John Kitzhaber On Medicaid: 'We've Lost Our Sense Of Vision'

John Kitzhaber as governor in 2014.jpg

About five years ago, Oregon adopted an innovative Medicaid system that enabled the state to expand health care to nearly 1 million people today. But the system does not have a steady source of funds. This year Oregon's Medicaid funding gap was $950 million.

Gov. Kate Brown has proposed bills to drum up revenue, and they’re making their way through the Legislature. But without fundamental changes to the system, the state will face another Medicaid funding crisis in a few years, according to former Gov. John Kitzhaber, an architect of the Oregon Health Plan, the state Medicaid program.

He said Oregon leaders today lack the vision that propelled the innovation in the first place, adding that the state needs the kind of close collaboration that created the system to put it solid financial footing. It's possible to do that, he said, but will entail a fundamental change.

The program is at a critical juncture.

Medicaid insurers -- coordinated care organizations or CCOs -- are about to apply for a five-year contract, starting in 2020. The contracts are collectively worth more than $5 billion, making this the biggest procurement in Oregon’s history. The state has lofty goals -- improve mental health care, switch to a payment system that rewards outcomes instead of encouraging more procedures and help people become healthier by improving their surroundings, like ensuring they’re in stable housing and have access to transportation, education and jobs.

Oregon could become a beacon for the nation or a model of failure for the nation. A lot is at stake.

In an hour-long interview, Kitzhaber discussed his hopes and concerns with The Lund Report. Dr. Bruce Goldberg, former director of the Oregon Health Authority and another architect of the Oregon Health Plan, took part in the discussion. The interview has been edited for clarity and conciseness.

When you created the CCO model, what was your long-term vision?

Kitzhaber: We were faced with a $1.2 billion hole in the Medicaid budget, and if we had continued to cover everyone who was eligible with no new revenue it would have been about a 40 percent provider reimbursement. So that’s what got people’s attention.

The goal was to create a new organization that involved providers, the people who receive care and the community. It was not just to be a physician-hospital centric organization but one that actually recognized that the goal here was health, not simply the provision of medical care.

Very central to that was financial risk by the delivery system for quality and outcomes within the context of a global budget that grew at a fixed rate. And to begin to make expenditures on areas that contributed to health but were not necessarily clinical. An air conditioner would be one; housing would be another. And then the idea was to prove up the model with the Medicaid population and then migrate it to the private sector starting with (Public Employees Benefit Board) and the (Oregon Educators Benefit Board) and then offering it as an option on the exchange for small employers and individuals in the individual market and then hopefully to get permission to offer that as an option for Medicare Advantage. The idea was to go to an all-payers approach, not just Medicaid.

What do you think the system has achieved?

Kitzhaber: I think it started out remarkably well. I remember meetings with the CEOs of the major hospital systems up here, incredibly collaborative. It was very exciting.

The state and the CCOs spent quite a bit of money in the community around the state, and they absorbed 385,000 people, which was pretty remarkable. They’ve all met the quality and outcome metrics. There’s been huge penetration of patients in primary care, with good outcomes.

Having said that, over the last year the growth rate has been edging up. About 6.4 percent is the average. Three eastern Oregon CCOs, Moda and two (from) PacificSource, are operating at 2.7 (percent). Health Share about 7 percent. So I’m not convinced that all of them have actually changed the delivery model. Let’s put that in one column of concern.

That might be due to the fact that there were two big infusions of revenue. One was the original $1.9 billion and then we got a lot of money in 2014 because of a good federal match rate for the expansion. Some of them may have just coasted on this and not done the hard work of changing the delivery model. So that’s one area of concern.

The other one I think is they are still hospital-physician-centric organizations and some haven’t made the deep partnerships with the community that allow you to systematically and very intentionally make investments in social determinants of health. There have been a lot of one-off investments.

Goldberg: When we started this, the intent was to improve health. We talked a lot about the fact that it’s a lot more than just medical care that makes us healthy. A lot of the rest of it are a lot of social and behavioral and environmental and economic factors, and the hope was that these new organizations would begin to make that shift to sustainability and make the kinds of new investments on the social side that was needed to improve health. I don’t think we’ve seen the progress in that that we’d like to see.

