Rae Woods (00:02):
From Advisory Board, we are bringing you a Radio Advisory. Your weekly download on how to untangle healthcare's most pressing challenges. My name is Rachel Woods. You can call me Rae. I don't need to tell any of our listeners that the healthcare industry has changed pretty dramatically in the last decade. Frankly, it's changed in the last year, maybe even the last week, right. We are faced with ongoing challenges like workforce shortages, new technologies, high drug prices, fragile financials, all the things we talk about on Radio Advisory. And with all of those changes, it can be hard to see what our vision of the future is and what that might mean for different stakeholders in our business.

(00:44):
And that's why this week I've invited someone who's been entrenched in different sides of healthcare, healthcare business for the entirety of his professional life. The 24th secretary of Health and Human Services, Alex Azar is no stranger to the ins and outs of industry transformation. Aside from serving as one of the nation's top-ranking healthcare officials, Secretary Azar has also spent many years in the private sector taking on leadership roles at Eli Lilly. Today he can be found serving on several corporate boards, acting as an advisor to Foresite Capital, acting as part-time adjunct professor of business at the University of Miami, and finding many opportunities to write and speak about the future of healthcare. Secretary Azar, welcome to Radio Advisory.

Secretary Alex Azar (01:32):
Great to be with you. Thanks for having me.

Rae Woods (01:34):
I have to admit that this conversation might go in a couple of different directions because it is rare that I get the opportunity to talk to someone like you about all of the things that are happening in healthcare. So I actually want to start us off pretty high level. There's a lot of talk in this industry right now, and frankly always around this idea of transformation. Things need to change. Folks might even say that things are broken, things are not working, we need to transform. My first question to you is transform to what? What is the end state that our industry could or maybe should ultimately be moving towards?

Secretary Alex Azar (02:13):
One of the things that frustrates me in healthcare is that often people will start with the solution without diagnosing the problem.

Rae Woods (02:20):
As a researcher, I can agree that that is the incorrect way of looking at things.

Secretary Alex Azar (02:25):
So when we talk about transformation as a concept or change, I think we need to talk about why are we changing and what's wrong that we're trying to fix. I teach down at University of Miami in the business school, and the theme that I use in every class is how did we get our system so messed up? And it really starts from the fact that back in the 1930s with a third party payer system, when you divorce the purchasing of a good or service from the paying for that good or service, you've created a fundamental economic problem because you lose the natural rationing mechanism of the price mechanism in microeconomics by that. If I can walk into a Walmart, pay $20 and walk out with as much product as I would like, I will walk out with the whole store. I mean, it's just rational human behavior. So really the story of healthcare in America since the thirties has been the story of correcting for that and compensating for that.

(03:24):
And that's really where all of the weird distortions come from. So if you ask me why is healthcare the only sector of the economy where quality doesn't go up and prices go down every year, that's why. Let's just say we're not getting rid of our employer sponsored third party payer system that has those issues. All kinds of utopians, whether it's Chicago economists or Berkeley socialists, have their visions of how you might change and blow up the system to get rid of those distortions or to come up with other distortions. But I take that as a given, and I say, "Within that frame, how can we have healthcare in America operate in as competitive as market-responsive way as possible?" The way I think of transformation, and I think the way most people who are relatively serious about economics and about healthcare reform, healthcare transformation, think about it is, how do you put the patient at the center? How do you create market-like mechanisms that will get us to higher quality and lower cost in the system that delivers for the patient.

Rae Woods (04:45):
Which to your point is something that other industries can do. Healthcare seems to be the odd man out.

Secretary Alex Azar (04:51):
Yeah. Every other sector of the economy, wind it up and let it go. It just rolls. And the other message when I'm teaching, and I said this as secretary and I say it as a professor, is no matter what you think about healthcare goods and services, no matter if you think healthcare is a right, if equity, use whatever moral judgments you have around healthcare. If you fail to recognize and respect that healthcare goods and services are economic goods and services and will obey economic laws, then you will be sadly disappointed in outcomes. So the agenda I laid out when I came into office in really February of 2018 was for value-based transformation of healthcare was the terminology that we used. I'm not sure what the current au courant way of referring to it is, but that's what we used and that really was a legacy going back to Secretary Leavitt in the Bush administration for whom I was his deputy. He started us on that journey.

Rae Woods (05:46):
Yes, and by the way, this is the way that most folks think about transformation. They use that word transformation to talk about transforming to alternative payment models, value based care, value based payment, payment transformation, et cetera.

Secretary Alex Azar (06:02):
Yes. So Michael Porter from Harvard Business School and Elizabeth T. Singh at the time, UVA, wrote a book called Redefining Healthcare towards a value based transformation basically, something along those lines. And they diagnosed these problems and they said, "We need to move away from paying for procedures with fee for service towards paying for outcomes, and how do we restore or build in market-type mechanisms." So Mike Lev, Secretary Leavitt started us on this journey in 2005, and we've really been on that journey ever since. So for 20, almost 20 years now, both Republicans and Democrats have been on this journey. It's been a very bipartisan vision of healthcare. It's had a couple of iterations and people have been frustrated by the time it's taken.

(06:45):
But I mean, remember this is one-seventh of the American economy with very significant vested interests in healthcare and vested in the fee for service, pay for procedures way of doing things. And we have had to learn how to walk before we could run. So initially we had to figure out, how do you even, if you want to pay for an outcome, how do you define an outcome? How do you even define what the what is? What is a hip replacement? You want to pay for the best hip replacement. Okay, well, what is a hip replacement? How do you bundle things like diagnosis, rehab, the actual product going into the hip, the inpatient, the outpatient, all of that, the physician services, the medication? How do you bundle that? What is a hip replacement? And then how do you define what the quality of that is?

