Unlike Alexander the Great who reportedly solved the fourth century B.C., Rubik’s cube equivalent puzzle, of the Gordian Knot with one slice of his sword, first Clinton and now Obama have faltered badly in their attempts at offering an intelligent solution to the equally arcane, admittedly faltering, American Health Care system morass.

The failure to offer a cogent, uniquely American, solution is rooted, I believe, not only in the Administration’s fundamental misdiagnosis of the central causes of our medical malaise but their inability to methodically and practically redress these fatal flaws. Our Administration’s “big government” mindset bolstered by its elite cadre of Clinton-era academic advisors appears to allow only one management style, and that is “top down management.” This management approach is predicated on their belief in political solutions and ultimately appeals to the intellectual hubris of the party currently in favor. “>President Obama betrayed his true feelings when he mentioned, during his ABC White House meeting, that ‘fee for service doctors would rather remove the tonsils than treat conservatively.’ He was parroting his advisors, the academic technocrats, who view practicing physicians as exhibiting unbridled greed, performing unnecessary procedures as a consequence and not being very bright. Because of this attitude our government assumes a paternalistic, frequently patronizing role and feel the need to oversee physicians and treat us as trained seals by using the carrot and stick approach of pay for performance algorithms. These mandates require process compliance and not quality of results. One could possibly justify this top down approach if medicine was a science but currently it is more art and government control through treatment directives is, therefore, deeply flawed. As Harvard Business School Prof. Regina Herzlinger said, in her book Who Killed Health Care, “public policy is like a sausage, you don’t want to see how it is made and the end result is not good for your health.”

I believe that to solve the problems we first have to diagnose the causes of our health care predicament and to do that one has to look at our unique history. Our current health care system grew organically from its initial, largely agrarian, 18th century beginnings and as a consequence is a mosaic of small practices of generalists and specialists sprinkled with a relatively few large group practices. Similarly, hospitals arose almost haphazardly and although there are loose community health care coalitions you would be hard pressed to call these integrated health care systems. Health Insurance companies germinated in the 1920’s and grew explosively when the IRS exempted employer purchased health care insurance in 1943. The Federal government forever changed the health care terrain by introducing Medicare and Medicaid in 1965 and later introducing SCHIP (Medicaid State Children’s Insurance Program; 1997). All together, these programs already insure about 99 million Americans and account for over 50% of health care spending.

Within this hodgepodge of public and private interests there is fierce, American- style, competition. Unfortunately this competition is based on what Michael E. Porter has called a “zero sum game.” In other words, when one person or entity wins others have to loose. For example, Medicare covers only between 70-90% of its insured’s Hospital costs, Medicaid 40-50% and, as a consequence, private insurance is asked by Hospitals to make up the difference. To insure market share, and therefore, bargaining power hospitals reacted by developing monopolies. There were 900 Hospital mergers over 6 years by 2005 and this consolidation led to local market price increases to the patient in almost half. On the outside of these power plays, physician’s incomes are decreasing, as is their sense of control and job satisfaction.

As a consequence of these mismatched incentives, the central problem of American health care has become the disconnect between the value of health care outcome per dollar expended. The government recognizes this but their only solution is top down control using their version of “evidenced based medicine” and process compliance as the blunt cudgel of reform. Again, technocrats can only impose rationing on what exists, in effect ‘rearranging the deck chairs on the Titanic.’ For example, this ethos is similar to what the government health care policy experts exhibited when they introduced, the flawed, HMO model. They are incapable of true innovation. However, as Porter has written in his book Redefining Health Care “value in health care is created or destroyed at the medical condition level, not at the level of a hospital or physician practice….and lack of value based competition on results has allowed care of a patient to be fractured across numerous specialties, hospital departments, and physician practices, each of which focuses on its discrete interventions.” Partly as a consequence of this zero sum competitive behavior, health care costs have soared and, on many metrics, value has not. As Porter states “unrestricted competition based on results is the best and only real cure for the problems of medical errors, under treatment and overtreatment.”

It’s relatively easy to itemize the major institutionalized obstacles to effective reform within American health care, but it has become a political minefield to effectively surmount them. The difficulty lies with the special interests. These powerful lobbies include: 1) politicians and their vested interests 2) Insurance companies 3) Drug and Medical Technology companies 4) Hospitals and their AHA lobbyists 5) AARP 6) AMA 7) Employers 8)Physicians 9)Trial lawyers. It is as obvious to the electorate as it was to Mark Twain when he said: “you tell whar a man gits his corn pone, en I’ll tell you what his ‘pinions is.”

