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Global Perspectives: Mike Leavitt on health care costs and higher education

Mark Wynne

The U.S. health care system is uniquely innovative, but it is also arguably uniquely inefficient. Health outcomes in the U.S.—whether measured in terms of simple metrics such as life expectancy or more sophisticated ones such as quality-adjusted life years—do not seem commensurate with health care expenditures.

U.S. spending on health care as a share of gross domestic product is well above the average for other developed countries, while health care outcomes are much worse than in other developed countries, and are now deteriorating for some populations, according to Organization for Economic Cooperation and Development statistics.

Devising a better system has proven to be a challenge. Health care costs will absorb a growing share of government spending worldwide and will limit the ability to address other important needs.

The Federal Reserve Bank of Dallas recently hosted Mike Leavitt, founder of health care consulting firm Leavitt Partners, as part of the Bank’s Global Perspectives speaker series. He is a former Utah governor and Environmental Protection Agency administrator and Department of Health and Human Services secretary in the George W. Bush administration. The speaker series was launched at the beginning of 2016 with the objective of bringing leaders from the worlds of business, academia and policymaking to the Dallas Fed to share their insights on global, national and regional developments.

Leavitt and Dallas Fed President Rob Kaplan discussed the need for health care reform, the role of government and new models of education. The following are excerpts from their conversation, edited for clarity and presented by topic.

Reforming health care:

Leavitt: Health reform is something that is scaling over the course of 40 years, and the truth is we are about 25 years into a 40-year transformative period in health care. I think if you look at how we got here, you have to look back to the 1960s when we started Medicare and Medicaid. It was a great expression of our country’s sense of compassion.

We want to live in a place where people are cared for when they’re sick and when they’re injured. We established a plan to accomplish that, but in doing so, we laid out some policies that turned out to create incentives that were unaligned, that began to fuel spending at a rate we just hadn’t contemplated and that you’ve all experienced.

If you have a procedure, there’s a billing for that one procedure—and for the next, over and over again. You’ll have 200 procedures if you just go into the hospital for just one thing.

If you are a provider (a physician), you get paid for doing more. If you’re a physician, you get paid not by the patient, but by a third party. There’s no connection between the two. So, we now find ourselves in this very difficult position where 30 to 40 years in, prices have been escalating at an unsustainable rate and we’re trying to figure out how is it that we sustain this human value of compassion.

Government’s role in health care:

Do we want government to control the health care system? We’re now at a place where it is beginning to. But there’s no place on the economic leaderboard for a country that spends 25 percent of its gross domestic product on health care. We’re not quite there yet, but we’re competing with countries that are spending a third of that and they’re applying it (financial resources) to the call of economic leadership. So, this is the key issue. This is not just about health care; this is about the economic leadership of America.

If I were asked, “What does the health care system look like in the future,” I would say this: We are going to see more and more integration between insurance plans and health care providers. That gets to some of the administrative component.

If you could begin to move toward what the industry refers to as value-based care, where you’re actually paying for the value that is received by patients, paying for what has actually worked, paying for the amount of improvement that’s been made, then we will be making progress. To do that, you’ve got to have more integration. When I use the word integration, what I’m actually referring to is less redundancy and less payment on a basis where everyone is rewarded for more procedures.

New models of education:

I got into politics in some respects because I was interested in education. One of the things I had observed about higher education was that it had a model that I couldn’t see how it could scale rapidly enough to meet the needs of society as we all began to retrain ourselves.

I was among a group of governors that had concluded that we really needed to think about how we served those populations who were currently underserved. The internet, at that time, was just beginning to become a big part of our life. We could see that a fundamental shift in the economy was going to occur. Instead of having people go to a campus to learn and to process information, it was going to come to them, and that we could use the internet as a means to deliver it.

There was a second component that we thought was troubling and it was that the system tends to measure progress on the basis of how much time a student spends at a task. There are certain measurements along the way, but it’s really a system based on seat time. We resolved that we would create a university that would operate online and where we would measure progress differently. We would measure it by competencies demonstrated, and we would create a university that would have focus in four areas: teacher training, health care, IT (information technology) and business.

Creating Western Governors University:

Western Governors University was born in 1998 with its first student. Today, it has 115,000 students and is growing at about 25 percent a year, and tuition is $6,000 a year. The average bachelor’s degree takes 3.1 years. The average age of a student is 38 years. More than half are the first student in their family to go to college. They (WGU) are fully accredited by all of the regional accreditation organizations.

There are no tax dollars that go into this, and the cost is about a third of what an average state university would be. It’s all driven by the fact that it’s scalable and by what the students have done. It was built by 19 governors.

The governor of Colorado and I were the two primary leaders of the initiative. Texas was among the leaders; Gov. George W. Bush was an early proponent. We started the organization by getting 19 states to put up $100,000 each of capital. That’s the hardest money you’ll ever raise. We then went to Silicon Valley and laid the vision out for them, and a group of the people in Silicon Valley wrote checks on the spot.

Technology disrupting higher education:

As governors, we were trying to figure out really how to disrupt higher education in our own states, and not in the context of trying to eliminate it but to try to stimulate it. WGU is now the largest trainer of teachers in America. It’s the largest provider of math and science teachers in America. It’s now doing the same thing with nurses. We got it to a critical mass, and now we’ve started to spin out state institutions. For example, Gov. (Rick) Perry instituted WGU Texas.

The point is, technology is disrupting higher education. It may not have affected the economic model yet, but it will because not very many people can afford a $40,000 freshman year. State universities are becoming so expensive that it’s become much more difficult for the segment of society we really need to help in order to lift our economy.

If you can deliver a bachelor’s degree in 3.1 years, and you can do it for about a third the cost, and if you can have employers extraordinarily happy with the graduates, there is something there. So, I’m very proud of what we’ve done. And I think if you haven’t explored this, you might find it interesting: You probably have people you employ now who are graduates.

About the Author

Mark A. Wynne

Wynne is vice president and associate director of research in the Research Department at the Federal Reserve Bank of Dallas.

The views expressed are those of the author and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.