Skip to main content.

The High Cost of Health Care (Part 2)

Member Story

The High Cost of Health Care (Part 2)

Picture of Natalie Walsh

We continue our 5-part series on the high cost of health care in America.

The High Cost of Health Care (Part 2)
KPBS Radio, San Diego
Tuesday, August 4, 2009

MAUREEN CAVANAUGH (Host): I'm Maureen Cavanaugh. You're listening to
These Days on KPBS. The United States is a very expensive place to get
sick. As These Days continues its week-long series on the health care
reform debate, today we focus on the high cost of health care. Last
year, health spending hit $2.4 trillion in the U.S., consuming nearly
17% of all the goods and services we produced. And although health care
is getting more expensive worldwide, America is leading the way,
spending almost twice as much per person on health care as most
industrialized nations.

To bring that down to reality, just look at the price comparisons
for medical procedures. Coronary heart bypass surgery here costs about
$200,000, in Belgium the price is $16,000. In the U.S., hip replacement
surgery is about $50,000, in France it's $15,000. And a $150,000 bone
marrow transplant in the United Kingdom costs up to $400,000 in
America. So, no matter what options are chosen in the ongoing health
care reform debate in Washington, one essential element is figuring out
why health care costs so much and how to get those costs down. Joining
me to discuss the cost of health care are my guests, Victor Fuchs, who
is professor emeritus of economics and health research and policy at
Stanford University. Welcome, Victor.

VICTOR FUCHS (Professor Emeritus, Economics and Health Research and Policy, Stanford University): Good morning, Maureen.

CAVANAUGH: Good morning. And with me is Dr. Mimi Guarneri. She is
cardiologist and medical director of Scripps Center for Integrative
Medicine. Welcome back, Dr. Guarneri.

DR. MIMI GUARNERI (Medical Director, Scripps Center for Integrative Medicine): Good morning, Maureen. Thank you.

CAVANAUGH: Michael Murphy is CEO of Sharp health care. Welcome Michael.

MICHAEL MURPHY (CEO, Sharp health care): Thank you very much. Good to be here.

CAVANAUGH: And Nicole Kasabian Evans is vice president of
communications for the California Association of Health Plans, which
represents 39 health plans that provide health coverage to more than 21
million Americans. And, Nicole, welcome.

NICOLE KASABIAN EVANS (Vice President of Communications, California Association of Health Plans): Thank you, Maureen.

CAVANAUGH: And we want to invite you to join the conversation with
listener questions and comments about health care costs. Have you been
hit with a big medical payment even though you have insurance? Have you
seen the costs listed on your hospital bill? Give us a call at
1-888-895-5727, that’s 1-888-895-KPBS. Victor, I’d like to start with
you, if I may. And I want you to take us – I know you’ve done a lot of
analysis of this, and I’d like you to take us through some of the
conclusions that you’ve come to about health care costs. But first, how
much per person, on average, do we actually spend on health care in the
U.S. each year?

FUCHS: A little over $8,000 per man, woman and child.

CAVANAUGH: And how does that compare to other countries with comparable health care systems and populations?

FUCHS: You – Well, I wouldn’t say comparable but comparable health
outcomes or better health outcomes. As you said before in your opening,
it’s about two times the average of other sort of developed countries.

CAVANAUGH: Now, as I say, in your work in health care analysis, you
cite eight reasons that health care costs in the U.S. are so high. And
I wonder if you’d tell us right now what those are.

FUCHS: Okay. Do you mind if I make it nine?

CAVANAUGH: No. If you have another one, go ahead.

FUCHS: I’d start off with administrative costs. We spend a lot more
on administration than other countries do and that’s because of the way
we finance medical care and the way we pay the people who provide it.
Apart from the elderly, the under 65 population gets their insurance
mostly through employment-based insurance or through Medicaid, an
income-tested insurance. And both of those systems are very expensive
to collect. There are very large administrative costs. And then we pay
mostly on a fee-for-service piecework basis, which means millions and
millions of separate little items have to be billed for. So I would say
administrative costs are a big difference. Second is the high ratio of
specialists to primary care physicians. For example, in Canada, which
is a country very similar to ours in many ways, they have about a
fifty-fifty break between specialists and primary care. In the United
States, there are about 70% specialists and about 30% are primary care.
Now specialists are more expensive to train, more expensive when
they’re treating people, and they tend to use more expensive
procedures. Third would be we do a lot more of certain expensive
procedures like MRI scans. Again, a comparison with Canada is
instructive, that we do almost three times as many MRI scans per capita
as Canada does. Another reason is we have more standby capacity for
expensive equipment and personnel. Again, using MRI as an example, in
the United States, there are more than four times as many MRI machines
as there are in Canada. Given the fact that we do a little less than
three times as many scans, it turns out that in Canada, each machine
does about 50% more scans than in the United States, so they’re getting
more intensive use of their expensive equipment. We have mostly
open-ended funding. We don’t have fixed budgets. In most of the other
countries, they have fixed budgets for health care.