Kitzhaber: The central challenge for CCO 2.0 is to bend the cost curve down so you’re actually operating within the 3.4 percent growth cap and then reallocate some of the savings upstream in the community to address social determinants of health.

So how do you do that? And is it possible to operate within the 3.4 percent?

Kitzhaber: Yes it is possible.

Goldberg: At least 10 percent if not 25 to 30 percent of what’s delivered in the health-care arena is wasteful or ineffective. There should be a great opportunity to stay within a 3.4 percent growth. Part of the issue is that there hasn’t been a consequence for not.

Kitzhaber: I think that’s the real key because the growth rate for the CCOs is not sustainable. If the state’s getting paid 3.4 percent and at some point -- I think it will be at next biennium – if the CCOs are operating at 7 percent, the state is going to have to take money out of education and other places to invest (in Medicaid). I don’t think that’s going to happen. Then what happens is we go back to the old system which is essentially we disenroll people and cut benefits, at which point we’ll lose our waiver. I think it’s absolutely possible to do this but you have to create the incentive, and the incentive is to put downward pressure on the delivery system so it has to transform itself.

What are you talking about concretely?

Kitzhaber: The idea originally was to give them five years to get that growth rate down and change the delivery model. One example would be to give a certain amount to primary care, a certain amount to specialty, a certain amount to hospitals. The primary care physicians then manage referrals to specialty and the hospitalization with some kind of shared savings. They do that in Medicare Advantage. It is possible. It takes discipline and it takes changing the fundamental viewpoint from an open-ended budget to a constrained budget.

Goldberg: It takes collaboration and it takes problem-solving and it takes doing things differently to be able to stay within those finite resources.

Kitzhaber: We’ve lost our sense of vision and pioneering spirit. A lot of it is with the change in leadership, which is not critical of the new leadership but they weren’t here when we first put this together. They don’t have an institutional history. One of the real problems is we’re still operating on a rate-based fee-for-service system. That makes absolutely no sense. You can’t solve this problem with that system because it creates a disincentive for making exactly the kind of investments that we need. The idea was that if you get the 3.4 percent down to 3 percent or 2.5 percent because of your investments, you keep that money for reinvestments. We should aggressively go back and pursue that.

Who do you think should be in charge of enforcing change in terms of switching away from a rate-based model?

Kitzhaber: First of all you have to get a waiver change. This is obviously an (Oregon Health Authority) function. We were very clear at the beginning. This is about a budget, not a rate. That was the big innovation here.

Goldberg: I would say it’s all of our responsibility. This is about regulators, doctors and hospitals and pharmacists; community health workers. It’s about community members. It’s about education. It’s about housing. It’s about all those components coming together, figuring this out.

Is it just an issue of the waiver?

Kitzhaber: We were getting ready to do this. We didn’t actually do it very well ourselves in the last two years of the administration. There has to be a consequence for not operating (within) the growth cap. You can’t just keep going back and expecting more money. There can be a lot of consequences. One could be if you’re not making your growth cap, someone else could compete for those covered lives. And this wouldn’t happen precipitously. You’d see it coming.

A lot of the things that OHA is calling value-based payments right now are really rate-based, or they’re widgets. Are there things that they’re not thinking of and that they should be doing to move to that global budget? Is it fair for them to say, “It’s hard?”

Goldberg:  I would say it’s really hard because we’re on the forefront of figuring how to do that. There are not a lot of roadmaps. But I do think it’s about figuring out as a community how do we do those things. I think we need to recommit that kind of a vision and be able to work towards it. We need to hold ourselves accountable.

Kitzhaber: What we had at the beginning is a commitment by the leadership of the CCOs, by the hospital systems to do this. We know we have to get costs down and maintain quality and there has to be communal commitment to that.

If this doesn’t happen -- an inspirational, visionary and collaborative approach where everyone gets together and says let’s solve this --  what’s at stake?

Goldberg: What will happen is what we’ve seen happen -- people will get cut from care. We saw that in 2003 in this state when overnight 100,000 people lost health care because we didn’t have the money to pay for it, and people died because of that.

