ACA Insider Interviewed: Bob Kocher

Robert A Harrington, MD; Bob Kocher, MD


March 26, 2015

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Dr Robert A Harrington: Hi, this is Bob Harrington on and Medscape Cardiology. We have had a series of discussions lately, largely focused on the world of cardiovascular medicine and science. Today, I thought I'd go back to a topic on which we've discussed in the past that has really generated a lot of interest in the cardiovascular community. That is where we're at with the Affordable Care Act (ACA), several years later after both its passage and then, ultimately, its implementation.

This is a topic that gets a variety of responses in the medical community, as we talk about the ACA and how it planned to increase access for uninsured Americans, how it asks healthcare systems to think about the healthcare providing value in terms of improved patient outcomes, as opposed to just providing a service. This has generated a variety of opinions in the community, depending on how people view that: meaning as either a good or a bad thing. Obviously, the politics of all this has been complicated, trying to keep our focus on what we, as medical professionals, are trying to do, which is to deliver excellent and optimal healthcare to our patients, vs how some of the politicians and policy makers have viewed healthcare, which is as a major societal resource and expense. You can understand, then, why there has been some tension in these conversations.

Today, I'm especially pleased to have a guest who can really provide us some insights into how the ACA was formulated, how it rolled out, and, from the position of a former insider, if you will, provide some reflections on where he thinks it is a couple of years later. I'm really pleased to have my long-time friend and colleague Dr Bob Kocher on the phone with us today. Bob is a partner at Venrock in Northern California. He is also a consulting professor at Stanford University, and he is a former special assistant to the president for healthcare and economic policy, working within the White House. Bob, thanks for joining us here today on Medscape Cardiology.

Dr Bob Kocher: Thank you very much, Bob, for having me. It's a pleasure to talk with you and I look forward to our conversation.

An Interest in Hospital Management

Dr Harrington: Bob, before we wind up in the White House and you provide us an insider's look at how the ACA was formulated, let's talk a little bit about your background. You trained in internal medicine and were on your way to what I'll call a traditional career as an academic physician scientist. You moved into a different world. Why don't you walk us through that a little bit? I think it will give our listeners some perspective on how you ended up in the White House.

Dr Kocher: I've been fortunate to have a series of mentors along the way who have allowed me to have a fascinating career, but one that I couldn't have planned. It really stems from my time as a resident at Beth Israel Deaconess in Boston and my observations that hospitals didn't work right. It didn't make sense to me at the time I was a resident and then early on as a fellow, that the least experienced person in the hospital was making so many choices about what happened to patients and could affect the economics to such an extent for a hospital, could choose treatments that we thought were interesting and evidence-based but maybe not right. There were so few controls over site mentorship and management going on.

We all know there are bottlenecks in the hospital, like [emergency departments] EDs not being able to move patients and not being able to search patient records and not being able to get your procedures done. The management confused me. I thought I could run a hospital better than the way they were being run at the time.

Dr Harrington: I think all of our residents think that, but not many of them go on to do what you did.

Dr Kocher: Most people don't knock on the [hospital CEO's] door and ask them how to get their job. Which I did. And after the smirk on Jim Mongan's face went away, his advice to me was that doctors don't know anything about math and management and I needed to get a business degree if I ever wanted to run a hospital. I'm sure he thought I would just go away. I came back two days later after my wife nixed me getting more schooling and said, well, what's plan B? He said you need to go to McKinsey and learn math because you have no idea what you're talking about. I did that. I quit the hospital.

Dr Harrington: So when did you quit? You were a fellow when you quit?

Dr Kocher: I'd just started a fellowship at Dana Farber to go be a bone-marrow–transplant doctor.

Dr Harrington: And Mongan's perspective (which was the right perspective) was that you needed some quantitative analytical skills and a way of approaching problems that was different than a science-hypothesis–based way of viewing the world. Is that a fair assessment?

