1
1 NATIONAL GOVERNORS ASSOCIATION
2 WINTER MEETING
3 Saturday, February 20, 2010
4
5
6 CHILDHOOD OBESITY
7 AND
8 TRANSFORMING HEALTH CARE DELIVERY
9 Grand Ballroom
10 JW Marriott Hotel
11 1331 Pennsylvania Avenue NW
12 Washington, DC 20004
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1 PARTICIPANTS:
2
3 GOVERNOR JAMES H. DOUGLAS, VERMONT, CHAIR
4 GOVERNOR JOE MANCHIN III, WV, VICE CHAIR
5
6 GUEST:
7 MICHELLE OBAMA, FIRST LADY OF THE UNITED STATES
8
9
10 GUESTS:
11 Atul Gawande, M.D., M.P.H., Surgeon,
12 Department of General/GI Surgery,
13 Brigham and Women's Hospital, and
14 Associate Professor,
15 Harvard Medical and HSPH
16
17 Jack Cochran, M.D., Executive Director
18 The Permanente Federation
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1 P R O C E E D I N G S
2
3 (11:03 a.m.)
4 CHAIRMAN DOUGLAS: Ladies and gentlemen,
5 let's begin the Winter Meeting of the National
6 Governors Association. Thank you all for being here.
7 We've got an exciting program not only today but
8 throughout the course of the next couple of days, and
9 I want to get right into our featured guest in just a
10 few moments.
11 First of all, I will entertain a motion to
12 adopt the Rules of Procedure for our Winter Meeting.
13 Could I have such a motion?
14 (Motion duly made.)
15 CHAIRMAN DOUGLAS: Thank you. Is there a
16 second?
17 (Motion duly seconded.)
18 CHAIRMAN DOUGLAS: Seconded. Any
19 discussion?
20 (No response.)
21 CHAIRMAN DOUGLAS: If not, all in favor of
22 adopting the Rules please signify by saying aye.
23 4
1 (Chorus of ayes.)
2 CHAIRMAN DOUGLAS: Opposed, no?
3 (No response.)
4 CHAIRMAN DOUGLAS: The ayes have it and
5 you have adopted the Rules, one of which is that any
6 governor who wants to submit a new policy or
7 resolution for adoption at the meeting will need a
8 three-fourths vote to suspend the rules, and any
9 such proposal should be submitted in writing to David
10 Qualm of our NGA staff by 5 p.m. tomorrow.
11 I want to take a moment to introduce our
12 new colleagues who have joined us since we last
13 gathered: The governor of the great state of New
14 Jersey, Chris Christie. Chris, welcome.
15 (Applause.)
16 CHAIRMAN DOUGLAS: The governor of Alaska,
17 Sean Parnell. Sean, thank you for being here.
18 (Applause.)
19 CHAIRMAN DOUGLAS: And the governor of
20 Utah, Governor Gary Herbert. Gary, welcome.
21 (Applause.)
22 CHAIRMAN DOUGLAS: I don't see Governor
23 5
1 [Robert] McDonnell here, but I expect that we'll see him at
2 some point during the meeting, from Virginia, and
3 we'll welcome him as well.
4 So congratulations to all the new
5 governors, and welcome to NGA, and we look forward to
6 working with you. We are a pretty good group, I
7 think you'll find, not only of governors but--well,
8 most of the time--
9 (Laughter.)
10 CHAIRMAN DOUGLAS: --of not only
11 governors, but other state officials. We've got
12 former governors who attend our meetings, great first
13 spouses who are part of our NGA family; we have
14 corporate partners; foreign dignitaries; the media,
15 of course; a lot of folks at our meetings, and I want
16 to thank you for being here.
17 Speaking of foreign visitors, we are
18 joined by several whom I want to acknowledge and
19 thank for being with us. The Ambassador of Canada to
20 the United States, Ambassador Gary Doer is here.
21 (Applause.)
22 CHAIRMAN DOUGLAS: And he is our host for
23 6
1 the evening at the Canadian Embassy tonight. As many
2 of you know, Gary was a Provincial Premiere for a
3 decade, so he is well familiar with our
4 responsibilities, and we look forward to his
5 hospitality tonight and continued friendship.
6 We have a number of Canadian
7 parliamentarians with us, as well, and I would like
8 to welcome them to the NGA. There they are, with the
9 ambassador.
10 (Applause.)
11 CHAIRMAN DOUGLAS: As well as a delegation
12 from the Canada-United States Interparliamentary
13 Group. We welcome the members of that group who are
14 with us, as well.
15 And on the other side of the house we've
16 got 20 deputy and district governors from various
17 provinces in Turkey. We are honored to have them
18 with us today.
19 (Applause.)
20 CHAIRMAN DOUGLAS: They are here courtesy
21 of the Turkish Minister of the Interior for a
22 Professional Development Program in Public Policy and
23 7
1 Public Administration at Virginia Commonwealth
2 University in Richmond, and we are honored to have
3 them with us.
4 CHAIRMAN DOUGLAS: Well, over the next few
5 days we are going to be talking about some critical
6 issues that are affecting states, especially the dire
7 economic situation that we're facing. We are going
8 to be talking about the ever-rising cost of health
9 care.
10 And because of the critical issues in our
11 health care system, I have decided, as you know, to
12 focus my efforts this year as your chair on reforming
13 our health care system. My “Rx for Health Reform”
14 initiative is taking a look at ways that we can
15 deliver high quality, more efficient care to control
16 health care spending and improve health outcomes. I
17 look forward to a lively discussion over the next
18 couple of days on these issues.
19 As a kickoff to our agenda this weekend,
20 it is a distinct pleasure and honor to introduce our
21 opening speaker. First Lady Michelle Obama has been
22 working tirelessly on behalf of communities across
23 8
1 the country for many years.
2 Recently she announced a major new
3 initiative in childhood obesity, which has become a
4 serious epidemic in our country. Mrs. Obama's
5 efforts will tackle the health challenges our
6 children face in our homes, communities, and schools.
7 Our efforts must indeed focus on providing children
8 every opportunity to be healthy, productive citizens.
9 So, governors and guests, please join me
10 in welcoming the First Lady of the United States,
11 Michelle Obama.
12 (Applause and audience stands.)
13 MRS. OBAMA: Thank you.
14 (Continuing applause.)
15 MRS. OBAMA: Thank you all, so much.
16 Thank you. It is a pleasure for me to be here with
17 all of you today and to welcome you all to
18 Washington.
19 Thank you, Governor Douglas, for that very
20 kind introduction. And thanks to you and Governor
21 Manchin for your leadership in Vermont, as well as
22 [West] Virginia, and as the Chair and Vice Chair of the NGA.
23 9
1 I also want to recognize all of the governors who are
2 here today, and to thank you for your outstanding
3 leadership and the dedicated service that you provide
4 to states all across this country. We are grateful
5 to you.
6 Now I would be remiss if I didn't thank
7 all the spouses who are here for all the things you
8 have to put up with.
9 (Laughter and applause.)
10 MRS. OBAMA: Absolutely. You all are
11 making the same kind of sacrifices, putting up with
12 long hours and late-night crises, and all I can say
13 is "been there, done that."
14 (Laughter.)
15 MRS. OBAMA: I know how you feel, and we
16 are just grateful to have you all. And again, we
17 will give them another round of applause.
18 (Applause.)
19 MRS. OBAMA: Now I know that the focus of
20 this year's meeting is the issue of health care.
21 Over the next few days you are going to be talking
22 about spiraling costs that are straining your budgets
23 10
1 and running up all of our deficits. Costs like the
2 nearly $150 billion a year that we spend on obesity-
3 related conditions like diabetes, heart disease, and
4 high blood pressure.
5 You are going to talk about the staggering
6 Medicaid burdens and how premiums have risen three
7 times faster than wages, often bankrupting families
8 in your states, sinking businesses in states all
9 across this country.
10 But we all know that there is another set
11 of statistics that have to be a part of this
12 discussion. Like how nearly one in three of our
13 children in this country is now overweight or obese;
14 like how one in three kids today will eventually
15 develop diabetes; and in the African American and
16 Hispanic communities, the number is nearly half.
17 Because if we think our health care costs
18 are high now, just wait until 10 years from now.
19 Think about the many billions we are going to be
20 spending then. Think about how high those premiums
21 are going to be when our kids are old enough to have
22 families of their own and businesses of their own.
23 11
1 We all know that we cannot solve our
2 health care problems unless we address our childhood
3 obesity problem, too--and that is really why I am
4 here today, to talk about the issue of childhood
5 obesity that is so important to me, and what our
6 states and our nation can do to solve it.
7 But we have to begin by understanding how
8 we got here and what has caused this crisis in the
9 first place. I have my theories, but when you all
10 think about it, this is a relatively new phenomenon.
11 This was not something we were dealing with when I
12 was growing up.
13 Back when we were all growing up, most of
14 us led lives that naturally kept us at a healthy
15 weight. We walked to school and we walked home
16 because we usually lived in communities where our
17 schools were close.
18 All of us ran around all day at school
19 during recess and gym because everybody had to do it.
20 And then when we got home, we would be sent right
21 back outside and told not to come back home until
22 dinner was served. You know your parents didn't let
23 12
1 you in the house.
2 Back then, we ate sensibly. We had many
3 more home-cooked meals. That was the norm. And much
4 to our dismay at the time, there was always something
5 green on the plate.
6 (Laughter.)
7 MRS. OBAMA: Fast food and dessert was a
8 special treat. You had it, but you didn't have it
9 every day, and the portion sizes were reasonable. In
10 my family, I remember, a couple of pints of ice
11 cream, this was a big treat. We'd bet three pints of
12 ice cream for a family of four, and that would last
13 us a week--because you wouldn't eat a pint; you'd get
14 a scoop, and that would be it. You would savor that
15 a spoonful at a time.
16 And these were not arbitrary rules that
17 our parents just made up. As we know now, it was a
18 way of life they imposed to help keep us active and
19 healthy. They knew back then that kids couldn't and
20 shouldn't sit still for hours. They knew that kids
21 needed to run around and play. They knew that
22 keeping us healthy wasn't about saying no to
23 13
1 everything, but it was about balance, and
2 moderation.
3 We all had our share of burgers and fries
4 and ice cream growing up, we just didn't have it
5 every day, and not at every meal. But somewhere
6 along the line we kind of lost that sense of
7 perspective and moderation.
8 We all want the very best for our kids,
9 just like our parents wanted for us, but with the
10 pressures of today's economy and the breakneck pace
11 of modern life, many parents feel like the deck is
12 stacked against them. They want to prepare healthy
13 foods for their kids, but a lot of times they are
14 tight on money and they just can't afford these
15 meals; or, oftentimes they're tight on time because
16 they're juggling longer hours at work, and many of
17 them juggling multiple jobs, so they just can't swing
18 coming home and making a home-cooked meal around the
19 dinner table. It's hard.
20 They want their kids to be active. But
21 sometimes they live in communities where either it's
22 not practical to walk to school or, worse yet, it's
23 14
1 not safe. Or they live in communities where gym
2 classes and school sports are considered luxuries and
3 not necessities. The first thing to go in a budget
4 crunch.
5 And those afternoons playing outside have
6 been replaced by afternoons sitting inside in front
7 of the TV, or video games, or the Internet. And as a
8 result, many parents feel like they've lost that
9 sense of being in charge that their parents had.
10 But we have to be honest with ourselves.
11 Our kids didn't do this to themselves. Our kids
12 didn't decide whether there's time for recess, or gym
13 class. Our kids don't decide what's served to them
14 in the school cafeteria. Our kids don't decide
15 whether to build playgrounds and parks in their
16 neighborhoods, or whether to bring supermarkets and
17 farmers markets to their communities.
18 We set those priorities. We make those
19 decisions. And even if it doesn't feel like we are
20 in charge, we are. But that is the good news.
21 Because if we make these decisions here, then we can
22 decide to solve this problem. And that is precisely
23 15
1 what so many of you are doing right now in your
2 states.
3 You are experimenting, and innovating.
4 Many of you are ignoring the naysayers and the old
5 partisan divides and focusing solely on what works.
6 In Pennsylvania, for example, folks
7 started a Fresh Food Financial Initiative to bring
8 grocery stores to under-served areas. And I got to
9 visit one of those communities yesterday when I spent
10 some time with Governor [Ed] Rendell in Philadelphia.
11 In that community they started with $30
12 million. Then they leveraged that for an additional
13 $190 million from the private and nonprofit sectors.
14 And with that money they funded 83 supermarket
15 projects in 34 counties that are making profits, and
16 they are projected to create more than 5,000 jobs.
17 In North Carolina they have launched a
18 full-scale effort to help kids eat healthier and to
19 exercise more. They've banned snack and soda vending
20 machines from elementary schools. They have given
21 grants to cities and to counties for things like
22 sidewalks, and trails, and community gardens. And
23 16
1 they have trained 41,000 teachers across the state on
2 how to incorporate physical activity into the
3 classroom.
4 And Arkansas started on the issue of
5 childhood obesity way back in 2003, something former
6 Governor [Mike] Huckabee and I discussed yesterday when I
7 appeared on his TV show. They screened students'
8 BMIs, which was controversial. They got healthier
9 food into their schools, and required regular
10 physical education classes. And as a result, that
11 state was able to halt the rise of childhood obesity
12 completely.
13 What you all are doing is proof that, if
14 we are creative and committed enough, if we meet this
15 challenge with the kind of energy and determination
16 that it requires, then we can take back control and
17 we can turn back the tide, and we can give our kids
18 the kind of lives they deserve.
19 And that is why last week we launched this
20 wonderful initiative called "Let's Move!" It's a
21 nationwide campaign to rally this country around a
22 single ambitious goal, and that is to solve the
23 17
1 problem of childhood obesity in a generation so that
2 the kids born today will reach adulthood at a healthy
3 weight.
4 We have issued a call to action. We
5 have said: Let's move! Let's move to help families
6 and communities make healthier decisions for their
7 kids. And let's move to bring together governors,
8 and mayors, and doctors, nurses, our business
9 leaders, nonprofit community, our educators, our
10 athletes, our parents, to tackle this challenge once
11 and for all. Because it's going to take every last
12 one of us--and particularly folks in the private
13 sector, from the food industry offering healthier
14 options, to retailers who understand that what's good
15 for kids and families can actually be good for
16 businesses, too.
17 That is why over the next 90 days the
18 First ever, government-wide task force, which includes
19 members of our Cabinet, will develop a national
20 action plan. They won't just review every government
21 program relating to child nutrition and physical
22 activity and advise us on how to marshal those
23 18
1 resources, but they're also going to develop
2 benchmarks to measure our progress and recommend
3 actions that can be taken by the private and the
4 nonprofit sectors.
5 But we cannot wait 90 days to get to work
6 here. So we have already gotten started on a series
7 of initiatives to achieve our goal. There are four
8 key pillars.
9 The first: Let's move to offer parents
10 the tools and information they need and that many
11 have been asking for to make healthier choices for
12 their kids. So many parents want to do the right
13 thing, but they are bombarded by conflicting
14 information, and they don't know what to believe or
15 where to start. That is why many of you have been
16 running public education campaigns and creating
17 healthy-living Web sites.
18 California is leading the way, becoming
19 the first state in the country to require restaurant
20 chains of a certain size to post calorie information
21 on menus and menu boards. Just one part of an
22 aggressive anti-obesity strategy that's making a
23 19
1 difference across that state.
2 The health care legislation in Congress
3 follows their lead. It includes a similar provision
4 to help parents make informed decisions. "Let's
5 Move!" is going to add to these efforts. We started
6 with a Web site called letsmove.gov. It's going to
7 have helpful tips, and step-by-step strategies for
8 parents.
9 We are also working with pediatricians and
10 family doctors to encourage them to screen kids for
11 obesity early and then actually write out a
12 prescription for parents with action steps that they
13 can take to address it so they don't feel like
14 they're dealing with this problem alone.
15 And we have been working with the FDA and
16 the food industry to make our food labels more
17 customer friendly so that people don't spend hours
18 squinting at words they can't pronounce to know if
19 the foods they're buying are healthy.
20 In fact, the nation's beverage companies,
21 the largest, just announced that they are going to be
22 providing clearly visible information about calories
23 20
1 on the front of their products and on their vending
2 machines and soda fountains. And this is a step in
3 the right direction. It's an important step. But it
4 is still only one step, and we have so many more
5 ahead.
6 We can't forget, for example, that
7 31 million of our children participate in federal
8 school meal programs. So we don't want to be in the
9 position where we take one step forward with parents
10 making good decisions, but then we take two steps
11 back when lunch time rolls around in school and kids
12 are faced with poor choices in the school cafeteria.
13 So let's move to get healthier food into
14 our nation's schools. And that is the second part of
15 this initiative.
16 There is a reason why our governors are
17 such passionate advocates for our school meal
18 programs. It's because you all know the impact that
19 these programs have. You know that when kids get the
20 nutrition they need, they perform better in the
21 classroom and they miss fewer days of school.
22 So let's multiply that by 31 million and
23 21
1 we are talking about a serious impact on education in
2 this country. That is why we have set a goal of
3 doubling the number of schools in the Healthier U.S.
4 School Challenge. We have already gotten several
5 major food suppliers to commit to offering healthier
6 school meals.
7 We are also updating and strengthening the
8 Child Nutrition Act. Secretary [Tom] Vilsack is taking the
9 lead on these efforts, and we plan to invest an
10 additional $10 billion over 10 years to fund that
11 legislation.
12 This will allow us to serve 1 million more
13 kids in the first five years, and dramatically improve
14 the quality of food in our schools, decreasing sugar,
15 fat, and salt, and increasing fruits, vegetables, and
16 whole grains. But our success here is up to you.
17 It is up to you to get the most out of
18 these new investments. And maybe that means
19 demanding more from your suppliers in your state. Or
20 maybe renegotiating your contracts to include
21 healthier options. Maybe it means starting a farm-
22 to-school program or insisting on healthier options
23 22
1 in school vending machines, which by the way has
2 actually meant increased revenues in schools in
3 Kentucky and Maine and elsewhere.
4 But while school meals provide critical
5 nutrition for millions of kids, we also can't forget
6 that kids get plenty of their calories at home right
7 in their own neighborhoods. Many of our kids live in
8 what we call "food deserts." These are areas without
9 access to a grocery store--imagine that, living in a
10 community without a grocery store.
11 So too many of those calories at home come
12 from fast food, or processed foods from the local gas
13 station or convenience store.
14 So that is why the third component of
15 "Let's Move!" is let's move to ensure that all our
16 families have access to healthy, affordable food in
17 their communities. Right now there are food deserts
18 in every single state in this country. So we have
19 set an ambitious goal.
20 That is: To eliminate every last one of
21 those food deserts within seven years, and to achieve
22 this we have created the Healthy Food Financing
23 23
1 Initiative that is modeled on what was so successful
2 in Pennsylvania.
3 We will start with an initial investment
4 of $400 million a year, and we will use that to
5 leverage hundreds of millions more from the private
6 and nonprofit sectors to bring grocery stores to
7 under-served areas across the country.
8 Once again, our success here is going to
9 depend so much on what you do. We need you to
10 encourage communities to apply for these grants and
11 provide the right incentives, from helpful zoning
12 laws, to read-map transit routes that help shoppers
13 access stores, to join training to entice grocers
14 with a well-prepared workforce.
15 But we know that eating right is only part
16 of the battle. We all know that in our own lives.
17 We know that physical activity is critical, too, not
18 just for better health but for better academic
19 achievement.
20 Experts recommend that kids get at least
21 60 minutes of active play each day, and we know that
22 many of our kids aren't anywhere close to that.
23 24
1 So, Let's Move! And I mean that
2 literally. We have to move to find new ways for our
3 kids to be physically active both in and out of
4 school. I have to say that many of you have been
5 very creative on this piece already.
6 Folks in West Virginia have taken the lead
7 in bringing DDR--that's Dance, Dance Revolution--it's
8 a new videogame that gets kids up and moving. Many
9 other states use it, as well. And let me tell you, I
10 can attest to Dance, Dance Revolution. We got it at
11 Camp David, and it will make you sweat.
12 (Laughter.)
13 MRS. OBAMA: And it is addictive in a very
14 good way. The President still can't do it.
15 (Laughter.)
16 MRS. OBAMA: Georgia is using a program
17 called Hop Sports. They're beaming in videos of
18 famous athletes in the gym classes so kids can learn
19 skills and techniques from their heroes and their role
20 models.
21 And to build on these efforts, Let's Move!
22 is going to work to modernize and expand the
23 25
1 President's Physical Fitness Challenge. We have
2 already recruited professional athletes from dozens
3 of different sports leagues. They're going to be
4 involved to encourage our kids to get and stay
5 active.
6 So that is just some of what we are doing,
7 just some of it. That is how we are working to
8 attack this problem from every single angle, because
9 that's the thing about this issue of childhood
10 obesity. It has so many different causes. There are
11 so many different culprits. And it is not enough to
12 tackle any one of them alone, because we can give our
13 kids the healthiest school meals imaginable, but if
14 the rest of their calories come from the corner
15 store, or drive-through, then they still won't get
16 adequate nutrition.
17 We can have shiny new supermarkets on
18 every block in every community, but if parents don't
19 have the information they need, they'll still struggle
20 to make the right choices for their kids.
21 So we need a comprehensive, coordinated
22 approach to this problem. But that doesn't
23 26
1 necessarily mean an expensive approach. Because I
2 know that many of you are stretched thinner than ever
3 in these times and don't actually have money to
4 spare. But often it's about doing more with what you
5 already have.
6 If you're already paving a new road, for
7 example, why not add a sidewalk or a bike path, too?
8 Or if you're already building a housing development,
9 why not add a playground? If you've got school gyms,
10 or playing fields empty after hours, why not find a
11 way to open them up to the community at night or on
12 the weekends?
13 I also want to be clear that comprehensive
14 and coordinated doesn't mean centralized. I have
15 spoken to so many experts on this issue, and not a
16 single one of them has said that the solution is for
17 the federal government to tell people what to do.
18 That doesn't work.
19 There is no one-size-fits-all answer to
20 this problem. Because what works in Rhode Island
21 might not work in Arizona. What's perfect for Hawaii
22 might not be right for Minnesota. Different states,
23 27
1 as you know, have different needs, and different
2 priorities, and different resources.
3 And you all know best what's going to work
4 for the people that you serve. You know what's
5 working, and you know what isn't. That's why the
6 NGA's efforts to support this issue and to provide
7 best-practice is going to be so valuable. It has
8 already been.
9 That's why I have reached out to so many
10 of you to get your ideas and your input and to learn
11 more about how we can help you. And I want to hear
12 from every single state, of every size, from every
13 region. I want to work with leaders from both
14 parties. Because the way I see this, there is
15 nothing "Democratic" or "Republican." There is
16 nothing liberal or conservative about wanting our
17 kids to lead active, healthy lives.
18 There is no place for politics when it
19 comes to fighting childhood obesity--and I know all
20 of you agree. I know that.
21 (Applause.)
22 MRS. OBAMA: You know that because, with a
23 28
1 phone call, or the stroke of a pen, you can determine
2 whether a child can see a doctor, or get a decent
3 education, or have a safe place to play. Because you
4 all are fighting the real battles every day on behalf
5 of our kids, and you don't have time for the fake
6 battles.
7 You are interested in what works, what
8 makes a real difference in people's lives, what will
9 make things better for the next generation. It's
10 funny, because that's what drove President Theodore
11 Roosevelt to call the very first meeting of this
12 organization a century ago to speak to America's
13 governors about conservation, about preserving
14 America's beauty and bounty not just for the current
15 generation but for generations to come.
16 Working for the next generation is what
17 drives so many Americans to do what they do, to work
18 that extra shift, to take that extra job, to go
19 without, themselves, just so that their kids can have
20 more than they did. It's what we've always done in
21 this country.
22 I know my parents have done it for me.
23 29
1 They measured their success by the success of their
2 children, by whether their children were happier and
3 healthier and had a better shot at fulfilling their
4 dreams than they did.
5 That's why so many of you got involved in
6 politics in the first place, to leave something
7 better for those who are going to come after you.
8 And in the end, that's what Let's Move! is all about.
9 It is simple.
10 Let's stop wringing our hands and talking
11 about it and citing statistics. Let's act. Let's
12 move. Let's give our kids the future they deserve.
13 I look forward to working with all of you
14 in these efforts over the months and years ahead.
15 I'm going to need you. I'm going to need you
16 championing these causes, giving me feedback, giving
17 me direction and guidance. It will not work any
18 other way. And our kids can't afford for us to get
19 this wrong--and we know it.
20 So thank you in advance for your help, and
21 I look forward to seeing you all on the dance floor
22 tomorrow night.
23 30
1 (Laughter.)
2 MRS. OBAMA: Thank you, so much.
3 (Applause and audience stands.)
4 CHAIRMAN DOUGLAS: Well we thank
5 Mrs. Obama for her compelling remarks on an important
6 challenge for our kids, and indeed for all the
7 American people. Childhood obesity has definitely
8 become a serious problem all across the country, and
9 we need to encourage better health outcomes for all
10 of our kids.
11 I look forward to seeing Governor Manchin
12 doing that DDR, or whatever it was.
13 (Laughter.)
14 UNIDENTIFIED SPEAKER: We'll teach you.
15 CHAIRMAN DOUGLAS: Not right now, but
16 sometime.
17 (Laughter.)
18 CHAIRMAN DOUGLAS: In addition to the
19 efforts that Mrs. Obama described to improve our
20 children's health, our kids need a health care system
21 that supports them along the path to a healthy
22 future. Obesity is just one of the costly conditions
23 31
1 that increase health care spending. Chronic
2 diseases, little prevention, duplication of services,
3 and medical errors all contribute to the ever-
4 increasing cost of care.
5 Before we hear from our guest speakers
6 this morning, I want to talk for just a moment about
7 the initiative that I've launched for NGA called "Rx
8 for Health Reform," which gives governors the
9 opportunity to explore ways that we can improve our
10 health care systems in our states.
11 Ranging from prevention and wellness, to
12 payment reform and quality measurement, governors can
13 make their health care systems more efficient and
14 effective, leading to cost containment and better
15 outcomes for our residents.
16 As part of the initiative, we are going to
17 conduct a summit on state-based health reforms next
18 month. You are all invited to send your state
19 leadership teams to learn from each other, to hear
20 from experts in the field, and plan for efforts you
21 would like to take in your states.
22 Later in the spring we will be releasing
23 32
1 a delivery system report highlighting the
2 background, evidence, and options for improving
3 delivery systems.
4 Toward the end of the year, we will kick
5 off a series of regional meetings on how states can
6 implement reforms and look to some of the issues that
7 are similar across various areas of the country.
8 These activities would not be possible
9 without the generous support of our initiative
10 funders. Without your help, I wouldn't be able to
11 offer the governors of our nation the resources to
12 help them implement health care reforms.
13 I want to thank the following supporters
14 who have helped make this possible this year:
15 California Health Care Foundation; the
16 Commonwealth Fund; State Coverage Initiatives; the
17 Robert Woods Johnson Foundation Program; the Centers
18 for Disease Control and Prevention, and Health
19 Services and Resource Administration at the U.S.
20 Department of Health and Human Services; AstraZeneca
21 Pharmaceuticals; Blue Cross Blue Shield; Cerner
22 Corporation; Endo Pharmaceuticals; GlaxoSmithKline;
23 33
1 Hewlett-Packard; Intel; Kaiser Permanente; MAXIMUS;
2 Medco; and Merck.
3 We appreciate all their support for our
4 health care initiatives for NGA.
5 (Applause.)
6 CHAIRMAN DOUGLAS: It is so important that
7 we improve the delivery of care in our country. We
8 spend too much money on health care for too little
9 return. We have a system that encourages
10 inefficiencies, promotes duplication and waste, and
11 too often does not encourage disease prevention;
12 instead, opting for expensive care after patients are
13 already sick--like diabetes, and obese children.
14 Whenever policymakers discuss health care,
15 they are discussing a complex web of political,
16 economic and social issues that will have a profound
17 impact on the people of our country.
18 I think that Congress has discovered just
19 how complex and difficult the task is of changing the
20 health care system. Beyond the political
21 complexities, there is the public understanding of
22 what they have now and what they want.
