Guy L. Clifton - Flatlined, Resuscitating American Medicine

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Flatlined
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Flatlined
Resuscitating American Medicine
GUY L. CLIFTON, M.D.
RUTGERS UNIVERSITY PRESS

NEW BRUNSWICK, NEW JERSEY, AND LONDON
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LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA
Clifton, Guy L., 1949

Flatlined : resuscitating American medicine / Guy L. Clifton.
p. ; cm.
Includes bibliographical references and index.
ISBN 9780813544281 (hardcover : alk. paper)
1. Health care reformUnited States. 2. Medical policyUnited States. I. Title.
[DNLM: 1. Health Care ReformUnited States. 2. Economics, MedicaltrendsUnited
States. 3. Emergency Medical Servicesorganization & administrationUnited States.
4. HospitalstrendsUnited States. 5. Insurance, HealthtrendsUnited States. WA
540 AA1 C639f 2009]
RA395.A3C618 2009
362.10973dc22
2008011239
A British Cataloging-in-Publication record for this book is available
from the British Library.
Figures 4.1 and 12.2 were reproduced with permission from the Henry J. Kaiser Family
Foundation. The Kaiser Family Foundation, based in Menlo Park, California, is a nonprot, privately operating foundation focusing on the major health care issues facing
the nation and is not associated with Kaiser Permanente or Kaiser Industries.
The author is donating his proceeds from this book to San Jose Clinic, Houston, Texas.
Copyright 2009 by Guy L. Clifton, M.D.
All rights reserved
No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical, or by any information storage and retrieval system, without written permission from the publisher. Please contact Rutgers University Press, 100 Joyce
Kilmer Avenue, Piscataway, NJ 088548099. The only exception to this prohibition is
fair use as dened by U.S. copyright law.
Visit our Web site: http://rutgerspress.rutgers.edu
Manufactured in the United States of America
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To my wife, Karen, my mother, Marjorie,

and the memory of my father, O. B. Clifton
Do not remember the former things, or consider the things

of old. I am about to do a new thing; now it springs forth,
do you not perceive it? I will make a way in the wilderness
and rivers in the desert.
Isaiah 43: 1819
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CONTENTS
List of Figures and Tables
ix
Preface
xi
Acknowledgments
xvii
PART ONE
Why the Uninsured Should Be Covered

1
Not Business As Usual
Unreliable Emergency Services
10
An Eroding Infrastructure
16
Fifteen Years Lost
25
Handed Health Cares Leftovers
35
PART TWO
Why Health Care Is So Expensive

6
Where We Are Headed
49
30 Percent Wasteor 50?
57
Poor-Quality Primary Care
67
Dangerous Hospitals
77
10
Violation of Dignity: The End of Life
94
11
Unnecessary Surgery
103
12
Perverse Payment Incentives
120
13
Three Pathways to Hospital Protability
139
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CO N T E N TS
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14
15
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Pharmaceuticals: Remarkable Innovation,

Shameless Puffery
157
Private Health Insurance: No Added Value
170
PART THREE
Reforming American Health Care

16
Three Options for Covering the Uninsured
179
17
No Coverage Expansion without Cost Control
201
18
A Workable Plan for Reform
212
19
Establishing Standards
224
20
Prioritizing Primary Care
232
21
Reducing Spending on Hospitals and Specialists
243
22
Positioning of an American Medical Quality System
261
Notes
275
Index
313
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FIGURES AND TABLES
Figure 3.1
4.1
Number of U.S. emergency room visits
22
Percentage increase in cost of

health insurance premiums, 19882006
32
7.1
Components of U.S. gross domestic product, 2006
65
8.1
Relationship between quality and Medicare spending

as expressed by overall quality ranking, 20002001
75
9.1
Typical handwritten patient progress note
91
9.2
Typical physicians order sheet
93
11.1
Cross-sections of spine
112
11.2
Surgical spine procedures on the low back
113
11.3
Spinal surgery as a percentage of U.S.

hospital charges
11.4
116
Number of U.S. hospital admissions

with coronary catheter procedures
12.1
Annual changes in Medicare spending

per beneciary with federal actions
12.2
Table 12.1
12.2
122
Annual changes in private per-capita national

health spending with federal actions
16.1
118
123
Hospital payment-to-cost ratios for private

payers, Medicare, and Medicaid
190
Generalists Income and Annual Workload
128
Specialists Income and Annual Workload
128
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PREFACE
I am a neurosurgeon, perhaps the last person you might expect to write a

book calling for reform of the medical industry. Yet despite all the good in
medicine, I have witnessed bedside tragedies that no one would expect in
the United States. After studying the U.S. health care system, I became so
disturbed by my discoveries and experiences that I left my practice and
my home to undertake a yearlong stint as a Senate staffer, focusing my
efforts on health care reform. I also decided to write this book.
In Flatlined I have worked to make my ideas understandable to
a person whose only experience of health care is as a patient. You will
nd no unexplained medical jargon or highly technical terminology, just
the stories and the necessary facts that describe the currentand
unacceptablestate of affairs in American medicine. The stories are all
real events or composites of real events that I have seen unfold. During
my thirty years of medical practice, I have found doctors, nurses, and the
staff and administrators of hospitals to be unusually principled people,
and I have always been proud to be among their ranks. My stories are not
about bad people but about good people working in bad systems.
The term atlined refers to loss of the heart and brains normal,
rhythmic electrical signal when a patient hooked up to a machine dies.
Between 1999 and 2005 I watched patients die of injuries that should not
have killed them. They were atlined by the failures of the medical system.
At present, being insured does not guarantee timely care or protection.
An ambulance is waved away from an American emergency room every
minute without regard for who is inside the vehicle. This situation will
only grow worse without immediate reform.
Flatlining also faces the U.S. health care system as a whole if it continues on its present trajectory. In 2007 Medicare and Medicaid
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accounted for 23 percent of the federal budget and are on track to consume one-third of it by 2018. At any given time, 47 million Americans are
without coverage or access to standard medical care, but that gure
understates the problem. More than one-third of the non-elderly
population82 million peoplehas either insufcient, unstable, or no
health insurance coverage. As a percent of wages, business spending on
health care is at an all-time high; and small businesses are dropping coverage because they have been priced out. Health care costs are growing at
twice the rate of the economy; meanwhile, American businesses face
relentless global competition from companies that do not bear such costs.
The overall budget for health care is already exorbitant. But at least
30 percent (about 700 billion dollars) of all delivered health care services
are unnecessary for treating illness or ensuring wellness. Many procedures are also harmful. There is no just reason for a country as wealthy as
ours to be delivering and consuming large quantities of wasted medical
services when so many of its citizens have insufcient or unstable access
to standard medical care. There is no excuse for disenfranchising so many
people from medical services when they could be covered by the simple
creation of a more efcient system. Full-access coverage and the reform of
medical practice to reduce waste would also improve the quality of medical care. Too many people are victims, both the insured who get excessive
or poor-quality medicine and the uninsured who get too little care, too
late. Medical waste is a moral issue: it is the wrong use of money, and it
hurts innocent people.
When I began considering the best manner of paying for and providing health care in the United States, I did not begin with any biases. I have
visited Canadian hospitals, and I know many Canadian doctors. I have a
good opinion of that countrys health care system, which is managed
through the government as the single payer. But the United States, with
more than 300 million people, is not Canada, whose population is only
about 34 million; moreover, their cultures are different. After spending a
year in a Senate ofce watching the inner workings of Medicare payment
policy, I cannot support a single-payer system. In the short run such a
plan would reduce the considerable health care administrative waste, but
in the long run there is no doubt that it would bankrupt the United States
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unless it is managed very differently from Medicare. Medicare must be

reformed because it already poses a serious scal threat to the country.
Another option is to patch the existing system. Large businesses consider the provision of health benets to their employees a key strategy,
although they have been unable to manage health care cost. Small businesses, however, are dropping coverage because they cant afford it and
want out of employer-based health care. Thus there is an impasse. The
other alternative is to disconnect insurance from employment and to subsidize individuals in their direct purchase of insurance in a competitive
national insurance market, opposed by large businesses and insurers.
The underlying principle of this plan is that individuals will have
enough personal nancial investment in the purchase of health care so
that consumer pressure will reduce health care costs. But market forces
will not be enough to make health care affordable. Reducing the cost of
health care will require the efforts of private industry, government, and
the American people. Hospitals function as regional monopolies or oligopolies, and doctors are mired in historic modes of practice that are
inefcient and mediocre in quality. Doctors and hospitals will not, and
cannot, reinvent themselves without the cooperation of the buyers of
health care: the public. People will have to submit to the care of a single
doctor who coordinates and ensures the quality of their care. There must
also be patient accountability. If individuals want procedures and treatments that are proven to have little value, they will have to pay for some
of the cost. The problem of waste in medicine is collectively owned by
doctors and patients.
The problems of insurance coverage and of the cost of health care are
two separate but related topics requiring separate federal policy initiatives. The magnitude of waste is so large and the prospects for savings and
improved quality are so great that the only way to signicantly reduce
health care cost is to follow a targeted, federally led initiative to reduce
waste. Such an initiative would provide the information and leadership
necessary to establish benchmarks for quality medical care, discover and
teach efcient processes of care, and change the method of paying doctors and hospitals to one that shares with them the savings from efcient
practice.
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P R E FAC E
THE SEVEN POINTS OF HEALTH CARE REFORM

1.
Every American should have access to adequate and affordable health insurance regardless of their health or job
status.
2. Individuals should directly pay for enough of their health

insurance premium or health care cost to have a sense of
stewardship.
3.
Insurance premiums should be the same for the healthy

and the ill.
4. The health insurance industry should be reformed so that

competition among insurers reduces the cost and
improves the quality of health care.
5. A primary care doctor of the patients choosing should be
the rst point of contact with the medical system and
should coordinate care and manage chronic illnesses.
6. The adherence of doctors and hospitals to benchmarks of
quality should be reported to them and to the public.
7.
Doctors and hospitals should be paid based on the quality not the quantity of care they deliver and the savings
from efcient practice shared with them.
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The United States pays at least two times more per unit of health care
services than any other country in the world. Why shouldnt the nation
develop the rst high-performance health care system in the world since it
is already paying for one? Before assuming that these proposals are too radical, too drastic a shift, consider the nancial industry itself as a model for
balanced regulation. Reforming U.S. medicine is like turning a giant aircraft carrier; compare it to the process of banking reform begun after the
Depression. It will take time; and if we do not start now, we may be too late.
When the Federal Reserve System was established in 1913, it was
designed as a quasi-public institution with both private and government
arms of oversight and management. Its functions have changed over the
years but always with a single purpose: maintaining a stable nancial system. I propose a similar model for health care, the creation of an
American Medical Quality System responsible for providing the information necessary to reduce waste and improve the quality of U.S. medicine
in each area of the country. The objective is to reduce the cost of health
care so that it is affordable for individuals, families, and the national
economy. Cutting the waste in health care will also free up money that
can be used for coverage of the uninsured.
The only obstruction to reforming American medicine is lack of political will, but both raw statistics and unnecessary individual tragedies justify
change. My hope is that Flatlined will contribute to public understanding
and ownership of our nations health care problems. My only goals are
accountability and justice. Americans want change, but we must rise to the
challenge because our problems do not belong to someone else. We all
must be willing to accept responsibility. With clear direction and sufcient
political will, more than enough wasted money can be extracted from U.S.
health care to cover all the uninsured, improve everyones quality of care,
and permanently reduce the cost of American medicine.
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ACKNOWLEDGMENTS
It was my great good fortune to work with Marilyn Alice McDonald

almost daily for thirteen years, and for three of those years she toiled
shoulder to shoulder with me on this book, as dedicated to its completion
as I was. Together we undertook the primary research, and we constantly
debated our ndings and conclusions. Her conservative midwestern judgment and keen intellect kept the books content grounded. I alone am
responsible for its errors, as Marilyn rarely makes any.
Sister Margaret Byrne of New Orleans and now Houston is a dear
friend who in 2001 directed me through the Ignation Spiritual Exercises
that led me down the unexpected and dangerous path of attempting to
reform U.S. health care. I thank her for the wake-up call.
My father, O. B. Clifton, whom we lost while I was writing this book,
and my mother, Marjorie Jean Clifton, taught me and my brothers the
principles and the faith that have guided our lives. God smiled upon our
families through our parents.
I was indeed fortunate in marriage. My wife of thirty-one years, Karen
Florance Clifton, insisted that I had to try to do something about health
care, not knowing that in the process she would be uprooted from her
home, her friends, and her family. She never wavered, simply stating that
we had an obligation to do whatever needed to be done. Karen has been
my constant companion and support and, from my rst sight of her, the
love of my life. She gave up three years of weekends as I researched and
wrote this book, and she read each version, encouraging me to keep going
until I got it right.
I interviewed a number of people, all of whom were open and generous with their time. They include Joe Antos, scholar at the American
Enterprise Institute; Judith Cahill, executive director of the Academy of
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AC K N OW LE D G M E N TS
Managed Care Pharmacy; Carolyn Clancy, director of the Agency for

Healthcare Research and Quality; Terry Clemmer, director of Critical Care
Medicine at LDS Hospital, part of the Intermountain Health Care System
of Salt Lake City; Janet Corrigan, president and CEO of the National
Quality Forum; Helen Darling, president of the National Business Group
on Health; Karen Davis, president of the Commonwealth Fund; Suzanne
Delbanco, CEO of the Leapfrog Group; Carol Diamond, managing director
of the health program at the Markle Foundation; Judy Feder, dean of the
Georgetown Public Policy Institute; Herb Fritch, chairman, president, and
CEO of HealthSpring; James K. Geraughty, chief medical ofcer of
HealthSpring; Paul Ginsburg, president of the Center for Studying Health
System Change; K. Lance Gould, professor and Martin Bucksbaum
Distinguished Chair in Cardiology at the University of Texas Medical
School at Houston; Stuart Guterman, senior program director for
Medicares future at the Commonwealth Fund; Bill Hermelin, director of
government affairs and general counsel at the Academy of Managed Care
Pharmacy; Ada Sue Hinshaw, professor and former dean at the University
of Michigan School of Nursing; George Isham, medical director at
HealthPartners; Brent James, executive director at the Intermountain
Institute for Health Care Delivery Research; Arthur Kellerman, professor
in the Department of Emergency Medicine and associate dean for health
policy at Emory University School of Medicine; Sid King, managing partner at the Sumner Medical Group; Richard Kronick, professor and chief of
the Division of Health Care Sciences in the Department of Preventive and
Family Medicine at the University of California San Diego School of
Medicine,; Lucian Leape, adjunct professor of health policy in the
Department of Health Policy and Management at Harvard University; Jack
Meyer, principal of Health Management Associates; Robert E. Moft,
director of the Center for Health Policy Studies at the Heritage
Foundation; Marilyn Moon, vice president and director of health programs at the American Institutes for Research; Len Nichols, director of
the health policy program at the New America Foundation; Nina
Owcharenko, senior policy analyst in the Center for Health Policy Studies
at the Heritage Foundation; Jeffrey S. Passel, senior research associate
at the Pew Hispanic Center; Steve E. Phurrough, director of the Coverage
and Analysis Group at the Centers for Medicare and Medicaid Services
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(his comments were personal, not ofcial); Eugene Rich, Tenet

Healthcare Endowed Chair and professor of medicine at the Creighton
University Medical Center; Sean Tunis, director of the Center for Medical
Technology Policy; Andrew Webber, president and CEO of the National
Business Coalition on Health; John G. West, surgical director of the Breast
Care and Imaging Center of Orange County; and Dan Wolterman, president and CEO of the Memorial Hermann Healthcare System.
Michie I. Hunt incisively synthesized the literature on managed care,
international health care, and pharmaceutical costs. Tom Reynolds of the
University of Texas School of Public Health assisted with primary research
in the Healthcare Cost and Utilization Project database. Roy Prichard of
the Graphic Communications Department of the University of Texas
Medical School at Houston created the illustrations.
In the fall of 2006 I received a Robert Wood Johnson health policy fellowship, which each year allows a few health professionals to study health
policymaking from the inside. Marie Michnich is responsible for the management and content of this excellent program. Between August and
December 2006, six other medical professionals and I listened to private
presentations and then peppered more than seventy leaders in health
policy with questions. We were then given the opportunity to work in congressional ofces. I spent one year working as a fellow in the ofce of
Senator Orrin G. Hatch under the direction of his health policy director,
Pattie DeLoatche. It was an extraordinary opportunity. The public is fortunate to have such people looking out for our interests.
Despite all my assistance from these various people and organizations, I want to clarify that none of the opinions expressed in this book
reect the opinions of the University of Texas Health Science Center at
Houston, the Robert Wood Johnson Foundation, the Robert Wood
Johnson Health Policy Fellowship Program, Senator Hatch or his staff
members, or any of the people I interviewed. All opinions and conclusions are mine alone.
Finally, creating a book that is not quite an academic book and not
quite a trade publication requires a lot of editing. The books rst editor
was my longtime friend and teacher of English, Dr. Charles Novo. Rose
Vines, whose specialty is technical writing, performed major surgery on
an early version of Flatlined, expunging hundreds of pages of gratuitous
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information. Jerry Gross, who usually edits novels, helped organize the
cadence and transitions for the lay reader. My colleague, Dr. Len Nichols,
a leading health economist and policy analyst at the New America
Foundation, critiqued the policy sections, offering invaluable advice.
I owe the title Flatlined to Lawrence Wright, who won the 2007 Pulitzer
Prize for A Looming Tower. My son Dr. Guy Travis Clifton rened medical
aspects of the work. My editor at Rutgers University Press, Doreen
Valentine, was the rst enthusiastic supporter of this project in the publishing world and provided insightful advice on organization and skillfully
edited the nal drafts of the book. This book had many midwives, and
I am grateful to all of them.
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PART ONE
Why the Uninsured

Should Be Covered
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1
Not Business As Usual
I witnessed a series of personal tragedies that began to morph

into an alarming overall picture.
One hot Saturday afternoon in the summer of 1999 I was on neurosurgery call at Memorial Hermann Hospital in Houston, Texas, one of the
largest trauma centers in the United States. Houston is the fourth-largest
city in the country, and its metropolitan area is home to 5 million people.
The page operator connected me with an emergency room doctor in the
little town of Lake Jackson, fty miles south of Houston, and we began a
routine conversation for a busy on-call weekend.
Dr. Clifton, I have a forty-year-old woman who has a brain hemorrhage. The car she was driving struck a tree. She is unconscious but moving everything. Can I send her to you?
Well send the helicopter to get her, I responded. Is she intubated? Intubation is a procedure in which a tube is put into the airway to
control breathing and is standard practice in an unconscious patient.
Yes, I intubated her and gave her mannitol as well. Mannitol is a
sugar solution that extracts water from the brain and decreases brain
pressure for a little while until surgery can be performed to evacuate the
blood clot. The doctor in Lake Jackson was competent.
Hospital conversations between two doctors about a transfer are
always recorded and silently monitored by a nurse in the transfer center.
The recorded conversation provides proof of compliance with federal law
that governs the transfer of patients between hospitals. Dr. Clifton, the
transfer center broke in, We do not have any ICU [intensive care unit]
beds. We are on diversion.
3
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W H Y TH E U N I N SU R E D S H O U LD B E COV E R E D
These were not words I had heard before, and my instant response
was a question: What do you mean we dont have any ICU beds?
Dr. Clifton, we are full.
After a moments thought I said, Let me go through the unit; I am
sure I can move someone out. . . . Doc, I will call you back.
The term diversion is used when a hospitals emergency room turns
away ambulances because either the ER or the hospital is full and cannot
accept any more patients. But at that time, it was a new word to me.
Memorial Hermann Hospitals neuroscience ICU has twenty-eight beds
and is one of the largest of its sort in the country. The hospital has always
cared for the regions worst neurosurgical emergenciesany time, every
dayying them over the citys clogged streets by helicopter. The hospitals
ICU is the citys core resource for emergencies of the brain and spine.
The charge nurse and I walked past one patient after another
ventilators pumping, heads wrapped, oxygen hissing, tubes projecting
from natural body openings and from openings we had made.
Can this one be moved to the regular ward?
No, Dr. Cliftontoo unstable.
What about this one?
No, she just had surgery.
In every bed lay patients too sick to move. I had been chief of the neurosurgery service at Memorial Hermann Hospital for ten years, and this
was the rst time I had ever turned down a patient for lack of a bed.
I thought the situation was strange.
I redialed the doctor in Lake Jackson. Doctor, I went through our
ICU, and I cant move anyone. I dont have anyplace to put the patient.
Through the phone I could feel his anger. Dr. Clifton, I have been
turned down by three other hospitals. I cannot nd a bed. What am I
going to do? This lady needs surgery and she needs it soon!
I gave him the name of two large nearby hospitals with neurosurgeons and said, I am sure they will help.
He curtly responded, Okay, I hope she lasts.
Several weeks later I was talking to Dr. Greg Bonnen, a neurosurgeon
who practiced at the University of Texas Medical Branch in Galveston
(UTMB) near Lake Jackson. Greg, I asked, Is UTMB turning away
transfers?
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N OT B U S I N E SS A S U SU A L
Yeah, all the time now, he answered. I operated on a lady a few

weeks ago, ten hours after she was injured. You would not believe what
they did to get her in. Greg told me that the patients doctor in Lake
Jackson could not nd a neurosurgeon-staffed hospital with an available
bed. He reasoned that if a call were made to one of the big hospitals from
the scene of an accident rather than from his emergency room, then the
hospital would y a helicopter for a pickup even though it was full. No
hospital would leave a patient dying at the roadside.
According to Greg Bonnen, the emergency room doctor had put the
patient into an ambulance and sent it to the tiny local airport. At the airport, the ambulance crew called UTMB saying they were at the scene of an
accident with a patient and asking if a helicopter be sent right away. At
that time UTMBs policy was always to accept a patient from the scene of
an accident, regardless of the availability of beds. The helicopter ew, and
the patient was retrieved.
I asked Greg, So what happened?
She herniated before she got there.* She ended up in a vegetative
state in a nursing homeleft three children at home. It was pretty sad.
From Barbarism to Sophistication

As a neurosurgeon who has also been a medical school faculty member
for twenty-ve years, I have operated on more than 6,000 patients in my
career, undertaking everything from complex brain surgery to procedures
on the spinal cord and the back. But when I was a medical student in the
early seventies, I remember watching the neurosurgeons at work and
thinking, This specialty has no place to go but up; its fascinating but its
barbaric.
The claim sounds like a clich, but doctors do go into medicine
because they want to help people. In the early days of neurosurgery, however, doctors could not get too close to the patients or their families.
* Herniation takes place when a blood clot in the brain causes so much pressure within
the skull that it steadily squeezes a small but critical part of the brain, called the brainstem, down through a hole in the base of the skull. Both Greg and I understood that if
the patient had been operated on to remove the blood clot within two hours after the
accident, she would likely have returned home to care for her children.
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We knew that the majority of our patients would die or be severely disabled and that our treatments were not very effective and often painful.
At the time we could not change those outcomes. Patients arrived in
dizzying numbers, some of whom had invited disaster by drinking and
speeding, others of them innocents selected by fate. Our best encouragement was that sometimes a patient we all thought would do badly woke
up in a few days and went home. Thirty years later, I still remember the
faces of such patients.
Until 1976 there was no computerized axial tomographic (CT) scan to
determine who needed surgery. In the hospital where I trained, a neurosurgeon determined if a patient had a mass in her head by rushing her
into a dark little X-ray room with a heavy metal table in its center, its
chipped paint a sign of heavy use. The patient was hastily laid on the table
and covered with a sheet. Then the neurosurgeon would loudly instruct
the confused patient not to move while he (at that time neurosurgeons
were almost always male) plunged a large needle through her neck into
an artery. An accurate penetration produced a two-foot stream of squirting blood. I practiced this and became expert at impaling the artery with
only one or two quick thrusts. Dye was then injected into the needle by
hand, and it streamed into the brains blood vessels. X-rays showed the
shifting of the vessels by the mass, so the surgeon could tell if its location
was right or left, front or back. But he could tell little else. No one could
actually see what was inside or how far it extended; so scalp incisions
were a foot long, and we made an opening as big as one-fourth of the skull
so as not to miss the mass.
Sometimes patients would be strapped into an ugly green metal
chair, also with chipped enamel but equipped with worn leather
restraints, for a procedure called a pneumoencephalogram. I had never
seen an electric chair, but I imagined that the devices were similar. We
performed a spinal tap through a hole in the back of the chairpatients
squirming, with their arms, legs, and head strapped to the chair; the surgeon yelling at them to keep still so they would not be injured by the
procedure. Air was then injected into the spinal column through the needle. The patients always groaned as the air bubbled over the brain, an
action that produced a blinding headache followed by waves of nausea.
The chair was then turned upside down so the air would stream into the
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right compartment in the brain. In our hospital an average of one patient

a year died during this procedure because the air allowed unexpectedly
large brain tumors to shift within the skull. It was good fortune for me
and for the patients that technology transformed neurosurgery in the
next thirty years.
These days, with CT and magnetic resonance imaging (MRI) scans,
neurosurgeons can determine if a mass is a blood clot or a tumor, what
kind of tumor it is, how close it is to speech and movement centers, and
how it is affecting the surrounding brain. The patient is simply required
to remain still for a few minutes without additional discomfort from the
imaging procedure. The mass can then be removed through a tiny opening in the skull while the surgeon watches on an MRI exactly where he is
in the brain, sometimes with the patient awake. There is a night-and-day
difference between what was and what is for neurosurgical patients.
I have seen medicine advance from groundbreaking diagnostic imaging scans such as CTs and MRIs in the 1970s and 1980s, to revolutionary
instrumentation
such
as
implantable
deep-brain
stimulators
for
Parkinsons disease in the 1990s, to recent fundamental discoveries such

as stem cell biology. This pace of discovery and development is so rapid
and unprecedented that its implications and applications overwhelm us.
For almost every disease we treat in medicine, the history of technological change is similar.
Health economists debate about how much medical technology has
added to the length and quality of life and what it is worth in dollars.1 Im
not going to discuss what medical science has given us. Most Americans
understand medical advances and value them. What I will discuss is how
the public values them indiscriminately.
Health Care in Decline

During my years of practice I was allowed into the lives of both the poor
and the very wealthy at the worst times of their lives as well as when they
It bothers me that there is no gender-neutral pronoun for a human being. Women

now make up half of all medical school classes and perform any job in medicine that
a man ever did. I use he or his to refer to both genders unless I am obviously referring to a specic person.
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were liberated from disease. I also saw a darker side of medicine, and I
have watched trends develop that I now believe to be inexorable unless
change takes place at the federal level.
I saw the educated and afuent undergo risky procedures that they
did not need, although they believed they were receiving the best care
available.
I saw the uninsured, 1 million of them, systematically denied all but

emergency care in the fourth-largest city in the nation.
I saw both the uninsured and the insured suffer death and disability
from easily preventable diseases because they were ignorant about
basic preventive care, did not have access to it, did not know how to
get access to it, or their doctors did not provide it.
I saw both the insured and uninsured suffer preventable medical

errors that they did not know abouterrors that hospital administrators, nurses, and doctors viewed as a condition of medical practice.
I saw the insured and uninsured die from delays in emergency care in
overloaded hospitals.
I saw patients whom I knew had no chance of recovery treated intensively for days because the technology was available.
I saw culture and mass communication legitimize an obesity epidemic that is estimated to account for more than one-quarter of the
yearly increase in the cost of health care.
I saw the development of a medical industry that so favors the unfettered use of expensive technology that it is pricing working families
out of health care and sealing the fate of the countrys 47 million
uninsured.
These are all symptoms of a health care industry that is so sated with
wealth that many of the people who populate its protected interests have
forgotten their purpose for coming to work. Health care has become a
consumer good with a price tag so high that it is only affordable if someone else paysan employer, a state government, or a federal government.
For many of us, no one else pays. The haves consume the health care of
the have-nots, to the disadvantage of both. The term structural violence
describes social structures that harm some members of society. A society
that indulges in excessive consumption of health care services at the
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expense of its low-wage workers and their families, who cannot afford
even basic services, is committing structural violence. This is what I see
happening in the United States.
I reluctantly concluded that health cares problems transcend state
and local government after spending several futile years working to help
the uninsured gain access to health care services in Houston and stimulate the development of a safe emergency services system for the region.
To address these two problems we created councils, performed studies,
released white papers, and acquired some funding. Although the community felt better, in the end our efforts to stabilize the regions emergency
services did little more to protect its citizens than the levees did to protect
New Orleans. None of these conclusions were evident when the crisis
began; their implications dawned on me slowly as I witnessed a series of
personal tragedies that began to morph into an alarming overall picture.
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2
Unreliable Emergency Services
The public should not look to the medical industry or to organized medicine for leadership in solving medicines problems.
In the late 1970s, I was a resident physician training in a public hospital.

My colleagues and I had become furious at groups of neurosurgeons in
two Texas towns who often referred to us patients with problems that they
said were too complicated to manage in their hospitals. Hours later, we
would go down to the emergency room to receive some poor soul who was
often medically unstable and had been transferred at his peril only
because he lacked health insurance and could not pay.
These abuses became so outrageous and widespread that the media
took notice and alerted the public, which was shocked. A woman in active
labor whose fetus did not have enough oxygen was dismissed from the
emergency room of a private hospital and told to go to a county hospital
across town, where her baby died because of the delay in care. An injured
patient bled to death after the emergency room of a private hospital
transferred him in shock with low blood pressure to a county hospital
only because he was uninsured. But these were not isolated stories.1
This so-called dumping of uninsured patients was a widespread practice before the Emergency Medical Treatment and Active Labor Act
(EMTALA) was signed into law in 1986. EMTALA ended these practices by
forbidding hospital personnel from even inquiring about insurance in an
emergency situation and prohibiting hospitals and doctors from refusing
emergency care to anyone at all. In a properly handled emergency, no one
has time to ask about insurance, and the information is often not available
anyway. We all look alike when we are injured, undressed, and covered in
blood.
10
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U N R E LI A B LE E M E RG E N CY S E RV I C E S
11
EMTALA has two qualiers that relieve the doctor and the hospital of
responsibility for emergency care. A hospital is only required to accept
patients who have an emergency if it has the capability and the capacity
to deal with that emergency. Capability means that if the hospital provides the service on a regular basis, it must provide the service on an
emergency basis. For example, if the hospital provides brain surgery during the day, then it must provide it around the clock. Capacity means that
emergency patients must be admitted if the hospital has room but not if
it is full. When hospitals are over capacity, they typically send out a diversion signal to notify ambulances that they cannot take any more patients.
Simultaneous diversion signals from every major hospital in the region
doomed the woman from Lake Jackson to end her days in a nursing home,
vegetative and tube-fed.
Federal law makes an important distinction between emergency and
non-emergency care. No hospital or doctor is compelled by law to provide
care to a patient with a medical problem that is judged by medical personnel not to be an emergency, dened as a condition that, if not treated
promptly, is likely to place the patient in serious jeopardy. Routine medical care of the uninsured is rationed and isolated from routine care of the
insured. For emergencies, however, there can be no distinction, a situation that has led to a growing problem for all members of society.
More Preventable Deaths

By 2001 Houston and San Antonio trauma centers were on diversion 30
percent of the time, with the problem becoming steadily worse. The day
after Halloween in 2001, I got a call from a neurosurgeon of long acquaintance. Had I heard about Bill Huntsman (not his real name)? He was a
twenty-one-year-old man from Katy, a bedroom community near
Houston. On Halloween night in the early evening, Bill had left work and
was walking home along the edge of a busy road. A car swerved and hit
him from behind. Unconscious and badly broken up, he was taken by
ambulance to nearby Katy Memorial Hospital, a small community hospital with eighty-eight beds and an emergency room more accustomed to
treating stomach pain, asthma attacks, and broken noses than lifethreatening trauma.
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The mnemonic for the priorities of trauma care is ABC: airway,

breathing, circulation. That is, make sure that the airway is open, that
breathing is adequate, and that the blood pressure is sufcient. The emergency room doctors quickly intubated, ventilated, and administered intravenous uids to Bill Huntsman. He had a severe brain injury with coma,
injuries to his chest, and broken legs. The doctors in Katy did not possess
the technology to determine if there were injuries to his major arteries or
his abdomen, and they did not have the capability to repair them. Their
only purpose was to stabilize him for transport to a trauma center where
surgery and intensive care could be performed, a practice that should happen within about one hour of injurythe sooner the better.
Bills father quickly came to the Katy emergency room to behold an
unimaginable horror. Michael Huntsman is an engineer, and I later listened to him describe with precision the experience of watching his sons
body systems fail one by one as laboring doctors attempted to reverse the
course of the injuries. He listened helplessly as one hospital after another,
when contacted by the Katy doctors, refused his son admittance. Finally,
hours after his injury, Bill Huntsman was shipped by helicopter to
Austins major trauma center, 150 miles from Katy, where he died the next
day. No one really knows if the delay in his care caused his death: whether
it did or not, he never had a chance. Michael Huntsman conded to a
friend of mine that he believed his son would have found a bed in
Houston if he had still been covered by his fathers insurance. I never got
the message to him that insurance would have made no difference; I did
not think he wanted to talk to any more trauma doctors.
The genesis of the problem was that Texass trauma centers were losing more than 200 million dollars per year from care of uninsured trauma
patients. Because of EMTALA, if a hospital has an active emergency room,
the mix of patients it admits reects the uninsured rate in the community, with attendant losses from large numbers of uninsured. In 2001
Texas had the second-highest uninsured rate in the nation: more than
23 percent.2 Half of the states trauma centers were either turning down
or delaying acceptance of transfers.
There were several causes: too few intensive care beds, too few
nurses, insufcient emergency room capacity, and too few specialists
willing to take call. The problem was not limited to the trauma centers; all
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13
Houston area hospitals were on diversion an average of 14 percent of the

time, usually due to a shortage of beds.
Patients in need of transfer from small to large hospitals were in particular danger. An emergency patient needing more specialized care
should be transferred within two hours, at the outside limit. Only onethird of area hospitals could meet that standard, and delays in transfer of
more than six hours were common. Every small hospital in the area
reported that its patients were frequently endangered by transfer delays.3
It was clear that the handful of preventable deaths that we knew about
were just thatonly the ones we knew about.
Dr. Charles Begley, my colleague at the nearby University of Texas
School of Public Health, soon attached a number to the risk from diversion.
He examined the mortality rate from severe trauma for patients who were
brought straight from the accident scene to one of the citys trauma centers.
For these patients, ambulances ignored the diversion status of the trauma
centers. He compared this rate to the mortality rate of patients transferred
from small hospitals into one of the trauma centers, patients such as Bill
Huntsman and the woman from Lake Jackson, who were likely to wait too
long for treatment. Begley found that on days when both of the major
trauma centers were on diversion for at least eight hours, the mortality rate
of severely injured patients who needed transfer was nearly doubled.4
Fragmentation
No organization was empowered to address the problem of emergency
services failure. So as the crisis worsened, two Houston businessmen and
I formed SAVE OUR ERS and organized a community-based board. SAVE
OUR ERS sponsored the studies of emergency services in Houston and
other parts of Texas that gave us the necessary critical insights to approach
the Texas legislature. The data from Houston could not be ignored in
Austin, the state capital, but the emergency room crisis in Texas was coincident with the most severe state budget crisis since World War II.
Like most states, Texas is constitutionally bound to a balanced budget.
An estimated 5 billion dollar shortfall on a state biennial budget of 117 billion dollars turned into a 10 billion dollar decit. Most of the Republicancontrolled house and senate as well as the governor had run on a no new
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taxes platform. SAVE OUR ERS retained two of the most effective lobbyists
in the state and then began to build statewide support for a bill providing
for uninsured trauma care. Our reasoning was that if we could nd
200 million dollars, existing trauma centers would voluntarily expand
capacity, and more hospitals would elect to become trauma centers.
I mistakenly believed that all of the states trauma doctors, nurses,
and hospital CEOs would support a bill to pay for uninsured trauma care;
after all, they had acknowledged to me that their trauma centers were not
able to meet their communitys needs and that diversion was a statewide
problem. But when it came time to talk about these matters publicly,
many became silent, embarrassed to air dirty linen. Others had their own
ideas of how to raise the money and were unwilling to compromise on the
method. I learned a critical lesson: one reason explaining why we had
such poor health care policy in Texas was the fragmentation of the health
care industry. The industrys componentsbig hospitals, little hospitals,
statewide medical societies, and specialty medical societieswould reliably protect their own interests rst, seldom taking a unied position.
I later found that this is also the case in Washington, D.C.
I remembered a management adage my father had taught me in college when I questioned him about the actions of a university department.
The rst energies of any organization are used for its self-preservation.
In other words, the public should not look to the medical industry or to
organized medicine for leadership in solving medicines problems.
The Implosion Begins

The legislative session was scheduled to conclude in two months, and the
torpor of both hospitals and doctors cross-checked each plan that our
committee suggested. Then, unexpectedly, the numbers I had been studying for two years compiled into their inevitable conclusion. Texarkana,
the only major trauma center in northeast Texas, downgraded its level of
trauma care because it could not afford to pay on-call physicians. One
of the three major trauma centers in Dallas, home to 1.2 million people,
threatened to quit seeing trauma patients; and a second said, If they go,
so do we. One of the key hospitals in rural east Texas near Louisiana
closed to trauma. Emergency patients were being own from El Paso,
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15
on the Mexican border, to San Antonio, more than three hundred miles
away. In Austin, at the center of the state, headlines announced that the
citys only major trauma center had signaled diversion for the rst time.
The attention of the states legislators was now secured; they and
their loved ones were at risk. Meanwhile, there were more stories. We
knew of ten deaths in the Houston area, and no one doubted that there
were many more.
The implosion of the trauma system hit the states newspapers within
the week. Doctors and hospital administrators were scared and uttered
the word crisis. The states legislators were suddenly barraged with their
calls. State representative Dianne Delisi and her staff found model legislation from New Jersey and applied it to Texass problem. House Bill 3588
would raise 180 million dollars per year to pay for uninsured trauma care
by ning habitual bad drivers, and the bill ultimately passed.
I never imagined that a bill to fund uninsured trauma care by taxing
bad drivers would be opposed by Democrats and supported by Republicans,
but that is what happened. The Democrats opinion was that the bill was
punitive to the poor. They rejected my responses that poor people do not
have to drive drunk and that paying for trauma care for the uninsured
beneted everyone. In the foyer of the Texas House I was profanely accused
by a prominent Democrat of being a toady for wealthy hospitals. After
these experiences I resolved to remain a political independent for as long
as I could.
Two years after passage of House Bill 3588, the Texas legislature nearly
gutted the bill by appropriating its funding to the states general revenue
instead of to hospitals. I watched as area hospitals took the money and put
it into their general coffers without using it to increase the number of
trauma patients they could care for. Houstons ambulance diversion rate
stabilized permanently at a dangerous 25 percent of all hours per hospital.
At this point I began to look around the country and talk to my colleagues. If the problem were structural, Houston could not be alone.
I soon found that the citys story was no anomaly. Emergency rooms were
failing spectacularly all over the southern and western United States,
including Florida and California and up the east coast. Once a community
experienced emergency room failure, the problem rarely disappeared.
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3
An Eroding Infrastructure
Treatment within the Golden Hour after a medical emergency

is becoming an impossible standard as we witness the progressive structural failure of American medicine.
The value of treating emergency patients within the Golden Hour has
been drilled into me since the day I began my surgical residency in 1975.
The term refers to surgeons brief window of opportunity for saving
trauma patients, and the concept has been the linchpin of what is the
best emergency services system in the world, matched only by Germanys.
Yet the Golden Hour is not only metaphor but also an outside limit: the
sooner bleeding is surgically stopped and blood replaced, the greater the
likelihood the patient will be saved.
This insight came slowly, and its implications have only lately shifted
thinking about what is logistically possible. Military medicine led the way.
In World War II, 30 percent of injured soldiers died; 24 percent died in the
Vietnam War. By the time of the Afghanistan War and the second U.S.
invasion of Iraq, the mortality rate for combat injuries had fallen to an
astonishingly low 10 percent. The key seems to be very early surgery and
blood replacement as well as better body armor. Now the eld hospital
has moved to the soldier. In the current Iraq War, forward surgical teams
in Humvees quickly assemble tent hospitals behind the troops and operate to stop blood loss within moments of combat injuries, leaving the
wounds packed open for closure later. They then transfer the soldiers to
hospitals out of the country to be put back together physically and
mentally. As a consequence, the mortality rate of injured soldiers has
fallen to the lowest percentage in history.1
16
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A N E RO D I N G I N F R A ST RU CT U R E
17
Americas emergency services and trauma care system developed

after the Vietnam War. When military surgeons returned to practice in
their communities, they found that injured civilians in the United States
were at greater risk than injured soldiers in the jungles of Vietnam. In the
central Texas town where I grew up in the 1960s, hearses, sometimes
driven by high school students, doubled as ambulances. All over the
country injured patients were taken to the nearest hospital, and these
hospitals were often not equipped or staffed to provide care for them.
In the 1970s the American College of Surgeons Committee on Trauma,
made up of ex-military surgeons, determined to see that civilian patients
were cared for by military standards. The committee began to push for
designated trauma hospitals. Although this proposal met predictable
resistance from local medical communities, it eventually crumbled under
the weight of the hard data collected and put forward by these heroes of
medicine.
Dr. John West was at the center of this transforming initiative. I interviewed West in his busy breast-care clinic in Orange County, California,
thirty years after the fact. He is a lean, t man in his sixties: a brisk
speaker, mover, and thinker. West nished his surgical residency in 1974
at the University of California in San Francisco, operating at the San
Francisco General Hospital, the publicly funded hospital that cares for the
citys uninsured. He related that in those days, the ambulance crews in
San Francisco had all agreed to transport seriously injured patients
directly to the county hospital from the scene of injury. At San Francisco
General Hospital the patients received military-style care under the direction of the chairman of the American College of Surgeons Committee on
Trauma, Dr. Donald Trunkey. Trunkey was also leading the committees
effort for establishment of trauma centers nationally, but he had little
hope of success.
West had become used to excellent trauma care during his training,
but when he arrived in Orange County to set up his practice he found that
twenty-ve of the thirty-three hospitals in the county were physicianowned, each competing aggressively for all patients, including trauma
patients. The young surgeon was repulsed by what he saw.
A wallet biopsy is a common medical term not found in any medical
glossary. It refers to the practice of determining whether or not a patient
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has insurance before deciding to treat. A positive wallet biopsy means

that the patient has insurance and will be treated. A negative wallet
biopsy means that the patient is uninsured and will be transferred. At that
time it was not illegal to deny emergency care to an uninsured patient; it
is now. West said, They would do wallet biopsies on the patients, and if
a patient had insurance the doctors did X-rays, blood work, you name it.
He then related the story of a patient he still remembers thirty years later.
A nine-year-old boy with a scalp laceration was brought into a nearby hospital after a car accident. It was sewn up, and the boy was discharged. The
child later hemorrhaged to death from a ruptured kidney, a detail missed
in the emergency room. He was uninsured and had received an inadequate examination after a negative wallet biopsy.
At the time Orange County was proud to possess one of the rst organized ambulance services in the country, and the Board of Supervisors was
discussing how to use county ambulances to lower the rate of deaths from
cardiac arrest. West appeared at the public meeting and explained that
the lives saved from improving cardiac arrest care were nothing compared
to those that could be saved by addressing trauma care. He commented,
I didnt know that someone from the Register was in the back of the room,
and I found myself in the paper the next day. I didnt have any choice but
to prove it after that.
Wests unwelcome allegations created a violent reaction in the medical community. He recalled one meeting in which six doctors stood outside the Orange County Medical Society and berated him for going to the
press. In another, a drunken surgeon stood on a desk and called him
names. He attended medical gatherings where murder-for-hire was mentioned, presumably in jest.
The only way to prove that patients were dying because of disorganized trauma care was to examine the autopsy records of those who had died
in Orange County. This investigation was conducted entirely from Wests
medical ofce with no outside funding. West and Trunkey at San
Francisco General Hospital collaborated, examining the autopsy and
medical records of ninety trauma patients who had died in San Francisco
compared to ninety-two in Orange County. Two-thirds of the patients who
had died from trauma in Orange County were judged to have died unnecessarily from delayed care, while only one such death occurred in
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19
San Francisco.2 The story was picked up by Associated Press and became
the subject of national attention.
The Orange County doctors challenged the studys validity, and the
Rand Corporation was retained to independently examine the data. West
said, They concluded that we got it wrongTrunkey and I had underestimated the number of preventable deaths in Orange County. After this, all
the opposition was silenced.
The concept of the Golden Hour was born from this study. To reliably
provide trauma patients with care in the Golden Hour after injury,
trauma and emergency service systems were rapidly organized throughout the country. Hospital-based helicopters ew the most seriously
injured patients over trafc jams to specially designated trauma centers
that provide emergency services to patients with stroke, heart attacks,
and a variety of other time-sensitive emergencies. Today 84 percent of
U.S. residents live within sixty minutes of a major trauma center. Yet in
the coming years American trauma hospitals are estimated to lose 1 billion
dollars per year and to pay medical staff 485 million dollars per year to
take call.3
The advance of science has outstripped the nations ability to deliver
medical care. Treatments rendered within the Golden Hour can save the
lives of patients with trauma, stroke, heart attack, and cardiac arrest; but for
patients with stroke, cardiac arrest, and trauma, care is suffering. A minuscule percentage of stroke patients receive such therapies. Science is
moving into the next millennium, while the way we nance health care is
taking emergency medicine back to the sixtieswith the biting difference
that we in medicine now know for certain the right way to do things. The
Golden Hour after an emergency is becoming an impossible standard as
we witness the progressive structural failure of American medicine.
The Golden Hour Turns to Lead

Ambulance diversion was not a serious problem in the United States
before 1999, but by 2001 it was occurring throughout the country and has
never receded. An ambulance is diverted from an emergency room once
every minute in the United States. Diversion is not evenly distributed geographically or among hospitals. The southern and western states, where
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uninsured rates are more than 20 percent, are most affected. For instance,
in four populous regions of California, including Los Angeles County, hospitals diverted ambulances about one-quarter of the time in 2005.4
Ambulance diversion is concentrated in large emergency hospitals
and trauma centers, where hours on diversion are often much higher
than they are in non-emergency hospitals.5 The very emergency conditions that tend to kill you if you receive late care are the ones treated only
in large emergency hospitals. Pray that such hospitals are not on diversion on the day you need them.
The Institute of Medicine provides science-based advice to the federal government using panels of medical experts to develop its conclusions and recommendations. The institutes ndings are devoid of
politics because it does not depend upon any federal appropriation and is
scrupulous in maintaining its objectivity. In June 2006 it released a three
hundredpage analysis entitled Hospital-Based Emergency Care: At the
Breaking Point that called for nationwide coordination of emergency
services. Echoing conclusions that I had already reached, the report
declared: The emergency system itself appears to be crumbling in major
cities. In Los Angeles, for example, eight hospital emergency departments
have closed since 2003, bringing the total closed countywide to over sixty
in the last decade.6
Dr. Arthur Kellerman, then chief of the Department of Emergency
Medicine at Emory University, co-chaired the report. He and I discussed
the risk of being sued for medical malpractice from mistakes caused by
the dysfunctional environment in chaotic, stressed emergency rooms. He
told me that he had never been sued but that, as the world of emergency
medicine became more unsafe, he had begun to pray for the welfare of his
patients before he went to work each day. He also told me that no federal
agency in Washington seemed particularly concerned about the report.
Fatal Delays
Ambulance diversion is dangerous. Chuck Begleys research, which showed
a 78-percent increase in mortality for serious injuries needing transfer
when ambulances were diverted in Houston, has been echoed by Dr. Linda
Greens in New York City. In the boroughs, where more than 20 percent of
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21
emergency department time was spent on ambulance diversion, the mortality rate for heart attacks in 19992000 was increased by 47 percent.7
Rapid access to denitive therapies is the reason that the death rate from
trauma and heart attack has plummeted over the years, so the cause of
the fatalities is sure to be delayed care. An ambulance driving around
looking for the right hospital is a death sentence for these patients and
for others with time-sensitive emergencies.
When ambulances are diverted from emergency rooms, critically ill
patients are also turned down for transfer from small hospitals to large
emergency hospitals. Ambulance crews routinely take serious emergencies such as the woman from Lake Jackson and Bill Huntsman to the nearest hospital for stabilization. If the patient needs specialized care, such as
cardiac or neurosurgical attention, the smaller hospital is often unable to
transfer the patient to a larger hospital for the same reason that ambulances are on diversion: full beds. The patient needing transfer just waits
as the blood clot expands or the heart attack becomes irreversible. If a
delay in care injures the patient, the family is unlikely to know. If a patient
dies from a delay and the family does nd out about it, there is no
one to sue: all the medical personnel did the best they could under the
circumstances.
Two million people a year are transferred from one hospital to
another that offers specialized care. If our experience in Houston is representative, this gure hides a tragedy in regions that are diverting
ambulances. In the Houston region in 2005, 15 percent of patients requiring transfer to a specialized hospital waited for more than eight hours.
Every small hospital in the region reported that patients were routinely
endangered by delays in transfer. Only 30 percent of patients could be
transferred within the recommended two hours.8
Decreased Supply Meets Increased Demand

With the worst possible timing, declining hospital capacity has been met
with an increase in demand for emergency services, the result of bad personal behaviors such as overeating and inactivity and a shift away from
preventive care by a generalist. In the decade before 2003, the United
States experienced a 26 percent increase in emergency room visits with
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22
118.3
120
Emergency room visits (in millions)
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114.6
114
110.0
108
111.1
112.6
105.6
103.1
102
99.5
97 94.7
93.1 92.8
94.8
91
85
80
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
FIGURE 3.1 Number of U.S. emergency room visits
Source: Health Forum, Hospital Statistics (Chicago, American Hospital Association,

various editions).
only an 11 percent increase in population accompanied by a 12 percent

decrease in the number of emergency rooms.9 Figure 3.1 shows the steady
and dramatic increase in emergency room visits nationally beginning in
1999. The surge in visits is coincident with the progressive failure of the
emergency services system.
Displaced Patients
The rst notion of most observers was that the increase in emergency
room visits was simply a ood of uninsured who had no place to go for primary care. The data, however, show that the uninsured and the insured
visit emergency rooms with about equal frequency. In contrast, the uninsured visit clinics much less often than the insured do; emergency rooms
are often their only source of care. A recent survey, in fact, found that the
uninsured are less likely than either Medicare or Medicaid patients to visit
emergency rooms, probably to avoid the expense. Communities with the
highest emergency room use are not those with the highest uninsured
rates but those with the longest waiting times for clinic appointments.10
The surge in emergency room visits is driven by everyone: the privately insured, Medicare patients, Medicaid patients, and the uninsured.11
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23
It is no wonderanyone who calls a doctors ofce at 5:00 P.M. or on weekends hears the same recording: If you think you have an emergency, call
911 or go to your nearest emergency room. In almost every survey, about
40 percent of emergency room visits are non-urgent or semi-urgent, and
only Medicaid patients stand out in their use of the emergency room both
for both urgent and non-urgent care.12 Not only are Americans displaced
from regular medical care, but they also appear to have gotten sicker over
the past decade.
Increased Real Emergencies

Of the people who come to an emergency room, 12 to 14 percent are so
sick that they require hospital admission. This percentage has been stable
at least since 1993.13 In some regions the situation is worse. In the
Houston area the percentage of emergency room patients who require
hospital admission is 22 percent, almost twice the national average. In
California emergency rooms, the percentage of true emergencies increased
by 59 percent between 1990 and 1999.14
Further evidence that people are sicker than used to be is that the
percentage of people ages thirty to forty-nine who are disabled increased
by 50 percent from 1980 to 2000.15 The prevalence of diabetes has increased
by 53 percent over the past twenty years, related to a doubling in the
prevalence of obesity. Kenneth Thorpe, professor at the Rollins School of
Public Health at Emory University, believes that 27 percent of the growth
in health spending in the past twenty years is accounted for by the rise in
obesity. The prevalence of lung disease has shown a similar trend.16
An increase in disease among Americans, heavily driven by personal
sloth, collided with another event that proved to be a one-two health care
punch. In the early 1990s a botched version of an insurance product
called managed care was widely instituted to control health care costs.
Managed care is a nancing mechanism that rewards either an insurance
company or a doctor for coordinating care and controlling the amount of
technology applied to patients. If done well, managed care is a physiciandriven system that results in an improvement in quality of care and
reduced cost; if done badly, it is performed by an insurance clerk and limits access to appropriate care. What was billed as managed care in the
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1990s was care provided by doctors and hospitals who had taken a
30 percent cut in pay. The only pretense of coordinated patient management was the intrusion of an insurance companys employees between
the doctor and the patient.
Managed care was summarily rejected by both physicians and
patients but not before it nancially destabilized hospitals and doctors.
When Americans rejected it, they found themselves displaced from medical care and often really sick. Now when they seek emergency care, they
are often faced with overcrowded emergency rooms and hospitals that are
turning patients away. The United States has paid a high price for the
managed care asco.
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4
Fifteen Years Lost
America has lost fteen years that could have been used to
improve the way the medical industry delivers care.
Hospitals are primarily nanced by private and public health insurance.

Their revenues come from care of patients with (1) private insurance,
(2) Medicare, and (3) Medicaid and its afliated programs. Hospitals earn
income from investment of their prots and from services such as cafeterias, parking, and medical services that they contract out, but patient care
is the core business. Private hospitals nance the care of the uninsured and
low-paying publicly insured patients (Medicaid) by shifting their losses to
increased prices for privately insured patients. Many hospitals also receive
funds from a federal program called the Disproportionate Share Hospital
(DSH) program, which is aimed at hospitals that care for a disproportionate
share of low-income patients and is a substantial source of hospital revenue. The only hospitals that receive direct tax revenue are public hospitals,
which account for 16 percent of hospital beds in the United States.1 While
only 6 percent of the services that hospitals provide nationally are to the
uninsured, a few hospitals in each region provide most of that care; these
are usually emergency hospitals, and they are often nancially unstable.
By the late 1990s Medicares cost to the federal government had been
growing so fast that it threatened to bankrupt the Medicare program within
the foreseeable future and push the country further into debt. Funds from
two public programs, Medicare and Medicaid, account for half of hospital
revenue.2 Beginning in 1999, the Balanced Budget Act of 1997 reduced DSH
funds by 17 percent and also sharply cut hospital payments for Medicare
patients. These cuts crippled some key emergency hospitals. For example,
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Ben Taub General Hospital in Houston, Texas, is a tax-supported hospital

for the uninsured and also one of two major trauma hospitals that serve
the region. By 2001 Ben Taub had suffered a 10 percent cut in operating revenue because of DSH cuts, precipitating bed closures and the Houston
emergency services crisis that rst became critical in that year.
But the Balanced Budget Act was not enough to cause widespread
emergency medical system failure nationally. By the time the act arrived
on the scene, hospitals and doctors had been reeling since the early 1990s
from the effects of the managed care measures taken by employer-based
insurance to control costs. These two events were the genesis of the emergency medical services failure seen today and the trigger for the health
care cost escalation that now troubles the country.
Fee-for-Service Medicine
The managed care era cannot be understood without understanding how
doctors are paid. Insurers and government programs pay doctors directly
for each service they render, and they are paid separately from hospitals.
Years ago a group at Harvard University developed a payment system
called the relative value scale that is used by the Medicare program and
almost all insurers to determine physician fees. By means of this scale,
each of the thousands of services that doctors provide is assigned a
numerical level of difculty for performance; and the American Medical
Association regularly updates the scale. The level of difculty for a routine
ofce visit is low, that for heart surgery or brain surgery is high. The performance of procedures is always assigned a greater number on the scale
than is management of a patients health. A generalist managing a patient
with diabetes in a medical ofce is paid about the cost of a good restaurant meal for that service; a heart surgeon or a brain surgeon can make a
down payment on a car for performing an operation on the same patient.
Doctors contract with insurers, including Medicare. Their contract
agrees to a specic dollar gure that is then multiplied by the numerical
level of difculty from the relative value scale for each service the doctor
delivers. Medicare and Medicaids multiplier is set by law; the multiplier
doctors accept from private insurers is a matter of negotiation.
The product of the multiplier and the scales numerical level of difculty determines what the doctor is paid for each service. The dollar
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F I F T E E N Y E A RS LO ST
27
multiplier may be high or low. Medicaids multiplier is always the lowest,

Medicares is higher, and private insurers are usually higher still.
Medicare is the index against which all other insurers are compared. For
instance, when doctors negotiate contracts with insurers we routinely calculate their rates as Medicare plus X percent.
A doctors income depends on three factors: the number of services
provided, the level of difculty of the services, and the doctors overheads
such as ofce costs and malpractice insurance expense. The most lucrative practices provide a high volume of complex procedures, such as brain
or heart surgery, to patients whose insurers pay high multipliers. Paying
for each service performed is called fee-for-service medicine.
Fee-for-service medicine thus encourages the delivery of an abundance of technology and especially the delivery of complicated technology.
Practiced outside of any system that evaluates the appropriateness of
care, fee-for-service medicine causes medical waste. It also makes highquality procedures readily available to those with insurance, the strength
of the U.S. method of nancing and practicing medicine.
Fee-for-service medicine lends itself to fragmented medical practice
because nothing about it rewards systems of patient management.
Medicine in the United States is practiced in hundreds of thousands of
independent small businesses. Only 12 percent of medical practices are
comprised of ten or more physicians, and these are usually single-specialty
practices.3 In the early twentieth century a few models of a different kind
of practice developed, in which physicians were salaried, worked in integrated groups, and focused their primary efforts on disease prevention
and disease management. The managed care era of the mid-1990s borrowed from the success of these models but never got it right. That is a
story that the United States cannot afford to repeat.
HMOs: A Good Idea, Badly Executed

The resistance of the public and of doctors to organized systems of care
has contributed to our medical predicament today. The idea of coordinated care delivered by salaried physicians who are employees of a clinic
is an idea that emerged early in unlikely places. Prominent examples are
the Mayo Clinic formed by two surgeons, the Mayo brothers, in Rochester,
Minnesota, in 1888 and Kaiser Permanente founded in California in 1933
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by industrialist Henry J. Kaiser. In New York, Seattle, and Washington,

D.C., groups of workers formed their own large group-practice clinics.
All of these group practices developed with common themes. The care
was provided by a multi-specialty group of doctors who were employed by
the clinic, and the members paid a at amount per year for the care they
received. These two characteristics gave the original name to these
arrangements: prepaid group practice. Usually a non-physician board,
often made up of plan subscribers, governed these clinics; and these practices were all committed to comprehensive care including disease prevention and coordinated management. At the time, prepaid group practices
were not cheaper than conventional health policies, but they offered a
much richer benet package to their members, primarily laborers and
government employees, who felt ownership in the arrangement.
The American Medical Association opposed prepaid group practices
because they were not physician-controlled. But it did not like them even
when they were controlled by doctors. In 1947 the Supreme Court upheld
the AMAs indictment and conviction under the Sherman Antitrust Act for
its steps to squash prepaid group practice. The Court rejected the AMAs
position that medicine was a profession, not a trade. Practices that led to
the AMAs conviction were expulsion of physicians who participated in
prepaid group practice from local medical societies and persuading hospitals to deny them admitting privileges.4 The methods may have been illegal, but they were effective. By the 1970s a few remaining prepaid group
practice plans had spent years quietly developing their methods and
expanding their membership, but the techniques had not spread.
In the 1970s U.S. health care faced many of the same issues it does
today. Paul Ellwood, M.D., of Minneapolis had coined the term health
maintenance organizations (HMOs) to describe prepaid group practice,
arguing that traditional fee-for-service medicine was the barrier to health
care reform. His voice was heard in Washington, and his terminology
stuck. The Nixon administration established planning grants, loan guarantees, and legislation that superseded those state laws that prohibited
HMOs. Federal law required companies with at least 25 employees to offer
a federally qualied HMO.5
Because doctors were salaried and the practices were paid a at
amount for care of patients each year, doctors had no stimulus to provide
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unnecessary procedures and good reason not to. Extra medical procedures would only cost the practice money. Protocols of treatment were
adopted to ensure that patients were not undertreated and that management was reasonably uniform among the clinics doctors. In the ensuing
years prepaid group practices were convincingly shown to save money by
reducing hospitalization, a feat accomplished by keeping patients well
and managing their diseases before they became emergencies.6
Employers Take Action

The 1980s brought an acceleration of health care costs, which became less
tolerable as the country entered a recession in 1990. Unemployment rates
were high, so businesses had little trouble nding labor. Business growth
was low, and high health care costs threatened business protability. The
priority of most businesses tilted toward controlling these costs rather
than retaining employees.
Businesses and the insurance industry seized upon the principles of
prepaid group practice as their salvation from high health care costs.
Health economists had long known that the cost of health care in one place
might be double what it was in another state or region and that most of the
differences were in the number of medical services provided, not higher
prices. Economists also knew that patients in regions with increased medical services did not enjoy improved outcomes. (In fact, patients were later
shown to suffer from poorer-quality care and worse outcomes in regions
that used high levels of medical services.) Insurers understood the magnitude of medical waste but had no reason to act on the information as long
as businesses tolerated it. So in the early 1990s, American business took
action. Originally known as prepaid group practice and then as HMOs,
managed care became the rubric for waste elimination in health care. By
1996 nearly three-quarters of the employer market was part of some form
of managed care, an increase from 27 percent only eight years earlier.7
The primary cost-reducing feature of managed care was advertised as
decreased hospitalizations and procedures produced by coordinated preventive medical care. But the managed care of the 1990s was a bastardized
incarnation of prepaid group practice, forced onto a health care industry
that neither wanted it nor was organizationally capable of implementing it.
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Kaiser Permanente and others of the old prepaid group practices

owned clinic buildings and hospitals, employed a single medical record
for each patient, and audited the care of patients. They employed salaried
staff physicians who enjoyed practicing in a cost- and quality-conscious
organizational culture. Treatment protocols were established by consensus among the clinics physicians, not externally imposed. Importantly, by
the 1990s the patients of the established prepaid group practice models
had often been born into these systems and were accustomed to their
methods. Prepaid group practices also had had sixty years to develop their
techniques. In the managed care wave of the 1990s, solo practitioners and
stand-alone hospitals were expected to adapt to managed care techniques
within a few months.
The 1990s version of managed care ranged from hastily established
HMOs that housed newly recruited practitioners in freshly painted buildings to arrangements in which solo practitioners were paid deeply discounted fees-for-service and then subjected to an insurance companys
management protocols. These protocols were often purchased off the
shelf from commercial rms, and the physicians on whom they were
imposed had never seen them and were offended by them. Patients could
be managed by nurses employed by the insurance company or by an
insurance clerk reading a script from a computer screen. The measures to
control use of services could vary from a clerks refusal to allow a doctor
to order a test to a physician-gatekeeper hired by the insurance company
with whom a specialist must talk to gain approval for a procedure.
The most restricted forms of managed care resulted in a 30 to 40 percent reduction in health care spending, and it is likely that in some of the
better arrangements played a role in creating savings. In Massachusetts,
however, only about 5 percent of savings were from decreased use of services; 45 percent were from reduced prices, and the remainder came from
caring for patients who were not as sick as the patients of the plans
competitors.8
Doctors and hospitals did not willingly participate in managed care;
they were forced to do so by a wave of consolidation in the insurance
industry. Simultaneously hospital and physician leaders convinced their
colleagues that there were too many specialists, too few generalists, too
much hospitalization, too many procedures, and not enough preventive
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medical care, all of which was true. In many markets two or three insurers dominated a region and could drive a hard bargain because they controlled so many patients. Physicians felt they had no choice but to accept
sharply reduced fees because, after all, there were too many specialists.
Hospitals were in no better position than doctors. In the early 1990s
hospitals usually stood alone and could not face down an insurer that
controlled one-quarter of a regions commercially insured patients; therefore, hospitals agreed to sharp price reductions. Before managed care in
1993, commercial insurers paid hospitals 30 percent above their cost of
care, but by 1998 the gure was only 14 percent.9 Prot margins were so
low that money normally used to fund the care of uninsured emergency
patients evaporated. Hospitals posted losses beginning in the early 1990s
and continuing into at least 2003.10 The Balanced Budget Act, which took
effect in 1999, was the coup de grace for hospitals and directly led to the
emergency medical services crisis.
In addition to reducing health care prices, managed care briey did
two good things. For the rst time in U.S. history every physician and hospital became aware that resources were limited. As if by common consent, they placed a lid on the use of medical services, and there is no
evidence that any population was harmed by it. The second achievement
was that patient care was coordinated, however intrusively.
Managed care was the right concept badly executed, and it was rmly
rejected. Neither specialists nor generalists were prepared to deal with a
third party inserted between them and their patients care. Patients were
not prepared for restrictions in selection of their doctors. By 1999 business was good, unemployment was low, and the labor supply was tight.
Destabilized hospitals, angry physicians, and disenchanted patients
rebelled; and by 1999 businesses and insurers had publicly abandoned the
most restrictive forms of managed care. Legislatures followed the winds of
popular change by passing patients bills of rights that held insurers liable
for restrictions in care.
Managed care had proven, however, that costs could be controlled
without hurting patients. Hospital spending actually decreased for the rst
time in U.S. history. Before managed care, overall health care cost growth
was in double digits, and it dipped to less than 1 percent by the mid-1990s.
Yet the subsequent disassembly of managed care let the genie out of the
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20
18.0
18
Health insurance premiums

Workers earnings
Overall inflation
16
13.9
14.0
14
Percent
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12
11.2
12.0
10.9
10
8
8.5
8.2
9.2
7.7
6.1
6
5.3
3.7
2.6
2
0.8
0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
FIGURE 4.1 Percentage increase in cost of health insurance premiums, 19882006
Source: Kaiser Family Foundation and the Health Research and Educational Trust,
Employer Health Benets, 2007 Annual Survey (Menlo Park, Calif., September 2007).
bottle. By 2003 the medical industrys cost was again growing at doubledigit annual rates and has remained elevated ever since. Throughout the
past decade, ination and growth in workers earnings have remained far
below health care cost growth.
Figure 4.1 illustrates the percentage annual increase in cost of health
insurance premiums from 1988 to 2006, showing the dramatic decrease
in premiums that managed care produced and the equally explosive cost
growth when those controls were released. The rate of growth in workers
earnings and the general ination rate were far below the annual growth
in health care costs in this period and at present.
Managed cares poor implementation and its subsequent rejection had
pernicious effects. Doctors fee-for-service rates were undercut by managed
care and have never recovered. Doctors responded to decreased payment
for services by doing more procedures, ordering more tests, and seeking
income by referring their patients to facilities they owned, all of which
helped fuel todays resurgence of insurance premium growth. Hospitals
reacted to managed care by consolidating into regional monopolies that
could stand up to consolidated insurers and leverage high prices. In the
1990s hospitals learned how to reduce their exposure to the uninsured by
necessity, but many continue that practice in better nancial times.
Patients reacted to their release from the restrictions of managed care by
doctor shopping and self-management; these behaviors paralleled an
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increasing indulgence in unhealthy life styles as the nations wealth grew to

unprecedented levels. The net result was increased disease and the willing
participation of patients to consume excess medical procedures and tests.
Todays emergency services and health care cost problems are the
legacy of managed care and its rejection. America has lost fteen years that
could have been used to improve how the medical industry delivers care.
We are further behind than we were in 1990 and now must play catch-up.
Revelations
We know more about ambulance diversion in Houston than in most other
large cities because of the work of SAVE OUR ERS and its offspring organizations. The Houston region has sixty-eight hospitals. Within the city of
Houston is the Texas Medical Center, an eight hundredacre concentration of forty-two institutions including thirteen hospitals totaling 6,344
hospital beds, two medical schools, and eleven educational and research
institutions. For years the majority of the regions residents have come to
Texas Medical Center for treatment for complicated medical conditions.
The center was built by big-thinking wildcatters with oil money and by
big-thinking surgeons with money from the invention of heart surgery.
As a child, fascinated with medicine, I thought this was the center of the
universe. I wanted to be a big doctor in this very spot, and I eventually was.
In 2006 I wrote this section of the book in my ofce, looking down on
Fannin Street, a mile-long corridor that runs through the medical center,
lined on one side by four massive hospital complexes facing a continuous
row of ofce towers and outpatient centers on the other side of the street.
The hospitals are connected to their afliated skyscrapers by a series of
skywalks that bridge the street. Out the window of my ofce I could see
under construction along Fannin three new multistory professional buildings, a new heart institute, and a new medical school building; the
whirring and hammering was constantly audible through the window.
Behind the line of hospitals on Fannin Street is M. D. Anderson Cancer
Center, which, like the disease it treats, grew without normal control
mechanisms and occupies three square city blocks. When I took a break
from writing and drove around town, I saw three physician-owned
specialty hospitals being nished: one for spine surgery and two for
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orthopedic procedures. I knew that twenty-two physician-owned hospitals were in different stages of development in the area. Hospital nancing was clearly not a problem in Houston. A similar hospital building
boom is going on all over the United States. If they have insurance or cash,
Americans can be treated with the best medical technology in the world.
I should not have been surprised, therefore, when our 2005 studies of
the Houston area emergency services system found that the region had
more than enough hospital beds: 3.2 per 1,000 people, when the national
average is 2.8.11 Houston does not have a problem with hospital capacity,
just a problem with hospital capacity for emergency patients. I suspect the
same is true in every major city where ambulance diversion and emergency
room overcrowding are routine. Hospitals in urban areas all over the United
States are adding beds for insured patients with non-emergency conditions
that require knee replacements, hip replacements, heart procedures, back
surgery, diagnostic studies, and the like. I suspect that they are not adding
ICU beds and emergency rooms in areas of the country where people with
emergencies are likely to be uninsured. The problem with hospital capacity
for emergency patients would dissolve if every American had an insurance
policy. There is also a moral argument for covering the uninsured.
I once made the following statement to two conservative friends who
were both knowledgeable and concerned about Houstons health care
problems: Everyone in America deserves health insurance. They both
said no. I then reworded the statement: We should provide health insurance to every American. They both said yes. I repeated the word experiment with many other people. Conservatives acknowledged our obligation
but not their right. More liberal friends said yes to both statements. Both
groups reached the same conclusion but in different ways.
The sharp differences in opinion over what should be done about the
uninsured are not differences in what injustice looks like but diverging
views on the action required to rectify it. That divergence of opinion does
not excuse the lack of action, however. Lack of insurance is unjust
because the uninsured get miserable medical care.
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5
Handed Health Cares Leftovers
It is an injustice for uninsured Americans to go without medical

care that is standard for the insured and for citizens of other
developed countries.
One Sunday afternoon in 2004, I sat with other members of a panel on

a dais before a large audience in a Houston church auditorium, listening
as a group of people without health insurance shared their experiences.
I heard two stories that illustrate the predicament of the uninsured. The
rst was told by an attractive woman, about forty years old and a single
working mother. Speaking in Spanish, she told her tale with composure
but with controlled anger. Her older son was serving on the front lines in
Iraq. Her eleven-year-old son had recently lost his eligibility for the State
Childrens Health Insurance Program (SCHIP), a combined federal and
state program providing health insurance for poor and near-poor children.
His asthma attacks went untreated because without insurance she could
not afford to pay for care. She feared losing one son in war and the other
from asthma. She concluded by saying that she felt betrayed.
The second speaker was also a motheran Anglo about fty years of
age. She was clearly embarrassed to be standing at the podium in the public eye but nevertheless resolutely told her story. Her husband, a technical
writer, had lost his job when his company laid off three-quarters of its
employees. Since then he had supported the family by contract jobs, earning on average 50,000 dollars per year. He had not found full-time work,
and she believed this was because employers did not want to pay for family health insurance. The speaker herself would have raised the health
insurance rates of a small rm: she could not work outside the home
35
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because of a chronic medical condition. Initially the family bought individually purchased insurance at 325 dollars per month, a premium that
increased to 725 dollars per month within two years. By 2004 the
deductible was 2,000 dollars, and coverage was not affordable for all family members. What else could she and her husband do but drop it? She
concluded her talk with I have a little seven-year-old with a respiratory
condition, and I am worried.
No Small Problem
These are common stories. On any given day there are more uninsured
people in the United States47 millionthan there are people in all of
Central America or in the combined populations of our nations three
largest metropolitan areas: New York, Los Angeles, and Chicago. In other
words, 15 percent of the population is uninsured. One-third of the nonelderly population (82 million people) loses insurance at some time during a two-year period.1 According to Jeffrey Passel at the Pew Hispanic
Center, only 12.5 percent of the uninsured are illegal immigrants, although
that percentage is much higher in states such as Arizona, Texas, and
California.
Mostly the uninsured are the working poor. Eight in ten live in working families. More than half cannot afford to purchase insurance, and
their employers do not provide it, while 20 percent earn enough money to
purchase insurance but choose not to do so.2
Twenty-ve percent of the uninsured are eligible for public programs
but are not enrolled. Most low-income parents know about Medicaid, the
combined federal and state program that provides health insurance for
poor children in all states and their parents in some states, but many fail to
sign up because they think they are ineligible or cannot manage the enrollment hassles. For example, leaving work on a weekday every six months to
spend all day at the Medicaid ofce would cost a janitor a days pay or his
job. Contrast this situation with Medicare, where everyone eligible for
Social Security receives an enrollment package in the mail at age sixty-ve.
States do not go looking for people who are eligible for public programs such as Medicaid and the State Childrens Health Insurance
Program, and many states deliberately erect barriers, such as requiring
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H A N D E D H E A LTH CA R E S LE F TOV E RS
37
frequent face-to-face reenrollment. The states pay 30 to 40 percent of the

cost of these programs, the federal government covering the balance, and
full enrollment is a state-budget buster. The year 2003 was the rst time
that total state health care costs had ever exceeded the cost of elementary
and secondary education.3
Its not only the working poor who are uninsured. In fact, moderateincome adults (those with annual incomes of 20,000 to 34,999 dollars per
year) now account for most of the increase in the uninsured, rising from
28 to 41 percent of the uninsured between 2001 and 2005. About half of
personal bankruptcies involve illnesses, and these primarily take place in
insured middle-class families.4
Middle-class families do not like what they nd when they seek care
without coverage. For example, uninsured patients do not receive lifesaving procedures after a heart attack as often as insured patients do.5
This can be a death sentence, as it was for Juan Olivas, whom you will hear
about next.
Misplaced Trust
I have set a number of stories in the ctional Episcopal Hospital, a large
private hospital in Los Angeles, and the equally ctitious Bayview County
Hospital nearby. My character Simon Brown, a cardiac surgeon who works
at both hospitals, appears in several stories. Although the stories are ctions, they are faithful to events I have witnessed and that occur every day.
Juan Olivas had managed a group of laborers in a warehouse for ten
years and faced a dilemma when he received a memo about the following
years benets. The familys combined income was 50,000 dollars, which
included his wifes part-time job in the church ofce. (They still had a
high-school-aged daughter at home who needed supervision.) The family
had been covered by Medicaid when the children were young, but now their
income was too high. The companys new policy required Olivas to pay
20 percent of the 10,000-dollar family premium, but with a 5,000-dollar
deductible that would amount to 15 percent of the familys combined pretax income if they used the deductible. Olivas knew that one hospitalization or two diagnostic procedures would require him to pay all the
deductible, and his medications were very expensive. He dropped insurance
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rather than sell the house, borrow money, or take his older daughter out
of college. He also stopped taking his blood pressure medication, and
over the next year his blood pressure reached dangerous levels but with
no traceable symptoms.
Juan Olivass heart attack started as a vague internal uneasiness that
swelled to constrict his chest and nally prostrated him on the warehouse
loading dock. The ambulance took him to the nearby large private hospital, Episcopal Hospital, where he was quickly diagnosed with a heart
attack and placed in the coronary intensive care unit. Had a dark-skinned
man named Olivas had a heart attack at home or on the street, the ambulance crew would have assumed he was uninsured and taken him directly
to Bayview. Since he was at work and therefore likely to be insured, the
ambulance took him to the Episcopal.
Olivas stabilized after a few days and underwent a cardiac catheterization. In this procedure a thin plastic tube is threaded up to the heart
through an artery in the groin to look for blockages. The artery that had
caused the heart attack was completely blocked and could not be opened.
The heart was mildly damaged. But another artery of the heart was also
severely narrowed; this was the left main coronary artery, and it had not
caused this heart attack. Patients with narrowing of this artery live an
average of only six more years unless they have open heart surgery, but
they can live an average of thirteen more years if they have surgery to
bypass the blockage. When the left main artery occludes, the result is usually fatal. Therefore, blockages of this artery are normally operated on at
the same hospitalization in which they are diagnosed.6 In this case, however, no such treatment was offered because Olivas could not pay for
major surgery and had no insurance.
EMTALA required the Episcopal to treat the emergency condition (the
heart attack), but it did not require the hospital to provide non-emergency
care. Olivass chance of dying over a several-year period did not constitute
a medical emergency, and legally the hospital was not required to do
more than it did.
One month later, Olivas had a follow-up appointment at Bayview
County Hospital in the general medicine clinic. A young intern fresh out
of medical school reviewed the cardiac catheterization results. Mr. Olivas,
are you having any chest pain? queried Dr. Prater.
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No, sir, I am walking three miles a day, and I feel ne. Can I go back
to work now? responded Olivas.
The young doctor knew that severe narrowing of the left main coronary artery was a time bomb. He also knew that all the specialty clinics
and operating rooms at County Hospital were backed up for more than six
months. He called the surgery clinic. I have a fty-year-old Hispanic male
who had an MI [myocardial infarction, or heart attack] one month ago. He
has a 70 percent stenosis [narrowing] of his left main. How soon can you
get him in for a surgery appointment?
Our next available appointment in clinic for a new patient is in four
months. I cannot tell you about a surgery date, the clerk said.
Prater responded, Let me talk to the clinic manager. Olivas was in
luck; few of the interns would have bucked the entrenched bureaucracy of
the hospital.
Dr. Simon Brown happened to be teaching in the cardiac surgery
clinic on the day Olivas was seen one week later, and the resident staff
presented his case to Dr. Brown. Brown stood a head taller than Olivas
and was as pale as Olivas was dark. He looked down at Olivas and said in
a bass voice, Mr. Olivas, you have a critical blockage of one of the arteries in your heart, and it needs to be bypassed. We have only one problem.
There is no time in the operating room to do this procedure. The operating room is often full of emergencies, and it may be a while before we can
get your procedure done.
The waiting list for non-emergency surgery at Bayview was six months
long, which practically meant that such surgeries were not available. The
occasional non-emergency case was scheduled by calling in the patient if
there happened to be a quiet day in the operating room; twenty-four
hours was all the advance notice a patient could get. In private hospitals,
non-emergency cases are scheduled weeks ahead. Brown felt that it would
have been cruel to tell Juan Olivas that he had a fair chance of dying
before the procedure was ever performed. He did not tell Olivas that he
would probably have performed his surgery at the Episcopal if Olivas had
been insured.
Dr. Brown did not feel responsible for this unseemly paradox, though
it bothered him. The uninsured were a large societal problem; and as a
responsible physician, he did all he could for Olivas. Brown had carved
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enough money out of his departments budget to buy pagers for fteen
patients who needed, but could not get, emergency heart surgery at
Bayview. A handwritten list on a yellow pad on the corner of Browns desk
contained the name, pager number, date of last clinic visit, and description of the heart problem of each patient who was waiting for heart surgery.
Take this pager, Mr. Olivas. Do not give the number to anyone else.
When it goes off, my ofce will be calling you to tell you that we can do
your surgery the next day.
Mrs. Olivas responded, Thank you very much, Doctor. We are so
grateful to you. We will wait for your call.
After the Olivas family had left the examining room, Brown turned to
the pack of young doctors and medical students trailing behind him and
said, You do understand, dont you, that at any private hospital an
insured patient with this problem would never have left the hospital without surgery?
About four months after his heart attack, while supervising the
unloading of a truck, Juan Olivas again felt crushing shortness of breath,
as if something alive were trying to crawl out of his chest. This time, however, his heart brillated so that it writhed rather than pumped blood,
and he lay gasping for air on the loading dock as his world became dark.
Mrs. Olivas returned the pager to Dr. Browns ofce as soon as she
had buried her husband. Dr. Browns secretary told him what had happened to Mr. Olivas, and he marked the event as yet another one of the
tragedies he saw ever more frequently at Bayview.
Too Little, Too Late

