As Prepared for Delivery
Thank you for that introduction, Andy [Ruskin].
I’m very glad to be able to join you all today, because I know personally how vital the work of lawyers is to the American healthcare system. I saw that firsthand in serving as HHS General Counsel, which was not only my first job at HHS when I joined the Department back in 2001, but also my first job that fully immersed me in healthcare.
But I did have some earlier exposure to healthcare. My first job in Washington was an internship at the Office of Management and Budget, in the 1980s, in the Health and Income Maintenance Division.
One of the first tasks I had was a research project on Medicaid provider taxes, and I was given a brief written by a law clerk in what was then the HCFA division of HHS’s Office of the General Counsel.
Imagine my surprise when, 15 years later, I arrived at HHS to discover that my top career deputy was none other than that former law clerk—David Cade, now CEO of AHLA.
Now, I’m not going to talk to you about Medicaid provider taxes today—though I’m sure David probably could.
What I want to talk to you about is the important relationship between the work many of you do as health lawyers and what is maybe the most important job of HHS: delivering Americans better care, and better health, at a lower cost.
Your work sits at the intersection of two vital issues for President Trump: regulatory reform and affordable healthcare.
The President has made reforming federal regulations a top priority for his entire administration.
It was a priority under President Bush when I was at HHS as well.
But I can tell you that we didn’t celebrate the publication of OMB’s Unified Agenda, and the ratio of deregulatory to regulatory actions the administration had taken, quite like we have under President Trump.
President Trump is also deeply passionate about making healthcare more affordable for all Americans—from fixing drug prices to protecting Medicare and reforming health insurance, the work of HHS is often on his mind.
I had both of these priorities of the President’s in mind when, upon returning to HHS last year, I began formulating a vision for how the department could help move our healthcare system from one that pays for sickness and procedures to one that pays for health and outcomes.
I identified this transition as one of my top priorities as Secretary, knowing that this transition has been a priority for many at HHS, and elsewhere in healthcare, for a long time.
The first step in developing a strategy for how to actually accomplish it was thinking about where we really want to go—and what’s in the way of getting there.
What do we want to deliver for American patients? Personalized, affordable, patient-centric healthcare that puts you in control, and treats you like a human being, not a number.
What stands in the way of that? American healthcare too often doesn’t offer patients real options, and it leaves them at the mercy of a system they don’t understand and feel powerless within. Our programs pay for sickness and procedures, rather than health and wellness—which has to be the ultimate goal of any healthcare system.
The particular issue I want to discuss today is how our current federal healthcare regulations stand in the way of paying for health and treating American patients in a collaborative, caring way.
That’s why, last year, I identified regulatory barriers to coordinated care as one of four key areas for value-based transformation.
The other three areas also pertain to your work, and they’ll come up in what I discuss today: providing patients with real price and quality transparency, using innovative patient-focused payment models in Medicare and Medicaid, and putting patients in charge of their own data with interoperable health IT.
To identify specific opportunities for regulatory reform, last year, I had my Deputy Secretary, Eric Hargan, launch what we’ve dubbed a Regulatory Sprint to Coordinated Care.
Now, “regulatory sprint” can sound like an oxymoron—like a short CMS payment rule, or an exciting CLE credit.
The goal of the regulatory sprint is to begin a comprehensive reexamination of rules that may be impeding coordinated care, and get to rulemaking as soon as possible.
For now, we’re looking at four areas in particular: the Stark Law, the Anti-Kickback Statute, HIPAA, and mental health and substance abuse privacy rules.
These roughly fit into two categories: Stark and the AKS, which largely affect compensation and financial arrangements, and HIPAA and 42 CFR Part 2, which largely affect the flow of patient information.
Both issues are crucial. Driving better value through innovative, coordinated care requires both flexibility in financial arrangements and the free flow of information.
Unfortunately, that’s not what we have today. Our current payment regulations often stand in the way of providers coming together to provide better, more coordinated care—unless one of them wants to buy up the other one. Our information regulations often stand in the way of providers collaborating—unless they want to fill out a whole lot of paperwork.
I’ll discuss payment design and financial arrangements first, before discussing the issue of information flows.
As someone who played a role in interpreting and enforcing the Stark Law as General Counsel, you will find no one more sympathetic than I am to the goals of protecting patients and the taxpayers who fund federal healthcare programs. We take the possibility of fraud in healthcare extremely seriously, and nothing about our interest in reforming Stark or the AKS is aimed at diminishing our ability to fight fraud.
