David Cutler: A former dean of mine introduced me before a talk and he said, "Well, David is a model professor." There's a model teacher and researcher and citizen and so on. And so I was feeling pretty proud of myself and I went home and I told my wife, I said, "Mary Beth, did you know that I'm a model professor? Imagine that." And my wife got out the dictionary and she reminded me that a model is a small replica of the original. So, I'm delighted to be here as the model speaker for you -- for you today. I -- this is actually the first time I've been to Oklahoma City, so I'm enjoying it quite a lot and I thank you for the hospitality. It's also a good thing that this was scheduled now. You know, this was, of course, scheduled some time ago, the talk was, and, of course, we all knew that health reform would have to be done last summer or maybe last fall, but definitely by Christmas, and certainly not later than Valentine's Day. And as the time kept going on, I kept saying, well, what am I going to do with the title. What did we do in health care reform? Since you have to have actually done something to report on what it is that you did do. And so I called Oklahoma. I said, "Gary, you got to get them to do something." So, I'm pleased that you got them to do something so that I can now report on that. So, I will start off, of course, with the latest news from Washington. Franklin Delano Obama and his conquering of medical care. Actually, it's -- you can learn an enormous amount from cartoons, so in Massachusetts we recently elected a Republican to the Senate, as you all know, Scott Brown. You know we had former Senator Kennedy rolling over in his grave. And so, I want to show you what -- one of the cartoons. This was a cartoon from two days after Scott Brown was elected. This is the Democratic huddle. Remember, this is January, now, so it's football season in Boston. "It's the last play of the game. It's fourth and one inch. We're behind by five. What do you think? Field goal or punt?" Remember, I come from an area where Harvard University football isn't probably quite as good Oklahoma University football. Nonetheless even we understood this. And, then, of course, the Democrats had a little bit -- started to get a little bit better about it. This is Surgeon General Obama. "You appear to have an obstruction to Congress and we may have to do a bypass." Which, of course, was what happened. I want to tell you -- you know -- I think the cartoons are just incredibly amusing. I want to tell you a bit about what I think we did in health care, but I need to get a sense of where the audience is. So if I had to guess, my guess is that there are more people who are right of center than I tend to encounter in my usual life in Cambridge. In Cambridge, Massachusetts. So, I'm going to ask -- I'm going to start off just by asking you a question and the question is the following. You are a member of the House of Representatives from wherever you life. You don't have to worry about re-election. You have a completely safe seat, so I don't want you to take into account whether you're going to get re-elected or not, but the House is just about to vote on health care, so it's a couple of weeks ago, do you vote yes or no? O.K. So, that's your -- that's you questions. How many yes votes?

Audience member: Yes.

