Current status of medicine in the USA

Introduction

How the health system evolved

Post world war II: The beginning of healthcare benefits

Rapidly increasing costs

Markedly increased production of physicians

The uninsured

Globalization of US industry

‘Hillary care’

As American society views the decline of what was once a very good (albeit expensive) healthcare system, it is beginning to ask the question as to how things have transpired the way they did; to basically ruin a system that, at least up until recently, served the needs of most of its patients very well. The answer is complex and involves such matters as self-appointed medical theorists (largely economists), the globalization of industry, failure of medical leadership, and well-intentioned but clearly misguided governmental attempts to deal with a system that needed adjustment, but was not in need of major changes.

There is little question that the United States, unfortunately, let itself become enthralled by a group of self-appointed seers of healthcare, largely economists and theorists -individuals who have not participated extensively or at all in patient care. Examples of this practice include the vaunted Jackson Hole group and their hypothesis concerning whether the public needs a generalist or a specialist. This is a particularly good time to write this article, since it now appears that the public, employers, physicians, and even some thoughtful governmental officials, have come to the conclusion that something is seriously wrong and a new system must replace what has been called ‘Phase I managed care,’ which is now perceived to have failed.

It is important that we ask ourselves as to how we got to where we are today. In the United States, most of the healthcare is insurance-based, which in turn is paid for by the employers. These are defined benefits, that is, employers pay for most if not all of the healthcare provided. There may be a slight co-payment for each patient visit, there may be some payment for prescriptions, and there may be a deduction for each year’s healthcare but, by and large, the overwhelming bulk of healthcare costs for individuals who work are paid for by employers. This is a comparatively recent innovation in United States healthcare. Before World War II, individuals and the public were responsible for personal payment of their healthcare. Although sometimes this proved to be beyond the capacity of individuals or families, by and large, at least in the rural setting, patients were cared for by physicians and by hospitals free of charge, as part of the ethos and professionalism of medicine. My father-in-law, an early Mayo-trained surgeon in Sioux City, Iowa, a Governor of the American College of Surgeons, recently passed away. Among his effects I found his account books dating back to the 1930s, documenting how he did not get paid by many of his patients, and how ‘in kind’ contributions of chickens, potatoes, knickknacks, etc., sometimes served as ‘payment’ for the care he delivered uncomplainingly for the better part of his 91 years.

After World War II, approximately 28 million men returned home from the global conflict. Many of them, in particular those that had sent their money home faithfully, had both a desire to acquire material objects and the money to pay for these acquisitions. President Truman, fearing runaway inflation due to excess money creating a shortage of goods, imposed wage and price controls. There was tremendous competition for workers, particularly in the automobile industry. Everyone wanted a car and larger, more luxurious refrigerators. Since salaries could not be raised, the automobile industry offered additional benefits, the most desirable of which was totally paid healthcare. This ‘first dollar in,’ with no co-pay and no payment for prescriptions, remains the basic tenet of the United Auto Workers (UAW) union. Any perceived tampering with this particular benefit for auto workers and other workers in heavy industry is regularly countermanded by the threat of strikes. Even those companies whose factories are largely in the South and who have no unions, feel constrained to adopt the same healthcare benefits with no co-payment. This is unfortunate, since it has been amply demonstrated that co-payments, especially if substantial, reduce significantly the utilization of physician office visits and services. At the same time, there is no evidence that such large payments result in poorer patient outcomes.

Another characteristic of the healthcare system as it evolved, with employer-paid healthcare benefits in the 1950s, ‘60s and ‘70s, was a lack of responsibility on the part of the citizenry and the inability to differentiate between wants and needs. Excess usage became the norm. In addition, the increasingly prosperous American society is characterised by enormous self-abuse, involving alcohol, tobacco, an increasing use of hard drugs, lack of exercise and a diet rich in saturated fats. It is estimated that approximately 50 % of Americans are significantly overweight, and an increasing number of patients border on the morbidly obese.

