The Driver’s Reins
Alex Azar is a former pharmaceutical executive who served as the 24th secretary of U.S. Health and Human Services from 2018 to 2021, spearheading the department’s COVID-19 response and overseeing Operation Warp Speed, the public-private partnership to expedite COVID-19 vaccines. Throughout his tenure at HHS, Azar worked on issues including drug pricing and overall healthcare pricing, as well as interoperability of electronic health records. He currently serves as adjunct professor of business at the University of Miami’s Herbert Business School.
Donna Shalala is the longest-serving secretary of U.S. Health and Human Services, having held the position from 1993 to 2001. During her tenure at HHS, she worked to create, implement and oversee the Children’s Health Insurance Program and helped raise childhood immunization rates to record levels, among other accomplishments. Shalala served as president of the University of Miami from 2001 to 2015 and remains the Trustee Professor of Political Science and Health Policy. Shalala represented the 27th Congressional District of Florida in the U.S. House of Representatives from 2019 to 2021.
Azar: It’s moved forward a lot. The progression was Mike Leavitt [former HHS secretary, 2005-2009] started us on that journey and said he wanted to bring a convening of all the players together. He likened it to building a national railroad system.
That was less of a priority in the Obama administration with the stimulus monies. They funded a lot in terms of adoption. So what happened was you got the electrification of health records but then balkanization.
Shalala: Let me give you an example. The University of Miami hospital is right next to the great public hospital, Jackson Memorial. They picked two different systems.
Azar: And they should have been systems that could have connected, but they weren’t. So what I did was [try to] make it so they will connect. That’s the interoperability and information blocking standards. I think one of our big accomplishments was we were able to get the major EHR [electronic health records] vendors to effectively agree to that regulatory framework—personal ownership of information, interoperability, no balkanization, and timelines for implementation. It will take time for that to happen, but I think we’re on that path now.
Azar: It is, and those are the standards that we put as part of the interoperability of those [EHRs]. This is beyond my technical [knowledge/ability], but those FHIR standards…just the platforms that make it so that the technical people know how to create that integration is what needs to happen.
Shalala: However, the effort by a bunch of those companies to try to develop a healthcare system—they found out how complex the system was and what the multiple cultures were within the system. So in interoperability, you don’t have to worry as much about culture as you have to worry about the technology to be able to do it.
Azar: What we had to do was make sure we respected that, within those EHRs, there is intellectual property. There are algorithms, and there’s important intel inside beyond just the information. That was really part of what we tried to do in the final rules was respect trade secrets/intellectual property but still allow the patient’s information to move with them.
Azar (to Shalala): You’ve run a health system. How do you think about it?
Shalala: I think in fear.
Azar: It’s probably frightening for any healthcare company that has health records. It’s rightly at the top of the board of directors’ list of enterprise risk management items, and that is probably, more than government regulation, the most important thing that can happen, just that level of focus. The problem is it gets down to the level of things like phishing training for your employees. It really gets to that kind of level because you can’t airlock your systems or then they’re not interoperable, by definition.
Shalala: Employers have been playing around with ideas for a long time, and a number of the big employers have tried to do this. They usually need help, and that’s why they go to the big insurance companies to help them manage it. So they’re self-funded, but they go to one of the big companies to try to get that value system going.
Letting the patient have more choice? Most patients don’t want more choice. They want a simple, straightforward system with a card that they can go in for. But I think that businesses have had a lot of experience in this area and they’ve tried different things. Mostly they’ve been able to slow down their costs.
Azar: I think you’ve seen advances. For instance, Medicare Advantage with commercial payers, especially in Florida, I think over 80% are in alternative payment arrangements. So they’ve been able to figure out with providers alternative payment systems. A lot of employers and health plans are probably too small to engage in the transaction costs to set these up, or they don’t have the leverage with the providers who say, “We’ll take our fee for service, thank you very much,” because they have so much power. That’s where Medicare can be a guide. With such pervasive market power—40% to 50% of every market across the United States—that’s where Medicare can really, as the dominant payer, make changes that ripple through the system. I mean, how many hospital contracts for private insurers right now say, “We’ll pay 150% of Medicare fee for service”? It’s a one-page contract. So if Medicare fixes it, it should ripple through.
