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MR. MCLAUGHLIN: U.S. health care in crisis: That is the dark reality we address in this McLaughlin Group special.

Issue One: Going Broke.

Premiums are escalating 12 to 20 percent a year, with no end in sight. Between 1994 and 2004, a 10-year period, Americans' health spending rose 100 percent. It doubled in one decade. In 2004, two years ago, the amount Americans spent on health care was almost $2 trillion. That's four times more than what the United States spends on national defense.

Today, unpaid medical bills are the leading cause of personal bankruptcy. If you're retiring today and you're married, to pay the cost of your basic medical coverage you'll need more than $200,000 in savings.

The impact of those cost increases on both employers and employees will be staggering. Workers will see a direct cut in their take-home pay. Millions will lose health insurance coverage completely.

Question: What's the main reason medical costs have increased so far above the inflation rate, Secretary of Health & Human Services Michael Leavitt?

SEC. LEAVITT: John, many reasons. I'll name two. Too many of us are getting sick. We're not taking good care of ourselves. We have an epidemic of chronic disease. Seventy-five percent of all of the costs are from chronic disease that could be prevented or managed.

The second reason: When we do get sick, too few of us know what we pay for health care. None of us know the quality of the health care we receive. And frankly, none of us have a reason to care. And the bottom line is that we're not very good consumers.

MR. MCLAUGHLIN: By chronic disease, you mean high blood pressure, diabetes?

SEC. LEAVITT: Diabetes, heart disease.

MR. MCLAUGHLIN: Seventy-five percent.

SEC. LEAVITT: Seventy-five percent of all expenditures are from chronic diseases.

MR. MCLAUGHLIN: Hank McKinnell, do you have thoughts on this subject? Why are we spending more money than the rate of inflation?

MR. MCKINNELL: Well, we have a crisis. People think it's in health care. I actually think it's in sick care. And there are a number of reasons. I'll add one more. I think it's the incentives and the payment system. When you pay for procedures, nobody should be surprised that we get a lot of procedures.

I don't think we'll get out of this problem until we start to pay for health and wellness and prevention. That's really the answer in getting at these chronic conditions that the secretary mentioned.

MR. MCLAUGHLIN: You mean, to defeat their chronic nature by treating them early and preventing them from going to full-blown disease status.

MR. MCKINNELL: Well, there's a step before that, which is usually diet and exercise. We do have a pandemic of diabetes in this country. Most of it is related to what we eat and how we exercise or don't exercise. So health and wellness is certainly the beginning, but then there does need to be early detection, early prevention, early treatment.

MR. MCLAUGHLIN: Okay, are we getting our money's worth? Health care costs per capita in the U.S. are at least 32 percent higher than any of the other 30 nations of the Organization for Economic Cooperation and Development, OECD. Despite this, the U.S. ranks 22nd in life expectancy.

Your thoughts on that, Jay Crosson?

MR. CROSSON: We don't have a system. We don't have -- if we were a business, if the United States was a business, we don't have a business plan. We don't have, first of all, all our citizens covered. Massachusetts is trying to do that. They're on the right track.

We don't have data. We don't have information. Secretary Leavitt is leading the charge to have information so that we know who needs health care and how to deliver it. And we don't have the right incentives for people. We don't have insurance that provides coverage for people for the very care that they need and, in fact, provides incentives for them to not seek care they don't need.

MR. MCLAUGHLIN: What about the fragmentation of the system that we have? We've got hospitals. We've got doctors. We've got nurses. We've got patients. Everyone has his or her own constituency, correct?

MS. DENTZER: No question about it, John. And on top of that, because of that, the most systemic study that was ever done on health quality in the United States was done by Rand Corporation, published in 2003. It showed that we get correct care -- and this is not state- of-the-art care; this is just care that everybody agrees is effective -- we get that at best 55 percent of the time.

So we're spending 50 percent more per capita than the next biggest spender, Switzerland. And it's almost a coin toss, if you go into a hospital, whether you're going to get effective care or not. And that is in large part because of the fragmentation of the system, plus the lack of information systems and everything that everyone has just discussed.

