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David Osborne
The Public StrategiesGroup
[email protected] 768 3244
www.psg.us
David Osborne
The Public StrategiesGroup
[email protected] 768 3244
www.psg.us
Transforming GovernmentSurvival in the Age of PermanentFiscal Crisis
Transforming Government
Survival in the Age of PermanentFiscal Crisis
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The trouble with our times isthat the future is not what it
used to be.
The trouble with our times isthat the future is not what it
used to be.
Paul Valery
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Distribution of State andLocal Spending, 1972-2002Distribution of State andLocal Spending, 1972-2002
K-12
Health
Human Services
Transportation
Safety
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Distribution of State
Spending 1987-2005
Distribution of State
Spending 1987-2005
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Distribution of StateSpending 1987-2015Distribution of StateSpending 1987-2015
0
5
10
15
20
25
30
35
40
45
50
1987 1991 1995 1999 2003 2007 2011 2015
%o
fStateSpending
(AllFunds)
Education
Health
Medicaid
Transportation
Corrections
Public Assistance
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State and Local Government
Surplus and Deficit 1980-2050As a Percentage of GDP
State and Local Government
Surplus and Deficit 1980-2050As a Percentage of GDP
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Source: U.S. Government Accountability Office (GAO)
Operating Budgets
Operating and Capital Budgets
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Can We Solve Thison the Revenue Side?
Can We Solve Thison the Revenue Side?
I.e., can we tax our way out of this
problem?
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Connecticut State and Local
Price of Government1972-2005
Connecticut State and Local
Price of Government1972-2005
0
5
10
15
20
1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Cents/$Perso
nalIncome
Connecticut State and Local
US State and Local
Connecticut State
Connecticut Local
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0
10
20
30
40
50
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
C
ents/$Personal
Income
All Federal, State and Local
U.S. Price of GovernmentAll Governments,1953-2006Cents Per Dollar of Personal Income
U.S. Price of GovernmentAll Governments,1953-2006Cents Per Dollar of Personal Income
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The Price of Government byLevel, 1972-2006
The Price of Government byLevel, 1972-2006
0
5
10
15
20
25
30
35
40
45
1
972
1
974
1
976
1
978
1
980
1
982
1
984
1
986
1
988
1
990
1
992
1
994
1
996
1
998
2
000
2
002
2
004
2
006
Cents/$PersonalIncome
Federal
All Government
State
Local
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State and Local Price ofGovernment1972-2006
State and Local Price ofGovernment
1972-2006
0
2
4
6
8
10
1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Cents/$PersonalIncome
State
Local
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The Big Three:The Big Three:
1. Connecticut needs to reprioritize: get rid of low-
value spending and invest in high-value spending.
2. Connecticut needs to reinvent its public institutions,
so they can deliver better results with less money.
3. Connecticut needs to get control of health care costinflation.
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I. ReprioritizingI. Reprioritizing
State priorities are set in the budgetprocess.
So, how does that work?
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The Current Budget GameThe Current Budget Game
Cost- Based Budgeting
Starting Point Last Year = BASE costs
Focus Add/ Subtract costs re: BASE
Addition Autopilot increases = new BASEPlus needs
Subtraction Cut from new BASE
Submission Justification for needs/costs -- plusa little extra
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The Current Game (contd)The Current Game (contd)
Incentives Build up costs - make cuts hard
Analysts job Find hidden/ unnecessary costs
Electeds job Choose to cut services, OR
Raise taxes to cover costs
GET BLAMED!
Focus of debate What to cut
What to tax
What drivesdecisions?
Avoiding pain before next election
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President Barack ObamaJanuary 20, 2009:President Barack ObamaJanuary 20, 2009:
The question we ask today is not whetherour government is too big or too small,but whether it works whether it helps
families find jobs at a decent wage, carethey can afford, a retirement that isdignified. Where the answer is yes, we
intend to move forward. Where theanswer is no, programs will end.
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A New Game:Budgeting for OutcomesA New Game:Budgeting for OutcomesStates
Washington
Iowa
South Carolina
Michigan
Louisiana Dept. of Culture,Recreation & Tourism
Counties
Snohomish, WA.
Multnomah, Oregon
Mesa County, CO
Polk County, FL
Cities
Azusa, CA
Los Angeles
Spokane, WA
Dallas, TX
Ft. Collins, CO Northglenn, CO
Redmond, WA
Eugene, OR
Tacoma Parks District
School Districts
Jefferson County, CO
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Budgeting for Outcomes AsksFour Basic QuestionsBudgeting for Outcomes AsksFour Basic Questions
How much revenue will we have: What priceof government will we charge our citizens?