David Cutler: How many no votes? Interesting. So it would pass in this room probably about 60-40, maybe 2 to 1. Just to help me get a sense. So let me tell you what it is that I think we were trying to do, at least how I interpret it, and then I'll give you a sense about what will be the important parts, what will be the unimportant parts, what kinds of things to look for. So there are basically three sorts of things going on. The first one is trying to figure out how to get everybody in the U.S. covered. The second one is trying to figure out how to improve the value of care, by which I want you to have in your mind how to improve the quality of medical care, and at the same time lower the amount that's spent. And then the third thing is to address the U.S. fiscal situation, which you all know is a complete wreck and going off the edge of a cliff. Now, of these the one that's most important and the one that I'm going to talk to you the most about is clearly the second one. If you figure out how to save money you can cover people, you can address the fiscal situation, you can pay for world peace a few times over. There are all sorts of things you can do if you figured out how to make the dollars and cents work out right, and conversely if you don't figure out how to make the dollars and cents work out right, there's nothing else up here that's going to be very successful. So, I want to mostly spend time on that one, but I first just want to give you a sense of what are the major challenges that are going to happen and they really have to do with these two elements, getting everybody covered and figuring out how to improve the value of health care. The getting everybody covered -- now the federal government has said that working with the states we will figure out how to do that. And conceptually we kind of know how to do that. We can set up an exchange. The state of Massachusetts has an exchange. Utah has one. Other states are thinking about them. Some states like Oklahoma run high-risk pools that might be the foundation for a kind of exchange. It turns out to be not too challenging in theory, although the actual practice, the actual implementation of it will be fairly difficulty, because it's not something that we have an enormous amount of experience with in this country. So that's the first set of stuff that's going to have to happen. It's going to have to be a very big effort. It's going to have to involve the states. I hope that even while the states are suing the federal government, they're at least preparing for the possibility that they will be doing this, and that the law calls on them to do this and -- [mike feedback noise] sabotaged by Oklahoma state. And the -- just wait until the people in Texas find out. So the hope is that they will do this and that we'll figure out how to make that work. It must -- as I say, there are areas, including Massachusetts where we have some experience with that. The other one, the other big area is going to be improving the value of care, and the basic philosophy in the health reform legislation is to start with Medicare and to use to Medicare as a window into changing the entire health care system. So figure out how to move the payment of medicine toward something that increases the efficiency of the institutions -- I'll talk much more about this -- as well as promotes administrative simplification and drives a lot of money out of the system. And it's what I term the value agenda. It is what I think of as the single most important thing that's on the agenda of both the federal government, state governments and medical care providers over the next decade, and it's something that is going to determine whether we're successful or not in health care reform. So, let me tell you a little bit what I mean, and I want to start off with some economics. Mindful, I should say -- when I do this I should be mindful of what my -- a different former dean once said. He said if you took all the economists in the world and you stacked them end to end that would be a good thing. We've had this series of interesting deans. Not to mention a president or two, who had thoughts about women in science, but maybe I should leave that for another day. So, let me show you first about productivity, this chart shows you the history of productivity in the U.S. Productivity growth was very high in the early post-war period, and then productivity defined as, say, output per hour, what's happening to the cost of a given product, was very low from the 1970s through the mid-1990s, and then productivity increased dramatically. O.K. So what the U.S. has had in the past 15 years or so is a productivity revolution. That's why we balanced the budget in the 1990s. That's why incomes were rising, although more so at the top of the distribution than at the bottom. That's why overall welfare was going up quite a lot, why we thought the economy had entered a new age where we were all going to do very well. The productivity revolution happened more or less everywhere but health care. So if you look at the industries that have done extremely well: durable goods manufacturing, people who make you your cars and computers; information technology. Some of those things are fairly different from health care. Hard to know how health care would be as good as say the IT industry, although probably it could. But then other things are actually very similar to health care. Retail trade used to be and industry where there was a lot of haphazard quality and you'd go to a particular store here and there and you weren't quite sure what you were getting, and now it's much more standardized. Even business services has fairly high productivity. You can see health care down towards the bottom. Health care has very low productivity growth, actually negative in this context. That's surely an understatement. But, still, nobody's overwhelmed by what's happening in health care. The official data say we're spending more and more to get less. That's not right, but we're nowhere near getting our money's