Remarks as Delivered on Value-Driven Health Care before the World Health Care Congress

We’re here to talk about a very serious subject. There is in this country a serious value-based health-care movement developing. As Secretary of Health and Human Services, I have devoted a good share of my energies and my department’s resources to nurturing it and developing it over the last three years.

I’ve done so because I fundamentally believe that this is real reform. I believe that value-driven health care goes to the heart of what is the most significant challenge financially that our country may have ever faced. Today, I’d like to summarize the progress of that movement. I’d like to talk about its direction. I’d like to talk about the future strategy.

The value-based health-care movement isn’t an organization that you get a membership card for. It’s not something that even has a mission statement, but it is a growing collection of people and organizations and governments that believe that the value of care should replace the volume of care as the most important virtue in the way we pay for and consume health care in this country.

The movement that I’ve spoken of includes patients who would like to have better information, more transparent information about the cost and quality of their care. It includes those of you who have been working to do the gritty work of being able to define the standards by which we will compare ourselves and the care we receive. The value movement includes thousands of different employers who have formally committed themselves to use as a criterion of their procurement of benefits the value they receive.

It certainly includes a lot of public health leaders who are preaching prevention. It includes those who are doing effectiveness research. The value movement obviously includes a lot of private foundations and think tanks who are providing seed money and who are creating intellectual capital that can prove up concepts and help us move forward.

It obviously includes governors, members of Congress and state legislatures, each of who in their own way make a contribution. The value movement certainly includes the President who, two years ago, required all federal departments to begin moving their procurement of benefits toward the purchasing of value.

An important development, in my mind, has been the emergence of a basic framework to begin to create visual representation as well as understanding of the major requirements of this. They symbol we created is the four cornerstones. The four cornerstones are quality measures that are standard. The second is cost groupings. The third is interoperable electronic medical records and the fourth is incentives.

The four cornerstones framework is, in essence, a big picture work plan. It’s safe to say, I think, that every morning tens of thousands of Americans get up and start working in some way to create practical expressions of the four cornerstones. So, today I’d to take a very candid look at what progress we’re making.

Let’s talk about the first cornerstone, that is to say, standard quality measures. I referenced the abundant work that’s now being done around the United States on developing standard measures of quality. In the last three years there's been an explosive growth in the number of groups that have been working to crack the code on quality.

The result is that we’ve had a large increase in the number of measures but we have not had much standardization. Our progress has been highly fragmented. As a good friend of mine likes to say, the great thing about health-care standards is there's just so many to choose from. That’s no progress.

Great effort has been made the last three years to change that among the medical family, patient organizations, insurers, government, employers and unions, to develop what I would collectively refer to as the quality enterprise. I’m referring to the collective quality enterprise which includes groups like the National Quality Forum, the AMA Physicians Consortium, the Ambulatory Quality Alliance, the Hospital Quality Alliance and many others.

Collectively this quality enterprise is focused on defining, aligning and in implementing different quality measures. Today I’d like to reinforce my belief that the collaborative stakeholder process is the best way but not the only way to develop national standards. I also want to restate the commitment of HHS to adopt endorsed measures when available and will adapt our activities as they are.

While progress is being made, I have to admit that gaining even agreement on a modest number of uniformed measures is taking too much time. Frankly, the process remains complicated and slow. Hopefully, it’ll gain speed as we gain experience. However, we need standardized methods of quality measurement and we need them soon.

As health care’s largest payer, I believe that HHS has a duty to push the envelope. And I want to tell you about a project that we’ve initiated to help do so. HHS is in the process of doing an inventory of all of the quality measures that we’re currently using anywhere in HHS. And there are an amazing number of them, well over 100.

We intend to publish them so that everyone in the health-care marketplace can see our current and our planned measurement thinking. And we’ll be then going about the business of harmonizing within HHS those measures that we’re using throughout the department. My hope is that this will have the affect of accelerating the velocity of this measurement process and the collaborative process. If it doesn’t, the collaborative process will be playing catch-up.

Now I’d like to move to the second cornerstone, that is to say, cost comparisons. During the past three years we’ve begun to see a steady but a slow development of comparative cost data. For example, Medicare is now reporting on its cost for common physician and hospital procedures.

