A Public Dialogue on the Future of Medicare

Will It Be There for Baby Boomers When They Hit 65?

Stanford Linear Accelerator Center Auditorium, Menlo Park, California Saturday, October 17, 1998, 9:00 am to 1:00 pm

The program included speeches by the expert guests followed by a question and answer period. This file contains the speeches.

Speakers.  Welcome.  Intro of Bodenheimer.  Bodenheimer.  Intro of Morrison.  Morrison.  Intro of Van Etten.  Van Etten.  Comments on Van Etten.  Intro of Sillen.  Sillen.  Comments on Sillen.  Intro of Singer.  Singer.  Comments on Singer.  Intro of Young.  Young.  Comments on Young.  Intro of Britton.  Britton.  Thank You.

Distinguished Panel of Speakers

• Thomas Bodenheimer, M.D., MPH, Keynote Speaker
• Ian Morrison, Ph.D., Moderator
• Robert Sillen, MPH
• Peter Van Etten, MBA
• Sara Singer, MBA
• Quentin Young, M.D.
• Melvin C. Britton, M.D.

Welcome (Carol Watts)

Good morning everyone! The League of Women Voters welcomes all of you to an exciting program on the "Future of Medicare". I am Carol Watts and I am the president of the Los Altos/Mountain View League of Women Voters. I am glad to be the hostess for this meeting this morning.

Our local league, through our Health Policy consultant, Shirley Rich, received a grant from our National Organization, the League of Women Voters Education Fund to produce this public meeting. The League and the Kaiser Family Foundation have teamed together to sponsor this event and many others because they both strongly believe that a public voice should be heard on this critically important issue on the future of Medicare.

The League encourages the informed and active participation of citizens in government. It influences public policy through education. Its education fund is a non-profit, tax deductible organization. The League neither supports nor opposes candidates for public office or political parties. The Henry J. Kaiser Family Foundation is a national health care philanthropic organization, not affiliated with Kaiser Permanente or Kaiser Industries.

The League's education fund and the Kaiser Family Foundation are sponsoring a total of ten public meetings around the nation in October and November and you are attending the very first one. We are also scheduling over 300 community dialogues. These are small group discussions that will be led by League members and we will have some in this geographical area also. Why is this being done? Again, because we strongly believe that citizens should have a say in whether and how the Medicare program is changed.

To that end, this meeting is designed as educational to provide all of us with an opportunity to get answers to questions from experts who represent diverse view points. We invite you to express your views later in the program. All of you will have an opportunity to come forward and ask questions or to express your views.

At the end of this meeting, we are also going to ask you to fill out a questionnaire which is in your packet. This questionnaire will be sent to our National League and compiled with all of the other questionnaires that will be given throughout the ten public meetings and the 300 community dialogues. This will then be presented as a report to the National Bipartisan Commission on the future of Medicare, which you will hear more about in this program. This report will be submitted in January so this is a very fast effort. The League and the Kaiser Family Foundation want to hear your voice.

I wanted to announce that we have a guest that I want to introduce to you day. We have Laura Blaisdell from our League US organization. Of course our most honored guests are on our program and you will be meeting them throughout the program.

This program is being taped by Channel 6, the public access station in Palo Alto. It is taping from now until noon. This program then, could be rebroadcast. Also, we are going to have copies of the videotape which could be made available.

This is a very full schedule today. We have some timers who are sitting in the front of the room. Jackie Jacobberger and Irene Sampson will be timing all speakers. Please consider them your friends. This is just to keep everyone on schedule so you will know how much time is left. The timing will also apply to people when we are asking questions.

Introduction of Dr. Thomas Bodenheimer (Carol Watts)

Getting right on with our program, we are very honored to present to you this morning our keynote speaker, Dr. Thomas Bodenheimer. He is a physician in internal medicine in private group practice and has been since 1980. For the last eight years he has also been a Clinical Professor in the Department of Family and Community at the University of California, San Francisco School of Medicine. He is a graduate of Harvard College and Harvard Medical School and he has received a master of public health from the University of California in Berkeley. Earlier in his career he was a physician to the Peace Corp in Costa Rica. He is also a physician to the South of Market Health Center. Dr. Bodenheimer teachers medical ethics and health policy to first year students at the UCSF School of Medicine as well as courses in clinical medicine. He lectures frequently on national health policy and has written several articles on health policy including "The Oregon Plan, Lessons for the Nation", and the "HMO Backlash, Righteous or Reactionary". Both of these were published in the New England Journal of Medicine.

It is my pleasure to introduce to you Dr. Thomas Bodenheimer. (Applause)

DR. THOMAS BODENHEIMER, M.D., M.P.H.

[Internal Medicine/Geriatrics, Clinical Professor, Dept. of Family & Community Medicine, UCSF] Good morning! As everyone here knows, Medicare is a great program. It has its strengths and its weaknesses but overall, it has provided health security for tens of millions of elderly and disabled people and their families. It has also helped add five years to our life expectancy. However, Medicare is now in some financial trouble. What trouble is that? Short term, the Medicare Part A Hospital Insurance Trust Fund will have its income fall below its expenses after the year 2007. Long term, the number of working people paying into the trust fund is falling in proportion to the number of elderly persons whose care is paid by the trust fund. So a refinancing plan for Medicare is needed. It is not a crisis, but it is a problem.

There are two approaches to solving this fiscal problem. One is to build on the strength of the program, eliminate its weaknesses, and fix its financing. Unfortunately, what I see happening is many politicians and private corporate interests who want to radically change Medicare from a social insurance program for the elderly and the disabled into a welfare program for the insurance industry. (applause) And I would say that Medicare at this point is under attack. And I am going to spend most of time describing this attack and then discuss the solution. There are two prongs to this attack. One has happened already, and the other is about to come. The first prong of the attack on Medicare was the Balanced Budget Act of 1997. And I want to say a few things about it. The Balanced Budget Act reduced Medicare budget growth by almost four hundred billion dollars over ten years. That is a lot of money. Now some of this was warranted and helped to alleviate Medicare's financial troubles. But some of the cuts will hurt the elderly and the disabled and I want to give a couple of examples.

Many Medicare HMO's will be getting less money as a result of the Balanced Budget Act. Now in one way that is good. The HMO's were making big profits and were paying their CEO's millions of dollars. But what do for-profit-HMO's do when the government reduces their payments? They cut benefits to their patients! I have many patients in my practice in Medicare HMO's. They used to get many prescription drugs for only $6.00, a very good deal. But this year, at least one Medicare HMO started charging patients $25.00 per month for many medications. I have patients who are now paying $900.00 a year for just three medications. This same HMO that made this cut back has a CEO who earned $1.7 million dollars last year plus a stock option package of $33,000,000.

Another example of the Balanced Budget Act hurting the elderly--the Part B premium. Almost all Medicare beneficiaries, as many of you know, choose to pay a premium for physician services under Medicare. When Medicare began in 1966 that premium was only $3.00 a month. Now it is over $40.00 a month and the Balanced Budget Act will increase it greatly. In the year 2007 the monthly premium will be $105 every single month. By that year, the average Medicare beneficiary will be spending almost 28% of income on out-of-pocket health care costs. Another problem created by the Balanced Budget Act of 1997 that really weakens the Medicare program is medical savings accounts. Now if you sign up for a medical savings account, Medicare pays something like $5,000 for a high deductible private insurance policy plus a bank account to pay for some of your costs not covered by insurance. The insurance deductibles are very high, up to $6,000 a year. That means nothing from the insurance company until you have spent $6,000. So people who are sick aren't going to want medical savings accounts.

So what does that mean for the Medicare program? This is an important point and I will try to make it as simple as I can. 90% of Medicare beneficiaries, those who are fairly healthy, cost the Medicare program about $1,700 per person per year. That's not much--$1,700. But when that healthy person who used to cost the Medicare program $1,700 gets a medical savings account, suddenly that person costs Medicare $5,000 a year. Medical savings accounts are expected to lose for the Medicare program, billions of dollars over the next number of years. Most of that money will go to insurance companies. Now why did Congress, trying to balance the budget, enact a program that costs more, rather than less? Is there a logical explanation? Well, yes there is! Insurance company lobbying and campaign contributions!

