Productivity and Health Care:
Reinventing a Quality Health System

April 19, 2001

Transcript prepared from a tape recording

Noon	Registration and Technology Expo
1:00 p.m.	Panelists:	Molly Coye, Health Technology Center
		John Eisenburg, Agency for Healthcare Research
		Phyllis Gardner, Stanford University
		Gail Wilensky, Project Hope
	Moderator:	Newt Gingrich, AEI
3:00	Adjournment

Proceedings:

MR. GINGRICH: This is AEI's vision of itself. Seen from our side, we are on the right; seen from your side, we are on the left.

[Laughter.]

I will let you decide later on what that means, but it is certainly--all of you can tell Chris later on whether or not you think this was the right new model, so we can present with a lot more data than usual. And, also, outside you may have noticed that we have tried something which I think is a first for a Washington think tank, and it is one of my real passions, and that is to actually bring technology and science to Washington, to the public policy side to suggest to people that there are so many breakthroughs going on in the society at large that this is a city mired in a time warp.

And that this is a city where they don't realize that ATM's exist and all of you use them. They don't realize that there are self-service gas stations where you use your credit card. So we have, for example, talks about electronic medical records as though it was somehow magically new to have a high security data transfer, although almost--let me just ask, how many of you use an ATM to get cash? Raise your hand.

How many of you have used an ATM outside the U.S.? How many of you found yourself getting impatient waiting for the money? Raise your hand, okay. If you have ever gotten impatient waiting for the money, raise your hand. This is clearly not a trial lawyer group, every hand goes up when it is the trial lawyers.

John asked--let me just carry it one step further.

I want you to think about this because it applies directly to medical records, the insurance industry and the process of health reform. You just explained you trust in the security of the system enough to send a signal across, internationally, to your personal checking account where it validated who you were, verified that you had more money than you were asking for, translated it at a slightly bad exchange rate into the local currency, got your approval to charge you a transaction fee, gave you the cash. It took 19 to 31 seconds, and you were impatient.

Now does this give you a hint why, culturally, taking 103 days to pay an insurance bill is just doomed? Or why any argument about whether or not we could technically have an electronic medical record is a sign of lunatism and total lack of knowledge or that the notion of self-service convenience--

Do you remember the arguments--I remember. I am old enough to remember the gas station argument--which still works in New Jersey and in Oregon--that consumers are too dumb to pump gasoline because they will start fires? Which may relate to, can you, in fact, make informed choices about medicine?

I am not suggesting to you--you are living through the revolution, and what we did outside is put up a set of technologies--and I will mention the exhibiters in one second but, first, John wanted to follow up with my question.

DR. EISENBERG: I do. All of you have read about the fact that many medical errors are due to system problems not to individual problems. I want you to think about this, how many of you have ever gotten your money and you were so ecstatic that you got the money that you forgot the card and left it behind in the ATM machine?

Okay, now how many of you have ATM machines that give you the card first and then the money later? Right? If you have an ATM machine that gives you the card first and then you can get your money, you will never leave your card behind. That is a systems solution. [Laughter.] And it is a simple one, but it is a systems solution to a very simple human problem.

MR. GINGRICH: That is a very good example.

Let me just mention our exhibiters today in this new experiment, and I hope if you haven't already visited them I hope--if you haven't already visited them, you will on the way out.

The National Guideline Clearinghouse which is a publicly-available database of evidence-based clinical practice guidelines.

Health Hero which is a patient monitoring system designed for seniors with chronic illness with a direct link to their doctors.

Heartstone which is a pocket PC which can hold up to 50,000 patient medical records, ward off prescription conflicts and take dictation.

Q-Med which is an external monitoring device used to evaluate cardiovascular activities to identify irregularities.

Trazer, an interactive computer that can be used to improve balance, coordination, rehabilitation, from total joint replacement on, and is designed for home use.

And, Zirco, a credit card sized card that contains patient's real-time medical information.

If you haven't seen them, take a look at them. We are not endorsing any of them, but we have them here as illustrations of the scale of opportunity that is very hard to get either the politics, the news media or the bureaucracy of this city to really think openly about what would an adaptive approach be to really accelerate the development of a 21st century model of health.

I am very grateful to my colleagues who are here today. We are very fortunate. I am going to introduce each of them individually and give them a chance to talk with you. We are going to do it alphabetically.

We decided, when the second report of the Institute of Medicine on how you actually move to a quality care system came out, I thought it did not get the level of attention it deserved. The first report, you remember, got a flurry of attention because President Clinton released it in the Rose Garden. It said something which Lucien Leep [ph.], in fact, has been saying now for a decade which is: There are a lot of medical errors in hospitals; there are vastly more people--there is a vastly larger number of people who die unnecessarily from medical error in hospitals than there are, for example, who die from airplane crashes, but there is vastly more attention paid to airline safety.

It is a very simple model that says this is a systems problem. It is a cultural problem. It is fixable, and we can say--without getting into the argument whether the range of 44,000 to 92,000 is too high or too low, it is certainly in the multiple thousands.

The second report came out and said, there are real things you can do about it and you can make a big difference. We have four people here who are actually working to do these things, and I want to start with Molly Coye who is the founder of the Health Technology Center, a nonprofit organization sponsored by the Institute for the Future, dedicated to advancing the use of beneficial technologies for healthier people and communities.

Before founding the Center, Dr. Coye was the director of the West Coast office of the Lewin Group, a leader in health care policy, strategic planning and management consulting, and served as an advisor to venture capital firms in their investment planning for health technology and communications. From 1991 to 1993, Dr. Coye was the director of the California Department of Health Services, and she has directed the Division of Public Health at the Johns Hopkins School of Hygiene and Public Health, and served as Commissioner of Health for New Jersey.

She received a master's degree in Asian History from Stanford, as well as both doctor of medicine and master's of public health degrees from Johns Hopkins.

So, with that kind of fairly remarkable background, she will now lecture us on Chinese developments and why the airplane was hit by the pilot.

Molly, we are delighted to have you here.

[Laughter.]

DR. COYE: Well, clearly, this was not pilot error, this was systems. I worked on quality, briefly. I came out of an experience in the public health sector regulating and then worked in a delivery system in San Jose and we sold a four-hospital system to Columbia. I believed passionately, at that point, that aggregation in the system was very important, that it was an important building block to trying to improve quality.

And I think, in some small ways, there was progress made there. But I went into software development--these are parts that don't show up on the checkered career--I went into software development because I thought we have got to put more of this in the hands of the consumer because it was too hard to penetrate the delivery system and change the delivery system.

Steve Brown, from Health Hero, and other people that I met in that period have worked for a long time on trying to develop disruptive technologies that will go into the hands of consumers, as well as work with the health delivery system.

Working on the Institute of Medicine committee, though, and I chaired the external committee meaning half of the committee that was looking at the environmental conditions that make it difficult for the health system to improve its quality. We were concerned about principally how are you going to disrupt the system in a positive way, that incremental change will not get us there. If you look in the report, one of the conclusive statements is that you can't just stress the system by telling it to do better, that you have to substantially reorganize the system in order to make progress.

We identified three key elements that are going to have to change. The first one is the payment system, and I will leave that to Gail. There is, we concluded quite robustly, no business case for quality right now. If you improve quality substantially, in most cases, you wind up shooting yourself in the foot. Those who have developed new technologies that improve economic performance in clinical care have a very difficult time penetrating the market right now.

Not necessarily so difficult on the administrative or operation side, but if you are concerned primarily with improving the patient experience, improving clinical outcomes, what are you going to do? You are going to shift to a lower cost DRG, you are going to remove office visits, you are going to reduce emergency room visits.

There is a thin remaining shred of managed care left compared to what we had hoped was coming down the line a decade ago and, even for managed care institutions who very often are really just paying fee-for-service to their providers, the same incentives operate at the provider level. So it is very difficult for these technologies to penetrate the market.

The second driver that the Institute of Medicine committee identified was the need for information and because of that, the need for information technology. But we will not get there from here without massive investment in information technology. In order to accomplish that, one of the key first things is to have wider industry standards. HIPA is an important first step, and we can spend the rest of the afternoon quibbling about it, but it is terribly important to both advance with HIPA implementation, but also to finish the job in terms of clinical standards as well.

Without a definition of the data elements and the basis for communicating, it is unrealistic to expect even large delivery systems and certainly small office practices to make substantial investment in something which can't speak to the next system over. I have been explaining this as an analogy: If we think the interface between Mac users and PCs is difficult, think of 450 different systems for the combination of office practice and claims processing, et cetera, none of which will speak to each other.

So we need standards, and we need capital for initial acquisition and investment. We need operating capital for the transition in mid-size and small delivery systems which eat their own seed corn. They do not accumulate capital, and they are not capable of making that one- to two-year transition easily.

The Institute of Medicine called for a billion dollar fund for innovation, a large part of which could be used to begin seeding innovative approaches to the financing of this transition which is absolutely critical. In the U.K., as you know, it is much simpler to decide that you are going to go to an automated system for electronic medical records and practice administration. But, in the United States, this is an uphill task and we need real help for this.

