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An odd feature of American life in the last few decades has been the tendency, especially among the “best and brightest,” to focus not on hands-on production, whether it be of automobiles, homes, or health care, but on “derivatives” of production—the manipulation of symbols that has become the essence of finance, from securitized auto loans and subprime mortgages to high-deductible or “public-option” health insurance policies. Yet we have now reached the moment when continuing the conflation of finance with production—and particularly of health-care finance with health care itself—has played out about as far as it can.

  After decades of denial, here is the fiscal reality the United States now faces. Just the projected increase in the cost of Medicare and Medicaid over the next twenty years is equivalent to doubling the Pentagon’s current budget, and there is no end in sight after that. We wouldn’t even face a structural deficit, much less have to endure downgrading of the nation’s credit rating, were it not for the soaring cost of health care. By contrast, Social Security will rise only gradually, from 4.8 percent of GDP to 6.1 percent in 2035, and then taper off as the large baby boom generation passes.8 Meanwhile, according to the same CBO projection, all other government programs—the military, the courts, farm subsidies, Amtrak, unemployment insurance, infrastructure spending, education, and others—are on course to shrink dramatically as a share of the economy, from 12.3 percent of GDP in 2011 to 8.5 percent in 2035.9 As others have observed, the federal government is not so gradually being transformed into a giant—and insolvent—health insurance company.

  This reality explains why both parties, despite their deep differences, have proposed cuts in Medicare so drastic that they would have been politically suicidal a decade ago. The Democrats may decry Republican attempts to “end Medicare as we know it,” but in their own way they are bent on doing the same thing. “With an aging population and rising health care costs, we are spending too fast to sustain the program,” the president told a joint session of Congress in 2011. As part of his deficit reduction plan, he has proposed $248 billion in Medicare savings over the next ten years.10 These include higher co-pays for many beneficiaries and steep cuts in payments to providers—as much as 30 percent for physicians starting in 2012.11 If you think Obama and the Democrats are bluffing, consider that “Obamacare” comes with hundreds of millions in Medicare cuts and includes a mechanism that could cut vastly more. The president has since signaled that he would be willing to support even more cuts in Medicare, provided that taxes on the rich are raised at the same time.

  Why are both parties declaring war on Medicare when both know that it could lead to their own political annihilation? The reason is simple. Sure, both Democrats and Republicans fear the wrath of the AARP and the exploding ranks of hard-pressed seniors—to say nothing of lobbies like the American Hospital Association. But Medicare’s relentless squeeze on the budget seems to party leaders to give them no choice but to attack the program’s spending regardless of the political cost. Medicare’s ever-expanding claims on the Treasury threatens to crowd out nearly every other priority on either party’s agenda, from bullet trains and decent public schools, to, yes, avoiding future tax increases and draconian cuts in the military.

  Underscoring how desperate the situation has become, both parties are incurring these risks without either of them having a plan likely to produce anything but more pain for themselves and the public. Turning Medicare into a voucher program, for example, surely would save the government money. But the primary effect would be to shift health-care cost away from government and on to seriously ill individuals and their families. Nor would the plan do anything to improve the appallingly poor quality of health care received by Medicare beneficiaries. According to a study conducted by Medicare’s Office of Inspector General, every month 15,000 Medicare beneficiaries are victims of medical errors that contribute to their death.12 Another 8,000 a year do not survive hospital-acquired bloodstream infections,13 which the VA and other well-managed health-care systems have shown are largely preventable.14 It’s hard to see how forcing Medicare patients to have more “skin in the game” will save them from being victimized by sloppy, dangerous, money-driven medicine, except by pricing more seniors out of access to infectious hospitals and the often fatal reach of money-chasing doctors.

  Raising the Medicare retirement age to age 67, as Obama has hinted he is considering and as many Republicans support as well, might at first seem to be a reasonable adjustment. Since we are all living much longer, so goes the common thought, we can afford to wait longer to become entitled to Medicare. But the premise is false. For fully half of the U.S. population (specifically the poor and working-class Americans with earnings at or below the median), life expectancy at 65 is virtually unchanged since the 1970s.15 In many parts of the country, including much of the South, life expectancy at birth for black males is not yet even 65, and in places it is as low as 59.16

  As with plans to “voucherize” Medicare, the primary effect of increasing the Medicare retirement age would be to shift the cost onto needy individuals while also leading to worse health outcomes. Nor in the grander scheme of things would the proposal save the government much money, since most Medicare spending is concentrated on people well over age 67, and since many of the people who would be cut from the Medicare rolls would wind up on Medicaid or qualifying for other means-tested government subsidies. The Kaiser Family Foundation estimates that if the proposal were fully in effect in 2014 it would generate only about $5.7 billion in net federal savings but impose twice as much cost ($11.4 billion) on individuals, employers, and states.17

  Then we have the proposal generally most favored by mainstream Democrats: cutting back on reimbursement rates for Medicare providers. To be sure, reimbursement rates need to be adjusted; Medicare pays far too much for many procedures of dubious value. Overpaying cardiologists relative to other providers, for example, creates too many cardiologists and not enough family doctors. And in the process, it also generates egregious rates of unnecessary and often harmful heart operations, such as a million stents a year placed in patients whose heart conditions would be better treated with drugs, as has been scientifically established for years.18 By overpaying radiologists, Medicare fuels the unconscionable overuse of redundant scans that have little or no medical value and that expose individuals to dangerous levels of radiation.19 But experience has shown that cutting back reimbursement rates doesn’t necessarily save money, let alone improve quality, so long as profit-maximizing providers remain free to game the system.

