Former HHS Secretary Alex Azar Talks Medical Financing

Alex Azar, who served as secretary of Health and Human Services in Donald Trump’s first administration, spoke at Dartmouth on February 6 in an event sponsored by the Rockefeller Center, the Dartmouth Institute for Health Policy, and the Political Economy Project. Azar, a member of the class of 1988, has made a habit of coming back to Hanover; most recently, he delivered the Brooks Family Lecture on Operation Warp Speed in 2022. He joined HHS in 2001 as general counsel, served as deputy secretary, was president of Eli Lilly and Company in between Republican presidencies, and has since returned to the private sector.

As Trump’s health secretary, Azar was at the center of very public and sometimes controversial health debates, including, most notably, the administration’s rapid response to the COVID crisis. Azar was the first chairman of the White House coronavirus task force. As head of the department with the largest budget in the federal government, he also oversaw Medicare and Medicaid and agencies that have taken heat from Trump’s newest health secretary, Robert F. Kennedy Jr, like the CDC and FDA. He was also involved in the effort to ban flavored e-cigarettes and reduce youth tobacco consumption in the U.S.

The talk was essentially about the economics of health care, and Azar provided some valuable insights to an issue that can be easily convoluted and reduced to over-generalized talking points by politicians (yes, we’re looking at you, Bernie). Azar clearly knows his stuff. It’s a shame Trump’s current administration won’t have him at the helm, but will instead rely on a conspiracy theorist scion of America’s liberal cabal. 

The U.S. has a healthcare problem, as any well-adjusted person capable of reason can discern, and Azar didn’t shy away from this fact. The largest barrier to improvement, in my view, is the political liability of tackling historically popular but broken practices. When Bernie Sanders accuses Republicans of going after Medicare, voters understandably get skittish, but Sanders and company of course know things need to change before the system crashes irreversibly. Azar seems intent on getting beyond the politics to actually find solutions. 

Azar acknowledged that we spend the most per capita of any developed nation on healthcare yet don’t have the outcomes to show for it. On complex and rare diseases we do well, because our innovative technologies and advancements rival none, but day-to-day primary healthcare in the U.S. is broken. 

We can trace this broken system back, Azar says, to the 1930s. The U.S. under Franklin D. Roosevelt created an employer-sponsored insurance system that was concerned, first and foremost, with paying doctors and hospitals during the Depression. Patients paid for employee-sponsored, prepaid healthcare plans. Added to this was a tax subsidy. Employer expenditures were made deductible and benefits to the employee weren’t considered income. 

Azar emphasized that, as much as some would like them to be some human right or whatnot, healthcare goods are just like every other economic goods, and thus follow the edicts of the market. When products are finite, either the individual or insurer will ration. 

Azar mentioned one service in healthcare today, LASIK eye surgery, where quality actually goes up and the price goes down. To reverse this and give patients a more costly, less effective procedure like most out there, he says, all we have to do is make it a covered benefit under insurance. Current insurance practices detach the pricing from the product. Thus, in America we have a system that has elements of choice but in many ways acts like a European socialist system. 

To fix the financing problem, we need to change incentive structures. Azar believes a system called value-based care can achieve this. Right now, we pay for procedures. When we see a doctor while we’re not feeling well, we pay for it unconditionally. When we get a test, or when we receive a surgery, we pay for it, even if it ends up being a waste of time. Under the current model, outcomes don’t matter. 

Under value-based care, payments are tied to results. For example, this system could give a provider, say, $12,000 to take care of a medicare beneficiary. If they can save money, they keep it; if they go over, they pay for it. This incentivizes the provider to deliver results in a cost-effective manner, while actually getting to know the patient and figuring out what works best for them. Essentially, Azar says, they have to bet with house money instead of somebody else’s. 

As secretary, he explored this model, but by now, Azar says, “the system has to change, and I’m very open to a mandatory change of how we pay.” He noted how trials have proven that this model changes behavior and reduces prices. 

When asked about the tradeoff between affordability and innovation in the drug industry, Azar explained that he tries to approach everything from a market perspective and to apply market forces where possible. Cutting down drug prices is no different. He says that we pay 106 percent of sticker prices for Part B (physician administered) drugs, and that there’s no market force whatsoever to bring prices down. His solution was to use a most-favored nation status system where drugs would cost the average of what other countries pay. If drug companies didn’t like that, they would have to sell their products at higher rates to other countries. This introduces a market force into the system. 

Azar also discussed the new political dynamic that helps explain why a pro-abortion Kennedy could head a Republican health department. He says we are in the early stages of a realignment akin to 1800, 1860, and 1932. Since 1932, Republicans have been the “party of big.” They’ve been elites aligned with big business and big pharmaceutical companies. Now, they are more skeptical of institutions, such as the FDA, and attack food and drug companies. If Azar had to describe President Trump’s healthcare agenda, it would boil down to choice, competition, and populism. 

Azar listed three things he would do if he were taking over as secretary again. First, he would emphasize that, while there is certainly a problem with the administrative state, many of the career people in the federal agencies are good people who know what they’re doing. He says RFK Jr. should figure out how to work with them. Second, he would mandate value-based care as he described, moving beyond a trial phase. Third, he emphasized that we are in a golden age of pharmaceuticals with plentiful, life-saving promise. Now is the time to figure out how to pay for it, because a group of smart people is certainly capable of doing so. 

Azar’s traditional conservative approach to healthcare seems promising, but he’s no longer in the driver’s seat, so it doesn’t matter. All eyes are on Mr. Kennedy to see whether or not he’ll take us in Azar’s direction.