CALPACT Lecture: Leadership and Management with Leonard Schaeffer

The David Brower Center
2150 Allston Way
Berkeley, CA 94704
Leadership and Management: Implications for the
Future of Health Care Reform
Leonard D. Schaeffer
Judge Robert Maclay Widney
Chair and Professor,
University of Southern California
March 17, 2014
Innovative Leaders Speaker Series Sponsored by
CALPACT and UC Berkeley Center for Health Leadership

2 LDS 2014 All Rights Reserved
Agenda
Leadership vs. Management
§  Introduction
§  Institutional Response to Change
§  A Typology of Leadership
§  Implications for Future Health Reform
§  Conclusion

Government
Not-for-
Profit
Academic
•  HCFA Administrator, HHS
•  Asst. Sec. Management and Budget, HHS
•  Director, Illinois Bureau of the Budget
•  Deputy Director, Illinois Dept. of Mental Health
For-Profit
Introduction
•  CEO, Blue Cross of California
•  CEO, Group Health of Minnesota
•  Chairman & CEO, WellPoint
•  COO, Sallie Mae
•  VP, Citibank
•  Schaeffer Center For Health Policy & Economics
•  Harvard Medical School Board of Fellows
•  RAND, Brookings, & USC Boards of Trustees
•  Institute of Medicine, Member

Agenda
§  Conclusion

Institutional Response to Change
Large Institutions Resist Change
§  Most large labor-intensive
organizations institutionalize a
preferred way of doing things
§  And then they resist any changes to
that process
§  Most organizations repeat past
behavior until they die or are reinvented

However, Change is the Only Constant
To
survive
and
prosper,
organiza1ons
must

reinvent
themselves
consistent
with
the

changing
environment

Poli1cs

Public

Policy

Science
&

Technology

Demo-‐

graphics

&
Culture

Economy

Success Over Time Requires Effective Change
The future belongs to those organizations
where:
1.  Leaders stimulate change that is
consistent with – or benefits from –
environmental change
2.  Managers implement

Organizational Efficiency – A Digression
§ There are few completely efficient human
interactions
–  There are some efficient chemical reactions
–  But, all human systems are inefficient
§ The larger the organization, the more inefficient
(and more insensitive to external changes) it
becomes

Agenda
§  Conclusion

A Typology of Leadership
Individual Contributors
Conceptualizers
Analysts
Administrators
Managers
Leaders
Symbolic Leaders

Individual Contributors
§  Do their own work
–  Most people in most organizations
§  Professionals are a particular subset
–  E.g., Lawyers, physicians, professors trained to focus on a
transaction between themselves and client/patient/class
§  Identify with their profession, not the organization
§  Accountable to "professional standards" (self defined);
not responsible for organizational results
§  Attempts to improve organizational effectiveness/
efficiency seen as interference in the transaction and
therefore reduces “quality”

Conceptualizers
§  Generate or communicate ideas that
influence the behavior of others
Analysts
§  Evaluate pros/cons of alternative
courses of action and recommend
which course to pursue

§  Provide “oversight”
i.e., watch others do
work
§  Stove top model
Administrators
LDS 2012 All Rights Reserved

Managers
§ Effective managers change the physical reality
of how the organization operates to achieve
pre-established goals
§ Managers develop specific strategies to
achieve goals and monitor the process of
implementing them through plans and budgets
§ The organization operates consistent with the
values displayed in managers’ behaviors

§  Med schools seek to produce “thought leaders”,
not organization leaders or managers
§  Through research or experience, develop new
insights or therapeutic approaches that are
described in papers or shared at professional
meetings
§  When other similar professionals adopt those
insights or approaches, the initiator is
considered a thought leader
§  Impact seen throughout profession, not just one
organization
A Digression ―Thought Leaders

Leaders
§ Leaders have a vision of the future that is so
compelling and communicated so persuasively
that others take action to achieve this vision
§ Leaders:
–  Articulate their vision of the future
–  Define the mission of their organization
–  Establish clear, time-specific, quantifiable
goals
–  Inspire others to achieve their goals

Leaders, continued
§ Successful leaders carefully communicate
their vision and provide specific guidance as to
who is responsible for achieving specific goals
– They tell people what they are supposed to achieve
but usually let them figure out how to do it
– They explain their organization to the world and
the world to their organization1
§ “Hands on” leadership is management
§ Leaders are necessary when it’s too big
to manage
1See The Wall Street Journal, How to Fail in Business, January 11, 2013