To remove a couple of the barriers you might have suspected, we did an interactive survey with Harris about a month ago of medical group leaders and physicians practicing in medical groups around the country, of their use of Internet- enabled applications for clinical and administrative purposes. What we found was that physician reluctance was a very low factor as a barrier for the uptake of Internet applications; that patient confidentiality and security was fourth or fifth on the list. These were not the principle barriers, despite what you hear.

But remember what I said as I described this, this was medical groups; these are physicians practicing in organizations where the organization has an infrastructure, the capability to evaluate the various IT investments they make, to make the investments and support the clinicians in that transition period.

95 percent of the clinicians and administrators we surveyed said they expected the Internet to have a positive transformative effect on health care by 2003. Their enthusiasm and excitement and their sense of value--and we asked them what did they value? And they valued both the speed of operations and better administration, but also the impact on clinical quality and reducing errors. They are willing to do this. They are ready to do this, but the barriers in terms of lack of standards, interoperability of the systems, the cost in terms of operating capital, as well as initial capital for acquisition, are quite high.

We will just close by saying that the reason that we started the nonprofit center, the Health Technology Center is with the mission of advancing the adoption of beneficial technologies. We work across information technology, pharmaceuticals, biotechnology and devices, all health technologies, and I would invite you to go to our Web site which is Healthtechcenter.org to learn more about us.

Our purpose is to work with delivery systems and plans to speed the migration path for the adoption of new technologies that are beneficial and to reduce the barriers in policy and reimbursement that impede that.

Let me stop there, but this is a decade long undertaking and I am glad to see so much leadership in this area.

MR. GINGRICH: Thank you very much, Molly. Molly really was one of the inspiring forces in getting us to decide to hold this particular conference because of the work she had done and the way she has approached it.

One of the people whose job is to translate the general development of quality into health care is John Eisenberg. He served as director of the Agency for Healthcare Research and Quality since 1977. It is the lead federal agency charged with conducting and sponsoring research to enhance the quality, appropriateness and effectiveness of health care services, and to improve the cost and access to care.

Before his appointment at agency for Healthcare Research and Quality, Dr. Eisenberg was the chairman of the Department of Medicine and physician-in-chief at Georgetown University. Previously, he was the founding chief of the Division of General Internal Medicine at the University of Pennsylvania. From 1985 through 1995, he was a founding commissioner of the Congressional Physician Payment Review Commission, serving as its chairman from 1993 to 1995.

He was the first physician to be elected president of the Association for Health Services Research and he has been the president of the Society for General Internal Medicine and the vice president for the Society for Medical Decision Making.

He is a member of the Institute of Medicine of the National Academy of Sciences. He published over 275 articles and book chapters on topics such as physician's practices, test use and efficacy, medical education and clinical economics. He is a magna cum laude graduate of both Princeton and the Washington University School of Medicine in St. Louis.

DR. EISENBERG: Thank you.

Let me start by thanking all of you for coming here and for participating here with us in this conversation. What I would like to do is to comment a little bit about my own views about the issue of health care quality and the issue of technology and enhancing quality. But I want to ask you all for a favor, which is to give us advise about the kind of activities that you think our agency ought to be undertaking and ways of translating the research that we are sponsoring into improved quality.

We need your help in doing that and my e-mail address is obvious. It is Jeisenbe@ahrq.gov . We only get eight letters, I guess it is a kind of government rationing; isn't it, Larry? But that is the e-mail address.

And I also want to thank Molly and all of her colleagues on the IOM for the report "Crossing the Quality Chasm." It is a challenge, I think, to all of us, how are we going to cross that chasm? One way I thought we could cross the chasm, what better way to cross the chasm than with an arc, right? Which is the way that we say the acronym for our agency.

If we could move ahead on those slides, if they are--one of the assumptions that we make is that just providing people with insurance will automatically give them quality care. I am sure that not very many people in this room make the assumption, but it is a commonly held assumption that what we need to do is just get people insurance and what will flow from that is high quality health care.

It seems to me a bit like the assumption that if you have a power plant and you have wires that the power is going to get out to every individual. So I wrote an article that was published by the Journal of American Medical Association a few months ago that was entitled "Transforming Insurance Coverage into Quality Health Care: Voltage Drops from Potential to Delivered Quality" in the October 25th Journal of the American Medical Association.

The way the argument goes is this, that if you provide people with insurance or the availability of insurance, not all of them will enroll. Even of those who enroll, not all of them will have coverage for the providers of the services that they may need at a particular time; not all of them may be able to get a consistent source of primary care; and, of those, not all may be able to gain access to appropriate referral services; and, of them, not all are going to have high quality care delivered.

At each of those steps, there is an opportunity for us to intervene to be sure that we do delivery high quality care to those who have insurance; for us, as a research agency, to find out why those voltage drops occur and what remedies may be offered.

Let me give you an example. The people who work on our medical expenditure panel survey which is a survey, by the way, that follows on a survey that Gail helped to establish a few years ago--they found that only 89 percent of workers who have access to employment-based insurance, either through themselves or with their family, were actually covered by a plan and that that was down from 93 percent in 1997. So from 93 percent to 89 percent of people who were offered insurance actually taking it.

So the challenge is more than just having people offered insurance, it is getting them to take the insurance and then the rest of the story which we are talking about today, of course, is delivering high quality care to them.

On the next slide, you will see--the next slide was intended to describe three different goals for wanting to measure quality. We are going to talk here about how we measure quality and who cares. I want to make the point that there are at least three reasons for measuring quality; one of them is so that those of us who are fortunate enough to have choice can make those choices in an informed manner. They may be choices by ourselves. They may be choices by our family members. They may be choices by our employer serving as our advocate or our agent. They also may be choices not only of choosing a plan, but also which hospital and which physician we will go to.

So think about what kind of information you would want to make a choice; among plans, among hospitals, among physicians. That may be different kind of information than the hospitals and clinicians would need to improve. Information for choice and information for improvement may be different and we need to ask ourselves if we do want to have different kinds of improvement--different kinds of data.

The third different kind of information that we may need with regard to quality is at still a different level and that is information for accountability. Accountability says you are good enough, you are good enough. Remember when you were going to the fairgrounds when you were a little kid and there was a sign that said you had to be above this height to get on the ride. Nobody cared if you were--how much above that height you were, you just had to be above a minimum.

And you think about the way in which we use information on quality. We use it at all three levels. We use it to help us make decisions abut choice. We use it to improve the health care systems that we are responsible for, and we use it to be sure that a minimum level of quality is available--choice, improvement, accountability.

As you think about the data needs that we have, please think about what the purpose of the information is.

I have a quote from Florence Nightingale just to prove to you that this is not new. In 1863, here is what Florence Nightingale said in London: "I am fame to sum up with an urgent appeal for adopting this or some other uniform system of publishing the statistical records of hospitals. If they could be obtained," she wrote, "this would show subscribers how their money is being spent, what amount of good is really being done with it and whether the money was doing more mischief than good."

Now, if Florence Nightingale were to come back 138 years later and say, "How much progress have you made since I asked you go get some data on hospitals?" We would be pretty embarrassed; wouldn't we? We would be pretty darn embarrassed about how badly we have done since Florence Nightingale offered that challenge. This is not a new issue.

On the question of whether there is a business case for quality, the issue that Molly raised and the ILM has raised is a very serious one. Is there a business case for quality? Well, there are two businesses we need to think about. The first one is, is there a business case for the providers of care to provide higher quality care? Do they get a signal from purchasers that lower cost is desired or that higher quality is desired or both? Most providers, hospitals, physicians with whom I speak, say it is pretty clear that the purchasers want lower cost care; it is not so clear that they want higher quality care.

Now, from the purchaser's point of view, let's say it is an employer, is there a business case for quality for them? Is it clear to them that, if they do pay a little bit more or a lot more for quality, that they will benefit, that their employees will be healthier, miss less time from work, be more productive? Again, they would tell us that there is not a clear case that has been made, from their perspective as purchasers, for buying quality of care.

So, on both counts, I agree with Molly, we have not made a very good business case for quality. Either for the providers or the purchasers of care, there is not a very good case for quality. Now, is that a problem of the will or the way? I suspect it is a problem of the way and not the will. I suspect that most providers would like to provide higher quality care. Most purchasers would like to purchase higher quality care. But do they have a way of knowing how to provide higher quality care? Do they have a way of measuring how they are doing now? And, in general, the answer to that is, no, they don't.

If you could fast forward to the concentric circles, then I won't take too much of your time here. I don't have an advance button here so I can't do this myself.

The ILM said we ought to have patient-centered care. So I decided one way to exemplify that would be to have a target with the patient in the middle and concentric circles to emphasize that the care of patients occurs in health care systems. And the ILM has emphasized, in every opportunity it has had, that we all take care of people or we get our care inside systems--like the ATM card example that I gave--good people will not be able to provide good care if they are working in bad systems.

So this isn't just a matter of educating physicians and educating patients, it is a matter of improving the systems. To keep this concentric circle metaphor going, look at the next slide if you would. That one shows you that the system is inside an environment, and the ILM report emphasized this to us: It is patient-centered care, patients in the middle, but it is a system inside an environment.

What kind of signals are we getting from that environment? Not just the payment signals that Molly alluded to, but the organization culture, the kind of--

What is the CEO saying? What are we saying to the health care community? What are you saying to the health care community that you want as leaders in American health care? That we want the environment of health care to be different from the environment that we have had in the past. That is an abstract concept, but we have got to get there.

