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Coordinated Care Organization Kick-off Speech

July 26, 2012

Bruce - thank you very much for that kind introduction and the specifics about restrooms.

I want to thank all of you for coming today to our CCO Summit for our community stakeholders and partners and those who are directly involved in Coordinated Care Organizations.  Together I think we stand at a very very unique point in time and in our history.

Let’s start by looking at this quote from William Jennings Bryant., who lost the election but had a few good things to say: “Destiny is not a matter of chance it’s a matter of choice. It’s not a thing to be waited for; it’s a thing to be achieved.” And I want you to keep that in mind as I give my brief remarks this morning.     
I want to start by asking you to reflect for just a moment on where we were as a state a year and a half ago: we faced very high unemployment; we had a $3.5 billion dollar budget deficit; we had a divided legislature; and I would venture to say a very deeply polarized state. And now 18 months later we’ve balanced our budget, and we did it with remarkable civility and integrity, without the kind of chaos you saw in Minnesota or Wisconsin. We upgraded our credit rating from AA to AA+, we’ve created 25,000 jobs, we’ve reduced unemployment by a percentage and a half, we are at the lowest unemployment rate we’ve been at now in three years. Those are things we should all be very proud of.

But there’s something else that I think we should also be proud of because within this larger story of success, is the story of the courage and the vision of the people in this room and the courage and vision of Republicans and Democrats in the legislature and of people throughout the state of Oregon. Because 18 months ago we also faced a total fund $2.4 billion shortfall in our Medicaid budget, a shortfall that could have translated into a potential 40% cut. Yet unlike other states around the country that did in fact face similar circumstances and where they reacted to this kind of daunting challenge with rancor and blame and polarization, Oregonians saw an opportunity embedded in this fiscal crisis. An opportunity for the kind of transformational change in our health care system that is simply impossible under better economic circumstances. 

First and foremost, some more rapidly than others, we had the courage and the honesty to openly acknowledge what I think all of us already know – that our health care system is not only financially unsustainable, it’s not producing the kinds of health outcomes that should be commensurate with this enormous expenditure of resources and the cost is simply crushing families and businesses and government alike. We also had the courage and the honesty to admit that not withstanding the widespread recognition of these problems, no one had been seriously motivated to do anything about them because we simply kept funding the current system. Until now.

The budget crisis gave us an opportunity to look beyond our own self interest to the deep and interactional structure of our current health care delivery system and the fat that the current system is actually failing us. Within the Oregon health plan alone, as you know, we had at one time and still do 16 different physical Managed Care Organizations, 10 mental health organizations and 8 dental organizations, with multiple layers of contracting and paperwork and bureaucracy, creating a wasteful and inefficient maze through which OHP clients struggled to navigate. We know that 80% of the costs are driven by about 20% of the patients, many of whom live with poorly managed chronic conditions, many of whom have untreated or poorly managed mental health or addiction issues and many of whom get some or all of their care through the Emergency Department rather than through a primary care provider.

And yet despite of this knowledge we continue to cling to a system that is fraught with the most perverse incentives. We pay for treatment not for health; we pay for tests but not for someone to call their primary care provider; we pay for hospitalizations but not community health workers to manage your chronic conditions at home and in the community; there are no real incentives for physicians to talk with one another about care coordination and patient care. And of the 9,000 billing codes through which doctors and hospitals get paid, there’s no code for a cure, there’s no code for health improvement, and there’s no code for prevention. It simply doesn’t make any sense. Instead there’s waste, if you define waste as a health expenditure that doesn’t have anything to do with a health outcome. Massive, measurable waste and inefficiency that every day puts upward pressure on health care costs and doesn’t do anything to contribute to the overall health of Oregonians. 

Dr. Berwick, who is our special guest here today and I’ll be introducing in a moment, once commented that the very best cardiac care bed is an empty bed. And yet we pay doctors and hospitals to fill them up. It just doesn’t make any sense.

So I want to propose to you that you are here today as pioneers. Those who are willing to face the truth about our current system and those who also have the courage to face the unknown because you’re no longer simply willing to justify the status quo.

