Segment 7 – Healthcare Power, Politics & Philosophy

Segment 7 – Healthcare Power, Politics & Philosophy


This segment reviews preconditions for having a focused discussion of healthcare reform necessitated by powerful vested interests, and it discusses how to overcome political polarization.

In the first six Segments, we have reviewed the relentless growth of healthcare spending. And how rising costs are literally built into the system as it is now. This review should give us some ideas on how to fix the system.

But before we talk about how to fix the healthcare system, we must first tackle some landmines that lurk beneath the surface. The landmines are power, politics and philosophy. They are the subject of the next 2 Segments.

In this Segment, we will discuss both preconditions necessary for a calm, focused discussion of healthcare reform as well as what I call “loaded” political words. Then in the following Segment we will look at traditional American values and principles that can be brought to bear on resolving the core philosophical dilemma that has kept us from fixing US healthcare all these years.

Let’s start with preconditions. The idea here is that healthcare now comprises 1/6 of the entire US economy. So, there are powerful interests, lots of money, and fierce political convictions that could derail any discussion before it even gets started.

So, I suggest setting preconditions to be agreed on beforehand. Only then can we calmly get into the meat of the discussion. Here are the preconditions.


First, for purposes of discussion, let’s agree to keep dollar spending at the 2017 level – no winners, no losers, everything the same.

Second, let’s keep power the same. Keep the AMA, the hospital association, the VA, Health & Human Services, etc. No power struggles.

Third, strive to keep partisan politics out of the discussion. Make it a joint problem-solving project. Give credit where it’s due: to politicians or policy writers who contribute constructively. The motto is: “U.S. spells us.” Healthcare employs 1/6 of us and touches all of us.

Fourth, here’s where I will insert a viewpoint from my 40 years experience as a doctor: Human beings all get the same illnesses, all suffer, all are interconnected mind/body/spirits. I – like all doctors — have taken care of rich and poor, all races and nationalities, religious and non-religious, social outcasts and VIPs, saints and sinners. In a hospital bed or in the doctor’s office, we’re all the same. We should remember, “We’re all in this together”

Lastly, since healthcare is “too big to fail,” whatever is done should be done deliberately, slowly, with monitoring along the way and mid-course corrections when needed. If we accept these preconditions, we can have a Win-Win Discussion.

This kind of discussion should look at Facts, Goals, Values and lastly Methods, the actual Fix.

We have already discussed the Facts. The key facts are:

– the US health system has grown to 3.2 trillion dollars, representing 1/6 of the entire economy

– Cost growth is built into the system, has always outpaced inflation, and has resisted attempts to restrain the growth

– Healthcare spending is draining vitality from the economy, government and individual household budgets


Here are the key Goals:

– We must stop excess healthcare growth beyond the natural increase expected from population increase, aging, and innovation.

– To do so will require fundamental reform of the system, not just tinkering with public finance and private insurance

– Since healthcare is “too big to fail”, a key goal is Avoid short-term disruption, again proceed slowly.


The last things to discuss before we get to specific Methods – what I am calling the Fix of healthcare – are Politics and Values.

We all know that our country is polarized to an unhealthy extent. This has contributed to political paralysis – not getting anything done. I’m not a political scientist and cannot tackle the whole subject of healthcare politics.

But I do want to look at what I call “loaded words” that creep into our debates on healthcare. These words lock us into a closed, rigid mindset and can shut down discussion.

Let’s look at a few “loaded words” and suggest more neutral words to help keep the discussion open-minded.


First is “socialized medicine.” This terminology stirs up the negative connotations of the so-called “Prussian menace” after World War I and “Red scare” after World War II. A more neutral term would be “publicly financed medicine.” The truth of the matter is that currently almost 50% of healthcare is already publicly financed through Medicare, Medicaid and other government programs. The issues behind the loaded words, which do need thoughtful discussion, are accountability; and also advantages and disadvantages of uniformity and nationwide scale, instead of the current fragmented system.

