A Conversation with Larry Levitt: Finding The Trends In Health Care Chaos


The director of Kaiser Family Foundation’s Changing Health Care Marketplace Project says physicians will soon call more of the shots.

For the last two years, Larry Levitt has directed the Henry J. Kaiser Family Foundation’s Changing Health Care Marketplace Project and its California grants program. There, he directs the work of the health care foundation in managed care, consumer protection, health insurance, state regulation, and California health policy. The foundation is not linked to Kaiser Permanente, although both bear the name of the industrialist who founded them.

Before joining the foundation, Levitt worked for two years as a health financing consultant with the Lewin Group. Prior to that, he spent more than two years as a senior health policy adviser for the White House and Department of Health and Human Services, where he worked on the development of President Clinton’s Health Security Act and other health policy initiatives. There his work focused on insurance reform, cost containment, and financing issues.

Levitt holds a bachelor’s degree in economics from the University of California, Berkeley, and a master’s in public policy from Harvard University’s John F. Kennedy School of Government. He recently discussed the changing health care marketplace with Senior Contributing Editor Patrick Mullen.

MANAGED CARE: What is the goal of the Changing Health Care Marketplace Project?

LARRY LEVITT: The project and my work at the foundation were designed to respond to two striking trends. First is the recent phenomenon that health care is increasingly a large business dominated by for-profit firms who answer to Wall Street. Second is the debate over health policy both on the federal and state levels. Those debates now revolve largely around the government’s role, whether as a regulator or a purchaser in the private health care marketplace. Our goal is to be a credible and independent source of information about trends in the marketplace, and also to be a resource for policy makers about the implications of health policy initiatives.

MC: What do you see as being the focus of debate over the next couple of years?

LEVITT: The Patients Bill of Rights is not going away, although it’s unlikely that anything’s going to pass this year. States are still passing patient-rights legislation, but there are obviously limits to what states can do given the Employee Retirement Income Security Act of 1974. Until the federal government acts, states are largely stymied. Clearly, Medicare reform is another perennial issue.

MC: What effect would a Patients Bill of Rights have? Is it that important — or is it more a response to political pressure?

LEVITT: First, it’s responding to real issues. I don’t think that surveys that show that large percentages of people are satisfied with their plans are the relevant measure here. Better measures are data that show that lots of consumers are having problems with the system. Most surveys seem to show that roughly half of consumers have had some problems with their plans over the last year. Granted, many of those problems are minor but they’re problems nonetheless, so the backlash is real. The implications of the Patients Bill of Rights in its various forms are far overblown on all sides of the debate. I don’t think it’s the end of managed care as we know it. We’ve done a cost analysis with Coopers & Lybrand that indicates that the cost impact is likely to be quite low. On the other hand, expectations of the advocates are overblown as well. The reality is that a very small number of people would actually be affected by most provisions in the various bills pending in Congress or in the states.

MC: Are we going to have a market-driven health care system out as far as you can see?

LEVITT: It’s almost certain that a market-driven system is inevitable for the foreseeable future. The only unpredictability is what happens with physicians over the next several years. Physicians are growing increasingly uncomfortable with the current system. It at least seems possible to me that physicians could ultimately decide that they’re better off with something closer to a single-payer system than with what we’ve got now.

MC: Can you foresee a situation in which health care inflation takes off again — and there are signs that it is — causing businesses to decide that they no longer want the burden of sponsoring health insurance?

LEVITT: That is hard for me to imagine. The health care reform debate is good evidence of this. One can imagine businesses, particularly those that provide coverage today, deciding they would be financially better off under a different system, whether single payer or employer mandates combined with budget caps. Still, there is real ideological opposition in the business community to a more government-controlled system. I can’t foresee anything overcoming that ideological opposition.

MC: What other broad market trends are going to be important in the next few years?

LEVITT: Well, not a lot that’s good. Particularly financially, the system is quite precarious right now, from all ends. Health plans are losing money and have been for several years. Medical groups are losing money and in some cases going bankrupt. Doctors and hospitals, who actually haven’t done too poorly in recent years, are starting to feel quite pinched, at least if you listen to them. Yet payers — Medicare, Medicaid, and employers — don’t seem to be in a position to let go of the low premiums that they’ve had over the last several years. So it’s an extremely unstable system.

MC: Why are health plans losing money?

LEVITT: Health plans have gotten caught in the vise grip between payers and providers. I don’t think that health plans — in spite of the rhetoric — have had the ability to clamp down on providers the way that providers seem to think they have.

MC: Can the business of running managed care plans be stable and profitable, or is there an inherent flaw in the notion of an intermediary with all of its associated costs being profitable?

