 Good afternoon. Welcome to the Ford School and to this lecture by my old friend Chuck Pellison I will introduce in a moment. I want to acknowledge the support of the Gil Oman and Martha at Arling Health Policy Fund and the health policy student association, some of whose members are probably here. My name is Paul Koran. I'm a professor in Ford School as well as a part-time university librarian. And it's really my pleasure to introduce Charles Phelps, whose I've known in a variety of contexts. We were promos at the same time. There's a bunch of secret handshakes we wrote down. He has been a mathematically-rounded economist interested in policy for a long time. That's a fairly small group of people, although there are several of them on the Ford School faculty, as well as the University of Rochester faculty and a number of others. I first knew him as one of the founding leaders of an organization called the Association of Public Policy and Management, which is still active and important. And he was the secretary of that group. And he was the first person I knew who carried around a portable keyboard that wasn't attached to a typewriter. It wasn't much of a computer. I never quite figured out exactly what it was. But he was there producing ASCII files long before people knew when ASCII files were as secretary of this group. And the Association for Public Policy Analysis and Management has been an extremely important entity in the development of analytical policy, policy analysis, and management. And Chuck was one of the leaders in that area. He's done an enormous amount of work in health economics and related areas, health policy, medical decision analysis, cost-effectiveness, the various interventions, has written a textbook on the subject, which is in its fourth edition. I cannot tell you from my librarian perspective when there's a textbook in the fourth edition, somebody had to send their children to college. And then some. And he's been, as I said, a leader both in health economics and health policy, in the organization of public policy and universities, in the leadership of his own university, the University of Rochester, once he has now retired. And without further ado, I want to ask Chuck to come up. Our own worst enemies, how we in our government extended and exacerbated the health care mess. I, Chuck Will, at appropriate times, have been charged with his own show. There'll be a lot of opportunity for interaction. Thank you. I'm pleased to be here. Said Paul and I have known each other in a number of circles, both in provosts and the world of libraries. Of course, provost emeritus, and my title emeritus means I got out of town before they ran me out of town after I stopped being provost. And provost, in case you don't know, the origin is from the Latin word for jailer. So I'll just leave you to discern your own conclusions about that for my good friend Paul and myself. The, what I want to do today is have a conversation with you. I know there's some time for Q&A that's sort of, some time for talking, some time for Q&A. And I'd rather mix them up. So if you have a burning question, I'll try and see if we can deal with it on the fly. And if I think I'm going to come to the point of answering a little later on, I'll ask you to defer. And then if I don't get around to it by the time we actually come to the real time for questions, you can come back and ask me again. That's my rules for the engagement, and I guess I have to enforce them. So the first thing I'd say is a shameless promotion. Much of the material that I'm talking about today comes from a book that was published last year by the Hoover Institution Press out of Stanford. Eight questions you should ask about our health care system, even if the answers make you sick. And so if you like what you're hearing today, you can find some more of it in this book. And if you don't like it, you can get the detail and refute it if you wish. So let me give a quick overview of where I'd like to take this today. There's been for a, if you go back into it, at least to the days of Franklin Delano Roosevelt's presidency before World War II, a longstanding discussion in the United States about whether or not we should have universal insurance, health insurance coverage, and if so, what should it look like? And that issue arose during, at least during the administration, prominently during the administrations of Roosevelt, Truman, Nixon, Carter, Clinton, and finally Obama, and only the last of those actually resulted in legislation. One can say Medicare during Lyndon Johnson's administration for the elderly and Medicaid for the low-income populations, but that was not universal. So in that some sense, that was kind of halfway step. But all of these discussions, in some sense, are sitting there with some sense of disquiet about how our health care system is working. And the disquiet has been increasing through time. I'm going to show you some data on this in a minute. But I would say the disquiet centers primarily on the following issues. First is that we are spending a lot of money on health care in this country, either in dollars or as a percent of our gross domestic product per capita income, if you will, more than any other country by far, and we're doing so at an increasing rate. And that alarms some people as they look to the future. The second problem is that if you compare at least on things that we can measure easily across countries, we're not getting very much bang for the buck for our medical spending. And the two most prominent of these, the easiest to measure, maybe we're looking for the keys under the lamp post, but if you look at life expectancy and infant mortality, which are very easy to measure and compare across nations, we're not getting nearly as much for the buck as other nations, even though we're spending a lot more than other nations. And then as we look to the future, I think it's almost certain that the money we're spending on health care is going to rise through time. And that's gonna come through three prominent reasons, all of which are moving almost glacially and hence, unstoppably. The most important of these is the population is aging. I'll show you some pictures of this in a minute. If you're young, it should scare you a lot. If you're old, you can say thank you to the young for helping with this problem. The second is that despite the current economic trials of our country and the rest of the world, over time, our economy will grow and health care grows on average at a faster rate than the economy in general. The income elasticity is about one and a half to two if you wanna throw a few numbers at it when you look across nations. So growing income will add to the spending. This might be a really good idea, by the way, I'm not saying it's necessarily bad, but those who worry about it. And then technology is going to add. New technology comes in. New technologies don't save money. They improve our wellbeing, but increasingly in ways that cost more money than the low-hanging fruit that we had in our healthcare system earlier. So as new technologies come in and our insurance systems decide to cover them, we're going to further spend more money and you couple those three things and we're going to spend increasingly large amounts of money. We spend about 16% of our gross domestic product on healthcare right now. And I can easily see before I'm incapable of assessing numbers anymore that that could rise to 20 and perhaps 25% within the rest of my lifetime. Hoping I live long enough to see that, but hoping it doesn't happen necessarily. And finally, I will show you some numbers that lead me to conclude that what we're spending, we're wasting a lot of money and we're wasting in ways that are pretty easy to demonstrate at least on broad geographic terms. There are huge differences across regions and how much money we spend on healthcare. And when we look carefully, no measurable improvement in health outcomes across a wide variety of measures in the areas that are the highest spending rates. And so that's to me one of life's great mysteries is how we got into this world of these hugely disparate patterns of medical care use. And in many cases where there seems to be no measurable benefit arising from it. So that's kind of an outline of where I'd like to move this today. So let's look first at the low bang for the buck. This slide got a little weird in the projection. The graph here is per capita healthcare spending horizontal axis ranging from this case from 1,000 to about 7,000. And life expectancy on the vertical axis, life expectancy of birth. And it's kind of a sloppy fit. There's a couple of countries down here. Number 11 is Hungary and number 21 is the Slovak Republic that have quite low life expectancy. And nevertheless, there's a trend line that's kind of a sloppy fit, but nevertheless a trend line that says more medical spending is associated with more life expectancy. And then the United States is over here. That arrow is supposed to be right above that, there's the United States way below the trend line, which would be up there at the medical spending we have. Now life expectancy is of course not the only measure of health benefit. There's a lot of gains we can get for a healthcare system beyond life expectancy, but that's one of them that we can compare across international boundaries. And the second, which is this label infant mortality, it's really perinatal mortality, which is a definition of infant deaths both before and after, near the time of birth. And these are data from the OECD looking at infant mortality rates. And here the fit is somewhat tighter. Again, country number 12 turns out to be fairly low in this Iceland. I think that's a little bit of an anomaly of data reporting in Iceland, but a pretty decent trend line fit on that, that the more we're spending per capita on medical care, the better our infant mortality rate is, except for the United States, way up there off the trend line. Now these are the only kinds of data you can actually make comparisons of outcomes across nations with any sensibility. There have been some more refined studies that look, for example, between upstate New York and Ontario province right across the border in across Lake Ontario, very similar climates, similar populations in education and earnings. And for example, if the United States does about twice the amount of coronary bypass surgery as the same citizens age-adjusted and sex-adjusted citizenry gets in Canada, and there's no difference in mortality outcomes. But when you go in and look carefully underneath that in this more finely tuned comparison, you see