>> Good afternoon.

Welcome to the Ford
School and to this lecture

by my old friend Chuck
Phelps whom I will introduce

in the moment.

I want to acknowledge the
support of the Gilbert Omenn

and Martha Darling Health Policy
Fund and of the organization

of the Health Policy
Student Association.

Some of its members
are probably here.

My name is Paul Courant I'm
a professor in Ford School,

as well as, a part-time
university librarian.

And it's really my
pleasure to introduce,

introduce Charles
Phelps who is I found

in a variety of contents.

We were provost at
the same time.

There's a bunch of secret
hand shakes we both have.

He has been a mathematically
rounded economist

with interesting
policy for a long time.

That's a fairly small group
people although there are

several of them have a
[inaudible] full faculty as well

as the University of Rochester
faculty and I know of others.

I first knew him as one
of the founding leaders

of an organization from the
Association of Public Policy

and Management which is
still active and important

and he was the secretary
of that group.

And he was the first
person I knew who carried

around a portable keyboard that
wasn't attached to a typewriter.

It didn't-- it wasn't much of a
computer right now if I figure

out exactly what it was.

But he was there producing ASCII
files long before people knew

what ASCII files
were as secretary

and [inaudible] Association

for Public Policy
Analysis and Management.

Has been an extremely important
entity in the development

of analytical policy, policy
analysis, and management.

And Chuck was one of the
leaders in that area.

He started an enormous
amount of work in the--

health economics and
related areas, health policy,

medical decision
analysis, cost-effectiveness

to various interventions.

He has written a
textbook on the subject

which is in its 4th division.

I can now tell you from
a librarian perspective

when there's textbook in the
4th edition, somebody got

to send a bunch of them
in college and then some.

And he's been as I said a
leader both in health economics,

in health policy, in the
organization of public policy

and universities
in the leadership

of his own university,
at the University

of Rochester whence
he's now retired.

And without further ado I
wanna ask Chuck to come up.

Our own worst enemies: How we
and our government created,

extended and exacerbated
the health care mess.

Chuck will at appropriate
times he'll be

in charge of his own show.

>> Alright.

>> That we a lot an
opportunity for interaction.

>> Thank you.

I'm pleased to be here.

[ Applause ]

>> Except Paul and I have known
each other in number of circles

but in provost, in the
world of libraries.

And of course provost emeritus,
in my title emeritus means I got

out of town before
they run me out of town

after I stopped being provost.

Provost in case you
don't know the origin is

from the Latin word for jailer.

[ Laughter ]

>> So I'll just leave you
discern your own conclusions

about that for my good
friend Paul and myself.

What I want do today is have
a conversation with you.

I know there's some time for Q
and A that's sort of some time

for talk and some time for Q and
A and I'd rather mix them up.

So if you have a burning
question, I'll try and see

if we can deal with
it on the fly.

And if I think if I'm
gonna come to the point

of answering it little
later on, I'll ask to defer.

And then if I don't
get around to it

by the time we actually
come off the real time

for questions you can come
back and ask me again.

Well, that's my rules
for the engagement

and I guess I have
to enforce them.

So the first thing I'd say is
about shameless commotion much

of the material that I'm talking
about today comes from a book.

It was published last year

by the Hoover Institution
Press out of Stanford.

8 questions you should ask about
our health care system even

if the answers make you sick.

And so if you like what
you're hearing today,

you can find some more
of it in this book.

And if you don't like it
you can get the detail

and refute it if you wish.

So let me give a quick
overview before I'd

like to take this today.

There's been for, if you go back
into it at least to the days

of Franklin Delano Roosevelt's
presidency before World War 2,

long standing discussion in
the United States about whether

or not we should have
universal insurance,

health insurance coverage and
if so what should it look like?

And that issue arose
during at least during the--

prominently during the
administrations of Roosevelt,

Truman, Nixon, Carter,
Clinton and finally Obama

and only the last of
those actually resulted

in legislation.

One can save Medicare during
Lyndon Johnson administration

for the elderly and Medicaid
for the low income populations

but that was not universal
so that's something

that would be kind
of half way step.

But all of these discussions
in some sense are sitting there

with some sense of disquiet

about how our health
care system is working.

And disquiet has been
increasing through time.

I'm gonna show you some
data on this in a minute

but I would say the
disquiet centers primarily

on the following issues.

First is that we are spending
a lot of money on health care

in this country either in
dollars or as a percent

of our gross domestic
product per capita income

if you will more than any other
country by far, and we're doing

so in an increasing rate
and that alarmed some people

and say, look to the future.

The second problem is that if
you compare at least on things

that we can measure
easily across countries,

we're not getting very
much bang for the buck

for our medical spending.

And the two most prominent of
these, the easiest to measure,

maybe we're looking for
the keys under lamppost.

But if you look at life
expectancy and infant mortality

which are every easy to measure
and compare across nations,

we're not getting nearly
as much for the buck

as other nations even though
we're spending a lot more

than other nations.

And then as we look
to the future,

I think it's almost certain
that the money we're spending

on health care is going
to rise through time.

And that's gonna come through
3-- 3 prominent reasons,

all of which are moving almost
glacially and hence unstoppably.

The most important of these
is the population is aging.

I'll show you some picture
of this in a minute.

If you're a young it
should scare you a lot.

If you're old you can say,
thank you to the young

for helping with this problem.

The second is that despite
the current economic trials

of our country and
the rest of the world,

over time our economy will grow
and health care grows on average

at a faster rate in
the economy in general.

The income elasticity is
about 1 and half to 2,

if you wanna throw a few numbers
out when you look across nations

so growing income will
add to the spending.

This might be a really
good idea.

By the way, I'm not
saying it's necessarily bad

for those who worry about it.

And then technology is going
add new technology comes in.

New technologies
don't save money.

They improve our well-being
but increasingly in ways

that cost more money than their
low-hanging fruit that we had

in our health care
system earlier.

So as new technologies come and
our insurance systems decide

to cover them, we're going
to further spend more money

and you couple those 3
things and we're going

to spend increasingly
large amounts of money.

We spend about 16 percent of
our gross domestic product

on health care right now

and I can easily see
before I'm incapable

of assessing numbers
anymore that could rise to 20

and perhaps 25 percent within
the rest of my lifetime,

hoping I live long
enough to see that

but hoping it doesn't
happen necessarily.

And finally I will show you some
numbers that lead me to conclude

that about what we're spending,
we're wasting a lot of money.

And we're wasting in ways that
are pretty easy to demonstrate

at least on broad
geographic terms.

There are huge differences
across regions

and how much money we
spend on health care

and when we look carefully,
no measurable improvement

in health outcomes across
the wide variety of measures

in the areas that are their
highest spending rates.

And so that can be one of life's
great mysteries is how we got

into this world of these
hugely desperate patterns

of medical care use and in
many cases where there seems

to be no measurable
benefit arising from it.

So that's kind of an
outline of where I'd

like to move this today.

So let's look first at
the low bang for the buck.

This slide got a little
weird in the projection.

The graph here is per
capita health care spending

on horizontal axis ranging
from this case from a thousand,

about 7,000, and life expectancy

on the vertical axis
life expectancy at birth,

and it's kind of a sloppy fit.

There're a couple of
countries down here.

Number 11 is Hungary and number
21 is the Slovak Republic.

>> They have quite
low life expectancy.

And nevertheless there's
a trend line that's kind

of the sloppy fit,
but nevertheless,

the trend line it says more
medical spending is associated

with more life expectancy

and then the United
States is over here.

That arrow was supposed
to be right about that.

There's the United States,
way below the trend line

which would be up there at
the medical spending we have.

Now life expectancy is of
course not the only measure

of health benefit.

There're a lot of
gains we can get

for our health care system
beyond life expectancy.

But does one of them,
we can compare

across international boundaries.

And the second which is this
level of infant mortality,

it's really perinatal
mortality which is a definition

of infant deaths both before
and after near the time of birth

and these are data from the OACD
looking at in mortality rates.

And here the fit is
somewhat tighter.

Again, country number 12,

it turns out to be fairly
low in this Iceland.

I think that's a little bit of
an anomaly of data reporting

in Iceland but a pretty
descent trend line fit on that,

that the more we're
spending per capita

on Medical care the better
our infant mortality rate is,

except for the United States,
way up there off the trend line.

Now, these are the only kinds

of data you can actually
made comparisons of outcomes

across nations with
any sensibility.

There had been some more
refine studies that look,

for example between Upstate New
York and Ontario province right

across the border in
the across lake, Hunter,

very similar climates
similar population

and education and earnings.

And for example, United States
does about twice the amount

of coronary bypass surgery as
the same citizens age-adjusted

and sex-adjusted
citizenry, I guess in Canada.

And there's no difference
on mortality outcomes.

But when you go and then
look carefully underneath

that in a more finely
tuned comparison,

you see that the citizens
in the United States

with the higher rate of coronary
bypass surgery have higher

capability and activities
of daily living like being

to walk upstairs and
walk at the store.

They have more freedom
from chest pain.

So in the lot of more refined
measures you're actually seeing

health benefits arising out
of this and they don't show

up these international
comparisons.

