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1
George C. Halvorson
Chairman and Chief Executive Officer,
Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals
April 21, 2008
A Practical Model to Achieve Health Reform
2008 World Health Care Congress
2
Dedicated to
Dr. Jerome H. Grossman
3
American health care could
be transformed fairly quickly if
a number of high leverage
buyers chose to strategically
use their market leverage
4
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
5
Health care purchasers have
great leverage relative to
getting health plans to reform
key elements of care
6
Old Market Reality
-- Hundreds of “slices”
-- Commodity products
-- Financial conduits -- rather
than care managers
7
New Market Reality
-- Sumo wrestling
-- Total replacements
-- Shrinking total market
-- Growth needed to fuel
stock value
8
Health Care in America
is becoming unaffordable.
Financing Reform alone
can not fix affordability.
9
Ideally, care delivery and
care financing should be
closely synchronized --
even choreographed -- as
reform efforts
10
Most reformers focus on
one or the other -- with
“financing” getting the most
attention most of the time
11
That is a mistake
12
We definitely do need key elements of financing reform
13
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)
14
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
15
BUT --
Financing reform without
care delivery reform would
be a major operational and
economic error
16
Health care cost
increases are the
major reason we need
health care reform
17
Health care costs
come from health
care delivery
18
Care delivery in the U.S. is
uncoordinated, unfocused,
inconsistent, unmeasured,
extremely inefficient, perversely
incented, excessively expensive
and sometimes dangerous.
19
Health care delivery is,
however, the fastest
growing and most
profitable segment of the
whole U.S. economy
20
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.
21
We need to face the simple
reality that -- Health care
will never reform itself.
22
Health care is
full of smart people
23
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.
24
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
25
In today’s world, more
efficient and effective
caregivers simply deprive
themselves of income
26
Asthma:
$200 to prevent
$10,000 to treat
27
Many Treat
Few Prevent
28
So what should we do?
29
Reform care
30
A few hard truths about
health care in America,
today:
31
-- 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
Truth One
32
-- Health care quality is
inconsistent, often inadequate,
and too often dangerous
Truth Two
33
-- 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
Rand Data
34
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
35
Health Care costs are not evenly
distributed across the entire
population:
1% = 35% of costs
Truth Three
36
Population Cost
1%35%
Cost Distribution of Care
$300 per month average cost
Break even cost insuring one percent: $12,000 per month
37
50% = 3% of costs
20% = 0% of costs
½% = 25% of costs________________________________________________________________________________________________________________
Costs are not evenly distributed
38
U.S. Population U.S. Care Costs
10% 80%
39
-- Some diseases cost a
lot more than others
-- Acute care costs are not
the key cost driver
Truth Four
40
Acute
Care
25%
Chronic Care
Total Cost of Care In America
Chronic Care vs. Acute Care
75%
41
Chronic care costs
can be impacted
(Rand data -- only 30% to 50% of
patients receive right care now)
42
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.
Truth Five
43
So what are the realities we
need to face to achieve real
health care reform?
We need to understand the
basic cost drivers.
44
Cost Mitigators (Inflation)
Normal inflation
Cost Drivers
2008 2010 2020
45
Basic Inflation -- heat, light,
salaries, benefits
Additional Pressure --
health care worker shortages
(lab techs, nurses, etc.)
46
Office Visit Fee --
Canada and U.S.
$23
$73
Canada United States
47
Obstetrician Income
$150,000
$170,000
$190,000
$210,000
$230,000
$250,000
$270,000
$290,000
Canada UnitedKingdom
UnitedStates
48
Medical Specialist Income
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
$260,000
Canada France UnitedStates
49
AdministrativeCosts
Care
Costs
80%
Cost Differences –
U.S. versus Canada
20%
50
We start with a higher base
and then add both normal
costs of inflation (and inflation
results from worker shortages)
Basic Inflation
51
Cost Mitigators (Technology)
New technology, new treatments, new drugs, genetics,new science
Normal inflation
Cost Drivers
2008 2010 2020
52
Number of MRI Machines
Per Million People
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Canada Germany United States
Source: OECD
53
Number of CT Machines
Per Million People
0
5
10
15
20
25
30
35
Canada Germany United States
Source: OECD
54
Total Transplants
0
5,000
10,000
15,000
20,000
25,000
30,000
Canada France United States
Source: OECD, BMJ
55
Liver Transplants Per Million People
10
12
14
16
18
20
22
24
Canada France United States
Source: OECD
56
Solid Organ Transplants Per Million People – California and Canada
90
59
10
20
30
40
50
60
70
80
90
100
California Canada
57
One-Third of California Transplants Would Not Have Happened Using Canadian Ratios
3,242
1905
1,117
10
510
1,010
1,510
2,010
2,510
3,010
3,510
California Canada Non-transplants
58
-- 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
59
Cost Mitigators (Inefficiency)
Inefficient, uncoordinated, unlinked care
New technology, new treatments, new drugs, genetics,new science
Normal inflation
Cost Drivers
2008 2010 2020
60
-- Co-morbidities drive most costs
-- Care linkage deficiencies abound
-- 10,000 fees for units of care
-- No reward for outcomes or
results
61
We need to make care
linkages a core
competency of American
health care
62
Cost Mitigators (Perverse Incentives)
Perversely incented caregivers/zero performance data
Inefficient, uncoordinated, unlinked care
New technology, new treatments, new drugs, genetics,new science
Normal inflation
Cost Drivers
2008 2010 2020
63
Cost Mitigators (Aging)
Aging population
Perversely incented caregivers/zero performance data
Inefficient, uncoordinated, unlinked care
New technology, new treatments, new drugs, genetics,new science
Normal inflation
Cost Drivers
2008 2010 2020
64
Per Capita Annualized Health Care Costs By Age Group
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
0-18 19-44 45-54 55-64 65+
Source: CMS
65
Population Over 65
0
5
10
15
20
2010 2020 2030
(in millions)
Source: U.S. Census Bureau
66
Cost Mitigators: So what can we do?
