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INTERVIEWCredibility And Creativity: A Conversation With Kaiser Permanente’s George C. Halvorson
In 2002 Kaiser Permanente’s board surprised the industry by reaching outside its organization and selecting a nonphysician leader, George C. Halvorson, then CEO of HealthPartners of Minneapolis. In this interview Halvorson talks about returning to Kaiser’s strengths—its sixty-year-plus history of integrated health care organization and its power base along the Pacific Coast—and about how he and his physician colleagues intend to leverage clinical information technology to improve their subscribers’ health. Halvorson also discusses the new Medicare prescription drug legislation, the sources of the current run-up in health costs, and how he intends to position Kaiser for future growth.
Jeff Goldsmith: Some people have attributed the recent upsurge in health care costs to the managed care backlash. That is, as managed care plans reduced surveillance of physician and hospital behavior, a surge of elective care drove the costs up. About six months ago I visited one of your regions, and the Kaiser Permanente cost trend was virtually identical to the community’s trend. That puzzled me, because there’s no incentive inside of Kaiser’s system to generate utilization. Why hasn’t this past two years been an opportunity for you to widen the cost advantage of your plan over that of the fee-for-service system? George Halvorson: Let me answer your first point first. There have been a couple of major myths in regard to health costs. One of the myths deals with external influences on premium prices. A lot of people believed, for example, that because the Clintons were going to implement health care reform, everyone in the industry suddenly started repricing their services downward. Goldsmith: Or didn’t raise their prices? Halvorson: Or didn’t raise them. I don’t believe the "Hillary effect" argument. I think the pricing strategies of health care providers and suppliers were directly affected by the market backlash against the cost trends. Bargaining between health plans and providers got more intense. Discounts were getting deeper every year. That decreased premiums. This had nothing to do with the White House. Market forces were rewarding better prices. So better prices happened. At the end of the 1980s the market was seeing double-digit inflation over multiple years. The marketplace was still overwhelmingly non–managed care. Buyers couldn’t afford non–managed care. So beginning in the early 1990s the managed care companies started exploding, and discounts—hospital and physician—got very deep. One consequence of those discounts was that premiums were flat for quite a while. Those discounts rebased pricing for all of health care. After the deep discounts, there was a new base charge for hospital care; there was a new charge for surgery. Along the way to rebasing the system, the length-of-stay for maternity dropped from five days to two days, temporarily to one day, and then went back to two days. You can go through every major type of care and identify the fact that there were significant shrinkages in length-of-stay, movement to outpatient surgery, et cetera. The managed care industry did quite a few things to rebase costs. Once the costs were sufficiently rebased, there were no savings to be had from further rebasing. Now, the natural cost trends that come with demographics, new technology, and new drugs (that had been disguised, masked, and offset by the rebasing) are the driving factor, and we are all seeing prices go up. One factor is that drug companies have changed their pricing strategy. The discounts aren’t as deep as they were a few years ago. New drugs are increasing costs. Consolidated hospital systems are also exerting great market leverage and are raising their prices significantly. In some states we make our own hospital care; in other states we buy it. In the states where we are buying, we’re seeing hospital systems jacking prices up anywhere from 20 to 50 percent in the contracting process. Goldsmith: So your contention is that this recent surge in costs wasn’t utilization-driven? The data I’ve seen showed a significant jump in hospital admissions, surgical procedures, and diagnostic volume. The price changes you talk about are going on, obviously, at the same time. Halvorson: A lot of it, I think, is driven as much by the aging population and the availability of new technology as it is by a change in practice. The fact that you can do more things, that you can do surgeries that didn’t exist before, that there are more people who need hips replaced all drive costs. These are utilization increases. The baby boomers have contributed a significant increase to care costs, if everything else stays equal. Goldsmith: Paul Ginsburg of the Center for Health System Change showed that for 2001, of the near 10 percent cost trend measured at the time, 0.7 percent was attributable to demographics. Halvorson: I think it was a bigger percentage. In Epidemic of Care [by Halvorson and George J. Isham, Jossey-Bass, 2003] we described a dozen cost drivers. If you take the combination of new drugs, new procedures, a shortage of health care workers, provider consolidation, an aging population—each of these are worth more than a point. The net of those cost drivers comes out to be a double-digit cost trend. Goldsmith: What is your cost trend right now, going forward? Halvorson: It’s under 10 percent—high single digits. Goldsmith: What’s the most volatile component of the cost trend right now? Halvorson: External [non-Kaiser] hospital costs. Goldsmith: What about in California, where you deliver the hospital care? Halvorson: We’ve seen some increases in the number of times people are coming in for visits. As you said earlier, there is no incentive in Kaiser’s system to increase the number of people coming in for office visits. As we look at the risk pool, we’re seeing real stratification. There are more people with chronic conditions, and chronic conditions are driving the majority of health care costs.
