How American Health Care Killed My Father [LONG]

How American Health Care Killed My Father [LONG]
http://www.theatlantic.com/doc/200909/health-care

Almost two years ago, my father was killed by a hospital-borne infection
in the intensive-care unit of a well-regarded nonprofit hospital in New
York City. Dad had just turned 83, and he had a variety of the ailments
common to men of his age. But he was still working on the day he walked
into the hospital with pneumonia. Within 36 hours, he had developed
sepsis. Over the next five weeks in the ICU, a wave of secondary
infections, also acquired in the hospital, overwhelmed his defenses. My
dad became a statistic—merely one of the roughly 100,000 Americans whose
deaths are caused or influenced by infections picked up in hospitals.
One hundred thousand deaths: more than double the number of people
killed in car crashes, five times the number killed in homicides, 20
times the total number of our armed forces killed in Iraq and
Afghanistan. Another victim in a building American tragedy.

About a week after my father’s death, The New Yorker ran an article by
Atul Gawande profiling the efforts of Dr. Peter Pronovost to reduce the
incidence of fatal hospital-borne infections. Pronovost’s solution? A
simple checklist of ICU protocols governing physician hand-washing and
other basic sterilization procedures. Hospitals implementing Pronovost’s
checklist had enjoyed almost instantaneous success, reducing
hospital-infection rates by two-thirds within the first three months of
its adoption. But many physicians rejected the checklist as an
unnecessary and belittling bureaucratic intrusion, and many hospital
executives were reluctant to push it on them. The story chronicled
Pronovost’s travels around the country as he struggled to persuade
hospitals to embrace his reform.

It was a heroic story, but to me, it was also deeply unsettling. How was
it possible that Pronovost needed to beg hospitals to adopt an
essentially cost-free idea that saved so many lives? Here’s an industry
that loudly protests the high cost of liability insurance and the
injustice of our tort system and yet needs extensive lobbying to embrace
a simple technique to save up to 100,000 people.

And what about us—the patients? How does a nation that might close down
a business for a single illness from a suspicious hamburger tolerate the
carnage inflicted by our hospitals? And not just those 100,000 deaths.
In April, a Wall Street Journal story suggested that blood clots
following surgery or illness, the leading cause of preventable hospital
deaths in the U.S., may kill nearly 200,000 patients per year. How did
Americans learn to accept hundreds of thousands of deaths from minor
medical mistakes as an inevitability?

My survivor’s grief has taken the form of an obsession with our
health-care system. For more than a year, I’ve been reading as much as I
can get my hands on, talking to doctors and patients, and asking a lot
of questions.

Keeping Dad company in the hospital for five weeks had left me
befuddled. How can a facility featuring state-of-the-art diagnostic
equipment use less-sophisticated information technology than my local
sushi bar? How can the ICU stress the importance of sterility when its
trash is picked up once daily, and only after flowing onto the floor of
a patient’s room? Considering the importance of a patient’s frame of
mind to recovery, why are the rooms so cheerless and uncomfortable? In
whose interest is the bizarre scheduling of hospital shifts, so that a
five-week stay brings an endless string of new personnel assigned to a
patient’s care? Why, in other words, has this technologically advanced
hospital missed out on the revolution in quality control and customer
service that has swept all other consumer-facing industries in the past
two generations?

I’m a businessman, and in no sense a health-care expert. But the
persistence of bad industry practices—from long lines at the doctor’s
office to ever-rising prices to astonishing numbers of preventable
deaths—seems beyond all normal logic, and must have an underlying cause.
There needs to be a business reason why an industry, year in and year
out, would be able to get away with poor customer service, unaffordable
prices, and uneven results—a reason my father and so many others are
unnecessarily killed.

Like every grieving family member, I looked for someone to blame for my
father’s death. But my dad’s doctors weren’t incompetent—on the
contrary, his hospital physicians were smart, thoughtful, and
hard-working. Nor is he dead because of indifferent nursing—without
exception, his nurses were dedicated and compassionate. Nor from
financial limitations—he was a Medicare patient, and the issue of
expense was never once raised. There were no greedy pharmaceutical
companies, evil health insurers, or other popular villains in his
particular tragedy.

Indeed, I suspect that our collective search for villains—for someone to
blame—has distracted us and our political leaders from addressing the
fundamental causes of our nation’s health-care crisis. All of the actors
in health care—from doctors to insurers to pharmaceutical companies—work
in a heavily regulated, massively subsidized industry full of structural
distortions. They all want to serve patients well. But they also all
behave rationally in response to the economic incentives those
distortions create. Accidentally, but relentlessly, America has built a
health-care system with incentives that inexorably generate terrible and
perverse results. Incentives that emphasize health care over any other
aspect of health and well-being. That emphasize treatment over
prevention. That disguise true costs. That favor complexity, and
discourage transparent competition based on price or quality. That
result in a generational pyramid scheme rather than sustainable
financing. And that—most important—remove consumers from our
irreplaceable role as the ultimate ensurer of value.

These are the impersonal forces, I’ve come to believe, that explain why
things have gone so badly wrong in health care, producing the national
dilemma of runaway costs and poorly covered millions. The problems I’ve
explored in the past year hardly count as breakthrough
discoveries—health-care experts undoubtedly view all of them as old
news. But some experts, it seems, have come to see many of these
problems as inevitable in any health-care system—as conditions to be
patched up, papered over, or worked around, but not problems to be solved.

That’s the premise behind today’s incremental approach to health-care
reform. Though details of the legislation are still being negotiated,
its principles are a reprise of previous reforms—addressing access to
health care by expanding government aid to those without adequate
insurance, while attempting to control rising costs through centrally
administered initiatives. Some of the ideas now on the table may well be
sensible in the context of our current system. But fundamentally, the
“comprehensive” reform being contemplated merely cements in place the
current system—insurance-based, employment-centered, administratively
complex. It addresses the underlying causes of our health-care crisis
only obliquely, if at all; indeed, by extending the current system to
more people, it will likely increase the ultimate cost of true reform.

I’m a Democrat, and have long been concerned about America’s lack of a
health safety net. But based on my own work experience, I also believe
that unless we fix the problems at the foundation of our health
system—largely problems of incentives—our reforms won’t do much good,
and may do harm. To achieve maximum coverage at acceptable cost with
acceptable quality, health care will need to become subject to the same
forces that have boosted efficiency and value throughout the economy. We
will need to reduce, rather than expand, the role of insurance; focus
the government’s role exclusively on things that only government can do
(protect the poor, cover us against true catastrophe, enforce safety
standards, and ensure provider competition); overcome our addiction to
Ponzi-scheme financing, hidden subsidies, manipulated prices, and
undisclosed results; and rely more on ourselves, the consumers, as the
ultimate guarantors of good service, reasonable prices, and sensible
trade-offs between health-care spending and spending on all the other
good things money can buy.

