Thank you very much for that kind introduction. And thank you for the opportunity to participate in this important gathering on the role of Medicaid and states in driving national health care reform.
Before I begin, however, I want to put this issue into a larger context. The real challenge facing our nation is not Medicaid but Medicare and we need to be clear about that. Certainly states need to deal with their Medicaid programs. They are facing double digit inflation; increased caseloads; and diminishing federal support -- in particular the loss of the one time stimulus dollars which have propped up Medicaid over the past year.
Furthermore, states -- unlike the Congress -- are required to operate within the constraints of balanced budgets. They are unable to force the difficult political decisions which surround the health care crisis into a growing national debt. And the federal government will not be able to do so for much longer because the national debt is increasingly driven by the intersection of an aging society and a hyperinflationary medical system.
It is imperative, therefore, that a serious conversation about how to address the growing cost of the Medicare program be a central element in next year's presidential election. We should not be inspired by the high stakes game of chicken that was played out in this city last August over raising the debt ceiling to prevent the United States from defaulting on its national debt. It was not our finest hour.
While we managed to kick the can down the road until 2013 -- after next year's election -- we did very little to address the real underlying drivers of our national debt -- in particular Medicare. Congress did create a "super committee" tasked with finding $1.5 trillion in debt reduction savings over the next ten years -- but this is a drop in the bucket given where we need to get. To understand the magnitude of what we are facing here, let me talk to you for a moment about numbers -- because, in fact, zeros matter.
People in this town are used to talking about billions of dollars. Now we are starting to talk about trillions of dollars -- and a trillion is a number so enormous that it is impossible to comprehend without some frame of reference.
So let me offer you one. When you leave here take out your calculator and do this exercise. And you too will discover that zeros matter. A million seconds ago was last week. A billion seconds ago was about 1972 Richard Nixon was leaving the White House. A trillion seconds ago was 30,000 BC.
Last January the first of 78 million Baby Boomers started becoming eligible for the Medicare program. While Congress is trying to figure out how to save a trillion dollars here and a few hundred billion dollars there -- the projected unfunded liability of the Medicare program is approaching $70 trillion. And on our current course we are planning to finance this huge liability by continuing to sell securities to China and other countries still willing to purchase them -- giving huge leverage to some of our major international competitors; threatening the fiscal stability of our nation; and leaving our children with a staggering burden of debt.
And the opportunity costs involved in a debt of this magnitude will make it increasingly difficult to invest in education; job creation; renewable energy R&D and the other transitional investments necessary to move to a post fossil fuel economy.
And that is precisely what is so disturbing about the current debate over the national debt. We are skirmishing over discretionary domestic spending in the name of deficit reduction in the middle of an economic crisis. Cutting small dollars in the domestic budget over the short term does nothing but suck the life out of the economy when we need it the most -- and, of course, has almost no long term effect on the debt.
Let me give you an example to illustrate this point: the political maneuvering over the extension of the renewable energy production tax credit which is scheduled to expire next year. It is going to take some heavy political lifting to extend the tax credit which has cost less than $5 billion since 2005 but has attracted over $60 billion in investment in a secure and clean energy future -- while no political capital is being expended solving the multi-trillion dollar Medicare problem.
How we meet this challenge will be the defining issue or our time. It is question of whether we will leave our children with a legacy of debt and degradation or a world of promise, opportunity and hope -- and it is inescapably intertwined with the future of the U.S. health care system.
My point is that state efforts to address the financial unsustainably of Medicaid can and should serve to reframe the national debate over Medicare -- by offering an accurate diagnosis of the problem and a politically feasible path to a solution. The only difference between Medicaid and Medicare is that Medicare recipients have a very powerful political lobby -- not enjoyed by the vulnerable and politically weak Americans who rely on state Medicaid programs. But neither program is sustainable from a fiscal standpoint; and both programs suffer from the same fundamental problem -- a broken delivery system.
Expanding coverage to give more people access (which is the main thrust of the Affordable Care Act) -- without changing the system people have access to -- will only serve to increase cost and expand the national debt. By the same token, simply giving people a voucher to purchase private insurance -- a key element of Congressman Ryan's proposal -- is simply a different way to pay for the same dysfunctional delivery system.