Goldsmith: You have spent the vast majority of your career in the Midwest. About 85 percent of Kaiser’s membership is in three Pacific Coast states. Why has it been so hard for Kaiser to grow its presence away from its base? Halvorson: If you look at the fundamental organization of Kaiser, we’re a nonprofit company. For-profit health plans are rewarded by the stock market for expansion. In fact, if you are a for-profit company, you’re almost driven to expansion. Kaiser has no stockholders. We don’t have to expand. There’s no particular reason to expand. If we’re doing well in California and Hawaii, there is no philosophical or business imperative that says we really should also be in New Jersey. The logical expansion role for us—and it’s a good solid business strategy—is growing our enrollment close to where we already are. Goldsmith: Arizona? Halvorson: There’s a lot of California left. We’re building another seven hospitals in California and a couple in other states. We’re going to build as many new hospitals as anyone in the country, with medical centers distributed around them, in contiguous areas to where we already have the market presence, the knowledge base, credibility, and employer contacts. We’re following the population growth near where we are. Jumping into Kansas doesn’t make any particular sense. Goldsmith: This is a bit of a change in message from your predecessor, who believed that you needed to be national company. Halvorson: I think there was a point in time when Kaiser hired some consultants who were used to working with for-profit companies. They never actually presented a business agenda for being national. I’ve heard that it was more a public positioning agenda for being national. My strong sense is: If we have eight-million-plus members, and we are delivering best care and doing innovative things in design and reengineering of care, that is what will create all the credibility that we’ll need. Moving to New Jersey wouldn’t add any credibility really. So, we have a different philosophy. Goldsmith: There may also have been a theory that Kaiser was missing this huge national-account business because it couldn’t service employers with multiple sites. Halvorson: That was the theory at one time. Kaiser did put together a national network of not-for-profit plans at some point. I know that because HealthPartners [Halvorson’s former company, in the Minnesota Twin Cities] was in it. With the exception of the Blues, it’s pretty hard for anyone in health insurance to have a complete national network. Nobody else—Aetna, CIGNA, United, Well-Point—has a national network in its own right. Large national accounts always ask: Do we want to play "best of breed" in each market, or do we want to buy a national player? For a lot of employers, Kaiser can cover the major markets they’re in. One thing that happened during the time when there was a sense we should expand rapidly was that some acquisitions were made that were not a good fit for the Kaiser model. We acquired IPAs [independent practice associations], for example, in New England. If you look at what we do really well, we do vertically integrated care. It’s hard to do vertically integrated care with a New England IPA. Goldsmith: Your colleagues at Harvard Pilgrim tried to meld a staff model with an IPA. Halvorson: I haven’t looked at that closely enough to know what they’ve actually done. I believe that it will be possible, at some point, to create the virtual equivalent of an integrated care system using computer linkages and an electronic record. But all of that is a future agenda. At the point in time that Kaiser Permanente was expanding east and north, none of those electronic tools were available or even contemplated.
