Alex Azar's Promising Agenda for HHS

Alex Azar's Promising Agenda for HHS

In a speech to hospital executives earlier this week, new Health and Human Services Secretary Alex Azar outlined his agenda for improving the value of health services provided to patients. He clearly understands that the number one problem in U.S. health care is the prevalence of wasteful spending on services that drive up costs without improving the health of patients. 

The many previous efforts aimed at tackling this immense and complex problem have barely put a dent in it. Azar made it evident that, from his perspective, the solution is a market-driven system with informed and active consumers making cost-effective decisions about their own care. He was also appropriately ambitious as he begins his tenure, putting everyone on notice — including those with vested interests in the status quo, as well as his own HHS employees — that big changes are coming, one way or another.

Azar inherits the agenda for delivery-system reform advanced by the Obama administration, much of which was set in motion by the Affordable Care Act (ACA) in 2010. That agenda is a mixed bag, with some initiatives worth keeping (with tweaks) and others that should be reconsidered entirely. Azar was not overly critical of these previous efforts; he just noted that progress has been minimal and slow. 

Proponents of the ACA sometimes claim that the law ushered in an era of permanently slower cost growth. There’s no evidence for that, however. Overall national health expenditures continued to rise after the ACA was enacted in 2010 at the same pace, in real terms, as they did prior to 2010.

But Obama administration officials did get one big thing right regarding rising costs. They understood that Medicare is central to the problem — and to the solution. Medicare is the largest fee-for-service insurance plan in the country; its payment regulations heavily influence how hospitals and physician groups organize themselves to care for patients. Oftentimes, Medicare’s incentives are counterproductive and drive up costs. Altering these incentives is essential to improving the value of services delivered to patients. 

Azar acknowledged the centrality of Medicare to his agenda. Like the Obama administration, he plans to use Medicare’s heavy influence to bring about system-wide changes. The ACA endows the HHS secretary with broad authority to experiment with new approaches to paying for services under the program. 

The signature reform of the Obama era was the introduction of Accountable Care Organizations (ACOs) into Medicare. ACOs are provider-led managed care networks. Hospitals and physician groups form them and agree to be held accountable for the quality and costs of care provided to the beneficiaries who are assigned to them. As Azar noted in his remarks, ACO results — measured as cost savings to the Medicare program — have been underwhelming to date. In 2016, ACOs increased overall Medicare costs by $39 million.

Azar’s speech was especially noteworthy because of the shift in emphasis it represents. The Obama administration’s approach to improving value in health care had a decidedly governmental focus. In a broad sense, the administration wanted to use the federal government regulatory powers to take the lead in reengineering the provision of health-care services. It was a top-down approach. For instance, the federal government imposed a complex set of rules on what Medicare ACOs must do to be allowed to participate in the program.

By contrast, there is no role of consequence for consumers in the Medicare ACO initiative. Beneficiaries do not choose to enroll in ACOs, but are assigned to them based on their claims records. Beneficiaries who have primary physicians participating in ACOs are assigned to those ACOs. There is no role for consumer choice in this model, and none of the potential savings from lower costs go to the Medicare beneficiaries.

Azar’s vision is different. Although, in a general sense he plans to continue with the value-based agenda he inherited, he will be modifying it substantially to put consumers — not the government — in charge of the transformation. 

More specifically, he plans to pursue aggressive changes in four areas:

1. Health Information Technology. Azar has correctly diagnosed the problem holding back the use of disruptive technology in health care: lack of consumer control. Health data remains locked up in provider-driven systems, which is the cause of much dysfunction and needless expense. Consumers have theoretical but not practical access to this data. The problem is complex, but the key to unleashing the power of better technology is to get the patient data out of the hospitals and physician offices and into the hands (or smartphones) of patients. From there, the private sector will build the tools to make better use of it and to disrupt the status quo.

2. Price Transparency. It is not possible to have a market-driven system without transparent pricing. Opaqueness is a market failure because consumers cannot compare their options without price and quality information. The lack of clear pricing in today’s system is the result of many different factors, including the dominance of third-party payments for services. Nonetheless, Azar plans to address the problem aggressively because little progress will be made until it is possible to make valid comparisons between competing options.

3. Medicare and Medicaid Experimental Reforms. The ACA gives HHS wide authority to test new approaches to paying for care in Medicare and Medicaid. Azar signaled that he is eager to use this authority to move the administration’s agenda forward. Among other things, he could change how Medicare ACOs work, e.g., by giving the beneficiaries the opportunity to enroll in them. He could also test new payment models that would actually pass some of the savings from the use of low cost providers on to the beneficiaries who use them. With respect to Medicaid, the administration is already moving forward with an aggressive agenda of state flexibility. Azar is sure to push that agenda even further and to encourage states to move toward market-driven approaches as well.

4. Removing Barriers. Azar promised to examine federal rules and requirements, and to remove those that are inhibiting creative solutions in the private sector. Often, private providers lament rules that bar federal payments for services they want to offer. Azar can make progress on deregulation by proposing to give consumers more control over their entitlement resources — for instance, by depositing some of their Medicare benefit funds into individual Health Savings Accounts and by offering suppliers freedom to bundle services in ways currently precluded by Medicare requirements. Among other things, this would allow physicians to charge a modest monthly fee for offering patients phone and email access, something not covered by Medicare today.

Azar laid down an important marker with his speech. He is serious about using the considerable powers of his office to bring more market discipline to the provision of health services. Now comes the hard part. He and his team must develop and implement reforms that will make a difference in ways that previous efforts did not. 

James C. Capretta is a RealClearPolicy Contributor and holds the Milton Friedman chair at the American Enterprise Institute.

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