Taking A Stand On Health Care A Dialogue

The author has chosen to use a question-answer format in order to make the often complex subject matter, easier and more enjoyable to read. Q and A is not a dialogue between real people -- the author has provided the dialogue for both Q, standing for Quaero, which is Latin means "I search for" and A, Auctor, which in Latin means "person responsible." Q-Today, when so many politicians are calling for some form of government provided universal health insurance, I understand that you are advocating a different approach to this country's healthcare woes. To get us started, I'm going to ask you to be perhaps unreasonably concise, and to give one sentence answers to three vital questions: First, who should provide and pay for care? Second, who should receive care? And third, how can health-care costs be controlled? A-Concise answers to complex questions can easily be misconstrued, but I'll try if you allow me to amplify my position as we proceed. Q- Agreed. A-First, health-care is the responsibility of individuals, not the government nor their employers. Second, everyone who can afford to pay for it, or can attract a charitable group or individual to voluntarily provide it, should receive care. Third, care will become affordable only under a free market system where consumers, rather than third parties, such as government and employers, pay directly for the care they receive. Q-I'm afraid you'll have trouble getting people to accept your first and second premise unless the third is realized first. And even if consumers were able to use the competition of a free market to make health care affordable, you would still have the problem of the free-loaders and dead beats. Too many people fear the other

guy is not going to voluntarily purchase health insurance and so when he gets sick or has an accident he will be a burden on the rest of us. That takes us right back where we started; with a need for universal health insurance. A-I don't have a problem with universal health insurance as long as government doesn't provide it, or force employers or any other group to provide it. Health care should be provided voluntarily and ideally by self-determining individuals. I applaud employers and other groups who voluntarily provide health insurance for others, either out of self-interest or altruism, but I emphasize voluntarily. Although in a utopian world, individuals would not need policing, I am willing to stipulate the role of policeman to government in order to make market-based health-care a reality. I would endorse a plan where consumers do the shopping comparisons necessary to bring prices under control and consumers are the primary payers. I would reluctantly agree to allow government to police the purchase of health insurance and to require employers to submit proof of insurance on behalf of themselves and their employees. Q-In past writings you have criticized the practice of having employers act as tax-collectors for the government via payroll taxes and withholdings and here you are suggesting a similar role for the already overburdened employer. A-You're absolutely right, and as I said, in a utopian world, individuals could be counted on to take care of themselves without overseers. However, showing proof that an employee has purchased his own health insurance is less of a burden for an employer than having to purchase it for him If an employee fails to purchase health insurance, an employer would be expected to deduct money from wages, but it would be the employee's responsibility to shop and provide health insurance for himself with the dollars set aside for that purpose. I agree, this may not be an ideal plan, but it is closer by far, to the American ideal of self-determination than all the elitist propsoals being discussed that wrest control from the individual. Q- And what about insurance for those that are not employed?

A-For the time being, those people would be taken care of by the government's many social programs; most specifically Medicaid. Dispensing charity is not a role government plays well and I would hope that eventually, caring for needy dependent individuals would be taken over completely by the private sector. Resources are limited, and because they have to be rationed, needs should be targeted and carefully prioritized, something government has shown itself incapable of doing. Q-How do you feel about rationing health-care? A-Rationing is a common response when demand exceeds available services. Rationing is unnecessary in a market system, however, because when freed from government restrictions and regulations, the supply naturally adjusts to increases in demand. Demand in a capitalist society is evidenced by ability to pay, and in most other societies by need. There is no doubt that health care in the United States has to a large extent been socialized. Government, through its immense programs and regulations effectively sets prices and determines service. Under a pure free-market system, anybody can have all the health care he can afford, or receive as a gift from others. Under such a system, prices would fall and unnecessary tests and useless procedures would be discontinued. It is the idea that everybody has a right to health care, regardless of his or her ability to pay for it that is responsible for the unlimited rise in the cost of health care. The ultimate end of such a system is rationing. In the end, the free market is a more humane system. Q-Families in Oregon with children needing organ transplants have felt the inhumanness of rationing. A few years ago these families began moving to California in order to qualify for California's $7 billion Medicaid program, which still covers some transplants for uninsured patients. How did Oregon change its Medicaid program? A- Oregon's plan required a waiver from Congress so that the usual Medicaid requirements could be suspended. Instead of paying for everything for people up to fifty percent of the poverty level and nothing for those between fifty and one hundred percent, under the new plan Oregon pays for procedures for everyone below the poverty level on a prioritized basis. A list was made of all medical interventions and arranged according to the public's priorities. That information was culled

from town meetings across the state and a thousand detailed phone interviews. The most cost-effective and long-lasting benefits were given top priority. Whatever portion of the list the legislature decided to fund was to represent the minimum benefits package in a special state insurance pool for the uninsured above the poverty line. who are now uninsured. It represents the minimum benefit package that private insurers can offer in the state. Q-Since Oregon's Medicaid program pays for prenatal care but not for organ transplants, wouldn't you call that rationing? A-Of course it is rationing but it is rationing by logic rather than by waiting list. Medicaid is supposed to be for the poor, but poor adults without dependent children have never been eligible. Others loose their eligibility according to the number of parents in the household or the age of the children and so forth. The federal government dictates who must be covered; a practice which has been referred to as "redefining the poor for accounting purposes." Q-What do you think of critics who claim because the elderly, the blind and the disabled would be exempt from any rationing, the plan would discriminate against poor women and children? A- Nonsense! More than half of all Medicaid reimbursements in all states go for elderly patients in nursing homes. In Oregon, medical care for the elderly, the blind and disabled is covered by Medicare, which is a federal program. As for the disabled, they account for only five percent of those who fall under Oregon's new plan. The disabled receive Medicaid only because of the rules that make it hard to qualify for Medicare; rules which hopefully will be changed if the Bush administration has its way. Disabled persons are not eligible for Medicare until they have been disabled for two years and then only if they have paid Social Security taxes for a sufficient number of years. Q-Presidential hopeful, Al Gore, charged Oregon with waste and inefficiency in the use of its Medicaid budget, and admonished that excessive bureaucracy should be cut before rationing took place. Do you agree with that assessment? A-The bureaucracy in Oregon's case is due to the cost of all the case managers that are necessary to make that state's exemplary long-term assisted living at home care for the elderly the best in the nation, and which incidentally saves money over nursing-home care.

Q-Isn't the politician behind Oregon's plan a physician? A-John Kitzhaber, president of the Oregon Senate is a medical doctor, and one who looks beyond medicine for causes of poor health. He claims in the quest for a healthy population medical care cannot be separated from social factors. For instance, he recognizes that the country's high infant mortality rate reflects housing problems, environmental problems, teenage pregnancy and substance abuse. He agrees our health-care crisis is not so much a lack of money as it is a flawed health care system. Q- What do you mean by a flawed system? A-There is an illusion that resources are unlimited, that all medical interventions are of equal value and effectiveness, that we can satisfy the public demand for health care without paying for it. Providing health care for people without insurance or adequate funds of their own is not a new idea. In the past the cost of their care was just shifted to others via increased insurance premiums or padded bills. The effect was to insulate both providers and consumers from the true cost of treatment. The result of costshifting and third-party insurance coverage was that public expectations and practice patterns were disconnected from the economic realities of funding them, and decision makers were insulated from the consequences of their decisions. Dramatic escalations in health-care services and prices were encouraged by hiding the true costs. Costs were simply shifted back to providers and third-party payers while expenditures continued to escalate. Accountability for both fiscal and health decisions retreated further and further into the background and nobody ever had to accept or reject the principle of universal access. Q-With the average Medicaid eligibility at less than fifty percent of the federal poverty level we can't claim to have universal access. A family of three making more than five thousand dollars a year is considered too wealthy to qualify for publicly subsidized health care in some parts of the country. A-That's where targeting, rationing and prioritizing comes into play. Too many people are left out of our present system entirely. Additionally, many physicians refuse to see Medicaid patients and those who do often shift the uncompensated costs to employers, driving up insurance premiums.

President Reagan tried in 1983 to have the elderly or disabled Medicare beneficiaries pay higher out-of-pocket costs for most hospital stays in exchange for protection against catastrophic illnesses. Now the government picks up most of the tab for a set number of days and that's it. I would like to see Medicare patients shoulder a greater share of the cost for the early days, and then have Uncle Sam pick up the tab when the burden becomes too great. In 1983 the Reagan administration figured that kind of peace of mind would have only cost the seven million Medicare patients hospitalized each year about $294 more than they were paying at that time. Q-A plan like that would be a disaster without first instituting incentives for health care providers to curb costs. Otherwise there would be less reason than under the present failing system, to make rational economic choices and, since everything is on Uncle Sam, more reason to use excessive measures to prolong a patient's last year of life. A-I agree. That brings us back to the marketplace once again. The primary reason health costs are out of control is that they are presently immune from the forces of the marketplace. On top of that, a mass of regulations stifles the entrepreneurship and innovation the health industry might otherwise use to cut waste and generate efficiencies. Policies to encourage price competition among health-care providers were advocated by the Reagan Administration, but hospitals and consumer groups, who claimed such policies would have a negative effect on the quality of care and force hospitals to either sacrifice quality or turn non-paying patients away, blocked legislation. Q-Do you think such legislation would have been effective? A-I do. I know it's possible to solve the problem of soaring healthcare costs without arbitrary regulation, draconian belt tightening or increased taxes. All we have to do is subject health care to market forcessomething that should be natural in a capitalist economy. Q-You may be one of a very few who think the United States should function as a true capitalist nation. Do you remember a few years back, a poll where people were asked to identify the phrase, From each according to his ability, to each according to his need?

A-I remember. A good percentage of those polled placed it as a part of the United States Constitution. It makes you stop and wonder just what it is they're teaching in our schools. Need has become such an entrenched determinant of demand that a professor of medicine at Tufts University seemed surprised and disillusioned that ability to pay should have anything to do with the distribution of health care. He was quoted in the March 27, 1990 issue of the Wall Street Journal, "The issue of money is lurking in the background. You have to ask whether the decision [to approve or deny] treatment is tainted by cost concerns." As a probable tenth generation pure blooded American capitalist, I could hardly contain myself when I read lurking in the background. Money has always been the means of distribution in this countrynot lurking in the background, but with no holes barred and up frontto each according to his ability to pay, not according to his need. I could imagine the good professor wrinkling his nose in disdain when he spoke of treatment being tainted by cost concerns. I could hardly believe we were citizens of the same country. Q-I suppose then you would say that policymakers in Oregon are heading in the right direction in deciding who is to get what care on the basis of cost-effectiveness rather than need? A-To tell you the truth, with policymakers making all these decisions for American citizens I feel like I have tuned into the middle of Dr. Zhivago and government officials are dividing up the housing and other resources. As far as I'm concerned politicians, bureaucrats or whatever you want to call them, have no business making such decisions, no matter how they do it! The ultimate question, which has been debated continuously for well over two hundred years, concerns the role of government. That role was purposely limited by our Constitution. But there have been such far fetched interpretations of the meaning of the Constitution over the years that I think the role of government is still an open question as far as most Americans are concerned. Q-I think you're right. William Link of Prudential Insurance Company, addressed the Commonwealth Club in San Francisco in March, 1991 saying that freeing the health care marketplace was not enough, that government had a responsibility to the poor. Such care is the hallmark of a civilized society, he said. Agree or disagree?