But, using the expanded coverage in the Affordable Care Act as a way to pivot toward transforming the way health care is organized and delivered -- and accelerating the rate of that transformation through statewide pilot projects -- can give us the space to continue to invest in our economy; improve health outcomes for those on Medicaid and Medicare; and dramatically reduce our national debt.
It is imperative that we reframe the debate over Medicare. As I hope to demonstrate this morning; reducing the cost of Medicare does not mean reducing access to services or "benefits" which maintain and improve the health and quality of life for older Americans. On the contrary redesigning the delivery system will improve both health and quality of life.
This is not a financing problem and we cannot solve it by by throwing more money at it as many Democrats advocate; nor by simply reducing the amount of money we put into it, an approach favored by many Republicans. Neither of these approaches will work because the problem is in the system itself -- and until we change the system we cannot solve this problem.
Dr. Donald Berwick (former CEO of the Institute for Health Care Improvement; and now the Director of CMS) has an excellent analogy to explain this by comparing the performance of our health care system to that of a car. He points out that every car has a maximum speed. You can take your car -- your new Corvette, your old 1985 Honda Accord, your Prius, your Dodge Ram pick-up, or whatever vehicle you own -- out to the Bonneville salt flats and put the pedal to the floor. And each car will eventually reach its maximum speed. So what are your options if you don' like it? Well, you can yell at your car. You can offer it an incentive. You can file an incident report with someone. You can ask your congressman to introduce a car owners' bill of rights. But guess what? The care won't go any faster because the maximum speed is a function of the car itself; it is built into it.
By the same token the inefficiencies and poor performance of the U.S. health care system are also built into it -- they are a function of the system itself and cannot be changed by simply changing the way we pay for it -- overfunded or underfunded it is still the wrong system.
My point is that Congress is debating the wrong thing -- this is not a financing problem it is a deep systemic problem. And successfully addressing it requires no less transformational change -- change that cannot accomplished by limiting ourselves to incremental tinkering within the context and constraints of the deeply flawed structure of the current system.
To understand the challenge -- and the opportunity -- inherent in this crisis let offer you an analogy 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 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 carrying them over the falls.
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.
Now I am serving my third term as Governor -- following 14 years in the legislature. I am neither politically naïve nor do I underestimate how difficult it is to bring about transformational change through the American political system of the early 21st century. Because the fact is that clinging to the familiar -- to the old ways of doing things -- is human nature. Reaching for the possible requires an act of faith.
It 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; our moment in time; 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. To make that leap of faith -- and surely we must make it -- requires imagination; a willingness to question our assumptions; and a strong sense of community. And those are exactly the qualities we need in our next president and in our next congress.
So there are two challenges involved here: first, we need to be able to describe the new system; and, second, we need to be able to successfully move it through the political process. Let's start with describing the new system.
First, we must be crystal clear about our objective by reminding ourselves that the purpose of our health care system is not simply to finance and deliver medical care -- the objective is to keep people healthy. In other words, health care is a means to an end not an end in itself. It has no intrinsic value beyond its relationship with health except as an economic commodity.
So what we want our health system to accomplish can be captured by what has been referred to as the "Triple Aim": to improve the health of the population; to reduce per capita cost; and to improve the patient experience (in terms of outcomes, safety and satisfaction).
Shifting the focus of our system from health care to health, however, involves a huge shift in paradigm -- especially for providers and consumers. It will also require a fundamental change in our priorities; in our patterns of investment; and in the structure of our current system.
To understand the magnitude of this challenge we need only look at those factors which have the greatest influence on a person's lifetime health status. And we will find that fully 40 percent involve individual behavior and lifestyle choices; another 30 percent is accounted for by genetics --by who your parents were; fifteen percent are social factors -- your educational level, where you live, the stability of your family; whether you have a home, a good job. Only ten percent has anything to do with involvement with the U.S. medical system. In other words, 90 percent of what keeps people healthy had nothing to do with health care.
That means that without addressing the underlying drivers of population heath -- which occur in the community and outside the formal medical system -- we will be unable to achieve the triple aim. The problem, of course, is that the current system was designed both organizationally and financially to reward isolated acute care interventions rather than prevention, wellness and the appropriate community-based management of chronic disease.
And as I mentioned earlier, the inefficiencies and poor performance of the U.S. health care system are built into it -- they are a function of the system itself and cannot be changed by simply changing the way we pay for it. To understand this point, we need to look at where most of the money in the health care system is currently being spent.
