model is not the model for everyone and that there are many mode out there. the end result is what counts. we all want to get to the same point. clearly our paths will all be different. we chose some, what we consider to be innovative projects, demonstration projects which help fuel our success. number one is we invested heavily into nurse navigateers. we embedded them in each of the practices. therefore they were there to see the patients during their visits to develop a relationship with the patients that the physicians may not have had time to develop, to call the patients on a regular basis, especially the high risk patients and to intervene when necessary as the first line of defense when one of the patients wasn't sure which medication to take or should they go to the emergency room, et cetera, et cetera.

we were able to cut down readmission rate dramatically and our emergency room rate dramatically. the only thing that went up in our database was primary care visits. once again, not necessarily perfection but i think as a clinical study it was shown to be effective. and once again the reimbursement and the savings bears out that case. we also initiated some relatively interesting demonstration projects. we identified our congestive heart failure patients who were having problems with frequent readmissions. we did something very simple. we put scales in their house that automatically sent their weights directly to the doctor's electronic medical records. not a very expensive proposition. as soon as it was greater than a

one pound change in the patients they got a phone call to find out what had changed and whether or not they were being noncompliant with either medication or diet or what changes had occurred. and in patients who routinely would have four or five hospital admissions in a year we were able to keep them out of the hospital by intervening at that level rather than waiting for the patient to identify that they were in extremis and the doctor would say go to the hospital. we also started the demonstration project with electronic tablets for these elderly patients preprogrammed with their medications as a medication calendar. so the tablet would give a ring when the patient was required to take their medication. patient was required to press the button on the tablet that they took the medication, once again directly connected to the

physician's electronic medical record so we could monitor compliance on patients that were taking multiple medications on a basically daily level, not waiting for claims data to come back from cms. and we also initiated a program where anytime any of our patients at the aco, tested patients, would arrive at any hospital facility, inpatient, outpatient, emergency room, urgent care, an automatic notification went to the nurse navigator. they became aware that the patient was entering the system. if a patient showed up at midnight on sunday in the emergency room and the emergency room doctor doesn't have access to the patient's medical history which is on the emr that doesn't connect to the hospital the

nurse navigator can contact the emergency room, hopefully know the patient or has access at home to the electronic medical record and sort of navigate that patient through the system or contact the physician to intervene. these were small demonstration projects we did with a few hundred patients that once they became successful the hospital network said let's roll this out entirely. one other thing that we did which was hugely successful was that every aco patient upon discharge from the hospital received all of their medications prior to discharge. we have an outpatient pharmacy as well as inpatient pharmacy in the hospital. patients are given all of the bottles of medications, instructions, told to throw out every pill in the cabinet and see the doctor in 48 hours. we believe that this had a major

effect on limiting readmissions based upon confusion, patient not knowing to take the new medicine, the old medicine. we have rolled that out to our entire hospital which is 750 beds after we have shown the benefit through the aco. so it is sort of the partnership that the aco has with the organization and trying small demonstration projects on a local level and then rolling them out to our patient network in northern new jersey. >> sounds like that is continuing to move forward. both of you it sounds like you have had fairly positive experiences with accountable care efforts so far. i would like to connect that back to some of the comments earlier in jennifer's opening remarks as we discussed earlier the evidence does show some mixed results especially when it comes to what people might

characterize as true care transformation. jennifer, i know you expressed concern about acos just being a financial model and not really being the facilitator of getting to truly better patient-centered care. there are some organizations, though, that seem to be moving down that road. just to push on your comments a bit more, how can we best support real changes in care delivery, real systematic changes in how patients are part of these potentially beneficial care systems and separate that out from the organizations that may just be putting a toe in or not really getting it yet. >> i think it goes back to the four levels i talked about earlier with really partnering with patients and beneficiaries at those four levels. a couple more examples.

we have seen where some acos have actually gone and done home visits with their higher cost patients to understand the barriers that they are experiencing at home, whether that is to fill medications or to get to appointments. i think that is really key. that is really getting at that patient-centered care that patients need and want. i think going back to what we talked about earlier with sort of helping patients understand the benefits of an aco -- and i know this is a little more complicated in the medicare space -- but i think there is a lot of documentation you can send to patients, welcome packet, frequently asked questions document. the acos we think are doing the best job are the ones who assign case managers to have actual conversations with the patients about what the aco is and what the benefits are for them and what care will look like for them in this aco. that is taking it that step

further than just sending home a piece of paper. we all have too much paper in our lives. i think we need to have more conversations in health care. i think, also, it's all of the things that we know patients care about. it is materials written from a health literacy perspective. it is starting discharge planning at admission. it is really connecting patients with the services in their community that they are going to need to rely on once they have left the aco. those are some of the examples that we are seeing that acos who are looking at doing a patient-centered job at this are spear heading. >> evidence base is starting to get better on what kinds of interventions can be undertaken by acos to get that progress with patient engagement. from your comments and kelly and maury this sounds like hard work. there are a lot of things that could be changed for the better. you have limited time and

resources. and even though your organization, hackensack, essentially fronted the funds necessary to try out the reforms and expand the ones that work it makes a lot of sense as a model. it does suggest that this is going to take some time and there will be failures and bumps in the road along the way. are there steps either through better evidence sharing or other policy steps that could accelerate that, that could make the work that you are doing or trying to do go more quickly? maybe happen at a faster pace? >> i think that you had it the nail on the head. and that is we, once again, started with a small group basically a clinical laboratory. the question is where is the benefit to jump into the pool rather than just sticking yourpo into the pool?

hospital organizations, very large physician organizations are dependent upon the fee for service dollar right now to pay their bills right now. and there needs to be enough of a carrot at the end of the road to make organizations willing to sort of hit that tipping point and say we are going to jump in whole hog on value based. now, for example, you know, there are certain sticks that cms is using such as, you know, the decreasing reimbursement or the penalty for not hitting certain quality metrics for hospitals, but the carrot at the end isn't there. and i think we have already had discussions about that how from a standpoint of the shared savings program there is not enough benefit on the back end

to really make a concerted effort to drive everyone into a value based system. and i'm not sure how we are going to get to that tipping point. i'm not sure it is even going to be an aco. it is going to be something whether the bundle payment program that we are doing, the aco program that we are doing, medicare advantage. we talked about that. medicare advantage has a fixed benchmark that you are working against. if you are going to sit there and say i can either put my patient in medicare advantage or put them in the mssp, where am i going to get more bang for my buck, i don't know what the answer is, but it most likely is medicare advantage today. we are waiting to see what medicare comes out with with the new regulations. and so i think that that idea

has to prevade a lot of decision making here in washington. the idea is great. we have to move in this direction but the devil is in the details. >> kelly, anything you would like to add about how to make more progress faster? >> i don't know that i have the answers, but i can certainly tell you that is the world we are live in right now, having two feet in both worlds is very stressful as an aco. having had success in it i think has helped us leverage at least getting in the room and getting to the meetings and talking with people more about it. but it is very difficult. and the fact that it took us until now when we started in july of 2012 in mssp to get to this point, in the meantime we have had to cut some staff, we have had to level set, we keep talking and we keep pushing forward. i think that's just kind of the culture and the philosophy that

we have had at least in the quality department for a physician setting to always think that, you know, if i'm doing whatever is best for my patient then i'm doing what is best for me and for our system. and so that has just kind of been the consistent message for a decade. i think that that really makes a big difference and certainly gives us reason to chekeep movi forward. i would say that this isn't something that you have to wait for to do if you are in a fee for service world you can start to learn how to do these things and have a positive business case for doing that. i guess i'm more focused on that than i am letting other people come up with the answers. >> you seem like a glass half full kind of person. >> one of the things that i'm not seeing with acos is a

collaborationtypically between consumer organizations and acos. i think it is because acos are doing a lot of work right now and that makes sense. consumer groups have expertise when it comes to communicating with patients and families. and my organization in particular has expertise around performance measurement and redesign from a patient center perspective. i think one of the messages i would share is that we are open to working with acos to figure out some of these problems and to lend a hand where we might be useful. >> you are starting to get experience in working with acos on some of these issues. you want to comment on that at all? >> we have worked -- well, one, we have done a lot in the policy reason around patient center criteria and then we have a coalition where we comment on anything that comes out of cms. we have worked with some of the pioneers and others to help them do two things, find beneficiaries to engage in their