A-I don't believe ensuring the health of its citizens is a proper role for government. American is not the motherland or the fatherland. Americans are self-determining individuals and should not be at the mercy of their government. That was the uniqueness of the American ideal. I think the American people still believe in their own abilities, but leaders treat them as incompetents requiring coddling. To make the coddling more palatable they call it safety nets or basic rights. The majority of Americans were able to plan for and take care of their own health before government's meddling changed relationships and drove prices sky high. Now, however, it's become a different ball game and I want to change that. I want people to gain control of their own lives and their own destinies once again. There have always been, and always will be, people who can't or won't help themselves and helping the less fortunate is something that should be done. But it must be done voluntarily in order to nourish the humanity and enhance the spiritual growth of both giver and recipient, something that is not accomplished by government mandate. Q- If, as you say, government doesn't have the responsibility, then what is the answer to our health-care problems? A- It's more than not having the responsibility. Helping the poor, the sick, the needy are not jobs that government, any government, can do well. Whats needed is people helping peopleone to one. The human touch, found only on the community level, is required. The long lines and paperwork of a bureaucracy won't do it. The answer might be modeled along the lines of CHIP, the Comprehensive Health Investment Project started three years ago as a cooperative effort of private doctors working with the support of existing social welfare agencies and health departments in the state of Virginia. Although many Virginia doctors would gladly give time at the twice-a-week free clinics throughout the state, only about one doctor in ten would accept Medicaid patients because of the paperwork and frustrating regulations that go along with it. Starting with six pediatricians and one hundred patients, the program flourished and at the end of its first year had attracted more doctors and was serving three hundred patients. The program's success attracted private foundation funds. Private foundations like to see good use made of their dollars so before long it had expanded to serve almost a thousand patients with all of Roanoke Valley's doctors offering to donate time.

When the Associated Press ran their story at the end of 1990, the administrators had identified 4,800 potential patients and hoped to entice all of them into the friendly non-bureaucratic program. It had become a real community project. When prescriptions couldn't be filled after hours at the discount rates offered by the public health office, the community's largest 24-hour drug store provided the service at even lower prices. A church donated a van to pick up patients who needed transportation to keep their appointments. This type of community volunteer effort, coupled with private foundation funds and those of already existing government programs, may be a viable solution to part of our national healthcare dilemma. I believe people helping people in a personal way is a giant step towards utopia. Q-Well, I've got to agree that many people, not just Virginia's doctors, are fed up with impersonal, frustrating, incompetent bureaucracies running their lives. But you've got to admit government had a hand to play in CHIP's success. A-That's true, I just think in too many cases government has played far too large a role. For instance, New Jersey has set up a fund with public money to help families facing financial disaster due to a child's medical bills. A touching and worthy cause made to order for private philanthropy. But an already financially strapped state government has usurped the role. New Jersey's program, which generates about five million dollars a year, is funded by a surcharge on all employers who are required to make payments into the state's unemployment compensation fund. Why not set up a fund to help young families where the mother is dying of cancer? How about a fund for families who have a brilliant teenager that wants and could benefit from a first rate college education but where there is also an elderly family member that requires nursing care? Why not raise a little money for the mother with six kids whose husband is in prison for a murder he didn't commit? How about a fund for the murder victim's family? Better still, since we are making employers provide the money, how about a fund for a vacation trip for the self-employed couple who have worked fourteen hour days for years and have managed to put their three kids through school but are struggling under a mountain of debt? Maybe its time our legislators took a tip from Davey Crockett who as a member of Congress is said to have voted against a bill authorizing funds for a widow of a recently deceased colleague. It

is not our money to give, he told his fellow legislators, but I will be only too happy to contribute some of my own funds to the good widow and suggest we take up a collection here and now. But some things never change and I believe Representative Crockett's suggestion was ignored. It is apparently much more satisfying to distribute other people's money. Q-I've heard people say the tax code discourages a market solution to the health-cost problem. Do you know what they mean? A-Health and Human Services Secretary Louis Sullivan said at a 1990 speech at Stanford University, that because health benefits are not taxed the tendency has been for employees to demand that this untaxed compensation be used for ever more costly health coverage. He said that tax-free health benefits would cost the government an average of almost fifty-nine billion in lost revenue just in 1990, or over five hundred and fifty dollars for each insured employee. He brought up the fairness issue, asking whether government should subsidize high-salaried employees more than those on low-wages, which is what we are doing. Q-That doesn't make sense. A-A Washington DC based think tank came up with a study that concluded that taxing employer-provided health coverage and allotting tax credit to those who buy their own health care plans would save the government money and lower the nation's health care costs. Q-Do you think that is feasible? A- Unions, dominated by older members who place more emphasis on health benefits than do younger members, would have to be won over with something moreperhaps tax credits to an individual for incurred medical costs. To discourage overconsumption one might link a tax credit to a high deductible and allow the tax code to blunt catastrophic expenses but not basic health care expenses. This would certainly be an improvement over the present system which shifts the responsibility and costs of health care onto third parties and is a breeding ground for excesses. Perhaps we could get closer to a marketplace in health care if we tax all employee compensation, including health benefits, and couple this sure to be unpopular move with rate reductions. As far as I'm concerned, the best answer is individual consumer choice and responsibility. If we stop expecting government to do

10

the job for us, and if we begin doing what we can to foster independent research and to promote a free flow of information, and if we above all, have faith in ourselves and our neighbors, we may be able to lick this problem. Q-What do you think of California Governor Pete Wilson's idea early in 1991 of shifting responsibility for mental and public health care from Sacramento to the various counties? A-I like the idea of bringing authority and decision making closer and closer to the ultimate user, but the funding source may be a problem. The proceeds from increased alcohol, tobacco and vehicle-license taxes have been coveted for many programs. Even if the Governor gets his way, since the new tax money would not be earmarked for mental health programs but would go into a county's general fund, some lawmakers are fearful that the money might be diverted from health. They would like to see restrictions on the funds written into the Governor's legislation. Q-Do you know anything about legislation which is supposed to reverse a lot of the regulations that have made life miserable for doctors? A-I'm not sure if this is the legislation you are referring to, but many medical groups, including the American Society of Internal Medicine and the American Medical Association, are behind legislation sponsored by Representative Roy Rowland of Georgia and Senator Max Baucus of Montana. Their Bill, which would reverse recent Medicare rulings, has 248 House sponsors and 31 Senate sponsors. Q-That sounds like it. A-I'll give you some examples of rules that could be rolled back and gripes the doctors want addressed by the legislation: (1) Medicare runs patient records through a computer to see whether the number of treatments by any doctor exceeds a normal range. Doctors want the threat of penalties removed if evidence suggests patients are being asked to come in too frequently and are receiving unnecessary treatments. (2) Medicare has upped the paper work on physicians by requiring that if one doctor covers for another, the covering doctor must submit the billing. Doctors used to be able to informally trade

11

favors among colleagues without encountering such bureaucratic hassles. (3) There are too many guidelines. Physicians feel their professional judgment and competence is always open to second guessing by bureaucrats not on the scene. (4) Doctors can't freely shift patients from one hospital to another. (5) They dislike limits on what hospitals are paid per patient. (6) They want to be able to charge Medicare patients more than fifteen percent above government guidelines, if patients are willing to pay. (7) They resent the recent cutting back on fees for cataracts and certain other surgeries. (8) They dislike restrictions on in-house laboratories and doctorrun outside laboratories. (9) They are dissatisfied with peer reviews to oversee competency. (10) They would like to block establishment of a data bank harboring doctor's offenses, mal practice suits and loss of license and other nasty stuff. Q-InterStudy is a Minneapolis health policy think tank that is trying to set up a national data bank which would track millions of patients treated by thousands of doctors. Do you think that's the data bank those medical groups would like to block? A-I don't know about that, but I do know that Dr. Paul Ellwood of Interstudy calls his tracking system "outcomes management", a new approach to cost cutting. The idea is to study the effectiveness of various medical procedures used to treat everything from heart disease to back pain and to eliminate procedures that don't seem to help. Early data suggest that as much as twenty-five percent of the nation's health care bill goes for procedures that do no good and that perhaps some procedures are not being used that would do some good. Research would allow doctors to constantly adjust their procedures in response to feedback on what works best, just as other businesses adjust their buying according to a survey of what is

12

selling and what is not. Food companies know the impact of a redesigned mayonnaise bottle on sales but doctors have only patchy information about the pay offs from their work. The effectiveness of half of what the medical profession does is unverified. There's no problem something as straight forward as setting a bone or treating pneumonia but the murky area is chronic ailments where there is a real need for data. If the pros and cons of alternative treatments were better known, patients would be better consumers. Q-I thought the HMOs, Health Management Organizations like Kaiser Permanente, did that already. A-They try to know what works, but many have been lax in managing the content of medical care. I've heard it said that the first revolution in medical care was the spread of health insurance, the second was the revolt of those who pay for that care and the third will be in assessing care. In one instance, a panel of doctors was asked to estimate the effect of a particular test and the answers ranged all the way from a five percent reduction in deaths to ninety-five percent. To know what works requires a follow up on how patients are doing at least a year after the procedure. Some researchers have found that some so-called preventive surgery actually decreases life expectancy. A patient-consumer would like to know things like that, and so would physicians. Thanks to the prevalence of computers it is now possible to bring the health care industry under a market system. Q-I thought the insurance companies were already pretty well computerized. A- Probably so. I know Aetna Life Insurance Company saved over $2 million a month after installing GMIS Clinical Information Services which developed a database of health procedures and costs that allows it to evaluate claims quickly and eliminate expensive manual review. Another small entrepreneurial firm provides an electronic network that links doctors to insurers and eliminates paper claim forms. The health-care industry needs efficient access to information and those that get it will be able to cut costs and will have a leg up on their competitors.

13

Q-Could a computer generate information so that consumers could compare health-care costs and choose doctors and hospitals accordingly? A- Eventually. But first we have to change the system so that health-care costs matter to consumers. Now, as a rule, consumers don't care what anything costs because someone else pays anyway. Q-Well, the payers-- government and employers-- care in a big way right now! Have they been able to get cost and effectiveness comparisons? A-They've tried. For example, the thrity-five hospitals in the Pittsburgh, Pennsylvania area were scrutinized by the state's legislature and it was found that in 1988 ten of seventy-three patients admitted for heart failure died at one hospital whereas only four of ninety-one died at another hospital. The first hospital charged each of the seventy-three $11,015 whereas the luckier ninety-one were charged only $5,845 which made them doubly lucky. Of course the hospitals claim age and severity of conditions weren't considered in the study so it is not clear just what can be drawn from the study other than there are definite differences between hospitals and more information should be made available to the public. Q-Why doesn't the government make hospitals provide that kind of information to the public? A-Don't talk to me about makebut aside from philosophical problems, it's just not as simple as that. Prior to the 1980s, most hospitals received their revenue based on costs, not on the prices they charged. Many hospitals do not even know close enough to estimate for a patient-consumer what the actual price is likely to be for an illness or procedure. Room rates differ from one hospital to another by a factor of two to one, but hospital bills can differ as much as ten to one for the same procedures. Faced with Medicare limits, some hospitals simply jack up their bills to other patients rather than work on efficiencies. In 1990 a study was done of the Chicago area, with its fifty hospitals, and 600,000 prices were compared. Besides finding that hospitals used different accounting systems, the definition of service differed from hospital to hospital as well. A Wall Street Journal article printed the following range of charges reported in 1988: $13 to $127 for a mammogram, $59 to $635 for a CT scan,

14

$125 to $3,365 for a tonsillectomy and $125 to $4,279 for cataract removal. Q-Can't any hospital quote definite prices for medical procedures? A-The Cleveland Clinic Foundation is one of the few institutions with sufficient competence in cost accounting to be able to quote fixed prices for twenty-two different procedures. Q-But didn't you say computers will eventually bring the healthcare industry under a market system? A-It will take more than easy access to computers. The market system has not been allowed to work because, as I'll continue to point out until something is done about it, bills have, for the most part, been paid by third parties rather than the actual consumer with his own funds. Consumers have had no reason to restrict their consumption of health services, and in many cases have not had the ability to shop for quality. Q-Just when did health-care costs begin to get out of hand? A-Health care bills began to soar when the federal government became the big third-party payer in the sixties and the disciplines of a normal market were discarded. Many states required that all health policies cover a vast array of services without realizing that such mandates amount to regulation of the supply side. For instance, Florida and Nevada require insurers to cover acupuncture, Arkansas and Connecticut want naturopaths [specialists in prescribing herbs] covered, Massachusetts says insurers must cover artificial insemination and embryo transfer and Minnesota insists that wigs and hair transplants be covered. There are at least eight hundred state mandated benefits which drive up costs. Supply is better regulated by letting individuals choose and pay for the coverage they want and not what government demands. Q-It seems like so many of the decisions that effect our lives are now in the hands of government. A-You're right. If government fails to obtain adequate information it harms everyone. Departments and agencies are disbursing billions of dollars, in many cases based on obsolete statistics and poor guesstimates, because good current accurate information is not easily available. The collapse of the information structure could well do more damage than the more widely known neglect of physical facilities.

