Introduction

Some years ago, Fortune magazine summoned me to New York for a sumptuous lunch and a serious discussion. At the end of the meal, I found myself with a plum, but difficult, freelance assignment. It was no less than to figure out who had the best solutions for America’s health-care crisis, and to write them up in snappy prose that would make the story a “must read” for the country’s business elite. What the magazine had in mind, I think, was that I find some dynamic, change-artist CEO who was doing for health care what Andrew Grove had once done for Intel or what Jack Welch had done for General Electric.

I accepted these marching orders with much trepidation but also great curiosity and passion. The biggest reason was personal. Five years before, I had lost my wife, Robin, to breast cancer. I never blamed her doctors for her death. But what I saw of the American health-care system during the ten months between her diagnosis and demise had caused me to stop regarding health care as a mere abstraction. I had become personally engaged in the question of how the American health-care system actually worked or, all too often, didn’t work.

Robin was treated at the prestigious Lombardi Cancer Center, part of Georgetown University’s hospital, in upscale northwest Washington DC. Every time she and I entered the facility through its posh lobby, we passed a poster-sized blowup, mounted on an easel, of a recent cover of U.S. News & World Report that ranked Lombardi as one of the best cancer treatment centers in the country. Since I worked at U.S. News at the time and respected the team responsible for these annual rankings, this was particularly reassuring.

Robin and I both felt blessed that our gold-plated insurance allowed us unfettered access to all the doctors and specialists we would care to see and that we lived within just a short drive of Lombardi’s world-class facilities. I particularly remember Robin saying how grateful she was that we hadn’t chosen to try to save money by enrolling with an HMO. We were lucky yuppies, and we knew it.

Yet the more time we spent in the Lombardi Center and Georgetown Hospital, the more I was disturbed by the way they managed “the little things.” On the day Robin underwent her lumpectomy, for example, I had to explain to her afterward as best I could why I wasn’t there to offer her support and comfort when she awoke. The reason, though hard for both of us to believe at the time, was that no one in the hospital could tell me, despite my increasingly frantic inquiries, where she was. I had imagined that every hospital, particularly a prestigious one attached to a major university in the nation’s capital, operated with advanced information technology systems that kept track of every patient’s location and condition. Not true, it turns out.

I was similarly shocked at how little the various specialists involved in her care seemed to consult with one another, or to keep up to date on the results of tests. In one emotionally devastating meeting, for example, the discussion began with various members of Robin’s “team” optimistically discussing her prospects for reconstructive surgery. Robin and I were both thrilled that the lumpectomy was an apparent success and that her chemotherapy seemed to be working to contain the cancer. But well into the meeting, one doctor began to fidget, finally asking if anyone had looked at the results of a recent liver scan. The team quickly departed, leaving Robin and me in an empty examining room for 30 or 40 minutes. Eventually, a grim-faced oncologist returned. The cancer had metastasized to her liver. It looked as if she was terminal.

As I said, I never blamed her doctors for her death, but seeds of doubt sprouted in my mind about the system in which they were operating. Most of the doctors were sympathetic enough, and all were highly credentialed. But there seemed to be little attention given to managing information and coordinating care. It was as if, upon arriving at an airline gate, you were informed that the airline had lost track of the plane, couldn’t find its passenger manifest, and couldn’t say if it had passed its last inspection. At any given time, Robin’s medical records and test results seemed to be scattered in paper files kept by different departments. If any one doctor played the role of pilot, much less air traffic controller, I had no idea who he or she was.

The experience of Robin’s treatment set off unsettling questions in my mind, though I tried to suppress them. Who was in charge of quality control? Why did everything seem to be done on the fly? Why did almost every routine process—doctor visits, lab tests, chemotherapy sessions—seem to involve interminable waits or changes in plan? I couldn’t offer Robin any comfort either when she received the news that she only had an estimated seventeen days to live and would have to go home from the hospital to die. A doctor had changed his mind without telling us about when he would share with us the results of Robin’s latest tests. And so she received this death sentence while alone in the hospital and had no one to talk to about it for hours. In a normal business, such as an airline, being perpetually late and having to shift plans constantly are sure signs that its processes are breaking down and that something bad is waiting to happen.