CAVANAUGH: What does that mean?

FUCHS: Well, it means that when you have a program like insurance,
the insurance promises you a certain amount of benefits but it doesn’t
put any limit on the amount of money that might be spent overall.
Medicare, when Medicare spends more money than anybody expected it to
spend, they just dip into the Federal Treasury and draw on general
revenues or they borrow the money. In other countries, at the beginning
of the year, they say we’re going to spend x-amount of pounds or lira
or franks or whatever for medical care and then they have to figure out
how to live within that budget. There’s less social support for the
poor in the United States and that’s very important because the poor
are often sicker, they often have low education, and that means it’s
very difficult sometimes to take care of them on an outpatient basis.
It results in more hospitalization, which is very expensive, and
especially it’s been getting some attention in the press lately, more
readmission to hospitals after discharge. A very large percentage of
the people get discharged from hospitals, are back in the hospital
within a month and part of that, I think, is because in many of the
other countries they have better social support systems to take care of
these people on an outpatient basis. We have many, many more
malpractice suits in this country than any other country and that, of
course, adds to the cost of care, the direct cost of the insurance, the
legal system, the judicial system, and then the so-called defense of
medicine as doctors try to protect themselves against malpractice
suits. And last two are drug prices are higher in the United States
than they are in other countries, same drug, same company, selling it
in the United States gets anywhere from 50% to double what it might get
in another country. And, lastly, physician incomes are somewhat higher
in the United States relative to other occupations than they are in
these other countries. I’ve run through it very quickly because I know
you’re always pressed for time.


FUCHS: But I’m glad to expand on any of these if you want.

CAVANAUGH: That’s Victor Fuchs. He is professor emeritus of
economics and health research at Stanford University, giving us the
launching pad, if you would, a very comprehensive rundown of what he
has defined as the reasons that health care costs are so high in the
United States. And I want to now expand the conversation to my other
guests. Mike Murphy, you’re CEO of Sharp health care, which has, of
course, several large hospitals here in San Diego. You heard the list
that Victor just read out. Are there other things that you’d like to
add about what’s contributing to the high cost of health care in the
United States?

MURPHY: Yeah, I definitely would like to add a few but that’s
certainly a complete list that runs down a number of them. One of the
things that I would like just to add as it relates to the cost picture
as it relates to employers or individuals who are actually paying for
insurance is the issue of uninsured. And, today, we have a significant
number of uninsured that, in our U.S. health care system, nobody is
covering, which is being incurred and shifted those costs to the rest
of us. In reality, we have programs that are supported by the
government that are underfunded, that Medi-Cal program in the state of
California is the lowest funded per capita of any in the fifty states
and hospitals are not receiving their cost of care so that cost gets
shifted to the employer-based cost as well as Medicare acknowledges
that their costs – they aren’t covering their costs anymore and that
cost gets shifted to the employer-based, which does drive up the cost
or shifts costs to those who are paying their bills. I think Victor
covered nicely the medical technologies that we in the United States do
invest in and those medical technologies are driving costs and are
expensive. I think we need to be investing more in lifestyle and before
we ever get into the health care system. A recent article was just
published that 10% of our health care costs is related to obesity.
There are many other chronic disease conditions which we, in the United
States, can do a better job of managing before they become high costs
to our system. And the other realities that I would say, to the health
care system, is just the general economy does impact all of us just
like everybody else. With the market crashes recently, the interest
costs related to health care even though we are – most of us are tax
exempt organizations, we’re talking about 200 basis points or 2% more
interest cost if you can get – actually get bond financing, which many
health care systems aren’t healthy enough to actually even get bond
financing at this time. And utility costs, similar. When utility costs
go up in the general economy, they go up for us as providers just like
anybody else. And, lastly, I’d close with we are largely a labor-driven
workforce with physicians and nurses and pharmacists. They are great
individuals doing wonderful things, highly trained. They have – We have
compensation related to them and shortages related to a number of them
in the workforce, which does continue to drive up costs.

CAVANAUGH: Thank you. That’s Mike Murphy, CEO of Sharp health care.
Mimi Guarneri, you’re a cardiologist and medical director for Scripps
Center for Integrative Medicine. You’ve heard all the lists of why
health care is so expensive here. Is there anything you’d like to add?

