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THE ROLL OUT OF HEALTHCARE.GOV: THE 

LIMITATIONS OF BIG GOVERNMENT 

HEARING 

BEFORE THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

DECEMBER 4, 2013 

Serial No. 113–83 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

CYNTHIA M. LUMMIS, Wyoming 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

KERRY L. BENTIVOLIO, Michigan 

RON DESANTIS, Florida 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

JACKIE SPEIER, California 

MATTHEW A. CARTWRIGHT, Pennsylvania 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

DANNY K. DAVIS, Illinois 

PETER WELCH, Vermont 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

Vacancy 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

STEPHEN CASTOR, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

(III) 

C O N T E N T S 

Page 

Hearing held on December 4, 2013 ........................................................................ 1 

WITNESSES 

Ms. Veronique De Rugy, Senior Research Fellow, Mercatus Center, George 

Mason University 

Oral Statement ................................................................................................. 6 

Written Statement ............................................................................................ 9 

Dr. Clifford Winston, Searle Freedom Trust Senior Fellow, Economic Studies 

Program, The Brookings Institution 

Oral Statement ................................................................................................. 14 

Written Statement ............................................................................................ 16 

Mr. Mark A. Calabria, Director of Financial Regulation Studies, Cato Institute 

Oral Statement ................................................................................................. 23 

Written Statement ............................................................................................ 25 

Dr. Karen Kruse Thomas, Historian and Communications Associate, Johns 

Hopkins Bloomberg School of Public Health, External Affairs 

Oral Statement ................................................................................................. 37 

Written Statement ............................................................................................ 39 

APPENDIX 

The Hon. Elijah E. Cummings, a Member of Congress from the State of 

Maryland, Opening Statement ............................................................................ 94 

Chairman Issa submitted and article from Wikipedia on Alexander Fleming ... 96 

Rep Connolly submitted for the record an article from the Washington Monthly called, ‘‘The Best Care Anywhere’’ .................................................................. 102 

Chairman Issa submitted for the record letters sent to 15 Health Insurance 

Companies ............................................................................................................ 117 

Chairman Issa sent a letter to Mr. Mark Bertolini, Chairman, President, 

and CEO, Aetna, Inc ............................................................................................ 118 

Chairman Issa submitted for the record a NewYorker Article ‘‘GOP 

Healthcare.gov Too Fast Now’’ ............................................................................ 122 

Rep. Cartwright submitted for the record article titled ‘‘What About Social 

Security’s Rollout?’’ .............................................................................................. 125 

Questions submitted from Rep. Collins to Dr. Calabria, Dr. De Rugy, Dr. 

Thomas, and Dr. Winston .................................................................................... 130 

(1) 

THE ROLL OUT OF HEALTHCARE.GOV: THE 

LIMITATIONS OF BIG GOVERNMENT 

Wednesday, December 4, 2013, 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

WASHINGTON, D.C. 

The committee met, pursuant to call, at 9:35 a.m., in Room 2154, 

Rayburn House Office Building, Hon. Darrell E. Issa [chairman of 

the committee] presiding. 

Present: Representatives Issa, Mica, Turner, Duncan, Walberg, 

Lankford, Amash, Gosar, DesJarlais, Gowdy, Farenthold, Collins, 

Meadows, Bentivolio, DeSantis, Cummings, Maloney, Norton, 

Tierney, Connolly, Speier, Cartwright, Davis, Cardenas, Lujan 

Grisham, and Kelly. 

Staff Present: Molly Boyl, Majority Deputy General Counsel and 

Parliamentarian; Lawrence J. Brady, Majority Staff Director; 

Caitlin Carroll, Majority Deputy Press Secretary; John Cuaderes, 

Majority Deputy Staff Director; Brian Daner, Majority Counsel; 

Adam P. Fromm, Majority Director of Member Services and Committee Operations; Linda Good, Majority Chief Clerk; Tyler Grimm, 

Senior Professional Staff Member; Frederick Hill, Majority Deputy 

Staff Director for Communications and Strategy; Christopher 

Hixon, Majority Chief Counsel for Oversight; Mark D. Marin, Majority Deputy Staff Director for Oversight; Laura L. Rush, Majority 

Deputy Chief Clerk; Sarah Vance, Majority Assistant Clerk; Jedd 

Bellman, Minority Counsel; Krista Boyd, Minority Deputy Director 

of Legislation/Counsel; Aryele Bradford, Minority Press Secretary; 

Jennifer Hoffman, Minority Communications Director; Julia 

Krieger, Minority New Media Press Secretary; Juan McCullum, Minority Clerk; Jason Powell, Minority Senior Counsel; Brian Quinn, 

Minority Counsel; Dave Rapallo, Minority Staff Director; Daniel 

Roberts, Minority Staff Assistant/Legislative Correspondent; and 

Mark Stephenson, Minority Director of Legislation. 

Chairman ISSA. The committee will come to order. 

The Oversight Committee exists to secure two fundamental principles: first, Americans have a right to know that the money Washington takes from them is well spent and, second, Americans deserve an efficient, effective Government that works for them. Our 

duty on the Oversight and Government Reform is to protect these 

rights. Our solemn responsibility is to hold Government accountable to taxpayers, because taxpayers have a right to know what 

they get from their Government. It is our job to work tirelessly in 

partnership with citizen watchdogs to deliver the facts to the 

2 

American people and bring genuine reform to the Federal bureaucracy. It is our mission statement and it is our calling. 

Today, when we discuss, once again Healthcare.gov rollout, 

which has undeniably been, and inarguably, a disaster. It is not a 

disaster of the making of one man or any one person. In fact, in 

many ways it is a sign of a failed system that is often seen in the 

Federal Government and very often seen by this committee. 

Nearly two months after the Federal website launched, even as 

the Administration declares its vast improvements, components of 

the back end are still unfinished. Customers are told that at least 

in some cases, many cases, their applications may not have been 

correctly forwarded to the insurance carrier, meaning they have 

signed up; they are not going to get the benefit. They may go to 

the hospital and not be covered. Or, if they are covered, it will only 

be after weeks, months, or years of paperwork. Additionally, it is 

now learned that the ability to properly pay insurance companies 

is in doubt and, as a result, estimates are likely to occur. Estimates 

not how you do business. 

The project’s failure raises serious questions on what hindrances 

Government faces when it intervenes in the private market. President Obama wisely said that startups, business startups, often 

have these sort of problems; that these are the nature of private 

sector startups. The difference here is the private sector wasn’t just 

starting up; the private sector was fully up. Rather than leveraging 

the private sector, Healthcare.gov essentially built a whole new 

layer, a whole new decision process on top of it. 

Before October 1st, the President told Americans that purchasing 

insurance on Healthcare.gov would be as simple as shopping for 

airfare at Kayak or Expedia. I have shopped at Kayak and 

Expedia. The only difficult thing at those sites is choosing from 

many choices, well defined, and making your decision. In fact, 

nothing has been more different than Kayak or Expedia at the site. 

Just yesterday I logged in to the D.C. exchange, where members 

of Congress must go, and got an error. We do not have either the 

front end or the back end, not just in the Federal system, but in 

systems that feed into it, in fact ready. 

Can anyone honestly imagine what would happen if you went to 

buy an airplane ticket on Kayak or Expedia and the site constantly 

crashed, losing your information, or in fact if they told you leave 

your personal email and we will email you back in eight or ten 

hours in order to tell you that it is now a better time to try to log 

on and find prices? 

Healthcare.gov is a monopoly. Healthcare.gov is a mandated taxend location. For members of Congress, they will either go to 

Healthcare.gov or they will be without insurance and be fined. 

Yet, today no one has been held accountable for spending hundreds of millions of taxpayer dollars on a website that simply didn’t 

serve the President or the American people on his signature legislation. 

As someone who spent many years in the private sector, I know 

that if I had ever staked my business on a product that performed 

like this, it is unlikely I would have gotten a second chance. In fact, 

if a company launched like this, they would have to go back down, 

regroup, remarket, and relaunch. But that is not the case. Most of 

3 

the laws stay in place; most of the enforcement stay in place; and, 

as many of the other committees are looking into, many of the exceptions are not ones which are codified in law or within the purview of the Administration to decide to forgive or delay. More importantly, the failure of this website, some $640 million 

invested, will undoubtedly cause a loss of revenue many times that. 

The actual exposure to the vendors and the individuals may be limited, but to the American taxpayer it will be billions of dollars of 

lost revenue because of this failure. 

I did not vote for the Affordable Care Act. I do not believe that 

it will drive down the cost and up the availability and affordable 

to the American people. However, getting the system under the law 

to work as well as possible and then having a discussion about how 

to improve healthcare for the American people is our responsibility. 

Today we are joined by Dr. Clifford Winston of The Brookings Institute, who wrote in 2006 that government failures appear to be 

explained by a shortsightedness, inflexibility, conflicting policies of 

government agencies. 

I might note that 2006 was before President Obama was president. As Senator Obama, this was not about his government, this 

was about the government of his predecessor. Healthcare was broken before President Obama came. 

By its very design, the Federal Government may never be efficient or effective or innovative enough to carry out big initiatives 

like Obamacare, nor should it be. Government should not be picking winners and losers precisely because it has proven to be so bad 

at it. 

More importantly, America is a free market Country, and the 

free market has worked for the American people time and time 

again. Americans know that when you close off and create an artificial monopoly, it costs more. It always costs more not to have 

competition. But, in fact, that is what is happening in healthcare 

today. Half of healthcare costs to the Federal Government reflects 

the entire cost of defense. Defense is not something we can 

outsource to the private sector. Healthcare is something that has 

always been within the private sector, and should be. We can hire 

the best and brightest, as administrators have boasted, and still 

end up with a product that arrives delayed and not working properly. 

There are things that are inherently governmental, and this committee will always be absolutely determined to defend the responsibility of Government to do what is governmental, procurement certainly being one of them. Protecting our homeland, securing property rights are just a few of the others. But something as complicated, as complex, as multifaceted as a web portal supposed to 

rival sites like Amazon.com for healthcare is something the Federal 

Government clearly was not prepared to take on and do properly. 

Government inefficiencies are not limited to massive interventions in the healthcare industry. However, as this committee, 

which has voted on a unanimous and bipartisan basis the reform 

of IT procurement, has discovered, we need to make major changes 

in how we do procurement. We also need to do what is inherently 

governmental and leverage the private sector to the greatest extent 

possible. The hearing today will go a ways toward understanding 

4 

what Government can do, what it cannot do, what in fact should 

be expected by our Government and what should be expected to be 

innovated in the private sector. 

The limitations on big government will never include preventing 

waste in a massive scale; it will always happen. And this committee will do everything it can to reduce it, to organize it. But I 

believe that, in fact, we have before us an example of something 

that may be too big to swallow even for the U.S. Federal Government. 

With that, I recognize the ranking member for his opening statement. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman, and I welcome our witnesses here today and I look forward to an informative 

and spirited discussion. 

I must say that, Dr. Thomas, I had an opportunity to read your 

testimony and I think it is appropriate that I start out by just 

quoting a little bit of it, because this is reading that every single 

American and every member of Congress needs to read. It is some 

of the best testimony I have read since I have been in Congress, 

17 years. 

It says: In 1900, a newborn American citizen had a life expectancy of 47 years. A heartbreaking 10 percent of all infants died before their first birthday, and infant mortality was far higher among 

the rural and urban poor, whether on southern farms or in northern tenements. By contrast, an American born in 2000 could expect 

to live 75 years and infant deaths have been cut by 93 percent. You 

go on to say in all these areas of medical and public health 

progress, the Federal Government has played a fundamental role 

as both sponsor and coordinator of a remarkably concerted effort 

involving communities, States, organizations, and institutions 

across American society. The Federal Government therefore deserves a great deal of credit for doubling, doubling life expectancy 

for Americans, as well as for tackling a long and ever-changing list 

of problems regarded as the worst enemies in the Nation’s health, 

from tuberculosis and polio to cancer and AIDS. 

According to the chairman’s invitation letters today, the committee will examine the institutional limitations on the efficacy of 

Government action, and our case study will be the rollout of the 

Healthcare.gov website. The fundamental presumption underlying 

this hearing is that the Federal Government is somehow incapable 

of successfully administering large-scale programs. In fact, the Republican staff briefing memo challenges ‘‘Government’s ability to 

effectively design, implement, and administer large-scale projects 

and programs.’’ 

The problem with this presumption is that it does not take into 

account many extremely successful Government programs that 

have helped millions of Americans throughout our history. In 1935, 

President Roosevelt signed into law the Social Security Act, the 

centerpiece of our social security safety network. When it first 

launched, critics panned its confusing procedures and less than 

half of the labor force participated. Over time, however, it has 

reached 90 percent of American workers and has been expanded to 

cover the self-employed, to include dependent and survivor benefits, 

and to provide for cost-of-living adjustments. 

5 

Thirty years later, in 1965, President Johnson signed Medicare 

into law. Like the Social Security rollout, there were challenges initially and the American Medical Association called it ‘‘the beginning of socialized medicine.’’ The Federal Government had to negotiate with hospitals, nursing homes, and insurance companies, and 

had to coordinate with all 50 States. Eventually, 93 percent of eligible seniors enrolled in Medicare and the program has been expanded and improved several times since then. 

Forty years after that, in 2005, President Bush signed into law 

the Prescription Drug Program, on Part D of the Medicare law. 

Like Social Security and Medicare before this, this drug program 

also experienced challenges in its rollout. Newspaper headlines 

were dire, stating: ‘‘Confusion Reigns Over Drug Plans,’’ ‘‘Not 

Ready for Prime Time,’’ ‘‘Prescription Drug Plan Part D Gets an 

Early F.’’ 

In all of these cases early setbacks were resolved, critics were 

proved incorrect, and these programs are now immensely popular 

with the American people. But, more importantly, they prevented 

our Nation’s seniors from dying penniless and homeless. They provide a basic level of security to the American people where the private sector failed to do so. But it also provides something else: it 

is called dignity. 

The same is true of the Affordable Care Act. The private insurance market discriminated for decades against people with preexisting conditions. Insurance companies threw people off existing 

plans when they discovered evidence of previous illnesses the patients themselves did not even know about. But now, thanks to the 

ACA, millions of Americans who could not get health insurance in 

the private market now have access to it. 

In terms of today’s hearing, I think everyone understands what 

is going on. The Republicans want to use the initial challenges with 

the Healthcare.gov website to make a broader argument that the 

Federal Government cannot administer large-scale programs effectively and that we are all better off leaving it to the private sector. 

But we have tried that, and it simply does not work. 

I believe the premise for today’s hearing is fundamentally flawed. 

Our Country’s experience with Social Security in 1935, Medicare in 

1965, and the Prescription Drug Program in 2005 demonstrates our 

Government is fully capable of overcoming the initial problems 

with the implementation of programs that help millions of people 

in their daily lives. I remind all Americans that we are a can-do 

Nation. We are a can-do Nation and we are better than that. 

This premise becomes even more absurd when you look at our 

Nation’s broader history. In the 1940s we mobilized our entire 

Country, our people, our industry, and our workers to defeat the 

Nazis and the Japanese in World War II. In the 1960s we tapped 

the best and brightest minds in government and the private sector 

to build a space program that put a man on the moon for the first 

time in human history. Our Government does not always work as 

well as it should, but it is certainly capable of great things when 

there is a strong commitment to the underlying goals we all share. 

In the case of the Affordable Care Act, we know that one component of the rollout, the Healthcare.gov website, did not work as it 

should have. But we also know from testimony before this comVerDate Aug 31 2005 10:20 Mar 20, 2014 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\87022.TXT APRIL
6 

mittee that another component, the complicated interagency data 

hub that most experts worried about, worked much more smoothly, 

and that is a testament to the strong work of the agencies and contractors involved. 

As I close, as we go forward, I hope that we can work together 

to solve any problems that arise in order to improve the program 

so that it works effectively and efficiently. It is not about who we 

fight against. It is not even about who we fight with. It is about 

what we fight for. What we fight for, and this moment is greater 

than this moment; it is about generations yet unborn. In that way 

we can honor the commitment we made in the Affordable Care Act 

to help people who could not get health insurance to attain it now. 

Mr. Chairman, I look forward to today’s hearing and I thank you 

for calling it. 

Chairman ISSA. Thank you. 

All members may have seven days to submit opening statements 

and other extraneous material for the record. 

We now welcome our distinguished panel of witnesses. 

Dr. De Rugy, I always get your first name. It is a lovely name. 

This is not the first time I have had trouble with it. Dr. De Rugy 

is Senior Research Fellow at the Mercatus Center at George 

Mason. 

Obviously, Dr. Winston. Welcome. Dr. Clifford Winston is a Trust 

Senior Fellow at The Brookings Institute. 

Dr. Mark Calabria is Director of Financial Regulation Studies at 

the Cato Institute. 

And Dr. Karen Thomas is a Historian and Communications Associate at Johns Hopkins Bloomberg School of Public Health. 

Welcome. 

Pursuant to the rules, would you all please rise and take the 

oath, and please raise your right hands? 

Do you solemnly swear or affirm that the testimony you are 

about to give will be the truth, the whole truth, and nothing but 

the truth? 

[Witnesses respond in the affirmative.] 

Please be seated. Let the record reflect all witnesses answered in 

the affirmative. 

In order to allow time, without objection, your entire opening 

statements will be placed in the record, and I ask you to observe 

the lights in front of you and limit your time to five minutes. 

Dr. De Rugy. 

WITNESS STATEMENTS 

STATEMENT OF VERONIQUE DE RUGY 

Ms. DE RUGY. Chairman Issa, Member Cummings, members of 

the committee, it is an honor to appear before you today. 

While the Nation is focused on the day-to-day problems related 

to the ACA’s rollout, these are only the most recent and visible 

signs of the fundamental flaws that plague Government intervention in general. My testimony will focus on why Government intervention is often doomed to fail and it will illustrate this point with 

the example of a specific loan guarantee program. 

7 

The idea that Government fails shouldn’t be a surprise to anyone 

who has read the academic work of public choice economists such 

as Nobel Laureate James Buchanan, George Stigler, or Vernon 

Smith. Their work has explained why, despite good intention and 

nearly unlimited resources, top-down solutions not only fail to address the problem they are trying to address, but also sometimes 

and often makes the problem worse. 

There are many reasons for this, but I would like today to highlight two of them. The first one is that even with the best of intention, the incentive of elected officials and bureaucrats to prudently 

manage taxpayers’ money are very weak. They are not rewarded 

when they maximize consumer value, nor are they necessarily punished when they take unnecessary risks or fail to minimize costs. 

In fact, no one in Government, so far as we know, has been fired 

over the problems with the ACA website. Meanwhile, private companies that misstep are quickly replaced by better competitors. 

A key reason for these poor incentives is that Government actors 

all operate within limited knowledge. While individuals acting in 

markets are able to use price signals to guide their decisions, Government decision-makers have no such guides. Hence, they have no 

way of accounting for their value or cost their decision might create 

for others. 

The second reason why Government often fails is that interest 

groups are able to exploit this environment to obtain their own 

goal, often at the expense of the public welfare. And for this you 

don’t have to go to look further than the sugar lobby and the tariffs 

and subsidies they are getting and the increased price of sugar that 

they impose on all customers. 

The bottom line is that in Government intentions do not equal 

results. More importantly, this is true no mater who is in power, 

and it is true across many Government programs, not just 

healthcare. 

The Department of Energy’s 1705 loan program is a good example of the gap between what a program’s proponents claim it will 

achieve and what it actually does. This policy was put in place 

under the claim that renewable energy companies do not have access to sufficient credit to support new projects. These alleged imperfections of the credit markets, we are told, are particularly important for small and innovative companies. However, when you 

look at the data, what you find is that nearly 90 percent of the 

1705 loans go to projects that are backed by large and well-connected companies such as NRG Energy or Goldman Sachs. So in 

that sense it is very hard to argue that the loans are going to small 

innovative companies that wouldn’t have access to credit if indeed 

their project was viable. 

This program is also a good example of Government favoring two 

distinct interest groups: first, the bank, because the lenders now 

don’t have to face the risk of lending money to a company that may 

default; and, second, the companies that are now benefitting from 

very good rates and good borrowing conditions, especially if compared to their competitors. 

The taxpayers, on the other hand, bear the risk and shoulder the 

burden when companies like Solyndra or Abound Solar default on 

their loans and when they go under. The other losers in this case, 

8 

of course, are the companies in that same field who now do not 

have access to credit, even though they have viable projects, because all the money tends to go to companies that are backed by 

Government guaranteed independently of the merits of the project. 

In addition, like most Government interventions, these programs 

and, of course, exponentially larger program interventions such as 

the health care law, create serious and systemic distortion in the 

market. However, the tragedy is, despite evidence, lawmakers often 

don’t get rid of inefficient programs, and that is because they are 

more likely to respond to the pressure of vested interest groups 

than they are to actually try to protect taxpayers, who very often 

don’t even realize the cost of these programs, whether it is directly 

or indirectly. 

Now, there is good news. We have over six decades of research 

on Government decision-making to help guide policy decisions 

going forward. In many cases a sensible solution is simply to leave 

some activities outside of the Government purview. This is not a 

loss, but a gain for Government. Not only will it prevent the type 

of Government failures that we have been talking about, but it will 

also allow the Government to focus on its core function: the provision of public good and the protection of property rights. 

Thank you. 

[Prepared statement of Ms. De Rugy follows:] 

9 


Insert offset folio 1 here 87022.001

I.J~I MERCATUS CENTER 

II~~ George Mason University TESTIMONY 

WHY GOVERNMENT INSTITUTIONS FAIL TO DELIVER ON THEIR 

PROMISES: THE PUBLIC CHOICE EXPLANATION 

BY VERONIQUE DE RUGY 

House Oversight and Government Reform Committee 

December 4. 2013 

Chairman Issa, Ranking Member Cummings, thank you for the opportunity to testify today regarding the limitations of goveqlment intervention. 

Despite Washington's recent focus on the disastrous Affordable Care Act website rollout, policymakers are missing 

what the.tollout glitches symbolize: the fundamental flaws that imbue government intervention. 

The work of public choice economists such as Nobel laureate James Buchanan, Gordon Tullock, Mancur Olson, 

and William Niskanen has shown that, despite good intentions and lavish use of taxpayer resources, government 

solutions are not only unlikely to solve most of our problems-they often make problems worse. 

PUBLIC CHOICE ECONOMICS: POLITICS WITHOUT ROMANCE 

Congress spends a great deal of time discussing the need to address market failures such as monopolies and pollution. However, even when such a problem does exist, the policies implemented to address it are often ineffective 

or undesirable.l That's because, as public choice economists have pointed out, while there may be market failures, 

there are also government failures. In his Nobel Prize acceptance speech, popularized in his famous essay "Public Choice: Politics without Romance:' James Buchanan explains why looking to government for solutions often 

results in more harm than good! 

Public choice theory applies economic analysis-or the study of how incentives influence behavior-to politics. For 

instance, economists assume that people interacting in the marketplace are mosdy driven by self-interest. That 

doesn't mean that people aren't concerned about others, or can't act charitably. It simply means that their dominant motive-whether they are employers, employees, or consumers-is a concern for themselves. Public choice 

economists make the same assumption about government actors. As Jane S. Shaw writes in a primer about public 

choice economics, "although people acting in the political marketplace have some concern for others, their main 

motive, whether they are voters, politicians, lobbyists, or bureaucrats, is self-interest."' 

1. Kenneth Arrow mathematically demonstrated how political consensus is generated through rule manipulation rather than careful considera~ 

tion of the issues or constituent needs. See Kenneth Arrow, Social Choice and Individual Values (New Haven, CT: Yale University Press. 1951). 

2. James M. Buchanan. ·Public Choice: Politics without Romance.~ Policy Magazine 19, no. 3 (Centre for Independent Studies, Spring 2003), 

http://www.cis.org.au/images/stories/policy·magazine/2003-spring/2003·19·3·james-m-buchanan.pdf. 

3. Jane S. Shaw. ·Public Choice Theory. ~ The Concise Encyclopedia of Economics (Library of Economics and Liberty. 1993). http://www.econlib 

.org/library/Enc1/PublicChoiceTheory.html. 

For more information or to meet with the scholars, contact 

Robin Walker, (202) 55()"9246. rwalker@mercatus.gmu.edu 

Mercatus Center at George Mason University, 3351 Fairfax Drive. 4th Floor, Arlington, VA 22201 

The ideas pre$ented in this document do not represent official positions of the Mercatus Center or George Mason University. 
10 


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In other words, unlike many economists before them, public choice economists revolutionized the field of economics by having symmetric assumptions about humans in public and private settings and replacing "romantic and 

illusory notions about the workings of governments" with more realistic ones. 

GOVERNMENT INCEI~TIVES 

In the marketplace, scarcity guarantees that people compete for resources. In that environment, the price system 

and the risk oflosses, combined with the prospect of potential profit, are powerful signals that guide people's decisions to prudently buy, sell, invest, and save. 

But unlike in the marketplace, the incentives for good management in government are very weak. For instance, 

even though lawmakers are expected to pursue the "public interest;' they make decisions that use other people's 

money rather than their own. This means that their exposure to the risk of a bad decision is fairly limited, and there 

is little to no reward for spending taxpayers' money wisely or pro,~ding a service effectively or efficiently. 

Fnrthermore, because each voter bears a very small part of the cost of these bad decisions, and they have their daily 

lives to manage, voters lack the incentives to sufficiently monitor the government.' And, as Shaw explains, voter 

ignorance can be quite rational: 

Even though the result of an election may be very important, an indi~dual's vote rarely decides an election. Thus, the direct impact of casting a well-informed vote is almost nil; the voter has ~rtually no chance 

to determine the outcome of the election. So spending time following the issues is not personally worthwhile for the voter. E~dence for this claim is found in the fact that public opinion polls consistently find 

that less than half of all voting-age Americans can name their own congressional representative. 

That is not, of course, the case in the private sector, Consumers have great incentives to make sure the car or the 

house they buy is worth the price they will pay for it. Employers also have great incentives to make sure they hire 

the best employees, as there is a high and direct cost for employing someone who can't perform the job he or she 

is hired for. 

Yet lawmakers-however well-intentioned-face serious difficulties in making the right decision, Many factors 

come into play, but it is worth highlighting the following two. First, the government does not have better information than private agents operating in the market, whether this be the health care market or any other market 

(financial, housing, etc.).' Making matters worse, gnvernment decision-makers are usually insulated from market 

signals, and thus often lack important information about the problem at hand and the market itself. 

Second, the resources government pro~des are often so enticing that companies may switch their focus from 

meeting the needs of customers to meeting the wishes of gnvernment officials-thus producing a less effective outcorne.' These effects lead to the malinvestment of taxpayers' money and often of private capital as well. 

THE UNHEALTHY MARRIAGE BETWEEN GOVERNMENT AND INTEREST GROUPS 

Economists Mancur Olson,' Gordon Tullock,' and others have also shown that government agents receive more 

benefits when they act on behalf of special interests (often under the guise of war king on behalf of the public gnod). 

4, One of the first public choice economists to point this out is Anthony Downs in An Economic Theory of Democracy. A modem exposition of 

this "rational irrationalityft was produced by Bryan Caplan in his Myth of the Rational Voter. Anthony Downs, An Economic Theory of Demir 

cracy (New York: Harper and Row, 1957); Bryan Caplan. The Myth of the Rational Voter: Why Democracies Choose Bad Policies (Princeton. NJ: 

Princeton University Press, 2008). 

5. F. A. Hayek. "The Use of Knowledge in Society: American Economic Review 25, no. 4 (1945): 519--30. 

6. William Niskanen, ~Bureaucrats and Politicians, ~ Journal of Law and Economics 18, no. 3 (1975): 617-43. 

7. Mancur Olson, The Logic of Collective Action (Cambridge, MA: Harvard University Press, 1971). 

8. Gordon Tullock, ~Rent Seeking," New Pa/grave Dictionary of Economics. ed. Steven N. Durlauf and lawrence E. Blume (Palgrave Macmillan, 

2(08). 

MERCATU5 CENTER AT GEORGE MASON UNIVERSITY 
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In politics, decisions aren't driven by the profit motiye as they are in the marketplace. Instead, they are for the 

most part driven by the desire to get reelected. One important element in the pursuit of power is the role played 

by interest groups. First, as I mentioned before, lawmakers face little to no cost for conferring benefits on interest 

gToups, even when it imposes large costs on the majority. In addition, interest groups can provide electoral support 

(through their votes) and funding for electoral campaigns (through donations), which may be key to winning an 

election. \\"Tith so much government money up for grabs, interest groups also have a strong incentive to organize 

and lobby the government for a piece of the public pie. 

Combined with the weak incentives for lawmakers to be good stewards of taxpayers' money, strong incentives to 

cater to interest groups can explain why government program mechanisms tend to be organized around picking 

winners and losers instead of rewarding success or punishing failure in the same way as the market. 

This behavior explains why Congress continues to vote for sugar tariffs that increase the price of sugar and the 

profits of us sugar producers at the expense of consumers. It also explains the existence of corn-based ethanol 

subsidies, which create an artificial market that diverts the grain away from being used for food and toward the 

subsidized market, and has been widely blamed for increases in global food prices-and seems to make the environment even worse. 

In the case of the Affordable Care Act, public choice explains why the program was designed to expand health care 

insurance coverage rather than to improve health outcomes-a choice that benefits the insurance industry without 

necessarily producing a better and more affo'rdable health care supply-and how the companies that are well connected usually stand to benefit the most from government interventions. 

It also explains why this health care law, like Medicare and Medicare Part D, is yet another law that concenttates 

benefits on older Americans (who are relatively richer than the rest of the population and more active voters)' at 

the expense of young and healthy ones (who are often relatively poorer and aren't as active voters).10 

REGULATORY CAPTURE 

Public choice economists have also explored the role that bureaucrats play in this cycle of bad decision-making. 

Economists know how potent this type of lobbying can be. In his seminal 1971 article, "The Theory of Economic 

Regnlation," Nobel laureate George Stigler introduced so-called capture theory." Stigler argued that regulatory 

agencies are subject to pressure from both interest groups and the electorate at large. But, because interest 

groups are better able to organize and promote their interests, they hold greater power over what regulations 

are implemented. 

A corollary to regulatory capture is the revolving door phenomenon, where agencies hire from firms they oversee, 

because, as Stigler also pointed out, regulation requires in-depth industry knowledge. Consider the former secretary of the Treasury, Henry Paulson. The former chairman and chief executive officer of Goldman Sachs played an 

important role in shaping and directing the government rescue of the financial industry, including Goldman. 

GOVERNMENT INSTITUTIONS ARE INHERENTLY PRONE TO BAD DECISION-MAKING, OFTEN 

INDEPENDENTLY OF WHO IS IN POWER 

The problem with the Affordable Care Act rollout is far greater than the website glitches or the fact that millions of Americans cannot-as had been promised-keep their current health insurance policies. Rather, it's 

9. According to the combined data on population trends, economics, and health issues from 15 federal agendes, Americans over the age of 65 

are in remarkably good shape compared to those of previous generations. Their average net worth has increased almost 80 percent over the 

past 20 years: they form a larger share of the high-income group and a smaller share in lower-income groups than their predecessors; they are 

far better educated. and they live longer and healthier Jives. They are also doing much better than younger Americans. If anything, the recent 

financial crisiS has only made the gap between older and younger generations wider. Federal Interagency Forum on Aging-Related Statistics. 

Older Americans 2008: Key Indicators of Well-Being (Washington, DC: US Government Printing Office, March 2008), http://www.aoa.gov 

!agingstatsdotnet!Main_Stte!Data/2008_Documents!OA_2008.pdf. 

10. US' Census Bureau, table 399, "Voting-Age Population-Reported Registration and Voting by Selected Characteristics: 1996 to 2010," from 

Statistical Abstract of the United States: 2012, http://www.census.gov/compendia/statab/2012/tables/12s0399.pdf. 

11. George Stigler. "The Theory of Economic Regulation: The Bell Journal of Economics and Management Science 2. no. 1 (1971): 3-21. 

MERCATUS CENTER AT GEORGE MASON UNIVERSITY 
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that goyernment institutions themselyes are inherently prone to low-quality decision-making, with a strong 

incentive to choose the interest of politic all)' favored groups. 

Being willing to ad:nowledge that government intervention often fails is important, but understanding '''hy it fails 

is far more important for designing better policies. That often means that the government should abstain from 

intervening altogether. As my colleague Matt Mitchell explains, 

James Buchanan, Gordon Tullock, and the other founders of Public Choice and its close cousin, Constitutional Political Economy, didn't stop their analysis after they found that politicians sometimes behave badly. 

Like James Madison before them, they thought of constructive ways to make political actors behave better, 

sometimes by placing certain decisions beyond their reach." 

When the government fails to deliver on the promises it made, many are tempted to argue that if only more money 

had been spent or if only someone else had been in charge, the promise could have been met. That's unlikely, mostly 

because the institutions of government themselves are inherently incapable of performing certain tasks well even 

when the people in power are smart, compassionate, and well-intentioned." 

For instance, a massive takeover of the health care market was bound to fail from the start, regardless of who was in 

charge or how much money the program had been given. It also explains why so many government policies not only 

fail to fix the problems they confront-the solutions are often worse than the problems. It doesn't mean, of course, that 

those who hold power don't have some influence on the outcome; it's just that it often isn't the most important factor. 

CASE STUDY: THE DEPARTMENT OF ENERGY'S 1705 LOAN PROGRAMS 

With that in mind, government officials should understand that the problems with the healthcare.gov rollout are 

not unique to this particular law. In fact, we can expect these types of negative consequences when the government 

intervenes in any market-not just health care. 

For instance, I have attached a copy of testimony I gave before this committee back in July 2012, that looks at the 

Department of Energy's 1705 loan guarantee programs. This is what I found: 

The 107 loan guarantee program is the program that extended $535 million in loan guarantees to Solyndra, a solar 

company that went under in 2011 leaving taxpayers with the tab. Since then, two additional companies-Beacon 

Power Corp and Abound Solar-have announced that they would suspend operations and filed for bankruptcy. 

Abound had used about $70 million out of the $400 million it got through the DOE program, which is likely to 

resnIt in a cost of $40 million to $60 million to US taxpayers after Abound's assets are sold and the bankruptcy 

proceeding is completed. 

Despite this, lawmakers on both sides of the aisle refuse to end the program, offering two defenses for its continuation. First, advocates argue that renewable energy companies do not have access to sufficient credit to support 

new projects. In addition, the DOE argues that encouraging investment in green technology would create up to 5 

million jobs. 

But these claims don't withstand scrutiny. Although some 1705 loans went to companies that could not get capital 

without the government guarantee-and clearly shouldn't have in the case of Solyndra-this may be the exception 

rather than the rule. Indeed, nearly 90 percent of the loans went to subsidize projects backed by large companies 

such as NRG Energy and Goldman Sachs Group Inc., and would have easily secured access to capital, if the projects 

were indeed viable. 

12. Matthew Mttchell, • James M. Buchanan: Realistic Optimist: Neighborhood Effects (blogl. January 11. 2013. http://neighborhoodeffects 

.mercatus.org/2013/01/11/james-m-buchanan-realistic-optimist!. 

13. Through no fault of their own, government actors lack the means to best aggregate dispersed knowledge and make adequate economic calculations because they lack functioning market feedback mechanisms. See Ludwig von Mises, Socialism: An Economic and Sociological Analysis 

(New Haven, CT: Yale University Press, 1951). 

MERCATUS CENTER AT GEORGE MASON UNIVERSITY 
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Second, under 1705. $16 billion in loans v,-ere guaranteed and 2.388 permanent jobs "Tere created. That means that 

one job was created for every 56.7 million in taxpayer exposure. These numbers dispel the idea that this loan program is an effective jobs program. 

However, the real problem with the 1705 loan program lies below these numbers. In fact, the Solyndra failure is the 

symptom of more fundamental problems that make loan guarantee programs a bad deal for Americans. 

First, every loan guarantee program transfers the risk from lenders to taxpayers. This creates what economists call 

a moral hazard prohlem: because the loan amount is guaranteed, hanks have less incentive to evaluate applicants 

thoroughly or apply proper oversight. These programs privatize gains and socialize losses-in other words, taxpayers bear the downside risk, but the companies and the banks that receive the guarantees get the upside benefit. 

Second, loan guarantees give an incentive to lenders to shift resources toward snbsidized projects and away from 

nonsubsidized ones. This has a cascading effect. For instance, once the government subsidizes a company, that 

company becomes a relatively safe asset which then attracts private capital, independently of the merits of the 

projects. That capital is then unavailable to unsubsidized projects, even if they have a much higher probability of 

success and a more viable business plan. The subsidy can thus hurt the production of green energy, as an unrealistic 

but subsidized green energy project thrives while other, more viable green energy projects starve. 

Finally, every loan guarantee introduces political incentives into business decisions, creating the conditions for 

businesses to seek financial rewards by pleasing political interests rather than customers. As my colleague Matt 

Mitchell explains, this can lead to cronyism," and it has real economic consequences. 

Whatever the intentions that motivated the program, it just doesn't work. The 1705 loan program does expose taxpayers to Solyndra-like waste. But of more concern are the systematic distortions it introduces into the market and 

the unintended consequences those can have. Loan guarantees are privileges granted to special interests, and there 

is no better time than now-as we grapple with mounting public debt-to get rid of them. 

14. Matthew Mitchell, -The Pathology of Privilege: The Economic Consequences of Govemment Favoritism~ (Mercatus Research, Mercatus 

Center at George Mason University. Arlington. VA. July 9, 2012), http://mercatus.org!publication/pathology~privilege-economic-consequences 

~golJernment-favoritism. 

ABOUT THE AUTHOR 

Veronique de Rugy is a senior research fellow at the Mercatus Center 

at George Mason University. Her primary research interests include the 

US economy. federal budget, homeland security, taxation. tax competition, and financial privacy issues. Views expressed here are her own. 

ABOUT THE MERCATUS CENTER 

The Mercatus Center at George Mason University is the world's premier 

university source for market-otiented ideas-bridging the gap between 

academic ideas and real-world problems. 

A university-based research center, Mercatus advances knowledge 

about how markets work to improve people's lives by traininggraduate students, conducting research, and applying economics to offer 

solutions to society's most pressing problems. 

Our mission is to generate knowledge and understanding of the 

institutions that affect the freedom to prosper and to find :>ustainable 

solutions that overcome the barriers preventing individuals from living 

free, prosperous, and peaceful lives. 

Founded in 1980, the Mercatu$ Center is located on George Mason 

University'S Arlington campus, 

www.mercatus.org 

MERCATUS CENTER AT GEORGE MASON UNIVERSITY 
14 

Chairman ISSA. Thank you. 

Dr. Winston. 

STATEMENT OF CLIFFORD WINSTON 

Mr. WINSTON. Thank you very much. I am very happy to be here. 

Chairman Cummings posed a very challenging question. He 

raised the issue about successful Government interventions and 

Government projects. And it is challenging because the issue is 

how do we determine success. What is the benchmark that we use 

for success? And if Government does not achieve that benchmark, 

how should we proceed? So my testimony is really trying to shape 

that framework and give us some information about what we know 

about success, the evidence, and alternative ways to proceed. 

I am an economist, so I am going to follow the way economists 

do things: first outlining the theory of why Government intervenes 

in economic life, what it is trying to do and what it should be 

doing, and what the empirical evidence is on its interventions; and 

then given the motivation of this session by the ACA, I will try to 

draw some basic implications. 

All right, the theory. Government intervenes in economic life for 

two reasons: one, to correct a market failure: monopoly, 

externalities like collusion. That is what we mean by market failure. The other is to pursue a social goal. The market is efficient, 

all right? There is nothing wrong with the market in terms of its 

allocation, but the public doesn’t like the allocation that exists, 

okay? So we want to do things like reduce poverty. All right? The 

third issue is macro. We are not talking about macro economics 

here, thankfully. 

Market failure involving large projects, where do things go 

wrong? One, they are simply not supplied. They are not privately 

profitable, even though they are publically, socially desirable; or 

there are free riders, so there is an under-supply of that kind of 

project. Government’s role, then, steps in and tries to provide the 

project, but has to do it efficiently. And when I mean efficiently, 

I am talking about it prices it right, makes cost-benefit assessments and investments, produces the project at minimum cost, and 

provides technological advance. 

What are social goals? Well, the social goals we are talking about 

here are what we call merit goods. These are goods and services 

American society believes that everyone should have, regardless of 

whether they can afford them. Social insurance is obviously what 

we are talking about in this case, coverage for healthcare. These 

usually involve some sort of redistribution. You are going to be taking some resources from some people, giving them to another. This 

is something, though, that is a democratic decision. That is fine, 

but it should be done at minimum cost. So there is still an assessment there. Market failures, you are looking to try to maximize efficiency. Social goals, you try to minimize costs. 

