THE EXPERT WITNESS: Health-care reform drags on like H1N1 - Still a Cold War relic, the U.S. health-care system must evolve

By Dr. John F. Sase, Ph.D.
with Gerard J. Senick

“When the Red Man is provided with medicine from our mother, the earth, she dwells inside him. The Shemanese’s (Whites’) medicine is procured from devils who live within rocks and piles of dust, I can see why they are crazy.”
 – Beaver Hat, Shawnee Medicine Man (from “Old Ways” by Gary Snyder, City Lights Press, 1977)

In this month’s column, we explore our current health-care system in the harsh light of day. For their part, Congress continues to struggle to develop a workable plan. Meanwhile, most Americans struggle to fathom the depth of our system, its problems, and what can be done to improve it. Many Americans have seen well-researched documentaries such as “Money-Driven Medicine” by Andrew Fredericks and Maggie Mahar (Gabriel Film Group, 2010) or “Sicko” by Michael Moore (Dog Eat Dog Films, 2007) and have gleaned some sense of the scope and depth of the problem on the world stage. (Watch previews of these films on www.
youtube.com/saseassociates).
However, most Americans that one overhears at the neighborhood barbershop or beauty salon remain stuck in the rut of the narrowly focused debate that compares and contrasts the U.S. and Canadian systems. In writing this month’s column, I (Dr. Sase) asked Dr. Alan Goodman, professor of Health Care Economics at Wayne State University, what credence he would give this ongoing exercise of popular culture. He said, “Everybody seems to have met the same three Canadians who are unhappy about their health-care system. However, very few Canadians would be willing to trade theirs for ours.”
Therefore, let us explore this issue, which has attracted almost as much attention as this year’s Academy Awards. However, to understand the situation better, we must regard it in its rightful historic and economic perspective.

Health insurance:
Historical accident?
Health insurance existed in the U.S. before World War II and was used particularly in the mining industry, where there was great medical need as well as union activity. However, medical insurance was not widespread. On a fee basis, medical treatment was much cheaper in real dollars than it is today.
At the beginning of WWII, the U.S. government instituted a wage/price freeze. This freeze lasted for the duration of the war. Due to military mobilization, there was a chronic shortage of workers. Therefore, corporations competed fiercely for available workers. During this period, companies started to offer health insurance as a non-wage “benefit” to attract scarce labor. This was due to the fact that the law forbade offering higher wages. Suddenly, medical practitioners saw their practices increase astronomically, as would any business that offered a valued product “for free.”
When WWII ended and the wage/price freeze was lifted, this increased demand helped to pave the way for that ravenous beast called inflation. The beast was kept at bay during the post-war period by three major factors. First, the GI Bill provided free medical care for returning soldiers. Second, the bill provided free education that flooded the market temporarily with new physicians. Third, most industries throughout the world either were destroyed or severely damaged by the war, unlike in the United States. Our country enjoyed an unparalleled period of industrial and economic prosperity that made widespread employer-provided health insurance a viable option.

Eisenhower daze.
President Franklin Delano Roosevelt intended to institute a national health program in the U.S. as part of his New Deal. However, he died before the end of WWII. His successor, Harry Truman, also favored such a bill, but was stalled by two related factors, the Korean War and the Red Scare. As a result of the latter, the House on Un-American Activities Committee made it impossible politically to institute anything remotely “socialist,” including so-called “socialized medicine.” The AMA, benefiting enormously from profit-driven medicine, and the newly arrived insurance industry lobbied heavily against this “Communist plot.” As a result, medical practice was kept on a for-profit basis.
However, in the happy days of the 1950s, the Eisenhower Administration shaped the present configuration of health-care delivery. Eisenhower, a popular war-hero president with little talent for governing, was prodded by the private sector into relaxing New Deal controls that limited the investment options for the insurance industry. In addition, Eisenhower made research and development a tax-deductible business expense.
In his book “Critical Path” (St. Martin’s Press, 1981), Buckminster Fuller reveals the fallacy in the excuses made by Big Pharma and related medical industries. In addition, he sheds light on some potentially insidious aspects of the Medical, Industrial Complex. Fuller writes, “As soon as the Wall Street lawyers had Eisenhower in office in 1952, they instructed him to break loose all the economic controls of the New Deal. For instance, they persuaded Eisenhower to allow the insurance companies to invest their vast funds in common stocks. Before Ike’s liberation of the insurance companies, they were allowed to put their funds only in ‘Class A’ bonds and similar investments.”
After the New Deal was dismantled, the U.S. Treasury Department deemed that all research and development (R and D) was an operating expense to be deducted from earnings before calculating income taxes. As a result, the United States eliminated almost all of the risks taken by pharmaceutical companies engaging in private enterprise.