MR. MCLAUGHLIN: What's the biggest component of the increase in medical care costs? Is it physicians' fees?

MR. CROSSON: Not physician fees.

MR. MCLAUGHLIN: You're a physician, correct?

MR. CROSSON: Not physician fees. I'll toss the ball to Hank and say it's technology -- new drugs, new tests, new ways of treating people. And that's a good thing if it's directed at the right people at the right time. MR. MCLAUGHLIN: But the lowest component in the medical cost increase is pharmaceuticals. Is that true?

MR. MCKINNELL: Well, most people would say pharmaceuticals are 40 to 60 percent of health-care costs, because that's how it looks to them through the payment system. In fact, pharmaceuticals have been 10 percent of total health-care costs all the way back to when Dwight Eisenhower was in the White House.

So the problem, I don't think, is pharmaceuticals. I do think part of the solution may be pharmaceuticals in that this is a way to prevent or delay the onset of some of the complications of chronic disease. So the early detection, early treatment, in addition to the prevention and wellness part, is a very critical part.

MR. MCLAUGHLIN: Do you take --

SEC. LEAVITT: John, I will show you the most expensive medical device in the system. It's a pen in the hand of a physician. There's dramatic differences in the cost of health care when a pen is in the physician's hand, one physician and another. There are dramatic differences between physicians in the way they treat. Some use best practices and they do it very efficiently. Others practice in a way that's quite expensive. And we can now begin to identify who the efficient, high-quality physicians are and who they aren't.

MR. MCLAUGHLIN: You mean, you're going to analyze outcomes?

SEC. LEAVITT: That is exactly what we need to do.

MR. MCLAUGHLIN: Well, that backs into the point that Jay has made, that we don't have a system for collecting that data. Is that correct?

MR. CROSSON: We don't have a system for collecting the data, and we don't have systems. As Susan said, we don't have systems of care really that are capable of collecting that data. And the secretary knows those are the systems so far who've been making the investments that he has been encouraging us to make to create that data.

MR. MCKINNELL: The nexus of IT and medicine just has to come.

MR. MCLAUGHLIN: Information technology.

MR. MCKINNELL: It just has to come, because that's the way you improve information, you improve quality, you avoid medical errors. But it has another benefit which is underestimated. Most businesses operate with administration costs of about 4 to 6 percent. This system operates with we don't know what percent of administrative costs because we don't have the data. The best guess is about 30 percent.

So some of these enormous differences between care in this country and care in different systems is really due to the absence of information technology in the health-care system.

MR. MCLAUGHLIN: We're going to get into that a little bit more in a moment.

Exit question: For the past 75 years in the U.S., we hear each year that health care is in crisis. This year is no different than previous years. We're hearing it again. It's just more scare rhetoric.

Are those statements true or false? What makes this year different from previous years with regard to declarations of crisis in our health system?

MS. DENTZER: Well, what we're seeing is we have this inability to contain what we're willing to spend on health care. And that's --

MR. MCLAUGHLIN: But we've been saying that since 1933. Is that correct?

MS. DENTZER: But in many respects, that's a positive. So we shouldn't suggest that a crisis is all doom and gloom.

MR. MCLAUGHLIN: Is something --

MS. DENTZER: The important thing is, though, that our overlying financial structure of how we pay for this in this country is falling apart. Employers are dropping coverage, particularly small businesses. More and more are uninsured. That is what is in crisis.

MR. MCLAUGHLIN: But we've been saying that exact same thing over the years, Susan. I want to ask you this question. What is different about 2006? What's different? What's different from preceding years?

SEC. LEAVITT: We're one step closer to the tipping point. We are now spending 16 percent of our gross domestic product. Everything that happens in America, 16 percent of it goes to health-care costs. Many of our --

MR. MCLAUGHLIN: So that's filtering down to the grassroots level.

SEC. LEAVITT: Absolutely. And many of our economic competitors are spending half that.

MR. MCLAUGHLIN: Do you see that as the differential for this year to validate the claim that we are in true health-care crisis? MR. MCKINNELL: I think we have a crisis. It's not in health care. It's in the cost of disease. And the changes in diet and exercise in the United States have driven an epidemic of diabetes, heart disease and cancer. And if we don't get to the root causes, plus fix the system, we are going to have a crisis.

