January 1, 2014

Can American Health Care Get Healthy?

Dr. William A. Peck diagnoses the United States’ health care ills and prescribes a simpler way.


Health-policy expert Dr. William A. Peck, 80, has seen American health care evolve from the introduction of Medicaid in 1965 to today’s fierce political battle pitting Democrats against Republicans. A distinguished professor of medicine and director at the Center for Health Policy, Washington University, St. Louis, Missouri, Dr. Peck is an endocrinologist by training, has worked as a clinician, researcher and administrator, and has appeared as a scientific spokesman on national media including The MacNeil/Lehrer Report and Good Morning America.

Forward asked Dr. Peck about health issues from the Affordable Care Act to the obesity crisis.

First of all, what’s right about America’s health care system?

We have the best physicians imaginable. Our nurses, pharmacists and so forth are also extremely well trained. We lead the world in medical research, both from the standpoint of fundamental science and its application to patient care. We also lead the world in training young scientists in health and health care research. Our hospitals are the envy of the world. We are leaders in the care of patients with cancer—in terms of best cancer survival. Certainly in the most technical, high-end care, we are the leaders. 

Because we’re the only developed nation that doesn’t have some kind of universal health coverage, that does lead to checkered quality. 

In what areas then, do we fall short?

Certain chronic diseases and the prevention of them. That relates more to the fact that we have a large underserved population. Because we’re the only developed nation that doesn’t have some kind of universal health coverage, that does lead to checkered quality. If you’re one of the 250 million Americans who have health insurance, the chances are you’re going to get better care and care that is both preventive and lasting. If you’re one of the uninsured, the chances are you don’t have a primary care physician; you have to use the emergency room as your primary care. In a sense it’s an asset that we spend more money per capita [on health care] than any other developed nation. The question is, are we using it wisely and most efficiently? The money is on the table.


Why are our health care costs rising so much?

A long list of reasons. We have the flourishing of medical research. It’s largely run as a free-enterprise system because we don’t want to discourage innovation. We have medical advances and increases in medical technology that add to costs. Our pharmaceutical costs are much higher than those of any other developed country—other countries negotiate prices. Add to that consumer advertising [for pharmaceuticals and medical services]. And our physicians get paid more than those of other countries. There is a high level of special-interest activity that ensures our commercial environment in health care is preserved. [Insurers] are free to do the business the way they want. A major contributor is the incredible complexity of the organization and delivery of health care. It is more complex than that of any other developed country. 


So if we could streamline our systems, could we bring down costs?

We can reduce transaction costs, for sure. And if we can develop similar ways of running the business across the universe of the private insurers and the public insurers, we would save money and [achieve] administrative efficiencies. The average physician in primary care practice has to spend a significant amount of money and time dealing with the 15 or 20 different insurance companies on a daily basis. Each one has its own billing, its own credentialing, its own collecting and its own appeals mechanisms.

Are there ways to reform the small group and individual health care markets?

Well, ACA [the Affordable Care Act] does that. Poor and rich and middle-class alike, you’ve got to have health insurance or pay a fine. How is coverage going to be enhanced from the standpoint of the poor and lower-middle classes? There are two approaches. One is to expand Medicaid coverage to more people, and that’s done in the law by enhancing the limit of eligibility to 138% of federal poverty, which is about $15,000 [a year] and change for a single person. The Supreme Court, while ruling in favor of the [ACA] mandate, said the states did not have to do that. Not surprisingly, a whole bunch of states have not. The second mechanism to capture the uninsured is in the subsidized system, which is managed through marketplaces for people that are between 100 and 400% of federal poverty. What happens if you’re below 100% of federal poverty? You don’t qualify. In those states that have accepted the Medicaid approach of up to 138% of federal poverty, you’d be picked up. But in those states that don’t have the Medicaid advancement, you’re out of luck. We estimate we’re going to fall short of coverage by some 5 to 10 million people. 

Does the ACA penalize employers?

For the small employer, fewer than 50 employees, there is no mandate, no penalty. If you are a large insurer, let’s say you have at least 50 employees, let’s say you don’t offer coverage to your workers. If one of your employees decides to receive a premium tax credit or cost-sharing subsidiary in an exchange, you have to pay a penalty. You take the number of employees, subtract 30 and pay $2,000 a person, even if only one of your employees successfully goes through the exchange. 

Secondly, if you provide insurance but it’s not covering them very well and it’s not very good insurance and they go through the exchange, you have to pay a fine of $3,000 per exchange person. You don’t have to pay a fine for everybody else.

This penalty has been deferred for a year. 


Are there other costs to employers in the ACA?

The federal government has decided we’ve got to pay for innovation in health care organization financing and delivery. There are 40 or 45 new commissions and agencies that have been established by ACA. It adds complexity. The Patient-Centered Outcomes Research Institute, for instance, supports research in comparative effectiveness. [In Missouri,] they charge companies a buck an employee every year to support PCORI. In 2013, 2014, it’s $2. It’s not a lot, but it does add up. 

Then there is a tax on insurance companies, and insurance companies include self-insured employers. This tax is used to provide a federal fund that would be redistributed to support those insurance companies that have adverse selection—in other words, that have too many medically needy people signed up to keep their premiums down. They want to collect about $25 billion. That tax this year is $63 per insured person. If you insure 100 people, it’s $6,300. This applies to all insurance companies. If you’re Blue Cross and you insure 90 million Americans, you pay $63 per person. That’s controversial. The GOP, which originally supported it, is now asking whether that shouldn’t be overturned. They think it’s an unfair tax. 

