Bold innovation is the only way to deliver American patients the options and control they want, the affordability they need, and the quality they deserve.
As Prepared for Delivery
Good morning, everyone. Thank you all for inviting me to speak here. I know there is a wide cross-section of professionals here today, all of whom care deeply about healthcare and improving the lives of the American people.
While we may have disparate backgrounds, there’s a common theme that drives us all: we want to innovate and make healthcare in this country the best it can be.
Bringing diverse perspectives together is essential to developing and driving innovation in healthcare, and innovation is the topic I want to discuss today.
HHS is always looking for new and innovative ways to fulfill our mission. With the immense power HHS has—a $1.3 trillion budget, regulating huge swathes of the economy—we have to constantly ask ourselves what levers can we pull to drive innovation, or reduce barriers that stand in the way of innovation from all sectors—whether industry, nonprofits, individual providers, researchers, or other players.
As Deputy Secretary, I have taken a particular lead on engagement with innovators, including launching what we’re calling the Deputy Secretary Innovation and Investment Summit, or DSIIS, to bring together healthcare innovators and investment professionals.
We held our first meeting in December, and that meeting was the first time that leadership in the Department had ever engaged with private sector investors and innovators at this level.
Four particular areas of interest to innovators have emerged from DSIIS, which are related to other cross-cutting priorities at the department: value-based care, empowering and engaging patients as consumers, liberating data, and improving regulatory and reimbursement decisions.
Today, I want to discuss each of these and how they relate to our larger departmental priorities and Secretary Azar and President Trump’s vision for healthcare.
I’ll start with value-based care. All of you are familiar with what is known as the transition from “volume to value” in healthcare. It’s one of Secretary Azar’s four priorities as Secretary, and we believe this transition is essential to delivering Americans better care at a lower cost—a key goal of President Trump. The way Secretary Azar likes to put it is that we need to shift from a system that pays for sickness and procedures to one that pays for health and outcomes—and that will demand innovation.
Value-based transformation involves leadership from across HHS, but our point person for it is the Secretary’s senior adviser for this issue, Adam Boehler, who also runs the CMS Innovation Center.
Much of their work involves value-based care, but I want to highlight the latest set of models to come out of the center, CMS Primary Cares, because it has the potential to be a real turning point for value-based care.
CMS Primary Cares is an initiative with two sets of new payment models that will enroll a quarter or more of traditional Medicare beneficiaries and a quarter of providers in arrangements that pay for keeping patients healthy, rather than simply ordering procedures.
The Primary Care First path will allow smaller primary care practices to be paid a simple, flat stream of revenue for each patient. When a patient stays healthy and out of the hospital, these practices will get paid a bonus. But if the patient ends up sicker than expected, these practices will bear responsibility for the extra spending, up to a certain share of their practices’ revenue.
The other path, Direct Contracting, is more ambitious and aimed at larger practices. Just like in Primary Care First, when patients have a better experience and stay healthier, these practices will make more money. But if patients end up sicker, Direct Contracting practices will bear the risk for the extra health spending, not just at their own practice but throughout the system.
Providers will have greater flexibility to spend these resources how they want, allowing them to come up with innovative ways to care for patients—and receive significant savings if they keep patients healthier than expected. Providing new flexibility around innovative benefits isn’t an effort confined to this initiative, either: We’ve also taken major steps toward this goal in Medicare Advantage.
Within the primary care initiative, we will also have options for providers who want to focus on particular populations and particular serious illnesses—where there is huge potential for better health outcomes and more savings.
We’re also seeking input on another Direct Contracting model, to award a local entity a contract for an entire geographic area, covering all patients and providers in the area who want to opt into this arrangement.
This would provide an unprecedented ability for that local organization to negotiate better rates than Medicare does today, take responsibility for outcomes, and provide benefits that work for the local community’s needs.
While primary care is a small slice of health spending overall, it has a significant impact on downstream costs and quality—and that’s why we think bringing true value-based care to primary care can be such a significant step.
This initiative will radically elevate the importance of primary care in American medicine, move toward a system where providers are paid for outcomes rather than procedures, and free doctors to focus on the patients in front of them, rather than the paperwork we send them. I know these are the kinds of goals that many of you all work on every day, and I hope that you find the announcement of CMS Primary Cares to be as exciting as we do.
Whether you could be eligible, as a payer or provider, for participating in these models or not, these models are also specifically designed to encourage state Medicaid programs and commercial payers to adopt similar approaches. The same goes for the entire vision Secretary Azar laid out for value-based care.
Patients come first—they should be the primary focus of our healthcare system. But the way our system has devolved over the years into a convoluted, dysfunctional quagmire has, in a lot of ways, pushed patients to the margins, disempowering them.
We want to change this. We want patients to be empowered consumers. Every other area of the marketplace has consumers at the center of its focus. Why should healthcare be any different?
I’ll just mention a couple of important ways we’ve doing this. One example is work we’ve done in the Deputy Secretary’s office collaborating with private sector innovators around PETS. No, not your cat or your dog, though those can be great for your health too—really, NIH says they can alleviate stress.
