to accomplish those goals. but america's long-term global competitiveness is at stake. this time will create winners and lers. i believe the winners of the new era that lies on the other side of the present crisis will not be those who play duck and cover, those to concentrate on repairing the current system. it will be those who look to the future. i believe this because i see what is happening all over the world. especially in the emerging economies. i see it in the trajectory of global economic growth. i see it in all the market data. i see it firsthand. i just got back from africa, the middle east. before that i was in china. i could see it throughout the world. last month, we were in shanghai. ibm convened a forum with 100 civic business leaders in 40 countries from around the world. a large ccentration of our

guests were from china. all the mayors of china were told to attend. our conference was also the shanghai expo. we have also held 100 conferences around the world, berlin, chancellor merkel was with us. we did it new york city, boston, across the u.s. when youook at the ambion, division, the innovation that is driving china -- the vision, the innovation that is driving china and the other emerging markets, it is breathtaking. the investments built out of the infrastructure, the modernization of society and economy, expanding like to quote grids, wireless technology, transportation and more, is attracting people. businesses and capital flows is a formal force in the world. it is no longer a low-cost manufacturing capita of the world. if you assume it is, that is a mistake.

i know this is not news to you, but i would like you to ink about it from a personal stanoint. in all thoseeers nations are doing, with those leaders of the provinces, cities, states, whenever jurisdictional definition you select, what are they thinking about? this came from a conversation we had over there. what is the agenda? what choices are being made today? as i said to the mayors, what is your value proposition? why will people live in your city, invest in your city, and stay there? that is the reality. your counterparts are making decisions with an eye towards the global marketplace. there leapfrogging legacy systems and legacy purchase. they're not just repairg what is broken, and, yes there is a

lot to be done, but they are preparing for what is coming. if we want to remain competitive, we must do the same. i understand that this is easy to say, and my colleagues in the corporate sector understand the point of view. but nonetheless, putting that aside, it is harder to do than talk about, but we are in the business of doing what we're doing. the economic downturn would make any of us sound foolish or wishful about innovation moving forward, but i also believe the opportunity is there because i see it in a lot of the initiative you are working on. the american states can use this crisis to take transformatial steps, to make your states and

our society smarter. i believe the governors are critical to make this happen. you have more impact on america's future standing i think than any leader in the federal government or local governments. let me tell you why. because you set where all these things come together. you operate the syems that make things work for our people were for our businesses. that is where they all intersect. in your cities and states is where it happens. you are in the position of transforming all of that because you have to govern. if you use the term we use in business as a ceo, you have to operate the company. you cannot just give speeches about compelling visions. you have to run the place. you have to make ends meet.

the plumbing has to be connected. the subtext to me of the "times" magazine story is the states is where the action is, and therefore were the greatest opportunity is to facilitate much of the change. to capture this moment, we need to look at our companies, organizations, states in new ways, and we need to see them not as isolated and cities but as part of a broader system. at ibm, we know little about systems. i'm not really talking about computer systems. i mean an economic, logistical, societal systems and how the world operates. if you look at the work we have been doing for a century for businesses and institutions, we have designed and built most of the social surity systems of the world, the central bank in systems of the world. retail, transportation, space,

apollo xiii. to do so, we have learned a lot about what is required to do a system that is a functioning, brazilian, and reliable system. first, -- resilience, and reliable system. first, think about this and the context of health care, and then i will brigit. first, there must be clarity of the system's goal. put a man on the moon. second, its elements must actually be connected. third, it must be continually able to know the status of itself and its critical components. finally, the system must be able to adapt as conditions change, often in real time. viewed against these four simple characteristics, every well functioning system books about the same. an atm system looks much like a public safety system, or the

apollo mission that sent the astronauts to the moon. nonetheless, the system from a system point of view, they're very similar and analogous. it becomes more car what other systems are in crisis. but the one we are focusing on today, the american health-care system. in truth, when it comes to health care in america, we need to put the word "system" in quotation marks. it is not a system, it is a collection of cottage industries, coincidentally running into each other from da to day. in theory, i think everyone agrees on the purpose. if we said the purpose of a health care system is to provide patient care and high quality, affordable way for all constituents, your citizens and my employees, i think there is instantaneous agreement. we can argue aut how much time spent talking about that, but i

