George Halvorson

A Practical Model to Achieve Health Reform 2008 World Health Care Congress George C. Halvorson Chairman and Chief Executive Officer, Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals April 21, 2008 1

Dedicated to Dr. Jerome H. Grossman 2

American health care could be transformed fairly quickly if a number of high leverage buyers chose to strategically use their market leverage 3

Health care reform needs to be a “product” -- purchased and paid for by high leverage buyers in a well designed, sophisticated and carefully targeted purchasing strategy 4

Health care purchasers have great leverage relative to getting health plans to reform key elements of care 5

Old Market Reality -- Hundreds of “slices” -- Commodity products -- Financial conduits -- rather than care managers 6

New Market Reality -- Sumo wrestling -- Total replacements -- Shrinking total market -- Growth needed to fuel stock value 7

Health Care in America is becoming unaffordable. Financing Reform alone can not fix affordability. 8

Ideally, care delivery and care financing should be closely synchronized -- even choreographed -- as reform efforts 9

Most reformers focus on one or the other -- with “financing” getting the most attention most of the time 10

That is a mistake 11

We definitely do need key elements of financing reform 12

We definitely do need key elements of financing reform Several approaches make sense: (Universal Coverage -- Individual mandates -- Guaranteed issue -- Subsidized coverage for low income people) 13

We need to learn how other industrialized countries have achieved universal coverage -- with a focus on the relevance of key European systems to American care and coverage approaches 14

BUT -- Financing reform without care delivery reform would be a major operational and economic error 15

Health care cost increases are the major reason we need health care reform 16

Health care costs come from health care delivery 17

Care delivery in the U.S. is uncoordinated, unfocused, inconsistent, unmeasured, extremely inefficient, perversely incented, excessively expensive and sometimes dangerous. 18

Health care delivery is, however, the fastest growing and most profitable segment of the whole U.S. economy 19

As an industry -- as a business model -- health care is winning. It is taking everyone’s money with an amazingly low level of accountability for the product it sells. 20

We need to face the simple reality that -- Health care will never reform itself. 21

Health care is full of smart people 22

Smart people do not kill the geese who lay lots of golden eggs. Health care is awash in both golden eggs and very smart people. 23

We need to remember that the people who depend on a cash flow of fees to stay in business and serve patients will not, voluntarily, take independent steps to reduce the flow of those fees 24

In today’s world, more efficient and effective caregivers simply deprive themselves of income 25

Asthma: $200 to prevent $10,000 to treat 26

Many Treat Few Prevent 27

So what should we do? 28

Reform care 29

A few hard truths about health care in America, today: 30

Truth One -- Current levels of increases in health care costs are unsustainable -- At current rates of increase, Medicare and Medicaid will be the size of today’s entire federal budget by the year 2050 31

Truth Two -- Health care quality is inconsistent, often inadequate, and too often dangerous 32

Rand Data -- Barely 50% of American diabetics receive appropriate care -- measured by individual care protocols -- Barely 10% of America’s diabetics receive the full package of needed care 33

Diabetes is the fastest growing disease in America -- -- The number one cause of Kidney failure, blindness and amputations -- The number one co-morbidity causing death from heart disease -- Diabetics spend 32% of Medicare expenses 34

Truth Three Health Care costs are not evenly distributed across the entire population: 1% = 35% of costs 35

Cost Distribution of Care Population Cost 35% 1% $300 per month average cost Break even cost insuring one percent: $12,000 per month 36

50% = 3% of costs 20% = 0% of costs ½% = 25% of costs ________________________________________________________________________________________________________________ Costs are not evenly distributed 37

U.S. Population U.S. Care Costs 10% 80% 38

Truth Four -- Some diseases cost a lot more than others -- Acute care costs are not the key cost driver 39

Total Cost of Care In America Chronic Care 75% Acute Care 25% Chronic Care vs. Acute Care 40

Chronic care costs can be impacted (Rand data -- only 30% to 50% of patients receive right care now) 41

Truth Five Benefit design has been clumsy and even inept. Current benefit plans either insulate consumers from the costs of care -- or disincent patients from receiving high leverage care. 42

So what are the realities we need to face to achieve real health care reform? We need to understand the basic cost drivers. 43