At one time there was a debate about whether the way to provide better
care for the uninsured was to create more public facilities for their care or
to insure them. That debate ended some time ago. Within the past two
decades the number of uninsured has overwhelmed public facilities.
For example, Houstons two public hospitals and seventeen charity
clinics have the capacity to care for only about one-quarter of its 1 million
uninsured. The citys two public hospitals have only twenty-six operating
rooms for 1.2 million uninsured.7 To understand these numbers, think of
a town of 38,000 inhabitants with one clinic and one operating room for
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all medical services except emergencies. This is why an uninsured woman

with a lump in her breast usually waits six months for a biopsy in Houston
and another six months for radiation therapy.
This situation is not unique to Houston; it is ubiquitous. Nationally,
half as much is spent per capita on the health care of the uninsured as on
the insured and, for the chronically ill, only one-third as much. These
trends are worsening. Federal spending on the uninsured fell by 9 percent
per person between 2001 and 2004, pushing the costs off to municipalities that do not have the tax base to make up the differences.8
Society-Approved Medical Malpractice

The health outcomes of the uninsured are predictably poor, which is
embarrassing in a country as rich and educated as the United States. The
lack of health insurance alone results in preventable deaths estimated to
account for 22,000 in 2006. The effects of poverty and preexisting illness
are factored in, so the deaths are not caused only by being poor. In the ten
years before people turn sixty-ve, the risk of death from lack of insurance is nearly doubled.9 The reasons are lack of preventive care, lack of
early diagnosis, and substandard treatment. For example, the uninsured
are less likely to have Pap tests for cervical cancer, breast exams and
mammography for breast cancer, colonoscopies for colon cancer, blood
pressure checkups, and measurement of blood cholesterol. Their high
blood pressure goes out of control when they lose insurance. One-fourth
of uninsured diabetics do not even have a routine check up every two
years, and 12 percent of non-elderly adults with diabetes are uninsured.10
The uninsured suffer high cancer mortality from late diagnosis and
undertreatment. Nationally, uninsured women with breast cancer are 30
to 50 percent more likely to die. The mortality rate for colorectal cancer
is increased by 64 percent. Uninsured men with prostate cancer are more
likely to be diagnosed late and to die with advanced disease.11
Patients with malignant melanoma are more likely to have advanced
disease when they are diagnosed.12 From personal experience I can tell
you why. For several years I bought delicate jewelry made of Venetian
glass and ne mineral stones for my wife, my mother, and my daughters
from a delightful middle-aged woman named Anne Casey. (I have changed
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her name.) Her craft supplements her income as a caregiver to the elderly.
I would sit in her home studio in downtown Houston on a Saturday morning and pick out materials, and then she would create striking pieces. Not
only did the women in my family like my gifts, but I looked forward to
the process because I enjoyed chatting with her over coffee about her
materials. I was introduced to Anne by my wifes close friend, Phyllis
(I have not changed her name), who was Annes high school classmate.
I was disturbed when Phyllis told me this story.
One day in early 2007 a black lump appeared on Anne Caseys neck;
she had the fair Irish skin that is prone to cancers. Because she could not
afford insurance, she paid cash for a dermatologist to biopsy it. The dermatologist was notably agitated after he looked at the biopsy under a
microscope (he saw malignant cancer cells) and told her she needed surgery right away but that he could not do it. Anne had malignant
melanoma, a potentially fatal skin cancer that is normally removed as
rapidly as possible to prevent its spread throughout the body. Her problem was that the down payment alone for a hospital admission would
have been 10,000 dollars, which she did not have. I suspected that this
was why the doctor could not do the surgery. Fearing for her life, Anne
Casey began the process of obtaining a gold card that would permit her
to enter the Houston public hospital system. Four weeks later she got the
card and four weeks after that a clinic appointment. In order to nd out
how extensive the cancer was, the doctors needed to perform an MRI and
other tests before doing surgery. The larger of Houstons two public hospitals sits in forlorn isolation in the back of the massive Texas Medical
Center, like the servants entrance to a large Victorian house. It contains
the only MRI in the countys public hospital system. Anne was admitted to
the hospital for the MRI and other tests normally performed as outpatient
procedures. She lay in the hospital for six days waiting for an MRI as the
hospital diverted ambulances because it had no available beds.
Phyllis, who each day was growing more anxious about Anne, called
a doctor friend who owns an MRI facility and he agreed to perform an
MRI for free. Anne left the hospital to undergo the donated MRI scan.
Meanwhile the black cancer was getting larger every week as the two
friends watched in horror, helpless. Weeks passed without the anticipated
call to come in for surgery. Finally Phyllis, desperate to help her friend,
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called the doctor who had performed the biopsy and insisted that he telephone the doctors at the public hospital to expedite the process. Phyllis
and her friends made calls directly to the CEO of the hospital district on
Annes behalf.
Four months after the diagnosis of a life-threatening malignancy,
Anne Casey nally underwent surgery to remove a visibly growing cancer.
She told me that she felt she had received excellent care and was glad for
it. She could not know that the delay had increased her chance of dying of
the cancer.
Anne had the advantages of being educated and having inuential
friends; her care was expedited. If she had been insured and her surgery
had been delayed for four months for any preventable reason, the responsible doctor would have had no defense if she had later developed widespread cancer. Her care would have been medical malpractice. Yet in
present-day America, Anne Caseys care was better than what many of the
uninsured can expect.
The uninsured problem has grown so large that it is now fully prevalent in the middle class. Everyone, regardless of income, knows someone
who has played by the rules, like Anne Casey, yet is without health insurance. Given current health care cost trends, all of us should care about
the uninsured because we ourselves may be next.
The Mystery of Public Indifference

Doctors who work in public clinics and hospitals are puzzled about why
the public seems indifferent to the substandard care delivered to the uninsured. There are many theories. Some medical professionals think that
maybe the uninsured seem undeserving or are thought to be lazy. Another
is that the public can take only so much bad news, which is why a beached
whale draws sympathy but genocide in Africa is met with indifference.
My own theory is that people are not prone to be generous with
others unless they themselves have known vulnerabilityif they have
been powerless. Conversely I have observed that those who have never
known powerlessness consider that it can always be avoided if one exerts
enough personal initiative. They are not willing to calculate the tangible
and intangible advantages that an accident of birth may have given them.
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The most likely explanation of all, however, is that people are simply
uninformed about how bad the problem isand I do not mean just average people. On July 10, 2007, President George W. Bush said The immediate goal is to make sure there are more people on private insurance
plans. I mean, people have access to health care in America. After all, you
can just go to an emergency room.13
Incensed Doctor
Doctors who work in public clinics and hospitals feel more strongly than
the public does about the injustice of uninsured care. The problem
becomes an urgent matter when, as a doctor, you make a referral for
someone to be seen in a specialty clinic, knowing that she cannot get in for
six months; or you tell a patient without money that she cannot get a treatment that she needs; or to avoid that conversation, you just order the test,
knowing that she will never get it and will never be back to see you. These
things do not bother people who do not have to do them, so it is easier to
brush them aside or work to remain ignorant about the real situation.
Doctors often play games with the system rather than leave their
patients to their fates. A friend of mine who is a primary care doctor in
Houston told me of two patients he had seen recently with hernias so
large that they could not button their trousers. Both hernias were painless
and produced no symptoms other than their size. One of the patients had
lost his job because of the hernia and could not get new employment
because of it. My friend referred his patients to the surgery clinic of his
own medical school at the public hospital. The patients were given
appointments for surgeries one year later because there was no space in
the operating rooms.
My friend then coached the two patients on how to answer medical
questions about the hernias when they went to the emergency room. The
doctor told the patients to give the emergency room staff a history of constant and worsening abdominal pain, a sign that the hernia is becoming
life-threatening. He taught the patients to groan and wince when a doctor
pressed on the bulging hernia sac, a warning signs that bowel is trapped
in the hernia. He then instructed the patients to go to the emergency
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room, now fully coached on what to say and do. Both were admitted and
operated on promptly. One procured a job some months later.
I did not see many uninsured patients in my clinic, though I cared for
many when I was on emergency call. When I did see an uninsured patient
in clinic who clearly needed surgery but was not an emergency case and
could not afford it, we developed a set routine. I or my colleague of many
years, a physicians assistant, would teach the patients in our clinic to
come to the emergency room at an appointed time in the early morning
when it is usually quiet. The patient was then instructed to lie to the
emergency medicine doctor in a precise way, describing steadily worsening neurological symptoms consistent with the patients primary problem.
On a few occasions I think we even taught the patients how to feign weakness when examined. This combination of contrived history and examination would guarantee the patients emergency admission at the
hospitals expense. We would also tell the patient not to eat after midnight the night before so he would be ready for surgery on the day of our
scheduled emergency admission. I then operated on the patient that
same day. I never lost sleep over this deception because I felt I was
acting in the patients best interest. It cannot be credibly argued that the
uninsured in America receive acceptable health care, a problem that is
inextricably linked to its high cost.
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PART T WO
Why Health Care

Is So Expensive
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6
Where We Are Headed
Rising health care costs and their consequences for federal

health insurance programs constitute the nations central scal
challenge.
The Congressional Budget Ofce, 2008
Medicare provides health insurance to seniors, regardless of income.

The programs cost has grown so much over the years that it will soon
either burden taxpayers or place allocations such as defense spending,
foreign investment, and education at risk. As happy as Medicare beneciaries are with their Medicare, it cannot and will not continue on its current trajectory of spending. Congress has tried to control the programs
cost growth by cutting fee-for-service payments to hospitals and nursing
homes, but this method will not work for much longer. Cuts in hospital
payments were partly to blame for the emergency room failure that began
in the early days of this millennium. Congress is trying desperately to avoid
cutting physician payments but will soon nd itself in the unenviable position of choosing between paying doctors and raising taxes. The matter of
how Medicare pays physicians illustrates the dilemma of Medicare cost
growth and why the programs growth is not sustainable for much longer.
The Medicare sustainable growth rate formula is Congresss attempt
to budget spending on physician services by setting their growth rate at a
level judged to be economically sustainable. That is, as long as the growth
in volume of physician services multiplied by the federally set payments
for those services does not grow excessively, the formula calls for doctors
to get a cost-of-living increase in their Medicare payments each year. But
if total physician spending exceeds the target called for by the sustainable
49
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W H Y H E A LTH CA R E I S SO E X P E N S I V E
50
growth rate, then the formula adjusts Medicare payment rates to doctors
downward. The only way the target can be exceeded is if the growth in the
number and complexity of physician services exceeds the number judged
to be scally sustainable.
The overall growth in physician services has been so great that the
formula had to call for a pay cut to physicians beginning in 2002. Four
times, including in 2007, Congress overrode the formula and held physician payment levels or allocated an increase.1 The net result is that the
growth rate of physician services is unsustainable because it can never
match the levels called for by the sustainable growth rate formula.
Congress is only delaying an unpleasant, politically risky, and complicated decisionto change the way physicians are paid by Medicare.
Politicians do not know how to do it, and neither do the doctors.
The Senate Finance Committee is responsible for the Medicare and
the Medicaid programs. On March 1, 2007, committee chair Senator Max
Baucus of Montana held a hearing on the sustainable growth rate in the
Dirksen Building near the Capitol in Washington, D.C. Four witnesses testied: Glenn Hackbarth, the director of the Medicare Payment Advisory
Commission (MedPAC); Dr. Cecil Wilson, president of the American
Medical Association (AMA); Dr. Byron Thames, a member of the board of
directors of AARP; and Dr. Peter Orszag, director of the Congressional
Budget Ofce, the independent budget advisor to Congress.
The geography of the room was fascinating. Twenty-one senators sat
next to each other at a sixty-foot-long horseshoe-shaped desk in a room
with two-story ceilings like a church. In the center of the horseshoe and
positioned about two heads lower than the senators, the four witnesses
sat at a narrow rectangular table, looking up into glaring lights as they
were questioned. They reminded me of mice encircled by cats.
The AMAs president, Dr. Wilson, solemnly and slowly said that his
organization supported changing the system to pay doctors by annually
increasing the Medicare fee schedule to account for medical ination and
ignoring the growth in complexity and volume of services that physicians
were providing.
Dr. Orszag said that implementing the AMA plan without decreasing
the volume of services would result in annual outlays for physician
services increasing by almost three times that called for by the formula.
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WHERE WE ARE HEADED
51
He testied that the AMAs plan would cost 252 billion dollars between
2007 and 2017. Even by Washington standards, this is a big number.
Dr. Thames of AARP pointed out that Medicare patients premium
payments had already doubled since 2000, partly to pay for physician
services, and that 21 percent of beneciaries report that they have to cut
back on groceries in order to afford their premiums, co-pays, and other
health care expenses, which average 25 percent of income.2 Every senator
seemed to swallow hard at these numbers. All the witnesses testied that
this was not the way to pay doctors.
Glenn Hackbarth of MedPAC gave the senators three other options:
regional caps on physician expenditures, a state-based sustainable growth
rate, or a completely different way of paying physicians based upon as yet
undened performance targets.3 There were no details about this new
method, only vague platitudes about a diaphanous concept. Everyone knew
that if the doctors pay were reduced too much, Medicare patients would
have trouble nding a doctor. There was no question that doctors were
going to get their pay increase and that this scenario would play out again
until it nally hit bottom. By the end of the hearing, I thought that the cats
had no fangs and the mice had grown to be rodents of unusual size.
The Medicare Time Bomb

Non-elected government ofcials have been trying, mostly in vain, to get
the public to pay attention to Medicares perilous situation. Elected ofcials have mostly been silent, realizing that speaking out would be highly
unpopular with seniors. Besides, no one really knows what to do about
Medicares cost problem, and it is one of stunning magnitude.
Medicare Part A is the hospital insurance program that pays for inpatient hospitalization. Part A is nanced by a 1.45-percent payroll tax paid
by the employee and the employer. Medicare payroll taxes are put into a
Medicare Hospital Insurance Trust Fund that draws interest. The fund is
overseen by appointed trustees, two from the public sector and four from
the administration. Medicares hospital costs are paid out of the fund;
and if hospital spending exceeds the trust funds resources, the difference
must be made up by general tax revenue.
Seventy-ve percent of Medicare Part B (physician and outpatient
services) and Part D (prescription drug) benets are paid for by general
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52
tax revenue, the remainder by premiums. Therefore, federal tax revenue

is a major portion of Medicare spendingsoon more than 45 percent of
Medicares outlays. The 2007 Medicare trustees report, A Message to the
Public, concludes that Medicares costs will exhaust the trust fund by
2019, at which time its costs will exceed its revenues by 20 percent. In the
words of one trustee, Thomas Saving, Medicare and Social Security combined are on track to eat up the entire federal budget.4
The implication of these gures is stark: Medicare and Medicaid
together accounted for 22.9 percent of the entire federal budget in 2007
and are on track to consume some 30 percent of it by 2018.5 The
Congressional Budget Ofce is the budget arm that provides Congress with
estimates of the present and future costs of its legislation. Its analysts have
this to say about the cost of health care to the federal government: Rising
health care costs and their consequences for federal health insurance programs constitute the nations central scal challenge.6 Eventually, if
Medicare is not reformed, Congress will have to cut payments to hospitals
and doctors in order to avoid a tax increase of intolerable size.
Lets take a short trip into the future to see whats in store for
Medicare patients under the current scheme.
Medicare in 2019
The scattered warnings from health economists and civil servants that
Medicares costs were unsustainable went unnoticed and unheeded until
2019. No policymaker intending to remain in ofce could discuss the
status of Medicare nancing with any force because there was no answer
for it, and any hint of rationing care to elders was political suicide. Action
a decade earlier would have averted disaster, but in 2019 Congresss
choice was to allow Medicare to draw 73 billion dollars per year (in 2005
dollars) from the governments general tax revenue, a gure that would
rapidly increase each year, or to cut the rates paid to doctors and hospitals.7 It chose the latter and nally cut the Medicare fee schedule.
As a result, many doctors no longer took Medicare patients or took no
new ones. In 2019 52 million seniors16 percent of Americanssuddenly
found themselves unwelcome at the countrys best hospitals and doctors
ofces.8
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WHERE WE ARE HEADED
53
Ellen Howards Colon Cancer in 2019

Ellen Howard was in her mid-seventies and had been widowed for a decade.
The morning she noticed blood in her stools she cried quietly, remembering her husbands death from cancer. Now it seemed that no doctor was seeing new Medicare patients. Ellen called the new Medicare help line, and
after a few transfers she heard, Bayview County Hospital, may I help you?
Bayview had served mostly the uninsured and Medicaid patients in the past,
but now it was a refuge for Medicare patients who could not nd a doctor.
I need to see a doctor, please. After another succession of transfers,
she provided her insurance information to a clerk and was given an
appointment to the general medicine clinic in a month. After what
seemed an interminable wait, Ellens scheduled day arrived.
A young doctor in a white coat followed by two medical students
came into the windowless examination room where she sat alone. Hello,
Mrs. Howard, could you tell me about your problem? The doctor was her
grandsons age. She explained the symptoms. I will need to do a physical
exam, if you could change into this gown. Naked and shivering under a
thin cotton gown that was open in the back, she felt his cold instruments
and rough rectal exam. The young doctor had not found hemorrhoids or
any other cause of the bleeding. She needed a colonoscopy.
What is a colonoscopy, doctor?
Well, they pass a beroptic colonoscope up to the ileocecal value
and examine the mucousa. One of the gastroenterologists will do it. This
is the way we tell if there is cancer. This word rolled off his tongue without hesitation, producing in her a deep chill and the taste of metal.
The clerk at the front desk scheduled the procedure. But dont you
have an appointment before October? That is three months away. Ellen
felt dismayed.
I am sorry, maam, that is the rst available. This was a long time to
wonder if you had cancer.
Dr. Somak Chatterjee had been recruited for the Bayview County
Hospital surgical residency program from Calcutta. Hospitals that took
care of large numbers of Medicare and Medicaid patients were chronically undernanced, so they did not attract many graduates of U.S. medical schools. The hospital had even paid for Chatterjee to prepare for and
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then complete the required licensing tests. In past years foreign medical
graduates went looking for U.S. training programs; now U.S. training programs went looking for them. Bayview was not one of the better surgical
residencies, and Chatterjee knew it. But he was glad to be in America.
There was little supervision of surgery by experienced physicians at
this public hospital. The senior surgeons would scrub in on a portion of
most cases but only long enough to say that they had been there. The hospital was chronically undernanced. Time in the operating rooms was
rationed. Chatterjees service operated only on Mondays and Tuesdays,
and it was already booked for the next three months.
Ellen Howards colonoscopy and MRI had shown a colon cancer
extending through the wall of the large intestine. Chatterjee explained to
her about the waiting list for the operating room, and she left that day with
the surgery scheduled for three months later. When her turn came,
Dr. Chatterjee, assisted by a young doctor who had himself only just nished training, operated on Ellen Howard. Chatterjee carefully excised two
inches of colon on both sides of the mass along with the attached fat and
lymph nodes. However, because the dissection had come close to the aorta
(the main trunk of arterial blood located in the abdomen), the inexperienced surgeons had become timid, fearful of causing bleeding from aortic
branches. They left cancer-laden lymph nodes in the remaining fatty tissue.
Ellen Howard returned home after an uneventful surgical recovery. But she
still harbored the cancer that the team had missed. It would only have been
removed during a determined dissection by an experienced surgeon.
Despite chemotherapy and radiation treatment, the missed lymph
nodes spread the cancer throughout Ellen Howards abdomen. Neither
she nor Dr. Chatterjee ever knew this. Nor did they know that the cancer
would have been contained within the colon had Mrs. Howard undergone
surgery seven months earlier, when her rectal bleeding started. Over
time, a pattern of increasing cancer mortality rates began to emerge in
Medicare beneciaries and it became clear that the reductions in payment were causing more than just an inconvenience for seniors.
The story of Ellen Howard is not demagoguery designed to scare
by exaggeration. If it is in error, it is only in predicting that Medicares
problems will wait until 2019. Already today there are underfunded public
programs such as Medicaid that limit access to medical care.
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WHERE WE ARE HEADED
55
Medicaid provides insurance for 51 million poor Americans, half of

them children. Medicaid controls its costs by underpaying doctors and
hospitals in almost every state. Texas Medicaid pays physicians at the
median national Medicaid rate, which is sixty-nine percent of the
Medicare fee schedule. A survey in 2005 found that half of the family
doctors, pediatricians, and general internists in Texas would not take
new Medicaid patients. Nationally, 30 percent of physicians will not take
new Medicaid patients.9 Now, in 2008, family doctors and general
internists are closing their practices to new Medicare patients, too, a
trend that will worsen dramatically if Medicare payments are cut once
more. Unless Medicare is reformed it will remain a looming threat to the
federal budget or a threat to Medicare patients. The program cannot go
on as it is.
Rising Costs Create Uninsured

The position of business is not much better than that of the federal government. The 2007 average annual premium for employer-based insurance was 4,479 dollars for an individual and 12,106 dollars for a family.
Health insurance premiums grew at three times the rate of ination from
1988 to 2006, while workers wages grew at the same rate as ination.
Businesses health care spending as a percentage of payroll reached a high
of 9.9 percent in 2006, increased from 1.2 percent in 1960. This gure
understates the problem, however, because it includes workers and rms
that do not participate in employer-based health care. Business spending
as a percentage of payroll for workers who were enrolled in employerbased insurance was 18.3 percent in 2006, an all-time high.10
Almost all large rms (those with more than two hundred workers)
still offer insurance; but as premiums began to rise after managed care,
small businesses began to drop coverage because they could not afford it.
Small businesses employ half of U.S. workers, and by 2007 only 59 percent
of them covered their employees, down from 68 percent in 2000. Many of
those uninsured workers and their children then became eligible for
Medicaid, contributing to a 70 percent increase in the percentage of the
U.S. population covered by Medicaid from 1989 to 2003.11 As employerbased insurance is eroding in the small business market, public insurance
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is expanding but still not fast enough to keep up with the decline in
employer-based coverage. The result is growing uninsured.
A Reverberating Circuit
Over many years, as the cost of health care to businesses has increased,
the number of uninsured has increased proportionally in a predictable
mathematical relationship.12 Yet as the numbers of uninsured has risen,
the cost of their care has driven up the cost of commercial insurance in a
never-ending cycle. One group calculated that more than 8 percent of the
cost of health insurance premiums has been the result of hospitals shifting their losses from care of the uninsured by increasing charges to private insurance. In states with high uninsured rates such as New Mexico,
West Virginia, Oklahoma, Montana, Texas, and Arkansas, the portion of
insurance premiums accounted for by cost shifting were found to be up to
double the average gure.13 There will be no end to this vortex until
health care costs are reined in and the uninsured covered.
A New Problem
High health care costs have created a new phenomenon, the underinsured. In order to keep premiums affordable, individuals and businesses
are purchasing policies that have high deductibles and co-pays. From
2001 to 2004, deductibles in the least restrictive kinds of employer-based
insurance rose by 40 percent as employers shared the high cost of health
care. Some people think they have insurance but do not when they buy
mini-med policies that may cover only the rst 10,000 dollars of care.
All forms of cost shifting to employees have been on the rise since 2000.
When medical costs exceed 10 percent of an average familys income,
researchers consider that family underinsured; and an estimated 16 million people are underinsured in the United States. Eighty-two million people lose insurance sometime in a two-year period.14 Forty-seven million
are uninsured on any given day. These gures mean that more than onethird of the U.S. non-elderly population has either insufcient, unstable,
or no health insurance coverage. Something must change because these
trends cannot continue.
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7
30 Percent Wasteor 50?
If the behaviors of patients are added to the behaviors

of providers, total waste in medicine cannot be less than
50 percent.
Hospitals, doctors, drugs, and outpatient tests and procedures account

for most of health care spending. Hospital spending predominates at
approximately 31 percent of all health care expenditures, followed by payments for physician and clinical services (21 percent) and prescription
drugs (10 percent).1 Despite the overuse of emergency rooms, their cost is
only a small percentage of health care spending; but the cost of patients
admitted to the hospital from emergency rooms is embedded in hospital
spending, and it is substantial. Outpatient tests and procedures are estimated to account for 9.8 percent of health care costs and are the fastest
growing component.2 The remaining expenditures include dental services, retail purchase of over-the-counter drugs, nursing home care,
home health care, and miscellaneous categories.
Wasteful Medical Practice

How many of these health care services are wasteful? I attended a conference on the use of information technology in hospitals and doctors ofces.
The audience was a mixed group of lay people and health care professionals scattered among tables in a hotel ballroom and pushing around overdone chicken on cold plates. The speaker was Dr. Carol Diamond of the
Markel Foundation, who had observed so much waste and error in her
practice of intensive care that she was resolved to see medicine change.
The Markel Foundation focuses on the savings and improved quality that
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information technology might bring to medicine. After Dr. Diamond

discussed the barriers to adopting information technology in medicine, a
puzzled audience member asked, If information technology would save
money, why is the health care industry so far behind every other industry?
Dr. Diamonds one-sentence response was Wasted money is someones bottom line. What is waste to an insurer, a business, a taxpayer,
or an individual purchaser of insurance is prot to a doctor, a hospital,
a pharmaceutical company, or a medical device manufacturer. Over the
past three years I have routinely asked doctors and hospital administrators to estimate how much of the health care services that we provide is
pure waste. They usually paused to think. When I suggested, Thirty percent? they invariably responded, Oh, at least that.
There is evidence to support the assertion that at least one-third of
what is done in medicine does not help patients. Under Dr. John Wennberg,
investigators at the Dartmouth Institute for Health Policy and Clinical
Practice in Hanover, New Hampshire, have devised a technique for determining usage rates of specic Medicare services in various U.S. regions.
Wennberg and his colleagues (Dr. Elliott Fisher, an internist, and
Dr. Jonathan Skinner, a health economist) have had access to the
Medicare database for years. For this study, they divided the United States
into 306 hospital referral regions where patients live and receive their
medical care. Medicare pays a uniform rate across the nation, adjusted
for regional cost differences, so the investigators adjusted for price differences and then examined the outcomes and care of all Medicare patients
admitted with hip fractures, colorectal cancer, and heart attacks from
1993 to 1995 in all 306 regions. When Medicare spending in a region is
high, the reason is increased use of services, not increased price of services.
In high-spending areas Medicare spent 60 percent more per capita on
patients with these three conditions than it did in low-spending areas. For
example, for the same condition, Medicare paid for 2.5 times more procedures per Medicare beneciary in Miami than it did in Minneapolis.3
Doctors in high-spending areas hospitalized patients more often, saw
them in the clinic more often, ordered more tests, and performed more
minor procedures. At the end of life, patients in low-spending areas spent
an average of six days in the hospital, whereas patients in high-spending
areas spent twenty days.4
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3 0 P E RC E N T WA ST E OR 50?
59
The result of the increased use of medical services in high-spending

areas was not improved outcomes, as might be expected. Patients cared
for in those regions were at a signicantly increased risk of dying over the
ve years after the initial hospital admission. More medical care not only
worsened outcome, but it also failed to increase patients satisfaction
with their care or to improve their functional status.
One might assume that academic medical centers, which are supposed to be the best health care facilities, are more uniform in their care.
But in high-spending areas, academic doctors behaved just like their
peers in the same region. In the rst six months after a hip fracture,
patients cared for in academic medical centers in high-spending areas
visited their doctors 82 percent more often, underwent 26 percent more
imaging studies, 90 percent more diagnostic tests, and 46 percent more
minor surgery than did patients in academic medical centers in lowspending regions.5
What explains this astonishing regional variation in care? The only
variables that predicted high-spending versus low-spending regions were
an increased concentration of specialists and hospitals. Wennberg stated,
High-rate regions had thirty-two percent more hospital beds per capita,
thirty-one percent more physicians, sixty-ve percent more medical specialists, seventy-ve percent more general internists, and thirty-seven
percent more surgeons. Low-rate regions had twenty-ve percent more
family practice physicians than high-rate regions. Variations in the
degree of illness among regions explained only 27 percent of the differences, whereas the local supply of hospital beds and specialists accounted
for 42 percent.6
When the study group examined the overall picture that emerged
from its ndings, investigators concluded that low-spending areas should
be the benchmark because patient satisfaction and functional status are
the same as they are in high-spending areas while mortality is improved.
If doctors in high-spending areas practiced like doctors in low-spending
regions, Medicare cost could be reduced by 28.9 percent with improved
quality.7 These savings would not require any rationing of needed care;
they would not create waiting lists or delay anyones access to a doctor,
a test, or a procedure. They are savings that would improve the quality of
medical care.
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Doctors do not sit together in a room and decide to build more hospital beds so they can admit more patients, collude to order more diagnostic tests, agree to perform more minor procedures so they can make
more money, or keep patients in the hospital longer when they are dying.
In fact, practicing physicians are unaware of these regional differences
and of their role in producing them. Rather, this wastage reects the
unrestricted application of medical services without public reporting,
without uniform standards of medical practice, and without a full understanding of which patients benet from which tests and procedures. The
differences reect local custom. The habits and circumstances of
Minnesota physicians are not the same as those of Florida physicians. For
instance, there are no national standards for how often a patient should
be seen after a heart attack or for heart trouble. If a town is home to many
cardiologists, they naturally want to be busy. They all fully book their clinics, so patients with heart trouble in that community are seen more often
than they might be in another community. A doctor who is liberal with
patient visits is liberal with testsand the more a doctor looks for, the
more a doctor nds. Thus, excessive testing leads to unnecessary procedures. Half the variation among regions in the number of visits to cardiologists is explained by the number of cardiologists in the community.8
Wasteful Patient Behaviors

The Dartmouth group attributed variations in care around the United
States to poor management of health care, falsely optimistic assumptions
about the benets of aggressive treatment of the severely ill, and limited
evidence about the kinds of care that benet the chronically ill.9 These
estimates do not consider the other reason for excess use of services: preventable illnesses. Doctors are used to having patients who do not take
prescribed medications or fail to follow recommended diet and exercise
regimens, but no one knows what those behaviors cost in preventable illnesses. Nonetheless, numbers can be attached to two behaviors. In the
mid-1990s, the consequences of smoking accounted for 7 percent and
obesity accounted for 9 percent of health care costs in the United States.10
Added together, the consequences of these two behaviors were responsible for 16 percent of entirely preventable health care spending.
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I could generally tell at surgery if a patient were a chronic smoker: the

tissue did not bleed normally when cut and would fall apart when picked
up with little tweezers, and the neck bones were often dry and hard. When
surgeries required a fusion of bone, the risk that the bones would not
fuse, requiring a second operation, was doubled because of smoking.
I would always discuss this risk in the clinic before surgery, and many
patients accepted medication to help stop smoking, saying, I have
needed to stop smoking; this sounds like a good time to do it.
Smoking damages almost every organ in the body, causing heart disease, lung disease, and lung cancer. It is the leading cause of preventable
disease in the United States, accounting for more than 400,000 deaths per
year. Public education campaigns, physician counseling, and cigarette
taxes are credited with reducing the percentage of smoking adults from
40 percent in the 1960s to 21 percent in 2006.11
The number of smokers that I saw in clinic decreased over the years;
and like most doctors, I was unprepared for a new epidemic: obesity.
I rarely saw an extremely obese patient before 2000, but I now frequently
began to see patients weighing more than three hundred pounds. The
percentage of obese adults has doubled since the 1980s. By 2000 nearly
one in three U.S. adults was obese. Eleven percent of U.S. children are
obese, and one-quarter are overweight. The cost of health care for an
obese child is three times the cost of that for an average child.12
To deal with this epidemic, I needed to change a number of my practices procedures. Most of the imaging equipment is not designed for
patients weighing more than three hundred pounds, so diagnostic studies
were delayed as we shopped for facilities with equipment to accommodate
these individuals. Even then the imaging studies were substandard because
the layers of fat distorted the penetration of the magnetic waves or X rays.
During spine surgeries, we often placed a patients body face down on a
frame that allows the abdomen to hang in the air above the operating table
(because pressure on the abdomen causes surgical bleeding). But now I frequently saw patients who were so large that the table frames could not
withstand their weight. This meant we had to use a riskier sitting position
for their surgeries. The patients were also at greater risk for wound problems and stayed in the hospital longer after surgery because their obesity
made it difcult for them to get out of bed and move around.
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But the real cost of obesity is that it produces chronic diseases.

Obesity causes diabetes, hypertension, and high cholesterol, all of which
are epidemic in the United States. Seven percent of the population has
diabetes, and 80 percent of diabetics are obese. Obesity has been estimated to account for as much as 27 percent of the escalation in health
care costs over the past twenty years.13
One argument, however, is that reducing the prevalence of obesity
will improve the health of the public but will only reduce health care costs
in the short run. A study based upon data from the Netherlands concluded that health care costs of people who were obese at age twenty
increased until they were fty-six, but after that their costs were lower
than those of people with healthier lifestyles because the obese died ve
years younger. Lifetime health care costs were the lowest for smokers
because, compared to the obese and to people with healthier lifestyles,
smokers had the shortest life expectancy.14
If the behaviors of patients are added to the behaviors of providers,
total waste in medicine, at least in the short run, cannot be less than 50
percent. Yet while the United States is not alone in inefcient medicine or
bad personal behaviors that drive medical costs, it does stand alone in
some other ways. The nation spent more than 15 percent of its GDP on
health care in 2005. The next-highest level in a developed country was 11.6
percent in Switzerland, while the average for industrialized countries was
8.4 percent. In 2006 health care grew to 16.5 percent of Americas GDP.15
Since wasteful medical services are more or less a feature of every
health care system in the world, I thought the aging of America might
account for the high percentage of U.S. spending. Yet I found out that,
compared to other industrialized countries, the United States has fewer
seniors. In 2002, 12 percent of the U.S. population was over age sixty-ve,
contrasted with 19 percent of Japanese, 18 percent of Germans, 16 percent
of Britons, and 13 percent of Canadians.16
The United States has far more malpractice claims led per capita
than do Canada, the United Kingdom, and Australia; so I imagined that
medical malpractice risk would explain much of the difference in spending. But claims are more likely to be dropped in the United States, and the
average U.S. malpractice settlement is smaller than either Canadas or the
United Kingdoms.17
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The United States spends 2,797 dollars more per capita on health
care than do other industrialized countries. Awards, legal fees, and underwriting costs of medical malpractice litigation account for only about
twenty-two dollars of the per capita cost. The practice of defensive medicine (ordering unnecessary tests and procedures to avoid a lawsuit)
accounts for 3 to 9 percent of spending, so any differences in the practice
of defensive medicine would be only a component of an overall attack
on cost.18
I found that wasteful spending is a feature of all health care systems.
The United Kingdom, Canada, the United States, New Zealand, and
Australia all report an unacceptable level of medical errors, problems
with access to care, poor coordination of care, and poor physician-patient
interaction. One-third of Americans, Australians, and New Zealanders
think their entire health system needs change.19
I always imagined that the United States had vastly more hospital
beds, more MRI and CT scans, and more doctors per capita than did other
industrialized countries. The resulting overuse would explain the high
cost of U.S. health care. Our nation, however, has fewer physicians per
capita than do France and Germany and only slightly more than Canada
does. U.S. patients visit a doctor 3.6 times per year compared to 6.2 times
a year in other industrialized countries. Americans spend far fewer days
in the hospital than do Germans, Japanese, Canadians, and Britons. The
United States has fewer hospital beds and ranks in the middle in the number of CT scanners per capita among industrialized countries. Seven of
thirty industrialized countries have more MRIs per capita.20
I thought that the queues in which people wait for certain procedures
in other countries would explain the cost differences. But the procedures
for which there are queues in other countries account for only 3 percent
of US spending.21
The United States does have a fondness for high-tech medical procedures. For all the weaknesses of the our medical industry, its great
strength is the ready availability of high-quality procedures for the insured
and the rapid development of new medical technology. The United States
exceeds the average number of heart procedures in other countries by
several times. It is 50 percent above the median of industrialized countries in knee replacements; and Americans are far more likely to undergo
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heart, liver, and kidney transplants than are residents of any other industrialized country.22
What stands out, however, is the price we pay for medical care.23
Americans pay 2.7 times more than Canadians per day of hospitalization,
5.6 times more than the Japanese, and four times more than Germans. In
2003 the United States spent 1,271 dollars per capita on physician services
compared to the median of 428 dollars in other industrialized countries
and 287 dollars in Canada.24 But for all our spending on physician services, American generalists have the same income as Canadian generalists, whereas American surgeons are paid about 50 percent more than
their counterparts in Canada. In 2005 the average income of American
surgeons (general surgery, neurosurgery, thoracic surgery, plastic surgery, orthopedic surgery, and ophthalmology) was 437,000 dollars,
whereas the average income of Canadians in the same surgical specialties
was about 300,000 dollars.25
High spending on U.S. physician services has three causes. The nation
has somewhat more doctors than Canada (2.3 doctors per 1,000 people,
as opposed to 2.1).26 Higher specialist incomes also account for some of
the difference, but a major cause is administrative waste. In 1999 U.S. doctors spent 29.6 percent of their gross income on administrative overhead
such as billing and collections, medical malpractice insurance, ofce
staff, and ofce rental. The gure in Canada was 16.1 percent.27
The price of pharmaceuticals has been a hot topic in the past few
years, but these prices only parrot the prices of doctors and hospitals. In
2003, the United States spent 728 dollars per person on pharmaceuticals,
more than twice the median for other industrialized countries. Some of
the difference came from the nations increased consumption, but much
of the difference was in pricing. A market basket of thirty drugs costs 47
to 59 percent more in the United States than do the same drugs in
Canada, France, and the United Kingdom.28
Where Is the Breaking Point?

Some economists argue that there is no practical limit on what the private
sector can spend on health care. These proponents of unlimited spending
(which they see as unlimited investment) say that even if health care
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grows to consume 20 percent of GDPmore than the federal governments

average annual share of GDPthe income available for people to use for
other purposes would still grow by one-third. I hope they are right because
if health care spending continues to grow at its historic rate, it is projected
to increase to 25 percent of GDP by 2025.29 The argument is that as long
as consumers would prefer to spend their money on health care rather
than something else and the revenue stays in the United States where it
creates jobs and purchasing power, there is no practical limit to what percentage of GDP health care spending can safely occupy. In the view of these
economists, as long as spending fuels technology advances and does not
displace other personal spending, there is no problem.
In 2006 food and housing were each about 10 percent of GDP. The combined spending for national defense, motor vehicles, and energy also totaled
about 10 percent. Health care spending at more than 16 percent was the
largest single component of GDP.30 Figure 7.1 illustrates these relationships.
18
16.5
15
Percent of GDP
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10.5
9.6
9
6
4.6
3.4
3
National Housing
health
expenditure
Food
National
defense
2.8
Motor
Gasoline,
vehicles fuel oil, and
and other energy
parts
goods
FIGURE 7.1 Components of U.S. gross domestic product, 2006
Source: Medical Cost Reference Guide (Chicago: Blue Cross/Blue Shield Association, 2007).
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Yet according to another group of notable health care economists,

unless the United States reduces the rate of health care cost escalation to
1 percent above real GDP growth (adjusted for ination), health care will
displace other personal spending by 2039. From 1990 to 2002, real GDP
grew at 1.9 percent, while health care spending grew at 3.7 percent. This
groups argument seems reasonable because the United States is now seeing three all-time highs in health spending: as a percentage of individual
income, of government revenue, and of business wages.31
Economists at the Federal Reserve Board see a somewhat different
picture. They conclude that if health care continues to grow at its present
level, it will force large increases in public sector nancing before it
erodes consumer spending.32 Given the threat that Medicare poses to the
U.S. budget, this is an equally unwelcome consequence.
Health care costs could be sharply reduced and care improved by
reducing the waste in medicine. Inefciency and poor quality stem from
insufcient preventive medical care, lack of coordinated management of
chronic diseases, poorly managed care at the end of life, errors and waste
in hospitals, unnecessary surgery, and excess performance of diagnostic
tests and procedures.
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8
Poor-Quality Primary Care
The overnancing of specialty care and the undernancing

of primary care buys the United States some very expensive
hospitalizations.
Although the story that follows is ction, it is an accurate depiction of

the results of a medical system in which patients are managed by a number of doctors, all of whom may be good at what they do. From the
patients point of view, however, the results are not so good. The problem
is a system one.
At age seventy Ed Fitzsimmons suffered from heart disease, high
blood pressure, and high cholesterol complicated by diabetes. One
evening his wife heard him say, Elaine, maybe we better go to the ERmy
stomach doesnt feel right. The triage nurse in the overloaded emergency
room of the Episcopal Hospital believed that Ed most likely had indigestion, so he and his wife sat in the crowded waiting area for ten hours that
night as uniformed crews rushed patients past them.
By morning Eds pain had become more intense, and Elaine, frustrated, strode to the front desk. My husband is feeling worse, and we
have been here all night. When will he be seen by the doctor?
Maam, we have had a very busy night, the clerk announced as she
lled out forms. The hospital staff was doing everything it could to avoid
going on diversion that night, and this included quickly deciding who
most needed treatment.
Some minutes later, when Eds heart attack made him fall from his
chair, he was hurried into the emergency room and then immediately
admitted to the last open bed in the Coronary Care Unit, where he died
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some days later. Had the medical staff correctly diagnosed him and
treated him in the emergency room with intravenous clot-busting drugs
within two hours of the onset of pain, he would have been discharged
three days later at a fraction of the cost incurred by the hospital and paid
by Medicare. Elaines grief, however, could not be so easily quantied.
If the emergency room had been functioning properly that night, the
same medical staff that failed to treat him would have made the correct
diagnosis and provided treatment. But the reality is that Ed Fitzsimmons
was one of 11,000 Americans in 2000 who had a heart attack but was misdiagnosed. As a result, about ve hundred of them died. The problem is
so common that a 2004 article in the Wall Street Journal told readers how
to reduce the chance that it would happen to them.1
Eds wife and family never knew about the emergency rooms error,
but that was only one of the lapses in his management. The other lapse
was a medical system that did not pay doctors for prevention of illness or
coordinated management of chronic disease. Ed Fitzsimmons had managed his health care with the aid of six doctors. One-third of Medicare
patients in Los Angeles have at least as many doctors.2 A single attentive
doctors strict management of Eds diabetes, high cholesterol, and high
blood pressure would have delayed his heart attack by years. Measuring
by the yardstick of American health care today, Ed received effective treatment. Judging by cause and effect, he did not.
Why Ed Fitzsimmons Died Too Soon

About 15 percent of Medicare patients have diabetes, which results when
the body cannot produce enough insulin or, as is the case with obesity,
the tissues become resistant to its effects. The insulin deciency or tissue
resistance, in turn, causes high blood glucose. Diabetes is managed by
injections of insulin, oral medications that cause insulin release, and lowsugar diets. The condition causes damage to the eyes, the kidneys, the
feet, and the blood vessels. Every diabetic should receive three examinations that can help prevent or detect serious complications from diabetes:
eye examinations (once each year), foot examinations (once each year),
and measurement of hemoglobin A1C (every six months).3 Measurement
of blood glucose gives the value only at the moment of measurement, and
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P O O R - Q U A LI T Y P R I M A RY CA R E
69
the blood test known as hemoglobin A1C is the best index of how well
blood glucose is being controlled over a period of time.
Every Medicare patient should also have regular tests of blood cholesterol because, like diabetes, high cholesterol aggravates hardening of
the arteries. Cholesterol can be lowered by medications and a low-fat diet.
Research is demonstrating more clearly every year that treatments to
keep the levels of glucose, cholesterol, and blood pressure to near normal
levels are powerful in preventing the complications of heart disease and
diabetes.
In the years before Eds death Dr. Susan Greenberg was his diabetes
doctor. Sometimes Ed had difculty getting an appointment; and when he
did, the waiting room was packed with dgeting patients. Over the years
Dr. Greenberg had found herself being paid 40 percent less to see 50 percent more patients. Medicare paid only sixty-ve dollars for a moderately
complex clinic visit and nothing for patient education. So after covering
practice overhead, paying malpractice premiums, seeing thirty-ve to forty
patients a day four and a half days a week, and working sixty hours per
week, Dr. Greenberg had to do more each year to maintain her income of
150,000 dollars per year. She had not undergone nine years of training to
work in an assembly line practice analogous to a 1950s Detroit car factory.
At age fty-ve, Greenberg had become dispirited. She and her partner both felt they were marking time until retirement. First, they stopped
taking patient calls after hours: the practices answering machine was
turned on at 4:00
P.M.
each weekday and full time on weekends and holi-
days. Its recorded message advised, If you believe you have an emergency,
go to your nearest emergency room. Most other doctors were following
the same protocol, one reason for the citys overcrowded emergency rooms.
Dr. Greenberg and her many colleagues did not intend to burden the
citys emergency resources. She was worn out after thirty-ve years of
school, training, and practice. Now, in middle age, she was faced with
being paid less to do more. She liked medical practice; but for the rst
time she realized that her friends in business were paid more to do less as
their businesses matured and they got older. They made money while they
slept, and she now earned less per hour than she had in her youth. Many
of her business friends had even been able to retire by her age, and this
soured her. Like taking time to educate her patients, she was not paid to
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take after-hours phone calls. These were courtesies, and the time for
courtesies was long past.
At appointments Greenberg would spend about fteen minutes with
Ed Fitzsimmons, using much of that time to review his chart. She would
typically say, Ed, your A1C is too high. I am going to increase your diabetes medicine, and you need to eat fewer carbohydrates. Come see me in
six months. She repeated these remarks as she stared down at Eds chart.
Eds cardiologist, whom Greenberg knew only casually, typically said
to him, Your cholesterol is too high, so lets increase your cholesterol
medicines. You need to eat less fat. Let me see you in a year.
But Ed never found a palatable diet that was low in both fat and
carbohydrates. His glucose was never well controlled because one of the
drugs that the cardiologist had prescribed to lower cholesterol prevented
the intestine from absorbing a drug that Greenberg had prescribed to
lower glucose. Both doctors, on the run, had prescribed blood pressure
medicine and cholesterol medication without knowing that another
physician was duplicating treatment of the same disease. Neither had a
holistic understanding of his history. Neither had tight control of Eds
hypertension or increased cholesterol as a goal of management, even
though the difference between a blood pressure of 130/85 and 130/95 is a
50 percent increase in risk of heart attack or stroke. The seemingly small
difference between a blood cholesterol of 180 and one of 200 milligrams
per deciliter is a 20 percent increase in risk.4 Yet Eds medical management was better than the care of at least 50 percent of Medicare patients
and probably equal to most of the other 50 percent. He died seven years
earlier than he would have if his health been rigorously managed. Yet if Ed
had been an adult in 1955, he would never have lived to age seventy.
Medical science has developed stunning technology, but it could be
applied better. For this the United States needs a different mix of doctors
paid differently as well. The high prices paid for U.S. medicine should be
buying high-quality medical care, but the data indicate the opposite.
The Devaluation of Primary Care

Medical doctors fall into two categories: primary care doctors and
specialists. Primary care is usually provided by family practitioners,
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pediatricians, and general internists. Specialists may also deliver primary

care when they are not acting as proceduralists but actually managing
disease.
Primary care has three goals:
Preventing people from crossing the line from health to disease and
then developing chronic conditions
Managing chronic diseases once they develop in order to prevent

are-ups
Diagnosing and treating short-term illnesses before they become

severe.
Measures to prevent chronic disease may be as simple as immunizations

and encouraging weight loss, or they may be more complex like control of
elevated cholesterol and blood pressure.
Specialty care is provided by specialists such as cardiologists, gastroenterologists, and surgeons. These specialties all have one thing in
common: their practitioners perform procedures and are paid very well
for performing them.
Exactly how many primary care doctors are needed to care for a large
population of patients is determined by how medicine is practiced. If
there is no interest in disease prevention, then not so many are needed.
The Kaiser Permanente prepaid group practice is primary-care based and
focuses on prevention. Half of Kaisers physicians have practiced primary
care. On average, however, specialists form 65 percent of the physician
workforce and primary care physicians only 35 percent, a proportion that
has steadily declined from 50 percent in the 1960s.5
Not only has the proportion of doctors practicing primary care
decreased but so has the number of U.S. medical school graduates who
choose it. In 1998, 50 percent of U.S. graduates picked primary care; this
declined to 40 percent in 2004. Graduates of foreign medical schools now
make up more than 60 percent of family practitioners in training, though
they form only 20 percent of physicians entering practice.6
In my practice many patients never consulted a primary care doctor
before seeing me and had little use for one unless they needed a prescription or a form completed. I knew they chose other doctors in the same
way: patients were coordinating their own care without a medical degree.
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The condition of primary care is so discouraging that the American

College of Physicians has concluded that it is on the verge of collapse.
The Society of General Internal Medicines position is that todays medical care is characterized by chaos and dysfunction.7 What young
American medical student wants to enter a eld in decline? Chaos and
dysfunction sound much like the circumstances of emergency medicine,
which, in contrast, is growing apace. The difference is that demand for
emergency physicians is high, so they are paid almost double what the
average generalist earns.
The reason for the rise in specialists is no mystery. Primary care doctors do not perform procedures; they manage patients medical problems
and are poorly paid for it. In 2005 Medicare in Houston paid a primary
care physician fty-three dollars for a routine ofce visit, and a doctor can
only see so many patients in one day. Specialists have a much better
nancial arrangement. A primary care doctor who diagnoses a breast cancer is paid for a routine ofce visit, while the specialist in Houston who
removes the cancer is paid by Medicare 1,234 dollars for an hour-long
operation. A gastroenterologist is paid 464 dollars for a colonoscopy that
can be performed in fteen to thirty minutes (recommended every ve
years for people over age fty to detect colon cancer). A neurosurgeon
receives 3,651 dollars for a complex brain surgery that takes three to four
hours. A cardiologist earns 1,555 dollars for a four-vessel cardiac catheter
procedure, and a cardiovascular surgeon makes 2,154 dollars for a fourvessel heart bypass operation. Specialists incomes are two to ve times
greater than primary care doctors for equivalent hours worked. The overnancing of specialty care and the undernancing of primary care buys
the United States some very expensive hospitalizations.
Avoidable Hospitalizations
Avoidable hospitalizations are hospital admissions that could be avoided
if preventive measures had been taken before the problem became an
emergency. Minorities and the uninsured are always at more risk for
avoidable hospitalizations, but the single factor that dwarfs all others in
causing avoidable hospitalizations is lack of access to primary care.
One-third of childrens admissions to the hospital and the ICU could have
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been avoided by primary care. About 15 percent of adult hospital and ICU
admissions are avoidable.8
Preventable hospitalizations account for about 6 percent of hospital
spending. Comparing avoidable hospitalizations in Canada (where everyone has access to primary care) to those in the United States (where many
do not), I estimate that the incidence of avoidable hospitalizations in the
United States could be reduced as much as tenfold simply by providing
universal access to a primary care doctor.9
Poor Quality Care

The devaluation of primary care has had a predictable effect on its quality.
More than half the time in 199091, Medicare patients with diabetes
failed to receive Hemoglobin A1C testing, cholesterol screening, and eye
exams. A more depressing gure is that only 15 percent of diabetics
receive all of the recommended measures.10 A 199496 survey of
Medicare patients found that fewer than two-thirds of those surveyed
received sixteen of forty standard preventive tests, medications, or examinations when they went to the doctor. The status was better by 2001 but
still not acceptable.11 Poorly treated high blood pressure causes stroke
and heart attacks; keeping it under control with medicine reverses those
risks. Almost half of U.S. patients with hypertension are not treated, and
only 23 percent are well controlled.12
When Dr. Elizabeth McGlynn of the Rand Corporation published a
2003 report on preventive care in the New England Journal of Medicine, the
media took notice.13 Unlike other reports, this one had a national purview
and obtained its data by starting with a random selection of patients
rather than a selection of doctors ofces that could skew its ndings.
Dr. McGlynns study incorporated all diseases, all patients, and all types of
preventive care in the clinic and has been accepted as an accurate measure of the quality of medical practice around the country. According to the
report, in twelve U.S. metropolitan areas, 13,000 people received only
55 percent of recommended care when they went to the doctor.
Extrapolated, these ndings could account for 211,000 preventable deaths
per year from diabetes, hypertension, heart attacks, pneumonia, and
colon cancer and more than 30,000 from blindness or kidney failure.14
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The quality of medical care does not respect the source of payment.
Uninsured and Medicaid patients have less access to care than do
Medicare and privately insured patients; but when they go to the doctor,
all four groups, regardless of race and economic status, have about the
same 54 to 57 percent chance of getting recommended care.15
The United States ranks last among industrialized countries in its percentage of low-birth-weight infants and infant mortality, but I have never
known whether the fault was just lack of insurance or also the effect of
poverty. When infant mortality was examined among states, an increase of
only one primary care doctor per 10,000 people was associated with a 2.5
percent reduction in infant mortality and in low birth weight. Poverty is a
hard thing to x, but there is strong evidence from several studies that
access to primary care mitigates the effects of poverty on health of patients
of all ages.16 Irrespective of other factors, the United States looks bad on
international comparisons of deaths from diseases that are preventable or
treatable by primary care such as asthma, pneumonia, and cardiovascular
disease, even when adjusted for the effects of factors such as wealth and
smoking. In 1998 the U.S. mortality rate from thirty-four such diseases was
sixteenth among nineteen industrialized countries, whereas Canada
ranked fourth. By 2003 the United States had dropped to dead last in international rankings of deaths that can be prevented by primary care.17
Practicing Medicine Backward

A higher concentration of primary care doctors in a community lowers
the mortality rate from chronic diseases and helps prevent illness, but a
higher concentration of specialists has no effect on mortality rates.18
Primary care doctors prevent disease when they can and manage it to
avoid are-ups when they cannot. These results are corroborated by stateto-state comparisons of treatments for pneumonia, diabetes, heart
attacks, breast cancer, heart failure, and stroke.
A study of Medicare beneciaries for 2000 and 2001 examined
twenty-four measures that either prevent or treat these diseases.19 They
included immunizing elderly patients against pneumonia before they
leave the hospital, administering drugs within twenty-four hours of a
heart attack to decrease risk of death, instituting eye examinations for
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diabetics every two years to detect eye disease before it becomes untreatable, and discontinuing after hospital admission certain heart medications that can make a stroke worse or fatal. All twenty-four measures are
inexpensive, safe, and highly effective; and all require a doctor to order
them. In some states 95 percent of patients received them, in others only
11 percent. Low-population states and the northeast ranked the best;
high-population states and the southeast consistently ranked the worst.
What can possibly explain why only 58 percent of Alabamans but 86
percent of New Hampshire residents ever received a drug that reduces the
mortality from a heart attack by 15 percent? A second group of investigators decided to nd out. They designated states with high quality of care
as those in which patients received a high percentage of the twenty-four
life-saving treatments. A ranking of 1 designates a state in which a high
percentage of patients received the twenty-four measures; a ranking of 51
is where this measure of quality is lowest. The relationship between quality and spending was a straight linein the wrong direction. The highestspending states provided the poorest care, low-spending states the best
care. Figure 8.1 shows the results.
Overall quality ranking by state
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NH
VT
ME
UT ND
IA
WI CO
CT
11
CA MN
NE
MT
DE
MA
HI
RI
VA
21
SDWA
AT
IO
NC
NY
MI MD
IN
MO
AZ KS
31
PA
SC
AK
WV NV
NM
CH TN
41
KY
FL
AL
NJ CA
IL OK
AR LA
TX
51
MS
LA
3,000
4,000
5,000
6,000
7,000
8,000
Annual medicare spending per beneficiary (in dollars)
FIGURE 8.1 Relationship between quality and Medicare spending as expressed by
overall quality ranking, 20002001

Source: Katherine Baiker and Amitabh Chandra, Medicare Spending, the Physician
Workforce, and Beneciaries Quality of Care, Health Affairs Web Exclusive, April 7,
2004, www.healthaffairs.org. Reprinted by permission of Project HOPE/Health Affairs.
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The composition of the physician workforce explained 42 percent of

the variation among states. The quality of care was better and the cost
of care cheaper in states where more primary care doctors practiced.
High-spending states were home to more specialists who ordered more
tests and treatments at more expense but failed to provide simple measures to prevent disease. An increase in the number of primary care doctors
in a state by 1 per 10,000 residents increased a states overall rank by ten
places; the same increase in specialists dropped the states ranking by
nine places. The specialists provided procedures, and the primary care
doctors provided prevention.20 In the medical industry, more spending
does not buy better health care, just more health care.
A Few Sick People

U.S. medicine has badly apportioned its resources, and it should turn its
attention to high-cost patients. Health spending is concentrated on a few
people: 5 percent of patients account for 50 percent of health spending,
10 percent account for 70 percent of expenditures.21 Doctors can readily
predict who these big spenders are. They are not necessarily the elderly;
they are the chronically ill. In fact, fewer really elderly people are disabled
today, and their dying process costs less than that of sixty-ve-year-olds:
they do not linger. While 70 percent of those over age sixty-ve have more
than one chronic condition, 50 percent of middle-aged adults do also.22
The cost of care skyrockets as the number of chronic conditions
increases. In 1999 the per capita cost of care of Medicare patients without
chronic conditions was only 211 dollars, while for those with four chronic
conditions it was 13,973 dollars. Lung diseases, heart disease, and diabetes account for the majority of Medicare spending; yet their management is grossly uncoordinated in the United States.23
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9
Dangerous Hospitals
A hospitalized patient has a vastly greater chance of being

the subject of a medical error than of having his bag misplaced
by an airline.
Poor management of medical resources is not only expensive but dangerous. In 1999 the Institute of Medicine published To Err Is Human, a landmark book based on a study of medical errors.1 The institute concluded
that medical errors in hospitals kill between 44,000 and 98,000 people per
year. According to the authors, this number of deaths is equivalent to the
death toll from the crash of one jumbo jet per day, making medical error
in the United States the fth-leading cause of death (if we apply the larger
estimate of victims). They also concluded that the primary problem was
not bad doctors but bad systems. The Institute of Medicines conclusions
were based upon studies that reviewed the medical records of 30,121
patients in New York in 1984 and 15,000 patients in Colorado and Utah in
1992.2 While these gures were old when To Err Is Human was published in
1999, everyone believed that they had remained accurate, although critics
argued that the numbers were inated because some of the patients would
have died anywaycold comfort to the patients.3 As a consequence of this
study, the institute set a ve-year goal of reducing death from medical
error by 50 percent. Though there has been some progress from voluntary
programs, no one believes that this goal has been met.
Errors of Omission, Lapses in Quality

The Institute of Medicine based its conclusions upon studies that primarily examined errors of commissionthat is, of doing something wrong.
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It did not calculate the results of errors of omissionthe failure to do

something needed. In a hospital, an error of commission might be a
blood-stream infection caused by inserting an intravenous line or giving
a patient the wrong dose or the wrong medication. An error of omission
might be to fail to recognize that a patient is getting into trouble from
a blood clot in the wound after surgery or failing to prescribe a medication to prevent a second heart attack at the time of the patients hospital
discharge.
In the most recent systematic data on hospital error, investigators
who added the number of errors of commission and omission estimated
2004s preventable death toll at 284,000.4 If this is true, then error in hospitals is the third-leading cause of death in the United States behind heart
disease and cancer. In 2007 the airline industry reported a rate of misplaced bags of 7.93 mishandled bags per 1,000 passengers, increased from
3.84 bags per 1,000 passengers in 2002. In 2007 the Institute of Medicine
estimated that hospitalized patients are the subject of one medication
error per dayand medication errors are just one kind of error.5 A hospitalized patient has a vastly greater chance of being the subject of a medical error than of having his bag misplaced by an airline.
Financially Unstable and Particularly Dangerous

In all the hospitals where I worked, safety uctuated with the hospitals
nancial status. It was always worse when the books did not balance.
When hospitals are nancially distressed, operational procedures break
down. There is little in the literature to back up this statement, but experience bears it out.
When hospitals are under nancial distress, they invariably lose their
regular nursing staff because one of a hospitals rst reactions to a budget
shortfall is to force nurses to double up on the number of patients they
care for. (More than half of a hospitals cost is for personnel, mostly
nurses, so labor costs have to be cut.) When this happens, regular nurses
quickly burn out because they are overworked and feel they cannot do a
good job for their patients. Then regular nurses are replaced with temporary
nurses or new hires. My colleagues and I always dreaded working with
temporary nurses because they did not know the hospitals procedures.
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DA N G E RO U S H O S P I TA LS
79
The medical literature has established a clear relationship between

patient mortality, low nurse-stafng levels, and decient nursing education.6 High personnel turnover in hospitals is literally the kiss of death.
I have seen many examples of the relationship between hospital
safety and nancial instability. For instance, in my years as service chief
I always insisted that any patient who underwent neurosurgery go from
the operative suites to our special neurosurgery ward. The nurses there
were trained to watch out for postoperative complications, were familiar
with the surgeries and the surgeons, and were attentive to the patients
when they were most vulnerablethe night after surgery. We worked hard
to develop an effective team. During the 1990s, at a period of nancial
upheaval related to managed care, our neurosurgery oor fell apart. The
number of nurses on our ward was cut in half without a reduction in the
number of patients. Nurses were laid off throughout the hospital in order
to save money. Experienced nurses left because they were overworked,
and empty positions were lled with temporary employees who were
hastily oriented to the hospitals procedures. In order to keep all beds full,
the hospital administrators directed the nursing staff, without the doctors knowledge, to ll vacant beds on any surgical ward (for example,
neurosurgery, orthopedic surgery, general surgery, or plastic surgery)
with any surgical patient regardless of whether or not that ward specialized in postoperative care of that particular patient.
The surgeons were all anxious during this period, and with good
reason. One day I operated on the neck of a lovely elderly woman. After
surgery, she was sent to a ward not used for neurosurgery patients. That
evening when I began to make rounds, I failed to nd the patient on the
neurosurgery oor, which was now lled with patients from other services.
I discovered her and her family comfortably settled into a room in another
area of the hospital. She was at low risk for problems; she seemed to be
doing well, and our ward was full. There was little choice but to leave her
there. Sometime during the night a temporary nurse injected a drug for
nausea into an intravenous line, and the drug leaked through the vein into
the tissues of her arm. Immediately the patient complained of excruciating pain in her right hand, which during the next hour became darkened.
During most of that same night I was in the neuroscience ICU on the
oor below with another patient and was never notied of this emergency.
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The temporary nurse twice paged the wrong doctor, who was not available
to answer; then the nurse gave up. The patient remained in agony all
night as the blood vessels to her hand constricted and nally closed off.
By morning when I saw her, her right hand was dark blue. Only her little
nger was spared. As I walked in, her husband said to me without anger
but with great disappointment, Dr. Clifton, where were you? They could
not nd you all night. A quick response would likely have saved her
hand, and he knew that. She left the hospital with only her little nger
connected to a sliver of hand that projected like a pencil from her wrist,
a bizarre and useless appendage. Disgusted, I moved my regular practice
to another hospital for two years, returning only when there was enough
money for the hospital to have put its systems back into order.
Hospitals are at their best when they function like military operations, with rules that are followed, provisions for the unexpected, and
advance planning. A doctor or nurse never knows when a critical piece of
equipment, a supply, or a medication will be needed immediately. Human
bodies do not behave like machines; their responses to injury, illness, and
surgery cannot be perfectly predicted. For these reasons a hospital only
functions safely if its stafng is adequate for the inevitable ebbs and ows
of patients needs, if its staff is trained, if its facilities are sufcient, and if
its rules are followed. In nancially unstable hospitals patients may lose
more than their hands. Stories such as the following are not unusual
when hospitals are overloaded.
M & M at Bayview
Dr. Simon Brown had been the personication of order at both the
Episcopal and Bayview County Hospital. The recent death of Juan Olivas,
an uninsured man who died of untreated heart disease, was fresh on
Browns mind when he attended the monthly morbidity and mortality
conference at Bayview.
All surgery training programs have morbidity and mortality conferences, usually referred to as M & Ms. At these conferences all deaths in the
hospital and all hospital-acquired complications of management are
reviewed. One purpose is to teach staff members who may have erred as
well as other attendees; the other is to prevent morbidity and mortality in
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the hospital by exposing system problems. M & Ms have been likened to

confessions in church. We all feel better when we have gotten our sins off
our chest, have been forgiven, and can go on about our business. M & Ms
are usually held monthly and are closed to everyone, including nurses,
except for doctors in training and the staff doctors who are doing the training. At a good M & M, blame is assigned, usually to one doctor. To this day
I vividly remember presenting the surgical complication of a patient I
operated on as an intern before a group of white-coated attending doctors.
M & M proceedings are usually closed so that hospital staff do not
misunderstand or openly repeat what is said or quietly call a malpractice
attorney, who might then contact the family of the patient under discussion. They are generally held in a cramped, windowless room so that X-rays
are easily visible and with fewer than twenty attendees who all know and
depend upon each others integrity. Usually the junior residents present
cases. In this case the senior resident presented, so Brown wondered what
was up.
This is the case of a twenty-year-old white male who was struck by a
car when he was crossing the street at Wheat University at 7:00 P.M. on
Friday. Wheat University was an exclusive private college only a few
blocks from Bayview. Entrance requirements were high, and the students
had brainy reputations. Browns daughter had graduated from Wheat the
year before.
The resident continued, The patient was brought to the Bayview ER
from the scene by city EMS. After evaluation his only injury was a skull
fracture. He was confused but alert. His CT scan showed only mild subarachnoid hemorrhage.
Subarachnoid hemorrhage is the presence of tinges of blood in the
spinal uid spaces in the brain and is found on CT scans of 80 percent of
trauma patients. Its only signicance is that it is a sign that the brain has
been jostled around in the skull.
The patient was admitted to SICU for observation.
The surgical intensive care unit (SICU) was reserved for patients with
injuries of the chest, abdomen, and extremities. Patients with head
injuries were always to be admitted to the neuro ICU (neuroscience intensive care unit), where they could be watched by nurses with special training. This patient had been admitted to the wrong unit.
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Brown interrupted the resident: Tom, why was he admitted to SICU

instead of neuro ICU?
The resident responded, Dr. Brown, we had patients stacked up in
the ER Friday and Saturday night, and the only ICU bed in the house was
in SICU when this patient was admitted. Brown nodded, and the resident
continued, The patient was alert and disoriented until about 3:00 A.M.
and then became very agitated. Our on-call resident was called by the
nurses who had restrained the patient, and the resident ordered Versed
for sedation.
Versed is a sedative that makes a patient drowsy and therefore easier
to manage if he is agitated. But before giving a sedative for agitation, the
cause of the agitation should be determined. The most likely causes of
agitation after a brain injury can be the mental confusion from the brain
injury itself, a lung problem resulting in insufcient blood oxygen, or a
developing blood clot that compresses the brain. A sedative can only be
safely given to a patient with a brain injury if the cause of the agitation
proves to be confusion from the brain injury itself and not decreased oxygen in the blood or a developing blood clot. The latter two are fatal unless
their primary cause is treated. The patient should have had a CT scan of
his brain and an assessment of his bloods oxygenation to diagnose the
cause of the agitation rather than being given a sedative.
The chief resident continued, On Saturday morning rounds the
patient was noted to have unreactive pupils and would not move to sternal pain.
This examination describes a deep, usually fatal coma that everyone
at the conference knew could only be from a structural problem in the
brain or lack of oxygen to the brain. It was not the effect of the sedative.
The young college student had become agitated because of a blood clot
developing between his skull and his brain. The nurse and the on-call resident had misjudged the situation and worsened the problem by sedating
the patient.
Tom continued, A CT scan showed a large right-sided epidural
hematoma with shift. Neurosurgery was called. The patient was taken to
the OR and then admitted to the neuro ICU but was declared brain-dead
the next day.
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Tom, the chief resident, had described a very large blood clot compressing the brain that had been recognized and removed much too late.
It was disturbing that this had happened not only in the hospital but in
a hospital ICU, whose central purpose includes early detection of complications in vulnerable patients.
It was clear to everyone that if the patient been in the neuro ICU, the
nurses there would have contacted the neurosurgery resident on call
when the patient became agitated, a CT scan would likely have been
ordered, and the patient would have been promptly taken to surgery. On
the neurosurgery service everyone knew that an agitated patient probably
meant a developing blood clot. In the SICU, where there were normally no
patients with head injuries and half the nurses were temporary nursing
staff, no one understood this distinction.
Browns next question was Who would give Versed to a patient with
a brain injury who was under observation?
Tom covered for his junior resident, who sat in the back of the room
wanting to crawl under his chair. Dr. Brown, on the night this patient was
admitted I was in the OR or the ER all night and the junior resident never
left the ER. We did not have enough ICU beds in the hospital, and we
could not even clear the trauma rooms in the ER fast enough to make
room for the next patient. It was like we were the only trauma center in
town. We should have evaluated the patient at 3:00 A.M. and done a CT
then rather than sedating him, but we could not physically leave the other
patients to evaluate him.
In fact, most of the other trauma centers were on diversion that
evening. In the midst of the warlike scene in the overburdened trauma
room, a patient who became agitated in an ICU was prioritized as a common and insignicant problem. Everyone knew that, with the closure of
so many emergency rooms in Los Angeles, patients with lesser injuries
that could have been cared for in the nearest emergency room were all
being shipped to the trauma centers. The residents on call during the
night were faced with an impossible task.
At this M & M there were no accusations. The residents mistake was
acknowledged. The nurses mistake was not worth bringing up; a nurse only
lasted on average about one year at the hospital anyway. The two residents
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were among the best in the program. The systems problems were beyond
solution. Brown said nothing more.
My Experience with Error

My observations about error and its prevention come directly from my
experiences as chief of the neurosurgery service in three hospitals during
more than thirty years of practice. In this capacity I was responsible for
investigating any error involving a staff neurosurgeon. Although I worked
constantly with hospitals and medical schools to keep them as safe and
efcient as possible, my efforts yielded only temporary improvements.
Safety and quality were rarely institutional priorities, and I reached several conclusions:
Financially unstable hospitals are dangerous places.
Error is the product of a series of misjudgments and failures.
Hospitals put little money and effort into error prevention, and they
differ widely in their approach to error.
Medical malpractice suits have almost no effect on a hospitals policies toward error, but adverse publicity has a galvanizing effect.
The use of information technology (computerized data management)

in hospitals is years behind its use in other industries, and that
absence is a setup for error and a barrier to its reduction.
System Failure
Error is the product of a series of misjudgments and failures.
One major contribution of the Institute of Medicine study has been its
success in shifting our thinking about error in medicine from the concept
of individual blame to one of institutional failure. I agree with the physician leader who has said that good people will routinely be defeated by
bad systems, no matter how well-meaning or hard-working they are.7
Over the years, I have investigated any number of errors involving surgeons, and I have lived with my own mistakes. In every case, a series of
mistakes or mischances permitted the nal error to occur.
In one case an experienced and dedicated surgeon, a close personal
friend, performed an emergency procedure to remove half of a young
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womans skull in order to relieve pressure in her brain after a severe

stroke. The patient was deteriorating rapidly and was rushed from the
intensive care unit to the operating room. The surgeon hastily left one
operating room and immediately started this case in an adjacent one.
CT scans of the brain are displayed on an X-ray view box in the operating
room so that the surgeon can evaluate what he is seeing at surgery. In this
case one of the operating-room staff put up the lms backward. The only
way the surgeon would have known about the error was to notice that the
small print on the lms had been reversed. But although the images were
visible from across the room, the print was not. In the rush to relieve the
pressure and save the patient, the surgeon removed the skull on the
wrong side and did not nd out about the mistake until the patient was
back in the ICU. Nothing seen at surgery would have indicated to the surgeon that anything was amiss. When the patients family members
learned about the error, they sued the doctor and were later paid,
although the patient did not suffer any ill effects. Removing the bone,
even in the wrong spot, did relieve the pressure.
The error was the surgeons, but the failure was also procedural: everyone should routinely stop before the skin is cut to double-check the correct
side of surgery (right or left) and the location (front or back). A thirtysecond pause so that everyone in the room could check the X-rays and the
records would have prevented the error. But this double-check procedure
was not implemented in the hospital for another three yearsnot until the
federal agency that regulates hospital functions required it. I conclude that
only external forces will compel hospitals to reduce error, and the two most
effective are government regulation and public reporting.
In another case a young woman with a broken neck was admitted on
a very busy Saturday afternoon. The patients spinal cord was not injured,
and she had a normal physical examination, her only complaint being
neck pain. A device that looks like ice tongs was attached to her skull, and
weights were then attached to the tongs by a nylon rope, pulling on the
head to keep the neck straight and immovable. Although the preliminaries were all properly managed, the patient was admitted to the general
surgery ICU instead of the neuroscience ICU, a step necessitated by that
days heavy emergency trafc. The neurosurgeon who attended the
patient was in either the operating room or the neuro ICU with one
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patient after another all day and night until Monday morning, when he
nally saw her again. On Monday morning, he found the patient quadriplegic. The bones in her neck had moved sometime over the weekend,
compressing the spinal cord, a fact that no one had noticed for twentyfour hours; she was permanently paralyzed.
The surgeons error was that he did not see the patient Saturday
evening and Sunday when the problem could have been identied early
and corrected. He also did not sleep Saturday night because he was operating. The hospitals system error was that the patient was admitted to the
wrong ICU because the hospital was overloaded. Had the patient been
admitted to the neuro ICU, where she was supposed to be, the surgeon
would have monitored her throughout the weekend because he was
either there or in the operating room almost continuously. The nurses in
the neuro ICU were used to the neurosurgical regime and would likely
have quickly detected the change in the patients neurological status
when it could have been reversed. The only change made as a result of
this error was that we established a backup call schedule in case a weekend got too busy for one surgeon. The basic problem of overloaded
trauma hospitals continues in many trauma centers, and there are innumerable examples of related or comparable errors.
I knew and worked with both of these doctors, and they were responsible, caring, and procient. They made mistakes, and the people that
worked with them made mistakes. This will happen. The errors, however,
could be prevented or diminished if doctors and hospital administrators
emphasized error prevention and designed systems to reduce mistakes
and complications. The lack of consistency and will is the problem.
Indifferent Hospitals
Hospitals put little money and effort into error prevention, and they
differ widely in their approach to error.
Some hospitals where I worked were much more serious about quality
and error than others were. National data now show what is described as
a quality chasm between the best U.S. hospitals and the others.8
A mistake I never made (and always feared) was to operate on the wrong
patient or on the wrong side of the right patient. Doing so inadvertently
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is easier than might seem possible but nevertheless is rare. The specialties where this error is most likely (in decreasing order) are orthopedic
surgery, general surgery, neurosurgery, and urologic surgery. Wrong site
and wrong patient surgery are uncommon errors but ones without
defense.9 Yet only in 2004, when the accrediting body for hospitals, the
Joint Commission on Accreditation of Healthcare Facilities, required hospitals to institute procedures to eliminate wrong site, wrong procedure,
and wrong patient surgery, did anything happen about this phenomenon
throughout the hospital industry.
Before the Joint Commission mandated standardized procedures,
I observed very different attitudes among hospitals about this well-known
problem. Before patients are brought into the operating room and put to
sleep, they lie undressed and covered with thin sheets on wheeled gurneys
lined up side by side in a holding area. Here a nurse asks each person who
he is and matches the answer against the bracelet on the patients arm.
The patients are also quizzed about what surgery they are having and who
is going to perform it. In one hospital where I worked, the patients would
not be wheeled back to the operating room until the surgeon had personally talked to the patient, conrmed that this was the correct patient, and
conrmed the procedure with both the patient and the nurses. Deliberate
conrmation before the patient is allowed into the operating room is the
proper procedure.
Just down the street in another hospital, the patient would be anesthetized and positioned before the surgeon ever saw the patient, and the
procedure was never conrmed with the surgeon. At this hospital one of my
patients had a near miss. She was rolled into the wrong operating room and
was then told that Dr. Jenkins was ready to perform her surgery. Despite
sedation she was able to ask for the identity of Dr. Jenkins since Dr. Clifton
was supposed to do her surgery. Had she been too sleepy to answer, I think
she would have had a knee operation rather than the warranted back
operation. Years later, the patient still has ashbacks of the event.
Poorly Targeted Lawsuits