The next loaded terms are “free market” and “competition.” The connotations are freedom from government interference, freedom from politics, consumer freedom, and efficiency. The grain of truth behind the terms is that the law of supply and demand does drive down prices to a balance point in pure markets. The reality, however, is that healthcare is not a pure market, as we saw in Segment 5. Also, markets sometimes leave aside consumers who are poor or powerless, which includes many of the sick. A more neutral term is commercial market.

Next is “rationing.” The connotation is forcibly withholding something from an individual. A more neutral term is “limit-setting” or “prioritizing.” We will talk more about this in the next Segment, and about the need for patients’ to consent to limits on their health service or health insurance. The reality is that we already have de facto rationing by zip code, income level, government budgeting, and hospital technology policies. Prioritizing is not bad – it’s necessary.


Another loaded word is “choice.” The connotation is that the government will interfere in choice of doctor or into the doctor-patient relationship itself. This was one of the scare tactics used by the insurance association in 1993 to bring down the President Clinton’s health reform plan. But the reality is that insurance network plans restrict patient choice of doctor more than government rules do. In addition, doctor inclusion in Medicaid – and other insurance plans, for that matter — is often a matter of the pay scales set by Medicaid or insurance companies, not the choices made by patients.

And the last loaded term I’ll mention is “big government.” The connotation goes back to President Reagan saying, “Government is not the solution to the problem; government is the problem.” We always hear about the Army’s 100-dollar toilet seats (in 1986 dollars) and the disastrous roll-out of the Obamacare website.


And the truth is that government is big and can be just as flawed as any big institution. However, national government, unlike private companies, is legally transparent and accountable. Also, Government can fulfill some functions more effectively and efficiently than some private sector piecemeal approaches. Here are examples: FAA, FDA, FCC. Currently the military enjoys a high regard. Some examples of public-private partnerships are the moon shot, internet and healthcare research. Medicare has an enviable customer satisfaction rating of 77%.

The reality is that we are now a nation (and world) of big institutions – for-profit, non-profit, government, academic. All have institutional governance and administrative challenges, which are studied by the disciplines of public administration and business administration. Public administration and business administration tell us how best to run big institutions so as to fulfill their mission and to remain accountable and transparent. More neutral terms instead of “big government” are: public sector programs or taxpayer-funded program.

So we have some better neutral terminology to use for discussing healthcare to avoid inflammatory polemical words.

In the next Segment we will look at American values at stake in health care. We will also look at what philosophers say is a fair way to run US healthcare.

I’ll see you then.



Segment 6 – Why Healthcare Cost is a Problem

Segment 6 – Why Healthcare Cost is a Problem


This segment reviews the impact of relentless increase of U.S. healthcare spending on the economy, politics and society.

In Segment 4, we showed some statistics on relentlessly rising healthcare spending. And in Segment 5 we looked at the Perfect Storm — how rising costs are literally built into the system as it is now.

In this Segment, we will ask the question, So, why is it so bad for health spending to increase? After all, health care is good and noble. By the way, it also creates good-paying jobs.

My answer is that healthcare spending is good, of course, but only up to a point. Past a certain point it is not worth the cost, it sucks money from other important purposes, and it fuels social and political unrest.

Let’s look at each of these arguments. First, are we getting our money’s worth?

Here’s the slide from the last lecture showing the benefit from each additional dollar spent. This is what economists call “marginal benefit.” If you’ve already spent 1,000 dollars, what more do we get by spending 10 or 100 more dollars? The answer is, we get less and less, the more we spend.

On the left side is the column of highly valuable health services like public sanitation and immunizations. For very few dollars spent, we prevent disease and save lives. The next column, moving right, are routine services that give good value for the money spent, like kidney dialysis, chemo for treatable cancers and heart bypass up to age 70. The next column are lower-value services like keeping dying patients in uncomfortable ICU beds. Then we reach a cut-point where we get no added benefit from extra spending, what economists call the “flat of the curve.” This is unnecessary testing, treatments, or drugs, which are wasteful. Here is a list of examples.


Doctors and specialists have recently gotten together to identify some worthless habits of care that can be eliminated. They call it the Choosing Wisely campaign, and are trying to get all doctors to break the habit of getting these. Here are some other examples.


The last column shows that sometimes giving too many treatments or drugs can actually be harmful. As a geriatric specialist taking care of the elderly, I can tell you that over my years of practice I have definitely cured more people by stopping unnecessary drugs than by overprescribing.

