Thank you for inviting me to speak before you today. And I want to particularly thank Neera Tanden and the Center of American Progress for helping us last May obtain the waivers from CMS that we needed to implement Oregon’s bold effort to transform our health care system.
As you know, the fundamental problem in our health care system is the huge and rapidly growing discrepancy between the cost of health care and the resources available to pay for it; as well as the fact that we have embarrassingly poor population health statistics to show for this huge expenditure of resources.
As you also know, three strategies have traditionally been employed by both public and private payers to address this problem: reducing what we pay for health care (cutting provider reimbursement); reducing the number of people covered; and/or reducing the covered benefits. The first two strategies – cutting provider reimbursement rate and reducing the number of people who are covered – simply create barriers to access leading people to delay seeking needed medical care and eventually driving many of them into the emergency department.
And while both strategies allow public and private payers to reduce their short term exposure to medical inflation; they also serve as a kind of “pressure valve” which allows us to avoid confronting the real underlying problem which is the cost of health care itself. As a result, neither of these strategies is effective because the uncompensated costs incurred by the uninsured or underinsured are simply shifted back to payers and reflected in increased premiums. And unless our efforts at health care reform can break this cost-shifting cycle, we will not succeed in the long run, a point I will return to later.
I believe that the opportunity to break this cycle is embedded in the current fiscal crisis, which was precipitated by the collapse of our financial industry in September of 2008, and the Great Recession that followed – with high unemployment and massive budget shortfalls at the state level. I think Thomas Friedman best captured the significance of this moment in time when he asked: What if the crisis of 2008 represents something much more fundamental than a deep recession? What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall?
I think he is absolutely right. Our world will never again look like it did before September 2008. We have crossed a divide; we are bumping up against our fiscal limits and against the limits of our natural environment. The challenge it to readjust to this new reality; not to simply try to return to a past which -- at least in the case of our health care system – was not serving us very well anyway. And therein lies the opportunity – but more on that in a moment.
States have been particularly vulnerable to the Great Recession because, unlike the federal government, they must operate on balanced budgets and cannot simply push their politically difficult fiscal choices into a growing national debt. As a consequence states have been faced with deep cuts in public services they cannot avoid – in everything from education to health care to public safety.
In response to this very real crisis, Congress passed American Recovery and Reinvestment Act in February 2009, which provided $780 billion in “stimulus” money designed to put people back to work, but also to help states with their own budget challenges – particularly in the areas of public education and Medicaid.
These resources were a lifeline to the states in 2009 and 2010, and Oregon received over a billion dollars which helped prop up our budget – the lion’s share going to Medicaid and to K-12 education.
Yet, while helping keep the state Medicaid program afloat, there was a downside to these resources. First, they simple propped up the existing hyperinflationary delivery system, offering no incentive to change it; second, they masked the impact of the Great Recession on state revenues; and, finally, they were one time revenues.
When I took office in January 2011, Oregon faced not only one of the largest per capita budget deficits in the country, but also a shortfall in our Medicaid program of over $2 billion, which would translate into a 40 percent cut to providers if we continued to cover all those who were eligible.
Most states faced with this situation balanced their budgets by simply dropping people from coverage. Oregon chose a different path because we saw little to gain and much to lose by simply reducing coverage and forcing people into the emergency room where we would end up paying to treat a stroke in the hospital rather than paying to manage someone’s blood pressure in the community.
Instead we sought to use this crisis as an opportunity to transform the health care delivery system to get a lower per unit cost and increased value for the dollars we are spending -- starting with the 600,000 people on the Oregon Health Plan.
Now before I describe the product of our efforts, let me offer an analogy for the point at which we find ourselves today by comparing the development of our health care system to the development of a successful organization – let’s say a business.
Successful businesses develop as the result of a business model and an investment environment that fosters growth and prosperity. However, as the environment in which the business operates begins to change; the growth curve flattens out. And if the organization does not change its business model to reflect the new environment it will go into a decline. General Motors is an excellent example of a company which failed to do so; persistently clinging to the past in the face of a changing environment: continuing to build big, fuel inefficient cars in the face of rising oil prices and concerns about carbon emissions and global climate change.
Successful business, however – when they recognize that the environment is changing – redesign their operational model in order to accommodate the changing environment – creating a new growth based of the realities of the present rather than on those of the past.
For a period of time, however, both curves must co-exist in order for the second curve to thrive – and the area of overlap between the old business model and the new one is referred to by business writer and author Charles Handy as the “Area of Paradox.”
