Press release

Speech: Medicare Remarks by CMS Administrator Seema Verma at the Commonwealth Club of California

For video of the speech, click here: https://www.youtube.com/watch?v=9uKSZKKHWeY.

Good morning and thank you for that kind introduction.  And thank you to Dr. Duffy and the members of this important organization for your commitment to the American dialogue, and congratulations on this beautiful new facility. The Commonwealth Club should be applauded for its role in convening discussions about some of our biggest and often contentious issues. 

But I’m not here to talk about controversial issues; instead I’d like to talk to you about things on which we all agree, like the future of our healthcare system, and Medicare.  And if we have time we can touch quickly on world peace before we all leave.

Americans enjoy the benefits of the best healthcare providers and innovators in the world. Yet while the volume of care consumed by American patients has not increased dramatically compared to similar economies, the cost of care in the United States has accelerated at an alarming pace. Healthcare costs are growing faster than the U.S. GDP, making it more difficult with each passing year for CMS to ensure healthcare for generations to come.

If we continue on this path, by 2026 our nation will be spending one in every five dollars on healthcare.  The impact of this, for government, will mean that healthcare spending will crowd out funding for other priorities like public safety, infrastructure, defense, and education. For businesses, this means fewer dollars to invest and creating new jobs and prosperity. For every American citizen, this means that more and more of our household budgets will be spent on higher premiums, higher deductibles, and higher copays.

The status quo is simply unsustainable, and there is no easy solution. Anyone who tells you that more government spending alone can fix this problem doesn’t understand the issue, because despite the huge increase in funding we saw from Obamacare, many of our healthcare challenges not only remain but continue to worsen.  As a country, we have not figured out how to slow the rate of growth in health care spending.

But let me first explain CMS and its role in the larger health care delivery system.  CMS not only serves the 130 million Americans on Medicare and Medicaid, but we also administer the healthcare exchanges, serving an additional 11 million, making us the nation’s largest health insurer.

Our footprint on the United States healthcare system is so significant that everything we do has a large ripple effect on every American, whether they are a beneficiary or not. That far-reaching impact is on my mind during every decision I make. I remain constantly cognizant of the fact that we are not only responsible to our beneficiaries, but to the entire healthcare system.  So as CMS goes, so goes the healthcare market. 

America’s health care system challenges are reflected in the Medicare program, which serves 60 million beneficiaries, nearly 40 million of whom are in the traditional program, where we pay providers directly for their care. Everyone in this room has a loved one or friend who is on Medicare. And the program has to serve all of their diverse needs.

In 2015, 55 percent of our traditional Medicare beneficiaries had hypertension, 27 percent had diabetes, and 29 percent had multiple chronic conditions.  But, Medicare spending is concentrated on a small proportion of beneficiaries.  The 15 percent of beneficiaries with 6 or more chronic conditions accounted for 51 percent of spending in 2015.

By the time we all go to bed tonight, approximately 1.3 million Americans in Medicare will have visited a doctor today, and five million claims worth $2 billion will be processed.  And while these numbers are large, they pale in comparison to where we are headed.  CMS receives 10,000 new enrollments into Medicare every day, and we project that by 2030 the program will increase by one-third from 60 to 80 million beneficiaries – and spending per beneficiary will increase from $13,500 today, to almost $25,000 per year in 2030. 

Despite the burgeoning demand for Medicare services, the reality is the Medicare program is on a troubling trajectory, as decades of neglect by Congress and past administrations have allowed it to travel down a path that is unsustainable.  And its problems stem from the fact that many aspects of the program have become detached from its intended purpose – to serve the patient.  For years, money has been poured into a system that is only increasing in complexity and burden, all while the patient has been locked out of the process.  While there have been warnings for many years about the solvency of Medicare, the truth is, on its current trajectory, the program may not be there for many of us in this room. 