Then there were all the logistical and insurance issues. When was someone going to change her IV? When could our two-year-old son visit her? How long could she stay in the hospital after she had been declared terminal? How could one arrange for home hospice care, what did it cost, and who would pay? I came away feeling that no patient should ever enter a hospital without having some kind of full-time advocate—a caring, calm, and shrewd relative or friend at least, preferably with medical training and a law degree—to help navigate all the potential perils. And I wondered why the American health-care system, or at least this one prestigious corner of it, had come to be like this.

A short time after Robin died, I read in the newspaper that the Institute of Medicine had issued a landmark report in which it estimated that up to 98,000 Americans were killed every year in hospitals as a result of medical errors—a toll which exceeded that of AIDS, breast cancer, or even motor vehicle accidents. The article also put it another way: It was like three jumbo jets crashing every other day and killing all on board. I was shocked, but upon reflection, not incredulous.¹

Indentured Servitude

Another reason I was eager to accept Fortune’s assignment was that the American health-care crisis seemed finally to be coming to a head. As long ago as 1970, the editors of Fortune had put out a special issue on medical care, declaring it “on the brink of chaos.” BusinessWeek, that same year, had a cover story on American health care titled “$60 Billion Crisis.” But health care by now was close to a $2 trillion crisis, and that didn’t even count all the indirect costs it was imposing on the economy and Americans’ pursuit of happiness.

One of those indirect costs that I, along with millions of other Americans, had experienced firsthand was finding myself trapped in a job by my need for insurance. Shortly after Robin’s cancer was diagnosed, U.S. News went through a management shake-up. The editor who had hired me was summarily fired, and I found myself on the losing side of a regime change. The jig was up, and it was time for me to go.

Although I had several tempting offers, I had to stay and tough it out as best I could because I could not risk changing insurance plans with Robin’s preexisting condition. As it turned out, I was fortunate to be able to keep my job for as long as I had to, and I’m very grateful to all involved for that. But the experience sensitized me to how many Americans are stuck in place year after year—unable to start a new business, go back to school, or even take time off to care for a loved one—just because of the way we finance our health-care system.

I was also aware, of course, of the many familiar trend lines that were making our health-care system unsustainable and that have since grown much worse. Every year, the cost of health care rises faster than the economy grows, with results that are as predictable as they are depressing.

Because of its soaring price, we see millions of workers forced to forgo raises and to assume more and more of the cost of their health care, even if they are still lucky enough to have group insurance. We see once-proud corporations like General Motors made wards of the state and forced to downsize in large part because of their ruinous liabilities for employee and retiree health-care benefits. We see state and local governments raising taxes, laying off teachers and firemen, neglecting roads, and cutting mass transit as expenditures for Medicaid and other health expenses relentlessly crowd out other budget priorities. We see the federal government going deeper and deeper in debt and having its credit downgraded as it tries to cover the exploding cost of publicly financed health-care programs. And we see Social Security, Medicare, and the rest of America’s social safety net becoming imperiled by our failure to “bend the cost curve” on health care even as childhood poverty explodes and the baby boomers—my generation—begin experiencing the infirmities and chronic illnesses of old age.

At current growth rates, health-care spending is projected to consume anywhere from 119 percent to 142 percent of the entire real increase in U.S. per capita income over the next seventy-five years, sucking trillions of dollars away from other vital purposes.² Can health-care spending at that level even begin to ameliorate the ill health it would cause? Such a price would necessarily reduce, as it is reducing today, the amount of time and money left for educating children, fighting poverty, investing in green technology, fostering community, and relieving all the other socioeconomic determinants of illness.

