The Cost of U.S. Healthcare

Thursday, November 21, 2013
Steven Brill
Chief Executive Officer, Journalism Online
William Haseltine
President, ACCESS Health International
Ezekiel Emanuel
Vice Provost for Global Initiatives, Chair of Medical Ethics and Health Policy, University of Pennsylvania
Rana Foroohar
Assistant Managing Editor, Time Magazine;
Global Economic Analyst, CNN

Experts discuss how the cost of U.S. healthcare is impacting the economy, as part of CFR's Renewing America series.

The Renewing America series examines how policies at home directly influence the economic and military strength of the United States and its ability to act in the world.

FOROOHAR: Good morning, everyone. Thanks so much for being here today. My name is Rana Foroohar. I'm the assistant manager editor and economic columnist at Time magazine, and I'm really, really excited and happy to be here presiding over this Renewing America series on the cost of health care.

So I'll just do quickly brief announcements of our panelists, and then we're going to have a conversation for about 25 minutes here, and then we're going to open it up to 30 minutes of Q&A, both from the floor here, but also from the audience who may be tuning into the live teleconferencing of the event.

So I'll just go down the row. We've got Zeke Emanuel, who is the vice provost for global initiatives and the chair of medical ethics and health policy at the University of Pennsylvania.

Bill Haseltine, who is president of Access Health International, which is a nonprofit looking at best practices in the health care arena. He's also had a couple of other careers in health care, both in the pharmaceutical industry and as a professor at Harvard.

And Steve Brill, who is the chief executive officer of Journalism Online and did a really groundbreaking cover story for Time magazine earlier this year called "Bitter Pill," which I understand is our bestselling issue since the Kennedy assassination, I think, which really says something about this topic.

So I'm going to jump right in. We're going to have a very interactive discussion. You guys should feel free to interrupt each other and me. Let's just start with the basic numbers and the question of what the U.S. is spending on health care and whether or not that's going to rise, because I know that there are some differing opinions about that.

So we're spending, I believe, about 18 percent to 19 percent of GDP on health care right now. That's quite a bit more than other rich nations, very much more than some Asian nations. Let's go down the line and say, are costs going to rise? They've been decreasing recently, but is that permanent? What can we expect in the next few years?

EMANUEL: So the way I like to put it is we spent in 2012 $2.87 trillion on health care. That makes the United States' health care system larger than the entire economy of France. And as a dear friend of mine likes to say, we'd better not catch up to Germany. Health care inflation, the year-on-year growth, has been coming down. Actually, CEA just released a report yesterday that the per capita inflation in Medicare was zero in the previous year. It's been coming down, and that decrease has predated the recession, so it's not completely recession-related. And I think there's a consensus among health economists that there's—a large part of it is structural decline.

We are going to through a major change in the health care system. There is definitely winnowing out both of excessive prices and of excessive utilization. It's just beginning. It's going to take the whole rest of the decade to really go, but I do think—I've gone out on a limb, I'll go out on a limb again today—I do think we're going to bend the cost curve. And I actually think, by the end of the decade, we're going to be at GDP plus zero per capita.

There's more than enough to winnow out. That doesn't mean health care costs are going to come down, but it does mean we're going to flatten out, I think, under 20 percent of GDP going to health care.


HASELTINE: Well, I'm happy to be here at the Council. Health care is a strategic issue for all countries, and particularly for the United States. Let's, first of all, talk about cost. We spend—it's not just about what we spend, it's how we spend in relationship to others—we spend between three and four times as much as many countries and twice as much as most of the OECD countries, both as a—both as a member—if you look at it per capita and if you look at it as a percentage of our GDP.

And if you look at what's likely to happen in the future, I'm not sure that Zeke is right, because we have a huge bubble of elderly. It's the baby boomers who are about to impact our system. So we have a system that's under stress that's about to face the age wave. And as we all know, the older you get, the higher your health care costs. And I don't think we're prepared for that in any way. So I see—even if we kept the systems the way they are now and even if we are successful in trying to control some of the costs, we have a whole new set of costs descending upon us.

But that's only half of the story. The other half of the story is what we get for what we pay. And it's unfortunate that we perform much better than any—worse than any of the other OECD countries. The National Research Council, the Institute of Medicine just issued a report, "U.S. Health in International Perspective." We—the subtitle is "Shorter Lives, Poorer Health."

Not only do we perform on every major worse than the worst of the OECD countries, we're about 34th in overall statistics. That's for infant mortality, maternal mortality, mortality under the age of 5, death in young people, and shorter lives, three to five years shorter than most of the other OECD countries.

So we pay more, and we get less. And that is not a good strategic advantage, and it looks to me like it's getting worse. FOROOHAR: OK. Steve?

BRILL: Thanks. I'm really glad to be here. I'm especially glad to be here because, until I heard Zeke, I was actually feeling kind of down on the American health care system.


Now I see everything is actually pretty good.

EMANUEL: I'm an antidepressant.

BRILL: Talk about defining, you know, deviancy down. What Zeke just told us was we're going to get to a point of stability where we're going to be at 19 percent or 20 percent of GDP. He says 18 percent. No matter how you cut it, that is basically twice what any other country does. And that's his notion of, you know, something that is a victory.

Now, we've talked a lot about—you know, we've heard all this discussion about winners and losers in the health care system and the Affordable Care Act. There's one thing that is unambiguous, and that is the winners are the people who are making all the profits from the high prices in health care.

If you look at what's happened in the year running up to the Affordable Care Act, Aetna's stock is up over 50 percent, Medtronic's stock is up over 36 percent, Grifols, which is one of the pharmaceutical companies that was in my article, the one that was charging the $13,700 for the one dose of a cancer drug, they're up 45 percent. So things are pretty good for them; they're just really terrible for us.

And I think, you know, the notion that the best we can hope for, if we huff and we puff and we blow the house down, is we're going to stabilize at 19 percent or 20 percent of GDP, you know, that's absurd.