I want to expand on that point for just a moment by comparing the development of our health care system with the development of an organization, let’s say a business. Successful businesses begin when there’s an investment that allows growth and profitability. And as the environment within which the business exists begins to change, if the business organization doesn’t change its business model to reflect the new circumstances rather than the old, the growth flattens off and begins to decline. So GM might be an example of a company that didn’t heed this, that continued to build big gas guzzling cars in the face of rising gasoline prices and concern over climate change. Now successful businesses, lets say an Intel, when it recognizes that the market and the world is changing around it redefines its business model to reflect the new circumstances rather than the old circumstances, producing another growth curve.

The challenge is that for a period of time, the old growth business model and the new growth business model have to coexist. And business writer Charles Handy has called this area the area of paradox. And it’s an area of a lot of anxiety and a lot of churning and a lot of insecurity and people recognize that what they’re doing isn’t working, that something is desperately wrong. But because they are afraid of the unknown, because they don’t know what that new growth model looks like, they tend to defend and cling to the current system even though at some level they recognize that it’s not only unsustainable but is in fact defeating the very purposes for which the system was developed in the first place. And I suggest to you that that is exactly where we are today – in this area of paradox – in public education, in transportation and energy policy, in economic development, in how we seek to manage natural resources and certainly in the U.S. health care system.

It’s human nature to cling to the familiar. It takes a leap of faith to reach for the possible. And so the challenge facing us today is not unlike the ropes game at Outdoor School, if you’ve ever been to Outdoor School. They put you on a post about ten feet off the ground holding onto a rope and then over here is another post and another rope and your job is to move from one post to the next, let’s say the old business model and the new business model. And the only way you can do it is you’ve got to hold onto this rope and lean out really far and for a minute you’ve got to let go of this rope in order to grab the new one.

So the leadership challenge involved for Oregon and I think for our country is to be able to decide that new rope, be able to describe that new business model so clearly and compellingly that people can see it and believe in it and let go of the old one in order to cease it and then successfully make the transition from the old system to the new.

Now whether you fully recognize it or not, that is exactly the leadership challenge to which I think you have heroically risen in the last 18 months and that is exactly what you have historically accomplished during the same period of time. Your response to the budget crisis was unlike that in any other state int his nation. You didn’t run away from it, you didn’t deny the fiscal reality that was facing us as a state, and you didn’t cast blame. Rather you rolled up your sleeves and you said, “OK, we’re going to redesign a new system based on the fiscal realities that face us today.”

So as a result, last year, the legislature passed HB 3650 that created the concept of a Coordinated Care Organization as the first step in designing a new delivery model starting with the 600,000 people on the Oregon Health Plan. Essentially what that legislation did is it acknowledged that we are in this area of paradox and it set up the process to design a new business model for a Coordinated Care Organization. And I should note, and Bruce alluded to this, that this bill passed with overwhelming bipartisan majorities. Do you have any idea how remarkable that is? In a year when the debate over health care at the national level and in virtually every other state has become a political football, divisive, polarizing, bitter, you elevated this discussion, you made it about people, you made it about policy, you showed the nation what is possible when we put policy over politics. You showed the nation what is possible when we remind ourselves that we’re all in this together. And you showed the nation what is possible when we refuse to surrender our sense of community and our commitment to one another. Anything is possible, and in fact it was. With your support we developed that business model, over the last year, for Coordinated Care Organizations and we introduced it to the Oregon legislature last year in the form of Senate Bill 1580 and again it passed with overwhelming majority: 53-7 in the House of Representatives. And again let me remind you that that took place three months before a primary election, with a House of Representatives divided 30-30 Republicans and Democrats, 53-7. That is unimaginable in the United States Congress and in 49 other states in this country and it wouldn’t have happened with out you.

So then the chronology speeded up a little bit. In March, five months ago, I signed SB 1580 into law and also requested from the federal government the waivers necessary to move forward and the resources necessary to make the transition to a new system. 

In April we began accepting applications for Coordinated Care Organizations. More than a dozen applied and many of you are sitting in this room today.

On May 1, I traveled to Washington, D.C. with Scott Nelson and Bruce and Tina to negotiate the final details of the waiver. We came back two days later on May 3 totting a big bag with $1.9 billion dollars in it to support our transformation effort.

In June, eight Coordinated Care Organizations were certified to begin seeing patients. More will be certified later this month.

On July 5, we received the rest of the waivers from the federal government to give us the flexibility to move forward.

