An organizationwide computerization effort enabled Kaiser Permanente, a not-for-profit health plan and hospital system, to improve quality of care and care delivery-and physicians and patients alike love the connectivity. "If we tried to take the electronic medical record away from our physicians, we would have such a backlash that it would be a revolution," says George C. Halvorson, chairman and CEO of Kaiser Permanente. "The doctors love having all of the information about the patients." Halvorson, a featured speaker at this year's ANI: The HFMA National Institute, says, "The future is connectivity, and CFOs would benefit hugely from having a sense of what that looks like and what patients think about the implications of it."

Q.Kaiser Permanente has made a significant investment in clinical IT. How did you frame the "return on investment" for this strategy? In other words, what economic and noneconomic benefits were expected from this investment? And how are you measuring these benefits?  

A. We've invested more than $4 billion in completely computerizing our care delivery database. We've become paperless internally, and our systems are linked to each other so that we have digital imaging laboratory systems and pharmacy systems that all feed into our medical record and our overall data flow.

We decided a number of years ago that paper is extremely expensive, cumbersome, and a bad source of operating and care-delivery support data. So we decided to computerize pretty much everything that we do. Our goal was to improve care, efficiency, and the cost of care. We have succeeded in all of those agendas. Our operating run rate to deliver care at Kaiser Permanente is several percentage points lower than it would have been had we not made that investment. And because we're basically a $50 billion company now, running 5 percent or more lower relative to what our operating expenses would have been had we not done the computerization is a significant number.

We've computerized our hospitals, our clinics, our pharmacies, our labs, and our imaging centers. Everything is digital, and it's uniformly digital across all of our regions. If we send patients to a hospital that is not a Kaiser Permanente hospital, those data are not linked into the system.

We are doing a number of things relative to care improvement, care delivery enhancements, and even insurance coverage that we could not have done had we not computerized our entire operation. So the investment was enabling in many respects relative to our overall strategic agenda and our operational strategies.

And we are saving massive amounts of paper-enough to run the forms around the world eight and a half times.

Q.What challenges have you faced in implementing the strategy, and how have you overcome them-for example, challenges in clinician acceptance or capital allocation?  

A. Many care sites that installed medical records have faced resistance from members of their care delivery team. A number of non-Kaiser Permanente sites have experienced physician resistance and reluctance to move forward in these areas. That resistance has been minimal to nonexistent at Kaiser Permanente because we have a long history of being vertically integrated and using various computer-support tools to help manage and support care.

So our problem has been just the opposite. The medical care team has been asking for an expanding set of system supports, and the pressure is to continue to grow the support capability as opposed to resisting change.

The capital allocation decisions are relatively easy because we knew what the expected benefit would be, and we knew that the benefit would far exceed the capital investment in real dollars in very short order.

Q.What results have you achieved to date, and what are your key milestones for the coming years?  

A. We have achieved many of our performance goals as a result of having this new toolkit. In rating health plans, Medicare assigns five stars to health plans that do the best job on care and service and one star to the plans that do the worst job on care and service. Last year, Medicare rated only nine plans in the country at the five-star level. We had five Kaiser Permanente regions with five stars, and we didn't have a single score below 4.5 stars. We also won the J.D. Powers Award for Best Care System Administration in the country. That level of performance would not have been possible without the systems we put in place. We also had a cost trend for care that was lower than all of our competitors, and that also would not have been possible without the new system capabilities.

Our goals for future years are to continue winning the quality awards and to continue to have a cost trend that runs below the market.

Q.Kaiser Permanente is an integrated system encompassing multiple providers, facilities, and health insurance. Do you believe all three components are necessary for healthcare delivery systems to be truly integrated and to manage the economics of care?  

A. We have a tremendous advantage by being vertically integrated. The biggest advantage is that we can think of care as a total package of services, and we are not limited by the payment processes involved in fee schedules. We basically have no internal fee schedules at Kaiser Permanente. Other care sites can deliver only the care that's defined and approved for them by Medicare or Medicaid and insurance company fee schedules.

We can improve care based on the appropriate use of resources assigned to any given patient, and we can ignore fee schedules as a driver of activity or care delivery. As an example, we have cut the death rate for our HIV patients by half of the national average. To do that, we do a dozen things for those patients that do not show up on a Medicare or Medicaid fee schedule. If we delivered only the care on a Medicare or Medicaid fee schedule, twice as many of our HIV patients would die.

We also have cut the number of broken bones for our seniors by almost half. We do nine things for our seniors to reduce the number of broken bones, and six of those nine things do not show up on a Medicare, Medicaid, or Blue Cross fee schedule. If we deliver only the care based on that fee schedule, our seniors would have twice as many broken bones. There is a huge advantage to being prepaid and having a business model based on selling care as a package instead of selling care by the piece.