Health Care’s Declining Pace of Progress

A final reason I was eager to take on Fortune’s assignment was a little-known but diabolical fact I had stumbled upon shortly after Robin died. The more I thought about it, the more alarming and outrageous it seemed to me. I discovered it after reading a study by the Federal Reserve that calculated how many hours, in different eras, the average American worker had to be on the job to make enough money to purchase various big-ticket items.

The study showcased the example of cars. Back in 1955, for instance, the average worker had to labor 1,638 hours to earn enough to buy a brand new Ford Fairlane. By 1997, the average American worker earned enough in just 1,365 hours to buy a brand new Ford Taurus, which, unlike the Fairlane, came with such standard features as air conditioning, airbags, cruise control, and power windows, steering, and brakes; and it got much better mileage. According to the study, a similar pattern of improving quality at lower real cost is true of nearly every big-ticket item for sale in the American economy.³

But what, I wondered, would happen if one included the cost of health care, which the study did not? It’s a simple calculation, and when I did the math, the results were as devastating as they were revealing. If you’ve ever wondered how the nation’s per capita GDP could grow year after year over the last generation without most Americans feeling any richer, here’s a big part of the explanation.

Let’s travel back to 1964, for example. Most Americans were feeling prosperous. Suburbia was burgeoning. Record numbers of American youth were becoming the first in their families to go to college. Intellectuals complained about the miseries of “The Affluent Society.” Yet the average American worker took home only $2.53 an hour. How does that square? You can’t just say that a dollar went farther in those days, because as we’ve just seen, the real cost of cars and just about every other consumer item has actually declined since that era. But there is a ready explanation. While workers in the 1960s had to put in many more hours on the job to purchase items like televisions, cars, or a ride in an airplane, they hardly had to work at all to cover the cost of health care. At the time, health-care spending in the United States was just $197 per person per year. This low cost meant that with a mere 78 hours of labor (or by the end of the second work week in January, for those working full time), the average worker earned enough to cover the per capita cost of health care, including that of all children and retirees.

By contrast, in 2007, despite massive improvements in productivity outside the health-care sector, the average worker had to put in 411 hours before earning enough to cover the average per capita burden of medical expenses, which by then had risen to over $6,300. Put another way, in that year, it was well into March before the average American, working a 40-hour week, earned enough to pay the health-care sector’s growing claim on personal output.

Given current trends in wages and health-care spending, by 2054, the average American worker will need to devote 2,970 hours a year to cover the cost of health care. That would mean working at least 8 hours a day, every day of the year, from January to December, with all of life’s needs outside of health care somehow financed by still more exertion. So much for the Affluent Society. Obviously, something big is going to give.

It gets worse when you think about it. What kind of health care did Americans get back in 1964 for just $197? For those too young to remember that era, health care back then was far from primitive. A strong memory I have from childhood is that of my maternal grandfather explaining to me, sometime in the mid-’60s, how he could not in good conscience continue practicing medicine because it had become too sophisticated, complicated, and fast paced for him to follow any longer. He had graduated from the University of Michigan’s medical school in 1927 as part of a new generation of doctors whose training was rigorous, competitive, and grounded in science, and he had gone on to enjoy a distinguished career in medicine. But by the mid-1960s he felt out of his depth.

The operations performed in that era included open-heart surgery, the implanting of pacemakers, and neurosurgery for the treatment of Parkinson’s disease and other neurological disorders. Electrocardiograms were in common use, and doctors had long since learned how to use defibrillation to jump-start stalled hearts. My own mother almost died of a misdiagnosed appendicitis in the 1960s, but once the right diagnosis was made, she was easily saved by an appendectomy, which by then had become a routine operation.

Thanks to the increasing use of kidney dialysis machines, death rates from kidney disease were also plunging. Anesthesia no longer just meant knocking patients out with ether; it included local anesthesia, pain management, resuscitation, oxygen therapy, and the use of mechanical ventilators to avoid lung complications in patients recovering from major surgery. The polio vaccine was fully developed, and tuberculosis was nearly vanquished, as were such devastating child killers as diphtheria and whooping cough. Wonder drugs like penicillin and other new antibiotics had caused the death rate from pneumonia and other infectious diseases to plummet.