15

Q-I can't believe the government, with all its agencies, doesn't have adequate information gathering capabilities. A-There are loads of agencies that gather information, but that information is too often conflicting and inaccurate. It needs to be coordinated and objective. In the fifties the Advisory Commission on Intergovernmental Relations was created to monitor the working of the federal system. It had 37 staff members as late as 1978 but in 1991 was down to 19. Conflicts that were built into the constitutional system of overlapping and competing governments have increased as more federal grants have been funneled through the states. The state ACIRs were created to foster cooperation and perform a variety of roles, the main one being to act as a clearing house for the exchange of information, statistics and data necessary and depended upon for the shaping of public policy. Unfortunately the ACIR in California became a victim of budget cuts. Q-I want to get your opinion on something. I heard that competition doesn't work in the health-care industry. Apparently it was shown that when two hospitals competed for patients, prices rose faster and higher than in places with only one hospital. A-First of all, that's not always true. Let me see if I can explain it. Legislation in California in 1982 encouraged Medicaid, the state tax-supported program for the poor, as well as private insurers and employers to negotiate lower medical costs with individual hospitals. It was found that hospital charges continued to rise in areas where there weren't many hospitals but fell in urban areas where several hospitals competed for patients. A study involving 5,490 hospitals in forty-eight states found that between 1982 and 1986, charges at California hospitals increased. They did so at a lower pace than in the rest of the nation, with the exception of New York, Maryland and Massachusetts. These three states had regulated fees for everyone who paid hospital bills. This suggests that competition and stringent regulation are both effective means of controlling hospital costs. What you heard was the result of competition based on service without regard to cost. Who wouldn't choose the newest most expensive equipment, nicest rooms, most nurses, best menu if price didn't matter? Q-You mean where price is no consideration, two hospitals would outdo themselves in trying to attract patients by offering more and

16

better services and equipment instead of improving efficiency. Better services and equipment sounds good to me. A- But can you afford to pay for them or do you want your fellow citizens to pay the bill for these extras. Doctors have been known to do the same thing. They have proven themselves the equal of politicians at practicing sleight of hand. They found ways to get around the initial cost controls of the early 1980s. They raised outpatient fees when they were required to do more surgeries at outpatient clinics and their wages rose thirty-nine percent compared to the eighteen percent average wages rose between 1985 and 1989. Don't worry about the doctors. Q-Speaking of doctors I heard somewhere they were being forced into silence on some issues by the government. Wouldn't that be a violation of their first amendment rights? A-I imagine you're talking about the Family Planning Services Act which Congress passed in 1970 and which now provides $140 million a year in grants to 4,000 clinics serving 4.3 million women. Under the Act, abortion is not considered a method of family planning. This means no counsel, referrals or mention of abortion can be made by professionals working in any clinic that takes government money. A participating physician may not lobby for abortion, pay dues to Planned Parenthood of America or disseminate in any way material that advocates abortion. These rules have been challenged as abridging the free speech guarantees of participating physicians. Q-Well don't they? A- The issue is not whether every doctor has a right to advocate abortion, of course he or she does, but the issue is whether there is a right to advocate abortion on the taxpayers' time with the taxpayers' money. A physician's speech is no more abridged than is the ability of a Christian to worship if all either has to do to exercise his rights is move off property funded by taxpayers. Q-Ok, I have another situation for you to comment on. It seems the Mayo Medical School in Minnesota as well as Johns Hopkins in Maryland is working towards providing scholarships and grants to cover every one of their students in the future. The idea is to remove the incentive for making money to pay off debt. Young debt-free doctors would then be able to give free rein to their natural altruistic tendencies.

17

A-Altruism is natural to youth and it is practical to follow that bent before one takes on the expenses of a family and home mortgage. The Peace Corps provides opportunities and so does the National Health Service Corps, a federally funded program to entice young doctors to serve in poor rural areas. In the summer of 1990 legislation was passed that would expand the funds for the National Health Service Corps scholarship and loan repayment program which then amounted to sixty-five million dollars. I'm not sure where the increased funding is coming from, but it shows the program is active and policymakers are thinking along the lines of the medical school administrators, or vice versa. What do I think? I think government funded programs are not needed. Opportunities and funding for altruistic instincts are plentiful in the private sector. I always ask myself what our society did before all these government subsidies. Anyone who came here was able to achieve their dreams with hard work and determination. Independence is something wonderful and it beats the current Robin Hood government that takes, without asking, from some to give to others. Q- Asking is done via your representatives in Congress. They initiate and vote for these programs which prompts me to ask if you have heard of something called the Relative Value System? A-Have I? It's a variation on comparable worth. In December 1989 Congress approved a massive overhaul of the forty-seven billion Medicare physician reimbursement plan. The intent was to bring the incomes of higher paid specialties in line with lower paid doctors. To accomplish their purpose, bureaucrats will rationalize more than seven thousand services, assigning more weight to office visits and the like and less to more complicated medical procedures, just as one might arbitrarily assign more weight to sweeping and emptying the trash and less to teaching in order to bring the salaries of janitors and teachers into line. Instead of using a market system and letting consumers decide worth, planners do it for us. Thats the Relative Value System. This new bureaucracy doesn't even purport to save money; it only redistributes it differently among doctors. The reason you heard no debate on this outrageous idea is that the American Medical Association approved it, not on principle, but because the members that stood to gain from the implementation outweighed the would-

18

be losers. There is some truth to the allegations that certain medical specialties are overpaid a word that is not recognized in a free market system. Any overpay is due to past political meddling by government. Government offered incentives for one kind of service over another. Now we have this new misguided and dangerous attempt by government to solve the problem it first created by adding one more layer of bureaucracy. As I will continue to say over and over, the market system has not been allowed to work because bills have, for the most part, been paid by third parties rather than the actual consumer with his own funds. Consumers have had no reason to restrict their consumption of health services, and in many cases have not had the ability to shop for quality. Q-Just how much is health-care costing us as a nation? A- Are you ready for a bunch of statistics? Q- Try me. A- You asked for it. Health care costs doubled between 1980 and 1990. Americans now, [1991] pay $661 billion annually or almost twelve percent of the gross national product; the GNP. Of the total spent on health care in 1989, twenty-one percent came from consumers, thirty-seven percent was paid by private insurance and other private sources and forty-two percent was picked up by government programs. Hospitals took thirty-nine cents of every dollar. Nineteen cents went to physicians, eight cents to nursing homes and twenty-two cents to dental, professional services, home health care, drugs and vision products, and twelve cents was used for administration, research and construction. Q-How did the increases in health-care compare with increases in the GNP? A- GNP rose only 6.7 percent from 1988 to 1989 but health care spending rose 11.1 percent. Q-Do you know how much of the federal budget has been allocated to spending on health? A- Unfortunately health care costs are growing at twice the rate of inflation and took 14.7 percent of the total federal budget of $1.1 trillion in 1990.

19

Q-Isn't there a trust fund set up to pay for some of the government programs? A-Medicare has a trust fund which pays for a limited amount of hospital care for the elderly, with the surplus being invested in treasuries. Just like the social security trust fund, the hospital insurance trust fund is currently running a surplus which will be drawn down quickly over the next ten years or so. Like social security, promises for hospital care are being made that cannot possibly be kept without an unbearable increase [double] in the taxes of workers. The Medicare bomb is set to blow about ten years before the entire social security system destructs. The impending disaster was foreseen at least ten years ago and action was taken in 1983. As part of those reforms, Medicare started reimbursing hospitals with set fees for a variety of services rather than paying based on costs, as it had done earlier. Q-Isn't the rapid rise in health-care costs connected to the aging of the population? A-Absolutely. Eighty percent of the health-care dollar is spent during the last six months of life and with the population aging, the pressure to expand coverage to incorporate long-term care is enormous. As a society we are reluctant to accept the inevitability of death. Instead we devote scarce resources and pile up emotional and other costs in search of dubious benefits. Q-In the meantime policymakers assure us everything is under control. Q-Watch out for political sleight-of hand in the next few years, already evidenced by the call to cut pay-roll taxes by Senator Moynihan, who was a member of the 1983 committee that raised those taxes knowing full well that was the only way to insure the integrity of the social security system. Former Social Security Commissioner, Robert Ball, a true master at concealing and twisting facts, has proposed leaving the payroll tax alone but transferring part of the social security surplus to the faltering Medicare fund. Q-I saw a survey in 1990 that found that seven of ten employees thought employers should provide health benefits for employee's families, but nine of ten employers said they planned to reduce or eliminate coverage. Is the government going to end up transferring to others the obligation it took on to provide health care, and can it make private employers provide health benefits?

20

A-Some levels of government have already transferred the responsibility. The New Jersey legislature started in 1987 with an eight percent surcharge on the hospital bills of all insured patients. That was to be raised to just under twenty-five percent in 1991. Since more than half of the one million uninsured in New Jersey are working, there is a proposal to transfer the burden of funding their health care from insured patients to employers via a payroll tax of $144 per employee. A $1,000 per employee penalty would be levied on employers who refuse to purchase health insurance. Q-Is the federal government likely to follow New Jersey's lead? A-That would seem to suit the Chairman of the President's task force on comprehensive health care, Senator Rockefeller IV of West Virginia, just fine. If Senator Rockefeller were to have his way, all employers would either provide benefits or pay a tax to fund a federal program for uninsured workers. Q-Is the Bush Administration recommendations of the task force? likely to follow the

A-There are a variety of recommendations, some definitely favored by the administration. After all, Gail Wilensky, head of HCFA, the Health Care Financing Administration, was vice chairman of the task force and she sees things a little differently than the chairman. The two main issues considered by the task force were how to pay for nursing home care and what to do about the thirty million-plus Americans without health insurance. Wilensky would allow the self-employed and unincorporated businesses a 100 percent tax deduction for the purchase of insurance instead of the 25 percent presently permitted. She would also let those who are not quite poor enough to qualify for Medicaid pay a small premium to join the system, and would have the government subsidize insurance for the one person in two hundred who cannot now get insurance because of existing health problems. Q-Do you favor her recommendations? A-I think they're definitely headed in the right direction, but I would like to see a further recommendation. I would like to see the present tax incentives for employers to provide health-care as a part of wages, removed, so that replacing health benefits with cash becomes a viable option.