DR. GUARNERI: I would just like to take a step back and be as bold
to say that we don’t have health care in this country. We have disease
care. We have a ‘we will fix you when you break down’ mentality, and
for many years that’s what we have been doing. The end result of that
is no focus at all on prevention. And when we think about chronic
disease, and I agree with you, Mike, this is the key. Most of the
health care expenditure is going into chronic diseases like heart
disease, diabetes, all the results of obesity and so on. What do we do
to prevent these diseases? And, really, quite frankly, most hospital
systems are doing nothing, and I think it’s a lot of lip service by and
large. I know heart disease is preventable. I know Type II diabetes is
preventable. Obesity is preventable. Osteoporosis is preventable. And
yet we see this every day in our practice, hypertension and so on. So,
for me, it’s all about taking a step back and saying, yes, we need
primary care physicians, many more of them, nurse practitioners, many
more of them, that can focus on health, focus on wellness and
prevention and I think that will have a huge impact on the expenditure
at the end of the day. And just one other piece to that is our – we
have our incentives misaligned. As a cardiologist, quite frankly, I can
make much more money putting in stents—you know, I started my career in
interventional cardiology—than I can make teaching a patient to be
vegetarian, to exercise, to deal with their stress, to look at their
whole life and say, going back to Mike’s statement about lifestyle,
what can I do differently? I think we should go as far as saying let’s
pay physicians to keep people well as opposed to just doing things to
people because the more I do, the more money I make. And that’s really
a paradigm shift.

CAVANAUGH: And let’s round this out. We’re coming up on a break but
Nicole Kasabian Evans, I really want to get your input on this. Your
organization, the California Association of Health Plans, of course it
represents 39 different health plans in California, from an insurance
perspective, what would you like to add to this growing list of what
makes health care so expensive in the United States?

EVANS: Well, Maureen, I have to say the other guests have done an
excellent job of covering quite a few of really big, major issues that
are driving up costs. I would just add that if we looked at focusing
more of our health care on evidence-based medicine, we could also not
only improve the quality of our own personal health but also lower
costs in health care system. The Institutes of Medicine released a
report that showed that 45% of the time we’re not getting the health
care that we need when we need it. Either we’re getting too much or too
little. And focusing on evidence-based medicine might really help
improve our health and lower our costs.

CAVANAUGH: Well, thank you for that and, as I said, I am coming up
against a break. We are talking about the high cost of health care in
America, and we’re asking for your phone calls as well. We’ll start
taking some calls after the break. The number here is 1-888-895-5727,
and we will return in just a few moments on These Days on KPBS.


CAVANAUGH: I'm Maureen Cavanaugh. You're listening to These Days on
KPBS. And this is the second day of our weeklong series on the health
care reform debate. We are focusing on the high cost of health care,
why it is – costs more for health care in the United States than just
about any other similar nation around the world. And we are speaking
with Victor Fuchs who is professor emeritus of the economics and health
research and policy at Stanford University, Dr. Mimi Guarneri is
cardiologist and Medical Director of Scripps Center for Integrative
Medicine. CEO of Sharp health care Michael Murphy is with us, and
Nicole Kasabian Evans, Vice President of Communications for the
California Association of Health Plans. And we are taking your calls.
Our lines right now are full. I want to let you know that you can post
your comments online at You can click on the link
for the High Cost of health care Part II, and we can see your comments
there. Harold in Vista is on the line right now and we want to take his
call. Good morning, Harold.

HAROLD (Caller, Vista): Hi.

CAVANAUGH: Welcome to These Days.

HAROLD: My grandson, my four and a half year old grandson died of
medulloblastoma, which is brain cancer. We were in three hospitals for
almost two years. The cost of the chemo, the radiation, the radio
immune therapy was in the neighborhood of at least a million, if not
more, dollars. Now my – we were lucky in one sense. My daughter had
very good insurance. We still had to kick in thousands of dollars. Now
there have been hospitals, whoever doesn’t have any kind of insurance,
there are many hospitals, if you have cancer, you walk in, they want
money up front, in the neighborhood of, I’ve heard, $30,000 to $45,000.
Now, I mean, that’s terrible. And in Las Vegas, one cancer hospital
closed and turned away almost a hundred cancer patients. These people
were sent away to die because they just didn’t have the money to
continue in that hospital. Now if we believe what we’ve been told for
years in terms of the cost of health care, if you look back in the
Depression time in terms of FDR, they were told then that the cost was
too high for Social Security. When LBJ pushed through Medicare, he was
also told that the cost was – would be too high. This is a constant
thing that has gone on. The cost, the cost, the cost. So there’d be no
Social Security. You’d have people out in the streets, there’d be no
Medicare and there’d be people on the streets. I think one of the
biggest problems in this country is ignorance. One woman, you could
take this as the epitome of ignorance, one woman said to Obama, and
this has been on television quite a bit, you know, don’t put socialism
into any kind of medical care. I don’t want any government involved,
but don’t touch my Medicare.