Rae Woods (07:30):
Which is incredibly difficult to do.

Secretary Alex Azar (07:32):
Exactly. So we start on this journey and then we start thinking about, okay, then how do you reward for better quality lower cost? That leads us into notions of accountable care organizations.

Rae Woods (07:43):
Yes.

Secretary Alex Azar (07:44):
All along, we're building muscle memory. We're learning how to do things in a way that's different from paying for procedures, the old fee for service way of doing things. And by the time I came into office in January of 2018, in February, I laid out the we're going to burn the boats now. Fee for service is done. It is, we are moving to value based, and it's like we have the muscle memory, we have the baseline all set, it's bipartisan, and we're going there. And I said, so there are four key elements of how do you get to this transformed value based paying for health rather than paying for procedures approach, first of which is transparency of price and quality information. You simply cannot have a market mechanism without price information. It's basic. So we mandated complete transparency of list prices, negotiated discounts and cash prices, and we did it with the authorities we had, basically doing that on hospitals and on insurance companies. There's legislation pending in Congress to maybe further that and as well as increase compliance, but that's the basic concept.

(08:56):
Then we needed to allow for coordinated, aggregated care. So we had a very interesting system that really came about because of the pay for procedures, fee for service world where our anti-kickback statute and our stark self-referral laws literally could criminalize teams working together to deliver a health outcome and sharing the profit or the benefit of that work if they deliver a lower cost, higher quality product together. So we reformed our regulations to enable that. Interestingly, one of the reasons I think we've seen so much vertical and horizontal integration in healthcare was you're exempt from all of that if you're co-owned. They had a kickback statute. So if you have the same owners, you can do whatever together, gain share, work together. But if you're separate, you're going to spend all your money on lawyers just trying to figure out how they could operate and do that together. Democrats, Republicans, we all agreed we want coordinated care so we enabled that.

Rae Woods (09:51):
So you mentioned price transparency and coordinated care, but there were two other things that you said we needed to talk about.

Secretary Alex Azar (09:58):
The third element is we need the patient to be mobile, to be able to be a shopper. You cannot do that if you are handcuffed to a certain provider group or system because of health information technology. If all of your data, which is so critical to our ability to work in healthcare, to our patient safety even, you can't have a non-interoperable health information technology. So we mandated that your records are owned by you and are portable with you, and we mandated that they be interoperable and banned information blocking among providers. The idea being you should be mobile and your data should go with you, and that reduces the transactions costs of shopping and being a mobile consumer.

(10:42):
So it'd be like saying you're shopping at Walmart, but your only credit cards are from Walmart and don't work at Target. You'd locked in. So then the final element is change how we pay for things. Value based payment because you get what you pay for. If you pay for procedures, what do you get? You get more procedures. If you pay for value, you'll get more value. And I'd say one of the key insights here was a shift from that early muscle memory development that we talked about of paying for bundles or paying for so-called outcomes to not worry so much about figuring out what the outcomes are and focus on total cost of care.

Rae Woods (11:25):
Which is a lesson I think a lot of folks are learning. You use the word bipartisan and it doesn't surprise me that sitting across from the former secretary of Health and Human Services that you're using that word, bipartisan. In my world in healthcare, there's a different lens that I look at. The competing influences within my world of healthcare business is what providers, payers, life sciences companies. I perhaps think about it as tripartisan or that's what reaching across the aisle needs to actually look like when we talk about healthcare business.

(12:02):
A lot of the positive change that you're talking about is value for just one of those stakeholders, and it can actually mean a hit to another. Let's take providers for example. The number one reason that I still to this day hear that providers push back on payment transformation is that it's a hit to their bottom line. They barely have a margin. Maybe they're operating in the red and they're saying I can't take the financial loss. So what factors do we need to put in place so that these different stakeholders in healthcare can at least be aligned or maybe willing to compromise to get to this vision that you're describing?

Secretary Alex Azar (12:40):
So the key here is you have to make it worth people's while. You can do it with carrot or stick. I think carrot works a lot better with behavioral transformation than stick. So the idea of total cost of care is reward providers, and it actually doesn't even have to be providers. It can be any entity willing to take risk. We'll give you $12,000 a year to take care of a Medicare beneficiary, and if you keep them out of the hospital, keep them out of the nursing home, have them be healthy to take care of the social determinants of health, whatever it takes to keep them out of the hospital, which is where the cost centers are, you keep the savings.

Rae Woods (13:15):
You're describing a global payment, a capitated payment, or if we were looking at the procedural level, we're talking about a bundle.

Secretary Alex Azar (13:21):
Exactly. And if it goes over, you're going to eat that. And of course you have risk adjustments and you have quality measures to make sure that there's not incentives for bad behavior within that. But the key to all of that is if I have often had people say that this vision of the patient at the center of a competitive, functioning, efficient market is a vision of an atomized individual having to sit there being a super shopper on their iPhone in the back of the ambulance with their heart attack, trying to find the... But you say that because you get it but so many out there, they like to caricature this, that that is the vision.