The bottom line is that most experts agree that the US is not getting any more bang by spending more bucks, and in some cases actually doing more harm than good.

The next reason is that health spending is taking money away from other equally important purposes. This is what economists call “opportunity costs.” By spending an extra dollar on healthcare, we are missing the opportunity to buy better education, business investment, housing or infrastructure.

The third reason is budget squeezes. Healthcare is driving up Medicare and Medicaid, for example, which increases the federal budget deficit. It also squeezes states’ share of Medicaid costs, driving up taxes. It squeezes corporate expenses, cutting into investments and employee pay. This also hurts US competitiveness abroad, and it drives some jobs overseas.


And the last reason I’ll give is its effect on take-home pay. I showed this graph in Segment 3. The RAND think tank calculated that between 1999 and 2009 Americans were 30% more productive and got 30% more wage compensation, but all of that increase went into health premiums (shown in red), not into take home pay (shown in blue). Healthcare costs are making us feel poorer.


I think people are finally getting angry about so much healthcare spending. That’s one big reason they voted for Donald Trump, hoping he could do something dramatic to fix it.


I am worried that if left unchecked, soaring healthcare costs will cut into defense spending, drive up the national debt, and ultimately weaken us as a nation.


And so, what is the conclusion?

The conclusion is that exorbitant spending is the problem. Health spending eventually leads back into your wallet, and my wallet, and our grandchildren’s wallet in the future.


In the next episodes we will discuss how to stop the excessive spending. This will require us to fix the whole healthcare system, not just tinker with insurance, Obamacare markets, and Medicaid. We will also look at some of the ethical issues and the political challenges involved. I’ll see you then.




Segment 5 – Why Is U.S. Healthcare So Expensive?

Segment 5 – Why Is U.S. Healthcare So Expensive?



This segment reviews the “Perfect Storm” of reasons for unrestrained increase of healthcare spending in the U.S.

In Episode 4, we zeroed in on what I call the Real Problem with healthcare — relentlessly rising costs.

In this Episode, we will look at why the US spends so much on healthcare. As you can imagine, there are many reasons, not just one. In fact, it’s a perfect storm of bad reasons. We will also look whether we are getting our money’s worth.

Here’s the list. Part 1 & Part 2.



We will go through each one.

Natural Spending Drivers

Let’s start with some natural drivers of health spending, which are understandable and expected. First, as the population grows, so will health spending. Likewise, as the proportion of older people increases, so will spending. We also expect health spending to increase slowly with inflation. New technologies and medicines increase cost, but we hope will give dramatic benefits. For example, during my 40-year practice lifetime I have seen the introduction of new drugs for diabetes, blood pressure, and virus infections including HIV and flu. I have seen new ultrasound, CT and MRI diagnostics. I have seen cardiac caths, by-passes and joint replacements. These new things are expensive but well worth the cost.


But health spending grows from 1-1/2 to 4 times the rate of inflation, much more than would be explained by natural drivers, as we saw previously.


Fee for Service Payments

So, let’s look at the other reasons. First and foremost, to my way of thinking, is fee-for-service. Doctors in the US – unlike other countries where they are salaried – get paid for piecework. If a surgeon doesn’t operate, he doesn’t get paid. If a specialist doesn’t have a patient scheduled, HE doesn’t get paid. Money is a powerful incentive. So we should not be surprised if doctors increase their own volume of services, many times unconsciously.

Health Insurance Hides Cost

The next big reason is our health insurance. Until recently premiums were paid by the employer and out-of-pocket copays were minimal. Healthcare felt free to most of us. Most of us had no idea what our care was costing the system, and cared little. Talk about a perfect storm!

Imperfect Market 

Why didn’t market forces keep down costs and spending. Many politicians and reformers think competition as the simple solution to the healthcare cost problem. But economists will tell you that healthcare is not a pure market;  they refer to it as “imperfect.” The reasons are first that no one knows the true price of anything. Have you ever tried to sort out a hospital bill? Ridiculous!