Today over 80 percent of health care spending is on people who have one or more chronic diseases -- conditions like diabetes, coronary artery disease, congestive heart failure, asthma and depression. Furthermore, the spending is concentrated on a small portion of the population -- ten percent of the population accounts for 70 percent of health care spending. This brings to mind Willy Sutton the notorious bank robber of the last century who when asked why he robbed banks, replied "Because that is where the money it." Likewise, if we want to control cost in the health care system, we need to go where the money is.
Now we know some things about chronic diseases. First we know that most chronic diseases are preventable, particularly when prevention measures are applied early in life. Second, we know that chronic diseases are progressive -- that is, they start out requiring only a low level of care; but if that care is not received in a timely manner, the disease worsens, leading to the need for ever more expensive care. And finally, we know how to intervene in order to prevent these complications.
Doing so, however, requires an integrated care system -- a team approach that can coordinate care and share information; it requires well educated patients who can recognize the early warning signs of a complication leading to a quick and coordinated response. For example, if you have congestive heart failure you should be weighing yourself every day to make sure you are not retaining fluid. And if you wake up one morning and you weigh two pounds more than you did the day before -- you need to recognize that as a problem; you need to know who to call and how to reach them so the problem can be dealt with on the front end to avoid an avoidable trip to the Emergency Room or admission to the hospital.
The problem is that our current health care system was not designed --organizationally or financially -- to either prevent illness or to manage chronic conditions and, as a result, simply lacks the capacity to achieve the triple aim. And ironically, everyone knows it. We are spending over $ 2.5 trillion a year -- 17.6 percent of our GDP -- on a system which produces population health outcomes only marginally better than Cuba's. We can do better.
We need a new system and in June of this year Oregon we passed two critical pieces of legislation: SB 99 which will establish a state insurance exchange; and HB 3650 will transform the way health care is organized and delivered -- starting with the 600,000 people who are covered by the state Medicaid program; 60,000 of which are dually eligible for both Medicaid and Medicare.
Our ability to make progress on this front lies in the opportunity we saw embedded in our current fiscal crisis.
In Oregon we operate on a two year (or biennial) budget cycle with each fiscal year running from July 1st to June 30th. The governor is required constitutionally to submit a balanced two year budget to the legislature at the beginning of each budget cycle. At the beginning of the current cycle Oregon faced a projected budget deficit of over $3.5 billion -- on a per capita basis, a larger deficit then either Washington State or California.
I developed my initial balanced by looking at each program area and identifying the resources that we knew would be available in the 2011-2013 biennium. In all cases this funding level was insufficient to maintain the current level of service -- but by far the largest gap between revenue and services was in the Medicaid Program -- a staggering shortfall of 37 percent. This was due to the fact that the Medicaid program had received the largest amount of one-time money in the previous budget cycle (almost $780 million from the stimulus alone); because medical inflation far exceeds inflation in other budgets; and because caseloads are growing due to the recession with more people out of work and losing their health insurance coverage.
Now most states -- faced with this situation -- balance the budget 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 treating the stroke in the hospital rather than managing their blood pressure in the community.
So we adopted a strategy which seeks to create a glide path to a new system by maintaining coverage; combining some short term reductions in provider reimbursement and in covered benefits; with an effort to transform our delivery model to get a lower per unit cost and increased value for the dollars we are spending.
The reality is such that we simply do not have the resources to maintain the current system. Historically, state government's response to this kind of fiscal crisis has been to cut from the current structure in lean times, and add back those cuts in good times -- leaving the structure of how services are provided basically intact.
This legislative session we stopped kicking the can down the road and instead of creating a budget that does less of the same -- in the hopes that we will later be able to do more of the same -- we enacted a budget and structural reforms that will do things differently. And that is exactly what we need to do with the Medicare program as well.
Doing things differently -- or health care "transformation" --involves reorganizing the delivery system to get at the root causes of medical inflation: overutilization; the lack of true prevention; and poor service integration and care coordination between the acute and post-acute system. Let me offer two examples of what we are trying get at here.
It is widely recognized (particularly by those who practice emergency medicine) that there are "frequent flyers" -- repeat customers whose illness and/or lifestyle choices land them time and time again in the emergency room and often in the hospital. This is not only a tragedy for the patient; it is a prime example of waste in the system because it leads to worse health outcomes and unnecessary costs. In fact, research shows that between 30-40 percent of health care costs are unnecessary because they are due to waste or inefficiency.