The incremental takeover of American medicine by the US Congress has had in my opinion, the largest deleterious impact on medicine. Perhaps this began in 1943 when they passed a law which exempted employer provided health care insurance from taxation. Then, in 1946, they mandated that all hospitals that received any federal money had to provide free indigent care (Hill-Burton Act). In 1965, LBJ inaugurated Medicare and Medicaid and promised that this would just protect seniors and the poor and ‘have no direct impact on physicians or the practice of fee for service medicine.’ We soon realized that once health care became an inexpensive entitlement of all those over 65 as well as all those with a certain net worth the budget grew exponentially. Over the ensuing years, as the Congress saw runaway health care inflation, they did what government always does. They changed the rules and then changed them over and over. The changes didn’t insure quality of care but were meant to limit care by reducing reimbursements to hospitals (DRG rules,1983 and Medicare HMO’s,1990’s) and physicians (Stark Laws,1989; Balance billing laws,1990;RBRVS reimbursement schemes,1992). Predictably, none of these measures have worked! They have, however, seriously wounded the morale of virtually all physicians.

Uncle Sam then began to practice medicine. They took over the care of all patients in this country with chronic renal failure, offering them Medicare coverage for life and even setting the criteria, probably erroneously, mandating when an expensive ‘orphan’ drug (Epogen) should be used to treat these patient’s chronic anemia. Again they proved their incompetence, by using our tax dollars without consent, and promulgating runaway costs from 5.1 billion dollars in 1991 for the treatment of chronic renal failure to 18.4 billion dollars in 2004 with no change in death rates. Each patient cost the federal government 66,650 dollars per year! Possibly because of millions of dollars in lobbying money and campaign contributions two companies control virtually all dialysis centers. Amgen, which makes the orphan drug Epogen used to treat chronic anemia of renal failure, has become wildly successful. The CEO of DaVita (dialysis chain owners) made 25 million and Amgen’s 20 million with additional stock options worth 50 million in 2005. The latest Federal mandate has been “pay for performance” which promises either to hold back less money or add a few per cent more for physicians who slavishly conform to the government treatment cookbook without any expressed intent to analyze the actual quality of the health care result.

Insurance companies are hardly blameless but they have damaged the system far less than the Feds. Basically, the for-profit insurance companies Wellpoint and United Health control 50 million lives. Between 2000 and 2005 health insurance premiums have increased 73% compared to cumulative increases in inflation and wages of only 15%. Insurance companies have had an average profit of 6.8%, not out of line compared to other for-profit industries. The biggest criticism has been their administrative costs of 25-32% in for profit companies (est. 5-10% in not for profit) which have, for instance, been partially used to pay the CEO of Wellpoint (2008) 9 million dollars and 6 other executives over 3.5 million each. There has also been criticism over “re-underwriting” which allows raising insurance rates of insured patients who have developed an expensive illness. Insurance companies have also been dodging the chronically ill and often turn them down for “pre-existing” health disorders. While not blameless, insurance companies have born the brunt of the cost shifting created by the underfunding of care by Medicare/Medicaid and the growing impact of the uninsured. In most states Blue Cross and Blue Shield pay 130% of the daily hospital costs for their patients while Medicare pays just 70-90% of their patients costs and Medicaid 45-70%. Predictably, all insurance companies have adopted the Medicare RBRVS physician reimbursement framework and, as a consequence, the physician reimbursement rates are approaching those of Medicare, often a 60% drop over the last 10 years. Since, across the US, only 12% of physicians practice in groups of 10 or more they have no ability to renegotiate the contracts that they are offered. At the same time insurance companies have dramatically increased the office paperwork and phone call time for physician’s offices. These two issues, dropping reimbursement and escalating overhead, have dramatically impacted the net income of most physicians.

The Pharmaceutical companies have, rightly so, taken their share of criticism. Their profits are in the 18% range and many of the largest spend 32% of their revenue on marketing, advertising and administration and only 14% on research. They have forced new drugs onto the market without studies comparing them to the efficacy of cheaper, generic drugs. The expensive drugs Vioxx and Celebrex were heavily marketed and brought in billions of dollars to Merck and Pfizer respectfully. Vioxx was subsequently removed from the market because of an association with heart disease and Celebrex remains. Most subsequent comparison studies have now shown that these drugs are no better or safer than ibuprofen, a cheap OTC generic. Additionally the drug companies are forced by other countries single payer systems to offer drugs at a premium overseas and in Canada. It is in the US market that they make most of their profits. Large medical device companies such as Medtronic and Synthes have also been charged with avarice and even criminal behavior. They have paid frequent physician users of their equipment, sometimes under the table and have used buying services to leverage higher reimbursements for their products from hospitals. Their aggressive salespersons wine and dine physicians and can make as much or more income from a single case than the surgeon.