So what is the evidence that we have on how well Government 

has done on this? I go through this in detail in my written testimony. What I can say here, in the areas that I have done a lot of 

work in, in transportation, anywhere from highways, airports, air 

traffic control, inland waterways, urban transit, passenger rail. 

Probably as I even say these things you are beginning to think of 

15 

the symptoms: congestion, delays, budget deficits. So these actually 

are symptoms, and they are symptoms of the economic inefficiencies: mispricing, poor investment, production cost overruns. These 

are all familiar, but these things total up the hundreds of billions 

of dollars of cost. And, of course, there are other things that we can 

see as inefficient. 

So the question is how can we improve Government in these 

areas. Social policies are not really my area of expertise, but I 

think it is pretty much well known that Social Security, Medicare, 

and so on, regardless of whether they have certainly established, 

and they have, are they achieving their goals at minimum cost? 

And obviously that is a high standard, but I think that is really 

what we are looking at, how can we do these things more efficiently. 

All right, so faced with evidence of Government failure trying to 

correct market failures and pursue social goals, what is the explanation for this? And it has actually already been given by the 

chairman: certainly agency limitations; technical expertise and a 

culture where you don’t provide the kind of retro assessments to 

sort of correct where you are going; regulatory constraints. What 

I found interesting about the ACA matter was actually a provider 

offered to do the website at no cost, but was told that he couldn’t 

do it because of regulatory constraints. Political forces, obviously, 

stakeholders, and it is a big part of what public choice is. 

So there are well known reasons for failure. What now do we 

say, pulling this all together for ACA? I think the lessons are there 

were predictable concerns in rolling out the website, technical 

issues, lack of ongoing assessment, inflexibility, and various constraints. I think, obviously, the full story hasn’t been told yet and 

we will see other explanations, but I am sure that they will have 

a familiar ring to it. 

The question, though, is the key point of what I am trying to get 

at. Too much of the discussion has been attacking ACA and, indirectly, the social goal of universal coverage. To me, that is off the 

table. That has been decided by the democratic process. The President has been elected and re-elected on that position. All right? 

That is how that has to be decided. The analytical issue and the 

policy issue, though, is achieving that goal at minimum cost. That 

is what we ought to be talking about; how can we do this more efficiently? We already see ways that some States are doing it in a 

better way than others. We should certainly be open to that. But 

I would also say, too, that we can certainly be open to the private 

sector having greater involvement. 

[Prepared statement of Mr. Winston follows:] 

16 


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GOVERNMENT IMPLEMENTATION OF LARGE SCALE PROJECTS: 

GOVERNMENT FAILURE, ITS SOURCES, AND IMPLICATIONS 

FOR THE ACA WEBSITE LAUNCH 

Statement of Clifford Winston 

Searle Freedom Trust Senior Fellow 

Economic Studies Program 

The Brookings Institution 

Washington DC 20036 

202-797-6173 

CWinston@brookings.edu 

http://www.brookings.edulscholars/cwinston.htm 

"Efficacy of Government Actions" 

Hearing before the 

Committee on Oversight and Government Reform 

United States House of Representatives 

December 4, 2013 
17 


Insert offset folio 7 here 87022.007

Introduction 

The most extensive and contentious recent government intervention in Americans' lives is 

undoubtedly the 2010 Affordable Care Act (ACA). In light of the federal government's failure 

to successfully launch its website, www.HeatlthCare.gov.toimplementtheAct.itis useful to 

step back and broadly assess government's efforts to implement and manage large projects. 

In my testimony, I first discuss the conceptual justification for the government taking on large 

projects and what its objective should be. I then provide an overview of the available empirical 

evidence on the economic effects of government's management of a range of projects and offer 

possible explanations for the fmdings. I conclude by drawing some implications that pertain to 

the government's delay in launching the ACA website. 

Theory 

Two reasons exist to justifY government implementation of large projects. The fIrSt is to correct 

a market failure, which could arise when a socially desirable service (that is, one whose social 

benefits exceed social costs) is not privately offered because it is unprofitable or requires 

enormous financial capital that may be unavailable in private markets. Public bus transit systems 

are often alleged as an example of the former and the interstate highway system is alleged as an 

example of the latter. Market failure also occurs when a service is undersupplied because it is a 

public good and susceptible to the free rider problem. National defense is a classic example of a 

pure public good. Innovative activity by firms may also result in free riders by creating positive 

spillovers to competitors. 

The government can increase the nation's welfare by financing socially desirable projects and 

services, including public goods, which would not be supplied by the private sector. In practice, 

the government can provide the service or negotiate a contract with a private firm to provide the 

service. In the ideal case, the government corrects a market failure and maximizes economic 

efficiency by setting efficient user charges, financing investments that equate marginal benefits 

and marginal costs, and minimizing production costs. Note that the projects and services 

requiring the largest investments constitute the nation's physical infrastructure. Government has 

tried to spur innovation in several ways, including the establishment of a patent system and an 

array of subsidies for firms. 

The second reason that could justifY government implementation of large projects is to pursue 

social goals--that is, American society, like any society, seeks to solve other social problems in 

addition to correcting market failures and promoting economic efficiency. Those goals can be 

categorized broadly as attempting to reduce poverty, ensure fairness in labor markets, and 

provide merit goocts--goods that American society believes every citizen is entitled to regardless 

of whether he or she can afford them, including an education, insurance against certain events 

that could dramatically lower the quality of life (social insurance), and protection from criminals, 

hostile countries and terrorists, and natural disasters. 

Generally, policies to achieve those goals redistribute resources from one group of people for the 

benefit of another group of people, but government should nonetheless attempt to achieve those 

goals at minimum cost to society. The ACA arguably tries to provide a merit good and to some 

extent correct a market failure. 
18 


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2 

What does the empirical evidence indicate about governmenfs involvement in projects and 

services to correct market failures and achieve social goals? My 2006 Brookings book, 

GOl'emment Failure Versus Market Failure, indicated government's efforts generally resulted in 

substantial losses in economic efficiency and missed opportunities to benefit society in a costefficient manner. Here I provide a brief overview and update of my fmdings. 

The federal government, sometimes in collaboration with state and local governments, is 

responsible for financing and managing highways, airports, air traffic control, inland waterways, 

urban transit, and intercity passenger rail. In the appendix, I present a table that surmnarizes the 

economic inefficiencies and annual welfare costs from public provision of infrastructure and 

urban transit that appeared in my Journal of Economic Literature, September 2013 survey of the 

performance of the US transportation system. The total annual cost of the economic efficiencies 

exceeds $100 billion. The inefficiencies are attributable to the fact that government's provision 

and management of transportation services has not been guided by economic principles: prices 

do not reflect social marginal costs, especially a user's contribution to congestion and delays; 

investments are not based on cost-benefit analysis and on accurate forecasts of costs and benefits 

and have therefore failed to maximize net benefits; and operating costs are significantly inflated 

by regulations. 

The vast inefficiencies have important implications for transportation-related policies to 

strengthen the economy. For example, the stimulus program and ongoing calls to increase 

infrastructure spending must recognize that potential improvements in the nation's productivity 

and employment are lessened by policy failures in the current transportation system. Similarly, 

the Obama administration's vision of a high-speed passenger rail network as a transformative 

investment must consider costs and benefits that have traditionally been overlooked by 

government. Indeed, Edward Glaeser performed a series of cost-benefit calculations that were 

published in his 2009 New York Times column and consistently found that building such a 

network would not be socially desirable. 

The evidence that I report in Government Failure casts strong doubt on whether federal 

programs to spur innovation have supported socially beneficial programs that would have been 

undertaken without federal assistance. Moreover, some federal support has resulted in no 

accomplishments and cost taxpayers billions. The recent Solyndra fiasco harkens back to the 

Clinton administration'S failed effort to produce a high-gas-mileage car using a hybrid 

propulsion system. 

Still other large-scale government projects and services have experienced serious problems 

including the U.S. postal system and the government's allocation and management of public land 

for grazing, natural conservation, and recreational activities. The former has continued to 

struggle financially, with ongoing threats to discontinue Saturday service, and the latter has come 

under attack after the government shutdown forced national parks to close. 

Finally, although I am much less familiar with empirical assessments of government services and 

programs to pursue social goals, such services and programs are undoubtedly not being provided 

at minimum social cost and are wasting a vast amount of resources. 
19 


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3 

Explaining Government Failure 

Agency limitations, regulatory constraints, and political forces combine to cause and maintain 

inefficient policies and to impede efficient reforms. For example, the Federal Aviation 

Administration (FAA) is at the heart of airport and air traffic control inefficiencies because it 

lacks organizational independence and is prevented to a significant extent by both the U.S. 

Department of Transportation and Congress from using its resources-and from encouraging 

airports to use theirs--more efficiently. Given that it faces opposition from two powerful 

branches of govermnent, it is not surprising that the FAA fmds it so difficult to reform its 

policies. 

Govermnent agencies do little to assess whether their vast public expenditures have been spent 

efficiently. Transportation officials have told the GAO (GAO-05-172) that little incentive exists 

for them to direct available funding to performing outcome evaluations, but they have also said 

that potential risks do exist from fmding out that a project is not providing the intended benefits. 

Thus, because govermnent measures inputs instead of outputs in many venues, transportation 

agencies tend to declare that a project is a success once it is operating. 

Agencies are likely to have status quo bias because they may lack the technical expertise to 

ensure that new technologies are implemented effectively and efficiently. For example, the 

Federal Highway Administration has not placed a priority on using advances in information 

technology to improve highway travel. At the same time, FAA's well-publicized delays in 

implementing new technology have tarnished its reputation to manage air traffic control 

effectively. 

Of course, special interest politics is transparent in several areas of policy. In transportation, 

state and local govermnent officials lobby for increased federal assistance for surface 

transportation grants and increased flexibility on how they use those funds; the American 

Automobile Association and the American Trucking Association have opposed efficient 

congestion tolls and axle-weight charges; labor unions have opposed removing Davis-Bacon 

regulations; and urban transit subsidies have largely been accrued by powerful interests-higher 

wages to labor and higher profits to suppliers of transit capital. Finally, powerful interest groups 

are supporting federal funding of a national high-speed rail system. 

Implications for ACA Website 

The potential for govermnent failure in implementing and managing a large project should be 

foremost in the mind of the officials of a govermnent agency and department when it takes 

responsibility for a new project. Accordingly, it is vital for those officials to take steps to 

anticipate and address potential failure. Based on my preceding discussion, the pOtential 

problems facing the govermnent's launching of the ACA website include but are not limited to: 

• Limited technical expertise and an over-reliance on contractors; 

• Little, if any, rigorous and transparent ongoing assessment because of a fear of exposing 

problems; 
20 


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4 

• Status-quo bias and an inflexibility and inability to make important changes in managing a 

project; 

• Constraints that may affect budgeting and adoption of state-of-the-art technology. 

The unfortunate result of the functionality problems and delay in launching the federal ACA 

website is not that the desirability of the social goal of universal coverage is necessarily 

reduced-the pursuit of that goal is a democratic decision that must be detennined by our 

political system-but that the social costs of achieving this goal are already, and will continue to 

be, inflated. Indeed, it is my understanding that some states that produced effective ACA 

websites have also negotiated lower rates with insurance companies for their consumers as 

compared with the rates obtained by states that are using the federal website and thus did not 

benefit from rate negotiations. It is also possible that a state that did not produce its own website 

could reduce the future efficiency costs of using the federal website by arranging to pay a fee to a 

state that produced an effective ACA enrollment website to expand that website so people from a 

different state could also use its services to sign up for their insurance. 

In sum, the controversy surrounding the Act should not blind policymakers to their obligation to 

implement the Act at minimum social costs and, if necessary, to explore alternative ways of 

doing so. 

http:Upubs.aeaweb.org!doi!pdfplus!10.1257!jel.51.3.773 
21 


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5 

Appendix 

Inefficiencies from the Public Provision of Infrastructure and Urban Transit 

Item 

Increasing travel delays for motorists, 

truckers, and shippers 

Excessive damage to highway 

pavements 

Excessive structural stress on 

bridges 

Increasing delays for air travelers and 

cargo during takeoffs and landings 

Increasing delays for air travelers in 

congested airspace near airports 

Increasing delays on waterways 

Highways require excessive 

repairs and repaving 

Damage to cars and trucks from roads 

in poor condition 

Highway labor costs are inflated 

The allocation of highway funds 

is inefficient 

The cost of investments in airport 

runway capacity and air traffic 

control teclmology is increased by 

delays in project completion 

The allocation of funds for airports 

and air traffic control is inefficient 

Aggregate Welfare Cost ($2005) 

Cars and trucks are not charged for 

contributing to congestion ($45 billion 

excluding loss to truckers and shippers) 

Truckers are not charged efficient pavement-wear 

taxes for road use ($10.8 billion) 

nla 

Runway capacity is suboptimal and 

congestion tolls are not charged for takeoffs 

and landings ($16 billion) ; costs do include 

cargo 

nla 

nla 

Road thickness thinner than optimal ($12.5 billion) 

Inferior materials are used to lay asphalt ($1 billion 

just for California) 

Total damage costs to cars are estimated to 

be $64 billion; welfare cost nla 

Federal and state regulations raise wages (welfare 

costnla) 

Funds are not allocated to the most congested cities 

to minimize the cost of delays ($13.8 billion) 

Regulations and mismanagement increase the costs 

of runway and air traffic control investments (nla) 

Funds are not allocated to the most congested 

airports (ATC facilities $1.1 billionh; airports nla) 
22 


Insert offset folio 12 here 87022.012

Anny Corps' of Engineers waterway 

investments are inefficient 

Urban transit requires excessive 

subsidies 

InYestments do not satisfy a cost-benefit test (n/a) 

Fares are set below marginal cost and frequencies 

are excessive ($10.6 billion) 

"Buy American" regulations; Capital subsidies: 

Restrictions on releasing employees 

6 
23 

Chairman ISSA. Thank you, Dr. Winston. 

Dr. Calabria. 

STATEMENT OF MARK A. CALABRIA 

Mr. CALABRIA. Chairman Issa, Ranking Member Cummings, and 

distinguished members of the committee, I thank you for the invitation to appear at today’s hearing. Let me first commend the 

chairman for calling today’s hearing. All too often in Washington 

I think we can sometimes get lost in the details of policy and forget 

some of the basic principles, so I do think that today’s hearing offers us that opportunity. 

Academics and practitioners have long recognized that governmental action faces a number of institutional limitations. I want to 

be very clear that these limitations don’t change with the party in 

control, they don’t change with the personalities and competencies 

of political appointees. Certainly, I think anybody could look at, for 

instance, the response to Hurricane Katrina or the initial rollout of 

the Iraq war and say that these things did not go smoothly. This 

is not an issue of party. And, of course, these considerations should 

always be taken into account, and I think we always should keep 

in mind that while Government is capable of great good, it is also 

capable of great harm. 

I would also say that, unfortunately, it seems to be often the attitude in Washington is we must do something and leaving that option to the private sector should always be something that should 

be considered. 

I also want to be very clear at the beginning of my comments 

that nothing I say is meant to imply that markets are perfect. 

Quite frankly, I don’t know of any human institution that is not 

flawed to some degree, so it is always a choice of flawed institutions. I will note, however, that, to me, the first limitation that 

Government lacks is the powerful feedback mechanisms we find in 

the marketplace. Private businesses can rely on a small number of 

signals, such as sales volume, prices, to determine their success. By 

contrast, Government programs can spend millions, even billions 

without any clear signal of success or failure. For instance, few of 

us would debate whether the iPod or the iPhone has been a success. I think we could all agree on that. But economists continue 

to debate whether the New Deal actually ended the Great Depression or not, and economists debate whether the 2009 stimulus created jobs or not. 

In some degree, these are inherent in the nature of these programs. Certainly, Government programs, social issues have far 

greater number of causes and, therefore, do make it harder to access. That said, given that all action, public or private, is made in 

an environment of uncertainty, I do think that the market allows 

for a greater level of experimentation that reduces that uncertainty 

in a more timely basis. 

Veronique touched upon even if we did know the right solution 

ahead of time, which, in my opinion, is a big if, there is a whole 

bunch of different incentives that Government actors face that 

might mean they might not even pursue the right incentive. For instance, as mentioned, compensation of Government employees is 

rarely tied to performance. One doesn’t get paid more for success, 

24 

nor does one get punished for failure. Equally important is the fact 

that few Government employees suffer in the face of failure. You 

can look at the area that I look in, financial regulation. I think it 

is beyond question that various bank regulators failed to do their 

jobs during the financial crisis. I would go as far as to say there 

was probably no bigger regulatory failure than at the New York 

Federal Reserve Bank. But its president at that time, Tim 

Geithner, rather than being punished, was given a promotion for 

his performance. 

Again, I would be the first to say that the private sector has 

more than its share of problems, but it is hard to think of any firm 

or industry that has the Federal Government’s track record of rewarding failure. 

I need not remind members of the political considerations that 

often come in mind. Veronique touched upon those. You certainly 

are very aware of those; you deal with those every day, so I will 

just skip past those. I will say one of the problems often that we 

see in Government is conflicting objectives. In general, private 

businesses have a clear-set measurable objectives; in contrast, Government programs often result in attempts to make numerous parties happy, with the outcome that no party ends up being happy. 

And while numerous objectives might seem like an benefit, I think 

it leaves Government programs without a clearer mandate and 

makes those programs less accountable to both Congress and to the 

public. 

I would say that one of the contrasts between, as the ranking 

member mentioned, something like Social Security and the current 

healthcare is Social Security has a fairly clear objective: to raise elderly people out of poverty. You can measure that; you can determine it; you can see whether it is working or not. When you have 

programs that have multiple objectives, it is far harder to figure 

out whether those objectives are being met or not. 

Let me spend my last few seconds talking about some of my examples from banking regulation, which is my area of expertise, not 

healthcare. But I do think we need to worry about any time an insurance program where you provide a Government guarantee, are 

you minimizing the incentive of parties to make responsible 

choices? We call this moral hazard in the economics literature. But 

certainly bailing out banks encourages them to make bad decisions; 

you keep the same banks around. For instance, I am sad to say 

that I don’t think is the last time we bail out Citibank. We will 

probably bail them out a few more times because we continue to 

keep them around. 

So, again, it is important to keep in mind that failure has to be 

an important component of the learning process. And just like in 

the private sector, you need to let firms that don’t actually do a 

very good job go away, you need to let programs that don’t do a 

very good job in the government sector go away so that you can 

focus on those programs that actually do a good job. 

Thank you. 

[Prepared statement of Mr. Calabria follows:] 

25 


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Testimony of Mark A. Calabria, Ph.D. 

Director, Financial Regulation Studies, Cato Institute 

Before the 

U.S. House Committee on Oversight and Government Reform 

On "Institutional limitations on the efficacy of government" 

Wednesday, December 3, 2013 9:30 AM 

2154 Rayburn HOB 

Mark A. Calabria, Ph.D. is Director of Financial Regulation Studies at the Cato Institute. Before joining Cato in 

2009, he spent seven years as a member of the senior professional staff of the U.S. Senate Committee on Banking, 

Housing and Urban Affairs. Prior to his service on Capitol Hill, Calabria served as Deputy Assistsnt Secretary for 

Regulatory Affairs at the U.S. Department of Housing and Urban Development, and also held a variety of positions 

at Harvard University'S Joint Center for Housing Studies, the National Association of Home Bnilders and the 

National Association of Realtors. He has also been a Research Associate with the U.S. Census Bureau's Center for 

Economic Studies. He holds a doctorate in economics from George Mason University. 

httn:llwww.cato.org/oeople/mark-calabria 

1 
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Hearing entitled "Institutional limitations on the efficacy of government" 

Wednesday, December 3,2013 9:30 AM in 2154 Rayburn HOB 

Committee on Oversight and Government Reform 

United States House of Representatives 

Chainnan Issa, Ranking Member Cummings, and distinguished members of the 

Committee, I thank you for the invitation to appear at today's important hearing. I 

am Mark Calabria, Director of Financial Regulation Studies at the Cato Institute, a 

nonprofit, non-partisan public policy research institute located here in Washington, 

DC. Before I begin my testimony, I would like to make clear that my comments 

are solely my own and do not represent any official policy positions of the Cato 

Institute. In addition, outside of my interest as a citizen and taxpayer, I have no 

direct financial interest in the subject matter before the Committee today, nor do I 

represent any entities that do. 

Need for hearing 

Let me first commend the Committee for calling today's important hearing. 

It is commonly the case in Washington that policy-makers spend their time almost 

exclusively focused on narrow technical or political questions. The starting 

assumption is always "something must be done" rather than "can government 

actually solve the problem at hand". I view this hearing as an important 

opportunity to remind members that government faces several inherent institutional 

limitations. These limitations do not change with the party in control or 

personalities and competencies of political appointees. These limitations should 

always be considered before governmental action is taken. As we have repeatedly 

learned the hard way, government can do substantial harm. Doing nothing should 

always be an option, or rather leaving the problem to be solved by the voluntary 

private sector. 

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After beginning with a very brief overview of some of the general 

institutional limitations of government, I will spend the bulk of my testimony 

focusing on that area with which I am most familiar: financial regulation. The 

following institutional limitations of government are well and long recognized in 

the economics and political science literature. As general observations and 

descriptions of government, they are widely accepted among scholars, even if the 

degree of their importance is open to debate. Nothing in the below is meant to 

imply that markets are "perfect" - the choice is always among various flawed 

human institutions. 

Limitations of Government: Lack of knowledge 

All action, whether public or private, takes place in an environment of 

nncertainty. Just as a firm does not know ahead of time how much it can sell and 

at what price, we do not know ex ante whether government programs will achieve 

their objectives and if they will do so at a reasonable cost. Firms, however, can 

learn quickly via market signals. If excess goods remain on the shelf, this suggests 

prices may be too high. It can also suggest consumers are not interested in the 

product in question. Either way firms can engage in a repetitive interaction with 

consumers that usually yields important insights as to which behaviors the frrm 

should pursue. 

As many government services are not priced, or are provided by monopoly, 

government lacks this important feedback mechanism. Almost any free service 

will generate a queue. In Washington, government programs are often judged on 

their spending levels. Yet spending levels are an input, not an output. Spending 

millions (or billions or trillions) on a particular problem gives us almost no insight 

into whether the problem has been alleviated. Businesses can also learn by failure. 

If there is no consumer interest in a business' services, that business will not last 

long. Yet as we've repeatedly witnessed government programs can continue for 

decades regardless of their success or failure. 

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Limitations of Government: Missing or Perverse Incentives 

Government programs can also be undermined by the incentives facing 

government employees. At one extreme, if government employees value their jobs 

then they actually face an incentive not to solve the problem they have been tasked 

with. In fact they have an incentive to allow the problem to grow worse, as such 

would offer a justification for ever larger budgets and power. That said I do 

believe most federal employees try in earnest to solve the problems they are tasked 

with addressing. I also believe, however, that since most federal employees see 

their compensation having little, if any, relationship to solving the social problem 

in question, federal employees face fairly weak incentives relative to employees of 

private businesses. 

There is also little incentive to avoid failure among federal employees. 

Whereas the employees of Lehman Brothers were rightly punished for the failure 

of their frrm, no federal bank regulators have lost their jobs due to the numerous 

regulatory failings that contributed to the financial crisis. The same holds for 

companies such as Fannie Mae. Despite its massive failure and rescue, the 

employees of Fannie Mae were not fired and still enjoy compensation levels in 

excess of federal employees and most private sector workers. Failure is a vital 

method oflearning in the private sector. Public policy problems are often 

approached as if simple "engineering" problems; whereas the reality is that the 

most effective way to do anything, whether public or private, is likely unknown at 

first. We learn via trial and error. Where failure is suppressed, learning is blunted. 

While the issue of "learning" is a critical product of failure, there are also 

important incentive effects. For too many government employees, misconduct is 

overlooked and rarely punished. For instance in the recent and continuing stories 

on NSA spying, to my knowledge, no NSA employee has been disciplined. It is 

also quite rare to see law enforcement officers held accountable for violations of 

citizens' basic civil liberties. 

The importance of incentives is merely to state the obvious, that when doing 

something is costly, most people will do less of that action. When doing 

something is rewarded, most people will do more of that action. This fact has 

nothing to do with the morality, honesty or laziness ofthe person in question. One 

of the worst errors repeatedly made in Washington is to simply assume that if we 

have the "right" people in government, then good things will happen. All people 

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respond in varying degrees to incentives. While there is a case to' be made about 

the characteristics of persons attracted to government, the powerful incentives 

facing governmental actors will swamp those personal characteristics. 

Limitations of Government: Political Pressures 

I need not remind members that political considerations can often trump 

policy considerations. Even if we can get the incentives correct and figure out the 

appropriate policy response, the political support may well be lacking for the 

policy in question. Just as businesses and government do not know the "right" 

answers ahead of time, nor does the public. Few members of the public have the 

time or incentive to become experts on public policy issues. What the public is 

likely to support or oppose is just as likely to be driven by emotion and 

misinformation as it is by informed debate and deliberation. 

Those who do have a strong incentive to learn the details of a particular 

public policy are those likely to be highly impacted. I need not remind members 

that on any particular policy issue they are more likely to receive information from 

interested, but biased, parties than from those that are disinterested but objective. 

An argument can certainly be made that the political process can yield 

results that mirror what is socially optimal. There is however a long literature in 

both economics and political science suggesting that this is unlikely to be the case 

in most instances. I would argue that anyone even remotely familiar with 

Washington knows that outcomes rarely match what anyone would envision as 

socially optimal. 

Limitations of Government: Conflicting Objectives 

Private firms are generally guided by a small number of objectively 

verifiable standards. For publicly traded companies this includes stock price. All 

private firms would engage in measurements of profit and loss. Measures of profit 

and loss would also serve as proxies for important objectives such as consumer 

satisfaction or loyalty. While one can of course debate both the accuracy and 

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adequacy of these measures, the point is that they are measumble and give private 

firms a clear direction of objectives. 

In the case of government, conflicting objectives can leave program 

managers without any clear direction. Trying to achieve conflicting objectives can 

leave federal employees short of achieving either. Conflicting objectives also 

reduces government accountability. Failure to achieve one objective can always be 

attributed to attempts to achieve other objectives. Of course in too many instances 

government programs fail to achieve any of their stated objectives. 

What should be our default? 

As mentioned the starting assumption in Washington is almost always that 

government "must do something". As governmental action is always based upon 

coercion or the threat of coercion, and market interactions are generally based upon 

voluntary mutual cooperation, I believe that if we as a society wish to minimize the 

use of coercion, our default setting should be to prefer private sector solutions over 

public, in the absence of strong, compelling evidence otherwise. 

Government versus Market Regulation of Financial Markets 

In what follows I will apply the above, particularly the importance of 

incentives, to the area of [mancial market regulation. Let me start off with an 

important clarification. I will not be making the case for self-regulation. That's a 

strow-man, at best. No individual, whether a bank CEO, regulator or the President 

is capable of serving as a judge of their own actions. Unconstrained power 

generally ends badly. 

What I will be making the case for is the regulation of financial companies 

by other market participants, as opposed to regulation by government. I will also 

address why the mixed option of both government and market regulation is 

actually worse than relying on either exclusively government or market-based 

regulation. 

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Before we move to the real world, let us begin with a simplified version. In 

free-market for banking services, the leverage and risk-taking of anyone bank is 

limited by its cost of funds. The more highly leveraged, the mismanaged, or even 

the more fraudulently managed a bank, the higher the rate at which creditors 

charge to lend to said bank. 

Keep in mind that cost of funding is the most crucial element of finance. The 

difference of even a few basis points can drive market structure, determining which 

firms survive and which fail. For those misbehaving firms that face a higher cost 

of funds, their growth and activities will be limited by this higher cost of funds. 

Of course a higher cost of funds is only one element of market discipline. 

When creditors have substantial funds at risk in anyone institution, they face a 

strong incentive to monitor and intervene in the management of said institution. 

Quite simply in a world where creditors have their own money on the line, they 

impose discipline; that is they regulate bank behavior. This is not simply a 

theoretical curiosity. One ofthe most robust empirical fmdings in fmancial 

research is the existence of market discipline when creditors are at risk. Another 

empirical regularity is the lack of market discipline where creditors are protected 

by government. This is the moral hazard created by government guarantees. 

Of course creditors, as well as management, misjudge or make mistakes. 

Markets are not perfect. But then neither are governments. What makes the market 

superior at error correction are much stronger incentives facing market 

participants, as opposed to regulators. Creditors who have lent a bank millions, or 

billions, have a lot on the line. Regulators, who rarely lose their job because of a 

financial crisis, have little on the line. 

In fact the problem facing regulators is not only weak incentives, but also 

perverse incentives. As an asset bubble builds, for instance, the broader public and 

their elected representatives, will pressUre regulators not to interfere with the 

instant wealth creating machine that bubbles appear to be. My own experience, as 

staff on the Senate Banking Committee, during the growing housing bubble was a 

chorus of groups and individuals lauding the great wealth creation machine of 

homeownership. Democracy loves a bubble and whoa the regulator to dares to 

stand in front of one. 

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Regulators may also feel that speaking out against a bubble would 

undermine the confidence pushing said bubble. If confidence did evaporate, and 

the bubble burst, the regulator would be blamed. This was certainly the lesson the 

Fed took away from trying to pop the 1920s equities bubble. It is far easier to 

simply let the bubble build and move in afterwards to clean up the mess. This 

continues to be the policy ofthe Fed. Sadly this also reinforces bad behavior. 

When regulators come in during a crisis and protect failing firms they stop 

the market process of eliminating bad behavior. As you are aware, Citibank has, 

for instance, been rescued four times now. Those rescues have guaranteed that its 

broken corporate culture will continue to infect our financial markets. Just as 

nature evolves, so do markets, in the absence of government keeping failed firms 

in existence. 

This again speaks to the incentives facing regulators. While they will not 

lose their jobs because of a bank failure, they do suffer embarrassment and may 

even be over-looked for promotion. They incentive facing regulators is to either 

allow those firms to grow their way out of their problems or else to use taxpayer 

funds for a rescue of said bank. 

Recent studies have found, for instance, that short-sellers, in the aggregate, 

identify more corporate fraud than does the SEC. Recall that such failed frrms as 

Enron, Fannie Mae, Countrywide, WorldCom and others, were all identified as 

engaging in misbehavior first by market participants, not regulators. 

If anything regulators have been repeatedly rewarded in the aftermath of 

financial crises by even more power. Probably no institution failed more in 

responsibilities than the Federal Reserve, yet Dodd-Frank extended the power of 

the Federal Reserve. If anything, the incentives facing banking regulators are to 

reward them after a crisis rather than punish them. 

Regulators quest for stability and avoiding frrm failure has lead regulators to 

repeatedly restrict competition, protecting incumbent firms and allowing such 

firms to retain monopoly profits. Today for a new bank to open it must receive 

approval from regulators and one of the factors which regulators use to approve or 

disapproval new charters is the competitive impact on incumbents. 

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The logic is that giving banks some monopoly power encourages them to be 

more risk-averse and to protect their franchise value. This logic is not without 

some basis in reality. However the cost of this protection is both higher costs for 

consumers and the protection of bad business practices that would otherwise be 

eliminated by competition. 

Even when regulators aren't intentionally trying to reduce competition, 

regulatory barriers can have that impact, often causing tremendous harm. Take for 

instance the regulation of mortgage brokers, one group associated the financial 

crisis. Professor Morris Kleiner, at the Humphrey School of Public Affairs of the 

University of Minnesota, has found that leading up the mortgage crisis, the more 

stringent was a state's regulation of mortgage brokers, the higher was the rate of 

mortgage defaults. The lesson here is that regulation, rather than protecting the 

public good, creates market power, which reduces the effort of incumbent firms. 

We have witnessed similar results in the federal regulation of credit rating 

agencies. 

Financial regulation is often justified because it is claimed that banks are 

inherently unstable. Nothing could be further from the truth. The foundation of our 

federal system of banking regulation, created in the progressive and New Deal 

periods was a reaction to widespread failures among small banks. The reason for 

such failures was the restrictions imposed on bank branching by states. Such 

restrictions reduced both geographic and scale diversification by banks. As 

recently as the 1990s some states continue to restrict banks to a single location. 

Obviously that makes said bank highly vulnerable to local economic conditions. 

Countries without such restrictions have fared better during times of 

economic distress. For instance Canada, which suffered a similar decline in GDP 

during the Great Depression, did not witness one bank failure during that time, and 

that is despite not having a central bank or deposit insurance at that time. What it 

did have was a geographically diversified banking system. This is not result is not 

limited to Canada. Empirical studies of the period support these results across 

countries. More recent studies from both the IMF and World Bank also find that 

the more extensive a country's bank safety net, the more frequent and severe are its 

fmancial crises. 

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What we have essentially created in the US is a system of local monopolies, 

insulated from competition. That would be bad enough if it were not also 

impossible for politicians to resist redistributing those monopoly profits to favor 

constituencies, ultimately resulting in financial failures driven by politics, not 

economics. This is one reason why a mixed system is more unstable. Government 

cannot resist the temptation to redistribute the monopoly rents created by the 

barriers to entry it imposes. 

Another reason is, as I've mentioned, the regulators incentive to cover up 

their own mistakes via bailouts reduces market discipline. If creditors know 

regulators will not allow Citibank to fail, then creditors will reduce their 

monitoring and disciplining of Citibank. This also creates the perverse incentive 

for banks to become larger and more complex in order to be perceived as Too-BigTo-Fail. 

The last hundred years of banking regulation has been a continued trend of 

replacing market discipline with regulation. The result has been more bank 

failures, not less. This year marks the lOOth anniversary of the Fed. We have had 

over twice as many bank failures in the last 100 years than we did in the lOO before 

the creation of the Fed. This result holds even once you control for number of 

banks. Even President Obama's first CEA director, Christina Romer, has found 

that the economy since the Fed has been no more stable than before its founding. 

We also witnessed those states with their own deposit insurance schemes having 

higher bank failures during the Great Depression. 

In the absences of government provided safety nets, banks and their 

creditors would take off-setting precautions. We witness similar behavior in the 

hedge fund industry, where the typical hedge fund is leveraged two to one, whereas 

the typical bank is leveraged ten to one. Of course bank leverage was not so high 

before the creation of the federal bank safety net. In fact the closer you are to 

politics, the more highly leveraged an institution becomes. Freddie Mac's credit 

guarantee business was leveraged over 200 to 1 during the crisis. In the absence of 

an implied government guarantee, no company would be allowed by creditors to 

become so highly leveraged. 

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One of the rationales given for bank regulation is the possibility of 

contagion. That is having troubles at one bank spread to another. Let me be crystal 

clear. There is not one example in US banking history of a healthy, solvent bank 

failing due to a run. Contagion failures are the unicorns of finance. It's badly 

managoo & insolvent banks that fail and they do not bring others down with them. 

Bad policy and macroeconomic disturbances can also create bank failures. 

The highest year ever for bank failures, 1933 where over 4,000 banks failed, was a 

direct result of President Roosevelt's move to take the US off the gold standard. 

Like depositors in Greece today, depositors in 1933 did not wish to see their 

currency devalued. Recall the FDIC was created under the Banking Act of 1933, 

signed in June. Bank failures continued throughout that year. The FDIC was 

created to keep poorly run and undiversified small banks in business. As FDR, who 

opposed creation of the FDIC, recognized, this would create more failures not less. 

I've mentioned that banks can fail in mass due to a common shock, such as 

currency devaluation or bursting real estate bubble. One characteristic of a stable 

financial system is one where the probably of failure across institutions is not 

highly correlated. Quite simply you want a diversity of balance sheets and business 

models. Regulation has generally pushed for uniformity. 

Regulating all the banks, or financial institutions, the same will increase the 

likelihood they all fail in mass, as they will respond similarly to the same shocks, 

such as real estate bubbles. Given the appropriate due process and rule oflaw 

considerations, I believe US banking regulation will always push for a high degree 

of uniformity, ultimately turning what would be small shocks into systemic ones. 

I've also set aside the question of whether regulators or politicians even 

know the correct regulatory scheme to implement. Of course no one knows this ex 

ante. One of the great advantages of markets is their superior ability to create 

knowledge, because they can coordinate the thinking and opinions of millions of 

individuals. Given the slowness of regulators to even recognize problems in the 

housing market, regulators clearly face severe knowledge problems, even assuming 

they faced appropriate incentives. 

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Broader lessons 

This hearing is occuning in the aftennath of an unsuccessful roll-out of 

health care refonn. While I am not an expert in health care, I believe the preceding 

offers a few lessons for the structuring of government programs. 

First we should always ask whether government should be involved in the 

particular area. We should also ask ourselves what exactly is the problem we are 

trying to solve and what is the primary driver of the problem. For instance if the 

problem is that some people cannot afford a particular good, which we deem to be 

essential, then the most direct solution is a direct transfer of funds. The evidence is 

overwhelming that the market can provide health care, housing, education or any 

number of goods. The problem facing many households is that lack the income to 

purchase those goods and services. This is not a market failure. 

The most important lesson is to get the incentives correct. Failure must be 

punished and success rewarded. That is only possible if failure and success can be 

readily observed. Outcomes should be measurable, observable, verifiable and 

should relate directly to the policy question at hand. Conflicting objectives should 

be avoided. For instance expanding access to health care, that is increasing 

demand, is in direct conflict with reducing costs. 

As government lacks the feedback mechanisms of market institutions, 

additional checks and balances should be implemented. This is often achieved via 

requirements under the Administrative Procedures Act, but those requirements 

have often been ignored or eroded. Feedback mechanisms can sometimes be 

reproduced by the use of competition among agencies or service providers. Avoid 

monopolies. Also avoid government guarantees that result in moral hazard, that is 

increased risk-taking by individuals because they are not insured against the 

adverse outcomes of their own actions. 

Let me close with a reminder. Analysis must be based upon the actual 

imperfect workings of real world markets. But analysis must also be grounded 

upon the actual imperfect workings of government. Identifyi\lg market failures is 

the beginning of analysis, not the end. Thank you. 

12 
37 

Chairman ISSA. Thank you. 

Dr. Thomas. 

STATEMENT OF KAREN KRUSE THOMAS 

Ms. THOMAS. Chairman Issa, thank you for the opportunity to 

testify today regarding the past accomplishments and future potential of Federal intervention in healthcare. 

Chairman Issa, during your opening remarks you said that 

healthcare has always been in the private sector and should be. I 

would respectfully disagree. Healthcare is one of the most heavily 

subsidized by government areas of the economy, and if we want to 

look at a time when healthcare was still largely in the private sector, we would need to go back to pre-1935, and it is a disturbing 

picture. 

Critics of Federal intervention in healthcare, including my fellow 

panelists, see intervention as interference, and they see the 

healthcare industry as a group of private actors, health professionals, hospitals, insurance companies, drug manufacturers, and 

these private actors, would according to them, if left to their own 

unregulated devices, do a far better job of providing the American 

people with broad access to quality healthcare. Let the market do 

its work, they say. 

But these criticisms rely on sharp distinctions between the public 

and private sector, and they misapply the same basic economic 

principles to all types of markets, whether the product is houses, 

handbags, or heart surgery. And I can only notice that each of my 

panelists are economists, and no one has really talked about how 

the healthcare market operates specifically, so I will try to do that. 

Of all the industries that make up the American economy, 

healthcare most defies the classic model of the private market. 

Physicians are the quintessential small business owners, and they 

have traditionally fiercely defended fee-for-service practice as the 

best system for guarding their patients’ health. 

Yet, without publicly funded medical education, research, service 

delivery systems, and other Government-sponsored aspects of medical care, the medical profession would still be the small and struggling band of individualists who began the twentieth century with 

little scientific understanding of how disease spread, much less how 

to cure it. 

I think one of the best examples of the dollar-for-dollar value of 

Government investments in medical research were the wartime 

trials of antimalarial drugs and penicillin. Penicillin was brought 

to you by the Federal Government, essentially. And I should be 

very specific to say that the Federal Government has not interfered 

with the private market so much as it has coordinated many public 

and private actors. 

So in the development of synthetic antimalarial drugs that were 

very important for protecting the lives of U.S. military personnel, 

the malaria research program proved to be the largest biomedical 

undertaking to date, at that time, and it also became the model for 

post-war scientific medical research that both private and Government research agencies adopted after the war. And that model 

marshaled the resources of academia, Government, and private industry together to produce things like cortisone and a variety of 

38 

other drugs that we now take for granted and many of us use on 

a regular basis. 