In all the time I spent growing up in the 1960s, I knew only one classmate who died from a childhood disease, and I knew none who lost a parent to illness. Then, as now, cancer patients were treated with prolonged chemotherapy, the development of which had been generously supported by government funding since the mid-1950s. Doctors did not yet have PET scans or MRIs, but X-rays achieved much the same purpose and in any event required expensive equipment and highly trained personnel.

The quality of doctors was also very high. Long gone were the quacks who had typified American medicine at the beginning of the century. By the 1960s, even elderly doctors, such as my maternal grandfather, had undergone medical training as prolonged and exacting as that received by doctors today, including a minimum of four years of medical school and at least one year of postgraduate internship. Though most physicians may not have lived up to the performance of such celebrated television doctors of the era as Marcus Welby, MD, and Dr. Kildare, polling data clearly show that health-care leaders in that era enjoyed a reputation for probity and professionalism that is long gone today.⁴

Hospitals in the 1960s also offered levels of service as high as, and in some ways higher than, they typically do now. Private and semiprivate rooms were already the norm. In the 1960s, patients were also allowed to stay in the hospital much longer than today, which of course cost money. Not all of those extra days were medically necessary, but it would have been considered malpractice to send home patients who still required infusions or highly flammable oxygen tanks, as is routinely done today. Nor would hospitals simply send terminally ill patients home to die with a stash of morphine and some counseling from a social worker, which, as I discovered with Robin, is too often the present-day meaning of home “hospice” care.

A Mexican acquaintance, who used to work in a store near our house, couldn’t believe it when I told him, shortly after Robin died, the reason he hadn’t seen me in two weeks. I explained that, with no hospice beds available at nearby institutions, I’d been holed up with my mother at home, with barely time to eat or sleep, trying to tend to Robin in her final days while at the same time looking after a very upset and angry two-year-old who couldn’t bear to watch his mother slowly die before his eyes. “In Mexico,” the man said, shaking his head, “we never send people home to die.”

Hospitals in the 1960s also routinely bore the cost of providing a calm, safe place for alcoholics to detox and for the emotionally distraught to have their “nervous breakdowns”—services that are today usually offered on an “outpatient” basis. Again, providing these services in the hospital was not always the most cost-effective option, but these services were part of what Americans got from the health-care system for just $197 per year, or just two weeks’ labor.

So why does the average American now have to work beyond mid-March of every year to earn the per capita cost of health care? Where is all this money going? And what improvements in health is it buying? Here the facts get even more outrageous. Yes, many individuals today owe their lives to treatments that were unavailable a generation ago. These notably include timely treatments in emergency rooms, which were still uncommon in the 1960s. (Though these days, emergency room treatments are maybe not so timely—if you arrive at the ER on a Friday night, you may wait through the weekend to be treated for a nonlethal condition.) We’ve also become much better at keeping underweight babies alive. Elective treatments like cataract surgery have improved the quality of many people’s lives. And yes, since the passage of Medicare and Medicaid in 1965, the poor and elderly have far better access to health care than they previously did.

But for the population as a whole, the results in improved health and life expectancy are astonishingly modest. The rate of improvement in life expectancy, for example, actually slowed substantially after the explosion in health-care spending that began in the 1960s. Between 1900 and 1960, life expectancy at birth in the United States increased by an average of 0.64 percent per year. From 1960 to 2004, however, that rate of improvement declined by 40 percent, to just 0.24 percent per year.⁵ Moreover, the gains in life expectancy that have been achieved over the last forty years have come largely from broad social and technological trends, not strictly from medical interventions.