think we agree on the systems purpose. it is about the quality of care for our constituencies. simple. that is simple. patient time, trita and experience should be the design point. the design point matters because that is what you optimize around. the optimize around the design point. in the spirit of economics, we all have to pay. you will hear later i am a big pair of the health care system. but you need to envision the and the state because that is where you do the design. i will not take you through the details of what is being called the patient-centered medical home. it i free to everyone, the goals are clear. that has the great benefit of making people healthiercosts are down, and ibm is happy to participate.

at the end of the d we won a healthy work force and we want our costs go down. it it makes a lot of sense. we are happy to be participating in those kinds of partnerships. as i said, the services are free to all the patients in the system. a key dimension of the patients in hlth care is really wellness and prevention. i will repeat that because it seems like many days we forget. it is all about wellness and prevention. within ibm, we have also substantially reshape our health care program. we provide health care coverage r 450,000 employees and retirees and family members and the united states. we are one of the few companies that still provides retiree health care, at a cost of nearly $1.3 billion annually. at one time, we're where defined as cadillacs. in two dozen for, we pioneered in what is incentive -- in 2004, we pioneered a wellness

incentives. we focused on what you expect, exercise, eating,hich lost, health care -- weight loss, health care risk, etc. as a result, ibm employees have become healthier, costs are rising slower than other costs from corporations or the public sector, and by the way, we saved about $190 million because people are healthier and use the system less. is that an alarm? there is enough security around, so i guess we are ok. just gting through the parking lot -- it is easy to get to the giants game. of course, unless we're playing the new england patriots. nevertheless, i think the problem is the matter how much efficiency we improve the care and the system, as a company and

community or as a state, it ll always be limited because it is not interconnected. because a system is interconnecd, end to end. in many areas of life, this connectivity is so basic we take for granted. consider banking. we take for granted we can transfer funds and make payments among institutions, retail. we take for granted that you can use the same payment and billing system and a store, website, anywhere in the world. you could use the payment system. the reason for that is the interface standards are defined and, and open and the information flows. i'm not talking about bits over wires or in the air. it is about the prophecies and protocols that allow the information to flow freely and be shared. clearly, health care in america, you would agree, today fails the

test of a well functioning system. third, many of the components of the health-care system are not instrumented. they may be instrument, but it is from the insurer to the doctor to the employer, it is impossible to know with confidence what e current status is. whatever happens to be, medical procedure or payment, you just don't know with confidence the access of the information. of course as you know, it is a colossal waste of time and money, but also introduces inconsistencies in quality and multiple opportunities for error. if you ever see somebody out of surgery, they have a magic marker. they marked the leg. they take a big magic marker and they've market so they did not do the procedure on the wrong leg. you cannot make that up.

when it comes to the fourth characteristic of a well functioning system, adaptability, i know you are aski yourselves this -- is the health care system in your state spending providers, researchers, governments, appears, communities, is it ready for what is coming? because demand will only increase. a population growth, the aging category of baby boomers, and urbanization marching on, there will be far more physical capacity needed then we have. put it all together and it is not hard to see why we find ourselves in the current crisis regarding health-care costs. it's the states hardest of all, as you know. health-care costs arexpected to explode by 70%. at 70%, in the next decade. that outpaces any gdp function one could rationally make.

if you agree on the need and lack of a true health care system, how do we get there? how we get to that point in time? and a bit of a statement on why it computer guy is talking about this. ibm works witthe top 10 u.s. hospitals and at the net estates, the top 20 health care insurance companies, the top 30 pharmaceutical companies, and 18 of the top 25 techs. we have similar relationships in western europe, china, singapore, and i could walk you through latin america. we have a point of view, needless to say. we have validated a lot of what is required it in the smarter health care system. that is not about a computer chip. that is not about a device or server or robber. it is not even about the eleconic medical records which everybody wants to define as nirvana.