But nevertheless,
these are what we have,

and as I said we might
be looking for the key

under the lamppost, but these
kinds of numbers are disturbing.

I've also, I don't have
a slide to show this,

but had people wonder,
"Gee, if all of this affect

on life expectancy comes
with infant mortality,

what happen if we could clean
out the infant morality affect

and then see what happens
to life expectancy?"

So, I've looked what
the life expectancy is

for a person aged 25
instead of at birth

and the picture looks
essentially just like this one.

So cleaning out the infant
mortality story doesn't change

the fact that we're still
having low health outcomes

for health care spending
in this country.

So that's problem number 1,

problem number 2 is
we're getting older.

Now these folks should
make the young folks of you

on the room real nervous.

This is a standard
demography picture,

it's called the population
pyramid,

and when they look
just right you start

out each horizontal
line as an age bracket

and the size it shows
how many people there are

in that age group.

The one's on the
right are females,

the one's on the left are males
and the traditional pyramid

which is what it's called that,
it just slopes up so it's shape

like a pyramid and
peaks with the single

of narrow thing at the top.

And this one in 1950, you can
already see the beginnings

of changes in the population
about this young age group

and particularly, you can
start to see the baby boom.

And then as we move to the year
2000 that baby bloom is now

up in the age bracket,
and so like a lot of us,

the population pyramid
in the United States

as a midriff bulge, a topic to
which I will return shortly.

[ Laughter ]

>> Take this out to 2020.

These are extrapolations,

but demographers can
do these extrapolations

with very high degree
of accuracy.

And you can see that,

that pyramid is almost
become a cylinder.

Let say, there's
almost just many people

in the elderly age group
that start at the younger.

And remember in our system
of Medicare financing,

the people in this age group
were paying the Medicare taxes

that are financing the
healthcare for this group

that works a lot better
in this population

than it does in this one.

And we take it out to 2050
when I won't be around.

But you can see that this
is now it had become column

but it's become in fact
an inverted top hat.

And you also notice
that the line

on the right side
is a lot bigger.

Women live a lot
longer than men, about 6

or 7 years longer life
expectancy in our society.

Some of it is probably
hormonal protection.

I think most of it is due to the
fact that men smoke a lot more

than women earlier in
their lives, another topic

to which I will return.

These numbers now, of course
what's scary about these numbers

that elderly persons, because
our bodies are wearing out,

we're just using medical
resources a lot faster

than younger people.

So if the population
ages like the 2020 number

which is not real far
away, 8 years away,

those kind of population
distribution just guarantee your

gonna be spending more
money on healthcare,

no matter what else happens.

And the 2051 is actually
real scary.

Now, my son will be up
in that age population,

2050 but I, I will not.

Okay, sorry, wrong direction.

Okay, now problem number 3 is
income will continue to grow

and so medical spending
this turns

out to be an extraordinarily
strong predictive power.

If you know how much income per
capita a society has you can

tell with the high degree
accuracy what their per capita

medical spending is going to be

and that statement is
true almost independent

of how health care is
organized in their society.

So we have again, you can
see the exact nations,

but in the middle cluster here,
we have nations like Germany

and Japan that have a health
care system does not completely

dissimilar from ours.

But universal insurance
you have Australia

which is quite marketer
oriented, you have Canada just

to the north of us which
has social insurance--

health care system
not the insurance

but health care system
is much like ours.

You have Great Britain which
has the British National

Health Service.

And you have Sweden which
has health care provided

by counties, and
all of these are

on this extremely type
fitting regressional line.

And it doesn't matter how
the system are organized,

you get to the same health care
spending because of the income,

it just a very strong
relationship and it occurs

in every data set I've
looked at across many years.

So what that tells me
is as our income grows,

in fact of all societies,
as our income grows,

we're gonna be moving
up in spending line.

Now the other problem of course
is there's the United States is

way up off that regressional
line.

It's a very high outlier.

If you think that
there's a curvature to it,

you can bend a little bit of a
log fit that seems like it goes

up there a little closer
but the US is a big,

a above the line
outlier on any counts.

So not only is our
income growing

but we're way up
there on spending.

In several reports, I've
seen say, a nontrivial chunk

of that is due to the way we
compensate positions relative

to other nations,
but that's a question

which I'm not gonna try
and delve into today.

Problem number 4 is
technological change.

Now, this I'm sorry
is a very hairy slide

but I'll just give you
an easy way through it.

Okay? Let's look at actual
dollars spend in 1960 and 2010

in the US economy on healthcare.

These are billions--
billions 'cause we're talking

about the federal government
or the total economy,

23 billion dollars
spent in 1960.

That was the total
amount of money spent

of medical care in the US.

In 2010, that was 2, 435--
2.43 trillion dollars.

So the ratio of that 23 billion
to that one, the ratio is a 106.

The amount of dollars being
spent increase by a factor

of 106 over that
50 year of period.

I just wanna look at these
numbers across the bottom so,

you know, what they mean.

Just simply taking adjustment

for inflation using the consumer
price index and we totaled these

in cost of 2005 dollars, that
number drops to merely 14.

Still the CPI adjusted
14 fold increases.

We can then say, oops the
population is growing,

let adjust for that so we
can do is on a price adjusted

and in per capital basis,
the number is now 8.2.

Now comes the last step

which makes every health
economists nervous.

Let's adjust it by the
medical price index

which is a component of the CPI.

That's a real nervous
time because the component

from medical care in the CPI
doesn't take quality adjustments

into account, for example
a major component of this,

a semi-private hospital room.

Well, that's a very
different [inaudible] now

than it was in 1960.

So if you make that
adjustment, this falls to 2.

8. But some of that is technical
change, technological change.

So something between about a
factor of 3 and about a factor

of 8 is the effective new
technologies introduced

into our health care system.

And I can't tell you
if that a big gap.

I can't really give you
a lot more precession

in that somewhere between
3 and 8 fold increased

in real per capital spending
that's technologically driven

and that technology
is continuing

to come down the pipe.

>> Now, just to reflect
back and then--

many of you in the
room are not old enough

to remember some of these.

But the changes in
medical capability

over this 50 year
period have just,

they're almost beyond
imagination.

In 1960, if you had a serious
bodily injury they could take a

plain film X-ray.

Now if you've ever look at
an X-ray compare to an MRI

or CT image, the X-ray looks
like a crude children's drawing

for most medical
problems compared

to what you can see
in modern imaging.

And then PET scans actually
cannot only measure structures

but physiology.

They can actually find out
where cancer is growing

with the PET scan by injecting
with a little radioactive sugar

and then watching it
glow on the images.

Heart attacks, another
technical change.

When I was young and growing up
in Denver, Dwight Eisenhower,

the person had a heart attack
while he was on Denver.

The best medical treatment
around at that time including

for the president of United
States was 8 weeks of bedrest.

We now know actually that's
pretty bad for the patient.

But what we have now
instead of that 8 weeks

of bedrest is we now have
coronary bypass graphs,

implantable defibrillators,
stents, a whole bunch of drugs

that reduce the risk of
the heart attack itself

and eventually heart
transplants.

All those extend life and
in fact about the third

of the gains we had in life
expectancy over this period

of time have been do to
improvement and the survival

from heart disease and they
all cost a lot of money.

Middle illness treatment
is preceded similarly.

The treatment in 1960 was if
somebody was schizophrenic

or other serious
medical disorders,

you put him into a mental
institution forever.

And now we have a whole bunch

of non-trivially expensive
pharmaceutical products

that actually reasonably well.

Not perfectly but
reasonably well-control

psychiatric illnesses.

Knee replacement, something
near and dear to my heart,

I tore an anterior
cruciate ligament

in an intramural
basketball game in college

and it has been grinding a
way slowly ever since then.

And I know instead of just
wearing a leg brace around

and taking a lot of Advil,
I have a metaled knee.

Okay. It's hugely improved
the quality of my life.

Before that I would not
have been able to stand here

and lecture to you, I would have
been setting in a chair here.

The only downside is that every
time I take an airplane trip,

I get a free massage from the
transportation security agency

on the way through the gate.

And it's a whole bunch of
implant devices like that,

some of which you shouldn't
bother with, but certainly knees

and hips have worked well.

Shoulders kind of a
risk, don't bother.

I've experiencing almost

of these questions
in my own make up.

Strokes, if you have
strokes in 1960,

you got some physical therapy
and thank you, good luck.

Now there's an anticoagulant,
they could be administered

if you get them soon enough
from the emergency room

after your stroke that
will vastly reduced the

neurologic damage.

They have robotic surgery to
clean up the messed up arteries

and blood circulation to your
brain to improve your recovery.

And diabetes, it was a once
a day shot with insulin

which left these wild swings
in the insulin control.

Now you have pumps

that continuously monitor the
blood sugar of the individual

and feed in insulin
slowly and steadily.

The vaccines, just one more, we
have almost eliminated polio,

haemophilus, influenza B,
cervical cancers to some extent,

and most of the common
killers of the 19th

and in the first half
of the 20th century

with vaccines and antibiotics.

