 I think we're about ready to begin. If you'd take your seats, please. One more time, please. Could you take your seats? And we'll begin our session here. Well, we'll begin with Dr. Callaghan. I guess I have a very fundamental kind of question. Dr. Aaron, in Dr. Aaron's fine book, which laid out much of this, he talked about the need for rationing. But that was not part of this discussion. I would wish you would say a good deal more. Where do you see rationing fitting into the future of American health care? An entirely fair question, since I've been involved with two studies that examined comparative levels of care in Great Britain and the United States for a number of specific procedures. In most, but not all of which, the United States provides higher levels of care. Strikingly, not at all. In some, the British are as generous and as open-handed as we are in the United States. There are reasons for the different relative differences between the two countries that these two studies addressed. The reason I chose not to focus on that today is that after a very long time of thinking about those questions, and despite a deeply held view that we will never successfully reign in the relatively uncontrolled growth of health care spending without confronting the issue of rationing, we are simply a long way from it because we do not have an institutional framework in which that dialogue currently can occur. If you think about the US health care system, I just really misspoke, if you think about the current US health care financing arrangements, there is no system. No, I'm quite serious about that. If you look at differences in levels of care, in styles of medicine, in how people receive care, the penetration of health maintenance organizations, the likelihood of being admitted to hospitals, the differences in usage in the United States, within the United States, are as great as they are within the European Union, which consists of many separate nations, and which makes no pretense to have a European-wide system. We have 50 different Medicaid systems that are radically different in the way in which they provide access to care. We don't have a system. What we have is a fragmented set of financial arrangements, no one of which, other than Medicare, has sufficient leverage to influence the practice of medicine in a significant way. The Twin Cities may be an exception because of the relative concentration of financing, but it's a rare exception. So, pardon me, Medicare, by statutory limitation, is debarred, dating back to when it was enacted in 1965 and the opposition then from the American Medical Association, is debarred from interfering in any way in the practice of medicine. So we don't have any way of confronting or framing of having an intelligent debate that balances our demands for care on the one side versus how much we're willing to spend for it on the other. For that reason, I think it is important to emphasize, from a different from traditional vantage point, the importance of universal coverage, what we have to have is a system in which everybody is assured of financial access to care before we can have an intelligent and effective national debate about how to constrain the total amount of resources that should be allocated to medical care and to force a debate on which forms of care we think are worth what they cost. So my reason was, if you will, influenced by events, not by any change in intellectual sentiment. I also believe, as I probably have made overemphasized excessive length, I also believe that the public debate currently is seriously off the track and is being shunted onto a side road concerning just public spending obligations when we must, if we are to deal effectively with our public spending obligations, recognize that they are tied up inextricably with the health care system as a whole in which we all participate. OK. Anything else? Just a comment in this vein. I was impressed, as many were, that during the mid-1990s with the HMO movement, the HMO movement did manage to curb cost in great part by putting in practice various policies that seemed to work very effectively, but were highly unpopular with the general public and with the medical profession. So I really would suggest the problem is a deeper one of American culture. I agree with you totally in the need for universal health care. But universal health care would have to actually, in a way, look like those HMOs in the mid-1990s. It would have to say no, no, no to many things. And I guess the question is, how do we deal with this cultural block, so to speak? Well, I'm not sure that it has to look like that. I think it could look like that. And that certainly would be one instrument by which trade-off decisions could be made about what was worth spending. The story on HMOs is that they have, all along, had average costs somewhat lower than did ordinary fee-for-service medicine. They spent more on some things less on others than other forms of medical care. During the 1990s, the movement began to spread. But I honestly think they must have hired, whatever a public relations expert is, in the world of anti-matter, what is the opposite of public relations, they must have hired them to manage their public policies. They managed to alienate the public massively by doing things like telling pregnant women they had to go home the same day and other such measures. Not pregnant, new mothers that they had to go home the same day that, what were they thinking, that did have the effect of alienating the public. Something else happened, which was Medicare somewhat changed its financing of enrollment of Medicare patients in HMOs. And it had the effect of reducing. HMOs were always concentrated in just a few places. They were concentrated there because payments in those areas were higher than the national average to HMOs. And Medicare, Congress took a look at them and said, oh, that's not a good thing. There's too much payment going on there and not enough going on here. So they lowered the payments in the high areas, raised them a bit in the low areas. But what they did was lower