Dr Kocher: Yes, because as a doctor, you have a lot of granularity about how to make things better from a doctor-patient perspective. But you don't understand much, or at least I didn't, about all the other forces that work on a hospital and on the healthcare system: the payers, the coding, the billing, the [electronic health records] EHR and data stuff, and the labor/cost-management dilemmas, the capital budget planning, and the competitive marketplace, frankly, for patients and doctors, how the research infrastructure fits in, the role of teaching in medical schools — all that stuff. You need to learn that to be an effective leader of a healthcare organization, and you can learn it by doing it the traditional way, through a series of roles as a doctor leader. But for me, learning business economics as a strategy and getting a glimpse into 30 or 40 other health systems helped a lot.

The Move to McKinsey

Dr Harrington: Brilliant move. You decide to go to McKinsey. Most people know that it has a consulting arm to it. Why don't you let people know exactly what they do in the healthcare world? Summarize your time there, Bob, because I do want to jump up to how you ended up in the White House.

Dr Kocher: Let me walk you what McKinsey is. McKinsey is a management consulting firm that serves very large companies, typically the Fortune 1000, on questions of how can the business improve its performance economically, how can businesses grow faster, and how can businesses improve the way they operate. McKinsey takes teams of people, often young people out of graduate programs, whether they're doctors, lawyers, MBAs, and staffs them on projects for 6 weeks to 6 months at companies to help solve problems. McKinsey likes to have us all be generalists and expose you to different business sectors so that you bring fresh eyes and can question assumptions.

I came to McKinsey and said I don't want to be a generalist. I want to learn how to run a hospital someday. I was told by a guy who runs a hospital this is what I need to do. They cringed and said, well that's not what we do. We want you to learn business in a general sense. They send you to a mini-MBA course, in my case, to teach you the basics of economics, marketing, and how to use Excel and PowerPoint. They teach you how to work on teams, which are different from the medical teams that you work on in the sense that you have a series of peers that are breaking up problems into pieces and then putting them back together. They teach you how to influence clients, so you're often a young, inexperienced person dealing with somebody much older than you, who thinks they know a lot more than you. You have to learn to interact with them to help them gain confidence that you're going to have something useful to say. And then you get exposed to a whole bunch of organizations.

I was very blessed that when I joined McKinsey — it was about the same time that hospitals were increasingly interested in learning more about how to have growth strategies and how to improve their economic performance, and answer questions like: should we hire doctors and build up new centers? Should we enter into risk contracts? How will we improve quality, and would that be a good business move?

A Global View of Healthcare Systems

My first projects were at academic hospitals, which were often trying to reduce mortality for different diseases and use that as a way to attract more patients. I then told McKinsey that I only wanted to do hospital stuff. While that's not their model, I said I'd do it anywhere on the planet. With that kind of geographic flexibility, they then sent me to the Middle East for a year, where I worked in Qatar, Saudi Arabia, and Dubai. Then, I worked in India and Singapore. I then did a stint in the UK, Germany, France, and Denmark. Then I went to Canada and Mexico and interspersed some projects in the US.

I got this very interesting global view of how hospitals worked, and I was surprised that across the planet, hospitals basically are similar to the US. They struggle with getting doctors to follow directions, to show up on time. We all struggle with getting our patients discharged. We all have flow problems of moving patients from the ED into the units and in and out of ICUs. We all struggle with medication safety and hand washing. All hospitals on earth have these characteristics.

That led me to ask a series of questions. One is, why? Are all hospital CEOs on earth incompetent? Could that be it? Are doctors unmanageable? Are patients just so complicated that you can't build systems that work better? What's going on? McKinsey has a think tank called the McKinsey Global Institute. At that time, they had nobody analyzing healthcare. I reached out to the think tank and said hey, I'd really like to understand healthcare economics and understand globally why hospitals aren't better, why [no] country can get this right. They said sure. I shifted my role at McKinsey to work predominantly in their economic think tank for the next several years. That led us to do a whole bunch of work on economic incentives across the world, on trying to calculate who is getting their money's worth, what differences are in productivity, labor, and healthcare outcomes, and what different approaches could you use to drive better patient care. That led me down a path toward looking at the US more closely and healthcare policy.