Medicare has significant problems and it starts with the over 11,000 pages of regulations we produce each year.  While many of them have come with the best of intentions, the cumulative effect has hurt, not helped our healthcare system.  The government cannot spur innovation if it is dictating the process and driving up costs through burdensome regulations. A perfect example of this is that hospitals spend $39 billion a year for regulatory compliance.

The law requires that we set prices based on provider costs, which means we reward inefficiency, and give annual raises whether the provider is improving patient outcomes, delivering quality, and value or not. 

Medicare pays for things differently based on the site of care, paying more or less for the same service, but different locations.  Now sometimes it makes sense, as some facilities provide a higher level of service.  But other times, it creates misaligned incentives – decisions about whether a patient receives a service in a hospital or in a doctor’s office is influenced by how Medicare pays. 

Because when we pay more for services provided in a hospital setting than in an office setting, we are encouraging the consolidation of providers around hospital systems.  When consolidation gets to the point where there is only one large competitor in a market, prices will go up and the competitive forces that encourage higher quality and lower costs will disappear.
 
In addition, overly burdensome regulations too often stand in the way of providers focusing on innovation and creating value.  One key example is the Physician Self-Referral Law, also known as the Stark Law.  While Stark is an important anti-fraud protection for Medicare, it was enacted in 1989 and has been interpreted and reinterpreted, and is out dated. It has become a significant barrier to innovative arrangements that drive value.

And speaking of fraud, program integrity is also an issue at CMS.  Due to its sheer size, our programs are always vulnerable to fraud, waste, and abuse.  However, as the nation’s largest healthcare payer we have a long way to go to preventing it.

Commercial payers review claims for services before and after the claim is paid.   Currently, the Medicare program only reviews less than 3/10 of 1% of the nearly 1.5 billion Medicare claims that CMS pays annually.  We need to learn from our private sector colleagues so we can be more efficient and do an even better job of safeguarding the fiscal integrity of our programs.

So that’s the bad news.

The good news is the Trump Administration prides itself in fulfilling promises, and this President has promised in both his public statements and in his budget to make the preservation and strengthening of Medicare a top priority.  We cannot continue to settle for the wrong path. 

While the challenges that face Medicare, and the entire healthcare system are real, this Administration will not shy away from them.  Abe Lincoln once aptly said, “You cannot escape the responsibility of tomorrow by evading it today.”  So let me share what we are doing today to ensure a better tomorrow not only for Medicare, but also for the entire American healthcare delivery system. 

I have traveled the country and spent a lot of time with providers from a variety of different settings and one thing has become completely clear to me – CMS has to modernize and refocus our policies on realigning incentives so that providers deliver value and quality to their patients. 

CMS’s Central mission is to transform the health care delivery system to one that moves away from delivering volume of services to one that delivers value for patients – one that provides high quality accessible care, at the lowest cost.  And while many that have come before me have shared this vision, what is different now, is how we get there.

This administration is guided by four pillars; empowering patients, increasing competition, realigning incentives, and reducing barriers to value driven care. As we transition to a system that delivers value to patients, we must start at the basic level of the interaction that a patient experiences when walking into a doctor’s office.  We must cater to the needs of the patient, not providers. 

Our goal is to activate the most powerful force in our healthcare system for creating value: the patient.

We will transform the individual patient into a consumer of healthcare – one that is empowered to shop for the provider that delivers the best care at the lowest price.  As the American patient is seeking care, they will seek providers that deliver innovative, transformative care, those that leverage the technological efficiencies that we have seen from other industries.  But in order for patients to become consumers of healthcare they must have transparency in pricing and in outcomes, so that they can shop for quality and value. 

To this end, CMS has proposed requiring that hospitals become more transparent with their pricing.  This is a small step towards providing our beneficiaries with price transparency, but our work in this area is only just beginning. Price transparency is core to patient empowerment and making sure American patients have the tools they need so they can make the best decisions for them and their families.