I have also seen a number of insurance companies that are aggressively organizing and shaping pricing data for their own beneficiaries. Once again, the glaring deficiency has been lack of speed in developing standards. We need to do better here.

I want to commend the leadership of Robert Wood Johnson Foundation. They are providing funding to create episode cost to 20 common conditions. And this is a very good start but it is only a start and we need to do it faster. I want to emphasize again the importance that I would put on this for not just the purposes of measurement but also the transformative impact that it can have. It would have an immediate impact.

The reality is the billing system that we use in our country on health care is insane. I’ve tried to imagine using the way we build health care in any other part of our economy. What if we transformed the automobile industry to adopt the health-care pricing structure. Like health care, building cars is a very complex enterprise. However, buying one is relatively straightforward. There are price and quality measures that people can compare and determine which car they think is the best value.

This morning I saw that Consumer Reports was doing a new comparison on the value represented by different hybrids and it’s all over the news. We have that in the automobile business. We don’t have it in health care. So, what if you decided to buy a car and the same thing happened to you that happen to people who get a knee operation.

Let me describe what I think that would look like. The dealer would say to you, “Look, we don’t really know the price here but we know you really need the car. So, why don’t you just come by and pick it up and you can begin to use it?” And then three weeks after that you begin a blizzard of bills.

There would be bills coming from the people who made the chassis on the car. Then the people who made the transmission would send you a bill. And then you’d receive bills from the seat maker and the paint people and the folks who made the sound system. Then you’d get the bill from the dealership, and there’d be charges there for the showroom you stood in, and then you’d get a separate charge for the salesperson, and then there'd be a charge for $27.90 for the coffee that you drank while you were there.

Gratefully, cars aren’t sold that way. All of those costs are packaged and managed by a car company. The consumer gets one price, and it’s a price they understand. Now, some of my friends in the practice of medicine are going to find this analogy troubling. And they’re going to point out that it’s different to buy a car than to have a knee operation.

OK, the analogy isn’t perfect. But let’s not miss the point here. The way we price health care cannot be understood by a human being of average intelligence or limited patience. Again, I want to say this: I think it is time that we begin to challenge the basic assumption that health care is all that different from other things that we buy.

Now, let me illustrate that point with this statistic. Last year, Medicare paid for 255,000 knee operations. Now, incidentally, we also paid for 95,000 heart bypass operations and 91,000 lung cancer treatments. Now, believe me if you pay for 255,000 of anything, you're going to know what medical supplies are needed, what procedures are done, what facilities are going to be used. And we do know that.

And not only do we know that, the medical practitioners who perform it know that. A consumer should be able to get a single price for common procedures and that should include all the costs. The hospital cost, the surgeon, the anesthesiologist, the rehab, the pharmacy, the labs, the crutches — all the costs ought to go into that.

Think of what a transforming piece that alone would be. It’d have a powerful impact in promoting coordination and accountability where little exists now. If an episode price was given to a consumer and the medical equipment people tried to gouge on a piece of medical equipment, it wouldn’t be up to the consumer to deal with that. The other providers who came together with the package would say to them you're costing me money and the market would enforce that.

If a patient returned because of a hospital borne infection, that shouldn’t be the patient’s cost. Such a system would resolve that. It would also provide for apples-to-apples comparisons, which makes competition across the broad marketplace possible.

Now, back to our role in pushing the envelope; the second cornerstone is cost comparisons. Again, I want to make clear that we will use, at HHS, measures when they're available but we cannot continue to let perfect be the enemy of good when the status quo is a far more potent enemy.

HHS will soon publish information on top Medicare procedures by cost and by volume as part of an efficiency road map that we’re developing in our department. In other words, we’re very hopeful that by showing all of you specifically where efficiency measures are and by when, that we’ll speed up the collaborative process.

Medicare is also developing a demonstration that would establish bundled payments for hospital-based episodes of care. Participating hospitals would be able to competitively bid for these episodes and then we would share them with beneficiaries who chose hospitals that priced their episode below the episode rate. This not only would hold potential to improve quality and reduce costs by encouraging physicians and hospitals to work together, it would also encourage informed consumers to begin making decisions.