There are now 25 active vaccines
in used around the world.

The next will cost a
billion dollars to develop

and each one thereafter
that or more.

So problem number 5 and this is
the one that puzzles me most.

When we start looking regional
patterns of medical care use

in the United States, we get
very strange maps appearing.

These maps come out
of the Dartmouth Atlas

and Jack Weinberg
and his college

at Dartmouth Medical School.

This shows in the color coding

down here the darker
the coloration

for a region the more
per capita spending.

The national average is about
9,000 dollars in this year.

This is in 2008, the most
recent year they have up.

And you can see these clusters
of high spending, Texas, Florida

and then this band
along Northeast

and this band along there.

Now, I wanna just take a little
more careful peek a couple

of these things.

Zoom in on Florida.

This is very illuminating
in a number of ways.

First of all I remember
the national average.

This is a couple of years
older now so the average

in this was 8700 dollars.

Miami is at the top of the heap

at 17,274 dollars per Medicare
recipient, these are all age

and sex-adjusted by the way

so this isn't just the Medicare
people in Miami or older

and these are all
age, sex-adjusted.

Just across the state, at 8300,

a little under the national
average in Fort Myers,

Tampa is a little above,
Orlando is a little above,

Tallahassee is still lower
up at the top of state.

Almost 10,000 dollars
a year difference

in treating Medicare patients
per age, sex-adjusted per person

in Miami than there
is in Tallahassee.

Now, the other thing that
goes on is when you go in

and look carefully at these
and this was what the reference

to Fisher Wennberg
and Stukel from 2003.

You don't find any
differences at all in mortality

or activities of daily
living, functional measures

or satisfaction with care

or patient's self
reported health status.

There are no differences across
these various regions in any

of those measures from
Medicare recipients.

So, this really raises
the question up of

if these differences are going
on and we don't seem to be able

to measure benefit in very many
ways, if any in, in this work

at the ones they've
looked at, no way.

How do we get into
that situation

where we're apparently
spending health care dollars

without any significant benefit?

Yes, sir?

>> Is cost of living in
general and Miami [inaudible].

>> Cost of living is about 15
percent higher in Miami than,

but certainly not than
in Fort Lauderdale.

The other question I'm
often asked is this,

maybe it's malpractice?

And that's one of the reasons
why I really like this slide

because this is all and exactly
the same legal environment.

It's the same malpractice law
in Florida and every city.

So, it's really hard to pin
this on the malpractice law

because it's all the same here.

So, one of life's great
puzzles is to how this happens.

If we look, I'm gonna turn
up the microscope a bunch

of ways instead of total cost
of treating Medicare patients.

This looks at hospital
discharges

for thousand enrollees.

The US average is about
336 and then just wandering

down interstate 94,
Kalamazoo where I spoke

about this yesterday, is
about 340 and Arbor is

about 360, Detroit is about 405.

Remember these are all
age sex-adjusted measures.

So, what's causing this?

Maybe it's the Appalachian
trail?

Probably not but it's
a pretty good fit.

It's better fit than some

of the regressions I
showed you earlier today.

But that's-- now I
wanna keep turning

up the microscope
here just rapidly

and show you what's going.

So this is hospital discharges
for thousand enrollees.

So, now, let's look
at in-patient care

in the last six months of life.

And you see the same pattern
essentially but now not just

for hospital care but for a more
specific type of hospital care

and that is in the last
six months of life.

Of course we never know what's
the last of a person's life are

until they passed
away, but nevertheless,

there's a trend here that's
showing up and when we look

in at the percent of all
debts within the hospital

where we do know what some
of the alternatives are

for example hospice care or
nursing home alternatives,

the map looks extremely similar.

You still see the
Appalachian trail effect.

And in fact we can
turn up the power

of the microscope one notch
further and look at the use

of intensive care in the
terminal hospitalization

and again you see
essentially the same pattern.

There's a little more of this
out in the, in the south west

of the United States
and southern California.

And if you look down on this
floored area, every time we turn

up the microscope we see the
same sort of patterns emerging

and this tells me
a couple of things.

Obviously, one of them is that
it's not waste fraud and abuse.

There's certainly a lot of
that going on in the Medicare,

there's fraudulent, billing
for things that never happened,

not in intensive
care units folks.

That's not where the waste,
fraud and abuse is going on

and these patterns
still keep emerging.

So, I'm convinced
from looking at this,

there are very important
differences

in the way communities
come to believe

that the health care
system should be used.

There are agreements between
patients and their doctors.

I have no idea how those
implicit agreements are set

but we confine them and they
keep repeating themselves year

after year after year and it's
not due to age, demography

or illness patterns, yes?

>> [Inaudible] is there any
comparison between utilization

and Medicare patients
and whether

or not there are additional
Medicare or they're

on Medicare each moment?

>> Yeah, most of these
data, these have been done

over a series of years and they
look very similar from a year

or even before Medicare
advantage part C came

into effect.

The Medicare part C enrollment
is getting large enough.

Now you begin to parse that out.

It hasn't been done yet
by the folks at Dartmouth.

I don't-- it would
be interesting

to see what the answer is.

Of course I'm now on
Medicare since I retired

from the active faculty of
the University or Rochester,

I had to go to Medicare,
and before that I was

on a high deductible
HSA savings--

consumer-directed health plan.

They wont let me have
one of those in Medicare

and it just drive me crazy
'cause I thought it was the best

thing for me and
certainly not for everybody

but my choices are
limited in that.

So, there's the policy
problem staring us in the face.

I mean certainly there's
a lot of variability

in medical care spending.

We cannot say, and I wanna
emphasize, we cannot say

with any reason, plausibility
that Miami is too high.

All we know is it's
bigger that anyone else.

But they might be
dead on just right

and we might all be
spending not enough.

Now of course we
do have this notion

that we're not seeing
any health benefit

from that extra spending
compared

to other places in Florida.

And that sort of analysis is
giving us a stronger suspicion

that in fact the
high end is too much.

But that's really
the problem, yes?

We have a question
in the back, yes sir?

>> I was just wondering,
what about the distribution

of subspecialist, what,
what does that look like

and the distribution
of hospital beds or--

>> Yeah, the folks at
the Dartmouth Atlas have,

the question is, does this,
is this following patterns

of medical specialists
in hospital resources.

And the answer is the folks of
Dartmouth have done some work

on that and you could
probably if you want to prowl

around at the Dartmouth Atlas,
it's a pretty good website,

and you can find more
detail answers to that.

The problem that economist see
when they look what that is,

we don't know whether the
resources have cost utilization

or the fact that people want the
resources and they flowed there

to respond to that and it's
very hard to disentangle

that particularly in
these types of data.

So, I suspect that there is
some correlation between those.

I'm not willing to assign
causality at the fact

that if you put some
resources in there

that people will
come and use them.

They have to want to
use them after all.

Now they're getting-- we do know

that there're some
important features about that.

Florida is rampant for example

with physicians owning
various types

of like imaging facilities.

We know from very careful study
in Florida that physicians

who have ownership's
taken imaging facilities,

orthopedic surgeons
recommend imaging studies

at four times the
rate of orthopods

who don't own imaging
facilities.

So there's certainly
some of that going on

and I would be foolish
to say otherwise,

I can't tell you how much of it.

And then one also must
wonder, why is there so much

of that going on in Miami?

Well, if other parts
of the same state

which have the same tax law

and the same malpractice
law and everything.

There're a lot of reasons we
think we know what's going

on some of it but I don't
know anybody that can say

with confidence how much of
this is due to various parts.

And I would, if I said that
you should run me out of town

because I have no logical basis

for asserting how
much is due to what.

And thank you, that's
a very good question.

This leaves me to the puzzle
if, I'm prepared to say,

we seem to have a lot of
medical treatment going

on because these variations
without apparent benefit,

so how do we avoid that?

And I'm gonna [inaudible] some.

I'm always thinking about
incentives so I wanna puzzle

around about the
incentives that lead to that.

One of them is setting aside
the Medicare population.

We have too much health
insurance in this country

for those who are insured.

Our tax system subsidizes
health insurance.

The average subsidy is
about 35 percent so we end

up with people buying
health plans

that don't have any cost
consciousness build into them.

We end up with people
ensuring, if there are dentists

in the room please forgive me,
there's no particular reason

to buy dental insurance,
there's just not much,

very much financial risk
associated with that.

If you cave your face in,

in a vehicle accident your
medical insurance will pay

for it anyway, the
reconstructive surgery.

So, we're really talking about
insuring of dental insurance,

things that are very
predictable on average,

not quite as predictable
as grocery bills

but pretty predictable.

And we ensure that because
our tax system subsidizes it

and that has derivative effects
on how much medical care we use.

And that's true also almost
every type of, of health care.

How do we guide decisions

to the most appropriate
intensity of care?

In fact, it'd be nice
to know where is that,

the most appropriate intensity
and we don't know that.

How we pay for care?

Why do we pay for care
with little or no benefit

and these are not
easy problems to fix

and I don't know the
answers but they--

I think there are
some with the core

of the issues confronting our
society as we look forward.

