Former HHS Leader Sees Medicare as Driver of Change

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Mike Stankiewicz

Medicare can be the vehicle to drive changes in the health-care system through new payment systems that reward value over quantity of services, a former health and human services secretary told Bloomberg BNA.

“If you want to change health care, you have to change Medicare,” Michael Leavitt, former governor of Utah and Department of Health and Human Services secretary under President George W. Bush, said in an interview with Bloomberg BNA July 13. Medicare needs “to signal to the market that the system is going to change and that they will lead it.”

Medicare is the second-largest social insurance program in the U.S., after Medicaid, and has 56.8 million beneficiaries and total expenditures of $679 billion in 2016, according to data from the Centers for Medicare & Medicaid Services. Medicare also funds many types of care, including inpatient and outpatient services, skilled nursing facilities, and rehabilitation.

“It is the payment system that reaches every aspect of the health-care sector,” Leavitt said. “All of the systems are billed around it.”

Taxpayer dollars drive the Medicare system, and Leavitt said the American people should care about how well the program is running.

“Medicare, at its core, is a health insurance payer,” he said. “It spends American tax dollars, so it has a responsibility to drive change within the health-care system overall. The system has to change. It is completely unsustainable, and cost increases are out of control.”

Struggles for Hospitals, Doctors

Leavitt said current problems in health care go back to when the Medicare program began in 1965. Medicare payments are based on a fee-for-service model, where Medicare reimburses hospitals and doctors based on the number of services they provide. Critics, including Leavitt, say this has led to runaway increases in health-care cost.

“The entire health-care system has been dependent on this model,” he said. “Everyone in the medical field was on board with it at first. We now know how unsustainable this is.”

Recently there has been a push to reimburse Medicare payments based on results and outcomes instead of the number of services rendered.

In recent years Medicare has offered several different types of value-based care programs for fee-for-service doctors and hospitals, all of which are voluntary and provide financial rewards for providers. However, getting everyone on board hasn’t been easy.

“Hospitals, doctors and medical service providers are still learning how to provide this value-based care where financial risk exists,” Leavitt said. “Currently there’s a lack of basic competency on how to operate in these new ways. Hospitals and physicians have their hands full learning to adapt to these systems.

“For example, many of hospitals and doctors are taking upside risk, but they will also need to take downside risks. They need to move aggressively to adapting to these new systems. But the speed of their movement depends on their geography region and level of practice sophistication.”

Leavitt said that over time these new value-based payment systems need to be made mandatory.

“It’s a process, and timing is important,” he said. “Change too quickly and the system will fail. However, if we fail to apply the pressure required to motivate change, the opportunity to avert the growing economic crisis that health-care costs present will be missed.”

Advice for Price

Leavitt also had advice for current HHS Secretary Tom Price. Leavitt said Price needs to provide constant pressure on hospitals for them to make necessary changes.

“Obviously he needs to find the balance between the moving the payment change forward while allowing the provider world adequate time to adjust,” Leavitt said. “The truth is, change is hard, and people always think change is going too fast.

“However, if we don’t change, medical spending will continue to crowd out critical prosperity builders like education and infrastructure.”

Leavitt said if the U.S. doesn’t move to value-based payments in an appropriate amount of time, it will lose its economic standing overseas.

“Unchanged, unbridled health-care costs will create a downward economic spiral,” he said. “It’s pushing out everything else, including education and infrastructure.

“There’s no place on the global leader board for a country that spends 25 percent of its entire economy on health care. This transformation is no longer simply about health care. It is about economic sustainability for our country.”

Medicaid Cuts

The Better Care Reconciliation Act of 2017, unveiled June 22 by Republican senators, would phase out the Affordable Care Act’s Medicaid expansion over three years starting in 2021 and make deep cuts to Medicaid starting in 2020. The bill also allows governors to choose between a block grant or a per-capita funding approach for their Medicaid population in 2020. A July 13 update to the Senate repeal bill did not backtrack on Medicaid cuts.

While Leavitt did not endorse cuts to Medicaid, he said cuts might cause hospitals to more quickly adapt to value-based payment models.

Reductions in Medicaid spending “will have an effect on the pace of change toward value-based care,” he said. “The requirement to care for more people with less money makes change imperative. States’ Medicaid systems will likely have more money each year, but less ‘new money’ proportionate to the number of new beneficiaries they need to cover.”

“The truth is, complex systems change will not occur without economic pressure,” he said. “It’s hard to find a place where real change has occurred that it did not have an economic imperative to drive it.”

To contact the reporter on this story: Mike Stankiewicz in Washington at

To contact the editor responsible for this story: Brian Broderick at

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Health Care on Bloomberg Law