governing bodies and ensure that they engage effectively. also, we have helped some of the acos build patient and family advisory counsels that they can design care to truly meet the needs of patients and families. >> i would like to ask for those of you in the audience any commence or questions for the panelists. i'll start up here in the front. >> thank you. very interesting. the whole issue of health care especially affordable care act has been heavily politicized. i wonder if you are feeling the influence of politics on your patients especially acceptability of aco and whether they are interested. >> from a central iowa perspective i have to really admit that we have not done marketing of the aco to our

patients. we just try to provide them good care and high quality care. so we haven't really gotten into that perspective, but i think that for us we haven't really seen pushback from our patients at all. there is always a few patients that don't want their information shared and that type of thing. really the patients that i talked to, they just, they are just focused on getting good care and very much appreciate the efforts in our advisory groups this is what we hear. and i would love if we could do satisfaction surveys only on those patients that are worked with by our health coaches because it is always just a great relationship and they really feel -- they feel, i would say, like it is about time that they were taken into the

picture. most patients want to be part of what's going on in their life. and i think it is a big reason why we have had issues with low medication adherence or low quality outcomes. the patient is really the missing piece in this. >> kelly, you are living in one of the definitive political battle ground states. sounds like that hasn't really had a direct impact for all of the controversy around affordable care act. it hasn't had a direct impact on the steps that you are taking and the reforms you are implementing. >> i would say that initially the pushback was more from the physicians and other folks in the health care in our organization that didn't really think this was going to stick, was just another project that kelly was working on type thing.

and others, not just me, of course. it's really now to the point where i think most of the leadership in our health care system really does believe that this is where things are going. and the nice thing is that being part of the catholic institution this fits right with our mission and our values. so now finally we can talk the talk in terms of mission and values, as well. >> maury, you have a pretty well known governor and a pretty blue republican governor in a pretty blue state. new jersey has been taking fairly bipartisan steps towards accountable care and medicaid program and the like. >> interestingly enough i think it is working the other way around in that as the data came out from cms showing the successes of certain acos, the

politicians tended to gravitate towards those organizations to sort of show their interest in the health care debate. and it's giving us an opportunity to educate our elected officials to the problems and to what we thought would be some potential solutions. so i think that the publicity is a good thing because it's putting it on the front page as opposed to deals being made in the back door and those of us who are actually the providers of care having to deal with decisions that were made without anybody's input. >> other questions? >> thank you so much.

i'm with cmmi. you all mentioned very interesting approaches that are focused more on team delivery of care. my question is how are you paying for it? so we heard about the nurse navigateers. you have health coaches. we are bringing the patient in as part of the team. in the prior panel talked about community health workers. and is there an effort to really document how we are using our workforce differently? really important, how are you paying for it? >> i will start with that. and basically our hospital network is fronting the cost as they would for any other new program. now, the question becomes, you

know, how do you determine whether or not there's appropriate profit on the other side of the ledger? clearly there is benefit. the question becomes can you show that it's worth while in the long term? the problem is that there are very few hospital organizations that run a cost-based health care accounting system. a physician's office, a physician organization can tell you where every dollar is spent because every dollar is valuable. if you walk into pretty much any hospital in the united states and ask them what it costs to perform a gallbladder surgery because you want to pay cash plus 20% nobody will be able to tell you. they will tell you what they charge but won't tell you the cost. so my argument to the

administrators were this program is going to be successful and you have to let us run with it. now, what we did as an offset because of the bean counters didn't just take my word for it, was that we involved our employee health plan and we created a management structure for our employee health plan so there was cost savings on that side as well as the bundle payment program. the bundle payment program which was initiated by the hospital required an infrastructure for management. we actually are participating in more bundles than any other hospital in the country. and so therefore i said to them i will also do the clinical management of that, as well. so the short answer is this is being privately funded by our institution. the long answer is i think in

the long run there is an awful lot of benefit to the hospital and even just the pr that they have received from us, saving money in the mssp program is money well spent. >> kelly, any thoughts on this topic? >> kind of the same thing. our hospital has made the initial investment in our aco. and we are projected to have losses for a couple of years. we are honest about that. didn't quite turn out that way. we are having some good success. one of the things we have done in the past is partnered with other people and aggressively gone after grants. we just got a grant from cmmi to spread health coaches and disease registries throughout all of rural iowa in our critical access hospitals. we try a lot to find different things like that that can help us build the case. that coupled with, i think, in

our market knowing our competitor was jumping right in, was a big reason, of course, to do it as was talked about earlier today. and then, again, just kind of going back to mission. this is really what our board of directors, this is how they directed us. they absolutely jumped in with two feet and have supported it ever since. if you are doing the right thing for patients you are doing the right thing for yourself whether at individual level or statewide aco level. >> let me ask you if you feel like the quantitative business case is getting clearer and better for these kinds of reforms? we hear this a lot around the country especially organizations that are committed to the goal of better patient experience and better, more focused person care and hopefully getting savings at

the same time just going ahead with best opportunities to do that or if they can get a cmmi grant or foundation grant they are taking those steps. that by itself is not really a sustainable long term business model. you heard dr. mcwilliams talking about a conceptual approach. net revenues of different kinds of payment reform models. that is hard to calculate across the board. not only that as you pointed out hospitals and other health care organizations aren't set up to calculate cost versus new revenues in this way because they haven't been paid this way. is it getting better? they have better data compared to now and several years ago. is it more in the realm of we

have been doing this a few years and so far turned out okay so let's keep doing what we are doing. is it getting more systematic? >> from our perspective it's a multilevel answer. number one is we can't keep doing business the same way we are doing it. that's clear. number two is if we are successful and i'm not talking about us, i'm talking about the health care system is successful and less hospitals. and so hospitals are going to have to think about their business and their business model in a different way. so a hospital like mine which was willing to make that investment was basically looking and saying how are we going to change our business model? is this a direction that is going to make us successful in the future? and i can't speak for administration, but so far they have been very supportive of

every efforts that we have made not necessarily with the aco but in population health as a whole, changing the way that we provide care. quick example, i requested a computer program for radiology procedures in the hospital. as we all know anybody on the outside that is not a medicare patient needs to get an authorization for a significantly expensive diagnostic test. the result is doctors admit patients to the hospital and do every diagnostic test they can possibly think of while in the hospital regardless of diagnosis. we just purchased a program which sits on our emr that basically blocks orders of anything that is not indicated based upon the american college of radiology. now, this is not something that is going to be an up front win

for the hospital, but they see it clearly as a long term gain to them. i see it as a benefit because it is going to change physician practice patterns. and therefore it is going to bring doctors more in line with population health thinking. >> thanks. we have time for one more question back here. we want everybody online to get the benefit, as well. so hang on just a second. >> i'm teresa okeefe, ceo of mind body count. we created a consumer health score. kelly, i thought you said you work with employer populations. a lot of what i'm hearing in myorianuatimy myorimy orientation is things that seem to be working or are happening in employer sponsored health care. i'm interested in the differences. i have already played some out in my head but are you

considering incentives for your populations or have you got to thinking that far? >> actually, our hospital system was really our first test case to kind of prove this point. and so we have worked really closely with them. there are patient incentives that have been built in to work with health coaches on lifestyle changes, to work on self management support and those types of things. and we have learned from it. it hasn't been perfect. the first year all you have to do is have three sessions with the coach and you have the benefit. that was an hr designed thing. we were able to say it is really an ongoing relationship and so they kind of spread it out so that you get the incentive but you maintain that relationship with your medical home. and so i think there are lots of

opportunities that way. i think you are right. there are already a lot of things that were working. i think adding care management kind of as an over lay. we have decreased hospitalizations and decreased ancillary usage with health care workers who traditionally are high utilizers. so i think it is a combination and another idea of partnering with people. leveraging that and working together and having that same consistent similar message. it has really led to lots of employer groups within central iowa coming to us and saying what can you do with us and what we do with you? >> with employers concerned about the cost of health care and the quality of the coverage that their employees are getting as well as with the health of their employees i expect you all

