World Health Care Congress - Remarks by Thomas J. Donohue

Washington, DC
April 18, 2006

** As Prepared for Delivery**

Thank you. I'm very pleased to be here. The U.S. Chamber tackles dozens of issues affecting the business community, and few, if any, are as difficult to get our arms around as rising health care costs.

Our health care system – much like our tax code – is complicated. Individuals, insurers, providers, employers, and the government all play a role. And it's an emotional issue as well – there's nothing more important to a person than his health.

This makes fixing the health care cost crisis quite a challenge. But the private sector, which purchases health care for 136 million Americans, must lead. If we leave things to the government, we'll find ourselves in a far bigger mess.

I'd like to raise a few contributing factors to high health care costs and then offer some solutions.

First of all, there is a tremendous amount of cost-shifting going on, to the disadvantage of employers.

Businesses aren't just paying for the health care of their employees, retirees, and dependents. They're also picking up a large part of the tab for the uninsured who use health care resources but cannot pay the bill.

The amount of uncompensated care linked to the uninsured last year totaled $45 billion, and that figure is expected to double in the next decade.

Cost-shifting doesn't begin and end with the uninsured – providers who are being squeezed by Medicare and Medicaid are shifting their costs onto private payers.

As our population gets older, Medicare costs will increase, and the continued shifting of those costs onto businesses presents major problems.

We must also recognize that a small percentage of people consume a majority of health care, and in many cases, their illnesses can be prevented.

80% of health care costs results from the treatment of about 20% of the population afflicted with chronic diseases.

Imagine the savings if we did a better job of keeping that 20% healthier. The private sector can have a bigger impact here.

Another challenge is medical liability. One direct result of excessive liability is the provision of too much health care.

Providers order unnecessary tests and provide redundant treatment procedures to avoid lawsuits. The costs associated with defensive medicine are estimated to be between $70 billion and $126 billion per year.

And finally, our health care system lacks any real transparency in both costs and quality. Show me another industry where customers have little or no access to reliable and easy-to-understand data on cost, quality, and effectiveness of the services they pay for.

Taken together, these factors are contributing to a cost trend that has major consequences for U.S. competitiveness.

Let me give you an example of what I'm talking about. General Motors spends about $1,500 on employee health care for every vehicle it produces.

By comparison, Toyota, which has very low retiree costs for its U.S. operations, is estimated to spend about $200 on employee health care per vehicle.

The private sector must become more aggressive in addressing the health care cost crisis. Let me share with you several legislative and non-legislative responses that, collectively, can have a significant impact on cost.

First, we need greater transparency, and we're slowly moving in that direction as the market begins to embrace consumer-driven health care products.

Consumers with traditional types of employer-sponsored coverage have little appreciation or understanding of the cost of health care.

They visit their doctor or fill a prescription and make a $15 co-payment, with little to any knowledge of the actual cost of the treatment or medication they just received. WhyBecause a third party – the insurer or employer – pays the bill.

But employers are increasingly moving to consumer-driven health care products that gives their employees more control, more choices, and more freedom—but also more responsibility.

With greater employee responsibility comes greater demand for information on cost and quality. The market will respond to those demands, resulting in greater transparency.

The growing popularity of Health Savings Accounts, or HSAs, reflects the shift to consumer-driven health care.

HSAs—when paired with a high-deductible health insurance plan—allow employees to save tax-free dollars to be used for eligible health care expenses.

People with personal health accounts have economic incentives to better manage their own care. They reap the economic benefits of making good decisions and bear the economic penalties for making bad ones.

They are more likely to shop around for health care services—carefully weighing both price and quality—and use health care more wisely.

More than 3 million Americans have signed up for HSA-compatible health plans, and the Chamber is working to expand that number.

