Serving patients as consumers

An Interview with Bernard J. Tyson, Chairman and CEO of Kaiser Permanente

Bernard J. Tyson is chairman and CEO of Kaiser Permanente, a health system with more than 10 million members and $60 billion in revenue. It is the largest nonprofit integrated health care organization of its kind, offering both care and coverage on a prepayment basis. To take care of its members, Kaiser Permanente has 180,000 employees and 18,000 physicians. It owns 38 hospitals, has more than 600 medical offices and 500 pharmacies, and it runs its own technology innovation center near its headquarters in Oakland, Calif. It consistently is recognized for the high-quality care and services it provides to its members, patients and communities.

Kaiser Permanente's origins stretch back to 1945, when the wartime health care program run by Sidney Garfield, M.D., for Henry J. Kaiser's home front workers was opened to the public. Kaiser was a major industrialist whose worldwide enterprises included steel, dams, automobiles, building materials and housing developments—but his lasting legacy was his health care plan. He believed that if his family had had access to high-quality and affordable health care for his mother, she would have had a long, healthy life instead of dying at age 52 in 1899.

Unlike fee-for-service models, where insurance companies are billed by physicians and hospitals for each of the services they provide, Kaiser Permanente controls the entire health care dollar within its system, and physicians make care decisions. With all of its 10 million members on Kaiser Permanente’s electronic health record, physicians, labs, pharmacies and care teams have access to patient records to eliminate duplicate tests and better coordinate care. As a result, the “Kaiser Permanente model” is closely aligned with the needs of its members. With its emphasis on early detection and prevention, Kaiser Permanente is able to focus on members’ healthy life years, while also providing the best care possible when members are facing a critical health situation.

Kaiser Permanente’s members seem to like both the care and services they receive and the organization that provides them. Numerous studies and awards confirm this, as does the fact that many members stay with Kaiser Permanente for decades.

Tyson has worked in nearly all parts of Kaiser Permanente for more than 30 years. He is a highly respected leader of the American health care community with a global reputation. In 2014, Modern Healthcare named him the second-most influential person in health care, behind President Obama. Tyson co-chairs the World Economic Forum’s Health Governors Community and is chair of its Future of “Healthy” initiative.

Along with a leadership certificate from Harvard University, Tyson holds a bachelor of science degree in health service management and a master of business in health service administration, both from Golden Gate University in San Francisco. Tyson sits on the board of directors and CEO Roundtable of the American Heart Association. He served as chair of the Executive Leadership Council from 2012 to 2014. The NAACP Legal Defense and Educational Fund honored Tyson with its 2014 National Equal Justice Award.

Tyson recently discussed trends in health care with Korn Ferry’s senior client partner and managing director, health care services, Thomas Giella, and with Joel Kurtzman, editor-in-chief of Korn Ferry’s Briefings on Talent & Leadership. What follows is an edited version of their discussion.

There has been a lot of debate about new drugs that appear to be very effective but are also very costly. Some drugs, like those for cancer, cost as much as $300,000 a year. What is Kaiser Permanente’s position on the rising costs of pharmaceuticals?

We’ve had this discussion inside Kaiser Permanente, and I made one thing very clear to our doctors and reinforced what they already know: The doctor’s job is to do the right thing at the right time to deliver the right outcomes for the patient. I’ve said to them, “You’re not here to solve the dollar issues. Let me deal with that.” What I don’t want is for a physician at Kaiser Permanente to make a judgment about which drug to administer based on price. The decision must be on returning the patient to health. Costs are important, but we have to solve the issue of affordability as an industry.

If the problem of high costs is not your doctor’s responsibility to solve, how should health care administrators think about costs?

With data. You have to evaluate whether or not there’s an alternative drug, whether or not the new drug, which may cost an additional $100,000, cures, improves or extends quality of life. A health insurance administrator should never interfere with the patient-physician relationship. These care decisions should be made by the patient and physician, not the insurance company.

So it’s a matter of comparing costs and benefits?

Yes. It may be that a new drug provides only incremental changes in a patient’s life. If that’s the case, the question raised is different. The decision is not based on the drug costing $300,000 but because we know it will improve the quality of our members’ lives and is in their best interest—with the patient engaged in the discussion and decision. In 2013, roughly $87 billion was spent in this country on specialty drugs like we’re talking about. By 2020, it’s expected to jump to something like $400 billion.