So from 1942 to 1946, the Office for the Survey of Antimalarial 

Drugs conducted tests on birds and yielded precise pharmacological 

and toxicological data on 14,000 drugs, roughly 10 a day for four 

years. And the private sector, at that time, simply was not capable 

of coordinating such a massive effort, and the survey decisively 

identified a drug called chloroquine as the drug of choice against 

malaria. 

So with my remaining time, the NIH I think is certainly one of 

the most successful examples of Federal sponsorship of medicine, 

but Medicare and Medicaid now function as much to preserve the 

financial status of middle class Americans as to enable the poor to 

purchase healthcare. So, really, those programs have operated to 

support the private market in healthcare as much as to undermine 

it. And I will conclude with that. 

[Prepared statement of Ms. Thomas follows:] 

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Why Federal Intervention in Health Care Works: A Historical Perspective 

Testimony before the House Oversight and Government Reform Committee 

December 4, 2013 

Karen Kruse Thomas, Ph.D. 

Historian, Johns Hopkins Bloomberg School of Public Health 

Chairman Issa, Ranking Member Cummings, thank you for the opportunity to testify 

today regarding the past accomplishments and future potential of federal intervention in health 

care. 

In 1900, a newborn American citizen had an average life expectancy of 47 years. A 

heartbreaking 10 percent of all infants died before their first birthday, and Infant mortality was 

far higher among the rural and urban poor, whether on southern farms or In northern 

tenements. By contrast, an American born in 2000 could expect to live 75 years, and infant 

deaths had been cut by 93 percent.1 

These striking reductions in morbidity and mortality rates resulted from not only a rising 

standard of Ilving, but also the advent of effective methods for detecting, preventing, and 

treating disease; new breakthroughs in medical research; and markedly improved access to 

health facilities and services. 

In all these areas of medical and public health progress, the Federal government has 

played a fundamental role as both sponsor and coordinator of a remarkably concerted effort 

involving communities, states, organizations, and institutions across American society. The 

Federal government therefore deserves a great deal of credit for .doubling life expectancy for 

Americans, as well as for tackling a long and ever-changing list of problems regarded as the 

worst enemies of the nation's health, from tuberculosis and polio to cancer and AIDS. 

Yet most critics of federal intervention in health care, particularly critics of the 

Affordable Care Act, define "Intervention" as "interference." They see the health care Industry 

as a group of private actors-health professionals, hospitals, insurance companies, drug 

manufacturers, etc. These private actors would, If left to their own unregulated devices, 

supposedly do a far better job of providing the American people with broad access. to quality 

health services than a bunch of bumbling bureaucrats and speciai-interest politicians. These 

criticisms rely on sharp distinctions between the public and private sector, and misapply the 

same basic economic principles to all types of markets, whether the product is houses, 

handbags, or heart surgery. 

Of ali the industries that make up the American economy, health care most defies the 

classic model of the private market. Physicians are qulntessentiai small business-owners who 

traditionally have fierceiy defended fee-for-service practice as the best system for guarding 

their patients' health. Vet without publicly-funded medical education, research, and servicedelivery systems, the medical profession would stili be the small and straggling band of 

individualists who began the twentieth century with little scientific understanding of how 

disease spread, much less how to cure It. 

The ideas presented in this document do not represent official positions of the Bloomberg School of Public 

Health or Johns Hopkins University. 
40 


Insert offset folio 26 here 87022.026

2 

You cannot sell what people are terrified to buy, and until at least the early 20th 

century, most American hospitals were charitable institutions where poor people with no 

family went to die. Paying patients came only after the introduction of anesthesia in childbirth 

and the first effective medical and surgical treatments for disease. Yet many aspects of health 

care remained patently unprofitable, particularly for patients with chronic disabilities. For 

example, by 1950, over half a million Americans were institutionalized in state mental hospitals. 

The conditions that responded least effectively to profit-driven medicine were ironically those 

generated by the highly lucrative markets for cigarettes, alcohol, and illegal drugs. In the 1960s 

and 1970s, drug addiction and alcoholism reached epidemic proportions. Rates of lung cancer 

rose steadily throughout what has been called "the cigarette century," increasing five-fold in 

males from 1930 to 1990 and continuing to rise in women. 2 

The Federal government has responded to every major public health problem with 

legislation and the expertise of agencies such as the Food and Drug Administration, U.S. Public 

Health Service, Natlonallnstitutes of Health, and Centers for Disease Control. Government 

health agencies have worked closely with the so-called private health sector, both for-profit 

and non-profit, to bring more consumers into the health marketplace while promoting cost 

savings and coordinating resources, which remains the primary goal of the Affordable Care Act. 

For example, public health departments and private physicians cooperated to make 

mass screening and immunization programs standard for American children--and a pillar of 

pediatric private practice.3 By 1920, public health departments in large northern clties provided 

services including sanitation, communicable disease control, matemal and child health, health 

education, laboratory tests, and collection of vital statistics. But doctors, hospitals, and public 

health services were scarce or absent in much of the rural South and West.4 Federal initiatives 

helped democratize advances in medicine and public health so that they reached areas of the 

country with the greatest need. The greatest beneficiary was the South, historically America's 

most anti-federal region. 

A NEW DEAL FOR AM ERICAN HEALTH 

_ During the 19305 and 1940s, the federal government assumed the lead In all publ1c 

health efforts as national and international crises exhausted private sector resources and 

fostered public-private cooperation to address a new wave of health problems besieging the 

nation. The Great Depression had a catastrophic Impact on the health of Americans who could 

no longer afford medical care or even adequate diets. Rising levels of unemployment and 

poverty began to erase the recent gains In health status, particularly among those hit hardest 

and earliest In the agricultural sector. Between 1925 and 1935, death rates rose from pellagra, 

pneumonia/Influenza, malaria, meningitiS, and measles.s 

New Deal public works programs constructed thousands of miles of water and sewer 

lines and built new treatment plants at a time when cheap labor was available but local 

governments could not afford to make improvements. Works Progress Administration (WPA) 

sanitation projects drastically reduced the Incidence of typhoid and dysentery in rural 

communities, which were also the primary beneficiaries of PHS and WPA malaria control 

programs. To curtail mosquito breeding, the WPA drained several million acres of swamp and 

PHS officers sprayed mosquito-ridden areas with larvacides from airplanes and on foot. The 

incidence of waterborne illnesses dropped steadily, and the national typhoid mortality rate 
41 


Insert offset folio 27 here 87022.027

3 

decreased by 90 percent from 1920 to 1945. These programs made vast areas of the South safe 

for business and contributed significantly to the rise of the booming Sun belt economy.6 

The 1935 Social Security Act is known primarily as a retirement program, but Titles V 

and VI aided maternal and child hea1th and helped support health departments by providing 

matching grants to stimulate state and local spending. During the Franklin Roosevelt 

administration, policymakers increasingly relied on public health programs as a versatile tool to 

solve a wide range of problems, from reducing rates of loan defaults among farm families 

(commonly caused by health crises that left farmers unable to work) to ensuring the maximum 

productivity of defense industry workers and rehabilitating soldiers who had been rejected for 

military service? 

By the late 19305, New Deal reformers were eager to enact legislation to create a 

national system of financing health care for all who needed it. The framers of the Social Security 

Act had considered including health insurance as a benefit, but President Roosevelt had 

opposed the Idea as too controversial. 

Many reform groups, however, including organized labor, farmers, civic organizations, 

and philanthropies, grew more vocal In their calls for federal action to promote broader access 

to medical and hospital care. Senator Robert Wagner of New York introduced the first 

comprehensive national health legislation In 1939, and the Wagner-Murray-Dingell National 

Health Bill, Introduced in 1943, was the first proposal for universal health insurance coverage 

underwritten by the federal government. But the American Medical Association attacked 

national health Insurance as "socialIzed medicine" that would interfere with the sacred 

relationship between doctor and patient and result In lower standards of care. B 

Nonetheless, still-un met health needs and the success of New Deal public health efforts 

prompted many doctors to acknowledge, along with North Carolina's state health officer, carl 

V. Reynolds, "the government has a definite responsibility in tbe prevention and cure of disease 

and the preservation of health."s 

WORLD WAR II AND THE HEALTH FRONT 

The appeal of national health legislation surged after the attack on Pearl Harbor. Rising 

employment as well as wartime shortages of health professionals increased public demand for 

health care, the aspect of social policy (along with labor) most critical to national defense. 

When newspaper headlines announced high rates of draft rejections for various health reasons, 

national leaders recognized that serious existing health deficiencies threatened America's 

fighting effectiveness and economic productivity. Draft rejection statistics also revealed that 

illness and disability disproportionately affected southerners, rural reSidents, and African 

Americans, which further fueled the drive for health reform targeted at these groups •. 

The numbers were sobering: at least 40 percent of the 22 million men of military age 

were unfit for general military duty, and 4.5 million of these were classified as "IV-F," inciuding 

half of southern recruits versus only one-third of non-southerners. In North Carolina, which 

posted the highest rejection rate, 71 percent of black and 49 percent of white recruits were 

deemed unfit for service.1o 

The wartime drive to pass federal health legislation also fueled civil rights activism. 

During an era of hostility to any civil rights measures and strict segregation of the private health 

system North and South, Congressional hearings on the national health legislation of the 1940s 
42 


Insert offset folio 28 here 87022.028

gave representatives of every major national black organization an alternative forum to 

promote equality and the full inclusion of blacks in federally-sponsored health programs. 

The medical civil rights movement succeeded in enacting federally enforced nondiscrimination provisions that ensured that black. patients could receive equal care in public 

health clinics and modern new hospitals that accepted federal grants, although southern 

facilities maintained racial separation by ward or floor. Federal support for training programs 

such as the Army Cadet Nurse Corps and medical residencies in Veterans Administration 

Hospitals increased the ranks of health professionals while also offering equal opportunity to 

Americans of all races and religions.1l As Surgeon General Thomas Parran put it, "[e]very 

citizen, North and South, colored and white, rich and poor, has an inalienable right to his 

citizen's share of health protection." 

4 

To develop solutions to high-priority health problems of military importance, the PHS 

and the Armed Forces Epidemiological Board took responsibility for protecting the heaith of 

American troops through measures such as venereal disease and malaria control, tropical 

disease research, and mental hygiene programs to prevent and treat combat-related disorders. 

Parran's mobilization of the PHS for the war effort was a master strategic stroke that framed 

health reform as an urgent matter of national defense and garnered unprecedented federal 

funding for broad-b~sed programs to support public health and sanitation services, medical 

research, and hospital construction. Wartime federai spending rose to ten times that for 

peacetime New Deal programs, and health was among the top beneficiarles.l2 

Dollar for dollar, two of the most valuable investments of federal funding for medical 

research were the wartime trials of antimalarial drugs and the determination of effective 

regimens for treating syphilis with penicillin. 

The development of synthetic antimalarial drugs was a top priority for the U.S. military, 

particularly after the supply of quinine was cut off in 1942 by the Japanese offensive in 

Southeast Asia. The malaria research program proved to be the largest biomedical undertaking 

to date and it became a model for postwar scientific medIcal research that marshaled the 

resources of academia, government; and private industry. From 1942 to 1946, the Office for the 

Survey of Antimalarial Drugs conducted tests on ducklings and yielded precise pharmacological 

and toxicological data on over 14,000 drugs, roughly ten a day for four years. The survey 

decisively identified cloroqulne as the drug of choice against malaria.13 

Along with malaria, syphilis was the disease that posed the gre;ltest threat to the 

fighting effectiveness of American soldiers. Before methods to mass-produce penicillin were 

perfected In 1943, the standard treatment regimen for syphilis was long, complicated, and 

relied on potentially toxic arsenic and mercury compounds. Private physlc!ans struggled to 

master the skills necessary to inject patients with the right combination of drugs to kill the 

spirochetes but not the patient. The PHS Venereal Disease Clinic at Hot Springs, Arkansas 

developed a new, more efficient method of administering intravenous drug therapy for syphilis 

and gonorrhea to large numbers of in-patients with a minimum number of personnel. 

With ample federal funds from the Social Security Act and the 1938 National Venereal 

Disease Control Act, the number of venereal disease rapid treatment centers had tripled to 

more than 2,400 by the end of 1939, with 9 million treatments given annually to over 100,000 

patients. New syphilis cases declined by over half from 1936 to 1939, and infant deaths from 

congenital syphilis were halved.14 
43 


Insert offset folio 29 here 87022.029

[It should be acknowledged that during this period, the PHS was conducting the longest 

nontherapeutic medical study in U.S. history, the Tuskegee Study of Untreated Syphilis in the 

Negro Male, which was grounded in assumptions that reflected the pervasive scientific racism 

among white medical professionals of the era. lSI 

5 

During the war, the federal Office of Scientific Research and Development's cooperative 

clinical trials of penicillin to treat early-stage syphilis demonstrated that peniCillin could 

drastically shorten the length of treatment to only ten days for syphilis patients and three days 

for gonorrhea cases, with some requiring only a single Injection. Using the penicillin studies as a 

guide, the Public Health Service also used randomized controls to evaluate streptomycin in 

treating tuberculosis. 

The PHS energetically promoted VD screening, prevention, and education programs for 

military and civilian populations, with special attention to military bases and defense 

production areas. As the country celebrated victory and prepared for demobilization, the PHS 

announced that rates of venereal disease among civilians had not markedly increased during 

wartime, as they had in every previous conflict.16 

After the war, Congress authorized the highest funding levels yet to continue treating 

VD patients in rapid treatment centers and hospitals, which reduced venereal disease rates to 

such low figures in the cMlian as well as military populations that most rapid treatment centers 

had closed by the early 19505.17 

But venereal disease became a cautionary tale that demonstrated the danger of 

declaring victory too soon: after the reduction of federal venereal disease control expenditures 

during the 19505, rates of syphilis and gonorrhea resurged to epidemic proportions during the 

19605 and 19705, and by 1980, an estimated 20 million Americans had contracted genital 

herpes.l8 

Federally funded and orchestrated wartime research yielded therapeutic compounds to 

prevent and cure three of the top killers of an time, malaria, syphilis, and tuberculosis. More 

than Just fighting specific diseases, these efforts made fundamental contributions to the 

development of basic medical research methodology. 

for the modem pharmacopeia from which nearly every American has benefited, we can 

thank the federally sponsored model of research and development provided by the intensive 

laboratory evaluations of antimalarial drugs. Likewise, the government-coordinated 

experiments to test the effectiveness of penicillin set the scientific standard for the modem 

clinical trial that forms the basis for another essential federal role in health, the regulation of 

the drug industry to ensure the safety and effectiveness of thousands of new pharmaceutical 

compounds before they reach the market.19 

MOTHERS, BABIES, AND HOSPITALS 

As the u.s. birth rate topped four million in 1954, the largest category of PHS public 

health grants to states was for maternal and child health programs. Amendments to the Social 

Security Act between 1950 and 1963 continuously Increased the annual appropriations for 

maternal and child health and crippled children's services, which rose from a combined $1.9 

million the first year of Social Security in 1936-37 to $87.3 million by 1966-67. Congress 

recognized the Importance of maternal and child health research by authorizing the National 

Institute of Child Health and Human Development in 1962 and by including a research 
44 


Insert offset folio 30 here 87022.030

component in new Social Security initiatives passed in 1963 and 1965 to improve the health of 

low-income pregnant women and young children who lived in substandard housing and lacked 

access to primary care. During this era, pediatricians enjoyed both growing financial success 

and social status, yet their commitment to private practice was compatible with broad support 

for government-sponsored child health programs. Such positions often put the American 

Academy of Pediatrics at odds with the more conservative American Medical Assoclation.2o 

6 

Closely related to the problems of maternal and infant health was access to hospital 

care. In the South in 1941, only one-third of all births took place in hospitals versus threequarters of non-southern births, and 23 percent of southern babies were delivered by midwives 

versus only 1.5 percent of non-southern births. In 1938, toxemia killed women in southern 

states at rates from 50 to 150 percent higher than In the rest of the United States, largely due 

to lack of medical care. Since most southern hospitals did not admit blacks and many rural 

counties had no hospital at all, rural black mothers and infants benefited least from the medical 

advances available from trained professionals in modern hospitals.21 

From 1947 to 1971 the Hill-Burton Hospital Survey and Construction Act built a modem 

health ca~e Infrastructure with $3.7 billion in federal funds, matched by $9.1 bi!lion from state 

and local governments, to create space for nearly a half million beds in 10,748 projects, 

Induding nursing homes and other specialized facilities.22 Hill-Burton was among the first and 

most successful examples of a new postwar brand of federal reform that garnered bipartisan 

support by blending centralized planning, economic development, and a rationale for domestic 

spending based on national defense.23 

I", the absence of a national health Insurance program, Hill-Burton substantially 

increased access to charity care by expanding the number of government -owned hospitals and 

the overall proportion of beds In public hospitals, particularly teaching institutions affiliated 

with medical schools. This had major implications for the racial desegregation of hospitals, since 

partiCipation in the Hili-Burton program constituted "state action" that placed private as well as 

public hospitals under the equal protection clause of the Fourteenth Amendment and obligated 

them to admit patients without regard to race.24 

Hill-Burton's provisions benefited the South most of all. The program's graduated, 

need-based allocation formula paved the way for federal sponsorship of southern health, 

education, and welfare as well as costly new infrastructure that undergirded Sun Belt prosperity 

while allowing southern states to maintain low taxes. By 1955, southern. states drew 20 percent 

of their revenues from federal sources, well above the national average of 14 percent. 

Ironically Mississippi, the epicenter of antifederal sentiment and the backlash against 

federally mandated desegregation, tied for fourth with Arkansas among states with the highest 

percentage of their budgets from federal funds. Today, despite the marked improvement of the 

southern economy since the Great DepreSSion, many southern states receive more in federal 

aid than they pay In federal taxes. As the culmination of the post-1938 New Deal that targeted 

federal resources to the South, Hili-Burton was the last a nd most progressive expression of 

redistributive mid-century IIberallsm.2S 

ON THE CUnlNG EDGE Of RESEARCH; THE NIH 

In 1930, the PHS Hygienic laboratory was renamed the National Institute of Health 

(NIH), which signaled an Increased federal Investment in medical research, particularly on 
45 


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7 

chronic diseases, which had replaced infectious diseases as the most common killers. The 

National Cancer Institute was the first disease-specific institute to be established, in 1937, Since 

the end of World War II, the NIH along with the CDC have been the main channels through 

which the federal government has invested in protecting and promoting the health of 

Americans through research, training, and disease tracking programs. 

After World War II, the NIH (with "institutes" now a plural) grew rapidly to become the 

world's single largest funder of biomedical research on cancer, heart disease, microbiology, 

dentistry, mental health, neurological diseases and blindness, and arthritis and metabolic 

diseases. From the 19505 on, the agency emphasized basic science research, particularly the 

cellular and molecular biology of disease, which in turn underwrote the establishment and 

expansion of a nationwide network of academic medical centers whose primary mission was 

research, These centers partnered closely with private drug firms, who employed a steady 

stream oftop-notch graduates subsidized by federal training grants, the G.I. Bill, and the 1958 

National Defense Education Act. 

Of all arms of federal health polley, the NIH has enjoyed the largest and most consistent 

appropriations and the greatest bipartisan support. Unlike other areas of federal research and 

development funding, which have fluctuated based on external events, the NIH -budget has 

grown steadily decade after decade. Its annual appropriation increased from $81 million in 

1954 to $1.6 billion by 1968. By 2004, it had reached nearly $28 billion. 

Yet ifthere was a special interest In Congress that could rival biomedical research, it was 

Big Tobacco. The majority of credit for reducing rates of cancer (as opposed to treating it) goes 

to the 1964 Surgeon General's Report on Smoking and Health, which definitively linked 

cigarette smoking with significantly higher risks of lung cancer as well as heart disease, 

emphysema, and bronchitis. Annual per capita cigarette consumption increased from 54 

cigarettes in 1900 to an astounding 4345 cigarettes in 1963, but then slowly decreased to 2261 

in 1998.26 

Despite the tobacco industry's best efforts, the report was widely distributed and 

reported in the media, creating the necessary atmosphere for public health officials to pursue 

regulations. These included placing the now-ubiquitous Surgeon General's warnings on 

packaging, and Federal bans on Cigarette advertising on radio, television, or billboards. The 

1964 Surgeon General's Report set a precedent for establishing and publicizing all types of 

health risks, as well as for the scientific resolution of controversial Issues via the collective, 

objective review of evidence. Finally, the report accorded the Surgeon General and the federal 

government a powerful new level of authority in protecting national health.27 

NATIONAL HEALTH INSURANCE: A DREAM DEFERRED? 

During the 1960s and 1970s, a highly favorable social and political climate fostered 

innovation and expanSion In federal health programs. As a keystone of President Lyndon B. 

Johnson's Great Society, the 1965 Medicare-Medicaid amendments to Social Security together 

helped to extend medical and hospital care to millions of Americans who had been excluded 

from the private health system on the basis of both race and income. By the mld-1960s, more 

than 40 million of America's 193 million people--nearly 20 percent--remained uninsured. Not 

only did Medicare-Medicaid remove financial barriers for the elderly and many (but not all) of 

those under 65 who could not afford care, it also brought about the racial desegregation of 
46 


Insert offset folio 32 here 87022.032

health care by requiring compliance with the 1964 Civil Rights Act for all participating 

hospitals.28 

Medicare and Medicaid, originally intended to include the two largest groups of 

uninsured who lacked employer-based coverage, now function as much to preserve the 

financial status of middle-class Americans as to enable the poor to purchase health care. Many 

middle-class individuals become beneficiaries of both Medicare and Medicaid, which pays at 

least part of costs for 70 percent of nursing home residents, thereby sparing them from having 

to rely as heavily on their families' resources. Medicare foots the bill for health care at the age 

when it is typically most expensive, while Medicaid subsidizes the long-term care needs of the 

nation's elderly and chronically disabled. Medical and nursing home care rank alongside 

postsecondary education and home mortgages as the most expensive items that most 

Americans will buy in their lifetimes. All three are federally subsidized, but college loans and 

mortgage Interest are less universal and the federal government pays a much lower share of 

the total than for long-term care and medical costs over age 65.29 

8 

With the passage of the 2010 Affordable Care Act, President Barack Obama signed into 

law a major milestone in federal health reform. While it still fell short of the long-pursued goal 

of universal comprehensive health coverage, the act won important concessions from the 

insurance industry, such as ending the practice of denying coverage to children under nineteen 

based on a pre-existing health condition, enabling parents to keep their children as 

beneficiaries on their health Insurance up to age twenty-six, ending lifetime and most annual 

limits on care, and providing free access to recommended preventive services such as 

colonoscoples and mammograms. The law also offered tax credits to encourage small 

businesses to Insure more workers and grants to enable states to establish affordable insurance 

exchanges designed to Increase competition among health insurance provlders.3o 

The Affordable Care Act's passage marked a historical first: the American Medical 

Association solidly endorsed federal health insurance legislation, although it opposed the 

president's public option plan to compete with private insurers. The AMA had supported the 

goal of universal health care in 1921, but the AMA's policy stance had been to oppose 

vigorously every national health insurance bill since 1939.31 The AMA's leaders 

(notwithstanding considerable dissent among the membership) held fast to the private 

Insurance system as the only acceptable method of financing health care, which pitted the, 

organization against any proposed government-sponsored health plan. 

With the passage of Medicare, however, physicians became dependent on 

reimbursements from the program and lobbied hard to preserve rates they deemed 

acceptable. The AMA's support for the Obama administration's bill can be interpreted in part as 

a strategic move to retain the allegiance of key Democrats for the group's Medicare and other 

policy positions. Yet it was also a striking departure for the AMA's executive vice president, 

Michael D. Maves, to admit that "We do not believe that maintaining the status quo Is an 

acceptable option for physicians or the patients we serve." 

It remains to be seen how the law will be implemented, but the AMA committed its 

support for "achieving enactment of comprehensive health system reform legislation that 

Improves access to affordable, high-quality care and reduces unnecessary costS.,,32 As long ago 

as 1969 the group called adequate health care "a basic right of every citizen," and given time, 

the Affordable Care Act will move the country forward toward that goal. 
47 


Insert offset folio 33 here 87022.033

1 Gary W. Shannon and Gerald F. Pyle, Disease and Medical Care in the United States: A 

Medical Atlas of the Twentieth Century (Macmillan Publishing Company, 1993), 3-4. 

9 

2 Shannon and Pyle, Disease and Medical Care in the United States: Allan M. Brandt, The 

CIgarette Century: The Rise. Fall. and Deadly Persistence of the Product that Defined America 

(Basic Books, 2007), 126. 

3 Alexander D. Langmuir, "The Surveillance of Communicable Diseases of National 

Importance,» New England Journal of Medicine 268.4 (1963), 182. 

4 John Duffy, The Sanitarians: A History of American Public Health (University of Illinois 

Press, 1992), 159-61. 

5 U.S. Public Health Service, National Office of Vital Statistics, Vital Statistics Rates in the 

United States. 1900-1940 (GPO, 1947), 330-31. 

6 Report of the President on the Emergency Relief Appropriations Acts. 1935-1941 (GPO, 

1941), 32; Frederick Dodge Matt and Milton I. Roemer, Rural Health and Medical Care 

(McGraw-Hili Book Company, 1948), 385, 392; Florence Kerr, "Health Conservation and the 

WPA" (Oct. 21, 1939 speech), WPA Papers, RG 69, series 737, box 7, National Archives; Mullan, 

Plagues and Politics, 102, 121; Margaret Humphreys, Malaria: PovertY. Race. and Public Health 

In the United States (Johns Hopkins University Press, 2001), 49-68; Martin V. Melosi, The 

Sanitary Citv: Urban Infrastructure In America from Colonial Times to the Present (Johns 

Hopkins University Press, 2000), 224-29. 

7 Michael M. Davis, America Organizes Medicine (Harper & Brothers, 1941), 278-79; 

Alan Derickson, Health Securitv for All: Dreams of Universal Health Care in America (Johns 

Hopkins University Press, 2005),44,79. 

B Paul Starr, The Social Transformation of American Medicine (Basic Books, 1982), 180-

97. 

9 Carl V. Reynolds, "Coordination of Public Health and Related Agencies:' North Carolina 

Medical Journal 1.1 (1940), 24-25. 

1D Congress, Senate, Committee on Education and Labor, SubcommIttee on Wartime 

Health and Education, Interim Report (GPO, 1945), 1-2, 5-6, 22; "How Sick is the South?" 

Southern Patriot 3 (May 1945), 2; "North Carolina's Draft Rejection Figures," North Carolina 

Medical Joumal6.1 (1945), 39-40; Mott and Roemer, Rural Health and Medical Care. 117-21, 

131,135. 

llPatricla Sullivan, Uft Every Voice: The NAACP and the Making of the Civil Rights 

Movement (The Free Press, 2009), 228-29; Congress, Senate, Committee on Education and 

labor, To Establish a National Health Program: Hearings on S. 1620 (GPO, 1939),237-43, 285-

90,891-98; Congress, Senate, Committee on Education and Labor, Construction of Hospitals: 

Hearings on S. 3230 (GPO, 1940),78-91; Congress, House, Committee on Interstate and Foreign 

Commerce, Hospital Construction Act: Hearings on 5.191 (GPO, 1946), 184-88; Karen Kruse 

Thomas, Deluxe Jim Crow: Civil Rights and American Health Policy. 1935-1954 (University of 

Georgia Press, 2011). 

12 Mullan, Plagues and Politics. 116. 

13 leo Slater, War and Disease: Biomedical Research on Malaria in the Twentieth 

Century (Rutgers University Press, 2009), 7-13, 50-57, 123-55,170-71; Randall M. Packard, The 

Making of a Tropical Disease; A Short History of Malaria (Johns Hopkins University Press, 2007), 
48 


Insert offset folio 34 here 87022.034

140-41; Donald Burke and David Sullivan, "A Brief History of Malaria Research at Johns 

Hopkins,· Johns Hopkins Malaria Research Institute, Malaria: Progress, Problems and Plans in 

the Genomic Era conference proceedings, Jan. 27-29, 2002, Baltimore, MD. 

14 Stevens, In Sickness and in Wealth, 49; E. Walls, "Hot Springs waters and the 

treatment of venereal diseases: The U.S. Public Health Service Clinic and Camp Garraday," 

Journal of the Arkansas Medical Society 91 (1995),437; Raymond A. Vonderlehr, "Are We 

Checking the Great Plague?" Survey Graphic 29.4 (1940), 217; ''VD Balance Sheet," TIme Sept. 

30,1946. 

10 

15 Thomas Parran qtd. in Karen Ferguson, Black Politics in New Deal Atlanta (University of 

North Carolina Press, 2002), 112. The full scope of the Tuskegee Syphilis Study and its ethical 

implications are beyond the scope of this essay, but they are ably discussed in Susan M. 

Reverby, Examining Tuskegee: The Infamous Syphilis Study and Its Legacy (University of North 

Carolina Press, 2009). On the role of race in the Public Health Service and federal health policy,. 

see Thomas, Deluxe Jim Crow. 

16 Beardsley, Historv of Neglect 172-74; Allan M. Brandt, No Magic Bullet: A Social 

Historv of Venereal Disease in the United States Since 1880 expanded edition (Oxford University 

Press,1987),161-70. 

17 "VD Balance Sheet"; U.S. Public Health Service, 1945 Annual Report (GPO, 1946), 295-

301; M. A. Waugh, "History of clinical developments in sexually transmitted diseases," in K. K. 

Holmes, P. Mlirdh, P. F. Sparling, & P. J. Wiesner, eds., Sexually Transmitted Diseases 2nd edition 

(McGraw-Hili, 1990), 13; "Rapid Treatment Center Closes," American Journal of Public Health 

40.8 (1950), 1056-57. 

18 Brandt, No Magic Bullet, 176-79. 

19 Harry M. Marks, The Progress of Experiment: Science and Therapeutic Reform in the 

United States. 1900-1990 (Cambridge University Press, 2000), 53-59, 10S-28, 98-135; Starr, 

Social Transformation of American Medicine. 335-44; Joseph Earle Moore, J. F. Mahoney, 

Walter Schwartz, Thomas Stemberg, and W. Barry Wood, "The Treatment of Early Syphilis With 

Penicillin: A Preliminary Report of 1,418 Cases," Journal of the American Medical Association 

126.1 (1944): 67-72; Joseph Earle Moore, Penicillin In Syphilis (Charles C •. Thomas, 1947), 4; M. 

Merrell, "Results of the nationwide study of penicillin in early syphilis; amorphous penicillin in 

aqueous solution/' American Journal of Syphl!is. Gonorrhea. and Venereal Diseases 33.1 (1949), 

12-18; Daniel Carpenter, Reputation and Power: Organizational Image and Pharmaceutical 

Regulation at the FDA (Princeton University Press, 2010). 

20 John L. Thurston, "More Opportunities for All Through SOCial Security," Apr. 9, 1952, 

Federal Security Agency-General Correspondence, box 29, Oscar Ewing papers; William Shonlck, 

Government and Health Services: Government's Role In the Development of U.S. Health 

Services. 1930-1980 (Oxford University Press, 1995) 92; Abraham M. Lillenfeld and B. 

Pasamanlck, "The Association of Maternal and Fetal Factors with the Development of Cerebral 

Palsy and Epilepsy," American Journal of Obstetrics and Gynecology 70 (1955): 93-101. 

21 Beardsley, Historv of Neglect, 13-14; "The Symptoms," Southern Patriot 3.5 (May 

1945),3; Mott and Roemer, Rural Health and Medical Care, 290, 306. 
49 


Insert offset folio 35 here 87022.035

11 

22 U.s. Senate. Committee on labor and Public Welfare, Subcommittee on Health, HfIIBurton Hospital Survey and Construction Act: Historv of the Program and Current Problems and 

Issues (Committee Print, 1973), 11-13. 

23 Stevens, In Sickness and in Wealth. 220-21; Daniel M. Fox, Health ·Policies. Health 

Politics: The British and American Experience. 1911-1965 (Princeton University Press, 1986), 

117-31; Edward Berkowitz. "Historical Insights into the Development of Health Services 

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http://www.nlm.nih.gov/hmd/nichsr/intro.html#W31-3 accessed May 5, 2011. 

24 Karen Kruse Thomas, "The Hill-Burton Act and Civil Rights: Expanding Hospital Care for 

Black Southerners, 1939-60," Journal of Southern Historv 72.4 (2006), 860-61. 

25 Lewis E. Weeks and Howard J. Berman, Shapers of American Health Care Policy: An 

Oral History (University of Michigan Press, 1985), 39; Bruce Schulman, From Cotton Belt to 

Sunbelt: Federal Policy. Economic Development. and the Transformation of the South. 1938-

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Mar. 2004, 48. 

26 "Achievements in Public Health, 1900-1999: Tobacco Use -- United States, 1900-

1999," Morbidity and Mortality Weekly Report 48.43 (1999): 986-93. 

. 27 Brandt, The Cigarette Century, 211-39. 

28 Jill Quadagno and Steve McDonald, "Racial Segregation in Southern Hospitals: How 

Medicare 'Broke the Back of Segregated Health Services;" In Elna C. Green, ed., The New Deal 

and Bevond: Social Welfare in the South since 1930 (University of Georgia Press, 2003), 120-22. 

19 Colleen M. Grogan, "A Marriage of Convenience: The Persistent and Changing 

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30 "Understand the Law," www.healthcare.gov, accessed Sept. 2, 2011. 

31 Derickson, Health Security for All. 140-43. 

32 "TImes Topics: American Medical Association;' 

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2,2011. 
50 

Chairman ISSA. Thank you. I couldn’t disagree with you more, 

Doctor. First of all, I wasn’t talking about NIH; it is a small part 

of the budget compared to the trillion dollars plus that Medicare 

and Medicaid consume. The ranking member, in his opening statement, talked about the buy-in rate of Social Security and Medicare. 

With all due respect, the buy-in rate is mandated by law, and the 

people who are not in it are in fact State employees and city employees who have the good fortune to be out of the system, in most 

cases to their benefit. 

I am from California, which is the largest area of an alternative 

to the Social Security system, one in which the returns are three 

to four times greater than what Social Security does, which means 

for the same amount of dollars in California State employees, city, 

county, that participate receive far better benefits. But we are not 

here to talk about Social Security or the NIH. 

What we are here, I believe, is to figure out some questions that 

Dr. Winston—and, Dr. Winston, Brookings is not a right-wing conservative bastion, is it? Not a trick question. 

Mr. WINSTON. No. 

Chairman ISSA. Okay. 

Mr. WINSTON. It is not anything, to the best of my knowledge. 

Chairman ISSA. Right. Usually when we look for people on the 

left, we often look to Brookings; when we look for people on the 

right, Mercatus, Cato, and so on often come in. We try to have a 

balance here. 

You said some very important things and I am going to use my 

time specifically on areas that are more liberal for a moment. You 

mentioned monopolies, free rider, market distortions. Those are all 

good points and I think you made some points. And the Affordable 

Care Act, although I didn’t vote for it, does recognize that the market is dysfunctional. 

But, Dr. De Rugy, CMS underpays the prevailing rate, the cost 

of healthcare, don’t they? So isn’t Medicare and Medicaid, administered by CMS, already distorting the market by taking private sector doctors and hospitals and underpaying, compared to what the 

private sector has been paying, and cost-shifting then to private 

sector by statute? 

Ms. DE RUGY. This is a very good question. I am not a healthcare 

expert, but one of the things that we know about government intervention is that it often distorts pretty widely the market it operates 

in. And as Dr. Thomas rightly mentioned, the healthcare market 

has been highly subsidized and Government has intervened quite 

widely. So yes, of course, we can expect that providers would be expected to provide a service at a lower rate than they would otherwise, which creates problems, and also force people to pay at a 

higher price than they could otherwise. 

Chairman ISSA. Dr. Calabria, similar question. The fact is that 

Federal intervention, over a trillion dollars worth of money taken 

involuntarily by American workers that are spent on Medicare, 

Medicaid, do eligible, the poor, retirees, so on, it is over a trillion 

dollars. Is there any case to be made, not that the money hasn’t 

done good, because people do have healthcare, but is there any case 

to be made that it has driven down the cost of delivery to the 

American people broadly? 

51 

Mr. CALABRIA. I think this is something we fundamentally see 

across a variety of areas, whether it is housing, whether it is education, whether it is healthcare. If you take something, and again 

I am going to apologize for making members think about their 

Econ 101 classes, but if you think about something where the supply is relatively fixed, if you give people more money to spend on 

that, you will largely run up prices. You have to make sure that 

you are actually doing something that increases supply in the process, and for the most part healthcare, like education, like housing, 

is relatively inelastic; that is, supply does not increase a lot in the 

interim. So we do need to make sure that it isn’t simply captured 

by providers, but it actually flows through to the ultimate beneficiaries. 

Chairman ISSA. One of the areas that I want to bring out today 

that is going on today, and it is a little off topic, but I think it is 

appropriate, CMS is reimbursing hospitals at a rate higher than 

clinics or doctors’ offices. And, Dr. Thomas, you talked about this 

rugged individual doctor. I haven’t met them, so they must have 

been before my time, because doctors, in fact, have joined hospitals, 

and even when they have clinic practices they are being bought out 

by hospitals because CMS has made a decision that the same procedure they will pay two to three times more if it is done in a hospital, even if not clinically necessary, than if it is done in a clinic 

or doctor’s office. 

Is there any question in your mind not that Affordable Care Act 

should be scrapped or not scrapped, any of that, is there any question in your mind that we need serious reform in how we deliver 

medicine so that the patient gets the best value? 

Ms. THOMAS. Yes, and I agree that we do need reform, but leaving the market to act supposedly independently is not the way to 

achieve that. 

Chairman ISSA. Right. And no one here is suggesting—and I will 

close with this, Mr. Ranking Member—no one is suggesting for a 

moment that we take Government out of healthcare. I was with 

former member Jim Marshall, a dear friend of mine, today and we 

were talking about the fact that we have taken the consumer out 

of the process. And nothing in the Affordable Care Act puts the 

consumer back into it. If anything, health savings accounts and 

other areas in which the consumer was making decisions about 

best value have been taken away. 

So as much as we can rail for or against the Affordable Care Act, 

today is one of many hearings that I believe this committee will 

have on both how do we get good product for the Federal Government, like a website, if it is determined to be there, but also how 

do we deal with the fact that since Medicare enactment what we 

have done is we have inordinately driven up the cost of healthcare 

with cost-shifting from the Government whenever possible to the 

private sector. It is not sustainable as the Government becomes a 

bigger and bigger buyer. 

And I think, Mr. Ranking Member, with the Affordable Care Act 

we are going to see that, which is we are telling insurance companies what is the cost, and we can’t tell them to work for less, so 

when they give us the cost it is higher. And I think it is the first 

time, unlike Medicare, where we just find what we will pay, it is 

52 

the first time that we are dealing with the market force and finding out that we haven’t driven down cost, and that is something 

that your constituents and my constituents demand that we figure 

out how to do. 

With that, Mr. Ranking Member, Elijah, I recognize you. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. Mr. Chairman, I too want a good product for the Federal Government, and 

I do believe in effectiveness and efficiency. I also want to make 

sure that every single American has healthcare and that we save 

lives. So I want to thank our witnesses for being here today. 

Dr. Thomas, the basic idea seems to be, in this hearing, that the 

Government is bad and the private sector is good; the Government 

should not intervene, it should not try to help people, it should not 

distort market forces. I certainly understand the logic behind free 

market principles, but I think we need to recognize that private 

corporations are not going to necessarily look out for the poorest, 

the sickest, and the least fortunate among us. We have seen people 

thrown off of their insurance policies over and over again. We see 

the preexisting condition situation, where women had minor ailments in the past and the next thing you know she doesn’t have 

insurance because she didn’t even know there was a preexisting 

condition. 

So, Dr. Thomas, I want to ask you, as a historian, to take us 

back and describe for us what it was like for our Nation’s seniors 

100 years ago, before Social Security, before Medicare, before they 

had the social safety net that they have today. What was it like 

for poor, elderly Americans heading into their final years when 

they were unable to work or to rely on a family or friends? 

Ms. THOMAS. Well, before Social Security and before Medicare 

and Medicaid, older Americans were the single most impoverished 

demographic group in American society and one of the problems 

with healthcare markets is that it is not profitable to provide many 

types of healthcare that are most needed. So care for long-term 

chronic disability, such as that caused by tuberculosis or cancer or 

many other diseases that afflict us in old age, is very expensive to 

provide, so that has traditionally been provided, in many cases, by 

either nonprofit charitable organizations or by Government hospitals. In those days, many poor people would end up in poor 

houses, and there were no separate health facilities to even care for 

them. 

Mr. CUMMINGS. Is it safe to say that some of them died? 

Ms. THOMAS. Absolutely. Yes. 