  For example, after Medicare began restricting, beginning in the in mid-1980s, the amount it would pay for specific procedures, many providers responded simply by “making it up on volume,” that is by increasing the number of unnecessary tests and surgeries they performed. Often this takes the form of “upcoding”—the now massive phenomenon in which doctors diagnose patients as being sicker than they actually are so as to make more money on treating each one.20 Simply cutting prices in regions where Medicare spending is high due to overtreatment “will only cause providers in those regions to deliver more services,” notes Dr. Elliott S. Fisher, director of the Center for Health Policy Research at Dartmouth Medical School.21 Worse, cutting reimbursement rates, particularly if done crudely across the board, will create shortages of doctors who are willing to accept Medicare patients, and especially of vitally needed primary care doctors who are already poorly compensated and in short supply.

  At this point, defenders of “Obamacare” will be quick to assert that they have engineered solutions to these problems: First they will point out that the Affordable Care Act creates a so-called Independent Payment Advisory Board (IPAB), which is designed to be the new mechanism for determining how much Medicare will pay for different procedures. In theory, the board could end the grip that high-paid specialists like cardiologists and radiologists have over the process now and could direct more resources to primary care physicians. But Republicans are gunning to kill the board with the usual talk
of “death panels,” and more than a few Democrats are also conspiring to snuff it out.22 Even if it survives, there is a high probability that it will be captured by specialists and their allies among medical device manufacturers. Moreover, the bottom-line mission of the new board is not to improve the quality of care paid for by Medicare, but to keep the per capita growth in Medicare spending far below its historical average. Starting in 2015, Congress must either accept IPAB’s recommendations or come up with equivalent cuts of its own. Given the magnitude of the cuts that would be required in the absence of vast improvements in the overall efficiency of the U.S. health-care system, there is a serious possibility of creating severe shortages of physicians who will take Medicare patients.

  But not to worry, say defenders of Obamacare; we’ve got a plan for that, too. Enter “accountable care organizations” (ACO). Just what are they? It’s hard to say, since the language of the bill on this subject is so vague. An essential feature though, is that an ACO is an institution that contracts with Medicare to serve a specific population and promises to deliver specific quality metrics, such as keeping its infection rates down or offering primary care services to patients. In return, it receives the right to retain a large share of any resulting savings.

  So far, ACO pilot programs have proven disappointing, producing little if any savings.23 And there are good reasons to believe that most ACOs will never deliver the quality and cost effectiveness of a truly integrated, nonprofit health-care system like the Mayo Clinic or the VA. Under the merged regulations, there is nothing to prevent ACOs from being just loose networks of colluding, profit-driven, fee-for-service providers who go through the motions of pursuing quality.24 Even stalwart defenders of ACOs now acknowledge their large potential for abuse. As Donald Berwick, the former administrator for the Centers of Medicare and Medicaid Services, recently told a forum at the Brookings Institution: “There will be parties out there who want to repackage what they do and call it an ACO.”

  Berwick went on to warn, as have many others, that many ACOs are likely be effective monopolies in their local markets, given the massive consolidation already going on in the health-care industry. This means they will be tempted to abuse their market power, for example, by raising their rates for non-Medicare patients. This “would ultimately undermine any short-term savings achieved by Medicare,” notes Merrill Goozner of the Fiscal Times, “since increases in a region’s top line health care tab would eventually force Medicare to raise its own rates.”25

  Even if all these and other pitfalls of ACOs are avoided, there still remains an objection that no one can rebut. Any benefit ACOs might bring will at best be only gradual. Unless a more immediate and certain reform is applied, most of the Medicare population will continue to be treated—for years, if not decades to come—by a system that remains deeply fragmented, wasteful, and dangerous, fee-for-service care, the cost of which everyone now agrees is unsustainable. We can and must do better.

  There is a better way. It starts with a question we should have been asking more forcefully all along: Why is the practice of medicine in the United States so widely and spectacularly wasteful, dangerous, and corrupt, and what hands-on, proven models do we have for fixing it?

  In updating the statistics for this edition, I have been reminded again and again of the continuing breakdown of day-to-day medical practice in the United States: the extraordinary levels of unnecessary and often harmful treatments; the high rates of medical errors and of preventable hospital infections; the neglect of prevention, of primary care, of patient safety, of coordination among specialists, of basic research on what works and what doesn’t, of investment in simple health information technology for purposes beyond billing.

