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An Interview With George Halvorson: The Kaiser Permanente Renaissance, And Health Reform’s Unfinished Business

September 30th, 2014

For decades, health policymakers considered Kaiser Permanente the lode star of delivery system reform.  Yet by the end of 1999, the nation’s oldest and largest group model HMO had experienced almost three years of significant operating losses, the first in the plan’s history. It was struggling to implement a functional electronic health record, and had a reputation for inconsistent customer service.  But most seriously, it faced deep divisions between management and the leadership of its powerful Permanente Federation, which represents Kaiser’s more than 17,000 physicians, over both strategic direction and operations of the plan.

Against this backdrop, Kaiser surprised the health plan community by announcing in March 2002 the selection of a non-physician, George Halvorson, as its new CEO.  Halvorson had spent most of his career in the Twin Cities, most recently as CEO of HealthPartners, a successful mixed model health plan.  Halvorson’s reputation was as a product innovator; he not only developed a prototype of the consumer-directed health plan in the mid-1990’s, but also population health improvement objectives for its membership, both firsts in the industry.

During his twelve year tenure as CEO, Halvorson not only guided the plan to solid profitability, but added a million members in California, its largest market, despite a devastating recession and a national retreat of commercial HMO membership.  He invested over $6 billion in computerized patient care systems and population health management infrastructure, healed the breach with Kaiser’s physicians, and markedly increased its consumer satisfaction scores, earning 5 STAR ratings under Medicare Advantage.  He left the organization at the end of 2013 with more than $53 billion in revenues and more than $19 billion in reserves and investments.

This interview covers Halvorson’s time at Kaiser, his views of health reform, including the unfinished reform agenda, and his public health activism.  It was conducted by Jeff Goldsmith, a veteran health industry analyst, and Associate Professor of Public Health Sciences at the University of Virginia.  Jeff is a member of the editorial board of Health Affairs.

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How Much Market Power Do Hospital Systems Have?

June 12th, 2014

Sometimes big game hunters find frustration when their prey moves by the time they’ve lined up to blast it. That certainly appears to be the case with the health policy target de jour: whether providers, hospital systems in particular, exert too much market power. A recent cluster of papers in Health Affairs and policy conferences this spring have targeted the question of whether hospital mergers have contributed to inflation in health costs, and what to do about them.

Hospitals’ market power appears to be one of those frustrating moving targets. The past eighteen months have seen a spate of hospital industry layoffs by market-leading institutions, and also a string of terrible earnings releases from some of the most powerful hospital systems and “integrated delivery networks” in the country. These mediocre operating results raise questions about how much market power big hospital systems and IDNs do, in fact, exert.

The two systems everyone points to as poster children for excessive market power-California-based Sutter Health and Boston’s Partners Healthcare, both released abysmal operating results in April. Mighty Partners reported a paltry $3 million in operating income on $2.7 billion in revenues in their second (winter) quarter of FY14. Partners cited a 4.5 percent reduction in admissions and a 1.6 percent decline in outpatient visits as main drivers. Captive health insurance losses dragged down Partners’ patient care results.

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Primum Non Nocere: Congress’s Inadequate Medicare Physician Payment Fix

January 24th, 2014

Editor’s note: You can read other perspectives on the Medicare physician payment reform pending in Congress in Health Affairs and Health Affairs Blog (here, here and here).

Partisan gridlock in Washington regarding health policy has been so pervasive and bitter that any bipartisan co-operation on any important health issue should be applauded by a frustrated public. That is why the emerging bipartisan compromise regarding the fifteen-year long policy embarrassment known as the Sustainable Growth Rate (SGR) problem needs to be taken seriously. Remarkably similar solutions — a new hybrid physician “value-based” payment methodology — have emerged from three of the four key committees in Congress, and seemingly the only stumbling block is finding the $115-120 billion to pay for it. Moreover, key physician interest groups, including the American Medical Association, appear to have signed off on this approach.

This makes it all the more troubling that the approach taken is unsound health policy that will damage practicing physicians in diverse settings: private practice, medical school practice plans, and hospital employment. This is because the proposed legislation casts in concrete an almost laughably complex and expensive clinical record-keeping regime, while preserving the very volume-enhancing features of fee-for-service payment that caused the SGR problem in the first place. The cure is actually worse, and potentially more expensive, that the disease we have now.

The SGR fix would basically freeze or severely limit future physician fee updates for Medicare Part B (a serious problem for primary care), while permitting physicians to earn modest “value-based” bonuses if they can document quality measure attainment, cost reductions, participation in alternative payment schemes, practice enhancement activities, or meaningful use of EHRs.

Physicians who meet all these standards could expect to supplement their existing Part B fee by about 4 percent in 2016, going to 10 percent in 2020, with the aggregate bonuses subtracted from the pool of total Part B physician payments to preserve budget neutrality. Non-compliant physicians would see corresponding reductions in their updates. There are sensible opt-outs for physicians who can report in groups, virtual or real, as well as for physicians who participate in as yet unspecified “advanced payment models” (APMs).

