02/19/2009 02:16 pm ET | Updated May 25, 2011

Healthcare Is Heading For Chapter 7.

The dread word bankruptcy is usually associated in our minds with Chapter 11 of the tax code where the Court freezes assets & liabilities; the business reorganizes under Court supervision; and eventually returns under new, leaner circumstances. There is however the more draconian Chapter 7 where you give up and go out of business. Healthcare is headed toward bankruptcy and it will be 7, not even 11.

In response to my blogpost titled, "The Stimulus is stimulating my upchuck reflex," commenter BillZBubb wrote, "there is nothing wrong with establishing an agency to get information for the longer term solution for our healthcare mess." Quite true, but that is not what the stimulus (ARRA of '09) does. It creates an agency to track the cost effectiveness of doctor's medical recommendations.

There are huge problems with the - named by me not them - Cost Effectiveness Policing Of Doctors (CEPOD). Reliable data on medical cost effectiveness is skimpy and weak, mostly non-existent. CEPOD presumes that the doctors are the reason for our unsupportable annual medical expenditures (approaching 20% of GDP).

Second-guessing and policing of physicians by the Federal government will have two very detrimental effects on the health of our populace. (1) There will even more severe doctor shortages: more will leave and fewer will enter healthcare. (2) Doctors will follow rules first rather than doing whatever is needed for the patient's wellbeing.

Worst of all, CEPOD will not uncover (and therefore cannot fix) the primary reason(s) for healthcare's out-of-control cost spiral. Besides, we already know the reason: flawed design of the healthcare system.

Saying "system design flaw" may sound like a cop out: too vague and solves nothing. Let me specify the ways in which the system is designed poorly. Then you decide whether you can fix them, or whether we need to create a new system designed properly from the outset.

The following design flaws in healthcare make the financing unsupportable.
1. The people who consume [health care services] are disconnected from those who pay. (Therefore, supply and demand cannot balance.)
2. Healthcare tracks only short-term costs, and worse, reducing "costs" does not reduce costs.
3. Healthcare does not track individual patient benefits.
4. Absent any measurements of long-term costs or of benefits, no one can determine value of health care (cost/benefit ratio). (Therefore, CEPOD cannot do what it is supposed to do.)
5. Healthcare provides incentives to increase costs.
6. The tort system for adverse medical outcomes consumes large sums of money that are not distributed to injured patients.
7. Using regulations to protect patients raises costs while providing little-to-no protection. The continued occurrence of medical errors raises costs even further.

The seven "diagnoses" above are the reasons why our nation is drowning in healthcare red ink. Can you envision some adjustment of insurance rules or that declaring "universal health care" will cure these problems?? That was a rhetorical question. The answer is a clear and resounding no! The only way to "fix" (permanently) the reasons above is to develop a totally new financing system, one where health care becomes an investment in infrastructure instead of a line cost item.

CEPOD will not cure or even improve healthcare financing.
We cannot reform the present healthcare system to make it work. (Sad but true.)
We need to create a new healthcare system. (Scary but true.)