In the mid-1960s, the federal government, in an effort to apply market forces to medicine, instigated and paid for a doubling in the number of US medical schools (from 60 to128), thereby, producing nearly twice the number of doctors than in the past. This sudden excessive production of physicians was intended in part to deal with the maldistribution of physicians in this country and to get more physicians to go into rural practice. While it is true that some physicians were willing to settle and practice in rural areas, their spouses often did not, and to a considerable extent the maldistribution remains. In addition, there is enormous overproduction in some states, such as in Ohio, where I practice, which has seven medical schools producing 1,050 graduates when our needs are 360 physicians per year to replace those who have died or retired.

What was not clear to those who planned this initiative is that each physician’s consulting surgery generates a mandatory minimum overhead of between $50,000 and $100,000 (US) per year. Since bills were paid for services rendered, without any constraints, there was no incentive to rein in costs. In fact, as more physicians were produced, costs escalated. Hospitals were also paid on a cost plus formula, the latter designed to meet their capital needs. As technology progressed, the cost of equipment and instruments (capital needs) rose at a rate probably double that of inflation. Hospitals began competing; members of the business community serving on hospital boards wanted their hospital to be the best in the city. This resulted in duplication of services and equipment, including expensive imaging modalities such as computed tomography (CT) scanners and magnetic resonance imaging (MRI) facilities. For example, there are more MRI facilities in the city of Cincinnati than there are in the whole of Canada! As a result, healthcare costs continued to escalate.

The problem of the uninsured remains unresolved. It is claimed that 44-47 million Americans are uninsured. In fact, much of the discussion about these numbers is demagoguery. There is a hard-core urban poor, largely African-American and some Hispanics, who are uninsured with a fourth generation of dependency and lack of a well established family infrastructure. They number approximately 16 million. This population has largely been left to urban academic medical centres to service, which they have done reasonably well. Many of the problems, however, of this group are social, not medical, and the inability to form long-term constructive relationships with physicians resulting in crisis intervention rather than preventative disease. The remainder, the 28-30 million uninsured, are largely young people who think they are not vulnerable to ill-health and, therefore, do not self-insure, or newly-divorced single mothers who are entering the workforce and take up posts (e.g. waitressing) that do not pay health benefits. This latter group is rarely without health insurance coverage for more than 2 years. Thus, the problem lies in the hard-core uninsured and remains so to this day.

As long as the country was prosperous and the employers continued to compete only in this country, the healthcare costs, although a source of concern, were not considered a major national problem. This attitude continued until companies became global in the late 1970s and early 1980s, and began to compete in Europe and Japan, whose health-care costs were distributed over a larger national base, largely paid for by taxes or national health insurance. Companies such as General Motors, for example, competing worldwide found that their healthcare costs exceeded that of their pension fund and the costs of the steel utilised in their cars. In an effort to cut costs, most American companies in the late 1970s and early 1980s began to go through a radical process of cost cutting. Restructuring, involved the elimination of entire cadres of middle management, who were declared redundant and had to seek other employment, often with devastating social results. For example, General Motors, one of the largest American corporations, cut the number of layers of management from 23 to 5 in some divisions. Companies became ‘lean and mean.’ A new mantra invaded all of American industry: quality, as defined by output over cost (Quality = Output/Cost).

It became clear to the employers that they could not continue to sustain the rate of growth of medical expenses. They approached the medical community, or what they perceived as organized medicine, to ask if it was interested in joining them in an effort to reduce cost and to define quality, very much as they had defined quality as output over cost. The medical establishment was not interested; it was ‘fat and happy.’ It must be remembered that the socioeconomic status of physicians over the past 60-70 years was an aberration. Medicine had always been, in this country and abroad, largely a middle-class, perhaps even a lower-middle-class, profession which made up in social status what it lacked in earning capacity. However, since the war years, up to and even including the present, despite the complaints of most of the American medical establishment, physicians constitute an upper-middle-class and even upper-class socioeconomic strata. This status is currently being challenged, and it is my surmise that physicians will return, over the next decade or two, to the lower-middle-class status they once occupied, but perhaps without the social approval they once enjoyed. Thus, it is perhaps not surprising that organized medicine was not particularly interested in helping employers save money.