Now, let’s move to the third cornerstone, health IT. Three years ago there were 200 vendors who were selling electronic medical equipment or systems but there were no standards for interoperability. Since that time we’ve made a remarkable amount of progress. A standards process has now been put into place. We are now steadily marching toward interoperability.

We’re not there yet but we’re getting closer. I like to say if interoperability is this big, we’re about here and next year we’ll be here. We continue to move forward. We’ve created a CCHIT certification process, so that products that are certified can be demonstrated as meeting those standards. More than 75 percent of the products that are now being sold in the marketplace carry the certification of CCHIT. In addition, a national health information network is going to start testing the flow of information by the end of this year between different points.

By next year we’re going to be transmitting real data. The numbers of hospital and larger physician practices that employ electronic medical records have steadily increased. However, we continue to have a serious challenge among small to medium practices. Fewer than 10 percent of those practices have health IT systems.

We’ve studied carefully why that’s so, and we’ve come to the logical conclusion that it’s about the cost or the economic burden and about the burden of change. So, we’ve begun to experiment with different methods of changing the macro-economic equation on how we reimburse health care, to contemplate that, and want to get to the point that even small practice doctors share in the financial benefits.

We’re also beginning a pilot program that will provide Medicare beneficiaries with personal health records. With the entry of major technology players into this space, you can just feel the momentum beginning to build here. We’re already on the verge, I think, of an era when consumer management of their own records is going to dramatically increase.

One thing I am sure of is that we have to enable that, because personal health records will only work if people don’t have to populate their own record. If they can have information populate their record, they’ll use it. It’ll become a very important tool.

Finally, HHS is signaling that in the near future payers like Medicare simply can't reimburse doctors at the highest level unless they're willing to interact with us at the highest level of efficiency.

A good example of this is E-Prescribing. The software exists today in nearly all pharmacies and many doctors’ offices. It saves money. It saves lives. It’s convenient. It’s time to fully implement E-Prescribing, and I’m hoping that Congress will give HHS authority to establish E-Prescribing requirements very soon this year, perhaps as early as June as we deal with the Physician Reimbursement Payment Rule.

Now, let’s go to the fourth cornerstone, incentives. This is where we begin to answer the question: so, how is all this going to save money? Well, the answer lies in that it’s just not going to be in greater efficiency, but it will also be in the elimination of duplication and unnecessary services altogether.

As quality and cost information improve, so will our capacity to develop incentives that motivate better results. Improved quality and reduced cost begin to send value signals into the marketplace. Frankly, a value signal is just a nice way of saying carrots and sticks.

Value signal strength can be progressive. The stronger the signal the more predictable the behavior is. For example, as information on quality and cost becomes more reliable, plans are better able to design benefits, which will guide patients to value.

Patients are better informed and they're better motivated. They will find it. In the future, I think we’ll see insurance plans and employers saying to their employees, if you will go to a high-quality, moderately priced physician, we’ll pay for most of it. But if you insist on going to your brother-in-law who is low quality and low cost, you're going to have to chip in on that.

Sometimes we’ll see carrots and sticks used in combination. We’ve seen this before. Do you remember when the ATMs were first put into banks? They would put people in the lobby and show them how to use their cards. They’d give them toaster ovens and do just about anything they could to get them to use it. But there was a point at which they discontinued that and said if you're going to come to the counter we’re going to charge you more.

E-Prescribing is an area where that might begin to occur. For a period of time we need to assure that people have an opportunity to make that transition, but there’ll be a point where we have to say, if you're not willing to work at the most efficient level with us, we can't continue to pay you at the highest level.

Value signals. As we implement them, it’s important that we remember that there really is no such thing as a national health-care market. The national health-care market is really a network of local markets. If we’re actually going to see a national system of health care that has a philosophy of value-based care, we’re going to have to implement it one market at a time.

I mentioned earlier that the collaborative stakeholder organizations that we’ve been working with have been developing all over the country. They're trying to figure out how to measure quality. In the last three years, I’ve traveled to well over 100 different medical markets and had a chance to sit down and talk about this with the medical community in those areas.

Let me just share three things with you that I have learned among many. The first is that value-driven care requires national standards. The second is the importance of local trust. Doctors and hospitals are understandably suspicious of a distant entity issuing performance evaluations on their practice.