have seen examples where employers can work to support same models of more effective patient, person family engagement and care? >> we also co-chair the consumer purchaser alliance at the national partnership. i think what i thought was interesting with what you said, kelly, is that there is an initial uptake but then without sort of creating that relationship it wasn't going to work. i think that is our concern as a consumer organization is we don't want to just give people gift cards and say it is great. that is a quick fix. it will not be sustained over time. we want to change the way clinicians and patients partner together to get the results we all want in health care. it is really about that relationship and understanding what it is patients need and want and working collaboratively with them to design it. >> i think the point about no quick fix is illustrated by the goal of some fundamental changes

in how patients work with their health care providers in achieving care transformation is a good point to end this panel on in illustrating this is hard work but clearly opportunities to make progress in improving care and lowering cost. as you all continue to work through this i would like to give you a round of applause for the great presentations on this panel. thank you very much. >> we are going to move right into our next panel. while they are coming up to the the stage. and the aco policy going forward i would like to re-introduce policy going forward. some of the main topics that we are going to discuss here build on the discussion that you have

already heard. you have heard about the state of the evidence on accountable care and about some of the key issues and challenges facing accountable care organizations on the ground. now we are going to turn to the potential policy and regulatory reforms to help address the challenges. obviously some of the topics have come up today. to get the discussion going i wanted to highlight a few. one of them is the issue of the benchmark and payment systems. we heard about some challenges around how the benchmarks are calculated and whether the savings are retained over time and go into a new base. we have talked about transitioning to more person based payments, payments that are more at the person or capitated level meaning more significant financial risk but something many acos seem ready to take on. we have talked extensively on

the last panel about steps and policies that could support increased beneficiary engagement, issues related to performance measures both measures that are less burdensome to report but measures that could be more meaningful for capturing issues like under use of care and more meaningful patient reported outcomes and the like. we have heard about challenges related to data availability since timely comprehensive data is really critical to many of the steps to improving care being targeted and having effective impact. we have talked about some of the other payment reforms going along with accountable care organization payments that can potentially reinforce their effects. we have talked about steps to overcome startup costs through things like bonus payments and other incentives. we have highlighted the

challenges of implementing effective reforms in clinical care and how opportunities to share experiences and research on what really works to improve care and lower costs in particular kinds of health care settings and markets today can be very important. so plenty of opportunities for further discussion, debate and hopefully constructive next steps on the policies affecting the aco programs in the country and particularly the medicare aco programs, very timely issue right now with the upcoming regulations and further payment and regulatory reforms that are coming. we have a great panel to discuss these issues. i would like to introduce them briefly now. starting on the far end is their president of heritage medical systems which is an affiliate of the heritage provider network that serves over a million patient members and integrated

programs through medical groups and independent practice associations in california, new york and arizona. heritage provider network also manages one of the largest pioneer acos in the united states and one that seems to be doing quite well so far in the pioneer program. next i would like to introduce joe demore, vice president for population health management at premiere. joe has extensive experience in leadership roles for successful hospitals and health systems including 19 years as a hospital and health systems ceo. he has successfully developed several integrated health systems and his expertise includes governance and leadership development, business planning, quality enhancement, health insurance plan and aco development and physician hospital integration. no shortage of skills needed for

success in these kinds of health care reforms. next i would like to introduce my long time colleague mark miller, executive director of the medicare payment advisory commission. medpac is a nonpartisan agency which advises congress on medicare payment, quality and access issues. mark came in 2002. has it been that long? where he previously was at the congressional budget office as assistant director of health and human resource division. before that mark miller was deputy director of health plans at the medicare program. last but not least i am pleased to introduce paul ginsberg, chair in medicine and public policy at university of southern california and a fellow here at brookings from 1995 through the end of 2013 he was the president of the center for citing health system change and prior to

finding health system change paul served as founding executive director of review commission and now part of the medicare payment advisory commission. as with our last panel we will start out with opening comments from our distinguished panelists and then turn to further discussion of some of the policy issues and potential solutions on the horizon. mark, let me start with you. >> thank you. heritage is probably at the other end of the spectrum for many people in the audience in participating in the aco program. of our million patients 800,000 are fully dellicated. we pay claims and do care management and we have almost 3,000 physicians in medical groups that are employed. we probably have 30,000 contracted physicians primary care and specialty and independent practices that surround those. we try to focus on concentrating

in markets and presenting a delivery system that can actually produce differentiated results. our success in the pioneer, i think, is primarily driven by the experience that was referenced earlier. dr. murken has been at this since the 70s and been through the ups and downs of different versions of managed care. we were able to extend in the pioneer aco program all of the internal things that we do for those prepaid populations. so the independent practice that was a first timer to the aco gets the social worker who is going to work with the family, gets the community care worker, gets the meals on wheels. i was pleased to hear the conversation about consumers because we have about 30% churn. does that sound flaer toamiliar

there? how do you financially survive that? what we are finding given we have had success and taken the education road with consumers and found they didn't know a thing about it, we had group meetings not to market, they are already in the program, but we are a part of your physician office. if it is the patient or the family member who often accompanies them here is what we have added to your physician's office capability. then when they get moved by whatever attribution mechanism they are calling back and saying why am i moved? i liked the social worker who was working with us and take care of mom or what have you. so that is a challenge, i think. the secret to our success like the hackensack system, we spend money that we make elsewhere to try to demonstrate that this

program will work. it ultimately like all the organizations that are participating if we don't evolve the payment mechanism to something more population based it will run off the cliff. the big organizations like us or hospital systems, other big medical groups may have the staying power to stay with it a while longer. if you don't end up doing something other than like the rural thing, effectively what was done when you give money in advance for providers who don't have it and then have to give it back out of your savings. that is reverse capitation. that is what we had in advance. we don't have argument about whether or not you need an air conditioner or whether or not you need a ramp. we don't have to look up the benefit design. the answer to access is could you come in this afternoon? if you can't come in and you don't have anybody to bring you we will go get you. if you can't come at all we will send somebody to see you. we think with all of those

providers and hospital relationships we have we are great at taking care of people when they present and need care, but more importantly is can you find them before they present and they are sick enough or injured enough to fall in the door so maybe they don't need care or a different kind or not as intense? we think the program is a great learning round. i think we have proven that with the independent practices. we want to see what happens next and be an advocate for the change that is coming. >> thanks. please go ahead, joe. >> i work with a team of people in population health management who work all over the country. we work in about 150 markets in the last 3 1/2 years helping organizations transform into population health on. on the medicare side we work with pioneers and issps.

we work with commercial players to build new models. we work with medicaid programs putting in programs across the country. so we work across the entire continuum. what i'm going to try to do is just summarize how our people feel about including maury's organization at hackensack. our organizations that we work with have done much better than the national average in regard to hitting savings rates like hackensack. they have done a great job. we have a lot of others that have done well. i think almost 80% of the organizations we work with hit the minimum savings rate. not all of them got shared savings but a really high percent. we would like to think it is because the exhaust from the success we share with each other, we have a collaborative that allows us to share with organizations what is working and then the second thing we

really try to do is stage what you build because what we find is many organizations try to do too many things too early. and what we have learned is stage them over time and there is a staging process that we think works. so our experience has been number one on the mssp and pioneer side, people need accurate timely data and we are still not there yet. it is kind of like flying a 747 without an accurate instrument panel. if your attribution changes 30% in a quarter it is really difficult to get an accurate denominator on all of your quality metrics, your financial metrics. we have to fix that attribution issue in this next round. and then on the top line, if we don't have accurate claims and timely claims you really can't manage on a day in and day out basis. so we need to fix that.

so data is really critical to be successful going forward. second, is there is a number of areas in the economics that need to change. for example, the minimum savings rate issue. we have so many organizations that hit the minimum savings rate. what happens next year it is dialled back to zero again. that doesn't make sense. so somehow that you should be able to take a credit for the success this year and carry it over towards your target for next year. it seems terrible to say you did pretty good this year but you didn't hit the minimum savings rate but you are going to start over again. we think the change might give you the risk adjustment process is not really sound in our opinion. the benchmarking and the metrics need to be realistic in setting in the targets rather than saying you have to hit 100% in order to get full shared savi

savings. the third area would be where do you think we need to go. we think we need to allow organizations to continue the one sided risk model for several reasons. if they don't have totally accurate data i don't think it is appropriate to go to two sided. there are organizations i think that it was a great summary earlier about the types of organizations in mssp. there is a lot of organizations in risk for the first time. i think it is too early for them to go to two sided risk as our experience. there are organizations that are ready to phase into two sided risk. they should be given the opportunity in that model to maybe go to track two and phase it in over time. the third is we do have a small number as mark pointed out earlier of organizations that want to go to full capitation or full global payment. they should be given that opportunity. the fourth we have a couple that would like to go into full

capitation plus part d. we see those four options as a prudent way maybe to offer the current mssps the ability to stay involved, make decisions that fit their market and their organization. we are hoping that cms will come through with something like that. i hope that makes sense. >> thanks for the comments. i know medpac has extensive laep -- extensively analyzed the organizations. >> i think there is overlap. >> we have talked in the past. >> there is a couple of things. we spent the last year talking to acos, site visits, case studies, surveys and lots of people who have gone through the office to talk to us and put together a set of short run comments which i will go through and then we started talking about what the direction is for the future.

