Health Affairs, 22, no. 1 (2003): 114-124 doi: 10.1377/hlthaff.22.1.114 © 2003 by Project HOPE	New Online   How Would Obama, McCain Cover The Uninsured?   Cost To Cover Uninsured   Let Health IT Market Evolve   How Rate Health IT Progress?   HIV/AIDS In India, China

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Interview

The Road To Meaningful Reform: A Conversation With Oregon’s John Kitzhaber

The State Of Things In Oregon

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Jeff Goldsmith: Governor, you’re in the middle of a serious fiscal crisis in Oregon right now. Was your budget deficit driven by pressure from health spending to support the Oregon Health Plan [OHP]?

John Kitzhaber: No, not primarily. The fiscal crisis was caused by the national recession. Oregon actually has the highest unemployment rate in the nation.

Goldsmith: Why is that?

Kitzhaber: We have a big natural resource manufacturing component to our economy, and a lot of high-tech manufacturing. The manufacturing sector was hard hit by the recession. Firms like Intel and Fujitsu have laid off a lot of folks. Actually, for a while metropolitan Portland had a higher unemployment rate than rural Oregon, which I can never remember happening before. The budget that the legislature approved at the end of this session was for about $12 billion. Because of high unemployment and reduced tax collections, we’ve lost about $1.7 billion in anticipated revenue.

Goldsmith: What’s happened to Medicaid spending over the past two years?

Kitzhaber: It increased by about 60 percent over the past two years. Interestingly enough, over 60 percent of the increase was in prescription drug costs.

Goldsmith: And that didn’t somehow affect the budget deficit?

Kitzhaber: Certainly. In terms of expenditures, Medicaid is one of the fastest-growing cost centers in our budget. But the magnitude of the revenue loss due to the recession was a much bigger factor. That is where our real problem is. Having said that, we recognize that the cost increase in the present Oregon Health Plan is unsustainable. That is why we went to the federal government for a new set of waivers. The original waiver, which we got in 1994, allowed us to take our prioritized list of services, and when costs went up, instead of cutting eligibility, we’d reduce benefits based on our priority system. For all practical purposes, HCFA [now CMS, the Centers for Medicare and Medicaid Services] has refused to allow us to change the priority line since mid-1997. So we’ve had a very rich and fixed benefit, and no tools with which to manage the cost of the Oregon Health Plan.

Goldsmith: Why did the federal government do that?

Kitzhaber: It was the philosophy of the Clinton administration. In the old paradigm, it’s better to deny people access to the system entirely than to reduce benefits for people who are already in it.

Goldsmith: Was there political pressure on them to do this?

Kitzhaber: Oh, sure.

Goldsmith: Where did it come from?

Kitzhaber: The Medicaid lobby, the Children’s Defense Fund, Families USA, and all those people were close to the First Lady and to Donna Shalala. So because of this inflexibility, we have restructured the OHP and asked the feds to give us the ability to create two benefit packages. One we called OHP Plus, which is the existing benefit package. We would retain that benefit package for people who were categorically eligible—people who are arguably more vulnerable from a medical standpoint, such as kids, pregnant women, people with disabilities, and the frail elderly. Then for the group of people we brought in by virtue of our original waiver—adults without kids, basically, who are not "categorically eligible" for Medicaid—we would apply a second benefit package, called OHP Standard. It would be actuarially equivalent to the cost of the mandated minimum Medicaid benefit, and that dollar amount would be applied to our priority list. That would be about 58 percent of the per capita cost of the OHP Plus benefit. That would be the floor, although we have actually funded it at about 78 percent of the OHP Plus benefit. So we are well above the floor.

Waivers, The Next Round

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Goldsmith: Has your waiver request been approved?

Kitzhaber: It was approved on October 15. Essentially, we will be expanding coverage for adults without children up to 180 percent of the federal poverty level. And we’ll get a federal match for that. Since we have funded this benefit well above the floor, we’ve got some flexibility. For the current biennium, we save money by reducing the cost of the benefit package and by increasing the federal match. Those two actions allowed us to expand coverage to forty or fifty thousand people without spending very much additional general fund money.

