The Man With the Trillion Dollar Budget


After leading the team that saved, Andy Slavitt took the reins of Medicare, Medicaid, and Obamacare. He’s leaving soon, but his legacy is just getting started.

Andy Slavitt

Andy Slavitt left a successful career in the private sector to take what many would call a thankless job. For the past two plus years, he’s been the acting head of CMS, better known as the agency that runs Medicare and Medicaid. That job has the largest budget in the land — a trillion dollars — more than two-thirds larger than the Department of Defense. When we spoke earlier this Fall, Slavitt knew he was most likely going to be out of a job come January 21st — his role serves at the pleasure of the President, and no matter who won, it was probable he’d be replaced. However, his name was whispered as a candidate for other top positions in government, had Clinton won.

Trump’s election has eliminated any doubt of that, but it has also animated Slavitt’s Twitter feed, which was already spicy by government standards (though certainly not as spicy as the new President elect). Consider this tart rejoinder:

Or this one:

Regardless of what Slavitt decides to do next, his legacy at CMS is insured: He was the man who led the team to fix, and during his short tenure, CMS has implemented aggressive and some might say overly ambitious change. The Affordable Care Act was already a massive shift, but earlier this year CMS implemented MACRA, a new system that pays healthcare providers for the outcomes of their patients, rather than for transactions such as tests, hospital visits, and the like. It’s a major change, one that may or may not survive the new administration. Below is the transcript of our conversation and the video, both edited for length and clarity.

John Battelle What does the administrator of the CMS do?

Andy Slavitt There are probably three things you should know about CMS. The first is that it’s big, our budget is a trillion dollars. Think about it as 25 percent of the federal budget, just to size it for you the department of defense is probably $600 billion would be the next largest.

Wow. Two thirds larger than the Department of Defense?

25 percent of the federal budget.

The second thing you should know, we touch a lot of people. We touch about 140 million Americans every day. Those are people on Medicare, people who are on Medicaid, a program for working poor, and people living with disabilities. (It includes) the market place, otherwise known as Obamacare. Children’s health insurance programs. What the vast majority of those folks have in common is many, if not most, are living on either a fixed income or a low income of some sort. We help provide for all their healthcare needs.

The third thing, is probably the most interesting thing about CMS — it has the opportunity to be the shaper of the future of healthcare. We have a billion new claims data coming in every year, and we just did an open data project where we opened up all of healthcare claims.

How we pay physicians and how we pay hospitals has a big influence on how they perform, and how the rest of the healthcare system works. I think it’s that third piece that is very interesting…

That’s where you focused on a lot of your own attention in the last few years, right?

We have, because I think the Medicare and Medicaid and the marketplace, all of those things have to not just deliver today. They deliver for all of us. We both just had a magic birthday.

50 years old.

50. In 15 years, we’re going to hope that we’ve got programs there for us. In order to do that, the system’s going to need to work very differently than it does today, because we have such an enormous amount of people that are aging. Healthcare costs are so high that we have a burning platform to transform.

From the point of view of business, healthcare seems to be this big, messy hairball that is growing at a rate much faster than inflation in terms of cost, and of course it’s a political football. Why did you decide to leave the private sector and take on this challenge?

For exactly those reasons. At 20 years in the private sector, I had a great career. I was near the top of the game. I came into the government originally when Obamacare and ran into trouble. I came in to lead the turn-around effort.

One of the things that probably both of us believe — and probably a lot of the viewers believe — is the old adage that it’s 90 percent about execution. You’re going to have the best business strategies, but ultimately, it’s how you execute on the ground, how well you listen, adjust, the people you bring in, and how you deliver.

When the administration said, “Andy, how’d you like to come in?” I saw healthcare at a point where the Affordable Care Act could either end up as a great monument that serves America well for years, or it could end up as something that needs a lot of adjustment. It was all based on how well we executed. I would encourage all your talented listeners out there to do at least a couple of years of government service. In my case, because my focus was so much on execution, and because of the way we turned around the website, we had a wide berth, I think, to do that with the broader part of the portfolio.

