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The Medicare Modernization Act 2003
How America Can Invest in a Healthier Future

Mark McClellan
July 12, 2004

Many of you I'm sure, felt the passing of Ronald Reagan very deeply. The panorama in Washington reminded us of many things: our rich history, our deep convictions, our inherent optimism, and our profound gratitude for the public service of a great leader. But to me, more than anything else, it was a reminder of the power of ideas to shape the world. The core economic ideas of encouraging and rewarding free enterprise so that it could again become an engine of national and global growth; the core political ideas of democracy and freedom bringing better lives to people around the world; and the core security ideas of advancing peace through economic as well as military strength, all of these ideas will forever be associated with President Reagan. Even more importantly, I think they'll be associated with the best efforts of free peoples and free nations to make the world a better place. Few institutions have provided more steadfast support for ideas like these than the Manhattan Institute. Born of the fiscal crisis in New York City more than 25 years ago, the Institute is a champion of fiscal and urban reform that has helped restore New York City as a cultural and financial capital, and an intellectual capital as well.

In a relatively short time, the Manhattan Institute has helped to take principles that were championed in journals, articles, and books, and turned them into a broad and irrepressible program for effective government. These powerful ideas are, thankfully, finally coming to the government's healthcare programs. In my time in Washington, at the President's Council of Economic Advisors, then at the Food and Drug Administration, and now at the Center for Medicare and Medicaid Services, I've seen the strength of new ideas about our nation's healthcare system help to begin updating and enhancing the way that we provide medical care in our country.

By encouraging meaningful healthcare choice, individual patients and their families can get the best care for their needs, and we can all attain an updated and more efficient healthcare system. By redirecting our medical system from one oriented toward treating illnesses and complications to one that's focused increasingly on preventing those illnesses and complications in the first place, we can reward healthy outcomes. By finding better ways to turn the technological explosion that we're seeing in biomedical research into proven, innovative, safe and effective treatments for patients more quickly and more affordably, we will all benefit from lower healthcare costs. By finding better ways to learn more and get more out of the vast array of medical technologies that our healthcare system can bring to bear today, we will all have healthier and more productive lives tomorrow. In all of these ways, we can renew and support the healthcare relationship that matters most, the one between the doctor and the patient, and it will benefit our entire nation.

Now the greatest privilege for me is to have an opportunity to help take these ideas from abstraction and debate to actually using them to bring better healthcare to Americans. We have an unprecedented opportunity to bring better care to patients right now as part of the recently enacted Medicare Modernization Act. I want to spend most of my time today discussing how important this law is and how it fits in with the kind of philosophy that I've just been describing. As with any issue as complex and vitally important to Americans as healthcare, there's been a lot of debate about some parts of this legislation.

Debate is vital. I welcome it. I'm sure that we are going to continue to have much more of it. No matter our disagreements, though, we need to continue to focus on how we can keep making Medicare and our overall healthcare system better and better. But debate isn't enough if we're going to succeed in getting innovative and affordable healthcare to all Americans. We need innovations in how we deliver healthcare that can better keep up with the innovations in healthcare itself.

We're living in a truly dazzling scientific era. The progress of modern medicine in the last few decades has been nothing short of remarkable, with death rates from cardiovascular diseases halved, with longer and better lives thanks to innovations in cancer treatment, arthritis, and AIDS; and better care for many other debilitating conditions.

Yet healthcare experts are pointing to the possibility of even more valuable breakthroughs in the months and years ahead. Today we have real potential for breakthrough technological innovations, with such advances as far more powerful diagnostics based on genomics and improved imaging, and far more effective targeted medicines to go along with these diagnostic tools. We will soon see nanotechnology-based drug delivery systems to get the medicines to exactly where they're needed in the body; micro-surgery and remote surgery to get high quality surgical techniques to patients in the farthest parts of this nation; and replacement organs based on tissue engineering. Cell and gene therapies will help correct defects at the molecular level and advanced information technologies to help doctors and patients turn all of these capabilities into useful knowledge that enables the patient to get the best treatment for his or her needs every time.

But our healthcare system is at a public policy crossroads today. At the same time that we can see more clearly than ever the tremendous potential benefits of medical innovation, people are more worried about their healthcare than ever. As a result of new medical technologies, healthcare has become far more complex to navigate and costs have risen. Many people rightly worry that even if better medical technologies come along, they won't be able to afford the treatments they need or even to figure out which treatments they need.

