National Governors Association 2004 Policy Seminar forGovernors’ Policy Directors & Senior Policy Advisors

October 9, 2004Tucson, Arizona

Arthur M. Southam, MD Senior Vice President, Product & Market Management

Kaiser Permanente

Coverage, Quality and CommunitiesSteps Toward a Better Health and Care System

2

Overview

Kaiser Permanente

Today’s Health Care Marketplace

Critical Issues

Collaborative Solutions

3

Kaiser Permanente: Our Beginnings

Contractors General Hospital (Circa 1950)

4

Kaiser Permanente: National in Scope

Mid-Atlantic Region Washington, DC Rockville, MD Baltimore, MD Fairfax, VA

Georgia Region Atlanta, GA

Colorado Region Denver / Bolder, CO Colorado Springs, CO

Ohio Region Cleveland, OH Akron, OH

Northern California Region

Southern California Region

Hawaii Region Honolulu, HI Maui, HI

Northwest Region Portland, OR Vancouver, WA

Mid-Atlantic Region Washington, DC Rockville, MD Baltimore, MD Fairfax, VA

Georgia Region Atlanta, GA

Colorado Region Denver / Bolder, CO Colorado Springs, CO

Ohio Region Cleveland, OH Akron, OH

Northern California Region

Southern California Region

Hawaii Region Honolulu, HI Maui, HI

Northwest Region Portland, OR Vancouver, WA

5

KP: America’s Largest Not For Profit Health Plan

A Durable Partnership Kaiser Foundation Health Plans and Hospitals, Inc. 8 Permanente Medical Groups

8.2 Million Members 100,000+ Employer Customers

10% of Members are Medicare Advantage – 30% of Revenue

Serve 9 States and D.C. 30 medical centers and 423 medical offices 125,000+ employees 11,345 Permanente Physicians (not including affiliated networks) $28 Billion Operating Revenues (2004) Largest Labor Management Partnership in History Community Benefit Programs ($700 Million/Yr.) Research and Education – Largest Non-Academic Research Organization in US

6

KP: Leadership in Quality, Care and Prevention

Integrated System of Care and Coverage Stable, Mission Driven, Not for Profit Exclusive Partnership with Permanente Medical Groups Commitment to Diversity and Culturally Competent Care Common Medical Record Evidence Based Medicine Web Enabled Care and Service Innovations in Personal and Population Health

Cardiovascular Disease Diabetes Asthma Depression Obesity

Clinical Information Technology – KP Health Connect

7

Kaiser Permanente Health ConnectHarnessing technology to dramatically transform the safety and quality of health care.

Outpatient Inpatient

Scheduling

Registration

Clinicals

Pharmacy

Billing

Emergency Department

Scheduling

Registration

Clinicals

Pharmacy

Billing

Care Delivery CoreKP Integrated Delivery System

www.kp.orgMember Web Portal

Make/Change Appointments

Send Messages to Doctor

Check Lab Results

Access Health Information

Access Medical Record

Make Payments

8

Kaiser Permanente

Today’s Health Care Marketplace

Critical Issues

Collaborative Solutions

9

Health Care Costs 2002 = $1.55 Trillion

Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Services Group

National Health Expenditures Annual Percentage Change by Type1980 - 2002

0.0

5.0

10.0

15.0

20.0

25.0

1980 1988 1990 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

National Health Expenditures Physician and Clinical Services Prescription DrugsHospital Care Other Personal Health Care Other Health Spending

10

56%

5%

13%

12%

15%

Who Pays for Health Benefits?

Employer-based Health Coverage

Private / Individual Coverage

Medicaid / Other Public

Medicare

Uninsured

285.1 Million Americans

Distribution of the Total Population by Health Insurance Status US, 2002

Source: Urban Institute and the Kaiser Commission on Medicaid and the Uninsured estimates based on the March 2003 Current Population Survey.

11

12.0%

18.0%

14.0%

11.7%10.5%

8.5%

6.2%

3.9%

0.8%

3.4%

5.1% 5.3%

8.2%

10.9%

12.9%13.9%

11.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Y1988 Y1989 Y1990 Y1991 Y1992 Y1993 Y1994 Y1995 Y1996 Y1997 Y1998 Y1999 Y2000 Y2001 Y2002 Y2003 Y2004

Annual Premium Increases 1988 - 2004

Source: KFF/HRET Survey of Employer-Sponsored Health Benefits: 1999-2004; KPMG Survey of Employer-Sponsored Health Benefits:1993, 1996; The Insurance Association of America (HIAA): 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index (U.S. City Average of Annual Inflation ( April), 1988-2004; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April), 1988-2004.

Annual Change in Health Benefit Premiums

12

A Crisis of Affordability: Who Will Bear the Burden?