For example, today’s Americans smoke far less, drive far safer cars, run much less risk of being injured on the job, and are much less likely to be shot accidentally, to cite just four major nonmedical sources of increased longevity. From 1960 to 2002, the age-adjusted death rate from unintentional injuries, such as from car wrecks, firearm accidents, and on-the-job accidents, declined by 42 percent. Medicine can take credit for some of the increases in longevity over the last generation, but at least half of the improvement comes from nonmedical factors, such as mandatory airbags, gun locks, and the great shift of the workforce away from farms, factories, and mines into less hazardous, service-sector work. Epidemiologist John P. Bunker, a world-recognized authority on the determinants of health and longevity, estimates that only about 50 percent of the seven years of increased life expectancy at birth since 1950 is attributable to medical care.⁶

The same period saw an astonishing increase in the cost and volume of medical care. According to Harvard health-care economist David M. Cutler, in 1960 the average American aged sixty-five or older consumed an inflation-adjusted $11,495 in health care during his or her remaining lifetime. By 2000, that number had jumped to $147,054. Yet despite this elevenfold increase in health-care spending per senior, the resulting gain in life expectancy was a mere 1.7 years.⁷ Measured by its “rate of return,” or the extra years of human life produced per health-care dollar spent, American medicine is amazingly unproductive and inefficient.

Nor can we say that the increasing cost of health care just reflects the aging of the population. As the baby boomers slam into old age, population aging will indeed become a source of increased demand for health care. But over the last thirty or forty years, the percentage of population over sixty-five has grown only modestly, and there is broad consensus among researchers that population aging has so far been a minor factor in driving health-care costs.

Instead, the big cause of skyrocketing health-care costs has been an increasingly intensive use of technologies and treatments that, when we look at their effects on the population as a whole, have brought negligible, if any, improvement in public health and longevity. For example, from 2000 through 2005, American cardiologists performed more than seven million coronary artery angioplasties, arthrectomies, and stent insertions, at an estimated cost of $170 billion. Yet only in recent years has there been any research to determine whether these procedures work any better than simple noninvasive treatments, such as aspirin or cholesterol pills, for patients with stable coronary disease. Turns out that they don’t.⁸

Similarly, most patients with back pain, including those with herniated disks, do not need back surgery, as has been shown by numerous studies over the years. Yet back surgery is among the most common operations in the United States, accounting for more than $16 billion in hospital charges (excluding physicians’ fees) for over 300,000 procedures in 2004.⁹ And of course, though treatment fads come and go, we’re still waiting for any truly effective treatment for cancer, let alone a cure. I am grateful to this day that Robin and I instinctively resisted suggestions from her doctors that she opt for a bone marrow transplant combined with high-dose chemotherapy. In the 1990s, tens of thousands of breast cancer patients received this expensive, painful, and once-faddish treatment before “modern” medicine eventually got around to doing clinical trials to see if it works. Turns out it doesn’t.¹⁰

Americans spend more per person on health care than any other country, and we have very little to show for it except more medical bills and lots of ineffective, unnecessary, and even harmful treatments. The latest confirmation comes from a study published in the New England Journal of Medicine in 2009.¹¹ It found that Medicare patients in New York State see so many specialists and receive such intensity of care that their per capita cost to government is nearly twice that of Medicare patients in Hawaii. Yet for all the extra operations, pills, and consultations New York seniors receive, they have no aggregate benefits in health or longevity to show for it.

Indeed, due to their increased exposure to staph infections, medical errors, and the trauma of unnecessary surgery and overmedication, patients in institutions that spend the most per capita have worse health outcomes than those in institutions that spend the least per capita. By extrapolating from such disparities in medical practice and outcomes, researchers have demonstrated that about a third of all health-care spending in the United States could be eliminated, even as the quality of health care improved dramatically.

Even some Third World countries have better life expectancy than the United States, despite minuscule spending on health care. In Costa Rica, for example, total health-care expenditures per person come to just $1,165 a year. And Costa Rica has little more than half the doctors per capita that the United States does. Yet compared with the United States, life expectancy at birth is one year longer for men and exactly the same for women. Moreover, though infant and child mortality rates are higher in Costa Rica, the adult population has a substantially better chance of becoming elderly there than here. In the United States, the chance of dying between age fifteen and sixty is 13.74 percent for men and 7.8 percent for women. In Costa Rica, the chance is 11.5 percent for men and 6.9 percent for women.