21

Of course that would involve trusting grown ups with their own money and trusting their ability to make wise choices for themselves. On average, employers pay a little over $3,000 for health benefits for each and every employee. If the employee could pocket the difference between the costs that his personal prudent shopping for health-care coverage could produce and the $3,000 plus, then he would have an incentive to lower his consumption of unnecessary health services. Q-Don't you think that business should foot more of the nation's health-care bill? A-I think in some cases, it might be in the best interest of business to do so and I would encourage and applaud such a move as long as it were taken voluntarily. No one listens to the small employers when they talk in terms of principle, when they say that it is not the employer's responsibility to be the first provider of health care. As for the larger companies, most of them have been providing health benefits as part of their compensation package for years and are convinced that rising medical costs reflect the expense of treating workers left uninsured by the smaller employers. But once the principle is established that legislators can constitutionally and should morally make some people provide for others, there will be no end to the wish lists nor to the gripe lists. For instance, insurers would like to see more people participating but are worried about excessive regulation; advocates for the elderly want generous nursing-home benefits and coverage for medication but states are concerned about picking up the tab for the expanded Medicaid coverage; advocates for children want funds for more prenatal and health care but can't figure out how to make people use the programs. Q-If people stayed in the work force longer wouldn't that be helpful? A-That would be desirable on many fronts. There are a variety of reasons retirees are returning to work and if the government is reluctant to provide incentives for them to do so it should at least remove the disincentives. Now the only ones who don't worry about losing part of their social security benefits are those above age seventy. On January 4, 1991 Bob Stump of Arizona tried to change that by introducing a bill to repeal the restriction on how

22

much people between sixty-five and seventy may earn without losing part of their social security benefits. Q-Isn't it hard for older people to find or keep employment because employers have to provide them with health insurance? A-Absolutely. You've discovered another government disincentive. Employers are forced to substitute for Medicare and become the primary insurer for older workers. There is an increased statistical probability that older employees will increase claims and therefore their premium costs are sky-high. The budget bill passed in December, 1990 will cost employers about one billion more in health care costs in 1991. Hidden in it was a provision making it easier for the government to enforce an eight year old requirement that employers provide health insurance to workers over age 65 under plans covering other workers. Before 1981 Medicare picked up most of those costs. Q-I heard something crazy awhile ago, about a private business lobbying government to make other businesses pay more for some kind of health-care. Does that ring a bell? A-I'm not sure what you heard, but that makes me think of Ren, a Nashville Tennessee provider of kidney dialysis services, who wants Congress to force private insurers to pay more of the two billion annual bill for dialysis treatment now covered by Medicare. Currently [991] employers provide primary coverage for affected employees for twelve monthsabout $200 million a year. Ren's plan would extend employer coverage to two years which would free up two hundred million which congress persons could claim as evidence of their attempt to reduce the deficit. Q-I bet other employers just love Ren! A-Naturally businesses are angry and claim Ren expects to profit from the cost-shifting because private insurers pay more for dialysis than Medicare does. Worst of all, the extra $200 million burden on business may discourage smaller companies from buying coverage for workers. Q-The California Medical Association has been trying to get the state to require employers to provide insurance for all workers as Hawaii has already done and as you say New Jersey is trying to do. They use New Jersey's argument, claiming that since four of the six million uninsured Californians are working, employers should

23

pick up the $120 per month per capita average cost. You know the rest; the problem of the uninsured eventually hits everyone, driving up costs for health care services, insurance premiums and labor costs. Like you said, small businesses are opposed and large businesses support the concept because it would reduce the costs they already provide. The AMA estimates a need for about two billion in state subsidizes and figure the alcohol and or tobacco tax money would do the trick. A-I told you Governor Wilson wasn't the only one with plans for that new revenue. Q-What can employers do to get out from under these soaring health-care costs? A-Employers have to be creative, and they're getting there. In 1989 employers paid approximately forty-five billion to the workers' compensation insurance, almost double the figure paid in 1979. Some companies are moving away from the standard practice of setting a fixed charge for all employees and instead are instituting incentives and even sometimes penalties for good health practices by employees. Willis Goldbeck from the Washington Group on Health spoke at the Governor's Conference in February 1991, and while he encouraged the Governors to push for mandatory health plans with business footing the bill, he also spoke about the Healthy Cities plan which started five years ago in Europe with only thirty cities and now involves 215. Q-I've never heard of it. A- It was instituted by mayors in order to develop healthier policies with regards to transportation, recreation, development issues and so forththe idea is to analyze everything from a health perspective and to exchange information and ideas. At least one city in Indiana is following suit as are several in California. Goldbeck thinks it is a good plan to emulate and suggests the idea be adopted for education, with governors, instead of mayors exchanging ideas and viewing all kinds of policies from an education perspective. Q-Are you in favor of the wellness programs that many government administrators are embracing as a means of reducing health care costs?

24

A-The programs are inexpensive and suppose to be effective. In the fall of 1990 the Council of State Governments created the National Association for State Employee Wellness. The twentytwo state program of NASEW consists of a newsletter, a healthrisk screening program, education classes on stress management, parenting and the like which are usually provided by personnel of health or insurance departments. Some states fund the programs via workers compensation insurance rebates, specific grants or through their regular budget. Local governments fund similar programs via car washes, bake sales or whatever it takes. Even profits have joined the rank of the old stand-by non-profits, like the March of Dimes, in providing health education to the public. Corporations often use patient advocacy companies, as they are called, to keep their employees informed, healthy and in a healthy work environment. They are finding that a handful of workers account for the most expenditures. Bonuses are often paid if employees take a series of steps to get healthy or additional charges are levied on the health insurance for smokers or obese employees. Q-So they're adding incentives and penalties instead of restricting benefits? A-Not instead; in addition. The unrelenting growth in health care bills and the Financial Accounting Standards Board, FASB, changes requiring companies to set up huge reserves to fund retiree benefits are causing many businesses to cut back retirement benefits for employees. For example Vons company. once offered a generous health plan to its retirees, providing coverage with virtually no deductible or premiums, but in 1990 it switched to a system in which retiring non-union employees will receive a onetime allocation of credits based on length of service, credit to be used to pay annual premiums ranging from $1,400 to $4,000 for one of two insurance plans. The switch is intended to cut Vons anticipated expense under the FASB changes in half. Ball Corp. in Muncie Indiana hopes to shift the burden of healthcare coverage to employees in a plan that will allow them to put money away via payroll deductions for future medical needs. The company would invest these employee after-tax dollars and as long as the money is spent for health care after retirement, both principle and interest earned would be tax-free. In 1990, Ball's retiree obligation amounted to about $700,000 a year, or a little

25

over a thousand dollars for each of its retirees and health care costs for active employees amounted to about fourteen million. In 1990, about 4,100 of the company's 7,100 employees were eligible for health coverage upon retirement. This would give Ball a potential liability of about sixty thousand dollars per employee which, according to the FASB rules, would have to be accounted for on current balance sheets. What would you do? Q-Well I wouldn't blame them. A-Fortunately, the FASB regulations are on hold [early 1991] and are being reevaluated. Unfortunately too many of the obligations incurred by the government and business are backed by big promises, and as President Bush would say, little wallet. The current state of the health-care system has been compared to the savings and loan industry which was also big on long-term promises. Q-Some experts are suggesting that employees pay for basic health care and look to employers to insure them for catastrophic expenses. A-Remember, I was suggesting this as a reform for Medicare. People see the merit in the idea, but they also have a tendency to see a pitfall that really isn't there. They recall that the law expanding Medicare to cover catastrophic expenses, had to be repealed. But this is not the same. In that case many retirees were forced to pay for extra coverage they neither desired or could use and were forced to subsidize coverage for other seniors. I believe the present system should be completely turned around. Instead of paying the least expensive commonly incurred bills, like those for office visits, x-rays, eye-glasses and the likeitems that most people can handleMedicare should pay the catastrophic expenses that can ruin a family financially. This fend-for-yourself solution, as it has been called, relies on the market to bring the costs of health care into line. For the first time in a long time the person receiving the care would be shopping and paying for it. Q-That would be a change alright. A-An effective change! Because most of the health-care was paid for by employers and government there was a tendency to over use the system. The providers didn't feel pangs about over-charging because the patient was not going to pay the bill anyway. All the incentives were wrong. If employees become active informed

26

educated buyers and connoisseurs of quality care instead of passive sheep, health-care providers will have to increase their efficiency. Making people responsible for their own lives again, has got to be a step in the right direction. Q-What about the proposal made by the advisory council on social security in 1990, which would shift basic Medicare coverage to private insurance and have the government pick up the tab for lifetime care after a spending ceiling has been reached for each person? A-The concept is on the right track, but the mistake is in mandating what is to be covered. The spending-ceiling idea is what I have been talking about, and I think, a good idea. The problem arises in deciding the level of services the government would provide. I suspect the program would be a disaster for anything but custodial long-term care. Judged by the controversy up in Oregon, I don't think many people want government determining who gets what expensive operation, organ transplant, hip replacement and so forth. Rationing in the marketplace is determined by income and is the way it is done in a capitalist society, which may be, as they say, the worst possible way to do things except for every other way. Q-Let's talk nursing homes. I guess, thanks to the media blitz over the last couple of years, that everyone realizes that Medicare doesn't cover long-term stays in nursing homes. I'm not sure people are certain who or what does and if Medicare has some kind of role. Can you straighten us out? A- Medicare provides hospital insurance, along with limited coverage of stays in skilled nursing facilities, for the elderly and disabled. It is entirely federally financed and provides uniform benefits but it is not available for long-term custodial care in nursing homes. Often elderly patients are forced to exhaust their resources to qualify for Medicaid which pays the bills for 65 percent of the nation's nursing home residents. Q-What about private insurance? A-Unfortunately the premiums required by private insurance companies for nursing home policies providing good-quality coverage, will exceed the budgets of most older Americans. Although over a hundred insurance companies sell long-term care policies, yearly premiums average close to $1,500 for people who signs up at age 65 and almost doubles if they wait till age 75.

27

Equally expensive policies are available that cover at- home health-care and provide things like nurses and day care. Q-We hear a lot about nursing home care exhausting a couples savings. I just can't believe we would have a system that makes people pay down to nothing in order to get help. A-There have been studies which show that 46 percent of those over 75 years of age who enter nursing homes are bankrupted in 13 weeks and 70 percent are bankrupted after a year. Q-What happens to the stay-at-home spouse? A-Nursing home residents having a living spouse, may protect a minimum of $12,000 or half their combined life savings up to a maximum of $60,000. In addition they may keep certain exempt assets, generally including the family residence if a spouse or dependent relative is living there, household goods and personal effects, a car, burial plots, and funeral expenses up to $1,500 each. Single individuals may protect only about $2,000 of their assets and have a more limited list of exempt assets than do married couples. Q-What happens if a nursing home patient wishes to pass an inheritance on to his children? A-It is possible, but there are pitfalls. Transfers for less than fair market value made within thirty months of a Medicaid application can be invalid. A Medicaid qualifying trust will allow an inheritance to be passed to children if structured properly. The trust must be irrevocable and the person transferring assets to the trust, the trustor, must give up all control over those assets. The trustor retains only the right to the income produced by the assets which revert to named beneficiaries upon the trustor's death. For example if assets worth $200,000 were put into such a trust and invested to yield a modest eight percent annually ($16,000) and thirty months later the trustor were to enter a $30,000 a year nursing home, the $16,000 would pay the nursing home without depleting the assets in the trust and Medicare would pick up the $14,000 shortfall. If the trustor regained his health, he would continue to get the $16,000 income for living expenses from the assets placed in the trust. Without the trust he would have had to pay the entire $30,000 a year for his nursing home care and may have depleted his assets to

28

the extent that his return home would have been to a life of poverty. Additionally, nothing of his life's work would be available to pass on to the next generation. Q-But how many people know anything about Medicaid trusts, for crying out loud? A-My point exactly! That's why I'm so anxious to see government's role reduced in the lives of all American citizens. Those in-the-know, or who can afford a knowledgeable attorney and financial planner, come out just fine in a bureaucratic state. Experts start devising ways to skirt the rules and regulations even before the ink on new legislation is dry. That's what Leona Helmsley had in mind when she said those infamous words, Only the poor pay taxes. She was vilified for speaking the truth. Those with knowledge, see to it that their tax bill is minimized, or in this case, their nursing home bill. Q-That really upsets me! A-It should. The majority of Americans go through life in a straight forward manner. If a bill is presented, they rarely contest it or think about possible deductions, credits, waivers, trusts and so forth. They pay full price. We have in America today, not a rich v. poor issue, as so many would have you believe, but rather a knowledge v. ignorance issue. The rich may be able to purchase knowledge, but in this country the poor have access to the same knowledge, they just have to be encouraged to go after it. I remember in Berkeley during the seventies, many flower-children didn't want to hassle with money and the educated ones didn't need to because they had learned how to milk the system. They knew just how long they could stay rent-free in an apartment before the landlord could legally evict them. They became experts on landlord-tenant law, workman's comp and knew their way around the Medicaid regulations controlling their food stamps better than most social workers. As far as I'm concerned, the average non-informed citizen has a duty, not to government or even to society, but to him or herself, to become informed. Q-Well I'm glad you realize most people aren't about to use Medicaid trusts. So for the average non-informed citizen just how bad is the nursing home problem?