EMANUEL: Look, all of us would love to be down at 13 percent, which is where Switzerland or Norway are, number two and three, but we're not going to be there. I mean, let's just be realistic. And so the high cost, the 18 percent is already built into the economy. If we could actually stabilize at zero capital growth per capital, that'd be a huge victory.

And over time, it would mean that the budget deficit would be stabilized, because, you know, as we all know, the long-term budget threat to the United States is not Social Security, it's not the Defense Department, it's Medicare. And that would really be reduced.

So I'm not happy with it. We're $700 billion over what we ought to spend, if we were spending at the same rate as Switzerland or Norway or Germany. But, you know, that's where we are. And it will be a victory when we get to GDP...


BRILL: But why would you want...


EMANUEL: And I don't see us going otherwise.

BRILL: Why would you want to build a $77 box of gauze pads into the system and just sit there and say that's...

EMANUEL: No, I'm not building it in. I do actually think—look, I think, through a whole series of things, tougher negotiations, more competitive bidding, more price transparency, we are going to get the excessively high prices not completely out of the system, but we're going to bring them down.

I don't disagree with you. We've got outrageous prices. I was on the phone yesterday with a kid who graduated Princeton six, seven years ago, and he went to work for a device manufacturer in La Jolla. And he said, you know, he was one of these guys who was making $50 spine implants that they were selling for $5,000. And he said—he was reading all this stuff about the health care field, and then he suddenly realized, "I'm the problem!" And he quit the company, and he started his own company to try to have—basically, reduce prices, get rid of all the overhead and sell this stuff at only three or four times what it costs to make.

HASELTINE: But, Zeke...

EMANUEL: Wait a second. And...

HASELTINE: How long should I wait?

EMANUEL: We're going—long enough for me to finish the sentence, Bill.

BRILL: Zeke, you only have another 10 minutes.

FOROOHAR: I've got a big...


EMANUEL: And I think that—that—those kind of things are going to come into the marketplace a lot more and drive prices down.


EMANUEL: And that's going to counteract Bill's big aging boom.

FOROOHAR: I want to give you a minute, Bill, and then I want to ask a follow-up question, but go ahead.

HASELTINE: One of the things that my foundation does is we look around the world for best examples. And Zeke left out the whole East of the world. So there, the costs for GDP are about 5 percent to 6 percent, in some cases as low as 4 percent in GDP, in countries—if you actually look at per capita expenditures—where they make more money than we do. So you can run a very efficient health care system. So what are the key elements of that? And that's what we study. I wrote a book on the Singapore health care system. People will say it's small, it's not applicable. It's proof that things can be much better. You can do the same thing for Japan, for Taiwan, for South Korea, excellent health care results, heavier utilization of the health care system, and much lower costs, almost a quarter of our costs, a third to a quarter of our costs, excellent results.

FOROOHAR: But are these...

HASELTINE: So what are the—what are the keys to that? Part of it is price transparency. It doesn't seem to me difficult to legislate price transparency, outcomes transparency. We don't do that.

And the second is, give the people who are paying the ability to negotiate prices. We can't negotiate pharmaceutical prices through Medicare.

FOROOHAR: What would be the best way to a more outcome-oriented system?

HASELTINE: I think the—first of all, to make sure that people know what the prices and the outcomes are. Secondly, that allows them to compete, to create the—an even playing field for free and open competition. That's what we do well.

I'm not necessarily for a fully government-paid system, like there are in some European countries. But I think we do, do very well when we have big organizations compete on a fair basis. And there's no transparency. And Steve wrote the definitive piece on that. And if you don't know what you're paying for and you don't know what you're getting, how can you buy?

BRILL: Well, but even if you know, sometimes it doesn't help. I mean, you could know everything you need to know, but if you need to go to a hospital in New Haven, Connecticut, you have to go to Yale New Haven. And you have to go to a doctor whose practice is probably owned by Yale New Haven.

So one of the other things we need is tough enforcement of the antitrust laws or a change in antitrust laws. You do need, you know, all the transparency you can get, but, you know, let's remember that, you know, Singapore is the population of Brooklyn and Queens. That is the equivalent of...

EMANUEL: And a smaller area.

BRILL: And a smaller area.

HASELTINE: South Korea and Taiwan are not.

BRILL: Well, you know, that is the equivalent—I think I was up on this—in this room, and Randi Weingarten was arguing that, you know, you can have—it's easy to have education reform and a strong union, just look at what happens in Finland. You know, and America is not Finland. America, you know, with all due respect, is not the country you wrote your book about.

So you have to have transparency. But beyond transparency, you have to do something to step in when all the transparency in the world is not going to help you, because if you've given someone the patent for a life-saving drug, you have to control the price of that drug. All the transparency in the world is not going to help.

EMANUEL: Let's just play out what's going to happen over the next decade. If the exchanges get up and running—which they're going to get up and running. I mean, if Kentucky can do it, eventually the United States government can do it.

Once the exchanges happen, we know what people shop on. There's lots of good data. The top six items that they shop on are all cost items. They don't really care about the name brand of the hospital. You guys care about the name brand of the hospital, but most people who are shopping for insurance really won't care about that, and they will trade it off for cost.

Once they keep looking for lower and lower premiums, that is going to have to translate by the insurance companies into making lower cost products which will mean narrower networks, driving harder bargains with hospitals and doctors, and the price, therefore, is going to come down. And they—you're also going to have insurance companies demanding certain kinds of transparency on quality from these provider organizations.

And you've already got insurance companies buying provider organizations that work efficiently. You've seen this with WellPoint buying CareMore out in California and a lot of other transactions. That is going to keep—drive the prices down and drive more transparency on outcomes and more transparency on how people do.

And I think that dynamic is going to reshape how we deliver care. And that's the key thing. Eighty percent of costs relate to caring for people with chronic illness. It's all about chronic illness. And we know that we can deliver care to people who are chronically ill, who have heart failure, diabetes, cancer, heart disease, emphysema, hypertension, asthma. We know we can do better for them. We're spending a lot of money on them, but it's in a very fragmented, inefficient way.