worth relative to what we should get. And if you sort of think about why, there're really two dimensions to it. The first is the service dimension, that is, do I enjoy interacting with the medical care system, and then the second is the clinical dimension, am I actually getting better. Those two are no different than any other industry. When I buy anything, when I buy a car, I want the car to work and I want to enjoy as much as possible the experience of buying a car. In health care it's the same thing. I want to get better, that is, I want the health care product to work, and I want as much as possible to enjoy the experience of using it. What do we know about each of these? What we know is that they're extremely poor. So if you ask about service quality people are delighted to tell you how awful the medical care system is. People would like to e-mail their doctors, but cannot. How many of you can e-mail your doctor? Mm-hm. Name two other people in your life you can't e-mail. Even my mother is now on e-mail. "Dear David, why haven't you called recently. Love, Mom." A third of Americans will tell you they've had lost test results, they've had to repeat a test, they've got different advice from different physicians about a relatively common problem. How many of you have had that for someone in your family? How many of you have an elderly parent, a parent who's older than you still alive? How many of you are acting as the primary care doctor for your elderly parent? Why? Is it because we're so well trained in being primary care doctors? Think about all the things that you do. My grandmother, when she was alive, she used to decide which pill to take. Not quite sure what training she had. In fact, I know which training she had. She didn't have any training for it. Deciding when to go to the doctor. Deciding what -- when to go to the specialist, what other things to need. People are effectively acting as their own primary care doctor and most people are really quite bad at it. Now, actually, in every other complex industry there is someone who does that for you. So think about another industry. Let's say money management. How do you manage your money for retirement? Here at the university, TIAA-CREF will do it for you. Fidelity, Vanguard. Any of a number of companies will do it for you. Then management of your money is a service that people pay for and that they receive, and that's -- people enjoy receiving that. The management of health is something that's left to you. And so the first big thing -- and I want to keep coming back to this, which is that the organization of medicine has not evolved in any way that allows people to get what they want. So people wind up spending an enormous amount of time doing tasks that they are not trained to do, that they don't want to do and that they're not very good at. I've given you a list of all the people. It's not that there aren't people who could do this, it's just that none of them have stepped in and said, "You know what? I'm going to figure out how to coordinate care for people, when they need to go to the doctor, when they need to get various tests, when they need to see a specialist or not see a specialist, how to make sure the information gets from one specialist back to the primary care physician, or somewhere else. You could think about which of these you think is most appropriate, or which one will likely do this, but that's one of the key issues going forward, is going to be who's in charge of coordination. On the clinical side, let me give you the premise underlying health reform. I promise to tell you what we did and how it fits into this, but give me one more minute. On the clinical side, the premise that was underlying essentially everything that was done in the recent health reform legislation is that we waste money and at the same time get lower quality care than we need to. And so, therefore, we should be able to improve the quality of care and simultaneously lower money -- lower spending. That is, it's not the case that saving money will necessarily involve rationing care. Maybe down the road, but in the short term, saving money should involve better care. Let me give you a few examples. Overuse of administrative personnel. How many of you are practicing physicians? What's the ratio of clerical workers to practicing physicians in the typical doctor's office? I'm sorry? Nine to one. I learned about Duke University Hospital. Everyone knows famous Duke University Hospital? Nine hundred beds at Duke University Hospital. Very big hospital, 900 beds. Thirteen hundred billing clerks! Get admitted to the hospital, get 1.5 billing clerks in bed with you. You remember all those middle managers who were fired from American business a decade ago? Remember them all? I figured out what happened to them all. Every single one of them is now employed in health care, so there are more clerical workers than there are RNs. There are more managers than there are physicians and there's a huge, huge administrative component, probably 10% to 15% of medical spending, which just doesn't need to occur. And any kind of rational system would do that. In fact, a fair amount of what the nurses are doing is actually clinical in addition to the doctors. If you follow nurses around a hospital with a stopwatch and you look at what it is they do, you know the most common thing a nurse does? She documents things. Here's what she frequently does. She's in the patient's room. There's some machine printing out oxygen levels or blood pressure or whatever it is. She writes it down on a piece of paper. She walks to the nursing station and she enters it in a computer. What other industry do you do that? But we pay for all of that. Too much spending on care. People go into the hospital with, say, congestive heart failure, they come out of the hospital with medication instructions that they don't understand and don't follow. No one ever checks in on them. Three weeks later they're back in the hospital not having seen anybody, not having spoken to a nurse, not