The High Cost of Health Care (Part 2)

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.

CAVANAUGH: Right.

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.

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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 KPBS.org/TheseDays. 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.

CAVANAUGH: Yeah.

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 passed.

CAVANAUGH: Harold, thank you so much…

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

CAVANAUGH: Thanks…

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 care?

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 KPBS.org/TheseDays. 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.

CAVANAUGH: Yes.

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.

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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 KPBS.org/TheseDays. Stay with us for hour two.