it is obesity, diabetes, hypertension which seems to account for it. Regardless of cause, the common denominator everywhere is poverty, which leads to a general opinion that the alleviation of poverty contains the solution to the health gradient. There is even another logical presumption, that improved health care will directly remedy the problem, without necessarily adressing a more daunting obstacle, the elimination of poverty. Although the provision of equal access to quality health care may be almost more than we can accomplish, in this analysis of causes, it is a short-cut.
Sir Michael is not so sure. Great Britain has had a national health service for fifty years, but it is still clear to British physicians that the class distinction persists in health if not in health care. Mortality statistics confirm the professional opinion. The conclusion is general that the British health system must be flawed, or underfunded, or poorly run. Not necessarily correct, not necessarily correct. Buried in a mountain of data from the Whitehall Studies of British civil servants, Dr. Marmot teased out the fact that a striking inverse gradient of mortality and morbidity existed in a highly educated group that had essentially equal health care and, while not rich were certainly not poor. The gradient persisted at all levels; the higher you rose in the bureaucracy, the longer you were destined to live after retirement.
Evidently a huge amount of statistical work followed this insight, confirming its thesis in a wide variety of situations. The caste system in India provided a confirming example that was unrelated to education or occupational strivings. Marmot's observation is gradual gradient, not a two-part, either/or. Not rich versus poor, but richer versus less-rich, less-rich versus even-less rich. Every occupational, social or financial step up makes you live a little longer.
I wish he had stopped there. But the pressure to explain has generated the hypothesis that what we are looking at may be progressive degrees of empowerment. Others who have contemplated Professor Marmot's observations suggest it is due to progressive degrees of happiness. Sorry, but that's a little too touchy feely for me. I don't know what empowerment is, or how to measure happiness. The monk in his cell may have achieved serenity, not necessarily happiness, certainly not empowerment. The prisoner in his cell has no serenity, happiness or empowerment. I prefer to believe it is premature to speculate publicly about the mechanisms which produce these observations.
Meanwhile, it seems to be true that if you aspire to be rich you may not become happy, but you will probably live longer. If you want to rise in the hierarchy and still live longer, you need not be afraid to strive. For at least a little while longer, that's going to have to suffice as a definition of wisdom.
|Chemical Heritage Building|
listened to the analysis by G. Steven Burrill, a noted venture capitalist who specializes in this area. The big firms, like Merck, Wyeth, Johnson and Johnson have recently reported disappointing earnings, and it seems they have been reducing their American research divisions, with more use of small niche research firms as subcontractors, both American and foreign. As they tend to reduce their emphasis on research and manufacturing, Steve Burrill feels they will concentrate mainly on marketing. That sounds like good news for Wyeth, with its traditional focus on marketing, and bad news for Merck, which has always been strong in new product development.
|G. Steven Burrill|
Burrill also has his eye on the statistic that only 8% of health care spending is devoted to pharmaceuticals, while 40% is spent on nostrums to promote wellness. The sly observation slipped out that if 40% of health spending goes for products of questionable value, just think how big the market would be for new products that really do promote some wellness. So that, in his opinion, is where investors will prosper.
Some of us in the back of the room were troubled by these thoughts. In the first place, the major drug houses have long operated with a financial business plan that takes profits from old established drugs and uses them to pay for research on the new drugs of the future. Small niche companies, that only work on one phase of this cycle, have had difficulty financing expansion and mostly accepted a subsidiary role. You might develop a wonder drug in your garage, but you had to license it to a big pharma concern in order to thrive. The thought pops up that the protracted wait for
|PA Drug Industry|
Food and Drug approval might be stretching the old-drug/new-drug interval to the point where patent expiration on the current revenue generators interrupts the internal recycling of profits into new drug research. That's been a threat ever since the passage of the Kefauver Amendment, but a new twist has appeared in the form of a tidal wave of cheap liquidity from the Far East, working its way into venture capital pools and assisting the niche firms with their historical shortages of capital. If that's a significant feature of the present environment, it could fizzle out when the Far East stops pumping liquidity into world markets. A new Premier of Japan might be all it would take, or else a drop in the price of oil. Japan's interest rates are now held below 1%, while a realistic price for oil is $45 a barrel, not $65.
And as far as the promotion of wellness is concerned, that concept might just turn out to be a fad. Congress doesn't try to evaluate scientific trends, but it is very fond of insisting that "if it ain't broke, don't fix it". A major advance in the treatment of cancer and or Alzheimer's Disease might very well dampen Congressional enthusiasm for spending 15% of Gross Domestic Product on what's then left to treat, which would mostly be wellness.
|Comm Volu In Medicine|
Mary Wirshup has a very different medical background from mine, but she's my kind of doctor. I couldn't help wishing, as she addressed our urban luncheon club, there could be thousands more like her, even while understanding more fully than she seems to, the reasons why doctors are driven from her behavior model. As we parted, it felt like saying a last goodbye to the Spartans marching to Thermopylae.
As 46,000 medically uninsured persons in Chester County get sickness and injuries, they know that a Federal Law prohibits a hospital accident room from refusing to see them, so ways are found to shunt patients to the CVIM free clinic, run by volunteers. This law is in turn a response to a government-created situation where a hospital which "accepts" patients must keep them. Any economics teacher can tell you that supply/demand issues are best addressed by price adjustment, so price controls in whatever guise lead to shortages. I must say I have little sympathy with the devious strategies which hospitals often employ to disguise their rejection of uninsured patients. At the same time, I know a lifeboat will sink if too many climb aboard. Nevertheless, the semantic switch from lack of insurance to lack of care implies that only more insurance can surmount the barriers to care, which is absurd. For one thing, I know too many hospital administrators who are paid a million dollars a year, and one who is paid two million. And at least two health insurance executives are in the newspapers with net worth over a billion -- yes, that's billion with a b. We have reached a point where reducing all physician income to zero would only reduce "healthcare" costs by 10%. As I look at Dr. Wirshup's modest clothing I can only surmise she plans to continue her modest living until she is 80 years old, after which her savings might see her out. Squeezing physician reimbursement is not intended to save significant money, nor intended to restore physician incomes to more equitable levels. It is intended to address the oversupply of physicians without confronting either the universities or the foreign trained lobby.
The elite tranche of medical schools do their part to relieve physician oversupply without reducing class size, through the encouragement of their students to go into research. I was well along at the National Institutes of Health before I finally decided I had not gone into medical school with that goal, and returned to teaching and patient care in a more satisfying model not too different from CVIM's obviously Pennsylvania Dutch spirit. The Amish at the far western end of Chester County reject the whole idea of insurance; their most characteristic statement is "Don't send me no bills." That attitude is rather a contrast with the shiny housing and automobiles in the Silicon Valley developments of Southern Chester County, or even with some rather bewildered Quaker farm families scattered over the rest of the county next to the horsey set. Chester County is America.
On Second Street in Society Hill, next to the park where William Penn's house stood and a few feet from Bookbinders, is the house of Dr. Thomas Bond. Bond conceived the idea of building the first hospital in America and with Franklin's publicity machine succeeded in getting it built, to care for the "sick poor". Dr. Bond started a second enduring tradition as well. When the Legislature expressed doubt that the institution was sustainable, he pledged to convince the local medical profession to serve the poor without charge. Some of the legislators who voted for the measure did so in the belief that charity care would never appear, so the gesture would be without cost. The physicians did indeed come forward, in sufficient numbers to run many institutions for two hundred years. In 1965 health insurance made its national appearance, and has regarded the benchmark low costs of charity care as a threat, ever since.
The top thirty American colleges have ten times the applicants they have room for. Demand vastly exceeds supply, prices are essentially fixed; shortages result. Can-do is the American way, so our first reaction is to build a lot more colleges and beat them over the head if they aren't first-rate. To bring this down to a local scale, implications are that Philadelphia has a moral duty to build eighteen more Ivy-League universities.
|Cosa Ricians Roofers|
Let's think about that, in a back-of-the envelope way. Since the rest of the country is going to be similarly driven, we can't attract Americans to run those universities. Philadelphians who are doing other things must staff those universities; people inclined to become professionals of a different sort are going to have to be trained to be university professors. Students now being rejected will be admitted, since that's the purpose of the thing. Unless we somehow increase academic productivity, every man, woman and child from Trenton to Wilmington is going to be in a college classroom in some capacity or other. We here confront the extrapolation fallacy; a new problem must be addressed in more productive ways than just more of the same.
Curiously, the readjustments to this overall shift from an industrial to a service economy are first making their appearance in things like roof repairs and ironing shirts. When my house needed a new roof, I found I had a choice of workgangs composed of Costa Rican, Puerto Rican, or Polish roofers. The Costa Ricans made the best bid, and went to work immediately. They started pounding on my roof at 6 AM, and were still pounding after I went to bed at night; I have grave doubts that American roofers would approach that work standard. I am told that the entire building industry, on which our current prosperity rests, would collapse if we banned illegal immigration. In a different industry, Philadelphia's convention hall cannot attract visitors unless we build more hotels. But the hotel industry cannot find nearly enough people who speak English to make the beds. For one purpose or another, we have imported 12 million illegal immigrants who mostly remain invisible because they are so hard at work.
We are going too recklessly fast with what is fundamentally a useful transformation of our society. Americans want to go to college because statistics show that will make them prosper. But that's only half of their transformation. The other half is a resulting shortage of labor in the jobs which do not require college. Normally, you would expect wages to rise, but they are suppressed -- deflated -- by substituting immigrant labor, legal and illegal. Impose an effective barrier to immigrants, and you would quickly see inflation like you wouldn't believe. Combat inflation by raising interest rates, and the housing market would quickly collapse. That would prove to be a painful way to make the immigrants decide to go back home, although it would be effective. And so on, and so on, and so on.
Slow down, America. You're going in the right direction, but exceeding the speed limit.
We're alluding indirectly to immigration as a general topic in this article, because sooner or later every discussion of every aspect of immigration adds a claim of "fairness" to the balance. In this case, plain talk about fleecing peasants first requires definition of an unfamiliar term. Seigniorage, also spelled seignorage, or seigneurage, originally only denoted a fee which governments charged for milling coins out of precious metal. Developing nations often didn't have the necessary technology, so they paid some other country to do it for them. That was fair enough, but soon "trimmers" would shave the side or surface of coins and gather up the dust for sale. That practice led to clever serration of the formerly flat edges, much simpler than weighing coins to detect cheats.
In time, improved printing techniques allowed governments to keep precious metal in vaults and issue paper currency, some of which inevitably got burned, shredded or lost. Since the issuing government could then keep the whole value of lost currency minus printing costs for itself, the term seigniorage evolved to include this more lucrative method for governments to cheat citizens, abusing their monopoly on currency issue. There might seem to be some temptation for governments to print money on fragile paper, except it is overbalanced by the need to make it hard to counterfeit. Happily, this sort of seigniorage always seemed less offensive because everybody agrees that if you have money in your pocket, shame on you if you lose it. As transactions become more sophisticated however, some innovative modern arrangements which loosely fit the definition of seigniorage become a new source of moral dismay. One facet of currency razzle dazzle concerns immigration, which is itself always a contentious matter.
Right now, it is authoritatively estimated that the Social Security program has collected half a trillion dollars in Social Security and Medicare taxes, whose rightful owner is impossible to determine. Some of the beneficiaries may have died without claiming the money, so some of this topic might be classified as escheat, or abandoned by the owner. But very likely the bulk of this money, under modern circumstances, was withheld from illegal immigrants by their employers, either without their knowledge or using counterfeit social security numbers; and the fugitive status of the owners made them reluctant to claim it. Half a trillion is five hundred billion dollars.
This sort of discovery leads to some troublesome thoughts. If the immigrants are legal, or if now illegal may receive amnesty, they will be fully eligible for social security benefits. You might say they earned such benefits, but our tormented public pension system is in fact almost entirely funded by one generation funding its parents' generation. That borrowing between generations means paying for it later, so of course it enjoys the politician spin-term of "pay as you go". An American of multi-generational descent has paid for his parents while he works, and expects to have his own pension paid for by his children. An immigrant, never mind his citizenship, is paying the same taxes, but has no parents as beneficiaries. When the newcomer retires he may be a burden to his children like the rest of us, but his current payments go into the black hole of government deficits without paying for any parents. Here we have seigniorage on a much grander scale. The money presently diverted from the usual channels by this ingenious arrangement is calculated to be two trillion dollars, or four times as much as the paper money seigniorage, and many many times as much as the shaved-coins scam. Just for comparison, consider that America is estimated to have 900 billionaires. Their aggregate net worth is probably only slightly greater than the amount our government garners from illegal immigrants.
The matter really does seem to be important enough for us to learn how to spell seigniorage, and even reconsider whether to apply the term to its most popular current manifestation.
Robert Reinecke MD and I were members of the American Medical Association House of Delegates for twenty or so years, members of the College of Cardinals, as it were. We were also members of the Colonel's Table at the Philadelphia Union League, a sort of club within the club. With his offices at Wills Eye Hospital only two blocks from mine at the Pennsylvania Hospital, we often walked together to the club for lunch. Since the AMA House takes about three hundred votes on health policy matters every six months, there were lots and lots of topics to discuss during our five-block walks.
One day, he had an idea for an AMA proposal, stimulated by dissatisfaction with the common practice of Health Maintenance Organizations (HMO) of forcing the patients to see a nurse before they could see a doctor. In fact, if the nurse didn't feel you needed to see a doctor, you couldn't. Bob didn't like that juvenile system at all, and as an ophthalmologist he furthermore disliked the related practice of requiring the patient to see a general practitioner before getting permission to see an ophthalmologist. You can see his point that more money was spent preventing a visit to the eye doctor than it would cost to go see one. So, he had a plan. It grew out of the Sixth Amendment to the Constitution, which says that every criminal is entitled to see a lawyer. We need another Constitutional Amendment, that says everybody is entitled to see a doctor. Well, no. That doesn't sound right to me, Bob; you'd better think that one through a little more.
He did think about it; he seemed to think about it every day , and every time he thought about it, it sounded better to him, but sounded worse to me. To me, it was just one of those impulses we all get, and if I just remained politely resistant, it would eventually go away. As it might have, except he got a couple of visitors.
Bob represents the Ophthalmologists at the AMÅ, because he is an eminent scientist, a perfect gentleman, and a former President of the Academy of Ophthalmology. You could tell from the way eye doctors deferred to him at the AMA that his opinions mattered a lot. Harris Wofford had been appointed to the Senate seat vacated when Jack Heintz was killed in an airplane accident, and was at that time running for election to the unexpired Senate term. Wofford had visited the office of the Academy of Ophthalmology in Washington, soliciting campaign contributions. The office told him they couldn't consider such an idea about a Pennsylvania election, without the endorsement of Dr. Reinecke. So, he and James Carville came to visit at Wills Eye Hospital.
The whole conversation can be easily imagined, with nobody quite saying what was frankly on his mind, but ending up with a modest contribution. As the meeting drew to a close, Bob interjected that he had a proposal for reform of health care; it had to do with the Sixth Amendment and every patient's right to see a doctor, just like every criminal entitled to a lawyer. Wofford was in the uncomfortable position where he simply had to be polite and non-committal, so he promised to have his staff look into the matter -- and started to edge toward the door. But bald little Carville almost soared through the ceiling. "That's it. That's our campaign slogan. If every crook gets a free lawyer, why can't every American get a free doctor!!" Well, that wasn't coming out exactly the way it started out, but now there was no stopping it.
Wofford's opponent ran an indolent, even arrogant, campaign, probably the main reason Wofford beat him in the election. But Wofford went into every nook and cranny of Pennsylvania trumpeting the message that if criminals are entitled to lawyers, all citizens are surely entitled to health care. That's one further step away from the original intent, and who knows what further bounces the ball would take. Wofford's victory was proclaimed an upset of mamouth proportions, and the news was transmitted to Presidential Candidate Clinton that Pennsylvania had uncovered a massive groundswell in favor of National Health Insurance. That's a lot of spin before it even reached the spinmeister. Anyway, Clinton picked up the slogan, and made plans to incorporate it into his presidency as his legacy program for the American people.
The federal government directly controls about half of health care spending, and makes rules affecting most of the rest.