having spoken to a doctor, not having spoken to anyone who can help them at all. Why is that? No one is involved in that coordination, there's nobody for whom coordination is a part of what their livelihood is about. We wind up spending much more. It's not that the people enjoy being in the hospital. It's that we're there because we can't figure out any other way to do it. Medical errors: we spend about $30 billion a year fixing up errors that are made in hospitals that are preventable. The most common way that you prevent the errors is you wash hands in between seeing patients and you pay attention to the elevation of the patient and all sorts of very low-tech things. A lot of the problems in clinical care associated with excess cost are not high-tech things. They're things where the system doesn't work well to eliminate it. And if you -- if you think about it, what's really not functioning is at the system level. The health care system is not -- it doesn't work well. So, let me come to what it is that successful businesses do. So think about your favorite successful business: Amazon in on-line sales or information technology. What is it that they do? Well, first they know things. They know what they're doing, who's doing it, making sure that they appropriate person is doing it. All of the things that you'd expect. They know what's going on. In health care the most surprising thing is how little we know. Amongst all hospitals in Oklahoma, which hospital has the lowest rate of bypass surgery mortality? How would you know? Do you think that's a relevant thing to know? In New York where they measure it, the rate across hospitals varies by five to one. The grade across doctors varies from -- by ten to one. Yet, there's no sense in which we have the right information. So there's an enormous weakness. Second thing, productive firms have compensation practices that work. They reward creating value, not doing too much, not doing too little, not hiding people's money like AIG. In health care the way you earn money is you do more. Or to put it another way, the easiest way to go bankrupt in health care is to make sure your patients are healthy. Seems a kind of bad way to run a health care system. The third thing that happens in all productive firms is that they empower workers to do stuff. Health care has among the most highly trained workers anywhere. The best trained, the smartest, the most dedicated workers everywhere. Whenever I talk to nurses -- any nurses in the audience? All right, so here's a question for the nurses. Can you think of ways to improve the productivity of the hospital that you -- how many work in a hospital? So, let me talk then to all the nurses. Let's -- because I'm sure you spent time in a hospital. Can you think of ways to improve the productivity of the hospital where you last worked or last were familiar with. Yes? In how many of those hospitals were you ever asked for ideas? I'm sorry? Not so many. Why? Why do we throw away the brain power of the most committed, most intelligent work forces in the entire country? So, health care basically fails on all three of the criteria for being a productive industry. Now, let me -- let me start to turn to public policy for a minute. A year ago in the stimulus bill, the federal government passed $30 billion for health care information technology. Why? Because the president was convinced that we were never going to get the information we needed unless the government stepped in and did something about it. So we put -- so after a decade or two decades of thinking about it, we spent $30 billion to wire up the medical system. Our best guess is that by 2014 the entire medical care system will be wired. Now, just having the computer is not going to solve all the problems. In the vast bulk of businesses it's not having the computer, it's figuring out how to use them right. But at least at the basic level, that was step one of health care reform. It was a year ago in the stimulus bill. Step two was thinking about compensation changes. Most of the 2,500 pages in the bill that just passed -- most of those 2,500 pages are devoted to changing the way that Medicare pays doctors. That is, if you judge by volume of pages, that's what that bill was about. Covering people is a relatively small number of pages. The special deal for Nebraska and Louisiana and all of that, fairly small number of pages. Very icky, but the ratio of ickiness per page was very high. But very small number of pages. The vast bulk of the effort is involved in compensation. So what this -- the philosophy behind what was going on was to deal with the two big things that the government has some say over, which are the information infrastructure and the compensation system, with the idea that then that would lead to the third, which is institutions being better able to deal with what's going on and to figure out how to take advantage of that, and we are now in the transition between putting the infrastructure in place and figuring out how we're going to use it. And that's really going to be the challenge over the next five or ten years. Let me try and flesh out a little bit more about what this means. Information technology, what are we going to do with that? Well, for starters, we've got to use it for clinical encounters, that is, is this patient allergic to this medication or not. But we're also going to have to use it for broader questions about learning what works or not in the environment. Remember Vioxx? Remember we -- Vioxx was taken off the market? How did the FDA learn that Vioxx was killing people? I'm sorry? I couldn't quite hear that, so I'll assume you got it right. The data came from Kaiser. The FDA asked Kaiser to look into it. Why did the FDA ask Kaiser? Nobody else had the damn records. So who knows how many more of those we'll find when more people have electronic records. Learning about the system is going to be a very big deal, and I just want to flag that in every industry where these organizational issues have become -- informational issues