Kaiser Permanente is an all-encompassing health care entity: payer, medical group, hospital and pharmacy, lab and equipment owner. CEO George Halvorson explains the secret to the company’s efficiencies.

Question: How did you arrive at Kaiser?

George Halvorson: I’ve been involved in healthcare for more than three decades. I started with the financing side actually, I worked for a Blue Cross plan and I was trained as an underwriter. Slightly more than three decades ago. I evolved from the Blue Cross operation into running a small health plan, one of the first capitated health plans in America. That was HMO Minnesota. We started the health plan with a network of participating clinics. And so, I evolved from the insurance side of the operation into the care delivery side of the operation.

And a little further down the road, I became the CEO of a company known as Health Partners. Health Partners is a particularly interesting organization because it’s a Co-op. It’s owned by the members and Health Partners owns its hospitals and clinics. And so it is a very Kaiser-like organization in that it’s based on focusing on care delivery on the patient and delivering care through our own care network. So, I’ve actually been doing vertically integrated care now for decades and that relatively rare in America because most often, insurance in America is based on wherever Blue Cross model where you just basically pay claims. And I’ve been now for two and a-half decades involved in actually delivering care.

Topic: The Kaiser model

George Halvorson: Kaiser is different than just about everybody else in healthcare because we play all the position in the game. We’re a payer, we are a medical group, we are a hospital system, and we own pharmacies, labs, imaging equipment, the entire spectrum. So, when we think about care delivery we think of it in the total context of everything, and we are pre-paid. We get a budget from our members. They give us a premium and we use the premium to provide care. So we function much like a country. We’re about the size of or bigger than, 140 countries, and 42 states relative to our care population in our infrastructure. We have about 160,000 employees who deliver care with 40,000 nurses who work for Kaiser Permanente and take care of patients.

So when we think about care delivery, we don’t think about billing for individual units of care; we think about how we can function as a team to deliver care in the context of the total revenue stream, and focused on the patient. Which is why we were an early adopter of electronic medical records because for us it made a huge amount of sense to have all of the information about all of the patents all of the time, whereas, the rest of healthcare in this country tends to just have little bits and pieces of data about the care delivered in their site to their patients. What we have is all of the information. So, we put that on the computer and we basically invested $4 billion in putting all of our information on electronic medical records. And it’s working very well. Right now, we have almost a paper-free environment. Our doctors have all of the information about all of the patients all of the time. So when the patient comes in, the doctor has all of the information about the care they have delivered, plus all of the other care that anyone else has delivered. And that’s very useful in making sure that we get the right care for the right patients.

Now, we feed that information into support systems and the support system identifies for giving patients what the appropriate things are that we can do to support that patient. So it’s a connected system in that regard. We’ve also connected with the patients directly by giving the electronic medical record to the patient. So if you were a Kaiser member, you could get your electronic medical record at home. More interestingly, I think, you could also connect electronically with your physician. So you could have an electronic visit. You could send an e-mail to your doctor. Your doctor has all of your information. And we started doing that in a secured messaging environment four years ago. We were up to a million e-visits in a year. Three million e-visits the next year, six million this year, and by two years from now, about 40% I think of our primary care visits will be electronic. Driven entirely by the patients. Patients love being able to do an e-visit.

I had blood drawn a couple of weeks ago, and I had it drawn in a clinic on the way to work. I got to the office, did my job, late in the afternoon I had the e-mail from my doctor and had the lab results on my screen with an e-mail from my doctor interpreting the results. The next day I got an e-mail from my cardiologist interpreting the results. I asked her a question, sent her the information, she sent me back an answer, and we had a dialogue totally electronically, and I ended up getting some follow-up information from her. And in the old world, that would have required multiple face-to-face visits. So, I had to stop in to draw blood because we couldn’t do that electronically. But my doctor is on Alameda Island in San Francisco Bay. And he communicated with me, and my cardiologist is in San Francisco across the bay. Again, three years ago, I would have had to drive to the island and wait in the waiting room and see the doctor and then get a referral to my cardiologist and then go to the cardiologist and wait in that waiting room, and instead I handled the whole thing at my computer. Got my questions answered and I actually had a printout with some information that I needed for follow-up electronically. Our members love that. If you ask Kaiser members who have been doing that to go back to the old system of having to drive in and have the face-to-face conversation with their doctor, we would have a rebellion. And the doctors like it because it is a very convenient way of getting the information to the patient and having a dialogue with the patient.

