American Enterprise Institute

Health care that matters: Real choices for real competition

Introduction: Thomas P. Miller, AEI

Address: Promoting choice and competition Brian Blase, National Economic Council

Panel I: Revisiting and redefining choice and competition

Panelists: Jeff Goldsmith, Navigant Healthcare Mark Hall, Wake Forest University Scott Harrington, University of Pennsylvania David Hyman, Georgetown University Barak Richman, Duke Law School

Moderator: Thomas P. Miller, AEI

Panel II: Can choice and competition theories work in practice?

Panelists: Rajiv Bhatt, HCG Cancer Centre India Neil de Crescenzo, Change Healthcare Lewis Levy, Teladoc Health Tony Miller, Bind Thomas Moriarty, CVS Health

Moderator: Regina Herzlinger, Harvard Business School

Introduction: Michael R. Strain, AEI

Address: A new direction for health care: Choice and competition Alex Azar, US Department of Health and Human Services

Discussion and Q&A: Alex Azar, US Department of Health and Human Services Thomas P. Miller, AEI

9:00 a.m.–12:50 p.m. Tuesday, December 4, 2018

Event Page: http://www.aei.org/events/health-care-that-matters-real-choices- for-real-competition

Thomas P. Miller: Good morning, everyone. Welcome to the American Enterprise Institute. Our conference today is “Health care that matters: Real choices for real competition.” I’m Tom Miller, chief entertainment critic for health policy here at AEI. Here’s what we’re going to do today. Yesterday, the Trump administration released its multi- departmental report on reforming America’s health care system through choice and competition. We’ll start with an address by Brian Blase, the White House adviser on health policy at the National Economic Council, about how the report came about, why it’s needed, and what sort of policy reforms based on greater choice in competition could help provide higher-quality health care at more affordable prices. Then we’ll hear from two different panels. The first will take a closer look at what a more fleshed-out approach of enhanced choice and competition could accomplish, of both its potential and its limitations. In other words, as those of us in the think tank and academic worlds usually reflect, even if it works in practice, should it work in theory? Our second panel will dive deeper into current health care markets with real people in real businesses, highlighting what could be done differently in delivering care and improving health outcomes and actually succeed — not that some better public policies wouldn’t help in making it come about. Finally, we’ll wrap up at a high point with a very special keynote address by Health and Human Services Secretary Alex Azar. Then we’ll link the administration’s policy aspirations with the concrete steps that it’s taking and will continue to pursue in regulatory and reimbursement reforms to deliver change that matters. Before we start the more technical, higher-level, and sophisticated portion of today’s discussion and analysis, let me just set up a more stripped-down oversimplification of the current context for health care and health policy with regards to choice in competition. Or as I usually call it, my opening monologue. First of all, we’re not all working from the same dictionaries. Similar words and terms don’t mean the same to everyone. For example, a more government-centric, top-down view of getting from here to somewhere in health care for once in future kings of health policy might prefer very straight lines. There are less flexible regulatory approaches. They’ve had difficulties in fitting those meddlesome square human pegs into round bureaucratic holes. “Probably needing more hammers” is too often the habitual response. A differing view of more limited competition in health care tends to favor dominant incumbents and protect them by pulling up the entry drawbridge before potential competitors can storm the castle. Views of competition and choice can be shaped and limited by some other overriding goals, like protecting the sacred relationship between doctors and payments. Now, many high-minded health policy reforms come up a little bit short when they commit one of the classic blunders. Not blunder number one, never start or get involved in a land war in Asia. Not blunder number two, never try to match wits with a Sicilian when death is on the line. But number three here, never go up against red medical pirates when money is on the line. A very different though older perspective on health care regulation would argue that bigger is more beautiful and better, if only those who first succeed are not later tied down and hampered by smaller minds with too much red tape. More recently, we’ve seen stronger

incentives to grow bigger in various sectors of health care, arguably to gain leverage over opponents or to absorb higher regulatory compliance burdens or just as a defensive measure, either to be the last competitor standing or at least among the last ones surviving when the rents are distributed. An opposite theory then would try to argue that the only way to check the appetite of one heavyweight is with an opposing behemoth. Okay. A common nostrum for what’s needed to boost meaningful choice and simulate more responsible — stimulate more responsible, not simulate — stimulate more responsible competition is more information about health care prices and quality. We do already have some degree of transparency in health care, primarily at the hospital level. But it’s more of a rear view than a leading indicator of what’s ahead. There really isn’t a shortage of data in various areas of health care, but what goes in doesn’t necessarily come back out again in accessible and useful information forms. Any similarity to the simulated view of a black hole in front of the large Magellanic cloud image as an event horizon is purely coincidental. Some hopes remain that strengthening incentives and tools for patients and other perspective health care consumers to become more engaged and responsible for their health care decisions might produce more meaningful choices and stimulate competition among providers to serve them more accountably. But there’s far more skepticism among health policy experts about how this would work in practice, with consumer-driven health care predicted to head quickly over the nearest cliff. Well, we could close our eyes as an act of faith, make a wish, and hope for something better to materialize more magically, if not organically, sort of like spontaneous combustion. But that’s a rather tall, rare phenomenon outside of band members playing to their own tunes. So there might be some ample room for caution, if not skepticism, when one reflects back on health policy history and whether we actually mean what we say. But not to end on a down note. We should always hope for better and keep trying, just not maybe in exactly the same ways that disappointed us before. Why? Well, let’s find out how it could be and then give it another shot because we’ve seen worse. But hope is not dead. It’s just mostly dead. Like Miracle Max, we’ll soon see where the patient is heading in a few more hours. Our first speaker this morning is Brian Blase of the White House, a good sport for sitting through that because now Brian has some serious things to say. He’s a special assistant to the president for economic policy, focusing on health policy particularly at the National Economic Council. He was previously a research fellow at the Mercatus Center at George Mason University with some really pioneering work in taking a look at what was going on in the Affordable Care Act. For another four years, five years, he was the staffer at Capitol Hill, both at the House Committee on Oversight and Government Reform and the Senate Republican Policy Committee. Brian has received a Ph.D. in economics from George Mason University with a dissertation on the Medicaid program. And he reminded me this morning that a long time ago, he was a research assistant at the American Enterprise Institute. So all those who’ve worked for me, there’s still hope for you if you work for someone else. Please welcome Brian Blase. Brian Blase: Thank you, Tom. I apologize in advance. I don’t have any slides. Thank you, Tom, and for AEI for putting on this excellent forum today. I’m honored to spend a few minutes discussing the administration’s work advancing health care choice and competition and to discuss the administration’s report, “Reforming America’s Health Care System Through Choice and Competition.” President Trump called for this report in an

executive order he signed in October last year. The report represents an administration-wide effort. After more than a year of careful discussion, we came to agreement. The president was right, and health care is complicated. I learned from Tom to try to start with a joke. Tom’s jokes got more laughs. We also agree that health care policy should increase consumer choice, inject competitive forces into delivery of care, and permit innovation to flourish. We believe that consumers working with providers are in the best position to determine value. And we look to create better incentives for consumers and providers to maximize health care value. Under the leadership of the president and key administration figures like Health and Human Services Secretary Azar, we’ve already made some significant progress in this direction. Why are choice and competition important? To quote one of today’s speakers, the great Professor Herzlinger from her book “Who Killed Health Care,” choice supports competition, competition fuels innovation, and innovation is the only way to make things better and cheaper. We know that productivity and efficiency in health care lag almost every other sector of the economy. We think the barriers to choice and competition explain a large part of why. When government policies and regulations suppress competition, producers may use their market power to raise prices, produce lower-quality goods and services, or become complacent in innovating. We reject the notion that health care is so different that choice and competition cannot produce positive results — namely, quality-adjusted price decreases that have occurred in nearly every other sector of the American economy. Of course, there are some differences between health care and other sectors of the economy, and the report discusses these. But government policy represents the main reason that choice and competition are suffocated in health care markets. Government policy has contributed to an excessive reliance on third-party payment, where employers, insurance companies, and government bureaucracies have too much power and control. Pervasive third-party payment creates a disconnect between providers and consumers and often leads providers to serve intermediaries’ interests instead of best serving consumers and competing for their dollars. Excessive third-party payment reduces innovation since innovators are forced to navigate complex reimbursement rules and policies, particularly for Medicare. The Medicare fee-for-service structure causes additional problems by setting payment rates that often lead to a misallocation of resources, as fees may be a poor proxy for value. The structure, which bases reimbursement predominantly on setting of care and not the patient’s underlying medical needs, causes care to often occur in settings that are more expensive and does not produce quality by paying the same rates regardless of outcome. In addition, government policy often serves to protect established incumbents and favored interest groups from potential competitors. Before diving into the report, let me first mention the other three items from that executive order. In order to increase choice and competition and help individuals most harmed from the Affordable Care Act, the executive order directed the administration to consider expanding association health plans, short-term plans, and health reimbursement arrangements. In June, the administration made it easier for employers to band together to offer coverage to their workers by opening up a new pathway for forming association health plans. As a result,

sole proprietors without any employees can join AHPs for the first time, and any businesses within a state can form an AHP, regardless of their line of business. In August, the administration expanded consumers’ ability to purchase short-term plans, which are not subject to ACA rules. This action largely reversed a 2016 Obama administration rule that restricted these plans to three months and restricted renewability. We extended the contract period back to 364 days, allowed a plan to be renewed for three years, and clarified that people are free to combine these plans with separate commercial products that provide financial protection from the possibility of future premium increases if they get sick. These plans hold the promise of much more flexible and affordable coverage for millions of people. And these plans allow greater innovation in health insurance design. The third deregulatory effort, and potentially the most transformative, occurred more recently. In late October, the administration proposed to expand the use of Health Reimbursement Arrangements in a way that promotes individually selected coverage. The proposed regulation would provide opportunities to all employers to finance individually selected health insurance on a tax-preferred basis, providing the same tax advantage to coverage the employee selects through the HRA as for traditional employer-sponsored coverage. Current Obama administration regulations prohibit this and thus significantly restrict workers’ choices of coverage. Why is this needed? A growing number of people who work at small or mid-sized firms do not receive employer-based coverage. Only about a third of workers at firms with less than 50 employees are covered by their employer. Additionally, 80 percent of firms that offer coverage only provide a single plan for their employees. We are very excited about the promise of this role, which would better enable businesses to focus on what they do best — serving their customers — and not on navigating complex health benefit designs. It should dramatically increase choices for workers whose employers offer this type of HRA. Economic research shows the value of choice to workers. A 2013 article in the American Economic Journal estimated the median welfare gain of additional insurance options for workers at 13 percent of premiums. Turning back to the choice and competition report, we recognize that the current system tends to work very well for large institutions and powerful interest groups. And they tend to resist reform. It is also clear that many consumers and patients are frustrated and not well served by the enormous complexity, confusing bills, rising costs, and uneven customer service and quality of care. We are very concerned about increasing provider consolidation, and the report discusses problematic trends. According to a recent analysis, roughly 77 percent of Americans in urban areas live in highly concentrated hospital markets. Horizontal consolidation often pushes prices higher. For example, price increases as high as 40 percent have resulted when competition was lost after one hospital system acquired a competing hospital. And hospital systems are increasingly buying out physician practices. In 2010, 28 percent of primary care doctors worked in hospitals or hospital systems. By 2016, that had climbed to 44 percent. While tighter integration may lead to some improvements in care delivery, it can also distort incentives to compete and push more health care services into higher-cost locations. The administration believes it’s vital that the Federal Trade Commission and antitrust division at the Department of Justice remain vigilant in confronting anticompetitive mergers.

We recommend in the report that Congress amend the Federal Trade Commission Act to extend FTC’s jurisdiction to nonprofit health care entities to prevent unfair methods of competition. Broadly, the report covers three main areas: health care provider markets, health insurance markets including Medicare, and consumer-driven approaches to health care. The report discusses barriers to consumer choice and health care competition and recommends how Congress, the administration, and states can come to the aid of the American consumer and patient. Now, I’m going to boil down a 50,000-word report to a little more than 1,000 words. On health care provider markets, the report highlights many harmful barriers to competition, including rules that keep health care providers from practicing to the full extent of their abilities given their education, training, skills, and experience. While government imposes entry barriers and undue restrictions on scope-of-practice for particular types of providers, they often are not responding to legitimate consumer protection concerns. Moreover, there is a risk that health care professionals facing competition by those with overlapping skill sets will affirmatively seek these restrictions. Overly broad scope-of- practice restrictions can give these professionals a state-sanctioned protection from competition, even when they are not needed to protect consumers. These types of barriers can include rigid collaborative practice and supervision agreements between doctors and dentists and their care extenders. By limiting access to safe and effective care, these restrictions often most harm lower- income people who would benefit from lower-priced alternatives, such as nurse practitioners, physician assistants, and dental hygienists. They harm all patients that would benefit from greater convenience, such as more accessible locations or expanded hours. Research suggests that increasing patient choice by loosening these restrictions is not a zero-sum game for other medical professionals. Allowing allied health professionals to practice to the full extent of their abilities may actually improve overall health system capacity. We recommend that where appropriate, government programs directly reimburse allied health professionals for their service. The health care workforce must be able to respond to changes in consumer demand. Unfortunately, state-based licensing requirements can undermine workers’ ability to do so. We support the development of interstate compacts and license reciprocity so that medical professionals can more easily treat patients across state lines or relocate based on market demand for their services. For many services, telehealth often increases the virtual supply of providers and extends their reach to new locations promoting beneficial competition. State laws and regulations typically require the providers be licensed in the state where the patient is located, thus restricting the provision of telehealth services across state lines. We support loosening these restrictions, consistent with patient safety, so telehealth can better meet patient needs. Finally, perhaps the most egregious of all, certificate-of-need laws that require health care providers to obtain permission from a state, a state-authorized agency, or even existing providers in order to construct new health care facilities, expand existing ones, or offer certain health care services. The evidence to date suggest that CON laws are frequently costly barriers to entry for health care providers that don’t control costs or improve health care quality. Evidence suggests that greater competition incentivizes providers to become more efficient. Recent work shows that hospitals faced with a more competitive environment had better management practices.

Consistent with this is evidence suggesting that repealing or narrowing CON laws can reduce the cost of health care. Based on the evidence and their enforcement experience, the two federal antitrust agencies, the FTC and the antitrust division at DOJ, have long suggested that states should repeal or retrench their CON laws. Moving to health insurance and Medicare, we address problems with the Affordable Care Act and with the broader health system, such as Medicare fee for service. For example, while the administration is taking steps to open up affordable alternatives through AHPs and short- term plans, it is vital that states allow these markets to flourish rather than limit them. On Medicare, although we have made some significant reforms in this area, we aim to further correct some of the distortions caused by fee for service, including by moving to site-neutral payments where feasible so that reimbursement is based on the clinical characteristics of the patient rather than site of service. On network adequacy laws, while we certainly understand the intent, measures used to determine adequacy may not align with the ability to meet enrollees’ preferences and may ultimately limit consumers’ choices. For example, using proximity measures to regulate network adequacy may discourage insurers and providers from developing telehealth capabilities or utilizing regional or national centers of excellence. On consumer-driven health care, we know that poor incentives abound since the vast majority of transactions do not involve people directly spending their own money. We know that health care services such as Lasik and plastic surgery in which third-party payment is rare have shown price drops accompanied with quality improvements. The key here: Providers are competing directly for consumer dollars. In the report, we discussed the problems resulting from third-party payment and look at better ways to equalize the tax treatment of health care so that we are not discriminating against certain types of health care financing, like employee-selected coverage and savings. For example, HSAs provide good incentives have been shown to reduce unnecessary utilization and lead providers to compete directly for consumer dollars. One of the main problems with HSA policy is that too few plans can be integrated with HSAs. About 60 percent of people who have deductibles exceeding the required minimum deductible for a high-deductible health plan do not have HSAs. We recommend a new standard for what can be considered an HSA-qualified plan using a plan’s actuarial value. Any plan below a certain actuarial value, which we selected at 70 percent, would be deemed an HSA-qualified plan. This would allow much greater plan variation and, for example, allow plans to cover more preventive services below the deductible and still be considered HSA qualified. Finally, let me discuss price transparency and quality metrics. It is a priority for this administration to ensure that patients are engaged with their health care decisions and have the information they need to be well-informed consumers. In order for markets to function well, consumers need to know prices. Perhaps not surprisingly, there is a wide variation in prices charged across providers, even within a geographic area, variation that doesn’t make sense in a well-functioning market. The report discusses how reference pricing has been an effective way to better align incentives, increase competition, and push providers to lower prices. If an enrollee receives care from a provider that charges above the reference price, then the enrollee is responsible for the difference. Reference pricing has been shown to reduce the variation in prices across providers, as providers increasingly compete on price. When the

