Statement for the Record of Dr. Don R. McCanne to Committee on Ways and Means (March 24, 2004)
Statement for the Record of Dr. Don R. McCanne,
Physicians for a National Health Program, Chicago, Illinois
House Committee on Ways and Means
Hearing on Board of Trustees 2004 Annual Reports
March 24, 2004
The 2004 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds describes the projected imbalances between the anticipated revenues and the expected growth in expenditures of the Medicare program. The Trustees call for prompt, effective, and decisive action to address this challenge.
As expected, a highly charged political debate rages over the causes of these anticipated net deficits in Medicare funding. Although we will hear much about factors such as the generous payments to Medicare Advantage plans, and the decline in tax revenues supporting the program, one factor predominates above all others: health care costs continue to escalate well beyond the level of inflation.
Health care cost increases are related to expanding and ever more expensive technological advances, along with unrestrained expansion in the capacity of our health care delivery system. We are spending more because we find more ways to spend health care dollars, and because we continue to expand the capacity that allows us to do it.
Approaching the Medicare deficit as an isolated problem will not address the fundamental cause of health cost increases. Rather, the integrity of the Medicare program would be threatened because solutions would be narrowly directed to substantially increasing revenues and/or dramatically reducing benefits. Either a reduction in benefits or an increase in cost sharing by the beneficiary would threaten to impair access to care because of lack of affordability for the individual beneficiary. The alternative of asking taxpayers to fund the increase in Medicare costs would be problematic when considering that they would also be facing the same escalating health care costs.
We already know that regions with higher health care capacity have increased intensity of services but without a commensurate improvement in medical outcomes. Hospitals with greater bed capacity in their intensive care units provide costly and relatively inhumane end-of-life care when less expensive and more compassionate care would be provided in a hospice environment. Physician owned specialty hospitals and medical group owned imaging systems significantly increase capacity and the level of services although there is negligible data available to demonstrate improved outcomes.
Other nations have demonstrated that planning and capital budgeting of capacity can prevent excessive utilization while ensuring adequate capacity to prevent unnecessary queues. The 15.5% of our Gross Domestic Product that we are currently spending on health care is more than enough to ensure appropriate capacity plus fund the operating expenses of our system, with the proviso that we do not waste resources on some of the current excesses of our system. Although health care planning declined after prior efforts, the current level of spending has reached a threshold that now makes it imperative.
The administrative costs of private health plans are significantly greater than those of public programs such as Medicare. But an even greater problem is the profound administrative burden placed on our health care delivery system by our fragmented system of a great multitude of private plans, large public programs, and, for some, no programs at all. In 2003 numbers, an estimated $286 billion in these administrative costs could be recovered and utilized for the deficiencies in health care coverage today. Eliminating administrative waste must be a part of our solution to rising costs.
Although our national policies protect and promote technological development, there is a pressing need to demand value for our private and public investment. Pharmaceutical firms that develop copycat drugs merely for the purpose of restarting the patent clock should no longer be disproportionately rewarded for such non-innovative efforts. Only new products with demonstrated value should be rewarded with higher prices. Also new products developed with public funding should return that investment to the taxpayer through lower prices. We should require that new technological innovations provide both significant medical benefit and value before funding them. And there is ample evidence to demonstrate that prices are much higher in the United States than in other nations. We clearly need a method of negotiating rates and prices to be sure that we are receiving a fair value for our health care investment while allowing a fair but not excessive profit for the manufacturer or provider.
To bring the level of health care cost increases down to near the rate of inflation, we need to control capacity and pay fair prices. Medicare alone cannot have a significant influence on capacity. Although Medicare does have some regulatory control over prices, acting alone inevitably results in inequitable results through cost shifting and unfairness in pricing, while failing to control global costs. And Medicare cannot further reduce administrative waste when it is adding to the administrative burden by being an additional player in our fragmented system.
Replacing our inefficient and wasteful system of funding care with a single public payer would control costs through global budgeting, planning and budgeting of capital improvements, and negotiation of rates and prices. And with the administrative savings made possible by eliminating the waste of the private bureaucracies, we could afford to fund care for everyone while controlling costs on into the infinite horizon. Instead of limiting Medicare reform considerations to revenue increases and benefit reductions, let us adopt systemic reforms that will enable the enactment of comprehensive, affordable coverage for everyone.