Now I want to move on to the next prong of attack on Medicare, which is the National Bipartisan Commission on the Future of Medicare. This commission, which looks as though it is dominated by a budget cutting outlook, is supposed to come up with a report in March 1999. If it produces a budget cutting report as expected and if conservatives control the White House and Congress after the year 2000, Medicare could be drastically altered for the worse. And I want to speak to two matters which the Medicare Commission is likely to recommend. First, raising the eligibility age for Medicare to age 67. That would be a national humiliation. Many people, retiring before age 67, unable to afford private health insurance, would become uninsured at an age of high risk for serious illness. A second likely recommendation of the Medicare Commission: turning Medicare into a voucher system. Now what is a voucher system?

Currently Medicare guarantees a defined set of services--hospital care, physician care, lab and x-rays, some home health services. It doesn't matter how much these things cost, they are guaranteed. A voucher program does not guarantee a defined set of services. It guarantees a sum of money. Rather than getting a red, white, and blue card, you receive a voucher, let's say for $5,000, to buy private health insurance. Now why do so many health policy makers, conservatives and a number of liberals, advocate for some form of voucher system? It is because a voucher system gives the government total control over the Medicare budget. It budgets the number of people on Medicare, multiplied by the amount of each voucher. So there are about 40 million people on Medicare times $5,000, let's say for the voucher equals 200 billion dollars which is approximately what the Medicare program costs. If Congress wants to increase the budget by say, just 2% in a year, it can very easily do so by how much it raises or does not raise the value of the voucher. So vouchers are really great for budget balancers but let's see what they are like for most Medicare beneficiaries.

Let's say that you are 75 years of age, it's the year 2007, and say the voucher at that point is worth $6,000. And lets assume that the only private health insurance policy you can buy for $6,000 has a $4,000 deductible and doesn't cover medications. And let's say that your income, like 54% of Medicare beneficiaries, is below $15,000 a year. Well, you just hope that you don't get sick! Because how are you going to afford the $4,000 deductible? In fact, if you are sick, your out-of-pocket expenses will include the payment for the Part B premium which is $1,260 a year, your insurance deductible of $4,000 and perhaps another $2,000 for medications. That's a yearly out-of-pocket cost of over $7,000, or 48% of your $15,000 income.

The other thing is, what will the voucher marketplace be like for Medicare beneficiaries, many of whom have vision problems, memory problems or don't speak English? How many of you remember Medi-Gap plans--private insurance policies to fill in the gaps in the Medicare program? A 1989 congressional committee found that half of these Medi-Gap policies paid less than 50 cents on the dollar for health care, keeping the rest for administrative costs and profits. This congressional committee also found that millions of elderly people were duped by aggressive insurance brokers into buying insurance that is not in their best interest. The voucher system could bring us back into those dark ages. The voucher system is in essence a welfare program for the insurance industry. Billions will be wasted and the elderly will be hurt.

Well now you know what I mean when I say Medicare is under attack. So what do we do about it? In my opinion, we do the opposite of what the Medicare commission will probably recommend. We protect, we improve and we expand Medicare. Let me make three points.

1. Do not reduce the benefits, increase them. Medicare should cover prescription drugs and long term care services. (Applause)

2. Do not increase out-of-pocket costs through a voucher program, reduce them. Out-of-pocket costs are devastating for people who are sick and poor.

3. Do not raise the eligibility age to age 67, lower it. I am frankly embarrassed to live in a country that allows 42 million people to be without a basic human right which is good health insurance. (Applause)

If we expand Medicare by lowering the eligibility age and eventually cover every one under Medicare, we can solve some of Medicare's problems and finally provide health insurance to all Americans. Now at this point, probably everyone in the room thinks that I reside on another planet or something. Here I tell you Medicare has financial problems yet all you hear me say is more services, more people in the program, and less out-of-pocket costs. Am I crazy or what? Well, I am not crazy. There are two ways that our nation can easily afford an improved and expanded Medicare. First is to reduce the inflation costs of the entire health care system and second is to raise taxes.

Reducing costs! The best way to reduce costs and health care inflation is to place a budget on the entire health care system. Not just a budget for Medicare, but a budget for the entire system for all 270 million Americans. Americans would not receive vouchers, we would all receive our red, white, and blue card, giving us access to services. But with a unified health care budget, it is possible to eliminate much of the waste in health care. According to the U.S. General Accounting Office, a universal Medicare program could reduce insurance administrative costs by 30 to 50 billion dollars each year. Data from UCLA professor Robert Brooks suggests that we could reduce wasteful medical costs by another 50 billion dollars. Budgeting the health care system works. Other countries are doing it. But it requires that everyone in the country be in the same program. Otherwise, costs are simply shifted from one program to another.

Raising taxes! Let's just face it. We are privileged to live longer, and live healthier than we ever did before-and you don't get something for nothing. We should pay for this privilege. But the payments should be fair, not targeting the sick and the poor. Remember, Medicare's financial problems are not economic problems. They are political problems. If all Americans are in the Medicare program and see the benefits to them right now, they will support the program fiscally. Currently, the younger age group pays but doesn't immediately benefit. And if we leave the Medicare program only for the elderly and disabled, there won't be enough working people to pay for those who are no longer working. So the way to solve that problem is to put everyone in the program so that younger people don't feel that they are paying for something that they are not getting right now. (Applause)

So how are we going to finance a universal Medicare program? I want to make five points.

1. Use the Federal budget surplus. This year the surplus is 70 billion dollars, though it looks like in the paper this morning it's not quite 70 billion anymore. By the year 2007, the Congressional Budget Office forecasts a surplus of 200 billion dollars. Now we have to be careful with this surplus. Because most of it is needed to keep Social Security afloat. It a recession comes, the surplus is going to shrink. But there should be some money there to help.

2. Raise the payroll tax. The medicare payroll tax has remained unchanged since 1985. If we raise the payroll tax by 1.05 percentage points for employers and employees, we could make the Medicare Part A hospital insurance trust fund solvent for the next 75 years. For the average worker, this would mean an increase of $315 dollars a year. That's a small price to pay for 75 years of health care.

3. Reduce the wasteful military budget. According to Lawrence Korb writing recently in the New York Times (he was former Assistant Secretary of Defense in the Reagan Administration), the military budget is climbing in the face of massive waste by the Pentagon and its military contractors. Let's transfer some of this money to Medicare.

4. Make the wealthy pay their fair share of taxes. According to the New York Times, 2,400 people earning over $200,000 a year paid no taxes in 1993 and that number is growing each year. The average compensation of large corporate CEO's was 8.7 million dollars in 1997 and that was up 38% from 1996. How many of you got a raise of 38% in one year? Yet taxes for higher income brackets have declined. Look at the Tax Payer Relief Act of 1997. For each $1.00 of tax relief going to the bottom 80% of families, the wealthiest 1% got $1,200 in tax relief.

5. The fifth point about financing universal Medicare. How do we finance Medicare expansion to younger age groups? It's not that difficult. Employer and employee payments now going to private insurers and HMO's plus Medicaid payments will simply be redirected to the Medicare program. How about the uninsured? The Congressional Budget Office estimates that under universal Medicare, administrative savings from private insurance can finance care for the uninsured. Will Americans accept tax increases to support health care? According to a recent Wall Street Journal poll, almost half the public is willing to pay $2,000 extra per year to guarantee universal access to health care. Now if each American family paid an average of $2,000 a year, we'd have over one hundred billion extra dollars every year. That's a lot of money! In another poll, 52% said they would pay higher taxes to preserve or increase the current level of Medicare benefits. All we need is some political leadership.

