A Four Step Plan For the Value-Based Transformation of the Health Care System

HHS Secretary Alex Azar spoke earlier this week at the American Federation of Hospitals, giving a widely reported speech that offered new details on the Trump administration’s plans for Accountable Care Organizations, the CMS quality measurement program, and a new drive for patient access to medical records. The full text of his remarks follows. – The Editors.

It’s a pleasure to be here with all of you today. I want to thank Chip [Kahn] and all of the Federation’s members for inviting me to share our vision for HHS and America’s healthcare system, and how we hope to work with all of you to make it a reality.

One of the key commitments President Trump has made across this administration has been to see the private sector as our partners, not as just entities to be regulated or overseen.

That charge has been taken seriously at HHS from Day One. We at HHS see stakeholders, including our nation’s hospitals, as part of the solution to our country’s many healthcare challenges. We recognize that it’s not just government that wants better healthcare for all Americans. Our partners in the private sector, all of you, want the same.

It’s an exciting time to take over the helm as Secretary of HHS, full of both challenges and opportunities. The same goes for our stakeholders, as advances in science are transforming medicine. It seems like it’s every other week that FDA is approving some novel therapy, or NIH announces a finding that revolutionizes how we think about a key piece of biology.

But innovation in payment and delivery systems is simply not proceeding at the same pace. When I was at HHS in the 2000s, concepts like personalized medicine and cell therapies for cancer were in their infancy. Now, personalized medicine has come to life, and cell therapies are receiving FDA approval.

Meanwhile, on the delivery side, back in the 2000s, shifting to a value-based system was just getting going as well. And yet here we are today — more than a decade later — and value-based payment is still far from reaching its potential.

So this is no time to be timid. Today’s healthcare system is simply not delivering outcomes commensurate with its cost.

While we have conquered many health challenges in recent decades, chronic diseases remain a painful, expensive burden on Americans’ lives. In many cases, these diseases are increasing burdens, and our system is poorly set up to treat them. The opioid epidemic facing our country is one of our greatest public health challenges, stealing tens of thousands of lives from us every year — even though we know addiction is a treatable disease.

On top of that, of course, the current trajectories in health spending are both unsustainable and unmatched by increases in quality. Since I first arrived at HHS in 2001 our budget has expanded from just under $400 billion to $1.2 trillion today. You might like the idea of coming back to run a hospital system that’s three times as big as it was when you first started, but I assure you, that is not how we feel about the federal government.

Federal spending on our major healthcare programs is projected to rise from 5.5 percent of our economy in 2016 to 8.9 percent of our entire economy 30 years from now. By themselves, these programs will consume almost all of the income taxes collected by the federal government. It would be one thing if this were accompanied by increasing quality — spending 20 percent of GDP on healthcare to boost our life expectancy to 100 sounds like a pretty good deal!

But it’s not the deal we’re getting right now. As all of you know, part of the problem happens to be the equation that we’ve used for healthcare in this country for decades now: paying for procedures and sickness.

For over a decade, we have been on a journey to replace that equation with a new one — paying for outcomes and wellness — but that transition needs to accelerate dramatically.

Imagine a day when healthcare delivery in the United States functions the way other parts of our economy do. We as patients would pick providers with the level of information we have when using Amazon or Yelp. Consumers would drive quality and cost-effectiveness with information, competition and genuine choice.

Some argue healthcare is simply different and is and should be immune from market forces. I simply disagree. Real competition — in the economic sense — has never really been fully tried in our bizarre third-party payer system.

Upon taking office at HHS, I identified using the value-based transformation of our entire healthcare system as one of the top four priorities for our department. The others are combating the opioid crisis; bringing down the high price of prescription drugs; and addressing the cost and availability of insurance, especially in the individual market.

Value-based transformation in particular is not a new passion for me. It became a top priority for Secretary Mike Leavitt when I was working for him as deputy secretary of HHS, and it was taken seriously by President Obama’s administration as well.