We originally had an employer mandate as part of the OHP to help us get to universal coverage, but that got repealed. So we created something called the Family Health Insurance Assistance Program, which is a sliding-scale subsidy for people between 100 and 150 percent of poverty to buy private-sector insurance. We’ve used this program to provide health care to this new expansion population.

Goldsmith: So, you’re not going to cut the OHP in response to this fiscal crisis?

Kitzhaber: No, the plan will actually expand by increasing the federal match and reducing benefits for the noncategorical population.

Goldsmith: Do your Republican colleagues in the legislature agree with this?

Kitzhaber: They passed the bill.

Goldsmith: So, it’s like a voucher program.

Kitzhaber: It’s like a voucher, except it doesn’t go to the person. People sign up for the insurance, and then the employer pays a piece, the state pays a piece, and they pay a piece.

Covering The Uninsured

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Goldsmith: How many people in Oregon still do not have health insurance coverage? The number I heard was on the order of 400,000.

Kitzhaber: I think that the exact number is closer to 420,000.

Goldsmith: How many of them are eligible for the OHP in one of these permutations but are not enrolled or using the coverage?

Kitzhaber: My best guess is around 100,000.

Goldsmith: What I’m trying to get at is the hard-core group of people who still wouldn’t be covered even if you were massively successful in outreach. It’s still about 10 percent of Oregon’s population.

Kitzhaber: They are the same people you can’t get off of public assistance. We had a major welfare reform in Oregon a few years ago and reduced the welfare rolls by about 50 percent. The program was based on helping people actually get into the workforce by addressing the reasons they’re not in the workforce. Once we got the rolls down by about 50 percent, to get the next 10 percent would cost maybe 30 percent more, and the next 10 percent below that might cost 50 percent more. Before long, you reach a point of diminishing returns where it is less expensive to write them a welfare check than to move them out.

Goldsmith: Does that same logic apply to the hard-core uninsured Oregonians we were talking about earlier?

Kitzhaber: It’s a subset of the same people.

Goldsmith: Who are they?

Kitzhaber: They are often people who come from a culture of poverty: people who have mental health and substance abuse issues, people with learning disabilities.

Goldsmith: Who are not categorically eligible.

Kitzhaber: Well, some of them are. But if they’re single adults with no kids, they’re outside the traditional program.

Goldsmith: How did you fund expanded coverage to those nontraditional groups?

Kitzhaber: After our employer mandate was repealed, we tried to expand above 100 percent of poverty by increasing the cigarette tax. We passed a ballot measure dedicating these funds to the expansion, but it doesn’t cover nearly enough people.

Goldsmith: Does the number of uninsured need to go to zero?

Kitzhaber: Well, it will never go to zero. Even countries that have universal coverage have a lot of people who don’t access the system. One of the conclusions I’ve come to in the last ten years is that you can’t solve this at the state level. States can solve some of it, but you need fundamental changes at the federal level. As long as you’re trying to reform the health care system within the constraints of the federal Medicare-Medicaid system, you will fail. Medicare and Medicaid were enacted back in 1965, and the programs reflect a world that’s gone. We still act as though everyone who’s elderly is poor. Also, the Medicare benefit package misses the two things that are most important to an aging population: long-term care and prescription drugs.

Goldsmith: Society has changed a lot in those thirty-seven years as well. I remember seeing an analysis by the National Governors’ Association a few years ago, which concluded that the uninsured in the country tended to concentrate in the immigration gateways into the U.S.: Texas, Arizona, California, Florida, and New York.

Kitzhaber: I think it’s evidence of globalization, something the system doesn’t acknowledge. But that’s not an issue the Oregon health care system can take on by itself. It’s something that’s going to have to be solved at a national and international level.

The Politics Of Health Care

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Goldsmith: Some people believe that if the current economic slowdown continues, we could see another ten million people lose coverage and see the number of uninsured in the country poke above fifty million. Is employer-based health insurance doomed by its apparent inability to control costs?