What outcomes matter most to our citizens?
How much should we spend to achieve eachoutcome?
How can we BEST deliver each outcomethat citizens expect?
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1. Decide How Much toSpend
1. Decide How Much toSpend
Its a choice: Raise taxes or fees? Cut
spending? Or both?
A Leadership Group should make thedecision:
Legislative leaders
And the Governor?
You could even invite business, education,community, and labor leaders, as Gov. Lockedid in Washington.
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The Price of Governmentis a Useful Tool
The Price of Government
is a Useful Tool
Look at the historical data: citizens have beentelling you how much they are willing to spendfor decades.
The Price of Government =
All Taxes + Fees + Charges
All Personal Income
Pick a target; you can always change it at theend of the process.
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2. Set the Priorities ofGovernment:
The Results Citizens Desire
2. Set the Priorities ofGovernment:
The Results Citizens Desire
If you have time, ask the citizens:
Surveys
Focus groups
Internet surveys
This input creates legitimacy for the process. But the Leadership Team should make the final
decisions.
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WA Priorities of GovernmentWA Priorities of Government
Results
Increase student achievement K-12.
Improve the quality and productivity of the workforce.
Deliver increased value from post secondary learning.
Improve the health of Washingtonians.
Improve the condition of vulnerable children andadults.
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WA Priorities of GovernmentWA Priorities of GovernmentResults
Improve economic vitality.
Improve the mobility of people, goods, informationand energy.
Improve public safety.
Improve the quality of WAs natural resources.
Improve cultural and recreational opportunities.
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3. The Leadership TeamThen Prices the Priorities:
How Much Should CT.
Spend on Each?
3. The Leadership TeamThen Prices the Priorities:
How Much Should CT.
Spend on Each?
How much are they each worth? Nothow much dothey cost?
Its judgment--a strategic choice--not science.
These numbers can be adjusted later in theprocess--but they serve to create a finite pot ofmoney for each outcome goal.
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Washington State:Pricing its Priorities
Washington State:Pricing its Priorities
ResultsIncrease student achievement K-12. 29%
Improve the quality and productivity of the
workforce. 6.5%
Deliver increased value from postsecondary learning.
9%
Improve the health of Washingtonians. 11%
Improve the condition of vulnerablechildren and adults.
10%
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Washington State:Pricing its Priorities
Washington State:Pricing its Priorities
ResultsImprove economic vitality. 5.5%
Improve the mobility of people, goods,
information and energy.12%
Improve public safety. 8.5%
Improve the quality of WAs natural
resources. 5%Improve cultural and recreationalopportunities.
3.5%
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Results Teams TasksResults Teams Tasks
First task: Define 3 key indicators, so you can
measure progress. E.g., for Better Health:
Infant mortality rate
Self-perception of health on survey
Percentage with health insurance
Second task: Figure out what really matters.
What factors most impact the outcome?
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HEALT H
Risk
Fa cto rs
Env ironme ntBeh avio r
Occupation
Race /ethnicity
Age andge nder
Soc io -econo micstatus
Congen ital& G ene t icfac tors
Adequ atewater
Safewater
Safefood
Adequ atefood
Exposure toha zar dou smaterials
Exposure tocom munica blediseas es
Exposu re toha zardouscond itions
Seekap prop riate
care
Self- p rotec tfro m acciden t
and injury
Healthysexual
behavior
HealthyExercise
Reduc esubstan ce
abuseReduc eobesity
Healthydiet
Care Specia ltycare
Em ergencycare
Chronic/longterm c are
Prima ry carePreventivecare
Access tocoverag e
Qualityproviders an d
facilities
Geographicdistribution o fproviders an d
facilities
Reduc etoba cco
use
ENVIRONMENT
HEALTHHEALTH
RISK
FACTORS
CARE
BEHAVIOR
Sample Cause-and-EffectMap for Health
Sample Cause-and-EffectMap for Health
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ImpactNational Health Expenditures
$1.2 trillion
Source: Centers for Disease Control and Prevention, University of California at San
Francisco, Institute for the Future
Health Impact vs. SpendingHealth Impact vs. Spending
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Possible Health StrategiesPossible Health Strategies
Focus on changing lifestyle choices (smoking,drinking, diet, exercise, drug use, etc.).
Focus on prevention: pre-natal care, immunizations,educating new parents, etc.
Focus on minimizing environmental threats tohealth.
Electronic health records, to eliminate duplicatetests, increase quality and cut costs.