These ideas stand well outside the emerging political consensus about
reform. So before exploring alternative policies, let’s reexamine our
basic assumptions about health care—what it actually is, how it’s
financed, its accountability to patients, and finally its relationship
to the eternal laws of supply and demand. Everyone I know has at least
one personal story about how screwed up our health-care system is;
before spending (another) $1trillion or so on reform, we need a much
clearer understanding of the causes of the problems we all experience.

Health Care Isn’t Health (Or Happiness)

“Money is honey,” my grandmother used to tell me, “but health is
wealth.” She said “health,” not “health care.” Listening to debates over
health-care reform, it is sometimes difficult to remember that there is
a difference.

Medical care, of course, is merely one component of our overall health.
Nutrition, exercise, education, emotional security, our natural
environment, and public safety may now be more important than care in
producing further advances in longevity and quality of life. (In 2005,
almost half of all deaths in the U.S. resulted from heart disease,
diabetes, lung cancer, homicide, suicide, and accidents—all of which are
arguably influenced as much by lifestyle choices and living environment
as by health care.) And of course even health itself is only one aspect
of personal fulfillment, alongside family and friends, travel,
recreation, the pursuit of knowledge and experience, and more.

Yet spending on health care, by families and by the government, is
crowding out spending on almost everything else. As a nation, we now
spend almost 18 percent of our GDP on health care. In 1966, Medicare and
Medicaid made up 1 percent of total government spending; now that figure
is 20 percent, and quickly rising. Already, the federal government
spends eight times as much on health care as it does on education, 12
times what it spends on food aid to children and families, 30 times what
it spends on law enforcement, 78 times what it spends on land management
and conservation, 87 times the spending on water supply, and 830 times
the spending on energy conservation. Education, public safety,
environment, infrastructure—all other public priorities are being slowly
devoured by the health-care beast.

It’s no different for families. From 2000 to 2008, the U.S. economy grew
by $4.4 trillion; of that growth, roughly one out of every four dollars
was spent on health care. Household expenditures on health care already
exceed those on housing. And health care’s share is growing.

By what mechanism does society determine that an extra, say, $100
billion for health care will make us healthier than even $10 billion for
cleaner air or water, or $25 billion for better nutrition, or $5 billion
for parks, or $10 billion for recreation, or $50 billion in additional
vacation time—or all of those alternatives combined?

The answer is, no mechanism at all. Health care simply keeps gobbling up
national resources, seemingly without regard to other societal needs;
it’s treated as an island that doesn’t touch or affect the rest of the
economy. As new tests and treatments are developed, they are, for the
most part, added to our Medicare or commercial insurance policies, no
matter what they cost. But of course the money must come from somewhere.
If the amount we spend on care had grown only at the general rate of
inflation since 1970, annual health-care costs now would be roughly
$5,000 less per American—that’s about 10 percent of today’s median
income, to invest for the future or to spend on all the other things
that contribute to our well-being. To be sure, our society has become
wealthier over the years, and we’d naturally want to spend some of this
new wealth on more and better health care; but how did we choose to
spend this much?

The housing bubble offers some important lessons for health-care policy.
The claim that something—whether housing or health care—is an
undersupplied social good is commonly used to justify government
intervention, and policy makers have long striven to make housing more
affordable. But by making housing investments eligible for special tax
benefits and subsidized borrowing rates, the government has stimulated
not only the construction of more houses but also the willingness of
people to borrow and spend more on houses than they otherwise would
have. The result is now tragically clear.

As with housing, directing so much of society’s resources to health care
is stimulating the provision of vastly more care. Along the way, it’s
also distorting demand, raising prices, and making us all poorer by
crowding out other, possibly more beneficial, uses for the resources now
air-dropped onto the island of health care. Why do we view health care
as disconnected from everything else? Why do we spend so much on it? And
why, ultimately, do we get such inconsistent results? Any discussion of
the ills within the system must begin with a hard look at the
tax-advantaged comprehensive-insurance industry at its center.

Health Insurance Isn’t Health Care

How often have you heard a politician say that millions of Americans
“have no health care,” when he or she meant they have no health
insurance? How has a method of financing health care become synonymous
with care itself?

The reason for financing at least some of our health care with an
insurance system is obvious. We all worry that a serious illness or an
accident might one day require urgent, extensive care, imposing an
extreme financial burden on us. In this sense, health-care insurance is
just like all other forms of insurance—life, property, liability—where
the many who face a risk share the cost incurred by the few who actually
suffer a loss.

But health insurance is different from every other type of insurance.
Health insurance is the primary payment mechanism not just for expenses
that are unexpected and large, but for nearly all health-care expenses.
We’ve become so used to health insurance that we don’t realize how
absurd that is. We can’t imagine paying for gas with our auto-insurance
policy, or for our electric bills with our homeowners insurance, but we
all assume that our regular checkups and dental cleanings will be
covered at least partially by insurance. Most pregnancies are planned,
and deliveries are predictable many months in advance, yet they’re
financed the same way we finance fixing a car after a wreck—through an
insurance claim.

Comprehensive health insurance is such an ingrained element of our
thinking, we forget that its rise to dominance is relatively recent.
Modern group health insurance was introduced in 1929, and employer-based
insurance began to blossom during World War II, when wage freezes
prompted employers to expand other benefits as a way of attracting
workers. Still, as late as 1954, only a minority of Americans had health
insurance. That’s when Congress passed a law making employer
contributions to employee health plans tax-deductible without making the
resulting benefits taxable to employees. This seemingly minor tax
benefit not only encouraged the spread of catastrophic insurance, but
had the accidental effect of making employer-funded health insurance the
most affordable option (after taxes) for financing pretty much any type
of health care. There was nothing natural or inevitable about the way
our system developed: employer-based, comprehensive insurance crowded
out alternative methods of paying for health-care expenses only because
of a poorly considered tax benefit passed half a century ago.

In designing Medicare and Medicaid in 1965, the government essentially
adopted this comprehensive-insurance model for its own spending, and by
the next year had enrolled nearly 12 percent of the population. And it
is no coinci­dence that the great inflation in health-care costs began
soon after. We all believe we need comprehensive health insurance
because the cost of care—even routine care—appears too high to bear on
our own. But the use of insurance to fund virtually all care is itself a
major cause of health care’s high expense.

Insurance is probably the most complex, costly, and distortional method
of financing any activity; that’s why it is otherwise used to fund only
rare, unexpected, and large costs. Imagine sending your weekly grocery
bill to an insurance clerk for review, and having the grocer reimbursed
by the insurer to whom you’ve paid your share. An expensive and wasteful
absurdity, no?

