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Laying The Foundation For Catalytic Change
Susan Dentzer1 and
Mark D. Smith2
1 Susan Dentzer (sdentzer{at}projecthope.org) is the editor-in-chief of Health Affairs in Bethesda, Maryland.
2 Mark D. Smith is the president and chief executive officer of the California HealthCare Foundation in Oakland.
Key Words: Health Philanthropy
Among the many sweeping changes in health care financing that occurred in the 1990s was the wave of insurer conversions from not-for-profit to for-profit status. When the wave receded, left behind were a number of so-called conversion foundations. These were funded with the proceeds of insurer stock sales and charged with the mission of improving health and health care in their communities.
One of these conversion foundations was the California HealthCare Foundation (CHCF), headquartered today in a renovated building in downtown Oakland. The foundation’s first responsibility was to manage the sale of stock of WellPoint Health Networks, created by the conversion of Blue Cross of California. That process, which eventually yielded about $3 billion, also created the much larger California Endowment, to which the CHCF transferred four-fifths of the proceeds of WellPoint’s stock sale. The CHCF got the remainder, which totaled $600 million at the time and has grown into more than $700 million in assets today.
While the California Endowment has pursued a broad agenda of advancing health in California communities, the CHCF has focused on improving the delivery and financing of high-quality health care in the state. Since 1997 it has paid out more than $500 million, focused on such areas as delivery system innovation and lowering care costs.
Since the CHCF’s inception, the foundation has been headed by Mark D. Smith, formerly executive vice president at the Henry J. Kaiser Family Foundation. A board-certified internist, Smith is a clinical faculty member at the University of California, San Francisco, and an attending physician at the Positive Health Program for AIDS care at San Francisco General Hospital. He holds a bachelor’s degree in Afro-American studies from Harvard, a medical doctorate from the University of North Carolina at Chapel Hill, and a master of business administration degree with a concentration in health care administration from the Wharton School at the University of Pennsylvania.
Recently Smith sat down with Health Affairs editor-in-chief Susan Dentzer to talk about what the foundation has accomplished over its history and where it hopes to go next—especially in a post–health reform environment. Excerpts of that conversation follow.
Susan Dentzer The foundation recently celebrated its twelfth birthday. Tell me about its early days.
Mark D. Smith I was the first employee. I’ve always been a clinician, and my background was a combination of business and health care. The California Endowment had already signaled that it was going to be very community-focused on health in a very broad sense—economic development, community activation. We saw that there was a role for a statewide foundation that worked on medical care and delivery—doctors, hospitals, health insurance companies, and care.
This was 1996, at the beginning of the managed care backlash—a tumultuous time in policy. The national reform effort had failed. There was a lot of focus on care and delivery and financing. We said, as opposed to spending our life railing against the market and trying to fight it, let’s figure out where the market interest and the public interest converge, and let’s see if we can’t play a catalytic role there. And one of our precepts from the very beginning was to try to look for areas of "market failure," and then try to help play a role in them.
Dentzer So where did that lead you and the foundation?
Smith One example is our longstanding effort to modernize enrollment in public programs. In California, there are hundreds of thousands of people who are eligible for public insurance programs like Medicaid and the Children’s Health Insurance Program [CHIP] but remain unenrolled. Part of the problem is that the eligibility and enrollment process is cumbersome and not very consumer-friendly. When we started down this road in 1998, the "expedited" application booklet for children’s health insurance in California was twenty-eight pages long, with a four-page worksheet for parents to figure out whether their children were eligible for Medi-Cal or Healthy Families, California’s versions of Medicaid and CHIP, respectively.
The policy world has built enrollment barriers for people in an incremental fashion. Every time a new program is created, there’s a new set of eligibility rules and enrollment processes and procedures. Before you know whether you’re eligible for program number seven, you have to prove that you’re not eligible for programs six, five, four, three, two, or one. That’s the kind of insanity that we place on the backs of working families, and the Medicaid and social service systems. We said, "There’s got to be a better way."
So we brought together expertise from the software development world and the public policy world and asked, "How can we develop a computer program that can interface with the state system and not have individuals calculating eligibility?" The result was Health-e-App, a Web-based application that streamlines the process of enrolling low-income children. In 2003 we joined forces with the California Endowment to develop a new application, called One-e-App, which guides low-income families through the process of applying for the full range of health and social services programs, including not just Medi-Cal and Healthy Families but also programs such as food stamps, WIC, and the Earned Income Tax Credit.