23 34
1 Americans have every right to worry about
2 how reforms will affect the affordability of the care
3 that they receive. They have an equal right to worry
4 about how inaction will affect them.
5 With so much time and energy spent
6 discussing where the money comes from, we miss the
7 crucial fact that no matter who pays, health care
8 costs are on track to bankrupt our families,
9 businesses, states, and indeed our country if we
10 don't act boldly to reform our delivery system.
11 While the outcome of federal efforts
12 remains unclear, we as governors have the opportunity
13 to continue to fulfill our roles as the leaders in
14 addressing the key cost drivers, improving the
15 quality of our system, and providing better access to
16 care.
17 We need to continue to make changes in how
18 we deliver care, how we direct and align payments,
19 and how we realize health and wellness to promote a
20 healthier population.
21 These are the things that will truly
22 reform health care and contain spending. We must
23 35
1 drive value in our system, but it will take a range
2 of efforts to be successful and sustainable.
3 Think about it. When Americans are
4 healthier they spend fewer dollars on health care
5 services. Insurance companies and government
6 programs pay fewer claims, and taxpayers and policy
7 owners ultimately save money.
8 In Vermont we have gained national
9 recognition for successfully implementing
10 comprehensive reforms. Our blueprint for health is
11 built on the premise that prevention and improved
12 care for chronic illness will result in a healthier
13 population, appropriate and timely treatment, and
14 significant cost savings for individuals and for
15 government.
16 All of our payers--Medicaid, private
17 insurers, large employers, and we hope soon
18 Medicare--participate in the blueprint efforts.
19 These aren't just theories about what will happen
20 sometime in the far off future, these reforms are
21 having a real impact on people's lives today.
22 Innovative state programs like ours can
23 36
1 serve as models for the federal government and for
2 other states. If we focus on improving our delivery
3 system, we will reduce health spending and improve
4 health outcomes.
5 Here to give their perspectives on the
6 gaps in the system, as well as what we can do to make
7 our system more efficient and effective, I am pleased
8 to welcome two respected and experienced speakers.
9 They are both physicians. In fact, both are
10 surgeons. They have first-hand experience with the
11 way our system works. They are both leading
12 thinkers, as well, who strongly believe that our
13 system must change to provide Americans with high-
14 quality, cost-effective care.
15 I am going to invite each of them to make
16 their remarks before we open it up for questions from
17 the governors.
18 Our first speaker this morning is a
19 surgeon and writer. You may be familiar with his
20 articles in The New Yorker, as well as his recent
21 best-selling book, The Checklist Manifesto. Dr. Atul
22 Gawande is a surgeon at Brigham and Women's Hospital.
23 37
1 He's a staff member of the Dana Farber Cancer
2 Institute, and he teaches and conducts research at
3 Harvard University. I'm not sure what he does in his
4 free time, but we're glad he has a little to join us
5 this morning.
6 He has published research studies in areas
7 ranging from surgical technique to U.S. military care
8 for the wounded, to error and performance in
9 medicine. Dr. Gawande has received much recent
10 attention for his ideas on improving our health care
11 delivery system, and it is a real honor to have him
12 with us at NGA today.
13 Let's all welcome Dr. Atul Gawande.
14 (Applause.)
15 DR. GAWANDE: Well I am deeply flattered
16 you would ask me to come talk to you. I am coming to
17 you not as a particular expert but as a still-young
18 doctor. I came into my practice six years ago, where
19 I joined the faculty, and what I have been interested
20 in even from the time that I was in medical school is
21 understanding what it means for us to be great at
22 what we do in medicine.
23 38
1 Along the way, the deepest struggle that
2 you encounter when you're trying to become a good
3 clinician is not actually the money, or the insurance
4 hassles, or the malpractice issues--though those all
5 make our lives more difficult; instead, I think the
6 thing that we miss in this debate that goes on
7 nationally, the hardest thing, is the complexity of
8 what we are trying to pull off.
9 Medicine half a century ago was not
10 costly, and it wasn't effective. Today, at the start
11 of this new Century, we have since then accumulated
12 what are now 6,000 drugs that I can prescribe, 4,000
13 medical and surgical procedures, and we have
14 identified treatments for now more than 13,000
15 different diagnoses--13,000 different ways the human
16 body can fail.
17 What we are trying to pull off in medicine
18 is deploying all of this, town by town, no matter how
19 big or small the town, and making sure that this gets
20 to every person alive in the country. Is it any
21 surprise that we are struggling to be able to do
22 this?
23 39
1 Now all of those discoveries have proved
2 to be hugely valuable. Life expectancy since 1960
3 has increased by 5 years. That is almost entirely in
4 people over the age of 65. So now people over the
5 age of 65 live on average 19 years more. They have
6 longer lives and face disability much later in life.
7 And that has its own problems, especially when we are
8 in a society now where retirement, oddly enough, has
9 declined. The average age of retirement went from 67
10 to 61 during this period. And so we are struggling
11 with that, but that is kind of a separate issue.
12 The other, the deep issue of cost and
13 quality in medicine has to do with the structure of
14 medicine we have for handling all of those thousands
15 of drugs and operations and everything we provide.
16 We are still small, and fragmented, and artisanal in
17 nature.
18 The volume and complexity of the
19 discoveries we have has now exceeded our ability as
20 individual specialists or artisans to deliver optimal
21 care reliably and safely and without wasting
22 resources of our patients and the public.
23 40
1 Now there is no question that part of the
2 reason why is that because the technologies that I
3 just described are very expensive. But the piecemeal
4 fee-for-service system that we've worked in has
5 exaggerated these costs. It has led to care that you
6 all know is uncoordinated and inconsistent. It has
7 led to neglect of low-profit services like mental
8 health care, geriatrics, primary care, and it has led
9 to almost giddy, I think, overuse of high-cost
10 technologies like radiology imaging, brand-name
11 drugs, and elective surgical procedures some of which
12 I do.
13 But the result that we can see is 40
14 percent of coronary artery disease patients,
15 pneumonia patients, asthma patients, are receiving
16 incomplete or inappropriate care, as just a small
17 example. And the other result is the explosion in
18 our costs where, if we are doing nothing, by 2019 we
19 will have those family insurance plans that we are
20 already seeing 30-plus percent increases in the next
21 coming year heading up to $27,000 by 2019; labor
22 costs rising for health care from 10 percent of wages
23 41
1 to 17 percent; and doubling of state budgets.
2 There is underneath this, however, a
3 remarkable variability in the cost and the quality of
4 care that different medical communities provide. And
5 you will find that two communities within your own
6 states, which have the same levels of poverty and
7 health, can differ by as much as 50 percent in their
8 costs of care.
9 That is both frustrating, and the hope,
10 because those that are getting better results are not
11 necessarily--in fact, most often aren't--the most
12 expensive ones. They are often the least expensive
13 communities.
14 This led us to the painful realization
15 that our local health systems are not really systems
16 at all. We are a big country, and it has been
17 distressing to watch us discover that it is not clear
18 we are capable of even trying to solve the problem of
19 cost and coverage on a national level. But there is
20 no reason states can't.
21 What we are up against is trying to
22 recognize that we are trying to drive local medicine
23 42
1 to create local health systems where there really
2 hadn't been ones. That means local health systems
3 that feel they are taking responsibility as
4 communities for getting better results at lower costs
5 for their communities.
6 I am speaking here of physicians, and
7 hospitals, and nurses, and nurse practitioners, and
8 all of the other people involved in the system of
9 care.
10 There are three missing functions that are
11 required to get there that are not now served by us
12 as clinicians, or insurers, or others along the way.
13 Number one is transparency. We need to
14 make the health systems results visible to all that
15 are involved. Each of us have become more and more
16 specialized in our training, and we are very good at
17 what we do, but we are increasingly in narrow jobs
18 with little sense of the big picture and our effect
19 on what is happening.
20 I worked with and got to know a team of
21 surgeons in Cedar Rapids who asked an interesting
22 question. They said: We're a town of 300,000
23 43
1 people. How many CT scans did we order for our town
2 of 300,000 people in a year?
3 It took them three months to find out. It
4 was extremely hard trying to get insurance
5 information and, you know, it was so fragmented you
6 couldn't get it together. But after three months
7 they found the answer.
8 In 2008 they had done 52,000 CT scans for
9 a population of 300,000 people. And they were
10 embarrassed. They were embarrassed because they had
11 not realized. And what's even more embarrassing is
12 that that is likely the average across the country.
13 They are not an unusually profligate community. They
14 just happen to be one of the few that asked the
15 question: How many do we do?
16 It is like trying to ask clinicians to do
17 better with quality and cost at this moment is like
18 trying to ask people to drive a car without a
19 speedometer. We have good county-by-county
20 unemployment statistics. We have county-by-county
21 livestock statistics. We cannot tell you how many
22 operations were done, how many CT scans were ordered,
23 44
1 let alone how many died from those operations, or
2 died from pneumonia.
3 The information is three to four years
4 out of date nationally, and not at a level that can
5 help us guide in our local communities what can be
6 done.
7 But there are efforts that are underway in
8 multiple states now to create what are called All-
9 Payer Databases, but essentially asking that you get
10 the public and private insurers together to gather
11 the information and make timely information available
12 to the people at the front lines about how they
13 actually are doing on that broad level. Tell us how
14 we're doing on costs, how we're doing on quality.
15 That is the first place to start, making
16 the system visible to ourselves.
17 The second is payment innovation. We are
18 not exactly sure how to make it so that hospitals and
19 clinicians are more accountable for higher quality
20 and lower costs, but we know the fee-for-service
21 approach has been a disaster for ourselves.
22 There are a few states that are beginning
23 45
1 to walk down this path, and multiple insurers that
2 are beginning to work down this path, of
3 transformative changes to reward those health systems
4 that bring the fragmented parties together and have
5 them drive towards higher quality and cost of care as
6 the way that they are actually paid.
7 The best example I can give that
8 illustrates both the problem and the kind of solution
9 we're trying to get to is:
10 Children's Hospital in Boston, right
11 across the street from me, decided to work on a
12 project to reduce their costs and improve their
13 quality of asthma care. They instituted basically a
14 checklist for any kid admitted to the hospital for
15 the first time or coming to the emergency room with
16 an asthma attack.
17 It turned out to be some very simple
18 things. Make sure they've been prescribed inhalers.
19 Make sure that a nurse has called the family at home
20 to go over--a couple of months after the admission--
21 to make sure they know how to give the inhalers to
22 their kids. Make sure they have an actual
23 46
1 appointment for follow-up with the physician within
2 two weeks.
3 And, interestingly, make sure that they've
4 got a vacuum cleaner, because the conditions in homes
5 of dust accumulation has been enough that they've
6 started giving out vacuum cleaners. Not something
7 you normally see doctors do.
8 But after putting in this checklist, they
9 had a greater than 80 percent reduction in admissions
10 and emergency room visits for that population of
11 patients and a two-thirds reduction in their costs.
12 Now guess what their number one admission
13 is at Children's Hospital? Asthma kids. And
14 emptying out those beds was going to prove to be a
15 financial disaster for them--unless the state began
16 to come in and find ways to begin to make it so that
17 they were not going to go bankrupt because they were
18 doing the right thing. And that is what the state
19 has started to do.
20 You have seen it in other places like
21 Pennsylvania where their Chronic Care Commission is
22 trying to change the math so that what you're
23 47
1 working towards is healthier patients. The irony
2 here is, the healthier you make them, the more the
3 clinicians lose, and that has to be a change.
4 The third component besides the
5 speedometer, making things transparent, change in the
6 way people are paid, is creating the kinds of
7 collaboratives where you can have people working
8 towards those, the checklist, those half-dozen things
9 that should happen, whether it's the asthma patient,
10 the heart attack patient, the surgical patient, that
11 can give both higher quality and lower cost.
12 That has been successful in multiple
13 states where you've seen everything from the Rhode
14 Island Quality Initiative, to the collaboration in
15 Washington state between the governor's office and
16 the hospital association for convening clinicians to
17 work on specific quality and public health
18 initiatives, and also the cost goals.
19 The only complaint I would have is these
20 have been too small. They have focused on narrow,
21 clinical areas--one place working on asthma and
22 diabetes; another working on a surgical problem--when
23 48
1 what is needed, when you've got a system that works
2 across so many conditions--I said 6,000 drugs, 4,000
3 surgical and medical procedures, it has to be work
4 that hits every clinical area, from emergency rooms,
5 to child delivery, to pediatric care, to chronic
6 care.
7 That means specifically working on
8 problems of infection in hospitals, asthma care,
9 heart attack care, pneumonia, stroke, end-of-life and
10 how we handle both making the quality of death
11 improved and access to the right kinds of care;
12 reducing major complications from surgery, and other
13 areas.
14 But if we create the collaboratives,
15 create the visibility so you can see whether we are
16 improving as we go along, and have the payment
17 innovations, together you can have a system that does
18 not learn how to squeeze as much money out of a
19 system as we can, but learns how to make a
20 functioning system, locality by locality, better over
21 time. Only do one of these, though, and it breaks
22 down.
23 49
1 And that is where it comes to the last
2 step that I would suggest. It feels enormous and
3 hard to pull off, community by community. It is
4 multiple problems trying to be tackled at once. And
5 I know that if I were trying to take this one, I
6 would want to have almost in my back pocket what you
7 would call a beacon community, a county or a town
8 that you are working with as your early adopter to
9 make sure that you have all of these happening state-
10 wide, but you have one place that is willing to
11 commit and work with you towards identifying how they
12 can be better quality and actually be lower cost and
13 demonstrated over the next three to four years.
14 We have lost faith I think that we can
15 handle the complexity of modern society. But just by
16 being governors you have declared yourself among the
17 few who think that loss of faith is wrong. I thank
18 you for it, and I thank you for all your efforts to
19 work on this major problem.
20 (Applause.)
21 CHAIRMAN DOUGLAS: Well, Dr. Gawande,
22 thank you so much for your perspective and insight.
23 50
1 You have given us a lot of food for thought, and we
2 look forward to our discussion shortly.
3 Our second speaker comes to us from one of
4 the most touted real-world successes of delivery
5 system reform, Kaiser Permanente. Dr. Jack Cochran
6 is Executive Director of the Permanente Foundation.
7 That is the organization that represents Kaiser's
8 physicians.
9 He works with the more than 14,000
10 physicians employed directly by the organization to
11 ensure that high quality appropriate care is
12 delivered to the members through innovation and
13 coordinated models.
14 Prior to becoming head of the Federation,
15 Dr. Cochran was head of the Colorado Permanente
16 Medical Group. He is also a surgeon, focusing on
17 head and neck, as well as plastic and reconstructive
18 surgery.
19 Let's all welcome Dr. Jack Cochran.
20 (Applause.)
21 DR. COCHRAN: Well thank you. It is
22 really a privilege to be here.
23 51
1 As we look at the challenges that are
2 facing the country right now in terms of health care
3 reform, the economy, joblessness, et cetera, it is
4 very clear that the states and the state leadership
5 are going to be central to finding the ways that we
6 can move forward, and that you have some of the
7 greatest challenges of leaders anywhere and in many
8 ways at any time. It actually makes me glad that I
9 actually am a physician and not a governor, but as
10 Atul said, I think we are very fortunate that you
11 have taken the mantle seriously.
12 I think that there is a good opportunity
13 for us to really do some learning together. I
14 believe that Kaiser Permanente is a model that has
15 some time and has some real track record of
16 improvement, and of performance, but I also am really
17 particularly interested in sharing with you what we
18 have done in the last very few years. Because I
19 think we are starting to ramp up the kinds of
20 performance based on the principles that the health
21 reform experts really study and look at. And I think
22 we have got some approaches that can be applicable
23 52
1 beyond just our fully integrated system.
2 I am always reminded, as we start even
3 thinking about these discussions or giving these
4 talks, as the First Lady and Dr. Gawande reminded us,
5 this is really about patients. And let's not forget
6 that the role of a patient is an involuntary state.
7 Nobody wakes up in the morning and says;
8 You know, I haven't been a patient for awhile; I
9 think that would be something to do today.
10 So they are the vulnerable ones. They are
11 the ones that are caught in the holes in the net, and
12 they are the ones that are experiencing some of the
13 fabulous care and also some of the problematic care.
14 I am reminded of a quote by the great
15 polio researcher, Jonas Salk. He said: Our greatest
16 responsibility is to be good ancestors. And I wonder
17 about that as I travel the autumn of my career as a
18 physician: what am I going to leave behind? What is
19 my legacy going to be for a care system that works,
20 that's safe, equitable, accessible, affordable?
21 And more than that, what am I going to
22 leave behind for careers? Are we going to create an
23 53
1 area, a place where people want to be nurses, want to
2 be primary care physicians? I think our legacy has
3 got to be one of the things we all look at as we have
4 these jobs where we serve.
5 So I am going to outline a little bit why
6 I think Kaiser Permanente and similar systems--and
7 they are in many of your states if not all of your
8 states--of care are often mentioned as potential
9 solutions. So a very brief overview.
10 Kaiser Permanente is a fully integrated
11 care delivery system with the Permanente Medical
12 Groups, of which I am a representative, and the
13 Kaiser Foundation Health Plan and Hospitals. We are
14 aligned between both financing and care delivery,
15 which is a great advantage.
16 We are in nine states. We have 8.7
17 million members. And we are an organization that is
18 continuing to try to learn how to get better, but I
19 am just going to go over some of the things that I
20 think are important.
21 I am going to contrast, first of all, the
22 difference between my experience of 10 years in the
23 54
1 fee-for-service practice environment versus working
2 in a system; talk about the advantage of integrated
3 systems and identify components that can actually be
4 translated and applied in your communities; and then
5 suggest how this can all fit with reform at the state
6 level.
7 So after completing my surgery training, I
8 joined a three-physician group practice in Denver,
9 Colorado. I worked with excellent physicians,
10 delivered great care, enjoyed it; the necessary
11 emphasis was on building a practice and keeping my
12 surgical schedule full. That was what surgeons get
13 paid for. They don't get paid for necessarily giving
14 advice. So there is a necessary tendency to say keep
15 that surgical schedule full, as we both know.
16 My results were largely managed by myself
17 in my office, and the people who observed my results
18 were myself and my patients. And I had a paper
19 chart. So that was an experience of sort of a small
20 business person working in that kind of an
21 environment.
22 At that time there was a trend going on in
23 55
1 this country--it was in the 1980s--called "managed
2 care." An innocuous enough term, "managed care";
3 sounds like something that might be important to
4 coordinate patients' experiences. But was care truly
5 being "managed" at that time? And by whom?
6 I think what I observed was that decisions
7 were being interfered with, and care was being
8 manipulated more than managed, and it wasn't being
9 run by the physicians where I think the care that the
10 patients trust should be.
11 So the alienation that occurred in that
12 era of managed care was so profound that it went
13 away, and that particular version of managed care was
14 gone. But I believe we have all learned that we do
15 have to manage the process of how people get their
16 health care, and to manage it well, and to manage it
17 by clinicians.
18 Interestingly, there was an exception in
19 my practice in those days, and that was a system
20 called Kaiser Permanente which was down the street,
21 but it had been in Denver for 15 years, was growing,
22 and what was interesting was that their philosophy
23 56
1 was that if care needed to be delivered, one of their
2 physicians would call or write me and say please
3 deliver the case, please do the surgery on this
4 child, please carry out what's necessary. And it was
5 a very different model. It was sort of clinician led
6 and the clinicians were very involved.
7 I think that philosophy was very
8 refreshing to me. And the contrast became a little
9 clearer to me over time. It became clearer also that
10 they had and were continuing to recruit excellent
11 physicians with pretty happy careers. It looked like
12 they were doing really good work.
13 As they grew, they then started to recruit
14 specialists. I was approached, and over a couple of
15 years I decided to join them. So that was a chapter
16 where I then left an autonomous sense of a small
17 group practice which I loved, my friends and
18 colleagues, and went into a system.
19 And it was a bit of a shock, because their
20 mantra was: Do the right thing, but accept more
21 accountability. There are a lot of issues in health
22 care, and physicians need to be more broadly
23 57
1 accountable.
2 I was also introduced into a culture of
3 measurement. They kept track of what was going on
4 and what the results were, and the measurement took a
5 little getting used to because it wasn't just my
6 chart, and it wasn't just me monitoring, there was a
7 sense of pure scrutiny. But there was also a sense
8 of pure support. It was a group practice, truly.
9 And I also learned it was a very good
10 system. And before I close I am going to tell you
11 how I think it has become a great system and why.
12 I'll tell you a story of two internists.
13 One internist was saying--this was about three years
14 ago before I left Denver to move to California--two
15 internists were talking about their practice. One
16 was in about his 60s, been in practice about 30
17 years, and declared: “You know, all this talk about a
18 medical home? I've been a medical home my whole
19 career. I've taken care of my patients. I've
20 coordinated their care. I've been the source for all
21 the care that they need, and people come to me. I am
22 the medical home, and I'm a great practitioner.”
23 58
1 The other one said: “You know, George, you
2 are. You're one of the best internists I've ever
3 worked with. But let me tell you what happened to me
4 10 years ago when I left practice, because I used to
5 compete against you, and went to work for Kaiser
6 Permanente.
7 “They started bringing me data and
8 information, and showing me what they called ‘care
9 gaps.’ And I looked at these rather younger doctors
10 and said: Well what are you showing me care gaps
11 for? I'm sort of the dean of this specialty around
12 these parts.
13 “And actually he said it was interesting,
14 because there really were gaps in what I was doing as
15 far as prevention, usually prescribed things. We had
16 data, and we had guidelines, and he said they then
17 showed it to me and I could close those care gaps.
18 “He said what was wonderful was to watch my
19 practice be documented as a higher quality practice
20 over time. So I actually now not only believe I
21 deliver great care, but I have proof, and I have
22 proof to the most important critic, which is myself.”
23 59
1 It is a very moving comparison of
2 experience.
3 So why a system of care? The Institute of
4 Medicine in 2001 published something called "Crossing
5 The Quality Chasm." They talked about the current
6 systems of care can't do the job, and trying harder will
7 not work. I'm going to talk a little bit about what
8 Dr. Gawande said about why complexity was important.
9 And they said--these are the best thinkers
10 in health care, not a political group--organizations
11 needed to negotiate six challenges:
12 Redesign care processes based on best
13 evidence, the honest, best science;
14 Effective use of information technology--
15 you have to have IT to make this happen;
16 Knowledge and skills management;
17 Development of effective teams;
18 Coordination of care across conditions,
19 services, and settings; and
20 Use of performance outcomes and
21 measurement to make adjustments and to learn.
22 Newer concepts of this sort of thinking
23 60
1 are coming out in some of the policy around
2 accountable care organizations. I think
3 organizations like Kaiser and Geysinger, and many
4 others, are accountable care models for care.
5 And yet there are many, many dedicated,
6 caring, intelligent physicians in our communities and
7 our states, but as Dr. Gawande said, there has been an
8 explosion in complexity, and we are all, in spite of
9 our good training and good backgrounds, we are all
10 human.
11 Patients with current complex conditions
12 and co-morbidities are becoming more prevalent.
13 Patients are living to develop multiple
14 complications, multiple diseases, on multiple
15 medications that are all requiring a certain amount
16 of sensitive interaction.
17 The medical literature and medical
18 information has exploded. The number of journals
19 during my career has gone from a few--I mean, Marcus
20 Welby could actually read every night and read most
21 of the literature, and today the number of journals
22 is vast, and the number of articles is vast. And the
23 61
1 other sources of information--the Web, the various
2 things that we can look at, and our patients can look
3 at. Patients go online with groups with their type
4 of illness and find out things about that.
5 So we have to be able to manage all that
6 complexity. The diagnostic capabilities. He talked
7 about the use of CT scans in one community. And the
8 types of therapies are also, as outlined previously.
9 So the best physicians, the best ones need
10 support in a practice to negotiate these kinds of
11 challenges. I think support looks:
12 Health IT;
13 Aligned colleagues;
14 Good health care teams; and
15 The availability at the moment of
16 practice of more knowledge than just you can
17 translate into your head.
18 So I just want to share three examples of
19 why a system that's integrated with IT can really
20 make some changes. These are just brief clinical
21 examples. They're all real. They're all published.
22 The first one is called Collaborative
23 62
1 Cardiac Care. Patients who have myocardial
2 infarctions, a very, very serious condition, need
3 secondary prevention. After they've had their event,
4 there is a significant mortality to have a second
5 event. And secondary prevention involves a lot of
6 things.
7 This particular part of the organization
8 decided they would take these patients and put them
9 into a computer registry where all the information
10 was available. And then they created a team with a
11 physician, with a nurse, with a clinical pharmacist.
12 And the clinical pharmacist is one of the keys to a
13 lot of these programs because they're an asset that
14 we often under-leverage.
15 They then take this registry of patients
16 and monitor them over time. They monitor their
17 weight, their smoking habits. They monitor their
18 activities, blood pressure, medications, and
19 laboratory, and patients are actually being monitored
20 by teams when they're not even sitting in front of
21 the patient--not even sitting in front of the
22 physician.
23 63
1 And guess what? When you really take on
2 something like secondary prevention and you stay in a
3 program like this for three-and-a-half years, there
4 is a 73 percent decrease in the overall mortality:
5 135 averted deaths. That is based on historical
6 controls and the data is published. Plus, 260
7 emergency interventions.
8 Those interventions are expensive to the
9 health care system, but just imagine the patient who
10 has already been through the terror of having one
11 myocardial event to their heart, and now back having
12 another event. So it is really about what it does to
13 the patient.
14 Next, upstream we had another thing called
15 PHASED, Preventing Heart Attacks and Strokes Every
16 Day. This is another upstream use of data,
17 information, and teams to prevent heart disease. So
18 patients at risk are identified. Their laboratory
19 tests are monitored, and the appropriate medications
20 are prescribed. And over time, a significant
21 decrease in myocardial events again happens there,
22 primarily, not secondarily.
23 64
1 And the last example is a program we call
2 "Healthy Bones." Osteoporosis is a big problem in
3 our aging population. Patients are at risk for hip
4 fractures. And hip fractures in the elderly have a
5 significant mortality. I mean, they hurt. They are
6 disabling. And they also cause death.
7 This again, a multi-disciplinary team
8 identified patients at risk; do the appropriate
9 laboratory screening; getting them their DEXASCANS,
10 their laboratory, and then giving them the right
11 prevention, the right instructions. And what
12 happens?
13 Historically, this region would have 2500
14 hip fractures in a year, and in 2007 they had 1500
15 hip fractures, 907-some less hip
16 fractures, and that is a $36 million savings.
17 Why do I tell you these examples? Well,
18 because a lot of the stuff you hear in the policy
19 world sounds theoretical; it sounds possible; it's
20 actually doable, and it is actually being done.
21 What is really good about this kind of
22 program is, if you have an orthopaedic surgeon on the
23 65
1 team to prevent fractures, that is very cool.
2 Because what you are doing then to that orthopaedic
3 surgeon is you are paying her well to do well.
4 You're not paying her more to do more. So it is
5 really a great use of a specialist, besides just
6 fixing fractures.
7 So the key features in learning that I
8 think can be taken back from this are:
9 Integration of care is a very important
10 process toward creating systems, and it can be done
11 virtually. And I'm going to talk about that;
12 IT and information technology is
13 important; and
14 Payment methodologies such as bundled
15 payment really allow the ability to distribute care
16 in the right ways and to create opportunities for
17 people to collaborate differently, and great team
18 development, and we have great relationships with our
19 labor partners in our organization.
20 The learnings from this are quite simple.
21 You need information, and it's got to be in front of
22 you. And that's why the last three or four years
23 66
1 we've seen Kaiser Permanente take another leap in
2 terms of our ability to function. And that's IT
3 systems with real data.
4 You then have to have some methodology of
5 surveillance, either electronically or by teams. You
6 are following patients along, and then you outreach
7 to them and reach out to them. And actually you can
8 care for patients without even seeing them sometimes.
9 This allows you to ask different
10 questions. The question of our broken system is how
11 many patients can you see? You're now able to ask
12 questions like how many patients' problems can you
13 solve? And that is a very different model and it
14 allows for this kind of innovation.
15 I just want to finish this part before I
16 close by saying: Don't say, well, you can do this
17 because you're Kaiser Permanente. We couldn't do it
18 until we did it. And there are places in your
19 communities that are doing it right now.
