When corporate executives, health care leaders, and policy makers discuss the challenge of curbing U.S. health care costs, the conversation invariably turns to the sickest 5% of the population, who consume 50% of health care spending. For a long time the hope has been that improving the efficiency and quality of their treatment would significantly reduce the $3.5 trillion that the United States lays out annually for health care. Over the past two decades this thinking has led employers, insurers, and health systems to embrace expensive disease-management programs that, operating in parallel with patients’ primary-care physicians, use registered nurses and social workers to monitor, coach, and provide services to many people in the top 5%. While these programs do increase the quality of their care, our health system, Kaiser Permanente (KP), and nearly all others have found that they do not reduce net costs.
To learn why, KP started looking at internal studies of utilization and detailed information on care given to its 4 million patients in Northern California, which had been captured by its electronic health record (EHR) system. KP’s clinical researchers made two discoveries. First, the makeup of the most expensive 5% is much more heterogeneous than has been appreciated. The group comprises three roughly equal segments of patients with very different medical needs: people with one or more chronic medical conditions that could be improved or kept under control; people who suffer a onetime catastrophic health problem; and people with severe chronic conditions who can’t be returned to good health and require expensive treatment continually. Second, the people in the first two segments of the top 5% change unpredictably from year to year. All this explains a lot about why disease-management programs haven’t delivered positive returns: They aren’t designed to address the heterogeneity and unpredictability.
In parallel, KP developed a new model for treating people with multiple but relatively manageable chronic diseases—focusing on both those who are currently in the top 5% and those who could end up there in the coming years if their medical problems worsen and their health deteriorates. We believe that addressing this entire group of patients presents the biggest opportunity for improving outcomes and increasing savings. Our approach uses technology and relatively inexpensive medical staff to provide expanded support to primary-care doctors so that they can oversee and address the chronic needs of patients directly instead of relying on largely independent disease-management programs.
To date, we’ve implemented it in California, Virginia, Maryland, and the District of Columbia, and we’ve found that it significantly reduces costs and improves the quality of care. Despite the investments required, the leveraged-primary-care model has increased KP’s operating margins, enabling it to offer nearly 5 million members of its network premiums that are 10% to 15% lower than its competitors’. The higher margins have also allowed KP to fund major capital investments (in excess of $1 billion a year), to fulfill its obligations to care for the under- and uninsured, and to finance training for the next generation of doctors. KP’s plans in Northern California and the mid-Atlantic region now consistently rank among the top five health plans in the nation for quality, and we believe the new model is one of the reasons why.
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