‘We are committed in every market that we are in’

ON THE EXCHANGES: “What I have clearly said from the beginning is that this market would have to be self-sustaining.”

By speaking out on issues such as race relations and mental health, Bernard Tyson, now in his third year as CEO of Kaiser Permanente, has emerged as the most influential healthcare leader in the U.S. after the president. The head of the $61 billion integrated delivery system, whose 38 hospitals and 19,000 physicians serve nearly 11 million plan members in eight states and the District Columbia, recently sat down with Modern Healthcare Editor Merrill Goozner to discuss what’s going on in the Affordable Care Act insurance exchanges and other issues. This is an edited transcript.

Modern Healthcare: We are seeing major insurers pulling out or reducing their presence on the exchanges. What will Kaiser do in its markets, especially California?

Bernard Tyson: We are absolutely committed to this marketplace. We believe strongly that everybody should have coverage to have access to care. We call it the “front door of the American healthcare system.” And quite frankly, our mission requires us to figure it out, not to get out.

We are committed in every market that we are in. We are experiencing some of the turbulence that is going on in the marketplaces around the country. Overall, though, we continue to be cautiously optimistic and hopeful that we will continue to work through the regulatory issues, and the market will stabilize in the future.

There is no question that there is unfinished business about some of the regulations that are required to create stability in this market. That clearly was anticipated when the Affordable Care Act was rolled out, and it is real today. But, overall, we are still very much supportive and really want this to work for the American people.

MH: We are seeing a lot of price increases, even in the plans that are staying in the exchanges. What is driving that and what can be done about it?

Tyson: There isn’t one single thing that is driving it. It is a dynamic of a lot of things. When the Affordable Care Act was created, there was this thing called the Three Rs; and not to go into technical details, but that intention was, quite frankly, to create some stability of risk across all the populations so you end up with, in essence, a level playing field.

Some who had better risk were going to pay more into the pool and some who had higher risk would be able to withdraw more from the pool. That hasn’t been funded adequately for the distribution of the risk of that population. That still needs to be fixed.

Some of the insurers made business decisions— knowing the price and knowing the anticipated risk—that they were going to charge less. Underneath, that was to gain more market share. And then, as you gain more market share, it gave you a bigger pool to do certain things. The theory is that it will all work out in the end. That hasn’t happened. And so you now see major price increases to deal with that dilemma of a higher risk population costing more than what was anticipated. You have to get it back from somewhere. It plays out with higher prices to the market.

MH: How has Kaiser done on its individual exchange plan numbers?

Tyson: We made some critical decisions from day one. I will not forget that some of the reporting of our decision was not kind to us, because there was an assumption that we were going to absolutely be the lowest price in every market. What I have clearly said from the beginning is, No. 1, that this market would have to be selfsustaining and that is going to take some time to do; and, No. 2, that we were going to price to the cost and anticipated risk.

We will continue to work on affordability to drive cost down in the entire industry and across, quite frankly, all of our books of businesses inside of Kaiser

Permanente. That commitment was there from day one. What we have personally witnessed inside of Kaiser Permanente is some stability because of our pricing approach.

The state of California we believe has done a really good job where the state and the industry and the markets around California all worked together. We overall produce a value proposition in California. That said, we still are feeling the backlash of some of the issues and challenges that I described upfront.

MH: There are other challenges in the healthcare marketplace; the biggest one is the price of drugs. What are you doing about it?

Tyson: We are trying to approach it from several ways. The biggest one … is trying to work with the pharmaceutical industry to deal with what we consider to be a real crisis situation, in particular the pricing of specialty drugs, but also in generic drugs. The prices are continuously going up, and in some cases we are lacking the rationale of how these prices are being created except for “because they can.” That is a major problem for us.

We are trying to make sure that there is visibility to this challenge to create change. It is my hope that we will do it within the industry and with the pharmaceutical industry. At the same time, I don’t want to throw out the baby with the bath water, because what we are seeing now is innovation with drugs and therapy that is curing patients. And I do not want to suggest that there isn’t value added that is being produced within the pharmaceutical industry that is a direct contribution to the American people and the world.

MH: How do we make these innovations affordable?

Tyson: There are some examples of companies that are looking at different pricing strategies, who are looking at different approaches to innovation. I believe we may be at a stage that we have to rethink how we innovate and how we engage the industry earlier on in the research, in the studies, and funding. The pharmaceutical industry has said how expensive it is to do the research and to innovate. I think it is a golden opportunity for us to work together to rethink how to do that in the 21st century.

MH: You are linking up with Group Health Cooperative in Washington state. What’s behind that and what are some of the issues you have to confront in putting it together?

Tyson: We anticipate that we will complete that by the end of this year with the approval of the state regulatory body. It gives us a chance to grow in a new market. We need to grow the footprint of Kaiser Permanente, not for the sake of growing itself, but to continue to show the relevance of our model and to show it is, in fact, one of the major options for how to think about delivering high-quality care and access and affordability to individuals and populations.

The beauty about the Group Health situation is we are kindred spirits. Many of the things that Group Health is doing today we are doing as well in Kaiser Permanente and vice versa. We have had a long-term relationship with Group Health. It has been that way for almost 20 years. So it is a natural evolution for them and for us.

MH: They have always been known as a high quality, lean organization. Are there things that Kaiser Permanente can learn from Group Health?

Tyson: Oh, absolutely. We have learned things from them in our relationship before we got to this stage of the relationship, and we are going to continue to learn from them.

MH: Kaiser Permanente is a very large organization and very often labor/management troubles make the news. Yet whenever we talk about that issue, you are very high on the kind of cooperation that you get from your workforce. Tell us where you still have work that needs to be done.

Tyson: We have over 100,000 of our employees in what we call the Labor Management Partnership, where labor and management work together on a common agenda. That common agenda is the business proposition of Kaiser Permanente: high quality, affordability, making sure that our members are getting their needs met.

There is no question that it is paying back big time on behalf of our members around affordability. The fact that we have employees and managers and others thinking through what can we do to improve our cost structure, while also improving quality and improving services, is paying back big time.

In the midst of that, we still have the pressure points that we have to deal with: total compensation, benefits. Those kinds of challenges are still relevant in Kaiser Permanente like they are anywhere else. I think our employees know that we are not trying to cut them short. At the same time, we have to produce an affordable product and affordable care and services to millions of people. And it makes a big difference knowing that the unions and employees all understand that, and we are working to solve that, as opposed to denying that this is real and this is relevant.

MH: We are in an election year. Would you say that the thrust of healthcare policy that we have seen since passage of the Affordable Care Act both on the insurance side and on the delivery system reform side will continue no matter what happens politically this year?

Tyson: Yes, no question. I think no matter what happens, our population is still getting older, living longer. We are dealing with a lot of healthcare challenges in this country. We are dealing with the fact that the healthcare industry is occupying about 18% of GDP. Those are forces to be reckoned with. You cannot turn away from those realities.

No matter who is in office, no matter what side you are talking about, there are a common set of issues that we still have to work on. Our commitment at Kaiser Permanente is we will attempt to work with anyone toward the good of making healthcare more affordable, more available and of the highest quality possible for the American people.

ON THE ELECTION: “No matter what happens … we are dealing with a lot of healthcare challenges in this country.”