that the citizens in the United States with the higher rate of coronary bypass surgery have a higher capability and activities of daily living, like being able to walk upstairs and walk to the store, they have more freedom from chest pain. So in a lot of more refined measures, you're actually seeing health benefits arising out of this, and they don't show up in these international comparisons. But nevertheless, these are what we have, and as I said, we might be looking for the keys under the light post, but these kind of numbers are disturbing. I've also, I don't have a slide to show this, but had people wonder, gee, if all this effect on life expectancy comes with infant mortality, what happened if we could clean out the infant mortality effect and then see what happens to life expectancy? And so I've looked at what the life expectancy is for persons at age 25 instead of a birth, and the picture looks essentially just like this one. So cleaning out the infant mortality story doesn't change the fact that we're still having low health outcomes for healthcare spending in this country. So that's problem number one. Problem number two is we're getting older. Now this folks should make, the young folks of you in the room, real nervous. This is a standard demography picture. It's called a population pyramid, and when they look just right, you start out, each horizontal line is an age bracket, and the size of it shows how many people there are in that age group. The ones on the right are females, the ones on the left are males, and the traditional pyramid, which is what it's called that, it just slopes up so it's shaped like a pyramid and peaks with a single narrow thing at the top. And this one in 1950, you can already see the beginnings of changes in the population, but this young age group in particular, you can start to see the baby boom, and then as we move to the year 2000, that baby boom is now up in the age bracket, and so like a lot of us, the population pyramid in the United States has a mid-riff bulge, a topic to which I will return shortly. Take this out to 2020, these are extrapolations, but demographers can do these extrapolations with very high degree of accuracy, and you can see that that pyramid has almost become a cylinder. Let's say there's almost as many people in the elderly age groups as are at the younger, and remember in our system of Medicare financing, the people in this age group are paying the Medicare taxes that are financing the healthcare for this group. That works a lot better in this population than it does in this one, and we take it out to 2050 when I won't be around, but you can see that this has not only become a column, but it's become in fact an inverted top hat. And you also notice that the line on the right side is a lot bigger, the women live a lot more than longer than men, about six or seven years longer in life expectancy in our society. Some of it is probably hormonal protection. I think most of it is due to the fact that men smoked a lot more than women earlier in their lives. Another topic to which I will return. These numbers, now of course, what's scary about these numbers that elderly persons, because our bodies are wearing out, just use medical resources a lot faster than younger people. So as the population ages, like the 2020 number, which is not real far away, eight years away, those kind of population distributions just guarantee you're gonna be spending more money on healthcare, no matter what else happens. And the 2050 one is actually real scary. My son will be up in that age population in 2050, but I will not. Sorry, wrong direction. Okay, now, problem number three is income will continue to grow and so will medical spending. This turns out to be an extraordinarily strong predictive power. If you know how much income per capita a society has, you can tell with a high degree of accuracy what their per capita medical spending is going to be. And that statement is true almost independent of how healthcare is organized in their society. So we have, again, you can see the exact nations, but in the middle cluster here, we have nations like Germany and Japan that have a healthcare system that's not completely dissimilar from ours, but universal insurance. You have Australia, which is quite market oriented. You have Canada, just to the north of us, which has social insurance, but healthcare system, not the insurance, but the healthcare system is much like ours. You have Great Britain, which has the British National Health Service, and you have Sweden, which has healthcare provided by counties. And all of these are on this extremely tight fitting regression line. It just doesn't matter how the system is organized. You get to the same healthcare spending because of the income. It's just a very strong relationship, and it occurs in every dataset I've looked at across many years. So what that tells me is as our income grows, and in fact, all of these societies, as our income grows, they're gonna be moving up in the spending line. Now, the other problem, of course, is there's the United States way up off that regression line. It's a very high outlier. If you think that there's a curvature to it, you can bend a little bit of a log fit that seems like it goes up there a little closer, but the US is a big above the line outlier on any count. So not only is our income growing, but we're way up there on spending. And several reports I've seen say, a non-trivial chunk of that is due to the way we compensate physicians relative to other nations. But that's a question which I'm not going to try and delve into today. Problem number four is technological change. Now this, I'm sorry, is a very hairy slide, but I'll just give you an easy way through it. Let's look at actual dollars spent in 1960 and in 2010 in the US economy on healthcare. These are billions, billions because we're talking about the federal government or the total economy. $23 billion spent in 1960. That was the total amount of money spent on medical care in the US. In 2010, that was $2,435 billion, a $2.43 trillion. So the ratio of that $23 billion to that one, the ratio is 106. The amount of dollars being spent increased by a factor of 106 over that 50-year period. I just want to look at these numbers across the bottom now, so you know what they mean. If just simply take an adjustment for inflation using the consumer price index, and we put all these in constant $2,005, that number drops to merely 14. That's still a CPI-adjusted 14-fold increase. We can then say, oops, the population has grown, let's adjust for that, and so we can do this on a price-adjusted and per capita basis, the number is now 8.2. Now comes the last step, which makes every health economist nervous. Let's adjust it by the medical price index, which is a component of the CPI. That's real nervous time, because the component for medical care in the CPI doesn't take quality adjustments into account. For example, a major component of it is a semi-private hospital room. Well, that's a very different beastie now than it was in 1960. So if you make that adjustment, this falls to 2.8, but some of that is technological change, so something between about a factor of three and about a factor of eight is the effect of new technologies introduced into our healthcare system. And I can't tell you that's a big gap, but that I can't really give you a lot more precision than that somewhere between three and eight-fold increase in real per capita spending that's technologically driven, and that technology is continuing to come down the pipe. Now, just to reflect back a minute, many of you in the room are not old enough to remember some of this, but the changes in medical capability over this 50-year period just, they're almost beyond imagination. In 1960, if you had a serious bodily injury, they could take a plain film X-ray. Now, if you've ever looked at an X-ray compared to an MRI or a CT image, the X-ray looks like a crude children's drawing for most medical problems compared to what you can see in modern imaging. And then PET scans actually can not only measure structures but physiology, they can actually find out where cancer is growing with a PET scan by injecting you with a little radioactive sugar and then watching it glow on the images. Heart attacks, another technical change. When I was young and growing up in Denver, Dwight Eisenhower, the president had a heart attack while I was in Denver. The best medical treatment around at that time, including for the president of the United States, was eight weeks of bed rest. We now know actually that's pretty bad for the patient. But what we have now, instead of that eight weeks of bed rest, is we now have coronary bypass grafts, implantable defibrillators, stints, a whole bunch of drugs that reduce the risk of the heart attack itself and eventually heart transplants. All those extend life and in fact, about a third of the gains we've had in life expectancy over this period of time have been due to improvement in survival from heart disease and they all cost a lot of money. Mental illness treatment has proceeded similarly. The treatment in 1960 was if somebody was schizophrenic or other serious mental disorders, you put them into a mental institution forever. And now we have a whole bunch of non-trivially expensive pharmaceutical products that actually reasonably well, not perfectly, but reasonably well control psychiatric illnesses. Knee replacement, something near and dear to my heart. I tore an anterior cruciate ligament in an intramural basketball game in college and it's been grinding away slowly ever since then. I now, instead of just wearing a leg brace around and taking a lot of Advil, I have a metal knee. It's hugely improved the quality of my life. Before that, I would not have been able to stand here and lecture to you, I would have been sitting in a chair here. The only downside is that every time I take an airplane trip, I get a free massage from the Transportation Security Agency on the way through the gate. And it's a whole bunch of implant devices like that, some of which you shouldn't bother with. But certainly knees and hips have worked well. Shoulders kind of, wrists don't bother. I've experiencing almost all of these questions in my own makeup. Strokes, if you had a stroke in 1960, you got some physical therapy and thank you, good luck. Now there's anticoagulants that could be administered if you get them soon enough from the emergency room after your stroke. They will vastly reduce the neurologic damage. They have robotic surgery to clean up the messed up arteries and blood circulation in your brain to improve your