That’s a huge increase in cost.

It is. And the implications are massive with regard to the affordability of health care. Affordability is a major issue in our country.

And yet it looks like the science is moving in the direction of personalized or precision medicine. Won’t that mean better and even faster cures?

If my colleagues from the pharmaceutical industry were here, they would say, “Bernard is only telling you half of the story.” They’d say, “He’s not telling you that if he spends $100,000 on a hepatitis C drug, it means he won’t have to treat that person again for the rest of his or her life for hepatitis C and related problems, including a liver transplant. They’d say, “Bernard is actually saving a lot of money with that drug,” which makes sense. The argument is much more complex than arguing that the dollars spent on a specialty drug will eliminate the need for a liver transplant and that A = B.

But to make the economics of that argument work, doesn’t it mean you have to keep a patient for his or her lifetime, or at least a good portion of it?

It’s difficult to know how to think about the long-term benefit over the lifetime of an individual. If you’re another health plan you’ll say, “Bernard can think about the issue this way because his members stay with him for 15, 18 or 20-plus years. So Kaiser Permanente can realize some of those savings. But in our case, our members change health plans all the time. They might be with us two to five years and then they roll over to another insurance company. For insurance companies like that, they pay $100,000, and the member moves on.”

For an expensive treatment like hepatitis C, what about pricing by age or the length of time someone is a member of the system?

We haven’t thought through the economics of that or even how it would work. As an industry, even on the pharmaceutical side, we have been focusing on blockbusters where everybody gets the same medicine for the same disease. But we’re headed for a precision medicine future, which will be different.

Will precision medicine add to the industry’s productivity and lower its costs, or will it increase the industry’s costs? There are people on both sides of the issue.

Hepatitis C is going to be a good case study for that. Many people are walking around with hepatitis C, and they don’t even know it. What the health care industry is going to do now is to encourage people to get checked. With hepatitis C, a small but significant percent of individuals whose disease continues to progress experience powerful negative effects. Then if they are tested, say they discover they need a liver transplant. These are the kinds of complexities we’re dealing with now. Personalized medicine will be even more targeted in the future.

What’s your view on where costs are headed?

Let me put it this way: It’s no longer true that a dichotomy exists between costs and benefits and that you can’t have both. It’s not true that if you want to have quality health care, you have to pay more for it, and if you want affordable health care the quality will suffer. I don’t subscribe to the old, tired theory that you have to decide on cost versus quality. In fact I would argue that Kaiser Permanente is showing the world that the thesis is faulty and old logic no longer holds true. You can have high-quality care that is affordable.

How would you argue it?

This way. Think about the infrastructure required for a visit to a doctor’s office. To make that happen, historically, I have to build parking lots. I have to hire receptionists. I have to have nurses. I have to have exam rooms. I have to have physicians. In other words, I have to spend a lot of money to provide you with a great and worthwhile 15- to 30-minute visit.

Now juxtapose that against an e-visit where I use technology, and I have a physician on the other end who is listening and responding to my needs. Last year we had 21 million secure e-visits! That requires a very different infrastructure than the traditional office visit. And, it turns out the satisfaction rate for an e visit is something like 9.7 out of 10. So it is not suboptimal care that people get. In fact many of our members who voluntarily select e-visits are saying it is a better form of care because they’re getting all the information they need, and they don’t need to drive all the way across town to get it. They don’t need to give up a couple of hours for that 15-minute visit since they can communicate directly through a secure e-messaging system. Even though we had more than 40 million face-to-face visits in 2014, these doctor visits were requested because of the health issue or because that was the patient’s choice—not because going to the doctor’s office is the only way to get care.

What does that mean over time?

It leads to a rebasing of our cost structure that will drive down unit costs. The technology leads us to where costs stay flat. Right now we are at, maybe, a 2 percent cost increase a year. That’s very aggressive, but it is appropriate. At the same time, our quality is going up—which is evidenced by the fact that we have five stars from Medicare in all of our plans except for one, and we have 4.5 stars on that one. We’re also at the top of the scale in our Healthcare Effectiveness Data and Information Set measures—HEDIS—as we evaluate ourselves against other organizations. And we won the J.D. Power award for quality—again. So we have all kinds of indicators that we use to carefully monitor quality of care. That’s why I would argue that you don’t have to go after affordability and cost improvement at the expense of quality. You can do both. We are demonstrating that.