Medical malpractice suits have almost no effect on a hospitals policies
toward error, but adverse publicity has a galvanizing effect.
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Medical malpractice lawsuits have three purposes: (1) to punish the

offender, (2) to compensate the victim, and (3) to reduce negligent error.
In practice, lawsuits punish as many non-offenders as offenders, do not
compensate most of the victims of medical negligence, and have almost
no effect on the safety practices of hospitals. Only 3 to 5 percent of negligent injuries result in claims, and 37 to 83 percent of claims do not
involve errors.10
Plaintiffs attorneys think that they police the medical industry. Just
before the Texas legislature passed a law that capped the damages that
could be awarded to a patient in a medical malpractice suit, an acquaintance who is a prominent plaintiffs attorney told me angrily, If they do
this, the hospitals and doctors will just do anything because there are no
consequences. They wont care. He was, however, wrong. The doctors
and the hospitals are not much more or less careful about avoiding error
based upon their exposure to litigation.
Because negligence rarely results in a suit and claims and judgments
occur with about equal frequency when there is a bad result, whether or
not there has been an error, hospitals and doctors simply view lawsuits as
a cost of doing business, although one to be avoided. The only proven way
to avoid a patients lawsuit is for a doctor to spend considerable time talking to the patient and her family. The only proven way to reduce the
chance of losing once a lawsuit has been led is to have documented
beforehand everything said or done to a patient.
But the best way for a doctor to avoid being sued at all is not to be
the one who taking care of a patient with a bad treatment result.
One approach is to avoid operating on patients who are at high risk of
complicationsto let someone else do it. The problem for doctors and
hospitals is that no matter how careful anyone is, there is an irreducible
rate of bad results and complications. Despite my years of experience and
a concerted personal effort to perfect my operations, 2 percent of my
patients had a surgical complicationabout four patients per year. My
risk of lawsuits lay with those four patients, and there was nothing I could
do to mitigate that risk other than to talk with them beforehand and carefully document that I had discussed possible problems of surgery.
Doctors react to the threat of lawsuits by avoiding patients who are
likely to have a bad resultjust the patients who most need a good
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doctor. But hospitals cannot avoid really sick patients, so they just accept
the inevitability of suits. Lawsuits are blunt instruments, and their cost to
a hospital is manageable; therefore, hospitals have no nancial justication to expensively reengineer processes and practices to avoid being
sued. This means that the role of the legal system in error prevention in
medicine, particularly in hospitals, is negligible.
The Galvanizing Effect of Publicity

What does bring about quick changes in hospital procedures is the threat
of publicity. In one hospital where I worked, we constantly battled infections in our large intensive care unit. The patients were comatose, and
the pneumonia rate was 60 percent. Academic hospitals began to compare their infection rates, and we found that some had reduced their
pneumonia rates to levels that were low in comparison to ours. A consortium of businesses in Houston learned this information, and we were told
to expect our mortality and infection rates to be published in the local
newspaper with comparisons to national benchmarks and other hospitals
in the city.
At about this time the hospital assigned a nurse and an infectious disease doctor to work in our neuroscience ICU to assist us in lowering our
infection rates. They watched our procedures; cultured our hands, noses,
and equipment; and monitored our adherence to standard protocols such
as hand washing. They then provided regular reports on both infection
rates and our adherence to procedures. Infection rates dropped as attention was called to the problem: it was only the threat of publicity that led
the hospital to allocate these resources (temporarily). This observation
bears on a key policy change that I will recommend to improve hospital
qualitymeasure it carefully and publicly report it regularly. Medicare
has already made a good start with its Hospital Compare website.
Primitive Technology and Loose Systems

The use of information technology (computerized data management)
in hospitals is years behind its use in other industries, and that
absence is a setup for error and a barrier to its reduction.
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Each patient in our hospital had a paper chart. When we arrived on the
ward for rounds, these charts could be in the patients room, at the nursing station, with another doctor, or misplaced. Doctors, nurses, and therapists wrote their notes, often unreadable, in longhand. A doctor in a
hurry sometimes simply issued a verbal order, later recorded by a nurse.
I did so many times. Each doctor and nurse who came on duty had to either
read these notes or talk to someone to understand the patients issues.
Such are the antiquated systems used in most hospitals. Nothing
could be more conducive to error, and such methods cannot be replaced
soon enough. Although nearly one-quarter of hospital chief information
ofcers (CIOs) report they have fully operational electronic medical
records and another 40 percent say they have signed contracts for such
services, I am skeptical about the accuracy of such self-reported data in
the absence of good denition of a fully operational electronic medical
record.11 How many hospital CIOs would say that they either do not use
or have no plans for a fully operational electronic medical record? The
hospital industry is a long way from replacing paper records.
Figure 9.1 shows a typical handwritten patient progress note. Doctors
and nurses record the details of a patients medical progress daily. The
notes are handwritten and often cannot be deciphered, as in this example. Interpreting these illegible notes becomes important in the event of a
lawsuit. The usual rule in such suits is that if it was not recorded, it did
not happen. Progress notes thus serve two purposescommunication
among medical staff and their legal protectionso they can be lengthy.
The problem is that they do not perform either function very well.
I know from working in hospitals that serious medication errors
occur every day, and they are largely preventable with information technology and attention to the problem. In the course of writing this chapter,
I was called by a Houston hospital representative about the case of an
elderly woman who was given another patients blood thinner. The
result was a fatal brain hemorrhage. The representative asked, Could the
hemorrhage have happened anyway? I advised the hospitals legal
department to settle.
Such experiences are ubiquitous in all hospitals. Twenty percent of
all complications in hospitalized patients are from medications, and
almost one-third of these are preventable. The estimates of preventable
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FIGURE 9.1 Typical handwritten patient progress note
Source: Anonymous hospital record, 2006.
medication errors in hospitals range from 380,000 to 450,000, but the

Institute of Medicine committee that released the 2006 report
Preventing Medication Errors believes these numbers to be underestimates and has concluded that a hospitalized patient can expect to be subjected to more than one medication error each day.12 Preventable
medication errors occur most commonly during administration of the
medication, frequently because the nurse or pharmacist misreads a written
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order. Once the medication is given, errors result most commonly from
the wrong dose. When physicians enter their medication orders on computers, the rate of serious medication errors is reduced by 50 percent.13
Computerized physician order entry is the industry term for a medical
staffs use of computers to order medications and treatments. In a technique pioneered by the Veterans Administration, bar codes match the
medication dose to the patient. The nurse administering a medication
then matches the medication bar code to a bar code on the patients wrist
bracelet. According to one Veterans Administration hospital, when bar
codes are combined with computerized physician order, medication
errors are reduced by up to 75 percent. Still, the matter is as much about
culture as about tools: with structured attention to medication errors and
without information technology, harmful medication errors were reduced
eightfold in one community hospital.14
The medical industry suffers from lack of a clear vision or standard
for what a fully integrated information system in a hospital should look
like and how it could be integrated with clinical practice. As I will discuss,
there is no business case for the use of information technology because of
the way in which hospitals are paid. For these reasons, use of that technology among various hospital departments varies widely. For instance,
most hospitals record the results of blood work from their laboratories
electronically because information systems naturally integrate with laboratory machinery. Integrating information technology with people is a
more arduous task, so other hospital departments are less likely to
employ it. All hospitals have incorporated computerized billing systems
for years: collections are a priority.
When strict criteria are applied, only 5 percent of U.S. hospitals have
fully implemented computerized physician order entry, eliminating
handwritten orders such as those in gure 9.2. About one-third of U.S.
hospitals are believed to have adopted some form of electronic medical
records. Nonetheless, the charts in three-quarters of doctors ofces and
at least two-thirds of hospitals look like the handwritten progress note
illustrated in gure 9.1.15
Figure 9.2 shows a typical physician handwritten order sheet. The
only way to know who wrote these orders is to be familiar with the doctors
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FIGURE 9.2 Typical physicians order sheet
Source: Anonymous hospital record, 2006.
signature. Note the printed phrase at the bottom instructing physicians to

print their name and pager number under each order. Note that these
instructions were ignored. This kind of technology makes the old joke
about a doctors handwriting no joke at all.
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10
Violation of Dignity
The End of Life
Given everything else wrong with U.S. healthcare, it is not

surprising that patients have no more than an even chance of
having their wishes respected at the end of life.
Not only are patients rights at the end of life often violated, but money
is also wasted. Indeed, at least a quarter of Medicare costs are spent on
the last year of life.1 This in itself is not necessarily a bad thing, but how
the money is spent is another matter.
The manner of Ed Fitzsimmonss death, the patient we met in Chapter
8, illustrates the point. Shortly after Ed suffered his heart attack in the
Episcopals ER waiting room, his breathing became so rapid that a tube was
put into his airway and a ventilator attached, and he was rushed to the cardiac ICU. Elaine Fitzsimmons suspected then that her husband was dying.
The doctors in the ICU took three-day rotations. Dr. Parsons, the physician on duty when Ed arrived, was a fastidious person, so precise in speech,
appearance, and bearing that even his expressions of concern seemed
studied. He attended, even fussed, over every detail of management.
After his rst heart attack Ed had specically told Elaine that he did
not want intensive care if he could not come out of it with high odds of
being able to walk outside and live without assistance. To be sure that his
wishes were met, he had lled out a standard advance directive: If at any
time I should have an incurable condition caused by injury, disease, or
illness certied to be a terminal condition by two physicians, and if the
applications of life-sustaining procedures would serve only to articially
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V I O L AT I O N O F D I G N I T Y
95
postpone the moment of my death, I direct that those procedures be withheld or withdrawn and that I be permitted to die naturally. He assumed
that this directive would clearly tell his doctors what he wanted.
Unfortunately, advance directives are not specic documents and do
not provide doctors with precise information. No reasonable person
would wish to be kept alive if they were inevitably to die during a hospitalization, so the language in Eds advance directive told physicians only
what they already inherently understood: that he did not wish to be kept
alive if the prospect of recovery was hopeless. But left undened were the
terms prospect of recovery and hopeless. One person might want everything
done, no matter the cost and consequences to his family, for a slight
chance of high-functioning recovery, even when the downside is a very
high chance of living in dependence, severely disabled. Another might
view those odds with more horror than a certain death. Much depends
upon how a patient views his life before the hospitalization and what he
is willing to accept after it.
Doctors mostly rely upon their own judgment and the wishes of the
family in deciding on life assistance or its withdrawal. That judgment
depends upon doctors views of life and death but also upon their habits
of practice. Some doctors think about such matters and make careful
individual judgments, but many simply apply technology by reex. And Ed
Fitzsimmonss physician, Dr. Parsons, would not let anyone die on his
service if he could prevent it.
Under sedation and with tubes projecting from his mouth, Ed was
mute. Nurses pushed his bed down to X ray day after day for new studies;
more tubes each day exited his arms, mouth, penis, and chest. On the
sixth day of Eds hospitalization, his ngers and toes had taken on a blue
tinge, and the family requested a meeting with Dr. Parsons.
Well, Dr. Parsons began, he is not doing very well today. His heart
failure is worse. Were using high doses of dobutamine for blood pressure
support. He has some peripheral ischemia. This is why his ngers and
toes are cyanotic.
Dr. Parsons, Elaine interrupted, do you really think that my husband can survive this?
Well, Parsons responded, he is very sick, but we have to keep
working to turn his heart around.
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But what are his chances, Doctor? We dont know if he would want
this, interjected Jennifer Allen, the Fitzsimmonss oldest grandchild.
Dr. Parsonss response was His chances are not very good, but there
is always hope. He could turn around.
Just as Parsons applied his skills without much thought for the consequences, he spoke with families without the ability to imagine himself
in their place. Doctors vary in their ability to make value judgments. Most
get better at such value judgments as they gain more life experience, but
Parsons was not among them. His statements were technically true, if
sometimes undecipherable. Eds condition at this time statistically yielded
a probable survival rate of 5 percent. If he lived, his remaining cardiac
function would permit only the exertion that walking around the house at
a slow pace would afford. Parsonss view was that this constituted hope,
not to mention an opportunity for himself to use his considerable abilities. Family members did not know how to ask for the explicit detail that
would have allowed them to make an informed decision, and Dr. Parsons
did not volunteer it. But they suspected that Ed was dying, no matter what
the doctors might do.
Elaine took charge of the situation: Let us talk about it among ourselves, Dr. Parsons.
After Parsons left, the family conferred with Eds nurse, who had
attended the session. She told Elaine condentially that Dr. Parsons never
took anyone off life support and that the family was correct in the judgment that Ed was dying. The nurse explained the process of withdrawal of
care and told them that he would probably live only a short time without
the ventilator and the drugs, but he would not be in pain or suffer. The
family spent two days comparing their observations of Eds physiologic
state as they stared at the monitors. During visiting hours they made mental notes of his heart rate, his blood pressure, his response to medications.
Each day brought worse numbers; and after a resigned family meeting and
reassurances from his nurse that he was dying, the family simply asked the
nurse to convey to Dr. Parsons their wish that the breathing tube be
removed and the medications stopped. The scene was a common one in
the ICUs small pods: a family transxed around a bed in suspense that
each unnatural gasp would be the last. The older grandchildren were sobbing, having never imagined anything like this. The adults worked to bring
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dignity to Eds death by retaining their composure. Finally Elaine whispered to him, Ed, let go, its all right, after which he died.
Ed Fitzsimmons, against his wishes, had expended more than 50,000
dollars in medical costs during the ten days of his ICU stay and had undergone a series of fruitless medical interventions that he did not want but
was powerless to deny.2 From the moment his heart failure became so bad
that he required a ventilator and his blood pressure so low that medications were required to support it, his outcome was certain.
Ed Fitzsimmonss stay in the ICU had consumed enough resources to
provide health insurance for a year to thirty-three uninsured children. Had
he been able to discuss his options with his physician in an ofce setting
before his heart attack, the doctor would have told him that his heart disease was so severe that his likelihood of dying or needing a ventilator if he
had another heart attack was 95 percent, with severely limited independence if he should survive. Ed would have responded that he wanted everything done up to the point of being put on a ventilator, but no more. The
family endured ten days of gnawing anxiety and powerlessness that robbed
their grief of peace and left unresolved doubt in the family. Whether they
had done the right thing was a topic of family discussion for the next year.
Experiences in the Hospital

The issue of managing ICU care at the end of life occupied my constant
attention when I was chief of the neurosurgery service at Memorial
Hermann Hospital, and my present attitude toward the problem developed out of that experience. Over the fteen years of my practice in this
hospital, the demographics of our patients changed. The use of seat belts,
air bags, and more strict enforcement of driving-when-intoxicated laws
decreased the number of severely injured youths that we admitted. The
aging of the population, however, dramatically increased the number of
seventy- and eighty-year-olds with brain hemorrhages. During many of
these years we were regularly turning away emergency patients, old and
young, because our beds were full. By 2003 I had developed a complete
understanding of the regions dysfunctional emergency services system,
and every time we refused a patient I pictured what was happening in the
little emergency room that had tried to refer the patient to us and also the
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responses of our sister hospitals as they, too, turned the patient down.
I had either worked in or visited most of these hospitals and had spoken
to the referring physicians many times, so the scenes in my mind were
very specic. As the incidence of slowly dying patients in their seventies
and eighties intersected with the crisis of the uninsured, my own emotional and ethical resources were taxed.
The nurses almost always knew when it was time to stop treatment or
when ICU care should not be started in the rst place. Our nurses would
often come to me, frustrated, when a doctor, often one of the younger
ones, would neither stop care nor take the time to explain to the families
that further care was futile. At our regular service meetings I would
emphasize the need to clarify early decisions about withdrawal of care
when care was futile. I would discuss how a doctor should talk frankly to
a family. I would tell the doctors that they should recommend a course of
action to the family and defend it, an approach that helps to relieve family members of guilt and dissension later. As soon as my attention turned
to other matters, however, care of the terminally ill drifted back to its
baseline state. There was a good reason: all of doctors nancial incentives and training made it more natural for them to apply their skills than
to take the time to help families work through emotionally difcult decisions at the end of life.
Some of the surgeons were eager to operate and eager to cure. They
were good at both. The families were always stunned in such emergencies,
unable to absorb their potential loss. Conversations occurred hurriedly in
the emergency room or in the cold, tomblike consultation room of the
ICU. The matter would be presented to the family as We have to perform
surgery right away or your father will die. In these situations, a family
usually says, Whatever you think, Doctor. If families are told in understandable terms about the best and worst cases for disability, their
response is usually Oh, he would never want that. Without this conversation, they typically embark upon the long road to a slow death.
People who talk about this problem believe that an unreasonable
public demands excessive care in the face of hopeless injury; yet the medical literature indicates that this happens in only about 4 percent of cases,
and my experience is the same.3 I only remember three or four cases out
of maybe a thousand that I managed in which a family insisted that we
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continue intensive care on someone who was hopelessly damaged for an

indenite period. It was usual for a family to want a day or two to think
about what they had been told or to wait for a relative to arrive. In most
cases the family would make the decision to withdraw care within hours,
particularly in older patients.
No Personal Autonomy
The problem here is not with the families. It is with the doctors, which
should surprise no one. My observation is that doctors, or at least surgeons, have been drilled since medical school on not making mistakes, on
death as the enemy, on the assumption that a bad result is the doctors
fault except in the most hopeless cases. When skills are developed and the
doctor is paid to employ them, what else is he to do? This attitude is one
explanation for why the best of American medicine is among the best
medicine anywhere. Doctors do not easily move from an ingrained lifesaving mode of action to the recognition that they have nothing to offer.
Doing so is an acquired skill that some never acquire.
In a life-threatening condition only the patient knows how much
treatment she desires. When people who are not patients are asked if they
would want life-sustaining treatment in the event of coma with the chance
of recovery, 43 percent want treatment, and 15 percent want everything
done even when the outcome is dementia.4 When 9,000 hospitalized
patients were asked whether they were willing to live in a nursing home,
slightly more than half were unwilling or preferred death. A familys and a
physicians ability to predict patients wishes are no better than chance.5
The Failure of Advance Directives

Advance directives are documents that make provisions for a patients
wishes about medical care when the patient cannot communicate or
make decisions. The directives try either to specify that the treatments
should be proportional to the outcome or to designate someone to
make health care decisions for the patient. In 1991 federal legislation
mandated that hospitals receiving Medicare and Medicaid funds should
determine whether their patients had or wished to have advance directives.
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By 1992 every state had some legislation legalizing advance directives, and
such regimens are widely used.
Yet for several reasons, advance directives have not had the hoped-for
impact on end of life care. Many patients do not have them, or they get lost
in the hospital.6 Their language is vague, and physicians do not pay attention to them. One-third of physicians say they will continue life support
even when they know the patient does not want it, and the majority of
physicians will decide on their own to withhold or withdraw life support if
they judge it to be futile. Physician judgment is biased by the patients diagnosis or the physicians own religious or ethical practice or lack thereof.7
Doctors, whether old or young, may professionally view death as the
enemy. Like Dr. Parsons, they may feel they have in some measure failed
if a patient dies on their watch. Young doctors may not have seen enough
of life to understand that there are human conditions worse than death.
Sometimes doctors make independent judgments about ending or continuing care out of arrogance, as a way of avoiding having to talk with the
family or because they underestimate the ability of normal people to
process medical probabilities. Biases about the outcomes of given diseases are common. I know many neurosurgeons who view a patient with
a severe brain injury as a hopeless case, recommending withdrawal of
care for patients whom I would expend all resources to save. But I have
spent my professional career trying to improve the outcomes for patients
with severe brain injury, whereas my colleagues who seldom care for such
patients may only remember the vegetative survivors, not the ones who
return to work. As a combined result of these complex and very human
reasons, advance directives have not saved money.8
An Important Experiment
A study called SUPPORT dispelled any illusions that money could be saved
and patient autonomy preserved by encouraging doctors in hospitals to
use intensive care more judiciously. By the early 1990s researchers had
made the puzzling observation that death rates for the same conditions
varied widely among U.S. hospitals. The corollary was that no one knew
what the death rate for various conditions ought to be. Without measures
that allowed prediction of terminal illnesses, researchers could not
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determine which hospitals were doing better jobs of managing patients.

Permitting patients who were inevitably going to die to do so in the hospital rather than later in a nursing home after much care might accord
with the patients wishes and be better medicine, but the practice would
increase a hospitals mortality rate. In many conditions a high mortality
rate is bad; in the case of an inevitably terminal illness, it is not.
For two years, eight SUPPORT investigators funded by the Robert
Wood Johnson Foundation studied the outcomes and interviewed the
families of 4,301 patients in advanced stages of nine diseases who were
admitted to one of ve large hospitals in different metropolitan areas.
When someones heart or breathing fails in a hospital, the nurses must
instantly call a code unless the patient has do not resuscitate (DNR)
orders. When a code is called, a system is initiated that brings anesthesiologists, cardiologists, electrocardiogram (EKG) technicians, radiology
technicians, and any nearby medical personnel running to the patient to
conduct cardiopulmonary resuscitation (CPR). It is a frightening scene;
the bed is completely enclosed by a white-coated horde thumping the
chest, drawing blood, and inserting tubes. The SUPPORT investigators
found that doctors wrote DNR orders for only half of the patients who
did not want CPR if their heart or breathing stopped. Half of the patients
doctors did not know their patients preferences. SUPPORT found that
38 percent of the patients who died spent at least ten days in ICU and that
dying patients were in pain at least half of that time.9
The investigators then tested the effect of a program of educating
doctors, patients, and families in order to improve management of lifesustaining treatments. Nearly 5,000 patients in the same hospitals were
divided into two groups: control and intervention. For the intervention
group, the investigators provided doctors with a statistical prediction of
whether a patient would live in the event that intensive care was required.
The investigators documented patients and families preferences on care
and also educated families about prognosis and treatment options. Nurses
working for the study organized these conversations. The control group
was managed in the usual way without the extra educational activities.
Surprisingly, the study found no difference between the groups in the
number of patients who received unwanted CPR and intensive care as well
as no difference from the original observational study. Of 479 patients in
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SUPPORT who lived through their rst hospitalization and then died
within six months, 81 percent wanted to die at home, but only about half
got their wish.10 SUPPORTs extensive on-site and real-time physician education had no effect whatsoever on physician behavior toward patients at
the end of life. Reading between the lines of these scientic papers, I felt
the investigators anguish. I think these researchers did not want to
believe the results they were reporting but knew they were accurate.
Unwanted Intervention: Filling Empty Beds

When the investigators at the Dartmouth Institute for Health Policy and
Clinical Practice examined regional differences in Medicare spending for
patients who were hospitalized with the diagnoses of hip fracture, heart
attack, or colorectal cancer, they found that in regions with high bed counts
54 percent of patients died in the hospital. In regions with lower bed
counts, 23 percent died in the hospital. Personal preference did not inuence the place of death at all. Similar variation in end-of-life care is found
even among the nations top hospitals.11 In many regions of the country, the
only advantage of increased medical interventions applied to patients at
the end of life goes to the doctors and the hospitals paid to perform them.
There is a straightforward solution to the problem of unwanted endof-life care. Most patients who die suffer from chronic illnesses. Doctors
can predict the proximity of death in such patients. The core principle is
that end-of-life decisions must be made before hospitalizationin the
calm of a physicians ofce, in the presence of family, and with full
information. If that decision is delayed until hospitalization or left to
advance directives, then the patient loses control and becomes subject to
inexorable, impersonal, technological intervention.
Yet the devaluation of primary care in the United States has left most
patients without a relationship with a doctor whom they would trust to
engage in such a conversation. Thus, the twofold solution to the problem is
(1) more primary care physicians who provide coordinated management of
patients with chronic diseases and manage or coordinate end-of-life care
and (2) alteration of medical practice so that doctors who manage patients
help them make end-of-life decisions before they are hospitalized.
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11
Unnecessary Surgery
The lter for the application of new technology in the United

States is ten doctors at Medicares headquarters in Baltimore
and a scattered group of insurance doctors.
In my clinic I repeatedly saw unfortunate patients whose stories precisely

matched this ctional one. Jennifer Allens story helps explain why there
is such a thing as unnecessary surgery.
Back trouble ran in Jennifers family, and she rst began having midline low back pain when she was thirty. After this episode physical therapy had helped; but because of two young children and the boring routine
of regular exercise, she had not kept up with her therapy. Her back pain
grew steadily worse with frequent are-ups, and her family doctor ordered
an MRI. When the report came back showing bulging, degenerated discs,
the doctor referred Jennifer to Dr. Raymond Alford at the Episcopal
Hospital.
Alford had the reputation of being one of the best neurosurgeons in
town. After briey examining Jennifer and then reviewing the MRI in his
ofce, he came back into the small examination room and said, Jennifer,
you have a degenerative condition in the discs in your back, and the
vertebrae are causing pressure. You are going to have back pain until
we relieve the pressure. We do this by fusing the spinal vertebrae, which
will stop the movement in your back. The disc bulges are also exerting
pressure on your nerves, and we will have to remove enough bone to get
the pressure off the nerves.
Alford detailed the procedure: We will place metal screws about the
size of your little nger on both sides of three of your vertebrae. The
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screws on each side will be connected by a rod so that nothing moves. He

showed her a plastic model of a normal spine, without the two pounds of
hardware he would install, pointing with a pencil where each screw would
go. We will take bone from your hip and lay it over the vertebrae, and
after about six months the bones will grow together. I think there is an
85 percent chance that your back pain will be much better, but there is
a small chance you could be worse.
Jennifer considered the surgery for two weeks. Her condition did not
sound good: pressure on nerves and degenerated discs. Finally, she called
Alfords ofce to schedule the procedure.
Waking up after surgery, Jennifer knew that she had undergone a
major operation. She was in agony; morphine barely took the edge off the
pain. The next day she shufed a few steps, wincing with each effort. After
ve days in the hospital she could feed herself, manage the bathroom,
and circle the nurses station.
Six months after the operation, Jennifer was still recovering. Even
worse, the pain which had been intermittent before surgery was now constant. On her last visit to Dr. Alford, he dismissed her from care. Their
relationship had become strained by her insistence that she was worse
and by his counters that he had performed a perfect operation. When he
spoke to her, he no longer addressed her by her rst name. Mrs. Allen,
he informed her, I cannot do anything more for you. Your fusion is solid.
Your X rays look ne. There is no reason to remove the hardware. You are
just going to have to learn to live with some pain.
Tears welled in Jennifers eyes as she thought of the consequences of
this judgment for herself and her family. She blinked them back and
asked, May I have something for the pain?
Narcotics are not the answer here. I will refer you to a pain center.
With biofeedback and injections I am sure you will improve over time.
The referral was made, and Jennifer now became a back cripple,
dependent on narcotics, repeated back injections, electrical stimulators,
psychological counseling, and pool therapy. She was able to raise her
children, but her marriage became a hollow shell and gradually dissolved.
She avoided sexual relations and focused her energy on two things: the
children and managing her back pain. Her story, which is a common one,
illustrates that surgery is sometimes better left undone.
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Potentially or overtly unnecessary surgery comes in two forms: (1)

procedures of unknown benet and (2) procedures of such marginal benet that many fully informed patients would not choose them. Jennifer
had no way of knowing a few crucial things. She did not know that a high
percentage of people over thirty-ve years of age have degenerated or
bulging discs and evidence on imaging studies of some pressure on
nerves, even though they have no symptoms. She had no way of knowing
that fusion for degenerative discs without slippage of the spine has never
been proven to improve back pain, although it is commonly performed
for that reason. And she could not have known that this surgery is widely
performed because it is a lucrative procedure for the providers.
Dr. Alfords fee from the insurance company was 8,000 dollars for the
procedure, and he could complete an uncomplicated fusion in three
hours, skin to skin. Alford was technically procient; in fact, he had a low
complication rate. His judgment had become clouded by the allure of
money and the absence of objective data about the results of his work. In
the absence of any evidence to the contrary, he never questioned the procedures effectiveness. In truth, he began to believe in it. As his identity
and personal fortunes came to depend upon back fusion, he began to
remember the good results and to forget the bad results. In any event he
only followed the patients for the usual ninety days after surgery. Not only
was his view of the benets of surgery skewed because he saw only its
short-term results, but he soon became incapable of objective judgment.
As his complication rate improved with experience, he began to see indications for the procedures performance in more and more patients,
which pleased the administrators of the Episcopal Hospital.
The hospital made the performance of such procedures as easy as
possible for surgeons. For Jennifer Allens surgery the hospital was paid
60,000 dollars, generating 9,000 dollars per case in prot. At a 16 percent
prot margin, spine surgeries were second only to cardiac surgery in profitability and more than double the prot made by hospitals for non-surgical
patients.1 The hospital had special wards with an increased number of
nursing staff just for fusion patients, operating room time was made easily available for surgeons who did such procedures, and beds were always
open. The hospital built new cardiac and orthopedic towers to better
accommodate the surgeons and their patients.
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Jennifer also did not know that an equipment manufacturer paid

Dr. Alford a generous consulting fee every time he placed the companys hardware in a patients back. Although it is illegal for a manufacturer to pay a surgeon a kickback for implanting a device, medical device
manufacturers have gotten around this law by paying so-called consulting
or research fees to some doctors who implant their devices. It is difcult
to distinguish between doctors who provide legitimate advice to manufacturers for which they are legitimately paid from those who receive payments as a legalized kickback. Alford was in the latter camp: he was paid
for quickly completing a surgical opinion form that no one from the company ever looked at.
Reasonable and Necessary

Because Medicare is the largest single purchaser of health care in the
United States, every insurer follows its lead in the services it pays for and
the rates it pays for those services. If Medicare refuses or agrees to pay for
a procedure, almost every insurer in the country rapidly follows suit.
Since the programs establishment in 1965, Medicare coverage decisions have been based on section 1862(a)(1)(A) of the Social Security
Act, which states that Medicare will pay for reasonable and necessary
services. The program was enacted over the opposition of organized medicine, which feared government intervention in the practice of medicine
and had threatened a boycott of Medicare patients. Therefore, since the
programs inception, federal ofcials have actively avoided any practice
that could be construed to limit a physicians ability to practice unfettered medicine.
Reasonable and necessary simply means that any doctor can apply
any treatment or device paid for by Medicare to any patient who wants it
as often as both parties want it to be applied. Medicare and most insurers
only deny coverage for a medical procedure when there is incontrovertible evidence that a treatment has no effect. Such evidence rarely exists
because most procedures help some groups of patients and are then automatically assumed to help others. Only the treating physician can decide.
And the cost of a procedure to Medicare is not a consideration. No one in
government wishes to be accused of rationing care by the 41 million
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Medicare beneciaries. As a result, almost all procedures have been

approved by Medicare no matter how expensive, how marginal their contribution to health, or how inadequately they have been investigated.
The Food and Drug Administration (FDA) must approve a device
before it can be marketed, but this review is a devices rstand usually
lastpoint of examination. The agencys standard of effectiveness for
approving a medical device is not rigorous, requiring only that it be equivalent to other approved devices or shown to offer potential benet in a
single group of patients. Once a device is FDA-approved for any group of
patients, the door is open to its wide promulgation. Spinal fusion is an
example. The screws used in back fusion were approved in the mid-1980s
for use in the tail bone or sacrum only.2
Though manufacturers can only market their devices for FDAapproved indications, once the agency approves a device for any indication,
doctors are free to use it anywhere in the body for any patients they wish
for any condition. After the FDA approved bone screws for use in the
sacrum, manufacturers began to devise and promote similar devices for
installation up and down the spine, and surgeons routinely began to apply
them. By 1998 such devices were being implanted in thousands of patients
each year for a wide variety of indications. Bowing to that fact, the FDA
reviewed the surgical literature and approved the marketing of bone
screws for use anywhere in the low back but just for patients with fractures and slippage of the spine. By slippage I refer to a condition in which
the bones of the spine are not stacked one on top of the other but have
slipped forward, one over the other, an uncommon condition that can
either be congenital or degenerative. Fractures of the spine are even less
common. In justifying its approval without requiring formal testing of
effectiveness, the FDA stated that it was required to provide reasonable
assurance, not absolute proof. What began as an important tool for use
in a small group of patients with fractures and slippage of the spine has
now become a multibillion-dollar business.3 Without benet of proof,
surgeons are now routinely performing back fusions with spinal screws
for a wide range of indications other than fractures and slippage, and
Medicare pays for all of them.
In late 2006, I interviewed Dr. Steven Phurrough, director of coverage
policy and analysis for the Medicare program at its Baltimore headquarters.
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Dr. Phurroughs group determines which new medical procedures the

Medicare program will pay for. I rst explained to the doctor that I
believed that about one-third of the procedures, tests, and hospitalizations
done in medicine do not benet the patients. He motioned with his
upturned thumb and said, I think it is higher.
Dr. Phurrough told me he wished he had more objective evidence to
use in making coverage decisions. When his group had hard data that a
procedure was effective in only one set of patients but not another, the
issue then underwent a process of provisionary rule making and public
comment. After that step, the procedure was approved for Medicare coverage only for patients in whom it was proven to be effective. But the doctor said that the availability of such information is rare. As a result,
Medicare pays for most new procedures and treatments that are FDAapproved for use in any group of patients.
But the review process that Dr. Phurrough described is limited in yet
another way. The ten doctors and ten support staff of the Coverage Policy
and Analysis Group in Baltimore are able to evaluate only about 10 percent of the new services that are devised each year. The other 90 percent
are approved in regional ofces by far less qualied people.
Medicare manages its regional operations by contracting with vendors who process claims. The regional ofces do not employ professionals
skilled in reviewing new procedures; rather, they employ administrative
staff. Ninety percent of Medicares coverage decisions are the result of
reviews by the medical directors of these regional insurance vendors. If a
procedure is approved by any regional ofce, it is usually approved by
all others; and every insurer follows Medicares coverage and payment
decisions. It is no exaggeration to say that the lter for the application of
new technology in the United States is ten doctors at Medicares headquarters in Baltimore and a scattered group of insurance doctors.
Procedures of Unknown Benet

Many of the most expensive and common procedures in medicine have
no proven value for numbers of the patients who receive them.
Investigators at the Dartmouth Institute for Health Policy and Clinical
Practice (the group that established the spending variations in different
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U.S. regions) have divided surgeries into those that are always indicated
when they are performed and preference-sensitive surgeries whose
use depends on the surgeons opinion and the patients wishes. While
preference-sensitive surgeries are always valuable in some group of
patients, their value in other groups is untested and unknown.
Preference-sensitive procedures have another characteristic: their
frequency of performance varies considerably among hospital referral
regions. Procedures that are always indicated, such as surgical repair of
hip fractures or removal of colon cancer, vary in frequency by a factor of
two to four among regions. But in 2003 preference-sensitive surgeries
such as heart bypass operations, knee and hip replacements, surgery for
vascular problems of the legs, and prostate surgery varied in frequency
among regions by factors ranging from four to twelve. Back fusion is
among the most highly variable of procedures. For example, the frequency
of performance of spinal back fusion varied by seven times more than the
frequency of hospitalization for hip fracture among hospital referral
regions in southern Florida.4 If there are best practices for these procedures, no one knows what they are.
When I examined the costs of hospitalization in the United States for
2002, I found that the classes of procedures that the Dartmouth investigators consider to be preference-sensitive accounted for 18.3 percent of
the total charges of hospitalization for all causes, and these are not the
only such procedures in medicine. According to an estimate based upon
a review of the medical literature and the cost of preference-sensitive surgery, as little as 4 percent and as much as 8 percent of U.S. hospital spending is for surgery that might be unnecessary or unwanted if patients and
doctors were to have full information.
In the absence of denite information about who does and does
not benet from a procedure, doctors rely on their own experience and
judgment. Such conclusions can be colored by self-interest, limited by
personal experience, and complicated by a lack of big-picture information,
including an understanding of a problems natural history without the
treatment in question. And sometimes surgeons like Raymond Alford just
decide to get very busy.
In areas where Medicare spending is high, concentrations of specialists hospitalize patients with chronic diseases, test them extensively,
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examine them in clinic often, and perform minor procedures on them.

But regions where specialists abound and Medicare spending is high are
not necessarily the same regions where major surgeries or surgeons are
concentrated. A high rate of preference-sensitive surgeries in a region
often indicates the presence of only a few surgeons rather than a community with many surgeons. This nding raises the question of just whose
preference chooses preference-sensitive surgery. It is not likely to be the
patients.
As a surgeon faced with presenting facts to patients who were scared,
hurting, and vulnerable, I came to understand the power of my tone and
attitude. For all but a few patients, the tone I used in presenting a surgical
decision determined whether or not they would agree to it. If I seemed
reticent, patients rarely opted for surgery. If I seemed decisive, they were
sometimes reluctant at rst but usually agreed to undergo the recommended procedure. Patients who were unaffected by my tone were not
only scared and hurting but also suspicious and confused, often having
trolled the Internet and talked to myriad doctors. One surgical friend told
me, Why, I could convince a patient that I should cut off his head, and he
would not know the difference. This remark is only a slight exaggeration
of a surgeons powerful inuence on patient decision making.
The Spinal Fusion Epidemic

Large-scale clinical trials that formally test a new or established procedure
against a standard treatment may sound like a good solution, but the
results of such trials cannot be applied by rote to every patient. After years
of practice a doctor picks up subtleties by instinct or wisdom that no
experiment could detect. But 95 percent of medicine is straightforward; no
more than a few cases require artful management. Thus, the subtleties of
medicine do not excuse or explain the extreme variability in how it is practiced. Spine fusion is a useful example of a commonly performed, poorly
evaluated procedure that has unknown effectiveness in many patients.
In 2005 spinal procedures accounted for 3 percent of all U.S. hospital
charges, and the majority of these came from spinal fusion for degenerative diseases. Yet two recent reviews have concluded there is no objective
evidence of the effectiveness of spinal fusion for degenerative changes of
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the back. In fact, the only two reasonably objective studies of fusion for
low-back pain versus physical therapy came to opposite conclusions.5
Back fusion has been proven to make one group of patients with
degenerative spine disease better: those with a mechanical slippage of the
vertebrae in their low backs.6 Spinal fusions with hardware have been
such a breakthrough in the treatment of spinal fractures that no reputable doctor would consider large-scale testing of fusion surgery with
instrumentation versus surgery without instrumentation.
I performed more than 1,000 fusions of the neck (called cervical
fusions) and thought that my patients beneted from them. Like most
surgeons, I maintain that I never performed a procedure on a patient if
I did not believe that person would benet from it. That said, however,
I relied upon the incomplete information of personal experience. During
my three decades of practice, spinal surgery changed radically without
any formal evaluation of the effectiveness of those changes.
Twenty years ago surgeons treated spinal degenerative conditions
that produced nerve pain by removing bone or disc material that pressured the spinal cord or nervesprocedures called decompressions. With
reasonable certainty, clinical trials have proven common decompressions
of the low back to be more effective than nonsurgical management.7
While surgeons still perform these simple operations, half of all spine surgeries are now fusions, usually performed along with decompression.
Before discussing how simple procedures have been converted to
much larger ones without benet of evidence, lets take a look at how the
two procedures differ. Figure 11.1 illustrates a normal spinal vertebra in
the low back in cross-section, as if one were looking down on the spine
from above. The roof covering the uid-lled nerve sac is the bony prominence of the spine that can be felt under the skin in the middle of the
back. The round block of bone in the front is called a vertebral body, and
it supports the weight of the body above it and projects into the abdominal cavity. It cannot be removed because of its load-bearing function. The
nerve sac is the stippled triangle in the middle of the vertebra, each nerve
a black dot oating in white spinal uid. The nerve sac has ample room
to accommodate the bundle of nerves and the surrounding uid.
In the cross-section of the compressed spine, the nerve sac is attened
and the spinal uid squeezed out so the nerves have no room, causing
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Vertebral
body
Nerve
sac
Roof
Normal
vertebra
Compressed
nerve sac
Decompressed
nerve sac
Decompressed nerve sac

and fused vertebrae
FIGURE 11.1 Cross-sections of spine
Source: Roy Prichard, Ofce of Communications, University of Texas Medical School,

Houston.
back pain, leg pain, and weakness. The decompression procedure involves
removing the roof. As a result, the nerve sac bulges out of the new opening, and the uid level bathing the nerves is restored. As surprising as this
seems, only a few patients suffer weakening of the back as a result of such
decompressions.
Decompression with spinal fusion goes a step further. Large screws are
placed into the vertebrae. At least two pairs of screw heads are inserted,
one set in each vertebra. The screws in the successive vertebrae are held
together from top to bottom by steel rods attached to the screw heads. Bone
from the hip is molded around the screw heads, and over time the bone
grows together. The hardware alone is insufcient to stabilize the spine.
Figure 11.2 shows the view of a lower back from behind as if looking at
someones back. On the left is a normal spine with the roof covering the
spinal sac. The section marked decompression shows what the surgeon sees
Screws
Rod
Nerve sac
Source: Roy Prichard, Ofce of Communications, University of Texas Medical School, Houston.
FIGURE 11.2 Surgical spine procedures on the low back
Sacrum
Roof of spine
Roof of spine
removed
Nerve sac
With decompression
and fusion
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Vertebrae
Nerve sac
With decompression
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Normal spine (low back)
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after removing the roof of the spine that compresses the spinal sac. The
section marked decompression and fusion shows the surgeons view after
screws and rods are added to the decompression. The internally implanted
devices hold the spine immobile while the bones grow together. Without
the stability provided by the hardware, the fusion rate is low. The hardwares contribution to surgery was to dramatically increase the rate at
which bone implanted in the back turns into a solid fusion.
It is not difcult to understand why a surgeon would be paid more for
a decompression and fusion than for a decompression alone: the procedure involves more than twice the work. But one of the rationales for fusing a back without a slippage is faulty, and the other is unproven. One
common justication for fusion and decompression of the low back is to
prevent the decompressive surgery from destabilizing the spine. But only
about 2 percent of decompressions weaken the back, and the complication rate of fusion is several times higher than thatwith the side-effect
of leaving the patient with an immobile spine. Knowing those odds, who
would want this operation?
Another more common rationale for fusion is the assertion that eliminating the spines ability to bend and turn will relieve pain, an untested idea
and the one used to justify Jennifer Allens surgery. The opposite may as
likely be true: fusion in people without slippage may cause low-back pain.
Nearly one in ve adults has back pain sometime during a one-year
period. One-third of asymptomatic individuals over forty years of age have
degenerative changes in their cervical spine. A 1994 study showed that 64
percent of people without back pain show degenerative changes in their
low backs on MRI. Only 6 percent of women and 1 percent of men have
slippage of the bones in their back, and many of them have no symptoms.8 The human spine is therefore a fertile area for surgeons with an
operation to cure back pain, no matter that the proven indications are
narrow.
My analysis of U.S. hospital data shows that, in 2005, 44 percent of
the patients who underwent back fusion had either a slippage or a traumatic injury. The remainder underwent back fusion for unproven indications. Cervical fusion has never been studied in the way that lumbar
fusion for spondylolisthesis has, yet cervical fusions made up about 40
percent of all spinal fusions performed in 2005. So in that year 62 percent
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of patients who had spinal fusion surgery (250,362 people) underwent a

major procedure that has never been subjected to adequate testing of efcacy for many of the affected patient groups. Undoubtedly many of those
surgeries were benecial, but no one knows how many and in whom
because no one has ever denitively asked whether or not patients with
degenerative conditions of the low back but without fractures or slipped
vertebrae and patients with neck pain but without neurological decits
benet from fusions.
Powerful nancial stimuli drive these operations. For decompression
of the back or neck, commercial insurance pays a surgeon approximately
2,500 dollars; for neck fusion with decompression, 6,000 dollars; for back
fusion with decompression, 10,000 dollars. The growth in the number of
fusions performed is stimulated by outsized payment rates to doctors,
hospitals, and the medical device industry, rates that far exceed those for
decompression. Growth is also fueled by the perception of improved
patient results from the larger procedures, and nancial incentives are
a powerful motive for such perceptions. One group of venture capital
investors projects that the number of spinal fusions will increase to 1.1
million in 2014 with sales increasing tenfold to 25 billion dollars per year,
enough to fund insurance for one-quarter of the countrys uninsured in
todays dollars.9
The nancial interests of doctors, hospitals, and device manufacturers, along with the lack of scientic information, have produced a surgical epidemic of spinal fusions. Indeed, the number performed in the
United States more than tripled in the decade from 1996 to 2005, with
91,375 in 1996 and 331,674 in 2005. At the same time, the number of
decompressions fell by 16 percent. This shift has increased the overall cost
of spinal surgery from 1.6 percent of hospital charges in 1996 to 3 percent
in 2003. Figure 11.3 graphs decompressions and fusions as a percentage of
all U.S. hospital charges from 1993 to 2005, a period when simple spinal
decompressions decreased as decompressions with fusions increased.
Spinal fusions carry signicant risk for patients, including failure of
fusion, nerve injury, and wound infections. Patients hospitalized for such
procedures are also prone to complications such as bladder and bloodstream infections and reactions to medications. In 2005 hospitals charged
about 6 billion dollars for admissions for back fusion without complication
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2.5
Percent of U.S. hospital charges
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er
rg
1.5
1.0
sio
su
Fu
Decompressive su
rgery
0.5
0.0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
FIGURE 11.3 Spinal surgery as a percentage of U.S. hospital charges
Source: Authors compilation of data from the Agency for Healthcare Research and
Quality, Hospital Cost and Utilization Project, Nationwide Inpatient Sample,
19932005.
and the same amount for hospitalizations with some hospital-acquired

complication.10 The conclusion is that many patients are being subjected
to major fusion surgeries for which there is no proven justication and
that result in a high rate of complications during hospitalization.
Procedures of Marginal Benet

The coronary arteries are blood vessels the size of a pencil that feed blood
to the beating heart. A patient becomes aware of blockages in the coronary arteries in two ways: through a heart attack or through chest pain,
called angina. Twenty years ago, an open-heart surgery called coronary
artery bypass surgery was the only way to treat such blockages. By 1992
new catheter techniques were treating as many blockages because these
newer procedures were far less invasive and safer. By 1996 the number of
bypass surgeries began to fall, replaced by catheter procedures.11
Catheter techniques cost one-third less than coronary artery bypass
surgery does; but while they do not carry many of the risks of open heart
surgery, they do not keep the blocked arteries open as long as surgical
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bypasses do.12 To accomplish the procedures, a catheter is inserted in an

artery in the groin and threaded up through the internal blood vessels
under X-ray guidance until the tip of the catheter enters the coronary
arteries. Devices on the end of the catheter are used either to dilate the
blocked artery in the heart or to place a stent to hold it open.
Either a catheter procedure or coronary artery bypass surgery is benecial in patients who have just had, are having, or are about to have a
heart attack, if such treatment is quickly provided. There is no debate in
cardiology about that fact. But for more than ten years the use of catheter
procedures in patients who have chest pain with exertion but are not having a heart attack (called stable angina) has been in question. Such
patients typically have no chest pain at rest but after walking a variable
distance get chest pain because the blood ow to the heart is restricted
and is insufcient as the heart does more work. When they sit down the
chest pain goes away.
A number of randomized clinical trials (half the patients being treated
with surgery and half medically) compared the effectiveness of diet, exercise, and drugs that lower cholesterol with the use of surgical or catheter
procedures for stable angina. These studies all used much less rigorous
and effective medical management than is available now. This comparatively weak medical management should have given catheter procedures
the advantage, but none of the studies showed that the procedures
decreased the risk of heart attack or death.13 Catheter procedures relieved
angina (the chest pain with exertion) faster than weak medical management did. That was the procedures only potential benet.
One might think that the invention of a procedure one-third less
expensive than coronary artery bypass surgery would have reduced the
cost of treating heart disease. If medicine were like the car industry,
where new technology lowers cost, it would have. Yet although the incidence of more expensive heart bypass procedures has decreased, the
overall cost of treating heart patients has gone up, not down, while the
mortality rate from heart disease has remained unchanged.14
I examined data from hospital admissions for heart catheter procedures from 1996 (at which date they were well developed and widely
employed) through 2005. I divided hospital admissions into two categories:
catheter procedures for patients admitted with a current or imminent
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Hospital admissions (in thousands)
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500
475
450
425
400
375
350
325
300
275
250
225
200
175
150
125
100
75
50
25
0
Marginal benefit
Proven benefit
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
FIGURE 11.4 Number of U.S. hospital admissions with coronary catheter procedures
Source: Authors compilation of data from the Agency for Healthcare Research and
Quality, Hospital Cost and Utilization Project, Nationwide Inpatient Sample,
19962005.
heart attack (proven benet) and those for patients admitted with stable
chest pain (marginal benet).15 Figure 11.4 shows the number of U.S. hospital admissions for both types of patients. Since 1996, the number of
catheter procedures performed for stable angina has remained at double
the number performed for heart attacks, suggesting that the indications
for performance have changed little over a long period of time, despite a
decade of randomized trials showing that catheter procedures for heart
attack have effect on the rate of heart attack. The gure illustrates why
new technology, even if it is less expensive and more effective than older
technology, increases the cost of medical care.
On March 27, 2007, a group of investigators funded by the Veterans
Administration published a study of 2,287 patients with stable angina
from heart disease. They compared aggressive medical management plus
the most advanced catheter procedures available versus aggressive medical management alone. Like all previous studies, this one found no difference in the future rate of heart attack and death.16 Catheter procedures
decreased the percentage of patients with symptoms of angina by 13 percent in the rst year. (Sixty-six percent of medically treated patients still
had anginal symptoms versus 58 percent in the group treated with
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catheters.) This small effect decreased each year, and by ve years there
was no difference in the rate of angina between the two groups.
Like all previous studies, however, these ndings are not likely to have
a great effect on the proliferation of these expensive procedures. According
to the Washington Post, the cost of each of the catheter procedures is 50,000
dollars.17 More than 484,000 catheter procedures of marginal benet were
performed in 2005, with a total cost of 25 billion dollars. Now consider the
situation of the State Childrens Health Insurance Program (SCHIP), which
is similar to Medicaid and provides health insurance to poor children. In
2007 the program only had enough federally allocated money to cover
about 70 percent of eligible children, leaving 2 to 3 million uninsured but
eligible children unenrolled in the program. The annual cost to the federal
government of insuring those missing children plus all eligible children for
one year is about 12 billion dollars. A bill to fully fund this program was
vetoed twice by President George W. Bush. In 2007 the bill failed to pass the
House and the Senate with a veto-proof majority primarily because of the
cost, leaving at least 2 million children eligible for coverage but without
enough money to cover them. How is it right that so much money was
wasted on procedures of marginal value while there was not enough money
to insure poor children? Medical waste in the form of unnecessary procedures is an issue of justice as well a disservice to those who undergo them.
Later in this book I will propose steps to decrease the rate of dissemination of such procedures. But I will not propose that any third party
insinuate itself between the doctor and the patient in judging who needs
procedures that are likely to have marginal benet; such matters are not
always black and white. For instance, in some clinical trials, as many as 60
percent of patients with angina have symptoms so severe that they cannot
walk over two blocks without chest pain. Many but not all can be treated
effectively with medical management. After weighing the complication
rate of the catheter procedure, which is a 0.4- to 4.9-percent rate of heart
attack, against a chance of being free of symptoms, those with severe
symptoms might opt for surgery.18
Why are doctors and hospitals so aggressive about promoting poorly
evaluated procedures and those with marginal benets over medical management? The reason is the perverse nancial incentives provided by feefor-service medicine and unexamined medical practice.
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Perverse Payment Incentives
Fee-for-service medicine combined with poorly evaluated technology has produced a medical arms race.
Medicare and private insurance pay doctors for each service they provide, no matter the circumstances or the results. Both have historically
controlled their costs by setting the price they will pay doctors per service
and then cutting prices across the board when the number of services
becomes excessive (regardless of whether the services are required by the
patients condition or are just medical waste). This fee-for-service payment system has created perverse incentives in medicine. It could also be
called fee-for-process.
Everyone is familiar with how cars are priced. But what if cars were
priced like health care services? Imagine that each step involved in making a car is priced at a xed rate, as each medical service is priced by
Medicare. Rather than paying for the car itself, each consumer pays for the
number and the complexity of processes that went into making the car:
the more complicated and numerous the processes, the higher priced the
car. Do you think a car manufacturer would produce a car as efciently as
possible or try to exploit such a payment system by adding processes?
Manufacturers of cars produced under a fee-for-process payment system would drive up car prices by adding unnecessary steps until cars
became unaffordable. If the car industry were like Medicare, then the government would be forced to take action to limit the prices that manufacturers can charge for each process so that the public can afford to buy
cars. The car industry would then respond by adapting its manufacturing
so that the steps in making a car are more complex and numerous. This
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P E RV E RS E PAYM E N T I N C E N T I V E S
121
escalation of processes would continue until the cost of cars became

unsustainable. Government price cutting could never keep up with the
innovative ways that car manufacturers nd to inate the number of their
processes and invent new ones. Cars might get steadily better, like health
care has, but their cost would be out of line with their quality, as health
cares has become.
This is the model that the United States and many other countries use
to pay for health care services, and it makes no more sense in the medical
industry than it would in the car industry. The fee-for-service payment
system is a relic of a time when doctors could not do much to help
patients. It is unsuitable for a twenty-rst-century medical industry in
which new technology is being rapidly created and indiscriminately
applied at about the same rate of speed.
Figures 12.1 and 12.2 make three important points: (1) price cutting
in fee-for-service medicine never controls health care costs for long,
(2) federal intervention is the only action that has ever controlled health
care costs even temporarily (except for managed care), and (3) there is
little performance difference between Medicare and private payers.
Figure 12.1 graphs the annual rate of escalation in Medicares cost per
beneciary, adjusted for ination over thirty-two years, beginning in the
rst year for which there is data. The programs growth is a seesaw pattern
of declines (when federal action reduces prices) and rebounds (as
patients are subjected to more medical interventions).
In 1971 Medicare costs decreased when the Nixon administration
applied price controls to the broad economy, including Medicare.
Program spending quickly rebounded when the disabled poor were covered in 1972. Its growth remained in double digits until 1979, when the
Voluntary Effort brought cost escalation down. This effort, which took
place between 1978 and 1980, was the hospital industrys response to the
Carter administrations threat to impose federal price controls to reduce
hospital prices. In this period Medicare paid doctors and hospitals reasonable and customary charges: that is, it paid whatever they charged
unless the costs looked crazy. In 1983, responding to a resurgence of cost
escalation, Congress xed the prices that Medicare paid to hospitals; and
in 1992, it xed the prices paid to doctors. Hospitals and doctors responded
by increasing the number of interventions to Medicare beneciaries, and
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12
Permanently disabled covered

10.3
10
8.6
7.5
5.7
6
Percent
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4
2
0
2
1.9
Wage and
price
controls
4
6
8
1.7
Voluntary
Effort
1.3
1970
1975
1980
1.0
Fixed
payments
to hospitals
1985
Fixed
payments
to doctors
1990
1.4
Price cuts to hospitals
and nursing homes
1995
2000 2002
FIGURE 12.1 Annual changes in Medicare spending per beneciary with federal
actions
Source: Authors compilation of data from the Centers for Medicare and Medicaid
Services, Per Enrollee Expenditures and Growth in Medicare Spending and in Private
Health Insurance Premiums: Calendar Years 19692004 (Baltimore, 2005); Louis D.
Johnston and Samuel H. Williamson, The Annual Real and Nominal GDP for the
United States, 1790Present (Oxford, Ohio: Economic History Services, October
2005), http://www.eh.net/hmit/gdp/.
cost escalation surged until 1997. The Balanced Budget Act of 1997 cut the
prices that Medicare paid to hospitals and nursing homes, bringing the
programs cost growth into negative numbers. This legislation, combined
with the payment cuts of managed care during the 1990s, precipitated the
emergency room failures we experience today.
I once imagined that insurers and businesses that operate in a competitive market were more nimble than federal or state governments in
controlling their health care costs. I thought that large employers that do
business in a globally competitive world understood how to create a competitive environment for medicine. On the contrary, with the single exception of managed care in the 1990s, only government intervention has
decreased the growth of private insurance spending, just as it did in the
Medicare program. And in the same way, after each round of price controls, doctors and hospitals just increased the number of interventions
they provided to patients, meaning that prices were never controlled for
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9.0
8
8.3
6.7
123
Average annual
change in private
per capita
national health
8.9
spending,
adjusted for
inflation (3.7%) 6.4
12
7.0
6.0
4.9
Percent
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4
3.5
3.8
2.9
1.1
0.2
Voluntary Effort
1.5
Wage and
3.0
4
price controls
Medicare and
medicaid implemented
8
0.9
1.9
0.5
1.2
Managed care and
threat of health reform
1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2004
FIGURE 12.2 Annual changes in private per-capita national health spending with
federal actions
Source: Kaiser Family Foundation, Trends and Indicators in the Changing Health Care
Marketplace (Menlo Park, Calif., May 2005).
long. Figure 12.2 graphs the annual escalation in private insurance spending over forty-two years.
The rst decrease in private spending came with the 1965 creation
of Medicare and Medicaid during the Johnson administration. Private
health insurance spending fell because businesses no longer bore the full
costs of their retirees health care. The wage and price controls of the
Nixon administration brought down private health care spending, just as
they did for Medicare spending. Except for a period during World War II,
this was the only time that economy-wide price controls were ever
applied. They lasted until 1974, and the reduction in health care cost
escalation also lasted only that long. The hospital industry dismantled
its self-imposed Voluntary Effort in the 1980s, and health care ination
rapidly escalated.
The governments next initiative, the proposed Health Security Act,
took place during Bill Clintons administration and was an effort to implement federally mandated managed care coupled with mandated insurance coverage of the entire U.S. population. The act was a creation of
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health care economists, who estimated that health care costs could be
reduced by 30 percent if they were managed. Of course, they were right.
The Health Security Act did not become law because of Republican
opposition, political mismanagement, a 50-million-dollar advertising
campaign by the health insurance industry, physician opposition, business opposition, and public fear of allowing a new unresponsive federal
bureaucracy to manage their health care. Still, it had sweeping effects on
the private insurance market because it stimulated the rush to cut health
care prices in the name of managed care. Nonetheless, health care prices
were muted for only a few years.1
Those who fear any form of government intervention in controlling
health care costs should look at history. No other action has ever managed the cost escalation of either government- or privately nanced
health care. Those who think that fee-for-service medicine is a sustainable way of paying doctors should consider its forty-year record in
Medicare and Medicaid. And those who believe that the private insurance
industry as it currently functions controls cost better than governmentnanced health care should compare the two. There is not much difference. Clearly, we must regure how doctors and hospitals are paid and
how the insurance industry functions.
The question of how to reduce health care cost usually devolves into an
argument over a single-payer versus a private health care market. However,
that is the wrong question. Based upon the past history of Medicare and private insurance, neither public nor private payers have been able to manage
a cost that grows at double the rate of the economy. The critical questions
are what services are paid for and how providers are paid for providing
them. Paying doctors and hospitals by fee-for-service with price cutting to
manage cost has not only failed to control health care cost, it has devalued
primary care and produced a destructive change in the culture of medicine.
Caught in the Middle

Since my childhood, I have wanted to invent new treatments for diseases.
I was attracted to surgery and research when I was in high school. After
thirteen rigorous years of college, medical school, and residency, I found
myself at age thirty with a wife, beautiful both inside and out, who had
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dedicated herself to supporting me and the lives of our children. Within

the next ten years we had a household of ve children, making our home
life eventful and dynamic. Looking back, I see that my marriage and children were my best accomplishments; but throughout those years, I also
remained committed to my work.
My rst job was at Ben Taub Hospital in Houston, a public facility. For
the next decade I worked in either public or Veterans Administration hospitals as a medical school faculty member. In these settings I was free to
develop treatments for neurosurgical diseases as well as to operate without the time constraints of private practice. My work allowed me to apply
for federal and private grants, pursue research studies, yet maintain a
steady operative schedule. I focused on treatments for patients in coma
from brain injuries and those with severe spinal cord injuries. These jobs
paid about half of what I could have made in equivalent private-practice
neurosurgery. I regularly worked eighty or more hours each week, while
my wife took primary responsibility for raising the children and managing
almost every other part of life at home. Few would have endured what she
did in those years.
I did have some success in developing treatments and am still conducting a clinical trial that tests the cooling of patients with brain
injuries. My studies during those years allowed me to y all over the world
presenting my data and teaching new methodologies to other physicians.
At age forty, however, I found myself with ve growing children, no retirement income, no savings, a low-paying neurosurgical job, and no opportunities to increase my salary.
I decided to take a job managing an academic department at the
University of Texas Medical School in Houston, with the idea that I could
pursue research but also double my income by performing a lot of surgery.
I calculated how many cases a year would be required to bring my income
to a level that would allow us to live near the hospital in a nice home, pay
for top-notch education for our children, and yield enough savings for a
comfortable retirement. We never had a second home, live-in help, or
country-club memberships.
I spent four years working at this pace. Then managed care hit
Houston, and I found that two hundred operations per year (a typical busy
neurosurgeons caseload) suddenly yielded one-third less income than it
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had before the advent of managed care. So I worked harder, increasing my

caseload by a third, a pace that taxed both me and my family. My colleagues and I felt used, especially when we realized that this unexpected
reduction in payment rates was permanent.
In those years I was doing a great deal of epilepsy surgery. Many
patients who suffer from poorly controlled epilepsy can be cured by surgery
that removes the section of the brain that generates the seizures. Because
this section is usually already damaged, it can be safely removed without
causing loss of function. After surgery, the patients would come back to the
clinic freed from years of debilitating seizures. They would often hug me,
and we would chat about how they were adapting to their new life. I loved
the surgery and the patients because people who have survived with disabilities view risk and adversity through a unique lens. They take in stride
what would destabilize people who have never lived with a disability.
These operations, however, took about ve hours to perform. Because
most of the patients were on disability and therefore insured by Medicare
or Medicaid, the arduous surgeries paid poorly; and as a result, my income
fell substantially. With real anguish I abandoned epilepsy surgery, giving it
to another doctor who then performed many fewer such surgeries per year
than I hadprobably for the same reason I had dropped it.
I knew that I could more than double my revenues per hour of surgery by performing spinal fusions yet still have time for research and to
see my family. So I focused on spinal surgery of the neck. Did all the neck
fusions I performed help the patients? In the short term, I thought they
did. I never knew for sure because, as is usual practice, I only saw the
patients for about three months after surgery. Even more importantly,
I never knew because there were no data comparing the long-term results
of fusion surgery with decompressive, nonfusion surgery. The patients
clearly had less postoperative pain from fusion surgery than they did from
decompressive surgery, and fusion surgeries paid twice what nonfusion
surgery did for the same hours worked.
The fee-for-service payment system inherently compels the promotion of poorly evaluated medical procedures, and efforts to control health
care costs by reducing fee-for-service payments only accelerates the proliferation of these procedures. I saw this in my own practice, and my
behaviors were mirrored by those of other neurosurgeons and specialists.
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I never operated on a patient who, in my judgment, did not need surgery.

Nor do most surgeons. But our medical judgment may not always be as
objective as we like to believe.
Health economists calculate that a reduction in Medicare fees results
in only 50 percent of the expected decrease in Medicare revenue to physicians. The reason is that doctors perform more procedures and choose
more complicated procedures to make up for the lost revenue from the
fee reductions.2 The phenomenon applies even to major surgery. For
example, reducing the fees for orthopedic surgery, thoracic surgery, and
obstetrics/gynecology only yields 25 percent of expected savings because
surgeons perform more procedures in response.3 As payment rates go
down, it is not unusual for doctors to operate on patients they otherwise
would not in order to make their house payments. This may not be a
deliberate act but a subtle shift in judgment. If doctors knew which procedures work in which patients and reported their patterns of practice,
such biases would be less likely.
Unhappy U.S. Doctors

Managed care in the mid-1990s reduced health care costs primarily by
cutting payments to doctors and hospitals. But when it was dismantled
near the end of that decade, its effects on physician incomes remained:
doctors had received a permanent pay cut. Hospitals consolidated to
counter their low payments, but doctors remained solo or in small group
practices and did not have enough leverage with insurers to negotiate
their fees back to previous levels.
Although specialists earn on average 2.5 times more than primary care
doctors do, the income of generalistsfamily practitioners, internists, and
pediatriciansincreased by about 7 percent between 1990 (before managed
care) to 2005 (fteen years later). But this required considerable work. The
way to make money in medicine is to perform procedures, and specialists
are not the only doctors who can perform them. Primary care doctors did
not increase the number of patients they saw in clinics, but they more than
doubled the number they hospitalized and the procedures they performed
over the fteen-year period.4 Performing procedures and hospitalizing
patients rather than referring them to a hospital-based specialist may disrupt
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TABLE 12.1
Generalists Income and Annual Workload
Mean income
(in 2005 dollars)
Number of clinic visits
Number of hospital
encounters
1990
1995
2000
2005
$168,835
$181,319
$176,868
$180,490
4,553
4,529
4,307
4,182
341
680
917
841
Source: Medical Group Management Association, Physician Compensation

and Production Survey (Washington, D.C., 1991, 1996, 2001, 2006).
TABLE 12.2
Specialists Income and Annual Workload
Mean income
(in 2005 dollars)
Number of clinic visits
Number of hospital
encounters
1990
1995
2000
2005
$475,237
$455,431
$450,116
$460,464
1,975
1,880
1,863
1,882
538
1,125
1,284
1,193
Source: Medical Group Management Association,

Physician Compensation and Production Survey
(Washington, D.C., 1991, 1996, 2001, 2006).
an ofce-based practice, but it is also more lucrative. Table 12.1 illustrates

the mean income of primary care doctors in 2005 dollars (adjusted for ination) and their median number of clinic visits in 1990, 1995, 2000, and
2005. It also shows that the number of hospital encounters and anesthesia
cases, which I use as a proxy for procedures, more than doubled.
Like primary care doctors, specialists tried to keep their incomes on
par with ination: they more than doubled their number of procedures
and hospitalizations between 1990 and 2005. Nonetheless, their incomes
fell. Table 12.2 shows average salaries of cardiologists, gastroenterologists,
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cardiovascular surgeons, and general surgeons and workload from 1990

to 2005, following the same format as table 12.1.
The Center for Studying Health System Change examined physician
income in twelve U.S. cities and found that their average income, adjusted
for ination, fell 7 percent from 1995 to 2003. Other professionals such as
lawyers, however, saw a 7-percent increase in ination-adjusted income
during the same period.5
One-third of primary care doctors are unhappy with the practice of
medicine because they are disgruntled about not being paid enough to do
what they were trained to do: manage patients in the clinic. But why are
40 percent of surgeons with a 460,000-dollar average income unhappy
with the practice of medicine? 6 Judging from my own reaction and that of
my surgical colleagues, they feel like rodents on a wheel, and the wheel
wont turn any faster. But I also believe that a change in the culture of U.S.
medicine explains why so many doctors are unhappy with their practices.
A Business Culture
Medicine has developed into a business culture, one in which the business of medicine has trumped the vocation. This phenomenon reects
the American consumer society in which doctors live and practice. It is
also driven by the attitude of patients who view themselves as consumers
of medical services rather than patients of a given doctor.
The problem started with managed care in the mid-1990s. Managed
care arrangements always featured patients restricted access to a small
group of doctors, a feature that aided in cost control. Unfortunately, many
patient-doctor relationships that had developed over years were abruptly
severed. I remember sad conversations in which I advised long-time
patients whom I had come to know personally about which neurosurgeon
on their new plan would take the best care of them. The sudden reduction
in fees and abrupt patient displacement broke a nancial and social contract between doctors and patients all over the United States.
A severing of accountability and responsibility accompanied this new
relationship, rst evidenced when specialists began to refuse to take
emergency call. Since my training days, there had been an unspoken
understanding that staff doctors at a hospital took call for emergencies
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every night, weekend, and holiday of the year. It was part of our job to
keep the emergency room covered by each specialty all the time.
But call has downsides that go beyond simply being in the hospital
when most people are home with their families or asleep. The patients
whom surgeons admit when they are on call are usually in a critical state
and may remain in the hospital for days or weeks. Many are uninsured.
Surgeons on call only earn signicant income when they operate on
insured emergency patients, and surgery accounts for only a small part of
on-call work; most time is spent going in and out of the emergency room
to evaluate either a mortally wounded patient who cannot be helped or
someone who proves to have a minor injury who does not need help.
When I took neurosurgery call, these evaluations went on day and night,
and they were exhausting. Another deterrent is the belief among surgeons
that a doctor is more likely to be sued by emergency patients than by
patients who come through the ofce, though the evidence, at least in
neurosurgery, is to the contrary.
But regardless of these downsides, we were all trained to take call,
and the job had to be doneuntil sometime in the late 1990s, concurrent
with fee reductions, when surgeons and other specialists concluded that
it did not have to be done. When the Texas emergency services system
imploded during the middle of the 2003 legislative session, a crisis that
led to passage of a bill funding uninsured trauma care, hospitals refusal
to meet neurosurgeons demands for substantial on-call payments in
three different Texas cities had precipitated a simultaneous near-closure
of several trauma centers. The hospitals were already faced with losses
from uninsured trauma care and balked at accepting the new, large,
ongoing expense of paying doctors to take call.
The problem is national in scope. For example, one morning in 2004
I received a telephone call from a representative of a hospital in Orlando,
the only level 1 trauma center in all of central Florida. The hospitals
entire neurosurgery staff had refused to take call unless they were paid
3,000 dollars a day at a yearly cost of 1.1 million dollars to the hospital.
A major trauma center cannot function without neurosurgeons, so their
ultimatum to the hospital was to either pay or close to trauma. I advised
the hospitals administrators to meet the demand because they would
have difculty recruiting neurosurgeons to replace this group. The
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administrators knew that if their hospital closed to major trauma, central

Floridas large population would be left without this essential service.
I was taken aback to realize that the neurosurgeons were prepared to let
that happenanother manifestation of a business culture in medicine.
According to a 2007 report, specialists refusal to take call in twelve
large cities nationwide is steadily worsening. The death or disability of
21 percent of patients injured by delayed emergency-room care has been
attributed to the absence of on-call specialists.7 What has happened to
the Hippocratic oath?
Conict of Interest
A second telephone call removed any doubts I may have had about
whether or not the business of medicine has trumped vocation. In 2004
a friend who is a spine surgeon called me to say, Guy, have you heard
about the new spine hospital that is going up? I had not, so he continued,
If you put in 40,000 dollars, you can make 40,000 dollars a month from
owning a share of the hospital. Most of the doctors you know are going
in as partners. He then gave me a long list of some of the busiest neurosurgeons and orthopedic spine surgeons in Houston.
I asked, Whats the downside?
He responded, Its unlikely to fail, but we would all be on the hook if
it should.
My next question was Do I have to operate on my patients there?
After a long pause he said, You dont have to, but you would probably want to.
He said this because he knew that a physician-owned specialty hospital has several advantages for its doctor-owners. Efciency of practice
drives physician ownership of hospitals at least as much as direct nancial incentives. A surgeons life revolves around access to the operating
room, and a surgeon can usually perform several times more surgeries per
day in a hospital he or she owns. Another attraction is that most doctors
believe that nursing care is better in physician-controlled hospitals. Also
by operating in hospitals they own, doctors can avoid taking care of the
uninsured: the emergency rooms of such hospitals exist in name only.
Finally, physician-owned hospitals are lucrative.
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After several specialty hospitals opened in Houston, the operating

rooms at our hospital became unusually quiet because many orthopedic
surgeons and neurosurgeons had moved their practices to their own specialty hospitals. The exodus had two effects: less revenue for the hospital
to shift to the cost of care of uninsured emergency patients and more
trouble covering the call schedule. Community hospitals, of course,
strongly oppose physician-owned specialty hospitals.
Specialty hospitals concentrate on the same high-prot procedures
that full-service hospitals covet, such as orthopedics, spine, and cardiac
procedures. Seventy percent of them are physician-owned.8 The prots
from these facilities can double a surgeons income. Insurance pays the
doctor for the surgery and then pays the hospital for use of the facility
(usually about twice the amount of the surgical fee). I know of a number
of surgical groups that make at least 60 percent of their income from the
facilities they work in and own rather than from the surgical services they
perform. But the procedures feed the overall prot margin, thus creating
a double incentive to care for insured surgical candidates rather than the
low-margin chronically ill or uninsured.
Physician-owners of specialty hospitals have maintained that such
nancial incentives do not cloud their clinical judgment. Yet a March 2007
report in the Journal of the American Medical Association found that the
opening of a cardiac specialty hospital more than doubled the rate of cardiac procedures on Medicare patients within four years of its opening.
According to the investigators, the opening of a physician-owned hospital
accelerated performance much more than did the opening of new cardiac
units in a non-physicianowned general hospital in a community.9
I was acquainted with almost all of the surgeons who invested in the
new hospital in Houston. I knew some to be highly skilled and prone to use
exceptionally good judgment. I knew others who operated at the mere
mention of pain; their patients never knew about alternatives such as therapy or medication or learned if a simpler procedure would sufce when a
major one was offered. I thought the allure of being paid twice might tempt
good surgeons to fall into the second category. I did not invest.
Proven overuse of services in certain physician-owned facilities precipitated passage of the Stark Law in 1989, which prohibits physicians
from referring Medicare patients to facilities in which they or family
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members have ownership if those facilities provide laboratory services,

physical or occupational therapy, radiology, or radiation therapy. There
are few other restrictions on physician ownership of facilities because,
when these laws were passed, there were only data relating physician
ownership to overuse of these services. Quite a bit has changed since
1989, though the law has not.
I interviewed two radiologists from a western state who told me what
had happened to their practices. Orthopedic surgeons are now getting into
the radiology business. Although it is illegal for doctors to refer their
patients to outside radiology facilities that they own, it is legal for a doctor
to install imaging in his ofce and refer his patients for studies there. One of
the radiologists told me about a large orthopedic group in her community:
The orthopedic surgeons buy cheap MRIs [which also produce
poor-quality images] and then image their patients in their ofce.
Now my husband is an orthopedic surgeon, and he will not image
anyone with a painful knee unless the pain persists for at least
three weeks. This group of orthopods immediately images anyone
who comes to their ofce with a sore knee. They send the images to
us to be read after collecting the technical fee. The images are so
poor that if they sent a patient to us and we gave them an image
like that, they would be howling. Our imaging volume is down
because so many surgeons are doing this.
Another setup for conict of interest is ambulatory surgery centers

that offer minor surgical procedures or invasive diagnostic tests in an outpatient facility. Medicare pays ambulatory surgery centers less than it
would a full-service hospital for the same procedure because their overhead is lower. The longest patient stay in such centers is overnight.
The growth of ambulatory surgical centers has been astronomical: in
2003, there were 3,375, and physicians had ownership in at least 80 percent of them. In comparison, there are about 5,000 hospitals in the
United States. The percentage of surgical procedures performed in outpatient facilities has tripled in the past two decades, and Medicare payments to ambulatory surgical centers have tripled in one decade.10 Does
this growth rate show that procedures are being performed in efcient
ambulatory surgical centers rather than in more expensive full-service
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hospitals? Or are the physicians who own these centers telling their
patients what medical services should be performed in them? Is their
growth fueled in part by the performance of procedures that have questionable value?
Physician-owned ambulatory surgical centers increase the total volume
of outpatient surgeries in a community by about 9 percent. Further, the procedures performed in them have not slowed the growth of Medicares cost
or the frequency of hospitalization per beneciary.11 How many procedures
performed in physician-owned ambulatory surgery centers are necessary?
How many are not? The answers are unknown, but the data raise the suspicion that the number of unnecessary procedures could be signicant.
The problem of conict of interest extends to all forms of medicine,
including cancer care and treatment of kidney disease. Doctors buy drugs
for cancer and kidney failure, mark up the price, and then administer
them to patients in their ofce. The prots from drug administration
often account for the majority of cancer doctors income. Questions have
long been raised about the appropriateness of care rendered with such
nancial incentives. A study of Medicare patients in Massachusetts and
California found that one-third of cancer patients received chemotherapy
in the last six months of life and that patients with cancers known to be
unresponsive to chemotherapy (that is, the drugs were useless for slowing
the cancer) were as likely to receive chemotherapy as patients with cancers known to be responsive to this treatment.12 A New York Times story
reported on a group of six cancer doctors who received 2.7 million dollars
in rebates for prescribing 9 million dollars in drugs administered. A similar pattern of apparent overprescribing and huge rebates occurs in the
treatment of anemia for renal failure.13
Conicts of interest clearly drive medical waste, and so does fee-forservice medicine. It is against human nature for doctors to practice efcient medicine when they are paid so well for inefcient medicine.
Several reforms are needed, but one is paramount. The payment system
must be changed so that a doctor who is managing a patient shares in the
savings from efcient, high-quality medical practice (better outcomes)
rather than prots from inefcient practice (more use). Inefcient doctors should lose money in such a payment system. A core purpose of this
book is to show how to accomplish this goal.
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A Hardening of Attitude: Medical Malpractice