But it has been a frustrating process: Providers have been understandably reluctant to charge into a completely new payment paradigm. Massive new processes and data-gathering requirements have been instituted, without any fundamental changes to our delivery system. Results for the early stages of federal efforts to encourage accountable care organizations have been, to be honest, underwhelming.

But there is no turning back to an unsustainable system that pays for procedures rather than value. In fact, the only option is to charge forward — for HHS to take bolder action, and for providers and payers to join with us.

This administration and this President are not interested in incremental steps. We are unafraid of disrupting existing arrangements simply because they’re backed by powerful special interests.

Today, I want to lay out four particular areas of emphasis that will be vital to getting where we need to be.

The four areas of emphasis are the following: giving consumers greater control over health information through interoperable and accessible health information technology; encouraging transparency from providers and payers; using experimental models in Medicare and Medicaid to drive value and quality throughout the entire system; and removing government burdens that impede this value-based transformation.

The key theme uniting these four priorities is the recognition that value is not accurately determined by arbitrary authorities or central planners. It is best determined by a marketplace of many players — in the case of healthcare, patients and, where necessary, their third-party payers. Each piece of our plan for value-based transformation recognizes this, and it’s the main reason I am optimistic that we may have more success, and sooner, than past efforts.

But I want to emphasize that this will not necessarily make the process easier, and certainly not more painless. Putting the healthcare consumer in charge, letting them determine value, is a radical reorientation from the way that American healthcare has worked for the past century.

In fact, it will require some degree of federal intervention — perhaps even an uncomfortable degree. That may sound surprising coming from an administration that deeply believes in the power of markets and competition. But the status quo is far from a competitive free market in the economic sense of the term, and healthcare is such a complex system, that facilitating a competitive, value-based marketplace is going to be disruptive to existing actors.

Simply put, our current system may be working for many. But it’s not working for patients and it’s not working for the taxpayer.

The four shifts I am going to outline today are absolutely necessary to getting to a system that rewards value and works for the patient. Today is an opportunity to let everyone know that we take these shifts seriously, and they’re going to happen — one way or another.

I’ll start with the information and technology piece, because HHS and the White House will be announcing some exciting news on this front this week.

In the years since we were talking about this very topic around Secretary Leavitt’s conference room table, technology has advanced by leaps and bounds. The ubiquity of smartphones, cloud-based storage and computing power, and near-universal access to broadband internet has changed the way we keep and consume information. When this journey began, Secretary Leavitt warned us of electrifying a system without standards to ensure interoperability, lest we simply entrench a balkanized system.

In recent years, we’ve seen substantial advances in terms of adoption of electronic health records by providers, but all too often, this simply meant putting in electric form what had been on paper, at great expense and burden to the provider. Useful, but hardly realizing the promise of health IT. And this shift almost entirely left the patient out of the picture. It’s not just that the benefits of health IT aren’t always apparent to patients—it’s that unless we put this technology in the hands of patients themselves, the real benefits will never arrive.

Empowering consumers and individuals has been key to the advances of the information age. Think about how we now often make restaurant reservations, through apps like Open Table. From the restaurant’s perspective, there was nothing wrong with a ledger of reservations or, maybe, a business-focused program for tracking tables. But as a consumer, you had to call from restaurant to restaurant to understand when and where there were tables available. Now, if I pull out my smartphone to make a reservation for dinner on a Saturday night, I have all that information at my fingertips. I’m not depending on the person who answers the phone to get it right. I’m the one in control of the whole process: I can see the available choices, I make an informed decision, and I’ve got the record in my hands.

We already have the technological means to offer this power to patients, but it hasn’t yet happened. The key to this administration’s approach will not be micromanaging the standards and processes used.

We are much more interested in setting out simple goals: Patients ought to have control of their records in a useful format, period. When they arrive at a new provider, they should have a way of bringing their records, period. That’s interoperability. The what, not the how.

Too often, doctors and hospitals have been resistant to giving up control of records, and make patients jump through hoops to get something as basic as an image of a CT scan. The healthcare consumer, not the provider, ought to be in charge of this information.