Goldsmith: Kaiser has historically been a one-size-fits-all product. You have a reputation as a product innovator. Do you see options here for Kaiser to create new products from its existing integrated base? Halvorson: We are introducing a fairly wide range of products that involve consumer cost sharing, tiered copays, and higher deductibles. We have deductible products on the market right now in a couple of states that are selling very well. In California we will have deductible products in the market in 2004 or 2005. Operating systems are being built to support them. Kaiser has a huge individual-market presence in California. We traditionally had about a 20 percent price advantage over Blue Cross or Blue Shield for full benefits. Then they started selling $500 and $1,000 deductible policies while we’re selling full coverage. Suddenly our 20 percent price advantage became a 20 percent price disadvantage. We are now going to that market with our own $500 and $1,000 deductible plans, and we expect to regain our price advantage. Goldsmith: But it’s expensive to grow. Kaiser grew aggressively during the mid-1980s and late 1990s and experienced serious capacity problems, related to both facilities and care-givers. What’s going to be different about this growth? Halvorson: Several things. One is that we’re building fairly aggressively. We’re building hospitals and medical centers. We’re hiring physicians. Last year we hired several hundred physicians in California alone. So, we’re anticipating growth through both our capital plan and our recruitment activities. We are also creating new care and support systems—opportunities for increased efficiency. The easiest way for us to grow, actually, is with increased efficiency. I know from having been in this model for many years that if you are in a group or staff model and grow faster than your service capacity, you end up using external caregivers that are much more expensive and less consistent, and you can’t guarantee the quality as well using an external network.
Goldsmith: Do you know the average age of your Permanente physicians in California? Halvorson: No. But I know that in the past several years we have hired thousands of new Permanente physicians. So there’s been a large influx. Right now, in California, if we have an opening for medical staff, we get twenty to forty applicants. Goldsmith: That’s a nice position to be in. Halvorson: We’re really getting the pick of the crop. Goldsmith: Are these refugees from private practice, or young people coming out of medical training? Halvorson: Both. We’ve had many private-practice doctors, including entire groups, come to us and say they would like to be acquired or hired. And for the young physicians coming out of medical school, we pay well, we’ve got great facilities, and we’ve got guaranteed patient flow. They don’t have to hang out a shingle, open a practice, start marketing, and go through all of the misery that comes from solo practice start-up. So they can immediately begin taking care of patients. Remember, we are more computer-supported now than anybody in the country. Goldsmith: Except the VA [Department of Veterans Affairs]. Halvorson: Yes. Young physicians coming out of medical school expect to find computer support. They don’t find that in a one-or two-doctor partnership. New physicians find this shocking. Goldsmith: So the age distribution of the physicians is even across the groups? My impression was that there was a fairly large cohort of people in their forties and fifties who joined Kaiser when it was a counterculture of medical practice. Halvorson: A few years ago that might have been true. But we really have added a lot of physicians, so it might be somewhat bimodal right now. Another nice thing about Kaiser is our excellent retirement program. And, as you know, with stock market instability, private-practice physicians have found themselves with a highly insecure, uncertain retirement future.
Goldsmith: Regarding the retirement plans of the private physicians in the country over age fifty, there’s a consistent survey finding that a third of them plan on leaving practice within the next five years. That may be stock market dependent. In other words, if the economic base is there to support them, they’ll get out. Aren’t we going to have a severe crisis of access to physician services eight to ten years from now? Halvorson: We’re likely to have a severe crisis of access to almost every level of health care professional. There’s a nursing shortage, there’s a lab tech shortage. The average age for lab techs in California is fifty-two. I have no idea why that profession is as old as it is. We have within Kaiser multiple training programs, scholarship programs, and job enrichment-enhancement programs. We help people upgrade to a higher level of professional status. So we’re working as hard as we can to stay ahead of that curve, particularly in nursing. Nursing is an area of major shortage—partly because nursing is really hard work. Goldsmith: You’re pursuing an institutional strategy to try to make Kaiser a preferred place to work and compete effectively in this market. But the scarcity itself is a societal problem. What do we do about that? Halvorson: One of the things we argued in Epidemic of Care is that we need to be addressing that issue right now, at the governmental level. We need scholarship programs and funding for other educational programs. We need forgivable tuition loans. We need a GI bill, in effect, for health care professionals. And we need these now, because the time-frame on training is as long as a decade.