From those two lessons I have coined an important principle that I believe defines the operational strategy of the value movement. Just four words: national standards, local solutions. So, to harmonize the need for national standards with the need for local solutions, we have created a unified national brand that will be given to national quality measurement organizations that are willing to use common quality standards.

The brand is Chartered Value Exchange, and we’re seeking authority from Congress to release Medicare claims data to support the work of charter value exchanges. And we have thus far awarded 14 of these charters, and I’m hopeful to see 50 of them by 2010. This year we’re going to assist the CVEs in organizing among them a formalized self-governed network.

I see this network ultimately taking over the task of issuing new charters. And I said that there were three lessons that I wanted to convey. Here's the third: The more I work with health-care reform and the more I focus on this problem, I am persuaded that health care or health-care reform and Medicare reform have a symbiotic relationship.

I’m persuaded that in this country, big picture health-care reform cannot be accomplished without Medicare reform. If Medicare isn’t the payer, then it’s likely a payer who’s following Medicare’s quite unfortunate price-fixing system. Likewise, Medicare is dependent upon the whole system changing if it’s going to achieve sustainability.

In the final 272 days that remain in this administration, you can expect continued urgency from me on this point. You’ll see a significant number of administrative changes that we intend to make in advancing the cause of value-based health care. We’ll also be pursuing progress legislatively.

In June, Congress and the doctors of this country will engage in an odd but now familiar ritual where we negotiate reimbursement levels for services that they provide the Medicare beneficiaries. This is an opportune time to take some major steps forward in the value movement.

I submitted legislation to Congress in February. The first section of the bill is squarely aimed at enabling change in Medicare in six critical areas, and I’ve mentioned all of them today. Many of the provisions are provisions that have broad bipartisan appeal, and, frankly, I am optimistic that this is an opportunity for us to make bipartisan progress.

Now, in our review of the four cornerstones, our work plan, and our progress, there's one other thing that we really should say. We need to acknowledge that we’re not very good at this yet. We have a lot to learn.

I was talking with my son the other day about the first video game that I had ever seen. Do you remember Pong? It was, you know, it was just so simple and yet it captivated us. I spent a lot of time dropping quarters into the top of a table at the Pizza Factory in Cedar City, Utah, playing Pong. Over time we became more sophisticated with games like Pac-Man and Donkey Kong. I’m not really sure you can say Donkey Kong and sophisticated in the same sentence, but you remember the game.

It had a new functional — it had strategy and color, and you could play it at home. But things have changed even more. Now, today the big favorite at my house is Wii. You can play, you can swing a golf club or throw a ball or have a boxing match. Your opponent can be across the room or across the world, thanks to the Internet. This is just the way technology shapes and it’s the way the world changes. And we just have to acknowledge that we’re just leaving the Pong era in developing value-based care.

We’ll get better at this. We’ll move from Pong to Pac-Man and onto Tiger Woods. It will just take time. Better information about quality and cost will not appear all at once, nor will the benefits. But it will happen gradually over the next decade, but at each step, just like the emergence of other technology, we’ll see benefits at every step in the progress. We will see new tools that emerge that will change and transform what we now know to be the status quo. So it is with every social and economic situation.

Now, I deliberately chose in this speech to leave for another day a lot of commentary about how critical the economic pressures have become and will become. Intuitively, everyone in this room understands the picture. But in conclusion I would simply like to be on record as saying I am among those who believe that the unbridled escalation of health-care cost is the most serious economic threat our nation faces in the decade ahead.

Left on autopilot I have no doubt that the percentage of our nation’s economy devoted to health care will steadily march forward. And that ultimately the weight of those expenditures will bring our economic system to its knees. There is no place on the world leader board for a nation that spends 25 to 30 percent of its gross domestic product on health care. And unless we change that’s exactly where we’re headed.

Every generation of Americans has had a moment where we had to prove that this nation deserves its leadership role in the world. I believe that solving the health-care puzzle is this generation’s challenge. At some if we don’t, we will cease to be the worlds’ economic leader and it’ll require change.

In a global market, there are only three ways that you can approach change. The first is, you can fight it and fail. The second is, you can accept it and survive. Or the third is, you can lead it and prosper. This is the United States of America. Let us lead.

Last revised: January 12, 2009