CALPACT Lecture: Leadership and Management with Leonard Schaeffer

The David Brower Center 2150 Allston Way Berkeley, CA 94704

Leadership and Management: Implications for the Future of Health Care Reform

Leonard D. Schaeffer Judge Robert Maclay Widney Chair and Professor, University of Southern California

March 17, 2014

Innovative Leaders Speaker Series Sponsored by CALPACT and UC Berkeley Center for Health Leadership

2 LDS 2014 All Rights Reserved

Agenda

Leadership vs. Management §  Introduction

§  Institutional Response to Change

§  A Typology of Leadership

§  Implications for Future Health Reform

§  Conclusion

Government

Not-for-Profit

Academic

•  HCFA Administrator, HHS •  Asst. Sec. Management and Budget, HHS •  Director, Illinois Bureau of the Budget •  Deputy Director, Illinois Dept. of Mental Health

For-Profit

Introduction

•  CEO, Blue Cross of California •  CEO, Group Health of Minnesota

•  Chairman & CEO, WellPoint •  COO, Sallie Mae •  VP, Citibank

•  Schaeffer Center For Health Policy & Economics •  Harvard Medical School Board of Fellows •  RAND, Brookings, & USC Boards of Trustees •  Institute of Medicine, Member


Agenda





§  Conclusion


Institutional Response to Change

Large Institutions Resist Change

§  Most large labor-intensive organizations institutionalize a preferred way of doing things

§  And then they resist any changes to that process

§  Most organizations repeat past behavior until they die or are reinvented


However, Change is the Only Constant

To survive and prosper, organiza1ons must reinvent themselves consistent with the

changing environment

Poli1cs Public Policy

Science & Technology

Demo-‐ graphics & Culture

Economy


Institutional Response to Change Success Over Time Requires Effective Change

The future belongs to those organizations where:

1.  Leaders stimulate change that is consistent with – or benefits from – environmental change

2.  Managers implement



Organizational Efficiency – A Digression

§ There are few completely efficient human interactions –  There are some efficient chemical reactions –  But, all human systems are inefficient

§ The larger the organization, the more inefficient (and more insensitive to external changes) it becomes


Agenda





§  Conclusion


A Typology of Leadership

Individual Contributors Conceptualizers

Analysts Administrators

Managers Leaders

Symbolic Leaders


Individual Contributors §  Do their own work

–  Most people in most organizations

§  Professionals are a particular subset –  E.g., Lawyers, physicians, professors trained to focus on a

transaction between themselves and client/patient/class

§  Identify with their profession, not the organization §  Accountable to "professional standards" (self defined);

not responsible for organizational results §  Attempts to improve organizational effectiveness/

efficiency seen as interference in the transaction and therefore reduces “quality”



Conceptualizers §  Generate or communicate ideas that

influence the behavior of others

Analysts §  Evaluate pros/cons of alternative

courses of action and recommend which course to pursue


§  Provide “oversight” i.e., watch others do work

§  Stove top model


Administrators

LDS 2012 All Rights Reserved



Managers

§ Effective managers change the physical reality of how the organization operates to achieve pre-established goals

§ Managers develop specific strategies to achieve goals and monitor the process of implementing them through plans and budgets

§ The organization operates consistent with the values displayed in managers’ behaviors

§  Med schools seek to produce “thought leaders”, not organization leaders or managers

§  Through research or experience, develop new insights or therapeutic approaches that are described in papers or shared at professional meetings

§  When other similar professionals adopt those insights or approaches, the initiator is considered a thought leader

§  Impact seen throughout profession, not just one organization

A Digression ―Thought Leaders



Leaders § Leaders have a vision of the future that is so

compelling and communicated so persuasively that others take action to achieve this vision

§ Leaders: –  Articulate their vision of the future –  Define the mission of their organization –  Establish clear, time-specific, quantifiable

goals –  Inspire others to achieve their goals



Leaders, continued

§ Successful leaders carefully communicate their vision and provide specific guidance as to who is responsible for achieving specific goals – They tell people what they are supposed to achieve

but usually let them figure out how to do it – They explain their organization to the world and

the world to their organization1

§ “Hands on” leadership is management § Leaders are necessary when it’s too big

to manage

1See The Wall Street Journal, How to Fail in Business, January 11, 2013


“We choose to go to the moon… because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win… ”