California Public Employees Retirement System started using reference pricing, higher-cost providers soon responded by lowering their prices to attract enrollees. Further, we encourage the private sector and states to build consumer-friendly websites that display meaningful and digestible price information for the most common transactions and to make such data accessible for employers and researchers. The administration should continue to publicly release and increase access to claims data from taxpayer-funded federal health programs and encourage the private sector to build — and states — to build consumer- friendly websites, capable of displaying price information for the most common transactions. Finally, quality metrics. We believe in measuring health care quality but that the current way we do so results in bewildering complexity for consumers and substantial administrative burden for providers. We want to streamline quality reporting to focus on what really matters, and it doesn’t place particular burden on smaller providers. In closing, I urge you to closely review the report and the recommendations. Some are more general and directional, and others are more specific. Most of you are unlikely to agree with us on all of them. However, we believe taking the steps outlined in this report will dramatically improve the nation’s health care system, with choice and competition fueling greater innovation and productivity. Thanks again for the opportunity to be with you today. I look forward to taking any questions. Thomas P. Miller: Thank you very much, Brian. We’re under some tight time constraints now that I’ve used up all my laugh lines, but we have room for a couple of questions before Brian has to depart. And we’re going to — the usual story, the name, serial number ID, and also the abbreviated op-ed. Back there. In the form of a question. Q: Got ya. Paul Heldman with Heldman Simpson Partners. You focused on site-neutral policy. I’m just wondering what more the administration can do on site-neutral policy without Congress. Brian Blase: That’s a good question. So I think we have done most of what we can already do from expanding what ASCs can cover and from sort of updating — increasing the update rate for ASCs relative to hospital outpatient departments. But I know our Centers for Medicare, this is a priority for them. They are creative, and they are thinking about other ways that they can sort of reduce the distortions that happened from having disparate prices across different sites of care. Thomas P. Miller: Any further questions? Okay, we’re going to bring up the next hockey line. Thank you very much, Brian. Appreciate it. Brian Blase: Thank you. Thomas P. Miller: We’re going to go to our first panel. Switching fairly quickly without a break. Our four tenors will be assembling on the stage in just a moment. All right. Again, as I said before, we’re going to prove all this stuff can work in theory, and I’m sure that all the panelists are capable of talking about health care choice and competition or whatever else you want in health care, for hours on end. But we’re going to limit them to a little more abbreviated opening remarks, sort of their greatest hits. I’ve asked them to say in about three minutes, which means they’ll take five minutes, to say what matters most in

health care and competition. May or may not be in the report last night. I read it, but I didn’t have anything better to do after the Redskins game, so I’m not sure whether anybody’s gone through the hundred pages chapter and verse. But I think we’ve got a good flavor as to what’s involved here. We do have one late scratch for the panel. We were planning to open with David Hyman, who’s also an adjunct scholar at the American Enterprise Institute. David was downgraded from questionable to on the PUP list. I understand though he may be trying out for the Redskins backup quarterback job this afternoon because they’ll take just about anybody, regardless of how ill you are. But we miss David because he would have brought the perspective of having worked on this type of report, an interagency FTC-DOJ, about 15 years ago. And arguably, so what’s changed? Big impact. Well, we’ll see. I’ll introduce all of the panelists in sequence now. And then we’ll have their opening round remarks, and then we’ll start firing at each other. We’ll open up with Mark Hall, who is the director of the Health, Law, and Policy Program and the Turnage Professor of Law at Wake Forest University; one of the nation’s leading scholars in health care law, public policy, and bioethics; author and editor of 20 books, including one that taught me what health insurance was about in the mid-90s through AEI. Mark’s currently continuing to research health care reform, access to care by the uninsured, and insurance regulation. He also teaches in the Wake Forest graduate program for bioethics in its M.B.A. program. He’s on the research faculty at its medical school. I wouldn’t mention the academic credentials because all these folks are vastly overeducated. Needed to get out into the workforce at a younger time, but it’s the only way to keep up with the robots looking ahead for the future. After Brian, our next speaker will be Scott Harrington. He’s the Alan Miller Professor and Chair of the Health Care Management Department at the Wharton School, the University of Pennsylvania, secondary appointment in business economics and public policy; senior fellow with the Leonard Davis Institute for Health Economics; and also an adjunct scholar for health policy with AEI. Blah, blah, blah, blah, blah. He did a lot of stuff, Scott. However, he’s also a more recent policy researcher focused on the ACA’s impact on health insurance markets and on insurance, financial regulatory issues, and teaches courses on the health care finance in the US health care system. Next today is Jeff Goldsmith, one of the nation’s foremost health industry analysts. He specializes in corporate strategy, trend analysis, health policy, and emerging technologies. Basically, if people want an interesting idea and a different take on things, you ought to listen to Jeff once in a while. He doesn’t always come at it from the predictable manner but always worth listening to. And as I just said that, I just turned my pages over to the wrong side. He writes and lectures actively on health policy financing and technology about the US and overseas. Finally, Barak Richmond is on the health sector management faculty at Duke University School of Business. He’s a senior fellow at their Institute for Ethics. Ethics and business, what a combination. His primary research interests include the economics of contracting, new institutional economics, antitrust, and health care policy, none of which I ever took when I was a student at Duke, but you can do anything these days. He’s coeditor with Clark Havighurst of “Who Pays? Who Benefit? Distributional Issues in Health Care” and author of “Stateless Commerce.” Very interesting book that you should all check out more recently about the diamond network in the persistent of relational exchange.

Remarkably enough, Barak actually teaches students and won a Teacher of the Year award in 2010. Based on my experience, that wasn’t tough competition at Duke Law School, but we’ll see. He even has practical experience on Capitol Hill, having worked for Sen. Daniel Patrick Moynihan back to the 1990s, and he still wants to talk about this stuff. All right, we’re going to start with the greatest hits. And it’ll be Mark Hall beginning. And we’ll move down the panel sequentially, and then we’ll round and circle back. Mark? Mark Hall: All right, thanks, Tom. Always a tough act to follow. Thanks for pulling this whole program together, so quickly and timely. The report did come out late yesterday, but I did have a chance to at least skim through it. And it is impressively comprehensive. Something this comprehensive hasn’t been done since I think David Hyman, who is unfortunately not with us. But was it 10 years ago or so when he was with the FTC and we had a similar report? So I think it would be interesting, you know, academically to historically, you know, look back at what was done previously and compare. You know, there’s some common themes and some new themes — and try to learn from that as far as lessons that we failed to take last time, but things that we may have sort of sharpened our understanding. So I think I want to start with the theme of trying to get the right level of choice and sort of the right type of competition. So the notion that more competition is always better and will always do better than the government can by itself and more choice is always better I think is naive. You can have too much choice. You can have the wrong type of competition. And there are conditions in which competition doesn’t work well. And we can go into a whole academic diatribe about when, where, why, and what. But I think what I conclude from viewing both sides of that debate is it’s important to — to use the phrase — manage how competition works. Competition won’t work well in health care unless we create the proper conditions for it to flourish and recognize the limits of this. Thomas P. Miller: I had managed competition in the beer pong game. That’s good. Mark Hall: That’s — exactly. So that’s — pull out your bingo cards and fill in “managed competition.” So for instance, the rule on Health Reimbursement Arrangements, which is starting to get pretty technical, would — I think is a well-thought-out proposed rule that would allow employers to subsidize workers to purchase individual coverage outside the health insurance exchanges. Well, I think that became an attractive option primarily because of the reforms to the individual market brought about by the Affordable Care Act. So I think employers are going to find this attractive for the reasons that were outlined for the very fact that we now have a market that functions more in ways that competition tries to — among insurers — tries to provide better value in insurance coverage, recognizing the sort of the limits and the guardrails and the sort of stifling to potential competition that might exist in how those rules are set up. At least we do have a set of rules that creates competitive conditions that might be attractive to an employer, and the HRA proposal helps to open those possibilities up. Now there’s much more that could be done, and we’ll hear about a great deal more. But the principle there is we needed a structured marketplace in order to have competition work better. Now, one of the things that competition has done in that marketplace is to produce the emergence of alternative networks, narrow networks. Some view them as inadequate or what

have you, but there’s a lot of actual innovative spark happening in the individual market, partly due to the competitive structure created by the health insurance exchanges that has produced some very promising efforts at network design. And so one of the things I think the report really gets right is how do we approach that from a smart regulatory perspective in terms of network adequacy. And I agree with the report, mainly because it cites me a number of times in a report that I did several months ago with colleagues at Brookings just down the down the block to say let’s not stick to the old rigid sort of numerical formula that network adequacy adopted, you know, back in the early ‘90s when networks were very broad and managed care was very new. Let’s learn from experience, and say, let’s look more at the outcomes. Are patients getting adequate care? Is there an appeal mechanism in particular cases where they aren’t? Are the regulators allowing room for very promising innovations? And so that’s another area where recognizing the need for some net regulatory backstop adopting I think smarter approaches toward staying out of the way of market innovation. Thomas P. Miller: Thank you, Mark. I guess in the Matt Damon incarnation of Judge Kevin or the beer keg is half full rather than half empty. Let’s see how Scott is tapping into the markets. Scott Harrington: I thought I would talk a little bit about the individual health insurance markets since it seems to carry weight disproportionate to its size. And that — I’d say the good news here is we’ve learned that these markets work very well in the sense that if you have companies losing a lot of money and withdrawing from the market that you’ll get rate increases and then you’ll start to attract insurance companies into the market and get some expansion. And I think we’ve certainly turned the corner in a sense of attracting more companies into the market because they think that they may be able to make money. So in that sense, I think we’re better off than we were a couple years ago. I like to think of the markets as having really two fundamental problems. And one problem clearly is the subsidy cliff, where if you hit 400 percent of the poverty level in your income, in some states, you face an extremely high unsubsidized premium and the coverage that you can buy with that has very high cost sharing. And we tend not to connect with that very well. But I like to think of two people, partners, each making $17 an hour. For whatever reason, they’re working without employer-sponsored coverage, and they basically are not going to get any subsidy. And depending on the state they’re in, they really faced an onerous environment for insurance. The other problem that goes beyond that and has gotten less attention is that the take-up rate for people that are subsidy eligible is really quite low in many states. And once you get beyond the 200 percent of poverty level, it’s really a pretty low take-up rate. And there’s research that’s been done by Amy Finkelstein and others, which suggests that we would need to provide much, much larger subsidies to substantially increase the take-up rate for that coverage. Now, you think economists tend to go, “Well, people aren’t buying because (a) they implicitly rely on the safety net. They rely on charitable care and free care and potential bankruptcy escape from medical debt.” The other issue is whether or not they’re informed enough, whether they’re educated enough to know the value of products. But I really think there’s a dimension here where a lot of people view the coverage that they can get in the individual market as just not being very attractive, regardless of any implicit safety net. So we really need to think about how we can provide more value with the subsidies that we’re providing, as opposed to simply increasing subsidies. And that involves,

to some extent, enhancing flexibility and choice and thinking of ways that states might be able to come up with more attractive coverage packages or maybe novel subsidy schemes that can actually encourage the take-up. And to some extent, it seems to me that those goals should be somewhat compatible across the political spectrum. And related to that, another thing I think is really important we all know this is the old adage if you see one state, you’ve seen one state. The problems are really different. I mean, if you take Iowa — and most of you don’t want to take Iowa — but if you take Iowa, you have a lot of independent farmers. I mean, they’re not in group plans, and they have really, really been hit hard by premium increases in the individual market. You know, that’s not Massachusetts. It’s not New Jersey. And of course, all this favors is state-specific programs, state flexibility experimentation, which is broadly consistent with the new guidance that’s come out on waivers. Without endorsing everything that’s in that, it really makes sense, in my humble opinion, to think about what we can do to provide states flexibility. Two other quick things. There are a lot of entrepreneurs out there. I teach M.B.A. students in health care. A lot of my M.B.A. students now are getting summer internships in startups. A lot of smart people out there thinking of ways they can improve health care and make money. And in the payer space especially, we’re seeing novel companies in the employer market. We’re seeing it in the MA market, in the individual market, with a lot of private equity backing and potential private equity backing. So the extent to which we can free up the regulatory environment, allow for that type of innovation, I’m quite confident that the money will be there and the human capital will be there to really do some innovative things that can help lower costs. The last thing is — relates to the HRA issue. You know, we’re all for competition and choice. I get a little uneasy as we adapt policies that sort of increase the separation or separate employees from employers in the insurance arrangement. What we want to have is a vibrant individual market and a vibrant employer-based market and a vibrant safety net. I get a little worried that if we change things so that fewer people are getting their coverage at work, that you might get on a slippery slope where you really undermine the overall employer-sponsored market. And I think there could be ramifications down the road that are unexpected or unintended but could be dangerous. I think one of the biggest impediments to really moving toward more government control, centralized payment, Medicare for all, whatever you want to call it is having a very strong, healthy employer market. And if we do things that weaken the employer market over time, the political calculus could change in ways that might not produce the best result, depending on how you view the world. Thomas P. Miller: I just heard another cheer for employer-sponsored insurance. And I know Mark is familiar with that in previous work with David Hyman. But it sounds like a little bit more than a few — drilling a few more holes in the packing crates, and we’ll come back to those issues. Jeff Goldsmith, you may agree with some of this, but are we talking about all the right things when it comes to choice, competition, or improved health care? Jeff Goldsmith: Yeah. I mean, I’m a delegate from the business side of this field on this panel. And I must say, Tom, I just think it’s sort of not a fair fight between government and this enterprise.

I’ve been in this field for 43 years. And when I entered it, it was a $70 billion activity. It’s now $3.6 trillion. It’s the size of Germany, 16 million people working at — 7 of the 10 smartest kids in your high school graduating class work in it somewhere. So, I mean, it’s a formidable enterprise, and I often feel — I don’t get to watch it very often. I often feel like the world I work in — I’m kind of a psychiatrist to those sumo wrestlers that you’ve showed up a minute ago — is a completely different world than the one I read about in policy journals and hear about in political debate. I’m like — I really believe that competitive forces could help discipline this Colossus. But I have trouble figuring out where the leverage is exactly. And I think — you know, I read the report. I actually did. I got it at 10:30 last night. Thomas P. Miller: I knew there was somewhere else. Jeff Goldsmith: Oh, dude. I mean, it was — 370 footnotes. I mean, they really did their homework. I was impressed with this report. I thought it was a really thoughtful, well-done piece of work. And one of the most interesting things in it was this idea of what’s a shop-able health care service. You know, Reggie sort of got at this in some of her earlier work. It’s like, you know, we really need competition in this field. But where does the competitive — where is competitive — where can competitive forces actually be brought to bear? I’m also a cancer survivor. And I can tell you, you know, I wasn’t consuming anything. This idea that I was a consumer while I was fighting the cancer was just offensive to me. I was drowning, and what I really wanted to figure out was who I could trust to deal with my problem, who I could believe to deal with my problem. Would I have chosen to go to the Cancer Treatment Centers of America because it was $5,000 cheaper? No, I probably wouldn’t have. So I think we need third-party payment for stuff like that. But I also wrote a book about the imaging business seven or eight years ago. Imaging is the second-largest high-tech health care market in the US after pharma. It’s about $250 billion, and it hit a technological flat spot in the late ‘90s and really hasn’t advanced all that much since. Now I look at this phone that I own. This is like a supercomputer. I paid $700 for it. But when I went to the University of Virginia to get an MR scan, which is 50-year-old technology, they charge 5,300 bucks for it. And I’m like, “What’s going on with that? Why doesn’t an MR scan cost $500? Why doesn’t a CT scan, which is a 60-year-old technology, cost 100 bucks?” That’s the question. Those are shop-able services. They are — they are mature technologies. They are clearly commodities. So I’m kind of trying to figure out, like in my own head, well, how would you get from the $5,300 charge for an MR scan to a $300 charge? Well, I think consumers have to play a role in that process. They really do. And I think the way you get there is by fostering consumer awareness of the spread of cost of those commodity-type services and write them a check. Don’t just absolve them of the cost-share, but actually write them a check for a hundred bucks if they’re willing to like drive down the road 10 or 15 miles to the $100 CT scan. I think you do have to give consumers a role in this process. But the issue of what a shop-able service is, that’s a really important question. And it isn’t the entire $3.6 trillion. We’ve got to figure out how to allocate the consumer’s risk in a way

that it doesn’t expose them to financial harm, but it does give them an opportunity to vote and to eventually find that $700 supercomputer. Thomas P. Miller: Thanks, Jeff. Barak, you often straddle the world between business economics and what passes for business in health care. We’ve got a lot of legacy forms of regulation, which we do them because we did them before, and they accrete and then change a little bit. Is there a different way to ease into something that might be a little bit more modern than what we have? I know you’ve got an interesting piece out recently in the New England Journal of Medicine on digital health. But what’s the leaping off point as opposed to just slogging within the chalk lines? Barak Richman: I mean, I think that I like combining your language with Jeff’s language. You talk about the health care sector as being a legacy model, and Jeff calls it a Colossus. And we really do have this incredibly antiquated but incredibly large and incredibly complicated industrial delivery system for health care. And, you know, I’m sure that market forces and then expanded choice will help either rein it in, as Jeff said, or even transform it, as Scott is saying. But I do think it’s useful, taking a step back and thinking about where we know these competitive forces should take us. And we right now have a — primarily a hospital-based delivery system. That’s an industrial model from the 1950s or ‘60s. Providing care in hospitals is the costliest and often the least effective place to provide care. It’s the kind of place you would provide care if telephones weren’t invented. So how do you try to move the locus of care toward places that are more effective — the home, the clinic, the church — when not only do we have a regulatory structure that predisposes us to moving everything toward hospitals but we have an industrial structure where hospitals now own everything? Thomas P. Miller: With that said, the hospital will let you do it as long as they own it and manage it, right? Barak Richman: And charge hospital prices. So really, trying to think of how we rethink and reorganize the architecture of health care is something that should inform the way we think about imposing market forces or alleviating regulatory constraints. And maybe it’s because I’m married to a health psychologist, but I think about what an alternative delivery system would be. And it certainly would not be one organized by hospitals. Hospitals would play a very peripheral role in the delivery system. It would be one that’s organized, you might say, by physicians. But really, and I don’t like using the term physician extenders because that suggests that physicians are controlling. But nurse practitioners, social workers, things that are very aware — people are very aware of the social and behavioral elements of the health care delivery system. If you can come up with ways, population health management ways, to really put the locus of control around providers — you can call them intermediaries if you want — for providers that really understand the plethora of high-value, low-cost ways of delivering care and thinking about a regulatory structure that really supports that, then maybe we can really start moving this Colossus or at least start putting some of it to death. The one thing that I think is — I agree with Jeff. I think the report is very, very thoughtful and a real moment to celebrate. The part that I thought was really most significant is the combination of focusing on scope-of-service — scope-of-practice regulations and a move away from fee for service. But it’s important not to think about that incrementally.