Dr Harrington: This is fascinating. You start life as a working doctor and then you move toward trying to understand delivery from a global perspective and you realize that there are all these commonalities that we share in some of the challenges of delivering healthcare to our populations. That makes you think, might there be system issues here? Might we better align the incentives? Might we better look at ways to generate value? And that gets you, somehow, to the White House. Let's talk about that. You go to the White House. Did you go as a special assistant to the president or did you have some other role before you migrated to that role?

A Move to the White House

Dr Kocher: I went as a special assistant to the president for healthcare and economic policy. The way I got to the White House was — while at McKinsey, we did an interesting study of the US healthcare system.[1] This was in 2006. If you recall, in 2006, the US healthcare system, much like today, spent more than any other country in the world. There were widespread concerns that we weren't getting our money's worth. Doctors were frustrated by the way the system was increasingly having them see more patients and not get paid more, necessarily. There were lots of concerns about beginning to measure outcomes and trying to ascertain what evidence-based care is and what works. Hospitals were, broadly speaking, struggling, and health-insurance costs were growing far faster than wages.

We did a report at that time to try to figure out, of the $2.7 trillion that we were spending in 2006, where all the money went, who made it all, and why they were making the money. Believe it or not, that hadn't been done until that point in time, and it was hard to do. We took the US healthcare spending and we literally took every dollar and said, who got it? How did it flow through the system from a health plan or a premium to a hospital or a doctor, to a medical-device company, to a drug company, to post–acute-care people — and cut it out every way you could think of: by disease, by system player, by outcome. What we found was a variety of shocking things. One is, we quantified in a bottoms-up way the widely spread notion that we waste about a third of our spending. We kind of showed you where the waste is. We showed you who's making money. In many cases, they're making less money than you think. We dispelled a bunch of myths around performance of healthcare systems, and that was the fact base that the Obama campaign, the Hillary Clinton campaign, and the McCain campaign used to formulate a lot of their broad healthcare policies. As part of being the author of that study, I got to help brief and educate the policy makers in the various campaigns, as well as in the House and the Senate about how the system works. We all needed a set of base facts for how you'd want to reform the system.

Dr Harrington: At that point, Bob, did it become a little bit of "be careful what you wish for?" Because you understood the details of this, I suspect somebody somewhere said, "You've dissected this, now why don't you come offer some solutions?"

Dr Kocher: That was pretty much how the conversation went: So you've written the big report showing us where all the problems are, now come fix them. That seemed super attractive to come and try to make the system better. We all hope to do that. It took me two seconds to say, of course, I'm happy to. Naively I thought the answers are sort of obvious. You change how you pay, you cover everybody, you start paying people to make you healthier and reward outcomes.

Dr Harrington: You start worrying about outcomes rather than procedures. You start linking reimbursement to incentives for how patients do — but now you've thrown the system completely on its head.

Dr Kocher: It takes about 2 weeks on a white board to get Republicans, Democrats, and smart people, from, frankly, most perspectives to broadly agree on what to do. Then, everything falls apart because you have to convince a Congress and a functioning health system that this is a good idea to change. That's much harder than one would ever imagine and a fascinating learning experience.

Dr Harrington: I'm going to try to get at some things that our listeners might want to hear from that insider's view. What were the key goals behind the ACA, and what did you learn about trying to get something done in Washington?

Key Goals of the ACA

Dr Kocher: The key goals of the ACA were three things, three things that I think my Republican friends and my Democrat friends all agree on. The first one is: we ought to be able to spend our money more productively in the US healthcare system to get more value per dollar. We spent $2.8 to $3 trillion.[2] I think there's a widely spread view by Democrats and Republicans that we spend enough money to have the best healthcare system on the planet, that we should treat our patients skillfully and do a great job on delivering outcomes consistently across America without regard to geography, race, and what health system you happen to pop into.