If payment trends were not enough to change doctors thinking, in 2002
the United States entered a period of rapidly increasing medical malpractice premiums. No neurosurgeon could write about medical malpractice
suits with detachment because almost all of us have had some experience
with these claims. For fteen years of medical practice, I was never named
in a lawsuit. Then in 1990 I moved my family to Houston, unaware that the
city was regarded in Texas medicine as a hotbed of medical malpractice
litigation. My rst suit came in 1992, and it was frivolous. Nonetheless, it
occupied my attention and stole my time intermittently for a year. I was
subsequently sued several other times (all suits were eventually dropped),
culminating in a week in court in 2001.
My debut in court was a lawsuit by a patient who had rolled into my
clinic partially paralyzed in a wheelchair. Six months after I performed a
complicated operation through his chest to remove pressure on his spinal
cord, the man walked and returned to work. But even though he was
cured, he led suit because another of his doctors, an internist, had misread his postoperative X rays and then mischievously told him that I had
operated at the wrong level.
The lead plaintiffs attorney was a large, imposing, and well-spoken
man. I will never forget his opening statement. He rocked back on his heels,
hands on his hips, and solemnly pronounced to the prospective jurors, It
was to be a normal day in the operating room but then things went badly
wrong. . . . Listening to his turgid introduction, I imagined I was on the set
of B movie until I realized he was talking about me. Four days later, after
forty-ve minutes of deliberation, the jury found in my favorbut not
before the patients attorneys claimed that I was not only derelict in my duty
and incompetent in my technique but had also directed a conspiracy among
the operating-room staff to suppress the truth about my so-called error.
After this weeklong ordeal, I began to look at patients rst as potential lawsuits and second as patients. I could not help it: my practice
changed and my attitude hardened as a result of medical malpractice
suits. I became more careful in recording details in the medical record;
but rather than altering how I took care of patients, I altered what I was
willing to do for them. I often avoided patients who needed risky
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operations. So while I labor to consider the issue of medical malpractice

litigation dispassionately in this book, I approach the problem from the
perspective of a practicing doctor who has always viewed most such litigation, but not all of it, as abusive.
The United States has had three waves of sharply increasing medical
malpractice premiums interspersed with periods of declining costs. The
probable cause of oscillating premiums is the insurance underwriting
cycle. That is, insurers keep premiums down when they have cash on
hand. When they do not, premiums increase, regardless of whether the
result is poorly performing investments or large claim payouts.
In perfect timing with physicians awareness that their fee-for-service
payments would never recover from managed cares reductions, a third
malpractice crisis began in 2002 with an average escalation in premiums
of 10 percent.14 The premiums of high-risk specialists such as neurosurgeons
and
obstetricians
(commonly 100,000
to
200,000
dollars
per year) typically rose far more than 10 percent during this period.
In 2002 and 2003 some Texas neurosurgeons and obstetricians moved
their practices from highly litigious communities where juries were
known to be unsympathetic to doctors, leaving them without those
specialties.
But I never believed it was simply the cost of malpractice premiums
that drove specialists away. If a practice is collecting 1 million dollars per
year, common for some surgical specialties, an additional 50,000 dollars
in overhead for malpractice premiums would not compel anyone to
move. I think specialists got tired of being harassed by frivolous suits and
living in fear of being tagged with a career-ending, multimillion dollar
judgment. That was certainly my attitude.
States have reacted to these periodic spikes in malpractice premiums
by capping the size of awards. Punitive damages are the awards that a jury
levies to punish a doctor or a hospital, and they can be large if a jury is
outraged. States have commonly placed limits on punitive damages: Texas
set the limit at 250,000 dollars in 2005, and California has had a similar
cap since the 1970s. If medical malpractice were the major driver of
health care costs and caps on punitive damages were the answer, then
California should offer the cheapest health care in the United States. But
it does not. The best evidence is that state caps on damage awards do
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reduce the frequency of suits, the size of awards, and insurance premiums
and may increase the number of doctors in the state.15
The other component of an award is money used to care for a patients
needs as a result of the medical injury. Such awards may be small in older
patients with short life expectancies, even though their life may have been
shortened by a mistake or possibly an egregious medical error. When the
award for damages from a medical error is small because a patient wont
live very long, older patients and those without money to pay for a lawsuit
may not be able to nd a lawyer to represent them in states where punitive
damages are capped. The cost of conducting the suit may be too great in
proportion to the expected award. Such caps, in other words, solve one
problem but create another. The evidence is that litigation does increase
health care costs but not nearly as much as is popularly imagined.
Blaming It All on Defensive Medicine

When doctors are accused of wasting resources, they blame medical malpractice litigation. Members of the public repeat what they have heard
doctors say. But the data do not support the position that defensive medicine is the main reason behind high health care costs.
The term defensive medicine refers to the ordering of images and laboratory tests and the performance of invasive testing procedures (such as biopsies) only to reduce a doctors risk of being sued or losing a malpractice suit.
The most common defensive act is to use excessive diagnostic techniques to
avoid missing a low-probability conditionfor example, cancer or a heart
attack. Imaging accounts for 25 percent of outpatient costs, driven heavily
by MRI and CT scans.16 No one can say how much of this outpatient imaging
is appropriate use of services and how much is overuse. In only a few areas,
such as cardiac catheterization studies for the heart, do we even have a yardstick to determine which patient should undergo diagnostic imaging.
In highly litigious states almost all specialists say they practice defensive medicine.17 Three-quarters of U.S. physicians say that they order
unnecessary tests and make unnecessary referrals, and half suggest
unnecessary biopsies as a means of protecting themselves. Almost all
physicians, nurses, and hospital administrators believe that defensive
medicine is a signicant contributor to health care costs.18
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A recent analysis examined all health care costs in the twenty-eight

states that have enacted limits on medical malpractice payments, comparing them with states without such caps. After correcting for other drivers of health care spending, the studys investigators concluded that laws
limiting malpractice payments lower state health care costs by no more
than 3 to 4 percent. A similar study, but older and more limited in scope,
found an increase in hospital spending of 5 to 9 percent in states without
caps. The other cost of malpractice litigation, malpractice premiums,
accounted for 0.46 percent of total health spending in 2001.19
The key to controlling health care costs is changing the behavior of
physicians. After all hospitals, pharmaceutical companies, and medical
device manufacturers do not practice medicine. In the United States, medicine is now a business culture, a reection of American consumer society,
and that is not likely to change. So the keys to changing physician behavior are (1) to replace the fee-for-service payment system with one in which
physicians share in the savings from efcient medicine, (2) to establish
standards of practice so that there is some index of which procedures are
needed and which are not, (3) to hold physicians harmless for failure
to diagnose if they complete a standard workup, and (4) to monitor and
publicly report physician performance. If medical practice is going to be
primarily a business, then let it be a business that delivers value.
One-third of health care spending is for the costs of hospitalization.
By my calculations, at minimum 4 to 8 percent of hospital spending is for
surgeries of unknown effectiveness or proven ineffectiveness and 6 to 15
percent for illnesses that are preventable by primary care. Unwanted endof-life care accounts for another large unquantied amount. But even
when hospitalization is needed, it can be expensive. Hospital costs are
high because hospitals are inefcient. They are victims of an articial
labor shortage and, by consolidating, have been able to shield themselves
from forces would drive down their cost structure. An educated guess is
that 15 percent of hospital cost is the result of inefcient processes. By
combining unnecessary admissions, inefcient processes, and articially
high prices, one sees that a great deal of money can be saved in hospitals
by improving care and by transparent pricing.
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13
Three Pathways to
Hospital Profitability
Hospitals have three pathways to protability: they must gain

market leverage in the community, promote highly paid procedures, and avoid the uninsured. Efciency is not protable.
This story illustrates one of the undesirable effects of rational business

decisions that hospital administrators must make in order to maintain
solvent hospitals. The problem is not bad people but good people working
in bad systems that reward the wrong decisions.
Jack Devoe had been the chief operating ofcer of a nancial services
company in southern California for fteen years and was vigorous at age
forty-ve. After spending years in a wholly prot-driven industry, he had
cashed out and now welcomed the prospect of starting anew and serving
the common good. In 1998 he eagerly accepted the top nancial job at the
Episcopal Hospital.
When Jack was recruited, he was assured that a hospitals nancial
principles are not much different from those of any other business.
The Episcopals reputation had been built on its ability to provide
high-tech surgery services, which attracted patients both in the California
market and worldwide. The hospital had one of the best reputations
in southern California and, at 1,000 beds, was one of the regions
biggest facilities. Yet despite its size and reputation, it had been posting
nancial losses since the advent of managed care in 1994. Because the
hospital was a not-for-prot institution (that is, any excess revenues had
to be used for charity care, research, or education) and several bishops
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served on the hospital board, Jack concluded that it must possess purity
of purpose.
Jack found a friend on the boardcardiac surgeon Simon Brown. He
was one of the few physicians on the Episcopal board and was widely
respected, if not widely loved, by the hospital staff. Brown did not gracefully tolerate mediocre performance. He had been one of the hospitals
top-ten producers for years, was a professor at the medical school, and
also taught residents and medical students at nearby Bayview County
Hospital. (Both the Episcopal and Bayview served as teaching hospitals for
the medical school.) Brown had managed to bridge the opposing camps of
the medical school, the hospital, and the private doctors by always coming
down on the side of good patient care, no matter what the dispute.
In his new job Jack began to calculate the winning and losing cost
centers dispassionately and accurately, just as he had done in industry;
and his regular meetings with Brown provided critical insights into the
Episcopals workings. Sixty percent of the hospitals patients were commercially insured, 25 percent had Medicare, and the remainder were
either uninsured or insured by Medi-Cal (Californias Medicaid program).
Three groups were responsible for the hospitals nancial losses: emergency Medicare patients, Medi-Cal patients, and uninsured patients. In
Los Angeles County, 20 percent of the public was uninsured and 24 percent
were on Medi-Cal; and numbers of people from both groups appeared in
the hospitals emergency room.
The Episcopal could encourage protability by caring for privately
insured patients and Medicare patients who needed total knee and hip
replacements, back fusions, and heart procedures and by avoiding
Medicare emergencies. The trick therefore was rst to reduce the volume
of emergency Medicare business and eliminate Medi-Cal and uninsured
business without compromising the hospitals non-emergency business
and then to promote surgeries in the freed-up space.
An analysis of the hospitals intensive care units identied the
sources of prot and loss. The ICUs for heart and transplant surgery were
protable. The neurosurgeons patients were mostly non-emergencies
and not very sick, so a small ICU that functioned more like an observation
unit than an ICU sufced for their care. This little ICU offered a positive
nancial prole, and both Jack and the neurosurgeons wanted to avoid
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TH R E E PATH WAYS TO H O S P I TA LS P RO F I TA B I LI T Y
141
emergencies. Expanding the unit would make room for them, so there
was no consideration of enlarging it. The units showing major losses
tended to be the medical ICUs, which housed older patients with heart
failure, diabetes, stroke, lung failure, and infections and usually served
emergencies.
Jacks rst recommendation was to halve the number of medical
intensive care beds and to freeze or increase the capacity of the specialized
surgery units. It was not possible to close the emergency room: hospitals
are required to have them, and the Episcopals commercially insured
patients needed emergency services. So he proposed to keep the emergency room at its current size, despite increased demand, and to maintain
only two ambulance bays for unloading patients. A temporary chain-link
fence that had originally marked a construction site was left permanently
in the driveway to further complicate ambulance access. When either the
emergency room stretchers or the ambulance bays were full, the hospital
would simply announce itself to be on emergency room diversion.
When Jacks suggestions were implemented, the Episcopal began to
post a prot. From his fourteenth-oor ofce, Jack looked out of his window and dreamed good dreams of service to the community coupled with
rational protability. He wasnt alone: similar decisions were being
enacted all over Los Angeles County.
Taylor Albritton on a Bad Day

Taylor Albritton lived in Los Angeles. At age sixty-six he was t, though he
was not as healthy as he looked. He had run his small family-owned
investment rm for years, managing retirement accounts and investments for moderately high-net-worth Angelinos. His clients were mostly
midlevel executives in the entertainment industry, but he was never
solidly in their social loop. He and his wife, Marcia, had worked hard to
raise their four children in LAs challenging commercial atmosphere.
They were very comfortable but not quite wealthy by local standards.
Six months ago, Taylor had sold his business. The proceeds permitted
the couple to move into a nice but small home on large grounds in a quiet
area in West San Fernando Valley. Their plan was to take care of Taylors
health and enjoy an active retirement in this beautiful setting. He and
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Marcia also hoped to travel and play tennis. Retirement was a longawaited reward for both of them.
Taylor had undergone one heart surgery already and had managed
his insulin-dependent diabetes with scrupulous attention to detail since
he had developed the disease in his twenties. Recently, however, he had
developed an irregular heart rate; and one of the complications of this
condition was that his heart could throw off blood clots. He prevented
this problem by taking powerful blood thinners daily. Yet for reasons that
his doctors could not explain, the dose of the blood thinner had to be
continually changed. On one day his blood might clot normally, as if his
body were immune to the medications; on the next day, he was overthinned and at risk of hemorrhage. So in addition to paying close attention to his diabetes, Taylor had to carefully monitor the condition of his
blood. Though he regularly saw a doctor at nearby Foothills Regional
Hospital, a small facility, Taylor already knew so much about his own
health that the doctors acted almost as consultants to him.
Since his retirement, Taylors habit each morning was to sit on his
open patio, where he would drink coffee, watch the jays squawk in the
cedars, and listen to the LA trafc reports with a sense of satisfaction about
no longer needing them. Marcia would sit next to him and read the paper.
On a Sunday morning in 2007, however, he noticed a dull headache. By the
time he had nished his second cup of coffee, the headache had become so
severe that he mentioned it to Marcia. Within half an hour his speech had
became garbled. His wife called 911, and an ambulance promptly took him
to Foothills.
The Albrittons had no way of knowing that, at this time, San
Fernando Valley had the highest ambulance diversion rates in the state.1
Typically, big hospitals with large emergency rooms and full technological
capability were the ones most often on diversion. At small Foothills, a
one-hundred-bed community hospital, the cause of Taylors headache
could be diagnosed but not treated.
Dr. William Garza had been an emergency room doctor at Foothills
for ten years. His greatest frustration lay in the problems he encountered
when trying to transfer seriously injured or ill patients. He never got used
to contacting one LA hospital after and being told that there were no beds
but we will call if one opens up. Eventually a bed always did open up,
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but frequently the call came too late. Dr. Garza knew good medicine from
bad medicine, and he resented being implicated in the practice of bad
medicine. He was powerless to do more than care for each patient as well
as he could.
Marcia Albritton sat in the busy waiting room, alone and helpless,
while Garza worked. An emergency CT scan of her husband showed a subdural hematoma: a blood clot between the brain and the skull, a critical
surgical emergency. In one of its wide swings, the blood thinner had overthinned Taylors blood; and as frequently happens in such cases, a small
blood vessel had burst on the surface of the brain. Garza immediately
gave him a drug to counteract the blood thinner in order to stop further
bleeding, but he needed a neurosurgeon to remove the blood clot. In an
attempt to transfer Taylor to a facility with a neurosurgeon, Garza made
calls to eight LA hospitals but was turned down by one after another. He
knew the Episcopal did not like emergencies, but it was his ninth and last
option. He telephoned and asked, May I speak to the neurosurgeon on
call? This is Dr. Garza at Foothills.
Within a few minutes, Dr. Raymond Alford identied himself as the
neurosurgeon on call. Garza continued, Sir, this is William Garza. I have
an elderly male with a subdural hematoma and a declining level of consciousness who came into our ER this morning. He is on Coumadin, but
I have reversed it with factor 7.
Curtly, Alford responded, I do not have any ICU beds. I cannot help
you. If a bed opens up, we will call you. He hung up before Garza could
plead further.
Dr. Garza went back to evaluate Taylor Albritton, who had slipped
into a coma that was rapidly becoming irreversible. He intubated Taylor
to support his breathing and decided that he needed to talk to Marcia
Albritton about the problem. He walked into the emergency rooms waiting area, called her name, and then led her to the sidewalk outside so that
their conversation would not be overheard in the crowded room. Because
of Garzas sense of urgency, he had not even stopped to use one of the
hospitals quiet little consultation rooms for this conversation.
Mrs. Albritton, the headache that Mr. Albritton developed was from
a blood clot on the surface of the brain. He has gotten worse since he
arrived, and I have had to put a tube in his windpipe. The problem is that
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I cannot nd a hospital staffed with a neurosurgeon that has a bed. I have

called eight hospitals in LA that are full, and I am waiting on a return call
from the last one.
Disturbed, Marcia Albritton thought quickly. Clearly, this matter was
out of even the doctors control. But she knew people who might be able
to help. Dr. Garza, she asked, can you see if Taylors cell phone is with
his clothes? He usually keeps it in his pocket.
Together they walked back into the ER, where Marcia saw her husband lying on a narrow gurney with a tube the width of a garden hose in
his windpipe. She felt more alone and scared than she had ever felt before.
Marcia knew that Taylor had managed Dr. Simon Browns investments and that they had been occasional tennis partners. She found his
number on Taylors cell phone and made the call. Brown then called Jack
Devoe at home, who in turn telephoned Raymond Alford, the neurosurgeon on call at the Episcopal that weekend. Alford was instructed to nd
a bed for Taylor Albritton.
Alford called the ICU and transferred a patient who was not very sick
out to the ward to open a bed for Taylor. The ICU was full because it was
small and also because the neurosurgeons were blocking beds: that is, they
were keeping non-acutely ill patients in the ICU instead of the ward to prevent an emergency patient (who might be uninsured) from lling the bed.
This practice guarantees an ICU bed for next weeks scheduled cases.
A helicopter was dispatched from the Episcopal to Foothills, and Taylor
was in Alfords operating room two hours later, eight hours after the onset
of his headache. If he had had surgery within an hour or two of lapsing into
a coma, he probably would have survived. But the surgery was too late.
For a week Taylor remained in the Episcopal ICU on a ventilator,
deeply comatose, before he was allowed to die. Each day Brown went into
the ICU to check on his friend; and as the week progressed, he became
more and more disturbed. He recalled his recent experiences with Juan
Olivas, the uninsured man who had died before Brown could operate on
his heart, and the young college student who died because Bayview
Hospital had been overloaded, and he began to integrate those memories
with the ensuing death of Taylor Albritton. Raymond Alford, however, did
not give the matter any thought. Jack Devoe did drop by to speak with
Marcia Albritton, but he was a numbers man, not a systems man, and
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never made the link between his moves to protect the Episcopals bottom
line and the death of Taylor Albritton.
After her husbands death, Marcia Albritton, devastated and quite
alone, sold their home and moved to live near one of her daughters in a
Dallas suburb. Despite the fact that she had known someone in the hospital business, her actions had not been enough to save him. Only a properly
functioning emergency services system could have done so. Position and
connections are no insulation against the failures of the medical system.
My ctional character Taylor Albritton is based on a real-life patient
with the same problem and the same outcome. In 2003, this man was
transferred three hundred miles by air to Houston for surgery because
there was no bed in any nearby hospital that had a neurosurgeon. The
patient and his wife had retired from the California information technology industry and had settled in the temperate and inexpensive Texas
Valley. After the patients death I talked with his wife, who had no idea
that her husband could have been saved if he had been treated promptly.
She was packing to return to California.
Hospital Prots
The functioning of the medical industry, like that of most other industries, is driven by nancial incentives. People think that health care is
expensive because of hospitals, insurers, and pharmaceutical companies excessive prot making. The evidence does not support that contention, at least with regard to hospitals and insurers. Hospital prots are
healthy but not excessive when compared with those of other industries.
For example, in 2004 hospital prots averaged 5.2 percent. In the same
year the net prot margin of Wal-Mart was 3.5 percent; Exxon, 8.5 percent; Microsoft, 22.17 percent; and Dell, 6.38 percent.2
But while hospital prot margins as a percent of revenues may not be
excessive, hospitals do undeniably sell excess products at excessive prices.
Why? Because for a hospital to be protable, it needs to do just three things:
Gain a monopoly or market leverage in the community
Avoid the uninsured
Promote the performance of highly paid procedures.
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Note that efciency is not a requirement for protability.
Market Leverage in the Community

By the rst decade of the new millennium, the nations hospital CEOs had
learned an important lesson from their close call with managed care: there
is strength in size. If hospitals aggregate into systems in a community, they
cannot be forced to accept rates that are too near their operating costs.
Of the 5,000 hospitals in the United States, 85 percent are not-forprots, meaning that their prots must be used for research, education,
and the public goodall loosely dened. In 2002, these not-for-prot hospitals earned tax breaks amounting to 12.6 billion dollars annually.3 To
put this gure into perspective, SCHIP has insured 6 million poor children,
and the federal portion of this program was 5 billion dollars annually
from 1998 to 2007. For-prot hospitals, on the other hand, do not receive
tax breaks and can use their prots for any purpose. There is no functional distinction between the two groups; they even care for about the
same percentage of uninsured.4
Houstons Hermann Hospital, a not-for-prot, was particularly unsettled during the managed care era because it was nearly insolvent. But
when the countrys largest for-prot hospital company tried to buy it, the
hospitals trustees said they would close the hospital rst because they
believed that its founding mission to serve the public would be compromised. One evening I found myself in the living room of one of
Hermanns key board members, a respected community leader, urging
her to nd a way to merge the hospital with the nearby Memorial System
before Hermann went under.
But Guy, she said, they dont want us.
I responded, Please try again. You have to make them want us. Its
our only chance.
The subsequent merger of Hermann Hospital with the Memorial
System and other acquisitions created the largest not-for-prot hospital
system in Texas. No insurer could do business in Houston without the
Memorial Hermann System. After the merger the hospital said no to more
discounts, its prot margin increased to a safe level, and its functioning
vastly improved.
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Some version of this story has played itself out locally all over the
country.5 Between 1994 and 2000, nine hundred mergers took place.
When one hospital system dominates a region, it functions as a monopoly.
When two dominate, they function as an oligopoly (dened as a small
group of sellers). Both monopolies and oligopolies can drive up costs
because they have little or no competition. A third hospital system in a
community generates competition, but a fourth creates little more competition than three.6
Hospital monopolies and oligopolies can negotiate very high prices.
In markets with many hospitals and hospital systems, such as Los Angeles
and San Diego, hospital consolidation is estimated to account for only
5 to 10 percent of hospital pricing power. But when three hospitals in
a community become two, as they did in San Luis Obispo, California,
hospital prices can rise by 50 percent. Mergers of hospitals in geographic
proximity are highly inationary, increasing prices by 40 percent.*
Hospital consolidation does not inherently improve quality, reduce cost,
or improve efciency, but it does improve protability.7
Do not think I am advocating the disbanding of hospital systems.
Regional hospital monopolies include some of the better U.S. hospitals
and also house leaders in biomedical research. My point is that the public should expect more transparent pricing from an industry that receives
a handsome tax subsidy in repayment for ill-dened and unmeasured
public services.8
The Federal Trade Commission (FTC) is well aware of the effect of
hospital monopolies on health care costs, but it has had little success in
controlling them. Between 1991 and 1998 the FTC was one-for-seven in
trying to prevent mergers that would produce extreme hospital monopolies or oligopolies.9 I asked a former federal prosecutor for the agency why
the FTC had lost so many cases. His response was The lead prosecutor
says that the only two possible explanations for our failure are either that
* Some metropolitan areas are dominated by only two hospital systems where little
competition can be expected. Examples are San Francisco (Sutter Health and
University of California San Francisco Medical Center), Pittsburgh (University of
Pittsburgh Medical Center and West Penn Allegheny Health System), Minneapolis
(Fairview Health Services and Allina Hospitals and Clinics), Cleveland (Cleveland
Clinic Health System and University Hospitals of Cleveland), and Boston (Partners
Healthcare System and Care Group).
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we did a bad job or that the federal judges that ruled had friends on the
local hospital boards and did not like outsiders coming into town. At
least one presiding judge expressed great faith in the board of a consolidated local hospital system, declaring that it would never allow the hospital to overcharge. After all, the system was a not-for-prot with a
community board.10 I am not condent, however, that the well-heeled
(and well-healed) board members of not-for-prot hospitals effectively
shield the community against overcharging.
The structure of hospitals group purchasing organizations is another
reason to conclude that hospitals are not competitive in the usual business sense. These purchasing organizations contract for supplies on
behalf of a group of hospitals with the purported object of buying at the
lowest prices. But the sellers (medical device and supply companies), not
the purchasers (the hospitals), manage the organizations and pay signicant sums of money for their operation. Group purchasing organizations
avoid violating the federal anti-kickback statute of the Social Security Act
only because of exemptions in a 1986 federal law.
You might expect that such arrangements would diminish expected
savings. You also might conjecture that, because large suppliers pay the
bulk of the operations fees, small suppliers, even those with innovative
products, would have limited access to hospitals. There is considerable
evidence that this is exactly what happens.11
Avoid the Uninsured

Consolidation works to maintain prots, but hospitals must also avoid
uninsured patients to maintain protability. Only about half of hospitals
make a prot caring for patients, earning their margins instead from
investments and services such as parking and cafeterias. For years, the
average hospital prot margin for care of patients has actually been a loss
of between 2 and 4 percent.12
Among the 5,000 hospitals in the United States, 670 so-called safety
net hospitals care for the majority of the uninsured. These institutions are
in worse nancial shape than most other hospitals because every year
they care for a larger share of the uninsured as more protable hospitals
avoid them. In Texas, California, Georgia, Indiana, and Florida, the group
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of private not-for-prot hospitals that care for the most uninsured delivered four times more uninsured care (as a percentage of total revenue)
than did the group of private hospitals that provided the least.13 Yet all
have the same tax-exempt status.
The safety net hospitals are not average for other reasons. Half are
trauma centers, three-quarters are key centers for care of high-risk
neonates and psychiatric emergencies, and many are academic medical
centers.14 The nancial failure of such hospitals endangers the entire
community because anyone needing high-level emergency care is taken
to one of them. These hospitals often have prot margins below the magic
2-percent gure for solvency.15 Yet remember that private not-for-prot
safety net hospitals care for many more insured than uninsured patients,
and an undernanced, overloaded hospital is not safe for anyone.
Hospital pricing practices also have a pernicious effect on the uninsured. When the uninsured can pay, they often pay much more than the
insured do.16 When a hospital admits an uninsured emergency patient, a
nancial counselor meets with the patient or her family. If they judge that
patient is indigent and can never pay, then the hospital writes off the
charges. If, however, the uninsured patient has resources, they are charged
and may be expected to pay at the full rate, which is three to six times
what any insurer pays.
One Sunday afternoon, my son, then twenty-two years old, called me
from the waiting room of an urgent care clinic in Arizona. He was accompanying a young uninsured laborer who had a severe sore throat.
According to my son, the only other person in the waiting room had been
there for four hours with a leg that was bent the wrong way after a car
accident; she told the boys that she had no insurance. Hours before, my
son had observed staff members ushering the presumably insured occupant of the other car out of the waiting room into the clinics examination
room. He was calling to ask me how much the visit would cost his friend
and wondering if they also would have to wait for four hours.
I told him to ask the desk clerk if they could have a Medicare rate and
to tell the clerk that they would pay cash up front. In a few minutes my son
called back and said, Dad, she looked at me like I was crazy. She said that
Medicare rates are only for Medicare and Blue Cross patients. When
the boys parents called the front desk with a credit card number, however,
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he was instantly ushered into an examination room, leaving the woman

with the leg bent the wrong way sitting in the waiting room. She must not
have had a credit card.
Promote Surgery
Hospital protability depends on encouraging doctors to perform highly
paid procedures. A hospitals patients come in two varieties: those admitted for procedures (surgical patients) and those admitted because their
conditions need acute medical management (medical patients). Medical
patients usually have heart failure, pneumonia, or respiratory failure and
are admitted for therapies such as intravenous uids, ventilation, and
medications when their conditions are not manageable in the clinic or at
home. Doctors and hospitals that care for medical patients are paid feefor-service. (In the case of Medicare, hospitals are paid a at rate that is
increased if the patient has had procedures and complications at the time
of discharge.) The fee-for-service payment system is based upon the manual difculty of delivering a service, not the cognitive difculty and certainly not the outcomes of care. The more manually involved a medical
service, the higher the payment. I cannot defend such a payment policy
because it makes no economic sense. For instance, it is much harder work
to take care of a sick trauma patient in the ICU, for which a neurosurgeon
is paid 100 dollars a day, than to perform a two-hour spine procedure, for
which a neurosurgeon is paid 2,500 dollars.
Because of this payment policy, medical patients contribute half as
much as surgical patients to a hospitals bottom line. In 1999 about 40 percent of U.S. hospital admissions came through emergency rooms, and
more than 70 percent of them were low-prot medical patients with fewer
than 10 percent needing procedures.17 Surgical patients, on the other
hand, are admitted to a hospital to have prescheduled, non-emergency
procedures and are always insured. These patients form one-third of U.S.
hospital admissions, half of hospital charges, and probably well over half
of hospital prots.18 In short, emergency rooms cost hospitals money for
two reasons: they care for the uninsured, and they expose hospitals to lowmargin medical patients. The prot margin from care of medical patients
is so narrow that a hospital would not be economically viable if it did not
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also perform high-tech procedures. The entire payment system is tilted

to the performance of procedures, rewarding hospitals just as it rewards
doctors. This double stimulus gives hospitals a ready source of prots and
encourages them to act with doctors to generate the need for procedures.
I was service chief of neurosurgery at Memorial Hermann Hospital in
Houston for fourteen years. Hospital service chiefs are doctors designated
by the hospital or elected by other doctors to represent all members of
their specialty in negotiations with hospital administration. It is also their
job to ensure quality of care among doctors in their specialty. A hospital
service chiefs most important duty comes at the beginning of the hospitals scal year. This is when service chiefs vie for resources, but its a
zero-sum game. That is, the hospital has only a certain amount of money
for equipment purchases and a specic number of hospital beds and
operating rooms to apportion among the various services, so the doctors
are ghting for limited resources.
We all knew that the most protable services always got the most
resources. For years I was frustrated because I could not compel the hospital to build a new neuroscience ICU even though ours was cramped. My
efforts had been stalled for years by successive hospital administrators,
but one year a palatial cardiac ICU was quickly constructed and new cardiac surgeons were recruited into the same building with lavish contract
packages. I am a realist, but I could not understand why they had been
awarded these resources: I knew that the neurosurgery departments
prot per patient was almost the same as the cardiac surgeons.
The Health Care Advisory Board gave me the answer. The board is a
Washington, D.C.based hospital industry consulting group that analyzes
industry trends and advises hospitals on how to maintain protability.
According to the advisory board, although neurosurgery is equally profitable per patient, it is far below cardiac surgery in the potential number
of patients that the specialty can bring to a hospital because more
patients have cardiac surgery problems than have neurosurgical problems.
Yet my specialty received more hospital space and equipment than
certain other specialties did, which my buddies in medical neurology (a
specialty that takes care of neurological patients without surgery) were
quick to point out. As the advisory boards glossy gold volumes show,
medical neurology has much lower protability per patient because these
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neurologists do not perform procedures. So when it came to getting hospital resources, my friends in medical neurology never had a chance.
In a 2001 publication, the advisory board ranked specialties as most
favored, preferred, and least favored based on their protability.
High-end, high-volume procedural specialties such as cardiac surgery and
neurosurgery generated nearly 1,000 dollars per day per patient in hospital prots. Cognitive doctors who manage patients without procedures,
who include least favored practitioners such as medical oncologists and
primary care physicians, generated half that much. By referring to these
statistics, I was able to explain every hospital and medical school resource
decision during a fteen-year period.19 The entire health care industry is
tilted toward performance of procedures, not prevention of disease or its
management.
Captive Local Markets

Medicine is not a national market like the car industry, and one reason is
because cars can be shipped to and from anywhere. Patients cannot drive to
the cheapest hospital in town or to another city when they think they have
an emergency. Patients needing non-emergency procedures can and do y
to hospitals and doctors that they believe can deliver superior care. They
could also choose to travel to lower-cost providers and create price competition, though at some inconvenience to their families and themselves. But
because most insured patients pay only a small percentage of the cost of
their health care, they have no reason to travel for discounts alone.
Emergency admissions account for at least 40 percent of hospitalizations.
Health care is regional, and it is not discretionary. When you need it,
you have to have it; and if possible, you would prefer to have it close to
home. Even hospitals that are not consolidated can exert considerable
pricing leverage in the community, especially in a small one. Like the
electric company, hospitals are essential.
A car dealer cannot simply raise the price of cars as a way of guaranteeing better pay. If prices are too high, people will go to another dealership. On average, however, the more hospitals charge, the more they are
paid.20 They remain busy and full regardless of the prices they charge
because patients have nowhere else to go. In 2003 and 2004 hospitals
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charged roughly 244 percent above their costs. The forty most expensive
U.S. hospitals marked up operating room use, drugs, and medical supplies by 1,000 to 5,000 percent.21 When California required its hospitals to
publish their prices, journalists and health economists had a festival with
the information. The charge for a chest X-ray, for example, varied from
100 dollars in San Francisco to 1,500 dollars in Modesto.22
Efciency Disconnected from Prots

Efciency has nothing to do with hospital protability. In fact, in todays
setting, efcient hospitals may even be penalized. John Wennberg of the
Dartmouth Institute for Health Policy and Clinical Practice, who established that 30 percent of Medicare spending is waste, took his research to
California, where hospital charges may vary tenfold from hospital to
hospital. He examined the cost to Medicare of patients who were hospitalized at any time in their last two years of life. Sacramento hospitals and
doctors were the most efcient, Los Angeles hospitals and doctors the
least efcient. In Los Angeles the probability of dying in an ICU was 33
percent, in Sacramento only 19 percent. Compared to Sacramento
patients, Los Angeles patients spent more than twice as many days in the
ICU. As a result of these frequent and prolonged hospitalizations, the cost
of care in the last two years of life was nearly 70 percent higher in Los
Angeles than it was in Sacramento. Adding to the cost, Medicare paid
some Los Angeles hospitals at a higher rate per patient than it did
Sacramento hospitalsbecause Medicare pays more for hospitals with a
history of charging more and that function in high-cost areas.23
Inefciency in the operating room drove many surgeons to start their
own hospitals in Houston. In all the hospitals where I have worked, it was
commonplace for surgeons and anesthesiologists to wait for more than
an hour between cases as operating room nurses who earn 70,000 dollars
a year drank coffee in the adjoining lounge. Surgeons and nurses were all
waiting for minimum-wage housekeeping crews to show up to clean the
operating room between surgical cases. The housekeeping department,
which supervised the cleaners, had little interest in the efciency of the
operating room. I once calculated the cost of this practice at 250 dollars
per minute, and that was without considering utilities.
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On the neurosurgery wards of every hospital where I have worked, the

nurses spent at least one-third of their time meticulously handwriting
notes. They abhorred the time they spent away from their patients, and
the patients suffered for it. Electronic charting would have saved time and
money and reduced errors.
Over the years the only performance measure that every hospital routinely provided to the neurosurgery service was length of hospital stay.
This was because the longer a Medicare patient with a given condition
stays, the more money a hospital loses. Infection rates, complication
rates, and outcomes of treatment require hospital resources if they are to
be reported regularly; so over the years we only sporadically saw such
information. Complications are also very expensive, but preventing them
received little consistent attention because they do not cost hospitals
money, just the insurers. Hospitals are paid more for patients with
complicationsthough now Medicare and some insurers are no longer
paying for some complications.
Hospital inefciency is not the only culprit. A signicant amount of
money could be saved if hospitals and their doctors had the same nancial incentives. Doctors, however, are paid for different services and in
different ways. The longer a Medicare patient stays in the hospital, the
higher the cost to the hospital. But doctors have no reason to care how
long a patients stays in the hospital because it has no inuence on their
payment. I saw this payment dichotomy result in spectacular waste and
even reduced access to needed treatment.
Here is one example. Although removal of an epileptic area in the
brain cures many patients of seizures and transforms their lives, they must
endure three to ten days of monitoring with electrodes in their brains while
they lie in a hospital bed. Specialized nurses closely watch them on television monitors; million-dollar equipment simultaneously records and analyzes their brain waves. These epilepsy monitoring units with their specially
trained staff consume immense resources and cannot be used very well for
any purpose other than treating epilepsy. Our hospitals unit lay vacant or
barely used on weekends and holidays because the neurologists and neurosurgeons responsible for these patients organized their schedules around
a Monday-through-Friday work week. Meanwhile, there was a six-month
queue of patients waiting to be admitted. Hospital administrators could
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never compel doctors to write discharge orders early in the day to free up
needed beds. For hours, fully clothed patients sat among owers in their
rooms waiting for doctors to write simple discharge orders. All the while,
sick patients needing admission languished on stretchers in the emergency
room, not always safely, for lack of a hospital bed.
High Labor Costs and an Articial Nursing Shortage

Fifty-seven percent of a hospitals costs go toward personnel wages and
benets, and the majority of that is for nurses. Yet labor costs are inated
by an articial nursing shortage. In 2001 hospitals had a mean nursing
vacancy rate of 13 percent126,000 vacant positions nationwide. High
nursing demand was estimated to have increased nursing salaries by
10 percent in 2002.24 But there is a false reality at play.
Dr. Ada Sue Henshaw was dean of the School of Nursing at the
University of Michigan for many years and also founded the National
Institute of Nursing Research at the National Institutes of Health, a prodigious accomplishment for the nursing profession. Dr. Henshaw told me
that the present nursing shortage has three causes:
Insufcient faculty to train qualied nursing students
Insufcient clinical sites for the training of nursing students
Dissatisfaction with the hospital work environment

Although the total number of nursing graduates has been steadily
decreasing since 1995, nursing schools do not suffer from a shortage of

qualied applicants. In 2005, 37,514 out of about 100,000 qualied applicants for nursing schools were turned away because of a faculty shortage.
The reason for the faculty shortage is that masters- and doctorate-level
nursing faculty members are paid about 25 percent less than they could
make from working in hospitals.25
According to surveys, hospital nurses chief sources of dissatisfaction
are stressful working conditions and long hours; only 18 percent are dissatised with salaries. The nursing shortage has driven up wages and
required hospitals to use temporary employees who are often paid at
twice the cost of full-time employees.26 In every area of hospital function,
from laboratory services to the pharmacy, the labor shortage is caused by
an articial bottleneck in training, not from lack of qualied applicants.
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These personnel shortages require a solution, not only because they

drive up hospital costs. Undertrained and overworked nurses in understaffed hospitals increase error rates precipitously. An insufcient ratio of
nurses to patients increases surgical mortality rates and nursing burnout.27
In my experience, nurses, not doctors, are the people who make hospitals
work. Failing to train nurses who want to work is almost suicidal.
The overall picture is that hospitals are largely insulated from competitive pressure by their privileged position as essential community
resources. They are able to gain inated payments simply by charging
inated prices. In a perfect partnership with doctors, they can increase
their prots by promoting procedures. But they also depend on inated
prices and the prot from procedures to cost-shift their losses from uninsured patients admitted through their emergency rooms. Their cost structure is increased by an articial labor shortage created by the failure of
schools of nursing and allied health sciences to pay their faculty competitive wages and to nd enough hospitals in which to train their students.
Hospitals are paid in a way that promotes inefciency and high cost.
The more things done to a human body in them, the more both hospitals
and their doctors are paid. So of course, they are expensive, inefcient,
and often dangerous. And of course, they are not rushing to purchase and
implement information technology. There is no business case for the use
of information technology because there is no business case for efciency.
I have reached several conclusions. First, the uninsured will have to
be covered in order to create efcient hospitals. Otherwise, it will be
impossible to drive down waste. Second, for hospitals to have any nancial incentive for efciency, they, like doctors, must be paid for the nal
product of care, not for the number of processes performed. Third, if doctors and hospitals are not paid out of the same pot of money, their incentives will never be aligned and efciency will be elusive. Fourth, the labor
bottleneck must be opened for prices to come down and quality to
improve. Fifth, hospitals will always be expensive places; therefore, the
best way to save money is to use them like a sharp scalpelonly when
absolutely necessary. Finally, there is real danger for patients in allowing
current trends to continue because the business decisions that hospitals
are forced to make are often not in the best interests of the community.
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14
Pharmaceuticals
Remarkable Innovation, Shameless Puffery
The pharmaceutical industry makes a sizable percentage of its

prots from developing and promoting drugs of doubtful value
as replacements for older, cheaper drugs.
Americans average life span has increased by twenty-ve years since

1900. The Centers for Disease Control concludes that twenty of those years
are the result of simple measures such as sanitation, clean food and water,
decent housing, and vaccination. Five years and three months of the
increase are attributed to medical care, and pharmaceuticals contribute to
nearly half of those ve years. When doctors were asked to name the thirty
most important medical therapies, they identied four classes of pharmaceuticals among the top-ten breakthroughs in medicine.1 In their judgment, prescription drugs have played a large role in medical progress.
Heavily subsidized by federally funded research, the scientists, marketers, and administrators of the pharmaceutical industry have transformed the treatment of human disease. Yet the industry has been
harshly criticized for high costs, deceptive marketing practices, and lack
of transparency. These accusations could be leveled just as easily at doctors and hospitals; but compared to more than 5,000 hospitals and
900,000 doctors, pharmaceutical manufacturers are a concentrated target.
Public ire is also high because individuals pay for one-quarter of the
prescription drugs sold, and for many Americans the cost is not episodic
but a daily expense.2 High prices become an immediate concern when the
payments come from your own pocket.
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Each segment of the medical industry generates excess cost in a different way: hospitals by inefciency, excessive pricing, and promotion of
unnecessary procedures; doctors by inefciency and provision of unnecessary services and procedures; the pharmaceutical industry by creating a
sense of need for products of marginal value, which results in their overuse and justies their overpricing. Compared to older, cheaper versions of
the same drugs, three-quarters of new prescription medications probably
have little or no additional value, although they are marketed and priced
like essential breakthroughs.
Vioxx, Celebrex, and Bextra

The painkillers Vioxx and Celebrex came to the U.S. market in 1999, and
Bextra arrived in 2001. By 2001 the annual sales of these drugs totaled 4.7
billion dollars, or 3.4 percent of all U.S. prescription drug sales.3 Much
of this money was wasted; and I, too, contributed to the waste because
I frequently prescribed Vioxx and Celebrex in my clinic. But I was not the
one seduced by pharmaceutical marketing: my patients were, and I was
an accomplice.
Unless the problem obviously required surgery, my standard regimen
for patients with pinched neck or back nerves was to treat them for about
three months with physical therapy and medications called non-steroidal
anti-inammatory drugs (NSAIDs) such as the over-the-counter medications Aleve and Motrin and the prescription drugs Vioxx and Celebrex.
About half of patients with pinched nerves are effectively cured by simply
taking medication, and for years I had recommended Naprosyn (sold over
the counter as Aleve) and Ibuprofen (sold over the counter as Motrin or
Advil) as the two NSAIDs of choice. These older medications carry about
a 3-percent risk of gastrointestinal bleeding after four months of use, a risk
that is higher in patients who have a history of ulcer disease or take aspirin
or blood thinners. I always asked the patients about these risk factors and,
for the one in twenty who was at risk, I did not prescribe an NSAID.
In 1999 a Merck representative left samples of a new drug, Vioxx, at
the clinic and told me it was a completely new class of NSAID, a medicine
called a COX-2 inhibitor, with a smaller risk of producing gastrointestinal
hemorrhage. I thought that Vioxx might be useful for the occasional
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P H A R M AC E U T I CA LS
159
patient who had a history of ulcer disease or was on blood-thinning

medications. Several years later Pzer released Celebrex and then Bextra,
both of which acted by the same biochemical mechanism as Vioxx did.
Because I prescribed these drugs infrequently, I never thought about
their cost until almost every patient began to request a prescription for
Vioxx or Celebrex rather than Aleve or Motrin. The patients seemed as
familiar with the names of these two drugs as they might have been with
the names of their children. At the time I did not know that television was
blanketed with paid testimonials from middle-aged athletes such as
Dorothy Hamill, the 1976 Olympic gure skating medalist, shown still
happily skating thanks to COX-2 inhibitors.4
Around this time I had also concluded that the insured were eating
up the medical care of the uninsured, and I began trying to reduce waste
in my practice. As my prescribing habits changed in response to patients
demands, I decided to investigate the price of these drugs. One days
worth of over-the-counter Aleve cost twenty-four cents. At the CVS pharmacy, an equivalent dose of Celebrex was $2.10, and Bextra cost $3.53.5
Armed with price information, I began to urge patients without risk
factors for gastrointestinal bleeding to use cheaper medication. My conversations followed a uniform pattern. At the end of each clinic visit, while
the patient and I stood at the checkout desk, I said, prescription pad in
hand, I usually prescribe Aleve or Motrin as anti-inammatories because
they work well without many side-effects and theyre inexpensive.
Invariably, the patients response was Could I have [Celebrex, Vioxx,
Bextra] instead?
Yes, but it costs ten times more than Aleve or Motrin.
It doesnt matter. I have a prescription drug plan.
If I had insisted on Aleve or Motrin and the patient had had any sideeffects or failed to improve, she would have questioned my judgment. So
because the clinic was busy and I had no time to waste, I would drop the
matter with a cheerful, Okay. But patients without a prescription drug
plan always took my advice and chose over-the-counter NSAIDS.
I estimate that over a ve-year period I wasted about 500,000 dollars
prescribing COX-2 inhibitors when over-the-counter NSAIDs would have
sufced. Ironically, I was unable to peddle COX-2 inhibitors for the one
indication in which they were superior: no patient with a history of
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gastrointestinal bleeding would try any NSAID, preferring to tough it out

rather than risk bleeding.
The Pharmaceutical Marketing Machine

But wasting money is not the only thing weve learned from Vioxx and
Celebrex. The pharmaceutical marketing machine is astonishingly effective in America, and the same machine that so effectively sells drugs of
marginal benet also goes to great lengths to keep them on the market.
The FDA must approve the safety and effectiveness of any medication
marketed in the United States. The agencys decisions are based on
pharma-sponsored clinical trials that compare outcomes in patients
treated with the new drug to those treated with a placebo (a sugar pill).
The FDA does not require new drugs to be compared in effectiveness to
similar medications for the same disease: approved drugs do not have to
be better, just different and better than nothing. Once a drug is approved,
the manufacturer is free to market it to both consumers and doctors for
the approved use, though doctors commonly use drugs for indications
other than those approved by the FDA. It would be difcult to practice
otherwise. The result, however, is that once a drug is approved for any
indication, it may be used for others; FDA approval is just the start of the
drug marketing process.
Television is blanketed with commercials extolling the virtues of a
particular prescription medication for one or another common illness.
The industrys marketing technique is to convince both doctors and
patients that a drug is the best in its class for a given medical condition.
The ads sunny images and soothing words do not tell the viewer if the
drug is the only treatment for a condition, the best treatment for a condition, or just one of many equivalent treatments. As it turns out, often no
one really knows, which is not information that pharmaceutical advertisers are likely to reveal. Ninety-one percent of U.S. magazine ads for prescription drugs fail to discuss the possibility of treatment failure, and
71 percent do not discuss alternative treatments.6
In 2000 direct-to-consumer advertising composed only 15 percent of
the industrys advertising budget, and it was reserved for only the most
highly promoted drugs. About one in ten people asks his doctor for the
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drug after seeing a prescription drug ad. In 1997 the FDA issued a guidance that allowed manufacturers to identify specic products in direct-toconsumer advertisements. From 1999 to 2000, the fty drugs that were
most heavily advertised to consumers accounted for almost half the
increase in sales of prescription drugs.7 A study by the U.S. Government
Accountability Ofce found that pharmas spending on direct-to-consumer
advertising increased twice as fast from 1997 through 2005 as did spending on research and spending on promotion to physicians. The funds were
well invested. For each dollar spent on direct-to-consumer advertising,
pharma enjoyed a $2.20 increase in sales. The volume of advertising is so
great that it has overwhelmed the FDAs ability to police it.8 Such marketing was particularly effective for the COX-2 inhibitors. In 2000 Merck
spent 160 million dollars marketing Vioxx. In contrast, Pzer spent
71.2 million dollars marketing Celebrex to consumers during the rst
nine months of 2004. The funds were well invested. Merck sold 1.5 billion
dollars worth of Vioxx, and Pzer sold 2 billion dollars worth of Celebrex
within a year of their introduction.9
Most of the billions of dollars in sales of COX-2 inhibitors were waste.
Soon after FDA approval of the drugs, researchers clearly established that
COX-2 inhibitors do not offer better pain relief than older, cheaper drugs
do. Such quick, well-established ndings are not typical of other drug
classes. But even at the time of approval, the data showing that COX-2
inhibitors better reduced the risk of gastrointestinal bleeding were so
doubtful that the FDA did not allow the companies to make that claim on
their labels.10
But like me, most doctors give patients what they ask for if it is suitable for their condition.11 If the patient has prescription drug coverage
and is not required to pay part of the cost of the prescription, neither doctors nor patients care about the cost of the drug. In 2007, 90 percent of
Medicare beneciaries had prescription drug coverage, and 98 percent of
employer-based insurance plans offered the benet. The Medicare
patients most likely to receive COX-2 inhibitors were not those with risk
factors for gastrointestinal hemorrhage; rather, they were patients with
prescription drug coverage.12
In May 1999 the FDA approved the marketing of Vioxx for treatment
of the common arthritis that affects aging knees, hips, shoulders, and
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spines and for pain associated with menstrual cycles.13 Arthritic aches
and pains are a ubiquitous part of the human condition, and there is no
telling how much money might have been spent on these drugs if a problem had not been discovered after their widespread dissemination.
In 1999 Merck sought to expand its approval, hoping to market the
drug for treatment of rheumatoid arthritis, a common and disabling condition in which the body attacks its own joints. It launched a study of more
than 8,000 patients, comparing the effectiveness of Vioxx to prescriptionstrength Aleve in relieving pain. Although Vioxx was found not to be more
effective than Aleve in pain relief, the study showed that it decreased the
risk of gastrointestinal hemorrhage. But it also showed that patients
treated with Vioxx had an increased risk of heart attack. In a conjecture
that went far beyond the strength of the data, the authors promoted the
idea that Aleve prevented heart attacks rather than concluding that Vioxx
produced them.14 They seem to have gotten away with that conclusion
because the FDA approved Vioxx for treatment of rheumatoid arthritis.
Five years and many billions of dollars of drug sales later, the editors
of the New England Journal of Medicine, publisher of the Vioxx study on
rheumatoid arthritis, found evidence in an internal memorandum made
public in Vioxx litigation suggesting that the authors knew of data from
three patients that were not included in the published analysis. Inclusion
of those data in the publication would have further demonstrated Vioxxs
cardiovascular risk, and their absence led journal editors to question the
integrity of the data on adverse cardiovascular events in this article.15
In 2003 Vioxx constituted 11 percent of Mercks revenue, so the company resisted removing it from the market. But when a study testing Vioxx
for prevention of precancerous colon polyps showed an 80-percent
increase in risk of stroke and heart attack when the drug was taken for
eighteen months, the company voluntarily withdrew it. In the meantime,
however, there were more allegations that the company had been involved
in deliberate statistical manipulations that favored the drug in this study.16
In 2004 the FDA asked Pzer to voluntarily suspend direct-toconsumer advertising of Celebrex and in 2005 asked the company to
withdraw its other COX-2 inhibitor, Bextra, from the market because of
evidence of cardiovascular risk in other clinical trials. Yet in fact, when it
comes to knowing about the effectiveness of new prescription drugs
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compared to older, cheaper drugs, these three COX-2 inhibitors are a

best-case scenario. Most other new drugs are never systematically tested
against older drugs in the way that Vioxx and Celebrex were tested against
older NSAIDs.
Creating and Promoting Me-Too Drugs

The pharmaceutical industry makes a sizable percentage of its prots
from developing and promoting drugs of doubtful value as replacements
for older, cheaper drugs. The FDA sorts drugs it will evaluate for approval
into three categories: generics, priority drugs, and standard drugs.
Generics are old prescription drugs whose patent life has expired (such as
Aleve and Motrin) or drugs that were never patented. Because more than
one company can market generic drugs, they are cheaper than patented
drugs. They account for 19.4 percent of prescription drug spending.17
Priority drugs are those for which the FDA grants an expedited review
because they appear to offer clinical improvement over existing treatments. Priority drugs are usually an entirely new chemical formula for
treatment of a disease or a change that substantially improves the delivery of an existing drug (for example, a pill that lasts all day instead of
requiring three or more doses in one day). Both Vioxx and Celebrex were
rated priority drugs because they worked by a unique biochemical mechanism for NSAIDs.
A patented pharmaceutical that appears to FDA examiners to offer
little additional benet over existing treatments is termed a standard drug.
Standard drugs undergo a slower review process than priority drugs do.
They are usually combinations of two other drugs in one pill, slow-release
formulations, or slightly tweaked formulas of existing drugs. Standard
drugs have also been called me-too drugs because they are patented copies
of something that already exists. Between 1989 and 2000, 76 percent of all
new drugs approved were rated standard.18 But new drugs, whether priority or standard, are often priced and marketed as if they have unique
patient value.
The pharmaceutical industry is focusing immense energy on the
creation and mass marketing of me-too drugs. From 1995 to 2000, new
standard-rated drugs accounted for 67 percent of the increase in
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pharmaceutical spending.19 One reason is that companies are able to sell

new me-too drugs at much higher prices than older drugs and often at the
same prices as priority-rated drugs. In 2000 the average price per prescription of new chemical formulations that had been rated priority was
$91.20, while those rated standard was nearly the same at $81.92. The price
of older standard drugs was $37.20 per prescription. The price spread
between priority- and standard-rated combinations of drugs or slowrelease formulas (not new chemical formulas) was greater, but standard
drugs in this class were still priced more than 50 percent higher than older
drugs.20 Both standard- and priority-rated drugs are generally advertised
and priced as medical breakthroughs; and in the absence of data about
their value relative to existing drugs, who can tell the difference?
Drug Importation: Not much to Offer

In 1999 the prices of patented drugs without generic competitors were
28 to 42 percent lower in other countries than they were in the United
States.21 There are two schools of thought on this difference. Either the
United States pays too much for prescription drugs, or the rest of the
world pays too little. A major reason for the price differential is that a government agency is the primary purchaser of medications in most foreign
countries, and the volume of purchase is so great that the pharmaceutical
manufacturer must deal if it wants to do business.
Governments keep drug prices low in three ways: by purchasing large
volumes of medications, which results in discounts; by setting price ceilings for what they will pay; and by refusing to purchase every available
drug. According to basic supply-demand economics, a purchaser who
must have a drug will pay a high price for it. For example, biopharmaceuticals are a class of drugs derived from the bodys own proteins. They treat
conditions such as anemia, multiple sclerosis, and cancer. These drugs
are so complicated to invent and produce that they are usually the only
pharmaceutical that acts in their own particular way, so generic formulations are uncommon. Their price averages 71,000 dollars per patient per
year. Biopharmaceuticals and other drugs in their class comprise about
14 percent of U.S. pharmaceutical sales.22 If a car dealer knows that a
person has to buy her vehicle and cannot walk away, why will she lower
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the price? The situation is the same for drugs, so the prices of unique specialty drugs are about the same in foreign countries as they are in the
United States. Our nation, however, spends twice as much per capita on
such pharmaceuticals because of greater use.23
But for most drugs, foreign governments pay less. In Canada, for
example, drug prices are regulated by the Patented Medicine Prices
Review Board, which establishes a national ceiling on prescription drug
prices based upon the average price in seven other countriesFrance,
Germany, Italy, Sweden, Switzerland, the United Kingdom, and the United
States. Canadas national insurance program does not provide drug coverage, but all Canadian provinces provide some prescription drug plan, at
least for seniors. The provincial governments purchase 42 percent of all
pharmaceuticals bought in Canada, so they buy large quantities of drugs.
Because of the federal price ceiling and the purchase volume, the provinces
get better prices than U.S. consumers do.24
U.S. consumers pay such high prices for drugs partly because they are
willing to pay through the nose for me-too drugs that countries buying
drugs for their populace often will not purchase at all. Such countries, as
well as pharmacy benets managers that purchase drugs, have a formulary (a preferred list of drugs) that limits the number of drugs covered by
a prescription drug plan and therefore the number of drugs available to a
patient. Unless an insurer or a government is authorized to have a formulary that excludes many drugs in a therapeutic class, it has no basis for
negotiating a lower drug price.
Of 250 leading active pharmaceuticals, 2,196 different presentations
(which might be, for instance, one drugs combination with another in a
single pill) were purchased from nineteen U.S. manufacturers. For the
same 250 active pharmaceuticals, residents of Canada, Chile, France,
Italy, Japan, Mexico, and the United Kingdom consumed half that number
of presentations, which they purchased from fewer than seven manufacturers.25 New me-too drugs cost more than older drugs, and many of the
drugs Americans purchase are more expensive only because they are
offered as the latest thing.
The Medicare Prescription Drug Improvement and Modernization
Act (MMA) of 2003 permits importation of drugs from Canada if the
secretary of the Department of Health and Human Services certies that
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the practice is safe and saves signicant money. The secretary, however,
has never provided such certication. The pharmaceutical industry
opposes drug importation because it views the practice as de facto price
setting in the United States, though their ofcial position is aligned with
the FDAs, which opposes importation because the agency has no way of
guaranteeing the origin or safety of imported drugs.
The Congressional Budget Ofce (CBO) is a politically neutral agency
comprised of specialized budget analysts supported by advisory boards of
national experts in every area. The CBO provides members of Congress
with the projected costs of their legislative proposals and enacted legislation. A congressional committee that asks the CBO for an opinion had
better be condent about its inquiry because the budget ofce releases its
answer regardless of whether or not it is the answer the committee desired.
Regarding drug importation from other countries, CBO experts have
estimated that it would reduce U.S. pharmaceutical costs by only 1 percent.
They conclude that if the United States attempted to import drugs on any
scale, drug makers would contractually exclude medications that they sell
outside the United States from being imported into the country at lower
prices. The CBO has also determined that, because of the size of the U.S.
market, America could not import from just one country. For example,
Canadas population is about one-tenth that of the United States, so only
large-volume importation would produce any savings.26 In short, importation would be a legally complicated undertaking, difcult to regulate
and fraught with safety concerns about counterfeit drugs.
Drug importation is also not practical because the U.S. pattern of
drug use is different from that of other industrialized countries. Canadians,
the French, Germans, and the British consume about the same amount of
drugs per capita as Americans do, but Europeans use of new drugs is onethird less expensive per capita. Compared to Canadians, Germans, and
the French, Americans consume about twice as many new drugs (those
less than ve years old).27 European countries are not willing to buy metoo drugs at a premium when older, cheaper drugs will sufce; therefore,
many of the drugs that U.S. direct-to-consumer marketing so effectively
promotes would be unavailable for importation. American consumers
would have to wean themselves from a cafeteria of me-too drugs to consider drug importation on a large scale. But even then the safety issues
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seem insurmountable. Clearly, drug importation is not the way out of

high drug prices.
Can the Government Find the Right Price?

The Republican idea is that private business can manage health benets
better than the government can. Republicans do not like the idea that
Medicare directly pays doctors and hospitals for medical services. They
would prefer insurers or managed care organizations to handle payment
and manage benets. The MMA, which was promoted and enacted by
a Republican Congress and president, established the prescription drug
benet along Republicans preferred lines. Medicare directly pays the
managed care organization that the beneciary chooses to manage his
benet. If the program had been designed like traditional Medicare, the
government would be directly buying drugs for Medicare beneciaries, a
prospect dreaded by the pharmaceutical industry. Medicare may not have
a formulary, but every pharmaceutical managed care organization does.
Republicans hoped that, by privatizing the program, they would prove
that costs could be controlled without direct government intervention.
And they may have been on to something. The program came in 30 percent below its projected cost in its rst year. Nevertheless, the implementation of Medicare Part D resulted in a large increase in pharmaceutical
spending in 2006.28
The MMA also prohibits the secretary of health and human services
from negotiating the purchase of drugs for Medicare patients or establishing a formulary, thus effectively prohibiting the government practices used
in most other industrialized nations to control drug costs. But U.S. drug
prices are still above those of other countries, leaving the question What
is the right price for a medication, and how should it be determined?
The pharmaceutical industry claims that if Medicare paid the same
prices as the governments of foreign countries, pharmaceutical innovation would grind to a halt. The industry notes that from 1992 to 2002 the
U.S. share of pharmaceutical industry prot grew from 47 to 62 percent
while the European Unions share fell from 35 to 18 percent.29 The industry depends heavily on the U.S. market for its 18-percent prot margin
and, so companies claim, for research revenues too.
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But proponents of price controls point out that the pharmaceutical

industry spends 32 percent of its revenue on marketing, advertising, and
administration and only 14 percent on research. Five of the seven top U.S.
pharmaceutical companies spent twice as much on marketing as on
research in 2004. In 2001 the industry employed 81 percent more people
in marketing than it did in research, a gap that is only growing.30
If the U.S. government were to set Medicare prices for prescription
drugs, its most likely methods would be (1) indexing the prices to those
paid by the governments of a group of other countries, as Canada does,
or (2) negotiating a prot margin with pharmaceutical manufacturers,
as the United Kingdoms National Health Service does.31 Either approach
would require a law change so that Medicare could directly buy drugs as
it buys other medical supplies and services.
The drug benets of most people in the United States are administered by managed care organizations. These organizations in turn are
advised by pharmacy and therapeutics committees, groups of experts
whose identities are protected to keep pharmaceutical manufacturers
from trying to inuence their decisions. These committees objectively
evaluate the strength of the evidence about the effectiveness of new
drugs. The managed care organizations negotiate prices and make formulary decisions based upon the relative value of a new drug as determined
by their pharmacy and therapeutics committees.
Performed soon after FDA approval, independently conducted, properly designed clinical trials to determine the relative effectiveness and
risks of new drugs could reduce drug costs and would almost certainly
improve the quality of clinical care (as illustrated by the Vioxx and
Celebrex story) by providing critical information to pharmacy and therapeutics committees and to doctors. The judgments of these committees
are only as complete as the data that are available to them for evaluation.
For example, an early trial testing Vioxx versus Celebrex versus Aleve
would likely have found that they were equivalent in managing arthritis
pain, that the cardiovascular risk of Vioxx was out of proportion to its
benets in reducing gastrointestinal hemorrhage, and that the increased
risk of stroke and heart attack with Celebrex was acceptable only in those
few patients at high risk of gastrointestinal hemorrhage from NSAIDs.32
The result of such information might have been the inclusion of Celebrex
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in all formularies, with its use limited only to high-risk patients. While
such a trial (or trials) would have cost millions of dollars, it would have
saved billions.
If you doubt the need for such a trial, consider the position of any
managed care organization that had questioned the safety and effectiveness of Celebrex and Vioxx and had chosen not to purchase them for its
formulary in 1999 or 2000. Expert opinion already suggested that Vioxx
carried excessive cardiovascular risk, but the rst clinical trials were not
designed to detect such risk and so underestimated it. Moreover, the
information may have been suppressed anyway.33 At the time there was
insufcient proof to convince the FDAs examiners that the drug actually
decreased the risk of gastrointestinal hemorrhage. Yet even with such weak
proof of COX-2 inhibitors effectiveness, what would have happened to any
managed care organization that decided to save money by not covering
Vioxx and Celebrex, limiting their use to high-risk patients, or threatening
to leave Vioxx off its formulary and purchase only Celebrex unless the
manufacturer accepted a lower price? In the face of a 160-million-dollarper-year direct-to-consumer advertising campaign, whoever made this
decision would have endured a beneciary and provider revolt over a
drug that proved to be worse than worthless.34
While the Vioxx and Celebrex story is revealing, uncertainty about
relative effectiveness and relative risk exists for many groups of highly
touted pharmaceuticals. The data are lacking that would allow managed
care organizations to further narrow their formularies or approved uses of
pharmaceuticals without being pilloried by both pharma and beneciaries.
Better to get accurate information on what a drug is really worth and how
safe and effective it is so that prices and inclusion in formularies can be
negotiated based upon fact, not the puffery of advertising or the results of
deceptively designed clinical trials.
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15
Private Health Insurance
No Added Value
The creation of a competitive health insurance market may be

the only way to reduce health care costs short of a single-payer
system, though competition among insurers will not be enough
to accomplish it.
What has the health insurance industry contributed to U.S. health

care? It enjoys a bountiful prot simply by passing along costs. In 2006 the
American public, reeling from high health care costs and anxious about
the nations 47 million uninsured people, learned that UnitedHealth CEO
Dr. William McGuire had been forced to resign after allegations of stock
option backdating, although he had earned more than 500 million dollars
in total pay from 1992 to 2005 and held more than 1 billion dollars in
stock options. The fact that he had led the company to record size and
prots did not improve his appearance, and stories like his have done
little to engender public support for the health insurance industry.1
Insurers make money by underwriting and managing the health care
benets of beneciaries. They collect premiums from businesses and
individuals, select networks of doctors and hospitals, negotiate contracts
with the parties involved, and then pay for medical services. Insurers are
not protected from losses due to high-cost patients; so in an effort to
reduce these losses, they sometimes coordinate the management of beneciaries with chronic diseases.
If any facet of the medical industry has an incentive to reduce costs
and improve the quality of U.S. health care, this is the one. Reducing costs
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should result in higher prots and more business for insurers, whose core
business is to broker the sale of health care services and then manage
them. The fact that insurers have not taken the initiative to control health
care costs and improve quality more effectively indicates that they are in
a relatively noncompetitive business.
In fact, between 2000 and 2003, as the cost of their insurance product grew, so did their prots. In 2003, when the premiums charged by
insurers such as Aetna and UnitedHealth grew by 12.7 percent, their profits grew by 8.5 percent. In a more usual business, when the cost of goods
sold increases, prots decrease. Medicine is not, however, a usual business.
It is a business in which prots are disconnected from cost and inefciency is rewarded by increased revenues.
We are not in this situation because the health insurance industry
cannot reduce health care costs. It has the market power to drive down
costs because it consolidated to implement the managed care plans of the
1990s and has been consolidating ever since. If we were to consider the
nonprot Blue Cross/Blue Shield plans, which are state-based but cooperate across state lines, to be a single rm, we would say that it controls 31
percent of the U.S. market. Wellpoint, UnitedHealth, Aetna, and CIGNA
are the four largest for-prot rms; and most of the U.S. health care insurance market is controlled by these four rms and the not-for-prot Blue
Cross/Blue Shield plans. Together they control more than 60 percent
of the market in thirty-four states. In sixteen states the one largest rm
controls more than half of the market. WellPoint and UnitedHealth insure
more than 50 million people. That is real market leverage.2
In the United States, the existence of multiple health care payers
results in administrative waste among hospitals, doctors, and insurers.
One reason for high medicals costs is the fact that doctors and hospitals
must complete a different set of paper forms or computerized screens for
each insurer. Insurers impose a series of barriers before doctors and hospitals can collect for services they render. Providers are forced to spend
hours and resources on revising claim forms, offering additional information, or justifying the provision of a service to a patient. For high-dollar
procedures, a doctors staff may repeatedly negotiate with insurance clerks
before nally, and belatedly, being paid. In the practice I managed, three
months was the usual turnaround time for a medical claim submitted to
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a private insurer. We estimated that our practice lost about 10 percent of

its earned income due to the cost of increased staff and physician time
required to keep up with this cat-and-mouse game. That cost was not offset by the increase in revenues. It was simple waste. The average doctors
ofce devotes more than half of its overhead expense just to getting paid.3
The insurance industrys administrative cost has averaged at 12 percent of premiums for years. Although Medicares administrative cost is
one-fourth of that percentage, private insurers argue that if the federal
program allocated more resources to administration, its costs might
decrease because of more efcient patient management. This argument is
undermined by the fact that billing- and collection-related functions
account for 85 percent of both Medicares and private insurances overhead yet Medicares overall administrative cost is far less.4 Medicare adds
little to overhead because it does not erect barriers to payment: doctors
and hospitals must enter their claims electronically using one standardized screen; then payment is automatic. Heavy research and auditing is
reserved only for hospitals and doctors subsequently suspected of fraud.
However I examine the matter, I nd it hard to justify the prots and
overhead of the health insurance industry. In comparison to Canada, the
U.S. industry as a whole has wasted 286 billion dollars, a statistic that
some use as an argument in support of a single-payer system in the
United States.5 But while a single-payer system is the only way to achieve
administrative savings of this magnitude, there are other options for
reducing waste. For example, a group of hospital CIOs has told me that,
though federal law has attempted to standardize the process, an insurance claim form can vary in 1,200 ways. Such variability adds many layers
of redundancy and waste to the collection process. According to one proposed reform plan, eliminating insurance broker and agent fees and medical underwriting costs, even without standardized claim processing,
would save an estimated 29.8 billion dollars in administrative costs.6
In 1999, for which the most recent data were examined, the United
States spent 1,059 dollars per capita on administrative costs across all
facets of the health care industry, not just among insurers. That gure
equals 31 percent of health care spending. Compare those statistics to
Canadas 307 dollars per capita, or 16.7 percent of health care spending.7
According to a California study, moving money among employers,
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hospitals, doctors, and insurers consumes 21 percent of every private

health insurance dollar, leaving only 66 percent for medical care. The
13-percent remainder is allocated to prot and to administrative overhead not involved with moving money.8 The act of moving money from
payer to provider is a prime area for reducing administrative waste in
American medicine.
During the past thirty years, there has been no measurable difference
in cost escalation between the performance of the health insurance
industry and Medicare. So how does the private health insurance industry justify its cost? Medicare and private insurers cover the same services.
Both make high-quality, high-tech services readily available to their beneciaries. Neither has managed to provide efcient medical care. Both
marginalize preventive care and medical management. The cost growth of
both has increased at nearly double the rate of economic growth for many
years.
The question is not whether the insurance industry can take steps to
decrease cost. Rather, what would compel them to do it? Insurers and
employers were pilloried during the managed care era for placing brakes
on the use of medical services, and insurers have not forgotten this lesson. As a group, they could almost certainly reduce the administrative
costs of health care and the costs of care itself if the public were willing to
accept the measures required to accomplish these reductions. But the
vast majority of the insured in the United States do not directly pay for
their health care, so why would they cooperate with cost-saving measures
that they might view as intrusive, even if those measures would improve
quality?
Creating Competition
The key policy question is how to create cost competition among insurers
that will ow down to create cost competition among providers. The goal
of consumer-directed health care is to make people more judicious in
their use of medical services because it requires them to pay directly for
the rst several thousand dollars of services used each year. Proponents
of free markets in health care have seized on this idea. Its shortcoming is
that such policies force the individual to make decisions about needed
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medical services that only a doctor should make, such as Should I ll this
prescription for high blood pressure or not? or Should I really get the
1,200 dollar CT scan that the doctor ordered for my headache? or
Should I pay the cost of going to the doctor to check on my high cholesterol and blood pressure when I feel ne?
Consumer-directed health care pairs a high-deductible health insurance policy (a deductible of at least 1,100 dollars in 2007) with a taxadvantaged health savings account that can be used to pay for the
deductible. Americas Health Insurance Plans reported that in January
2007, 4.5 million out of more than 200 million privately insured Americans
were enrolled in these plans, which were rst allowed in 2004.9 According
to this line of thinking, because policyholders must pay for the rst services they use, they will be more judicious; therefore, health care cost escalation will be controlled. Early experience with high-deductible policies
shows that consumers use fewer services and pay smaller premiums than
they do with traditional plans. The results on quality, however, are mixed.10
For healthy individuals, such policies make sense: they reduce cost by
decreasing frivolous use of medical services such as unneeded emergency
room visits. But for the 12 percent of Americans who are hospitalized each
year, that deductible is gone within days. And for the chronically ill, who
are responsible for 75 percent of health care costs, such policies can be
dangerous.11
The idea for high-deductible policies was derived from a 1970 study,
the largest insurance experiment ever conducted.12 It showed that the
higher the co-pay, the less often people use health care services, except
perhaps for hospitalization. Even better, it showed that most patients are
not hurt by forgoing services. The exception is patients with chronic illnesses, especially if they are poor. Both the 1970 study and subsequent
research found that high-deductible policies lead such patients to decrease
their use of drugs and ofce visits while increasing their hospitalizations.13
A poor mans 1,000 dollars is equivalent to a rich mans 10,000 dollars.
As a result, the poor and the chronically ill forgo both needed services and
frivolous services, whether or not they can tell the difference.
It is no mystery why consumers say that they do not have enough
information to make educated decisions about use of medical services.
What patient really knows if he needs both the CT scan and the MRI study
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that a doctor orders for a headache or whether he needs either imaging

study in the rst place? Depending upon its character, the headache could
be a simple tension headache or the herald of a brain hemorrhage that
needs immediate intervention. The scans cost 1,200 dollars each, consuming a patients deductible. This kind of judgment cannot be gleaned
from the Wall Street Journal or a Google search. Few patients know what
services they really need; and when a patient is chronically ill, the consequence of making the wrong choice is high.
Insurers say that they have redesigned high-deductible policies so
that the patient has no out-of-pocket cost for preventive services or
management of chronic diseases. They believe the concept may yet prove
useful in creating patient accountability for overuse of medical services.
But given the high cost of chronic diseases, the powerful stimulus of
fee-for-service medicine, and the fact that consumers are not doctors,
high-deductible plans will be at best a single arrow among the quiver full
needed to permanently reduce the cost of health care.
Yet it is a mistake to discount the idea of consumer responsibility,
which is an essential component of any effort to reduce U.S. health care
cost and expand coverage. The creation of a competitive health insurance
market may be the only way to reduce health care costs short of a singlepayer system, though a competitive market alone is not sufcient. In the
current climate, why should the average consumer really care about the
cost of health care when she pays only a small percent of those costs
directly? On average, in 2005, individuals directly paid 15 percent of the
total amount spent on all of their health care goods and services.14
Of course, people already pay for health insurance in the form of
taxes or reduced wages, but their source of payment is so remote from
purchase that its true cost is largely unrecognized by them. Consumerdirected health care is the right idea, but people could better engage in
managing cost if the cost-sharing were not for the rst services but for
marginally-benecial services. For instance, requiring that individuals
share the cost (adjusted for their income) for a marginally-effective procedure such as a coronary catheter procedure for mild stable angina or a
back fusion for low back pain engages consumers in helping manage the
cost of their care but does not encourage them to forgo needed services.
Such cost sharing could be done in public programs, individually-purchased
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insurance, and employer-based health care. For this kind of cost sharing
to be implemented, however, there must rst be benchmarks of medical
practice and the grading of medical services as necessary, unnecessary, or
marginal. Such standards of medical practice do not now exist for most
conditions.
Reforming the insurance industry so that it competes on cost and
quality will require a change in its regulation from the state to the federal
level. Because insurance is regulated differently in each state, insurers
function as state-based oligopolies. They make prots by estimating the
likely cost of an individual beneciary or group of beneciaries based
upon their age and medical history or by excluding pre-existing conditions. If insurers set their premiums high enough so that they do not lose
money, prots are assured; there is little if any price competition. If the
insurance industry were regulated nationally so that insurers could operate in any regional market under the same regulations and with similar
distributions of high-cost and low-cost beneciaries among plans, then
there should be competition. This goal, resisted by insurers, is entwined
with the decision about how the country will cover its uninsured.
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PART THREE
Reforming American
Health Care
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16
Three Options for Covering
the Uninsured
Employer-based health care nancing subsidizes the health

insurance of 60 percent of the population while leaving more
than half of the uninsured, who are ineligible for public programs and cannot afford insurance, to pay full price.
To achieve a high-performance health care system, the United States

must do two things: (1) cover the uninsured and (2) reform the medical
industry. The two are interrelated but separate policy undertakings. First,
lets consider the expansion of insurance coverage.
A Federal Problem: The Uninsured

The problem of the uninsured will not solve itself. Nonetheless, many in
Washington circles, including members of Congress, believe that the
states will take responsibility for covering their uninsured where the federal government has not. This delusion is fueled by a gridlock in federal
policymaking and has been encouraged by Massachusettss recently
enacted plan to cover nearly all its uninsured.
But what is possible in a handful of northeastern and midwestern
states with small percentages of low-wage workers and uninsured residents
is not possible in more populous states with very different demographics
(California, Texas, and Florida, for example). For instance, a plan that cost
Massachusetts 132 million dollars in new expenditures was projected
to cost California about 9 billion dollars.1 The reason for the difference in
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R E F O R M I N G A M E R I CA N H E A LTH CA R E
cost is that in 2006 only 11 percent of the non-elderly population of

Massachusetts was uninsured, and 40 percent of these people were in families with incomes at more than twice the federal poverty level (a low cutoff
point for affordability of insurance). By contrast, among the non-elderly
population of California, 21 percent were uninsured, and only one-third of
them lived in families with incomes at more than twice the federal poverty
level. In Massachusetts 79 percent of people in families with at least one
full-time worker were covered by employer-based insurance; in California
the gure was 62 percent in 2006. Governor Arnold Schwarzeneggers effort
to lead California to cover the majority of its uninsured failed in large part
because of a projected annual cost of 14.9 billion dollars in the face of
a 14.5-billion-dollar budget decit.2 The only workable solutions to
Americas health care problems are federal.
There are three options for covering the uninsured in the United States:
Expanding present nancing methods
Implementing a single-payer system analogous to Medicare for all
Creating a reformed insurance market that protects individuals who

directly purchase their health insurance.
Helpless Employers
U.S. health care is broken, and continuing to nance and manage it by the
current model presents a number of challenges. It is, however, the most
politically palatable. In 2005, 158 million Americans were insured through
their employers. Fourteen million purchased their own insurance (called
individual insurance), and 47 million were left uninsured. Seventy-ve
million were covered by public programs.3 Remember that 82 million people lose coverage sometime in a two-year period, and 16 million are underinsured, totaling more than one-third of the non-elderly U.S. population.
Expanding the present system has the advantage of not interfering with
the coverage of 70 percent of the American public who are secure in their
Medicare or private coverage.
Businesses nance the largest number of insured Americans, so why
have they been unable to control health care cost? The answer is that no
one business, however large, can face off against the medical industry
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because no business has enough employees to exert competitive pressure.