Is this really a big problem for our health-care system? Well, for every
two doctors in the U.S., there is now one health-insurance employee—more
than 470,000 in total. In 2006, it cost almost $500 per person just to
administer health insurance. Much of this enormous cost would simply
disappear if we paid routine and predictable health-care expenditures
the way we pay for everything else—by ourselves.

The Moral-Hazard Economy

Society’s excess cost from health insurance’s administrative expense
pales next to the damage caused by “moral hazard”—the tendency we all
have to change our behavior, becoming spendthrifts and otherwise taking
less care with our decisions, when someone else is covering the costs.
Needless to say, much medical care is unavoidable; we don’t choose to
become sick, nor do we seek more treatment than we think we need. Still,
hospitals, drug companies, health insurers, and medical-device
manufacturers now spend roughly $6 billion a year on advertising. If the
demand for health care is purely a response to unavoidable medical need,
why do these companies do so much advertising?

Medical ads on TV typically inform the viewer that a specific
treatment—a drug, device, surgical procedure—is available for a chronic
condition. Many also note that the product or treatment is eligible for
Medicare or private-insurance reimbursement. In some cases, the
advertiser will offer to help the patient obtain that reimbursement. The
key message: you can benefit from this product and pass the bill on to
someone else.

Every time you walk into a doctor’s office, it’s implicit that someone
else will be paying most or all of your bill; for most of us, that means
we give less attention to prices for medical services than we do to
prices for anything else. Most physicians, meanwhile, benefit
financially from ordering diagnostic tests, doing procedures, and
scheduling follow-up appointments. Combine these two features of the
system with a third—the informational advantage that extensive training
has given physicians over their patients, and the authority that
advantage confers—and you have a system where physicians can, to some
extent, generate demand at will.

Do they? Well, Medicare spends almost twice as much per patient in
Dallas, where there are more doctors and care facilities per resident,
as it does in Salem, Oregon, where supply is tighter. Why? Because
doctors (particularly specialists) in surplus areas order more tests and
treatments per capita, and keep their practices busy. Many studies have
shown that the patients in areas like Dallas do not benefit in any
measurable way from all this extra care. All of the physicians I know
are genuinely dedicated to their patients. But at the margin, all of us
are at least subconsciously influenced by our own economic interests.
The data are clear: in our current system, physician supply often begets
patient demand.

Moral hazard has fostered an accidental collusion between providers
benefiting from higher costs and patients who don’t fully bear them. In
this environment, trying to control costs is awfully tough. When
Medicare cut reimbursement rates in 2005 on chemotherapy and anemia
drugs, for instance, it saved almost 20 percent of the previously billed
costs. But Medicare’s total cancer-treatment costs actually rose almost
immediately. As The New York Times reported, some physicians believed
their colleagues simply performed more treatments, particularly
higher-profit ones.

Want further evidence of moral hazard? The average insured American and
the average uninsured American spend very similar amounts of their own
money on health care each year—$654 and $583, respectively. But they
spend wildly different amounts of other people’s money—$3,809 and
$1,103, respectively. Sometimes the uninsured do not get highly
beneficial treatments because they cannot afford them at today’s
prices—something any reform must address. But likewise, insured patients
often get only marginally beneficial (or even outright unnecessary) care
at mind-boggling cost. If it’s true that the insurance system leads us
to focus on only our direct share of costs—rather than the total cost to
society—it’s not surprising that insured families and uninsured ones
would make similar decisions as to how much of their own money to spend
on care, but very different decisions on the total amount to consume.

The unfortunate fact is, health-care demand has no natural limit. Our
society will always keep creating new treatments to cure previously
incurable problems. Some of these will save lives or add productive
years to them; many will simply make us more comfortable. That’s all to
the good. But the cost of this comfort, and whether it’s really
worthwhile, is never calculated—by anyone. For almost all our
health-care needs, the current system allows us as consumers to ask
providers, “What’s my share?” instead of “How much does this cost?”—a
question we ask before buying any other good or service. And the subtle
difference between those two questions is costing us all a fortune.

There’s No One Else to Pay the Bill

Perhaps the greatest problem posed by our health-insurance-driven regime
is the sense it creates that someone else is actually paying for most of
our health care—and that the costs of new benefits can also be borne by
someone else. Unfortunately, there is no one else.

For fun, let’s imagine confiscating all the profits of all the famously
greedy health-insurance companies. That would pay for four days of
health care for all Americans. Let’s add in the profits of the 10
biggest rapacious U.S. drug companies. Another 7 days. Indeed,
confiscating all the profits of all American companies, in every
industry, wouldn’t cover even five months of our health-care expenses.

Somebody else always seems to be paying for at least part of our health
care. But that’s just an illusion. At $2.4 trillion and growing, our
nation’s health-care bill is too big to be paid by anyone other than all
of us.

In 2007, employer-based health insurance cost, on average, more than
$12,000 per family, up 78 percent since 2001. I’ve run several companies
and company divisions of various sizes over the course of my career, so
I can confidently tell you that raises (and even entry-level hiring) are
tightly limited by rising health-care costs. You may think your employer
is paying for your health care, but in fact your company’s share of the
insurance premium comes out of your potential wage increase. Where else
could it come from?

Let’s say you’re a 22-year-old single employee at my company today,
starting out at a $30,000 annual salary. Let’s assume you’ll get married
in six years, support two children for 20 years, retire at 65, and die
at 80. Now let’s make a crazy assumption: insurance premiums, Medicare
taxes and premiums, and out-of-pocket costs will grow no faster than
your earnings—say, 3 percent a year. By the end of your working days,
your annual salary will be up to $107,000. And over your lifetime, you
and your employer together will have paid $1.77 million for your
family’s health care. $1.77 million! And that’s only after assuming the
taming of costs! In recent years, health-care costs have actually grown
2 to 3 percent faster than the economy. If that continues, your
22-year-old self is looking at an additional $2 million or so in
expenses over your lifetime—roughly $4 million in total.

Would you have guessed these numbers were so large? If not, you have
good cause: only a quarter would be paid by you directly (and much of
that after retirement). The rest would be spent by others on your
behalf, deducted from your earnings before you received your paycheck.
And that’s a big reason why our health-care system is so expensive.

The Government Is Not Good at Cost Reduction

Every proposal for health-care reform has featured some element of cost
control to “balance” the inflationary impact of expanding access. Yet it
goes without saying that in the big picture, all government efforts to
control costs have failed.

Why? One reason is a fixation on prices rather than costs. The
government regularly tries to cap costs by limiting the reimbursement
rates paid to providers by Medicare and Medicaid, and generally pays
much less for each service than private insurers. But as we’ve seen,
that can lead providers to perform more services, and to steer patients
toward higher-priced, more lightly regulated treatments. The
government’s efforts to expand “access” to care while limiting costs are
like blowing up a balloon while simultaneously squeezing it. The balloon
continues to inflate, but in misshapen form.

