HEALTH CARE COSTS
July 2002

George Halvorson is chair and chief executive officer of Kaiser Permanente. Below are excerpts of his interview with Susan Dentzer. The NewsHour Health Unit is funded by a grant from The Henry J. Kaiser Family Foundation.

 

July 22, 2002: Rising Health Costs Extended Excerpts: Helen Darling William Crist George Halvorson Online NewsHour Focus: Patients' Bill of Rights Feb. 23, 2000: Can patients sue their HMOs? Aug. 3, 2001: Update: The House passes a patients' rights bill. June 22, 1998: HMOs raise costs Browse the NewsHour's coverage of health   Washington Business Group on Health CalPERS American Association of Health Plans	SUSAN DENTZER: A moment ago we were speaking about the aging of the population, and you said that was not necessarily the primary driver of this current year's cycle of caused increases. So what are the primary drivers? What's really driving the cost? You mentioned one, which was prescription drug utilization. GEORGE HALVORSON: Aging is a major driver, but prescription drugs, the - as the population moves into chronic care conditions, the cost of drugs goes up significantly because instead of getting a drug for flu or something, where you're done with the drug in two weeks, you take a drug now that you take every day for the rest of your life. And the cumulative impact of all of those lifetime prescriptions adds up. So there's a lot of expense on that side. We've got new technologies, new procedures that are wonderful. They're saving lives. We can replace just about every joint in the body no. I did the little study a while ago and took a look at everything we could replace, and came out at over $6 million. Remember the TV show, the $6 Million Man? We could do that now just with replacement parts for ankles, knees, elbows, hips, and parts, if you sort through the process, and we're getting good at doing those things as a nation, and so we're doing a lot of them. And then we also have new procedures that are less invasive. So we go in through little tubes and new procedures that used to require opening up the entire body and having long recovery times. And so it's a better procedure, but we can also do it to more people because more people become candidates when the risk goes down and the trauma goes down. So care is getting better. I mean, we're doing miracles in care, but miracles cost money. And the miracles are a major driver in the cost increase. SUSAN DENTZER: What's the solution then? GEORGE HALVORSON: I think part of the solution is just to deliver better care. I think if you look at diabetic care, two-thirds of the people who are in kidney dialysis units because they're diabetic and their kidneys failed are there because the care system failed them. The care system let them down. The care system did not deliver appropriate care. If you talk to the American Diabetes Association and ask what percentage of Americans get appropriate care once they're diabetic, it's less than a third. Two-thirds of Americans have unsafe care when they're diabetic. They don't have the follow-up care. The same thing is true when people have a heart attack. The institute of medicine report crossing the quality chasm talked about the fact that 40 percent of Americans don't get the right follow-up care for heart disease, and as a result of that, you've got twice as many second heart attacks as you should have. There's a whole series of provable situations where higher quality, more consistent care would improve the cost of care, and that's one of the reasons why the rate increases at Kaiser for CalPERS were quite a bit lower than the rate increases for the competition, because we're focusing on best care for diabetics, not just sort of average care. SUSAN DENTZER: And that gets us to the area of disease management. How big an area of promise is this, in terms of containing cost growth in the future? GEORGE HALVORSON: Well, if you keep in mind the utilization concentration I talked about a minute ago, if you focus your attention on the small percentage of people who are incurring the highest amount of cost, that's where you get your best results in two ways. One is you can deliver much better care to those people, and the second is you can deliver that care for less money because you have fewer complications and fewer problems. Take congestive heart failure. Congestive heart failure is a serious condition. People are - go into crisis mode, they're drowning in their own fluids, it's terrifying, it's painful. A lot of them die. And if you do the right care for congestive heart failure patients, you can reduce the number of those attacks by 80 percent. So four out of five people don't need to go through that misery if you do the right job up front. So it's much higher quality care. And at the same time, it actually costs less to do it right because you're eliminating four out of five hospital stays for people with congestive heart failure. So that's a win-win. You end up with much better care for that population, and it costs less money. And there's a number of instances throughout care where that's true. SUSAN DENTZER: In the final analysis, as you said a moment ago, we're on the verge of a health care cost explosion if we're not already in it. How prepared are we nationally to deal with this? GEORGE HALVORSON: I think we're prepared. I think we are very poorly prepared. I think we have not had a good national conversation about health care costs. I think that it's just a crying shame that we haven't sat down and had a community dialogue about what the cost drivers are and what the long-term impact of each of those cost drivers are. The rhetoric in Washington has focused on different issues, and hasn't even looked at the issues that are going to be most important to the American public, and then that's what's happening with their long-term cost of health care. We need a national debate, we need an informed debate. We need people understanding what the issues are, and we need all the facts on the table, and that has not happened.
	Policy and underlying costs
	SUSAN DENTZER: So are policy makers just clueless about all of this, in your view? GEORGE HALVORSON: I think more of them are clueless than I would like to say. I think there hasn't been a focus on the underlying cost drivers. I've had some amazing conversations with some of the policy makers about what's happening relative to health care costs, and have heard them not understand at all what the underlying issues are, and that's a little frightening. SUSAN DENTZER: What is it about it that they don't get? GEORGE HALVORSON: They literally do not understand what the cost drivers are. If you asked quite a few people in Washington to give you a list of the top five cost drivers, or even the top three or four cost drivers, they would come up with lists like administrative costs. Administrative costs is a relatively small cost driver. It is not driving the costs. The question you asked me earlier that said it's the plan margin. You can't give a 30 percent or 20 percent cost increase out of a 3 percent or 4 percent margin. But when you ask people what the cost drivers are, they literally will give you a list that in total adds up to less than a fourth of the actual cost drivers. And so they're just blind to the real issues. And until they talk about the real issues and understand the real issues, there's nothing that can possibly be done about them. SUSAN DENTZER: so they would say things like, I don't know, salaries paid to HMO executives, administrative costs, as you mentioned a moment ago. GEORGE HALVORSON: Right. And if you ask them what percentage of the total health care cost, what percentage of the premium last month for the members - in Minnesota I used to compute my salary on a per member per month basis, and it was about a nickel per member per month. And so if I would have worked for nothing, it would have reduced our premium by 5 cents. But there were people in the community who thought that my salary was a major cost driver in health care. I may have been - you can argue whether or not I was overpaid, and some people could make an argument that you can't argue that that nickel was the major cost driver. That's a different issue. And so what we need to do is focus on the real issues, and spend some time talking about them and understanding them so that we can have a set of strategies going forward that will deal with the real issues.