Fact sheet

Speech: Remarks by CMS Administrator Seema Verma at the American Hospital Association Annual Membership Meeting

Remarks by CMS Administrator Seema Verma at the American Hospital Association Annual Membership Meeting

Administrator Seema Verma
AHA Annual Membership Meeting
May 7, 2018
Washington, DC

Good morning, and thank you for that kind introduction. I also want to thank the American Hospital Association for the invitation.

For those of you that don’t know me, I spent the early days of my career at a public hospital. That experience, being on the front lines of health care, has helped shape my thinking on many issues and informs my decision making at CMS.

Hospitals are at the center of the delivery system, leveraging innovation and technology to advance patient care and improve health outcomes. We all know the extraordinary progress we’re making in so many areas— from telemedicine to telehealth. When I was recently at the Cleveland Clinic they showed me how remote monitoring is improving efficiency and outcomes, and when I was in California I got to see how technology is advancing robotic surgeries, which may change how hospitals provide care in the future.  Given all these advancements, I must admit I struggle with one question . . . why is it that we still can’t make any progress with those hospital gowns? They still don’t cover everything they should.  There’s a visual coming to your mind right now, right? So last year my husband was in the hospital for a week. It was a stressful time, I was trying to keep the agency going, while also trying to be a supportive wife and let’s just say we had gown issues.

Last year, was quite a year for many reasons. The fierce debate in Washington around Obamacare often highlighted the laws’ many failures, increases in premiums of over 100%, insurers leaving the market, leaving 10 states and 50% of counties with only one insurer.   Families left with few or no choices and providers with monopolies to negotiate rates with. But, last year, our office released a report, which I think revealed one of the largest deficiencies with Obamacare. Despite all of the regulation, and a massive new entitlement, we have not bent the health care cost curve. Healthcare spending is actually growing more quickly now than it was in the year in which the ACA was passed.   If we continue on this path, by 2026 we will be spending one in every five dollars on healthcare. Our healthcare system is on an unsustainable trajectory.

A recent Harvard study compared health metrics in the U.S. with ten other high-income nations. The study indicated that despite spending the most on healthcare, the U.S. ranked poorly in infant mortality, treating chronic illnesses, and, on average, we have shorter life spans. We spend more money than everyone else, but we are getting much less from it.

Clearly, maintaining the status quo is not an option, and President Trump agrees. Last year, the President announced an Executive Order: Promoting Healthcare Choice and Competition Across the United States. Through his order, the President made clear that he wants his administration to take bold action to change the rate of growth of spending and to foster competition in healthcare markets, so that patients, and the American people, may receive better value for our investment in healthcare.

Secretary Azar and I are working for competition and better value by moving away from a fee-for-service approach, to a system that is value-based – and that rewards value over volume. This means paying providers on the outcomes they achieve, rather than how many procedures they perform.  Let me go through some of our key initiatives to advance value. 

First, we are developing new payment models through our Center for Medicare and Medicaid Innovation. Last year we put out a request for information and heard ideas from across the nation. This year, we will be putting out a series of new models that incorporates a lot of what we have heard. Our models focus on innovative ways to pay for drugs, provide new models for primary care and for beneficiaries with serious medical conditions, and promote innovation in Medicare Advantage. We also want to think about models that create a true competitive market, where providers compete for patients on the basis of price and quality, and move the government out of the business of setting prices. And in all of our models we will also make sure that our beneficiaries, have incentives to seek value when they obtain care.

In addition to developing new models that align with our principles, we’ve been reviewing models launched under the prior Administration. In particular, we’ve looked at CMS’s Accountable Care Organizations, or ACOs. 

A subset of ACOs has taken on significant downside risk. These “two-sided ACOs” have shown significant savings to the Medicare program while advancing quality. And we applaud this success and support the boldness of providers that participate in these models.

However, the majority of ACOs, while receiving many waivers of federal rules and requirements, have yet to move to any downside risk. And even more concerning, these ACOs are actually increasing Medicare spending, and the presence of these “upside-only” tracks may be encouraging consolidation in the market place, reducing competition and choice for our beneficiaries. While we understand that systems need time to adjust, our system cannot afford to continue with models that are not producing results.

Another important step in moving to a value-based system, is removing barriers that prevent providers from participating in value based models. CMS’s enforcement of the Stark Law is one example. Our agency is conducting a holistic review of our implementation of this law and the consequences. We intend to leave in place the law’s important protections for our beneficiaries—and for the trust fund—while not penalizing providers who are taking brave steps away from fee-for-service.

