• Text Resize A A A
  • Print Print
  • Share Share on facebook Share on twitter Share

Remarks on State Healthcare Innovation

Alex M. Azar II
American Legislative Exchange Council
August 9, 2018
New Orleans, Louisiana

From administering Medicaid programs to providing mental health services, retiree healthcare, and public health programs, states have a major role to play in running America’s healthcare system. But we don’t just want you administering our system as it stands today. This administration believes states should play a vital role in driving American healthcare forward.

As Prepared for Delivery

Thank you, Representative [Alan] Clemmons, for that kind introduction.

Good afternoon, everyone, and thank you for having me. It is great to be here at such an impressive gathering of leaders. I’ve had the honor of addressing ALEC meetings several times before, and this organization stands out for the important work it does to develop free-market solutions in states across America. 

As Representative Clemmons mentioned, the department I have the honor of overseeing in Washington, HHS, is immense: a $1.2 trillion budget, more than 300 individual programs.

That’s pretty big, but when it comes to healthcare and human services, we’re far from the only game in town.

In fact, while the federal government supplies 28 percent of America’s healthcare spending, state and local governments account for another 17 percent of it—more than half a trillion dollars.

From administering Medicaid programs to providing mental health services, retiree healthcare, and public health programs, states have a major role to play in running America’s healthcare system.

But we don’t just want you administering our system as it stands today. This administration believes states should play a vital role in driving American healthcare forward.

In fact, it will be hard to imagine how we can have the level of innovation we need to advance American healthcare without strong visions from leaders like all of you in this room.

That’s why it’s so appropriate to be joining you at this session, specifically concerned with state policy innovation.

Believing in state innovation isn’t just an airy principle. Time and again, when given the room to innovate, states have shown that they can make progress on many of the serious challenges we set out to address each day at HHS.

In the 1980s and 1990s, for instance, as some of you will remember, Medicaid spending seemed to be rising inexorably—6, 8, 10 percent a year.

All of you see how state revenue changes year over year, and while you might be seeing some healthy revenue growth in the Trump economy, 8 or 10 percent spending increases simply can’t be sustained.

So it was states that took the lead on the solution: introducing competition and choice to Medicaid through managed care.

Spending growth slowed dramatically, while Medicaid enrollees benefited from choosing plans that met their needs.

We at HHS know these results well: Our administrator of the Centers for Medicare & Medicaid Services, Seema Verma, worked with states to implement managed care programs.

She is now overseeing the next great generation of transformation in Medicaid, through our efforts to encourage work and other forms of community engagement.

That’s far from the only state-level success that we know at HHS: My first boss at the department, Secretary Tommy Thompson, laid the groundwork for the 1996 welfare reform through the successes he had at the state level in Wisconsin.

Today, we still look back to those reforms as a guiding light for this administration’s efforts in the human services programs we run.

Most recently, states have taken the lead on responding to our country’s opioid crisis.

Whether forging partnerships between law enforcement and public health authorities, reforming prescribing guidelines, or establishing prescription drug monitoring programs, states have been on the front lines of this battle, formulating smart policy to fight back.

So today, I want to touch on some ways that this administration believes we can work with states to improve American healthcare, and particular places where states can take the lead.

I’ve already mentioned one of the four top priorities that I’ve laid out for HHS, the opioid crisis.

Today, I now want to focus on the remaining three: reforming the individual market for health insurance, bringing down the high price of prescription drugs, and transforming our healthcare system into one that delivers better value to American patients.

In each of these areas, one of our first steps is to see how we at HHS can get out of the way: how we might be inhibiting innovation by state governments and private actors.

Always, our policies will be guided by the insight that markets, competition and empowered consumers are the best ways to secure better healthcare at a lower cost.

I’ll begin with the individual market for health insurance, where Americans without access to employer coverage buy coverage, and the market where Obamacare has done the most damage.

Here in Louisiana, premiums for those who buy their own insurance rose 123 percent in just the first four years after the law’s main regulations took effect. Nationally, rates doubled.

It is little surprise that Americans in this market who don’t have access to Obamacare’s generous subsidies are now opting out of the system.