Every group or business which receives some of this money is alert not to lose it. Many other groups are alert for openings to get more of it. All employ sentries in Washington. False alarms are frequent, stealth attacks are a constant threat, constituents paying the bills demand immediate reassurances. Members of Congress seldom initiate a disturbance unless someone from inside an industry brings it to them. Consequently, when proposals do surface, and seem to be serious, the question to be immediately answered is -- who's behind this? If you know who starts something, you can readily imagine the motive, assess the political strength, decide how to respond. With what little was generally known about the Clinton Health Care Plan of 1993, it was easy to imagine a host of people with some motive, but very hard to say who was actually pushing one. Must be a Democrat, obviously, but not immediately obvious which of several possibilities was the real agitator.
Health insurance companies would always seem likely to have proposals about national health insurance. Blue Cross dominates the market in large geographical markets, mainly East Coast, and would seem fearful to lose that dominance in a major upheaval. But other market areas of the country are dominated by commercial insurance companies who might seek to upend the Blue Cross monopoly, but whose form of business would be even more seriously threatened by health insurance innovations. Most commercial health insurance was written by large life insurance companies who regard health insurance as a small sideline for the convenience of their industrial customers. Blue Cross was somewhat more comfortable with government work, particularly since the 1965 Medicare and Medicaid programs were patterned after them. However, Blue Cross was non-profit, thus lacking in incentives, and historically controlled by health care providers. That is, Blue Cross was formed by and dominated by the hospital associations, and Blue Shield was formed by and dominated by medical societies. Since doctors and hospitals were very prompt in announcing their deep concerns and uncertainties about the Clinton Plan, Blue Organizations seemed unlikely to make daring proposals so likely to provoke trouble at home.
Not that some doctors and some hospitals didn't try to see what might be made of this opportunity. At the American Medical Association, certain leaders known to have Blue Shield involvement offered conciliatory remarks about waiting for further details before taking a stance, but were abruptly halted by a general opinion that things had apparently already gone too far for substantive negotiation. Much the same thing occurred at the Hospital Association; the winners had too much to lose, the losers had too little influence to matter, and nobody stepped up to claim an inside track. Hospital trustees didn't know what was going on, strongly suspected something was going on, and didn't like either situation. If the doctors got mad enough at a hospital, they could ruin it, and if hospitals got mad enough at Blue Cross, it too was ruined. The main strength behind the Blue Cross monopoly position was the secret discount provided to them by hospitals, which was refused to competitor insurance companies, but could easily be extended in the interest of fairness. If need be. The commercial competitors wanted that discount much more than they wanted new insurance models.
There is one subset of doctors and hospitals that might be suspected of generating a sweeping revision of the medical system -- academia. Medical schools think of themselves as the appropriate source of vision about the profession they are training, and they run large prestigious hospitals. Their heavy dependence on government research grants, teaching subsidies, and tuition support programs puts them in constant contact with Washington bureaucracy and politics; propinquity is a great match-maker. Their style of salaried faculty creates estrangement from making a living by being paid fees for specified services, and they are reasonably comfortable with the flaws and techniques of professional promotion within a large organization. So, a slogan which has been attributed to Wilbur Cohen himself does not greatly jar on their ears. The author of the Medicare Act is said to have announced that the entire medical system of America could be accommodated by thirty or forty Mayo Clinics. Twist that just a little, and you are imagining he said forty or fifty medical school teaching hospitals. The briefest contemplation and rebuttal will knock down that proposal, such as pointing out that we have several times that many teaching hospitals at present without achieving anything like the nation-wide coverage envisioned. After absorbing the administrative chaos of readjusting to that model, you would confront the old repeated history of grossly overestimating, and then grossly underestimating, the future manpower needs of a medical system in the process of constant scientific turmoil. Supppose you built the fifty Mayo Clinics and found you needed two hundred? Suppose you built two hundred and found you needed seventy? And then, finally, remember that each big city could expect to contain one of these organizations, but the fewer of them there are, the longer the distance everyone else would have to travel to get to them. No one has even ventured to speculate how you could go about doing such a thing, let alone doing it three or four times to get it right. But, but. The infeasibility of academia at the center of medical care delivery does not eliminate the possibility that the idea underlying the Clinton Health Plan may have originated in academia, or that academia might support some similar proposal with something else at its center.
Since it was soon clear that the traditional "players" in the health policy arena were unlikely to be sponsoring some self-serving policy that might masquerade as the Clinton Health Plan, the search went on. There were a number of professional groups within the medical community who had traditionally chafed at domination of the hierarchy by physician leadership. Nurses, hospital administrators, pharmaceutical companies, druggists, corporate human resources officers, public health officials, social workers, biology teachers all represented groups who derived status with the public by displaying inside knowledge of medicine. But all of them fell silent when a physician entered the room, and tended to shift their emphasis to faults of the "system" or the "industry". Their Washington representatives placed their emphasis on changes in the existing system which might elevate the prestige and income of the members, and were particularly vigilant for system modifications intended for other purposes which might nevertheless create advantageous loopholes for the members. All of this is normal striving in the good ole' American way, a polite variant of the mixture of bellicosity and restraint usually seen in the Union movement. These people wanted to improve their income and working conditions, but were ultimately quite hesitant about radical proposals that might sink the ship. A quick survey showed they were not supporting any particular reform project, even though they could be counted on to support any reform project. Furthermore, they consistently injured their political strength by extending beyond economic goals to issues like radical feminism in the case of nurses, or direct advertising to the public as in the case of the drug companies, or practicing medicine without a license in the case of limited-license practitioners. These people had votes, influence and lobbyists, but they did not have a national project for health care reform of their own devising, and they surely were not the people behind the Clinton Plan.
During the six months before The Plan was presented to Congress and the Public, a White House task force said to consist of five hundred secret members was meeting under the direction of President Clinton's wife Hillary. No doubt part of their purpose was to give Hillary a public platform on which to show her stuff, with the idea of someday succeeding her husband as President sort of in the back of her mind. But most of it was also quite practical; somebody had to figure out what this proposal was going to be, and newly elected Bill had to spend most of his time learning how to run the rest of the country. Buried in here was an efficiency principle too; the staff members of every important congressman and senator were involved in the process, making the deals and surfacing the political angles before things had to come down to votes and filibusters. Meanwhile, the rest of the country had to wait outside closed doors, fed by rumors and spin.
How well I remember one public seminar on the subject during this period of suspense. The audience was filled with people thought to be influential with the public, the usual suspects in that sense, too. Representatives of various interest groups were seated up front at a table, and for some reason I had been picked to represent doctors. Next to me was a druggist who had made a billion dollars starting an HMO; it was intriguing to watch how many well-dressed women with no interest in health care paraded up to the table to show their stuff to the billionaire, while we waited for the meeting to begin. All of the usual suspects of Philadelphia medical care were at the table, each of us wondering what the other was going to say. When some last Very Important Person had wandered in and taken a seat, it was time to begin. The moderator told a funny story or two, and then asked each one of us what we thought of the Clinton Health Plan. One by one, to the utter amazement of us all, we each explained how we were opposed to it.
So obviously this proposal was not coming from the usual agitators. But, remember, somebody was surely behind it. Before we take a stab at that mystery, let's humanize the usual suspects by describing a few of them.
|American Medical Assocation|
The House of Delegates of the American Medical Association holds a five day convention twice a year. The meetings last from 7 in the morning until midnight, although the main sessions in the auditorium only last eight hours a day during three days. The rest of the time is consumed with meals, committee meetings, geographical caucuses, and even cocktail parties. Newcomers often object to the numerous parties until they come to see that these are merely committee meetings in a different form, with different subsets of the organization picking up the necessary costs. This group of workaholics has to vote on several hundred issues each session, and most Delegates have little advance opinion when they enter the headquarters hotel on the first day. But after meeting with their specialty in one committee, and members of their geographical region in another, and members of their medical school alumni association in yet another, and with issue oriented groups, political allies, and other layers of an overlapping matrix day after day -- by the time the vote is actually called for, most Delegates could safely predict the correct outcome with very few exceptions. The AMA works at its similar job with far greater intensity than Congress does, because Congress has all year to do it, while the doctors have to go home to make a living. Don't worry about the parties, they are really work sessions for everyone except rank newcomers, outsiders, visitors, and wives. What is perhaps more worrisome is the rare occasion when just about every delegate arrives with one opinion, and is persuaded by the leadership to adopt the reverse. That can only happen if new information is suddenly revealed, with little time to check its accuracy.
There are usually fifteen or so parties every night, hosted by large state delegations, large specialty assemblies, and coalitions of smaller groups. Fifteen drinks a night would be quite a bit for most folks, and some newcomers are duped into trying to be polite about it. The rest of us take the proffered drink, walk over to a nearby plant stand and dump it. I hate to think how many potted palms I have fried that way. Each delegation has its own system of organizing these minuets, and I'll try to describe the Pennsylania system.
Nobody will come to your party if you don't go to theirs, so we make a list and divide the group into those who "travel" to the parties of other states, and those who remain to host our own party, "at the door". Everyone is expected to wear a name tag, containing your name in large type underneath which is your caucus designation, in my case "Pennsylvania". The older members instruct the newer ones to put the name tag just under their right shoulder. That way, you can seem to be looking at the hand you are shaking, while freshening your recollection of who in the world you are meeting. You can of course do anything you please, but time is short for a the transaction of a lot of business, and it's just easier to do routine things the regulation way, and get on with it.
On the evening in question, I was "at the door". The formula, repeated many times, was to extend a hand of greeting and recite, "Welcome to Pennsylvania. Are you looking for some friend in particular? Let me see that you have a drink. Come on in and meet my fellow delegate, Scotty Donaldson." You can shepherd a lot of people more or less gracefully if you reduce the formalities to a routine. After several people had been brought in under the tent, a man with highly polished shoes came up, wearing a name tag that said, "Blue Cross of America". He was greeted, his hand pumped, a drink procured, and was introduced to Scotty, our most famous extrovert. I quickly turned to the next person at the door.
Well, this lady was six inches taller than I am, and fifty pounds lighter. She wore a name tag, identifying her as President of some Nurses Association, "Welcome to Pennsylvania! Is there someone from Pennsylvania you know or would like to meet? Can I......" The apparition didn't even look at me as she brushed past through the door. Heading straight for the gentleman from Blue Cross, she poked her index finger into his chest, stopped him in mid-sentence as he talked to Scotty.
"What I want to know, " she announced to this startled man, "Is when are you people in Blue Cross going to pay nurses as much as you pay doctors?" And here I must admit I have to give this guy credit for unperturbability.
"Well, maam," he said cheerfully, "I think that's going to be quite some time."
News reports began to surface that big business was talking to Democrats in the White House about major revisions in the national health delivery system. That in itself was news, because big business normally forbids its employees to talk with regulators, and does not commonly welcome any new regulations. But the the Clinton Administration was looking for political allies, while the business community was willing to examine proposals to lighten the burden of employer-based health insurance. The discussions soon probed whether a common system might reduce government costs of Medicare and Medicaid, and simultaneously reduce the costs of employer-paid health insurance. For years, big business had been suspicious that the health community had somehow forced employers to pay an unfairly large share of other people's health costs, through some arcane manipulation of hospital cost accounting. Their term was cost shifting.
The administrators of government programs believed the same thing was happening to them. Since the only group left to benefit were the uninsured, the arithmetic was somehow wrong. A 7% population group, most of whom are young and healthy, could not account for annual premium jumps far in excess of the cost of living, occasionally as much as 30% in one year. In both governmental and business minds, the main beneficiaries of cost shifting must be the hospitals themselves, and the doctors who control them. Somehow, it seems not to have occurred to them that this news was brought to them by their fiscal agents, the health insurance companies, and was therefore likely slanted to avoid attention to middle-man costs. Whenever major negotiations are to be held, CEOs and top politicians take over to make the deals, necessarily basing their judgments on filtered information. Since this is a familiar situation, they employ high-priced consultants.
The five hundred secret members of Mrs. Clinton's task force were willing to listen to the ideas of anyone who had political clout, especially staff members of Congressional committee chairmen. But these people had been struggling with the problem for fifty years to no avail, so the emphasis had to be on change, on big new ideas. Universities and think tanks were especially welcome to comment, and
Clark Havighurst was particularly influential. But there had to be some kind of track record, some practical experience on which to base such an enormous national initiative. The best available model was the Health Maintenance Organization (HMO), whose most famous proponent was Paul Ellwood, a former midwestern pediatric neurologist who had gravitated into health insurance consulting. Ellwood had a vacation home in Jackson Hole, Wyoming, where he then gathered the non-govermental component of this movement into his front parlor. Insurance companies, human resources officials, academics, and in later stages the newsmedia, were given the Word, an opportunity to criticise, and an opportunity to have their views coordinated with the government group in Washington. There was a rough division of labor, establishing general regions of dominance; but ultimately, the two components intended to fit together in a unified health system for the whole country, bar none. The business community began to see that inevitably in that case the final overarching decisions would be made in Congress.
It's an ancient wrangle whether a manufacturer should actually own its suppliers, or the reverse; or instead whether it's healthier for industry components to stand at arms length from each other. At issue is not only what is best, but what is fair. If industry mergers seem sufficiently unfair, it will be proposed they should be illegal. That's the main substance of a lot of antitrust argument. Unfortunately, what is valid in good times may be reversed in a downturn. A prosperous supplier of materials often acts as a "cash cow", saving a merged enterprise from bankruptcy. Unfortunately, within a different economic climate one badly failing supplier can bring down the whole merged enterprise. There's also organizational friction; a temporarily prosperous unit may get to thinking it should boss the less prosperous units around. At the very least, the cash cow resists use of its cash reserves to help "losers". Several centuries of experience have thus left a minefield of old laws, traditions, and ingrained prejudice to undermine any broad standards for what is best. In no field is this more true than the Medical Industry.
Eighty years ago in Houston, the first Blue Cross health insurance company was started for a single group of school teachers to pay for service in a single hospital. That expanded to other subscribers and other hospitals, soon making it more workable for insurance, subscribers and hospitals to stand at arms length, allowing for a variety of local combinations. During World War II, combat in the Pacific led shipyards to be built on the West Coast, but westward migration of steel workers was hampered by lack of local medical facilities for them and their families. Taking advantage of the loophole provided in the wartime wage and price controls, Kaiser Industries attracted medical personnel by building hospitals, paying salaries, and offering physicians ready-made medical practices. Because of various licensing laws, Kaiser's medical enterprise was divided into two corporation, Kaiser and Permanente, so a specialized corporation within the Kaiser-Permanente Foundation could accommodate the licensed practitioners. The salaried nature of the physician organization immediately caused trouble with local fee-for-service practitioners, who were thus excluded from a large population in their neighborhood when they could not readily adjust to varying mixtures of the two payment methods. Their reaction, led by an obstetrician in Stockton, California, was also to organize dual-corporation structures which were exclusively fee-for service. Because Kaiser had a Foundation, they also called their organizations Foundations for Medical Care. Then, as now, it proved difficult to run a practice with two different reimbursement philosophies in the same waiting room; in time, friction between the two styles tended to increase as doctors who were more comfortable with each style tended to segregate themselves. Since offers of salaries are more immediately attractive to newly-trained physicians, they flocked to California to serve the steelworkers who were in need of doctors. Fee for service, on the other hand, allowed the gradual assembly of a more durable practice composed of patients who could test what they liked before making a permanent allegiance. Essentially, the transients went to Kaiser, more permanent settlers used fee-for-service.
Thus, it came about that several models for health care reform were tested in a few smallish towns of central California. These demonstration experiments may perhaps not meet everyone's standard for scientific purity, but at least they were public examples with the dumber features knocked away. They certainly provided a laboratory where ideas could develop about topics that otherwise were merely opinions and unsupported conjecture. The Foundations demonstrated that physician-dominated organizations could contain costs and maintain quality in a satisfactory way; there had previously been doubt about their ability to contain cost. The Kaiser organization showed that salaried practice performed acceptably as well, both to most staff physicians and to a majority of the patients; there had been doubt about the willingness of the public to limit choices to a panel of assigned physicians, mostly young and usually from elsewhere. Finally, the two systems seemed to be able to live together more or less peacefully; indeed, the California public seemed reassured that two systems apparently kept each other in check.