Newt, if I have time to give a couple of examples, I would like to?

MR. GINGRICH: Go ahead.

DR. EISENBERG: In the area of patient safety, I want to give you a metaphor for the way in which systems help us to avoid problems that individuals may make. On the next slide, you will see swiss cheese sliced up. This is an example of James Reasons who is one of the leaders in early research that has been done on errors, not just in health care but in other areas. He has told us we ought to be thinking about errors as occurring in a system, and think of that system as a piece of swiss cheese that somebody sliced up and all the holes are aligned, right?

So an error was made and nothing stopped it from getting translated into a patient being injured. Imagine, on the other hand, you took one of those slices of swiss cheese and you turned it upside down and the error couldn't get through. That swiss cheese slice being turned upside down would be something like a computer system that detected the fact that the doctor made an error in the order and picked up that error, said, "Is this really what you want to order, doctor?" The doctor realized it was a mistake. The system saved the physician from causing harm to his patient.

It is simple, but I think a pretty clear example of how we need to be thinking about how we can turn these slices of swiss cheese upside down so that we let the system work to avoid our natural inclination as humans which is to make a mistake every once in a while, from getting translated into losses--and, in this case, it is human losses.

One of the things that I think about a lot, if you go to the next slide, is what is the role of government in all of this? I head a federal agency, and we want to help. What can we do to help? So what I want to show you next is a list of eight different roles that we might consider, and then I want you to give me advise on--and also my colleagues in other agencies--about ways in which the government can do more good than harm in trying to improve health care quality.

Well, we do purchase a lot of care. The Health Care Financing Administration is one of the largest purchasers, but not just HCFA; the Office of Personnel Management buys care for a lot of us. And, in both instances, both of them have been very serious about being value-based purchasers, and there are some lessons to be learned from that.

We also provide care in government. We provide care through the V.A., through the Defense Department. And the V.A. has been a leader in improving quality and providing safe care. What lessons can we learn from that?

We support programs like community health centers. We convene people in conferences to get the best minds together. We fund conferences so that smart people can talk to other smart people and give each other advise as well as us.

We regulate; the FDA probably is the easiest example there in terms of quality. The FDA has the responsibility of being sure that drugs are not only used in a safe manner but that they are safe drugs to start with.

We inform, and there are a number of federal agencies who have the responsibility of informing the public and providers. As a research agency, we take that responsibility very seriously to take research and to inform people about what it means.

We develop--we help to develop the work force. As you know, there is a lot of conversation now about the federal government should help to develop the work force. There is a nursing shortage. How are we going to deal with the nursing shortage? And, not only deal with the shortage of nurses, but deal with the environment and the systems in which they practice?

And, then, finally, I put it last because it is our responsibility at the agency for Health Care Research and Quality, what kind of research should we be doing? What sort of research should we be supporting that will help us to provide more high quality care by giving us information about what works and doesn't work in the organization and the delivery of care?

If I can give you a couple of examples, I am just going to run through--these are some examples of research that we have sponsored that has gotten translated into practice. We are proud of them, and maybe there is something to learn from this.

David Bates, at the Brigham Woman's Hospital, published an article in The British Medical Journal, in 2000, that talked about the work that he had done with our sponsorship on computerized physician order entry that reduced the rate of serious errors, reduced the rate of near misses, reduced the rate of errors resulting in injury. He also looked at the way in which bar coding could reduce medication adverse reactions; looked at robots for filling prescriptions and at computerized adverse drug event detection.

Those are all ways in which information systems, the computer, can help us to provide higher quality care. He demonstrated it, just as we might do a clinical trial to see if a drug works. He was doing a study to determine whether or not this intervention worked, and demonstrated that, yes, it does. This one works.

Another example is one of my favorite which is a study that we have sponsored at the University of Wisconsin. David Gustafson is the investigator there who developed a computer system to educate patients who had HIV and some other diseases--breast cancer was another one--to become more informed, I guess some people would use the word "empowered" patients, so they took responsibility for more of their own care.

What he demonstrated was that, if you take HIV patients and you provide them with a home-based computer that provides them with a way of understanding their disease and being more involved in its management, there were fewer hospitalizations and there were shorter hospital stays. In this case, higher quality did cost less. The treatment costs in his study were reduced by $400 per month and the patient spent 15 percent less time in doctor's offices.

So our role as a research agency is to try to demonstrate that some of the advances in information systems do make a difference. They not only improve quality but they can reduce costs.

Let me close by showing you a couple of slides about what is now available and what we are doing. We have a program called "Conquest" which is a toolbox of almost 1,200 measures covering 57 conditions, and that is being migrated to the Web now. We are combining that with our National Guideline Clearinghouse so that, if you deliver care and you want to know how to measure the care in a particular condition, you can use it.

I tell you, when I was at Georgetown, the quality committee for the Department of Medicine came to me one day and they said, well, we have got a plan for measuring quality in the department, John. And I said, well, tell me about it. They said, we want to measure the length of stay for people who have kidney infections. Length of stay? Do you think that is the biggest problem that we have in our Department, I said. This was only five years ago.

They said, no, we don't think it is the biggest problem we have in the department, John, but we know how to measure it. And I said, well, don't you think there are some better measures of some things that we do think we are doing badly on? And they said, I don't know where to find them.

When I go to the agency and I found that this existed, I regretted that I hadn't known about it before so that I could have sent my friends to find it. This was in the category of quality for improvement, quality information for improvement, but it would have been awfully nice to have known that--and I don't denigrate Georgetown in any way, I think it is a terrific institution, but we didn't know where our problems were and we didn't know if we were doing better. How can you know if you are doing better if you can't measure it.

Now the Congress has asked us--

Newt, does the Congress ever ask us to do anything or do they tell us to do it, I guess?

The Congress has instructed the agency, in the next slide, to issue a National Quality Report which will begin in 2003. The question for us is what measures should we be using in this quality report as we put it out yearly. So we are working with the best people we can find to look at what the best measures are. We had the Institute of Medicine give us some advise. It was a committee co-chaired by Bill Roper and Ernie Epstein whose report just came out. I urge you to take a look at it, it is a great report; what they think we ought to be reporting to you on quality, is the country doing better or worse in health care quality?

We will be developing some more tools. We will be working with others to try to look at what the tools ought to be to give this report to the nation about how we are doing in health care quality.

I want to end with this slide which is a tool that we hope that you will all use and it is on exhibit outside. It is the National Guideline Clearinghouse. Our agency doesn't produce guidelines but we believe that we ought to make available, to people who provide and get care, the best guidelines that have been developed, those that are evidence-based. So we have a project that we are doing with the American Medical Association and the American Association of Health Plans and our agency.

I figure if you can get the doctors and the managed care organization and government together and work cooperatively, then you deserve a Nobel peace prize. So, if any of you read that we are going to Stockholm, it is because of the Guideline Clearinghouse, which is a very useful way of people finding out what the best people are using, what the best people are suggesting, based on the best evidence available to provide high quality care. It does provide a way of improving care for all the patients we have.

So, the points I have tied to make are these, that giving people insurance doesn't automatically give them quality of care. I know you all know that. Secondly, that, as we try to measure the quality of care, we need to think about what the impact of measurement of care is on the three uses of that data; on choice, on systems, and on the environment in which we all get or receive care. That it is a big challenge for us so think about what the systems ought to be, to do the research that is necessary to prove what works and what doesn't work, but to be sure that the data is available who are making those decisions.

I look forward to your advice and your help in achieving that goal. Thanks.

MR. GINGRICH: Thank you, John. Thank you very, very much.

Phyllis Gardner is currently the senior associate dean for education and student affairs, and a tenured associate professor in the Departments of Molecular Pharmacology and Medicine at the Stanford University School of Medicine. She has conducted extensive research in cell biology, including gene therapy, with particular emphasis in the area of cystic fibrosis. She is widely published in the field of cell biology and pharmacology, and has co-authored a pharmacology textbook which is now in its second edition.

She has received numerous national awards and honors, including the Faculty Development Award from the Pharmaceutical Research and Manufacturers Association Foundation, and a position as the Burroughs Wellcome Faculty Scholar in Clinical Pharmacology. In addition to her academic affiliation, Dr. Gardner recently served as vice president for research and head of ALZA Technology Institute. Currently, she serves on the board of directors of several companies, including: Pharmacyclics, Inc.; Aerogen, Inc.; Aronex Pharmaceuticals; Health Hero Network, which is represented outside; and CambriaTech.

Dr. Gardner has also co-founder of Genomics Collaborative, Inc. and serves as an adviser to ReasonEdge Technologies, Vertical I, SourceOne Venture Fund and Essex Woodland Health Ventures.

She earned her M.D. from Harvard Medical School. She trained in internal medicine at Massachusetts General Hospital, followed by a chief residency at Stanford University Hospital. She then completed research fellowships on ion channel biophysics and pharmacology at the College of Physicians and Surgeons at Columbia University and the University College of London.

Phyllis?

DR. GARDNER: Thank you. As I listened to you say all that, I thought, what on earth do I have to say to all of you in terms of health care policy?

