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An interview with Kaiser Permanente CEO George Halvorson: Part 2

Thumbnail image for George_Halvorson2.jpgOn Friday, I sat down with George Halvorson, CEO of Kaiser Permanente, the largest managed-care organization in the United States. The interview is long, so I'm transcribing it in parts. The first installment focuses on the role of private insurers, why America pays so much more for health care than any other country, and what we can do about it. The second piece focuses on the difference between integrated care and traditional insurance, and whether fee-for-service payments are the problem in health care.

Do you believe that the problem is a fee-for-service system where it’s profitable for physicians to increase the amount of care they deliver?

Yes. There’s a profit factor involved in doing more tests and procedures. But believing that to be true and believing that we don’t get care right for patients with chronic disease, I can still tell you that if you go back to the prices and put them to Canadian numbers, the result is our spending plummets.

Structurally, then, your argument is that America’s problem is that there’s not been a price-setting mechanism. Is that because, as some people believe, the players with the power are the providers, not the insurers?

Kaiser is building half a dozen hospitals right now. And we’re building them because we couldn’t buy, in the open market, hospital care for anywhere near what we can make it for.

When there’s enough consolidation, prices go up. Market forces work in health care. One of the reasons I say “health care will not reform itself” is that health care is making $2.5 trillion a year. It has no incentive to change behavior, and no mechanism to change behavior. Every doctor I know loves to have all the information about every patient. But you can’t get it here. You can’t get it in the U.S. There are ERISA violations if you try to share it. A lot of other countries have claims-based systems, but doctors have access to the data. I think we should mandate that every payer in the U.S. should be required to produce an electronic health record.

This is part of why so much of the data we have on, say, treatment effectiveness comes from Medicare, right?

Dartmouth did that, but the Rand study did not look at Medicare. The Commonwealth study looked at 5 million claims across a broad population and asked how much care shouldn’t have happened. They concluded that of $2 trillion spent, $500 billion was for the wrong care. Milliman did the same study but asked what would happen if we took the practices of the best medical plans, how much will we save? They got $500 billion. Then you’ve got the Dartmouth study which said that if we got to the best practices in the best parts of the country, we’ll save $500 billion, and that’s on Medicare data. But all the study shows is that if we get care right and deliver it more efficiently, we’ll save a lot of money. But only Dartmouth is Medicare data.

But most doctors can’t access that data?

No. But they can’t get Medicare data, either. Medicare as an infrastructure doesn’t exist. The infrastructure of Medicare is private insurance companies that pay its claims. But we should have a Medicare database that we’re plumbing all the time for care. Kaiser Permanente has a database now. We just did a study showing that if you had high cholesterol 30 years ago, you’re 60 percent likelier to have Alzheimer’s today. We just had this data, and noticed this disproportionate relationship. But that was just because we had the data. In most cases, however, the data is truncated, time-limited, and on paper. That's a bad way to run a railroad.

Kaiser is one of the first major systems to convert entirely to electronic records. Why has that been so difficult?

Why would anybody do it? They all have their own data. If you, as a solo practice doctor, say an allergist, create an electronic medical record, and the only data you have is allergy data, and you already have that on your paper record. It won’t happen from the inside. It can’t happen from the inside. President Obama, I think, did a brilliant thing when he put some of the recovery money into the electronic records. The challenge is that it then should have gotten into system design and decided what the records will do. Now they’re trying to do that.

I think like a minister of health. We have a population of more than 8 million people in Kaiser, which is more than 42 states and a 100 countries, and we’re an integrated care system, and so I’m always thinking in terms of population health. Within KP, when we started electronic medical records, some people wanted an oncology system and some wanted a surgery system, but putting it into separate pieces would have been really wrong.

We put it into a linked system based on two principles: all the data for all the patients all of the time, and two, make the right thing easy to do. Some of the systems that have been developed didn’t make it easy for doctors to get the information they needed quickly, and those systems have been, in some cases, rolled back. But if you have all the data and the system is designed to make the right thing easy to do, then you’ll order the right lab test, because someone else has done all the coding for what lab tests you want for what condition, and you can give the patient all their information at the end of the visit.

I want to back you up here for a second. Kaiser Permanente is an integrated-care system. You have your own hospitals and doctors. It’s not an insurer like Aetna is an insurer.

We are a single-payer system unto ourselves. For us, a hospital or an imaging center is a cost center, not a profit center. We’ll have one clinic shared by a hospital and a couple of specialties, while in the fee-for-service world, each of the specialties might have their own CT scanners so they can bill off of them. We have a lot of CT scanners, too. We probably do more of them than any other private organization in the world. But, we do them for the patients, so the CT information is shared and they don’t need to be repeated. That makes us different than folks who want to deliver great care but are organized around billing systems.

There’s a clinic in Seattle. They’re a fee-for-service clinic that did a great job developing best practices for imaging. You do a CT scan and it’s the equivalent of a 1,000 x-rays. You don’t want them to do that too often. But they did a great job on these protocols. Reduced the number of CT scans by 30 percent. But that meant they lost 30 percent of their revenue. It was a huge financial hit. The people who did that study were not very popular in the organization.

In the traditional setup, the insurer has an incentive to get hospitals to do fewer CT scans and the hospital has an incentive to do more CT scans, and people don’t really know who to trust. But they know they don’t trust the insurers.

That’s why you need protocols. So it’s not just one opinion versus another opinion. If all the parties agree on a medical best-practice protocol, you end up in a position where you can have multiple payers and providers. The European model works just fine with multiple competing plans. In some countries, they’re actually trying to figure out how to become more coordinated. Many of them come to Kaiser to look at our stuff, kick our tires.