20 Cedar Rapids, Iowa, is doing some great
21 work through a collaborative there to create
22 community integration at a virtual level.
23 67
1 In Phoenix, the Arizona Integrated
2 Physician Group has created a virtually integrated
3 group that's measuring data and creating different
4 outcomes.
5 And in Colorado, the Denver Health System,
6 which is a safety net organization, is fully
7 automated and takes care of patients in a very
8 integrated manner.
9 So Kaiser Permanente I think is an
10 excellent model, but some of the learnings are
11 applicable broadly.
12 So I will finish by saying, from the
13 policy point of view what does this mean to me? I
14 think we need to create incentives systems; that's an
15 excellent way to manage the complexities and care.
16 And I think that the incremental paying of fee-for-
17 service misses the opportunity to really develop
18 systems, and systems that can coordinate care and
19 deal with the complexity that Dr. Gawande talked
20 about.
21 Delivery system reform and payment reform
22 are essential. They must be central to policy
23 68
1 reform. Coverage is important, but it is simply a
2 start along the way.
3 And what a group you have. First of all,
4 you have among you some of the greatest thinkers in
5 this area, some early adopters who have really moved
6 forward. I think some of you--I've met with people
7 from some of the states--say yes, we have. We're
8 halfway across the river. And that's a very
9 interesting place to be, because halfway gives you
10 two options. And I think what you all are saying is,
11 well, I think we need to get to the other side
12 because we're learning.
13 I met with some people from Minnesota,
14 Massachusetts, and Vermont in the fall and they are
15 really understanding that they have opened it, and
16 the complexity is really something that they are
17 dealing with. But it can be done.
18 So I think you have to look at issues of
19 coverage. Payment pilots, as Dr. Gawande talked
20 about. Look at what makes an accountable care
21 organization, and why it is more than just a
22 structure or a political construct.
23 69
1 Health IT. We could not do the things
2 that we are doing without Health IT. There is a
3 measure of clinical quality. The National Committee
4 on Quality Assurance, NCQA, measures. And Kaiser
5 Permanente as an organization about 10 years ago
6 said, you know I think in the nation we ought to be
7 in about the top quartile. We ought to get to the
8 top quartile, be better than 75 percent.
9 Then about five years ago we were there,
10 and we thought maybe we could get to the top decile.
11 And then what has happened over the last few years is
12 we now have IT systems where there is undeniable data
13 sitting in front of us, and we're looking at it, and
14 we're saying, my goodness, we've got these gaps. And
15 we are now in many measures tops in the nation and
16 number one.
17 If you look at NCQA's assessment of
18 Medicare programs, of the top 15 of all the hundreds
19 of programs in the country, Kaiser regions are sixth of
20 the top 15. So we have really learned, and we are
21 continuing to learn how to leverage integration and
22 IT and systems.
23 70
1 So I will just finish with one point, if
2 it's not obvious: Physician leadership is essential.
3 If you are sitting in a community and saying, you
4 know, we really want to do this but the doctors
5 aren't on board, I would say keep looking.
6 I think every community has physicians who
7 are frustrated with the system and who want to create
8 a better system. I think they are in your
9 communities. You have to identify them, recruit
10 them, and support them. But I think that physician
11 leadership is essential because to develop systems
12 you have to have the clinicians who are thinking
13 together and look at the bigger picture and have a
14 bigger point of view.
15 I think you have to understand and support
16 the power of IT. For us it's been a great
17 transformation. And then payment reform. Payment
18 reform gives you the opportunity to be much more
19 innovative in how care is delivered because you can
20 take an orthopaedic surgeon, and again pay her well
21 for doing well, and be part of a team that creates
22 better outcomes and preventions.
23 71
1 And then the standards of best care and
2 practice, as we've talked about, must be developed.
3 So in summary, I think I tried to contrast
4 for me the difference between a system that was a
5 nonsystem that I worked in, that I frankly quite
6 liked, how I thought there was a better system ahead,
7 got into it clinically, ended up in leadership, and I
8 believe that there are applications from what we've
9 learned that are useful in your communities as well
10 as in your policy thinking.
11 So thank you for taking on these jobs. It
12 is a tough time to be a governor, and I certainly add
13 my appreciation to your work. So thank you.
14 (Applause.)
15 CHAIRMAN DOUGLAS: Well thank you,
16 Dr. Cochran. We really appreciate your perspective
17 and the experience that you bring to this discussion
18 and how it might be applied to all of our states.
19 We have got some time for questions of our
20 two guests. Governors? Governor Lynch.
21 GOVERNOR [John] LYNCH: First of all, Governor
22 Douglas, thank you for focusing on this. This
23 72
1 obviously is not just a health care issue; it's an
2 economic development issue.
3 So many business people I talk with,
4 because of the rising cost of health care, are
5 forced into a position of reducing coverage for
6 their employees, and in some cases dropping
7 coverage for their employees. Their costs are going
8 up, and they cannot raise prices obviously. And it
9 is also impeding their ability to grow and hire more
10 people.
11 But my question has to do with, we could
12 do all of the things that you are suggesting--
13 transparency, getting away from fee-for-service,
14 accountable care organizations focused on prevention
15 and wellness, IT--and I still worry whether that will
16 be enough to stop the growth in costs.
17 My question is: Don't you think we need
18 cost targets? Because if we don't have cost targets,
19 we could do all of these things, do them well, and
20 costs will still go up. And whether it is a cost
21 target at the state level, percent of gross state
22 product, or per capita costs, or whether in a
23 73
1 community getting people to work toward a cost
2 obviously while at the same time not sacrificing
3 quality.
4 So that's my question to you all, that I'm
5 concerned we could do all of this and still not stem
6 the cost increases that we are seeing on an annual
7 basis.
8 DR. GAWANDE: I'll jump in here and say a
9 couple of things.
10 One is that, where we got in trouble was
11 where we started to have purely cost targets, because
12 it lost the public's trust that this was anything
13 except about the money. It was not about making a
14 better health system for them.
15 And the gamble here is the idea that we
16 can set our goals on quality and be able to achieve
17 those cost goals, as well.
18 I sat in my own hospital's financial
19 meeting for our department of surgery, and what was
20 interesting to me was we have a cost target. Our
21 target is a 7 percent revenue increase every year for
22 the next few years. And that actually is the average
23 74
1 for American hospitals. The average American
2 hospital expects a 7 percent increase in revenue each
3 year.
4 And unless we have the clinicians and
5 hospitals on the same page, which is that every other
6 industry is expecting a 2 percent increase in revenue
7 each year and is learning to live within that, then
8 what will happen is you can have the transparency
9 about quality, have the payment innovation, have the
10 collaboratives, but then they will find other ways to
11 fill those hospitals’ beds and have elective, you
12 know, other services on the side that get it in.
13 And so part of the transparency I think is
14 also having both the quality and cost markers out
15 there.
16 Maine has tried the approach of having a
17 cost target as a voluntary matter, and just by making
18 it visible they found that they were able to lower
19 the cost growth rate. And this isn't about simply
20 lower the costs, it is just trying to take us off a
21 trajectory that is three times faster than wages are
22 growing, and begin to point us in the right
23 75
1 direction.
2 CHAIRMAN DOUGLAS: Dr. Cochran.
3 DR. COCHRAN: I would say that, as we get
4 better at the transparency that Atul talked about, we
5 will really have a greater sense of corporate or
6 personal responsibility.
7 There was a study that was done a few
8 years ago in the British Medical Journal by a
9 professor who studied the National Health Service
10 versus Kaiser Permanente.
11 He came out saying that, you know, pound
12 for pound, pound for dollar, and quality for quality,
13 that they got better results, Kaiser got better
14 results for its quality, and better results in terms
15 of finance and affordability. And he had good data.
16 Now his conclusions were threefold. We
17 had an integrated system. We didn't have an
18 incentive toward fee-for-service as a methodology for
19 growing business. And, three, we had competition.
20 And he felt like competition was extremely important.
21 So, you know, as much as I like Kaiser
22 Permanente, you're probably better off to have four
23 76
1 Kaiser Permanentes in your state than one taking care
2 of the whole state. I think competition is going to
3 be an important, enduring part of this. But
4 transparency of data, I'm learning in an organization
5 that's getting better and getting more transparency,
6 is very powerful. Because that's when you start to
7 get that impetus of a coalition of people that are
8 saying, actually, you know, this is real and we
9 really need to act on it. And at that point in time,
10 the old methods of rationalization get a little pale.
11 CHAIRMAN DOUGLAS: Governor [Jennifer] Granholm.
12 GOVERNOR GRANHOLM: I am so grateful that you
13 brought these two speakers here.
14 Dr. Gawande, I didn't realize that you
15 were going to be here, but I have been distributing
16 your article in The New Yorker to everyone I know of.
17 If you haven't read it, it is the single best
18 article, most accessible article that you can read, I
19 think, about bending that cost curve.
20 So this really isn't a question. Just a
21 statement that I encourage you all to read it. And
22 perhaps if it hasn't been distributed, Governor
23 77
1 Douglas, we can do that through this session so that
2 people have access to it. It is a terrific, terrific
3 piece.
4 CHAIRMAN DOUGLAS: That's a great idea,
5 unless it's a copyright violation.
6 DR. GAWANDE: It's all yours.
7 (Laughter.)
8 CHAIRMAN DOUGLAS: That's a great
9 suggestion, governor. Thank you.
10 Governor [Deval] Patrick?
11 GOVERNOR PATRICK: Thank you, as well, and
12 thanks to our speakers for being here. Those were
13 wonderful presentations.
14 I wanted to just come back to the payment
15 reform point. Dr. Gawande will know that we have had
16 a payment reform commission at home in Massachusetts,
17 and they have unanimously recommended we move away
18 from the fee-for-service custom to a medical home or
19 global payments structure.
20 But the breakdown has come over the pace
21 of transitioning from where we are to where we need
22 to go. And five years is viewed as too fast. And I
23 78
1 would like you to comment on that. Because while it
2 is too fast from the perspective of some of those
3 hospitals and provider groups and so forth, to John's
4 point, small businesses and families are drowning
5 under these double-digit increases in premiums year
6 over year.
7 DR. GAWANDE: I am in the middle of this.
8 I am a fee-for-service paid surgeon in Massachusetts,
9 and we are embracing the idea that we have recognized
10 that I can't be paid the way I used to be paid.
11 And now you sit there saying, okay, for
12 let's say a kind of cancer I take care of, that we
13 would receive a bundled payment. And our fear is,
14 how do you make that work in such a way--how do I
15 make that work in such a way my patients get better
16 care, and also I am not somehow screwed along the
17 way. And the reality hits us right in the face.
18 I am going to get a fixed payment with a
19 team of people, and how are we going to divide up the
20 money between the radiation therapist, and the
21 oncologist, and me, and the primary care? It's a
22 battle we don't want, and you are pushing us towards,
23 79
1 and we need to have, and it's the right place to be
2 pushing us.
3 Five years feels very fast because we've
4 been paid the same way for a century now. And we
5 also don't know what it actually looks like in the
6 details. And the short answer for this, I would say,
7 is that once you make it work in one place it is much
8 more likely to move faster in the others. But the
9 reality is that we have not seen the transition.
10 So Kaiser Permanente, or Cleveland Clinic,
11 and other places have made a transition to global
12 payment models over many years, over decade. We have
13 not taken any community anywhere in the country and
14 made it go the other way.
15 And so my sense of it is that if you're
16 able to take one forward, the others will fall much
17 faster. We have seen it in lots of other places. I
18 have led an effort to reduce surgical deaths by
19 bringing checklists into operating rooms, and I have
20 been thrown out of a lot of operating rooms not just
21 in the U.S. but around the world.
22 The idea that we would transition to using
23 80
1 this checklist was thought to be too fast when we
2 said that the target would be two years. We have
3 achieved it now in 20 countries, by starting first
4 with the early adopters and making sure we could
5 prove it could happen for a group of 10 percent.
6 Once we hit about 10 or 15 percent, we
7 could move within a year to being population-wide in
8 many countries. So that is what I would say: that
9 you're going to get those barbs that five years is
10 too fast; but if you can make it happen in one place
11 first, the rest is more likely to follow.
12 CHAIRMAN DOUGLAS: By the way, I recommend
13 Dr. Gawande's latest bestseller. I'm not being paid
14 for this, but it's a real look at how an innovation
15 can make a significant difference in quality of
16 outcome and surgical procedures and reduce costs at
17 the same time.
18 Dr. Cochran?
19 DR. COCHRAN: I would actually echo that.
20 He's a prolific writer. I read all of his books, so
21 it is always a pleasure to see a new one.
22 I think we have to be a little intentional
23 81
1 around the process, because I think speed is
2 important, but I think you have to start off with a
3 process that says we're going to convene enough
4 people to get the context right so we're looking at
5 the same problem.
6 That way, you have physician leaders and
7 people who are going to be involved. And that is a
8 little iterative and takes a little time, but once
9 you sort of have the context agreed upon that we
10 understand what the problem is, then you set forward
11 that this is where we need to go. And you have to
12 invest in training, and in IT, and the necessary
13 systems so that it can happen.
14 I think then you find the early adopters.
15 Make them take the systems you have invested in with
16 the agreed upon sort of mission, if you will, and get
17 some success. I think you will see slow change, and
18 then you will start to see momentum. And I think the
19 momentum is when the early adopters, who are now the
20 peers--they're not the governors, or the leaders--but
21 when the peers say this is really working, then I
22 think you have the opportunity to create momentum.
23 82
1 GOVERNOR LINGLE: Jim?
2 CHAIRMAN DOUGLAS: Governor [Linda] Lingle.
3 GOVERNOR LINGLE: Thank you. Just to be
4 equally complimentary to our speakers, and I
5 appreciate Mr. Cochran being here. Hawaii is one of
6 the states that has Kaiser, and they do a terrific [job].
7 I received a book from George Halvorson,
8 your president, called Health Care Will Not Reform
9 Itself. If you haven't read that, it is about 110
10 Pages, but it's an outstanding publication, and I would
11 assume every governor got it. I don't know. But I
12 found it extremely helpful.
13 In listening to you today, and listening
14 to your own transition, and knowing the doctors I
15 know on a personal level, it seems to me this is very
16 generational. It is going to be very, very difficult
17 to convince a person who has been in fee-for-service
18 for a long time that this is the way we're going to
19 move as a country and that we should move. And I
20 think the chances of achieving that are minimal.
21 Which brings you to the next point that it
22 83
1 seems to me this should be a function in the medical
2 schools. And in those states that have state-
3 sponsored medical schools like Hawaii, that is what I
4 thought of in listening to you both today, is to go
5 home and to talk at the medical school about are the
6 students getting discussions about these issues.
7 Perhaps they are already, as opposed to
8 just care of patients, but it seems to me for the
9 country to move--and your point about physician
10 leadership is essential. If it's essential, then it
11 needs to be taught. Is that something going on? Or
12 is that something you could speak to?
13 DR. COCHRAN: Yes. Actually, that is
14 exactly on point. It is not a part of the core
15 curriculum of medical education to teach one
16 leadership. So you come out as a professional with
17 training in your craft, but not training in
18 leadership.
19 An organization like the U.S. Army would
20 never do that. They teach you about your craft, and
21 they also teach you about leadership.
22 Actually, I do a lot of training of
23 84
1 physicians around leadership because it is very easy
2 to take a system that's broken and issues that are
3 this complex and assume the role of victim. You
4 know, if the insurance companies, and the lawyers,
5 and all these other people will change, it will be
6 okay.
7 Whereas, it is a little more lonely and a
8 little more courageous to say actually the patients
9 depend on us as physicians to lead this. We have to
10 start opting into the conversation and take some of
11 the complex conversations straight on and represent
12 what could look like a different future.
13 Capitation and global payment and
14 structured systems is not scary; it's a fabulous way
15 to practice medicine. And so Atul and I were talking
16 that I often give talks to physicians, and he's
17 decided that his generation and my generation are not
18 quite as different as I think they are. Because I
19 will often find people who I'll talk about physicians
20 broadening their sense of accountability, because the
21 patients exist more than just in the exam room;
22 they've also got financial problems, and access
23 85
1 problems. And who better to be accountable to
2 patients than physicians.
3 And what's interesting is I will give
4 those kind of talks, and it's a little provocative,
5 and there will be a group of physicians in the room
6 who will get sort of upset with me, and another group
7 who will say, you know, actually that kind of makes
8 sense.
9 And so I think we as a profession need to
10 be in transition away from, there's nothing we can
11 do; you're going to have to fix it to we're going to
12 step in and be as present as we can on behalf of our
13 patients, and whatever that takes in terms of my role
14 I'm going to accept that.
15 CHAIRMAN DOUGLAS: Several more Governors
16 have questions. I'm conscious of the time, so if
17 they could be as expeditious as possible I'd be
18 grateful.
19 Governor [Tim] Pawlenty?
20 GOVERNOR PAWLENTY: Thank you both for the
21 excellent presentation.
22 In Minnesota I guess we would describe
23 86
1 ourselves as being in that middle-of-the-river
2 position. We want to pay well for well, not more for
3 more, as you suggested. And we've made some good
4 progress in a couple of chronic disease categories
5 for paying for outcomes.
6 However, in the near-term, as a proxy for
7 outcomes we are trying to identify best-practice
8 treatment protocols and then, at the very least, pay
9 for following not the checklist but the best practice
10 protocols.
11 We have a hard time, of course, corralling
12 the profession around agreement on what those best
13 practice protocols are. We have a little bit of an
14 advantage in Minnesota because a group affiliated
15 with the Mayo Clinic weighs in on these issues, and
16 we challenge our professionals to say would you
17 really like to argue with the Mayo Clinic? Please
18 proceed. We'd like to hear your argument.
19 But in any event, there is a lot of delay,
20 or at least a lot of work around how do you identify
21 and get professional buy-in and sign-off on those
22 protocols, and it takes a long time.
23 87
1 Could you give us any insight or advice
2 about how that process could be accelerated and
3 agreed upon?
4 DR. GAWANDE: I'll just say quickly, when
5 we were trying to come to agreement among surgeons,
6 anestheologists, and nurses about the half-dozen most
7 life-saving things we've got to make sure happen over
8 and over again, it looked like it was going to take
9 about a year.
10 And then we put patients in the room and
11 moved a lot faster. People are--clinicians become
12 much less willing to say we can't do it, it takes
13 more time when you've got--we brought in a man whose
14 daughter died for lack of oxygen on an operating
15 table.
16 DR. COCHRAN: I'll go back to what I
17 alluded to earlier about the process. You know, you
18 can't go too fast to try to just say, well, just get
19 on board, get on board. But if you really embed that
20 kind of process thinking into it, the first one will
21 take quite awhile. The second one should start to
22 get a little bit easier because people have figured
23 88
1 out that they've had their say, they've been able to
2 get supported, and they understand why we would do
3 that.
4 I think that, you know, physicians are a
5 very heterogenous group. I mean, I serve in some
6 ways 14,000 of them. I can assure you they don't all
7 wake up every morning saying, boy, I hope Jack's
8 having a good day.
9 (Laughter.)
10 DR. COCHRAN: I mean, we are a different
11 group. We're independent, like journalists and
12 governors, very, very independent thinking people.
13 But I also think that over time the more
14 physicians get into the conversations, as opposed to
15 saying, you know, somebody is doing that to us, we've
16 got to own it and be, you know, the people who say we
17 want to be in those conversations. Because
18 otherwise, some regulator will do it to you. And
19 that's really a tough way to manage professionals,
20 just to dictate what to do.
21 CHAIRMAN DOUGLAS: Governor [Don] Carcieri.
22 GOVERNOR CARCIERI: Thanks, Jim. Let me
23 89
1 add my thanks to both speakers.
2 One of the angles I'd like to get a
3 reaction to is, you know, we talk about "the system."
4 And part of the system is utilization. And clearly
5 the patient is what's driving that. And if I'm
6 correct, a high percentage of the cost is related to
7 disease that, frankly, is preventable, or the onset
8 could be delayed much further if people took more
9 responsibility.
10 And one of the things I think we've
11 evolved in the system here is that we've just all
12 gotten used to the idea that, once we get sick, no
13 problem, we'll be taken care of.
14 And so what we've tried to do--and I'm
15 interested in your thoughts--is we have a big focus
16 on wellness, and have had great success actually by
17 building incentives in, for instance, to our state
18 employees health care program.
19 We will now give a $500 deduction for the
20 share of the premiums that the state employees pay if
21 the employee is undertaking a whole host of things:
22 primary care physician; if you're diabetic, making
23 90
1 sure that you check with your endocrinologist; and a
2 whole series of things.
3 We've been able to actually see the costs
4 start to begin to flatten out. And so I'm interested
5 in your thoughts because you can reform the system,
6 but at the end of the day a lot of this is driven by
7 utilization. And how do we incentivize in our state,
8 or incentivize individuals to begin to take more
9 responsibility for things that they can do to really
10 delay the onset of disease?
11 DR. COCHRAN: I would say that, to link
12 back to the First Lady's comments, if you look at the
13 total things that contribute to health, health care
14 is in the 10 to 20 percent range.
15 On top of that is your DNA, your habits,
16 your lifestyle, your diet, and so you're right.
17 There are many places where health can be
18 significantly augmented besides health care. And I
19 think that's what we're also learning in this
20 country. If you look at the employers in your
21 states, many of them are very, very vigorously
22 looking at employee-engagement programs around health
23 91
1 and wellness.
2 So health care is not the major
3 determinant of one's health. And so all these other
4 things, you know, your DNA is not changeable--or I
5 would say, "yet"--but some of the other things really
6 are very much within the realm of programs,
7 employers, governments.
8 DR. GAWANDE: You said it as well as I
9 think I could possibly say it, so I'll leave it at
10 that.
11 CHAIRMAN DOUGLAS: Governor [Mike] Rounds?
12 GOVERNOR ROUNDS: Just a thought.
13 Bringing it back kind of into the practical side of
14 things, Medicaid provides a huge amount of the
15 dollars going into the health care systems today.
16 The reimbursement in our part of the country is
17 between 50 and 52 percent of the billed charges.
18 I'm just curious. In each of your two
19 types of practices and systems, you obviously take
20 Medicaid recipients. How does the payment under the
21 Medicaid schedules, how does that fit into the way
22 that the reimbursement schedules are set up for the
23 92
1 providers that practice in each type of system?
2 DR. COCHRAN: Medicaid obviously varies
3 significantly from state to state, and in some states
4 the program is looked upon as something where a lot
5 of people want to be in, and in some states it's
6 where fewer people want to be in, and actually they
7 find it challenging from a financial point of view.
8 Having said that, I think that there's two
9 things we need to do. Number one, we need to fund
10 programs adequately. Then number two, we need to
11 continue to push on the issues of waste, and cost
12 shifting, and the kind of things we think in care
13 delivery is where the impact can be done.
14 So, you know, as Atul talked about, in a
15 city where you have 50,000-some CTs for 300,000
16 people, that is an amazing ratio. If you told people
17 from other countries about that, that would be an
18 amazing ratio.
19 So I think it is both. We need to make
20 sure the programs are funded adequately, number one.
21 But number two, we need to continue to be relentless
22 on the issues of how we streamline care and create
23 93
1 efficiency.
2 DR. GAWANDE: There's no question that,
3 you know, Medicaid under-provides, and that you're
4 trying to cross-subsidize across a practice. The
5 place I saw it the most was growing up in rural Ohio.
6 I grew up in Athens, Ohio, in the southeastern
7 corner. My mother is a pediatrician there, and her
8 practice was one where we had about a third who were
9 uninsured or on Medicaid, and then two-thirds who
10 have private insurance of some kind or another.
11 And she was the only pediatrician in the
12 county for a long time that took Medicaid. And the
13 result was that suddenly that one-third became half,
14 and it became harder and harder to be viable unless
15 she joined along with the other colleagues. And so
16 we cross-subsidized across the family because my
17 father is a surgeon and we could have his income
18 subsidize hers. But that is not the best way to do
19 it.
20 And so, you know, I think as physicians we
21 have a responsibility, as long as there are uninsured
22 people, to find ways to do what we can for those who
23 94
1 are uninsured, and handle as many Medicaid patients
2 as we can, but also in the bottom line we are in
3 these small business models.
4 I do think that as we move to being better
5 integrated systems that we also have to hold our feet
6 to the fire for the Kaisers, and Mayos of the world,
7 and so on, that they are helping with their share
8 just the way that other smaller doctors are in
9 providing care for those Medicaid and uninsured
10 patients.
11 But in the long run, if Medicaid is to be
12 viable, as private insurers start pushing down on
13 that balloon you are stuck in the problem of either
14 watching providers no longer accepted, or trying to
15 find a way to raise the rates.
16 CHAIRMAN DOUGLAS: Jim Fitial.
17 GOVERNOR FITIAL: I don't have any
18 question. I just want to close this session by
19 warning all of you that, according to Dr. Jeff Novak,
20 a renowned nutritionist:
21 What you eat is what you are.
22 CHAIRMAN DOUGLAS: And we will get to that
23 95
1 in just a moment, governor.
2 (Laughter.)
3 CHAIRMAN DOUGLAS: Well put. We are very
4 fortunate to have had Dr. Gawande and Dr. Cochran
5 with us today, two real innovators in the area of
6 health care delivery reform. On behalf of NGA, thank
7 you, gentlemen, very much. We appreciate that.
8 (Applause.)
9 CHAIRMAN DOUGLAS: But before we break,
10 first of all I want to thank Governor [Haley] Barbour for his
11 gracious hospitality last summer at our annual
12 meeting. It was a real success, Haley, and thanks to
13 you and Marsha for doing such a great job.
14 (Applause.)
15 CHAIRMAN DOUGLAS: And I would like to
16 call Governor Patrick up to talk about our next
17 annual meeting that will be a tremendous success, as
18 well.
19 GOVERNOR PATRICK: I know I am between you
20 and lunch, so I will be very brief. But Diane and I
21 want to warmly welcome you all and encourage you all
22 to come to the NGA Summer Meeting in Boston in July.
23 96
1 We have a very exciting and fun program organized.
2 By then, substantively, we may have a health care
3 bill, God willing and the creek don't rise, so we can
4 talk about that.
5 But for families and attendees, we are
6 planning some fun occasions, including an outing at
7 Fenway Park, a reception at Fenway Park; and an
8 evening at Fort Independence on the waterfront.
9 We will be based in Back Bay, which is
10 right in the center of the City. It's a very walking
11 city, lots of historic sites to get to easily around
12 that part of the City, wonderful shopping and lots of
13 food--Governor Fitial--lots of great foods.
14 For families we are organizing something
15 called the "Come Early, Stay Late" program. There's
16 a brochure about it which is available at the booth
17 just outside of this session.
18 We have concierge service to organize your
19 family visits to the Cape, or to the Berkshires out
20 in western Massachusetts, organize visits to great
21 restaurants, or recreational facilities, or college
22 visits for your kids. We can do it all, and we look
23 97
1 forward to doing it.
2 There is a very small gesture to encourage
3 you to think about coming to Boston at your place in
4 this blue envelope, which is a CD from the Boston
5 Pops signed by Maestro Keith Lockhart, and I hope you
6 will all enjoy it and that we will see you in Boston
7 in July.
8 Thank you, very much.
9 (Applause.)
10 CHAIRMAN DOUGLAS: Governor Patrick, thank
11 you very much. I know it's a lot of work to put on
12 an annual meeting, and we appreciate your stepping
13 forward to provide that opportunity for us this
14 summer.
15 Well, governors, we'll be having lunch and
16 I'm sure our staffs will tell us where it is. To
17 everyone else, thank you for being with us at this
18 session.
19 (Whereupon, at 12:42 p.m., Saturday,
20 February 20, 2010, the plenary session was
21 concluded.)
22 1
1 NATIONAL GOVERNORS ASSOCIATION
2
3
4
5
6 WINTER MEETING
7 Sunday, February 21, 2010
8
9
10 HEALTH CARE AND THE ECONOMY
11
12
13
14 Grand Ballroom
15 JW Marriott Hotel
16 1331 Pennsylvania Avenue NW
17 Washington, DC 20004
18
19
20
21
22
23 2
1 PARTICIPANTS:
2
3 GOVERNOR JAMES H. DOUGLAS, VERMONT, CHAIR
4 GOVERNOR JOE MANCHIN III, WV, VICE CHAIR
5
6
7
8 GUEST:
9 MARIA BARTIROMO, ANCHOR, CNBC
10
11
12
13
14
15
16
17
18
19
20
21
22
23 3
1 P R O C E E D I N G S
2 (11:16 a.m.)