   To conclude, we have the opportunity to improve Medicare and to expand Medicare-both to stabilize the Medicare program financially and to eliminate the scourge of uninsurance from our country. The campaign to protect, improve, and expand Medicare has drafted a petition that I hope everyone here will sign and will widely circulate. The public must raise its voice on this life and death issue.

   Thank you so much for listening.

Introduction of Ian Morrison (Carol Watts)

Thank you very much, Dr. Bodenheimer. Now we're going to move to the next part of our program.

Our moderator today is Ian Morrison. Ian Morrison is an internationally known author, consultant and speaker specializing in long term forecasting and planning with particular emphasis on health care and the changing business environment. He combines research and consulting skills with an incisive Scottish wit to help the public and private organizations plan their longer term future.

Ian has worked with more than 100 Fortune 500 companies in health care, manufacturing, information technology, and financial services. He is retained by Anderson Consulting as Chairman of their Health Futures Forum. Ian is also a senior fellow at the Institute for the Future and its former president. He led the Institute's part in health care outlook, an ongoing forecasting service for clients in the health care industry along with some other joint venture partners.

He holds an interdisciplinary Ph.D. in Urban Studies from the University of British Columbia, an M.A. in Geography from the University of Edinburgh, Scotland, and a graduate degree in Urban Planning. Quite a nice, interesting mix.

He is a member of the Board of Directors of the Health Research and Education Trust, and the Research and Education arm of the American Hospital Association. Please welcome Ian Morrison.

IAN MORRISON, Ph.D

Anderson Consulting; Chairman, Health Futures Forum

Good morning! It's a pleasure to be here to help moderate the panel this morning. Let me take just a couple of minutes to perhaps review my qualifications to be moderator. My only qualification really, to be here is that I am a Scottish/Canadian/Californian, which gives me a unique perspective, I guess, on health care and on the future of health care. I grew up in Glasgow, Scotland. In Glasgow, health care is a right. Carrying a machine gun is a privilege. Somehow when you Americans escaped from us Brits, you got it the wrong way around. Ironically, the only group of Americans with the right to health care are people who are in prison. It's kind of three strikes and you're covered! I spent ten years in Canada, I trained in health policy and health economics with Bob Emmonds, a Canadian health economist. I lived and worked in a single payer system for many years. I think Canadians are very rightly proud of what they have achieved in Canada. Canadians describe themselves as unarmed Americans with health insurance.

When I first came to the States, I thought it would be easy for you all to install a single payer system and I am less hopeful of that after having spent almost 15 years here. You have to remember that Canada could have been the best country in the world, it could have combined American know-how, British ethics and French culture. Unfortunately, it got American culture, British know-how, and French ethics which is a nasty combination. I spent most of my time working with organizations in health care across the range from safety net providers to pharmaceutical companies. I think I have worked with every different group in the American health care landscape. A lot of my work is trying to help them with strategy and where they are headed in terms of their future. Hopefully I can help meld some of the concepts and challenges that each of the various constituencies face in the American health care landscape. Hopefully, given my Scottish/Canadian background, can provide a little bit of perspective for you at the end of the morning about how this fits into a broader international context.

I think Dr. Bodenheimer laid out for us perhaps the critical challenge. And that is, on the one hand, we have concerns for expanding benefits in Medicare and the other, we have an inability and an unwillingness to pay for it. And we are not alone in that. As part of my affiliation with Anderson Consulting, I have run meetings about the future of the health care system in a lot of different countries. We had a group in Singapore last year of 13 different countries asking where they were headed. Everyone around the planet is concerned about their health care system and is running into the same problems. And I do agree with Dr. Bodenheimer that the only thing we do know from an international comparison is that if you want to contain health care costs, you do it from the top down, in terms of global budgets. But, and it is a very important but, that comes with some consequences in terms of access to services and on incomes of providers. And that is the tension we fundamentally face. You can contain costs through a global budget but you will restrict services one way or another. And you will restrict incomes of the providers in the system. One man's waste is another man's income in health care. While it is attractive to say that we can simply take the money of the pharmaceutical company profits and the CEO's of health plans, many of whom are trying to hang onto their jobs right now. That money is not sufficient to pay the enormous bills associated with long term care and prescription drugs which each and of themselves is probably a 75 billion dollar a year problem

So that's the tension that we are really going to discuss this morning. The tension between our willingness to pay and our attitudes and beliefs about equity and universality which I think are at the core of this political dilemma. And I applaud the League of Women Voters for holding such a session so that we can explore some of these issues in more depth and provide a range of perspectives on the future.

Introduction of Peter Van Etten (Ian Morrison)

Let me start by introducing Peter Van Etten, who will give us the prospective of hospitals in academic medical centers in a world of changing Medicare reimbursement and changing Medicare policy. Peter is one of the smartest and most respected people in this field. He has been recently, since 1997, president and CEO of the newly established UCSF/Stanford Health Care Group, the mother of all academic medical centers, as we call it in the trade. He was CEO of Stanford Health Services prior to that time, and CFO before that. A graduate of Columbia and Harvard, Peter is, I think in perhaps the best position, only because he works down the road and because he is leading one of the most prestigious academic health centers in the country. I would like to invite Peter to give his comments on the future of Medicare from the hospital and academic medical center perspective. Please join me in welcoming Peter Van Etten.

PETER VAN ETTEN, MBA

President & CEO, UCSF-Stanford Health Care, Stanford Hospital & Clinics

Thank you Ian. It is indeed an honor to be here. I would also like to commend the League for sponsoring a program of critical importance to the country and to many of us individually. Before commenting on Medicare specifically and upon the implications of Medicare changes to hospitals, let me make three general observations about the issue before us.

I agree with Tom Bodenheimer that one cannot consider Medicare and the issue before us alone without understanding the implications of Medicare to the broader delivery system. The issues that we are facing and that we are looking at, in regards to Medicare, are part of much deeper changes and challenges that we face throughout health care and I will high light some of those specifically in talking about the implications of Medicare changes on hospitals.

Secondly, the central question that is being dealt with in health care today is whether the delivery system can be effectively restructured using market forces and what is the effect of using market forces to achieve social goals? That is the issue before Medicare. That is the issue before the delivery system itself. It is a unique set of issues which we are facing in this country, given our unique approach to health care, but it is the central question which we need to address.

So my first point, we need to consider Medicare in the context of the broader delivery system. Secondly, as we think about Medicare changes and the delivery system itself, it is important to recognize that the central question is the role of market forces in creating an equitable cost effective delivery system. And the third point is to recognize that the change of moving to the market and having the market play that role is part of much deeper changes that have taken place in our society in the last several years. In the view of a number of commentators upon this issue, what has happened within our society is the Libertarians have won. We have moved from a society concerned with equity and concerned with social goals to one that is concerned with individual rights and with the role of the market in achieving individual goals. Now that is part of a much deeper change that is affecting education, it's affecting immigration, it's affecting welfare rights, it's affecting the role of government.

As I say, it represents in large part the victory of Libertarian philosophy in affecting social policy. Health care is one part of that broader change and as much as I would like to see many of the changes that Tom talked about and would support much of what he recognized, I question the viability of it at this point, given the political economy and the political philosophy that we find ourselves in in this country. It is one in which, unfortunately, government is seen at the enemy and there does not seem to be a broad consensus that it is likely we can use government to achieve specific goals.

Let me turn to the hospital point of view in terms of Medicare change. The most important issue, I think, for many of you to recognize is that Medicare continues to play a strong role in accomplishing strong social goals, in its payment system and relationship in the hospital world unlike every other payer, and particularly unlike the HMO's. In particular, somewhat ironically, it is Medicare that now pays hospitals, particularly in California, close to the full cost of providing services, unlike most of the HMO's which, because of market forces and because of competitive pressures, are now paying far less than the cost of providing those services. That's the case for hospitals, that's the case for physicians as well. But we are at an unusual point, at this point, whereas it used to be that the private section subsidized government short falls, that is no longer the case. In fact, the exact opposite is true at this point in California, in particular, where it is Medicare that is paying the full cost of providing physician hospital services. Some would argue "paying more than it should" and more than it would in a market based environment. I'll give you an example for Stanford and UCSF Medical Centers. We are paid $350 million dollars for caring for Medicare patients, which is roughly 30% of our total activity. Of that $350 million dollars, close to $100 million is paid to cover the costs of teaching, research, and caring for acutely ill patients. That's over and above the traditional payment that would be paid to our institutions and that would be paid, for instance, to community hospitals. Some argue that should go away. Others argue, and I would certainly suggest that the social benefit in terms of research, education, and caring for indigent patients and caring for those who are acutely ill, who cannot be treated elsewhere, is worth the government paying that $100 million dollars.