HAROLD: So I think, you know, if we play on costs as the Republicans
and the insurance companies constantly bombard us with, the cost, the
cost, the cost, I think the problem will be we’ll never have anything

CAVANAUGH: Harold, thank you so much…

HAROLD: We cannot worry about the cost right now. We…


HAROLD: …can work this out in the future.

CAVANAUGH: I appreciate your comments. Thank you for sharing your
personal story with us as well. And I want to talk to you, Mike. You
heard what Harold had to say about his grandson and about people who
are uninsured who are facing very, very big bills. And I wonder if you
feel there’s a sense where hospitals are losing their mission, if they
have to be so concerned about the costs and they have to perhaps, in
some cases, turn patients away?

MURPHY: Well, I certainly can’t speak for all hospitals but I would
tell you that certainly at Sharp health care, we are working very hard
to protect our mission and feel very strongly that we are there to
treat everybody who needs to be treated. We have policies for charity
care that virtually anybody below 200% of the poverty level is eligible
for free care. Anybody up to 350% is eligible for discounted care. But
I would – do need to turn to the reality is that in our current
environment, as we talk about whatever our health care system is today,
it is a system that is based on business principles and for us to
continue to keep our doors open, we need to be able to operate and pay
for that technology, pay for those chemo drugs, pay for those services
that we provide to patients in a manner that allows us to continue to
support that mission. We do not, at Sharp health care, turn patients
away but we are always looking at actively and responsibly managing our
operations. And in that reality, in California in the last ten years,
60 hospitals have closed, as the gentleman outlined. And that is a
reality of the business environment that hospitals are being required
to operate in in the current model.

CAVANAUGH: Do you feel that your hospital is doing all it can to reduce costs.

MURPHY: I think you can never say that you’re doing all that you can
to reduce costs. We are always looking at ways to reduce costs, enhance
quality and, truthfully, focusing on that quality and enhancing it and
reducing that cost is one of the major things to focus on is how do we
limit readmission rates? How do we focus on not, as Mimi talked about,
doing more clicks but doing the right things for the patient. And then
the reality again, we’ve already jumped back into ‘in the hospital.’
And the reality is we need to do a better job of continuing to keep the
people out of the hospital, managing whatever their issues are out of
the hospital where it’s the most cost effective, insuring that they
don’t have the complications and the issues to reduce the costs once
they are in the hospital.

CAVANAUGH: Dr. Guarneri, I want to ask you about the fee for service
that Victor was talking about. That really not only drives up the
administration costs but drives up how much money actually doctors
make. And I want to ask you, quite simply, do you think that doctors
make too much money? Do you think that they should be on a salary?

DR. GUARNERI: I think that’s a very good question, Maureen. And
going through medical school and coming out with large student loans
and so on, as many physicians do, and putting in very hard hours, many
physicians would feel we’ve worked hard, we’ve put in many, many years.
For example, my training was seven years with hardly any salary before
I even came out and made any money to pay back my loans. So many
physicians would say we’re working the hours, we’re putting in the time
and we like to be compensated for that. One of the concerning issues
that Mr. Fuchs mentioned is, of course, the whole concept of a
litigious society and litigation and so on and the pressures that
physicians are under frequently to order tests and do things even
though they may think, well, this headache is just a headache, on the
outside chance, I may be missing a brain tumor or let me get that MRI
or so on. So I don’t have so much of an issue with if you work, you
should be compensated for the work that you do but I do believe that we
should take primary care physicians, for example, and not hold their
feet to the fire and say, as family practice docs or primary care docs,
you have to see 40 people a day. That’s absurd. 30 people a day, that’s
absurd. Physicians should know, hey, I can come to work, I can see
x-number of patients and give quality of care because seeing 30 people
a day, for example, focusing on prevention, is absolutely impossible.
So in that case, I’d like to see those physicians actually be more
compensated. I’d like to see nurse practitioners be more compensated
and step into the role of primary care physicians so we can expand that
workforce. But it’s hard to say that someone shouldn’t get a salary,
and that salary really varies across the country.