Instead of the confidence of finding better cures, the feeling people get is one of being overwhelmed. They feel they cannot navigate the complex and difficult decisions about healthcare technologies that may be worthwhile to some, but are often of questionable value in the way that they're actually deployed. The marketplace is flooded with new treatments that are more costly than those that came before, so that healthcare costs continue to increase. Consequently, anxiety and frustration are there even though we continue to get important new benefits, in terms of longer and healthier lives.

The rise in healthcare spending is obvious and immediate. It's there for every American to see. What we get for it often takes many years to be made fully manifest through longer and healthier lives, and in many cases we haven't done a very good job of measuring it and proving to the public that there is no better way to spend our healthcare dollars. It reality, it is small wonder that people who have had to pay these rising costs look for the easiest way to tamp them down, period, without paying much attention to the repercussions for themselves and their children in the future.

The simple truth is that we need to do more to make innovative healthcare more affordable so that we can translate these valuable innovations into a human scale. We need to encourage innovations that have so much potential to turn fatal and debilitating diseases into manageable conditions or even to prevent them in the first place, and we need to do it at a cost that our citizens can afford.

Let me be frank. I don't think that the solution is to have more and more of these decisions made in Washington through a single healthcare plan that makes blanket rules on which treatments are worth it and which are not, or that sets and negotiates a single government run formula for dealing with markets. That is the wrong direction as we enter a new phase in medicine, and we take it at our peril.

Many of the treatments that are coming online in the next several years are going to be targeted more and more at individual patients based on personalized aspects of care, such as molecular profiles and genetic mapping called pharmacogenomics. Now, more than ever, our healthcare system needs to encourage personalized care, not one-size-fits-all rules that will drive square pegs into round holes in the name of cost control. Now more than ever we need individual patients working with doctors and other health professionals to find the treatments that are best for them, treatments that provide the best fit based on their individual health profiles and their individual preferences.

No one is in a better position to make these absolutely critical decisions than patients and doctors exercising their own values rather than having to depend on government professionals, however well intentioned, making decisions in a vacuum hundreds of miles away.

Critics might say that individual freedom and personal responsibility may sound good in theory, but they're not likely to work in healthcare. Instead, the critics argue that government protection and control are necessary because any other approach will inevitably overwhelm citizens who can't be expected to navigate the choices they face. These are people whom illness has made vulnerable, especially seniors with limited means and in many cases limited capacities that are just struggling to make ends meet and get by. I know that when it comes to healthcare, personal responsibility can be a euphemism for leaving people on their own to face hard-to-understand decisions, decisions that will be some of the most important and costly of their lives. If the alternative is being on your own in the face of rising drug costs and more hard-to-interpret information swirling around than ever before, I understand the temptation to take the chance of relying on the government to come in and wave a magic want that will solve all your problems for you. After all, if the government sets up one drug plan and one formulary, if the government tells you which treatments are worth it and which aren't, then there's no anxiety of having to help create a healthcare system that's best for you.

But I deeply believe there is a better way. One that gives control back to patients who work with their doctors to get the benefits of personalized care, but also one that empowers them to make these decisions effectively and with the supportive partnership of the federal government. In Medicare that means moving ahead with the work of making the Medicare program more personalized and better able to support our beneficiaries in getting the best care at the least cost. This approach can give taxpayers more value too, and these steps can make Medicare more fiscally secure at the same time.

We are working to create a Medicare system that gives patients not just responsibility, but command over their health at a time when our healthcare system can and should do more for them than ever before. This starts with the new Medicare endorsed drug cards, cards that give Medicare beneficiaries, for the first time, the opportunity to band together and to comparison shop to best meet their drug needs. First, with the drug card Medicare beneficiaries can join together to use their purchasing power to get lower prices. People with private and public drug insurance have long been able to do this. They join together in a plan, they stick with it for a little while, let the plan negotiate lower prices and volume discounts from the drug manufacturers, and benefit because the insurance plan has banded consumers together.

