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[00:00:00.266]
>> Good afternoon.

[00:00:02.496]
Welcome to the Ford
School and to this lecture

[00:00:08.816]
by my old friend Chuck
Phelps whom I will introduce

[00:00:12.516]
in the moment.

[00:00:14.006]
I want to acknowledge the
support of the Gilbert Omenn

[00:00:21.006]
and Martha Darling Health Policy
Fund and of the organization

[00:00:27.776]
of the Health Policy
Student Association.

[00:00:33.176]
Some of its members
are probably here.

[00:00:36.656]
My name is Paul Courant I'm
a professor in Ford School,

[00:00:41.686]
as well as, a part-time
university librarian.

[00:00:46.016]
And it's really my
pleasure to introduce,

[00:00:49.976]
introduce Charles
Phelps who is I found

[00:00:53.866]
in a variety of contents.

[00:00:56.196]
We were provost at
the same time.

[00:00:58.246]
There's a bunch of secret
hand shakes we both have.

[00:01:00.416]
He has been a mathematically
rounded economist

[00:01:06.216]
with interesting
policy for a long time.

[00:01:11.446]
That's a fairly small group
people although there are

[00:01:14.706]
several of them have a
(inaudible) full faculty as well

[00:01:17.766]
as the University of Rochester
faculty and I know of others.

[00:01:22.506]
I first knew him as one
of the founding leaders

[00:01:29.686]
of an organization from the
Association of Public Policy

[00:01:32.146]
and Management which is
still active and important

[00:01:35.156]
and he was the secretary
of that group.

[00:01:39.116]
And he was the first
person I knew who carried

[00:01:42.526]
around a portable keyboard that
wasn't attached to a typewriter.

[00:01:48.756]
It didn't-- it wasn't much of a
computer right now if I figure

[00:01:51.526]
out exactly what it was.

[00:01:53.456]
But he was there producing ASCII
files long before people knew

[00:01:58.026]
what ASCII files
were as secretary

[00:02:01.706]
and (inaudible) Association

[00:02:03.046]
for Public Policy
Analysis and Management.

[00:02:05.586]
Has been an extremely important
entity in the development

[00:02:09.116]
of analytical policy, policy
analysis, and management.

[00:02:14.896]
And Chuck was one of the
leaders in that area.

[00:02:19.416]
He started an enormous
amount of work in the--

[00:02:22.816]
health economics and
related areas, health policy,

[00:02:27.656]
medical decision
analysis, cost-effectiveness

[00:02:30.326]
to various interventions.

[00:02:31.756]
He has written a
textbook on the subject

[00:02:33.816]
which is in its 4th division.

[00:02:36.046]
I can now tell you from
a librarian perspective

[00:02:38.676]
when there's textbook in the
4th edition, somebody got

[00:02:41.096]
to send a bunch of them
in college and then some.

[00:02:45.636]
And he's been as I said a
leader both in health economics,

[00:02:52.286]
in health policy, in the
organization of public policy

[00:02:55.476]
and universities
in the leadership

[00:02:56.696]
of his own university,
at the University

[00:02:59.526]
of Rochester whence
he's now retired.

[00:03:02.056]
And without further ado I
wanna ask Chuck to come up.

[00:03:05.176]
Our own worst enemies: How we
and our government created,

[00:03:08.496]
extended and exacerbated
the health care mess.

[00:03:12.116]
Chuck will at appropriate
times he'll be

[00:03:15.016]
in charge of his own show.

[00:03:16.156]
>> Alright.

[00:03:16.526]
>> That we a lot an
opportunity for interaction.

[00:03:20.056]
>> Thank you.

[00:03:20.446]
I'm pleased to be here.

[00:03:25.936]
( Applause )

[00:03:26.656]
>> Except Paul and I have known
each other in number of circles

[00:03:28.926]
but in provost, in the
world of libraries.

[00:03:31.046]
And of course provost emeritus,
in my title emeritus means I got

[00:03:36.376]
out of town before
they run me out of town

[00:03:38.146]
after I stopped being provost.

[00:03:40.226]
Provost in case you
don't know the origin is

[00:03:42.406]
from the Latin word for jailer.

[00:03:43.966]
( Laughter )

[00:03:44.986]
>> So I'll just leave you
discern your own conclusions

[00:03:48.916]
about that for my good
friend Paul and myself.

[00:03:51.376]
What I want do today is have
a conversation with you.

[00:03:57.146]
I know there's some time for Q
and A that's sort of some time

[00:04:00.476]
for talk and some time for Q and
A and I'd rather mix them up.

[00:04:03.786]
So if you have a burning
question, I'll try and see

[00:04:08.036]
if we can deal with
it on the fly.

[00:04:10.106]
And if I think if I'm
gonna come to the point

[00:04:12.326]
of answering it little
later on, I'll ask to defer.

[00:04:15.106]
And then if I don't
get around to it

[00:04:17.016]
by the time we actually
come off the real time

[00:04:18.806]
for questions you can come
back and ask me again.

[00:04:21.656]
Well, that's my rules
for the engagement

[00:04:25.356]
and I guess I have
to enforce them.

[00:04:28.546]
So the first thing I'd say is
about shameless commotion much

[00:04:31.996]
of the material that I'm talking
about today comes from a book.

[00:04:34.316]
It was published last year

[00:04:36.156]
by the Hoover Institution
Press out of Stanford.

[00:04:39.416]
8 questions you should ask about
our health care system even

[00:04:42.476]
if the answers make you sick.

[00:04:44.526]
And so if you like what
you're hearing today,

[00:04:47.776]
you can find some more
of it in this book.

[00:04:49.206]
And if you don't like it
you can get the detail

[00:04:51.206]
and refute it if you wish.

[00:04:54.046]
So let me give a quick
overview before I'd

[00:04:58.186]
like to take this today.

[00:05:01.696]
There's been for, if you go back
into it at least to the days

[00:05:05.466]
of Franklin Delano Roosevelt's
presidency before World War 2,

[00:05:10.176]
long standing discussion in
the United States about whether

[00:05:15.376]
or not we should have
universal insurance,

[00:05:17.626]
health insurance coverage and
if so what should it look like?

[00:05:21.666]
And that issue arose
during at least during the--

[00:05:24.386]
prominently during the
administrations of Roosevelt,

[00:05:27.956]
Truman, Nixon, Carter,
Clinton and finally Obama

[00:05:33.096]
and only the last of
those actually resulted

[00:05:36.956]
in legislation.

[00:05:38.616]
One can save Medicare during
Lyndon Johnson administration

[00:05:42.576]
for the elderly and Medicaid
for the low income populations

[00:05:46.376]
but that was not universal
so that's something

[00:05:48.486]
that would be kind
of half way step.

[00:05:50.576]
But all of these discussions
in some sense are sitting there

[00:05:54.486]
with some sense of disquiet

[00:05:55.926]
about how our health
care system is working.

[00:05:58.916]
And disquiet has been
increasing through time.

[00:06:02.286]
I'm gonna show you some
data on this in a minute

[00:06:05.366]
but I would say the
disquiet centers primarily

[00:06:07.736]
on the following issues.

[00:06:09.646]
First is that we are spending
a lot of money on health care

[00:06:12.726]
in this country either in
dollars or as a percent

[00:06:15.276]
of our gross domestic
product per capita income

[00:06:17.566]
if you will more than any other
country by far, and we're doing

[00:06:21.336]
so in an increasing rate
and that alarmed some people

[00:06:26.366]
and say, look to the future.

[00:06:27.466]
The second problem is that if
you compare at least on things

[00:06:30.656]
that we can measure
easily across countries,

[00:06:33.906]
we're not getting very
much bang for the buck

[00:06:35.946]
for our medical spending.

[00:06:37.956]
And the two most prominent of
these, the easiest to measure,

[00:06:41.826]
maybe we're looking for
the keys under lamppost.

[00:06:44.246]
But if you look at life
expectancy and infant mortality

[00:06:47.436]
which are every easy to measure
and compare across nations,

[00:06:51.046]
we're not getting nearly
as much for the buck

[00:06:53.496]
as other nations even though
we're spending a lot more

[00:06:56.596]
than other nations.

[00:06:58.386]
And then as we look
to the future,

[00:07:00.786]
I think it's almost certain
that the money we're spending

[00:07:04.316]
on health care is going
to rise through time.

[00:07:08.496]
And that's gonna come through
3-- 3 prominent reasons,

[00:07:11.426]
all of which are moving almost
glacially and hence unstoppably.

[00:07:15.796]
The most important of these
is the population is aging.

[00:07:19.176]
I'll show you some picture
of this in a minute.

[00:07:21.756]
If you're a young it
should scare you a lot.

[00:07:23.886]
If you're old you can say,
thank you to the young

[00:07:26.076]
for helping with this problem.

[00:07:28.066]
The second is that despite
the current economic trials

[00:07:32.926]
of our country and
the rest of the world,

[00:07:35.656]
over time our economy will grow
and health care grows on average

[00:07:41.166]
at a faster rate in
the economy in general.

[00:07:44.566]
The income elasticity is
about 1 and half to 2,

[00:07:47.216]
if you wanna throw a few numbers
out when you look across nations

[00:07:50.896]
so growing income will
add to the spending.

[00:07:53.636]
This might be a really
good idea.

[00:07:55.586]
By the way, I'm not
saying it's necessarily bad

[00:07:57.986]
for those who worry about it.

[00:07:59.456]
And then technology is going
add new technology comes in.

[00:08:03.796]
New technologies
don't save money.

[00:08:06.156]
They improve our well-being
but increasingly in ways

[00:08:10.926]
that cost more money than their
low-hanging fruit that we had

[00:08:13.776]
in our health care
system earlier.

[00:08:16.016]
So as new technologies come and
our insurance systems decide

[00:08:19.296]
to cover them, we're going
to further spend more money

[00:08:21.576]
and you couple those 3
things and we're going

[00:08:24.126]
to spend increasingly
large amounts of money.

[00:08:26.596]
We spend about 16 percent of
our gross domestic product

[00:08:29.366]
on health care right now

[00:08:31.236]
and I can easily see
before I'm incapable

[00:08:35.246]
of assessing numbers
anymore that could rise to 20

[00:08:37.786]
and perhaps 25 percent within
the rest of my lifetime,

[00:08:42.326]
hoping I live long
enough to see that

[00:08:44.816]
but hoping it doesn't
happen necessarily.

[00:08:47.166]
And finally I will show you some
numbers that lead me to conclude

[00:08:51.136]
that about what we're spending,
we're wasting a lot of money.

[00:08:55.006]
And we're wasting in ways that
are pretty easy to demonstrate

[00:08:58.416]
at least on broad
geographic terms.

[00:09:00.286]
There are huge differences
across regions

[00:09:02.896]
and how much money we
spend on health care

[00:09:05.096]
and when we look carefully,
no measurable improvement

[00:09:09.566]
in health outcomes across
the wide variety of measures

[00:09:13.016]
in the areas that are their
highest spending rates.

[00:09:15.386]
And so that can be one of life's
great mysteries is how we got

[00:09:18.596]
into this world of these
hugely desperate patterns

[00:09:21.326]
of medical care use and in
many cases where there seems

[00:09:24.826]
to be no measurable
benefit arising from it.

[00:09:28.026]
So that's kind of an
outline of where I'd

[00:09:30.536]
like to move this today.

[00:09:32.086]
So let's look first at
the low bang for the buck.

[00:09:36.006]
This slide got a little
weird in the projection.

[00:09:39.546]
The graph here is per
capita health care spending

[00:09:44.696]
on horizontal axis ranging
from this case from a thousand,

[00:09:47.206]
about 7,000, and life expectancy

[00:09:50.506]
on the vertical axis
life expectancy at birth,

[00:09:54.526]
and it's kind of a sloppy fit.

[00:09:56.486]
There're a couple of
countries down here.

[00:09:59.186]
Number 11 is Hungary and number
21 is the Slovak Republic.

[00:10:03.056]
>> They have quite
low life expectancy.

[00:10:07.026]
And nevertheless there's
a trend line that's kind

[00:10:11.696]
of the sloppy fit,
but nevertheless,

[00:10:13.276]
the trend line it says more
medical spending is associated

[00:10:16.336]
with more life expectancy

[00:10:18.786]
and then the United
States is over here.

[00:10:20.676]
That arrow was supposed
to be right about that.

[00:10:23.916]
There's the United States,
way below the trend line

[00:10:27.086]
which would be up there at
the medical spending we have.

[00:10:30.076]
Now life expectancy is of
course not the only measure

[00:10:32.676]
of health benefit.

[00:10:33.526]
There're a lot of
gains we can get

[00:10:35.646]
for our health care system
beyond life expectancy.

[00:10:38.536]
But does one of them,
we can compare

[00:10:40.456]
across international boundaries.

[00:10:43.206]
And the second which is this
level of infant mortality,

[00:10:46.026]
it's really perinatal
mortality which is a definition

[00:10:49.056]
of infant deaths both before
and after near the time of birth

[00:10:53.986]
and these are data from the OACD
looking at in mortality rates.

[00:10:59.426]
And here the fit is
somewhat tighter.

[00:11:01.416]
Again, country number 12,

[00:11:04.996]
it turns out to be fairly
low in this Iceland.

[00:11:08.046]
I think that's a little bit of
an anomaly of data reporting

[00:11:10.556]
in Iceland but a pretty
descent trend line fit on that,

[00:11:14.206]
that the more we're
spending per capita

[00:11:16.016]
on Medical care the better
our infant mortality rate is,

[00:11:21.976]
except for the United States,
way up there off the trend line.

[00:11:28.196]
Now, these are the only kinds

[00:11:29.296]
of data you can actually
made comparisons of outcomes

[00:11:33.136]
across nations with
any sensibility.

[00:11:35.476]
There had been some more
refine studies that look,

[00:11:38.476]
for example between Upstate New
York and Ontario province right

[00:11:44.506]
across the border in
the across lake, Hunter,

[00:11:48.046]
very similar climates
similar population

[00:11:50.246]
and education and earnings.

[00:11:52.556]
And for example, United States
does about twice the amount

[00:11:57.196]
of coronary bypass surgery as
the same citizens age-adjusted

[00:12:01.546]
and sex-adjusted
citizenry, I guess in Canada.

[00:12:04.286]
And there's no difference
on mortality outcomes.

[00:12:07.156]
But when you go and then
look carefully underneath

[00:12:09.336]
that in a more finely
tuned comparison,

[00:12:12.216]
you see that the citizens
in the United States

[00:12:14.346]
with the higher rate of coronary
bypass surgery have higher

[00:12:19.826]
capability and activities
of daily living like being

[00:12:22.336]
to walk upstairs and
walk at the store.

[00:12:24.376]
They have more freedom
from chest pain.

[00:12:27.396]
So in the lot of more refined
measures you're actually seeing

[00:12:30.236]
health benefits arising out
of this and they don't show

[00:12:33.306]
up these international
comparisons.