Number two: we should be able to provide excellent healthcare to all Americans. There shouldn't be the haves and have-nots here. Which employer you work for shouldn't predict if you're going to get to have great healthcare choices or not, and Medicare and Medicaid, as programs, should work well for people. And that you shouldn't go bankrupt as an American having to manage your healthcare costs. Or, God forbid, if you have a chronic disease, you shouldn't therefore not be able to live well.

Number three: we are the most innovative country on the earth when it comes to inventing therapies and delivering extraordinary care. We should be better at pushing out the type of work, Bob, that you've done in your life around the cardiovascular trials, more quickly so that patients who don't happen to walk into an academic medical center or live in certain areas have access to evidence-based care faster. We should be able to adopt new things more quickly and to also stop doing things that don't work so we can improve quality and basic things, like medication errors, hand washing, hospital-acquired infections, and readmissions. That we can just close the loop so that we don't have subpar outcomes that are avoidable.

Those were the three goals. The approach was, broadly speaking, that we should be able to take inefficient spending or waste as a major lever to fund the premiums of people who we'd expand coverage to and that by averting complications, that we're going to save some money, too, and that should make the system work better and improve outcomes.

Dr Harrington: So all mom and apple pie until now.

Dr Kocher: It sounds good.

Dr Harrington: As you said, this is where there's vast areas of agreement. We want more value. We want everyone to have access, and we want to roll out the things that work and roll back the things that don't work. Package all of this up and deliver it to 300+ million people. I can't imagine that there's anybody who disagrees with that.

Dr Kocher: Unfortunately, about half of America starts to unravel after that level of description. Today, the healthcare system's waste is income to a doctor, or a hospital, or a medical device company, or a pharma company, or a health plan. It's very popular to cut waste until it's your money.

Dr Harrington: Right.

Dr Kocher: Then people get really upset. Even things like hospital-acquired infections, the line infections that sometimes happen in hospitals, we wanted to stop paying for those because perversely, as a hospital, you could make more money, in many cases, from causing the infection than from not. That seemed like a bad incentive, so we tried to change that. But hospitals, of course, clamored, saying, well, wait a minute... 

Dr Harrington: We have to pay for that.

Dr Kocher: We don't want to lose that revenue. We don't want the infection, but we want the revenue, so don't cut the revenue. You can imagine that it gets ugly. Some hospitals —

Dr Harrington: And it did, and it remains a bit ugly.

The Challenges of Implementation

In the last couple of minutes, Bob, let me try to get at two things. When did you leave the White House? You left the White House before the actual rollout. So what did you think, as a former insider, of the rollout? And when I say the rollout, what I really mean is the ability to sign up and the exchanges for health insurance, not done well initially, but then it did, sort of, regain its footing and, by all accounts, looks to have been done reasonably well.

Dr Kocher: I left the White House after the second year of the administration, at the end of 2010. What I would say is that the skills required to pass a large law like the Affordable Care Act are specialized and unique. You have to be world class at managing a legislative process to pass a law. To implement a law, you need world-class skills on management, operations, strategy, and program execution.

People who are the world's best people at passing legislation have no experience in how you actually implement a complicated program like this. There were a number of us on the economic team who were recommending that there be a lot more independent and private-sector oriented people running the implementation, which perhaps would have led to a smoother rollout because those goals are so different. Managing thousands of people to build websites, do marketing, set up [customer-relationship management] CRM tools to manage people who want to buy health insurance, and all the partnering you have to do to make that work is totally different from writing regulations and getting Congress to do stuff.

Dr Harrington: That's a very articulate way of putting it and I think that, ultimately, certainly my view as an outsider, was that that's what happened, that the private sector — in large part, the tech private sector from the Silicon Valley area — came in and lent their skills to organize this.

Dr Kocher: A force of nature named Todd Park came and saved the day, with a whole bunch of friends from Silicon Valley who were startlingly able to do in 6 weeks what $500 million and armies of people from contractors couldn't do. It shows you when you get the right people in the right jobs, you can really make things work well. But it's really hard in Washington to tell people who are the world's best people at passing legislation that they're not going to be the world's best CEOs at managing implementation.