And five days from now – on August 1, 2012 – 260,000 Oregon Health Plan patients are going to start getting their care through Coordinated Care Organizations here in this state of Oregon.

I can’t tell you how incredibly proud I am to have been associated with this effort and each and every one of you in this room. I mean this is really an historic thing for health care. You’ve all worked incredibly hard to get to this point and I know that pulling together these CCOs was not easy. It was a lot of hard work, it took a lot of meetings, a lot of negotiations, it took some difficult conversations from time to time. I participated in some of those, my staff, Sean Kolmer and Mike Bonetto, participated in them. Bruce and some of the other team at the OHA. 

We have arrived at this point because we share an understanding of the problem and we have been able to focus on a shared solution. So the whole purpose of gathering you here today as we go forward is to make sure that we continue to go forward toward that shared, common vision.

So now that we have the legislation, now that we have the waiver, now that we have the federal dollars, and now that we have contracts with real Coordinated Care Organizations, the hard work, the actual transformational work begins. And quite frankly, the next steps are up to you.

So today we will be laying out for you very clearly is what will be required of the Coordinated Care Organizations to truly transform the delivery system. And I would not that what needs to happen to truly transform the delivery system coincides with the agreement we have made with our federal partners. 

First and foremost, we’re talking about what amounts to a spending ceiling on the Medicaid budget that will grow at a fixed rate, two percentage points below the current Medicaid trend line. That is a sea change, for an industry that for decades has operated on a business model that assumes that the government and private employers are going to continue to fund a medical inflation rate that often is far greater than the CPI. Those days are gone forever. Those days are gone forever. But I think a lack of that kind of steady revenue growth is probably the biggest paradigm shift that you’re going to have to come to terms with. And I think also probably the most important. And I want to take just a minute and elaborate on that point, because it’s really important that we put what we’re doing here in the larger context of what is happening nationally. 

All of you remember, I’m sure, the high stakes game of chicken that we played last August in our nation’s capital over raising our $14 trillion debt ceiling to avoid defaulting on our national debt. It was not, in my estimation, our finest hour. In the end Congress sort of punted it down the road until this year by raising the debt ceiling $2.1 trillion but did absolutely nothing to address the real drivers of our national debt which is the intersection of an aging population and a hyperinflationary medical system. 

Eighteen months ago in January of 2011, the first of 78 million Baby Boomers started becoming eligible for the Medicare and they’re coming on at a rate of 10,000 people a day every day for the next twenty years. These are people who at 65 become eligible for publicly financed health care at the age of sixty five; many of whom will live for another 20 or 25 years; and the cost of their care is going up dramatically. By 2020, it is estimated that the average Medicare recipient will be taking $3 out of Medicare for every dollar they put in during their lifetime. Do the math. Do the math. I know that some of you have accountants who say that we can’t pencil out the financing mechanisms for these CCOs. That is the old growth curve. That is the old business model. That is assuming you’re going to continue to deliver health care the way you always delivered it. Those are the old assumptions. I would have you ask those same accountants if they would advise you to invest in a business proposition where you know up front that the cost will dramatically exceed the reimbursement. Or a long term financial arrangement in which for every dollar you get in operating revenue, you will incur $3 in costs. That’s Medicare. Do the math.

The point is that we’re going to blow through the $2.1 trillion increase in the debt ceiling that they authorized last August shortly after the beginning of next year when our debt is going to hit $16 trillion. Now last August, the U.S. national debt for the first time exceeded our GDP and it is growing exponentially and driving us relentlessly toward the kind of GDP to debt ratio that we find in Greece and in Spain. So the point is, that the major driver of that increase is the cost of Medicare and Medicaid, and the point is that regardless of who wins the Presidency, regardless of who is in Congress, there is no way to reduce the national debt without reducing the cost of Medicare and Medicaid and that will become starkly apparent when we debate the debt ceiling increase shortly after the first of the year.

Health care reform is not just about politics, it is also about economics. In fact, ultimately it is all about economics. And the laws of economics are just as immutable as the laws of physics. Whatever party is in control six months from now, we are going to see major changes in health care financing coming from the United States Congress and the only way that we’re going to be able to weather that storm is to fundamentally transform the way health care is organized and delivered and to develop a new business model that is reflective of the economic realities of 2012 and that is exactly what you have undertaken. This new delivery model will not only help us successfully absorb the anticipated expansion of Medicaid, but also allow us to survive, and I think prosper, under the inevitable changes in health care financing that we’re going to see out of the United States Congress over the next couple of years.