Shalala: I sit on the board of one of the major health insurance companies. Their prices were dictated not by their own analysis but by Medicare.
Azar: One of the false impressions of trying to put the patient at the center of healthcare is this notion of casting the patient off as an atomized individual to study data and have to make choices like that. That is not actually the vision that I articulated I was working towards. What I wanted to do was to empower the patient to be at the center but with the helping hand of an incentive-aligned physician. Because as Secretary Shalala said, people, I think they want choice, but actually people will do what their doctors recommend, most of the time. If their practice, whether it’s primary care or otherwise, has an aligned incentive—that’s why I believe in total cost of care, the aligned incentive of managing cost of care and quality, keeping them out of the hospital, out of the nursing home—they will generally go where they’re guided by their physician, that helping hand. You’re putting a learned intermediary in there helping, with financial incentives. There are just a couple of core areas that are most of healthcare spend. It’s going to the highest-quality, lowest-cost orthopedic surgeon. It’s going to highest-quality, lowest-cost diagnostics. Ophthalmology can be another key area. Cardio can be another key area.
So those are some areas where these practices can build relationships and networks of referral that are built on transparency and those aligned incentives. The patient doesn’t have to be sitting there shopping, doesn’t have to be going to Google or an Amazon tool to shop. Now, there are a small number of consumers who are rabid shoppers, and you see this in every space in terms of consumer behavior, that to drive and create efficient marketplaces of pricing with transparent information a very small number of patients are sort of thought leaders that are very informed and drive. And the rest of us, the other 90%-98% of us, sort of get the free ride off of their work.
Shalala: But they have to have an insurance plan that allows them to do that.
Azar: And that’s why I think the employer clients and the plans, once this information is more available and they get to see it, will start developing benefit packages that, whether carrot or stick…at some point a plan and an employer are not going to want you to go to a $40,000 hip replacement that is lower quality than a $10,000 hip replacement.
Shalala: And Medicare Advantage plans—I can take you to Miami to Leon [Medical Centers], which has…clients using Medicare Advantage—they negotiate deep discounts for services with the hospitals.
Azar: This can be done.
Shalala: The projection by CBO [the Congressional Budget Office] is that it’ll be over 50% by 2030. I think it’s moving faster than that.
Shalala: Absolutely. If they want to contain costs.
Azar: And if they want their employees to be happy.
Azar: In fact, it’s the opposite. If I had a second bite at the apple, this was going to be something I really focused on. You have the same market failure that you have with vaccines in antibiotic resistance. Effectively what we need is for drug companies to develop antibiotics that then sit on the shelf. Because if they develop a next generation antibiotic and it gets overused, you’ve just blown it again; you need to hold it in reserve. So that’s basically a role for government there and making a market, buying it up, just like we do for pandemic flu supplies, just like with COVID-19 vaccine, and children’s vaccines, because that’s the problem you have to solve.
Shalala: This gets the government making markets with its priorities. So I think COVID has moved us beyond. We’ve always guaranteed a market for specific things, whether it was AIDS or other things, but COVID moved us so dramatically into a relationship with the major drug companies that it may define the future on a set of things like antibiotics.
Azar: It was in part because of having someone with my background there that we were able to break through traditional Republican notions of not interfering in the private sector. I assess these as economic problems. Where there’s a market failure, there’s a role for government solving them.
We saw this in 2005, when I worked with Secretary Leavitt and President Bush to create the pandemic flu plan. It was a mini Manhattan Project, just the same. We had just had the Chiron manufacturing failure in Liverpool; we had a shortage in 2004 of flu vaccine. We needed more domestic manufacturing, more egg-based production, and we needed to convert the industry to cell-based production and create a guaranteed reserve so they would produce enough each year so we had surplus capacity to run a second pandemic flu strain run in our system. That wasn’t going to happen just relying on market forces. We had to basically fund that. And that was President Bush’s pandemic flu plan, which was really industrial engineering on a small scale, which then I took at warp speed and just blew that out in a very similar concept with this public-private partnership [Operation Warp Speed].