As we unpack the contours of empowering patients, let’s take for example two Americans named Bob and Helen.  Bob is a 50-year old working professional with a chronic illness who sees his retirement and Medicare eligibility on the horizon.  He has spent most of his productive years with access to the Internet, so he is tech savvy.  Helen is an 83-years old Medicare beneficiary with average health.  She prefers in-home healthcare services, but visits her doctor frequently.  We all know people like Bob and Helen, if we’re not already similar to them.

One would think that a healthcare system that was set up to serve patients would make serving patients like Bob and Helen a top priority.  Unfortunately, the opposite has become the case all too frequently. Instead, it is the system that has become the centerpiece of policy debates, and it is the system that has become more about sustaining itself than serving patients.  We believe that the system must be about the patient and for the patient. 

As I mentioned, Bob is tech savvy and not yet on Medicare.  But when he, and others in his generation, becomes Medicare eligible, they will expect nothing less than a modernized customer interface with Medicare.  Through the CMS Digital Seniors initiative, we are working on a broad set of changes that will enable our seniors to access and navigate the Medicare program more seamlessly, and provide the personalized tools to improve the customer experience and help them make the decisions that are best for them. 

For instance, Bob and Helen should be able to seek providers that are best meeting their needs and in order to do that they must have control of their medical records, and they should be able to share that information with a family member, caretaker, or other healthcare providers, or whomever they choose.  Today, unfortunately, many providers are holding patient medical records hostage, not providing patients with access to their own data.  

This problem became very real to my family almost a year ago.  As I’ve told this story before, I received a call from my teenaged daughter telling me that my husband had collapsed and was in cardiac arrest in the Philadelphia airport.  On my way from DC to meet my family, I tried to answer questions about his medical history for the doctors over the phone, and desperately made calls to our doctors back in Indiana to ask for any information in my husband’s medical record that could help save his life. 

Eventually after running a battery of tests, his life was saved and we are grateful to the men and women on his treatment team.   A week later my husband was discharged and I asked for his medical records so I could give his doctors back in Indiana all of his information.   After a lot of commotion, I was handed some sheets of paper and a CD-ROM.  That’s right; after the federal government had spent more than $30 billion on Electronic Health Records . . . I left with paper and a CD-ROM.

The use of Electronic Health Records has merely replaced paper silos with electronic ones, while providers, and the patients they serve, still have difficulty obtaining health records.  We must drive our system to an interoperable one where IT systems work seamlessly with each other, just as cell phones work today.  This will allow patients to take their data with them as they move through the health care system and ensure that their providers have all of the information possible to make the right diagnosis and treatment for their patients.

To make this vision a reality, CMS, in partnership with the White House Office of American Innovation led by Jared Kushner, launched a government-wide initiative called MyHealthEData.  This initiative envisions a future in which Helen and Bob will have access to their own health data.

CMS is using every lever we can to make it clear that the patient owns their data and they must have access to their information.  We have proposed both penalties and incentives for providers to make this clear and we have asked for comment on whether we should make interoperability a requirement for providers that participate in the Medicare program. But, MyHealthEData is more than just patients and doctors getting health care records.  It’s about driving a new era of digital health, one that will unleash data to trigger innovation, and advance research to cure diseases and provide more evidence-based treatment guidelines that ultimately will drive down costs and improve health outcomes.

As part of MyHealthEData, CMS announced a major step to enable Medicare beneficiaries to obtain and control their claims data in a digital format, and share it with whomever they choose.  This means that Helen can securely direct all of the data that Medicare has about her to researchers, or she can direct it to new apps and products that can help her and her health care providers better manage her health.  This new tool is called Blue Button 2.0.  More than 100 innovators – many in the Bay area – have since joined the program, and the first wave of new applications will begin to revolutionize healthcare. We’ve put our Medicare Advantage plans on notice that they too need to give beneficiaries access to their data in way that patients can use it. 

Liberating data will drive innovation throughout the entire health care system and create new tools and solutions that will allow the system to deliver value to patients. To further spur innovation in this era of digital health, CMS is releasing Medicare Advantage data sets and next year we expect to make Medicaid and Children’s Health Insurance Program data available.  These data sets will provide researchers and innovators with data on a new population of 70 million beneficiaries. 