The first main difference rested on the system of quality control. The local Foundations developed review systems based on peer review and peer pressure; these worked remarkably well, particularly in constraining non-physician costs like pharmacy, tests, and hospitalizations. Cost and quality control in the Kaiser system was more rule-bound and quicker to apply discipline, kept within bounds however by the ability of both patients and staff to jump ship for the other system. Aside from professional peer review, the Kaiser system experimented with owning hospitals, laboratories, pharmacies. Here, the experience directly paralleled the experience of manufacturing industry with its suppliers; when reimbursement was generous suppliers generated welcome revenue. When reimbursement was constrained and substandard, ancillary service losses were unwelcome. Taken overall, the Houston experience was repeated, that ownership of such facilities was mostly a headache. Indeed, subsequent experience has shown the two systems usually co-exist nicely within independent ancillary facilities.
The Stockton, or Foundation for Medical Care, approach grew popular in the West. The variant which grew up in Utah was locally popular, and attracted the attention of Senator Wallace Bennett. The Bennett Amendment to the Medicare Act then picked out the peer review system as the secret of success, and set up a nationwide system of Professional Standards Review Organizations (PSRO) to conduct peer review of Medicare and Medicaid patients. The drawing of boundaries around these organizations was the most difficult part, and sometimes the boundaries were inept. Rural districts were adamant that the standards of big-city medical schools were not to be applied to their scattered resources, and urban areas saw themselves as ancient Rome surrounded by hostile tribes. Although these difficulties were foreseen, it is not always possible to draw a line that will separate the cultures, particularly where the outward migration of suburban housing was more rapid than the construction of suburban medical facilities, leaving the medical culture unstable. The PSRO system was quite successful in many areas, but caused trouble in others that was not adequately addressed. The central concept of the review system was that the doctors who worked together could quite readily identify the outliers, and better than anyone else could judge whether the local situation was justified. True, some practitioner might try to abuse the system to the disadvantage of his competitor, so no adverse decision was final until there had been an opportunity for outside appeal. There might even be a few circumstances requiring still higher appeal. The system was new and untried, but it produced eminently satisfactory results from the point of view of the Federal Government paying the bills. As former President of one of the largest PSROs in the country, I will assert that there was remarkably little friction or resistance in the medical community. My very good friend, the President of the New York City PSRO says much the same, and most people would say that if you can carry off a new system in New York without a lot of argument, it must work pretty smoothly. The Government wanted to eliminate unnecessary Medicare costs, particularly in hospitals, and it wanted to maintain peace with the medical profession. Hospital costs are obscured by the wide gap between posted charges and true underlying costs, compounded by disagreement about the proper assignment of overhead charges. Charges were not the assignment of the PSRO, utilization was. Days of hospitalization per thousand enrollees fell from roughly 1000 days per thousand to roughly 200 days per thousand, and that satisfies me at least that we were doing our job; physician peer review was doable.
It is likely, however, that peer review was much more apt to produce friction in rural districts. Philadelphia has had more than a hundred hospitals for more than a century. Birds of a feather tend to flock, so the sorting-out process was already far advanced by the application of constrained referrals to practitioners who failed local standards. Mixing members of different hospital staffs on appeals committees was easy in the big cities, and the naturally censorious tendencies of many physicians could be safely counted on to produce adversary balance. Most committees seemed visibly pleased, even relieved, to discover generally good quality in their competitors' practices. However, in the much smaller and more scattered institutions in the nation's regions with low population density, these informal arrangements cannot stretch as well. When there is only one specialist in a field, for example, it is sometimes hard to know whether he is a good one or not, but always easy to say whether you like him or not. Where the population thins out, much greater wisdom is required to make judgments, the number of close cases is greater, and the limited supply of judicious reviewers is similarly stretched. At least that is my surmise, based on knowing the background of most of the AMA delegates who eventually voted 105-96 to condemn the program in a standing vote. The result was the Dornenberger Amendment, which much weakened the system, when instead it should have triggered a more profound analysis and reconsideration.
Perhaps we spend too much time here describing a technical process. It is, however, at the heart of what makes the Foundation approach (sometimes called IPA or Independent Practice Association) superior to the HMO. It is now perfectly clear that both doctors and patients vastly prefer the IPA approach to the HMO, and any reasonable politician would jump at it. But there is one fear, summarized by the slogan that the Fox is guarding the Henhouse. In both systems, an attempt is made to combine the insurance with the delivery of health care. In the IPA, the physicians are taking the financial risk that aggregate income will exceed aggregate costs; it's a risk contract. In the case of an HMO, the employer or the government is taking the financial risk and therefore wants to control it. If revenue is good, the doctors will prosper in an IPA; the insurance company intermediary will prosper in an HMO. Doctors will care about that little difference, but why should the rest of the country care?
Because the prospect is overwhelmingly likely that future revenues will be constricted until something hurts, and when you starve with a tiger, the tiger starves last. In the case of an HMO, the insurance middlemen will starve last, and the quality of health care will starve fairly early. That's an unwise design. When we get to the point where Congress cuts the budget and watches to see what happens, Congress will cut it some more if nothing bad happens; it will back off only if something bad happens, so something bad is certain to happen. In designing the system, you need to design the internal review authority so it will cut the waste, inefficiency and luxury first. The reviewer, no matter who it is, will cut himself last, so you need to arrange the incentives for waste to be cut before the reviewer suffers, and quality of care only after the reviewer has suffered. If you wonder why a whole lot of special interests hate physician-dominated review systems, a short answer will be found in this synopsis. A special exception must be devised for rural health systems, which do have a unique problem.
To return to the well worn slogan about foxes and henhouses, we have overlooked the central question. Who's the fox, and who is the hen?
In 1992 the National Business Coalition for Health was just forming at a convention in Chicago. Before I really understood what it was all about, I agreed to their flattering invitation to be the keynote speaker at the kick-off luncheon. Who suggested my name was and is a mystery to me, and I arrived in Chicago with very little idea what they wanted to hear. However, it followed the familiar pattern of inviting the speakers to stay overnight at the hotel on the evening before the meeting began, and to meet for drinks at the bar with the organizing leaders. I had enough experience with public speaking to know I could learn the general slant of the thing at such an informal party, and adjust the speech to the audience to whatever degree seemed needed. Among the people scattered around at tables was Harry Schwartz, who was also there to give them a speech. Harry had been on the editorial board of the New York Times for many years, and was known to be generally quite favorable to physicians. We had both written books about medical care, The Hospital That Ate Chicago in my case, and The Case for American Medicine, in his. We liked each other immediately, and fell into an animated cocktail conversation that would eventually be renewed every six months at the American Medical Association House of Delegates meetings, where I was a delegate and he covered the topic for various newsmedia. As we chuckled together about one anecdote or another of medical politics, the bar gradually emptied out. It soon became clear that all the other cronies had wandered off to dinner together, so we ordered dinner on the house, neither one of us having learned just what we were there to talk about. It really didn't bother either one of us very much, since from long experience we could tell some jokes and make it up as we went along. I knew what I wanted to tell businessmen, so it was just a matter of finding a way to lead into it.
The speech seemed to go well. There were several hundred, perhaps even a thousand in attendance, quite convivial and prosperous. As executives usually do, they looked younger than you might expect from the titles on their name tags; they laughed at the appropriate points, and applauded at the end. In other words, I went home from Chicago with no more idea what this organization was up to than I had before I came. At the very least, it is clear they were forming a national organization of businesses, with constituent representatives largely drawn from Departments of Human Resources. They wanted to speak for American Business with a more or less unified voice, and the topic seemed to be health care. Although fate had put me into the debate at the very earliest moment at Wills Eye Hospital, this convocation of extroverted Republicans seemed to know a lot more than I did about what was secretly afoot among the Democrats in Washington.
This Chicago tea party did one other thing for me. Many months later, when the editors of USAToday were in search of an editorial page writer who was both a physician and opposed to the Clinton Health Proposal, they called Harry Schwartz. And he suggested me. They ultimately ended up with an Medical Editorial Advisory Board of five members, at least three of whom were far to the left of me. At the New York Times, of course, Harry Schwartz was considerably more outnumbered than I was. After it was over, Harry and I used to joke that both sides were fairly evenly matched.
|Jacob S. Hacker|
In more recent writings, Jacob S. Hacker seems obsessed with social inequality, but while he was a graduate student he wrote an excellent and objective book, The Road to Nowhere containing unique insights into the politics of the Clinton Health Plan of 1993. After that hubub was over, he interviewed most of the important actors in that drama, at least those active in the liberal politics of it, and they talked freely. Like the rest of us, he was unable to identify let alone talk with the leaders of big business, who are of course still pursuing their original goals. What emerges does sound roughly accurate; Hillary Clinton and Ira Magaziner designated to find out what this health business was all about; solicit every proposal on the mind of political, particularly congressional, allies; gather and examine all the useful ideas in circulation in academia and the insurance community; and negotiate possible solutions with a surprising new ally, the big corporate employers. A huge semi-secret task force was then assembled to exchange ideas, discard really bad ideas, and work the proposal into legislative form. There would be internal inconsistencies and conflicts but no matter.
Congress would work it out, differing versions would appear in House and Senate bills, and President Clinton himself would eventually be able to intervene when things got to the House-Senate Conference committee. Since the Clintons really had no pre-conceived ideas on this complicated topic, the will of the people would emerge from a huge debate, and the will of the people would prevail.
That's one version. The other way to picture this circus would be that a highly skilled politician would offer everybody a chance to propose pet projects, and those who failed adversary process would be obligated to support the ones who did prevail. Trade-offs would be made, as needed, and the political ringmaster in the White House would have the final say.
But the final version was the one that came through to the public and the leaders of big business. You weren't going to know what the plan was all about until it was too late to do anything but accept it after a big sales talk full of snake oil. Big business, which had a serious interest in a particular outcome, also had an army of experienced Washington lobbyists. These people were aware of the unpredictable quirks of the house-senate conference system, were completely confident that the membership of that committee would be stacked in favor of a particular outcome, and knew that a congressional staff with agendas different from those of business would in the end be perfectly capable of stealing the show. For major employers, that settled it.
Big business had been wavering about whether to go ahead with their own plans, anyway. They had listened politely and carefully to what the government wished for its own insurance plans, Medicare and Medicaid, and were probably willing to agree. But as matters approached a unified approach, too many things surfaced they didn't like, and too much chance the decisions would go against their wishes. There was too much to lose, too little to gain, and well, we're sorry, we can't go along. This or something rather like it seems to have been the final outcome. The press had been furious about exclusion from major news items, coupled with annoyance at the favoritism toward Mr. Weinstein of the New York Times. The whole medical industry was jittery about exclusion from consultation or even notice; the insurance industry was pretty comfortable with the status quo; the public was in a state of utter confusion, After the main partner dropped out, the proposal never even came up for a vote in Congress.
|Stop the Presses|
At USAToday, techniques are astounding. After getting an 800-word piece, an editor by phone will suggest cuts to 300 words; the piece is always improved. Last-minute speed, trying to match television, is unbelievable. On one occasion, after a medical meeting in Kansas City, watching a baseball game go into extra innings I fell asleep with the game undecided. The next morning a newspaper was pushed under my door. It was USAToday, not only carrying the final score, but a full story, under a color photo of the winning play. Just consider the precision Chicago reporting, Washington DC editing, Kansas City printing and local delivery that took place in seven hours. By contrast in book publishing, a full year often intervenes between manuscript submission and actual bookstore sales.
So on a certain Monday night, the editor called. The Senate Majority Leader, George Mitchell, finally was to unveil the Clinton Health Proposal tomorrow morning. Would I please submit an editorial to run in the morning paper; he would supply the title. It was to be called, What Should Congress Do Now? and the deadline was 7 PM tonight. My watch read 5:30 PM.
Well, what fun. After a few minutes of stumbling around, I resolved to build the editorial around the theme, Don't Make Things Worse. It then seemed natural to allude to similar proposals gone famously wrong, define some predictable traps, and end up with Hippocrates. Over and over it is thundered at medical students: Primum non nocere. First do no harm. It all came together in my head, and I sat at the typewriter to bang it out. But when I came to that last sentence, pleading at least do no harm, I was hit by terrible doubt.
That phrase comes to us in Latin, and Hippocrates was a Greek, living at least five hundred years before the Roman Empire. Famous though the saying is, it wasn't (then) in Bartlett's Quotations, or Roget's Thesaurus, or anything else I could lay my hands on in what was, after all, a medical office. It was 6:50 PM. I called a learned friend from his dinnertable, and he agreed it was a strange business, looked at a couple of books, couldn't help, sorry. So, I drew a deep breath, said the Hell with it, typed in, "As Hippocrates said, At Least Do No Harm," and shoved it into the fax machine. The next morning it appeared, next to two million copies of my photo; so at least the editor seemed to like it. Some friends soon called to say that Senators Dole and Moynihan had adopted the line on the noon and six o'clock news, each attributing it to Hippocrates. No matter what happened to the Clinton Health Plan, it looked to me as though I would be forever guilty of supplying the world with a highly quotable misquotation.
Since then, with more time to do a proper search, I'm unfortunately still uncertain. William Safire at the New York Times, was intrigued but could only refer me to a nice lady at the Library of Congress who was a crony. She tried to help, but was stumped. Some Hippocrates scholars at the Library of the Philadelphia College of Physicians were able to find a reference in The Epidemics which seems to say what we are looking for, and that reference has tardily crept into Bartlett's latest edition. Some people think Galen really wrote it, which might account for the Latin; but even that is unsatisfying to scholars. Somebody or other took that phrase, whether written by Hippocrates or not, and pounded it over and over until it became a medical student incantation. Even if Hippocrates actually did express that sentiment in passing, it doesn't come through as a really important statement, and there isn't much evidence that his students were repeating it over and over as the words of the master.
My present suspicion is that vague rumors about Samuel Hahneman, the father of Homeopathy having a hand in promoting the slogan during the Nineteenth century, may have some underlying substance. Homeopathy was a belief system which emphasized the prescribing of infinitely minute doses of medicines. It had a flurry in the 19th Century when conventional Medicine was reeling from excesses of bleeding and purging, which surely did a lot of harm to victims of, say, Yellow Fever. The acrimony even spilled over into the emotionalism of the abortion debate, because laws prohibiting abortion had been sponsored by the allopathic American Medical Association. The verbal warfare between doctors of Homeopathy and "Allopathy" was bitter beyond describing. Although conventional medical care finally got its feet on the ground, and homeopathy is now pretty much a historical relic, the homeopaths did have that big strong point. Doing nothing is clearly better than doing something harmful. Nobody takes Latin, much, anymore. So the modern medical way of saying the same thing has come to be, "The hardest thing to do, is to do nothing". This way of stating the same idea is widely believed to have been offered by William Osler, but after all the controversy about Primam non nocere, I am now reluctant to be too sure about anything in this area.
Events at the time of the introduction of the Clinton Health Plan to Congress were a confused jumble, but one vignette stands out in my memory. The five hundred or so members of the secret work group were all invited to the White House for a big party, with saxaphones and all. On a television interview at home in Minnesota, Paul Ellwood said he wasn't going to the party. Indeed, he looked rather morose and had little to say. It is clear he had advance notice, before the plan even reached Congress, that things were not going the way he wanted. Since the public, even Congressional leaders, were still unclear just what was to be proposed, Ellwood's dejection, or rejection, did not come from them. No one has said so, but it must be presumed the rejection came from his sponsors, the business leaders. Business, in short, had pulled out; responsibility probably lies with no more than half a dozen CEOs who continue to be anonymous fifteen years later.
At that confused time, the reasoning of the masterminds was obscure. Perhaps they decided HMOs were no good; perhaps an outrageous political demand had been linked to the proposal; or there was to be too much political control, too little business control; or perhaps government costs had been shifted onto the backs of employers; perhaps the whole idea sounded too leftist to be comfortable. And perhaps a lot of other things, who knows. Even today, no one has written a book or even listed a few plain sentences of reminiscence.
What is known is that major business employers immediately launched a nation wide initiative to go ahead with a strong push to convert employer-based plans from fee-for-service to managed care HMOs. This was to be the way employers handled health care they were paying for; the government could do as it liked. It must be admitted it was a bold stroke, quite effectively handled. When you consider the rather uncertain legal right they had to impose a system of health care on their employees, it took more audacity to go ahead than you would suppose they could summon. It was a gamble that the Clinton White House would lack the courage to challenge a private initiative to go ahead with what they had so publicly endorsed, and that providers would be so surprised by the concerted coup that they would hold back legal challenge until evidence of antitrust or conspiracy emerged. It was a sort of Battle of the Bulge in reverse, and it might well have been hugely successful except for one thing they did not anticipate. Their employees almost universally hated HMOs when they tried them out. No one likes to be hustled into something he doesn't understand, no one likes to change doctors, no one like to be told he can't have what he expects to have. Employers expected resistance of this sort, but it simply had to be done to save the fiscal health of the business. Unfortunately, what emerged was that it didn't save much more money than its own extra cost to administer. The hard reality of business life is you regularly have to bully people in order to make any money. But bullying people without making any money is a quick route to dismissal. No wonder there have been no memoirs written.