Large Hospitals and their surrogate, the AHA, have to take partial responsibility for the health care crisis. Hospitals account for 31% of the cost of American health care while payments for physician and clinical services account for 21% and prescription drugs 10%. There are 5000 hospitals in the US and 85% are non-profit. These non-profits account for a tax break of 12.6 billion dollars annually, and yet data show only .6% more uncompensated care is given when compared to similar sized for-profit hospitals. It turns out that only about 670 hospitals are true “safety net” facilities and they take care of the majority of the uninsured. Non-profit is in some ways a misnomer because many of these so designated hospitals make huge profits, such as the Univ. of Pittsburgh Medical Center. They made 500 million dollars in 2006. Hospitals, on average are making 5.2% although clearly some are loosing money every year. According to Prof. Regina Herzlinger, in the first half of 2004, hospital costs grew 8.6% accounting for more than half of the total health care cost increase. She also points out that between 2003 and 2004 hospital prices grew 6 times more than the growth of their utilization and without notable improvements in quality. Americans spend 2.7 times more than Canadians per day of hospitalization and 5.6 times more than the Japanese, 4 times more than the Germans. Our hospital administrative overheads are 25-30% while Canadian hospitals are 4%. Our hospitals largest outlay, representing 57% of the costs, are for personnel wages and benefits, largely to their nurses. And yet, our hospitals are no safer. Studies suggest that medical errors in US hospitals kill 44-88,000 patients per year and errors of commission or omission in 2004 contributed to 284,000 deaths .

Hospitals have been incentivized to compete with one another in a virtual medical technology arms race often resulting in expensive redundant specialty care within the same community. They encourage lucrative services, such as cardiac and spine surgery which have provided historically better reimbursements and they downplay low reimbursed services such as those for geriatric and psychiatry care. Large Medicare databases show a huge trend towards more expensive care that is related to the number of hospital beds in the region as well as the density of specialists. Costs for care are 30% higher in these regions compared to those with fewer beds available and fewer specialists and outcomes are said to be worse in the more expensive regions. Through their lobbying efforts, the AHA has repeatedly blocked entrepreneurial physician groups who wanted to compete with them, most recently through the formation of specialty hospitals, and they have even been behind anticompetitive legislation. Hospitals generally cost shift to the uninsured such that those with assets who, are not uncommonly, pushed into bankruptcy and now account for about half of personal bankruptcies in the US. The largest growing group of the uninsured make 25-35 thousand per year and are the most vulnerable to this form of cost shifting. As mentioned above, hospitals went through merger mania several years ago so they could be virtual monopolies in their regions and now they are moving into “vertical integration.” This means they want to employ physicians so that they can exert total control over their marketplace. Enlightened vertical integration can work (e.g., Mayo Clinic, Cleveland Clinic) but it is generally hard to do well and has usually been shown to result in falling physician productivity and lack of innovation. Dr. Guy Clifton in his book Flatlined: Resuscitating American Medicine stated “hospitals will never give good care as long as they balance their books by cost shifting, avoiding the uninsured and aggressively promoting procedures of uncertain benefit.”

The AARP (American Association of Retired Persons) has 36 million members and a budget, in 2004, of almost 900 million dollars. They possess an email list of 2.5 million political activists and in 2005 they spent 25 million for print and TV adds to help defeat Pres. Bush’s proposal for “personal” social security accounts. In an editorial in 2005, Robert Samuelson of the Washington Post called AARP “the most dangerous lobby.” He pointed out the facts that, taken together, Social Security, Medicare and Medicaid constitute more than 40% of federal spending. He goes on to note the looming presence of the baby boomer’s retirement, which, it has been estimated, will grow these federal programs by 75%. There is simply no way to fund these programs with the worker’s taxes. Despite this reality, AARP opposes any fundamental changes in these programs and is prepared to use their considerable political clout to stop this from happening. While they have been standing on the sidelines of health care reform you can bet that any fundamental changes in the extant social programs will be vigorously resisted. As Samuelson has said “like autoworkers and steelworkers we will learn that we could ignore the future but not avoid it.”

The AMA (American Medical Association) comprises less than 20% of the actively practicing physicians and a relatively small proportion of specialists. They have an active political lobbying apparatus and, possibly because of their general practitioner bias and back room bargaining, have tentatively approved of the government’s direction on health care reform. As a group they don’t speak for the majority of physicians though they have been represented as such by the government. Our Administration knows that ‘what the American people don’t know won’t hurt them.’ The AANS/CNS (the two major neurosurgical societies) have come out publicly against the current plans for health care reform. The ACS (surgical society) gave a qualified approval. The ASA (Anesthesia Society) has come out against any Medicare based public option heath care plan.