A number of the organizations that are considered the best and most cost-efficient in the United States – Kaiser, Mayo, the Veteran’s Health Administration – are integrated at a level that’s really quite rare. Normally, you’d expect that to give them a competitive advantage, and they’d eventually take over the market. But that doesn’t seem to happen. Why?

Well, the VA has its own population. When you look at the Mayos of the world, they’re doing well. They have a good business model that’s working for them. But everyone else has a good business model that’s working for them, too. There are $2.5 trillion in this market. There’s no reason, if you have a comfortable cash flow, why would you do hard things and heavy lifting to get to a different model? That’s one reason I’ve been such a strong proponent of exchanges. I believe we need a truly competitive market for insurance.

By Ezra Klein  |  November 6, 2009; 1:23 PM ET
Categories:  Health Reform , Interviews  
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Thank you Ezra. I find most blogs are useless, off-the-cuff opinion columns from people who are in over their head. I come here for the excellent reporting, and when you do opine, you've usuually done the legwork. Good stuff.

Posted by: CarlosXL | November 6, 2009 2:08 PM | Report abuse

"Normally, you’d expect that to give them a competitive advantage, and they’d eventually take over the market. But that doesn’t seem to happen. Why?"

David Leonhardt's piece in this week's NYTimes Magazine notes:

"But in our current health care system, there is no virtuous cycle of innovation, success and expansion. When Intermountain standardized lung care for premature babies, it not only cut the number who went on a ventilator by more than 75 percent; it also reduced costs by hundreds of thousands of dollars a year. Perversely, Intermountain’s revenues were reduced by even more. Altogether, Intermountain lost $329,000. Thanks to the fee-for-service system, the hospital had been making money off substandard care. And by improving care — by reducing the number of babies on ventilators — it lost money. As James tartly said, “We got screwed pretty badly on that.” The story is not all that unusual at Intermountain, either. That is why a hospital cannot do as Toyota did and squeeze its rivals by offering better, less-expensive care. "

Posted by: Athena_news | November 6, 2009 2:11 PM | Report abuse

I know you like integration, but as you can see from Halvorson's responses, you're pushing it a little too far.

There's benefit in provider integration, particularly data. There's benefit in payer integration, particularly data. but integration across payers AND providers isn't typically seen as critical to success. Most other countries don't have that, and there are payment structures that could be put in place to address the "payer vs. provider" dynamics that you're thinking about, without needing an integrated Kaiser-like system.

Posted by: wisewon | November 6, 2009 2:13 PM | Report abuse

Summary of Part II: There is not enough economic pressure on low-efficiency providers.

The interview also touches on the hugely important role of IT in improving quality of care. The idea that the government would mandate individuals to buy insurance and not mandate that providers use EMR is outrageous!

Posted by: bmull | November 6, 2009 2:26 PM | Report abuse

Halvorson admits that KP is a limited single payer system that works. Why is he then supporting exchanges and opposing a national single payer system that would ultimately have to turn to integration of providers to maximize efficiency? If he is such a good health minister for KP, why not the whole country?

Posted by: desertsage | November 6, 2009 5:41 PM | Report abuse

Kaiser, Mayo Clinic and the VA are cited as integrated systems that do well at cost control. What was not mentioned or explored is that all three systems pay their physicians a salary. That plays a huge role in cost control. Physicians are freed up to follow best practices.

Posted by: DorothyMonroe | November 6, 2009 6:30 PM | Report abuse

Kaiser is more than a single-payer system from the patient point of view, because the patient doesn't get billed, except for the monthly premium, and this is most likely paid by an employer or state or county program. Beyond that, I pay $10 for an office visit, $5 for a prescription, $50 for an emergency room visit and a whopping $250 if admitted to a hospital. That's it. No other bills for medical services. There are glitches--sometimes my mother spent the night in the hall in the emergency clinic while they decided whether to admit her (usually not), but I expect that happens elsewhere. Drs don't order excessive care, but they do heavily stress prevention because they are on a capitation system. Every6thing is now electronic, anmd I can even make my own appointments. I think it has evolved into a great system.

Posted by: Mimikatz | November 6, 2009 6:32 PM | Report abuse

I have a dim view of "competition" in the health care market. To start with, an individual can't go into the market and buy what they need with any degree of knowledge. If I want to buy a new sweater, or a dish washer, or a car, I know what I want, what I need, and what I can afford. I make a sound purchase balancing that information.

If I have a pain in my abdomen, I try the antacids and/or home remedies for a while, but eventually go to the doctor to find out what to do. The doctor pokes and prods, asks questions, orders tests, etc. (Hear that cash register ringing up already?) Then I'm told, oops, need an appendectomy! Quick to the nearest available OR. Lots of time for comparison shopping, right? What is needed is needed. Not much room for negotiation.

But what we're really talking about in most of the "market" for health care is which insurance company, with how much deductible/co-pay, blah blah, and bottom line--the monthly premium. Most of which are unaffordable for middle income Americans. Employers historically paying this has hidden the cost from workers for decades, so that now most wage earners don't know how much they have lost in increased earnings to the insurance maw.

One important question is: would you rather have your choice of doctor/care provider, or your choice of insurance company?

If your employer decides what your insurer and plan will be, and your insurance plan keeps you "in network", just how much choice does anyone have?

If, on the other hand, care providers -- doctor/hospital integrated networks such as Kaiser Perm -- were competing, based on quality of care, to attract enrollees, whose premiums payments were subsidized/guaranteed by the government, might that be really productive competition?

Posted by: jshafham | November 7, 2009 11:24 AM | Report abuse

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