A quick re-appraisal of the Clinton Health Plan was that the two systems, Medicare for people over sixty-five and employer-based for people under sixty-five, were to be merged into a single system for efficiency and better control. There were to be local, regional, and national governance bodies; evidently the purpose of the National Business Coalitions for Health was to supply a unified business hierarchy to match it up and down the line. Hated politicians, hated bureaucrats and hated unions could be counted on to apply strong pressures; business would have to remain well informed, sternly disciplined, and speak with a single voice for any hope of surviving in such an environment. It is my surmise that such a prospect seemed to guarantee failure for business. No, we're sorry, Business would draw a bright line at age sixty-five, and run its own show where it ruled the roost.
Note: This article was written in 1999, long before Computerized Medical Insurance Exchanges were such a disaster:
My first encounter with a computer was in 1958, and I have loved them ever since. As president of what called itself the Delaware Valley Hospital Computing Society, I remember giving a dinner speech concluding as follows: "If you want to be happy for a day, get drunk. If you want to be happy for a week, get married. But if you want to be happy for a lifetime, get a computer!" After fifty years, my affection continues. But to be candid, billions of dollars about to be spent on computers in medical care, will mostly be wasted. Even worse, like malpractice suits computers will induce behavioral changes in the system costing far more than the directly visible costs.
That's unpopular news at present, since the National Business Coalition for Health has launched a major lobbying campaign to persuade Congress to spend an initial billion dollars inducing physicians to maintain an electronic medical record. Various health insurance companies already provide financial incentives to doctors to file electronic claims forms, eventually threatening to reject any claim submitted on paper. The American College of Physicians has established a rather large department to develop programs for physicians to use in their practices; twenty years ago the University of Indiana started much the same thing. The College of Physicians of Philadelphia has spent close to a million dollars on such a project. It is reported that Microsoft Corp. has a massive project underway to supply electronic medical records. It sounds fairly easy to obtain large research grants from the government to devise something, anything, useful in this area. In my own case, training funds really weren't necessary, since I eagerly got into the field when everybody was a beginner. I was just as good a beginner as any other beginner. But let me repeat: the electronic medical record has been in the past and will be for decades, an expensive digression. In health care, creating more administrative work isn't the solution, it is the problem.
For fifty years the problem with an electronic medical record was that it took too much of the doctor's time to complete his part of the input, and then cost him too much to pay employees to do the rest. Presumably, automatic voice recognition and dictation will soon make it possible to record doctor's notes without handwriting or typing. Since, however, the elimination of current paper forms and check-off boxes will create a major problem in organizing the dictation verbiage, it could add five or ten additional years before programmers manage to rearrange dictation material and effectively integrate it into organized form, complete with laboratory results, dictated x-ray and EKG reports, even small images of the original material. Temperature, blood pressure, weight, photographs and the like can all be readily integrated into the stored electronic record, but to do so usefully is an expensive programming project. Doctors are quite right to be anxious they will lose control of the usefulness of their records in order to ease the task of programmers, speed up the sluggish pace of development, and reduce what will surely be an unexpected cost overrun. Storage and retrieval of such records is known to be an achievable but expensive task, which however also risks sacrificing the speed and ease requirements of the medical task it is supposed to serve -- in the name of cost effectiveness.
Computers are no longer an unfamiliar tool; physicians have altogether too much experience with "vaporware" , unrealized promises of convenience, and the damaging effect on medical quality of the philosophy of Quick and Dirty. To respond to their resistance to design blunders with an accusation of undue conservatism is to provoke an icy stare and gritted teeth. Inevitably, the effective use of automation will require a redesign of workflow with major disintermediation of "gopher" staff; after all, that is how cost savings are to be achieved. That will provoke outcry that physician time is the most expensive component in the process, but unfortunately physicians will discover Information Specialists with a business background will brush that argument aside. The most overpaid people on the face of the earth are investment bankers, but information consultants have persuaded business executives that inefficiency of the investment process is more expensive than even an investment banker's time. Having been through this themselves, insurance executives are unlikely to pay the slightest attention to physicians dancing to a familiar old tune.
For all that, data input is not the real problem; it's just the first problem. It's in a class with data storage and retrieval, which is expensive and cumbersome when you add a need for instant access and total privacy. But costs will come down steadily, and eventually we can expect automated fingerprints or other biological identification, and cheap instant retrieval. Doctors will be able to make rounds in the hospital with a computer in their pocket, record telephone calls in their entirety, dial automatically and whatnot. There are problems with wireless transmission inside buildings with steel girders, and legal requirements for signatures on narcotic orders, but if we are determined, these problems can be overcome as easily as they were with electronic check writing and stock brokerage. Cost may top twenty billion dollars in twenty years, but it all can be done if we insist.
But then you encounter the real problem. Information will accumulate in these records in staggering amounts. Even if you resolutely resist demands to have the nurses record every groan, and the orderlies file every laundry slip, the legitimately important medical information will be exposed as the massive heap of transients that they really are. Plaintiff lawyers will insist no scrap of data may be deleted, hospital administrators will insist on compliance, when in fact most of a doctor's concentrated effort is devoted to brushing aside momentarily distracting data in order to see what's going on, and react to it instantly. When a quick look doesn't solve the problem, the doctor goes back for additional data. If you disrupt these skills and traditions of coping with information overload, evolved over centuries, you will at best impose frustrating delays on a complex system under pressure, and ultimately inspire elaborate systems of short-cuts. The Armed Forces are famous for paperwork, but even they know better than to ask a pilot for his Social Security number as he starts a bombing run. The hospital nursing profession has already just about collapsed under paperwork pressure. If you see five nurses in a hospital, three of them will be sitting down writing something. The terrible truth is that no one reads it, no one checks it, and ultimately it sits in the record room waiting for a plaintiff lawyer with unlimited time to sieve out some misrecorded misconception or uninformed conclusion. My faith in the computer is such that I feel sure that methods can be devised to produce periodic summaries, automatic alarm signals, and mostly effective prioritization of data elements. Unfortunately, medical care is changing at such a rapid rate that ad hoc automation of physician thought processes cannot keep up with the current pace of change in medical progress. You would think some things would be unthinkable, but since I can remember the organized campaign to suppress the CAT scan as an unnecessary expense, I confidently predict that programmer inability to keep up with some advance in medical care will at times lead to organized outcry that we should slow down the pace of improving medical care, so that computer clerks can keep up with it. But that is only a small part of the issue, which at its center is that physician time will be dissipated and his attention distracted by presenting him with unwieldy amounts of neatly printed, spell-checked, encrypted and de-encrypted, biometrically secure, hierarchically prioritized -- avalanches of data which are irrelevant to the issues of the moment. The goal is not, after all, an electronic record. The local goal is to decrease the cost of medical care by increasing the productivity of the physician, and the overarching goal is high quality patient care at reasonable price. Behind all that, since the impetus comes from NBCOH -- the ones paying the insurance premiums -- suggests that the local goal is not so much the improvement of care as oversight reassurance that care provided has been as good and as cheap as possible. The goal is legitimate, but this cybernation approach looks to be self-defeating by being overly specific.
If the reader has the patience for it, let me now cite a historical example of the third-party tail wagging the medical dog. In this case, third-party health insurance similarly overextended its reach by imposing internal health system changes, trying to facilitate the role of monitoring it externally. Specifically, the system of diagnostic code numbers was changed from one devised by the medical profession for its purposes, into a different coding system devised outside medial profession sponsorship, which seemed to suit the needs of payment agencies better even though it suited medical purposes less. After twenty-five years, it is now clear that third-party payers have shot themselves in the foot on this matter, and everyone is worse off. The topic, please pardon the obscurity, is the diagnostic coding system.
To go back to beginnings, the American Medical Association perceived a need for a diagnostic coding system in the 1920s. Organizing or even merely indexing vast amounts of information about a disease required more specificity than free style verbal nomenclature could provide. Quite a distinguished panel of specialists and consultants then produced the Standard Nomenclature of Diseases (SNODO) which in time became the Standard Nomenclature of Diseases and Operations. In order to reduce ambiguity, this system developed a branching-tree code design for anatomy, linked to a branching-tree for causes of disease, ultimately linkable to a branching tree of procedures. These three sets of three-digit codes linked the components together with hyphens (000-000-000). The first digit of each was the most general, as in Digestive, Musculo-skeletal, etc. and subsequent digits were progressively more specific and detailed, as in "Digestive, large intestine, sigmoid colon". The causes of disease would resemble "Infections, bacterial, streptococcal". An example of Procedures would be "Incision, incision and drainage, drainage and insertion of drain". In nine digits, it was thus possible to represent " incision, drainage and insertion of a drain into a streptococcal infection of the sigmoid colon". After a while, the codes grew from three to five and six digits, again repeated three times, so an immensely detailed, unambiguous description might be coded in fifteen digits by a physician who knew the rules, but didn't own a code book. This code was ultimately taken over by the Academy of Pathology, expanded and is called SNOP. The pathologists absolutely refused to give it up.
The rest of the profession gradually yielded to the pressure of hospital administration, who were pressured by the Association of Medical Record Librarians, responding to the views of outside statistical interests, particularly insurance. A simpler, shorter coding system was needed, they felt, concentrating on the thousand most common diseases. The International Classification of Diseases was produced, reducing the millions of SNODO diagnoses to 999 by heavy use of several varieties of "Miscellaneous" or "Not Otherwise Classifiable (NOC)". Since the goal was to count the incidence of common diseases, the coding system was stripped of any logical tree-branching, and became a short list of what was most common, starting with 1 and going to 999. In time, of course, the common-ness of conditions changed, and various complaints from various directions forced the ICD to go to 4 digits, then five. Unanticipated conditions or complications eventually required the patchwork of some alpha "modifiers", and the original short hodge-podge became a long and bewildering hodge-podge. Coding accuracy declined markedly, but ho-hum. The health insurance companies paid the bill, no matter what the code said. At another place, we will discuss the entertaining way that Ross Perot became a billionaire out of the computer chaos of Blue Cross and Medicare at this time, but right now the central theme to follow is DRG, Diagnosis Related Groups. Try to follow, please.
By 1980, Medicare was fifteen years old. It was clear that certain things just had to be changed, because the excuse that the system was new and untried was beginning to wear thin. The early designers of the system based their payments on auditing a hospital's yearly costs, auditing the proportion of patients who were Medicare beneficiaries, and paying a proportionate share. That was easy and reasonably accurate, but it had the rather significant flaw that it took no account of whether the patients needed to be in the hospital in the first place. Or whether they needed to stay so long. The response they adopted (in the Budget Reconciliation Act of 1983) is a measure of just how desperate they must have felt. Knowing full well how inaccurate the ICD coding system was in practice, it was all there was. Consultants, particularly at Yale, ran computer simulations of various subsets of ICD codes to find a formula that would produce approximately the same hospital payments as the system of cost reimbursement. If memory serves, the original formula was to divide the thousand ICD codes into 27 diagnosis-related groups (DRG). Eventually, the process was tweaked to seventy or eighty groups. Walter McNerny, then Past President of the American Hospital Association told Congress hospitals could live with this system, and promptly we had a system for paying out hundreds of millions of dollars. It was touted as a highly sophisticated advance in the arcane science of hospital reimbursement, so it must have included a lot of deliberate overpayment. I can remember trying to remonstrate with McNerny, who felt he didn't have time for the discussion. Physicians had very little to do with the DRG portion of the 1983 Medicare Amendments, because the AMA had long insisted that physicians and hospitals go their separate ways on reimbursement. Russell Roth, who was president of the AMA at the time, recounted many times the episode in the Oval Office, when it was announced to Lyndon Johnson that Dwight D. Eisenhower"was in the next room waiting for him. LBJ excused himself to leave, and on the way out said to Wilbur Cohen, "Give him anything he wants." Things were destined to change, but at least for a very long time, physician and hospital reimbursements were strictly independent.
Paul Ellwood once enjoyed the title of Father of the HMO, while the captains of industry who came so close to pushing HMOs down the nation's unwilling throat remain invisible, quite willing to let Bill and Hillary twist in the wind for the near-miss. In the fifteen years since the Plan was dropped by Congress, 10,000 major employers coerced their employees into HMOs; endured much greater employee resistance than anticipated; and watched in dismay as administrative costs ate up the savings. The National Business Coalition for Health has been transformed from its intended role into an information system for encouraging, testing and swapping experience about minor enhancements and tweakings. Much ado about, well, less than was hoped for. But in spite of all that, let me state right here that it would only take one fundamental change to make the HMO model into a popular and desirable system.
There's an underlying truism about all effective cost-saving measures in a service industry: regardless of whether you eliminate waste or cut into essentials, you have got to fire a whole lot of people. If you fire the loafers, the quality of your product is improved; if you fire the productive workers, the product is injured. The third choice is to streamline your production methods; you may maintain high quality in spite of firing some good people. But no matter how you go about it, if you are successful, it will be the result of putting good managers in charge. The American Academy of Actuaries once calculated waste in the American healthcare system to be 30%, but in spite of opportunities of that magnitude, the present design of HMOs cannot seem to do more than barely break even. And that is in spite of wide-spread dissatisfaction with denials of care, inconvenient service, and increased paperwork. There's a tragedy here. The alternative model has already been tested, shown to reduce costs, and produced the general satisfaction of both patients and physicians.
That model was the original one, called the Foundation for Medical Care, devised in Stockton and Sacremento California in the 1950s. The Foundations were expressly created to compete with Kaiser-Permanente, both for patient satisfaction and cost effectiveness, so judging their success is simply a matter of getting out the records and submitting them to impartial evaluation. The Foundation movement was brought to a dead stop by the legislation which enabled the present employer-based version of HMO, as well as an unfortunate Supreme Court Decision (Maricopa) whose evidence was never put on trial, but based on a motion for summary judgment. The central underlying difference between an HMO and a Foundation is that an HMO is run by an insurance company, while the Foundations were formed and controlled by the physicians who worked for them. While it might be argued that circumstances have changed in the last thirty years, it still seems reasonable to suppose that physician-run HMOs remain superior to the present insurance company-run variety. The reason for this confidence is the benchmark of Kaiser-Permanente, whose only difference is that Kaiser physicians are paid salaries, and a few of the affiliates own hospitals. Kaiser systems are at present having a serious struggle in competition with insurance company owned HMOs. Some years, some branches of Kaiser are profitable, sometimes they lose money. The triumphant flag that Foundations waved in their heyday was, "We beat Kaiser."
So where is the problem? Actually, there are two. The Foundations were usually although not invariably set up as non-profit corporations because of squeamishness of the doctors about the appearance of self-dealing. That eliminated both insurance profit and incentive to interfere with payments, although it naturally displeased commercial insurance companies. Since I can name at least two HMO operators who rewarded their CEOs with more than a billion dollars each, you can understand the displeasure with non-profit competition. The other resistance came from hospitals. The Foundation system of utilization review put a weapon in the hands of the attending physicians in their eternal tension with hospital administrators, giving the administrators little choice but to do what the physicians wanted. Essentially, what the physicians wanted was for hospital quality to be maintained while any cost cuts affected hospital revenue before they affected physician revenue. The predictably unfortunate consequences for the hospital were held in check by opening staff privileges to physicians who were not participants in the Foundation. Their vigilance and competitive power was on the side of the administrator, for the benefit of their own patients in the common hospital. Kaiser, by contrast, usually found that owning closed-staff hospitals was itself a major headache.
A hidden advantage to shifting control of healthcare to physicians is that the system acquires the management talents of the staff physicians, essentially without charge. The plain fact is that most physicians hate administrative work, and it comes closer to the facts to say that physicians abandoned management chores than to say they were deprived of them. And just in case it needs restating, it is easier to teach management to a physician than to teach medicine to administrators. While there may be some initial fumbling, physicians are the logical group to be in charge of the management of a medical system, and indeed most lay people suppose they are already in charge. Unlike the situation just after World War II, physicians would now have much more enthusiasm for administration. Not only are their own incomes suffering, but they see their product beginning to disintegrate. And it has not escaped their attention that most large-hospital administrators are paid more than a million dollars a year. No doubt physician income would be enhanced by shifting from HMO to Foundation, but less than you might suppose. Physicians are a censorious lot.