Kitzhaber: There are a lot of people besides employers who are interested in maintaining employer-based coverage: labor unions, health plans, and a very large number of workers. But I believe that the employment-based system is a just another financing mechanism. There’s a political charge around an employer-based system. There’s a political charge around a single-payer system. And what we never really get down to in this country is a discussion of what we’re paying for. Most of the debate is over how you pay for it. Even in Clinton’s plan, the real difficult politics—the ethical questions—were about what we pay for. The politics of health care continue circling around health care as an economic commodity, not around the benefits that flow to us as individuals and as a society from health care.

Goldsmith: But look what’s happened to the political debate in the last five or six years. It’s all been about making sure that no one denies anybody benefits. We have mandated forty-eight-hour obstetrical lengths-of-stay. We have any-willing-provider laws. We have laws entitling us to go to the emergency room if we think we’re critically ill, and insurers have to pay. We legislatively trashed the health plans for trying to question the value of medical services. It seems like the entire political dynamic is to not encourage anyone to think about whether what they’re getting from the health system has value.

Kitzhaber: I think that’s an accurate description of the political establishment’s attitude. It’s also a failure of leadership, quite frankly. I think the people get this, but I’m not sure the lobbying groups get it. If you look at the reality of our health care system, we deny people things all the time; we’re very inconsistent. I mean, there will be a particular issue like mandated forty-eight-hour stays or whatever. There’s a political constituency around the issue, and some lobbyist comes down and beats on you to get what he wants. But the fact of the matter is that the cost of doing that squeezes somebody out somewhere else.

Goldsmith: Do you think people actually do understand that there’s a consequence to them from the political open-endedness?

Kitzhaber: I think they’re beginning to connect the dots. For example, labor unions are beginning to understand that a 20 percent increase in health care costs is going to mean a reduction in their workers’ total compensation package. I believe there’s a magic moment coming here, where one finds a common set of interests among employers and employees on this issue. That’s why I think that bad economic times create an excellent opportunity to move the debate forward. It’s happening in Oregon right now.

Goldsmith: At the very time that people are motivated to address the issue of what they’re buying, though, the fiscal capacity to expand coverage is stripped away. I think it’s remarkable that you’ve been able to sustain the political momentum behind a further increase in coverage in this fiscal climate. I have a feeling that’s not going to be the case in a lot of other parts of the country; the temptation will be to give back some of the coverage gains that were made during the boom. Can you imagine what you’re doing happening in New York or New Jersey or Massachusetts or just about anywhere else in the country except Oregon?

Kitzhaber: It may not ultimately survive in Oregon. But we are thinking outside the box. I gave a talk to the labor unions the other day about prescription drug costs, trying to bring home the point that the health care benefit ought to have some value related to health. If you can get to that point, it fundamentally changes the debate. I talked about a thirty-year-old man who works in my office, Caucasian, otherwise healthy, who went to his doctor with wrist pain and came back with a sample of Celebrex and a prescription. Now, there’s no indication that ibuprofen, at $7 a month, is less effective then Celebrex at $75 a month. He didn’t get the prescription filled.

Goldsmith: I can hear it now: "My boss, the governor, said I had to talk to you about this."

Kitzhaber: He did go back to his doctor after he talked to me. But it was a good example of the problem. There was a $68 cost difference, which bought no health benefit. My point to the unions was that they shouldn’t bargain their wage gains away for that $68. They shouldn’t make an employer pay for that $68, because they’ll just lose the $68 later somewhere else. We must get people to move beyond health care benefits as an undefined economic commodity and agree that we want to pay for health benefits that actually are beneficial in terms of health. It forces the debate to a different place.

A Community Approach

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Goldsmith: Do people have to be softened up for that kind of a dialogue by a sharp increase in their own out-of-pocket spending for health care, which the unions have traditionally fiercely opposed?

Kitzhaber: I think it sure gets people’s attention. Consider the debate we’re having in Oregon right now. We have this $1.7 billion budget deficit. The way the legislature’s handled it so far is to make about $500 million of real spending cuts and then to use one-time revenue sources and borrowing to make up the rest. So they moved most of this problem into the future. That just convinces Oregonians that we can solve a huge fiscal problem with no tax increase. It’s the same thing as first-dollar, third-party health insurance coverage, which convinces people that there’s really no economic cost or consequence to meeting their current needs. We’ve got to cut through that.

