As President Obama and Congress struggle to bend the rising cost curve in order to make health care available to all Americans, the history of the first great expansion of health care coverage when Lyndon Johnson drove Medicare and Medicaid through Congress in 1965 offers some critical lessons.
In the Johnson administration our focus was almost entirely on access, rarely on cost. In order to neutralize physician opposition, we agreed to pay doctors their “reasonable, customary and prevailing fees.” Medicare’s adoption of this payment system brought it into wide use among private insurers, something those insurers had refused to do for two decades because it gave doctors the power to set their own fees.
When hospitals demanded reimbursement on a cost plus basis, LBJ was told it would cost half a billion dollars. “Five hundred million!” Johnson exclaimed, “Do it. Move that damn bill forward now, before we lose it.” (It’s worth noting that 40 years later, to get pharmaceutical companies to acquiesce in the Medicare prescription drug benefit, President Bush and Congress agreed to let the industry set its own prices.)
To handle increased demand for health care, we pushed through legislation to increase the number of doctors and hospitals. We assumed that we were playing by traditional economic rules: the more doctors and hospitals, the more competition and the more efficient and less costly the services. Within two years we saw how misguided that assumption was: in a 1968 message to Congress on “Health In America”, President Johnson sounded the inflation alarm and cited the need to change the fee for service system with “no strong incentives to encourage [doctors] to avoid providing care that is unnecessary,” and the fact that “hospitals charge on a cost basis, which places no penalty on inefficient operations.”
We asked for authority to “employ new methods of payment as they prove effective on providing high quality medical care more efficiently and at lower cost.” Failure to act, he warned, would send the nation’s health care bill to $100 billion by 1975. Congress challenged our numbers as hyperbole and failed to act. America’s health care bill hit $133 billion in 1975.
There is an even more important lesson from the birth pains of Medicare and Medicaid. We worked with medical care as it was then practiced. No one had discovered MRIs, PETs, CAT scans, organ transplants and exotic and expensive cancer chemotherapy. None of us anticipated the extraordinary leap in life expectancy that would lead Medicare to spend a third of its budget during the last year of a beneficiary’s life, and Medicaid to pump an even larger proportion of its dollars into nursing homes.
Now we are in the early days of a revolution in neurology, genetics, molecular biology, stem cell research, mechanical hearts and lungs and domino transplants that promise all sorts of (costly) cures that don’t exist today. Appreciating the impact of medical discoveries on Medicare and Medicaid costs, President Obama should beware of Congressional clairvoyance that claims it can project health care costs ten years into the future.
The overarching history lesson is this: the only sure way to bend the curve and curb the rate of increase in health care costs is to keep people out of the sick care system, to put as much profit in prevention as there is in acute care, and to put financial gain and pain into how individuals take (or don’t take) care of themselves.
Effective health care reform should:
–Pay doctors to talk to patients instead of just testing, sticking, cutting and prescribing pills for them. Brief interventions have been shown to reduce smoking, excessive drinking and eating, couch potatoing and other bad habits that drive up treatment costs.
–Require all insurers to pay for preventive services like regular physical exams and to cover things such as flu and pneumonia vaccinations (as Medicare does). Then let patients who fail to get such vaccinations and get the disease pay the related sick care costs.
–Sharply increase alcohol and tobacco taxes. Almost thirty percent of health care spending is attributable to smoking and excessive drinking. Making alcohol and cigarettes more expensive has been shown to reduce both. (Moreover, presently such taxes are woefully inadequate: for every dollar we collect in tobacco and alcohol tax revenues, we spend about nine dollars in health care and other costs.)
–To reduce unnecessary expensive diagnostic tests and treatments, enact tort reform. Today the cheapest malpractice insurance for a physician is the MRI, PET or CAT scan.
–Mount a saturation public health campaign. There was a time when seat belts were for sissies, smoking was chic and AIDS was a social curse. Now every driver buckles up, smoking has been cut in half, and AIDS is recognized as a preventable disease. We can do the same with excessive drinking and obesity.
Adopting measures such as these is the only sure way to bend the curve. It is the key to affordable health care for all Americans. It’s time for the beltway behemoths at both end of Pennsylvania Avenue to recognize that this is the only sure way to slow health care spending.
Joseph A. Califano, Jr., currently chairman of the National Center on Addiction and Substance Abuse at Columbia University, was secretary of Health, Education and Welfare from 1977 to 1979 and President Lyndon Johnson’s top assistant for domestic affairs from 1965 to 1969. His email is firstname.lastname@example.org.