Technical footnote: Two technical obstacles must be overcome before Foundations for Medical Care -- HMOs run by physicians -- can be restored to viability. For sixty years, insurance has been regulated by state governments as a result of the McCarran Ferguson Law. Large corporations doing interstate business have found it quite unworkable to comply with fifty different regulators, and were given relief by a Federal law called ERISA. ERISA is so large and complex as a consequence of a large number of trade-off compromises, that for many years it was deemed impossible to amend it in any way. That gridlock was broken in 2006. The Supreme Court decision in State of Arizona v. Maricopa has always seemed dubious as a result of a 4-3 decision which lacked a majority at the time it was handed down, and in any event never had a hearing on the evidence. The decision was based on a technicality related to a motion for summary judgment. With the passage of time and changing membership of the Supreme Court, it is easily possible to imagine a reversal of this decision.
On a political level, the climate of opinion has also changed. Insurance companies, and quite possibly hospitals, might well resist. However, it is the business community which supplied the main political force for the present version of insurance company-controlled HMO. Since that model has proven to be a disappointment from the employer perspective, but the cost problem has become much worse, it may now be possible to persuade business to allow a competitive model to emerge.
The Clinton Plan of 1993 was of course a failure, never happened. But it was intended to create a universal system of managed care (ie HMO) unifying the government programs with employer-paid ones. When business groups ultimately decided they would lose too much control with a federal bed-partner, they made their excuses and walked out. But they then promptly set about installing HMOs in their employee health programs, herding their hapless employees into them. In consequence, conversion from the old model of health delivery was never complete, since it was unpopular, fell short of its cost containment goals, and is therefore now receding. In fact, there are signs that a chastened business leadership intends to abandon the project as unsuccessful, or at least now seeks new directions to take things. However, there were appreciable effects on physician behavior that will probably be lasting ones.
Overhead costs for physicians have been rising for fifty years. My own first experience with private practice was in 1950, as a locum tenens just two blocks from where I still live as a commuter. There was no secretary, no nurse, no billing clerk, no appointments. This lack of amenity may now seem shocking, but it made it possible to practice with essentially no overhead costs at all. Essentially all gross revenue became net revenue. I can remember opening the door from my breakfast table, and there in the waiting room would be two or three patients reading old magazines. They were seen, each in turn until no one replaced them, and then the lights were turned out. As the patients concluded their business and left, thanking me, ninety percent of them pressed two crumpled dollar bills into my hand; a handful expected to get bills at the end of the month if I remembered to jot down their names. Sometime each day I had to walk down the street to the local bank and unload the wad of dollar bills from my pocket. Since the office was open both Saturday and Sunday mornings for a few hours, the wad on Monday was sort of a nuisance. But it was fun to walk past the barbershop and have the barber wave his scissors at me, fun to have patients swerve their cars to the curb to chat a little as I walked along. The corner druggist was, perhaps, a little excessive in his cordiality.
In later years, when my office was in the center of Philadelphia, a patient who was an Internal Revenue agent told me that the IRS hated cash transactions because of the opportunity to avoid taxes. Colleagues have told me of the FBI parking a car outside a physician office, counting the number of patients who entered and left; months later, they would come back and demand to see the accounting records for that particular sample day. In fact, an FBI agent said every rookie agent would be assigned to similar activities in nearby retail and restaurant districts; presumably the system of visitor-counting was perfected in that environment. There is now little doubt in my mind that the IRS kept up a steady harrangue on other agencies to encourage systems and rules that might force all mom-and-pop businesses to keep verifiable financial records. There's a lot of reason to believe the underground economy is a significant drain on tax revenues, hence results in higher taxes for those who do pay. By the same reasoning, increased accounting overhead costs also result in higher prices to the public, but the multiple steps in the third-party payor system tend to obscure it, and readily enable compliance costs to exceed the underlying tax avoidance. A general extension of the IRS mind-set has come to mean that more than half of all physician revenue is now consumed by overhead; tax avoidance of the most mendacious sort could not approach that much. Some overhead cost is due to rising malpractice insurance premiums, but the largest part is devoted to appointment systems, billling systems, medical records systems. I notice my own dermatologist spends five minutes per patient, has six employees working at paperwork, and though I know he is an affable man discourages chit-chat even with a medical colleague . A naturally genial person has thus been turned into a drudge, so overwhelmed by overhead that taking a vacation is a daunting expense for him. He can vacation any time he pleases, but six salaries continue while revenue stops. No doubt the IRS is pleased to be able to report near-perfect tax compliance, much better in their eyes than the old loosey-goosey days of 1950. The compliance costs to society of imposing this towering administrative system must in fact be many times the cost of just ignoring it. From the surveillance point of view, physician response to new data requirements must be particularly frustrating, since the almost invariable physician response to a new requirement is to ignore it totally. In time, the requirement is either withdrawn or renewed with some egregious penalty for non compliance. And so we go with the bureaucratic war, with the bureaucrats imagining that they are slowly winning. Perhaps they are, considering the widening disparity between physician income and administrative salaries with benefits. But the taxpayers are certainly losing.
In 1950, I would not have guessed that a significant result of increased physician workload would be overspecialization. But that's the case, and the consequences to cost and quality of medical care are subtle but profound. An unrelenting demand on physician time is the need to keep up with the rapidly advancing scientific frontier. The half-life of medical information is said to be seven years; that is, half the drugs prescribed today were unknown seven years ago. You can go a week, a month or even a year without reading or attending a seminar, but if you go seven years you are half gone, down the professional drain, and may never have the time and energy to recover. Somewhere or other, five or ten hours a week must be found for professional enhancement. Adding that to a minimum of sixty hours of work, the inroads into personal life start to become burdensome; a young physician with a hundred thousand dollars of educational debt must feel frenzied indeed. And so everybody seeks to specialize in order to narrow information demands. That's taking a chance, of course; a specialist like a urologist could see his whole specialty disappear with the discovery of a single new pill. Since at the moment, it is easier to define the cost and value of a surgical procedure, procedural specialties are reimbursed more generously than cognitive medical ones, and seemingly always will be. The net effect of all this is a lot of people can't find a family doctor. You can find a colonoscopist or even a back surgeon, but you can't find a family doctor because they are paid less but must keep abreast of the whole range of medical advances. Generalists are tip-toeing out the door. The same thing happened in England, where the cognitive specialties disproportionately moved to Canada and New Zealand. The empty places in England were then filled with doctors from Pakistan, with social discord that is only now beginning to suggest itself.
In America, the flight of the brightest males from medical school to investment banking takes the form of increasing proportions of medical students who are female, since the girls with fewer occupational choices are generally smarter than the boys. Since my wife and daughter are both physicians, I am not in a position to complain about this trend, although women physicians clearly prefer certain specialties with limited work hours, and women retire younger than men do. But there is one aspect where this army of women physicians will eventually serve us well. In recent years, a nursing shortage has emboldened a sort of union-like behavior among urban hospital nurses. Watching physicians go about their work, and particularly when they watch physicians make mistakes, nurses (like medical students, by the way) develop the idea that they could do better. Add a little feminism to the mixture, and you get some hot soup. But the growing ranks of female physicians are going to stand for none of the feminist implication. I first got this idea at the hospital watching my aunt, who had been a nurse before she became a physician. I have sometimes wished my aunt had been beside me at that party at the AMA, at the door of the Pennsylvania Delegation reception, imagining her brisk and dismissive retort.
ERISA opened the eyes of employers. From roughly 1940 to roughly 1975, employers saw health benefits for employees as a tax loophole. Health insurance costs would be roughly 30% less if the employer paid for them than if the employee bought the insurance himself. Gradually, the realization dawned that employers were taking all the risks, since their premiums went up if their employee claims cost went up. In effect, insurance companies were only providing administrative services but charging as though they were taking risk. So, ERISA permitted employers to become self-insured for the group costs, but employ insurers to do the paperwork for a nominal charge. Although insurers had to agree to the arrangement, it was somehow important enough to maintain the brand name that they offered something valuable in return. Insurance companies, especially Blue Cross, had discount arrangements with hospitals. No matter what charge the hospitals made for a service, the actual payment would be based on internal audits of actual costs. For a long time, the effective discount was about 30%, it grew to 60%, and now it is as much as 90%. An electrocardiogram with interpretation, for which the market price in doctors offices is around $40. is charged $365 in one large teaching hospital in Philadelphia. If you enjoyed the discount, your cost was close to $40. When business leaders considered a switch from fee-for-service payment to HMO arrangements, it was vital that this discount be preserved. Stated another way, they were adamant that no one was going to impose these fictitious surcharges on them.
Becoming self-insured under ERISA taught them a second important thing. They saw to it that the claims came to them, or at least that the aggregated statistics they wanted were provided to them or their auditors. From this data, it seemed to these auditors that employers were somehow being overcharged anyway. They had neither the skill nor the access to data to know how it was done, but their conviction grew strong that they were not getting their money's worth. Many business executives were trustees of hospitals, and were convinced the hospitals were not making excessive profits, or were even actually running at a loss. If business was overcharged, and the hospital lost money, some other group of patients was being undercharged. Fairly or unfairly, the business community developed the firm conviction that what was happening was Cost Shifting. Never mind that in corporate conglomerates it is entirely legitimate for one subsidiary to subsidize another, or even at the retail level, for profit margins on one product to subsidize losses in another. Or perhaps especially because this behavior is so evident to them, they found it necessary to be constantly on guard.
The HMO mechanism imposes expensive control systems on a dispersed medical enterprise which is really quite cost effective, and neither needs not welcomes control. It has some obvious inefficiencies, but they are usually less costly than their seemingly more efficient substitutes. It would seem bizarre for business executives to spend their time managing employee medical choices when they are being paid to manage their own business. But the HMO structure offers one opportunity too tempting to ignore. If the employer substantially controls his employee health delivery, he is put in a credible position to threaten to move the whole group to a different hospital. That is the decision traditionally left entirely in the hands of physicians, thus clarifying the main reason employers have seen physicians are ultimately their enemies. Obviously, local physicians are in the best position to judge the relative merits of local facilities, and therefore obviously physicians will resist anyone who suggests making those decisions for any other reason than the ones they can see. If you don't see this analysis as obscene insolence, you will probably agree it is extremely shrewd. Hospitals are somehow cost-shifting us into bankrupcy, we don't know and don't care, how. The way to get them to lower their prices for our employees is to have a credible threat of moving the whole bunch to some other hospital and, yes, bankrupting this one as an example for others.
So now perhaps it is possible to see the position of hospital administration in the post-Clinton years. Hospitals have long had forty to sixty percent of their patients represented by federal auditors empowered to examine every scrap of their internal accounts. Now, inside a sort of medical Alamo, they have forty to sixty percent more patients represented by hard-faced HMOs who have he power to shift half their business to a competitor on a few weeks notice. Inside the Alamo, there may have been other choices, there may even have been better ones. But the defense against this blood-thirsty onslaught which was agreed upon was, reduce the number of hospitals, either by merger or destruction.
Several books have been written about the expensive chaos created by merging hospitals; the loss of neighborhood facilities is much mourned. It must be left to others to calculate the aggregate cost of this scorched earth defense. But it has been considerable, and is part of the cost of the Clinton Plan, or if you please part of the skyrocketing cost of medical care which calls for drastic reform. It is a heavy cost in any event, and like so many features of modern medical care is not assigned to the business leadership which provoked it.
It is in this way we see the current paradox of massive building and expansion plans in hospitals across the country, at the same time that the number of hospitals is drastically reduced. There were 120 hospitals in the Delaware Valley in 1970, and now the number is around forty. Some of this can be blamed on the malpractice liability mess, since lawsuits heavily concentrate around obstetrics. Obstetrical facilities at the southeastern corner of the state can easily shift across state lines. Other closures allude to the savings in administrative costs, which would make you giggle if it did not make you cry.
Let's end this summary of hospital uproar with a brief mention of its simple solution. There is no need to mention increased waiting periods in crowded accident wards, or extravagent streamlining of patient throughput in order to reduce bed capacity, or the disappearance of reserve bed capacity in the event of a major disaster.
All of these problems would go away if we reversed the Maricopa decision and relaxed antitrust strictures against the ownership of HMOs by local physicians. Local physician reviewers may well squeeze hospital costs, but they will never move themselves to another hospital. Managed care by Health Maintenance Organizations may or may not be a good system, but having such organizations controlled by payors without allowing physician-owned competitors as a restraining benchmark has been thoroughly tried, and is a disaster.
We now address two national financial issues which dwarf some others of fairly major consequence. During the past two decades we have seen dramatic changes, even revolutions, in the management of financial transactions. Banking with paper checks is on the way out, mortgages held by banks are obsolete, coupon bonds are a quaint relic, retail stock brokerages are vanishing, financial instruments like derivatives and private equity are consuming us before most people can even define them, the central banking management of the money supply is a miracle, and so on and so on. No one claims those things are unimportant. They just aren't as important as the way we blundered into financing health care; any action we took is less important than the way we neglected it. Or refused to face it.
When the state of New Jersey made a promise to pay the healthcare costs of state employees after they retire, the Legislature created a liability. Although provisions were made to pay for the costs of this promise for a few years, the liability was essentially unfunded. That is, it was quite predictable that in a few years there would be no way to pay for it. At present, the unfunded liability is calculaed to be $58 billion dollars, and the state taxes in New Jersey are already the highest rates in the country, hurting the influx of business and prompting the emigration of those who find a cheaper place to live. Remembering there are fifty states in only slightly better shape, the total national debt for this purpose alone is surely more than a trillion dollars. Secondly, the auto industry is said to have $100 billion in unfunded liabilities for the healthcare benefits of their retirees. We have lots of other industries of course, so it's not wild to assume that another couple trillion exist in industrial healthcare financing. Give or take a trillion, it's a lot of money without mentioning Medicare, the biggest unfunded liability of all. While this burden of debt was bound to create a problem eventually, it now comes at us with a fairly predictable shortfall when the baby boomer quits contributing as workers and starts demanding payment as retirees, because the boomers neglected to have enough children to support them.
The auto industry has the same problem with demographics, but has the additional problem that the Japanese made better cars. Starting later, the Japanese companies won't have as many retirees for a decade or so. Our politicians are thus beginning to see they may have to choose between watching our biggest industry go bankrupt, or bailing out the auto companies with tax money. With the Medicare deficit just on the horizon, it will be fairly uncomfortable to add to it in the next couple of years. The discomfort for politicians will be deepened by publicity about the terms of the agreement made decades ago between the auto companies and their union, the United Auto Workers. The heart of it can be briefly stated to be that the companies agree to pay absolutely all the healthcare costs of the workers, even those who quit in six months, for the rest of their lives. If Medicare pays the costs of the workers that will be fine, but if not, the companies are on the hook. The substance of this arrangement is to raise the company costs every time Medicare introduces a cost-saving measure.
The third ingredient of this perfect storm on the horizon is the consequence of whatever the government decides to do about it. We can raise taxes, but the government's chronic inability to save money makes it unlikely that we can pay much of this debt off in advance. To use fancier language, we are already at the point on the Laffer Curve where raising taxes produces progressively less revenue; carried to extremes, taxation will provoke a depression. On the other hand, inflation isn't very attractive, either.
For centuries, governments have found it easier to borrow money than to raise taxes. The currency gets progressively less valuable until it eventually can become totally worthless. That's what happened to Austria and Germany after the reparations of the Versailles Treaty were imposed as external taxes in the 1920s. The suffering caused by this episode of hyperinflation was one of the main grievances leading to the ascendency of Adolf Hitler, although it is true the German economy was in poor condition after losing World War I.
In any event, whether our efforts to correct the situation lead to depression or inflation, or both, the sequence of collapse of the auto industry, followed by desperate constraint of healthcare costs, and then the monetary convulsions amply justifies the term of Perfect Storm. The sooner the matter is addressed the less painful it will be. There were a hundred opportunities to address this problem, starting in 1943. But the last time the country stood at attention, waiting for revelation of what would reform our broken system was in 1993. And when the miracle of deep academic thinking finally emerged with fanfare, Congress wouldn't even bring it to a vote, and rightly so.