Rae Woods (14:01):
I even push back further on folks in this exact example. The ambulance care example is an easy one where you're of course not going to be shopping for where you go for your heart attack care. I by the way, kind of reject the notion that there's that much shopping that can happen outside of very specific planned procedures in part because there's often a middleman. I talk about the fact that if I have Aetna Insurance, it makes a lot of sense for me to get convenient care at a CVS. If I don't have Aetna Insurance, my insurer, my employer perhaps might not want me to go to CVS. Maybe they want me to go to Walgreens. They're actually the ones who are helping to nudge or maybe even direct some of my patient care. And that gets in the way of some of these consumeristic ideals that I hear in healthcare.

Secretary Alex Azar (14:51):
We all need a helping hand. We all need learned intermediaries in health care. I, as a health secretary do not navigate the health system alone. I have a primary care doctor who helps steer me through the system. I have a payer that provides financial incentives to steer me in the system. All of that works together to I hope fulfill an ultimate vision of every American having one form or another of what we might call concierge care of someone, some entity, holding your hand through the system to help guide you as opposed to feeling left alone and in that world. And I believe that four-way approach aligns incentives and creates the mechanisms to enable whether it's primary care doctors or payers or others to help steer one through the system in a way with aligned incentives.

(15:37):
Right now we get steered through the system often just to get more procedures done, just to get that second MRI, the third CAT scan, the 10th x-ray. If you fix the financial incentives there, that fourth element, you get aligned incentives and you're actually working for the benefit of what the patient wants, which is a healthy outcome of not going in the hospital, for instance, unless it's necessary to go to the hospital. So that's the vision is the patient at the center, the patient steered and guided through a system with aligned incentives where price is always going down and quality is going up, and we all feel cared for in that system.

Rae Woods (16:12):
And I love that you've laid out this vision. The practical challenge that I hear when I work with executives, even as we agree, and I think the industry does agree that we need to push further into this kind of transformation. The pushback is yes, the patient needs to be at the center, but I also have to run my business.

Secretary Alex Azar (16:33):
Yeah. The system is working for the existing market players right now.

Rae Woods (16:37):
Yes. And someone often loses at least a little bit when some of these specific changes happen. So how do we manage through the fact that there is sometimes actual business loss? It might be on the provider side as I was describing in the case earlier, having to take a near term loss or having to manage multiple different kinds of contracts, some of which are fully capitated global payments, some of which look like value based care with really just an upside and really just incentivize for that extra quality bonus. Or maybe I'm thinking about the payer side. They have their own set of challenges and losses that they need to be thinking about with this transformation. So my question is how do we manage through the fact that business leaders might need to take a hit as we still want to push forward and accelerate towards this kinds of payment transformation?

Secretary Alex Azar (17:30):
I have found that it is very hard to transform behaviors when you're dealing with a zero sum gain as you were just talking about. If somebody has to lose two for someone else to get two.

Rae Woods (17:40):
Yes.

Secretary Alex Azar (17:41):
Very hard to get there. I find that you need to make it a positive for people. So that's why with all of our CMMI, the Center for Medicare and Medicaid Innovation demonstrations that we did, especially around total cost of care, global payments, et cetera, we did two things. One was take our providers where they are. There are some who have IT systems, integrated approaches, record systems, heavy duty analytics, methods of practice where they are ready to take global or total cost of care risk.

Rae Woods (18:13):
And by the way, those people probably don't have a hospital.

Secretary Alex Azar (18:16):
But they're the ones who need the baby steps, who are just getting started and can't quite take as much risk. And when you do that risk, have it be asymmetric, so have more limited downside and a bigger scale on the upside in terms of potential for them. Then you have things like what we did when we built the direct contracting or what they now call ACO Reach. If you're a provider under MIPS, you're looking at flat to declining revenue just on the old fee for service system. When we did DCE, we made it you could be, if you know how to perform and actually can deliver in a value based system, you could deliver 15, 16, 17% increase throughout that period. So that's a big change. That's an incentive to rewire how you practice medicine and think it a different way.

(19:06):
But it's very hard because our hospitals, our doctors, our insurance companies, everybody, they're making money sometimes with different margins of course, but they're making money on a fee for service way. And look, I think we're going to see this right now with some of the things that are being done to the Medicare Advantage program and reimbursement rates there. So working in a value-based way doesn't work financially. What was my rule? What did we start with? If you ignore that healthcare goods and services are economic goods and services and will obey economic laws, you will be sadly disappointed. Well, guess what? If you make doing value based coordinated care, not financially viable, guess what you're going to get? Reversion to fee for service because they sure as the devil know how to do fee for service and they know how to turn the crank on procedures.

Rae Woods (19:59):
Yes. And by the way, this goes back to your comment that you made at the beginning where I think it's hopefully reasonable to say that you get frustrated when others say that they're frustrated with the pace of change. And you're right, there is more muscle memory no., CMMI I think has tested fifty-some models. Good news is we now know what models work. I think there are six of them. Two actually generated quality and cost savings, at least statistically significant quality and cost savings. But now we know that population-based programs work.

(20:32):
We know that primary care-led programs work. I don't think that that experimentation can slow down because now we need to figure out how to do that in specialty care. In fact, I know that for example, chronic kidney disease is something that matters a lot to you personally, and we need a different set of levers to focus on chronic kidney disease and stage renal disease, some other specialty specific areas that are different than a primary care led plan. So let's take the wins, the things that we figured out how to do well and keep experimenting even as we have to keep our foot on the gas.