Cost control is a feature of decentralized, competitive markets, not of
centralized bureaucracy—a matter of incentives, not mandates. What’s
more, cost control is dynamic. Even the simplest business faces constant
variation in its costs for labor, facilities, and capital; to compete,
management must react quickly, efficiently, and, most often,
prospectively. By contrast, government bureaucracies set regulations and
reimbursement rates through carefully evaluated and broadly applied
rules. These bureaucracies first must notice market changes and resource
misallocations, and then (sometimes subject to political considerations)
issue additional regulations or change reimbursement rates to address
each problem retrospectively.

As a result, strange distortions crop up constantly in health care. For
example, although the population is rapidly aging, we have few
geriatricians—physicians who address the cluster of common patient
issues related to aging, often crossing traditional specialty lines.
Why? Because under Medicare’s current reimbursement system (which
generally pays more to physicians who do lots of tests and procedures),
geriatricians typically don’t make much money. If seniors were the true
customers, they would likely flock to geriatricians, bidding up their
rates—and sending a useful signal to medical-school students. But
Medicare is the real customer, and it pays more to specialists in
established fields. And so, seniors often end up overusing specialists
who are not focused on their specific health needs.

Many reformers believe if we could only adopt a single-payer system, we
could deliver health care more cheaply than we do today. The experience
of other developed countries suggests that’s true: the government as
single payer would have lower administrative costs than private
insurers, as well as enormous market clout and the ability to bring down
prices, although at the cost of explicitly rationing care.

But even leaving aside the effects of price controls on innovation and
customer service, today’s Medicare system should leave us skeptical
about the long-term viability of that approach. From 2000 to 2007,
despite its market power, Medicare’s hospital and physician
reimbursements per enrollee rose by 5.4 percent and 8.5 percent,
respectively, per year. As currently structured, Medicare is a Ponzi
scheme. The Medicare tax rate has been raised seven times since its
enactment, and almost certainly will need to be raised again in the next
decade. The Medicare tax contributions and premiums that today’s
beneficiaries have paid into the system don’t come close to fully
funding their care, which today’s workers subsidize. The subsidy is
getting larger even as it becomes more difficult to maintain: next year
there will be 3.7 working people for each Medicare beneficiary; if
you’re in your mid-40s today, there will be only 2.4 workers to
subsidize your care when you hit retirement age. The experience of other
rich nations should also make us skeptical. Whatever their histories,
nearly all developed countries are now struggling with rapidly rising
health-care costs, including those with single-payer systems. From 2000
to 2005, per capita health-care spending in Canada grew by 33 percent,
in France by 37 percent, in the U.K. by 47 percent—all comparable to the
40 percent growth experienced by the U.S. in that period. Cost control
by way of bureaucratic price controls has its limits.

Uncompetitive

In 2007, health companies in the Fortune 1,000 earned $71 billion. Of
the 52 industries represented on Fortune’s list, pharmaceuticals and
medical equipment ranked third and fourth, respectively, in terms of
profits as a share of revenue. From 2000 to 2007, the annual profits of
America’s top 15 health-insurance companies increased from $3.5 billion
to $15 billion.

In competitive markets, high profits serve an important social purpose:
encouraging capital to flow to the production of a service not
adequately supplied. But as long as our government shovels ever-greater
resources into health care with one hand, while with the other
restricting competition that would ensure those resources are used
efficiently, sustained high profits will be the rule.

Health care is an exceptionally heavily regulated industry.
Health-insurance companies are regulated by states, which limits
interstate competition. And many of the materials, machines, and even
software programs used by health-care facilities must be licensed by
state or federal authorities, or approved for use by Medicare; these
requirements form large barriers to entry for both new facilities and
new vendors that could equip and supply them.

Many health-care regulations are justified as safety precautions. But
many also result from attempts to redress the distortions that our
system of financing health care has created. And whatever their purpose,
almost all of these regulations can be shaped over time by the powerful
institutions that dominate the health-care landscape, and that are often
looking to protect themselves from competition.

Take the ongoing battle between large integrated hospitals and specialty
clinics (for cardiac surgery, orthopedics, maternity, etc.). The
economic threat posed by these facilities is well illustrated by a
recent battle in Loma Linda, California. When a group of doctors
proposed a 28-bed private specialty facility, the local hospitals
protested to the city council that it was unnecessary, and launched a
publicity campaign to try to block it; the council backed the facility
anyway. So the nonprofit Loma Linda University Medical Center simply
bought the new facility for $80 million in 2008. Traditional hospitals
got Congress to include an 18-month moratorium on new specialty
hospitals in the 2003 Medicare law, and a second six-month ban in 2005.

The hospitals’ argument has some merit: less complicated surgical cases
(the kind specialty clinics typically take on) tend to be more
profitable than complex surgeries and nonsurgical admissions. Without
those profitable cases, hospitals can’t subsidize the cases on which
they lose money. But why are simple surgeries more profitable? Because
of the nonmarket methods by which Medicare sets prices.

The net effect of the endless layers of health-care regulation is to
stifle competition in the classic economic sense. What we have instead
is a noncompetitive system where services and reimbursement are
negotiated above consumers’ heads by large private and government
institutions. And the primary goal of any large noncompetitive
institution is not cost control or product innovation or customer
service: it’s maintenance of the status quo.

Our Favored Hospitals

In 1751, Benjamin Franklin and Dr. Thomas Bond founded Pennsylvania
Hospital, the first in America, “to care for the sick-poor and insane
who were wandering the streets of Philadelphia.” Since then, hospitals
have come to dominate the American medical landscape. Yet in recent
decades, the rationale for concentrating so much care under one roof has
diminished steadily. Many hospitals still exist in their current form
largely because they are protected by regulation and favored by
government payment policies, which effectively maintain the existing
industrial structure, rather than encouraging innovation.

Between 1970 and 2006, annual Medicare payments to hospitals grew by
roughly 3,800 percent, from $5 billion to $192 billion. Total annual
hospital-care costs for all patients grew from $28 billion to almost
$650 billion during that same period. Since 1975, hospitals’ enormous
revenue growth has occurred despite a 35 percent decline in the number
of hospital beds, no meaningful increase in total admissions, and an
almost 50 percent decline in the average length of stay. High-tech
equipment has been dispersed to medical practices, recovery periods
after major procedures have shrunk, and pharmaceutical therapies have
grown in importance, yet over the past 40 years, hospitals have managed
to retain the same share (roughly one-third) of our nation’s health-care
bill.

Hospitals have sought to use the laws and regulations originally
designed to serve patients to preserve their business model. Their
argument is the same one that’s been made before by regulated railroads,
electric utilities, airlines, Ma Bell, and banks: new competitors, they
say, are using their cost advantages to skim off the best customers;
without those customers, the incumbents will no longer be able to
subsidize essential services that no one can profitably provide to the
public.