29

A-Terrible, if it affects you or someone you know, but the problem is not as widespread as some would have us believe. Consider that those over sixty-five make up roughly 12 percent of the population and number around 30 million. If you realize that 1.4 million of these citizens are in nursing home care, that's roughly three percent of twelve percent, or less than half of one percent of the general population. The problem will occur over the next forty years as the number of elderly double and the over age 85 group reaches 5.3 million. Q-There are people under age sixty-five that need nursing home care also. A-That's true, and in some ways their plight is even more tragic. The under sixty-five disabled have a waiting period before any benefits are available and entry to the Medicaid system is exasperating and exhausting. Q-How in the world can they pay for interim care? A-It's a real problem. Congresswoman Barbara Kennelly of Connecticut recently introduced a bill which would allow a person who has been certified as likely to die within a year, to receive, tax-free, the proceeds of any life insurance policy. That would allow a younger family to keep its assets in tact in case they are faced with the need for custodial care for a family member with a terminal illness. Q-Why is it so hard to get Medicaid assistance for nursing home care? A-Remember, while Medicare is a wholly federal program, Medicaid is a shared burden. States pay over forty percent of Medicaids total cost and that's why they struggle so hard to keep people out of nursing homes. In October 1990 they began paying even more to cover the costs of new federally mandated nursing home standards. In California alone that is estimated to add at least another $400 million to the state's $6.9 billion annual Medicaid bill. By limiting access to nursing-home beds, states are able to push the cost of elderly care onto Medicare and the hospitals. One praiseworthy exception is Delaware. Its Medicaid program has established a super-skilled care category that pays nursing homes up to five hundred dollars a day for certain heavy-care patients. Remember, I said earlier that Medicare used to reimburse hospitals for the care provided, whatever the cost, but in 1983, it started

30

paying set amounts for each illness or medical procedure. This makes it costly for hospitals with long-stay patients. Q-I've heard long-stay patients referred to as "border elderly". What does that mean? A-Border-elderly refers to those older patients who have no place to go. Actually, about 25 percent of the nation's hospitals struggle under the burden of "border elderly". The problem is far more pervasive than that of the more publicized "boarder babies" abandoned by drug-using mothers. Q-Didn't the Supreme Court recently rule that hospitals and nursing homes may sue in federal court to compel state officials to set "reasonable and adequate reimbursement rates"? A-Yes, in 1990. You've got to realize that government has not been stingy. $137 billion in federal funds alone was spent on the fiftyfive million elderly and poor Americans covered by Medicare and Medicaid last year. The health-care industry has to become more efficient and cost-effective. Q-What do you think about substituting home-care for institutionalized care? A-There are pros and cons. Oregon's system of home-care is one of the best and different versions are being used, to a lesser extent, in other states. The trick is to get insurers to go along. A 24-hour hospital stay can cost a patient eight hundred dollars, whereas the same services provided at home might cost less than half. Insurers may go along as sophisticated home-care providers proliferate and the demand for high quality cost-effective care accelerates. New products for the home-care market are coming out every day. A company in California has produced three videos to help chronically ill patients care for themselves at home. They address self-care, mental coping and family support. Another offering to make home-care more feasible is a hospital-style bed for people unable to sit up or get to a bathroom without assistance. At the touch of a button, a conveyor roller, directly under the patient and on top of the mattress, maneuvers the patient to the foot of the bed and into a detachable wheelchair at the end of the bed. The bottom half of the bed then raises the patient to a sitting position in the wheelchair, or to a standing position. The reverse puts the patient back to bed. It rents for sixty dollars a day, or for long term care, it can be purchased.

31

But there are pitfalls here also. For example, the cost of comparable home intravenous programs for nutritional and antibiotic care can vary as much as seven hundred percent. The General Accounting Office can point to instances where home medical-equipment supplies have overcharged Medicare (taxpayers) by $240 million a year. Q-Speaking of cost-effective, do you happen to know how much the average business is currently paying for their employee health plans? A-There are so many surveys and studies that the answer depends on whose statistics you use. Nevertheless, the trend towards accelerating health costs is unmistakable in all studies. For example, in a September 1990 survey of approximately two thousand firms whose health plans covered over eleven million employees, it was found that costs rose from $2,748 per employee in 1989 to $3,217 per employee in 1990more than a seventeen percent rise in one year. Rates of increase varied from industry to industry with an increase of slightly over eight percent for wholesale retail employers on the low end, to a hike of nearly thirty-eight percent for the construction and mining workers. A-How does that relate to total expenses? Q- Health costs accounted for a whooping twenty-six percent of corporate earnings in 1990. You can see why more and more large businesses are getting behind the drive for national health care it's self-preservation! As AFL-CIO head, Lane Kirkland, said, "the bottom line is overtaking ideology." Q-What kind of increase are we talking about, say over a decade? A-Well, I can tell you with certainty that costs have more than doubled in just the last five years, and if current trends continue, according to the annual Foster Higgins survey, firms will be paying $22,000 for medical benefits for employees by the year 2000! Q-That's outrageous! There must be all kinds of speculations on the cause. A-Right you are, with the most recent target for blame being the recession. It seems that people, worried about losing their jobs, decide to take care of all the elective health stuff while they still have medical benefits.

32

Q- There may be some truth to that, but that kind of increase is sporadic and temporary. What about the long term permanent acceleration that comes out of all the studies? A-That can be laid unequivocally at the feet of congress and its spineless attempts at balancing the budget. Instead of making the hard choices and asking individuals to share more of their health care costs, policymakers, through Medicare and Medicaid, have been short-changing the health-care providers who in turn pass the shortfall on to the private sector. It's a large burden that now business is unfairly and shortsightedly being asked to shoulder. Q-Isn't a lot of the cost in the bureaucracy itself? A-Needless to say, a bureaucracy generates paperwork and administration and those costs are spiraling. At one hospital in 1983 a cataract operation required three days of hospitalization, produced twelve pages of paperwork with seven signatures whereas in 1990 the same operation took a three-hour stay, produced thirty-eight pages of paperwork requiring thirty signatures. At his 430-bed Redwood City, California hospital, an official set the price tag for dealing with all the regulatory bodies and government mandated paper work at $7.8 million annually. In an article written for the Wall Street Journal and published in June, 1990, he claimed his hospital had the same average number of inpatients as it did twenty-five years ago but the staff had increased seventy-five percent. Some of the increase could be justified; for instance, the rise in nursing staff from 374 to 533. It corresponded to a rise in outpatient service and the higher number of patients needing intense care today, due to government regulations which restrict the point when hospital admission is permitted. But the largest increase came in accounting and administration which tripled in size. The federal government, in a misguided and futile attempt to curb health care costs, insists that medical procedures be thoroughly audited often by three or four entities, and constantly checked for quality and appropriateness. So you're right, the billions of dollars spent in regulatory costs nationwide are a major factor in the high cost of health care in this countrya cost which does nothing for the people's medical well being. The answer we've been getting from members of congress is greater and greater government involvement. It's idiotic to call on government to deal with the problems government itself created!

33

Q-Did you hear that there may be some crackdowns by the IRS on hospitals who fail to provide enough charitable care to justify their federal, state or local tax-exempt status? A-I heard that one Texas hospital was sued for not providing enough indigent care. The hospital's president had an interesting definition of charity which he used to answer the IRS charge. He claimed that as a teaching and research center, activities which are beneficial to society, the hospital fulfilled its charitable functions and did not intend to extend care to the poor specifically. Q-I don't think that's going to wash with those inside the beltway. A-Right you are. Congressman Edward Roybal, chairman of the House Select Committee on Aging, was quick to propose a bill to reinstate charity-care as a fundamental basis for tax exemption. It would require a hospital to provide indigent care worth at least half the amount of its exemption, in addition to providing evidence of other community benefits equal in cost to thirty-five percent of its tax exemption. Nobody wants to turn indigents away, and they are usually treated, with the cost either borne by taxpayers or shifted to the private sector via the insurance system or padded bills. And it is not always the indigents that have to be subsidized. Healthy people often under-insure. It's hard to turn one's back on suffering, even if it could have been prevented. Q-There was some scandal awhile back, about hospitals using government funds for art work or some luxury-type purchases. Do you recall that incident? A-I'm not sure what you're talking about, but Medicare has reimbursed hospitals for capital expenditures in the past, paying eighty-five percent of what is spent on new plant, equipment and technology, multiplied by the portion of hospital days spent treating Medicare beneficiaries. In FY1991 Medicares capital expenditures amounted to almost six and a half billion dollars. A recent scandal that revealed funds spent on lavish swimming pools and foyers probably furthered the federal government's decision to limit and scrutinize capital reimbursements in the future. Under the change proposed in 1991, hospitals would be paid a fixed amount according to the number of Medicare patients they serve. Of course hospitals are fighting the proposed change.

34

Q- All hospitals have been having trouble with Washington attempting to cut the Medicaid program at the expense of health care providers. A-Especially public hospitals. In 1988 emergency visits at public hospitals were almost five times more numerous than at general hospitals, and occupancy rates were far higher. Thirty percent of in-patients and fifty-two percent of out-patients were uninsured, and forty-two percent of fees weren't paid. Q-Are there any patients that pay their own hospital expenses directly without third-party payers? A-Hardly any. Medicare and private insurers pick up the tab for 90 percent of hospital revenue and have their own reimbursement formulas. Since only ten percent of the revenue comes from consumer-patients, hospitals have little reason to keep track of line-item prices. Of course some line-item prices are used in the more complicated cost-reimbursement formulas, but this only gives hospitals an incentive to artificially raise or lower prices to manipulate the reimbursement from third-party payers. Again, let me stress that the problem here is that these artificial prices are not determined by supply and demand. Another problem is that those least capable of coping with high hospital costs are the ones that are having to pay out-of-pocket. Primary payers need to shop and compare prices in order to make prudent buying decisions. This means having total package prices submitted by hospitals before admission. The government is responsible for taking health care out of the market system and they should help reestablish it, perhaps by requiring hospitals to quote pre-admission prices to all patients the way auto-mechanics, contractors and other service providers are required to do. That is the only way patients will know in advance what their total bill will be and the only way to control spiraling health-care costs in this country. Q- Requiring? A-I was hoping you wouldn't notice. Q-What about the American Hospital Association's claim of a shortfall in Medicaid payments of four and a half billion dollars in 1989?