Secretary Alex Azar (21:10):
Yeah, I agree. I am a big supporter of the work of CMMI. I think it's vitally important and a couple of cautions there. One, I think we need to be not too stringent on looking for immediate savings because for me, in rewiring how we deliver care, if we develop the muscle memory, if we develop the systems and patterns to do value based care compared to fee for service, that is a win in and of itself and our bet, our fundamental bet, is in the long run that is the mechanism for competition, lower price, higher quality, better patient experience, and better patient outcomes.

Rae Woods (21:52):
Is your answer the same in the near term if it means that our industry actually ultimately needs to spend more?

Secretary Alex Azar (21:59):
I think you might need to. That's precisely why we actually spend money in CMMI. It has a budget for it, but there are those who there are rules about budget neutrality with the demonstrations that I think sometimes maybe get in the way. I also think that as we look at them, we have to be realistic. There was one CMMI demonstration, it was a major rewiring of a big part of the healthcare sector. A year in somebody does a study saying it's not delivering results. Well, of course it's not delivering results. One year in you have barely set up the payment systems. You've barely assigned the census of patients that are in that model and allocated them to each provider. It's idiotic to even look at that question.

Rae Woods (22:44):
And again, this comes back to the point that you made earlier of why quality in particular is so, so difficult to measure because it's really hard to look at what can even change within a year. I'm thinking maybe somebody's hemoglobin A1C could move a little bit, but what does that actually mean for a diabetic patient's long-term risk or their mortality, their morbidity, their quality of life, maybe their A1C hasn't even moved in a year, which speaks to how hard it is to measure some of these things in the short term. But you said the phrase that is on everyone's mind. You said Medicare Advantage, and I do want to get your high-level take on this. I will admit I am hearing pretty different things from different stakeholders in the market because there's a lot of change happening in Medicare Advantage.

(23:33):
It's kind of gone from this thing that is an obvious positive kind of business strategy to one that's being squeezed a little bit. We see that in changes in star ratings and reimbursement. Lots of seniors like Medicare Advantage, but they're also utilizing quite a bit of services, which makes it more difficult to succeed here. My question for you is, are all of these swirling things that are happening in the business environment, temporary headwinds, things that we just need to get through or wait and see what the other side looks like or are we actually talking about a fundamental change to the Medicare Advantage landscape?

Secretary Alex Azar (24:13):
With MA because it's a government program, it depends who's in charge. There had been a fairly broad consensus within healthcare about just how good the MA program is and how it delivers for seniors and delivers for Medicare. We have crossed over now to a majority of seniors choosing to be in Medicare Advantage. So the seniors are voting with their feet. They're choosing plans that look like what they've had in the employer-sponsored market. They're choosing plans that have integrated inpatient, outpatient and drug benefits together.

Rae Woods (24:45):
And this is a really important note. They're choosing not just Medicare Advantage plans, they're choosing an HMO.

Secretary Alex Azar (24:50):
Yeah, yeah, exactly. And so they're walking with their feet and there is, for reasons I can't fully explain, a bit of headwind right now politically. There are some who are saying that Medicare Advantage plans are paid too much, that some don't like the supplemental benefits that we allowed that can give seniors wraparound like vision, dental, transportation, etc. Certainly there has been some concern about marketing practices. We all get tired of the TV ads during open enrollment season, but MA is the future. It is the dominant part of Medicare. It's going to stay the dominant part. It will keep growing because it is what seniors want and a politician who tries to undermine Medicare Advantage will over the long run, I think suffer for that.

Rae Woods (25:44):
Yeah, the toothpaste is definitely out of the tube at this point with Medicare Advantage. There's no reason to spend frankly any time talking about could this be something that goes away. I do think that it's important to talk about the evolution of Medicare Advantage, especially given that we are talking about the Medicare Trust Fund, which gets people's attention really, really quickly. And it seems to me that there's this big experiment of, all right, we've been doing some kind of value based care for frankly decades now, which is exactly where you started. And frustrations aside, we need to get to the point where we are actually reducing the total cost of care, which means adjustments need to be made, like you said in the case of value based care more broadly, putting feet to the fire so that we can actually get to reduced costs.

(26:30):
And so part of the experimentation are these different ways that the business model and Medicare Advantage is being squeezed. So let me just channel the plan executive for a moment because plans in at least my conversations are frankly really worried about the near term. They're getting hit in a way that they weren't necessarily counting on and that's happening this year. That's happening in 2024. So what do you say to a health plan executive that is now pushing back in saying changes in Medicare Advantage are not working for my own economics as a business leader. What's your response to that kind of pushback from health plans?

Secretary Alex Azar (27:09):
Well, I think they're valid concerns about what's happening right now that the current administration is reducing or flattening payments often in a non-transparent way. So they're not quite willing to take on cutting the rates themselves, the actual payments that they're making to Medicare Advantage plans for to ensure our seniors, what they do is they make changes to things like what we call risk adjustment. On the back end that make Medicare advantage less economically viable, and it's a very important part of what has made actually function as a good economic vehicle and it becomes a backdoor cut to Medicare, transparent on the board of an MA plan. The money is going to go, it's going to obey economic laws, like we've said. If you reduce what an MA plan is paid, then benefits are going to get reduced. And so the squeeze is going to push through the system. Providers will get paid less and beneficiaries will have reduced benefits, whether core benefits or supplemental benefits.