Cost Drivers Normal inflation 2008 2010 2020 Cost Mitigators (Inflation) 44

Basic Inflation -- heat, light, salaries, benefits Additional Pressure -- health care worker shortages (lab techs, nurses, etc.) 45

Office Visit Fee -- Canada and U.S. $73 $23 Canada United States 46

Obstetrician Income $290,000 $270,000 $250,000 $230,000 $210,000 $190,000 $170,000 $150,000 Canada United United Kingdom States 47

Medical Specialist Income $260,000 $240,000 $220,000 $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 Canada France United States 48

Cost Differences – U.S. versus Canada Care Costs Administrative Costs 20% 80% 49

Basic Inflation We start with a higher base and then add both normal costs of inflation (and inflation results from worker shortages) 50

Cost Drivers s, genetics, ts, new drugnew science en y, new treatm New technolog Normal inflation 2008 2010 2020 Cost Mitigators (Technology) 51

Number of MRI Machines 30.0 Per Million People 25.0 20.0 15.0 10.0 5.0 0.0 Canada Germany United States Source: OECD 52

Number of CT Machines 35 Per Million People 30 25 20 15 10 5 0 Canada Germany United States Source: OECD 53

Total Transplants 30,000 25,000 20,000 15,000 10,000 5,000 0 Canada France United States Source: OECD, BMJ 54

Liver Transplants Per Million People 24 22 20 18 16 14 12 10 Canada France United States Source: OECD 55

Solid Organ Transplants Per Million People – California and Canada 100 90 90 80 70 59 60 50 40 30 20 10 California Canada 56

One-Third of California Transplants Would Not Have Happened Using Canadian Ratios 3,510 3,242 3,010 2,510 1905 2,010 1,510 1,117 1,010 510 10 California Canada Non- transplants 57

-- New drugs and new technologies do not go through a value screen of any kind in the U.S. -- Manufacturers’ profitability and provider profitability are the twin driving technology business models -- not value 58

Cost Drivers nked care coordinated, unli s, genetics, Inefficient, un en ts, new drugnew science y, new treatm N ew technolog Normal inflation 2008 2010 2020 Cost Mitigators (Inefficiency) 59

-- Co-morbidities drive most costs -- Care linkage deficiencies abound -- 10,000 fees for units of care -- No reward for outcomes or results 60

We need to make care linkages a core competency of American health care 61

Cost Drivers e data f ormanc ero per egivers/z ted car ly incen nked care P erverse coordin ated, unli s, genetics, Inefficient, un en ts, new drugnew science y, new treatm N ew technolog Normal inflation 2008 2010 2020 Cost Mitigators (Perverse Incentives) 62

Cost Drivers e data f ormanc tion ero per p opula are givers/z Aging ely incented c nked care P ervers coordin ated, unli s, genetics, Inefficient, un en ts, new drugnew science y, new treatm N ew technolog Normal inflation 2008 2010 2020 Cost Mitigators (Aging) 63

Per Capita Annualized Health Care Costs By Age Group $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 0-18 19-44 45-54 55-64 65+ Source: CMS 64

Population Over 65 (in millions) 20 15 10 5 0 2010 2020 2030 Source: U.S. Census Bureau 65

Cost Drivers e data f ormanc tion ero per p opula are givers/z Aging ely incented c nked care P ervers coordin ated, unli s, genetics, Inefficient, un en ts, new drugnew science y, new treatm N ew technolog Normal inflation 2008 2010 2020 Cost Mitigators: So what can we do? We can’t stop aging, inflation, new technology, and provider financial motivations 66

So what can be done to mitigate the increasing cost of care? 67

Opportunities exist that are sufficient to offset the health care cost drivers. We have to make some smart choices and wise decisions about available cost mitigators. 68

Cost Drivers e data f ormanc tion ero per p opula are givers/z Aging ely incented c nked care P ervers coordin ated, unli s, genetics, Inefficient, un en ts, new drugnew science y, new treatm N ew technolog Normal inflation 2008 2010 2020 Focus on chronic co nditions Cost Mitigators (Chronic Focus) 69

We need to focus first on the low hanging fruit 70

Five conditions drive over 50% of all costs (CHF, Asthma, Diabetes, Coronary Artery Disease, Depression) 71

We need to start with focus -- we can’t fix everything at once. We can fix some things that costs a lot of money. 72

Medicare Diabetes Expense 68% Cost of care 32% for Diabetic patients As a Portion of Total Medicare Costs 73