[00:12:35.726]
But nevertheless,
these are what we have,

[00:12:37.836]
and as I said we might
be looking for the key

[00:12:39.746]
under the lamppost, but these
kinds of numbers are disturbing.

[00:12:42.836]
I've also, I don't have
a slide to show this,

[00:12:44.816]
but had people wonder,
"Gee, if all of this affect

[00:12:47.976]
on life expectancy comes
with infant mortality,

[00:12:50.316]
what happen if we could clean
out the infant morality affect

[00:12:53.396]
and then see what happens
to life expectancy?"

[00:12:55.926]
So, I've looked what
the life expectancy is

[00:12:58.026]
for a person aged 25
instead of at birth

[00:13:01.156]
and the picture looks
essentially just like this one.

[00:13:05.676]
So cleaning out the infant
mortality story doesn't change

[00:13:08.446]
the fact that we're still
having low health outcomes

[00:13:12.446]
for health care spending
in this country.

[00:13:15.166]
So that's problem number 1,

[00:13:16.426]
problem number 2 is
we're getting older.

[00:13:18.926]
Now these folks should
make the young folks of you

[00:13:22.906]
on the room real nervous.

[00:13:25.146]
This is a standard
demography picture,

[00:13:27.156]
it's called the population
pyramid,

[00:13:29.246]
and when they look
just right you start

[00:13:31.726]
out each horizontal
line as an age bracket

[00:13:34.636]
and the size it shows
how many people there are

[00:13:36.436]
in that age group.

[00:13:37.776]
The one's on the
right are females,

[00:13:39.316]
the one's on the left are males
and the traditional pyramid

[00:13:42.276]
which is what it's called that,
it just slopes up so it's shape

[00:13:45.396]
like a pyramid and
peaks with the single

[00:13:47.406]
of narrow thing at the top.

[00:13:48.726]
And this one in 1950, you can
already see the beginnings

[00:13:56.026]
of changes in the population
about this young age group

[00:14:00.836]
and particularly, you can
start to see the baby boom.

[00:14:03.276]
And then as we move to the year
2000 that baby bloom is now

[00:14:07.576]
up in the age bracket,
and so like a lot of us,

[00:14:11.496]
the population pyramid
in the United States

[00:14:13.356]
as a midriff bulge, a topic to
which I will return shortly.

[00:14:17.746]
( Laughter )

[00:14:17.813]
>> Take this out to 2020.

[00:14:22.646]
These are extrapolations,

[00:14:23.836]
but demographers can
do these extrapolations

[00:14:26.716]
with very high degree
of accuracy.

[00:14:28.986]
And you can see that,

[00:14:29.626]
that pyramid is almost
become a cylinder.

[00:14:32.016]
Let say, there's
almost just many people

[00:14:34.016]
in the elderly age group
that start at the younger.

[00:14:36.476]
And remember in our system
of Medicare financing,

[00:14:39.336]
the people in this age group
were paying the Medicare taxes

[00:14:43.006]
that are financing the
healthcare for this group

[00:14:45.226]
that works a lot better
in this population

[00:14:47.236]
than it does in this one.

[00:14:48.656]
And we take it out to 2050
when I won't be around.

[00:14:51.816]
But you can see that this
is now it had become column

[00:14:56.066]
but it's become in fact
an inverted top hat.

[00:14:59.556]
And you also notice
that the line

[00:15:01.606]
on the right side
is a lot bigger.

[00:15:02.946]
Women live a lot
longer than men, about 6

[00:15:06.186]
or 7 years longer life
expectancy in our society.

[00:15:09.816]
Some of it is probably
hormonal protection.

[00:15:12.566]
I think most of it is due to the
fact that men smoke a lot more

[00:15:16.276]
than women earlier in
their lives, another topic

[00:15:19.636]
to which I will return.

[00:15:21.106]
These numbers now, of course
what's scary about these numbers

[00:15:23.936]
that elderly persons, because
our bodies are wearing out,

[00:15:27.906]
we're just using medical
resources a lot faster

[00:15:30.036]
than younger people.

[00:15:31.646]
So if the population
ages like the 2020 number

[00:15:36.006]
which is not real far
away, 8 years away,

[00:15:39.526]
those kind of population
distribution just guarantee your

[00:15:43.286]
gonna be spending more
money on healthcare,

[00:15:45.386]
no matter what else happens.

[00:15:47.246]
And the 2051 is actually
real scary.

[00:15:51.466]
[00:15:52.526]
Now, my son will be up
in that age population,

[00:15:55.746]
2050 but I, I will not.

[00:15:58.916]
[00:16:00.086]
Okay, sorry, wrong direction.

[00:16:03.246]
Okay, now problem number 3 is
income will continue to grow

[00:16:06.866]
and so medical spending
this turns

[00:16:09.006]
out to be an extraordinarily
strong predictive power.

[00:16:12.086]
If you know how much income per
capita a society has you can

[00:16:16.296]
tell with the high degree
accuracy what their per capita

[00:16:19.056]
medical spending is going to be

[00:16:20.956]
and that statement is
true almost independent

[00:16:23.156]
of how health care is
organized in their society.

[00:16:26.346]
So we have again, you can
see the exact nations,

[00:16:29.696]
but in the middle cluster here,
we have nations like Germany

[00:16:32.546]
and Japan that have a health
care system does not completely

[00:16:35.766]
dissimilar from ours.

[00:16:36.806]
But universal insurance
you have Australia

[00:16:38.816]
which is quite marketer
oriented, you have Canada just

[00:16:41.946]
to the north of us which
has social insurance--

[00:16:43.946]
health care system
not the insurance

[00:16:47.346]
but health care system
is much like ours.

[00:16:51.126]
You have Great Britain which
has the British National

[00:16:53.506]
Health Service.

[00:16:54.046]
And you have Sweden which
has health care provided

[00:16:56.886]
by counties, and
all of these are

[00:16:59.006]
on this extremely type
fitting regressional line.

[00:17:01.956]
And it doesn't matter how
the system are organized,

[00:17:04.576]
you get to the same health care
spending because of the income,

[00:17:08.886]
it just a very strong
relationship and it occurs

[00:17:11.376]
in every data set I've
looked at across many years.

[00:17:14.516]
So what that tells me
is as our income grows,

[00:17:17.726]
in fact of all societies,
as our income grows,

[00:17:20.366]
we're gonna be moving
up in spending line.

[00:17:22.286]
Now the other problem of course
is there's the United States is

[00:17:24.916]
way up off that regressional
line.

[00:17:28.156]
It's a very high outlier.

[00:17:30.306]
If you think that
there's a curvature to it,

[00:17:32.646]
you can bend a little bit of a
log fit that seems like it goes

[00:17:35.806]
up there a little closer
but the US is a big,

[00:17:37.776]
a above the line
outlier on any counts.

[00:17:40.726]
So not only is our
income growing

[00:17:42.806]
but we're way up
there on spending.

[00:17:44.306]
In several reports, I've
seen say, a nontrivial chunk

[00:17:47.406]
of that is due to the way we
compensate positions relative

[00:17:50.136]
to other nations,
but that's a question

[00:17:52.796]
which I'm not gonna try
and delve into today.

[00:17:56.756]
Problem number 4 is
technological change.

[00:18:00.156]
Now, this I'm sorry
is a very hairy slide

[00:18:02.706]
but I'll just give you
an easy way through it.

[00:18:05.756]
Okay? Let's look at actual
dollars spend in 1960 and 2010

[00:18:12.786]
in the US economy on healthcare.

[00:18:14.656]
These are billions--
billions 'cause we're talking

[00:18:17.776]
about the federal government
or the total economy,

[00:18:20.536]
23 billion dollars
spent in 1960.

[00:18:23.956]
That was the total
amount of money spent

[00:18:25.456]
of medical care in the US.

[00:18:27.496]
In 2010, that was 2, 435--
2.43 trillion dollars.

[00:18:33.876]
So the ratio of that 23 billion
to that one, the ratio is a 106.

[00:18:38.246]
The amount of dollars being
spent increase by a factor

[00:18:41.086]
of 106 over that
50 year of period.

[00:18:43.636]
I just wanna look at these
numbers across the bottom so,

[00:18:46.906]
you know, what they mean.

[00:18:48.506]
Just simply taking adjustment

[00:18:50.176]
for inflation using the consumer
price index and we totaled these

[00:18:54.056]
in cost of 2005 dollars, that
number drops to merely 14.

[00:18:59.326]
Still the CPI adjusted
14 fold increases.

[00:19:02.906]
We can then say, oops the
population is growing,

[00:19:05.436]
let adjust for that so we
can do is on a price adjusted

[00:19:10.316]
and in per capital basis,
the number is now 8.2.

[00:19:15.256]
Now comes the last step

[00:19:17.046]
which makes every health
economists nervous.

[00:19:19.476]
Let's adjust it by the
medical price index

[00:19:21.716]
which is a component of the CPI.

[00:19:25.156]
That's a real nervous
time because the component

[00:19:28.336]
from medical care in the CPI
doesn't take quality adjustments

[00:19:31.816]
into account, for example
a major component of this,

[00:19:34.316]
a semi-private hospital room.

[00:19:36.636]
Well, that's a very
different (inaudible) now

[00:19:38.426]
than it was in 1960.

[00:19:41.626]
So if you make that
adjustment, this falls to 2.

[00:19:44.796]
8. But some of that is technical
change, technological change.

[00:19:48.636]
So something between about a
factor of 3 and about a factor

[00:19:51.636]
of 8 is the effective new
technologies introduced

[00:19:54.736]
into our health care system.

[00:19:56.636]
And I can't tell you
if that a big gap.

[00:19:58.646]
I can't really give you
a lot more precession

[00:20:01.186]
in that somewhere between
3 and 8 fold increased

[00:20:03.346]
in real per capital spending
that's technologically driven

[00:20:06.706]
and that technology
is continuing

[00:20:08.906]
to come down the pipe.

[00:20:10.706]
>> Now, just to reflect
back and then--

[00:20:13.006]
many of you in the
room are not old enough

[00:20:14.966]
to remember some of these.

[00:20:16.126]
But the changes in
medical capability

[00:20:19.506]
over this 50 year
period have just,

[00:20:21.786]
they're almost beyond
imagination.

[00:20:24.906]
In 1960, if you had a serious
bodily injury they could take a

[00:20:29.266]
plain film X-ray.

[00:20:30.846]
Now if you've ever look at
an X-ray compare to an MRI

[00:20:32.946]
or CT image, the X-ray looks
like a crude children's drawing

[00:20:37.086]
for most medical
problems compared

[00:20:38.686]
to what you can see
in modern imaging.

[00:20:40.296]
And then PET scans actually
cannot only measure structures

[00:20:43.936]
but physiology.

[00:20:44.796]
They can actually find out
where cancer is growing

[00:20:48.306]
with the PET scan by injecting
with a little radioactive sugar

[00:20:51.776]
and then watching it
glow on the images.

[00:20:54.216]
Heart attacks, another
technical change.

[00:20:56.686]
When I was young and growing up
in Denver, Dwight Eisenhower,

[00:20:59.256]
the person had a heart attack
while he was on Denver.

[00:21:02.286]
The best medical treatment
around at that time including

[00:21:05.276]
for the president of United
States was 8 weeks of bedrest.

[00:21:08.816]
We now know actually that's
pretty bad for the patient.

[00:21:11.946]
But what we have now
instead of that 8 weeks

[00:21:14.036]
of bedrest is we now have
coronary bypass graphs,

[00:21:17.286]
implantable defibrillators,
stents, a whole bunch of drugs

[00:21:20.956]
that reduce the risk of
the heart attack itself

[00:21:24.246]
and eventually heart
transplants.

[00:21:27.686]
All those extend life and
in fact about the third

[00:21:30.016]
of the gains we had in life
expectancy over this period

[00:21:33.226]
of time have been do to
improvement and the survival

[00:21:35.936]
from heart disease and they
all cost a lot of money.

[00:21:41.786]
Middle illness treatment
is preceded similarly.

[00:21:43.986]
The treatment in 1960 was if
somebody was schizophrenic

[00:21:47.766]
or other serious
medical disorders,

[00:21:49.966]
you put him into a mental
institution forever.

[00:21:52.566]
And now we have a whole bunch

[00:21:53.726]
of non-trivially expensive
pharmaceutical products

[00:21:56.586]
that actually reasonably well.

[00:21:58.256]
Not perfectly but
reasonably well-control

[00:22:01.186]
psychiatric illnesses.

[00:22:03.876]
Knee replacement, something
near and dear to my heart,

[00:22:07.046]
I tore an anterior
cruciate ligament

[00:22:10.176]
in an intramural
basketball game in college

[00:22:12.326]
and it has been grinding a
way slowly ever since then.

[00:22:15.286]
And I know instead of just
wearing a leg brace around

[00:22:18.726]
and taking a lot of Advil,
I have a metaled knee.

[00:22:21.296]
Okay. It's hugely improved
the quality of my life.

[00:22:26.506]
Before that I would not
have been able to stand here

[00:22:28.426]
and lecture to you, I would have
been setting in a chair here.

[00:22:30.766]
The only downside is that every
time I take an airplane trip,

[00:22:34.916]
I get a free massage from the
transportation security agency

[00:22:37.746]
on the way through the gate.

[00:22:40.596]
And it's a whole bunch of
implant devices like that,

[00:22:44.296]
some of which you shouldn't
bother with, but certainly knees

[00:22:48.786]
and hips have worked well.

[00:22:49.866]
Shoulders kind of a
risk, don't bother.

[00:22:52.666]
I've experiencing almost

[00:22:54.286]
of these questions
in my own make up.

[00:22:57.696]
Strokes, if you have
strokes in 1960,

[00:22:59.986]
you got some physical therapy
and thank you, good luck.

[00:23:03.076]
Now there's an anticoagulant,
they could be administered

[00:23:05.486]
if you get them soon enough
from the emergency room

[00:23:07.566]
after your stroke that
will vastly reduced the

[00:23:09.876]
neurologic damage.

[00:23:11.466]
They have robotic surgery to
clean up the messed up arteries

[00:23:16.656]
and blood circulation to your
brain to improve your recovery.

[00:23:20.586]
And diabetes, it was a once
a day shot with insulin

[00:23:24.436]
which left these wild swings
in the insulin control.

[00:23:27.736]
Now you have pumps

[00:23:29.216]
that continuously monitor the
blood sugar of the individual

[00:23:31.796]
and feed in insulin
slowly and steadily.

[00:23:34.396]
The vaccines, just one more, we
have almost eliminated polio,

[00:23:38.966]
haemophilus, influenza B,
cervical cancers to some extent,

[00:23:43.626]
and most of the common
killers of the 19th

[00:23:45.696]
and in the first half
of the 20th century

[00:23:47.446]
with vaccines and antibiotics.

[00:23:49.736]
There are now 25 active vaccines
in used around the world.

[00:23:52.996]
The next will cost a
billion dollars to develop

[00:23:55.326]
and each one thereafter
that or more.