Rae Woods (28:10):
Or there's even the fear that it's going to show up in premiums, which is a concern for-

Secretary Alex Azar (28:13):
Yeah. Exactly could show up in premium. That's why I find the rate notice that just came out to be rather odd as a political instrument that on October 1st, seniors are going to find that they're going to have fewer supplemental benefits offered. And these can be hearing, vision, dental things that seniors really, really find an important part of what MA brings to the table. They're going to find perhaps premiums go up on the Part D part of their MA, so maybe they don't get a free drug benefit included as part of that package anymore, and providers are going to find margin compression.

(28:48):
Anything like this we have to think of almost like the way we think of tax policy and you think of the incidence of a tax, where's the tax burden fall and it's going to be market power in any individual situation, whether the MA plan eats it, whether they can push that cost to providers or does it go to beneficiaries? What's not going to happen, it's not going to be just people often who don't understand economics assume, well the MA plans will just eat the reduced payments. So I'm very worried, for instance, to our value-based providers because most of the real innovation in value-based care in America has been through our MA plans. MA plans, especially in states like Florida, Oregon have been very effective in working with providers to put them on a capitated or total cost of care value-based arrangement.

Rae Woods (29:36):
And providers now we are seeing start to push back on MA.

Secretary Alex Azar (29:40):
And what's going to happen if you are a primary care provider group and the MA plan is now getting paid less and that money just flows through to you because you have decided you own that risk. You may walk away from value base and say, "I'm going back to fee for service." So we may see a reversion of major groups, major big household name practices could flip all or parts of their business depending on different market forces to back to fee for service.

Rae Woods (30:09):
And I'll say the specific pushback that I hear from providers, and I mostly mean health systems here, I in fact in particular mean rural organizations. They say two things. First they say the reimbursement is not good, but they also are really quick to talk about the administrative burden. They say the administrative burden is too high. I'm getting denied too many claims, or it's taking too long to figure out if I'm getting a denial which goes back to your point about how healthcare is different from the way that we do everything else in the world, and it's that combination of poor reimbursement and this high administrative burden that has led us to see, I think it's a dozen or so providers say we're going to drop out of XYZ Medicare Advantage plan.

(30:54):
We started off though this conversation talking about transformation and we talked about how we need to uphold, maybe improve, but at least uphold quality and we need to reduce costs and you have talked about the various carrots and sticks to do that. So when it comes to next steps in Medicare Advantage, knowing that there are these challenges that we're hearing on the plan side and the provider side, what are the right carrots or sticks that we can use to continue to nudge Medicare Advantage so that it actually gets us to lower total cost of care?

Secretary Alex Azar (31:29):
Well, none of this gets solved by cutting Medicare Advantage rates precipitously. If you're a rural hospital facing pressure, administrative burden, denial of claims, etc, none of it gets fixed by putting even more pressure financially on the MA plan that they're going to have to try if they can to push onto the providers in their network. MA, coming upon almost its 20th year I think since implementation, always good and appropriate to look at it. There is a question for instance, MA reimbursement rates are based largely on fee for service. Well, at some point MA is dominant. We just talked about how it's the majority of beneficiaries, it's going to get bigger and bigger and bigger.

(32:13):
At some point the tail will be wagging the dog. I'm with a plan in Puerto Rico, an MA plan in Puerto Rico. Puerto Rico has such high MA penetration that it creates real distortions that constantly have to be getting fixed by CMS or Congress because you're using a fee for service population that's quite small and not representative of an MA population to then drive what the MA rates are and it just doesn't make sense and it has to get fixed constantly. That type of experience is coming to a theater near you in terms of as it gets bigger and bigger and bigger, those distortions or just how it does not working, we'll have to think about, and if I had had a second term, I actually was going to try to lead a bit of a national convening around how should we think about this?

(32:56):
What would be a new methodology of benchmarking B, for MA that fits MA as the dominant provider. I think we need to look at concepts of enrollment in MA, when seniors age into Medicare. Right now the default is fee for service. Maybe the default should be MA. Why would we prefer the one over the other? If we're saying that MA is the future and fee for service is a procedure-based pay for sickness system, why do we push seniors there?

Rae Woods (33:26):
So are you saying that the carrot would actually move to the consumer, to the patient, to the beneficiary then? Is that what you're saying?

Secretary Alex Azar (33:32):
Well, you could just create the behavioral economics presumption that you go into MA, unless you opt into A or B. I think we always need to be looking at the issues of Medigap coverage. Medigap creates such distortions from an economic matter with first dollar or close to first dollar type coverage so that you don't have incentives around self-economizing in healthcare acquisition. So these are just some of the things that we do need to always be thinking about. How do we innovate? Are we giving the MA plans enough freedom to really negotiate and work in creating value-based arrangements, outcome-based arrangements to deliver care or is too much of it still shackled by fee for service methodologies? I mean, I don't have a list of changes, but I think these are the kinds of things that as we keep developing MA, we should look at.

Rae Woods (35:22):
With your health leader hat on and perhaps also that hat that you mentioned earlier, that you're on the board of an MA plan, what would a good or at least innovative or different provider plan partnership look like? What would it look like in Medicare Advantage to help us get over some of these hurdles, some of these frustrations that again, one stakeholder has with another?

Secretary Alex Azar (35:45):
I don't know that there's a one-size-fits-all approach that yeah, it would really is as we talked about at the beginning, start with the problem before the solutions. So it'd be hard. Without looking at what the actual problem is in any MA plan provider dynamic and what that local market looks like, it'd be hard to say this is how you solve that.