Goldsmith: The nightmare scenario is that the baby-boom generation of experienced caregivers—physicians, nurses, and everybody else—is ten years gone by the time the baby boomers get to the multifunctional chronic illness that we know is lurking. Halvorson: You have to project that as an upcoming shortage and start working on it. We can do that to some degree in our system. Right now our system in California does not have a nursing shortage because we do the right staffing ratios, because we have lift teams for heavy patients [which reduces the hard, physical work of nursing], et cetera. And so we’re creating the right work environment. The other thing we’re doing—and this is the critically important part of the overall engineer care. Every other industry has reengineered. For hospital nurses, 40 percent of their time is spent on paperwork, and they have a changeover that takes at least half an hour at the end of the shift. We did a Kaiser study that showed that the most dangerous time to be in a hospital is at the shift change, because that’s when the system shuts down. At the end of a shift, the incoming nurses sit down with the outgoing nurses in a little room, talk about what happened on the shift, and get ready to take care of the next patient. What do you do about that? You put in an electronic system, bar codes, support systems, and record keeping so that nurses don’t have to sit in a room for half an hour and talk to each other at the end of a shift. They log in, and they’re on. They’ve got information there in great detail; it’s patient-specific. The likelihood of mistakes goes away, and the wasted time goes away. That’s the kind of thing that needs to be done. Every other industry has figured out a way to maximize the available skill set of the work-force, but health care hasn’t even begun down that path. So people think of us as having an electronic medical record. What we’re really doing is building electronic caregiver support tools, which is a whole different agenda. We think that the single most critical task is to create electronic caregiver support tools, so that we can provide physicians, nurses, pharmacists, and others with appropriate information—and, in the process, reengineer the patient flow. We can cut about a quarter of a day off the length-of-stay just by having a computer schedule test results in the order of discharge. The first order is, of course, medical priority. But once medical priority is established, the second order is: "Is this person going to be discharged today or tomorrow?" If the answer is "today," do that test first. Goldsmith: I’ll bet there’s a day or more of total opportunity when you begin looking at work flow and information flow issues. Halvorson: We won’t know the exact number until we’re doing it. But you can’t do it until you have the tool. I mean, that’s the key point. When you’re looking at health care transformation, you have to have that particular toolkit. And when that toolkit is in place, then you can sit down and figure out optimal ways to reengineer care. The Institute of Medicine gave an anecdote in Crossing the Quality Chasm [National Academies Press, 2001] about a woman who went to one doctor for a prediagnosis and another doctor for something else and ended up having some tests done. It then took six weeks to get the test results back. But the IOM didn’t suggest that the next step to fix the system ought to be a flowchart of that entire process and the assignment of accountability for each step. What was the access point, who was accountable for that, who was accountable for the next piece of data? You need to flowchart the whole process. That’s something Kaiser can do that the private practice–based systems we compete against are anatomically incapable of doing, because in the fee-for-service world, you have multiple people who believe they are the accountable party. As a system, Kaiser is uniquely blessed, not only with vertical integration but with a stable patient base and the financial resources to pilot computer-assisted care. So we’ve got a good starting point. The second doctor at Kaiser Permanente, Morris F. Collen, is now ninety years old, and he’s still doing research. Goldsmith: Like Peter Drucker—only a doctor. Halvorson: Exactly. Well, what Dr. Collen did thirty years ago, way ahead of his time, was to create an automated medical record on punch cards. He had rooms full of punch cards, because he could see advantages of having all information on each patient arranged in a unified way. It was a brilliant idea. Of course, the ergonomics of the system ultimately defeated it. It was not doable, but it was the right thing to do. So then the Permanente physicians started down that path. What did they do? In Northern California they said that they were going to modify the patient scheduling system to help with diabetes and heart disease reminders. Just those two tools cut the death rate from heart disease to significantly less than the national average and also reduced death rates from cancer to less than the local rates.
