Key takeaways
- The US healthcare system is not functioning well when more expensive care doesn’t deliver better outcomes and value
- Transparency is key for the transition to a value-based healthcare system and for patient choice
- Incentives within the health insurance system need to be realigned, both for a value-based system and in order to help the uninsured
- Drug research and development has fundamentally changed, for the better
When Alex Azar took office as the Secretary of the US Department of Health and Human Services (HHS), he inherited priorities like stopping the opioid crisis, bringing drug prices down and improving the cost and accessibility of insurance. To these targets, he added a mission to accelerate “the value-based transformation of our entire healthcare system”. But what he did not expect during his term was the arrival of a worldwide pandemic.
A value-based healthcare system
Nevertheless, despite the recent shift in focus towards COVID-19, Azar continues to advocate for value-based care that can transform the US healthcare system to a more effective system that functions well for all stakeholders, especially the patients. In conversation with RBC Capital Markets’ Frank Morgan, Healthcare Services Equity Research Analyst and Brian Abrahams, Co-Head of Biotechnology Equity Research at RBC’s Global Healthcare Conference, Azar outlined how value-based care was still his top priority.
“When you have in the exact same market, a hip replacement going for $10,000 at one provider and $40,000 at a different provider and the $10,000 hip replacement is actually objectively a higher quality procedure with better quality outcomes, you do not have a functioning system in terms of the price mechanism, or of consumers. And that is true for drugs and health services,” he said.
“The core mission that I had was how to get rid of artificial regulations that are impediments to the price mechanism, and the consumer-centric behavior to enable this. We don't know where all of that will lead to. But it is certainly a better environment than we're in now.”
Transparency and choice
Cost transparency, for Azar, is a key component of reaching this consumer choice within the system. And he does not agree with the idea that knowing what everyone is charging will adversely affect competition.
“You're assuming the world as it is now, and how transparent information would operate within that world instead of a dynamic world where you have this soup of information,” he pointed out.
“We don't fully know how the market will adapt to that information, that's one of the beauties of a competitive market system, we can't control or know all of the innovation that will happen. But we've never seen any part of our economy where transparency has actually hurt the economic functioning of markets.”
The alternative is that “you don’t believe in human behavior and market forces and you believe we're going to live in a perpetual system where prices go up and quality goes down every year”.
Realigning incentives for better care and greater access
Another aspect of achieving a value-based system, and a key component of tackling the problem of the uninsured, is to realign incentives. Azar gave the example of acute kidney care providers currently being incentivized to provide in-facility dialysis, when incentives should be for early intervention and avoiding dialysis, and failing that, prioritizing transplants and at-home dialysis – a much better outcome for the patient.
Similarly, insuring the uninsured is not a burden that should fall disproportionately on the young and healthy, but across the general taxpayer population. And insurance companies should be using reinsurance risk pooling and smarter economic and actuarial fixes to deal with the risk.
“We can solve these problems in ways that respect markets, allow patients to still have choice and have the government meet them where they are, instead of just shoving them all into a one-size-fits-all model, which is what a Medicaid expansion or subsidized ACA system would be,” he said.
“We can solve insurance problems in ways that respect markets, allow patients to still have choice and have the government meet them where they are, instead of just shoving them all into a one-size-fits-all model.”
The future of the system
At present, Azar doesn’t see much political appetite on either side of the aisle to tackle healthcare’s biggest issues, particularly while still tackling the challenge of coronavirus. However, he is hugely proud of his role in Operation Warp Speed and how the system adapted to meet that challenge so far. Not only in developing the vaccine, but also in adopting virtual healthcare and proving its worth in future systems.
But there are more challenges ahead. The current payment and reimbursement system, for example, has no room in its calculations for how to charge for one-off curative treatments. As cell and gene therapy innovations proliferate and advance, single treatments for previously incurable diseases, such as sickle cell disease, have become a real possibility. But how do you fairly pay for the innovation and development of that treatment in a system that’s built on the idea of chronic disease management over time?
Azar doesn’t believe that what appears to be a trend in recent times for more stringency in drug approvals from the FDA is due to any structural or cultural changes at the agency. But he points out that the agency’s ethos is very leader-dependent, which means it can change quickly. Newer modalities like gene and cell therapies are also prone to long-term implications and off-target effects, which makes the approvals process more difficult.
However, he remains hopeful for the future of drug development. “We are fundamentally moving from the old era of empirical drug development and discovery where you basically take a library of molecules, throw them up against the wall and see what sticks, to actually having a proven target. The biggest thing you're studying in the clinical trial is an off-target efficacy or safety. And that's a remarkably different and great place for us to be from where we were 20 or 30 years ago,” he said.
“We are fundamentally moving from the old era of empirical drug development and discovery, and it’s a remarkably different and great place for us to be from where we were 20 or 30 years ago.”