Rae Woods (36:04):
There are though some consistent frustrations. Everybody hates prior auth, everyone gets frustrated with denials, but I hear you saying there are maybe some specific...

Secretary Alex Azar (36:11):
But again, a lot of that is life when you have a third party payer system. It goes back to the old 1930 story that we talked about at the outset that if you separate the purchasing of a service from the paying for that service, there needs to be some mechanism. One mechanism is self-rationing by having cost borne by yourself. So that's why we have deductibles and cost sharing and co-payments and high deductible plans, etc, as a way to incentivize shopping and self rationing basically. The other approach is to have less of that and have instead payers do the rationing and that's prior auth, formularies, et cetera. That's where we get into all of that.

Rae Woods (36:52):
But what we can do in this third party system that we have is come in and determine what's appropriate, what is not, and do that more efficiently, do it faster. That is primarily the pushback that I hear. It's not the idea that the third-party payer system would go away, but it's this deep desire to make the process and the partnership go from being something that is a pain, something that is very frustrating, to something that is much, much more efficient.

Secretary Alex Azar (37:21):
Everything in the system should steer towards reducing beneficiary and provider friction.

Rae Woods (37:28):
Yes.

Secretary Alex Azar (37:28):
We should work towards reducing unneeded administrative expense. All of that absolutely. So e-prior auths, anything that facilitates that, that makes the doctor spend less time looking at the computer screen and more time looking in the patient's eyes, the better.

Rae Woods (37:43):
Which frankly comes back to the point that I was making earlier, which is that even though everyone in healthcare, or maybe I should say most players in healthcare share this collective vision that you've laid out at the top, this idea of transformation, where it gets tricky is actually in the minutiae. So how do we make, in this case, administrative burden easier knowing that again, somebody needs to compromise, somebody needs to sacrifice. We might even need enemies to come together. And that's frankly the across the aisle model that I deal with in my world, particularly if I think about the payer and provider lens. I do want to reveal to you that there is something that makes me nervous when I think about the future of value based care, and you might guess where I'm going. Some of the things that you laid out are really positive changes. I'm thinking about price transparency, but really price transparency is a lot easier when we're just talking about list prices for procedures.

(38:49):
It gets a heck of a lot more complicated in a world where we start talking about drugs, where we define access for a patient, not as can I get a hip replacement, but it's can I get access to an Alzheimer's drug or GLP-1s or CAR-T therapy or gene therapy, some of which might be thousands of dollars for a very large population that they then have to take for an extended period of time. Some of it might be one time, it might be a one-time curative treatment, but costs millions of dollars. And I'm not sure that the value based care transformation path that we have been on is set up to work in a world where we're talking about drugs instead of procedures, and our listeners know that this is a problem that frankly, when I'm up at three o'clock in the morning, this is what I am thinking about.

(39:39):
I have admitted this, and I'll say that everyone seems to be talking about the financing timeline problem. They know that we've got to connect patients to these novel drugs. We know that it's expensive. We know that again, our system is set up in a way in which the person who bears that cost might not be the same player that bears the benefit. What I want to ask you from your unique position living in both the public sector and the private sector, is how do we actually start making steps to solve this problem and connect expensive treatment to the patients that need it without frankly breaking the economics of the healthcare system?

Secretary Alex Azar (40:21):
Our system of healthcare and healthcare financing around drugs was really largely built out of the 1960s model of drugs, of low-cost chronic meds, and very low-cost acute meds. It was not built for curative therapies, simply wasn't designed for a million-dollar therapy that will cure a nineteen-year-old of sickle cell anemia for the rest of their life.

Rae Woods (40:43):
And by the way, I always want to remind our listeners that a few years ago we were just talking about a handful of these treatments. Today there are 36, and we are actually not far away from there being 50, 100, 150 of these multimillion-dollar but curative treatments.

Secretary Alex Azar (40:59):
Right. So thanks to the incredible innovation of the pharmaceutical industry in America, combined with a lot of financial support from NIH and the government, but we now have the ability to literally cure or make livable some diseases like sickle cell anemia, like cystic fibrosis that are literally life-altering and life-changing. But here's the problem. It's again, going back to the 1930s. We have a payer system that separates the paying from the purchasing. We also have a system where you rotate constantly among health plans. And so you're 19 years old and a healthcare plan pays a million dollars, cures you of your sickle cell anemia, and six months later you switch plans to a different employer or a different health plan. And that employer says, "Well, thank you very much my colleagues at the other health plan for that million dollar investment that you just made in this fine individual." Or as often happens, the real cost is that would be borne by the disease, would actually be borne by Medicare and yet you're asking perhaps commercial plans earlier in life to cure that disease state.

Rae Woods (42:15):
Because you're saying that the initial disease wouldn't get to the point where it's really expensive, really complicated, requires a lot of care until much later in life, until you're in Medicare.

Secretary Alex Azar (42:24):
Exactly. So that happens also. So we have really economic disconnection in time. Now, there are ways to solve that. We just haven't started thinking about that. That was another area that had I remained secretary for a second term I wanted to lead, and I think we still need to have a convening to get really solid economic thinking around how do you deal with this issue because it must get dealt with.

Rae Woods (42:50):
Can I say your confidence actually surprises me and I'll tell you why it does because frankly, I'm in rooms with folks where sometimes I feel like I'm the first person to tell them about this problem. Or, if I'm not the first I'm kind of hearing a yeah, we know this is coming, but we don't really have a lot of plans.