Bringing down costs while improving quality is a trend everyone welcomes. What other trends do you see?

Consumers of health care are beginning to act more like consumers and are paying more attention to cost. The reason they’re doing it is because they’re paying more for their own health care. The out-of-pocket expenses that an average American pays for health care has risen. Health care costs are second only to housing. That has gotten people’s attention. As a result, people are asking very different questions of the industry than in the past when they didn’t pay much attention to costs and the payer was over here and the receiver of the care was over there. It meant everything was being paid for. But now for Kaiser Permanente and the industry as a whole, people are asking different questions because they have more at stake in terms of what their health care is going to cost them and what it means from a financial standpoint.

How do you know this change of attitude and behavior is happening? Is it anecdotal or do you measure it?

I actually go to our call centers and listen to calls from members, which helps me understand what it means for working people to have to pay $30 every time they come to Kaiser Permanente for care. So if I have health care coverage because of the Affordable Care Act and some of my costs are subsidized, I still want to understand what the premium I’m paying is used for because it’s a big chunk of money for me. If I have to pay another $30 or $40 each time I see a physician, I want to know what I’m paying for. It also means I begin to ask if there are alternatives for how I get my care and my coverage and what they cover. These are real questions people are asking. And beyond that there are many studies and papers being written that are starting to show exactly how people are responding to changes in the cost of care.

Do you think people are acting more like the health care system is market-driven?

I do. And by the way, many people in our industry are betting that consumers of health care are going to act more like consumers. If you look at the strategy of CVS, for example, it is operating with a thesis that people will be OK receiving medical interventions in a CVS store if they don’t need a lot of the high-intensity care requiring a comprehensive medical center and hospital. They believe people will get their health care needs met, and it will be at a price point they can afford. While they’re at CVS, they can also shop for other things. You are also seeing new start-up businesses where physicians set up their practices entirely on the Internet. We have our own experience with secure e-visits with members choosing to visit their doctor online. The point is, with certain illnesses people’s needs can be met with a different kind of system—one that would have been unheard of five or 10 years ago.

Are health care organizations restructuring themselves to accommodate some of these changes?

The industry is trying to figure out how to shift in many ways. Many organizations are trying to replicate the Kaiser Permanente model. Most of the industry is still fragmented, with everybody competing for the same dollars. In our organization, however, I start with the dollar, and then it’s a matter of what’s the best way to spend that dollar to meet the needs of the diverse population we care for around the country.

In practice, our model means if I have a hospital bed that’s empty here in Oakland, Calif., our physicians are not under any pressure to fill it, because an empty bed is not seen as lost revenue or as an added expense. In our model, the physician is making a decision about what’s right for the patient, and they are not incentivized by whether or not the physician gets paid for providing a service and filling the bed. They are in control to make sure the patient is getting the right care in the right setting.

Does the industry as a whole think the future is to become more like Kaiser Permanente or is it still experimenting with models?

Leaders in our industry are playing to where the puck is going. They’re trying to figure that out. If we are driving toward the notion of a value-based system, which is what Kaiser Permanente is, we have to think strategically about the best way to accommodate that change. Many people in our industry are trying to figure that out right now. They’re trying to determine how to create different kinds of partnerships with different players in the industry and to be more holistic with regard to how they use each health care dollar. Overall, yes, we’re still in the experimental stage. Even so, we have one of the best models. It’s not perfect, and there is a lot of evolution and change taking place in the industry that has been prompted by the cost of care. The truth is, a lot of people are angry. Consumers are angry about how much they’re paying, while businesses are angry about what the care they provide to their employees is costing them, and the government is mad about what it’s spending for the elderly and the poor. I think all of this has created momentum for change, which is what you see happening everywhere in the industry. I’m optimistic that we will continue to see more change, and ultimately see a transformed industry that will meet its obligation to provide people with higher quality and more affordable care and coverage.