Mr. CUMMINGS. So where did they go for healthcare services if 

they had no insurance? 

Ms. THOMAS. Well, if they were lucky enough to belong to a fraternal order, they might go to their fellow members for help, but 

the resources there were so small and especially in the rural south 

and in poorer parts of the Country, even in the poorer areas of 

northern cities, the resources were simply not available, either individually or collectively, to pay for adequate medical care, and certainly not for preventive care. And I think one thing we haven’t 

really talked about is the cost of not preventing disease is much 

greater than the cost of preventing it. 

53 

Mr. CUMMINGS. Ron Paul stated, during the debate in 2012, that 

when he started medicine, he said, ‘‘There was no Medicare or 

Medicaid and nobody was out in the streets.’’ I don’t know how old 

he is, but do you agree with that assessment? 

Ms. THOMAS. I do not. In fact, there has been a very lively—in 

the 1930s and 1940s people were riding the rails; many people 

were in fact homeless during the Depression. I don’t know how old 

he is, but certainly there were people on the streets at that time 

as well. 

Mr. CUMMINGS. There is a New York Times article this morning 

that talks about 39 percent of the bank tellers in New York are 

getting some type of public assistance, and, of course, that probably 

means a lot of them don’t have insurance; they need some assistance. What about that type of population? And this is in New York, 

now. 

Ms. THOMAS. Right. Well, they can go to city, State, and federally-funded health clinics; they can end up in the emergency rooms 

of their local hospitals, who are required by law to care for them; 

and in some cases they may get inadequate care or get care too 

late, which can end up being even more costly in the long-run, or 

they may die. 

Mr. CUMMINGS. And that doesn’t necessarily include the followup. 

Ms. THOMAS. Correct. 

Mr. CUMMINGS. Right. They might get care right there, but then 

the question is what follow-up is there, is that right? 

Ms. THOMAS. That is right. And if the services are not coordinated, and that is a function that government agencies often have, 

if the services are not coordinated, then it may be very difficult for 

individuals to navigate through the system and get care. 

Mr. CUMMINGS. Just a last question. Dr. Thomas, The Washington Post cited a report issued in 1959 by the United States Department of Health and Education Welfare, finding that the elderly 

faced disproportionate risk of illnesses, yet had less ability to afford 

medical care, mostly because of fixed incomes. It also cited a report 

issued in 1963 by Social Security Administration which concluded 

‘‘Many aged persons never recover from economic effects of a single 

hospital episode. Unfortunately, the heaviest burden is likely to fall 

on those with the least resources, and even for the insured there 

is no present guaranty against dependency in old age caused by 

catastrophic medical expenses.’’ 

Do you agree with that? 

Ms. THOMAS. I do, and a major problem with the healthcare market is the people who are most likely to be able to participate in 

the private healthcare market are the least likely to need extensive 

and very expensive care. So if we do not broker a system where everyone is participating and everyone is covered, then there will be 

large populations that are not covered and that create major needs 

for care. 

Mr. CUMMINGS. Thank you, Mr. Chairman. 

Chairman ISSA. Thank you. 

I now ask unanimous consent that the pages from Wikipedia on 

Alexander Fleming be placed in the record. Without objection. 

Chairman ISSA. Dr. Thomas, do you know who Dr. Fleming was? 

54 

Ms. THOMAS. Of course I do. 

Chairman ISSA. So March 7th, 1929 is the date of the invention 

and naming of penicillin? 

Ms. THOMAS. Yes. 

Chairman ISSA. In Scotland? 

Ms. THOMAS. Yes. 

Chairman ISSA. Okay. I just wanted to make sure it was World 

War I that caused it to be invented. It was World War II that it 

was widely used in and had very little to do with the U.S. Federal 

Government except that we were a recipient of Scottish invention. 

Mr. CONNOLLY. Mr. Chairman? Would you yield for a unanimous 

consent request? 

Chairman ISSA. Of course. 

Mr. CONNOLLY. I thank the chair. 

While we are putting things in the record, I would ask unanimous consent that an article from The Washington Monthly called 

The Best Care Anywhere, by Phillip Longman, be entered into the 

record. 

Chairman ISSA. Without objection, so ordered. 

Mr. CONNOLLY. I thank the chair. 

Chairman ISSA. Dr. Thomas, I put this in, but I went beyond it. 

Is there something you wanted to say? I didn’t want to cut you off. 

Ms. THOMAS. Just that we may have had penicillin before World 

War II, but we did not know in what dosage to use it or how to 

effectively treat disease with it until we conducted clinical trials 

during World War II that were coordinated by the Federal Government. That is what I meant. 

Chairman ISSA. By the Department of War, yes. 

We now go to the distinguished gentleman from Florida, Mr. 

Mica. 

Mr. MICA. Thank you, Mr. Distinguished Chairman. Good to be 

with you this morning. Thanks for highlighting some of the issues 

that we face with the size and scope and reach of Government. 

Probably some fundamental questions. Ever since the founding of 

the Republic, to get away from king’s distant rule, taxation without 

representation, and then the size and scope of government and 

their interference in the colonies’ affairs, shifting to the creation of 

our current government, founding fathers were always skeptical of 

government, and again probably for good reason. The longer I stay 

here, the longer I am convinced that government could screw up a 

two car funeral and, if given the opportunity, often does. 

Big government programs—I saw some of your comments, Dr. 

Winston—sometimes are adopted because a need, a social need or 

public need, is not met or the public’s private sector cannot meet 

that need. In looking at this whole mess, wouldn’t it have been possible to—for example, I think there is pretty wide consensus we 

need to do something about preexisting conditions, about people 

who were in a lower economic scale, maybe not poverty scale, but 

couldn’t afford healthcare, but these were some of the deficits that 

brought about the government and people stepping in, saying that 

government had to take a bigger role. But, honestly, the question 

I would pose is wouldn’t it have been possible to take and tweak 

some existing things to establish a rules that these plans, and then 

55 

let the public sector put the plans out there, rather than creating 

the exchange, the bureaucracy? 

I remember they came to me when I was chairman of transportation. We oversee public programs. They came and said we just 

came to tell you we need a building in Washington that will house 

5,000 people. That is the administrative people required under 

the—I am not talking about enforcement people, just the—I was 

kind of stunned when they said, well, the bill mandates this, we 

just can do it, all we have to do is tell you. And then they came 

back later and I think they needed a building for 7,000. But 

couldn’t it have been done by changing some of the requirements 

and then letting competition and the private sector, existing mechanism rather than big government take it over? 

Dr. Winston, then others. 

Mr. WINSTON. I am not an expert in healthcare, but, to be honest, I asked the same question. My thinking about this is we already have an existing insurance program in the Government; it is 

quite a large one. 

Mr. MICA. Right. We have Medicare and we have Medicaid. Medicaid, in particular, might be a vehicle. But we could have also 

mandated that insurance plans cover some of these or—— 

Mr. WINSTON. Or allowed them into the Government’s plan. 

Mr. MICA. Exactly. 

Mr. WINSTON. That was my sense. 

Mr. MICA. Exactly. 

Mr. WINSTON. I think what we are grappling with is, again, what 

really would be the ‘‘lowest cost solution.’’ 

Mr. MICA. Exactly. 

Mr. WINSTON. To the extent we want to achieve this goal, how 

can we do it at least cost. 

Now, my understanding from the experts I know is there is no 

magic bullet. No one has ever told me, look, we all know exactly 

what would be the least cost solution. I think that is one of the intellectual challenges in dealing with this. But, that said, it would 

have been nice to at least see a set of alternatives, including the 

one that you are talking about, one that intuitively, to me, made 

sense, and sort of get these head-to-head and see how we should 

go forward. 

Now, maybe that was out there, but through political compromises that didn’t work. But I think at least it would be good to 

separate out the economics and the politics. 

Mr. MICA. We have something else. 

You wanted to comment? 

Ms. DE RUGY. Government intervention always creates distortion, so no matter what it would have done, so the question is how 

do you get the Government to do exactly that social goal at the 

least cost without introducing too much distortion. And it is worth 

noting that one of the goals of the ACA was to provide universal 

coverage, which, by the way, getting insurance is very different 

from getting improved health outcome. And when you look at the 

actual results, actually not everyone is going to get insurance. 

So right there, when you try to measure success and failures, you 

see that there is a problem in the way the whole thing was designed. And, yes, targeting it better could have achieved it. It 

56 

would have introduced distortions, because it always does, but it 

would have been probably better and maybe even have achieved 

the stated goal of the ACA. 

Chairman ISSA. You can go ahead and answer briefly. 

Mr. CALABRIA. Again, what I will start out with, we know that 

the resources have costs, therefore we know that the market is not 

going to provide anything at zero cost. Or the fact that somebody 

cannot afford something when they have zero income is not a market failure. It is also important to keep in mind that somebody who 

has zero income can’t pay taxes, and we don’t consider that a government failure. 

So my point is that we confuse, in my opinion, a number of programs in thinking that this is some market failure to provide a 

good, when the problem that we are facing is an issue of poverty. 

If rich people don’t have this problem, then we know it is not a 

market failure. And essentially I think we would have a much better functioning Government if we gave people in poverty the dignity of let’s cut you a check and make you non-poor, and let’s let 

you make the decisions for what is important in your life for you 

to spend that money on, rather than us tying assistance to a whole 

basket of various different goods, of which, of course, the providers 

grab most of the subsidy anyhow. 

Mr. MICA. Thank you. 

Chairman ISSA. I thank you. 

We now go to the gentlelady from New York, Mrs. Maloney. 

Mrs. MALONEY. I want to thank the chairman and the ranking 

member for holding this important hearing and all of the panelists 

for their testimony, many of whom represent distinguished institutions of learning and think tanks. I would like to quote my own distinguished comedic think tank, the Borowitz Report. Now, Andy 

Borowitz has pointed out that many or some of my Republican colleagues have criticized President Obama and his team for having 

the audacity to support one of their own ideas, an idea that came 

out of The Heritage Foundation. And I would like to quote the conservative Heritage Foundation, which had praise for a plan that it 

described this way. And this was their report in 2006 on 

Romneycare, this statement. They said, ‘‘The cornerstone for this 

reform is a personal and responsibility principle. The plan establishes a health insurance exchange to enable individuals to purchase health insurance. The plan also focuses on restraining the 

growth in healthcare costs by empowering consumers and making 

healthcare service and cost information more readily available.’’ 

The distinguished report went on to criticize some of my Republican colleagues for plotting to make the Affordable Care Act work, 

or criticizing efforts by President Obama and his team to be flexible, to make adjustments in the plan. Some went on to criticize the 

President and his team for having a website that was far too slow. 

Then some turned around and criticizes the President’s team for 

having a website that worked too fast. 

So we have some difficulty in working together, but I do think 

you raise some important points in your testimony, Dr. Thomas, 

and I would like to quote the area where you talked about how 

healthcare, not only the improvement in quality of life and education, but the life expectancy has been improved by 37 years, and 

57 

some of this was because of public healthcare and public healthcare 

research and standards, and I want to thank you for pointing that 

out. But I have some further questions on healthcare. 

I would like to ask you, Dr. Thomas, do you remember how many 

Americans were without healthcare insurance before the passage of 

the Affordable Care Act? How many Americans were there? There 

were many reports. Do you remember how many Americans did not 

have healthcare? 

Ms. THOMAS. I have always gone with the figure of approximately 40 million. 

Mrs. MALONEY. Some say 50.7 million in 2010. 

Ms. THOMAS. Right. 

Mrs. MALONEY. I also want to cite a very important study in 

2009 by the Harvard School of Public Health. Now, this celebrated 

study, you may remember it, found that a large number of early 

deaths were associated with the lack of health insurance. And they 

further pointed out that 45,000 Americans died yearly, in their report they estimated, because they did not have health insurance. 

Now, do you believe this report, Dr. Thomas, that came from the 

Harvard School of Public Health? 

Ms. THOMAS. Yes, I do. 

Mrs. MALONEY. You do believe that that many people were 

dying. And before the passage of the Affordable Health Care Act, 

do you recall the percentage of people without healthcare by 

States? There were a lot of reports that showed the percentage of 

people who did not have healthcare, and it varied dramatically, 

from 4 percent to 24 percent. The 24 percent was the State of 

Texas. And the 4 percent, guess what State it was? What State was 

it that had the highest number of people with health insurance? 

Only 4 percent of their population did not have it. 

Ms. THOMAS. I am guessing Connecticut, but I—— 

Mrs. MALONEY. No, it was Massachusetts. 

Ms. THOMAS. Right. 

Mrs. MALONEY. Because of Romneycare. 

Ms. THOMAS. Yes, of course. Yes. Yes. 

Mrs. MALONEY. Romneycare. And I did my own survey; I called 

anyone I know in Massachusetts. They were very happy with their 

healthcare coverage. 

Do you understand why there was a difference between the 4 

percent and the 24 percent? What was the difference? 

Ms. THOMAS. Because there was Romneycare in Massachusetts. 

Mrs. MALONEY. Yeah, Romneycare, which President Obama gives 

full credit to the distinguished former governor for his work in supplying healthcare to the vast majority of the people who live there. 

Are you also aware that in the three years since 2010, the real 

per capita annual growth rate of national health expenditure has 

been just 1.3 percent? And this responds to the concerns that I 

think are very legitimate of the chairman to contain costs. We all 

agree the costs were out of control, and the historic average growth 

rate was 4.5 percent. But now, because of the Affordable Care Act, 

we are at 1.3 percent growth in the cost of medical care. 

So I would like to ask any of the panelists are you able to point 

to any prior three-year period that saw a lower growth rate in our 

national healthcare expenditures ever in history? 

58 

Chairman ISSA. The gentlelady’s time has expired, but please answer. 

Ms. DE RUGY. So, actually, the growth in the cost of healthcare 

has been going down since 2003, and, in fact, it has stopped to decline since 2009. So in some ways you could actually say that 

maybe the ACA has actually paused that decline in the cost. And, 

in fact, CMS has put out a report which actually one of my colleagues, a trustee for Social Security and Medicare, charged—— 

Mrs. MALONEY. Reclaiming my time. If you could get your response in writing, because I think it is very important, and it is 

absolutely different from the report that I have seen on the per 

capita growth rate that showed a 4.5 annual growth in expenditures. I think this is an important point and we should get this in 

the record. 

Chairman ISSA. Without objection, that material could be placed 

in the record. 

Ms. DE RUGY. Absolutely. 

Chairman ISSA. Thank you. 

We now go to the gentleman from South Carolina. 

Mrs. MALONEY. And may I also place in the record my research 

on this from the National Institutes of Health on the growth rate 

during those periods. 

Chairman ISSA. Anything from the National Institutes of Health 

will be welcome. Without objection. 

Mrs. MALONEY. Thank you. 

Chairman ISSA. Mr. Gowdy. 

Mr. GOWDY. Thank you, Mr. Chairman. The debate over the role 

of Government in our Republic is a fascinating one and probably 

outside the boundaries of a five-minute Q&A. What is not debatable is if Government is going to enter into something, we have a 

legitimate expectation that they do so competently and in a trustworthy fashion. 

So, Dr. Thomas, let me start with you. What do you think the 

largest avoidable mistake was with respect to the rollout of the 

website? The largest avoidable mistake. 

Ms. THOMAS. I am not qualified to speak to that. I am not knowledgeable about the technological aspects of the website. 

Mr. GOWDY. Neither are the people who designed the website, 

apparently. You have no thoughts on what the largest avoidable 

mistake was with respect to the website? 

Ms. THOMAS. I do not. 

Mr. GOWDY. Dr. Calabria? 

Mr. CALABRIA. I would preface with saying I am not an IT expert, I am not an expert on the website, so I certainly would say 

the sense you had to have it running by a certain date, rather than 

having made sure it was ready before I certainly think is a mistake, but I would emphasize what Dr. Thomas said, not an expert 

on the website. 

Mr. GOWDY. Well, let me ask you this, then, if you are not an 

expert on the website. It strikes me that if there is a security issue 

with Amazon or eBay, the consumer has recourse; there are consequences for that. What are the consequences if there are security 

issues with a Government website? I mean, you could argue that 

there would be electoral consequences, but we had a several hour 

59 

hearing and I still can’t tell you who is responsible for the website. 

I can tell you it is not the President, it is not Kathleen Sebelius, 

it is not any of the people that you would think would be responsible for this train wreck. So what does a consumer do when they 

are let down by a Government website? 

Mr. CALABRIA. I think that is an important point, and both 

Veronique and myself talked about the role of incentives here, 

which is, A, there is often not clear chains of authority, I mean, the 

buck should stop somewhere with something; and there is never 

any penalty, there is never any punishment. Certainly not the 

website. Alone, we have all heard the stories of NSA spying and 

going through what we are all looking at on the web, but I haven’t 

yet heard of any NSA employees being disciplined for that. 

Mr. GOWDY. I have one even worse than that. How about the 

GSA? Do you remember the picture of the gentleman with the glass 

of wine in the hot tub? 

Mr. CALABRIA. Oh, yes. 

Mr. GOWDY. Do you know what consequences came from that? 

Mr. CALABRIA. I believe they rehired him. Of course, I will also 

say, as somebody who follows financial services, you have probably 

heard of the very large number of SEC employees who spent the 

financial crisis looking at porn sites on their office. None of them 

were fired. So, again, where is the accountability? Where does the 

buck stop is an important part of this question. 

Mr. GOWDY. Dr. Winston? 

Mr. WINSTON. I mentioned in my testimony that story that I read 

about an IT supplier who offered to build this website at no cost. 

I can’t remember exactly now the name of the firm, but they had 

a lot of experience doing it. I am sure we can find that out. But 

they were told they couldn’t do it because of regulatory constraints, 

and then the Government went out and hired another firm. At the 

very least, one could have brought them on as a technical consultant or somebody who could provide guidance, because they certainly were confident enough and experienced enough to do it. So 

I think clearly an avoidable mistake was just the lack of ability to 

bring in the highest level of technical advice and competence, 

which apparently may have been able to prevent some of the problems that occurred. 

Mr. GOWDY. Well, it just strikes me that you can debate the role 

of Government, but if Government is going to do something, you 

really should not debate whether it ought to be done competently 

and in a trustworthy fashion. And there are no consequences or, if 

there are, I haven’t seen them to date. 

With that, I would yield to the chairman. 

Chairman ISSA. I thank you for yielding. 

I just want to get two things in the record quickly. One of them 

is because there was the doubling of life expectancy, I just want to 

get into the record in 1960 we spent 5 percent of GDP on 

healthcare and we had a 69.7 combined life expectancy age. In 

2006 we spent 16 percent, a more than threefold increase in the 

percentage of our growing GDP we had. We became very wealthy 

during this period, but we exceeded it by triple and we raised ourselves by eight years, to 77.7. 

60 

Dr. Calabria, quite frankly, isn’t that what we should be talking 

about, is how we spend more than three times the growing wealth 

of our Nation on healthcare and, yes, we are getting an increase 

in life expectancy, but certainly not proportional and not when you 

look at our competitors around the world, where countries like 

Canada, to our north, spend a third to a half less than we do? 

Mr. CALABRIA. I would very much agree. You could certainly that 

we are spending a lot of money on these things, but what are we 

getting? We are getting a bang for our buck and we could do a far 

better job of that and try to get more efficiencies out of that, which 

I think gets back particularly to Congressman Mica’s point about 

having some consumer choice in this to me is an incredibly important part of it. 

Chairman ISSA. Dr. Thomas, my colleague said something and I 

am taking something because he said it and he is rightfully so. He 

said universal healthcare. The debate that we are having today is 

on something that is not universal, it is an extension of Medicaid, 

effectively, it is a vast expansion of Medicaid both in literally who 

gets it and in the subsidy that is effectively a back-door Medicaid 

for the working less wealthy up to over $60,000. From the standpoint of your view of the good it is doing, it is predicted we will 

get to 20 percent to 21 percent of GDP as a result of the Affordable 

Care Act in total healthcare spending. Would you sit here today 

and say that our goal should be to deliver life expectancy beyond 

78 years and do it for less than 21 percent of GDP? 

Ms. THOMAS. I would respond to that by saying that our 

healthcare spending, we are living longer than ever before and 

much of our healthcare spending is to deal with the chronic diseases of old age that we used to not have to deal with because were 

dying earlier. So those life expectancies—— 

Chairman ISSA. Okay, well, my time has expired, so does anyone 

want to answer the question, which is should we have a goal to live 

long, live well, and do it at a rate below 21 percent and growing, 

or likely to be 21 percent and growing, percentage of GDP, when 

we are competing against nations that have 9 percent or less and 

have life expectancy as long as ours? Hearing none, I will recognize 

that my time has expired. 

Mr. GOWDY. Mr. Chairman, could I correct one thing very, very 

briefly that my friend from Virginia—my friend from Virginia told 

me that there were consequences that arose from a hearing that we 

had with respect to GSA. If my friend from Virginia tells me that, 

I believe him and I will take it upon myself, Mr. Chairman, to find 

out the full panoply of the consequences and report back to you and 

to my friend from Virginia. 

Chairman ISSA. I thank you. And I don’t think there is anyone 

here that would fail to think there should be consequences in the 

case of GSA. 

With that, we go to the gentlelady and my friend from the District of Columbia, Ms. Norton. 

Ms. NORTON. Thank you, Mr. Chairman. Just to try to respond 

to your question about the correlation between the increase in life 

expectancy and what we spend, sure it is going to go down, because 

we have been spending—and I think Dr. Thomas gave one answer, 

but you know the Affordable Healthcare Act is going to help that 

61 

because we have been spending this money on sending these people, up until now, to the emergency room; we have been spending 

almost no money on preventative care; we have been spending disproportionate amounts of money on the very last years of life, when 

people are about to die anyway. You have a lot of factors. But I do 

want to—— 

Chairman ISSA. Would the gentlelady yield? 

Ms. NORTON. If you don’t take my time for me. 

Chairman ISSA. I will stop the clock. 

Are you saying that there is something in the Affordable Care 

Act that is actually going to drive down—— 

Ms. NORTON. I am. I am saying, for example, that the subsidies, 

which are a part of the Affordable Healthcare Act, means that people are going to get their own doctors, they are going to have preventative care, that you won’t get to the point where the disease 

is costly, you have to have the most expensive procedure, you have 

to have your leg taken off. 

Chairman ISSA. I hope to see it. 

Ms. NORTON. I am saying that those things will, in time, show 

up. They are not going to show up in the first few weeks of the rollout. 

And I do want to thank a very distinguished panel. One of them 

is one of my own constituents. Welcome, Mr. Calabria. But I want 

to thank all of you for your testimony. 

I do note for the record that only Dr. Thomas is an expert in 

healthcare, and I think that must have been deliberate, because we 

are talking about the rollout of healthcare. And that is without 

casting any dispersion on the very distinguished witnesses we have 

here. 

But what troubles me, Mr. Chairman—— 

Chairman ISSA. Would the gentlelady accept a friendly—— 

Ms. NORTON. Certainly. 

Chairman ISSA. Dr. Thomas, according to our information, is a 

historian and communications associate at Johns Hopkins. We 

were unaware. It is the School of Public Health, so it is history of 

health. But I may be wrong. Perhaps she could tell us what her 

expertise is in health, because everyone today is a PhD. None of 

these are medical doctors. 

Ms. NORTON. She is an expert on healthcare, Mr. Chairman. And 

if she is not, let her tell us. 

Ms. THOMAS. I spent four years doing a post-doctoral fellowship 

in the history of medicine, largely concentrating on twentieth century health policy in public health at the Institute of the History 

of Medicine at Johns Hopkins University. 

Ms. NORTON. I was simply drawing a contrast between some 

background in healthcare, and I did say, even though I respect all 

three of the other witnesses, Mr. Chairman, I hope that wasn’t 

taken from my time. 

But I do want to say that this is an amazing hearing that the 

Government of the people, by the people, and for the people should 

not provide healthcare for the people is essentially the theme of 

this hearing. It is a fundamentally anti-American message. Fortunately, it is false, and I think the chairman, with his rollout of the 

62 

many ways in which the Government has produced for the people, 

lays that to rest. 

The Affordable Healthcare Act is not a Government program. Not 

even single payer. So I don’t understand the concept here. This is 

a Republican idea which outsources to the private sector. This is 

why the insurers bought into the program and that is why they are 

so anxious that this website get up and get right. Yes, they are getting subsidies, but that is to save the American people money. Nobody is just throwing money at people. 

Mr. Chairman talked about D.C. Health Link. Yes, there are errors there, but it was cited as one of the four successful rollouts 

throughout the United States, and I want to cite it because it is 

an example of why this is not a Government program. You go on 

D.C. Health Link; 267 options. And when they insisted that on 

D.C. Health Link they would put the costs up front out so anybody 

could see it, they drove competition and others came in and lowered their prices. This is a quintessentially private sector approach. 

The Government’s only role is to say we are not even refereeing it, 

we are putting up a website. That is why we think that website 

has got to be gotten right. 

The chairman talked about winners and losers. Here we have 

267, or whatever the number is in your district. Nobody is picking 

anything except the people who go on that website. 

Mr. Calabria talked about market feedback. I just cited to you, 

Mr. Calabria, what the market feedback was when competitors saw 

267 prices on the link. They never could have seen it otherwise. 

The individual never could have gotten that information if it had 

not been for D.C. Health Link. My staff went on there and report, 

for example, several of them have reported to me that they have 

saved $100 already looking on the site, with comparable 

healthcare, $100 per month. 

Dr. Winston talked about programs in the public sector, like 

ACA, do not necessarily drive down costs, and he may be right. Of 

course, I have cited an example where, precisely because the Government put this website out, costs are being driven down. 

One thing that ACA does not have is a mechanism, a Government mechanism for driving down costs. They are depending upon 

this competition to do so. 

I want to ask Dr. Thomas about—since what was supposed to 

have spurred this was the rollout—about the Medicare rollout. 

Now, we would have done Part D in a different way. The last thing 

we did, though, when it finally happened, we certainly didn’t say 

we will just wipe it off the board. We didn’t try to repeal it. Do you 

recall public and, for that matter, political sentiment at the time 

of the Medicare D rollout, whether there were large problems? 

Chairman ISSA. The gentlelady’s time has expired. 

Ms. NORTON. My time was taken up, Mr. Chairman, by you, 

among others. 

Chairman ISSA. No, we stopped the clock. 

Ms. NORTON. You don’t even want to let her answer the question? 

Chairman ISSA. No, I was saying your time has expired, but the 

gentlelady certainly can answer. 

63 

Dr. THOMAS. At the time of the Part D rollout in 2005 and 2006, 

there is great concern about how complex the instructions were for 

enrollment and people were very concerned that their existing drug 

coverage would end and that they would not be picked up by the 

new law, and there were great difficulties in the initial implementation of the law that have since been fixed, and we now, I think, 

are in bipartisan agreement that Medicare Part D is working and 

is a good program. 

Ms. NORTON. Thank you, Mr. Chairman. 

Chairman ISSA. Thank you. 

The gentleman from Tennessee, Mr. Duncan. 

Mr. DUNCAN. Well, thank you, Mr. Chairman. I remember during 

my first term in Congress, in 1989, I went to a conference put on 

by the American Medical Association, and the man who was then 

the president of AMA was laughing in a presentation that he made 

about the fact that, as the ranking member mentioned, the AMA 

had opposed Medicare, because he said that he knew at the time 

it was started that the doctors would get their part, and they certainly have. Many doctors have gotten wealthy off of it. And I remember reading last year, I think it was in an Associated Press article, that six of the ten wealthiest counties in this Country are 

suburban counties to Washington, D.C. 

What I am getting at is, as Dr. De Rugy has mentioned, all these 

Federal programs, they have wonderful motherhood and apple pie 

titles and they have good goals, but they end up benefitting primarily Government contractors, large corporations, and Government employees. You mentioned Goldman Sachs and some other 

companies, and the chairman mentioned that we have spent $640 

million so far on the website. The Canadian company whose American subsidiary got the bulk of the money on the website, one of 

the top officers is a close friend to the President’s family. And all 

of these Government contracts, when you go beneath the surface 

and you find out what is behind it, almost all these big Federal 

contracts are some sort of sweetheart or insider deal. I read several 

years ago about the revolving door at the Pentagon, because they 

hire all the retired admirals and generals, the defense contractors 

do. 

And the same thing is going to happen, I am afraid, with 

Obamacare. It is going to end up benefitting some extremely big 

companies. I read just this morning an article that some of the 

health insurance companies are now working with the White 

House to try to implement the program because they see huge profits ahead. 

And I think back to the mid-1990s, when I went to a reception 

in Tennessee, and the doctor who delivered me came and brought 

my records, and I asked him how much he charged back then. He 

said he charged $60 for nine months of care and the delivery, if 

they could afford it. Medical care used to be cheap and affordable, 

and doctors even made house calls; and then the Federal Government got into it. The same thing has happened. It shocked students 

at the University of Tennessee when I tell them that it was $90 

a quarter when I went there, $270 a year. Until that program 

started, college tuition and fees went up at just the rate of inflation. Then when the Federal Government got into it, every year 

64 

since then it has gone up three or four or five times the rate of inflation. 

It just seems that everything the Federal Government subsidizes, 

the costs just explode. And we talk now, already we are hearing 

that Obamacare is going to cost three or four times more than 

when it was passed. And I remember reading years ago that Medicare was predicted was going to cost $12 billion after the first 25 

years; instead, it cost almost 10 times that much, and now it costs 

four times more than that. So all these Federal medical programs 

have been low-balled on the front end. And what I don’t understand is how we are going to add many millions of people who were 

previously uninsured and now millions more receiving notices saying that their premiums are going out the window so much that 

they are not going to be able to afford those premiums, so we are 

going to add all those millions. 

These costs, it seems to me, are inevitably going to explode. Dr. 

De Rugy, what do you say about that? 

Ms. DE RUGY. I agree with you. A lot of these programs, independently of the social benefit that we assign them, are 

unsustainable, whether we like them or not. Medicare, Social Security, Medicaid, these are programs that are extremely expensive. 

And then you add on top of it the ACA. We already have a big debt 

problem, but it is going to explode. 

And I wanted to add something about what you said. Yes, the 

private insurance industry was extremely supportive because they 

were going to benefit immensely from it. When you have a law that 

mandates that everyone buys insurance, that means millions more 

customers for the insurance industry. And I would bear to also say 

that in this instance, because of the way the law was drafted, the 

law did pick winners and losers. Because of the requirement by 

Obamacare, it meant that younger and healthier Americans were 

going to have to face much higher premiums. 

Chairman ISSA. The gentleman’s time has expired. 

Dr. Winston, if you need to answer. 

Mr. WINSTON. I just want to add one point just to round out 

what you were saying. I think it is important to keep in mind that 

a large source of the increase in medical expenditures is due to 

technological change and innovation. Obviously, we are not getting 

the same products that we once got. That is a good thing, and that 

is coming from the private sector, to a large extent. The challenge 

for Government is how is it that they intervene in ways that spur 

technological change in innovation without excessive increases in 

cost, as opposed to impeding technological change and innovation. 

That is really what we need to do. 

Mr. DUNCAN. Well, I will close just by saying that we are having 

great difficulty funding the programs that we already have. 

Thank you, Mr. Chairman. 

Chairman ISSA. I thank the gentleman. 

We now go to the gentleman from Massachusetts, Mr. Tierney. 

Mr. TIERNEY. Thank you, Mr. Chairman. 

So, Dr. Calabria, I just want to note that you were here for a 

hearing on the rollout of healthcare government. Your own testimony says, ‘‘I am not an expert on healthcare,’’ is that right? 

Mr. CALABRIA. That is correct. 

65 

Mr. TIERNEY. Okay. And in your statement you also say, ‘‘Doing 

nothing should always be an option or, rather, leaving the problem 

to be solved by the voluntary private sector.’’ Is that accurate as 

well? 

Mr. CALABRIA. Absolutely. You can always make something 

worse. 

Mr. TIERNEY. Thank you. 

Dr. De Rugy, in your written testimony you focus mostly on the 

Department of Energy’s loan guarantee program and then you say, 

‘‘Government solutions are not only unlikely to solve most of our 

problems, they often make problems worse.’’ Is that fair? 

Ms. DE RUGY. It is fair. 

Mr. TIERNEY. Okay. 

Dr. Winston, you talked mostly about transportation and infrastructure programs. Let me quote from your testimony: ‘‘I am much 

less familiar with empirical assessments of Government services 

and programs to pursue social goals.’’ Is that an accurate quote? 

Mr. WINSTON. Yes. 

Mr. TIERNEY. Thank you. 

So, Dr. Thomas, you actually work in the public health field, you 

have the background that you just stated on that, so I want to 

focus a little bit on you and talk about this concept that the free 

market always works better. Before Horace Mann, how was the 

private sector doing on educating most students in this Country? 

Ms. THOMAS. In some parts of the Country, literacy rates were 

high, but in many, many parts of the Country there is no education 

available to the vast majority of the population. 

Mr. TIERNEY. And before Social Security and Medicare, what was 

the poverty rate among seniors? 

Ms. THOMAS. I do not specifically know, but I know that it was 

significant and that health costs were a major part of that poverty. 

Mr. TIERNEY. And how did Social Security and Medicare’s enactment affect that? 

Ms. THOMAS. We need to remember Medicare and Medicaid are 

parts of the Social Security Act. Together those things lifted many, 

many millions of Americans out of poverty. And I think it is important to add that minority groups, who had been hardest hit by poverty rates, were also dramatically helped by those programs. 

Mr. TIERNEY. And I would assume that since the recession, the 

fact that 95 percent of all economic gains have gone to the top one 

percent is not what you would think is a great symbol of the private market working effectively for everybody? 

Ms. THOMAS. No, I would not. 

Mr. TIERNEY. Okay. So the premise by the Majority seems to be 

that Government’s ability to effectively or inability to effectively design, implement, and administer large-scale projects and programs. 

Let me talk to you a second about the GI Bill. Is it your understanding that the GI Bill has been a success? 

Ms. THOMAS. Absolutely. My own father went to Georgia Tech on 

the GI Bill. 

Mr. TIERNEY. And, in fact, on November 8th of this year we had 

the one millionth recipient of the GI Bill that was passed after September 11th, 2001. 

Ms. THOMAS. Yes. 

66 

Mr. TIERNEY. And basically I would think that the Government 

has been administering that program fairly well, in your opinion? 

Ms. THOMAS. Yes. 

Mr. TIERNEY. Some $30 billion in new GI Bill benefits have been 

awarded to Iraq and Afghanistan veterans since 2009, is that about 

right? 

Ms. THOMAS. Yes. 

Mr. TIERNEY. So you would think that the GI Bill has been worth 

the effort of the Federal Government in its expenditures? 

Ms. THOMAS. Yes. And it helped the overall market to work better because it brought so many more skilled people into the workforce. 

Mr. TIERNEY. Now, the intervention of Government in 1966 

through Medicare, that saw some problems with the rollout of that 

program, similar to what we are hearing today? 

Ms. THOMAS. Very similar. 

Mr. TIERNEY. And in 1937 we could say the same about Social 

Security, correct? People were all sorts of critics about the program; 

it was going to cause too much swelling of bureaucracy, it was 

going to slow the economy? 

Ms. THOMAS. Correct. 

Mr. TIERNEY. And Part D, Medicare Part D talked about their 

being a marred rollout. Republicans, in fact, at that point in time, 

however, were saying, look, it is a marred rollout, but it has 

glitches; we should work closely with CMS to get the problems resolved on that. 

Ms. THOMAS. Yes. 

Mr. TIERNEY. All right. And I would protest that if we work 

closely with the glitches in the Affordable Care Act, we can get 

those resolved as well, would you agree? 

Ms. THOMAS. I agree. I think the Affordable Care Act is very 

much in the tradition of these other programs that you have mentioned and that we are going to look back even a year from now 

and see that the Affordable Care Act is a good investment and is 

working. 

Mr. TIERNEY. So, historically, are you familiar with any program 

that the Republicans proposed during this discussion of the Affordable Care Act that would cover the 40 million Americans that were 

otherwise uncovered? 

Ms. THOMAS. I am not. 

Mr. TIERNEY. Are you aware of any proposal that would have 

affordably allow people to stay on their parents’ policy until they 

are 26 if they are not otherwise covered? 

Ms. THOMAS. No. 

Mr. TIERNEY. Are you aware of any Republican suggestions of 

how they would affordably make sure that insurance companies 

didn’t shut off your health insurance with an annual or lifetime cap 

on coverage? 

Ms. THOMAS. No. The insurance companies had done none of this 

on their own. 

Mr. TIERNEY. And the same is true with preexisting conditions, 

is that correct? 

Ms. THOMAS. Correct. 

Mr. TIERNEY. I yield back. Thank you. 

67 

Chairman ISSA. I thank the gentleman. 

I now ask unanimous consent that 15 letters sent to health insurance companies related to broken promises and when did they 

know that they were going to be canceling individuals under the 

Affordable Care Act be placed in the record. Without objection, so 

ordered. 

Chairman ISSA. We now go to Mr. Meadows, who came back just 

in the nick of time. 

Mr. MEADOWS. Thank you, Mr. Chairman. 

Dr. Thomas, I know that my friend and colleague was asking you 

about Republican proposals, and hopefully this is not something— 

how many people do they estimate will still be uninsured under 

ACA, do you know? 

Ms. THOMAS. I do not have an exact figure. 

Mr. MEADOWS. Do you have an approximate figure? You are a 

historian. 

Ms. THOMAS. Yes. 

Mr. MEADOWS. So you don’t know trends? 

Ms. THOMAS. Well—— 

Mr. MEADOWS. So, under ACA, how many people will—you were 

able to quote how many were going to be covered, so I would assume that you would know how many are going to be left uncovered. 

Ms. THOMAS. I think there will still be approximately 5 to 10 percent uncovered. 

Mr. MEADOWS. Well, according to estimates, some 30 million people will still be left uninsured, is what the current estimates have. 

Some 30 million people would still be without insurance even 

under ACA. 

Ms. THOMAS. And may I ask where those estimates are from? 

Mr. MEADOWS. CBO. So if you look at the CBO, they are saying 

almost 30 million people will still not be covered. So this is not a 

solution that will have everybody covered. 

Ms. THOMAS. Mm-hmm. 

Mr. MEADOWS. So I want to ask—you have gone and you have 

had a number of options here as we have started to look at history. 

Can you speak to the fact that we have trends right now where, 

under current Medicaid and Medicare, that the reimbursements 

are not covering the costs? Would you agree with that? To provide 

those healthcare coverage. Does Medicaid cover all the costs of actually providing that service, reimbursement to physicians? 

Ms. THOMAS. No, it does not. 

Mr. MEADOWS. All right. So does that distort the market? 

Ms. THOMAS. The rates of—— 

Mr. MEADOWS. Of reimbursement. 

Ms. THOMAS. Well, I can speak from personal experience. When 

you get an explanation of benefits from a medical visit—— 

Mr. MEADOWS. All right, maybe let me change and rephrase the 

question. Do you ever hear complaints from physicians where they 

don’t want to take new patients because the reimbursement is not 

adequate to cover their costs? That is an easier question. 

Ms. THOMAS. Yes. However, in some cases, over time Medicare 

has reimbursed at higher rates than private insurance. 

68 

Mr. MEADOWS. Okay, but let’s look at Medicaid. I am in a rural 

areas, so we get a lot of Medicaid patients, and what I am finding 

is a lot of physicians don’t want to take Medicaid patients because 

the reimbursement doesn’t even cover their costs, hospitals included. Would you agree with that? 

Ms. THOMAS. I would, but I would also say that without the Medicaid program, there would be far more people who wouldn’t get 

care at all. 

Mr. MEADOWS. All right. Is there not a Federal law that says everyone has to get care? 

Ms. THOMAS. There is a Federal law—— 

Mr. MEADOWS. Is there a Federal law, yes or no? 

Ms. THOMAS. Care in the emergency room, yes. 

Mr. MEADOWS. Right. So it is a matter of how we get that care 

to them in terms of the efficiency of that. Because right now there 

is a law, if I show up, regardless of my ability to pay, at an emergency room, I can get care, is that correct? 

Ms. THOMAS. Yes. 

Mr. MEADOWS. That is a Federal law. So what we are talking 

about is the efficiency, as Dr. Winston talked about earlier, is what 

is the most efficient way to deliver that healthcare, is that not correct? 

Ms. THOMAS. Yes. 

Mr. MEADOWS. All right. So in doing that, from a historical perspective, are there major inefficiencies in Government delivery of 

services, whether they be medical or anything else? Are there inefficiencies there? 

Ms. THOMAS. Certainly. 

Mr. MEADOWS. All right. So has the private sector historically 

done a more efficient job of providing services, whether they be 

medical or not? Have they historically done a better job of providing a more efficient delivery, historically speaking? You are 

under oath. 