recovery and diabetes. It was a once a day shot with insulin which left these wild swings and insulin control. Now you have pumps that continuously monitor the blood sugar of the individual and feed in insulin slowly and steadily. Vaccines, just one more. We've almost eliminated polio, homophilus, and influenza B, cervical cancers to some extent, and most of the common killers of the 19th and the first half of the 20th century with vaccines and antibiotics. There are now 25 active vaccines in use around the world. The next one will cost a billion dollars to develop and each one there after that or more. So problem number five, and this is the one that puzzles me most. When we start looking at regional patterns of medical care use in the United States, we get very strange maps appearing. These maps come out of the Dartmouth Atlas, some Jack Winberg and his colleagues at Dartmouth Medical School. This shows in the color coding down here, the darker the coloration for a region, the more per capita spending. The national average is about $9,000 in this year. This is in 2008, the most recent year they have up. And you can see these clusters of high spending, Texas, Florida, and then there's Northeast and there's Band along there. Now I want to just take a little more careful peek at a couple of these things, zoom in on Florida. This is very illuminating in a number of ways. First of all, remember the national average, this is a couple of years older now, so the average in this was $8,700. Miami is at the top of the heap, at $17,274 per Medicare recipient. These are all age and sex adjusted by the way. So this isn't just that the Medicare people in Miami are older. And these are all age, sex adjusted. Just across the state, you're at $8,300, a little under the national average in Fort Myers. Tampa's a little above, Orlando's a little above, Tallahassee is still lower up at the top of the state. Almost $10,000 a year difference in treating Medicare patients per age, age, sex adjusted per person in Miami, there is in Tallahassee. Now, the other thing that goes on is when you go in and look carefully at these, and this is what the reference to Fisher, Weinberg, Stuckel et al from 2003 is, you don't find any differences at all in mortality or activities of daily living, functional measures, or satisfaction with care, or patient self-reported health status. There are no differences across these various regions in any of those measures for Medicare recipients. So this really raises the question up of if these differences are going on, and we don't seem to be able to measure benefit in very many ways, if any, in this work, the ones they looked at in no way, how do we get into that situation where we're apparently spending healthcare dollars without any significant benefit? Yes, sir. Is the cost of living in general in Miami a lot higher? Cost of living is about 15% higher in Miami than, but certainly not been in Fort Lauderdale. The other question I'm often asked is, is maybe it's malpractice, and that's one of the reasons why I really like this slide, because this is all in exactly the same legal environment. It's the same malpractice law in Florida in every city. So it's really hard to pin this on the malpractice law because it's all the same here. So one of life's great puzzles as to how this happens. If we look, I'm gonna turn up the microscope a bunch of ways instead of total costs for treating Medicare patients. This looks at hospital discharges per thousand enrollees. The US average is about 336, and then just wandering down Interstate 94, Kalamazoo, where I spoke about this yesterday, is about 340, and Arbor is about 360, Detroit is about 405. Remember, these are all age, sex-suggested measures. So what's causing this? Maybe it's the Appalachian Trail. Probably not, but it's a pretty good fit. Better fit than some of the regressions I showed you earlier today. But that's, now I wanna keep turning up the microscope here just rapidly and show you what's going on. So this is hospital discharges per thousand enrollees. So now let's look at inpatient care in the last six months of life. And you see the same pattern essentially, but now not just for hospital care, but for a more specific type of hospital care, and that is in the last six months of life. Of course, we never know what the last six months of a person's life are until they pass away, but nevertheless, there's a trend here that's showing up. And when we look in at the percent of all deaths within the hospital, where we do know what some of the alternatives are, for example, hospice care or nursing home alternatives, the map looks extremely similar. You still see the Appalachian Trail effect. And in fact, we can turn up the power of the microscope one notch further and look at the use of intensive care in the terminal hospitalization. And again, you see essentially the same pattern. There's a little more of this out in the Southwest of the United States and Southern California. And if you look down in this Florida area, every time we turn up the microscope, we see these same sort of patterns emerging. And this tells me a couple of things. Obviously, one of them is that it's not waste, fraud, and abuse. There's certainly a lot of that going on in the Medicare. There's fraudulent billing for things that never happened, not in intensive care units, folks. That's not where the waste, fraud, and abuse is going on. And these patterns still keep emerging. So I'm convinced from looking at this, there are very important differences in the way communities come to believe that the healthcare system should be used. There are agreements between patients and their doctors. I have no idea how those implicit agreements are set, but we can find them and they keep repeating themselves year after year after year. And it's not due to age, tomography, or illness patterns. Yes. Any comparison between the utilization patterns for Medicare patients and whether or not they're on traditional Medicare or they're on Medicare, HMO, and Medicare? Yeah, most of these data, these have been done over a series of years and they look very similar from year to year, even before Medicare Advantage Part C came into effect. The Medicare Part C enrollment is getting large enough. Now you begin to parse that out. It hasn't been done yet by the folks at Dartmouth. I don't, it'd be interesting to see what the answer is. Of course, I'm now on Medicare since I retired from the active faculty of the University of Rochester. I had to go to Medicare. And before that, I was on a high deductible HSA, a consumer directed health plan. They won't let me have one of those in Medicare. And it just drives me crazy because I thought it was the best thing for me, and certainly not for everybody, but my choices are limited in that. So there's the policy problem staring us in the face. I mean, certainly there's a lot of variability in medical care spending. We cannot say, and I wanna emphasize, we cannot say with any reasonable plausibility that Miami is too high. All we know is it's bigger than anyone else. But they might be dead on just right and we might all be spending not enough. Now, of course, we do have this notion that we're not seeing any health benefit from that extra spending compared to other places in Florida. And that sort of analysis is giving us a stronger suspicion that in fact, the high end is too much. But that's really the problem. Yes, we had a question in the back. Yes, sir? I was just wondering what about the distribution of sub-specialists? What does that look like? And the distribution of hospital beds or ICU? Yeah, the folks at the Dartmouth Alice have, the question is, is this following patterns of medical specialists and hospital resources? And the answer is the folks at Dartmouth have done some work on that. And you could probably, if you want to crawl around on the Dartmouth Alice, and it's a pretty good website and find more detailed answers to that. The problem that economists see when they look at that is, we don't know whether the resources have caused the utilization or the fact that people want the resources and they flowed there to respond to that. And it's very hard to disentangle that, particularly in these type of data. So I suspect that there is some correlation between those. I'm not willing to assign causality to the fact that if you put some resources in there that people will come and use them. They have to want to use them after all. They're getting some, we do know that there's some important features about that. Florida is rampant, for example, with physicians owning various types of like an imaging facilities. We know from a very careful study in Florida that physicians who have ownership stake in imaging facilities, orthopedic surgeons recommend imaging studies at four times the rate of orthopods who don't own imaging facilities. So there's certainly some of that going on and I would be foolish to say otherwise, I can't tell you how much of it. And then one also must wonder why is there so much of that going on Miami relative to other parts of the same state which have the same tax law and the same malpractice law and everything. So it's, I said, there's a lot of reasons to think we know what's going on in some of it but I don't know anybody that can say with confidence how much of this is due to various parts. And I would, if I said that, you should run me out of town because I have no logical basis for asserting how much is due to what. And thank you, that's a very good question. This leads me to the puzzle. I'm prepared to say we seem to have a lot of medical treatment going on because of these variations without apparent benefit. So how do we avoid that? And I'm an economist, I'm always thinking about incentives so I wanna puzzle around about the incentives that lead to that. One of them is setting aside the Medicare population. We have too much health insurance in this country for those who are insured. Our tax system subsidizes health insurance. The average subsidy is about 35%. So we end up with people buying health plans that don't have any cost consciousness built into them. We end up with people insuring, if there are dentists in the room, please forgive me. There's no particular reason to buy dental insurance. There's just not much, very much financial risk associated with that. If you cave your face in in a vehicle accident, your medical insurance will pay for it anyway. The reconstructive surgery. So we're really talking about insuring the dental insurance, things that are very predictable on average, not quite as predictable as grocery bills but pretty predictable. And we insure