CAVANAUGH: And, Nicole Kasabian Evans, I wanted to ask you because I
know – I read the literature from your organization, your health care –
California Association of Health Plans. One of the things that you
mention is the fact that people get a lot of tests that they don’t
need, a lot of procedures that perhaps they don’t need. Is that what
the Health Plan industry really feels is driving up the cost of medical

EVANS: Well, I – There are – I mean, really, the – the issues that
were covered earlier are a lot of the reasons and they’re – it’s a wide
spectrum of reasons that are -- health care costs are spiraling. A
number of them were touched on. But the issue related to unnecessary
tests and then unnecessary treatments, I think we’ve talked about a
little bit, is that, you know, we do have a situation where physicians
have to be careful and protect themselves against malpractice
situations and so we see defensive medicine and – happening across the
country, and ordering these unnecessary tests and procedures. And
that’s why if we focused on something like evidence-based medicine or
financial incentive like Mimi had discussed related to pay for
performance rather than just fee-for-service kind of a focus, we really
could help probably improve the health and lower costs in health care.

CAVANAUGH: We’re taking your calls at 1-888-895-5727 or you can post
your comments at Right now Mark is on the line in
the South Bay. Good morning, Mark, and welcome to These Days.

MARK (Caller, South Bay): Hi. Thanks for taking my call.


MARK: I have two comments. The first is that because insurance
companies negotiate to pay like only 40-50% of the street price of a
procedure, the hospital or doctor is compelled to raise the price so
that they get what it’s really worth and then the insurance company
negotiates again and it’s an arms race and it ends up with the hospital
room’s basic price costing like $10,000 a day. Even worse, nobody is
watching the till. When I was uninsured, I would always – you know, if
I had to go to an emergency room or something, I always asked what the
procedure would cost and I offered to pay in cash. And sometimes I
would spend an hour with the people there, including the doctors,
looking through the books, trying to figure out how much the care would
cost. Nobody knew. And – and I think – and ask any health care worker,
ask any doctor, ask any, you know, office – officer in – person in a
medical care office, even the billing people. They have no idea what
they’re going to charge you. And if this – When nobody’s watching what
the price of things are, nobody knows what the price of things are,
then somebody—somebody—can skim off a hell of a lot of money. And – and
I challenge – I challenge Harold, I challenge any person running a
health care organization to publish an online version of the cost of
standard procedures. What it costs to stay in a single room, what it
costs to stay in a double room, what it costs to have a, you know, an
IV. You know, it would be enormous but you could put it online, you can
update it daily and – or monthly or however often it needs to be done.
But transparency is important and this – this – this happens – this has
happened for years, for decades. I’ve been shocked by how little health
care workers know they are charging.

CAVANAUGH: Thank you, Mark. Thank you for that call. I – Sharp does
post some common procedures, the prices of some common procedures?

MURPHY: All hospitals actually in the state of California are
required to charge – to post the 25 charges that the state actually
suggests that you put, and they’re on there. They are the retail
charge. We actually post our whole charge master is on our website. But
to the gentleman’s issue really, is that is a retail charge. That is
not necessarily and actually in, I would guess, probably over 99% of
the cases, that is not what an individual or an insurance company would
compensate the health care provider or the hospital for. I would like
to correct one thing that – The vast majority of our insurance
contracts do not pay a percentage of a charge. The vast majority of our
contracts pay either a per diem amount or a per diagnosis amount and
there really isn’t a lot of we can raise the charges because we get 60%
of the charge from the insurance company. There’s very little of that
that still remains. The reality is that there hospitals that are
working on putting out cost calculators but it is a hard thing to do
because not everybody who comes in for a procedure ends up with exactly
the same procedures. We are not building widgets when we are taking a
medical treatment on a patient. So when they ask what will my cardiac
cath cost, that’s a complicated question because how long will you be
in the OR? How many stents will you need? What is your cardiac
condition? And we’ve got to get in there to be able to get into doing
that. We do work with patients all the time, depending upon their
insurance, to understand what their out of pocket is, what the
insurance company will pay. If they don’t have insurance, we, in
advance, will work with individuals to try and get a good estimate but,
again, if there are complications come up, then – then that is a –
that’s something that you can’t necessarily anticipate with every case
because not every case is the same as every other case.

CAVANAUGH: Victor Fuchs, you’ve been listening to all of this and
Mike Murphy outlines the case very clearly as to what he sees as it’s
impossible to really tell you how much it’s going to cost for any
certain procedure until they do it. But one thing we can say in general
is that it’s going to cost more here than it would, let’s say, in
France or Canada or the United Kingdom. And I’m wondering why is it,
why is it that a certain procedure with a certain amount of stents and
a certain amount of time in the operating room, is actually going to
cost more here than it would somewhere else?