We’ve since spun off Health-e-App and One-e-App into a nonprofit software development organization, the Center to Promote HealthCare Access, which is led by a former foundation staff member along with a former partner at Deloitte Consulting. It now has sixty-four employees, including thirty-one software developers, with offices in Oakland and a data center in Sacramento. We own the intellectual property and have given no-cost licenses for its use to the State of California and eleven California counties. The software is also used by the State of Arizona, in Indiana, and in Maryland. It also powers enrollment in Healthy San Francisco, the program that makes affordable health care services accessible to uninsured city residents.
Dentzer What metric do you use to measure whether Health-e-App and One-e-App have been successful?
Smith About 30 percent of the applications for children’s health insurance in California are submitted through this online system. Paper applications received have a "rework" rate of approximately 63 percent. That means two out of every three applications that are filled out by hand require follow-up with applicants, because there’s incomplete or missing information. Health-e-App and One-e-App, by contrast, won’t let an applicant or case worker make those mistakes, because they remind the user which data elements are required and have built-in error checking. An independent business analysis conducted by the Lewin Group found that Health-e-App reduced the time between application submission and eligibility determination by 21 percent. Application errors were reduced by nearly 40 percent, and 90 percent of applicants said that they would prefer to apply online. In addition, the software allows the applicant to select a provider by specialty, language spoken, or proximity to the applicant’s home.
Have these applications been adopted everywhere? No. We’ve learned the hard way that in working with government, efficiency is not always the highest priority. In California, counties conduct enrollment in these programs as a vestige of Medi-Cal’s origins as an adjunct to welfare. The county-based enrollment process involves 26,000 full-time eligibility workers. So what on the surface might seem like a no-brainer is actually fraught with politics around jobs, state-county relationships, etc. However, amid California’s fiscal crisis, the governor and legislature have directed the development of a single statewide enrollment system, with a Web-based portal, so this may be an opportunity to change things. We’ll see.
Dentzer The foundation has also had a major focus on improving quality in the health care system, and driving those improvements through publicly available performance measures. What have been the signal achievements in that realm?
Smith One of the things we have gotten pretty good at is bringing the stakeholders in health care together around issues of common concern, like quality measurement and reporting. From the very beginning, transparency has been an important principle for us, and I think that we have pioneered in transparency in the quality of care in both hospitals and nursing homes. We’ve paid a lot of attention to dissemination of performance results because we believe that for the time being, the "active ingredient" of transparency in improving quality is not so much the shopping behavior of consumers as it is the impact of comparative performance on providers themselves, particularly when the results grab the attention of media, systems’ leadership and governance, and private and public payers.
So, for instance, in 1999 we launched a $10 million health care quality initiative that has helped make California a national leader in public reporting on nursing homes and hospital quality. One of the reporting systems that eventually resulted, CalHospitalCompare.org, is among the first systems in the country that includes both patient experiential measures and the clinical technical measures of quality—a total of seventy measures of quality and performance. And although we initiated it and we manage the Web site, its roughly $2 million annual cost is now largely paid for by the seven health plans that use it instead of their own individual proprietary measures of hospital quality, as they had five years ago. The participating hospitals represent about 86 percent of hospital admissions statewide.
So this is an instance where there was convergence between health plans’ interest in having measurements of quality and hospitals’ interest in having one set of measures instead of five. We were able to play a catalytic role in creating a process that melded these interests.
Dentzer What’s the evidence about how much consumers are using this tool?
Smith The uptake has not been as much as we would have liked, and I think the reason is that we still haven’t hit the areas that most people are interested in, which is why we are starting to explore whether we can make a contribution in measurement in life-threatening and serious conditions—not who does the best management of moderate hypertension.
My best friend called me a year and a half ago and said, "I’ve just been diagnosed with prostate cancer. OK, Mr. Quality, where do I go?" And I sat there and I said, "You know, I can tell you who’s famous but I can’t tell you who’s good." So it’s ironic—and frustrating—that we have a fair amount of information on care of hypertension, but when someone is diagnosed with breast cancer or prostate cancer, we’ve got nothing for them.
We are currently involved in trying to put together a "joint registry" in California. Our objective is to have, two years from now, a database that can tell you, in more or less real time, every replacement knee joint and hip joint that’s been inserted in the state; who the surgeon was; what the hospital or accountable care system was; what the device was; the brand, make, and model of the device; and the functional status of the patient. Actually, the American Recovery and Reinvestment Act [(ARRA) of 2009, the so-called stimulus bill] provides funding for health information technology and comparative effectiveness research to build the infrastructure to collect these data. We’re also interested in exploring other conditions where information is highly salient with patients and payers—things like prostate cancer treatment, breast cancer, "Whipple" procedures for treating pancreatic cancer, and cataract surgery. It’s too early to tell, but we’re actively talking with specialty organizations, patient groups, and others to see if we can help.