All five conditions lend themselves to major improvements in care levels and costs 74

Percent of American Diabetics Receiving “Right” Care 92% 8% Not Right Care quot;Right Carequot; 75

We should determine as a matter of national public policy that we should and will focus our efforts on improving care for a specific and defined set of conditions 76

-- Then -- We should do what needs to be done and can be done to significantly improve care delivery for patients with those conditions 77

Cost Drivers e data f ormanc tion ero per p opula are givers/z Aging ely incented c nked care P ervers coordin ated, unli s, genetics, Inefficient, un en ts, new drugnew science y, new treatm N ew technolog Normal inflation 2008 2010 2020 Focus on chronic co nditions High-leverage targeted care re-engineering Cost Mitigators (Care re-engineering) 78

We need to put the tools in place needed to do that work 79

Tools: • Benefit redesign • Public messaging • Care tracking (PHRs/EMRs) • “Mandatory” care registries and care linkages 80

Care Support Registries For 5 percent of the population this tool could functionally synchronize and coordinate care, massively improve care, and relatively quickly reduce the cost of care 81

This will be a major change Process engineering is almost completely unused in health care today. There is a lot of very low hanging fruit. 82

Nurses spend 26 percent of their time on direct patient care Nurses spend much more time on paperwork than they do on patients 83

The delivery system will redesign important parts of itself when those goals are set and someone is paid to achieve them 84

Process engineering and re-engineering are relevant only when processes have goals 85

Random re-engineering does not create progress 86

Care coordination will be a tool that gets used very effectively when there is a specific outcome that can best be achieved by using that tool 87

We will not get to reform or care coordination on the current path by doing a million, tiny, local, uncoordinated quality improvement projects -- all “one off,” none transferable 88

Care re-engineering -- hospital process protocols (shift changes, electronic prescriptions) -- e-care, mini-clinic care, patient- focused care -- Two tracks -- support for the areas of focus and basic things that just plain need to be fixed (never events) 89

Hospital Safety Results Hospital Composite of Surgery Infection Control: 2005 - 2007 100% A Fresno B Hayw ard 90% Manteca C Northern Calif ornia D Oakland E 80% Redw ood City F Sacramento G San Francisco 70% H San Raf ael I Santa Clara J 60% Santa Rosa K Santa Teresa L South Sacramento 50% M South San Francisco N V allejo O Walnut Creek 40% Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 90

We need to make care linkages a core competency of American health care 91

Chronic Care is a team sport. Acute Care can be an individual effort and market model. 92

Need to use the full tool kit for chronic care: 1) Focus 2) Public commitment/support 3) Buyer commitment/Mandates/Specifications 4) Health plan commitment/competition 5) Consumer commitment 6) Electronic care data (PHR’s/EMR’s) 7) Benefit changes 8) Computerized care support registries 93

Teams need captains and care coordination 94

Someone or some thing has to be at the center of the care experience for optimal chronic care 95

That central point can be 1. A caregiver 2. A team of caregivers 3. A care coordinator 4. A virtual care coordinator 96

Pick one -- and set the cash flow up to make it happen 97

That is our opportunity. We should be able to cut kidney failures in half with best care. 98

Start with the goal -- work backward to the tool(s) 99

Cost Drivers e data f ormanc tion ero per p opula are givers/z Aging ely incented c nked care P ervers coordin ated, unli s, genetics, Inefficient, un en ts, new drugnew science y, new treatm N ew technolog Normal inflation 2008 2010 2020 Focus on chronic co nditions High-leverage targeted care Benefit re re-engineering design Cost Mitigators (Benefit Redesign) 100

Rule One Benefit design should support the care improvement plan 101

Rule Two Benefit design should support real consumer choices and caregiver competition 102

Cost Drivers e data f ormanc tion ero per p opula are givers/z Aging ely incented c nked care P ervers coordin ated, unli s, genetics, Inefficient, un en ts, new drugnew science y, new treatm N ew technolog Normal inflation 2008 2010 2020 Focus on chronic co nditions High-leverage targeted care Benefit re re-engineering design Value b ased pr ovider c ompetit ion Cost Mitigators (Provider Competition) 103

Example One Maternity Care Package Price Hospital One $5,000 Hospital Two $9,000 104