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Pioneer ACOs’ Disappointing First Year

August 15th, 2013

On July 16, the CMS Innovation Center reported the first year results for the Pioneer ACO program: 13 Pioneers, or about 40 percent of the participants, earned bonuses. The program saved the Medicare program a gross $87.6 million before bonus distributions, cutting the rate of growth in Medicare spending by 0.5 percent, from 0.8 percent to 0.3 percent annually.

However, nine of the 32 members dropped out and press reports hinted at a contentious relationship between the Pioneers and a well meaning but green and overtaxed CMS staff. It was not an auspicious beginning for a program whose advocates believed would eventually replace regular Medicare’s present payment model. There immediately followed a blizzard of spin control from ACO “movement” advocates stressing the need for patience and highlighting first year achievements.

What was irritating about the Pioneer spin is it treated the ACO as if it were a brand new idea with growing pains. This studiously ignores a burned out Conestoga wagon pushed to the side of the trail: the Physician Group Practice demonstration CMS conducted from 2005-2010. The PGP demo tested essentially the same idea — provider bonuses for meeting spending reduction and quality improvement targets for attributed Medicare patients. The pattern of arrow holes and burn marks on the PGP wagon closely resemble those from the Pioneer’s first year, strongly suggesting more troubles ahead for the hardy, surviving Pioneers.

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Health Industry Price Inflation At Historical Low

August 1st, 2013

One hesitates to make too much of a single report, but the Altarum Institute’s July Report, “Health Care Price Growth at 20+ Year Low,” certainly commands one’s attention. According to Altarum’s analysis, the health sector pricing trend ran at a 1.0 percent annual rate in May 2013, lowest since January of 1990. What is striking about Altarum’s health care pricing trendline is that it has declined for the last three years in spite of an alleged economic recovery.

It also runs parallel to a subsiding utilization trend, suggesting that the health sector has been unable to offset reduced utilization with price increases. Since the beginning of the recession, pricing has subsided from double the rate of the GDP deflator to parity, and it has closely tracked the deflator with only two deviations for more than eight years. Clearly, something more than the recession is at work here.

These trendlines confirm what this observer sees from his contacts in multiple sectors of the health industry: a widespread and durable “top line flu”. The growth in enterprise revenue for most health providers and manufacturers has been static (e.g. very low single digits or actually declining) over the last two years. Most investor-owned hospitals, pharmaceutical companies, device manufacturers, and physician practices (pretty much everyone except the consultants and IT vendors) have reported both revenue stasis and earnings compression.

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Practice Redesign Isn’t Going To Erase The Primary Care Shortage

March 28th, 2013

Most experts agree that primary care needs to be re-invented. There are a lot of promising ingredients of practice redesign: better scheduling, electronic medical records with patient portals, redesigned clinician workflow, and work sharing. Linda Green’s intriguing article in the January Health Affairs simulates a strategic combination of these changes and argues if they all happened at once, we would have no primary care physician shortage.

Even if we make much more effective use of clinical time and energy, however, Green’s formula isn’t going to get us far enough fast enough. The baby boom generation of physicians is fast nearing its “sell by” date. In 2010, one quarter of the 242,000 primary care physicians in the US were 56 or older. One in six general internists left their practices in mid-career. Many more hardworking clinicians delayed retirement due to the 2008 financial collapse.

Few manpower specialists have noted the cohort effect likely to manifest itself shortly. A continued economic recovery and, more importantly, a recovery in retirement plan and medical real estate asset values will lead as many as 100,000 physicians of all stripes to leave practice in the next few years. We will be replacing a generation of workaholic, 70-hour-a-week baby boom physicians with Gen Y physicians with a revealed preference for 35-hour work weeks. During this same period, we’ll be adding 3 million new Medicare beneficiaries a year and enfranchising perhaps 25 million newly insured folks through health reform. “Train wreck” is the right descriptor of the emerging primary care supply situation.

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Where Is Health Spending Headed? Some Reactions To The CMS Report

January 31st, 2013

For the third year in a row, national health spending in 2011 grew less than 4 percent, according to the CMS Office of the Actuary. However, the report said modest rebounds in pharmaceutical spending and physician visits pointed toward an acceleration of costs in 2012 and beyond. CMS’s analysts make much of the cyclical character of health spending’s relationship to economic growth and also forecast a doubling of cost growth in 2014 to coincide with the implementation of health reform.

This non-economist respectfully disagrees and believes the pause could be more durable, even after 2014. Something deeper and more troublesome than the recession is at work here. As observed last year, the health spending curve actually bent downward a decade ago, four years before the economic crisis. Health cost growth has now spent three years at a pre-Medicare (indeed, a pre-Kennedy Administration) low.

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Behind The Uninsured Numbers, A Diminishing Sense Of Urgency

September 24th, 2012

After a summer of disappointing economic news, the recent Census report on the uninsured was a rare bit of sunshine. The number of uninsured Americans declined by about 3 percent, or 1.34 million, to 48.6 million in 2011. This was the largest one-year numerical decline in twelve years. There were “only” about 1.7 million more uninsured in 2011 than there were in 2006, before the devastating recession.

