Former Oregon Gov. Kitzhaber says state could be model to reform — not gut — Medicaid nationally

Before John Kitzhaber became Oregon governor for the first time, he practiced emergency medicine as an ER doctor.

He brought that knowledge of the health care system to bear in the late 80s and early 90s, with the enacting of the Oregon Health Plan, the state’s Medicaid program. In 2012, he oversaw the expansion of the program and the creation of Coordinated Care Organizations. Today, about 1.4 million Oregonians get their health care from OHP.

Kitzhaber says Oregon’s unique model delivers high quality but efficient care to more Oregonians — and that could be a national model as Congressional Republicans look to make federal spending cuts widely expected to affect Medicaid.

The former governor is among those advising Republican Rep. Cliff Bentz, who told “Think Out Loud” on Feb. 26 that he wants to “make the system still deliver the type of benefits that people need, while at the same time doing it better and in a way that saves money.”

Kitzhaber joins us to tell us more about his ideas for bipartisan solutions to prevent people from losing Medicaid coverage.

Note: The following transcript was transcribed digitally and validated for accuracy, readability and formatting by an OPB volunteer.

Dave Miller: This is Think Out Loud on OPB. I’m Dave Miller. No one in Oregon has had a bigger role in shaping the way Medicaid works in the state than former Governor John Kitzhaber. In the late 1980s, he was a chief architect of the Oregon Health Plan, the state’s reformulation of Medicaid. In 2012, he was the driving force behind another huge transformation – the creation of Coordinated Care Organizations, or CCOs, which became the way low income Oregonians get their health care.

Kitzhaber has been out of office for 10 years now, but he has never given up his focus on healthcare policy. He’s been paying a lot of attention in recent weeks to Congress, where Republicans are looking to trim upwards of $800 billion from Medicaid over the next 10 years.

John Kitzhaber joins me now to talk about all of this. Welcome back to Think Out Loud.

John Kitzhaber: Thanks for having me.

Miller: You’ve argued that we focus, broadly, too much on the means of healthcare change and not enough on the ends, meaning you’ve written that people might talk about pushing for a single payer system or market driven reforms, but they talk less about what they actually want the system to deliver to people, how it truly works. So I want to start there. What is your north star? I mean, what do you think the ideal or at least a better end point would be?

Kitzhaber: Well, I think the objective of the health care system ought to be health, right? And I think that primarily we view it as something to fund and deliver medical care. So I think knowing sort of where you want to end up does inform the debate. And I think most of us would probably agree that we want a healthcare system that’s affordable, accessible, that actually improves health outcomes when people need it, a system that doesn’t cost so much that we can’t make investments in those non-medical things that actually drive people into the acute care system. And then walk back from that. If you can get agreement on that, then what we tend to argue about politically is means to the end rather than the end itself.

Miller: You wrote something in a recent post on your blog that really caught my attention and really depressed me too. You wrote this: “If, today, we could successfully change those lifestyle choices and behaviors, which have such an effect on the modifiable contributors to the development of diabetes, heart disease and cancer, thus dramatically reducing the incidence of those conditions, many hospitals would have a difficult time meeting their operating margins under the current financial structure and incentives.”

What would a system look like that incentivizes populationwide health as opposed to the provision of health care?

Kitzhaber: Yeah, so I think you need to reward, you need to align the fiscal incentives with the outcomes that you want. So the fee-for-service medicine, which is what most hospitals and most doctors operate on, rewards you for doing more regardless of whether what you’re doing actually is connected to a health outcome. If you operate under a global budget that is a fixed amount of money that grows at a predictable rate each year, then you have an incentive to actually invest in, let’s say, childhood obesity because you want to reduce the very costly consequences of diabetes downstream.

Miller: Are you talking right now broadly about the healthcare system, or about Medicare, Medicaid, the VA, say? Are you talking about the private system as well, when you’re suggesting this as a way to rethink American healthcare?