A long time coming.
Today, the U.S. government subsidizes pharmaceutical companies with research grants and indirect tax subsidies. The government now provides the Medicare Advantage and Prescription Drug Plans so that our senior citizens do not have to choose between their life-sustaining medications or paying their utility or grocery bills. The funny thing is that, by increasing demand, this act has helped to increase the prices of these pharmaceuticals.
The Medical/Industrial complex has much at stake in preserving the present status quo of our health-care system. This industry remains entrenched throughout the U.S. economy. When the American Hospital Association holds its annual conventions, approximately 500 commercial exhibitors put up booths. Among these exhibitors, we find companies that we rarely think of as active in the business of health. These include the LG Group, Motorola, IBM, Addressograph Bartizan, Bigelow-Sanford Carpet, and Monsanto. Many conglomerates, from Litton Industries (Northup Grumman) to CIT Group, now have medical subgroups in their corporate families. In addition, aerospace companies such as Lockheed Martin involve themselves in everything from computerized medical information services to life-support systems.
The cost of pharmaceutical products and space-age technology is regarded universally as the main culprit driving up the cost of medical insurance. According to the Centers for Medicare and Medicaid Services, health-care costs have been growing by more than 7% per year. CMS researchers expect the growth in national health expenditures to average more than 6% per year through 2019 (http://www.cms.hhs.gov/ NationalHealthExpendData/03_NationalHealthAccounts
Projected.asp). For example, inflation averages approximately 4% per year, over the long run. This means that, over the course of the next decade, goods and services for which we pay $1 today will rise almost to $1.50, due to normal inflation. However, $1 spent on medical services today will rise to approximately $1.90 in 10 years. Pretty simple math....

The Boston Tea Party redux.
The push for a Patients’ Bill of Rights was inaugurated formally 12 years ago in Boston. In December 1997, an angry mob of doctors, nurses, and other health personnel staged a reenactment of the Boston Tea Party. Instead of tea, they threw surgical gowns and other medical equipment off the back of a ship into Boston Harbor. These “revolutionaries” brandished a manifesto that was published in the Journal of the American Medical Association (JAMA). The following is part of this manifesto: “Physicians and nurses are being prodded by threats and bribes to abdicate allegiance to patients and to shun the sickest, who may be unprofitable. Some of us risk being fired or ‘de-listed’ for giving, or even discussing, expensive services, and many are offered bonuses for minimizing care. Listening, learning, and caring give way to deal making, managing, and marketing. The primacy of the patient yields to a perverse accountability to investors, to bureaucrats, to insurers, and to employers. And patients worry that their physician’s judgment and advice are guided by the corporate bottom line” (JAMA, December, 1997).
More than 2,300 doctors signed this manifesto. This means that 92% of AMA physicians at that time supported holding health plans as well as doctors accountable through a strong patients’ bill of rights.
Well, they better. In the World Health Report 2000, the World Health Organization reported that the U.S. ranks 37th out of 191 countries according to performance, though it spends twice the percentage of its Gross Domestic Product than the average country studied. The W.H.O. ranks France the best overall, followed by Italy, Spain, Oman, Austria and Japan, all of which have national health programs. Canada, the nation touted most often as a comparative by Americans, placed far down the list at number 30. Does this imply that we strive to advance our own health system to a level of apparent mediocrity?
Indeed, the Institute of Medicine, a division of the National Academy of Science, said this in its book “To Err is Human: Building a Safer Health System” (Linda T. Kohn, Janet M. Corrigan, and Molla S. Donaldson, editors, National Academy Press, 2000): “Experts estimate that as many as 98,000 people die in any given year from medical errors that occur in hospitals. That’s more than die from motor vehicle accidents, breast cancer, or AIDS – three causes that receive far more public attention. Indeed, more people die annually from medication errors alone than from workplace injuries.”