How can small and mid-sized companies bring down health costs under the new laws?

[Smaller employers should,] first of all, understand the law … 2,800 pages of [the ACA] built upon an already complex system. There are lots of consultants who would be happy to help you. But it’s all transparent; somebody in your company has to study it. No. 2, look at the wellness of your employees. There are things that an employer can do to promote health and better manage disease. I’d say about 80 or 90% of larger employers have some kind of employee-wellness education and promotion. It may range from an online notice every month for preventing some disorder like obesity, or smoking-cessation programs. At the other end are companies that have fully loaded medical [facilities] on their campus. The potential advantages to the company are better morale among the workers and reduced absenteeism, and there is some evidence that money might be saved.



Do national health issues like obesity and smoking affect cost?

Seventy-five percent of health care costs come from people with chronic illnesses. Twenty percent of health care costs are [taken up] by 1% of the population—it’s quite amazing—and 50% by 5%. Most are associated with aging; they increase in incidence with advancing age. They are marked by exacerbation and remissions that require often multiple hospitalizations. Then there is personal behavior. Obesity is increasing, and obesity is associated with a whole bunch of chronic illnesses like diabetes, hypertension and heart disease. This has expanded dramatically, not to make a pun, over the last 20 to 30 years. As many as 15% of children and adolescents are obese. 


What is your view of legal initiatives to limit unhealthy habits like overeating and smoking? 

We do it with smoking: We charge a huge amount for a pack of cigarettes now. We have reduced smoking to about 20% of the population. It used to be as high as 50 or 60%, maybe more, but still, the hard-core smokers are costing us about 400,000 deaths a year. [Legal restrictions] are going to be a tough row to hoe because people will object. It is an invasion of freedom. We may be able to create a taxation system, for example, on sugar-sweetened beverages, which is one of the major issues. 


Does malpractice insurance add to the increase in health care costs?

There’s a lot of work to be done on that. Most physicians have been sued at one time or another during their careers. Over 90% of neurosurgeons have had at least one lawsuit. We are the most litigious nation in the world. There’s a huge social cost to this from the standpoint of the physician, the patient and society, but the main financial cost is the practice of unnecessary medicine. We call it defensive medicine: physicians who will order that extra test or refer a patient to a subspecialist or hospitalize a patient when it’s not really needed just because of the fear of malpractice litigation. The most recent estimate that came out was about $50 billion a year. 


Are there ways to reduce litigation?

ACA doesn’t pay a lot of attention to this problem. One approach is basically a no-fault approach in which a state develops a fund that is overseen by a group of knowledgeable people. They hear the problem, and there is no trial. [Doctors] pay out—that’s it, it’s done. Vermont is playing with that approach. The second is what is known as health care tribunals. You have a group of judges—like they have in the financial industry—that does nothing but hear malpractice cases. They become expert. This is not a jury trial, and their decision is final. The information gleaned by that tribunal is passed on to the physicians or the institutions, say a hospital, so it’s a learning experience. The third is kind of interesting: acknowledge, apologize and pay. This was pioneered by the University of Michigan Health System. If there’s an error, the physician admits and apologizes for it, and then over the next six months the plaintiff’s financial needs are satisfied. That seems to be working. 


Would a system such as Canada’s ever work here?

Canada has a single-payer system, which means that people pay taxes and those taxes go to the federal government and to the provincial governments. Provincial governments negotiate payments for health care services with hospitals and with physician organizations every year, so you get care that is free, basically. It’s not going to work here. First, we have a republic. If you look at the 50 states and the District of Columbia, you find vast differences in virtually every aspect of life. There is no way in America that one size will fit all without the compliance of the states. Vermont is developing a single-payer system, and then we have Romneycare in Massachusetts, which is now Obamacare. We have Texas in which 25% of the population has no health insurance. 


If you could design a new health care system for our country, what would it look like?

I would set up a series of standards for quality of health care, as ACA does. You’ve got to provide a certain level of quality, and you can add to that with various bells and whistles. I would set up a national standard for quality, and I would allow states to develop their own programs with certain constraints, and the constraints would be to satisfy the quality levels as a minimum, and the minimum would be pretty high—which, by the way, it is. I would create a financial relationship between the federal government and the states that would rationalize the cooperation of the states with the idea that ultimately within each state there would be universal health care insurance provided with reasonable benefits. To force the states to do things that they don’t want to do is really tough, and the states are hurting now. It’s got to be customized for the states; let them plan it. 


Where do you think we’re headed in the future?

As Churchill pointed out, Americans do the right thing after all of the possibilities have been exhausted. What I think will happen is in five to 10 years we’re going to see the cost of health care continuing to rise beyond our predictions and we’re going to take rather stringent approaches. We’re going to end up probably with a two-tiered system—a Canadian system for maybe 90% of the people and a free-exchange system for the remaining people who can afford to buy private health insurance. We will have a simplified system. We’ll eliminate some administrative costs that way, and we won’t have the special interests that tend to drive up the costs of health care.

Deborah L. Cohen is a Chicago-based business journalist who writes about topics including entrepreneurship, personal finance and legal affairs. She was previously a correspondent for Reuters, Crain’s Chicago Business and Bloomberg News.