But that is not the
fundamental problem.

The fundamental problem
is ourselves.

The first set of problems
are related to the government

and government policy.

The second problem is to
steal the line from pogo.

We have met the enemy
and they are us.

This is one of the
most eye-opening,

and to me eye-opening

and transforming research
studies I've ever seen

in my life.

Let me walk you through this.

The first of this was done using
1990 data by McGinnis and Foege

and then replicated using
2000 data a decade later

and somebody I'm sure is
furiously working on doing this

with 2010 data now or
will be very shortly.

But the numbers are
pretty striking.

So let's talk about
what this means.

This is the actual causes
of death in United States.

Now death certificates, there's
a national death registry

in the US, and the death
certificate list the cause

of death that the
physician has written down.

So the physician says lung
cancer, that's the cause

of the death on the
death certificate.

What McGinnis and Foege
did was to go through all

of those deaths and look at
the deaths for lung cancer

and then sort out how many
deaths are attributable

to tobacco use.

And then those which are not
and the deaths that are above

and beyond that which
will be predicted

for nonsmokers are excess deaths

that are attributable
to tobacco.

And then they add that up
across lung cancer and a bunch

of other cancers and emphysema

and chronic obstructive
pulmonary disease

and heart disease and the many
other things that smoking does

to cause, medical care cause
and medical expenses and death

and they added up all the extra
deaths associated with tobacco.

There were about 2 million
deaths in the United States.

This 1 million was about 50
percent of all the deaths

in the United States, 400,000

of that w million were
attributed to tobacco.

Next on the shopping list
in 1990 data was 300,000

to poor diet and
physical inactivity,

alcohol consumption was third,
microbial agents is fourth.

That's the bugs that we run,
toxic agents in our homes

and in our work places.

Motor vehicular accidents,
firearms, sexual behavior,

elicit drug use, 1 percent of
all the deaths in the country,

30,000 deaths in that year.

That number has gone
down a lot since then

because of HIV treatment.

So, and then elicit
drug use have 20,000.

So let's look at the 20,000
and the 300,000 and 100,000.

This is a completely
side comment

but folks were fighting
the wrong drug war.

Let's leave it at that.

This set of excess deaths
from this things adds up to

about half of all the
deaths in the United States.

Incomparable by the way
in medical care expense,

I'm quite sure, although I
have not seen detail on that.

Just a second, I'll
get to a question.

Almost all of these are
lifestyle choices we make.

They're our own behavior.

Perhaps the only
counter examples

to that will be microbial agents

and toxic agents just some
extent, but I'd say almost all

of these are behavioral
choices that we make.

Now the question, yes sir.

>> I'm just wondering how
they're determining the baseline

for the national
history of illnesses.

You're saying that they
determined that baseline

and then whatever is involved
in that, that's what going in

and they're treating
[inaudible].

>> Yeah, so--

>> So how do they
getting up baseline?

>> Yeah, the way to do that
is epidemiology studies

in every one of these cases.

Thank you, a good question.

Epidemiologists calculate
the relative risk of smokers

and nonsmokers, and
then you look

at the cohort, it's
just tied in.

You can tell from good
survey data what fraction

of them are smoking and you look
at the excess risk from smoking

in that population and you
can backout excess deaths

out of that.

So it's basically all hinge on
careful epidemiology studies

of the relative risk of
smokers and nonsmokers.

That's a quick summary answer.

>> Do we have those
for separate cause?

In smoking [inaudible] study,

I think that we had
that for other thing?

>> Yeah, yeah, there's good data
on enormous variety of the--

In tobacco consumption
for example.

I'd even seen really good
relative risk behavior

that says the pets of tobacco
smokers have a higher risk

of death than nonsmokers.

Second hand smoke prevailing its
way in so yeah, I'm confident

that McGinnis and Foege,
their article explains this

in more detail and then
the subsequent work,

they've got pretty solid
up the evidence on all

of these relative risk numbers.

They maybe wrong a
little bit but even

if they're wrong a little bit,

the story is quite
strong, I'm convinced.

I have question here
and then with you, yes?

>> You may be getting to this

but the causative deaths
don't necessarily translate

into higher health cost.

Those people who are dead are no
longer on the healthcare system.

>> Yes. Well, that's
particularly--

particularly true of tobacco.

Actually, there's a
lot of medical expense,

I'll show you a slide on
this in just a moment,

attributed to this behaviors.

But in particularly if you add
up across all that public pools,

tobacco users/smokers
die earlier

and hence although they'll
spend more in Medicare,

they don't consume as much
as social security resources.

So, there's actually a
careful book written about this

by Will Manning and
some colleagues called

"Do Smokers Pay Their
Way, that goes into that

in quite some detail
and the answer is almost

when you count the fact

that they're not drawing social
security resources nearly

at the rate of nonsmokers so.

>> I just wondered if
that's been compared

to European countries.

>> Yeah, actually, not just
European countries but anybody

who has traveled knows there's
a lot more smoking going

on in Europe and Japan and
there is in the United States.

So one of the puzzles which
I have pondered a lot is,

how come if they're smoking
so much more they have

such a better mortality
rate and I can't prove this.

My suspicion and it's just
a guess is that they make

up far more in these other
dimensions probably mostly

on obesity and lifestyle.

They walk a lot more.

They're not as heavy
and in general

and body mass index calculations
across time and space.

And so, my guess is
that they're making it

up on this other behaviors.

But it's a good puzzle and it's
a great dissertation student

for somebody here
in the Ford School.

Track down data that would
actually look at the rates

of these various behaviors
and other societies

and unravel how it is that
they can smoke so much.

And partly by the way
in Japan, the standard

of the highest longevity
anywhere

in the world is Japanese women.

They don't smoke, okay.

So you could get some comparison
just by looking at men and women

in Japan on that effect.

Yes?

>> I don't see any
comparison with diseases

who doesn't have cancer,

[inaudible] so it's
hard for us to--

>> Okay, so the rest of that
like the cancers that are

for people that didn't smoke,

they're down on the
next 50 percent.

Did I get your question
correctly?

>> Yeah, like breast cancer.

>> Yeah, oh, so right.

If you have breast
cancer and it's not

and if it doesn't have an
extra relative risk compared

to these things, it's down here
somewhere below the top 10.

They're all there in that list.

That's the other half, the other
50 percent that are on this list

of the top 10 and
probably, you know.

Some of the cancers even
though it's non-attributable

to these lifestyle choices
are in that next 10.

But I really want to
focus on the effect

of lifestyle on the top 10.

Yes?

>> It would be interesting

to compare is how physicians
Europe fill out the death forms

because in United States
it's very common to kind

of be a little sloppy but also
include the lifestyle issues

when you fill out
death certificate.

And I don't know how they
do it in other countries.

>> Yeah.

>> But they may not quite--

>> I don't think physicians are
given a choice much in filling

out death certificate that the
cause of death was smoking.

You know, okay, okay.

They have just treated
those directly.

And honestly I'd have to go
back and look at the details

at the McGinnis and Foege work
to know how they have done that.

Again, many of these
numbers aren't right.

Maybe they're not right by half

but I'm really convinced
there's a kernel of truth there

that says our own personal
behavior is causing a lot

of our medical spending
in deaths.

And there's some good news.

This is a graph of cigarette
consumption per adult 18 years

and over since 1900, it peaked

at almost 4,000 cigarettes
per 18 year old.

So here's the history quiz.

No fair if you're
an adult in 1965.

What happened in 1965?

There's gonna be on the final
exam for the policy students.

What happened in 1965 folks?

Surgeon General support, yeah.

Surgeon General of
the United States put

out a large scientific analysis

that said smoking is
really bad for you.

It was the first time there was
official government statement

that said that.

I was in high school
in Denver in the 1950s.

We knew that.

The junior high school
students--

junior high schools [inaudible]
called cigarettes cancer sticks

in the 1950s.

This wasn't like it was news.

It was just, this was the
official statement ever

for the first time and then
following that came all

of the societal changes.

Taxes on cigarettes,
warning labels,

no smoking in public places,
no smoking on airlines,

changes in social mores, some
with the development of ways

to unaddict from nicotine with
patches and things like that,

but the result has been this
dramatic decline in smoking,

so are now down to well under
half of what the peak was.

And so, we're making
great headway on smoking.

Not perfect but still
great headway.

The smoking patterns
are very tightly linked

with educational attainment.

This is a snapshot
of the current time.

I'll show you another one later.

People who have not
completed high school,

there's a final educational
attainment, about a third

of them smoke cigarettes now.

Those who have high
school degree,

it's a little under a quarter.

If they have some college
probably most of them have gone

through to junior college
and got an AA degree.

It's a little under
that about 22 percent

and college graduates are more
down to about seven percent.

And physicians and the
health care system,

it's about 2 percent.

A good friend of mine is a
radiologist, keep smoking

and that's why he
does he's beyond me

because he keeps looking at
x-rays of lungs of people

to smoke but he still smokes.

Nicotine is extraordinarily
addictive

and there's no better
addiction mechanism,

no addictions science
I have talked into.