“We
choose
to
go
to
the
moon…

because
that
goal
will
serve
to

organize
and
measure
the
best
of

our
energies
and
skills,
because

that
challenge
is
one
that
we
are

willing
to
accept,
one
we
are

unwilling
to
postpone,
and
one

which
we
intend
to
win…
”

September
12,
1962,
Rice
University
(Houston)

John F. Kennedy
Leader:

Symbolic Leaders
§ Symbolic leaders inspire and motivate others
to act not by giving specific orders, but by
embodying certain traits or calling for a desired
state
§ Symbolic leaders are necessary when the
challenge seems overwhelming or the solution
is too complicated to articulate

“This
is
preeminently
the
1me

to
speak
the
truth…
This
great

Na1on
will
endure
as
it
has

endured,
will
revive
and
will

prosper.
So,
ﬁrst
of
all,
let
me

assert…
the
only
thing
we
have

to
fear
is
fear
itself…
”

March
4,
1933,
First
Inaugural
Address

Franklin Delano Roosevelt
Symbolic Leader:

“We
shall
not
flag
or
fail...

We
shall
fight
on
the

beaches,
we
shall
fight
on

the
landing
grounds,
we

shall
fight
in
the
fields
and

in
the
streets,
we
shall

fight
in
the
hills;
we
shall

never
surrender…
”

June
4,
1940,
speech
delivered
to
the
House
of
Commons

of
the
Parliament
of
the
United
Kingdom

Winston Churchill
Symbolic Leader:

“I
intend
to
set
up
a
thousand-‐year
Reich
and

anyone
who
supports

me
in
this
bale
is
a

fellow-‐ﬁghter
for
a
unique
spiritual
—
I
would

say
divine
—
crea1on…
”

Adolph Hitler
Quoted
by
Richard
Brei1ng
in
Secret
Conversa1ons
with
Hitler:

The
Two
Newly-‐Discovered
1931
Interviews,
p.
68
(1971)

Leadership is Substance-Free

Agenda
§  Conclusion

Implications for Future Health Reform
§  The Problem of Health Care Costs
§  ACA: What’s Supposed to Happen
§  New Leadership Requirements
§  Conclusion

The Problem of Health Care Costs
What We Believed
§  U.S. = Highest Quality
§  ∴ High Cost O.K.
§  Limited Access = Market
Economy
What We Know
§  U.S. = Uneven Quality
§  = Highest Cost By Far
§  High Cost + Bad Economy
= Access
AccessCost
Quality
Trade-
offs

Total U.S. Health Expenditure as % of GDP (Public & Private)
Source: Data from the Centers for Medicare and Medicaid Services, National Health Expenditures, January 2012; and the
Congressional Budget Office, The 2013 Long-Term Budget Outlook, September 2013. Compiled by PGPF. NOTE: CMS data used for
years 1960-2020. The 2038 figure reflects the latest projection from CBO.
Long-Term: Rising Health Care Costs
Significant Threat To Economy
Actual Projected
Percentage of GDP

Federal Health Spending Drives Deficit
Source: CBO, The Budget and Economic Outlook: 2014 to 2024
Source for 2038: CBO, The 2013 Long-term Budget Outlook, Baseline Assumptions, September 2013; Major
Health Programs includes: Medicare, Medicaid, CHIP and exchange subsidies

Consequences of Mounting Federal Debt
§  Crowding Out Investment Lower Output & Income
–  A growing portion of people’s savings would be diverted to purchase
gov’t debt rather than toward investment in productive capital goods
§  Higher Interest Payments Higher Taxes & Lower Output & Income
–  Gov’t may be forced to raise marginal tax rates and/or reduce
spending on other programs to meet interest payments
Sources: Congressional Budget Office, Federal Debt and the Risk of a Fiscal Crisis, July, 2010;
USA, Inc., Consequences of Inaction, February, 2011
§  Reduced Ability to Borrow Less Policy Flexibility
–  During economic downturns or international
crises, gov’t may not be able to raise substantially
more debt
§  Increased Chance of Sudden Fiscal Crisis
–  Investors may lose confidence in gov’t’s ability to
repay debt & interest without causing inflation

–  OOP premium payment ↑ after 2018 to slow subsidy growth
–  “Cadillac” tax on $$ plans effective 2018 & indexed to CPI in 2020
ü  Critical policy changes implemented
–  IPAB able to achieve “GDP + 1%”
ü  Federal & state regulators successfully
implement HIXs, optional Medicaid exp.
ü  Medicare ACOs & demos successful & expanded rapidly
ü  Individuals & small biz get affordable insurance
Complex Implementation:
Everything Must Go Right
ACA: What’s Supposed to Happen Per Legislation