By this time, the employers had gathered a significant amount of data concerning health practices and pointed out, for example, that the rates of elective hysterectomy in adjacent counties differed by 400 percent. Medicine then gave what I call a Delphic response; that is, "the art of medicine cannot be fathomed, but let us assure you that the practice is of high standard." The employers knew better and set about to cut costs on their own, without the help or intervention of the medical community.

The lack of interest of the medical establishment in joining with industry is difficult to comprehend, but it obviously lacked vision. The American Medical Association was too busy defending the status quo it could not see the handwriting on the wall. The academic health centres were focused on research, with leadership largely comprising of individuals who had never practiced medicine and had spent their working years becoming administrators. Academic health centres in this country are judged by deans, senior vice-presidents and chancellors of medical schools, by the number of National Institutes of Health (NIH) dollars which they receive. Patient care has been consistently denigrated and made unimportant. Tenure is denied to members of clinical departments who are not viewed as true scientists. Role models, that medical students should emulate, because of their expertise in clinical care and their clinical skills, were obliged to leave academic medical institutions. Thus, the leadership in American academic health institutions, on the whole, was not prepared to join with industry and the employers in defining good quality clinical care.

The result, and an unfortunate one, was ‘Phase I managed care.’ This can be viewed (and employers agree) as a tourniquet to staunch a haemorrhage. Like any tourniquet, prolonged application has a variety of ill effects, many of which are beginning to be recognized at this point in time. Physicians did not participate in the decision-making process. The employers turned to insurance companies, who promised to manage care, that is, to cut costs. The working hypothesis of managed care was that there was enough waste, fraud and inefficiency in the system that could be eliminated so that the care could be ‘managed’ and actually improved without increasing costs. There were five axioms:

Medical schools obliged by changing the mix of their production of medical students. Specialization was actively discouraged, and becoming a generalist, either in family practice, internal medicine or, in some states, obstetrics and gynaecology, was reimbursed on a capitation basis if, for example, the number of generalists graduating was increased to more than 50 percent of the medical school intake. The number of specialists in many cases decreased, and the number of generalists increased. Redistribution of income from specialists to generalists began, with the federal Healthcare Financing Administration (HCFA) pronouncement recently becoming national policy.

The trend in practice expense RVU redistribution under a resource-based system is clear, and section 1848(c)(2)(G) of the Act is another step in that progression, consistent with the preceding redistributions which the Congress mandated in 1993. The direction of payment changes for major categories of service-increases for medical visits and reductions for surgical procedures has been mandated by Congress, implemented by HCFA, and known to the public for some time. The exception of office-based services from the 1993 practice expense RVU reductions clearly indicated that Congress intended a relative redistribution toward those services. While Congress could not know, on a procedure-by-procedure basis, the impact of the new resource-based system, it was cognizant of the general direction of a resource-based system before it enacted section 121 of the Social Security Act Amendments of 1994, mandating resource-based practice expense RVUs.¹

The fact is that care was not managed at all. The only thing that was managed was cost. Physicians rather fool-heartedly accepted the discounted fee for service. This was largely due to overproduction of physicians and the over-availability of specialists. The fact that is cost more to see a patient than physicians were sometimes receiving in reimbursement was explained by the fact that some offices would accept any ‘warm body’ in an effort to maintain their overheads. The result was a decreased amount of time spent with each patient and the factory-like approach to medicine.

In addition, as patients were forced into managed care schemes, a modified Ponzi effect was seen in which companies increasingly used the premiums from an increased number of participants to keep charges low in the early years of managed care, thus, lulling the employers into the concept that healthcare could be managed.