Goldsmith: How many politicians are actually willing to stake a portion of their political chips in trying to explain this to people? Are voters tolerant enough about being educated on this issue that your colleagues in other parts of the country will be rewarded in the way you were for raising the issue?

Kitzhaber: I’m not as optimistic about that as I used to be. Oregon is a great place to be in politics, but our legislature looks increasingly like the United States Congress, where the objective is the acquisition and maintenance of power, not the exercise of power for any large purpose. It’s hard to tell Democrats from Republicans in this legislature.

Solving the health care problem is going to require some sort of new governance structure. Let me give you an example from the natural resource area. When former Governor McCall cleaned up the Willamette River, the problem was one of "point source" pollution. Most of the pollution was coming out of pipes—from paper mills and municipal sewage plants. You find the pipes, and you can sue the owners and shut them down. So the nature of the problem lent itself to a regulatory approach. The traditional tools of government today are regulation, law, and resource allocation. And, they work—up to a point.

Today the Willamette and other rivers suffer from what is called "non–point source" pollution. In other words, runoff—from yards, rooftops, streets, farms, and fields. There’s no law, and there’s no regulation to fix it. What’s needed to fix it is a fundamental change in attitude by millions of individuals living in the watershed, about the relationship of their individual activities to water quality. A completely different structure is required to get people to do that. We set up local Watershed Councils throughout Oregon to bring people together to try to solve the problem—people working together to solve a shared problem on behalf of a shared place. The place is the unifying factor.

There is an analogy here for health care. The delivery system under the OHP developed along two fundamentally different tracks. In Portland and some other cities, it was the old competitive market model. The OHP was viewed as just another revenue source, and not a very good one at that. Everyone tried to minimize their risk—playing the risk-selection game of enrolling the healthy people and ducking the larger community responsibility. In Bend, and a couple of smaller communities, they took a different approach—what I call an organized community response. They basically said, OK, these poor people are part of our community. They’re not going to go away. Ultimately, this community can’t avoid their needs. We can’t avoid risk as a community. Some doctors may decide not to take care of them, but they’ll just show up in the ER or the jails or the mental health wards. So let’s create a system for all of us to take our share of the risk. In Bend, they had a common risk withhold: all the docs—primary care and specialists—and the hospitals. They all made money together. They all lost money together. And they managed the care out in the open. My view is that the delivery system for this segment of the population isn’t the same as the delivery system for the rest of the people, who have a lot more choice. The competitive economic model doesn’t work for these people because they don’t have a payment source—or their public payment source is far less than that offered by private commercial insurance. So, you need some way for the community to accept and equitably share the cost and the risk. It needs to be viewed as a shared community responsibility. Again, the unifying factor is the shared place. After all, most of the health care debate is about how you pay for people who can’t pay. It’s not about rich people.

Goldsmith: How do you apply that model to a "community" like Los Angeles? There you have literally millions of disenfranchised people and almost infinite opportunity to shuffle them around—and a public system that’s within months of catastrophic financial failure.

Kitzhaber: Los Angeles views this from a competitive market perspective rather than as a shared community responsibility. They need to focus on their shared place—the place they all live. Clearly, it is a lot easier to do that in a small rural community than it is in a sprawling metropolitan area. But it’s not impossible.

How To Reward Brave Reformers

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Goldsmith: At the national level, there’s been a lot of what B.F. Skinner would have called aversive conditioning on the health issue. Dan Rostenkowski and the other congressional leaders that were behind the Medicare Catastrophic Coverage Act in 1988 were punished by the elderly lobby for asking them to pay for a significant portion of the expense for expanded benefits, and it was repealed. The Clintons’ failure to accomplish health reform arguably lost the Democrats control of Congress in 1994. So, we have made ugly examples of people who tried to do the right thing. Why should an ambitious politician waste political capital trying to get something done in this space, when the last two attempts to accomplish something resulted in political damage?