Hospitals are indeed required to provide emergency care to any walk-in
patient, and this obligation is a meaningful public service. But how do
we know whether the charitable benefit from this requirement justifies
the social cost of expensive hospital care and poor quality? We don’t
know. Our system of health-care law and regulation has so distorted the
functioning of the market that it’s impossible to measure the social
costs and benefits of maintaining hospitals’ prominence. And again, the
distortions caused by a reluctance to pay directly for health care—in
this case, emergency medicine for the poor—are in large part to blame.

Consider the oft-quoted “statistic” that emergency-room care is the most
expensive form of treatment. Has anyone who believes this ever actually
been to an emergency room? My sister is an emergency-medicine physician;
unlike most other specialists, ER docs usually work on scheduled shifts
and are paid fixed salaries that place them in the lower ranks of
physician compensation. The doctors and other workers are hardly
underemployed: typically, ERs are unbelievably crowded. They have access
to the facilities and equipment of the entire hospital, but require very
few dedicated resources of their own. They benefit from the group buying
power of the entire institution. No expensive art decorates the walls,
and the waiting rooms resemble train-station waiting areas. So what
exactly makes an ER more expensive than other forms of treatment?

Perhaps it’s the accounting. Since charity care, which is often
performed in the ER, is one justification for hospitals’ protected place
in law and regulation, it’s in hospitals’ interest to shift costs from
overhead and other parts of the hospital to the ER, so that the costs of
charity care—the public service that hospitals are providing—will appear
to be high. Hospitals certainly lose money on their ERs; after all, many
of their customers pay nothing. But to argue that ERs are costly
compared with other treatment options, hospitals need to claim expenses
well beyond the marginal (or incremental) cost of serving ER patients.

In a recent IRS survey of almost 500 nonprofit hospitals, nearly 60
percent reported providing charity care equal to less than 5 percent of
their total revenue, and about 20 percent reported providing less than 2
percent. Analyzing data from the American Hospital Directory, The Wall
Street Journal found that the 50 largest nonprofit hospitals or hospital
systems made a combined “net income” (that is, profit) of $4.27 billion
in 2006, nearly eight times their profits five years earlier.

How do we know whether the value of hospitals’ charitable services
compensates for the roughly 100,000 deaths from hospital-borne disease,
their poor standards of customer service, and their extraordinary
diseconomies of both scale and scope? Might we be better off reforming
hospitals, and allowing many of them to be eliminated by competition
from specialty clinics? As a society, couldn’t we just pay directly for
the services required by the poor? We don’t know how many hospitals
would even survive if they were not so favored under the law; anyone who
has lost a loved one to a preventable hospital death will wonder how
many should.

You Are Not the Customer

What amazed me most during five weeks in the ICU with my dad was the
survival of paper and pen for medical instructions and histories. In
that time, Dad was twice taken for surgical procedures intended for
other patients (fortunately interrupted both times by our intervention).
My dry cleaner uses a more elaborate system to track shirts than this
hospital used to track treatment.

Not every hospital relies on paper-based orders and charts, but most
still do. Why has adoption of clinical information technology been so
slow? Companies invest in IT to reduce their costs, reduce mistakes
(itself a form of cost-saving), and improve customer service. Better
information technology would have improved my father’s experience in the
ICU—and possibly his chances of survival.

But my father was not the customer; Medicare was. And although Medicare
has experimented with new reimbursement approaches to drive better
results, no centralized reimbursement system can be supple enough to
address the many variables affecting the patient experience. Certainly,
Medicare wasn’t paying for the quality of service during my dad’s
hospital stay. And it wasn’t really paying for the quality of his care,
either; indeed, because my dad got sepsis in the hospital, and had to
spend weeks there before his death, the hospital was able to charge a
lot more for his care than if it had successfully treated his pneumonia
and sent him home in days.

Of course, one area of health-related IT has received substantial
investment—billing. So much for the argument, often made, that privacy
concerns or a lack of agreed-upon standards has prevented the
development of clinical IT or electronic medical records; presumably, if
lack of privacy or standards had hampered the digitization of health
records, it also would have prevented the digitization of the
accompanying bills. To meet the needs of the government bureaucracy and
insurance companies, most providers now bill on standardized electronic
forms. In case you wonder who a care provider’s real customer is, try
reading one of these bills.

For that matter, try discussing prices with hospitals and other
providers. Eight years ago, my wife needed an MRI, but we did not have
health insurance. I called up several area hospitals, clinics, and
doctors’ offices—all within about a one-mile radius—to find the best
price. I was surprised to discover that prices quoted, for an identical
service, varied widely, and that the lowest price was $1,200. But what
was truly astonishing was that several providers refused to quote any
price. Only if I came in and actually ordered the MRI could we discuss
price.

Several years later, when we were preparing for the birth of our second
child, I requested the total cost of the delivery and related procedures
from our hospital. The answer: the hospital discussed price only with
uninsured patients. What about my co-pay? They would discuss my
potential co-pay only if I were applying for financial assistance.

Keeping prices opaque is one way medical institutions seek to avoid
competition and thereby keep prices up. And they get away with it in
part because so few consumers pay directly for their own care—insurers,
Medicare, and Medicaid are basically the whole game. But without
transparency on prices—and the related data on measurable
outcomes—efforts to give the consumer more control over health care have
failed, and always will.

Here’s a wonderful example of price opacity. Advocates for the uninsured
complain that hospitals charge uninsured patients, on average, 2.5 times
the amount charged to insured patients. Hospitals defend themselves by
contending that they earn from uninsured patients only 25 percent of the
amount they do from insured ones. Both statements appear to be true!

How is this possible? Well, hospitals bill according to their price
lists, but provide large discounts to major insurers. Individual
consumers, of course, don’t benefit from these discounts, so they
receive their bills at full list price (typically about 2.5 times the
bill to an insured patient). Uninsured patients, however, pay according
to how much of the bill the hospital believes they can afford (which, on
average, amounts to 25 percent of the amount paid by an insured
patient). Nonetheless, whatever discount a hospital gives to an
uninsured patient is entirely at its discretion—and is typically
negotiated only after the fact. Some uninsured patients have been driven
into bankruptcy by hospital collections. American industry may offer no
better example of pernicious “price discrimination,” nor one that
entails greater financial vulnerability for American families.

It’s astonishingly difficult for consumers to find any health-care
information that would enable them to make informed choices—based not
just on price, but on quality of care or the rate of preventable medical
errors. Here’s one place where legal requirements might help. But only a
few states require institutions to make this sort of information public
in a usable form for consumers. So while every city has numerous
guidebooks with reviews of schools, restaurants, and spas, the public is
frequently deprived of the necessary data to choose hospitals and other
providers.