35

A- $4.3 billion. And in the FY1992 budget doctors and hospitals are again being asked to take an even bigger hit. Q-What about utilization-review programs where cost-cutters in the health field look over the doctors' recommendations and try to find less expensive methods to achieve desired results? I heard they save money but threaten the quality of care and may even result in some patients being turned out of hospitals too early. A-Those programs started out with flying colors, saving as much as twenty percent a year for employers who used them. Unfortunately half of the companies that now use them find that they have no effect on cost-control what so ever. Part of the problem is the expense of employing the reviewers. Q-Isn't it true that it's not so much that substituting treatments, cutting back on surgery and shorter hospital stays, threatens the health of patients, as that these proposals threaten the wealth of doctors? A-It's true that a 1989 Institute of Medicine study found absolutely no evidence that review programs jeopardized the health and safety of patients. Q-Why is it so expensive to employ reviewers? Aren't there are over three hundred companies selling review services? A-Liability insurancewhat else? According to a recent California court decision, utilization review firms may be liable if a patient is injured due to early release from a hospital for instance, and the liability could even extend to employers if they can be shown to have negligently chosen the utilization review firm. Doctors don't do extra procedures just to pad their incomes, they need to protect against malpractice suits. The participants in our dialogue now direct their discussion to encompass mental health issues . . . Q-Couldn't one of the main culprits in accelerating health costs be the extension of coverage to psychological problems and addictions? A-That's definitely true. Some companies monitor mental-health care more intensively than other types of health care and that has riled the American Psychiatric Association. They are pushing a law

36

that would make it illegal to apply different review procedures to mental-health care. Q-Why are there suddenly so many patients requiring this type of care? A-There are many reasons for the increase in mental-health care, including greater cultural acceptance and broader insurance coverage. Health-insurance costs are a function of changing social norms, commercialism and law. Some people see a correlation between the major social changes of the past fifty years and the increased need for mental-health services. They see medical and mental-health services compensating for the vacuum left by the loss of family and community. Additionally, third-party reimbursement for this type of care is not limited under the schedules of the Diagnosis-Related Group (DRG) which apply throughout medicine. This market used to lie beyond the reach of the non-affluent, but half the states now mandate that health insurers cover the mind, making, as one writer put it, another burden of modern life institutional instead of the responsibility of the individual. Q-Doesn't this additional coverage cost business a lot? A-Insurance companies tend to pay for hospitalization for mental disorders, but not so much for outpatient services. Determining the need for mental health care is subjective. Companies are finding evidence that the prompt diagnosis and treatment of mental health problems may lower other health care costs and increase worker productivity. Nevertheless the costs are substantial. Q-How much? A-The per-employee cost of psychiatric and substance-abuse benefits was $163 in 1987, $207 in 1988 and $244 in 1989 or for companies with more than five thousand employees the cost was $297 a head. According to a Foster Higgins survey, the claim is not usually made for the worker's care, but for the care of a dependent; too often an adolescent. Unfortunately many private psychiatric hospitals have become dumping grounds for adolescents whose parents cannot deal with teenagers. Q-I bet the resistance to reimbursing outpatient therapy in the 1970s encouraged the current boom in private hospitals.

37

A- Probably. During the 1980s VA facilities shrank their mental patient load by twenty-five percent and many of these people still need help. The skyrocketing costs of mental health and addiction problems weigh heavily on public hospitals, where twenty-nine percent of emergency hospital visits in 1988 were drug related. My 20-year-old son, who is a paramedic, tells me that ambulance and emergency services are used on a frequent basis by noninsured lower income people. What else do you do when you don't have your own private physician to consult? It's only natural to go to the emergency room, and as long as it's not going to cost you anything, it's normal to think of calling an ambulance to get there. Q-His observations don't exactly mesh with the alleged findings of the Health Care Policy & Research Agency as reported in Business Week in January 1990. Are you familiar with that report? A-Vaguely. As I recall the report didn't say how, but only that Brenda Spillman calculates that uninsured men and women had two-thirds as many emergency visits as their insured counterparts. Her study involved the costs of bringing the use of health care by the uninsured up to par with use by the insured, and put that cost at eighteen billion in 1987. In view of the waste we are finding in the use of health care facilities by those insured by Medicare and private insurers, getting the uninsured up to par seems like a dubious goal to me. Healthcare Knowledge Systems in Michigan found that uninsured women spend an average of 1.9 days in the hospital for routine childbirth compared to 2.3 days spent by those with traditional insurance. It may not seem like a very large difference, but when you think of all the births occurring nationwide on a daily basis, the costs add up. To provide uninsured people with access to preventive and maintenance care would be a worthy goal in itself, and saving the exorbitant costs of ambulance and emergencyroom services, too often left as tabs for the taxpayer, would be an added bonus. Q-You know what we haven't talked about? National Health Insurance. A-John Dingell of Michigan introduced a bill to create national health insurance as the 102nd Congress began, just as he has done every other year since 1955 and as his late father did fifty years ago. That's no surprise, but the surprise is the endorsement in the spring of 1990 by The American College of Physicians of a

38

comprehensive health-care reform which would include some form of national financing. The larger more powerful American Medical Association favors having employers provide health insurance and an expansion of Medicaid coverage for the poor. Q-Isn't Pete Stark, the congressman from the bay area in northern California, suppose to have his own solution to the nation's health care problem? A- I didn't know whether to take the statements he made on July 18, 1990 seriously or not. You be the judge: Through the use of a single national plan, operated by the federal government, it will be possible to bring the same kind of fiscal discipline to Mediplan as we have already achieved in Medicare hospital payments and as we expect to achieve in Medicare physician benefits. He's kidding, right? Q-First, what is Mediplan? A-It's a brainchild of the Congressman's which he says would provide basic and long term health care to all Americans for only $120 billion per year. (HR 5300) Q-Wasn't the late-Congressman Claude Pepper's plan to do the same thing, defeated because of a price tag half that size? A-The chief criticism of the Pepper Plan was the lack of suggestions on how to finance it's $66.2 billion a year projected cost. Mr. Stark doesn't fall into that trap. Mediplan would replace Medicare and be financed primarily by a four percent surtax on all income over $16,000 per person per year, plus another four percent on all corporate income, plus a hefty premium of about $1,000 a year to be shared by the employer and each employee. Nebraska's Senator Robert Kerrey, who many think may be a presidential candidate in 1992, also has a program for national health care which he calls Health Care USA. He discussed it before the National Newspaper Association in March, 1991 and is hoping Nebraskans will give it a trial run. It would be administered by the various states and even he admits it will cost a bundle. Another presidential hopeful, Paul Tsongas of Massachusetts, unveiled his plan in April 1991. Later in 1991 Senate Majority Leader, George Mitchell, will probably produce a health plan for the nation which he has been refining for years and which he discussed on April 12, 1991 before the American Group Practice Association

39

Q-Many people believe it's time to institute a system of national health care in this country like the ones that appear to be so successful in other parts of the world. What do you think? A-Always there are those who point in admiration to the free health care provided by socialist and communist countries. How often we have heard that America is the only industrialized society that does not...? Don't these people ever wonder why it is people from all over the world are trying to get into this supposedly heartless, uncaring country which provides citizens, aliens and visitors the best of everything? According to Kenneth Prager, a physician who in 1987 wrote about his experiences with the Soviet health care system, that system is far from free; that is if a patient desires clean linen and delivery of medications. Forget about meals; those must be brought to patients from home. Q- Thats an idea which many hospital patients might like to see copied in this country. Just kidding. A- You might add airline meals. But back to the Soviet system; cash or other goods must change hands if a really competent physician is to be secured, and the same goes for many medications. What is not permitted on the surface goes on underground. Political systems may vary, but human nature is the same everywhere. There is a hierarchy of medical facilities, technology and care in the Soviet Union with the best, in all cases, being imported from abroad. Modern medicine, as we have found in this country, is very expensive and the Soviets chose for years to allocate their limited resources to military and space technology. As a consequence there are shortages of everything from wheelchairs to needles and scalpels which, as they become dull through overuse, cause more pain than most Americans would endure. Syringes, catheters and intravenous tubing are reused with increased risk of infection. The aged, according to Dr. Prager, are afraid of being hospitalized. In a medical system that is chronically short of the most basic supplies, the elderly are considered expendable and will be the first to feel the brunt of such shortages" Q-But times, they are a changingespecially in the Soviet Union. I heard awhile ago that under Gorbachev's new economic policies,

40

physicians are allowed to make a profit, set their own salaries, hire staff and obtain their own equipment and supplies. A-I heard that too. In fact there are estimated to be approximately eighty medical cooperatives in Moscow alone where groups of physicians either obtain loans from the state or pool their resources to go into business for themselves. [Remember this was in 1991] Citizens are more than willing to pay high prices to avoid the long lines and delays associated with the state operated clinics and to receive what they believe to be higher quality and more personalized care. Cost is secondary. After all Soviet citizens have the highest savings rate in the world because there is nothing much to buy in the Soviet Union. Q-Ill remember that next time I hear politicians lamenting the low savings rate in this country. A-In 1986 a Health Center was established in an old run-down mansion in Moscow, and it was soon swamped with paying patients. It was the first of approximately ninety-five medical cooperatives throughout the country emphasizing health maintenance. Much of the treatment concentrated on avoiding cigarettes and preventing obesity. Nurses at the Center were paid more than most doctors in the state system and many of the twenty-six resident physicians made more than double the salaries of their state-employed counterparts. Q-Granted, Soviet health care may leave something to be desired, but what about Canada's health-care system? A-The Canadian health system is supposed to guarantee equal access to health care, at no direct cost to the citizen and with any practitioner the patient chooses. Private insurance doesn't exist in Canada. A recent Canadian study found no difference in death rates between Canadians and Americans who experienced low and moderate risk procedures, but death rates in the U.S. were lower when high risk procedures were considered. The joke is the system is great as long as you don't get sick. As in all nationalized systems, access to major procedures is strictly rationed. Canada has twelve magnetic resonance imagers used for diagnoses, or one for every 2.1 million people compared to 1,375 in the U. S. or one for every 182,000 people. In Canada there are only eleven facilities doing open heart surgery compared with 793 in the USA and fourteen sites doing organ transplants compared to 319 in the USA.

41

Q- Canadas population is less than ours. A- How would you account for the long waits for operations such as hernias, cataracts and coronary bypass grafting. Many Canadians die before their wait is up, and this of course, saves the system money. Heartbeat Windsor is a private volunteer organization founded in 1989 whose purpose is to help Canadian heart patients obtain critically needed surgery in the U.S. Q- Why not in England? A- The thriving private practice of medicine in England is not an alternative for Canadians as the government forbids it. Canada has a smaller percentage of its population over age sixty-five than we do, and that accounts for some savings to the Canadian system, since costs increase with an aging population. Incidence of teenage pregnancy is 250 percent greater in the USA than in Canada, and the incidence of smoking, drinking and doing drugs during pregnancy is much less in Canada. Research and development account for a much higher percentage of health costs in the U.S. than in Canada. Q-Do you happen to know what it would cost to institute a system like Canada's here in the United States? A-I've heard it would cost between two hundred billion and three hundred billion a year. A study by Stanford health economist, Victor Fuchs, published in 1990 and based on 1985 data, found U. S. health expenditures to be thirty-eight percent higher per capita than in Canada. Again, the difference is most striking in fees for procedures requiring specialists. There was very little difference for routine office visits. It is estimated that general practitioners and family physicians deliver two-thirds of the routine care in Canada, but just one-third of the care in the U.S. On a per-capita basis, Americans get threequarters of the doctors' services received by Canadians, which is contrary to the popular notion that lower costs in Canada are a result of providing fewer services. Instead it is the kind and difficulty of services that accounts for the differences in the two systems.