But we believe these regulations, and the exceptions and safe harbors within them, may be standing in the way of delivering patients the care they deserve.
When enacted in 1989, 30 years ago, the Stark Law addressed the real concern that inappropriate motives could distort decision-making in healthcare.
There was a worry that some physicians might order services based on their financial interest in service providers, rather than the good of the patient.
But today, the rules we need to have governing our payments should look different, because our payments look different—and we want them to look more different still.
When you had a largely fee-for-service system, you needed to think really hard about who was getting paid those fees for those services.
In a system where we’re paying for value, where the provider, ideally, is taking on some risk for outcomes and cost overruns, we don’t have nearly as much need to interfere with who’s getting paid for what service—because the government and the patient are on the hook to pay for outcomes, not services.
We often say that we get what we pay for in healthcare: we pay for volume and procedures, so what we get is a whole lot of volume and a whole lot of procedures.
Well, we also get only what we permit: if we don’t permit value-based compensation arrangements, it’s a bit odd to lament that they’re not more prevalent.
The issues that arise around the Anti-Kickback Statute are a bit different, but here, too, new dynamics have emerged in healthcare, and our regulations haven’t always kept pace.
We’ve also seen concerns arise around how the Anti-Kickback Law could be driving consolidation, which may be raising costs in certain parts of healthcare. We all say we need a healthcare system that is collaborative and coordinated, and that pays for an outcome, regardless of procedure or provider, but our regulations say that if you collaborate and coordinate, and split up the fruits of the outcomes you deliver, you are at risk of prosecution—unless you are co-owned.
Is it any surprise that rather than pay for all these high-priced lawyers—no offense!—providers decide to consolidate ownership?
As much as possible, we want our regulations to be agnostic to ownership. Providers should be able to coordinate without having to consolidate. Consolidation should happen because of economic and market forces, not regulatory demands.
There has already been some recognition of the need for regulatory flexibility in value-based payment arrangements. For instance, as part of the creation of the Center for Medicare and Medicaid Innovation, Congress gave the Secretary the authority to issue waivers for Stark and the AKS when designing new payment models.
CMMI is one of the tools I’ve identified for driving value-based transformation in Medicare, Medicaid, and our broader healthcare system. But by tackling these regulations directly, we can also create space for private-sector innovators to blaze their own path.
Another place where we believe our current safe harbors have grown outdated is the Medicare Part D drug program.
When the original safe harbor was created, in 1989, American drug markets looked radically different: More than 60 percent of drug spending was still in cash, at the pharmacy counter. Today, it’s less than 15 percent.
We believe a safe harbor for rebates that may have benefited patients then has now become a powerful driver of ever-increasing drug prices and perverse incentives—a protection for the system’s special interests, not a protection for patients.
That’s why we’ve proposed replacing today’s safe harbor with a much more direct, consumer-focused arrangement, which allows only point-of-sale discounts, delivered to the patient, at the pharmacy counter.
This is just one piece of a comprehensive vision for delivering Americans the medications they need at a price they can afford, which also includes efforts to bring down costs through greater competition, better incentives, and more transparency.
Particularly alert readers of OMB’s ROCIS website will note that, this week, we took a step toward finalizing a rule requiring the inclusion of drugs’ list prices in direct-to-consumer advertising. Each step we’re taking is important on its own and in concert with one another.
But none of our efforts will be as useful as they can be if we leave alone today’s system of backdoor rebates.
Too many patients with the highest drug costs will not get the peace of mind and lower costs they deserve unless we replace today’s system of backdoor kickbacks with one in which discounts are delivered to the people that our regulations are intended to protect: American patients.
Any approach to drug pricing that does not tackle the issue of rebates—whether through our proposed approach or otherwise—will simply not get list prices down.
If you stand for rebates, you stand for ever-higher list prices, and against transparency and lower patient out-of-pocket costs at the pharmacy. It’s that simple.
There is also a need to revise and update the second area of regulations we’re looking at, on patient information flows.
Just as we need to protect against fraud, but ensure we permit needed delivery system innovation, we need to protect patient privacy, but not impede quality care delivery.
We’ve seen our healthcare system and healthcare challenges change faster than our rules and regulations have.