From 2016 to 2017, in just one year, HHS data shows that the number of unsubsidized enrollees in Obamacare dropped 20 percent. An independent analysis found that the whole individual insurance market shrunk another 12 percent from 2017 to 2018. On top of this, for all the government intervention and expense involved in Obamacare, 28 million Americans remain uninsured.

Obamacare is a broken law in part because it snatched away the traditional power states had to regulate their insurance markets. We could have learned from the experience of states that overregulated insurance in recent decades, imposing rules that, in some places, meant 20-year-olds had to be charged the same for insurance as 60-year-olds.

But Obamacare imposed strict new federal regulations across the country anyway, and we ended up with the unaffordable insurance market we have today.

We are eager to work with states to undo the damage done by Obamacare.

As one example, this administration has acted swiftly to support state reinsurance programs, which can help hold down premiums despite Obamacare’s inherent instability.

We look forward to offering states all the flexibility possible under the law to craft solutions that promote affordability, fiscal sustainability, private coverage, and consumer choice.

As one example, we recently finalized new regulations for short-term, limited-duration insurance plans that are free from most Obamacare regulations and, therefore, as much as 50 to 80 percent cheaper than Obamacare plans.

These plans aren’t new: The previous administration allowed them to last up to 12 months, before shortening the terms to just three months in an attempt to close off options and push more Americans into Obamacare.

Under our new federal rules, to make these plans even more consumer-friendly, insurers can now offer affordable plans that are renewable for up to 36 months.

While these plans aren’t for everyone, we believe they can be an important option for many: people who have been priced out of Obamacare plans, who are between other sources of coverage, or who are independent contractors in today’s gig economy.

However, as many of you know, these plans are also subject to state insurance regulation. This affordable option will only be as available as state legislators and insurance commissioners allow it to be.

Today, a number of states place restrictions on these plans that can limit their usefulness, like limiting the initial contract period to around six months, rather than up to a year.

We believe sensible state regulation of these plans is important. But millions of Americans are in need of affordable insurance options, and states can help build this market outside of Obamacare’s broken regulations.

These short-term plans also became a lot more appealing when President Trump signed legislation to remove the individual mandate penalty starting in 2019. Americans who purchase short-term plans will no longer have to pay a tax for choosing a more affordable choice that meets their needs.

Earlier this year, the Department of Labor also announced new rules for another affordable insurance option, association health plans, which can cover small businesses and self-employed Americans.

Completely undoing the damage of Obamacare will require Congress to repeal and replace the law itself.

But until that happens, this administration remains committed to repealing and replacing the ideology that underlies it: undoing the unnecessary restrictions on consumer choice, and replacing them with free-market solutions that really work.

Another place where too many Americans face unaffordable prices for healthcare is in our prescription drug markets.

As President Trump has repeatedly made clear, American drug prices are too high. Since rolling out our American Patients First blueprint in May, HHS has already begun taking aggressive action to reform our country’s drug pricing system.

High drug prices burden the personal finances of the people you serve, and they can also have a significant impact on state government budgets and the taxpayer.

About 10 percent of American drug spending occurs in Medicaid, and a new generation of high-cost drugs has been a real challenge for many states.

We are eager to ensure that federal and state policies, together, are delivering the best deals possible for the vulnerable Americans served by Medicaid.

In particular, it’s important to protect the integrity of the Medicaid Drug Rebate Program, which requires prescription drug companies to pay substantial rebates to states on drugs purchased by Medicaid.

In fact, I am pleased to announce here, to all of you, that HHS is issuing a guidance today to drug manufacturers that will ensure they are paying the full Medicaid rebates they owe on certain prescription drugs.

When drug manufacturers roll out what’s called a “line extension” for a drug, like an extended release, once-daily form of a pill they already sell, some of them have used it in the past to reset the price that’s used to calculate the inflation rebates they have to pay.

This meant they could pay less than they would otherwise owe, just by introducing a new drug formulation.

This is the kind of abusive behavior from drug companies that this administration will not tolerate.

Starting today, we’ve made clear that manufacturers must pay the full amount of rebates that they owe under the law.

But we can go further to ensure that drug companies are supporting the Medicaid program. We are working with Congress to undo a much larger giveaway for drug companies contained in Obamacare.

Under that policy, after a certain point, drug companies can continue raising a drug’s price without paying any more in rebates to state Medicaid programs. That practice has to stop, too.