that because our tax system subsidizes it and that has derivative effects on how much medical care we use. And that's true also of almost every type of healthcare. How do we guide decisions to the most appropriate intensity of care? In fact, it'd be nice to know, where is that most appropriate intensity? And we don't know that. Why do we pay for care with little or no benefit? And on and on, these are not easy problems to fix and I don't know the answers but they I think are somewhat the core of the issues confronting our society as we look forward. But that is not the fundamental problem. The fundamental problem is ourselves. The first set of problems are related to the government and government policy. The second problem is to steal the line from Pogo. We have met the enemy and they are us. This is one of the most eye-opening and to me eye-opening and transforming research studies I've ever seen in my life. Let me walk you through this. The first of these was done using 1990 data, 1990 data by McGinnison Foggy and then replicated using 2000 data a decade later and somebody I'm sure is furiously working on doing this with 2010 data now or will be very shortly but the numbers are pretty striking. So let's talk about what this means. This is the actual causes of death in the United States. Now death certificates, there's a national death registry in the US and the death certificate lists the cause of death that the physician has written down. So if the physician says lung cancer, that's the cause of death on the death certificate. What McGinnison Foggy did was to go through all of those deaths and look at the deaths for lung cancer and then sort out how many deaths are attributable to tobacco use and then those which are not and the deaths that are above and beyond that which would be predicted for non smokers are excess deaths that are attributable to tobacco and then they add that up across lung cancer and a bunch of other cancers and emphysema and chronic obstructive pulmonary disease and heart disease and the many other things that smoking does to cause medical care costs and medical expenses and death and they added up all the extra deaths associated with tobacco. There were about two million deaths in the United States. This one million was about 50% of all the deaths in the United States. 400,000 of that two million were attributed to tobacco. Next on the shopping list in 1990 data was 300,000 to poor diet and physical inactivity. Alcohol consumption was third. Microbial agents is fourth. That's bugs that we run into toxic agents in our homes and in our workplaces, motor vehicle accidents, firearms, sexual behavior, illicit drug use, 1% of all the deaths in the country, 30,000 deaths in that year. That number's gone down a lot since then because of HIV treatment. And then illicit drug use of 20,000. So let's look at the 20,000 and the 300,000 and 100,000. This is a completely side comment but folks were fighting the wrong drug war. I'll just leave it at that. This set of excess deaths from these things adds up to about half of all the deaths in the United States and comparable by the way in medical care expense I'm quite sure although I have not seen detail on that. Just second I'll get to your question. Almost all of these are lifestyle choices we make. They're our own behavior. Perhaps the only counter examples to that would be microbial agents and toxic agents to some extent but I'd say almost all of these are behavioral choices that we make. Now the question, yes sir. Sort of natural history of illnesses. You were saying that they determine that baseline and then whatever's above that, that's what's going in their attributing to drugs. I don't know how are they getting that baseline? Yeah, the way you do that is epidemiology studies in every one of these cases. Thank you, good question. Epidemiologists calculate the relative risk of smokers and non-smokers. And then you look at the cohort that's just died and you can tell from good survey data what fraction of them are smoking and you look at the excess risk from smoking in that population and you can back out the excess deaths out of that. So it's basically all hinged on careful epidemiology studies of the relative risk of smokers and non-smokers. That's a quick summary answer. Yeah, those are stuff that's not as smoking, Framingham Heart Study, I could think of if we had that for other things. Yeah, there's good data on an enormous variety of the tobacco consumption, for example. I've even seen really good relative risk data that says the pets of tobacco smokers are at higher risk of death than non-smokers. Secondhand smoke pervading its way in. So yeah, I'm confident that McGinnis and Foggy, their article explains this in more detail and then the subsequent work, they've got pretty solid epi-evidence on all of these relative risk numbers. They may be wrong a little bit, but even if they're wrong a little bit, the story is quite strong, I'm convinced. I have a question here and then with you, yes. You may be getting to this, but the cause of the death don't necessarily translate into higher health costs. Those people who are dead are no longer on the healthcare system. Yes. Well, that's particularly true of tobacco. Actually, there's a lot of medical expense. I'll show you a slide on this in just a moment attributed to these behaviors. But particularly if you add up across all the public pools, tobacco users, smokers die earlier and hence although they spend more in Medicare, they don't consume as much Social Security resources. So there's actually a careful book written about this by Will Manning and some colleagues called Do Smokers Pay Their Way that goes into that in quite some detail. And the answer is almost when you count the fact that they're not drawing Social Security resources nearly at the rate of non-smokers. I just wondered if that's been compared to European countries. Yeah, actually, not just European countries, but anybody who's traveled knows there's a lot more smoking going on in Europe and Japan than there is in the United States. So one of the puzzles which I have pondered a lot is how come if they're smoking so much more, they have such a better mortality rate? And I can't prove this. My suspicion is just a guess is that they make up far more on these other dimensions probably mostly on obesity and lifestyle. They walk a lot more, they're not as heavy in general and body mass index calculations across time and space. And so my guess is they're making it up on these other behaviors, but it's a good puzzle and it's a great dissertation student for somebody here in the Ford School to track down data that would actually look at the rates of these various behaviors in other societies and unravel how it is that they can smoke so much and partly by the way in Japan, the standard of the highest longevity anywhere in the world is Japanese women. They don't smoke. So you could get some comparison just by looking at men and women in Japan on that effect. Yes. Is he there, he doesn't have cancer, heart attack, so it's hard for us to... Okay, so the rest of the cancers that are for people that didn't smoke, they're down on the next 50%. Did I get your question correctly? Yeah, like breast cancer. Yeah, so right, if you have breast cancer and it's not, and if it doesn't have an extra relative risk compared to these things, it's down here somewhere below the top 10. They're all there in the list. That's the other half, the other 50% that aren't on this list of the top 10. And probably some of the cancers, even those non-attributable to these lifestyle choices are in that next 10. But I really wanted to focus on the effect of lifestyle on the top 10. Yes. To compare is how physicians in Europe fill out the death forms, because in the United States it's very common to kind of be a little bit sloppy, but also include the lifestyle issues when you fill out a death certificate. And I don't know how they do it in other countries, but it may not be quite common. I don't think physicians are given a choice much in filling out death certificates that the cause of death was smoking. Yeah, okay, okay. They may have just retweeted those directly. Honestly, I'd have to go back and look at the details that the McGinnis and Foggy worked to know how they've done that. Again, maybe these numbers aren't right. Maybe they're not right by a half. But I'm really convinced that there's a kernel of truth there that says our own personal behavior is causing a lot of our medical spending and deaths. And there's some good news. This is a graph of the cigarette consumption per adult, 18 years and over, since 1900. It peaked at almost 4,000 cigarettes per 18-year-old. So here's the history quiz for all of the, no fair if you're an adult in 1965. What happened in 1965? This is gonna be on the final exam for the policy students. What happened in 1965, folks? Sergeant General's report, yeah. Sergeant General of the United States put out a large scientific analysis that said smoking is really bad for you. It was the first time there was official government statement that said that. I was in high school in Denver in the 1950s. We knew that. The junior high school students in the junior high school I was at called cigarettes cancer sticks in the 1950s. This wasn't like it was news. It was just, this was the official statement of it for the first time. And then following that came all of these societal changes, taxes on cigarettes, warning labels, no smoking in public places, no smoking on airlines, changes in social mores, some the development of ways to unedict from nicotine with patches and things like that. But the result has been this dramatic decline in smoking. So we're now down to well under half of what the peak was. And so we're making great headway on smoking. Not perfect, but still great headway. The smoking patterns are very tightly linked with educational attainment. This is a snapshot of the current time. I'll show you another one later. People who have not completed high school, there's their final educational attainment, about a third of them smoke cigarettes now. Those who have high school degree, it's a little under a quarter. If they have some college, probably most of them have gone to a junior college and gotten a degree. It's a little under about 22% and college graduates are more down to about 7%. And physicians in the healthcare system, it's about 2%. Good friend of mine is a radiologist keeps smoking and it's why he does this beyond me because he keeps looking at x-rays of the lungs of people who have smoked, but he still smokes. Nicotine is extraordinarily addictive and