I am not a policy person, so I think that my perspective is going to come that more in the trenches and what do I see the changing of health care, as well as some solutions based on my work in the corporate world and my work at Stanford with IT.

Stanford sits in the middle of Silicon Valley and, as you can only imagine, we incorporate information technology probably more quickly than other places. On the other hand, I have seen firsthand the difficulty in penetrating the system because it is not--even in Silicon Valley, it is not--the medical system is not open in terms of a large aggregated infrastructure to transfer information.

So let me just start with the way I see health care right now in 2001. I think that we are faced with a far bigger crisis than I think most people would realize, and that is based on the people in the trenches. So, for example, as we train physicians, we are fundamentally aware of the very altered culture that a physician sees now than when I trained at Harvard Medical School 20-some years ago. The physician is no longer the professional that--I mean, unless they go into certain subspecialties where they still reign supreme--but the primary care physician or the person who interfaces with you is not seen as the autonomous individual anymore. They are faced with a marked information explosion.

With the genome revolution, with the introduction of NCE's, new chemical entities, in the pharmaceutical world escalating dramatically, with the constantly changing information scene, the doctor who is out there today is faced with a tremendous amount of new knowledge, and they are responsible to apply that new knowledge correctly.

So is it any wonder that there are a lot of mistakes made?

In addition, they are faced with markedly declining reimbursements and that is part of the managed care cost reduction movement, the Balanced Budget Act of 1997 and other things which have some very good effects, but also have had some major impact on the way medical care is practiced.

Finally, it should be noted and all of you should note that we have a major alteration in demographics. We have an aging population, chronic and multiple conditions, and first and foremost--just think about California alone--where the Caucasian population is the minority now, where you have, if you go to Santa Clara Valley Medical Center, 77 different languages are spoken. With those different languages, a variety of cultural needs are interfaced with. And not everybody expects the same thing from their physician.

So the physician today and the health care system, are under siege, and I really--I truly mean that, in a way that I am going to end up--or maybe I should just tell you right now, that we are in such a crisis that I worry fundamentally for the health care physician as a profession, the academic medical center for its viability, and for health care as we know it, as we have come to expect it--the flagship medical system in the world, to be what it is.

So, when we speak quality here, I worry far more about not just the errors that are made, but about the quality of the professionals we are training and the work force that we have, about the hospital settings in which they occur. And so I am hoping that we can think in a very broad way, not just about saving money and increasing efficiency.

One day I was flying on the airplane and I was sitting by a man who was complaining. He had gone to his doctor and he said, do you know, all he did was talk to me a few minutes. He did an EKG. I came home with a bill of $75. I said, oh, is that it? Right. What did your wife pay to get her hair done the other day? $150, oh. What did you pay for that Armani suit? $1,000. What is your monthly payment for your SUV, not to mention four cars? What about 60 percent of your budget in the Bay area going for your house?

We have grown to expect health care to be very cheap and yet extraordinarily high quality. So the consumer, too, bears some responsibility in this. If you want to pay so much less, you might get so much less. So, okay, now I am sounding preachy, aren't I? But I won't, I promise.

Let me just talk a little bit about the altered culture for the physician. Once again, there has been a tremendous change in the way that the whole profession was seen. When we were trained, it was a service orientation. You were trained to provide the best possible service to each individual patient, without thought of cost. Were there things wrong with that? Absolutely. Did we order tests without thinking about whether they were worth it? Did we prescribe medications without thinking about was it the most cost-effective way?

There were so many things that we never even thought about. You thought, I will give everything I possibly can to that patient. And I actually think that increased error rate. I mean, if you are not really, you know, putting it together as an integrated package but you are throwing the whole load of things at a patient, you can increase error rate.

The shift to the decision-making, though, has now gone to the business executive. It is a bottom-line mentality. We have all just talked about that. The way that we make decisions really here is in terms of cost reduction, and there is no incentive for quality or service orientation. The emphasis on bottom-line economics over service is what I have just been saying.

Another thing that a physician faces today that is completely new is the knowledgeable patient. In the past, it was an authoritarian system. Do I believe in that? No, I do not. I think the patient knows the best possible, most about themselves and what the physician should do is draw out that information. So patients today are demanding more of that. They want to be part of the team in deciding what happens. And they have the Internet, so they often come in with a stack of information this high that a physician is supposed to evaluate in ten minutes and say, what do you think of this, this, this and this?

A knowledgeable patient is very different and, once again, culturally diverse patients are a real new challenge, I think, far more than 25 years ago.

Let me just talk a little bit about declining reimbursement. This is a slide that got from Joe Martin at Harvard Medical School. There was a previous slide, but I am just going to emphasis that you have different kinds of payment. There is private insurance, there is Medicare, Managed Care, Capitated Care, Medicaid, free care. Free care should be below the line, you the way because free care is a cost.

What you see there on the left axis is the cost-per-case; how much you get reimbursed average-wise per case. In the past, that cost-per-case was at a certain level. That has been reduced by--this was a couple of years ago now, so it is even more. It has been reduced by 30 percent or more over time. We have really worked out a lot of the inefficiencies in this system, even without IT.

On the other hand, each of the payments have been declined, the cost-per-case, the amount that we are being in each of those areas has declined dramatically. So that what has happened now is that private insurance or fee--medicine has always been a system where everything subsidizes everything else. So, interventional care subsidizes ambulatory care. Fee-for-service subsidized free care. Over and over and over, it was a system of transferring the rich to the poor. That has always been the way it is.

The problem is there is less and less rich to transfer to the poor and more and more poor here. Because--and it has dramatic effects. As that happens, the ambulatory care that used to be subsidized by the interventional care is being neglected because people are going to higher and higher acuity cases to try to bring in the money to sustain the system.

And I know that, dramatically. At Stanford Hospital, where just recently the whole committee--because they are losing tens of millions of dollars per year because they are getting 28 cents to the dollar on their patients, they are closing down their medical wards because every person on the medical ward--congestive heard failure, pneumonia, et cetera--they are bursting at the seams, they are losing money for all those. The only places they are making money are the ICUs, so they are moving more and more into ICUs.

Well, you can see how that will skew the way your medical care is delivered. So we are in a real problem here that is going to affect quality so fundamentally that that has got to be addressed as well as the way we transfer information.

And I have talked a bit about the genome revolution. Just decoding the genome is providing a whole new challenge. First of all, it gives us completely new targets for drug development, new insights into the way disease develops, new insights into diagnostic tools. All of that information revolution is going to: (1) produce new innovations; (2) stress the physician and the patient to be sure that they deliver the appropriate care for each patient; and (3) cost you money because those innovations will cost.

And you are going to want them. You might not want them for the person next door, but the moment you come in for yourself or your granny, you are going to want them and that is what we all know. So those are going to cost.

Then, the next thing, of course, is our medical care system has been enormously successful, so we have a lot of--everybody in the world is aging, but we are aging quite well because, you know, we keep people alive and that costs money.

And we have people who live longer and they get chronically ill and we keep them alive longer so that not only do they get congestive heart failure, they get diabetes and they get depression and they get multiple conditions, and you have to interface those multiple conditions. It costs a lot of money.

And we are giving fewer and fewer caregivers to take care of those things. So that is a big, big challenge. These are some slides I got from Steve Brown, by the way, of Health Hero Network.

Let me see what the next slide is. So here is some of the downside results. I think we are seeing a marked change in health care. We know that there is an increase in the number of medication errors, nyatrogenic [ph.] illnesses. I do not think that there is any possibility that this is going to decrease without fundamentally disrupting the entire system and changing it.

Because if you have those kinds of pressures on the system with fewer and fewer caregivers, less and less time per patient, more and more information that is needed, more and more innovations, all you have is a recipe for disaster in terms of errors. So, until we fundamentally disrupt the system which is what Molly was talking about, we are going to have more errors, not less errors.

The patients are going to be less satisfied, there is no question. And the caregivers are much less satisfied. What you should understand is that we had the best medical schools in the world, the best doctors in the world, probably the best nurses--I am not as familiar with that--. Well, there is a decline in the people who want to go. There is a far bigger decline in the number of M.D.s who are actually practicing medicine. People are leaving--

[Tape 1, side B.]

DR. GARDNER: I think there is a threat to the flagship medical system, and a potential decline in innovation if we do not do this, make these changes. And that comes from my perspective as an academician, as well as a board member on companies where innovations are made. It is important to keep that going.

Look at what fundamental advances we have made with HIV. It is enormous what we have done with HIV in 20 years; recognizing it, figuring out how it is transmitted, how it is caused, what the secondary illnesses are, bringing about new medications that prolong life. It has now become not a--we don't see it as the fatal disease. It is now seen as a chronic disease. It is astounding what we have done.

You want to keep that going. I want to keep that going, that is for sure. Because that is the wonderful kind of thing that we did have in this system. Most of that came from the United States.

So now what I want to just end on are a couple of examples because, while I paint a pretty bleak picture here, I do believe that the people on this particular panel--and I am very, very happy to have met Newt Gingrich. As I always say, I am a Democrat, but I was very happy to meet Newt at a board meeting one day because I think he and Molly Coye and others--and I have just met my other two colleagues here, John and Gail--are making a big change by pushing forward the sorts of things that I think can be applied right now that will make a change.