There's no better way
to addict somebody

than to have small doses
delivered frequently,

cigarettes, okay.

So, it's powerful addictive.

I'm gonna back to this education
thing a little bit later

but there's this
powerful gradient

of smoking and education.

Somebody over here asked
me, doesn't it cost less?

Smokers consume about 40 percent
more year than nonsmokers

in health care cost,
age-adjusted.

None of this appears in
their health insurance,

premiums in general
particularly to employer groups

which is very much unlike life,
home owners, and auto insurance

where your experience created
in a lot of behavioral things.

You know, if you smoke and
try to buy a life insurance,

you're gonna pay a lot more for
it 'cause they know the effects.

They know them equally well

and they're health insurance
business, they just can't do it

in player group policies.

Auto insurance charges more
for under 25 year old males,

testosterone and gasoline
are really dangerous mix.

And even home owners insurance
charges more for smokers

because they fall asleep in bed

and set their homes
on fire more.

So we have all this experience
rating on lifestyle things

and other areas but
not in healthcare

and that's another
one of these puzzles.

It's not just the health
care cost, there's a lot

of lost productivity
in terms of work loss,

people are either ineffective
or can't appear for work.

When asked what I've seen which
I wouldn't put a whole lot

of faith on the exact number,

but it says the true cost
is a 150 dollars per pack.

Most of that is productivity
loss.

And I have mentioned this
irony since smokers die younger

that health care cost in
the elderly and particularly

that social security
cost are saved.

Most of the smokers end up going

through an expensive
end-of-life illness.

Often an intensive care
with their various illnesses

but they do exit the Social
Security systems sooner.

So what's to worry about?

We're getting all this
improvement in smoking.

There's little flattening

out in the declined
teenage initiations,

there's a little
concern for people

that are really carefully
looking at, but as I showed you

in the chart of McGinnis
and Foege work

and the one a decade later.

When that's done
again with 2010 data,

smoking is gonna lose
its unenviable position

at the top of the charts.

The reason is the
United States is

about to drown in
the sea of fat.

Let's just focus here on
the upper three lines here.

These are children of various
ages, so let me just focus

on the top three lines here.

Overweight but not
obese is steady flat.

How is this measured?

This is body mass index.

The body mass index is
calculated most conveniently

in metric.

It's your weight in
kilograms divided

by your height in
meters squared.

If you don't know your
body mass index, run,

walk home after we
finish this session today

and Google BMI index putting
your weight and height

and you will find out what
your body mass index is.

I'll show in a minute how
important that is in terms of--

at least in terms of
mortality outcomes.

Overweight but not obese has
been flat pretty much among the

adults 20-74 over this
period from 1960 ,

the most recent times
available on this.

That's a BMI of 25 to 30.

BMI of 30 to 35 is
the screen line.

It runs charging along into
about 1975 and then [noise].

And then the total of those
has the same behavior.

This is adding up everybody
who's both in this line

and this line so
that kinks [phonetic]

at essentially the same time.

And there's this
sudden change in people

with the body mass
index of over 30.

>> Their prevalence in
our society about 1975.

And I had a lot of reasons

so I can understand why
people are getting heavier

but why it occurred suddenly
and that kink behavior.

And 1975 is one of life's
great mysteries to me.

Perhaps we can have a
discussion about that

in a little bit later.

Now, this is going to come
happy, surprised to some of you.

By the way my body mass
index is 28, just probably 29

when I get back from
this week long trip

but traveling is not good
for my body mass index.

The upper set of these
is the mortality rate

by body mass index for males and
you can see it hits the bottoms.

That's the healthiest area
around body mass index of 23,

24, 25, 26, not a whole
lot of difference there.

As you climb back up
into very thin people,

the mortality rates increase.

I think some of that is due to
when people get really sick,

they lose weight so I
don't think it's causative.

On this side of the graph,
I don't know if many ills,

illnesses have caused you
to gain a lot of weight.

So, I think probably this side
is causative quite directly.

And the difference
between this set,

and by the way this is a summary
of about 900,000 lives across,

a bunch of prospective studies.

So, the statistical power

of these members is
just enormously high.

The bottom set of
blocks is, is women.

Women have lower mortality rates
and live about 7 years longer

in our society than men.

Good part because they
didn't smoke so much.

But fat is, is definitely
not good for you, probably

and even better measure is
grease line circumference.

We have good data on all these
studies on body mass index

so that's what I
can show you today.

Obesity cause accounts
for about 10 percent

of the health care cost.

This is again one of these
excess cost measures,

about 40 percent more.

They're very similar
to tobacco smokers

than people with normal weight.

And this problem is
going to become larger,

pardon the expression
through time

because our population is
growing increasingly obese.

And smoking just makes
you feel terrible.

This is a study by a really good
health economist David Cutler

and colleague published
in New England Journal

of Medicine a couple years ago.

They took survey data from
a whole bunch of people

around the Unites States and
basically to answer a question.

Rate on a scale of 0 to 1,

1 being perfect health,
how do you feel?

And this summarizes the answers

from this very large
population study.

So, let's just take
college age students who are

at normal body mass index and
don't smoke and their answer is

about 90 percent are perfect.

Now, if you go among
the non smokers

across body mass index you see
there's a, somewhat of a decay

in that reported,
how well I feel?

And when you drop down to those
current smokers and then run

across to people who are over
35 body mass index and smoking,

that number is 74
compared to 90,

smoking makes you feel terrible.

That's true also if you
look at people aged,

let's say, aged 55 to 64.

82 that's not as good
as 90 because you know,

time wounds all heals, it
wears us out a little bit.

But if you make the same
comparison of that age group

from nonsmoking healthy weight
to smoking and higher weight,

it drops down to 0.67 from 0.82.

You see the same kind
of proportional drops

in the quality of life that
people report when they're

in these unhealthy states.

So, people in these,
smokers and people

who are overweight are bearing
some of the cause personally

in this immediate health status
and make no mistake about it,

yeah that question, yes?

>> Well, I was just gonna say
it will be interesting if this,

I was thinking about mortality.

I mean there are some
studies that show

that mortality among
obese people is not higher

than not obese people
except for those people

who developed diabetes or
hypertension or heart disease.

Except for the morbidly
obese like you're not-- .

[ Inaudible Remark ]

>> Right, but I think
that, well, I think,

I mean obviously people that
are obese are more likely

to have diabetes.

But it would be interesting
to see what happens with the,

like the Asian population
announced

that there's a rapidly
increasing percentage of people

with diabetes without high BMIs.

And so it would be
interesting to compare mortality

with the diabetes
and the lower BMIs.

>> Right, we have, I have seen
the studies some time ago.

I couldn't quote the
author for you yet.

Right now they looked at first
generation Japanese immigrants

in Hawaii and it turns
out when, you know,

Japanese citizens immigrate to
Hawaii and adopt western diets,

they acquire western mortality
characteristics quite rapidly

so there's probably
something there.

I'm not saying that it's just
the fat but there's also,

well there's the diabetes
that comes from fat

and other things are beyond,
is kind of beyond my point.

I've good data on the fat
mortality story and smoking

and that makes my point I think.

So now comes the question,

why are we having
this increasing rate

of obesity in the United States?

And a sub-question is why it
has started suddenly in 1975?

I have some reasons for it that
suggests why I should be growing

but not why there's
that kink in 1975.

We have more sedimentary
jobs now than we used to

and so we're not shedding
calories during our work

which means we have to
go outside to the track

or to the gym and spend
valuable hours getting rid

of those calories and our time
is increasingly more valuable

as the society becomes
more educated

and our opportunity costs rise.

And so basically the cost
of getting rid, we're not,

getting rid of this as many
calories in around work

and the cost of getting
rid of them is rising.

The other half of
this is that food,

because of the efficiencies

in the agriculture sector
calories are becoming cheaper

through time.

And if there's one
thing economists know is

when things become more
expensive people do less of it

and when they become less
expensive, people do more of it.

And so calorie cost shrink
and customer getting rid

of calories rises and you have
an obesity problem emerging

right straight out of
the economic forces here

and probably happening faster

than our genetic
selection is going

to alter our basic metabolic
rate to deal with this.

So, that's just kind of
normal laws of supply

and demand if you will.

One simple example is, I'll
show you some more detail

on this in just a moment.

But the amount of
food that people get

in the home has changed
versus restaurants or order in

or buying package foods
in stores and preparing

at home has changed
dramatically.

So, food in the home has gone
from 1930 at around 85 percent

of all the meals were
prepared in the home and it's

about 55 percent now in
a very steady decline.

And the converse of the flip

of that is meals
eaten outside the home

and those lines are
gonna cross pretty soon.

And then you couple that
with what's happening

to prepared foods in the grocery
store when you buy portion foods

and go out to restaurants.

And there's a study
from the National Heart,

Lung and Blood Institute
website, there's a sample.

Every, every food they've looked
at has increased dramatically

in the calorie content of what
was described as a portion

over the last 20 years.