We are lobbying Congress to pass legislation that would do a number of things:

• Raise the limit on tax-free contributions to an HSA;
• Allow individuals to deduct the cost of their premiums for their high-deductible health plans;
• Provide a tax rebate for small business owners who contribute to their employees' HSAs; and
• Provide a refundable tax credit for low-income individuals.

For consumer-driven health care to really take hold, there needs to be more reliable data on quality, because that's what consumers base their decisions on.

That brings me to my second point – the need to dramatically expand the use of information technology to track outcomes, store medical records, and handle administrative tasks such as claims processing.

U.S. industries such as retail, shipping, and banking have successfully made the transition to the electronic age, yet the health care industry's use of information technology lags far behind.

Walk into just about any physician's office and what do you see behind the front desk—rows and rows of filing cabinets containing thousands of paper medical records.

Health care is stuck in a paper-based system, and that creates unnecessary costs and threats to health.

The widespread adoption of health IT would lower costs, prevent medical errors and duplicative testing, guide medical decision making, and allow providers to better track health outcomes and coordinate public health activities.

One of the Chamber's priorities this year is passage of a health information technology bill.
The legislation would develop a nationwide interoperable health IT infrastructure while ensuring that the privacy and security of medical records are protected.

Third, we have to reform Medicare and Medicaid reimbursement rates; enroll uninsured eligible people into those programs; and provide financial incentives for providers to improve quality.

Medicare and Medicare reimbursement rates don't cover the cost of services delivered. In 2002, Medicare paid 95 cents for each dollar of services received, while Medicaid paid about 85 cents for each dollar of services.

As I referenced earlier, providers are making up the difference by charging private payers more. In fact, in 2002, private payers paid $1.22 for a $1 of services received.

We can't continue to expect the private sector to keep paying more than its fair share of the nation's health care bill. That's why we need a fair government payment formula.

I've mentioned that the uninsured are a major drain on employers because it's the employers that end up paying for their care.

There are 14 million uninsured who are eligible for Medicare and Medicaid but not enrolled. We need to explore ways for moving them into those programs.

Employers should also push for pay-for-performance purchasing. As you probably know, many physicians are skeptical of this kind of system.

But if we could develop a common, uniform, and accepted method for assessing and evaluating quality and align incentives to reward it, the benefits to all would be tremendous.
Medicare has already introduced "pay for performance" reimbursement on a limited scale. This is one area in which the private sector should promote Medicare as a catalyst for overall health system change.

Fourth, we need to create new health care purchasing vehicles for the small businesses who struggle the most to find affordable coverage.

This is where Congress needs to act. Scheduled to come up for a vote in the Senate as soon as next month is legislation that would permit small and mid-size businesses to band together across state lines to purchase health insurance.

Under this arrangement, small businesses could achieve the same bargaining power that large companies and labor union plans have, resulting in more affordable rates and better service.

Small Business Health Plans would also allow small and mid-size businesses to offer uniform plans in every state without being subject to several different state mandates.

Speaking of health care mandates, we're seeing efforts in various states to copy the "Wal-Mart" bill that passed in Maryland at the beginning of the year.

That legislation, you might know, requires employers with 10,000 or more employees to earmark 8% of payroll spending for health care costs or divert an equal amount of money into the state's fund for low-income individuals.

Most businesses escape the reach of this type of legislation. But what's happened in Maryland has created a slippery slope effect in which proposals elsewhere would mandate coverage even for smaller companies.

Fortunately, state legislatures for the most part are rejecting these proposals, but we've got to stay on top of this. This could be the just the beginning of a multi-year battle waged by unions at the state level.

Now, what's happened in Massachusetts is quite another matter. There, the governor signed a bill that requires all individuals to purchase health insurance.

This is a very interesting experiment. Needless to say, many other states are watching it closely – as are we.

Fifth, while Congress is passing small business health plan legislation, it needs to also pass medical liability reform.

On any given day, there are more than 125,000 medical liability lawsuits in progress against America's 700,000 doctors.

The median award in medical liability cases jumped 140% from 1997 to 2003, topping $1.2 million.