MR. MCLAUGHLIN: What's different about this year?

MR. CROSSON: In 1933 there was a commission on the cost of medical care that said when we hit 4 percent of the gross domestic product, we're in trouble. The crisis dates back. But this time it's different, and one of the reasons it's different this time is that American business, the engine of our economic life, is being hurt, and hurt badly.


MR. CROSSON: GM spends more money on health care than they spend on steel to put in cars. Starbucks spends more money on health care than they spend on coffee.

MR. MCLAUGHLIN: So all of that is very sobering on the business sector, and that is really -- is that the essential difference, do you think?

MR. CROSSON: That appears to be the difference. And I think that's why there's more focus.

MS. DENTZER: Well, the other thing is, as all of these expenses were growing over the years, so was health-care coverage. The opposite is happening now. Health-care coverage is shrinking. More people are uninsured. More people are going on Medicaid. And again, the underlying financial ability of firms, even of individuals, to support these massive premiums --

MR. MCLAUGHLIN: And that's a huge --

MS. DENTZER: -- is falling apart.

MR. MCLAUGHLIN: That's a huge public-policy worry for you, sir, is it not?

SEC. LEAVITT: There is no place --

MR. MCLAUGHLIN: Forty-five million uninsured.

SEC. LEAVITT: There is no place on the economic leader board for a nation that spends 25 percent of its gross domestic product and none of its workers will have health insurance.

MR. MCLAUGHLIN: When we come back, for over two decades personal computers have been in American homes. So why are medical records still on paper and buried in filing cabinets? (Announcements.)

MR. MCLAUGHLIN: Issue Two: Patient Empowerment.

PRESIDENT GEORGE W. BUSH: (From videotape.) Health savings accounts are good for the uninsured. They're good for small businesses. They're good for larger corporations.

MR. MCLAUGHLIN: HSA, a health savings account, is one of the newest experiments for bringing down medical costs and one of President Bush's dominant health emphases.

The program started two years ago. Three million Americans have signed up. This HSA plan puts the individual in charge of health spending, not the insurance company, so the consumer becomes the buyer, and the buyer will pay attention to the price of medical services. Patients will shop. Patients will negotiate. Patients will put the economy of the market to work. Health care will suddenly become transparent.

Question: How essential is the market dynamic for health cost containment and quality? Jay Crosson.

MR. CROSSON: Savings accounts are a great deal. They're a wonderful deal for people, and they make a lot of sense. We just need to make sure that the deductible part of these plans does not interfere with patients' access to those very services we need to prevent the complications of heart disease, hypertension and the like.

MR. MCLAUGHLIN: I want to get to the point, though, that this is the market dynamic because it involves negotiation, it involves competitive bidding, and that, theoretically -- and I'm wondering whether you think practically -- will, in fact, keep costs down. What do you think?

MS. DENTZER: It'll help at the margin. Most of these plans essentially are high-deductible health insurance plans. But broad coverage is going to kick in for people at $5,000 or $10,000. So if you have a serious chronic illness, you're going to shoot through that in no time.

So it's not going to influence -- if we think about the fact that 80 percent of health spending is related to 20 percent of individuals who are high-cost, very sick individuals, as Hank says, it's not going to affect those people. It'll help, but it reminds me of a bumper sticker I saw recently that said, "You should buckle your car seat belt because it will keep aliens from snatching you out of the car." I mean, it's a good idea to buckle your seat belt, but it's not going to create these enormous effects that some people claim.

MR. MCLAUGHLIN: I don't know about that. Do you share that view? Isn't there a new transparency that's coming into being, as was stated so brilliantly in that introduction, meaning that if someone goes in for a hip operation, they don't know how much the doctor charges, the surgeon charges, or the anesthetist or the attending nurse? They don't know what the hospital charges. They don't want to know, because it's paid for by insurance. "Don't clutter my life. There's plenty of detail in my life." Right?