You can read these yourselves,
bagels are much bigger,

chocolate chip cookies
are four times as large

or have more sugar
or butter or both,

french fries quantities
have almost tripled,

that wonderfully healthy chicken
caesar salad has got twice

as many calories as
it did 20 years ago,

theater popcorn is more that
doubled, my daughter worked

in the movie theater
in Rochester,

she was actually rewarded by
the number of people that would,

at her request, would you
like to super size that?

Her pay increased when she
had more super sizes rung

up on the cash register.

Another, I love eating
turkey sandwiches for lunch,

they're very healthy,
they have two

and a half times the calories

as they did 20 years ago
and on and on and on.

Soft drink you know, it used to
be a 10 or 12 ounce soft drink,

it's now 20 ounce soft drink
and you buy the big cup.

And beer is increasing in
proportion, not by the way,

they're now looking
at 20 ounce beers,

that's the primary container
instead of 12 and you know,

this is, and all they have to do
is look at television to realize

that the fast food chains
are competing on the size

of their portions
as much as on prize.

My hamburger is bigger
than yours;

my French fries portion
is bigger than theirs,

that's the vote of competition.

So, that's the problems.

What have we done about them?

Well, obviously the
most important thing

that has come along in the last,
let's say 20 or 30 years since,

probably since the
formation of Medicare

in public policy is
the Patient Protection

and Affordable Care
Act or PPACA.

If you are a good
fan of Rush Limbaugh,

you probably call it Obama Care.

So, by summary of what the
Affordable Care Act did

in dealing with these questions
comes right out of the book of,

Episcopal Book of Common
Prayer left some things undone,

we should have done, we have
done some things we shouldn't

have done and there
is no health in this.

So, let's take a careful
look at the key features

of the Affordable Care Act and
then ask, what is this gonna do

to deal with the set of issues
that I've just laid out?

Probably the most
prominent and controversial

and under legal duress
probably in the Supreme Court

within a week or two is that
mandate that every individual

in the United States obtain
health insurance coverage.

>> Most of us have through
our employment groups,

I suppose almost everybody
in this room does either

by as employee of the UM or as
a student here, I've always head

up to my employers of random
university of Rochester,

that's the common mode in
about 80 percent of the people

under 65 in the US
health insurance comes

through their employment group.

So, hence the laws or mandates

that all employers
provide health insurance

for their employees and families
of at least bronze label.

There are like the gold
medals in the Olympics.

The act defines bronze plans
as those that will cover

at least 60 percent of the
actual real value of the plan.

Silver is 70, gold 80

and platinum is 90 that's
an extremely generous health

insurance plan.

And they mandate you to at
least have a bronze plan.

It establishes regional
insurance exchanges.

The states who are

in sub regions they
can cooperate on these.

They will help people who don't
have employer insurance find

health insurance at lower
costs by setting up these

if you will, shopping marts.

And it also provides subsidies
for low income families directly

through the exchanges and
also there're tax credits

through the income tax system.

Quite importantly it bans the
use of preexisting conditions

by ensures and underwriting.

Now this is really, this
is a very interesting issue

for two reasons.

One, it ties in to
the mandate itself

and then the other it
just a separate question

of whether it's a good idea.

So, let me give you
the legal argument

which a constitutional
scholar friend of mine

and I have developed that talks

about the individual
mandate for a moment.

All of the legal challenges
that the individual mandate say

that it is an unwanted
and excessive extension

of the Commerce Clause
of the constitution.

The commerce clause says the
congress may regulate activity

of commerce in the
United States.

I think it's widely believed
probably 8 of the 9 members

of the Supreme Court,
maybe by all 9

that that includes insurance
and hence can be regulated

by the federal government,
the McCarran Act

in 1946 made some specific
rules about that but it's clear

that that's illegal activity.

So, the, the mandate that says
you've gotta have insurance has

been dealt with this idea,
that it's basically saying

in the common phrase going back
to George Bush's statement,

the big George Bush Senior.

Now, that I'm president they
can't make me eat broccoli,

you remember that statement?

He didn't like broccoli
apparently.

So, this has been picked up
in the political discussion

about this mandate and says,

if they can make you
buy health insurance,

they can even make
you buy broccoli.

So, you see the general
logic being attached to this

and that is, it's enforcing
consumption decision on people

to buy something that
they don't want to buy.

The alternative is to
come back down to this ban

on preexisting conditions.

Whether you think
that's a good idea or not

and I can make a good
argument, I think that it is.

It's not a perfectly good
idea but it's a good one is,

as soon as you put that rule in
then you have to require people

to have insurance for
the insurance market

to function because,
otherwise everybody

that has two brain cells
functioning will wait

until they get sick and then
they'll go buy their insurance

because the insurance company
won't be able to charge more

for their preexisting condition.

So, it now falls into
the separate power

of the constitution which is
the necessary and proper clause

that says, the commerce may
enact laws that are necessary

and proper to carry out other
legally allowed activities

including regulating insurance.

So, if you think that the
congress can regulate insurance

market by saying you cant use
preexisting conditions anymore,

you kind of immediately,
automatically,

it's an easy legal path in to
get to the point that says,

okay we gotta require that
everyone have insurance.

Not through the extension
of the Commerce Clause,

they can make you buy
broccoli but rather

because the insurance
market will stop functioning

if you don't have that mandate.

So, that's a complicated legal
argument that's probably gonna

hit the Supreme Court this week

because there are now 6
circuit cords that have come

to different rulings

about whether this
individual mandate is legal.

And the Supreme Court just has
to take this all in my view.

So, back to the question

about what else is going
on under the PPACA.

They got a big incentive pushed

to get electronic
medical records

in the physician offices
basically a big bribes

to cover a lot of the cost.

There's a lot of hope.

I would say some of the possibly
grounded in fact but not a lot

that this will reduce
medical care cost.

There are certainly some things
within the hospital realm

where we know the electronic
medical records can help

at least in improving health
outcomes if not saving costs.

You avoid a lot of drug
prescription errors

and drug interaction errors.

There's an amazing amount
of deaths that has reported

at Institute of Medicine
a couple of years ago

on the amount of death in the
hospital due to pharmacy errors

where they just gave the wrong
dose and it killed the patient.

Hospitals are dangerous
places to be.

I mean look those
people die in hospitals.

They're really dangerous place
to be, a little logical fallacy

for you to tease out there.

So the question how much these
electronic medical records are

going to help remains open
but that's one of the pushes.

It also really made a
push towards a new type

of medical care organization
called the Accountable

Care Organization.

These ACOs are gonna be
paid not only in terms

of how much health care they
deliver but on the quality

of care that they're delivering,

measured on some
fairly esoteric ways

and increasingly
astringent through time.

So, they're not just simply
processed measures like,

how many of the kids are getting
their vaccinations of schedule,

but much more interesting
and sophisticated things.

They're not mandatory.

No provider has to join them, no
individual has to enroll in them

and we don't know how
well they'll work.

Probably the closest thing that
we see to them right now is the,

kind of the full fledged
HMO like Kaiser or one

of those things but
they're really somewhat

of a different [inaudible]
and there's hope there

but no evidence yet
about how much

of the growing health care cost
those are going to deal with.

They've expanded medicate
eligibility to bring more people

into the Medicaid net
for low income people.

So now every state will have
to have medicaid eligibility

at least 233 percent of
the federal poverty line.

That's gonna expand the number
of people that have Medicaid

as their source of coverage
which is partly designed

to offset the burden of those

who don't have insurance
coverage

through their employment place.

There's some emphasis
on prevention,

for example insurance plans,

a whole set of preventive
medical interventions

that you might envision
those approved

by the US preventive services
task force, get it shunted

around so there's no
co-payments or deductibles.

They are all free by
law in all these plans.

If prevention really
works to save money

that will help most
preventive activities don't.

And by the way those are
all medical interventions.

None of them deal with this
lifestyle thing, none of them.

They're all vaccinations

and screening tests
and things like that.

They're putting a tax on
so called Cadillac Plans.

That's probably a nasty
word to speak about a car

in adverse terms in this
region of the country

but what they mean is
very expensive health

insurance plans.

They're gonna have a tax on
the excess above the cut off.

All the people in Miami, they're
buying private health insurance,

they're gonna hit that 'cause
their health insurance premiums

are high not because they
bought a really generous plan

but because health care
costs are really high

because of the style of
medicine they practice in Miami.

Citizens of Miami are all gonna
be paying this Cadillac tax

pretty soon.

There are other ways
to go about that.

I would strongly prefer instead

of that a much more useful
elimination of the tax subsidy

to employer paid
health insurance

of which would just the
way everybody's health

insurance work.

And then take that money and
put it back into the tax system

by reducing marginal tax
rates by comparable amounts.

So, you can grow the income base
by 10 percent by putting all

of those employer
paid premiums in.

You can turn around and
reduce marginal tax rates by--

everything by 10 percent
of what they were.

You'll get at least just
as much tax revenue,

it's a mathematical certainty
'cause you increase the base

by 10 percent and you lower
the tax rates by 10 percent

and then you're guaranteed
to get an increase

in economic performance because
there's just no question at all

that lower marginal tax
rates stimulate the economy.