there's no better addiction mechanism than addiction science I've talked into. There's no better way to addict somebody than to have small doses delivered frequently. Cigarettes, okay? So it's powerfully addictive. I'm gonna come back to this education thing a little bit later, but there's this powerful gradient of smoking and education. Somebody over here asked me, doesn't it cost less? Smokers consume about 40% more a year than non-smokers in healthcare costs age-adjusted. None of this appears in their health insurance premiums in general, particularly through employer groups, which is very much unlike life homeowners auto insurance where you're experience-rated on a lot of behavioral things. If you smoke and try and buy life insurance, you're gonna pay a lot more for it because they know the effects. They know them equally well in their health insurance business. They just can't do it in the employer group policies. Auto insurance charges more for under 25-year-old males, testosterone and gasoline are a really dangerous mix. And even homeowners insurance charges more for smokers because they fall asleep in bed and set their homes on fire more. So we have all this experience-rating on lifestyle things in other areas, but not in healthcare, and that's another one of these puzzles. It's not just the healthcare costs. There's a lot of lost productivity in terms of work loss. People are either ineffective or can't appear for work. One S, what I've seen, which I wouldn't put a whole lot of faith on the exact number, but it says the true cost is $150 per pack. Most of that is productivity loss. And I've mentioned this irony, since smokers die younger, the healthcare costs and the elderly and particularly the social security costs are saved. Most of the smokers end up going through an expensive end of life illness, often in intensive care with their various illnesses, but they do exit the social security system sooner. So what's to worry about? We're getting all this improvement in smoking. There's a little flattening out in the decline. Teenage initiation is a little concern for people who are really carefully looking at. But as I showed you in the chart, McGinnis and Foggy work in the one a decade later, when that's done again with 2010 data, smoking is gonna lose its unenviable position at the top of the charts. The reason is the United States is about to drown in a sea of fat. So let's just focus here on the upper three lines here. These are children of various ages. So let me just focus on the top three lines here. Overweight but not obese is steady flat. How is this measured? This is body mass index. The body mass index is calculated most conveniently in metric. It's your weight in kilograms divided by your height in meters squared. If you don't know your body mass index, run, do not walk home after we finish this session today and Google BMI index, put in your weight and height and you will find out what your body mass index is. I'll show you in a minute how important that is in terms of, at least in terms of mortality outcomes. Overweight but not obese has been flat pretty much among adults 20 to 74 over this period from 1960 to the most recent times available in these. That's a BMI of 25 to 30. BMI of 30 to 35 is this green line and it runs charging along until about 1975 and then. And then the total of those has the same behavior. This is adding up everybody who's both on this line and this line so it kinks at essentially the same time. And there is this sudden change in people with a body mass index of over 30. They're prevalence in our society about 1975. And I have a lot of reasons I can understand why people are getting heavier about why it occurred suddenly in that kink behavior in 1975 is one of life's great mysteries to me. Perhaps we can have a discussion about that a little bit later now. This is going to come as an unhappy surprise to some of you. By the way my body mass index is 28, it's probably 29 when I get back from this week long trip. Traveling is not good for my body mass index. The upper set of these is the mortality rate by body mass index for males. And you can see it hits the bottom. That's the healthiest error around a body mass index of 23, 24, 25, 26. Not a whole lot of difference there. As you climb back up into very thin people, mortality rates increase. I think some of that is due to when people get really sick they lose weight. So I don't think it's causative. On this side of the graph, I don't know of many illnesses that cause you to gain a lot of weight. So I think probably this side is causative quite directly and the difference between this set of them. By the way, this is a summary of about 900,000 lives across a bunch of prospective studies. So the statistical power of these numbers is just enormously high. The bottom set of boxes is women. Women have lower mortality rates and live about seven years longer in our society than men. Good part because they didn't smoke so much. But fat is definitely not good for you. Probably an even better measure is baseline circumference. But we have good data on all these studies on body mass index so that's what I can show you today. Obesity costs accounts for about 10% of the healthcare cost. This is again one of these excess cost measures. About 40% more and I'm very similar to tobacco smokers than people with normal weight. And this problem is going to become larger, pardon the expression through time because our population is growing increasingly obese. And smoking just makes you feel terrible. This is a study by a really good health economist, David Cutler and a colleague published in the New England Journal of Medicine a couple of years ago. They took survey data from a whole bunch of people around the United States and basically it's an answer to a question rated on a scale of zero to one, one being perfect health, how do you feel? And this summarizes the answers from this very large population study. So let's just take college-age students who are at normal body mass index and don't smoke. And their answer is about 90% of perfect. Now, as you go among the non-smokers across body mass index, you see there's a somewhat of a decay in that reported how well I feel. And when you drop down to those current smokers and then run across to people who are over 35 body mass index and smoking, that number is 74 compared to 90. Smoking makes you feel terrible. That's true also if you look at people age, let's say age 55 to 64, 82, that's not as good as 90 because time wounds all heels, wears us out a little bit. But if you make the same comparison of that age group from non-smoking, healthy weight to smoking and higher weight, it drops down to 0.67 from 0.82. You see these same kind of proportional drops in the quality of life that people report when they're in these unhealthy states. So people in these smokers and people overweight are bearing some of the cost personally in this immediate health status and make no mistake about it. You had a question, yes? I was thinking about mortality, there are some studies that show that mortality among obese people is not higher than not obese people except for those people who've developed diabetes or hypertension or heart disease, except for the morbidly obese type. Okay, something is causing it, that graph proves it. Right, but I think it, well, I mean obviously people that are obese are more likely to have diabetes. But it would be interesting to see what happens with the Asian population now there's a rapidly increasing percentage of people with diabetes without high VMI's. And so it would be interesting to compare their mortality with the diabetes at a lower VMI. Right, I have seen a study some time ago, I couldn't quote the author for you yet right now that looked at first generation Japanese immigrants to Hawaii and it turns out when Japanese citizens immigrate to Hawaii and adopt Western diets, they acquire Western mortality characteristics quite rapidly so there's probably something there. I'm not saying that it's just the fat but there's all, again, whether it's the diabetes that comes from fat and other things are beyond, it's kind of beyond my point. I've got good data on the fat mortality story and smoking and that makes my point I think. So now comes the question, why are we having this increasing rate of obesity in the United States? And a sub question is why did it start suddenly in 1975? I have some reasons for it that suggests why it should be growing but not why there's that kink in 1975. We have more sedentary jobs now than we used to and so we're not shedding calories during our work. Which means we have to go outside to the track or to the gym and spend valuable hours getting rid of those calories and our time is increasingly more valuable as the society becomes more educated and our opportunity costs rise and so basically the costs of getting rid, we're not getting rid of as many calories in our work and the cost of getting rid of them is rising. The other half of this is that food because of the efficiencies in the agriculture, sector calories are becoming cheaper through time and if there's one thing economists know is when things become more expensive people do less of it and when they become less expensive people do more of it and so calorie costs shrink and costs of getting rid of calories rises and you have an obesity problem emerging right straight out of the economic forces here and probably happening faster than our genetic selection is going to alter our basic metabolic rate to deal with this. So that's just kind of normal laws of supply and demand if you will. One simple example of this, I'll show you the more detail and this is just a moment but the amount of food that people get in the home has changed versus restaurants or ordering or buying packaged food in stores and preparing at home has changed dramatically. So food in the home has gone from 1930 at around 85% of all the meals were paired in the home it's down to about 55% now in a very steady decline and the converse of the flip of that is meals eaten outside the home and those lines are gonna cross pretty soon and then you couple that with what's happening to prepared foods in the grocery store when you buy portion foods and go out to restaurants and this is a study from the National Heart and Lung and Blood Institute website. A sample, every food they've looked at has increased dramatically in the calorie content of what was described as a portion over the last 20 years and you can read these yourselves, bagels are much bigger, chocolate chip cookies are four times as large or have more sugar and butter or both, French fry