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1 NATIONAL GOVERNORS ASSOCIATION

2 WINTER MEETING

3 Saturday, February 20, 2010

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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 III, WV, VICE CHAIR

5

6 GUEST:

7 MICHELLE OBAMA, FIRST LADY OF THE

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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

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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 , Governor . Gary, welcome.

21 (Applause.)

22 CHAIRMAN DOUGLAS: I don't see Governor

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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

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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.

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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

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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.

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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

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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 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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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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 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

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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 ,

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 “

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 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 , 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. 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 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 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, , 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 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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