But in a market-based environment, that money would go away because theoretically those services could be provided in other institutions that didn't provide those social benefits. So one of the most significant concerns I have on the part of hospitals is again this broad role, social role which Medicare has played which would not be recognized within the market.

But clearly, as I suggested before, the dominant issue for policy makers in health care is the role of the market. And particularly as that relates to Medicare, that translates into the role of Medicare managed care. In thinking about Medicare managed care, it is important to recognize the point that Tom made in terms of MSA (Medical Savings Accounts) payments. And that is, that many, many government studies have shown, and other private studies, have shown that Medicare managed care costs the government more than were the government to enroll recipients in Medicare managed care in traditional programs. That's because people who enroll in Medicare managed care are those that are the most healthy and require the least services. And since the government pays the managed care programs an average, based upon average costs, if the enrollees are those that are more healthy, less prone to use services, then the government will pay more. And indeed, that has been the case.

Somewhat ironically, the only way probably to make Medicare managed care work will be to mandate that all Medicare recipients be part of managed care programs. The alternative is to find a way to risk/adjust. To provide adequate risk/adjustment so that the payment rates to HMOs for caring for more acutely ill patients will be greater and for paying for less acutely ill or more healthy patient would be less. That methodology doesn't exist today. The Balanced Budget agreement did mandate that HCFA (Health Care Finance Administration) develop such a methodology. Many of us are very skeptical as to whether that will happen. But until that happens, it is hard for me to see how the movement to the market, and particularly to Medicare managed care will be successful, given this risk of adjustment.

Now this fall we have the added issue of the hybrids and these enormously complex issues of MSA's, of PPO's (Preferred Provider Organizations) and of other hybrid forms of managed care which HCFA is struggling to develop and to put together. Many of us, I think, and many of you were skeptical as to whether it will happen.

In the end result, what is happening to Medicare are the same changes that are happening elsewhere within our society. What is happening is that those that have resources will be able to buy better insurance, better coverage, and better health care. Those that do not, will not receive the same services. And again, I see this as a part of deeper changes taking place in our society. The rich get richer, the poor get poorer. The pie is being changed significantly. That's what is happening in health care. It is happening increasingly in Medicare and again, it is part of deeper changes that I think we need to better understand.

The answer to all of this is, it seems to me, first of all to find a way to design a solution to Medicare that is a part of a broader solution that redesigns the delivery system. I do not believe personally that we can do it with market forces. We can do it using market forces, but there has to be a construct, a set of rules that government needs to establish that enables us to achieve social goals, at the same time using market forces as a means to create a more cost effective delivery system.

That is a balance that needs to be struck and that I think many of us are struggling to develop. I am concerned, on the other hand, whether it is possible to achieve that in our present political environment. Whether, unless there is a change in which government is seen as able to address social problems in a broader sense in our society, I fear that the likely result that we will see is more of the same in the next four or five years. More hybrid programs, more managed care, more of the significant dislocation which has taken place in Medicare programs. That means higher co-insurance, higher deductibles, and those with resources will be in a stronger position. But again, until we have the political will to deal and to understand that as a society, government is the only means in which to address broader social means and unless we are willing to design a health system that achieves those goals, we won't be able to address the Medicare issues we are dealing with now. And again somewhat cynically, I think that we will see more of the same for the next several years. Thank you.

Ian Morrison Comments on Peter Van Etten's Presentation

That you, Peter. I think what we have been introduced to are a couple of more layers to this complex debate. Peter, I think correctly, points out there is tension between the market and the social good of health care, particularly as it relates to not caring for various constituencies, but also the whole question of training of the next general generation and research and development. Also, Peter introduced the whole concept of Medicare managed care as an issue which is particularly acute for Californians, that 39% of Medicare recipients in California are in Medicare HMO's. We account for a third of all Medicare HMO recipients in the country. So for us in California, this is a central issue. He really pointed to what I have called the Republican paradox which is the market is working but managed care sucks, which is really, I think the tangent that a lot of people are facing. Namely, that we don't do government in this country. We seem to have rejected government as the instrument of change and we are left looking at market responses which really, in the current health debate, takes the form of managed care market place.

Introduction of Bob Sillen (Ian Morrison)

We're going to hear from Sara Singer and others with some of the dimensions of that. But before we do that, I'd like to introduce Bob Sillen, an old friend of mine who can give a perspective which is very important in this debate in respect to what both Peter and Tom touched on so far this morning. And that is, the perspective of the safety net, because you can't think about Medicare out of context to the broader health environment and as Tom Bodenheimer mentioned this morning, you can't think about Medicare without thinking about the issues of social justice and implications for the 43 million Americans without health insurance.

Bob Sillen is the Executive Director of the Santa Clara Valley Health and Hospital System which is the combination of the old Santa Clara County Healthy Department and the Santa Clara Valley Medical Center. Bob is an outspoken, articular advocate for the constituencies that he serves and has dedicate his career to working in the interests of those who are disadvantaged in providing outstanding health services to them. Bob and I have worked in the past in the California Association of Public Hospitals, where he has played a leadership role. He is a graduate of Yale and one of the smartest guys I know. Bob!

ROBERT SILLEN, M.P.H.

Executive Director, Santa Clara Valley Health & Hospital System

If I am one of the smartest guys you know, you need some new buddies to hang out with! Well, it's a pleasure to be here. It's not the first time I've been invited and actually accepted to appear before the League of Women Voters. I thank you again for your interest. By the time I am done, I will urge you on to continued action on behalf of everybody whom you know.

I have very little to add because it is sort of scary. When I first started in this business, you couldn't find a whole lot of people who would talk about the same kinds of things that I would talk about. But now, most people are recognizing the vagaries of market place medicine. When we look at the economic situation, whatever that might be, and the political situation, the issue of Medicare, of health care and whatever, I think we are, and from what I hear from each of the speakers so far-we have to broaden the context of the discussion in order to make any headway in terms of Medicare. We have to broaden the discussion to make any headway in terms of the dilemma of the uninsured in this country. We have to broaden the context in order to make any headway in terms of Medicaid, uninsured kids, uninsured adults, poor people.

So I think what I am going to urge you to do is to take a slightly different view as has been suggested by people, and broaden that context, broaden the discussion, broaden the political action in order that not only Medicare in our elderly population, but everybody in this country, get good access to high quality health care. [TAPE WENT BLANK]

We don't have an economic system that is separate from our political system. We don't have a health care system that is separate from our economic system, which is not separate from our political system, etc., etc., etc. We don't have leadership in politics these days. We talk about societal problems, we talk about the absence of political solutions, we talk about the absence of political will. I would suggest that it is we, as a society, as individuals, who grant political will to our elected officials. Now you don't grant political will to people who get elected when 20 to 30 percent of the population is voting. That is sort of like market place politics-which it is! So I would suggest that the ultimate solution to the problem with health care for people in this country, whether it be Medicare, Medicaid, uninsured, has to do with the political system.

We have a democracy run amok, because so few people vote. And whether that is out of cynicism, or this, that and the other thing, whatever the cause is, I would suggest until that situation is turned around, we are just going to have temporary ad hoc solutions to all of these other kinds of problems because the problems we face in society are so broad and so vast and dealt with in little peg-holes, you can't deal with them effectively as a society, from a broader context unless you consider them at least concurrently and see what the interactive play is and what impact one decision has on another problem. It is a fabric, it is a woven fabric of social and economic and political issues that we have. So to take Medicare or Medicaid or whatever out of it, is just flustering what we all sort of bemoan, which is called interest group politics.

