George Halvorson
Chairman & CEO, Kaiser Permanente
11:14

It’s the Prices, Stupid

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Americans pay more for health care than any other industrialized country. Yet why does the debate totally ignore this point?

George Halvorson

George C. Halvorson is chairman and chief executive officer of Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals, headquartered in Oakland, California. Kaiser Permanente is the nation’s largest nonprofit health plan and hospital system, serving more than 8.6 million members and generating $40 billion in annual revenue.

George Halvorson serves on the Institute of Medicine Task Force on Evidence Based Care and the Commonwealth Commission for a High Performing Health System. He serves on the American Hospital Association’s Advisory Committee on Health Care Reform. He chairs the World Economic Conference Health Governors for 2009 and chairs the International Federation of Health Plans. He has received the Modern Healthcare/Health Information and Management Systems Society CEO IT Achievement Award. The Workgroup for Electronic Data Interchange also awarded him the 2009 Louis Sullivan Award for leadership and achievements in advancing health care quality.

Halvorson has written several health care reform books, including the newly released Health Care Will Not Reform Itself: A User’s Guide to Refocusing and Reforming American Health Care. He also wrote Health Care Reform Now!, Health Care Co-ops in Uganda, Strong Medicine, and Epidemic of Care as guidebooks for health care reform.

Halvorson served as an advisor to the governments of Uganda, Great Britain, Jamaica, and Russia on issues of health policy and financing. His strong commitment to diversity and inter-ethnic healing has led him to his current writing project, a new book about racial prejudice around the world.

Prior to joining Kaiser Permanente, Halvorson was president and chief executive officer of HealthPartners, headquartered in Minneapolis. With more than 30 years of health care management experience, he has also held several senior management positions with Blue Cross and Blue Shield of Minnesota.

Transcript

Question: Why haven’t we focused on the price differential that exists between other countries and the U.S. when it comes to health care?

George Halvorson:  You know, it's fascinating because we're having a debate about the affordability of health care in America, and the vast majority of the people who are in the debate have no sense whatsoever that we actually pay more for health care in this country by the piece than anywhere in the world.  In my books I write about the fact that we pay more by the piece, more by the package, more by the patient, more by the procedure.  Uwe Reinhardt wrote an article five years ago saying, it's the prices, stupid -- a good article.  And yet the debate completely and totally ignores that point.  And when you look at the price differences between us and the other countries, we pay three times as much for drugs, we pay twice as much for technology.  Every single country in Europe spends less than $1000 a day for hospital stays, and there's not one state in the U.S. that charges less than $3000.

So when you look at the numbers, just the straight unit price, we pay much more in the U.S., and yet that whole issue has not been discussed at any level in the health care debate in Washington.  We've dealt with other issues, and good issues; we need to fix insurance in this country.  We need to cover everyone, and we really can't improve care to the level we need to for the country until we insure everyone, because we need everyone with coverage and everyone in the database.  And we need to fix care so that we can afford to cover everyone.  But we also need to have a sense of what the underlying unit prices are, and that part of the debate has been completely off the radar screen.

Question: How would you compare the cost of a physician visit in this country to other countries?

George Halvorson:  Well, it's literally an issue that we have a different fee schedule in the U.S.  The fee schedule in the U.S. tends to have a lot of variation.  In Canada, if you deliver a baby you get paid $475.  That's it.  If you deliver a baby in Paris, you get paid $1,050.  That's it.  In the U.S., if you deliver a baby you get paid somewhere between $1500 and $4500.  Well, premium -- which is what everybody pays to buy their health care -- premium is the total cost of care divided by the total number of people who have coverage.  So if the total cost of care goes up -- if you're paying $4500 for a delivery -- you obviously are going to have a much higher premium than you would in Canada if you paid $475.  So why can the cost go up more in the U.S.?  Because the marketplace rewards cost increases in the U.S., and it does not reward cost increases in the other countries.

Organizations charge more because they can.  And the reason they charge more is because they get the money.  I mean, it's very simple, basic economics, and it's about pricing.  So in Canada, the doctors can't increase that price, and therefore they don’t.  But if they could, they would.  There's no way in the world that Canadian prices would voluntarily be where they are today.  So health care costs in Canada in total are about half of health care costs in the U.S.

Question: Is the quality of care in other countries worse because of the lower costs?

