In 2012, Oregon Gov. John Kitzhaber, M.D., launched a major overhaul of the state's Medicaid program, reorganizing health plans and providers into 15 coordinated care organizations, or CCOs. Kitzhaber discusses his ambitious plan to reduce the growth of health care costs while improving care.

Interviewed by Haydn Bush


What led to the creation of coordinated care organizations?


Kitzhaber: Most of the national debate has been focused on how to expand coverage, but that still gives you access to the same dysfunctional delivery system.

Because we had propped up so much of our Medicaid budget with stimulus dollars, and that went away, we had a $2 billion hole that would have translated into about a 40 percent rate cut. We used it as an opportunity to bring people together to show them that the current system just wasn't sustainable.

We will receive almost $2 billion from the government over the next five years that will give us gradually declining revenue. We've committed to reduce the Medicaid trend rate. If we don't do that, these federal dollars go away. More importantly, we recognize that 20 percent of the population drives 70 or 80 percent of the cost.

The CCOs are trying to intensively identify and manage those patients. In Bend, they hired somebody to track the frequent fliers in the emergency department and they found that the vast majority had undiagnosed or untreated mental health conditions. They hooked them up with health coaches and it dramatically reduced ED visits, improved their health, and at a substantial cost savings.

I don't think it's rocket science. I think we know how to do it. The question is creating a delivery mechanism that actually does.


Do you think these efforts can tip the delivery system toward fee for value?


Kitzhaber: We have 600,000 Medicaid patients, and we have about 300,000 teachers and state employees. That's between 25 and 30 percent of all the covered lives in the state. We're going to save about $11 billion over the decade on the Medicaid side, and the savings for the teachers and public employees will be another $5 billion.

There will be a tendency to shift some of those costs over to the employer side. They are very well aware of that, so we're trying to get their purchasing power aligned with ours to move this beyond Medicaid.


Some critics have compared ACOs and other attempts at integration with HMOs. What's your response?


Kitzhaber: With HMOs, the accountants were in charge of managing the care. It wasn't focused on the Triple Aim, they didn't have quality metrics and there was no effort to integrate acute [care] with community health. We learned a lot from HMOs, but I think it was a fairly simplistic model that changed the payment method but funded the same delivery system.

What we're trying to do is change the business model, which for decades has been based on the assumption that the government and private employers will continue to underwrite the medical inflation rate that is much higher than the Consumer Price Index. The quicker we design a business model that can keep the medical system afloat at a lower cost and higher value, the easier it is going to be to make this transition.


Some people might view that as capitation.


Kitzhaber: It is capitation. There is no question about it. There is an educational process involved. Most of the unions understand that health care is eating up any wage increases that they might get. They also recognize that there is not a lot of value there.

A labor union friend of mine a few years ago was telling me his benefits were getting eroded and I asked, What does that look like?' He said, higher co-pays and more deductibles. I said, That's not your benefits, that's what you're paying for your benefits.'

We have to be a little more sophisticated and recognize that health care is not necessarily synonymous with health. If we can keep you and your congestive heart failure in your home rather than bouncing in and out of the hospital, that's a desirable outcome. If we can improve the health of the Medicaid population at a significantly reduced cost, that's very attractive to state workers and private workers as well.


What's the status of your health insurance exchanges?


Kitzhaber: This would have gone forward even if the ACA had been repealed. The only thing that wouldn't have happened would have been the [Medicaid] expansion. We started our exchange and put this process in place and got the waivers from the federal government last July. We should be way ahead of the curve and if we can prove this, I think we will weather the transition to a new delivery model much more smoothly than a lot of states. We passed the insurance exchange bill in 2011 with a big bipartisan majority, so it just never was a big divisive issue out here.


You worked as an ED physician for a long time. How does that inform your policy?


Kitzhaber: When I got elected in 1978 to the legislature, health care was not on my agenda. I probably couldn't have told you the difference between Medicare and Medicaid at the time. In 1986, when I was president of the Senate, we took some actions to reduce the hole in the Medicaid program. One of the actions involved dropping about 4,600 people from coverage. At the time, it was sort of an actuarial exercise. We took a couple of votes and looked at some numbers on a piece of paper and balanced the budget.

But unlike the other legislators, I was still practicing in the ED, and about six months later I saw a couple of the people who lost coverage with that decision. One I particularly remembered was a guy who stroked out because he was no longer able to access his blood pressure medication. I began to understand that the fiscal decisions we make have very real human consequences.

That's when we began to develop the Oregon Health Plan and a more rational way to allocate resources. As that progressed, it became very clear to me that the coverage really wasn't the issue. The real issue was what we were buying and how health care was organized and delivered. I think that having the experience as a primary care provider has been very beneficial in looking at public policy through that lens.


Governor from 1995 to 2003, 2011 to present; ED physician in Roseburg, Ore., from 1974-1988.

Reform pioneer
As a state senator, Kitzhaber helped draft the Oregon Health Plan in 1994.

Beyond health care
In his first stint as governor, Kitzhaber signed the Oregon Plan for Salmon and Watersheds.

In His Spare Time:
Fly-fishing and white-water rafting.

No Time For Paperbacks
"For the last month, I haven't been reading any books. I'm putting the state budget together. It's been, how do you balance a Department of Human Services budget and change investment policies in education and favor health care?"