Well, what is the AARP? It is an interest group. And for the elderly, that's great. That's a good interest group, as opposing insurance companies, which is a bad interest group. Well, Warren Hatch doesn't agree. What we need to do, I believe, is to go back to some basics in terms of the politic process in this country and talk about coalition building. Get the old folks and the poor folks and the black folks and the brown folks together and you got something. Then you get them to vote. This is easy, we could do this by next week if we try hard enough. But the fact of the matter is for me, which doesn't make it a fact at all, is we have to go back to coalition politics because otherwise we are going to have the old fighting the young and the black fighting the whites, and the browns fighting everybody and Medicare fighting against Medicaid. We're are just fostering our own kind of competition for social programs, all of which we need. We're going to kill each other off.

Here is the way to solve the Medicare dilemma! Deal with it as a political problem and recognize the realities of politics these days. We have spineless leaders and that's because we have spineless constituents. We can't gripe and bitch and moan about the people that we elect. They don't get there on their own. So if we don't like the fact that we don't have the kind of money that the insurance companies do, or the pharmaceutical industry does, or whatever, then what is it that we can do to effect a meaningful campaign finance report? If in fact, what is the saying, "money is the mother's milk of politics" or something like that (what an insult to mothers) then campaign finance reform, I would suggest, is number one on the agenda. Because, you are not going to really be able to affect Medicare until you affect the political process.

Question asked out of the audience (inaudible). Answer is: My speech comes free all the time and everybody is entitled to my opinions! We have to do something, not only to get effective campaign reform, we have to do something to get people to vote. Nobody votes. We're all prisoners to a very small percentage of the population who votes. So we are being dictated to and the entire country is being dictated to by a very small percentage of the population. That, I would suggest, is dangerous. Incredibly dangerous to the very basic concepts and precepts intended to the democratic form of government

I think we have bigger problems than Medicare. I think we have to deal with issues such as maybe, racism, sexism, classism. We could do away with 70% of the health care problems in this country if we did away with poverty. I think it is called a regathering of our thoughts for organizations, whether it be League of Women Voters, whether it be AARP, whether it be National Welfare Rights. Whether it be this, that and the other thing, the leadership of those organizations and a constituency of those organizations, need to take a coalition frame of mind and perspective and cut the deals and make the compromises where, rather than one by one they go for their old gold ring, which is interest group politics. They get together, form a core of common interests which serves all of their groups. Because once you get all those groups together, then you have a major segment of what we call "society".

It is a massive effort. The one that I think must be at least considered and undertaken, otherwise, if the rich get richer, which they do, and the poor get poorer, that they do, and if money runs the political system, then forget it!. We'll all be in the hands of the pharmaceutical industry and in the hands of the insurance industry. I think I want to go ahead and be an HMO executive. What the hell, I paid my dues. I've taken care of poor folks my whole life, why shouldn't I make money. We've got more important things to do. So let's take a politic perspective. This is all politics. And don't point at "them", the elected officials, because somebody puts "them" there. They are only elected officials as a result of people voting for them. Let's get back to the grass roots. Let's get back to the basic level. And this problem will be solved. Thank you!

Ian Morrison Comments on Robert Sillen's Presentation

I think we are seeing the evolution of the debate on the factors and forces driving the Medicare problem. And that is, really a debate at two levels. One is, as Bob alluded to, the political level. Fundamentally these are linked. And as Peter alluded to as well, to broader questions of equity and social justice that have to do with the very basics of a civil society and the fact, do we vote? Do we participate in civic debate? Do we really care about a broad consensus of you of where we are headed. But there is a second concern. I think what Peter Van Etten said is true, that absence of any meaningful change along the lines that Bob just suggested, we are going to see more of the same. We are going to see more cynicism about politics, we are going to see poorer voter turn out. My colleague Bob Blandin of Harvard and my colleagues at Lew Harris whom I have had a long relationship with, in terms of public opinion poll, what is clear is that it is likely that the Republican leadership are going to strengthen their position in going forward, absent any changes in voter turn out. If one looks at the positions of Republicans versus Democrats on some of these issues, you see very different concerns and very different motivations with regard to health care.

In the broad content, it is a political problem. But it is not just a political problem because even if we have power, we have to have some idea to implement and I think one of the questions about which I feel certain is that we don't do single payer well in this country. It doesn't seem that we are set up for that. One of the hopes that I had personally and many of us had for managed care is that it could be an avenue to a more rational future. Certainly a good deal of the thinking behind that has come from Stanford University. Our next speaker, I think, can provide some perspective on the role managed care may play in a positive future for Medicare. I share the belief that under certain circumstances, if we could make Medicare risk or Medicare choices work, then that might be an average toward universal coverage. If you imagine a future where 30% of Medicare recipients are in a Medicare risk program, a Medicare managed program if you like, and it is working successfully, then we do the risk adjustment that Peter Van Etten alluded to. That we get the funding right, that we get the programs right, so it is not a cream skimming game, but a way of providing broader benefits at lower costs, and we are successful in that. That is an avenue that potentially could lead us to universal coverage because we would then have some basis of thinking about including everyone in a Medicare risk program.

Introduction of Sara Singer (Ian Morrison)

That is close to the kind of ideas of managed competition that were first espoused by Professor Enthoven. Our next speaker is both a student of Alain Enthoven and in her own right, a leading thinker in terms of the role that markets may play and managed care may play in the future of the health care system broadly and the Medicare system in particular.

Sara Singer is Executive Director of the Center for Health Policy at Stanford, which is a new multi-disciplinary center designed to stimulate growth of health policy research and education. She is experienced in Washington matters, having served in both the Congress and Executive Branches as an advisor and analyst. She is a graduate of Stanford, and one of the most capable people I know in the health policy world, who really understands some of these tangents, both from a political point of view and from a technical point of view with regard to health policy. Join me in welcoming Sara Singer.

SARA SINGER, M.B.A.

Graduate School of Business Administration Executive Director, Center for Health Policy at Stanford

Thank you Ian and thank you all for inviting me here. I had not really realized or prepared for a debate between managed competition and a single payer system, but I would be happy to get into that in the question and answer period. I was asked to talk about costs in the Medicare program. That is what I will start out by doing. I will do that by talking about the problems that existed in the existing Medicare program and the reasons why the Balanced Budget Act came out as it did after that.

It is an expensive program. Not only is it one of the most expensive public programs for the government, it is also extremely expensive for beneficiaries. Particularly the traditional Medicare program with a combination of the deductibles, the cost sharing and the cost for supplemental insurance. It is awfully expensive for beneficiaries. More importantly though, the program has been growing extremely quickly. It is expected to double as a percent of the gross domestic product in the U.S. over a 15 year period between 1995 and 2010. Why is that important? It is important because if the cost of a government program grows as a share of the Gross Domestic Product, that money has to come from somewhere else. It either has to come out of a different government program or it has to come from an increase in taxes. I guess it may have something to do with the era in which I grew up. I may be a realist or a cynic, but I live in an America where raising taxes has been off the table ever since I can remember.

The projected spending for the Medicare program is unsustainable. We've all heard about projections by the trustees of the expiration of the trust fund before the Balanced Budget Act. The projection was that the program would expire in the year 2001, which is just around the corner. The situation will be obviously much, much worse when the baby boomers begin to turn 65 in the year 2011, and thereafter.

In addition to the cost problem, people also saw that in the existing Medicare program one of the big problems was that there were only limited options offered to beneficiaries. You could either purchase into the traditional Medicare program, or you could purchase HMO's but no other private insurance models were available, and the managed care plans were only available in areas where the Health Care Financing Administration offered high reimbursement rates.