Employers share some of the blame for our health care crisis. They have, with few exceptions, not used their collective power to identify creative solutions for improving health care quality and lowering costs. Small business employs half of US workers and yet the percentage of insurance covered employees have dropped from 68% in 2000 to 59% in 2007. Partially because of this there has been a 70% increase in people on Medicaid between l989 and 2003. The plans offered to their employees are few in number and very traditional. Large, frequently self-insured, employers have had the most opportunity to pursue creative solutions but generally have not done so. Instead they have saddled themselves with expensive health care contracts, ineffectively negotiated with their unions, retirees and providers of their care. GM represents the most glaring failure of a company caught in this self-defeating health care cost spiral.

Physicians and particularly those involved in Academic medicine and health care policy have largely steered the health care ship, of which they should be the captains, into the reef. A major problem is that our fee for service culture and 19th century training systems has encouraged an overpopulation of specialists. In the US we have 150 specialists per 100,000 people and in Canada only 93. Many studies now suggest that a higher ratio of family doctors improves outcomes and lowers mortality. It is estimated that one third of children’s hospital admission and 15% of adults admissions could have been avoided had these patients had access to primary care. Another study suggested that merely adding one primary care doctor for each l0,000 people would reduce infant mortality by 2.5%. It is also estimated that if a patient saw a primary care doctor before the specialist it would save 67 billion dollars or 5.6% of the health care costs. Conversely, studies using a large Medicare database, suggest more specialists in an area serve only to drive up costs and do not influence mortality. Despite all this mounting evidence American medical schools and the academic training programs seem blissfully unaware of the looming crisis and just continue to grow their programs and continue training residents in a way that is little different from 1910. The Health Policy Academics, many of whom are seldom practicing physicians, cruise the back halls in Washington and according to Prof. Regina Herzlinger “paved the way, through their intellectual discourse and public policy papers, for technocrats to oversee physicians and usurp their judgments and insert their treatment preferences.”

The US tort system and the trial attorney lobby adversely impact the practice of medicine and have driven up the cost of pharmaceuticals, medical devices, hospital care and all physician services. Doctors spend 6 billion a year on malpractice premiums, with many billions more for hospitals and nursing homes. Some estimates state that procedures to avoid lawsuits account for only 3-9% of spending and others suggest 20-80 billion dollars of costs are directly linked to avoiding medical malpractice. As it is, the system is deeply flawed. It has been estimated that only 3-5% of negligent injuries result in claims while 37-83% of claims do not involve errors. Fear of litigation is one of the major reasons doctors are increasingly dropping off emergency room call panels and moving from states with historically high malpractice premiums. Predictably, Democratic politicians have not mentioned tort reform once in HR 3200. Even “>Howard Dean M.D., the former DNC head, admitted that this omission was directly linked to the lobbying efforts of the trial lawyers.

So now we have established that there is plenty of blame to go around but how does that lead us to solutions for the runaway health care spending and the lack of commensurate quality? We can choose the easy way, building on the current system with more of the same, as the “Public Plan” offers. Unfortunately what is easiest will push us further along our dysfunctional and bankrupt path and, perhaps by political design, lead to a single payer system. Like all single payer systems “top down management” will be the style and, like every other such system in the world, it will lead to price controls, rationing and pay for compliance and not quality outcomes. Additionally, almost all of these single payer systems are also failing to control costs. Even the French health care system, once a model American single payer advocates praised, has recently added co-pays and is experiencing 9% inflation a year. A more difficult, and I feel the correct, approach would consist of slowly dismantling the current failed health care delivery system, learning from our and others system’s failures and rebuilding a 21st century, uniquely American system.

To start redesigning a workable system we should agree from the outset that most corrective scenarios would not work unless there is universal health care coverage for all citizens. For a start, this will immediately decrease the destructive cost shifting that is an integral part of the fabric of our current medical system. For the reasons mentioned above I would not favor a single payer system, especially government run because it would, as any monopoly, perpetuate cost shifting to providers and patients, stifle innovation and inevitably lead to rationing of services as it has everywhere in the World it has been tried. Instead, universal health care would be implemented by the private sector with the government facilitating the measurements of outcomes, helping to structure the rules of engagement and policing behavior and providing funding for the indigent population.

