Why Does California Want a Third World Health Care System?

By David J. Gibson, MD

Yogi Berra once said, "If you don't know where you're going, when you get there you'll be lost."  This quote encapsulates the crisis that is now enveloping California's health care system.

In a recent analysis of quality of care provided to Medicare beneficiaries, Jencks and colleagues ranked California as a dismal 41st out of 50 states as measured by 24 proven yardsticks of medical quality (thank God for Mississippi).  Less than a decade ago, California ranked at the top nationally based upon these same quality of care parameters.

Reimbursement rates for California's primary care physicians are running between 20% and 40% lower than rates paid to PCPs in other parts of the country.  Thus, it is not surprising that the number of doctors actively practicing in Sacramento and El Dorado counties dropped 13.4 percent between 1995 and 2000.
Data from the California Hospital Association shows that in 2000, 60% of California hospitals were losing money on patient care.   The median hospital operating margins in California run at 14 percent below the national norm.   The net debt load for California hospitals now runs approximately twice as high as national norms.
California now ranks dead last amongst the 50 states in its number of registered nurses, averaging 500 per 100,000 people.  Conservative estimates show that we face a shortage of 25,000 nurses in California. Now 90 percent of hospitals in California face a nursing shortage with the situation worsening considerably in the last six months.
All across the state, employers' health benefits executives are operating in crisis mode because 100 California groups and IPAs have closed their doors or declared bankruptcy by the end of last year. Employers are struggling to ensure that the employees, for whom they pay health care premiums, will be able to obtain any health care at all.

Why would a state with an economy that stands at $1.3 trillion per year, the sixth-largest in the world and, until now, the most robust in the nation, deliberately choose to under fund its health care system and hobble that system's ability to provide medical services that at least meets the national norm?

There is abundant opportunity to ascribe blame but answering the question requires perspective. One must back up several diopters and look at California's health care system in the context of broader economic trends.


California is now trending toward a third world energy infrastructure. Over the past decade, California has not built any electricity-generating facilities. As a direct result, California produces less energy per resident than any other state. The causes are many.  Opposition from the environmentalists using obstructive manipulation of the courts has been a major factor. Shortsighted state and local government regulations now virtually insure inactivity.  The result, it has been impossible to build a hydroelectric dam, a nuclear power plant or a facility that uses coal or oil to generate electricity.  Between 1989 and 1999, the state's energy demand grew four times faster than supply

Contracts for August 2001 power are currently running as high as $750 per megawatt- hour, five times their average in August 2000. In 1999, California spent $8 billion on electricity; this year, it may spend as much as $70 billion.  The rise in California's electricity bill over the past two years will amount to almost $2,000 for every man, woman, and child in the
state. This represents an unprecedented transfer of wealth out of California's economy. 

California's economy is now beginning to show signs of power-deprivation. In the fourth quarter of last year, California led the nation in the number of mass layoffs, and forecasters have downgraded estimates of economic growth to 1% this year from the earlier expectation of 2.5%.


Throughout its history, California has always invested in its own future. This investment produced the water we now drink, the schools in which we were educated and the highway infrastructure that we use.  Investment in public facilities during the 1950s and 1960s averaged $150 per capita annually.  During the 1990s, that investment activity declined to an annual figure of $30. It is not for lack of taxes that our infrastructure investment has declined. We now pay a greater percentage of our income in taxes than at any time in America's history.  Nevertheless, to sell a reduction in taxes, President Bush proposes removing another 6 million Americans from the federal income-tax rolls.  Non income-tax payers now outnumber those paying taxes. The 400 wealthiest taxpayers pay about as much in federal income taxes as more than 40 million individuals and families at the bottom of the income scale.

In America, the majority now depends and thrives on higher taxes and bigger government programs that redistribute wealth.  Unfortunately, infrastructure investment is a low priority in this environment.

It is now estimated that California's accumulated shortfall in infrastructure investment for transportation, water resources, sewer systems, public schools and our universities stands at $90 billion.


It is not difficult to assign blame for the lack of public policy performance.  We can certainly blame California's politicians.  Our governor does not have the political courage to modify a fundamentally flawed, five-year-old energy deregulation plan.  California's utility companies, which buy in unregulated wholesale markets and sell into a regulated retail market, are now facing bankruptcy with an accumulated $13 billion of debt.

Politics is supposed to be the art of the possible but in California, it is too often the art of the impossible.  California's legislature with its short sited, poll driven, political careerists are desperately striving to make it seem possible to get the benefit of abundant electricity without paying the costs.

We could assign blame to California's employers.  The share of California employers offering insurance to their employees has declined to 48 percent, far below the national figure of 61 percent.   This has occurred despite the fact that group health insurance premiums in California are now about 10 percent below the national average.

In fact, much of the past decade's economic growth in California has been subsidized on the back of its inadequately funded health care system. From 1990 to 1996, health care expenditures were $27 billion to $42 billion lower than they would have been elsewhere in the nation.

It is always easy to assign blame to the HMOs. Today, the managed care industry is held in lower esteem by the public than the tobacco companies. Through the legislature, California consumers are making increasingly strong demands upon managed care with no funding support.  More than 20 managed care "reform" bills have been approved during the past two years. Unfortunately, assigning blame does not get to the heart of the accumulating problems facing California. Self-serving politicians, non-civic minded employers or managed care companies that have willfully under funded California's once vaunted health care system does not explain the evolving public policy disasters.


The root problem lies at the feet of the people of California. We have never fully embraced the "no free lunch" maxim. We are among the richest inhabitants of this planet, yet we demand and feel entitled to inexpensive college tuition, low rents, broad health care benefits and cheap electricity. We want water without dams. We want fuel for our SUVs without oil wells. We have elected politicians who defy the economic laws of supply and demand with regulations that keep prices low, below market-clearing levels. Now we are paying the price for that defiance. Rolling blackouts have darkened homes, shut down offices, and turned intersections into demolition derbies. Our highways are turning into parking lots, we will soon run short of
water and our health care system is about to implode.

Milton Friedman once said, "no one spends someone else's money as carefully as he spends his own."  The "me" generation has created a public policy structure in California that enables us to demand world class services but does not ask that we sacrifice and pay for these services.  Prior generations invested in the infrastructure we have enjoyed, but our children
will be forced to pay for our shortsightedness.

It is only within the context of this perspective that one can answer the question posed above.  As the baby boomers age, we feel as though we are entitled to the best of health care services.  We certainly do not want to depend upon a third world health care system.

It is now abundantly clear that as our health professionals move on to more hospitable environments in other states, California's performance has shown that we are no longer willing to pay the price for excellence.  "If you don't know where you're going, when you get there you'll be lost."

David J. Gibson, MD 2001