As you pointed out earlier, it’s a very broad portfolio. The idea of an outcomes-based approach to healthcare, as opposed to a procedure or a diagnosis-based approach, is a pretty big shift. Can you expand on that?

If you’ve been in healthcare for any period of time, every year you go to conferences and meetings. You talk about the same things: When are we going to get the uninsured (covered), and how are we going to do it? How are we going to prove quality in this country? How are we going to get a handle on cost without doing it in a way that takes away care for people that needs it?

Those conversations have gone on forever with very little of any progress in all those metrics. After the Affordable Care Act passed, we’ve really reached a remarkable milestone. First of all, 20 million people have gotten health insurance for the first time.

If I stop there, I think we would all say, “That’s a good thing, something to build on.” Secondly, 95 percent of quality measures in the country have improved over the last five or six years, because we’ve started to put in place incentives to say, “Hey, if you do surgery on John, and he comes back within 20 days because something went wrong, you’re not going to get paid for that.”

Things like that turned out to be effective in broad strokes. Third, medical inflation has actually been running at its lowest level over the course of the longest period of time since it’s been measured, probably going back to the ’60s. These are first steps, these are important steps. All of those elements, I think, are places where we have an opportunity to really drive and change the culture.

You’ve have such a significant change over the past four or five years, but then you have the Republican party saying “The first thing we’re going to do is repeal it.” Is that a bit disheartening?

First of all, it maddens most of us that healthcare even delves into the realm of politics. Because if you have a loved one in your family that’s sick, if you have to put a father or mother in a nursing home, if your spouse has diagnosed with cancer, your child has asthma or needs a really expensive medication, the politics are really the last thing on your mind.

Unfortunately, we’re at a place where a lot of the issues have become hyper-politicized. It’s interesting. If you go back to the last major piece of legislation that people will remember, it was the prescription drug benefit for seniors. That passed in the mid-2000s. It was a Republican-led effort.

After it passed, both parties embraced it. There were fixes needed. There were corrections needed. Both parties got to work and they passed legislation because two, three years into something, you realize what works and you realize what doesn’t.

That’s what needs to happen (with the ACA) — everyone has to acknowledge the fact that this law, like every law, is not perfect. It’s not going to be perfect. You got a couple of choices on how you handle that. You can either say “tear it down,” or you can say, “We’ve got to figure out how to make it better.”

Now that you have 20 million people who are covered for the first time, it may be a difficult political challenge for someone to come in and say, “We’re just going to upend that.”

Now that you have 20 million people who are covered for the first time, it may be a difficult political challenge for someone to come in and say, “We’re just going to upend that.”

There’s been speed bumps. I read that Aetna and other providers are pulling out of certain exchanges, for example. It feels like there’s this tension, particularly with the insurers, that the exchanges may not have enough liquidity —not enough young people, or too many old and sick people in them. What’s your response to those headlines?

Let me tell you how I look at it. First of all, this is a very new business with a new set of rules. Think about the disruption that went on in the cellphone industry when people could keep their phone numbers no matter where they moved.

Think about the kind of disruptions that go on in financial services, on the auto industry with new regulations on emissions and so forth. Companies emerge like Tesla in the case of auto companies, or E-Trade, because these are different businesses and people recognize that they’re different businesses.

There’s a similar story here. What’s the biggest disruption? The big disruption is when we said to Americans, you can get covered with no questions asked. Doesn’t matter if you’re sick, doesn’t matter if you’ve been sick.

I think it’s candidly taken companies who’ve come in a few years to adjust and figure out just plainly, what’s that going to cost? It’s clearly going to cost more if you’re going to take people with no questions asked. I don’t think people knew how much.

One of the things that’s happened is some companies grew a little too fast, some companies underpriced their product, because they just didn’t know. Now they have some data.