it is not enough. it is important, but not enough. it is about the data. on this planet, it is becoming more instrument and interconnected. we are capturing data in unperson added volumes. in three years, i.p. traffic is expected to be one, followed by 21 zeros, bytes. they're coming in multiple forms through rich media, not tags, cell phones, cameras, capturing it from every system or event imaginable. from the farm to the shelf. billions of individuals used the social networking. the most important point about this is not how much data darrius. the important point is what the data can tell us. to capture that, we need to dive

deeper. we need to move from big data to smarter data. that is why analytics are key. analytics are mathematical algorithms. yes, some are quite significant, detecting patterns in care, health care, fraud. it detects patterns. is the context of the data. you need to see it what it relates to, and real time, to make necessary adjustments. as ibm does this work, health care i.t. is going to do for the doctors' minds what the x-ray did for their vision. it will change the way they look at things. where we once inferred, we now know. where we once it extrapolad, we can determine. that is the promise of a smarter

health care system. instead of doing 15 random tests, we do the analysis and to two of the right tests. but talk about smarter health care. i like to do this by example. let's talk about governor rendell's pennsylvania and university of pittsburgh medical center. very innovative approach. the committee consolatory care units were " extremely well. you see it in north carolina, university of north carolina health care analytics improves the quality of patient care, support research, and manages adaptations. records of every patient can be quickly examined for blood pressure or illness or drugs that have been administered.

you can see it in massachusetts, where the university of massachusetts is building a from exchanges that will centralize patient and provider registries and connect the physician community, providing faster, safer, more comprehensive care at reduced cost. i can give you tons of examples around the world. we also see a lot of what business is doing. at ibm we're working with the major primary-care societies, the american medical to secede oncologist, a.m.a., and. fortune five other countries. it is aimed at helping doctors think of themselves as a business, continuous quality, efficiency in the office, and demonstration projects with the american association of family practice. adopting a medical home approach took in come up 14%, visits to emergency rooms were down 40%.

one of the biggest costs to the syst are people randomly going to the emergency room to receive primary care. tons of examples. but it is not just health care. governors, you have to deal with all ofhese things. i have a couple examples where i think ings are becoming smarter in the states and cities. government services. something you have to do every day, like we all do. governor schwarzenegger's california, alameda county social services using advanced analytics to help caseworkers find the meat status of any child or staff member -- to find the immediate status of any child or staff member. they saved $11 million. transportation and washing, d.c., a transportation authority managing and operating 12,000

bus stops, 106 miles of track, 144 railcars, 1500 bosses, as inton, and elevators, all part of the transportation system. 180,000 changed orders and repairing the system before bricks. smart transportation, singapore, getting people to use alternate transportation. at picnics everything. taxis, buses, light rail. if you know you get off light rail, you know the boss will be there within 30 seconds. by the use of analytics. watching traffic, congestion, those things. you can predict the way to get to where you need to be in a timely manner. it is also true in public safety. governor paterson, new york,

real-time crime center, where we worked with the police commissioner kelly and mayor bloomberg. this creates millions of pieces of information, and covering data relationships, leading to a 20% drop in crime. york has beenlassified as one of the safest large cities in the world. -- new york has been classified as one of the safest large cities in the world. alabama, using analytics to tracks to the performance and identify who is at risk in adjusting the curriculum so they can improve it and real-time and obtain the skills required for the 21st century. the list goes on and on. there are lots of ford thinking leader seizing the new capabilities, yet building coalitions and partnerships to get this done. by the way, smarter systems can help with the natn's economic recovery.

there was a recent study published by the information technology and innovations out. a foundation that found out for every 1.2 $5 billion put into smarter transportation, it creates 35,000 jobs. smart. to generate 239,000 jobs per year. broadband investment, could create and retain 500,000 jobs through economic development. yes, these are challenging times. i would begin to make the argument whether health care, we need to invest with eyes on the future. it may be surprising for you to hear from a midsized company in this industry this is really not about technology. this stuff is readily available. it is readily available.