But here, we’re talking about pets as in PETs, which stands for “patient empowering technologies.”
As Deputy Secretary, I’ve launched an effort to understand how we can use these technologies to empower patients in improving their own health and, especially important, avoiding costly, inconvenient trips to the doctor’s office or hospital.
Really, from a value-based care perspective, it would have been even better to have a cute acronym for “technologies that keep you out of the doctor’s office,” but turning TTKYOOTDO into a usable title that was beyond even our truly elite acronym makers—I mean, our T.E.A.M.—at HHS.
As much as is feasible, we want new patient-empowering technologies to be brought to market, paid for, and given to patients so that they can better manage their own health. Government has to keep up with innovators, and we in the Trump administration are committed to doing so.
One place we’re examining PETS deals with an often-neglected, under-treated challenge: serious mental illness. About 100,000 American adolescents and young adults experience a first episode of psychosis each year, and we know that an early, comprehensive intervention in individuals experiencing their first psychotic episode can significantly increase their quality of life.
We have an intervention that works: Coordinated Specialty Care, or CSC, which is an evidence-based, multi-component team intervention that has been shown to improve outcomes, shorten inpatient stays, and reduce costs among young people with psychotic symptoms. Currently, almost every state has at least one CSC program, with a total of more than 260 nationwide. But people in need of this intervention may live some distance from the CSC program, which means there may be an opportunity to use technology to expand the reach of these programs.
So now, we’re having the National Institutes of Health and the Substance Abuse and Mental Health Services Administration begin an effort to evaluate technology-assisted implementation of these programs, which might help expand their reach. That work will begin by meeting with providers and patients to determine how PETS can be integrated into the existing care pathway.
So patient-centered technology is far from just a novelty or a fad—it can offer real opportunities to improve care for patients, including for illnesses that, like serious mental illness, have been stubborn challenges for too long.
Just as we need patients to be empowered in terms of care delivery, we also need them to be empowered as consumers. That requires transparency around price and quality.
One area where we’re working on transparency is prescription drug pricing. We’re working to build a more transparent drug market through many different avenues, but one of the most important is our proposal to replace today’s system of backdoor rebates in Medicare Part D with a system of upfront discounts, delivered to the patient at the pharmacy counter.
For too long, our prescription drug pricing system has been entirely opaque: drug companies set their prices artificially high in response to the structures that have been put in place by the government, and pharmacy benefit managers receive tens of billions of dollars in rebates, but patients who end up paying often a significant amount of the final cost of the drug in copays or deductibles, have little influence on the price-setting. There is no possibility of establishing a real market where the major set of buyers has no influence on the price they’re paying.
Today, rebates aren’t being passed on to patients who need them most, those who require high cost drugs. Instead, they’re being used to lower premiums for everyone, which creates at least two significant problems.
First, too many patients are not getting real insurance protection. Rebates on expensive drugs they need are being spread across every beneficiary of the drug plan. As many have pointed out, this means we have the opposite of real insurance: the sick are subsidizing the healthy rather than the other way around.
Second, this perverse system has real impacts on health. While today’s system of rebates has helped restrain premium growth, it’s left too many patients with chronic illnesses or other serious conditions out in the cold. Affordable premiums are important, but they don’t matter if a sick patient at the pharmacy is met with an eye-popping bill they can’t afford—and has to walk away without their medications.
Our proposal around rebates would start to change that. Under our proposal, rebates in Medicare Part D, which in 2017 totaled more than $29 billion, would have to be passed directly to patients, right at the pharmacy counter.
Imagine that: $29 billion of discounts, not out there somewhere floating in the ether, but actually reflected in seniors’ pocketbooks, at the pharmacy counter, starting January 1, 2020.
Importantly, this isn’t just about ensuring that rebates are passed on at the pharmacy counter. It’s also about ensuring that drug negotiation and pricing is as transparent as possible, so there can be real competition among the drug options a patient might have.
Another key piece of transparency is openness around data sharing, which is a third major topic that came out of the Deputy Secretary’s innovation summit so far.
We were pleased to hear this because we at HHS agree it’s incredibly important: We want to get to a place where health data is accessible to patients, providers, researchers and other stakeholders in a secure and appropriate manner that facilitates health and healthcare decisions at the points of care and in the home. Data should be facilitating fast and effective research, patient empowerment, and continuous improvements across the healthcare sector.
Again, we want to start with patients at the center: As much as possible, American patients should have access to all the relevant information about their health. Earlier this year, we took a major step in this direction with the release of two draft rules, from CMS and the Office of the National Coordinator for Health IT, aimed at ensuring patients and providers have access to interoperable health information.
Our proposals are centered on one goal: getting patients access to their records, period. As you can tell from the relative simplicity of that statement, if not from the actual length of the draft rules we’ve put out, we do want to make these regulations as simple as possible.