there are two products, i have to mash it into five to seven minutes here. there are two products, a june letter that we wrote to the administrator. we are always writing to the hill staff when we do this. that's up on our website. and then also our june 2014 report talks about some of the futures stuff. from the comments letter we were trying to make comments based on things that we had heard from the field that we can also reconcile with the taxpayer and beneficiary interest on the medicare side. we made a series of recommendations for the next round of the acos. and on the issues of attribution and prospective benchmark or the benchmark which has been mentioned we made the argument that both of those need to be on very clear and consistent perspective basis. so whether it is set up to be

retrospective, your attribution changes during the course of the year or bench mark changes during the course of the year or method logical issues that effectively change the benchmark, that shouldn't be the case. the benchmark and attribution should be on a prospective basis. there is a stability and predictability that we think will allow acos to manage better under those kinds of circumstances. now, there is much more detail in how to do that in the letter but the basic issue is attribution and benchmark on a prospective basis. a legislative thought on the side is that for attribution purposes, advanced practice nurses, nurse practitioners should be part of the attribution process. again, that requires a change in the law. i won't get into this because it is much more complicated than five minutes.

there is a specialty process that we talked about changing. we would say the aco should be able to designate certain specialists engaged going to yo cardiologist because you have a heart condition, that type of thing. again, more detail but just to blow by it in less than five minutes. the next thing is that i would say was a big deal in our comments is the quality indicators. throughout this process we made the point that there were too many and that they weren't particularly the best ones, at least in our judgment, that should go. we were concerned about the administrative burden and actually just some of the measurement issues. we heard very clearly from the acos that this ended up being a lot more resource intensive than they had anticipated. and we have argued pretty consistently through this process, not just in acos but in ma and fee for service, for a smaller set of population-based quality measures. so we made that point.

again, more detail and more complexity, but you can look at the letter. we do want to encourage movement to two-sided risk. we know there's some reluctance and concern about that, but we want to move to two-sided risk. there's a couple of connected thoughts here. one is we heard a lot of concerns and some was echoed in the previous session about the notion of being able to engage the beneficiary in order to get the leakage issue under control and also engage the beneficiary under their care. we made a rental that if the aco was willing to accept two-sided risk, they should be able to forgive cost sharing for the beneficiary. in this way, some of the way you explain the aco is rather than explain the aco, here's how it works, which lots of people, it's hard to understand, is to say, look, if you go to your primary care physician, there's no cost sharing. you kind of get them in and it's from that point.

and people should know how to manage from that point. the other thing we said is that if you accept two-sided ricks, there should be some rel laer to relief. lots of rules is curving the fee for service volume. once it shifts to two-sided risk and some actor says i'll accept the risk, a lot should fall away. we gave examples of we, ourselves, and the rest of community should start focusing on regulatory relief to roll back. we heard lots of comments from the acos, wanted to talk about an enrollment model, a capitated model, which also other ways to engage the beneficiary. and in wrapping up, the june 2014 report talks about the future and how the aco fits in the large picture. this gets a lot more complicated and a lot less clear. but the point we're kind of

driving toe is the notion of a single unified benchmark that says, for fee for service, aco and ma, the government may have a support rate. and then within a given market, whichever model can dominate or be a strong player, that model can come forward. some of our concern here, and this is the last comment, is ma plans have a lot of overhead. they have enrollment, they process claims, they do that type of thing. you may not have enough utilization in a market to finance all of that and still make a profit. an aco might be a model where you have thinner utilization and you can capture one or two points and make that model work relative to ma and fee for service. i know it's a lot to throw at you. but that may be on question we can talk that through. >> thanks for covering a lot of ground in a few minutes and also giving people the references. paul? >> i'm going to try to avoid

repeating some of the things said, which i agree with. let me start out by saying i think the aco is a very promising concept. and i see the concept as providers taking a moderate degree of performance risks to lower the trend in spending for attributed beneficiary and to improve measured quality. good concepts cannot overcome flawed details. and the medicare aco models have been an important catalyst for acos becoming a significant part of provider payments. i think the shortcomings and the details have become better understood over time. this is the time to fix as many of them as possible. my sense is the acos with the details and the model as long as risk is one sided. the prospect of two-sided risk, which is important to get to, has really raised the pressure to resolve the problem. it's not just the organization's capability of taking two-sided

risk. it's their confidence in the model and whether they're actually willing to risk a loss on a model they don't really believe in. because of the details. i think the nation needs an effective aco model, which is medicare. i won't repeat. i'm in agreement with comments about payment retribution, beneficiary attribution that acos need to know who respond to. i had a couple of thoughts that mark started off about enrollment. i think in the long run we need to develop an enrollment model aco. and, in fact, cms could offer reduction in part d premium as an incentive to go there. an enrollment model would allow a network approach of lower

co-insurance for network providers and higher cost sharing for others. and it's also a way of engaging more in the aco who may not be part of the risk sharing body, but in a sense could have a network relationship with the aco. if you're going to go to an enrollment process, you need find one that will have very low administrative costs. as mark said, a lot lower than medicare advantage. perhaps just involving attributed beneficiaries with a communication from cms and one from the aco they attributed to of would you like to enroll? here are the benefits for you. might be a way of getting into that model. i think i would want to run the enrollments alongside the attribution model because of concerns about the number of years it might take to get a critical mass of enrollees.

i wouldn't want to jeopardize the entire approach in that interim. i think many of the reforms of patient engagement that involve incentives are going to need reform of medigap or medicare supplemental insurance. we know medicare raises overall medicare spending. and that overall reform in that has been overdue for decades. but basically you cannot work with large proportions of beneficiaries having no point of service financial responsibilities. a group i work with at bipartisan policy center in a 2013 report recommended medigap be limited to providing catastrophic protection and needs to leave at least half of the medicare, dublgtibles and co-insurance uncovered. this is -- it's particularly important to design any form so

so medigap does not cancel for medicare beneficiaries. i also have comments on benchmarks. the benchmarks we have now are provided to provider-specific historical spending. i think it's the right approach to get started with. it's not ideal, but it -- we needed it when we have essentially a volunteer aco program, otherwise medicare would just have enormous risk selection plan aco by aco against it. the uniform national dollar up amounts for updating are helpful in blunting the worst shortcomings of this approach. but we're coming up to a critical decision about benchmarks for second aco contracts. and and i think rebasing to the aco's most recent experience would substantially undermine the business model for acos, which was not strong to start

with. i think the long-term path to better benchmarks involves higher payments before -- oh, yeah. higher payments to incent physicians, hospitals and perhaps other providers to work in acos. and the tricommittee bill to fix sgr really takes this approach. when it created apms or alternative payment mechanisms with strong incentives for physicians to get into alternative payment mechanisms. and so if you have some broad incentives to go there, then you can start bringing in community or countywide experience into your benchmarks with acos. and i think ultimately we're just going to have to go in that direction.