The Strange Beast of Health-Care Technology

One of the most widely held pieces of conventional wisdom about health
care is that new technology is relentlessly driving up costs. Yet over
the past 20 years, I’ve bought several generations of microwave ovens,
personal computers, DVD players, GPS devices, mobile phones, and
flat-screen TVs. I bank mostly at ATMs, check out my own goods at
self-serve supermarket scanners, and attend company meetings by
video­conference. Technology has transformed much of our daily lives, in
almost all cases by adding quantity, speed, and quality while lowering
costs. So why is health care different?

Well, for the most part, it isn’t. Whether it’s new drugs to control
previously untreatable conditions, diagnostic equipment that enhances
physician productivity, or minimally invasive techniques that speed
patient recovery, technology-driven innovation has been transforming
care at least as greatly as it has transformed the rest of our lives.

But most health-care technologies don’t exist in the same world as other
technologies. Recall the MRI my wife needed a few years ago: $1,200 for
20 minutes’ use of a then 20-year-old technology, requiring a little
electricity and a little labor from a single technician and a
radiologist. Why was the price so high? Most MRIs in this country are
reimbursed by insurance or Medicare, and operate in the
limited-competition, nontransparent world of insurance pricing. I don’t
even know the price of many of the diagnostic services I’ve needed over
the years—usually I’ve just gone to whatever provider my physician
recommended, without asking (my personal contribution to the
moral-hazard economy).

By contrast, consider LASIK surgery. I still lack the (small amount of)
courage required to get LASIK. But I’ve been considering it since it was
introduced commercially in the 1990s. The surgery is seldom covered by
insurance, and exists in the competitive economy typical of most other
industries. So people who get LASIK surgery—or for that matter most
cosmetic surgeries, dental procedures, or other mostly uninsured
treatments—act like consumers. If you do an Internet search today, you
can find LASIK procedures quoted as low as $499 per eye—a decline of
roughly 80 percent since the procedure was introduced. You’ll also find
sites where doctors advertise their own higher-priced surgeries (which
more typically cost about $2,000 per eye) and warn against the dangers
of discount LASIK. Many ads specify the quality of equipment being used
and the performance record of the doctor, in addition to price. In other
words, there’s been an active, competitive market for LASIK surgery of
the same sort we’re used to seeing for most goods and services.

The history of LASIK fits well with the pattern of all capital-intensive
services outside the health-insurance economy. If you’re one of the
first ophthalmologists in your community to perform the procedure, you
can charge a high price. But once you’ve acquired the machine, the
actual cost of performing a single procedure (the marginal cost) is
relatively low. So, as additional ophthalmologists in the neighborhood
invest in LASIK equipment, the first provider can meet new competition
by cutting price. In a fully competitive marketplace, the procedure’s
price will tend toward that low marginal cost, and ophthalmologists
looking to buy new machines will exert downward pressure on both
equipment and procedure prices.

No business likes to compete solely on price, so most technology
providers seek to add features and performance improvements to new
generations of a machine—anything to keep their product from becoming a
pure commodity. Their success depends on whether the consumers will pay
enough for the new feature to justify its introduction. In most consumer
industries, we can see this dynamic in action—observe how DVD players
have moved in a few years from a high-priced luxury to a disposable
commodity available at discount stores. DVD players have run out of new
features for which customers will pay premium prices.

Perhaps MRIs have too. After a long run of high and stable prices, you
can now find ads for discount MRIs. But because of the peculiar way we
pay for health care, this downward price pressure on technology seems
less vigorous. How well can insurance companies and government agencies
judge the value of new features that tech suppliers introduce to keep
prices up? Rather than blaming technology for rising costs, we must ask
if moral hazard and a lack of discipline in national health-care
spending allows health-care companies to avoid the forces that make
nonmedical technology so competitive.

In 2002, the U.S. had almost six times as many CT scanners per capita as
Germany and four times as many MRI machines as the U.K. Traditional
reformers believe it is this rate of investment that has pushed up
prices, rather than sustained high prices that have pushed up
investment. As a result, many states now require hospitals to obtain a
Certificate of Need before making a major equipment purchase. In its own
twisted way, this makes sense: moral hazard, driven by insurance, for
years allowed providers to create enough demand to keep new MRI machines
humming at any price.

But Certificates of Need are just another Scotch-tape reform, an effort
to maintain the current system by treating a symptom rather than the
underlying disease. Technology is driving up the cost of health care for
the same reason every other factor of care is driving up the cost—the
absence of the forces that discipline and even drive down prices in the
rest of our economy. Only in the bizarre parallel universe of health
care could limiting supply be seen as a sensible approach to keeping
prices down.

The Limits of “Comprehensive” Health-care Reform

A wasteful insurance system; distorted incentives; a bias toward
treatment; moral hazard; hidden costs and a lack of transparency; curbed
competition; service to the wrong customer. These are the problems at
the foundation of our health-care system, resulting in a slow rot and
requiring more and more money just to keep the system from collapsing.

How would the health-care reform that’s now taking shape solve these
core problems? The Obama administration and Congress are still working
out the details, but it looks like this generation of “comprehensive”
reform will not address the underlying issues, any more than previous
efforts did. Instead it will put yet more patches on the walls of an
edifice that is fundamentally unsound—and then build that edifice higher.

A central feature of the reform plan is the expansion of comprehensive
health insurance to most of the 46 million Americans who now lack
private or public insurance. Whether this would be achieved entirely
through the extension of private commercial insurance at
government-subsidized rates, or through the creation of a “public
option,” perhaps modeled on Medicare, is still being debated.

Regardless, the administration has suggested a cost to taxpayers of $1
trillion to $1.5 trillion over 10 years. That, of course, will mean
another $1 trillion or more not spent on other things—environment,
education, nutrition, recreation. And if the history of previous
attempts to expand the health safety net are any guide, that estimate
will prove low.

The reform plan will also feature a variety of centrally administered
initiatives designed to reduce costs and improve quality. These will
likely include a major government investment to promote digitization of
patient health records, an effort to collect information on best
clinical practices, and changes in the way providers are paid, to better
reward quality and deter wasteful spending.

All of these initiatives have some theoretical appeal. And within the
confines of the current system, all may do some good. But for the most
part, they simply do not address the root causes of poor quality and
runaway costs.

Consider information technology, for instance. Of course the health
system could benefit from better use of IT. The Rand Corporation has
estimated that the widespread use of electronic medical records would
eventually yield annual savings of $81 billion, while also improving
care and reducing preventable deaths, and the White House estimates that
creating and spreading the technology would cost just $50 billion. But
in what other industry would an investment with such a massive annual
return not be funded by the industry itself? (And while $50 billion may
sound like a big investment, it’s only about 2 percent of the
health-care industry’s annual revenues.)