Goldsmith: This is a nice segue to my next question. You made an eloquent case in the book for reengineering care processes and focusing on the preventable causes of illness. It seems that a system organized like Kaiser’s has a tremendous natural advantage over a fragmented system where there is no focused accountability for the patient. Why hasn’t this translated into a significant health status difference between Kaiser subscribers and its demographically comparable non-subscriber base in the same community? Halvorson: Well, if you look at areas like Medicare, or at individual markets, where everyone is health-screened, it appears that it has created a major cost advantage. Goldsmith: Have you published the data? Halvorson: No. But if you look at the individual marketplace, where we and our competitors all health-screened our applicants so that we all started with healthy patients, our premiums have been consistently 20 percent below the competition for the same benefits (and we made money with premiums priced 20 percent lower). That risk-screened population was as close to an identical population as you can get. We also have the highest loyalty level of any health plan. We and Group Health of Puget Sound and Health Partners all have patients with high loyalty. People stay with us for a long time. And so, if you actually do a risk-pool comparison, that loyalty causes us to end up with a risk pool that has more chronic conditions but incurs less cost for taking care of those chronic conditions because we do it better. For us to fully maximize the potential of the vertically integrated system, we need the computer support tools. With those, we’ll not only deliver significantly better care, but we will be able to prove it. The issue up to this point has been proof. You asked earlier how well we do relative to other carriers. I would argue that we do so well that we transform entire marketplaces. If you look around the country at our mature markets—Portland, Hawaii, California, where we are the dominant player—and then compare the overall price in those communities to the rest of the country, you’ll see that they’re 10–20 percent lower. Goldsmith: Well, the acid test would be to put you in McAllen, Texas, or Baton Rouge, wouldn’t it? Halvorson: Wherever we are, when we enroll enough people, we transform the market. Health care costs in California are much lower because we’re there. I mean, people miss the point that once we drive costs 20 percent below the competitors, the competitors then have to do dramatic things to follow. Because we are not in Miami, for example, that competition doesn’t happen, and costs in Miami are incredibly high. We’re also not in Boston. If we were, everybody else would be forced to be much more competitive. Goldsmith: Well, you had Harvard Community Health Plan, and a culture that was similar to that inside your Permanente Medical Groups—conservative, thoughtful, evidence-based doctors, physician governance. But it wasn’t a market-dominant actor. Halvorson: The Harvard plan was able, for a very long time, to set comfortable prices against a very inefficient Blue Cross–dominated market. Goldsmith: Weren’t you in a similar position in California—shadow-pricing against sky’sthe-limit, fee-for-service medicine? Halvorson: But California prices were never that high, because Kaiser has been a factor for a very long time. The second thing is that Kaiser’s internal rating philosophy was always a community rate, not a profit-maximizing rate. Basically, our rating was a budget process, not an actuarial process. You took the total budget, divided by the number of members, and that was the premium. So there were no actuaries. At one point, Kaiser had one actuary, and people in the organization thought that was excessive. Compare that to Blue Cross—they have probably 300 actuaries. Goldsmith: You also had no accounting system, clinical volume measurements, billing system... Halvorson: It was a budget-based system. That’s actually a very elegant process. People have the misconception that a fee-for-service bill actually reflects the cost of care. Those fee-based bills are totally arbitrary pricing artifacts: They don’t reflect real costs. They simply reflect someone’s idea of revenue when someone assigned the price to each procedure. Once you’ve assigned a billing code, smart people know that there is no real relationship between billing codes and actual value. Think about it. We pay our surgeons by the hour, not by the cut. That’s a big difference from paying the surgeon by the procedure. Paying by the procedure, you can easily have "procedure 1" that pays three times as much per hour as "procedure 2." That creates a perverse incentive to do "procedure 1" instead of "procedure 2." People criticized the fact that Kaiser couldn’t do fees. Fees have nothing to do with value. Goldsmith: One has to wonder how much you can move toward a system based on predicting and intervening in disease risk with the existing fee-for-service incentives. You really didn’t talk about that in your book. Halvorson: In my previous book, Strong Medicine (Random House, 1999), I talked about it a lot. I was very critical of fee-for-service incentives. I think that market forces can have great leverage, great impact—potentially, wonderful impact. When we put in place the computerized physician support tools, and we see a significant decrease in the death rates from heart disease and in the complication rate from diabetes, et cetera, then I believe absolutely that this is going to be a market driver. And we at Kaiser will not be shy about sharing our success with the world. Our success will force buyers, both governmental and corporate, to go to competitors and say, "Create the equivalent to this." The second thing I think is going to be a major reform driver is that there is no shortage of computer companies that would