let me talk briefly about some of the opportunities for aco policy changes. of course, the immediate focus is on the upcoming rules from cms. we should not write off the opportunity of legislative action for bigger changes. we certainly don't have the greatest expectations for congress addressing critical policy challenges, even where partisan divides are not that pronounced. we should take a look at far-reaching payment to fix the sgr that had unanimous support in all three committees of jurisdiction. i think commitment to payment reform for physicians to participate in payment mechanisms could, perhaps, be

brought over. obviously, given the sgr fix and your waving at physicians the opportunities to get into alternative payment mechanisms, you want to make sure those opportunities exist, which really means it should be natural for congress, if it goes past the lame duck in dealing with the sgr fix to start thinking about some critical changes in acos and bundled payments, so you're really assured there will be real opportunities for physicians to engage in alternative payment mechanisms. thank you. >> thank you very much. and i want to thank the whole panel for -- i went through a range of each individually challenged policy issues and introducing this panel. i think you all hit on every single one of them and more, beneficiary engagement, performance, measurement, data, reinforcing payment reforms, bonuses for transformation and better support and evidence on

clinical transformation and other steps as well. we heard from the earlier panels about people who are actually engaged in doing aco work now. joe and mark here, you're certainly among them about how in many ways this is sort of like building the plane out while you're flying it. so, there are lots of changes taking place on the fly, during care delivery, with existing policies in place, but also what came through for many organizations is they're anticipating things changing. there is because of market changes, because of changes in the private sector payment systems, employers, changes in state. things are going to be changing similarly for medicare as you all focused on and many of your remarks and so it seems like on the policy side there's very much of the same business. i mean, we're sort of building the plane out as we're flying it. hopefully that refueling will

take place in the air when you need it, even if those systems haven't been built yet. we could talk a lot more about the details. i like to ask you about the bigger picture of where the planes are flying to. mark, you touched on this with your mention of the -- sorry, too many marks on this panel -- miller touched on this with his description of the long-term vision that med pac has laid out and bipartisan facilities have similar long-term reform recommendations and we've done some of the same work here at brookings. let me ask you all big picture, five, ten years from now, where would you like to see our policies collectively get us in terms of want supporting the next rounds of aco reform and implementation and the next rounds of care transformations? so, back to the bigger picture.

a lot of important policy details that need to be worked out but big picture, can you help with clarity about where we're trying to go? >> i think population based is the key, moving payment that direction. again, we would have a bias toward the capitation side. just as some folks are terribly uncomfortable moving away from fee for service. when you inject fee for service into our system, it screws it up. we have to go hunting for s this going to be paid for, whatever, and we just tell our doctors, ignore it. most of the organization is paid the other way and we'll figure this out. so, i think population based payment is key. i think the enrollment idea that's described here is perfect. these members are just old. they're not stupid. if y

i think that's one of the things we want to create a set of incentives that make sure that in every market possible there are competitors. we don't want to be complacent as scientists or physicians or hospitals or health plans or anything else. you want people vying for -- i would like you to trust me and help me work with you over your now lifetime of health status as opposed to just when you're too sick and fall in the door. so, those types of things. i think the market baseline, we want progress. every market in the country has different characteristics. i've spent plenty of time on each one of the coasts, i won't say which is left or right. and in new york and the new york area, you know, when i went there in 2004 it was like rolling back the clock 20 years. whether it was benefit design,

behavioral practices of providers and the things that are routine in the los angeles basin or the bay area are like communistic takeover of parts of the greater new york market. now, everybody is now moving that direction because i think as was pointed out earlier, you know, the writing's on the wall. this movement is going to change things, so you have to move. you know, i think based -- having your benchmark set based on your market, other than clinical standards, i think there's certain scientific things but benchmark for cost need to be market-based and you pay for progress. if you ask actuaries at cms or aetna wellpoint united, how do they roll up to a trend of five versus seven? it's the entire thing moving. can you have 110% loss ratio

loss to a plan, if you move that to 105, that contributes to those who are operating at 87 and you're making progress on the whole book. so, let's focus on making progress and some of the gradual stuff that joe was talking about. not too slow. if you're too slow, you get sweeping government reform that will be blunt. >> i like -- we call it the end game. a lot of our organizations we work with, their vision of the end game would be to have a population-based contract with all the major payers in their market. medicare, medicaid, all the major commercials. so, if i was the ceo of an integrated system that was doing that, i might have 700,000 people that i'm responsible for providing care. and i would have probably a per -- a global target of expenditures for each group. and then i would be -- my bonus might be based on quality, you

know, patient satisfaction, engagement, health status improvement. so, that's kind of what we see as the end game, but there's some evolution that's going to have to occur and that's what mark was talking about to get there. we're beginning to see that evolution. it's exciting. we are seeing the formation right now in a number of markets of what i would call multi-owner population health organizations. so, this is kind of the latest thing that we're working with. where individual organizations realize they don't have enough scale, populationwise or capitalwise, to be a really strong population health organization. so, they're coming together and forming a multi-owner population. i say that as part of the evolution toward this model. i hope that makes sense. we've been really clear in the short return. we're starting to frame up what the longer run looks like. again, these are comments

subject to change as the commission works through them. again -- and i think i probably garbled this but i'll go through it a little bit. you have fee for service and you're probably going to have this for a long time. by the way tlcti, fee for servia utilization sense is operation. the other end of the continuum you have ma. ma pays its own claims, markets and enrolls people. there's a relatively high set of overhead that goes with this. on top of that, they get their utilization reductions and they get a profit margin. at the moment, i think the way the commission views acos, it's an attribution model and i'll come back to that in half a second, and the advantage is it doesn't have overhead. payments are made through cms. enrollment is done through attribution. they're not incurring that cost.

in a sense, maybe they perform well in markets where you don't have very high utilization but you have some high utilization that an aco could extract a point or two. because they don't have the higher overhead, can be a competitive model there. and i think the commission's view is you don't pick a model. you set a payment system that allows whichever model can perform to ee mench in a given market as opposed to saying, we should be here or we should be there in some markets they'll be mas, some acos and some markets it may be fee for service. it's a whole quality conversation that needs to happen, but for the moment i'm just going to lay that to the side. now, attribution in addition to having the low overhead has this element to it, which is if you want your patient to stay with you, you have to make them satisfied. in an hmo, they enroll but they're in there for a year and then they can switch out. but in attribution they can

wander around. so, you have to keep the patient satisfied and that's an important element of what the attribution model requires. now, having said all that, i don't think the commission is inherently against an enrollment-based model. but to the extent it takes on all that overhead and you're enrolling people off the street, why -- you have an ma program. one question is, why would you replicate that somewhere else? and i think paul made comments, you've got them for a few years and they're actively willing to make a decision. that might be a road that could be discussed. the last thing i'll say, and he made this point, it's important to keep in mind you need enough end to make these critical -- to make them workable models. and if you had a strictly enrollment model, i'm not sure a lot of acos would be able to get enough people in them. at least currently.

>> i think as far as your comment about flying the plane, mark, it really is -- i've sensed, first of all, pretty broad consensus in the delivery system, financing and policymakers that fee for service should shrink. whether it's in medicare, whether it's medicare advantage or acos or bundled payments, you know, hopefully we'll be -- become more important over time. you have to put out a policy and then i think the policy process has been appropriately atented to the experience of those that are engaged in these programs. and so there's a lot of production how to change. i think probably the biggest challenge is the readiness of different organizations to go different steps of the way toward population. i just wanted to mention

specifically the comment that joe just made about the -- my concern is that so much in the way of scarce management resources as well as money is going into mega mergers where i think coming up with multi-owner models can actually accomplish as much if not more in improving delivery without getting to those resources. we're not raising these provider concentration models. >> thank you for the comments, very broad question. i would like to open this up to questions from the audience. back in the back there. >> claire cruz. a couple of the panelists spoke about specialty physicians.

i was just wonder if you could expand on that, talk about the role currently and where you see that evolving. >> sure, i'd be glad to speak to that. >> some specialties, like cardiologists, tend to be involved in acos but some care is not that integral with primary care that really the acos have no reason to engage them. so this means you have a lot of the dollars out there. really not being part of the aco. i mentioned, you know, i think some political needs of providing opportunities for specialists to be involved in acos could happen with the sgr fix we've seen.

and make sure you enable them to do as much as they could for everybody that thought they needed it. this is very different. hospital systems in particular that are going to move into accepting risks, all of a sudden, you know, how long can they afford the subsidization of the losses they take on the big physician purchases they've made. they're very open about that. the model has changed. so, you know, your estimates, you know, maybe you sold bonds three years ago. your estimates of, you know, how many admissions, how many stens are you going to put in, how many whatever that is fueling your system currently, it changes if you implement every

best practice we know of. now, we know that takes time. but it's a big economic issue in terms of, how do you change the system, take that cost out and make room for the very best providers to still be able to participate. >> and then there's the hybrid group in the middle, endocrinologists, cardiologists who really do both. and so they're looking at models for that hybrid group of cardiologists, endocrinologists, nephrologists to involve them more in managing their primary care load. the second model that we've -- we've been working on with another organization is what i would call an episode of care model within an mmsb.