This is an area of high anxiety; there is a lot of churning and insecurity. People know that things are changing; they know that the current system is not working for them – but they are afraid of the unknown. As a consequence, they tend to defend and cling to the current system even though at some level they recognize that is unsustainable and is failing the very purpose for which it was created.
I submit to you that this is exactly where we find ourselves today, in this area of paradox: in public education; in energy and transportation policy; in our approach to economic development; in the way we manage our natural resources; and certainly in our health care system.
The challenge before us is not unlike the “ropes” game in Outdoor School. You are placed on a post 10 feet above the ground and holding onto a rope. You are supposed to move to another post some distance away, which also has a rope dangling over it. In order to move from the “old” post to the “new” post you have to lean out and – for a moment – let go of the rope you have in your hand in order to reach the rope over the “new post.”’
The opportunity here, the leadership challenge involved, is to be able to describe the new health care system – the new business model, if you will – with such clarity and in such a way that people can see it, believe in it, and let go of the past in order to embrace it ... and then to successfully make the transition from our current system to the new one.
For decades the U.S. health care system has been built around a business model that assumes that the government and private employers will unquestioningly underwrite a medical inflation rate that grows much faster than the CPI, and that that this system will continue to be financed notwithstanding the increasingly tenuous relationship between the cost and improved health.
In June of last year, the Oregon Legislature took the first step to develop a new business model with the passage of two significant pieces of legislation. The first, HB 3650, was an acknowledgement that we were in the area of paradox and set up a process to design a new businesses model to transform our health care system.
This business model was built around the “coordinated care organizations” or CCOs – new local delivery entities formed around “natural communities of care” like counties or hospital referral areas. Each CCO would be unique and might look different in different parts of the state, but all would reflect four key elements:
1. Service integration, care coordination, and a focus on prevention, wellness, and the community based management of chronic conditions.
2. A connection with community based programs and efforts seeking to address the determinant so that health and governance structure reflect this emphasis on population health rather than only the delivery of medical care.
3. Managing utilization within a risk-adjusted global that would grow at a fixed rate.
4. Accountability for performance standards around access, clinical outcomes, and metrics for improving population health.
The legislature also passed SB 99, which set in motion to develop a state health insurance exchange – a central marketplace where individuals and small employers will get apples-to-apples comparisons on the price and quality of various insurance plans. The exchange, which I will elaborate on later, is a central element in our strategy to move our transformation from the Medicaid program to the private market.
This past February, after some 75 public meetings and tribal consultations, the legislature passed SB 1580, which adopted the business plans for coordinated care organizations and set up an application process through which they could be developed and approved.
It is worth noting that this legislation – as well as the legislation establishing our state health insurance exchange – passed with overwhelming bipartisan majorities. SB 1580 for example, passed the House of Representatives with a vote of 53-7 … and this took place in an election year, less than three months before the Oregon primary, and with the Oregon House split 30-30 between Democrats and Republicans. Think about it: 53-7 … a feat unimaginable this year in the United States Congress or in most of the other 49 states. Just reflect on that for a minute. But that is another story.
Six months ago, in the first week of March, I signed SB 1580 into law and submitted to HHS a request for a waiver from the federal government to give us the flexibility we needed to pay for care in new an different ways, as well as a request for an investment of federal funds to help stabilize the delivery system during a five year transition period.
In April we began accepting the first round of applications from interested Coordinated Care Organizations, and more than a dozen applied.
On May 1, I travelled to Washington, D.C. and met with officials from the White House, CMS and OMB to work through the final details of our waiver – returning to Oregon on May 3 with an agreement for a federal investment of $1.9 billion over five years to support our effort to transform the health care delivery system.
As a part of this agreement, Oregon committed to reduce the Medicaid per member inflation trend by two percentage points, t0 3.5 percent, by the end of the second year and lock this rate in going forward from that point while improving the health of our Medicaid population. This cost reduction will fully pay back the initial $1.9 billion dollar investment in five years and will save the state and federal government a total of $11 billion over the next decade.
On July 5, we received from CMS formal approval of the waiver necessary to move forward, and as of September 1 we had 13 Coordinated Care Organizations operational and beginning to provide care to over 500,000 Oregon Health Plan members – about 80 percent of the population. We also have three additional provisionally certified CCOs that, when they become operational, would serve over 90 percent of the Medicaid population.