Liberalizing scope-of-practice law should not just be, “Yeah, we should allow nurses to offer — to write prescriptions also.” Thomas P. Miller: If they’re cheaper, we like them. Barak Richman: Exactly. This is not a marginal move or move on the margin. If we really can empower the kinds of people who are good at navigating — or working with people who are sick and helping them navigate with a system that is wildly complicated, maybe we really can move the locus of control away from hospitals and away from high-cost, ineffective care. Thomas P. Miller: Another term for locus is geography. And I’m going to try to combine a couple of strands and make them seem like they’re related to each other by going back to all of you. There’s a little bit of a tension in this report in trying to say, you know, we’ve got this, great, and it fits in this particular aspect. And when you see some of the moves on insurance regulation, we’re trying to spring things open. And not necessarily even on the old state by state market lines but different ways to re-bundle and reassemble. So that’s on the insurance regulation, and I want to talk to Mark and Scott about that primarily. And then we’ll come back and talk about the more creative ways to really leap into an entirely different assembly of products and services. But Mark and Scott in particular, I mean, let’s do the blocking and tackling. There’s a lot of things that the administration has rolled out there or thrown out there as workarounds to deal with what they couldn’t do legislatively on the Affordable Care Act. Some folks are more concerned about that: You’re breaking up the single pool. We’ve got this, you know, all designed a certain way. And then all of a sudden, folks are roaming off the preserve and doing things differently, and will there be enough money to go back and forth? Although Scott is kind of saying, “Well, if it’s not working, you need to do something else.” Just grapple a little bit with that. You can pick your particular targets, whether it’s the association plans. I know Mark, you’re a little more positive on the HRAs carefully constrained, the short-term policies. Different ways to basically nibble away at what was previously assembled in the last decade and that was somewhat perhaps mutating in another direction through administrative guidance. Mark Hall: I’ll start, I guess. That opens up a broad range of possibilities. So I guess, for the most part, I’m inclined to go into a bit more detail in some of the things Scott and I both mentioned. With regard to the HRAs, I think everybody listening knows what those are. You know, tax-protected accounts to pay for health care and now to pay for health care premiums. I mean, previous to the ACA, those cannot be used to pay for individual coverage. And so individual coverage was the only form of insurance that didn’t get a tax benefit. Now there’s an awful lot of pro-competitive economic reasons to scale back the tax protection for health insurance, but until that happens, there’s not really any good logic for disadvantaging individual coverage now that coverage in that marketplace is — sort of meets employer-based standards. And so I think the logic of HRA rule is that sort of sensible equity between the two market segments, as long as it doesn’t use in a way that sort of undermines the best functioning part of the market, as Scott was saying. I certainly agree with that. So I take that logic and then I look at something else similar that says, “Well, what about the short-term plans?” And there the logic just doesn’t work for me. Obviously, we should allow room for short-term plans. But to say that short-term plans can last —

Thomas P. Miller: They should be nasty, brutish, and short is what you’re saying? Mark Hall: Yes, exactly. They are nasty and brutish. And therefore, they should be short. But to make them the equivalent of ongoing renewable coverage is just a blatant circumvention and undermines the goals of sort of market integrity that actually underlined the HRA rule. So I see, you know, from the administration and its different sort of rulemaking authorities, you know, sort of two different sort of logics. Let’s try to undermine as much of the ACA as we can versus let’s sort of work with what we have and try to make it work better. And obviously, I’m in the latter camp. But I do think there’s that dichotomy of thinking to be detected from these various signals. Thomas P. Miller: All right, Scott, more free-range consumers or pen them in? Scott Harrington: Well, I would comment on the short-term plans. I mean, the basic argument here is you get a bunch of skinny plans that are going to attract healthy people, and that’s going to undermine the exchanges and just cause everything to collapse. I don’t view it that way for a couple reasons. One is that limited three-year plans with possible renewal of those plans on a guaranteed basis seems to me like it’s a movement in a direction where you’re providing relief. And it’s pretty targeted relief. People that are getting subsidized on the exchange may likely remain subsidized on the exchange. You’ve still got a system where if a person finds the limited duration plan to be unattractive and they’re not eligible for a subsidy, they can always get community-rated guaranteed issued coverage through the exchange. So, you know, there is still that safety net for people that have preexisting conditions, depending on how the limited duration plans play out. The other thing about limited duration plans, we know a little bit. And I haven’t seen the study, and I don’t know how reliable it is. But the preliminary evidence suggests that they’d have a broader basket of benefits than what people suggested when the rules for extending the window for limited duration plans were enacted. Now whether or not that remains is yet to be seen. But we also tend to forget that states have substantial regulatory authority. I’m not quite expert by any means on regulatory authority that it might extend to new association health plans. But for limited duration plans, states do have rules regarding these plans, and they’re fully capable of tightening rules if they think it’s necessary. I know some state regulators have said, “We don’t care if you have a three-year window for limited duration plans. We’ve got a six-month limit or a one-year limit, and we’re sticking with it.” So, allowing states that have the problems the flexibility to provide a safety valve relative to the very high prices for people that aren’t subsidy eligible, and maybe some people that are subsidy eligible, strikes me as the way to go. Thomas P. Miller: Okay, well, we’re on the other side of geography, or the side of the world or the universe. There’s a — at least I saw a common thread in terms of trying to break down the old limits or boundaries when you talk about workforce or how to put together new health care products. Everybody loves telehealth because it’s out there in the ether, and they’ll talk to you if you actually have the right number. Interstate compacts, you know, licensing restrictions, all that seems to suggest a “Back to the Future” approach of where we’re going. There are no roads, or maybe we just have different roads than the old regulation — regulatory one. How much are we getting at the edge of

“we’ve got to do this differently because the old baskets don’t fit anymore” in health care? What would it mean to get to the ignition and take off on that? Jeff Goldsmith: I think the problem is, I mean — and they alluded to it in the report — this idea of regulatory capture is “where does the industry have the greatest leverage to basically continue the rent-seeking process?” And unfortunately, I think the states are tremendously vulnerable to this. My first job in health care was as the regulatory person at the University of Chicago. My board chairman was the chairman of the governor’s finance committee. We wanted state — we wanted a Maryland-style state regulatory system in Illinois because we would have run it. So it’s sort of like — and I came this close to having essentially captured our state regulatory authority. You know, you can talk briefly about scope-of-practice, but in Texas, in Illinois, in most of the states I’ve worked in, the State Medical Society is the single most powerful political entity in the state. They run the licensing and regulatory process. So we can talk about, you know, the new federalism — that’s a 40-year-old chestnut — but when you make a federalist decision to devolve responsibility from the federal government, you’re basically putting it in the hands of the industry. So, I think that’s going to be a very difficult nut to crack. Barak Richman: So, I mean, it is true that state regulators, I think, are more easily capturable than federal regulators, although federal regulators aren’t immune to it, of course. And also most of them, most of — Thomas P. Miller: They can be rented, not bought. Barak Richman: They can be rented, but not bought. And also that for the right reasons, most of the regulatory targets of the report were state law. That is, I don’t think — I’m not sure that’s an accident. But I — I don’t think that’s necessarily a consequence of capture. There’s reasons, historical reasons, why we have state medical boards and not federal medical boards, why there’s state CON and not federal CON. But nonetheless, we have this inconvenient truth — I guess, that’s probably a bad phrase — that we’re — Thomas P. Miller: The globe is warming up on it. Barak Richman: That’s exactly right. We’re in Washington, and we’re complaining about state laws. It’s kind of — it’s inherently — it’s great to whine about everybody — Thomas P. Miller: It’s called blame shifting. Barak Richman: Exactly. Jeff Goldsmith: It’s also a big problem with the report. It was like, let’s do an in-fight. You go fight the Colossus — Barak Richman: No, that’s true. That really is true. Jeff Goldsmith: But, you know, the part that really bothered me was even where you had an unambiguous federal role, which was antitrust, I read through all of this stuff, you know, and they look at your stuff — Thomas P. Miller: They’re going there next.

Jeff Goldsmith: You know, oh my God, we’ve got no competition at all. What were the recommendations? Well, let’s continue studying this closely. That’s basically what the report said, and I’m like, come on. If you believe in competition, you have to come down like a ton of bricks on anticompetitive behavior. A ton of bricks. It isn’t a Republican thing; it isn’t a Democratic thing. Teddy Roosevelt was a Republican. You guys can do this. That is something the federal government can do, and it hasn’t done. Thomas P. Miller: Well, is the horse already out of the barn there and taken several laps around the track? I mean, aside of the use of the antitrust remedies, you can’t unmix the egg, so what do we do next? That’s a very serious issue. Consolidation, competition, and you have markets and high prices, so let’s talk about — Jeff Goldsmith: The federal government broke up AT&T. They broke it up, okay? So, can you break up Partners? Can you break up Anthem? Yes, you can. The question is, why? You know, what’s the benefit from doing something like that? Do the smaller entities produce any more measurable consumer benefits than the large consolidators that you got? Barak Richman: The one area of antitrust enforcement, or lack of antitrust enforcement, that really does need more attention, that does not require kind of the hold hammers, is the vertical phenomena, where the hospitals are purchasing out physician practices. And that actually relates, Tom, to your question. Because the most pernicious reason why — the doctors’ outcome of hospitals purchasing physician practices — is not just that they lock in their market power, which they do, and it prevents entry, which they do. But it really enshrines this antiquated business model, and it impedes the entry of alternative business models of new technologies, new ways of navigating with patients, new ways of assuming risk. It really enshrines the whole fee-for-service model also, and that’s something that the antitrust enforcers have not gotten their heads around. And that is something — I totally agree — that is something that more federal aggressiveness would really help solve. And it relates to this whole idea that it’s not just a simple matter of industrial consolidation. It’s that industry consolidation is preventing us from really advancing to new business models. Mark Hall: But I mean one issue there, Barak, is that if you talk to the consolidators, they say we’re doing this not to maximize fee-for-service reimbursement, which is, of course, why they’re doing it. But they say that they’re doing it in order to prepare for the world of value-based payments, and being in population health responsibility, along the things you were talking about. So, if we’re going to be held responsible for, you know, the health and population, then we need to dominate the entire population. Otherwise we’re being held responsible for things we can’t control. Barak Richman: I don’t know, Jeff. Channel my anger on this one. Jeff Goldsmith: Yeah. I was an outspoken opponent of this movement toward buying physician practices and have been for 20 years because it was just like a festival of rent- seeking activity. It was like you had physician communities rushing to the hospital to be overpaid for their services and to shift their business risk to the hospitals. It was a terrible business strategy. And I think the technocrats of the previous regime actively encouraged this because they thought they could convert partners and the University of Pittsburgh Medical Center into Kaiser, and it isn’t happening. It’s not going to happen.

You know, that model, that Kaiser model, it’s obsolete. It’s 70 years old. I’m with Barak. I mean, I think we need new business models. The one that hospitals were really afraid of was the Southern California, where physicians had organized it to very effective risk-bearing entities that it completely commoditized hospital services and took population risk and assumed responsibility directly for a very large population of people and managed that risk successfully. So, I think that was the fear. They didn’t want to lose control of the patient. Barak Richman: The best way to manage risk is to keep them out of the hospital. Jeff Goldsmith: Yeah, it helps. Barak Richman: So, if you have the hospital managing the risk, you have matter and antimatter exploding. Thomas P. Miller: It could be a few instance, instead of incompatibilities. Let me not chill this spontaneous combustion, but let me pose a couple of fake binary choices, then you’ll say, “No, no, you have to do everything.” You know, we often think of this in terms of: Should this be Washington-led, or is it led from some other direction? And we’ve got the old paradigm of “Well, we’ve been doing it all through the providers and the payers, so the consumers will have a role in it.” When we unscramble the eggs and maybe open up the terrain, what’s a building block for reassembling the pieces as to how we drive forward as opposed to run around that our scattered defensive directions? That’s open-ended enough for you to answer any question you want. Too open-ended, probably. Jeff Goldsmith: That’s really open-ended. Barak Richman: So, there’s a short-term plan strategy and a long-term strategy. The long- term strategy, I think, is what Scott was saying and also what Mark is saying. I mean, you don’t want to introduce policies — you don’t want to insert choice that undermines where we want to go. You want insert choice in a deliberate and intelligent way. Thomas P. Miller: Mandatory choice? Barak Richman: Competition. Thomas P. Miller: Okay. Barak Richman: And Scott I think is exactly right. That this also is a very exciting moment, that we really could, if we hold just skepticism at bay just for a moment, we could imagine an entirely different delivery system in 10 years. That there is a lot of money and a lot of human capital, a lot of good ideas invested in that. The short-term strategy, I think, again, I think Jeff is right. I think there’s got to be a way to loosen up the industrial stranglehold over the delivery system, particularly over the pattern of patient referral. And I think that antitrust enforcement is both the easiest and probably most effective way to start changing policy tomorrow. But, you know, there’s a lot between the things we can do today and the things we hope to see in 10 years. And it’s going to be really complicated, and then it’s going to be really painful. It’s not just that the medical societies are in control of states; it’s also that most hospitals — the hospitals are the leading employers in most counties. And that’s going to be really difficult to change.

Jeff Goldsmith: You know, I don’t know if this is a direct answer to your question, but I don’t think you’re going to accomplish delivery system reform as a command and control. I mean, this was the vision of the Obama technocrats, is that they could, you know, set in motion a process by which the system would be transformed. But I don’t think it emanates from the center at all. I mean, you look around the country and you see tremendous dynamism in the physician sector. And, you know, we’re going to be hearing from Reggie’s panel, a lot of investment in new models of care, new models of health insurance. You know, you’re not going to be able to pick national champions in those competitions and say, “You know, we need to blow this up, and it needs to be everywhere,” because the country is just too complicated. So, I think we need to be humble enough to study the breadth of that innovation and to look at how we can, at the margin, make it easier for those innovators to grow without being cut off at the pass, without being shut out of insurance contracts, without being denied access to patients. I think we need to open things up in that way. I’m not sure that’s a very — Thomas P. Miller: Well, politically, you prefer comfortable innovation, not disruptive innovation, because that’s bad for everybody’s business. Jeff Goldsmith: It’s totally disruptive. I mean, a lot of the stuff you’re going to be hearing about — sorry, a lot of the stuff you’re going to be hearing about from Reggie’s panel is absolutely disruptive innovation. But you’re not going to be able to give them government grants, right, and have them grow it into something larger. Stuff has a lot of trouble scaling to national things. So, we’re going to have to respect the fact that the solution in New York State, you know, which is an antiquated economy and a government model, is going to look very different than the solution in Southern California. So, I think we’ve got to be comfortable with that ambiguity and that variation. Mark Hall: Yeah. I do think on this theme that we do see disruptive innovation spontaneously exploding and emerging in a variety of areas. And we can learn from those, and we can say, “Ah, this seems to have a lot of momentum behind it. Is it for the right reasons or the wrong reasons, this purchasing to practices, or this, you know, whatever? And if it’s for the right reasons, then are there things to get in the way of expanding?” Thomas P. Miller: So, what’s in the way? Mark Hall: And so, we can think of a list of examples, you know, from telemedicine to retail clinics to centers of excellence to what have you. I’ll just mention one from North Carolina that just happened the last month. We’ve had two big moves in North Carolina toward reference-based pricing. The state health plan director said we’re going to shift from negotiating fees to just straight out — I think it’s Medicare plus 40 percent, take it or leave it, any willing provider. And then Blue Cross essentially did the same thing. They offered a new product that basically is aimed to the unsubsidized non-group market that says, you know, we have these provider monopolies that we can’t break through, even though Blue Cross controls, you know, whatever, 80 percent of the market. And so we’re just going to hand it over to the — well, because the hospitals control 100 percent, and you can’t have a product without that hospital or those anesthesiologists or whatever. And so they said, “Well, you know, we’re just going to hand over the consumer, and if they want to buy a product that’s Medicare plus

40 percent, or whatever the number is, here’s the product. They can take that.” They actually redesigned the Blue Cross card so that it doesn’t look like the normal Blue Cross network, but a, you know, a consumer-directed, you know, whatever. And we’ll see how that works. But that’s, you know, fantastically disruptive and is getting huge pushback from the provider community. Now, I don’t think there’s any regulatory barriers, but what I would keep an eye out for is antitrust type of pushback. And so conservatives’ refusals to deal and misuse of Noerr- Pennington, which is a doctrine that says you can basically invoke your government regulators to stop things you don’t like and what have you. Thomas P. Miller: You can line in course as long as you do it through politics. Mark Hall: Yeah, exactly. Jeff, you were going to — Jeff Goldsmith: Yeah, I mean, I don’t know how many of you saw that brilliant Economist feature two or three issues ago on how antitrust needs to be fundamentally rethought and about how maybe it isn’t about enterprises at all; it’s more about business rules. And I kind of look at the business rules part of this and really wonder whether that isn’t where the regulatory focus ought to be. You know, the idea that — You know, I was in a meeting in Georgia where a hospital was acquired by a larger system in Georgia, and magically, their bottom line quintupled because they got the system’s rates rather than the rates that they were getting as a sole provider. Why is that okay? You know, gag clauses, the idea that some of these Blue Cross plans are charging network access fees where the higher the charges in the market, the more money they make. That kind of stuff, I think, needs to get more of the light of day shone on it. And maybe we begin focusing the effort to encourage more competition around breaking down some of those rules, that when the consumer realizes they’re happening, they’re going, “What the hell is this? Why are we permitting this to happen?” I think there’s more leverage there than there is in that old idea of, you know, well, the enterprise is too big. Bust it up. Thomas P. Miller: Well, the consumers are often seen as the, you know, standing by either side victims, unaware, and getting taken advantage of. Jeff Goldsmith: Well, we are. Thomas P. Miller: There were a few mentions before by several of you about, you know, shop-able services, and we’ve got the ambitions. They’re going on a long time about “this time, we’re going to assemble the information, it’s going to mean something to people, and they’re going to use it.” The returns on this have been relatively disappointing thus far. We could wire the pipes to make more of this stuff go faster; we don’t share what’s inside those pipes. So, what’s missing in terms of a — not just a transparent marketplace, in which there’s a lot of stuff that people can ignore. But what draws people to these sources of information? You know, the record on the price websites in the states we’re in, the insurance. That doesn’t seem to be connecting. But to the extent that you need another set of voices and actors to be a checking power, what pushes them forward? Or do people not — they say they want this so they don’t really do anything with it?

Barak Richman: Well, you know, the other thing the report suggests there’s a possibility for significant federal action is developing comprehensive databases. And really, this is actually another antitrust possibility, where you have large entities not only owning lots of really valuable data but not sharing it and being hedge-y with the move toward interoperability. If there is a platform where individuals, small insurers, navigators, government officers, also, can really have access to meaningful data — and some states really have moved toward it, but it’s really taken a lot of effort, not just with the economy and the political structure, but even with our fellow regulators — then maybe you’ll have a platform where you can have some meaningful navigation, some meaningful transparency. Now, this is going to take some effort. It’s going to take effort, not only to make sure that there is a database that is comprehensive enough that smart people can do smart things with it, but you’re also going to have to really develop and enhance the technology of transparency, the technology of quality and price metrics also. That also might take some government initiative. But if you have that kind of platform, then maybe, maybe we can get into a direction where consumers can have the information that would be useful and would inform their choices. Thomas P. Miller: I am contractually obligated now to talk about the wonders of health savings accounts. I haven’t heard many folks springing forth saying, “You mean they can put more money in there and spend more stuff on it?” What’s the mileage return of any further enhancement in that direction? I know Mark and Scott will talk a little bit about HRAs, which is a way to gradually adjust the employers over toward a more individualized set of options. But the HSAs have been, you know, adding up. They’re not going anywhere, and they might get a little more sweetening. Jeff Goldsmith: But, you know, what is going somewhere is the high-deductible plan without the HSA. And I mean, when you look at the number of people with high-deductible plans, it’s about 60 million people in the country. Eight million of them have HSAs, so the remaining 52 million have like $7,500 deductible, and they don’t have the $7,500. So what’s up with that? I mean, it’s not clear to me that there’s much of a match. I mean, I think employers are doing the expedient thing, and they’re pushing more and more risk off onto their, you know, their associates or whatever you want to call them, as benefit buy down. And there’s no connection at all between, well, what happens to the people then? How many of those folks are capable of acting in a consumer way? They’re applying that $7,500 risk to the non-shop- able stuff, and they’re not filling prescriptions. They’re not getting follow-up on things that are easily controllable that might end up in the emergency room. I’m not sure how you fix that. Thomas P. Miller: We might need to move the donut hole somewhere else? Jeff Goldsmith: Well, I don’t think there’s a regulatory fix to it. I’m not sure the federal government can come in and say, “Well, you can’t stick your workers with a $7,500 deductible.” You don’t have to have insurance at all. And I think unfortunately, we’re going to be in a situation when the economy turns down, we’re going to have a whole bunch of people that just don’t get coverage at all and can’t afford anything in the marketplaces because they’re not, you know, they’re not eligible.

