Payers, Policy

Reform healthcare payment while interest rates are low, says ex-HHS Secretary Leavitt

If and when rates rise again, the cost of debt service will be competing with healthcare and a couple other major components of the federal budget for ever scarcer dollars, Leavitt explained at HIMSS17 this week.

Former HHS Secretary Mike Leavitt (right) speaks at HIMSS17 in Orlando, Florida. He was joined by former CMS Administrator Andy Slavitt (left) and David Smith, chief development officer for Leavitt Partners.

If healthcare organizations and policy-makers are ever going to rein in costs, this is the time to do it, while interest rates remain at historic lows, according to former Health and Human Services Secretary Mike Leavitt. If and when rates rise again, the cost of debt service will be competing with healthcare and a couple other major components of the federal budget for ever scarcer dollars, Leavitt explained in an interview at HIMSS17 in Orlando, Florida, this week.

“Economic challenges can accelerate change,” said Leavitt, a self-described technology geek who ran HHS from 2005 to 2009, during George W. Bush’s second term as president. Leavitt also served as governor of Utah for 11 years, including during the 2002 Winter Olympics in Salt Lake City.

Leavitt now runs the Leavitt Partners consultancy, which has twin headquarters in Salt Lake and Washington. His services have been in high demand since the November election, seeing that he was the last Republican HHS secretary until the newly installed Dr. Tom Price, and was an advisor to the Trump transition team as early as last May.

There has been the proverbial burning platform to push faster change in healthcare for years, going back to Leavitt’s tenure as HHS secretary, and probably earlier.

“Then what happened is, we flooded the market with phony money [after the 2008 global financial crisis] and it’s kept interest rates at 1 percent,” Leavitt said.

In terms of federal spending, if interest rates suddenly return to their historic norm of about 4 percent, the government will be paying something like $800 million a year more in interest, according to the former secretary.

“I think there’s going to be a competition for dollars between four things: infrastructure, defense, healthcare and interest,” Leavitt said. “Which of that gets cut back? That will be a political debate,” he said.

“What we do know is that once interest is in that discussion — and it hasn’t been for the last eight years — it means there is less of everything else. That’s when the pressure starts to come to change and that’s when adoption [of new technologies and payment models] will kick up.”

During a fireside-type chat with HIMSS CEO and President H. Stephen Lieber, Leavitt stated his belief that healthcare is a little more than 25 years into a 40-year-long transformation from fee-for-service to value-based payment.

He said that the cycle started with diagnosis-related groups in Medicare, which went national at the end of the 1980s and into the 1990s. “That was an admission that this fee-for-service system, left unaltered, will break us,” Leavitt said.

So the industry started looking for alternative, starting with HMOs and managed care then progressing to physician practice management companies and population health management. The experiments mostly failed, at least in their early iterations, though some of those ideas are coming back around, augmented with new, data-driven technologies.

Less than a decade into the cycle Leavitt spoke of, in fiscal year 1998, the federal government ran a surplus for the first time since 1969, and the national debt was about $5.5 trillion. In contrast, the deficit was $587 billion for fiscal 2016 and the national debt is inching closer to $20 trillion by the day.

Nor was China at the end of the 20th century threatening to overtake the United States as the world’s largest economy. “In other words, our competitive advantage as a nation is under threat,” Leavitt said. “One of the strategic things we have to do is we have to have to reduce healthcare costs.”

He feels optimistic. “We are continuing to iterate toward a better payment system. We’re not very good at it yet, but we’ll get better,” Leavitt said.

“We’re now into the red zone,” Leavitt added, using a football analogy for being within 20 yards of the end zone.

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