Now, before, I go on, let me take a moment and speak to the 3.5 percent Medicaid trend rate that we plan to lock in going forward starting at the end of the second year. This may seem like a daunting target, but only if we continue to think in terms of the old business model. Let me offer you an example.
We know that the most common admission diagnosis for those on Medicare is congestive heart failure. Nationally, 40 percent of these people are readmitted within 90 days with the same diagnosis. The hospital gets paid for each admission, but there is no incentive to manage the congestive heart failure on a day-to-day basis once the individual has left the hospital. That is the old business model.
Consider the hypothetical case of a 92-year old woman with well-managed, stable congestive heart failure living in an un-air-conditioned apartment. One summer there is a heat wave and the temperature in her apartment goes up to 105 degrees for a day or two – putting enough additional strain on her cardiovascular system to tip her over into full blown congestive heart failure.
Under the current system, we won’t know about her till she shows up in the emergency room. Under a new care model built with an intentional connection to the community and a focus on health, someone – maybe a community health worker – would be checking on her on a regular basis to make sure not just to make sure that just her medical needs are being taken care of, but also her non medical needs that can lead to medical needs.
Under the current system, Medicaid and Medicare will pay for the ambulance and the $50,000 to stabilize her heart failure – but these programs will not pay for a $200 window air-conditioner, which is all she needs to stay in her apartment and out of the acute care medical system.
The difference is $49,800. Multiply that hundreds of thousands of times and you can see why the cost of Medicare is driving the national debt. But you can also see that taking that $49,800 out of the system does not cut “benefits’ – rather, reducing the cost of Medicare by changing the care model can improve both health and quality of life and save dollars. In the case of this elderly woman, avoiding an acute episode of congestive heart failure and remaining in her own home.
That is essentially what we are trying to do – to change both the care model and the business model; to realign the organization of care and the financial incentives to focus or prevention, wellness and the community based management of chronic conditions. Which is why we needed not only flexibility from HHS in how care is paid for, but also an up-front investment to transition the delivery system as we move from the old care model to a new one.
Now, as I mentioned earlier – if this new care model meets the quality improvement and cost reduction targets we have established, we intend to move our system transformation beyond the Medicaid program to the private market and eventually to Medicare. Indeed, that is the only way it can be sustained. Let me elaborate.
The State of Oregon finances health care for the 600,000 people on the Oregon Health Plan, but it also helps pay for the health care of some 300,000 state employees and public school teachers. Altogether, we purchase care for about 900,000 people, or one in four Oregonians who currently have coverage.
It is our intent to align this purchasing power by asking qualified health plans to align with this new care model on the health insurance exchange as a high quality, low cost option and at the same time make it available to state employees and public school teachers. If this population of public employees and public school teachers were successfully enrolled in a care model that grew at an annual rate of 3.5 percent, the 10-year savings would be close to $5 billion.
While this would be very good news for the state – freeing up resources to be invested in children, families, education and economic development – it represents $5 billion that we have taken out of the health care economy in Oregon … on top of the $11 billion savings in the Medicaid program. All things being equal, this loss of public funding could simply be shifted to the private sector through premium increases.
To avoid that, it is imperative that private employers begin to take steps to align their purchasing with those of the state; that is to demand a similar care model. This will also make it simpler for our partners in the delivery system is both public and private payers are asking for the same thing.
In addition, it is important to recognize that the Affordable Care Act contemplates reducing the federal deficit through significant reductions in the cost of Medicare. Without a new operational care model in place – and unless private purchasing as well as public purchasing is aligned with this care model – these cuts could result in benefit reductions for seniors and a massive cost shift to the private sector.
I believe that we have a narrow window in which to make an orderly transition to a new health care system – before economics and politics drive us into a purely reactive posture. I believe that same thing is true for our system of public education as well as our approach to energy and economic development. We are in the area of paradox, and we must act while we can still shape our future.
As evidence, let me ask you to recall the high stakes game of chicken played out in this city last August over raising the debt ceiling to prevent the United States from defaulting on its then $14 trillion national debt. It was not our finest hour. In the end, Congress once more kicked the can down the road, raising the debt ceiling by $2.1 trillion, while doing almost nothing to address the real underlying driver of our national debt: the intersection of an aging society and a hyperinflationary medical system.
