Remarks by Administrator Seema Verma at the HLTH Conference
(As prepared for delivery - October 27, 2019)
Introduction
Thank you for having me. It’s an honor to be here at the HLTH conference standing between you and the slot machines.
So we all know the public is growing more and more frustrated with the high costs of healthcare and hassles in the system, many are talking about drastically expanding government to fix our problems. As head of the major government healthcare programs, I’ve made my practical reservations on that front clear. But, as the public begs for solutions around affordability and accessibility, I think the conversation should return to a more fundamental question of principle: what is the role of government in healthcare?
As I prepared to answer that question during this speech, I was reminded of something Ronald Reagan once said: “Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth.”
I can echo those sentiments about the programs I lead and for good reason. CMS provides indispensable benefits to vulnerable Americans. But to the spirit of President Reagan’s point, we cannot allow government’s role in healthcare to go unquestioned and undefined.
There are two paths facing this nation, each of which represents an answer to the question I posed before. The first is that government’s role in the healthcare system should be expanded dramatically – that it should be virtually absolute, omnipotent and unlimited.
That conviction animates proposals like Medicare for All, that would strip away private plans from 180 million Americans, increase taxes and hand the reins to government bureaucrats to fix all our problems. And the supposedly moderate public option is just a stepping stone on the way to the same destination.
Today, I’d like to sketch out the second path, one that works far better because it recognizes government’s limitations. Because it recognizes the need for humility.
As I discuss this issue today, I want to leave you with that word: humility. Its absence from government policy-making is responsible for many of our biggest challenges; its continued neglect will lead us to pour even more gasoline on the fire. We must disabuse ourselves of the idea that Washington D.C. has the answers to every problem besetting healthcare in America. The opposite is often the case.
The complete takeover of America’s healthcare system envisioned by advocates of Medicare for All is the polar opposite of humility. It is marked by an unwarranted confidence in government central planners to substitute for the millions of free and informed choices of individuals and their doctors… to substitute for private sector innovation and the power of free markets.
Failures of Government
Most Americans are intuitively wary of government because we’ve all seen its massive missteps.
Take Obamacare. It imposed an extensive set of one-size-fits-all, top-down requirements on the healthcare system. We were told it would lower insurance premiums. The opposite happened. Premiums doubled between 2013 and 2017, the last year the previous administration oversaw the program. Insurers were fleeing the Exchanges. Our administration has done much to stabilize the market, but the system remains unsustainable. While millions of Americans might have gained coverage with Obamacare’s generous subsidies, the overall approach is creating a new class of uninsured and underinsured that doesn’t qualify for subsidies and can’t afford the ACA’s expensive premiums and deductibles.
And then there’s the chaos that Medicare’s price setting has created across the entire system. This situation is increasingly bleeding rural areas dry. Historically, Medicare has paid hospitals in part based on their labor costs. The result is that hospitals in low-wage areas – which are more likely to be rural – receive significantly less from Medicare for the same services than hospitals in high-wage areas – which are more likely to be urban. This led to a self-perpetuating cycle that made it harder for rural hospitals to attract and maintain the workforce that takes care of patients. As a result, more than 100 hospitals have closed since 2010 and studies suggest that up to 40 percent of rural hospitals face negative operating margins. Again, we see top-down government controls destabilizing a key part of our healthcare system.
Here’s one more example: Under the government's current system, the total amount that Medicare pays physicians is fixed. So every time Medicare pays for an additional procedure, the amount paid for common office visits actually decreases. But the importance and complexity of primary care–along with the demands on physicians during office visits—have actually increased. This misallocation of resources has led to primary care shortages across the nation and incentives to perform more procedures.
Then there’s the broader question of the financial sustainability of our programs, which have swelled considerably. My budget at CMS is 1 trillion dollars, almost a third of the federal budget and more than the Department of Defense. And it’s expected to grow even more. We are adding 10,000 new beneficiaries every day and the Medicare’s Trust Fund is projected to be insolvent by 2026. Medicaid has become the first or second biggest budget item for most states, crowding out other priorities such as roads and education. Medicaid is the largest payer of long-term care. Imagine how the aging baby boomer population will exacerbate these problems. Between 2014 and 2050 Medicaid spending on those needing long-term care is expected to balloon from 68 billion dollars to 401 billion dollars. We can't afford to meet our current obligations as it is. You don’t have to be a mathematician to realize that Medicare for All and a public option would only accelerate our financial challenges.
I could go on, but I’ll spare you. What these examples show is that the government has already stepped well beyond its proper role and is contributing to an unsustainable system. The law of unintended consequences is on full display and the lack of humility is obvious.
Our Vision
There is a better vision, one that takes care of those who need help, puts patients in charge of their care, ensures sustainability and fosters a flourishing healthcare marketplace where all Americans have access to high quality care.