EMANUEL: That's going to be—that transformation is going to be the key to saving money on the long term, and it's already happening. And the best places today perform about 20 percent below the average costs. That's where we're going to see savings as it spreads out through the system over the next decade.

FOROOHAR: Bill, what about end-of-life care in other countries? Is there a best case that we should look at? Are there lessons to take?

HASELTINE: We're beginning to look at that. And there is actually no good solution to that, in most places. And we've never found a good place. They rate, say, Sweden the highest. We have an office in Sweden looking at elder care. If you look at their own press and their own self-critique, they have serious issues.

The way we have to look at elder care is, I think, restructuring the entire way we look at our systems. For example, if you look at a city like New York, and New York will be one of the cities that's best for the aging, you have to restructure how transportation works, you have to restructure how housing works. You have to do a major restructuring of health care, and we're not beginning to think of that in any serious way.

When people get chronically ill, you tend to treat them in acute care hospitals, and you can't afford that. You've got to treat them at home. You've got to have aging in place, aging in communities. And that takes a complete restructuring of the health care system.

So we're in a place where right now we're talking about the acute care system, and we're not really focusing on the problem that's upon us, which is chronically aging. Any of us, I'm sure, in this room have parents or children that need chronic care. What facilities are there for that kind of chronic care? It is a terrible problem. And all societies are facing that.

One of the things that's happening now in a few countries is systematic restructuring or thinking about how to systematically restructure the entire economic urban health care system. And it's not only driven by the health care system. It's driven by an integrated process to make sure that we take care of our older and sick people. And that's something that's in addition to all the costs.

And that's why, even if Zeke is correct, and we all hope he is, that we're going to be able to shrink some of our health care costs if this plan eventually is put into place as it's planned, we are still going to face huge costs in our health care system that aren't accounted for by these changes.

FOROOHAR: Steve, I want to come back to you and to your piece in Time. I'm sure many of the people here have read it, but can you explain what the charge-master is? Because that is such an amazing concept, what it is and why you think we need to get rid of it.

BRILL: Well, I mean, it's really a symbol of the whole system, I think. It's a metaphor for the whole system. It's the thousands upon thousands of items, it's the list price. And as I explained in the article, you know, it's the list price that hospitals use or, you know, diagnostic clinics, whatever.

Nobody can explain it. No head of any hospital, no CFO of any hospital can explain any of the charges there, any of the prices, and they don't even try to. You know, basically what they told me was, well, you know, nobody gets, you know, charged of the charge-master price except, of course, for the people who don't have health insurance. They get charged for it, and they get sued into bankruptcy based on the charge-master prices. But it's emblematic of a system that is just totally, completely, you know, not accountable to anyone. FOROOHAR: How did it come to be? I mean, who invented the charge-master?

BRILL: Zeke would probably know this, but I think back in the '70s and '80s, the regulators wanted hospitals to have a price list so that they could, you know, use it to negotiate, you know, discounts off of the price lists. But the point about the charge-master is—are the larger point, which is nobody is accountable to pricing, and they don't have to be, because it is not a free market.

You know, I don't care what anybody says, but, you know, if you're going into an emergency room, obviously, that's not a free market. But even if it's not the emergency room, if your doctor says, you know, you need your knee replaced, and here's the brand of new knee that I think you need, and your doctor has a consulting contract with the company that makes the knee, and there are 800,000 such consulting contracts out there right now in the United States, the only thing you know is your doctor just told you, you need a knee, and here's the knee, and here's the hospital that you should go to. And you have no idea what it's going to cost, but you just know that your knee hurts and you want to get your knee fixed.

EMANUEL: Look, everything Steve says is absolutely right. So one of the things the Affordable Care Act did was to put in this sunshine clause that all of the contracts and consulting arrangements and payments made by pharmaceutical and device manufacturers have to be released. I think that's going to—again, this is one of the areas where I'm pretty confident things are going to change, because docs don't want to be on that list, first thing. Insurance companies are going to say, you can't be on that list if you're going to be in our network, because we know that people who have these consulting contracts...

BRILL: Zeke, Zeke, they did do that, but they didn't write the regs to enforce that. They left that out.

EMANUEL: Look, they're way behind on the regs. You don't have to—you know, I'm as annoyed as you are.

BRILL: But what's the point of writing a law if you don't then sit down and spend a half-hour writing the regulations?

EMANUEL: It's not a half-hour. But it is—it'll happen. I think the—the larger picture that you need to keep in mind is, about the half the excess costs in the United States are price. We have high prices compared to Europe on—in almost every country, on almost everything from labor—our doctors, our specialists are two- and-a-half times better reimbursed than Europeans by and large.

Our primary-care doctors are not, by the way. The English have the highest primary-care doctor pay to doctors, by the way, in their good socialized system. Our pharmaceuticals are much more expensive on the brand side, but actually cheaper on the generic side. Our devices are way out of line.

So prices have to come down. And, again, I'm pretty sure they're going to come down. And then half the excess cost is utilization. We do too many things, especially those things that are high-margin, cardiac treatments, orthopedic treatments. And, again, I foresee those coming down.

And I'll tell you one reason I'm pretty sure the cardiac and orthopedic procedures are coming down is Medicare just did an experiment, where if you bundle payment—you don't pay for each thing individually, you just give one payment—you know, we're going to pay a price fix for a hip replacement or a stent or a pacemaker, you get doctors and hospitals working together, and they can bring the price down and improve the quality. That was shown by Medicare.

In the Affordable Care Act, we gave the secretary the ability to generalize that across Medicare without having to go back to Congress, because we knew that, you know, once Congress had the power, it wouldn't actually implement this. And that's been the tradition, at least. I believe this demonstration will be generalized over the next year, and that will send a major shockwave.