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Results Teams IssueRequests for Results(If executive is leading the process)
Results Teams IssueRequests for Results
(If executive is leading the process)
Requests for Results take the place of BudgetInstructions.
They define the results desired, the basic purchasingstrategies, how much money is available, and otherguidance (e.g., We want cross-departmentalcollaboration.)
(This step might not be be taken if the legislature uses theprocess and time is short.)
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Buyers Seek the MostResults for the Money
Buyers Seek the MostResults for the Money
Results Teams rank order offers
Start buying from the top
Draw a line when they run out of money
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Results Teams Send the
Rankings Out and AskSellers to Prepare Better Offers
Results Teams Send the
Rankings Out and AskSellers to Prepare Better Offers
Sellers get serious when they see theyre belowthe line or near the line.
In one jurisdiction, 80% of second-round offerswere changed.
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Innovative Offers: ExamplesInnovative Offers: Examples
Iowa: Reinvented the Corrections
Department, to drive down recidivism.
Washington State: Moved $45 million from ERcare to drug and alcohol treatment underMedicaid
Los Angeles: New method to repave streets,
using cold slurry seal.
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Results Teams doFinal Ranking
Results Teams doFinal Ranking
Results teams do new ranking and buy from thetop
They draw a line when they run out of money
They present their recommendations to theLeadership Team.
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The Bottom LineThe Bottom Line Focus on the keeps, not the cuts
Buy results, not costs Low-value spending is forced out of the budget
Important new investments go to the front of the
queue
General interest trumps special interests
Performance accountability
Continuous reform/improvement
Common Sense communications
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Budgeting for Outcomes Is a KeyStep in Buying Better Results,
But Just the First Step
Budgeting for Outcomes Is a KeyStep in Buying Better Results,
But Just the First Step
To get better results, you need to transform yourbureaucracy permanently, to create a culture ofcontinuous improvement.
You need to invest in this transformation (training,team-building, technology, consulting, professionaldevelopment).
II R i i O P bli
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II. Reinventing Our Public
Institutions
II. Reinventing Our Public
Institutions
Examples:
Consolidate steering and funding, but not rowing
Let the managers manage: Charter Agencies
Empower & train employees to do processimprovement
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Smart ConsolidationSmart Consolidation
Consolidate steering (policy anddirection)
Consolidate funding streams
But keep most rowing (operations)
decentralized and competitive
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An Example: Childrens ServiceCouncils in Florida
An Example: Childrens ServiceCouncils in Florida
E.g.: The Pinellas County Juvenile Welfare Board:
Combines funding streams; controls $50 million a year
Does no rowing itself
Contracts with 60 providers: childcare centers, teencenters, counseling, domestic violence shelters,residential treatment services, after-school activities,programs for at-risk parents
Uses performance contracts
Providers compete; best ones expand, worst losefunding
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Charter AgenciesCharter Agencies
Governor negotiates Flexible Performance
Agreements with charter agency directors.
Agency agrees to produce specific results over2-3 year time frame, for less money.
Agreement includes specific rewards andsanctions for performance.
Agreement specifies new flexibilities granted tocharter agency.
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Potential FlexibilitiesPotential Flexibilities
Examples from Iowa:
Freedom from FTE ceilings or other employmentcontrols.
Authority to waive personnel rules and do what
makes sense.
Authority to waive procurement rules and buy whatmakes sense.
Authority to waive Information Technology rulesand buy the computers and software you want.
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Authority to keep half of this years unspent money
and spend it next year. Authority to keep and spend proceeds from lease
or sale of capital assets.
Authority to reprogram money between accounts.
Authority to waive administrative rules.
Access to $3 million Transformation Grant Fund.
Protection for two years from across the boardcuts.
Potential Flexibilities (2)Potential Flexibilities (2)
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Saved Iowa taxpayers $20 million/year for first twoyears; $50 million for third.
Corrections Department: lowered 3-year recidivismrate from 46.7% to 35.4%.
Revenue Department: improved rate of income taxrefunds issued within 45 days from 75% to 94%.
Human Services: increased children with access to
health insurance by 34%.