Once all this data becomes available, advancements in artificial intelligence will make it possible to analyze the data at the speed of light, and the possibilities are endless.  Already, precision medicine is producing groundbreaking treatments tailor-made to a patient’s genetic code.  Imagine how much faster we can go at developing new treatments when we have more complete data, a patient’s entire health history from birth onwards, at our fingertips.  As we try to bend the cost growth curve and deliver value for our patients, we need to lean into innovation as a way to provide more cost-effective, higher quality care that improves outcomes. 

We are constantly surrounded by amazing innovations that have ability to help us bring better care and lower costs to our patients, and as CMS Administrator, it is a priority to ensure our policies support and drive innovation across the health care system. 

For those of you who love Bill Murray movies, you may be asking by now, “What About Bob?”  When patients like Bob, come into Medicare they will expect the program to provide the latest technology.  Just recently, CMS proposed to have Medicare start paying for virtual check-ins, meaning patients can connect with their doctors by phone or video chat.  In addition, our proposal would allow patients to text an image to providers for review and we’re expanding the list of Medicare services that can be delivered via telehealth.  Transportation can be a barrier to care for our elderly and disabled populations, and paying for these types of services is an example of how CMS is leveraging new technology to increase access to care for Medicare beneficiaries and how CMS is delivering on President Trump’s promise to strengthen the Medicare program. 

Last fall, the President also issued an Executive Order called Healthcare Choice and Competition Across the United States.”  The President believes that competition is the key ingredient to driving down healthcare spending.  And I couldn’t agree more that this is a critical component to improving our healthcare delivery system, and we are using every lever at our disposal at CMS to create a system that drives competition amongst providers to compete for patients.  Because, when there is competition, there is a drive to innovation and value.

There is no better example of how competition drives value than the Medicare Advantage program.  This is a great example of how incentives are aligned to drive competition that increases value for our patients.  In Medicare Advantage, the government pays a fixed amount and health plans manage this budget.  CMS measures the plans on quality and this information is provided to our beneficiaries to help them select the plan that they want. Providers compete to attract beneficiaries, through low premiums, provider networks and enhanced benefits. Beneficiaries, like Helen, can choose the plan that best meets her needs.  Thus it comes as little surprise that enrollment in Medicare Advantage has been increasing year after year, now reaching over one in three Medicare beneficiaries.  Plans also provide value to the Medicare trust fund, since they have to operate within the capitated payments.  

This administration has worked to support innovation in Medicare Advantage.  We have given plans more flexibility to offer more choices to beneficiaries and rid the plans of burdensome requirements that deterred them from devoting resources to beneficiaries.  Starting in 2019, we’re giving plans more flexibility so they can cover more types of supplemental benefits, which go beyond the traditional Medicare benefits.  This could include modifications to help keep seniors, like Helen, safe in their homes and out of institutions with equipment like wheelchair ramps, stair rails or grab bars; more in-home support services; and respite care for her caregivers.
 
The key here is that plans have the ability to shape a supplemental package that can provide flexibility to tailor benefits to beneficiaries that can improve health outcomes and lower costs, but that also appeal to beneficiaries, and beneficiaries have the power to shop for a plan that has provided the most value for their needs.
 
And while Medicare Advantage sets up the right financial incentives to deliver value, unfortunately, the rest of Medicare does not.   Our current program not only encourages volume, it also thwarts price competition. All providers are paid the same whether they provide value or not.   And the system actually rewards providers that provide the most service rather than those that produce value and better health outcomes for the patients they serve.

Medicare’s payment incentives are often upside down and until Congress makes changes; CMS is pushing forward by using our Innovation Center to test out new ways of paying for care.  

Moving forward our models will focus on the areas in the health care system that drive costs.   This includes focusing on individuals that are seriously ill.  As I said in the beginning of my remarks, we know we have to figure out a better way to provide care for our beneficiaries with chronic disease.  We want to think about innovative ways to treat these individuals that realign incentives for providers to focus first on improving quality of life, quality of care, while also lowering costs.  