them enough in the high areas to make it unattractive. But they didn't raise it enough in the low areas to make it attractive. And so enrollments fell off through Medicare. You put those two things together and it looked like health maintenance organizations were going the way of the dinosaur. I don't think that's the case. Part of the Medicare Modernization Act in 2003 was the institution of overly generous payments through Medicare to people who enroll in HMOs. And there is a resurgence of Medicare interest in such organizations and all kinds of non-traditional Medicare enrollment arrangements. And I think we may well see a resurgence of interest in health maintenance organizations as regulatory devices in the future. But right now, they're sort of in the pits. Well, kind of following along this, please comment on the Massachusetts health care model and whether that may be a realistic statewide approach to access and funding. I think it is a realistic approach. It is not a perfect approach. I am not a Massachusetts resident and I haven't been intimately involved with that system. But I know people who have, including if there were a list of four or five health economists that I would say were the best in the country, one of them was intimately involved in planning the effort. And his reaction to it is, I think it hangs together. It's not, it's going to need tinkering and adjustment. But if, and it may take a bit more money than has been currently appropriated. I think the way to interpret Massachusetts is not necessarily that it is a template for all other states, but in a design sense. But that it is a bellwether in a political sense of interest in many states around the nation in a variety of approaches to extending coverage to their residents. I included a sort of a throwaway line in my comments that there was a liberal way, a conservative way, and what I'll call a federalist way, to approaching universal coverage. I act, my own personal belief is that the federalist approach is the one that has the best prospect of making progress in the near future if the federal government smiles upon such efforts. By smiling, I mean two things. Providing some money to help states bear what will be additional costs of covering everybody, and some legislative flexibility in moving funds around among different pots that are restrained by current law from being used for purposes other than those stipulated in law. This is an approach, I'm going to put a full-blown plug here, this is an approach that I thought of about four or five years ago. Actually, I thought of six years ago. But nobody was interested six years ago. I discovered that another policy analyst at an organization I have almost no agreement with on anything, the Heritage Foundation, had come to a similar view. Both our views were that the state child health insurance program, so-called SCHIP, which is a program under which the federal government gives money to states so that they can extend health coverage to children in a wide variety of different ways, which has been quite successful, was probably a model that could be followed for general health insurance coverage. And we've worked together on that for some time. As it happens, there are now two, and I think soon will be three, bipartisanly sponsored bills introduced into Congress, one in the Senate already, one in the House, and another one in the Cooker for the Senate. The Senate bill is Senators Voynevich and Bingaman. The House bill blends two people who really do never agree on anything, Tom Price, a very conservative Republican from Georgia, and Tammy Baldwin, a very liberal Democrat from Wisconsin, and two other members of Congress, one Democrat, one Republican. The next Senate bill, which is being worked on now, there's discussions between Senators Fine Gold and Lindsey Graham. I think there's a lot of interest in Congress in this approach, and there should be. There should be because there is no prayer. There isn't a prayer in the hell of the advocates of any of the pure strategies getting a majority in both houses of Congress, certainly in the Senate that could override a filibuster. But there is a willingness, I think, a growing willingness on the part of elected officials who recognize that the electorate is getting worried and frightened that something does need to be done, and our Washington officials can go back to their constituents and say, we did something, and we did something real by facilitating action by state legislatures and governors. So I believe that in the next year or two, you may see more of that strategy. I think it's the most promising one. It's not anybody's first choice. I have my own preferred ways of achieving insurance coverage for everybody. I'm sure other people here do too, and that isn't it. But as a realistic person who wants to see action rather than another seven decades of deadlock, it seems to me to be the most hopeful approach. Quick footnote. Canada started that way. Yes, of course. Historically, Saskatchewan in 1947, then to Alberta, and finally to the federal level. But it still is a provincial system. I have a cluster of questions here. I'm trying to guess at the age group that we're talking about here. They all have to do with the cost of drugs. Any comment on drug costs? How much is the cost of medicine due to high costs? Let's see. What percentage of American health care costs are attributable to prescription medication? And what can we do to hold costs down? Medications back around 1960 or there about took about 14% of our health care dollar. They're then ensued a lengthy period during which other forms of medical care came on stream. We got new kinds of radiological procedures, CT, MRI, coronary artery surgery, joint replacements, you name it. And there were relatively few expensive drugs coming on stream. The share of health care spending dropped to 7%. Sometime I think during the 80s. They're back up to 14% now. Is that too much or too little? Well, there are two ways of looking at this. And boy, am I going to earn this. My stripes isn't on the one hand on the other hand economist. On