[00:23:59.456]
So problem number 5 and this is
the one that puzzles me most.

[00:24:05.686]
When we start looking regional
patterns of medical care use

[00:24:09.216]
in the United States, we get
very strange maps appearing.

[00:24:13.466]
These maps come out
of the Dartmouth Atlas

[00:24:15.886]
and Jack Weinberg
and his college

[00:24:17.746]
at Dartmouth Medical School.

[00:24:21.576]
This shows in the color coding

[00:24:24.176]
down here the darker
the coloration

[00:24:26.846]
for a region the more
per capita spending.

[00:24:29.856]
The national average is about
9,000 dollars in this year.

[00:24:36.556]
This is in 2008, the most
recent year they have up.

[00:24:40.906]
And you can see these clusters
of high spending, Texas, Florida

[00:24:46.816]
and then this band
along Northeast

[00:24:51.056]
and this band along there.

[00:24:52.616]
Now, I wanna just take a little
more careful peek a couple

[00:24:55.076]
of these things.

[00:24:56.836]
[00:24:58.036]
Zoom in on Florida.

[00:25:00.276]
This is very illuminating
in a number of ways.

[00:25:02.946]
First of all I remember
the national average.

[00:25:05.396]
This is a couple of years
older now so the average

[00:25:07.506]
in this was 8700 dollars.

[00:25:09.676]
Miami is at the top of the heap

[00:25:12.586]
at 17,274 dollars per Medicare
recipient, these are all age

[00:25:18.636]
and sex-adjusted by the way

[00:25:20.576]
so this isn't just the Medicare
people in Miami or older

[00:25:24.586]
and these are all
age, sex-adjusted.

[00:25:26.606]
Just across the state, at 8300,

[00:25:29.476]
a little under the national
average in Fort Myers,

[00:25:32.636]
Tampa is a little above,
Orlando is a little above,

[00:25:35.386]
Tallahassee is still lower
up at the top of state.

[00:25:39.876]
Almost 10,000 dollars
a year difference

[00:25:42.806]
in treating Medicare patients
per age, sex-adjusted per person

[00:25:46.876]
in Miami than there
is in Tallahassee.

[00:25:50.166]
Now, the other thing that
goes on is when you go in

[00:25:53.456]
and look carefully at these
and this was what the reference

[00:25:55.786]
to Fisher Wennberg
and Stukel from 2003.

[00:25:59.446]
You don't find any
differences at all in mortality

[00:26:04.366]
or activities of daily
living, functional measures

[00:26:08.526]
or satisfaction with care

[00:26:10.636]
or patient's self
reported health status.

[00:26:12.696]
There are no differences across
these various regions in any

[00:26:15.496]
of those measures from
Medicare recipients.

[00:26:18.316]
So, this really raises
the question up of

[00:26:22.206]
if these differences are going
on and we don't seem to be able

[00:26:28.096]
to measure benefit in very many
ways, if any in, in this work

[00:26:31.656]
at the ones they've
looked at, no way.

[00:26:33.816]
How do we get into
that situation

[00:26:36.586]
where we're apparently
spending health care dollars

[00:26:39.336]
without any significant benefit?

[00:26:43.186]
Yes, sir?

[00:26:43.886]
>> Is cost of living in
general and Miami (inaudible).

[00:26:47.206]
>> Cost of living is about 15
percent higher in Miami than,

[00:26:51.596]
but certainly not than
in Fort Lauderdale.

[00:26:54.896]
The other question I'm
often asked is this,

[00:26:56.696]
maybe it's malpractice?

[00:26:58.536]
And that's one of the reasons
why I really like this slide

[00:27:00.666]
because this is all and exactly
the same legal environment.

[00:27:03.266]
It's the same malpractice law
in Florida and every city.

[00:27:07.036]
So, it's really hard to pin
this on the malpractice law

[00:27:09.866]
because it's all the same here.

[00:27:11.786]
So, one of life's great
puzzles is to how this happens.

[00:27:15.226]
If we look, I'm gonna turn
up the microscope a bunch

[00:27:19.676]
of ways instead of total cost
of treating Medicare patients.

[00:27:22.856]
This looks at hospital
discharges

[00:27:24.556]
for thousand enrollees.

[00:27:26.676]
The US average is about
336 and then just wandering

[00:27:30.816]
down interstate 94,
Kalamazoo where I spoke

[00:27:34.606]
about this yesterday, is
about 340 and Arbor is

[00:27:37.146]
about 360, Detroit is about 405.

[00:27:40.266]
Remember these are all
age sex-adjusted measures.

[00:27:43.286]
So, what's causing this?

[00:27:45.756]
Maybe it's the Appalachian
trail?

[00:27:48.416]
[00:27:50.256]
Probably not but it's
a pretty good fit.

[00:27:52.756]
It's better fit than some

[00:27:54.456]
of the regressions I
showed you earlier today.

[00:27:57.676]
But that's-- now I
wanna keep turning

[00:28:00.976]
up the microscope
here just rapidly

[00:28:02.586]
and show you what's going.

[00:28:03.666]
So this is hospital discharges
for thousand enrollees.

[00:28:07.956]
So, now, let's look
at in-patient care

[00:28:11.486]
in the last six months of life.

[00:28:14.236]
And you see the same pattern
essentially but now not just

[00:28:17.476]
for hospital care but for a more
specific type of hospital care

[00:28:21.066]
and that is in the last
six months of life.

[00:28:22.666]
Of course we never know what's
the last of a person's life are

[00:28:25.536]
until they passed
away, but nevertheless,

[00:28:27.986]
there's a trend here that's
showing up and when we look

[00:28:31.526]
in at the percent of all
debts within the hospital

[00:28:34.436]
where we do know what some
of the alternatives are

[00:28:36.336]
for example hospice care or
nursing home alternatives,

[00:28:39.386]
the map looks extremely similar.

[00:28:41.766]
You still see the
Appalachian trail effect.

[00:28:43.726]
And in fact we can
turn up the power

[00:28:45.866]
of the microscope one notch
further and look at the use

[00:28:49.136]
of intensive care in the
terminal hospitalization

[00:28:52.866]
and again you see
essentially the same pattern.

[00:28:55.766]
There's a little more of this
out in the, in the south west

[00:28:58.966]
of the United States
and southern California.

[00:29:01.666]
And if you look down on this
floored area, every time we turn

[00:29:07.176]
up the microscope we see the
same sort of patterns emerging

[00:29:11.066]
and this tells me
a couple of things.

[00:29:14.016]
Obviously, one of them is that
it's not waste fraud and abuse.

[00:29:18.336]
There's certainly a lot of
that going on in the Medicare,

[00:29:20.806]
there's fraudulent, billing
for things that never happened,

[00:29:23.606]
not in intensive
care units folks.

[00:29:27.136]
That's not where the waste,
fraud and abuse is going on

[00:29:29.806]
and these patterns
still keep emerging.

[00:29:32.006]
So, I'm convinced
from looking at this,

[00:29:34.386]
there are very important
differences

[00:29:36.786]
in the way communities
come to believe

[00:29:39.076]
that the health care
system should be used.

[00:29:41.076]
There are agreements between
patients and their doctors.

[00:29:43.636]
I have no idea how those
implicit agreements are set

[00:29:46.956]
but we confine them and they
keep repeating themselves year

[00:29:49.396]
after year after year and it's
not due to age, demography

[00:29:52.656]
or illness patterns, yes?

[00:29:53.856]
>> (Inaudible) is there any
comparison between utilization

[00:29:57.316]
and Medicare patients
and whether

[00:29:59.066]
or not there are additional
Medicare or they're

[00:30:01.286]
on Medicare each moment?

[00:30:03.616]
>> Yeah, most of these
data, these have been done

[00:30:05.846]
over a series of years and they
look very similar from a year

[00:30:08.366]
or even before Medicare
advantage part C came

[00:30:10.996]
into effect.

[00:30:12.646]
The Medicare part C enrollment
is getting large enough.

[00:30:15.816]
Now you begin to parse that out.

[00:30:17.946]
It hasn't been done yet
by the folks at Dartmouth.

[00:30:20.156]
I don't-- it would
be interesting

[00:30:23.466]
to see what the answer is.

[00:30:24.316]
Of course I'm now on
Medicare since I retired

[00:30:27.156]
from the active faculty of
the University or Rochester,

[00:30:29.286]
I had to go to Medicare,
and before that I was

[00:30:32.326]
on a high deductible
HSA savings--

[00:30:34.456]
consumer-directed health plan.

[00:30:36.546]
They wont let me have
one of those in Medicare

[00:30:40.416]
and it just drive me crazy
'cause I thought it was the best

[00:30:43.116]
thing for me and
certainly not for everybody

[00:30:45.066]
but my choices are
limited in that.

[00:30:48.336]
So, there's the policy
problem staring us in the face.

[00:30:51.576]
I mean certainly there's
a lot of variability

[00:30:53.706]
in medical care spending.

[00:30:55.406]
We cannot say, and I wanna
emphasize, we cannot say

[00:30:58.716]
with any reason, plausibility
that Miami is too high.

[00:31:03.156]
All we know is it's
bigger that anyone else.

[00:31:06.246]
But they might be
dead on just right

[00:31:08.106]
and we might all be
spending not enough.

[00:31:10.476]
Now of course we
do have this notion

[00:31:11.976]
that we're not seeing
any health benefit

[00:31:13.926]
from that extra spending
compared

[00:31:15.246]
to other places in Florida.

[00:31:17.016]
And that sort of analysis is
giving us a stronger suspicion

[00:31:19.976]
that in fact the
high end is too much.

[00:31:22.916]
But that's really
the problem, yes?

[00:31:25.196]
We have a question
in the back, yes sir?

[00:31:26.746]
>> I was just wondering,
what about the distribution

[00:31:28.886]
of subspecialist, what,
what does that look like

[00:31:31.986]
and the distribution
of hospital beds or--

[00:31:35.636]
>> Yeah, the folks at
the Dartmouth Atlas have,

[00:31:40.446]
the question is, does this,
is this following patterns

[00:31:42.996]
of medical specialists
in hospital resources.

[00:31:47.126]
And the answer is the folks of
Dartmouth have done some work

[00:31:50.316]
on that and you could
probably if you want to prowl

[00:31:54.796]
around at the Dartmouth Atlas,
it's a pretty good website,

[00:31:57.226]
and you can find more
detail answers to that.

[00:31:59.616]
The problem that economist see
when they look what that is,

[00:32:02.426]
we don't know whether the
resources have cost utilization

[00:32:05.076]
or the fact that people want the
resources and they flowed there

[00:32:07.336]
to respond to that and it's
very hard to disentangle

[00:32:10.476]
that particularly in
these types of data.

[00:32:14.016]
So, I suspect that there is
some correlation between those.

[00:32:16.666]
I'm not willing to assign
causality at the fact

[00:32:19.376]
that if you put some
resources in there

[00:32:20.966]
that people will
come and use them.

[00:32:22.406]
They have to want to
use them after all.

[00:32:24.896]
Now they're getting-- we do know

[00:32:26.186]
that there're some
important features about that.

[00:32:28.206]
Florida is rampant for example

[00:32:30.636]
with physicians owning
various types

[00:32:33.276]
of like imaging facilities.

[00:32:35.196]
We know from very careful study
in Florida that physicians

[00:32:37.816]
who have ownership's
taken imaging facilities,

[00:32:39.906]
orthopedic surgeons
recommend imaging studies

[00:32:43.186]
at four times the
rate of orthopods

[00:32:46.376]
who don't own imaging
facilities.

[00:32:48.836]
So there's certainly
some of that going on

[00:32:52.156]
and I would be foolish
to say otherwise,

[00:32:55.306]
I can't tell you how much of it.

[00:32:57.866]
And then one also must
wonder, why is there so much

[00:33:00.226]
of that going on in Miami?

[00:33:02.306]
Well, if other parts
of the same state

[00:33:03.946]
which have the same tax law

[00:33:05.166]
and the same malpractice
law and everything.

[00:33:08.246]
There're a lot of reasons we
think we know what's going

[00:33:11.116]
on some of it but I don't
know anybody that can say

[00:33:12.976]
with confidence how much of
this is due to various parts.

[00:33:16.286]
And I would, if I said that
you should run me out of town

[00:33:19.276]
because I have no logical basis

[00:33:21.126]
for asserting how
much is due to what.

[00:33:23.606]
And thank you, that's
a very good question.

[00:33:26.676]
This leaves me to the puzzle
if, I'm prepared to say,

[00:33:30.066]
we seem to have a lot of
medical treatment going

[00:33:32.956]
on because these variations
without apparent benefit,

[00:33:36.006]
so how do we avoid that?

[00:33:38.046]
And I'm gonna (inaudible) some.

[00:33:39.056]
I'm always thinking about
incentives so I wanna puzzle

[00:33:41.236]
around about the
incentives that lead to that.

[00:33:43.686]
One of them is setting aside
the Medicare population.

[00:33:48.056]
We have too much health
insurance in this country

[00:33:50.096]
for those who are insured.

[00:33:52.156]
Our tax system subsidizes
health insurance.

[00:33:55.836]
The average subsidy is
about 35 percent so we end

[00:33:59.296]
up with people buying
health plans

[00:34:01.516]
that don't have any cost
consciousness build into them.

[00:34:04.136]
We end up with people
ensuring, if there are dentists

[00:34:08.116]
in the room please forgive me,
there's no particular reason

[00:34:11.146]
to buy dental insurance,
there's just not much,

[00:34:13.226]
very much financial risk
associated with that.

[00:34:15.926]
If you cave your face in,

[00:34:17.146]
in a vehicle accident your
medical insurance will pay

[00:34:19.446]
for it anyway, the
reconstructive surgery.

[00:34:22.736]
So, we're really talking about
insuring of dental insurance,

[00:34:24.986]
things that are very
predictable on average,

[00:34:27.316]
not quite as predictable
as grocery bills

[00:34:29.376]
but pretty predictable.

[00:34:30.766]
And we ensure that because
our tax system subsidizes it

[00:34:34.106]
and that has derivative effects
on how much medical care we use.

[00:34:37.556]
And that's true also almost
every type of, of health care.

[00:34:41.876]
How do we guide decisions

[00:34:44.686]
to the most appropriate
intensity of care?

[00:34:47.156]
In fact, it'd be nice
to know where is that,

[00:34:49.196]
the most appropriate intensity
and we don't know that.

[00:34:52.346]
How we pay for care?

[00:34:54.296]
Why do we pay for care
with little or no benefit

[00:34:59.326]
and these are not
easy problems to fix

[00:35:01.016]
and I don't know the
answers but they--

[00:35:02.976]
I think there are
some with the core

[00:35:04.326]
of the issues confronting our
society as we look forward.

[00:35:08.326]
But that is not the
fundamental problem.

[00:35:10.836]
The fundamental problem
is ourselves.

[00:35:13.726]
The first set of problems
are related to the government

[00:35:15.906]
and government policy.