Secretary Alex Azar (43:10):
No, well, they don't. That's why I'm saying I think we have to have a very serious national discussion about this issue to get the best ideas on the table. It is an economic problem. Economic problems are solvable. Putting our head in the sand and hoping it'll go away doesn't change that.

Rae Woods (43:25):
Yeah, absolutely cannot do that.

Secretary Alex Azar (43:26):
Nor do I think strangling this innovation, right as we're on the cusp of changing so many lives and having so many disease states be fundamentally altered because of the fruition of our understanding, the molecular and genetic nature of disease, and of end of the targets that we have, and of our therapies, this is not the time to kill the innovation through overreaction on the other side. So how do we think about this? One approach is to say that this movement among health plans sorts itself out over time, that you just in the randomness of beneficiary selection. I'll pay for a sickle cell patient's million dollar cure, you'll pay for a patient's cystic fibrosis cure.

(44:09):
It comes out in the wash as patients move around. And so we have higher cost in the healthcare system for therapies, but we all end up getting the benefit and the aggregate from the lower cost of treatment over the course of that person's lifetime. So sort of an aggregated cost-benefit analysis. There are other approaches. We have superb mechanisms for reinsurance and risk adjustment that we use in Medicare Part D and in Medicare Advantage to think about how might you allocate the risk of these therapies among plans. Again, start with the problem, diagnose the problem. The problem is we have largely an employer-sponsored system such that when you move from employer to employer, you change plans.

Rae Woods (44:53):
Or the employer might change plans.

Secretary Alex Azar (44:53):
Or the employer changes plans. Exactly. They shop for a different one. Well, there are ways you can reconceive a lot of that. First, you could think about approaches where individuals who end up needing a very high-cost curative therapy move into a different insurance vehicle that essentially create a high-risk, high-cost insurance pool where you cleave them out of that system, pay for those individuals in that therapy in a different way and somewhat collectivize that cost as well as collectivizing the benefit of those individuals. Sort of a co-op model you could think about. That's one economic approach you could take to it. The other is something that people have, nobody noticed what we did on this, which is the health reimbursement arrangement regulation that we created out of HHS labor and Treasury that allows employers to create an HRA, fund that with their money as well as employee contributions and that employee to take that to the individual Affordable Care Act market on the exchanges and buy insurance.

(45:50):
So this HRA mechanism could be a way for employers to actually fund individuals going into plans and those plans to be portable because they're in the exchange. One of the things that economists who have done thinking about this talk about is if you could create more of a lifelong individual plan that stays with someone, you solve so much of this, the time discontinuity problem that was really at the center of the problem we're dealing with here. Those are just ideas. None of those are me saying they're solutions. Really smart micro economists and those who run these businesses and policymakers should be putting these out talking about these different approaches because there is a solution. It's just an economic problem. There's a way to deal with this.

Rae Woods (46:37):
And by the way, something that I often talk about is the fact that the next era of experimentation has to be on the financing timeline problem. Because look, even as we come up with ideas, some of the ideas that you mentioned, there are still some winners and there are some losers, there are some gaps, there are challenges that we will need to overcome. Maybe we need 50 more models like we talked about when we talked about the initial fifty-ish models that were tested through CMMI so that we can figure out how to solve this financing timeline problem when it comes to these novel drugs. Have you seen anything like this in the near term that makes you optimistic to say this is not just something that is possible, but this is actually something that's starting to take place?

Secretary Alex Azar (47:23):
I haven't seen it on the payment form side of things. And I want to emphasize something which is I believe that as we look at these high-cost curative therapies, we should start with a couple fundamental assumptions, postulates. First, the patient should get access. Second, we need to respect innovation, the cost of innovation and the need to reward innovation, okay. Then we work to figure out the financing of it. Too often we start with assumptions around denying access or assumptions around denying reward for innovation, incentives for future innovation. What makes me optimistic is yes, there are issues with PBMs, there are issues with a non-transparent rebate system, all of the things that as secretary I talked a great deal about, but we still do see competition among drugs.

(48:14):
So you may not see it in terms of competition on list price. I tried to fix that, but you see it in competition on net price. So we saw that with PCSK9s, the injectable therapies for familial high cholesterol and these drugs launched, they were very expensive and within I think a month or two of their launch, they were being discounted over 50% through the PBM system. Sovaldi, when that launched, remember it was going to bankrupt the system, the cure for Hep C. Well, within I think it was six to nine months, there was a competitor came out of the market and the plans negotiated them down and you were again looking at over 50% gross to net reduction on them.

(48:55):
This is what we always forget. We get the first sickle cell anemia therapy, curative therapy, and we say, oh, it's a million dollars and it's going to be forever. And well, the great thing about our competitive, innovative biopharmaceutical industry is we see concurrent innovation and so soon there'll be a second sickle cell therapy. And yes, it might have a list price of a million dollars also, but then they'll compete as the payers do reimbursement for which therapy will be chosen. And you might see those reduced by 50%, by 70 by 80%.

Rae Woods (49:28):
And by the way, you will be glad to hear that that is something that we're actually researching right now. It's something that we're really interested in is how, for example, competition will change some of what we're seeing, especially in the cell and gene therapy space. But I wonder, does your answer to any of this change when we talk about other kinds of drugs. I'm thinking about the GLP-1s, which frankly is still, gosh, it's the biggest conversation that I'm having with folks, particularly employers who are saying, "I just cannot afford this regardless of how much folks want it." Does your answer change when we talk about not million dollar drugs but drugs in the thousands of dollars that aren't curative, but for a longer period of time and for a larger population?