In all of our government programs, President Trump has underscored the importance of tougher negotiation.

That’s why, this week, we announced a historic change to Medicare that will bring negotiation and competition to a part of the program that has never had it before.

Beginning in 2019, Medicare Advantage plans, which enroll one-third of our seniors, will have new tools to negotiate lower drug prices and make drug companies compete with one another.

More than half of these savings will be passed on to patients, including, starting in 2020, through lower premiums.

We also want to work with states to understand how, together, we can negotiate the best deals within Medicaid.

That could include more opportunities for managed care plans to engage in value-based purchasing of drugs.

Overall, we can work together to think about how to pay for drugs in a way that better reflects the value they deliver to patients. That brings me to the final HHS priority I want to touch on, our efforts to transform our healthcare system into one that delivers better value.

That means better care at a lower price, and it will require looking at how we deliver healthcare in America from top to bottom.

In particular, we know that we need to move from a system where physicians and hospitals are paid for the volume of services provided to one where they’re paid for the outcomes and value they deliver.

This is not a new idea, but generally, the assumption has always been that implementing it means Washington bureaucrats determining what value looks like, with intricate formulas that compensate hospitals and physicians for higher-value care.

This administration believes that’s the wrong way to deliver better value. We believe value is best determined by markets and consumers, not arbitrary rules and central planners.

So we have laid out an ambitious, four-part vision for putting the patient at the center of American healthcare.

We want to let patients control their own health data, provide them with transparency on price and quality, pioneer new consumer-focused payment models, and remove government burdens that are getting in the way.

We have already taken a number of actions on this front, like proposing a radical simplification of how doctors are paid for basic evaluation visits in Medicare.

Under the current system, physicians and other medical providers spend a great deal of time documenting information to meet Medicare billing requirements.

Too often, doctors have to focus their attention on copying and pasting text across a patient’s record for billing purposes, rather than on taking down information that’s important to treating the patient.

We have proposed a radical simplification of this system, which we estimate will save clinicians 51 hours of paperwork each year—more than an entire workweek that can now be devoted to better patient care.

There are many more government burdens and impediments at the federal level that are limiting consumer choice and competition.

We’ve proposed eliminating, for instance, one of the payment loopholes by which doctors’ offices owned by hospitals get paid significantly more than independent practices for providing the same services.

But there are areas for reform at the state level, too. You can do your part.

As an institution, ALEC has long been an opponent of excessive market concentration, burdensome licensing, and anti-competitive regulation.

This administration is deeply committed to taking on those problems where they exist in healthcare. The potential problems posed by market concentration were specifically mentioned in an executive order issued by President Trump last year regarding healthcare reform.

I would urge all of you to take a look at how state and local regulations can be impeding healthcare competition, raising costs for American patients, and depriving them of choices.

Regulations like certificates of need and scope of practice can have a legitimate purpose. But too often, these rules can be a significant barrier to new competition and lower-cost market disruptors.

Fundamentally, when we wonder why American healthcare costs so much, why patients feel so disempowered, so often the answer is that government rules are standing in the way of necessary innovation. As we undertake our efforts to free up competition from the federal level, we hope all of you will examine what can be done in the states.

Delivering free markets in American healthcare is an ambitious goal. But I can tell you, the exciting thing about working for President Trump is that ideas and goals that some might dismiss as too ambitious are welcomed—even expected.

Without President Trump’s leadership, under a typical presidency, I don’t believe we would have an all-out effort to disrupt and reform how our country pays for prescription drugs.

We wouldn’t be fundamentally rethinking how the Medicaid program can best strengthen our communities and families.

We wouldn’t be undertaking bold reforms to restore competition to markets where powerful incumbents have held sway for too long.

Everyone here has tremendous opportunities in front of them, thanks to the bold leadership of President Trump. So I urge you: Follow his example. Be bold. Fundamental free-market reforms demand courage and ambition, but we are here to work with you.

We have exciting, exceptional years ahead of us. If we work together, this will not just be an exceptional presidency . . . it will launch an exceptional new era for your states, for our healthcare system and for our entire country.


Content created by Speechwriting and Editorial Division 
Content last reviewed on August 9, 2018