We can’t stop aging, inflation, new technology, and provider financial motivations
Aging population
Perversely incented caregivers/zero performance data
Inefficient, uncoordinated, unlinked care
New technology, new treatments, new drugs, genetics,new science
Normal inflation
Cost Drivers
2008 2010 2020
67
So what can be done to
mitigate the increasing
cost of care?
68
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.
69
Focus on chronic conditions
Cost Mitigators (Chronic Focus)
Aging population
Perversely incented caregivers/zero performance data
Inefficient, uncoordinated, unlinked care
New technology, new treatments, new drugs, genetics,new science
Normal inflation
Cost Drivers
2008 2010 2020
70
We need to focus first
on the low hanging fruit
71
Five conditions drive over
50% of all costs
(CHF, Asthma, Diabetes,
Coronary Artery Disease,
Depression)
72
We need to start with focus --
we can’t fix everything at
once. We can fix some things
that costs a lot of money.
73
32%
Medicare Diabetes Expense
As a Portion of Total Medicare Costs
Cost of care for Diabetic
patients
68%
74
All five conditions lend
themselves to major
improvements in care
levels and costs
75
Percent of American Diabetics
Receiving “Right” Care
Not Right Care "Right Care"
8%
92%
76
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
77
-- Then --
We should do what needs to
be done and can be done to
significantly improve care
delivery for patients with
those conditions
78
Focus on chronic conditionsHigh-leverage targeted care re-engineering
Cost Mitigators (Care re-engineering)
Aging population
Perversely incented caregivers/zero performance data
Inefficient, uncoordinated, unlinked care
New technology, new treatments, new drugs, genetics,new science
Normal inflation
Cost Drivers
2008 2010 2020
79
We need to put the
tools in place needed
to do that work
80
Tools:
• Benefit redesign
• Public messaging
• Care tracking (PHRs/EMRs)
• “Mandatory” care registries and
care linkages
81
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
82
Process engineering is almost
completely unused in health
care today. There is a lot of
very low hanging fruit.
This will be a major change
83
Nurses spend 26 percent of their
time on direct patient care
Nurses spend much more time
on paperwork than they do on
patients
84
The delivery system will
redesign important parts of
itself when those goals are
set and someone is paid to
achieve them
85
Process engineering and
re-engineering are relevant
only when processes have
goals
86
Random re-engineering
does not create progress
87
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
88
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
89
Care re-engineering
-- hospital process protocols (shift changes, electronic prescriptions)
-- e-care, mini-clinic care, patient-focused care
-- Two tracks -- support for the areasof focus and basic things that justplain need to be fixed (never events)
90
40%
50%
60%
70%
80%
90%
100%
Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07
Fresno
Hayw ard
Manteca
Northern California
Oakland
Redw ood City
Sacramento
San Francisco
San Rafael
Santa Clara
Santa Rosa
Santa Teresa
South Sacramento
South San Francisco
Vallejo
Walnut Creek
Hospital Safety ResultsHospital Composite of Surgery Infection Control: 2005 - 2007
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
91
We need to make care
linkages a core
competency of
American health care
92
Chronic Care is a team sport.
Acute Care can be an
individual effort and market
model.
93
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
94
Teams need captains
and care coordination
95
Someone or some thing has
to be at the center of the
care experience for optimal
chronic care
96
That central point can be
1. A caregiver
2. A team of caregivers
3. A care coordinator
4. A virtual care coordinator
97
Pick one -- and set the cash
flow up to make it happen
98
That is our opportunity.