quantities have almost tripled. That wonderfully healthy chicken, Caesar salad has got twice as many calories as it did 20 years ago. Theater popcorn has more than doubled. My daughter worked in a movie theater for a while in Rochester, she was actually rewarded by the number of people that would at her request would you like to supersize that? Her pay increase when she had more super sizes were rung up on the cash register. Another, I love eating turkey sandwiches for lunch, they're very healthy, they have two and a half times the calories as they did 20 years ago and on and on and on. Soft drink, it used to be a 10 or a 12 ounce soft drink, it's now a 20 ounce soft drink, can you buy the big cup and beer is increasing in proportion now by the way, they're now looking at 20 ounce beers as the primary container instead of 12 and all you have to do is look at television to realize that the fast food chains are competing on the size of their portions as much as on price. My hamburger is bigger than yours, my French fry portion is bigger than theirs, that's the mode of competition. So that's the problems, what have we done about them? Well, obviously the most important thing that's come along in the last, I'd say 20 or 30 years since probably since the formation of Medicare and public policy is the patient protection and Affordable Care Act or PPACA. If you are a good fan of Rush Limbaugh, you probably call it Obamacare. So my summary of what the Affordable Care Act did in dealing with these questions comes right out of the Episcopal Book of Common Prayer. Left some things undone, we should have done, we've done some things we shouldn't have done and there is no health in us. So let's take a careful look at the key features of the Affordable Care Act and then ask, what is this gonna do to deal with the set of issues that I've just laid out? Probably the most prominent and controversial and under legal duress probably in the Supreme Court within a week or two is the mandate that every individual in the United States obtain health insurance coverage. Most of us have it through our employment groups, I suppose almost everybody in this room does either by as an employee of the UM or as a student here. I've always had it through my employers of random the University of Rochester. That's the common mode in about 80% of the people under 65 in the US health insurance comes through their employment group. So hence the law also mandates that all employers provide health insurance for their employees and families of at least bronze label. There are like the gold medals in the Olympics, the act defines bronze plans as those that will cover at least 60% of the actual value of the plan. Silver is 70, gold is 80 and platinum is 90. That's an extremely generous health insurance plan. And the mandate to at least have a bronze plan. It establishes regional insurance exchanges, the states or in subregions they can cooperate on these that will help people who don't have employer insurance find health insurance at lower costs by setting up these, if you will, shopping marts. And it also provides subsidies for low income families directly through the exchanges and also as tax credits through the income tax system. Quite importantly, it bans the use of preexisting conditions by insurers and underwriting. Now this is really, this is a very interesting issue for two reasons. One, it ties into the mandate itself. And then the other is there's a separate question of whether it's a good idea. So let me give you the legal argument which a constitutional scholar friend of mine and I have developed that talks about the individual mandate for a moment. All of the legal challenges to the individual mandate say that it is an unwarranted and excessive extension of the commerce clause of the constitution. The commerce clause says the commerce may regulate the activity of commerce in the United States. I think it's widely believed probably by eight of the nine members of the Supreme Court and maybe by all nine that that includes insurance and hence can be regulated by the federal government. The McCarran Act in 1946 made specific rules about that but it's clear that that's a legal activity. So the mandate says you've got to have insurance has been dealt with is this idea that is basically saying in the common phrase going back to George Bush's statement, the George Bush senior, now that I'm president they can't make me eat broccoli. You remember that statement? He didn't like broccoli apparently. So this has been picked up in the political discussion about this mandate and says if they can make you buy health insurance they can even make you buy broccoli. So you see the general logic being attached to this and that is it's enforcing a consumption decision on people to buy something that they don't wanna buy. The alternative is to come back down to this ban on pre-existing conditions. Whether you think that's a good idea or not and I can make a good argument I think that it is it's not a perfectly good idea but it's a good one is as soon as you put that rule in then you have to require people to have insurance for the insurance market to function because otherwise everybody that has two brain cells functioning will wait until they get sick and then they'll go buy their insurance because the insurance company won't be able to charge more for their pre-existing condition. So it now falls into the separate power of the Constitution which is the necessary and proper clause that says the Congress may enact laws that are necessary and proper to carry out other legally allowed activities including regulating insurance. So if you think that the Congress can regulate insurance market by saying you can't use pre-existing conditions anymore you're kind of immediately automatically it's an easy legal path then to get to the point that says okay we gotta require that everyone have insurance. Not through the extension of the Commerce Clause they can make you buy broccoli but rather because the insurance market will stop functioning if you don't have that mandate. So that's a complicated legal argument that's probably gonna hit the Supreme Court this week because there are now six circuit courts that have come to different rulings about whether this individual mandate is legal and the Supreme Court just has to take this on in my view. So back to the question about what else is going on in the PPACA. They've got a big incentive push to get electronic medical records into physician offices, basically big bribes to cover a lot of the cost. There's a lot of hope I would say some of it possibly grounded in fact but not a lot that this will reduce medical care costs. There are certainly some things within the hospital realm where we know that electronic medical records can help at least in improving health outcomes if not in saving costs. You'll avoid a lot of drug prescription errors and drug interaction errors. There's an amazing amount of deaths that was reported at the Institute of Medicine a couple of years ago on the amount of death in the hospital due to pharmacy errors where they just gave the wrong dose and it killed the patient. Hospitals are dangerous places to be. I mean, look, most people die in hospitals. They're really dangerous places to be. A little logical fallacy for you to tease out there. But the question of how much these electronic medical records are going to help remains open but that's one of the pushes. They've also really made a push towards a new type of medical care organization called the Accountable Care Organization. These ACOs are gonna be paid not only in terms of how much healthcare they deliver but on the quality of care that they're delivering measured on some fairly esoteric ways and increasingly stringent through time. So they're not just simply process measures like how many of the kids are getting their vaccinations on schedule but some much more interesting and sophisticated things. They're not mandatory. No provider has to join them. No individual has to enroll in them and we don't know how well they work. Probably the closest thing that we see to them right now is the kind of the full-fledged HMO like Kaiser or one of those things but they're really somewhat of a different beastie and there's hope there but no evidence yet about how much of the growing healthcare costs those are going to deal with. They've expanded Medicaid eligibility to bring more people into the Medicaid net for low income people. So now every state will have to have Medicaid eligibility at least 233% of the federal poverty line that's gonna expand the number of people that have Medicaid as their source of coverage which is partly designed to offset the burden of those who don't have insurance coverage through their employment place. There's some emphasis on prevention. For example, insurance plans all set of preventive medical interventions that you might envision those approved the US Preventive Services Task Force get shunned around so there's no co-payments or deductibles they're all free by law in all these plans. If prevention really works to save money that will help most preventive activities don't and by the way, those are all medical interventions none of them deal with these lifestyle things. None of them. They're all vaccinations and screening tests and things like that. They're putting a tax on so-called Cadillac plans that's probably a nasty word to speak about a car in adverse terms in this region of the country but what they mean is very expensive health insurance plans are gonna have a tax on the excess above the cutoff. All the people in Miami that are buying private health insurance are gonna hit with that cause their health insurance premiums are high not because they bought a really generous plan but because healthcare costs are really high because of the style of medicine they practice in Miami. So the citizens of Miami are all gonna be paying this Cadillac tax pretty soon. There are other ways to go about that. I would strongly prefer instead of that a much more useful elimination of the tax subsidy to employer paid health insurance which would just change the way everybody's health insurance work and then take that money and put it back into the tax system by reducing marginal tax rates by a comparable amount so you can grow the income base by 10% by putting all those employer paid premiums in you can turn around and reduce marginal tax rates by everything by 10% of what they were you'll get at least as much tax revenue it's a mathematical certainty cause you increase the base by 10% and you lower the tax rates by 10% and then you're guaranteed to get an increase