3 CHAIRMAN DOUGLAS: Colleagues and guests,
4 why don't we begin our plenary session. We have
5 an important discussion this morning on health care
6 and the economy, and we are going to get underway, if
7 I could have everyone's attention.
8 Ladies and gentlemen, let's all find a
9 seat and begin our discussion of health care and the
10 economy this morning. I want to welcome all the
11 governors back, and all of our guests as well. I
12 think this is going to be a great opportunity to have
13 a moderated discussion on health care and its impact
14 on the economy.
15 I am really pleased to introduce the
16 leader of our discussion today, Maria Bartiromo. You
17 might find it interesting to know that someone who is
18 the bearer of occasionally bad economic news has
19 become a real celebrity in her own right, but Maria
20 has certainly done that. You can see her every
21 weekday afternoon on CNBC giving the ups and downs of
22 the day's market activity on "Closing Bell."
23 4
1 She has also distinguished herself as the
2 host and managing editor of “The Wall Street Journal
3 Report,” which is the number one financial news
4 program in the United States. She has received high
5 honors for the quality of her work. She is
6 considered a true authority in her field. In fact,
7 this past December she was featured in The Financial
8 Times as one of the 50 who shaped the decade.
9 We are really fortunate that she would
10 take time on a weekend to be with the nation's
11 governors today. She is a soon-to-be author, as
12 well. Her new book is entitled The Ten Laws of
13 Enduring Success. It is out at the end of March, and
14 we will look forward to seeing her thoughts in this
15 new book.
16 So let's give a great NGA welcome to Maria
17 Bartiromo.
18 (Applause.)
19 MS. BARTIROMO: Thank you very much.
20 Thank you very much, Governor Douglas.
21 Thank you for having me. Thank you all for having
22 me.
23 5
1 I find it increasingly interesting that,
2 as I talk about the economy on CNBC and on “The Wall
3 Street Journal Report,” almost all the time health
4 care is part of the discussion, and the cost of
5 health care and its impact on our economy. So I am
6 very pleased to be with you today to try and talk
7 about controlling costs, insuring more, and what we
8 can see happen on a state-by-state level.
9 I thought I would roam today. I would
10 love to make this conversation as interactive as
11 possible. I have asked some of you to please jump in
12 if you hear something that you agree with, or your
13 disagree with, so that we could really have a
14 dialogue here, as opposed to a Q&A, me asking each of
15 you questions.
16 And of course we all know the statistics,
17 and they are not pretty. Health care spending in
18 2007 reached $2.25 trillion. We're talking about 16
19 percent of the Gross Domestic Product (GDP). We continue
20 to see a national and really international debate on
21 how we will get our arms around this spiraling
22 expense that continues to hurt our economy.
23 6
1 Many of you have seen the impact on very,
2 very important industries like the autos, and so many
3 others, and how it has impacted our economy and our
4 everybody life.
5 So, Governor Douglas, let me kick it off
6 with you. Give us the state of state from your
7 standpoint in Vermont and tell us where you think we
8 can be on a state by state level.
9 CHAIRMAN DOUGLAS: Well, Maria, I recall
10 when I took office seven years ago, looking at the
11 economic impact of rising health care costs on
12 businesses and families in Vermont and the fiscal
13 impact on state government--because it is a large and
14 increasing percentage of state spending every year--
15 and I realized that we had to get those costs under
16 control.
17 There is a lot of debate in Washington and
18 state capitals about how we structure paying for
19 health care in America, whether it is a publicly
20 funded plan or a privately funded system, but in the
21 end I am not sure that matters. Because if we do not
22 get costs under control, if we do not bend that curve
23 7
1 that is rising in multiples of inflation every year,
2 we are going to be broke either way.
3 So we put in place what is called "The
4 Blueprint For Health," a strategy of preventive care,
5 of managing chronic disease, of screening for chronic
6 illness, of wellness, of good nutrition; and over the
7 last six or seven years it has paid off.
8 We focused on our Medicaid population,
9 which is among the highest in the nation. We have 26
10 percent of our population on Medicaid. It's going to
11 be 28 percent next year. So we have to control those
12 costs. And with a waiver from the federal
13 government, we have realized about a quarter billion
14 dollars of savings in our Medicaid program over a
15 five-year period through this strategy of managing
16 chronic disease and providing preventive care.
17 It's not something that happens overnight,
18 and I think that is important for the American people
19 to understand. It is about bending a curve and
20 making progress over time. But we have shown over
21 the last six or seven years that it really can be
22 done, and I hope that we can continue to talk as
23 8
1 governors about initiatives we have had and ideas
2 that work in our states so that others can replicate
3 them.
4 And just in the last couple of years,
5 twice now, national surveys have rated Vermont the
6 healthiest state.
7 MS. BARTIROMO: We would like to look at
8 some plans that have worked, whether it's Vermont,
9 Massachusetts, and also some plans that may not have
10 worked so well.
11 Governor, let's talk about Tennessee.
12 Let's talk about what happened when you put a plan
13 forward back in the 1990s with all the best
14 intentions, and yet in retrospect what went wrong?
15 GOVERNOR [Phil] BREDESEN: We had--this was long
16 before my time--a plan called TENCARE. Tennessee in
17 1994 was kind of the Massachusetts of its day in
18 terms of trying to expand health care through a
19 massive series of waivers with the Medicaid program.
20 We expanded dramatically the number of
21 people on Medicaid by adding a number of categories--
22 the uninsured. If you were uninsured you could get
23 9
1 on Medicaid. If you were uninsurable, you had
2 diseases which caused you to be rejected, you could
3 get on.
4 The problem was, I guess it was just the
5 classic business problem, that when you add as many
6 benefits and as many people in a quick period of
7 time, the expenses all came true perfectly on target
8 on Monday morning. The savings which were supposed
9 to pay for all of those over time not only stretched
10 out a long time, but in many cases did not come to
11 fruition. And we ended up a decade later, when I
12 came in, with a system which was just completely on
13 its back.
14 We were spending more money in the
15 pharmacy benefit in Medicaid than we were spending on
16 our higher education system. We were spending more
17 money for one drug on Medicaid than we spent to
18 support the UT Medical School.
19 And it just took some very difficult
20 actions to bring it back, including substantial cuts
21 in benefits, taking some people off the rolls. It
22 was very painful, but I do think there's a lesson
23 10
1 there of maybe taking things a step at a time instead
2 of just leaping off the end of the dock when it comes
3 to how you deal with some of these issues.
4 MS. BARTIROMO: This is an important
5 point. And, Governor [Joe] Manchin, you said earlier what
6 is really important to consider is once you put a
7 benefit in place it's very tough to take it away.
8 VICE CHAIR MANCHIN: It's almost
9 impossible. And that's where you'll find most of the
10 governors here that will agree to that.
11 We took a position, Maria, that we had to
12 start with our youngest. Obesity in our children. I
13 think all of our states had problems, but in America
14 it's a problem, so in West Virginia it was a problem.
15 We started Healthy Lifestyles trying to get people to
16 where we could spend as much time and effort with a
17 child trying to keep them from getting a chronic
18 illness or a life-threatening illness, and hopefully
19 that would permeate up to their parents to where we
20 could change the whole social aspect of health care.
21 The bottom line, the way we see it in West
22 Virginia, is very few people have a value because
23 11
1 they don't pay for it. It's always somebody else
2 that's paying the bill. And when you don't have a
3 value, sometimes you'll over-use it or mis-use it.
4 With that being said, and as a culture,
5 if we don't put as much emphasis on wellness as we do
6 on repairing you when you're broke, the costs can get
7 out of hand. And we think that's what's happened.
8 The consumer is not in the market. It's
9 the only service in America that you and I don't
10 shop. We don't really look at our bill that close;
11 we don't really understand the bills--because they
12 keep coming at you six months, maybe a year later.
13 And all you care about is did I satisfy my co-pay.
14 I've said something very simple: Why
15 don't we have universal billing? Why don't we all
16 agree that the first piece of legislation we should
17 pass to get the market back, the market forces
18 working, is any medical procedure you have anywhere
19 in America has to be a complete, concise, and
20 itemized bill that you and I can understand.
21 So maybe then I can ask the question.
22 That five-minute visit cost me $275? Could it not be
23 12
1 maybe a little bit more competitive? And are you
2 sure that pill was that costly? And I don't remember
3 getting that blood test.
4 We have nobody in the market, and we're
5 trying to control something that's so big and we've
6 got nobody trying to help us control it. And
7 everybody's on one side winning, and the other people
8 that are paying, you know, we've always said in the
9 political world, if the constituents . . . there's no
10 constituents favoring the change, because no one
11 really cares.
12 We did something in West Virginia
13 Called . . . we asked for a waiver from Medicaid called
14 "Mountain Choices." We've called it Mountain
15 Choices. We have a lot of people basically that if
16 you're on Medicaid you don't get your eye care. You
17 might not get dental care, unless there's pain and
18 suffering. But, we said, if you will enter into a
19 healthy lifestyle choice, if you will go to your
20 doctor's visits and not use the emergency room when
21 it's not needed, you can start earning points and
22 rewards for glasses, for health care.
23 13
1 And the cost starts coming down because
2 there's a value. There is that reward system. And
3 we are trying to expand on that. And when you hear
4 us all talk, we talk about flexibility. Because as
5 Governor Bredesen just said, he inherited a program
6 that had all the good intentions. All the costs got
7 loaded to the front end, and then the savings never
8 came from the back end. And everybody else was
9 sacrificing in his society to make up for the costs
10 that they couldn't reduce.
11 We are trying to prevent that. And if you
12 hear us talking when we say flexibility, before we
13 expand, make sure we can live within our means.
14 MS. BARTIROMO: This is a really
15 important point. You have said a lot of very
16 critical things to the national discussion, about the
17 national discussion, because what we've been hearing
18 a lot about is really health insurance on a national
19 conversation, and not necessarily health care, which
20 is why I am so delighted and really thrilled that the
21 First Lady, Michelle, has taken on this issue of
22 childhood obesity, to really get into early on the
23 14
1 issues and prevention, and so that we don't spend as
2 much as we do later on in life on these preventable
3 diseases.
4 Thoughts on this issue from the table, as
5 far as expanding care and prevention, and putting
6 things in place sooner rather than later to get a
7 handle on costs?
8 GOVERNOR GRANHOLM: Thank you, Maria.
9 Jennifer Granholm from Michigan.
10 In Michigan we wanted to model ourselves
11 after a plan that worked, because obviously if you
12 open up Medicaid to anybody who comes, you're going to
13 be taking on a lot of expenses. And so you have to
14 figure out on the front side how do you do the
15 prevention and the primary care. How do you make
16 sure that people have a stake in this so that there's
17 a shared responsibility? How do you make sure that
18 the benefit package is one that you can afford? And
19 how do you make sure that it's transparent?
20 So we looked at Massachusetts because they
21 had done a huge effort in health care reform. And it
22 required some cooperation on the part of the federal
23 15
1 government, and there was a shared responsibility
2 both of individuals, and businesses, and government.
3 And to me I would love to hear from Governor Patrick
4 about how that has worked in Massachusetts, because I
5 think that is a model that we can all look at as
6 governors if in fact it has been successful. And
7 what would you change?
8 GOVERNOR [Duval] PATRICK: We didn't work this out
9 in advance, just to be clear.
10 (Laughter.)
11 MS. BARTIROMO: No, this is perfect.
12 Thank you so much, Governor Granholm.
13 GOVERNOR PATRICK: But thank you for the
14 setup. We have a hybrid system, as you may know.
15 It's a combination of both market and public
16 contributions.
17 It builds very much on a strong private
18 insurance market in Massachusetts. It was invented
19 on a bipartisan basis under the leadership of my
20 Republican predecessor, a Democratic legislature,
21 Senator [Ted] Kennedy, and at the time the Bush
22 Administration, which was absolutely essential in
23 16
1 terms of approving the Medicaid waiver.
2 The implementation fell to me, starting on
3 the very first day in office, and we have now nearly
4 98 percent of our residents insured today. I don't
5 think there's another state that can touch us.
6 Jim Douglas is coming on strong from
7 Vermont.
8 MS. BARTIROMO: He's catching up.
9 GOVERNOR PATRICK: He is. He won't catch
10 us, but he is making progress.
11 (Laughter.)
12 CHAIRMAN DOUGLAS: We'll see.
13 (Laughter.)
14 GOVERNOR PATRICK: To Joe's point, though,
15 Joe Manchin's point, everybody starts from a
16 different place. Because we were using so many other
17 patches and plugs in the health care safety net, if
18 you will, in other elements of the budget, a
19 universal system in the reform that we've pursued has
20 added only about 1 percent to our total budget.
21 And we have saved in the Uncompensated
22 Care Pool and moving people out of emergency room
23 17
1 primary care to primary care settings, which is huge.
2 But the big hiccup, and the remaining challenge, is
3 cost control.
4 And that is not unique, or even special to
5 Massachusetts, that's everybody's issue. And to the
6 premise of your question, your last comment about
7 prevention, that's an absolutely critical part of it.
8 There is a responsibility, and as we talk
9 about shared responsibility, there is a shared
10 responsibility that individuals and families must
11 take around wellness so that we can move to a health
12 care system and away from a sick-care system, which
13 is what we have today.
14 We have some ideas around cost control,
15 particularly around payment reform, that we're
16 looking to implement right now, and that we talked
17 about in yesterday's session, but it cannot be
18 understated: the importance of each of us doing what
19 we can to look after our own health and our own
20 healthy choices.
21 MS. BARTIROMO: You know, actually,
22 Governor Manchin made a good point because in other
23 18
1 areas of our lives there are repercussions and
2 implications for your behavior.
3 In car insurance, if you get into a lot of
4 accidents your insurance goes up. So the point that
5 you make is duly noted, really important.
6 Governor [Tim] Pawlenty.
7 GOVERNOR PAWLENTY: Thank you, Maria.
8 Just some things that have worked in
9 Minnesota that may be helpful for the discussion.
10 One is we have the highest concentration of health
11 savings accounts in the country in Minnesota. And
12 for those who participate, we've been able to
13 document some relative savings, which has been a good
14 thing, and they've helped contain costs in our state.
15 We have another program that we've put
16 together with our state employees around payment
17 reform, and we have said: Look, people tend to spend
18 money differently if it's their own money, or at
19 least some of it is their own money.
20 Now they need to have guard rails in place
21 for consumer protection, but we said to our state
22 employees, you can go anywhere you'd like. But if
23 19
1 you choose to go somewhere that is poor in quality
2 and high in cost, you're paying more. And if you
3 choose to go somewhere that is more efficient with
4 respect to cost and higher in quality, you'll pay
5 less.
6 Ninety percent of them, nine zero, have
7 migrated to higher quality, more efficient providers.
8 And in three of the last five years, the premium
9 increases in that program have been zero percent. In
10 the other two years, close to zero percent.
11 That is on fairly primitive measurements
12 of cost and quality and the ability to make that even
13 more advanced is progressing very nicely. So we're
14 going to have an even better look into that in the
15 future. So that has worked nicely.
16 We have another program called Q Care,
17 which we've said for all of the public programs that
18 we pay for health care we're going to begin to pay
19 for performance. We're no longer going to pay just
20 for volumes of procedures in diabetes and heart
21 disease and some other chronic care conditions. We
22 expect the practitioners to follow best protocols and
23 20
1 achieve better outcomes. And if they do, they get a
2 financial bonus. And that has some early promising
3 results.
4 And then lastly, in the medical
5 malpractice area, there's lots of ideas for reform
6 here, but clearly some improvement can be made. We
7 have a system that says if you're going to sue a
8 health care provider, a doctor, for medical
9 malpractice you have to submit an affidavit at the
10 front end from another doctor in good standing in our
11 state indicating that there's reason to believe
12 malpractice occurred. And now we'd like to take that
13 to the next step where it's not just a doctor, but a
14 specialist or a subspecialist in that same area, if
15 it involves a specialty practice, making that same
16 affidavit.
17 That has been a very good gate keeping role
18 to try to minimize, or at least reduce frivolous
19 lawsuits.
20 Then lastly I'll put a plug in for what Ed
21 mentioned yesterday. We know in other areas of
22 insurance, like life insurance--again, assuming
23 21
1 consumer protections are in place through a compact
2 or otherwise--that competition is a good thing. In
3 many states there's very little choice about where
4 you can get your health plans.
5 In my state, three health plans control
6 almost 90 percent of the market. They really don't
7 compete very vigorously on price. And I don't think
8 that's robust enough competition.
9 So I think it would be very helpful, like
10 with life insurance and other forms of insurance, if
11 we could have our citizens have the chance to choose
12 for more options across the country, again with
13 proper consumer protections in place.
14 MS. BARTIROMO: It is really interesting
15 how there have been great successes in certain areas,
16 and in other areas programs have fallen short.
17 Because one size doesn't fit all, right? I mean, the
18 demographics of the states are different.
19 And so while we should be looking at some
20 things that we take away and use all of us, there are
21 also lessons to be learned.
22 GOVERNOR PAWLENTY: On that point, we have
23 22
1 failed on many of our government entitlement
2 programs. They are out of control. We have publicly
3 subsidized health care programs that were growing 30-
4 plus percent a year, but they are the old model of
5 fee-for-service, meet certain requirements, show up
6 and we pay the bill no matter how many show up, and
7 what the bill is.
8 Those models are rising so quickly in our
9 state's budget that we can't sustain them. So the
10 ones I pointed to are successes, but we also have our
11 share of programs that are financially out of
12 control.
13 CHAIRMAN DOUGLAS: Governor Barbour.
14 GOVERNOR [Haley] BARBOUR: Thank you, Maria, for
15 taking the conversation this way, and for Joe and
16 Jim, because I really do think that we need to
17 recognize the states are a big part of the solution.
18 In my state, when I became governor,
19 Medicaid spending was going up more than 20 percent a
20 year. In my first six years it went up less than 2
21 percent a year.
22 One of the ways we did that, we got
23 23
1 control of our pharmaceutical benefit with a PDL.
2 We've gone to about 75 percent generic.
3 Secondly, we have face-to-face
4 redeterminations for eligibility. And one of the
5 things that has resulted from that is, just last week
6 CMS said our error rate in Medicaid is .13 percent,
7 which they've only audited 17 states so far, but I
8 don't believe there's anybody that'll beat .13
9 percent.
10 Now let me put it in focus with the other
11 side of that coin. Robert Pear, the health reporter
12 for The New York Times, and Frawley the number one
13 health reporter in the United States, wrote an
14 article last month about health care spending taken
15 from the federal government's numbers, said that
16 private health insurance premiums in 2008, the last
17 year we have figures, went up 3.1 percent. Private
18 health insurance benefits went up 3.9 percent.
19 Cost of Medicaid went up 8.4 percent. And
20 the cost of Medicare went up 8.6 percent. Which is
21 why I am so excited ya'll are talking about what
22 states can do, because those numbers don't convince
23 24
1 me we ought to turn this over to the folks that run
2 Medicare.
3 MS. BARTIROMO: Thoughts? Governor
4 [Ed] Rendell?
5 GOVERNOR RENDELL: Maria, I want to go
6 back to what Tim said. We are looking for common
7 ground here in this health care debate. And
8 everyone, Democrats and Republicans alike, say we've
9 got to get competition into the marketplace to drive
10 down costs.
11 Well the idea that Tim came up with is a
12 good idea, and one that most of us could sign off on
13 as long as they're the right protections.
14 For example, I have nothing against an
15 Idaho company coming in and selling in Pennsylvania;
16 it would help competition. But--and this is an
17 important "but"--they've got to adhere to
18 Pennsylvania standards.
19 For example, we require health insurance
20 companies to provide aid to autistic children and
21 families. Other states may not. So the way to get
22 around this is the way we do it for life insurance.
23 25
1 We have a model compact which sets standards. States
2 can sign on to that model compact, and if they do
3 then if you're a health insurer you can go into any . . .
4 a life insurer, you can go into any of those states
5 and sell your product.
6 If we could do that, it would be
7 noncontroversial, I think, and it would help us lower
8 competition. It's not the only way to lower--to
9 lower costs through increased competition. It's not
10 the only way, but it's an important way.
11 But I think if you went around the room
12 and talked to all 53 of us, you would find that there
13 are commonsense ideas everywhere that can cut costs.
14 And one of the things I think we have failed to do
15 federally is enough cost cutting in the bill itself.
16 For example, I'll just take one, and I
17 know my colleagues can throw in many, but emergency
18 room costs. We know that the emergency room is the
19 most expensive venue in the whole health care
20 delivery system.
21 How do we cut emergency room costs? Well,
22 people go to emergency rooms because we've designed a
23 26
1 health care delivery system that's open from 8:00 in
2 the morning till 4:30 in the afternoon, Monday
3 through Friday. Anytime else, even if you have a
4 noncritical problem, you have to go to an emergency
5 room.
6 We in Pennsylvania are starting to require
7 all of our emergency room facilities to have a
8 nonemergent care facility open 24/7. That means it's
9 staffed by a nurse practitioner, or a physician
10 assistant, and they can administer the stitches that
11 are necessary to close a dog bite wound, and you have
12 no waiting, and you are getting billed for a
13 physician's assistant's time instead of a doctor's.
14 Bingo! Thirty-three percent of the cost.
15 Nonemergent 24/7 rooms can be a big answer
16 to the overload to the system in the cost of
17 emergency care. It didn't take a genius to figure
18 that out. And I think that is true with a lot of
19 cost-saving ideas in chronic care.
20 Hospital-acquired infections. In every
21 state the health care delivery system loses millions
22 of dollars a year through the cost of a hospital-
23 27
1 acquired infection.
2 The average hospital stay is about $30,000
3 in Pennsylvania. If you get a hospital-acquired
4 infection, it is $185,000. So we have got to cut
5 down on hospital-acquired infections. There are
6 simple protocols which can cut them down
7 dramatically, but we haven't put them in place.
8 In Pennsylvania we're starting to. So
9 there are a thousand good ideas out here among the 50
10 states, and we haven't taken a look at them.
11 MS. BARTIROMO: Do you think that people,
12 though, are going to be worried about the quality of
13 health care in the scenario that you're talking
14 about?
15 GOVERNOR RENDELL: Well the good news is,
16 cost savings improves quality, in most cases. For
17 example, in that emergency room thing, if you go in
18 with a dog bite now, Maria, on a busy Friday night in
19 Philadelphia, they'll say the most dreaded words
20 known to human beings: We'll get to you as soon as
21 we can.
22 Four-and-a-half hours later, a doctor, a
23 28
1 high-priced doctor cleans out your wound with
2 mercurochrome and stitches it. If you had a
3 nonemergent care 24/7 facility, a nurse practitioner
4 does it in half an hour.
5 Hospital-acquired infections. If we make
6 hospitals do a better job of policing them, it saves
7 life and saves horrible health outcomes.
8 MS. BARTIROMO: Governor [Gary] Herbert.
9 GOVERNOR HERBERT: Thank you, Maria.
10 As one of the newer governors here, it is
11 my observation that I think in the national health
12 care debate the state's significant role has been
13 somewhat forgotten here in Washington.
14 I think, as Governor Patrick has
15 mentioned, we all start from maybe different places
16 in our own experiences and our own unique
17 circumstances.
18 We have followed what Massachusetts is
19 doing with the health exchange in Utah, and did it
20 just a little bit differently with the idea of trying
21 to come up with a defined contribution as opposed to
22 a defined benefit, and working with our small
23 29
1 business people.
2 They are really having a hard time with
3 their bottom line, and having predictability because
4 of the rising costs of health care. With a defined
5 contribution they now have a predictability that's
6 entered into.
7 Then we've opened up an exchange where the
8 consumer, the employee, actually takes this defined
9 contribution and can go shopping. It's like a
10 Travelocity.com window that's opened up, and they can
11 take their dollars of that--$700 or $800 a month--and
12 see what they can find in this window that's uniquely
13 suited for their own circumstances.
14 So there's nobody that manages their money
15 better than those that control their own dollars. So
16 it's a win-win for the employee and for the employer.
17 We opened up in August 9th of last year.
18 We now have a number of small and larger businesses
19 with over 40,000 employees that are now impacted with
20 this opportunity. And it's introducing competition.
21 Now insurance companies are trying to find
22 the right policy to attract customers. And although
23 30
1 I don't know that it's anything perfect by any means,
2 it is the first steps in a longer journey. At least
3 we in Utah are trying to put together a 10-year
4 health care reform plan to see what we can do with
5 the states taking the lead, as opposed to waiting for
6 the federal government.
7 Again, I think states are uniquely suited
8 to do this. We are a lot more nimble. As we find
9 problems in the reform efforts, we can change and
10 modify. We are a lot easier at finding those things
11 that will serve our public and our constituents
12 better I think at the state level.
13 So again, last but not least, our approach
14 is pretty inexpensive. We only have two employees,
15 two staff people to manage this exchange. And so it
16 is very cost effective in our early beginnings, and
17 is introducing competition and lowering costs for the
18 employee.
19 MS. BARTIROMO: Thank you for that.
20 Governor [John] Lynch, and then we'll . . .
21 GOVERNOR LYNCH: Thank you, Maria.
22 The question that you asked I think is a
23 31
1 fundamental one that we need to discuss. And the
2 question is: Can you stabilize costs, or lower
3 costs, and not affect quality?
4 I would contend that we can do that. I
5 think technology is an important aspect, an important
6 element of how we deal with the costs in order to
7 make us more efficient.
8 Technology should be able to do for health
9 care what it has done for virtually every other
10 industry in the private sector. It ought to be able
11 to improve quality, improve customer service, and
12 stabilize costs.
13 That means providers being able to
14 prescribe medication electronically and evolving
15 toward electronic medical records. Transparency is
16 something that was discussed yesterday. We need to
17 continue to push transparency in all that we do, not
18 only around costs but also around outcome.
19 In New Hampshire we are piloting medical
20 homes similar to accountable care organizations that
21 again were discussed yesterday evolving away from
22 fee-for-service and more toward total care of the
23 32
1 patient. And obviously stronger focus on prevention
2 and wellness.
3 In New Hampshire, my wife Susan, who is a
4 doctor, specializes in pediatric cholesterol
5 management and initiated a program years ago called Walk
6 New Hampshire, getting school kids to walk a distance
7 over time equal to the length of New Hampshire, 190
8 miles.
9 Governor Pawlenty talked about a number of
10 initiatives in Minnesota that I think are very
11 important ones. But I think it is an important issue
12 that we need to see if there's a consensus as to
13 whether or not we can stabilize costs or lower costs
14 and still not only keep quality high but improve
15 quality.
16 CHAIRMAN DOUGLAS: Maria, let me offer a
17 couple of thoughts on some of the issues my
18 colleagues have mentioned.
19 We have to, I think, reform how we deliver
20 care. It's not just about money. And if we make the
21 kinds of reforms that we've discussed this morning,
22 we can indeed get a handle on those costs.
23 33
1 The medical home concept that Governor
2 Lynch mentioned is something we're doing in Vermont,
3 and other states are. I was pleased that Secretary
4 [Kathleen] Sebelius announced that Medicare very shortly will
5 begin some pilot programs to participate in that
6 strategy, because we have to have all the payers,
7 public and private, at the table.
8 That leads to another important element of
9 what we need to do. And that is, change the way we
10 pay for care. Now it is volume driven. We pay for
11 procedures, and tests, and drugs, and admissions. We
12 pay for stuff. We don't pay for outcomes. We don't
13 pay for the quality of that care. And we have to
14 align that, I think, if we are going to make progress
15 on quality improvement and cost containment.
16 So what we do in Vermont is pay an
17 incremental amount to our medical home primary care
18 practices on a per-patient per-month basis if they
19 adhere to certain national quality standards. And
20 that is the kind of incentive that works.
21 It can be significant in a practice with
22 several thousand patients. So if we align our
23 34
1 payment with the outcomes we want, I think we can get
2 a handle on the cost of medical care in our country.
3 MS. BARTIROMO: Paying for outcomes only,
4 or mostly, and not for that volume that we're doing
5 right now.
6 We're going to go to Governor [Bev] Perdue, and
7 then I'm coming back to you, Governor Manchin.