There's some argument
to how much

but I can just guarantee
you with a moral certainty

that if they did that it would
increase the economic activity

in this country, it would remove
a distortion that subsidizes

and gets us having too much
health insurance for those of us

that have through work
groups, and they would be

at least a budget neutral almost
certainly gained in tax revenue.

So, that's my, one of
my, if I were the Czar.

And I would also, the PPAC
also has beginning a link,

part A hospital payments to
quality of care outcomes.

In some ways, it's kind of the
Accountable Care Organizations.

Those are the key
features that a lot more

but that's really
where they're going.

Now, comes what I say are the
unresolved core issues staring

us in the face still.

To me the, the biggest
issue confronting us

in the future is we still
have this enormous disconnect

between how much medical
interventions worked

to improve our health?

On any scale you wanna
measure mortality, morbidity,

saving health care cost,
feeling good, anything.

>> There's a big
disconnect between how--

how much those procedures work
for us and how much we pay

to get them out of pocket which
is what's driving our decisions.

And we need to fix that and
hence with that, the attitude is

about how we use
healthcare in this country.

The conversation right now
with your doctor, I just--

I can just bet with high
degree of certainty,

you've gone into your doctor
and the doctor says, "Well,

you know, I think you might have
this, let's get this lab test

or let's get this in MRI
image and see what's going on"

and the patient thinks
about this more,

says, "What will this do?"

He says, "Well, it will give me
a little better information."

"How much will it cost?"

"Your insurance will
pay for it."

"Okay, let's do it."

And if the-- instead
that the doctor said,

"It cost a thousand dollars
to produce that MRI image,

you're gonna have to pay 250."

I think the patients will
begin to ask a little more,

do I really need this or can
you tell me what's going on?

Can we maybe try a drug
trial balloon and see

if that solves the problem?"

Every single medical decision
that we make in United States

or anybody with any kind
of health insurance has

that subterranean
discussion going on,

and it ultimately is why we're
spending a lot more money

than elsewhere.

And it differs in part also
with this cultural difference

across regions that I just have
no idea of why they happened

but I can show that they do.

Yes.

>> [Inaudible] there is a
real sacred cow about the end

of life care, and that's where
our patients don't have much

to say about it because, you
know, they're in intensive care.

And--

>> Right. And by the way, a
[inaudible] Medicare spending is

in this end of life care
over the last six months.

>> Right. And it doesn't
change the outcome.

And I will say that one

of my patients who's a union
administrative secretariat told

me when she was in a meeting
with the administrators

at the hospital and they said,
"You know, the best patient

that we can have is somebody
that comes, you know,

comes from up north and
gets life line again.

It goes into the
intensive care unit,

gets every test known
to man and then dies.

[ Laughter ]

>> That's right.

>> Because that's
what's reimburse.

And I just-- it's really,
I think it really needs

to be addressed how
much the reimbursement.

You know, if you
build it, they will.

If you build it, the test done
and cover it, they will do it.

>> Yeah. Look, a nontrivial part

of this is how we pay
our healthcare providers.

And right now, their stuck
on a treadmill, doctors

and hospitals alike and
dentists and pharmacists.

They're stuck on a treadmill
where volume is important.

And there are different ways
to pay healthcare providers

that get you off
of that treadmill.

The most extreme form of
those is per capita payment

for a year.

You get a bunch of doctors in
hospitals together and you say,

"You take care of the
set up patients per year

and here is all the money
you get to do that."

They're called HMOs
in the purest form.

That phrase-health maintenance
organization has blurred a lot

and its meeting to time.

But the pure form HMO over the
physicians that are on salary,

they're not volume driven.

It's well known even
in randomized trials

at the RAND Corporation where I
did the, you know, participated

in the very large RAND
health insurance experiment.

One of the arms in that
was absolutely free care,

everything paid for.

Another one was an HMO

where everything was
absolutely free to the patient.

The HMO patients cost
about 20 percent less

and no different
health outcomes.

The affordable care
organizations that they've--

are trying to spawn have many
of those similar incentives.

Now, it's not a perfect world.

The fee for service system,
every economist that has looked

at this says, the fee
for service system

where you get paid on volume has
all sorts of reasons to believe

that it's generating
excessive use of medical care.

The doctor gives you
advice that brings money

to the doctor's pocketbook and
particularly if it's covered

by insurance, that's an
easy decision to make.

And patients go to doctors
because they're willing

to accept their advice.

If you didn't willing to accept
what your doctor recommended

you, you probably aren't gonna
go there very often anyway.

So, doctor recommends when it's
to their financial advantage

to make a recommendation,
they do it more.

How much is it?

Interesting question but
they do it a little bit more

in some cases and a
lot more in others.

On the complete flip side of
that where the doctors are paid

on a flat annual salary,
two things happen.

One is they don't work as hard
and that's quite provable.

Doctor on a flat annual
salary in a large organization

where they can't monitor
their care is about twice--

half as productive as
seeing patients as a doctor

and a full fee for a
service arrangement.

And just in terms
of patient volume.

That's not the whole story
and maybe it's better quality

of care by spending more
time with the patients

but there is a change in that.

But the one I like most of all
is a randomized controlled trial

that occurred in a medical
school at Washington University

in Saint Louis in their
Pediatrics Department some

years ago.

I'm just a huge fan of
randomized controlled trial.

That's the way medicine
really tries to figure

out whether a new drug
or procedure works.

You can also do them
in social science.

The RAND health insurance
experiment that I alluded

to was a randomized trial.

There's also a randomized trial
about physician compensation.

It was really cute.

It took a bunch of pediatric
residence and put them

in to the well care clinic.

All these residents
are seeing patient.

They're all on the
similar training.

They randomize some
of them to receive

within the resident
normally do as annual salary,

and they randomize the
other half to get a fee

for service arrangement that
they predicted would bring them

about the same amount
of money for the year.

And then they randomize the
patients as to which one saw

which type of doctor and
they turn the system loose

and watched.

And when they finished,

the doctors

on the fee-for-service
system were generating

about one more patient visit in
the pediatrics clinic per year

than those on the salary

and almost [inaudible]
well care environment.

There was almost no
difference at all in--

in really acute illness
and injury stuff.

And the part I really
like is my--

my wife is a pediatrician
so I-- I know this reason.

The American Academy
of Pediatrics has a--

and also the CDC now,
they have a schedule

of recommended vaccinations
for kids.

Pediatricians know
the schedules as well

as they know their
middle name, okay?

This is not a great
mystery to them.

The doctors

on the fee-for-service system
overshot the American Academy

of Pediatrics recommendations
a little bit.

They actually-- in other
preventive, they did more

than it was recommended.

The doctors on the salary
system were a little lazy

and they undershot
not by huge amounts

but what happen was exactly
what the economic theory

predicts here.

And that is one of
these gives an incentive

to over recommend medicine
and the other give incentives

to under recommend because
it's still doctor's advantage

in both situations
to go that direction.

And by the way, these were all
recommendations to patients.

The patients didn't follow

through on all the doctor's
recommendations to come back

for another visit and they
were a little more suspicious

about the doctors on the
fee-for-service system.

That is they turn down
a few more other visits

and didn't bring
their kids back.

So these all just
absolutely fits.

The more powerful one on this
effect is studies in Florida,

physicians, orthopedic surgeons

who own imaging facilities use
imaging four times the rate--

four times the rate of those who
do not own imaging facilities.

That may account for
some of that Miami thing.

Maybe there's more
ownership of these things

in Miami then elsewhere
in Florida.

They use physical therapy
40 percent more often

when they have an ownership
stake in physical therapy.

There's just a whole bunch of
really strong evidence of this,

affects physician's
recommendations

and hence what medical
treatments emerge.

But the magnitude to that
affect just differs hugely

across setting and I-- I just
can't extrapolate any of this

that I know about more generally
than the situations they're in.

Yes sir.

>> [Inaudible ]

very good numbers in there.

What-- what effect does CYA
with respect to legal have

to do with the studies?

>> Yeah. So I guess the--

probably the most powerful
thing I can show you

on that is go back to
those Florida numbers.

You got twice as much
money is being spent

in Miami as elsewhere.

It's the same legal structure.

It can't be because they're
worried about malpractice more

in Florida than--

may be there're more
malpractice lawyers in Miami

or than elsewhere but it's
the same legal structure.

It's really hard
to pin and protect,

you know, defensive medicine.

It's really hard to pin this
behavior on defensive medicine

when you see such
discord outcomes

in the same legal environment.

And the only policy lever we
have to fiddle with that is

to change the legal structure
and there it's all the same.

We've also had a whole
bunch of things through time

where states have changed
their malpractice law

so that they put a cap on pain
and suffering and you can tease

out the kind of what the effects
of those changes in the law are.

Data have blurry
in small effects

on what the apparent amount
of defensive medicine is.

It's a very tough
topic to unravel.

The best economist

in the country has worked
this for a long time.

Ms. Patricia Danzon at
Wharton School, I have talked

about this extensively
to Patricia.

She has written a book about it.

I don't think she or any one
else has a really clear picture

of the extent of this.