Kitzhaber: Health care is the only economic sector that produces goods and services that none of its customers can afford. The only way that works is if it’s heavily subsidized. If this doesn’t work, what will happen is we will shift responsibility to individuals. I’ll give you one example. In 2003, a guy named Douglas Schmidt lost coverage. He had a seizure disorder. He couldn’t get his medications and he went into a sustained grand mal seizure, suffered brain damage, ended up on a ventilator in a long-term care home, died. The cost to the state was $1 million. That will happen. This is about our responsibility as society and as a health system to make sure that we provide quality health care to many vulnerable Oregonians with the expansion to hard-working people who are working two or three jobs. They’re the ones who are going to pay the price.

In terms of the CCOs, there’s a big variance in how they operate. Do you see some that you would hold up as models, and if so which ones?

Goldberg: It’s too early to tell who’s better than another. These are new organizations. The goal was to learn from each other.

Kitzhaber: All we have right now is the top-of-the-line growth rate. We don’t really know what that means. But in order to create that environment for them to learn together there has to be a rebirth of this larger sense of mission and why we’re doing this. There has to be some kind of regular learning collaborative. It’s got to be everyone at the table saying we’ve got a ways to go but we’re committed to making it happen.

There’s been this retrenchment, especially during the procurement, of protecting the business model instead of trying to transcend that.

Goldberg: And along those lines, we need greater transparency. The more transparency there is the better.

You mentioned that an early goal was to start with the Medicaid population and then expand to the commercial markets and elsewhere. How do you propose that state officials do that?

Kitzhaber: I can only speak for what we were trying to do. We were trying to get a CCO-like model as one of the options on (the Public Employees Benefit Board) and (the Oregon Educators Benefit Board). We did get it in OEBB. They could pay no premiums, they could pay a little bit of premium.

I think it’s a matter of getting PEBB and OEBB on board and, with pressure from the governor, so that we actually begin to offer that as an option. If I were running one of the public employee unions today I’d say, do you want to take pressure off (the Public Employees Retirement System)? Let’s look at the health care system. We spend over $1.5 billion a year on PEBB and OEBB. There’s a lot of money there. If you can bend that cost curve down and get savings without cutting benefits and still get quality and outcomes. That gets it into the commercial market.

So, how is Medicaid going to get funded? Is there anything the Legislature is not thinking about? Do you think their funding strategies make sense?

Kitzhaber: This is not meant to be critical at all. Having sat in the chair, I think armchair quarterbacking is not productive. I wish they had considered solving the Medicaid problem within the context of a larger general fund budget situation. I think there are three things that are contributing to the structural budget deficit. One is public compensation costs which are higher than the national average. One is low corporate taxes. And the third is Medicaid. To the extent that you increase the general fund commitment to Medicaid to reduce our reliance on federal funds, that’s really important because a 1 percent blip in the match rate is $100 million out of our Medicaid budget. They chose not to do that so it’s going to be solved separately. It can be solved that way but the only concern I have is a political concern. There are a number of tax votes that have to be taken, and of course the tobacco tax will ultimately be referred and should that fail we will still have a hole in the middle of the biennium. How do you deal with that?

We need a long-term stable funding base for this program, particularly if we want the CCOs to step up and actually try to change the system.

Goldberg: The real issue is not how you fill the hole but it’s how do you stop digging yourself a hole. I think ultimately that’s what this whole model was about.

What parts of the system need streamlining?

Kitzhaber: I think that it’s trying to identify that 20 or 30 percent of the system that is not producing health. It could be administration. It could be a revenue model that hospitals use, for example. CCOs can’t control hospitals.

Goldberg: I’ll leave you with an example: When we started CCOs, one of our visions was that we should be able to prevent children with asthma from going to the emergency room. We haven’t done that yet. We have a whole host of cancers that we can prevent. We should work on doing that. We have far too much cardiovascular disease. We have people with substance abuse (disorders) who aren’t getting the treatment that they need. We’ve people with mental health problems that aren’t getting the help that we need. That’s where we’ve got to focus on. That’s where we can do better.

Former governor and emergency room physician, Dr. John Kitzhaber, is the chair of health policy at the Foundation for Medical Excellence. He’s also working with U.S. lawmakers on health care policy.

Dr. Bruce Goldberg, former director of the Oregon Health Authority, teaches part-time at the School of Public Health, a collaboration between Oregon Health & Science University and Portland State University. He’s also working on a project with the Centers for Medicare & Medicaid Services.

You can reach Lynne Terry at [email protected].

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