8 GOVERNOR PERDUE: Thank you. We pay
9 for outcomes in North Carolina, too. We are one of
10 the initial states that began the medical home.
11 We're in our fourth or fifth iteration, and we have
12 just gotten one of the two 646 waivers in North
13 Carolina to provide managed, if you will, Medicare
14 care.
15 We believe that a medical home has to be
16 much more comprehensive than just a primary care
17 provider, although that's the onus of care. That's
18 where you start. But then we have a network of
19 community care providers, Maria, anchored with a case
20 manager.
21 So that if I'm a Medicaid recipient I
22 don't necessarily go to the doc initially. I use my
23 35
1 case manager to put me in a wellness program to help
2 manage my asthma, or my diabetes. We are not only
3 bringing down the cost of care in North Carolina for
4 our Medicaid population, and I believe for soon to be
5 our Medicare, we actually are trying to make
6 sure the services that our patients receive are the
7 services they need. And then front-load the system
8 with a complete community-based wellness initiative
9 so that folks do realize it's how they manage their
10 disease.
11 I don't believe you can just provide a
12 medical home with a doc. I've never believed that.
13 I think you've got to have that comprehensive array
14 of services from the moment of entry into the system
15 as you navigate through different levels of acuity
16 and care to the ultimate outcome for us, which is a
17 cheaper benefit with a healthier citizen.
18 VICE CHAIR MANCHIN: The greatest savings
19 I believe that all of us could prosper by is the
20 technology, and Governor Lynch just mentioned that.
21 We have Telecare Health Information
22 Technology, but the exchange of this technology--the
23 36
1 Administration, the Obama Administration predicts
2 that there could be as much as 30 percent savings, a
3 30 percent savings, by this type of technology and
4 exchange.
5 In my little state that would be $3
6 billion of health care savings. That means $1
7 billion of savings just in my Medicaid program.
8 MS. BARTIROMO: How is it saving so much
9 money? What exactly is it doing?
10 VICE CHAIR MANCHIN: Basically what you
11 have is unnecessary tests and prescriptions, the
12 redundancies, the mistakes, the lawsuits, it just
13 keeps piling on.
14 These are things that we could all have
15 tremendous savings immediately from. We seem to be
16 bogged down in debate how we're going to deliver it,
17 and who's going to be the winners and the losers, but
18 we all win on this one, Democrats and Republicans.
19 MS. BARTIROMO: Governor [Bill] Ritter.
20 GOVERNOR RITTER: Thank you. We adopted
21 sort of a way of going about this called Building
22 Blocks To Reform. We had a commission that said the
23 37
1 least expensive statewide plan we could implement
2 would cost us $1.2 billion, and people in Colorado
3 think the systems' broken and we're not going to put
4 another $1.2 billion into a system that is broken.
5 So we've gone about it in a step-by-step fashion.
6 What's interesting as part of this
7 conversation is almost everything that's been
8 mentioned we are working on. We have an initiative
9 on. And there seems to be a great deal of consensus
10 among states about the things that are necessary.
11 We have a technology initiative. We have
12 a transparency. We have a hospital report card. We
13 have medical homes for children. We have both
14 delivery and payment reform that we're working on.
15 We did tort reform in 1988 before it was
16 cool. We put in place caps on noneconomic damages,
17 and on economic damages we only changed it once
18 since. So it's not, you know, tort reform is not the
19 beginning and the end in Colorado, and yet we are the
20 seventh most expensive state for health care.
21 And so with all of these--we have an
22 initiative currently looking at the value of care,
23 38
1 and I think I agree with what Governor Rendell said
2 at first about this relationship between cost and
3 value. The quality of care, that you can improve the
4 quality of care and actually reduce the cost in doing
5 that. We really need to focus on that.
6 But one of the big cost drivers for us has
7 been uncompensated care. Our inner-city hospital did
8 $375 million in unreimbursed care last year, the
9 Denver Health System.
10 So what we did was pass a thing called
11 Health Care Affordability Act. The more you treat
12 Medicaid patients, we put in place a . . . it's called a
13 fee. Every patient bed there's a fee, a provider
14 fee, that's paid in. The federal government matches
15 what goes into that. And so if you're providing care
16 for unreimbursed care, then you're going to get
17 additional money. And if you're not, you're going to
18 be paying into that fee.
19 We're going to cover 100,000 people with
20 doing that. So the last thing I would say is, with
21 all of this sort of consensus that there does seem to
22 be about these things that would drive down costs and
23 39
1 also help us focus on quality of care, we have to be
2 able to get to some common ground that they've been
3 unable to get to here in Washington, D.C.
4 MS. BARTIROMO: Right.
5 GOVERNOR RITTER: It strikes me that this
6 is something we can't fail. As a country, if we fail
7 to do it we're in really big trouble because the
8 amount we'll spend on GDP just makes us not
9 competitive; and yet, we have things that we--I think--
10 can come to some common ground on. And that may be
11 what's necessary to form the basis for a bipartisan
12 solution to health care.
13 MS. BARTIROMO: Yes. I mean, we face
14 these dilemmas, and it's going on in other industries
15 as well; whereas, we want the services that are so
16 important to our people to be low in cost, we want
17 them to be available, we want everyone to have
18 access; and it's the same as banking. Plain-vanilla
19 banking and our deposit money.
20 And yet, many of the companies that are in
21 leadership positions in these areas are looking at
22 shareholders, facing a different constituency in
23 40
1 terms of making sure they have revenue growth,
2 profitability, and yet from the other side of things
3 we need their services to be there for the people.
4 So we all really are in a very, very
5 interesting time right now and it is creating amazing
6 dilemmas.
7 Yes, governor.
8 GOVERNOR [Chris] GREGOIRE: Well yesterday, Maria,
9 we heard from a couple of wonderful physicians and
10 authors that I think answer your question about can
11 we increase quality and reduce cost.
12 When I first came into office in 2005,
13 Dr. [George]Halvorson had written a book entitled, Epidemic
14 of Care. There was a study done that I think is
15 most telling.
16 Approximately 115 physicians were given
17 the same patient with the exact same diagnosis. What
18 was interesting about it is: Back came 80 different
19 treatments.
20 Now clearly some of those were effective,
21 but by and large many of them were not. Thus,
22 outcome for patient: Poor. Cost: Dramatic.
23 41
1 So among the things that Governor Ritter
2 talked about we are trying, but one is a panel of
3 experts that are looking at common diagnoses and
4 asking what is the most effective treatment. And
5 we're not doing it based on cost.
6 Because if in fact the treatment works
7 better, it costs a little more, it's better than
8 other treatments along the way in search of that
9 ultimate positive treatment.
10 Back pain is a perfect example where all
11 too often in certain segments of my state, and of the
12 country, you will find doctors who immediately resort
13 to surgical procedure--which is very costly--yet the
14 outcome for the patient is no better than physical
15 therapy would be; much less intrusive; and the
16 patient is served better.
17 So when we talk about what Congress is
18 doing versus what we're seeing, the frustration I
19 think we share is we want real health care reform.
20 It's not about health insurance reform. It's about
21 health care reform.
22 So things like point-of-service, things
23 42
1 like getting better quality care at a reduced cost to
2 patients, is really where we think we ought to be
3 headed.
4 MS. BARTIROMO: And the 24/7 care.
5 GOVERNOR GREGOIRE: Correct.
6 MS. BARTIROMO: Even if it's not a doctor
7 necessarily doing lower type procedures.
8 Yes, Governor [Jack] Markell.
9 GOVERNOR MARKELL: Thank you. And, first
10 of all, I want to thank Governor Douglas for putting
11 this together. I think this has been a great
12 conversation, and I've taken very careful notes based
13 on a number of suggestions from my fellow Governors.
14 I really just have another question that
15 has to do with long-term care. I am wondering
16 whether any governors have had any particular
17 success--it's obviously a hot issue with an aging
18 population; in our state it's a particular issue.
19 We've got a very rapidly aging population because we
20 have a lot of retirees moving in, thanks to our low
21 property taxes.
22 And there has been a lot of discussion
23 43
1 about having people--that was a little plug, yes,
2 that was a little plug--
3 (Laughter.)
4 GOVERNOR MARKELL: I thought I was being
5 subtle. But the point being, there's a lot of talk
6 about having people not go into the very expensive
7 institutions, and having them served more in the
8 community.
9 And yet some studies would suggest that in
10 the end, although there's a lot of promise that costs
11 get lower, they're not always delivered. Sort of
12 along the lines of what Governor Bredesen was talking
13 about.
14 I would be interested whether any
15 governors have come up with anything specifically
16 with respect to long-term care.
17 MS. BARTIROMO: Anybody? Governor
18 Rendell?
19 GOVERNOR RENDELL: We've had great success
20 transitioning people out of nursing homes. Right
21 now, nursing homes in our Medicaid program are our
22 single biggest cost driver. We are a very old state.
23 44
1 It costs us almost $30,000 a year for one person in a
2 nursing home. For a family of three, a young mother
3 with two children, it costs us about $3,200 a year in
4 the Medicaid program.
5 So to take that individual out of a
6 nursing home, put them in home care, is, number one,
7 in most cases what they prefer, seniors prefer that;
8 and, number two, it's a significant cost reducer.
9 There are some up-front costs to
10 transition, but you reap the savings fairly quickly.
11 And by the way, Pennsylvania doesn't tax retirement
12 income.
13 (Laughter.)
14 CHAIRMAN DOUGLAS: Maria, we have a
15 program in Vermont called Choices For Care. It has
16 resulted, as Governor Rendell suggested, in real cost
17 savings.
18 We got a waiver from the Medicaid
19 authorities to offer equal access to at-home care as
20 institutional care. We've de-licensed several
21 hundred nursing home beds around our state, which is
22 significant in a small state, and we've saved
23 45
1 literally several million dollars in our long-term
2 care Medicaid budget as a result of this effort.
3 Ed's right. That's where people would
4 rather be: at home cared for by either their own
5 family members or professionals in their home. So it
6 has worked. It can work. And this raises another
7 important issue, and that is flexibility because we
8 had to go to the folks in Washington and get a waiver
9 and go through an onerous process of applying for it
10 and amending it from time to time.
11 What we really want and need I think from
12 the federal government is flexibility to do it our
13 way. And that alone will save costs.
14 MS. BARTIROMO: That's an important
15 point.
16 More success stories; to answer Governor
17 Markell's question?
18 GOVERNOR [Don] CARCIERI: Yes. Let me just say,
19 Maria, let me add to what's been said to Jim's point.
20 One of the things we did in Rhode Island
21 is, before the end of the last Administration,
22 negotiated a global Medicaid waiver. The premise
23 46
1 behind that was to allow the state to have more
2 flexibility, more control over exactly the kinds of
3 issues that Jack has brought up.
4 It has been enormously successful. We are
5 in the process of implementing it. All the savings
6 that Ed, Jack, Jim have talked about we are seeing,
7 the diversion of people in the nursing home.
8 Most elderly people prefer to stay in
9 their home. There is no support mechanism,
10 particularly for those eligible for Medicaid.
11 They've all had to go and get individual waivers.
12 So we negotiated a global waiver allowing
13 us as a state to manage that, and it's been
14 enormously successful. We're saving tens of millions
15 of dollars. We've diverted hundreds of people. Some
16 who were already in nursing homes didn't need to be
17 there and chose to come out.
18 But you need to develop within the
19 community the support systems that are there so that
20 you can give them the kind of support that they need
21 to either stay in their home or an assisted living or
22 some kind of intermediate facility. But clearly, for
23 47
1 all of us that is a huge part of the Medicaid
2 expenditure and it is going to grow as the population
3 is aging.
4 MS. BARTIROMO: Governor [Dave] Heineman.
5 GOVERNOR HEINEMAN: Maria, I want to go
6 back to where we were talking about technology. You
7 see this every day; you report on it in the financial
8 sector, and several of us around the table has been
9 state treasurers.
10 Funding, information, all that moves
11 electronically real-time every day. If any of us
12 want to go online right now and find out how much
13 money is in our banking account, we could do it; how
14 much we owe on our credit card.
15 If we wanted to go online right now and
16 find out anything about health care, particularly as
17 it relates to us individually, we can't do it. We
18 need a comprehensive electronic medical system that
19 connects doctor's office, hospitals, pharmacies, the
20 entire system.
21 MS. BARTIROMO: Which opens up, though, a
22 can of worms on privacy, doesn't it?
23 48
1 GOVERNOR HEINEMAN: It does, but we've got
2 a situation going on in my state right now where
3 we're conducting a pilot project in that regard in
4 the sharing of information. You have to opt in.
5 Ninety-eight percent of our citizens have opted in.
6 It's up to you. You've got to say. In terms of
7 privacy, we can provide it and your records will be
8 secure.
9 But if any of us around the table today
10 had to go see a doctor, they would start over. We
11 can't afford that. We ought to be able to share
12 those records. We ought to be able to share our
13 prescription data, assuming we agree to it. And that
14 could drive down costs significantly, eliminate
15 duplication, a number of things.
16 MS. BARTIROMO: Yes?
17 GOVERNOR [John] HOEVEN: Following on that point,
18 that's very real. In North Dakota we've had people
19 that go over to the Mayo Clinic, and then to take all
20 their records with them; yes, I knew you'd like that,
21 Governor Pawlenty--
22 (Laughter.)
23 49
1 GOVERNOR HOEVEN: It's a real challenge,
2 a real difficulty. So it's not only a cost savings;
3 it goes back to that quality of care.
4 The point I wanted to make, though, is
5 Governor Markell talked about, or was asking about
6 ways to save costs on long-term care.
7 One of the things we've found is most
8 productive and helpful in that regard is providing
9 incentives for individuals to purchase long-term care
10 insurance. It creates the right kind of incentives.
11 So both tax credits on the front end, as
12 well as sheltering their assets that they can then
13 pass on to family members is a real incentive to buy
14 that long-term care insurance. That's very effective
15 in terms of cost savings for the state, but also very
16 good for the individuals and their families.
17 MS. BARTIROMO: If they can be shared.
18 If they can be shared, the insurance; it can be
19 passed on.
20 GOVERNOR HOEVEN: Well, what it does is, in
21 essence then their insurance pays for their long-term
22 care rather than Medicaid. So it's a tremendous cost
23 50
1 savings to the state.
2 The other types of incentives are
3 incentives that encourage family members and others
4 to take care of individuals, home-based care, and
5 community-based care, rather than going into
6 institutional care. And significant cost savings can
7 be achieved that way, as well.
8 MS. BARTIROMO: Yes, sir.
9 GOVERNOR BALDACCI: Maria, John Baldacci
10 from Maine.
11 I just wanted to point out that, in all of
12 the discussion what seems to be lacking sometimes is
13 about the patient themselves, the consumer, the
14 individual, because I think we have a sense as
15 governors that everybody's got a responsibility,
16 including the patient.
17 I think bringing them into the discussion
18 and making them part of the decision making, what
19 we've done in our state is we've focused on primary
20 and preventative health at the local level.
21 We use our tobacco funds to have 34 Maine
22 Healthy Partnerships throughout state, which are at-
23 51
1 home visits or primary care or preventative care.
2 Also, we've used a ITV Network where
3 people can log on from anywhere in the state and do
4 their own health risk assessment sort of and be able
5 to, at the end of that, to be able to plug them into
6 local resources.
7 So that, while all the debate is going on,
8 at least people begin to take tools on their own that
9 are there, that are either free or reduced cost, and
10 they know where it is. Because there really is a lot
11 of confusion to the lay person as to where to go for
12 care and what care is available.
13 So it is part of a beginning education
14 program. And I think that needs to be done more of
15 nationally, though, too.
16 MS. BARTIROMOBARTIROMO: Well it seems like the
17 tools are in place for states to really control some
18 of this cost, and yet we still want more progress.
19 Jennifer Granholm, how much of a factor
20 was rising health care to the, I don't want to say
21 the demise, but upset in the auto sector?
22 GOVERNOR GRANHOLM: You know, Maria, a
23 52
1 couple of years ago Lee Scott, head of Wal-Mart, came
2 and spoke to the National Governors Association about
3 the importance in a global economy of having a
4 uniquely American solution to the cost of health
5 care. Because in a global economy our competitor
6 countries are providing health care to their
7 businesses, and that puts a disadvantage on ours.
8 The auto industry is the poster child
9 industry of an older legacy business that has been
10 significantly impacted negatively by global
11 competition because of the cost of health care.
12 MS. BARTIROMOBARTIROMO: So you're saying the
13 Japanese, the Chinese, they have better health care
14 costs?
15 GOVERNOR GRANHOLM: They provide. They
16 have a better cost-sharing arrangement with business.
17 There is no doubt about it. And so we hurt our
18 businesses--this is exactly what Lee Scott was
19 saying. It's one of the reasons why initially in
20 this health care debate the Chamber of Commerce was
21 on board with finding, again, a uniquely American
22 solution.
23 53
1 Now this doesn't mean--you know, I've been
2 listening to all of us here talking, and there's a
3 lot of great ideas that have come from the states. I
4 mean, for example Governor Douglas and I, when we
5 first came on, we teamed up to pool our buying power
6 to get rebates on prescription drugs. That power of
7 largeness is really an important way to reduce those
8 costs.
9 You know, everybody has agreed, I think,
10 here that they would like to see flexibility; that
11 they would like to have managed care in some way so
12 that you don't have fee-for-service that's driving up
13 the costs. Everybody has agreed they'd like to see
14 the states have more impact on being able to drive
15 those costs down; that we'd like to see the experts
16 listened to in terms of what are best practices.
17 People want to see transparency in health
18 care IT both from the consumer point of view, as well
19 as the ability to use IT to reduce the costs. We all
20 agree that we want to see competition, which includes
21 a good part of this being driven and operated by the
22 private sector.
23 54
1 We all agree that there should be
2 incentives for outcomes, both for the doctors who are
3 rewarded for achieving healthy outcomes as well as
4 for individuals making decisions about their own
5 behavior, that perhaps their costs are less if they
6 engage in healthy behavior.
7 We all agree that there should be--I
8 think--a primary medical home that people turn to. I
9 think we all agree about the shared responsibility
10 that it's government, individual, and business that
11 everybody has to have some skin in the game.
12 We all agree that there are creative
13 solutions like pooling that could reduce the cost of
14 health care. We all agree I think that there
15 shouldn't be automatic denial for preexisting
16 coverage, and I think we all agree that it would be
17 best if we could cover as many people as possible so
18 that we don't jack up the cost for subsidizing those
19 for uncompensated care.
20 These are basic principles that I think
21 most of us could agree on and sign onto, and these
22 are the kinds of things that could make businesses in
23 55
1 America competitive if we were to come out with a
2 health care plan that was a no-frills benefit plan
3 that provided flexibility and options but didn't put
4 the entire burden on the back of business.
5 MS. BARTIROMOBARTIROMO: Governor Pawlenty.
6 GOVERNOR PAWLENTY: I think the auto
7 industry may be instructive, by analogy, for other
8 reasons as well. Just to move away from that
9 specifically, but what you had was an entire industry
10 that over time management and labor together
11 bargained up the price of their model, the cost of
12 their model, so high that it could no longer be
13 sustained by any reasonable projections on revenue
14 growth, and largely insulated from market forces and
15 entrepreneurial dynamics.
16 I mean, Peter Drucker, amongst others,
17 studied General Motors and other companies over the
18 decades and said, you know, it became what used to be
19 a dynamic industry with entrepreneurial spirit into
20 basically a mindless bureaucracy insulated from
21 market forces.
22 So I think those lessons and the ghosts of
23 56
1 the past in that industry--hopefully better now going
2 forward--is instructive for what we've seen in the
3 legacy system that is large, command and control,
4 one-size-fits-all legacy systems in government,
5 including entitlement programs and the mentality
6 that's underneath that.
7 We know that individual responsibility
8 matters. Markets work. Price and value matters, if
9 you give people good information with protection to
10 shop. Those kinds of things help. And those dynamic
11 qualities are largely missing from one-size-fits-all
12 bureaucracies.
13 In the case of the automobile industry,
14 they get their run to federal court and get
15 restructured by a judge. You know, they get their
16 pension plans restructured, their health care plans
17 restructured, or there's some extraordinary
18 intervention by the federal government, but the
19 states don't have the ability to do that.
20 We don't want to do that, but I mean how
21 does our entitlement legacy structure get redone?
22 It isn't going to be by a bankruptcy court--I hope
23 57
1 not. So dramatic forces or events have to intercede,
2 because I think we had the same legacy mentality,
3 looking back, as General Motors did or the automobile
4 industry did.
5 MS. BARTIROMOBARTIROMO: That's a really good
6 point.
7 Governor [Mike] Rounds?
8 GOVERNOR ROUNDS: Thank you. I think
9 Governor Pawlenty and Governor Granholm have both hit
10 on something that probably leads us into a discussion
11 about what is going on in Washington with regards to
12 the existing proposals in health care reform.
13 The federal government finds itself in the
14 same position, perhaps, as the auto industries have.
15 You have a promise of entitlement programs which I
16 think we all recognize government can't continue to
17 pay for. Sustainability of health care on behalf of
18 the federal government and the required co-payment on
19 behalf of the states is greater than what we can
20 afford.
21 In doing so, one of the ways in which we
22 now manage Medicaid is by reducing the amount that we
23 58
1 pay providers. In the upper Midwest we reimburse
2 between 50 and 52 percent of the billed charge.
3 Now if a physician is getting paid 50 to
4 52 percent, or a hospital 50 to 52 percent of an
5 increasing number of individuals, because Medicaid
6 numbers are increasing particularly during a time of
7 a recession, you then have a cost shift onto the
8 private sector, which then drives up the costs of
9 health care for the other industries that are trying
10 to employ individuals.
11 So we now have the beginning of a death
12 spiral with the very basics of our entitlement
13 program. It's not something which was started by
14 this Administration, or the last Administration; it
15 has been going on literally for decades.
16 But now in the middle of a recession it
17 has pressure being brought to bear on a system which
18 really is not sustainable. And as long as we
19 continue to look at solutions that would add more
20 individuals to a government-paid system which doesn't
21 properly fund the full costs of case, you're going to
22 continue to make it more expensive for the private
23 59
1 sector to be involved in picking up health care as
2 they have in the past for their individual employees.
3 MS. BARTIROMOBARTIROMO: You know, it's a
4 fascinating thing that's happening here. Because
5 you've got the entitlements that are so expensive,
6 and yet the fundamentals that require those
7 entitlements are changing so much.
8 We're living longer. We are not retiring
9 at 65. I mean, when you look at Social Security,
10 obviously that has been pushed out a couple of years.
11 But it seems like the fundamentals sort of requiring,
12 and as the backdrop of the entitlements, have changed
13 so much, requiring change of paying out the
14 entitlements.
15 But of course very few people believe that
16 we will actually see a substantial change in the
17 entitlements. Is that a fair statement?
18 Governor Barbour, go ahead.
19 GOVERNOR BARBOUR: Well, Maria, if we
20 don't see a change in some control, then we're going
21 to be so deeply in debt--I think the figure is by
22 2020 under current policy 90 percent of federal
23 60
1 revenue will go to pay interest on the debt that we
2 would be borrowing to pay for these entitlements.
3 Obviously as you know from what you do for
4 a living there comes a time when people won't buy
5 your paper.
6 MS. BARTIROMO: Yep.
7 GOVERNOR BARBOUR: So something's going to
8 have to happen sometime.
9 MS. BARTIROMOBARTIROMO: Oh, people have
10 definitely stopped buying papers, speaking to the
11 technologists in the room.
12 GOVERNOR CARCIERI: Maria, over here.
13 MS. BARTIROMO: Yes.
14 GOVERNOR CARCIERI: It strikes me as I
15 listen, because having spent most of my career in the
16 private sector, we've all identified costs, and the
17 inflation rate of health care costs is the number one
18 issue we all face, whether it be state budgets or
19 businesses, et cetera.
20 When you look at it from a business model,
21 the drivers of cost are volume and price. And what
22 we have here is, when you listen to a lot of what's
23 61
1 being discussed about some great things happening in
2 some individual states, and frankly all states, we
3 are all working on issues around the costs and the
4 delivery system, et cetera, all the things you are
5 hearing here.
6 I said in the first session that Jim
7 hosted here, you know, who has the incentive to
8 control the costs? We've almost got a cost-plus
9 system here that nobody seems to have an incentive to
10 control the costs.
11 At the end of the day, the person that
12 ought to be controlling it is all of us, as
13 individuals. And part of the problem has been there
14 hasn't been enough of a buy-in and enough of an
15 incentive for individuals.
16 The data I've seen is that 75 to 80
17 percent of the costs of health care is disease that
18 is preventable, or the onset preventable, or delayed,
19 if people took more responsibility for their own
20 health care. All of the issues around wellness.
21 I know this is long term, but we've got to
22 get at that. One of the things we've done in our
23 62
1 little state for state employees is we've put in
2 place a $500 credit off of their share of the health
3 care premium if they do certain things:
4 Fill out a health assessment form;
5 Go see their primary care physician at
6 least once a year;
7 Get into a weight management program; and
8 Smoking cessation.
9 Whatever it is, a whole series of these
10 things. The only way we're going to lower
11 utilization as we age is to have people take better
12 care of themselves and be incentivized to do that.
13 MS. BARTIROMO: And corporations are
14 doing that right now.
15 GOVERNOR CARCIERI: And the biggest
16 incentive for people is when they see some money in
17 their pockets, some savings from doing that. Nobody
18 wants to be sick. We know that. That ought to be
19 the incentive. But what we've gotten used to as a
20 nation is that if we get sick we've got the best
21 system in the world that's going to make us better.
22 What we need to do is to change that
23 63
1 mentality to say we need to do things as individual
2 citizens to take better care of ourselves, and
3 hopefully delay. Then we need a system to support
4 those kinds of things, the management structure if
5 you will to support the kind of care that's
6 necessary.
7 That is the only way we're going to drive
8 utilization down, or slow it down, if you will, and
9 that is one of the key drivers here in terms of what
10 is pushing the cost up, as well as the cost of the
11 system.
12 MS. BARTIROMO: It is a very important
13 point. I guess it was . . . we did a special on this at
14 CNBC, and one of the attendees said that an obese
15 person will cost a company four times what a smoker
16 will cost the company, because that person may
17 develop heart disease and diabetes. So the incentive
18 program is certainly what we are all talking about.
19 Governor Rendell?
20 GOVERNOR RENDELL: I want to go back to
21 what Haley said. At the risk of losing my card as a
22 Democrat, I want to agree with Haley.
23 64
1 (Laughter.)
2 GOVERNOR RENDELL: He's right. We have no
3 choice but to deal with the entitlement question.
4 The only way we're going to deal with it is if
5 somehow, some way, and maybe it is the commission
6 that the President is going to appoint, if we can
7 deal with it without getting it into the political
8 system.
9 If you look at the current debate, the
10 president's plan says it will save $500 million out
11 of--excuse me, $500 billion out of--the Medicaid
12 system over the course of time. And that has been
13 turned into a political football.
14 And yet we all know we can and should
15 reduce entitlements to some degree. We have got to
16 get away from the politics of this game, or else we
17 are never going to solve this problem. And it has to
18 be Republicans and Democrats standing up together and
19 saying to the country: Look, we don't agree on a lot
20 of things, but this is one thing we know, and we have
21 to do it.
22 Is there going to be some pain to it?
23 65
1 Gosh, in the last two years every one at this table
2 has administered a lot of pain to their citizens, not
3 because we want to but because we had no choice. And
4 we've got to get down to the business of making real
5 decisions for the country that are going to set us on
6 the right path. And you've got to have people
7 willing to accept a little bit of political peril, or
8 else we are in big trouble.
9 MS. BARTIROMO: I think we all agree.
10 Governor Bredesen?
11 GOVERNOR BREDESEN: Just to add to what Ed
12 said, this all is happening today in the context of
13 things going on in the Congress. This is not a
14 discussion in a vacuum here about what we might do
15 about health care.
16 There have been some of us who have been
17 working on trying to put together some common stuff.
18 Jennifer, you railed off a long list of things we all
19 could agree on, but it was our experience we couldn't
20 agree on them.
21 (Laughter.)
22 GOVERNOR BREDESEN: I think Mike would
23 66
1 agree with that.