We're no longer paying fee-for-service for these very important procedures. We're going to pay bundled payment. And that's, I think, going to make a major change. It's going to send a signal to the health system, payment is changing. And once we move off fee-for- service in a constructed timeline, the system really changes, because fee-for-service incentivizes more and more use and not worry about the outcomes and the value of what we're doing. And that transformation is going to be pivotal. And, again, I think it's going to begin to happen in earnest over the next couple of years.

FOROOHAR: Bill, go ahead.

HASELTINE: How do other people control price? If you look at...

EMANUEL: Government regulation.

HASELTINE: That isn't—that is not the only way.

EMANUEL: That's by and large what happens in Europe.

HASELTINE: That is part of the way, but there's another part of the world that's not Europe, Zeke, that also has very good health outcomes. And if you look, for example, in the Singapore example, their major way to control price is to—they have a mandatory 401(k) and you pay two-thirds to three-quarters of all health care costs, are paid by the individual out of a mandatory 401(k).

BRILL: Yeah, but they control the prices.

HASELTINE: They don't control the prices.

BRILL: Yes, they do.

EMANUEL: Yeah, they do.

HASELTINE: They control part of the prices. They don't control all of the prices. BRILL: Oh, just part of the prices.

HASELTINE: Part of the prices, and that's the next thing I was going to say. You control prices, right? If you look at how Japan, Korea and Taiwan keep their health care costs at about 5 percent of GDP, they do it by controlling price. They control the doctor price.

BRILL: Well, that's what Zeke was saying, government regulation.

EMANUEL: Government regulation.

BRILL: Right?

HASELTINE: It's not all government regulation. If you have people paying, it's not government regulation.

EMANUEL: Look, I had a friend...

HASELTINE: It's not.

EMANUEL: ... recently in Aspen, Colorado, who makes reasonably good income. And unfortunately, she had terrible abdominal pain, they went in, it turned out to be colon cancer, had emergency surgery, six days in the hospital, $77,000 for that bill.

Now, she makes a good income. You guys can write a check for $77,000 and not bat an eyelash? You know, 99 percent of America, including me, could not write a check for $77,000 without batting an eyelash. You cannot have people paying for that kind of cost of health care out of their own pocket. Yes, that might be a great way to control costs, but it ain't going to happen in America.


HASELTINE: ... that's not how they do it.

BRILL: But, Zeke, it didn't cost $77,000. What was the salary of the nonprofit—CEO of the nonprofit hospital there? It doesn't cost $77,000.

EMANUEL: I don't know what it costs.


EMANUEL: I don't know what it costs, because no one knows what it costs. I agree with you, Steve, but that's not the issue. That's what people are being charged. And as an individual, you can't negotiate a better rate.

FOROOHAR: OK, lots more to say on this topic, but we're now at the question time. And I do want to open up...

EMANUEL: It's just the American health care system.

(LAUGHTER) FOROOHAR: I'm sure that folks have a lot—there's a couple of mikes over here. I'm going to be taking questions from folks that are listening via iPad here, so let's start in the front, and if you can get a mike. And if you can just state your name and affiliation, please. And we are on-the-record.

QUESTION: Thank you. Joseph Cari, Integration Capital and Trade. Doctor, I'd like to ask you this question. When we're talking about costs, I rarely hear a dialogue about preventative care and an emphasis on, in a sense, frontloading to stop things that can be stopped, obesity leads to heart issues, diabetes, joint issues, and then all of these conversations, I've never heard anybody really say, you know what, this is—we got it backwards. We need to get people in the health system to focus on preventative care, and by doing that, that would drive the prices down.

HASELTINE: And (inaudible)

QUESTION: I'd like to—Zeke, a fellow Chicagoan, but I'd like you—I'd like Doctor to comment on that, please.

FOROOHAR: If everybody wants to weigh in...


HASELTINE: I think, first of all, preventative care is extremely important. And it's one thing that the whole health profession is beginning to address in a different way. It used to mean public health messages. It used to mean education in schools. It still does, to some extent. But more and more, it's treatment as prevention.

So the primary-care doctor integrates as part of his treatment protocols what you should do to keep healthy, for not just now, but for the future. That includes a whole range of things, healthy behaviors, and behavioral modification is one of the major areas of modern research. And I think that is one of the ways you can keep a population healthier. However, as people get sick and get old, they're still going to get sick.

EMANUEL: Let's just—primary prevention, taking healthy people and preventing them from getting sick, except for vaccines, costs money. It doesn't save money. So you should—you need to be—and I know you look perplexed, but you're taking a lot of people who aren't going to get a lot of those diseases you're talking about and you're trying to prevent it. So generally, we all think prevention's a good thing. It is a good thing, and I'm not against it. But don't think we're going to save a ton of money, especially if we're going to go to prevention—treatment as prevention.

Second point. The prevention that really saves money, as I mentioned, is people with chronic illness, like diabetes or congestive heart failure, and preventing them from getting sicker and using the acute care system. That's the key to saving money in the short term. Prevention that you're talking about, diet change, we don't know how to do that exactly well, takes 30, 40 years to kick in. Third point. The Affordable Care Act did a lot of things on prevention. I know most people don't know this. Menu labeling—that was pioneered in this city—in the bill. It's taking the FDA too long to write the regs, but it's going to come about. Efforts to improve wellness at workplaces, important element, important way of engaging.

The last thing I would say is, you know, we made a major change in this country on public health measures regarding smoking. It took us 40 years. We have huge positive benefits. Smoking rates in the high 40s among the adult population now down to below 20. We know how to do this. It's multiple things, and it turns out not to be the health system. It's advertising. It's getting it out of facilities. It's taxing it. It's making it socially unacceptable.

And we've actually stalled out on the smoking thing, for one, I think, large reason, which is we stopped taxing it, and the taxes basically stayed the same. One of the things I think we need to in health care reform 2.0 is raise the tax on cigarettes, again, to drive that number further down.

We have to do similar things—by the way, the first lady's initiative, I think, did do similar things regarding obesity. We've already had some big changes on the food front, right? McDonalds introduced salads. Do you think that came out of nowhere? Or did that come out before of the first lady's initiative and the change of the conversation in this country around obesity because of what she did?