With our shared experience of government’s missteps in mind, I’d like to discuss the contours of a healthcare system that recognizes an appropriate, limited, and, when necessary, robust role for government. That vision contains three key elements:
Providing a safety net for the most vulnerable;
Ensuring the sustainability of government programs for future generations; and
Setting fair ground rules for a flourishing and competitive healthcare market, while putting patients first.
Safety Net
At the outset, government’s first responsibility is to provide a safety net to protect our most vulnerable citizens. This role is indispensable and non-negotiable.
At the dedication of the building where I work every day, former Vice President Hubert Humphrey said, “The moral test of government is how that government treats those who are in the dawn of life, the children; those who are in the twilight of life, the elderly; those who are in the shadows of life, the sick, the needy and the handicapped.” His words are not just beautiful; they are true.
The safety net must be robust enough to support people with nowhere else to turn, who cannot care for themselves, or cannot afford to. At the same time it must avoid the pitfall of creating incentives that encourage government dependency and limit future opportunities. As government programs make insurance more unaffordable and unattainable for people who don’t qualify for subsidies, they create a powerful disincentive to upward mobility. That’s why it is so important that we support state innovation designed to help lift people from poverty rather than trap them there.
We must also ensure that government doesn’t create a two-tiered system – one for the poor and vulnerable, and another for everyone else. Like anyone with private coverage, those served by the safety net should retain control over their healthcare decisions.
Few question the need for a safety net. What is more controversial is the safety net’s scope, structure, and the burden it should place on taxpayers – which brings me to the critical question of sustainability.
Sustainability
Public programs must be designed to be sustainable over the long-term. If you accept government’s role in supporting the vulnerable, you must also accept the need to do so in a way that minimizes spillover effects for everyone else. That means limiting disruptions and distortions to other parts of the healthcare system, and controlling costs for taxpayers.
Everyone agrees that Medicare and Medicaid are vital. But we do a real disservice to the people they serve if we decline to examine – and work to reform – the perverse cost incentives built into them. The very design of the Medicare and Medicaid programs encourages excessive spending. Medicare's fee-for-service system rewards the volume of care provided. It also pays more for many services performed in a hospital than in an outpatient setting. We get what we pay for: increasing utilization and a market tilted towards expensive, procedure prone, hospital-based system of care; and we don’t get what we don’t pay for: quality.
And then there’s Medicaid, which has a matched, open-ended financing structure in which states draw down more federal funding if they spend more on the program. This creates a clear incentive to spend more on healthcare. And spend more we have… the program has grown from 10 percent of state budgets in 1985 to 30 percent of state budgets today.
Structural reform is urgently needed. Our country can’t afford the programs we have today, and the system is leaving far too many Americans without access to affordable coverage. I believe we can and we must put the programs on a more stable footing. But the solution is not rationing care, and it’s certainly not more government control, or taxes.
Rather, we must realign the payment paradigm in government programs to create incentives that deliver the outcomes we want: prevention of disease, higher quality of life, and lower cost. That’s why we have continued bipartisan efforts to realign incentives to develop over a dozen new innovative payment models that allow reimbursement to be tied to value, rather than merely volume of services.
Reams of prescriptive government regulations that dictate processes for the health system have failed. We must initiate a new era of humility on the part of government. Regulations should identify expected outcomes, results, and standards – not micro-manage everything the industry does. That’s the idea behind the Trump Administration’s Patients over Paperwork initiative, which, by cutting decades’ worth of needless, duplicative rules, will save providers 6.6 billion dollars and 42 million burden hours through 2021.
Patients over Paperwork has proposed the first updates to regulations under the Stark Law in 30 years, to modernize them for a new era of value-based care. And for the first time in 20 years, we have proposed an overhaul of how physicians bill Medicare to reduce the burden of documentation so they can spend more time with their patients and less time on government requirements.
And, we will soon outline new opportunities for states to flip the Medicaid paradigm and free themselves from federal micromanagement by delivering value through cost management and improved health outcomes. Naturally, with flexibility will come accountability. State innovation must produce results.
We are focused on creating incentives for entities that innovate to deliver value, quality, and better outcomes. It is an important blueprint for any sustainable and effective healthcare system. Just as vital for that purpose is a competitive market throughout the system.
Fostering the Conditions for a Competitive Market
America’s healthcare cost crisis won’t be solved by more government control, more government subsidies, or more spending. Our vision features the most tried and true method of bringing down costs while improving quality – the free market and the power of competition. We’ve been ignoring competition for years, and it’s well past time we unleash its potential.
Government regulation should be limited to serving as a neutral entity that spurs fair competition and ensures patients are considered before special interests. The ideal system is one in which government puts hospitals, physicians, and insurers on an equal playing field and allows them to compete for patients on the basis of cost, quality and quality of life. And in turn, private industry must adhere to those rules – or be held accountable if they don’t.