it is about leadership. i will like to close by seeking your help in four areas. first, we must establish data standards. for alth care and other systems. let's focus on health care. this is long overdue. you cannot have things connected with the information cannot flow. you cannot have the knowledge of the patient between primary-care and the clinics and hospitals if the information does not flow. it has to be standard credit standards have to be established. it is time to stop arguing. i have been in the meetings. is 99.7% accurate. we can deal with the 0.3% as an exception. but of course people argue one and nothing gets done. we need these things to be interconnected and the information has to flow. if the system is going to work. for example, the obama administration has pledged $34

billion to its at health care providers to digitize health care records with the cold that 95% of the docto and 75% of the hospitals have the system. these and not based on standards and they are all isolated islands, and a municipality or state, may be region, not the country, it would have wasted the money. so it is not about giving doctors iphones to call their patients, it is about dealing with the system, but accuracy of the information, the flow of the data, as the content the redundancy of the procedure out and cost is down and the insurance goes down that we are all users and payers of. on this question of open standards, the need to take an active voice. you have to request it. it can be done.

when they tell you cannot be done, remember, 99.7% of the information can be standardized. we're talking 0.3%. that is more accuracy than anything we do in business or government. second, we need to build smarter systems by design. anything is complex and dynamic as the 21st century american state, the qualities of a ll functioning system, it cannot be bolt on afterwards. many are working on redesigning state government. it has to be inherent in the design. remember, the purpose, the vision, and state, has to be defined in the initial design. it is too complicated to add it later or ke it up in a appropriation bill using terminology. as you do so, you have the opportunity to deal with the key criteria associate with this common interconnected, analytics, and security. a ystems based aroach, leveraging analytics, could have

immediate payback. there are lots of examples. it compliance -- is compliance, examination of fraud. they are convinced i have an apartment in new york because of my own system. i cannot yell about it. medicaid, on and on. byrd, is smarter state and a bus and requires far more cooperation. i'm not just talking about the familiar idea of a private health inspector, we'll get together for 15 seconds and run off based on our own self- interest. is really a shoulder to shoulder working together to solve these problems. vermont, work together on the crime center in new york. i could give lots of examples. working together, our interests are aligned with it comes to these kinds of challenges we

face. yet we all have particular responsibilities to our partners, regulators, customers, areholders, etc. facilitating these responsibilities is different and need to take a systemic view. that will require a change. finallyhere we need your help is on policy and ethics. there is increasing pressure on all of us as individual citizens or employees, expectations of sustainable living. we are living in a different world as we come together on these guidelines that are established, and are a lot of challenge from societal and ethical points of view. a great example, cameras. yes, crime goes down. first responders have more information, get there quicker, more accuracy. lives are sav. a phenomenal benefits. but what do you do with the data? who has it? what do they do with it? do i trust them?

very real questions. similar, with health care, clearly everybody understands if you could digitize like a u p c code when you by chewing gum the medical records, you could check out quickly. it could flow electronically and to get rid of the paper the system. clearly, everybody understands it. then, questions are the same. what about the privacy? what is the impact to me as an individual? will there be coverage? a lot of this is addressed in the bill, these are real societal questions that need to be addressed security is another. we talk about building smart grids and smart rail and smart source, smart buildings. do we want the security of a web page or smart phone? for the electoral grade or nuclear facility? you interconnect all these things. i don't think so. people are taking that kind of risk.