They are disruptive technologies and I think it comes from the information revolution. So I am very grateful because I think that these are some of the ways that we are going to take out vast inefficiencies. While it might have been a flagship system, it had vast inefficiencies. And I think, by addressing those inefficiencies, we will get some immediate cost reductions that will allow the system to reorient and come back and stabilize. I am hoping.

And I think that those kinds of information revolutions, information technologies are going to increase our operational efficiency or the caregiver ration will be improved. We will have a decline in the errors of data transmission and we will reduce utilization and empower patients. Words that you have been hearing over and over.

So I am going to give you a couple of examples that are very specific, but they are only examples. Let me start with the next one. We are going to rapidly scroll through--well, let me just say this, the kinds of things that I am talking about are really getting information at the point of care. I think that is what we are talking about here: to reduce errors, increase quality, increase efficiencies; in terms of both the service transactions, in terms of the therapeutics and everything--and in terms of knowledge acquisition, up to date knowledge acquisition, you need it at point of care, rapid retrieval of information for whatever sector it is.

And I think that what we are seeing out there are Web-based knowledge domains, for example, and I will show you an example of one of those--that let you access up-to-date information. Being a physician, for example, or a caregiver is a life long process of knowledge acquisition. It is a constantly changing process, so you need it so that you can do it at point of care.

The second thing is there are Web-based now patient disease management or different kinds of systems where you can rapidly transfer information and provide high quality care from a central point, and there are two of them. One, I will talk about is the online disease management program, Health Hero Network, and another one is here, a Hopkins spin-out, which does it through ICUs which is quite interesting.

Then, there are programs to reformat Web-based material in an easy to read fashion on hand-held devices or wireless devices. I think that is very important because, when you are in a caregiving situation, you cannot always be always be tethered to a PC or even a digital TV. You often have to do it at the site of care. So a lot of those are available. One of them, for example, is Roundpoint where they can take Web-based information, easily reformat it for a screen, scroll through it, rapidly transfer it in a way that you couldn't have done before.

And, finally, there are software packages for specific content on drug information therapeutics. Epocrates, I note there, but there are other ones out there and I urge you to see them. They really help because you can sit there and then when you prescribe you drug you can look at drug interactions, et cetera.

So let me just very quickly scroll through: Scholar, which is a knowledge domain--next slide. What this does is--and these are old versions of this--but it takes digitized databases of knowledge such as textbooks, drug databases, the bibliographic material, full text journals, different stovepipes of information. What you can do is put in a concept so--next slide--tuberculosis, children bone, within--when you type that in on your computer, it will search the world of literature on that, of certified material; within 8 seconds it will have searched the entire database, and then as a user you can jump from database to database and learn about it.

So, if you scroll through, you can read a textbook and you will have different kinds of indexing, but you can read about what--suppose you had seen a child with a lesion and you want to know is it from tuberculosis? But you can't remember everything, so you quickly can scroll through, you can look at references you can do related searches, you can look at the abstracts or the full text journals. For example, you can even look at radiographic images that will help you determine if this is what you are seeing.

Then you can go into the kinds of therapies that are recommended, so guidelines like policy statements. And you can then look at drug interactions, very rapidly, with the patient sitting there. We unrolled this from Stanford, it is a Stanford-owned, majority-owned company with outside investors. The AMA is endorsing it for ongoing CME, but also the New York Times did an article on it, many different things did.

The New York Times showed a patient with the doctor--with this kind of system doctors are saying, well, I am not afraid to say to my patient, I am not sure, let me check. And I use it all the time. Within 8 seconds, if the information is right there, as a team, you can investigate new knowledge together and come up with a diagnosis.

The second thing I want to talk about are disease management systems that are on-line, of which Health Hero Network is one of them. I am on the board, so I am most familiar with it. Steve Brown is here and there is a package out there. But I think these are making a huge difference, as well. What you have is a caregiver working through the Web and going to the home with any--actually, you can use any sort of system, but market analysis showed a very simple system was the easiest.

So it is a Web-based system with a very simple device, it looks like this. It is called a Health Buddy. The Health Buddy can ascertain both qualitative and quantitative information. What it does is it hooks in the phone line, it acts like an answering machine. During the night, between 2 and 4 a.m., questions are downloaded to a patient with a chronic disease. The patient gets up the next morning and answers those questions on this little device using four buttons. You can get qualitative information: How are you doing? Or you can get quantitative, through such things as: How much did you weigh today? And, for example, it says 237--you can toggle up and down until you get to your weight.

You can hook it up through a serial port. Here is another company, Healthy Tech, that I think is incredible. It is a series of home health--a home-based sensor type devices that you can hook through this kind of communication system, monitoring your blood, glucose, or it can monitor your gas exchange, meaning your respiratory status if you are an asthmatic, or your cardiac output, all these things.

So now the doctor or the caregiver can sit in one site and monitor patients on the outside with the extensive information in-flow and create with patient management tools--and these are a little bit outdated, but they can risk stratify their patients based on their answers to questions. They know precisely where to intervene, and they can create trends of what is happening with the patient so they know when the patient is going to get in trouble.

If you look outside, Steve pointed out to me and wanted me to point out, there is a case study for Catholic Health Care West showing that this is a remarkable system to decrease hospitalizations, increase patient compliance--all these things are being documented--and to really produce cost savings with better outcomes.

Now, let's go back full circle to what Molly said. What is one of the difficulties in getting this system going? If I went to Stanford University--not just the money, but if I go to Stanford University Hospital and I say, guess what, you have this whole cadre of patients, congestive heart failure patients, and we are going to decrease your hospitalizations--guess what, that is going to cost them money. They are going to be--they are not reimbursed for cutting down on that, so that is where we come back full swing to where we need to work on the system.

Because we have got examples out there and you are going to hear of others, but we have to make so that people want to use those--I mean that the executives who buy the system want to use it.

The final thing that this can do is, as you study these trends--and it is the same thing with ICU program--as you study these systems, you learn new things about the diseases and new ways to innovate and improve quality care. There are--as much of a disease management tool, they are also a research tool that enable you to say, "Hey, you know, those patients who do "X", compared to those patients who do "Y," are not doing as well; maybe we should advise." So we train ourselves with this kind of system because it is an aggregated database.

Well, I am going to close there. I hope I didn't sound too preachy. I probably did because when I get on this subject I get passionate. But I do believe that this is a commanding problem that needs to be addressed far sooner rather than later, and I am really thrilled that the people here in this audience are thinking about it.

MR. GINGRICH: If you are not yet overwhelmed with Molly's explanation of the challenge, John's explanation of his efforts to bring the federal government to bear, and Phyllis's explanation of the up and downside opportunities and risks in health care, we are not going to turn to somebody who, at the Health Care Financing Administration, had a full experience of why you should be daunted.

I am delighted that she is here. Gail Wilensky serves as the John Olin Senior Fellow at Project HOPE, where she analyzes and develops policies relating to health reform and to ongoing changes in the medical marketplace and chairs the Medicare Payment Advisory Commission. In both capacities, she testifies frequently before Congressional committees, acts as an advisor to members of Congress and other elected officials, and speaks nationally and internationally before professional, business and consumer groups.

Previously, she served as a deputy assistant to former President Bush for policy development advising him on health and welfare issues. Before that, she was an administrator of the Health Care Financing Administration, overseeing the Medicare and Medicaid programs. She is an elected member of the Institute of Medicine and serves as a trustee of the Combined Benefits Fund of the United Mineworkers of America and the Research Triangle Institute.

She is an advisor to the Robert Wood Johnson Foundation and the Commonwealth Fund, and is a director on several corporate boards. She received a bachelor's degree in psychology and a Ph.D. in economics at the University of Michigan.

Gail?

DR. WILENSKY: Gee, I thought as an economist following three doctors, that I would have the role of a skunk at the lawn party. But the bleak picture that Phyllis portrayed actually is bleaker than I think it is, so I am going to start and explain why sort of the good news and the bad news of what has happened since 1997. Then, I want to back up and talk about what is it likely to take to try to move in the direction of rewarding quality and paying for quality, and what does that suggest for where we go in the future.

The good news and the bad news is that the dramatic slowdown we saw in health care spending in the mid-1990s is by-the-by. For those of you who are involved in delivering services, you can look at it as the good news. The increase in private sector spending is less than the rate of inflation which characterized the mid-1990s has now been replaced by reports of--most of this is anecdotal information--low, double-digit increase in premiums being reported by employers as they go into this new decade.

What we have seen in Medicare is that the slowdown from the 1997 period has now been followed with two give-back bills; one at about $16.5 billion for five years, the second at about $35 billion for five years. The projections recently released by the Congressional Budget Office for the next decade shows an average rate of increase in Medicare spending at, I believe, 7.8 percent for the year, each year on average.

What we are seeing already and these numbers are in the latest MedPak report that went to Congress on March 1st, is that total hospital margins, all pairs, all services, which had declined precipitously for 1998 and 1997, now appear with the first three quarters of 2000 available to be substantially improved over the 5 percent level. Not quite as high as what it was in 1997, but very close. Again, that is consistent with what we are hearing in terms of reports from the private sector about increased spending.

