POLICY: Three Big Ideas for Saving Our Ailing Healthcare System

February 1, 2006

American healthcare is in critical condition. Can anything be done to save it? We scoured the country for the boldest ideas from the biggest thinkers in healthcare. Here's what they told us.


The American healthcare system is broken. Can there be even the slightest doubt? Consider just some of the evidence:

  • Americans spend $5,267 per capita each year on healthcare, more than any country, yet our citizens are no healthier than nations that spend half that amount. Our life expectancy is lower and our infant mortality rate is higher than other industrialized countries; newborns in American die at twice the rate as babies born in Hong Kong.

  • Despite our vast and growing health needs, some states where malpractice premiums are high seem to be losing doctors. Horror stories abound: hospitals in Florida are closing obstetrics units while residents in states such as Ohio and Pennsylvania flee to practice in states with lower malpractice premiums.

  • Americans are getting older, and soon our broken healthcare system will be stressed by a looming tsunami - the aging of the baby boom generation. By 2010, an estimated 40 million Americans will be aged 65 and older, a number that will reach 75 million by 2050 (more than double the total in 2000). By that year, Medicare and Social Security expenditures will outstrip revenues from workers by 75 percent.

We asked some of the biggest thinkers in healthcare to share their solutions for addressing escalating costs, the malpractice crisis, and the healthcare needs of an aging population. Some of their ideas may seem radical, but our healthcare system is gravely ill. It needs more than bed rest and fluids.

Cutting the Fat

In 1980, the nation spent an estimated $246 billion for healthcare. By 2003, annual U.S. healthcare spending reached nearly $1.7 trillion - a nearly seven-fold increase in 23 years.

What’s feeding this growth? And what can be done to slow down the rate of increase?

Nowadays, the trendy explanation is that Americans are “disconnected” from the cost of their medical care, and thus they make costly, and unwise decisions. This supposition has been the driving force behind so-called consumer-driven healthcare.

Congress created health savings accounts (HSA) that would conceivably give patients more control over the dollars they spend, while health plans have been raising drug and specialists’ copayments to presumably prompt more generic use and greater use of primary-care physicians. Economists preach that too much money is spent on care that is of little or no benefit.

But could this explanation off the mark?

Yes, says Ken Thorpe, PhD, chairman of health policy and management at the Rollins School of Public Health at Emory University in Atlanta. American healthcare would be cheaper if Americans themselves were healthier, he argues.

Thorpe and his colleagues contend that 60 percent of the rise in spending from 1987 to 2002 is due to increasing costs for the treatment of preventable and usually long-term conditions. The biggest culprit: obesity. We’re just too fat, Thorpe says. During this period, the percentage of overweight Americans rose 5 percent, while the number of obese individuals doubled to 24 percent. Spending on obesity rose from 2 percent to 11 percent, or from $3.6 billion to $36.5 billion.

Related illnesses also rose - the treated prevalence of diabetes jumped 64 percent, for example. It was this leap in the prevalence of chronic illness, and not the cost for treating each case, that was the main driver behind the total rise in spending, says Thorpe.

The cost per diabetes case in 2002 was $1,551, 20 percent higher than the 1987 figure of $1,293. At the same time, the prevalence of diabetes rose from about 2,400 cases per 100,000 individuals during the same period - a two-thirds increase.

In other words, says Thorpe, the problem isn’t that healthcare is getting that much more expensive - it’s that Americans are buying a lot more of it. That’s why he rejects approaches that aim to force consumers to spend less on unit basis for care, in favor of those that would result in them needing less care.


“Eighty-percent of spending is for chronic disease. The issue is how to best manage the care of chronically ill patients. That’s not a ‘let’s-raise-copayments-on-prescription-drugs’ kind of issue,” Thorpe says. “If you increase copayments and deductibles for patients with chronic illness, they stop taking their drugs and they end up with higher hospitalization rates and emergency room use.”

Thorpe urges a host of reforms, including interventions in schools to reach children who are increasingly obese and federal incentives to employers to develop health promotion and obesity prevention programs.