September 12, 1962, Rice University (Houston)

John F. Kennedy

Leader:



Symbolic Leaders

§ Symbolic leaders inspire and motivate others to act not by giving specific orders, but by embodying certain traits or calling for a desired state

§ Symbolic leaders are necessary when the challenge seems overwhelming or the solution is too complicated to articulate


“This is preeminently the 1me to speak the truth… This great Na1on will endure as it has endured, will revive and will prosper. So, first of all, let me assert… the only thing we have to fear is fear itself… ”

March 4, 1933, First Inaugural Address

Franklin Delano Roosevelt

Symbolic Leader:


“We shall not flag or fail... We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender… ” June 4, 1940, speech delivered to the House of Commons of the Parliament of the United Kingdom

Winston Churchill

Symbolic Leader:


“I intend to set up a thousand-‐year Reich and anyone who supports me in this ba\le is a fellow-‐fighter for a unique spiritual — I would say divine — crea1on… ”

Adolph Hitler

Quoted by Richard Brei1ng in Secret Conversa1ons with Hitler: The Two Newly-‐Discovered 1931 Interviews, p. 68 (1971)

Leadership is Substance-Free


Agenda





§  Conclusion


Implications for Future Health Reform

§  The Problem of Health Care Costs

§  ACA: What’s Supposed to Happen

§  New Leadership Requirements

§  Conclusion


The Problem of Health Care Costs

What We Believed §  U.S. = Highest Quality §  ∴ High Cost O.K. §  Limited Access = Market

Economy

What We Know § U.S. = Uneven Quality § = Highest Cost By Far § High Cost + Bad Economy

= Access

Access Cost

Quality

Trade- offs


Total U.S. Health Expenditure as % of GDP (Public & Private)

Source: Data from the Centers for Medicare and Medicaid Services, National Health Expenditures, January 2012; and the Congressional Budget Office, The 2013 Long-Term Budget Outlook, September 2013. Compiled by PGPF. NOTE: CMS data used for years 1960-2020. The 2038 figure reflects the latest projection from CBO.

Long-Term: Rising Health Care Costs Significant Threat To Economy

Actual Projected

Percentage of GDP


Federal Health Spending Drives Deficit

Source: CBO, The Budget and Economic Outlook: 2014 to 2024 Source for 2038: CBO, The 2013 Long-term Budget Outlook, Baseline Assumptions, September 2013; Major Health Programs includes: Medicare, Medicaid, CHIP and exchange subsidies

Consequences of Mounting Federal Debt §  Crowding Out Investment Lower Output & Income

–  A growing portion of people’s savings would be diverted to purchase gov’t debt rather than toward investment in productive capital goods

§  Higher Interest Payments Higher Taxes & Lower Output & Income –  Gov’t may be forced to raise marginal tax rates and/or reduce

spending on other programs to meet interest payments

Sources: Congressional Budget Office, Federal Debt and the Risk of a Fiscal Crisis, July, 2010; USA, Inc., Consequences of Inaction, February, 2011

§  Reduced Ability to Borrow Less Policy Flexibility –  During economic downturns or international

crises, gov’t may not be able to raise substantially more debt

§  Increased Chance of Sudden Fiscal Crisis –  Investors may lose confidence in gov’t’s ability to

repay debt & interest without causing inflation


–  OOP premium payment ↑ after 2018 to slow subsidy growth

–  “Cadillac” tax on $$ plans effective 2018 & indexed to CPI in 2020

ü  Critical policy changes implemented

–  IPAB able to achieve “GDP + 1%”

ü  Federal & state regulators successfully implement HIXs, optional Medicaid exp.

