And now for something completely different

A message to President Bush from a co-architect of the Clinton health plan

Illustration: Riccardo Vecchio


The American health system is crashing. We need to convince President Bush and the new Congress to put in place institutions and rigorous policies supporting health care that works for everyone. Confronting the system’s failings is a challenge that only a powerful president in his second term can take on. The system is huge, devilishly complex, emotionally charged and filled with economic and professional snags.

First, the problem: Our domestic health expenditures are huge — greater than the entire Chinese economy and growing at a comparable rate. U.S. health spending is $1.6 trillion and is projected to reach $3.4 trillion in 2013. Yet the quality of U.S. health care is poor. For example, according to a 2003 study published in the New England Journal of Medicine (Beth McGlynn et al), patients receive the proper diagnosis and treatment only about 55 percent of the time.

The health system will continue to be out of control until we have an institution responsible for guiding it. No existing institution has the tools to manipulate the health system’s performance or the clout to implement its goals. Indeed, most federal regulatory entities lack the degree of independence, refinement and scope to deal with something as complex and professionalized as health care. The lone exception is our venerable central bank — the Federal Reserve System.

A prototype for health care?

The Federal Reserve System has shown that a federal agency can achieve political independence and endurance while deploying tools affecting the whole economy. The health system needs a similar steward. For purposes of this discussion, the new health oversight agency will be the “HealthFed.”

Why is such an intrusive, top-down proposal coming from the leader of the Jackson Hole Group, which arguably brought the United States its laissez-faire, market forces-based, HMO/managed-care health policies and worked to include them in the Clinton health plan? I learned much during 17 years of medical practice and 35 years of health policy work. But I didn’t really understand the health-care system until I depended on it as a patient. I am now a typical Medicare patient with the prerequisite five big-ticket chronic illnesses, plus a broken neck from a reckless ride on a young horse. The system does not work.

Tough lessons for reformers

Until recently I was convinced that consumers given adequate information about their choices could effectively influence both the cost of health insurance and the quality of health care. I was wrong! Studies show that despite the greater public access to sound health information, market forces, patient choices and professionalism do not exert sufficient influence over the quality of health services. But market forces can work to control the cost of health care if quality can be guaranteed by some other means. Quality and costs require different management strategies.

Another lesson: History teaches that restructuring the massive health enterprise requires decades of continuous and pragmatic leadership. In December 1970, President Nixon adopted the HMO approach as health policy, expecting that 1,500 HMOs would form and be available to 90 percent of the population within five years. The most predominant health plans were expected to be prepaid group practices. But legislation encouraging this market-based approach languished.

The promised impact of competition on health costs didn’t occur until the Clinton administration — 23 years after the original Nixon HMO policy proposal. Prepaid group practices never took off. And during the ’90s, when price competition became most effective, the seeds of managed care’s unraveling had already been planted. Providers and their patients were charging that cost containment meant skimping on needed care.

The HealthFed proposal

HealthFed needs effective tools for guiding the quality and value of health services if medical costs are to be justified and the system to be trusted. It will also need enough power to assure compliance with its policies. Let the market determine prices of health insurance and the structure of health-care organizations but have the HealthFed enforce adherence to evidence-based medical quality guidelines.

The source of HealthFed’s power comes from another page of the banking system playbook: federal insurance. The government extends guarantees to depositors in banks meeting Federal Reserve and Federal Deposit Insurance Corporation standards. The health system could benefit from similar insurance or reinsurance on high-cost cases. To be eligible for optional federally guaranteed reinsurance, patients, providers and insurers would have to meet the data collection and evidence-based quality standards of the HealthFed.

The HealthFed assures Americans that they are getting health care that is effective by requiring its users and providers to rely on evidence-based guidelines. In return it gives access to federal health reinsurance thus obviating risk selection by insurers.

The new health guidance institution must become so effective that politicians and interest groups leave it alone. Currently, the medical industrial complex ruthlessly wields tremendous power, using it in ways that can harm the public. An example: In the early 1990s, the newly formed Agency for Health Care Policy and Research (now the Agency for Healthcare Research and Quality) issued a report on the most effective care for back pain. This drew political fire from a small group of threatened orthopedists and neurosurgeons who almost succeeded in killing the whole federal health services research program.

Our health system is out of control because each presidential administration, HHS secretary, Congress and Medicare/Medicaid administrator introduces new strategies for dealing with health care. Since 1979 Medicare has had 22 chief (or acting chief) administrators. Each has had to learn on the job how to run a $482 billion insurance company. Over this same period, the Fed has had only two chairmen, assisted by seven Federal Reserve Governors with 14-year terms, the presidents of 12 Federal Reserve Banks and large professional staffs. They have two major responsibilities — keep the economy moving forward at modest rates of inflation and assure the integrity of the banking system.

No one has analogous responsibilities or capabilities in health care. But someone should.

Paul Ellwood, MD, (SM’53), is president of The Jackson Hole Group and Healtru, two health-care reform Organizations. Send him HealthFed suggestions at

Comments? Contact Stanford Medicine at

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