American Health Care’s Unexpected Champion

And so I was eager to accept Fortune’s assignment and set off to discover what had gone wrong with America’s health-care system and who could fix it. My assumptions going in were typical of those held by many Americans, particularly those with conservative, pro-market views and instinctive distrust of government. For example, I assumed that the biggest single cause of the American health-care crisis was that too many of us pay for most of our care using other people’s money. Hadn’t the big explosion in health-care cost started after the enactment of Medicare and Medicaid, along with the vast expansion of tax-subsidized, employer-provided health insurance plans?

Another under-examined assumption I brought to this project was that American health care, as inequitable and inefficient as it may be, was nonetheless the most scientifically advanced in the world. Didn’t tens of thousands of rich foreigners fly in desperation to the United States every year in search of treatments they could not get at home? Outside of veterans hospitals and some chronically mismanaged and underfunded “St. Elsewheres,” the American health-care system seemed the envy of the world, even if it cost too much and left too many uninsured. And I believed this was true precisely because it was the least “socialized.”

Yet, as I started asking experts for suggestions about who was delivering the highest-quality, most cost-effective, innovative, and scientifically driven health care in America, I kept hearing an answer I could not believe. It contradicted all that I thought I knew about health care and medical economics, indeed, about markets and governments in general. Yet these experts backed up their assertion by pointing me to study after study, all published in prestigious, peer-reviewed journals. These, too, I found literally incredible at first. If their claim was so true and obvious, why did so few Americans know about it? Why was there no talk of it in all our health-care debates?

Yet the hardcore data were overwhelming. They were also confirmed by the testimony of ordinary patients and doctors I talked to, and eventually by the evidence before my own eyes when I started touring facilities. Moreover, when I reflected on all that Robin and I had experienced during our ordeal—the fragmented care and record keeping, the difficulty in keeping track of patients, the amount of effort devoted to gaming insurance paperwork, and above all, our lack of a long-term relationship with the institutions that provided her care—it all started to make sense.

At first I was depressed by what I learned because it was so counterintuitive, so against the received wisdom of America’s business class, that I knew the editors of Fortune would never feature it on their cover. And I was right. We agreed on a kill fee with no hard feelings. Business is business. But as I pondered the deeper implications of what I had learned, my depression lifted, and I became excited.

A solution to America’s health-care crisis does exist, I realized. Better than that, you don’t have to rely on mere theoretical speculations or econometric simulations to see how it might work, nor do you have to wait around for a revolution in technology. You don’t even have to travel to some far-off foreign country like Sweden, or even Canada, to see it in operation.

It’s already up and running, right here in America, with hospitals and clinics located in every state, plus the District of Columbia and Puerto Rico. It is, in fact, the largest integrated health-care system in the United States.

Most of its doctors have faculty appointments with academic hospitals. Over the years two have won the Nobel Prize for medicine. Its innovations have included the development of the CT scanner, the first artificial kidney, the development of the cardiac pacemaker, the first successful liver transplant, and the nicotine patch, plus many advanced prosthetic devices, including hydraulic knees and robotic arms.

Health-care quality experts also hail it for its exceptional safety record, its use of evidence-based medicine, its health promotion and wellness programs, and its unparalleled adoption of electronic medical records and other information technologies. Finally, and most astoundingly, it’s the only health-care provider in the United States whose cost per patient has been holding steady in recent years, even as its quality performance is making it the benchmark of the entire health-care sector.

Though comparatively few Americans, especially among coastal elites, have any contact with it these days, and even fewer qualify for its services, its example shows that it is possible to make vast improvements in the quality, safety, and effectiveness of the health care all Americans receive, and to do so for but a fraction of what an unreformed health-care system would cost. We need only open our eyes, open our hearts, and open our minds.