Businesses also lack the time and resources to fully understand and confront the problems of medicine. They must focus on generating revenue,
not solving their problems with medicine.
An Unjust Tax Code

The existing structure of health care nancing is propped up by a tax code
that was enacted for reasons that no longer exist. During World War II
employers used health insurance benets to reward employees because
they could not legally increase wages. The National War Labor Board
exempted health benets from wage and price freezes in 1942, and the
Internal Revenue Service exempted employer-purchased group health
insurance from taxable gross income in 1943. Employer-based health
insurance grew from 12 million people in 1940 to 159 million (64 percent)
of the non-elderly in 2003.4
On average, businesses pay 80 percent of their employees health
insurance premiums. Businesses add their health care contributions to
the overall cost of doing business, paying taxes only on the businesss net
income. But the primary source of the tax benet is that employees who
receive employer-based health care do not pay taxes on this form of
income. They are paid with tax-free health insurance. The taxes that
would normally be paid in such an exchange of funds were worth an estimated 200 billion dollars in 2006essentially, a federal subsidy of the
employer-based insurance system.5 The uninsured could be covered for
what the federal government uses to subsidize the employed members of
society when it makes health insurance tax-free.
The tax code creates income for the employee whose employer offers
health insurance. But pity the poor individual whose employer does not.
That person pays 100 percent of his familys health insurance premium
with after-tax dollars, if he can afford to pay for it at all. Most high-income
employees work for rms that provide insurance, while fewer low-income
employees do. Therefore, the tax benet inherently discriminates against
those who can least afford to pay the full cost of health care. Because
fewer employers of low-wage workers offer insurance and wealthier people pay higher income taxes, the existing federal tax code provides an
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average subsidy of 2,780 dollars for families with incomes over 100,000
dollars and an average subsidy of 102 dollars for families with incomes
less than 10,000 dollars.6 The tax code is also unfair to self-employed and
contract workers. They pay full cost for their health insurance while their
counterparts who perform similar jobs for big businesses are subsidized
by federal tax dollars that the self-employed pay. Employer-based health
care nancing subsidizes the health insurance of 60 percent of the population while leaving more than half of the uninsured, who are ineligible
for public programs and cannot afford insurance, to pay full price.
Big Business Holds On

Big business is propping up the present dysfunctional structure of health
care nancing, but it is increasingly difcult to understand why. In 2005
General Motors, the nations largest private provider of employer-based
health care benets, announced that its health care costs had risen from
4.5 billion dollars in 2002 to 5.6 billion dollars in 2005.7 With increasing
global competition, such timing was bad. Thirty-nine percent of a 2005
GM employees hourly wage cost was devoted to the cost of health care
(including the cost of retirees health care).8 Rick Wagoner, GMs CEO,
has called for a national focus on health care because he thinks it impairs
Americas global competitiveness. In September 2007 the company
relieved itself of its health care obligations to retirees by agreeing to pay
35 billion dollars into a trust fund in exchange for transferring retiree
coverage to the United Auto Workers Union. According to the Washington
Post, GMs retiree health care liability, 51 billion dollars, was more than
twice the companys 21-billion-dollar market capitalization.9
Lee Iacocca, former CEO of Chrysler Corporation, is quoted as saying,
It is a well known fact that the U.S. automobile industry spends more per
car on health care ($1,525) than on steel. He has publicly advocated for
national health care. A McKinsey Quarterly report states that the
employee benets costs of some Fortune 500 companies will exceed their
prots within a few years.10
Regardless, a recent McKinsey survey found no urge among the CEOs
of American companies to withdraw from providing health care. In fact,
almost all of them regard the provision of employer-based insurance as
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a key strategy for employee recruitment and retention.11 Either business

protability has not yet been affected by high health care costs, or business leaders do not want to appear to abandon their employees interests
by signaling a wish to ee the employer-based health care system.
But there is no one business group; rather, there are disparate interests.
Helen Darling of the National Business Group on Health divides employers who offer health insurance into three groups with distinctly different
health care interests. Unionized businesses with high retiree costs (such
as General Motors and airplane manufacturers) represent one segment.
The unions that work in these industries oppose any hint that business
might leave the health care market, however fervently the businesses are
looking for relief. Another group is retailers (such as Safeway and
Wal-Mart), who are at a disadvantage because either they spend more on
health care than their competitors do or they do not want to spend more.
The third group (including businesses such as Microsoft and Dell) is content with the employer-based system because its businesses have no
legacy costs and young, highly educated employees. According to Darling,
these industries manage health care tightly and spend about 30 percent
less than the others do on health care. So no consensus has yet emerged
among big businesses as to whether or not the employer-based system
should be retained. They are mostly afraid of health care reform that
requires them to pay for their employees health care but removes their
control over spending.
Increasing Small Business Coverage

Insurance is regulated at both state and federal levels. Fifty-ve percent of
employer-based insurance is provided not by insurers but by large businesses that self-insure.12 This is because self-funded employer plans are
regulated at the federal level, so the regulations are the same in every
state where a large business operates. Small businesses cannot afford to
self-insure. Individuals who purchase insurance are subject to state regulation, and their insurance is not portable from state to state because
insurance is subject to fty different sets of requirements.
State policy initiatives that aggregate small businesses into large purchasing pools or mandate that businesses provide coverage have failed to
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expand coverage. Most of the uninsured are in families in which at least

one person is employed by a small business. When rms with fewer than
fty employees buy insurance, the average premiums they pay are not
higher than larger rms; but the benets of such policies are stripped
down and the deductibles and co-pays are high. Premiums have escalated
faster in the small business market than they have for larger businesses,
and premiums may be stratospheric for businesses with small workforces
of older employees. For example, rms with ten or fewer employees may
pay a premium that is twice the amount a larger employer would pay
when they have only one employee with a chronic condition.13
Insurers have a good reason for levying high premiums on small
rms, if state laws permit. Small group markets have high administrative
costs without the economies of scale that transpire from insuring employees of large businesses. Another problem is that the pool of beneciaries
in small group markets is unstable. An insurers ability to predict the incidence of disease in an insured population is critical to the survival of its
business. Seventy percent of health care costs are concentrated in 10 percent of the population, so a few unhealthy employees in a small group can
cost an insurer dearly. Insurers are able to judge their risk accurately with
large rms because, even though employees come and go, the pool of
insured is so large that there is little variation in the cost of illness from
year to year.
Even when state laws have aggregated small businesses into purchasing pools, insurers nd these pools unattractive. Small group markets are
unstable; businesses constantly rotate in and out of the pools, creating
risk for the insurance company. An insurer that cannot judge the stability
of a large pool of beneciaries and accepts more than its share of sick
patients must raise premiums across the board, risking its businessa situation the industry picturesquely terms the death spiral.14 Therefore, the
small group market is not of much interest to insurers. Our fragmented
system of nancing health care prevents the pooling of risk, which is the
basis of insurance.
Medium- and low-wage businesses cannot afford health insurance
premiums at todays prices, so mandating that businesses provide coverage has proven politically impossible. In 2007, employers paid an average
of $2.21 per hour for health insurance.15 State laws mandating that
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employers provide insurance have been enacted in California, Hawaii,

Oregon, Massachusetts, and Washington. With the exception of Hawaii,
they have all been either repealed or unimplemented.16
Even if it were possible to reform the small business market, most
low-wage workers would not have stable insurance coverage because they
rotate in and out of coverage as they change jobs. Only 24 percent are
employed full time for a forty-eight-month period.17 The migration of lowwage workers in and out of employment would only aggravate the problem of unstable insurance risk pools. In 2005, about 19 percent of the U.S.
workforce was either part time or temporary, a gure that is expected to
rise in coming years.18 For low-wage and part-time workers, insurance
must be portable from job to job.
Individuals on Their Own

In our employer-based market, individuals who are self-employed are not
much better off than those working in small businesses. Just 7 percent of
the population under age sixty-ve purchases individual private health
insurance.19 The premiums of individual policies are, on average, the
same as those for employer-based insurance. But as with small-business
policies, benets are reduced and out-of-pocket costs are high so that
in the event of serious illness the cost in co-pays and deductibles can be
considerable.20 Even worse, however, when the owner of such a policy gets
sick and needs ongoing care, the insurance company can legally increase
renewal rates to unaffordable levels in many states. This circumstance is
probably the precursor of most of the medical bankruptcies in middleincome families.
I have personal experience with the individual insurance market. On
July 27, 2006, I received the call every parent dreads. My daughter Marjorie
had been involved in a near-fatal car accident outside of San Francisco.
The car she was driving was hit by an oncoming vehicle at seventy-ve
miles an hour, ipping her car several times, denuding it of sheet metal,
and leaving her suspended in the upturned car. She was saved by a seat
belt, air bags, and the extra framing of her Toyota Forerunner. Miraculously
she walked away, but the accident led us to reexamine her health care
coverage. For the previous three years, she had purchased individual
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insurance while working as an independent consultant and contractor.

We realized, however, that if she had sustained long-term injuries, she
would have been uninsurable in the individual insurance market. As a
result of this discovery, she decided to work for a business where she was
protected under a corporate policy. Only ve states compel insurers to offer
coverage regardless of health status.21 Nineteen states do not limit the ability of insurers to exclude preexisting conditions. Insurance in the individual market only protects you if you are in good health and stay that way.
In 2001 the Kaiser Family Foundation commissioned an experiment
in which seven hypothetical individuals or families applied to nineteen
insurance companies in eight state markets around the United States,
totaling sixty applications per person.22 The projects goal was to get a
realistic picture of what individuals face when they must purchase their
own health insurance. Three of the seven applicants are representative:
Greg was a thirty-six-year-old writer who was HIV positive. He was

uninsurable in all markets.
The Cranes were a thirty-six-year-old married couple with a ten-yearold daughter and a twelve-year-old son who had asthma and recurring ear infections. They received sixty offers, but nine excluded their
son. Most of the policies excluded the sons ears or respiratory system.
Seventeen offers increased the familys rate by 20 to 50 percent
because of the ear infections and asthma.
Denise was a forty-eight-year-old actress and a seven-year breast cancer survivor. She was rejected twenty-six times and received eleven
clean offers. Half of the offers had riders excluding cancer treatment
of any kind or mastectomy treatment.
Overall, the premiums of the seven applicants were increased by an
average of 38 percent because of their medical conditions. The studys

conclusion was that anyone with a health condition either faces difculty
or is uninsurable outside of the employer-based system.
The chronically ill, therefore, may have no choice but to do whatever
is required to maintain their employer-based coverage. A friend of mine
manages a business and suffers from a chronic illness that affects mobility.
The disease is treated with 15,000 dollars worth of medicine per year. He
told me, I have no business working, but I have to last until I am sixty-ve
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because otherwise my family and I are uninsured. Individually purchased insurance would be unaffordable, so he continues to work, walking with a cane and putting his health at further risk.
Vouchers for Purchase of Insurance

In the present system the most feasible means of covering the uninsured
is to offer them publicly funded vouchers or tax credits to purchase insurance in the individual market. But unless these vouchers cover nearly the
entire cost of the premium, most people will not use them. More than half
of the uninsured are members of poor families whose employers do not
offer health insurance and who cannot afford to purchase it themselves.
When the poor must spend 5 percent of their income to pay for an insurance premium, only one-quarter of them enroll. At present one-third of
the uninsured are healthy nineteen- to twenty-nine-year-olds who are not
likely to buy health insurance unless it is fully paid for or its purchase
mandated.23 On the other hand, the chronically ill in the individual insurance market face very high rates, if they are insurable at all, even with
vouchers.
The use of vouchers or tax credits to federally mandate the purchase
of individual insurance would be complicated by state insurance regulation because people would be thrown into dysfunctional markets with
others who purchase their own insurance. How can anyone be subsidized
and mandated to purchase insurance when most states do not guarantee
that a person with illnesses can purchase insurance or if states permit
insurers to raise rates to unaffordable levels for people with illnesses or to
exclude preexisting conditions?
One solution, proposed by Representative John Shadegg and Senator
James DeMint, is to enact federal legislation that allows insurers to offer
individual insurance anywhere in the United States based upon the insurance regulations of any state they choose.24 Such a law would help lower
costs because insurers could avoid states that mandate them to provide
rich and expensive benet packages. It would not, however, solve the
problem of the chronically ill, who would be left out in the cold. Insurers
would gravitate to states in which they could offer the cheapest
insurancenot likely to be states where insurance regulation is friendly
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to those with preexisting conditions. It would be a race to the bottom,

where only the healthy are insurable.
Expanding Medicaid
The other means of leveraging the existing system is to expand eligibility
for federal health care programs. Medicaid is a joint federal and state
health insurance program that provides coverage for the poormainly
children, elderly, and the disabled. More than half of Medicaid enrollees
are children, about 23 percent are adults, 10 percent are elderly, and 15
percent are disabled adults.25 SCHIP, a twin federal and state health insurance program, is designed to cover poor children whose families earn too
much money to be eligible for Medicaid but not enough to afford health
insurance.
A key feature of both Medicaid and SCHIP is that is that they are statemanaged and partly state-nanced. On average, the federal government
funds 57 percent of the costs of Medicaid and 70 percent of the costs of
SCHIP, with the individual states funding the remaining portion. So it is
clearly impossible to expand coverage through these programs unless the
federal government pays the full cost. Twenty-ve percent of the 47 million
uninsured are eligible for Medicaid and SCHIP yet are not enrolled.26
States will nd and enroll only as many eligible residents as they can afford
because they do not have enough money to cover everyone.
For instance, between 2003 and 2005 Texas chose to turn down
536 million dollars in federal money and dropped 175,204 children from
health insurance enrollment in order to save about 200 million dollars in
state expenditures. The maneuver was accomplished by enacting enrollment policies that acted as barriers: for instance, face-to-face reenrollment every six months rather than yearly. In fact, during its 2003 state
budget crisis, Texas was responsible for half of all children who were
taken off the SCHIP rolls nationally. The state was extraordinary in its zeal
but not alone in cutting back some elements of its public programs: in
2003, many of the states health care costs exceeded their educational
costs for the rst time in their history.27
The poor are not easy to nd and keep enrolled because they are
often not able to comply with usual enrollment procedures. For instance,
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a one-day enrollment process every six months might cost a janitor her
job or two days of badly needed wages each year. But simplifying enrollment procedures would only be a useful way of increasing enrollment in
Medicaid and SCHIP if the states had the money to pay for those who
enrolled.
Another problem with expanding Medicaid involves a phenomenon
known as crowd out. When the jobs of the poor do offer insurance coverage that pays a percentage of the familys premium cost, the poor will
drop private coverage and enroll in public coverage when such programs
are offered because public coverage costs them less. This phenomenon is
uncommon among the very poor, whose jobs rarely offer coverage. At
higher income levels, however, as many as 60 percent of those on public
programs may have dropped private coverage for public coverage, which
shifts health care spending from the private to the public sector.28
Finally, states keep down their costs by underpaying doctors and
hospitals. Medicaid pays doctors only 69 percent of the Medicare rate,
which in turn pays doctors less than private insurance does. Therefore,
Medicaid patients are kept out of many doctors ofces by whatever
means possible, giving Medicaid beneciaries limited access to both primary and specialty care.29 A physician who works in a public clinic
recently told me that she cannot get a Medicaid patient in to see any
orthopedic surgeon in Houston. In my experience, most neurosurgeons in
Houston will not see a Medicaid patient in their ofces. For this reason,
these patients congregate in public hospitals and clinics, where doctors
are willing to see them if the patients can get in. In states such as Texas,
California, and Florida, where Medicaid beneciaries have the worst
access to care, patients must shop around for months to nd a doctor who
will take them. The care of Medicaid patients with mental illness is documented as substandard nationally.30
Doctors avoid Medicaid patients, but hospitals shift their losses from
Medicaid to private insurance. They recover about half of their Medicaid
losses by increasing charges to private insurers.31 Converting the uninsured to Medicaid patients is not likely to contribute to the moderation of
health insurance premiums because cost shifting would continue. The
uninsured account for a signicant portion of employer-based insurance
premiums, but they are not the only source of hospital cost shifting.
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140
Private payer
130
120
Percent
110
Medicare
100
90
Medicaid
80
70
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
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FIGURE 16.1
Hospital payment-to-cost ratios for private payers, Medicare, and
Medicaid
Source: Health Forum, Hospital Statistics (Chicago: American Hospital Association,
various editions).
Figure 16.1 shows the reciprocal relationship between Medicare and

Medicaid payment rates since 1980. As the payment rates of public programs go down, the cost of private insurance increases proportionally.
This relationship means that employers are the nal payers for all health
care losses, whether from the uninsured, Medicare patients, or Medicaid
patients. There is no better reason than this one for employers to nd an
exit from employer-based health care or at least to seek a limit on their
liability for nancing it.
To summarize, preserving the existing methods of health care nancing is the least attractive public policy for several reasons:
If Medicaid were used to expand coverage, the states would limit

enrollment and still have many uninsured residents.
Medicaid expansion would probably not lower private insurance premiums because hospitals would still cost-shift their losses.
Medicaid patients, like the uninsured, receive substandard care.
Use of vouchers or tax credits to cover the poor would still leave many
people uninsured unless the vouchers covered the entire premium or
purchase was mandatory.
Under current insurance laws those who purchased insurance with

vouchers would be subject to the same state insurance regulations
that doom anyone to uninsurability if they become ill.
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Even so, the health care industry has promoted Medicaid/SCHIP

expansion and vouchers as a means of covering the uninsured. For two
years members of the Healthcare Coverage Coalition for the Uninsured met
in secret before releasing their agreement on January 18, 2007. This group
was known in Washington as the strange bedfellows. When I analyzed the
membership, I concluded that the group was really not all that strange: it
included the entire health care industry plus Families USA (a group that
advocates for the poor) and the U.S. Chamber of Commerce. The groups
health care members were the AARP (a health insurer through its Medigap
policies), the organized hospital industry, the organized physician industry, the organized health insurance industry, and members of the pharmaceutical and medical supply industries. The group proposed to expand
eligibility of Medicaid/SCHIP for the poor with simplied eligibility procedures. It suggested refundable tax credits toward the purchase of insurance
for the near poor (those at 100 to 200 percent of the federal poverty level).
When you think about it, from the medical industrys vantage point,
whats not to like about the way things are? Currently hospitals can make
prots of 5.2 percent, insurers 6.8 percent, and pharmaceutical manufacturers 18 percent without much connection between price and the quality
and value of their products. So there are two functional alternatives to
expanding the existing method of nancing: either single-payer coverage
analogous to Medicare for everyone or an insurance market disconnected
from employment. Both have disadvantages and advantages; but with the
present method of fragmented health care nancing, we have so many
players that no one of them can effectively control overall U.S. health care
costs. This development has allowed the medical industry to effectively
inate its cost structure and insulate its performance from its payment.
Either government purchase or individual purchase could provide a
better means of controlling health care costs. Either way, the largest
single industry in America cannot be tamed without some form of serious
government intervention.
Medicare for All

In the 20056 and 20067 congressional sessions, Senator Edward
Kennedy (Democrat from Massachusetts) and Representative John Dingell
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(Democrat from Michigan) introduced the Medicare for All Act. In both
sessions Representative Pete Stark (Democrat from California) also introduced his AmeriCare Health Act. These bills offer Medicare coverage to all
of the U.S. population or at least double the size of the current program.32
But Medicares track record, like that of the entire U.S. health care
industry, has a history of unsustainable spending increases. In fact, it
cannot continue to be managed as it has been, even if the program is limited to seniors. In its current structure the program will break the federal
bank. Other countries have controlled health care costs by setting a
health care budget and forcing their medical industries to live within it,
something the United States cannot avoid if Medicare for All becomes the
answer. Such programs have their advantages and disadvantages.
Canadas national health program, also called Medicare, is an example
of what U.S. Medicare for All might look like and illustrates what the nation
would have to do to create a workable public health care system. Canadas
national health insurance is funded by block grants to the provinces and
can be supplemented by provincial taxes. Provincial governments manage
costs by xing annual operating budgets for hospitals and controlling hospital building expansions and equipment purchases. Canadian administrative costs are low compared to those in the United States, one benet of a
single-payer system. Although Canadian physicians are paid fee-forservice, their fees are negotiated with provincial governments; and expenditures for physician services are capped, as is the upper limit of physician
income in some provinces. Additionally, health insurance can only be purchased for services not provided by public programs, so there is no competition between programs or cost shifting from public to private programs.
Hospital budgets are xed; therefore, if the demand for certain procedures exceeds the expected number, patients are assigned to a waiting
list, with their care prioritized by physicians based upon medical need.
Canadian physicians rate access to emergency services and routine diagnostic services as good; but most rate access to advanced diagnostic services, orthopedic surgeons, and hospital care for elective procedures as
only fair or poor.33
The Canadian system has three strengths: (1) its cost is low relative
to care in the United States, (2) everyone is insured, and (3) it is
oriented toward primary care and emphasizes disease prevention and
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management.34 Primary care physicians make up half of the Canadian

physician workforce but only one-third of the U.S. physician workforce.
The 2000 World Health Report, which ranked nineteen countries by their
mortality rates from diseases amenable to health care, listed Canada as
fourth overall in mortality from diseases such as cancer, tuberculosis,
diabetes, epilepsy, hypertension, and pneumonia. The United States
ranked sixteenth. By 2004 it ranked dead last.35
From a patients perspective, the biggest difference between Canadian
and U.S. health care is waiting time. In Canada and most single-payer systems, waiting times are the result of the rationing of specialty services. If a
doctor told a Canadian that he would need to wait for ten months before
getting a hip or a knee replacement or one month before receiving radiation therapy, the Canadian would wait. An insured American would nd
another doctor. An uninsured American, however, would rejoice because
in the United States he would not get the hip replacement at all and might
wait half a year for radiation therapy or not get it at all.
Insured Americans generally dont wait long for specialty services
because specialists and technology are plentiful and plentifully used. In
2003 Canadians commonly waited four weeks for specialized services,
just under ve weeks for non-emergency surgery, and three weeks for a
diagnostic test. But 10 to 20 percent waited longer than three months for
services. Nonetheless, over time Canadians have systematically reduced
waiting times: in western Canada, the waiting time for hip and knee
replacements has been reduced from ten months to one.36
Despite the Canadian focus on primary care, access to such care is
about equal in the United States and Canada. Sixty percent of Canadians
and Americans with above-average incomes have difculty getting care
on nights, weekends, and holidays. One-quarter of Canadians and
Americans with below-average incomes wait six days or more for an
appointment, though only a small percentage of higher-income Americans
wait to see a doctor.37 In my own practice, new patients usually would
wait two weeks for an appointment before seeking another neurosurgeon.
If appropriate care is rationed excessively, then the outcomes of illness
are worse for people who wait too long, whether or not large-scale mortality studies identify the differences. For years the British National Health
Service has been trying to reduce waiting times for cancer diagnosis and
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treatment. Nonetheless, in 2005 more than half of patients diagnosed with

cancer in England, 74 percent in Wales, and 44 percent in Scotland waited
more than the recommended twenty-eight days for radiation therapy.38
Insured Americans probably have the worlds best access to highquality technology. This access and, until recently, the availability of
superior emergency services have been the strengths of our health care system. But several factors drive down U.S. performance in international rankings of disease-specic mortality rates, including the devaluation of
primary care and the presence of so many uninsured residents with limited
access to routine care and non-emergency specialty services. International
comparisons do not measure access to technology and prompt emergency
services, so the United States usually does not rank well on its ability to prevent and treat chronic diseases.
The Canadian system of budget setting has controlled costs, but it
also has its own set of problems. Because the provinces x the budget for
physician services, Canadian physicians who want to protect their
incomes have made it difcult for new doctors to practice. As a result,
Canadians in some provinces perceive that they do not have enough
physicians. Only one-fth of Canadian family physicians are taking new
patients, so it is no surprise that one-half of Canadian emergency room
visits are for routine care, as in the United States. Like all other industrialized countries, Canada now faces cost-escalation problems, although
from a much lower cost basis than the United States. Yet our nation does
not have a monopoly on inefciency or safety concerns: they are features
of every other health care system in the world.39
Advocates of a single-payer system emphasize low U.S. rankings in
infant mortality and mortality of diseases preventable by medical care.
But the real question is not Which countrys health statistics look
better? but In our particular form of government, is it possible to run an
efcient health care system that is federally managed?
When I came to Washington to work on Medicare policy as a U.S.
Senate staff member, my mind was open about the question of a singlepayer system. In the course of my medical research I have visited a number of Canadian hospitals and worked with many Canadian physicians,
and I have a good opinion of that countys health care. The waiting lists
that worry Americans seem to be mostly a personal inconvenience that
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Canadians accept in the interest of equitable health care. A physician in

Calgary told me that his province has worked hard to shorten waiting lists
for surgery, and they are not regarded as a problem in Alberta. So I was
ready to believe that something similar might work in the United States.
But one year in Washington changed my mind. Reforming the Medicare
program is the greatest domestic policy challenge facing the U.S. government, and Medicare for All would be managed like Medicare.
Medicares administrators calculate the price to pay doctors, hospitals, pharmaceutical companies, and medical suppliers so that, on average, they have an adequate prot margin. The same base rate is paid
across the United States but is modied to take into account differences
in wages and cost of living. There are three problems with this payment
policy. First, the program is underadministered. The program and its
advisory groups do not have the resources to keep up with the detailed
information needed to properly set payment rates for individual items, so
over- and underpayment are ubiquitous (as judged by providers with an
average prot margin on Medicare goods and services outside the 2- to
6-percent range). Second, because Medicare pays by fee-for-service,
providers can quickly nd a way to subvert the programs efforts to manage its costs. For example, physicians increase the volume of their services in response to decreased payments (and contribute to Medicares
30-percent waste) through unnecessary tests, hospitalizations, and minor
procedures. Third, Congress routinely subverts rational decisions made
by Medicares administrators because of old-fashioned politics. The rst
two problems can be xed, but the third is a condition of a publicly managed health insurance program in which beneciaries, providers, and
industries are all constituents.
During the 20067 legislative session, I worked as a staff fellow in a
congressional ofce, and I spent another half-year listening to experts in
health policy. In my staff capacity, I attended many bipartisan meetings at
which Medicare was discussed, and I asked questions. More than a hundred industry lobbyists and constituents representing different facets of
the medical industry visited our congressional ofce, all seeking new legislation that would increase their Medicare payments or would overrule
an administrative decision to cut those payments. After these visits, we
commonly elded calls from bewildered seniors who had been told that
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Congress was going to cut their Medicare benets. Sometimes we were

deluged with letters from frightened beneciaries.
Medicare headquarters receive tens of thousands of letters a year
from members of Congress who are protesting one or another payment
decision. If administrators do not respond, a law is sometimes passed
reversing their decision. In other words, most payment policy is not made
in Medicares Baltimore headquarters but on Capitol Hill, where the programs long-term scal condition is not the primary consideration.
Congress functions like the board of directors of the public insurance
company known as Medicare, but these directors inevitably have serious
conicts of interest. Following are a few routine examples.
In 2004 about one-quarter of the occupants of rehabilitation facilities were older, short-term patients who had undergone hip and knee
replacements, and Medicares cost of rehabilitative services was increasing at 15 percent per year.40 Meanwhile, nursing homes were performing
the same services at much lower cost with no indications of inferior quality.
Equalizing the payment for these patients between nursing homes and
rehabilitation hospitals, along with temporarily freezing payment
increases to rehabilitation facilities, was estimated to save 2.4 billion dollars over ve years.41 But inuential members of the 110th Congress
opposed efforts to enact such legislation because the home ofces of
rehabilitation chains were in their states, so no corrections were made.
Small local businesses in rural states provide home oxygen services
to chronically ill Medicare patients. I have heard the owners of such businesses called oxygen millionaires because Medicare pays them 7,200
dollars over three years for equipment that costs only 700 dollars.42 In a
rural state, a small group of noisy constituents can create a lot of trouble
for a member of Congress. Fearing the ire of these oxygen millionaires,
many members of the 110th Congress had little choice but to oppose correction of this payment distortion, so no corrections were made.
Manufacturers of implantable medical devices pay consulting fees
to doctors for legitimate purposes such as providing advice on product
design. They are suspected, however, of also paying fees as a means of
encouraging surgeons to implant their devices, which is illegal. According
to the Wall Street Journal, after the U.S. attorneys ofce in New Jersey
investigated kickbacks, ve orthopedic device manufacturers agreed to
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publicly post payments to doctors as part of a settlement.43 But members

of Congress from states where device manufacturers were headquartered
opposed an effort to require all doctors who contract with Medicare to
publicly post their consulting agreements, and such legislation was never
enacted.
The medical industry certainly does not always get its way with
Congress, and Medicares administrators are not always correct. They are
subject to the presidential administration and its politics. Congress sometimes recties poor administrative decisions, but it also overrides good
decisions because it is difcult, if not politically suicidal, for members to
support policies that decrease the prots of industries concentrated in
their home states. These industries are economic engines, and they
employ constituents.
The New York Times has quoted former senator Alan K. Simpson
(Republican of Wyoming) as saying, [Medical] industries rely on a basic
threat: If you mess with us we can turn the seniors against you. Angering
seniors is the quickest route to political suicide.44 So when congressional
staffers are negotiating Medicare payment policy in late-night meetings,
you can be certain that that the programs long-term scal condition is
the last thing they are thinking about. Rather, their objective is to maintain Medicare beneciaries access to all services, avoid antagonizing the
medical industries in their members state, and avoid making decisions
that would cut jobs in that state. The staffers are not doing anything
wrong; this is how the process is designed to work.
In sum, because Medicare is a public program, its payment policies
are as much about politics as about policy. And unless management of
the program is restructured to insulate it from the political process,
Medicare for All would certainly be a reprise of Medicare. My experiences
in Washington led me to conclude that the United States can never afford
Medicare for All because it cannot afford Medicare as it is presently
managed. The alternative is the private purchase of insurance.
Individual Purchase of Insurance

The end of the employer-based tax deduction may be an idea whose time is
coming. Under the name Better Healthcare Together, Service Employees
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International Union, Wal-Mart, Intel, Qwest, Embarq Communications,

AT&T, Kelly Services, the Communications Workers of America, the Center
for American Progress, the Howard H. Baker, Jr., Center for Public Policy,
and the Committee for Economic Development (a business coalition) have
teamed up to nd ways to x our broken health care system. This is the
group I would call strange bedfellowstwo of the largest labor unions
and some of the largest businesses in America, along with a progressive
policy institute and two think tanks. The group had made no specic proposal, but it has developed four principles: (1) every American should be
covered by health insurance, (2) the value of health care services should
be improved, (3) individuals should be responsible for maintaining their
own health, and (4) everyonebusinesses, individuals, and government
should nancially contribute.45
The groups public comments indicate that some of its member
unions and companies are looking for a way out of employer-based health
care. Kelly Services president Carl Camden has said, Our WW II vintage
health care insurance system is woefully out of step with the global economy and the needs of more than twenty-two million free-agent workers
who prefer a more exible approach to work. Current workforce trends
will only re-enforce the movement away from traditional employeremployee relationships.46
In 2007 senators Ron Wyden (Democrat from Oregon) and Robert
Bennett (Republican from Utah) introduced bipartisan legislation that
would disconnect health insurance from employment. Their proposed
Healthy Americans Act is the rst bipartisan health reform plan in memory, and its detailed provisions and cost estimates have been made publicly
available. The plan preserves Medicare but does away with most of the
Medicaid program and with the personal and corporate tax exemption for
employee health care benets. Instead, that tax exemption would go to the
individual. In addition, the plan provides sliding-scale premium subsidies
for the purchase of private insurance, with higher subsidies going to lowincome individuals. The upper limit for subsidized purchase is 400 percent
of the federal poverty level. For example, a single individual with a yearly
income of 10,210 dollars (100 percent of the 2007 federal poverty level)
would be fully subsidized, and a single person making 40,000 dollars would
be partially subsidized. Above that income there would be no subsidy.
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To ensure the quality of coverage, the plan mandates that all insurers
provide a level of insurance equal to that of federal employees.
Administrative cost is reduced by establishing Health Help agencies that
connect individuals with insurers and handle premiums. Employers still
aid their employees in selecting a plan and pay between 2 and 25 percent
of the cost of the average regional premium per employee. The plan is
funded by decreased Medicaid spending, decreased insurance administrative costs, removal of the tax subsidy for employer-based insurance,
and the market effect of having 247 million individuals purchase insurance in a national insurance market.
A health care bill that disconnects insurance from employment and
provides a tax credit to individuals and families for the purchase of insurance was also introduced in the 20067 legislative session by Senator Tom
Coburn (Republican from Oklahoma), also a doctor. Unlike the WydenBennett bill it allows the states to continue regulating insurance but
allows insurance to be purchased across state lines. But although it permits portability, Coburns bill leaves individuals subject to state insurance regulation, thus offering little protection from unaffordable rate
increases or denial of coverage because of preexisting conditions.47
Other groups are also concerned about health care reform, and what
employers are saying is not as important as what they are doing. The
Committee for Economic Development represents a diverse group of
employers, including pharmaceutical manufacturers, for-prot hospitals,
data management companies, and banks. In 2002 the committee proposed a restructuring of the employer-based system, but employers were
making so little progress in managing health care costs that in 2007 the
group called for mandated individual purchase of insurance with regulation of the insurance market. This idea is similar to the Wyden-Bennett
plan.48
In sum, to force the insurance industry to earn its prots by decreasing the cost and improving the quality of health care rather than by cherry
picking healthy people, the industry must be federally regulated. Only in
this way can individuals have portable insurance that is both affordable
and available for those with medical conditions. Only by covering the
uninsured and patients currently funded by SCHIP and Medicaid with private insurance equivalent to everyone elses will everyone else be relieved
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of paying for hospital losses by way of increased premiums. Only if individuals pick their policy with full knowledge of their choices and then
write the check for a major portion of the cost will they ever care enough
about the cost of health care to cooperate with efforts to reduce it. Only
the purchasing power of hundreds of millions of people buying insurance
in the same market has much of a chance against a medical industry that
is recalcitrant to change. Health care costs must be controlled, and the
uninsured must be covered. The solution is simply a matter of deciding
which forces should take charge: individuals, the federal government, or
both. I think the problem is big enough to require both.
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17
No Coverage Expansion
without Cost Control
The inability to manage health care cost may be a greater

obstruction to covering the uninsured than any other single
cause.
The cost of providing health insurance for the uninsured is not trivial,
but it amounts to less federal money than is spent on any other single federal program or industry subsidy. In addition to what hospitals, doctors,
the public, and the uninsured themselves already spend on the uninsured, the United States could cover them for an estimated 73 to 100 billion
dollars (in 2004 funds).1 Consider that the nation spent 2 trillion dollars
on health care in 2004; less than 4 percent of that gure would be sufcient to cover all of the uninsured. The cost is less than the federal portions of Medicare and Medicaid and less than half the tax subsidy for
employer-based coverage.2 Unnecessary hospital and doctor services
account for one-third of Medicare spending. If this gure is extrapolated
to the 2 trillion dollars spent annually on U.S. health care, then 700 billion
dollars a year are wastedmoney enough to cover the uninsured seven
times over. Clearly, in the large scheme, covering the uninsured is not a
particularly large cost.
But as with the proposed Medicare for All Act, using federal money to
cover the uninsured could be a scal bomb if it is not combined with a
serious effort to reduce health care costs. Before the passage of Medicare,
only about one-quarter of seniors were insured, meaning that hospitals
lost money caring for seniors as they do today caring for the uninsured.
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Therefore, the hospital industry tacitly approved, or at least did not

oppose, the creation of Medicare. The American Medical Association,
on the other hand, pulled out all stops to oppose its passage, believing
that government intervention would ultimately cost doctors their
independence. Fearing government control, the AMA threatened a boycott
if Medicare were enacted, which gave rise to the reasonable and necessary criterion for covered servicesin other words, anything a doctor
wants.
The hospital industry made a wise choice in not opposing Medicare.
The research of Dr. Amy Finkelstein has found that Medicares cash infusion resulted in a 37-percent increase in hospital spending in the rst
four years after its enactment. Half of the growth was from new hospitals
and half from increased use of existing hospitals.3 Finkelstein believes
that Medicares great contribution was to reduce the risk of out-of-pocket
spending that could bankrupt the elderly. It also increased their life
expectancy. She estimates that covering the uninsured today would
reduce a states fraction of uninsured by about the same amount as
Medicare did forty-three years ago.4 Todays uninsured are younger and
healthier than the patients who entered Medicare in 1965, so they might
not increase hospital spending as much as Medicare did. Nonetheless,
Finkelsteins data raise the question of whether or not covering the uninsured would further escalate all health care spending by fueling the profitability and expansion of the entire industry. My conclusion is that
coverage of the uninsured must be accompanied by a serious effort to
manage the cost of the entire U.S. medical industry.
Despite the additional cost and aside from any moral or ethical considerations, the uninsured should be covered sooner rather than later for
four reasons:
Hospitals pay for uninsured care by cost shifting, thereby increasing

insurance premiums.
Too many uninsured make key hospitals nancially unstable and

dangerous.
Too many uninsured cause emergency services failure.
The medical care of the uninsured is substandard, leading to higher

health costs in the long run.
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N O COV E R AG E E X PA N S I O N W I TH O U T CO ST CO N T RO L
203
Who Really Cares?

During my year and a half in Washington, D.C., I listened to members of
Congress, analysts from think tanks, and lobbyists talk about health care
nancing and the uninsured. I heard three explanations of why the uninsured have not been covered in the United States: differing partisan political ideologies, public apathy, and lack of anyone willing to pay. All three
reasons were discussed at a March 2007 hearing of the Senate Finance
Committee on Health Care Reform.
Sitting on the dais behind the senators, I observed that three of the
committees four witnesses looked comfortable, not quite bored. The
committee had carefully chosen these witnesses: the three almost-bored
ones were health care leaders with three or more decades of experience
with reform efforts, and had all testied before. The remaining witness,
who looked more uneasy, was a public appointee who had just finished
a multiyear project studying public reactions to the idea of health reform.
The rst speaker was Dr. James J. Mongan, president of Partners
HealthCare, Bostons dominant hospital system, founded by Massachusetts
General Hospital and the Brigham and Womens Hospital. According to
him, health reform had not happened for two reasonsone scal, the
other political. It would cost 70 to 100 billion tax dollars a year to cover
the uninsured, and no one wanted to pay. Republicans favor a market
approach and Democrats a government-managed approach, and Mongan
did not believe either would compromise. His statement was not accusatory, just fact, and no senator challenged it.5
Next was Dr. Stuart H. Altman, professor of national health policy at
Brandeis University. He began by quoting what he called Altmans law:
Almost every American and advocacy group supports some form of
universal health insurance. But if its not their preferred version, their
second-best alternative is to maintain the status quo. He also said that
expanding coverage and reducing cost required two different legislative
reform plans.6 I liked hearing this because I had reached the same conclusion. Altman, who had been a principal in the Clintons Health
Security Act, more or less said that he had given up on health reform. His
tone revealed his weary frustration. After a career devoted to improving
the delivery of U.S. health care and repeated unproductive testimonies
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before Congress, he seemed resigned to believing that the impediments to

change are insurmountable.
The next witness was John Sheils, vice president of the Lewin Group,
a well-known health care consulting rm. He told the senators that more
people every day were being priced out of health care and that the costs
of the uninsured were being shifted to the insured, thereby further
increasing cost.7 He succinctly concluded that something would have to
be done to control costs sooner rather than later.
The last witness was Dr. Richard G. Frank, professor of health economics at Harvard Medical School and vice chair of the Citizens Health
Care Working Group, which had been commissioned by Congress in 2003
to research public opinion on health care reform. According to Frank, his
group had synthesized information from eighty-four meetings with 6,650
attendees, 20,000 polls and questionnaires, 900 individual experiences
with the health care system, and 7,300 individual e-mails or written comments. He said a clear majority of Americans favored some form of insurance coverage for all citizens, without identifying any particular model,
and that most people believed that there was enough waste in the system
to fund the uninsured without requiring any new money. Most wanted
insurance that would cross state lines and would not change with their job.
They wanted health care reform now and a dened core benets package
that constituted insurance.8 When the senators revealed that, on the previous evening, while Franks was ying from Boston to Washington, the
Bush administration had released a position paper disagreeing with the
working groups key recommendations, the witness seemed taken aback.
The session ended with open-ended questions from the few senators
who remained at the hearing (questions posed out of politeness, it
seemed), and then it adjourned, almost as if it had been held for show.
I had arrived on the scene fresh from the front lines of patient care, its
bloody realities still vivid in my mind. The incongruity of the proceedings
saddened me.
But later that year I did witness some conspicuous examples of political leadership. Senators Ron Wyden and Robert Bennett introduced the only
bipartisan health reform bill in memory. Republican senators Orrin Hatch
and Charles Grassley selessly championed the State Childrens Health
Insurance Program in the face of opposition from the Bush administration
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and many of their Republican colleagues. This was not the rst time that
Hatch had broken ranks on issues of personal principle. In 1997 he bucked
both his Republican colleagues and many of his Utah constituents when he
and Senator Edward Kennedy introduced SCHIP. I concluded that health
reform would happen only as a result of sustained external pressure, but
I also saw that it would require bipartisan congressional leadership because
a partisan health care reform initiative is dead on arrival.
Competing Visions but Fluid Ideology

Republicans believe that the purchase of health insurance should be voluntary and that individuals should buy it in the private sector rather than
require the government to pay for it. Republicans would never support
covering the uninsured with federally managed programs, but they might
support using public money to allow individuals to purchase insurance.
They generally believe that decisions on the kinds of services a commercial policy covers should be left to individuals and insurers without federal or state mandates. Most Republicans also understand that the poor
cannot afford to buy insurance without federal money, but they vary in
their willingness to use federal money to aid the poor in purchasing private insurance. The sad story of SCHIP in the 110th Congress (20067)
exemplies conspicuous leadership within the legislature and a failure of
leadership in the presidency.
While SCHIP had been successful in improving the health of 6 million
children, it had not been allocated enough money when it was enacted in
1997 to cover another 2 to 2.8 million children who were eligible but not
enrolled. It was in a sense a false offer of insurance because for a decade,
while ination increased, the programs tax allotment was never greater
than its 1997 gure. In the 2007 negotiation over the programs reauthorization, the primary point of disagreement between Republicans and
Democrats was the size of the appropriation, not whether or not all eligible children should be covered. Senate Democrats did want to expand the
program from coverage of children in families making less than twice the
federal poverty level (for example, a family of four making 40,000 dollars
a year) to families at somewhat higher income levels and to parents of
children covered by SCHIP. A signicant minority of Republicans wanted
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the program to cover all children for whom it had originally been designed
(those from families earning below 200 percent of the federal poverty
level) but only these children, not their parents or higher-income children.
Many Republicans favored allocating 7 billion dollars of additional money
per year to cover all eligible children, whereas the majority of Democrats
favored allocating an additional 10 billion dollars per year to cover higherincome children and adults.
After months of tense negotiations, senators Max Baucus, Charles
Grassley, Orrin Hatch, and Jay Rockefeller, in an act of conspicuous leadership in the public interest, produced a bill that passed both the House
and the Senate with comfortable majorities. The bill included enough
money to cover all eligible children at the lower amount favored by those
Republicans who had supported the program. Key to Republican support
and to the bills passage was that states could use the funds for either public insurance or the purchase of private insurance and the bill remained
within acceptable scal bounds.
The task of producing a bipartisan bill was complicated by the
administration of George W. Bush, which had already granted waivers to
a number of states permitting them to use SCHIP funds to cover adults
and children from higher-income families. Including adults in SCHIP was
a source of major disagreement between Republicans and Democrats
because it would have increased the cost of the bill. The bipartisan bill
allocated just enough money to cover all poor and near-poor children but
not adults and higher-income children. Bush, however, vetoed the bipartisan bill not once but twice, leaving the program without the funds to
cover 2 to 2.8 million eligible children. The House could not muster up
the necessary Republican votes to override the presidential veto. I concluded that bipartisan health care reform is certainly possible but only
with a U.S. president who supports the process.
There are divisions among Republicans on the issue of health care
spending, just as there are among Democrats, but those divisions arise
over how much money to spend rather than how to spend it. Republicans
uniformly support the use of public money to purchase private insurance
and just as uniformly oppose any expansion of government-managed
programs. They say they are less willing to spend new money on health
care than Democrats are, but six years of Republican control of Congress
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and the presidency belie that claim. The Medicare Modernization Act of
2003 was devised, promoted, and enacted by a Republican president and
Congress. The Medicare prescription drug benet increased Medicares
long-term cost overrun by 30 percent, a shift from private to public
spending unprecedented since the programs enactment.
David Walker, U.S. comptroller general, directs the Government
Accountability Ofce (GAO), a large federal agency charged with investigating the functioning of other government agencies. The GAO is nonpartisan, and its director has a thirteen-year appointment, permitting him to
speak freely. According to Walker, The prescription drug bill is probably
the most scally irresponsible piece of legislation since the 1960s because
we promise way more than we can afford to keep. Analysts point out that
73 to 75 percent of Medicare beneciaries already had prescription drug
coverage at all income levels before the bills enactment.9
The Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 sought to insert the private insurance market into Medicare,
as did Medicare Advantage, another component of the 2003 bill.
Medicare Advantage provides incentives and rules by which beneciaries
can select a health insurer to manage their Medicare benets. As in other
private health insurance policies, Medicare Advantage insurers select
a network of doctors and hospitals, negotiate contracts with them, and
accept the nancial risk if premiums do not cover the cost of beneciaries care. In traditional Medicare the government pays providers directly.
In Medicare Advantage the government combines the premiums that the
patient normally pays for traditional Medicare with a government-funded
premium paid to the insurer for the patient-selected insurance. As of
December 2006, 16.7 million Medicare patients had signed up for the
prescription drug benet, and another 7.6 million had signed up for
Medicare Advantage, out of a total of 44 million Medicare beneciaries.10
By assigning their Medicare benets to an insurer, beneciaries
reduce their own costs more than they would with traditional Medicare
and sometimes improve coordination of their care. But the government
could not attract insurers to Medicare Advantage without paying them 12
percent more than traditional fee-for-service Medicare, thus aggravating
rather than diminishing Medicares cost problem.11 Republicans lavished
public money on seniors through Medicare Part D and Medicare
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Advantage, sacricing their long-espoused devotion to scal conservatism for the higher calling of private-sector management of health care.
At this point, the party can no longer credibly argue scal conservatism as
its opposition to health care reform. In fact, Republican actions have
made reform to manage cost more urgent. Private health insurances
track record is no better than fee-for-service Medicare, so the probability
that Medicare Advantage will decrease the Medicare programs long-term
cost is low unless there is a change in how private insurance works.
The Democrats lost control of the House and the Senate in 1994. They
regained the Senate in 2001, lost it again in 2002, and then gained control
of both houses in 2006. Thus, their recent track record on health care is
spotty. Democrats generally take one of two positions: Medicare for All or
private coverage (usually mandated rather than voluntary and either
through employment or disconnected from it.). The partys nal two 2008
presidential candidates, senators Barack Obama and Hillary Clinton, have
espoused approaches that preserve private insurance and expand public
insurance. Democratic ideology embraces both government- and privately-managed proposals. Thus, the party has no unied position on how
to expand coverage; it just declares that it should be done and places less
emphasis on short-term scal cost than Republicans do. Every politician,
no matter what party, agrees that health care costs must come down in
the long term. Democrats tend to emphasize the control of costs by federal
action; Republicans emphasize market forces. But both are necessary.
Neither one alone is sufcient.
Public Apathy
Members of Congress can only go as far as the public mood permits. After
all, Congress is distributing public money. Regarding health care, I would
not characterize the American mood as disinterested; rather, the insured
public is intent on retaining benets and is annoyed by cost. In recent
surveys, people rank their concern about health care just below the economy and defense. In 2003, 66 percent were not happy with health care, an
increase from 53 percent in 2000. As public priorities, cost is rst, the
uninsured second.12 The low quality of health care scarcely ranks as a
concern, but that may change as access to primary care degenerates.
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The public is almost evenly divided on whether to enact a single-payer

system or to preserve the insurance industry in some way. This lack of
consensus has persisted for years. In 2006, 85 percent of the public thought
the government should do something to cover the uninsured. But when
people are asked what they are willing to give up to pay for the uninsured,
only about half support a substantial tax increase to make sure that
everyone can get health care services.13
People are less certain about giving up some of their own health benets to cover the uninsured. Groups of Minnesotans were asked, What
health coverage are you willing to give up for your family in order to
provide it to the uninsured in our community? Initially, 46 percent
were unwilling to give up anything. After group discussion, two-thirds
compromised on their benets to cover children, and one-third willingly
decreased their benets to cover children and adults. But one-third was
still unwilling to give up anything.14 The public will sacrice but has a
limit on how much.
Lack of a Common Vision

People are full of internal conict. They are afraid to make a move. They
want to cover the uninsured, are split on how to do it, are willing to pay
for their coverage, but are only willing to pay so much. Everyone in
America knows someone who has played by the rules yet is uninsured. But
insured employees and Medicare patients, who make up about two-thirds
of the population, are happy with their insurance and reluctant to change
it, though annoyed with its cost.
The majority of businesses understand that they cannot control
health care costs and many want out of employer-based health care. But
they worry that their employees will be poorly served by what comes next
and fear that business will be left paying for health care but have no levers
to control its cost.
Republicans acknowledge the need to cover the uninsured, will only
support it in the private market, and, just as a dry alcoholic wont touch a
drink, are now seized with scal conservatism. Democrats are willing to
spend public money to cover the uninsured and are open about how to do
it; yet no one in either party knows how to deal with the fact that, at
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present rates of escalation, Medicare and Medicaid will consume the

entire federal budget or cause it to double by 2050.15
I think that these conicts and inconsistencies express something
people sense but dont articulate. We have no common vision of what
might work properly in health care yet remain affordable. All we have is
the reality of a very expensive health care industry with the looming
possibility that it will soon become unaffordable, and we have no idea of
what to do about it.
It will be easier to cover the uninsured if the country simultaneously
takes serious steps to reduce the cost and improve the quality of health
carewhen we have a common vision of a high-performance health care
system. It should be possible in time to fund the uninsured and improve
the quality of health care by extracting some portion of the 700 billion
dollars in waste from the industry. It is unlikely that the uninsured will
see coverage until the public and elected ofcials have some reason to
believe that health care costs can be controlled.
A Coordinated Solution
Changing the nancing of health care to include the uninsured and
reforming the medical industry are two different issues, but they beg for
a coordinated solution because what is done to address one issue affects
the other. Covering the uninsured will be expensive, perhaps impossible,
without reforming medical practice. Reforming medical practice will be
impeded by the presence of so many uninsured. For example, if the public is to be protected and costs are to be controlled, then all hospitals
should meet a high standard of safety and efciency. How can academic
medical centers or major emergency hospitals that struggle to maintain a
2-percent prot margin be held to the same safety and quality standards
as hospitals that are ush with cash when the reason for the difference in
margin is that one avoids the uninsured and Medicaid patients and the
other does not? And how can anyone talk about cutting fat out of hospitals that depend upon that fat to balance losses incurred by caring for
the uninsured? Without covering the uninsured, the nancial chasm
between hospitals will act as a dead weight on the reform of the medical
industry.
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Comprehensive management and disease prevention are only platitudes if many of the primary care doctors who are expected to implement
the concepts are overburdened, undernanced, and overwhelmed with
uninsured and Medicaid patients. How can a publicly funded clinic that
cannot even order specialized diagnostic tests for its patients and barely
make its budget from month to month be held to same quality standard
as a private medical practice? The business adage no margin, no mission applies to the reform of medical practice. Without coverage of the
uninsured, key participants in reformhospitals and doctorswill have
no margin and will laugh at what they are being asked to do.
Reforming the medical industry to reduce cost and improve quality
is a matter of changing the orientation and the payment method of an
entire industryof changing its culture.
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18
A Workable Plan for Reform
Consumers will need some help from the federal government

to keep health care costs manageable.
If I believed that the unaided market forces of 247 million people (the
U.S. population minus those enrolled in Medicare) would drive down the
cost of health care and extract waste, I would not have been impelled to
write this book. But the medical industry does not operate like a conventional market. Lowering cost and improving quality are not as simple as
unleashing market forces. As I have shown in previous chapters, waste
and poor quality thrive because the health care system is highly insulated
against external pressure.
Hospitals by their nature enjoy a privileged position in the community; they are regional monopolies or oligopolies. If market forces were at
work in medicine, an empty hospital bed would sit idle until the price was
right, but an empty bed always gets lled. If the sale of hospital services
were like the sale of cars, then hospital revenues would not increase just
because prices were increased. Regions of the country with a plethora of
hospital beds and specialists spend 60 percent more for the same care at
lower quality than do regions with the fewest beds and specialists. In a
standard business model, the demand for services drives the supply of
those services. In medicine, the standard relationship is reversed:
increased supply produces increased demand and use.
In two situationsurban monopolies and rural shortagescompetitive
hospital pricing is probably impossible to achieve by consumer power. In
large cities, oligopolies can be created when only two hospital systems
control health care rather than a larger group of hospitals and hospital
212
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A WO R K A B LE P L A N F O R R E F O R M
213
systems, and the result can be particularly inated prices and little consumer choice. On the other hand, 15 percent of Americans live in rural
areas where they are lucky if they have access to a hospital. Rural hospitals barely hang on nancially because they cannot pick and choose the
most protable patients like their big-city cousins can. For instance, bigcity hospitals can increase their margins by promoting the performance
of highly paid procedures and discouraging admission of low-paying
patients who need medical, not procedural, management. Rural hospitals
admit everyone in their community but lose high-margin procedures to
big-city hospitals. They suffer high overhead because they are small and
have no economies of scale. Rural hospitals are regional monopolies, but
they cant always price-gouge because they are money-losing community
resources. Thus, there are some inherent limits on the ability of competitive pressure to drive hospital performance.
Doctors have a monopoly on information because they know what
patients dont. Doctors are able to promote the application of technology
by the information they present to patients and how they present it.
Although excess treatment is not entirely to blame, 46 percent of the
increase in health care costs from 2000 to 2003 was the result of increased
application of technology per capita.1
In a perfect market, if individuals paid for medical services, doctors
would be forced to compete with each other on price and perhaps quality
as well. But as a patient, who knows whether or not she really needs a procedure? A treatment or test can be prescribed or performed for just about
any ailment. The matter is more complicated because a patient whose life
is in a doctors hands must be comfortable with the doctor. Finding the
right doctor is not like shopping for a car. It is more like seeking a relationship, and relationships are difcult to price.
The resistance of doctors and hospitals to the consolidated power of
insurers and employers is another testament to medicines rigid opposition to change. Insurance is more consolidated than any other segment of
the medical industry, yet it has been unable to reduce health care costs.
Fifty-ve percent of those with employer-based health insurance are
directly funded by their employers, with no insurance middleman.2 Even
self-funded large employers have been unable to bring health care costs
within bounds. Despite these failures, there are powerful reasons to turn
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direct responsibility for the purchase of health care over to the individual
backed by the government, but not to the government alone.
Patients must cooperate with the steps that have to be taken to
reduce health care costs. Government cannot compel individuals to comply with efforts to reduce these costs; only self-interest can. Unless people
are directly paying a signicant portion of their health insurance, they
have no reason to put up with inconvenience, if that is the price they
must pay for reducing health care costs.
And health care costs cannot be brought down without inconveniencing consumers. Twenty-seven percent of the escalation of health care costs
is driven by obesity. Smoking accounts for 7 percent.3 Smoking and the
behaviors that produce obesity will have to be modied or paid for in the
form of increased insurance premiums if costs are to be reduced.
People will be inconvenienced because there can be no meaningful
health care reform unless patients are subject to coordinated medical
management. They must submit to allowing one doctor to coordinate and
manage their care and ensure its quality. People can no longer agree to
undergo procedures of marginally increased value over medical management unless they are willing to pay part of the cost or buy an expensive
insurance policy that provides everything without signicant co-pays.
People will have to be informed and understand the nature of marginally
versus highly effective procedures. Putting the brakes on the excess application of technology must take place at the level of the provider and the
patient.
In fee-for-service medicine, doctors nancial incentives are to perform procedures and provide services. When a third party pays for the
majority of health care costs, the patients incentives are to willingly
accept whatever the doctor recommends and in fact often ask for more.
Until the nancial incentives of doctors and patients are aligned, we cannot manage health care costs.
But consumers will need some help from the federal government to
keep health care costs manageable. If the baseline practice of medicine in
this country were improved in a way that reduced medical waste by half,
not considering the costs of obesity and smoking, health care costs would
be reduced by 15 percent. Such a goal will require the reform of medical
practice. The medical system is unlikely to respond to competitive pressure
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as much because it does not know how to reduce its costs as because it is
organized to effectively resist doing so. Consumers can neither force nor
teach doctors how to practice efcient medicine. That is where federal
action is needed.
While walking the halls of hospitals in the course of my practice, I
tried to imagine what federal initiatives could change the workings of
doctors ofces, hospitals, and outpatient facilities. I knew that the members of the medical industry, including myself, have a nely honed capacity for getting around the intent of payment rules made in Washington
and in the central ofces of insurers. Who but a treating doctor can certify that a treatment or a test is medically necessary?
Having lived through the wholesale disruption that a decrease in
medical pricing had had on the medical industry in the 1990s, I was clear
that reducing the prices paid to doctors and hospitals is no way to reduce
health care costs. So my conclusion was that saving money by reducing
waste is the only means available to us. The twofold regional variations in
the amount of services that are supplied to patients, which have been so
thoroughly documented by the Dartmouth Institute for Health Policy and
Clinical Practice, illustrate the magnitude of the problem. I have lived in
the proigate world of medicine for thirty years, so the ndings of that
group were no surprise to me.
Reducing Variation
Variations in medical practice are rife. At the end of life, patients in
Ogden, Utah, spend an average of 4.6 days in the hospital, whereas in
Newark, New Jersey, they stay for twenty-one days. Miami doctors apply
two and a half times more interventions to Medicare patients than do
Minneapolis doctors. Surgeons in Birmingham, Alabama, perform three
times more heart surgeries per capita than do surgeons in Albuquerque,
New Mexico. Hysterectomies were so frequent in one Maine community
that researchers concluded that 70 percent of the women in town would
have no uterus by the age of seventy-ve.4
Doctors practice differently from one another because they lack
information, there are no standards against which to compare their practices, some own facilities that they must keep full, they wish to conform
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to regional norms of practice, their concern about malpractice liability

varies, and they differ in what they are willing to do to keep busy.
Reducing variation in medical practice will reduce waste and improve
quality. Regions with the least use of medical resources for patients with
hip fractures, colon cancer, and heart disease are the regions with the
lowest mortality rates. My own experience in practice is that efcient
medicine is invariably the best medicine.
The lack of information necessary to create standards of practice
against which to judge the appropriateness of variations in care among
doctors, hospitals, and regions is a core health care problem. But just providing doctors with information will not reduce the variation in their
practices. Many would simply ignore best practices, as they do now.
Under the limited circumstances in which such agreed-upon standards
exist, many doctors simply ignore best practices. In a 1981 study, 17 percent of coronary angiographies, 32 percent of carotid endartarectomies,
and 17 percent of gastrointestinal tract endoscopies were found to be
inappropriate. In 1979, 1989, and 1982, 30 percent of coronary artery
bypass surgeries in three hospitals were performed for equivocal reasons
and 14 percent for inappropriate reasons. In a 1993 study, 16 percent of
women in seven managed care organizations underwent hysterectomies
for inappropriate reasons. In a 199395 study, an expert physician panel
judged that 70 percent of 497 hysterectomies were performed for inappropriate reasons. In a 1990 study of 1,306 patients in New York State, 38
percent of coronary catheter procedures were judged of uncertain benet
and 4 percent inappropriate. For money to be saved, doctors have to do
what works, only what works, and do it efciently.5
Doctors practice inefcient medicine because care is fragmented,
fee-for-service payment drives inefciency, and no one seems to care if
practitioners are good at managing resources. But waste also ensues when
doctors willfully do what is not in a patients best interest or when their
index of what is in the patients best interest becomes subtly corrupted.
Sometimes the motivations are mixed, as in my story about Dr. Raymond
Alfords unnecessary surgery. All the information and standards of practice in the world wont reduce health care costs unless payment incentives are aligned to reward efciency and performance is measured.
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HMOs meet the criteria I describe. They reduce waste by using protocols and coordinating care. They operate by being paid a at amount for
a patients annual care, so they have a nancial reason to encourage efciency. In theory, if everyone in the United States were in an HMO, waste
and cost would be reduced. But while there are some good HMOs, I have
shown what happened when such techniques were abruptly imposed
upon the medical community in the 1990s and badly implemented.
There are three limitations to medical reform in America. First, no
third party must be inserted between a doctor and a patient. From my
managed care days, I know why doctors resent anyone who tries to tell
them how to practice medicine. Doctors dont like to be second-guessed
and cannot do a very good job managing a patient when they are.
Countries that put their health care systems on a budget interfere
with medical practice by limiting access to specialists, equipment, and
facilities rather than by directly intervening between a doctor and a
patient.
Second, patients must be freely able to pick their doctor within reasonable limits. As a practitioner, I know why doctors hated the feature of
managed care that forced patients to see a particular doctor rather than
allowed them some choice. Trust is difcult to create in a forced relationship. In practice, 57 percent of those with employer-based health insurance are in plans that restrict the doctors they may see without being
responsible for a higher co-pay, and 21 percent are in HMOs that offer
care only by a closed panel of physicians.6
Third, doctors will not cooperate with the wholesale reorganization
of medical practice. HMOs work well for some doctors, but many would
not practice in them. Managed care abruptly reorganized medical practice, but physician resistance led to its downfall. When doctors are paid
with incentives that reward efcient practice, they will nd that they can
make more money and do a better job by using information technology,
organizing into groups, and afliating with specic hospitals. But doctors,
not external parties, must be the ones to make those decisions because
physicians have to live with the circumstances of their practice. Medical
practice cannot be reformed unless doctors and patients cooperate.
These three restrictions are the limits on their cooperation.
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The Three Principles of Cost Reduction

There are three steps to achieving a high-performance health care system
in medicine in America. First, develop agreed-upon standards of medical
practice based upon research. Doctors now can substantially inuence the
course of human disease, and they have a wide range of treatments to
choose from. The problem is that once technology is developed and found
to be effective for anything, it is released for use for everything. Fee-forservice medicine combined with poorly evaluated new technology produces a medical arms race.
New technology has developed rapidly without parallel mechanisms
to evaluate it and manage its use. Penicillin became available during
World War II. Now the FDA approves seventy to one hundred new drugs a
year, but we do not know whether the majority of them are better than
existing drugs. The rst diagnostic catheter procedure for the heart was
performed in 1958, but now a high percentage of their use is for doubtful
indications. The rst CT scan was installed in our hospital when I was a
resident in training in 1976. In 2008 CT scans are used so frequently that
they are expected to increase cancer risk, but there are no standards by
which anyone can evaluate the appropriateness of their use. MRIs became
available for diagnostic use in the mid-1980s and are one of the fastestescalating health care costs. As with CT scans, it is impossible to sort
appropriate from inappropriate use because there are no standards for
MRI use. Large-scale studies completed in the 1970s and 1980s showed
that high blood pressure caused stroke and heart disease. Yet as medicine
is currently practiced, nearly half of people with high blood pressure are
not medically managed.7 The implanted instrumentation that allowed
spinal fusion of the neck and lower back were perfected in the late 1990s,
but in 2008 no one knows whether or not the majority of patients are
helped by the procedures over the long term. Coronary catheter procedures that replaced many open heart surgeries were FDA-approved in
1994. In 2003, two-thirds of the patients who received them beneted
very little from them, with no consequences for either the patients or the
doctors. New technology is developed now at incredible speed, yet medical practice is a swamp of poorly evaluated and indiscriminately applied
technology.
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Payment policy should reect standards. The purpose of creating standards is to reduce variations in management among regions of the country, hospitals, and doctors. I do not propose to restrict or interfere with a
doctors ability to care for an individual patient or to in any way restrict
the application of technology that is proven to be effective. I do propose
that payers refuse to pay for excess diagnostic testing and ineffective procedures, require patients to pay a signicant portion of procedures that
are marginally effective, and publicly report and perhaps restrict Medicare
participation of doctors whose practice deviates far from norms.
For common straightforward conditions such as the workup of a
headache, a backache, or abdominal pain, payers should consider limiting payment for diagnostic procedures to a standard workup unless the
physician can justify a more extensive one. Physicians who follow such
standards should be given legal protection from failure to diagnose. At
present, extensive testing for the rare condition is routine. With the lack
of any workup standards and in the U.S. legal climate, a doctor would be
lax to do anything else.
Payers should refuse to pay for procedures that are proven to be ineffective in a given group of patients. Who would want such a procedure anyway? For example, if back fusion in patients with degenerative conditions
without slippage or trauma should prove to be no better or worse than
physical therapy alone, insurers should not pay for it. Every medical procedure is effective in some group of patients, like catheter procedures for
victims of a heart attack and back fusion for patients with spinal fractures
and slippage of the vertebra. But every medical procedure is not effective
in all the patients, or even the majority of patients, who receive them.
Just as the pharmaceutical industry promotes poorly evaluated drugs,
the medical industry promotes poorly evaluated procedures for widespread
use. One is recognized as exploitive; the other is not. At present there is
limited knowledge as to which procedures are highly effective, marginally
effective, or ineffective in different groups of patients. Yet we treat all these
procedures as if they were proven and reliable for all applications.
Neither doctors nor patients would agree to outright restrictions on
marginally effective procedures, but such procedures are candidates for
tiered payment. That is, an insurer might require a co-payment equal to
25 percent of the cost of the procedure for marginally effective procedures
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indexed to a persons income. A person could have the procedure, but he

would have to want it badly enough to pay part of the cost. The other way
to avoid paying for expensive procedures of marginal value is to inform
patients. Before undergoing such a procedure, they could be required to
view a video that explains the state of knowledge about a procedure or to
say that they do not wish to view it. Because a trusted doctor who is promoting a procedure of marginal effectiveness can easily convince his
patient not to view such a video or to discount what it says, insurers could
restrict the participation of doctors who are outliers. A doctor who is performing an unusually high number of marginal procedures is probably
misrepresenting them to patients, and insurers might choose to remove
such a physician from their panel of providers.
Doctors and hospitals should be paid so that the savings from efcient
medical practice are shared with them. Before World War II, when a doctor
had little control over the outcome of disease, the only feasible approach
was to pay him fee-for-service. For example, antibiotics only became
widely available during war, so infectious diseases could not be effectively
treated. Paying a doctor for the outcome, efciency, or quality of care
would be absurd when he could do so little.
Times have changed rapidly, but payment systems have not; and feefor-service medicine has outlived its usefulness. If money is to be saved,
doctors (not insurance administrators) will have to gure out how, and
they will have to be paid for it. As we have seen, fee-for-service medicine
drives excess use and provides nancial disincentives for hospitals and
doctors to work to drive down complication rates and search for efciencies in the course of treatment. Fee-for-service medicine should be
replaced with a payment model of shared savings, in which primary care
physicians would share in the savings resulting from their management of
patients. If good control of diabetes, heart disease, and lung disease in the
clinic reduces hospitalizations and overall cost of care, the primary care
physician shares in the savings with the insurer. Payment to hospitals
and specialists should be for an episode of carefrom admission to the
hospital or surgery center until discharge homerather than for
each moment and service along the way. This payment method should
reduce cost because doctors and hospitals would have a good reason to
be efcient: both would make more money.
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Specialists should be paid together with their hospital or surgery

center; otherwise, the two groups will have conicting nancial incentives. I have shown how little reason doctors have to care about reducing
hospital waste; it costs them nothing if a hospital is inefcient. Unless
physicians and institutions are paid out of the same pool of money, their
incentives will never be aligned. At least four groups of laws would probably have to be changed to permit such arrangements. Among them are
provisions in the Stark laws, which prohibit physicians from referring
patients to facilities they own for X-rays and physical therapy, but also the
civil monetary penalty statute, 42 U.S.C., secs. 1320a27a, which prohibits
gain-sharing arrangements, as well the Internal Revenue Code governing
not-for-prot hospitals and federal anti-kickback statutes.8
The quality of care should be continuously monitored in a payment system
that shares savings with doctors, hospitals, and ambulatory surgery centers. If
doctors and hospitals were paid a at rate for the whole continuum of care,
specialists might undertreat a patient during a hospitalization rather than
overtreat as they tend to do now. Generalists, who share in the decreased
cost of care, might systematically skimp on tests and minor procedures and
fail to refer to specialists when they should. The problem would be the
opposite of fee-for-service medicine, where technology is overused and
preventive measures underusedmeaning that, for example, only 50 percent of patients who go the doctor ever get recommended tests and treatments. In a monitoring system, doctors practice patterns would be
individually measured and reported against both standards of practice and
their peers. For instance, a primary care doctor would deal with reports
concerning how many of her patients had received all of the recommended
tests and treatments. But such a reporting system could only work if a
patient were cared for by one doctor; otherwise, no one would know whose
responsibility it was to provide a given treatment or test.
The objective of measuring a doctors adherence to standards of practice is to reduce variation around the standard and thereby reduce cost and
improve quality. A certain range of practice is expected. Just showing a doctor his practice pattern in comparison to those of others will affect variation. Most doctors do not want to practice outside the mainstream. Thus,
standards of practice could provide four controls on overuse of procedures
of marginal value: high co-payments, standardized patient education
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before surgery, comparing a doctors practice patterns with those of others,

and removing doctors who conspicuously deviate from norms of practice
from participation in insurance contracts.
Who would perform the research needed to determine which common procedures are of no benet and which are marginally benecial?
Who would study the effects of medical practice to determine what treatments work best and what diagnostic tests are sufcient for a given condition? Who would gain agreement from the medical profession for
approval and promulgation of standards? How would shared savings payment concepts be tested? Who would learn the methods of efcient hospitals and doctors, and who would teach them to others?
The only insurer in any position to conduct such large-scale payment
experiments is Medicare; it is the largest insurer in America, and others follow its lead. After a year in a congressional ofce, however, I found out how
much power the medical industry exerts on Medicare payment policy. My
conclusion was that no federal agency, certainly not Medicare, could conduct the necessary work to establish standards of practice, measure those
standards, and test new payment policies. The effort would be stopped or
adulterated. The same could be said of any existing federal agency. So
something new is needed to guide U.S. medicine through such a change.
What I propose here is an American Medical Quality System (AMQS)
with the job of reducing waste and improving the quality of health care. It
is loosely modeled on the Federal Reserve System, which was established
in 1913 by an act of Congress as an oversight entity to regulate the nations
banking system. Like the Federal Reserve, the AMQS would have a board
in Washington as well as regional or state boards. It would be insulated
from congressional and industry inuence on its day-to-day operations,
choice of projects, and dissemination of results but would depend on
public money. (I will explain later how this could be accomplished.) The
AMQS would perform eld research in the Medicare program on how to
pay doctors and hospitals. It would evaluate the effectiveness of medical
technology and make its ndings widely known to the public. It would
make recommendations to insurers and Medicare on how to pay doctors
and hospitals and what to pay them for, but it would not regulate insurance or determine Medicare payment policy. It would create a group of
high-performance hospitals and clinics in every region of the United
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States. Collectively, the AMQS would provide the information and the
payment models needed to alter insurance payment policy nationally and
the reporting and education needed to inform the public.
Its Either Efciency or Rationing

If what I propose in this book is not the best way to reduce waste in U.S.
health care, then we should nd some other way to cut it because there is
really no other good option other than to become efcient. The periodic
reduction of payments by Medicare and private insurers without constraints on use has not controlled costs. For both the consumer and the
federal government, there are only two ways to control health care costs:
(1) price controls with rationing of resources (the method used in most
industrialized countries) or (2) increased efciency (not used in medicine
in any country). The United States has to choose one of the two because
there will be no moderation of health care costs without reducing use.
Most industrialized countries combine rationing of resources and price
controls to manage cost. But even these countries are now faced with U.S.style health care cost escalation, though their rate of health care growth
rises from a much lower unit cost.
Rationing is dened as the provision of a xed amount of anything
allowed for a certain amount of time.9 When applied to medicine, the
word implies the limiting of needed services. When no one can separate
essential from superuous services, rationing is risky business because
both kinds of services may be limited. Americans think that rationing is
un-American, but our society does it all the time to the uninsured. I am
not the only one who thinks that the insured are in for rationing, too, if
another way of managing health care costs cannot be implemented.
David Cutler, the Otto Eckstein Professor of Applied Economics at
Harvard University, has studied the U.S. health care system throughout
his seventeen-year career. He succinctly expresses consumers choices:
The issue of efciency improvement is fundamental to any health care
reform. Without explicit rationing, it is the only hope we have of saving
money in medicine.10 Considering the options, creating an efcient
health care system is the only way out; and the United States should be
the rst country to do so.
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19
Establishing Standards
The rst step in managing the cost of health care is to develop

standards for the application of procedures, the treatment and
prevention of diseases, and diagnostic workups.
It is ridiculous that people today are undergoing medical procedures of

unknown or marginal value. Even worse, such proceduresmany of them
probably completely unnecessaryaccounted for 4 to 8 percent of hospital spending in 2005, according to my calculations.
Evaluating Common Procedures and Treatment Methods

