The Honorable Mike Leavitt, Secretary of Health and Human Services


Washington, D.C.


September 26, 2006

Remarks as Delivered at eHealth Initiative's Health Information Technology Summit

Thank you, and good morning. I enjoyed listening to Craig Barrett. He is a thoughtful technology leader. I acknowledge the fact that I am one of the 25 policy leaders you are going to be hearing from, and I hope that I can meet his challenge.

I am going to operate today on the basic assumption that there is not a need for me to discuss why this is important. I think all of us have a clear picture of the fact that health care costs have the potential to erode our economic capacity.

I think we also recognize the fact that our economic competitors around the world are spending essentially half, in terms of gross domestic product, and that we need not dwell on that.

I would also like to build on what Craig talked about and actually acknowledge the fact, as well, that we do not have a system of healthcare in the United States. That what we have is a sector of healthcare. I thought he cited some very thoughtful evidence of that. I’ll build on that.

Each of you has a cell phone in your pocket. It was made by a different vendor in most cases. You have minutes from a number of different vendors in this room but they all work. That’s a system.

Many of you have an ATM card in your pocket from different banks. You are able to go, as Craig pointed out, to virtually any ATM or any bank in the world and deal with almost any currency in the world. Banks compete aggressively for your business and use the same system. There is competition, but that is a system.

Most of you flew here on an airline that aggressively competed for your business. You were able to judge the value based on the cost and the quality of the experience. But they used a system. Again; I would argue that in our country we don’t have a healthcare system: what we have is a healthcare sector.

And that a significant part of this challenge is organizing a healthcare sector into a healthcare system.

Today I would like to talk about the plan to get there. I would like to talk about the specifics that we are doing, not just to inform you but, to enlist you.

First of all, let me acknowledge that any system has to have an underlying philosophy that governs it. The system we aspire to have has an underlying philosophy of value-driven competition. That is to say to identify the components of value, which are the price and the quality of health care. When you take the combination of price and quality, you end up with value.

Now the dilemma that I think we all acknowledge is that there are very few people in the United States today who know the cost of their healthcare.

The sector is not organized in any way, to be able to answer the question, “How much does this cost?”

A second component is that people don’t know whether what they are getting is any good or not. We live in a society where it’s impolite to ask about the quality and there is really no reason to ask about the cost, because someone else pays for it and until we can get to a system that measures value, both value, or rather both cost and quality, then we are not in a position to organize this system.

So the focus is to create a value-driven competition by organizing a system. Now I would like to lay out, in terms of what our plan is to get to that point, four cornerstones that have to be achieved in order to organize that system.

The first cornerstone is connecting the system.

Now most of you will have heard me use this analogy because a lot of us frequent these conferences and go to the same thing, but let me repeat it for context.

I have studied railroads a fair amount, railroads were built in this country in the late 1800s. They had one dilemma in being able to connect all the railroads that were being built in the South and in the North and in the East and in the West and that was that the rail gauges did not line up.

The tracks were different distances apart. I told that story to a friend of mine who pointed out that his uncle had been hired by Australia to go solve that problem for them in the 1960s.

In the United States we were able to solve it in the late 1800s through some very good leadership by Abraham Lincoln. They were able to take three different rail gauges, one five foot three, one five foot and one four foot eight and ultimately, over time, merge it into one system. Now they all use the same rail gauge and consequently we have a system.

In Australia today I find that there are three rail gauges and if you are going to go from point A to point C you have to stop in point B oftentimes to get on a different railroad because the rail gauges don’t line up.

Well we obviously have the very same problem in health care. I go to many large communities where I will see multiple hospitals. Multiple hospitals will be spending tens of millions of dollars on health IT, but they won’t be on the same system. They won’t even be compatible systems. So the first requirement for the development of this value-based competition is connecting the rail gauges.

The systems have to be compatible. Now I am going to go through all of these and then I want to come back and talk about how we are going to get to each of those four cornerstones.

The second cornerstone is being able to measure quality. Now in order to have a quality measure you have to have a quality standard. I will acknowledge the fact that many have looked to develop standards in healthcare for some time.

There has been a frustration on the part of the business community that those standards haven’t existed and at times they have banded together to begin to develop standards of their own. Part of the best news, in my mind, is that over the course of the last year, an entire movement has begun to grow up that would allow for the measurement of quality.

I have visited 29 different community-based quality measurement efforts that are happening all over the country. And I will tell you that it is not simply business that’s driving this quality measurement, it’s the physicians who want to do a better job for their patients and who are, in fact, getting together to develop these quality measures.