The foundation of the new health care system would be mandatory catastrophic health care insurance for all American citizens. These policies would cover all expensive care over an agreed upon amount (e.g. 30-50 thousand) and be supplemented with mandatory, tax exempt personally funded health savings accounts. These insurance policies would be portable and competition amongst companies, including across state lines, would be encouraged. Large risk pools would be created in each state to offer better rates for those patients with chronic illnesses and government would subsidize those with special financial health care burdens. These accounts would be subsidized, based on a person’s income, by the federal government. It has been shown in many studies that when a patient has to use their own money (i.e. “skin in the game”) they are more discriminating and will tend to become better informed and less likely to overuse medical care. Additionally, to discourage them from delaying important medical care, every patient would be assigned or choose a “medical home” which would be defined as a primary care physician and their health care extenders. The primary care physician would decide, based on the patient’s age and co-morbidities, how often maintenance medical checkups would be necessary. Clayton Christensen and co-authors in a recent book The Innovator’s Prescription remind us that people generally are much better at looking after their finances than their health. They recommend keeping health scores that also factor in the willingness of the patient to adhere to treatment recommendations and just like Safeway employees are financially rewarded for loosing weight and controlling their blood pressure, health care premiums would be commensurately lowered for a higher “health score.”

Employer tax exempt policies would be eliminated, resulting in increased wages and up to 10 billion dollars worth of new tax receipts to the federal government. Medicare and Medicaid, both on the verge of bankruptcy, would be slowly phased out. Such a drastic change in the funding of health care would have to be phased in over many years and, coincidentally, that is time that what we need to recreate a cost effective, high quality health care system. Additionally, I would recommend optional tax deductible donations be allowed on IRS returns to support indigent care.

This change in the source of funding will help correct the perverse incentives that have led to cost shifting and that, in turn, will drive down the cost of insurance and hospitalizations. However, unless we fundamentally change our health care delivery system we will continue to see spiraling costs and spotty quality of care. To change the system we have to start by completely restructuring the way we train doctors in this country. For hundreds of years, physician training has been compartmentalized. By that, I mean that specialists train in their own spheres with very little cross fertilization, particularly from nonspecialty physicians. Surgical residents are exposed to hospital care and not the continuum of the disease process across what Porter has called the “cycle of care.” They are taught interventions and often not enough about alternatives to their interventions, or measuring outcomes and controlling costs. Again, as Porter has recommended, we need to train residents in “integrated practice units to manage the care value delivery chain (CVDC)” of individual diseases over the full cycle of care. A CVDC is a treatment algorithm based on best practices and evidenced based medicine. It starts with office management of a particular medical problem and includes all other care needed, including hospital specialty care, until the problem is stabilized up to and including the rehabilitation process. Goals are set and outcomes measured relentlessly and, unlike the government’s “pay for performance” the algorithms are constantly evolving to deliver better quality care, more efficiently and controlling costs at the same time. Many commonly encountered problems, such as congestive heart failure, low back pain and headaches would be best managed under a global fee arrangement thereby helping to control the incentives to over treat that we find under the current fee for service model. None of these changes will work unless we demand complete transparency of costs, charges and outcomes among doctors, hospitals and insurance companies, including government run programs. Transparency will not be possible unless we have major tort reform. Such reform must include, minimally, no fault insurance, tribunals populated by judges, physicians, nurses, lawyers and educated laypeople replacing juries and financial disincentives to attorneys who instigate frivolous lawsuits. Cost shifting will continue unless there is immigration reform. In some southwestern states (e.g., New Mexico, Arizona, California) illegal aliens make up 15% of the uninsured. I would recommend federal and private supplements to health care providers to cover only their emergency care, followed by repatriation of the individual to their country of origin.

Finally, the American public has to recognize their enabling role in driving health care costs into the stratosphere. Using their own money, in health savings accounts, would discourage excessive use of medical care for elective problems, and redundant consultations from different doctors of the same specialty should be discretionary and not insurance covered. Lengthy hospital stays for subjective and unsubstantiated reasons would be discouraged by personal financial responsibility. Failure to follow-up with their assigned Medical Home, failure to control medical risk factors such as obesity, smoking, and illicit drug use would also have personal financial consequences. A third of Medicare money is expended on medical care in the last year of life. This is often due to the irrational exuberance of specialty care and is partially linked to the false expectations of patients and their families. Integrated teams of doctors should replace the current model of the solitary practitioner and they would deliver only critical care that will make a difference and patients and their families will have to be better informed. General Hospitals should continue doing what they do well and should not be allowed to block the efforts to develop competing health care models in the form of outpatient treatment centers, urgent care centers and specialty hospitals. Competition on health care value and costs by harnessing the entrepreneurial creativity of health care providers is one of the best answers for our current predicament.