Ms. THOMAS. You are talking about all of the private sector in 

all parts of the economy? 

Mr. MEADOWS. I am saying historically speaking—you are talking about trends. Historically speaking, is the private sector a more 

efficient mode of delivering goods and services, whether they be 

medical or not, historically speaking, have they been more efficient? You are a historian. 

Ms. THOMAS. I don’t think I can answer that question because it 

is so broad. 

Mr. MEADOWS. Okay. Well, my time has expired. I yield back. 

Thank you, Mr. Chairman. 

Chairman ISSA. We now go to the gentleman from Virginia, Mr. 

Connolly. 

Mr. CONNOLLY. 

Mr. CONNOLLY. I thank the chairman. And I am delighted to 

hear my friend from North Carolina’s concern about uncovered citizens. Hopefully, North Carolina and Virginia will both come to 

their senses and broaden Medicaid so that those people will have 

coverage. 

By the way, let me follow up on my friend’s last question to you, 

Dr. Thomas. Historically, since World War II, can you give us a 

69 

single industrialized country where the government has not intervened and provided healthcare to its citizens? 

Ms. THOMAS. No. There are none. 

Mr. CONNOLLY. There are none. So that efficient private sector 

somehow just didn’t work in any industrialized country. The 

United States is actually laying way behind others in the industrialized world in the comprehensiveness of its coverage until the passage of the ACA. Would that be an accurate historical statement? 

Ms. THOMAS. That is absolutely true. 

Mr. CONNOLLY. And you are under oath, as my friend reminded 

you. 

Ms. THOMAS. Yes. 

Mr. CONNOLLY. Thank you. 

Ms. THOMAS. That is absolutely true. 

Mr. CONNOLLY. Dr. De Rugy, my friend the chairman characterized Brookings as a left-of-center organization in contradistinction 

to your center, the Mercatus Center, which he characterized as 

right-of-center. Would you accept that characterization? 

Ms. DE RUGY. No. Actually, we are really independent. 

Mr. CONNOLLY. Really independent. 

Ms. DE RUGY. We spend a great amount of time criticizing both 

sides of the aisle. 

Mr. CONNOLLY. And lots of donors like the Koch brothers, for example, is that correct? 

Ms. DE RUGY. We have lots of individual donors. 

Mr. CONNOLLY. Including the Koch brothers? 

Ms. DE RUGY. Yes. It is well known. 

Mr. CONNOLLY. Yes. You don’t come here as a healthcare expert, 

you come here as an economist, is that correct? 

Ms. DE RUGY. That is correct. 

Mr. CONNOLLY. And your position is, a priori, that any Government involvement distorts the marketplace. 

Ms. DE RUGY. It does. 

Mr. CONNOLLY. It does. So you consider Medicare a distortion? 

Ms. DE RUGY. It does, yes. 

Mr. CONNOLLY. Medicaid? 

Ms. DE RUGY. Medicaid. 

Mr. CONNOLLY. Veterans Administration? 

Ms. DE RUGY. We may be willing to put up with distortion to 

achieve some social goal. 

Mr. CONNOLLY. No, I am not asking—don’t jump ahead. I am 

asking the question here. So is TRICARE, medical TRICARE, military TRICARE healthcare a distortion in the marketplace, based on 

your philosophy? 

Ms. DE RUGY. All Government intervention introduced distortions. 

Mr. CONNOLLY. And that includes the Veterans Administration 

healthcare system. 

Ms. DE RUGY. It does. 

Mr. CONNOLLY. It does. And I see Dr. Calabria agreeing with 

you. Does the Centers for Disease Control, is that a distortion? It 

is a big Government program; monitors public health. 

Ms. DE RUGY. It does, but again—— 

70 

Mr. CONNOLLY. Again, ma’am, I am just trying to see is it consistent with your philosophy that it represents a distortion. We will 

hold off for a minute, normatively, whether it is good or bad. 

Ms. DE RUGY. Government intervention introduced distortions. 

Mr. CONNOLLY. And you would include the National Institutes of 

Health in that rubric? 

Ms. DE RUGY. It does. 

Mr. CONNOLLY. And the Federal Drug Administration. 

Ms. DE RUGY. It does, certainly. 

Mr. CONNOLLY. Now, all right, are some of those things necessary, despite their distortive effect? 

Ms. DE RUGY. Yes. 

Mr. CONNOLLY. Which ones do you think are unnecessary? 

Ms. DE RUGY. So I think there are a lot. For instance, I don’t 

think the Government should be involved in education; that is a 

State and private function. I mean, there are a lot of things. 

Mr. CONNOLLY. No, no. I am talking about the healthcare system. Would you abolish the CDC and let the private sector monitor 

public health? 

Ms. DE RUGY. I think there is an important role for the Government to try to prevent epidemics, true epidemics. But the CDC 

does a lot of things that actually it shouldn’t be doing. 

Mr. CONNOLLY. Okay. So there are some things—you would go 

granular and pick what functions you like and what you don’t. 

Ms. DE RUGY. Yes. 

Mr. CONNOLLY. Even though anything you pick is distortive, by 

your definition. 

Ms. DE RUGY. Yes. Government intervention—— 

Mr. CONNOLLY. Excuse me, but because of time. Is it your position that absent the Government, even in functions you might 

deign to approve of, the private sector could do it better, and 

should? 

Ms. DE RUGY. Not necessarily. 

Mr. CONNOLLY. Not necessarily. 

Ms. DE RUGY. Because, as I said, there is some function that we 

may want the Government to do, even if it introduces some distortions. And as Dr. Calabria has said, the private sector doesn’t do 

everything efficiently. 

Mr. CONNOLLY. Right. By the way, there was a debate here earlier about the Government setting prices for Medicare. Do you actually know how the process is set for which are recommended and 

approved procedures? Who does that? Who recommends that to the 

Government, do you know? 

Ms. DE RUGY. I don’t know—— 

Mr. CONNOLLY. It is actually a committee. 

Ms. DE RUGY. Actually, it is a committee made of doctors. 

Mr. CONNOLLY. That is right. 

Ms. DE RUGY. And I think I remember a report recently that actually highlighted the fact that a lot of what they were doing was 

boosting prices in area where the service could be delivered at a 

lower price. 

Mr. CONNOLLY. That is the private sector doing that. 

71 

Ms. DE RUGY. But this is how one of the ways that the Government introduces distortion, is it gives incentive to the private sector to try to get as much as it can from the Government. 

Chairman ISSA. I would ask unanimous consent the gentleman 

have an additional minute. Without objection. 

Mr. CONNOLLY. I thank the chair. 

Well, of course, philosophically, Dr. De Rugy, there is no end of 

that; that is a horse that left the barn a long time ago. Gosh, if 

we want to talk about economic distortions and the Government’s 

role, let’s talk about agriculture. 

Ms. DE RUGY. I agree. 

Mr. CONNOLLY. Let’s talk about nuclear. 

Ms. DE RUGY. I agree. I agree. 

Mr. CONNOLLY. All nuclear power in the United States came 

from Federal research and dollars. 

Now, is it your contention that this big Government distortive effect extends to pharmacological research? Because it is my understanding that, by and large, all basic research in the United States, 

and this is not new, is done by the Government. It is the commercialization of that basic research is when the pharmaceutical firms 

come in, but they do not fund basic research, nor are they going 

to. 

Ms. DE RUGY. Some of the distortions that the Government introduces by actually picking and choosing which areas are going to be 

funded, which areas should be researched while others may not. 

Mr. CONNOLLY. Yes, that is true. 

Ms. DE RUGY. And the Government has a knowledge problem. 

Mr. CONNOLLY. Excuse me. Pharmaceutical companies do that 

too, except their motivation is commercial value, as opposed to the 

health value. 

Ms. DE RUGY. Actually, I actually think—— 

Chairman ISSA. This is a wonderful discussion, but I have a feeling it could go back and forth for a very long time. 

Mr. CONNOLLY. Mr. Chairman, I want to thank you for extending 

my time. I just wanted to highlight that. I think this is a really 

important debate because it is a very fundamental one in the 

United States when people say why can’t we all get along? Because 

we have fundamental differences philosophically about the role of 

Government. And while I respect Dr. De Rugy and I certainly love 

George Mason University, which is entirely within my district, I 

couldn’t disagree with her more, fundamentally. Just as you pointed out you disagree with Dr. Thomas, I also disagree with Dr. De 

Rugy and her philosophy. 

Thank you, Mr. Chairman. 

Chairman ISSA. Thank you. If I can enter a colloquy quickly, I 

actually think that all of the panelists have said, in one way or the 

other, that Government is necessary. They all know it causes market distortion and they all have differing views at the level of Government intervention. It could be that you disagree with some of 

the levels. I am sure they disagree with some of the levels I would 

achieve. 

Mr. CONNOLLY. Yes. 

Chairman ISSA. By the way, one of my major constituents produces botox, which was a Government-funded orphan drug that if 

72 

not for the Government looking at a very rare disease, probably 

would not be the blockbuster success it is in other areas. 

Mr. CONNOLLY. That is right. 

Chairman ISSA. So I think we all know that basic research is important. Hopefully here today we are talking about the 16 to 18 to 

20 percent of GDP is that is there a better way to allocate those 

resources. 

Mr. CONNOLLY. Mr. Chairman, I couldn’t agree with you more, 

and I actually commend you. I think we have actually put together 

a panel here that has been very stimulating. It highlights some of 

our differences, but it also asks some provocative questions that 

need to be asked, and I thank the chairman for putting it together. 

Chairman ISSA. Thank you. And then we are going to get back 

to FITAR and real IT reform together. Thank you. 

We now go to the gentleman from Michigan. 

Oh, I am sorry. 

Ms. THOMAS. I wanted, if I may, to add that it is not always just 

the Government that ‘‘distorts’’ the market, that sometimes private 

actors can also drive up prices. And in healthcare a very good example of that is competition among private hospitals, private forprofit hospitals for highly expensive and complex medical equipment that one hospital buys the million dollar piece of equipment 

and they are the only hospital in town with it until the hospital 

next door buys it also, and really there is only enough patients to 

justify one such purchase. So that is one way that private 

healthcare drives up prices sometimes. 

Chairman ISSA. The allocation of resources in healthcare is so 

complex that, to a great extent, the theme of today is is it so complex that neither the public nor the private sector have been able 

to do it. 

I apologize, Dr. Winston, but it have taken too much time of everyone’s. 

The gentleman from Michigan. 

Mr. BENTIVOLIO. Thank you, Mr. Chairman, and thank you for 

holding an important hearing. 

The founders of this Nation understood exactly what some of our 

witnesses have all expressed: Government makes decisions poorly 

because too often politicians and bureaucrats do not have the same 

incentives that the citizenry has. 

I certainly don’t wish to offend my colleagues here, but our Government is inherently made up of those with at least a little hubris. After all, it takes some hubris to believe that you should be 

the representative of the sovereign people of the United States. In 

fact, I have even heard of people campaigning for office simply to 

say that they are Congressman, rather from the hope of protecting 

people’s rights. A hubristic style trumps substance in service of the 

people. 

Unfortunately, Mr. Chairman, that hubris in our leaders sometimes gets out of control and leads to disaster. The President’s 

healthcare reform is the only major reform ever passed by one 

party over a bipartisan opposition. And, boy, Obamacare is certainly turning into a disaster. 

I thank the witnesses for their enlightening testimony. 

73 

Dr. De Rugy, you talk a lot about special interest groups and the 

lack of incentives for politicians to spend taxpayer money wisely, 

stemming from the average citizen not really feeling the pain from 

having the collective money of the Nation wasted. Could this come 

from taxpayers simply not realizing how much money is being 

spent on what departments in Government? 

Ms. DE RUGY. That is one of the reasons. I mean, one of the ways 

the Government expands is by concentrating benefits of Government intervention and spreading the cost thin and wide. So that 

is one of the reasons why we don’t always see that cost. We also 

don’t necessarily see the distortions, or even when we feel them it 

is hard to track it back to a particular Government intervention. 

What is interesting about the ACA—and I am going to make a prediction and we will see whether I am correct—is even when the 

website is completed, it is possible that the Administration is not 

going to get the benefit and the hurray that people are going to feel 

because actually it is a program that is designed the opposite way, 

like the benefits are spread somewhat widely to an audience who 

may not actually be very vocal about how great it is, while the 

costs are highly concentrated and visible to some, which will continue to be vocal. 

Mr. BENTIVOLIO. Thank you. Do you think that if every taxpayer 

received a receipt explaining where their tax money went would be 

useful in granting politicians here in Washington more incentive to 

act more wisely? 

Ms. DE RUGY. More transparency, certainly would be necessary. 

For instance, I would be very happy to see which part of my taxes 

go to farm subsidies. 

Mr. BENTIVOLIO. I couldn’t agree with you more. 

With that, thank you very much. I yield back. 

Chairman ISSA. Would the gentleman yield? 

Mr. BENTIVOLIO. Yes. 

Chairman ISSA. We have had a lively discussion, and I am sure 

we are going to continue to, but, Dr. Winston, in your opening remarks you really did touch on the fact that—and I think it is something that Dr. Thomas also said—monopoly and monopolistic type 

behavior, distortions in the market not just by Government, but the 

inherent distortions that occur in both for-profit and not-for-profit 

hospitals. I happen to have two not-for-profit hospitals nine miles 

apart along its a State highway, but it is built like an interstate, 

and I can’t get them to put one machine that is not emergency-related in one and share; they just don’t do it. Isn’t that part of the 

problem—and I will go to Dr. Winston and maybe back to Dr. 

Thomas—is that healthcare has built, with a system that has very 

little to do with market forces, meaning that market forces already 

didn’t work well in healthcare before we started funding a system 

that didn’t work well from a standpoint of supply and demand? In 

other words, cash is not king; the consumer is not educated to 

make a buy-in; prices are not transparent; cost-effectiveness is not 

easy to discover. 

Dr. Winston? 

Mr. WINSTON. Yes, that is right. There is not distortions, but 

there are wedges, if you will. It is not a simple market, you go to 

a store, you buy something. You are going through a doctor, you 

74 

are going through insurance, so on and so forth. So these wedges 

make efficient, smooth operations—— 

Chairman ISSA. I am going to ask a closing question for all of 

you. If this committee, the committee of transparency in Government spending, if we concentrated our efforts related to the Affordable Care Act on mandating transparency in healthcare so the consumer knew more and the public knew more, would we be well 

spent in then driving, through market awareness, better distribution of dollars and, thus, more efficiency? Any opinion? 

Ms. THOMAS. Yes. 

Chairman ISSA. That is Econ 101, so just go ahead. 

Mr. CALABRIA. Certainly, transparency would help, but you have 

to get the incentives right, too. 

Mr. WINSTON. Incentives are, I think, the critical thing. Information is one thing, but still people have to have incentives and firms 

have to be able to enter, so on and so forth. 

Chairman ISSA. I know people want to buy the best healthcare. 

Hopefully we can also create incentives for them to buy it at the 

lowest possible price. Thank you. 

We now go to the gentleman from Illinois, Mr. Davis. 

Mr. DAVIS. Thank you very much, Mr. Chairman. You know, I 

believe that a good way to measure the greatness of a society is by 

how well it treats its young, how well it treats its elderly, and how 

well after it looks after those who have some difficulty handling 

their affairs effectively themselves. 

Dr. Thomas, as a historian at Johns Hopkins, I am certain that 

you have some insight into the question of whether or not the Federal Government, as I have heard questioned, is able to administer 

large-scale programs effectively. 

Ms. THOMAS. Yes. 

Mr. DAVIS. I have heard comparisons between the Federal or the 

Government and the private sector. So I would like to ask you 

about the Medicare program, which was signed into law by President Johnson in 1965. 

Mr. Chairman, I ask unanimous consent to enter into the record 

an article that appeared in The Washington Post on May 17th of 

this year. 

Chairman ISSA. Without objection, so ordered. I love The Washington Post. 

Mr. DAVIS. Yes, it is a great paper. 

Mr. DAVIS. The article is entitled, When Medicare launched, Nobody Had Any Clue Whether It Would Work. Dr. Thomas, I would 

like to read an excerpt from this article and then get your response. Here is what it says: ‘‘Medicare in these days, an incredibly 

popular program. Americans overwhelmingly oppose cutting it. No 

politician would consider repealing it. Most think providing health 

insurance to all Americans over 65 is worth both the trouble and 

the cost. That was not always true. Back in 1966, as Medicare was 

just about to launch, nobody knew whether the new program would 

provide benefits to millions or fail completely.’’ 

Dr. Thomas, based on this reporting, there was trepidation in 

1966 with the rollout of the Medicare program. Is that correct? 

Ms. THOMAS. That is absolutely correct. 

75 

Mr. DAVIS. Well, the article describes how the American Medical 

Association ran ads across the Country denouncing the program as 

the beginning of socialized medicine, and many people who were 

unfamiliar with the program were suspicious of it. Is that correct? 

Ms. THOMAS. Certainly. 

Mr. DAVIS. The article also describes the implementation effort. 

It says that the Government launched project Medicare Alert, with 

thousands of Federal workers charged with educating people and 

helping them enroll in the program. Is that correct? 

Ms. THOMAS. Yes. They had to go door-to-door to try to reach 

people, of course, before the Internet, who might not know about 

the program and make sure they knew they were eligible. 

Mr. DAVIS. Means they were serious. One of the biggest challenges of that era—— 

Ms. THOMAS. They even asked forest rangers to go out in the 

rural areas. 

Mr. DAVIS.—was with hospitals in States that did not want to 

provide healthcare services to black Americans. I know that this 

has been a focus of some of your research and some of your writing. 

Can you tell us a little bit about how this problem was addressed? 

Ms. THOMAS. Yes. I would say that one of the greatest moral failures of the private health system and, unfortunately, for a time of 

the public system as well was its segregation by race of patients 

and outright denial of care to many Americans in minority groups, 

so that death rates, disease rates, draft rejection rates, many measures were dramatically higher among African-Americans than 

among whites, and there is racial disparity in life expectancy and 

many other health measures that persist to this day. 

Mr. DAVIS. And yet we have been able to overcome all of those 

objections and all of those difficulties where now Medicare is considered a very popular program. Everybody who can get it wants 

it, and I think it just takes a bit of time. It will take some time 

with the Affordable Care Act and ultimately I think that Americans are going to feel the same way about the Affordable Care Act 

that we now feel about Medicare. 

Ms. THOMAS. I do—— 

Mr. DAVIS. And I yield back. 

Chairman ISSA. I thank the gentleman. 

The gentlelady may answer, if you were mid-sentence. 

Ms. THOMAS. Just that it was the combination of the 1964 Civil 

Rights Act and the Medicare-Medicaid Act of 1965 that definitively 

integrated the American healthcare system, and it was much more 

successful in healthcare and has produced some very good results. 

Chairman ISSA. I thank you. 

I now ask unanimous consent that the New Yorker article entitled GOP Healthcare.gov Too Fast Now be placed in the record. 

Without objection, so ordered. 

Chairman ISSA. We now go to the gentleman from Arizona, Dr. 

Gosar. 

Mr. GOSAR. Thank you very, very much. 

Dr. Thomas, just as a background, I am a dentist for 25 years, 

okay? This is going to be very important to kind of keep track of 

this. Is Medicare financially sustainable as is? 

Ms. THOMAS. No. 

76 

Mr. GOSAR. Is Medicaid financially stable as is? 

Ms. THOMAS. No. 

Mr. GOSAR. Is Obamacare financially stable as is? 

Ms. THOMAS. I can’t answer that question. 

Mr. GOSAR. It’s a no. Is Romneycare financially viable as is? No. 

Ms. THOMAS. I don’t know. 

Mr. GOSAR. No. I mean, you are a historian. You better know. 

You are very flippant with the statistics, and I am about details. 

And Romneycare isn’t financially stable. The only reason it has 

lasted so long is it is from a rich State. That is it. So aren’t they 

very close to go to a single payer? 

Ms. THOMAS. I am sorry, is Romneycare close to a single payer? 

Mr. GOSAR. Massachusetts. 

Ms. THOMAS. Yes. 

Mr. GOSAR. Yeah. That is what I thought. That is how they keep 

hinting in this way. 

I am looking at three problem-solvers here, and that is what is 

key about this thing, is that when you have a problem, you always 

go to lowest common denominators to figure them out. Wouldn’t 

you agree? 

Ms. THOMAS. I am not sure what you mean by lowest common 

denominators. 

Mr. GOSAR. Well, you figure out all the parts that are part of the 

problem, you go to the lowest basis and you come up with core 

principles and build upon simple simplicity. Wouldn’t you agree? 

Ms. THOMAS. Okay. Sure. 

Mr. GOSAR. Would you agree, Dr. De Rugy? 

Ms. DE RUGY. [Nonverbal response.] 

Mr. GOSAR. Dr. Winston? 

Mr. WINSTON. [Nonverbal response.] 

Mr. GOSAR. Dr. Calabria? 

Mr. CALABRIA. [Nonverbal response.] 

Is it possible, the three of you, is that actually possible today in 

the Federal Government to do that? Quick answer. 

Mr. WINSTON. No. 

Ms. DE RUGY. No. 

Mr. GOSAR. I want to agree with you, because we talked about 

monopolies, we talked about noncompetitive bids, we talked about 

all sorts of things. Is there tort reform in this bill, Dr. De Rugy? 

Ms. DE RUGY. No. 

Mr. GOSAR. Is it part of the problem? 

Ms. DE RUGY. I guess part of it. 

Mr. GOSAR. Dr. Winston? 

Mr. WINSTON. Yes. 

Mr. GOSAR. Dr. Calabria? 

Mr. CALABRIA. [Nonverbal response.] 

Mr. GOSAR. Hey, how about you, Dr. Thomas? 

Ms. THOMAS. It is part of the problem, but politically—— 

Mr. GOSAR. No, I don’t care about politically. 

Ms. THOMAS. Okay. 

Mr. GOSAR. Because you know what? It has to be part of the solution here, okay? 

77 

Number two is we brought up monopolies. Do you think that we 

have handled, Dr. Thomas, the monopolies of insurance industries 

properly in Obamacare? I’ll give you a minute to catch that answer. 

How about you, Dr. De Rugy? 

Ms. DE RUGY. No, absolutely not. 

Mr. GOSAR. Actually, the Federal Government is prohibited from 

interceding in insurance companies by McCarran-Ferguson, is it 

not? 

Ms. DE RUGY. Yes. 

Mr. GOSAR. Dr. Winston? 

Mr. WINSTON. Yes. 

Mr. GOSAR. So do you see a need for actuarial tables? I mean, 

1945 I see actuarial tables being a necessity; we didn’t have good 

computers back then. But today you have an algorithm, your own 

facts, a computer, you should be able to do it on your own, don’t 

you think Dr. De Rugy? 

Ms. DE RUGY. [Nonverbal response.] 

Mr. GOSAR. Dr. Winston? 

Mr. WINSTON. Times change. 

Mr. GOSAR. Absolutely. 

Dr. Calabria? 

Mr. CALABRIA. Yes. 

Mr. GOSAR. So, I mean, one of the key principles here is that we 

have a collusive environment, right? 

Ms. DE RUGY. Yes. 

Mr. GOSAR. Oh. Is any part of this bill talking about repealing 

McCarran-Ferguson? 

Mr. WINSTON. No. 

Mr. GOSAR. Let me ask you, Dr. De Rugy, because my colleague 

from Virginia asked a question. Government intervention would be 

great here, because in this aspect the Federal Government now 

intercedes and breaks up the monopoly, sends it back to the State, 

would it be, Dr. De Rugy? 

Ms. DE RUGY. Yes, it would be. 

Mr. GOSAR. Dr. Winston? 

Mr. WINSTON. A quick point, if I could just say, is we are looking 

to Government to correct distortions. There is too much emphasis 

on the distortions it ‘‘creates,’’ but its main job is to correct the distortions. That is the problem we are having. 

Mr. GOSAR. That is exactly, redirect it. So I am getting to this. 

Dr. Calabria, do you want to comment on that? 

Mr. CALABRIA. I would absolutely agree with that. We need to 

allow competition, particularly across State lines, in terms of bringing competition to the insurance market. 

Mr. GOSAR. Wow. I mean, I want to turn the insurance industry 

free because they are harnessed right now. 

Ms. DE RUGY. Or create a level playing field. 

Mr. GOSAR. What is that? 

Ms. DE RUGY. Create also a level playing field between employer 

tax credit and individual market. 

Mr. GOSAR. Thank you. 

Dr. Thomas, can we treat out way out of this epidemic of 

healthcare? 

Ms. THOMAS. Can we—— 

78 

Mr. GOSAR. Can we treat our way? 

Ms. THOMAS. Treat? No. You have to prevent. 

Mr. GOSAR. Oh, absolutely. So what we have actually done is, 

what I have shown you right here through distortions is, we have 

actually priced primary care out of the marketplace. From 1965 on, 

what we started doing is taking the lowest common denominator, 

which is the private family doctor, and priced them out of the market so that you weren’t making any money. And that my good 

friend highlighted about the committee that redresses CMS, but 

CMS redirects the reimbursement rate for medical. 

There is a reason I brought up dentistry. Can you tell me about 

the inflationary aspects of dental costs over 30 years versus medical costs over 30 years? Inflationary. Which one is higher? 

Ms. THOMAS. Dental costs have stayed much more in line with 

inflation. 

Mr. GOSAR. That is right. And medical more than 20 times. What 

is the thing that is interesting about the two healthcare models, 

one has lots of government, almost entirely Federal Government, 

and one has very little Federal Government. Wouldn’t you say that, 

Dr. Thomas? 

Ms. THOMAS. Yes. But the nature of dental care is largely preventive and not anywhere near as expensive as the medical care 

system, so I don’t think you can compare apples to oranges. 

Mr. GOSAR. Oh, yes we can. Oh, absolutely. It is paradox that we 

do this, because in the dental model there is many more primary 

care physicians than there are specialists. Today, what we have 

done is reinversed the whole payment model to be a specialist, not 

a primary care doctor. That is key. 

Mr. WINSTON. If I could just quickly add one additional point to 

what you are getting at. Dental schools and medical schools. Dental 

schools are closing, and there is less availability of dentists. That 

too is affecting the market. I would say a similar kind of restriction 

also exists in medical care in the sense that you still have an entry 

barrier and a license to provide service and I think the combination 

of those things are also increasing the costs, and there is another 

area where Government could intervene to reduce distortions. 

Mr. GOSAR. Oh, absolutely. 

Chairman ISSA. I thank the gentleman. Suffice to say that the 

Affordable Care Act does not have preventive dentistry in it, which 

perhaps was one of the mistakes. 

With that, we go to the gentlelady from New Mexico. 

Ms. LUJAN GRISHAM. Thank you, Mr. Chairman. I really appreciate this hearing. I think it is demonstrating on both sides of the 

aisle these principles: one, the healthcare system is incredibly complicated, so complicated, in fact, that, when each of us are identifying situations, historical facts, spending trends, it is very difficult 

to say whether that is a private market issue in and of itself or a 

Government issue. Some of the best programs that are most costeffective are where the Government and the provider system, 

whether that is local or Federal, are effective, that partnership is 

effective. When it is not effective, you have all kinds of things that 

we can point to, and members have done this throughout the hearing, demonstrated that the private market, the insurance market 

on its own certainly hasn’t solved any of these problems and has 

79 

gotten increasingly more expensive, so has the provider system. 

The Government systems we can talk about, they have had fluctuations in productive outcomes and not so productive. Some States 

have great public health outcomes, some States do not. 

So, for me, I think that I sort of changed how I want to approach 

the panel. One, I agree with the chairman that we need to do much 

more in transparency, and being able to, apples to apples, talk 

about those effective investments, whether that is policy, regulatory, oversight, transparency, marketing, consumer protection; it 

is all of those. 

I do want to point out that in the conversations that we have had 

about life expectancy, what we haven’t talked about is what sort 

of investments public health has gotten at the same time. Because 

if you look at sustainable effective, that is both in terms of 

amounts and what they are directed at in public health, because 

States also make significant public health policy decisions, although the bulk of their money largely comes from the Federal 

Government because States haven’t picked up that role because in 

the United States we don’t put a lot of credence in public health, 

which is the largest effort we could take to do productive, low-cost 

preventative care. And while there are incentives to do that in public and community health in the Affordable Care Act, we will have 

to see whether it is, frankly, enough, because like in all of the 

things that we have done in the United States, we have seven, 

eight, nine, ten independent systems of care that we try to then 

roll into one and try to make sense out of it, and I don’t think that 

you can. And where we go from here I think this committee and 

others are going to have to play a much more significant role in 

getting that addressed. 

So maybe, given that I only have a couple minutes left, I just 

want to sort of re-ascertain a couple of things from the panel. One, 

that the private market, by itself, in all of those aspects that I 

identified, insurance companies, providers, hospitals, for-profit, notfor-profit, by itself has not been able, globally, to do any of the 

things that I just described; provide access, lower cost, improve outcomes, provide consumer protection, and affect policy in a way that 

would be meaningful from oversight to better regulatory reform. 

True? Not true? 

Ms. THOMAS. True. 

Mr. CALABRIA. I would say not true. 

Ms. LUJAN GRISHAM. Okay. 

Mr. WINSTON. Not true. 

Ms. DE RUGY. I would say not true. 

Ms. LUJAN GRISHAM. All right. And I believe that it is true, and 

I have 30 years. I don’t have any of your expertise from your particular aspects, but I navigate healthcare even in this job every single day, and no matter what, it is getting increasingly more complicated. And I would submit that if any of you have—does anybody 

on the panel have a family member on Medicare or Medicaid? 

Ms. THOMAS. Yes. 

Mr. CALABRIA. Yes. 

Ms. DE RUGY. My family members are in France. 

Ms. LUJAN GRISHAM. So arguably better than Medicare. So the 

two that have family members on Medicare, if Medicare was gone, 

80 

would you be able to finance that family member’s healthcare on 

your own? 

Ms. THOMAS. Absolutely not. Both my parents died of cancer and 

their care was subsidized completely by Medicare, and they would 

not have been able to have that care without Medicare. 

Mr. WINSTON. I don’t think we know what the system would look 

like without Medicare. So you are asking me for an imaginary 

world that I don’t have an option of really choosing. 

Ms. LUJAN GRISHAM. Right. And I am almost out of time, but 

also the reality is, and that is my point, that we know that none 

of these systems are sustainable as they are. We know that without 

Medicare the private market rates would be much higher because 

we would have to figure out what we would do with all of those 

elderly sick people who would also be increasingly accessing emergency rooms and hospitals without any primary or preventative or 

routine care. And that is before you get to their acute care or 

chronic care issues that are covered by Medicare. 

We have to start figuring out how all of those systems impact the 

private market, or the lack thereof. The sicker people are in the 

private market, the higher those costs are. The higher those costs 

are, limited access to providers. Rural and frontier States are a 

whole different issue. 

So now that I am out of time, and I really appreciate the chairman’s support, I would love to see this committee do lots more in 

transparency. I would love to talk about the models for dental care. 

There is in fact oral healthcare in the Affordable Care Act; it is pediatric. We are really going to have to talk about better integration 

for all of these models, and I would support the chairman and this 

committee spending much more time in healthcare issues such as 

this hearing than not. So thank you very much. 

Mr. GOSAR. [Presiding.] You get no qualm from me at all. 

I would like to acknowledge the gentleman from Oklahoma, Mr. 

Lankford. 

Mr. LANKFORD. Thank you, Mr. Chairman. 

Thank you all for the time and the conversation. Can we agree 

on a principle that is economic-wide, I guess, or economy-wide, and 

that is fair competition is better for the consumer than price controls? 

Ms. THOMAS. Yes. 

Ms. DE RUGY. Yes. 

Mr. LANKFORD. Can that translate into healthcare? 

Ms. THOMAS. Yes. 

Ms. DE RUGY. Yes, it can. 

Mr. LANKFORD. So then the challenge is how does that get managed. If the goal is the benefit to consumer, the patient at this 

point, and to provide fair competition and to provide multiple 

voices and as much transparency as you can have in it, there are 

some issues that are coming up currently right now with our system that get in the way of that. For instance, I know the chairman 

mentioned earlier this issue of testing reimbursement. If you do, 

right now, in our system, according to CMS, if you do a histology 

test, a test for skin cancer or whatever it may be, outside of a hospital, your reimbursement is 50 percent less than it is inside a hospital. So the incentive there is is to do all the testing for the hosVerDate Aug 31 2005 10:20 Mar 20, 2014 Jkt 000000 PO 00000 Frm 00084 Fmt 6633 Sfmt 6633 C:\DOCS\87022.TXT APRIL
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pitals inside because their rates weren’t cut, for the big hospitals; 

they were for every small lab all around the Country, by 50 percent. Does that promote fair competition? 

Is it cheaper to do that test in a hospital or is it less expensive 

to do that test in an outside lab, typically? I would submit it is 

probably more expensive to do it in a hospital. I don’t know that 

anyone would disagree with that. They are also reimbursed now 50 

percent more. So there is this, again, leaning in to the larger hospitals. 

In the Affordable Care Act, it caps the growth of physician-owned 

hospitals. It set a date for them and said however many rooms you 

have at this point, you have to remain at that. So physician-owned 

hospitals are at a permanent disadvantage to the hospital down the 

street forever. Is that fair competition? Does that benefit the consumer? Does that help us in price and cost and benefit consumers? 

I don’t hear anyone saying that would benefit the consumers. No? 

Ms. THOMAS. There have been some problems with physicianowned hospitals that are part of why that measure was passed, but 

I won’t—— 

Mr. LANKFORD. Was the problem with the patient or—because 

seven of the ten top hospitals in the Country are physician-owned 

hospitals, even still right now. But all of them will be capped in 

the days ahead and refused to grow; they can’t expand. So while 

patients may choose to do that, the Affordable Care Act steps in 

and says, no, I don’t want more competition; I want less competition. To me, that doesn’t benefit the consumer; that doesn’t benefit, 

in this case, the taxpayer, even, who is now paying the bill on it, 

where we are going to pay a higher price at a hospital than we 

would in the lab. We are going to pay a higher price in this facility, 

this one. And I am not denigrating those, it just is a step into it 

to say we want less competition rather than more, and that doesn’t 

seem to work anywhere else. 

Durable medical equipment right now, there was a decision by 

CMS to have fewer companies provide durable medical equipment 

because it is easier to oversee fewer companies. A large central government can’t oversee thousands of durable medical equipment 

companies, so you need to have fewer companies so the Federal 

Government can oversee that for fraud. 

Right now, our payments out to companies where we can’t verify, 

or individuals, not fraud, just inaccurate payments, we are topping 

$50 billion in inaccurate payments through Medicare and Medicaid 

at this point. Can you make that more efficient by putting the controls for that closer to the payment location, closer to those individuals? So that may be a State that oversees that, rather than the 

Federal Government, instead of having to track it from Washington, D.C. Does it make it more efficient to oversee those things 

from a State or local municipality, or to try to do it all from a central location? 

Ms. DE RUGY. The State would make more sense. 

Mr. LANKFORD. So if we are going to go after inaccurate payments, is it better to make those decisions closer, and check for 

fraud and check for inaccuracies closer, rather than a centralized 

location? It seems like everybody is onboard with that. These are 

some of the challenges that we have. 

82 

While we can talk about some of the healthcare issues, there is 

a basic principle of economics that we want fair competition and we 

want to increase competition, and the Affordable Care Act is reducing the number of opportunities out there, reducing the number of 

places, so we are actually reducing the amount of competition and 

we are saying, every area of the economy, free and fair competition 

works well except in healthcare, where we have to have more price 

controls, because that is ‘‘different.’’ 

In Oklahoma City right now we have two hospitals that have all 

of their prices online for their procedures. It started with one hospital that did it. And the push to get all your prices online has now 

pushed another hospital to say, okay, we will put all of our prices 

online as well, and be able to detail out. What was interesting, the 

first hospital that did it, I talked to the gentleman that runs the 

hospital, he said we were surprised when we put all of our prices 

online. Guess who came first? The Canadians. The Canadians came 

first to our hospital. We suddenly became a spot for medical tourism because they were tired of waiting six months in Canada for 

a procedure, so they would fly to Oklahoma City, have the procedure done there, when they knew exactly what the price was and 

to be able to fly home. 

It is the same thing that is happening right now in our Veterans 

Administration. I have veterans call my office all the time. It takes 

six months for them to get a knee replacement or they could cross 

the street and go to a fantastic hospital, OU Medical Center, and 

get it done on Tuesday. But for some reason we have this concept 

that we have to do price controls and have to do central control because this is healthcare, when in everything else it seems to work 

well with free and fair competition. We have to find a way to do 

this. 

Integris Hospital in Oklahoma City is one of the best transplant 

hospitals in the world; fantastic facility, incredibly well run. People 

come from all over the place to come to it because of the quality 

of the services and the openness of what they do. We have to be 

able to push back on some of this. 

With that, I yield back. 

Mr. GOSAR. I want to take off on that for a second. Could you 

explain to me, Dr. Thomas, why a procedure done out in a family 

doctor’s procedure under Medicare is billed under Medicare Part A, 

but then the same procedure by a physician under a hospital is 

billed under Medicare Part B? You can’t defend that. And that is 

what is happening. We are allowing, willy-nilly, these rules to be 

unequivocally violated right and left. It is the same procedure. 

Buildings, each office has their own space to have to look at in 

overhead. So there is no reason why you have to allow hospitals to 

get reimbursements that sometimes double the price of a Medicare 

Part A aspect. 

One other thing that I wanted to highlight in your earlier testimony. It is not just about emergency rooms, is it, about access to 

care? I thought that was under federally qualified health centers, 

that your ability to pay could not stem you from not getting treatment. Is that true? Federally qualified health centers have a sliding fee scale in which they have to see you, but not based upon 

your ability to pay. It is. I mean, I served kitty-corner from one for 

83 

many, many years. So there are more opportunities out there than 

meets the eye. 

The gentleman from California, Mr. Cardenas. 

Mr. CARDENAS. Thank you very much, Mr. Chairman. I would 

like to thank the panel for availing yourselves to this committee so 

that we can hopefully improve on our understanding of what is 

going on with healthcare in our Country. 

But there has been a lot of discussion today, and I guess rightfully so, because the hearing title is The Limitations of Big Government, the Rollout of Healthcare.gov. So a lot of discussion has been 

about Government and whether or not Government has a role. But 

earlier in a discussion, as a result of a question from one of my colleagues, the three non-healthcare expert panelists, all of you 

seemed to agree that private sector is more efficient than Government when it comes to providing services and/or systems to Americans. Is that consistent with what your answers are today? 

Mr. WINSTON. When the goal is to provide an economically efficient product or service, yes. You have to be very clear on what you 

are trying to do. In other words, the market is not great at necessarily providing some specific targeted service to a particular individual who can’t pay for it. The market may not do that. So, 

again, you have to be very clear on what your objective is. But generally, if you are talking more about the efficient production and 

provision of goods and services, yes, I think the evidence is overwhelming that the market is superior for Government. In fact, Government rarely corrects those problems. 

Mr. CARDENAS. Any of the other panelists want to clarify? 

Mr. CALABRIA. I would pretty much agree with that and clarify 

the point that certainly the market, I think, has proven itself to be 

of lower cost and have more innovation. I think it is incredibly important to parse out that a lot of times what we are talking about 

is an income problem. And again, as I said earlier, all resources 

have cost. If someone has zero income, that is not a market failure; 

they can’t afford those goods. You could make the same thing about 

Government. If you had a group of people with zero income, obviously they can’t pay taxes to support Government either. We don’t 

call that a Government failure. So I do think we need to separate 

out the difference between are we talking about a problem that is 

purely of poverty? Are we talking about a failure of the healthcare 

system? And those are two separate issues and I think we combine 

them, quite frankly. 

Ms. DE RUGY. I agree with what has been said, but I would like 

to add that Government very often, even when there is, let’s say, 

we see a role like providing healthcare for low-income people who 

couldn’t get it on their own, doesn’t do that very well either. I 

mean, we have been talking about expanding Medicaid, but there 

has been no discussion about health outcome for people who are in 

Medicaid. And a lot of the things that I have read, whether it was 

the Oregon study, it is like it is not a desirable outcome, or it could 

be improved; and I think we need to also talk about outcomes 

versus just providing delivery. 

Mr. CARDENAS. Well, I just wanted to clarify. Fortunately, all 

three of you do provide a service when it comes to the exercise of 

trying to understand where Government should or should not be 

84 

playing a role. However, the fundamental problem that we have in 

this Country with the private sector is that the private sector has 

the right to ignore who they serve and where they draw the line 

at how much they are going to charge or not serve at all. Yet, in 

our Government, in this Country, in many cases the Government 

has passed legislation and created laws that say we are not going 

to ignore. For example, an extreme case is when somebody shows 

up to an emergency room in this Country. 