By this point, a patient reader of these reminiscences has probably learned quite enough about the Clinton Health Plan and its immediate aftermath. There is of course more to say, but except for political junkies the topic doesn't warrant protracted dissection. It might be worth knowing the motivations of the insurance industry when they launched that bombardment of "Harry and Louise" television advertisements. Opinion within the insurance industry must certainly have been divided, however, and the main decision makers are probably all now retired. The Harry/Louise ad campaign is often given credit for the political assassination of the Clinton Plan, but that seems unlikely. The decisions about medical care were made without heeding the opinions of providers of medical care, so it would not be surprising to learn that decisions about insurance were made without completely candid discussion with insurance professionals.
In fact, grieving too much for the past may have led to looking too little at the future, which clearly contains a whole new set of facts. When the largest generation in history, the baby boomers, start to retire in 2012, those boomers own children will then be at peak earning power, but will be a very small generation, too small to support their more numerous parents. Consequently, the 12.5% tax the current teenagers pay for retirement benefits will be too small to pay for their parents' health costs. It will be uncomfortable to increase that 12.5% by much. Thus, the Ponzi scheme we have run for eighty years will then be unable to conceal its facts with talk of trust funds and lock boxes. For nearly a century, Congress has spent the Social Security and Medicare tax surplus for non-medical purposes. They will have to stop doing that in less than ten years. Consequently, we can confidently expect the boomers to protest loudly: they contributed 12.5% of income during their whole working lives to support medical care, and now learn that nothing was saved for their own health care. Even more exasperating is that the second Bush administration did attempt to introduce legislation in 2006 to set aside some current surplus to reduce the impact of the coming crunch -- and Bush was howled down. It would thus appear to be the nature of current politics that this boomer healthcost shortfall will not be seriously addressed until the crisis is actually upon us. Democrats will apparently stonewall the matter to avoid blame for designing and ballyhooing a welfare expedient of the 1930s that was swept under the rug during decades of affluence. Republicans will be determined not to be paymasters for a welfare scheme they had opposed from the beginning. So what will happen?
Government only has two options in funding programs where the money has already been spent; they can raise taxes or they can borrow money. By raising taxes, they risk precipitating an economic depression. By borrowing, they flirt with hyper-inflation of the sort that destroyed Germany and Austria in the 1920s. By adopting a little of both remedies, we wander into "stagflation", a term invented in the 1970s to describe a very unpleasant episode. Whatever the description, there seems a very strong likelihood of economic pain and political uproar. It sounds pretty unlikely the public will be in a mood for expensive additions to health insurance coverage.
All this is preamble to impending cuts in the health budget. We must anticipate the only approach government ever uses for program reduction, the only arrow in the government quiver. It goes like this: first you cut a program budget by, say, ten percent and watch to see if anything bad happens. If nothing bad happens, cut it again. If something bad does happen during a series of cuts, deny that it did happen, and scramble around to patch up the damage. If possible governments restore some of the cuts when they go too far, but in Medicare whose unfunded deficit is in the trillions of dollars, that may not be possible. Try to get re-elected after you pull off one of these capers, and you begin to sense how dictators get into office. It really isn't comfortable to talk apocalypse this way, and one would certainly hope there is some flaw in the prediction. There could be other unexpected events in the meantime, deus ex machina, but a stock market crash, a thermonuclear war, or violent changes in the environmental temperature are all going to weaken the world economy, not make things better. This doomsday scenario seems almost certain to include some serious cost-cutting in the health financing system. Therefore, it is only common sense to examine what advance changes might be made in the health delivery system to minimize the damage to it.
My proposal amounts to suggesting that we put the doctors in charge of the cost-cutting. In accident rooms, battlefield medical stations, and even television war serials, the person in charge of sorting out the influx of unexpected casualties is said to be in triage. In triage there is one basic rule: put your best man in triage. If the security guard, the admissions clerk, or the night watchman directs the emergency down the wrong corridor, the ensuing blunders will cascade as the system struggles to get things back on track. We can expect objections to what I have to propose which will take the form of warnings about letting foxes watch the henhouse, but in general the public already supposes the non-physicians will step aside for the doctors in an emergency. So the more open the discussion about command and control, the better, with ultimate faith that the public will support the common-sense approach of putting your best-trained person in charge.
For present purposes, the general proposal is that when drastic cuts in budget get imposed, it should be the physicians of the local community, not the administrators or the insurance executives or the local business leaders -- who should make the painful choices between what is essential and what can be sacrificed. This is most readily achieved by setting aside the Maricopa decision and clarifying the HMO enabling acts to the effect that it is not an antitrust violation for physicians professionally practicing in nominal competition to participate in the shared governance of health maintenance organizations. In other words, that HMOs such as the Maricopa Foundation need not fear antitrust action, using the experience of a dozen other Foundations for Medical Care as proof of the harmlessness of the approach. It should not be necessary for these organizations to prove positive value, only to demonstrate lack of harmfulness. If they can be established and allowed to compete with insurance-dominated or employer-dominated HMOs, their worth can be established by success in the marketplace. Ultimately, the choice of governance form will thus be made by the patients, and the proposal should be a popular one.
It should also be popular with hospital administrators. They chafed at physician control thirty years ago, but that was before they encountered the far more brutal price negotiations of HMOs dominated by business and insurance. The consequent costly and disruptive wave of hospital mergers is defended by very few, although it would be interesting to examine dispassionate analysis. Probably no one adequately appreciated the threat that employer domination of these practice groups represented to hospital administrations. When hospitals confronted employer groups in serious hard price negotiations, hospitals came to the shocking realization that these people actually had the power to move large groups of people to a competitive hospital, and they certainly talked as though they were capable of doing it. The resulting panic of hospital mergers, consolidation into chains, and emergence of for-profit competition by hospitals that had no thought of a charitable mission, has created a degree of cost and disorder that was not in the original plan. Hospitals in rural California who told their colleagues of the burdensome power of their staff doctors under doctor-run Foundations, would now have to admit that a return to that environment would be a distinct relief.
And there might even be a reconsideration by business leaders. What physicians would bring to the table, what is now new and different, is the undeniable experience that dominating captive HMOs has not proved as useful to employers as they hoped it would be. The cost savings have been disappointing, the exploitation by insurance intermediaries, and the undeniable employee restlessness were not exactly anticipated. Running employee health projects is a large distracting time waster for C.E.O.s who have other goals and mandates to pursue. If employers keep a focus on their reason for involvement in employee health, hardly any of them could defend a posture of resisting the emergence of new choices which make a reasonable claim to reducing employee contentiousness, at competitively lower cost.
And the government? Among the various unpleasant alternatives that Congress must consider, is the possibility to be discussed next that employers may want to pull out of employee health care entirely. Allowing competitive forms of ownership of existing arrangements might not seem too risky a step, compared with that prospect.
The Industrial Revolution crowded people together into smoky, draughty unhealthy places to live and work, and thus created ideal conditions for the spread of smallpox, tuberculosis, plague, poliomyelitis and many other infectious diseases. With better sanitation and hygiene, those diseases declined steadily for two centuries. Meanwhile, medical science developed a steady stream of expensive enhancements to health like removing an inflamed appendix, inserting pins into broken bones, utilizing CAT scans and artificial kidneys. These things each made life more comfortable and extended it a little longer, but steadily increased the cost of care. Here and there major leaps forward occurred, like the discovery of antibiotics and the prevention of arteriosclerosis, but it seldom seemed that medical care was stamping out disease, it was just making it more complicated and expensive. But if you stopping plodding forward for a moment and looked backward, the aggregate progress was astounding. Dozens of diseases either disappeared entirely or are well on the way to disappearing, like polio, smallpox, tuberculosis, syphilis, rheumatic fever, and what have you. Life expectancy for Americans at birth, which had been 47 years in 1900, was approaching 80 years in 2000. When I started as an attending physician in 1955, I was in charge of a 40-bed ward continuously full of diabetic amputees; during the last fifteen years of my practice, however, I did not attend a single diabetic amputation. At some point in this amazing medical pilgrimage I can remember realizing that for really important purposes, there were only two diseases left. Arteriosclerosis and cancer; and now arteriosclerosis mortality has declined fifty percent in ten years.
So now it is possible to have the luxury of asking: what will happen when we finally cure cancer? Oh sure, there is Alzheimers Disease, HIV/AIDS, schizophrenia and childbirth, plus an apparently endless variety of ways to produce self-inflicted conditions. Everyone will eventually die of something, so doctors will keep busy. It is not necessary to predict the end of medical care to see that some important social transformations are likely. For example, if we cure cancer around the time of financial chaos caused by the retirement of baby boomers, it is going to be hard to resist the demand that we reduce spending on medical research. Every tedious word of the impending debate on the topic could be written right now to save time, because it is a very strong probability that spending on medical research will decline, once an effective cure for cancer is behind us.
Let's, however, continue our march into the future of healthcare reform. When employers became self-insured for employee health costs, they came into possession of data about what they were buying. It didn't look adequate to them to explain the sums of money they were spending, so they concluded they were being hoodwinked by hospital cost shifting, with consequences summed up as the Clinton Health Plan. Now put yourself in their shoes when the Wall Street Journal tells you cancer has been conquered. Michael De Bakey once pressured Lyndon Johnson to start a crusade against Heart Disease, Stroke and Cancer, and now even cancer is gone. A significant number of C.E.O.s are likely at that point to decide that since Far Eastern competitors don't have this cost to contend with, perhaps it is time to declare that you have been fleeced long enough. Give the employees some money, and tell them to buy their own health insurance.
There are even some more legitimate arguments for doing so. Individually owned and selected health insurance would be portable, putting an end to "job lock", the fear of changing jobs for fear of losing health coverage in the process. Employee divorces create a different twist to job lock, and inequities jump out at you from the tangle of arguments about dual coverage for working couples. Add same-sex marriages to this issue and employers are driven to despair. Individual policies would simplify all of these issues, and open the door to life-long coverages, which we will discuss in a later section.
If medical progress makes just the right progress in the impending time interval before doomsday, it is even possible to start talking about eliminating health insurance in a practical way. If there is no threat of medical expense, why buy insurance against it? Since everybody will die of something, it is hard to envision a time without insurance. But maybe Medicare is enough. Senator Edward Kennedy (D, Massachusetts) will finally have his universal single payer system -- by default.
What we have here are the daydreams of a corporate C.E.O., struggling to make his numbers for the next quarter, and they are pretty strong stuff. But who can doubt the power of these concepts to move the system away from an employer-based formulation?
For fifty years, turmoil in the health insurance industry has originated in the steel and auto industries. It seems strange that no heroes have come to general public attention, although there may be heroes who are known to insiders; somebody may yet write a book about it. This may be of only passing importance, but the present distress in the American Big Three auto makers suggests that unexpected legislative proposals concerning health financing could emerge from that direction. The turmoil in Detroit once centered on the auto industry enjoying windfall profits which labor wanted to share. More recent discord comes from the opposite direction: the auto makers now cannot afford to honor those contracts they signed with labor having to do with health benefits.
The contract for the United Auto Workers was certainly generous. Printed up in a little red book for wide distribution, the contract states emphatically that an employee for six months or more will be completely covered for medical expenses for the rest of his life. If Medicare pays some of the cost, that is fine, but if Medicare reduces its benefits, the employer is liable. Some features of this contract may have been changed since it was printed, but it is difficult to imagine what incentives the UAW would have to agree to modifications. Except, of course, the self-interest which emerges when it looks as though the employer might go out of business unless there is some form of relief from wage costs.
To judge what is going to come of this is to judge the likelihood of the various arguments, predictions and recriminations that are so common in heated disputes. Two things are pretty clear to auto industry outsiders: the UAW contract provides more generous health benefits than almost any other employee group enjoys, while the auto industry has worse earnings than many or most other industries. Consequently both the employees and the stockholders have an incentive to make adjustments in the auto industry, a situation shared by the steel industry and other major auto suppliers. The form this has seemed to take is to favor some form of national health insurance, in which the taxpayers would take over the obligations of the auto manufacturers. So, look out for proposals from Senators and Congressmen from Michigan, and watch which nominees for U.S. President are favored by the rust-belt political delegations.
Workers in other industries are not certain to go along with such proposals. After all, most people resent it when someone else makes out better than everyone else for decades, and then comes asking for a hand-out.
Everybody knows the old insurance saw, that the big print gives but the small print takes away. If health insurance pays for one sort of thing but not another, there is anxiety that a bewildered patient can be deprived of coverage he thinks he paid for. A patient knows he was sick, that he saw a doctor, or that he went to a hospital; beyond that, it's better not to leave room for arguments. To a certain degree, this is what has made HMOs seem so threatening; complicated assurances can lead to disappointing loopholes. So, for a century it has almost been an article of religious faith that health insurance should cover everything that costs money when you are sick. However, that headlong faith is exactly why the matter needs to be subject to critical review. Not only does monolithic insurance conceal a vast system of cross-subsidies. It has existed for too long when everything else in Medicine has changed for the original premise to be immune to change.
There are health insurance considerations which go beyond mere convenience of administration. Transparency and flexibility, for instance, suffer when everything is under a single blanket. Women pay a share of prostate surgeries they will never have themselves, people who hate abortions have to pay a share of them anyway. The ability to buy what you think you need is taken away, so some people who could afford what they need are unable to afford the whole package because it includes what they feel they would never need. And then there is moral hazard. Some people reach for what they don't need just because it costs nothing extra. Well, this isn't 1930; we don't need to debate the whole issue top to bottom. But there may nevertheless be a few features of global health insurance which could be advantageously teased out separately.
For a first example, look at terminal care. Everybody is going to die, and mostly the cost is picked up by Medicare because most people who die are elderly. Some insight into the issue, and a reasonably workable definition of terminal care, is provided by the statistic that a third of the expenditures of Medicare are paid for someone in the last year of life. Statistics on the average age at death are known with great precision, so it would be easy to calculate the yearly premium cost at any age, or the size of a single-premium policy needed at any age to cover the average cost of the last-year-of-life. If we are ever to fund the unfunded Medicare program, this is the place to start. And if you are wondering how you know in advance when you are going to die, you don't need to know. Just establish an independent "endowment" fund, which reimburses the current Medicare program for any expense incurred during what proves in retrospect to have been the last year. Presumably, the cost of running the unfunded portion of Medicare would then drop by a third, while the cost of the funded third would be diminished by the investment strategy of its manager. The relatively few people who die without Medicare eligibility might be treated in the same way, reimbursing whoever paid the costs, but the risk calculation would be more difficult, and a life insurance policy might be preferable. Once the younger individual with such a designated life insurance policy attained Medicare eligibility, some sort of coordination would be desirable.
Everyone dies once, and no one escapes dying. But terminal care benefits are not so terribly different from some other health issues. Nowadays, just about everybody can expect to have two cataract operations, and most people can expect a hernia repair, a gallbladder removal, and if male a prostate removal. Everybody ought to have a pneumonia immunization, and a colonoscopy, by age 66. It would be easy to compile lifetime risks, and update them yearly, for the typical male with 1 death, 1 pneumonia vaccination, one colonoscopy, 0.76 prostatectomies, 0.59 cholecystectomies, 0.37 hernia repairs and so on. The cost of this sort of routine care is not really insurance, it is pre-payment. It is not subject to abuse, and need not be challenged or reviewed, unless statistical monitoring shows that the incidence of some component was rising in a particular zipcode area. In that case, what would be called for would not be claims review, it would be provider review.
Perhaps the reader can see where this is going. Having stripped out routine pre-payment as much as is practical, you are left with the unknowable "all other". Insurance which covers this sort of risk becomes true insurance, in an umbrella form. As medical care continues to advance, more things can be moved from "all other" to "routine". Ultimately, and probably sooner than most people would guess, you can achieve a true insurance system, defined as having a trivial insurance premium for a remote risk. From that point forward, you can direct your cost-cutting attention to reducing the cost of routine care. That would include the devising of strategies to pay for luxury versions of routine care, as desired.
This little morality tale was told to me by two unrelated sources, one of whom was a staff aide to Wilbur Cohen, the author of the Medicare law. And the other was a high official of Pennslvania Blue Shield, the appointed administrative agent for Medicare in Pennsylvania. Its relevance to the more recent SNAFU with Insurance Exchanges introducing the world to Obamacare, should be fairly obvious.