Another aspect of moving toward value is eliminating burden. You may have heard of President Trump’s Cut the Red Tape Initiative, which aims to address burdensome regulations across the entire federal government.   CMS’s initiative is called “Patients over Paperwork,” and this is something the entire agency is working on.

We recognize that some regulations are necessary to ensure patient safety, quality, and program integrity, but many are redundant, ineffective and have a negative effect on patient care by taking providers away from their primary mission: improving their patient’s health outcomes.

Last year, we asked for providers to tell us what regulations were causing the most burden and as part of my recent national listening tour, I heard from providers across the nation. In Kansas, I sat with rural health experts and hospital personal…and two weeks ago I was in Boston at Massachusetts General. Everywhere I went, I heard stories about the negative effects of regulatory burden on patient care. Perhaps the best visual was when I was in Cleveland. I met hospital administrators who led me to a basement room where 18 people did nothing but compliance paperwork all day.   I think we can all agree that needing so many people just to deal with paperwork isn’t enhancing patient care.

We need to get providers back to the front lines of providing care to patients.

The agency is busy responding to all of the comments we have received. We’re looking at even the smallest ways to eliminate redundancies and burdens that are taking away from patient care. For example, we’re now allowing notes written by medical students to count for Medicare billing purposes once the teaching physician reviews and signs off. Again, I realize this may sound like a very small step but hopefully one that helps reduce provider burnout.

We appreciate AHA’s help on providing us with their views on hospital concerns. And I know that the AHA has a burden reduction tracker to chart our progress. We find it very helpful — and we thank you for the support and amplifying our message.  And to reciprocate, I’ve instructed my staff to create a “hospital tracker” to chart your progress in fixing that gown issue.

Seriously, please know that we’re hearing you and your concerns on burden, which is why we’re hosting the CMS Listening Session on Patients over Paperwork tomorrow at your conference. Our work is not done, and we’ll continue to ask for feedback from stakeholders like you who are implementing regulations, so that we can ensure that our policy efforts are guided by the real experience of clinicians on the frontline.

One of largest complaints we heard from providers across all types of facilities, was the burden of reporting. To this end, we launched another key CMS initiative, known as “Meaningful Measures.” We are committed to quality and safety. Measures are an important part of demonstrating value. But we are trying to take a more thoughtful approach to measurement. We can’t do everything at once, nor do we necessarily have the infrastructure in many areas for claims-based or registry-based reporting, requiring providers to report measures manually. Again this takes away from our focus on the patient. To this end, we’re taking a conscious, across-the-board, effort to remove measures that are no longer relevant.  

You can see some of our progress on this issue, in the Proposed Rule for the Inpatient Payment system that we recently released. We proposed eliminating a significant number of measures that acute care hospitals are required to report across the hospital quality and value based purchasing programs.   We are removing a total of 18 measures and are de-duplicating another 21 measures for acute care hospitals. We are streamlining our measures for other types of hospitals as well – if we also take into account the measures we are removing from the cancer hospital quality program and the long term acute care hospital program, this rule would remove a total of 27 measures, while keeping the focus where it should be – on reducing harm and creating better health outcomes for patients.

In addition, the proposal would also reduce well over 2 million burden hours for providers and save over $75 million.

Increasing quality, improving outcomes, and lowering costs aren’t new concepts. Prior administrations have talked about the need to move towards a more sustainable system, one that pays for value and not merely volume. And – some progress has been made – but, if we are going to take the final steps, we must activate the most powerful force in our healthcare system for creating value: the patient.

Patients must be at the center of cost and quality decisions, empowered with the information they need to make the best choices for themselves and their families.

This means that we must be completely transparent when it comes to price and quality, and the patient should be the primary controller of their health records, so that they can take those records to whatever provider can deliver value. Through this empowerment, there will be a competitive advantage for providers that deliver coordinated, quality care, at the best value, to attract patients who are shopping for high quality care.

In March, along with the White House Office of Innovation, we launched the MyHealthEData initiative to empower patients by giving them control of their health records. We made it crystal clear that the days of finding creative ways to trap patient data in closed systems must come to an end. It no longer will be acceptable to limit patient records or to prevent them and their doctors from seeing their complete history.

We have proposed payment consequences for hospitals that don’t give patients access to their health records, and have asked for feedback on making it a requirement that all providers share health records with patients as a condition of participating in Medicare.