When researchers have doubts about the effectiveness of a common procedure in a given group of patients, a randomized clinical trial (in which
half the participants get standard treatment, half the new treatment) is
one way to nd the answer. Such studies proved that back fusion was
effective in the treatment of patients with slippage of vertebrae and that
catheter procedures for stable angina are only marginally effective. There
are other and faster ways of determining the results of common procedures, but all involve a laborious process of collecting data on complication rates and outcomes.
The only existing federal agency with money enough to perform such
clinical studies is the National Institutes of Health (NIH). But when the
NIH funds clinical trials, its motive is scientic, usually the result of interest by a cutting-edge investigator in a medical school, rather than a desire
to answer the more mundane question of how best to use existing technology. When I serve on NIH scientic panels that review proposals to
224
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E STA B LI S H I N G STA N DA R D S
225
fund clinical trials, we are routinely instructed to ignore the cost of a

treatment that is being proposed for testing.
The culture of the NIH, its very DNA, is to create new treatments, not
to perform studies that would limit the use of new treatments. The majority of its funds are expended in laboratory research, and any clinical
research is an extension of its basic research, which aims to bring discoveries from the bench to the bedside. The systematic evaluation of common procedures and the gathering of data and creation of consensus to
establish standards of medical practice are not NIH missions, and it could
not do them without compromising its primary missionnew science.
My proposed American Medical Quality System, on the other hand,
would conduct or sponsor clinical studies of procedures to determine
which patients need them and which do not. Common and expensive procedures would be rst on the listfor example, neck and back fusion in
patients without slippage of vertebrae and procedures on the Dartmouth
Atlas list of preference sensitive procedures, which include hip and
knee replacements, procedures to unclog blocked arteries, several forms
of prostate surgery, and heart surgery.
Standards are needed for treatment methods as well as procedures.
For example, patients with no kidney function must undergo a procedure
called hemodialysis to remove the toxins in their blood. This procedure is
normally done in outpatient centers designed for that purpose. In a
hemodialysis procedure, the patient lies on a couch while a machine circulates blood through a ltration device that cleans the blood like a kidney would. Most patients require hemodialysis three times a week, the
only alternative being kidney transplantation. Medicare pays for kidney
dialysis and transplants regardless of a patients age, a bill that in 2004
accounted for 6.7 percent of the Medicare budget and 66,650 dollars in
Medicare expenditures per dialysis patient per year.1
Inexplicably, after adjusting for differences in age and complicating
medical conditions, the mortality rate of U.S. patients with kidney failure
who undergo dialysis is one-third greater than it is in Europe.2 A 1983 study
sponsored by the NIH found that longer periods of dialysis were no more
effective than shorter periods, which were then in vogue in the United
States. The study, however, narrowly missed reaching the opposite conclusion, so its published results have been in doubt. Nephrologists have
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questioned whether shortcuts in care explain the high U.S. mortality rate,
but a decade of subsequent research has presented conicting opinions.3
A 2006 report comparing 22,000 patients in Europe, Japan, and the
United States found that the longer the duration of dialysis, the lower
the mortality rate. The study showed that the United States had not only
the highest mortality rate but also the shortest duration of dialysis. The
authors called for a denitive formal study to answer the question of
whether or not the mortality rate of patients with renal failure is reduced
by longer periods of dialysis.4
What is not disputed is that nances account for short dialysis times
in the United States. Dialysis facilities are paid by the number of patients
they put into the dialysis chair, not by the duration of dialysis. While the
situation is not necessarily a matter of cost, it is certainly a matter of quality: we must determine the optimal duration of dialysis and then pay for
it. We need a systematic approach to determining best practices with an
eye to cost and quality. The AMQS would fund such research.
Evaluating Pharmaceuticals
Three-quarters of the new drugs that the FDA approves for marketing are
rated standard by the agency, and they probably offer little improvement
over existing drugs. Yet they account for the majority of pharmaceutical
sales. In my proposed system, after FDA approval of new standard-rated
pharmaceuticals, the AMQS would fund clinical trials to compare them
with older, cheaper drugs and with other drugs in the same class.
Unlike medical services, drugs are commodities. There is already evidence that market forces can reduce their cost. But we need information
that compares the effectiveness of new drugs so that pricing can be based
upon actual value, not the value assigned by billion-dollar, direct-toconsumer marketing campaigns, and so that the safety and effectiveness
of new drugs are better understood.
Almost everyone covered by employer-based insurance has prescription drug benets, as do more than three-quarters of Medicare beneciaries.5 Drug benets are typically managed by managed care organizations,
who can purchase drugs at reduced prices by limiting the number of
drugs provided to their beneciaries (in other words, by limiting their
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formularies). They can also reduce spending by requiring beneciaries to

pay a signicant portion of the cost of drugs of marginal value. Thus, better information would probably lead to lower spending for me-too drugs.
As exemplied by the Vioxx and Celebrex story, such research would
improve care.
The pharmaceutical studies conducted by AMQS would not necessarily always result in information that would reduce pharmaceutical expenditures, just wasteful pharmaceutical expenditures. In some cases
pharmaceutical spending might be increased. For example, a study in ve
communities enrolled 256 diabetic patients in a program in which the
patients employers paid community pharmacists to regularly meet with
and educate the patients and coordinate with treating physicians. The
patients compliance with their pharmaceutical regimens improved so
much that over the ten months of the program their A1C values (an index
of how well blood glucose is controlled) improved by 8 percent, their
blood cholesterols decreased by 33 percent, and their blood pressures
decreased by 15 percent. The patients nutrition improved, and their
weight decreased. Before the program, 69 percent of medical costs were
for inpatient and outpatient care and 33 percent for medications. By the
end of the program, medical services accounted for only 56 percent of
spending while spending on medications had increased to 44 percent.
Nevertheless, this created a net savings of 918 dollars per patient, a
10.8 percent reduction in cost of care.6 Increased spending on the right
pharmaceuticals can improve outcome and decrease cost.
Standardizing Diagnostic Workups

Standards are needed in diagnostic workups. Outpatient services such as
MRI and CT scans, colonoscopies, and outpatient surgeries are Medicares
fastest-growing component. Such services account for nearly 10 percent of
health care spending, and in 2005 medical imaging accounted for about
one-quarter of outpatient spending.7
Doctors may ascribe their overuse of tests and procedures to fear of
lawsuits; but patient demand, disorganized medical practice, nancial
self-interest, and local habits of practice drive excess testing as much as
avoidance of litigation does. For instance, I saw about thirty-ve patients
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every Wednesday in clinic, and every patient came with an MRI under his
arm. Two-thirds of the studies were of such marginal quality that I simply
ordered a new MRI or a study called a myelogram (in which a spinal tap
injects dye into the spinal uid) before making a surgical decision. The
patients rst MRIs were usually of poor quality because the referring doctor had ordered them to be done on the nearest equipment, often cheap
units housed in mobile trucks that visited their clinics parking lot once a
week. My patients were often from small towns where such units seemed
to be ubiquitous. These MRI scanners had insufcient power to detect the
anatomic distinctions I needed to make a surgical decision. But the cost
to Medicare and to commercial insurers for a good-quality MRI is exactly
the same as the cost of a poor one.
Sometimes the studies were of good quality, but I could not decipher
the labeling on the images because there are no standards for labeling.
The only agreed-upon convention in radiology is that right and left are
standard on all lms. If I could not decipher the labeling on the images, I
could not afford to guess. So I never thought twice about ordering duplicate studies. The cost of the images I reordered in each clinic was about
24,000 dollars per clinic or about 1,152,000 dollars per year in duplicated
studies. During the fteen years I ran those clinics, I was responsible for
more than 17 million dollars in studies that from a systems perspective
were unnecessary. I can assure you that I was not alone in this behavior.
Ideally, I might have called the referring physician and recommended
that she not image the patients she was sending me so that I could order
my own. But I did not always know who the referring doctor was, and she
probably would not have desisted if I had called anyway. A doctor in a
small town uses such imaging studies to determine whether to trouble the
patient with a referral to Houston; the patients expect them.
In 2003, a law was passed that reduced Medicares payment for CT
scans and MRIs by 30 percent because imaging volume was growing faster
than any other service in Medicare. Although Senate staff widely understood that a high percentage of such imaging was waste, who could sort
the wheat from the chaff? Even the doctors could not tell, so how could
congressional staff members? When the prospect of further imaging cuts
was raised in the 110th Congress, I spoke, as a Senate staffer, with innumerable representatives from imaging companies and with radiologists.
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They told me that, as a result of the 2003 payment cuts, they were operating on thin margins and that further reductions would destabilize their
businesses. The injustice is that radiologists order only a small percentage
of studies, but they are usually the ones who must accept decreased payments. Doctors who manage the patients order most studies. I knew that
my practice of ordering so many studies, no matter the cause, had contributed to decreasing radiologists payment rates. Both the radiologists
and the lobbyists for imaging companies begged for imaging standards so
that volume could be reduced by excluding wasteful tests; consequently,
payment rates would remain at a level that would support their businesses. But who in Washington has the staff, the money, or the mission to
determine the necessary reasons for an MRI or a CT scan?
The AMQS would fund research to generate the missing information
needed to create such guidelines and protocols, and there is quite a bit of
missing information. Another example from my own practice is patients
who suffer a concussion. Such patients are briey knocked out, and then
awaken, and it is exceedingly rare for them to have any medical complications; they are usually sent home from the emergency room with their
families. Nonetheless, most doctors perform a CT scan, which is invariably negative. By keeping records on several thousand patients with concussions who have CT scans, AMQS-funded research could determine how
many serious conditions are picked up and whether the scan is necessary
at all.
Another common example is the diagnostic workup of patients who
throw out their back. Most of these patients undergo MRI scanning for
what is most often a muscle sprain that resolves within a week. Rarely
does an MRI affect management. Which patients with the abrupt onset of
back pain need an MRI? Do they only need one if the pain does not resolve
in a week? An examination of the clinical yield from routine MRI scanning
of acute low back pain would provide the answer. The ndings of such
studies would be used to establish guidelines for a wide range of conditions. But do not expect guidelines alone to alter practice.
Two policies would have changed my clinic practice. A regular report
about how far I had deviated from the standard would have kept the matter on my mind, but that would not have been enough. Surgeons mostly
endure long clinics because this is how they nd people who need
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surgery. Operating is what surgeons enjoy. I used the screening MRIs done
by the referring doctors much as those doctors did. I would not allow a
patient to make an appointment with me without an imaging study in
hand because I did not want my clinic to be clogged with nonsurgical
patients. In this circumstance neither I nor the referring doctors would
have paid attention to reports of our imaging practices unless we were
paying a nancial price for them. For instance, taking the cost of excess
studies out of our Medicare payments at the end of the year would have
quickly generated some policy changes in our clinics.
Standards for diagnostic workups could serve another purpose as
well. Doctors dont perform major procedures, especially marginally indicated ones, to avoid lawsuits; rather, they over-order images, blood tests,
and diagnostic procedures such as biopsies. One-third of malpractice
cases are for failure to diagnose.8 A doctor who adhered to a standard protocol for a diagnostic workup could be held harmless for failure to diagnose. Such a law, combined with a nancial penalty for waste, would be a
powerful motivator for efciency and still leave control of patient care in
the hands of doctors.
If a doctor or a hospital has no nancial consequences for failing to
follow standards, then it does not matter who establishes those standards.
On the other hand, if standards can affect payment, the manner of their
creation must not only be objective but must also appear to be objective.
Currently, standard setting appears to have a conict of interest. For
instance, the body that promulgates the most widely accepted guidelines
for renal dialysis, the National Kidney Foundation, receives 57 percent of
its funding from industries that directly prot from renal dialysis.9 The
20045 annual report of the American Heart Association, the body that
issues standards for management of heart disease and stroke, lists
twenty-one donors that contributed between 1 million and 4.9 million
dollars. Twenty were industries that have something to gain from a decision of the American Heart Association.10
The AMQS would work with specialty societies and perform primary
research to establish standards for diagnostic workups and treatment.
One of the reasons to establish standards is to reduce variation; another
is to protect patients. Fee-for-service medicine rewards doctors for doing
more. A shared savings payment model reward doctors for doing less in a
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better way. The continuous monitoring of standards of practice would be

necessary in a shared savings payment system to be sure that doctors did
not save money by withholding necessary procedures and treatments.
One key objective of a new payment model is provide the information and
the incentives for primary care doctors to reduce medical spending by
coordinating the management of patients to reduce hospitalizations and
the application of unnecessary technology.
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20
Prioritizing Primary Care
Primary care doctors should be paid so that the savings from

efcient medical practice are shared with them, and their quality of care should be monitored.
The Sumner Clinic is not much to look at from the outside. It is located
in a strip shopping center on a busy street in the small town of Gallatin,
Tennessee, about thirty miles northeast of Nashville. The clinic is managed by a general internist, Dr. Sid King. When I entered for my meeting
with King, I was greeted by a trim, smartly dressed elderly woman sitting
in a rocking chair near the front door of an expansive room. She was one
among several patients who volunteer as greeters at the clinic.
Inside, the Sumner Clinic did not resemble any doctors ofce I had
ever seen. It was not posh, but it was spacious with a large, simply decorated waiting room. The oors were linoleum, the walls accented with
faux wood. Two computer terminals and several telephones for the
patients use were scattered among rocking chairs and upholstered
chairs. A patient in a wheelchair could easily navigate the room, and one
older woman in a wheelchair was logging onto her email account.
In the middle of the room was a replace open on two sides. On the
right was an open kitchen with a long dining table, where two elderly
African American women were in deep conversation. The room adjacent
to the kitchen was set up like a classroom so the clinics nurse and a dietician could teach patients healthy cooking and eating skills. On the left
side of the waiting room was the ubiquitous check-in counter, not
enclosed in glass but open. The staff often came into the waiting room to
greet patients by name.
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P R I O R I T I Z I N G P R I M A RY CA R E
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At the time of my visit, the only patients using the services of the
Sumner Clinics internists were 1,200 Medicare beneciaries who had
signed up with a Medicare Advantage Plan offered by HealthSpring, a
Nashville-based managed care organization. Seniors enroll in such plans
so they do not have to bear the expense of purchasing a Medicare supplemental policy (which pays for the 20 percent of outpatient services not
covered by Medicare) and because their co-payments and deductibles
are lower than those with fee-for-service Medicare. Medicare pays
HealthSpring, and HealthSpring pays the doctors and hospitals, keeping
any remainder as prot.
Republicans had hoped that this program, intended to demonstrate
the private sectors better coordination of care, would eventually result in
cost savings to Medicare. But in order to get insurers interested, the new
program had to pay them 12 percent more than traditional fee-for-service
rates. Judging from the Sumner Clinic, the Republicans had not hoped in
vain. What happens in this clinic is remarkable.
Dr. James Geraughty, who is chief quality ofcer for HealthSpring,
told me about the clinic when I visited his companys Nashville ofces.
HealthSpring had enlisted the Sumner Medical Group to care for its
Medicare Advantage patients in the Gallatin area. Geraughty explained
that their target was to take care of Medicare patients for about 82 percent of what Medicare paid, though for most practices the number was
closer to 87 percent. The remaining 18 percent is available to pay company overhead and prot, typically distributed as 10 percent for operations and 8 percent as prot. Medicare pays insurers based upon a
patients severity of illness, so there is little reason for any insurer to hustle healthy Medicare patients in order to improve earnings.
Geraughty had hired a nearby rm that specializes in management of
chronic diseases to keep HealthSprings patients out of the hospital by
improving their medical management. This rms nurses would phone
the Sumner Clinics patients and ask why they had missed an appointment, inquire into their compliance with a dietary recommendation, or
tell them how to change their medications. When I interviewed Sid King
in his Gallatin clinic, he said that he had objected to this practice because
it interfered with his management and that the patients did not pay much
attention to a call from an insurance companys nurses anyway.
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So King and Geraughty struck a deal. King said that if HealthSpring

would pay his medical practice what they were paying the disease management company, Sumner Clinic would take over the job and do it better. King wanted HealthSpring to provide a nurse, but Herb Fritch,
HealthSprings CEO, had to be convinced. He was concerned because, at
the start of this experiment, the cost to the company for care of the clinics
patients was leaving a relatively small prot margin for HealthSpring. But
eventually the company agreed to pay the salary of a nurse at Sumner
Clinic. No one thought collaborating with a nurse would save money, but
everyone gured it would improve care.
Using the Sumner doctors protocols, the nurse took over coordination of care and patient education. The doctors created standing orders so
that the nurse would not have to talk with them if a patient needed a routine test or procedure. Collaborating with the nurse-coordinator and creating standing orders and management protocols were the keys to what
happened over the next six months. Variation in doctors practice
decreased, their practice of medicine improved, and patients compliance
with their medical care improved.
HealthSprings standard arrangement with doctors is to pay them a
bonus of 20 percent more than Medicares fee-for-service payment if they
reach 90-percent compliance with twenty-ve measures of quality for
care of diabetes, heart failure, and lung failure. By contrast, traditional
Medicares performance bonus is 1.5 percent above usual fee-for-service
payments, hardly enough to justify the recordkeeping the program
entails.
HealthSprings quality measures are not limited to whether or not
doctors order a medication or test. They also consider whether or not outcomes improvefor instance, if a diabetics blood glucose or a cardiac
patients high blood pressure is reduced. Patient satisfaction is measured
with questions such as Do you understand your disease? and Did you
have a good experience? If patients do not keep their appointments,
practices are dinged for low quality, just as they are if a doctor fails to
order a medication for a patient who comes to the clinic. King told me
that each time his group sees a patient, the clinics nurse-coordinator
places a big sheet of paper on top of the chart telling the doctor what tests
are missing and listing any major problems.
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The regulations of Medicare Advantage permit an insurer to share

savings with doctors up to a limit after a specied amount is returned to
the federal government. A generous share of any savings must be offered
to the patients in increased benets or decreased payments. According to
King, for a primary care doctor to make an income of 150,000 dollars per
year at traditional Medicare fee-for-service rates, she must see forty or
more patients a day, spending only a few minutes with each. King and
Geraughty both said that a rushed fteen-minute visit makes it impossible
for a doctor to know whether or not a patient has received all necessary
tests, much less to educate him. Primary care doctors current payment
policy produces a frantic schedule and is probably the reason why only 50
percent of patients get recommended care when they go to the doctor.
At the Sumner Clinic, the actions of the nurse-coordinator and the
use of standing orders and management protocols meant that quality
measures in the practice shifted from the usual 50-percent compliance to
nearly 90-percent compliance. Emergency room visits decreased by 23
percent, and hospital admissions decreased by 16 percent but with
increased spending on tests, imaging, and rehabilitation. Within six
months of implementing this program, HealthSpring was spending only
77 percent of what Medicare was paying HealthSpring for the Sumner
Clinics patients, down from 87 percent at the start of the experiment.
The savings arose from decreased hospitalizations and emergency room
visits. Sid King said that he told Geraughty, Dont get excited by this. It
cannot work. But six months later the total medical cost to HealthSpring
of the Sumner Clinics patients fell to 69 percent of Medicare payments,
where it has stabilized for the past two years. At the Sumner Clinic, all
these changes were initiated with paper records. Only after the numbers
stabilized did HealthSpring expand the clinic and install a system for
maintaining electronic medical records.
As required by law, patients see savings in the form of increased benets or lower premiums. They also receive demonstrably better health care
than they otherwise would. The doctors have higher incomes and the satisfaction of practicing high-quality medicine. HealthSpring has a larger prot
margin. The lesson for the Medicare program is that by allowing doctors to
share in the savings from efcient practice, a great deal of money can be
savedenough to lower Medicares cost yet pay doctors better.
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Would insurers still manage such programs if Medicare were to

pay 100 percent of fee-for-service rather than an average of 112 percent?
I cannot answer that question. But with a cost that is nearly 69 percent of
Medicares payment, the Sumner Clinic experiment suggests that some
money spent on managing such a program might substantially reduce
overall spending for some of Medicares costliest patientsthose with
chronic diseases.
Sid King told me, Now I can spend whatever time I need with the
patients because I see twenty a day rather than forty.
I asked Jim Geraughty about the key to establishing a practice that
can accomplish such things. He said, A doctor has to get it. Its all about
physician leadership. He also told me that he was hesitant to enter any
shared savings arrangement with a medical practice without veriable
measures of quality practice. I understood why: it would be too easy for
doctors to free up money for insurers and themselves by cutting corners
on care rather than improving management. That reputationsometimes
deserved, sometimes notled to the demise of HMOs.
The Sumner Clinics numbers surprised Geraughty, King, and Fritch,
but I was not so surprised. I think primary care doctors in the United States
have gotten so beaten down that they have no idea what they can do if given
the chance. But they had better be given the chance to be paid in a new way.
I have been told by doctors from Utah to California that primary care practices are closing to new Medicare patients. As Jim Geraughty put it,
Everyone in primary care is trying to get out of Medicare.
Both public and private programs can be efcient. Community Care
of North Carolina is a Medicaid program managed by the state, and its
hinge is clinics such as the Sumner Clinic. North Carolinas 1.6 million
Medicaid beneciaries were assigned such a clinic in each region of the
state. Patients go to the doctors in those clinics as their rst point of contact with the medical system. Doctors are paid at an increased fee-forservice rate rather than at Medicaids usual underpayment, and
additional money is allocated for the management of chronically ill
patients. The doctors work with a team of social workers, nurses, and
therapists. Although the program cost the state 8.1 million dollars to
implement, in one year it saved more than 240 million dollars by improving care.1
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Dr. Allen Dobson is a North Carolina primary care physician who is

the assistant secretary for the North Carolina Department of Health and
Human Services and manages the program for the state. He observed that
the savings came not from ve 50-million dollar decisions but from 125
painstaking 2-million dollar decisions. He believes that local physician
management and patience were the keys to the programs success.
Sumner Clinic and Community Care of North Carolina are both
examples of what primary care doctors call a medical home: a clinic
where each patient has a personal physician who coordinates care
through a multidisciplinary team and is the rst point of contact with the
medical system. It resembles the old-fashioned system in which a patient
went to his doctor to get medical advice and treatment rather than talked
to the neighbor and picked out a specialist or two. Generalists believe
that if every patient consulted his primary care physician before seeing a
specialist and if patients were subject to coordinated medical care, 67 billion dollars could be saved5.6 percent of health care costs.2
The primary care doctors may have undersold themselves, however,
for they could save medicine even more money. Thats because there are
three main functions of primary care. Management of chronic diseases is
one. Early detection and treatment of acute illnesses is another. (For
instance, a generalist who detects and treats pneumonia before the chest
X ray shows a change can save an elderly patient a hospitalization, if not
her life.) The management of patients who are still healthy so that they do
not develop chronic diseases is a third function.
One of the smartest people I know has for years routinely made judgments that affect whole industries. She is also obese. One day, when we
were eating lunch, she said to me, So what is the top number of blood
pressure supposed to be?
I said, Not over 120.
She responded, Good, mine runs 130.
I told her, Sarah, I think you had better see your doctor. You should
get it down. When did you last have your cholesterol checked?
I cant remember, but Im feeling ne, she said. I dont really have
a doctor, but maybe I will go sometime.
To the layperson, a sustained systolic blood pressure of 130 millimeters of mercury sounds close to the normal systolic blood pressure of 120
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(the top number of in a blood pressure measurement). But in fact, it is the

precursor to heart disease, an eventuality that can be prevented by medication, diet, and moderate exercise. Obesity produces diabetes and high
blood pressure. I imagined Sarah in ten years with diabetes and heart disease. What a waste, I thought, No one else could do what she does the
way she does it. People like Sarah need a doctor whom they respect and
who will help them stop the quiet erosion of their bodies by educating,
regularly testing, and treating them.
In my view, primary care has yet a fourth function. Primary care
doctors should be paid to keep people out of hospitals and out of the
hands of specialistsnot for necessary care, but for unnecessary care.
Some creative tension is needed, but it should be among doctors, not
between doctors and insurers. Patients need education, and primary care
doctors should be paid to provide it. The establishment of standards for
specialty procedures would give generalists adequate information for
making decisions. For instance, a cardiologist might present a patient with
the idea of a catheter procedure for the treatment of stable angina like
this: Mr. Gonzalez, your chest pain is caused by heart disease, and you
need a procedure to open up the arteries. You could have a heart attack if
we dont treat it. What is the patient to say? Who wants a heart attack?
The information the cardiologist provides is all true, but it is also misleading. A primary care doctor armed with full information would probably introduce the same procedure like this: Mr. Gonzalez, your chest pain
is caused by heart disease. I will prescribe medication and diet, which are
likely to reverse the heart disease if we watch it closely and keep your cholesterol numbers low. A catheter procedure relieves chest pain faster than
medication alone in about 10 percent of patients, but it carries a 2-percent
risk of serious complications. You need to think about whether your chest
pain restricts your activity enough for you to undergo such a procedure or
whether you can wait for medical management to relieve your symptoms.
If you are interested I can refer you to a specialist for the procedure. This
information, combined with an educational video, would guarantee
Mr. Gonzalezs ability to make an informed decision.
A primary care doctor should act as a patient advocate as the patient
enters the hungry world of specialty medicine. It follows, then, that in
order to reap the benets of good primary care, each patient should have
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one doctor rather than decide for himself which specialist to see or, like
Ed Fitzsimmons in our story of the best of Medicare, be managed by a selfselected panel of specialists.
The Medical Home Model

Why has this medical home model not been implemented across the United
States? The answer is that past experimentation with chronic disease management has shown improvement only in the management of a few chronic
conditions without saving money in any disease. But most of the studies had
methodological aws or were not designed to examine cost savings.3 Even
the Sumner Clinic evidence would not be sufcient to change Medicare payment policy because its results were not compared in real time with those
of similar Medicare patients who were going from doctor to doctor without
coordinated management. The conclusion is not that disease management
fails to save money but that it has never been given a real chance.
Medicare conducted a program in order to solve these problems, contracting with eight insurers to test the disease management concept in
30,000 patients; but the program had major design problems, and two
insurers withdrew within the rst six months.4 Medicare is limited in its
ability to conduct such experiments. They are a sideline for the agency
and in any event must cost no more to conduct than fee-for-service
Medicare does. For instance, in its chronic disease pilot program, insurers
were paid about 5 percent of savings compared to unmanaged patients. If
insurers failed to reduce costs, they had to pay back the moneywhich no
doubt explains why two insurers quit. The requirement of revenue neutrality also meant that there was no money to hire a nurse, as
HealthSpring did for the Sumner Clinic, or to install health information
technology in a doctors ofce. Medicare is neither staffed nor funded to
conduct such critical experiments properly, and in any case they are not
the programs focus, which is paying for services provided to Medicare
patients. My observations are that Medicare is underadministered anyway. A series of poorly designed Medicare demonstration projects with
negative results could set payment reform back many years.
Americas primary care doctors have been calling for widespread
implementation of the medical home model for several years. But when
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they pitch their ideas to Congress, both the members and their staff can
only see doctors asking for more money, a yearly occurrence. Nothing the
medical industry has asked Medicare to fund has ever saved it money, so
the doctors dont get very far.
But the coordinated management model has many opportunities for
savings. For example, managing care at the end of life is not a feature of
disease management programs, but it certainly is a cost driver. At least
one-quarter of Medicare spending takes place in the last year of life,
much of it in the hospital. A study of where patients die has shown that,
in regions with high bed counts, 54 percent of patients died in the hospital. In regions with lower bed counts, only 23 percent did, with the
remainder dying in their own homes or in nursing homes. Personal preference had no inuence on the place of death.5 So the key to end-of-life
management is to allow patients to make decisions beforehand.
Improving Care at the End of Life

A program in Oregon solved the problem by going to the root of the issue
asking patients specic wishes in advance and enforcing their decision. In
1999, the percentage of Oregon patients who died in the hospital rather
than at home was the lowest in the nation at 31 percent; the national average was 56 percent. Oregons plan was straightforward, but it did not happen overnight.6 In 1991 a statewide group of ethics committees concluded
that residents shared the ubiquitous American problem of dying. The task
force determined that it was not so hard to determine who was nearing the
end of life: they were patients in nursing homes and the frail elderly with
multiple chronic conditions. Needed were standard hospital orders, lled
out ahead of time and signed by a physician or a nurse practitioner, that
specied exactly the limits of treatment when a patient entered a hospital.
The state Medicaid program paid doctors to meet with patients and their
families in a quiet ofce setting and discuss just how far they wanted doctors in hospitals to go should they require admission. Some did not want
hospital admission at all unless their pain could not be controlled.
The committee devised and piloted a standard set of orders, which
were completed and signed by the doctor or nurse practitioner in a
patients presence. These orders specied, for instance, whether the
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patient wanted cardiopulmonary resuscitation, intravenous uids, ventilators, antibiotics, or nutritional support. Nothing was left to any doctors
imagination. The orders, called Physician Orders for Life-Sustaining
Treatment (POLST), were to accompany any patient likely to be near the
end of life as that person was transferred or discharged from a nursing
home or a home.
After ve years of renement the concept was tested statewide in
eight long-term-care facilities. The results were remarkable. No patient
received unwanted cardiopulmonary resuscitation or articial ventilation. Of 183 patients in the statewide test, twenty-four were hospitalized
only because the nursing homes could not control suffering. For the others, the nursing homes could fulll patients medical orders.
Before statewide implementation, Oregon law was changed to protect
emergency medical service providers who followed the POLST orders in
the eldfor instance, protecting them from litigation should they not
provide cardiopulmonary resuscitation in compliance with a patients
POLST orders. The orders were made bright orange so that no one could
miss them, and the public was extensively educated.
As a result, Oregon has reported the lowest rate of Medicare in-hospital expenditures in the last six months of life6,198 dollars per enrollee
in Bend, Oregon, versus 17,797 dollars in New York City.7 Ed Fitzsimmons
would have died quietly and probably quickly in a private hospital room
without a ventilator, tubes in his body, or thousands of dollars of
unwanted tests had he lived in Oregon instead of California. Had he been
a patient of the Sumner Clinic he might have lived for many more years.
The AMQS would organize and conduct Medicare demonstration
projects of the medical home model and incorporate the Oregon model of
end-of-life care and other successful end-of-life programs. AMQS regional
boards would manage these programs in primary care practices in urban
and rural areas and in solo and group practices throughout the United
States. The information learned in one region would be shared with others. The AMQS would install information systems in participating doctors
ofces to help them manage patients and to aid the AMQS in
monitoring quality of care and developing measures of quality. It would
provide some of the up-front cost of care coordination, such as a nursing
salary for large group practices. No one should expect an immediate
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result; rather, everyone would work by trial and error until the program
could stand alone in reducing cost and improving quality. AMQS staff
would work with doctors as if they were colleagues in a national learning
experiment until everyone could understand which critical behaviors and
performance measures were producing reduced cost along with increased
quality. When the details were clear and widely disseminated, the AMQS
would recommend to Medicare that it change payment policy nationally.
The AMQS would report on the quality of its clinics using a method
similar to the one used by Minnesota Community Measurement. This
group is a not-for-prot whose member organizations are Minnesota
insurers and the Minnesota Medical Society. It assesses the quality of care
of asthma, diabetes, high blood pressure, colds, sore throats, well-child
visits, and cancer screening in Minnesota clinics. Compiling data collected from health plan claims and medical records, the groups website
(www.mnhealthcare.org) provides user-friendly information. What the
public sees is the grade (from below average to above average) of each
participating clinic. And the information is easy to nd.
According to the Sumner Clinic model, a primary care doctor practicing for fty hours a week should be expected to earn at least 250,000 dollars a year. Current average income for generalists is 180,000 dollars. The
increased income is from payments for quality and shared savings. If a primary care doctor seeing 140 patients a week could not prevent one 70,000dollar hospitalization in a year to justify her bonus, I would be surprised.
The shortage of generalists would quickly dissipate as soon as twentyve-year-old medical students understood that primary care is important
to American medicine and that they could make at least as much money
as an ofce dermatologist or an emergency medicine physician and still
practice primary care, which many doctors love. The disincentives just
have to be removed.
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21
Reducing Spending on
Hospitals and Specialists
The way to pay specialists and hospitals so that they reduce

waste is to bundle together their payment in a at rate for an
entire episode of carefrom admission to return homeand to
monitor quality.
The United States is paying for high-performance hospitals but not getting them. What would a true high-performance hospital look like? I interviewed Dr. Lucian Leape, adjunct professor of health policy at Harvard
School of Public Health, who is a pioneer in hospital safety and quality.
When I asked how he framed the difference between safety and quality,
Leape said that they are always found together. He thinks of quality as
involving process measures: for instance, did a patient get antibiotics
before surgery? He thinks of safety as the outcome measure of quality: for
instance, did the patient have a wound infection? According to Leape, two
U.S. hospitals best exemplify safe, high-quality hospitals: Latter Day Saints
(LDS) Hospital in Salt Lake City, Utah, and the Mayo Clinic in Rochester,
Minnesota. I ew to Salt Lake City to interview one of the leaders in the
quality movement, Dr. Brent James, who was a cancer surgeon before he
became consumed with creating quality health care systems.
James came from Harvard to LDS Hospital in 1986. But even before his
arrival, the hospital had been concerned about quality: as early as 1964, a
visionary had outtted the LDS intensive care units with computers that
lled seven ofce-sized rooms. LDS is part of Intermountain Healthcare, a
statewide group of hospitals and clinics. At LDS, James met Steve Busboom,
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Intermountains vice president of nances, who was struggling to nd a

system to bill insurers more accurately. All hospitals have a list of billable
services called a charge master, and Busboom was struggling with the
25,000 items on the LDS charge master. James and Busboom joined forces
to examine not only the variations in care but also the cost of these variations. When I asked who had paid for that work, James told me, Steve
and I talked the system into it. He was working on billing, so they thought
they might save some money.
James studied the work of John Wennberg and his colleagues at the
Dartmouth Institute for Health Policy and Clinical Practice. This groups
work revealed the 160-percent regional variation in Medicare spending
and demonstrated that high-cost areas were also low-quality areas with
increased mortality rates. James expected to nd variations among practices within the same hospital, so his rst study was to examine six common procedures. He said, I had no appreciation of how common [these]
common procedures are. A small number of procedures and diagnoses
consumes a vast amount of hospital resources, a situation analogous to
the health care system as a whole, where 10 percent of patients consume
70 percent of resources.
For instance, consider a transurethral prostatectomy (TURP), a common procedure performed in elderly men whose prostate glands enlarge
and obstruct the urinary tract, preventing or slowing urination. To perform a TURP, a urologist inserts a narrow tube up the penis and then
removes a portion of the prostate gland to increase urination, boring an
opening for the urine to pass through the prostate gland. James and his
investigators analyzed the variations in care among TURP patients and
found ninety separate factors. Although patient selection and performance of the procedure are as standardized as any intervention in medicine, James said the closest pattern for any two patients was a 60-percent
variation from high to low. (That is, if one physician was using ten of
something to get the job done, the closest any other physician came was
to use sixteen of the same thing.) The widest range of variation among
physicians performing a TURP was 460 percent (ten versus fty-six of the
same thing). The average pattern for any two patients was a 160-percent
variation among the ninety factors. James said, I could scarcely gure out
what a TURP was. The investigators also found a 100-percent difference
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in the cost of care, with variations spanning a spectrum from very high
to very low.
James said he had always believed that some surgeons were just naturally better than others, a view I had also held. But the LDS investigators
found that in no area of management was one surgeon always the best.
Length of TURP procedures varied from thirty-eight to ninety minutes, the
key variable. The slow surgeons patients had more complications and
cost more. As it turned out, the faster the surgeon, the more prostate tissue he removedvarying from thirteen grams for slow surgeons to fortytwo grams for fast surgeons. This nding was counterintuitive: one would
expect a slower surgeon to operate more thoroughly. The more prostate
that surgeons removed, the fewer incidents they had of postoperative
obstruction of the urinary tract, requiring additional interventions,
longer hospital stays, and thus more cost.
Investigators presented these data to the urologists, who could identify their own behaviors but not other surgeons. The group did not tell
the urologists what to do with the data. James said he was sure that the
slowest surgeon would never talk to him again, but some time later that
surgeon called him and thanked him. The doctors comment was I talked
with my colleagues and found that they could tell where they were by
observing the nature of the prostate tissue they were resecting. I had been
picking my way more slowly and actually could not remove as much tissue
safely. I adopted their technique.
One year later, when new data from the same surgeons were examined, the slow surgeons had become faster, were removing more tissue,
and had patients with fewer complications. The range of variation among
the ninety factors was less, complications had decreased, and cost was
signicantly reduced. The surgeons had learned from one another.
As Jamess work continued, LDS hospital culture began to change,
service by service. The Intermountain Healthcare administration got
behind him when his method showed the board how to reduce the cost of
hip replacements from 12,000 to 8,000 dollars. At about the same time,
another group of investigators at the hospital showed that wound infections were increased by 240 percent if surgical patients received their
antibiotics after surgery rather than before. The hospital made administration of presurgery antibiotics standard practice, saving large sums and
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reducing infections.1 By 1992 Jamess operation changed from being a

research unit within the hospital to being a management tool. Money was
being saved, and patient outcomes were improving.
During our interview, James commented on how hospitals adopt
changes. In 1987 he attended a four-day conference led by W. Edwards
Deming, where he began to ponder how to convert Demings concepts on
variability to medicine. Deming was the mind behind Japans manufacturing and business transformation in the years after World War II. His
great contribution had been to conduct a Japanese national experiment
on whether or not the money and effort expended to reduce variation in
manufacturing processes saved money in the end. The answer was yes:
Japanese manufacturers earned a great deal of money because the value
of their products had improved so much. At one time variance in the
measurements of a Japanese engine part was half that of a corresponding
American engine part. The manufacturing processes that led to the development of Toyota and Lexus cars, which consistently earn very high quality ratings, stemmed directly from ideas championed by Demingthey
used processes that reduced variability.
According to James, Deming found that if the behaviors of the square
root of the number of people in any group changed, then the behaviors of
the whole group would change. That is, to change the behaviors of a group
of nine people, three had to be turned. James said, It works better in
medicine if it is the right three people. He emphasized that no doctors
behavior can be changed by force for very long; the key to changing physicians behavior in the long term is to give them information. One of
Jamess experiences provides an example.
Delivery of babies is the most common procedure performed at
Intermountain Healthcares hospitals, so Jamess research group turned
its focus to deliveries. Induction of labor is a procedure in which a hormone is administered that causes a pregnant womans uterus to contract,
bringing on labor and causing delivery. The most common reason for
induction is when medical conditions or an overdue fetus make immediate delivery safer than waiting for natural labor to begin. The American
College of Obstetricians and Gynecologists recommends induction of
labor only when the baby is fully developed (at least thirty-nine weeks)
and when the womans cervix (the opening of the womb) is ready.
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Induction is not benign because it leads to hard labor that can increase
the chance of injury to the fetus.
Nationally, use of induction more than doubled between 1989 and
2001, from 9 percent of deliveries to 20.5 percent. In upstate New York in
2001, 25 percent of inductions had no apparent medical basis, and the
induction rate of laboring women varied from 10 to 39 percent among
hospitals.2 Like many things in medicine, numerous factors enter into the
decision to induce. One of them, however, is not medical: it may be more
convenient to the doctor or the mother to have a prescheduled delivery
rather than wait for labor to begin spontaneously. If the procedure were
being done for strictly medical reasons, the variation in induction rates
should not be so great, a thesis analogous to Wennbergs regional variation data but played out in one hospital.
Jamess group found astonishing variation in the rates of induction
among practice groups, among hospitals in the Intermountain system,
and among physicians within groups. These data showed that, among
hospitals, 28 percent of inductions were inappropriate according to the
American College of Obstetricians and Gynecologists guidelines and that
induction was associated with a high rate of preterm deliveries and
admissions to the neonatal intensive care unit.3 Investigators presented
their data to the systems obstetricians, asking them to change guidelines
as they saw t but to reach an agreement. The consensus among the
obstetricians was to decrease the percentage of inductions from 27 to 5
percent of births, a goal they accomplished within three years.
James told me that he simply kept giving data to the obstetricians. He
noted that one group held out against altering its procedures, but after a
few years peer pressure forced even this recalcitrant group to conform. He
said this is how change happens. At rst 5 percent of doctors buy in, then
more, and eventually the last 5 percent are brought in by peer pressure.
James emphasized that neither he nor anyone else ever tells a doctor
what to do. When a standard protocol is developed, he disseminates it
among participating doctors, asking them to change the protocol as they
see t, not to approve or disapprove of it. He has learned again and again
that best management arises when the ones who deliver care design the
protocol. In Jamess view, his function is to provide the framework and the
information needed to standardize management and to report regularly
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on compliance with that management. He believes that for efciency in

medical practice to become permanent, not just the result of eternal vigilance, payment policy must be aligned with quality practice.
Its about Culture, Not Computers

After talking with Brent James, I walked up the hill from the Intermountain
corporate ofces to LDS Hospital to interview Dr. Terry Clemmer, professor of internal medicine at the University of Utah and director of critical
care medicine at the hospital. Clemmer is not only a health care researcher
but also a frontline physician who cares for the sickest patients in the
hospital, those in the ICUs. We talked in his small windowless ofce next
to one of those units. I was curious to hear his views on Intermountains
quality and information technology process because he has to live with it
as he takes care of patients.
Clemmer told me that by the 1980s the hospital already had a sophisticated information system; and coincident with Jamess arrival, his critical care group had decided to move into protocols of management of
ventilated patients. Previously, each doctor had managed ventilated
patients as she saw t, the normal way of practicing medicine. Now
Clemmer and his colleagues assigned ventilated patients into one of two
groups, one of which was managed by the doctors with the aid of a computerized physician support tool. The support tool displayed information
on computer screens at the bedside, advising the managing physician, for
example, that if A exists, then do B. These computerized tools are experimental and have generally not improved management, but they do necessitate the development of a standardized protocol for managing a
particular kind of patient. Clemmers group tested such a protocol. He
told me, We decreased the mortality rate in both groups of patients by
four times, and we concluded that management protocols improve care
whether a computer is used to remind doctors or not. I had heard such a
story before. It seems to be a common lesson that computers in medicine
are better at measuring and recording processes and providing feedback
than they are at aiding physicians in their decision making.
Clemmers investigators learned other lessons. Although Clemmer
and James both told me that protocols have to be developed at the level
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of those who manage the patients, each doctor meant something different. James is an administrator and a researcher; he meant that the frontline doctors, not the administrators, have to design processes. Clemmer
meant that nurses, pharmacists, and respiratory therapists at the bedside
not necessarily the doctorsneed to design them. For example, he told
me that his physicians developed a protocol for managing patients on
ventilators for lung failure. But when the doctors presented the protocol
to the respiratory therapists, they all laughed. He said, We changed the
protocol because they were right and also because they are at the bedside
and they had to buy into it.
Clemmer gave another example of where good protocols come from.
High blood-glucose levels cause all manner of complications and are very
common in ICU patients. Insulin is the treatment, but its use is tricky
because patients vary in their response to it; and lowering the glucose too
much can cause insulin shock, which can be fatal. A somewhat high glucose, however, exerts its bad effects over a period of time without any
immediate danger to the patient, so the understandable tendency in hospitals is to err on the side of too high rather than too low. Clemmer credited managing blood glucose in a lower range with reducing the mortality
rate in the hospitals ICUs. Such a protocol does not require more effort
from the doctors but more attention from the bedside nurses, who must
frequently check the glucose values, alter the insulin dose, recheck the
blood glucose, and then instantly respond if the insulin overshoots and
drops glucose to dangerous levels.
Clemmer turned to his computer screen as we talked and pulled up
the blood-glucose proles of every patient in the LDS Hospital ICUs during the past twenty-four hours. At a glance he could tell it staff members
were following the protocol. He summarized his view of hospital quality:
Its a matter of being consistent, reliable, and doing what you say you are
going to do.
When I asked if the hospital had saved money on its quality effort,
Clemmer said that, by reducing complications and mortality, LDS had
reduced the cost of ICU patients by 2 million dollars a month. But we do
not get to keep the money, he explained. Medicare pays hospitals by the
discharge diagnosis, and most insurers simply pay by the number of interventions to which a patient is subject. Hospitals get paid more if, upon
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discharge, a patient has had a lot of complications. For instance, a hospital is paid a certain amount for a patient with heart disease who is admitted for a coronary artery bypass. If the patient is discharged with no
complications, the hospital is paid less than it would have been if she had
had a myriad of complications. More work earns more pay from Medicare
and much more from private insurers, even if sloppy medical care is the
cause of the additional work. This approach leaves hospitals and doctors
without the slightest nancial incentive to reduce complications and a
powerful incentive to tacitly allow them. The payment system pits a basic
tenet of medical practice, rst, do no harm, against the self-interest of
doctors and hospitals.
LDS partially solved this problem by becoming an insurer so that, at
least for its own beneciaries, good medicine is not unprotable medicine. A hospital payment system that rewards complications, as the U.S.
system does, is perverse. The United States is getting what it is paying for
in every area: quantity, not quality.
I asked Clemmer if the work he does at Intermountain would be possible without fully functional electronic medical records. He said that
computers were necessary but not sufcient. What is needed are both
computers and the will to use theman information system without a
culture of safety and efciency is wasted money. He advised me to look
into a story that is now famous in quality circles, the Cedars-Sinai story.4
A stones throw from Beverly Hills, Cedars-Sinai, a hospital in southern California, has a cutting-edge reputation. In 2002, it seemed characteristic of the hospital to invest 34 million dollars on an information
system; at the time it already had several computerized patient care areas.
But when the process was extended throughout the hospital, the medical
staff revolted. The system had been programmed not to accept a medication order from a doctor if that medication interacted with one the patient
was already taking. But doctors frequently and deliberately combine drugs
that interact, so the computer stopped them cold. This was not the only
problem. Even when executing uncomplicated orders, the doctors had to
slow down to answer numbers of questions before the computer would
accept their orders. Only a fraction of the 2,000 doctors with privileges at
the hospital had been involved in the development of the information system; and within three months of installation, the hospital shelved it.
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Clearly, until doctors and hospitals have a business case to use information technology, it will be an add-on, not an integral part of practice.
Payment should be changed so that doctors and hospitals are paid for
efciency. Then they would have a business case to use information
technology.
Paying for Outcomes, not Processes

There are only so many ways in which to pay hospitals. Private insurers
pay by the number of tests and procedures performed and the intensity of
care required during hospitalization. Medicare pays a at rate based upon
the number of complications the patient develops during the course of
care as well as whether or not he undergoes procedures during hospitalization. That is, the at rate is determined by what happens during the
course of hospitalization more than upon admitting status. Both methods
tend to reward complications and inefciencies. Medicare has implemented a new policy in which it does not pay for care of certain hospitalacquired complications, which is a good move toward change. Nonetheless,
both methods pay hospitals more if they do more things to patients, so
they promote inefciency.
Medicares payment system is routinely gamed when hospitals open
their own rehabilitation units and long-term care facilities. Heres an
example of how the gaming works. A long-term care facility is an intermediate entity between a nursing home and a hospital. A hospital opens
such a facility inside its existing structure, or it buys one. It does the same
for a rehabilitation unit. Ideally, patients needing rehabilitation or longterm care are subject to strict medical entry criteria. But hospitals are
paid independently for each of the facilities, so with a little ingenuity a
hospital can triple-dip by a liberal interpretation of the admission criteria. One calculation estimates that if all Medicare admissions to longterm care facilities were audited for appropriateness and Medicare were
paid back for inappropriate admissions, the program would recoup more
than 200 million dollars per year.5
The answer is to pay hospitals a at rate for an entire episode of
carefrom admission to return home, regardless of long-term care, rehabilitation stays, or any intermediate steps. Specialists would bundle their
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payment with the hospitals. Let the anesthesiologists, surgeons, intensivists, radiologists, and other hospital-based specialists work out their
own payment arrangements with hospitals, based upon their value to the
process of care as well as their performance. The hospital and its afliated
doctors would bear the cost of repeat surgeries and complications
because they would all be in the same nancial boat. Everyone would
have an interest in preventing complications and reducing cost.
Such an arrangement is currently legally questionable. The justication for legal barriers is that competition between hospitals and doctors
protects patients interests. I agree that an independent relationship does
permit a doctor to practice at another hospital if he believes its approach
to care is better; I have taken this step myself in the past. But nothing in
my proposal would prevent a doctor from working with multiple hospitals. The only difference is a reformed nancial arrangement, and I have
found an example of such a payment system.
Dr. Denton Cooley is a legend at the Texas Medical Center in
Houston. I saw him operate when I was a medical student, and even a
novice could tell that he operated like a musician plays an instrument
smoothly, economically, and quickly. His dexterity and his surgical results
were world-famous. I was enthralled. In 1968 Cooley performed the rst
successful heart transplant in the United States, and he made major contributions to reducing the mortality rate from adult and pediatric heart
surgery. But years later, when Cooley was nearing the end of his career, I
heard him say that he thought his greatest contribution to medicine was
the development of a bundled pricing model for heart surgery.
The Texas Heart Institute where Cooley was chief worked like a
machine for patients needing heart surgery. Every step was preplanned.
There were so many postoperative heart surgery patients in the ICUs, for
instance, that every detail of their management was on protocol. The
nurses were so used to caring for them that they could sense a problem
before it happened. Specialists were versed in the particularities of how the
organ system of their interest responded to heart surgery. Once, when
the institute was seeing more infections than expected, a rapid analysis that
would have taken a year to accomplish in any other setting found that the
use of a safety razor on the chest before surgery was the cause. Because of
the hospital culture that Cooley initiated, almost every aspect of cardiac
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patient care at the Texas Heart Institute is still managed by protocol. It

has ranked among the top-ten heart centers in the country for sixteen
consecutive years.
In 1992 the institute could offer heart surgery for 27,040 dollars,
whereas the national average was 43,370 dollars. All physician fees were
included in the price. Although the necessary legislation to make the
arrangement available to insurers died in Congress, the idea was right.6
The Texas Heart Institute could offer such a price because Cooley and his
team had determined the critical elements to reduce complications and
cost and delivered them reliably. Such a bundled payment model would
drive efciency if it were used.
AMQS regional boards would work with a series of afliated hospitals
in their state or region to determine the key process measures that
improve outcomes in specic patient groups, just as Cooley did with his
heart patients. As in AMQS clinics, information would be shared among
hospitals in this national learning experiment. After enough was known,
hospitals would be paid a at rate that was high enough for them to prot
for quality care but low enough to save Medicare money, as in the
Texas Heart Institute model. The hospitals and doctors afliated with
AMQS would teach the methods of these high-performance hospitals to
others in each region; and at the appropriate time, the AMQS would
advise Medicare to alter its payment policy nationally one procedure at
a time.
Measuring Standards
The AMQS would fund the use of information technology in its highperformance hospitals because discovering standards and measuring
them with paper records is slow and expensive. As Brent James explained,
when doctors receive information about their processes of care, they
respond, unless they have powerful reasons not to (as in my case of excess
imaging). Our hospital once provided us with reports on the length of stay
of our spinal surgery patients. Four of us had high-volume practices that
could be compared. One of the surgeons had the shortest length of stay,
while mine was one of the longest, though my complication rate was low.
I asked my friend how he kept his patient stays so short.
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Simple, he said, I stop their morphine the morning after surgery

and give them oral pain meds. As soon as they nd out they are not getting any more narcotics, they go home. The more morphine you give
them, the more they vomit.
I had been in the habit of using morphine for days after surgery, giving an anti-nausea medication to combat this side-effect. After this conversation, I switched to a regular intravenous injection of a non-narcotic
pain reliever, stopped morphine the morning after surgery, and began to
apply cooling packs to the wounds, which also decreased pain. In no time
my length of stay was cut in half, cost was reduced, and the patients were
happier.
Creating efciencies and making hospitals safe are the same undertakings under different names. Both require setting standards, measuring
standards, and paying for outcomes. The current method of paying for performance does not take the concept far enough because it just preserves
fee-for-service medicine and pays doctors and hospitals a small bonus for
doing what they should do anyway. It meagerly rewards the processes of
care, not the outcomes of care, and is therefore of limited value.
Making Hospitals Safer

More than one hundred quality programs are currently paying doctors
and hospitals a bonus of a few percent over usual charges to practice good
medicine.7 But being paid a small bonus to do what you should do anyway
is a performance improvement program that might be applied to a retail
clerk for improved courtesy. It shouldnt be implemented as a critical
component in the delivery of health care.
The Joint Commission is the entity that certies most U.S. hospitals
and requires them to satisfy minimal standards of quality and safety.
Hospitals must comply with Joint Commission standards to qualify to care
for Medicare patients; and few, if any, hospitals would be viable without
access to these patients. The Joint Commission and Medicare have collaborated in requiring hospitals to report on standard measures of quality
medical practice. Examples include giving aspirin after a heart attack,
promptly administering antibiotics once pneumonia is diagnosed, administering antibiotics before surgery (when they prevent wound infections)
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rather than after (when they do not), and vaccinating elderly patients to
prevent pneumonia. Between 2004 and 2007, hospitals that failed to
report received a 0.4-percent reduction in their annual Medicare payments, so most of them complied and documented their best practices.
Between 2002 and 2006, hospital performance improved. For example, the appropriate care of heart attack improved from 86.9 to 90 percent. For heart failure the improvement was from 60.7 to 76 percent; for
pneumonia, from 72.3 to 81 percent.8 Still, performance was highly variable. Hospitals in the midwest and the northeast outperformed those in
the west and the south. The percentage of hospitals that were providing
life-saving catheter procedures within 120 minutes of a heart attack varied among states by almost 50 percent.9
The greatest limitation of the Joint Commissions program is that
good standard medical practice has had little inuence on the mortality
rate of patients, though it may yet.10 Other, more complex factors were at
work. For instance, what urologist would have suggested the removal of at
least forty-two grams of prostate gland as a quality measure for prostate
surgery? What obstetrician would have believed that so many colleagues
were inducing delivery rather than letting it occur naturally? What doctor
would have imagined that a series of simple hygiene measures and control of blood glucose would have wiped out hospital-acquired pneumonia
and reduced ICU mortality rates fourfold at LDS Hospital?
I do not take away from the importance of measuring and reporting
quality; in fact, I promote it. Such measures do not, however, get to the
key processes that result in improved outcome. Further, paying a small
bonus for quality measures is not a sustainable way to pay hospitals for
quality. I attended a conference at which a doctor who manages a quality
program funded by Medicares 1.5-percent bonus payment reported savings and decreased mortality in his hospital. I asked him if his hospital
got to keep the savings. His response was that the bonus just paid for the
reporting. This method is no way to create high-performance hospitals.
Regional AMQS boards would work with high-performance hospitals
to determine processes and methods that enhance patient safety until
enough is known to standardize hospital function and transfer the technology to other hospitals. As these hospitals became independent of
AMQS support, nancing would be freed up to expand to other hospitals
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in each region. In this way, AMQS would lead medicine through a fundamental change, one group of hospitals at a time, until payment and quality adjust nationally for all hospitals and specialists. If we follow the logic
of Demings ndings, seventy hospitals out of the current 5,000 and 1,000
doctors out of the current 900,000 would be enough to initiate the
process of reform in the United States. Over time, the majority of U.S. hospitals would become high-performance hospitals with standardized
processes and measurable outcomes.
The other hospital safety issue is unreliable emergency services. A
recurring theme of this book is that the development of new technology
has outstripped our ability to use it, and the situation is no different for
emergency services. In the past twenty years a scientic revolution has
provided one life-saving emergency treatment after another, but those
treatments work only if rendered a short time after onset of the emergency. Many people do not receive them.
Clot-busting drugs, for example, if given within three hours of a
stroke, increase the chance of survival with a slight or no decit by 30 percent. The treatment was proven to work in 1993, and its use has been
endorsed by groups such as the American Stroke Association. But fewer
than 10 percent of eligible patients ever receive treatment.11 The reason is
that neurologists who normally treat stroke are mostly diagnosticians who
are used to working during ofce hours and have not organized to come to
the emergency room within the short time frame needed for treatment.
Also, even though treatment improves outcome, one of its complications
is bleeding in the brain, so emergency doctors will not administer it. The
problem is aggravated because doctors are not paid to administer the
drugs. A global payment for the treatment of stroke, in combination with
public reporting of the percentage of patients in each region who receive
it, would increase the use of this therapy and protect the publics interests.
Administration of clot-busting drugs or catheter procedures reduce
the chance of death by one-third if applied within twelve hours of a heart
attack, and the sooner the better. Two-thirds of patients do receive these
procedures within twelve hours of hospital admission.12 These technologies
have been long established and are one of the standards of quality reported
by the Joint Commission. The performance of individual hospitals on
this quality measure can be accessed on the Joint Commissions website,
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probably one of the reasons that two-thirds of patients receive the drug. But
one-third of people do not.
Induction of hypothermia shortly after cardiac arrest increases the rate
of survival with good neurological recovery by at least one-third. This relatively new treatment was reported in 2002, but it is highly effective with a
low complication rate and endorsed by specialty societies. In 2005, however, only 13 percent of emergency medicine physicians, critical care physicians, and cardiologists had ever used the therapy or knew much about it.13
The Joint Commission is a central organization whose ndings are
publicly available but not publicly known. If it used its ability to sanction
hospitals, denying them access to Medicare patients by setting high standards nationally, it would close too many hospitals. Further, its rules have
to recognize the limits of hospital nancing.
What is missing in emergency services in many areas is any responsible regional entity that could hold competing doctors and hospitals
accountable to the local community for the quality of service. Emergency
services in a community are typically delivered by multiple ambulance
services and hospitals, all functioning in their own worlds without awareness of the context in which they operate. Without local leadership that
transcends individual hospitals, these circumstances are not likely to
change. There is no forum in most regions where doctors and hospitals
come together to discuss emergency services. AMQS regional boards
would enquire about why all patients do not receive appropriate emergency treatment, provide a forum for discussion and planning, work with
doctors and hospitals to improve performance, and report to the public.
It would facilitate and report, not regulate.
AMQS would make grants to municipalities and local governments to
support three-year pilot projects to establish something similar to airtrafc control systems for ambulances throughout the United States.
These coordinating bodies would report upon the availability of these and
other emergency services and try to improve them. In Houston, where
such a system was attempted, the total cost of a coordinating center for
the thirteen counties that account for 20 percent of Texass population
was only about 2 million dollars per year.
This idea is modeled on a project piloted by Dr. David Persse, director
of emergency medical services in Houston. During hurricanes Katrina
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and Rita, 5,000 to 10,000 people with medical needs from Louisiana and
East Texas were displaced into Houston hospitals, nursing homes, and
clinics.14 By coordinating ambulance trafc for the entire region from a
command center, the right patients from the ooded areas got to the
right hospitals in Houston. The miracle was that patients were so evenly
spread among area hospitals than not one scheduled surgery in a
Houston hospital was cancelled because of patient overow. This concept
could be executed anywhere with off-the-shelf communications systems,
and its example is one of the reasons that I say it is absurdly easy to correct many of the problems in medicine. We just have to blow through the
resistance to change.
Reducing Hospital Prices

Labor costs are at least half of a hospitals expenses.15 One means of
reducing hospital cost and improving safety is to ease the nursing and
hospital personnel shortage. The nursing shortage has three causes. First,
nursing school faculty salaries are mostly paid by the states through hidebound institutions of higher learning. Teachers of nursing are locked into
academic pay scales that are not competitive with equivalent clinical
nursing jobs. Second, schools of nursing cannot nd enough hospital
afliates to train their students. And third, nurses have poor working conditions. This last problem is aggravated by job stress from the nursing
shortage, so increasing the pool of nurses should improve job satisfaction. The only way the faculty shortage can be alleviated is to pay teachers
of nursing better.
A problem often gets solved when it is measured and reported. AMQS
regional boards would be responsible for analyzing and reporting steps
that could be taken to alleviate the nursing shortage. For a small amount
of state money to increase salaries of teachers of nursing, we might substantially relieve the nursing shortage and reduce hospital overhead in a
region. The transformation of high-performance hospitals should make
the hospital environment better for nurses because they would surely
take a leadership role in most of the changes I envision. As in the case of
primary care physicians, empowerment improves job satisfaction. Like
many problems in medicine, no one owns the problem of the current
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hospital labor shortage; and some simple steps in each region might permanently relieve it.
Between 2000 and 2003, 27 percent of the growth in health care costs
was due to prices in excess of ination.16 This gure bolsters the case that
medicine functions as a regional monopoly. AMQS would examine hospital pricing regionally to identify areas in which high pricing appears to be
the result of regional monopolies. There is nothing wrong with a monopoly as long as its pricing is fair; but if it gouges its customers, people
should be informed. Since not-for-prot hospitals receive a tax subsidy
for the public good that they do, they should publicly report their prices.
Empowering Consumers
Physician and hospital participation in AMQS would be voluntary, but
public reporting of provider- and hospital-specic data would be a
requirement for participation. Over time, as the systems brand came to
mean quality and safety, the number of participating hospitals and clinics
could expand to include most in the country. AMQS would make the
results of its evaluations of drugs and procedures known in ways that the
public could understand. It would inform the public about the state of
health care services in each region. The idea is to change medical culture
in every way possible, and public education is a sure way of doing it.
Another way of educating the public is to teach them about procedures
that they are to undergo. When straightforward videos and readable information are presented to patients who are faced with a medical decision,
more than one-quarter fewer of them choose surgical procedures.17
Choosing treatment for prostate cancer illustrates why patients should be
taught by a neutral source. In 2005, more than 200,000 men were diagnosed
with prostate cancer, and 30,000 died from it. There are four treatments for
prostate cancer when it is localized within the prostate gland: watchful waiting, surgical removal, hormone therapy, and radiation therapy. Researchers
have not found much difference between the long-term results of radiation
therapy and surgery, but their complications are different.18
Each patient must make his own treatment decision. The usual way is
to talk to a urologist about surgery and to a radiation oncologist about
radiation therapy. A 1999 survey found that 93 percent of urologists
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recommended surgery as the preferred treatment, while 72 percent of

radiation oncologists believed that surgery and radiation treatment were
equivalent in effectiveness.19 An article in Oncology Times reported that a
Texas rm is placing radiation therapy devices for prostate cancer in urologists ofces at a cost to each practice of 3 to 5 million dollars. The article contains testimonials about the effectiveness of radiation therapy
from urologists who have made such investments. The article also notes
that the surgical fee for prostatectomy is from 5,000 to 6,000 dollars per
case and that a full course of radiation therapy pays a practitioner 36,000
to 41,000 dollars. Therefore, a machine must irradiate 120 patients per
year for the procedure to be robustly protable.20 A urology practice that
makes a multimillion dollar investment in radiation therapy equipment
cannot be a source of neutral advice about the treatment options.
Doctors may present marginally effective procedures to patients as if
they were highly effective, or doctors may not discuss the matter at all.
AMQS would provide a decision aid for every patient to use before undergoing any non-emergency medical procedure. Viewing a presentation
describing the state of knowledge about a procedure might be made a
requirement for Medicare payment of non-emergency procedures.
Most doctors would not object to the use of decision aids for two reasons. First, the videos would be created by doctors, not bureaucrats, and
be based upon the best available information. Second, they would be a
substantive legal protection for physicians against a patients claim that
he was not fully informed about the risks of a procedure.
The concepts I present here about the effectiveness of medical treatments will seem strange to people. How is it possible that my doctor does
not know what works best? The time at which a patient is considering a
procedure is a teachable moment. AMQS educational tools would not only
ensure that patients have full information but also educate them in a
broader sense about the state of medical knowledge so that they are more
comfortable with the process of technology evaluation and the inevitable
limitations on use of ineffective and marginally effective procedures.
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22
Positioning of an American
Medical Quality System
The American Medical Quality System would provide the information and the payment models needed to alter insurance payment policy nationally and the reporting and education needed
to inform the public.
The concept of a center that evaluates technology is not new. Support

for the idea has been steadily building in the insurance industry and
among many policy groups in Washington.1 What is newand essential
is the concept of an entity that also reforms the medical industry by performing experiments in health care nancing and delving into the
functions of hospitals and clinics to discover efcient processes and then
facilitates the teaching of how to implement these processes. What is also
new is the concept of an entity that systematically lls in the gaps in
knowledge needed to set benchmarks and then generates a medical consensus to establish standards of quality medical practice.
A technology assessment center alone will not save much money. In
fact, the Congressional Budget Ofce has judged that a center that merely
compares the effectiveness of treatments would save only about 6 billion
dollars over ten years.2 The scope of the U.S. medical problem requires
bigger thinking and bigger action, but even an institute restricted to
measuring the effectiveness of medical interventions is controversial. So
you can imagine the resistance to what I propose here.
Everyone supports technology development because there are no
losers, but technology assessment is not very popular because there are
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losers. The 700 billion dollars in waste associated with unnecessary treatments has to come out of someones pocket. NIH research helps develop
new technology, and the agency enjoys vastly more funding than its sister
agenciesabout four times more than the CDC and fteen times more
than the FDA. The NIH has the support of industry, medical schools, scientic societies, and disease societies such as the American Cancer
Society and the American Heart Association. All prot from its work. It has
no opponents and few detractors. What other federal agency can make
that claim? Yet in 2003 only about 5 percent of the money allocated by the
federal government to medical research was used to determine how best
to deliver medical services.3
Research to nd out what works in medicine had no status until
1989, when legislation established the Agency for Health Care Policy and
Research with the mission to research the outcomes of medical treatment, develop guidelines for best medical practices, and advise Medicare
on payment policy. But two simultaneous events in 1994 nearly cost the
agency its life.4 The rst was that it began to do its job. A review of the
data on spine fusion had found there was no evidence that back fusion,
a widely performed procedure, was effective and that it had a high complication rate. Agency staff proposed studies to nd out more, but a professional society of spine surgeons, the North American Spine Society,
attacked their conclusions. Moreover, a back surgeon from northern
Virginia, Dr. Neil Kahanovitz, formed the Center for Patient Advocacy,
which organized a letter-writing campaign to Congress. Through personal contacts in the House of Representatives, he succeeded in convincing a number of representatives that the agencys position on back
surgery was based on unsound research and was a waste of taxpayers
money.
Kahanovitzs efforts were perfectly timed with a second 1994 event:
Republican control of the House. As a federal body managed by the executive branch, the agency had naturally provided information and analyses
to support the Clinton administrations Health Security Act. But now its
association with the executive branch made it vulnerable to enemies.
Fueled by Kahanovitzs lobbying, members of Congress accused it of
wastefulness and unwarranted interference in the practice of medicine.5
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A N A M E R I CA N M E D I CA L Q U A LI T Y SYST E M
263
The Agency for Health Care Policy and Research barely survived the
attack. It was dealt a 21-percent budget cut and renamed the Agency for
Healthcare Research and Quality after its teeth were led to nubs. Its successor agency was forced to abandon controversial topics that might
affect payment policy. Its current budget is
1
100
th that of the NIH.
The country depends upon the Federal Reserve System for objective
nancial decisions. AMQSs dynamics should be the same. It must make
neutral decisions based upon incontrovertible data. It will be recommending courses of action to Congress and commercial insurers; so its day-to-day
decisions cannot be unduly inuenced by Congress, a presidential administration, or an industry. History has shown that when a federal agencys ndings threaten an industrys prots, that agency may go out of business or be
tamed. Therefore, what I propose cannot be a federal agency.
For the AMQS to function, it must, like the Federal Reserve System,
have an appointed board independent from Congress and the administration and be rigorously nonpartisan. But unlike the Federal Reserve
System, which is chartered by Congress but self-supporting, the AMQS will
require taxpayer dollars. The FDA receives a signicant proportion of its
funds from industry to approve new drugs, and allegations of excessive
industry inuence plague it. An American Medical Quality System needs
a signicant portion of its nancing to be independent of industry and
of congressional and industry interference with its ndings. Otherwise,
industry will contaminate or stop its actions by lobbying Congress, as
Kahanovitz did and as industry does for Medicare policy every day.
There is a precedent for congressional approval of a process without
congressional involvement in the details. Closing military bases is an
essential means of managing the military, but bases bring so much
money into congressional districts that members must try to stop a base
closure there even if they know that closure is in the national interest.
I can imagine the same dynamic when a major industry residing in a
members home district is threatened by an AMQS nding. Congress uses
the Defense Base Closure and Realignment Commission to make
individual closure decisions, retaining the option of disbanding the commission but not of altering its decisions. Members of Congress are thus
protected in their home districts from politically unpopular decisions
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that are nevertheless necessary. Congresss problem in health care is

analogous.
The Federal Reserve System

There is a useful and familiar precedent for modernizing an industry and
making it efcientthe reform of the banking industry. The Federal
Reserve System was created by the Federal Reserve Act of 1913 to prevent
bank failures and panics, which were common in the late nineteenth century. In a bank panic, depositors would rush to their bank to withdraw
their money, like the citizens of Bedford Falls do to Jimmy Stewarts
George Bailey in Its a Wonderful Life. The banking panic that led to
the establishment of the Federal Reserve System occurred in 1907, and the
worst panics occurred during the Depression years of 1930 to 1933. The
Fed sat idle during the Depression but in its aftermath gained new powers
and a new mandate as the federal government shifted its role in managing the economy from laissez-faire to active intervention. The Fed has
been juggling interest rates and currency supply ever since and has facilitated the banking industrys transformation from small regional banks
relying on paper transactions to well-capitalized banking systems that
depend upon instantaneous information and transaction processing for
competitive advantage. Unexpectedly, its unprecedented actions to loan
money to investment rms (not just banks) and to underwrite the sale of
Bear Stearns may have prevented another run on banks in 2007.6
The Federal Reserve System was created as an independent body to prevent monetary policy from being politicized, and its revenue comes from
services that it provides for regional banks rather than from taxes. Its structure was the result of a compromise between progressive interests led by
William Jennings Bryan, who feared a banker-dominated board, and
bankers who feared government intervention. It has wide latitude in its
actions, but its goals are set by Congress. The Fed is led by a board of governors, each serving a staggered fourteen-year term. The president makes the
appointments with the Senates advice and consent. A governor can only be
removed for cause, not for political differences or for being disagreeable.
Twelve regional Federal Reserve Banks were created to prevent the
concentration of nancial power in New York. Each regional bank is a
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private operation owned by its member banks and is led by a nine-member board of directors, some selected by member banks and others by the
board of governors. Regional banks store excess currency and provide
common services to member banks, such as the processing of checks.
They sell Treasury securities and perform economic research in their
region.
I conceive of an American Medical Quality System in Washington,
D.C., modeled on the governance of the Federal Reserve System, with
Medical Quality Boards in every region of the country. Its business would
be to change the practice of medicine in the United States. It is not just a
physicians conjecture that the measures I propose here could reduce
health care cost. The Commonwealth Fund contracted with an independent health care consultant, the Lewin Group, to estimate the savings from
a number of measures, such as public health programs to decrease smoking and obesity and also including industry-wide controls on medical
prices. Many of the measures that I propose here were a component of the
analysis and, extrapolated out to ten years, were estimated to save more
than 100 billion dollars per year.7
This estimate is realistic if there is no change in the U.S. culture of
medicine. But if doctors begin to take pride in delivering cost-effective
and quality medicine, if the uninsured are covered so that hospitals dont
rely on wasteful practices to balance their books, and if consumers accept
ownership of some of the problems, the savings gure could conceivably
be closer to 700 billion dollars.
Change in Culture or Regulation?