2 I mean, with Jim's permission, I would
3 like to just ask people. I mean, are there things of
4 this group around the table, are there messages that
5 we could send as the NGA about--as you consider this
6 we're the ones who've got our feet on the ground and
7 out there and trying to actually run these things--that we
8 could inject into the discussion?
9 GOVERNOR BALDACCI: Phil, I . . . over here,
10 Maria.
11 MS. BARTIROMO: Yes, I'm sorry. My
12 apologies.
13 GOVERNOR BALDACCI: Phil, I really do
14 believe that we have done that. If you'll just take
15 a tape of this program and send it to every
16 Congressman and Senator's office.
17 You're right. When we get into a setting
18 that seems to somehow inject politics in it like what
19 Ed was talking about, we seem to find that we don't
20 have as much common ground as we thought we would.
21 When we're here not talking as Republicans
22 and Democrats but talking about the specific progress
23 67
1 in our respective states, or the plans that have
2 worked that have been emulated by other states, and
3 then when you listen to Jennifer tick off the list
4 that she ticked off that saw virtually all the heads
5 around the room nodding, and when you get Ed and
6 Haley talking about agreeing on something . . . .
7 (Laughter.)
8 GOVERNOR BALDACCI: It really does, I
9 think, illustrate the fact that governors--and I hate
10 to be too prideful of my colleagues and of this
11 organization--but governors have to solve these
12 problems, really, and balance a budget.
13 And they are doing it in virtually every
14 state--a little bit differently from time to time,
15 and learning from each other, and setting a pattern
16 which should and could be followed.
17 There's very little rhetoric in all this
18 stuff that's been discussed here today. There have
19 been specific examples of programs that worked that
20 did two major things:
21 One, helped contain costs; and
22 Two, at the same time, as Jim pointed out,
23 68
1 or maybe it was Governor Lynch, it actually improved
2 quality at the same time.
3 I mean, you talk about something that
4 actually ought to be transported into the minds of
5 policymakers on the federal level about things that
6 are going on in the respective states that do work,
7 this program and the examples that have been cited
8 here are things that really do matter and really do
9 create solutions.
10 Are they all perfect? No. And will they
11 all work in every state? Of course not. That's why
12 everybody keeps talking about flexibility over and
13 over. But the fact that the examples that have been
14 pointed out here are real solutions to real problems
15 and starting down a road toward changing the
16 paradigm, if you will, of the delivery and cost of
17 the health care system, are things that aren't
18 unreachable, unapproachable, unagreeable.
19 There should be no serious contention that
20 partisan politics will be able to derail this. Maybe
21 you just have to do it in a different forum, or in a
22 different focus where it's not in the middle of an
23 69
1 election year; although, that seems to be going on all
2 the time now . . .
3 (Laughter.)
4 GOVERNOR BALDACCI: . . . where it's not in a
5 forum where people are divided up on one side of the
6 aisle or on the other side of an aisle.
7 But the solutions that have been talked
8 about here, the specific examples of workable
9 programs, have been uttered by Republicans and by
10 Democrats and have been copied by one another for the
11 last several years. And they do work.
12 So, yes, it can be done. I think it can
13 be done, and I think we've got a lot more agreement
14 than we have disagreement if we just stop long enough
15 to listen to the litany that Jennifer and that Tim
16 both said awhile ago were things that they thought
17 most folks could agree on. And the governors do it.
18 MS. BARTIROMO: And we do need to get
19 that list of successful examples to the Congress to
20 show what has been working. And, by the way, in
21 addition, get that information to the people.
22 Somehow this should be communicated to the
23 70
1 country so that people have a better understanding of
2 what works and what doesn't work. Because some of
3 this stuff is not brain surgery. I mean, some of it
4 is very complex, but other things people can
5 understand and they can get behind.
6 But this whole sort of notion of it's just
7 too big to fix, and it's just too problematic, you
8 know, people get upset and they think they don't
9 understand it and they'll never get it, and then it's
10 over their heads, and then they just don't want to
11 talk about it. So it's a problem.
12 Governor Manchin.
13 VICE CHAIR MANCHIN: You know, the thing
14 that maybe polarized things was the expansion of
15 Medicaid. Since Medicaid came into being in '65, it
16 was never mandated. None of us have ever been
17 mandated to give Medicaid to everybody just because
18 you fall below the federal poverty guidelines.
19 A lot of states can't afford it. We've
20 always had to balance our budgets and be fiscally
21 responsible. Now that, saying 133 or 150, whatever,
22 has really got everybody saying, okay, now you're
23 71
1 going to mandate us that we cover everybody, which we
2 all want to--I don't think a Democrat or a Republican
3 doesn't want to cover everybody--but if you make us
4 give the same type of service to an unfortunate
5 person who is financially challenged but very healthy
6 as someone who's financially challenged but very
7 sick, that's very costly.
8 That's where we keep talking flexibility,
9 flexibility, flexibility. One size does not fit all.
10 What I do in West Virginia is not probably what
11 Jennifer is going to do in Michigan.
12 MS. BARTIROMO: Right. And we all have
13 different demographics that we're talking about.
14 VICE CHAIR MANCHIN: What we're saying is,
15 we're hoping that the Administration and Congress is
16 listening to us, because we're going to be the ones
17 saddled with fixing this problem.
18 They might put some guidelines to it, but
19 we're going to have to live within the playing field,
20 and we're saying: Get us in the game.
21 MS. BARTIROMO: Governor Rounds.
22 GOVERNOR ROUNDS: Thank you. And there is
23 72
1 one other item that I think most governors agree on,
2 and Jennifer touched on it a little bit, and that is
3 insurance reform.
4 In that regard there are some things that
5 we can do that would dramatically improve the
6 delivery of the financing of health care.
7 Number one is portability, meaning you can
8 move from one group to another group and you don't
9 use your co-pays, you don't lose the deductibles that
10 you paid in.
11 Second of all is guaranteed renewability
12 for individual policies, and for groups. So that
13 once you're in it, a company can't simply walk in and
14 cancel. A lot of the states have already done that,
15 but putting those guidelines in place on a national
16 level do nothing except help improve what the field
17 looks like.
18 But along with that you also have to
19 include a ratio. So that as the National Association
20 of Insurance Commissioners proposed back in 1993, I
21 believe, that said there's got to be a ratio between
22 your least expensive group and your most expensive
23 73
1 group. So that if somebody gets sick you don't raise
2 the price on that group and run them up so they can't
3 afford it anymore. You've got to have a ratio built
4 in.
5 And those are items that have been proven.
6 They work. Insurance companies accept them. And
7 yet, at the same time, if we would do it on a
8 national level it's something that would assure a
9 more consistent pricing across all of the states.
10 Those are items that I don't think we've
11 had any disagreement on among the governors that are
12 here, and that should be included in any type of a
13 reform package.
14 MS. BARTIROMO: Governor Douglas,
15 Governor Manchin--final words?
16 VICE CHAIR MANCHIN: I couldn't be more
17 proud of a group of people that I serve with, my
18 colleagues that are called governors of the United
19 States of America, and I think you see the common
20 sense and the can-do attitude they bring to the
21 table.
22 We work across party lines better than any
23 74
1 organization I've ever been affiliated with. So I am
2 proud to be part of this organization, and proud to
3 be Vice Chair of this organization now. But I can
4 only say to the Administration and to our
5 Congressional Representatives that we want to be part
6 of the solution. We want to help find the answers.
7 Because I can tell you, we see the problems every
8 day, and we see it up close and personal.
9 And again what we're asking for is to have
10 that seat at the table, to be able to bring all this
11 knowledge into the arena to fix the problem that we
12 have. And it's all our problems. It's not just part
13 of the problem, it's all of our problems.
14 So I thank you for allowing us to have
15 this conversation with you.
16 CHAIRMAN DOUGLAS: Maria, you have helped
17 us articulate the tremendous leadership the governors
18 have provided in the states across the country--the
19 reforms that have been put in place, the ideas that
20 have worked, and the differences that those reforms
21 have made in the lives of the people we represent.
22 I hope that these experiences, these
23 75
1 examples, these reforms, will help contribute to and
2 inform the national debate. Because while debate
3 goes on in Washington, health care reform is
4 happening in the states. And we believe we have a
5 lot to offer in this national debate and look forward
6 to being a part of that.
7 On behalf of the National Governors
8 Association, thank you so much for your contribution.
9 (Applause.)
10 MS. BARTIROMO: Thank you so much. I
11 appreciate it.
12 Thank you for having me, and we want to
13 keep you on time. We have heard some fantastic
14 solutions here. We know that the issues are complex,
15 but we also know that there are success stories and
16 some things are very doable.
17 Thank you for your time today. Thanks.
18 CHAIRMAN DOUGLAS: Thank you all. We'll
19 break for lunch.
20 (Whereupon, at 12:28 p.m., the meeting was
21 adjourned.)
22 1
1 NATIONAL GOVERNORS ASSOCIATION
2
3
4
5
6 WINTER MEETING
7 Monday, February 22, 2010
8
9
10 REDESIGNING STATES IN THE POST-RECESSION ECONOMY
11
12
13
14 Grand Ballroom
15 JW Marriott Hotel
16 1331 Pennsylvania Avenue NW
17 Washington, DC 20004
18
19
20
21
22
23 2
1 PARTICIPANTS:
2
3 GOVERNOR JAMES H. DOUGLAS, VERMONT, CHAIR
4 GOVERNOR JOE MANCHIN III, WV, VICE CHAIR
5
6
7
8 GUEST:
9 MARK ZANDI, Chief Economist and Co-Founder
10 Moody's Economy.com
11
12 ALAN R. MULALLY, President and CEO
13 Ford Motor Company
14
15
16
17
18
19
20
21
22
23 3
1 P R O C E E D I N G S
2 (2:42 p.m.)
3 CHAIRMAN DOUGLAS: Well, governors and
4 friends, we've had a great Winter Meeting of the
5 National Governors Association. I want to thank
6 everyone for being a part of it. We have had good
7 participation by governors. We have had great
8 presentations at our plenary sessions. We've had
9 strong discussions at committee meetings. We had a
10 great meeting this morning with the President and
11 Vice President, and a number of Cabinet
12 officials. So this has been a very successful winter
13 meeting for the NGA, and we will all look forward to
14 getting back to work in our state capitols tomorrow
15 and joining as a group again this summer in Boston.
16 Well, we focused on health care
17 principally during the time we've been together. It
18 is, as a number of you have noted, an important part
19 of the economic stress that we are experiencing as
20 state governments and in the business community as
21 well.
22 Over the past decade the new century has
23 4
1 brought us periods of unprecedented economic growth,
2 as well as times of great hardship. The benefits and
3 risks of globalization have been on center stage, and
4 it has become clear that all economies are
5 intertwined.
6 We are making now the slow climb out of
7 the crevice that some have called the Great
8 Recession. It might be slow and difficult, and the
9 way we do business both in the public and private
10 sectors will change as a result of it.
11 Because the economic headwinds remain
12 Strong, and the recovery here and elsewhere remain
13 fragile, both the private sector and government are
14 being tested on our abilities to reinvent ourselves
15 to succeed in this new environment.
16 The private sector is being challenged to
17 innovate and compete in the unforgiving global
18 marketplace, and the public sector--state government
19 in particular--is being asked to do much with very
20 little to do it with.
21 For the private sector, wholesale changes
22 to traditional business models are now occurring
23 5
1 throughout the economy. We will hear more about this
2 shortly from someone who is at the forefront of these
3 changes.
4 For the public sector, as a governor I can
5 tell you that structure, responsibilities, and
6 operation of today's government will undergo profound
7 changes.
8 Over the next few years, governors will be
9 at the vanguard of major efforts to downsize and
10 streamline state government so it efficiently
11 delivers core services.
12 These efforts will also challenge
13 citizens' expectations about what government can do,
14 and how much they are willing to pay for those
15 services.
16 These issues, the challenges of the post-
17 recession economy, the re-engineering of state
18 government, and the creation of new business models,
19 are the subject of this afternoon's plenary session.
20 I want to first introduce someone who is
21 uniquely skilled at helping us understand the
22 economic challenges.
23 6
1 Mark Zandi is chief economist and co-
2 founder of Moody's Economy.com, where he directs the
3 company's research and consulting. Moody's
4 Economy.com, a division of Moody's Analytics,
5 provides economic research and consulting services to
6 businesses, governments, and other institutions.
7 Mark's expertise includes macro,
8 financial, and regional economics. He conducts
9 regular briefings on the economy, testifies
10 frequently before Congress, and is often featured in
11 the media.
12 He is the author of Financial Shock. an
13 expose of the subprime financial crisis. Dr. Zandi
14 received his Ph.D. at the University of Pennsylvania
15 where he did his research with Gerard Adams and Nobel
16 Laureate Lawrence Kline. He received his
17 undergraduate degree from the Wharton School at the
18 University of Pennsylvania.
19 Let's welcome Dr. Mark Zandi.
20 (Applause.)
21 MR. ZANDI: Thank you, governor. Thanks
22 to NGA for the opportunity to be here today.
23 7
1 I am going to speak for three hours--
2 (Laughter.)
3 MR. ZANDI: No, promise. Does 20 minutes
4 sound okay? All right, 20 minutes.
5 I am going to make four points.
6 Point number one: The recession is over.
7 Recovery has begun. The best evidence of that is
8 real GDP, the value of all the things we produce,
9 grew at an annualized rate of 4 percent in the second
10 half of '09. That is strong enough growth to begin
11 to stabilize the job market.
12 A year ago when we were meeting, when you
13 were meeting, we were losing 700,000 - 750,000 jobs each
14 and every month. Those job losses have nearly
15 abated. I think we have one more month of job loss
16 to go in February, in part because of bad weather,
17 and after that we will start to get some positive job
18 numbers.
19 The stock market is up 50 percent.
20 Housing values have stabilized in many parts of the
21 country. We are in a measurably better place today
22 than we were a year ago when you were meeting here.
23 8
1 In my view, a lot of this is related to or
2 is due to the policy response, the very aggressive
3 and unprecedented response by the Federal Reserve,
4 the Treasury, the FDIC. They, through their
5 efforts--and there were many, including the zero
6 percent interest rate, the bank stress tests, the
7 higher deposit insurance limits, so forth and so
8 on--the financial system has stabilized.
9 It is not normal. We are still losing a
10 lot of small banks each and every week. Parts of the
11 credit markets are still dysfunctional. But broadly
12 speaking, the financial system is stable. And that
13 is a necessary condition for an economic recovery.
14 So that is very positive.
15 And in my view, the fiscal stimulus was
16 very helpful in turning the economy around. I don't
17 think it is any coincidence that the recession ended
18 at just the same time that the stimulus was providing
19 its maximum economic benefit to the economy. That's
20 unemployment insurance benefits; that's aid to state
21 governments; that's the tax cuts; business investment
22 was up strongly in the fourth quarter in part because
23 9
1 of accelerated depreciation benefits included in the
2 stimulus; aid to small businesses in the form of more
3 credit through the SBA; the housing tax credit was
4 very helpful in supporting the housing market this
5 spring and summer; the Cash for Clunkers helped to
6 clear out inventory and laid the foundation for an
7 improvement in the manufacturing sector, which is
8 what we're seeing today.
9 In fact, manufacturers added to payrolls
10 in January for the first time in three years. And
11 that is in large part because of the turn in vehicle
12 manufacturing sector, in part due to the Cash for
13 Clunkers, and of course the auto bailout.
14 Now the recovery is uneven. It is uneven
15 across the country. It is not everywhere yet. This
16 map shows where I think each state is in its business
17 cycle. One state, Nevada, is in deep recession
18 obviously related to the housing bust and the
19 problems in trade and tourism.
20 A large number of other states are still
21 in recession, but the rate of decline is moderating.
22 I suspect they will be in recovery shortly; that we
23 10
1 will see a lot more blue in the map.
2 In fact, the blue states are states that
3 are in recovery, many in the Farm Belt with
4 energy/resource-based economies. But you will
5 notice, Indiana and South Carolina, those are the two
6 most manufacturing-sensitive sectors, states in the
7 nation. Those states are more sensitive to
8 manufacturing activity than any other states, and
9 they have turned. And that is a very, very positive
10 sign.
11 So point number one, the recession is
12 over. The Great Recession is over, and economic
13 recovery has taken hold.
14 Now point number two, the recovery. It's
15 going to be fragile and tentative I think in 2010.
16 The coast is not clear, at least not yet, and let me
17 give you a few reasons for that concern.
18 First is the job market itself. It has
19 improved. Layoffs have abated. You can see that
20 here. The green line right-hand scale represents the
21 number of initial claims for unemployment insurance.
22 This is a very good proxy for layoffs.
23 11
1 You can see we've made a lot of progress.
2 A year ago this time we had claims of 650,000 per
3 week. We're now down to 450,000 per week. Here's a
4 good rule of thumb. 400,000 claims per week is
5 consistent with a stable job market. 350,000 jobs
6 per week is consistent with enough job growth to
7 stabilize unemployment. And 300,000 initial claims
8 per week is enough to create a boatload of jobs that
9 will start bringing down unemployment in a meaningful
10 way.
11 So we've made a lot of progress. We're
12 not quite there yet. And moreover, hiring has yet to
13 kick-in in any meaningful way. You can see that in
14 the slide, as well. Continuing claims--this includes
15 regular state benefits, extended and emergency
16 benefits as part of the stimulus--continuing claims
17 are the left-hand scale, and they are running around
18 10 million. Now that's an awful lot of people
19 getting continuing claims and that has not come down.
20 And until it does, we can't be sure that hiring is
21 starting to kick in.
22 There are a couple of reasons that I can
23 12
1 proffer for this lack of hiring. One is credit,
2 particularly for small business people. They can't
3 get credit.
4 Big business, no problem. They can go to
5 the bond market and the commercial paper market, but
6 small businesses rely on small banks. Small banks
7 are under tremendous pressure because of their
8 problems in particular commercial real estate loans.
9 And many of them rely on credit cards.
10 Here's an interesting statistic. Back in
11 the summer of '08 there were 420 million bank credit
12 cards outstanding. That was the peak. Last month,
13 in January, there were 340 million bank credit cards
14 outstanding.
15 Now some of that is people clipping those
16 cards and saying I'm not going to borrow, and that's
17 great. But a fair amount of that is credit to small
18 business. They can't get it. They rely on their
19 cards, and as a result they're not hiring.
20 Another factor is confidence, lack of
21 confidence. Many businesses suffered near-death
22 experiences about a year ago. You don't forget that
23 13
1 quickly. It's hard to overcome that.
2 And while we need to address things like
3 health care, and energy policy, financial regulatory
4 reform, the Bush tax cuts, those things need to be
5 nailed down, or at least fade away, because it's the
6 uncertainty created by that that is stopping big
7 business from hiring.
8 They're very important policy efforts. We
9 need to address them, but we need to address them
10 quickly.
11 The second reason for some concern about
12 the recovery is the ongoing mortgage foreclosure
13 crisis. That is not abating. You can see that here.
14 This is the number of first mortgage loans that are
15 in foreclosure or are clearly headed in that
16 direction. They're 90 days and over delinquent.
17 As of the end of December, the last data
18 point shown, 4.2 million first mortgage loans were in
19 this predicament. To give you context, there's 52
20 million first mortgage loans outstanding. This is a
21 boatload of loans.
22 One of the things that has happened
23 14
1 recently is that the President's load modification
2 plan has slowed down the foreclosure process. Many
3 mortgage servicers and owners are trying to figure
4 out who can qualify for a modification. And so,
5 while they work through the loans, those loans stay
6 in the foreclosure process.
7 We are now getting to the point where
8 they're going to figure out who qualifies and who
9 doesn't. Many will not qualify and those loans will
10 go to foreclosure, to a foreclosure sale, and that
11 will hit later this summer and fall. In all
12 likelihood, house prices will fall further. The
13 price declines are not over.
14 Nothing really works well in our economy
15 when house prices are falling. The home is still the
16 largest asset in most people's balance sheet. And of
17 course banks are going to be reluctant to extend
18 credit if people's housing values are falling.
19 I was a small business owner. I started
20 my company in 1990 before I sold it to the Moody's
21 organization. My first business loan back in the
22 early 1990s--and there was a recession in the early
23 15
1 1990s--I had to put up my home as collateral. But I
2 would not have been able to do that in this
3 environment, given the falling housing values.
4 So reason number two for some concern
5 about the health of the recovery is the foreclosure
6 crisis.
7 Third is your situation, the struggles of
8 state and local governments. This is epic. You can
9 see that here. This shows the growth in state and
10 local tax revenue percent change a year ago, and I am
11 showing data all the way back to just after World War
12 II. Revenues have collapsed.
13 The last data point is for Q4/09. It's my
14 estimate, based on partial data--and you can see
15 revenue year-over-year through Q4/09 is still falling
16 4 percent. Just to give you more granularity, the
17 level of revenue in Q4 is about where it was in late
18 '06, three years earlier. And of course expenditures
19 have increased because of the demands on government
20 services, given the recession, and thus yawning
21 budget gaps.
22 Now that budget problem was not a hit to
23 16
1 the broader economy and to payrolls up until now
2 because of the stimulus and the help that the
3 stimulus provided in filling those budget gaps. But
4 unless state and local governments get more help,
5 those budget gaps that they faced for fiscal year
6 2011 will result in cuts, lots of lost jobs.
7 I mentioned manufacturers added to
8 payrolls for the first time in January. State and
9 local governments cut 41,000 jobs in the month of
10 January. That obviously is just the beginning of the
11 job cutting that's going to come.
12 So point number two is that the economic
13 recovery is going to be fragile and tentative. And
14 this gets to point number three.
15 That is, I think it is very important for
16 policymakers, both the Federal Reserve and fiscal
17 policymakers, to remain aggressive to ensure that the
18 recovery evolves into a self-sustaining economic
19 expansion.
20 I think without any further policy help
21 we'll make it through. I think the odds are that we
22 won't experience what we're calling a double-dip.
23 17
1 But the risks are all to the downside, as you can
2 glean from my previous comments.
3 And more importantly than that, I think if
4 we go back into recession it is going to be very
5 difficult to get out. We already have a zero percent
6 Federal Funds Rate target. The federal budget
7 deficit last fiscal year is $1.4 trillion. We'll be
8 lucky if we get $1.4 trillion in fiscal year 2010.
9 We don't have the policy resources to
10 respond. So it is very important to remain
11 aggressive to ensure that the economy moves forward.
12 That means I think more help for unemployed workers.
13 I think it means more help for state and local
14 governments. I think it is key that states get more
15 FMAP help for 2011. I think that is vital.
16 Jobs tax credit I think is a reasonably
17 good idea, worth a shot to try to get the job market
18 moving and get that hiring that we need to evolve
19 into a self-sustaining economic expansion.
20 I think by 2011 and 2012 we should be off
21 and running, with a little bit of luck and some
22 continued aggressive policy support. But here I am
23 18
1 up to point number four.
2 And that is, even on the other side of all
3 of this when the economy is expanding again, things
4 will look better for you, but they won't look great.
5 There are a number of broader economic forces that
6 are going to weigh on tax revenue growth.
7 Tax revenues are going to grow, they're
8 just not going to grow at the rate that they have
9 historically. And let me give you three reasons for
10 this view.
11 First is the job market itself. Even
12 under the best of circumstances it's going to be
13 years before we regain all the jobs that we've lost
14 in this recession and bring unemployment back down to
15 full employment, what we would deem to be full
16 employment.
17 You can see that here. The orange line,
18 left-hand scale, shows the number of jobs in
19 millions. You can see where history ends and the
20 forecast begins.
21 You will note that in the recession we
22 lost 8.4 million jobs from peak to bottom. Just to
23 19
1 give you context, in the last recession in the wake
2 of the tech bust we lost 2 million jobs peak to
3 trough. So in this recession, four times--more than
4 four times--as many lost jobs.
5 And you can see, I don't expect we get
6 back to the previous peak until 2013. And I'll let
7 you know, I am on the optimistic side of economists
8 with respect to job growth in the out-years. So this
9 I would view as an optimistic assumption, or
10 forecast.
11 Jobless rate? You will note that I don't
12 expect any improvement there until this time next
13 year, and it really won't be until 2014 before the
14 unemployment rate gets back to what anyone would
15 consider to be full employment, somewhere around 5.5
16 to 6 percent.
17 The message here is that personal income
18 tax growth will be slower than what you're accustomed
19 to. With high unemployment, that means lower
20 compensation in wage growth, and that means slower
21 growth in personal income tax receipts. And you can
22 see that's going to be the case at least through the
23 20
1 mid part of this decade.
2 The second revenue source that's going to
3 be under pressure is sales taxes, the most important
4 source of revenue for states in aggregate. States
5 have had a significant tailwind at their back for the
6 last--as you can see here--at least 20 years. The
7 rising share of the nation's economy that is
8 accounted for by consumer spending.
9 In fact, I could have taken the graph all
10 the way back to 1990 and the consumer spending share
11 has been essentially rising for 30 years. That is
12 the corollary to the decline in personal savings.
13 Obviously, given what we are now going
14 through, that was unsustainable. But it did provide
15 a lot of juice to sales taxes, as consumers spent
16 beyond their means and powered economic growth not
17 only here in the United States but globally, and that
18 was an important source of support to the growth in
19 sales taxes.
20 Obviously we're at an inflection point.
21 You can see my forecast. At the very best, consumers
22 hold their own. More likely we'll start to see
23 21
1 savings rates continue to rise and consumers'
2 spending share of GDP fall.
3 That doesn't mean that sales taxes won't
4 grow; it means that they will grow at a much slower
5 rate than what you've experienced historically.
6 And then finally--this is obviously more
7 important to local government than states, but their
8 problem is your problem as well--I think it's fair to
9 argue that housing values and commercial real estate
10 values are going to remain depressed for quite some
11 time.
12 This is a good measure of national house
13 prices. It's an index. It's equal to 100 in 2000/Q1,
14 the beginning of the last decade. You can see the
15 boom and the bubble, the bubble in the mid part of
16 the decade. House prices nearly doubled in that
17 period.
18 You can see the crash. And when it's all
19 said and done, I think house prices nationwide will
20 fall about 34 percent peak-to-trough, and then you
21 can see even in 2011, 2012, and 2013, 2014, growth--
22 but very, very slow growth.
23 22
1 All those foreclosed properties; it's
2 going to take years to work through them all. As
3 they go to market, they will depress prices and of
4 course slow the rate of growth in house prices. And
5 that will be a constraint on local tax revenues.
6 So my final point is that even when we are
7 on the other side of this Great Recession financial
8 panic, when the economy is growing again, your
9 troubles will not go away. You will have to continue
10 to struggle with revenue growth that is measurably
11 less than what you've become accustomed to over the
12 past two to three decades.
13 Now being the good economist I am, I'm
14 sorry I can't end on a positive note.
15 (Laughter.)
16 MR. ZANDI: But I am going to turn it back
17 to you. And if you want to--it depends on how you
18 question me, we could end on a positive note. It's
19 really up to you.
20 (Laughter.)
21 CHAIRMAN DOUGLAS: Governor [Ed] Rendell.
22 GOVERNOR RENDELL: Mark, I hate to tell
23 23
1 you but you're wrong for about two-thirds of us who
2 are term-limited. Our troubles will go away.
3 (Laughter.)
4 MR. ZANDI: Good point. That was your
5 optimistic note?
6 (Laughter.)
7 CHAIRMAN DOUGLAS: Questions?
8 GOVERNOR [JEREMIAH] NIXON: You indicated right near
9 the end there that you thought that the savings rate,
10 personal savings rate, was going to continue to move
11 up. How do you analyze that? First of all,
12 individual and business? Or just individual? And is
13 there any strategy at the state level we can do to--I
14 mean, ultimately you've got to believe that's a good
15 thing for the country, but give me some flavor as to
16 what you think that means economically?
17 MR. ZANDI: Right. The personal savings
18 rate I think, just to give you context, was 1 percent
19 at its low before the recession. That was an all-
20 time low.
21 It's currently about 5 percent. The high
22 was 1980 when it was about 10 percent in 1980. I
23 24
1 don't think we go all the way back to 10 percent, but
2 we're going up from five to somewhere closer to 10,
3 primarily because--well, for two broad reasons.