So what was the intention of the Balanced Budget Act? What did it try to do? First, it tried to offer more choice. It presumed to offer all types of private sector options. In addition, it added some preventive benefits for traditional Medicare, which was very important. Traditional Medicare lacks, in general, preventive benefits. It also lacks pharmaceutical benefits and catastrophic coverage. So, as Dr. Bodenheimer said, there are lots of areas for improvement of that program. In addition, the Balanced Budget Act intended to reduce some of the expenditure increase in the program, and I think it is important to spend a little bit of time explaining what that means.

The existing Medicare program was projected to increase by nine percent per year over the next five years, and instead through reductions in hospital and physician payments, basically what they assumed they would be able to do was increase that increase. So, the government will continue to pay more money into the program, but just at a reduced level of increase. So over a five year period they were able to save about $115 billion. That was enough to extend the Medicare Trust Fund for five years, out to the year 2006, but it was not enough to deal with the long-term problems of the Baby Boom generation. That was deferred to this Medicare Commission, and that is a much bigger problem.

So, what are some of the problems in the Balanced Budget Act? I hope we will have a chance to talk about some of the problems in administration and execution of what the Balanced Budget Act was trying to do, because that is what we hear in the news today - the reversals of the HMO's dropping out of the programs, etc. A lot of that has to do with execution types of problems.

But I wanted to talk about another fundamental economic and structural problem. This again has to do with, I think, my acceptance of the notion that taxes are difficult to raise, and that we have discussed a single payer system for a very long time, it doesn't look like we are headed in that direction. So what I think the Balanced Budget Act didn't do is that it didn't fully rely on competitive market forces. Instead it offered some choice, it provided a little bit of information about those choices, but it didn't fully rely on market forces. Generally, economists and observers believe that these market forces are a good way, the best way arguably to control costs, to improve quality, to give consumers what they want. I agree with Peter Van Etten when he says that health care is not like the automobile industry. It absolutely needs a combination of government regulation and reliance on market forces. But in the Medicare program we have always leaned much further towards government regulation and intervention than we have in the health care industry and the private sector in general.

So, what does the Balanced Budget Act not do? Well, it doesn't allow plans to pass on savings if they can offer the benefits at a lower price. The Medicare program sets a price in a given area. It is adjusted for some formulaic differences, but in general it sets one price and if the health plan can offer the package of benefits at a lower price, it is not allowed to do so. Instead, it must offer additional benefits to beneficiaries. Well, why is that a problem? Beneficiaries may, in fact, prefer to have cash rather than the benefits that are offered. In addition, if different health plans offer different benefits (one might offer podiatry benefits, another might offer vision benefits) then what you begin to get is a market segmented into people who have bad feet and bad eyes. It also makes the health plans very difficult to compare because you have different benefits in all the different plans that reduces the competitive forces. It reduces the ability of the health plans to compete. It reduces the potential benefit in the cost savings for the program.

So, I think in the not too distant future there will be some tough measures of some sort coming down our path. Maybe the Medicare Commission will produce some recommendations that will make a long-term difference. Maybe they will also bend to political pressure, and won't do it themselves either. But somewhere, sometime before the year 2007 there will be some very stringent measures that will be recommended. I believe that market forces are a less painful way to achieve potential cost reductions and some improvements in quality in comparison to things like reductions in benefits, increases in taxes, etc.

Thank you.

Ian Morrison Comments on Sara Singer's Presentation

Well, I think that Sara has pointed to another key dimension of this. Really, there are two waves of Medicare reform. Despite the fact that we like to say there is a rapid aging of America, the baby boom really doesn't hit the wall for a very long time. So we do have 20 years almost until the median Baby Boomer hitting 65, and that is why I think it is likely that we are going to have two waves of debate. One wave on the short run, but we really don't do that much. The second wave where we will be confronted with a fundamental restructuring no matter what. I think Sara also pointed to an important issue here, which is that the current frightening part of betting on the market place is that the market is retreating from Medicare. Prudential, Cigna, Aetna - every single one of those actors is drastically cutting its commitment to the Medicare risk market. Every one of those players is retreating from significant market places, and so the enrollment level in Medicare under managed care, which is our de facto policy for the future, is going backwards not forwards, and I think that is an important dimension to focus on.

Introduction of Quentin Young (Ian Morrison)

Our next speaker is Dr. Quentin Young. He is a practicing internist in Chicago and has a long and distinguished career serving not only as a physician but as a leader in the whole public health world. He is currently serving as President of the American Public Health Association. He is also the national coordinator of Physicians for A National Health Program, a Chicago-based organization who advocate a single payer system. Dr. Young is also a cousin of Sara Singer, so it is a nice connection that not only do we keep these debates in the family, but we provide a full range of perspective within the same family.

QUENTIN YOUNG, M.D.

Internist, President, American Public Health Association; Clinical Professor of Preventive Medicine, University of Illinois Medical Center

Thank you very much. I want to express my appreciation for the League having this program and inviting me. I note, of course, I am the only outlander. I don't know whether that carries larger risks or less, but I am very pleased to be here. While I really love Sara, I disagree with absolutely everything she said. OK, that's the last time you are to either laugh or applaud. We have 10 minutes here, so please hold back. It won't be hard hence forward.

I feel, having heard so much wisdom - much of which I agree with, I have to kind of focus on things I don't think have been said. I have to agree with the several speakers who acknowledge the obvious that the American people, thanks to a lot of ideological warfare, have taken the Libertarian, or right wing in my terminology, notion about how to run a society. That is self-evident. But while the philosophy might be on the ascendancy, its policies, not its proposed policies, its extant policies are tragic failures never more profoundly than in the field of health care. The discussion of it in an abstract way, I think, is not useful. The American people are hurting. This crazy experiment with market forces has brought great harm to many people. It has done what the market does. It magnified and concentrated profits for shrewd investor capitals, but at the same time more and more people are in anguish. The evidence is widespread. Every one of our legislators in our congress have bills, most of which get thwarted by these tremendously financially and politically powerful forces, but Managed Care Bills of Rights also called Patient Care Bills of Rights are all over the place. That couldn't just happen because they didn't have any bills. It was a minor response to their constituents that things are really bad back home, and everyday experience with the health system has been transformed.

I want to quickly make clear that I am not here as a Luddite yearning for the bad old days, the circumstances that opened the gateway to this market madness. And I want to point out that it is uniquely American madness. No other country in the world, and there are many that resemble us, dreamed that you could get quality, access, and reduced costs from the market place. We are learning bitterly that we failed on all of those and continue to do so. The facts are that we have in terms of access, (since the president's ill-starred program which was certainly vulnerable to defeat and went down in flaming defeat, aided and abetted by misinformation like Harry & Louise and other ridiculous things, nevertheless since that day when the President held up his pen and said, "I will sign nothing you send me that isn't universal"), 100,000 people every month enter the ranks of uninsured. Every month, it is now up to 43 million, some say 44 million, but it's rising, and business, in its wisdom, despite its ideological insistence that it be the place for payment of health care. And it is ideological. They don't want government, they don't want tax systems, so they say, "We'll do it". And then they proceed to distort the whole relationship in the workplace from workers who get salaries or get wages to new categories of workers (temporaries, casuals, consultants they are called) - any way to avoid giving them benefits. I want you to reason how profoundly this is distorting things beyond the delivery of health care. It is distorting normal relations in a wholesome society and a decent economy. People are getting bad ripple effects from the intrusion of the market place into the scene.

But to point out that managed care, its maiden name was Prepaid Group Practice, largely developed in the west coast, and an honorable, progressive development. Of course, assaulted by organized medicine as something from another world, socialized medicine. But Kaiser Permanente and Group Health Cooperative of Puget Sound and handful of others flourished. They gave a good product at lower cost. They did all the things the marketers say would happen if we let the venture capitalists do it. But the new event, following the HMO act under Nixon, but actually it took the Reagan administration to fully open wide the doors to venture capital, that we have gotten into the tragedy, the catastrophe, the distortion of the health care arrangements.