Many of the Innovation center’s efforts have focused on encouraging coordinated care, and that is important but ultimately our goal is to align financial incentives around providing care that is patient centric.   Early results indicate that we get better outcomes in terms of quality and cost when providers are responsible for managing a budget. Unfortunately, only about 11 percent of providers in Medicare are participating in this type of payment.

In order for us to transform into a value-based system, we need to encourage providers to take responsibility for managing the health care budget for their patient.   Because when the budget is set, we can waive a lot more regulations, program integrity rules, which give them more flexibility to focus on innovation, quality, and patient needs, instead of following CMS rules.

Over the coming months, we will create new opportunities for primary care doctors, who are best positioned among providers to help patients drive value.  We want to focus on upstream providers, not hospitals, to eliminate unnecessary downstream costs.

In addition, we will be developing models that move away from the government price setting to allow for competitive bidding amongst providers and creating new financial incentives for our beneficiaries to shop for quality and value as they seek high-value providers for their care.  

Finally, we will use our demonstration authority to do more on program integrity.  We need to modernize Medicare and how it handles waste, fraud, and abuse. We need to prevent inappropriate care on the front-end.  It’s what the private industry is doing and CMS needs to catch up. 

This administration is dedicated to putting patients first, to be empowered consumers of health care that have the information they need to be engaged and active decision-makers in their care.  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 value. 

CMS fully recognizes that in order to improve Helen’s experience in Medicare, she must have more access to and attention from her doctor.  We’ve all been to the doctor and – let’s be honest; there is more “screen time” going on than “eye time”.  And all of us at some point have waited weeks or missed work or undergone some other inconvenience so that we can drive to the doctor, fill out paperwork, and watch our doctor stare at a computer screen.  And to be fair, no brilliant physician wants to be relegating to data entry while their time with patients continues to evaporate.

It is clear that our regulations have held back innovation and if we are going to be driving to a system that drives value, lowers costs, and creates better health outcomes, we need to remove barriers that thwart this effort.   As part of the President’s Cut the Red Tape Initiative, CMS launched our Patients Over Paperwork Initiative to reduce unnecessary and redundant regulations so that doctors could focus on their primary mission – taking care of their patients.

Last year, we asked providers to share with us their ideas and concerns around regulation and we received over 3,000 comments.  The agency has been busy addressing those concerns.  One of the biggest complaints we heard was around the burden of reporting quality measurements.

 So, we began an initiative and brilliantly, we called it Meaningful Measures – that’s right –– if there’s one thing government can really do, its name something. 

Meaningful Measures is about continuing to focus on evaluating quality, safety, program integrity, but recognizing that in our drive to value and innovation, we can’t weigh providers down with reporting that doesn’t make sense.  This year we have overhauled our measures, getting rid of the ones that were duplicative, topped out, process oriented or just not meaningful to patient care.  I am supportive of quality measures that mean something to providers and patients.  But we also have to make sure that we have the back-end processes in place to evaluate quality without the provider having to take active steps around reporting.  CMS has proposed the elimination of reporting requirements for over 100 measures across the health care delivery system, saving providers more than $175 million over the next two years.

Another major step we have taken is around billing.  We also heard from providers that the amount of documentation we require for providers to bill CMS is excessive, burdensome and outdated.  We just recently announced an overhaul of the entire billing system that will save over 500 years of doctor time in just one year.  Doctors will see very minimal impact on their payments and any impacts should be offset by the massive reduction in burden and increased efficiency. This will give doctors more time to provide their patients with innovative care.

But no discussion of Medicare or value in health care would be complete, without a discussion of drug pricing.  This is our fastest growing area of spend.  In 2012, Medicare spent 17% of its total budget 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 in any other area. 