these are all very serious issues. they require serious work from all stakeholders in society. we need to build constituencies. we have to come together, work on policy frameworks that address these very real concerns or we will not be able to progress in many areas. let me conclude with a note of optimism. i really think that the smarter state is not some grand, futuristic vision. i think it is a very pragmatic thing. nor do i believe making ibm a smarter globally integrated enterprise is all about vision. without operational execution. it is very real. there are more being deployed than the ones i have referenced, by governments here an all of the world. the smarter state is i think

very practical, and it is refreshing because it is not ideological. i understand debates will go on. there will be debates around health care, energy, security, climate change, and it is necessary in a democratic soety. but wherever the debate comes out, you still need these types of systems. you still need the smarter systems to address these problems. they have to be more transparent, efficient, accessible, resilient. all those kinds of things, regardless of where the debate comes down. that has to be done. to get there, i believe us in this room and our peers across the public and private sectors must take a leadership role. that is the good news. it is good because we don't have to wait. we are not dependent on anything. other than ourselves. we don't need the federal government. we can do this ourselves. we don't need anyone else.

someone will do it, by the way. somebody will turn health care into a tru system, and we're working with very smart people, individuals with a few billion dollars of backing, who will fix the problem. they got what the implications of not fixing the problem. someone will put in place the key building blocks for smarter education, to prepare our kids for the future jobs, not prepare our kids for jobs that one exist when they are in their 30's and 40's. somebody will institute's standards that will allow for across the system interaction or connectivity so that state governments can share and municipal governments can share. somebody will do all that. someone will unleash the scale and expertise and creativity of the local american communities. it somebody will build the capacity to identify the key patterns of all this data.

this will happen. someone will drive incredible progress in their region, across the country. when they do that, they will on block economic growth and profit. my suggestion, and a humble way, if you are in the middle of it. you have to solve these probms. in away, whether you want it or not, congratulations, you won the election. i think the precondition for change is there. you don't have to sell any of these points i am making to your constituencies or citizens as a need. need to be transparent and candid with the way, not the need to carry that is where things breakdown. they get the need. i would argue, and a lot of work was done here and elsewhere around the world, when they saw

e benefit, congestion went down and publish went down, and they bought in. when you are transparent and show them the result, they buy yennd support it. -- they buy in ansupport it. i'm confident the states will do what we must do, and that is lead. we will build a bunch of smarter states and cities, makes societal progress, and this will be a great place to continue to have a wonderful future. thank you for your time. [applause] >> thank you so much. we appreciate your perspective and time today. we have a lot to learn from experience at i and other major employers to help hold down health-care costs, and we're grateful to have your thoughts at this nga meeting. i next speaker is an economist

with a great deal of experience in the delivery of health care across the country. dr. david cutler is the professor of applied economics and the department of economics at harvard university. professor cutler was the senior health care adviser to senator obama's presidential campaign, served on the council of economic advisers and the national economic council during the clinton administration. professor cutler has held positions with the national academy of sciences. it is now what the bureau of economic research and a member of the institute of medicine. profsor cutler is the author of of " your money or your life: strong medicine for america's health care system." let's have a great welcome for dr. david cutler. [applause] >> thank you so much for the introduction. thank you to my own wonderful governor and everyone for having

me here. that is a great privilege and honor to be here. i suspect, given the health reform debate over the past year or 18 months, you feel a bit like a friend once told me he felt, where it took all the health care economists in the world and you line them up end to end, that would be a good thing. [laughter] i will try not to -- not to play the usual health care economist and tell you what must be done, but rather give you a sense of what might be done and a few thoughts about how to make it happen in a productive way. and i will follow along some of what sam was telling you in terms of how to make the system work and get it to drive towards betteresults. let me say, there are several challenges coming of health care reform.

one of the things about them, they will all happen at the state level. i don't know very many things for sure, but one thing i know for sure is that if we'reoing toake the health care system work, work for people, individuals, work for state governments, the federal government, work for us as a country, it will be because the naon's gernors make it work. there is no group that is more important in making reform work than that. there will be huge issues of regulating insurance, most states have some familiarity with that. covering people under medicaid and other exchanges, a number of states here haveegun that process. perhaps most important and health care reform is what i think of as improving the value of care, which is making care and higher quality and less expensive at the same time. it that will be the goal. without that, nothing else works.

if we cannot deliver better care cheaper than all of the commitments we have made, -- then all of the commands we have made will not be kept. and commitments we made to medicare and medicaid will not be kept either. that is the bad news. or the good news. better news is what we know is there is an enormous amount of wasted resources. 're starting from a place where we can make enormous progress. .