We want to dictate the what, not the how, in health IT. We aren’t going to micromanage exactly how providers, payers, and innovators make health IT interoperable and patient-accessible—we’re just going to say it has to happen, and let private actors determine the best way to do it.
We believe the potential here is huge, not just to put patients in better control of their own health and their own healthcare, but also for private innovators to create new tools that empower patients to tap into this data.
Interoperability of health data is complemented by work we’ve done across HHS to improve the availability and usability of the huge amounts of data the department has. Under President Trump, HHS has taken historic strides toward making Medicare and Medicaid, as well as other data, more accessible to researchers and entrepreneurs, and we’re going to continue moving forward with those efforts. Better coordination of data efforts is also key to the initiative that President Trump announced in his State of the Union address around pediatric cancer, which will involve a strategic effort to gather more data on pediatric cancer, an under-researched area, and break down silos between existing data sources.
The final area of interest we’ve heard about is how crucial CMS reimbursement and FDA approval policies are for driving investment in the healthcare space.
Now, this isn’t exactly earth-shattering news: Investors in healthcare want to be approved by the world’s gold standard drug safety agency, and they want to get reimbursed by the single biggest healthcare payer on the planet.
But still, it was a reminder about just how much our decisions at HHS drive where private markets go—and we want to ensure we’re driving innovators toward the development of newer technologies that can deliver us better, lower cost care.
One way we’re addressing this is by examining how our policies may be inhibiting solutions to current market failures. As one example, we’re especially interested in one of our country’s most costly health conditions, kidney disease. Amazingly, almost one in five Medicare dollars is spent on patients with some stage of kidney disease—and yet our primary treatment for kidney failure, dialysis remains one of the most draining conditions one can have.
HHS has a number of efforts ongoing to improve kidney care, and one of them is specifically aimed at driving more innovation and investment in this space.
We need innovation and investment in this space because, as most of you know, the way we treat kidney disease in this country hasn’t changed very much over the years. There are a few reasons for this. First, kidneys are complex organs—they actually do a lot more than just clean your blood, which is complicated enough—and their functions are hard to replace or replicate.
Second, dialysis, while costly both physically and financially, does effectively work, for a time, to stabilize a patient. So understandably, investors and researchers don’t see an obvious need to embark upon creating an initially expensive alternative with no guarantee for success.
Third, innovation is often stifled because outmoded government policies can inadvertently create incentives that don’t allow relevant innovation to come through.
Putting together the inefficiencies and regulatory burdens imposed by our current healthcare structure as it relates to kidney care, it’s no surprise that private investors, by themselves, haven’t found a way to solve all the problems posed by kidney disease.
When faced with a challenge as significant as kidney care, HHS can and should take proactive, appropriate steps to partner with the private sector on creating the innovations that patients battling kidney disease deserve.
That’s one of the reasons why we’re so excited about the first round of prizes I announced yesterday as part of KidneyX, a public-private partnership HHS launched last year. KidneyX is designed to provide a pathway toward transformational technologies in the kidney space. The set of awards we announced yesterday covered a range of technologies that can improve care for patients and lay the groundwork for better options in kidney care.
We are also looking at how our payment and regulatory policies can help provide a pathway for new technologies generally.
One example is a proposal we included in Medicare’s inpatient payment rule for next year, which we released last week. Medicare already provides a certain add-on payment for new technologies on top of the standard DRG payment to treat a specific ailment or injury.
But we believe that add-on may not currently be sufficient for certain innovative technologies. So, we’ve proposed to increase the maximum possible add-on from 50 percent above the cost of the existing technology to 65 percent.
In addition, we are proposing for medical devices that are part of the Food and Drug Administration’s Breakthrough Devices Program, CMS would waive certain criteria to be eligible for the new technology add-on payments.
These are an important example of a carefully considered decision to align the regulatory and scientific work we do at FDA with the payment policies we have at CMS.
Moreover, this is an opportunity to highlight those innovative solutions that contribute to the betterment of health outcomes for people with kidney disease.
We’ve heard this kind of alignment can be hugely important to investors, and we want to be responsive to that. In fact, some of the technologies that come out of KidneyX may end up being categorized as breakthrough technologies, which may make these innovative solutions eligible to be considered for this new potential payment.
So I’ve laid out for you HHS efforts that aim to support innovative efforts in a wide range of areas: value-based care, consumer empowerment, data sharing, and new care technologies.
But, as disparate as these efforts might sound, they are not isolated initiatives.
They are coordinated steps toward a much bigger vision—one where patients and innovators can take the lead on building the healthcare system Americans deserve.
That vision is a healthcare system where every American patient feels he or she is being treated like a person, not a number; where your doctor has one focus: not what procedures to order or how to bill you for them, but how to keep you healthy and well. That’s a good bit different from the system we have today, which is why we need innovation to get us there.
Bold innovation is the only way to deliver American patients the options and control they want, the affordability they need, and the quality they deserve. So thank you for the work you are doing to innovate and deliver the healthcare Americans deserve, and thank you for listening today. I look forward to working with all of you in the years to come.