have become big and the organization has changed, it's been a sea change in the nature of what the industry looks like. And I'll show you some examples of that. Compensation. This is where I think the real -- the biggest changes are likely to occur. If you look at the way that compensation works now, there are all sorts of different silos. There's a hospital silo, a doctor silo, pharmacies, labs, nursing homes, home health agencies, and every silo gets paid its own way. What we know about every productive industry is that is has drawn a box, sometimes literally a box, like a Home Depot box or a Walmart box, and it's brought together all the input and said, "This is the way we're playing with them. This is the way that we're going to go about buying and selling them. The thing about health care is there is no box. The thing about what this reform is trying to do is it's trying to create a box. How does it do that? It's got a number of things at the provider level. It says to physicians, we're going to come up with measures of performance. The measures of performance are typically things about the other boxes that the physician should be doing, like, are you getting your patients the appropriate lab tests for diabetic patients. Are you making sure that you're coordinating or that the patients have -- are taking their medications when they're supposed to, and if you are we'll pay you more. So trying to put a box around the doctor's office, trying to put a box around hospital. Are you meeting the requirements about discharge planning and all of that, and we'll give you more if you do that. Paying directly for coordination, taking those different boxes and saying, we know that whenever a patient goes from a hospital to home there's trouble, so let's put in an additional payment for a nurse or a doctor who's going to look and make sure that the person gets the right amount of care, doesn't come back in the hospital right away. So, again -- so the first part of it is at the provider level trying to take those people who have some ability to do it and say, "I'm going to make your payment contingent on, in essence, the person doing well in that box." The other thing that happens is actually drawing a box around it and saying, "We're going to just give one payment for things that used to be separate." You used to get one payment when the patient came in the hospital and a second when they came back in to be re-admitted. No longer. You're just going to get one payment overall. If the patient comes back in, that's your tough luck. But by the way, we know that you can cut your rate of re-admissions in half just by having a phone call after they leave. Would you like us to tell you more about this program? Ultimately -- in fact, not ultimately, even in the short term what the law calls for is bundling entire episodes of care. Think about a person with cancer. Take, let's say, a man with localized prostate cancer. We know that in most cases watchful waiting, that is monitoring what happens but not doing anything right away is both cheaper and higher quality for most men, and yet the vast bulk of men will get either surgery to take out the prostate or radiation or proton beam radiation or whatever it is. There's no reason why we shouldn't have a coordinator whose job it is to take care of men with localized prostate cancer in whom we give a fixed amount of money and we monitor the quality and the payment goes up with quality but not with doing more. And, of course, the limit of that is a medical system as a whole. You've got doctors, hospitals, labs, pharmacies. You just put them all in one box, say you take care of these patients. We're going to make sure you do a good job with it, but beyond that if you can figure out how to save money, then we'll -- then you'll earn a profit. Just to give you a sense about how much money there is to be saved, our best guess is that about a third of medical spending doesn't need to occur. And so the potential is there for someone to figure out how to save a third of a two and a half trillion dollar health care bill, roughly $700 billion a year we think we're wasting, and what the idea is, to move towards a situation where firms, whoever they are, have an active ability to claim some of that money by saving it. Sometimes they may be existing firms. It may be existing hospital and physician networks. Sometimes it may be entirely new firms. Walmart came out of nowhere in retail. Amazon.com came out of nowhere in book sales. Sometimes it's an entirely new firm that figures out how to deal with vast amounts of waste. But one way or the other that's really what the philosophy is and what could very well happen. If that sounds like it's calling for consolidation, I think that's right. In every industry where information has become a big deal, where compensation has been associated with doing a good job, where the ability to achieve economies of scale has become important, in every industry like that the industry has undergone consolidation. Retail trade: Walmart, Target, Best Buy. Banking has gone from local to national, even legal services have gotten to be much bigger, and, in fact, that's actually happening in health care, as well. If you look at the biggest cities across the country, the biggest hospital system in those big cities has one quarter of all the admissions and one third of all the profits. And that's because bigger turns out to be better, here. I will not at all be surprised to see that continue. Most of the people I know, just to give you a sense -- most of the people I know in Washington won't say this in polite company or in front of reporters, but they will tell you that in a decade they will be happy if there are no more independent doctors. They would be delighted if every single doctor were part of a bigger group. And the idea is that bigger is better. Now, I'm not -- I don't necessarily agree with all of that, but the -- but the clear goal is to get people -- get providers out of the thinking about small parts of what they do and