George Halvorson:  They actually haven't.  The other countries don't do a very good job on their chronic conditions; they don't do a very good job on their follow-through.  They do a much better job of primary care.  Every citizen in the other countries ends up with a primary care doctor.  They're all private physicians.  France is full of private physicians.  Netherlands are full of private physicians.  In fact, your waiting times for an appointment in The Netherlands are half the average waiting times in the U.S. because they have many primary care doctors and they have a good infrastructure of primary care doctors.  But they actually don't coordinate care much better than we do relative to asthma or diabetes.  And they're actually working on that.  We've got people from European countries visiting Kaiser all the time, studying what we're doing and looking at our care coordination and our linkages and our team care, trying to figure how they can take that back and apply it in their own countries.

The reason the costs are lower is not because they do a better job of coordinating that care; it's because they pay less for every piece of care.  Prescription drug costs in the U.S. typically are about three times as high as the same drug in Canada.  CT scans are double, triple in the U.S. what they are in the European countries.  So if you pay more -- I mean, the opportunity in the U.S., the really big opportunity, is to do a better job delivering great care.  What we need to do is take the diabetics of this country and deliver care for diabetics that is so consistent and so dependable and so high-quality that we cut the number of kidney failures in half, we cut the number of people who go blind in half.  There's great opportunity there.  So I think we really need a care improvement agenda in America to make care better.  And that's the great opportunity here and the other countries.  The other countries actually are complaining about their cost trajectory.  They're running at 10 percent of the GDP, and we're running at 17.6.  But they're still seeing the costs of care going up because their populations are getting older, they're prescribing more drugs, they're doing more tests.  All of the same things are true; they just start from a lower base because they pay a lower unit price.

Question: Where is our investment in care being concentrated?

George Halvorson:  Well, it's about -- first of all, 75 percent of the costs of care come from people with chronic conditions.  About 80 percent come from people with comorbidity, so they have multiple conditions.  So we have a lot of people who have asthma, congestive heart failure, diabetes, coronary artery disease, and those are the people who are incurring most of the cost in health care.  We have a very small number of people who are incurring most of those costs, so 1 percent of the population is about 35 percent of the cost; 5 percent of the population about 50 percent; 10 percent of the population's 80 percent of the cost.  So if we went to that 10 percent of the population who are 80 percent of the costs and did a much better job of delivering care to those people, we could make a huge difference in the cost of care in America, and we could also make care better.  And that's the opportunity:  the real opportunity is to make care better by focusing on the people who really need team care and delivering that care and doing it in a systematic way.  And the best way of doing that is to have computer support for your care.  The best way of doing that is to have all of the information about each of the patients all of the time.

So we need -- all the information about the patients needs to be available real-time, and the caregiver in the exam room who's dealing with a patient needs to understand all the information.  And most of the time in the United States, because we are so splintered relative to the care delivery system, doctors taking care of a patient only know the prescriptions they've written; they only know the tests they've taken; they don't know other diagnoses; they don't know other treatments; they don't know other procedures.  And so everything is chopped up into pieces.  And when you chop it up into pieces and deliver care piecemeal, that's extremely frustrating for the patient.  It's also frustrating for the caregiver, and it's inadequate care.

And the only way you can link that care is to get that data on a computer.  You can't link it -- there's no possible infrastructure you can imagine of, you know, thousands of trucks driving around town shuffling pieces of paper from doctor to doctor where you could end up with the kind of information coordination you need.  You've got to get that information into a computer, and then you need to have the doctor able to access that information so for a given patient they know what the next treatments need to be, and also so there can be care plans about each patient.  Right now the care plans are also very silo'd and isolated, so a doctor who's treating a patient for allergies does not link up with the oncologist, who does not link up with the internist, who does not link up with the cardiologist.

And so you end up with these doctors each doing separate care plans, and there are people that have 24 and 28 prescriptions that they're taking, with no coordination between them.  And some of them counter-indicate, creating danger, actually, for the patient.  We just need a systematic approach to care in this country.  And we can do it.  We spend twice as much money on care as any place else in the world, and we have a computer infrastructure for every other aspect of the economy.  There's no reason not to apply systematic thinking, programmatic thinking and team-based thinking to care.  It should happen.  And if it doesn't happen, we're going to continue to have the same kinds of outcomes that we have now, with twice as many people with failed kidneys.

Recorded on November 18, 2009


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