George Halvorson

133
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

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Transcript of George Halvorson

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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

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Dedicated to

Dr. Jerome H. Grossman

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American health care could

be transformed fairly quickly if

a number of high leverage

buyers chose to strategically

use their market leverage

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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

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Health care purchasers have

great leverage relative to

getting health plans to reform

key elements of care

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Old Market Reality

-- Hundreds of “slices”

-- Commodity products

-- Financial conduits -- rather

than care managers

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New Market Reality

-- Sumo wrestling

-- Total replacements

-- Shrinking total market

-- Growth needed to fuel

stock value

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Health Care in America

is becoming unaffordable.

Financing Reform alone

can not fix affordability.

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Ideally, care delivery and

care financing should be

closely synchronized --

even choreographed -- as

reform efforts

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Most reformers focus on

one or the other -- with

“financing” getting the most

attention most of the time

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That is a mistake

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We definitely do need key elements of financing reform

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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)

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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

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BUT --

Financing reform without

care delivery reform would

be a major operational and

economic error

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Health care cost

increases are the

major reason we need

health care reform

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Health care costs

come from health

care delivery

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Care delivery in the U.S. is

uncoordinated, unfocused,

inconsistent, unmeasured,

extremely inefficient, perversely

incented, excessively expensive

and sometimes dangerous.

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Health care delivery is,

however, the fastest

growing and most

profitable segment of the

whole U.S. economy

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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.

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We need to face the simple

reality that -- Health care

will never reform itself.

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Health care is

full of smart people

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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.

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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

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In today’s world, more

efficient and effective

caregivers simply deprive

themselves of income

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Asthma:

$200 to prevent

$10,000 to treat

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Many Treat

Few Prevent

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So what should we do?

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Reform care

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A few hard truths about

health care in America,

today:

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-- 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

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-- Health care quality is

inconsistent, often inadequate,

and too often dangerous

Truth Two

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-- 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

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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

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Health Care costs are not evenly

distributed across the entire

population:

1% = 35% of costs

Truth Three

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Population Cost

1%35%

Cost Distribution of Care

$300 per month average cost

Break even cost insuring one percent: $12,000 per month

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50% = 3% of costs

20% = 0% of costs

½% = 25% of costs________________________________________________________________________________________________________________

Costs are not evenly distributed

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U.S. Population U.S. Care Costs

10% 80%

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-- Some diseases cost a

lot more than others

-- Acute care costs are not

the key cost driver

Truth Four

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Acute

Care

25%

Chronic Care

Total Cost of Care In America

Chronic Care vs. Acute Care

75%

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Chronic care costs

can be impacted

(Rand data -- only 30% to 50% of

patients receive right care now)

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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

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So what are the realities we

need to face to achieve real

health care reform?

We need to understand the

basic cost drivers.

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Cost Mitigators (Inflation)

Normal inflation

Cost Drivers

2008 2010 2020

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Basic Inflation -- heat, light,

salaries, benefits

Additional Pressure --

health care worker shortages

(lab techs, nurses, etc.)

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Office Visit Fee --

Canada and U.S.

$23

$73

Canada United States

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Obstetrician Income

$150,000

$170,000

$190,000

$210,000

$230,000

$250,000

$270,000

$290,000

Canada UnitedKingdom

UnitedStates

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Medical Specialist Income

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

$260,000

Canada France UnitedStates

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AdministrativeCosts

Care

Costs

80%

Cost Differences –

U.S. versus Canada

20%

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We start with a higher base

and then add both normal

costs of inflation (and inflation

results from worker shortages)

Basic Inflation

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Cost Mitigators (Technology)

New technology, new treatments, new drugs, genetics,new science

Normal inflation

Cost Drivers

2008 2010 2020

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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

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Number of CT Machines

Per Million People

0

5

10

15

20

25

30

35

Canada Germany United States

Source: OECD

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Total Transplants

0

5,000

10,000

15,000

20,000

25,000

30,000

Canada France United States

Source: OECD, BMJ

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Liver Transplants Per Million People

10

12

14

16

18

20

22

24

Canada France United States

Source: OECD

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Solid Organ Transplants Per Million People – California and Canada

90

59

10

20

30

40

50

60

70

80

90

100

California Canada

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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

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-- 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

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Cost Mitigators (Inefficiency)

Inefficient, uncoordinated, unlinked care

New technology, new treatments, new drugs, genetics,new science

Normal inflation

Cost Drivers

2008 2010 2020

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-- Co-morbidities drive most costs

-- Care linkage deficiencies abound

-- 10,000 fees for units of care

-- No reward for outcomes or

results

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We need to make care

linkages a core

competency of American

health care

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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

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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

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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

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Population Over 65

0

5

10

15

20

2010 2020 2030

(in millions)

Source: U.S. Census Bureau

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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

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So what can be done to

mitigate the increasing

cost of care?