So much of the financial pressure which, in fact, was primarily because of very aggressive purchasing in the private sector and supported some in the public sector has given way to substantially increased rates of spending and a lot less fiscal pressure. As somebody who works with the public sector but who also works with private corporation, I am constantly feeling schizophrenic myself when I hear such news, and you can decide for yourselves as to whether or not you want to regard this as good news or bad news.

On balance, it is certainly a little disturbing, but not very surprising. Because the reward for purchasers and for providers who responded to what had been two decades worth of pressure of let's slow down the spending in health care was to get vilified by the media, to get beaten up by the Congress, to see various threats of legislation--most of it not actually passed--to try to do something to force change, usually change through a rear view mirror: Let's make it like it was in the good old days when people paid the bills and no one questioned what it was we got. There may have been very good parts about that, but there were clearly a lot of bad things about that in the sense that a lot of health care was provided with very little information about what we really got, not just for our money but for the health care interventions that was provided.

And the real challenge now is how can we make that better? And it is really going to be a challenge. Now, I would like to give you the bottom line of what it is going to take and then talk a little bit about why this is going to be so difficult.

No. 1, we are going to have to fix the financing. I am an economist, I look at that as a major problem with the world; but, two, we are going to need better information. A lot of what we have heard today are a whole variety of ways, at different levels, to provide patients, providers, physicians, nurses, all of the providers-- institutions and purchasers with better information, all of the kinds of better information that John referenced. I think that was a very good way to try to look at it.

But let me remind you why this is so tricky in health care, and it is called third-party payment. Now, we can make things better. We can make the system more responsive to patients, to empowering patients. We can make the system more accountable. But, fundamentally, this third-party payment part is not going to go away. Some very interesting statistics that remind us that very small numbers of people use very large amounts of money, and this is not new. It hasn't changed. The numbers are almost identical for the last 25 years. The number are similar in other countries with other cultures, and have a lot to do with health care.

1 percent using 25 to 27 percent; 5 percent using 55 to 58 percent; and 10 percent, the proverbial 70 to 75 percent. The reason it is an issue is that it means when you start talking about very large expenditures you are probably going to talk about third-party payment, even if we make the system much more sensible and responsive than it is now and we certainly can think of lots of ways to make it more sensitive and responsive.

Why is this such a big deal? Well, in the private sector, we look to technologies to do things better, cheaper or better and more expensive, and the person who is getting the technology thinks that better is sufficiently better that they, he or she, are willing to pay for it. But when you are using somebody else's money, all of those typical important signals get messed up.

Now that doesn't mean you should just throw up our hands, walk away and not try to deal with this issue. It means recognizing that we do have a somewhat different world here, and we can't just rely on the signals which worked perfectly fine in the private sector. In the private sector, you get no extra brownie points because you have got a new technology. You get extra brownie points if you do it better/cheaper. Everybody wants to buy into that one. Or if you do it better, it costs more and somebody is willing to buy it, and we do that all of the time. There is nothing wrong with that.

The trick in health care is how can we start to mimic better those kinds of signals and make people who should care actually care. Now, John was a little more optimistic about what the private sector is doing in that than I am. I am going to give you some examples why I don't see it happening in places where it should count in the public sector.

In the private sector, it should matter. I believe that purchasers who were described or at least implied as not being willing to pay for better quality care and going only for lower price actually indicate all the time they understand the difference between low price and best quality. And the problem is we haven't, the people providing services or worrying about the system, given good enough information that purchasers ought to say, better value. Because, in the absence of better value, they will definitely say low price.

So where private purchasers, I believe there is not much evidence that they don't know the difference between low price and better value, they just haven't gotten anything that really is worthwhile. Now maybe that is too optimistic. Why am I so convinced? Well, they demonstrate all the time in all of their purchasing that they know the difference between low price and best value, and I don't believe we ought to assume they are just too stupid to figure out the same thing as there in health care.

I think they really haven't typically gotten very convincing information there is something that is out there worth buying. Because, when they do, I think they will respond. Now, they may need a little help in having good information presented in consumer-friendly or purchaser-friendly ways. I regard that as a less of a problem.

I am very worried about the public sector. I see the public sector moving in exactly the opposite direction. Let me give you some examples. In Medicare, we have been killing ourself to come out with the just and right price. That is what the Physician Payment System is all about. It is what the DRGs are all about. I don't see anything in there that allows for variation according to quality, according to doing it better. In fact, I think the focus really takes you down the wrong path.

Now I do hear both people at the agencies and especially members of Congress saying they want to pay more for better quality. I believe the interest is there, and certainly the whole focus of John's center is on how to try to improve quality and improve safety and to have that become part of the system. But the actual payment system--again, this economist is say what you want, in the end, look at budget and you how you pay--doesn't make me reassured that we are even beginning to move in that direction.

And I am also worried about what I have seen happening going on in the general public which is thinking that somehow leaving those bad HMOs and returning to the ala carte fee-for-service world represents a movement in the better direction. Now, why do I say that? Well, actually, we keep hearing talking about systems. Guess where whatever good work we know about accountability happened? It was in broader systems.

Now, does that mean I think everybody ought to go into some kind of managed care world? No, I think that the delivery systems will reflect individual differences, as many other aspects of how we receive services. But, in vilifying one area that happened to actually put a lot of investment in accountability and recognizing they are a system, we are likely to throw out the good with the bad and to move in a direction that does not obviously lend itself easily to accountability.

So let me give you just a couple of bottom-line ideas that I have been trying to toy with in terms of where we need to go.

The first thing is we absolutely have to understand that we can't separate the science and technology from the financing. As we look at what science and technology has done in the past, as an economist, it is hard to feel really reassuring at the financing side, at the spending side.

Now, in terms of what it has provided for us in terms of quality and quantity of life, that part of course is very encouraging. As we are making major investments by doubling the budget of the NIH, about having so much emphasis on genomics--and I recently spoke at a conference on pharmacogenetics and talked about the potential out there for not having all this trial and error medicine going on but really being able to target therapeutics to patients who will metabolize them in a way that will make them much more effective.

The potential is there, but only if we can come up with financing systems that both inform and reward that kind of behavior. So to think about what technology can do and science can do, apart from financing, is to miss the bottom line of where this country has been as leaders in technology over the last 30 or 40 years.

And, finally, we really need to think about what does it mean to talk about moving to systems. We have heard that a lot today. Systems are needed in order to try to get the kind of quality and patient safety that we want. We need to see a little more creative thinking about how can we construct systems that might be amenable to different kinds of reimbursement. We are clearly not only going to go in one direction, but the direction we are moving is probably the most difficult so it is going to take the most creative thinking.

We need to think about what they will look like and then, most importantly, we need to think about how we are going to get from here to there, and that is really where I want to come back and talk full circle about in the end disruptive technologies will probably be very helpful because getting from here to there is not likely to happen in a nice and neat straight line. But, when we do it, we need to remember to drag along the financing.

This is a different world. Third-party payment is going to remain an important factor. When you have people using somebody else's money, the notion of any benefit versus cost-effectiveness become very different matters. That doesn't mean we should ignore those things that are more expensive. We just need to recognize the world that we are in. That makes it a lot more complicated than being in the pure private sector.

MR. GINGRICH: I suspect we have come close to overwhelming you. If we haven't, we will try during the next phase to do that.

What I would like to do is toss it open to all of you and give you a chance to ask questions, make comments. I think we have microphones; am I correct? We have a microphone.

John wants to respond to Gail, first, and then we will throw some to the audience.

DR. EISENBERG: I want to build on something that Gail just said about whether or not businesses or purchases want to purchase high quality care and whether, by implication, Gail, whether providers want to provide high quality care.

We did a survey recently with the Kaiser Family Foundation in which we found out--one of the results was that 86 percent of employers believe that they felt that it was their responsibility to assess the quality of health plans that they offer. They want to do that. That doesn't say they think it is a business case for quality, but it is a moral case for quality, I think, you could--or a professional case for quality.

So, when I was asserting that we hear from businesses that they don't often see a business case for quality, that doesn't mean that they don't think it is important, as the advocate, as the agent for their employees to try to find high quality care. NCQA has been an important part of that and we are making progress in getting them better information. I think everybody would agree.

Peggy?

Including Peggy, that we can build on the information that we are getting for them. And, likewise, on the provider side. What provider would say, yeah, there is no business case for quality, therefore, I don't care for quality? Of course they care about it because they are professionals--we are professionals, and hospital boards are in the business of taking care of people.

So I don't think that one should assume that because we don't understand the business case for quality that means that we don't want to provide quality or buy quality.

DR. GARDNER: I agree. Actually, I think that part is the positive part. It is providing the information that is convincing--

DR. EISENBERG: Exactly.

DR. GARDNER: --that there are differentials, here is why it is credible information and here is what is--and it will mean, of course, that there will be winners and losers in such activity as there always are.

DR. EISENBERG: Exactly. And it doesn't have to be because it saves money, it may be because it increases revenue because it makes you a more popular attractive plan or hospital, right?

DR. GARDNER: We see, in the private sector all the time, that people are willing to pay more for certain kinds of things, and not just because it is cost effective but it may be better quality and, for some individuals, that or some other amenity attached to it is worth paying for.