Now, however, things may be changing because of the opportunity to shop around for the doctor you wanted. It's analogous to, as you point out, I think, in your book about a cosmetic surgeon. There's no insurance to cover that, so you shop around, say, with doctor A, doctor B, doctor C. It's true that in extremis, or in a serious situation, you've got to jump at once.

But what is the bottom-line answer to my question about whether or not the market dynamic will reduce costs or contain them?

MR. MCKINNELL: Well, an informed consumer, in a free market with choices, improves quality and reduces costs. We have many, many examples of this; two, actually, in the medical field. One is cosmetic surgery. The other is Lasik surgery, where, in the last four years, the quality has improved and the cost to the consumer has fallen by half. It does require transparency in pricing and quality, and that's an enormous hurdle that we're going to have to --

MR. MCLAUGHLIN: If you carry your thinking to its logical conclusion, you're going to recommend the elimination of employer- sponsored or underwritten health insurance for employees. Is that correct?

MR. MCKINNELL: I do think that would be a good idea, for the simple reason that employers aren't particularly good at providing health benefits to their employees. We don't provide life insurance or automobile insurance. Why would we provide health insurance? Let's put that in the hands of the consumers spending their own dollars.

MR. MCLAUGHLIN: But isn't the deeper reason that if the employer pays, the employee doesn't even take it into consideration? When someone is applying for a job, they don't calculate the role of the benefits. They don't care, and they don't care about what hospital costs are, because they're taken care of. But if they're confronted with "Here is the differential with your salary and what your health benefits would yield, and we'll give you more of your salary to compensate for the health benefits that we're not going to provide you with," then they probably would treat it more like if you were seeking cosmetic surgery. Correct?

SEC. LEAVITT: Correct. There are three virtues to health savings accounts, from my standpoint. One is it makes better consumers. People learn what they pay. They learn whether it's good or not, and they have a reason to care. Second, it's less expensive for people to buy a catastrophic policy than it is a basic policy, and more people will get insurance. About 40 percent of that 3 million people had no insurance before they bought it.

And the third reason is that it allows them to pay for their care without having to pay tax on those dollars. And it's unfair, it's fundamentally unfair, that some people have to pay for health care in dollars they paid tax on and others not.

MR. MCLAUGHLIN: Okay, the 45 million crisis.

Health savings accounts -- an interesting idea, but it has been pointed out that they are just an ad hoc band-aid, not a true fix for a broken system; namely, 45 million Americans with no health insurance.

Addressing this on the state level, Massachusetts has a solution: Make health insurance mandatory. So now, under state law, all residents of Massachusetts are required to buy their own insurance. Those who don't have insurance will pay state tax penalties.

MASSACHUSETTS GOVERNOR MITT ROMNEY (R): (From videotape.) Well, when people drive a car, we insist that they have automobile insurance because we don't want to have a huge accident occur and have the other driver or other taxpayers have to pick up the bill. Well, individuals also have a responsibility.

MR. MCLAUGHLIN: Exit question: Will the federal government follow Massachusetts' lead and make health insurance mandatory for everybody, including 45 million Americans who don't have it today? Jay Crosson.

MR. CROSSON: They might. Massachusetts is a good experiment. We need to learn from it. It's a reasonable thing to require individuals to have health insurance, provided that it's available and can be afforded. And Massachusetts has to figure out those two pieces. If they're successful, it may be a model for the country.

MR. MCLAUGHLIN: You're on the Medicare supervisory commission. Is that right?

MR. CROSSON: Medicare Payment Advisory Commission, yes, sir.

MR. MCLAUGHLIN: Well, as a matter of public policy, would you recommend to the president that he make mandatory health insurance for 45 million Americans who don't have it, on the basis --

MR. CROSSON: Yes. Not now.

MR. MCLAUGHLIN: You would -- MR. CROSSON: Not now. I think it's a reasonable plan, but we need to see how it works in Massachusetts. They have some big problems they have to overcome first.

MS. DENTZER: And keep in mind, the other piece of the Massachusetts plan is the requirement that employers either offer a meaningful amount of coverage or pay a head tax per employee.

MR. MCLAUGHLIN: Two ninety-five.

MS. DENTZER: Two ninety-five.