into thinking about the whole. So let me show you a little bit of the potential. What would success mean? How much money could you take out of the typical hospital without affecting adversely patient care? If you just ran the hospital efficiently -- where are my nurses? How much could you lower cost of a typical hospital without affecting patient care, just by making it run smoother? A third? Who says a third? Higher? Anyone think higher? Lower? Maybe 25%? If you save 25%, that would be about 10% of total medical spending, which by the way is more than what the president has promised people. More than what the legislation was predicated on. Within institutions, enormous potential for savings. Across institutions, if you look at just the administrative expense, United Health Group estimates there's $300 billion we could save just by streamlining administrative expense. How many people here are MDs? Very common thing. Credentialing: every health plan has a different credentialing system. Enormous waste of resources doing credentialing. Hospitals employ -- a lot of those 1,300 billing clerks at Duke Hospital are there to make sure that each insurance company gets the different piece of information it wants for reimbursement. Most hospitals will tell you they'd be happy to provide all the information to every insurer and let them throw it away if they don't want it. The cost of figuring out what to write on each form is very high. These won't be solved piece by piece. They'll be solved by the system as a whole by the providers and the insurers getting together and saying, we're going to figure out how to get rid of these costs. Some of it will be at the individual level, some of it will be -- at the individual institution level, some of it will be at the system level. There's absolutely no reason why we can't save this money. As I tried to tell you I think the legislation provides a framework where we can do that. And I just want to show you one other thing about how organizational change will be important, here. And I have a quiz for you. So here is you quiz. What do these people have in common? They are rich, indeed. They are rich. They have one other thing in common, too. Some of them are docs. They're rich from medical care. More precisely, here's where their money is from. And that's how much they're worth. They're the health care people in the Forbes 400. What do you notice about them. What do you notice about where the money came from? I'm sorry? Almost all medical devices. With only two exceptions, every single person on this list made their money by inventing something you stick in someone's body. The two exceptions are a guy who made money through reinsurance and second is Tommy Frist, who invented hospital organization, who changed the way we organize hospitals. Everyone else made their money by inventing something you do to someone. All of these folks invented stuff you use. Not a single one is a change in the way you use the medical system. Now let me show you a different list. This is the people on the Forbes 400 list from retail trade: six Walmarts, five heirs of Sam Walton; five home improvements, including two Home Depots; a few Gaps; a Best Buy; a supermarket. Some of these you have to be from the Midwest for, like, my guess is most people in this audience have been in a Hobby Lobby. Yeah. I can't say I've ever been in one. He lives in Oklahoma City. What do you notice about this list? I'm sorry? It's very diverse. Not a single one of these people makes a product you buy. Not one of them. All of them made their money by changing the way that you buy things. Health care, you've traditionally made your money by sticking it to people. Retail, you make your money by changing the way that you organize the system. The next billionaires in health care I think are going to come from the people who change the way that you organize -- that we organize the system, the way that you interact with the health care system so that it works better for you, so that it's quality is higher and its cost is lower. The two limitations to doing that I think were, one, the information. Nobody had the information, and we've now invested a lot of money in that. And second is the compensation system, particularly coming from the public plans that said the way you make money is not by keeping people healthy or cheaper, but by doing more stuff. Once you change those two it's my hope that what you'll then see is this: people making a lot of money by figuring out how to coordinate care, streamline practices, remove administrative expenses, manage information better, ensure that people get the services they need when they need them and not other services that they don't need. And if we do all this, the next decade of health care will be the most productive decade we have ever had, because we will have covered everybody, we will have improved the quality of care for those who have insurance and we will have saved money. And if we don't do this, one way or another the legislation that we just passed will fall apart. One way or the other it will fall apart. So if we spend the next decade fighting over all of this, then we will be in a much worse position a decade from now than we are now. If we spend the next decade making it work, we will have achieved what, in some sense justifies 100 years of struggling for it. I like to be optimistic. They throw me out of the dismal society club. I like to be optimistic, so I hope that we are on the cusp of a revolution in health care that will bring us a health care system that not only will we have to think back to the days when people didn't have coverage or were afraid lose coverage, but will think back and only remember the bad old days where we worried about a system that was inefficient and way too costly, and we'll think about something that's much better. That's at least my take. Let me -- I'm going to stop here because I can listen to myself whenever I want and I'd really like to hear from some other people -- other people as well. Thank you.