Outrageous medical liability insurance rates and the cost of defensive medicine are just the start of it. Excessive liability is forcing some doctors to get out of the profession or move somewhere with a more favorable legal climate.

The American Medical Association says 20 states have a health care liability crisis that is causing doctors to flee those states, leaving working families without access to affordable health care.

One of the worst states is Illinois. In California, which passed medical liability reform in the 1970s, an OB-GYN can expect to pay around $60,000 per year for liability insurance.

That same doctor in Chicago will pay upwards of $200,000 or more because of the liability crisis in that state.

Southern Illinois' only neurosurgeon left the state a few years ago, and large swaths of northern Illinois have had to make do without a Level 1 Trauma Center for the past few years.

Women living in Carbondale, Illinois, have had to drive more than 20 miles to have their babies delivered.

Fortunately, Illinois lawmakers recognized this crisis and recently passed medical liability reform that we expect to curtail the brain drain in that state.

The trial bar has also set its sights on America's pharmaceutical industry. Take, for example, Merck and its drug Vioxx.

The company is facing thousands of federal and state lawsuits stemming from the use of Vioxx that could leave it with up to $50 billion in liability by the time this litigation is said and done.

Drug lawsuits are changing physician and patient behavior – for the worse.

In a recent survey conducted for the Chamber, 38% of doctors and 44% of pharmacists said that their own patients had stopped taking prescribed medicine because the patients found out their medication might be the subject of a lawsuit. That was without consulting with their doctor first.

More alarming than that—43% of doctors said they had not prescribed a medication for a patient because of fear of lawsuits.

What's equally, if not more, disturbing is that breakthrough or life-enhancing pharmaceuticals or vaccines for diseases ranging from the flu to smallpox may never make it to market out of fear of litigation.

Breakthrough drugs are critical for early, preventative treatment of chronic diseases and can prevent those diseases from reaching the acute stage.

To prevent lawsuits and fear of them from consuming our health care system, the Chamber is aggressively pushing federal medical liability reform that would cap noneconomic damages and restrict the ability to bring a lawsuit to within three years of the date that the injury occurred.

While we push Congress to do its part to address health care inflation and quality, let's not overlook the ability of the employer community to have a positive impact with workplace programs.

Wellness and prevention programs that include employee access to disease management programs, free or discounted gym memberships, smoking cessation programs, and health assessments all can have a discernible impact on health care costs.

Motorola gets nearly $4 of return on every $1 of investment in its wellness programs. Johnson and Johnson averages $225 in health care savings per employee per year with its programs. And Pitney Bowes' prevention and wellness programs have produced $200 million in cost savings.

Businesses need to share ideas and information on which wellness programs work and which don't, and the Chamber is helping facilitate this effort by bringing people together.

Finally, the private sector must strongly resist efforts to allow government to gain greater control of the health care system. Our system, even with all of its flaws, is the best in the world because it's based on free market principles.

Government-run health systems, like what Canada and much of Europe has, dictate what care consumers get and when they get it – and that goes against the fundamental nature of our free-market society.

By some of the most important measures, the U.S. health care system far outperforms its government-run counterparts. For example, MRI wait times in Minnesota are measured in hours; wait times in Canada are measured in months, and they are getting longer.

Cancer survival rates are much higher here than in Europe or anywhere else in the world – that's because our patients generally receive the care they need when it's needed.

Conclusion

Ladies and gentlemen, the American health care system may be sick, but it's far from dead.

It can be nursed back to health, but not without leadership from the business community.

As the top leaders of your companies, I applaud you for being here and giving this issue the priority it deserves.

The health care cost crisis is not an issue to be left to HR departments or middle managers to solve. It should be a top-level issue for every company.

The Chamber of Commerce is 100% committed to working with all of you to create the best possible health care system available to the greatest number of people possible.

Thank you. I'll be glad to take your questions.