And then, on top of that, if they don't even do that, if they don't cover their workers and they go into a hospital and have high-cost care, the employer has to pick up that tab.

MR. MCLAUGHLIN: Do you want the federal government to make it mandatory?

MR. CROSSON: (Inaudible) -- veto, and it may be overridden.

MS. DENTZER: But it will be overridden.

MR. MCKINNELL: Well, there's two important characteristics of the Massachusetts plan. One is it was a bipartisan effort. I can't see that happening in Washington today, unfortunately.

Secondly, it is a way to solve what we call the problem of the uninsured. But the uninsured don't have a problem. They get access to health care. It's a problem for all of us who pay taxes and all of us who pay medical bills.

The real answer here is to provide an insurance mechanism, which they've done, but it also needs to be able to purchase a high-quality plan. That high-quality plan has not been defined yet.

MR. MCLAUGHLIN: The president likes bold moves. Will you recommend to him, Mr. Secretary, that he mandate health insurance for 45 million Americans and the other Americans who don't have it?

SEC. LEAVITT: John, I signed the waiver that allowed Massachusetts to move forward on this. And I believe it is a remarkably important experiment. I don't know if it's a liberal idea or a conservative idea.

MR. MCLAUGHLIN: It's a Romney idea. He's Republican.

SEC. LEAVITT: And it's a powerful idea, and it needs to be tried. And if it works, other states will follow. And who knows? Maybe the United States will.

MR. MCLAUGHLIN: You think he can ride that into the presidency?

SEC. LEAVITT: We'll see. MR. MCLAUGHLIN: Issue Three: Industrial Revolution III.

Here's what George Halvorson, CEO of Kaiser Permanente, says, slightly redacted. "Health care is in need of an industrial revolution. To reform health-care delivery, to improve its quality, to stabilize its costs, we must have access to data, reliable data, shared data. The only viable source of data is the computer. Patients' medical records need to be computerized. A well-connected, fully interoperable computerized system should be a major government goal, with appropriate funding to support it. For scale, we should think in terms of the Hill-Burton Act that gave us a national infrastructure of hospitals.

"The equivalent of that federal transformation, and others like it, must be undertaken now towards our health-care system. Medicare must step up to the plate to provide the funding that, over the course of the next half-decade, will completely wire U.S. health care. Health-care electronic connectivity is essential. Paper kills."

Question: Is George Halvorson right -- paper kills? Susan Dentzer.

MS. DENTZER: Well, a Rand study said that we would save $162 billion a year if we had national electronic medical records --


MS. DENTZER: -- just in terms of avoiding errors, avoiding 2.2 million adverse drug events a year, because you could see -- a physician could see he or she was about to prescribe a drug that was contraindicated to give.


MS. DENTZER: One hundred and sixty-two billion. That pays for health insurance coverage for the rest of -- for the uninsured.

MR. MCLAUGHLIN: Yeah, correct me if I'm wrong, but that also translates into 120,000 deaths by mistake a year. Is that true, Mr. Secretary?

SEC. LEAVITT: It's a high number. And electronic medical records will mean we'll have lower costs; we'll have fewer medical mistakes; we'll end up with better quality and less hassle.

MR. MCLAUGHLIN: You favor computerized connectivity, do you not?

MR. MCKINNELL: Well, you won't get any disagreement on this panel of the need for electronic medical records. But let me caution you that it will take a lot longer than we think. I have three questions, all of which have the same answer. Why is it we can't ask our doctor a question on the phone? Why can't we e-mail our doctor a question? And why don't we have electronic medical records?

MR. MCLAUGHLIN: Well, who says you can't ask your doctor a question on the phone? I did it the other day.

MR. MCKINNELL: It's very hard. The answer to all three questions is we don't pay doctors to do that. That's the hardest part.

MR. MCLAUGHLIN: I thought I was being billed. I told them to bill me for my conversation with him.

Do you have a comment on this?

MR. CROSSON: Did you negotiate with them about the fee? (Laughter.)

MR. MCLAUGHLIN: Well, I have had candid discussions of the whole deal.