Kitzhaber: The question I’d ask is, Are those particular individuals willing to waste their political capital on anything? If the answer is no, then you end up with nothing happening. One of the real problems with politics today is the growing number of people in public life for whom there’s nothing important enough to lose an election over. I think that’s sad. I’ll give you an Oregon example. We’ve got a bunch of Democrats in this legislature who are afraid to go out and surcharge the income tax to keep the public school system alive, because they’re afraid they might lose the next election. That’s surrendering without ever walking onto the battlefield. Instead, they should go out and take them on—say to the Republicans, "OK, how do you guys want to pay for public education?" And take that to people and win. We don’t do that anymore. We’re risk averse.

When I was in the Oregon Senate, I used to get up in the morning and look at myself in the mirror and say, "John, if the worst thing that ever happens to you is that you’re not reelected to the Oregon state legislature, you’ve led a charmed life." It is very liberating in terms of how you vote. It is a reminder of why you ran in the first place. And guess what happened? I got reelected to the Senate and then I got elected governor—twice. What does that say?

Breaking Down The Bigger Picture

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Goldsmith: It’s been ten years since the 1992 election made health reform a top-tier national political issue. With the notable exception of SCHIP [the State Children’s Health Insurance Program], there has been no federal progress in reducing the number of uninsured people.

Kitzhaber: Because no one’s willing to take on the tough issues. SCHIP was just an expansion of coverage. That’s easy if you have the money.

Goldsmith: Well, what’s going to change the political equation? Is it just a question of risk-averse politicians, or is the health system big enough that nobody has the political leverage to move it at all?

Kitzhaber: It’s getting close to that. If the U.S. health care system were a country, it’d be the fourth largest in the world. And it’s mind-boggling when you look at the whole thing. But if you can pick out certain cost drivers and focus people on those, you’ve got a little more leverage. Pharmaceutical costs are a perfect example. The drug companies survive on a dysfunctional marketplace. That is, there are very few head-to-head comparisons between prescription drugs designed to treat the same condition. There’s nothing like Consumer Reports for prescription drugs. That is why the huge direct-to-consumer advertising campaigns work: because there is no good empirical information for either patients or physicians on which to base decisions. To counter this problem in Oregon, we have created a formulary for the OHP by which we compare drugs of various classes on the basis of their relative clinical effectiveness. The evaluation is done through an open, public process conducted by the Oregon Health Resources Commission. The first four classes evaluated were nonsteroidal anti-inflammatories, long-acting opiate analgesics, proton pump inhibitors to treat gastric reflux and heartburn, and the statins, which lower cholesterol. To be the preferred drug for the OHP, a drug must be as effective as any other drug in the class but more cost-effective.

The reason the drug companies fought this tooth and nail is that it forces them to compete on the basis of price for drugs that are therapeutically equivalent. Of course, that is exactly how Ford competes with Chevrolet and how Intel competes with Motorola. If you can break through that—if you can establish evidence-based analysis and value-based purchasing—you are getting to the heart of this whole issue of the health value of health care. Consumers love it. If you can make that work for pharmaceuticals, you have an almost immediate positive effect on cost inflation. It’s a model that ought to be applied to hospitals, diagnostic tests, surgery, and other physician services. The coalition that makes this happen ultimately is labor and seniors (for consumers), businesses (particularly the ones that have collective bargaining arrangements with their employees), and physicians: people who are paying for the care, getting the care, and driving the treatment decisions.

We’ve got a very interesting alliance with the AARP around our formulary. They’re putting our research on their Web site. So consumers who see the latest drug advertising can go on the Web site and say, "Is this ad BS, or should I look into this?" We have used this same kind of coalition in Oregon before. In 1989 we reformed the workers’ compensation system here and had a ten-year period where every year the rates went down. The way we did it was to get employers and workers in a room. We got the doctors out, got the lawyers out, got the chiropractors out, got the insurance companies out, because employers and workers were the principals who were primarily affected by workers compensation. In health care, there are a couple of those key relationships. There is the physician-patient relationship, which is personal and professional. There is the physician-payer relationship, which is really a financial transaction. And then there’s the patient-payer relationship. It’s in the patient-payer relationship where you can have this discussion about what’s the value of what I’m getting and what’s the value of what I’m paying for. These are the key relationships, the constituencies where you can find some alignment to move the dialogue forward.