[Applause.]

Audience member: We spend over two trillion dollars a year on health care, is that correct?

David Cutler: Yes.

Audience member: [Inaudible] 17%, 18% [inaudible].

David Cutler: Yep.

Audience member: What is your prediction [inaudible] this legislation -- what are your predictions -- what kind of effect is it going to have on that number?

David Cutler: Yes, so if you forecast health care cost increases at some point health care's 110% of GDP, climbing to 200%. So -- Kansas. How many people here have an MBA? How many people here are involved in management of one form or another? O.K. So I'm going to ask you a question. So let me assert -- just take this number as a fact for a minute. Let me assert that 30% of all spending and medical care could be eliminated before you get to, should my mother get chemotherapy. So before you get to that we could eliminate 30% of spending. How long does it take an industry to get rid of 30% waste? How long does it take?

Audience member: It depends on the industry.

David Cutler: O.K. Health care.

Audience member: A long time.

David Cutler: How long should it take?

Audience member: Three to five years.

David Cutler: Three to five years.

Audience member: Probably 15 to 20.

David Cutler: Fifteen to 20. Your answer to what's going to happen to health care as a share of GDP depends on the answer to that question. If you think it's three to five years, then health care will be not 17% of GDP a decade from now, it'll be 12%. Or 13% or 14%. That is it will have gone down enormously. As a kind of way of benchmarking it, what I frequently do is say, well, suppose productivity increases were about one and a half percentage points a year, which was roughly the increase over time that I showed you. If it were one and a half percentage points a year, more or less health care would stay constant as a share of GDP for the next while -- increase slightly because the population is aging, but basically stay constant relative to a current increase of many percent of GDP. I don't think that will completely solve our budget problems by itself. I think it will go a long way towards dealing with it and then we can figure out what to do from there.

Audience member: [Inaudible].

David Cutler: Speak a bit louder, please.

Audience member: I ask whether the health care reform of President Obama. [Inaudible.] by the health care reform, [inaudible] why no one has the issue of tort reform. We have [inaudible] reasons for their wealth by suing health care providers. There are health care providers who write check after check after check [inaudible] as possible. Now, that is a real cost to the system, and [inaudible] how we can claim to address all these other areas when, if I were a physician and out of medical school and I owed like a million dollars, [inaudible] my license [inaudible] why would I do anything different than I'm doing now?

David Cutler: Two comments. One is, if it were up to me, I would have more in the bill about tort reform, so I'm entirely on your side. That much said, the empirical literature is very funny. What the empirical literature says -- there are about 20 different studies, not all by left-wing economists, not all by right-wing, just from across the board. What the empirical literature says is that it's very hard to find a big dollar impact of defense of medicine. It's very hard. And it's very perplexing, because you've got doctors who say it's an enormous part of what they do and then the vast bulk of the literature says, yeah, it's maybe about 3% of spending. So it never kind of makes the must-do list because it's not as big as, say, the effect of incentives that are off. I think we should have done it partly because we could save a little bit, but more importantly because it's very hard to tell doctors that, you know -- that they should be exposed to kind of frivolous sorts of things that they feel are not their responsibility and at the same time you want them to act in a different way. And it just -- it would have done a lot for the physician community to eliminate some of that, just as it would have done a lot to really stress more of the administrative savings. And I don't know why there wasn't more of it. So I would've done it, but probably for not so much on the cost end.

Audience member: The question I have, is there are doctor offices practices which do not send people for testing and stuff because they do get bonuses for not forwarding people to other areas -- and the question I have is with this program, will that increase that, based on what you were discussing?
David Cutler: Let me pose it in a broader -- pose your question, which is excellent, in a broader context for a second, which is, how do we deal with health care going forward, and there's some people who think we're ultimately going to need a single payer model, there's some people who subscribe to what's the broad philosophy in this bill, there's some people who think that we need a consumer directed movement where individuals are more responsible and so on. What's underlying all of those is that we will do a much better job than we have been on measuring quality, disseminating it to individuals, making sure that everyone's aware of it. There's almost no strategy going forward that doesn't involve that, and the short answer to the question of will physicians skimp is, how well can you measure the quality. And if you can measure the quality very well then you can do all sorts of payment systems geared towards good quality, and if you measure the quality only very poorly then you're going to struggle with that. And so the predicate for so much of reform of any flavor is we've got to get better at figuring out who's doing what, whether what they're doing is right and whether the outcomes associated with it are matching what we think they should be. So -- if we can't do that, then I almost -- you know, put it a different way. One of my friends who's a CEO of a firm once told me, "David, name an industry that ever got better without knowing what it was doing." And that's kind of where we would be.

Audience member: First I want to thank you to coming to Oklahoma. We're -- I speak for everyone in the audience when I say this. We appreciate your remarks and were delighted that you had time to visit with us today. I couldn't agree more with your assertion that real value in health care reform comes not with insurance reform, not with payment reform, but with delivery reform. Furthermore, I was very intrigued and appreciative of you analogy with retail sales delivery, but I wanted to go back to that metaphor that you shared with us and challenge you a bit. Retails sales delivery was an entrepreneurial, innovative sort of approach that occurred at a grass roots level. It percolated up. It was not a top-down approach, and yet health care reform as we have characterized it begins with a top-down approach, where Medicare, one of the largest bureaucracies in our federal government sets the example. Doesn't that destroy the entrepreneurial spirit of developing innovation and delivery of health care which ought to be at the local level?