I would remind you that 18 months ago, the first of 78 million Baby Boomers started becoming eligible for the Medicare program – that is an average of 10,000 new enrollees per day, every day, for the next 20 years. These are people who become entitled to publicly financed health care at the age of sixty five; many of whom will live for another 20 years; and the cost of their care is growing much faster that general inflation. By 2020, the average Medicare recipient will be taking $3 out of the Medicare program for every $1 they paid in over their lifetime.
That means that we will blow through the $2.1 trillion increase in our debt ceiling this coming year when our national debt will top $16 trillion. Health reform is not just about politics; it is ultimately about economics – and the laws of economics are as immutable as the laws of physics. My point is that regardless of who wins the presidency – regardless of which party controls Congress a year from now – there is no way to rein in the national debt without taking on the cost of Medicare and Medicaid. The longer we wait to do so, the harder it will be.
These programs were created by the Greatest Generation with the best of intentions, and they have served us well in the past. They simply have not evolved to meet the realities of the 21st century.
My parents were members of the Greatest Generation – those who weathered the Great Depression and fought in the Second World War. My father was drafted in 1943, and on April 3, 1944, he boarded the U.S.S Robert Sherman in New York Harbor for the dangerous three week trip across the North Atlantic to Europe. Just before his ship sailed, a Red Cross volunteer boarded the vessel to tell my father that his first child had been born, a daughter he was not to see for almost two years.
During the 17 months he was with Patton’s Army in Europe, my parents wrote to one another almost every day. It is a poignant tribute to their 65-year romance that both of them kept all of the letters. In 2002, my father edited these letters into several volumes, which he simply called The War Letters, and he gave a bound copy to me and each of my two sisters.
This remarkable document, covering the period between August 1943 and November 1944, chronicles the lives of two people – ordinary citizens and new parents – and the incredible sacrifices that their generation made to win the war and to rebuild the world in its aftermath.
Before he died, I used to call my father up every June 6th – the anniversary of D-Day – and thank him for saving the world … because that is exactly what his generation did.
But not only did they win the war, they built our system of higher education. They created the interstate highway system, the transmission grid; and they built suburbia. They went to the moon, cured polio, eradicated smallpox and put in place the great social programs of the 20th century – Social Security, the GI Bill, Medicare and Medicare.
These remarkable accomplishments – these institutions, programs and policies – were the vehicles through which our parents and grandparents sought to make the world a better place for those who followed. And in so many ways they did because as a result of their sacrifice and investment, my generation – the Baby Boom Generation – has enjoyed more promise and more opportunity than any other generation in the history of our nation.
But ironically and unintentionally, these same polices and programs also laid the foundations for the major challenges we face today: an economy deeply dependent on fossil fuel, much of it imported from some of the most politically unstable parts of the world, and a medical system that is racking up a multi-trillion debt for our children to deal with. In short, a way of life that depends on the rapacious and unsustainable consumption of resources – both fiscal and natural – that rightly belong to future generations.
Albert Einstein once said, “We can’t solve today’s problems by using the same kind of thinking we used when we created them.” He also said, “You should not use an old map to explore a new world.” And he was right. Each new generation faces a new world and a new set of challenges … challenges that cannot be solved by clinging to the past but only by imagining a new world and a new set of tools with which to build it.
That is our job. That is the unfinished business of the Baby Boom Generation: to accept the fact that the responsibility to bring about the reform we are gathered here to discuss does not belong to someone else … it belongs to us – to you and me and to citizens in communities across America.
This is something we can do. This is something we must do, if not for ourselves, then for our children – a gift for the future – for those who will inherit the system we have created and which, by default, we are perpetuating.
Let me close with the words of Oregon poet Kim Stafford, who eloquently defines the challenge, the opportunity – and, indeed, the responsibility – that lies before in what he calls “Lloyd’s Story.” Lloyd Reynolds, the international citizen of Portland, spent his last days in pain, silent, unable to speak or to write, lying in his hospital bed. On his last day at home, as his wife scurried to pack his suitcase for the hospital, Lloyd made his way outside to the garden and there she found him on his knees, with a spoon, awkwardly planting flower bulbs. “Lloyd,” she said, “you will never see these flowers bloom.”
He smiled at her. “They are not for me,” he said, “They are for you. The salmon coming home? They are for you. The calls of the wild geese? They are for you. The last old trees? They are for you and your children, to the seventh generation and beyond. They are all blooming into being for you.”
That is our challenge today. To plant the seeds of tomorrow, to change the world by acting, by leading, by personally reengaging in this struggle – not as captives of the past, not as victims of the status quo, but as the proud, confident architects of a new and brighter future.