LEVITT: I see one of two possible futures. We can move more toward direct purchasing, with truly more integrated systems and provider-sponsored organizations, although certainly the history of such organizations has not been promising. Or we can move towards a much less managed system, which I think is more likely, and go back towards the PPO model, which seems to be what everyone wants. Providers are certainly more comfortable in that model, and patients seem to be more comfortable in that model as well. That’s part of the reason why PPOs are starting to grow again.

MC: How should physicians be paid in a way that is fair to them and to their patients and can minimize incentives to do too much or too little?

LEVITT: Again, I can see us going in one of two directions. There’s the model like the old, and still existing, prepaid group practices where physicians are largely salaried. A medical group or organization as a whole is capitated so there are global incentives for physicians to practice efficiently, yet any individual physician is not under too stringent a financial incentive. That’s one very possible and reasonable approach. The other is harkening back to a discounted fee-for-service system with some small degree of withholds or risk by the physician.

MC: Both for primary care and for specialists?

LEVITT: Particularly for primary care, but probably for specialists as well. Maybe where we’ve gotten a bit out of whack in the current system is pushing too much risk down to physicians and particularly to small groups of physicians.

MC: How would you define managed care? Or is it not worth the effort?

LEVITT: With the possible exception of Medicare, managed care is an essentially irrelevant term. People think of it as one form of health care delivery. The reality is that it’s developed into the only form of health care delivery. There’s almost nothing left that looks like unmanaged claims-paying fee-for-service insurance. What’s more relevant and important is for us to better differentiate among the different types of managed care. Old terms like HMO, PPO, or point-of-service plan are not all that informative. We need better taxonomies that describe different types of plans from the perspective of patients as well as from the perspective of physicians. A consumer doesn’t care about how a plan is licensed or what its payment structure is.

MC: Have you given any thought to what that new language might include?

LEVITT: We haven’t. We have discovered, in our surveys of consumers about their experiences with and attitudes toward the health system, that you can’t ask consumers what type of plan they’re in.

MC: They don’t know.

LEVITT: They have no idea. We started asking instead about characteristics of their plan. We then classified them into what we call heavy managed care or light managed care based on how many hoops they had to jump through. At least for consumer surveys, that seems to work pretty well. For policy and market tracking purposes we need a much better taxonomy.

MC: Why did the Clinton health reform effort fail?

LEVITT: In large part we overreached in what we were trying to accomplish.

MC: How much of the problem was trying to anticipate and answer every question in the language of the bill rather than let that evolve in Congress?

LEVITT: We were trapped in that regard, because Congressional Office scoring controlled a lot of what went on in Washington, as it still does. So we had to fill in a lot of details in order to get through the CBO gauntlet. There also was a lot of pressure to fill in details from every interest group imaginable. That bill became the vehicle for just about everything in health care.

MC: How important is NCQA accreditation? A lot of plans tout their accreditation. Is that important, or is it more of a marketing tool?

LEVITT: Most of the evidence shows that it’s not that important yet, since most consumers aren’t aware of it and aren’t using it. Even employers as purchasers aren’t using NCQA accreditation to much of an extent. Ultimately, it’s useful only to the degree that purchasers use it. If purchasers don’t care about NCQA accreditation, the plans will no longer tout it because it’s not going to be relevant. I also think a voluntary accreditation system has real flaws. To the extent plans don’t participate, it’s hard to have much faith in the ultimate measures.

MC: How important do consumers say access to, and coverage of, preventive care are?

LEVITT: In many ways that’s almost irrelevant. More traditional PPOs and fee-for-service plans have started covering much more preventive services, though still a little less than traditional HMOs. I often think that the focus on preventive care, while it’s obviously important, has become a much overused way of rating plans. Once prevention is a covered benefit, the plan should do education. But I think whether you get the preventive services is more of a personal responsibility.

MC: Do you have a sense that physicians coming out of school now might be more amenable to managed care, since they don’t know what it was like in the fee-for-service world?

LEVITT: That could certainly affect their attitudes such that the bad blood could lessen with time, but I’m not convinced of that. It’s certainly true that younger physicians don’t know the old world, but that doesn’t make the current world any happier for them.

MC: This question is probable impossible to answer, but I’ll ask. Will there be continuing turmoil for decades in our health system, or are we moving toward some level of stability?

LEVITT: I would certainly hope there’s a stable endpoint in our future because we’re certainly not stable today. I don’t think we’re getting there any time fast. The amount of changes that would be necessary to make the system more stable will take a long time. The situation may get more wrenching before it gets less wrenching. It’s unpredictable what direction we go. It could get to the point where physicians have had enough and decide they would rather deal with the government than with plans. Among the rank and file of physicians, I think that kind of sentiment is more prevalent than it was just a few years ago.

MC: Thank you very much.