All of those are part of the same approach. I worked on both health care reform and the first lady's Let's Move initiative. They were the same approach to trying to do prevention. But if you're trying to save money, certainly in the next decade, that ain't the way. It's just not the way.

FOROOHAR: I want to ask one follow-up question on this. Are we going to see a situation in 5 or 10 or 15 years where, with—if premiums are rising and employers are looking for ways to manage that, you're going to see more of an onus on individuals to prove, hey, I'm on the treadmill for three times a week, I'm eating in a certain way? Is that—Steve, do you want to...

BRILL: Well, I think we might, but that reminds me of one of the—one of the booby-traps in the Affordable Care Act that hasn't been talked about yet, and that is the 50 percent surcharge on your premiums if you smoke. What really hasn't been dealt with is, when you're filling out your application, assuming you get to the exchange...


BRILL: And when you say, well, you know, "I don't smoke, I do smoke," who's going to say they smoke? But if they do say they smoke, their premiums—because of the way the premium support system works—their premiums can be 50 percent or 75 percent higher than if they don't smoke. EMANUEL: Just 50 percent.

BRILL: The question is, is addiction to cigarette a pre-existing condition? It seems to me, you know, there's a good argument that it is. On the other hand, you know, you're making, you know, the classic lifestyle choice if you smoke, and that's the way the law is written. But, you know, among the other booby traps that are in the Affordable Care Act that haven't been written about or talked about yet, that is certainly one of them.

HASELTINE: It sounds like it's coming soon.

EMANUEL: So let's just talk about this issue. Again, I don't think coercion—we need overt coercion, which is, you know, Brett Butler (ph) is going to monitor whether you're on the treadmill or not. We do know that we can do a lot of changing of the environment and the social incentives and the concrete incentives that that is an effective way of changing people's behavior.

And I think we are in the baby steps of this whole area of patient engagement and getting people to engage in their own health and having an investment in their own health. And that does take a very different kind of approach to patients, rather than the doctor, which, look, I used to do, which is, patient comes into the office, you know, you talk to them, you tell them what, you give them a bunch of prescriptions, and they go out. You know, half the—or 70 percent of the time, they fill the prescriptions, 30 percent of the time, they don't fill the prescriptions.

Now we're going to have to figure out a better way of engaging our patients in being invested in their own care. That's going to require a whole different set of health care workers working with the physician, with the nurse practitioner, to get patients. A lot of it's social activity. It's not about what the doc necessarily writes on the prescription pad.

And that—we're in our infancy. But there's a lot of work on it and I think a lot of smart ideas about how to do that and a lot of places where it's actually worked.

FOROOHAR: OK, let's take some more questions. Back in the very back row there?

QUESTION: My name is Andrew Gunlock (ph), Arnold Supply Shutter (ph). Mr. Emanuel, I'd just like to challenge you a little bit on the idea that costs are coming down in the future. And when I say costs, I mean premiums, in other words, costs to us as individual citizens. And this is just from what we're seeing and hearing in the field today.

The first thing is that it's cheaper to pay the fine than it is to buy the insurance. That's number one.


QUESTION: The second thing—and this might be... BRILL: Except you don't get insurance.

QUESTION: And this might be the most important thing in Obamacare, which I personally believe is good policy, and that's the idea that you cannot be denied insurance for pre-existing conditions. What that means—and young people aren't stupid, because young people—single young people are what overpay, if you will, for the care that they get, right? And anyone who's done this H.R. type of stuff in their firm knows this.

They look and they say, well, wait a second here. Maybe I get the flu, it costs me a couple hundred bucks. Why am I paying $20,000? I'm not signing up for this. I'll sign up when I've got cancer and it costs me $100,000, and they can't deny me, and now I get the purchasing benefits of the network. And what that means, of course, is that you get a sicker population in the cohort...

EMANUEL: The real question is, health insurance and health care has this problem of adverse selection, which is the people who are sick have a—or think they're going to be sick have a higher tendency to buy insurance than people who are healthy. And the only way of solving that problem is, as a dear colleague of mine, Vic Fuchs, one of the original health economists, said: compulsion. You've got to require people to buy insurance. Basically, paying for insurance today is an investment in your long term, because you will use it when you're 50 or 60. That's absolutely right.

And your point is, we didn't put in a steep enough penalty to encourage people to use it.

QUESTION: Moreover, when I said this to Blumenthal from Connecticut, insurance state, he said, Andrew, you're missing one thing. Our tax system is voluntary. Who's going to check they're even paying the fine? And that's why WellPoint and every other insurance stock is going up, because that means premiums are going up, because it's a cost-plus system, and there are going to be more profitable, unless the market has it totally wrong.

EMANUEL: Yeah, well, I do think—I do think there's a reason they will actually do better, but I don't think it's because they're just going to—premiums are going to keep going up...

BRILL: They're going to better because...

EMANUEL: Let me just finish here and tell you why. Look, if you're a young, healthy person, you go into the—first of all, we are educating them by allowing them to be on their parents' insurance plan until 26 about the benefits of insurance. Second—and that, I think, is going to carry over, because we know once 30 happens, you get responsibilities. You do buy insurance and people go on. And so we've narrowed the window in which we need to get everyone on.

Second, I would say, for most people, actually getting insurance in the exchange is going to be a good deal for them, because, you know, out in California, you can get it for $50 a month. I don't—I haven't checked the whole country, with the subsidies at, you know, if you're making about 200 percent of the poverty line. If you figure out the preventative services you can get and add just having insurance, so you avoid that problem, it's a pretty good deal for kids.

We haven't gotten to the stage where the exchanges work well enough so you can have the P.R. campaign so we can see if we have enough young people coming in. But...

FOROOHAR: Zeke, we're going to...

EMANUEL: We need to change the social norming around that.

FOROOHAR: We're going to let Steve weigh in here, because he's jumping out of his chair.

BRILL: No, I don't want—I mean, you know, we need to give Zeke some time to talk.