Employers

Consumers Providers

The State

13

Out-of-Pocket Spending: Consumers

$119

$253

$359

$540 $547

$687 $709$744

$-

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

1970 1980 1985 1990 1995 2000 2001 2002

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Monthly Employer Contribution Consumer % OOP

Monthly Employer Contribution vs Consumer Out-of-Pocket Spending

Source: Centers for Medicare and Medicaid Services (CMS) Office of the Actuary

14

$2,618

$542

$-

$2,691

$573

$-

$2,674

$552

$-

$2,382

$468

$2,661

$558

$-

$7,195

$3,085

$-

$7,526

$3,235

$-

$6,830

$2,906

$-

$7,220

$3,352

$7,289

$3,137

$-

$- $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000 $11,000

Family

Single

POS

Family

Single

PPO

Family

Single

HMO

Family

Single

Conventional

Family

Single

All Plans Worker Contribution Employer Contribution

$ 3,695

$ 9,950

$ 3,820

$ 9,602

$ 3,458

$ 9,504

$ 3,808

$ 10,217

$ 3,627

$ 9,813

Premiums Levels and ContributionsAverage Annual Premiums for Covered Workers, by

Plan Type, 2004

Source: KFF/HRET Survey of Employer-Sponsored Health Benefits: 1999-2004; KPMG Survey of Employer-Sponsored Health Benefits:1993, 1996; The Insurance Association of America (HIAA): 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index (U.S. City Average of Annual Inflation ( April), 1988-2004; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April), 1988-2004.

15

Employer Strategies: Sharing the Burden Employer Contribution Growth Less than Premium Increases Defined Contribution Benefit package evolution

Lean benefits Point of care cost sharing

“Consumer Directed” Health Plans (“CDHP”) Health Savings Accounts (HSAs) High Deductible Health Plans (“HDHPs)

Self-funded ERISA plans in smaller groups Retreat from retiree benefits

Impact of the Medicare Modernization Act

Will there by a fundamental change in employers’

commitment to health benefits?

16

High Deductible Health Plans

5% 5% 5%

17%

5%

10%

7%9%

20%

10%

0%

5%

10%

15%

20%

25%

All Small Firms (3 - 199 Workers)

Midsize Firms(200 - 999Workers)

Large Firms(1,000 - 4,999)

Jumbo Firms(500+)

All Firms

2003 2004

Percentage of Firms Offering Employees a High-Deductible Health Plan, by Firm Size, 2003-2004

High-deductible health plan: A plan with an annual deductible of more than $1,000 for single coverage. High-deductible plans can be offered with or without a personal or health savings account option.

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 2003, 2004.

17

Kaiser Permanente

Today’s Health Care Marketplace

Critical Issues

Collaborative Solutions

18

The Uninsured

45 Million Americans Lack Health Insurance

The number of uninsured Americans under age 65 increased by 5.1 million between 2000-2003 largely driven by continuing declines in employer sponsored insurance.

For children, this decline was more than offset by increases in enrollment in Medicaid and the State Children’s Health Insurance Program (SCHIP), resulting in a decrease in the number of children without coverage.

$125 billion – the cost of providing care to U.S. citizens with no health care coverage

Can also expect up to 20 – 40 million underinsured – lower income people whose access to primary care will become much less affordable.

Kaiser Commission o n Medicaid and the Uninsured, The Economic Downturn and Changes in Health Insurance Coverage, 2000-2003

19

The Working UninsuredReasons Why Uninsured Workers LackEmployer-Sponsored Insurance, 2001

63%

17%

20%

Worker is not eligible for employer’s plan

Worker is eligible, but not enrolled in employer’s plan

Employer does not sponsor a health plan

Total = 15.1 million uninsured workers(excluding self-employed)

Note: Percentages do not total 100% due to rounding.

SOURCE: Garrett B., Employer-Sponsored Health Insurance Coverage: Sponsorship, Eligibility, and Participation Patterns in 2001, KCMU report, 200

20

Employer Benefit Offerings

56%

74%

86%

97%

65%

100%

57%

80%

91%

97%

68%

99%

58%

77%

90%

96%

68%

99%

58%

70%

86%

95%

66%

98%

55%

76%

84%

95%

65%

98%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

3 - 9 Workers 10 - 24 Workers 25 - 49 Workers 50 - 199 Workers All Small Firms (3- 199 Workers)

All Large Firms(200+ Workers)

1999 2000 2001 2002 2003

Percentage of Firms Offering Health Benefits, by Firm Size, 1999-2003

Source: Source: Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits, 2003 Annual Survey, September 2003

21

The Quality Chasm

The American health care system

is in need of fundamental

change. Health care today harms

too frequently and routinely fails

to deliver its potential benefits.

Between the care we have and

the care we could have lies not

just a gap, but a chasm.