4 One is many middle and upper income
5 households have seen their nest eggs diminished
6 significantly. Certainly not as bad as it was a year
7 ago when stock prices were 50 percent lower, but
8 nonetheless they're worth a lot less. And they know
9 that it is going to be very difficult to get the
10 kinds of returns on their assets that will replenish
11 that nest egg without more savings.
12 They're not ready for retirement. They're
13 not ready for their child's college education. They
14 have to save more. And the bulk of saving actually
15 does occur in upper income groups. That's where a
16 lot of the savings occur, and that's the group that's
17 going to be much more cautious in their spending.
18 The second reason is, I think everyone
19 understands that no matter how you look at it, our
20 fiscal--long-term fiscal--situation is really quite
21 disconcerting, and at the end of the day means higher
22 tax rates. It's going to mean slower spending,
23 25
1 growth, and some spending cuts, but it's also going
2 to mean higher tax rates.
3 And so I think people understand that and
4 that means that they're going to have to save in
5 preparation for that eventuality; and, fewer
6 benefits in entitlement programs. I think that's an
7 understanding.
8 So I think savings rates will go higher,
9 and I think it is important that it goes higher to
10 prepare for these kinds of things, and I don't think
11 there's anything states can do, or should do, to stop
12 that.
13 Now I think they should understand this as
14 a force and prepare for it, and that means if you
15 rely very heavily on sales tax revenue, well, you
16 might want to start thinking about ways of broadening
17 your tax base or in terms of what you tax in terms
18 of sales taxes, and generating other sources of
19 revenue. Because sales taxes just aren't going to be
20 there for you like they have been there for you for
21 the past quarter century.
22 Governor [Jennifer] Granholm, and then I'll come 26
1 back to you.
2 GOVERNOR GRANHOLM: What would you, if you
3 could wave your magic wand and tell Congress what to
4 do, what would you advise them at this moment?
5 MR. ZANDI: Two broad things.
6 First, I would, in the spirit of being
7 aggressive, I would do four things. First, I would
8 extend unemployment insurance benefits for people who
9 lose their jobs in 2010. Right now, if you lose your
10 job in 2010 you get your regular 26 weeks and you're
11 in trouble. Nothing will eviscerate confidence more
12 than running out of benefits.
13 Second, more help to state government. I
14 think I made a strong case for that. I think that is
15 very important. And it's not that states aren't
16 cutting. If you look at expenditures, they're
17 falling on a nominal basis. So it's not like states
18 aren't pulling back; it's just important that they
19 don't completely crush their budgets because that
20 could obviously hurt the economic recovery later this
21 year.
22 Third, is a jobs tax credit. There are
23 27
1 three proposals. If I were doing it, I would go with
2 the President's proposal with a few twists, but I
3 think something's substantive that really catches the
4 attention of business people. The proposal in front
5 of the Senate is small, and I don't know that it will
6 generate the excitement that's necessary to turn the
7 light switch on and get businesses to hire. I think
8 that's worthwhile - it’s an experiment, and it's
9 hard to evaluate, but I think that has a worthwhile
10 shot at really making a difference in 2010 if it were
11 implemented in the spring and the summer.
12 And the fourth thing is, I would
13 significantly expand out and empower the SBA to make
14 loans. Part of the stimulus was SBA lending. They
15 need more funding, and I would become more aggressive
16 with the terms of SBA lending. And if you're
17 interested, I can tell you how I would do it. But
18 you can make SBA lending much more effective, and
19 that can make a big difference fast.
20 You know, the President has a proposal to
21 take TARP money and recapitalize community banks. I
22 don't think that's going to work. It's just not
23 28
1 going to work quickly enough. I don't think you're
2 going to get take up on it by the institutions you
3 want to take you up on the offer. So I would do the
4 SBA. That's the fourth.
5 Now . . .
6 GOVERNOR RENDELL: Would you do direct
7 loans, or guarantees?
8 MR. ZANDI: Direct loans means raise the
9 SBA loan guarantee. So the SBA loan guarantee is 90
10 percent. I wouldn't go up to 100 percent, but I
11 would raise it to 97-1/2 percent for one year.
12 That's the HUD. If you're going to make a mortgage
13 loan at 97 percent, then I'd make a Small Business
14 loan at 97 percent. That's what I would do.
15 Now two broad things. The second thing is
16 I would already be pivoting on the long-term fiscal
17 situation because I think we need to make sure that
18 the economy is off and running, because you can't
19 address the long-term fiscal situation unless we're
20 growing.
21 If we're not growing, nothing works in the
22 long run. So let's spend that money, a couple
23 29
1 hundred billion dollars this year and next and make
2 sure the coast is clear and we're off and running.
3 But we need to pivot fast. And we need to make sure
4 that that fiscal commission is working in a political
5 sense and we get a proposal, because we need tax
6 increases and spending cuts, and we need someone to
7 tell us that, and someone who's bipartisan.
8 The sooner we believe that we're going to
9 get that medicine, the easier it is for us to respond
10 to these near-term problems.
11 GOVERNOR [Jack] MARKELL: You talked about the
12 housing market, also about the housing market as one
13 of the things that got us into this problem in the
14 first place, and the shoe appears to be prepared to
15 drop on the commercial loan market soon.
16 From what I've read, some of the smaller
17 community banks are likely to take a
18 disproportionately bigger hit on those loans, just as
19 the big banks got in trouble sort of on the front end
20 on the housing market. And the question is: Are
21 those reports true? Have they effectively already
22 been factored in not only to the stock market but to
23 30
1 the economy more broadly?
2 How do we deal with that? And then how do
3 we deal--this is related but slightly separate.
4 Everybody around this table absolutely believes
5 there's been a problem, and continues to be a problem
6 with access to credit for small and medium sized
7 businesses, and I think your thoughts about the SBA
8 are very constructive in that regard.
9 The question is: Given that some of the
10 lending got us into trouble, some of the lending
11 and related borrowing got us into trouble in the
12 first place, how do we think about that as all of us
13 are pushing for additional lending to small
14 businesses?
15 MR. ZANDI: The commercial real estate
16 problem is a problem. It's a weight on the recovery.
17 I thought I depressed you enough by the three reasons
18 for concern. It didn't make my top three. It would
19 have been number four, though.
20 It is an issue. The link between
21 commercial real estate and the economy is in two
22 principal ways. The first is what you mentioned:
23 31
1 small banks have problems with their commercial
2 mortgage loans. If they don't have enough capital,
3 they fail.
4 We lost 140 banks last year. There's 550
5 banks on the FDIC trouble list, most of them because
6 of their commercial loans. So small banks are
7 choking on their commercial real estate loans. Small
8 banks are key to small business in small communities.
9 Here's one more statistic for small
10 business. Businesses that employ fewer than 100
11 employees--let's call them small businesses--account
12 for one-half of all jobs in the economy, almost to
13 the decimal point. And two-thirds of all the job
14 growth in the last economic expansion.
15 So if they can't get credit, they can't
16 hire and the job machine can't get going. So this is
17 a significant issue, and it is largely commercial
18 real estate related.
19 The second link is direct: the collapse
20 in commercial construction. It's been collapsing,
21 and that's a direct hit to the economy.
22 Now the good news is, as you said, this is
23 32
1 largely factored in. It's no surprise. I think we
2 got this pretty much understood in the financial
3 markets and in the real estate community, and in the
4 banking community. And it's a much smaller problem
5 than the residential mortgage problem.
6 Just to give you another number, total
7 residential mortgage debt outstanding is close to $10
8 trillion. Commercial mortgage debt outstanding is
9 $3.5 trillion. So that kind of gives you an order of
10 magnitude.
11 So I think we can digest this. And I say
12 that in part because there's no good policy response
13 to it. Unlike the residential mortgage market where
14 the government can step in through Fannie, Freddie,
15 and the FHA, there's no good mechanism for them to do
16 it. But I think it's okay, as long as regulators
17 help them, show some forbearance. You know, figure
18 out ways to work with the mortgage owners to not
19 foreclose on them but sort of work through the
20 problems. And I think that's happening. And so I
21 think we will be able to digest it.
22 It's a negative. It doesn't help. But
23 33
1 it's not going to undo us.
2 Yes, sir--I can't say no to him.
3 VICE CHAIR MANCHIN: Yes, you can.
4 MR. ZANDI: He's bigger than I am.
5 VICE CHAIR MANCHIN: You can, you can.
6 Quickly, you mentioned in one of your
7 graphs you showed that government has grown in the
8 last 20-plus years tremendously, all state
9 governments, the revenue going to a government.
10 MR. ZANDI: Yes.
11 VICE CHAIR MANCHIN: And then it's dropped
12 off.
13 MR. ZANDI: Yes.
14 VICE CHAIR MANCHIN: Do you believe
15 there's ability for us to adjust government? Or it
16 sounds to me like you think it's inevitable that
17 taxes will have to be raised?
18 MR. ZANDI: I think that gap, which is now
19 in my mind between revenue and expenditure--
20 VICE CHAIR MANCHIN: Where we are right
21 now.
22 MR. ZANDI: --is probably about $150
23 34
1 billion right now. I think that gap can be closed
2 with budget cuts, some tax increases, and growth.
3 Once we--you know, revenue isn't going to continue to
4 fall forever. They are going to start to grow with
5 the economy.
6 So by 2012 and 2013, those budget gaps
7 will narrow. But it really won't be until 2012-13
8 before--
9 VICE CHAIR MANCHIN: Before you think any
10 of our states--and I'm understanding you made a
11 comment that the levels of our funding, at 2/08
12 levels, will be 2012-13-14, that neighborhood there?
13 MR. ZANDI: Before you get back, right.
14 VICE CHAIR MANCHIN: So we've got to get
15 from here to there.
16 MR. ZANDI: You've got to get from here to
17 there, yes. That's the bottom line message. Your
18 work is just starting.
19 I mean, more broadly speaking,
20 manufacturers--Mr. Mulally represents one of the
21 first sectors to turn. You represent one of the last
22 sectors to turn. Sorry about that. Maybe you can
23 35
1 tax him--no, only kidding.
2 (Laughter.)
3 MR. ZANDI: Yes, sir?
4 GOVERNOR [MARK] SANFORD: I found your
5 presentation really discouraging because it began
6 with a chart of we're now moving into recovery and
7 we're out of the recession, and then you enumerated a
8 long list of facts that were fairly discouraging from
9 the standpoint of state budgets, or from the
10 standpoint of the taxpayers, the standpoint of the
11 consumer.
12 What you described from the standpoint of
13 policy is in essence the federal government went all
14 in. If you were playing poker, they went all in
15 saying here, we're going to try and put the chips on
16 the table and try and make a change here.
17 What if we misdiagnosed the whole thing?
18 I mean, because a lot of the remedies that you
19 described, and a lot of what has been attempted has
20 been based on an inventory-driven recession. In an
21 inventory-driven recession you throw some money into
22 the equation and the consumer goes out to spend and
23 36
1 it begins to get the wheels of the cycle turning
2 again and you go from there.
3 What if this thing was a balance-sheet
4 driven turndown, in which case we probably made
5 things worse by encouraging the consumer, or
6 government to spend at levels maybe that were
7 unsustainable? What if we misdiagnosed the whole
8 thing? What then?
9 Because then we really would have a
10 problem if things don't resuscitate here very
11 shortly.
12 MR. ZANDI: Yeah, no, you make a good
13 point and the diagnosis could be wrong. You know,
14 but my sense is that--let me say that in most times I
15 would think what we did here, 99 percent of the time
16 this is not something I would advocate. You know,
17 using stimulus in the way we used it, doing the auto
18 bailouts, helping homeowners, you know, really, as
19 you put it, going all in, I agree with you.
20 But I think there are times, 1 percent of
21 the time--that's one out of 100 years, the 100-year
22 event--where I think it's very important that we do
23 37
1 go all in. Otherwise, we're never coming out. And I
2 think that was one of those times.
3 Now that is a judgment call, you're right.
4 I don't know. We don't know what the world would
5 have . . . we don't know what the counter facts were, and
6 that's why we're debating endlessly the merits of the
7 stimulus, right, because we don't know what the world
8 will look like.
9 But my sense is that if we did not go all
10 in, as you say, we'd still be in a recession and the
11 financial system would be still a mess, and it would
12 have cost taxpayers at the end of the day more.
13 And again, I don't say that lightly. I'm
14 with you 99 percent of the time.
15 CHAIRMAN DOUGLAS: We'll take Governor
16 [Linda] Lingle, and then we will have to wrap up, Mark.
17 GOVERNOR LINGLE: Thank you, Jim.
18 Mark, it's great to have you back at NGA.
19 I have a variation of the question that Joe and Mark
20 were both asking and trying to get at--
21 MR. ZANDI: But you want a more upbeat
22 answer.
23 38
1 (Laughter.)
2 GOVERNOR LINGLE: No, not that part of it,
3 but the emphatic way that you said we have to raise
4 taxes, as if that's just a given and you just have to
5 do it.
6 And I understand I think the reasoning
7 that you used. I am curious. What's the difference
8 between those people who would say to you that is
9 absolute worst thing that we could do right now? And
10 coming from my perspective as a leader of a state and
11 who has watched spending, and watched what happened
12 when revenues increase, if the assumption is that by
13 taxes going up we will then be able to bring our
14 expenses and our revenues more into alignment without
15 completely decimating government programs or
16 something, I think the history would show that when
17 revenues go up to the government it's not used in
18 that way. It's just a signal that now we can expand,
19 now we can do something else.
20 What would be the difference between your
21 philosophy that we have to raise taxes, and a person
22 who would come out and say that's the opposite of
23 39
1 what we need to be doing?
2 How is it that they see economics and a
3 potential recovery that differs from what you're
4 seeing? Because certainly there are people--and
5 again I have tremendous respect for you--but there
6 are people I equally respect who would see it the
7 exact opposite.
8 So what's the difference in how you reach
9 your conclusion?
10 MR. ZANDI: Right. And let me say, I
11 don't think we address our long-term fiscal situation
12 by solely raising taxes. I think it's going to be a
13 combination--it has to be a combination of what we're
14 calling spending cuts, or at least much slower growth
15 in the rate of entitlement programs, combined with
16 higher taxes.
17 I don't think we can address . . . we cannot
18 solve the accounting problem that we have in the long
19 run without both. And I think there are intelligent,
20 smart, efficient ways of doing both that don't--that
21 are going to be painful, but that will allow the
22 economy to grow and prosper, and actually probably
23 40
1 result in a better economy sooner than anyone thinks.
2 Because if we do these things, we'll be rewarded for
3 it from the financial system and financial markets,
4 and it will benefit us.
5 Now there is a debate, a reasonable debate,
6 about the merits of raising taxes that is a
7 legitimate one. My sort of perspective on this is,
8 you know, the idea is that if I lower tax rates I get
9 people to work harder and do more entrepreneurial
10 things, and it generates more economic activity and
11 more tax revenue.
12 GOVERNOR LINGLE: Or just let them keep
13 their money and spend it and generate that activity.
14 MR. ZANDI: And I think that's a good
15 solid argument when tax rates are relatively high,
16 very high, and you bring them down a lot. So that's
17 what we did during the Reagan Administration. We had
18 high marginal tax rates. We brought them down a
19 significant degree and made a really large
20 difference, and arguably helped the economy longer
21 run. I would agree with that.
22 But I think the tax rates we're talking
23 41
1 about now are much lower than they were, and I think
2 if we raise them--we don't have to raise them a lot;
3 we just have to raise them a little bit in a broad-
4 based way, a VAT tax, for example, that would not
5 have those kind of meaningful negative consequences
6 that those economists to whom you're referring would
7 suggest.
8 So I think it's a matter--I don't disagree
9 with sort of the philosophy, the idea, but it's the
10 nuts and bolts of it, the numbers, how much are we
11 going to raise taxes, and what kind of taxes are we
12 going to raise, that at the end of the day will make
13 all of the difference.
14 Thank you. It was a pleasure. Thank you.
15 (Applause.)
16 CHAIRMAN DOUGLAS: Thank you very much, as
17 always.
18 Well, Dr. Zandi, thank you so much. We
19 promise not to shoot the messenger. We really
20 appreciate your taking the time to join NGA again
21 this year.
22 We are going to turn to someone who is an
23 42
1 innovator in the private sector now, and I would like
2 to invite Governor Granholm to come forward to make
3 the introduction.
4 GOVERNOR GRANHOLM: I suspect that this
5 introduction will lead you to a speaker that will
6 leave you a little more optimistic than Dr. Zandi
7 did, because Alan Mulally is a tremendous, tremendous
8 leader, innovator, champion, and a positive force of
9 nature.
10 Chris Gregoire and I know, because we have
11 shared him as a CEO in our states. He was the CEO of
12 Boeing and was with Boeing for 37 years, and then was
13 recruited by Bill Ford to become the president and
14 CEO of Ford Motor Company.
15 Now many of you who have been watching
16 what's happened with the auto industry know very well
17 that Ford was one of the companies that did not
18 require taxpayer assistance, and has actually done a
19 phenomenal job of emerging and navigating a very,
20 very tough time. And that is really under Alan
21 Mulally's wonderful leadership.
22 We are very proud in Michigan that Ford is
23 43
1 headquartered in Michigan, and we are very proud to
2 have Alan Mulally as a CEO. We are proud because he
3 has done a great job with Ford. But I have to say
4 just a quick personal story, because he is such a
5 good guy.
6 My husband, Dan Mulhern, comes from a Ford
7 family. His Dad worked for Ford for 38 years, so
8 we're all Ford all the time in our household. Dan
9 writes an online column, and Alan gets it from time
10 to time, and actually called Dan one day and said, I
11 see your Dad worked for Ford--Dan's Dad has passed
12 away many years ago--and Dan said, yeah, my Dad
13 worked for Ford.
14 And Alan said, is your Mom still alive?
15 And Dan said, yeah.
16 And he said, what's her address?
17 And Alan sent my mother-in-law this
18 wonderful box of Ford stuff, like an umbrella, Ford
19 auto, and--you know, not a real car, a small car--
20 (Laughter.)
21 GOVERNOR GRANHOLM: That would have been
22 really generous--
23 44
1 (Laughter.)
2 GOVERNOR GRANHOLM: But just to show you
3 the quality of the human being that he is, he wrote
4 her this note. And of course he's never met her. He
5 doesn't have to do this. He wrote her a note saying:
6 Ford stands on the shoulders of men like your
7 husband.
8 So I would like to introduce you to
9 somebody who is such a quality person that he has not
10 only steered Ford into a successful path, but he
11 truly has made my mother-in-law cry.
12 Please welcome Alan Mulally.
13 (Applause.)
14 MR. MULALLY: That was great. Thank you.
15 The last time I was with Mark I was
16 testifying--do you remember? Well, it was a big deal
17 to me at the time.
18 (Laughter.)
19 MR. MULALLY: I was thinking the same
20 thing, like come on, Mark, we've got to get on with
21 it here. But Mark is a tremendous professional.
22 Well I know you've been through a lot this
23 45
1 last couple days, but I want you to know it's going
2 to be all okay now.
3 (Laughter.)
4 MR. MULALLY: Because Ford is here, and
5 we're going to take care of all of your automobile
6 needs with the finest cars and trucks made in the
7 world. Okay.
8 (Applause.)
9 MR. MULALLY: Now in addition, I was very
10 surprised that I was invited to the nation's CEO
11 meeting, and I asked why. And what could I do to
12 serve? And what came back from your team was that
13 you were interested in how Ford had done what we've
14 done. And also, a lot of the things that we've been
15 through you're going through right now, and so were
16 there some lessons learned, some things that we could
17 talk about and share?
18 And I said I would be glad to come. And
19 so what I would like to do is just spend a few
20 minutes and just tell you a little bit about the Ford
21 story, kind of the rest of the story that you don't
22 maybe see completely on TV. And then highlight some
23 46
1 lessons learned that maybe is applicable to what
2 you're all going through.
3 And then I'd like to just talk for just a
4 little bit perspective about manufacturing in the
5 United States and global competitiveness of the
6 United States. And then just touch on what I think
7 is the importance of the public/private partnership.
8 As Governor Granholm just mentioned, after
9 37 years at Boeing competing with the best in the
10 world worldwide, and now at Ford, I've just been
11 through a lot, like you have, through a lot of
12 cycles. So I'd just like to give you a little bit of
13 perspective about what I think it takes for the
14 United States to move back up and compete with the
15 very best in the world.
16 And there is no reason that we can't do
17 it. There is no reason we can't do it. And your
18 wonderful Ford Company is doing it today.
19 Okay, so here's the story. So I got a
20 call--Jennifer mentioned this--I got a call from
21 Ford, and I had been honored to serve on every Boeing
22 airplane except the 707. I worked on it, but I'm not
23 47
1 quite that old. I am getting very old fast. But the
2 727, the 737, the 747, the 757, the 767, the 777, and
3 the 787. And if you fly, if you look at all the
4 Boeing airplanes that are flying today, 80 percent of
5 all the seats that are flying worldwide are on
6 Boeing.
7 So I loved serving Boeing. And when I got
8 this call from Bill, I knew I was kind of in trouble
9 because--you've all had this same call where you just
10 don't say no right away. And so the kids, and Nikki
11 and I went online and we started checking out all the
12 Ford products, and of course all we remember was that
13 blue oval in every community across the United
14 States.
15 And your Ford dealer would take care of
16 you. They'd take care of your car needs. They'd get
17 you home at night. They'd fix it up, wouldn't tell
18 your parents all the time. I mean, Ford was like the
19 fabric of every small, medium and large city in the
20 United States.
21 And so the more I learned about it, the
22 parallels with Boeing were incredible. I mean, the
23 48
1 technology, the manufacturing, the product line, the
2 global presence, but also the situation that they
3 were in. Because it was pretty dire, as you know,
4 three years ago.
5 And in the United States, because we had a
6 cost structure where we couldn't make cars in the
7 United States to make them profitably, then we had
8 moved--we, Ford--to larger SUVs and trucks.
9 It was a good business, but the world was
10 changing--energy independence, energy security, fuel
11 prices--and Ford was not prepared for this future.
12 They were essentially losing money on all
13 of their vehicles. They were running out of cash.
14 The fuel prices were moving up. The United States
15 was moving into a recession, which was starting to
16 take the rest of the world with it. And so it seemed
17 like a great opportunity to accept this job.
18 And the kids were excited. They knew all
19 about the Boeing airplanes, only seven new models in
20 the history of Boeing, and they all have a pointy
21 nose and a tail at the end, and now they get a chance
22 to hang out with Mustangs, and Fusions, and Fiestas,
23 49
1 and, you know, maybe even drive an F-150 where you
2 could live in it and pull your house behind it
3 simultaneously.
4 (Laughter.)
5 MR. MULALLY: So they were excited. I was
6 excited. And so I made the decision to come to Ford.
7 And so the first thing I'd just like to offer you--
8 and we're going through exactly the same thing; I
9 mean the parallels we've been talking are just
10 absolutely incredible of what you're going through
11 and what we are going through together--but the first
12 thing I'd offer is the importance of coming together
13 around a compelling vision about what you stand for,
14 what you're serving, what your services are, and it
15 needs to be compelling, right? I mean, because we're
16 serving. We're the CEOs. It's our most important
17 job to decide what business we're in, and is that
18 compelling for everybody involved?
19 In Ford's case we ended up going back to
20 Henry Ford and his original vision. On January 24th
21 of 1925 in The Saturday Evening Post, Henry Ford had
22 a full-page advertisement and it said:
23 50
1 "Ford: Opening the highways to all
2 mankind."
3 And it talked about Ford, how grand it
4 was, how important it was. It was about safe and
5 efficient transportation. It needed to be affordable
6 for all of us. We need to be able to work there. We
7 need to be able to buy the products, have great jobs,
8 contribute to energy independence, energy security--
9 everything we're talking about today, that was Henry
10 Ford's original vision.
11 And so we pulled together around that
12 vision, it was exciting--all the stakeholders, and so
13 the most important thing is deciding what you're
14 really going to be, which strategically going to
15 determine what you're not going to be.
16 So the next thing we had to decide was,
17 things were really starting to slow down, so what did
18 we need to do to act on that? And this is really.
19 As leaders you know that the most important thing
20 that we do is we hold a couple of things in our hands
21 simultaneously: despair, because everything is
22 slowing down, it's awful, we can't get out of here;
23 51
1 with hope, and what's the plan for the future?
2 I propose that the best strategies are
3 ones that deal with both of those, and they treat
4 everybody so everybody knows what the situation is,
5 so you can deal with the reality and also develop a
6 better plan to grow coming out.
7 So the first thing we had to decide was to
8 take our production down to the real demand. Nobody
9 in the automobile industry in the United States has
10 ever done that. They always argued that their costs
11 were fixed costs; they'd keep the production up;
12 they'd go for the last bit of incremental dollars;
13 they'd flood the distribution network with vehicles
14 that we didn't want. Dealers would all have to
15 discount the vehicles. That would ruin the residual
16 values, and we actually contributed to a slower
17 recovery from the recession.
18 So we did something that no one has ever
19 done. We took the hurt--and it was awful, I mean
20 just awful for all of us--but we took production down
21 to the real demand. And so we kept everybody going,
22 consolidated our suppliers, our dealers, the entire
23 52
1 Ford network, so we could actually get back to
2 profitably operating during the worst of times.
3 Tough action, but absolutely required because if you
4 don't take it, you can't come back out the other
5 side.
6 The second thing is that, during the worst
7 of times we decided to accelerate the development of
8 the new vehicles that people really do want and
9 value. And so a really important part of that
10 restructuring was that we sold Aston Martin, we sold
11 Jaguar, we sold Land Rover, we're in the process of
12 selling Volvo today which is held for sale, took down
13 our equity position in Mazda, because on that
14 compelling vision we needed to absolutely focus on
15 the blue oval and that brand.
16 The next thing we decided was we were
17 going to have a complete family of vehicles, just
18 like the original Ford. We were going to have small,
19 medium, and large ones; cars, utilities, and trucks.
20 And the next decision we made was that every vehicle
21 that we designed and produced from now on would not
22 just be competitive, but they would be best in class
23 53
1 with the best companies in the world.
2 And that is why you see all of the third-
3 party recognition about Ford, that every vehicle is
4 best in class in quality, fuel efficiency, safety,
5 smart design, and value. You know, Consumer Reports,
6 70 percent of the vehicles are recommended by; J.D.
7 Powers, the finest quality in the world.
8 But that was a conscious commitment that
9 for us to compete on a global stage we had to be
10 absolutely best in class.
11 That also meant that we had to have a cost
12 structure that was supportive of that. And over the
13 years, the companies, and the unions have made a lot
14 of agreements together, and we were just not
15 competitive. We could not make cars in the United
16 States and make a profit, which is one of the reasons
17 we bought all those other brands.
18 So I had the most phenomenal partnership
19 with Ron Gettelfinger of the UAW where we sat down
20 together and said, where do we really want to take
21 this great company? And can we take the actions that
22 would allow us to make cars in the United States and
23 54
1 make a profit and continue to invest in the United
2 States of America?
3 Our conclusion together was, we could. We
4 went to work. That's where the transformational
5 agreement came out of, where we moved from defined
6 benefits, to defined contribution. We worked the
7 wages to be competitive. We changed all the work
8 rules to allow flexibility, so that we could operate
9 in the United States and we could operate profitably.
10 And the neatest proof point about that is
11 that we are now converting truck plants to car
12 plants, and we are going to employ U.S. citizens in
13 engineering and manufacturing making the best cars
14 and trucks in the world right here in the United
15 States, competing with the best companies in the
16 world.
17 The third thing that caught a lot of
18 attention is that we needed a small home improvement
19 loan to do this. I know that you don't have the same
20 flexibility that we have on doing that, but we needed
21 to go get a loan to be able to do this plan, because
22 you can't run out of money when you're doing a
23 55
1 transmission like this.
2 The bankers believed in us. They believed
3 in the plan. We raised the required liquidity, and
4 now we're actually paying back our loans and raising
5 equity because people believe. And the neatest thing
6 was, to not only go stand in support of the U.S. auto
7 industry last year, but to actually not have to
8 access precious taxpayer money. And everybody in the
9 United States knows that.
10 And then the last thing I would propose to
11 you is this concept of working together. You've got
12 to include all of the stakeholders. Nobody can be
13 left out. Then it goes right back up to the
14 compelling vision and the actions required to create
15 a viable, profitably growing company.