It's only 8 percent of
physicians cost structures,

their malpractice
insurance premiums,

but that of course
doesn't tell you

about the defensive medicine
side where there's change

in their behavior and response.

It's a complicated problem

and I wish I could give
you a clearer answer sir

but I just can't.

>> I had a question
at the back also.

Yes? Okay, so let me
deal with the first one.

We actually have some
pretty strong evidence

on the magnitude of this.

When Medicare started
paying hospitals

on the lump sum per admission,
it took place I think in 1983

and then a phase in
over several years,

there was this big concern that
patients are gonna be discharged

and the language was
sicker and quicker,

which I think was the issue
to which you are alluding.

First of all, Medicare
by the way won't pay them

if they bounce back
in right away.

There is a time log there.

The patients gotta come back
in, is it 30 or 90 days now?

I can't remember what-- do you
remember what the number is?

I think it's 90 days delay.

If they come back
in within 90 days,

the hospital doesn't get
paid the second time.

[ Inaudible Remark ]

>> Right, now, but the--

the second point is that a
least measures the mortality

in readmission rates
didn't change

in any noticeable way except

for some various select
diagnosis were you're dealing

with small samples.

A very careful study is done
in this around the nation.

The readmission rates

and mortality rates
didn't change any

when Medicare instituted
this payment scheme

that gave the incentives
to discharge quicker.

Now, length of stay have
been dropping years before

in a dropped-- continues
to drop since then in ways

that are really quite
remarkable.

I think much of this is due
to technology, sometimes due

to putting more people on the
system to make sure that there's

out of hospital support.

We can all point to some
horror stories about somebody

that was discharged too early.

The systematic data just don't
show any meaningful effect

when Medicare moved to the
prospective payment system

in terms of certain at
least in terms of mortality

and readmission rates.

[ Inaudible Remark ]

>> Yeah. Well, if they
are discharging them,

the sooner we can get
them out the hospital.

They would have gone up if they
were making mistakes about that

to get them out of the hospital
and save treatment cost.

And they didn't.

Yes.

>> I became aware of
this when I was working

in Columbus on the state level.

We were trying to get a
home health care instituted

to more people and, you know,

the nursing home
lobby is so strong.

Can you comment on the amount
of Medicaid dollars that end

up putting patients
in nursing homes?

[ Inaudible Remark ]

>> I can't-- I can't
comment knowledgeably.

Let me--

>> I think it's extremely.

>> Let me put that down to one

of the many things I never
learn while I was provost.

>> No, I don't mean
the exact dollar.

>> Yeah. I just, I'm
not very knowledgeable

about that part of the world.

I probably stick
my foot in my mouth

if I try to comment on that.

Yes sir.

>> Alright, [inaudible]
there's this study

that there's no real
difference between performance

on fee-for-service
or flat salary.

There is no real
difference in other

of these factors we described.

The main difference
seems to be--

this other guy's question didn't
quite answer the amount of money

that goes into the
insurance system

and wouldn't the system
overall be much better off.

As a single payer, it did not
have is [inaudible] 35 percent

plus overhead for them
to shove the papers

around [inaudible] service.

It doesn't seem to be any
significant difference

in requirements between
the variety of the service.

>> Okay, so let me talk

about single payer a minute
'cause I know there's probably a

lot of single payer
fans on this room.

The big comparison is like with
the Canadian health care system

where much smaller fraction

of the total healthcare business
is spent on administrative cost.

And part of that, I think
probably an important part

of that-- first of all,
I have to [inaudible]

that administrative cost is
actually doing something for us.

And what is-- it's not
just processing claims.

What they're doing for us
is doing comparison shopping

to find lower price doctors.

And this is particularly true

of managed care organizations
preferred

provider organizations.

They go out, they collect a
bunch of doctors in hospitals

and they bargain like crazy
with them to get the price down,

that they pay and hence you
pay through your insurance plan

and then they tell the insurance
company, "Oh by the way,

I have 200,000 patients
in the Ann Arbor area.

You can-- I can move them to you

if you'll give me
this good price.

And so, a lot of what they're
doing is basically doing price

bargaining force that
we can't do on our own

and that's valuable service.

Now, if we have an
administered price

with a uniform single payer,

it's gotta be a federal
government to do that.

You're running then

into a question that's more
political preferences of people

in the United States
versus elsewhere

about how much freedom
of choice they want.

The US, this is really out
of my territory but the US is

in some sense, I think much more
dedicated to having free choice

than many other nations
particular European nations

and hence we're paying the
cost of that free choice

with this administrative cost.

It's not perfect either way.

The big concern I have
about single payer comes

in technology introduction.

Now I've talked about all these
new technology that had come

in the door over the
last half century.

Think about what happens if
there's one single gateway

to get that technology into
out health care system.

Let's just say its Medicare.

They make these choices
for Medicare patients.

We have, in addition to that

in the United States we
have hundreds and hundreds

of manage care organizations
and insurance plans.

They're trying to decide whether
they wanna cover some new

medical technology or some
new surgical technique or not,

and they can actually
do a lot of experiments

for about how much these
things are benefiting patients.

And so some of them don't
cover and some do things

that are called experimental
techniques

and we learn from those.

If you only have
a single gateway

into that system
you've lost those data.

You've lost that information,
and one of the things

that makes me particularly
nervous

about single payer
models is the fact

that there are not multiple
pathways to get evidence

in about whether
the things or not.

There's one decision maker

in a single payer system
it just has to be that way.

You can have the
single payer system.

And have 20 people deciding
whether the autologous bone

marrow transplants are
gonna be covered or not.

So that's nervous
time for me on that.

There're pluses and
minuses in both system.

That's one of the minuses
that stick in my mind.

Okay, I'm getting the signal

that says we're wrapping
up soon.

I'll try one yes sir?

>> You started on a theme about
prevention and you're wrapping

up so let me ask this
question right now.

There are some employers who
benefited or catalyzed employees

who don't take care
of themselves.

They don't smoke
if they do smoke.

If they don't exercise
or if they do exercise,

it shows up in pay check.

I like your comment about and
also how far do we go there?

Do we go termination,

taking care of yourself
or you're terminated.

>> Well, certainly first of
all, there's not nearly as much

of it going on in the
field of employee health

or employer paid health
insurance as there is

in other types of insurance
like, you know, life insurance

and stuff, were much less
experience rating in it.

Most of that is because the
employers are very heavily

limited by other federal laws,
employee laws, ERISA and HIPAA

about what kind of
information they can collect

about employees.

Now you can rate employees
and change their performance,

their salary or their hourly
on performance outcomes.

But it's very hard to do
that on behaviors themselves

because of various laws.

So I guess I would rather
see more of that going on so

that people with bearing the
full economic consequences

of their health rates.

I'm saying that people
shouldn't smoke.

I'm just saying I'd
rather not pay

for it being sharing the
same health insurance policy

with them and the
same with obesity,

and of course I would
probably be paying

above average in obesity.

My waste line is bugger than it
should be and I'll be the first

to admit and thank you for all
you thin people for helping

to subsidize my medicare
premium just

because I don't pay
anymore for Medicare either.

I think one of the things
that I'd like to see happen

in this country is to
see a tighter length both

but particular in health
insurance premiums both private

plans and in Medicare,
a tighter link

between behavioral
choice outcomes.

That is not whether you're
trying to quit smoking or not

but do you smoke or not?

Now that of course brings
me full circle to kind

of a philosophical and moral
problem, you're asking,

how can economists talk
about more problem?

Some of these things including
the propensity to be addicted

to nicotine and the propensity

to gain weight have
genetic underlying,

and hence if there's a genetic
predisposition here it makes me

nervous saying, I
wanna go all the way

to have full experience rating
on this things 'cause part

of these, there's a risk I cant
control if genetically linked.

And I just, I don't know
how important those are,

but it comes back to the
question about keeping employers

or keeping insurance companies

from using previously
existing conditions.

These genetic illnesses are
one of the big things on that

and that's actually one

of the reasons why I think
there's a pretty good case

for getting rid of the ability

to use the previously
existing conditions.

Because in fact what
that, what this does now

with this new law has opened
up the market for ensuring

against genetic time bombs
that I can't do otherwise.

So there's several reasons
why that's a good idea.

The other is job luck people
that are getting their insurance

to employers can't
change jobs easily

when they know they're gonna
lose their insurance coverage

for 6 months even under the
HIPAA laws, that's gonna go away

in 2014 under that
Affordable Care Act.

And there's a comparable
entrepreneurship act.

People are afraid
to go out and start

up small businesses 'cause
they'll lose their health

insurance coverage.

So I think there's a pretty
decent case to be made

for the economic sanity of
eliminating the privilege,

the existing conditions.

It's very popular in surveys
of the US populations.

But its also comes the
background of the question,

how much you wanna tax people on
their health insurance premium

for smoking when in fact
you know that's smoking is

at least some how related
to genetic predisposition?

And then one of the
grand ironies of life,

the very same gene that
makes you susceptible

in nicotine addiction
also increases the risk

that you'll get lung
cancer if you smoke.

So let me leave it
with that and say,

thank very much for
your attention.

[ Applause ]