AMERICA'S HEALTH CARE REVOLUTION: Who Lives? Who Dies? Who Pays? By Joseph A. Califano Jr. Random House. 241 pp. $17.95

THE HEALTH ECONOMY. By Victor R. Fuchs. Harvard University Press. 401 pp. $25.

THE AMERICAN health care system is now undergoing the most rapid and profound transformation it has experienced in this century. As yet, consumers seem only dimly aware of the changes that are overtaking the doctors and hospitals in their communities, but they will find out soon enough, for there is no question that they will be affected.

The motivating force behind the changes now underway in health care is clear enough. In a kind of economic civil war, society is rising up to discipline one of its own components, the health care system, which has grown too rich and powerful for the health of its neighbors. Spearheading the revolt are two key actors: corporate America, which has tired of watching health care bills jeopardize its profits and its international competitiveness; and a cost- conscious government, suspicious of its own size and intent on reducing expenditures.

The signs of the transformation are numerous. The federal Medicare program has radically changed its method of paying hospitals. Corporations are pressing employes to join health maintenance organizations (HMOs), which have strong track records in controlling costs, or to enroll in "preferred provider organizations," which provide fee-for-service care at discounted prices. Hospitals, threatened by falling occupancy rates, are increasingly seeking security in size by joining large multifacility health care chains, some of which own not only hundreds of hospitals, but also nursing homes, HMOs, ambulatory care facilities, and even insurance companies.

Perhaps the most important aspect of the so- called revolution in American medicine, however, concerns the public's attitude toward health care as a good. In taking away control of the health care systems from doctors and hospitals, our society seems intent on demystifying not only the role providers play, but the health care they provide. The result is that health services are increasingly treated as traditional economic products, like financial services or automobiles, that are most appropriately and efficiently distributed in freely competitive markets.

The potential implications of these developments for the daily lives of Americans, sick and well alike, are profound, and the need for guidance in interpreting and reacting to them is pressing. No two individuals are better qualified to provide such guidance than Joseph Califano and Victor Fuchs. A former secretary of health and human services, Califano has observed the health care sector's private side as well. Most recently, he has chaired a subcommittee of the Chrysler Corporation's board of directors concerned with bringing Chrysler's health costs under control. A professor at Stanford University, Fuchs has been justly labeled by a colleague "one of the sagest and most humane health economists in our midst."

Those familiar with Califano's work will find his new book, The American Health Care Revolution, an accurate reflection of his public persona. Fast-paced, provocative and sometimes even infuriating (at least from a physician's perspective), the volume shows the boldness and combativeness that made him so effective and controversial as a cabinet secretary.

Doctors reading the book will detect what they might call a surgeon's mentality at work. For Califano, analysis is a prelude to action. He is refreshingly intent on finding solutions to health care problems, on pressing for a cure, even at the risk of lacerating sensitive political nerves along the way.

Much of his aalysis is fundamentally sound, if not entirely original. Because of the way health care has traditionally been financed and organized (extensive health insurance, fee-for- service compensation of physicians and hospitals, lack of cost-competition among providers), the health care system has provided too much care to too many? people. The resulting waste in resources is all the more unacceptable, Califano asserts, because 35 million Americans remain uninsured or inadequately insured against the cost of illness and because our rapidly aging population has increasing, legitimate needs for effective health care services that we will be unable to meet if the waste continues.

Califano has numerous concrete suggestions for reducing the excessive or inappropriate use of services, including increased reliance on HMOs, increased emphasis on consumer education and disease prevention and health promotion, as well as changes in the way physicians are educated. At the core of his proposed treatment, however, is the insistence that business must wrest control of the health care system from the health care providers who "kidnapped" the corporate world "without so much as a whimper." According to Califano, "Our best hope to change the health care system rests in an awakened, competitive world of business purchasers demanding and bargaining for high-quality care from a variety of providers at much lower cost."

Unfortunately, it is not clear that Califano (like some others who share his views) has thought through the implications of his competitive prescription for goals other than cost containment. He expresses anxiety about the spread of profit-making health care organizations, a natural byproduct of reshaping the health care system to look like other economic markets. "The profit motive," he asserts, "cannot be permitted to shortchange quality of care or curtail access to needed medical services. Special precautions are needed as the big money moves into the health care system. . . ."

He is not specific, however, on what those precautions should be, nor is he sufficiently clear on another critical matter; that is, how any savings realized from competition within the private sector will be made available to fund health care programs for the poor and aged, who, it is widely acknowledged, do not fare well in competitive markets. The problem here, of course, is that fulfilling the unmet needs of these groups will require increased government spending and involvement in health care; not a very popular message at this time.

In other respects, Califano has no qualms about being unpopular. Indeed, he seems at times to go out of his way to offend groups whose cooperation is essential to arriving at a new social compact in health care. He is particularly hard on physicians ("medicine men") whom he repeatedly accuses of massive fraud and abuse in treating both privately and publicly insured patients. However true the allegation, his heavy-handed treatment of the subject will only serve to convince the great majority of honest physicians that lay reformers are implacably hostile to health care professionals.

IF CALIFANO'S hard-charging book displays a surgical mentality, the soothing, contemplative tone of Fuchs' work evokes the psychoanalyst. Fuchs is preeminently interested in behavior and motivation. He wants to understand how the health care system operates and why. He is equally adept in probing the psychological motives of individual patients and physicians, and in projecting how changes in economic incentives will affect the behavior of vast groups of doctors, hospitals and insurers.

A collection of his published papers, the book will be inaccessible to many readers who have not recently brushed up on their statistics and econometrics. A few chapters also seem somewhat dated. However, the first two and last five chapters of the volume are easy and worthwhile reading. In one early chapter, Fuchs takes a hard, though sympathetic, look at disease prevention and health promotion efforts. He finds less firm evidence than he would like that such programs are cost-effective, and argues that a major obstacle to their broader adoption is that individuals are unwilling to make sacrifices now (quitting cigarettes, dieting) for benefits that may not be realized for decades.

At a time when comprehensive health insurance is widely disparaged for making consumers insensitive to costs, Fuchs draws attention to the motives underlying such protection. In a chapter entitled "Economics, Health and Post- Industrial Society," Fuchs points out the psychological comfort that individuals derive from having coverage. Many people simply do not want price to be an issue when they or their loved ones need health care. The push toward making health care consumers price-conscious will have a psychic cost.

This is not to say that Fuchs disagrees with Califano's assertion that health care is currently overutilized, or that it is essential to make its use more efficient. Fuchs, in fact, was one of first scholars to make this case. Nevertheless, he seems troubled by the pace and direction that the health care revolution is taking. In the book's last chapter, which every health policymaker and corporate health care purchaser should read, he calls for balancing the goal of cost-containment with other essential social purposes. "Every revolution," he notes, "carries within it the seeds of its own destruction through excessive preoccupation with one goal. The present revolution in health care financing is no exception. The problems it addresses are palpable . . . but the problems it may create are also significant: inadequate insurance for millions, erosion of professional ethics . . . loss of trust between physicians and patients."

For insights like this, we forgive Fuchs for not offering any specific policy suggestions to help us balance the competing goals of equity and efficiency, compassion and cost- containment. In fact, reading these two very different volumes side-by-side, I came away wishing that Fuchs' wisdom could somehow be married to Califano's energy. A few individuals combining those attributes could go a long way toward ensuring that our health care system will emerge leaner and healthier from its current convulsion.