Iowa won an Innovations in AmericanGovernment Award
Charter Agencies: ResultsCharter Agencies: Results
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Tools:Tools:
Employee EmpowermentEmployee Empowerment
Self-managed work teams
Process improvement teams
Management delayering
Breaking up functional silos
Labor-management partnerships
Bureaucracy Buster panels
P I t i IP I t i I
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the Public Strategies Group
Process Improvement in IowaProcess Improvement in Iowa
Air Quality Construction Permits
Old Process: 62 days
New Process: 6 days
Clean Water Construction Project Loans & Approvals
Old Process: 28 months New Process: 4.5 months
Landfill Permits
Old Process: 187 days New Process: 30 days
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the Public Strategies Group
Process Improvement (2)Process Improvement (2)
Leaking Underground Storage Tanks Corrective ActionDecision
Old Process: 1,124 days
New Process: 90 day
Civil Rights Investigations Old Process: 9 months/case New Process: 4 months/case
Contract Renewal
Old Process: 23 days New Process: 1.1 days
How Can You Afford to Invest inHow Can You Afford to Invest in
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the Public Strategies Group
How Can You Afford to Invest in
Improvement???
How Can You Afford to Invest in
Improvement???
Iowa used a Reinvention Savings line item:
A negative line item, for a savings of $88.5 million
Out of that, an investment of $25 million
Projects chosen:
Charter Agencies
Reinventing the Child Welfare System
Changing the State-Local Relationship
III T i H lth CIII T i H lth C
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III. Taming Health CareInflation
III. Taming Health CareInflation
1. Launch a massive effort to maintain healthby encouraging healthybehavior.
2. Replace fee-for-service payment with managed competition betweenintegrated health plans that charge annual per-patient fees.
3. Incent those plans to shift from fee-for-service payment to doctors
and hospitals to lump sum payment for cycles of care for medicalconditions.
4. Create a statewide, interoperable electronic health records system.
5. Adopt policies to encourage rational end-of-life care.
6. Create a new system of health courts, modeled loosely on theWorkers Compensation system, to contain malpractice costs.
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TheresMore TheresMore
Th F F S iThe Fee For Service
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The Fee-For-ServiceProblem
The Fee-For-ServiceProblem
Fee for service payment is the biggest driverof high costs and low quality, because:
It rewards those who do more procedures.
It even rewards those who make mistakes andmust readmit patients and/or perform moreprocedures.
It punishes those who figure out how to preventdisease or treat it with fewer, more effectiveprocedures--they make less money.
D tm th R hDartmouth Research on
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Dartmouth Research onMedicare Data Base
Dartmouth Research onMedicare Data Base
Dr. John Wennberg and his team have proven that
regions with more doctors and hospitals per capitahave far higher rates of hospitalization andprocedures--often twice as high as other regions.
In these regions,OUTCOMES ARE WORSE!
Other studies show the same pattern with BlueCross & Blue Shield.
Dr. Wennberg believes up to 1/3 of our $2.4 trillionannual health care expenditures are wasted.
Th F t ti P blTh F t ti P bl
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The Fragmentation ProblemThe Fragmentation Problem
Our fragmented delivery system creates
high costs and low quality: It creates waste:
With everyone billing everyone else,
administration overhead is 25-30 percent.
One in 5 lab tests are repeated becauserecords are not available, and one in 7 hospitaladmissions occur for the same reason.
It creates quality problems when patients fallthrough the cracks.
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Solutions:Solutions:1. Push for Integrated Delivery Systems:
Regions dominated by integrated systems havecosts up to one-third lower than other regions,according to Dartmouths John Wennberg,because:
Integrated delivery systems can examine thefull spectrum of care to find opportunities forlower costs, better methods.
Integrated systems are ahead in using IT,evidence-based medicine, performancefeedback, disease management, etc.
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Solutions:Solutions:2. Replace Fee-for-Service Reimbursement
with Managed Competition based onPrice and Outcomes:
Between health plans, based on (risk-adjusted)
annual fees for care of individuals and families,not fee-for-service reimbursement.
Within health plans, between provider groups,based on set payments for full cycles of care formedical conditions, not fee-for-servicereimbursement.
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How Do We Get There?How Do We Get There?
The state should create a purchasing pool that
covers at least 30 percent of the market.
Create partnerships with employers: include privateemployees, public employees & retirees, and public
programs: Medicaid, SCHIP, etc. (You could add anindividual mandate to purchase health insurance.)
Use managed competition, on the Wisconsin State
Employees model.
Wisconsins State EmployeeWisconsins State Employee
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Wisconsin s State EmployeeModel
Wisconsin s State Employee
Model Defines basic benefit package.
Asks health plans to submit bids specifying the annualdollar amount they would charge for this package, perindividual and family.
Ranks those bids by quality and price into three tiers. Tier one is free or low cost; tiers two and three are more
expensive.
In Dane County, where state employees are 25-30% of theprivate market, costs quickly dropped 14% below thestatewide average and 30% below most expensive regions.
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