Q.In your book Health Care Will Not Reform Itself, you note that the sharing of data and tools would improve the quality of health care, but that this sharing generally is not occurring. How do you gain buy-in from key stakeholders to embrace a strategy for implementing technology to improve quality?  

A. The buyers-Medicare, Medicaid, and commercial payers-need to buy care much more intelligently, and buy care by the package and not by the piece, because when you buy care by the package, doing things like reengineering care to cut the number of asthma crises in half makes sense. Each asthma crisis creates a billing opportunity at the emergency room with a billing opportunity in the clinic and a billing opportunity in the hospital. The sum total of those billing opportunities is huge, and there's no reason for anyone who is paid by the piece to manage or improve care. As soon as you buy care by the package, caregivers are liberated from the dictates of the fee schedule and can figure out the right things to do for asthma patients and for diabetics, and the patient outcomes can be significantly improved. So in the new business model, to bring down the cost of care in America and make care better, we need to liberate care sites from fees so they can reengineer care. You cannot reengineer care in the context of a piecework payment model.

Q.You also state in your book that the entire payment system does not need to be changed. How does the payment system need be changed, and is value-based payment the right direction?  

A. What I mean by "the whole system does not need to be changed" is we do not need to have every physician in America join a large group. We do need all physicians who share responsibility with other physicians for the care of patients to be able to function as though they were in a group by having computer-supported connectivity and data flows with other physicians about those patients.

We don't need to change the underlying business model and get every physician to be salaried or get all hospitals into large systems, but we do need the functionality of team care for patients who need team care. Because 10 percent of the patients drive about 80 percent of the care costs, we need team care for that 10 percent of the patients. We need to get there by channeling patients into the right care settings and then having the caregivers connect with each other in delivering better care.

The connectivity tools are getting so much better, and there's a really good awareness of what needs to be done relative to team care that those agendas are all very likely to happen. Medical homes, for example, are going to be a breakthrough in terms of care delivery for many patients, because the medical homes can coordinate care for those patients. And the medical homes are each anchored with a database and a care support system. The ones that succeed all have a care registry mechanism in place, and that's the magic. The independent providers need to be linked into that system. I think it's very possible to do that. We've already seen in multiple settings that care can get better with those linkages.

Q.Given all of these changes, how do you see the role of the finance professional, especially the CFO, evolving in the future?  

A. The CFO's role is going to evolve in a very clear direction, and that is going to be in the direction of supporting reengineering and process improvement. In the old business world where all care is purchased by the piece, when CFOs perform strategic planning, they think about how to maximize the pieces of care-how to increase volume.

In the new world, CFOs will need to think about how to put together a total package of care and a total workflow that reduce underlying costs without reducing the organization's margin or revenue stream. An additional level of sophistication will be required of CFOs in that world. CFOs are going to have to be mentors, counselors, and guides for the other executives in their organizations in those directions. The role of the CFO as mentor will be more important than it has probably ever been.

CFOs need to be aware of the potential implications and significant changes that will result from the new levels of connectivity tools that exist. Nine million Kaiser Permanente patients can get their medical record today on their iPhone, schedule appointments, and email their doctor. Patients love that level of connectivity. They have it in other things that they do, and they're going to expect everyone else in health care to follow Kaiser Permanente's path. So CFOs should be thinking about both the investments required and the cash-flow implications of doing that.

The future is connectivity, and CFOs would benefit hugely from having a sense of what that looks like and what patients are thinking about the implications of it.


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about George C. Halvorson  

George C. Halvorson was named chairman and CEO of Kaiser Permanente, headquartered in Oakland, Calif., in March 2002. He has won several awards for his commitment to health technology and for his leadership and achievements in advancing healthcare quality. The development, implementation, and maintenance of Kaiser Permanente's IT infrastructure represent a multibillion dollar strategic investment that provides comprehensive care coordination and continually improving quality of care and service to members.

Halvorson is the author of five comprehensive books on the U.S. healthcare system, including Health Care Will Not Reform Itself: A User's Guide to Refocusing and Reforming American Health Care.

Prior to joining Kaiser Permanente, Halvorson was president and CEO of HealthPartners, headquartered in Minneapolis. With more than 30 years of healthcare management experience, he has also held several senior management positions with Blue Cross and Blue Shield of Minnesota, and Health Accord International.


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about Kaiser Permanente  

Kaiser Permanente, headquartered in Oakland, Calif., is the nation's largest not-for-profit health plan and hospital system, serving more than 8.8 million members and generating more than $45 billion in annual revenue. Kaiser Permanente comprises Kaiser Foundation Hospitals and their subsidiaries, Kaiser Foundation Health Plan, Inc., and the Permanente Medical Groups. The organization includes 36 hospitals, 533 medical offices, more than 15,800 physicians, and more than 167,170 employees. 

Publication Date: Tuesday, May 01, 2012

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