“We need to integrate patient education and consumer knowledge, get people to be a partner in the care process, to make sure that they are taking their medications, monitoring their blood pressure, and doing their exercises,” he adds.

Disease Management Needed

Thorpe admits this sounds like a throwback to the days when disease management programs were hailed as a cost-saving magic bullet. “This is a specific form of disease management that is built around a chronic care model,” he says. Thorpe cites Group Health Cooperate in Seattle as an example of this approach, in which he says primary care physicians are “empowered and paid to manage the entire course of treatment” for patients with chronic illness.
Such programs improve outcomes and save money. “There are good studies that have shown we can reduce hospitalization by 50 percent in congestive heart failure patients who are in these types of programs,” Thorpe says.

Of course, no discussion of healthcare costs would be complete without mentioning information technology and the almost mythical power some ascribe to it. For Thorpe’s part, he is a strong believer in better IT to provide best practices and other clinical information at the point of care to aid decision-making. He also believes, despite the promise of HIPAA, that not enough claims are submitted electronically, hampering data collection efforts and driving up costs with administrative expenses.

“Forty percent of claims are still submitted on paper,” Thorpe contends. “An electronic claim costs 30 to 50 cents to process, whereas a paper claim costs $5.”

Thorpe says he is “not real optimistic” about adoption of the changes he favors. “From what I see people are talking about HSAs, but they will have a modest or minimal impact because most spending is linked to people with chronic conditions. We have a disease-driven increase in spending and no one is dealing with that.”

Requiring Health Insurance

There is widespread agreement that the 46 million uninsured Americans contribute disproportionately to the nation’s healthcare spending, through costly emergency room use and more intensive services as diseases are caught and treated at advanced stages. A large proportion of the uninsured are employed, but they work in small businesses that do not provide coverage. The idea of requiring employers to offer insurance has come and gone with the political winds.

Now a new take on that mandate is catching on with some: why not require individual health insurance? Robert Hertzka, an anesthesiologist and past president of the California Medical Association (CMA), is among the strongest proponents of the individual insurance mandate.

CMA endorsed the concept, and Hertzka, a member of the American Medical Association and its political action committee, has been lobbying the AMA to get behind the idea of requiring people to purchase some sort of “catastrophic” health insurance product, that would also include preventive care services, as a way to increase healthcare access and cut costs to hospitals caring for large numbers of uninsured individuals.

“There is a lot of interest in low-cost plans, a lot of discussion,” says Hertzka. He adds that the idea is under review by the National Governors Association and the U.S. Chamber of Commerce.

The time is now to push such a mandate, Hertzka argues. While the number of uninsured has held somewhat steady recently, a big increase is expected because employers have been dropping or significantly cutting back on retiree coverage.

If that trend continues, Medicare and Medicaid, already under-funded in Hertzka’s opinion, will not be able to absorb the newly uninsured, and neither will hospitals already overburdened with uncompensated care. “The healthcare system will be destabilized,” Hertzka says.


Hertzka envisions an insurance product that would carry a monthly premium of $100 to $200, and have an annual deductible of $3,000 for individuals and $5,000 family. Preventive care for PAP smears, mammograms, and other recommending screenings would be included. The policy would be tax-deductible and government subsidies would be available for those with incomes below the federal poverty line.

“No one would be worried about going bankrupt because of medical bills,” Hertzka says. “And the catastrophic coverage would reduce a lot of the cost shifting in institutions, and hospitals wouldn’t be eating $300,0000 in bills.”

Hertzka is also among those who believe medical consumers spend less when they are sensitized to the cost of care, and he believes the low cost-catastrophic product would instill that sensitivity.

“To the extent that people are covered, they would be cost-conscious about their initial expenses,” he says. Cost reductions “won’t happen until people start paying for their healthcare,” Hertzka maintains.

Solving the malpractice crisis

Critics of the current malpractice system have long complained premiums are driving high-risk specialists out of practice, reducing access and crippling physicians financially. The AMA says at least 20 states have a true malpractice crisis.