With all of this data sharing, however, protecting the privacy of patient information is even more paramount, so we are requiring that hospitals also take every action necessary to protect patient records. We aren’t just telling providers what to do, we are also leading by example. Earlier this year we announced Blue Button 2.0, a developer-friendly, standards based API, which will allow a majority of Medicare beneficiaries to connect their claims data to third party applications, services, and research programs.

This will unleash innovation to create new cures, evidence based treatments, and increase the quality of patient care in ways we can’t even predict. Take a moment and imagine the potential……imagine a world in which every treatment your Doctor gives you is informed by data from similar patients from all over the world, reducing medical errors and increasing the effectiveness of treating whatever condition you have. Imagine a world in which all of the health data we produce, whether it’s through doctor’s visits, diet, sleep patterns, or the dozens of data points we produce from wearable devices was compiled to not only make us better aware of our health, but to also prevent serious health conditions. These advancements are within our grasp, but the key is empowering the patient.

We are also empowering the patient by working to advance price transparency. In virtually every sector of the economy, you are aware of the cost of services before you purchase them, except for healthcare. Patients deserve, and need to know cost of services, if they are going to be empowered to shop for value. To this end, we are proposing to require that hospitals post their charges online. We know that that won’t fully address patient needs, but we are just getting started and have asked the public for ideas about what additional information patients need to make informed decisions about their care. I look forward to working with many of you on this important initiative.

Times have changed and as our health care costs go up, consumers’ demands have changed. And the expectations of CMS have changed. And I understand that some of our initiatives might require providers to change the way they do business. I know it may not be easy, but we owe it to patients. This isn’t about provider needs, but about patient needs—and sooner or later, that will be each and every one of us.

You have been hearing more from the administration on the rising costs of prescription drugs. Hospitals are in many ways ground zero for this issue, as patients receive some of the most expensive new medicines in hospitals. Addressing the drug pricing issue is important to President Trump. And by now, you should know that this is a President who delivers on his priorities.

As we analyze drug prices, it’s important first to recognize the pace of innovation happening in medicine. America is the world’s leader in biopharmaceutical innovation. Treatments and cures are available today that doctors couldn’t have imagined a generation ago, including treatments that are customized to a patient’s unique genetic profile.

As we move to a more sustainable and value-based system, we must look closely at every area of spending – including spending on prescription drugs. In 2012, Medicare spent 17% of its total budget, or $109 billion, on prescription drugs. Four years later in 2016, spending had increased to 23%, or $174 billion. For Medicare, spending on prescription drugs is growing more quickly than spending on any other area. Spending is also on the rise in Medicaid, with expensive new therapies putting a strain on state budgets.

The status quo simply is unsustainable.

Now in fairness, sometimes spending on prescription drugs can offset other healthcare spending or spending elsewhere in the economy. In the best case, a new drug can cure a disease altogether, reducing the need for further treatment and lowering costs.

But when patients cannot afford their medications, adherence goes down, and patients get sicker. Life-saving treatments do not mean anything if patients cannot afford them – as Secretary Azar said last week, “There’s little difference for a sick patient between a miracle cure that hasn’t been discovered and one that is too expensive to use.”

Many of our beneficiaries are concerned that they will not have the money to pay for the drugs that they need. While it is wonderful news that there are hundreds of gene therapies in development, the two CAR-T cancer therapies that have reached the market have been priced at $373,000 and $475,000, and a new gene therapy for certain forms of blindness has been priced at an astonishing $850,000.

Drug spending by Medicare and Medicaid accounts for nearly 40% of all drug spending in the US. Being the largest payer of healthcare services, we will use our considerable influence to promote innovation, while also moving the market toward lower list prices and greater affordability for all Americans.

The world of drug pricing and payment in Medicare, is very convoluted, so let me try to unpack it. There are two Medicare programs that provide drug coverage – Part B and Part D. In Part B Medicare pays providers for medicines that are not self-administered, such as infusions that are administered in cancer clinics. In Part D, Medicare pays prescription drug plans to cover medicines, which beneficiaries buy at a pharmacy.

The issues that we face are different in Part B and Part D. Let’s start with Part B.

Medicare pays Part B providers for drugs at an amount equal to the average price the drug sells for plus a six percent add-on fee. This payment structure creates a perverse incentive for manufacturers to set higher prices, and for providers to pick drugs that are more expensive. While this system may have made sense when it was designed, in today’s world, with some therapies costing over a half a million dollars, adding 6% to the sales price doesn’t make sense.