Kitzhaber: No, I think that what we did in 2012, the Coordinated Care Organizations, which are essentially local organizations that operate on a global budget that can grow at about 3.4% per member per year, and are required to maintain enrollment and benefits, and meet metrics around quality and outcomes. The idea originally was to prove that up in Medicaid and then move it into the private insurance market in the individual market and small group market, which I still think is a really important step. Both Medicaid and Medicare, and our employment-based system are simply unsustainable. They’re getting unaffordable for employers, for government and for individuals.

Miller: Why? What’s driving that cost increase? I looked at one stat that really caught my eye that basically said, over the last 25 years – this came from Physician’s Weekly – consumer costs for hospitals and nursing homes rose at about 88% over the course of 25 years, double the overall inflation rate. Why?

Kitzhaber: Well, I think that’s a complicated question. Obviously, we have an aging population which drives healthcare costs, higher incidence of chronic illnesses. But we spend almost nothing on primary prevention, whereas most of the OECD (Organization for Economic Co-operation and Development) nations actually spend quite a bit on the social determinants of health, less on health care and have better health outcomes. So it’s the payment incentives, it’s the fee-for-service system. It is basically the ability of pharmaceutical companies to set their own price, whatever the market will bear. There’s a lot of profit taking, big, publicly-traded insurance companies and private investors, equity investors that are siphoning money out of the system.

So it’s a system that really has no fiscal constraints on it, no fiscal discipline, the incentives are misaligned. And that’s why I think the idea of some kind of global budget that’s indexed to a sustainable growth rate, and is linked to quality and outcomes is the core for long-term cost containment.

Miller: How much is healthcare tied to our national economy or our labor force?

Kitzhaber: Healthcare, I think, is the largest sector for employment. I think that the biggest employer in the U.S. is the healthcare sector. So it’s huge. I mean, you can’t just pull the rug out from under it, you gotta have some kind of a transition. I’ll give you an example. Let’s say you’re a hospital and we are doing a really good job of keeping people with chronic illnesses out of the hospital. One approach, which I would call the old approach tied to the past, is to say, well, we’re going to have to lay off a lot of workers, we’re gonna have to shut down some wings of the hospital. The other approach would be, how can we retrain some of our workforce to be community health workers to reduce the need or to take care of the elderly, and how can we repurpose some of our hospital physical capacity to meet other community needs? And it’s just this, I think, sort of mindless focus on getting bigger. And as I said, there’s really no fiscal constraints and the primary source of funding has become the public sector.

Miller: What you just described there in terms of the transition for how to go from where we are now to where you think we should be, it seems like the opposite of the way the current administration has been pursuing their version of change, which is much more slash and burn, break things, see what we care about that has broken and see if we care about rebuilding it. What you’re talking about is I guess a more methodical approach to a massive change to a massive industry.

Kitzhaber: Yeah, well, so before we get to the feds, I think if you look at what we did in Oregon in 2012, we signed an agreement with the federal government that we would reduce the cost trend two percentage points from medical inflation by the second year of the waiver. But we had a period to phase that in and the feds gave us a $1.9 billion one-time loan essentially. As that money went down over the five years, the cost savings came in. So there was a transition period, which you’re going to have to have.

Miller: What are the jobs that you think we have too many of right now? You mentioned community health workers as a kind of job that you think we should have more of. So what do we need fewer of?

Kitzhaber: Well, again, this is going to take a transition. Obviously, if you could begin to address the root causes of chronic illness very, very young, if you could reduce unnecessary hospitalizations, if you could address the non-medical factors that drive people into the acute care system, you wouldn’t need as many acute care nurses, you wouldn’t probably need as many specialists, for example. We do need more community health workers, certainly. But I think to get from here to there is going to take a thoughtful transition, and it has to start with your original question, where do we want to end up? What does that system look like? And then let’s walk back and ask how we get there.

Miller. There are still a bunch of questions about what form those Medicaid cuts might take, but what do you think right now is looking most likely?

Kitzhaber: Well, I think that certainly I disagree with this cut-and-burn approach. I talked to Congressman Bentz, who’s on the House Energy and Commerce Committee, which is the relevant committee that’s going to have to look for those cuts. He told me a couple of things: (a) nothing’s been decided and (b) they have a very broad jurisdiction, so some of those cuts are going to come from something else, but clearly something is gonna happen in the Medicaid program.