Just as we don’t let referees play in the game they oversee, government should not be permitted to actively compete against the market it regulates. With a bottomless pocketbook, it would be a competitor that couldn’t lose. And that’s what makes the public option so insidious. Cleverly framed as the preservation of a free market, it would in fact devastate it. Funded by American taxpayers rather than by profits, a public option has no incentive to control costs or improve quality. Instead of using innovative techniques to lower cost, it would use government rate setting to lower provider reimbursement, shifting costs to their private competitors. It wouldn’t preserve the market – it would rig it.
Instead, after establishing the rules of the road – setting minimum standards – and financing care for the least fortunate among us, government should get out of the way. Rather than picking winners and losers based on the preferences of bureaucrats in DC, government should allow winners to emerge organically from the competitive sandbox it has created.
So the Trump Administration is fostering the conditions for a free market by correcting the perverse incentives caused by government price setting. But there’s a lot of work to be done. It will take time to untangle the mess of decades’ worth of misaligned incentives. We are reversing policies that spur consolidation and create monopolies that decrease competition and choices for patients. In order to lower costs, we’re leveling the playing field across different care settings and increasing the choices on where a beneficiary can get care – a hospital, ambulatory surgery center or doctor’s office. Ultimately, it should be the patient and their doctor, not the government, deciding where to get care.
And our free-market policies to increase competition are delivering results. Two pieces of evidence from this Administration should suffice.
Our market-based regulatory reforms drove down costs on the Obamacare exchanges. We recently announced that after offering states more flexibility to innovate on their own and allowing consumers greater flexibility in their plan choices, the average premium for benchmark silver plans will decrease by 4 percent in states using the federal exchange platform. In some cases, the decline is substantially higher. That moving in the direction of a free market has had such an impact on the Obamacare exchanges – a big-government specialty – should tell us something.
Similar measures in Medicare Advantage and Part D have allowed plans to offer 1,500 more options to beneficiaries than they did three years ago and more tools to control costs. The resulting competition has led to better benefits at lower prices: Medicare Advantage premiums are at their lowest level in 13 years, and Part D premiums are at their lowest in 7 years.
Before closing, I want to touch on one more critical point. A market is predicated on freedom – for providers and consumers alike. But that freedom is meaningless if patients are not empowered to be consumers, to seek high value providers that deliver better quality at a lower cost. Patients must have price and quality information readily available to them. They must be able to control and have access to their electronic medical data, so that it can travel with them as they move through the system. A healthcare market is no market at all if patients don’t know what they’re getting in their care or the hit they will take to their pocket books.
These reforms are disruptive to the status quo… because the status quo isn’t responsive to the needs and demands of the American people. Unfortunately, some in the industry are fighting these efforts tooth and nail. These are often the same bad actors whose actions are adding fuel to the fire of Medicare for All and the collapse of faith in a free market: hospitals that send patients surprise bills and then take them to court when they can’t pay; insurance companies that blockade innovative therapies behind layer upon layer of prior authorization and contribute to physician burnout and higher administrative costs; and providers that fraudulently bill the program and cling desperately to a fee for service world. These actions lack humility… they spur support for the complete annihilation of the private healthcare system.
Our patient-focused approach may not always be popular with industry, but we know it’s the right thing to do. Now, perhaps, my entrance music today: Tom Petty’s “Won’t Back Down” – makes some more sense. As long as I’m in this job, when it comes to doing what’s best for patients and the American people, CMS will never back down.
Conclusion
And we won’t back down on the limited role of government in healthcare. We won’t back down on a system marked by humility, in which government sticks to what only it can do and what it does best. Washington D.C. needs a heavy dose of such humility.
Medicare for All and a public option are the very opposite; they are the embodiment of hubris: Washington always knows best.
On one level, these proposals are new and radical. But they are born of an attitude that is all too familiar. For decades, lawmakers and regulators have dreamed that they could run the healthcare system better than the people who compose it – the providers, the patients, the insurers. They have micro-managed, intruded, over-promised – and ultimately, they have wildly under-delivered. Their easy self-confidence was and remains misplaced.
We must re-orient our view of government’s role. The administrative state must approach its responsibilities with humility, recognizing that its tremendous power is difficult to control; that the best of intentions often creates unforeseen consequences; that for all its policy levers, patients and providers – not the government – should be in the driver’s seat, making decisions about value.
And in return, private players in the healthcare system have an obligation to respond with innovation and a new determination to provide American consumers with a healthcare system that costs less and works better. So today, I urge you to seize the moment and show that the free market can accomplish what it always has in the past: higher quality and lower costs for all Americans.
And as your humble public servant, I hope that lady luck is on your side tonight. Thank you.
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