[00:35:17.316]
The second problem is to
steal the line from pogo.

[00:35:21.186]
We have met the enemy
and they are us.

[00:35:25.266]
[00:35:26.306]
This is one of the
most eye-opening,

[00:35:29.416]
and to me eye-opening

[00:35:30.446]
and transforming research
studies I've ever seen

[00:35:32.976]
in my life.

[00:35:34.366]
Let me walk you through this.

[00:35:35.956]
The first of this was done using
1990 data by McGinnis and Foege

[00:35:41.506]
and then replicated using
2000 data a decade later

[00:35:46.076]
and somebody I'm sure is
furiously working on doing this

[00:35:49.746]
with 2010 data now or
will be very shortly.

[00:35:53.356]
But the numbers are
pretty striking.

[00:35:55.926]
So let's talk about
what this means.

[00:35:57.256]
This is the actual causes
of death in United States.

[00:35:59.726]
Now death certificates, there's
a national death registry

[00:36:02.326]
in the US, and the death
certificate list the cause

[00:36:05.046]
of death that the
physician has written down.

[00:36:06.646]
So the physician says lung
cancer, that's the cause

[00:36:08.936]
of the death on the
death certificate.

[00:36:11.116]
What McGinnis and Foege
did was to go through all

[00:36:14.376]
of those deaths and look at
the deaths for lung cancer

[00:36:17.606]
and then sort out how many
deaths are attributable

[00:36:20.606]
to tobacco use.

[00:36:22.846]
And then those which are not
and the deaths that are above

[00:36:26.756]
and beyond that which
will be predicted

[00:36:28.336]
for nonsmokers are excess deaths

[00:36:30.336]
that are attributable
to tobacco.

[00:36:32.196]
And then they add that up
across lung cancer and a bunch

[00:36:35.576]
of other cancers and emphysema

[00:36:37.826]
and chronic obstructive
pulmonary disease

[00:36:40.146]
and heart disease and the many
other things that smoking does

[00:36:43.766]
to cause, medical care cause
and medical expenses and death

[00:36:48.956]
and they added up all the extra
deaths associated with tobacco.

[00:36:53.776]
There were about 2 million
deaths in the United States.

[00:36:56.066]
This 1 million was about 50
percent of all the deaths

[00:36:58.436]
in the United States, 400,000

[00:37:00.566]
of that w million were
attributed to tobacco.

[00:37:03.866]
Next on the shopping list
in 1990 data was 300,000

[00:37:08.436]
to poor diet and
physical inactivity,

[00:37:10.986]
alcohol consumption was third,
microbial agents is fourth.

[00:37:15.826]
That's the bugs that we run,
toxic agents in our homes

[00:37:21.566]
and in our work places.

[00:37:22.996]
Motor vehicular accidents,
firearms, sexual behavior,

[00:37:26.436]
elicit drug use, 1 percent of
all the deaths in the country,

[00:37:31.566]
30,000 deaths in that year.

[00:37:32.886]
That number has gone
down a lot since then

[00:37:35.146]
because of HIV treatment.

[00:37:37.146]
So, and then elicit
drug use have 20,000.

[00:37:40.796]
So let's look at the 20,000
and the 300,000 and 100,000.

[00:37:48.746]
This is a completely
side comment

[00:37:50.286]
but folks were fighting
the wrong drug war.

[00:37:53.756]
Let's leave it at that.

[00:37:56.406]
This set of excess deaths
from this things adds up to

[00:38:01.876]
about half of all the
deaths in the United States.

[00:38:03.746]
Incomparable by the way
in medical care expense,

[00:38:05.936]
I'm quite sure, although I
have not seen detail on that.

[00:38:08.766]
Just a second, I'll
get to a question.

[00:38:11.776]
Almost all of these are
lifestyle choices we make.

[00:38:15.316]
They're our own behavior.

[00:38:18.216]
Perhaps the only
counter examples

[00:38:20.226]
to that will be microbial agents

[00:38:21.786]
and toxic agents just some
extent, but I'd say almost all

[00:38:25.186]
of these are behavioral
choices that we make.

[00:38:27.656]
Now the question, yes sir.

[00:38:28.666]
>> I'm just wondering how
they're determining the baseline

[00:38:30.546]
for the national
history of illnesses.

[00:38:33.106]
You're saying that they
determined that baseline

[00:38:36.406]
and then whatever is involved
in that, that's what going in

[00:38:38.646]
and they're treating
(inaudible).

[00:38:39.566]
>> Yeah, so--

[00:38:39.846]
>> So how do they
getting up baseline?

[00:38:41.236]
>> Yeah, the way to do that
is epidemiology studies

[00:38:44.046]
in every one of these cases.

[00:38:45.106]
Thank you, a good question.

[00:38:46.306]
Epidemiologists calculate
the relative risk of smokers

[00:38:48.986]
and nonsmokers, and
then you look

[00:38:51.066]
at the cohort, it's
just tied in.

[00:38:52.466]
You can tell from good
survey data what fraction

[00:38:55.186]
of them are smoking and you look
at the excess risk from smoking

[00:38:58.806]
in that population and you
can backout excess deaths

[00:39:02.206]
out of that.

[00:39:02.676]
So it's basically all hinge on
careful epidemiology studies

[00:39:06.386]
of the relative risk of
smokers and nonsmokers.

[00:39:09.256]
That's a quick summary answer.

[00:39:10.586]
>> Do we have those
for separate cause?

[00:39:12.226]
In smoking (inaudible) study,

[00:39:14.356]
I think that we had
that for other thing?

[00:39:17.566]
>> Yeah, yeah, there's good data
on enormous variety of the--

[00:39:21.166]
In tobacco consumption
for example.

[00:39:23.576]
I'd even seen really good
relative risk behavior

[00:39:25.496]
that says the pets of tobacco
smokers have a higher risk

[00:39:27.946]
of death than nonsmokers.

[00:39:30.316]
Second hand smoke prevailing its
way in so yeah, I'm confident

[00:39:34.476]
that McGinnis and Foege,
their article explains this

[00:39:37.486]
in more detail and then
the subsequent work,

[00:39:40.056]
they've got pretty solid
up the evidence on all

[00:39:42.326]
of these relative risk numbers.

[00:39:44.226]
They maybe wrong a
little bit but even

[00:39:46.816]
if they're wrong a little bit,

[00:39:47.876]
the story is quite
strong, I'm convinced.

[00:39:50.666]
I have question here
and then with you, yes?

[00:39:52.966]
>> You may be getting to this

[00:39:55.046]
but the causative deaths
don't necessarily translate

[00:39:58.966]
into higher health cost.

[00:40:00.576]
Those people who are dead are no
longer on the healthcare system.

[00:40:03.656]
>> Yes. Well, that's
particularly--

[00:40:06.346]
particularly true of tobacco.

[00:40:07.486]
Actually, there's a
lot of medical expense,

[00:40:08.986]
I'll show you a slide on
this in just a moment,

[00:40:10.656]
attributed to this behaviors.

[00:40:12.626]
But in particularly if you add
up across all that public pools,

[00:40:16.126]
tobacco users/smokers
die earlier

[00:40:19.236]
and hence although they'll
spend more in Medicare,

[00:40:20.946]
they don't consume as much
as social security resources.

[00:40:25.066]
So, there's actually a
careful book written about this

[00:40:27.996]
by Will Manning and
some colleagues called

[00:40:31.506]
"Do Smokers Pay Their
Way, that goes into that

[00:40:33.826]
in quite some detail
and the answer is almost

[00:40:37.006]
when you count the fact

[00:40:37.886]
that they're not drawing social
security resources nearly

[00:40:40.196]
at the rate of nonsmokers so.

[00:40:41.726]
>> I just wondered if
that's been compared

[00:40:43.726]
to European countries.

[00:40:46.166]
>> Yeah, actually, not just
European countries but anybody

[00:40:50.146]
who has traveled knows there's
a lot more smoking going

[00:40:52.336]
on in Europe and Japan and
there is in the United States.

[00:40:54.586]
So one of the puzzles which
I have pondered a lot is,

[00:40:58.336]
how come if they're smoking
so much more they have

[00:41:00.226]
such a better mortality
rate and I can't prove this.

[00:41:03.016]
My suspicion and it's just
a guess is that they make

[00:41:07.076]
up far more in these other
dimensions probably mostly

[00:41:09.906]
on obesity and lifestyle.

[00:41:11.426]
They walk a lot more.

[00:41:14.876]
They're not as heavy
and in general

[00:41:17.416]
and body mass index calculations
across time and space.

[00:41:21.936]
And so, my guess is
that they're making it

[00:41:23.956]
up on this other behaviors.

[00:41:25.456]
But it's a good puzzle and it's
a great dissertation student

[00:41:29.466]
for somebody here
in the Ford School.

[00:41:31.716]
Track down data that would
actually look at the rates

[00:41:34.466]
of these various behaviors
and other societies

[00:41:36.726]
and unravel how it is that
they can smoke so much.

[00:41:40.276]
And partly by the way
in Japan, the standard

[00:41:43.796]
of the highest longevity
anywhere

[00:41:46.226]
in the world is Japanese women.

[00:41:48.196]
They don't smoke, okay.

[00:41:51.726]
So you could get some comparison
just by looking at men and women

[00:41:54.606]
in Japan on that effect.

[00:41:56.366]
Yes?

[00:41:56.816]
>> I don't see any
comparison with diseases

[00:41:59.716]
who doesn't have cancer,

[00:42:03.066]
(inaudible) so it's
hard for us to--

[00:42:05.236]
>> Okay, so the rest of that
like the cancers that are

[00:42:08.056]
for people that didn't smoke,

[00:42:09.796]
they're down on the
next 50 percent.

[00:42:12.976]
Did I get your question
correctly?

[00:42:15.506]
>> Yeah, like breast cancer.

[00:42:17.016]
>> Yeah, oh, so right.

[00:42:18.216]
If you have breast
cancer and it's not

[00:42:20.186]
and if it doesn't have an
extra relative risk compared

[00:42:22.936]
to these things, it's down here
somewhere below the top 10.

[00:42:27.366]
They're all there in that list.

[00:42:28.886]
That's the other half, the other
50 percent that are on this list

[00:42:34.216]
of the top 10 and
probably, you know.

[00:42:38.416]
Some of the cancers even
though it's non-attributable

[00:42:40.636]
to these lifestyle choices
are in that next 10.

[00:42:46.226]
But I really want to
focus on the effect

[00:42:48.206]
of lifestyle on the top 10.

[00:42:49.946]
Yes?

[00:42:50.426]
>> It would be interesting

[00:42:52.276]
to compare is how physicians
Europe fill out the death forms

[00:42:59.376]
[00:43:02.576]
because in United States
it's very common to kind

[00:43:06.366]
[00:43:07.456]
of be a little sloppy but also
include the lifestyle issues

[00:43:16.766]
when you fill out
death certificate.

[00:43:18.456]
And I don't know how they
do it in other countries.

[00:43:21.876]
>> Yeah.

[00:43:21.943]
>> But they may not quite--

[00:43:23.366]
>> I don't think physicians are
given a choice much in filling

[00:43:26.306]
out death certificate that the
cause of death was smoking.

[00:43:29.156]
You know, okay, okay.

[00:43:32.236]
They have just treated
those directly.

[00:43:34.696]
And honestly I'd have to go
back and look at the details

[00:43:40.316]
at the McGinnis and Foege work
to know how they have done that.

[00:43:49.096]
Again, many of these
numbers aren't right.

[00:43:52.946]
Maybe they're not right by half

[00:43:54.066]
but I'm really convinced
there's a kernel of truth there

[00:43:57.996]
that says our own personal
behavior is causing a lot

[00:44:01.896]
of our medical spending
in deaths.

[00:44:04.076]
And there's some good news.

[00:44:06.156]
This is a graph of cigarette
consumption per adult 18 years

[00:44:10.906]
and over since 1900, it peaked

[00:44:14.056]
at almost 4,000 cigarettes
per 18 year old.

[00:44:18.366]
So here's the history quiz.

[00:44:21.066]
No fair if you're
an adult in 1965.

[00:44:23.856]
What happened in 1965?

[00:44:26.066]
There's gonna be on the final
exam for the policy students.

[00:44:29.166]
What happened in 1965 folks?

[00:44:33.566]
Surgeon General support, yeah.

[00:44:35.166]
Surgeon General of
the United States put

[00:44:38.516]
out a large scientific analysis

[00:44:39.886]
that said smoking is
really bad for you.

[00:44:42.286]
It was the first time there was
official government statement

[00:44:46.116]
that said that.

[00:44:47.116]
I was in high school
in Denver in the 1950s.

[00:44:52.446]
We knew that.

[00:44:53.366]
The junior high school
students--

[00:44:56.376]
junior high schools (inaudible)
called cigarettes cancer sticks

[00:45:00.336]
in the 1950s.

[00:45:02.486]
This wasn't like it was news.

[00:45:04.156]
It was just, this was the
official statement ever

[00:45:09.686]
for the first time and then
following that came all

[00:45:12.496]
of the societal changes.

[00:45:14.976]
Taxes on cigarettes,
warning labels,

[00:45:17.396]
no smoking in public places,
no smoking on airlines,

[00:45:23.436]
changes in social mores, some
with the development of ways

[00:45:28.886]
to unaddict from nicotine with
patches and things like that,

[00:45:34.056]
but the result has been this
dramatic decline in smoking,

[00:45:38.646]
so are now down to well under
half of what the peak was.

[00:45:41.826]
And so, we're making
great headway on smoking.

[00:45:45.446]
Not perfect but still
great headway.

[00:45:47.356]
The smoking patterns
are very tightly linked

[00:45:49.536]
with educational attainment.

[00:45:51.026]
This is a snapshot
of the current time.

[00:45:52.136]
I'll show you another one later.

[00:45:55.656]
People who have not
completed high school,

[00:45:58.146]
there's a final educational
attainment, about a third

[00:46:01.146]
of them smoke cigarettes now.

[00:46:04.556]
Those who have high
school degree,

[00:46:06.486]
it's a little under a quarter.

[00:46:08.856]
If they have some college
probably most of them have gone

[00:46:14.316]
through to junior college
and got an AA degree.

[00:46:17.886]
It's a little under
that about 22 percent

[00:46:21.126]
and college graduates are more
down to about seven percent.

[00:46:27.156]
And physicians and the
health care system,

[00:46:29.336]
it's about 2 percent.

[00:46:30.796]
A good friend of mine is a
radiologist, keep smoking

[00:46:33.966]
and that's why he
does he's beyond me

[00:46:38.526]
because he keeps looking at
x-rays of lungs of people

[00:46:41.886]
to smoke but he still smokes.

[00:46:43.966]
Nicotine is extraordinarily
addictive

[00:46:46.706]
and there's no better
addiction mechanism,

[00:46:48.556]
no addictions science
I have talked into.

[00:46:51.106]
There's no better way
to addict somebody

[00:46:52.836]
than to have small doses
delivered frequently,

[00:46:56.166]
cigarettes, okay.