You have the opportunity to lead the nation. You have the opportunity to improve our health. And you have the opportunity to save our health care system in Oregon, and I think beyond our borders. I know that, I hope you know that, I know the federal government knows that.

Now we have an agreement with our federal partners that includes, as you know, $1.9 billion in resources over the next five years to help us make that transition, but that investment does come, not unexpectedly, with some expectations, which I fully endorse and which I think are necessary for us to be successful.

So there are three things that we are going to have to do, and we’ll elaborate more about those over the rest of the afternoon. But in summary: first, we’ve got to fundamentally and explicitly change how health care’s delivered in order to make the goals that we set for ourselves; secondly, we’ve got to lower the growth of the Medicaid per capita health care trend by two percentage points by the end of the second year; and third we’ve got to demonstrate that we are actually improving health care by meeting some important health care quality and financing metrics. And there are some incentives and disincentives built in to ensure that we are accountable to do that.

Now I know none of this is going to be easy, none of it was easy over the last 18 months. But I would ask you to think for just a moment about where we would be today without the flexibility, without the waivers, without the $1.9 billion that we secured from our federal partners. We’ve achieved an enviable position, I think. Unlike most of our colleagues across the nation, we actually have the opportunity to shape our own destiny, to make it a choice, rather than make it a chance. We have the opportunity to design the future for ourselves, but to seize that opportunity our efforts going forward can’t just be business as usual. You absolutely must understand that. If you think that somehow the transformation effort here in Oregon is simply repackaging the existing MCO structure, you are sadly mistaken. It won’t get us where we need to go, and we will also lose the resources that we secured from the federal government. So it is my expectation, I know it’s the expectation of the federal government, and I hope it’s your expectation, and indeed your commitment, that we will see clear and demonstrable changes in health care structures, in the delivery of health care, in medical inflation, and in health outcomes. 

Let me just wrap up with a couple of final comments. A short while ago after I got back from D.C., I was talking to a physician in an unnamed CCO who happens to be here today, and I asked him how he felt about all this. And he said, “You know John, I am scared to death, and I am also incredibly excited.” He was scared to death because he had the responsibility to design something that had never existed before. He was excited because he had the opportunity to design something that had never existed before.

You know, back in the fifteenth century, they would draw maps of the world and they had a lot of white areas around the margins, particularly you know, the east coast of the United States. And this was unknown territory and they would write on the maps, “there be dragons” there. You are the pioneers, in a very literal sense you are the explorers, you get to fill in the white places on the map, you get to slay the dragons. And you can slay them because all the dragons are right inside us.

I want to close with a story that I’ve told many times but it’s so poignant and it’s so powerful and it captures to me where we are today. It’s about planting the seeds for tomorrow. It’s about doing things today and allowing those things to flourish down the road. And it’s called Lloyd’s story and some of you may remember Lloyd Nichols, who spent his last days silent unable to write or speak lying in a hospital bed. And on his last day in the hospital, he wandered out to the garden, and there his wife found him awkwardly planting flower bulbs with a spoon on his knees. And she said, “You know Lloyd, you’re never going to see those flowers,” and he smiled at her and he said, “They’re not for me. They’re for you. Salmon coming home, they’re for you. The calls of the wild geese, they’re for you. The last trees, they’re for you and your children and seven generations and beyond. They’re all blooming for you. That’s what we’re doing here. That’s what you’re doing here. That’s what this is about. It’s about making a difference for people who come after us. It’s about painting a new picture of the future, a new beacon, a new North Star, a new delivery model, not as captives of the past and not as victims of the status quo, but as bold, proud architects of a new and brighter future.

It is now my pleasure to introduce Tina Edlund, who is the Chief of Policy for the Oregon Health Authority. I would say it’s fair to say that no one has worked harder than Tina to make this work. She was a member of the four members of the fellowship of the ring that went back to raid the federal treasury and we couldn’t be here today without her, Tina.

Keep up with Governor Kitzhaber