so, this is an mmsp that's been successful. and they want to further engage specialists in the mmsp so they've designed an episode of care program within the mmsp for cardiologists, orthopedists, and to look at setting a target with that episodic care and sharing savings among the mmsp. so that's a model to further engage specialists that may have not been as engaged as in the past. those are a couple of models we're seeing evolve in markets across the country. >> joe, for the second types of models, the ones involving specialists handling more discreet specialized aspects of care as opposed to the cardiologists and the endocri endocrinologists who are very much involved in things like coronary artery disease management, diabetes management, things that are part and parcel the population-based aco performance models. are there some other quality measures that need to be

developed developed in this area, too? cancer, rheumatoiditis, hepatitis c, and i want to get ba-to-mark's point, a lot that acos have emphasized, the measurement and reporting burdens are too high now. how do you reconcile that? >> a lot of places are -- i would imagine most people in the audience are familiar with choosing wisely. so, we're seeing the adoption of choosing wisely for appropriateness in sub -- in specialty and subspecialty areas in large, integrated -- clinly integrated netted works in acos. i think appropriateness is coming into play in those subspecialty areas as one area. i'll turn to mark to comment on them. >> the -- well, one of the things that was -- that i was thinking of in particular, i've got to get in out before i forget, is as we experiment with sort of global case payments and packaging everything up with respect to specialists, we may want to be careful how much we

lock that in. so, if it ends up in law or a regulation that's so strongly defined you can't get out of it, i mean, some of the science is moving rapidly. so, the same cardiologists that you trusted to manage this big ca case, all of a sudden thash using an entirely different approach that doesn't involve the hospital, doesn't involve inte conventional procedures, involves other genomic based types treatments and it's going to eradicate it. i'm sorry, your follow-up question because i was thinking about -- >> that makes sense, but i was just -- maybe i can talk to mark about the measurement issues related to the areas of specialty care, orthopedicics, cancer, rheumatoid arthritis and so forth not covered in the full population, aco-performance measures. >> this is really nerve-racking with all these marks up here. nervous wreck sitting up here. >> a couple things that the

commission has said in reacting to these comments. i think the commission's comments in its letter about the notion of letting aco designate certain specialists as attribution nodes is directly consistent with what joe was saying for his first model. there are certain specialists that are really more about the continuum of care and the coordination of care. this wouldn't be all specialists but probably a set that immediately arise to most people's minds where you say that's logical. that was driven by technical problem that was being created by a second stage specialty assignment. that's not worth mentioning here. i would say our views are very consistent with your full -- with your first model. to your point, mark, on quality, the -- i think there is real concern. this concern is not just in the

aco space but fee for service and elsewhere, that if we say, okay, any time we bring a specialist in or bring in some other provider, we've got to develop a specific set of measures. and i know there are disagreements on this point where a lot of people say, have you to be able to measure my thing and my thing well. at least at this point, the commission's view is from a payment perspective, the view is more of a population-based small set of quality measures that money can be rewarded or not, as the case may be, whether you're an ma plan, aco plan, whatever the case i mab, and then the responsible organization can decide which metrics internally it wants to use to chase its particular model around as opposed to a single set of measures for all that type of thing. very great concern on the part of the commission that we're kind of overbuilding on the individual measures. so, we have something of a different view there.

the other thing i would say to this mark, is i almost thought you were making this point. if you weren't, then you can disassociation yourself. i think you have to be very careful about building episodes around specialty care because of what he said. and i think sometimes some specials groups are waking up to this process and saying, you need to build an episode around my care. i think in some ways they see that as a way to preserve what they're getting currently. i think we should all pay attention to that comment, mark's comment, because i think those processes could be changing and we should think carefully about how episodes are constructed. >> that was the point. well said. >> paul? >> i want to say something about the quality for specialty care. i think what mark miller i was

influenced by studying the calpers. and, you know, if you look at the very specific quality measures they have for joint replacements, you know, they seem to me to be much, much stronger. than many of the general quality measures that you would tag, say, for an entire hospital. and working that into the system at some point. >> we have time for maybe one more back here.

>> hi, i'm mara mcdermott. you have talked about specific changes to the aco program. i was wondering if you could speak to the extent you think legislation is needed to make those changes versus what cms or innovation center could do to advance next generation of acos. >> number one, along with a lot of people, i was going around talking to both sides of everything. >> i believe it takes legislation to solve the payment changes that are going to go off the cliff if we don't, you know,

reset how things are paid and the baseline information. so, i think you do -- you do have to have that people we should identify won't change but they won't have the legal authority from a regulatory standpoint to make a change. >> other thoughts on the legislative outlook? >> well, i don't know about the legislative outlook, but i think a lot of the recommendations that we made in in the june letter can be achieved regulatorily, although there are things that clearly require legislation. we tried to point that out as we go. and then i would also say particularly thinking about the future and going forward, there probably is a legislative change that needs to go along with this. and it's always clear if the -- if the congress says, these are the changes i want. that, you know, the secretary will then be much more likely to take those. undertake those changes. >> any final comments from the

panel? i would like to thank you for aco policies and solutions. thank you for covering the long term and short term. we are about done. i want to thank all of our speakers today and all of you for participating in today's event. we look forward to working with you on these issues in the future. obviously, accountable care and the aco experience is a work in progress with some notable results on quality, some important successes on costs and medicare and medicaid and private and employer kinds of plans. but, obviously, a lot more work to do. we've talked about some of the research on what can succeed in terms of care transformation and public policies to support it. we've talked about some of the policy steps that can help in people who are trying to engage in care reform on the ground. both provider organizations and

patients and consumers and their families. do that more effectively. also more to come. just want to also give a quick thanks to our aco learning network, which made much of this event possible, both in terms of the tech expertise, the contacts with many of the experts around the country and people are actually engaged in aco activities and help putting this all together. we have a more information available on our aco learning network for those who are interested. and that's the contact information for it. the aco learning network is aco@brookings.edu. i want to thank you for attending and thank you for your concerns about improving the quality and addressing the costs of health care in the united states. have a good rest of the day.

if you missed any of this event, it's available on our website. go to c-span.org. coming up tonight here on c-span3, washington journal's interview with university of indiana president. it's part of our special series on universities in the big ten conference. that will be followed by several events on prison issues including a senate hearing on solitary confinement, a discussion on sentencing practices and a look at prison health care. you can see that starting at 8 p.m. eastern. also tonight, c-span's 2014

campaign coverage continues with jason diehl, jason carter and independent jason hunt. here's a look at some ads running in that state. >> senator jason carter claims he'll put education first but voted against the largest increase in education funding in seven years. nathan deal increased education funding by $538 million this year alone. jason carter voted no. >> over the last five years you have seen the worst contraction of public education in the history of our state. you have 9,000 fewer teachers. we had 45,000 people leave our technical schools. and they haven't come back. this year, there will be fewer recipients and i worry we're going to reap what we sow from that destruction of our education system. when i'm governor we'll have a separate budget for education and we're going to protect it. not just in the good times, but all the time. >> i wrote the law to stop illegal aliens from receiving taxpayer-funded health care, cut billions in wasteful spending

and voted against obamacare. liberals won't like it when i'm empowered local law enforcement to deport illegal aliens. it must be done because the federal government has failed to secure our borders and illegal aliens are costing georgia taxpayers over $1 billion every year. i'm not worried about the liberals. my concern is you. >> false negative ads from nathan deal. the truth? jason carter is a fiscal conservative who has never voted for a tax increase. he'll fund our schools first and put an end to paying pore politici politician's pet projects. nathan deal underfunded our schools by billions of dollars. today we have 9,000 fewer teachers, 80,000 fewer hope recipients, 45,000 fewer technical college students. nathan deal short-changing education and our kids are paying the price. >> and you can see this debate rated a tossup in political polls at 8 p.m. eastern on our companion network c-span.