>> in particular tell you that i believe y have the tools a lot hand to really push the system in the right way. those tools are won, the collaboration that you can foster as in the commonwealth of massachusetts as we have done in health care using the tools between the public and private sectors. second is changing the way the system operates by changing the information and the rules under which the money flows and

therefore, the way in which the system operates. i will expand on each of these. third is encouraging the right kind of innovation that says we are going to figure out how to do better cheaper, not how to do more in a disorganized way. those are the points that i want to lea you with. let me start by talking a little bit about where is that $70 billion? what is happening that we are wasting so much money? a part of it is administrate quafe expense. it turns out the most common occupation in health care, the most common thing that people do, not being doctors, not being nurses, but doing clerical work. duke university hospital in north carolina has 900 hospital beds and 1,300 billing clerks. i feel like if i am admitted there i should get 1.5 billing clerks in bed with me. what are they doing?

they are in insurance provider groups. they are figuring out how to bill, how to deny bills, figuring out how to get them resubmitted and aroval, all sorts of things like that, huge amounts of administrative waves that goes on. i will tell you how you can lead the effort to drive it out. inadequate prevention, people show up in hospitals when they don't need to, when we can care for them better on an out patient basis. that is the default activity. people going into nursing homes when they can stay out. people not getting the care they need. when they get care, it is often too costly. anyone who has managed anyone with a chronic illness will know about the tests that are repeated and services redone beuse they are not available the first time. medical errors, to give us an exasm, as a country we spend about there are 30 billion fixing medical errors every year.

all of that money, if you think about it, we could use for much better things. so what is the common denominator? it is lack of any organization or lack of any way of making the system work. you have people who are healthy who sometimes get sick and then oftentimes need various medical services. the services that they need are all completely disorganized. they go to a primary care figns who sometimes talks to a specialist. they go to the hospital and then leave the hospital. huge failures to keep track of people. the cost of that is probably about $10 billion to $15 billion a year, all because people aren't thinking the way that a system does. there is no organization to the

health care system. if there's one theme to both what sam was saying and what i believe about the future of health care is we won get it better until it is better organized, until there is some central organization -- and i don't mean government-controlled organization. something that says our job is to take care of patients, do it in the right way, and in a way that works for them. if you think not about health care, but about every other industry in the economy every firm that you admire from wal-mart, amazon to i.b.m., you say what is it they do that makes them successful? kind of like every happy family is happy in the same way. what is it that leads to success in there are really three things. number one is getting the information right. name an industry that ever got better without knowing what it was doing. in health care we don't know what we are doing.

if you want to find out which doctor is better than which other doctor at doing surgery, almost no way to find out with the exception of a couple of states. governor patterson's new york, pennsylvania, or massachusetts. you can do it for scattered situations, but not as a whole. get the information right. that is what every big firm does. they know who is doing about what, why they are doing it, how do we do it better and make it work. number two, make the compensation work out. me doing the right thing be therivateable thing. if you ask any doctor now what incentives do they operate under, it is do more, get paid more. do it fancy, get paid even more. of course that is what we get. we get more and more things, often without documentation, and thene get into the fights where someone tries to say no. the doctor says but this is

what i need to do. and it is all becse we don't give them the right information. we don't give them the right incentive. when we say we want to help you do the right thing, help you take care of people before they get sick so they don't need expensive care, they say hal lu yea, and they wind up doing that. the best health care system in the u.s., the kaisers in california, pennsylvania, washington state, the best health care systems integrate, coordinate, pay the doctors a better way, and they get savings that are in the millions of dollars a year from doing so. why? because they have figured out how to make the money and the information flow. the third thing they do is empower workers and consumers to figure out how to do things better. this is not top-down management. this is liberating information.