A Hypothetical Political Scenario: Fixing A Broken System

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Goldsmith: Let me put you on the spot. Let’s create a hypothetical U.S. political system—a parliamentary system—and your party has just come into power. You control the legislative and executive branches of the government, and you’re the health minister. What would you do about the forty million people with no health insurance coverage?

Kitzhaber: The first thing I would do is make all of the subsidies explicit. For example, right now an employer can deduct from taxable income contributions made to cover employee health care costs. This contribution is not counted as a part of the employee’s taxable income, either. There’s an implicit public subsidy for everyone with employer-based coverage: The government is, in effect, paying X amount of money for working Americans’ health coverage, while we’ve got forty million people who don’t have any—and many of them help support this subsidy with their tax dollars yet don’t benefit from it. Let’s talk about why we do this. There’s also a huge inter-generational transfer of wealth in Medicare. I’d get that on the table, too. I’d start by getting a better public understanding of where the dollars are coming from and where they’re going and who’s getting them. Then we can start asking ourselves the questions about why we do that.

Goldsmith: So, it’s a teaching exercise.

Kitzhaber: Yes, but you’ve also got be able to justify what you’re doing. We have programs that take money away from poor kids and give it to rich old people. We must be willing to say we support that, or we don’t support it and we’re not going to do it anymore. We can do this now because I’m health minister, although I may be thrown out of office next week. In any event, you’ve got to get the subsidies on the surface and justify them.

Goldsmith: You’re implying that the next step is to reallocate the dollars from the indefensible subsidies.

Kitzhaber: The next step is to reallocate some of the money. I don’t think that many of the policies guiding how we allocate funds today are defensible. I gave a speech in Washington earlier this year where I said: "Let’s write a health care bill which describes the policy underlying the current system and see how many votes we get for it." For example, today millionaires on Medicare get publicly subsidized health care paid for in part by poor workers who cannot pay for health care for themselves and their families. As architect Bill McDonough points out, "Design is the first signal of human intention." Did we intend to design a health care system with policies like this? I don’t think so. So, I think it’s worthwhile to take the system apart and redesign it on the basis of subsidies we can defend.

Goldsmith: This will generate a huge amount of political discomfort. You raise the temperature in the room. Then what do you do?

Kitzhaber: Step two is reallocating those resources.

Goldsmith: So you’re changing tax policy here.

Kitzhaber: We’re changing tax policy and resource allocation policy both. And we have to link that with what those dollars are buying. At some point, we end up with some kind of a basic standard benefit package. Maybe it has ibuprofen instead of Celebrex. But everybody gets the basic package.

The Perils Of Redistribution

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Goldsmith: Let’s stop there for a minute. In the existing political system, we don’t do a very good job of taking things away from people. Separating strong from weak claims is something our political system doesn’t do very well.

Kitzhaber: We take things away from people all the time, but we just don’t acknowledge it.

Goldsmith: We take them away from people who have no political voice and no political leverage.

Kitzhaber: Right, right. The FICA taxes take money away from poor working families and give it to retired seniors, some of whom are very well off financially.

Goldsmith: Great example. People love the Social Security system. The polls suggest that it’s one of the most popular, if not the most popular, federal programs. It’s an icon.

Kitzhaber: It’s an icon that’s supported by an unsustainable revenue source because the number of retirees is increasing faster than the number of workers who are supporting them.

Goldsmith: I’m trying to get to the point where you’re actually reallocating the money.

Kitzhaber: The key point is that you don’t provide anybody with a subsidy more than the cost of that basic benefit package, and if they want to buy more, they can with their own after-tax dollars. I guess what you’re acknowledging is that rich people can always buy more than poor people.

Goldsmith: I think this is where the Clintons were going, but you could see that they were headed for a point at which the benefit package would become a political Christmas tree and become unaffordable. Entire clinical franchises would depend on being a part of the package. Maybe you need a parliamentary system to do something like that.

Kitzhaber: Look at the congressional debate over prescription drugs. It’s just hollow. It’s superficial. They are simply debating how to pay for the current system. What they should be debating is why these drugs cost so much in the first place and what benefit we are getting. And then it got bogged down in Republican-versus-Democrat ideology. It never got down to the relationship between prescription drugs and the health benefit to elderly people.