The Future of the ACA

Dr Harrington: Let me ask you, Bob, in the last minute, to reflect on two things. You're in a new position, working in the venture community. You also have an affiliation with Stanford University, and for that, we're grateful. Give me your worldview now that you're looking at it as a funder of innovation. Give me your view, as you look at a changing composition of the Congress, what's going to happen to the ACA? Are we in danger of having this rolled back? Are we going to continue as is? What do you see for the next year or two? What is your perspective on your current position, and what do you see for the next year or two?

Dr Kocher: I think that for the rest of our lives, the central issue in US healthcare is going to be affordability. That's going to be affordability for patients to pay for their premium, copays, and their coinsurance, and the companies who are often paying the majority of them, but also the public sector, which is paying for Medicare and Medicaid. Whether there are Republicans or Democrats in charge, at the end of the day, people will be actively managing US healthcare to make sure that the costs do not grow as fast as they grew before the ACA.

Since the ACA, for a variety of reasons and good in the ACA, costs are growing more slowly, and that's making the federal budget, state budgets, and employer budgets much more manageable. There will be downward pressure on costs forever, because with demographics, with the baby boomers aging, the Medicare and healthcare costs will rise because old people have more healthcare costs than young people. We will have lots of federal attention to make sure that we manage cost well. That's going to drive policy making. I believe that the Affordable Care Act will remain, because it appears to be helpful in the cost-management equation. Republicans may choose to add more cost controls. Democrats may choose to add more cost controls. But fundamentally, the law itself will not be taken away because going back to fee-for-service and 5% year-on-year cost growth is going to be untenable to anybody.

Dr Harrington: It's not sustainable for us, as a country.

Funding Innovation

Give me your perspective as somebody who has entered the venture community and is thinking about innovation, particularly in the technology healthcare space. How do you wrap that into your former life?

Dr Kocher: My former life helped me understand, from the point of view of a doctor and a patient, and from the point of view of a hospital or health plan, and from the point of view of a public-sector regulator trying to make the health system work, where there are chances to do things better. Today, I work with companies that want to try to make healthcare better. I help point them to what I think are the large problems that we can solve today, and then I get to have a front-row seat, helping to guide them through it, test it, scale it, refine it, and grow it into real companies. What's exciting is that the mixture of the Affordable Care Act, demographics, and the ability to build software companies much more efficiently than we ever have before is attracting more people to attack these problems. It's a lot more fertile ground than it had been in the past. People used to call healthcare IT investing in Siberia, because you couldn't attract talent to do it, you couldn't get hospitals to buy it, and it took forever to make the companies. Athena Health was really the first one to break the ice here, but it took them 13 years to go from managing an OB-GYN practice in San Diego to building a big software company. Now, you're seeing some success stories, companies like Castlight Health, which do it in 5 or 6 years, and One Medical, Health Catalyst, and Grand Rounds Health, which are all able to grow faster and prove that there's a path. There are also some successful non-healthcare CEOs coming in. It's become a lot more fun and a lot easier to make healthcare companies. The Affordable Care Act incentive changes help shine light on different spots where you can now invent new things.

Dr Harrington: Bob, I really appreciate what you've done here, which is taken your personal journey through healthcare to help us all, I think, understand where we are as a country, thinking about providing high-value healthcare to all of our fellow citizens. I like how you've talked about your movement from academic medicine to the private sector, to the public sector, back to the private sector. You've had a great seat. I appreciate your willingness to maybe peel back a little bit of the onion so that we can all take a look at what's been going on inside.

I want to thank my guest Bob Kocher, who is a physician trained in the Boston Harvard system. Currently he is a partner at Venrock. He's a consulting professor at Stanford. For the purposes of this discussion, we've learned a lot from his former role as special assistant to the president for healthcare and economic policy. So Bob, thanks again for joining us here on Medscape Cardiology.

Dr Kocher: Thank you very much.


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