in economic performance because there's just no question at all that lower marginal tax rate stimulate the economy. There's some arguing about how much but I can just guarantee you with a moral certainty that if they did that it would increase the economic activity in this country it would remove a distortion that subsidizes and gets us having too much health insurance for those of us that have it through work groups and it would be a least budget neutral and almost certainly gain in tax revenue so that's my one of my, if I were the czar and I would also, the PPAC also is beginning to link part A hospital payments to quality of care outcomes in some ways kind of like the accountable care organizations those are the key features, a lot more but that's really where they're going now comes what I say are the unresolved core issues staring us in the face still to me the biggest issue confronting us in the future is we still have this enormous disconnect between how much medical interventions work to improve our health on any scale you wanna measure mortality, morbidity, saving healthcare costs feeling good anything there's a big disconnect between how much those procedures work for us and how much we pay to get them out of pocket which is what's driving our decisions and we need to fix that and hence with that the attitudes about how we use healthcare in this country the conversation right now with your doctor I can just bet with high degree of certainty you've gone into your doctor and the doctor says well you know I think you might have this let's get this lab test or let's get this MR image and see what's going on and the patient that thinks about this says what will this do and says well give me a little better information how much will it cost your insurance will pay for it okay let's do it and if the instead that the doctor said it costs a thousand dollars to produce that MR image you're gonna have to pay 250 I think the patients will begin to ask a little more do I really need this or can you tell me what's going on can we maybe try out a drug trial balloon and see if that solves the problem every single medical decision that we make in the United States anybody with any kind of health insurance has that subterranean discussion going on and it ultimately is why we're spending a lot more money than elsewhere and it differs in part also with these cultural differences across regions that I just have no idea why they happen but I can show you that they do yes Bill Sacred Cow about the end of life care and that's where our patients don't have much to say about it because you know they're in intensive care and and by the way a quarter of all medicals they're spending is end of life care in the last six months and it doesn't change the outcome and I will say that one of my patients who is an administrative secretary told me once she was in a meeting with the administrators at the hospital and they said you know the best patient that we could have is somebody that comes comes from up north and gets a life flight again goes into the intensive care unit gets every test known to man and then dies because that's what's reimbursed and I just it's really I think it really needs to be addressed how much the reimbursement if you build it they will if you build it the test and cover it they will do it Yeah look a non-trivial part of this is how we pay our healthcare providers and right now they're stuck on a treadmill doctors in hospitals alike and dentists and pharmacists and everything they're stuck on a treadmill where volume is important and there are different ways to pay healthcare providers that get you off of that treadmill the most extreme form of those is per capita payment for a year you get a bunch of doctors in hospitals together and you say you take care of the set of patients for a year and here's all the money you get to do that they're called HMOs in the purest form that phrase health maintenance organization has has blurred a lot in its meeting through time but the pure form HMO where the physicians are on salary they're not volume driven it's well known even in randomized trials at the Rand Corporation where I did the participated in the very large Rand Health Insurance experiment one of the arms in that was a absolutely free care everything paid for another one was an HMO where everything was absolutely free to the patient the HMO patients cost about 20% less and no different health outcomes the affordable care organizations that they are trying to spawn have many of those similar incentives now it's not a perfect world the fee for service system every economist that looks this as the fee for service system where you get paid on volume has all sorts of reasons to believe that it's generating excessive use of medical care the doctor gives you advice that brings money to the doctor's pocketbook and particularly if it's covered by insurance that's an easy decision to make and patients go to doctors because they're willing to accept their advice if you didn't weren't willing to accept what your doctor recommended you probably aren't going to go there very often anyway so doctor recommends when it's to their financial advantage to make a recommendation they do it more how much is a interesting question but they do it a little bit more in some cases and a lot more in others on the complete flip side of that doctors are paid on a flat annual salary two things happen one is they don't work as hard and that's quite provable a doctor on a flat annual salary in a large organization where they can't monitor the care is about twice as about half as productive as seeing patients as a doctor on a full fee for service arrangement in just in terms of patient volume that's not the whole story and maybe it's better quality of care by spending more time with the patients but there's a change in that but the one I like most of all is a randomized controlled trial that occurred in a medical school at washington university in st louis and their pediatrics department some years ago I'm just a huge fan of randomized controlled trials it's the way medicine really tries to figure out whether a new drug or procedure works you can also do them in social science the Rand health insurance experiment that I alluded to was randomized trial there's also a randomized trial about physician compensation it was really cute took a bunch of pediatric residents and put him into the well care clinic all these residents are seeing pace they're all the similar training they randomized some of them to receive what the new residents normally do is annual salary and they randomized the other half to get a fee for service arrangement that they predicted would bring them about the same amount of money for the year and then they randomized the patients as to which one saw which type of doctor and they turned the system loose and watched and when they finished the doctors on the fee for service system uh... we're generating about one more patient visit in the pediatrics clinic per year than those on the salary and almost all of it was in the welfare environment there's almost no difference at all and in really acute illness and injury stuff and the part I really like is my wife's a pediatrician so I know this reason about the american academy of pediatrics has a uh... and also the cdc now they have a schedule recommended vaccinations for kids pediatricians know this schedule as well as they know their middle name this is not a great mystery to them the doctors on the fee for service system overshot the american academy of pediatrics recommendations a little bit they actually in other preventing they did more than was recommended the doctors on the salary system were a little lazy and they undershot not by huge amounts but what happened was exactly what the economic theory predicts here and that is one of these gives an incentive to over recommend medicine and the other gives incentives to under recommend because it's the doctors advantage in both situations to go that direction and by the way these are all recommendations to patients the patients didn't follow through on all the doctor's recommendations to come back for another visit and they were a little more suspicious about the doctors on the fee for services and that is they turned down a few more of the visits and didn't bring their kids back so this all just absolutely fits the more powerful one on this effect is studies in florida physicians orthopedic surgeons who own imaging facilities use uh... imaging four times the rate that's four times the rate of those who do not own imaging facilities of that may account for some of that miami thing maybe there's more ownership of these things in full in miami than elsewhere in florida they use physical therapy forty percent more often when they have an ownership stake in physical therapy there's just a whole bunch of really strong evidence that this affects physicians recommendations and hence what medical treatments emerge but the magnitude of that effect just differs hugely across setting and i i just can't extrapolate any of these that i know about more generally than the situations therein yes sir very good numbers in there what uh... what effect does uh... cya with respect to legal have to do with the studies yeah so i guess the probably the most powerful thing i can show you on that is go back to those florida numbers twice as much money being spent miami is elsewhere it's the same legal structure it can't be because they're worried about more practice more in florida than i've seen maybe there's more malpractice lawyers in in miami or than elsewhere but it's the same legal structure it's really hard to pin protect you know defensive medicine it's really hard to pin this behavior on defensive medicine when you see such disparate outcomes in the same legal environment and the only policy lever we have to fiddle with that is to change the legal structure and there it's all the same uh... we've also had a whole bunch of uh... things through time or states of change their malpractice law so that they put a cap on pain and suffering and you can tease out kind of what the effects of those changes in the law data have blurry and small effects on what the apparent amount of defensive medicine is it's a very tough topic to unravel uh... the best economist in the country who's worked this for a long time as patricia danzen at horton school i've talked about this extensively patricia uh... she's written a book about it i don't think she or anyone else has a really clear picture of the extent of this it's only eight percent of physicians cost structure is their malpractice