We should be able to cut
kidney failures in half with
best care.
99
Start with the goal --
work backward to the
tool(s)
100
Focus on chronic conditionsHigh-leverage targeted care re-engineeringBenefit redesign
Cost Mitigators (Benefit Redesign)
Aging population
Perversely incented caregivers/zero performance data
Inefficient, uncoordinated, unlinked care
New technology, new treatments, new drugs, genetics,new science
Normal inflation
Cost Drivers
2008 2010 2020
101
Rule One
Benefit design should
support the care
improvement plan
102
Rule Two
Benefit design should support
real consumer choices and
caregiver competition
103
Focus on chronic conditionsHigh-leverage targeted care re-engineeringBenefit redesignValue based provider competition
Cost Mitigators (Provider Competition)
Aging population
Perversely incented caregivers/zero performance data
Inefficient, uncoordinated, unlinked care
New technology, new treatments, new drugs, genetics,new science
Normal inflation
Cost Drivers
2008 2010 2020
104
Example One
Maternity Care
Package Price
Hospital One $5,000
Hospital Two $9,000
105
Competitive Impact of a $2,000 deductible
Caregivers Package
Price
Deductible Consumer
Pays
Hospital One $5,000 $2,000 $2,000
Hospital Two $9,000 $2,000 $2,000
106
Competitive impact of a “Base Pay/Fixed Price” benefit design ($4,000 basic benefit)
Caregivers Package
Price
Basic
Payment
Consumer
Pays
Hospital One $5,000 $4,000 $1,000
Hospital Two $9,000 $4,000 $5,000
(Lower prices are rewarded)
107
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
108
What happens when
providers compete on price?
LASIK Eye Surgery
$2,500 $2,000 $1,500 $1,000 $500
$250
109
The eye surgery process was
reengineered, from top to bottom--
New Staffing
New Chairs
New Laser
New Pain Killer
New Process
110
Cost Drivers and Mitigators For American Health Care
Aging population
Perversely incented caregivers/zero performance data
Inefficient, uncoordinated, unlinked care
New technology, new treatments, new drugs, genetics,new science
Normal inflation
Focus on chronic conditionsHigh-leverage targeted care re-engineeringBenefit redesignValue based provider competitionHealth reform as a viable business model
2008 2010 2020
Cost Mitigators (Health Reform as a Business Model)
111
Someone needs to be
paid to reform health care
or reform will not happen
112
Only buyers control the
cash flow that fuels the
care system
113
We need vendors who
survive and thrive by
reforming care delivery
114
“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
115
-- Virtual second opinions
-- Provider price competition
Buyer Goals
116
Cost Drivers and Mitigators
For American Health Care
Aging population
Perversely incented caregivers/zero performance data
Inefficient, uncoordinated, unlinked care
New technology, new treatments, new drugs, genetics,new science
Normal inflation
Focus on chronic conditionsHigh leverage targeted care re-engineeringBenefit redesignValue based provider competitionHealth reform as a viable business model
2008 2010 2020
Better health
Cost Mitigators (Better Health)
117
Prevention needs to be part
of the total package, even
though prevention is not
“low hanging fruit.”
118
Diabetics spend 32%
of the cost of Medicare
119
Walking half an hour a
day, five days a week
cuts the incidence of
diabetes by 40%
120
Public Health Basic Steps
1) Walking
2) No transfats
3) Limited/labeled saturated fats
4) Huge smoking tax
121
Buyers need to specify
health improvement as
a vendor agenda and
performance goal
122
If we are going to save
Medicare, effective
levels of prevention are
absolutely essential
123
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
124
Affordable health care costs:
The “mitigators” have the
power to offset the “drivers.”
125
Cost Impact?
Re-engineering 10-30%
Chronic conditions 10-30%
Unit price competition 5-20%
Health impact 10-30%
Informed care choices 5-20%
126
Cost Drivers and Mitigators
For American Health Care
Aging population
Perversely incented caregivers/zero performance data
Inefficient, uncoordinated, unlinked care
New technology, new treatments, new drugs, genetics,new science
Normal inflation
Focus on chronic conditionsHigh leverage targeted care re-engineeringBenefit redesignValue based provider competitionHealth reform as a viable business model
2008 2010 2020
Better health
127
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
128
At Kaiser Permanente --
We are on a pathway to
model best care:
129
-- Consistent best care-- Computer supported care-- Linked caregivers-- Focused on high cost, high
need, high opportunity patients-- Targeted toward improved
health
Our Pathway
130
We have spent nearly
four billion dollars
putting major portions of
that tool kit in place
131
America needs to build a
health care policy agenda
based on real care reform
132
We need to use an
approach that builds on
natural market incentives or
the solution will fail
133
Be Well