It did not work. Demand continued to increase, high technological developments and research became more expensive, the Ponzi effect wore off, and ‘Phase I managed care’ became a mechanism for rationing. Denial of services became the name of the game. Gatekeepers (primary care physicians) were set up whose instructions were to deny services (even needed services) and referrals to specialists. The effects of this latter move were predictable. Failure to diagnose, failure to treat, and failure to appropriately refer became the horror stories of the late 1990s, all of which resulted in an explosion of malpractice claims. In the late 1990s, the majority of malpractice claims changed from untoward outcomes of surgery to malpractice suits against internists for failure to diagnose and failure to appropriately refer. Where it became clear that the gatekeeper had an economic incentive to prevent referral, malpractice awards exceeding $100 million (US) were awarded.

Rationing actually became a part of corporate policy, with established goals for denial of services. Linda Peeno, MD, an employee of Humana, was "shocked when her superiors told her to maintain a 10 percent denial rate on claims she reviewed."² This was regardless of what she perceived as the need of patients. Further, as Dr. Peeno has testified in various suits against managed care organizations, case managers could earn bonuses of up to $750 per month by keeping the number of days members are hospitalized below set goals.² Both of these goals had nothing to do with medical necessity. They merely reflected arbitrarily set economic goals that did not take into account patient needs.

Not surprisingly, the public - the ultimate arbiter of what transpires in this country - is in open revolt. Legislation (such as Patients’ Bill of Rights) abounds at both the state and federal level. Currently (and I may be a little behind the times), 23 states have passed laws enabling patients to sue managed care organizations. It seems only a matter of time before Patients’ Bill of Rights is passed at the federal level. In Ohio, an elaborate appeals process has been established by legislation.

The reason for this is not difficult to comprehend. If we examine the five axioms of managed healthcare, we find:

Finally, every category of individual dealing with healthcare in the United States is dissatisfied. The patients and the physicians are dissatisfied, and the chief executive officers (CEO’s) of various corporations are unhappy because no week passes by without a patient or their family calling the CEO’s office to complain about their HMO not paying for certain services or denying certain services. The physicians are angry over post hoc denial of services rendered, often for specious reasons. And finally, the health insurance industry claims that it is not making money.

In 1993, there was an abortive attempt to have the government take over healthcare. To begin with, it was done in camera with a degree of deception. Physicians, employers, etc., were excluded from the discussions. It might have worked; it dealt with the uninsured and would have provided a level of care that was acceptable for all citizens. What it failed to do (and why it failed) was to offer optional provisions by which citizens could pay for more than the basic care afforded. Without having involved the health insurance industry and the employers, and with the traditional opposition of the citizens of the United States for having things imposed on them, ‘Hillary care’ (as it was called) failed miserably. It is my belief that had it shown a more human face and allowed individuals to get more than minimal care, if they paid for it, it probably would have succeeded.

What will replace the current system of healthcare in the United States? There are urgent discussions going on with a variety of individuals, involving physicians, employers, and health insurance associations. These discussions, as yet, are in their infancy, but it is clear that a new system will replace first-generation managed care. This assumes that employers will continue to pay for defined benefits and not go to a system of defined contributions. The latter simply means that the employer gives employees a voucher, for example, for $4,000 (US) and urges them to buy healthcare, supplementing, if need be, from their own pockets the type of plan they desire. This is unlikely to prevail, at least in some industries, largely because of lack of employee compliance, union resistance and, in some cases, the fact that employers do not believe this to be in the best interests of their employees. It is likely that co-payments will increase, in an effort to make individuals more responsible for the use of their healthcare benefits.

By far the most exciting possibility exists from the dialogue that is beginning to take place between physicians and employers. This partnership, if it were to occur, must involve not only physicians and the employers, but the health insurance industry which will likely have a different role in the future than it currently occupies. The hardware and software that these insurance companies use would be valuable and extremely difficult and expensive to duplicate. What the employers want is physicians to help them ration services. What physicians can do is to help decide what patient needs are as opposed to their expectations.