Goldsmith: Isn’t there buried in this the profound reluctance to destroy the capital base of a very wealthy and successful industry?

Kitzhaber: Well, the alternative is to bankrupt our health care program for the elderly. In any event, this argument holds up only if you view health care as nothing more than an economic commodity, which it isn’t, but that’s how the drug industry views it. Right now, you get a drug on the market by showing that it’s more effective than a placebo. But what if the government said, If you want to get a drug on the market, it has to be more effective than a drug that’s already on the market? And you give those guys more money than God, because there’s some value added there. What we’re doing now makes absolutely no sense.

Pharmaceutical advertising creates a demand without a clinical context. That is, it creates a market demand for a particular brandname drug with no context in terms of other drugs that may be just as effective but less expensive. Last year Merck spent $160 million advertising Vioxx, a budget that exceeded what Anheuser Busch spent advertising Budweiser and what Pepsico spent advertising Pepsi Cola. What is wrong with this picture?

Paying For Services

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Goldsmith: So what you’ve done so far is to make the subsidies and funds flow more transparent. And you’ve reallocated the dollars from the indefensible types of subsidies to where the money can better be used. Do you also have to change the way in which the care is paid for? Because, right now, the dominant method of paying for care is à la carte, and the incentive of providers is to run up the tab, to fill up the hospital, fill up their schedule.

Kitzhaber: There are a lot of problems with fee-for-service reimbursement, and there are some very positive things about prospective reimbursement systems. We have to put some risk on the provider and some on the patient.

Goldsmith: Ten-dollar copays on the patient?

Kitzhaber: To many patients, health care basically is still free. You have to get down to asking the fundamental question of the health value received for the dollars spent. You can’t duck that. It’s difficult because it’s science based. But you’ve got to do it.

Goldsmith: Well, how do you wean people away from this idea that the care is free to them and it’s income to the provider? The most powerful actors in the system are the people on either side of that doctor’s desk. And those two people seem to have a consensus right now that this is a pretty good way of paying for care.

Kitzhaber: The fact is that the doctor isn’t paying for the care and the patient isn’t paying for the care. Some third party is—really, you and I are paying for the care, and we need to be represented in that discussion.

An Unhappy Time For Medicine As A Profession

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Goldsmith: Your colleagues in medicine are a bunch of really unhappy people right now.

Kitzhaber: They are.

Goldsmith: It seems like they’ve got, still, a remarkable degree of freedom to determine their own destiny. The managed care plans have been beaten back. The idea that they should be at risk financially has been beaten back. It seems like they won politically. And yet I’ve never seen a more miserable group of people in my entire life. Why are they so unhappy?

Kitzhaber: Well, I’ve got no empirical evidence for what I’m about to say. But I think that most physicians, at least in my generation anyway, went into medicine because they wanted to make a difference. It wasn’t just to make a living. A lot of physicians, particularly primary care docs, are working harder for less money. There are huge hassle factors in medicine. There is a big administrative burden a lot of physicians would like to offload to be able to spend more time with their patients. So I don’t think physicians’ work is very emotionally satisfying for them.

Goldsmith: What do you say to them to get them involved in or committed to changing the health care system? Depressed people don’t do that kind of thing.

Kitzhaber: What I tell them is you’ve got to play to your strong suit. The fact of the matter is that doctors are not business people. Individual docs can’t compete with the accountants, lawyers, administrative systems, and technology that a big hospital system or health plan has. Our franchise is knowing what is the best and most appropriate health care for our patients. I don’t know why we physicians have resisted developing standardized best practices, because those are very powerful tools that only we can use.

Goldsmith: I think there’s an obvious answer to that question. When federal government a few years ago tried to promulgate best-practice standards for back surgery that offended some strategically placed Texas orthopedic surgeons, it nearly caused the whole health services research budget for the federal government to disappear. "Best practices" implies an optimal division of labor and a consensus about who does what.

Kitzhaber: I think that doctors need to take it on. Why do you think we get sued? We get sued because we didn’t follow the standard of care in the community. Well, there isn’t a standard of care because we never bothered to establish one. Physicians ought to go on the offensive. Sure, there’s some internal doctor politics. I would argue that they may be uglier than congressional politics, but they’re easier to overcome. You don’t need a new campaign finance law reform to do it. Part of the problem has to do with medical leadership. You have to train people to get out and lead in medical school. Physicians feel disempowered right now. I don’t care if you’re an orthopedist or a primary care doc.