I don't want to interrupt you. No, I was just going to say that that is the—you know, the least of sort of the mathematical issues with the Affordable Care Act, is the one you mentioned. There are all kinds of others used.

For example, the way the premium subsidy piece is written, if—if you're in Lancaster, Ohio—I was just doing this with someone on the phone yesterday—and you make $62,000 a year, and you're a couple and you're in your 50s, you can get a silver plan with a $7,000 premium subsidy. If you make $62,100, you get no subsidy. So the extra $100 in income means you lose, you know, thousands of dollars.

There are all kinds of mathematical problems in the act like that. And, you know, what we're going to next week, my guess is, you know, people saying, you know, you lose your doctor under the Affordable Care Act just the way, you know, you lose your insurance, because in many cases, thanks to the narrowing of the networks, you are going to lose your doctor and you are going to lose your hospital, and that's necessary, you know, to hold the costs down.

The week after, you're going to start, you know, seeing things like, well, if you make an extra $200 under Obamacare, you get taxed, you know, $4,000, which will be literally mathematically true. So...

(UNKNOWN): (OFF-MIKE) premiums (OFF-MIKE) I don't see (OFF-MIKE)

BRILL: They're not.


BRILL: Listen, let's step back. You know, despite what my friend, Zeke, says, if you just look at this—you know, if you look at the big picture, you have a very high cost system, OK? We are now making it possible, which is a good thing, for many more millions of people to use that system. Most of those people who we're bringing into that system don't have the money to pay for the system and don't even have the money to pay for insurance.

The result of that is that somebody else is going to have to pay for that, and that has been undersold by the White House, because I think, you know, they never really wanted to admit that. So it's probably everyone in this room, except for poor Zeke, he says, who is going to have to pay for all that.


EMANUEL: We put taxes in there.

FOROOHAR: Hang on one second.


HASELTINE: That's why a lot of the—that's why all these stocks are going up, too, because there's going to be—if it does go through, there will be more utilization. There are many other ways to look at the problem. Will we in this country ever get to those ways? The current mess that we've got now suggests that we don't have a clear path to get to a rational health care system. A simpler thing would have been to include poor people in Medicaid or Medicare, much, much simpler. Why didn't that happen? Because we have a political system, and $2.8 trillion says that shouldn't happen. And a good chunk of that is profit.

EMANUEL: Bill, we...

HASELTINE: Hold on a second, Zeke.

EMANUEL: We tried to reform the system for 100 years...

HASELTINE: Yeah, we have.

EMANUEL: ... and we never got anything passed. We finally got something passed. It's not perfect.


EMANUEL: Nothing that goes through the U.S. Congress is going to be perfect.

HASELTINE: That's why...


EMANUEL: We couldn't—and it's got a lot of flaws.


EMANUEL: But that's the system we have. That's the reform we have. And we're going to have...

HASELTINE: That's the system we're trying to get to. We don't have it yet.

EMANUEL: You can be utopian, but you can also be practical.

FOROOHAR: I want to make sure we get a chance for a few more questions. Right here in the middle?

QUESTION: David Kaplan, Standard & Poor's. I guess primarily towards Zeke, but all panelists...

BRILL: Oh, god.


EMANUEL: Steve feels like he doesn't have enough air time.

BRILL: No, no, no.


QUESTION: Driven by your optimism, what—what do you see—envision in terms of innovation reductions, given the lower profit incentives, as well as if, you know, medical physician—mostly it's labor costs—it does go down, do we lose our talented medical future stuff?

EMANUEL: OK, you got two questions there, I think. First, let's talk about innovation and what do we mean by innovation? So I think innovation has to be something new, which does one of four things. It improves survival, improves the quality of life, decreases side effect of medical treatment, or saves money. If you don't do one of those four things, it's not a true innovation. There are plenty of new shiny machines or new pills that don't do one of those four things and we call them "innovations." They're not innovations.

So I believe we're going to have a ton of innovation, and the innovation is going to be in things like sensors, so you know where people are at home, you can monitor them continuously so you can see if there's a problem. There's an explosion of that. There's going to be lots of innovation in looking at that data, trying to find the needle out of the haystack.

There's going to be innovation around things like checklists and how to make the hospital safer. We're going to have innovation around EHRs. Right now, the electronic health records we have, almost everyone hates them. They're dominated by a few big people. It's another place you're going to have tremendous amount of innovation.

Innovation around increasing compliance for taking medications. I mentioned if I give a patient a prescription, the chance they fill it is 70 percent. The chance then that they take it right, once it's in the house, another 70 percent. So when I write a prescription, the chance they're actually taking the medicine correctly, 50 percent of the time. We're going to have huge innovation around improving that.

And when I talk to venture capitalists who are investing in this space, almost all of them have the same story. Largely we're moving off pharmaceuticals and the traditional devices, we're moving into things that improve the processes of care, we're moving into these sensor and wireless technologies, and I think there's going to be a huge explosion there.

Remember, you're at $2.87 trillion. Small changes are worth hundreds of—or tens of billions of dollars, if not hundreds of billions of dollars. So there's more than enough money.

FOROOHAR: Bill, do you agree?

HASELTINE: Well, I have a different take on innovation. I've spent my life, first, involved doing fundamental research as a professor at Harvard, trying to advance science for medicine. I had a second career as a pharmaceutical executive, starting biotech companies and running a public company for a number of years, creating products, five of which are currently on the market.

The reason I'm doing what I'm doing now, which is looking around the world for good ideas in how to make efficient health care systems, is I fear that entire innovation system is under threat, not the one that Zeke was mentioning, which is process, but fundamental changes that improve our health, the medicines that keep us alive.

And what I see is a tremendous resistance. Even 10 years ago, I began to see that resistance. If it's new, it's going to cost more. I went down to the New York Times to discuss one of our big breakthroughs a few years ago with the editorial committee there, and basically what they said, before I even opened my mouth, Doc, if it's new, it's going to cost more, and we can't afford it.