What we have to watch out for when you are using other people's money is any benefit, and any improvement looks attractive if it is somebody else's money. It is making sure we understand the dilemma we set up when we have a system that has heavily involved third-party payments.

MR. GINGRICH: Let me toss it--we have several microphones here. Who would like to jump in?

MS. : This emphasis on the potential of information technology to reduce medical errors as well as improve quality and reduce costs is very important, but I would just like to offer a very brief comment that, in a broader sense, new medical innovations, particularly new technology also has the potential to reduce the cost of care, particularly for the elderly.

The reason I wanted to offer that comment is that there seems to be, in Washington particularly, a pervasive anti-technology, anti-intellectual conviction that new medical technology is going to increase costs. There was just a suggestion of it when we considered the aging of the population. They mentioned that people would be able to live longer and that will mean more money spent on their health care.

I believe that the evidence suggests that, in fact, these new medical innovations and technologies are intended really to add health span and compressed morbidity, rather than add years of life. What that really means is protecting older people from age-related disease, from the cost and suffering of those diseases, until very much toward the end of their lives.

So what I am thinking of is, for example, in the area of cardiovascular care the new Staten [ph.] drugs that keep your arteries open and unclogged, new angiogenesis or nonsurgical bypass, biventricular resynchronization devices that will cure the most intractable form of heart disease, congestive heart failure, drugs that will halt paralysis from strokes and, in a couple of years, we will be able to undo stroke damage, drugs that will prevent osteoporosis and restore bone density for women who have osteoporosis.

So I think it is very important, at the same time that we are focusing here on the enormous positive potential of information transfer of technology to improve quality of care and reduce costs, that we not lose sight that this is just one little segment of a vast technological revolution that is very positive not only for quality of care, but also ultimately for allowing us to cope with the costs of an aging population.

MR. GINGRICH: Gail and then Phyllis.

DR. WILENSKY: Whether or not there will actually be an increase or decrease in spending depends on several things, and let me just mention some of them.

The bottom line, it depends on what gets you next. Whether reducing the current mortality and morbidity from strokes and cardiovascular disease which clearly is a high--remains a high risk factor, although it was why we had the increase in longevity that we saw in the last 25 years really depends on what we will ultimately die from.

We didn't used to worry about Alzheimer's. Alzheimer's is a disease we have had to cope with as a result of some of our earlier successes. So, ultimately, in terms of whether these particular reductions are cost increasing or cost decreasing for society depends on not just whether or not we prolong life in some of these. There is always this debate about as we keep people going longer whether their chronic illnesses start earlier or later, whether they progress faster or slower, and then, ultimately, what they die from--but what they are going to die from next, if we do in fact actually go the final step and cure this problem.

But the other thing that you need to think about in terms of spending is the difference between the number of or the amount of cost-per-case and what happens as what may have been a much higher risk--much more painful and more expensive intervention becomes lower cost because it becomes non-invasive or less-invasive than it previously does.

Typically, what happens is that a far greater population now will be able to have clinical gain or will be interested in seeing whether they may have clinical gain, either because they don't need to be as sick as they used to be or sometimes the fact that they are sicker and were not really appropriate candidates, we can make them now available.

So I think that whether the cost for society of those interventions goes up and down depends on what happens. And then, finally, how we finance these new technologies will have an important factor. Historically, what we have seen is that this increased spending is very significant for older people. We certainly need to be careful not to just multiply the people who will be 80 twenty years from now with today's per capita expenditures inflated for inflation.

But I think we do have to be a little careful about assuming that because we will cure some of today's diseases that means that we will necessarily save money. It really does depend what happens next.

DR. GARDNER: You said it better than I could possibly say. There is no way in the world I would advocate not advancing science and technology.

DR. WILENSKY: Of course.

DR. GARDNER: Because I think it is our moral imperative to advance science and technology and that, when you do come up with a way to improve disease outcomes, it is our moral--and that is why I get a little--I get mixed up when people apply business case analysis to what I see as a moral imperative. Now, that may be just my own opinion.

The reason why I think that people are concentrating right now on information technology to talk about that is that I think it is the nearest, most immediate, way to make a business case analysis. Because we have had enormous inefficiencies in service transactions and information transfer, and everything else that are leading to both errors and high cost. If--right now, available to us, we see examples over and over, of ways we could deploy these new information technologies that will make an immediate change, as opposed to some of the ongoing innovation that have been going on all along.

MR. GINGRICH: John?

DR. EISENBERG: I think there is a major flaw in the way in which people calculate the so-called increased costs of some technology which has been not looking at the effect of the technology on the system as a whole. They look on the cost of that hospitalization or that drug, for example.

If we are going to take a systems approach to this which I think everybody here agrees we should, then we look at the whole system. Case in point, Sam Bizetti [ph.], from Rand, published a paper about a week and a half ago that we sponsored the research on, demonstrating that if you provide people with more expensive drugs for HIV infection that you can decrease their hospital costs by 40 percent and decrease their overall cost of care by 10 to 15 percent, so long as people have access to ambulatory care.

They have to be in a system. In fact, that increased technology, when we might have thought it was going to increase costs, actually decreased costs if we looked at its effect across the system.

I just urge that, whenever we look at technology, we would do that. I am sure you would agree. But, often when people study technology's increased costs, they only do it with a narrow slice of the health care system.

MR. GINGRICH: Molly wants to comment, also.

DR. COYE: It was not on John's comment.

MS. : I think that the comment that Dr. Eisenberg made is so important because again and again you pick up the newspaper and you hear complaints that spending on pharmaceuticals, on new drugs, is increasing faster than other parts of the health care system. I always say, great news. Because the fact is the dollars are going where they are doing the most good.

If you can spend money on drugs to keep people out of the hospital and off the operating table, that is a terrific thing and you put it so well, drugs may be 30 percent of the health care spending pie in five years. But, if you could control the increase in the whole pie, that is a good thing.

DR. WILENSKY: It is a good thing if it is obvious it is increasing control in the rest of the sector. When it is not obvious that those are going on, then you need to be worried and making sure that you are getting something worth your money, if you saw an increase here and a decrease there.

The difficulty is when you don't see them you see increases in both sides. You want to make sure you are comfortable. We understand what we are buying. We understand what we are getting. We all agree that it is worth the money.

MR. GINGRICH: Let me butt in here for a second and go back to one of John's challenges, generic drugs' drop in price. I forget what the numbers are for the last five years, but it is startling how much generic drugs declined. If you were to actually look for a wide range of applications whether there is any significant cost advantage to not using the generics, the answer is probably no. But they are not advertised, they are not pushed. There are no detail people. In fact, the minute a drug goes off license, the company actively tries to avoid pushing it because it is no longer a profit center.

So, if you were to measure for the country at large--you would say for the nation at large when you had a problem and your choice was a $4 pill or a $700 pill and unless you had active indigestion upon taking the pill you should always take the $4 pill, I will guarantee you that information will neither be available to the doctor nor will it be available to the patient. It is just not part of the system anymore.

So I think you have got to look at the underlying system. And you had a look at this one with something John put up there which I just wrote a note on, the Bates report, that particular things they did involved a 55 to 63 percent decline in medical errors and an 80 percent decline in adverse reaction.

If this was the airline industry, you would ask yourself, okay, how rapidly does Boeing put out the required changes in the maintenance of the 747 upon this discovery? And the answer is, it is almost overnight. There is an entire system so that the certified mechanic at the airline automatically gets the data.

Now here we have a case which is not nearly as radical as my point about generic drugs, but here you have a case where ostensibly--assuming for a second this is accurate--I am just saying you can't automatically translate things every day.

But, assuming that this is translatable, everybody who studies the health system knows the rate of the diffusion of improvements is stunningly slow and stunningly episodic. I think you issued in your report, 17 years it could take a new breakthrough to actually get down to practitioners? 17 years.

So I come back to Betsy's point which you could imagine a system in which, in fact, many improvements lead to substantially lower price, if you had a system which asks the question "Will this lead to a substantially lower price?"

DR. EISENBERG: Right.

MR. GINGRICH: We currently have a system in which I think Gail caught it perfectly--if the technique is very expensive, it will cost a lot because the relatively few cases multiplied against the great expense adds up to a lot. If it becomes dramatically cheaper, it will cost a lot because there will now be many cases multiplied against the lower price.

But the answer, in either case, is it will cost a lot, largely because that is the system we are in. Which is why I think all five of us agree we are looking at a systems change, a block improvement. We are not looking at marginal changes, if we are going to in fact be healthy 10 years from now.

Go ahead, Molly.

DR. COYE: I think there is another consideration which is really important that just as we have been talking for the last five or six years about digital divide, there is a technology divide that looms large. When we talk about the cost-per-case or the cost-per-population and the affect of a new technology, it may be that it is very beneficial but it is only affordable to certain kinds of insurance. It is only covered by certain kinds of insurance, and there are, of course, a lot of people who--and a growing population of people who are uninsured.

So I think it is very important to look at the potential of different technologies in terms of their ability to close the technology divide and the health care gaps as well. Some of the technologies that we are looking at, those in biotech, pharma and devices, because they are patented usually in their initial stages are by definition more expensive or pose at least the potential for a real difference in terms of who can adopt them initially; not just because individual consumer coverage for insurance but because of safety net institutions, capital budgets, et cetera. For investments in new technologies, their pharmacy budgets are much more constrained for purchasing new pharmaceuticals.