After Lyndon Johnson rammed the Medicare amendment to the Social Security Act through Congress in 1965, he wasn't shy about drawing attention to it. The press was present in great numbers, with staff officials who had a role in crafting the document, members of Congress, and anyone else who was standing around. The legislation was laid before him and signed with twenty different pens to be presented as mementos to the in-group. Each pen was only used to inscribe about half of one letter of his name, so it was a slow but joyful process. As intended, it got lots and lots of publicity.
|H. Ross Perot|
So, thousands of thankful old folks saw the ceremony on television, thought they heard that the law was in effect immediately, and proceeded to dump their medical bills into a shoe box, sending them to Medicare to be paid. Unfortunately, Medicare didn't have an office, a staff, or even a telephone number. These things take time. As fast as they could, the Medicare staff constructed a system of carriers and intermediaries, carriers for part A, and intermediaries for part B. And almost without exception, appointed the local Blue Cross and Blue Shield organizations to be the carriers and intermediaries. Consequently, the organization of Medicare was patterned closely after the organization of the two administrative corporations. Meanwhile, the bills from old folks just kept pouring in through the postal service. It was about all the staff in Washington could do, just to direct the mail out to the local intermediaries and at least get it out of their hair.
Less than a year later, that's how the claims manage to Camp Hill, PA, a little suburban town near Harrisburg. In desperation, Blue Shield had rented a local vacant supermarket, and piled the mailbags ten feet high. There were quite a few telephone calls of inquiry, and the old folks were politely told the matter was being looked into. It was beginning to look as though one supermarket wasn't big enough.
Computers were of course rented from IBM, who had a policy of renting, not selling, its valuable equipment. Keypunch operators, computer operators were hired, air conditioning was installed, and one team after another of computer programmers was hired -- and fired. Consultants were called, scratched their heads, sent big consultation bills, and turned sadly away. Sorry, but somehow it just don't work.
So that's how it happened that one Friday afternoon, a vice-president of Texas Blue Cross named H. Ross Perot came in, accompanied by a fellow with glasses so thick they looked like the bottom of Cocoa Cola bottles. So far as anyone can remember, the guy with coke-bottle glasses never said one word. The desperate, hopeless mess was explained to Perot, whose salary at that time was rumored to be twenty-five thousand dollars a year, about right for a Blue Cross executive. His background as a kindred Blue Cross person inspired confidence, and the conversation rambled on for an hour or so. Meanwhile, the guy with coke bottles went over to the Penn-Harris Hotel across the street, and got to work. By the end of the weekend, he had come back a couple of times, but eventually, would you believe, it really, well it really worked. Contracts were quickly signed, the wheels began to turn, the mail bags in the supermarket began to march through the processing cycle. Blue Shield, the Medicare program, the finances of the nation's elderly, and Lyndon Johnson's reputation -- were all rescued.
As everyone now knows, the Medicare processing contracts made Ross Perot into a billionaire, living on Bermuda in the lap of luxury, eventually upsetting the re-election hopes of George Bush, senior by running for President himself on a third party ticket that had something or other to do with giant sucking sounds. A Congressional investigating committee looked into the outrageous profits Perot had extracted from his homeland's elderly, volleyed and thundered. Whether Perot actually thumbed his nose at them is doubtful, but he certainly was in a position to do so.
Meanwhile, whatever happened to that guy with the coke bottle glasses, no one seems to know.
When money was tangible you had to guard it, now that it's mostly virtual you have to verify it. Hardly anybody can, and that's a problem.
When money and wealth were wampum, precious metals, and paper currency, these physical objects required physical protection. It was all a big nuisance, with six-guns on the belt, bank vaults and appraisers of one sort or another. But now that wealth is merely a bookkeeping entry on someone's computer, things may be even more nuisance because verification is almost beyond us. Counterfeiting of the computer variety must be left to institutions to detect or deflect, causing them to introduce firewalls of various sorts that also block legitimate inspection by customers. "Trust but verify" doesn't work so well in this environment. Let's use a personal example, slightly fictionalized to protect the innocent.
Several software products now exist to download transaction information automatically from various institutional sources to a customer's home computer; they are either free or cost a nominal amount, and are quite "user friendly". In my case, however, the reports they generated were quite significantly at variance from the monthly reports which were issued directly by my counterparties. Dear Sirs, Please explain.
What I soon discovered was that everyone blamed someone else, and everyone blamed me for bothering them. Quite obviously, I had little understanding of these specialized accounting niceties, and quite obviously I had too much spare time on my hands. Telephone help desks, often located in India, will not give out telephone numbers for incoming calls, and are programmed to check the size of your account before placing you in a call-back queue. The first call is usually taken by a trainee whose job it is to screen out the silliest sort of help request, and then to refer to a supervisor if things rise in complexity. Supervisors have supervisors. That's if you are lucky. More commonly, the tedious software business has been farmed out to a vendor, and the contracting agency has neither the necessary understanding of the issue, nor any ability to fix it. From the sound of it, the vendor often gives the contracting agency the same sort of isolation treatment that they would give a customer if he could find their telephone number. And guess what. At the end of the day, one of those high-handed defensive linemen -- turns out to have been at fault.
Let's explain one problem. On the surface, we were talking about a $40,000 difference in account balances; one may have been correct, but a second one must have been wrong. That rises to lawsuit level, so the matter got intensive study. It turns out the stock broker had misinterpreted instructions for a "sweep-account" system. When a stock in your portfolio pays a dividend, the amount of the dividend is subtracted from that stock's line item, and added to the line item of your money-market fund. That's fine, but there is one exception. When the money market fund itself pays a dividend, subtracting that dividend cancels out the addition, and the dividend essentially disappears from your net worth. Was this intentional? Certainly not; no one could stay in business doing that. It's not even a highly stupid error, since you can easily see yourself making the same oversight of the one implicit exception to the rule of sweep accounting. Because this "bug" in the program involved one institution making a mistake and transmitting it to a second institution, the systematic error did not unbalance any books, until it reached mine. But since I did not detect the error for five months, there must be dozens, hundreds, maybe thousands of customers who did not detect it. Ouch. Do the math yourself to judge whether this was a serious error.
This illustration, only one of several on my personal report, leads to at least two larger principles. The first is that the transformation of money from tangible to virtual has occurred so rapidly that bullet-proof safeguards have not had time to emerge. After a century of use, most people cannot balance their checkbooks, but enough people can balance them so that systematic errors are not likely to slip past. When enough people with home computers repeatedly test the internal complexities of their virtual money accounts, confidence will develop that the system is probably working. Confidence is an important matter; it is possible to imagine quite a bank panic if the public suddenly got the idea that virtual money is maybe a mere vapor. In fact, the securitized credit panic of 2007 is a little like that. With a few new regulations and a lot of computer programming it surely will be possible to know who owns how many bum mortgages. That innovative mortgage system got ahead of its tracking verification, and we now just have to hope nothing serious happens before that gets fixed.
The second important lesson is that our health insurance system has a similar problem of far greater size and complexity. We are here talking about at least ten percent of Gross Domestic Product, in which one daily unit of measurement is in truckloads of insurance claims forms. Stocks and bonds are admittedly complicated, but compared with thousands of different diagnoses, drugs, procedures and hospitals -- verifying financial transactions is trivial compared with measuring medical ones. With a twenty billion dollar budget and ten years of lead time, we might have a shot at it. Except for the fact that during the ten year interval, medical care will have changed so much you will have to start over on the project.
Everybody ends up getting fired in a recent book by John Kastor about recent events at the University of Pennsylvania just like everybody ending up dead in an Elizabethan play. The vital difference, of course, is that the dramatis personae at Penn can still relate to a bewildered audience their own versions of those grand events. To protect himself, the author peppers his book with more footnotes than a PhD. thesis. And thousands of stakeholders at the University can now realize that during those eventful times they were as clueless as Rosencranz and Guildenstern.
One basic fact about that institution is that the medical school spends three quarters of the entire university budget. That leads to grudges in the little law school, the little engineering school, and the little president's office, as they knuckle under to the Golden Rule. The department chairman with the gold, makes the rules. Since most of that gold comes from research grants, hence ultimately from the federal government, the medical students and the teaching faculty don't have the same power they had during the Vietnam War era, either. Although medical school tuition imposes a crushing burden on the students and their families, leading to debts close to a quarter of a million dollars apiece, the tuition money doesn't amount to much in the university scheme of things, either. In some schools, tuition amounts to two percent of the medical school budget. You could eliminate the students entirely and not see much difference in the "school".
Unfortunately, when you become dependent on government grants, you find they can suddenly be terminated, or awarded without funding, or held up for several months by Congressional bickering. Meanwhile, there are salaries to pay, contracts to fulfill. Even if you can furlough some of the staff, it's not easy to see what you do about a thirty-year mortgage on a research building when there is a lull in its research funding. If you try to save money, the granting agency will try to get it back; they aren't authorized to make grants to be squirreled away. If you shift money to unauthorized uses, you risk going to jail. And yet, if you don't do something along those lines, the whole enterprise can collapse.
Having said that much to be fair, it is still uncomfortable to see the financial transparency of our most valued nonprofit institutions vanish behind a Byzantine fog of secrecy, out of which arise the magnificent towers of new buildings, and in front of which an occasional limousine is to be observed. No wonder the research scientists feel the constant pressure to produce. A Nobel Prize every ten years, or so, would go a long way toward quieting envious remarks from the liberal arts faculty.
Housed in those ivy towers are three institutions, the teaching hospital, the medical school, and the university, with three boards of trustees, and at least three ruling potentates. At irregular intervals, congressional committees do things to the Budget Reconciliation Act which enrich one of the three components of the institution, or suddenly impoverish another, or both. Integration of the three under one governance sounds plausible until you notice how radically different is the mission of each one. You can take a big building away from one component and rent it back to them, and things like that; but you can't do it without starting whispers about Enron. You can gather up surplus funds from one of them during the decade of the eighties, but you have trouble giving it back twenty years later. Officials at Blue Cross come snooping to see if health insurance premiums are passing through this shell game, ultimately paying salaries in the department of English Literature. Everybody distrusts everybody else, somebody sasses somebody, and everybody gets fired.
Nothing unusual about that. It happens at every medical school.
History Footnote: Before the white man came, the Iroquois "nation"devised rules still characteristic of our modern political parties. At various times, there were five, six, or seven tribes in the Iroquois confederacy headquartered in upstate New York, allied to each other with fluctuating loyalty. Philadelphia's tribe were Delawares, or Leni Lanape; but the most warlike and dominant tribe were the Mohawks. Confederations work best when allied against a common foe. The rest of the time, member tribes mostly beat and cheat each other.
The Philadelphia Democratic Party appeals to a number of minority groups and recent immigrants, but it is more meaningful to think in terms of players. For example, university professors are mostly Democrats, but the teachers union is an active political player. Minorities generally vote Democratic, but the Black Ministers are players. Lawyers are rather evenly divided between Republicans and Democrats, but Plaintiff Trial Lawyers, the ones who sue people for a share of the award, are players.
Some people are players but keep it quiet. Certain rich donors are players but don't want to be known as such. The chiropractors and optometrists claim to be players but would rather not have the truth known. The news media and utility companies come close to denying they are players in spite of abundant evidence otherwise.
Well, the local players had a war dance just before the November, 2005 elections; the timing was no accident, and it was publicly described as a SEPTA contract negotiation. The issues had mostly been settled in advance, but the real deal-breaker was health benefits, Blue Cross health insurance paid by the employer to escape income tax and to make the pay packet appear smaller to the taxpayers. Step by step for twenty five years, employers in the form of the Republican politicians had been keeping up a steady drumbeat, trying to reduce the incentive to overspend health insurance because it seemed free, with resulting increase in employer costs. Slowly, business management convinced a majority of the public that "first-dollar coverage" was a villain, since the person covered by the insurance has no skin in the game. Even party loyalists had to admit that it looked as though the tax exemption of health insurance was injuring the image of labor. That concept carried the slogan of "sending jobs to China", or killing the goose that lays golden eggs in the Rust Belt. Five million Health Savings Accounts were sold in 2005 in spite of state laws hampering this form of health insurance, and from experience it seemed certain that five times that many would be sold if early-adopters reported satisfaction. The surrogate was deductibles and employee contribution to health insurance; just about everybody recognizes the need to make some token contribution to health insurance in order to have skin in the game and keep costs down. But not the SEPTA workers. In 2005, the brotherhood of Septa workers would go on strike for fifty days rather than pay one penny of "give-back" for health insurance. Their energy level was high, they were waving their arms, they were ready to overturn ashcans.
When union contract negotiations go on for days, all day, the public gets an idea the negotiating table is a shouting match the whole time, with "negotiators" carrying on with tom-toms and tomahawks in an even more physical and extreme model for their supporters on the street corners. For about ten minutes a day, that's true. But then the television people can turn off their lights and the war hawks fan out to talk with their supporters outside the room, which in this case happened to be in the Bellevue Stratford Hotel. Perhaps you didn't know the Pennsylvania Governor has quite a nice set of offices there. Perhaps you haven't noticed that all the parking spaces on the side alleys near the Bellevue "belong" to various politicians. Just try parking there yourself to learn a few facts of Philadelphia life.
In negotiating classes, they teach you never to make the first concession. By that reasoning, no negotiation would ever end. The more practical advice is to forget about any serious bargains until the last day of the contract, or even a couple days after that. The hard reality is that no one will make a concession while there is time for some invisible player to back out; no one wants to give his constituents time to realize he has sold out their trust, or violated their loud, insistent, wholly unrealistic demands. And so in 2005, after the shouting had gone on for some time, and even a real strike began, the Governor finally sauntered into his nice Philadelphia office. Time to get to work.
Those who didn't know him made the comment they could almost believe he was a victim of Attention Deficit Disorder. He talked all the time, moved all the time, and apparently showered all the time. That is, he was in and out of sight all night, but invariably reappeared with fresh shirts, clean shaves and sharp creases. His aides confided he wasn't very good at "detail work", which is to say he conducted the whole affair on a primeval level of dominance, bluster, charm and implied threat. Don't bother me with facts. Mayor Street, on the other hand, would come in and mumble something incoherent, and then had to leave for an important engagement. Word came in that the school teachers felt they really had to pay a small health insurance deductible, and it wasn't so bad. Foo, no guts.
Somewhere along the line, the newspapers started to echo that deductibles had their merits. Foo, bunch of Communists. The black ministers were reported to feel that if their people all had to pay deductibles, why couldn't the transit workers. Bah, bunch of muddleheads. In the hubbub, someone asked what Andy Stern thought. The trial lawyers didn't have as much to say as they once did; SEPTA had reduced liability costs by $87 million through adamantly refusing to settle any case without going to court. Paper tigers. What about chiropractic benefits, we demand the inclusion of chiropractic benefits. No, said SEPTA, we aren't going to agree to any of that sort of thing. Well, what about twenty visits a year to chiropractors?
One by one, the other players deserted the SEPTA workers. The message from the other tribes in the confederation seemed to be, get what you can for SEPTA, but stop the strike by election day. The Governor produced the razzle-dazzle, a loan to the city to pre-pay the Blue Cross premium, in return for which Blue Cross would reduce the premium. The effect of that was to produce enough cash to appear to add ten cents an hour to the pay packet. We'll have to wait a year to see how this money gets restored to Blue Cross, but that's the general idea.
The strike was over, hurray. The next day, the Democrat party elected Democratic governors in New Jersey and Virginia, defeated some California amendments which would have hurt the trial lawyers and teachers unions. Surely, someone in the Democrat party nationally was telling himself that caving on the Philadelphia transit strike was a small price to pay for that.
|Congressman Robert Andrews|
A single e-mail to constituents, and no other communication visible to the general public, announced a town hall meeting with our Congressman, Bob Andrews, on the campus of Rowan University, from 6 to 8 PM, August 24, 2009. The subject was to be Health Care Reform Legislation. On arrival, it was hard to find the auditorium in the square mile of new college campus, and only a small sign entitled "Event" indicated the place to park. Lots of cars.
By counting seats in a row and multiplying by the number of rows, the University Auditorium held 3000 people, but at 6PM it was difficult to find a vacant seat. The doors were almost blocked by two lines of people standing to speak at microphones in the center of the hall, snaking all the way out past the television cameras and then out the door. These people were strangely silent, preoccupied but not rude, apparently rehearsing their speeches. In the lobby outside the doors, several workers were distributing posters showing "Thank You!", checking people off on lists of some sort. Many of those who got posters were wearing red T-shirts emblazoned with something or other.