Another issue is that for high-cost products, the amount that Medicare pays differs dramatically based on the site of service. Whether a patient receives a Part B therapy in a hospital or in a hospital’s outpatient clinic may be influenced by the fact that Medicare pays much more at one site than the other, for the same drug. This does not make sense. Whether a patient receives a therapy in one setting or another should be based on which setting is safest and most clinically appropriate – and not based on arbitrary payment differences.

Now to Part D, where the story is different. Part D is a market-based system – prescription drug plans compete for beneficiaries, and each beneficiary compares plans and selects an option that meets their needs. At a time when premiums are rising in virtually every form of health insurance, premiums for Part D plans have been stable in recent years and are actually lower this year than they were last year.

In Part D, a group of negotiators works on behalf of Medicare, to get a good deal for our beneficiaries.   Plans hire PBMs to manage their drug benefit and to negotiate with drug manufacturers. PBMs negotiate with drug manufacturers by extracting rebates in exchange for putting the manufacturers’ drugs on the plan’s formulary. The manufacturer has an incentive to pay the PBM a rebate, because if the manufacturer’s drug does not get on a plan’s formulary, then the manufacture loses market share.

So, now we get into the world of rebates. Rebates are calculated as a percentage of the manufacturer’s “list price,” or the price that the manufacturer sets.

At the end of the year, Part D plans and PBMs take a portion of the rebates they have negotiated with drug manufacturers and keep it as profit. Plans apply the rest of the rebates to reduce premiums. Are you confused yet? This is a convoluted system.

PBMs have done important work in negotiating rebates that go toward reducing premiums – growth in rebates is a major reason that Part D premiums have remained flat in recent years. But PBMs are serving two customers – being paid both by manufacturers for getting on formularies and by plans for managing their drug benefit. This makes it unclear who they’re actually aligned with.

The higher a manufacturer’s list price, the larger a rebate will be, since rebates are calculated as a percentage of list price. And the higher the rebate, the more money that plans and PBMs get. The bottom line is that all of the incentives are lined up for manufacturers to set higher and higher prices.

When prices go up patient cost sharing also goes up. So when list price doubles for example, a patient’s out-of-pocket payment usually doubles as well.

We’ve all noticed the increase in the amount we have to pay at the pharmacy counter. For seniors who are sometimes on fixed incomes, the pain is real. This is not acceptable.

Well we’ve talked a lot about Medicare, but I would be remiss if I didn’t discuss the largest of CMS’s programs, Medicaid. As some of you know, we have promised a new era of state flexibility and the agency has many innovative waiver requests in front of us. Last year, we made it easier for states to pursue waivers to expand access to residential behavioral health treatment services, to help increase access to treatment for Medicaid beneficiaries facing opioid addiction. Since announcing our more flexible policy we have approved five additional state waivers, with more to come, even as soon as later today.

For the first time in the nations’ history we have also approved waivers to allow states to implement community engagement requirements for able bodied adult Medicaid recipients.

Consistent with the President’s Executive order, we will continue to be supportive of state efforts to help able bodied, working age adults rise out of poverty, so they can gain the skills they need to fill the jobs that are available. We approved 3 states and, in fact, I plan to announce an additional state approval within this week. We have seven more applications and have heard from a number of additional states, including states with governors from both political parties, about their interest in community engagement.  

We are also determined to make sure that the Medicaid program remains a safety net for those that need it most. To this end, we have determined that we will not approve Kansas’ recent request to place a lifetime limit on Medicaid benefits for some beneficiaries. We seek to create a pathway out of poverty, but we also understand that people’s circumstances change, and we must ensure that our programs are sustainable and available to them when they need and qualify for them.  

While on the topic of community engagement, you may have heard how this impacts local tribes. We believe we can give states flexibility and discretion to implement the community engagement requirements with respect to local tribal members. We look forward to working with states and tribes to try to help them achieve their goals and determine how to best apply community engagement to serve their populations.

I know I’ve thrown a lot at you today and I understand if more coffee is needed! But—ultimately—we share the same goal: Ensure the sustainability of our health care programs by transitioning to a value based payment system and improve health outcomes for the American people.

My challenge, charge, and call to action today is for you to continue to be our partner in this work. We need your ideas and input. We need the benefit of your expertise and experience. And we need you to work on that hospital gown issue.

It’s been a pleasure to be here with you this morning, and I wish you a very successful conference. Thank you.