if you wander around hospitals, and you say to the nurses are there ways you can make the system be better? of course. they will give you 25 answers for how to do it. you say why don't you do it? they will say because no one has ever asked me. you take the most dedicated work force in my industry anywhere, and you stick them in a little box, and you say you do a job. a third of what a nurse does in typical day is documentation. very frequently taking things from a computer and writing them on paper. usually we think about going the other way. oftentimes it is converting things back. so we take the most productive work force,he mt dedicated work force, and we stick them in walls and say don't think innovatively, but make changes, and the result turns out to be a huge waste. how do we solve this? here is what steps i would

encourage. number one, push on the administrative cost. the administrative waves is probably about $250 billion to $300 billion a year. we should be able to cut that in half within the next five years. we should be able to save the country $100 billion to $150 billion a year just by streamlining the administrative system. how e we going to do that? >> a lot of that is going to come from people getting together and making it work. you talk to my provider group, they say it is so complicated they need hundreds of people in their billing systems just to submit bills. insurers will tell you the same thing. whene had the debate in the past year, we didn't agree on very much. one thing that everybody agreed on, left and right, democrat and republican, doctor groups, insurance groups, what everybody agreed on was now is the time to tackle this issue. if we get togetr, and it is going to happen at a state and local level.

if you get together and say i am committed, we are going to cut thisut. now we are going to figure out how to make it work. let's figure out where the doctors and the hospitals are putting resources. one hospital in massachusetts is spending $200 million to put in a new billing system that will help them get bills submitted quicker. that is something very concrete that is happen at the public sector level. it will be an ermously valuable thing in the system to get rid of that. i would push on that quite strongly. the second thing, you can't do tter unless you have the right information, and the information is going to be key here. you have the capacity to do this. you have the capacity to assemble all the data. remember, in most of your big cities, you have probably only got five insurers, and across your state, maybe 10. you have got med -- medicare,

medicaid. you have a small group of folks. you can see who is doing more and mo is doing less. we know how to analyze things like that. what's the best way to care for people? the way i like to think about this question is we have about a million people in the united states who analyze which stock prices go up, which go down, and so on, and we have next to nobody who analyzes medical nobody who analyzes medical

can get better. there is money from the federal stimulus funds, the $20 billion out there available this fall. i would -- if i were in your position, i would encourage all the providers to be applying for that. get that money so you can move the information around, because you're never going to get better if you don't know what you're doing. that is the second thing i uld do. the third thing i would do is make the money follow the value. we have things that are very uncoordinated because that is the way we pay for it we tell doctors see a patient in your offi and treat them, and you get paid for that, and that is what works out well. in reality, what people care about is not who sees them where, but is the patient as a whole doing well. i want to avoid the contention fights over health care reform which we just had and nobody wants to rehash. but the areas where there were

aagreement was we ought to think about ways where we can fix the payment system so that doctors say treating people well is the right thing to do. how do you do that? you move away from paying for each service. you say find a way to take care of this person who needs it. find a way to do that, and we will make it worth your while. take your dual eligible populations for a second, who are probably the most expensive people in the health care world. if i were going you advice what to do, one thing i would say is go to the provider group and say whoever can mage these people well and save us money, we will share that savings with you. the cost is what, $20,000 a person now? find a way to do it for $15,000, save the $5,000, and we will give you half of that. figure out a way to make it be in their interests to save you

money. we are going to monitor qlity of care. we are going to monitor what you do. we are going to make sure you are not skimping, but find a way to do better. in the best health care systems, that is what they do. how can we do better by them. you it tell folks we are not going to paying for each individual things but as a whole. different things would be appropriate in different regions of the country and the state. the key is going to be to start the process of payment reform. who can start it bes i think the best answer is the people in this room can start it. why? you have a lot of folks who are already involved in what is going on at the state level. you have the medicaid beneficiaries. the state employees are the biggest group purchasing things