Well, that is the message that's being sent all the way through our system. We have the most marvelous innovations in science and technology today. It is like we are the sorcerer's apprentice in terms of opening the doors to innovation in medicine. Yet those doors at the other end are closing, and unless there is a pull from the market to take new products that keep us healthier, and there are those products that can come forward, we aren't going to have them.

And that is what I'm really worried about. We are paying...

EMANUEL: What was the price of your five drugs?

HASELTINE: Hold on. We are paying—we are paying too much.

EMANUEL: What were the price of your five drugs?

HASELTINE: Some of them are very cheap, as a matter of fact.

EMANUEL: Some of them are very expensive, as you know well. So the price is high.

FOROOHAR: Steve, I actually want to call on you on this, because you wrote a little bit about in the pharmaceutical industry innovation and how the U.S. compares to Europe. What do you think? Do we need to be more like Europe?

BRILL: Well, first, we certainly, you know, could be more like Europe when it comes to controlling the price of pharmaceuticals. Now, what you hear from the pharmaceutical industry is, well, you know, we need to have very high prices in the United States as opposed to the rest of the world because that finances the R&D. First of all, I don't remember that we in the United States were the ones who signed up for that mission to, you know, support R&D around the world.

Second, just mathematically, it's just not true. The math doesn't add up. The amount of money the pharmaceutical companies spend on R&D in no way compares to the profit margins that they have. The successful pharmaceutical companies have higher gross profit margins than the most successful software companies. And software companies don't even have to ship anything. You know, they don't even have to make a physical product.

So, you know, we have to do something about that. You know, we can't just say, well, that's just the way it is in America.


HASELTINE: But that wasn't the question. The question was, will these health care problems impact innovation? And the answer is, if we don't get our health care costs under control, not at 20 percent of our GDP, but less, we're not going to be able to afford innovation.

BRILL: It's a political...


EMANUEL: Look, I think when I talk to investors, venture capitalists and others, who are investing in these companies, they say, on the drug side, the thresholds have gotten better, higher. You have to show that your drug is actually a homerun. We're going to pay for homeruns, OK? Something that cures a disease, cures blindness or something, we're going to pay for that, and we're going to pay $100,000, $150,000 for that kind of drug.

Something that adds four months of life to—and doesn't cure anyone with terminal cancer, why are we paying $120,000 for that drug? You might ask yourself that question. I ask myself all the time, because I am an oncologist and I do think, that's not going to happen. And so we're going to kill those drugs.

Is that an innovation in your mind? Well, you might think it's an innovation. I think, you know, it's hard to say it's a big innovation. And if we don't have that, is that going to be a major tragedy in this country when we could get really—focus on getting big homeruns, focus on other technologies that are going to really improve the survival, improve the quality of life of people, you know?

But I agree with Bill on this, which is, we don't control health care costs and how we deliver care, we are going to have a very serious problem, and we are going to kill the baby with the bathwater. And the best way to ensure innovation is to get those costs down, because then the system will have excess cash to invest and provide those kind of innovations. So I think actually cost control is closely related, as I've written, closely related to ensuring we have a positive innovation pipeline. FOROOHAR: So we've got about 10 more minutes left. I want to remind anyone who's listening in that they can e-mail questions. We can see those up here. And if there are other questions in the audience now—right back here, the table in front, and then behind. Go ahead. Yep.

QUESTION: Thank you. Niso Abuaf, Pace University. It seems to me, as a lay observer, that just like we provide a defense umbrella to Europe, we're also providing the innovation umbrella, because in Europe for drugs they charge marginal cost, and here we amortize the development expenses. Are there any efforts to negotiate with our European partners to share those costs?

BRILL: Why should we have to negotiate? First of all, they make a lot of money selling drugs in Europe. Their margins are very high. They sell, you know, very aggressively. They're very happy to sell drugs in Europe and around the rest of the world. It's just that their margins are like high profit margins, not ridiculous profit margins.

And why should the rest of the world negotiate with us? I mean, I don't understand. You know, we're the only country that has a Congress that refuses, for example, to let, you know, Medicare—by far the largest, you know, medical customer on the planet—to give them...

HASELTINE: To negotiate price.

BRILL: ... the ability to negotiate price. You know, that's not a problem we have to negotiate with France. We have to negotiate that with the Finance Committee of the Senate.

HASELTINE: The individual countries are negotiating prices with pharmaceutical companies. We are not doing a very good job of that to say the very, very least. It is one of the great travesties that the biggest health care purchaser in the United States, by law, cannot negotiate price. They can't even discuss price when they look at cost effectiveness.

EMANUEL: Is Bill Haseltine calling for more government regulation and intervention in the market?

HASELTINE: I didn't—I'm not against...

FOROOHAR: Are you, Bill?

HASELTINE: ... the proper interventions in the market, Zeke. I don't know where you got that idea.

BRILL: Just to take the most absurd example, Medicare buys something like 500,000 canes every year, you know, basic, you know, wooden canes. And the type of cane they buy, they pay $11.74 for that cane. You can go to Wal-Mart and buy it for $9.

HASELTINE: But that's a very minor cost compared to some of them. BRILL: Well, it's minor, but...

HASELTINE: Some of them—some of them are hundreds of thousands of dollars difference.

BRILL: Yeah, a couple of million here, and $10 million there...


EMANUEL: I don't want to push the Affordable Care Act, but one of the things we did do in the Affordable Care Act...


... is competitive bidding for these durable medical equipment prostheses and orthotics, precisely for this.

BRILL: You did it in one region, and you haven't written the regs. Can you tell the whole story?

EMANUEL: Steve, Steve, you're not—you're not right. We did it in nine regions of the country...

BRILL: Covering 3 percent of the country.

EMANUEL: The law—the law requires...

BRILL: Three percent of the country.

EMANUEL: ... that it be—that it be nationwide by 2016. I agree, we could have done it faster. I've written very much that we could have done it faster. But as Steve points out, that provision in the places it's implemented has brought prices down 40 percent for things like hospital beds at home, wheelchairs, et cetera.