President Trump has been clear that he wants to lower prescription drug costs and make sure that Americans are getting the best deal as they pay for their medications.  I can tell you that this is a very important issue for him and he brings this topic up in almost every conversation that I have with him.  Secretary Azar, with his deep industry experience has deployed a four-pronged strategy – as outlined in the American Patients First Blueprint focused on lowering list prices, reducing out-of-pocket costs, increasing competition, and strengthening negotiations.  Already, we are seeing drug manufacturers responding to the President’s leadership and some of the biggest pharmaceutical companies in the world announced that they are either lowering their prices, or freezing them. 
 
The problem of drug pricing is especially acute when new drugs are coming to market with extremely high price tags, drugs that taken only once and intended to be curative or to address diseases that impact a small number of patients.  Today, Medicare is a price taker in our Part B program, we don’t negotiate, and manufacturers can charge whatever they want.  And Medicare incentivizes them to charge more, because doctors that prescribe their drugs are paid on a percentage of the cost of the drug.  So the more the drug costs the more the doctor gets.  This is another example, of misaligned financial incentives in Medicare that are driving up costs.   

We need to rethink how we are paying for drugs and ensure that Medicare is negotiating the best deal for beneficiaries.  In an era where we are seeing drugs priced at over a half a million dollars, we need to modernize the way Medicare pay for drugs in Part B.  To this end, we are looking at value-based payment mechanisms.  So for example, payment would only be made for a drug if it were proven to be effective in terms of clinical outcomes or reducing total cost of care.

Before I conclude, and I will save you from a discussion about World Peace, I want to address one additional issue.   

We have all heard the drumbeat for what advocates of a government-run – socialized – healthcare system call “Medicare for All.”  Let me briefly explain why this notion reveals a fundamental lack of understanding about the uniqueness of Medicare to the very specific population that it serves. 

First, Medicare is a program to provide care to our most vulnerable disabled and aging population that needs it.  Second, by proposing to expand the services offered by Medicare to every American, you further strain Medicare’s funding streams and run the risk of depriving seniors of the coverage they have worked their entire lives to receive. 

We have just discussed here today the challenges that Medicare faces in serving the nation’s seniors, the misaligned financial systems that are driving up costs, and the bureaucratic hurdles faced by doctors and hospitals.  We have a lot of work to do, to strengthen the existing Medicare program.  Putting millions more Americans on Medicare will undermine health care for the very demographic the program is designed to assist.  Ideas like, “Medicare for All” would only serve to hurt and divert focus from seniors.  All the while, expanding the regulatory burden and misaligned and perverse incentives of a government run system.

In essence, Medicare for All would become Medicare for None.

By choosing a socialized system, you are giving the government complete control over the decisions pertaining to your care, or whether you receive care at all.  It would be the furthest thing from patient-centric care.  

Let’s learn from the mistakes made in Medicaid when the Affordable Act pushed millions of able-bodied Americans into a program designed for pregnant women, children, aged and those with disabilities, only to then incentivize states to serve the able-bodied before protecting Americas most in need. We have seen this movie, and the last thing we need is the sequel. 
 
I seriously hope those who advocate it take the time to understand the complexity of the program and the adverse consequences of their proposal. 
 
Rather than straining Medicare, we are working to strengthen Medicare. We are activating patients to be consumers of health care, to drive providers to compete for patients by innovating and providing value. We are getting rid of burdensome regulation that are barriers to value based care while realigning incentives so that providers can focus on delivering care that improves quality and lowers costs.
 
We are running out of time to solve the challenges of our healthcare system.  Not addressing health costs not only threatens the future of the Medicare program but our country’s future.  This administration will never stop driving our system towards delivering value for the patient.  This will take every single part of the health care system. Please engage with us.  We need and want your ideas, your efforts, and your unique perspective.  At some point, we’re all going to be Medicare beneficiaries, so let’s work together to strengthen the program, and leverage that strength for the future of our entire healthcare delivery system.  This not a luxury – but a necessity.  The prosperity and wellbeing of future generations is dependent on the decisions we make today.  So join us as we ensure those decisions will benefit all Americans.

Thank You.