Mark Hall: That left us on a good note. Barak Richman: That’s a downer. Jeff Goldsmith: Well, I mean, it’s realistic. I mean, what’s going to happen in a recession? What’s going to fill the gap? Medicaid? Thomas P. Miller: This is always the question for what drives change: What happens when we run out of money? We will, eventually. Jeff Goldsmith: Right. Thomas P. Miller: I mean, part of the ACA is premised on if you squeeze down reimbursement enough, maybe it will come up with a way to do this stuff a little bit better. So, if the habitat gets a little more sparse, do we spontaneously innovate around it and say, “Well, I guess we’re going to have to do something differently”? And suddenly, the rents aren’t as large. Or we may actually deliver some value. Barak Richman: I mean, these are questions I think Mark and Scott can really speak to. But I think I understand Jeff’s chagrin, and I share it, in the sense that there’s a lot of attention being paid to trying to figure out how to create the right insurance product, with inadequate attention to try to figure out how we just get the cost down. Because if we look at the health care system through the supply side, we are seeing an incredibly expensive, an incredibly inefficient, an incredibly inadequate structure. And it doesn’t really matter what kind of insurance product you have if you’re always going to be stuck with those expensive alternatives. But having said that, I am curious what Scott and Mark have to say about HSAs. Mark Hall: Well, since Scott didn’t say, “well” first. Well, I think Scott has a lot to say — no. Anecdotally, I just signed up for my first HSA because my employer finally offered one. I think you can only use them until you’re 65, so I’ve only got like two years or whatever to go. Thomas P. Miller: Well, until the reforms come. Mark Hall: That’s right. And so I came home and I said, “Honey, I just signed us up for an HAS.” And she like, “What did you do, and why did you do it?” And I said, you know, “I’m obliged to because I’ve got to understand better how they work.” So, first of all, it’s very hard to explain it, you know, to someone who’s not a health insurance expert. And secondly, they’re not that easy to use because you’ve got this special credit card that you have to keep somewhere and this list of things that you can and can’t pay for and what have you. So, like everything else, we start with the — Brian Blase’s joke, health care is complicated. And certainly, HSAs don’t make them any less complicated. Now, they do deal with the inequity of tax treatment for premiums versus money out of pocket, but again, that’s sort of the one and a half wrongs make it less wrong or something sort of solution to a broader problem. So, I do think it’s sensible to say if you’re going to have HSAs you shouldn’t be that constrained when you can have them. The proposal is to essentially make them available for any sort of higher out-of-pocket expense plan so that you’re free to structure out-of-pocket payments in ways that are perhaps more value-based, as Jeff was suggesting.

So, instead of attaching HSAs only to high-deductible plans, you can attach them to higher out-of-pocket expenses that have for stellar coverage for some things and higher exposure to shop-able things and make the plan structure smarter and therefore make more use of the HSA. I think that’s a smart move, but I don’t think it’s going to bring about the revolutionary changes that we’ve been talking about. Thomas P. Miller: So, we’re usually in this box where we’re saying, we’ve got to have that health care. You know, I need the eggs even though I am crazy in talking about it, and it costs too much. But I’ve got to get that insurance, and, you know, we’ve got to run it back through the system. And this time, we’ll be more efficient in doing it. Can we escape that box to think about how people get healthier on a different basis? Because we are still somewhat routing the stuff back through the same channels. Jeff Goldsmith: Oh, you know, the idea of paying the health system to make you healthier strikes me as a sort of a losing proposition. I mean, we spend $80 billion of that $3.6 trillion on public health. We dramatically underspend on social and human services. And yet, you know, some of those really innovative payment models that we’ve talked about blur the lines and actually enable you to deploy, you know, mental health services or to deploy social or human services where that’s really the solution, not more medical care. So, the idea of viewing it as a medical system–only problem that you either solve centrally or delegate responsibility to hospitals to solve, those aren’t really good options. We need to create some other options. Thomas P. Miller: Without just having the foxes run a bigger hen house. Jeff Goldsmith: Well, that’s my point, is that we’ve permitted — I mean, when the Democrats tried to expand social and human services during the 1960s in the War on Poverty, they started a civil war inside their own party. That was the last serious conversation we had about trying to do something about social determinants that wasn’t medical. So, I mean, we’re not going to solve this problem inside the medical box. We’re going to need to think about where the demand for care comes from. And you couldn’t have missed, you know, we’ve had three years of declining life expectancy in the United States. What’s up with that? We’re spending $3.6 trillion, and the demand for the care is actually going up because people are getting sicker. Is that the medical care system’s fault? So, I don’t want my colleagues in the management world — Thomas P. Miller: At least they know how to stimulate demand. Jeff Goldsmith: Yeah, well, we certainly do. You know, if you’ve got people committing suicide or overdosing on drugs, whose problem is that? Who owns that problem? You know, that’s not the health system’s problem. Thomas P. Miller: All right, Scott? Scott Harrington: I think we’re making a lot of progress, and we’ll continue to make progress in terms of more efficiently managing chronic conditions. But it’s a tough road to go the next step and say, “How are we going to use the health system to keep people from getting chronic conditions?” And just exactly right.

I think we all know it, but we tend to lose sight of the poverty health nexus. I’m probably a little more of a fan of the late Richard Cooper than many people are. Jeff Goldsmith: I’m a big fan. Scott Harrington: But if you really look at the data, the relationship between poverty and chronic illness and health care costs is really pretty stunning. At least if we can manage those populations much better, we start to bend the curve a bit. But going the next step to actually somehow using the health system to encourage healthy behavior is lot tougher. Thomas P. Miller: All right, we’re at about the loan share part of the scream, so we’ll go to the audience for some enlightenment and some encouragement. Do we have some microphones around and some possible questions? Again, identify yourself and ask your question in the form of an answer. Or is it the other way around? We’ll start with Carl down in front. Q: Carl Posser. Lately, I’m doing a lot of work on including the bottom half of the economic spectrum in the financial and economic system. I have some things to ask about that. But just for this conversation, I hear these big idea conversations from within the medical industrial complex, and I just don’t see the answer to the cost problem lying there. It’s going to be a partner from outside of the complex that says, “Look, this is financial neoplasm. We just can’t afford it for the bottom half anymore.” So, I think what Mark was saying about, you know, Medicare plus 40, if there’s a strong enough monopsonist, it could be Medicare plus 40, Medicare plus 30, Medicare plus 20, Medicare minus 10, if we have a recession. So, I mean, how do you construct that bargaining system? I guess that’s the question. Thomas P. Miller: Close enough. I’m not sure if we have an answer to that. Jeff Goldsmith: Well, I mean — and I really do want to absolve my colleagues at Navigant, whom I advise of what I’m about to say. The unspoken assumption that incomes can never fall does not really work very well in that model. And you know, a lot of the folks in my field have seen their income steadily rise, and that’s not the real world. I mean, when my phone stops ringing and I don’t get consulting gigs or speaking engagements, my income falls. And that’s okay. I’ve got to go out and create some controversy or whatever, and then the phone rings again. Thomas P. Miller: How are we doing this morning? Jeff Goldsmith: Oh, it’s doing great. The phone isn’t ringing, but we’re, you know, we’re patient with that. Thomas P. Miller: We get a rebate. Jeff Goldsmith: But I guess my point is, you know, I mean, you have salaries and incomes in this field that are double or triple what they are anywhere else in the world. That is not the real world. Gravity will set in, and eventually people will earn less. And if the cost is 80 percent people, some of those people are really valuable and being underpaid. Some are being grossly overpaid. If our government can’t figure out a way — and I’m being generous here, state or federal — to separate the strong from weak claims for those incomes, we’ve got a real problem. And eventually, when you run out of money, you begin doing that.

Thomas P. Miller: What was our last health sector recession? I mean, utilization went down a little bit in this last one, which they’re alarmed at. Jeff Goldsmith: The early ’90s is the answer. The federal government actually intervened in 2008. In 2009, there was a big thing with the Medicaid match, but being bumped up. So, a lot of my colleagues in this field, the last significant downturn in the health economy was in 1990–91. No memory at all of the last time we had a real resource crunch. Thomas P. Miller: Good work, if you can keep it. Another question in the audience? Yes, right there. Q: Hi, [inaudible] from Brookings, just down the street. I guess I just wanted to — there was a lot of talk on the HRA proposal up here and sort of pretty much, well, all positive or that it might negatively affect the employer’s side of the coin. I’m sort of curious if you, any of you, have sort of fears of undermining the individual market. So, it’s just employers get to pick and choose. They just sort of throw their sick employees on the individual market. Or say, you know, a firm with all sick employees, for instance, they’re the ones who take up this option, and they throw their employees there, right? It’s a win-win for the employer and the employee, but it’s a lose for the individual market, potentially. I’m curious if there’s any fear on that side. Mark Hall: I’ll start with some off-the-cuff thoughts. That was the original fear with the Obama administration, which clamped down on that use. I think it was also a fear about double dipping, that it would be wrong to get both the tax break and the premium tax subsidy. I think it took a certain amount of regulatory imagination to figure out how to walk that fence line. I haven’t read the whole proposed rule, I read — Thomas P. Miller: There’s something about the proposed reg, though, that put some rails around that. Mark Hall: Yeah, yeah. Yeah. So, getting to that point, if you can question some of these premises said that you can draw the line so that you can separate the premium tax subsidy from the tax benefit of the premium. Plus the rule does pay a lot of attention to concerns about harming the individual market. And I think admirably so. I mean, it takes that concern very seriously and puts some very sensible constraints in place that I think are workable and that, you know, should keep things in check. Now, it’s a proposed rule, and it asks, “How important are those guardrails or checks?” And some of them could be lifted if they’re seen as overly, you know, restrictive or onerous. But it appears that the right sort of regulatory dials are in play there, and so it gives you some optimism that the problem has been thought about and anticipated. Thomas P. Miller: I mean, there’s some things about, you know, you can get creative with classes of employees. You normally have to be a pretty big operation to start slicing and dicing and know what you’re actually doing. And most of this is playing more to the smaller employers, who are looking for any type of portal to storm, or even the mid-sized folks might begin to evolve in this direction. Plus you’ve got the limited benefit. Anyway, it’s all proposed, then we’ll see how it sorts out with — Jeff, do you have a comment on that? Jeff Goldsmith: Yeah. You know, the Democrats have this giant trap waiting for them with Medicare for More because they’re going to have exactly the same problem. That is how do

you — you know, let’s say you let people buy in over 50. Well, how do you prevent the employer from dumping their sick people into Medicare and keeping the proceeds of having a healthier pool? It’s going to be the very same problem but with a different, you know, with a different set of players. Thomas P. Miller: A lot of the employers who wanted to dump their folks have already done so, if they were going to. I mean, we’ve run out of villainous business people to pick that. They’re still providing the coverage despite a lot of hurdles in going there, so I think you can balance that out. Let’s see if you have any further questions from the audience. All right, I’m going to deliver a remarkable feat. I’m ahead of time and under budget, and we’re going to turn it over to Reggie, because she’s got folks who can talk forever. Come on, right up. We’re going to switch panels, thanks very much, our panelists. It’ll just be a couple of minutes before the next panel is up. [Intermission] Thomas P. Miller: Attention, everyone. We’re back in session. Welcome back to the next stage of today’s AEI conference on “Health care that matters: Real choices for real competition,” and vice versa. I just want to introduce for our second panel of the day Reggie Herzlinger, who’ll be moderating this panel. She’s the Nancy MacPherson Professor of Business Administration at Harvard Business School. A lot of firsts and honors: first woman to be tenured and chaired at Harvard Business School, first to serve on many established and startup corporate health care and medical technology boards, initiated courses in nonprofit and health care at Harvard, and was the first faculty member selected by the students as their best instructor. And a lot of her second and thirds are maybe on this panel, as a matter of fact. Reggie’s work was key to introducing consumer-driven health plans and focused health care factories, such as centers for chronic diseases. Just this year, she was awarded the honorary fellowship in the American College of Healthcare Executives, the leaders of America’s hospitals, which we didn’t say very nice things about earlier this morning. But then she was also one of the 100 Most Influential People in Health Care, World Edition by Groupo Media, and she has proven to be an invaluable partner in developing this conference and the ideas that have fueled it. Reggie Herzlinger. Regina Herzlinger: Thanks so much. It’s a little scary to be introduced by Tom. I told him no sumo wrestling images, no Gulliver’s — Swiftian pictures of Gulliver being tied down by the little Puritans, and most of all, no pictures of somebody with their rear end sticking out. So Tom, that was a brilliant moderation, and thank you. Thank you so much for permitting this panel to happen. So, this panel is really about the entrepreneurs who you see here. And they’re all entrepreneurs who started or were key elements in companies that help to solve the problems of the US health care system. And as Brian so eloquently said — is the PowerPoint on? I went to MIT, but they didn’t include PowerPoint, so, sorry. “How choice in competition can help solve US health care problems.” And the problems that the panel spoke about were those of costs. They were those of uneven access. They were those, despite our brilliant health care providers, including my daughter who’s an endocrinologist, theoretic quality of the US health care system.

So, just rapidly going through some of the problems, cost problem is that health care costs are in seeding, not only inflation, but workers’ earnings, and of course, that access is taking more and more of a bite out of low- and middle-income people. It’s tremendously worrisome. And the quality, despite the brilliance especially of providers and the extraordinary medical technology instead are happening. For example, there is a company out of Philadelphia that has a drug that eliminates blindness in children with congenital blindness. And there are many, many, many more such extraordinary technology innovations on the horizon. Nevertheless, we lag other developed countries in things that could be treated despite our costs. So, innovation is possible in other sectors of the economy. For example, the food industry, if you look at the cost over time, food used to be — you’re all too young to remember this, but food used to be a major item of people’s expenditures, and it no longer is quite as major an item. The bills have also gone down substantially, and costs become much more reliable, become much more fuel efficient, become much more environmentally friendly. So, these are just examples that innovation is possible in a good way. That doesn’t just mean that you cut costs, but that costs can be reduced while quality is increased. In health care, in contrast, in medical care, if we look at the CPI, medical costs seem to continue rising, and quality and — therefore because of the cost problem — access continue to be a problem. So, how is it that the innovation — people talk about innovation in an almost theological sense, and there’s no there there. What it is that innovation actually does to reduce costs while enhancing quality in access? Let’s look at the food industry. So, one thing that happened in the food industry is access to food became much greater. Bless you. In 1930, the first supermarket was developed. It was called King Kullen, and Mr. Kullen had the deathless phrase to advertise his supermarket of “Pile it high and sell it low.” So, from 19 — actually, I like that a lot better than most of the phrases I hear nowadays. At least you know what he’s selling. So, nowadays, there are 40,000 supermarkets. Supermarkets have become ubiquitous. And likely, Amazon is going to turn that whole industry upside down, and it will become even more ubiquitous and more accessible than it is right now. By Amazon, I’m referring to their $19 million purchase of Whole Foods supermarkets. There is a lot more choice, so grocery stores carry 40,000 more items that they did in the 1990s. The quality is much better, much less processed food, much more prepared food. You might think all that choice is overwhelming. But when I go to the supermarket and I look at the 50 brands of yogurt that are available, how do I make a choice? Well, all I need to do is pick up the yogurt, and it tells me the price right there. Tells me the RDA, tells me that calcium, tells me the sugar content. Tells me things that I’m interested in knowing. To contrast this to medical care, suppose I needed a mastectomy, or any of you guys needed a prostatectomy. Without being crude, what exactly would you pick up to tell you the price and the quality of what it is that you’re buying? And how readily available and trustworthy would that information be? So, these are the things that made the supermarket industry more — the food at home more competitive.

So, the separate elements when new production methods and store refrigeration, new ways of preparing food, greater access, new technology, credit cards — actually we’re going to obviate credit cards very soon — green revolution in the production of food itself, consumer information, comparative process, ingredients, health information, and consumer involvement, a lot more self-service. Supermarkets used to be dominated by clerks who would or would not hand you what you wanted. Nowadays, it is the consumer who does the bulk of the shopping. And these are the critical elements in the cost reduction, quality improvement, and access improvements of food. So, can this happen in health care? Yeah, they can. We have examples of that sitting right on the panel. If I’ll ever shut up, you’ll hear from them. So, you know, when you teach in a case-based school where you say to somebody, “Well, what do you think and what do you think about what she thinks she just did?” What most of my students do is that they hide their heads. So, what do you think? What do you think? So, I never get to say what I think, and when I do, I’m very gabby. So, I’m almost at the end. So, what are the production methods? Dr. Bhatt, who’s traveled 23 miles — 23 hours from India to join us, will tell us about a very innovative, low-cost, high-quality way of delivering cancer care. How about access? CVS, Tom Moriarty, the senior executive vice president of CVS, with its 10,000 stores and about 1,200 mini clinics — is that right? — today will tell us about ways, new ways of accessing care. My friend Tony Miller from Bond will tell us about — woo, this will blow your mind — a new way of buying health insurance that responds to many of the issues that were raised in the prior panel. Consumer information, Neil, the CEO of Change Healthcare. Change Healthcare runs — is a pipeline that runs about a third of the claims data in the United States. It’s coupled those data to a terrific consumer information panel. Neil will tell us about that. And Teladoc is a wonderful change. Health care has about $1.6 billion in revenues. And Teladoc is what? About $500 million, something like that, in revenues — is the leading telemedicine service. And Dr. Lewis Levy, its CMO, will tell us about that. So, the theme of this panel is the private sector can work to solve many of the problems of cost, access, and quality. But it’s got to work with the inner framework where it can do well, what it can do well. So, Tony, I wonder if you could start us off. Tony Miller: Sure. Regina Herzlinger: Would you like to stand here? It’s a little Space Age, right? Tony Miller: Just press green? Regina Herzlinger: Yeah. Tony Miller: Oh, great. That’s good. Hi, everybody. My name is Tony Miller. Reggie gave me a great introduction. Sixteen years ago, I was actually here working with members of Congress, trying to convince them not to legislate plan design. Some of you might not recognize that, but we started the first Health

Reimbursement Account products in the late ’90s. We had about 35 Fortune 500 companies take them, and we built the first, what we called it — at the time we labeled it consumer- driven health care plans. And I was trying to convince Congress don’t pair it with an HDHP. That’s a really bad idea. You can see how effective I was. So, we went and hid for a while. I’ve been working on an idea that I’m going to talk about today for 10 years. And instead of grabbing a label “consumer-driven health care,” we actually went out and talked to consumers. We talked to them about how they actually use the health care system. Health care is terrible at marketing. It’s always been terrible at marketing. In fact — well, it’s actually good at one thing, because we call it the health care marketing system. It’s really the illness burden treatment system. If we actually called it that, I think people would be like, “Oh, I really don’t want a lot of that,” right? So, what’s interesting is we use health care in a way that is sexy today, and it’s called on- demand. We use it in a very on-demand way. A symptom or a need arises, we try to enter the system, we try to solve it quickly, and then guess what we want to do? We don’t want to stay there, right? So, it’s a health policy fantasy that we want in ACO. That is not what we want. We actually want to leave and get back to our everyday lives and, you know, make things work. So, what we said is observing this behavior, what we’d like to do — oh, yeah, great. So, I want to back up — one second. So, one of the things we did is I’m going to start with this very provocative thing. Could you make insurance on demand, right? Now, I know a lot of the policy people right now are sitting there saying, “That’s impossible, because what’s going to happen is people are going to wait until they’re actually sick and then buy the coverage, and then they haven’t been paying into the risk pool and making it affordable for all of us.” Okay, so just hang on to that, and I will explain how you make insurance on demand, okay? But you have to start with design thinking. And this is a really nice quote that I like: “If you plan cities for cars and traffic, you get cars and traffic. If you plan cities for people and places, you get people and places.” So, think about it from design thinking. Bring that to health care. If you plan health care for annual plan decisions, doctors, hospitals, and drugs, guess what you get? Health care for annual plans, doctors, hospitals, and drugs. Well, what if you actually planned health care for treatments, health, and caring? What would that look like? It would look very different than what we do today. So, I’m going to skip this page just for brevity, you can grab it later. But if you take a policy- oriented view, you actually end up with the wrong thing. So, for example, price controls, what do you get with price controls? And I was one of these lazy people 30 years ago. I worked for United Healthcare when they were just United Healthcare, and we went out and started building the networks. And guess how we actually negotiated prices. Anyone want to guess? We’ve already referenced it in this meeting: reference-based pricing. We started with, “I’ll pay you 130 percent of Medicare.” What that did is it said, “Medicare sets clinical value.” And the fundamental thing that’s wrong in health care is not prices; it’s how we set clinical value. And I’ll come back to that in a second, okay?