16 So we have included all the stakeholders
17 through this, the dealers, all of our employees, the
18 UAW, our suppliers, the bankers, and especially each
19 of you here, because we operate in just about every
20 state in the United States, and the working together
21 we've had with you to create a viable Ford business
22 that is actually growing now is fantastic.
23 56
1 So 14 out of the last 15 months we have
2 increased market share against the best companies in
3 the world. We actually returned to profitability in
4 all of our Ford operations, including the United
5 States, in the third quarter of last year.
6 We provided guidance for this year that
7 we're going to be profitable for the entire year.
8 And so we're on a plan I believe, and I hope Mark is
9 right that the recovery, even though it is more
10 gradual because of these bigger systemic issues, that
11 we are going to actually be able to grow and provide
12 fantastic opportunities for so many people in the
13 United States and around the world.
14 So for my fellow nation's CEOs, that is my
15 report to the board, and I would be glad to take any
16 of your questions.
17 (Applause.)
18 MR. MULALLY: Yes, governor.
19 GOVERNOR [Steven] BESHEAR: First of all,
20 Mr. Malally, let me just thank you and your
21 leadership team for what you've done with Ford. The
22 way you all got yourselves back on your feet and now
23 57
1 are one of the best automakers in the world again, I
2 think it speaks highly of the leadership and of your
3 workforce.
4 MR. MULALLY: Thank you.
5 GOVERNOR BESHEAR: You've got a high-
6 quality workforce. We've got a great partnership in
7 Kentucky with Ford, and they employ about 5,000 or
8 6,000 of our Kentuckians, and produce some great
9 vehicles there.
10 Let me ask you what your views are of how
11 this country is supporting the manufacturing sector
12 in general, and perhaps are there things that we
13 should be doing, or what should we be paying
14 attention to make sure that we continue to have the
15 kind of strength that we need to be the number one
16 industrial nation in the world.
17 MR. MULALLY: Well I would be pleased to
18 offer you my thoughts on that, because it's so
19 important. Because as you know personally, and all
20 of you that are associated with manufacturing, we are
21 fighting for the soul of America right now because we
22 have not held manufacturing as a high priority in the
23 58
1 United States.
2 I think sometimes it's maybe because we've
3 defined manufacturing with a small "m," but when you
4 look at the R&D that we invest in the United States,
5 70 percent of all the R&D investment in the United
6 States comes from manufacturing.
7 It's all the science. It's the enabling
8 technology. It's the engineering. It's the
9 manufacturing. So when we think of "manufacturing,"
10 and I know you're saying this, too, this is
11 Manufacturing with a big "M."
12 This is about whether the United States,
13 whether the United States can compete with the best
14 in the world where everybody else around the world
15 will do whatever it takes to get into manufacturing.
16 Because it is the answer and part of the solution for
17 energy independence, energy security, national
18 defense, sustainability; it's so important.
19 Now with respect to what we can do, I
20 think the most important thing is that we come
21 together with a shared view that manufacturing is
22 important in that kind of a context, in that kind of
23 59
1 a broad context.
2 The second thing is to move it up on the
3 U.S. agenda. That means that we need to have access
4 to the markets around the world, which we don't
5 today, as you know. So manufacturing ought to be on
6 the trade agenda in every free trade agreement that
7 we're negotiating. That's why we haven't been
8 supportive of the Korean Free Trade Agreement,
9 because we have no access into Korea. And if you've
10 noticed, the Koreans are taking advantage of the U.S.
11 market with a very concerted, integrated Korea, Inc.,
12 plan.
13 So the first thing is access to the
14 markets.
15 The second thing is access to competitive
16 capital for all of us.
17 Another big one is a stable, predictable,
18 and globally competitive regulatory environment and
19 tax regime. All the things that we're talking about,
20 this uncertainty that we have, we have no idea what
21 that's going to really mean to business going
22 forward. And if we really believe in manufacturing,
23 60
1 we're going to make sure that we have a stable,
2 understandable, predictable environment.
3 Another thing I would mention is the
4 skilled and motivated workforce. You mentioned the
5 employees at Ford. I've been all around the world
6 with Boeing and Ford, because 60 percent of our sales
7 are outside the United States, both companies, and I
8 have never seen such a skilled and motivated
9 workforce that we have in the United States.
10 Everything that made the United States
11 great--the technology, and the innovation--there's
12 nowhere else around the world that has nurtured an
13 environment like we have in the United States.
14 And so again, making manufacturing
15 important, making it cool again, so that we attract
16 the very best and the brightest in engineering and
17 science, all the enabling technology we're talking
18 about. So that's another big one.
19 Those are a few--another really big one is
20 let the markets determine the currency exchanges.
21 This currency manipulation is just a killer. I mean,
22 we all know exactly what the countries around the
23 61
1 world are doing. They're targeting manufacturing.
2 They under-value their currency so they can make
3 things and we can't. Right? Are we talking to each
4 other here?
5 I mean, we have got to have a rule-based
6 trading around the world. And it is not like it's
7 far away from each of you. I mean, you are the CEOs
8 of these fabulous states, and our ability to compete
9 worldwide means that we, the United States, have got
10 to keep pushing to world-based trading so we have
11 access to the markets, we have access to capital, and
12 that we have free trade agreements that allow that to
13 happen with no distortion on the currency.
14 So those would be the big ones.
15 VICE CHAIR MANCHIN: Not being critical of
16 your competition, or trying to give them advice on
17 how to run their business, but you were able to
18 change it. You came in and changed it. The
19 workforce saw it, and they changed with you.
20 MR. MULALLY: Yes.
21 VICE CHAIR MANCHIN: What's preventing the
22 other companies in America from doing the same?
23 62
1 MR. MULALLY: I really like our Ford plan.
2 (Laughter.)
3 MR. MULALLY: Next question?
4 (Laughter.)
5 MR. MULALLY: I can't--you know, it's not
6 my place to comment.
7 VICE CHAIR MANCHIN: Let me ask the
8 question this way: Is it possible, knowing what you
9 know about your competition, is it possible that
10 could be done, maybe, with some adjustments?
11 MR. MULALLY: I think, as I said, I think
12 that we, the United States, and American companies,
13 can compete with the best in the world. That is a
14 very big starting decision that we have to make.
15 Because if you don't believe that and you're not
16 ready to take the action, including all of the
17 stakeholders, then it is a self-fulfilling prophesy.
18 VICE CHAIR MANCHIN: But the workforce
19 bought into it?
20 MR. MULALLY: Right.
21 VICE CHAIR MANCHIN: UAW, everybody sat
22 down with you and you all worked this out. So it has
23 63
1 to be workable.
2 MR. MULALLY: I really like where Ford is
3 going.
4 (Laughter.)
5 MR. MULALLY: Yes, sir.
6 GOVERNOR RENDELL: Alan, six years ago
7 Governor Granholm, Governor [Jim] Doyle, and myself
8 testified before a Congressional committee on
9 manufacturing, and we talked about trade. What we
10 said--we were sort of preaching to the choir--but
11 most of all it fell on deaf ears: Can American
12 business, can the manufacturing leaders of this
13 country convince the Administration that we've got to
14 take a strong stand on trade to protect the
15 American--and not just to protect American
16 manufacturing, but to give us equal access to
17 markets?
18 MR. MULALLY: Absolutely.
19 GOVERNOR RENDELL: What's waiting--
20 MR. MULALLY: Absolutely. And again, we
21 have so many things going on in the United States.
22 And I don't want to be kibitzing on everything of
23 64
1 what the priorities are today, but the most important
2 thing that we do right now is get the economy going.
3 If we don't get the economy growing,
4 nothing can be okay. Right?
5 GOVERNOR RENDELL: Right.
6 MR. MULALLY: You can't make it okay
7 unless we're growing. If you're in business, there's
8 only one answer, and that is profitable growth,
9 right? Profitable growth. Because if you grow the
10 business, then there's nothing but opportunity.
11 And in the United States, the automobile
12 business is going to grow less than GDP because we
13 have a very mature market. Now everywhere else
14 around the world it's going to be growing faster.
15 So for us to absolutely lead the United
16 States in profitable growth, we need a public/private
17 partnership where we deal with these issues, where we
18 move manufacturing up, and we allow the great
19 businesses in the United States to compete with the
20 best in the world. And we've got to get everybody to
21 come together on that shared view.
22 GOVERNOR [SONNY] PERDUE: Alan, thank you. I
23 65
1 think you give us all an optimistic confidence with
2 that great American icon blue oval Ford makes, that
3 we all can have a bright future. So thank you for
4 the leadership that turned this around.
5 But you mentioned some similarities
6 between our situation. One huge difference that we
7 face that is different than in business is that we
8 are countercyclical. When our revenues are down, our
9 demand is up, which has some very unique challenges
10 for we governors.
11 So could you address that just a second,
12 of where you would attack first?
13 MR. MULALLY: Well again, all I know is
14 that the most important thing is to deal with
15 reality. And so you're absolutely right, with the
16 specific example that you said. On the other hand of
17 that, on the other side of that is that we have to
18 deal with the reality and get back to staying within
19 that budget.
20 That means we've got to make choices on
21 the services, what business you're in, and we've got
22 to deal with the cost structure. I mean, we know
23 66
1 where we are on wages and benefits. They need to be
2 dealt with. They're not competitive.
3 I'm looking for some nodding, or
4 something, here. Come on, work with me on this.
5 (Laughter.)
6 MR. MULALLY: I mean, we need to work on
7 these absolutely key things. You're either
8 competitive or you're not. The data sets you free.
9 The data tells you exactly what we need to do on
10 every element of competitiveness. And I know,
11 because I've served on Jennifer's Competitiveness
12 Council, on Christine's, and the minute you get the
13 data in front of you and you pull everybody together
14 around it, whether it's education, whether it's
15 taxes, whether it's the environment, whether it's
16 energy, the data tells you whether we're competitive
17 or not. Wages and benefits.
18 And, I think, the leadership opportunity and
19 leadership challenge, but the thing that's absolutely
20 unique about leadership is to bring everybody
21 together and address that. Because that's the only
22 way for us to compete and profitably grow our
23 67
1 businesses.
2 Jennifer?
3 GOVERNOR GRANHOLM: I think one of the
4 great things that you've done is to play both offense
5 and defense at the same time, which is of course what
6 we're all trying to do, too, in part in response to
7 what Governor Perdue was saying.
8 One of the ways that you have done a great
9 offense--and that really is a public/private
10 partnership--is the investments that have been made
11 in the electric vehicle.
12 MR. MULALLY: Absolutely.
13 GOVERNOR GRANHOLM: And maybe you could
14 share with everybody, given that you've made a
15 commitment to a billion dollars worth of
16 investments--and that means jobs in this country in
17 the electrification of the vehicle.
18 MR. MULALLY: Absolutely. And, governor,
19 I would like to take it up just one more step. Just
20 being in manufacturing for all of these years, I
21 think another part of this compelling vision is
22 getting to the point about where are we going as a
23 68
1 country?
2 I really believe that at some time, sooner
3 rather than later, we are going to come together on
4 an energy policy. I think that we are going to come
5 together on a manufacturing policy and where we want
6 our country to go.
7 I think that energy independence, energy
8 security, national defense, that once we start laying
9 out that compelling vision of where we want to go,
10 that's just going to unleash all of our creativity.
11 So let's take the automobile industry. We
12 are part of the solution for energy independence and
13 energy security, right? Not necessarily the way we
14 do it with the CAFE policies, but you know that what
15 we're going to get to is we're going to actually
16 generate electricity clean, and we're actually going
17 to use electricity clean.
18 Some day we're going to come together on
19 that kind of a policy. So in our case, we have taken
20 a long-term view that we are all going to pay more
21 for energy going forward. So that's why we're going
22 to have a complete product line. Every one of them
23 69
1 is going to be the most fuel efficient vehicles in
2 the world.
3 Plus, we have laid out a technology
4 roadmap that not only improves the internal
5 combustion engine, but just as Jennifer said we have
6 a technology plan to move to more hybrids, then all-
7 electric. We're also keeping fuel cells and battery
8 enabling technology going so we can move to a
9 hydrogen future.
10 So the minute that we come together as a
11 state, and as a country on where we want to go as a
12 country, the Ford Motor Company is going to be right
13 there with the most enabling technology to help
14 create that future.
15 But if we don't come together on those
16 broad policies about where want the country to go,
17 then we are all kind of pushing upstream. But that's
18 why we're making the investments today in every state
19 in which we operate.
20 Yes, sir.
21 GOVERNOR [ROBERT] McDONNELL: Part of what I think
22 everybody would like to see is repatriating
23 70
1 manufacturing jobs from overseas back home. One of
2 the impediments we seem to have is our corporate
3 income tax rates, 35 percent nationally, and with the
4 state-level taxes well over 40 percent.
5 How big an impediment do you think that is
6 to getting these jobs to come home?
7 MR. MULALLY: Absolutely a key element.
8 That's why I tried to say it with a predictable
9 globally competitive regulatory and tax structure.
10 In our case we continue to make great
11 progress--not progress, but we're actually bringing
12 jobs back now into the United States because we're
13 competitive when you add up all of those elements of
14 competitiveness.
15 But the tax structure, as we all know, is
16 absolutely key to us being competitive.
17 CHAIRMAN DOUGLAS: Governor [Bill] Ritter, and
18 then we will have to wrap up.
19 GOVERNOR RITTER: My question was just
20 about cars and your sort of vision for that. One
21 thing you didn't mention was natural gas. I wanted
22 to bring that up because we had a governors luncheon
23 71
1 where we talked a little bit about natural gas, and
2 now a hundred-year play of natural gas. Do you see
3 that like you see the other parts of the fuel
4 revolution, the technology revolution in fueling
5 cars?
6 MR. MULALLY: Absolutely. And I was
7 amiss--remiss to mention that. Natural gas is a very
8 clean fuel for use in automobiles.
9 The only issue with natural gas for us is
10 just the packaging of it in vehicles. So with the
11 big tanks, and the pressurization in smaller vehicles
12 it makes that packaging job tougher.
13 As you move to bigger vehicles, and
14 especially trucks, then it opens up a lot more
15 possibility. Again, the real issue is where are we
16 going to go as a country? Because the infrastructure
17 that we have to put in place for either electricity,
18 natural gas, or hydrogen, that's a tremendous
19 investment that we all have to make.
20 And again, as soon as we come together and
21 decide where we're going to take this country when it
22 comes to energy independence and energy security,
23 72
1 then we have the tools on all of those different
2 tools to be able to contribute to that solution.
3 But the bigger issue is the innovation on
4 the system-wide structure. Natural gas I think is
5 going to be part of the integrated energy solution.
6 GOVERNOR RITTER: What is the most
7 important thing, then, for you as a group of
8 manufacturers to choose the goal for emissions
9 reduction as a part of that, instead of trying to
10 pick winners and losers sort of within all the
11 different technologies that could be cleaner burning
12 fuel?
13 MR. MULALLY: Well again, I know I say
14 the same thing over and over again, but we can't
15 choose one of these infrastructure solutions. And so
16 right now in a way we are doing the enabling
17 technology from a manufacturing point of view on all
18 of them. Because if we're going to be in business
19 for the long term and we decide as a country, and
20 every country around the world is going through this
21 same process, and some are very organized; they're
22 very strong partnerships, they decide they're going
23 73
1 electric, they're working on the grid now, they're
2 working on generating electricity clean, they're
3 working on the enabling technology for the batteries
4 and the fuel cells. So the sooner that we get to a
5 shared view in the United States about where we want
6 to go on energy, then the faster we can align our
7 resources, our talent, our technology to help make
8 that happen. But right now it is just a patchwork,
9 as you know.
10 Now back to the regulations, since you
11 brought it up, and I know this is hard, and I've
12 talked to a number of you about this, but just one
13 thing that we did together that absolutely is
14 fantastic, was to come together on one national
15 standard for fuel efficiency improvement and CO2
16 reduction.
17 The glide slope that we're on takes every
18 bit of technology and innovation to improve fuel
19 efficiency and reduce CO2 in automobiles that we know
20 of. And if we would have had a different set of
21 requirements for every state and a different set of
22 requirements from the EPA and the Department of
23 74
1 Transportation, we could never have come through for
2 you.
3 But I'll guarantee you, because we stood
4 tall and came together around one standard, one
5 improvement slope, then we are going to absolutely
6 exceed your expectations going forward.
7 So it's back to--and we were just talking
8 about this--it's back to the fact that the more that
9 we pull together around where we really want to go
10 and come together on a plan to do it, then I just
11 know that the Ford Motor Company is going to be there
12 and we are going to exceed your expectations.
13 So again--
14 GOVERNOR LINGLE: Jim, can I ask a quick--
15 MR. MULALLY: --I know you have to go. I
16 just want to tell you thanks a lot.
17 GOVERNOR LINGLE: Jim, can I ask a quick
18 follow-up question on this point?
19 You seem to be saying that the government
20 has to make this ultimate decision on what the
21 technology is going to be. Why would that be true
22 for cars? I mean, if we have three major
23 75
1 manufacturers, why don't you guys get together and
2 come up with what that is, you know, maybe what sort
3 of technology the DVD is going to be played on, or
4 that sort of thing? What makes that--
5 MR. MULALLY: Okay, now again the real
6 issue here is the infrastructure. Because if you're
7 going to--I mean, we have the technology now that you
8 could take a fuel cell, a hydrogen tank, mix them
9 together with platinum, water comes out of the
10 tailpipe, electricity goes over to the electric
11 motor.
12 Now that's great. We can do it,
13 technically. Same thing with electric vehicles.
14 We're getting to the place now where we're making
15 such improvements on the batteries that we can have
16 all-electric vehicles, and plug-in vehicles.
17 But to get it to be widespread use by the
18 consumers, we need the infrastructure throughout the
19 United States just like we have with gasoline today.
20 And that is a tremendous, tremendous investment that
21 the automobile companies can't make. We have to
22 decide to make that. That's part of the
23 76
1 infrastructure that we need in the United States.
2 And whichever direction we go there, then
3 we will have the enabling technology that we can
4 compete, provide the best solution for that vision.
5 GOVERNOR LINGLE: So how do you get out of
6 the chicken-or-egg, though? I mean, if the three of
7 you decided we're going this way, what other
8 infrastructure would there be except whatever it was
9 you decided. You're the only ones who manufacture
10 cars.
11 MR. MULALLY: We'd just have to decide as
12 a country, are we going all electric? Are we going
13 to go hydrogen? Are we going to keep going with the
14 internal combustion engine? What's going to be our
15 energy policy? Where do we want to go?
16 I mean, just think about the CAFE
17 legislation. In 1975, we were all in the fuel lines,
18 right? So we passed CAFE. We set a very aggressive
19 approach for improving fuel mileage of cars so that
20 we burn less gasoline, right?
21 So since 1975 we've improved the fuel
22 mileage by 100 percent on cars, 75 percent on trucks.
23 77
1 We now drive four times the number of miles, and we
2 use three times the amount of gasoline, and we're
3 importing not 28 percent of our oil but 68 percent.
4 How's it going? I don't think it's going so well. I
5 think we can do a lot better.
6 Thank you, very much.
7 (Applause.)
8 CHAIRMAN DOUGLAS: Well, Mr. Mulally,
9 thank you so much for being with us. What a great
10 story of vision, of leadership, of transformation,
11 and we are honored that you would spend time with
12 NGA. Thank you.
13 Last summer we were facing a lot of
14 challenges at the time of our annual meeting, and our
15 Chairman at the time, Ed Rendell, wasn't able to be
16 with us. We didn't have a chance to formally thank
17 him for his leadership.
18 But, Ed, on behalf of your colleagues in
19 NGA, thank you for an outstanding year as our
20 chairman. We appreciate it greatly.
21 (Applause.)
22 CHAIRMAN DOUGLAS: Four years ago, NGA
23 78
1 created the Public/Private Partnership Awards to
2 recognize our corporate fellow companies that have
3 partnered with the governor's office to implement a
4 program or project that makes a positive contribution
5 to a state and its residents.
6 This past fall a lot of you governors
7 submitted nominations for a Corporate Fellow company
8 that recognizes the work that demonstrated a
9 significant investment at the state level to perform
10 a public good.
11 It is a privilege now on behalf of NGA to
12 present this year's winners. I want to thank all the
13 governors who submitted nominations. They were all
14 excellent. It was a tough job for the selection
15 committee which was chaired by Betsy Bishop, the
16 president of the Vermont Chamber of Commerce, and I
17 want to thank Betsy and all of her committee members
18 for their hard work.
19 Governor [Jan] Brewer couldn't be with us today,
20 so I am going to present the Arizona winning
21 nomination on her behalf. I would like to invite
22 Diana Daggatt of Intel to join me at the podium.
23 79
1 (Applause.)
2 CHAIRMAN DOUGLAS: Intel is being
3 recognized as a recipient of the Public/Private
4 Partnership Award for its work in Arizona through the
5 Intel Teach Professional Development Program. It
6 helps teachers learn how to effectively incorporate
7 technology in their classrooms, including how
8 teachers teach and how students research,
9 communicate, learn, and present their work.
10 This is a blended model of face-to-face
11 and online professional development that helps
12 teachers ensure that students develop critical
13 thinking, problem-solving, and collaboration skills
14 that will be applicable to any area of study and help
15 prepare them for careers in the 21st Century.
16 Over 350,000 educators from all states
17 have completed Intel Teach Professional Development.
18 A growing number of states have joined Arizona in
19 statewide implementation of the program, including
20 Alabama, Louisiana, Mississippi, North Carolina, New
21 York, Pennsylvania, Texas, Virginia, and West
22 Virginia.
23 80
1 These states are united through an Intel
2 Teach Affiliates Network that brings together state
3 program leaders, senior trainers, and master teachers
4 from participating states to share best practices.
5 Since its beginning almost a decade ago,
6 more than 17,500 educators in Arizona have
7 participated in the Professional Development Program.
8 Intel Teach is a common model for professional
9 development and Arizona, like every state partnering
10 with Intel, customizes the delivery model to meet its
11 needs best. That means using existing infrastructure
12 of 15 education agencies and Intel specialists to
13 deliver the product.
14 Arizona's partnership with Intel has
15 enhanced teaching and learning in math and science
16 that demonstrates what can be accomplished when
17 partners work collaboratively on issues of common
18 importance.
19 On behalf of the NGA, congratulations to
20 Intel for its Partnership Award.
21 (Applause.)
22 (Award presented.)
23 81
1 CHAIRMAN DOUGLAS: I would like to invite
2 Governor Dave Heineman to come up and present
3 Nebraska's winning award.
4 GOVERNOR HEINEMAN: I am very pleased to
5 present this second Partnership Award. Before I do
6 that, I would just like to take a moment of personal
7 privilege to thank Jim Douglas for his leadership of
8 this organization. He and Joe have just had a great
9 conference, and we are all very, very proud of both
10 of you and thank you very much.
11 (Applause.)
12 GOVERNOR HEINEMAN: Secondly, I am very
13 honored to present this award to one of the premiere
14 companies in America that's headquartered in
15 Nebraska, Union Pacific. Bob Turner, their senior
16 vice president, is here today.
17 What we're discussing and what we're
18 awarding them for is the Principals Partnership Award
19 where they've spent millions of dollars in my state,
20 and in the 20-plus other states they operate in in
21 America, training more than a thousand high school
22 principals, training them in terms of leadership,
23 82
1 growth, and development.
2 And as we have heard over the last few
3 days from Secretary [Arne] Duncan and others, when we can
4 have great principals with great teachers, we can
5 have the kind of education system that we want in
6 America that will be world-class, the best in the
7 entire world. We all know that's what we need. It
8 is critical to the future prosperity of America.
9 So I am very proud today to present to the
10 Union Pacific this second Partnership Award.
11 (Applause.)
12 (Award presented.)
13 CHAIRMAN DOUGLAS: Thank you,
14 Governor Heineman. I would now like to invite
15 Governor [Don] Carcieri to come forward to present an award
16 winner to a Rhode Island recipient.
17 GOVERNOR CARCIERI: Thank you very much,
18 Jim. As I think all of my fellow governors know by
19 now, Wellness is a mantra of mine and has been. Over
20 the last five years, my team has worked very closely
21 with United Healthcare in the establishment of a
22 State Employee Wellness Program. We call it "Get Fit
23 83
1 RI."
2 So I would like to invite to the podium
3 Sonya Milsom who is regional vice president for
4 public sector accounts, United Healthcare executive
5 who has been involved in the development of our
6 Wellness Program from its early stages. So please
7 join me, Sonya.
8 Right now, Get Fit serves something like
9 13,000 state employees, and our collaboration has
10 resulted, in my mind, in a model wellness program
11 that has received national recognition, inspired
12 other businesses in Rhode Island to adopt wellness
13 programs and policies, has spurred a winning effort
14 to have Rhode Island certified as the first well
15 state in the nation by the Wellness Council of
16 America, and most importantly improve the health and
17 productivity of all of our state employees.
18 This did not happen without an
19 extraordinary partnership between United Healthcare,
20 their team, all of their efforts, and our team at the
21 state level.
22 Just to give you a couple of results:
23 84
1 Over the last four years the progress has been
2 remarkable. We've had a 500 percent increase in
3 employee participation in the annual health
4 assessments that I talked about. Health pregnancy
5 program participation increased by 25 percent. Case
6 management program participation by 85 percent. Last
7 year, 68 percent of our employees accessed United's
8 Personal Health Management Web site.
9 Last year, 68 percent of all of our state
10 employees participated in health screenings, blood
11 pressure, body mass and body index fat screenings at
12 37 locations throughout the state. And this year we
13 are offering a series of cholesterol and glucose
14 screenings that have already begun in January and are
15 continuing this month.
16 And lastly, because of all of this
17 partnership, the State of Rhode Island itself as a
18 state earned a gold Well Workplace Award this year
19 from the Wellness Councils of America. And that is a
20 step up from our last award, which was a silver.
21 So the Get Fit Rhode Island Program has
22 been recognized for two national awards, as well.
23 85
1 So, Sonya, it gives me great pleasure to
2 present to you an NGA Public/Private Partnership
3 Award in honor of the extraordinary effort--I mean
4 that, extraordinary effort--you and your colleagues
5 have dedicated to an important health initiative in
6 the State of Rhode Island.
7 So thank you.
8 (Applause.)
9 (Award presented.)
10 CHAIRMAN DOUGLAS: Well thank you all.
11 Let's turn now to the Policy recommendations of our
12 committees. They have been sent to the governors a
13 few weeks ago. They've been recommended by the
14 respective committees, and they are in the packet
15 that's at everyone's place.
16 Let me report on behalf of the Economic
17 Development and Commerce Committee. The committee
18 had a great conversation yesterday with Secretary of
19 Transportation Ray LaHood about surface
20 transportation policy.
21 They are recommending to the NGA adoption
22 of three policies, two with amendments to existing
23 86
1 policies, one reaffirmation of one of our current
2 policies. One is on transportation conformity with
3 the Clean Air Act. A second is on air
4 transportation. A third is on rail transportation.
5 And I would welcome a motion on behalf of the
6 committee to adopt their recommendations.
7 GOVERNOR [BRIAN] SCHWEITZER: Mr. Chairman, I
8 would like to broaden that motion to all five of our
9 policies that we have before us. They have been well
10 thought out and have been well discussed and debated,
11 and I believe that we all are here in agreement with
12 the fine job you have done. I would like to move
13 them all as one, and agree that we should accept them
14 as offered.
15 CHAIRMAN DOUGLAS: Well, I would be
16 happy--
17 GOVERNOR HEINEMAN: I second that.
18 CHAIRMAN DOUGLAS: --I would be happy to
19 entertain that as seconded by a chairman of a
20 committee who is foregoing his report, so that's
21 fine. Is there any discussion on the motion, which
22 is to adopt the reports and recommendations of all of
23 87
1 our committees?
2 (No response.)
3 CHAIRMAN DOUGLAS: If not, all in favor
4 say aye.
5 (Chorus of ayes.)
6 CHAIRMAN DOUGLAS: Opposed, no?
7 (No response.)
8 CHAIRMAN DOUGLAS: The ayes have it.
9 Thank you so much, and without further ado
10 this will complete and conclude the NGA's Winter
11 Meeting.
12 Thank you all for being here.
13 (Applause.)
14 (Whereupon, at 4:04 p.m., the 2010 Winter
15 Meeting of the National Governors Association was
16 adjourned.)
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