In a national consumer market created by disconnecting insurance from
employment, health insurance would have to be regulated so that consumers get a fair deal. The AMQS would make specic recommendations
on payment policy to Medicare and insurers, which they can accept or
reject. It follows that insurance regulation should not be done by the same
entity that provides recommendations on payment policy; otherwise, its
ndings and judgments would be de facto payment mandates. Consumers
should decide what services they wish to pay for when they purchase insurance. Congress, not the AMQS, should decide what Medicare pays for.
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I do not propose a regulatory function for AMQS also because

Medicare and commercial insurers have all the necessary tools to force
change in the medical industry if they choose to do so. After all, they pay
for health care services. Medicare has two hammers: its own payment
policies and the accreditation actions of the Joint Commission. But
Medicares payment policy is the sledgehammer. The program is the single largest insurer in the country, and it can institute industry-wide
changes simply by altering what it chooses to pay for and how it will pay.
My proposed American Medical Quality System will only reduce health
care costs if Medicare adopts its ndings, which will then inevitably be
adopted by private health insurers. Those policies are political decisions
made by Congress and the administration; and if either political will or
impeccable information is lacking, nothing will happen because those
decisions must survive an industry onslaught.
Congress functions as the Medicares board of directors. Industry
does not go to Medicares administrators when they want to inuence
payment policy; they go directly to Congress. For example, when Congress
is faced with making its annual decision to override the reduction in
physician payment called for by the sustainable growth-rate calculation,
legions of doctors from members home states visit congressional ofces.
Groups of doctors huddle around the lone legislative staffer or member of
Congress in each ofce, insisting that they cannot take a pay cut and need
a pay hike. Otherwise, they say, Medicare patients will not nd a doctor
when they need one. The doctors are sometimes accompanied by lobbyists who may have generously contributed to the members reelection.
Sometimes campaigns back home are organized around these visits
in order to scare Medicare patients. In the days after the doctors leave the
congressional ofce, frightened constituents punctuate their visits by
calling to urge the member not to cut their Medicare. But no one, including the doctors, knows which 60 to 70 percent of physician services are
essential and which 30 to 40 percent are superuous; and no one in
Congress or in Medicares administration has any way to nd out.
Congresss choice is to override the formula, which always calls for a cut in
physician pay, knowing that the decision is inationary, or risk allowing
Medicare patients to lose access to doctors. Members nd themselves in
a no-win situation. Current Medicare payment policy is indiscriminate
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because no one can distinguish appropriate from inappropriate medical

use. Congress may have the hammer to make needed change in Medicare
payment, but it keeps missing the nail because it is blindfolded. We need
to bring light to the process and tear off the blindfold.
Political Realities
The deck is stacked against the establishment of an American Medical
Quality System because no industry reforms itself. The pharmaceutical
industry spent 800 million dollars lobbying federal and state governments
over a seven-year period; 116 million dollars of that sum made sure that
the Medicare Modernization and Improvement Act of 2003 would suit
their needs. Of the 1,291 pharmaceutical lobbyists, 52 percent have been
federal ofcials.8 The CEO of the main drug lobby, PhRMA, was a member
of the House of Representatives for twenty-ve years and an author of the
Medicare Modernization Act of 2003, which includes a prescription drug
benet. The pharmaceutical industry is likely to oppose head-to-head testing of drugs by anyone other than a pharmaceutical company, and its tentacles reach deep into congressional ofces. The medical device industry
similarly opposes testing of its products effectiveness.
The hospital industry will object to the idea that AMQS will expose
excess hospital prices, but its members may not oppose accepting grants
for information technology and process improvements. Hospitals function well with prot margins of no less than 2 percent and need prots of
no more than about 6 percent. If some prospect of covering the uninsured
along with cost savings from improved efciency can stabilize the function of not-for-prot hospitals at the upper limit of that range, they might
go along with such a reform effort.
The disease-based advocacy groups are a wild card. Many of these
organizations accept signicant support from the industries that stand to
prot from the guidelines they sponsor, especially the pharmaceutical
industry.9 Advocacy groups could oppose the notion of allowing a neutral
entity to work with medical societies to establish practice guidelines, and
they might join specialty medical societies and their industry supporters
in opposing AMQS. This combination could be deadly because patients
who may or may not have a full understanding of the issue will be
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involved. Although the insurance industry will probably support the

aspects of this proposal that would help them do their job better, it is
impossible to judge how strong their support will be.
The Role of Business

The uninsured can be covered and health care cost reduced only if business supports and drives the effort. No other force in America can trump
the medical industrys lobbies and compel Congress to act. Medical practice cannot be adequately reformed to reduce cost and improve quality
without also covering the uninsured. Most are members of working families; but their employers have not been compelled to provide coverage,
and many businesses cannot afford to do so. American business did not
ask to be left holding the health care bag, but that is who is holding it.
Big business in particular is not only the solution; it is also part of the
problem. After the recession of 2003, the rise in uninsured resulted
mostly from the actions of small businesses that were dropping coverage.
But trends in the preceding years show that big business must share the
blame. From 1987 to 2001, the proportion of uninsured who worked for
big businesses rose from 25 to 32 percent of the uninsured. In addition,
retiree benets of big business have been steadily decreasing since the
1990s, and these businesses have increasingly shifted health care
expenses to their employees.10
The Role of the Medical Profession

Doctors have good reason to support change. In 2009, they are scheduled
to take a 10-percent cut in their Medicare payments, and sooner or later
Congress will be unable to override the sustainable growth-rate formula
that sets the yardstick for physician payment. To delink the cost and volume of physician services will cost 262 billion dollars over ten years, a
large sum. Sooner or later Congress will be unable to come up with that
kind of money, and doctors will be paid less than they are now.
The medical argument against my proposition is that AMQS is an
unwarranted intrusion into the practice of medicine. While I agree that it
is an intrusion, I also believe it is warranted. Yet it will not interfere with
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a doctors ability to take care of an individual patient, nor will it interfere

with a patients ability to choose an individual doctor.
What I propose will require more work from doctorsand work different from what they are used to doing. They will have to consider the
cost of their actions and the evidence that supports those actions. They
will have to accept a performance report card. They will have to help discover efcient means of practice in clinics and hospitals and then adopt
those methods. But who is better suited than doctors to create such
reforms? The added work and adaptation to change are prices they must
pay for retaining some measure of control over the process of reducing
cost and improving quality. The alternative is to have little control, like
physicians in single-payer systems.
Some doctors like to own ambulatory surgery centers and hospitals.
Under the payment system I propose, they still could. If everyone were
covered by insurance, community hospitals would have no reason to
object to specialty hospitals because community hospitals would have no
reason to cost-shift their losses from the uninsured. If a physician-owned
facility could complete an episode of medical care cheaper and with equal
or better quality than a community hospital could, then it would make
more money than the community hospital would. Doctors in both community and specialty hospitals would be held to patterns of practice using
the appropriate indications for surgery.
All my life I have heard the argument you cant practice cookbook
medicine. But I am sure that 95 percent of the time you can practice
standard medicine because I did it. Doctors can certainly practice
evidence-based medicine, especially if they are the ones to generate the
evidence. This requires a new way of thinking about medical practice, but
that thinking keeps step with the advancement of technology. I expect
pediatricians, family doctors, emergency medicine doctors, general
internists, and doctors who practice in public hospitals to have no objection to my proposals. They would probably be paid better and have more
satisfying professional lives.
According to my proposal, fewer specialists would perform fewer procedures in fewer hospitals and ambulatory surgery centers. This would
create savings, but specialists and hospitals would also be adequately
paid for their services. The leaders of the specialty societies are politically
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savvy and understand the nancial forces that their specialties face.
I think they understand that their efforts to keep payment levels up cannot continue to succeed under current circumstances. Some specialty
societies may be willing to support something similar to my proposal.
But individual specialists will strike hard at these ideas. Like Neil
Kahanovitz, who nearly brought down the Agency for Healthcare Research
and Quality, some specialists will say that spending public money to evaluate their technology or limit its use is unwarrantedeven wrong.
Imagine how Dr. Raymond Alford, the character in my story of unnecessary surgery, would react to what I propose. He would have too much
invested in his one operation to risk change, and he would have enough
money to work against such change. But personal beliefs based upon
unexamined individual experience, even if they are sincere, can be wrong
as often as they are right.
I remember a scene in the basement of an NIH building on Wisconsin
Avenue in Bethesda, Maryland, twenty-ve years ago. Those were the days
before we had any proven treatments that reduced the neurological damage from stroke, brain injury, spinal cord injury, or cardiac arrest. I had
just completed my residency and was on a panel with more senior neurosurgeons discussing the design of a clinical trial of a drug called a steroid,
which would be tested for the treatment of spinal cord injury.
Back in the early 1960s, a neurosurgeon named Lyle French at the
University of Minnesota had been searching for a way to get chemotherapy into brain tumors. I helped care for his patients when I was an intern
in 1975. The brain has a microscopic barrier that excludes pharmaceuticals from entering it, so French gave a steroid to a comatose patient in
hopes that it would open the brains barrier to the chemotherapeutic
agents. When he came back to give the chemotherapy, he found the
patient awake. After more such experiences, neurosurgeons everywhere
began to use steroids to decrease the swelling of the brain caused by brain
tumors. There was no need for any randomized trial here. The results
were analogous to administering penicillin for pneumonia: patients got
better before the doctors eyes.
As a result of this success, neurosurgeons began to use steroids for
every neurosurgical disease they treated, though the results of treatment
were not immediately evident in injured patients, who did not wake up
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like tumor patients did. But doctors continued to assume that because
steroids were effective in tumors, they were also effective in brain and
spinal cord injuries.
Subsequent laboratory research found that steroids did improve the
outcome of spinal cord injury but only if given in a higher-than-common
dose very soon after injury. Now doctors needed a clinical trial to determine the right dose. The question before our panel was whether to give
one group of patients with spinal cord injury the usual steroid dose and
the other the high dose or whether to administer a placebo to one group
and compare it to high-dose steroids. The latter was the better design
because objective analysis of the data demonstrated that no one knew
whether or not steroids had any effect on spinal cord injury.
The room was tense as the ten or so doctors sat around the conference
table discussing the two options. Two or three of the doctors held back;
but when the decision to test a placebo versus high-dose steroids appeared
to be the probable consensus, they began to react. One red-faced doctor
stood up, waving his arms in agitation, and passionately declared that it
would be immoral not to use steroids in both groups of patients: we
knew that they were effective; what we didnt know was which dose was
more effective. His two supporters became equally animated; and before
the meeting was over, they had prevailed. The study was completed with
high- and low-dose steroids, and it was completely negative. The matter
became so confused that years later another large trial was conducted,
testing a placebo versus a dose of steroids tenfold higher than that used in
the original study. The result was a weak treatment effect but only if the
drug was given within eight hours of injury. Clearly, unexamined personal
experience is no way to make conclusions about what works in medicine,
no matter how passionately one holds those beliefs.
Everyone Gives Something

It is in no ones best interest for matters to continue as they are. Doctors
will be paid progressively less for their services as costs rise and payers
vainly attempt to reduce expenses by reducing fee-for-service payments.
Medicare patients in some areas are already facing access problems
for primary care services, and the problem will worsen as Medicare
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reduces physician payments. The country faces a Medicare scal crisis

that our political leaders are ignoring.
The pharmaceutical industry can ride its current wave of prots
based on marketing and producing over-hyped me-too drugs for only so
long. It is courting federally imposed price controls in the United States,
a situation it already faces in other countries.
Hospitals can never deliver high-quality of services so long as they
must balance their books by cost shifting, avoiding the uninsured, and
aggressively promoting procedures of uncertain benet. Hospitals are
increasingly divided into the rich and the poor, and poor hospitals are
often key community resources for emergency care.
The insurance industry must rejuvenate itself with new tools to
decrease cost and increase quality, and it must partner with physicians.
Otherwise, it faces replacement.
The public is not well served by the present order. Small businesses
must watch their employees families go bankrupt as a result of medical
costs or beg for services at overburdened public facilities.
Big businesses must constantly balance their health care spending
between the primacies of protability and employee satisfaction yet have
no control over costs as they enter a pitiless global economy.
Individuals who can afford to purchase insurance must hope that
they never get sick and really need it. Otherwise, they will join the ranks
of the medically bankrupt or the uninsured and uninsurable.
The working poor are exploited by a tax code that subsidizes the
afuent in purchasing insurance and a society that does not allocate
resources for their care until their untreated conditions become lifethreatening emergencies. Lack of insurance is now reaching deep into the
middle class.
Until recently, the United States probably had the best emergency
services system in the world. Now the number of uninsured is so great
that emergency care has become unreliable nationwideeven for the
insured. This is the most telling evidence that we have entered a new era.
The matter is not hopeless, just big. If every part of the medical industry gives something, then it is certainly possible to carve hundreds of
billions of dollars out of health care spending, use the proceeds to cover
the uninsured, and improve the care of the insured.
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Sometimes the lives of nations, like the lives of individuals, require

radical change. That change is painful, but the consequences of failing
to act are reliably worse. America needs real change in its health care
systemnot necessarily abruptly but relentlesslyand reform must start
now. The consequences of delay are likely to create deeper divisions in
American society as the cost of health care further delineates the haves
(the insured) and the have-nots (the uninsured). Quality of care will
deteriorate for both groups, and more working people will go without reliable insurance.
No one can name the date when the health care crisis will be upon us,
triggering massive reform; but given current trends, the moment is less
than a decade away. Well know were in crisis when
Medicare patients lose access to good doctors because of payment

cuts
A large tax increase is levied to prevent Medicare insolvency
Too many businesses walk away from health care nancing
Insurance coverage of the middle class becomes unstable

Poor-quality health care, deaths from emergency services breakdown,
and an increased number of low-wage uninsured are not likely to trigger

reform. After all, Texas is managing even though one-third of its big-city
population is uninsured and the state has an unreliable emergency services system. California is not in much better shape.
The United States has sometimes done the right thing just because it
is the right thing. My parents told me when I was a young man growing up
in the south that segregation was not automatically right just because the
country had always been racially segregated. The United States did away
with this practice, which was a national cancer. The inequity of health
care is another afiction on the soul of the nation.
Health care reform is a matter of justice, and all the rational, economic arguments for it are nothing more than words unless the nation
can recognize what is wrong and x it. Just about everyone who practices
medicine realizes that something must be done about U.S. health care,
starting now. We must take action because we are quickly racing toward
chaos or a deeply destructive societal division. Americans are all complicit in the failure of the health care system, and we must all act to repair
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it. We are running out of time to reform this massive system with forethought and planning rather than under duress.
I cannot be sure what will turn the tide of medical care in America,
but I have faith in the country. That faith is strengthened by the many
sons and daughters of U.S. families who have joined the military in recent
years. There are so many people of good will; I have worked with them in
medicine, in Congress, and in business. The views of the coming generations are too fresh and untarnished to be without optimism. And my generation, the baby boomers, though jaded after forty years of materialism,
must still remember the 1960s when America changed direction.
Our nation has the tools, the know-how, and the resources to develop
a high-performance health care system that delivers quality care at lower
cost to all its citizens. It is time for America to roll up its sleeves and begin
this task with focus and commitment.
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NOTES
CHAPTER 1
NOT BUSINESS AS USUAL
1. David M. Cutler and Mark McClellan, Is Technological Change in Medicine

Worth It? Health Affairs 20 (SeptemberOctober 2001):1129.
CHAPTER 2
UNRELIABLE EMERGENCY SERVICES
1. Mark M. Moy, The EMTALA Answer Book (Gaithersburg, Md.: Aspen, 1999).
2. Robert J. Mills, Health Insurance Coverage: 2001, in U.S. Census Bureau,
Current Population Reports (Washington, D.C., September 2002), 10.
3. Abaris Group for SAVE OUR ERS, An Assessment of Houston Area EDs
(Houston, May 2002).
4. Charles E. Begley, Yu-Chia Chang, Robert C. Wood, et al., Emergency Department Diversion and Trauma Mortality: Evidence from Houston, Texas,
Journal of Trauma 57 (December 2004): 126065.
CHAPTER 3
AN ERODING INFRASTRUCTURE
1. Atul Gawande, Casualties of WarMilitary Care for the Wounded from Iraq
and Afghanistan, New England Journal of Medicine, December 9, 2004,
pp. 2471475.
2. John G. West, Donald D. Trunkey, and Robert C. Lim, Systems of Trauma Care:
A Study of Two Counties, Archives of Surgery 114 (April 1979): 103335.
3. Charles C. Branas, Ellen J. MacKenzie, Justin C. Williams, et al., Access to
Trauma Centers in the United States, Journal of the American Medical Association, June 1, 2005, pp. 262633; National Foundation for Trauma Care,
U.S. Trauma Center Crisis: Lost in the Scramble for Terror Resources (Las
Cruces, N.M., May 2004).
4. U.S. General Accounting Ofce, Hospital Emergency Departments: Crowded
Conditions Vary among Hospitals and Communities (Washington, D.C.,
March 2003); Catharine W. Burt, Linda F. McCaig, Roberto H. Valverde, Analysis of Ambulance Transports and Diversions among U.S. Emergency Departments, Annals of Emergency Medicine 47 (April 2006): 31726; American
275
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Hospital Association, Taking the Pulse: The State of Americas Hospitals

(2005), http://www.hospitalconnect.com/ahapolicyforum/resources/content/
TakingthePulse.pdf; Lewin Group, Emergency Department Overload: A Growing Crisis. The Results of the AHA Survey of Emergency Department and Hospital Capacity (Falls Church, Va., April 2002); Abaris Group for the California
Health Care Foundation, California Emergency Department Diversion Project,
Report 1 (Walnut Creek, Calif., March 19, 2007).
5. American Hospital Association, Taking the Pulse.
6. Institute of Medicine, Committee on the Future of Emergency Care in the
U.S. Health System, Hospital-Based Emergency Care: At the Breaking Point,
(Washington, D.C.: National Academies Press, 2006), 19.
7. Linda Green, Shelly Glied, and Morgan Grams, Ambulance Diversion and
Myocardial Infarction Mortality (New York: Columbia University Business
School, 2005).
8. Abaris Group, Houston-Galveston Area Council Emergency Health Care
Study (December 5, 2005); Linda F. McCaig and Catharine W. Burt, National
Hospital Ambulatory Medical Care Survey: 2003 Emergency Department Summary, Advance Data from Vital and Health Statistics 358 (2005): 12; Catharine
W. Burt and Linda F. McCaig, Trends in Hospital Emergency Department Utilization: United States, 19921999, National Center for Health Statistics. Vital
and
Health
Statistics
13
(November
2001),
http://www.cdc.gov/
nchs/data/series/sr_13/sr13_150.pdf.
9. Ann S. OMalley, Anneliese M. Gerland, Hoangmai H. Pham, et al., Rising
Pressure: Hospital Emergency Departments As Barometers of the Health Care
System (Washington, D.C.: Center for Studying Health System Change,
November 2005); McCaig and Burt, National Hospital Ambulatory Medical
Care Survey: 2003.
10. American Hospital Association, Emergency Departments Provide an Important Access Point for Traditionally Underserved Populations, Trend Watch 3
(March 2001): 12; Peter J. Cunningham, What Accounts for Differences in
the Use of Hospital Emergency Departments Across U.S. Communities? Health
Affairs
Web
Exclusive,
July 18,
2006,
http://content.healthaffairs.org/
cgi/reprint/25/5/w324.
11. Peter J. Cunningham and Jessica H. May, Insured Americans Drive Surge in
Emergency Department Visits (Washington, D.C.: Center for Studying Health
System Change, October 2003).
12. McCaig and Burt, National Hospital Ambulatory Medical Care Survey: 2003.
13. Eric W. Nawar, Richard W. Niska, and Jianmin Xu, National Hospital Ambulatory Medical Care Survey: 2005 Emergency Department Summary
(Hyattsville, Md.: Centers for Disease Control and Prevention, June 29, 2007).
Study; Susan Lambe, Donna L. Washington, Arlene Fink, et al., Trends in the
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Use and Capacity of Californias Emergency Departments, 19901999, Annals

of Emergency Medicine 39 (April 2002): 38996.
15. Darius N. Lakdawalla, Dana P. Goldman, and Baoping Shang, The Health and
Cost Consequences of Obesity Among the Future Elderly, Health Affairs Web
Exclusive, September 26, 2005, http://content.healthaffairs.org/cgi/reprint/
hlthaff.w5.r30v1.
16. Kenneth E. Thorpe, Curtis S. Florence, David H. Hammond, et al., The Impact
of Obesity on Rising Medical Spending, Health Affairs Web Exclusive
(October 2004), http://content.healthaffairs.org/cgi/reprint/hlthaff.w4.480v1.
CHAPTER 4
FIFTEEN YEARS LOST
1. Robert E. Mechanic, Medicaids Disproportionate Share Hospital Program:

Complex Structure, Critical Payments (Washington, D.C.: National Health
Policy Forum, September 14, 2004); Kaiser Family Foundation, Hospital Beds
per 1,000 Population by Ownership Type, 2005, http://statehealthfacts.org/
comparebar.jsp?ind=385&cat=8.
2. U.S. Census Bureau, Press Release: Health Care and Social Assistance Revenues Reach $1.3 Trillion (Washington, D.C., November 2004).
3. Guillermo Barreto-Vega, Medical Clinic/Physician Ofce (San Antonio, Tex.:
Small Business Development Center, National Information Clearinghouse,
November 15, 2004); Alain C. Enthoven and Laura A. Tollen, eds., Toward a 21st
Century Health System. (San Francisco: Jossey-Bass, 2004).
4. Tufts Managed Care Institute, A Brief History of Managed Care (Boston, 1998).
5. Ibid.
6. Lisa Backus, Marie Moron, Peter Bacchetti, et al., Effect of Managed Care on
Preventable Hospitalization Rates in California, Medical Care 40 (April 2002):
31524; Chunliu Zhan, Marlene R. Miller, Herbert Wong, et al., The Effects of
HMO Penetration on Preventable Hospitalizations, Health Services Research 39
(April 2004): 34561.
7. Paul B. Ginsburg, Competition in Health Care: Its Evolution over the Past
Decade, Health Affairs 24 (NovemberDecember 2005), 151222.
8. Ibid; Daniel Altman, David Cutler, and Richard Zeckhauser, Enrollee Mix,
Treatment Intensity, and Cost in Competing Indemnity and HMO Plans, Journal of Health Economics 22 (January 2003): 2345; David M. Cutler, Mark
McClellan, and Joseph P. Newhouse, How Does Managed Care Do It? Rand
Journal of Economics 31 (fall 2000): 52648.
9. Ginsburg, Competition in Health Care.
10. American Hospital Association, The Fragile State of Hospital Finances
(March 2005), http://www.aha.org/aha/content/2005/pdf/05fragilehosps.pdf;
American Hospital Association, The State of Americas HospitalsTaking the
Pulse (Chicago, 2005).
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System Study.
CHAPTER 5
HANDED HEALTH CARES LEFTOVERS
1. U.S. Census Bureau, Income Climbs, Poverty Stabilizes, Uninsured Rate

Increases (Washington, D.C., August 29, 2006); Families USA, One in Three:
Non-Elderly Americans without Health Insurance, 20022003 (Washington,
D.C., June 2, 2004).
2. Kaiser Family Foundation, The Uninsured, A Primer (October 2006),
http://www.kff.org/uninsured/7451.cfm; Lisa Dubay, John Holahan, and Allison
Cook, The Uninsured and the Affordability of Health Insurance Coverage,
Health Affairs Web Exclusive, November 30, 2006, http://content.healthaffairs.
org/cgi/reprint/26/1/w22.
3. National Association of State Budget Ofcers, 2004 State Expenditure Report
(2005), http://www.nasbo.org/Publications/PDFs/2004ExpendReport.pdf.
4. Sara R. Collins, Karen Davis, Michelle M. Doty, et al., Gaps in Health Insurance: An All-American Problem (New York: Commonwealth Fund, April
2006); David U. Himmelstein, Elizabeth Warren, Deborah Thorne, et al.,
Discounting the Debtors Will Not Make Medical Bankruptcy Disappear,
Health Affairs Web Exclusive, February 28, 2006, http://content.healthaffairs.
org/cgi/ reprint/25/2/w84.
5. John G. Canto, William J. Rogers, William J. French, et al., Payer Status and the
Utilization of Hospital Resources in Acute Myocardial Infarction: A Report
from the National Registry of Myocardial Infarction 2, Archives of Internal
Medicine, March 27, 2000.
6. Eugene A. Caracciolo, Kathryn B. Davis, George Sopko, et al., Comparison of
Surgical and Medical Group Survival in Patients with Left Main Coronary
Artery Disease, Circulation, May 19, 1995, pp. 81723.
7. George Masi, Harris County Hospital District chief operating ofcer, personal
communication, November 12, 2006.
8. Jack Hadley and John Holahan, How Much Medical Care Do the Uninsured
Use, and Who Pays for It? Health Affairs Web Exclusive, February 12, 2003,
http://content.healthaffairs.org/cgi/reprint/hlthaff.w3.66v1; Marc L. Berk and
Alan C. Monheit, The Concentration of Health Care Expenditures, Revisited,
Health Affairs 20 (MarchApril 2001): 918; Jack Hadley, Matthew Cravens,
Terri Coughlin, et al., Federal Spending on the Health Care Safety Net from
20012004: Has Spending Kept Pace with the Growth in the Uninsured?
(November 2005), http://www.kff.org/uninsured/7425.cfm.
9. Stan Dorn, Uninsured and Dying because of It: Updating the Institute of Medicine Analysis of the Impact of Uninsurance on Mortality, January 8, 2008,
http://www.urban.org/url.cfm?ID=41158; Karen Davis, The Costs and Consequences of Being Uninsured, Medical Care Research and Review 60
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(June 2003): 89S99S; J. Michael McWilliams, Alan M. Zaslavsky, Ellen Meara,

et al., Health Insurance Coverage and Mortality Among the Near-Elderly,
Health Affairs 23 (JulyAugust 2004): 22333.
10. Institute of Medicine, Care Without Coverage: Too Little, Too Late (Washington,
D.C.: National Academies Press, 2002), 4849; N. Lurie, N. B. Ward, M. F. Shapiro,
et al., Termination from Medi-Cal Benets: A Follow-up Study One Year
Later, New England Journal of Medicine, May 8, 1986, pp. 126668; Maureen I.
Harris, Racial and Ethnic Differences in Health Insurance Coverage for Adults
with Diabetes, Diabetes Care 22 (October 1999: 167982; John Z.
Ayanian, Joel S. Weissman, Eric C. Schneider, et al., Unmet Health Needs of
Uninsured Adults in the United States, Journal of the American Medical Association, October 25, 2000, pp. 206169.
11. Institute of Medicine, Care without Coverage, 54; Richard G. Roetzheim,
Naazneen Pal, Eduardo C. Gonzalez, et al., Effects of Health Insurance and
Race on Colorectal Cancer Treatments and Outcome, American Journal of Public Health 90, no. 11 (2000).
12. Richard G. Rotzheim, Naazneen Pal, Colleen Tennant, et al., Effects of Health
Insurance and Race on Early Detection of Cancer, Journal of the National Cancer Institute, August 18, 1999, pp. 140915.
13. George W. Bush, White House press release of a speech to the Cleveland Chamber of Commerce, Cleveland, Ohio (July 10, 2007), www.whitehouse.gov/news/
releases/2007/07/20070710-6.html#.
CHAPTER 6
WHERE WE ARE HEADED
1. Medicare Payment Advisory Commission, Report to Congress: Growth in

the Volume of Physician Services (December 2004), http://www.medpac.gov/
publications/congressional_reports/Dec04_PhysVolume.pdf; Peter R. Orszag,
testimony before the U.S. Senate, Committee on Finance, March 1, 2007,
http://www.cbo.gov/ftpdocs/78xx/doc7832/03-01-SGR.pdf.
2. Byron Thames, testimony before the U.S. Senate, Committee on Finance,
March 1, 2007, http://www.senate.gov/~nance/hearings/testimony/2007test/
030107bttest.pdf.
3. Glenn M. Hackbarth, testimony before the U.S. Senate, Committee on
Finance, March 1, 2007, http://www.medpac.gov/publications/congressional_
testimony/030107_Finance_testimony_SGR.pdf?CFID=2196161&CFTOKEN=
21917649.
4. Thomas R. Saving, Medicare Meltdown, Wall Street Journal, May 9, 2007,
p. A17.
5. Congressional Budget Ofce, The Budget and Economic Outlook: Fiscal Years
2008 to 2018 (Washington, D.C., January 2008).
6. Peter Orszag, testimony before the U.S. Senate, Committee on the Budget, June
21, 2007.
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7. Medicare hospital spending in 2005 was 180 billion dollars. The program
historically grows at GDP plus 2.5 percent. At 5.5-percent annual growth,
hospital spending in 2018 would be 367 billion dollars; 73 billion dollars
is 20 percent of that gure.
8. U.S. Census Bureau, Projections of the Total Resident Population by 5-Year
Age Groups, and Sex with Special Age Categories: Middle Series, 2016 to 2020,
January 13, 2000, http://www.census.gov/population/projections/nation/
summary/np-t3-e.txt.
9. Texas Primary Care Coalition, Press Release: New Poll Finds Texas Medicaid
Patients Unable to Find Primary Care Physicians (Austin, Tex., April 5, 2005);
Project HOPE, Center for Health Affairs for the Medicare Payment Advisory
Commission, 2002 Survey of Physicians about the Medicare Program (March
2003),
http://www.medpac.gov/publications/contractor_reports/Mar03_
02PhysSurv_summary2.pdf.
10. Stephen Zuckerman, Joshua McFeeters, Peter Cunningham, et al., Changes in
Medicaid Physician Fees, 19982003; Implications for Physician Participation,
Health Affairs Web Exclusive, June 23, 2003, http://content.healthaffairs.
org/cgi/reprint/hlthaff.w4.374v1; Kaiser Family Foundation and Health
Research and Educational Trust, 2007 Annual Employer Health Benets Survey: Summary of Findings (May 2007), http://www.kff.org/insurance/7672/;
Len M. Nichols and Sarah Axeen, Employer Health Costs in a Global Economy:
A Competitive Disadvantage for U.S. Firms (Washington, D.C.: New America
Foundation, May 2008).
11. 2007 Annual Employer Health Benets Survey; Richard Kronick and David
Rousseau, Is Medicaid Sustainable? Spending Projections for the Programs
Second 40 Years, Health Affairs Web Exclusive, February 23, 2007, http://content.healthaffairs.org/cgi/reprint/ hlthaff. 26.2.w271v1.
12. Todd Gilmer and Richard Kronick, Its the Premiums, Stupid: Projections of
the Uninsured Through 2013, Health Affairs Web Exclusive, April 5, 2005,
http://content.healthaffairs.org/cgi/reprint/hlthaff.w5.143v1; Todd Gilmer and
Richard Kronick, Calm before the Storm: Expected Increase in the Number of
Uninsured Americans, Health Affairs 20 (NovemberDecember 2001):
20710.
13. Families USA, Paying a Premium: The Added Cost of Care for the Uninsured
(Washington, D.C., June 2005).
14. Kaiser Family Foundation and Health Research and Educational Trust, 2004
Annual Employer Health Benets Survey: Summary of Findings (September
2004),
http://kff.org/insurance/7148/upload/employer_health_benefits_
survey_2004_section7.pdf; Cathy Schoen, Michelle M. Doty, Sara R. Collins,

et al., Insured but Not Protected: How Many Adults Are Underinsured? Health
Affairs Web Exclusive, June 14, 2005, http://content.healthaffairs.org/cgi/
reprint/hlthaff.w5.289v1; Families USA, One in Three: Non-Elderly Americans
without Health Insurance, 20022003 (Washington, D.C., June 2, 2004).
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281
30 PERCENT WASTEOR 50?
1. Centers for Medicare and Medicaid Services, National Health Expenditures

Aggregate Amounts and Average Annual Percent Change, by Type of Expenditure: Selected Calendar Years, 19602006, http://www.cms.hhs.gov/
NationalHealthExpendData/downloads/tables.pdf.
2. David Kashihara and Kelly Carper, National Health Care Expenses in the U.S.
Civilian Noninstitutionalized Population, 2003 (Rockville, Md.: Agency for
Healthcare Research and Quality, November 2005).
3. John E. Wennberg, Elliott S. Fisher, Jonathan S. Skinner, Geography and the
Debate Over Medicare Reform, Health Affairs Web Exclusive, February 13, 2002,
http://content.healthaffairs.org/cgi/reprint/hlthaff.w2.96v1.
4. John E. Wennberg, Variation in Use of Medicare Services among Regions and
Selected Academic Medical Centers: Is More Better? (New York: Commonwealth Fund, December 2005).
5. Elliott S. Fisher, David E. Wennberg, Therese A. Stukel, et al., Variations in the
Longitudinal Efciency of Academic Medical Centers, Health Affairs Web
Exclusive, October 7, 2004, http://content.healthaffairs.org/cgi/reprint/hlthaff.
var.19v1.pdf.
6. Elliott S. Fisher, David E. Wennberg, Therese A. Stukel, et al., Implications of
Regional Variations in Medicare Spending, Annals of Internal Medicine 138, no.
4 (2003): 27387, 28898; Wennberg, Variation in Use of Medicare
Services, 11.
7. Wennberg et al., Geography and the Debate over Medicare Reform.
8. Wennberg, Variation in Use of Medicare Services.
9. Robert Wood Johnson Foundation, Press Release: New Study Shows Need for
a Major Overhaul of How United States Manages Chronic Illness (Princeton,
N.J., May 16, 2006).
10. Centers for Disease Control and Prevention, Medical Care Expenditures Attributable to Cigarette SmokingUnited States, 1993, Morbidity and Mortality
Weekly Report, July 8, 1994, pp. 46972; Eric A. Finkelstein, Ian C. Flebelkorn,
and Guijing Wang, National Medical Spending Attributable to Overweight and
Obesity: How Much, and Whos Paying? Health Affairs Web Exclusive, May 14,
2003, http://content.healthaffairs.org/cgi/reprint/hlthaff.w3.219v1.
11. Centers for Disease Control and Prevention, Annual Smoking-Attributable
Mortality, Years of Potential Life Lost, and Productivity LossesUnited States,
19972001, Morbidity and Mortality Weekly Report, July 1, 2005, pp. 62528;
David P. Hopkins, Peter A. Briss, Connie J. Ricard, et al., Reviews of Evidence
Regarding Interventions to Reduce Tobacco Use and Exposure to Environmental Tobacco Smoke, American Journal of Preventive Medicine 20, no. 2S (2001):
1666; Centers for Disease Control and Prevention, Cigarette Smoking among
AdultsUnited States, 2006, Morbidity and Mortality Weekly Report, November 9, 2007, pp. 115761.
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12. Mahshid Dehghan, Noori Akhtar-Danesh, and Anwar T. Merchant, Childhood

Obesity: Prevalence and Prevention, Nutrition Journal, September 2, 2005, pp.
18; Weight-Control Information Network, Statistics Related to Overweight
and Obesity (Bethesda, Md.: National Institute of Diabetes and Digestive and
Kidney Diseases, October 2006); William D. Marder and Stella Chang, Childhood Obesity: Costs, Treatment Patterns, Disparities in Care, and Prevalent
Medical Conditions (Washington, D.C.: Thomson Medstat, December 5,
2005).
13. Ali H. Mokdad, Barbara A. Bowman, Earl S. Ford, et al., The Continuing Epidemics of Obesity and Diabetes in the United States, Journal of the American
Medical Association, September 12, 2001, pp. 11952000; Study of Obese Diabetics Explains Why Low-Carb Diets Produce Fast Results (April 8, 2005),
http://www.sciencedaily.com/releases/2005/03/050326095632.htm; Kenneth
E. Thorpe, Curtis S. Florence, David H. Howard, et al., The Impact of Obesity
on Rising Medical Spending, Health Affairs Web Exclusive, October 20, 2004,
14. Pieter H. M. van Baal, Johan J. Polder, G. Ardine de Wit, et al. Lifetime Medical Costs of Obesity: Prevention No Cure for Increasing Health Expenditure,
PLoS Medicine 5 (February, 2008): 12.
15. Organisation for Economic Cooperation and Development, Total Expenditure
on Health, Percent Gross Domestic Product (2007), http://www.oecd.org/
dataoecd/46/36/38979632.xls; Blue Cross/Blue Shield Association, National
Healthcare Trends, in 2007 Medical Cost Reference Guide (Chicago, 2007),
513.
16. Organisation for Economic Cooperation and Development, Percentage of
Elderly Population (2006), http://caliban.sourceoecd.org/vl=15858669/
cl=42/nw=1/rpsv/fact2006/01-02-02-g01a.htm.
17. Gerard F. Anderson, Peter S. Hussey, Bianca K. Frogner, et al., Health Spending in the United States and the Rest of the Industrialized World, Health
Affairs 24 (JulyAugust 2005): 90314.
18. Uwe E. Reinhardt, Peter S. Hussey, and Gerard F. Anderson, U.S. Health
Spending in an International Context, Health Affairs 23 (MayJune 2004):
1025; Anderson et al., Health Spending; Fred J. Hellinger and William E.
Encinosa, The Impact of State Laws Limiting Malpractice Damage Awards on
Health Care Expenditures, American Journal of Public Health 96 (August 2006):
137581; Daniel P. Kessler and Mark McClellan, Do Doctors Practice Defensive Medicine? (Cambridge, Mass.: National Bureau of Economic Research,
February 1996).
19. Robert J. Blendon, Cathy Schoen, Catherine DesRoches, et al., Common Concerns amid Diverse Systems: Health Care Experiences in Five Countries,
Health Affairs 22 (MayJune 2003): 10621; Cathy Schoen, Robin Osborn,
Phuong Trang Huynh, et al., Taking the Pulse of Health Care Systems: Experiences of Patients with Health Problems in Six Countries, Health Affairs Web
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Exclusive, November 3, 2005, http://content.healthaffairs.org/cgi/reprint/

hlthaff.w5.509v3; Karen Donelan, Robert J. Blendon, Cathy Schoen, et al., The
Cost of Health System Change: Public Discontent in Five Nations, Health
Affairs 18 (MayJune 1999): 20616.
20. Anderson et al., Health Spending.
21. Ibid.
22. Bianca K. Frogner and Gerard F. Anderson, Multinational Comparisons of
Health Systems Data (New York: Commonwealth Fund, April 2006).
23. Gerard F. Anderson, Uwe E. Reinhardt, Peter S. Hussey, et al., Its the Prices,
Stupid: Why the United States Is So Different from Other Countries, Health
Affairs 22 (MayJune 2003): 89105.
24. Frogner and Anderson, Multinational Comparisons of Health Systems Data.
25. Medical Group Management Association, Physician Compensation and Production Report (Englewood, Colo., 2005); Canadian Institute for Health Information, Average Payment per Physician Report, Fee-for-Service Physicians in
Canada, 20042005 (Ottawa, December 20, 2006).
26. Frogner and Anderson, Multinational Comparisons of Health Systems Data.
27. Stefe Woolhandler, Terry Campbell, and David U. Himmelstein, Costs of
Health Care Administration in the U.S. and Canada, New England Journal of
Medicine, August 21, 2003, pp. 76875.
28. Gerard F. Anderson, Dennis G. Shea, Peter S. Hussey, et al., Market Watch:
Doughnut Holes and Price Controls, Health Affairs Web Exclusive, July 21, 2004,
29. Henry J. Aaron, Should Public Policy Seek to Control the Growth of Health
Care Spending? Health Affairs Web Exclusive, January 8, 2003, http://
content.healthaffairs.org/cgi/reprint/hlthaff.w3.28v1; Congressional Budget
Ofce, The Long Term Outlook for Health Care Spending (Washington, D.C.,
November 2007).
30. Blue Cross/Blue Shield Association, Components of Gross Domestic Product,
2003, in Medical Cost Reference Guide (Chicago, 2004), 68.
31. Michael E. Chernew, Richard A. Hirth, and David M. Cutler, Increased Spending on Health Care: How Much Can the United States Afford? Health Affairs 22
(JulyAugust 2003): 1525; Technical Review Panel of the Medicare Trustees
Report, Review of the Assumptions and Methods of the Medicare Trustees
Financial Projections (Baltimore, December 2004); Cathy A. Cowan and
Micah B. Hartman, Financing Health Care: Businesses, Households, and
Governments, 19872003, Health Care Financing Review Web Exclusive
(July 2005), http://www.cms.hhs.gov/NationalHealthExpendData/downloads/
bhg-article-04.pdf.
32. Glenn Follette and Louise Sheiner, The Sustainability of Health Spending
Growth (Washington, D.C.: Federal Reserve Board, September 26, 2005).
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CHAPTER 8
POOR-QUALITY PRIMARY CARE
1. J. Hector Pope, Tom P. Aufderheide, Robin Ruthazer, et al., Missed Diagnosis

of Cardiac Ischemia in the Emergency Department, New England Journal of
Medicine, April 20, 2000, p. 1163; Kevin Helliker, Indigestion or Heart Attack?
Patients Can Help ER Docs Get It Right, Wall Street Journal, May 11, 2005,
http://www.post-gazette.com.
2. Elliott S. Fisher, Bending the Cost Curve: Achieving Accountability for Quality
and Costs, presentation at the Health Care Summit, Killington, Vermont,
October 17, 2005.
3. National Diabetes Education Program, If You Have Diabetes . . . Know Your
Blood Sugar Numbers (Bethesda, Md.: National Institutes of Health, July
2005).
4. S. MacMahon, R. Peto, J. Cutler, et al., Blood Pressure, Stroke, and Coronary
Heart Disease. Part 1, Prolonged Differences in Blood Pressure: Prospective
Observational Studies Corrected for the Regression Dilution Bias, Lancet,
March 31,1990, pp. 76564; Steven Haffner, Rationale for New American Diabetes Association Guidelines: Are National Cholesterol Education Program
Goals Adequate for the Patient with Diabetes Mellitus? American Journal of
Cardiology, August 22, 2005, pp. 33E36E.
5. Jonathan P. Weiner, Forecasting the Effects of Health Reform on U.S. Physician Workforce Requirement: Evidence from HMO Stafng Patterns, Journal of
the American Medical Association, July 20, 1994, pp. 22230; Robert L. Phillips,
Marty S. Dodo, and Larry A. Green, Adding More Specialists Is Not Likely to
Improve Population Health: Is Anybody Listening? Health Affairs Web Exclusive, March 15, 2005, http://content.healthaffairs.org/cgi/reprint/hlthaff.
w5.111v1.
6. Mark D. Schwartz, William T. Basco, Michael R. Grey, et al., Rekindling Student
Interest in Generalist Careers, Annals of Internal Medicine, April 19, 2005, pp.
71524; Who Filled First-Year Family Medicine Residency Positions from
19912004? American Family Physician, August 1, 2005, p. 392; Jordan J. Cohen,
A Word from the President: Filling the Workforce Gap, AAMC Reporter (April
2005), http://www.aamc.org/newsroom/reporter/april05/word.htm.
7. American College of Physicians, The Impending Collapse of Primary Care
Medicine and Its Implications for the State of the Nations Health Care
(January 30, 2006), http://www.acponline.org/hpp/statehc06_1.pdf.http://
www.msnbc.com/id/11102388/; Eric Larson, Lynne Kirk, Wendy Levinson, et al.,
The Future of General Internal Medicine (August 2003), http://www.sgim.
org/futureofGIM.pdf.
8. Andrew B. Bindman, Kevin Grumbach, Dennis Osmond, et al., Preventable Hospitalizations and Access to Health Care, Journal of the American Medical Association, July 26, 1995, pp. 30511; Michael L. Parchman and Steven D. Culler,
Preventable Hospitalizations in Primary Care Shortage Areas: An Analysis
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Vulnerable
Medicare
Beneficiaries,
285
Archives
of
Family
Medicine
8 (NovemberDecember 1999): 48791; James M. Laditka, Sarah B. Laditka, and

Melanie P. Mastanduno, Hospital Utilization for Ambulatory Care Sensitive
Conditions: Health Outcome Disparities Associated with Race and Ethnicity,
Social Science and Medicine 57 (October 2003): 142941; John Billings, Geoffrey
M. Anderson, and Laurie S. Newman, Recent Findings on Preventable Hospitalizations, Health Affairs 15 (fall 1996): 23949; Asha Garg, Janice C. Probst,
Trina Sease, et al., Potentially Preventable Care: Ambulatory Care-Sensitive
Pediatric Hospitalizations in South Carolina in 1998. Southern Medical Journal
96 (September 2003): 85058; Glenn Flores, Milagros Abrew, Christine E.
Chaisson, et al., Keeping Children Out of Hospitals: Parents and Physicians
Perspectives on How Pediatric Hospitalizations for Ambulatory Care-Sensitive
Conditions Can Be Avoided, Pediatrics 112 (November 2003): 102130; John F.
Steiner, Patricia A. Braun, Paul Melinkovich, et al., Primary-Care Visits and
Hospitalizations for Ambulatory-Care-Sensitive Conditions in an Inner-City
Health Care System, Ambulatory Pediatrics 3 (NovemberDecember 2003):
32428; Gregory Pappas, Wilbur C. Hadden, Lola Jean Kozak, et al., Potentially
Avoidable Hospitalizations: Inequalities in Rates Between U.S. Socioeconomic
Groups, American Journal of Public Health 87 (May 1997): 81116; John Burr,
Glenda Sherman, Donna Prentice, et al., Ambulatory Care-Sensitive Conditions:
Clinical Outcomes on ICU Resource Use, Southern Medical Journal 96 (February
2003): 17278.
9. Richard B. Siegrist and Nancy M. Kane, Exploring the Relationship between
Inpatient Hospital Costs and Quality of Care, American Journal of Managed
Care 9 (June 2003): SP4349; Billings et al., Recent Findings on Preventable
Hospitalizations; Leslie L. Roos, Randy Walld, Julia Uhanova, et al., Physician
Visits, Hospitalizations, and Socioeconomic Status: Ambulatory Care Sensitive
Conditions in a Canadian Setting, Health Services Research 40 (August 2005):
95356.
10. Jonathan P. Weiner, Stephen T. Parente, Deborah W. Garnick, et al., Variation
in Ofce-Based Quality: A Claims-Based Prole of Care Provided to Medicare
Patients with Diabetes, Journal of the American Medical Association, May 17,
1995, pp. 15038; Louis H. Diamond, M.D., personal communication, November 2005.
11. Stephen F. Jencks, Edwin D. Huff, and Timothy Cuerdon, Change in the Quality of Care Delivered to Medicare Beneciaries, 19981999 to 20002001,
Journal of the American Medical Association, May 28, 2002, pp. 30512.
12. David J. Hyman and Valory N. Pavlik, Characteristics of Patients with Uncontrolled Hypertension in the United States, New England Journal of Medicine,
August 16, 2001, pp. 47986.
13. Elizabeth A. McGlynn, Steven M. Asch, John Adams, et al., The Quality of
Health Care Delivered to Adults in the United States, New England Journal of
Medicine, June 26, 2003, pp. 263545.
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14. Rand Corporation, The First National Report Card on Quality of Health Care
in America (2004), http://www.rand.org/pubs/research_briefs/RB90531/
RB90531.pdf.
15. Steven M. Asch, Eve A. Kerr, Joan Keesey, et al., Who Is at Greatest Risk for
Receiving Poor-Quality Health Care? New England Journal of Medicine, March
16, 2006, pp. 114756.
16. Barbara Stareld, Is U.S. Health Really the Best in the World? Journal of the
American Medical Association, July 26, 2000, pp. 48385; Leiyu Shi, James
Macinko, Barbara Stareld, et al., Primary Care, Infant Mortality, and Low
Birth Weight in the States of the USA, Journal of Epidemiology and Community
Health 58 (2003): 37480; Leiyu Shi, Barbara Stareld, Bryan Kennedy,
et al., Income Inequality, Primary Care, and Health Indicators, Journal of
Family Practice (April 1999): 27584; Leiyu Shi and Barbara Stareld, The
Effect of Primary Care Physician Supply and Income Inequality on Mortality
among Blacks and Whites in U.S. Metropolitan Areas, American Journal of Public Health 91 (August 2001): 124650.
17. Ellen Nolte and Martin McKee, Measuring the Health of Nations: Analysis of
Mortality Amenable to Health Care, British Medical Journal, November 15,
2003, p. 1129; James Macinko, Barbara Stareld, and Leiyu Shi, The Contribution of Primary Care Systems to Health Outcomes within OECD Countries,
19701998, Health Services Research 38 ( June 2003); Ellen Nolte and
C. Martin McKee, Measuring the Health of Nations: Updating an Earlier
Analysis, Health Affairs 27 ( JanuaryFebruary 2008): 5871.
18. Barbara Stareld, Leiyu Shi, Atul Grover, et al., The Effects of Specialist Supply on Populations Health: Assessing the Evidence, Health Affairs Web Exclusive, March 15, 2005, http://content.healthaffairs.org/cgi/reprint/hlthaff.
w5.97v1; Barbara Stareld, Leiyu Shi, James Macinko, Contribution of Primary Care to Health Systems and Health, Milbank Quarterly 83, no. 3 (2005):
457502.
19. Stephen Jencks, Edwin Huff, and Timothy Cuerdon, Change in the Quality of
Care Delivered to Medicare Beneciaries: 19981999 to 20002001, Journal of
the American Medical Association, January 15, 2003, pp. 30512.
20. Katherine Baiker and Amitabh Chandra, Medicare Spending, the Physician
Workforce, and Beneciaries Quality of Care, Health Affairs Web Exclusive,
April 7, 2004, http://content.healthaffairs.org/cgi/reprint/hlthaff.w4.184v1.
21. Mark W. Stanton, The High Concentration of U.S. Health Care Expenditures
(Rockville, Md.: Agency for Health Care Research and Quality, June 2006).
22. Dorothy P. Rice and Norman Fineman, Economic Implications of Increased
Longevity in the United States, Annual Review of Public Health 25 (2004):
45753; Andrew J. Rettenmaier and Zijun Wang, Explaining the Growth of
Medicare: Part II (Washington, D.C.: National Center for Policy Analysis,
August 6, 2002); Christine Hoffman, Dorothy Rice, and Hai-Yen Sung, Persons
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with Chronic Conditions: Their Prevalence and Costs, Journal of the American
Medical Association, November 13, 1997, pp. 147379.
23. Jennifer L. Wolff, Barbara Stareld, and Gerald Anderson, Prevalence, Expenditures, and Complications of Multiple Chronic Conditions in the Elderly,
Archives of Internal Medicine, November 11, 2002, pp. 226976; Congressional
Budget Ofce, High-Cost Medicare Beneciaries (Washington, D.C., May
2005).
CHAPTER 9
DANGEROUS HOSPITALS
1. Linda T. Kohn, Janet M. Corrigan, and Molla S. Donaldson, eds., To Err Is

Human: Building a Safer Health System (Washington, D.C.: National Academies
Press, 2000).
2. Troyen A. Brennan, Lucian L. Leape, Nan M. Laird, et al., Incidence of Adverse
Events and Negligence in Hospitalized Patients: Results of the Harvard Medical
Practice Study I, 1991, Quality and Safety in Health Care 13 (April 2004): 14551;
Atul A. Gawande, Eric J. Thomas, Michael J. Zinner, et al., The Incidence and
Nature of Surgical Adverse Events in Colorado and Utah in 1992, Surgery 126
(July 1999): 6675.
3. Rodney A. Hayward and Timothy P. Hofer, Estimating Hospital Deaths Due to
Medical Errors: Preventability Is in the Eye of the Reviewer, Journal of the
American Medical Association, December 12, 2001, pp. 281314.
4. Stareld, Is U.S. Health Really the Best in the World?
5. Jonathan Mummolo and Del Quentin Wilber, Now Arriving at Carousel 1, Far
Fewer of Your Bags (October 1, 2007), http://www.washingtonpost.com/
wp-dyn/content/article/2007/09/30/AR2007093001653_pf.html; Institute of
Medicine, Preventing Medication Errors (July 2006), http://www.iom.edu/
Object.File/Master/35/943/medication%20errors%20new.pdf.
6. Linda H. Aiken, Sean P. Clarke, Robin B. Cheung, et al., Educational Levels of
Hospital Nurses and Surgical Patient Mortality, Journal of the American Medical Association, September 24, 2003, pp. 161723; Jack Needleman, Peter Buerhaus, Soeren Mattke, et al., Nurse-Stafng Levels and the Quality of Care in
Hospitals, New England Journal of Medicine, May 30, 2002, pp. 171522.
7. James H. Thrall, Quality and Safety Revolution in Health Care, Radiology 233
(October 2004): 4.
8. Health Grades, The Eighth Annual Health Grades Hospital Quality in America
Study (October 2005), http://www.healthgrades.com/media/dms/pdf/HospQualityinAmericaStudy2006Oct17.pdf.
9. American Academy of Orthopaedic Surgeons, Report of the Task Force on
Wrong-Site Surgery (Memphis, Tenn., February 1998).
10. Thomas H. Gallagher and Wendy Levinson, Disclosing Harmful Medical Errors
to Patients: A Time for Professional Action, Archives of Internal Medicine,
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September 12, 2005, pp. 181924; A. Russe ll Localio, Ann G. Lawthers, Troyen
A. Brennan, et al., Relation between Malpractice Claims and Adverse Events
Due to Negligence: Results of the Harvard Medical Practice Study III, New England Journal of Medicine, July 25, 1991, pp. 24551; Troyen A. Brennan and
Michelle M. Mello, Patient Safety and Medical Malpractice: A Case Study,
Annals of Internal Medicine, August 19, 2003, pp. 26773; David M. Studdert,
Michelle M. Mello, Atul A. Gawande, et al., Claims, Errors, and Compensation
Payments in Medical Malpractice Litigation, New England Journal of Medicine,
May 11, 2006, pp. 202433.
11. Stacy Lawrence, Survey: Hospital CIOs Want Electronic Medical Records,
EWeek Enterprise News and Reviews (February 16, 2006), http://www.eweek.
com/article2/0%2C1895%2C1927818%2C00.asp.
12. David W. Bates, David J. Cullen, Nan Laird, et al., Incidence of Adverse Drug
Events, Journal of the American Medical Association, July 5,1995, pp. 2934;
Lucien L. Leape, Troyen A. Brennan, Nan Laird, et al., The Nature of Adverse
Event in Hospitalized Patients, New England Journal of Medicine, February 7,
1991, pp. 37784; Institute of Medicine, Preventing Medication Errors (July
2006), http://www.iom.edu/Object.File/Master/35/943/medication%20errors%
20new.pdf.
13. David W. Bates, Lucien L. Leape, David J. Cullen, et al., Effect of Computerized
Physician Order Entry and a Team Intervention on Prevention of Serious Medication Errors, Journal of the American Medical Association, October 21, 1998,
pp. 131116.
14. Connie L. Johnson, Russell A. Carlson, Chris L. Tucker, et al., Using BCMA
Software to Improve Patient Safety in Veterans Administration Medical Centers, Journal of Healthcare Information Management 16 (winter 2002): 4651;
Max M. Cohen, N. L. Kimmel, M. K. Benage, et al., Medication Safety Program
Reduces Adverse Drug Event in a Community Hospital, Quality and Safety in
Health Care, June 14, 2005, pp. 16974.
15. David M. Cutler, Naomi E. Feldman, and Jill R. Horwitz, Adoption of Computerized Physician Order Entry Systems, Health Affairs 24 (NovemberDecember
2005): 166364; Kateryna Fonkych and Roger Taylor, The State and Pattern of
Health
Information
Technology
Adoption
(September
2005),
http://www.rand.org/pubs/monographs/2005/RAND_MG409.pdf; Ashish K.
Jha, Timothy G. Ferris, Karen Donelan, et al., How Common Are Electronic
Health Records in the United States? A Summary of the Evidence, Health
Affairs Web Exclusive, October 11, 2006, http://content.healthaffairs.org/
cgi/reprint/25/6/w496.
CHAPTER 10
VIOLATION OF DIGNITY: THE END OF LIFE
1. Christopher Hogan, June Lunney, Jon Gabel, et al., Medicare Beneciaries

Costs of Care in the Last Year of Life, Health Affairs 20 (JulyAugust 2001):
18895.
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2. Matthew R. Williams, Rachel B. Wellner, Elizabeth A. Hartnett, et al., LongTerm Survival and Quality of Life in Cardiac Surgical Patients with Prolonged
Intensive Care Unit Length of Stay, Annals of Thoracic Surgery 73 (May 2002):
147278.
3. Thomas J. Prendergast and John M. Luce, Increasing Incidence of Withholding and Withdrawal of Life Support from the Critically Ill, American Journal of
Respiratory and Critical Care Medicine 155 (January 1997): 1520.
4. Linda L. Emanuel, Michael J. Barry, John D. Stoeckle, et al., Advance Directives
for Medical CareA Case for Greater Use, New England Journal of Medicine,
March 28, 1991, pp. 88995.
5. Thomas J. Mattimore, Neil S. Wenger, Norman A. Desbiens, et al., Surrogate
and Physician Understanding of Patients Preferences for Living Permanently
in a Nursing Home, Journal of the American Geriatric Society 45 (July 1997):
81824; Neil S. Wenger, Russell S. Phillips, Joan M. Teno, et al., Physician
Understanding of Patient Resuscitation Preferences: Insights and Clinical
Implications, Journal of the American Geriatric Society 48, no. 5, supp. (2000):
S4451.
6. Susan W. Tolle, Virginia P. Tilden, Anne G. Rosenfeld, et al., Family Reports
on Barriers to Optimal Care of the Dying, Nursing Research 49
(NovemberDecember 2000): 31017; Laura C. Hanson and Eric Rodgman,
The Use of Living Wills at the End of Life: A National Study, Archives of Internal Medicine, May 13, 1996, pp. 101822; Rolfe Sean Morrison, Ellen Olson,
K. R. Mertz, et al., The Inaccessibility of Advanced Directives on Transfer from
Ambulatory to Acute Care Settings, Journal of the American Medical Association, August 9, 1995, pp. 47882.
7. Joan M. Teno, Elliott S. Fisher, Mary Beth Hamel, et al., Medical Care Inconsistent with Patients Treatment Goals: Association with 1-Year Medicare
Resource Use and Survival, Journal of the American Geriatric Society 50 (March
2002): 496500; Jean-Louis Vincent, Jacques Berre, and Jacques Creteur,
Withholding and Withdrawing Life Prolonging Treatment in the Intensive
Care Unit: A Current European Perspective, Chronic Respiratory Disease 1, no.
2 (2004): 11520.
8. Alfred Maksoud, D. W. Jahnigen, and C. I. Sibinski, Do Not Resuscitate
Orders and the Cost of Death, Archives of Internal Medicine, May 24, 1993,
pp. 124053; Lawrence J. Schneiderman, Richard Kronick, Robert M. Kaplan,
et al., Effects of Offering Advance Directives on Medical Treatments and
Costs, Annals of Internal Medicine, October 1, 1992, pp. 599606.
9. SUPPORT Principal Investigators, A Controlled Trial to Improve Care for Seriously Ill Hospitalized Patients: The Study to Understand Prognoses and Preferences for Outcomes and Risks of Treatments (SUPPORT), Journal of the
American Medical Association, November 22, 1995, pp. 159198.
10. Ibid.; Robert S. Pritchard, Elliott S. Fisher, Joan M. Teno, et al., Inuence of
Patient Preferences and Local Health System Characteristics on the Place of
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Death: SUPPORT Investigators Study to Understand Prognoses and Preferences

for Risks and Outcomes of Treatment, Journal of the American Geriatric Society
46 (October 1998): 124250.
11. Pritchard et al., Inuence of Patient Preferences and Local Health System
Characteristics on the Place of Death; Thomas J. Prendergast, Michael T.
Claessens, and John M. Luce, A National Survey of End of Life Care for Critically Ill Patients, American Journal of Respiratory and Critical Care Medicine 158
(October 1998): 116367; John E. Wennberg, Elliott S. Fisher, Thrse A. Stukel,
et al., Use of Hospitals, Physician Visits, and Hospice Care during Last Six
Months of Life among Cohorts Loyal to Highly Respected Hospitals in the
United States, British Medical Journal, March 13, 2004, p. 607.
CHAPTER 11
UNNECESSARY SURGERY
1. Advisory Board Company, Best of OI: Neuroscience Centers, New Opportunities for Growth (Washington, D.C., May 6, 2004).
2. Steven R. Garn and Hansen A. Yuan, Food and Drug Administration Regulation of Spinal Implant Fixation Devices, Clinical Orthopaedics and Related
Research 335 (February 1997): 3238.
3. Orthopedic Devices: Classication and Reclassication of Pedicle Screw Spinal
Systems, Federal Register, July 27, 1998, 21CFR, part 888; Richard A. Deyo,
Back SurgeryWho Needs It? New England Journal of Medicine, May 31, 2007,
pp. 223943.
4. James N. Weinstein, Kristen K. Bronner, Tamara Shawver Morgan, et al., Trends
and Geographic Variations in Major Surgery for Degenerative Diseases of the
Hip, Knee, and Spine, Health Affairs Web Exclusive, October 7, 2004, http://
content.healthaffairs.org/cgi/reprint/hlthaff.var.81v1; Dartmouth Atlas of
Health Care, http://cecsweb.dartmouth.edu/atlas08/datatools/datatb_s1.php.
5. Christopher M. Bono and Casey K. Lee, Critical Analysis of Trends in Fusion
for Degenerative Disc Disease over the Past 20 Years: Inuence of Technique
on Fusion Rate and Clinical Outcome, Spine, February 15, 2004, pp. 45563;
J. N. Alastair Gibson and Gordon Waddell, Surgery for Degenerative Lumbar
Spondylosis, Cochrane Database of Systematic Reviews 19 (October 2005):
CD001352; Jens Ivar Brox, Roger Sorensen, Astrid Friis, et al., Randomized
Clinical Trial of Lumbar Instrumented Fusion and Cognitive Intervention and
Exercises in Patients with Chronic Low Back Pain and Disc Degeneration,
Spine, September 1, 2003, pp. 191321; Peter Fritzell, Olle Hagg, Dick Jonsson,
et al., Cost-Effectiveness of Lumbar Fusion and Nonsurgical Treatment for
Chronic Low Back Pain in the Swedish Lumbar Spine Study: A Multicenter,
Randomized, Controlled Trial from the Swedish Lumbar Spine Study Group,
Spine, February 15, 2004, pp. 42134.
6. James N. Weinstein, Jon D. Lurie, Tor D. Tosteson, et al., Surgical Versus Nonsurgical Treatment for Lumbar Degenerative Spondylolisthesis, New England
Journal of Medicine, May 31, 2007, pp. 225770.
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7. Deyo, Back SurgeryWho Needs It?; James N. Weinstein, Tor D. Tosteson, Jon
D. Lurie, et al. Surgical versus Nonsurgical Therapy for Lumbar Spinal Stenosis, New England Journal of Medicine, February 21, 2008; American Medical
Association, International Classication of Diseases, 9th rev., vols. 1, 2, and 3
(Chicago: AMA Press, 2005, procedure codes for discectomy and decompression: 03.01, 03.02, 03.09, 80.50, 80.51, 80.52, 80.59; for cervical and lumbar
fusion: 81.04, 81.05, 81.06, 81.07, 81.08, 81.61, 81.62, 81.63, 81.64, 84.51,81.30,
81.30, 81.34, 81.35, 81.36, 81.37, 81.38.
8. Devon I. Rubin, Epidemiology and Risk Factors for Spine Pain, Neurologic
Clinics 25 (May 2007): 35371; Scott D. Boden, P. R. McCowin, David O. Davis,
et al., Abnormal Magnetic-Resonance Scans of the Cervical Spine in Asymptomatic Subjects, Journal of Bone and Joint Surgery American 72 (August 1991):
117884; Maureen C. Jensen, Michael Brant-Zawadski, Nancy Obuchowski,
et al., Magnetic Resonance Imaging of the Lumbar Spine in People without
Back Pain, New England Journal of Medicine, July 14, 1994, pp. 6973; Steffen
Jacobsen, Stig Sonne-Holm, Hans Rovsing, et al., Degenerative Lumbar
Spondylolisthesis, an Epidemiological Perspective: The Copenhagen Oseteoarthritis Study, Spine, January 1, 2007, pp. 12025.
9. Robin Young, When Is the Spine Bubble Going to Burst? address presented at
the InSpine Conference, Dallas, November 2004, http://www.healthpointcapital.
com/research/2004/11/22/when_is_the_spine_bubble_going_to_burst/.
10. Agency for Healthcare Research and Quality, Hospital Cost and Utilization
Project, 2003, nationwide inpatient sample compiled by the author, 2007.
11. Coronary Revascularization: Coronary Artery Bypass Grafting and Percutaneous Coronary Interventions (2005), http://www.dartmouthatlas.org/
atlases/Cardiac_report_2005.pdf.
12. Mark A. Hlatky, William J. Rogers, Iain Johnstone, et al., Medical Care Costs
and Quality of Life after Randomization to Coronary Angioplasty or Coronary
Bypass Surgery: Bypass Angioplasty Revascularization Investigation (BARI)
Investigators, New England Journal of Medicine, January 9, 1997, pp. 9299.
13. David T. Nash, The Case for Medical Treatment in Chronic Stable Coronary
Artery Disease, Archives of Internal Medicine, December 12, 2005, pp. 258789.
14. Jonathan Skinner, Douglas Staiger, and Elliott Fisher, Is Technological Change
in Medicine Always Worth It? The Case of Acute Myocardial Infarction, Health
Affairs Web Exclusive 25 (2006), http://content.healthaffairs.org/cgi/reprint/
25/2/w34.
15. American Medical Association, International Classication of Diseases, procedure codes: 00.66, 36.01, 36.02, 36.03, 36.04, 36.05, 36.06, 36.07, and 36.09;
diagnostic codes MI-410, MI-411; diagnostic codes for stable angina: 413, 412,
and 414.
16. William E. Boden, Robert A. ORourke, and Koon K. Teo, Optimal Medical
Therapy with or without PCI for Stable Coronary Disease, New England Journal
of Medicine, April 12, 2007, pp. 150316.
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17. Rob Stein, Heart Attack Study Casts Doubt on Routine Use of Angioplasty,
Washington Post, March 27, 2007, http://www.washingtonpost.com/wpdyn/
content/article/2007/03/26/AR2007032600700_pf.html.
18. Kim A. Eagle, Robert A. Guyton, Ravid Davidoff, et al., ACC/AHA 2004 Guideline Update for Coronary Artery Bypass Graft Surgery, Circulation 110 (2004):
E340E437; Sidney C. Smith, Jr., Ted E. Feldman, John W. Hirshfeld, et al.,
ACC/AHA/SCAI 2005 Guideline Update for Percutaneous Coronary Intervention, Circulation 113 (2006): E166E286.
CHAPTER 12
PERVERSE PAYMENT INCENTIVES
1. Peter P. Budetti, 10 Years beyond the Health Security Act Failure: Subsequent
Developments and Persistent Problems, Journal of the American Medical Association, October 27, 2004, pp. 20002006.
2. Centers for Medicare and Medicaid Services, Memorandum: Physician Volume and Intensity Response (August 13, 1998), http://www.cms.hhs.gov/ActuarialStudies/downloads/PhysicianResponse.pdf.
3. Stephen Zuckerman, Steven A. Norton, and Diana Verilli, Price Controls and
Medicare Spending: Assessing the Volume Offset Assumption, Medical Care
Research and Review 55 (December 1998): 45778.
4. Author analysis of Medical Group Management Association physician income
data, 19902005.
5. Ha T. Tu and Paul B. Ginsburg, Losing Ground: Physician Income, 19952003
(Washington, D.C.: Center for Studying Health System Change, June 2006).
6. Bruce E. Landon, James Reschovsky, and David Blumenthal, Changes in
Career Satisfaction among Primary Care and Specialist Physicians, 19972001,
Journal of the American Medical Association, January 22, 2003, pp. 44249.
7. Ann S. OMalley, Debra A. Draper, and Laurie E. Felland, Hospital Emergency
On-Call Coverage: Is There a Doctor in the House? (Washington, D.C.: Center
for Studying Health System Change, November 2007).
8. John K. Inglehart, The Emergence of Physician-Owned Specialty Hospitals,
New England Journal of Medicine, January 6, 2005, pp. 7884.
9. Brahmajee K. Nallamothu, Mary A. M. Rogers, Michael E. Chernew, et al.,
Opening of Specialty Cardiac Hospitals and Use of Coronary Revascularization in Medicare Beneciaries, Journal of the American Medical Association,
March 7, 2007, pp. 96268.
10. Medicare Payment Advisory Commission, Report to Congress: Ambulatory
Surgical Center Services (Washington, D.C.: March 2004), sec. 3F; Keith
Hearle, Lane Loinig, Allen Dobson, et al., Study of Healthcare Outpatient Cost
Drivers (October 16, 2002), http://www.bcbs.com/coststudies/reports/6_Outpatient_Report.pdf.
11. William J. Lynk and Carina S. Lonley, The Effect of Physician-Owned
Surgicenters on Hospital Outpatient Surgery, Health Affairs 21 (JulyAugust
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2002): 21521; Medicare Payment Advisory Committee, A Data Book: Healthcare Spending and the Medicare Program (Washington, D.C., June 2007).
12. Ezekiel Emanuel, Medicare Drug Reimbursements: A Broken System for
Patients and Taxpayers, testimony before the U.S. House of Representatives,
Committee on Energy and Commerce, September 21, 2001, http://energycommerce.house.gov/107/action/107-65.pdf.
13. Alex Berenson and Andrew Pollack, Doctors Reaping Millions for Use of Anemia Drugs, New York Times, May 9, 2007, http://www.nytimes.com/2007/05/
09/business/09anemia.html.
14. Marc A. Rodwin, Hak J. Chang, and Jeffrey Clausen, Malpractice Premiums
and Physicians Income: Perceptions of a Crisis Conict with Empirical Evidence, Health Affairs 25 (MayJune 2006): 75058.
15. Congressional Budget Ofce, The Effects of Tort Reform: Evidence from the
States (Washington, D.C., June 2004); John Donnelly, Malpractice Curbs
Hailed, Faulted: Texas Law Draws Doctors, Frustrates Some Claimants, Boston
Globe, November 26, 2007, http://www.boston.com/news/nation/articles/
2007/11/26/malpractice_curbs_hailed_faulted/?page=2.
16. Pricewaterhouse Coopers, The Factors Fueling Rising Health Care Costs
(Washington, D.C.: American Association of Health Plans, April 2002); Medicare
Payment Advisory Commission, Healthcare Spending and the Medicare Program, in MedPac Data Book (Washington, D.C., June 2006), sec. 8.
17. David M. Studdert, Michelle M. Mello, William M. Sage, et al., Defensive Medicine among High-Risk Specialist Physicians in a Volatile Malpractice Environment, Journal of the American Medical Association, June 1, 2005, pp. 260917.
18. Most Doctors Report Fear of Malpractice Liability Has Harmed Their Ability
to Provide Quality Care, Harris Interactive Health Care News, May 16, 2002,
http://harrisdealerpoll.com/news/newsletters/healthnews/HI_HealthCareNews2002Vol2_Iss10.pdf.
19. Fred J. Hellinger and William E. Encinosa, The Impact of State Laws Limiting
Malpractice Damage Awards on Health Care Expenditures, American Journal
of Public Health 96 (August 2006); Daniel P. Kessler and Mark McClellan, Do
Doctors Practice Defensive Medicine? (Cambridge, Mass.: National Bureau of
Economic Research, February 1996); Gerard F. Anderson, Peter S. Hussey,
Bianca K. Frogner, et al., Health Spending in the United States and the Rest of
the Industrialized World, Health Affairs 24 (JulyAugust 2005): 90314.
CHAPTER 13
THREE PATHWAYS TO HOSPITAL PROFITABILITY
1. Natasha Mihal and Renee Moilanen, When Emergency Rooms Close: Ambulance Diversion in the West San Fernando Valley (Los Angeles: University of
California, Lewis Center for Regional Policy Studies, 2005).
2. Gerald F. Anderson, From Soak the Rich to Soak the Poor: Recent Trends in
Hospital Pricing, Health Affairs 26 (May/June 2007): 78089; authors analysis of key ratios and net margins on http://morningstar.com, 2007.
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3. Eileen Salinsky, What Have You Done for Me Lately? Assessing Hospital Community Benet (April 19, 2007), http://www.nhpf.org/pdfs_ib/IB821_HospitalCommBenet_04-19-07.pdf.
4. David M. Walker, Nonprot, For-Prot, and Government Hospitals: Uncompensated Care and Other Community Benets, testimony before the U.S.
House of Representatives, Committee on Ways and Means, May 26, 2005.
5. Ginsburg, Competition in Health Care.
6. Jean M. Abraham, Martin S. Gaynor, and William B. Vogt, Entry and Competition in Local Hospital Markets (Cambridge, Mass.: National Bureau of Economic Research, September 2005).
7. Claudia H. Williams, William B. Vogt, and Robert Town, How Has Hospital
Consolidation Affected the Price and Quality of Hospital Care? (February
2006), http://www.rwjf.org/publications/synthesis/reports_and_briefs/pdf/
no9_policybrief.pdf.
8. Walker, Nonprot, For-Prot, and Government Hospitals.
9. Anthony J. Culyer and Joseph P. Newhouse, eds., Handbook of Health Economics
(Amsterdam: Elsevier/North-Holland, 2001), 1:1422
10. Robert F. Leibenluft, Antitrust Enforcement and Hospital Mergers: A Closer
Look (Washington, D.C.: Federal Trade Commission, July 5, 1998).
11. Michael E. Porter and Elizabeth Olmsted Teisberg, Redening Health Care: Creating Value-Based Competition on Results (Boston: Harvard Business School
Press, 2006); Hal J. Singer, The Budgetary Impact of Eliminating the GPOs
Safe Harbor Exemption from the Anti-Kickback Statue of the Social Security
Act (Washington, D.C.: Criterion Economics, June 2006).
12. James D. Bentley, senior vice president for strategic policy planning, American
Hospital Association, personal communication, 2006; American Hospital
Association, Trends in Hospital Financing (April 2007), http://www.
aha.org/aha/research-and-trends/trendwatch/2007chartbook.html.
13. Dennis P. Andrulis and Lisa M. Duchon, Hospital Care in the 100 Largest
Cities and Their Suburbs, 19962002: Implications for the Future of the Hospital Safety Net in Metropolitan America (Brooklyn, N.Y.: SUNY Downstate
Medical Center, August 2005); Joel S. Weissman, Darrell J. Gaskin, and
J. Reuter, Hospitals Care of Uninsured Patients during the 1990s: The Relation of Teaching Status and Managed Care to Changes in Market Share and
Market Concentration, Inquiry 40 (spring 2003): 8493; Walker, Nonprot,
For-Prot, and Government Hospitals.
14. Stephen Zuckerman, Gloria Bazzoli, Amy Davidoff, et al., How Did
Safety-Net Hospitals Cope in the 1990s? Health Affairs 20 (JulyAugust 2001):
15968.
15. Linda E. Fishman, What Types of Hospitals Form the Safety Net? Health
Affairs 16 (JulyAugust 1997): 21522.
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16. Reed Abelson and Jonathan D. Glater, Suits Challenge Hospital Bills of Uninsured, New York Times, June 17, 2004, http://query.nytimes.com/gst/fullpage.html?res=9405E0DE1639F934A25755C0A9629C8B63&sec=&spon=&pag
ewanted=2; Anderson, From Soak the Rich to Soak the Poor.
17. Health Care Advisory Board, A Delicate Balance: Managing the Inpatient
Enterprise for Protable Growth (Washington, D.C., 2001).
18. Healthcare Cost and Utilization Project, data compiled by the author, 2006.
19. Health Care Advisory Board, A Delicate Balance.
20. Lewin Group, A Study of Hospital Charge Setting Practices (Falls Church, Va.,
December 2005); Institute for Health and Socioeconomic Policy, The Third
Annual IHSP Hospital 200: The Nations Most and Least Expensive Hospitals,
Fiscal Year 2003/2004 (Orinda, Calif., December 13, 2005).
21. Institute for Health and Socioeconomic Policy, The Third Annual IHSP Hospital 200.
22. Uwe E. Reinhardt, The Pricing of U.S. Hospital Services: Chaos behind a Veil
of Secrecy, Health Affairs 25 (JanuaryFebruary 2006): 5769.
23. John E. Wennberg, Elliott S. Fisher, Laurence Baker, et al., Evaluating the Efciency of California Providers in Caring for Patients with Chronic Illnesses,
Health Affairs Web Exclusive, November 16, 2005, http://content.healthaffairs.org/cgi/reprint/hlthaff.w5.526v1.pdf.
24. Mireille M. Goetghebeur, Sharon Forrest, and Joel W. Hay, Understanding the
Underlying Drivers of Inpatient Cost Growth: A Literature Review, American
Journal of Managed Care, June 9, 2003, pp. SP312; Jack Needleman, Peter
Buerhaus, Soeren Mattke, et al., Nurse-Stafng Levels and the Quality of Care
in Hospitals, New England Journal of Medicine, May 30, 2002, pp. 171522;
Sharon Forrest, Mireille Goetghebeur, and Joel Hay, Forces Inuencing Inpatient Hospital Costs in the United States (Chicago: Blue Cross/Blue Shield
Association, October 16, 2002).
25. American Association of Colleges of Nursing, Press Release: With Enrollments
Rising for the 5th Consecutive Year, U.S. Nursing Schools Turn Away More than
30,000 Qualied Applications in 2005 (Washington, D.C., December 12,
2005); American Federation of Teachers, Press Release: Serious Nurse Faculty
Shortage Exacerbating Nurse Shortage, AFT calls for Higher Salaries, More
Funding for Nursing Programs (Washington, D.C., December 21, 2005).
26. William J. Scanlon, Nursing Workforce: Recruitment and Retention of Nurses
and Nurse Aides is a Growing Concern, testimony before the U.S. Senate,
Committee on Health, Education, Labor, and Pensions, May 17, 2001; Pricewaterhouse Coopers, Cost of Caring: Key Drivers of Growth in Spending on Hospital Care (Washington, D.C.: American Hospital Association and Federation
of American Hospitals, February 19, 2003).
27. Ann E. Tourangeau, Lisa A. Cranley, and Lianne Jeffs, Impact of Nursing on
Hospital Patient Mortality: A Focused Review and Related Policy Implications,
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Quality and Safety in Health Care 15 (February 2006): 48; Linda H. Aiken,
Sean P. Clarke, Douglas M. Sloane, et al., Hospital Nurse Stafng and Patient
Mortality, Nurse Burnout, and Job Dissatisfaction, Journal of the American
Medical Association, October 23, 2002, pp. 198793; Forrest et al., Forces
Inuencing Inpatient Hospital Costs in the United States.
CHAPTER 14
PHARMACEUTICALS: REMARKABLE INNOVATION,

SHAMELESS PUFFERY
1. Centers for Disease Control, Ten Great Public Health AchievementsUnited

States, 19001999, Morbidity and Mortality Weekly Report, April 2, 1999, pp.
24143; John P. Bunker, Howard S. Frazier, and Frederick Mosteller, Improving Health: Measuring Effects of Medical Care, Milbank Quarterly 72, no. 2
(1994): 22558; John P. Bunker, The Role of Medical Care in Contributing to
Health Improvements within Societies, International Journal of Epidemiology
30 (December 2001): 126063; Victor R. Fuchs and Harold C. Sox, Jr., Physicians Views of the Relative Importance of Thirty Medical Innovations, Health
Affairs 20 (SeptemberOctober 2001): 3042.
2. U.S. Census Bureau, Facts for Features (April 29, 2005), http://www.census.gov/Press-Release/www/releases/archives/cb05-ffse.02.pdf;
American
Medical Association, Total Physicians by Race/Ethnicity2005 (2007),

http://www.ama-assn.org/ama/pub/category/12930.html; Ernst R. Berndt, The
U.S. Pharmaceutical Industry: Why Major Growth in Times of Cost Containment? Health Affairs 20 (MarchApril 2001): 100114.
3. Debabrata Mukherjee and Eric J. Topol, Commentary, Cyclooxygenase-2:
Where Are We in 2003? Cardiovascular Risk and COX-2 Inhibitors, Arthritis
Research and Therapy, 5, no. 1 (2003): 811; Centers for Medicare and Medicaid Services, National Health Expenditures by Source of Funds and Type of
Expenditure: Calendar Years 20002005, http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf.
4. Barry Meier, Medicine Fueled by Marketing Intensied Trouble for Pain
Pills, New York Times, December 19, 2004, http://www.nytimes.com/
2004/12/19/business/19drug.html.
5. Drug prices obtained by the author from http://www.drugstore.com, 2005.
6. Robert A. Bell, Michael S. Wilkes, and Richard L. Kravitz, The Educational
Value of Consumer-Targeted Prescription Drug Print Advertising, Journal of
Family Practice 49 (December 2000): 109298.
7. Meredith B. Rosenthal, Ernst R. Berndt, Julie M. Donohue, et al., Promotion
of Prescription Drugs to Consumers, New England Journal of Medicine, February 14, 2002, pp. 498505; National Institute for Health Care Management,
Prescription Drugs and Mass Media Advertising, 2000 (November 2001),
http://www.nihcm.org/~nihcmor/pdf/DTCbrief2001.pdf.
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8. U.S. Government Accountability Ofce, Prescription Drugs: Improvements

Needed in FDAs Oversight of Direct-to-Consumer Advertising (Washington,
D.C., November 2006).
9. Meier, Medicine Fueled by Marketing Intensied Trouble for Pain Pills;
National Institute for Health Care Management, Prescription Drugs and Mass
Media Advertising, 2000; Merrill Goozner, The $800 Million Pill: The Truth
behind the Cost of New Drugs, (Berkeley: University of California Press, 2004),
226.
10. Mark Helfand and Kim Peterson, Drug Class Review on Cyclo-oxygenase
(COX)-2 Inhibitors and Non-steroidal Anti-inammatory Drugs (NSAIDS),
(Portland: Oregon Health and Science University, Evidence-Based Practice
Centers, May 2004); Meier, Medicine Fueled by Marketing Intensied Trouble for Pain Pills.
11. Barbara Mintzes, Morris L. Barer, Richard L. Kravitz, et al., Inuence of Direct
to Consumer Pharmaceutical Advertising and Patients Requests on Prescribing Decisions: Two Site Cross Sectional Survey, British Medical Journal,
February 2, 2002, pp. 27879.
12. Kaiser Family Foundation and the Health Research and Educational Trust,
Prescription Drug Benets: Employer Health Benets, 2007 Annual Survey
(Menlo Park, Calif., 2007); Jalpa A. Doshi, Nicole Brandt, and Bruce Stuart,
The Impact of Drug Coverage on COX-2 Inhibitor Use in Medicare, Health
Affairs Web Exclusive, February 18, 2004, http://content.healthaffairs.org/cgi/
reprint/hlthaff.w4.94v1.pdf.
13. Sandra Kweder, statement from the U.S. Food and Drug Administrations Center for Drug Evaluation and Research before the U.S. Senate, Committee on
Finance, November 18, 2004.
14. Claire Bombardier, Loren Lane, Alise Reicin, et al., Comparison of Upper
Gastrointestinal Toxicity of Rofecoxib and Naproxen in Patients with
Rheumatoid Arthritis, New England Journal of Medicine, November 23, 2000,
pp. 152028.
15. Gregory D. Curfman, Stephen Morrissey, and Jeffrey M. Drazen, Expression of
Concern: Bombardier et al., Comparison of Upper Gastrointestinal Toxicity
of Rofecoxib and Naproxen in Patients with Rheumatoid Arthritis, N Engl J
Med 2000;343:15208, New England Journal of Medicine, December 29, 2005,
pp. 281314.
16. Robert S. Bresalier, Robert S. Sandler, Hui Quan, et al., Cardiovascular Events
Associated with Rofecoxib in a Colorectal Adenoma Chemoprevention Trial,
New England Journal of Medicine, March 17, 2005, pp. 10921102; Gina Kolata,
Merck and Vioxx: The Overview; A Widely Used Arthritis Drug Is Withdrawn,
New York Times, October 1, 2004, http://www.nytimes.com/2004/10/01/business/01drug.html; Harlan M. Krumholz, Joseph S. Ross, Amos H. Presler, et al.,
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What Have We Learnt from Vioxx? British Medical Journal, January 20, 2007,
pp. 12023.
17. Patricia M. Danzon and Michael F. Furukawa, International Prices and Availability of Pharmaceuticals in 2005, Health Affairs 27 (JanuaryFebruary
2008): 22123.
18. National Institute for Health Care Management Research and Educational
Foundation, Changing Patterns of Pharmaceutical Innovation (May 2002),
http://www.nihcm.org/~nihcmor/pdf/innovations.pdf.
19. Ibid.
20. Ibid.
21. Patricia M. Danzon and Michael F. Furukawa, Prices and Availability of Pharmaceuticals: Evidence from Nine Countries, Health Affairs Web Exclusive, October 29, 2003, http://content.healthaffairs.org/c/reprint/h/thaff.w. 3.52ivi.pdf.
22. C. Daniel Mullins, Andrea R. DeVries, Van Doren Hsu, et al., Variability and
Growth in Spending for Outpatient Specialty Pharmaceuticals, Health Affairs
24 (JulyAugust 2005): 111727.
23. Patricia M. Danzon, Prices and Availability of Biopharmaceuticals: An International Comparison, Health Affairs 25 (SeptemberOctober 2006): 135362.
24. Steven G. Morgan, Morris L. Barer, and Jonathan D. Agnew, Whither Seniors
Pharmacare: Lessons from (and for) Canada, Health Affairs 22 (MayJune
2003): 4959.
25. Danzon and Furukawa, Prices and Availability of Pharmaceuticals: Evidence
from Nine Countries.
26. Congressional Budget Ofce, Would Prescription Drug Importation Reduce
U.S. Drug Spending? (Washington, D.C., April 29, 2004).
27. Danzon and Furukawa, Prices and Availability of Pharmaceuticals: Evidence
from Nine Countries; Jim Gilbert and Paul Rosenberg, Addressing the Innovation Divide: Imbalanced Innovation, presented at the 2004 annual meeting
of governors of the World Economic Forum for Healthcare, Davos, Switzerland,
January 22, 2004; Danzon and Furukawa, International Prices and Availability of Pharmaceuticals in 2005.
28. Medicare Prescription Drug Benet Cost Almost $13B Less in 2006 Than
Expected, According to CMS, Medical News Today, December 1, 2006, http://
www.medicalnewstoday.com/articles/57760.php; Aaron Catlin, Cathy Cowan,
Micah Hartman, et al. National Health Spending in 2006: A Year of Change
for Prescription Drugs, Health Affairs 27 (January/February, 2008): 1429.
29. Gilbert and Rosenberg, Addressing the Innovation Divide.
30. Families USA, The Choice: Health Care for People or Drug Industry Prots
(Washington, D.C., 2005); Alan Sager and Deborah Socolar, Drug Industry
Marketing Staff Soars While Research Stafng Stagnates (Boston: Boston University, School of Public Health, 2001).
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31. Richard T. Rapp and Adam Lloyd, Civilized Pharmaceutical Price Regulations:
Can the U.S. Have It Too? Regulation 17 (spring 1994): 7282.
32. Patricia McGettigan and David Henry, Cardiovascular Risk and Inhibition of
Cyclooxygenase, Journal of the American Medical Association, October 4, 2006,
pp. 163344; David J. Graham, COX-2 Inhibitors, Other NSAIDs, and Cardiovascular Risk (September 12, 2006), http://journal of the american medical
association.ama-assn.org/cgi/reprint/296.13.jed60058v1.
33. Krumholz et al., What Have We Learnt from Vioxx?
34. Rosenthal et al., Promotion of Prescription Drugs to Consumers.
CHAPTER 15
PRIVATE HEALTH INSURANCE: NO ADDED VALUE
1. Eric Dash and Milt Freudenheim, Chief Executive at Health Insurer Is Forced
Out in Options Inquiry, New York Times, October 16, 2006, http://www.
nytimes.com/2006/10/16/business/16united.html.
2. James C. Robinson, Consolidation and the Transformation of Competition in
Health Insurance, Health Affairs 23 (NovemberDecember 2004): 1124.
3. James G. Kahn, Richard Kronick, Mary Kreger, et al., The Cost of Health Insurance Administration in California: Estimates for Insurers, Physicians, and Hospitals, Health Affairs 24 (NovemberDecember 2005): 162939.
4. Jeff Lemieux, Perspective: Administrative Costs of Private Health Insurance
Plans (Washington, D.C.: Center for Policy and Research, 2005); Kahn et al.,
The Cost of Health Insurance Administration in California.
5. David U. Himmelstein, Stefe Woolhandler, and Sidney M. Wolfe, Administrative Waste in the U.S. Health Care System in 2003, International Journal of
Health Services 34, no. 1 (2004): 7986.
6. John Sheils, Randall Haught, and Evelyn Murphy, Cost and Coverage Estimates for the Healthy Americans Act (Falls Church, Va.: Lewin Group,
December 12, 2006).
7. Stefe Woolhandler, Terry Campbell, and David U. Himmelstein, Cost of
Health Care Administration in the United States and Canada, New England
Journal of Medicine, August 21, 2003, pp. 76875.
8. Kahn et al., The Cost of Health Insurance Administration in California.
9. Center for Policy and Research, January 2007 Census Shows 4.5 Million
People Covered by HSA/High-Deductible Health Plans (April 2007),
http://www.ahipresearch.org/PDFs/FINAL%20AHIP_HSAReport.pdf; U.S. Census Bureau, Health Insurance Coverage: 2006, August 28, 2007, http://www.
census.gov/hhes/www/hlthins/hlthin06/hlth06asc.html.
10. Melinda Beeuwkes Buntin, Cheryl Damberg, Amelia Haviland, et al., Consumer-Directed Health Care: Early Evidence about Effects on Cost and Quality,
Health Affairs Web Exclusive, October 24, 2006, http://content.healthaffairs.
org/cgi/reprint/25/6/w516.
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11. J. Frank Wharam, Bruce E. Landon, Alison A. Galbraith, et al., Emergency

Department Use and Subsequent Hospitalizations among Members of a HighDeductible Health Plan, Journal of the American Medical Association, March 14,
2007, pp. 10931102; Elizabeth Docteur, Hannes Suppanz, and Jaejoon Woo,
The U.S. Health System: An Assessment and Prospective Directions for
Reform (Paris: Organisation for Economic Cooperation and Development,
February 27, 2003); Partnership to Fight Chronic Disease, The Chronic Disease Crisis (2007), http://www.ghtchronicdisease.org/crisis/index.cfm.
12. Joseph P. Newhouse and the Insurance Experiment Group, Free for All? Lessons
from
the
RAND
Health
Insurance
Experiment
(Cambridge,
Mass.:
Harvard University Press, 1994).