MR. CROSSON: (Laughs.) We are doing exactly what Hank said in Kaiser Permanente. We're making a large investment over 10 years. We're about halfway through the implementation of this. We see this as exactly the right thing to do. This is where we get --

MR. MCLAUGHLIN: You're true believers.

MR. CROSSON: Absolutely true believers.

MR. MCLAUGHLIN: And you regard this as one of the three central underpinnings of the reform of our health-care system in the country.

MR. CROSSON: This is one of the building blocks the nation needs in its 10-year business plan to get --

MR. MCLAUGHLIN: Yeah, but it's more than one. It is a central pillar.

MR. CROSSON: It's one of the central pillars.

MR. MCLAUGHLIN: If you don't have the data, you cannot evolve public policy.

MR. CROSSON: It's really big.

MS. DENTZER: Well, and that well-known liberal, Newt Gingrich, thinks it's so important that the government just ought to wade into this and invest in the entire thing, just the way we built the interstate highway system. MR. MCLAUGHLIN: You have Mr. Brailer working for you over in your office on this, do you not? IT.

SEC. LEAVITT: This is the central piece of virtually everything we do in health care.

MR. MCLAUGHLIN: We'll be right back with predictions.


MR. MCLAUGHLIN: Predictions. Mr. Secretary.

SEC. LEAVITT: In five years, that irritating medical clipboard they always hand you when you walk into the clinic will be a thing of the past.

MR. MCLAUGHLIN: Hank McKinnell.

MR. MCKINNELL: My prediction: During our lifetime, the pharmaceutical industry will eliminate the risk of cancer and heart disease for our children and grandchildren.

MR. MCLAUGHLIN: Terrific. Jay Crosson.

MR. CROSSON: This time the health-care crisis is real. The country will solve it. We always get to the right answer.


MS. DENTZER: Medical research will lead us to universal coverage, because people won't stand for giving up the benefits that it will show us in the next 15 years.

MR. MCLAUGHLIN: The Massachusetts experiment will work and it will spread.

Thanks so much for being my guests. Bye bye.

(Begin PBS segment.)

MR. MCLAUGHLIN: Issue Four: An Ounce of Prevention.

PRESIDENT BUSH: (From videotape.) Medicare would pay thousands and thousands and thousands of dollars for ulcer surgery, but not a dime for the prescription drugs to help prevent the ulcer from occurring in the first place.

MR. MCLAUGHLIN: What the president is saying is that, ironically, many private insurance companies and government health care itself, like Medicaid, does not cover preventive care. Before your insurance will pay for your care, your symptoms must grow into a full-blown disease. This lack of preventive focus adds needless billions to our health-care bill, Mr. Bush points out. And 75 percent of our national health-care bill is due to chronic diseases, high blood pressure, heart disease and diabetes, all of which are preventable. This means symptoms do not progress and treatments do not cost those billions of dollars now being outlaid.

Do you think -- Hank McKinnell, we discussed this a few minutes ago -- do you think that preventive health services covered by insurance plans should be expanded by government mandate, if necessary?

MR. MCKINNELL: Well, I'm not a big fan of government mandates, but the president is right. Ninety percent of hospital costs are paid for by insurance plans. Only 60 percent of modern medicine is paid for by insurance plans. It's a lot better to prevent those heart attacks and strokes that cause the hospital admissions. We do need to invest more in prevention.

MR. MCLAUGHLIN: Are you going to carry back this message, Mr. Secretary?

SEC. LEAVITT: Health care has to become about not just treatment after we're sick but preventing illness. That is not about a system change; it's about a change inside of all of us. And until we do it, our system will not right itself.

MR. MCLAUGHLIN: You share that view, do you not, Jay?

MR. CROSSON: Absolutely. We have to make sure, as we design our insurance system, that we don't put barriers in the way of simple care, like treating high blood pressure.


MS. DENTZER: The American Cancer Society says half of all cancer deaths could be prevented if people just stopped smoking, had balanced diets, lost weight, and put on sunscreen. These are very simple measures. And I agree that individuals have to do them, but society as a whole has to attack this. We've got to make sure that everything is in place to support good choices for people when it comes to their health.

MR. MCLAUGHLIN: We're out of time. Thank you very much.