Dentzer A particular focus of yours has been making changes in the delivery system, and the foundation has sponsored research into such areas as retail clinics. We’ve published some of that research in Health Affairs.
Smith In the long term, our commitment is to search for ways to provide better care for the same amount of money, or the same care for dramatically less money.
We’re actively trying to fund what we hope will be models of high-volume, high-efficiency, low-cost care. One possibility we’re working on now is an eye surgery center in San Francisco based on the principles of the Aravind Clinic in India, in partnership with private eye surgeons.1 This represents a "focused factory" approach: specialized platforms that can usually provide high-quality care more cheaply.
The argument in the policy world against them has usually come from generalized platforms like general hospitals, who object to specialized platforms because, they say, they "cream off the profitable patients" and leave general hospitals unable to cross-subsidize. That creates a policy dilemma: Do you want to stay with the old, expensive, inefficient way because it’s your only model for how you cross-subsidize?
So for us, part of the idea of this eye center is to develop a specialized facility that can do the same internal cross-subsidization from paying patients to nonpaying or underpaying patients that has been part of the history of the general hospital. This is what Aravind does.
People with Medi-Cal have great difficulty finding specialty care. Fewer than 40 percent of doctors in California participate in Medi-Cal because Medi-Cal has favored offering coverage to more people over paying anything like market rates to providers.
And so to the extent that we can figure out a way to deliver high-quality, high-volume, inexpensive eye surgery to people in California, including the uninsured and those on Medi-Cal, that would be a winning proposition for us. And we are exploring with a couple of other foundations putting up several million dollars in loan funds to help start such an enterprise.
The other possibility we’re currently exploring is a high-volume, low-cost endoscopy center at a safety-net hospital, using the same principles of high efficiency and cost-effective staffing models. It might be one gastroenterologist working with five nurse anesthetists and ten medical technicians, for example. The task is to figure out the highest "throughput" of patients possible within the limits of good, safe, legal practice. The idea is to figure out how to provide these high-cost interventions more cheaply, rather than simply cutting payments to ophthalmologists or gastroenterologists.
Providers are already pretty grumpy out there, and the notion that our long-term vision of a stable system is to make them even grumpier by driving their incomes down doesn’t strike me as a particularly attractive vision for the future.
Dentzer How does the foundation hold itself accountable for its efforts to bring about sweeping changes of this sort?
Smith In each of these program areas we have specific objectives. As an example, we’re interested in improving the process of end-of-life care, particularly in the context of chronic disease, which is how most people die. So in the part of our portfolio that pertains to end-of-life care, we have an objective of having palliative care programs in two-thirds of California public hospitals by 2012. Palliative care, as you know, is an approach that seeks to improve quality of life for patients with life-threatening illnesses by, among other things, clarifying goals of care, providing pain relief and spiritual support, and neither hastening nor postponing death.
This is our first experience of having this type of goal, and it gets us out of the realm of just having good intentions and forces us to ask, "What would it take to actually accomplish this goal?" If a hospital is going to have such a palliative care program, who makes that decision for them, and what kind of evidence do they need? So let’s stop talking only to the people who are already champions of palliative care, because if they could have put the program in place, they would have. Let’s start talking to the chief financial officer [CFO] for the hospital, and understand the business case for palliative care from his or her perspective.
As part of this work, we have funded the development of palliative care programs in public hospitals. We can actually show you the rise in palliative care services overall in hospitals in California in the past several years, especially for private hospitals, where the business case is clearer, from about 17 percent in 2000 to 43 percent in 2007. Growth in public hospitals did not keep pace.
One of the most important things we are developing is business-case analyses at a level that the public hospital CFO would understand. Lots of hospitals thought instinctively that if they started programs that reduced the intensity of services, as palliative care often does, those programs would cost them money. As it turns out, that’s usually not the case. If hospitals are reimbursed on a diagnosis-related-group [DRG] basis, as under Medicare, having people stay another three or four days after the payment runs out doesn’t help a hospital’s finances. And if a patient is in the hospital for a condition that is not going to get better and you treating them as if they were, with an intensity that’s not consistent with their wishes—and when no one in the hospital talks with the patient to understand their wishes—you’re actually spending resources and not being reimbursed for them.
Because public hospitals are paid differently from private hospitals, the business case for them is about savings from more appropriate medication and test use once the goals of care shift from seeking a cure to providing comfort and support.