Bend, Oregon is a case in point where Mosaic Medical a federally qualified health clinic -- undertook a one-year pilot project with their 100 costliest and most ill Medicaid patients. Some of these patients had up to 25 emergency room visits a year. After analyzing the records, it became clear that many of these individuals had undiagnosed or poorly managed mental health disorders.
Using a team-based approach that integrated all types of care -- including mental and physical health care -- they reduced costs across the system in 2010 by more than $621,000 thanks to just six months of reduced reliance on the emergency department for non-emergent care.
A second example illustrates the lack of true prevention; and the poor coordination that takes place between the acute and the post acute system. As I mentioned earlier, we know that over 80% of the cost in the system come from treating people with one or more chronic conditions like congestive heart failure or diabetes. Furthermore, ten percent of the population drives 70 percent of the cost.
So our ability to identify those individuals; to appropriately manage them; and to recognize that we have to have a post acute system tied to the hospital discharge for an acute admission is the key to controlling biggest cost driver in the current health care system.
We know, for example, 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.
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 and delivery model we won't know about her till she shows up in the emergency room. Under a more rational system with a connection to the community, 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, what it will pay for is the $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 reducing the cost of Medicare by changing the delivery system can improve both health and quality of life. In the case of this elderly woman, avoiding an acute episode of congestive heart failure and remaining in her own home.
So our objective is to change the delivery system by getting people into the right care setting at the right time; using evidence based practice plans; reducing waste and inefficiency; and improving health outcomes.
Success hinges on the creation of new coordinating entities which we are calling Coordinated Care Organizations. Through these new delivery entities all benefits -- physical health, mental health, addiction treatment, oral health, long term care and prevention -- will be integrated and coordinated at a level above the treatment level to create a true system of care. Coordinated Care Organizations are forming around "natural communities of care" like a county or a hospital referral area and are being built around four key elements.
The first element -- which I have just described -- is prevention, service integration and care coordination.
The second element is local governance and community solutions -- a recognition that the formal medical system contributes only about ten percent to a person's lifetime health status and therefore it must be connected to community based programs and efforts that address the real drivers of population health: socio-economic; lifestyle; behavioral; and environmental factors. This means that the governance structure of a coordinate care organization must reflect this emphasis on population health rather than only the delivery of medical care.
The third element is managing to a fixed budget, or a budget that grows at a fixed rate. Each coordinated care organization will operate on a risk adjusted global budget within which it will have to manage utilization.
The fourth element is accountability. Obviously we will be unable to meet the triple aim if we focus only on dollars, so coordinated care organizations will be held accountable for performance standards around access, clinical outcomes and metrics for improving population health.
This then is the new growth curve -- the new business model, if you will -- based on today's realities and which can move us beyond the area of paradox to a more effective, efficient and sustainable system. This brings us to the second challenge: how to move this transformational change through the political system.
The practical challenge we face here is captured in this slide which compares the vision of a new transformed health care system (future state) and the current system (current state) with the economic burden on the various stakeholders involved. If we could move from the current state to the future state while, at the same time, reducing economic burden on the stakeholders, the politics would be simple. We would have done it a long time ago.
The problem is that there is an enormous amount of trapped equity in the way our current system is organized and financed -- trapped equity in hospitals, in MRIs, in reimbursement schedules, in the whole acute care infrastructure. And that means that moving to a more rational, effective and efficient system is going to cost somebody some money; it is going to put somebody at economic risk -- actually will put a lot of people and institutions at economic risk.
And, these stakeholders -- all of who have a significant influence over the political process -- and are able individually and/or collectively to block anything that will adversely affect their short term economic interests.
An analogy for our current situation might be a raft floating down a river. Let's call this raft the U.S. health care system and let's fill it with all the economic stakeholders involved: the uninsured; workers with good employer-sponsored coverage; seniors on Medicare; those with disabilities and other special needs; employers -- both large and small, those offering and not offering coverage; doctors, hospitals, nurses and other providers; insurance companies and health plans; the pharmaceutical industry; and medical device manufacturers.
The raft floats around a bend and all of a sudden the river seems to disappear -- and everyone hears an ominous rumbling and can see the mist rising from the rapidly approaching precipice. This precipice for our country is now within sight -- we saw a preview in the gridlock over raising the U.S. debt ceiling.