Miller: The math doesn’t work out. You can’t get that kind of savings unless, it seems, something comes from Medicaid because of that. That House committee just doesn’t have jurisdiction over anywhere close to the amount of other funds that would get you that kind of savings.

Kitzhaber: I think that’s correct. And the uncertainty is very distressing for the some 1.4 million Oregonians, 80 million Americans who rely on this program. I think the Democratic response has been very loud and focused, no cuts to Medicaid period. I think that’s not only the wrong response, but I think it misses a huge opportunity that’s presented at this moment in time. And look at our public institutions as an old house that we’ve lived in for decades and the American people that are the folks who lived in that house. When we built it, it made sense. But over the years, the needs of the family have changed, but the structure of the house hasn’t – the windows are leaky, the roof needs to be replaced. At some point, you can’t afford to maintain the house, you have to redesign it to meet the real needs. I think that’s our healthcare system.

I think about what I’ve been proposing and discussing with the congressman is using Oregon’s CCO model as a way to transform the Medicaid system nationally. So first and foremost, we want to make sure that we can continue to operate our budget as we have it today in our CCO program. We’ve saved the federal government almost $4 billion over the last 10 years. And then give other states the opportunity, if they want to move down that path, to adopt the key principles of our plan, which is (a) a global budget that’s growing at a rate below medical inflation. Secondly, requirements, you can’t cut enrollment, you can’t cut benefits, and you have to meet metrics around quality and outcomes.

Miller: Maybe I heard you correctly that this would be optional, but are you saying that you want to give states the option to adopt something like the CCO model that that Oregon’s had for 13 years now, or to say this is the way Medicaid is going to work?

Kitzhaber: Well, I think there’s a pathway here to transform Medicaid to significantly reduce the cost without sacrificing quality or access for the people who depend upon it. You can look at the $4 billion we saved as cutting Medicaid, or you could look at it as I do, as making the program more efficient and more responsive to the needs of people who depend on it.

Miller: When you look at the per capita Medicaid spending by state, only six states spent more per person than Oregon did. That was in 2022, the most recent year I could find data for. So if the rest of the country followed our lead, how would that not lead to an increase in total system costs?

Kitzhaber: Because the difference between Oregon and these other states is the amount of money we get each year from the federal government to match our general fund dollars grows at 3.4% per member, per year. It’s a fixed-growth rate, right? And we have to operate within that growth rate. The other states, I think, respond to costs in the Medicaid program by cutting benefits, by disenrolling people or reducing the number of people covered, so the statistics are a little misleading. Also, we have very high penetration. We have very high enrollment, very low uninsured rates in Oregon. A lot of these other states don’t cover that many Medicaid individuals or they have skinnier benefits.

Miller: But this is a per capita … this is not about total spending. This is saying that Oregon spends more per person on Medicaid than most other states.

Kitzhaber: But it grows at a slower rate.

Miller: So you’re saying that even if now we’re spending more, if these reforms were put into place in the coming 10 or 20 years, overall, the system would save money because of the cap?

Kitzhaber: Yeah, it’s not a hard cap. It’s not a block grant, right? It is a cap that grows with enrollment.

Miller: But the idea is that it would be a slower increase …

Kitzhaber: A slower increase. And actually, the cost savings that we’ve had in Oregon over the last decade have not been what we pay doctors and hospitals. It’s been the trend. If you reduce the trend a few percentage points, that delta grows dramatically over time. Actually, ECOnorthwest did a study in 2018 on what would happen if the nation adopted a very similar program and received sort of cost savings of the same magnitude as Oregon. And the 10-year budget reduction is about $700 billion.

Miller: What do you see as the biggest political challenge in making your proposal a reality?

Kitzhaber: I think there’s two. I think one of them is on the Democratic side of the aisle. I think this attitude that no cuts to Medicaid period is politically not very smart. I mean, the last three election cycles, the Democrats have insisted that all our public institutions are working just fine, which doesn’t match up with the reality of millions of Americans who are working hard and can’t make ends meet. So essentially for them, the government and our public institutions aren’t working. This is an opportunity for us to say, let’s defend the need for our public institutions – in this case, a healthcare program for vulnerable Americans – but let’s make it work. Let’s make it efficient. Let’s not continue to spend dollars on things that don’t produce health and simply line the pockets of big corporate interests.

