Future Now
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Ken Shachmut: Senor Vice President, Strategic Initiatives, Safeway Inc. EVP Safeway Health
HC2020 Interview Summary
Interviewer: Andrea Bloom Date: March 17, 2009
Ken Shachmut: Senor Vice President, Strategic Initiatives, Safeway Inc.
Executive Vice President Safeway Health
1. His work
In 2005 Ken was asked by Steve Burd to form a committee to focus on health care to see how Safeway could continue to provide high quality health care to employees given that Health Care costs were increasing at double digit rates.
• Safeway spent $1 billion on health care
• It was increasing 10%/year, $100 million per year
• Not a sustainable scenario – had to do something about it
• Formed a task force with all the relevant participants: head of pharmacy organization, worker’s comp, labor relations, human resources, benefits and some people on Ken’s strategy team
i. Initiated Consumer directed health care which Safeway renamed market-based health care. In U.S. today, we really don’t have a market-based health care system. Health care today is not like buying an automobile, we are not motivated to make a choice consistent with our means.
ii. Safeway 3 major findings:
1. 70% of health care is behavior related
2. ¾ of health care is constituted in 4 disease states: Cardiovascular, diabetes, cancer, obesity related complications
3. Obesity is 27% of total health care costs
As a result of all of this Safeway has redefined behavior as Health Care currency. Premiums are adjusted for behavior, additionally there is a host of holistic benefits that Safeway offers (gym, deeply discounted memberships at 24 hour fitness, informed lectures about health issues, etc.), raise money in Safeway stores for Breast cancer, prostate cancer, Easter Seals, Muscular Distrophy – total exceeds $200 million
Health care is a big deal for Safeway and the health of our employees is important to Safeway. Firm conclusion – only way to have a hope of lowering costs is to have a healthier population. The current system is not working, people are not doing what they are supposed to do, and providers are paid for the services they provide rather than for the results they achieve. Transparent information on cost and quality does not exist. Safeway is doing what it can like having differentiated premiums based on behavior, but there needs to be more from the outside. Safeway is part of helping the nation to get to the same set of insights to reform health care.
Organized a group called the Coalition to Advance Health Care Reform which Safeway CEO chairs, 63 corporate members, advocacy group to try to promulgate the core principles of market-based health care.
TRENDS/CHALLENGES
2. How optimistic about future of health/healthcare in 2020?
Relatively optimistic for 2 reasons
• Need for health care reform has been around for a long time, tried with the Clinton Administration. Approach that was taken offended so many constituencies. The situation has really changed and now we are about to go over the cliff, there is a growing belief and consensus that the bubble with burst if we don’t do something about it. Recognition that this is not sustainable. US spends 17% of GDP on Health Care, 2 times that of European countries. We are on the way to 20-25% and at a tipping point where the US becomes uncompetitive globally
• “Perfect Storm” politically, goes for about 20 months until the next mid-term election take place, non-filibusterable Senate, democratic majority in the House, Democratic President, can forge a consensus. Obama understands the 20 month deadline so there is urgent need to take action
3-4. Biggest trends or challenges & responses
Trend 1: Negative – the stresses and strains under which our current system operates is unsustainable – must be changed, more and more companies will shed and shift costs, more uninsured, more and more uncompensated care, cost shifting will continue. On NPR, Fresh Air, March 11, 2009 Dr. Uwe Reinhardt (Princeton) was interviewed on the “Hidden Costs of Health Care” stated that no one challenges that the emergency room should not provide care, but we don’t share the view that people must have health insurance – these 2 points of view are in diametric opposition to each other. We ought to demand that people have health insurance.
As part of Safeway’s work, working with CIGNA, Ken posed the following question: “if there was a mandate in CA that everyone was insured, assume selling to individuals, assume same plan as Safeway’s plan, people were subsidized who could not afford health insurance, no pre-existing conditions exclusions, what would the costs be?” Cigna reported that it actually would be lower by 10% than Safeway’s current plan. The patient pool would be so large – increase the revenue pool, people could get preventive care, not show-up at the emergency room. Was a big Aha moment, the critical nature of everyone having to be in the system. Need to find a way to subsidize people who can’t afford insurance. Need to have subsidies – all this can work out. This is part of what needs to change.
Trend 2: Whole notion of consumerism, personal responsibility and accountability for behavior. Look at the automobile industry – for example, auto insurance. Pristine driving behavior, $750, the one with 3 points pays $1500 per year. The bad driver can change behavior and earn the same lower rates. Safeway applies the same logic to health care, without putting people at disadvantage for genetics – that is the luck of the draw. A smoker pays more for health care than a non-smoker and pays the documented costs that are differentiated between the smoking and non-smoking group. Charging people more for bad health behaviors will motivate behavior change.
Cigna Employees, Cigna Choice Program is the best program, not the PPO or HMO. That Cigna Choice Program has the best options to help people make the best choices. This is an element of behavior. Additionally, all people take a health risk assessment which is a tool for understanding personal health and a platform for improving health.
In the future – All people must have auto insurance in CA, why not assert the same thing in health care. The logical counter point, you must be insured in health care, vs. treating uninsured people in the ER. It is foolish to go to the ER for routine health care. When an uninsured person comes to the doctor’s office – the doctor would have the power to enroll people in health insurance.