We have helped to fund the adoption of the Physician Orders for Life-Sustaining Treatment (POLST), a standardized medical order form signed by the patient and physician to direct which types of life-sustaining treatment a seriously ill patient wants or doesn’t want if his or her condition worsens. POLST is designed to enhance the old "Do Not Resuscitate" orders and advance directives, which probably gave people too narrow a range of all-or-nothing options. With POLST, patients have an opportunity to specify what interventions they do and don’t want. California law now requires POLST to be honored across all settings of care.
In our statewide efforts, we have provided education to more than 250 health professionals about having the POLST conversation with patients. And we’ve now got coalitions in nineteen counties that are helping to figure out how to document and deliver on patients’ wishes across care settings, to enable them to die in the way and at the place they want. The California Medical Association has recently developed a POLST kit for physicians and disseminated it to its members. The foundation has been involved in one way or another in all of those efforts.
Dentzer What other lessons has the foundation learned over the course of its existence about how it can best effectuate change in health and health care?
Smith Over the years we’ve done some things right and done some things wrong. We’ve learned, for example, that in trying to advance health through funding basic science, we don’t do a good job. We got into this in part because it seemed like a distinctive opportunity to work on a problem that is particularly, if not uniquely, Californian—coccidioidomycosis, or valley fever. It’s a fungal infection that affects people who live around the Sonoran Desert—the southwestern United States and northern Mexico. On average there are thousands of cases and a hundred or so deaths per year in California, and it particularly affects farm workers, especially in the aftermath of earthquakes, when the fungal spores can cause epidemics.
Because it’s a local and regional problem, the National Institutes of Health hasn’t paid a lot of attention to it, so we decided to help fund research to develop a vaccine for humans to keep people from getting the disease. And after a couple of million dollars out of the foundation—in combination with money from the state and from the local Rotary Club in Bakersfield, California—and some ten years of effort, we have not made significant progress. We gave it the old college try. We learned that we’re not in a good position to judge the efficacy of one protein particle versus another at eliciting an immune response and, once identified, how to get a vaccine candidate to market. It’s not our competence.
We also discovered, I think, that classic health services research is not our area of competence. More than once we have funded a study that we thought was interesting, only to see a report published the next week that researchers were reporting a better study that had been ongoing for two years, but we didn’t know about it. We eventually concluded that’s why God created study sections at NIH, the Agency for Healthcare Research and Quality, and the Centers for Disease Control and Prevention. And so now the "health services research" we fund tends to be much more applied research that addresses specific decisionmaker needs, because we are rarely in a position to gather the best minds and the smartest people in the country to judge competitive proposals for classic health services research.
Dentzer Let’s talk about the current economic situation, both nationally and in California, which is still in the midst of an apparently worsening fiscal crisis. Your endowment, like all foundation endowments, has declined sharply from its highest level in 2007, although it has rebounded because of the market rally last year. What has been the impact on the foundation, and what in particular are you doing to focus on health care access in California in light of the fiscal crisis?
Smith In the short term, our board has made a decision to maintain our funding at its current level, which is actually quite unusual among foundations. We are legally required to spend 5 percent of our assets per year. Our target for the last several years has been 6 percent, and we usually spend around 5.75 percent. The board looked at our strategy and said that we should maintain our spending levels, even though that will erode our endowment a little. So that means last year’s 5.75 percent is more like 7.5 percent of assets in 2009 and around 7 percent of assets in 2010. We recognize that we can’t do that forever without eventually running out of money. At the same time, the board’s view was, and I agree, that this is not the time to be hunkering down at 5 percent.
We’ve also made "working capital" loans to organizations such as community clinics, which in these difficult budget times face even more of a short-term cash flow problem than they usually do. This is the second year we’ve done this, and basically it’s a way for them to keep operating while waiting for reimbursements from Medi-Cal, which are held to ease the state’s cash flow problems, to start flowing again.
We have also made targeted commitments to finance California’s required state match to draw down federal health care related stimulus funds. For example, the ARRA provisions for the Medicaid electronic health record incentive program provide a nine-to-one federal match for administering the program. Since California is broke, and since the stimulus provides an unprecedented opportunity to help small physician practices, community health centers, and public hospitals acquire the tools they need to meet the meaningful-use provisions, we have authorized up to $5 million from our corpus to help California draw down sufficient federal matching funds to meet this need, as bizarre as that sounds.
We have also authorized an additional $1 million to support California’s efforts to draw down telehealth funds at a four-to-one federal match, to ensure that physicians and clinics in rural areas of California are not left out.
Dentzer As this interview and issue of Health Affairs is published, we still don’t know the outcome of national health reform legislation. Whether or not it proceeds, what areas of focus will be most important for the foundation in the months and years ahead?