Shalala: But one of the companies didn’t take the money.
Azar: Oh, Pfizer? Well, Pfizer did take the money because they took a $2 billion guarantee.
Shalala: Yes, they did it the other way.
Azar: I would work with companies, whatever solved their leadership’s risk-aversion challenges.Shalala: So they didn’t have a cash flow problem; they needed the guarantee of the market.
Azar: Yes, Pfizer didn’t need the capital to do it, but they needed to know that if this went away, I still was on the hook to buy $2 billion worth of vaccine.
Shalala: Now, the question is whether the approach in the future will be the guarantee of market, whether that’ll be more bipartisan, because Republicans will not have Alex Azar sitting there, or whether you’ll have to fund up front the cash flow for the development.
Azar: My view was, I took them where they were, solved their problem. If you don’t need funding to build a factory, then fine. You need to guarantee purchase? Fine. But I think you need to meet these entities where they are and solve their economic problems.
Shalala: That’s the importance of understanding the culture of the industry.
Azar: It’s a similar issue, frankly, with the Strategic National Stockpile and distribution. For instance, I believe what we need is to basically fund the strategic stockpile if we really want a stockpile that’s about the ability to supply pandemic supplies as a surge for the whole country.
When Secretary Shalala started the Strategic National Stockpile—which was called the National Pharmaceutical Stockpile—it was: you keep some of these bioterrorism, chemical countermeasures in secret locations that only the government would buy, like Anthrax vaccine. That got bigger as we got more countermeasures. We had some things like N95 respirators and field medical shelters—hospital units—as surge for if we had a hurricane or tornado or a nuclear event in a localized area. It was never meant to replace the whole distribution system. So the question becomes: is the solution that you just put in these secret warehouses massive amounts of supplies that will expire?
The other idea, this was Strategic Stockpile 2.0 that I was trying to put forward, is we have a very developed wholesale distribution system, but it runs on very efficient, just-in-time inventory. Do we solve their business problem? There is a number at which we can financially pay for their working capital needs to hold excess inventory beyond what’s economically rational.
Shalala: What I would have done is taken the VA hospitals and actually give them the storage capacity and let them use the supplies, and therefore you’d have them up to date. They would have had the storage capacity, but they would have kept using it, then you would have just kept filling in.
Azar: I would just say to the McKessons, AmerisourceBergens, etc., of the wholesale distribution system, “We will pay you for vendor-managed inventory to keep a float—excess beyond what’s economically rational for you.”
Shalala: I would have given the float to the VA and maybe to the military hospitals, too, but I would have used the government hospitals with a float.
Azar: And hence you see the difference between Democrat and Republican. (laughs)
Shalala: But we would have gone in the same direction. We would have solved the problem.
Shalala: Well, they made some of the changes because they put in some of the subsidies already. Whether reconciliation will do any more, they’re going to do some things in the appropriations as well. They’re going to eat away at this. They’ve got to figure out some incentive to get states like Florida to expand their Medicaid program. So they’re going to offer them again 100%, but I don’t think the governor is going to do it.
Azar: In the past, some of the fixes that would have made a lot of sense, like moving community rating from 3-to-1 to 5-to-1 to create a more rational pricing structure to incentivize people in, those changes that Republicans would have supported as kind of rifle-shot fixes, couldn’t be done because it violated the notion of repeal and replace as a whole. So now that repeal and replace is obviously off the table…
Shalala: And Republicans aren’t really running against the ACA because their polls are showing that it’s popular.
Azar: The question now becomes can those fixes happen or is the Democratic price tag of the Christmas tree of what gets added unpalatable to Republicans. That just becomes a negotiation of can you count to 60.
Shalala: And that’s why I think it has to be done in appropriations by committee structure.
Azar: Because a lot of [the changes] you can’t make in reconciliation, because they don’t follow the Byrd Rule, they don’t qualify for reconciliation. So the Democrats alone can’t change some of the things.