Now, many of you in New York will remember what the wheelchair manufacturers did when that kind of provision went into effect. You remember your TV and all the old people sitting in those wheelchairs saying, "Oh, Medicare's going to take away my high-quality wheelchair." That's why we have this problem, because there are certain manufacturers who are making good profits on these things who oppose this competitive bidding.

I think competitive bidding is the marketplace taking effect. We put it in the Affordable Care Act on these durable equipment. I don't think it needs to be limited there, and I have called—I've written extensively on this. We can expand that. There are lots of things that can fall under competitive bidding to get prices down. It's one mechanism that we can use.

I also agree, it has—you know, 2016, we shouldn't have to wait that long to take it nationwide on something we know works and can bring prices down substantially. But there is resistance. That's the nature of democracy. But I think we have mechanisms that we now can see work, we can see that they can bring prices down, and I think these examples are ways that you have to show something works and then try to get it generalized.

FOROOHAR: Let's ask—let's get the question there in the back.

QUESTION: Hello? Hi, my name is Les McCuren (ph). And I don't think we could have a real discussion about controlling costs without talking about tort reform. I'm the son of two doctors. My dad's retiring this year. My mom's just itching to retire in the next few years. And as you know, Obamacare didn't have any meaningful—it didn't really address tort reform, even though that most systems, universal health care systems around the world have medical malpractice caps.

So I would love your opinion on this, because as you know, every doctor, when they think about treatment, they also think about the legal and malpractice implications.

FOROOHAR: Steve, do you want to start? I know you've...

BRILL: Sure. You know, what you've identified is, you know, the trial lawyers, you know, are to the Democratic Party what, you know, the NRA arguably is to the Republican Party, though the NRA has also taken over the Democratic Party now, too.


And, you know, there's nothing about tort reform in the Obamacare.

EMANUEL: That's false.

BRILL: And the fact is...

EMANUEL: It's false! It's just factually false.

FOROOHAR: You're—Zeke, you're going to get your time. Steve, go ahead.

BRILL: There's a pilot project on tort reform in the Affordable Care Act. And the cost is high. I mean, you talk to anyone who runs a hospital and anyone who runs an emergency room, and they will tell you that the reason that they give out, you know, so many CT scans and MRIs is, you know, they're afraid of being sued. Now, that's either a convenient excuse for doctors and hospitals that want to run up the bill, or it's the truth, but it doesn't really matter.

When I was researching this, I went to Google and I put in "CT scans in the emergency room," you know, just looking for information on the topic. And off to the right, what were the ads that I saw? They were ads for trial lawyers looking for clients.

It is a huge deal. I'm going to guess it's 3 percent to 5 percent of our health care bill.

EMANUEL: Well, your guess has no factual basis.

BRILL: And the Democrats will not allow...

EMANUEL: So when the Congressional Budget Office looked at this issue, and I—you could not get an administration more for tort reform than the Obama administration. And...

BRILL: Oh, that's right.

EMANUEL: Excuse me.


Identify an administration that has done more on tort reform for doctors? Have I heard? President Bush? Excuse me. Did President Bush do anything? No. All right.

Now, we've done at least two things on tort reform. It's not what you want; it's not what I wanted. And the politics did not line up, OK? Absolutely. There was no good reason politically to do tort reform, but the president did two things on this. And, by the way...


EMANUEL: ... before he ran for president in 2006, he wrote an article in the New England Journal for tort reform. You might remember his September 2009 speech in front of Congress. He had no reason to do this. Pilot project for tort reform, I think it's $500 million we found in patient safety money that we could use for tort reform that we ran at hospitals.

And then in the bill, which Steve said had nothing, we had a program—because we recognized the first project did not incentivize states to change their laws—we had a program to incentivize states to change their laws on tort reform.

Remember, torts is a state law, not a federal law. And all the federal government can do...

BRILL: Oh...


EMANUEL: ... is incentivize states to change their laws.

FOROOHAR: OK, we have...

EMANUEL: They cannot legislate something on that.

FOROOHAR: Someone in the audience wants to make a quick comment here.

EMANUEL: Let me—let me make one final point to Steve, it's 5 percent of the budget. When CBO looked at it, it's at most $66 billion related to tort reform. Let's go to Texas. Texas, that changed its tort laws to put caps on did attract more doctors, there's no doubt about it. They like practicing there. Did it bend the cost curve? Did it take one penny out of health care costs? No. FOROOHAR: OK, last comment from the audience.

QUESTION: I just want—I just want to share one fact.

BRILL: Oh, no, don't do that.

QUESTION: The biggest block...

BRILL: He's going so strong.

QUESTION: The—Zeke, the biggest percentage by far of the contributions to Obama is from the trial lawyers. It's a fact. And for you to say that this administration has done more for tort reform...

EMANUEL: In medical, in the medical scene than any other...

QUESTION: All right. The fact is...

EMANUEL: You tell me what the Bush administration did, sir.

FOROOHAR: OK, you know what? I'm going to...

EMANUEL: What did the Bush administration do?

FOROOHAR: We're actually at time. I'm going to give Bill the last word, and then we're going to wrap up without a brawl.

HASELTINE: I would like to make one final comment about...

FOROOHAR: Go ahead, Bill.

HASELTINE: I'd like to make a final comment about how you get efficient health care services. One of the things is to look at the actual processes that people do. And I'll just give you some numbers. An average heart surgeon in America may do 100 to 200 surgeries a year. In places where I work, in India, they do up to 2,000 to 3,000 a year.


HASELTINE: An average eye doctor will do five or six cataracts a year—a day. And in many places in India and other places, they do 50 to 60 cataract surgeries a day. That drops the cost enormously. You can—if you want, you can improve and drop costs by improving efficiencies. And all you have to do is look around the world for where that happens.

FOROOHAR: OK. We're going to end on that note. Thank you so much, the panelists. Thank you all for being here.


BRILL: Great to see you.

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