I don’t know how they do it in other countries, it is a big world, 

but in this Country, if somebody shows up in the emergency room, 

that provider of service, private or public, is required to stop the 

bleeding, regardless of the cost and regardless of the ability to pay. 

And that is the fundamental difference that I have with having a 

discussion that tries to have a purity of discussion about how Government doesn’t have a role in XYZ, yet at the same time the private sector would do a better job or perhaps would provide better. 

But the fundamental problem that we have is, especially when it 

comes to healthcare, the private sector has the right, insurance 

company A has the right to tell person B if they approach that 

company and say I would like to apply for insurance, they have the 

right to say, mm-mm, we checked all of what we provide, we cannot provide service for you, we are not going to insure you. They 

have the right to do that. 

And fundamentally we have anywhere between 40 to 50-plus million people in this Country who, some of them, fall into that category that, no matter how hard they are going to try, the private 

industry is not going to provide for them; and that is where the Affordable Care Act is trying to thread that needle and saying is 

there a way in which, in this great Country, we can actually provide that to some of those 40 to 50 million people, and not all, to 

some of those 40 to 50 million people that on the natural, as the 

system is before the Affordable Care Act is in full bloom, that those 

private sector corporations have the legal right to say, sorry, we 

don’t have a policy for you, go to the next place or do whatever you 

wish, but don’t come here. 

Dr. Thomas, is that an accurate portrayal of what one of our dilemmas is right now in this Country, that we are trying to tackle? 

Ms. THOMAS. Yes. 

Mr. CARDENAS. I am out of time, so, Mr. Chairman, they are welcome to answer. 

Mr. GOSAR. The witnesses may answer if they would like to answer. 

Mr. CARDENAS. Thank you very much. 

Mr. WINSTON. What you are characterizing is something what we 

call in economics merit goods. That is, these are goods that American society believes, goods and services, that people are entitled to 

regardless of whether they can afford them or not. 

I think what has changed over time is, yes, the Government can 

step in and say, given democratic outcomes, we support the provision of these goods or services. We are now discussing and thinking 

about, okay, given that that is the case, what is the least cost way 

of providing those goods and services? I think people might think 

it is through the Government. So the question about Medicare is 

saying if we didn’t have Medicare, what would happen to people? 

85 

You have to construct what we call a counterfactual, that is, really 

construct what would have happened in the absence of the policy. 

So increasingly people are saying, Marty Feldstein is most notably, 

saying if we had private health accounts, that might be able to 

achieve the goals that Medicare is trying to achieve at lower cost. 

And I think the questions we are raising about ACA and I think 

the debate will follow, universal coverage, fine. What now is the 

least cost way of doing that? 

Mr. CARDENAS. Mr. Chairman, if I may, I appreciate that accurate portrayal of arriving at ideal solutions, but unfortunately we 

live in a very dynamic, humanistic world where ideal solutions will 

perhaps never be attained. 

Thank you. I yield back. 

Mr. GOSAR. I thank the gentleman. 

I would like to recognize the gentleman from Pennsylvania, Mr. 

Cartwright. 

Mr. CARTWRIGHT. Thank you, Dr. Gosar. I want to thank the 

chairman and Ranking Member Cummings for putting together 

this fascinating panel and allowing this interesting philosophical 

discussion that we have been having. Also thank you to my colleague, Mr. Cardenas, for weighing in on that as well. 

For my own part, I will say I think the Government of the 

United States of America has been responsible for some of the most 

innovative and successful programs the world has ever seen. When 

we talk about Social Security, we talk about a program that has 

lifted people out of poverty, as you have said, Dr. Thomas. When 

we talked about Medicare, same thing, a program that has enabled 

regular people to avoid medical bankruptcy, to qualify for treatment, as in the case of your parents, Dr. Thomas. And so many 

Americans depend on Social Security and Medicare. I will be an 

unceasing advocate for both of those programs, as well as other 

Federal programs. 

Our interstate highway and rail system transports millions of 

people daily, safely. The Environmental Protection Agency ensures 

clean drinking water and breathable air for Americans. Our brave 

soldiers in the military put together a program that is the envy of 

the free world, our American military, our soldiers and sailors. The 

Consumer Product Safety Commission ensures that Americans feel 

secure in their purchases. The Federal grants, loans, and work 

study funds provided to our students enable higher education to become a reality for millions of Americans. 

And then when we get to this ACA, absolutely it has been a 

rocky rollout and, in my view, we are going to have further work 

to do on it. We may well be tinkering with the ACA for years to 

come, but my view is and my prediction is that history will look 

kindly back on the Affordable Care Act as just another in a long 

line of examples of American greatness. 

Dr. Thomas, I want to follow up with you. I would like to ask 

you about Social Security a little bit. You touched on it. The implementation of that program was hugely controversial at the time, in 

the 1930s, and not without its own challenges, but today, like 

Medicare, it is obviously an extremely admirable, successful, and 

popular program. I have an article here that was published on OcVerDate Aug 31 2005 10:20 Mar 20, 2014 Jkt 000000 PO 00000 Frm 00089 Fmt 6633 Sfmt 6633 C:\DOCS\87022.TXT APRIL
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tober 28, 2013, and it is entitled What About Social Security’s Rollout. 

Dr. Gosar, I ask unanimous consent that this article be inserted 

into the public record. 

Mr. GOSAR. So ordered. 

Mr. CARTWRIGHT. Dr. Thomas, this article describes many of the 

problems facing Social Security in its first several years, and it 

compares them to what we are seeing now in the ACA. For example, the article says this: ‘‘After the Nation’s major social program 

finally became law, critics regularly blamed it for slowing the economy and a swelling of the Federal bureaucracy. Fierce congressional opposition led to the formation of a blue ribbon panel to 

overhaul Social Security. Obamacare, in 2013? Not quite. It was 

Social Security in 1937.’’ 

Dr. Thomas, it seems obvious, but would you agree that the implementation of a large-scale Federal Government program like Social Security takes time? 

Ms. THOMAS. I would agree, and I would also add that anything 

that is ambitious that will actually enact real change is bound to 

encounter problems. 

Mr. CARTWRIGHT. Well, I want to go on quoting the article. ‘‘Created in 1935, the Social Security program took 40 years just to include all working Americans in its basic coverage. When old-age insurance program launched in 1937, barely more than half of the 

labor force participated. A series of amendments to the Social Security Act gradually expanded the coverage and by 1979 it finally 

reached over 90 percent of American workers.’’ 

Dr. Thomas, the history of Social Security implementation seems 

to support the idea that the Government is in fact capable of effectively administering a large-scale program like this that helps millions and millions of Americans. Would you agree with that? 

Ms. THOMAS. Yes. The administration of the program has evolved 

over time, but is certainly working smoothly at this point, and Social Security has evolved over a period of more than 70 years. For 

instance, the amendments to include domestic and agricultural 

workers, to make sure that they were covered, they weren’t passed 

until, I believe, 1950 because there was such political opposition in 

the south previous to that, when the law was passed originally. So 

over time new priorities are brought into the law that improve its 

function. 

Mr. CARTWRIGHT. And I say let’s work together and improve the 

ACA and make it work for us over time. 

With that, I yield back, Dr. Gosar. 

Mr. GOSAR. Well, I want to let Dr. De Rugy answer a question. 

She wanted to answer one of your questions. 

Ms. DE RUGY. What I wanted to say about Social Security was, 

and that is one of the problems with Government, is like sometimes Government creates a program because there is an actual 

need, and the problem is you then go back 60 years later and that 

need may not be there for a majority of the people it serves, but 

then the problem stays in place. And that is the case. Fifteen Federal agencies have run a state of seniors in America right now and 

you can see that their conditions have dramatically improved, and 

yet this program still serves everyone as if everyone is in poverty. 

87 

The other thing I would add is that if Democrats like Social Security so much, why not try to reform it? This is a system that is 

bankrupt. In 2035, and probably before, when the trust fund expires, the prediction is that benefits will have to be cut across the 

board by 25 percent. The people who will be hurt the most are the 

people, the seniors who, at the time, still actually are poor. So I 

want to say if we think it is a program that provides a valuable 

service to seniors who are poor, why not reform to make sure that 

when that time comes they will not be the ones hurt the most? 

Mr. GOSAR. Dr. Winston, did you want to make a comment? 

Mr. WINSTON. No. 

Mr. GOSAR. How about you, Dr. Calabria? 

Mr. CALABRIA. I was going to add. Veronique touched on this, but 

I do think we have talked about the benefits of Medicare, Social Security, and these programs, but again, as mentioned, I will echo 

something that the gentleman from Illinois, Representative Davis, 

said about the young and the elderly. Programs that leave trillions 

of dollars of debt for the young to pay off, programs that make 

promises to the elderly that cannot be kept, that is not compassion, 

in my view. 

Mr. GOSAR. That is creating cripples. 

I just want to ask you, Dr. Thomas—I have a few extra moments 

and the privilege of sitting in the chair—are we healthier as a Nation right now? 

Ms. THOMAS. Healthier than when? 

Mr. GOSAR. Oh, let’s talk about the 1930s. Rising rates of diabetes? Was diabetes as high then as it is now? 

Ms. THOMAS. We have dramatically improved life expectancy—— 

Mr. GOSAR. So let me ask you another question. Compared to 

other industrialized nations, how healthy are we? Let’s compare diabetes. 

Ms. THOMAS. Well, I can tell you off the top of my head that the 

infant mortality—— 

Mr. GOSAR. No, we are not comparing apples to apples here. 

Ms. THOMAS. I am going to agree with you. 

Mr. GOSAR. I want to talk to you about obesity. 

Ms. THOMAS. Okay. 

Mr. GOSAR. Let’s talk about obesity. Let’s not change the subject, 

let’s go directly to apples-to-apples. Obesity. 

Ms. THOMAS. Fortunately, the obesity epidemic has leveled off 

and is beginning to improve, but, yes, that is a major healthcare 

problem. 

Mr. GOSAR. I would disagree on that. Diabetes? 

Ms. THOMAS. Also a major healthcare problem. 

Mr. GOSAR. Absolutely. So I want to bring you back to talking 

about—— 

Ms. THOMAS. They are diseases of affluence. 

Mr. GOSAR. What is that? 

Ms. THOMAS. They are diseases of affluence. 

Mr. GOSAR. I don’t know about that. You know, good eating policy, I am one of those guys. I am Celiac Sprue, by the way, so I 

am allergic to wheat and gluten, so that is why I am kind of the 

incredible shrinking guy. But we have to have patient accountability in this process. For example, for me, as Celiac Sprue, I have 

88 

a seven day greater chance of getting any type of lymphoma. Okay? 

So what we want to do is have prevention. So what I want to see 

is I want an insurance come to me and say, listen, Dr. Gosar, we 

know that early detection of lymphoma is the best way and the 

cheapest way, so we are going to give you some incentives to come 

and have a physical twice during three years, and if you do that 

we are going to give you a kickback for doing that. You 

reincentivize good behavior. It is like our eating, our snack program. I have some problems with our snack program. Don’t you? 

All that sugary stuff on those? I mean, you are public health. Come 

on, now. 

Ms. THOMAS. I would definitely like to improve that, yes. 

Mr. GOSAR. Okay, so tell me what is on the WIC program that 

everybody shouldn’t be on? Women, infants, and children; complex 

carbohydrates, complex proteins. Why shouldn’t we be all on that? 

Ms. THOMAS. Well, some of us can’t eat that without getting sick. 

Mr. GOSAR. Name one. Name one diet that you won’t get sick on. 

I am cautioning you once again, this is my forte, so if it is good 

enough for women, infants, and children—— 

Ms. THOMAS. Give me some specific examples. 

Mr. GOSAR. I am asking you for specific examples. You said—— 

Ms. THOMAS. I don’t have the WIC formulary in my head, I am 

sorry. 

Mr. GOSAR. Oh, it is complex proteins and complex carbohydrates, so there are no simple sugars, maybe outside of a few 

fruit choices. I think if you are on government assistance, we 

should be all on the WIC program. Don’t you think? If it is good 

enough for women, infants, and children, I am just telling you, 

those are one of the groups that was highlighted today, one of the 

weakest groups here, that if it meets a criteria of meeting that formulation for—— 

Ms. THOMAS. But they have different nutritional needs than everybody else. I am not sure where you are going. 

Mr. GOSAR. Not necessarily. No, not necessarily. Can you tell me 

the public health mantra, was it a success in Indian Health Services? I mean, you heard about the integration for African-Americans. Tell me about the Indian Americans. It was a disaster. It has 

not been great. In fact, part of the trust obligations from the Federal Government was to work in concert with the Tribes, not to dictate to them. Isn’t it true that the Tribes have an option out of 

ACA because of self-determination, and they are taking it? They 

are actually building their own hospitals. They are doing their own 

thing because they want to breed the aspect of prevention and patient accountability. 

Ms. THOMAS. And you say the Indian Health Service has not 

done that? 

Mr. GOSAR. They haven’t. I mean, I am from Indian country. I 

can tell you that right now. The Navaho Nation and the San Carlos 

Tribe, they are all privatizing, because Government came in and 

said these are the services we are going to give you, regardless of 

what you want, we are going to do this accordingly, and it was a 

failure. 

Thirty percent of my patient base in my practice came to me to 

pay for my services because they valued them. Because they could 

89 

have got it free from the Federal Government and they refused. 

There is something to learn from that experience there, and I hope 

that you go back and look at your notes, because some of the things 

you are citing aren’t exactly factual historically. 

Last comments. Dr. De Rugy, from the standpoint of this hearing, is there anything that you would like to comment in regards? 

Ms. DE RUGY. No. I mean, I think that we need to remember 

that even when the Government is well intentioned, a lot of the 

ways that it intervenes actually goes even against the goal that 

they have set of themselves, and we also need to remember that 

it always introduces distortion and that Government officials, unfortunately, have a great incentive to listen to interest groups. 

Mr. GOSAR. So it is not about whether the Government is involved, it is a balance, wouldn’t you say? 

Ms. DE RUGY. Sorry? 

Mr. GOSAR. Trying to find a balance of Government involvement. 

Ms. DE RUGY. Well, I think one of the things that we have 

learned is that Government fails, and one of the best ways to prevent them is to actually limit the purview of Government intervention. 

Mr. GOSAR. And maybe hold people accountable for things poorly 

done. 

Ms. DE RUGY. Absolutely. 

Mr. GOSAR. Dr. Winston, final comments. 

Mr. WINSTON. My final comments are that an awful lot of the 

discussion has been looking backward; there has been reference to 

history, Medicare, Social Security, things done in the past. The 

world changes, and I think it is probably more important to start 

looking forward, the future, looking for new ways in which we want 

to try to do things, recognizing that, yes, maybe in a different time 

Government was effective in doing something, initiating, doing it, 

but things change. And if there are other ways in which we can try 

to achieve the goal we are trying to do it, particularly with the 

market, we should be experimenting and be more open-minded to 

the fact that we don’t have to be wedded to the past and look for 

new ways of doing things. 

Mr. GOSAR. I like that aspect. You always have to look at your 

past before you go forward, because you are doomed to repeat the 

past if you don’t. 

Dr. Calabria. 

Mr. CALABRIA. I will end with maybe summarizing a few points. 

First of all, of course, I think sometimes there is a bit of a 

strawman aspect to the market not being perfect, the Government 

not being perfect. Of course, as we know, there are no perfect institutions; they all have their flaws, and I think we need to find the 

better that works out of any of those institutions. 

I will reiterate a point I made a couple times before, which is I 

do think that there is a confusion between what is essentially a 

poverty problem and a failure of various markets. If you have zero 

income, you can’t afford anything. That doesn’t mean that all of 

those markets are failing. And, again, the way to address that is 

to try to address poverty directly, which I will say, as an aside, I 

think the overwhelming evidence across countries and across hisVerDate Aug 31 2005 10:20 Mar 20, 2014 Jkt 000000 PO 00000 Frm 00093 Fmt 6633 Sfmt 6633 C:\DOCS\87022.TXT APRIL
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tory is if you really, seriously want to reduce poverty, extending the 

market is the way to do it, and creating wealth in that regard. 

Finally, we often sort of hear a moral argument made. I will be 

very clear that my preference oftentimes for markets is not simply 

an issue of efficiency. But I believe that markets are, by and large, 

based on consensus, where I believe it was the gentleman from Virginia made the point about us not getting along. Well, the part of 

us not getting along is you can use the Government to force me to 

do things I don’t want to; whereas, in the marketplace, for me to 

sell you something, I have to come to a price in agreement and 

terms on which you agree. So my goal as a generality is how do 

we try to build society more on consensus and cooperation, rather 

than coercion. 

Mr. GOSAR. And customer service. 

Dr. Thomas, your last comments. 

Ms. THOMAS. Well, I would agree with I believe it was Ms. Grisham who said that the health system works best when Government 

and nonprofits and for-profits all cooperate in the most efficient 

way, and that is what I am advocating. I also agree with Dr. Winston, who said times are changing, and even as a historian I don’t 

think that we can do things exactly the way they did in 1935. But 

I think a sign that things really are changing is that the American 

Medical Association, which has opposed every national health insurance proposal since 1939, in 2010, supported the Affordable 

Care Act, and, in fact the AMA’s executive vice president, Michael 

D. Maves, admitted that we don’t believe that maintaining the status quo is an acceptable option for physicians or the patients we 

serve. I think that is a very important turning point that we are 

at. 

Mr. GOSAR. I don’t think anybody will disagree that what we 

have as status quo would work. I am here because of that. I just 

don’t think the solution that we have on the table works, because 

we didn’t get everything on the table put on the table. At that time, 

the AMA represented about 18 percent of all physicians across the 

Country, hardly a vote of acknowledgment. And I think they are 

actually rescinding that aspect now; they don’t particularly care 

about that, if I am not mistaken. So statistics can be used a certain 

way. 

The last thing I would like to say is that when we look at problems, problem-solvings, we have to look at where our costs are 

spent. You made a comment about we are spending a lot of money. 

In Medicaid and Medicare, the dual eligibles are the ones we are 

spending the most money on, and these are problem-solvings that 

we want the best of the best. And there are two pools, there are 

the seniors that are so poor with Medicaid and Medicare, and there 

are the youngers that have real chronic conditions like multiple 

sclerosis and that aspect. It is ingenuity that sets us free, and that 

is why I came back to McCarron-Ferguson, okay? I want to turn 

the insurance industry upside down. I want them to be revolutionized to compete for my dollars, because I want new incentive programs based on me, customer service. That is one of the things 

that we have to get back to. Not Government dictated, but good 

customer service; patient-centered, patient-friendly. When we put 

all the market factors working on behalf of people, not making 

91 

them cripples but to empower them to make health choices, they 

win. 

Ms. THOMAS. But how can you turn that insurance industry upside down without an outside force? 

Mr. GOSAR. That is why I said McCarron-Ferguson. 

Ms. THOMAS. Okay. 

Mr. GOSAR. I want choice. My choices are very different, as I 

elaborated, versus somebody else’s. So breaking up the common denominator, if all of us are physicians here, we can’t collude on 

prices. Okay? But insurance companies do. Okay? So what I want 

to do is I want to see the innovation within the insurance industry 

and show me what I don’t even know. They are the experts in that. 

I am an expert in dentistry. I want them to show me what is possible, because I haven’t dreamed it yet. Neither have you; neither 

has anybody here. 

What I see at this panel is the people that bring the building 

blocks of what you can envision as success, and we haven’t got it. 

And what I think we saw from this panel is Government can’t do 

that. When you talk about monopolies, noncompetitive bidding 

practices, Davis-Bacon, it goes on and on and on. I mean, look at 

the bid process of this website. There was no competitive bid. Tell 

me that a Davis-Bacon job is different than a private sector job. It 

isn’t. But it is 22 percent, on average, higher. It doesn’t make any 

sense today. So we should be big people today and ask that all the 

pieces be put on the table. It is not a Republican, it is not a Democratic issue; it is an American issue, putting it out there and having a transparent discussion. We haven’t that. And until we do, we 

are not going to get a solution. 

Thank you very much for this panel and we stand adjourned. 

[Whereupon, at 12:26 p.m., the committee was adjourned.] 

(93) 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

94 


Insert offset folio 36 here 87022.036

ONe HUNDRED THlR'TEENTH CONGReSS 

(ttongre1S1S of tfje llniteb ~tate1S 

~Oll~t ot l\tpre~entatibe~ 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

2157 RAYBURN HOUSE OFl'ICE BUILDING 

WASHINGTON, DC 2051s-E1143 

..... ......., 

""'*-I'~ 'a-· ...... , l"lp;q~ .. -.~~ 

Opening Statement 

Ranldng Member Elijah E. Cummings 

Hearing on "The Roll Out of HealthCare.gov: The Limitations of Big Government" 

December 4, 2013 

Thank you, Mr. Chairman, and welcome to our witnesses here today. 1 look forward to 

an informative and spirited discussion. 

According to the Chairman's invitation letters, today the Committee will eXamine "the 

instilutionallJmitations on the efficacy of government action." And our case study will be the 

rollout of the HealthCare.gov website. The flmdamental presumption underlying this hearing is 

that the federal governmeut is somehow incapable of successfully administering large-scale 

programs. In fact, the Republican staff briefing memo challenges "government's ability to 

effectively design, implement, and administer large scale projects and programs." 

The problem with this presumption is that it does not take into account the many 

extremely successful government programs that have helped millions of Americans throughout 

our history. 

In 1935, President Roosevelt signed into law the Social Security Act-the centerpiece of 

our social safety net. When it first launched, critics panned its confilsing procedures, and Jess 

than half of the labor force participated. Over time, however, it has reached 90% of American 

workers and has been expanded to cover the self-employed, to incillde dependent and survivor 

benefits. and to provide for cost of living adjustme.nts. 

Thirty years later, in 1965, Piesident Johnson signed Medicare into law. Like the Social 

Security rollout, there were challenges initially, and the American Medical Association called it 

"the beginning of socialized medicine." The federal government bad to negotiate with hospitals, 

nursing homes, and insurance companies, and it had to coordinate with all SO states. Eventually, 

93% of eligible seniors enrolled in Medicare, and the program has been expanded and improved 

several times since then. 

Forty years aftet that, in 2005. President Bush signed into law the prescription drug 

program under Part D of the Medicare law. Like Social Secudty and Medicare before it, this 

drug program also exparienced challenges in its rollout. Newspaper headlines were dire, stating 

"Confusion Reigns Over Drug Plans," "Not Ready for Prime Time," and "Prescription-Drug 

Plan Part D Gets an Early 'F.''' 
95 


Insert offset folio 37 here 87022.037

In all of these cases. early setbacks were resolved. critics were proved incorrect. and 

these programs are now immensely popular with the American people. But more importantly. 

they prevented out nation's seniors from dying penniless and homeless. They provide a basic 

level of security to the American people where the prIvate sector failed to do so. 

The same is true of the Affordtible Care Act. The private insurance market discriminated 

for decades against people with preexisting conditions. Insurance companies threw people off 

existing plans when they discovered evidence of previOUS illnesses that patients themselves did 

not know about. But now, thanks td the ACA, millions of Americans who could not get health 

insurance in the private market now have access to it. 

In terms oftoday's hearing, I think everyone understands what is going on. The 

Republicans want to use the initial challenges willl the HeslthCare.gov website to make a 

broeder argument that the federal government cannot administer large-scale programs effectively 

and that we are all better off leaving things to the private sector. But we have tried that, and it 

simply does not work. 

I believe the premise for today'a hearing is fundamentally flawed. Our country's 

experience with Social Security in 1935. Medicare in 1965, and the prescription drug program in 

2005 demonstrates that our government·is fully capable of overcoming initial problems with the 

implemeutation of programs that help millions of peol'le in their daily lives. 

ThIs premise becomes even more absurd when you look at OU1' nation's broader history. 

In the 19408. we mobilized our entixe colmtry-our people, our industry, and our worker&---m 

defeat the Nazis and the Japanese in World War II. In the 1960s. we tapped the best and 

brightest minds in government and the private sector to build a space program that put a man on 

the moon· for the first time in human history. Our government does not always work as well es it 

should. but it is certainly capable of great things when there is a strong commitment to the 

lmderlying goals we all share. 

In the case of tho ACA, we all know that one component of the rOll01.1t-the 

HeslthCare.gov website-did not work as it should have. But we also know from testImony 

before this Cornmittee that another componenl-the complicated interagency data hub that most 

experts worried about-worked much more smoothly. And that is II testament to the strong work 

of the agencies and contractors involved. 

As we go forward, I hope we can all work together to solve any problems that arise in 

order to improve the program so it works effectively and efficiently. In that way. we can honor 

the commitment we made in the Affordable Care Act to help people who could not get heslth 

insurance to obtain it now. I look forward to hearhlg from loday's witnesses. 

Contact: Jennifer Hoffman, COlUmunications Director, (202) 226·5181. 

2 
96 


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12i4f13 Alexander Fleming. VViktredia, the free ency;iopedia 

Sir Alexander 

F~eming, fRSE, (6 August 

1881-11 March 1955) was a 

k~own dlsco\-Bries are the erzymslysozyme in 

1923 and 

the all~ibiotic 5ubstanceoeniciiiin from the 

moultfPenicf/litlm notetumin1928, for 'wHcl1M 

shared the Nobel?ti"e in Physiology Of' 

Medicine in 1945 with Howard ;:ioray .and Ernst 

Boris GhainJ11 

Contents [hide] 

1 Biograpoy 

1.1 EarlyHfe and education 

L2 Research 

1.2.1 Work before penidilln 

1.2.2 .A.cddenta! discovery 

1.2.3 Purification and stab!!isation 

1.2.4 Antibiotics 

1.3 Personal life 

1 . .1. Death 

2 Honours, awards and achievements 

3 See also 

4 Bibliography 

5 References 

6 External links 

Early life and education [edit] 

Died 

Sir Alexander Fleming 

fRSE, fRS, fRCS(Engl 

11 March 1955 (aged 73) 

London, England 

Citizenship United Kingdom 

Natjonality Scottish 

Fields Bacteriology,lrrrruno!ogy 

Alma mater 

Known for Oscovery of peniclilin 

Notable Nobel Prize In Rlysiology or 

awards rvledidne (1945) 

Signature 

Ctt.;~ 

Fleming was bam on 6 August 1881 at Lochfteld farm near DaMI, in Ayrshire, Scotland. He 

was the third of the four children of farmer Hugh Fleming (1816-1888) from his second 

marriage to Grace Stirling Morton (1846-1928), the daughter of a neighbouring farmer. Hugh 

Fleming had four su",,,n9 children from his first marriage. He was 59 at the time of his 

second marriage, and died when Alexander (known as Alec) was se""n. 

Fleming went to Loudoun Moor School and DaMI School, and eamed a two-year scholarship 

to KilmarnocK Academy before mo"ng to London, where he attended the Royal Polytechnic 

Instilution)2] After working in a shipping office for four years, the twenty-year-old Fleming 

inherited some money from an uncle, John Fleming. His elder brother, Tom, was already a 

116 
97 


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p~ySiC<"" .c ~ '"3;, ... e: :o h:. yo",~~" ';~'''9 ,hal ~e /o!I<>w t~e '""'" c~ e .... AM .O itI 

1903. toe ),<:unge ' ':'Iexander eo.'\Ol:ed al S, fl.ar/ s !;Os"la Mec'Cai SC1:X, ,n ~~~~",~:'n. 

he quali~ Od ""Ih an 'E::S dog'" from tM . chool W-'h di.:inctioc ;"1900. 

Fleming hbO been .. ~<il al .;" II>e o"~n S:: I:i, h R..,,,e'>1 d ,he VOl~nt .. r F:;.-ce since 

1900,! '! I nd I'IaC been I "",,,,toe< 01 the ,;~ . eM > al tM medic al sct.ooi, The caPtain 01 :~ .. 

Clu~ . ",fj.'llic retain Fleming i.n 'he learn . ugge. tOd to.o, M loin ,he research d<r""'~,,""'" a, 

51 Mary'" _e he be<:ame . .. ist. m * :erloI<:>\l,.t to S~ Aln ot~ Wriiil" . a p<oo ..... 

in\QCcine tllera!», ond imm1JJlOlogy .... 1008. M gained. SSe dell'"'" with Gold Me~ 

.,Sacle:iclogy. &lid _. llee l ....... al S t M"'Y'S <mI. 1914, On n Decembo< 1915. 

Flemir.g mamOd a \r .. """ n ...... 5ara.~ Marion McElroy oIKir.al •• Coun:y M.yo. Il'el.....:!. 

Flem>ng sef\O!(j througlIOuI Wood Wac I u a cs;>Ia;n in t/'oe ~al Army rJ06cal ec:.;.' , , 0<1 

was Mer\1:or>ed irI "'s;>at:nes. !-Ie and marl\' of his coIl. ague. """'Od in banletleld hospilals 

at tM VieSlem ~rom in France. 11 1915 he relL.WT>ed 10 5 l Mary's Hospital. """"" he ""'S 

elected Proles.OI 0/ Bact eriology oI lhe l.IMefsity 01 Lor.<lcn in 9~a 

Research (ed;l] 

Work be lore penicillin [edil[ 

FoI~ng World War I. Fleming acli;e/y searche<j for ."t>-bacleria! &genIS. ha\Ong wilMsSed 

lhe death 0( many so/diert. Irorn s epsis resulting i-om mlee:ed W<M>dS. Antiseptics killed It>e 

patients· imm~ defet>ce s mo:n ec1i\&~ tharlll>ey kined \he irn8ding bacteria. II> an 

article I>e s ubmitted for tne medical journal The LltIlCer during Wa1d War I, Fleming 

described .... inOCnious ex~. which fie was able (0 CPnOOe1 as a result oI ltis <>I'T! 

glaS$ t;:.IoMng s kills. ~...tkh he e>plained ""y antiseptic. _ killing more sol<li"", (han 

inleclion ~self <bing World W", I. An~Seplics ...ned """I on the svrt>ce. but deep.......-..:lS 

e~ to shell'" ~~frQm fhe antisec>lic agent. and ""';sec>lic. seemed (0 

remo..e benetci!II agents prtdoced (hat ptQIected the pet,""l, in 1heSe case. at leasl as well 

a. he~ ~ ~C1erla , and CIid notNng to I'ifnO\O! the baoll!ri8lh11t.....e oot ofraach. 

SirAlm,oIh Wr;ghl s(rongl ~ sl4'POl1ed Fleming's finding •• but despile this. most """Y 

physicians 0'0eI' the COOSSe of the war conliJ>Jed lo use anh>eplics ""'" ;., cases wkere lI>is 

VoO'Sened the condition of (I>e pa(ienls 

Accide ntal dis~ov .. ry (edil[ 

Main ~i<:II>' HislOI)I 01 ~ri lllin 

"W""" 1 _e up iust all..- dawn on 5eplembe< 

28. 1928. I ce<1airiy~' plan to relOlulionise all 

m&dieine tIy IlilCO\&flng t"" wOOd'. ! f$t antibk>lic. 

Ot bacteria kiUer." FWning -.ld lat.". say. "Bull 

s uppose lhal was 8C ~ ..nalldid.-I3J 

By 1927. Fleming was in .... sliga.ting \he properties 

0/ st~oc:oc:ci. lie was already wetl4<"""", tom 

his e..-tier wort. and had cIeIeIoped a repula1iort 

as a brilliant .... aarcltitr, biJlltis lIIboraIory W3!I 

oil$(] ....... idy , On 3 Sep1embet 1928. Fleming 

returned lo his Iabco;o\ory M\ing spent August an 

I>oliday with his family , Belin Ie.~ng. he I'IaC stacked all III. cull ....... oIsta.,nylococci on a 
98 


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12f4!13 A1e>ander Flemng - Wildpedia, the free ency:::!opeeia 

Fleming 

fDund that it prodLced a substance th3I killed a number 

identified the mould as being from the genus j and, 

it "mouldjufc;:;;" named the substance it released on"7 

laboratory I'n \vhlch Flemi:lg discoYBred and tested penicHlin is preserved 3S 

Lsboratar:! in St. Ma,j's Hospital. Paddington. 

He in\f8stigated its posjtj\.<e anti-bacteria! effect on many organisms, and noticed that it 

affected bacteria such as staphylococci and many other pathogens that 

causescarlet and but not ~yphoid fe'.AS'r or :)ara~yphdd 

rever, which are caused by Gra'li-negat:ve bactena, for which he was seeking a cure at the 

time. It also affected Neisseria g:;norrhoeae, which causes gonorrhoea although this 

bacterium is Gram-negative. 

Fleming published his disco""rf in 1929, in the British Journal of Experimental 

Pathology,f61but little attention was paid to his article. Fleming continued his in""stigations, 

but found that cultivating penicillium was quite difficult, and that after ha;jng grown the mould, 

it was even more difficult to Isolate the antibiotic agent. Fleming's impression was that 

because of the problem of producing it in quantity, and because its action appeared to be 

rather slow, penicillin would not be important in treating infection. Fleming also became 

con;jnced that penicillin would not last long enough in the human body (in vivo) to kill 

bacteria effecti""ly. Many clinical tests were inconclusi"" probably because it had been 

used as a surface antiseptic. In the 1930s, Fleming's trials occasionally showed more 

promise,[7J and he continued, until 1940, to try to interest a chemist skilled enough to further 

refine usable penicillin. Fleming finally abandoned penicillin, and not long after he did, Howard 

Florey andErnst Boris Chain at the Radcliffe Inunnery in Oxford took up researching and 

mass-producing it, with funds from the U.S. and British go",mments. They started mass 

production afier the bombing of Pearl Harbor. By D-Day in 1944, enough penicillin had been 

produced to treat all the wounded in the Allied forces. 

Purification and stabilisation [edit] 

In Oxford, Emst Boris Chain and Edward 

Abraham discovered how to isolate and 

concentrate penicillin, Abraham was the first to 

propose the correct structure of 

penicillin,18l19lShortly after the team published its 

first results in 1940, Fleming telephoned Howard 

Florey, Chain's head of department, to say that he 

would be ;jsiting within the next few days. When 

Chain heard that he was coming, he remarked "Good God! f thought he w.3S dead .• 

Nonnan Heatley suggested transferring the acll", ingredient of penicillin back into water by 

changing its acidity. This produced enough of the drug to begin testing on animals, There 

were many more people In""l",d in the Oxford team, and at one point the entire Dunn School 

was fn\Olved in its production. 

en'Aikipedia,org!vJWfPJexanderJleming 
99 


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12/4113 

Chain; vithout Chain no 

Antibiotics 

Fleming's accidental discovery and isolation of 

penicillin in September 1928 marks the start of 

modem antibiotics. Before that, seVBral scientists 

had published or painted out that mould 

orpeniciffium sp. were able to inhlblt bacterial 

growth, and even to cure bacteria! infections in 

animal (Ernest Duchesne in 1897 in his thesis 

"Contribution to the study of IAtal competition in 

micro-organisms: antagonism between moulds 

and mlcrobes",I11J or also Clodomiro Picado 

Twight whose work at Institut Pasteur in 1923 on 

the inhibiting action of IUngi of the "Penicillin sp" 

genre in the growth of staphylococci drew little 

interest from the direction of the Inslitut at the 

time). Fleming was the first to push these stutiies 

fT"ethod slrri!ar to FJeoing's discovery 

further by isolating the penicillin, and by being motivated enough to promote his discolery at 

a larger scale. Fleming also discolered lery early that bacteria deleloped antibiotic 

resistance wheneler too little penicillin was used or when it was used for too short a 

period.Aimroth Wright had predicted antibiotic resistance elen before it was noticed during 

experiments. Fleming cautioned about the use of penicillin in his many speeches around the 

world. He cautioned not to use penicillin unless there was a properly diagnosed reason for it 

to be used, and that if it were used, newr to use too Httle, or for too short a period, since 

these are the circumstances under which bacterial resistance to antibIotics develops. 

Personal life [edit] 

The popular story[12] of Winston Churchill's father paying for Fleming's education after 

Fleming's father saled young Winston from death is false. According to the 

biography,Penicillin Man: Alexander Fleming and the Antibiotic Revolution by Ka,;n Brown, 

Alexander Fleming, in a lette~13J to his friend and col/eague Andre Gratia,f14] described this 

as "A v.ondrous fable." Nor did he sale Winston Churchill himself during World War It 

Churchill was saled by Lord Moran, using sulphonamides, since he had no experience with 

penicillin, when Churchill fell ill in Carthage in Tunisia in 1943. The Daily Telegraph and 

the Morning Post on 21 December 1943 wrote that he had been saled by penicillin. He was 

saled by the new sulphonamide drug, Sulphapyridine, known at the time under the research 

code M&B 693, disco'Rred and produced by May & Baker Ltd, Dagenham, Essex - a 

en.v.iklpedia.orgfV>.ikiJAjelGnder ]!erning 416 
100 


Insert offset folio 42 here 87022.042

12!4i13 

Flemi!lg's first wife, Sarah. died in 

ma's,,: :or:e,. After Sarahs 

Death [edit} 

In 1955, Fleming died at his home in London of a 

Cathedra).L17j 

apparatus for preparing penicillin. 

discovery of penicillin had changed the world of 

modem medicine by introducing the age of 

usefulantibiotics; penicillin has saved, and is still 

sa,,;n9, millions of people around the worldV8j 

The laboratory at St Mary's Hospital where 

Fleming discovered penicillin is home to 

theFleming Museum, a popular London attraction. 

His alma mater, St Mary's Hospital Medical 

School, merged with Imperial College London in 

1988, The Sir Alexander Fleming Building on 

He was buried in St Paul's 

Faroe Islands starrp cOl1Tl"enurating 

Rerring 

theSouth Kensington campus was opened in 1998 and is now one of the main preclinical 

teaching sites of the Imperial College School of Medicine, 

His other alma mater, the Royal Polytechnic Institution (now the University ofWestminsterj 

has named one ofits student halls of residence Alexander Fleming House, which is near 

taOld Street. 

5'6 
101 


Insert offset folio 43 here 87022.043

1214113 AleJGanderFlemng - WWperia, the tee enc)dopedia 

• Fleming, Florey and Chain jointly recei'ved the f\obel pr.ze in Medicine in 1945. According 

to the rules of the Nobel committee a maximum of three people may share the prize. 

Fleming's Nobel Prize medal was acquired by the National Museums of Scotland in 1989 

and is on display afterthe museum re-opened in 2011.[19] 

• Fleming was a member 01 the Pontifical Academy of SCiences.P) 

• Fleming was awarded the Huntenan Professorship by the Royal College of Surgeons of 

England. 

• Fleming was knighted, as a Knight Bachelor, by king George VI in 1944,IZ°J 

• He was made a Knight Grand Cross of the Order of Alfonso X the Wise in 1948. 

• In 1999, Time magazine named Fleming one olthe 100 Most Important People oithe 

20th century, stating: 

" It was a OlScoWry thet would change the course of history. The actiw 

ingredient In that mould, which Fleming named penicillin, turned out to be 

an infection-fighting agent of enonnous potency. When it was finally 

recognized for what it was, the most efficacious life-saling drug in the wond, 

peniCillin would alter forewr the treatment of bacterial infections. By the 

middle ofthe century, Flaming's discolery had spawned a 

hugepharmaceutlcal Industry, churning out synthetic penicillins that would 

conquer some of mankind's most ancient scourges, 

including syphilis,gangrene and tuberculClSisJ21j " • When 2000 was approaching, at least three large Swedish magazines ranked penicillin 

as the mCISt important discowry of the millennium. 

• In 2002, Fleming was named in the BBC's list olthe 100 Greatest Britons following a 

nationwide I<lteJ22] 

" A statue of Alexander Fleming stands outside the main bullring in Madrtd, Plaza de Tores 

de Las VentasJ231 lt was erected by subscription from grateful matadors, as penicillin 

greaUy reduced the number of deaths in the bullring, [23J 

• Remingol<l namesU is a square named after Raming in the uniwrsltY area of 

the Dej1icecommunltY in Prague. 

• A secondary school is named after him in Sofia, Bulgaria. 

• In mid-2oo9, Reming was commemorated on a new series of benknotes issued by 

theClydesda!e Bank; his image appears on the new issue of £5 notes.f241 

• 91006 Fleming, an asteroid in the Asteroid Belt, is named after Fleming. 
102 


Insert offset folio 44 here 87022.044

Washington Monthly 

Tbe Best Care Anywbere 

Ten years ago, veterans hospitals were dangerous, dirty, and scandal-ridden. Today. they're 

producing the highest quality care in the country. Their turnaround points the way toward 

solving America's health-care crisis. 