But we do know that the barrier is not always the provider’s decision to shield that information. Sometimes it’s that there aren’t systems for easily disseminating it, and we aim to work with the private sector to open up avenues that will empower patients.

In fact, tomorrow at the HIMSS conference in Las Vegas, CMS Administrator Seema Verma and Jared Kushner of the White House Office of American Innovation will be making important announcements regarding actions this administration will be taking to put patients in control of their own health data and spark private-sector innovation in this space.

Putting patients in charge of this information is a key priority. But if we’re talking about trying to drive not just better outcomes, but lower costs, we also have to do a better job of informing patients about those costs.

That is where our emphasis on price transparency comes in. I want to share a personal story about this, because I think it speaks to the powerlessness consumers can often feel in our health system — at a time when, through high deductible plans, we’re asking them to take charge of their own care and decisions.

A few years ago, my doctor back in Indiana wanted me to do a routine echocardio stress test. I figured this could occur within the scope of his practice, which was connected to a major medical center.

Instead, I was sent a few floors down, where I was told to start handing over all sorts of information to a receptionist. Soon enough, I have a plastic wristband slapped on me, and, to my surprise, what I thought would be a simple test in the room next door had resulted in my being admitted to the hospital.

Now, I had a high-deductible plan, so I would be paying for this test out of pocket. As someone who works in healthcare, I knew that the sticker price on the test had just jumped dramatically by my receiving it within a hospital—something that might never occur to most healthcare consumers.

So I asked how much the test was going to cost, and was told that information wasn’t available. Fortunately, I didn’t just fall off the turnip truck, so I persisted, and, eventually the manager of the clinic appeared and gave me the answer. The list price was $5,500.

I knew that wasn’t the right answer either. The key piece of information was what my insurer would pay as a negotiated rate, or what I’d pay with cash.

That information didn’t come easily, but eventually, I was told it would be $3,500.

I happened to know of a website where you could search typical prices for such procedures, so I looked up what it would have been if I’d received it outside of the hospital, in a doctor’s office. The answer was $550.

Now, there I was, the former deputy secretary of Health and Human Services, and that is the kind of effort it took to find out how much I would owe for a procedure. What if I had been a grandmother? Or a 20-something with a high-deductible plan?

This is simply wrong. It cannot continue if, as most people in America agree, we want some degree of a consumer market when it comes to healthcare.

I believe you ought to have the right to know what a healthcare service will cost — and what it will really cost — before you get that service.

This is a pretty simple principle. We’ll work with you to make it happen — and lay out more powerful incentives if it doesn’t.

To go back to my restaurant analogy, imagine if, after you’re seated, you have to order before knowing what anything costs — indeed, before ever seeing the menu. And once your bill finally does arrive, not only are you paying for your appetizer, entrée, and dessert — you get a surprise bill from the off-site pastry chef, too.

No one would ever put up with such a system. Especially if we want to move to a system where we put patients more in charge of their own healthcare dollars, providers and insurers have to become more transparent about their pricing. There is no more powerful force than an informed consumer.

The good news is that you all can begin taking steps in this direction right now. Some insurers and employers have created tools that show people what different local providers charge for a procedure. The information is correctly “grouped” together so you don’t have to add together the doctor’s charge, the hospital’s charge, and the cost of other services. If you log in with your insurance information, it shows you how much you will pay out-of-pocket.

Lest you think I’m singling out hospitals, the current problem is not limited to providers or payers. The same applies for prescription drugs: Your pharmacist typically cannot tell you the real price you’re going to pay for a drug, and therefore your out-of-pocket cost, until they actually create a claim. So this is a crucial piece of our efforts to bring down prescription drug prices, too.

In both healthcare services and pharmaceuticals, the huge gaps between the list price and the actual price are notorious. It’s like the gap between the $500 rack rate on the back of the door in your Hampton Inn room and the $100 you actually pay. This thicket of negotiated discounts makes it impossible to recognize and reward value, and too often generates profits for middlemen rather than savings for patients.