Second, markets rely on buyer and seller having equal footing to negotiate, but most patients dare not quibble with their doctor. Doctors get their feathers ruffled when patients challenge their advice. Third, to make matters worse, patients are a “captive market” – they are often suffering, frightened for their life, and desperate for immediate relief, not exactly a strong bargaining position. Fourth, doctors can control demand. There’s an old joke about the level of eyesight loss that needs a cataract operation – if there’s one doctor in town it’s 20/100, if two doctors it’s 20/80 and if three doctors in town it’s only 20/60.

Administrative Costs

Next is administrative costs. Some economists estimate that up to ¼ of all health spending is for administration, not actual care. This is not surprising knowing how complicated we make our delivery system and financing system. Other countries have one delivery system and one payment system. US has 600,000 separate doctors, 5,500 separate hospitals, and 35 different insurance companies, not counting Medicare and Medicaid. Doctors used to drown in papers; now we spend up to 2 hours doing computer work for every hour of patient care. Don’t you love it?

For comparison, Medicare reports only 2% administrative costs (but some other costs are hidden elsewhere in government).

Inefficiency & Waste

Some other spending drivers include inefficiency. I include in this category unnecessary tests and treatments, as well as wasted effort due to incompatible computerized record systems – there are 632 separate electronics vendors in the US. If airports ran this way, each airline at each airport would have its own unique air traffic control computer that did not connect with each other. All in the name of free market.

Regards unnecessary treatments and procedures, a doctor at Dartmouth named John Wennberg pioneered using Big Data in the 1980s to look at numbers of prostate operations in each individual ZIP code, and found that surgeons in some regions were operating 13 times for often in highest areas than the lowest. Since prostate disease is relatively constant everywhere, this can only mean that doctors practice varies widely – the highest utilizers are doing too many operations.


Next is monopolies. Many small- and medium-sized towns and rural areas can only support one hospital. This creates monopolies with no market forces whatsoever to hold down charges.

Cost Shifting

Cost-shifting means that uninsured patients come to the ER for care. Since the ER doesn’t get paid, the ER shifts the Uninsured cost into the bill for INSURED and Medicare patients. The cost-shifting itself doesn’t increase the costs, but getting care in an ER instead of doctor’s office is the most expensive possible place for care.

New-Technology Policy

The FDA new-technology policy means that FDA rules say that it will approve any new drug or treatment if it shows even the slightest statistical benefit, no matter how small. Some cancer drugs are approved that extend life by only a few weeks. Some medicines are approved, even if the number needed to treat is 100. For example, for some new cholesterol medications, 100 patients need to be treated for 5 years before we see even 1 heart attack prevented. That’s a lot of patients, and a lot of doses, and a lot of dollars. By comparison, since half of appendicitis patients die without treatment, and almost all with appendectomy surgery survive and live happily ever after, the calculated number-needed-to-treat is only 2. So appendectomies are a good valued, but cholesterol medication (for otherwise healthy people) is questionable value.

Non-Costworthy Marginal Benefit

Here is another way of looking at value. As we go from left to right in this graph, we are spending more and more on health care. The more we spend, the higher the cumulative health benefit, at least to start. The first section (Roman number I) are very high value interventions like public health, sanitation, immunizations. The next section (Roman number II) are good value routine health treatments, including kidney dialysis and first-line chemotherapy for treatable cancers. But when we reach the third section (Roman number III), the benefits level off. Bypass surgery is less effective for older patients (and more risky); dying patients don’t survive in intensive care units and are miserable with tubes and futile breathing machines. If we spend even more we reach section Roman numeral IV in which no additional benefit is gained, just a lot of extra testing, treatments or drugs – these are wasted dollars. And if we keep spending more yet, we actually do more harm than good, and can even have deaths on the operating table or reactions to too many drugs. The US is well into section IV and in some cases section V. A lot of other richer countries think that they have already reached the point where spending more will give no benefit or possibly do more harm than good, even though they spend less than the US.


In the next episode we will look at the ramifications of so much health spending on the US economy, politics and society. We will look at some potential threats if we do not start to control costs better.

I’ll see your then.


Segment 4 – Healthcare Costs

Segment 4 – Healthcare Costs



This segment reviews the relentless growth of healthcare spending in the U.S.