[00:46:57.976]
So, it's powerful addictive.

[00:46:59.136]
I'm gonna back to this education
thing a little bit later

[00:47:02.396]
but there's this
powerful gradient

[00:47:04.056]
of smoking and education.

[00:47:05.276]
Somebody over here asked
me, doesn't it cost less?

[00:47:08.216]
Smokers consume about 40 percent
more year than nonsmokers

[00:47:13.196]
in health care cost,
age-adjusted.

[00:47:16.186]
None of this appears in
their health insurance,

[00:47:20.696]
premiums in general
particularly to employer groups

[00:47:25.926]
which is very much unlike life,
home owners, and auto insurance

[00:47:30.246]
where your experience created
in a lot of behavioral things.

[00:47:36.646]
You know, if you smoke and
try to buy a life insurance,

[00:47:39.046]
you're gonna pay a lot more for
it 'cause they know the effects.

[00:47:42.766]
They know them equally well

[00:47:44.186]
and they're health insurance
business, they just can't do it

[00:47:47.126]
in player group policies.

[00:47:49.516]
Auto insurance charges more
for under 25 year old males,

[00:47:55.956]
testosterone and gasoline
are really dangerous mix.

[00:48:00.966]
And even home owners insurance
charges more for smokers

[00:48:05.986]
because they fall asleep in bed

[00:48:08.256]
and set their homes
on fire more.

[00:48:11.376]
So we have all this experience
rating on lifestyle things

[00:48:15.816]
and other areas but
not in healthcare

[00:48:17.246]
and that's another
one of these puzzles.

[00:48:19.016]
It's not just the health
care cost, there's a lot

[00:48:21.056]
of lost productivity
in terms of work loss,

[00:48:24.656]
people are either ineffective
or can't appear for work.

[00:48:27.356]
When asked what I've seen which
I wouldn't put a whole lot

[00:48:30.266]
of faith on the exact number,

[00:48:34.396]
but it says the true cost
is a 150 dollars per pack.

[00:48:38.986]
Most of that is productivity
loss.

[00:48:41.896]
And I have mentioned this
irony since smokers die younger

[00:48:45.616]
that health care cost in
the elderly and particularly

[00:48:49.466]
that social security
cost are saved.

[00:48:52.716]
Most of the smokers end up going

[00:48:54.026]
through an expensive
end-of-life illness.

[00:48:56.616]
Often an intensive care
with their various illnesses

[00:49:00.726]
but they do exit the Social
Security systems sooner.

[00:49:04.966]
So what's to worry about?

[00:49:06.976]
We're getting all this
improvement in smoking.

[00:49:09.446]
There's little flattening

[00:49:11.106]
out in the declined
teenage initiations,

[00:49:12.936]
there's a little
concern for people

[00:49:15.236]
that are really carefully
looking at, but as I showed you

[00:49:17.466]
in the chart of McGinnis
and Foege work

[00:49:21.176]
and the one a decade later.

[00:49:22.506]
When that's done
again with 2010 data,

[00:49:25.096]
smoking is gonna lose
its unenviable position

[00:49:28.026]
at the top of the charts.

[00:49:28.666]
The reason is the
United States is

[00:49:29.666]
about to drown in
the sea of fat.

[00:49:30.536]
Let's just focus here on
the upper three lines here.

[00:49:31.826]
These are children of various
ages, so let me just focus

[00:49:33.356]
on the top three lines here.

[00:49:34.046]
Overweight but not
obese is steady flat.

[00:49:35.066]
How is this measured?

[00:49:35.546]
This is body mass index.

[00:49:36.236]
The body mass index is
calculated most conveniently

[00:49:37.796]
in metric.

[00:49:38.096]
It's your weight in
kilograms divided

[00:49:39.086]
by your height in
meters squared.

[00:49:39.896]
If you don't know your
body mass index, run,

[00:49:41.036]
walk home after we
finish this session today

[00:49:42.146]
and Google BMI index putting
your weight and height

[00:49:43.436]
and you will find out what
your body mass index is.

[00:49:44.816]
I'll show in a minute how
important that is in terms of--

[00:49:46.256]
at least in terms of
mortality outcomes.

[00:49:47.336]
Overweight but not obese has
been flat pretty much among the

[00:49:48.866]
adults 20-74 over this
period from 1960 ,

[00:49:50.846]
the most recent times
available on this.

[00:49:51.926]
That's a BMI of 25 to 30.

[00:49:52.886]
BMI of 30 to 35 is
the screen line.

[00:49:54.056]
It runs charging along into
about 1975 and then (noise).

[00:49:55.946]
And then the total of those
has the same behavior.

[00:49:57.236]
This is adding up everybody
who's both in this line

[00:49:58.526]
and this line so
that kinks (phonetic)

[00:49:59.276]
at essentially the same time.

[00:49:59.966]
And there's this
sudden change in people

[00:50:00.956]
with the body mass
index of over 30.

[00:50:02.116]
>> Their prevalence in
our society about 1975.

[00:50:08.136]
And I had a lot of reasons

[00:50:09.706]
so I can understand why
people are getting heavier

[00:50:12.606]
but why it occurred suddenly
and that kink behavior.

[00:50:14.736]
And 1975 is one of life's
great mysteries to me.

[00:50:18.656]
Perhaps we can have a
discussion about that

[00:50:20.556]
in a little bit later.

[00:50:22.816]
Now, this is going to come
happy, surprised to some of you.

[00:50:26.366]
By the way my body mass
index is 28, just probably 29

[00:50:29.546]
when I get back from
this week long trip

[00:50:31.386]
but traveling is not good
for my body mass index.

[00:50:34.316]
The upper set of these
is the mortality rate

[00:50:39.416]
by body mass index for males and
you can see it hits the bottoms.

[00:50:42.996]
That's the healthiest area
around body mass index of 23,

[00:50:46.546]
24, 25, 26, not a whole
lot of difference there.

[00:50:50.166]
As you climb back up
into very thin people,

[00:50:53.316]
the mortality rates increase.

[00:50:55.626]
I think some of that is due to
when people get really sick,

[00:50:58.026]
they lose weight so I
don't think it's causative.

[00:51:00.986]
On this side of the graph,
I don't know if many ills,

[00:51:03.466]
illnesses have caused you
to gain a lot of weight.

[00:51:06.416]
So, I think probably this side
is causative quite directly.

[00:51:09.766]
And the difference
between this set,

[00:51:12.106]
and by the way this is a summary
of about 900,000 lives across,

[00:51:15.266]
a bunch of prospective studies.

[00:51:17.386]
So, the statistical power

[00:51:18.616]
of these members is
just enormously high.

[00:51:21.376]
The bottom set of
blocks is, is women.

[00:51:25.506]
Women have lower mortality rates
and live about 7 years longer

[00:51:28.916]
in our society than men.

[00:51:30.156]
Good part because they
didn't smoke so much.

[00:51:35.626]
But fat is, is definitely
not good for you, probably

[00:51:41.526]
and even better measure is
grease line circumference.

[00:51:45.806]
We have good data on all these
studies on body mass index

[00:51:48.486]
so that's what I
can show you today.

[00:51:50.756]
Obesity cause accounts
for about 10 percent

[00:51:53.386]
of the health care cost.

[00:51:54.366]
This is again one of these
excess cost measures,

[00:51:57.376]
about 40 percent more.

[00:51:58.746]
They're very similar
to tobacco smokers

[00:52:01.626]
than people with normal weight.

[00:52:04.046]
And this problem is
going to become larger,

[00:52:06.436]
pardon the expression
through time

[00:52:08.216]
because our population is
growing increasingly obese.

[00:52:13.736]
And smoking just makes
you feel terrible.

[00:52:16.966]
This is a study by a really good
health economist David Cutler

[00:52:21.656]
and colleague published
in New England Journal

[00:52:23.446]
of Medicine a couple years ago.

[00:52:24.796]
They took survey data from
a whole bunch of people

[00:52:27.076]
around the Unites States and
basically to answer a question.

[00:52:29.736]
Rate on a scale of 0 to 1,

[00:52:31.366]
1 being perfect health,
how do you feel?

[00:52:34.096]
And this summarizes the answers

[00:52:35.746]
from this very large
population study.

[00:52:38.056]
So, let's just take
college age students who are

[00:52:40.736]
at normal body mass index and
don't smoke and their answer is

[00:52:44.946]
about 90 percent are perfect.

[00:52:47.916]
Now, if you go among
the non smokers

[00:52:51.126]
across body mass index you see
there's a, somewhat of a decay

[00:52:54.966]
in that reported,
how well I feel?

[00:52:58.116]
And when you drop down to those
current smokers and then run

[00:53:02.186]
across to people who are over
35 body mass index and smoking,

[00:53:06.976]
that number is 74
compared to 90,

[00:53:12.306]
smoking makes you feel terrible.

[00:53:14.496]
That's true also if you
look at people aged,

[00:53:17.046]
let's say, aged 55 to 64.

[00:53:20.556]
82 that's not as good
as 90 because you know,

[00:53:23.766]
time wounds all heals, it
wears us out a little bit.

[00:53:27.786]
But if you make the same
comparison of that age group

[00:53:30.636]
from nonsmoking healthy weight
to smoking and higher weight,

[00:53:36.706]
it drops down to 0.67 from 0.82.

[00:53:39.666]
You see the same kind
of proportional drops

[00:53:41.836]
in the quality of life that
people report when they're

[00:53:46.526]
in these unhealthy states.

[00:53:48.406]
So, people in these,
smokers and people

[00:53:51.926]
who are overweight are bearing
some of the cause personally

[00:53:54.166]
in this immediate health status
and make no mistake about it,

[00:53:57.796]
yeah that question, yes?

[00:53:58.996]
>> Well, I was just gonna say
it will be interesting if this,

[00:54:01.596]
I was thinking about mortality.

[00:54:03.786]
I mean there are some
studies that show

[00:54:05.526]
that mortality among
obese people is not higher

[00:54:10.256]
than not obese people
except for those people

[00:54:13.076]
who developed diabetes or
hypertension or heart disease.

[00:54:16.336]
Except for the morbidly
obese like you're not-- .

[00:54:19.706]
( Inaudible Remark )

[00:54:19.773]
>> Right, but I think
that, well, I think,

[00:54:23.376]
I mean obviously people that
are obese are more likely

[00:54:25.616]
to have diabetes.

[00:54:26.716]
But it would be interesting
to see what happens with the,

[00:54:29.626]
like the Asian population
announced

[00:54:32.326]
that there's a rapidly
increasing percentage of people

[00:54:35.216]
with diabetes without high BMIs.

[00:54:38.396]
And so it would be
interesting to compare mortality

[00:54:42.806]
with the diabetes
and the lower BMIs.

[00:54:46.016]
>> Right, we have, I have seen
the studies some time ago.

[00:54:48.546]
I couldn't quote the
author for you yet.

[00:54:50.596]
Right now they looked at first
generation Japanese immigrants

[00:54:54.736]
in Hawaii and it turns
out when, you know,

[00:54:58.636]
Japanese citizens immigrate to
Hawaii and adopt western diets,

[00:55:02.766]
they acquire western mortality
characteristics quite rapidly

[00:55:06.326]
so there's probably
something there.

[00:55:08.396]
I'm not saying that it's just
the fat but there's also,

[00:55:10.736]
well there's the diabetes
that comes from fat

[00:55:13.206]
and other things are beyond,
is kind of beyond my point.

[00:55:16.016]
I've good data on the fat
mortality story and smoking

[00:55:22.196]
and that makes my point I think.

[00:55:25.206]
So now comes the question,

[00:55:26.976]
why are we having
this increasing rate

[00:55:29.996]
of obesity in the United States?

[00:55:32.436]
And a sub-question is why it
has started suddenly in 1975?

[00:55:36.286]
I have some reasons for it that
suggests why I should be growing

[00:55:39.216]
but not why there's
that kink in 1975.

[00:55:43.136]
We have more sedimentary
jobs now than we used to

[00:55:46.236]
and so we're not shedding
calories during our work

[00:55:49.696]
which means we have to
go outside to the track

[00:55:52.696]
or to the gym and spend
valuable hours getting rid

[00:55:57.226]
of those calories and our time
is increasingly more valuable

[00:56:00.076]
as the society becomes
more educated

[00:56:02.466]
and our opportunity costs rise.

[00:56:04.566]
And so basically the cost
of getting rid, we're not,

[00:56:07.936]
getting rid of this as many
calories in around work

[00:56:09.716]
and the cost of getting
rid of them is rising.

[00:56:13.016]
The other half of
this is that food,

[00:56:14.946]
because of the efficiencies

[00:56:16.746]
in the agriculture sector
calories are becoming cheaper

[00:56:19.116]
through time.

[00:56:20.286]
And if there's one
thing economists know is

[00:56:23.446]
when things become more
expensive people do less of it

[00:56:26.116]
and when they become less
expensive, people do more of it.

[00:56:29.296]
And so calorie cost shrink
and customer getting rid

[00:56:32.386]
of calories rises and you have
an obesity problem emerging

[00:56:36.836]
right straight out of
the economic forces here

[00:56:39.386]
and probably happening faster

[00:56:41.106]
than our genetic
selection is going

[00:56:44.416]
to alter our basic metabolic
rate to deal with this.

[00:56:47.786]
So, that's just kind of
normal laws of supply

[00:56:50.726]
and demand if you will.

[00:56:52.276]
One simple example is, I'll
show you some more detail

[00:56:55.516]
on this in just a moment.

[00:56:56.726]
But the amount of
food that people get

[00:56:59.096]
in the home has changed
versus restaurants or order in

[00:57:03.466]
or buying package foods
in stores and preparing

[00:57:05.556]
at home has changed
dramatically.

[00:57:06.736]
So, food in the home has gone
from 1930 at around 85 percent

[00:57:11.526]
of all the meals were
prepared in the home and it's

[00:57:13.056]
about 55 percent now in
a very steady decline.

[00:57:16.186]
And the converse of the flip

[00:57:17.616]
of that is meals
eaten outside the home

[00:57:20.426]
and those lines are
gonna cross pretty soon.

[00:57:23.416]
And then you couple that
with what's happening

[00:57:25.766]
to prepared foods in the grocery
store when you buy portion foods

[00:57:29.996]
and go out to restaurants.

[00:57:32.286]
And there's a study
from the National Heart,

[00:57:34.486]
Lung and Blood Institute
website, there's a sample.

[00:57:38.236]
Every, every food they've looked
at has increased dramatically

[00:57:41.776]
in the calorie content of what
was described as a portion

[00:57:44.516]
over the last 20 years.

[00:57:46.976]
You can read these yourselves,
bagels are much bigger,

[00:57:51.066]
chocolate chip cookies
are four times as large

[00:57:53.316]
or have more sugar
or butter or both,

[00:57:55.246]
french fries quantities
have almost tripled,

[00:57:58.576]
that wonderfully healthy chicken
caesar salad has got twice

[00:58:02.546]
as many calories as
it did 20 years ago,

[00:58:05.536]
theater popcorn is more that
doubled, my daughter worked

[00:58:09.356]
in the movie theater
in Rochester,

[00:58:11.116]
she was actually rewarded by
the number of people that would,

[00:58:14.846]
at her request, would you
like to super size that?