Miller: OK, so that’s the Democratic side. What about on the Republican side?

Kitzhaber: The Republican side, I question the motives of at least the president’s desire to cut these things. I don’t think there’s a lot of compassion there or understanding of the fact that these are hardworking people, who are working one or two jobs and just can’t get by. Healthcare, to me, particularly in rural Oregon, is a key ladder to economic self-sufficiency. It’s part of the infrastructure of upward mobility. I’m not sure they understand that.

I’ve been working closely with Congressman Bentz who has introduced this notion to the Committee on Energy and Commerce. Obviously, I don’t know what’s going to happen. But the question on the Republican side is whether they’re interested in just slashing, burning and cutting a program that is incredibly important to 80 million people, most of them kids in this country, or whether they’re actually interested in getting legitimate efficiencies without damaging this incredible infrastructure that’s so important to health.

Miller: One of the questions that is looming in a lot of this, in terms of the future of Medicaid and the shape of it, is who should be included? And there are many more people on Medicaid rolls. First, this was in largely blue states and then red states started getting on as well as a part of the huge Affordable Care Act. Medicaid expansion, meaning people who had higher incomes were now able to get healthcare insurance through Medicaid. Do you think that the right people right now, broadly, are on Medicaid rolls?

Kitzhaber: Yeah, I do. I mean, I think what the ACA did is it allowed people who were making less than 400% of the federal poverty level, which isn’t a lot in this economy, the opportunity to have access to medical care. And I think before that, these people accessed the system when they were really sick through the emergency department. They don’t just disappear, right? They show up in an incredibly expensive care setting, so the cost goes up, not down. And these people are our friends and our neighbors. They’re, most of them, hard-working folks and this is an incredibly important step for them to move up the income ladder.

Miller: You mentioned this in passing, but I want to come back to it because it’s an important point. One of the cost-saving mechanisms that I’ve seen Republicans talk about recently and for a while is is block grants to states. What would that mean?

Kitzhaber: Well, the classic block grant is they give you a fixed amount of money. Period. And if the number of people in your Medicaid system goes up, then you’ve got to either drop some of them off or you have to cut benefits. I mean, if you think about it, there’s only three variables, three ways you can … well, there’s four ways. The three classic ways to manage cost in any health care programs are to reduce benefits, reduce enrollment or reduce what you pay providers. What we’re trying to do in Oregon is the fourth path, which is to reduce the total cost of care itself, while maintaining access, while maintaining benefits, while maintaining quality.

I think we’ve got a lot that Congress can take from the state, not the least of which is that the bill that created the CCOs passed the House 57 to 1, at a time when it was evenly divided between Republicans and Democrats. In the Senate, 24 to 7. I mean, it doesn’t have to be an ugly partisan battle. We all need health care, no matter who we are, no matter where we live. Let’s work together to make it affordable and to make it effective.

Miller: Before we say goodbye, I want to ask you about COVID-19. We just passed the five-year anniversary of the World Health Organization’s declaration of a global pandemic. The anniversary of the shutdown, the public life shutdown in Oregon is about a week away. What’s been on your mind as these anniversaries are coming?

Kitzhaber: Well, I guess my quick take is I don’t think we’ve learned very much. The healthcare system, which was really ravaged by loss in volume and there were elective surgeries dropped, a lot of hospitals couldn’t couldn’t manage that. So the healthcare system’s gone right back to where it was pre-pandemic. And I think, as a nation, we have not doubled down or reinvested in public health and done the steps necessary to prevent the same kind of outcome if or when the next pandemic occurs. We can do better.

Miller: John Kitzhaber, thanks very much.

Kitzhaber: Thank you, Dave.

Miller: That is John Kitzhaber who was elected Oregon governor a record four times, joining us to talk about Medicaid and the future of healthcare in this country.

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