be part of c-span's campaign 2014 coverage. follow us on twitter and "like" us on facebook to get debate schedules, video clips of key moments, debate previews from our politics team. c-span is bringing you over 100 senate, house and governor debates and you can instantly share your reactions to what the candidates are saying. the battle for control of congress. stay in touch and engaged by following us on twitter@c-span and liking us on facebook at face boom.com/c-span. >> we'll shoal you an all-day conference on asia. but first, we'll shoal you a keynote address from former australian prime minister kevin rudd who talks about u.s./china relations. then at 1:20 we'll show you a panel on perspectives from u.s. and japanese governments and business communities. coming up at 2:40 eastern, it will be a discussion on alternative energy sources and policies.

and finally at 3:45, a look at security issues on the asian peninsula. it's hosted by the center for strategic and international studies here in washington. >> you know, in my professional life i've been around politicians for 40 years. i've been around -- i've been around analysts for now for 15 years in this sort of environment. but i've never been in this kind of a experience before. you know, for someone who can walk you into a new space intellectually and help you understand the significance of that space and its political importance, this is rare. i've been with politicians who when explained the significance of something will figure out the politics. and i've been with analyst who is understand the significance and don't have a clue how to think about it politically, you

know, but very, very rarely and the only other person, frankly, experience like this was bill clinton. bill clinton had that kaft xo walk you into an intellectual place you've never been before and help you perceive its enormous significance and its political import. and kevin rudd can do that brilliantly. and so i -- when we asked him if he would come and join us today, it was an extra hope. of course, the topic is something he focuses on personally all the time. prime minister rudd is currently -- he's affiliated with css. we're proud of that. he's a distinguished statesman here. he's also at harvard, where they get more of his time than i wish. and i'm -- because i'm jealous. but he is willing to come here and has been very, very helpful and supportive of us.

thinking through these complex issu issues. he is going to give you all that opportunity today because you're going to have a rich opportunity for something that's unique. so would you with your applause welcome kevin rudd. thank you for being here. >> well, thank you, john for that great exercise in expectation management. i will not produce magic this morning. there will be no song and dance show. but i do appreciate the hospitality of csis and i acknowledge the work, which it does not just on behalf of the united states, but by all individuals around the worl who take the disciplines foreign policy, international relations and strategic policy seriously. it is a first-class institute and it brings together first-class minds, which i presume is why all you folks are here this morning.

secondly you mait made reference, john, to my time at the harvard kennedy school. after i came second in the national elections in australia last september, which is a polite way of saying that i lost, the harvard guys kindly picked up the telephone and asked me to go to harvard school to think. having been in politics for 15 years, that's not really been my business for the last 15 years, but to think. and to think about alternative futures for u.s./china relations and in particular if there's a way through some of us who have followed this regarded as intractables in that relationship. and harvard kennedy school has been very supportive of my work on that. i spent a lot of time talking to think tanks in washington, think tanks in beijing, thank tanks in

tokyo and think tanks in delhi and singapore and moscow. on these questions as well as officials from those governments as well. of course, gwynn the topic we have been set this morning which is questions of regional architecture, china does not constitute the totality of that picture nor does the china/u.s. relationship constitute the totality of that picture. so, in my remarks here this morning, having been invited to do this only two days ago, let me seek to stand back and look at the trends at work as i see them across the asia-pacific region. secondly, what's going well. thirdly, what's not going so well. fourthly, where does the china/u.s. relationship fit within that for the future. and final remark, on questions of architecture.

if you stand back and try to look at events in the asia-pacific rvenlg, we tend to think that we are unique. in terms of those affecting the international global relations. we're not unique. in fact, there's work in international community n my view, are largely comprised of two deep underlying forces which we in the policymaking business or the policy advising business need to be conscience of. one is this overwhelming dynamic of what we call globalization. we use the term a lot. we often use it glibly. but the sheer manifestation of how we see one another is profound. of course, the general turbo charging of globalization as we define it by the new technologies are simply compounding and quadrupling and mutating, whether it's in

financial markets or in economic exchanges or in the resources available to terrorist organizations. and so the varieties we begin talking about a decade or so ago are now actually intensifying in their scope. and the overall dynamics of globalization at the economic level and at social level and to some extent the cultural level has been over the last 20 years or so since the end of the cold war, in particular, to draw people's cultures, countries, nations and even governments somewhat closer together. simply as a product of the dynamic. this is virtually unprecedented de phenomenal none in global history in terms of its intensity, density, its complexity. overall, a force for the good. . pitched against it is simultaneous reactions to it and

seeks to pull nations apart either internally or between one another. these i could broadly describe as forces of ethno nationalism or simply nationalism. anyone who thinks we have smou mysteriously extinguished the forces of nationalism as consequence of economic man ruling the world or rational economic woman ruling the world is diluting themselves. you simply have to be a political practitioner engaged in the business of political practices in your own country to know that is not the case. but as you travel extensetively across asia, the nationalistic agenda in each country is palpable, real, visible, tangible and it actually shapes deeply the thinking of most political elites. of course, if you dig into that deeper, what is this ethno national reaction, whether it's what we see in europe, see in various extreme forms in the new

phenomenon we observe in the middle east or in some intensifying security challenges in east asia. ethno nationalism is often a deep reaction to the phenomenon of globalization and the deep personalizing dimensions of globalization. what actually happens in response to that are those that don't win from the globalization project economically or those who lose their identity as a consequence of the globalization project obviously feel threatened. alienated and threatened and, they therefore congress gate around concepts and ideas and political movements which are about identity, locality and ethnicity. it's palpable, it's real. doesn't matter which country or which society you're talking about. the talks, therefore, of national, regional and international leadership at present is to navigate the shoals, which are constructed by those two underpinning deep geoeconomic and deep geopolitical forces.

and they animate the fundamentals of what i describe as the technical foreign policy debates which we have on a day-to-day basis in the foreign policy community. on the one hand, pulling new cultures together versus ethno nationalism tearing them apart or threatening to tear them apart, the central question for politics of europe and politics of asia and politics of the middle east is who will win. the forces of globalization or the forces of ethno nationalism. how this grand debate is solved, globally and regionally is of profound significance for the future of the 21st century. when we look at the european project up until now, we can only be in admiration what they've achieved coming out of

the ashes of second world war. mind you, and without giving unnecessary offense to our european colleagues here today, the europeans were very slow learners. having torn each other apart in three major con fla gragss from franco prush shan war to second world war, they finally concluded there are better ways of doing business. the political architecture of emerging europe was very much a political construct seeking to deal with the underlying forces of nationalism which effectively destroyed the content over that scope of time. tom ko o in the period since the fall of saigon in 1975 really through until very recently, if you were to look at a 35-year sweep, the globalization process in, let's call it, the asian hemisphere, has proceeded remarkably

successfully. we've had no major conflicts within the hemisphere. we have produced phenomenal economic growth. we have produced extraordinary increases in living standards, unparalleled in history in numbers of people drawn out of poverty. as a consequence, a dynamism to the intraregional discourse within wider asia we hadn't seen before either. those westerners looking on to the phenomenon called asia, which is a european construct in itself when you think of the term, asia meaning the east. east of where? presumably london, paris or berlin, or rome. but if you look at what is unfolded in asia itself, it's the internal dynamics which have generated so of the health, prosperity and the success. and the external dynamics with extra regional partners have been important, particularly the relationship with this country and its massive market, the

united states. but the intraregional dynamics have been overwhelming to unfold and overly positive. and that has been, i think, so much the story over the last 35 years. again, to simply sound the alarm, to conclude from that, that the forces of nationalism and ethno nationalism or religious nationalism have simply died is simply a false analysis. and the battle royale within the region and its future will, again, center around how these two conflicts forces are contented with. forces of globalization, intensely drawing this region together and forces of nationalism seeking to always tear the region apart. and sometimes tear nation states apart.