[00:58:18.446]
Her pay increased when she
had more super sizes rung

[00:58:21.776]
up on the cash register.

[00:58:23.676]
Another, I love eating
turkey sandwiches for lunch,

[00:58:26.616]
they're very healthy,
they have two

[00:58:28.226]
and a half times the calories

[00:58:29.466]
as they did 20 years ago
and on and on and on.

[00:58:32.286]
Soft drink you know, it used to
be a 10 or 12 ounce soft drink,

[00:58:35.236]
it's now 20 ounce soft drink
and you buy the big cup.

[00:58:37.876]
And beer is increasing in
proportion, not by the way,

[00:58:41.276]
they're now looking
at 20 ounce beers,

[00:58:43.006]
that's the primary container
instead of 12 and you know,

[00:58:46.166]
this is, and all they have to do
is look at television to realize

[00:58:50.936]
that the fast food chains
are competing on the size

[00:58:53.376]
of their portions
as much as on prize.

[00:58:55.796]
My hamburger is bigger
than yours;

[00:58:58.266]
my French fries portion
is bigger than theirs,

[00:59:00.486]
that's the vote of competition.

[00:59:03.176]
So, that's the problems.

[00:59:05.366]
What have we done about them?

[00:59:07.106]
Well, obviously the
most important thing

[00:59:08.676]
that has come along in the last,
let's say 20 or 30 years since,

[00:59:12.236]
probably since the
formation of Medicare

[00:59:13.956]
in public policy is
the Patient Protection

[00:59:17.676]
and Affordable Care
Act or PPACA.

[00:59:19.596]
If you are a good
fan of Rush Limbaugh,

[00:59:24.696]
you probably call it Obama Care.

[00:59:28.716]
So, by summary of what the
Affordable Care Act did

[00:59:32.906]
in dealing with these questions
comes right out of the book of,

[00:59:36.146]
Episcopal Book of Common
Prayer left some things undone,

[00:59:40.796]
we should have done, we have
done some things we shouldn't

[00:59:42.776]
have done and there
is no health in this.

[00:59:46.376]
So, let's take a careful
look at the key features

[00:59:48.716]
of the Affordable Care Act and
then ask, what is this gonna do

[00:59:52.766]
to deal with the set of issues
that I've just laid out?

[00:59:56.346]
Probably the most
prominent and controversial

[00:59:59.196]
and under legal duress
probably in the Supreme Court

[01:00:01.876]
within a week or two is that
mandate that every individual

[01:00:05.046]
in the United States obtain
health insurance coverage.

[01:00:08.986]
>> Most of us have through
our employment groups,

[01:00:11.426]
I suppose almost everybody
in this room does either

[01:00:13.976]
by as employee of the UM or as
a student here, I've always head

[01:00:19.586]
up to my employers of random
university of Rochester,

[01:00:22.816]
that's the common mode in
about 80 percent of the people

[01:00:26.286]
under 65 in the US
health insurance comes

[01:00:28.556]
through their employment group.

[01:00:30.856]
So, hence the laws or mandates

[01:00:33.116]
that all employers
provide health insurance

[01:00:35.416]
for their employees and families
of at least bronze label.

[01:00:39.856]
There are like the gold
medals in the Olympics.

[01:00:42.356]
The act defines bronze plans
as those that will cover

[01:00:45.256]
at least 60 percent of the
actual real value of the plan.

[01:00:50.126]
Silver is 70, gold 80

[01:00:52.106]
and platinum is 90 that's
an extremely generous health

[01:00:54.856]
insurance plan.

[01:00:56.416]
And they mandate you to at
least have a bronze plan.

[01:00:59.826]
It establishes regional
insurance exchanges.

[01:01:03.496]
The states who are

[01:01:04.136]
in sub regions they
can cooperate on these.

[01:01:06.436]
They will help people who don't
have employer insurance find

[01:01:09.876]
health insurance at lower
costs by setting up these

[01:01:12.856]
if you will, shopping marts.

[01:01:14.886]
And it also provides subsidies
for low income families directly

[01:01:18.296]
through the exchanges and
also there're tax credits

[01:01:21.726]
through the income tax system.

[01:01:24.736]
Quite importantly it bans the
use of preexisting conditions

[01:01:27.826]
by ensures and underwriting.

[01:01:30.236]
Now this is really, this
is a very interesting issue

[01:01:34.616]
for two reasons.

[01:01:36.396]
One, it ties in to
the mandate itself

[01:01:41.726]
and then the other it
just a separate question

[01:01:44.626]
of whether it's a good idea.

[01:01:46.186]
So, let me give you
the legal argument

[01:01:48.336]
which a constitutional
scholar friend of mine

[01:01:50.796]
and I have developed that talks

[01:01:53.166]
about the individual
mandate for a moment.

[01:01:55.846]
All of the legal challenges
that the individual mandate say

[01:01:59.286]
that it is an unwanted
and excessive extension

[01:02:02.686]
of the Commerce Clause
of the constitution.

[01:02:05.506]
The commerce clause says the
congress may regulate activity

[01:02:08.566]
of commerce in the
United States.

[01:02:10.836]
I think it's widely believed
probably 8 of the 9 members

[01:02:15.436]
of the Supreme Court,
maybe by all 9

[01:02:17.916]
that that includes insurance
and hence can be regulated

[01:02:22.346]
by the federal government,
the McCarran Act

[01:02:25.426]
in 1946 made some specific
rules about that but it's clear

[01:02:30.666]
that that's illegal activity.

[01:02:32.806]
So, the, the mandate that says
you've gotta have insurance has

[01:02:40.036]
been dealt with this idea,
that it's basically saying

[01:02:43.136]
in the common phrase going back
to George Bush's statement,

[01:02:45.796]
the big George Bush Senior.

[01:02:47.276]
Now, that I'm president they
can't make me eat broccoli,

[01:02:49.936]
you remember that statement?

[01:02:50.896]
He didn't like broccoli
apparently.

[01:02:52.876]
So, this has been picked up
in the political discussion

[01:02:56.146]
about this mandate and says,

[01:02:58.086]
if they can make you
buy health insurance,

[01:02:59.976]
they can even make
you buy broccoli.

[01:03:03.166]
So, you see the general
logic being attached to this

[01:03:05.576]
and that is, it's enforcing
consumption decision on people

[01:03:09.196]
to buy something that
they don't want to buy.

[01:03:11.946]
The alternative is to
come back down to this ban

[01:03:14.936]
on preexisting conditions.

[01:03:18.486]
Whether you think
that's a good idea or not

[01:03:20.346]
and I can make a good
argument, I think that it is.

[01:03:22.476]
It's not a perfectly good
idea but it's a good one is,

[01:03:25.546]
as soon as you put that rule in
then you have to require people

[01:03:30.026]
to have insurance for
the insurance market

[01:03:31.916]
to function because,
otherwise everybody

[01:03:35.186]
that has two brain cells
functioning will wait

[01:03:37.546]
until they get sick and then
they'll go buy their insurance

[01:03:40.546]
because the insurance company
won't be able to charge more

[01:03:42.786]
for their preexisting condition.

[01:03:45.306]
So, it now falls into
the separate power

[01:03:48.026]
of the constitution which is
the necessary and proper clause

[01:03:50.966]
that says, the commerce may
enact laws that are necessary

[01:03:53.596]
and proper to carry out other
legally allowed activities

[01:03:57.646]
including regulating insurance.

[01:03:59.826]
So, if you think that the
congress can regulate insurance

[01:04:02.486]
market by saying you cant use
preexisting conditions anymore,

[01:04:05.786]
you kind of immediately,
automatically,

[01:04:08.776]
it's an easy legal path in to
get to the point that says,

[01:04:11.036]
okay we gotta require that
everyone have insurance.

[01:04:13.796]
Not through the extension
of the Commerce Clause,

[01:04:16.326]
they can make you buy
broccoli but rather

[01:04:19.026]
because the insurance
market will stop functioning

[01:04:21.376]
if you don't have that mandate.

[01:04:23.126]
So, that's a complicated legal
argument that's probably gonna

[01:04:26.836]
hit the Supreme Court this week

[01:04:28.386]
because there are now 6
circuit cords that have come

[01:04:31.256]
to different rulings

[01:04:32.136]
about whether this
individual mandate is legal.

[01:04:34.586]
And the Supreme Court just has
to take this all in my view.

[01:04:38.776]
So, back to the question

[01:04:40.316]
about what else is going
on under the PPACA.

[01:04:42.166]
They got a big incentive pushed

[01:04:44.736]
to get electronic
medical records

[01:04:46.596]
in the physician offices
basically a big bribes

[01:04:50.096]
to cover a lot of the cost.

[01:04:52.586]
There's a lot of hope.

[01:04:54.846]
I would say some of the possibly
grounded in fact but not a lot

[01:04:58.596]
that this will reduce
medical care cost.

[01:05:01.746]
There are certainly some things
within the hospital realm

[01:05:03.986]
where we know the electronic
medical records can help

[01:05:07.086]
at least in improving health
outcomes if not saving costs.

[01:05:11.346]
You avoid a lot of drug
prescription errors

[01:05:13.246]
and drug interaction errors.

[01:05:15.606]
There's an amazing amount
of deaths that has reported

[01:05:17.546]
at Institute of Medicine
a couple of years ago

[01:05:19.576]
on the amount of death in the
hospital due to pharmacy errors

[01:05:23.866]
where they just gave the wrong
dose and it killed the patient.

[01:05:27.076]
Hospitals are dangerous
places to be.

[01:05:28.746]
I mean look those
people die in hospitals.

[01:05:30.436]
They're really dangerous place
to be, a little logical fallacy

[01:05:34.516]
for you to tease out there.

[01:05:35.946]
So the question how much these
electronic medical records are

[01:05:40.466]
going to help remains open
but that's one of the pushes.

[01:05:44.056]
It also really made a
push towards a new type

[01:05:47.116]
of medical care organization
called the Accountable

[01:05:49.826]
Care Organization.

[01:05:51.906]
These ACOs are gonna be
paid not only in terms

[01:05:55.686]
of how much health care they
deliver but on the quality

[01:05:57.726]
of care that they're delivering,

[01:05:59.296]
measured on some
fairly esoteric ways

[01:06:01.616]
and increasingly
astringent through time.

[01:06:04.266]
So, they're not just simply
processed measures like,

[01:06:07.226]
how many of the kids are getting
their vaccinations of schedule,

[01:06:10.786]
but much more interesting
and sophisticated things.

[01:06:14.286]
They're not mandatory.

[01:06:15.766]
No provider has to join them, no
individual has to enroll in them

[01:06:19.656]
and we don't know how
well they'll work.

[01:06:21.306]
Probably the closest thing that
we see to them right now is the,

[01:06:24.336]
kind of the full fledged
HMO like Kaiser or one

[01:06:27.036]
of those things but
they're really somewhat

[01:06:29.256]
of a different (inaudible)
and there's hope there

[01:06:31.946]
but no evidence yet
about how much

[01:06:34.716]
of the growing health care cost
those are going to deal with.

[01:06:38.136]
They've expanded medicate
eligibility to bring more people

[01:06:40.976]
into the Medicaid net
for low income people.

[01:06:44.076]
So now every state will have
to have medicaid eligibility

[01:06:46.716]
at least 233 percent of
the federal poverty line.

[01:06:50.786]
That's gonna expand the number
of people that have Medicaid

[01:06:53.746]
as their source of coverage
which is partly designed

[01:06:56.546]
to offset the burden of those

[01:06:57.796]
who don't have insurance
coverage

[01:06:59.916]
through their employment place.

[01:07:01.906]
There's some emphasis
on prevention,

[01:07:03.786]
for example insurance plans,

[01:07:05.276]
a whole set of preventive
medical interventions

[01:07:07.936]
that you might envision
those approved

[01:07:11.706]
by the US preventive services
task force, get it shunted

[01:07:14.896]
around so there's no
co-payments or deductibles.

[01:07:17.076]
They are all free by
law in all these plans.

[01:07:21.346]
If prevention really
works to save money

[01:07:25.126]
that will help most
preventive activities don't.

[01:07:27.826]
And by the way those are
all medical interventions.

[01:07:30.186]
None of them deal with this
lifestyle thing, none of them.

[01:07:35.006]
They're all vaccinations

[01:07:36.516]
and screening tests
and things like that.

[01:07:39.916]
They're putting a tax on
so called Cadillac Plans.

[01:07:43.136]
That's probably a nasty
word to speak about a car

[01:07:45.546]
in adverse terms in this
region of the country

[01:07:49.076]
but what they mean is
very expensive health

[01:07:51.696]
insurance plans.

[01:07:52.446]
They're gonna have a tax on
the excess above the cut off.

[01:07:55.336]
All the people in Miami, they're
buying private health insurance,

[01:07:57.926]
they're gonna hit that 'cause
their health insurance premiums

[01:08:00.306]
are high not because they
bought a really generous plan

[01:08:03.226]
but because health care
costs are really high

[01:08:05.426]
because of the style of
medicine they practice in Miami.

[01:08:08.406]
Citizens of Miami are all gonna
be paying this Cadillac tax

[01:08:11.796]
pretty soon.

[01:08:12.406]
There are other ways
to go about that.

[01:08:15.856]
I would strongly prefer instead

[01:08:17.576]
of that a much more useful
elimination of the tax subsidy

[01:08:23.246]
to employer paid
health insurance

[01:08:25.516]
of which would just the
way everybody's health

[01:08:27.426]
insurance work.

[01:08:28.456]
And then take that money and
put it back into the tax system

[01:08:31.516]
by reducing marginal tax
rates by comparable amounts.

[01:08:34.746]
So, you can grow the income base
by 10 percent by putting all

[01:08:37.636]
of those employer
paid premiums in.

[01:08:39.916]
You can turn around and
reduce marginal tax rates by--

[01:08:42.886]
everything by 10 percent
of what they were.

[01:08:45.576]
You'll get at least just
as much tax revenue,

[01:08:47.516]
it's a mathematical certainty
'cause you increase the base

[01:08:50.606]
by 10 percent and you lower
the tax rates by 10 percent

[01:08:53.646]
and then you're guaranteed
to get an increase

[01:08:55.946]
in economic performance because
there's just no question at all

[01:08:59.176]
that lower marginal tax
rates stimulate the economy.

[01:09:01.336]
There's some argument
to how much

[01:09:03.146]
but I can just guarantee
you with a moral certainty

[01:09:05.686]
that if they did that it would
increase the economic activity

[01:09:09.376]
in this country, it would remove
a distortion that subsidizes

[01:09:12.816]
and gets us having too much
health insurance for those of us

[01:09:15.086]
that have through work
groups, and they would be

[01:09:18.306]
at least a budget neutral almost
certainly gained in tax revenue.