Technology is effective only when it’s properly applied. Since most
physicians and health-care companies haven’t adopted electronic medical
records on their own, what makes us think they will appropriately use
all this new IT? Most of the benefits of the technology (record
portability, a reduction in costly and dangerous clinical errors) would
likely accrue to patients, not providers. In a consumer-facing industry,
this alone would drive companies to make the investments to stay
competitive. But of course, we patients aren’t the real customers;
government funding of electronic records wouldn’t change that.

I hope that whatever reform is finally enacted this fall
works—preventing people from slipping through the cracks, raising the
quality standard of the health-care industry, and delivering all this at
acceptable cost. But looking at the big picture, I fear it won’t. So I
think we should at least begin to debate and think about larger reforms,
and a different direction—if not for this round of reform, then for the
next one. Politics is, of course, the art of the possible. If our
health-care crisis does not abate, the possibilities for reform may
expand beyond their current, tight limits.

A Way Forward

The most important single step we can take toward truly reforming our
system is to move away from comprehensive health insurance as the single
model for financing care. And a guiding principle of any reform should
be to put the consumer, not the insurer or the government, at the center
of the system. I believe if the government took on the goal of better
supporting consumers—by bringing greater transparency and competition to
the health-care industry, and by directly subsidizing those who can’t
afford care—we’d find that consumers could buy much more of their care
directly than we might initially think, and that over time we’d see
better care and better service, at lower cost, as a result.

A more consumer-centered health-care system would not rely on a single
form of financing for health-care purchases; it would make use of
different sorts of financing for different elements of care—with routine
care funded largely out of our incomes; major, predictable expenses
(including much end-of-life care) funded by savings and credit; and
massive, unpredictable expenses funded by insurance.

For years, a number of reformers have advocated a more “consumer-driven”
care system—a term coined by the Harvard Business School professor
Regina Herzlinger, who has written extensively on the subject. Many
different steps could move us toward such a system. Here’s one approach
that—although it may sound radical—makes sense to me.

First, we should replace our current web of employer- and
government-based insurance with a single program of catastrophic
insurance open to all Americans—indeed, all Americans should be required
to buy it—with fixed premiums based solely on age. This program would be
best run as a single national pool, without underwriting for specific
risk factors, and would ultimately replace Medicare, Medicaid, and
private insurance. All Americans would be insured against catastrophic
illness, throughout their lives.

Proposals for true catastrophic insurance usually founder on the
definition of catastrophe. So much of the amount we now spend is
dedicated to problems that are considered catastrophic, the argument
goes, that a separate catastrophic system is pointless. A typical
catastrophic insurance policy today might cover any expenses above, say,
$2,000. That threshold is far too low; ultimately, a threshold of
$50,000 or more would be better. (Chronic conditions with expected
annual costs above some lower threshold would also be covered.) We might
consider other mechanisms to keep total costs down: the plan could be
required to pay out no more in any year than its available premiums, for
instance, with premium increases limited to the general rate of
inflation. But the real key would be to restrict the coverage to true
catastrophes—if this approach is to work, only a minority of us should
ever be beneficiaries.

How would we pay for most of our health care? The same way we pay for
everything else—out of our income and savings. Medicare itself is, in a
sense, a form of forced savings, as is commercial insurance. In place of
these programs and the premiums we now contribute to them, and along
with catastrophic insurance, the government should create a new form of
health savings account—a vehicle that has existed, though in imperfect
form, since 2003. Every American should be required to maintain an HSA,
and contribute a minimum percentage of post-tax income, subject to a
floor and a cap in total dollar contributions. The income percentage
required should rise over a working life, as wages and wealth typically do.

All noncatastrophic care should eventually be funded out of HSAs. But
account-holders should be allowed to withdraw money for any purpose,
without penalty, once the funds exceed a ceiling established for each
age, and at death any remaining money should be disbursed through
inheritance. Our current methods of health-care funding create a “use it
or lose it” imperative. This new approach would ensure that families put
aside funds for future expenses, but would not force them to spend the
funds only on health care.

What about care that falls through the cracks—major expenses (an
appendectomy, sports injury, or birth) that might exceed the current
balance of someone’s HSA but are not catastrophic? These should be
funded the same way we pay for most expensive purchases that confer
long-term benefits: with credit. Americans should be able to borrow
against their future contributions to their HSA to cover major health
needs; the government could lend directly, or provide guidelines for
private lending. Catastrophic coverage should apply with no deductible
for young people, but as people age and save, they should pay a steadily
increasing deductible from their HSA, unless the HSA has been exhausted.
As a result, much end-of-life care would be paid through savings.

Anyone with whom I discuss this approach has the same question: How am I
supposed to be able to afford health care in this system? Well, what if
I gave you $1.77 million? Recall, that’s how much an insured 22-year-old
at my company could expect to pay—and to have paid on his and his
family’s behalf—over his lifetime, assuming health-care costs are tamed.
Sure, most of that money doesn’t pass through your hands now. It’s
hidden in company payments for premiums, or in Medicare taxes and
premiums. But think about it: If you had access to those funds over your
lifetime, wouldn’t you be able to afford your own care? And wouldn’t you
consume health care differently if you and your family didn’t have to
spend that money only on care?

For lower-income Americans who can’t fund all of their catastrophic
premiums or minimum HSA contributions, the government should fill the
gap—in some cases, providing all the funding. You don’t think we spend
an absurd amount of money on health care? If we abolished Medicaid, we
could spend the same money to make a roughly $3,000 HSA contribution and
a $2,000 catastrophic-premium payment for 60 million Americans every
year. That’s a $12,000 annual HSA plus catastrophic coverage for a
low-income family of four. Do we really believe most of them wouldn’t be
better off?

Some experts worry that requiring people to pay directly for routine
care would cause some to put off regular checkups. So here’s a solution:
the government could provide vouchers to all Americans for a free
checkup every two years. If everyone participated, the annual cost would
be about $30 billion—a small fraction of the government’s current
spending on care.

Today, insurance covers almost all health-care expenditures. The few
consumers who pay from their pockets are simply an afterthought for most
providers. Imagine how things might change if more people were buying
their health care the way they buy anything else. I’m certain that all
the obfuscation over prices would vanish pretty quickly, and that we’d
see an end to unreadable bills. And that physicians, who spend an
enormous amount of time on insurance-related paperwork, would have more
time for patients.

In fact, as a result of our fraying insurance system, you can already
see some nascent features of a consumer-centered system. Since 2006,
Wal-Mart has offered $4 prescriptions for a month’s supply of common
generic medications. It has also been slowly rolling out retail clinics
for routine care such as physicals, blood work, and treatment for common
ailments like strep throat. Prices for each service are easily obtained;
most are in the neighborhood of $50 to $80. Likewise, “concierge care,”
or the “boutique” style of medical practice—in which physicians provide
unlimited services and fast appointments in return for a fixed monthly
or annual fee—is beginning to spread from the rich to the middle class.
Qliance Medical Group, for instance, now operates clinics serving some
3,000 patients in the Seattle and Tacoma, Washington, areas, charging
$49 to $79 a month for unlimited primary care, defined expansively.