Question: How has Kaiser’s use of technology led to efficiency?

George Halvorson: Well there’s significant time saved because the physician actually can do several e-visits in the time that it would take to do one face-to-face visit. It’s immensely efficient for the patient because you don’t have to go in. I love Alameda Island, but there’s a draw bridge. So, if I’ve got to go to my doctor in Alameda, I’d have to give myself time to get there – you know all the logistics. Get there, park, wait, go in the room, go through the registration, go through the whole process, and then meet the physician, go out to leave, schedule the follow-up, and that whole process used to be done very manually.

Now every single part of that I can do electronically. I can set up the visit, I can schedule a visit, and if I need to do an appointment I can schedule an appointment while I’m in. If I go to see my physician face-to-face, my physician at Kaiser can not only have all of my information, but they can also schedule me for a referral right there, or even better contact the referral doctor if they need to talk to an allergist, they can contact the allergist and the allergist, might be in Modesto, can get on the phone with my primary care doctor, they can both look at the same screen at the same time and have a dialogue with me in the room and handle follow-up. So, it’s a far more efficient system. And our patients like it a lot.

Question: Where are the inefficiencies coming from other companies?

George Halvorson: Well, right off the bat, if you just take the examples I was just talking about, we had 6 million electronic visits. If we would have been a fee-for-service traditional care delivery model, that means we gave up 6 million opportunities to bill. So, the rest of the world is not rushing down that path. The rest of the world is not saying we also want to give up our opportunities to bill patients. And if you look at the billing amount per patient, that’s $80 to $150 per bill that the rest of the world would give up. But because we are prepaid and we have the entire amount of money to work with, and it’s our job to manage that money interest of the patient, we don’t care about the billing opportunities in the middle. The rest of the world does.

The same thing is true in something like orthopedic. We put a program in place to deal with broken bones in our seniors. And we focused on seniors at high risk of breaking bones and made sure they had the right medication, the right counseling, the right training, the right therapy, the whole process supported by the computer, supported by nurses and doctors as a team, and we cut the number of broken bones by 37%. We gave an award to the physicians who put that program together and they joked that they were in danger of losing their standing with their professional association because everybody else would have preferred to have 37% more broken bones to deal with.

Likewise in the hospital side, for us it was just fine not to have all those admissions. Every other hospital in the world is out working to maximize admissions, which is why the American healthcare delivery system cost twice as much as any other delivery system in the world. I believe we have a non-system for American healthcare and it's twice as expensive as the rest of the world because we not only have the perverse incentives to do multiple units of care. We also have the highest fee schedule in the world in America.

Question: What general misalignments exist in the system?

George Halvorson: A couple of numbers stand out. The fact that 32% of the cost of Medicare come from diabetics, that's a huge percentage of Medicare cost. And yet we only get care rate for diabetics in this country about 8% of the time. So if we took that 8 to 80 we could cut the complications of diabetes in America and a half. And yet nothing is being done to move in that direction. Another number that stands out: 2% of hospital patients in California have sepsis. When you look at the senior population and why people are dying in the hospital, 23% of the seniors in California died of sepsis. Two percent of the patients, 23% of the deaths. And no one is focusing on that and no one is doing anything about it.

So those are the kinds of things, you look at the total data set and you say, somebody should be thinking this through. Somebody should be trying to figure out the right thing to do. Somebody should be focusing on the opportunities and putting programs in place. Inside Kaiser Permanente, relearned with sepsis issues were, we focused on sepsis and we reduce the deaths by about 40%. I think ultimately it will reduce by 50, but that's because we take in a systematic approach to doing this. The rest of the country should do it. We should not have 23% of any population dying of sepsis. It's wrong. But in every other hospital with sepsis patients generate huge bills, hundred thousand dollar bills. So there is a perversity to the process that not only are there twice as many people with the condition of hospital staff of those patients are actually billing a lot of money for those cases.

Recorded on:  September 21, 2009