Secretary Alex Azar (50:12):
That's where I think there are fundamental misunderstandings around how the drug pricing system works, drug reimbursement system and the drug channel functions. So many people who engage in the debate around drug pricing use a certain term in a mistaken way. They think that because you have a patent on a drug that you have a monopoly. That is not the case. That's just bad, that's just unlearned economics. A patent is a legal right to exclude somebody else from practicing that innovation during that time period. Whether you have monopoly power or literally no market power whatsoever, depends on whether there are substitutes for that product. So you mentioned the GLP-1s.

(50:59):
I mean, you actually couldn't imagine a more competitive market than that right now with the existing market players. And we're on the cusp of oral GLP-1s and others that are coming. And so I don't know what the rebate reductions are behind the scenes. I can guess, but I think they're pretty significant actually already. When you have head-to-head competitors with products that are pretty similar, the PBMs are going to negotiate quite significant discounts and rebates and then the issue is do those get passed on to the employers paying the net price at the end of the day, and do we see the benefits? Do we see the economic benefits of whether it's better diabetes control or better obesity control over the long run? But so I guess I have more optimism than you do.

Rae Woods (51:47):
Which by the way, I don't think that takes much. I'm not going to lie. Our listeners know that I tend to be a pessimistic person.

Secretary Alex Azar (51:55):
I have incredible faith in the absolute unbridled power of competition in our biopharmaceutical industry, and that this notion of concurrent innovation leads us to very, very rare instances where somebody sits for a long period of time in a dominant position. And so I've always said one of the biggest parts of our healthcare system that functions the way we think efficient markets function, the supply and demand curves crossing at the efficient point is actually the Part D drug benefit outside the six protected classes. You have gigantic market players, the PBMs with huge concentrations of lives against powerful drug companies negotiating and getting to market-based net discount.

Rae Woods (52:49):
And let's just be clear, I don't think there is any world in which drug pricing is not going to be a continued part of the conversation. It's going to be certainly a continued part of the conversation in politics, but it's also going to be a continued part of the conversation in healthcare business, which actually gets me back to where we started. We started this conversation talking about the idea of transformation, talking about the idea that there is an end state that we need to get to that is different from today. I want you to think back to that vision of transformation. On this podcast we really like to give practical guidance. I know that there are business leaders who are listening to this very episode who want your advice. So my question for you is what advice do you have for health leaders to help them advance towards this vision of the future that you've laid out?

Secretary Alex Azar (53:42):
Whenever I was leading Operation Warp Speed in the early days, we said our goal was to have FDA authorized vaccine by the end of the year and enough vaccine for every American by the beginning of the following year. And people would sort of be cynical about that, and I would say, "Well, you fail to achieve a hundred percent of the goals that you do not set." And then somebody, I'm not a sports guy.

Rae Woods (54:09):
Yeah, I was going to say, I don't think that's you.

Secretary Alex Azar (54:12):
Someone that was like, yeah, Wayne Gretzky says, "Yeah, you miss a hundred percent of the shots you don't take." I now always, I'm sure to credit.

Rae Woods (54:18):
I wasn't going to call you out on it, but I appreciate that you called yourself out in this.

Secretary Alex Azar (54:21):
I'm very careful to credit the great Wayne Gretzky on that now. But I think for business leaders, as we talk about value-based transformation of healthcare, it's the same thing. You fail to achieve a hundred percent of the goals that you don't set. And if you keep playing the old game, if you keep thinking that optimizing and excelling in a fee for service, paying for sickness model and delivering care against sickness only, that that is the way of the future, you will eventually lose the providers, the payers, the market players, the pharmaceutical companies that figure out the new market dynamics that are coming.

(55:00):
May not be tomorrow, but of value based care, of transparent price and quality, of coordinated care, of interoperable health, IT, and of paying for total cost of care with aligned incentives with patients actually shopping and able to work in a world of lower price and higher quality. If you can redesign your business model to win in that future state, then you are leading. And that's my advice to you is lead that way. Don't live in the world of just trying to optimize in the old model because the old model will not be here. It might be 10 years from now, maybe it's 20 years from now, but it won't be here and your entity will be yet another dead dinosaur, another Wayne Gretzky skate to where the puck is going. One of the great philosophers.

Rae Woods (55:53):
This is going to become a sports podcast in about 30 seconds, and I love it. I love it. Well, Secretary Azar, thank you so much for coming on Radio Advisory. Thank you for being candid with us and for frankly spending so much time with us.

Secretary Alex Azar (56:06):
Great. Good to be with you and your listeners. Thank you.

Rae Woods (56:13):
Look, we covered a lot in this episode and I want to actually come back to a small moment that I said you may have missed it. Of course, given Secretary Azar's position in healthcare, he talked about bipartisanship, he talked about reaching across the aisle. For us, and for you our listeners, that might mean something very different. It might mean working with different stakeholders in healthcare. It might be working with your competitors, your frenemies, but what I am confident that we can all agree on is that kind of partnership has to happen in order for us to get to a different vision of the future. And remember, as always, we're here to help.

(57:16):
If you like Radio Advisory, please share it with your networks, subscribe wherever you get your podcast and leave a rating and a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Rae Woods, as well as Abby Burns, Kristin Myers and Atticus Raasch. The episode was edited by Katy Anderson with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Carson Sisk, Leanne Elston, and Erin Collins. We'll see you next week.