By Phillip Longman 

Phillip Longman diseusses his book. Best Care Anywhere, with Paul Glastris, Editor in Chief of 

the Washington Monthly. Longman's book was based on this January/February 2005 Washington 

Monthly Article. 

Quick. When you read "veterans hospital," what comes to mind? Maybe you recall the 

headlines from a dozen years ago about the three decomposed bodies found near a 

veterans medical center in Salem, Va. Two turned out to be the remains of patients who 

had wandered months before. The other body had been resting in place for more than 15 years. 

The Veterans Health Administration (VHA) admitted that its search for the missing patients had 

been "cursory." 

Or maybe you recall images from movies like Born on the Fourth of July, in which Tom Cruise 

plays a wounded Vietnam vet who becomes radicalized by his shabby treatment in a crumbling, 

rat-infested veterans hospital in the Bronx. Sample dialogue: "This place is a fuckin' slum!" 

By themid-1990s. the reputation of veterans hospitals had sunk so low that conservatives 

routinely used their example as a kind of reductio ad absurdum critique of any move toward 

"socialized medicine. II Here, for instance, is Jarret B. Wollstein, a right-wing activist/author, 

railing against the Clinton health-care plan in 1994: "To see the future of health care in America 

for you and your children under Clinton's plan," Wollstein warned, "just visit any Veterans 

Administration hospital. You'll find filthy conditions, shortages of everything, and treatment 

bordering on barbarism." 

And so it goes today. If the debate is over health-care reform, it won't be long before some free. 

market conservative will jump up and say that the sorry shape of the nation's veterans hospitals 

just proves what happens when government gets into the health-care business. And if he's a true 

believer, he'll then probably go on to suggest, quoting William Satire and other free marketers, 

that the government should just shut down the whole miserable system and provide veterans with 

health-care vouchers. 

Yet here's a curious fact that few conservatives or liberals know. Who do you think receives 

bigher-quality health care. Medicare patients who are free to pick their own doctors and 

specialists? Or aging veterans stuck in those presumably filthy V A hospitals with their 

antiquated equipment, uncaring administrators, and incompetent staff? An answer came in 2003, 

when the prestigious New England Journal of Medicine published a study that compared 
103 


Insert offset folio 45 here 87022.045

veterans health facilities on 11 measures of quality with fee-for-service Medicare. On all II 

measures, the quality of care in veterans facilities proved to be "significantly better." 

Here's another curious fact. The Annals of Internal Medicine recently published a study that 

compared veterans health facilities with commercial managed-care systems in their treatment of 

diabetes patients. In seven out of seven measures of quality, the V A provided better care. 

It gets stranger. Pushed by large employers who are eager to know what they are buying when 

they purchase health care for their employees, an outfit called the National Committee for 

Quality Assurance today ranks health-care plans on 17 different performance measures. These 

include how well the plans manage high blood pressure or how precisely they adhere to standard 

protocols of evidence-based medicine such as prescribing beta blockers for patients recovering 

from a heart attack. Winning NCQA's seal of approval is the gold standard in the health-care 

industry. And who do you suppose this year's winner is: Johns Hopkins? Mayo Clinic? 

Massachusetts General? Nope. In every single category, the VHA system outperforms the 

highest rated non-VHA hospitals. 

Not convinced? Consider what vets themselves think. Sure, it's not hard to find vets who 

complain about difficulties in establishing eligibility. Many are outraged that the Bush 

administration has decided to deny previously promised health-care benefits to veterans who 

don't have service-related illnesses or who can't meet a strict means test. Yet these grievances are 

about access to the system, not about the quality of care received by those who get in. Veterans 

groups tenaciously defend the VHA and applaud its turnaround. "The quality of care is 

outstanding," says Peter Gayton, deputy director for veterans affairs and rehabilitation at the 

American Legion. In the latest independent survey, 81 percent ofVHA hospital patients express 

satisfaction with the care they receive, compared to 77 percent of Medicare and Medicaid 

patients. 

Outside experts agree that the VHA has become an industry leader in its safety and quality 

measures. Dr. Donald M. Berwick, president of the Institute for Health Care Improvement and 

one of the nation's top health-care quality experts, praises the VHA's information technology as 

"spectacular." The venerable Institute of Medicine notes that the VHA's "integrated health 

information system., including its framework for using performance measures to improve quality. 

is considered one of the best in the nation." 

If this gives you cognitive dissonance, it should. The story of how and why the VHA became the 

benchmark for quality medicine in the United States suggests that much of what we think we 

know about health care and medical economics is just wrong. It's natural to believe that more 

competition and consumer choice in health care would lead to greater quality and lower costs, 

because in almost every other realm, it does. That's why the Bush administration-which has 

been promoting greater use of information technology and other quality improvement in health 

care-also wants to give individuals new tax-free "health savings accounts" and high-deductible 

insurance plans. Together, these measures are supposed to encourage patients to do more 

comparison shopping and haggling with their doctors; therefore, they create more market 

discipline in the system. 
104 


Insert offset folio 46 here 87022.046

But when it comes to health care, it's a government bureaucracy that's setting the standard for 

maintaining best practices while reducing costs, and it's the private sector that's lagging in 

quality. That unexpected reality needs examining if we're to have any hope of understanding 

what's wrong with America's health-care system and how to fix it. It turns out that precisely 

because the VHA is a big, government-run system that has nearly a lifetime relationship with its 

patients, it has incentives for investing in quality and keeping its patients well-incentives that 

are lacking in for-profit medicine. 

Hitting bottom 

By the mid-1990s, the veterans health-care system was in deep crisis. A quarter of its hospital 

beds were empty. Government audits showed that many VHA surgeons had gone a year without 

picking upa scalpel. The population of veterans was falling sharply, as aging World War II and 

Korean War vets began to pass away. At the same time, a mass migration of veterans from the 

Snowbelt to the Sunbelt overwhelmed hospitals in places such as Tampa with new patients, 

while those in places such as Pittsburgh had wards of empty beds. 

Serious voices called for simply dismantling the V A system. Richard Cogan, a senior fellow at 

the Center on Budget and Policy Priorities in Washington, told The New York Times in 1994: 

"The real question is whether there should be a veterans health care system at all." At a time 

when the other hea1th-care systems were expanding outpatient clinics, the VHA still required 

hospital stays for routine operations like cataract surgery. A patient couldn't even receive a pair 

of crutches without checking in. Its management system was so ossified and top-<iown that 

permission for such trivial expenditures as $9.82 for a computer cable had to be approved in 

Washington at the highest levels of the bureaucracy. 

Yet few politicians dared to go up against the powerful veterans lobby, or against the many 

unions that represented much of the VHA's workforce. Instead, members of Congress fought to 

have new veterans hospitals built in their districts, or to keep old ones from being shuttered. 

Three weeks before the 1996 presidential election, in part to keep pace with Bob Dole's promises 

to veterans, President Clinton signed a bill that planned, as he put it, to "furnish comprehensive 

medical services to all veterans," regardless of their income or whether they had service-related 

disabilities. 

So, it may have been politics as usual that kept the floundering veterans health-care .system 

going. Yet behind the scenes, a few key players within the VHA had begun to look at ways in 

which the system might heal itself. Chief among them was Kenneth W. Kizer, who in 1994 had 

become VHA's undersecretary for health, or, in effect, the system's CEO. 

A physician trained in emergency medicine and public health, Kizer was an outsider who 

immediately started upending the VHA's entrenched bureaucracy. He oversaw a radical 

downsizing and decentralization of management power, implemented pay-for-performance 

contracts with top executives, and won the right to fire incompetent doctors. He and his team 

also began to transform the VHA from an acute care, hospital-based system into one that put far 

more resources into primary care and outpatient services for the growing number of aging 

veterans beset by chronic conditions. 
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By 1998, Kizer's shake-up of the VHA's operating system was already earning him management 

guru status in an era in which management gurus were practically demigods. His story appeared 

that year in a book titled Straight from the CEO: The World's Top Business Leaders Reveal Ideas 

That Every Manager Can Use published by Price Waterhouse and Simon & Schuster. Yet the 

mostdrarnatic transformation of the VHA didn't just involve such trendy, 19908 ideas as 

doWnsizing and reengineering. It also involved an obsession with systematically improving 

quality and safety that to this day is still largely lacking throughout the rest of the private healthcare system. 

Amenia's worst hospitals 

To understand the larger lessons of the VHA's turnaround, it's necessary to pause for a moment 

to think about what comprises quality health care. The flrst criterion likely to come to mind is the 

presence of doctors who are highly tralned, committed professionals. They should know a lot 

about biochemistry, anatomy, cellular and molecular immunology, and other details about how 

the human body works-and have the academic credentials to prove it. As it happens, the VHA 

has long had many doctors who answer to that description. Indeed, most VHA doctors have 

faculty appointments with academic hospitals. 

But when you get seriously sick, it's not just one doctor who will be involved in your care. These 

days, chances are you11 see many doctors, including different specialists. Therefore, how well 

these doctors communicate with one another and work as a team matters a lot. "Forgetfulness is 

such a constant problem in the system," says Berwick of the Institute for Health Care 

Improvement. "It doesn't remember you. Doesn't remember that you were here and here and then 

there. It doesn't remember your story." 

Are all your doctors working from the same medical record and making entries that are clearly 

legible? Do they have a reliable system to ensure that no doctor will prescribe drugs that will 

interact harmfully with medications prescribed by another doctor? Is anyone of them going to 

take responsibility for coordinating your care so that, for example, you don't leave the hospital 

without the right follow-up medication or knowing how and when to take it? Just about anyone' 

who's had a serious illness, or tried to be an advocate for a sick loved one, knows that all too 

often the answer is no. 

Doctors aren't the only ones who define the quality of your health Care. There are also many 

other people involved-nurses, pharmacists, lab technicians, orderlies, eVlln custodians. Anyone 

of these people could kill you if they were to do their jobs wrong. Even ajob as lowly as 

changing a bedpan, if not done right, can spread a deadly infection throughout a hospital. Each of 

these people is part of an overall system of care, and if the system lacks cohesion and quality 

control, many people will be injured and many will die. 

Just how many? In 1999, the Institute of Medicine issued a groundbreaking study, titled To Err is 

Human, that still haunts health care professionals. It found that up to 98,000 people die of 

medical errors in American hospitals each year. This means that as many as4 percent of all 

deaths in the United States are caused by such lapses as improperly filled or administered 
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prescription drugs-a death toll that exceeds that of AIDS, breast cancer, or even motor vehicle 

accidents. 

Since then. a cavalcade of studies have documented how a lack of systematic attention not only 

to medical errors but to appropriate treatment has made putting yourself into a doctor's or 

hospital's care extraordinarily risky. The practice of medicine in the United States, it turns out, is 

only loosely based on any scientifically driven standards. The most recent and persuasive 

evidence came from study by Dartmouth Medical School published last October in Health 

Affairs. It found that even among the "best hospitals," as rated by U.S. News & World Report, 

Medicare patients with the same conditions receive strikingly different patterns and intensities of 

care from one another, with no measurable difference in their wellbeing. 

For example, among patients facing their last six months of life, those who are checked into New 

York's renowned Mount Sinal Medical Center will receive an average of 53.9 visits from 

physicians, while those who are checked into Duke University Medical Center will receive only 

20.9. Yet all those extra doctors' visits at Mount Sinai bring no galn in life expectancy, just more 

medical bills. By that measure of quality, many of the country's most highly rated hospitals are 

actually its shoddiest. 

Worse, even when strong scientific consensus emerges about appropriate protocols and 

treatments, the health-care industry is extremely slow to implement them. For example, there is 

little controversy over the best way to treat diabetes; it starts with keeping close track of a 

patient's blood sugar levels. Yet if you have diabetes, your chances are only one-out-four that 

your health care system will actually monitor your blood sugar levels or teach you how to do it. 

According to a recent RAND Corp. study, this oversight causes an estimated 2,600 diabetics to 

go blind every year, and anther 29,000 to experience kidney failure. 

All told, according to the same RAND study, Americans receive appropriate care from their 

doctors only about half of the time. The results are deadly. On top of the 98,000 killed by 

medical errors, another 126,000 die from their doctor's failure to observe evidence-based 

protocols for just four common conditions: hypertension. heart attacks, pneumonia, and 

colorectal cancer. 

Now, you might ask, what's so hard about preventing these kinds of fatal lapses in health care? 

The airline industry, after all, also requires lots of complicated teamwork and potentially 

dangerous technology, but it doesn't wind up killing hundreds of thousands of its customers each 

year. Indeed, airlines, even when in bankruptcy, continuously improve their safety records. By 

contrast, the death toll from medical errors alone is equivalent to a fully loaded jumbo-jet 

crashing each day. 

Laptop medicine 

Why doesn't this change? Well, much of it has changed in the veterans health-care system, where 

advanced information technology today serves not only to deeply reduce medical errors. but also 

to improve diagnoses and implement coordinated. evidence-based care. Or at least so I kept 

reading in the professional literature on health-care quality in the United States. I arranged to 
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visit the VA Medical Center in Washington, D.C. to see what all these experts were so excited 

about. 

The complex' main building is a sprawling. imposing structure located three miles north of the 

Capitol building. When it was built in 1972, it was in the heart of Washington's ghetto, a 

neighborhood dangerous enough though one nursel spoke with remembered having to lock her 

car doors and drive as fast as she could down Irving Street when she went home at night. 

Today, the surrounding area is rapidly gentrifying. And the medical center has evolved, too. 

Certain sights, to be sure, remind you of how alive the past still is here. In its nursing home 

facility, there are still a few veterans of World War I. Standing outside of the hospitai's main 

entrance, I was moved by the sight of two elderly gentlemen, both standing at near attention, and 

sporting neatly pressed Veterans of Foreign Wars dress caps with MIA/POW insignias. One 

turned out to be a survivor of the Bataan Death March. 

But while history is everywhere in this hospitai, it is also among the most advanced, modern 

heaith-care facilities in the globe-a place that hosts an average of four visiting foreign 

delegations a week. The hospitai has a spacious generic lobby with a food court, A TM machines, 

and a gift shop. But once you are in the wards, you notice something very different: doctors and 

nurses wheeling bed tables with wireless laptops attached down the corridors. How does this 

change the practice of meilicine? Opening up his laptop, Dr. Ross Fletcher, an avuncular, whitehaired cardiologist who led the hospital's adoption of information technology, begins a 

demonstration. 

With a key stroke, Dr. Fletcher puils up the medicai records for one ofhis current patients-an 

87·year-old veteran living in Montgomery County, Md. Normally, sharing such records with a 

reporter or anyone else would, of course, be highly unethicai and illegal, but the patient, Dr. 

Fletcher explains, has given him permission. 

Soon it becomes obvious why this patient feels that getting the word out about the VHA's 

information technology is important. Up pops a chart showing a daily record of his weight as it 

has fluctuated over a several-month period. The data for this chart, Dr. Fletcher explains, flows 

automaticaily from a special scale the patient uses in his home that sends a wireless signal to a 

modem. 

Why is the chart important? Because it played a key role, Fletcher explains, in helping him to 

make a difficult diagnosis. While recovering from Lyme Disease and a hip fracture, the patient 

began periodicaily complaining of shortness of breath. Chest X-rays were ambignous and 

confusing. They showed something amiss in one lung, but not the other. suggesting possible lung 

cancer. But Dr. Fletcher says he avoided having to chase down that possibility when he noticed a 

pattern jumping out of the graph generated from the patient's scale at home. 

The chart clearly showed that the patient gained weight around the time he experienced shortness 

of breath. This pattern, along with the record of the hip fracture, helped Dr. Fletcher to form a 

hypothesis that turned out to be accurate. A buildup of fluid in the patient's lung was causing him 

to gain weight. The fluid gathered only in one lung because the patient was consistently sleeping 
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on one side to cope with the pain from his hip fracture. The fluid in the lung indicated that the 

patient was in immediate need of treatment for congestive heart failure, and, fortunately, he 

received it in time. 

The same software program, known as VistA, also plays a key role in preventing medical errors. 

Kay J. Craddock, who spent most of her 28 years with the VHA as a nurse, and who today 

coordinates the use of the information systems at the V A Medical Center, explains how. In the 

old days, pharmacists did their best to decipher doctors' handwritten prescription orders, while 

nurses, she says, did their best to keep track of which patients should receive which medicines by 

shuffiing 3-by-S cards. 

Today, by contrast, doctors enter their orders into their laptops. The computer system 

immediately checks any order against the patient's records. If the doctors working with a patient 

have prescribed an inappropriate combination of medicines or overlooked the patient's previous 

allergic reaction to a drug, the computer sends up a red flag. Later, when hospital pharmacists fIll 

those prescriptions, the computer system generates a bar code that goes on the bottIe or 

intravenous bag and registers what the medicine is, who it is for, when it should be administered, 

in what dose, and by whom. 

Each patient also has an ID bracelet with its own bar code, and so does each nurse. Before 

administering any drug, a nurse must first scan the patient's ID bracelet, then her own. and then 

the barcode on the medicine. If she has the wrong patient or the wrong medicine, the computer 

will tell her. The computer will also create a report if she's late in administering a dose, ffand 

saying you were j11St too busy is not an excuse, ff says Craddock. 

Craddock cracksa smile when she recalls how nurses reacted when they first were ordered to use 

the system. ffOne nurse tried to get the computer to accept her giving an IV, and when it wouldn't 

let her, she said, 'you see, I told you this thing is never going to worko' Then she looked down at 

the bag." She had mixed it up with another, and the computer had saved her from a career-ending 

mistake. Today, says Craddock. some nurses still insist on getting paper printouts of their orders, 

but nearly all applaud the computer system and its protocols. "It keeps them from having to run 

back and forth to the nursing station to get the information they need, and, by keeping them from 

making mistakes, it helps them to protect their license." The VHA has now virtually eliminated 

dispensing errors. 

In speaking with several of the young residents at the VA Medical Center, I realized that the 

computer system is also a great aid to efficiency. At the university hospitals where they had also 

trained, said the residents, they constantly had to run around trying to retrieve records-first 

upstairs to get X-rays from the radiology department, then downstairs to pick up lab results. By 

contrast, when making their rounds at the VA Medical Center, they just flip open their laptops 

when they enter a patient's room. In an instant, they can see not only all of the patient's latest 

data, but also a complete medical record going back as far as the mid-1980s, including records of 

care performed in any other VHA hospital or clinic. 

Along with the obvious benefits this brings in making diagnoses, it also means that residents 

don't face impossibly long hours dealing with paperwork. "It lets these twentysomethings go 
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home in time to do the things twentysomethings like to do," says Craddock. One neurologist 

practicing at both Georgetown University Hospital and the V A Medical Center reports that he 

can see as many patients in a few hours at the veterans hospital as he can all day at Georgetown. 

By this summer, anyone enrolled in the VHA will be able to access his or her own complete 

medical records from a home computer, or give permission for others to do so. "Think what this 

means," says Dr. Robert M. Kolodner, acting chief health informatics officer for the VHA. "Say 

you're living on the West Coast, and you call up your aging dad back East. You ask him to tell 

you what his doctor said during his last visit and he mumbles something about taking .a blue pill 

and white one. Starting this summer, you'll be able to monitor his medical record, and know 

exactly what pills he is supposed to be taking. " 

The same system reminds doctors to prescribe appropriate care for patients when they leave the 

hospital, such as beta blockers for heart attack victims, or eye exams for diabetics. It also keeps 

track of which vets are due for a flu shot, a breast cancer screen, or other follow-up care--a task 

virtually impossible to pull off using paper records. Another benefit of electronic records became 

apparent last September when the drug-maker Merck announced a recall of its popular arthritis 

medication, Vioxx. The VHA was able to identify which of its patients were on the drug within 

minutes, and to switch them to less dangerous substitutes within days. 

Similarly, in the midst of a nationwide shortage of flu vaccine, the system has also allowed the 

VHA to Identify, almost instantly, those veterans who are in greatest need of a flu shot and to 

make sure those patients have priority. One aging relative ofmine-a man who has had cancer 

and had been in and out of nursing homes---wryly reports that he beat out 5,000 other veterans in 

the New London,· Conn., area for a flu shot. He's happy that his local veterans hospital called him 

up to tell him he qualified, but somewhat alarmed by what this implies about his health. 

The VistA system also helps to put more science into the practice of medicine. For example, 

electronic medical records collectively form a powerful database that enables researchers to look 

back and see which procedures work best without having to assemble and rifle through 

innumerable paper records. This database also makes it possible to discover emerging disease 

vectors quickly and effectively. For example, when a veterans hospital in Kansas City noticed an 

outbreak of a rare form of pneumonia among its patients, its computer system quickly spotted the 

problem: All the patients had been treated with what turned out to be the same had batch of nasal 

spray. 

Developed at taxpayer expense, the VistA program is available for free to anyone who cares to 

download it off the Internet. The link is to a demo, but the complete software is nonetheless 

available. You can try it out yourself by going to http://wwwl.va.gov/CPRSdemoi. Not 

surprisingly, it is currently being used by public health care systems in Finland, Germany, and 

Nigeria. There is even an Arabic language version up and running in Egypt. Yet VHA officials 

say they ate unaware of any private health care system in the United States that uses the 

software. Instead, most systems are still drowning in paper, or else just starting to experiment 

with far more primitive information technologies. 
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Worse, some are even tearing out their electronic information systems. That's what happened at 

Cedars-Sinai Medical Center in Los Angeles, which in 2003 tumed off its brand-new, 

computerized physician order entry system after doctors objected that it was too cumbersome. At 

least six other hospitals have done the same in recent years. Another example of the resistance to 

information technology among private practice doctors comes from the Hawaii Independent 

Physicians Association. which recently cancelled a program that offered its members $3,000 if 

they would adopt electronic medical records. In nine months, there were only two takers out of 

its 728 member doctors. 

In July, Connecting for Health-a public-private cooperative of hospitals, health plans, 

employers and government agencies-found that persuading doctors in small- to medium-sized 

practices to adopt electronic medical records required offering bonuses of up to 10 percent of the 

doctors' annual income. This may partly be due to simple techno-phobia or resistance to change. 

But the broader reason, as we shall sec, is that most individual doctors and managed care 

providers in the private sector often lack a financial incentive to invest for investing in electronic 

medical records and other improvements to the quality of the care they offer. 

This is true even when it comes to implementing low-tech, easy-to-implement safety procedures. 

For example, you've probably heard about surgeons who operate on the wrong organ or limb. Socalled "wrong site" surgery happens in about one out of 15,000 operations, with those 

performing foot and hand surgeries particularly likely to make the mistake. Most hospitals try to 

minimize this risk by having someone use a magic marker to show the surgeon where to cut But 

about a third of time, the VHA has found, the root problem isn't that someone mixed up left with 

right; it's that the surgeon is not operating on the patient he thinks he is. How do you prevent 

that? 

Obviously, in the VHA system, scanning the patient's ID bracelet and the surgical orders helps, 

but even that isn't foolproof. Drawing on his previous experience as a NASA astronaut and 

accident investigator, the VHA's safety director, Dr. James Bagian, has developed a five-step 

process that VHA surgical teams now use to verify both the identity of the patient and where 

they are supposed to operate. Though it's similar to the check lists astronauts go through before 

blast off, it is hardly rocket science. The most effective part of the drill, says Bagian, is simply to 

ask the patient, in language he can understand, who he is and what he's in for. Yet the efficacy of 

this and other simple quality-control measures adopted by the VHA makes one wonder.all the 

more why the rest of the health-care system is so slow to follow. 

Why eare about quality? 

Here's one big reason. As Lawrence P. Casalino, a professor of public health at the University of 

Chicago, puts it, ''The U.S. medical market as presently constituted simply does not provide a 

strong business case for quality." 

Casalino writeS from his own experience as a solo practitioner, and on the basis of over 800 

interviews he has since conducted with health-care leaders and corporate health care purchasers. 

While. practicing medicine on his own in HalfMoon Bay, Calif, Casalino had an idealistic 

commibnent to following emerging best practices in medicine. That meant spending lots of time 
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teaching patients about their diseases, arranging for careful monitoring and follow-up care, and 

trying to keep track of what prescriptions and procedures various specialists might be ordering. 

Yet Casalino quickly found out that he couldn't sustain this commitment to quality, given the 

rules under which he was operating. Nobody paid him for the extra time he spent with his 

patients. He might have eased his burden by hiring a nurse to help with all the routine patient 

education and follow-up care that was keeping him at the office too late. Or he might have 

teamed up with other providers in the area to invest in computer technology that would allow 

them to offer the same coordinated care available in veterans hospitals and clinics today. Either 

step would have improved patient safety and added to the quality of care he was providing. But 

even had he managed to pull them oft: he stood virtually no chance of seeing any fmancial return 

on his investment. As a private practice physician, he got paid for treating patients, not for 

keeping them well or helping them recover faster. 

The same problem exists across all health-care markets, and its one main reason in explaining 

why the VHAhas a quality performance record that exceeds that of private-sector providers. 

Suppose a private managed-care plan follows the VHA example and invests in a computer 

program to identify diabetics and keep track of whether they are getting appropriate follow-up 

care. The costs are all upfront, but the benefits may take 20 years to materialize. And by then, 

unlike in the VHA system, the patient will likely have moved on to some new health-care plan. 

As the chief financial officer of one health plan told Casalino: "Why should I spend our money 

to save money for our competitors?" 

Or suppose an HMO decides to invest in improving the quality of its diabetic care anyway. Then 

not only will it risk seeing the return on that investment go to a competitor, but it will also face 

another danger as well. What happens if word gets out that this HMO is the best place to go if 

you have diabetes? Then more and more costly diabetic patients will enroll there, requiring more 

premium increases, while its competitors enjoy a comparatively large supply of low-cost, 

healthier patients. That's why, Casalino says, you never see a billboard with an HMO advertising 

how good it is at treating one disease or another. Instead, HMO advertisements generally show 

only healthy families. 

In many realms of health care, no investment in quality goes unpunished. A telling example 

comes from semi-rural Whatcom County, Wash. There, idealistic health-care providers banded 

together and worked to bring down rates of heart disease and diabetes in the country. Following 

best practices from around the country, they organized multi-disciplinary care teams to provide . 

patients with counseling, education, and navigation through the health-care system. The 

providers developed disease protocols derived from evidence-based medicine. They used 

information technology to allow specialists to share medical records and to support disease 

management. 

But a problem has emerged. Who will pay for the initiative? It is already greatly improving 

public health and promises to bring much more business to local pharmacies, as more people are 

prescribed medications to manage their chronic conditions and will also save Medicare lots of 

money. But projections show that, between 2001 and 2008, the initiative will cost the local 

hospital $7.7 million in lost revenue, and reduce the income of the county's medical specialists 
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by $1.6 million. An idealistic commitment to best practices in medicine doesn't pay the bills. 

Today, the initiative survives only by attracting philanthropic support, and, more recently, a 

$500,000 grant from Congress. 

For health-care providers outside the VHA system, improving quality rarely makes financial 

sense. Yes, a hospital may have a business case for purchasing the latest, most expensive 

imaging devices. The machines will help attract lots of highly-credentialed doctors to the 

hospital who will bring lots of patients with them. The machines will also induce lots of new 

demand for hospital services by picking up all sorts of so-calIed "pseudo-diseases." These are 

obscure, symptomless conditions, like tiny, slow-growing cancers, that patients would never 

have otherwise become aware of because they would have long since died of something else. If 

you're a fee-for-service health-care. provider, investing in technology that leads to more treatment 

of pseudo-disease is a financial no-brainer. 

But investing in any technology that ultimately serves to reduce hospital admissions, like an 

electronic medical record system that enables more effective disease management and reduces 

medical errors, is likely to take money straight from the bottom line. "The business case for 

safety ..• remains inadequate ... [for] the task," concludes Robert Wachter, M.D., in a recent study 

for Health Affairs in which he surveyed quality control efforts across the U.S. health-care 

system. 

Ifhealth care was like a more pure market, in which customers know the value of what they are 

buying, a business case for quality might exist more often. But pw:chasers of health care usuaUy 

don't knOVl', and often don't care about its quality, and so private health-care providers can't 

increase their incomes by offering it. To begin with, most people don't buy their own health care; 

their employers do. COnsortiUIns of large employers may have the staff and the market power 

necessary to evaluate the quality of health -care plans and to bargain for greater commitments to 

patient safety and evidence-based medicine. And a few actually do so. But most employers are 

not equipped for this. Moreover, in these days of rapid turnover and vanishing post-retirement 

health-care benefits, few employers have any significant financial interest in their workers' longterm health. 

That's why you don't see many employers buying insw:ance that covers smoking cessation 

programs or the various expensive drugs that can help people to quit the habit. If they did, they'd 

be being buying more years of healthy life per dollar thanjust about any other way they could 

use their money. But most of the savings resulting from reduced lung cancer, strQke, and heart 

attacks would go to future employers of their workers, and so such a move makes little financial sense. . 

Meanwhile, what employees value most in health care is maximum choice at minimal cost. They 

don't want the boss man telling them they must use this hospital or that one because it has the 

best demonstrated quality of care. They'll be their own judge of quality, thank-you, and they'll 

usually base their choice on criteria like: "My best friend recommended this hospital," or "This 

doctor agrees with my diagnosis and refills the prescriptions I want," or "I like this doctor's 

bedside manner." If more people knew how dangerous it can be to work with even a good doctor 
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in a poorly run hospital or uncoordinated provider network, the premium on doctor choice would 

be much less decisive, but for now it still is. 

And so we get results like what happened in Cleveland during the 19908. There, a wellpublicized initiative sponsored by local businesses, hospitals and physicians identified several 

hospitals as having significantly higher than expected mortality rates, longer than expected 

hospital stays, and worse patient satisfaction. Yet, not one of these hospitals ever lost a contract 

because of their poor performance. To the employers buying health care in the community, and 

presumably their employees as well, cost and choice counted for more than quality. Developing 

more and better quality measures in health care is a noble cause, but it's not clear that putting 

more information into health-care markets will change these hard truths. 

Health ror service 

So what's left? Consider why, ultimately, the veterans health system is such an outlier in its 

commitment to quality. Partly it's because of timely, charismatic leadership. A quasi-military 

culture may also facilitate acceptance of new technologies and protocols. But there are also other 

important, underlying factors. 

First, unlil\:e virtually all other health-care systems in the United States, VHA has a near lifetime 

relationship with its patients. Its customers don't jump from one health plan to the next every few 

years. They start a relationship with the VHA as early as their teens, and it endures. That means 

that the VHA actually has an incentive to invest in prevention and more effective disease 

management. When it does so, it isn't just saving money for somebody else. It's maximizing its 

own resources. 

The system's doctors are salaried, which also makes a difference. Most could make more money 

doing something else, so their commitment to their profession most often derives from a higherthan-usual dose of idealism. Moreover, because they are not profit maximizers, they have no 

need to be fearful ofnewrecbnologies or new protocOls that keep people well. Nor do they have 

an incentive to clamor for high-tech devices that don't improve the system's quality or 

effectiveness of care. 

And, because it is a well-defined system, the VHA can act like one. It can systematically attack 

patient safety issues. It can systematically manage information using standard platforms and 

interfaces. It can systematically develop and implement evidence-based standards of care. It can 

systematically discover where its care needs improvement and take corrective measures. In short, 

it can do what the rest of the health-care sector can't seem to, which is to pursue quality 

systematically without threatening its own fmancial viability. 

Hmm. That gives me an idea. No one knows how we're ever going to provide health care for all 

these aging baby boomers. Meanwhile, in the absence of any near-term major wars. the 

population of veterans in the United States will fall dramatically in the next decade. Instead of 

shuttering under-utilized VHA facilities, maybe we should build more. What if we expanded the 

veterans health-care system and allowed anyone who is either already a vet or who agrees to 

perform two years of community service a chance to buy in? Indeed, what if we said to young 
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and middle-aged people, if you serve your community and your country, you can make your 

parents or other loved ones eligible for care in an expanded VHA system? . 

The system runs circles around Medicare in both cost and quality. Unlike Medicare, it's allowed 

by law to negotiate for deep drug discounts, and does. Unlike Medicare, it provides long-term 

nursing home care. And it demonstrably delivers some of the best, if not the best, quality health 

care in the United States with amazing efficiency. Between 1999 and 2003, the number of 

patients enrolled in the VHA system increased by 70 percent, yet funding (not adjusted for 

inflation) increased by only 41 percent. So the VHA has not only become the health care 

industry's best quality performer, it has done so while spending less and less on each patient. 

Decreasing cost and improving quality go hand and hand in industries like autos and 

computers-but in health care, such a relationship virtually unheard of. The more people we can 

get into the VHA, the more efficient and effective the American health-care system will be. 

We could start with demonstration projects using VHA facilities that are currently under-utilized 

or slated to close. Last May, the VHA announced it was closing hospitals in Pittsburgh; Gulfport, 

Miss.; and Brecksville, Ohio. Even after the closures, the VHA will still have more than 4 

million square feet of vacant or obsolete real estate. Beyond this, there are empty facilities 

available from bankrupt HMOs and public hospitals, such as the defunct D.C. General. Let the 

VHAtake over these facilities, and apply its state-of-the-art information systems, safety systems, 

and protocols of evidence-based medicine. 

Once fully implemented, the plan would allow Americans to avoid skipping from one health-care 

plan to the next over their lifetimes, with all the discontinuities in care and record keeping and 

disincentives to preventative care that this entalls. No matter where you moved in the country, or 

how often you changed jobs, or where you might happen to come down with an illness, there 

would be a VHA facility nearby where your complete medical records would be available and 

the same evidence-based protocols of medicine would be practiced. 

You might decide that such a plan is not for you. But, as with mass transit, an expanded VHA 

would offer you a benefit -even if you didn't choose to use it. Just as more people riding 

commuter trains means fewer cars in your way, more people using the VHA would mean less 

crowding in your own, private doctor's waiting room, as well as more pressure on your private 

health-care network to match the VHA's performance on cost and qUality. 

Why make public service a requirement for receiving VHA care? Because it's in the spirit of 

what the veterans health-care system is all about. It's not an entitlement; it's reco.gnition for those 

who serve. America may not need as many soldiers as in the past, but it has more need than ever 

for people who will volunteer to better their communities. 

Would such a system stand in danger of becoming woefully under-funded. just as the current 

VHA system is today? Veterans comprise a declining share of the population, and the number of 

Americans who have personal contact with military life continues to shrink. It is therefore not 

surprising that veterans heatth-care issues barely register on the national agenda, even in times of 

war. But, as with any govermnentbeuefit, the broader the eligibility, the more political support it 

is likely to receive. Many veterans will object to the idea of sharing their health care system with 
115 


Insert offset folio 57 here 87022.057

non-vets; indeed, many already have issues with the VHA treating vets who do not have combatrelated disabilities. But in the long run, extending eligibility to non-vets may be the only way to 

ensure that more veterans get the care they were promised and deserve. 

Does this plan seem too radical? Well, perhaps it does for now. We'll have to let the ranks of the 

uninsured further swell, let health-care costs consume larger and larger portions of payrolls and 

household budgets, let more and more Americans die from medical errors and mismanaged care, 

before any true reform of the health-care system becomes possible. But it is time that our debates 

over health care took the example of the veterans health-care system into account and tried to 

learn some lessons from it. 

Today, the Bush administration is pushing hard, and so far without much success, to get healthcare providers to adopt information technol9gy. Bush's National Coordinator for Health Care 

Information Technology, Dr. David Brailer, estimates that if the U.S. health-care system as a 

whole would adopt electronic medical records and computerized prescription orders, it would 

save as much as 2 percent of GDP and also dramatically improve quality of care. Yet the VHA's 

extraordinary ability to outperform the private sector on both cost and quality suggests that the 

rest of the Bush administration's agenda on health care is in conflict with this goal. 

The administration wants to move American health care from the current employer-based model, 

where companies chose health-care plans for their workers, to an "ownership" model, where 

individuals use much more of their own money to purchase their own health care. But shifting 

more costs on to patients, and encouraging them to bargain and haggle for the "best deal" will 

result in even more jumping from provider to provider. This, in turn, will give private sector 

providers even fewer incentives to invest in quality measures that payoff only over time. The 

Bush administration is right to question all the tax subsidies going to prop up employer-provided 

health insurance. But it is wrong to suppose that more choice and more competition will solve 

the quality problem in American health care. 

VHA's success shows that Americans clearly could have higher-quality health care at lower cost. 

But ifwe presume-and it is safe to do so-that Americans are not going to accept the idea of 

government-run health care any tinie. soon, it's still worth thinking about how the private healthcare industry might be restructured to allow it to do what the VHA has done. For any private 

health-care plan to have enough incentive to match the VHA's performance on quality, it would 

have to be nearly as big as the VHA. It would have to have facilities and significant market share 

in nearly every market so that it could, like the VHA, stand a good chance of holding on to 

customers no matter where they moved. 

It would also have to be big enough to achieve the VHA's economies of scale in information 

management and to create the volumes of patients needed to keep specialists current in 

performing specific operations and procedures. Not surprisingly, the next best performers on 

quality after the VHA are big national or near-national networks like Kaiser Permanente. Perhaps 

if every American had to join one such plan and had to pay a financial penalty for switching 

plans (as, in effect. do most customers of the VHA), then a business case for quality might exist 

more often in the private health-care market. Simply mandating that all health-care providers 

adopt electronic medical records and other quality protocols pioneered by the VHA might seem 
116 


Insert offset folio 58 here 87022.058

like a good idea. But in the absence of any other changes, it would likely lead to more hospital 

closings and bankrupt health-care plans. 

As the health-care crisis worsens, and as more become aware of how dangerous and unscientific 

most of the U.S. health-care system is, maybe we will find a way to get our minds around these 

strange truths. Many Americans still believe that the U.S. health-care system is the best in the 

world, and that its only major problems are that it costs too much and leaves too many people 

uninsured. But the fact remains that Americans live shorter lives, with 

mohttp://www.wasbingtorunonthly.comlfeatures/2007/0710.longman.htmlre disabilities, than 

people in countries that spend barely half as much per person on health care. Pouring more 

money into the current system won't change that. Nor will making the current system even more 

fragmented and driven by short-term profit motives. But learning from the lesson offered by the 

veterans health system could point the way to an all-American solution. 

httj!:/Iwww.wasbingtorunonthly.comlfeaturesl200S/OSO l.1ongman.html 
117 


Insert offset folio 59 here 87022.059

2013-11-29 DEI to Healtb Insurers - Obamacare broken promises due 12-13 (15 letters) 

sent to: 

Mr. William Winkenwerder, Jr. 

Highmark, Inc. 

Mr. J. Bradley Wilson 

BlueCross BlueShield of North Carolina, Inc. 

Mr. Bemard Tyson 

Kaiser Permanente 

Mr. Joseph Swedish 

WeIlPoint, Inc. 

Mr. J. Mario Molina 

Molina Healthcare, Inc. 

Mr. Daniel Hilferty 

Independence Blue Cross 

Mr. Stephen Hemsley 

UnitedHealth Group Inc. 

M$. Patricia Hemingway Hall 

Health Care Service Corporation 

Mr. Patrick: Geraghty 

Blue Cross and Blue Shield of Florida, Inc. 

Mr. Jay Gellert 

Health Net, Inc. 

Mr. David Cordani 

Cigna Corporation 

Mr.Chet Burrell 

CareFirst BlueCross BlueShield, file. 

Mr. BNeI:' Broussard 

Humana, Inc. 

Mr. Broce Bodaken 

Blue Shield of Cali'tbmia 

Mr. Mark Bertolini 

Aetna, Inc. 
118 


Insert offset folio 60 here 87022.060

OAftllfU E, I$S"'. CAL IfORff,A 

CHAII'''*''1f 

JOHNLMICA.fl,OftIOA 

~"~OHIO JOMNJ.. 0lIffCAIIit. A. TENNe-SSE! PA'TMI.C'(T.Met1EHIIY.JWltTH:CAftOl.iI'IA 

JtM.IQIIIWt,OtIIO 

.tASOHCtIAII'tn.UTAH 

llMWA\.liftG.U«:MlGMl 

JAlllf.lANJIl'O!m. onAHOMA JU5llNMlASH,.MU;t4IGAN 

PAm A. OOllVLANZOHA PAtRlCfMI£fMAM..PlNNSVLVAAI.l 

DOUIH:OU .. I. 0EDaG1A MAllKMEADOWlI. HOftTfl CAROt.\NA 

kaIRY L. tPmYOUo. MlCHIGAAI 

1KmOlSAN1lS.n~ 

Mr. Mark Bertolini 

ONE HUNDRED THIRTEENTli CONGRESS 

€ongrt~~ ,of tbt llnittb ~tat~ 

~O~t of l\tprtStl1tatib~ 

COMMliTEE ON OVERSIGHT AND GOVERNMENT REFORM 

2157 RAVBURN HOUSE Oi'FICE BuiLDING 

WASHINGTON. DC 20515-6143 

NMWI!n troal~4 

f_~ 'lmU~4I1<1 

- ... "...., 

~.IwlIae.p 

November 29, 2013 

Chairman, President, and CEO 

Aetna, Inc. 

lSI Farmington Avenue 

Hartford, cr 06156 

Dear Mr. Bertolini: 

El-!JAtf £. CUMMiNGS. MAlM.AHD 

AANK!1fG MINCNUTV ME""EII; 

The Committee on Oversight and Government Refonn is continuing its oversight of the 

implementation of the Affurdable Care Act, also known as <Jban)aCare. The President sold his 

hes1th care refonn plan to the American people on two fundamental promises: 

"[N]o matter how we refonn heslth care, we will keep this promise to the 

American people: If you like your doctor, you will be able to keep your doctor. 

period. If you like your hes1th care plan, you'll be able to keep your heslth care 

plan, period. "I 

After millions of Americans received notices that their plans were being canceJled, the President 

w8s tOrced to acknowledge just how misleading his assurances were? The President has since 

offered an "administrstive fix" that may allow certsin individuals to keep their current plans for 

up to ·one year.' Serious questions remain as to the proposal's feasibility and legality. 