The pharmacy discount cards that have long been available to seniors generally haven't done this. They just get a small percentage off from the pharmacies since they aren't designed to leverage people together in large volume purchasing arrangements to get discounts from drug manufacturers. But now Medicare beneficiaries will never again have to pay some of the highest prices in the world when they go into a drug store. In fact, we're seeing that the new discounts on the cards allow seniors to pay significantly less than the average American pays. Study after study now confirms this, including some studies done by people right here at the Manhattan Institute. These studies include discounts, include these better prices, and include comparisons for people who get lower prices through their insurance plans. Seniors can get real help now, quickly finding the best prices for their particular medicines through the first ever transparency in actual drug prices that the Medicare program provides through the discount cards.

Today, smart shoppers comparison shop for their groceries, their vacations, their mortgages, and many other products and services, but not for drugs. It can be hard to find the best prices for drugs because the prices are often opaque and shrouded in discounts of questionable meaning. People haven't been able to compare what they care about most, the actual prices they pay except for drugs on the internet.

Except for some high quality US internet pharmacies, the internet is not so good about assuring quality and safety or about providing many pharmacy services that are important and that are required by law. That's changing. In the Medicare discount card program if seniors tell us where they live and what medicines they take, we'll give them the up-to-date, best-discounted prices available at their neighborhood pharmacies and by mail order. It's a different way of approaching the pharmaceutical market. Helping seniors band together to use their negotiating power and to comparison-shop much more easily are what brings lower prices for the Medicare cards.

But Medicare is now making it possible to do even more to give people more control and more value in their own drug spending. For example, if our beneficiaries are interested in additional ways to save, we'll also tell them about the availability of generic versions of their medicines and the savings they can get there. These savings are particularly large on the drug cards, because of discounts thirty to sixty percent below what Americans typically pay for generics. Starting soon we'll also tell people about less expensive brand name drugs that are in the same drug class and that work in a very similar way to the one that they're taking. As we work on implementing the Medicare drug benefits, we intend to build on these same principals of helping beneficiaries find the best services and the most value for their drug needs. This is just a start to how the new Medicare law helps to make Medicare and our healthcare system more personalized and better able to support our diverse beneficiaries.

The law will also help establish information systems such as electronic medical records and e-prescribing systems that make it easier for doctors to order treatments, informed by the most up-to-date medical information about a particular patient's history right at the point of care in the doctor's office.

Then, the laws would provide patients with these prescriptions accurately and without errors as they are being filled.

The new law also takes steps to make sure that we're continuously learning about which treatments work well and which ones do not for particular kinds of patients. By making better use of the information that we collect through these electronic systems and other systems, and by developing more knowledge about how different people respond to the same treatments, the new laws also take strides toward truly individualized patient care. We need this kind of information today to get more for our money in healthcare. For too many treatments, even though they are clearly safe and effective for their FDA-approved labeled uses, we don't know as much about their effectiveness in other areas, or interactions with other medications, and our beneficiaries often have multiple conditions and are using multiple medicines in real world settings.

Now we're going to need vastly more of this kind of medical information in the future as the potential for more individualized care increases. But it is simply not feasible to construct and conduct large one-off clinical trials that take many years and that are very costly to get the answers to these questions. One example of this is the recent ALLHAT study; many of you may be familiar with it. It was a study comparing different approaches to treating high blood pressure in certain patients. It provided some very useful information at a cost of $125 million. We can't afford that for every unanswered question in healthcare effectiveness. So we're going to need to make better use of the information that comes to doctors everyday as they treat individual patients. We're going to need to develop better ways to use this potentially valuable experience and draw meaningful and rigorous scientific conclusions based on it. We're taking new steps to do this right now under the new law to develop better evidence much more efficiently on what works for beneficiaries.

Last week, for example, we started a new collaboration with the National Cancer Institute using their clinical trial information network to do just that in learning more about cancer treatments and Medicare beneficiaries. Another good example of how we're using the new law to help us get better clinical evidence about treatment effectiveness is the voluntary chronic care improvement program that the Medicare law created to provide better education support for Medicare beneficiaries with chronic conditions. These beneficiaries in the traditional Medicare program often experience costly and avoidable complications from heart failure, diabetes, and chronic lung disease. The entities that are going to participate in this new chronic care improvement program will only get paid if they reduce Medicare costs and improve clinical and patient satisfaction with clinical outcomes.

We are currently gearing up to serve as many as 300,000 beneficiaries beginning at the end of this year through this pilot program that we hope to expand nationwide. To make sure that we learn what works while we're doing this though, we're doing a large simple randomized study of the effectiveness of these different approaches for improving care for chronic conditions.