The search for policy fingerprints on these findings points directly to Medicaid. For all the controversy over this program, the safety net did its job. Medicaid enrollment rose another 4.4 percent in 2011, or 2.2 million people, likely masking continued shrinkage in private insurance coverage. If Medicaid rolls had not expanded by 10 million folks from 2006 to 2011, the number of uninsured would have soared due to the recession.

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Health Care: An Alternate Economic Universe

August 23rd, 2012

In July, 2012, the US economy produced roughly the same volume of goods and services as it did five years earlier with five million fewer workers.  Yet, during the first four years of the recession (May 2007 to May 2011), the US health system, despite slowing or declining utilization, added 1.149 million workers.  Key sectors, […]

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Barking Up The Wrong Tree: Affordability, Not Cost Growth, Is The Policy Challenge

May 7th, 2012

A recent spate of commentaries on the continuing health spending moderation raise an important policy question:  If the cost curve is well and truly bent, why are we investing so much of our policy energy on bending it further, when the more pressing problem is the declining percentage of Americans that can afford our health […]

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MedPAC’s SGR Solution: Bad Medicine For A Chronic Problem

November 16th, 2011

The Medicare Payment Advisory Commission (MedPAC) is the closest thing Congress has to adult supervision on important health policy questions. The Commission commands bipartisan respect both for its record of sound policy advice and for its leadership. With its October recommendations, MedPac attempted to solve the sustainable growth rate (SGR) physician payment formula budget crisis […]

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Letting Go Of Employer-Based Health Insurance

July 22nd, 2011

Other than the egg-laying exercise surrounding the ACO regulations, 2011 was a quiet year among Washington health policy experts until June 6 when McKinsey released the results of a survey of employer plans under the Affordable Care Act. The McKinsey study found that roughly 30 percent of employers were considering dropping their employee insurance coverage […]

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Virginia Mason’s Clinical Transformation: Hard Work, Big Payoff

February 7th, 2011

In the ten months since the passage of health reform, health care managers, particularly those in hospitals and health systems, have struggled to make sense of an onslaught of change in Medicare policy.  The response has been depressing:  an accelerating wave of merger and acquisition activity, both horizontal hospital mergers and an accelerating concentration of […]

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How to Fix Medicare’s Doc Fix Problem

January 13th, 2011

Of all the ghosts that haunt the Medicare program, none has been noisier, scarier or rattled more chains than the Medicare Sustainable Growth Rate (SGR) problem.   SGR has required Congress to reset physician payment policy almost every year for the last decade to avoid gutting Medicare physician compensation, a recurring reminder of how difficult Medicare […]

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Eight Rules From The Heart Of Power: How Did Obama Do?

March 29th, 2010

Last fall, David Blumenthal and James Morone published a timely history of the presidential handling of health reform from Franklin Roosevelt onward, called The Heart of Power (see my review in Health Affairs). At the end of the book, they offered eight rules for presidential management of health reform distilled from the experience of the past […]

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An Alternative Path On Health Reform: A Reply To Tim Jost

February 12th, 2010

Tim Jost’s thoughtful analysis of the state of health reform concluded that the only practical means of accomplishing health reform is to find a short parliamentary path to some melded version of the two bills that passed the respective Houses. In a comment in response to Jost’s Post, I argued that even if the bills were […]

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An Inconvenient Truth: The Health Care Cost Curve Is Already Bent

January 20th, 2010

No single government report more reliably generates editorials on the nation’s healthcare “crisis” than the annual CMS actuary’s report on US health spending. I’ve long suspected that a lot of these editorials, like obituaries, are written in advance, so that the editorialist can simply fill in the new numbers.  A two-decade long accumulation of these editorials […]

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There Be Dragons: The Fiscal Risk Of Premium Subsidies In Health Reform

December 9th, 2009

Last week, the Congressional Budget Office weighed in on the biggest economic imponderable in the health care debate:  how private health insurance premiums will behave under health reform. Building on its December 2008 CBO health insurance market analysis,  CBO forecast largely benign effects from health reform’s private market reforms and subsidies on the vast majority […]

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Hiding In Plain Sight: Using Medicare To Solve The ‘Public Option’ Conundrum

October 20th, 2009

As Senate and House Committee versions of health reform move toward unified legislation and floor votes, the most complex political challenge is how to resolve the “public option” controversy.  While one would have thought weightier issues such as the shape of Medicare reform, the taxation required to support coverage subsidies, or the presence or absence […]

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The Accountable Care Organization: Not Ready For Prime Time

August 17th, 2009

Editor’s Note: In the post below, Jeff Goldsmith argues that the concept of accountable care organizations (ACOs) is “not ready for prime time.” In a response, Aaron McKethan, Mark McClellan, Elliott Fisher, and Jonathan Skinner state that ACOs represent a critical step away from volume-based health care payment and toward better health and better care at lower cost. […]

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