[01:09:21.676]
So, that's my, one of
my, if I were the Czar.

[01:09:25.876]
And I would also, the PPAC
also has beginning a link,

[01:09:30.256]
part A hospital payments to
quality of care outcomes.

[01:09:33.316]
In some ways, it's kind of the
Accountable Care Organizations.

[01:09:36.106]
Those are the key
features that a lot more

[01:09:38.736]
but that's really
where they're going.

[01:09:41.076]
Now, comes what I say are the
unresolved core issues staring

[01:09:45.256]
us in the face still.

[01:09:46.946]
To me the, the biggest
issue confronting us

[01:09:50.806]
in the future is we still
have this enormous disconnect

[01:09:54.076]
between how much medical
interventions worked

[01:09:56.646]
to improve our health?

[01:09:58.306]
On any scale you wanna
measure mortality, morbidity,

[01:10:01.296]
saving health care cost,
feeling good, anything.

[01:10:04.296]
>> There's a big
disconnect between how--

[01:10:06.646]
how much those procedures work
for us and how much we pay

[01:10:11.526]
to get them out of pocket which
is what's driving our decisions.

[01:10:15.836]
And we need to fix that and
hence with that, the attitude is

[01:10:19.926]
about how we use
healthcare in this country.

[01:10:22.906]
The conversation right now
with your doctor, I just--

[01:10:25.836]
I can just bet with high
degree of certainty,

[01:10:28.576]
you've gone into your doctor
and the doctor says, "Well,

[01:10:31.236]
you know, I think you might have
this, let's get this lab test

[01:10:34.106]
or let's get this in MRI
image and see what's going on"

[01:10:39.236]
and the patient thinks
about this more,

[01:10:43.516]
says, "What will this do?"

[01:10:45.616]
He says, "Well, it will give me
a little better information."

[01:10:47.366]
"How much will it cost?"

[01:10:48.126]
"Your insurance will
pay for it."

[01:10:50.146]
"Okay, let's do it."

[01:10:52.486]
And if the-- instead
that the doctor said,

[01:10:57.236]
"It cost a thousand dollars
to produce that MRI image,

[01:11:00.956]
you're gonna have to pay 250."

[01:11:03.266]
I think the patients will
begin to ask a little more,

[01:11:05.866]
do I really need this or can
you tell me what's going on?

[01:11:08.756]
Can we maybe try a drug
trial balloon and see

[01:11:11.426]
if that solves the problem?"

[01:11:14.546]
Every single medical decision
that we make in United States

[01:11:18.206]
or anybody with any kind
of health insurance has

[01:11:21.106]
that subterranean
discussion going on,

[01:11:23.706]
and it ultimately is why we're
spending a lot more money

[01:11:27.016]
than elsewhere.

[01:11:28.206]
And it differs in part also
with this cultural difference

[01:11:30.836]
across regions that I just have
no idea of why they happened

[01:11:34.266]
but I can show that they do.

[01:11:36.676]
Yes.

[01:11:38.066]
[01:11:39.136]
>> (Inaudible) there is a
real sacred cow about the end

[01:11:41.786]
of life care, and that's where
our patients don't have much

[01:11:46.596]
to say about it because, you
know, they're in intensive care.

[01:11:49.646]
And--

[01:11:50.456]
>> Right. And by the way, a
(inaudible) Medicare spending is

[01:11:53.756]
in this end of life care
over the last six months.

[01:11:55.916]
>> Right. And it doesn't
change the outcome.

[01:11:59.796]
And I will say that one

[01:12:00.736]
of my patients who's a union
administrative secretariat told

[01:12:04.276]
me when she was in a meeting
with the administrators

[01:12:07.206]
at the hospital and they said,
"You know, the best patient

[01:12:10.206]
that we can have is somebody
that comes, you know,

[01:12:13.286]
comes from up north and
gets life line again.

[01:12:16.676]
It goes into the
intensive care unit,

[01:12:20.016]
gets every test known
to man and then dies.

[01:12:22.026]
( Laughter )

[01:12:22.416]
>> That's right.

[01:12:23.036]
>> Because that's
what's reimburse.

[01:12:24.266]
And I just-- it's really,
I think it really needs

[01:12:29.336]
to be addressed how
much the reimbursement.

[01:12:32.296]
You know, if you
build it, they will.

[01:12:35.256]
If you build it, the test done
and cover it, they will do it.

[01:12:38.586]
>> Yeah. Look, a nontrivial part

[01:12:40.096]
of this is how we pay
our healthcare providers.

[01:12:42.996]
And right now, their stuck
on a treadmill, doctors

[01:12:46.056]
and hospitals alike and
dentists and pharmacists.

[01:12:48.586]
They're stuck on a treadmill
where volume is important.

[01:12:53.036]
And there are different ways
to pay healthcare providers

[01:12:57.256]
that get you off
of that treadmill.

[01:13:00.016]
The most extreme form of
those is per capita payment

[01:13:03.336]
for a year.

[01:13:04.206]
You get a bunch of doctors in
hospitals together and you say,

[01:13:07.116]
"You take care of the
set up patients per year

[01:13:09.176]
and here is all the money
you get to do that."

[01:13:11.796]
They're called HMOs
in the purest form.

[01:13:15.526]
That phrase-health maintenance
organization has blurred a lot

[01:13:19.906]
and its meeting to time.

[01:13:20.956]
But the pure form HMO over the
physicians that are on salary,

[01:13:24.036]
they're not volume driven.

[01:13:26.076]
It's well known even
in randomized trials

[01:13:28.526]
at the RAND Corporation where I
did the, you know, participated

[01:13:32.236]
in the very large RAND
health insurance experiment.

[01:13:34.736]
One of the arms in that
was absolutely free care,

[01:13:39.526]
everything paid for.

[01:13:41.136]
Another one was an HMO

[01:13:42.356]
where everything was
absolutely free to the patient.

[01:13:44.796]
The HMO patients cost
about 20 percent less

[01:13:47.216]
and no different
health outcomes.

[01:13:49.346]
The affordable care
organizations that they've--

[01:13:52.026]
are trying to spawn have many
of those similar incentives.

[01:13:56.286]
Now, it's not a perfect world.

[01:13:59.826]
The fee for service system,
every economist that has looked

[01:14:03.986]
at this says, the fee
for service system

[01:14:05.586]
where you get paid on volume has
all sorts of reasons to believe

[01:14:09.696]
that it's generating
excessive use of medical care.

[01:14:12.996]
The doctor gives you
advice that brings money

[01:14:15.366]
to the doctor's pocketbook and
particularly if it's covered

[01:14:19.226]
by insurance, that's an
easy decision to make.

[01:14:21.986]
And patients go to doctors
because they're willing

[01:14:24.526]
to accept their advice.

[01:14:25.966]
If you didn't willing to accept
what your doctor recommended

[01:14:28.596]
you, you probably aren't gonna
go there very often anyway.

[01:14:30.566]
So, doctor recommends when it's
to their financial advantage

[01:14:34.066]
to make a recommendation,
they do it more.

[01:14:36.776]
How much is it?

[01:14:38.436]
Interesting question but
they do it a little bit more

[01:14:40.466]
in some cases and a
lot more in others.

[01:14:43.306]
On the complete flip side of
that where the doctors are paid

[01:14:46.956]
on a flat annual salary,
two things happen.

[01:14:50.256]
One is they don't work as hard
and that's quite provable.

[01:14:53.016]
Doctor on a flat annual
salary in a large organization

[01:14:56.046]
where they can't monitor
their care is about twice--

[01:14:58.776]
half as productive as
seeing patients as a doctor

[01:15:01.226]
and a full fee for a
service arrangement.

[01:15:03.366]
And just in terms
of patient volume.

[01:15:05.346]
That's not the whole story
and maybe it's better quality

[01:15:07.666]
of care by spending more
time with the patients

[01:15:09.546]
but there is a change in that.

[01:15:11.186]
But the one I like most of all
is a randomized controlled trial

[01:15:15.866]
that occurred in a medical
school at Washington University

[01:15:18.306]
in Saint Louis in their
Pediatrics Department some

[01:15:20.326]
years ago.

[01:15:21.396]
I'm just a huge fan of
randomized controlled trial.

[01:15:23.816]
That's the way medicine
really tries to figure

[01:15:25.626]
out whether a new drug
or procedure works.

[01:15:27.696]
You can also do them
in social science.

[01:15:29.336]
The RAND health insurance
experiment that I alluded

[01:15:31.446]
to was a randomized trial.

[01:15:33.496]
There's also a randomized trial
about physician compensation.

[01:15:36.756]
It was really cute.

[01:15:38.596]
It took a bunch of pediatric
residence and put them

[01:15:40.816]
in to the well care clinic.

[01:15:42.196]
All these residents
are seeing patient.

[01:15:43.736]
They're all on the
similar training.

[01:15:44.936]
They randomize some
of them to receive

[01:15:47.006]
within the resident
normally do as annual salary,

[01:15:49.486]
and they randomize the
other half to get a fee

[01:15:51.936]
for service arrangement that
they predicted would bring them

[01:15:54.556]
about the same amount
of money for the year.

[01:15:56.896]
And then they randomize the
patients as to which one saw

[01:15:59.316]
which type of doctor and
they turn the system loose

[01:16:01.356]
and watched.

[01:16:02.686]
And when they finished,

[01:16:03.926]
the doctors

[01:16:04.976]
on the fee-for-service
system were generating

[01:16:07.836]
about one more patient visit in
the pediatrics clinic per year

[01:16:10.846]
than those on the salary

[01:16:12.436]
and almost (inaudible)
well care environment.

[01:16:14.896]
There was almost no
difference at all in--

[01:16:16.576]
in really acute illness
and injury stuff.

[01:16:20.336]
And the part I really
like is my--

[01:16:22.586]
my wife is a pediatrician
so I-- I know this reason.

[01:16:25.486]
The American Academy
of Pediatrics has a--

[01:16:28.456]
and also the CDC now,
they have a schedule

[01:16:31.966]
of recommended vaccinations
for kids.

[01:16:34.646]
Pediatricians know
the schedules as well

[01:16:36.766]
as they know their
middle name, okay?

[01:16:39.566]
This is not a great
mystery to them.

[01:16:42.016]
The doctors

[01:16:42.636]
on the fee-for-service system
overshot the American Academy

[01:16:46.686]
of Pediatrics recommendations
a little bit.

[01:16:48.776]
They actually-- in other
preventive, they did more

[01:16:51.546]
than it was recommended.

[01:16:52.966]
The doctors on the salary
system were a little lazy

[01:16:56.476]
and they undershot
not by huge amounts

[01:16:58.866]
but what happen was exactly
what the economic theory

[01:17:01.476]
predicts here.

[01:17:02.296]
And that is one of
these gives an incentive

[01:17:04.236]
to over recommend medicine
and the other give incentives

[01:17:07.116]
to under recommend because
it's still doctor's advantage

[01:17:09.576]
in both situations
to go that direction.

[01:17:12.106]
And by the way, these were all
recommendations to patients.

[01:17:15.446]
The patients didn't follow

[01:17:17.156]
through on all the doctor's
recommendations to come back

[01:17:20.606]
for another visit and they
were a little more suspicious

[01:17:23.566]
about the doctors on the
fee-for-service system.

[01:17:25.486]
That is they turn down
a few more other visits

[01:17:27.526]
and didn't bring
their kids back.

[01:17:29.606]
So these all just
absolutely fits.

[01:17:31.946]
The more powerful one on this
effect is studies in Florida,

[01:17:36.336]
physicians, orthopedic surgeons

[01:17:38.096]
who own imaging facilities use
imaging four times the rate--

[01:17:43.886]
four times the rate of those who
do not own imaging facilities.

[01:17:47.946]
That may account for
some of that Miami thing.

[01:17:50.216]
Maybe there's more
ownership of these things

[01:17:52.126]
in Miami then elsewhere
in Florida.

[01:17:54.476]
They use physical therapy
40 percent more often

[01:17:57.146]
when they have an ownership
stake in physical therapy.

[01:17:59.316]
There's just a whole bunch of
really strong evidence of this,

[01:18:03.966]
affects physician's
recommendations

[01:18:05.846]
and hence what medical
treatments emerge.

[01:18:08.026]
But the magnitude to that
affect just differs hugely

[01:18:11.006]
across setting and I-- I just
can't extrapolate any of this

[01:18:14.396]
that I know about more generally
than the situations they're in.

[01:18:17.666]
Yes sir.

[01:18:18.026]
>> (Inaudible )

[01:18:18.646]
very good numbers in there.

[01:18:21.086]
What-- what effect does CYA
with respect to legal have

[01:18:29.566]
to do with the studies?

[01:18:31.416]
>> Yeah. So I guess the--

[01:18:32.716]
probably the most powerful
thing I can show you

[01:18:35.056]
on that is go back to
those Florida numbers.

[01:18:37.826]
You got twice as much
money is being spent

[01:18:39.826]
in Miami as elsewhere.

[01:18:40.856]
It's the same legal structure.

[01:18:42.696]
It can't be because they're
worried about malpractice more

[01:18:45.176]
in Florida than--

[01:18:46.306]
may be there're more
malpractice lawyers in Miami

[01:18:49.916]
or than elsewhere but it's
the same legal structure.

[01:18:53.236]
It's really hard
to pin and protect,

[01:18:56.356]
you know, defensive medicine.

[01:18:58.186]
It's really hard to pin this
behavior on defensive medicine

[01:19:01.176]
when you see such
discord outcomes

[01:19:02.806]
in the same legal environment.

[01:19:04.016]
And the only policy lever we
have to fiddle with that is

[01:19:06.826]
to change the legal structure
and there it's all the same.

[01:19:10.406]
We've also had a whole
bunch of things through time

[01:19:13.376]
where states have changed
their malpractice law

[01:19:16.036]
so that they put a cap on pain
and suffering and you can tease

[01:19:19.576]
out the kind of what the effects
of those changes in the law are.

[01:19:22.656]
Data have blurry
in small effects

[01:19:25.516]
on what the apparent amount
of defensive medicine is.

[01:19:28.726]
It's a very tough
topic to unravel.

[01:19:31.376]
The best economist

[01:19:32.626]
in the country has worked
this for a long time.

[01:19:34.896]
Ms. Patricia Danzon at
Wharton School, I have talked

[01:19:39.426]
about this extensively
to Patricia.

[01:19:41.146]
She has written a book about it.

[01:19:43.196]
I don't think she or any one
else has a really clear picture

[01:19:46.296]
of the extent of this.

[01:19:48.626]
It's only 8 percent of
physicians cost structures,

[01:19:51.496]
their malpractice
insurance premiums,

[01:19:54.026]
but that of course
doesn't tell you

[01:19:55.296]
about the defensive medicine
side where there's change

[01:19:57.476]
in their behavior and response.