Reform Will Unfold Incrementally
2010 / 2011 2014
§ Insurance Reform / Some
Expansion Begins
Ø  Children / high risk
Ø  Preventive care coverage
Ø  MLR requirements
2012
Ø  Individual Mandate
Ø  Employer Mandate (delayed)
Ø  State / Fed insurance exchanges
Ø  Insurance Subsidies
Ø  Optional Medicaid expansion
References: Kaiser Family Foundation , Focus on Health Reform, March 31, 2010; Commonwealth
Fund, Timeline for Health Care Reform Implementation, April 1, 2010; Supplement to Columbia
Journalism Review, May/June 2010
§ Major Coverage Expansion
Begins
§  Begin Closing Medicare “donut hole”
§ Patient-Centered Outcomes
Research Institute (PCORI)
§  Hospital Value
Purchasing
Program
§  $11 billion for community clinics § Independent Medicare
Payment Advisory Board
(IPAB)
§ New Insurance Market Rules
§ CMS Innovation Ctr tests
new payment methods

Reform Financed by Taxes, Fees &
Medicare Cuts
§  Medicare
FFS rates
reduced
§  Medicare
Advantage
rates
§  M & M DSH
payments
2010 2013 2014
2015-
2017
2018
§  Medicare
tax rate
§  Medicare tax
on investment
income
§  Employer Part
D Rx coverage
deduction
eliminated
§  Floor on
itemized med.
expenses
§  New fees
on medical
device cos.
§  New “Cadillac”
tax on $$
health plans
§  Tanning
Tax
20122011
§  Penalty
Payments/
Individuals
§  Higher HSA
penalty for
non-qualified
expenses
§  New fees on
pharma (Rx)
industry
§  New fees on
insurance
industry
New Revenue: $515 B / Fed Health Program Cuts: $716 B
Note: Chart represents major taxes, fees and changes in federal health program outlays
§  Major
Coverage
Expansion
Begins
(14 new tax increases)
References for revenue and cuts: CBO, “Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the
Recent Supreme Court Decision,” July 2012, and KHN, FAQ: Obama vs. Ryan on Controlling Federal Medicare Spending, Aug. 29, 2012
§  Penalty
Payments/
Employers

New ModelOld Model
ACA & Fiscal Pressures Demand New Models
& Accountability for Cost & Quality
Payment systems
reward volume
Limited focus on
efficiency and patient -
centered care
Pay for services
rendered; limited
alignment with quality
Payment systems
reward outcomes and
population health
Lower cost while
improving patient
experience
Pay for safe, evidence-
based care; reward
quality
Providers control
demand
Benefit design,
treatment protocols &
transparency to
manage demand

§  Physicians & institutions optimized own situation;
thus suboptimizing the “system” as a whole
§  As the physicians’ workbench, hospitals
optimized physicians’ convenience, while
physicians:
–  Performed as “individual contributors” not leaders or managers
–  Defended their autonomy and avoided accountability for system
effectiveness
§  A fragmented, “cottage industry” resulted focused
on individual intervention, not population health
Different Roles Required in
Large Organizations and Systems
Old Era: No Accountability for Results

New Roles Required to Transform
Health Care System & Reduce Costs
New Era: Achieving System Goals
§  The health care system faces significant risk,
regulatory uncertainty, ongoing environmental
change, and the demands of new delivery models
§  Transformation to a high-value health care
system requires:
–  Leaders who can establish a vision and motivate others to
–  Managers who can implement strategies to achieve those goals
–  Analysts who can evaluate and recommend effective tactics
achieve goals in large organizations and systems

§ Delivery of health care moving to large organizations and
health systems designed to be accountable for results
§ Payment methods also shifting from volume to value-based
care that require performance measurement and reporting
§ To succeed in this new health economy, participants must
adopt new roles as leaders, managers, and analysts
As stakeholders and as citizens, we must
significantly transform the American health
care system
Conclusion

Shape the Future

Who Should Lead / Manage
Delivery of Care?
§  Primary Care Physicians
§  IPAs
§  PMOs
§  ACOs (Accountable Care Organizations)
§  Specialty Societies
§  Peer Review Organizations

Who Should Lead / Manage
The Health Care System?
§  Government Body
–  HHS / CMS / FDA
–  State-level regulators
–  Independent Payment Advisory Board (Medicare IPAB)
–  “Federal Reserve” H.C. Board
§  Health Insurance Exchanges
§  Health Insurance Companies
§  Hospital-Physician Networks
§  “The Market”

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CALPACT Lecture: Leadership and Management with Leonard Schaeffer