13. Jonathan Gruber, The Role of Consumer Co-payments for Health Care:
Lessons from the RAND Health Insurance Experiment and Beyond (Menlo
Park, Calif.: Kaiser Family Foundation and the Health Research and Education
Trust, October 2006); John Hsu, Mary Price, Jie Huang, et al., Unintended
Consequences of Caps on Medicare Drug Benets, New England Journal of
Medicine, June 1, 2006, pp. 324959.
14. Centers for Medicare and Medicaid Services, Personal Health Care Expenditures Aggregate, Per Capita Amounts, and Percent Distribution, by Source of
Funds: Selected Calendar Years, 19702005, http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf.
CHAPTER 16
THREE OPTIONS FOR COVERING THE UNINSURED
1. California Healthcare Foundation, Massachusetts Style Coverage Expansion:

What Would It Cost in California? (April 2006), http://www.ihps.org/pubs/
2006_Apr_CHCF_MA_Style_Brief_Final.pdf.
2. Kaiser Family Foundation, Health Insurance Coverage of Nonelderly 064,
States (20052006), U.S. (2006), Distribution of the Nonelderly Uninsured
by Federal Poverty Level (FPL), States (20052006), U.S. (2006), and
Employer-Sponsored Coverage Rates for the Nonelderly by Family Work Status, States (20052006), U.S. (2006), all at http://statehealthfacts.org/; Aurelio Rojas, Health Plan Defeated, Sacramento Bee, January 29, 2008, p. A1.
3. Kaiser Family Foundation, Health Insurance Coverage of the Total Population, States (20042005), U.S. (2005), http://statehealthfacts.org.
4. Melissa Thomasson, Health Insurance in the United States (April 18, 2003),
http://www.eh.net/encyclopedia/article/thomasson.insurance.health.us.
5. John Sheils and Randall Haught, The Cost of Tax-Exempt Health Benets in
2004, Health Affairs Web Exclusive, February 25, 2004, http://content.
healthaffairs.org/cgi/reprint/hlthaff.w4.106v1.pdf.
6. Ibid.
7. George Will, What Ails GM, Washington Post, May 1, 2005, http://washingtonpost.com.
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8. Jeffrey McCracken, A Middle Class Made by Detroit Is Now Threatened by Its

Slump, Wall Street Journal, November 14, 2005, p. A1.
9. Sholnn Freeman and Frank Ahrens, GM, Union Agree on Contract to End
Strike, Washington Post, September 27, 2007, p. A1.
10. David Blumenthal, Employer-Sponsored InsuranceRiding the Health Care
Tiger, New England Journal of Medicine, July 13, 2006, p. 195; James Kalamas,
Gene Kuo, and Drew Ungerman, Designing Better Employee Benets, McKinsey Quarterly (June 2005), http://www.mckinseyquarterly.com/Health_
Care/Designing_better_employee_benets_1624_abstract.
11. An Executive Perspective on Employee Benefits: A McKinsey Survey,
McKinsey Quarterly (June 2006), http://www.mckinseyquarterly.com/Health_
Care/Strategy_Analysis/An_executive_perspective_on_employee_benefits_A_
McKinsey_Survey_1776_abstract; Heidi Whitmore, Sara R. Collins, Jon Gabel,
et al., Employers Views on Incremental Measures to Expand Health Coverage, Health Affairs 25 (NovemberDecember 2006): 166878.
12. Kaiser Family Foundation and the Health Research and Educational Trust,
Percentage of Covered Workers in Partially or Completely Self-Funded Plans
by Firm Size, 19992007 (Washington, D.C., 2007).
13. U.S. General Accounting Ofce, Private Health Insurance: Small Employers Continue to Face Challenges in Providing Coverage, report to the U.S. Senate, Committee on Small Business and Entrepreneurship, October 2001; Claudia Williams
and Jason Lee, Are Insurance Premiums Higher for Small Firms? (Princeton,
N.J.: Robert Wood Johnson Foundation. September 2002); Joel Popkin and Company, Cost of Employee Benets in Small and Large Businesses (Washington,
D.C.: Small Business Association, Ofce of Advocacy, August 2005).
14. Gary Claxton, How Private Insurance Works: A Primer (Menlo Park, Calif.:
Kaiser Family Foundation and the Health Research and Education Trust, April
2002).
15. U.S. Department of Labor, Bureau of Labor Statistics, Employer Costs per
Hour Worked for Employee Compensation and Costs As a Percent of Total
Compensation: Civilian Workers, by Major Occupational and Industry Group,
Bureau of Labor Statistics News (December 2007), table 1, http://www.
bls.gov/news.release/ecec.t01.htm.
16. California Health Care Foundation, State Employer Health Insurance Mandates: A Brief History (March 2004), http://www.eric.org/forms/uploadFiles/
61CF00000097.lename.CHCF_-_Employer_Insurance_Mandates.pdf.
17. Michelle M. Doty and Alyssa L. Holmgren, Unequal Access: Insurance Instability among Low-Income Workers and Minorities (New York: Commonwealth
Fund, April 2004).
18. U.S. Department of Labor, Bureau of Labor Statistics, Press Release: Contingent and Alternative Employment Arrangements, February 2005 (Washington, D.C., July 27, 2005).
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19. Rand Corporation, Consumer Decisionmaking in the Insurance Market

(2006), http://www.rand.org/pubs/research_briefs/2006/RAND_RB9151.pdf .
20. Kaiser Family Foundation and eHealthInsurance, Update on Individual
Health Insurance (August 2004), http://www.kff.org/insurance/upload/
Update-on-Individual-Health-Insurance.pdf.
21. Mila Kofman and Karen Pollitz, Health Insurance Regulation by States and
the Federal Government: A Review of Current Approaches and Proposals for
Change (Washington, D.C.: Georgetown University, Health Policy Institute,
April 2006).
22. Karen Pollitz, Richard Sorian, and Kathy Thomas, How Accessible Is Individual Health Insurance for Consumers in Less-Than-Perfect Health? (Menlo
Park, Calif.: Kaiser Family Foundation and the Health Research and Education
Trust, June 2001).
23. Stan Dorn, Janet Varon, and Fouad Pervez, Limited Take-Up of Health Coverage Tax Credits: A Challenge to Future Tax Credit Design (New York: Commonwealth Fund, October 2005); Sara R. Collins, Cathy Schoen, Jennifer L.
Kriss, et al., Rite of Passage? Why Young Adults Become Uninsured and How
New Policies Can Help (New York: Commonwealth Fund, May 2006).
24. Shadegg and DeMint Introduce Health Care Choice Act, (December 17,
2007), http://www.healthdecisions.org/News/default.aspx?doc_id=145320.
25. Kaiser Family Foundation, Distribution of Medicaid Enrollees by Enrollment
Group, FY 2004 (2007), http://statehealthfacts.org.
26. Lisa Dubay, John Holohan, and Allison Cook, The Uninsured and the Affordability of Health Insurance Coverage, Health Affairs Web Exclusive, November
30, 2006, http://content.healthaffairs.org/cgi/reprint/26/1/w22.
27. Theresa A. Coughlin and Stephen Zuckerman, Three Years of State Fiscal
Struggles: How Did Medicaid and SCHIP Fare? Health Affairs Web Exclusive,
August 16, 2005, http://content.healthaffairs.org/cgi/reprint/hlthaff.w5.385v1;
Kaiser Commission on Medicaid Facts, State Fiscal Conditions and Medicaid
(Menlo Park, Calif.: Kaiser Family Foundation and the Health Research and
Education Trust, October 2006).
28. Congressional Budget Ofce, The State Childrens Health Insurance Program
(Washington, D.C., May 2007).
29. Stuart H. Altman, David Schactman, and Efrat Eilat, Could U.S. Hospitals Go
the Way of U.S. Airlines? Health Affairs 25 (JanuaryFebruary 2006): 1121;
Stephen Zuckerman, Joshua McFeeters, Peter Cunningham, et al., Changes in
Medicaid Physician Fees, 19982003: Implications for Physician Participation, Health Affairs Web Exclusive, June 23, 2004, http://content.healthaffairs.org/cgi/reprint/hlthaff.w4.374v1.pdf; Marsha Gold, Sylvia Kuo, and Erin
Fries Taylor, Translating Research to Action: Improving Physician Access in
Public Insurance, Journal of Ambulatory Care Management 29 (JanuaryMarch
2006): 3650.
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30. Teresa A. Coughlin and Sharon K. Long, Adult Health Care Access and Use under
Medicaid: Does It Vary by State? Journal of Health Care for the Poor and Underserved 14 (May 2003): 20828; Catherine A. Mel, Thomas W. Croghan, and Mark
P. Hanna, Access to Treatment for Depression in a Medicaid Population, Journal of Health Care for the Poor and Underserved 10 (May 1999): 20115.
31. David Dranove, Pricing by Non-Prot Institutions: The Case of Hospital Cost
Shifting, Journal of Health Economics 7 (March 1988): 4757; Frank A. Sloan
and Edmund R. Becker, Cross Subsidies and Payment for Hospital Care. Journal of Health Politics, Policy, and Law 8 (winter 1984): 66085; Sheils et al.,
Cost and Coverage Estimates for the Healthy Americans Act.
32. Sara R. Collins, Karen Davis, and Jennifer L. Kriss, An Analysis of Leading Congressional Health Care Bills, 20052007: Part I, Insurance Coverage (New
York: Commonwealth Fund, March 2007).
33. Laurence A. Graig, Health of Nations: An International Perspective on U.S. Health
Care Reform, 3d ed. (Washington, D.C.: Congressional Quarterly, 1999); Canadian Medical Association, Pulse on Access to Health Services for Patients
(2004), http://www.cma.ca/index.cfm/ci_id/46794/la_id/1.htm; Family Physicians Rate Patients Access to Care, Canadian Family Physician 52 (December
2006), http://www.nationalphysiciansurvey.ca/nps/reports/PDF-e/janus_snapshot_dec.06.pdf.
34. Gerald Anderson and Peter Sotir Hussey, Comparing Health System Performance in OECD Countries, Health Affairs 20 (MayJune 2001): 21932.
35. Ellen Nolte and Martin McKee, Measuring the Health of Nations: Analysis of
Mortality Amenable to Health Care, British Medical Journal, November 15,
2003, p. 1129; Gerald H. Anderson, Bianca K. Frogner, and Uwe E. Heinhardt,
Health Spending in OECD Countries in 2004: An Update, Health Affairs 26
(SeptemberOctober): 148189.
36. Claudia Sanmartin, Francois Gendron, Jean-Marie Berthelot, et al., Access to
Health Care Services in Canada, 2003 (2004), http://www.statcan.ca/english/freepub/82-575-XIE/2003001/pdf/report.pdf; Alberta Hip and Knee
Replacement Project ( June 2007), http://www.albertaboneandjoint.com/
hipandknee.asp.
37. Phuong Trang Huynh, Cathy Schoen, Robin Osborn, et al., The U.S. Health
Care Divide: Disparities in Primary Care Experiences by Income (New York:
Commonwealth Fund, April 2006).
38. Marshall V. Williams, E. T. Summers, K. Drinkwater, et al., Radiotherapy Dose
Fractionation, Access and Waiting Times in the Countries of the U.K. in 2005,
Clinical Oncology 19 (June 2007): 27386.
39. Graig, Health of Nations; Anderson et al., Health Spending in the United States
and the Rest of the Industrialized World; Cathy Schoen, Robin Osborn, Phuong
Trang Huynh, et al., On the Front Lines of Care: Primary Care Doctors Ofce
Systems, Experiences, and Views in Seven Countries, Health Affairs Web
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Exclusive, November 2, 2006, http://content.healthaffairs.org/cgi/reprint/

hlthaff. 25.w555v1.pdf; Cathy Schoen, Robin Osborn, Phuong Trang Huynh,
et al., Taking the Pulse of Health Care Systems: Experiences of Patients with
Health Problems in Six Countries, Health Affairs Web Exclusive, November 3,
2005, http://content.healthaffairs.org/cgi/reprint/hlthaff.w5. 509v3.
40. Medicare Payment Advisory Commission, Inpatient Rehabilitation Facility
Services, report to the U.S. Congress, March 2006, http://www.medpac.gov/
documents/Mar06_EntireReport.pdf.
41. Congressional Budget Ofce, letter to the Honorable Pete Stark, July 25, 2007.
42. U.S. House of Representatives, Committee on Ways and Means, report on
Rental and Purchase of Oxygen Equipment, sec. 609 of the Childrens Health
and Medicare Protection Act of 2007, July 31, 2007.
43. David Armstrong, Your Doctors Business Is Your Business, Wall Street
Journal, November 20, 2007, p. D1.
44. Charles Duhigg, Oxygen Suppliers Fight to Keep a Medicare Boon, New York
Times, November 30, 2007, http://www.nytimes.com/2007/11/30/business/
30golden.html.
45. Kelly Services, Press Release: Better Health Care Together Campaign
(February 7, 2007), http://phx.corporate-ir.net/phoenix.zhtml?c=113058&p=
irol-newsArticle&ID=960781&highlight=.
46. Ibid.
47. Universal Health Care Choice and Access Act (S.1019), proposed legislation on
Senator Tom Coburns website, March 2008, http://coburn.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=3cc9a655-27ed-401a-9dff2c47e8cabdf6.
48. Committee for Economic Development, Quality, Affordable Health Care for
All: Moving beyond the Employer-Based Health-Insurance System (Washington,
D.C., 2007).
CHAPTER 17
NO COVERAGE EXPANSION WITHOUT

COST CONTROL
1. Jack Hadley and John Holahan, Covering the Uninsured: How Much Would It
Cost? Health Affairs Web Exclusive, June 4, 2003, http://content.healthaffairs.org/cgi/reprint/hlthaff.w3.250v1.pdf.
2. Thomas M. Selden and Bradley M. Gray, Tax Subsidies for EmploymentRelated
Health
Insurance:
Estimates
for
2006,
Health
Affairs
25
(NovemberDecember 2006): 156879; Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,
annual report (Washington, D.C., 2006); Centers for Medicare and Medicaid
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Services, National Health Expenditures by Type of Service and Source of

Funds, CY 19602005. (Baltimore, 2006).
3. Amy Finkelstein, The Aggregate Effects of Health Insurance: Evidence from
the Introduction of Medicare, Quarterly Journal of Economics 122 (February
2007): 137.
4. Amy Finkelstein, The Cost of Coverage, Wall Street Journal, February 26,
2007, http://online.wsj.com/article/SB117263512395121711.html; Amy Finkelstein
and Robin McKnight, What Did Medicare Do (and Was It Worth It)?
(Cambridge, Mass.: National Bureau of Economic Research, September 2005).
5. James J. Mongan, testimony before the U.S. Senate, Committee on Finance,
March 14, 2007.
6. Stuart H. Altman, testimony before the U.S. Senate, Committee on Finance,
March 14, 2007.
7. John Sheils, testimony before the U.S. Senate, Committee on Finance, March
14, 2007.
8. Richard G. Frank, testimony before the U.S. Senate, Committee on Finance,
March 14, 2007.
9. David Walker, quoted on 60 Minutes, CBS News (March 4, 2007),
http://www.cbsnews.com/stories/2007/03/01/60minutes/main2528226.shtml;
Mark V. Pauly, Medicare Drug Coverage and Moral Hazard, Health Affairs 23
(JanuaryFebruary 2004): 11322.
10. Marsha Gold, Private Plans in Medicare: A 2007 Update (Menlo Park, Calif.:
Kaiser Family Foundation, March 2007); Kaiser Family Foundation and the
Health Research and Educational Trust, Medicare: A Primer (Menlo Park,
Calif., March 2007).
11. Medicare Payment Advisory Commission, Report to Congress: Update on
Medicare Private Plans (Washington, D.C., March 2007).
12. Robert J. Blendon, John M. Benson, and Catherine M. Des Roches, Americans
Views of the Uninsured: An Era for Hybrid Proposals, Health Affairs Web
Exclusive, August 27, 2003, http://content.healthaffairs.org/cgi/reprint/
hlthaff.w3.405v1.pdf; Drew E. Altman, Mollyann Brodie, Claudia Deane, et al.,
The Publics Health Care Agenda for the New Congress and Presidential Campaign (Boston: Kaiser Family Foundation and Harvard School of Public
Health, December 2006).
13. Blendon et al., Americans Views of the Uninsured; Altman et al., The Publics Health Care Agenda for the New Congress and Presidential Campaign;
Jennifer Cummings, Higher Premiums for Those with Unhealthy Lifestyles
Supported by 53 Percent of U.S. Adults, According to Poll by WSJ.com and Harris
Interactive, Wall Street Journal/Harris Interactive Health-Care online poll, July
1113, 2006, http://www.harrisinteractive.com/NEWS/allnewsbydate.asp?
NewsID=1076.
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14. Susan Dorr Goold, Stephen A. Green, Andrea K. Biddle, et al., Will Uninsured
Citizens Give Up Benet Coverage to Include the Uninsured? Journal of General Internal Medicine 19 (August 2004): 86874.
15. Douglas Holtz-Eakin, testimony of Congressional Budget Ofce director before
the U.S. House, Committee on Ways and Means, May 2005.
CHAPTER 18
A WORKABLE PLAN FOR REFORM
1. Richard S. Foster and Stephen Hefer, Building the Foundation: Health Care
Costs, presentation to the Centers for Medicare and Medicaid Services, Citizens Health Care Working Group, May 13, 2005.
2. Kaiser Family Foundation and Health Research and Educational Trust, Percentage of Covered Workers in Partially or Completely Self-Funded Plans by
Firm Size, 19992007 (2007), http://www.kff.org/insurance/7672/upload/
76723.pdf.
3. Kenneth E. Thorpe, What Accounts for the Rise in Health Care Spending?
presentation at the Conference of the Council on Health Care Economics and
Policy, Princeton, N.J., May 24, 2006; Centers for Disease Control and Prevention, Medical Care Expenditures Attributable to Cigarette SmokingUnited
States, 1993, Morbidity and Mortality Weekly Report, July 8, 1994, pp. 46972.
4. Carolyn Newbergh, The Dartmouth Atlas of Health Care, in To Improve Health
and
Health
Care,
ed.
Stephen
L.
Isaacs
and
James
R.
Knickman
(Princeton, N.J.: Robert Wood Johnson Foundation, October 2006), vol. 10,
chap.
2,
http://www.rwjf.org/files/publications/books/2007/AnthologyX_
CH02.pdf.
5. Mark R. Chassin, J. Kosecoff, Rolla E. Park, et al., Does Inappropriate Use
Explain Geographic Variations in the Use of Health Care Services? A Study of
Three Procedures, Journal of the American Medical Association, November 13,
1987, pp. 253337; C. M. Winslow, J. B. Kossecoff, Mark R. Chassin, et al., The
Appropriateness of Performing Coronary Artery Bypass Surgery, Journal of the
American Medical Association, July 2229, 1988, pp. 5059; Steven J. Bernstein,
Elizabeth A. McGlynn, Albert L. Siu, et al., The Appropriateness of Hysterectomy: A Comparison of Care in Seven Health Plans, Journal of the American
Medical Association, May 12, 1993, pp. 23982402; Michael S. Broder, David E.
Jabiysem, Brian S. Mittman, et al., The Appropriateness of Recommendations
for Hysterectomy, Obstetrics and Gynecology 95 (February 2000): 199205; Lee
H. Hilborne, Lucian L. Leape, Steven J. Bernstein, et al., The Appropriateness
of Use of Percutaneous Transluminal Coronary Angioplasty in New York
State, Journal of the American Medical Association, February 10, 1993, pp.
76165.
6. Gary Claxton, Bianca DiJulio, Benjamin Finder, et al., Employer Health Benets, 2007 Annual Survey (Menlo Park, Calif.: Kaiser Family Foundation and
the Health Research and Educational Trust, 2007).
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307
7. David J. Hyman and Valory N. Pavlik, Characteristics of Patients with Uncontrolled Hypertension in the United States, New England Journal of Medicine,
August 16, 2001, pp. 47986.
8. J. D. Kleinke, Oxymorons: The Myth of the U.S. Health Care System (San
Francisco: Jossey-Bass, 2002).
9. Websters Dictionary of American English, ed. Gerard M. Dalgish (New York: Random House, 1997), 611.
10. David M. Cutler, Making Sense of Medical Technology, Health Affairs Web
Exclusive, February 7, 2006, http://content.healthaffairs.org/cgi/reprint/25/
2/w48.
CHAPTER 19
ESTABLISHING STANDARDS
1. Robert N Foley and Allan J. Collins, End-Stage Renal Disease in the United
States: An Update from the United States Renal Data System, Journal of the
American Society of Nephrology 18 (October 2007): 264448.
2. David A. Goodkin, Jennifer L. Bragg-Gresham, K. G. Koenig, et al., Association
of Comorbid Conditions and Mortality in Hemodialysis Patients in Europe,
Japan, and the United States; The Dialysis Outcomes and Practice Patterns
Study, Journal of the American Society of Nephrology 14 (December 2003):
327077.
3. T. F. Parker, L. M. Laird, and E. G. Lowrie, Comparison of the Study Groups in
the National Cooperative Dialysis Study and a Description of Morbidity, Mortality, and Patient Withdrawal, Kidney International, supp. 13 (April 1983):
S4249; H. R. Harter, Review of Signicant Findings from the National Cooperative Dialysis Study and Recommendations, Kidney International supp. 13
(April 1983): S10712; Zbylut J. Twardowski, Treatment Time and Ultraltration Rate Are More Important in Dialysis Prescription Than Small Molecule
Clearance, Blood Purication, December 14, 2007, pp. 9098.
4. Rajiv Saran, Jennifer L. Bragg-Gresham, Nathan W. Levin, et al., Longer Treatment Time and Slower Ultraltration in Hemodialysis: Associations with
Reduced Mortality in the DOPPS, Kidney International 69 (April 2006): 122228.
5. Kaiser Family Foundation, Fact Sheet: Medicare Prescription Drug Benet
(Washington, D.C., October 2007); Kaiser Family Foundation and the Health
Research and Educational Trust, Prescription Drug Benefits (2007),
http://www.kff.org/insurance/7672/upload/76723.pdf.
6. Daniel G. Garrett and Benjamin M. Bluml, Patient Self-Management Program
for Diabetes: First-Year Clinical, Humanistic, and Economic Outcomes, Journal of the American Pharmacists Association 45 (MarchApril 2005): 13037.
7. Medicare Payment Advisory Commission, A Data Book: Healthcare Spending
and the Medicare Program (June 2007), http://www.medpac.gov/documents/Jun07DataBook_Entire_report.pdf; David Kashihara and Kelly Carper,
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308
National Health Care Expenses in the U.S. Civilian Noninstitutionalized Population, 2003 (Rockville, Md.: Medical Expenditure Panel, November 2005).
8. Studdert et al., Claims, Errors, and Compensation Practices in Medical Malpractice Litigation.
9. Robert Steinbrook, Hemoglobin Concentrations in Chronic Kidney Disease,
Lancet, December 2330, 2006, pp. 219193.
10. American Heart Association, annual report (Dallas, 20045).
CHAPTER 20
PRIORITIZING PRIMARY CARE
1. Community Care of North Carolina, program overview (2007), http://www.

communitycarenc.com.
2. Stephen J. Spann, Task Force Report 6: Report on Financing the New
Model of Family Medicine, Annals of Family Medicine 2, supp. 3 (November
December 2004): S121; Michael Barr and Jack Ginsburg, The Advanced
Medical Home: A Patient-Centered, Physician-Guided Model of Health Care
(Philadelphia: American College of Physicians, January 2006).
3. Douglas Holtz-Eakin, An Analysis of the Literature on Disease Management
Programs, report from the Congressional Budget Ofce to the U.S. Senate,
Committee on the Budget, October 13, 2004; Alison Johnson, Disease Management: The Programs and the Promise (May 2003), http://www.
milliman.com/expertise/healthcare/publications/rr/pdfs/Disease-Mangement-Programs-Promise-RR.pdf; Ron Z. Goetzel, Ronald J. Ozminkowski,
Victor G. Villagra, et al., Return on Investment in Disease Management:
A Review, Health Care Financing Review 26 (summer 2005): 119; Soeren Mattke, Michael Seid, and Sai Ma, Evidence for the Effect of Disease
Management: Is $1 Billion a Year a Good Investment? American Journal of Managed Care 13 (December 2007): 67076.
4. Nancy McCall, Jerry Cromwell, and Shulamit Bernard, Evaluation of Phase I
Medicare Health Support Pilot Program under Traditional Fee-for-Service
Medicare, report to the U.S. Congress, June 2007.
5. Robert S. Pritchard, Elliott S. Fisher, Joan M. Teno, et al., Inuence of Patient
Preferences and Local Health System Characteristics on the Place of Death,
Journal of the American Geriatric Society 46 (October 1998): 124250.
6. Susan W. Tolle and Virginia P. Tilden, Changing End-of-Life Planning: The
Oregon Experience, Journal of Palliative Medicine 5 (April 2002): 31117.
7. Ibid.
CHAPTER 21
REDUCING SPENDING ON HOSPITALS

AND SPECIALISTS
1. David C. Classen, R. Scott Evans, Stanley L. Pestotnik, et al., The Timing of Prophylactic Administration of Antibiotics and the Risk of Surgical-Wound Infection, New England Journal of Medicine, January 30, 1992, pp. 28186.
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2. Joyce A. Martin, Brady E. Hamilton, Stephanie J. Ventura, et al., Births: Final

Data for 2001, National Vital Statistics Reports, December 18, 2002, p. 3;
J. Christopher Glantz, Labor Induction Rate Variation in Upstate New York:
What Is the Difference? Birth 30 (September 2003): 16874.
3. Commonwealth Fund, Reducing Inappropriate Induction of Labor: Case Study
Intermountain Health Care, November 29, 2004, http://www.commonwealthfund.org/innovations/innovations_show.htm?doc_id=250148.
4. Ceci Connolly, Cedars-Sinai Doctors Cling to Pen and Paper, Washington Post.
March 21, 2005, p. A1.
5. Congressional Budget Ofce, estimate of the Medicaid, Medicare and SCHIP
Extension Act of 2007, http://www.cbo.gov/ftpdocs/88xx/doc8898/SFC_MMS_
ExtensionGOE07D03.pdf.
6. Michael E. Porter and Elizabeth Olmsted Teisberg, Redening Health Care: Creating Value-Based Competition on Results (Boston: Harvard Business School
Press, 2006).
7. Robert K. Smoldt and Denis A. Cortese, Payfor-Performance or Pay for
Value? Mayo Clinic Proceedings 82 (February 2007): 21013.
8. Joint Commission, Improving Americas Hospitals: The Joint Commissions
Annual Report on Quality and Safety 2007, http://www.jointcommissionreport.org/performanceresults/keyperformance.aspx.
9. Ahsish K. Jha, Zhonghe Li, E. John Orav, et al., Care in U.S. HospitalsThe
Hospital Quality Alliance Program, New England Journal of Medicine, July 21,
2005, pp. 26574; W. Douglas Weaver, R. John Simes, Amadeo Betriu, et al.,
Comparison of Primary Coronary Angioplasty and Intravenous Thrombolytic
Therapy for Acute Myocardial Infarction: A Quantitative Review, Journal of the
American Medical Association, December 17, 1997, pp. 209398.
10. Elizabeth H. Bradley, Jeph Herrin, Brian Elbel, et al., Hospital Quality for
Acute Myocardial Infarction, Journal of the American Medical Association, July
5, 2006, pp. 7278; Gregg C. Fonarow, William T. Abraham, Nancy M. Albert,
et al., Association between Performance Measures and Clinical Outcomes for
Patients Hospitalized with Heart Failure, Journal of the American Medical Association, January 3, 2007, pp. 6170.
11. Matthew J. Reeves, Shalini Auarora, Jospeh P. Broderick, et al., Acute Stroke
Care in the U.S.: Results from 4 Pilot Prototypes of the Paul Coverdell National
Acute Stroke Registry, Stroke 36 (June 2005): 123240.
12. Gerald T. OConnor, Hebe B. Quinto, Neal D. Traven, et al., Geographic Variation in the Treatment of Acute Myocardial Infraction: The Cooperative Cardiovascular Project, Journal of the American Medical Association, February 17,
1999, pp. 62733.
13. Benjamin S. Abella, James W. Rhee, Kuang-Ning Huang, et al., Induced
Hypothermia Is Underused after Resuscitation from Cardiac Arrest: A Current
Practice Survey, Resuscitation 64 (February 2005): 18186; Hypothermia after
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310
Cardiac Arrest Study Group, Mild Therapeutic Hypothermia to Improve the

Neurologic Outcome after Cardiac Stroke, New England Journal of Medicine,
February 21, 2002, pp. 54956; Stephen A. Bernard, Timothy W. Gray, Michael
D. Buist, et al., Treatment of Comatose Survivors of Out-of-Hospital Cardiac
Arrest with Induced Hypothermia, New England Journal of Medicine, February
21, 2002, pp. 55763.
14. David Persse, personal communication, June 1, 2007. According to Dr. Persse,
no data were compiled on the number of people with medical needs who were
displaced to Houston during these hurricanes, except for the 3,000 patients
who were placed by the Catastrophic Medical Operations Center, A reasonable
estimate would add several thousand more.
15. Paul Gaughan, Quarterly Data Show Cost Impact on Operating Revenue,
Healthcare Financial Management (November 2005), http://www.solucient.
com/articles/1105_Data%20Trends.pdf.
16. Richard Foster and Stephen Hefer, Building the Foundation: Health Care
Costs, presentation to the Citizens Health Care Working Group, May 13, 2005.
17. Annette M. OConnor, Dawn Stacey, David Rovner, et al., Decision Aids for
People Facing Health Treatment or Screening Decisions, Cochrane Database
System Reviews 3 (2001): CD001431.
18. Jonathan D. Tward, Christopher M. Lee, Lisa M. Pappas, et al., Survival of Men
with Clinically Localized Prostate Cancer Treated with Prostatectomy, Cancer,
November 15, 2006, pp. 23922400.
19. Floyd J. Fowler, Mary McNaughton Collins, and Peter C. Albertsen, Comparison of Recommendations by Urologists and Radiation Oncologists for Treatment of Clinically Localized Prostate Cancer, Journal of the American Medical
Association, June 23, 2000, pp. 321722.
20. Eric T. Rosenthal, Prostate Cancer: The Pros and Cons of the Integration of
Urology and IMRT Services in Community Practice, Oncology Times, August
26, 2006, p. 19.
CHAPTER 22
POSITIONING OF AN AMERICAN MEDICAL

QUALITY SYSTEM
1. Gail R. Wilensky, Developing a Center for Comparative Effectiveness Information, Health Affairs Web Exclusive, November 7, 2006, http://content.
healthaffairs.org/cgi/reprint/25/6/w572; Placement, Coordination, and Funding of Health Services Research within the Federal Government, Academy
Health Report (September 2005): 116; Institute of Medicine, Roundtable on
Evidence-based Medicine, Washington, D.C., March 19, 2007; Blue Cross/Blue
Shield Association, Improving Health Care Value: Quality and Cost (Chicago,
September 25, 2007).
2. Peter Orszag, letter to the Honorable Pete Stark, September 5, 2007.
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3. Academy Health, Placement, Coordination, and Funding of Health Services

Research within the Federal Government (September 2005), http://www.
academyhealth.org/publications/placementreport.pdf.
4. Bradford H. Gray, Michael K. Gusmano, and Sara R. Collins, AHCPR and the
Changing Politics of Health Services Research, Health Affairs Web Exclusive,
June 25, 2003, http://content.healthaffairs.org/cgi/reprint/hlthaff.w3.283v1.
5. Ibid.
6. Neil Irwin and David Cho, Fed Takes Broad Action to Avert Financial Crisis,
Washington Post, March 17, 2008, p. A1.
7. Cathy Schoen, Stuart Guterman, Anthony Shih, et al., Bending the Curve:
Options for Achieving Savings and Improving Value in U.S. Health Spending
(New York: Commonwealth Fund, December 2007).
8. M. Asif Ismail, Drug Lobby Second to None (July 7, 2005), http://www.
publicintegrity.org/rx/report.aspx?aid=723.
9. Samuel S. Epstein, American Cancer Society: The Worlds Wealthiest Nonprot Institution, International Journal of Health Services 29, no. 3 (1999):
56578.
10. Sherry Glied, Jeanne M. Lambrew, and Sarah Little, The Growing Share of
Ininsured Workers Employed in Large Firms (New York: Commonwealth
Fund, October 2003); Thomas Buchmueller, Richard W. Johnson, and Anthony
T. Lo Sasso, Trends in Retiree Health Insurance, 19972003, Health Affairs 25
(NovemberDecember 2006): 150716.
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INDEX
Page numbers in italics refer to gures.
AARP, 50, 191

ABC. See airway, breathing, circulation
academic medical centers. See hospitals,
academic medical centers
advance directive, 9495, 99100, 102
advertising pharmaceuticals, 160163,
166
Advil, 158
Aetna, 171
Afghanistan War, 16
age, 57, 137, 202
Agency for Health care Policy and
Research. See Agency for Healthcare
Research and Quality
Agency for Healthcare Research and
Quality, 262263, 270
aging of population, 62, 97
air bags, use of, 97
airway, breathing, circulation (ABC), 12
Aleve, 158, 159, 162, 163, 168
Allina Hospitals and Clinics (MN), 147
Altman, Stuart H., 203204
Altmans law, 203
ambulance services, 1721, 33, 142,
257258
ambulatory surgery centers, 133134,
221, 269
American Cancer Society, 262
American College of Obstetricians and
Gynecologists, 246, 247
American College of Physicians, 72
American College of Surgeons
Committee on Trauma, 17
American Heart Association, 230, 262
American Medical Association, 26, 28,
50, 202
American Medical Quality System
(AMQS): alleviating nursing shortage,
258259; creation of, xv; educational
tools for the public, 259260;
evaluating common procedures/

treatment methods, 224226;
evaluating pharmaceuticals, 226227;
measuring standards, 253254;
medical home model, 239240;
Medicare demonstration projects,
241; payment policy, 265; positioning
of, 261274; process measures in
specic patient groups, 253; quality
improvement, 222; reporting
techniques, 242, 254258; standardize
diagnostic workups, 227231;
standardize hospital functions,
255258; waste reduction, 222. See
also health care reform
American Stroke Association, 256
Americare Health Act, 192
AMQS. See American Medical Quality
System
angina, 116, 117
anti-kickback statutes, 148, 221
A1C values, 227
Arkansas, high uninsured population, 56
arteries, hardening of, 69, 225
arthritis, 161162, 168
asthma, 74
AT&T, 198
Australia, 62, 63
back fusion. See spinal fusion
back pain, 229
backup call schedule, 86
Baker, Center for Public Policy, Howard
H., 198
Balanced Budget Act, 2526, 31, 122
banking panic, 265
bar codes and medication administration, 92
Baucus, Max, 50, 206
Begley, Charles, 13, 20
313
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INDEX
Bennett, Robert, 198, 199, 204

best practices, 216
Better Healthcare Together, 197
Bextra, 158160, 162
biopharmaceuticals. See pharmaceuticals,
biopharmaceuticals
birth weight, 74
blindness, 73
blood pressure, 41, 73, 237238
blood test, 6869
Blue Cross/Blue Shield, 149, 171
bone screws, 107
Bonnen, Greg, 45
Boston, MA, 147
brain hemorrhage, 97
brain injury, 100, 125
brain surgery, 72
breast cancer, 41, 74
breast exam, 41
Brigham and Womens Hospital, 203
British National Health Service, 193194
Bryan, William Jennings, 265
bundled pricing model, 252
Busboom, Steve, 243244
Bush, George W., 44, 119, 204, 206
business, 129131, 268, 272
California, 179180, 185
call a code, 101
call schedule, 132
Camden, Carl, 198
Canada, 6264, 7374, 165166, 168,
172, 192196
cancer, 41, 78, 134, 193. See also specic
cancers
capability, hospital, 11
capacity, hospital, 11, 2122, 34
cardiac catheterization, 38, 72, 137
cardiac surgery, 152
cardiologists. See doctors, specialists
cardiopulmonary resuscitation (CPR), 101
cardiovascular disease, 74
Care Group (MA), 147
carotid endartarectomies, 216
Carter, Jimmy, 121
Catastrophic Medical Operations Center,
310n14
CAT scan. See computerized axial
tomographic scan
catheter techniques, 116119, 118
CBO. See Congressional Budget Ofce
Cedars-Sinai, 250
Celebrex, 158160, 162163, 168169,
227
Center for American Progress, 198
Center for Patient Advocacy, 262
Center for Studying Health System
Change, 129
Centers for Disease Control, 157, 262
cervical cancer, 41
cervical fusion, 111112, 114115, 126, 225
charge master, 244
chemotherapy, 270
chief information ofcers (CIOs), 90
children, 7273. See also State Childrens
Health Insurance Program
Chile, 165
cholesterol, 41, 62, 69, 73
Chrysler Corporation, 182
CIGNA, 171
CIOs. See chief information ofcers
Citizens Health Care Working Group, 204
civil monetary penalty statute, 221
Clemmer, Terry, 248
Cleveland Clinic Health System, 147
Cleveland, OH, 147
clinical trials, 160, 168169, 224225
Clinton, Bill, 123, 203, 262
Clinton, Hillary, 208
clot-busting drugs, 256
Coburn, Tom, 199
cognitive doctors, 152
colon cancer, 73, 109, 216
colonoscopy, 41, 72
colon polyps, 162
colorectal cancer, 41, 102
Committee for Economic Development,
198, 199
Commonwealth Fund, 265
Communications Workers of America, 198
Community Care of North Carolina,
236239
community hospitals. See hospitals,
community
complication rates, 154
computerized axial tomographic (CAT)
scan, 6, 137, 227229
computerized data management: billing
systems, 92; computerized physician
order entry, 9192; operational
electronic medical records, 90; paper
patient charts vs., 9093, 154, 235,
250251; physician support tool, 248;
primitive nature in hospitals, 84,
8993; systems integration, 92. See
also medical technology
concussion, 229
conict of interest, 131134
Congressional Budget Ofce (CBO), 50,
52, 166
consulting fee, 106, 196
consumers, empowering, 259260
contract workers, 182
Cooley, Denton, 252253
co-pay. See health insurance, co-pay
coronary angiographies, 216
coronary artery bypass surgery, 116119,
216
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INDEX
coronary catheter procedures, 118, 216

COX-2 inhibitor, 158159, 161, 162163,
169
CPR. See cardiopulmonary resuscitation
crowd out, 189
Cutler, David, 223
Darling, Helen, 183
Dartmouth Institute for Health Policy
and Clinical Practice: division of
surgeries, 108109, 225; regional
variation in care/spending, 5860,
102, 109, 215, 219, 230, 244, 247;
usage rates of specic Medicare
services, 58
deaths, 1113, 1819, 41, 7374, 78
death spiral, 184
deductible. See health insurance,
deductible
Defense Base Closure and Realignment
Commission, 263
defensive medicine, 63, 137138
deliberate conrmation of procedure, 87
Delisi, Dianne, 15
Dell, 145, 183
dementia, 99
Deming, W. Edwards, 246, 256
Democratic Party, 205208
Department of Health and Human
Services, 165166
diabetes: Canadas mortality ranking,
193; examinations, 68, 73; medical
ICUs andpatients, 141; obesity
and, 62, 68; percent of Medicare
patients, 68; prevalence of, 23;
prevention, 73, 74; quality care, 234;
uninsured patients, 41
diagnosis, workups, 41, 227231
Diamond, Carol, 5758
dignity and end-of-life care, 94102
Dingell, John, 191
direct-to-consumer advertising, 160161,
162, 166
disease: management of chronic, 66,
175, 237, 239; mortality rankings, 194;
prevention, 73; rise in, 23, 33
Disproportionate Share Hospital (DSH)
share, 25
diversion: ambulance service, 1921, 33,
142; described, 4; emergency room,
141; ICU, 34; mortality rate from, 13;
trauma center, 1113, 15, 83
DNR order. See do not resuscitate order
Dobson, Allen, 237
doctors: avoidance of Medicaid patients,
189; categories of, 70; changing
behavior of, 138, 246; computerized
support tool, 248; consulting fee, 106,
196; cost-of-living-increase, 4950;
315
feelings toward uninsured, 4445;

nancial interests, 115, 154, 156;
fragmentation of care, 216; generalist
(see doctors, primary care); income,
2627, 72, 127129, 128, 138, 230;
information to, 246; leadership, 236;
malpractice suits, 135137; managed
care participation, 3031; medical
waste, 5760; Medicare payments to,
72; monitor and report performance,
138; number per capita, 63; ownership
of hospitals, 34, 131134; patient
interaction, 63; patients managed by
several, 6768; patients medical
records, 8993, 91, 93; payments to,
127, 243260; physician-directed,
consumer-chosen health care, 175;
practice patterns compared, 222; primary care, 64, 7072, 127129, 128,
152, 175, 220, 236, 238239; promotion
of technology, 213; role in health care
reform, 268271; shared saving
payment model, 220221; specialists,
64, 7072, 127129, 128, 136, 221,
251252; spending, 57, 243260; standards to reduce variations, 215216,
218, 230, 248249; underpaid by
Medicaid, 55, 189; unhappy, 127129
do not resuscitate (DNR) order, 101
driving-when-intoxicated laws, 97
drugs. See pharmaceuticals
DSH share. See Disproportionate Share
Hospital share
electronic charting, 154, 235. See also
computerized data management
Ellwood, Paul, 28
Embarq Communications, 198
emergency call, 129130
Emergency Medical Treatment and
Active Labor Act (EMTALA), 1011, 38
emergency rooms, 22, 22, 34, 57, 141,
150. See also emergency services
emergency services: current state of,
272; demand increase, 2122;
development of, 17; increase in real
emergencies, 2324; nationwide
coordination of, 20; patients
qualication for, 11; requirement for
appropriate treatment, 257; studies
of, 13; uninsured population, 4445;
unreliable, 1015, 130, 256; vs. nonemergency care, 11. See also hospitals
Emory University, 20; Rollins School of
Public Health, 23
employer-based, health insurance. See
health insurance, employer-based
EMTALA. See Emergency Medical
Treatment and Active Labor Act
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end-of-life care: dignity and, 94102;

families and, 9899; improvements
to, 240242; management of, 66;
standard set of orders, 240242;
unwanted, 102, 138
England. See United Kingdom
epilepsy, 126, 154155, 193
equipment manufacturers, 106107, 115,
196197
errors. See medical errors
European Union, 167
eye examinations, 68, 73, 7475
Exxon, 145
Fairview Health Services (MN), 147
families and end-of-life care, 9899
Families USA, 191
family practitioners. See doctors,
primary care
FDA. See Food and Drug Administration
Federal Reserve Act, 265
Federal Reserve Banks, 264265
Federal Reserve Board, 66
Federal Reserve System, 222, 263,
264265
Federal Trade Commission (FTC), 147
fee-for-service medicine: described,
2627; managed care undercutting,
32; Medicare cuts to, 49; perverse
payment incentives, 120138, 214, 216,
220, 230; price cutting of, 121, 122,
123; replacement of, 138
Finkelstein, Amy, 202
Fisher, Elliott, 58
atlined, reference to term, xi
Food and Drug Administration (FDA), 107,
160161, 166, 168169, 218, 226, 262
foot examinations, 68
for-prot institutions, 146
France, 63, 64, 165, 166
Frank, Richard G., 204
French, Lyle, 270
Fritch, Herb, 234, 236
FTC. See Federal Trade Commission
gain-sharing arrangements, 221
GAO. See Government Accountability
Ofce
gastroenterologists. See doctors,
specialists
gastrointestinal bleeding, 158162, 169
gastrointestinal tract endoscopies, 216
gatekeepers. See doctors, primary care
GDP. See gross domestic product
general internists. See doctors, primary
care
General Motors, 182183
generic drugs. See pharmaceuticals,
generics
Geraughty, James, 233236

Germany, 62, 63, 64, 165, 166
glucose, measurement of, 6869, 249
Golden Hour, 16, 1920
Government Accountability Ofce
(GAO), 207
grants, 125
Grassley, Charles, 204, 206
Green, Linda, 20
gross domestic product (GDP), health
care costs, 6566, 66
Hackbarth, Glenn, 5051
Hamill, Dorothy, 159
Harvard University, 223: development of
relative value scale, 26; Medical
School, 204; School of Public Health,
243
Hatch, Orrin, 204205, 206
Hawaii, 185
health care: access to, 63; consumerdirected, 174175; controlling costs,
138, 218223, 223; coordination of,
63; cost of, 6366, 137138, 156,
201211, 214; current state of,
271272; in decline, 79; eroding
infrastructure, 1624; fragmentation
of, 1314; high-spending vs. lowspending areas, 59; increased
efciency, 233; lifetime costs, 62;
price controls, 121, 122, 123, 223;
pricing with managed care, 31; quality,
75, 75, 156; rationing resources, 223;
regional, 152153; regional variation
in, 5860, 102, 215, 219, 230; system
failures, 8486
Health Care Advisory Board, 151152
Healthcare Coverage Coalition for the
Uninsured, 191
health care reform: coverage expansion
and cost control, 201211; ending
employer-based tax subsidy, 179200;
establishing standards, 224231, 261;
federal intervention, 121, 122, 123;
nancing, 261; future of care, 4956;
justice and, 273274; limitations to,
217; medical industry cost
management, 202; Medicare and,
xiii, 4956, 195; physician-directed,
consumer-chosen, 175; political
realities, 267268; primary care
prioritized, 232242; protocols for
diagnosis/management, 175176,
210211, 224226; public education,
261; public opinion on, 204; reducing
hospital prices, 258259; role of
business, 268; role of medical profession, 268271; seven points of, xiv;
spending reductions, 243260;
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standardize hospital functions,

255258; steps to, 179; tax-advantaged
health saving account, 174; workable
plan, 212223. See also American
Medical Quality System
Health Help agencies, 199
health insurance: administrative costs,
171173; agent, 172; broker, 172; claim
form, 172; co-pay, 56, 221; costs of,
170171, 173; current state of industry,
272; deductible, 56, 174175;
employer-based, 5556, 161, 176,
179200, 201, 213; impact on preventable death, 41; individual purchase of,
197200, 214; mandated coverage,
123, 184185; noncompetitive
business, 171, 173176; out-of-pocket
costs, 175, 202; portability, 183, 199;
premiums, 32, 32, 170, 184, 198;
private, 25, 123, 170176, 180, 189190,
190, 208; prots, 171; purchased by
individuals, xiii; reform, xiii;
standardize claim process, 172; subsidy
to low-income population, xiii; tax
credit, 199; underwriting costs, 172;
waste reduction, 172; voucher system,
187188, 190191. See also underinsured
population; uninsured population
health maintenance organization
(HMO), 2729, 176, 217. See also
managed care
Health Security Act, 123124, 203, 262
HealthSpring (managed care
organization), 233234, 239
Healthy Americans Act, 198, 199
heart attack: blood pressure testing, 73;
increased risk with Vioxx, 162,
168169; induction of hypothermia,
257; mortality rate, 21; prevention, 73,
74; regional differences in care, 102
heart bypass operations, 109
heart disease, 78, 216, 238
heart failure, 74, 141, 150, 234
heart procedures, 6364, 225, 252
helicopter, hospital-based, 19
hemodialysis, 225226
hemoglobin A1C, measurement of,
6869, 73
Henshaw, Ada Sue, 155
herniation, 5
high-risk neonates, 149
hip fracture, 102, 109, 216
Hippocratic oath, 131
hip replacement, 109, 196, 225
HMO. See health maintenance
organization
hospitals: academic medical centers, 59,
89, 149; avoidable use, 7273;
building boom, 3334; cafeteria, 148;
317
capacity, declining, 2122; charges,

153; community, 132, 269;
consolidation, 32, 146148; cost and
inefcient processes, 138; current
state of, 272; dangerous, 7793;
efciency, 146, 254; emergency
services demand, 2122; end-of-life
care, 9799; nancial instability,
7880, 84; nancial interests, 115;
nancing of, 25; for-prot, 146; group
purchasing organization, 148;
housekeeping department, 153;
indifferent, 8687; labor costs,
155156; lawsuits, 84, 8789; length
of stay, 63, 154; managed care
participation, 3031, 32, 139;
management tool, 246; market
leverage in the community, 139, 145,
146148; Medicaid patients, 189;
medical practice reform, 210211;
Medicare creation, 202; Medicare
payments to, 121122; mortality rate,
101; not-for-prot, 139, 146; nursing
shortage, 155156, 258259; operating
rooms, 153; parking facilities, 148;
payment-to-cost ratios, 189190, 190;
payments to, 127, 156, 243260;
performance measures, 154; physician-owned, 34, 131134; pricing
practices, 149, 153, 212; primitive
technology, 8993; private, 149;
procedures, promotion of, 139, 145,
150152; protability, pathways to,
139156; prot margin, 105; public,
25, 125; publication of prices, 153;
publicity, effect on, 89; quality, 243;
regional monopoly/oligopoly, 32, 212,
259; rural shortages, 212213; safety,
243, 254258; safety net, 148149;
shared saving payment model,
220221; specialty, 21, 132; spending,
57, 243260; standardizefunctions,
255258; system failures, 8486;
teaching, 140; underpaid by Medicaid,
55; uninsured, avoidance of, 139, 145,
148150, 156. See also emergency rooms;
emergency services; trauma centers
Hospital-Based Emergency Care: At the
Breaking Point, 20
Houston, TX, 34, 97, 146, 151, 257258
Hurricane Katrina, 257258, 310n14
Hurricane Rita, 258, 310n14
hypertension, 62, 73, 193
hypothermia, induction of, 257
hysterectomies, 216
Iacocca, Lee, 182
Ibuprofen, 158
ICU. See intensive care unit
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INDEX
illegal immigrants, 36
implantable deep-brain stimulator, 7
individual insurance. See health
insurance, private
infant mortality, 74, 194
infections, 89, 141, 154
Institute of Medicine, 20, 77, 84, 91
insulin, 249
insurance. See health insurance
insurance industry. See health insurance
Intel, 198
intensive care unit (ICU), 3, 9799, 140,
141
Intermountain Healthcare (UT),
243250
Internal Revenue Service, 181, 221
interventions to beneciaries, 121122
intubation, 3
Iraq War, 16
Italy, 165
James, Brent, 243248, 249, 253
Japan, 6264, 165, 226, 246
Johnson, Lyndon, 123
Johnson Foundation, Robert Wood, 101
Joint Commission on Accreditation of
Healthcare Facilities, 87, 254257
Journal of the American Medical
Association, 132
Kahanovitz, Neil, 262, 270
Kaiser, Henry J., 28
Kaiser Family Foundation, 186
Kaiser Permanente, 2728, 30, 71
Katy Memorial Hospital (Katy, TX), 1112
Kellerman, Arthur, 20
Kelly Services, 198
Kennedy, Edward, 191, 205
kickbacks, 196197, 221
kidney disease, 134
kidney failure, 73, 225226
kidney transplant, 225
King, Sid, 232236
knee replacement, 6364, 109, 196, 225
labor, induction of, 246247
Latter Day Saints (LDS) Hospital,
243248
LDS Hospital. See Latter Day Saints
Hospital
Leape, Lucian, 243
legs, vascular problems of, 109
Lewin Group, 204, 265
life expectancy. See age
life support, 96, 100
life-sustaining treatment, management
of, 101102
long-term care facility, 251
Los Angeles, CA, 20, 147, 153
lung disease, rise in, 23

lung failure, 141, 234
magnetic resonance imaging (MRI) scan,
7, 137, 227229
malignant melanoma, 4143
malpractice, 43, 62, 84, 8789, 135138
mammography, 41
managed care: costs, 127; described,
2324; doctor and hospital
participation, 3031; employer market
participation, 29; fee-for-service
medicine undercut, 32; nancial
losses, 139; mandated, 123; payment
for doctors, 26. See also fee-for-service
medicine
mannitol, 3
Markel Foundation, 57
market leverage in the community, 139,
145, 146148
markets, captive local, 152153
Massachusetts, 179180, 185
Massachusetts General Hospital, 203
Mayo, Charles Horace, 27
Mayo, William James, 27
Mayo Clinic (Rochester, MN), 27, 243
McGlynn, Elizabeth, 73
McGuire, William, 170
McKinsey Quarterly, 182
Medicaid: advance directives, 99;
avoidance ofpatients, 189; eligibility,
3637, 55, 140, 191; emergency room
visits, 22; enrollment limitations, 190;
expansion, 190, 191; federal government cost, xixii, 25, 52, 201, 210;
hospital revenue generated from, 25,
189190, 190; low-income population,
36; mental illness patients, 189;
substandard care, 189, 190;
underpayment to doctors and
hospitals, 55, 189
Medi-Cal (Californias Medicaid
program), 140
medical errors, 63, 66, 7793
medical home model, 239240
medical neurology, 151152
medical oncologists, 152
medical practice, reforms, 175176,
210211
medical procedures and tests: deliberate
conrmation, 87; errors, 85; excessive
performance of, 66; government
regulation, 85; harmful, xii; hospital
promotion of, 139, 145, 150152; of
marginal benet, 116119; poorly
evaluated, 126, 219220; public
reporting, 85; specialty hospitals
and, 132; spending, 57, 119;
standards of practice, 138, 216,
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224226, 238239, 261; of unknown

benets, 108111. See also surgery
Medical Quality Boards, 265
medical records. See also computerized
data management
medical supplies, 153
medical technology: debate about, 7;
development and assessment,
261262; doctor promotion of, 213;
high-quality, 194; physician support
tool, 248; primitive, 84, 8993; systems
integration, 92; wasteful practices,
5760. See also computerized data
management
medical waste, xii, 27, 5766, 119, 216
Medicare: administrative costs, 172;
advance directives, 99; Advantage
Plan, 207208, 233, 235; ambulatory
surgery centers, payments to, 133134;
annual rate of cost escalation, 121,
122; chronic disease pilot program,
239; cost increase, 49, 134, 173; cost
reduction, 59; Coverage Policy and
Analysis Group, 108; creation of, 123,
201202; diabetic patients, 68, 73;
eligibility expansion, 188191;
emergency room visits, 22; end-of-life
care, 94102; fee-for-service cuts, 49,
127; fees for services, 72; federal
government cost, xixii, 25, 52, 66,
201, 210; scal crisis, 272; future of,
5255; Hospital Compare website, 89;
hospital requirement to report
measures of quality, 254258;
hospital revenue generated from, 25,
149, 189190, 190; out-of-pocket costs
to elderly, 202; Part A (inpatient
hospitalization), 51, 241; Part B
(physician and outpatient services),
5152, 227229; Part D (prescription
drug), 5152, 159, 161, 167168,
207208, 226; payment experiments,
222; payment policy, 265; payments
for complications, 154; payments to
doctors/hospitals, 72, 167, 251253,
271272; performance difference
between private payers, 121, 122, 123;
price xing, 121; quality care and
spending, 75, 75; reform, xiii, 4956,
195; refusal to pay for procedure,
106108; regional variation in
care/spending, 5860, 102, 109, 215,
219, 230, 244, 247; rehabilitative
services costs, 196; relative value
scale, 26; senior citizens, 49; spending,
123, 280n7; sustainable growth rate
formula, 4951, 266, 268; usage rates
of specic services, 58
Medicare (Canada). See Canada
319
Medicare for All Act, 191197, 201, 208

Medicare Hospital Insurance Trust
Fund, 51
Medicare Payment Advisory Commission
(MedPAC), 50
Medicare Prescription Drug Improvement
and Modernization Act (MMA),
165166, 167, 207, 267
medication, 9192, 134, 153. See also
pharmaceuticals
medicine as business culture, 129131
Medigap policies, 191
MedPAC. See Medicare Payment Advisory
Commission
Memorial-Hermann Hospital (Houston,
TX), 34, 97, 146, 151
mental illness, Medicaid coverage, 189
Merck, 158, 161, 162
me-too drug. See pharmaceuticals,
standard drug
Mexico, 165
Microsoft, 145, 183
middle class. See uninsured population,
middle class
military medicine, 1617
mini-med policy, 56
Minneapolis, MN, 147
Minnesota, 209
Minnesota Community Measurement, 242
minorities and access to primary care, 72
MMA. See Medicare Prescription Drug
Improvement and Modernization Act
Mongan, James J., 203
monopoly, hospital, 147, 212, 259
Montana, high uninsured
population, 56
mortality rates: ambulance diversion,
2021; cancer and uninsured, 41;
California, 153; Canada, 74, 193;
countries ranked by, 193194; heart
surgery, 252; hospitals, 101; infant,
74, 194; injured soldiers, 1617; kidney
failure, 225226; regional variation,
216; relationship betweenand
nurses, 7980, 249; risk from
diversion, 13
Motrin, 158, 159, 163
MRI scan. See magnetic resonance
imaging scan
multiplier in fee-for-service medicine,
2627
myelogram, 228
Naprosyn, 158
National Business Group on Health, 183
National Institute of Nursing Research, 155
National Institutes of Heath, 155, 224,
225, 262, 270
National Kidney Foundation, 230
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National War Labor Board, 181

neck, fusion of. See cervical fusion
the Netherlands, 62
neuro ICU. See neuroscience intensive
care unit
neuroscience intensive care unit
(neuro ICU)
neurosurgery, 57, 152
New England Journal of Medicine, 73, 162
New Jersey, 15
New Mexico, 56
New York Times, 134, 197
New Zealand, 63
Nixon, Richard, 28, 121, 123
non-elderly population. See uninsured
population, non-elderly
non-steroidal anti-inammatory drugs
(NSAIDs), 158159, 162163, 168. See
also pharmaceuticals
North American Spine Society, 262
not-for-prot institution, 139, 146
NSAIDs. See non-steroidal
anti-inammatory drugs
nursing home, 99, 121122, 196, 251
nurses: burnout, 78, 156; collaboration
with, 234; decient education, 7980;
faculty shortage, 155, 258259; high
turnover rates, 7980, 83; low stafng
levels, 7980, 155156, 258259;
maintenance of patients charts, 154,
235, 250251; relationship
betweenand patient mortality,
7980, 249; temporary, 7880;
working conditions, 258259
Obama, Barack, 208
obesity, 23, 6162, 68, 214, 237238
obstetrics/gynecology, 127
Oklahoma, high uninsured population, 56
oligopoly, hospital, 147, 212
Oncology Times, 260
operating rooms, 153
order sheet, 9293, 93
Orange County, CA: ambulance service,
1719; Medical Society, 18
Oregon, 185, 240241
Orszag, Peter, 50
orthopedic surgery, 127
outpatient facility, 133
outpatient surgery. See surgery,
outpatient
over-the-counter medications, 158. See
also pharmaceuticals
oxygen millionaires, 196
Pap test, 41
Parkinsons disease, 7
Partners Healthcare System (MA), 147, 203
Passel, Jeffrey, 36
Patented Medicine Prices Review Board

(Canada), 165
patients: administration of medication,
9192; charts, 9093, 154, 235,
250251; coordinated care, 31;
displaced, 2223;doctor interaction,
63; education, 238; high-risk,
8889; managed by several doctors,
6768; medical waste, 6064; order
sheet, 9293, 93; progress notes, 90,
91; rights, 94102; standardized
education, 221222; wrong, 87
patients bill of rights, 31
payment incentives, 120138
pediatricians. See doctors, primary care
performance measures, hospital, 154
Persse, David, 257258, 310n14
Pew Hispanic Center, 36
Pzer, 159, 161, 162
pharmaceuticals: biopharmaceuticals,
164165; clot-busting, 256;
contribution to medical progress,
157169; cost of, 157, 167168; current
state of industry, 272; evaluating,
226227; generics, 163; importation
of, 164167; marketing of, 160163,
166, 168; prescription drug coverage,
159, 161, 163, 226; price controls, 168;
price of, 64, 167; priority drugs, 163,
164; research, 168; slow-release
formulas, 164; spending, 57, 167168;
standard (me-too) drug 163164, 165.
See also specic pharmaceuticals
PhRMA, 267
Phurrough, Steven, 107108
Physician Orders for Life-Sustaining
Treatment (POLST), 241
physician-owned hospitals. See hospitals,
physician-owned
physicians. See doctors
Pittsburgh, PA, 147
pneumoencephalogram, 6
pneumonia, 73, 74, 89, 150, 193
POLST. See Physician Orders for
Life-Sustaining Treatment
poverty, 74, 180
preference-sensitive surgery. See surgery,
preference-sensitive
premiums. See health insurance,
premiums
prepaid group practice. See health
maintenance organization
prescription drugs. See pharmaceuticals
Preventing Medication Errors, 91
preventive care, 41, 66, 175
price controls, 121, 122, 123
pricing model, 252
primary care, 6776, 232242. See also
doctors, primary care
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priority drugs. See pharmaceuticals,

priority drugs
private health insurance. See health
insurance, private
private hospitals. See hospitals, private
private sector and health care costs,
6466
procedures. See medical procedures and
tests
progress notes, patients, 90, 91
prostate cancer, 41, 259260
prostate surgery, 109, 225
protocols for diagnosis/management,
175176
psychiatric emergencies, 149
publicity, effect on hospitals, 89
public opinion: current state of, 272;
educating, 259260; on health care
reform, 204, 208209; indifference to
uninsured, 4344, 203; on kickbacks,
196197; punitive damages, 136137
quality care: errors of omission and
lapses in, 7778; hospitals serious
about, 86; improvement of, 216; lapses
in, 7778; Medicare spending and,
75, 75; monitoring, 221; payment
system and, 134, 138; requirement to
report measures of, 254258
quality chasm, 86
Qwest, 198
radiology, 133
Rand Corporation, 19, 73
reasonable and customary charges, 121
reasonable and necessary criterion,
106108, 202
relative value scale, 26
renal dialysis, 230
Republican Party, 167, 205208
research, 261264
research fee. See consulting fee
respiratory failure, 150
rheumatoid arthritis, 162
Rockefeller, Jay, 206
Sacramento, CA, 151
safety net hospitals. See hospitals,
safety net
Safeway, 183
San Diego, CA, 147
San Francisco, CA, 1719, 147
San Francisco General Hospital, 1718
San Luis Obispo, CA, 147
SAVE OUR ERS, 1314, 33
Saving, Thomas, 52
SCHIP. See State Childrens Health
Insurance Program
Schwarzenegger, Arnold, 180
321
Scotland. See United Kingdom

seat belts, use of, 97
self-employed workers, 182, 185187
Senate Finance Committee: Health Care
Reform, 203; Medicare and Medicaid
responsiblities, 50
senior citizens, provision of health care.
See Medicare
Service Employees International Union,
197198
shared saving payment model, 220221
Sheils, John, 204
Sherman Antitrust Act, 28
SICU. See surgical intensive care unit
Simpson, Alan K., 197
single-payer system, xiixiii, 172, 180,
194, 209
skin cancer. See malignant melanoma
Skinner, Jonathan, 58
small business, increasing coverage,
183185
smoking habits, 6162, 214
Social Security Act, 106, 148
Society of General Internal
Medicine, 72
soldiers, mortality rate, 1617
specialists. See doctors, specialists
specialty care, 7172
specialty hospitals. See hospitals,
specialty
spinal fusion, 107116, 113, 114, 116, 126,
223, 262
spinal vertebra, 111, 112, 113, 225
spine, slippage of, 107, 114, 225
stable angina, 117
standard drug. See pharmaceuticals,
standard drug
standards of practice: in controlling
costs, 138, 218; establishing, 224231;
health care reform and, 248249,
261; measuring, 253254; to reduce
variation, 215216
Stark, Pete, 192
Stark Law, 132133, 221
State Childrens Health Insurance
Program (SCHIP): bipartisan health
reform, 204206; eligibility, 35, 3637,
188, 191; enrollment barriers, 188189;
expansion, 191; funds to cover, 119, 146;
state managed, 188
stem cell biology, 7
steroids, 270271
strange bedfellows, 191, 198
stroke, 7374, 141, 162, 168, 256
structural violence, 89
subarachnoid hemorrhage, 81
Sumner Clinic (Gallatin, TN), 232237,
242
SUPPORT (study), 100
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Supreme Court, ruling on prepaid group

practice, 28
surgeons. See doctors, specialists
surgery: division of, 109, 225; errors in,
87; hospital promotion of, 150152;
outpatient, 227; preference-sensitive,
109110, 225; protability, 140;
unnecessary, 66, 103119; wrong
patient, 87; wrong site, 87. See also
medical procedures and tests; specic
surgery
surgical intensive care unit (SICU), 81
sustainable growth rate, 4950, 266, 268
Sutter Health (CA), 147
Sweden, 165
Switzerland, 62, 165
Taub General Hospital (Houston, TX),
Ben, 26, 125
tax credit, 199
tax subsidy for employer-based
insurance, 181182, 198200, 201. See
also health insurance, employer-based
teaching hospitals. See hospitals, teaching
technology. See medical technology
television commercials, 160
tests. See medical procedures and tests
Texas, 15, 56, 130, 188
Texas Medical Center, 42; Anderson
Cancer Center, M. D., 33; Heart
Institute, 252253
Thames, Byron, 5051
thoracic surgery, 127
Thorpe, Kenneth, 23
To Err Is Human, 77
transurethral prostatectomy (TURP),
244245
trauma centers, 1113, 15, 17, 83, 130,
149. See also emergency rooms;
emergency services; hospitals
Trunkey, Donald 1719
tuberculosis, 193
TURP. See transurethral prostatectomy
underinsured population, 56, 180
uninsured population: access to primary
care, 72; coverage of, 156, 179180,
201211; created by rising costs,
5556; diabetics, 41; doctors in public
clinics feelings toward, 4445;
dumping of, 10; early diagnosis, lack
of, 41; emergency room visits, 22,
4445; federal health care spending
on, 4143; nancial incentive to treat,
12; health outcomes of, 41; hospital
avoidance of, 139, 145, 148150;
Medicare eligibility expansion,
188191; middle class, 37, 43;
mortality rate and cancer patients, 4;
non-elderly, 36; percent of population,
xii; predicament of, 3545; preventive

care, lack of, 41; public indifference to,
4344; states with high, 56; statistics,
36; substandard treatment, 4144;
trauma center care, 130; voucher
system for insurance, 187188,
190191; working poor, 36, 37, 272
unions, 183, 197198
United Auto Workers union, 182
UnitedHealth, 170, 171
United Kingdom, 6264, 165166, 168,
194
University of CaliforniaSan Francisco,
17, 147
University Hospitals of Cleveland, 147
University of Michigan, 155
University of Minnesota, 270
University of Pittsburgh Medical Center,
147
University of Texas: Medical Branch
(UTMB), 4; Medical School, 125;
School of Public Health, 13
University of Utah, 248
U.S. Chamber of Commerce, 191
U.S. Government Accountability Ofce,
161
UTMB. See University of Texas Medical
Branch
vascular problems, 109
Versed, 82
Veterans Administration, 92, 125
videos as public education tool, 259260
Vietnam War, 1617
Vioxx, 158160, 162163, 168169, 227
Voluntary Effort, 121, 123
voucher system, 187188, 190191
Wagoner, Rick, 182
Wales. See United Kingdom
Walker, David, 207
wallet biopsy, 1718
Wall Street Journal, 68, 196
Wal-Mart, 145, 183, 198
Washington (state) , 185
Washington Post, 119, 182
waste. See medical waste
Wellpoint, 171
Wennberg, John, 58, 244, 247
West, John, 1719
West Penn Allegheny Health System (PA),
147
West Virginia, high uninsured
population, 56
Wilson, Cecil, 50
working poor. See uninsured population,
working poor
World Health Report, 193
World War II, 16
Wyden, Ron, 198, 199, 204
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ABOUT THE AUTHOR
GUY CLIFTON is a neurosurgeon and clinical investigator. A native Texan,

he was founding chairman of the Department of Neurosurgery at the
University of Texas Health Science Center at Houston and holds the
Runnells Distinguished Chair in Neurosurgery. His clinical research
focuses on hypothermia as a treatment for severe brain injury, and he has
written more than a hundred scientic publications. Dr. Clifton has
served on the editorial boards of numerous professional journals and as a
reviewer and study section member for the National Institutes of Health.
He was founder and chairman of Save Our ERs, a coalition of Houston
business and health professionals that took a statewide leadership role to
provide funding for uninsured trauma care in Texas. A 20067 Robert
Wood Johnson Foundation health policy fellow, he is currently a professor
of neurosurgery at the University of Texas Health Science Center at
Houston. He and his wife, Karen, are the parents of ve children. Visit his
Web site at www.Flatlined.org.
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Guy L. Clifton - Flatlined, Resuscitating American Medicine

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Guy L. Clifton - Flatlined, Resuscitating American Medicine

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Prelims.

GUY L. CLIFTON, M.D.

RUTGERS UNIVERSITY PRESS

LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA

Clifton, Guy L., 1949

To my wife, Karen, my mother, Marjorie,

Do not remember the former things, or consider the things

List of Figures and Tables

Why the Uninsured Should Be Covered

Not Business As Usual

Unreliable Emergency Services

Fifteen Years Lost

Handed Health Cares Leftovers

Why Health Care Is So Expensive

Where We Are Headed

30 Percent Wasteor 50?

Poor-Quality Primary Care

Violation of Dignity: The End of Life

Perverse Payment Incentives

Three Pathways to Hospital Protability

Pharmaceuticals: Remarkable Innovation,

Private Health Insurance: No Added Value

Reforming American Health Care

Three Options for Covering the Uninsured

No Coverage Expansion without Cost Control

A Workable Plan for Reform

Prioritizing Primary Care

Reducing Spending on Hospitals and Specialists

Positioning of an American Medical Quality System

FIGURES AND TABLES

Number of U.S. emergency room visits

Percentage increase in cost of

Components of U.S. gross domestic product, 2006

Relationship between quality and Medicare spending

Typical handwritten patient progress note

Typical physicians order sheet

Surgical spine procedures on the low back

Spinal surgery as a percentage of U.S.

Number of U.S. hospital admissions

Annual changes in Medicare spending

Annual changes in private per-capita national

Hospital payment-to-cost ratios for private

Generalists Income and Annual Workload

Specialists Income and Annual Workload

I am a neurosurgeon, perhaps the last person you might expect to write a

unless it is managed very differently from Medicare. Medicare must be

THE SEVEN POINTS OF HEALTH CARE REFORM

2. Individuals should directly pay for enough of their health

Insurance premiums should be the same for the healthy

4. The health insurance industry should be reformed so that

It was my great good fortune to work with Marilyn Alice McDonald

Managed Care Pharmacy; Carolyn Clancy, director of the Agency for

(his comments were personal, not ofcial); Eugene Rich, Tenet

Why the Uninsured

I witnessed a series of personal tragedies that began to morph

Yeah, all the time now, he answered. I operated on a lady a few

From Barbarism to Sophistication

right compartment in the brain. In our hospital an average of one patient

Parkinsons disease in the 1990s, to recent fundamental discoveries such

Health Care in Decline

It bothers me that there is no gender-neutral pronoun for a human being. Women

I saw the uninsured, 1 million of them, systematically denied all but

I saw both the insured and uninsured suffer preventable medical

In the late 1970s, I was a resident physician training in a public hospital.