Medicine in the United States is enjoying a surge of innovation and creativity that promises continuing improvements in everyday life for millions of people--but it is being thwarted by federal and state health care systems incapable of delivering those improvements fairly and consistently to much of the American public. To be blunt, Americans are living with first-rate medicine and a third-rate health care system. And the problem is getting worse instead of better.

Those are some of the conclusions of Governing's year-long study of health care in all 50 states, and of the relationship between state health programs and federal regulations. Scores of reports and hundreds of interviews went into this effort. In every one of the areas we investigated--public health, mental health, long-term care, the care of children and prescription drugs--we found essentially the same story: Dramatic and continual improvements in the efficacy of treatment, coupled with declining access to that treatment, even for those most obviously in need. We also looked into the underlying problem of health insurance, where an unwieldy system has left nearly 44 million citizens without coverage and imposed crippling costs on state and local governments.

The ironies of the gap between the achievements of medicine and the quality of health care are palpable. State and local public health systems all but eradicated such traditional scourges as measles and tuberculosis, only to see them return when inoculations and funding fell off. The 1990s brought a remarkable extension of health coverage to low-income mothers and children, saving thousands of lives, but state budget austerities are curtailing such programs now. Psychotropic drugs have made it possible for the vast majority of mental patients to live on their own in non-institutional settings-- often holding a steady job and raising a family on their own. But many remain vulnerable because the community system intended to help them was never fully developed.

The arrival of breakthrough drugs, including such familiar ones as Prozac and Lipitor, has made pharmaceutical costs a critical element of the entire healthcare conundrum. In the long term, arguments can be made that these drugs will save society money as a greater portion of the population becomes productive or can avoid the dangers of more invasive procedures. But today, they're breaking the bank in some states.

Clearly, there is a health care crisis in America, but it is in no way a medical problem. It is a fiscal problem. And at the root of most of it is Medicaid, the state-federal program that James Fossett, of the Rockefeller Institute, likes to call the "900-pound gorilla of health care." He may be understating the poundage. Medicaid is involved in virtually all the important categories of health care. It is the second-largest item in overall state budgets. When Medicaid runs short of money, the conduit between top-notch treatment and low- and moderate-income citizens breaks down.

In the past two years, all 50 states have reduced or frozen Medicaid provider payments or undertaken other cost-cutting measures in an effort to keep their Medicaid costs under control. The result has been noticeable--following a 12.8 percent increase in costs in 2002, the rate of growth fell to 9.3 percent in 2003. But even 9.3 percent is unsustainable, and there's no guarantee that the number won't climb once again.

"This is a program that was 8 percent of state budgets 20 years ago, and by 2005 it could approach 25 percent," says Vernon Smith, former Medicaid director in Michigan. "It's reached the point where it threatens states' ability to finance other services like education or public health or corrections."

Some of the perceived savings of direct health care cutbacks are illusory. When any of the 44 million uninsured Americans become seriously ill, they aren't--thank goodness--left to die on the streets. They move to a public or private hospital. Some of this is subsidized by hospitals shifting costs to patients who are insured, resulting in higher private insurance premiums. But in the end, most of these bills are taken care of through the same tax dollars that pay for Medicaid. One way or another, taxpayers are forcibly hooked to a fiscal intravenous tube that transfers their money to other people's health care--but makes high-quality care extremely difficult to obtain.


State health care rests on three pillars: quality, access, and control of costs. It is on the quality side, at the higher levels of the system, where the truly good news exists. But breakthroughs in quality have not been accompanied by cost controls, and as a result, access has not only failed to improve but has declined.

In the view of some critics, states are currently in retreat on each of the critical dimensions. "After a long period of intensive analysis," writes Henry Simmons, of the National Coalition on Health Care, "we have concluded that our health care system has three serious and interrelated problems--rising costs, decreasing coverage and very serious and pervasive quality problems. We have further concluded that systemic problems of this magnitude cannot be solved by a 'patchwork' strategy."

It's only fair to point out the relentless tension state legislatures, governors and health departments must deal with in trying to provide adequate treatment. They are continually influenced by external factors that make managing any health care situation a nightmare. In all the major areas--whether it's coverage for the mentally ill, the aged or young people--advocates for the various groups are in thinly veiled conflict with one another for access to a limited pool of cash.

Within public health alone, advocates for virtually every existent communicable disease scramble for the same pot of money. Meanwhile, corporate lobbies--representing nursing homes, pharmacists, doctors, drug companies, large corporations and small businesses--all argue publicly on behalf of the greater good while maneuvering to support rules of coverage that will benefit their members financially. Perhaps it should come as no surprise that state Medicaid directors typically leave their jobs after only 18 months.

But states do have resources as they face this epidemic of problems on the health care front. In fact, a number of them are managing to come up with successful solutions in the face of daunting problems.

Some of these ideas are straightforward, but difficult to achieve. Although the benefits of preventive care are hard to measure, a focus on prevention will certainly lead to long-term cost savings. Another thrust for states is to make sure that people are cared for at the most appropriate level. If an elderly person can get by with visits from a home health aide, that person doesn't need to be in a more expensive nursing home.

Most difficult of all, states are choosing to impose limits on benefits rather than limiting the number of people covered. The use of preferred-drug lists, which constrains the medications covered by Medicaid without prior authorization, is just one example. Patients aren't happy, and it makes life trickier for doctors and pharmacists. But the reality is that states are simply following the model of managed-care organizations that work for large private-sector corporations--they've had such restrictions in place for years.

For all the discouraging news about this whole subject, one underlying point is crucial to keep in mind. Health care is in trouble these days because medicine has gotten so good. The elderly and disabled, who represent the most expensive group of Medicaid recipients, are not complaining about the fact that new medications and technologies permit them to live longer and healthier lives. Nobody worried about the supply of chicken-pox vaccine 20 years ago because it hadn't been introduced. The overriding issue in health everywhere these days is how to create a system that provides the benefits of 21st-century medicine in a way that meets the test of a fair and equitable society.

"There's more to pay for and what we pay for is more expensive," says Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured--the Fort Knox of publicly available information about health care. "We now have technology and we now have drugs and medical equipment that we think a decent and humane society should provide access to. And yet that access depends on the financial means to be able to obtain it. All of us in the field of experts believe we should contain health care costs. But none of us want to contain health care costs when it comes to the services needed by our family and friends."


In this year's report of the Government Performance Project, unlike in the past, no attempt has been made to issue grades to individual states. Rather, the GPP provides detailed reports--white papers, of a sort--for six crucial problem areas that nationally recognized experts cite as the most significant in state-funded health care.

Each report is accompanied by two lists: states that have led the way with efforts others might want to emulate--"success stories"--and states that have problems others should avoid--"trouble spots." Inclusion on the first list doesn't mean a state is a model in all areas, and a mention on the second doesn't mean a state is riddled with problems. And given the speed with which this field is changing, neither may necessarily hold true in a year from now. "This is a moving target," says John McDonough, executive director of Health Care for All in Boston and a former legislator in Massachusetts. "It's changing as we speak. And it's not going to stop changing."