And now, what do we get because of that? We get two to 10 times higher costs because of what we’ve done from a policy perspective. So, what we’ve designed is, well, what if you actually let consumers arbitrage that opportunity? And here’s the problem with the Shared Savings Program that we piloted with the ACOs: We missed the third leg of the stool. So, the plan sponsor saves money, and the provider saves money. And no one gave any money to the consumer for making different choices. Like, that’s a really bad idea, right? So, we need to do that. So, I’m not going to beat up more any more on ACOs. I’m going to jump ahead to this next slide. This is the perfect depiction of the problem. This was produced in JAMA, and it covers what I call the three Cs of health care. The three Cs of health care are coverage, care, and condition. On the left is coverage, designed by age cohorts. The ribbons are the size of the actual dollars by age cohort. Color of the ribbon is what we call service categories. What are service categories? Part A, Part B, Part D, hospitals, physicians, drugs. Let me tell you something, folks. Disease doesn’t recognize Part A, Part B, Part D. It’s a really bad idea. And see, what you see is every noodle goes into that center fusion at the center. That’s care. That’s hospitals, doctors, and drugs. Okay, guess how we actually consume? You go over to the right, and how we actually consume as consumers is we consume via condition. Even Jeff released some HIPAA this morning. He told everybody he was a cancer survivor. Congratulations. That is how we are all uniquely tied together as humans. We all have conditions. And what’s crazy is that noodle soup. See how all the things get bent when you get to the end, where we go and hand a card to consumer and say, “You have health insurance coverage, go consume”? How many of you woke up this morning and said, “I can’t wait to have more Inova hospital,” right? That’s not the way it works. What we’d have is a condition, and we want it solved quickly and efficiently. I’m going to skip this. This is the ACOs. Here’s what’s crazy: This idea of an ACO is the best at all things that you need as a consumer. This is data. You’ll get the presentation that shows you in Minneapolis, this is a bunch of the care systems, about how they perform across different conditions. No ACO performs the best across all the conditions. So saying, “I want an ACO for, you know, all these things,” is a crazy idea. And what you’re missing is the 1,000 points of light that the fee-for-service system has created. Why I always get confused with people, they want to throw everything away. And it’s like, no, the fee-for- service system has done something great. There are 1,000 points of light in care delivery that allow us to innovate cross-care delivery and drive better condition treatment path outcomes. So, what we had the opportunity to do is step back and talk to consumers about how they would want to design a health insurance plan. This is how they want to design a health insurance plan. So, what they — I want to start with this. I want to personalize my coverage at any point in time, based on my conditions, not on my doctors and hospitals. On my conditions. And I would love to know my exact costs in advance, just my cost. Don’t send me this crazy thing that says it’s not a bill and then say, yeah, here’s what the charges were, but don’t worry. We’re going to, you know — and then we got benefit adjustment. We got contracting adjustment. Like, that’s just silly to talk to consumers that way. Underneath conditions there are treatment paths. Every condition has multiple variants of a treatment path. What you want to do is expose treatment path to consumers in insurance. So, I have back pain. I could get back pain. I could solve it with physical therapy for a very simple copay of $35. I could solve it with a back pain injection. It could be steroids, could be

something else that costs me $50. Or I could get a spinal fusion done, right? Guess what? Very expensive. How many of you want to start with spinal fusion? That’s the other thing that’s crazy about this idea, which is humans hate anesthesia and scalpels. They want to avoid them, right? But someone needs to expose them as the alternative, so what Bind does is say, “Well, guess what? There’s actually a specialized rehab provider in your market that guarantees a nonsurgical outcome if you start with them.” Guess what we should charge for that. Zero, because getting consumers to buy that releases actuarial value to the entire pool. Then what would happen if that consumer doesn’t resolve what that underlying condition? They then would get the spinal fusion, but now they’re going to get it from a center of excellence in their market, and they’re going to pay a different price now than what they would have paid if they just jumped to it. Here’s what’s so crazy about the modern world we live in. You know, people saying — all these modern startups say, “I’m going to put health insurance on a modern tech stack.” That’s the wrong question. The question you should ask yourself is: What is the insurance product a modern tech stack allows me to create? What it allows you to create is a contextual-based model of what does the consumer need and then deliver that precisely when they need it. Let me give you some examples. This is proven data on a Bind analysis that shows we’ll unlock actuarial values. The purple things are: If you start orthopedic procedure with PT, what’s the surgical rate? If you start with anything else but PT, what’s the surgical rate? They’re almost double across all of these conditions. Almost double. Can you imagine the number of procedures that are done across these things that are costing all of us? And oh, by the way, so here’s how you make health insurance on demand. It’s the first shared economy. If we were all an employer group, we’re all subsidizing each other’s buying habits, right? I would ask you, please don’t take your meniscus care and start with knee arthroscopy. Please start with PT. You’re going to save me some money. You’re going to save you some money and probably save you a bunch of pain, too. Right? Make sense? Here’s why you can make insurance on-demand. What has every employer done over the last six months? They’ve built a forward budget of their health benefit liability. It’s forward funded. The dollars are there. Oh, there’s these two other institutions that do that, too. They have to be called Medicare and Medicaid, right? It’s why we have trust funds, right? We have forward built the liabilities. Now, what’s really scary is: What’s the algorithm we’re using to build that forward liability? Come on, we’re in the room with health policy people. There’s actuaries in here, right? The past. How many of you have had the same health care year after year? Ooh, that’s a bad algorithm. I laugh at my actuarial friends, and I say, you know, you are the first data science. You’ve become the last because your algorithm stinks. Right? And what’s really important is disease have something in the machine learning world called Markov properties. And we can actually better predict what people need using a machine learning view of disease. When you do that, you’re going to build coverage that looks like this. You’re going to start by saying, “Let’s get back to insurance. Let’s actually have something we call Core.” Meets the ACA requirements.

Guess what else doesn’t happen in a Bind plan? No deductibles, no coinsurance, ever. They forced consumers to do fuzzy math they can’t do. When does a price tag get assigned in health care? After it happens. So, this whole idea of transparency, “I’m going to get people shopping,” is a stupid idea, okay? So, the only people who have the data necessary to do that are insurance companies, intermediaries like Change, who actually get to look at the practice patterns of what people actually do as they produce and deliver these services. Then what you’re going to do is create a derivative of that price and take the risk associated with what you’re supposed to do as an insurance company by building a single price tag. This is why you don’t use deductibles. Deductibles are stolen from the PNC industry and brought into health insurance. Health insurance is only a 100-year-old concept in this country. It’s fairly new. Deductibles and PNC were built for specific loss events. Your house burned down; you got covered. But if your business burned down and you didn’t have a policy, your house policy didn’t cover your business loss. Deductibles and health care, mixed loss events. I’m mixing my pediatric diabetes with my broken leg with my myocardial infarction. It is a really, really, really — can I say it one more time? Bad idea, all right? Now, hopefully, this next time around I could convince Congress, don’t do an HDHP. It’s a really bad concept. How many of you think we need a deductible for cancer? Right? It’s crazy. So, then what you do is you take that employer’s plan and then you say, “I’m going to allow people to buy anything when they need it, if they need it. And when their needs change, they can buy what they want.” The key to that is health care is plan-able. How much of health care is plan-able — i.e., the treatment? Anyone want to guess? Over 70 percent of the spend is plan-able, right? Now, events aren’t plan-able. Cancer’s not — look, no one plans for cancer, but when you get it, you can plan the treatment path, right? And when you have planned the treatment path, you can start building price tags along the entire journey of what the consumer is going to need and what they want to do. And then you’ll also be able to reflect what do people look like. So it looks like this. Knee pain, I cover it with this. Physical therapy, Cairo, or nip injection, your knee MRI is covered in Core. But if you’re getting knee arthroscopy, you’re going to get itemized coverage. You’re buying just the knee arthroscopy, and you’re buying it either from, for example, I give you a hospital, United Hospital, or you’re buying it from the ASC. And the price you’re going to pay as the consumer for the itemized coverage is going to change based on the clinical value and the price of those underlying services. And you’ve done something very unique for the first time in health care. You’re taking a coverage decision with a clinical choice, and you’re marrying it to the point of need, not the point of enrollment. The point of enrollment is a really scary time for consumers. Why? You’ve asked them to do three jobs: One, become an actuary. Predict what plan is right for you. Two, be a clinician. Figure out based on what you’re going to consume how these plans would work. And then three, be a fortune teller. Predict the future, right? No wonder why people are all upset. So, if you could actually make insurance on demand, take that coverage and clinical decision at any point in time, I’m now activated as a consumer. This is what it looks like. This is actually how we use it. So, we created a clinical ontology, an AI engine that converts every consumer synonym to what it is they need. I have otitis media in Latin, if you want to know

what an ear infection is, right? So, here’s what we say, “Yup, it’s covered in your core plan,” and then we show you how it’s covered. Depending on where you go with otitis media, your prices change. If you go to something like Teladoc, it’s going to be free. If you go to the convenience clinic, it’s 15 bucks. If you go to primary care, it’s 20 to 50 bucks. I’ll talk about why there’s a range in a second. Or if you go to a specialist, it’s this. If you go to the ER, it’s $500. Don’t go to the ER with otitis media. I have seven kids. I now know how to diagnose otitis media. I don’t need a doctor telling me what it looks like. And then we show you the price tags. The difference in primary care is depending on who you pick. And so what we build is an episodic view of how this provider performs on this specific procedure, talking about their CPT fours, are they grabbing a 99213 versus 99215, and so on and so forth, to actually build price tags for consumers. And then we just give the consumer a price certain tag, “That’s all you’re going to pay, no matter what happens.” Here’s how we build the prices. It’s what everyone’s been talking about. This is real data from the Minneapolis Twin Cities market on variation in knee arthroscopy. What you’re seeing is a search if someone says, “I want to buy a knee arthroscopy.” If you want to get the one that’s $2,300 from United Hospital, they’re the bar over to the right there. That’s above the market mean. In old insurance products, that market mean is how we all have to price, right? And what Bind does is it says, “Nope, I now get the price with precision across where is it someone is actually going to consume it from, and then I subsidize differently. I actually increase the group subsidy to the higher performer. I make theirs more affordable for everybody, economically nudging the consumer to get to the right thing.” Here’s the other thing that’s amazing about a Bind plan. When you start with Bind, you get a pay raise. You pay less for your health care. And you have no deductibles and no coinsurance. Now, when you’re at this point of decision, you have to decide, do you give your pay raise back to the bloated wasteful health care system? And if you want to give it back, knock yourself out. But if you want to keep it, we’ll get you to buy that most cost- effective alternative that sits below that. This is how the Bind plan performs for people. This is us. This is the winners and losers charts for the actuaries in the audience. So, this is done against a four million life ASO database. And we show people, this is a depiction of a 2,000-member group, and what we’re showing is people that do better under the Bind plan are above that x-axis. And then people that are doing worse — now, what’s so good when you build condition-based benefit design is I can design and say, “All of the things you’re worried about, I’m going to cover them efficiently.” Now, what I’m going to put is all those things that you can plan for where there’s a lot of price variation, and you could shop for it better, I’m going to make sure I’m going to nudge you north of that line. I’m going to make sure — and what’s really interesting about this actuarial scatter plot is traditional plan designs can’t touch people pass the 60 percentile of claims expense because you’ve gone through your coinsurance and deductible out-of-pocket maximums. In a Bind plan, I still can signal and touch you and say this is where you buy more efficiently. Very, very different concept. This is where the savings came from. We can drive anywhere between 15 percent to 20 percent savings for employers. What’s really interesting is we’re actually achieving a 33 percent — well, we’re not bending the trend. We’re breaking the trend. Employers have

saved a third from what they would have previously spent in their other insurance products by putting in a Bind plan. Thanks. Regina Herzlinger: So, Tony Miller, among his other accomplishments, was the first in the United States to successfully develop a platform for deductible health care plans against really formidable, much deeper-pocket competitors. So, great, Tony. Our next speaker is Tom Moriarty. Tom is the senior executive vice president of CVS. He’s in charge of policy. And we had to have a token lawyer on this panel — not so token by any means. Tom will tell us about how CVS will solve some of the issues alluded to in the prior panel, and that is how do you break care out of the hospital vertical integration that you talked about so eloquently throughout. Tom, welcome. Thomas Moriarty: Thank you. So, we have a presentation, too. Is that correct? Regina Herzlinger: Yeah. Thomas Moriarty: Good. Green button? Okay. There we go, okay. Well, good morning, everybody, and thank you for the opportunity. I think you’ll hear some very similar themes from me that you heard from Tony as well. But I want to just spend a few minutes to talk to you about sort of the thesis of the transaction that we’ve just completed with Aetna and how we’re going to bring it to light and we’re going to bring it to the marketplace. Because I think that access point, the need for care and local care, is paramount. And we have a fundamental belief that the health care system can’t necessarily be reformed from outside. Reform has to come within and with the players who were there now and changing what we know and using data to drive that change. And that’s fundamentally what we’re going to be looking at. So, if you look at the current system, obviously, everyone knows the challenges. The current system, it’s fragmented, it’s complex, it’s episodic, and obviously very, very wasteful. You all know the stats in terms of how the US performs against other markets. The stat to me that is staggering, though, is this country has a $3.2 trillion health care economy. It represents today 18 percent of our GDP, and over the next several years, it’s going to go up to about 20 percent of GDP. Those additional two point increments is $250 billion that won’t go to education, won’t go to infrastructure, won’t go to other key national priorities, unless we change and start looking at where cost is, why do we have an increased cost and inferior outcomes. The current system is not sustainable, and it needs to be transformed. So, our vision is really a new front door in health care. So, in the introductory remarks, we have almost 10,000 locations across the United States. We feel that as you build within communities, health care is a full contact sport, okay? It takes a number of contact points to really address the issues at the patient level, at the consumer level. And to what Tony said, the system is built not around, currently, the consumer. And we need to change that so the consumer and the patient feel empowered and have access where they need it, when they need it, and how they want it. And so we believe we can improve engagement, improve health outcomes, and then ultimately, because of that increased engagement, lower health care costs.

Three priorities: Be local. We are local. Make it simple. We really need to break down, bring transparency. I think one of the things we’ve done just around drug pricing alone, we have the ability today, based on where you are in your plan design, at the doctor’s office or at the pharmacy counter, to tell you what your doctor has prescribed for you and show you lower- cost therapeutic alternatives, up to five. We’ve brought that into the doctor’s office through the existing AMR systems. So when your doctor wants to prescribe you drug A, she will see that where you are in your copay, deductible, life cycle, etc., if she prescribes drug A, it is going to cost you x, if do drug — and down the list, it gets you to the lowest price therapeutic alternative. You can have that choice as a consumer. And if it’s not done at the doctor’s office, it can be done at the pharmacy counter. So it is working with a lot of the players that are represented today, but more broadly in the system. It’s leveraging existing capabilities, but bringing that interoperability into health care that is hugely important. And so we have five, you know, priority areas. Common chronic disease management. We all know that lack of adherence to medicines, roughly $300 billion a year is wasted. Because we have emergency room visits, doctors visits, and unintended outcomes because of lack of adherence to medicines. I think it’s roughly 90 percent of all disease conditions has pharmacy and pharmaceutical products as the first line of defense. But when a drug goes through a clinical trial at FDA, you have adherence rates that are off the charts, 98, 99 percent. Why? There’s a care management system built around that patient during the clinical trial. The drug gets approved by the FDA goes into the open market, adherence for that drug, whereas 98, 99 percent in the clinical trial, drops below 50 percent. How do we replicate in a meaningful way what is happening in the clinical trials into real world? And that’s where local access, access to information, and alternative points of care become hugely important. Readmission prevention, everyone knows it. When you leave the hospital, you have a drug regiment that’s been prescribed to you, when you leave the hospital. There’s nobody there to do the medication reconciliation for you as to what’s currently in your cabinet at home with what is now being prescribed in hospital. A big percent of readmissions: drug to drug interactions, because that reconciliation is not being done. Other areas, you have therapies that are being transferred from hospital into non-hospital settings, infusible therapies, as an example. The better managed that transition is, the lower the rates of readmission. The cost savings are huge, but more importantly, the patient experience improves an incredible amount. Site of care management, and this was referenced before. Unnecessary ER visits and other visits cost the system a tremendous amount of money, both to the system itself but to the consumer, to the patient. Roughly 50 percent of folks coming to our mini clinics do not have a primary care provider. Roughly, again, about 50 percent come to us on nights and weekends when primary care isn’t available. We need to extend access to these alternative sites of care (a) to provide that access, but (b) to provide lower-cost sites of care. Optimized primary care. This venture will be an extension of primary care and to providers. It’s not a replacement. There are other models that are looking to replace. This is an extension. And the one, you know, statistic I use here just to really demonstrate this point:

We know patients with diabetes see their physician roughly four to five times a year. They will see their pharmacists and talk to their pharmacists 18 to 24 times a year. So, how do we leverage the information that’s in the medical records, that’s in the patient record, to drive to maximizing those points of engagement when the patient, when the consumer, wants to engage? It’s not the phone call at night at dinner time. It’s not the letter. It’s that face-to-face contact with a care provider that’s available. So that is fundamental to what we’re talking about here. And then complex chronic disease management is the last area. And fundamentally, if you look, 10,000 folks each day are aging into Medicare. We know what that means, budget- wise, as we go forward, in terms of the cost impact, etc. But also as we get older, unfortunately, we develop multiple conditions, and the management of those very complex — how do we bring engagement, information, and transparency to do a better job in that regard? So, why do we think we can make a difference? Well, today, roughly one in three Americans interact with CVS today. Over 75 percent of the populations is within five miles of one of our pharmacies. A little bit more than four and a half million folks come to our pharmacies each and every day. And now with Aetna, we have over 45,000 medical professionals who are going to be available across our enterprise to work on these. We have, currently, 69 million folks engaged in text messaging, which is, you know, the power of your phone. But I think most importantly is the interaction engagement we have with health plans across the country. So, as we look at Aetna, and bringing this together in the innovation, because of the channels that we interact with today, we have a really distinct ability to leverage and bring this to the market much more broadly and really drive change across the entire system because of those existing relationships. So, this is the problem statement. We all know it, okay? $2.4 trillion, that’s the medical spending. Estimated $2.1 trillion just on chronic disease. And these are estimates that are published, but if you take a 25 percent estimate, that drives to a range of savings. And if you think of what that savings can mean just across the board, not just from a cost perspective, but from a patient experience perspective, then you’re really looking at reforming the system. So, it’s leveraging what’s in the data. And data is great, but if you can’t make data actionable and bring it to life and bring it to the patient, bring it to the consumer, you’re not going to change the behaviors that need to be changed. You’re not going to drive the change in behavior that needs to happen, and you’re not going to change the way the system currently works. So, that’s the thesis for what we’re going to be building. We firmly believe that we will make a difference. We have a number of proof points from our CVS world that I think can make a real difference. And one of those, and maybe we’ll talk about it during the Q&A, is the way the current payment systems are structured and this annual cycle of essentially bidding for lives that we have both in the commercial world, as well as in Medicare. We need to make investments in patients that extend beyond the year before those benefits are actually seen and achieved. We should be looking at underwriting cycles, at the federal level and even the commercial, where you create different models that allow for those investments to be realized, your savings driving change, and then a underwriting model makes sense. So, I hope we get to some of these questions. Thank you.