David Cutler: Thank you for the question. Let me tell you how I interpret what the law says, or let me tell you if I were running the world, how would I do it. What the law does is it allows for new kinds of a payment models, so let's just take bundled care payments for a moment. It -- so, if I were running the world, I would say, you know what? We all believe we can get better outcomes, let's say, for cancer -- let's take the local prostate cancer -- through bundled payment system. So here's what I as CMS -- and I've urged them to do this, so we'll see what happens. I'm open to anyone with and idea for how they're going to rationalize care for men with prostate cancer. I don't have a fixed view in mind. I can name things that might be promising, might not be promising, but I'm just open to anyone with a good idea for how to do it. All you do is you have to come in and make some reasonable case that you will improve the quality of care and you will save money and then we'll do it and we'll figure out how it's going and we'll work out some -- we'll have worked out some arrangement. Now, that's not Medicare saying how it's going to work it. That's Medicare saying the law allows me to do this. I'm open to whatever innovation the world can bring me. To me, that's really how it's going to work, is that it's going to engage everyone at the local level to say bring forward ideas. They will be sometimes providers, there'll be sometimes insurers. In Massachusetts the insurers are just dying to do stuff but Medicare is such a huge drag on it they can't. Sometimes it'll be completely separate companies. I know companies that are outside of the health care sphere that think what they've got are products that will help coordinate things and so they want to go ahead and do that. So I believe that this will create -- I hope, if it's done right it'll create the opportunity for that kind of local flavor rather than the federal. You know, the alternative is we could just get rid of Medicare, but we just weren't -- that's just not where we were.

Audience member: Yes, I want to follow up on that question. Have you done comparative studies in other countries where this model has been implemented and have seen reduce in cost and an increase in value, like France or Canada?

David Cutler: Of course the only thing we know internationally, the only fact we can say for sure internationally is that if you put very tight constraints on the system you'll save money. That's what Canada does, that's what the U.K. does, that's what France does. We have no model internationally that says what's proposed in this legislation or anything else short of single-payer health care will do very much. So we're very much in uncharted territory, but that's kind of where we are as a society. We want to try and do it. What we do have is the experience of areas in the U.S. that do better, and I think one of the interesting things in a very bad overall communication plan was the administration did manage to convince people that they should have medical care at the level of the Mayo Clinic or the Cleveland Clinic, high quality and lower cost care. And it managed to convince people that that's what they meant, not rationing their mother.

Audience member: You were talking about bundled payments, part of the compensation package. I'm concerned that that will cause providers to be more accepting of healthier patients and less accepting of low income, indigent, poor [inaudible] nutrition. What are your thoughts on that?

David Cutler: We often have these concerns, and I think it's right to be concerned about it. So there are two thoughts. One is, it again comes back to the quality measurement, that is, if you're doing a good job on -- if we can really measure how you're doing on quality we would pick that up. But I think somewhat more importantly, it's easier -- let's say you think about the care for a routine diabetic patient. It's clearly easier to get higher income people to comply -- to adhere to recommendations than lower income people. Just like grading on a curve, I would give whatever provider group extra credit for adherence among lower income populations. So I think about the parts of Boston which are low income, Dorchester and Roxbury. Maybe I'll give five times -- you have to get five times as many suburban women to get their mammograms as you have to get women in Dorchester and Roxbury to get their mammograms. Or maybe you need ten times more. And if you make that be nice enough, then you've really got some incentive to actually deal with lower income and lower SES people more. So I think it's -- we're going to have to do something that says you get much more credit for hard to reach populations.

Audience member: I have a question regarding -- you mentioned about creating the box, and you said that streamlining that coordination. How does that compare with the HMOs? It's my understanding that was supposed to be helping to control the dollars and, you know, get that coordination going with HMOs, and not [inaudible].

David Cutler: Yes, well first, hello to everybody in Tulsa. The -- this -- in comparison with the HMOs -- the interesting thing about HMOs is, while they promised they were going to coordinate your care, they never knew a damn thing about what you were doing anyways and mostly they just figured out to pay the doctors less. I think the thing about what this strategy is saying is, you're not going to make money doing that. You've got to make money by providing good quality as you save money. My hope is that it will be the kind of HMOs -- not really HMOs, but groups that are led by big provider systems that are providing care to people and doing it -- not some insurance company that doesn't know very much. Or someone once said, if you want to see bureaucracy worse than the government, try calling your local HMO.

Moderator: Thank you, David.

David Cutler: Thank you.

Moderator: Thank you very much.