It’s worth pausing over this last example. Many experts believe that the
U.S. would get better health outcomes at lower cost if payment to
providers were structured around the management of health or whole
episodes of care, instead of through piecemeal fees. Medicare and
private insurers have, to various degrees, moved toward (or at least
experimented with) these sorts of payments, and are continuing to do
so—but slowly, haltingly, and in the face of much obstruction by
providers. But aren’t we likely to see just these sorts of payment
mechanisms develop organically in a consumer-centered health-care
system? For simplicity and predictability, many people will prefer to
pay a fixed monthly or annual fee for primary or chronic care, and
providers will move to serve that demand.

Likewise, what patient, when considering getting an artificial hip,
would want to deal with a confusion of multiple bills from physicians,
facilities, and physical therapists? Aren’t providers likely to organize
themselves to provide a single price to the consumer for care and
rehabilitation? And won’t that, in itself, put pressure on providers to
work together as efficiently as possible, and to minimize the medical
errors that would eat into their joint fee? I suspect we would see a
rapid decline in the predominance of the fee-for-service model, making
way for real innovation and choice in service plans and funding. And the
payment system would not be set by fiat; it would remain responsive to
treatment breakthroughs and changes in consumer demand.

Many consumers would be able to make many decisions, unaided, in such a
system. But we’d also probably see the rise of health-care agents—paid
by, and responsible to, the consumer—to help choose providers and to act
as advocates during long and complex care episodes.

How else might the system change? Technological innovation—which is now
almost completely insensitive to costs, and which often takes the form
of slightly improved treatments for much higher prices—would begin to
concern itself with value, not just quality. Many innovations might
drive prices down, not up. Convenient, lower-cost specialty centers
might proliferate. The need for unpaid indigent care would go
away—everyone, recall, would have both catastrophic insurance and an
HSA, funded entirely by the government when necessary—and with it much
of the rationale for protecting hospitals against competition.

Of course, none of this would happen overnight. And the government has
an essential role to play in arming consumers with good information.
Congress should require maximum transparency on services, prices, and
results (and some elements of the Obama administration’s reform plan
would move the industry in this direction). We should establish a more
comprehensive system of quality inspection of all providers, and publish
all the findings. Safety and efficacy must remain the cornerstone of
government licensing, but regulatory bias should favor competition and
prevent incumbents from using red tape to forestall competition.

Moving from the system we’ve got now to the one I’ve outlined would be
complicated, and would take a long time. Most of us have been paying
into an insurance system for years, expecting that our future
health-care bills would be paid; we haven’t been saving separately for
these expenses. It would take a full generation to completely migrate
from relying on Medicare to saving for late-life care; from Medicaid for
the disadvantaged to catastrophic insurance and subsidized savings
accounts. Such a transition would require the slow reduction of Medicare
taxes, premiums, and benefit levels for those not yet eligible, and a
corresponding slow ramp-up in HSAs. And the national catastrophic plan
would need to start with much broader coverage and higher premiums than
the ultimate goal, in order to fund the care needed today by our aging
population. Nonetheless, the benefits of a consumer-centered
approach—lower costs for better service—should have early and large
dividends for all of us throughout the period of transition. The earlier
we start, the less a transition will ultimately cost.

Many experts oppose the whole concept of a greater role for consumers in
our health-care system. They worry that patients lack the necessary
knowledge to be good consumers, that unscrupulous providers will take
advantage of them, that they will overspend on low-benefit treatments
and under-spend on high-benefit preventive care, and that such waste
will leave some patients unable to afford highly beneficial care.

They are right, of course. Whatever replaces our current system will be
flawed; that’s the nature of health care and, indeed, of all human
institutions. Our current system features all of these problems
already—as does the one the Obama reforms would create. Because health
care is so complex and because each individual has a unique health
profile, no system can be perfect.

I believe my proposed approach passes two meaningful tests. It will do a
better job than our current system of controlling prices, allocating
resources, expanding access, and safeguarding quality. And it will do a
better job than a more government-driven approach of harnessing
medicine’s dynamism to develop and spread the new knowledge,
technologies, and techniques that improve the quality of life. We won’t
be perfect consumers, but we’re more likely than large bureaucracies to
encourage better medicine over time.

All of the health-care interest groups—hospitals, insurance companies,
professional groups, pharmaceuticals, device manufacturers, even
advocates for the poor—have a major stake in the current system.
Overturning it would favor only the 300 million of us who use the system
and—whether we realize it or not—pay for it. Until we start asking the
type of questions my father’s death inspired me to ask, until we demand
the same price and quality accountability in health care that we demand
in everything else, each new health-care reform will cost us more and
serve us less.

$636,687.75

Ten days after my father’s death, the hospital sent my mother a copy of
the bill for his five-week stay: $636,687.75. He was charged $11,590 per
night for his ICU room; $7,407 per night for a semiprivate room before
he was moved to the ICU; $145,432 for drugs; $41,696 for respiratory
services. Even the most casual effort to compare these prices to
marginal costs or to the costs of off-the-shelf components demonstrates
the absurdity of these numbers, but why should my mother care? Her share
of the bill was only $992; the balance, undoubtedly at some huge
discount, was paid by Medicare.

Wasn’t this an extraordinary benefit, a windfall return on American
citizenship? Or at least some small relief for a distraught widow?

Not really. You can feel grateful for the protection currently offered
by Medicare (or by private insurance) only if you don’t realize how much
you truly spend to fund this system over your lifetime, and if you
believe you’re getting good care in return.

Would our health-care system be so outrageously expensive if each
American family directly spent even half of that $1.77 million that it
will contribute to health insurance and Medicare over a lifetime,
instead of entrusting care to massive government and private
intermediaries? Like its predecessors, the Obama administration treats
additional government funding as a solution to unaffordable health care,
rather than its cause. The current reform will likely expand our
government’s already massive role in health-care decision-making—all
just to continue the illusion that someone else is paying for our care.

But let’s forget about money for a moment. Aren’t we also likely to get
worse care in any system where providers are more accountable to
insurance companies and government agencies than to us?

Before we further remove ourselves as direct consumers of health
care—with all of our beneficial influence on quality, service, and
price—let me ask you to consider one more question. Imagine my father’s
hospital had to present the bill for his “care” not to a government
bureaucracy, but to my grieving mother. Do you really believe that the
hospital—forced to face the victim of its poor-quality service, forced
to collect the bill from the real customer—wouldn’t have figured out how
to make its doctors wash their hands?

--
Civis Romanus Sum

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