in many states. the private insurers are actual quite willing and eager to work with the public sector to make this happen. if you ask private insurers why they haven't innovated, they will say because there is no government there to work with. part of it they were complaining correctly that there was no federal government, partly they were hoping there would be reform so they can't work with state governments as well. the reformers i know are eager to work with state governments. medicaid is now able to -- medicare is now able to do this. medicare n work with the private sector, with what is going on in state government to make these sort of systemic changes in payments that are then with the information going to filter through. remember. go back to amazon, go back to southwest airlines and i.b.m. they get the right information,

and they get the right incentives. that is what this is about, getting the right information, getting the right incentives, and then telling people to go ahead and do it. the fourth thing is i would be quite open to new organizations helping out. this fall the feder government will release standards for what are called accountable care organizations, organizations that are able to bundle large numbers of medicare beneficiaries, care for them better, take part of the savings as profits and leave some for the federal government. physicians will be able to set up medical homes, something sam was talking about in vermont and other areas. there may be even private ownership here in boston. a private firm is partnering with the largest hospital system in michigan, and blackistone, the largest private he could quit firm in the country is buying detroit medical center. a lot of this innovation can be about how do you bring principals to health care?

how do you run something well? how do you take care of a very complicated relationship? i want to give you one other example of how to think about this. i have shown you, and i can give you a list, of all the people who are billionaires out of health care. everyone who is a billionaire in health care, on the forbes 400 list of richest americans, with one or two exceptions, everyone on this list made their money by inventing something you do to people. you stick something in them. they make divideses -- devices, they make drugs. you stick it to them. let me show you a different list. the list of people who made money off retailing. there are six wal-marts, two home goes. a few gaps, a best buy. some of these you have to be

from states other than massachusetts to have visited. in the res of american industry, not a single person on this list, not a single person, makes a product you use . every single person on this list made their money by changing the way that you buy things so that it is hire quality and cheaper -- higher quality and cheaper. in health care you made your money pie inventing something -- by inventing something you do someone. if we get it right, our best guess is that waste in health care as a whole is about $7 billion a year. you could overwhelm that list with people who can figure out how to coordinate care, streamline medical practices, overhaul the administrative procedures, ensure people get the right care management, the right information flows.

that is what we are waiting to do. the reason it hasn't happened is we have stifled it. we haven't invested in the information and we haven't gotten the payment and other systems set up right. if you can find a way to do this right, what we will do is unlock a health care revolution over the next decade that will completely transform the way that we see health care just as a way that eliminating insurance people will change the way we think about health care and society as a whole. i want to talk about one other thing, which is tackling the ee bowsity issue. sam mentioned what i.b.m. is doing. what we do know is that if you make fattening food be more expensive, people use less of it. there are a variety of ways. i don't want to spend too much time on them here because i wanted to deal with the things probably more immediately affecting you. but there are ways of dealing

with that either at the level of taxes or at the level of the work place, kind of wlness programs that i think belong on peop's agendas. i keep in mind the words of the famous philosopher jerry garcia. superbowl has to do something, and it is just incredibleably incredibly pathetic that it has to be us. what do we have to do? i think what we have to do is unlock savings. we have to start with the easy money, which is the administrative expenses. and then we have to set up a learning, innovative dynamic system. the way i think about it, as a bottom line, our job over the next five, to 10 to 15 years is to set up a process where the health care system is completely reborn. and if the health care system looks the same in 10 years as it does now, then we will have

failed at our eorts. and if it looks different in the way that everything that is responsive to what people want is happening, then we have a chance of making this be the most productive thing we have done in the economy in the past 30 years. and i would i will stop there. thank you so much for having me. [applause] >> well, thank you, dr. cutler, very much. we appreciate the information and guidance you have presented tos. as many of my colleagues know, this afternoon the health and human services committee will focus on childhood nutrition and obesity. thats the subject of any reform effort. we have had thoughts from our two speakers and the new report. and obviously health care reform is going to consume a

lot of our time and attention for years to come. let's thank our guests for joining us this morning. [applause] >> coming up on washington journal, we'll take your questions and comments also the group campus progress with a discussion on abortion rights. and the national right to life committee's annual convention. >> this morning, a discussion