In Segments 2 & 3, we looked at the history of medical care in the U.S. and the birth of employer-based health insurance, along with landmark enactment Medicare and Medicaid. We looked at failed healthcare reform initiatives. This history tells us how we got today’s remarkable advances in medical technology but lackluster health system performance overall.

In Segment 4, we will zero in on the perennial problem of rising costs. We will look at how healthcare costs have grown over time and how we compare to other countries.

Then in Segment 5 & 6, we will ask, why is healthcare so expensive in the US, and is it worth the money? And we will talk about the effects of exorbitant healthcare costs on politics, economy, society and even our future success as a nation.

I call healthcare costs the Real Problem.

Let’s start with a startling fact. Between 1999 and 2009 Americans’ productivity grew by 30%. According to a Rand study, average Americans’ total monthly compensation grew from $6,350 dollars to $8,260 dollars. But all this increase went into healthcarepremiums (shown in red), not into their paychecks (shown in blue).


Even though employers paid out more for the average American family, we felt no richer. The culprit was the health system.

Here are some more statistics that show the extent of the cost problem.

The first graph compares healthcare inflation (red bars) with general inflation (blue bars). Health care consistently outpaced general inflation, some times by a lot such as 2007, 2009 and 2015.


The next graph shows growth in healthcare spending as a percent of total gross domestic product. This graph goes up to 2014 at 17.4% of GDP. The figure for 2015 was 18%, for a total of 3.2 trillion dollars. This is one-sixth of the entire US economy, directly employing one of every 9 workers, according to NY Times.


Let’s compare the US with other countries. This first graph shows that in developed countries, health spending goes up as income goes up, until income reaches $100,000 and then levels off. Except in the US, where we spend an inordinate amount on healthcare.


Here are the totals for developed countries – blue for public spending and red for private. US is on the left, head and shoulders above the rest.


So, what are the repercussions of all this healthcare spending?

We already talked about its effect on paychecks. Healthcare also adds to the cost of goods; for example GM says that healthcare adds 1500 to 2000 dollars to the cost of every automobile in the showroom. This affects both the consumer but also corporate bottom lines. It is also affecting budgets of state and local governments, including pension fund health costs.


Health costs have also taken an increasing chunk of federal spending, growing from around 7% after Medicare was passed in 1965 to almost 29% now of the entire federal budget. It competes with defense, education, and infrastructure.


Why are costs so high? And why so much more in the US than in other countries? The answer is a perfect storm of bad reasons.

We will cover these in Segment 5. I’ll see you then.



A review of health care costs: deck chairs and the Titanic, part 1

Related image

This article is Part I of a two-part series on the cost of health care and its component parts. Part I explores the recent growth of health care costs in the United States as well as the utilization inputs in the cost equation.

Part II will break down the pricing component of cost, determined by market leverage and the cost of delivering services. 


If you ask policymakers, industry leaders, and health care consumers, many will tell you that their number one concern with health care today is the cost.

For the most part, as a society we’ve moved past the days when access or quality were of primary concern to stakeholders. I would wager it’s not because those issues aren’t important.  Everyone knows we have wild challenges still with access and quality.

Rather, the acuity of the cost problem has risen so much, so quickly, that cost as an issue overshadows everything else.

This is a big topic, but it’s not really that hard to understand. Health care costs are actually a simple story.

There are only two categories of health care costs in America today. There are the deck chairs, and there is the Titanic.

Context matters, so let’s start there

Here’s one data point, but it’s largely the same point everywhere you look in health care.

These are average annual premiums for single and family coverage in the employer-based market. Those costs have doubled in the last 14 years, reflecting an average annual growth rate of roughly 5 percent since 2004.



Here’s another data point. According to CMS in an article in Health Affairs, “health care spending growth averaged 4.3 percent per year during 2008–17, compared to an average annual rate of 7.3 percent over the 1998–2007 period.” That might seem like costs are slowing, but it’s not the whole story.

Remember the “Great Recession?” It was the period of time when the economy almost fell apart. So, measuring health care spending growth should be done within some context of the overall economy.

