JAMES M. SWEENEY, Chairman, chief executive officer, McGaw Inc.

James M. Sweeney has been at the helm of Irvine-based McGaw Inc., a distributor and manufacturer of drug delivery products, since 1990. But his health care industry experience dates back to an after-school job he got in a hospital at 15. Sweeney, 50, is one of the founders of the modern home health care system. Sweeney talks with staff writer James M. Gomez about health care trends. His firm’s Excel IV bag, an environmentally safe intravenous bag, received national attention when Sen. Al Gore visited the company recently.

How have things changed in the past 20 years in the health care industry?

Cost for one thing has changed dramatically. I can remember back in 1960 health care represented 2% of the GNP (Gross National Product). Today it’s about 12%. When I was in San Diego, the community was up in arms about the cost of health care. At the time, they were charging about $25 a day for room and board to be in the hospital. It’s just hard to believe in our lifetime, things have changed to the extent that it has.

What else has changed?

The hospital went from being a treatment center of last resort to the first place you go if you have a health care problem. One of the reasons, frankly, is that it is really convenient for the physician to go to one place and see all of his or her patients. Today, there is a huge bias toward hospitalization to the extent that there are so many services that are reimbursable if you are in the hospital, but not if you aren’t.

Will we see a trend away from hospitals?

Yes. Back in 1982, I was talking about the fragmentation of the hospital system as we knew it then. We drew a series of pictures to show the hospital as it was then, a monolithic structure, and showed how it will be broken down into multiple pieces. That is obviously happening now. I think that will accelerate. The hospital is the most expensive and least desirable place to be when you are sick.

What is happening then with the hospital system today?

What we are seeing is a painful restructuring of the industry. Hospitals today only fill about 60% of their beds. If you think of a hospital as a manufacturing facility, you have a 40% underutilization. The industry is painfully downsizing and restructuring.

How is the industry restructuring?

The powers that be within the large health care institutions have wanted to change in an evolutionary way. But the change that’s been demanded is not evolutionary. It’s revolutionary. In revolutionary times in business, it’s the entrepreneurs that lead change, in this case with surgery centers and home health care enterprises. They are unhampered by having this big asset (hospitals) and do it right in the first place.

What will the health care industry look like 20 years from now?

You will see a fully integrated system that is able to take its resources to the community. They will take the monolithic structure and downsize it so that the hospital in 20 years will be an intensive care unit with a surgery center attached to it. Not much more than that. The rest (of services) will be out in the community.

What is wrong with the present health care reimbursement system?

Let me put it this way. If we were to tell you to go out and buy a car and we were to tell you that you didn’t have to pay for it, I would predict that you would go out and pick a pretty nice car. But if somebody tells you that you will have to make the payments on it, that’s going to introduce a level of rationality into the decision that is not there. That’s exactly where we are in the health care industry. The doctor makes the decision and you receive the care and somebody else pays for it. We’ve got to move those things closer together and more successfully than we have.

What kind of reimbursement system do you conceive that will address that problem?

I personally am much in favor of a system which puts the patient at risk to the extent that they have some sort of allocation that they can work off and that they can carry over for a period of years if necessary. If we gave you $20,000 and say, “Here. This is all you are going to get,” you would spend it wisely. You would spend it differently than you do today.

Sen. Al Gore made a campaign stop at your company recently. Why did he choose your company to raise the issue of protecting the environment?

To the Gore point, what really comes down here is that there has to be a balance between economies and ecology. And we are a good example of a company that has balanced it pretty well. We are at somewhat of a competitive disadvantage because production costs are higher. We are in effect suppressing our profit margins. But if we have a larger volume at the end of the day, we are doing well.

Why is the environment a major campaign issue?

As the economy has gotten worse and jobs have become much more precious, people have focused on things like salaries of CEOs and jobs lost because of the spotted owl. I am not a raging environmentalist along any lines, but we are creating problems for ourselves. Those problems are starting to mount. We see evidence . . . every day.

What effect does the political environment have on getting effective changes in health care?

There are solutions out there, but they are politically painful ones. For instance, senior citizens vote eight times more often than any other age group. And any time anybody has the nerve to raise their hand and talk about cutting entitlements, anybody who dares mention touching them is out of office. I think unfortunately the way these things work out, the health care system will get to an extreme breaking point before anything actually starts happening.

On trends in health care. . .

“We are very much in an intermediate place in the evolution of health care. I think it is really coming full circle right now.”

On solutions to rising cost of health care. . .

“What is missing in this whole equation is the individual. The solution to the problem, in my opinion, is not to increase legislation, it is not to get government more involved. It is to put the individual in the decision making process.”

On recycling. . .

“We are helping hospitals get involved in recycling programs on their own. Ultimately, we will see the concept of disposability come full circle and recycle our products.”

On why health care costs should be cut. . .

“Who behind us is going to pay for all this when we become old? There aren’t enough of our kids around to pay for all of us.”