The Ambulatory Quality Alliance, or AQA, was organized a little over a year ago, and the HQA—Hospital Quality Alliance—is a collaborative effort of hospitals and physicians and large payers who have come together to begin to identify the basic quality measures needed and how to gather them. I will come back to this.

The third cornerstone is being able to measure price. Now the dilemma here is clear to everyone. Anyone who has been to the hospital or had a loved one in the hospital knows that three weeks after you get back you begin to get an avalanche of paper.

You don’t know if it’s from the insurance company or the hospital or if comes from the anesthesiologist or the surgeon or the lab or who, but a lot of paper begins to come and no one knows not only what they are going to pay, they don’t even know who they are supposed to pay.

Until we can begin to organize healthcare payment into identifiable episodes of care, or as I refer to it, buckets of healthcare, that you can compare, there is no way we can begin to create a sense of comparability or measure value.

The third cornerstone is being able to actually measure recognizable episodes of care as quantities of healthcare.

The fourth cornerstone is getting incentives right. Today the incentives aren’t right. Consumers have virtually no incentive to know what they pay because they are not deeply involved in the payment.

Providers have no incentive for efficiency because if people get sicker, the system just keeps paying. Now I want to acknowledge that no one in a hospital or a physician wants their patient to get sicker, but I do want to just recognize that if you took your automobile into a body shop or to an automobile dealer and you said to them, “Here’s my car. I need to have a minor repair done,” and you came back and they said to you, “While you were gone, some bad things happened. The garage caught on fire, somebody tried to back it out and hit the wall, the windshield was popped out and the engine burned up during that period. That will be 25 thousand dollars.” You would be reluctant to pay it.

In fact you probably wouldn’t pay it. But if you go into a hospital today and you get a hospital-borne infection while you were there, the bill keeps going up, and you are expected to pay it, or your insurance company is. Now, there is no incentive there for quality.

So again, I want to go back. The objective is to organize it into a system. The philosophy of that system needs to be value-based competition. In order to measure value, you have to have four components:

  • The system has to be connected. You’ve got to have standards for health information technology that will allow those systems to connect.
  • The second is that you have to have quality measures. You have to have a means by which you can measure quality and hold people accountable and publicly disclose that information so that people will have access to it.
  • The third is price. That is to say, episodes of care that can be compared.
  • And fourth we have to align the incentives.

Now the question I would like to ask is, “What is the change model to get to this value based competition?”

How do you take a two trillion dollar sector and organize it into a system?

Now, in the past, people have turned to the Congress and to the government to say you need to do something. People say, “Well, there is not enough political will in the world to have that occur.” Our experience has been every time you put a healthcare issue on the table, one of two things happens. Either it is debated because all of the various interests come out to defend their positions, a bill passes but it is at the lowest possible common denominator, the bill is signed with some flourish but nothing happens, or it is delegated off to a group to study where it dies a quiet death.

I would argue that it is not a lack of political will. I would argue that it is an abundance of political will and that every time one of those issues gets on the table, everybody un-holsters their political will and points it at each other.

And consequently we end up with this perpetual standoff. I would argue that Craig Barrett is right. The way we have to organize this sector into a system is to begin to harness the various incentives of the payers and the providers.

For that reason, on the 22 of August, the President signed an executive order that I believe begins to unleash a very powerful change agent into the healthcare system: That is payer power.

Over the last 25 years, employers have on many occasions, organized themselves to try to get better deals or to bring change into the healthcare system. But the reality is that they haven’t been completely successful. Why? Well for the most part they have not had sufficient capacity to get to critical mass. You can take the top 10 or 20 or 30 or 40 employers in this county, and put them together and they still don’t represent more than one or two percent of the insured lives in America.

And consequently when you break that down over communities all over the country—and keep in mind we don’t have a national healthcare system, we have a sector—you start spreading the employees of that 40 or 50 employers over a 50 state area and hundreds of different communities, no small group of employers or even a group of large employers, has the capacity to affect the system as a payer.

That has not worked because the most important and largest payer hasn’t been at the table. That’s the Federal government. The Federal government—that’s the Department of Defense, the VA, the Office of Personnel Management, Medicare and Medicaid—makes up nearly 46% of the healthcare marketplace.

What changed on August 22 was the President of the United States said that 40+ % of the market was going to change its behavior in the way that we procure and pay for health care. And that if you want to be part of the future, then you had better pay some attention to this because we want to shape the way healthcare is paid for in four important ways.