insurance premiums but that of course doesn't tell you about the defensive medicine side where there's a change in their behavior in response it's a complicated problem and i wish i could give you a clearer answer sir but i just can't i had a question in the back also yes okay so let me deal with the first one uh... we actually have some pretty strong evidence on the magnitude of this when medicare started paying hospitals on a lump sum per admission uh... took place in i think nineteen eighty three and then a phase in over several years uh... there was this big concern that patients are going to be discharged in the language of sicker and quicker uh... which i think was the issue to which you're alluding first of all medicare by the way won't pay them if they bounce back in right away uh... there's a time lag there and it's patients got to come back in is it thirty or ninety days now i can't remember what you remember what the number is i think it's ninety days delay if they come back in within ninety days the hospital doesn't get paid a second time right now but the second the second point is that at least measures of mortality and readmission rates didn't change in any noticeable way except for some very select uh... diagnoses for dealing with small samples a very careful studies done this around the nation the readmission rates and and mortality rates didn't change any in when medicare instituted this uh... uh... this payment scheme that gave the incentives to discharge quicker length of stay had been dropping years before and it dropped all continues to drop since then in ways that are really quite remarkable i think much of this is due to technology some of us do putting more people on the on the system to make sure that there's out of hospital support uh... we can all point to some horror stories about somebody who's discharged too early the systematic data just don't show any meaningful effect when medicare moved to the perspective payment system in terms of certainly at least in terms of mortality and readmission rates yeah well if they were discharging them sooner to get them out of the hospital they they would have gone up if they were making mistakes about that for the to get them out of the hospital and save treatment costs and they didn't yes on the state level we're trying to get home health care instituted uh... to more people and uh... you know the the nursing home lobby is so strong can you comment on the amount of medicaid dollars that end up putting patients in nursing homes uh... i'm not i i can't i can't comment knowledgably let me let me put that down to one of the many things i never learned while i was provost yeah i i i just i'm not very knowledgeable about that part of the world i i i'd i'd probably stick my foot in my mouth if i tried to comment on that yes sir in the studies there's no real difference performance on fever service or flat salary kind of real difference in other of these factors described the big difference seems to be on this other guy's question didn't quite answer the amount of money that goes into the insurance system and wouldn't the system overall be much better off on a single payer that did not have this incredible thirty five percent plus overhead for them to shuffle papers around because there doesn't even be any significant difference in performance okay so let me talk about single payer a minute because i know there's probably a lot of single payer fans in this room if you can the obvious the big comparisons like with the canadian health care system where a much smaller fraction of the total health care business is spent on on administrative costs part of that i think probably an important part of it first of all you have to understand that administrative cost is actually doing something for us and what is it's not just processing claims what they're doing for us is doing comparison shopping to find lower price doctors and this is particularly true of managed care organizations preferred provider organizations they go out and collect a bunch of doctors and hospitals and they bargain like crazy with them to get the price down that they pay and hence you pay through your insurance plan and then they tell the insurance company well by the way i have two hundred thousand patients in the inarbor area uh... you can i can move them to you if you'll give me this good price and so a lot of what they're doing is basically doing price bargaining for us that we can't do on our own and that's a valuable service now if we had an administered price with a uniform single payer it's got to be a federal government to do that uh... you're running them into a a question that's more political preferences of people in the united states versus elsewhere about how much freedom of choice they want the the u.s. this is really out of my territory but the u.s. in some sense i think much more dedicated to having free choice than many other nations particularly european nations and hence we're paying the cost of that free choice with this administrative cost it's not perfect either way the big concern i have about single payer comes in technology introduction talked about all this new technology to come in the door over the last half century think about what happens if there is one single gateway to get that technology indoor health care system to say it's medicare they make these choices for medicare patients we have an in addition to that the united states we have hundreds and hundreds of managed care organizations and insurance plans they're trying to decide whether they want to cover some new medical technology or some new surgical technique or not and they can actually do a lot of experiments for us about how much these things are benefiting patients and so some of them don't cover in some do things that are called experimental techniques and we learn from those if you only have a single gateway into that system you've lost those data you've lost that information and one of the things that makes me particularly nervous about single payer organ models is the fact that there are not multiple pathways to get evidence in about whether things work or not there's one decision maker in a single payer system it just has to be that way you can't have a single payer system and have twenty people deciding whether autologous bone marrow transplants are going to be covered or not so that's nervous time for me on that there's pluses and minuses in both system that's one of the minuses that sticks in my mind some okay i i'm getting the signal says we're wrapping up soon i'll tell you one yes sir started theme about prevention and uh... you're wrapping up so let me ask this question right now there are some employers who benefit or catalyze employees who don't think care of themselves if they do smoke if they don't exercise shows up like a comment about that and also how far do we go do we go to termination to carry this out for you well certainly first of all there's not nearly as much going of it going on in the field of employee health or employer paid health insurance as there is in other types of insurance like life insurance and stuff we're much less experience rating in it most of that is because the employers are very heavily limited by other federal laws uh... employee laws areissa and hippa about what kinds of information they can collect about employees now you can rate employees and change their performance uh... their their salary or their hourly on performance outcomes but it's very hard to do that on behaviors themselves uh... because of various laws so i i guess i would rather see more of that going on so that people were bearing the full economic consequences of their health choice i'm not saying that people shouldn't smoke i'm just saying i'd rather not pay for it being sharing the same health insurance policy with them and the same with uh... obesity of course i would probably be paying above average in the obesity my waistline is bigger than it should be and i'll be the first to admit and thank you for all you thin people for helping subsidize my medicare premium is because i don't pay any more for medicare either i think one of the things that i'd like to see happen in this country is to see a tighter link both but particularly in health insurance premiums both private plans and in medicare a tighter link between uh... behavioral choice outcomes that is not whether you're trying to quit smoking or not but do you smoke or not uh... in that now that of course brings me full circle to a kind of a philosophical and moral problem you're asking how can economists talk about a moral problem some of these things including the propensity to be addicted to nicotine and the propensity to gain weight have genetic underlying and hence if there's a genetic predisposition here it makes me nervous about saying i want to go all the way to sort of a full experience rating on these things because part of this is a risk i can't control if it's genetically linked and i just i don't know how important those are but that comes back to the question about keeping employers or keeping insurance companies from using uh... previously existing conditions these genetic illnesses are one of the big things on that and that's actually one of the reasons why i think there's a pretty good case for getting rid of the ability to use the previously existing conditions because in fact what that you what this does now with this new laws open up the market for ensuring against genetic time bombs that i can't do otherwise so there's several reasons why that's a good idea the other is job lock people that are getting their insurance to employers can't change jobs easily when they know they're going to lose their insurance coverage for six months uh... under even under the HIPAA laws uh... that's going to go away in twenty fourteen under the Affordable Care Act and there's a comparable entrepreneurship lock people are afraid to go out and start up small businesses because they lose their health insurance coverage i think there's a pretty decent case to be made for the economic sanity of eliminating the previously existing conditions it's very popular in surveys of the u.s. population but it's also comes background of the question how much do you want to tax people on their health insurance premium for smoking when in fact we know that smoking is at least somehow related to genetic predisposition and in one of the grand ironies of life the very same gene that makes you susceptible to nicotine addiction also increases the risk that you'll get lung cancer if you smoke so uh... let me leave it with that and say thank you very much for your attention