in the last several years we began to scratch our heads and ask what is happening. it is a complex picture across the region. we often forget the ancient lessons of international history that mutually agreed territorial boundaries help in the business of international relations. this is often seen to be an old concept of old realisms belonging to the varieties of ancient international relations and not relative to the boredless world of the 21st century. australian philosophy, pigs might fly. it's alive, it's well and a driving factor in the analysis of these questions to this very day in the asia-pacific region. you know the fault lines within the region as well as i do. but if you go simply on a mental map tour of the region, starting

with the korean peninsula, a divide since war since 1953 through to the east china sea and senkaku, and you look at the unresolved questions which still remain between china and korea and between japan and korea. if you look at the -- the complexity of what constitutes the south china sea and all of the dimensions of the conflicting territorial claims involving seven different entities, before you then flip around and head through the straits of malaca on to the unresolved questions of india, pakistan and kashmir, and then further afield to what is now unfolding in terms of militant islamism not far to the northwest of there, all of these

factors exist not just in theory on paper, but are capable of, in fact, bringing about a conflagration at any given point through poor isu management and the normal politics and dynamics of escalation which unfold as a result. so, in the last three years or so, we have seen these unresolved issues come much more sharply to the surface. which brings me to my fourth point about how, in fact, this is to be dealt with in the future and whether or not the u.s./china relationship is central to most of it. i know enough about the politics of southeast asia to know the china/u.s. relationship is not central to everything. it is an important dynamic, but what occurs within southeast asia is primarily conducted intraregionally. and to any folks from the

aseans, i would commend them how they've. it's been an extraordinary development. and i think a lesson to the wider region. but let me then extend the map more broadly across southeast asia itself, it's more difficult to escape the centralizing dynamic of the u.s./china relationship in its current state and where it may evolve in the future. which is why i've taken a year out at harvard kennedy school to look at it more closely. let's look at a moment at its dynamics. if you were to take an objective measure about u.s./china relations over the last 35 years, its normalization in '79, and look at the ebbs and flows of that relationship since, on any objective analysis, if you arrive from the moon, you would have to conclude the relationship isn't in a bad state. there is no immediate palpable sense of crisis in any particular element of the

relationship. however, when you look at the perceptions which are emerging from -- within both the chinese leadership and within parts of the american foreign policy establishment, it is much less settling than that. let me speak about the chi neegs perceptions first. the best i can describe china's current perceptions of the united states at the most senior leadership level is that they have concluded internally that it is virtually impossible to develop a long-term strategic relationship with the united states based on mutual trust, mutual strategic trust. and i believe that they articulate in a number of ways. they articulate this by saying that they believe that the united states is in the business of isolating china. the united states is in the business of containing china.

the united states is in the business of diminishing china. that the united states is in the business of delegitimizing china. and the united states is in the business of business of ultimately seeking by indirect means to destabilize the chinese leadership. this is never said in polite conversation which is presumably why they asked an australian to speak to you this morning. we've never majored in politeness. but i think at this stage of this very important relationship, china and the united states, it's important we have some very clear baseline reality checks about where things actually lie in china's perceptions. so let me flip the table in terms of american perceptions of china. i think this is very important because the level of misperception is profound and i believe growing. i think the american perception

of china -- i don't seek to describe any official here. it is simply my observation to the general foreign policy establishment -- is that china, for the american and global interests is important economically, that the chinese political system, however, is inherently unstable and unsustainable, and the american perception is that china is pursuing an assertive form of nationalism to mask its own internal political vulnerabilities and is seeking, thereof, to change the status over time. firstly, by means of the economy, to economically overwhelm the rest of asia, and then in time diplomatically, and then militarily. and furthermore, deep american perceptions which raise this question about whether chinese diplomacy is, in fact, simply

pitted at buying time while the overall correlation of forces moves more profoundly in the direction of one which economically and militarily advantages china before china more overtly and directly acts to assert its position of preeminence in the region. again, that's never said in polite society either because these things are not the business of day-to-day diplomacy. but if you get around think tank land a lot and you get around governments a lot, you pick up tonalities in respective capi l capitals and i don't think those generalizations that i have made are enormously wide of the mark, that is represent large departures from reality. of course, others seek to try and be objective about all this. anyone who claims to be perfectly objective is engaged in self-delusion as well. we all see reality through our own prisms whether we're conscious of that or not. we australians are no different. the only advantage we australians have, i think, is that at our best, which is not

always the case, we both the west and the east and the east in the west. that is we are long standing and deep allies of the united states for which we make absolutely no apology. at the same time, all the countries of east asia, including the people's republic of china, we've had a deep comprehensive, profound, long-standing relationship. and if you look at public attitude surveys in australia, the united states is very well liked, and china is quite well liked. so there's actually a deep attitudinal basis to this in my country as well. we cannot pretend to be objective because we're u.s. allies on the one hand, but at the same time strong and close friends with our counterparts in beijing on the other. what i've concluded about these

different sets of perceptions is that a large proportion of them, but not in their entirety, do not reflect the objective reality. to give one example in both directions. on the containment question, if we define containment as that which is used by the united states against the soviet union during the period of the cold war, what we see in terms of america's current operational policy toward the people's republic of china cannot be faintly described as containment. it has none of the characteristics of classic containment. that might be a useful political rhetorical line to be used in the debate, but in the days of containment there was virtually no economic engagement between america and the soviet union, and any soviet action anywhere in the strategic regions of the world of relevance to the united states, which was everywhere, was met with an equal and

opposite reacti in one form or another by overt or covert means. that is not the case in the u.s./china relationship. it is of a vastly different character. and so we need a more textured understanding in beijing as to what the nature of u.s. operational policy is. but the term containment is not accurate and in my judgment can lead to erroneous policy conclusions in beijing. now let me flip the tables again in terms of what i think is erroneous american perceptions of china. when china in its tradition and its current leadership constantly say, we, as a civilization, have never been in the business of establishing overseas colonies when we had the natural capacity to do so, and, therefore, we have no such interest again in the future other than to engage the world commercially. i think that's about right.

when you look at china's history from the ming dynasty to the present, so many of the animating forces in chinese history have been how to deal with its profound domestic agenda which have almost overwhelmed every successive generation of chinese leaders. how do you feed a quarter of humanity. how do you manage the politics of a quarter of humanity. how do you deal with its current manifestations in terms of the impact on air pollution, water quality, and the rest. my overall point, therefore, being that in the case of the perception that our chinese friends are in the business of incrementally seeking to create a form of chinese neocolonialism in parts of the world i think is profoundly wrong. it is not consistent with the tradition, it is not consistent with the characterization of actual chinese behavior on the ground.

so where do we go from here. i'll conclude on these remarks. given the centrality of this relationship, i believe both governments and the region more broadly because of the centrality of the relationship to the region's wider stability and, frankly, the rest of the world as well as we move in to the unfolding decades of the you this century, the china/u.s. relationship is in deep need of a new narrative, a common narrative. and here i don't simply speak in terms of some form of foreign policy utopianism or some sort of academic seminar. that's not helpful. i think you need a framework which somehow, in some way responds to the idea xi jinping put forward about a new type of great power relationship. i think why president xi put that forward, it was how do you construct a relationship between

china and the united states which doesn't replicate the inevitability of conflict as we've seen in the history of great powers before. beyond that, i think president xi's concept is basically a headline waiting to be populated. it is an idea. it is a line. it is a sentence. but if you go to chinese think tank land, as i do very often, the actual internal content of this proposition is very fluid indeed. so what could a possible common narrative look like? well, this is a very complex question. but i would leave you with two or three thoughts. a common narrative between china and the united states is important for the reasons i just mentioned. at present i think both countries have narratives about each other but not a common narrative for both of them. the chinese have many narratives

about the united states, most of them not publicly articulated, and the same in the reverse direction. so what, given all of that, is possible in terms of a common narrative for the future. i think it requires what i have described most recently as a concept of constructive realism. and a concept of constructive realism which builds towards a concept of a common future. a word about each of those words. realism, if you spend enough time in this town and you've studied u.s. foreign policy in its 20th century history, this is a deeply realist foreign policy establishment and for entirely understandable reasons. when you look at the school as it's evolved here at the theoretical level, it is rich, it is deep, and it's reflected in the behavior of practitioners.

in china, realism called by various different things is equally apparent, equally part of the chinese tradition of understanding foreign policy engagement and for every morgenthau there are probably ten chinese equivalents so there is a deep realist foundation to the way in which both countries view each osh which has all sorts of potential difficulties arising from that of itself in terms of the expiration of mutual trust before a chance is even given in the first place. but given this is such a profound reality in both conceptual hemispheres in washington and beijing, it has to be acknowledged. there are real and objective continuing conflicting interests and conflicting values between china and the united states of which the territorial issues that i've just mentioned in the east and south china seas about one manifestation. these need to be accepted,