Now, there is mounting evidence that the President's second promise is similarly untrue. 

Even among the individuals. tbrtunatc enough to keep their plaoa, many Americans are finding 

that access to Ibeirpreferreddoctor(s) is being abruptly terminated. On November 16, 2013, the 

Wall Street Jounuzl reported that UnitedHesIth GrouP. the nation's largest ptQvider of privatelyixu\Daged.Medicare Advantage plans, has dropped thousands of doctors from its network in 

recent weeb.4 Termination letters sent to doctors in at least 10 states cited "significant changes 

and pressun:s in the hes1th-care environment."s When pressed for an explanation. the president 

I PnisidontBamct Obama, Remarli:s bytbe President at the ADDwiI CoDi'oroace oftbe American Medical 

Asaociatio!l (1_15, 20(9). 

'latetvIowbyCltu\>kTodd, NBC News, wiIh~ BamctObama, Intbe WhiteHO\ISI>(No\'. 7, 2013). 

'Carol B. Lee and Louise Il.adnotiky. WIlli" H_ /() AUow buurtr.t to Omtimre Cant:eled Het4tJI PII1II8, WALLST. 

1 .. NO¥.14. 2013, • Melinda Bed<, UnlledHealth Culls DocItJr$ From Medictzrs Adwml~ PlaIJIl, WALL Sr. J., Nov. 16, 2013. 

'Ii. ' 
119 


Insert offset folio 61 here 87022.061

Mr. Bertolini 

November 29, 2013 

Page 2 

of United Health's network explained "It's no secret we are under substantial funding pressure 

from the federal government.,,6 

Some healtli insurers have acknowledged that they are slashing provider payment rates 

for plans offered on ObamaCare exchanges.1 State medical associations are concerned this will 

create a ''two-tiered system in which fewer doctors participate, potentially making it harder for 

consumers to get the care they need."s Dr. Richard E. Thorp, an internist and president of the 

California Medical Association, noted that one plan sold on that exchange ''was going to pay us 

significantly Jess fur doing that business. And we are already very busy.,,9 This has prompted 

concetn among experts: if providers are paid less, enrollees will confront significant difficulty 

even getting physicians to accept them as patients.IO According to a comprehensive report of 

insurers offering coverage in the new health insurance exch~ "the exchange market will 

essentially offer Medicsid managed care for the middle class." I Medicsid managed care plans 

often feature narrow networks of providers, which result in many Medicsid enrollees overusing 

emergancy rooms for basic health care needs.12 • 

It appear!! that this "access Shock" was an entirely predictable consequence of the core 

operativemechanisms of the law. 13 In an op-ed in the Concord Monitor, the president and CEO 

of Concord Hospital explained why his hospital network would not be participating in the plans 

offered by the sole insurer in New Hampshire's ObamaCare exchange, Anthem New Hampshire: 

OUr decision to not participate in this exchange at this time was not a political 

statement. We are not opposed to the tenets of the Affordable Care Act or 

exchanges. However, Anthem was unwilling to negotiate sustainable contract 

terms, and the reimbursement rates that they offered would ultimately result in us 

being paid less than what it costs us to provide care..Anthem has Indlcated that 

It lIIteIlch to convert aD of1ts individual poIleJes to the exclumge product in 

2014, wJdch means that those patlents may not be able to acc:ess care through 

Concord Hospital In the future.14 [emphasis added) 

The predictability of these impacts raises sedona questiona as to the origin and 

natare of the President's assurances. When pressed for an explanation, officials in the 

'14. 

1 ).UmlOuynRlobin, Dot:tors Cmitplain They Will IhPafdLeas By Exelumge P/flII3, KAIs!laHllALTIINBws, Nov. 

19,2013, 

tId. 

• 14. !Old. 

"l!dm1md F. Heislmaicr, Health .lJtsIirm'DecisIons on ExeIumgeParticipation: ~'8 Lading IndIcators, 

Bedtage l'bundatioIl, Nov. 12,2013, <MIi1abk.at hUp:l/www.beritage.orgIresearchIrel31111hoal1h-~ 

deoisioDs-oD-I'Jt~p~~ • .. Brim Blase, Medicafdl'nwides PoorQuallty CI1H: W1uu tire R_an:h Sbow8, Heritage F'oondalion, May 5, 

2011, amflabk at http://www.beritage.OlJ!/.....atchIreporOII105Imedicaid-provides-poor-qua1ity-can>-wbat-the-

.......-ch-shows 

Usee, "g.,AlIIxAltmm, 'YOIlCanKeep YourDoc/or', O/JDmacQre'.Next lJrokm PromISe?, TIMIl,NoV,19,2QlS, 

.. Micbaell. OnIon,H"",' .. why Com:crdl(capitalapted out, COllCOltDMONlroR, Sept. 11, 2013. 
120 


Insert offset folio 62 here 87022.062

Mr. Bertolini 

November 29,2013 

Page 3 

White House offered tortured redefinitions and obfuscations. In a press briefing on 

November 19,2013, the White House Press Secretary asserted that what the President 

meant by "if you like your doctor, you will be able to keep your doctor, period," was that 

"if you want coverage from your doctor, a doctor that you've seen in the past and want 

that, you can look and see if there's a plan in which that doctor participates.,,15 Such a 

gloss must ring especially hollow to the patients of Concord Hospital, who stand to lose 

access to their long-time doctors. 

Tellingly, in stark contrast to the White House Press Secretary's revision and 

qualification, the White House website continues to unequivocally affinn the President's original 

promise. A page answering "Frequently Asked Questions" on ObamaCare includes the 

fullowing exchange; 

Q: Will I be able to keql my doctor? 

A: Yes, you will. Health insurance refurm will not affect the choice 

of doctors you have today and it won't affect your relationship 

with your doctor.16 [emphasis added] 

The Annenberg Public Policy Ceoter of the University of Pennsylvania has labeled the 

President's claim "misleading," noting that ''the president simply can't make this promise to 

everione.'t17 The glaring inconsistencies in the Adminiatrstion's narrative, ccnpled with the 

dispositiYe evidence that millions of Americans are unable to "keep their doctor, period," 

demand rigorous exSJninstion. To enable the Committee to batter underatand the nature of 

ObamaCare's impact on provider access, we respectfully request your assistance. Please provide 

responses to the fullowing requests fur information 

1. Provide all documents that identify when employees or agents of Aetna first learned 

that the Adminiatrstion would publica1ly advocate fur its health care refum!. initiatives 

on the premise that individuals would be able to keep their current plans or current 

providers. 

2. Provide all docmnents showing whether employees or agents of ActnI1 intbrlned 

Adminiatrstion officials that the Adll!inlstration'shealth care reform initiatives would 

cause Actoa to reevaluate its provider networks or provider payment rates. 

3. Provide all documenfS showing aoy objection by employees or agents of Aetna, 

whether i)!ternaIlyor to external parties, to the Administration's characterization that 

if one "likes their doctor, they can keep their doctor." 

1$1'""", ReI ...... om"" al'lhe Press Socret\lI'y, Tho WbilIl HOIIlIC,.Briolil!g by Press Secretary Jay Carney (Nov. 19, 

2013). 

16 l'IitJing AmericaIIII ill Control oj'Tltelr Ht!4ltft eo,.., Fr.qu.m/y AIW QuIlOtlmts, lhe White House, ava/1J1b1e at 

1>ttJ>:I1www.whi!obouse.govlJloallh-eare-!l1e01!n¥f~2. 

11 Obamacore A(yIb,FactCbcck.org, AnnenbcIr!I Public Policy'Caliot, lhe University of Pennsylvania, Sept. U;, 

2.013, ava/Tab/e at http://www.filctcheck.0rg/20131O!1~llIyt!JsI. 
121 


Insert offset folio 63 here 87022.063

Mr. Bertolini 

November 29, 2013 

Page 4 

4. Provide all documents identifying the number of plan cancellation notices sent by 

Aetna, since January 1. 2013, in which the cancellation was attributable.in \lilY way to 

provisions of the Patient Protection and Affordable Care Act. 

5. Provide all docuinents identifying the number of providers terminated from Aetna 

provider networks since January 1, 2013, in which the temlination was attributable in 

any way to provisions of the Patient Protection and Affurdable Care Act. 

6. Provide all documents and communications, including meeting notes, since Mare'll 

23,2010, between employees or agents of Aetna and any employee oithe Executiye 

Office of the President. 

7. Provide all documents and communications since March 23, 2010, between 

employees or agents of Aetna ret'errln$ or relating tn the accuracy of statements tn the 

effect that if one "likes their doctot, they can keep.their doctor." 

'nIe Committee on OVetsight and Government Refunn is the principal oYl)[Sight 

commilteeofthe House of Representatives and may at ~'any time" investigate ''any mattCi:" as set 

lPrth in House Rule X. An attachment to this letter provides additional information about 

responding to the Committee's request. 

Pleass prQvidt! all such responses as soon as possibI",tmt no later than 5:00 p.m.on 

:i:>e¢einber 13, 2013. Whenprodiwing documentll to the Committee, p1eass delivtll' producti()D. 

~to ill!' M;ajorjty Staff in Room 2151 ofthe.RlI.yboro House OffiCllBut'iding and iheMinority 

StjdfillRoom2411 oftheRaybum Honse Offil:eBuilding; The Committee :ptefm to l'eIleive all 

docuinentsill ~ format. 

BIl~!lS'Ilte· 

00: 'nIe~orahle BUja'll B,·Cummings, Rsnkii:Ig.MfuotitYJdember 
122 


Insert offset folio 64 here 87022.064

G.O.P .. Healthcare.gov Too Fast ",ow: The New Yorker 

E 

December j, 

G.O.P.: Healthcare.gov Too Fast Now 

Posted by Alhzr Borull'i!;:: 

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WASHINGTON (The Borowitz Report)--Republican critics ofObamaeare rose up in 3ngertoday, claiming that, 

after two months of fixes, the healthcare.gov \Veb site is now "unacceptably fast." 

Leading the howls of protest was the House Committee on Oversight and Government Reform chainnan Darrelllssa 

(R-Calif.), who accused President Obama of designing a Web site that operates at a "blistering. breakneck speed." 

"With pages loading in milliseconds, this Web site is insuring people before they know what hit them;' Rep. Issa 

charged. "Clearly, this is what the President and his team had in mind." 

http://www.newyorker.com/on linc!blogs/boro witzreport/20 131121 gop-healthcaregov-too-f11... 12/4120 13 
123 


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G<O<P<: Hcalthcarc<gov Too Fast l\()w: The New Yorker Page 2 of 3 

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124 


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G.D.P.: Heahhcare.gov Too Fast Now: The New Yorker Page 3 of 3 

Iran's Suprcmc Leader Hopes '\ukc Deal Distl'llcts Attention from Obamaeare 

:vm' )6 

Obumu Says Americans Can Keep Their Damn Insurance 

Nov 14 

RcpuhlicHIlS Blast Obama's Support of Their Idea 

The B-Ook: Download ··r\n Unexpected Twist"' 10 your Kindle 

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125 


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fhe (ireat nCb~HC }) \Vlla! about Sc>cial Sct'llriIY's rollout? 'l Print http: 'ib!ogs.rt>1l!Cr~.c:om'grel1Hk'bnh>'20 J 3/ lO;'2Xlwhat-abouH;ocial·sc .. , 

101'5 

This copy is for your personal, non<ommercial use copies for distribution to 

coHeagues, clients or customers, use the Reprints tool 

WIN\'!. reutersl"eprints. com, 

What about Social Security's rollout? October 28, 2013 @ 10:34 pm 

By Bruce J. Schulman 

[1) 

After the nation's major socia! program finany became law, critics regularly blJmed it for a slowing 

economy and a swelling federal bureaucracy, Fierce congressional opposition led to the formation of 

n blue-ribbon panel to overhaul the measure. Obamacare in 2013? Not quite. It was Social Security 

in 1937. 

for the far~reachjng health insurance initiative, administrators 

Implementation, according to the man who oversaw 

the introduction "took the form of i'l whole year of consultation with literally 

hundreds of people in identified areas of concern," 

The tortuous, often controversial implementation of both Medicare and Social Security serves as an 

early template for the current controversies over the Obamacare rollout. The ultimate Sllccess of 

those socia! to calm the overheated atmosphere surrounding the first days of 

Care Act. 

of Adolf Hitler and Nazi 

thoughtful critics like former 

George Bush speechwriter Mic!}£SU 

~ ! <1 ] are depicting the healthcare 

12/312013 9:46 Ph-'j 
126 


Insert offset folio 68 here 87022.068

The (irell! Debate ); Wlml ah(lut Sodal Security's rollou!? ) Print http://blogs.reuters.cOInJ

great-debutei2UI3/ 1 Oi2S \vhat-about-socil\l-se ... 

2M5 

insurance 

crisis for 

it as an "inte!Jectual 

liberalism." 

universal single payer system, 

To be sure, Americans the Affordable Care Act as the foundation of a successful national health an untouchable entitlement like Social Security. Or 

Obamacare enter ttle annals as an ignominious failure. But if history IS any guide, nobody wHf 

be able to authoritatively maybe even decades - certainly not until after the 

program evolves Significantly from conception. 

Implementation of massive public programs on a national scale takes time - especially in the 

United States, when responsibility for administering them is divided not among local, state and 

national governments, but between pubHc agencles and private actors like companies, 

hospitals and doctors, 

Social Security t that now beloved centerpiece of the nation's social safety net, offers a case In point. 

Created in 1935, the program took 40 years just to include all working Americans in its basic 

coverage. When the o!d~age insurance program launched in 1937, barely more than half the labor 

force participated. 

keepers." 

[7JA series of amendments to the Social Act gradually 

expanded coverage, By 1979 it finally reached percent of 

American workers, Over the decades, Congress repeatedly 

retrofitted Socia! Security [81: adding dependent and survivor 

benefits; balancing payments between early participants and 

later retirees; including farm workers, domestic laborers and 

the self~employed, and introducing annual cost-of-living 

adjustments. 

Social Security's first baby steps proved especially uncertain, Of 

course, opponents denounced the penSion plan as the leadlng 

of a socialist revolution. One senator warned that the 

nationaiizatitln of wheat fields would soon foUow. Former 

[9} suggested the law would reduce 

!lli;"""LLC""""t""o servile passivity. "Our people are not 

into a natlonal zoo," Hoover warned, "our 

citizens claSSified, labeled and directed by self-approved 

But It was not just dissident conservatives who issued 

disparaged the program for its 

abuses. One watchdog 

iI!-qualified workers to 

In response, the 50c1al Security administration launched a massive PR to 

educate Americans intricaCies of the program and broaden support for it. effort 

distributed booklet, "Whv Social Secq.dly [

l01?" with whimsicalll!ustrations by a 

popular books, 

reserve 

of the Great Depression. 

and mainstream 

Security for the "Roosevelt Recession" of 

administration reVIsed the act in 1939 to reform its financing 

I:U3!2013 1):46 PM 
127 


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rile Great Debate )) Wlut about Social Security's rellout7 )) Print http:'Jblogs.rClHers.comigrcat-dcbalci20!3/ ! O':2K\vhat-aboul-sodnl-se ... 

benefits. 

[11]SimHar uncertainty marred the 

introduction of Medicare. When the health 

stymied implementation: How would Medicare respond to segregated facilities 

in the How would the program accommodate group health plans like KaiserJ which did not 

use traditional fcc-for~5crvice systems? 

As sign-up day approached, President Lyndon B. Johnson put the Veterans Administration and army 

hospitals on alert to insure that nobody was denied careJ particularly African-Americans in the 

South. LB) also readied a fleet to transport patients in case newly insured seniors 

overwhelmed their local hospitals on 

[13]some of the most difficult 

challenges revolved around 

recruiting elderly Americans to enror! 

in the program by the March 31, 

1966 sign~up date. Deploying 

resources across the Federal 

enlisting the 

down senior 

Much like the history of Social Security, Medicare has also experienced repeated tweaks 

Implementing 

demonstrate, 

From new coverage for catastrophic care and 

financing formulas. 

thiS. 

of criticism, QQ]l!2 [161 show that majority of Americans still support the law 

enough. 

mixture of Social 

tax supported 401k and 

121)!2013 9:46 Ptvl 
128 


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The Great Debate }) What about Social Security's rollout? » Print hUp:llblogs.reulers.con>'great-debatel2013/1 O/28/what-.bout-social-se ... 

40f5 

A comparable effective national healthcare system could never emerge overnight. 

PHOTO (Top): President Franklin D. Roosevelt signing the SoCIal Security Act, August 14, 1935, 

Laber Secretary Fram;es Perkins stands behind him. Courtesy of FRANKUN D. ROOSEVELT 

PRESJOENTIAL UBRAR Y 

PHOTO (Insert 1): flUng workers' applications for SoCIal Security account numbers: Considered at 

the time part of the biggest book-keeping job In the world. Courtesy of FRANKUN O. ROOSEVELT 

PRESIOENTIAL LIBRARY 

PHOTO (lfIsert 2): Unemployed insured workers registering for jObs and filing benefit da/ms at a 

state employment off/CR:. Courtesy of FRANKLIN D. ROOSEVELT PRESIDENTIAL UBRARY 

PHOTO (Insert 3): President Lyndon B. Johnson hands President Harry S. Truman a pen as Lady 

BIrd Johnson, VlCR: PresIdent Hubert Humphrey, and Bess Truman look on at the signing of the 

Medicare Bill at the Harry S. Truman Ubrary in IndependefICR:, Missouri, July 30. 1965. Courtesy of 

LBJ PRESJDENTIAL UBRARY 

PHOTO (Insert 4): A busy screen on the laptop of a certified application counselor as he attempted 

to enroll an Interested person for Affordable care Act InsuranCR: at the Borlnquen Medical Center In 

Miami, flOrida, October 2, 2013. REUTERS/Joe Skipper 

[1] Image: http://blogs.reufers.com/grest·debate/flles/2013/10/fd .... slgnlng-soclal· 

sec:urltyl.jpg 

[2] Image: http,//blogs.reuters.com/grest-debate/flles/2013/10/SS·c1erks.glf 

[31 Neville Chamberlain and other appeasers: http.l/www.slate.eom/blogs/welgel/2013/09 

/24/ted_Cl'U:r....fundlnLobamacare_ls_baslcally_lIke_appeaslng_hltler.html 

(4J Michael Gerson: http://www.washingtonpost.com/opinions/michael-gerson·alllng· obamacare-could-become-a-crlsls-for-liberallsm/2013/10/21/00bbc938-3.82-11elag4f-b58017bfee6,,_story.html 

[5] voices on the pol~lcallefl:: http://www.washlnlltonmonthly.com/polltlcal·anlmal· 

a/2013..10/malfunc:tlonlng_exehanlles_show047419.php 

{5] called the launch a 'failure. n: http:./www.washlngtonpost.com/blogs/wonkblog 

/wp/2013/10/14/flve-thoughts·on-the-obamacare·dlsaster, 

(7] Image: http.//blogs.reuters.com/great-debate/files/2013{10/SS·beneflts2,glf 

(8] retrofitted Social Security: http://www.ssa.gov/pollc:y/docs/ssb/v6Snl/vSSnlpl.html 

(9] Herbert Hoover: http://news.google.com/newspapers?nld=1928I1tdat=19350S0S11t 

Id=79MIlAAAAISAJIIt.jld=6WOPAAAAISAJlltpg=1522,2944240 

[10] Why Sodal Security: http://www.ssa.gov!hlslory/whybook.html 

[llJ Image: http://blog •. reuters.com/great-debate/fll •• /2013/10/medl'''' ....... ,gnlngbetter3.jpg 

(12] Stlll, the complexity of the new program made Its rollout a lengthy, contentious prOCR:ss: 

http,//www.nasl.org/usr_doc/med_reporLrefiectlons.pdf . 

[13] Image: http://blogs.reuters.com/great-debate/flles/2013/10/obamacare· 

comp.·screenl.jpg 

[14] Newspapers reported concerns about the costs of the new program, widespread confusion over 

the available coverag: http./lwww.wa.hlngtonpost.com/blogs/wonkblog/wp/2013 

/OS/17/when·medlcare·launched·nobody·had·any·clue-whethe .... lt·would·work/ 

[15] tweaks, expansions and Improvements: http://www.cms.gov/About-CMS/Agency· 

Informatlon/Hlstory/lndex.htmI7redlrect=/hlstory/ 

[16J polls: http://www.washlngtonpost.com/blogs/plum-line/wp/2013/10/21/themorning-plum-dont-squander-your-shuldown-gaJns .. dems! 

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Questions for Dr. Calabria 

Director of Financial Regulation Studies 

Cato Institute 

Questions from Representative Collins 

Committee on Oversight and Government Reform 

Hearing on: 

"The Roll Out of Health Care. go v: The Limitations of Big Govemment" 

1. The debacle that has been the rollout of Health care. go v has illustrated a point that has 

been clear to me and the people of Northeast Georgia for a long time: the President has 

been far more interested in campaigning, and far less interested in governing. Let's look 

at his 2012 campaign for example, universally lauded as the most technologically 

advanced campaign in history. Then a year later, with the same man in charge of both 

projects, we get Heathcare.gov. One website crashes constantly and is unable to relay 

accurate information; the other has an enormous capacity and is fully integrated for 

quality and reliability of information. I think that this raises a broader question, which is 

why is it acceptable, even to the President, to produce a subpar product as long as the 

federal government is footing the bill? Is this inherent in the nature of government, or is it 

reflective of this administration? 

Calabria: The short answer is: Both. There were certainly mistakes made in the roll-out 

of Health Care. go v that were likely under any administration. As GAO has made clear in 

countless reports on a variety of federal programs, information technology in the federal 

government falls far below private sector standards and often displays costs far in excess 

of the private sector. So some of the problems of Health Care. go v go beyond this 

administration. 

That said, given the known problems with federal IT, HealthCare.gov was clearly rushed. 

If you know something is likely to encounter problems, then you plan for problems, even 

if the exact details are not known ahead of time. The roll-out of Health Care. go v appears 

more driven by political considerations than by practical ones. Of course failure is an 

inherent part of any learning process. The difference is that markets generally correct 

their failures, whereas political systems generally deny and continue their failures. While 

I believe that people inherent spent their own money more carefully than they spent other 

people's money, this administration does appear to have taken that disregard to a new 

level. 
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2. You've done a great deal of research on GSEs (govenunent-sponsored enterprises), and 

in specific Fannie Mae and Freddie Mac. You've been very open about how needless and 

wasteful you believe that Fannie and Freddie are. They perform the same action as the 

private sector, they just do it worse. Do you think that it would be fair to expect similar 

results from Obamacare that we've seen from Fannie and Freddie? Repeated failure and 

needing additional large infusions of cash in order to remain in place? 

Calabria: I do believe there are numerous examples from our mortgage finance policies 

that shed light on our health care policies. The nature of government insurance programs 

displays similarities across the risks being insured. Both moral hazard and adverse 

selection characterize any insurance system, both private and public. The temptation to 

use insurance as a means of wealth redistribution, rather than simply pooling risk, is 

strong and certainly characterizes our mortgage finance system. The temptation to also 

use insurance mechanism to create off-budget contingent liabilities is also particularly 

great. Recall we were told for years that Fannie Mae and Freddie Mac would never cost 

the taxpayers a dime. A basic knowledge of economics and insurance would have 

revealed that to be false. Unfortunately it took a crisis to demonstrate that fact. 

Housing, education, and health care policies also demonstrate another commonality: 

when subsidize demand in the face of relatively fixed supply, you largely run up prices. 

We've seen that in housing, where Fannie Mae and Freddie Mac did not result in any 

long run increase in homeownership but did result in a run-up in housing prices, 

contributing to a boom and bust in housing. Subsidies for higher education have also 

resulted in dramatic price increases that have largely been captured by the universities. 

There is every reason to believe that Obamacare will continue to drive up health care 

costs as it does not address the inherent lack of competition in health care. Cato scholars 

have written regularly on the topic of health care reform. I would point you to the work 

of my colleagues Michael Tanner and Michael Cannon. My decades oflong study of 

mortgage finance policy suggests to me that Obamacare will be very costly but with very 

little actual benefit for health care consumers as a whole. As with mortgage finance, the 

best solution would be to remove pre-existing distortions and barriers to competition. 

2 
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Questions for Dr. de Rugy 

Senior Research Fellow 

Mercatus Center 

Questions from Representative Collins 

Committee on Oversight and Government Reform 

Hearing on: 

"The Roll Out of HealthCare.gov: The Limitations of Big Government" 

1. The debacle that l}as been the rollout of Healthcare.gov has illustrated a point that has 

been clear to me and the people of Northeast Georgia for a long time: the President has 

been far more interested in campaigning, and far less interested in governing. Let's look 

at his 2012 campaign for example, universally lauded as the most technologically 

advanced campaign in history. Then a year later, with the same man in charge of both 

projects, we get Heathcare.gov. One website crashes constantly and is unable to relay 

accurate information; the other has an enormous capacity and is fully integrated for 

quality and reliability of information. I think that this raises a broader question. which is 

why is it acceptable, even to the President, to produce a subpar product as long as the 

federal government is footing the bill? Is this inherent in the nature of government, or is it 

reflective of this administration? 

2. We have heard about the repeated crashes of Healthcare.gov over the past two months. 

The Obama administration is now claiming that the website is working, however we are 

continuing to hear reports of more issues. According to Robert Zirkelbach from 

America's Health Insurance Plans, "insurers are still receiving enrollment files that are 

duplicative or include missing or inaccurate information. In some cases they aren't 

receiving those enrollment files at all." Now this law bas mandated that people have 

insurance, it has provided them a broken system through which to attain it, and once they 

claim that it is fixed, it is not transmitting the information to the companies who will be 

providing said insurance. It sounds to me like the government poking their nose in and 

messing the whole process up. Dr. de Rugy, you have written about the failures of big 

government, no matter how much money is spent. We know that this law is ill conceived 

and poorly implemented, but what do you see as the next failure of this law? 

2 
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I. President Obama's two very different experiences in overseeing broad technological projects 

suggest that the failure of the Affordable Care Act (ACA) is fundamentally rooted in government 

failure. The striking differences between the private sector and the government's ability to 

successfully deliver goods and services were apparent during the rollout of the healthcare.gov 

website. The technological outcomes of the Obama presidential campaign were worlds away 

from the technological capabilities ofthe Obama administration's overseeing an unprecedented 

expansion of the federal bureaucracy. It has been well documented that one of the reasons the 

healthcare.gov experience was so disastrous is that government officials faced the same 

constraints from excessive regulations as the private sector. 

In fact, President Obama himself acknowledged that fact a few months ago during one of his 

appearances discussing the ACA's troubled rollout. In an interview with Chuck Todd, the 

president said, "You know, one of the lessons-Ieamed from this whole process on the website 

- is that probably the biggest gap between the private sector and the federal government is 

when it comes to I.T. Well, the reason is that when it comes to my campaign, I'm not constrained 

by a bunch of federal procurement rules, right?" President Obama should apply this same 

principle to the other unsuccessful areas of government involvement he oversees. 

In addition to the negative impact of excessive regulations on the government's ability to 

successfully build things and deliver goods and services, the way government actors make 

decisions is an important explanatory factor of government failure. This persistent failure is not 

due to the personality flaws of anyone politician or party, but is a predictable result of the 

incentives and constraints that necessarily permeate political systems. As the work of public 

choice economists such as James Buchanan, Gordon Tullock, Bill Niskanen, and many others 

show, government decisions are all too often driven by politics, special interests and misguided 

aims-regardless of the party in power. Typical proposals for "more accountability," "more 

funding," or "more transparency" simply will not obviate the realities of political decisionmaking. Rather, we should, as our Founders so presciently articulated, restrict the domain of 

government intervention to limit the toxic influences of political pressures. 

Unfortunately, far from learning the lesson from the healthcare.gov fiasco that government isn't 

very good at building things or that government gets in the way of private business, the president 

appears to remain determined to further expand the government's sphere of intervention. This 

will make the problem much worse for many years to come. 

2. The technical troubles of the widely maligned healthcare.gov website are now infamous. The 

website rollout, however, should have been one ofthe easiest components of the health care law 

to implement. The design and functionality of the healthcare.gov website are qualities that were 

well within the control of program administrators. Executive administrators were presented with 

clear deadlines, ample time, and considerable funding to launch the website, which would 

provide Americans with their first salient impression of the ACA. The implementation of the 

substance of the legislation, on the other hand, is critically dependent upon broad American 

participation, understanding, and support. A host of carrots and sticks-such as mandates, 

subsidies, and minimum insurance plan requirements-were included in the ACA to incentivize 

citizens to behave in the way that plarmers intended. Not only have many of these provisions 

proven to be wildly unpopular, the Obama administration itself has consistently delayed or 
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quietly ignored the critical incentives that legislative designers included to ensure "the proper 

functioning of the law, creating more confusion and further diminishing Americans' faith in its 

purported benefits. More important to policyrnakers, the growing number of these ad hoc, de 

facto line-item vetoes progressively undermine the objectives that ACA supporters originally 

sought. 

It is because the law was, "ill-conceived and poorly implemented," that it is therefore difficult to 

speak of anyone next "failure" that we can expect. We know from the recent Congressional 

Budget Office report that the ACA will have a chilling effect on the number of hours worked in 

the nation over the next decade. We know from a recent Harvard study that Medicaid expansion 

in Oregon led to increased emergency room visits, which suggests that the intended purpose of 

Medicaid expansion in the ACA is not likely to be achieved. We know from the paltry 

enrollment figures the Department of Health and Human Services has finally provided the public 

that 68 percent of enrollees have been in the relatively less healthy (and more expensive to treat) 

35-64 year old range as of February I, 2014. We know that many individuals' previous insurance 

plans have seen dramatic premium increases and that too many Americans have tragically lost 

access to the doctors and even critical care that they desire or need during this awkward 

transition. 

Indeed, the ACA is dying a death of a thousand paper cuts. Each little dent to the ACA's 

reputation is inconvenient and inefficient, but appears relatively minor on its own. When 

considered together, however, the ACA-already a mess of contradictory and uncertain 

incentives and provisions-is gradually collapsing under its own weight with each delay and ad 

hoc waiver. It will not, as ACA supporters claimed, boost job growth,decrease emergency room 

visits, adequately manage insurance risk pools, or lower premiums while increasing quality. 

From this perspective, perhaps the worst "failure" that could come would be if the federal 

government continued to delay provisions and ignore these growing problems in an effort to save 

ACA simply for the sake of saving it. 
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Response from Dr. Thomas 

Historian and Communications Associate 

Johns Hopkins Bloomberg School of Public Health 

External Affairs 

Question from Representative Collins 

Committee on Oversight and Govemment Reform 

Hearing on: 

"The Roll Out of HealthCare.gov: The Limitations of Big Govemment" 

1. The debacle that has been the rollout of Healthcare.gov has illustrated a point that has 

been clear to me and the people of Northeast Georgia for a long time: the President has 

been far more interested in campaigning, and far less interested in governing. Let's look 

at his 2012 campaign for example, universally lauded as the most technologically 

advanclld campaign in history. Then a year later, with the same man in charge of both 

projects, we get Heathcare.gov. One website crashes constantly and is unable to relay 

accurate information; the other has an enormous capacity and is fully integrated for 

quality and reliability of information. I think that this raises a broader question, which is 

why is it acceptable, even to the President, to produce a subpar product as long as the 

federal govemment is footing the bill? Is this inherent in the nature of government, or is it 

reflective of this administration? 

Representative Collins, your question specifically deals with the reasons for the failure of 

Healthcare.gov in contrast to the technological savvy of President Obama's successful 2012 reelection campaign. My first response is the obvious one: The re-election campaign was far better 

funded, with far fewer obstacles and constraints, than HealthCare.gov, which was charged with 

the herculean task of linking multiple federal agency databases that were completely siloed from 

one another, and orchestrating them all to smoothly populate the HealthCare.gov insurance signup page. No computer interface to date, public or private, had been asked to do a similarly 

complicated task, with so many moving parts that could cause problems at any number of points 

along the way. 

I turn to history for my rebuttal: in 1942, Paul V. McNutt, chairman of the War Manpower 

Commission during World War II, said this about the federal government's performance during 

the Great Depression and World War II: "Your Government has turned out some of the biggest 

and best-run jobs in history during this last 10 years. Unlike private business, Government 

business lives in a 'goldfish bow!.' ... Government business is the object of vast public attention 

before it ever begins to operate at all. ... The cause of victory will not be served by hasty, halfcocked or misinformed action. The War Manpower Commission has been set up to minimize 

dislocation--not to create it. " I submit to you, Representative Collins, that HealthCare.gov has, 
136 


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like the War Manpower Commission, been in a fish bowl of scrutiny since before it ever got off 

the ground, and that its very valuable cause, to extend health coverage to a larger portion of 

Americans, will not be served by the kind of hasty, half-cocked or misinformed action that the 

Republican majority in Congress has thrown against HealthCare.gov during its very short 

lifespan. 

You noted, quite correctly, that President Obama was re-elected in 201 2-by a four-point 

margin, more than two years after he signed the Affordable Care Act into law on March 23, 

2010. His reelection signified the American public's overall satisfaction with the principles 

enacted in ACA-principles that House Republicans and Governor Romney himself had 

significant influence in shaping. 

Even in the short amount of time that has passed since I received your question on January 7, 

Hea1thCare.gov has made major strides and has, as I and others predicted during the December 4, 

2013 hearing, resolved many of the problems that have plagued it since October. 

Finally, Representative Collins, I am from northwest Florida, which is not so very far, 

geographically or culturally, from your district in Northeast Georgia. Much of my work as a 

historian has focused on the reasons why the South was the focus of early national health policy 

during the 1930s, 1940s, and 1950s. During World War II, fully half of Southern recruits were 

rejected for the draft, versus one third of non-Southerners, which points to the severe health 

deficiencies then existing throughout the country, but especially in the rural, impoverished 

South. Federal programs such as the public health titles of the 1935 Social Security Act, the 

Bolton Nurse Training Act, the Wartime Emergency and Maternity Care program (which 

subsidized hospitalized births for 1 in 6 American babies born in 1944), and the 1946 HillBurton Hospital Survey and Construction Act all channeled federal resources to uplift Southern 

health, and they were incredibly successful at doing so. Between 1930 and 1950, malaria was 

eradicated from the South, maternal and infant mortality dropped dramatically, federal funding 

for education and training programs trained thousands of doctors, dentists, nurses, and public 

health workers, and the rate Of typhoid, a deadly waterborne disease, was cut by 90 percent, 

largely due to federally funded water and sewer construction projects. And what's more, these 

programs were largely conceived and passed into law by forward-thinking Southern members of 

Congress such as Sen. Claude Pepper of Florida, Sen. Lister Hill of Alabama, and Sen. Allen 

Ellender of Louisil\I1a, with the help of private sector reformers such as the famous surgeon and 

Georgian Louis T. Wright, who chaired the NAACP and led its fight for equity in federal health 

programs. 

I urge you, Rep. Collins, to consider the example of your family member who was a physician 

during those days, about which you spoke during the hearing. You said that he and other country 

doctors took care of everyone without the federal government needing to interfere, but I submit 

to you that the South had far more federal help in providing health care and public health 

services than any other region. In fact, your home state of Georgia established 181 public 

2 
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maternity clinics under the Social Security Act, more than any other state, and these clinics saved 

the lives of thousands of mothers and babies who would otherwise have had no prenatal or 

postnatal care whatsoever. 

You see, my grandfather was a doctor too, and my great grandfather, and my great-great 

grandfather-all were Georgia doctors who worked hard and cared deeply about their patients. 

And sadly, they often had to watch them die-as my grandfather often told me, in the days 

before penicillin, infectious diseases like measles, diphtheria, and polio killed or crippled 

children on a regular basis. I'm deeply thankful that, thanks to the private-public partnerships 

that resulted in developing and testing penicillin, polio vaccine, and many other medical 

miracles, I and my children are protected against those scourges. And I'm also thankful that now, 

the Centers for Disease Control and Prevention, based in your home state of Georgia because its 

predecessor, the wartime Malaria Control in War Areas program, was also based in Atlanta, is 

tracking disease outbreaks and protecting our whole nation from epidemics. 

In conclusion, HealthCare.gov is not a "subpar product," as your question states, and therefore it 

is most certainly not inherent in the nature of government, nor is it reflective of President 

Obama's administration, for the federal government to produce an inferior product. Based on my 

knowledge of history, and my own personal experience as a Southerner and an American, I 

believe that the passage of time will demonstrate the value of the Affordable Care Act to the 

American people, including those of Northeast Georgia. 

3 
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My response: 

I believe that the President is not as engaged with the private commercial sector as much as he 

should be. He is fully engaged with private sector campaign services, where he successfully used 

a very sophisticated polling and campaigning apparatus to help his election and re-election. 

However, he does not seem to trust the private sector to produce innovations and technological 

advance that could benefit millions of Americans. 

Clearly, the private sector could have been used much more effectively to develop and monitor a 

successful Healthcare.gov website. Indeed, it was my understanding that the CEO of 

Salesforce.com reportedly offered to build the website for no charge when it was clear that the 

administration was encountering problems. This firm was experienced and capable of getting the 

job done, but they were told that "regulations" prevented them from being used. Instead, it was 

my understanding that the firm that was used, CGI, had problems in the past and had not set up 

an effective monitoring process. It is difficult for me to believe that the administration could not 

have used a well-regarded firm in the Cambridge, Massachusetts area, relying on MIT graduates, 

or in Silicon Valley, relying on Stanford graduates, to build an effective website. 

I do not think that the President intended to produce a subpar product. As noted, I just do not 

think he is as thoughtful about the private sector and its capabilities as he should be. I also do not 

think this problem is reflective of only the current administration. I believe that there is an antimarket sentiment generally in' the United States. I am often amazed about how much unregulated 

activity there is in this country given the bias against markets. 

Part . of the problem is that there is not systematic knowledge among policymakers about 

government and market performance. I tried to point that out with reference to my book, 

GOVERNMENT FAILURE VERSUS MARKET FAILURE, which Chairman Issa noted at the 

beginning of the session. The book provides empirical evidence that government efforts to 

correct alleged market failures have done more harm than good. This does not imply that markets 

are perfect, but I do believe that they are more capable than government of learning from and 

correcting mistakes. Unfortunately, I doubt that this administration and succeeding 

administrations will learn from the website debacle. My hope is that .we allow the private sector 

to solve as many social problems as possible without counterproductive government interference. 

Sincerely, Clifford Winston 
139 

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Insert offset folio 81 here 87022.081

Questions for Dr. Winston 

Searle Freedom Trust Senior Fellow 

The Brookings Institution 

Questions from Representative Collins 

Committee on Oversight and Government Reform 

Hearing on: 

"The Roll Out of Health Care. go v; The Limitations of Big Government" 

1. The debacle that has been the rollout of Healthcare.gov has illustrated a point that has 

been clear to me and the people of Northeast Georgia for a long time: the President has 

been far more interested in campaigning, and far less interested in governing. Let's look 

at his 2012 campaign for example, universally lauded as the moat technologically 

advanced campaign in history. Then a year later, with the same man in charge of both 

projects, we get Heathcare.gov. One website crashes CQnstantly and is unable to relay 

accurate infonnation; the other has an enormous. capacity and is fully integrated for 

quality and reliability of information. I think that this raises a broader question, which is 

why is it acceptable, even to the President, to produce a subpar product as long as the 

federal government is footing the bill? Is this inherent in the nsture of government, or is it 

reflective of this administration? 

2