like to create virtual integration through shared clinical computing. Goldsmith: Do you really see anyone doing this, George? Halvorson: Not yet. But there’s no reason to do it quite yet. There’s no reward system for doing it yet. Goldsmith: Right. Well, what is the reward system? Halvorson: It will come when we prove the tremendous value of these systems to buyers. Our agenda is not only to prove the value but also to reform the pricing system. Goldsmith: How are you going to do that? Halvorson: We’ll say to the buyer, here’s what you’re getting in terms of actual value. Here’s what’s happening with your diabetics. Your outcomes are measurably better, and, therefore, you should pay us this amount of money for taking care of your diabetics. Goldsmith: So, you want to move to a disease-specific payment model? Halvorson: We want to move to a model that carefully reflects disease factors. Right now, without full data, we can’t show the economic benefit of quality. When we are able to show this in a persuasive way, then I guarantee that UnitedHealthcare will come out with a product that will reflect that agenda, using the tools they have available. I also think that the government should be providing increasing support for the use of the computer, all the way from bar coding to electronic prescriptions. As al l of that connectivity happens, the opportunity to create a virtual system will be there. I don’t think that the virtual systems will ever be quite as good as Kaiser is, because there is an inherent advantage to vertical integration. But there is so much low-hanging fruit. Look at the RAND study [of medical outcomes]. Forty-five percent of Americans get inadequate care. Sixty percent of diabetics get inadequate care. Diabetes is 25 percent of the full cost of Medicare. There’s been a 50 percent increase in the number of diabetics since 1990. There’s an epidemic of diabetes, and two out of three diabetics receive inadequate care. They receive inadequate care in some cases because the doctors can’t remember what to do with each diabetic, and in other cases, because there is no consistent record of what has been done for each diabetic. But if you create a consistent record, if you create an interflow of information between the caregivers, and then if you have standards for the best diabetic care, then the cost of diabetes in this country could go down by half. So the potential for reducing the complications of diabetes by 50 percent is right in front of us.
Goldsmith: Kaiser made an early, aggressive investment in Internet connectivity for its subscriber base. Where do you stand in terms of benefit from that investment today? Halvorson: We have a very high level of patients for whom we schedule appointments electronically, and we actually sell individual coverage electronically. Goldsmith: What percentage of your subscribers are using the Internet portal? More than 10 percent? Halvorson: In terms of making appointments, it’s a fairly high percentage and climbing. In terms of going to the Web site and accessing health information, it’s in the 10 percent vicinity, but climbing. We now have an automated medical record tied to an Internet system, so that patients can access their own medical information online. Goldsmith: Do they get an abstract of their record? Halvorson: It’s not everything, but it’s a large piece of the record. And it’s been consumer-tested to include the parts of the record that consumers most want, in a secure format. Patients really like having that information. Also, we can now begin to push information to them. If you’re a diabetic, we’re reminding you to do the right things. If you’re an asthmatic, we’re reminding you to do other things. Goldsmith: Do you have any evidence that this system has actually improved health status indicators for the people using it? The theory is if having connectivity and feedback loops should be a powerful potential tool for improving their health. Halvorson: Part of what we are doing is to take all this information and then use it to track the results of different approaches. So if we’re doing outreach for a given population, we’re able to track the difference between patients who received the intervention or advice and those who didn’t. As we complete the system, we’re going to be the equivalent of a data-rich, eight-million-member perpetual clinical trial. We’re going to be identifying how well different drugs work, identifying the short- and long-term consequences of various surgical procedures. And our ability to do medical research will be immense. The beautiful study that RAND just did took two dozen nurses three years to get a snapshot of 20,000 patients. Goldsmith: You could do that instantaneously with a universal electronic record. Halvorson: We can do our version of the RAND study every Friday. Our access to medical information is a research scientist’s dream.
Goldsmith: What does Kaiser spend on research and development in a year? I’m not referring to sponsored research, but to clinical process design work and technology evaluation. Halvorson: Actually, it’s a little hard to parcel that out. We do have a staff of people who just do product design. We have another staff of people working in care management who do best-practice research. Goldsmith: So you’ve never aggregated together what you’re spending as a percentage of your $25 billion revenues on R&D? Halvorson: We’ll have the best database in medicine, and the ample resources to use it. It will take our record system a couple of years of development before we can fully measure the exact impact of care decisions and figure out what the rate of complications are, where they exist, et cetera. We will know immediately the impact on diabetics, on asthmatics, on black women over age seventy. Our research people are very excited and energized about the prospect of having that tool available.