Competitive Impact of a $2,000 deductible Caregivers Package Deductible Consumer Price Pays Hospital One $5,000 $2,000 $2,000 Hospital Two $9,000 $2,000 $2,000 105

Competitive impact of a “Base Pay/Fixed Price” benefit design ($4,000 basic benefit) Caregivers Package Basic Consumer Price Payment Pays Hospital One $5,000 $4,000 $1,000 Hospital Two $9,000 $4,000 $5,000 (Lower prices are rewarded) 106

A “base-pay/fixed price” benefit model creates real provider competition on price that does not exist with a full pay, flat co-pay, or a low deductible benefit package 107

What happens when providers compete on price? LASIK Eye Surgery $2,500 $2,000 $1,500 $1,000 $500 $250 108

The eye surgery process was reengineered, from top to bottom-- New Staffing New Chairs New Laser New Pain Killer New Process 109

Cost Drivers and Mitigators For American Health Care e data f ormanc tion ero per p opula are givers/z Aging ely incented c nked care P ervers coordin ated, unli s, genetics, Inefficient, un en ts, new drugnew science y, new treatm N ew technolog Normal inflation 2008 2010 2020 Focus on chronic co nditions High-leverage targeted care Benefit re re-engineering design Value b Health ased provide reform r comp as a v etition iable b usines s mod el Cost Mitigators (Health Reform as a Business Model) 110

Someone needs to be paid to reform health care or reform will not happen 111

Only buyers control the cash flow that fuels the care system 112

We need vendors who survive and thrive by reforming care delivery 113

“IV” Specifications -- What Should Buyers Insist on from the Vendors? 1)PHR’s 2)Disease management 3)Targeted conditions 4)Computerized care registries 5)Targeted outcomes data 114

Buyer Goals -- Virtual second opinions -- Provider price competition 115

Cost Drivers and Mitigators For American Health Care data rmance on ro perfo po pulati areg ivers/ze Aging ely incented c nked care Pe rvers ordin ated, unli s genetics, Ineffic ient, unco nts, new drugn, w science , new treatme e Ne w technology Normal inflation 2008 2010 2020 Focus on chronic co nditions High leverage targeted care Benefit re re-engineering Value b design Health ased provide Bette reform as r comp r hea etition a viab lth le bus iness mode l Cost Mitigators (Better Health) 116

Prevention needs to be part of the total package, even though prevention is not “low hanging fruit.” 117

Diabetics spend 32% of the cost of Medicare 118

Walking half an hour a day, five days a week cuts the incidence of diabetes by 40% 119

Public Health Basic Steps 1) Walking 2) No transfats 3) Limited/labeled saturated fats 4) Huge smoking tax 120

Buyers need to specify health improvement as a vendor agenda and performance goal 121

If we are going to save Medicare, effective levels of prevention are absolutely essential 122

We need to stop hoping for magic solutions and silver bullets and we need to stop thinking that the current cost drivers are inevitable, invincible, insurmountable, and inherent to the economics of American care 123

Affordable health care costs: The “mitigators” have the power to offset the “drivers.” 124

Cost Impact? Re-engineering 10-30% Chronic conditions 10-30% Unit price competition 5-20% Health impact 10-30% Informed care choices 5-20% 125

Cost Drivers and Mitigators For American Health Care a nce dat erforma popul ation s/zero p a regiver Aging ely incented c ked care Pe rver s ordina ted, unlin s genetics, ient, unco , new drugn, w science Ineffic ew treatments e New technology, n Normal inflation 2008 2010 2020 Focus on chronic co nditions High leverage targeted care Benefit re re-engineering design Value b Health ased provide Bette reform as r comp r hea etition a viab lth le bus iness mode l 126

We need enlightened health care policy -- starting with our major employers -- who need to become high leverage, high power, highly focused, purchasers of care reform 127

At Kaiser Permanente -- We are on a pathway to model best care: 128

Our Pathway -- Consistent best care -- Computer supported care -- Linked caregivers -- Focused on high cost, high need, high opportunity patients -- Targeted toward improved health 129

We have spent nearly four billion dollars putting major portions of that tool kit in place 130

America needs to build a health care policy agenda based on real care reform 131

We need to use an approach that builds on natural market incentives or the solution will fail 132

Be Well 133

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George Halvorson

by jayparkinsonmd on Jun 22, 2008

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George Halvorson — Presentation Transcript