  It all brings to mind a concept that encapsulates all these and other baleful trends in our health-care delivery system: iatrogenesis. The term, derived from the ancient Greek, refers to death and suffering caused by poor medical treatment or advice. Today, iatrogenesis includes unnecessary surgery, medical errors, hospital-acquired infections, and the prescribing of unsafe drugs or unsafe combinations of drugs. According to an estimate published in the Journal of the American Medical Association, such iatrogenic practices minimally kill 225,000 Americans per year. This makes contact with the American health system the third-largest cause of death in the United States, following all heart disease and all cancers.26

  Moreover, a fair accounting of iatrogenic medicine must also include the less quantifiable but nonetheless undeniable illness and suffering induced by wasteful spending on health care itself, whether that spending is borne by individuals or society as a whole. As previously mentioned, numerous studies confirm that the United States spends about $700 billion a year on unnecessary and often harmful care. That’s $56 billion more than total federal spending in 2009 for Social Security, a program that, along with many others, may well wind up being cut due to the soaring cost of health care, much of which isn’t needed and is often lethal.

  A nation spending that much on wasteful medical procedures is also a nation that necessarily spends less than it otherwise could on reducing the major social and economic determinants of illness. These include unemployment, lack of education, pollution, addiction, poor nutrition, and strains between work and family life. It’s also a nation in which the majority of citizens must accept falling or stagnant real wages, as the cost of premiums for private health-care insurance vastly outstrips, year after year, even the substantial improvements the United States has made in worker productivity. We work harder and smarter, but have less take-home pay, due overwhelmingly to the rising cost of health care. Whether today’s U.S. health-care system is, on balance, iatrogenic—that is, contributing, directly and indirectly, to more illness than it cures—cannot be conclusively demonstrated. But it is at least a possibility, and one that becomes increasingly certain given current trends.

  So the moment comes when we must move beyond the realm of mere health-care finance and be as empirical as we can about what does and does not work in the delivery of health care and promotion of public health. The VA system is hardly a perfect model for a delivery system reform, and replicating its performance in the private sector presents many challenges. Yet its comparative effectiveness should be examined and explained if we are to have any hope of building a health-care system that is not itself a major cause of death, suffering, impoverishment, and national decline.

  By all rights, after all, the VA should offer the worst care anywhere: it’s a gigantic, unionized bureaucracy, micromanaged by Congress and political appointees, and beset by an uncertain budget, an aging infrastructure, and a legacy of scandal. That it nonetheless now outperforms the rest of the U.S. health-care system, on metrics ranging from patient satisfaction to cost-effectiveness and the use of evidence-based medicine, suggests that much of what we think we know about health care simply isn’t true.

  The VA’s long-term relationship with its patients, it turns out, more than makes up for its built-in institutional liabilities, as do other key features that we ignore at our peril, such as its being staffed by salaried, medical professionals who, by self-selection, are not “in it for the money.” I offer this third edition of Best Care Anywhere in the belief that the moment is finally upon us when, due to the extremity of our economic and fiscal challenges and the exhaustion of alternative approaches, acting on the lessons of the VA is becoming not just a national necessity but also politically possible.

  December 2011

  Washington DC

  Introduction

  Some years ago, Fortune magazine summoned me to New York for a sumptuous lunch and a serious discussion. At the end of the meal, I found myself with a plum, but difficult, freelance assignment. It was no less than to figure out who had the best solutions for America’s health-care crisis, and to write them up in snappy prose that would make the story a “must read” for the country’s business elite. What the magazine had in mind, I think, was that I find some dynamic, change-artist CEO who was doing fo
r health care what Andrew Grove had once done for Intel or what Jack Welch had done for General Electric.

  I accepted these marching orders with much trepidation but also great curiosity and passion. The biggest reason was personal. Five years before, I had lost my wife, Robin, to breast cancer. I never blamed her doctors for her death. But what I saw of the American health-care system during the ten months between her diagnosis and demise had caused me to stop regarding health care as a mere abstraction. I had become personally engaged in the question of how the American health-care system actually worked or, all too often, didn’t work.

  Robin was treated at the prestigious Lombardi Cancer Center, part of Georgetown University’s hospital, in upscale northwest Washington DC. Every time she and I entered the facility through its posh lobby, we passed a poster-sized blowup, mounted on an easel, of a recent cover of U.S. News & World Report that ranked Lombardi as one of the best cancer treatment centers in the country. Since I worked at U.S. News at the time and respected the team responsible for these annual rankings, this was particularly reassuring.

  Robin and I both felt blessed that our gold-plated insurance allowed us unfettered access to all the doctors and specialists we would care to see and that we lived within just a short drive of Lombardi’s world-class facilities. I particularly remember Robin saying how grateful she was that we hadn’t chosen to try to save money by enrolling with an HMO. We were lucky yuppies, and we knew it.

  Yet the more time we spent in the Lombardi Center and Georgetown Hospital, the more I was disturbed by the way they managed “the little things.” On the day Robin underwent her lumpectomy, for example, I had to explain to her afterward as best I could why I wasn’t there to offer her support and comfort when she awoke. The reason, though hard for both of us to believe at the time, was that no one in the hospital could tell me, despite my increasingly frantic inquiries, where she was. I had imagined that every hospital, particularly a prestigious one attached to a major university in the nation’s capital, operated with advanced information technology systems that kept track of every patient’s location and condition. Not true, it turns out.