An interview with Kaiser Permanente CEO George Halvorson: Part 2
On 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.
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