42

Q-It seems like doctors, in order to maintain their incomes, would be forced to perform more, not less, procedures when their fees are capped. A-As I said, that's just what happens in Canada. Q-An article in Time magazine December, 1990, gives an argument for national health care. It states that three out of four Americans favor it and big business is ready to go along because it is already providing the care for its employees and subsidizing costs for smaller businesses that don't provide coverage. Any comments? A-I've heard most of the arguments ad nauseum: We have between thirty-one and thirty-seven million residents without health insurance; at least thats what the argument claims. Twenty-eight percent of the population faces financial disaster if illness strikes. We spend millions of dollars on intensive care for those to whom we refused basic care months earlier. We give by-pass operations to persons with Alzheimer disease and hip replacements to comatose patients. Health care costs now consume fourteen percent of the elderly's income. We rank twenty second in infant mortality and our life expectancy is no greater than that found in other industrialized countries. We pay more and get less. Q-You mean to say you don't buy any of those arguments? A-I know we have problems with our system, but what you call arguments, I call myths. Q-What myths? A-The following myths surround NHI, National Health Insurance. Myth 1- National Health Insurance ensures access to everyone. Eight hundred thousand people are waiting for operations in Britain at any time. Waiting is not access. In England the number of people with private insurance has doubled in the last decade so that now over twelve percent of the population is privately covered. Maybe the fact that nine thousand kidney patients are denied treatment by the British NHS each year has something to do with it. In New Zealand, thirty-three percent of the population is covered by private health insurance, with private hospitals performing one quarter of the surgery.

43

Myth 2-National Health Insurance means more efficiency and lower costs. Naturally money is saved when you don't offer the expensive services. Myth 3-National Health Insurance uses money efficiently. Ambulances are used in England as a free taxi service with ninetyone of the trips used for non-emergency purposes. Just as well, as they are not equipped with the life-saving equipment considered standard in this country. The British NHS spends seventy million a year on tranquilizers, sedatives and sleeping pills, approximately nineteen million on antacids and twenty-one million on cough medicine, according to John Goodman of the National Center for Policy Analysis. Myth 4-Under National Health Insurance, the elderly will receive at least the same benefit they now receive under Medicare. The elderly have the most to lose from the adoption of NHI. In Europe twenty-two percent of patients over age fifty-five are not given access to dialysis and in Britain thirty-five percent were refused treatment, as were forty-five percent of those kidney patients over age sixty-five. Such treatment is rarely allowed for those over age seventy-five. Myth 5- National Health Insurance primarily benefits the poor. NHI is a middle-class phenomenon. There have always been responses in all countries, from all governments, to the health-care needs of the poor. NHI is a way to woo the middle-class taxpayers. Numerous inexpensive services affecting millions of voters is better policy, as far as politicians are concerned, than spending large amounts of money on a handful of acute patients. It is always politically expedient to redistribute resources from the few to the many. Myth 6-Since National Health Insurance is popular elsewhere, it will be popular here. It doesn't work as advertised anywhere. The wealthy and powerful find ways to circumvent the lines. Those pushed to the end are not aware of the technologies they are being denied. But Americans have access to information about modern medical technology and there are plenty of lawyers and advocacy groups to represent the down trodden. People may be used to being pushed around in other parts of the world and accept it as their lot. Americans won't stand for it. In a strange dichotomy Americans are the first to say You can't push me around and There ought to be a law.

44

Myth 7-We spend more and get less health care than citizens of other countries. Witness higher infant mortality and similar life expectancy rates. Mortality is determined by many things that doctors and hospitals do not influence, but whenever medical care can influence the outcome, the U.S. is on top. For premature babies, and those with cancer, heart disease, and those requiring transplants and so forth, their outlook is best in this country. We may pay more but we get more. Q-I don't believe that last one is a myth. What about the poor care and high mortality rate for young people in this country? A-Vehicle accidents are the most common cause of death for young people ages fifteen to twenty-four in all developed countries. Unfortunately, young American males are more than four times as likely to be murdered than their counterparts in other developed countries. American children experience divorce and life with a single parent more than other children. Less than twenty percent of children in Japan and Europe live in single parent families, whereas more than twenty-five percent of American children do. Twice as many American children under age eighteen see their parents divorce in a given year, as compared to children in Japan, Canada and Norway. Approximately twenty percent of American children live below the poverty level due to living with a single parent, whereas only ten percent of children in Canada, West Germany and Sweden are reported to be in the same boat. Q-None of that accounts for the high-infant mortality rate in this country. A-It may be time to admit that America's high infant-mortality rate is a social problem, rather than a medical problem that can be cured with more dollars. A study for the Department of Agriculture's Food and Nutrition Service Department cost over a million dollars to prepare in order to justify the WIC program. Q- Whats a WIC program? A-WIC is a special supplemental feeding program for women, infants and children The report established nothing any fifth grader couldn't have surmised. Q- Like what for instance? A- For instance that women receiving good diets are less likely to have babies of low birth rate. What kind of claim is that? Less

45

likely is far from a cause and effect. Those that blame lack of funds for the WIC program for low birth weight babies are spouting nonsense. It is more likely that low birth weight is caused by the mother's behavior than by underfunded nutritional programs. Q-What kind of behavior? Q- A researcher at the American Enterprise Institute traced the cause of low birthrate and infant mortality to teen pregnancy and illegitimacy. Among all races in the USA in 1987, twenty-four percent of infants were born to unmarried women. Infant-health among Latinos, who generally receive a significant amount of extended-family support during their pregnancies, was better than the general population. A 1982 study showed children of unmarried white college graduates had higher infant mortality rates than those of married white high-school dropouts. Statistics show that a child born to poor married parents has a better chance of survival than a child born to a single middle-class mother. Japanese statistics were also studied. The fact that Japanese women are four times more likely to die during child birth than are American women, attests to poorer prenatal care, yet Japan's infant mortality rate is half that of ours. Coincidentally less than one percent of Japanese mothers are either teenagers or unmarried. Q-I still don't buy it. A-Will you accept the word of Health and Human Services Secretary, Dr. Louis Sullivan? He claims a 1989 proposal, and a two billion increase in funding brought one million more women and children into the WIC program. He also claimed that twenty percent of Caucasian births, thirty percent of Hispanic births and sixty percent of black births are to single parents and that a child born to a single parent has five times the likelihood of growing up poor. He went on to say that ten percent of all infant mortality in this country is due to mother's smoking during pregnancy and that the infant mortality rate in this country is now half what it was in 1970. Q-I understood that in the summer of 1990 the national Center for Disease Control claimed that single motherhood is a sign of possible health problems for the child, but came short of citing it as a direct cause. A-For those who are still unconvinced that the attitude rather than the health of the mother accounts for America's high infant mortality, Washington DC, a city that spends $105 million on its

46

residents health, is an example. The District of Columbia has an infant mortality rate three times the national rate. It also has the nation's highest percentage of births to unmarried mothers and three times the national average. Coincidental? In the nation's capital prenatal care is free to any woman whose annual family income is less than twenty thousand dollars. Clinics, which provide childcare, are conveniently open in the evening as well as the day, and at most there is less than a two week wait for an appointment. A woman can be referred for drug treatment, see a dentist, a social worker, a WIC representative, a registered nurse and an obstetrician. And no one can claim ignorance of the services. There is an extensive media campaign with announcements on radio and TV, posters on buses and other public places, and on top of that a van goes to the poorest neighborhoods looking for pregnant women and offering to take them to the clinics and reminding others of appointments and providing door to door transportation. What more could be done? Nevertheless sixty to seventy percent of the babies born at the General Hospital are born to women who used drugs and/or alcohol during their pregnancy. Q- It sounds to me like they needed counseling. A-Counseling is not the answer. Most of the women knew about free care but didn't care. Women and girls who are into alcohol and drugs don't listen, and spending more dollars on prenatal care and services is not going to make any difference. But politicians don't listen either and despite our burgeoning budget deficits, as of July 1989, states are required to provide prenatal care to households with incomes at seventy-five percent of the poverty line. The threshold was raised to a requirement of one hundred thirty-three percent in April of 1990 with states having the option to go to one hundred eighty-five percent. The mandate was to be funded by Medicaid, which means states have to pick up almost half the tab. California, with one of the largest state deficits, took the federal government up on its offer to split the care for Californians with incomes one hundred eighty-five percent of the poverty level, which in 1991 meant a cost of $38.7 million. In a fit of generosity the state decided to go even further and broaden eligibility on its own to include families with incomes up to and including two hundred percent of the poverty level. California simply slapped on

47

a special tax to raise the additional eighteen million required. Id call that an incentive to have more children. Q-If those eligible for the programs show up and participate California should have the healthiest babies in the nation. A-If, is the big question. Remember, getting people to use the facilities was the biggest problem in Washington, D.C. But besides teen pregnancies, drug use and illegitimacy, there are other reasons the USA is ranked behind twenty-one other industrialized nations when it comes to infant mortality. We now have the technology to save babies weighing less than fourteen ounces, but of course the cost is devastating. According to the Spring 1990 issue of Policy Review we spend seven billion a year on ninety-three programs in an effort to keep children alive. I wonder if infants with extremely low birth rates are figured into the mortality rates of other countries. In Sweden if the prognosis for a baby is grim, no effort is made to save it. Treatment is commonly limited throughout Europe. And even in Britain, where every effort is made to save newborns, if severe brain damage or death seems likely, and the parents agree, treatment is terminated. French physicians make the decision for French families, for, as a spokesman put it, our responsibility as doctors is not to give a family a handicapped child. Q- But this is the United States, not France, and Americans have a long history of valuing all life, without putting subjective values on quality. Locally, at Stanford University hospital, I know the care for the smallest preemies is estimated to cost $160,000. A-The bill for neonatal intensive care nationwide, was put at $2.6 billion by a 1990 study published in the American Journal of Disease of Children. Unhappily the technology that saves, can and does sometimes impose profound suffering in the form of neurological disorders such as cerebral palsy as well as blindness and other congenital defects. More and more people are beginning to question whether heroic and costly efforts at saving life are in the best interests of anyone. Q-There doesn't appear to be an easy answer. A- Before government intervened in the late sixties, health care, like everything else in America, was a matter of economics and custom. Money bought excellent treatment in the cities and in poorer and rural areas there was a network of support unique to the

48

culture. Mid-wives still practice among the poor of Appalachia and are often preferred by the well to do who populate the Berkeley hills. Rich and poor pregnant women often fail to see doctors even when cost ceases to be a consideration. Premature births have held steady at seven percent in this country, even though we know how to prevent most occurrences. Q-Aren't medical malpractice suits part of the problem? A-There's no doubt the fear of suits has driven more than half the family physicians out of obstetrics and many of the specialists that are left in the field refuse to deliver babies. In a market economy this would insure higher prices for pre and postnatal services, as more dollars would be forced to chase fewer obstetricians. I guess that doesn't apply in our non-market situation and so we can be thankful for small favors. Unfortunately, the lower income people are the ones that get hurt most. Q- Again! Why? A-Because fear of liability leads physicians to avoid high risk patients who are very often socioeconomically disadvantaged. The social purpose of malpractice suits is to keep the medical profession accountable and to recompense patients. Limiting access to pregnant women and those at high-risk is another one of those unintended consequences that government does so well. Q-Didn't I hear somewhere that a lot of the cases brought against obstetricians couldn't stand up in court? A-That's right. Sixty percent of the cases filed against doctors in 1986 were found to have no merit, yet it cost insurers $380 million to investigate them. In 1982 the annual liability-insurance premium for an obstetrician averaged $10,946. In just five years it soared 238% to $37,015. Physicians were advised to play it safe and fetalmonitoring tests rose from 114,000 to 647,000. Illinois now requires that malpractice suits be certified as meritorious by a physician of the same specialty in order to go forward. Since the law's passage in 1985, the number of malpractice suits in Illinois has declined by thirty percent. Q-Doesn't California have similar legislation?