So now that the danger is clearly in sigh, what does everyone in the raft do? Well, they all turn around -- with their backs to the danger -- and grip their stakeholder and partisan paddles even tighter until their knuckles are while -- striving mightily to keep their end of the raft upstream while deriving some perverse sense of security from the knowledge that those in the other end will go over the precipice first. We can do better.
So in order to successfully put together the politics of health care reform we must be able to transcend the transactional stakeholder politics which anchor us to the past by shifting the focus of the debate from where we want to end up to how we are actually going to get there.
We need to make the politics of the transition period explicit -- by acknowledging and legitimizing the economic interests involved; by shifting the focus of the debate away from the narrow question of how a given stakeholder may be adversely impacted in the short term -- to the much more productive question of how the economic impact all stakeholders can be mitigated during the transition state.
My point here is that if we are going to invest more money in health care; we should invest it in making the transition to a new delivery system -- not simply propping up the current system.
And that is essentially what we have tried to do in Oregon. As I mentioned earlier, at the beginning of our budget cycle, the Medicaid program faced a cut of 37 percent. To create a smoother glide path to a new system, we first reallocated $355 million from other parts of the budget to reduce the 37 percent cut to a 19 percent cut. We then used the "hospital tax" to further reduce the cut to about 11 percent.
As you know, the hospital tax is a provision of federal law which allows states to tax hospital revenue; use this to draw down a federal match; increase hospital rates so that in the aggregate the tax is returned to the hospitals; and then use the additional resources in the Medicaid program.
This still leaves $239 million to be realized in savings from changing the insurance market and the way health care is organized and delivered. HB 3650 put in place the process to create the coordinated care organizations; establish the global budget; and put in place the performance standards around access, clinical outcomes and metrics for improving population health. With approval by the Oregon Legislature in February, this new delivery system will begin to operate in the second year of the biennium starting July 1, 2012.
If, as we believe, we can produce better health outcomes at a lower cost and a significantly lower rate of medical inflation; we will list this new delivery model on our health insurance exchange. We are currently doing the groundwork to bring our state employees and public school teachers into this delivery model by 2013; and then want to offer it as an option for private sector employers.
More importantly, this can and should be a template for the Medicare program. With its focus on prevention, service integration, care coordination; and the community-based management of chronic conditions -- this can not only improve the health and quality of life for older Americans; it can do so at a much lower cost.
Given the deep partisan divide which exists in this city over health care in general; and how best to control our escalating national debt in particular -- it is important to note that the legislation I just described to you passed the Oregon legislature with broad bi-partisan support. For example, HB 3650 that set in motion the transformation of our delivery system passed the Senate with a vote of 22-7; and the House 59-1
My point here is that reigning in the cost of Medicaid -- and especially Medicare -- need not be a divisive and partisan issue. Republicans and democrats alike depend on these programs. Likewise, the fiscal stability of our nation and the future we leave our children depend on getting our arms around the national debt; which, in turn depends to a large extent on reigning in the cost of Medicaid and Medicare. So it seems to me, we have two options going into next year's election cycle. The first is to continue to fight over small pieces of discretionary domestic spending; take a pass on dealing with Medicare; and crush both our economic recovery today; and our economic future tomorrow. That's option number one and the course we are on right now. The other option is to invest in the economy; meet the fiscal challenge posed by Medicare through transforming the delivery system -- thus creating jobs today and a healthy fiscal outlook for tomorrow.
Given these two choices, I am confident that most Americans will favor the second. And this is something that the Administration can not only lead -- but can achieve. After all, President Obama was able to pass the most significant health care reform legislation in decades: now we just need to take it one step further. We have a president with the capacity to explain TARP funds to the average American; surely he can explain why reducing the cost of Medicare is not about reducing "benefits" but rather about improving the health and quality of life for older Americans; and securing the future for our children.
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 on our current course will inherit a staggering burden of debt; and a dysfunctional health care system which we which though our inability in this city to act in concert as a community in larger public interest, 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 parameters and the context of this debate; to create that shared vision; that bright beacon toward which we can move our country over the next five to ten years; by acting, by leading, by personally engaging in this struggle -- not as captives of the past; not as victims of the status quo, but as the proud architects of a new future.