Crossing the Quality Chasm: A New Health System for the 21st Century (2001); Institute of Medicine

22

The Quality Chasm

The Issues

Inconsistent Practices and Outcomes Underuse of Effective Care Overuse of Ineffective or Dangerous Services

Medical Errors (44,000 – 99,000 Deaths Per Year) Low Satisfaction High Cost

23

The Quality Chasm

55%

76%

65%

54%

39%

23%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Overall Breast Cancer Hypertension Asthma Pneumonia Hip Fracture

Half of U.S. Adults Receive Recommended Care and Quality Varies Significantly by Medical Condition

Percent Receiving Appropriate Medical Care

Source: McGlynn et al., “The Quality of Health care delivered to Adults in the United States,” The New England Journal of Medicine (June 26, 2003)

24

Prescription Errors When Computer Physician Order Entry (CPOE) systems with

intercept capability based on protocols specified by the Institute for Safe Medication Practices are used in hospitals, they have been shown to reduce serious prescribing errors by more than 50 percent.

In 1999 fewer than 7 percent of hospitals reported using CPOE systems.

ISORDIL® (isosorbide dinitrate) or PLENDIL® (felodipine)?

Isordil is a treatment for chest pains and can cause extremely low blood pressure; Plendil is prescribed for hypertension, or high blood pressure. Isordil was the intended drug

25

The Quality Chasm

The Root Causes Growing Complexity of Science and Technology Increase in Chronic Conditions Poorly Organized Delivery System

Incentive not aligned with quality Technology Not Used Effectively or Appropriately

Medical Technology Information Technology

26

The Nursing Shortage – A Crisis in Progress

National Supply and Demand Projections for FTE Registered Nurses 2000 - 2020

Source: Bureau of Health Professions, RN Supply and Demand Projections

27

The Health of Our Communities

Medical care is often an expensive and ineffective band-aid for fundamental shortcomings or failures in the systems and investments that determine the health of our communities.

Many of the major health and medical cost issues cannot be addressed without attention to social and community issues

Obesity Nutrition Fitness Education Poverty Violence Drug Abuse and Alcohol Smoking

28

Life Course Health Policy: The Link Between Healthy Individuals and Healthy Communities Policies that focus on health during youth foster positive long-term

outcomes focused on the individual, family, and community

Source: Health Affairs, Vol 23, Issue 5, 155-164; Childhood Origins Of Adult Health: A Basis For Life-Course Health Policy ; Christopher B. Forrest and Anne W. Riley

Healthy Community

Healthy Family

Healthy Adult Lifestyle

Healthy Habits Supported During Adolescence

Health and Well Being Promoted During Youth

29

Community Health InitiativesHealthy Eating. Active Living

HEAL

KP Community Health Initiatives seek to transform the health of our communities

Linking our evidence-based and prevention-oriented approach to medicine with community activism and proven public health interventions

Explicit and ambitious goal of improving health status Defined Geographic population Emphasis on environmental and policy change

30

Community Health InitiativesHealth Eating/Active Living

Organizational Principles Place based focus Multi-Level Intervention Multi-sector Collaboration Broad Definition of Health Focus on Racial and Ethnic Disparities Community Engagement and Ownership Long Term Partnerships Sustainability and Capacity Building Leveraging Community and KP Assets and Strengths Evidence Based Interventions Commitment to Learning and Evaluation

31

Kaiser Permanente

Today’s Health Care Marketplace

Critical Issues

Collaborative Solutions

32

Public Private Collaboration in Health: The Work We Must Do Together

Cover the Uninsured Close the Quality Chasm Create Healthy Communities

33

Covering the Uninsured

Encourage employer-sponsored coverage – small employers Sticks – “Pay or Play” Carrots – Tax incentives Limit benefits mandates and other regulation

Maintain a viable, active and affordable individual health insurance market

Regulate for consumer protection - disclosure Don’t regulate rates, benefits or underwriting

A limited and adequately funded individual catastrophic risk pool is essential

Maintain Medicaid and SCHIP Particularly for children

High and rising uninsured rates produce major inefficiencies and gaps in the American health care system. This threatens the stability of existing State and employer sponsored coverage programs.

34

Close the Quality Chasm

Use the State’s Leverage as a purchaser Reward Quality and Coordinated Care Risk adjustment of payment

Provide and promote the use of quality information Promote Medication Safety

No handwritten prescriptions Encourage identification and analysis of errors

Support the adoption of Electronic Prescribing and Electronic Medical Records

Invest in developing a diverse health care workforce (non-physician)

35

Create Healthy Communities

Education, Economic Status and the Social Environment are the Major Drivers of Health and Medical Costs

Attention to Social health Education Jobs Poverty Violence

Focus on Children and The Schools Focus on Obesity, Nutrition, Exercise as Critical Public Health

Issues of Today and Tomorrow