See if you recognize these four.

The first is that if you intend to do business electronically with the Federal government in the future, you need to have a system that will begin to migrate toward interoperable healthcare systems.

The second is that we are going to begin recognizing quality measurements from the Ambulatory Quality Alliance and the Hospital Quality Alliance and we are going to begin to organize among the most frequent procedures and conditions, a series of quality measures that we are going to begin collecting information for and we are going to begin using them to compare costs in order to arrive at value.

The third is that we are going to ask those insurers that do business with us, the Federal government, to give us information that we can organize into episodes of care.

And fourth we are going to begin to deal with incentives. Not just with those that work with the Federal government, or for whom we pay healthcare for, but also we want incentives for those who provide it.

So again, the objective here is a value-based competition, to organize our sector into a system and to build on four important cornerstones.

Now, with respect to health care standards, we have organized the American Health Information Community.

The community’s objective is to take health IT systems and to begin organizing standards with which they can begin to exchange information, meaning to line the rail gauges up.

The executive orders said that in the future if you want to do business with us electronically, we are going to need to receive that information on systems that are compatible with those standards.

We’re also suggesting that we need to develop the quality standards. I think you get the picture.

Now, we’ve also gone to the large employer community and said it would be unreasonable and wrong for us to simply do this on our own. This needs to be private-public partnership in developing this payer driven system.

So we are saying to the largest employers and unions in the country “join with us” and adopt the same four things to drive this system toward a value-based competition.

I met recently with the human resource officers of the top 150 employers in the country and I asked them to help us in designing a mechanism to harness this market into an organized force.

How was that going to be done? Well, many large employers today utilize a system of procurement where they have an RFP and the RFP lists certain conditions that they are going to be using to judge the competition.

Sometimes it's price. Sometimes it includes a component of service and financial strength, but in every case it also has some conditions. So we’re developing a series of questions and asking large employers to include those questions as conditions of procurement of their benefits and health care.

What are the conditions? Well, see if you recognize these.

Use a connected system; establish standards of care or use the AQA and HQA standards as a method of measuring quality; be willing to give us your information so that we can measure episodes of care; and be able to use incentives such as pay for performance. I think you get the picture here. This is the marketplace beginning to organize itself.

I want to also be clear that this is not simply a matter of forming economic power, because the base of this is quality and the force that I believe must drive quality will be those who provide it. And the force that I’ve seen learning to measure quality is physicians. This cannot simply be the MBAs ganging up against the MDs.

This has got to be a collaborative effort, because in every case where quality has been measured by one side without the other, it has been ineffective and less efficient. And the good news about what’s moving forward right now is that the medical profession, for reasons that are important to them both financially and professionall,y is working to develop quality measures, and the economic community is joining with them.

And I believe that within two years, we will begin to see pockets of quality being measured against price, and we’ll begin to see this value-based competition emerge in several markets on several procedures around the country.

Within five years, the term “value” will have earned its place in the American’s health lexicon and we will be using it on a regular basis.

Within 10 years, I believe this system of value-based competition will have truly emerged because we will have integrated health system measuring quality.

This is a complex subject and the way I’ve described it you might, in fact, be thinking of it as a Formula One race car that will go 238 miles around a race track with all the bells and whistles.

I want to make clear to you what we’re really forming here. We have a little pile of wheels, we have a small chassis, we have a little Briggs and Stratton motor and a steering wheel and we’re going to assemble ourselves a go-cart.

And then this go-cart is going to be pushed down the road to make sure we can make this work. But then, it will begin to emerge as a race car.

This is not something that is going to happen over night. It’s going to take time, but it is in fact beginning to happen and it’s happening because the payers in this country are joining in a collaborative effort with the providers of the country and we’re beginning to organize this sector into a system using the four cornerstones that I’ve described.

I believe this is a very important moment in health care history. I say that because all of the components of change are in place, and everyone feels a sense of anxiety about this. The human body has a warning system. It’s called pain. It motivates us to do things we otherwise might not be willing to do. Every component of society is feeling anxiety about health care right now.

And I believe that it is putting us in a position where we prepare to do things that in the past we haven’t. We have to because if we don’t get better at this over time the economic consequences will begin to disable our ability to prosper.

I’m very pleased to be with you. I hope I’ve generated controversy and enough interest that I can stimulate a question or two. I think was to have just a minute or two, is that right? I’ll be happy to take a question.

Last revised: October 27, 2006