In the area of IT, we are often seeing a technology that actually drives down costs much more rapidly. So the Internet-enabled new devices tend to actually close that digital divide or technology divide, somewhat more. This is always dangerous to make a generalization, but they tend to do a better job of that initially.

So I think it is very important to have a framework for the evaluation--and, again, this is the kind of thing we turn to ARC and to the agencies for--a framework to look at this and understand it at the delivery institution level, to be able to try and understand this so that communities can look at what the problems are for underserved populations as well. That is a really key issue because there are some technological solutions to some of those that are currently being ignored, as well.

MR. GINGRICH: Who else would like to--over there.

MR. : Thank you very much. How does all of this impact upon the future of long-term care delivery, whether it be in the nursing home setting, assisted living setting or home care setting?

DR. WILENSKY: The potential with regard to information and monitoring so as to help seniors who are institutionalized from repeat rehospitalizations is very substantial--and for reducing medications is very substantial. There may, of course, be some assistance in reducing or changing the mix of long-term care services away from some institutionalization, although I think we sometimes kid ourselves there.

Most of the people now who are in nursing homes have multiple dependencies. And, while the day may come that some of them could be treated in step-down type of arrangements, I think that especially as we have an aging population, that we are likely to have individuals with multiple dependencies that will need a high level of care. Whether or not it is exactly as we know them in nursing homes today or not is hard to tell, if you go out long enough.

I think, although we usually think about nursing homes as less capital intensive, the information kinds of technologies could have substantial gains in terms of the quality and the error reduction and perhaps have some lowering of costs as well, although I would be a little dubious about that because usually we have put so much financial pressure on these institutions--but, certainly, the potential for much better care, and I don't know whether it will be lower cost.

DR. COYE: I think the one areas where it may actually help with costs is that it has the potential to replace labor, and labor proportionate for cost is much higher for long-term care than it is even in hospitals where it is, I think, still 60 or 70 percent of the cost structure.

So the potential that it could significantly either replace labor or mean that you can use less skilled levels or differently skilled levels is very, very important. And I think that that--I mean, this obviously has to be carefully researched as we do it--but I think the potential that that will improve quality and bring down the error rate is very exciting, and improve the quality outcomes.

So I think there is great potential there, and there are some very interesting innovative products out there on the market now and experiments under way. But I think that looking at what people are saying about the nursing shortage in this cycle and I don't know again what Gail or John would say about this, but a lot of the delivery systems are looking at this and saying, they are afraid it is less cyclical than it has been in the past.

DR. WILENSKY: I think this is a different--MedPak and other groups I am involved with have been trying to understand, there is a cyclical nature but, fortunately, there in the last--since the last one, there has been an explosion in opportunities for women and I think it will have a lasting impact on the labor distribution in health care, and will push to think of different ways, different mixes of labor and different mixes of capital and labor in terms of these information and monitoring devices--and probably end up with a safer and better system.

DR. EISENBERG: We had a conference on this topic and one of the leaders in nursing said, Don't just look at the number of hours nurses are working, look at what they are doing during those hours and what kind of support systems exist for them--which is right to your point.

If we had adequate information technology to help nurses do their jobs as professionals, that might change the staffing ratios that we need. But we don't have that information at present. I think you are right on target.

MR. GINGRICH: Let me take a stab at this from a totally different angle because I think the question is exactly right and illustrates the gap we have intellectually on what we are doing.

We keep trying to find ways to marginally improve the current structure.

[Tape 2, side A.]

MR. GINGRICH: [In progress]--for whom he had run franchises, and they said to him, "We don't do that." So he went out and did it. WalMart is not Sears. It is a totally different delivery system. He used the word "value." They have a very simple model, lowest everyday price based on lowest everyday cost. They mean it. Sam's Club means it even more. If you go look at those two systems and the fact that in the average week 100 million Americans voluntarily go into either Sams or WalMart--now that is a very powerful model, but it not a slightly different version of something else. It is a uniquely-designed system.

Fair example, it you look at Womax [ph.], the machine that changed the world, and they take you from Panhart [ph.] in 1894, hand building a car, to Henry Ford passionate about standardization--which was the key to Ford, not the assembly line--but the standardization so that any part fits into any car--to Toyota, which adopts Demming's codification of the Western Electric manufacturing system, that is all it is.

Toyota is a block obsolescence of the Ford model. Ford was a block obsolescence of the Panhart model. Now we apply it for 30 seconds to the nursing home of the 21st century--and actually, we have two people who are here--where are you sitting from VisiQ? Back there.

VisiQ is an intensive care system which actually delivers 24-hour a day monitoring electronically with an intensive care specialist available all the time to give the nurse support instantaneously, and they can handle a substantial number of intensive care units from one central facility. It is a stunning block increase in the capacity to delivery highly managed care in terms of care, not cost.

We have no managed care in America. We have managed cost.

This is a system which is very different. I imagine that 20 years from now--and this is a place where the government could actually help build the prototype because you first need a prototype.

In hospitals, the prototype is being built by HealthSouth and Oracle that will open in 2003. General Electric is part of it. Compaq is part of it. It will have no paper. Everything doctors do will automatically be in the computer. It will not be transcribed. Nurses and doctors will us a thumbprint for access to the electronic medical record. It will be a totally different system, a block obsolescence of every current hospital.

Similarly, there is no place in America where you could today gather the capital for the reason Gail said. We pay less for nursing homes than most people of you pay for hotel rooms. I mean, think about it, my mother is in a nursing home. The average payment in that nursing home is less than I would pay to stay in a hotel room, and then we expect it to succeed?

So you have a problem that nobody can build the capital investment to create the nursing home of the future which ought to use all of these technologies simultaneously to create a totally different quality of life. Electronics allows you to have a very rich life, even if you are trapped in a nursing home. It is not the same as the world of 20 years ago.

But we do almost none of that because there is no capital, so there is no center of invention, so you can't find Henry Ford or Ray Kroc or Sam Walton.

DR. GARDNER: I want to ask all of you a question because there is something that is worrying me and I hope I can put it--I am not policy maker here. But the consumer is the patient. We have a Western-style system of medicine which emphasizes disease treatment, not wellness preservation which is something that all of us know.

Managed care tried to address this by saying we are going to reward you for keeping people well. But the models you use for the consumer are for the sick person who interfaces with the system, so they are going to select for the system in a way that may skew the system--in a way that managed care was trying to address, which I don't think they addressed adequately.

In other words, what you are trying to do for the asthmatic, for the diabetic, for the congestive heart failure patient, is keep them out and well. They are not going to be evaluating the system until they are sick, and the more sick they are the more they get to evaluate the system and they are going to be the ones selecting the McDonalds or the WalMart.

DR. WILENSKY: I think it is why you heard my plea of not throwing out the concept of managed care because we had some bad experiences. For many people, having good coordinated care systems where they have a way to have somebody worrying about if they are an asthmatic, keeping them out of the emergency or the congestive heart failure, making sure they are taking their meds and that they are not ending up in the emergency room.

But we have got to recognize that, for a variety of reasons, for some people that model isn't going to work and they are going to want a much more siloed type of environment where they pick and chose, and there are going to be really a couple of issues. One is can we convince people--we don't always have to do this from prepayment. A lot of the types of health care we are talking about are not what normally are insured or insurable expenses. They are predictable, low-cost kinds of expenses.

So part of it is we have got to figure out how can we get information out so people understand this is important, they ought to do this, they shouldn't have to rely on somebody else paying for it, it is something worth buying.

And the other is, how do we try to have smarter payment systems for the disaggregated delivery systems that exist, rather than the old style fee-for-service fee schedules which clearly don't reward that kind of behavior. But you better be careful about just saying, oh, we will go pay for it. Because our experience is well, you will pay for it and everything else that tended to be done. It is very hard to capture those savings.

So I think we really need to understand, it is going to be a complicated fix. Systems as structured as we know it for some people, getting people to understand and be willing to buy in that this is worth having and trying to find something that doesn't quite exist now for those who don't want to go on more stretches--

DR. COYE: I think here we will see a tremendous explosion of the merging of marketing and other consumer products with health maintenance in this sort of non-insurance model, things that basically you want everybody to have as prevention or very basic primary care in some cases.

One of our partnerships is with MIT's media lab and, you know, you go up there and they are focus is on the consumer, not on solving the problems in the hospital or in a clinic but for consumers, principally. It is very easy to envision five or seven years from now, which is pretty rapid in health care terms, a period where the design of systems for people who are reasonably well is going to incorporate being able to access a lot of these things. The vitamins will be in your food. You know, the vaccines may be in your food.

But a lot of these things are going to happen without it having to be our traditional model of, you know, sit in your grade school class and get lectured to about "X," and then remember ten years later you should go do that. That we have set this up to be no win for the individual consumer. I mean, it is only the most motivated person who does an awful lot of this. So I think we have to also look at technology in that regard.

DR. EISENBERG: I want to add to what Gail said about managed care, don't be throwing it out like the baby with the bath water or something like that.

Managed care--I am not part of managed so care, so I don't have an ax to grind for them. We sell to manag