I am going to try and squeeze into my minutes the notion that the whole ethical base of health care has been undermined by this, and that there is a danger, and people speak in terms of 5, 10, 15 years. It is going to take us 10 years to fix, and the sooner we start doing it, the better. In our thinking, in the single payer world, we no longer think single payer is the best solution, we think it is the only solution.

Now I want to add that we have to put an asterisk on that. We have to take venture capital in the delivery of health care out of the system. The marketers say that is the best thing. People risk their hard-earned money, or sometimes ill-gained riches, in that market, and there was a lot to be made. And the poor management of the health system under the cost-plus AMA-dominated system of the past, meant there were huge fortunes to be made. We know they have been made, and they continue to be made, but the instability of the system is reflected in several things. First, the very important point that there is what I call the strike by the powerful, giant oligopolies that are supposed to offer this managed care, that great strategies of the budget balancers. They just called a strike. Until we give them more money, they are going to do it, and that is power in their hands, and that is their strategy. Our strategy is to get them out of the system and create a new humane one and enjoy the benefits that other countries have.

It is important to talk about other countries. There is an arrogance about the American view of our achievements that is ill-starred in the field of health. Every one of the countries in the world that have our state of development, that have our political system, has solved this system. Starting with Bismarck in 1896 when he attempted to stave off social democratic gains a century ago. I did notice the Social Democrats won last week in Germany--so much for Bismarck. But the facts are that every country sequentially--Canada 30 years ago, Taiwan (the latest member of the club) 5 years ago--said this is a social responsibility. This is an ethical, moral responsibility. Illness, if anything, hits the poor and the ill-prepared harder than anybody else. If you are going to have a wholesome society that is unified and comes together, you must indeed offer health care as essentially a right. Now they have all kinds of formulae. Britain does it in a nationalized system. Germany has a complex arrangement around union funds, and Canada has the one I find the most attractive, a universal national health insurance based on a government-run, single-payer system.

Now a little bit of information in terms of the cost. The data are out. For 1997 we spent $12 billion for health care in that year. That ciphers out to $4,000 a person. Mind you, the denominator is poison. It has 43 million people in there with no insurance. It doesn't mean they don't get care. Indeed they get a lot of care, much of it very expensive because it was delayed. But it isn't a sound denominator. Nobody has talked yet, I will talk now, about the 50 million with rotten insurance. That if anything happens, they are in trouble immediately, nor will I tarry to talk about the bad deal, the Ponzi scheme that these people in these for-profit HMO's get with the innumerable ways of avoiding taking care of sick people and selecting against them, and once in putting barriers to their care. Everything from not answering the phone promptly to finding everything excluded because it is experimental - all the things that are in every day's headlines. But that is the point we have gotten to with our $12 billion system.

Who is next? Anybody know? Switzerland - $2300 per person, a little more than half. Who is next? The aforementioned Deustchland - $2200. At long last, Canada who used to be second - $2000. For exactly half of what we spend, Canada gives every person comprehensive coverage. And more to the point, despite shortages and yes queues, and things that we are told that American people would not tolerate, they have a system that is the most popular in the world. The OECD does serial reviews of popularity of systems every three or four years, and Canada votes for its system in the 96th percentile. Now I wouldn't take the time to tout a Canadian system as a replacement of our own. Why? Because we will have a much better one. We start out with twice as much money per person. OK? We start out with too many hospital beds. We might convert some of those to drug treatment centers instead of filling our jails with poor, black youth. We have 1,000 per 100,000 of our people in jail now. By 2012, we are building the jails, we will have 2,000 of every 100,000 in jail. We are making the Soviet gulag look like suckers and the South African apartheid regime pussycats. These are 2,000 people, not across the board you know it, these are males, they are black and Hispanic, and a third of the blacks in urban America are in the criminal justice system. Now that is not the topic, and I won't depart, but think of that as part of a health question. Tom pointed out the enormous resources wasted now on a military that doesn't have an enemy, they are trying to make them by shooting people, but the facts are we don't have an solid enemy like the Soviets anymore. Why does that budget have to go up, and in a very wasteful manner, as he pointed out? But think also of this exploding prison thing that has great, great harm for domestic tranquility.

I am sure I am close to the end of my time. I want to close with an anecdote that is a personal experience of mine. I have a radio program, of course public radio in Chicago, and I had a guest during the Clinton debates, who was an unusual one. Like most people on talk radio who are guests, you should know this, they invite themselves and you pick among them. This one was irresistible. He was the Anglican Bishop of Canada, a very distinguished gentleman in appearance, dressed like a cardinal in the Catholic church. He explained when he asked to come on, and also explained to the audience once on, that the Canadian elites (He didn't use the word, I did. I don't think the Canadians have a word like elite in their egalitarian mind. I would say parenthetically, making comparisons with Canada, I have made number of concessions about the differences. One, it is definitely further to the north, I have checked that out. And I also know that there is serious difference that makes a difference. Canadians, if there is a line for a bus, will form a queue. Americans will rush to the door. Well, I put to you that we have to get more Canadian, if we are to survive not with a good health system but survive as a nation. That kind of market competitiveness destroys tranquility.) , meaning the business people, the labor leaders, and the legislators, ex-officia wanted to talk to Americans, because they felt that this country (theirs and ours who are the closest two nations who are not one in the world. No other nation resembles us more closely in every respect despite the differences, especially in the medical arrangement. Their system is shaped in the image of the colossus to the south. And their hospital system, for example, resembled ours, in terms of being religious based or nonsectarian community based - that is before we got the madness of letting people buy hospitals like Columbia, form huge chains, destroy the community base, and then go into a huge crisis when they get indicted for billion dollar Medicare fraud, as is the case with Columbia, and they sell off suddenly 100 of their 400 hospitals. That is particularly meaningful to me. I spent some 40 years of my life in a great hospital, Michael Reese Hospital in Chicago, and it's about to come to an end as Columbia sells it off.

My time is up, but I want to finish the anecdote about the bishop ( I am sure you are eager to know). So, this bishop said that his church didn't support the Canadian system at first. They have become very enthusiastic about it. And he proceeded to tell us some of the flaws I knew, he told me some I didn't know, he answered questions from the audience. But toward the end, he interrupted and said, "Doctor, I would like to make a point. Canada is in a great crisis over the possibility that it is going to split." Then, and of course still now - it's not settled whether it's going to break off into Francophone Quebec, and the Angliphone rest of the country. "Your country went through a civil war, and you must have a sense of what political trauma that is, and Canadians on both sides of that question (and they are very polarized) worry about it a lot. It preoccupies the central domestic political issue. Because of that there was a survey commissioned asking Canadians across the country what they felt divided them and what united them. The divided ones were obvious, the Francophones said they were treated as second-class citizens. The Angliphones said, many of them, that they get special privileges. We have French in parts of the country where there isn't a French person around, etc. That startling thing, the amazing and important thing out of that survey was what united them. What made them feel patriotic, proud to be Canadians - it was the Canadian health system." Try that test on the American health system!

Ian Morrison Comments on Quentin Young's Presentation

I think Dr. Young is pointing to a key fact that Canadians are justly proud, and although there has been some erosion in public satisfaction over the last few years in Canada, it still ranks way up there. In work I did in asking the question, "Is managed care an attractable option to people in other countries?", there is nobody around the world that wants to emmulate the madness of American medical care. But everybody is in the same box basically, that they know how to contain cost, but they are looking toward managed care as some way of improving customer responsiveness. So, I want to make sure that you keep your mind open to the alternative for our long-term future which combines both single payer social insurance with managed care mechanisms. These things are not necessarily incompatible with one another. Managed care is a way of orchestrating the providers and deliverers of health care in a more competitive model, and that framework could conceivably be underneath the umbrella of a single payer system, analogous to Medicare choice being applied and available to everybody in the country. So, I don't want to turn this into either/or because it is conceivable that one could have both in the long run.