ü  Medicare ACOs & demos successful & expanded rapidly

ü  Individuals & small biz get affordable insurance

Complex Implementation: Everything Must Go Right

ACA: What’s Supposed to Happen Per Legislation


Reform Will Unfold Incrementally

2010 / 2011 2014

§  Insurance Reform / Some Expansion Begins Ø  Children / high risk Ø  Preventive care coverage Ø  MLR requirements

2012

Ø  Individual Mandate Ø  Employer Mandate (delayed) Ø  State / Fed insurance exchanges Ø  Insurance Subsidies Ø  Optional Medicaid expansion

References: Kaiser Family Foundation , Focus on Health Reform, March 31, 2010; Commonwealth Fund, Timeline for Health Care Reform Implementation, April 1, 2010; Supplement to Columbia Journalism Review, May/June 2010

§ Major Coverage Expansion Begins

§  Begin Closing Medicare “donut hole”

§ Patient-Centered Outcomes Research Institute (PCORI)

§  Hospital Value Purchasing Program

§  $11 billion for community clinics

§  Independent Medicare Payment Advisory Board (IPAB)

§ New Insurance Market Rules

§ CMS Innovation Ctr tests new payment methods


Reform Financed by Taxes, Fees & Medicare Cuts

§  Medicare FFS rates reduced

§  Medicare Advantage rates

§  M & M DSH payments

2010 2013 2014 2015- 2017 2018

§  Medicare tax rate

§  Medicare tax on investment income

§  Employer Part D Rx coverage deduction eliminated

§  Floor on itemized med. expenses

§  New fees on medical device cos.

§  New “Cadillac” tax on $$ health plans

§  Tanning Tax

2012 2011

§  Penalty Payments/ Individuals

§  Higher HSA penalty for non-qualified expenses

§  New fees on pharma (Rx) industry

§  New fees on insurance industry

New Revenue: $515 B / Fed Health Program Cuts: $716 B

Note: Chart represents major taxes, fees and changes in federal health program outlays

§  Major Coverage Expansion Begins

(14 new tax increases)

References for revenue and cuts: CBO, “Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision,” July 2012, and KHN, FAQ: Obama vs. Ryan on Controlling Federal Medicare Spending, Aug. 29, 2012

§  Penalty Payments/ Employers


New Model Old Model

ACA & Fiscal Pressures Demand New Models & Accountability for Cost & Quality

Payment systems reward volume

Limited focus on efficiency and patient -

centered care

Pay for services rendered; limited

alignment with quality

Payment systems reward outcomes and

population health

Lower cost while improving patient

experience

Pay for safe, evidence-based care; reward

quality

Providers control demand

Benefit design, treatment protocols &

transparency to manage demand


§  Physicians & institutions optimized own situation; thus suboptimizing the “system” as a whole

§  As the physicians’ workbench, hospitals optimized physicians’ convenience, while physicians: –  Performed as “individual contributors” not leaders or managers

–  Defended their autonomy and avoided accountability for system effectiveness

§  A fragmented, “cottage industry” resulted focused on individual intervention, not population health

Different Roles Required in Large Organizations and Systems

Old Era: No Accountability for Results


New Roles Required to Transform Health Care System & Reduce Costs

New Era: Achieving System Goals §  The health care system faces significant risk,

regulatory uncertainty, ongoing environmental change, and the demands of new delivery models

§  Transformation to a high-value health care system requires: –  Leaders who can establish a vision and motivate others to

–  Managers who can implement strategies to achieve those goals

–  Analysts who can evaluate and recommend effective tactics

achieve goals in large organizations and systems


§ Delivery of health care moving to large organizations and health systems designed to be accountable for results

§  Payment methods also shifting from volume to value-based care that require performance measurement and reporting

§  To succeed in this new health economy, participants must adopt new roles as leaders, managers, and analysts

As stakeholders and as citizens, we must significantly transform the American health care system

Conclusion


Shape the Future 36 LDS 2012 All Rights Reserved


Who Should Lead / Manage Delivery of Care?

§  Primary Care Physicians

§  IPAs

§  PMOs

§  ACOs (Accountable Care Organizations)

§  Specialty Societies

§  Peer Review Organizations


Who Should Lead / Manage The Health Care System? §  Government Body

–  HHS / CMS / FDA –  State-level regulators

–  Independent Payment Advisory Board (Medicare IPAB)

–  “Federal Reserve” H.C. Board

§  Health Insurance Exchanges §  Health Insurance Companies §  Hospital-Physician Networks §  “The Market”

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CALPACT Lecture: Leadership and Management with Leonard Schaeffer

Education