Regina Herzlinger: Thank you, Tom. That was beautiful. So, often when people think about cost control, they think about controlling prices. I think what Tom has illustrated is it’s not about price control; it’s about delivering care in a fundamentally different way. I did invite a Brazilian health insurer who offers a three-year policy, to your point. And the three-year policy is, of course, very important. One-year term — “term” is the insurance word for the length of the contract — is insane, especially if you’re dealing with chronic diseases. It’s like buying a house with a one-year mortgage. In Brazil, this particular insurer offers a three-year policy, so the insurer has great incentive to maintain and improve the health of the chronic disease person early on so by the time year three rolls around, the MLR hasn’t exploded. In addition, a three-year policy reduces the churn enormously. And the churn, and just the rate of people coming and entering and leaving health insurance policies, is very, very expensive. Unfortunately, he couldn’t come, so you’re stuck with me telling you about this amazing plan. Very interesting. It’s in Brazil. Why isn’t it the United States? We’ll return to that question. Our next speaker, Dr. Rajiv Bhatt, is from India. He is the CMO of a remarkable health care delivery innovation, innovating the delivery of cancer. And again, this isn’t about reference pricing; it’s not going against Medicare. It’s not any of those things. These are fundamental innovations, the old-fashioned way. We’ve done it in the US, and that is we’ve changed how we produce things. Rajiv? Rajiv Bhatt: Good morning, ladies and gentlemen, and it’s a privilege to be here. Big thanks to Regina, Tom Miller, and the AEI for inviting us out here today. I’m basically a surgical oncologist, a clinician, and in part, a medical entrepreneur as well. So, you get to see a bit of both the worlds. HCG is a cancer care organization in India that’s headquartered at Bangalore, and it’s a doctors-initiated organization. It’s promoted and driven by doctors, and it’s the largest cancer care provider in the private sector in India, with more than 2,000 beds, about 60,000 new registrations, new cancer cases seen every year. Last year, we performed 18,000 major cancer receptions, almost 13,000 radiation therapies, and more than 58,000 chemotherapies through the network of 26 cancer centers around the country. The key financials are there for all of you to see. It’s fairly strong. We have revenue of USD $108 million with a reasonably good a beater. The company went public in 2016. Current shareholders are both national and international, with Temasek, IFC, and CDC being there as well. So, it’s a fairly universal organization and doing well after its initial start. But what is instructive here is to see the evolution of HCG and how it actually happened. And it began in the early ’90s with Dr. Ajai Kumar, who is, essentially, radiation oncologist trained at the MD Anderson here in Texas. And he, along with a group of doctors, set up India’s first private, dedicated, comprehensive cancer facility in Bengaluru. Now, this was against the background of an area that was severely lacking in appropriate infrastructure for cancer treatment. And the quality of care that was being delivered was quite suboptimal. And there was this perception that cancer was a non-curable and essentially end- of-life disease.

And against this backdrop, this particular center was set up, and in a few short years, it was flooded with so many patients that they were essentially looking to expansion. So, there was a need. People did want better and quality cancer treatment. And it was in the early 2000s then that HCG as a company was formed, along with backing from some private equity investors. And at this point, again, it was in the background of a lot of skepticism about how the capital investment would be recovered because it was capital intensive to set up a high-tech, comprehensive cancer center. And what is the viability of a single-specialty business model? Because traditionally, everybody used to go to major multispecialty hospitals, of which oncology care would be a subpart. So, it was against this background that the expansion plan was put into place, with a uniquely innovative model, the hub-and-spoke model, which I shall speak about later. From there till today, as I told you, we’re the largest cancer provider in the private sector, 26 cancer centers. But now, the background is a rising incidents of the disease. And there is a huge gap in the infrastructure and the resources, and we clearly need an improvement in the outcomes. So, the challenges remain. And it’s a dynamic and constantly evolving field. There are four verticals: 80 percent of the care is in cancer, a small part in fertility treatment, precision medicine through the strand vertical. And this is actually a very vital part of the entire organization because it provides the bio informatics and the specialized clinical diagnostic and research services within HCG. And there is a very small percentage of multispecialty hospital for various reasons that is a vertical on its own as well. Now, what you must understand is that India is very diverse. I mean in terms of its language, its people, its culture as you go across India, its cuisine, and everything. And health care is no different. You know, health care is also very different. The amount of health care spending that each of the states does ranges from low to average, with very few states actually having a good health care expenditure. And it’s surprising that the most popular state has the lowest insurance penetration. It’s under 10 percent, but it has the largest budget in terms of the health care outlay. So, it’s an extremely complex and diverse situation in the country. And add to this the disparities in the rural and urban health care. Almost two-thirds of the population live in rural areas, where there is a severe lack of resources, and only 20 percent of them will have access to high- quality care. In addition, 70 percent of the care in any disease, in any health care condition in India, is in the private sector. Only 60 percent of the patients have insurance, so the majority will pay out of their pockets. And that’s where the choice and competition will come in because it’s their own money that they now have to look around to see what they get value from. And in order to approach these challenges, HCG came up with this innovative model. Dr. Ajai Kumar envisioned it and established it, the hub-and-spoke model, which has addressed both accessibility as well as affordability. And what this model is actually is that it’s essentially a doctor-driven enterprise. The group has almost 320 oncologists in various subspecialties spread out across the entire country. And it’s a very innovative partnership model, and I think I can best describe this by giving my own example. I’m a surgical oncologist. I come and I practice in a city called Vadodara. It’s in Gujurat, in western India. I started practice in the early — in the mid-90s after being trained at a specialized cancer center, but without the leverage of a comprehensive center within my own city.

And this led to a lot of fragmented care. My patients would come to me for surgery. I’d operate at one hospital. They’d go and see another medical oncologist at some other hospital for the chemotherapy. And then for the radiation oncology, they would have to go maybe to Mumbai, about 400 kilometers away, or to two other centers, which came up subsequently, which was still about 100 kilometers away. So, clearly, there was a need for establishing a comprehensive cancer center. And as an individual, I didn’t have the necessary resources or the professionalism to be able to put up this enterprise on my own. HCG, on the other hand, had the expertise. It had the input that was necessary financially and otherwise, but what it didn’t have was local know-how. So, it made a perfect win-win situation for these two segments to partner. So I partnered with HCG, and we brought a comprehensive cancer center into Vadodara about two and a half years ago. And that’s how this model works across all the centers: that there are partners, and the partners are oncologists themselves. And what it does is that it brings much-needed high-tech care within reach of people who actually need it closer to their homes. And there are multiple ways in which we utilize this hub-and-spoke arrangement. Vadodara becomes the spoke. The hub, of course, was Bengaluru. And what it does is that it moves care from the metros to the tier-two and tier-three cities. In India traditionally, if a patient has cancer, he’ll come to the treatment center with two or three of his family members. So, you have loss of wages, the stay for the treatment, their lodging, their boarding. Tremendous loss of income. So, when you transfer the care to the tier-two and -three cities, you make it more affordable. You make it more accessible. And that’s the way the model works. And the quality assurance and the rest of the protocols, which will determine adequate level of services, is given from the core or the hub to the various spokes. So, that’s how it works in Vadodara. Vadodara is the spoke, where we have, say, just for illustration, surgical oncology. We have a modern radiation therapy linear accelerator machine. We have medical oncology. We have the nuclear imaging, and we have lab medicine. But for things which are more intensive, like molecular oncology, genomics, or CyberKnife for robotics or for bone marrow transplant, we will look back to the hub. And a short time after beginning the center of Baroda, we suddenly realized that people within a radius of about 250 kilometers also found it very difficult to keep coming back here for repeated consultations and repeated treatment schedules. So, we started outreach clinics at these various places, where we set up clinics. These are outpatient clinics. We do basic lab tests, and infusion centers for day care chemotherapy. So, now you have the spoke of the hub-and-spoke model extending further scopes into the, you know, rural and the semirural and the semi-urban areas. So, what happens is that the spoke now becomes a regional mini hub. And in this way, a patient who is at the right end of the spectrum can avail of all the level of care, the benchmarks, that the hub is there to provide. So, in effect, virtually, they’re getting all the treatment being thousands of miles away and at a much more cost-effective price point. This is — geographically, you can see that the coverage area is fairly large. It covers neighboring areas as well, neighboring states. And it has turned into — now the spoke has turned into a hub for specialized medical services.

What are the characteristics of this hub-and-spoke model? And I think one of the first that I would mention here is that it cuts down the cost of cancer treatment. And if you see a comparison of the cost of cancer treatment for various cancers across the board, you can see that the cost in India is considerably lower than it is in developed countries. And this particular cost cutting has happened in a number of ways. It hasn’t taken away from the quality, as I will show you. The technologies, although they’re all very much there, are not as expensive as they are in the US. For example, a PET scan in the US will be $2,500, and an imaging in India would cost USD $300. Intensity monitored radiation therapy, which is one of the specialized radiation therapy methodologies, costs $10,500 in the US, but it’s just about $2,500 in India. And stereotactic radiosurgery, $45,000 in the US and $6,000 in India. So, clearly there is value for money in what is being done. And the other interesting thing here is that even within the hub-and-spoke model, the costing at the spokes would be less than it would be at the hubs. So, the consumer or the patient, so to speak, has a choice about where to go to get that level of care because he’s paying out of his pocket. This cost cutting doesn’t come at the cost of quality. I mean, the focus is constantly on the outcomes, and we’ve published results, which show that our outcomes in a number of cancers are at par with most comprehensive cancer centers across the world. And there are a number of ways which we ensure quality. One of them is the multidisciplinary approach and the tumor boards. At Vadodara, we have a regular tumor board held every day that discusses the patients’ individual imaging and lab data. And then we make treatment plans, and that’s implemented. Complex cases are discussed with the specialists at the hub through a virtual tumor board. And this allows us to access for that patient who is at our center the best possible decision- making process. We build in the nuclear imaging data, the molecular genomic data that may be required, and all this produces a huge amount of data, big data and data analytics, which will then help us to make better decisions. And this focus on outcomes ensures that we don’t compromise on quality. The performance is reviewed on an annual basis at our in-house actual meetings. You can see the adoption of conservation breast surgeries in preference to mastectomies with this kind of a model, over the years, about 10 years. Now we’re at levels where it is with the rest of the world. Another typical example is the appropriate and effective use of the PET CT scan. This is a nuclear medicine technology, which is molecular imaging. And, previously, when we relied on traditional imaging, the CT scan and the MRI — these are structural imaging — we would miss patients who had metastatic disease. But now with a PET scan, we can detect these. The difference is almost fivefold in terms of detection of metastases in locally advanced cancers. And that would change the treatment plan. Patients we might have subjected to local regional treatment, we wouldn’t know that they had small metastatic disease, but they would relapse very soon. The entire effort in terms of the money and everything else spent will be totally wasted because the outcomes are completely different. So, a simple strategy of using the appropriate investigation effectively, not blindly, more rationally, will clearly lead toward saving in terms of what we do.

We have now moved from an era of one-size-fits-all to precision medicine. We have patient subgroups in whom we can predicate the response to certain treatments, and it is then that we decide what kind of treatment that person should receive so that the outcomes are much better. There’s no point in applying costly medication to the entire group of, say, stage-one breast cancers, when you know that within that group, there are about five to six different subgroups. So, this precision medicine, all it means really is giving, you know, the right treatment to the right patient at the right time. By doing that itself, we’ll cut a lot of costs. And using this precision medicine, we can leverage adequate resources. We can provide integrated offerings. We have one of the largest cancer bio repositories and patient database, and this is what we will dip into to give us future directions about where we should go. The hospital information system and the cloud-based EMR provides adequate data for us when we do the analytics to provide a background for real-time decision-making. And this is something that we are now in the process of implementing. It’s possible in my clinic now to know that in the past, so many thousands of patients treated in a similar way had this particular type of outcome. Accordingly, I’ll be able to advise my patient being right there in the clinic, based on these data analytics, which essentially are our own data. It’s not data translocated from the Western world and past statistics. So, clearly this model is working well. And I will conclude with a quote from a champion crusader of equality and justice, who said that “of all the forms of inequality, injustice in health care is probably the most inhumane and shocking.” That, ladies and gentlemen, was Martin Luther King. Thank you very much for your attention. Regina Herzlinger: So, one other thing about HCG, they don’t pay dividends, and they take that money. This is a publicly held enterprise. They take the money that would normally be paid out in dividends and use it to subsidize people who otherwise could not afford it. I’d just like to restate what the hub does. Cancer cure is tremendously expensive. Radiological equipment is horrendously expensive, $50 million, $200 million. It requires extraordinarily smart and expensive resources to run these machines, Ph.D.-level physicists who specialize in calibrating them and ancillary personnel. All of those resources are in that hub, and they maximize utilization of the hub. The resources of what’s called medical oncology infusion, which takes a long time, is very painful, psychologically debilitating. Those are done out in the spokes. They’re there in the community. It’s economically a brilliant model, especially to a country like ours, where we have mostly hubs and virtually no spokes, and it’s a much more humane model to boot. So, thank you so much. Lew, so you’re going to tell us — Lewis is CMO of Teladoc. Teladoc provides second opinions, and it provides information to consumers. He’ll tell us how Teladoc works and perhaps how it could help if HCG were in the US. How it could to help a patient pick HCG or MD Anderson or Dana Farber. Lew, welcome. Thank you. Lewis Levy: Thanks, Reggie. So, I’m Lew Levy. I’m the chief medical officer at Teladoc. My own journey into telemedicine really began about 18 months ago. I was the chief medical officer at a company well-known to Reggie, Best Doctors, one of the case series that Harvard Business School that you’ve taught for many years, along with one of our founders, Dr. José

Halperin. Best Doctors is an expert medical opinion service started at the Brigham and Women’s Hospital by two professors, Ken Falchuk, who passed away this year, along with José Halperin. That was really a way to access top-level medical opinions anywhere in the world. So, we’re a global company, and 18 months ago we were acquired by a very large telemedicine company called Teladoc. And the vision of the company right now is to, with the acquisition of Best Doctors and the acquisition this year of another expert medical opinion company that provides physician services globally, Advanced Medical, headquartered out of Barcelona, is really to provide a very comprehensive medical care virtually. And this really sets Teladoc apart from a lot of other telemedicine companies, which tend to be more or less what would be considered point solutions. So, you might have a tele- nephrology program that might be helping individuals who are on home dialysis in Cleveland. So, it’s a very specific kind of use case, if you will. The thesis of Teladoc is really to provide comprehensive virtual services globally. So, I want to share a little bit about the company, but I also wanted to share a couple of thoughts. Reggie asked specifically about what can be done to sort of accelerate growth from a regulatory standpoint. So, I want to address that as well. So, we are transforming how people access health care around the world. People talk about convenience, outcomes, value. And I’d also like to stress, having taught the past 30 years over at Harvard Medical School, really accessing quality care, not just accessing convenient care. And I think it’s an important distinction to bring out. We are, in our space in the US, the only publicly traded company. And we have access to over 50,000 medical experts. We have 2,000 employees around the world. We’re currently in 125 countries. And we have a very good uptake in terms of individuals downloading the mobile app. Why is that important? It’s important because it really drives digital engagement. And a lot — currently, we’re living in a world where consumers are increasingly, in their lives, accessing services such as Amazon and Uber, without even thinking about it. Yet, with health care, I would say that people are still thinking in terms of “I’ve got a problem. Who do I need to go see?” And they’re not thinking so much in terms of a virtual solution to meet their health care needs. And that’s why the digital downloads are so important because that allows all different types of digital marketing, geo-fencing, and all different types of strategies to really increase the uptake of the service. And as you can see on this slide, it’s a very expensive clinical services. So, another important part of the company in terms of the overall digital consumer experience is to make that experience an easy one. So, it’s by no means the object of the company to confront the consumer with, “Here are the 25, 50, 100 different services that you might be interested in,” but really, to work with leading companies around AI solutions on the front end to have smart intelligence around the navigation so that, in a couple of sentences, an individual can describe what is their health care need and then basically navigate them to the virtual service that we think can best meet their need in that time. And here you can see a little bit about the company. We really feel that we have managed to deliver virtual care value at scale. So, we’re coming into a busy season in the US, and on a

given day, we may be doing over 10,000 visits. We’ll be doing over two million virtual visits this year alone, and it’s rapidly growing up. So, when we look at how many members have access to our services and how many visits are we actually generating, we’re noticing that year-over-year on a percentage basis, increasingly, the visit rate is outpacing the membership growth rate, meaning higher utilization, higher uptake. And you can see here on this slide, we’re around 6.3 percent in terms of overall utilization across our book of business. We have many different distribution channels through both large and small carriers, small, medium, and large-sized companies. But where you see the larger statistics there in terms of where do you get utilization of up to 15 percent, it’s really where we can most directly communicate that individuals have this service. So, for instance, for large corporations where we have been brought in there as an employee benefit, we have the most direct access to the individual, as opposed to when we might be behind a carrier and it might be a little bit more difficult to get the message out. And we’re very proud of the outcomes. We have done a lot of work around asking each of the individuals who come to Teladoc, “What would you have done if you didn’t have access to this? Would you have just, you know, gotten a box of tissues and therefore this care is totally additive? Or would you have gone to see your regular primary care provider, urgent care, emergency room?” And we also do follow-up on these cases. So what we have been able to demonstrate is that there is an approximate cost savings of $472 for each of the visits, based upon that avoidance of ER and urgent care. And we are also noticing 92 percent of the member issues are being resolved by this service. So it’s by no means additive or another thing before the person actually got their medical issue resolved. Important point. Similarly, we have a pretty robust behavioral health program, which actually is 10 times the size this year as it was last year. So we’re very proud of the fact that behavioral health is growing quickly, and it’s effective. So we do surveys of individuals in terms of how well this service actually improved their behavioral health condition, and we’re noticing important improvements, both in terms of depression and anxiety scores. We also have the expert medical opinion services. And these are the services that were part of the legacy Best Doctors and Advanced Medical. And these are services in which virtually, we are interacting with individuals and then gathering all of the relevant medical information: hospital charts, imaging. We actually repeat the pathology to make sure that the original pathologic description was correct, and we’re finding about 20 percent of the time it is incorrect. We also do cost analysis on all of these cases and find that by giving individuals the right diagnosis and the right treatment path, we’re able to have a significant impact. Most of the models, in terms of the expert medical opinion services, are delivered as employee benefits, as well as delivered through a lot of global insurers. But we are also locally involved with health plans directly. So, for instance, Care First, a large blues land in the Baltimore area, has a pretty robust patient-centered medical home program. And the expert medical opinion services of Teladoc are services that are then routinely — the case managers are taking their cases at the top of the pyramid, if you will, these cases that are the most costly and most complex, and referring them directly into the network.