One of the findings from that research that we did across 13 different countries is that the only thing that is truly global about health care is that doctors are cranky everywhere. There is no country where physicians are happy, and I think that what is very important in all of this is to make sure that we have a perspective from physicians. We have heard from a couple already, and I would invite Dr. Britton to join us to give his perspective.

Introduction of Dr. Britton (Ian Morrison)

Dr. Britton is a rheumatologist at the Palo Alto Medical Clinic, where he presently serves as Medical Director for Medical Subspecialties. He is president of California Foundations for Medical Care, and has been heavily involved in the Institute of Medical Quality. He is a graduate of both Dartmouth and Harvard, and has distinguished service in the U.S. Navy and was active in the Gulf War. Please join me in welcoming Dr. Melvin Britton.

Melvin C. Britton, M.D.

Rheumatologist, Palo Alto Medical Foundation; Member of the Relative Value Update Commission, Advisory to HCFA on Physician Reimbursements.

I guess I am all that stands between you and a break. I don't know why I was put last, except that I was late getting here. I am actually on call today, and when I came out after making a run over to the clinic I found that a truck from the hazardous waste disposal people was blocking my car.

I feel like Daniel in the lion's den because quite frankly I don't agree with most of the speakers whom you have heard. I would offer, however, to them a quip from a distinguished statesman, Winston Churchill. Winston Churchill once said, "Americans will always do the right thing after they have exhausted all other possibilities". That is one way to do it. I feel sort of like I have to give you an image of how I feel now. And that is to imagine a log floating down the Amazon covered with ants, and on the top of the log are a number of ants who have this commanding perspective of the river and where they are going. Down at the bottom of the log are a number of ants, who if they stick their feet into the water can somehow influence the direction of that log, you see. Well, all of the preceding speakers have been people who have been up on the top with this commanding perspective of what we have to do to alter the world and the country, and to build coalitions, and so forth and so on. And I am one of the people, I think of myself as being one of those ants down in the bottom of the log sticking my foot in every now and then and trying to influence the direction which the log is taking.

I thought I would just do something unpopular, and that is in this environment and in these times to defend the HMOs and their concept and managed care and its concept. I claim to have been there at the beginning because I first got involved in the foundation movement in California in 1975. At the time, we were trying to set up an HMO. The legislation had just been written. It was a funny legislation. It tried to throw everything in, and we couldn't deal with it that way, but we were successful in Santa Clara County. We founded an HMO called M-Care and only had 3,000 members, but it split into what became Take Care which is now Foundation Health, and Life Guard which is still the most effective and the most successful IPA (that is, independent practice association) HMO model in the country. So I feel fairly proud of my presence at the birth. I would like to say that I was responsible for it, but I wasn't. I sat around and watched a lot of people like Bob Burnett who are much better than I do things, and I just voted along with them. But anyhow, we got that started, and why would I, who just basically practices medicine (I saw two patients this morning already), be interested in that? And why was I interested in coming to an institution like the Palo Alto Medical Clinic? It was because I found there a spirit of cooperativeness and a desire to take care of people in a broad way. And I would submit that the HMOs, for all the bashing that they have done and just as an aside, at the Institute for Medical Quality, I am one of the people who goes out to the Department of Corporations and inspects HMOs for the State of California under a contract with the Department of Corporations. I would say that that has not been my experience with HMOs, and it certainly was not our experience at the Palo Alto Medical Clinic. Russ Lee, who started the Clinic, likes to say that the Kaiser people came to him to find out how to do it, and I believe that this is true.

What were we trying to do? Well, we were trying to get everybody on the same page. We were trying to convince people that medicine was expensive. You know, one of the things that is left off the equation when we talk about medical care is that the medicines we have today are effective. They are also expensive, truly expensive. Not just expensive because of the ungodly profits of the drug companies, as some of the previous speakers have sort of implied. They are expensive because they are expensive. We have [one drug that] is like cortisone without the side effects, if you can imagine that. And it is going to cost (a real cost) around $800 a month. Now who is going to pay for that? And genetic engineering and genetic things in medicine are going to be expensive. The HMO, when we set it up, 4 percent of the budget went to drugs. Now 20 percent has to be given to the pharmaceuticals. It's not because people are making enormous profits. It is because it is very expensive to develop drugs and because genetic engineering is just not a cheap technology to use, although it is a very promising one.

To get back to the HMOs. What were we trying to do? We were trying to get everybody on the same page. What is wrong with fee-for-service medicine? I always use Florida as an example because it is a long ways away, but it sort of epitomizes to me the fragmentation of medical care that we don't want. It also has, I want to point out, one of the highest AAPCCs in the country. What is that? It's is the age-adjusted per capita cost. And what this says is how much it costs for somebody to get medical care in that place. This is corrected for all the things that statisticians would want it corrected for. And it costs probably two or three times as much in Florida as it does in parts of California and Texas, and so forth to get the same kind of medical care. Why is it? I have looked around, and I am certainly no expert, but the fact is that medicine is very fragmented in Florida. You go to the cardiology group over here. You go to the urology group over there. They don't have Palo Alto Medical Clinics, Kaiser, the king of group health situations that we have in this country. You have got to get away from that because that is very expensive medicine. More importantly, it is episode-based medicine. You go to the cardiologist for your heart, but nobody is thinking about all the other problems you have.

The HMOs focus on the person as an entity. We focus on preventive care. The HMO legislation, particularly in California says you have to furnish preventive care. We don't sit around the Palo Alto Medical Clinic trying how to make our phone system more difficult and make it harder for people to get in, despite what the Mercury News had to say about our Ophthalmology Department. That is an aberration. We spend our time trying to make things work. (I say that as somebody who has been doing that for 30 years.) We spend our time trying to get better medicine to people. We spend our time trying to make sure that if you are diabetic you have seen the podiatrist, you have seen the retinal specialist, and you have been to the person who talks about diabetic treatment and diet. These are things which we are loading into the program. These are the kind of things that the good HMOs have already done.

We are fighting an uphill battle because things are truly getting so much more expensive. Pharmaceuticals, 20 percent now of a budget that used to be divided between Peter Van Etten's successors and us in Part A and Part B. We didn't worry about the pharmaceuticals.

So, I think that the HMOs, properly managed, have the concern for public health which I think is vital and which has been one of the unfortunate dichotomies that has happened in America - that public health and traditional medicine have split apart. I am sure that Dr. Young would expand on that subject better than I, but it is bringing it back together. The HMOs have an interest in providing the best care to people at the cheapest cost. And that's what we all want, isn't it? We want to have the best care at the cheapest cost.

How to get there? How to get there in a time when medicines are very expensive, proliferating all the time and when they are becoming more expensive. I don't know. I don't have the answers. I'll just close with one comment to Mr. Sillen, and that is it's not often that someone who went to as an out-in-the-country school as Dartmouth gets to talk about somebody who graduated from Yale, but I will suggest this. The election of 1814 comes to mind, probably a little before your time, Bob, certainly before mine. And in 1814, you remember, James Madison was president and Thomas Jefferson had just completed his presidency. He was the original liberal. He and Bob would love each other. And under Mr. Jefferson, whose administration I would submit was a total disaster - the Navy had gone to pot, the Army had gone to pot, he had been campaigning against any kind of taxes, against the national bank, and against all the federalism. In the election of 1814, we could have gone to war with France, we could have gone to war with England, there was a good chance we could have gone to war with both of them. But we were at war with England and the election came. The Hartford Convention, the New Englanders were going to succeed, and the voter turn-out in 1814 was much lower than it was in 1812. Somehow, by 1816 the war was over, the wealth of the country was increasing, and everything had turned around. I won't bore you with the long history of it, but I am just not sure that getting everybody out to vote is the answer. I think that it's a little more complicated than that, Bob. Thanks.

Thank You (Carol Watts)

Thank you. These were all very wonderful and informative ideas, and we are going to hear a lot more. I know that 10 minutes wasn't very much time for such wisdom that we have just heard, but we have a period of over two hours that we are allotting for people to ask questions. And we will do that after the break.

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