Policy wonks and others have delivered up a host of new ideas for medical tort reform, alternative dispute resolution systems, and programs that emphasize physician disclosure as well as stronger links to patient safety initiatives.

Some believe, however, that the tort system should be scrapped entirely. These idealists would instead give malpractice claimants and defendants their own court. Researchers at the Harvard School of Public Health are working with Common Good, a legal reform coalition based in New York, to develop a health court prototype and other alternatives to the current system.

As proposed by Common Good, these courts would be run by judges - without juries - and would deal only with malpractice cases. These specially-trained judges would render a written opinion in all cases, “to provide guidance on the proper standard of care,” according to Common Good.

Expert witnesses would be hired by the court, and attorneys’ fees would be limited to 20 percent of damages. Patients would be compensated fully for “medical costs and lost income,” but other amounts would be based on a schedule determined by experts.

Supporters of health courts, including Newt Gingrich and Louis Sullivan, MD, former Health and Human Services secretary, argue that such specialized courts already exist today for worker’s compensation and injuries from vaccines.

For its part, the AMA continues to lobby Congress for a set of federal rules that mimic malpractice reforms in effect in California, says Donald Palmisano, MD, a surgeon and former AMA president.

These including imposing a federal cap of $250,000 in noneconomic damages, along with a limit on punitive damages of up to two times the economic damages, or $250,000, whichever is greater, and a “fair share” rule that would divide payment of damages in accordance to the degree of fault of each defendant. Economic damages (to compensate for loss of income and medical care, for example) would not be limited.

The group also supports a sliding scale for attorneys’ fees. Palmisano adds that attorneys should be penalized in some way for filing meritless suits. The AMA also favors “experimentation,” on a state level, with concepts like health courts.

Fewer errors, fewer lawsuits


Many of the more unconventional initiatives being advanced in the name of malpractice reform are aimed at preventing errors and injuries, and providing compensation to greater numbers of individuals who have been harmed through medical errors but who never bring suit.

Peter Budetti, a lawyer and physician, is among those who says “piecemeal reform” has achieved little to improve overall patient care. Budetti, professor and chairman of the College of Public Health at the University of Oklahoma, says it’s time for the patient safety folks and physicians to come together.

Budetti envisions a malpractice/patient safety system that mandates physician participation in exchange for some reduction in liability. “We should say that when things happen, if we are going to protect doctors from liability, they have to agree to participate in a system that will identify and track causes of error, sustain accountability, and provide compensation where that is appropriate,” he says.

Physicians might be unlikely to participate if the program was optional, he contends. They would still have to obtain malpractice insurance but their premiums should be lower as a result of participating, Budetti says.

To develop such a program “means getting the advocates for organized medicine, plaintiffs’ attorneys, and patient safety advocates in the same room and getting them to be nice to each other,” Budetti says. “To many people, that might seem like a fanciful idea. It certainly is the responsible thing for people to do, rather than going around the country saying, ‘put caps on malpractice awards.’ Caps don’t do anything to improve patient safety.”

Robert Berenson MD, a senior fellow at the Urban Insititute who has studied malpractice extensively, favors large scale reforms to the malpractice system. But there are a number of changes that could be made now, says Berenson.

He would begin with addressing the randomness of the size of jury awards. Berenson proposes the development of a “hierarchy” or a scale of injury severity that juries could use to assess damages, and he suggests standardizing the method juries use for projecting future costs when determining economic awards.

Berenson also takes issue with the use of what he calls “dueling expert witnesses.” Requests for expert testimony could be funneled through a judge so that the expert would not know which side wanted his opinion. Berenson would also have both sides share the opinions of their experts.

Some programs that work well in other countries could be adapted to the United States, Berenson says. In Sweden, for example, experts have developed lists of “avoidable classes of injuries” with compensation at least partially predetermined. Injured parties don’t have to hire attorneys and file suit.

“You don’t have to prove somebody was negligent, just epidemiologically determine that this [injury] should not have happened if care was good,” Berenson explains. “This would bring consistency and predictibility to the system.”