For this, we can use a standard inflation calculator of the overall economy to compare its growth to the growth of health care costs. When viewed this way, health care inflation grew at a multiple of 2.7x the broader economy’s inflation rate between 1998-2007 and a multiple of 3.0x during 2008-2017.

So, not only are costs high in health care today, but they are growing faster than ever compared to overall inflation in the US economy.


Moving around the Titanic’s deck chairs

Let’s explore this metaphor a bit.

The Titanic is a big ship with a big deck. And so there are lots and lots of deck chairs to move around. And moving them around can cause authentic improvement to the quality of the experience.

A view out over the bow at a setting sun is a much better view than the one provided by a chair facing the steam funnel. Sometimes, chairs facing other chairs can foster comity and community through conversation. Sometimes, having alone time to ponder the stars in the night sky from the ship deck is nice.

How the chairs are deployed has a meaningful impact on the user’s experience of sailing on the Titanic.

I run with this analogy because there are a lot of things we do in health care today that meaningfully improve the experience, outcome and cost of health care.

You can probably name 10 such efforts without blinking an eye: improved care coordination, tele-health, community health workers, shared risk payment methods, integration of behavioral health, access to oral health, strong vaccination standards, online forums for shared patient experiences, good bedside manners, etc., etc.

All of these initiatives, as well as others, improve care and the user experience. They all can address cost in various ways, too. They can reduce hospital utilization, allow patients to access care remotely, reduce re-admissions or complications from drug interactions. There is a lot to like here that is meaningful and worth our time as a society to implement.

Put differently, in the cost equation where total health care cost equals utilization times prices (THC = U x P), I would categorize these initiatives as part of the utilization input of the cost equation. All of these initiatives address how we access and use health care in our system today.

But, at the end of the day, these are deck chairs.



Health care spending is more than just the parts you see

Illustration of a red cross spinning to reveal money

People focus on the health costs that are most tangible and sometimes outrageous to them: their deductibles, and drug costs, and surprise medical bills, and the annual increase in the share of the premium they pay. But there’s more that gets less attention because it’s not as visible to them.

Why it matters: To really understand how Medicare for All or any other big change in health care financing would affect them, people need to understand how they would impact their overall family health budgets. Few people think about the other health costs they pay: their taxes to support health care, or what their employers are paying towards premiums (which is depressing their wages).

Between the lines: Consider this hypothetical example of a total family health “budget”:

  • The Browns, a family of four with at least one member in poor health and a $50,000 income, have standard employer coverage much like 156 million other Americans. They spend $9,250 per year (19% of their income) on health.
  • This includes $3,950 (8% of their income) in out-of-pocket health spending, $3,900 (8% of their income) in health insurance premiums, and, although they are almost certainly not aware of it, approximately $1,400 (3% of their income) in state and federal taxes that fund health programs.
  • The Browns are not taxed on the contributions their employer makes toward health insurance premiums, which economists generally say offset wages. Their employer is contributing an additional $13,050 to their health insurance premiums, as well as $750 in Medicare payroll taxes.
  • When combined, the Brown’s spending on health care and the money spent by their employer on their behalf totals a considerable $23,050. And remember, they make $50,000.

A few ideas that could help people learn more about their health total care spending and how reform proposals might affect their health spending:

  • The IRS and states could include a simple pie chart on everyone’s tax forms, showing taxpayers where their tax dollars go today.
  • Along with estimating the impact of health reform legislation on the federal budget, or the number of uninsured, the CBO could estimate its impact on typical family budgets, taking into account all of the forms of health spending families have today. Organizations like ours could do this as well.

What to watch: This could be particularly important when analyzing Medicare for All proposals, since they would so significantly alter the financing of health care by shifting it from premiums and out-of-pocket costs to taxes.

  • A Medicare for All plan would likely reduce what the nation spends on health care by lowering payment rates to providers and creating administrative efficiencies. The average family would likely pay less, but how much is hard to say without more details.
  • However, by changing the financing so significantly, there would likely be both winners and losers. Low-income people and sick people might pay less, and higher-income people and those who are healthy could pay more.

The bottom line: We can only get a clear picture of how family finances would be affected by Medicare for All, or any other significant overhaul of the health care system, by looking at the totality of what they pay now.