FUCHS: Well, I’m so glad you brought this back to the question, the
comparison, because I’ve been listening to the conversation and I agree
with almost everything that everybody said but I think to some extent
it has moved us away from the basic question that you started with and
that is why do we spend so much more than other countries and what can
we do about? And I’m glad you brought that back. So, for example, if
you buy my statement that administrative costs are much higher here
than they are in other countries, they’re higher because of the way we
finance, the way we raise the money to pay for it with all the
individual insurance contracts, with 50 state bureaucracies figuring
out who’s eligible for this income-tested insurance or not. And the way
we pay for things, and this has been mentioned many times, that so much
of it is paid on an individual fee-for-service basis for every
individual procedure has to be billed. Well, once you get into a system
where there’s one simple method for raising the money to finance care
for everybody and once you get into simpler methods of reimbursement,
for example, if you have a risk-adjusted capitation reimbursement where
a health plan gets a certain amount for each person who’s enrolled
adjusted for the health condition, well, you’ve cut out a huge amount
of administrative cost. Now turn to the specialists-primary care ratio.
Until we do something about that, until we change the balance between
specialists and primary care, we’re going to continue to have higher
expenses. There’s no doubt about it, that the amount spent per capita
rises as the number of specialists relative to the number of primary
care physician goes up. So when you think in terms of policy, and what
policies do you have to put in to make the change, one of the sad
things is if you think of my list and then you look at the bills that
are being proposed in congress, five different committees, many
different bills, but very few of them address the items that I’ve
listed as to why we cost so much more than other countries. There’s a
disconnect between what we’re willing to do politically and what we
need to do to bring our costs more into line with other countries.

CAVANAUGH: Doctor, we are going to – Excuse me, but we are going to
be talking specifically about those, the health care plans under review
in Washington. That’s going to be our subject tomorrow as our health
care series continues. And I do have to take a break right now. When we
return, we will continue to talk about the high cost of health care.
And stay with us. You’re listening to These Days on KPBS.


CAVANAUGH: I'm Maureen Cavanaugh. You're listening to These Days on
KPBS. We’re talking about the high cost of health care. We’re taking
your calls at 1-888-895-5727. My panel includes Victor Fuchs, who is
professor emeritus of health research and policy at Stanford
University, Dr. Mimi Guarneri, who is a cardiologist and Medical
Director of Scripps Center for Integrative Medicine. Michael Murphy,
who is CEO of Sharp health care, and Nicole Kasabian Evans, Vice
President of Communication for the California Association of Health
Plans. Nicole, I want to start out with you, if I may, because we’ve
talked a lot about why health care costs are too high. Does – You
actually represent the Association of Health Plans in California, 39
health plans. I would imagine that you agree that costs are too high,
and I wonder what your organization thinks we should do about it.

EVANS: Well, thank you, Maureen, for asking. We’ve thought a lot
about this. And, you know, there’s a lot that policy makers can do and
there’s a lot that people can do. And some of these issues were
mentioned earlier, for instance, the issue of obesity is a cost – has
an economic impact in California of $28.5 million but let’s talk about
the real impact is the health of people who are living with overweight
and obesity. Well, if we could help people have healthier lifestyles,
we could save significant money in our health care system. Using proven
treatments, like we had talked about, 45% of the people not getting the
care that they need when they need it, so evidence-based medicine could
really help us have healthier patients, better outcomes and lower
costs. Hospital costs and physician costs drive 73% of our overall
health care costs, so if we have greater transparency, as was mentioned
by Mark, the caller Mark, earlier, we have more hospitals under
contract with health plans which health plans have the job of
negotiating prices to help keep health care costs down for the
consumers and then that would help. As well as a huge regulatory burden
that is upon health plans and hospitals in California, if we – We have
probably the most regulated industry here in California and if we could
reduce our regulatory burden, we could really make a difference. And
then the cost shift is another really big one, not – and it’s not just
the cost of the uninsured, but it’s that underpayment that was
mentioned from Medicare and Medicaid and that really helps – that
really is basically resulting in an additional $1200.00 cost that
consumers are having to bear because between – you know, the governor
had called it ‘hidden tax’ a couple of years ago. And that’s just a
short list, really. I have – I have more that I could talk about but
I’m sure other folks want to chime in here but there’s quite a bit that
we could really do to help – help reduce the cost and ensure that more
people have access to care.

CAVANAUGH: Now President Obama says a public option, a government
option, included in a health reform package would curb in the costs of
private insurance companies. Now the profits at the country’s largest
publicly traded insurance companies have risen 428% from the year 2000
to 2007. Do you think a public option would help private insurance
companies control their costs?