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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.

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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

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We need to focus first

on the low hanging fruit

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Five conditions drive over

50% of all costs

(CHF, Asthma, Diabetes,

Coronary Artery Disease,

Depression)

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We need to start with focus --

we can’t fix everything at

once. We can fix some things

that costs a lot of money.

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32%

Medicare Diabetes Expense

As a Portion of Total Medicare Costs

Cost of care for Diabetic

patients

68%

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All five conditions lend

themselves to major

improvements in care

levels and costs

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Percent of American Diabetics

Receiving “Right” Care

Not Right Care "Right Care"

8%

92%

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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

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-- Then --

We should do what needs to

be done and can be done to

significantly improve care

delivery for patients with

those conditions

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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

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We need to put the

tools in place needed

to do that work

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Tools:

• Benefit redesign

• Public messaging

• Care tracking (PHRs/EMRs)

• “Mandatory” care registries and

care linkages

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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

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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

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Nurses spend 26 percent of their

time on direct patient care

Nurses spend much more time

on paperwork than they do on

patients

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The delivery system will

redesign important parts of

itself when those goals are

set and someone is paid to

achieve them

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Process engineering and

re-engineering are relevant

only when processes have

goals

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Random re-engineering

does not create progress

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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

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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

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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)

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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

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We need to make care

linkages a core

competency of

American health care

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Chronic Care is a team sport.

Acute Care can be an

individual effort and market

model.

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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

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Teams need captains

and care coordination

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Someone or some thing has

to be at the center of the

care experience for optimal

chronic care

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That central point can be

1. A caregiver

2. A team of caregivers

3. A care coordinator

4. A virtual care coordinator

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Pick one -- and set the cash

flow up to make it happen

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That is our opportunity.

We should be able to cut

kidney failures in half with

best care.

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Start with the goal --

work backward to the

tool(s)

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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

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Rule One

Benefit design should

support the care

improvement plan

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Rule Two

Benefit design should support

real consumer choices and

caregiver competition

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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

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Example One

Maternity Care

Package Price

Hospital One $5,000

Hospital Two $9,000

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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

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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)

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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

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What happens when

providers compete on price?

LASIK Eye Surgery

$2,500 $2,000 $1,500 $1,000 $500

$250

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The eye surgery process was

reengineered, from top to bottom--

New Staffing

New Chairs

New Laser

New Pain Killer

New Process

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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)

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Someone needs to be

paid to reform health care

or reform will not happen

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Only buyers control the

cash flow that fuels the

care system

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We need vendors who

survive and thrive by

reforming care delivery

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“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

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-- Virtual second opinions

-- Provider price competition

Buyer Goals

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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)

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Prevention needs to be part

of the total package, even

though prevention is not

“low hanging fruit.”

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Diabetics spend 32%

of the cost of Medicare

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Walking half an hour a

day, five days a week

cuts the incidence of

diabetes by 40%

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Public Health Basic Steps

1) Walking

2) No transfats

3) Limited/labeled saturated fats

4) Huge smoking tax

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Buyers need to specify

health improvement as

a vendor agenda and

performance goal

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If we are going to save

Medicare, effective

levels of prevention are

absolutely essential

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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

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Affordable health care costs:

The “mitigators” have the

power to offset the “drivers.”

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Cost Impact?

Re-engineering 10-30%

Chronic conditions 10-30%

Unit price competition 5-20%

Health impact 10-30%

Informed care choices 5-20%

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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

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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

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At Kaiser Permanente --

We are on a pathway to

model best care:

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-- Consistent best care-- Computer supported care-- Linked caregivers-- Focused on high cost, high

need, high opportunity patients-- Targeted toward improved

health

Our Pathway

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We have spent nearly

four billion dollars

putting major portions of

that tool kit in place

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America needs to build a

health care policy agenda

based on real care reform

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We need to use an

approach that builds on

natural market incentives or

the solution will fail

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Be Well