John Kitzhaber's big bet to save American health care

Kari Chisholm

In June 2010, President Obama signed the big health care reform law. That November, Oregonians decided to put the state back in the hands of John Kitzhaber - an emergency room doctor and world-renowned health care policy pro.

Kitzhaber was clearly a guy who had spent eight years thinking about all the big things he would do if he had another stint in Mahonia Hall. The Washington Post's Sarah Kliff tells the story of his big bet on health care - and explains clearly what's actually happening here:

In 2011, Oregon Gov. John Kitzhaber faced a vexing problem: The state had a $2 billion hole in its Medicaid budget and no good way to fill it. He could cut doctors’ pay by 40 percent, but that might lead to them quitting Medicaid altogether. He could drop patients or benefits, but that would only compound costs in the long run. ...

The deal Kitzhaber struck was this: The Obama administration would give the state $1.9 billion over five years, enough to patch the budget hole. The catch: To secure that, Oregon’s Medicaid program must grow at a rate that is 2 percent slower than the rest of the country, ultimately generating $11 billion savings over the next decade. If it fails, those federal dollars disappear.

Oregon is pursuing the Holy Grail in health-care policy: slower cost growth. If it succeeds, it could set a course for the rest of the country at a pivotal moment for the Affordable Care Act.

Oregon was going to cut costs without cutting patient care. In fact, Oregon was going to cut costs while improving patient care. It started with an experiment in Bend:

[A] small experiment in Oregon last year gave the state clues about a better way to reduce health spending. It took place at St. Charles Hospital in Bend, a mountain town known for its snowboarding, white-water rafting and microbreweries. St. Charles noted that 144 patients tended to use the emergency room the most. Taken together, they averaged 14.25 trips each over 12 months. These patients drove much of the area’s Medicaid spending. ...

Where health-care services tended to be siloed, providers in Bend decided to integrate. It stationed community health workers in emergency rooms, who could help assess why patients had turned up. ... Emergency department visits fell by 49 percent. On average, the program generated about $3,000 in savings per patient.

And then it moved statewide, but with added flexibility:

Oregon divided the state into 15 region and gave each one a set amount to care for each patient. These regions can divvy their dollars however they please, so long as patients hit certain quality metrics, like ensuring that adolescents get well-care visits and that steps are taken to control high blood pressure.

The goal of these "global budgets" is to shift from paying the health care system to care for sick people to paying the system to make sure that people are healthy. It creates an incentive to do whatever it takes to keep people heealthy and out of the system, rather than paying doctors to perform procedures.

Of course, that means some dislocation within the system:

[Providence Health] providers, for example, started a program to reduce elective Caesarean-section births before 39 weeks, which can lead to costly medical complications. Fewer babies ended up in neonatal care and, suddenly, a smaller neonatal staff was needed.

Fewer babies in the NICU is, of course, a very good thing - even if it means needing fewer NICU nurses.

And just as Oregon was running an experiment in Bend, the United States is running an experiment in Oregon:

Kitzhaber estimates that, if every state cut its Medicaid costs as Oregon plans to, the federal government would save $1.5 trillion.

It may not be as easy to understand as the Bottle Bill or public beaches, but once again, Oregon is leading the way for the rest of the country.

By Kari Chisholm Jan. 18, 2013