EVANS: Well, I think, first of all, I just want to address the issue
of profits here and administrative costs. Eighty-seven cents of every
premium dollars (sic) goes directly into medical care. The remainder
does go into administrative costs as far as marketing, programs that
help – Programs that help people live healthier lives are counted on
the administrative side. And profits really is just three cents on
every dollar. So if we tackle health care profits, we’re not going to
tackle the issue of the rising cost of health care, honestly. If we’re
talking about health care costs increasing two to three times the rate
of inflation, dealing with 3% of the problem is not going to solve the
problem. So that’s the first issue I want to address. The other is, the
issue of a public plan. I think we need to be really careful when we’re
thinking about a public plan because we’ve got, right now, Medicare and
Medicaid facing – facing insolvency. The federal government estimates
that by 2017 – I’m sorry. That’s the wrong – That’s the wrong stat.
Medicare and Medicaid are facing insolvency and we need to be very
careful that, you know, one of the things that Victor talked about is
government – governments in other countries putting spending limits on
health care. Well, the government does have a spending limit and so
what happens when the government runs out of money? Does it mean that
our health care gets stalled? Does it mean that waiting lists are going
to become very long and people are going to have to wait for
procedures? So if we’re looking at the government running programs,
what’s going to happen when we face tough economic times, what will
happen to those health care programs?

CAVANAUGH: Thank you, Nicole. Victor, I wanted to ask you, would you
agree that there’s reason for profit in the health care system?

FUCHS: Oh, you have to understand that profit has different
functions. If there is capital, and you need capital to build
hospitals, to invest in equipment and so forth, if people put up money
to provide that capital equipment, then they are entitled to a return
on that. If they loan the money, we would call it an interest payment
and it wouldn’t have the word profit associated with it. If they put up
the money in the form of equity, that is stock, then they get a profit.
I think as economists, we see profit as a very legitimate part of the
way the economic system works. What you have to be concerned about is
excess profit, profit that’s being earned over and above what would be
a reasonable return on investment. Excess profit arises when you have
various kinds of monopoly power. Then you can charge higher prices than
would be competitive prices, and you can earn excess profit. So you
have to make a distinction between normal profit, which is very
legitimate, and what we would call excess profit, which arises as a
result of some kind of monopoly power.

CAVANAUGH: And in your analysis, is there excess profit in the health care system?

FUCHS: We have to have a very nuanced answer to that. On the one
hand, there probably is in some cases, maybe, for instance, in the drug
industry, but on the other hand, I agree completely that focusing on
profit is the wrong way to go from a policy point of view because it’s
a small part – Let’s assume there is some excess profit in the system,
it’s a very small part of the total cost and a very small part of the
reason why costs are higher here than in other countries. You see,
again, I want to bring this back to that – Although I agree with
everything that the other people said, to talk about prevention, which
I’ve talked about for 40 years, to talk about evidence-based medicine
and those – these are all wonderful things but there’s – I don’t know
of any country that’s doing those things. They have lower costs, not
because they do more on prevention, they have lower costs, not because
they’re doing more on evidence-based medicine, although they’re
starting to. They’re ahead of us in that regard. But the basic reasons
why we have higher costs have to do the way we run our system.
Everything that I mentioned has something in it that’s good for
somebody, and that’s why it’s going to be so hard to change it. You try
to change the specialist-primary care ratio. Try to change some of the
excess capacity that I spoke about. The excess capacity means that
people don’t have to wait to get a particular procedure. It doesn’t –
It means that they don’t have to travel to get a particular procedure,
but it does add to the cost of the system.

CAVANAUGH: I hear what you’re saying, Victor, and I want to open
this up to the other people on the panel. Dr. Guarneri, what Victor is
now saying is that, you know, we have all these different pieces and
putting them together is likely to be painful in a variety of ways for
a variety of people. And I wonder, at the heart of that, does the
American consumers’ attitude about health care drive our costs up?