So this administration is calling on not just doctors and hospitals, but also drug companies and pharmacies, to become more transparent about pricing and outcomes of their services and products. And if that doesn’t happen, we have plenty of levers to pull that would help drive this change.

The third piece we’re looking at is using Medicare and Medicaid to drive the value-based transformation of our entire health system.

Federal spending on Medicare and Medicaid amounted to just over $1 trillion in 2016 — one-third of America’s total health spending. If we’re serious about transforming our health system toward paying for value, Medicare and Medicaid will play a key role. Only Medicare and Medicaid have the heft, the market concentration, to drive this kind of change, to be a first mover.

In addition, as we all know, commercial payers mimic the fee-for-service payment systems that come out of Medicare. If we don’t change those, nothing will change.

We already have a range of tools for using these programs to pay for value, many created by 2015’s MACRA legislation. The Center for Medicare and Medicaid Innovation, alongside these tools, vests HHS with tremendous power to experiment with new payment models.

Of course, we will be transparent and collaborative as we experiment here. We are mindful that aggressive models have not always worked out, so appropriate guardrails will always be essential. But make no mistake: we will use these tools to drive real change in our system.

Simply put, I don’t intend to spend the next several years tinkering with how to build the very best joint-replacement bundle — we want to look at bold measures that will fundamentally reorient how Medicare and Medicaid pay for care and create a true competitive playing field where value is rewarded handsomely.

As just one example, we are looking at our efforts regarding Accountable Care Organizations. The program was intended to give providers three years to learn how to accept risk and share savings, but the results have been lackluster.

In retrospect, this is not such a surprise: Providers were not given new meaningful space to experiment — such as the arrangements they needed to truly take on the risk of a patient’s outcomes. Meanwhile, they were allowed to share in modest cost savings, but not asked to accept responsibility for cost overruns.

And to the extent that we are collecting quality measures ourselves, we want to make reporting as easy as possible. Nobody benefits when our outcomes measures create burden instead of value.

It’s the patient who suffers when a provider spends more time reporting quality measures than delivering quality care.

In all of this work, we’ve been informed by your responses to CMS’s requests for information — they have been immensely valuable, and we will act on them.

We will also bear in mind whether new burdens created by models or the scale they require for viability may be driving consolidation in the healthcare market. As a matter of principle, we want to move to a system where we can be agnostic about ownership structures, a system that will allow independent providers to group together to drive innovation, quality, and competition.

This brings me to our fourth key engine for transformation: addressing any government burdens that may be getting in the way of integrated, collaborative, and holistic care for the patient, and of structures that may create new value more generally.

One example is the reporting burdens I just discussed. But there are many other regulations that may be impeding value-based transformation: certain Medicare and Medicaid price reporting rules, for instance, as well as restrictions in some FDA communication policies, may be getting in the way of innovative ways for pharmaceutical companies and payers to work together. In addition, current interpretations of various well-meaning anti-fraud protections may actually be impeding useful coordination and integration of services.

As just one tangible example, one not-insignificant challenge in modern medicine is simple but persistent: How do we get patients to show up to their appointments?

Many providers have taken advantage of the recent rise of ride-sharing services to provide reliable, low-cost transportation to appointments. But an array of federal regulations has limited the degree to which this can occur: The amount of free rides that can be provided to a patient in a given year, for instance, is strictly limited. These are the kinds of wraparound services that can often improve outcomes at incredibly low cost. We’re devoted to figuring out ways for providers to take advantage of them.

I want to end by laying out why I’m so optimistic that we can tackle these longstanding priorities under this administration. First, the time has simply come — as costs continue to skyrocket, the current system simply cannot last.

But it is also because this administration is unafraid of disruption in the way many political actors are. President Trump is a man of courage and vision. He has seen and heard how the high cost of healthcare is burdening working-class Americans, and he has given us a mandate to do something about it.