Organized medicine, whatever this happens to be (and indeed there is a paucity of individuals from medicine with whom to partner), has a responsibility to help employers educate their employees, and to point out that morbid obesity, lack of exercise, poor diet, and excessive use of alcohol, tobacco and drugs are injurious and costly. Indeed, perhaps those individuals who are not health conscious should continue to pay more, or have fewer benefits, if they continue to maintain a particular lifestyle. Medicine must define needs, not wants, and help employers decide what is appropriate. Medicine will have an obligation to come up with and decide best practices and guidelines for management, preferably evidence-based. It is likely, in such a partnership, that when best treatments are not known, industry will help to find the necessary clinical trials, if it can be shown that this is in the best interests of the employers.

It is likely that colleges of medicine increasingly will have to train specialists, and that the insistence on a large number of generalists will be a thing of the past. Indeed, I am not certain that primary care will continue to be done by physicians. It may be done by nurse practitioners, whose performance in recent studies equaled that of physicians. Indeed, if the generalist’s only function is to recognize serious illness and refer, is a physician necessary? This is already beginning to be implemented in a number of states as well as in some provinces in Canada. State legislatures, which have now encouraged medical schools into producing more generalists, will have to be informed that this is not in the best interests of the patient population.

Many of the problems of the uninsured are social and, yet, they are continually being placed in medicine’s remit. There is, however, a way to deal with the uninsured without (in my view) increasing the cost to society. The overall cost of healthcare in the United States is in the range of $1.3 trillion (US); that is a lot of money. In the current managed care arena, overheads account for approximately 17 to 19 percent of healthcare costs; a rough calculation would bring that to about $260 billion (US). The true cost of overheads, when ‘crunching the numbers,’ and which is a role that perhaps the health insurance industry should play in the future, is probably closer to 7 %. The difference between 7 and 19, for example, is about $160 billion (US), more than enough to insure the 16 million, even with an indemnity policy, and, if coupled with education and prevention, would certainly be more than enough to pay for the uninsured. Indeed, $160 billion (US) could even pay for up to 40 million uninsured!

It is not entirely clear what the future of healthcare holds for medicine in the United States. One thing is clear - the system is in a shambles. A once proud and very good system is in disarray, and it will take decades to put it back together to what it was, if in fact that can ever be accomplished. Healthcare in the United States demands the participation of physicians in the decision-making process, something of which they have been deprived over the past decade. Most employers and the health insurance industry realize this now but, as yet, we have not gotten beyond the finger-pointing stage as to who is responsible for the demise of the current system of ‘Phase I managed care.’

As for physicians, they will have to regain their professionalism, something which is probably easier said than done, as many of them feel that they are employees and thus respond as employees, by gaming the system, overcharging, upcoding for services barely rendered, etc. We must restore medicine to its professionalism if any of this is going to work in the future. On that, I believe, there is universal agreement.

Finally, in their dealings with the employers, physicians will have to understand that they are looked upon as suppliers, similar (for example) to those who supply brakes to the automobile industry. If physicians can supply brakes, that is, healthcare, with quality as defined by the industrial definition of quality - output over cost - at lesser expense, then industry has indicated that it will share the profits with medicine and reward medicine appropriately. If medicine cannot agree with that definition of quality, nor understand that we are now looked upon as individuals who supply a product, then it is not clear to me how the partnership between the employers and medicine, which certainly must take place, will ensue and with it the betterment of healthcare in this country.

*The views expressed in this article are those of the Author and not of the Editor or the Board of the Journal

Correspondence: Professor J E Fischer, Department of Surgery, College of Medicine, University of Cincinnati, 231 Bethesda Avenue, PO Box 670558, Cincinnati, Ohio 45267-0558, USA

MATTER FOR DEBATE

Current status of medicine in the USA: a personal perspective*