Goldsmith: A whole generation of physician leaders were basically incinerated during the 1990s for trying to create risk-bearing integrated delivery systems and physician groups. It was like a medical Gettysburg. A lot of their colleagues are sitting back in the trees saying, "Boy, I don’t want to do that." There’s not a lot of interest in taking risks.

Kitzhaber: If you’re not willing to take some risks and lead, then you should just quit bitching about the status quo, because that’s what you’re going to get. Somebody else is going to make all the decisions that influence how you practice and what you get paid, and you’re just going to be clawing and fighting. At the end of the day, docs need a way to engage in a constructive fashion. I think it starts with clinical medicine. I don’t think it starts with creating a risk-bearing financial system. That may be part of it. But we are healers. That’s what we’re supposed to be doing. That’s what we were trained to do.

I remember when we first created the Health Services Commission to prioritize health services on their relative effectiveness in producing health. We had all these panels of specialists to help us, and I remember a cardiologist who said, "We can’t do this—we don’t have this kind of information." I remember saying, "OK, so the headline in the Oregonian reads: Cardiologists have no idea what happens when they do things to your heart." They realized that, of course, they do know. So, part of change involves forcing people to compare the consequences of change with the consequences of inaction. You see that in forest policy right now. People are afraid to do anything differently because something might be damaged. But if you don’t do anything, the entire forest burns down. So maybe physicians have to be really unsatisfied with the status quo to do something, but I don’t know how it could get much worse.

Goldsmith: Do you miss practicing medicine?

Kitzhaber: Yeah, I do.

Goldsmith: Are you thinking about going back and doing that after you leave office?

Kitzhaber: I wouldn’t go back to the ER, because it’s a hospital-based practice—and hospital politics are pretty ugly right now.

Goldsmith: What would you do?

Kitzhaber: I might just go and do some pro bono work in a primary care clinic or something like that.

A Platform For Health Care Reform In 2004

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Goldsmith: What about the health policy part? As you look over the past fifteen years, there has been a depressing exodus of articulate politicians who actually understand how the health system works. Rostenkowski, Dole, Packwood, Durenberger, Cooper, just to name a few. It seems like there’s been a steady outflow of people who are capable of articulating what’s wrong with the system and helping fix it. What are you going to do in this space?

Kitzhaber: I want to spend at least 30 percent of my time on health policy issues. I’d like to try to help frame the health care debate for the 2004 presidential election, because I think it’s going to be a big issue, just like it was in 1992. Costs are going up, and more people are uninsured.

Goldsmith: What’s the winning message? It seems to me what you’ve got is sort of the equivalent of your big fire in southern Oregon—something that actually could burn a half a million acres before it burned out.

Kitzhaber: Well, I don’t know. But, I think it’s real important that when you frame the debate, when you talk about health care reform in 2004, it means something. To paraphrase G.K. Chesterton, it isn’t that we can’t see the solution, it’s that we can’t see the problem. The problem isn’t the lack of a prescription drug benefit for Medicare. The problem is why these drugs cost so much in the first place. The problem isn’t the lack of a "bill of rights" for those in managed care plans. The problem is over forty million Americans with no insurance whatsoever. What about their rights? The next national health care debate must focus on the real problems: cost shifting and the lack of a true safety net; Medicare and Medicaid; implicit subsidies which are inequitable and unsustainable; the wide variations in physician practice patterns. If we are willing to honestly and courageously call into question the basic inequities and contradictions in our current health care system—the things we are not willing to openly defend—then we will have taken the first step down the road to meaningful reform. It is a road worth traveling.

Editor's Notes

 
John Kitzhaber, a physician, is at the end of his second term as governor of Oregon. Prior to that, he served in the Oregon State Senate; he is regarded as the architect of the Oregon Health Plan. Jeff Goldsmith, a health care analyst, lives and works in Charlottesville, Virginia. He is a native Oregonian.

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