When I finally got a seat inside, it was behind a whole row of such T-shirted poster-holders, mostly but not entirely of the black race. The Congressman was giving a little speech to the effect that he was one of the committee members who wrote the bill, so of course he had to support it. Strange, that as a member of Commerce and Labor he was working on a bill which traditionally is the province of the subcommittee on Health, of the Ways and Means Committee. In any event, that gave him the ability to explain some of the language which was a little too hard to understand. Several in the audience shouted out something unintelligible at that point, but mostly the audience sat in silence, waiting for the questions. He soon opened it up for questions, because he wanted to know what his constituents were thinking.
Although a few inevitably wandered off the point, questioners were confident, moderately deferential, remarkably effective. No matter how it was stated, and no matter how it began ("I have always voted for you, Congressman"), they were at the microphone to run a sword into him. To some extent, posting the entire bill on the Internet had changed politics. One old man, reading from his papers, said that page 343 says, etc; to which the harassed Congressmen blurted out, "That isn't true!" But the old man held his ground, "Oh, yes, and what else isn't true, that's written in the bill?"
Our congressman represents a working-class district, as clearly illustrated by his previously running for Congress without opposition. In searching for the reason this solidly Democrat audience was so antagonized, one gathers they generally have Unionized health benefits, and feel threatened that insuring the "illegals" will be paid for by impairing their own insurance. Somehow they feel that anyone who denies it is lying to them. ("It isn't what's in the bill, it's what will be in the bill ten years from now.") Except for college professors, Union members have the most luxurious health insurance coverage in America, and are accustomed to boasting of it. Somehow, this privileged position drowns out their envy of rich people. When told that only the top x% of the country would have its taxes raised, one man bore right in on the Congressman. "You never heard anyone asking a poor man to give him a job". (Yeah, right, right on, Yeah.)
Although the people in red shirts holding posters put up a fight for fifteen minutes or so, they soon subsided out of recognition of who "owned" the room, and the remaining three hours of "questions" were almost uniformly negative. After an hour, the television cameras left the room, and at that signal the people in front of me wearing red shirts, also left. After a succession of speakers praised physicians somewhat excessively, a couple of physicians got up and made a poor showing at the microphone. One of them, a fat woman, had the poor judgment to tell these folks that many diseases like diabetes were self-inflicted, but was to hear back that it would help if our President would himself stop smoking and leave the rest of us to mind our own business. Two women who proclaimed themselves single mothers were no better treated..
At 9:30, a meeting scheduled to end at 8PM still had a thousand people in the audience, and fifty at the microphones. But I had enough. They made their point. All that remains is to see how fairly the television editors extract significant clips, and to find out how the rest of the nation feels.
LATER FOOTNOTE: As matters turned out a few months later, this national legislation had more of a local New Jersey effect than the audience could have guessed. Mandating health insurance for 30 million uninsured, Obamacare accomplished it for 15 million of them by forcing them into the state Medicaid program, which is widely acknowledged to be the worst program in American medicine, because it usually is the most under-funded. New Jersey residents are firmly opposed to anything which raised their already high local taxes, and will focus intently on the attempt in the coming lame-duck session of Congress (November 2010) which intends to transfer federal money to states to pay for Medicaid, and which is given only the narrowest chance of success. Republican Governor Christie deftly split the industrial unions from the public sector unions with the remark, "Every time they get a raise, you get a tax increase." It was hard to answer.
As commonly stated in medical history circles, the history of the Pennsylvania Hospital is the history of American medicine. The beautiful old original building, with additions attached, still stands where it did in 1755, a great credit to Samuel Rhoads the builder and designer of it. The colonial building on Pine Street stopped housing 150 patients around 1980, supposedly at the demand of the Fire Marshall, although its perpetual fire insurance policy still owes the hospital several thousand dollars a year as unspent premium dividend. There may have been one small fire during two centuries of use, but its true fire hazard would be difficult to assert. It was just out of date. The original patient areas consisted of long open wards, with forty or so beds lined up behind fluted columns, in four sections on two floors. The pharmacy was on the first floor, the lunatics in the basement, and the operating rooms on the third floor under a domed skylight. It was entirely serviceable in 1948, when I arrived as an intern doctor. Individual privacy was limited to what a curtain between the beds would provide, but on the other hand it was possible for one nurse to stand at the end of a ward and recognize any distress among forty patients immediately. In this trade-off between delicacy and utility, utility was certain to be preferred by the Quaker founders. Visitors were essentially excluded, and if a patient recovered enough to be unnaturally curious about neighboring patients, well, he had probably recovered enough to go home.
Located between two large rivers, South Philadelphia up to ten blocks away was essentially a swamp until the Civil War. So, there were seasonal epidemics of malaria, yellow fever, typhoid and poliomyelitis at the hospital until the early twentieth century. Philadelphia was a port city, so sailors brought in cases of venereal disease, scurvy, even an occasional case of anthrax or leprosy. During the Industrial Revolution of the nineteenth century, tuberculosis, rheumatic fever and diphtheria were part of clinical practice. But underlying the ebb and flow of environmental effects, there was a steady population of illness which did not change a great deal from 1776 to 1948. These patients were all poor, because the rules in Benjamin Franklin's handwriting restricted service to the "sick poor, and only if there is room, for those who can pay." In 1948 there was a poor box for those who might feel grateful, but no credit manager or official payment office. The matter had been considered, but the cost of collection was considered greater than the likely revenue. When Mr. Daniel Gill was offered the position as the hospital's first credit manager, it was suggested that he be given a tenth of what he collected. To his lifelong regret, Dan Gill regretted that he refused an offer that he had felt he could not afford to accept.
So, the wards were filled with victims of the diseases of poverty, punctuated by occasional epidemics of whatever was prevalent. And a second constant feature of the patients was their medical condition forced them to be housed in bed. For centuries, physicians dreaded the news that a new patient was being admitted with "dead legs
On a hot summer evening, attendance at computer user-group meetings is light, so after a recent one got through discussing spammers and new software, we adjourned to the sidewalk tables of a nearby pizza joint, just off Broad Street. United only by a common interest in computer hardware, software and techniques, this one comes from many corners of the Philadelphia social scene, and goes back to those corners after the meeting. Whatever their background, computer geeks are uniformly good at math. But on this particular evening, the conversation turned to medical experiences.
A middle aged man with a pony tail related he had recently experienced Bell's Palsy, a paralysis of the muscles of one side of the face. The group was fascinated to hear how saliva dripped from a corner of his mouth, and his unclosable eye dried out and got sore. His doctor told him there was not much to do except wait, an opinion confirmed by a specialist. Immediately, this man who makes his living programming computers set out to find the best acupuncture person he could find. It was a familiar story, and I remained as quiet as I could while he essentially related that when the regular medical profession confesses failure, the patient feels released to take matters into his own hands. His instincts were to do something, anything, even if that something was plainly futile. He could not bear the idea of doing nothing, and sure enough, in time he got better.
I said nothing, because it was a familiar reaction to conditions that either would or would not get better by themselves. The more serious studious members of our little club were quiet, too, because their instincts were to do what they were told, and in his place wouldn't have acted the same way, didn't completely approve. In a moment, a large muscular man took up the medical subject by telling that he had spent two years in a hospital after falling down an 18-story elevator shaft. Man, oh man, it seemed like it took two weeks as I was going down, and when I hit I wasn't knocked out. He had landed on one buttock and his leg was nearly wrenched off, but he remained awake, not bleeding much. Within minutes, he was headed for an operating room, and reached out to grab the clipboard from the nurse. On it was written "amputation", which he circled, wrote "No amputation!!", dated and signed it. No way were they going to cut off his leg. His leg was in fact saved; he now scarcely walks with a limp. Then another computer nerd chimed in.
This man's story was that he spent fifteen months in a hospital after a motorcycle accident. He somersaulted seven times through the air before he landed on his chest, and twenty years later he could still remember every single twist of all seven turns. He, too, related many hospital disputes about morphine injections and contemplated surgeries. Both men related dubious experiences with young interns and medical students, and numerous proposed remedies that had been rejected. All three of these medical veterans expressed violent hatred of HMOs, for reasons unspecified. I was quiet; no argument from me. This motorcylist eventually had his vehicle repaired and proceeded to ride it for six more months until he sold the machine. So there.
We all had different thoughts about this, I suppose. I was lost in thought about why they had survived, and imagined that not being knocked unconscious meant that they had not hit their heads. Heavily muscled men like this were probably cushioned by their muscles; a skinny little bony nerd would have been much more smashed up. The negative side of that protection came out in hearing them both describe their heart problems, with by-pass surgery and whatnot later on in life. That's probably the negative side of their muscularity. Neither man smoked, but I bet they both did at one time.
As we strolled home from the pizza joint, it occurred to someone that the national political conventions were on television that evening. The women were fighting with the blacks. The studious nerds were silent; the wild men merely grunted. That didn't seem like something to fight about, or even to comment on.
As I walked into the darkness, I wondered if such a conversation would seem normal in any other city in the world.
|Philadelphia VA Medical Center Home|
At a recent meeting of the Right Angle Club, Stephen C. Bennett an administrator, and Alix Esposito a social worker, kindly addressed the club about the Veterans Hospital where they work. The federal government pushes its mass produced products into every city, but gradually a local flavor starts to creep in; how this process works is illustrated by the fact that Steve's grandfather Claude was once the manager of the Bellevue Stratford Hotel. The VA hospital may be a piece of Washington D.C. planted on Philadelphia soil, but Philadelphia will surely absorb it with the passage of enough time. The VA was once a part of the Veterans Administration, but now it is a part of Department of Veterans Affairs, run by a cabinet Secretary, no less. It's the second largest department of the federal government, and since the only bigger department is the Department of Defense, the combination of the two shows you how far we have come from the nation's original opposition to "standing armies". The fact that these two components of our war machine are separate, on the other hand, surely symbolizes some hidden tensions between our regular armed forces and the American Legion, or the hidden frictions between two congressional committees, or else some other mystery of bureaucratic politics.
The Veterans Administration was founded in 1930, the Philadelphia VA Hospital was built in 1950. Originally, it was designated as a Deans Hospital, signifying the intention to confer prestige and lessen friction with the medical schools. Originally, Philadelphia's VA was affiliated with several medical schools, but in time its proximity to the University of Pennsylvania led to the elimination of ties with other schools. Although the bed capacity is growing in reaction to America's successive wars, its open wards converted after 1960 to more semi-private style, and its focus of medical activity shifting with changes in medical science, the VA remains isolated from the rest of the city and the rest of Philadelphia medicine. Part of this is physical; the hospital is confined by the University of Pennsylvania, the parking complex next to the Amtrak line, and the Woodland Cemetery, so there is little room to grow. And comparatively little commonality with the neighbors. There are 2000 employees and a $30 million budget, marooned in a sea of automobile traffic going elsewhere in a big hurry, too big to ignore but too small to influence the local culture.
The patients are distinctly different from those you find in other hospitals. There is a great deal of chronic mental disorder, a heavy influence of alcohol and substance abuse and rehabilitation, and even some residential apartments for patients. On a national level, between a third and a half of homeless people are veterans, but for some reason in Philadelphia, only a tenth of the homeless are veterans. During the Vietnam War, the system of draft avoidance through educational exemptions resulted in that generation of veterans coming from an unusual concentration of low income and low educational subgroups. The system of government pensions and promotions tend to retain employees in the system for a lifetime. It's true that informal transfer arrangements allow a certain amount of migration to Florida (in the winter), or Maine (in the summer), or California (to see what LaLa land is all about), but those who do this stay within the VA system. Consequently, the interchange of ideas and techniques that professionals carry with them between hospitals is curtailed, confined somewhat to variations within the VA system, conforming to its social norms. An archipelago, although not exactly a gulag archipelago.
But by far the greatest source of distinctiveness in the VA hospitals comes from the byzantine eligibility standards for the patients. The reimbursement systems of Medicare, private insurance -- which more or less copy each other -- changed around 1988 in a way that more or less eliminated psychiatric inpatient care in the community, especially if it lasts more than a month. The VA, on the other hand, was forced by circumstances to increase its attention to this area. Consequently, all social workers everywhere inquire immediately whether an addict or a schizophrenic might be a veteran. A differential sorting process quickly gets under way, with the VA as the preferred place to send such patients if at all possible. Non-veteran victims of the same conditions tend to have a worsened time of it, because the pressure on state and local governments to make some provision, has been relieved.
|Walter Reed Hospital|
At the other extreme, the social elite of the armed forces are not admitted, either. President Eisenhower was unquestionably a veteran, but he had his famous hospitalizations at Walter Reed Hospital. There's an income limit for VA admission, which automatically cuts off 20-year veterans above a certain rank, possibly major. And there are overlapping disability classifications for military hospitals and veterans facilities, with considerable latitude available to uniformed boards of three serving officers, only one of whom is a physician. The result is a general perception that if you have any influence at all, you can generally avoid the VA and be treated in a military hospital, probably in a VIP unit. Good for them; I'd take advantage of it if I had a chance, too. But by siphoning off the top brass, a lot of pressure to improve quality is removed as well. If a VA hospital had eight or ten Admirals and Generals as patients, with academy classmates coming to visit, it's safe to assume that courtesy, orderliness and cleanliness would instantly improve. And take it from me, the quality of care would improve, as well.
WHILE we debated in 2010 whether to disregard what could be afforded, and provide sickness care to all, the idea subtly changed to providing "health care" for all. That is, the proposal was not merely to expand sickness care to everyone, it included an indefinite expansion of what everyone would get, and who would provide it. Medical care is provided by physicians, sickness care is provided by doctors, nurses and hospitals, and healthcare is provided by a much larger undefined group of "providers". No wonder it costs more, and therefore a surprising number of people are unsure they do want all of it. It's almost a certainty that most people do not want to lose control of this definition, at least if it is to apply to them, personally. The issue centers on "healthcare" versus sickness care". How's that, again?
Preventive Health Care poses unique issues for seniors.
For example, the notion that preventing disease is superior to treating disease, goes back at least to Benjamin Franklin. Arguing that the Pennsylvania Legislature ought to help build the nation's first hospital, Franklin offered the truism that it saves money in the long run to treat people early and get them back to work. Franklin could hardly have foreseen that it isn't always true. Preventive medicine implies it is cheaper to spend small amounts, possibly every year, for many people, than to spend large amounts for a few. It's a matter of arithmetic, of course, and doesn't always have the same answer. When the math works against a preventive approach, it's usually argued the gain in health is worth it; but that's not invariably the case, either. Once a person ceases to be an infant, the equation rebalances. And as an individual approaches end of life, his renunciation of what it takes to prolong life gathers more respect. It's a conflicted opinion, of course. Older people are outraged by any suggestion their lives do not deserve to be prolonged, but still outspokenly prefer to die rather than wear a colostomy bag, or a respirator, or be fed with a spoon. If they are Jehovah's Witnesses and refuse transfusions, that too, commands more respect when they are elderly. This is a familiar problem, not a new one. What's new is more subtle and pervasive.
The public probably does not fully appreciate the disappearance of what might be called capricious diseases, caused by the operation of chance, or God's will. These are fatal illnesses like heart attacks, strokes, epidemics, and other things not anyone's fault. Except for cancer and Alzheimer's Disease, most really common serious illnesses which remain, are to some extent self-inflicted. Smoking causes lung cancer, alcoholism causes accidents and homicides as well as cirrhosis of the liver, taking recreational drugs damages lives, unprotected sex causes HIV. Obesity causes hypertension and diabetes, neglecting your medicine undermines treatment. If this keeps up, we are going to see the day when every obituary will seem too shameful to print. Poor Jud is dead; it's his own fault.
It's maybe even worse than that.The 2000-page Obama care plan was too complicated for even the Congressional committees to understand. But the public was not hostile for technical reasons, the public was irked at the idea. All the President's celebration of saving money through mandatory preventive care provoked the public to tell him, Get off my back. Almost every smoker has tried at least once to quit, absolutely every obese person has repeatedly tried to lose weight unsuccessfully. It's hard, let's see you try it. And now it goes beyond nagging, we are going to take the position that every person with a self-inflicted disease is costing the nation money we can't afford. The country has a right to punish people who drive us to bankruptcy. Let's have some Wellness police, and fair but firm punishments. Is that really what Obama has in mind? Well, sir, you just get off my back.
Even so compliant and dutiful a person as my late wife declared that when she got to be seventy, she was going to try marijuana. The fact that she actually lived thirteen years longer without doing it, did not change her basic attitude. When you get to a certain age, many of the old rules don't apply to you, doggone it.