Bernard J. Tyson, chairman and chief executive of Kaiser Permanente—the $56 billion non-profit health insurer and hospital operator—is more optimistic about America’s healthcare system than he’s ever been. That's saying something, given that the fate of the Affordable Care Act hangs in the balance pending a Supreme Court ruling due in June. On a visit to Fortune's office Wednesday, the health system executive painted a mostly rosy picture of the modern, efficient health system he sees in America’s future—though he did note a few pain points that stand in the way. Here are five key takeaways from our conversation.
1. Healthcare institutions have to “own the healthcare dollar.”
For years, the incentives for medical providers have been all wrong, says Tyson. The fee-for-service model has long rewarded physicians and hospitals for ladling on as many tests and treatments as possible. For a more affordable and effective system, Tyson says medical institutions have to focus on patient outcomes, not healthcare inputs (like how many CT scans and blood tests a physician orders). Kaiser avoids this trap by delivering care to patients through teams of providers (doctors, nurses, nutritionists, etc.) and physicians—"who quarterback this care," Tyson says—get a flat salary, receiving end-of-year bonus payments if their patients achieve better health. (The health system uses a number of surrogate measures along the way to make sure that their members are on the right track—for example, lowering their blood sugar if they are at risk of diabetes.)
In large part, Kaiser can do all this because of the way it's set up, Tyson says. Not only is it a hospital, it's also an insurance company, a pharmacy system, and a doctor's office with some 20,000 physicians. As FORTUNE wrote last summer, "that unusual structure looks a lot like an accountable-care organization as envisioned in the Affordable Care Act." So is there evidence that such a system works? According to Tyson, Kaiser health system members under the age of 65 spend significantly fewer days in the hospital compared with the same population in the broader U.S. healthcare universe. And it's clear that other healthcare organizations are continuing to look at Kaiser as a model.
2. Changing American behaviors will change American healthcare.
Such a paradigm shift in the system of provider incentives can have a broad and surprising effect on how all of us live our lives. As it is now, Tyson says, healthcare is a "fix-me system"—patients come to the hospital when something is broken and needs repair. By then, it's expensive and can often be too late in the process for medical science to do much good. With a change in the incentive structure, medical professionals everywhere can be rewarded for guiding people into making behavioral choices that are likelier to keep them well. Kaiser focuses on four key areas: diet, exercise, tobacco and alcohol. The list may seem a familiar one—but Kaiser gives them all a medical spin that actually gets patients to take the recommendations seriously. For those in need of exercise, for instance, Kaiser physicians write out a scrip on a prescription pad: “Take a walk.” (It seems to work.) Good data, strong communication, and continual feedback between healthcare providers and patients, says the CEO, will transform individual thinking and have a significant effect on health outcomes.
3. Expect to see your doctor less—and email them more.
While all this hands-on health management sounds expensive, it doesn't have to be. Last year, Kaiser’s physicians conducted approximately 20 million e-Visits—that is, they consulted with their patients by email. That amounts to 13% of all of the nonprofit's medical appointments in 2014, and Tyson expects the number of digital check-ups to grow. Patients love it, he says—it’s especially good for certain populations, like seniors with chronic conditions—and Kaiser is betting big on video-conference technology that will improve online healthcare. He calls that "distributing care out"—out of the hospital, that is.
4. Interoperability has to be a national priority.
One of the major inefficiencies in the U.S. healthcare system, says the Kaiser CEO, is the independence of each medical provider. Go to one hospital, and they won’t have your medical history nor have any clue as to what you were diagnosed with two months ago at a hospital across the country, or even down the street. He compares this situation to one in which you could only use a Bank of America card in a Bank of America ATM. The adoption of electronic health records is paving the way towards an interoperable system, but Tyson says too many hospitals don’t even have these capabilities yet.
5. What could stand in the way of all this progress? You guessed it: the cost of drugs.
While technological innovation is leading to better patient outcomes in a number of medical conditions, there's one area where Tyson says "progress" is part of the problem. That's the new crop of "specialty drugs" that can run as much as $100,000 or more for a course of treatment. In some cases, these drugs are veritable godsends for patients with intractable ailments. (Take, for instance, Sovaldi, an $84,000 drug that can cure Hepatitis C—Tyson himself couldn't bring himself to believe the claims until he'd seen the data.) Even so, when such wonder drugs are priced in the stratosphere, they can make the entire healthcare delivery system unsustainable. The prices aren't just high, he says, they're irrational. "Irrational pricing," he explains, "is one in which a given price point has no rational explanation other than 'Because we can.'"