[01:19:59.466]
It's a complicated problem

[01:20:00.726]
and I wish I could give
you a clearer answer sir

[01:20:02.516]
but I just can't.

[01:20:03.116]
>> I had a question
at the back also.

[01:20:04.906]
Yes? Okay, so let me
deal with the first one.

[01:20:08.526]
We actually have some
pretty strong evidence

[01:20:10.396]
on the magnitude of this.

[01:20:12.056]
When Medicare started
paying hospitals

[01:20:13.936]
on the lump sum per admission,
it took place I think in 1983

[01:20:21.496]
and then a phase in
over several years,

[01:20:23.496]
there was this big concern that
patients are gonna be discharged

[01:20:26.926]
and the language was
sicker and quicker,

[01:20:29.486]
which I think was the issue
to which you are alluding.

[01:20:31.996]
First of all, Medicare
by the way won't pay them

[01:20:33.836]
if they bounce back
in right away.

[01:20:35.406]
There is a time log there.

[01:20:38.556]
The patients gotta come back
in, is it 30 or 90 days now?

[01:20:43.536]
I can't remember what-- do you
remember what the number is?

[01:20:46.206]
I think it's 90 days delay.

[01:20:48.466]
If they come back
in within 90 days,

[01:20:50.596]
the hospital doesn't get
paid the second time.

[01:20:53.066]
( Inaudible Remark )

[01:20:53.756]
>> Right, now, but the--

[01:20:55.266]
the second point is that a
least measures the mortality

[01:20:59.676]
in readmission rates
didn't change

[01:21:02.466]
in any noticeable way except

[01:21:04.866]
for some various select
diagnosis were you're dealing

[01:21:08.356]
with small samples.

[01:21:09.516]
A very careful study is done
in this around the nation.

[01:21:12.096]
The readmission rates

[01:21:13.256]
and mortality rates
didn't change any

[01:21:16.346]
when Medicare instituted
this payment scheme

[01:21:19.906]
that gave the incentives
to discharge quicker.

[01:21:22.106]
Now, length of stay have
been dropping years before

[01:21:25.856]
in a dropped-- continues
to drop since then in ways

[01:21:29.096]
that are really quite
remarkable.

[01:21:30.466]
I think much of this is due
to technology, sometimes due

[01:21:33.556]
to putting more people on the
system to make sure that there's

[01:21:37.386]
out of hospital support.

[01:21:39.066]
We can all point to some
horror stories about somebody

[01:21:41.846]
that was discharged too early.

[01:21:43.306]
The systematic data just don't
show any meaningful effect

[01:21:46.136]
when Medicare moved to the
prospective payment system

[01:21:48.936]
in terms of certain at
least in terms of mortality

[01:21:52.216]
and readmission rates.

[01:21:54.506]
( Inaudible Remark )

[01:21:56.856]
>> Yeah. Well, if they
are discharging them,

[01:21:59.286]
the sooner we can get
them out the hospital.

[01:22:01.266]
They would have gone up if they
were making mistakes about that

[01:22:04.236]
to get them out of the hospital
and save treatment cost.

[01:22:07.526]
And they didn't.

[01:22:08.286]
Yes.

[01:22:09.086]
>> I became aware of
this when I was working

[01:22:13.386]
in Columbus on the state level.

[01:22:15.516]
We were trying to get a
home health care instituted

[01:22:19.476]
to more people and, you know,

[01:22:22.606]
the nursing home
lobby is so strong.

[01:22:25.466]
Can you comment on the amount
of Medicaid dollars that end

[01:22:28.706]
up putting patients
in nursing homes?

[01:22:32.506]
( Inaudible Remark )

[01:22:32.573]
>> I can't-- I can't
comment knowledgeably.

[01:22:36.666]
Let me--

[01:22:37.006]
>> I think it's extremely.

[01:22:38.286]
>> Let me put that down to one

[01:22:39.416]
of the many things I never
learn while I was provost.

[01:22:41.996]
>> No, I don't mean
the exact dollar.

[01:22:44.086]
>> Yeah. I just, I'm
not very knowledgeable

[01:22:46.386]
about that part of the world.

[01:22:47.536]
I probably stick
my foot in my mouth

[01:22:49.446]
if I try to comment on that.

[01:22:50.736]
Yes sir.

[01:22:51.206]
>> Alright, (inaudible)
there's this study

[01:22:54.896]
that there's no real
difference between performance

[01:23:00.766]
on fee-for-service
or flat salary.

[01:23:03.576]
There is no real
difference in other

[01:23:06.916]
of these factors we described.

[01:23:09.106]
The main difference
seems to be--

[01:23:10.336]
this other guy's question didn't
quite answer the amount of money

[01:23:14.396]
that goes into the
insurance system

[01:23:16.686]
and wouldn't the system
overall be much better off.

[01:23:19.406]
As a single payer, it did not
have is (inaudible) 35 percent

[01:23:24.076]
plus overhead for them
to shove the papers

[01:23:26.756]
around (inaudible) service.

[01:23:27.656]
It doesn't seem to be any
significant difference

[01:23:31.956]
in requirements between
the variety of the service.

[01:23:33.966]
>> Okay, so let me talk

[01:23:35.016]
about single payer a minute
'cause I know there's probably a

[01:23:37.426]
lot of single payer
fans on this room.

[01:23:42.626]
The big comparison is like with
the Canadian health care system

[01:23:46.046]
where much smaller fraction

[01:23:47.276]
of the total healthcare business
is spent on administrative cost.

[01:23:51.746]
And part of that, I think
probably an important part

[01:23:57.246]
of that-- first of all,
I have to (inaudible)

[01:23:58.366]
that administrative cost is
actually doing something for us.

[01:24:01.396]
And what is-- it's not
just processing claims.

[01:24:04.056]
What they're doing for us
is doing comparison shopping

[01:24:06.556]
to find lower price doctors.

[01:24:08.266]
And this is particularly true

[01:24:09.426]
of managed care organizations
preferred

[01:24:11.046]
provider organizations.

[01:24:12.686]
They go out, they collect a
bunch of doctors in hospitals

[01:24:15.236]
and they bargain like crazy
with them to get the price down,

[01:24:18.246]
that they pay and hence you
pay through your insurance plan

[01:24:21.346]
and then they tell the insurance
company, "Oh by the way,

[01:24:23.666]
I have 200,000 patients
in the Ann Arbor area.

[01:24:27.146]
You can-- I can move them to you

[01:24:29.106]
if you'll give me
this good price.

[01:24:30.956]
And so, a lot of what they're
doing is basically doing price

[01:24:34.336]
bargaining force that
we can't do on our own

[01:24:36.466]
and that's valuable service.

[01:24:38.356]
Now, if we have an
administered price

[01:24:40.136]
with a uniform single payer,

[01:24:41.906]
it's gotta be a federal
government to do that.

[01:24:44.236]
You're running then

[01:24:45.146]
into a question that's more
political preferences of people

[01:24:49.336]
in the United States
versus elsewhere

[01:24:51.406]
about how much freedom
of choice they want.

[01:24:54.086]
The US, this is really out
of my territory but the US is

[01:24:58.086]
in some sense, I think much more
dedicated to having free choice

[01:25:02.096]
than many other nations
particular European nations

[01:25:04.986]
and hence we're paying the
cost of that free choice

[01:25:07.216]
with this administrative cost.

[01:25:09.716]
It's not perfect either way.

[01:25:11.776]
The big concern I have
about single payer comes

[01:25:14.366]
in technology introduction.

[01:25:17.036]
Now I've talked about all these
new technology that had come

[01:25:20.106]
in the door over the
last half century.

[01:25:22.446]
Think about what happens if
there's one single gateway

[01:25:25.166]
to get that technology into
out health care system.

[01:25:28.646]
Let's just say its Medicare.

[01:25:30.206]
They make these choices
for Medicare patients.

[01:25:32.736]
We have, in addition to that

[01:25:34.246]
in the United States we
have hundreds and hundreds

[01:25:36.446]
of manage care organizations
and insurance plans.

[01:25:39.736]
They're trying to decide whether
they wanna cover some new

[01:25:41.936]
medical technology or some
new surgical technique or not,

[01:25:45.966]
and they can actually
do a lot of experiments

[01:25:49.486]
for about how much these
things are benefiting patients.

[01:25:52.816]
And so some of them don't
cover and some do things

[01:25:55.296]
that are called experimental
techniques

[01:25:58.046]
and we learn from those.

[01:25:59.606]
If you only have
a single gateway

[01:26:01.296]
into that system
you've lost those data.

[01:26:03.826]
You've lost that information,
and one of the things

[01:26:06.956]
that makes me particularly
nervous

[01:26:08.956]
about single payer
models is the fact

[01:26:12.446]
that there are not multiple
pathways to get evidence

[01:26:15.646]
in about whether
the things or not.

[01:26:17.906]
There's one decision maker

[01:26:19.196]
in a single payer system
it just has to be that way.

[01:26:21.776]
You can have the
single payer system.

[01:26:23.196]
And have 20 people deciding
whether the autologous bone

[01:26:25.936]
marrow transplants are
gonna be covered or not.

[01:26:28.636]
So that's nervous
time for me on that.

[01:26:30.966]
There're pluses and
minuses in both system.

[01:26:33.516]
That's one of the minuses
that stick in my mind.

[01:26:37.266]
Okay, I'm getting the signal

[01:26:38.686]
that says we're wrapping
up soon.

[01:26:39.756]
I'll try one yes sir?

[01:26:42.896]
>> You started on a theme about
prevention and you're wrapping

[01:26:48.806]
up so let me ask this
question right now.

[01:26:51.296]
There are some employers who
benefited or catalyzed employees

[01:26:57.286]
who don't take care
of themselves.

[01:26:59.036]
They don't smoke
if they do smoke.

[01:27:02.016]
If they don't exercise
or if they do exercise,

[01:27:07.426]
it shows up in pay check.

[01:27:09.936]
I like your comment about and
also how far do we go there?

[01:27:15.606]
Do we go termination,

[01:27:18.586]
taking care of yourself
or you're terminated.

[01:27:22.236]
>> Well, certainly first of
all, there's not nearly as much

[01:27:27.666]
of it going on in the
field of employee health

[01:27:30.606]
or employer paid health
insurance as there is

[01:27:33.086]
in other types of insurance
like, you know, life insurance

[01:27:36.086]
and stuff, were much less
experience rating in it.

[01:27:39.436]
Most of that is because the
employers are very heavily

[01:27:42.796]
limited by other federal laws,
employee laws, ERISA and HIPAA

[01:27:47.946]
about what kind of
information they can collect

[01:27:49.846]
about employees.

[01:27:51.376]
Now you can rate employees
and change their performance,

[01:27:54.756]
their salary or their hourly
on performance outcomes.

[01:27:59.226]
But it's very hard to do
that on behaviors themselves

[01:28:03.876]
because of various laws.

[01:28:06.026]
So I guess I would rather
see more of that going on so

[01:28:10.556]
that people with bearing the
full economic consequences

[01:28:13.786]
of their health rates.

[01:28:14.476]
I'm saying that people
shouldn't smoke.

[01:28:16.246]
I'm just saying I'd
rather not pay

[01:28:17.516]
for it being sharing the
same health insurance policy

[01:28:19.956]
with them and the
same with obesity,

[01:28:23.186]
and of course I would
probably be paying

[01:28:24.746]
above average in obesity.

[01:28:26.016]
My waste line is bugger than it
should be and I'll be the first

[01:28:28.266]
to admit and thank you for all
you thin people for helping

[01:28:30.926]
to subsidize my medicare
premium just

[01:28:32.596]
because I don't pay
anymore for Medicare either.

[01:28:35.306]
I think one of the things
that I'd like to see happen

[01:28:37.976]
in this country is to
see a tighter length both

[01:28:40.936]
but particular in health
insurance premiums both private

[01:28:43.476]
plans and in Medicare,
a tighter link

[01:28:46.216]
between behavioral
choice outcomes.

[01:28:49.556]
That is not whether you're
trying to quit smoking or not

[01:28:53.956]
but do you smoke or not?

[01:28:55.456]
Now that of course brings
me full circle to kind

[01:28:58.656]
of a philosophical and moral
problem, you're asking,

[01:29:01.026]
how can economists talk
about more problem?

[01:29:03.246]
Some of these things including
the propensity to be addicted

[01:29:05.776]
to nicotine and the propensity

[01:29:07.986]
to gain weight have
genetic underlying,

[01:29:11.616]
and hence if there's a genetic
predisposition here it makes me

[01:29:14.996]
nervous saying, I
wanna go all the way

[01:29:17.676]
to have full experience rating
on this things 'cause part

[01:29:21.626]
of these, there's a risk I cant
control if genetically linked.

[01:29:24.526]
And I just, I don't know
how important those are,

[01:29:26.806]
but it comes back to the
question about keeping employers

[01:29:30.826]
or keeping insurance companies

[01:29:32.166]
from using previously
existing conditions.

[01:29:35.806]
These genetic illnesses are
one of the big things on that

[01:29:38.616]
and that's actually one

[01:29:39.386]
of the reasons why I think
there's a pretty good case

[01:29:41.286]
for getting rid of the ability

[01:29:44.026]
to use the previously
existing conditions.

[01:29:47.066]
Because in fact what
that, what this does now

[01:29:49.996]
with this new law has opened
up the market for ensuring

[01:29:52.456]
against genetic time bombs
that I can't do otherwise.

[01:29:56.676]
So there's several reasons
why that's a good idea.

[01:29:58.776]
The other is job luck people
that are getting their insurance

[01:30:01.486]
to employers can't
change jobs easily

[01:30:04.046]
when they know they're gonna
lose their insurance coverage

[01:30:06.066]
for 6 months even under the
HIPAA laws, that's gonna go away

[01:30:10.576]
in 2014 under that
Affordable Care Act.

[01:30:13.286]
And there's a comparable
entrepreneurship act.

[01:30:15.246]
People are afraid
to go out and start

[01:30:16.496]
up small businesses 'cause
they'll lose their health

[01:30:18.396]
insurance coverage.

[01:30:19.366]
So I think there's a pretty
decent case to be made

[01:30:22.006]
for the economic sanity of
eliminating the privilege,

[01:30:26.146]
the existing conditions.

[01:30:27.306]
It's very popular in surveys
of the US populations.

[01:30:30.446]
But its also comes the
background of the question,

[01:30:32.916]
how much you wanna tax people on
their health insurance premium

[01:30:36.146]
for smoking when in fact
you know that's smoking is

[01:30:39.146]
at least some how related
to genetic predisposition?

[01:30:42.046]
And then one of the
grand ironies of life,

[01:30:44.876]
the very same gene that
makes you susceptible

[01:30:47.196]
in nicotine addiction
also increases the risk

[01:30:49.966]
that you'll get lung
cancer if you smoke.

[01:30:53.096]
So let me leave it
with that and say,

[01:30:56.756]
[01:30:59.996]
thank very much for
your attention.

[01:31:02.036]
( Applause )

[01:31:04.930]

[01:31:05.430]