49

A- In 1975 the California legislature passed the Medical Injury Compensation Reform Act which caps compensation for pain and suffering at $250,000 and limits the amount of any award that can go to an attorney. Trial attorneys kept the Act in court for ten years so it has been in effect only about as long as the Illinois legislation. One good side effect is that insurance premiums for obstetricians and gynecologists in California are only half what their counterparts pay in Florida and New York, although steep at about $50,000. Virginia's approach was different. As of January 1988, a fund to cover medical and other expenses for children injured at birth, was established via voluntary $5,000 contributions from obstetricians and hospitals, with a $250 assessment from every other doctor in the state. The money is paid to the injured child only as long as he or she lives, and covers medical and other expenses that resulted from the injury. The theory is that the injury is most often an act of God, as opposed to negligence by an attending physician. After age eighteen the reimbursements are for living expenses, based on the state's average weekly nonfarm wages. Q-I think the American Medical Association has come out with its own solution. Have you heard about that? A-From what I know, the American Medical Association's answer to the problem is a system not unlike that used by the National Labor Relations Board and workers' compensation boards, except that fault needs to be documented. Every state would have a government-appointed board, made up of doctors and representatives from other professions, who would investigate malpractice complaints for merit. Its similar to Illinois' approach. If a case is found to have merit, agents would suggest a settlement, with pain and suffering awards limited to $200,000, which is shades of California's old legislation. All victims would have access to the system, and if successful would see their awards within one year instead of wading through the tort system, which often takes many years. Of course a dissatisfied victim would always have access to the courts as a last resort. The AMA solution is kind of a pot-pourri. Q-Your mentioning torts made me remember something I wanted to ask you. Do you know anything about a law that absolves vaccine manufactures from liability for any problems that may arise from administering their product?

50

A-In 1986 Congress passed legislation creating the National Vaccine Injury Compensation Program as a no-fault alternative to tort actions against vaccine manufacturers. It was signed, reluctantly, by President Reagan. Since it would give access to the deepest pocket of all, Uncle Sam's, many critics thought it might encourage the creation of similar federal programs for persons injured by other goods and services. The federal government now spends $258 million on its vaccination program. Q-Didn't Senator Hatch come up with a tort reform bill recently? A- Senator Orrin Hatch introduced the Insuring Access through Medical Liability Reform Act of 1990, which is another one of those federal mandates. This one forces states to adopt a package of tort reforms to rein in trial lawyers. Q-Speaking of legislation, tucked away in the October 1990 budget package was a law mandating that patients be given what is being called Medical Miranda Warnings. What does that entail? A- Patients must receive written information detailing their legal options for refusing or accepting treatment if they are incapacitated. The legislation also requires the Department of Health and Human Services to conduct a nationwide campaign to educate people about right-to-die legal options. Q-Jumping to another area entirelyI heard the Germans were having trouble with their health-care system. Do you know what kind of trouble? A-I'm not that familiar with the healthcare system in West Germany but there is one universal trouble which I know they share with the rest of the world and that's run away costs. In West Germany the government regulated sick funds, foot the entire bill for doctor, dentist, hospital and medications. The cost came to $5.2 billion in 1960 but was a whopping $72 billion in 1988. The West German system, which covers ninety-two percent of the population, is funded with contributions by both employers and employees amounting to about fifteen percent of salaries. As in our system, there is little incentive to practice frugality. The Germans tried to reform their system in 1988 by putting price controls on drugs. The fear now is that research and development in pharmaceuticals could move to this country now that we're speeding up our drug-approval process.

51

Q-I thought we had one of the slowest drug-approval systems in the world. What happened? A-Our system still has its problems. As far as I'm concerned, the role of the Federal Drug Administration should be redefined as a monitor of safety and not a judge of the efficacy of drugs dispensed in this country. The FDA tightened its control of pharmaceuticals in the 1960s as a response to the thalidomide scare, and it never loosened up. For instance, Deprenyl, a drug used to treat Parkinson disease, was in use in Europe long before it was approved here. Patients in other parts of the world pay a lower price than Americans must pay to obtain the drug. That's thanks to FDA regulations and restrictions. Lavamisole, used in treating cancer, was discovered in Antwerp Belgium in 1966 but was not available here, except to treat animals for worms, until 1989. AZT received fast-track approval thanks to the politically savy AIDS lobby but THA, the only treatment available to Alzheimer patients was side-tracked. As the Wall Street Journal said in a March, 1991 editorial, The system we have on the statute books now primarily serves bureaucracies, statisticians, researchers, drug companies and stock analysts. The victims of disease are in the line, all right, but they're in the back of it. Q-It seems to me that the cost of drugs in this country started rising at an increased rate some twenty to thirty years after the tightened controls. A-There's some truth to your observation. Drug prices dropped in the 1960s and rose at only half the inflation rate in the 1970s, but in the 1980s they rose twice as fast as consumer prices. Medicare programs in some states adopted lists of drugs approved for reimbursement, usually having obtained a price break from the pharmaceutical company first. If not on the list a drug is available to Medicaid patients only by special permission requiring lots of red tape. Pharmaceutical companies give hospitals deep price discounts because hospitals take delivery in bulk and discharge patients who will continue to buy the medication at full price. More insurers are making patients pay thirty percent of their drug bill if they refuse to use a generic. Medications account from thirty to forty percent of employers' costs for health benefits for retirees over sixty-five.

52

Q-Can you tell us something about the 1983 Orphan Drug Act? A-Sure. The Orphan Drug Act gave companies that develop drugs for treating rare diseases a seven year monopoly on marketing rights for those drugs with no price controls. As with all laws and regulations, as I pointed out earlier, the ink was hardly dry before ways to circumvent troublesome restrictions started multiplying. Companies began to separate the various uses for a new drug, so each use could qualify for orphan status. To qualify as an orphan, the drug should treat a disease with less than 200,000 victims. The FDA reported one company tried repeatedly to gain status for a drug which was supposed to be exclusively for those who suffer left-knee pain. Q-I can see how left-knee pain might involve fewer than 200,000 patients, but then again such a scheme could backfire. Weren't some legitimate changes in the legislation proposed recently? A-I don't know about legitimate but in an attempt to curtail profits, some members of the 101st Congress tried to lift the monopoly where more than one company was interested in competing in developing a drug. Of course the government-provided goodies were probably the interest generator and if they were removed we'd be back to square one. Maybe others thought that way too. At any rate the industry lobbyists prevailed and managed to render the reform bill harmless. For whatever reason, maybe signals got crossed, President Bush vetoed the toothless legislation and so the battle continues into 1991. Q-What do you make of families appearing on TV pleading for organ donations, bone marrow or money for a costly operation generally to save a child? A-It's tragic. It affects me, just as it does everyone who sees it. But I remember something the former governor of Colorado said a few years ago in an address to the Commonwealth Club in San Francisco. Richard Lamm said, If there is an identified individual, we will rush to them and spend millions of dollars, and forget lots of other people. We will try artificial hearts for Barney Clark, while thirty-one million people go without health insurance. I know he's right when I think of the fuss and expense of trying to rescue the two whales caught under the ice a few years ago, while the world looked on. Q-It is amazing what a little publicity will do. People really have a need to helpto reach out and do some good, don't you think?

53

A-Absolutely. People are optimistic and creative for the most part. I recall being touched by a couple who conceived a baby specifically in the hope that it could provide marrow to their dying teenager. Unfilled demands for organs and human tissue shows that social policy has not kept pace with technology. How tissue can be procured and delivered equitably and efficiently is an issue to be resolved. Q-Do you have any ideas? A-So far we have failed to even consider a market orientation but what is the alternative? We want donations to be based on altruism rather than coercion or the profit motive. There has to date been a failure to specify who owns the economic value of donated tissue. In the absence of distinct property rights there is nothing to prevent the middlemen from reaping the value of donated tissue. Another mistake we may be making is to rely on nonprofit organizations that have few structural incentives to coordinate their activities between the organ procurement agencies and the transplant surgeons. There should be more than a sense of social obligation to send tissue they cannot use on to another agency. Profit oriented entities are motivated by competition and are pushed into economies. Without these pushes a system of coordination and communication has not arisen naturally. Doctor Thomas Peters of the Jacksonville, Florida Transplant Center broke the taboo. He wrote in a 1991 issue of the American Medical Association Journal that it might not be such a bad idea to for organ procurement groups to offer a thousand dollalrs for organs. Q-Isn't commercial trading in organs against the law? A-You're right, the purchase or sale of human organs is a felony under the National Organ Transplant Act of 1984. But the doctor's idea would skirt the law by calling the transfer of funds for organs, reimbursement rather than a sale. There has even been talk of having the government pay (reimburse) families for organ donations through a federal tax benefit or grant of some kind. It's a game of semantics, but other people are beginning to understand that a market policy might provide tissue of high quality in sufficient quantity to all who need it. After all, banning markets does not stop the play of economic forces.

54

Q-What about the United Network for Organ Sharing which maintains waiting lists for organs and matches organs with recipients? A-I suppose you are asking about their success rate. All I can tell you is that there has been a forty percent increase in that waiting list in the last couple years. That organization claims that 2,206 people died while waiting for a transplant in 1990 and as of March, 1991 there were 22,483 people waiting for hearts, lungs pancreas, livers and most of all, kidneys. Q-Does anyone know why there aren't more donors? A-I've heard speculation that families don't want a sick relative identified as an organ donor because they fear he or she might receive less aggressive care. Others say the manner of requesting organs is at fault. One study indicated that when organ donations are asked for at the time of death, only eighteen percent of those asked will agree. If the request for a donation of organs is made separately, the success rate rises to sixty-five percent. Q-I'll tell you what impresses me. Donors of marrow are rendered unconscious with a general anesthetic. One hundred to two hundred holes are punched in their hips to extract the marrow through five to six skin punctures, and they may need a transfusion of one to two pints of blood. The procedure is painful and not without real risk. Nevertheless, about seventy-five donors in the U.S. have already pledged to undergo this operation should anyone need their marrow. A-I know. People are like that. Q-I'll throw another idea out to you. I've thought for a long time that school systems are a group that is both large and healthy enough to attract private insurers to underwrite low-cost coverage. Couldn't some program be set up to provide health coverage for otherwise uninsured children through the schools? A-Others have had the same idea. Florida has started a schoolbased health insurance project enabling parents to buy a preventive health plan for their children that includes immunizations and screening for $11.46 a month per child. There is a $52.82 package option that includes office visits, hospitalization, emergency services, maternity care and other services. The Healthy Kids Corporation is run by members of public agencies together with private insurers. The state will pay part or all of premiums on a

55

sliding scale. The HCFA (the federal Health Care Financing Association) is adding a $2.2 million grant to the Florida legislatures $1.7 million initiative. Q-I have one last question and I'm asking it so you can use your legal background to speculate. What should be done when an insurer squanders clients' premiums to live high on the hog and refuses to pay the legitimate medical bills of those clients when submitted? A-I've been pondering a similar situation, as a matter of fact. Some farm workers in Watsonville were among thousands throughout California who got caught in such a trap last year. In that case I was shocked that those least able to shoulder the burden of a failed system were being asked to handle the entire burden. In my opinion the loss should be shared, by the victim's employer, the doctor who provided the services and the state who was unable to stop the criminal before his venom had spread. All three, with a little effort, were more able to judge the integrity of the insurer than was the ultimate victim. In fact in the case I am thinking of, the state discovered evidence of fraud in July 1988 and yet the company opened a brand new Fresno office in October which sold the insurance to the employer of the Watsonville victim who was stuck with $10,000 worth of medical bills incurred almost a year later in September of 1989. What was the great protector government doing all that time?

56