The measures I outlined today will get us part of the way. In order to bring down costs and increase quality, we have to put patients in charge of their own data; provide them with useful, transparent price and quality information; use Medicare and Medicaid to shift toward a value-based system; and get government out of the way of such a system.

This won’t be the most comfortable process for many entrenched players. But those who are interested in working with us to build a value-based system will have the chance to take advantage of a market where consumers and patients will be in charge of healthcare. We believe that is a system that will serve patients first, but it will be fair for providers and payers, too.

I am determined that we will look back at the years of this administration as an inflection point in the journey toward value-based care. We want you to join on this journey.

So thank you all for listening today, and for your ongoing engagement with our administration.

Change represents opportunity, and I exhort all of you to take advantage of the opportunities represented by what I’ve discussed today. Because I assure you: Change is possible, change is necessary, and change is coming.

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14 replies »

  1. Very well-written. A lot of information and very well explained. With this value-based transformation in healthcare providers will be able to provide quality care to their patients and also see better patient outcomes. And with new innovative and end-to-end solutions like patient referral management, chronic care management, and care management providers will be able to achieve quality health care and improve patient outcomes.

  2. I Read your Article which is packed with facts and data. Each point is very well explained.
    I have Written an article on How Healthcare Providers Can Prepare for Artificial Intelligence and Machine Learning.
    I would like your views on the same- http://bit.ly/2LGQDBa

  3. Re “maybe some day we’ll get to a place where consumers have real usable information and power in health care purchasing and decision making…” Agreed….but even With opaquness, Rand and other studies show BIG reductions in health care costs with adoption of High Deductible Health Plans linked with Health Savings Accounts. Just wait until we get policy that makes pricing transparent.

  4. The magnificence of the D.C. Mall, the Capital, the White House, Lincoln Memorial, a visit to the Holocaust Museum, stroll from North to South in front of the Supreme Court Building or walk around the tidal basin starting at the Jefferson Memorial. Yep its all pretty glorious, euphoric, and consuming. Anything is possible, right? Mr. Azar needs to spend his next vacation volunteering for a week at a Native American Indian Hospital in Montana or Idaho, preferably one of the hospitals that isn’t Medicare certified.

  5. There’s lots of nice rhetoric here….all consistent with the well-established direction of delivery system, payment reform, and value seeking. And I don’t doubt Azar’s sincerity or personal integrity. But to suggest Trump is a man of vision in health care is flat out ridiculous. A man of disruption….YES….but not the kind Azar is talking about.

    None of the possible gains in delivery system and payment reform will amount to a hill of beans over the next 3 years if 10 to 15 million more Americans become uninsured because of destructive disruptions to the individual insurance marketplace and Medicaid. And the whole “give consumers market power” thing is a ruse in the short-term. It sounds nice and maybe some day we’ll get to a place where consumers have real usable information and power in health care purchasing and decision making….but for now the power resides with employers, insurers, and the government. Mr Azar is correct in suggesting that all three have failed to be bold enough over the last 25 years. And part of that failure has directly resulted in a shift of costs to consumers–a shift that is quickly reaching its saturation point. So, show us what you have on that front, Mr. Azar: Real steps to reduce prices, costs and spending.

  6. “Providers have been understandably reluctant to charge into a completely new payment paradigm.”

    Actually, we have not. HHS however ignores new payment structures like DPC. I hate the RVU system and would abandon it tomorrow. HHS/CMS keeps it alive by painstakingly defining “service” down to the letter.

    “A few years ago, my doctor back in Indiana wanted me to do a routine echocardio stress test. I figured this could occur within the scope of his practice, which was connected to a major medical center.”

    No. Your doctor is powerless to do that. HHS/CMS made it so by pacifying large hospital systems to destroy private practice, outpatient surgical, and radiology centers. When hospitals are allowed to dominate referral streams, this is what happens. Additionally, the hospital, which likely controls what your doctor does or does not do, encourages use of the highest reimbursable service, which HHS/CMS pays without batting an eye. If HHS all of a sudden wants patients to be consumers, perhaps they should try being one themselves first.