Smith As alluded to earlier, our foundation began during the waning period of the "managed competition" vision that health plans were going to transform health care. What we learned was that that’s not where care happens. And in a market like California’s, where most providers do business with most health insurance plans, it is not really credible to think that we’re going to successfully hold plans accountable for the quality of care. There’s also plenty of competition among plans in California, but they haven’t been particularly successful in controlling cost.
It is ironic that so much of the conversation in Washington over the past year was about whether or not we should have a public plan, what it should look like, what the rates should be, and the attachment of all sorts of magical properties to it, particularly the assertion that it will reduce cost when, in fact, that’s kind of what we said ten years ago and it didn’t work out that way. It turns out that unless you do something fundamentally different about competition and incentives in the delivery system, you can have all kinds of competition among health plans and it won’t make a difference.
My sense is people have a vision of reform as being like this big bang—like they’ll pass a bill and then it’s all settled. In fact, there will be many, many years of back and forth, and lack of clarity and interpretation, and everybody being scared, and a fair amount of stuff left to the states to figure out or default on. Health insurance reform is not going to ease cost pressures; it’s going to make them even more intense. If you look around California, I think we’ve been able to play a role in moving a number of things forward by being focused on the intersection of health care delivery and financing and policy.
So we will have several areas of focus from here. One is trying to get doctors armed and prepared to practice with population health metrics in mind. The way I was trained and the way most docs practice, that’s not the deal—the deal is, you see patients one at a time as they come in. Yet it’s very clear that we can’t improve the care of people with chronic diseases unless we get providers starting to think about the populations of people with diseases. Most docs, even doctors in multispecialty practice or in groups, haven’t organized their practices that way. So registries of similar groups of patients have to be the underpinning to help providers understand what their outcomes are with groups of patients over time.
We’ve spent a lot of time working on standardization and exchange of lab and pharmacy data, and helping install registries of patients, particularly in safety-net settings. For example, we’ve supported the creation of a quality improvement infrastructure in California’s community health centers; and 89 percent of community health centers across the state reported on standardized clinical diabetes measures at the beginning of this year. About 65 percent of such centers are now using electronic registries, with more going live every day. We’ve also got regional efforts under way to help providers understand how you can use that population perspective to improve care of populations of patients with chronic diseases, and they’re actually beginning to show results.
Going forward, if health reform is enacted, there is still a lot to be understood about the ways in which state government will be responsible for or interact with insurance markets; the intersection between what is currently a state-regulated health insurance market and new federal insurance regulations; and the fiscal sustainability of expanded Medicaid programs. I think one of the big roles for foundations—because there are few others who are positioned and interested in doing it—is to develop and apply metrics for the effectiveness of coverage.
Once you’ve enacted provisions to cover people, there’s a strong political incentive to declare victory and walk away. And in California, we have been quite aggressive about trying to say that just because a patient has Medi-Cal coverage does not necessarily mean that patient has adequate access or gets good medical care. None of the politicians wants to acknowledge that cutting physicians’ fees back by another 10 percent, and thus moving another 20 percent of physicians out of the program, is going to make it far less likely that people will get timely care even if they’re technically "covered." And in fact, what’s happening in California is that the actual value of Medi-Cal coverage is being progressively eroded.
Dentzer Let’s bring this to a close. Let’s assume we will soon face the full-throated challenges of implementing health reform and the Herculean attempt to "bend the curve" on costs. California is likely for some time to be stuck in its fiscal morass. What do you think the next ten years will look like for the foundation?
Smith If you’re honest as a foundation about how much impact you can have, you get more and more humble in a world where the big forces are largely outside your control. So we try to be honest and realistic about how much difference we can make, especially with our relatively small amount of money compared to the size of the problems facing health care. That means we’ve got to choose carefully and not think that we’re going to be able to change the whole world, but try to focus on those areas where we think we can make a demonstrable difference.
California’s fiscal woes demand fresh thinking about the structure and operation of Medi-Cal, which is increasingly unsustainable, even as national health reform efforts assume that it will be the foundation for expansion of coverage. I hope that we can help bring providers and policy makers together to examine an alternative to our current path, which is wrenching cuts in eligibility and benefits each year.
That said, one of the crucial roles for our foundation and others like us is to remain flexible enough to respond to issues as they arise. That will be particularly important in the next several years, because I think there is going to be a period of great uncertainty and, hopefully, experimentation after the initial health reform bill passes.
Dentzer With plenty of room left for a foundation to make a difference?
Smith Yes.
- For more on Aravind, see Bhandari A, Dratler S, Raube K, and Thulasiraj RD. Specialty care systems: a pioneering vision for global health. Health Aff (Millwood). 2008;27(4):.
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