In terms of a couple of thoughts in terms of what could really help accelerate the growth of virtual care services, you know, I would say two things. One is interoperability. We heard quite recently about India and the frustration that you faced in terms of individuals who might need as part of their comprehensive cancer treatment a surgical approach, a medical approach, a radiation oncology approach, and having three disparate systems in India that didn’t necessarily talk to each other, and really, the smart approach of having this integrated hub-and-spoke model. Well, I invite anybody to come to Boston, stand on Brookline Avenue. And you can see on your left hand side, the Brigham and Women’s Hospital. On the right hand side, you can see Beth Israel Deaconess Medical Center. I’ve had admitting privileges at both hospitals for the past 30 years. They don’t share information. So, I mean, it is crazy that in this day and age, that one could literally have a severe headache, be hospitalized for a few days at the Brigham, you know, get discharged, show up, get frustrated, “I’m just going to go across the street,” go to another Harvard teaching hospital, and not have that sharing of information. So, I think that a lot of the solutions that we’ve been talking about today, one always has to think about in terms of interoperability and the importance of that because it really filters into every single conversation. Jeff was mentioning earlier about the idea, you know, you could go to a different imaging center, and it could be a fraction of the cost of the first place. Well, if that imaging center doesn’t share information back to the primary care doctor if there’s the incidental finding of the adrenal carcinoma on the MRI that nobody was really looking for, and then it gets lost, it’s problematic even if the consumer gets $100, because they did the right thing and drove an additional five miles, you know. Similarly with buying health. You know, I think that it’s great that one could be directed to that provider that is providing the arthroscopy at a fraction of the cost of the big university center. But again, it’s that tying in of the information. We’re very proud of our partnership with CVS, and all of the work that Troy Brandon is doing in terms of trying to tackle chronic disease management, but again — Regina Herzlinger: He’s CMO of CVS. Lewis Levy: Correct, yup. We have a partnership with CVS where we are being white labeled and providing basically the telemedicine backend services for the virtual aspects of the minute clinic. But I think that that relationship can really accelerate and grow with just much more of a fueling. So, you know, I think that everybody knows the ease with which you could go and speak to a financial adviser, and, you know, Fidelity net benefits and have all of your various, you know, your tie craft, your this, your that, all on one page, and then you can go speak to any financial adviser you want. And I think that there really does need to be this democratization for the consumer that you own your health care data and that you can go anywhere within the health care system and seek that care because that, I think, really, is, on a medical quality basis, really fundamental. More toward the telemedicine, I think that, you know, two things that are important to us — well, there are many things, but two that I’d like to highlight. One would be around the rules that are currently before Congress that have to do with — regulations having to do with where is the patient and where is the provider at the time that the telemedicine service is being rendered.

Dr. David Shulkin recently joined the Medical Advisory Board. He was the secretary of the VA. I’m sure that a number of people in the room know him. And he shared an anecdote where he basically was in the White House demonstrating to President Trump, speaking to one of his patients. And Trump enjoyed interacting with the patient very much. And then he basically wandered into Trump’s office and said, you know, “Mr. President, do you have a minute?” And he said, “Sure, what?” He’s like, “Well, that patient was in a health care facility when you are interacting with them.” And the importance of that is that, currently, the Justice Department is blocking us from enabling our providers to interact with patients when they’re at home. They have to be in a health care facility. So veterans are literally driving, you know, an hour or two to get to a health care facility in order to have a virtual interaction. And the president was like, “That’s ridiculous.” And sure enough, he was able to call up the Justice Department and get that turned around. But those kinds of laws of where’s the provider and where’s the patient still exist. And we really do believe that virtual care services should not be hindered by those types of rules. We also think that it is time that people begin to think a little bit about what we want to do with state licensure. So currently, for individuals who would like to work a little bit more with Teladoc, if you’re a provider in Montana and absolutely love doing the telemedicine, if you want to get more visits on our platform, we have a lot of volume coming out of California and Texas and New York and New Jersey. But as a Montana physician, we will need to work with you to get that multistate licensure in place. And does that make sense? You know, we are taking care of individuals in the general medicine. This is pretty straightforward kind of medical care. We’re talking about literally, coughs, colds, urinary tract infections, these types of things. Does it really make sense to put doctors and going through that whole administrative burden of multistate licensure because they want to help people out virtually? And I would submit that it would be time to think about that as well, in terms of legislative things that could be done to help these types of services grow. Yeah, thank you so much, Reggie. Regina Herzlinger: That was wonderful. Lewis Levy: Yeah, sure. My pleasure. Regina Herzlinger: Thanks. So, our next speaker, Neil de Crescenzo, is CEO of Change. Change is the new name for MDM, which is a pipe that does claims processing of about a third of the insurance claims in the United States. It bought a little company called Change. Change’s purpose is to enable consumers to use this voluminous amount of price data to make more — better purchase decisions for themselves. Neil, thank you for coming. Neil de Crescenzo: Thank you, Professor Herzlinger. And thanks very much, Tom and AEI for the opportunity to speak to you today. As Professor Herzlinger mentioned, our company’s — green button, right? Regina Herzlinger: The green button. Neil de Crescenzo: There we go.

Our company has been around, actually, for about 40 years. Really started out in producing in electronic format, a lot of the main transactions in health care around administrative and financial transactions. And it ultimately grew — and I’ll talk more about this — at facilitating clinical data. And as we all may remember, we spent $32 billion in this country over the last decade or so fomenting or, really, financing the growth of electronic medical records such that now they’re fairly ubiquitous, especially in the inpatient setting — not quite so much in the outpatient or rural setting, but we’re getting there — which really digitized to some degree, the final mile in health care. So, this is a company that actually really touches most of the major players and almost a lot of the minor players, if you will. You know, sometimes I joke, you know, we take care of one-person chiropractor offices. And, you know, I’m sure there’s an aroma therapist who’s paid by an insurance plan. We’ve sent them a check too. So we deal with a lot of health care. I think one of the things you’ve heard from some of the folks who’ve spoken today, we have extremely innovative people like the Bind project that Tony mentioned and a long history of innovation, giants in the industry like CVS and now CVS Aetna, but there’s still a very long tail in health care. And we, frankly, take care of a lot of that long tail. So about 14 billion transactions and, as Professor Herzlinger mentioned, about a trillion dollars of the health care claims in the country are managed through our network and our software products. What I thought I’d talk about is really talking about a couple of key areas, price and cost transparency, as well as patient experience, both of which were enormously highlighted in the report that came out yesterday from the secretaries of HHS, the Treasury, and the Labor Department. On here, it talks about, as Brian mentioned earlier, how concentrated its markets are. Our number was 90 percent. It was footnoted, too. The number in the report that came out yesterday was 77 percent, so I’ll probably have to change this slide a bit. But it really points out a couple of things. One, markets are consolidated. There is actually more turnover in people making new decisions about physicians and other caregivers every year than sometimes people feel. By and large, patients are dissatisfied with their health care experience. That doesn’t necessarily mean their physician or their provider, but it’s really the whole experience. And as you’ve heard from many speakers, including Brian — I won’t go on about it — the burden on consumers continues to advance. One of the things that we thought about is looking at how we needed to improve the patient experience. Who’s actually done this? Because we talked about the patient experience like it’s a little bit of a black art, but we’ve had people focusing on the consumer experience, not only in this country, but around the world for many years. As in other industries, data has truly become digital: financial services, retail, many other industries. So we formed a joint effort with Adobe and Microsoft around improving the patient experience at scale, all the way from the largest health care institutions in the country, all the way down to very small providers who are just figuring out how to use the internet to get people to come back for their follow-up appointments, which I got to tell you, in many small places, occupies an enormous amount of their time on this advanced instrument you may have heard of called the telephone, which is probably not the best way to do that.

Just to give you an idea on the scale, because I know we have some very large companies here like CVS Aetna, you know, we process — I mentioned — 14 billion transactions every year. At one point, one of the senior executives of Adobe who was listening to me go on and on about this said, “Well, you know, Neil, just out of curiosity, how many transactions do you think we saw from consumers in Adobe Experience Cloud last year?” I didn’t think this was going to go well for me, but nevertheless, I said, “Well, I don’t know. How many?” He said, “233 billion, so you can please shut the heck up about your stupid 14 billion transactions.” Consumer experience is a lot bigger than health care, although you health care people don’t seem to have figured it out yet. So, this is something that we’re very excited about rolling out. We announced it last year, and it’s getting a lot of traction in the market. The other area I wanted to talk about briefly is around efforts around data and price transparency, data interoperability, and price and cost transparency. So, some of you may be aware, back in March, Administrator Verma had an announcement at our HIMSS conference, which is a big IT conference for the health care industry. She talked about the next stage in blue button, downloading data from the VA, My Healthy Data, and program to provide even more access to data that’s controlled by HHS, CMS, VA, other government or government-connected entities. Professor Herzlinger is particularly familiar with our company because its True View product came from a small company we bought almost four years ago called Change Healthcare, whose name we adopted because I just thought it was a very cool name. I knew this product called True View, which I’ll talk about, which is, you know, one of the largest footprints in the country for providing price and cost transparency data. And then we’ve heard interoperability mentioned a few times. Some of the folks that are familiar with how this has advanced in the country may be aware of this Commonwealth Health Alliance that we provide the network for. Like many of these network businesses, the interoperability of clinical data, which hasn’t quite gotten to Brookline yet, is advancing. But like many network businesses, it starts very slow for a long time, and then you hit the knee of the curb. So, the Commonwealth network is now sharing information for over 39 million individuals. This is literally just in the last 12 months, after four or five years of work, by the way, and now it’s increasing by almost two million a month. So, like most of these network businesses, once you get the two-sided market and the network externalities, it really starts growing. And with the 21st Century Cures Act and further encouragement through the legislation there, and some of the new aspects that are coming out of Washington, we expect this interoperability area to continue to advance very rapidly over the next few years. So finally, some of the data that — I know Tony showed some great data on what he’s doing, and CVS of course, has an enormous amount. This True View price and cost transparency solution, which was voted number one by this organization that basically ranks health care software every year called Class. Somebody mentioned earlier about design thinking. I think we may have one of the largest design thinking groups in health care. The head of it, by the way, was the head of design of Bank of America. So if anybody here is a Bank of America customer and you ever used the app, he did that.

And this sort of scale around understanding how to take design thinking, the people we hire from the d.school at Stanford, combined with an AI group, which I think is also one of the largest in health care, and a bunch of behavioral economists that we hired from the various places you could get behavioral economists at, have really all combined in understanding not only how to produce software that’s usable by people. And let’s remember, the average American reads at a seventh-grade level. So this interface is not an interface meant for M.D.s and Ph.D.s and health care policy experts. It’s for John and Jane Q. Public. You’ll see some of the data up there, and you’ve seen some from some other innovators here on the panel, around reduced costs, more likely to shop. In the report — those of you who haven’t had a chance to read the report that came out yesterday, and Brian mentioned this — they talk about shop-able services. Imaging, which somebody mentioned, is a great example of that, where there is the ability to help people be better shoppers. We now have examples of this from all the customers that have been using this for years. And so, I think this is a good example. While we’ll certainly have people who will innovate, that will be truly transformative. You know, we still have, as was heard earlier, millions and millions of people involved in this health care system. It’s not going to all change in a three- month period. And we spend a lot of time trying to take not only the bigger companies in the industry but the smaller companies in the industry and help them take advantage of these trends toward attracting and retaining patients as a core competitive advantage and understanding how to produce better health care consumers. And hopefully, we’re trying to move the ball down the field. So, thank you very much. Regina Herzlinger: Thank you so much. So, we’re so lucky to have these people. We hear they’re all here because I wrote case studies about their companies. I wrote 53 other field-based case studies to fill the lacuna in education about how to make health care innovation happen. So, there’s a lot of “should” in teaching: you should do this, you should do that, you can’t do this, you can’t do that. But how do you actually make it happen? It’s actually a very hard subject to teach because the entrepreneurs don’t know health care, and they’re terrified that people like you will be in the room. And the health care people, by and large, don’t know entrepreneurship, so I’m grateful to you not only for being here but for participating in these case studies. We have one minute, Tony and Tom, for you to comment on the impediments or the changes in policy that would make things better. One minute. Tony? Tony Miller: Well, one, don’t legislate plan design. Let the market figure out plan design. I think we were the innovation in HRA. The first article we did on HRA back in 1998 was what Definity Health is doing is illegal. So, it just shows you that we have an informed group of people. It now has, you know, 30 percent market share of the market, that product. I think the second thing is we did talk about this idea of siloed data. I think that regulatorily speaking, we shouldn’t tolerate this anymore at the consumer level. This idea that, you know, a plan — someone gets to keep your data. And HIPAA is the problem, by the way. So, what people don’t realize is HIPAA, there’s a trump card in HIPAA. It’s called the consumer. They can actually say, “Yeah, I want my stuff.” We’ve got to break that down. So anything we do regulatorily there, I think would be really helpful.

Regina Herzlinger: Great. Tom? Thomas Moriarty: So, our experience, I think, is similar to sort of the Teladoc experience, and it is the patchwork of regulation at the state level. And so, as we look at how do we advance health care, there are professionals who can do a lot more than they’re currently allowed to do, whether it’s a pharmacist, nurse practitioner, or others. So getting them to practice at the top of their license is hugely important in solving this current crisis. But as it is we have to go — almost go state by state to make that happen. And so the more we can get to a standardization around this, I think the more we can accelerate health care more broadly. Regina Herzlinger: So, Rajiv, Lew, and Neil, you told us about what would make your laudable efforts even better. I’m grateful to all of you. You’ve been marvelous. Tom, are you going to introduce the secretary? Thomas Moriarty: In 10 minutes. Just a short transitional break. The secretary, Azar, I’ll introduce at 12:20. Regina Herzlinger: Okay, great. [Intermission] Michael R. Strain: Good afternoon. I think we’re ready to get started again. Thank you all for being here. Thanks to those watching on the livestream and to all of those who will watch the video after the event. I’m Michael Strain, director of Economic Policy Studies here at AEI, and it’s a pleasure to be with you today for an important discussion of the policy barriers to real choice in competition in the health care system and promising opportunities to overcome those barriers. I’m especially pleased and honored that Alex Azar, the secretary of Health and Human Services, is with us today. I will introduce the secretary in just a moment, but before I do, a brief reminder of the run of show. The secretary will speak from this podium for 15 or 20 minutes, after which he and my colleague, Tom Miller, will have a conversation on that stage. Following their discussion, we’ll open it up to some questions from you. Alex Azar was sworn in by the president as secretary of Health and Human Services in January 2018. His current tenure at HHS is a second tour of duty at the department, after serving as general counsel and then deputy secretary in the 2000s. He spent his career working in senior health care leadership roles in both the public and private sectors. Secretary Azar is a friend of AEI. He spoke here just a few months ago on the administration’s agenda for prescription drug pricing. And several of my former AEI colleagues are now his colleagues in the Trump administration, including FDA Commissioner Scott Gottlieb. It’s a pleasure to welcome him back to AEI and to introduce to you the 24th secretary of Health and Human Services, Alex Azar. Alex Azar: Well, thank you very much, Michael. And thanks for that introduction, and good afternoon to everyone. I wanted to begin by noting of course, our national mourning for the passing of President Bush. We should all remember his life of exceptional and devoted service to our country, especially during these days.

I’m grateful to AEI for putting together today’s event, which is such an impressive gathering of thinkers on an important topic. I’ve got to say, in my current job, I can always feel a little out of place when entering the hallowed halls of right-leaning think tanks. It’s not an easy job. You have to come in and explain how you’re bringing the principles of limited government and fiscal conservatism to a $1.3 trillion agency. HHS by itself is larger than the governments of almost every country on earth, save China, Germany, Japan, and France. I should say this is the only one competition where I’m okay losing to the French. But it’s appropriate to be here at AEI because throughout its history, this institution has been devoted to thinking about how to apply free market principles to the practical work of governing. AEI scholars think not just about limiting the harms of government intervention but also how government can be reformed to deliver better results. AEI’s president, Arthur Brooks, put it pithily when he once suggested that it could be worthwhile for conservatives to think about, quote, “declaring peace on the safety net.” I certainly hope that’s how you all at AEI think about it. After all, I run the safety net. And it’s HHS, not the Pentagon. What would we fight back with, our actuaries and calculators? Of course, he’s not suggesting we should be content with the safety net that we have. Many of you already know better, but complacency isn’t really Arthur Brooks’ thing. And it’s not my kind of thing either. We need to think about how to reform the safety net and all federal health care programs so that they can actually work for the people they serve. But we also need to have an even more ambitious vision than that. We, as conservatives, want a better-run safety net, but we also want better health care for all Americans. The goal here is clear. We all want affordable, quality health care for every American. Delivering that requires a vision both more comprehensive and more ambitious than previous efforts at health care reform. Affordable health care demands thinking about every element of health care, not just health insurance, but health care services or health workforce and particular elements of care like prescription drugs. The release of yesterday’s choice in competition report reflects the broad scope of reforms that may be necessary. But looking across the health care system, we can deliver reform that actually works, not trying to make insurance more affordable while neglecting the cost of underlying care or trying to bring down the cost of care without providing the right financial incentives to accomplish that. Health care reform should rely to the extent possible on competition within the private sector. As Brian Blase mentioned this morning, the private sector is the source of the innovation that’s the only way in any part of our economy to drive costs down while improving quality. Patients should be at the center, free to make choices that work for them. Where possible, we should defer to states to innovate, rather than assuming the federal government knows best. Finally, we need to deliver care in an affordable, fiscally sustainable way while maintaining a safety net for the needy. These ideas are a radical departure from the way American health care has worked for so long. For the past half century, the government has been the dominant factor in both the financing and delivery of our health care. As many of you know, in fact, even as we pride ourselves on having a more private-sector- driven system than other nations, America’s government health care spending per capita is still higher than almost any other government on earth. This is partly because patients have