Placebo economics.
Pharmalicensing, a division of UTEK Europe Ltd., reports that the global pharmaceutical industry generated total revenues of $615.1 billion in 2008. Since 2004, the industry is growing at a rate of almost 5% per year. By the end of 2013, the industry’s total revenues are expected to reach $734 billion annually.
In 2008, the ten largest global pharmaceutical companies earned 57% of the total industry revenue. Furthermore, the 2008 average operating margin of these companies exceeded 23% while their net margin topped 20%. However, analysts expect market growth to decelerate through to 2013. This is due to the expiration of a large number of patents and the resultant intensifying competition from generics. Is it any wonder why the Medical/Industrial firms quake in their boots in the face of unknown, but monumental, changes to America’s Health-Care system? (figures from DATAMONITOR Pharmaceutical COMPANIES REPORT – Global Top 10 Pharmaceutical Companies, June 2009)

The muddled medical maze.
In the decade since the Boston Tea Party Redux, the terrorist attack of 11 September 2001 led to fears of biological and chemical warfare. Subsequently, the specter of potential pandemics such as West Nile Virus, Avian Influenza, and the recent H1N1 Virus have cast multiple spotlights on the lack of public health preparedness. Any reasonable person might suggest that readiness in this country has been proven to be fairly abysmal. Hence, the push is on for a meaningful overhaul of our entire health-care system. However, this observation represents nothing new. In the book “Our Ailing Medical System: It’s Time to Operate” (Perennial Library/Harper & Row, 1970), the editors of Fortune magazine wrote, “Our present system of medical care is not a system at all.” The editors concluded, “The majority of physicians, operating alone as private entrepreneurs, constitute an army of pushcart vendors in an age of supermarkets. The American hospital system is largely a figure of speech, the result of a haphazard growth of isolated, uncoordinated institutions.”
As the title of this month’s article suggests, our medical “system” continues as a relic of the Cold War. Why? As a result of massive devastation, tremendous civilian casualties, and shock, the European countries and Japan all adopted national health-care programs during or right after World War II. Unlike the U.S., virtually all of these countries experienced bombardment or direct invasion. Even as we in America have depended on our government in a magnified way during the decade since 11 September 2001, we only can imagine the sentiment and actual dependence of these countries given the Blitzkrieg and the retaliation of allied armies and air forces.
These people looked to their governments for health care. They had to, and those services became – and continue to be – very good.
Next month, we will continue with this health-care theme and explore the history of the American Medical Association, for-profit medicine in the United States, and other related topics. We hope that all of our readers perceive that the problems that beset our Medical/Industrial Complex stand as more than economic issues. This public/private sector demands an ongoing and proactive involvement by the legal community. We need to address everything from overall governmental regulation down to the matters of intellectual property that the practice of modern medicine entails.

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Dr. John F. Sase of SASE Associates, Economic Consulting and Research, earned his MBA at the University of Detroit and his Ph.D. in Economics at Wayne State University. He is a graduated of the University of Detroit Jesuit High School. Dr. Sase can be reached at (248) 569-5228 and by e-mail at drjohn@saseassociates.com.
Gerard J. Senick is a freelance writer, editor, and musician. He earned his degree in English at the University of Detroit and was a Supervisory Editor at Gale Research Company (now Cengage) for more than 20 years. Currently, he edits books for publication and gives seminars on writing. Mr. Senick can be reached at 313.342.4048 and by e-mail at gary@senick-editing-com.