the one hand, they are very expensive. And the share of spending has been going up. There's every indication it may not go up at the same rate as it has in the past, but drug costs are going to keep going up. On the other hand, drugs are a substitute for hospitalization and in many cases, slow progress of disease or prevent the onset of disease. How many in the room here are taking statins? OK, well, you and I and everybody else here are hoping that's not going to lead to a congestive heart failure or coronary artery disease that would lead to a heart attack. But they're not cheap unless we take zochor in which case it's a little cheaper now since it just went off patent. So on the one hand, yes, they've been going up a lot as a share of health care spending. On the other hand, they do replace other medical expenditures. And there are some reputable studies that suggest that the net effect of increasing drug spending has been a net reduction in total health care spending. I'm not prepared to endorse or disavow that, but you should be aware that there are respectable studies that make that case. The other on the one hand, on the other hand, is there are two prices that are, if you will, polar choices for how you would price drugs. How much does it cost to make the pill? Well, in most cases, not all, there are some biologics that are quite expensive to make. But in most cases, the cost of making the pill is very small pennies, not the several dollars a pill or even hundreds of dollars a pill that may be charged in some cases. In other case, the other poll is the cost that will enable the drug company to finance a level of operations similar to the one that it is currently operating. And that price means that if you have a successful drug and no close competitor, you charge a lot of money for it, and you use those proceeds for some good things and some not so good things. First of all, you do use it to fund the laboratories that will try to be developing the next generation of drugs. And high drug prices do pay for the drug research on the next generation. They also pay for drug detail men that go around and try and persuade doctors to recommend this pill. And it goes for direct consumer advertising that tries to get you to go to the doctor and ask for the pill. And it goes for high dividends for the stockholders. So somewhere between the price of making the pill, which would mean there wasn't any money around for all of those other things, all of those other things, not just the dividends for the shareholders and not just the direct consumer advertising, but also the research for the next generation of drugs. Somewhere between that price, which is what economists call the marginal cost of producing the pill, and the average cost of basically sustaining the business enterprise is the range within which drug companies decide how to price pills. And you can make an argument for both of those. I have sometimes thought that it might make sense if instead of granting patents to drug companies, which authorize that, give them a monopoly, say you can charge whatever you want, that the government appraises the usefulness and value of the drug and pays the drug company a lump sum and then the pill is made available at marginal cost. There are a whole host of actual operational problems who are trying to do something like that. And it may not be a good idea, but there's a real dilemma here, a real problem. And there is no getting away that whichever way you do it, you've got a host of difficulties. We have this crazy system in the United States where we grant monopolies, authorizing companies to charge a whole lot of money, but then we socialize the cost through insurance. We all end up paying higher premiums one way or another for our insurance, which covers those of us who have drug plans. And oh, yes, there is the detail of those without drug plans. They are stuck with very high drug costs. It's a crazy system, but it's the one we got. Well, here's another problem. It has to do with medical education. It says, in the US, more doctors are going into specializations and away from primary care significantly. It says it was 50%, now 20%. It says, in our ER, Medicare reimburses $29, and private insurance pays $150 for a patient. What new grad from med school can afford that? The average loans, I suspect, are $60,000 to $80,000. The second question is, is a cardiothoracic surgeon really worth 10 to 20 times as much as a psychiatrist or a pediatrician? And is there a possibility that medical education should be completely paid for by the government as opposed to partially subsidized? Next question. I think there's a different age group involved this way. I said, next question. Next question. Where should I begin? How about just a question about medical education? I think there is a case for public support for medical education. It would have the effect of freeing newly-trained physicians from the financial pressure that they now confront. And that has, I think, fairly pervasive effects on what newly-trained physicians in fact can do, because they do face these debts. There was a government program that forgave medical loans if individuals agreed to practice in underserved areas. And I confess, somebody here may know whether that program has survived. I do not know. But it seems to me that perhaps broadening that program to include a larger list of activities that would earn forgiveness for medical loans is something that does merit serious consideration. Our cardiothoracic surgeon is worth more than psychiatrists. Some are, and some aren't. Here's our last question. I don't know whether he's completely serious or not here. How about asking Walmart to take over medical care for the primary and secondary care to minimize health care costs? You know, sometimes I get jealous of physicians and think they just earn more money than I do and too much more money than I do. But you know, angry as I may be sometimes, I wouldn't wish that on them. Thank you very much. That'll conclude our session here. We'll reassemble at 3 o'clock for our final talk by Dr. Webb.