DR. GUARNERI: I believe totally, yes, it does, because we’ve trained
people with the ‘you break down, we’ll fix you’ mentality. And I think
we need to shift the thinking. I don’t – I know we have to clean up our
administrative costs. I know we need to use our technology in a much
more efficient way. I know we shouldn’t be linking our technology to a
physician’s paycheck in any way possible. And I know we should only
compensate for doing things to people. But I just wanted to take a step
back again and say, if we don’t look at, you know, Nicole mentioned
evidence-base, I don’t think we should throw that out the window.
Perfect example, diabetes prevention study, pre-diabetics taught diet
and exercise versus drug versus doing nothing. Those taught diet and
exercise outdid the people taking pharmaceuticals. So at Scripps, for
example, we said let’s create the Integrative Center. If we need
pharmaceuticals, we use it, but let’s have everyone doing diet and
exercise. So there’s a perfect example. We have – We are facing, by
2025, over 25 million diabetics in this country and so here’s a perfect
example of something that’s going to drive up health care costs, heart
disease, dialysis, amputations, the list is endless, and that’s linked,
of course, to obesity and sedentary lifestyle and so on. So I think,
again, we have to take it back and say where’s the incentive to have –
where – what hospital has an incentive to have a lifestyle change
program? Who’s paying for that? Maybe Nicole can answer that. How much
– how many lifestyle change programs are these insurance companies
paying for? Where’s the incentive for someone to decrease their weight
and to have a normal hemoglobin, N1c and blood pressure? And as an
American people, I think we have to – we have to get out of this ‘when
I break down, the doc will fix me.’ It’s not right that someone comes
to a cardiologist holding a pack of cigarettes in their pocket. It’s
time that we take those cigarettes and we – I will help you to learn
how to throw those into the garbage pail and I’ve got some tools in my
toolbox to do that with you, but I need your commitment, I need your
discipline, your commitment to do something different. And we’re not –
You know, there are a lot of elephants in the room here and one of
them, of course, is the fact that we’re a stressed out society that has
coping skills that range from overeating, over-drinking, and so on.
We’re not addressing any of this.

CAVANAUGH: We’re running out of time and I want to ask my panelists,
you know, Michael, if there – if you could – if there was – you could
wave a magic wand and say, you know, I want to change one thing that’s
really going to help my hospital deliver good quality health care at a
lower cost, what would it be?

MURPHY: Well, you know, we – I’m sure everybody on this panel gets
that same question and that’s the biggest problem, is that everybody
wants one answer and there’s not one answer. This problem or this
challenge – Our U.S. health care system is the sixth largest economy in
the world. It has numerous stakeholders in it. The reality is, it will
be complex to change. It is like changing and moving the Titanic but I
think if we continue to focus on doing the right things for patients,
spending the money to make sure that patients don’t have issues and
that the – when they do have issues, those issues are managed in the
most cost effective and efficient manner based on evidence, that we’re
moving in the right direction. And I would say, despite the fact that
we’re here talking about costs, we have an excellent health care system
with people doing very good things. I do think there are things out – I
would tell you, at Sharp health care, we have a number of things that
are in place to manage chronic disease states. We are one of the rare
health care systems, and Dr. Fuchs has mentioned this several times,
30% of our revenue is capitated. We believe the right incentive is to
take a global capitation and is to work on the total episode of care,
total patient, not just when are we going to do another procedure.

CAVANAUGH: And, Nicole, I have to ask you very quickly, I’m sorry
about this but is – are the California Health Care Plans (sic), are
they going to be working towards any health care reform or is this just
a bad situation as far as you can see? Are you working with this idea
or do you want to keep the status quo?

EVANS: That we have absolutely been engaged and involved actually
back to a few years ago when Governor Schwarzenegger started and led an
effort for health care reform in California. Health Plans were at the
table, involved, engaged in a positive way in helping to look for
opportunities in ways that we could improve quality and access to
health care in California. Now that the discussion has shifted to the
national stage, our national association, America’s Health Insurance
Plans, is very engaged in congress and with the administration in
Washington on the efforts. Therefore, health care reform – and all –
and most of our members here in California are also members of the
national trade, so our Health Plans are engaged and involved and really
want to be a positive force as related to improving health care.

CAVANAUGH: And, Victor Fuchs, I have about 30 seconds. What happens if we do nothing?

FUCHS: Costs will continue to increase at about 3% per annum, faster
than the rest of the economy. The first big explosion will be when the
Medicare trust fund runs out of money. But sooner or later, there will
be a real medical care crisis. Alice Rivlin, a very distinguished
economist, put it very well. She said, long run fiscal policy in
America is health policy. If we don’t get our health policy right, we
won’t have our economy in the correct position.

CAVANAUGH: I want to thank my guests, Victor Fuchs, Dr. Mimi
Guarneri, Michael Murphy, and Nicole Kasabian Evans. Thank you all so
much for speaking with us today. I really appreciate it.

EVANS: Thank you, Maureen.

DR. GUARNERI: Thank you.

CAVANAUGH: Now tomorrow at 9:00, we continue our series on health
care reform by talking about how we view health care in America. Do we
see it as a privilege or a right? We’ll hear what other countries have
done to manage their health care systems and look at the proposed
reforms on the table in Washington. And if you’d like to post your
comments on this segment, go to Stay with us for
hour two.