    “The program was intended to give providers three years to learn how to accept risk and share savings, but the results have been lackluster.”

    And where were they supposed to learn this from? Insurance companies who can simply jettison risk or raise costs at liberty? From HHS/CMS who has no idea either? In fact if you know anyone out there in any sector who simply accepts total risk for any clients actions, please let me know.

    “We will also bear in mind whether new burdens created by models or the scale they require for viability may be driving consolidation in the healthcare market.”

    Thank you for taking it into consideration. They are. In fact by the time you get around to creating this marketplace you speak of, there will be no hope of achieving it. HHS/CMS, with their insurance company counterparts that they grant enormous power to, have killed private practice, killed innovation and killed consumer choice. You will have large system A and large system B to choose from, and I assure you, their prices and “quality” will be so similar, it will not be worth shopping.

    So here is a hint Mr. Azar: Take a hard look at the state of Primary Care in this country and the way they have been treated by your department. Decide where you would like power to rest and who you would like advising your “consumers”. Do you think your consumers are savvy enough to decipher the difference between information and propaganda? Or will they need someone that they can trust at a personal level?

  7. “spending 20 percent of GDP on healthcare to boost our life expectancy to 100 sounds like a pretty good deal!”

    Really? I don’t think many people would agree with that. It is exactly that kind of thinking that has led CMS into the hole it is in now, chasing immortality. Good luck. It will take the rest of GDP to even get close. Life will become more expensive as the majority of the population will well outlive their savings. “Old age” is a very pricey chronic disease. Most people want to feel good for an appropriate duration. No one will feel good forking over one work day a week so they can live slightly longer at a time when their vitality is dwindling.

  8. It hard to ignore the recurring evidence of an institutional co-dependency between the payers of healthcare and the providers of Complex Healthcare.

  9. Love the fact he is focused on patient power. Love the fact he has been in a high deductible plan….and his experience with an echo priced from. 5500…to the negotiated price of 3500…to an out patient price of 500. Why the heck do insurers “negotiate” 3500 when it should be at or near 500? I am afraid I know the answer…Jim Purcell’s input would be helpful.

  10. Mr Azar’s heart is in the right place and he has energy and enthusiasm and seems a nice guy. But, but, but…

    Our canonical problem is third party payers. We have to get rid of third parties. The patient has to pay the provider directly. How do we do that and allow for welfare and altruism and kindness and help for the downtrodden? The patient has to use refundable vouchers: Medi-Bucks. These can be given as needed to the poor and sick and low income folks; and when they are spent they mimic spending and shopping by cash and they “feel like money” and the providers will bargain and make deals and give discounts, and alas, a true market will be created.

    And when they are not spent they remit to the bank account of the patient or his heirs or estate.

    But, this kind of upheaval is massive and there is no way we are going to rid ourselves of insurers. It takes too much political courage to do this.

    But we could try a small state-sized experiment…

    Mr Azar pleads above for the consumer of health care to determine value…here it is!

  11. “Jared Kushner of the White House Office of American Innovation will be making important announcements regarding actions this administration will be taking to put patients in control of their own health data and spark private-sector innovation in this space.”

    I defer to the distinguished gentleman from New York.

  12. Obviously, he really hasn’t every spent much time observing in a Primary Physician’s office, joined a homeless outreach team for an evening of visits to bridges, railroad ROWs or downtown alleys OR volunteered to help-out on a men’s, locked mental health ward. As for the industry as a whole, there is absolutely no substantial evidence that Obama/Trumpcare or value-based reimbursement will solve the cost and quality problems of our nation’s healthcare. I will acknowledge that Mr. Azar is no doubt hopeful and committed. Unfortunately, managing the complexity of the huge HHS responsibilities without a functional Congress would seem impossible — frequent turnover of the HHS SECRETARY seems likely to continue. Meanwhile, our nation’s maternal mortality incidence continues to worsen, now for more than 25 years.