Take 42 CFR Part 2. It is a vitally important law, passed in order to protect Americans with substance abuse challenges from facing threats to their privacy or discrimination in the provision of their healthcare.
But Part 2 became law more than 40 years ago, and today, we believe it can be a barrier to patients’ receiving high quality, coordinated medical care.
One reason Part 2 and HIPAA have been in the news lately is because of the opioid crisis, and the misunderstanding around when parents can be informed about a child’s drug overdose. But there are also positive developments in healthcare that have raised issues regarding Part 2 and HIPAA.
Part 2 has become a bigger challenge because more medical professionals than ever are getting involved in the treatment of substance abuse. That’s a good thing. We want providers of all kinds, where appropriate, to assist in offering the care that patients need, when they need it. We don’t want our regulations to stand in the way of that.
But Part 2 can even be a barrier to recording information in the first place. Because providers are sometimes concerned that incorporating any information about a patient’s substance abuse could make their notes into a Part 2 record, we’ve heard that they can often be hesitant to actually take down, in a record, all the information that a patient gives them about their health.
This is the last thing we want when a physician and a patient need to have the most open dialogue possible about their health, including any substance abuse challenges.
Imagine a patient who is in recovery from addiction, relaying this to a provider, and having that information not recorded, and then she is improperly given opioids for her pain during or after a procedure.
The needed seamless flow of information can be made easier by the promise of electronic health records. But none of you need me to tell you that “electronic health records” and “seamless” sometimes make as much sense together as “regulatory” and “sprint.”
So, here, too, we need to take an active approach. Last month, the Office of the National Coordinator for Health IT and CMS put out two new proposed rules 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. And, 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.
What I’ve laid out for you today are a number of areas where we see opportunities for regulatory reform. This year, I believe we will be making more significant reforms of these regulations than any single effort HHS has undertaken in the past.
I’ve told my colleagues at HHS that this is going to be a truly significant year for value-based care—and the same goes for regulatory reform.
That will build on what is already an incredibly successful regulatory reform effort at HHS under President Trump so far.
In Fiscal Year 2018, our department wasn’t just the Number 1 Cabinet department in terms of economic burden removed through regulatory reform.
Our reforms actually accounted for more than half of the burden removed by all of the cabinet departments, more than $12 billion in savings in present-value terms.
We took five significant deregulatory actions for every one new significant regulatory action—easily exceeding OMB’s target ratio of 2:1.
But in a sense, even these numbers are significantly understating the potential benefits of regulatory reform in healthcare—and that is the thought I want to leave you with today.
As all of you know, the federal government does a careful job tallying the costs and benefits of significant regulations.
But really, the value of getting our regulations right, of using them to empower patients as consumers, build real markets, and unleash innovation, is almost incalculable.
How can we count the benefits of building a real prescription drug market by eliminating today’s backdoor system of kickbacks?
Can we measure the health and financial benefits of truly coordinated healthcare, or putting patients’ health data in their own hands?
Can we truly put a price on the benefit of bringing real prices to healthcare?
The answer, in many of these cases, is no. These questions are rarely asked, and the costs are rarely counted.
That does not mean, of course, that we’re not going to go about reforming these regulations in a deliberate way, doing our best to understand their costs and benefits.
But it does mean we are going to take a bold approach to reforming regulations and delivering American patients the care they deserve.
The level of disruption that involves may, at times, be uncomfortable for some incumbent actors.
But you have to think about the other side of the coin.
Failing to update our regulations, leaving in place dysfunctional, concentrated arrangements that don’t serve patients, is a government intervention all itself—and it is a kind of government intervention that has cost American patients too much for too long.
To understand how we can best deliver better outcomes, we’re going to need your help, your expertise, and your insights.
The next few years are going to be an exciting time to be in healthcare, and in health law.
But most of all, we want to make them an exciting time to be an American patient.
The kind of reforms we envision will let American doctors, nurses, and other providers deliver Americans a very different kind of healthcare experience: one where, as the President has said, they know they have a healthcare system that takes care of them, not takes advantage of them, a system where you are cared for as a valued patient, not treated like a number.
American patients deserve better care, lower costs, and more peace of mind from their healthcare system—and we are committed to ensuring that our regulations never stand in the way of delivering that.
Delivering this vision won’t be easy, but for the sake of the American patient, it will be worth it.
Thank you so much for having me here today.