Story: single mother employee at Safeway, the mother regularly took her daughter to the ER given her time constraints. She learned that going to the ER visit burned through her HRA, now she was burdened with the cost, vs. Safeway. Now she has changed her behavior to figure out how to go to doctor for regular visits and only use the ER for real emergency visits. Have to have the system in place for people to make smart decisions for every health care decision. This is how capitalism works and market forces are crucial to that.
This is working for Safeway – first year, went down 13%, now in 2009, have costs at the same level of 2005. Each year try to improve it, add more to it. Everything accomplished over 4 years adds to a total of 31% savings. Speculate on what that would mean for the nation, $1.8 trillion, $551 billion dollars savings, could insure everyone and even have money left over. 16,000-17,000 Safeway employees in this market-based program and it is a good sample of the US population in general. People are naturally able to take control of their own health concerns when market forces are injected into the system.
Shifts and Trends
• Universal coverage, does not mean a single payer system
• Behavior matters – linked to personal incentives (financial), for low-income people who have subsidies, can still have incentives like a rebate – differentiated rebate or subsidy based on behavior
• Must have transparency on access, cost, and choice
o E.g. in this geography, a routine colonscopy (look, see, confirm no cancer) price ranges from $700-$6,500. When the patient has to pay for part of the procedure, then they would shop around, when the company pays for the procedure in total, then the patient does not look at cost. Safeway now says, will pay the cost up to $1,500, provide the information on where employees can get a colonoscopy. Safeway is imposing a certain transparency and imposing consequences on the employees.
Drivers of responses
o Safeway is one of the drivers, breaking new ground – doing all the things necessary to create widespread change in the system and it is making an impact. Safeway has been bold to make sweeping changes
o Safeway abandoned old HMOs and PPOs, went with Cigna Choice, in all geographies have Cigna Choice and one other option - Kaiser or Kaiser-like options. Kaiser is now neck in neck with Cigna Choice in terms of the cost. So Safeway was able to bring down its cost of Cigna Choice to the same levels of Kaiser.
o New Joint Venture, Safeway Health, seeking to help other companies to achieve the same results on lowering health care costs
o Safeway CEO cares about Health Care issues
o Other consulting firms that are helping to drive change
5. Have these trends surfaced before?
• Universal coverage has surfaced before.
• Behavior and requiring change in order to achieve wellness is new. This is a real shift, that there is personal responsibility in health. Safeway states, behavior is health care currency. The real return is that personal health improves. Do what is right for your health and the cost takes care of itself.
• Transparency is a new word in health care.
View is that we will see significant change in the next 20 months, and that as a result will see significant progress in 5 years, and 10 years.
6. Challenges/responses not on radar now?
o Rationing will result if changes are not made in the system to control costs
o More companies might try to cost shift, more uninsured people
o Will see the emergence of EMR
o Health information is owned by the person and the plan is portable
FUTURE SCENARIOS
7. Most preferable scenario
Natural evolution towards market-based care that government encourages
Incentives
Rational choices
Transparency
Government mandates coverage, pay or play
Greater awareness of virtues for market-based care
Signs of preferable scenario:
o When start seeing behavior, behavior modification more in the literature, will feel like we are getting traction.
o Raise the HIPPA limits of total value of healthy behaviors to more than 20% which is where it is currently set. If this increases will be a marker of improvement.
Disruptive events to hasten preferable Story:
o Economic meltdown
o 20 month window
Winners in preferable scenario
• Nation
• People taking responsibility, financial rewards
• Afford to cover uninsured
• Bring health care as % of GDP down
Losers – only those who propose a single payer system, but even these people would be satisfied given that there would be universal coverage. Goals are the same but consistent with American capitalism. Perhaps this will be better than a single payer system where health care rationing exists like in Canada or Europe. We may get to the point where we have health care rationing due to people’s behaviors: e.g. don’t do a hip replacement on an obese, 65 year old as that type of surgery would not pay off given the individual’s behavior.
Another question is end-of-life care and how to lower these costs. More hospice care, and less about extending life for another 2 months with significant costs.
8. Most plausible scenario
What is likely to happen, will try to create a public competitor to private systems. Public competitor will be priced below true costs and this will cause companies to abandon coverage. Do not feel this will not be good for the U.S.
9. Most negative scenario
Single payer system
• don’t get our arms around behavior change
• rationing (ineligible, or need to wait 2 years for a procedure)
• stifles innovation (medical procedures, drug and device development). We might have innovation but from government funded projects that don’t have a competitive element.
10. Wrap-up
Other people to speak with:
Arnold Milstein at Mercer
Ventana – company in the transparency space – CEO Geo Carel, health care entrepreneur, founded Relay Health sold to McKesson, done 3 other start-ups, successful MD and Economist
Jack Wennberg – Professor at Dartmouth Medical School, Dartmouth Atlas Project
Book/Articles:
Clayton Christensen, HBS professor: disruptive competition, book - Innovators Prescription, revitalize health care
McKinsey Global Institute Article on Health Care