We're going to use our existing data on cost and on complications, data we get on hospitalizations for problems with diabetes control, for example. We're augmenting it with clinical outcome measures and some inexpensive, but validated, survey measures. We expect to collect all of this data for a cost in the single digit millions of dollars, which may seem like a lot but it's an order of magnitude less expensive than the cost of developing clinical evidence in most cases in the past. It's a different model from traditional research studies that builds in the capacities for relevant effectiveness research, and we are starting to do it now by making better use of data that we already have and augmenting it in efficient ways. In doing this, we can learn a lot more about how individual patients are likely to respond to treatments so that they and their doctors can make better decisions for themselves and better decisions to provide value to the Medicare program.

We're also expanding publicly reported measures of provider and health plan quality and we're starting to implement "pay for performance" in Medicare. I gave you one example just a minute ago that ensures that doctors and other health professionals get paid more when they deliver more value, not when they deliver more services. This includes innovative ideas like internet based treatments that can help keep patients, not only out of the hospital but also out of the doctor's office. We don't reimburse for it now because it's not an office visit, but done the right way it can help reduce cost in the Medicare program and improve quality at the same time. These are just a few examples of the many things that we're doing in Medicare now to get patients and doctors get more innovative care and to help everyone, taxpayers included, get more value for the dollars that they spend on healthcare.

There are many more examples I could talk about: reliable Medicare advantage plans, the private plans in Medicare that allow beneficiaries to substantially reduce their out of pocket cost by obtaining more coordinated and comprehensive care, more benefits oriented toward disease prevention, much more assistance targeted to lower income beneficiaries. For example, a new drug benefit that will allow them to get their prescriptions for no more than a few dollars and more assistance for beneficiaries with predictably high costs through program improvements like the Chronic Care Improvement Initiative I mentioned. Through unprecedented risk adjustment of payments and more personalized support for beneficiaries from Medicare, including through trained customer services representatives that are now 24-7, and the 1-800-Medicare number as well as face to face assistance through local programs and volunteer programs that we support around the country.

Now I've spent some time talking about a more personalized Medicare where patients and doctors get the support they need to get the most out of our increasingly powerful and innovative, but also increasing complex healthcare system. This same direction is also important for the success of other critical initiatives, including another major element of the Medicare law, health savings accounts. These accounts give individuals more of the benefits they deserve when they take steps to keep their own healthcare costs down and the accounts can also provide more financial assistance in getting the care they need when they need it. But once again, if people are left on their own with an HSA, this approach will be far less effective than if they can get help in using their dollars wisely.

We can help by contributing to the development of better measures of provider quality, treatment quality, and costs for enrollees in the HSA plans and for the insurers in other programs that support these enrollees. By encouraging data driven competition based on quality and cost, we can help patients can get more for their HSA dollars and our healthcare system will be the better for it. There is more potential than ever for improving our healthcare by making it both more innovative and more affordable through steps towards personalized well-supported healthcare. But a future of affordable and innovative and personalized care is by no means a sure thing. There are other possibilities for the future; rising costs without patient control, more desperate efforts to control costs through measures that block innovation, and rising frustration with rising healthcare spending.

The policy choices that we make over the next few years and how we use these unprecedented opportunities to build a better healthcare system can have an enormous impact on what kind of future we actually have. Ideas do matter in Washington and this is a big one. With the leadership of the Manhattan Institute and the efforts of people who are passionate about new and better approaches to bringing innovative, affordable healthcare to all Americans we can make the future I've been describing a reality. I think we're in the right place at the right time to make a real difference in the lives of patients of this country and to create a strong healthcare system that not only keeps up with, but also encourages the valuable technological changes that may be at hand. Thank you all very much for listening to me today.

On March 25, 2004, Mark McClellan was sworn in as the Administrator of the Centers for Medicare and Medicaid Services. He previously served as Commissioner of the Food and Drug Administration (beginning in November 2002). During 2001 and 2002, Dr. McClellan served in the White House as a Member of the President's Council of Economic Advisers, where he advised on domestic economic issues and was a senior policy director for health care and related economic issues.

Adapted from remarks delivered at a Manhattan Institute forum in New York City on June 15, 2004.

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