Berenson’s ideas also include beefing up state boards and altering their reliance on complaint-driven investigations. “Licensing boards have not been funded adequately and they have not done a good job dealing with poor performers,” he says.

Moreover, hospitals and health plans should be held accountable for malpractice, rather than physicians, he says. That’s because medical mistakes are often the result of systemic failures, and that systems are also better equipped than individuals to investigate and remedy errors.

“Doctors don’t view the malpractice system as something to guide them as what they should or shouldn’t be doing. It doesn’t work well as a deterrent,” Berenson points out. “The legal system could actually support physicians and patient safety efforts.”

We’re getting old fast

In 1950 there were 16 workers for every retiree drawing benefits; by the time the boomers retire there will be just two workers for each retiree. Healthcare costs spike by age 75, when it is estimated that the average individual will be living with at least one chronic condition.


Are we ready? No way, says Anne Wilkinson, PhD, senior social and behavioral scientist and director of the Palliative Care Policy Center at the RAND Corp. in Arlington, Va.

“Our financing system is ill prepared, we are not as prepared as we should be clinically, we don’t have enough multidisciplinary teams ... [or] enough geriatricians,” Wilkinson says. “It is a complex set of skills that this population needs. We can make it a much more coherent system, an easier system for people to get the care they need.”

Care coordination is especially important for the elderly, yet only 20 percent are typically enrolled in managed-care plans, which conceivably do a better job overseeing care from various providers.

In addition to encouraging more membership in such plans, Medicare must find ways to encourage primary-care physicians to engage in care coordination and improve the continuity of care, Wilkinson says. Ideas include developing a performance measurement system that would reward physicians for symptom relief, advance care planning, and for home visits.

“We could pay a capitated rate for a physician group to follow the patient” through all healthcare settings until death, Wilkinson says. The group would also ensure the patient’s nursing, social, and spiritual needs were met.

“The current system pays for healthcare as a reactive methodology - meaning if you get sick you can go to the hospital and Medicare will pay for that,” Wilkinson says. “But when I am sick, and I don’t want to leave my house, I would like a geriatric nurse to come to my house and manage my care with me. And I want palliative care when I get closer to the end of life.” Medicare today typically will not cover these services.

Today, half to 75 percent of the care a frail senior needs is delivered by an “informal” caregiver, typically a family member. But society cannot assume all families have such a person, who must typically leave the workforce. The concept of paying family members, especially if they have low incomes, should be considered, Wilkinson says, as should tax credits for such support.

There is also a shortage of paid caregivers for this population. More emphasis should be placed on making caregiving an attractive occupation, by increasing benefits and wages, she adds.

Without major changes, the nation will not have enough capacity to meet the long-term care needs, in particular, of the boomers. “By 2020, there will be two people for every nursing home bed,” says Wilkinson. This shortage will make home and community-based care even more important, she adds.

And the cost of long-term care for this population will be astronomical. By 2050, the annual cost of long-term care is estimated to be $379 billion; the cost was $137 billion in 2000.

Seniors who need long-term care will be competing for dollars with the acute and preventive care the needs of healthier seniors, argues Bruce Jennings, PhD, a senior researcher at the Hastings Center, in Garrison, N.Y.

The long-term care needs of boomers will peak from 2030 to 2060, Jennings says. It is time to consider the creation of a new “social insurance program” to fund this huge long-term care cost, Jennings argues. He envisions a mandatory program, similar to Social Security, that would contain worker contributions as well as government funding, to pay for care.

“This is a public problem, and it needs a public solution,” says Jennings, who adds that time is running out to prepare for the boomers.

The U.S. will need to make changes in “economic and social policy before the most evident aspects of the crisis are visible to us,” he says. “If we wait until the boomers are 70 and start knocking on Congress’ door, it will be too late.”

Theresa Defino, editor for Physicians Practice, can be reached at tdefino@physicianspractice.com.


This article originally appeared in the February 2006 issue of Physicians Practice.