Goldsmith: You have a large number of Medicare beneficiaries in your subscriber base—some 800,000. Are you sufficiently enthusiastic about the new Medicare changes in payment to health plans to want to grow that Medicare base significantly? Halvorson: Oh, we’ll probably grow it some. Goldsmith: That’s not an enthusiastic endorsement. This is supposed to be a big reopening of the program to health plans. Halvorson: Well, we’re already deeply involved. Our system, actually, is particularly good at taking care of Medicare patients. Goldsmith: I know this. My parents were Kaiser subscribers. Halvorson: Chronic disease management is one of the things we do really well. We’re delighted that the Medicare bill passed; we supported the bill. But its "doughnut hole" provision is problematic for us [that excludes a core group of people whose spending exceeds the minimum but doesn’t qualify for the next level of subsidy]. Goldsmith: Because you don’t bill people? Halvorson: Yes. We would have been happier with a single benefit package without the doughnut hole, so we’ll be working to figure out how to account for it. If we fill the doughnut hole ourselves, it creates a problem getting the catastrophic payment trigger on the back end. Goldsmith: In other words, if you’ve subsidized the doughnut hole, you run into problems. Halvorson: It’s an idiosyncrasy, and we’re going to be talking to CMS [the Centers for Medicare and Medicaid Services] about whether or not there’s an answer. Our system would work better without the doughnut hole. We’d be better off taking a portion of the catastrophic coverage, putting it up front, and providing more complete coverage. Until we get that wrestled with, we’re not ready to go out aggressively after that population. Goldsmith: The people who wrote the bill assumed the existence of a market for a product that does not exist, which is at-risk drug-only coverage—freestanding drug coverage. Do you see a market for that materializing? Halvorson: I haven’t looked at that for one moment. I don’t have an opinion. Goldsmith: How much sense does it make to ensure drugs as a freestanding benefit, just from a policy architecture standpoint? If the argument is that savings can be had by leveraging the use of drugs to avoid hospitalization, no one except you wins by doing that. Halvorson: There have been, in the insurance world, freestanding, carved-out cancer programs, et cetera. Carriers have made money on those carved-out products. There may already be a market model for that product, but I haven’t looked at any part of that. To the extent that I have thought about it, I think it’s going to be interesting to see who does it. Goldsmith: What about the bill itself? Do you consider this to be Medicare reform, or is it simply a benefit expansion? Halvorson: There are a couple of very important Medicare reform elements in the bill. One, in particular, for the first time ever, the federal government has acknowledged that there ought to be a process of doing technology evaluation and that technology evaluation ought to be made public. It’s a tiny piece of the bill, which we worked very hard to get in. A, does the technology actually work, and B, what does it cost? Goldsmith: The bill also included a study of disease management, comorbidity management. Halvorson: Right. Goldsmith: That’s not reform, that’s studying things. Was there reform in this bill? Halvorson: The technology evaluation is not just a study. It’s reform. Goldsmith: What else in there was reform? Halvorson: Providing prescription drugs to seniors is a reform. I’ve been advocating for two decades, at least, that Medicare needed to fill that hole. I also think that the government needs to encourage support, incentivize, pay for technology adoption. One of the things that I liked about [Newt] Gingrich’s approach is that he recommended that the government pay an additional 0.4 percent to providers if they computerize. I think that’s actually a very good model. The government ought to be doing ideal patient information flowcharts, trying to figure out what information should move from place to place. Having figured it out, then we figure out how to create incentives, through Medicare and Medicaid, to get people there. Medicaid is a great example. People go onto Medicaid, off of Medicaid; they go from one doctor to another. One of the reasons why the United States has such low immunization rates and among the lowest levels of well-baby care in the world is that everyplace else in the world, it’s not just the national health systems, but the fact that patients have a relationship with a doctor. In the United States, where you have that same type of single-caregiver relationship—in dentistry and veterinary medicine—both disciplines do a great job on preventive care, follow-up care, best steps in care. It’s all there, in part because of the relationship. And when you’re in Uganda, there is one care site, and that one care site knows every kid in the community, and they know where the kid is. So everyone gets their shots. Goldsmith: It takes a village. Halvorson: It takes a village to immunize a child.
George Halvorson became chief executive officer of Kaiser Foundation Health Plan Inc. and Kaiser Foundation Hospitals, Oakland, California, in May 2002. Jeff Goldsmith (hfutures{at}healthfutures.net) is president of Health Futures, based in Charlottesville, Virginia. He is the author of Digital Medicine: Implications for Healthcare Leaders (Health Administration Press, 2003).
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