been removed from decision-making, insulated by third-party payment systems from any incentives that could drive down the cost of care. These third-party payment systems, especially government programs, pay for procedures rather than seeking value in paying for health and outcomes. This has led us to a system we have today, where each year we spend a staggering $28,000 per family on health care. And yet, many Americans still don’t have access to the care they need. Unfortunately, the most recent attempt to reform American health care, the Affordable Care Act, did not directly attack these flaws. Rather, it expanded and reinforced the system we have today. It put new regulations on health insurance, provided generous new subsidies, and dramatically expanded the federal government’s role in Medicaid. The main thrust of the ACA was to push $1.6 trillion over ten — over the next decade in new spending and subsidies into the status quo, reinforcing what already wasn’t working. The rest of our system remained in stasis: 28 million Americans are still uninsured, and the out-of-pocket costs they pay are higher than ever. The more than 200 million Americans who receive health insurance through their employer or Medicare are still paying too much for the underlying care. Even the Americans who do have insurance through the ACA haven’t really seen their problem solved. Their insurance costs are high, partly because the ACA destabilized insurance markets, but also because health care services are so expensive in the first place. Addressing the situation will involve substantial reforms to insurance regulations. Earlier today, Brian ran through the details of our expansion of short-term limited duration insurance and association health plans and the proposal to expand health reimbursement accounts. Our health care vision requires delivering these kinds of new options because consumers have to be able to finance their health care in ways that work for them. But as we go about reforming insurance, we have got to do it in a way that will support the development of competition and choice in health care services, too. I’ll give you one example of what this looks like. Last week, CMS laid out some new ideas for states to pursue, publishing models for state relief and empowerment waivers, under Section 1332 of the ACA. Under these waivers, states have some flexibility to modify the structure of the current premium tax credit system to determine what kinds of plans are eligible for tax credits and to undertake innovative efforts to protect especially high-cost consumers. But perhaps the most interesting possibility within the 1332 models is the model we proposed around using ACA tax credits to fund new consumer-driven savings accounts that can pay for premiums or out-of-pocket costs. This is how you get beyond the traditional model of insurance and bring real competition to health care, by protecting Americans from the risk of catastrophic health care costs without insulating them from being price-conscious consumers. The solution here comes from the private sector, where many employers have paired lower- cost, high-deductible plans with health savings accounts. These plans work best when the HSA is funded. You’re still insulated from the risk of paying large health care costs out of pocket, but you’re in charge of the dollars you spend to pay those costs. Now, it happens that employers, just like the government, have run into the limits of what you can just get from tweaking health care financing. An article just this week in The Wall Street Journal reported that employers are finding limitations to the use of HSAs and high deductibles. These tools can help restrain unnecessary spending, but new financial incentives

alone won’t build a market where patients are truly in charge and health care is competitive like every other sector of the economy. In fact, according to the Health Care Costs Institute, from 2012 to 2016, Americans’ utilization of health care services stayed flat. Health care spending only rose because prices rose. This is a system that needs fundamental reforms, not just tweaks to financing. To drive down prices, we need to think about how to drive more competition. Unfortunately, the single biggest health care spender is mine, Medicare, which pays set prices for procedures rather than seeking out value and driving competition. Remarkably, some have proposed reforming our health care system through using government-driven coverage to insure all Americans, expanding government’s footprint, further sidelining consumers and the private sector. This repeats the mistakes of the Affordable Care Act by simply assuming more financing means better health care. Right now, the way we finance a lot of health care actually impedes competition rather than promotes it. For instance, there is a huge differential between what Medicare pays for services at hospital-owned facilities versus outpatient centers. This has driven hospitals to snap up their smaller competitors who can’t say no to the possibility of a new owner that will automatically increase the compensation they get from the government. Fixing this perverse situation has been talked about for years by administrations of both parties, and yet, this administration is the one finally bold enough to do it. Just the limited proposals that we have put forth already on site-neutral payments are estimated to save $380 million next year alone while restoring a more level playing field for providers. We have federal regulations that impede competition, too. Smaller health care providers will never be able to compete with larger ones unless they can band together to deliver comprehensive sets of services. But today, current interpretations of laws like the Stark Law and the anti-kickback statute can make this almost impossible to do, which is why we are in the middle of an unprecedented effort to consider and reform the way these laws affect care coordination. I want to be clear that nothing we do on these rules will weaken fraud protections. The only goal here is to avoid situations where providers are racking up burdensome legal fees to do their jobs or have to end up in co-ownership arrangements just so they can achieve our goal of coordinating care. States can also play a major role. As this week’s choice and competition report lays out, states impose a thicket of regulations that drive up the cost of providing care. These include certificate-of-need laws, scope-of-practice rules, and the like. State governments can and should have a robust debate about what appropriate regulations look like. But personally, I find it hard to fathom how any health care consumer needs protection from a nurse practitioner writing a prescription or a new MRI facility opening up down the street. As we move toward paying for value, we believe the need for micromanaging providers at both the federal and state level will be dramatically diminished. If a provider is willing to accept risk for the outcomes they deliver, then we don’t need to micromanage how they do it. The system works when the provider is incentivized to deliver the outcomes that matter to the patient, not the paperwork that matters to the government. The final area for reform I want to address today is our country’s broken system of prescription drug pricing, where the results of our third-party payment system are as perverse as anywhere. One fundamental principle of economics and markets is supposed to be that if

you cut your price, more people will buy your product. You do not need to be Kevin Hassett or Michael Strain to know that, and yet it is not by and large how drug prices work in America. If a company lowers its price for a given drug, the drug can actually become less desirable vis-à-vis its competition. Obviously, consumers wouldn’t look at it that way, but they don’t decide which drugs are available and at what cost. That is decided by insurers, employers, and pharmacy benefit managers. All of them are paid as a percentage of a drug’s list price. If a drug’s price drops, many patients will save, but those actually negotiating for the patients make less money. Here we have another example of how the way we finance care is driving up the cost of care itself. The only way we ended up with the huge gap between drugs’ list prices and the net prices negotiated is because there is a third party in between the consumer and the product, just as there is in so much of health care. Ideally, the patient should be at the center of the system. But in many parts of health care, we do need to support patients to work with navigators to make the right decisions. And in those cases, like drug pricing, we need decision makers that aren’t driven by different, opposite incentives. Resetting this whole system and rewriting the rules of the road so that drugs actually compete on price is necessary to building out a pricing system that meets the principles I’ve laid out. Now, some parts of our drug pricing system do work well because incentives are largely aligned and consumers are in charge. That includes Medicare Part D, which was built around the principles I’ve laid out today. It harnessed the private sector and empowered consumers. Because it followed these principles, it has actually been much more fiscally sustainable than ever expected. But there’s still opportunities for improvement there. We recently proposed new flexibilities for plans to negotiate over drugs within what are known as the protected classes, six particular types of drugs where access is especially important. When Part D was created, we put in place rules — I was there — intended to be temporary that essentially require plans to cover all drugs in these classes. This undermined the plan’s ability to negotiate for lower prices, especially as more drugs in these classes enter the market and private-sector plans develop new tools for pitting them against each other. Right now, Part D gets an average discount of just 6 percent on these drugs, while the private sector gets discounts of 20 to 30 percent. Drug companies are using these protected classes to take advantage of our seniors. What we’ve proposed is to allow Part D plans to use the same innovations that are already in use by the private sector. These tools aren’t as competition among prescription drugs because even branded drugs still under patent often have therapeutic competitors. It’s worth noting how our proposal for the protected classes differs from other proposals in the same area. In 2014, the previous administration proposed outright elimination of two of the protected classes. This approach underrated the importance of bringing private-sector negotiation tools to all of the protected classes, and it disregarded the fact that Part D, because it’s a consumer-driven program, has built-in protections. Part D enrollees retain the ultimate consumer protection: exit rights. In a healthy market like Parte D, to borrow phrase, “If you don’t like your plan, you don’t have to keep it.” We don’t need to limit private-sector innovation with overly burdensome regulations when patients can simply pick another plan with their own dollars. That same philosophy can be applied to so many other inputs in our health care system.

This week’s historic choice and competition report that the administration released shows how ambitiously we’re willing to think. We’ll look at every possible factor, from insurance to workforce, that could be driving up health care costs. We’ll examine every possible regulation that might be driving up prices consumers pay. One of the beliefs that separates our efforts from past reforms is our recognition that affordable health care for every American does mean affordable insurance premiums, but most of all, it means affordable health care prices. Under this administration, health care reform will be focused on driving down the cost of care, not just coming up with a better way to finance it. President Trump is not interested in tinkering around the edges of our system. He knows the burdens our system imposes on Americans today. He wants fundamental reform, and that’s what we’re going to deliver. Thank you very much for your time today, and I’m looking forward to our discussion. Thanks. Thomas P. Miller: Thank you very much, Mr. Secretary. You’ve answered most of my questions. Someone must have given them to you in advance. Now, at AEI, when we say we’re going to have a fireside chat — Alex Azar: Are you really doing this? Thomas P. Miller: Absolutely. We don’t do it figuratively. Alex Azar: Security? Thomas P. Miller: We do it literally. There we go. I mean, I know there were some pretenders. Alex Azar: That’s a new one, I’ve never seen that one before. Thomas P. Miller: Yeah. Yeah. Well, you know, Scott Gottlieb tells me that since it’s not flavored and it’s smokeless and we’re all adults over 21, it probably can stay on the market. However, it’s not — yeah, that’s not so good. Well, this is going to cause some problems in the Iowa caucuses if this doesn’t light up. There we go. All right, well, you got the idea. Alex Azar: It’s going. It’s going. Thomas P. Miller: Okay. Okay. That’s right. It’s very, very distinct. You’re very fond of quoting former President Ronald Reagan on a number of cases, along the lines of there are no easy answers, but there are simple ones. He also said on more than one occasion, most notably in his 1981 inaugural address, “In this present crisis, government is not the solution to the problem. Government is the problem.” How much so in health care? You’ve got a lot of problems in front of you, and just standing back sounds like that’s not exactly the solution either. Alex Azar: Yeah. You know, Tom, I often quote one of the important life lessons or ideological lessons that I picked up oddly, of all places, at Yale Law School. My — I had a property professor who I loved so much I actually signed up and took land use controls. I mean, I never went to law school thinking I’d learned about zoning.

But Professor Bob Alexon used to always say, “As you’re taking Metro North down into Manhattan from New Haven and you see sections of Manhattan that just have burnt out building sitting there and land that’s not being put to its highest and best use, even as a parking lot, ask yourself a question: How is the government involved here?” And it’s a really useful framework. When you see things that aren’t operating the way that, as a classical economist, you might think they should work, or efficient markets or competition, ask yourself: Does the government have its hand here? And at health care, Tom, as you mentioned, it’s there. It’s there. It’s there through Medicare. Medicare, you know, we had a system — in 1965, we started paying reasonable cost reimbursement, okay? You got more cost. If you say reasonable cost reimbursement, guess what happens? Prices go up. You’re paying. Give me a bill, I pay it. Then in the ’80s, President Reagan came in and started moving to a perspective fee schedule. Based on that system, inflation adjusted with all kinds of complex formulas, but still, paying for procedures, paying for sickness, and being completely indifferent to outcome. So we’re trying — we’re changing that system now. That’s what Secretary Leavitt got us on the journey on. Thomas P. Miller: Although we talked about site neutral, in another sense, can we really be totally neutral when government is paying for health care? You’re either paying better or paying worse. Alex Azar: Well, site neutrality, certainly, we’re going to drive toward that. Thomas P. Miller: Yes, because of the complications. Alex Azar: Yes. Yes. It’s a challenge. This is a — Thomas P. Miller: It’s a value side, really. Alex Azar: It is. This is why I favor mechanisms of private-sector competition. Because I really don’t think that myself sitting around a conference table with my colleagues is the way to determine prices. It’s to look for market proxies or to use market actors to compete. That’s why I referenced in my speech Part D. That’s why Medicare Advantage is so genius. It says, here’s an amount of money, build a benefits structure, compete for beneficiaries, and the patient can choose to pick your plan or somebody else’s. It’s been a tremendous success at delivering satisfaction and value, both in D and Medicare Advantage. And the more we can use those approaches to determine the rates, determine reimbursements, determine moves to value, that’s the way we ought to be doing it. Thomas P. Miller: There are a lot of observations and, some would say, criticisms of what other governments as well as other actors have been doing in this report on cost and competition. What’s the balance in being able to inform and incentivize, but not necessarily say, “Once again, in Washington we know best”? Alex Azar: Yeah, it’s a challenge, in particular, in the part of our program called fee-for- service. So with Medicare fee-for-service, that is us running a government program. I mean, I think it’s — in a crowd like this, we have to call that out. We are running a government insurance system, and the rate system is being set around my conference table. That’s why the extent to which we can look to Medicare Advantage and Part D as examples of how things can and should work, the better.

We’re going to have an interesting discussion in the next five to 10 years because Medicare Advantage has always been a smaller portion of Medicare, and Medicare fee-for-service has dominated. Well, that’s changing now. We’re up to I think a third of our beneficiaries are now in Medicare Advantage. If it keeps growing at this rate, with seniors who age in who are used to having a comprehensive benefit like Medicare Advantage rather than this very different 1960s fee-for- service benefit, and they choose that kind of plan, there’s a day when we’ll have majority Medicare Advantage, where it will be the dominant part of the Medicare system. And we’ll have to rethink then this whole mental frame we have that fee-for-service leads and Medicare Advantage follows; fee-for-service innovates, and Medicare Advantage follows. Maybe we need to start thinking Medicare Advantage innovates, and fee-for-service follows that innovation. Thomas P. Miller: Really. We have no shortage of rhetoric and some failing efforts on information and transparency. I can remember about a dozen of years ago we were both on a conference in Heritage Foundation, it was like, “Oh, we can do these little steps. We’ll start there.” We’ve got a little bit further, but it really hasn’t ignited and taken off. Is it a problem of — it usually is — problem of supply-demand, or maybe not asking the right questions or providing it in the manner that it actually tees up that gets people interested to say, “I can use this, and I’ll do something with it”? Alex Azar: Yeah. So, there’s a bit of supply issue, and we’re really working very hard to advance that. We’ve — through CMS, we’re putting more and more information out. We’ve got — provider reimbursements are now available. The rates hospitals, doctors are getting, that’s part of the disclosure that’s required. It’s now internet required. We’re continuing to work on ways to bring more transparency to pharmaceutical pricing. The challenge, though, becomes on the demand side. Do you care? If you have first dollar coverage, if you’ve got a set $25 copay regardless of where you’re buying service, do you care? The answer is no. That’s why we’ve got to think more fundamentally about how we finance access to health care and how can that reinforce incentives toward a value-driven system, as I mentioned in my remarks. Thomas P. Miller: You talked about building markets. Maybe I watch too much HGTV. Is it a redecoration? Is it a renovation, or is it a real tear down and demolition and site preparation? And in different places, different amounts. But you’ve got a lot in front of you. What actually goes to building without getting people too worried about everything being gone at once? Alex Azar: Yeah, it is a very significant issue. Listen, I — we always like to talk about us having, in the United States, a very free market system. And yes, there are major elements that are quite free. That doesn’t necessarily make them competitive in any economic sense of the word, in terms of we do not have a competitive market for pharmaceuticals, in the sense that you do not have a pricing mechanism that — as I said in my remarks — that if you decrease price, you get more products sold. So, you have some real distortions in the system, largely driven by government behavior. That’s why I’m as limited government an advocate as anyone can be. I hope that comes through. But when the government has set the rules, when a system has oriented around that set of rules, it does take the government to change those rules of the roads to help facilitate a competitive marketplace. And that may seem big government-y. It may seem disruptive, and

it will seem disruptive because you have very — trust me, you have very significant entrenched financial interests who are not at all pleased with the disruption that the president and I are attempting to bring to the health care system. But we’re never going to get anywhere if we don’t. I mean, I just find it remarkable that people are so vested in the status quo that they do not stop complaining about, but they aren’t willing to help be part of changing it. Thomas P. Miller: We have a tight schedule. We can take a couple of questions from the audience. No entrenched financial interests, please, though. First, if you can identify yourself. Or at least, disguise your interest. Q: Thank you so much, Secretary Azar. I’m Rosemary Gibson. I started my career here at AEI a long time ago and just wrote a book on our dependence on China for medicines, particularly generics. I’d love to talk to you about competition in that generic market. It’s driving a lot of manufacturing to China, fitting right into its initiative to become a global pharmacy to the world. So what it means is a lot of men and women in the South China Sea now on those naval vessels are dependent on the adversary for their antibiotics and blood pressure medicines. And we know there have been some quality issues recently. Who’s in charge of this? It’s beyond the FDA. It’s beyond BARDA. Defense Department certainly has a stake in this because it is security when you have to depend on the adversary for essential medicines. Where’s the locus in government to consider maybe some of our medicines as strategic assets? Is anybody thinking about this? And is there someone in your office to follow up with? It’s really an extraordinary issue that hasn’t gotten much attention. Alex Azar: So, we certainly do consider these issues, and we certainly do look at medicine supplies as the strategic and national security elements of those. So, that largely driven by our assistant secretary for preparedness and response, in coordination with the FDA, both on the supply chain as well as the actual supply of products. We do look at that. But in terms of the generic market, the generic market is actually one of the more competitive — indeed, almost hypercompetitive — aspects of our system that has led to some supply dislocations. Because what we have found is you get that immediate competition and the decline in price comes in, you’ll have maybe 14–15 generic competitors, a bit of market segmentations through the channel. The retail channels sorts out. But over time, they find that at the cost of production and the reimbursement levels, that they actually can’t all survive, the 14–15 of them can’t survive to produce and make a run of it. You get a sorting out over the years, and you get to a later point where it starts creeping up where you have maybe only one, maybe two suppliers remaining. And that’s an issue we’ve asked about in our blueprint — is — are we actually in some respects undercompensating generics and leading to either where generics get made or just to an adequate level of enduring competition? So many of the pricing issues that have become quite famous are not branded pharmaceuticals. They’re actually generic products, where there’s been this supply dislocation either because the reimbursements have sorted out to leave only one market player remaining or we at FDA have been doing our job of inspecting and we pull a manufacturer offline because they’re not able to meet our quality standards. Thomas P. Miller: All right, see if we can get one more in. Mark? We’re inside one minute bubble there. We’re on a tight time clock.

Q: Mark Hall, Wake Forest University. Refer to your remarks on Medicare Advantage. If it works as well as it does — and I think it does work very well, and it has even greater potential to become the leader — what about the idea of Medicare buy-in? If people think they get better value from the Medicare Advantage approach than what they’re getting from the pure private insurance, why not let them buy into it? Alex Azar: Now, the challenge with this notion of, quote, “Medicare buy-in” is it’s effectively just one of the many iterations of this Medicare-for-all debate that is going on. It hinges on a notion of paying all providers what Medicare pays doctors and hospitals. Medicare underpays providers right now, compared to the competitive marketplace. If you force the market to — if you basically allow this buy-in or Medicare-for-all access to those lower Medicare rates, you’ll crowd out and cause the complete and utter destruction of the employer-sponsored health insurance system in the United States. You have 174 million Americans insured by their employers, and if you create an option where you basically get socialist, price-fixed, lower Compensation Act, access to compensation for doctors and hospitals through that, there is simply no way private-sector insurance could compete against that. And it would be just completely destructive of hospitals, doctors, and long-term access to quality medicine. You’d end up with systems like we see in other places of the world where the better doctors, the better hospitals opt out. And they say, “I’m not part of that system. I won’t take it.” And seniors will suffer because seniors don’t have access. So, it takes a bit of — there’s a bit of a stream here. It seems facially appealing until you actually get to the mechanics of “why does one want to do it?” And it brings the whole system crashing down and not in a good disruptive way. Thomas P. Miller: That’s right. Well, I want to thank the secretary for visiting AEI today and giving us a well-developed and energetic address. We’ve got a lot more work to do. If you could, though, please remain in your seat while Secretary Azar leaves the building, it’ll just be just a minute or so. Thank you, again. Alex Azar: Thanks, everyone. Thanks, Tom. Thomas P. Miller: Thank you.