So what is the data say? The most recent thing I saw was an article which said about half the companies were making money and about half the companies were losing money. You’re at a place where companies are, including the ones that are pulling back a little bit, they’re still committing capital and they’re trying to figure out how to adjust their business models.

Other countries have made decisions very different from the United States. They’ve said healthcare is a place where market failure occurs, so therefore, we’ll have the government guarantee healthcare, have a single payer model. Do you have a philosophy about that? Is there a right way to do this or is it that the United States is just figuring it out along with everybody else?

I think people fall into three camps. There are a set of people, a meaningfully sized set of people that, as you said, believe that we should have a single payer system. Don’t know the percentages, but let’s just call it a third, a third, a third, a third.

You got another set of people who are really of the view that we have to let markets drive everything and if the price of an allergy medication goes up to $2,000, so be it. People who can afford it can get it and maybe there’s tricks and subsidies and tax breaks, but fundamentally, let the market be where it’s going to be.

Then I think there’s what I would observe as the culture we have here in the US, which is a mixed bag and forever a hybrid, and done well, it takes the best of both, done poorly, it takes the worst of both.

An occasion where it takes the best of both is Medicare. If you are 65 and you’re on Medicare, you have two choices. You can choose something called the Medicare Advantage Plan, which is offered by private sector companies.

Or you can get something called Medicare Fee-for-Service, which is essentially would be the equivalent of a public option, it’s a publicly supported traditional Medicare plan. That tends to work well. Some portion of people pick one, some portion pick the other.

It’s a fairly competitive market, there’s a lot of bidding and a lot of innovation goes on and I think a lot of people are generally satisfied.

There is a shift happening in the workforce — much discussed in the technology circles, toward an on demand or gig economy — people being contractors as a profession, and therefore not having benefits attached. What’s your view on portable benefits?

That was actually one of the drivers for the President in the Affordable Care Act, so that people wouldn’t be wedded to jobs for benefits. I think that’s historically been the case because of a very simple reason: the most tax beneficial way to get healthcare has been through an employer.

What’s actually interesting is many people predicted that after the Affordable Care Act employers would move in large scale into the exchanges. In fact, one of the things you talked about earlier — which is where are the young and healthy people? — they’re still getting their insurance through their employers, where is by and large the case. What’s fascinating about the marketplace is you now can, in this gig economy and in this new economy, move around as much as you want and not have to worry.

On January 21st, I’ll leave the administration, but I know I’ve got a marketplace. I have some significant chronic conditions in my family, I’m not at all worried. If I go take a job, if I don’t, it’s not going to be driven by health benefits.

One of the things that drives health are the policies that drive our food industry. The needle could be moved quite a bit by policies that are not directly related to health. Does the CMS get involved in farm bill policies — things that have to do with inputs to our economy — sugar and soda taxes and those kinds of things?

The answer is yes. I’ll be in Oregon next week, with the governor, and we’re going to look at some innovative approaches for how housing and health are related.

It wouldn’t surprise any of us that if people don’t have adequate housing, if they don’t have heat, they don’t have light, they don’t have electricity, they’re not going to get taken care of when something happens to them.

We’re going to have to do things different by the time we get to be 65. What are some of the things we’re going to have to do? We’re going to have to be focusing a lot more on prevention, on the social determinants of health causes. I work closely with the (Center for Disease Control). We have a program called “A Million Hearts,” where we are focused on looking for early signs of stroke, early signs of heart disease.

We have a diabetes prevention program, which we run out of local communities like YMCAs, which finds people before they get sick. For the very first time, we’re starting to experiment. We’re starting to experiment with how we get upstream, and what are the creative ways we can spend that money upstream so that we don’t have to spend it downstream.

One of the things that helps you make these decisions or gain these insights is data. Talk to me a little bit about the open data work that you’ve spearheaded at CMS?

It’s interesting. People in healthcare bemoan the fact that we don’t have really good quality information to make decisions, but if we were talking to somebody at Procter & Gamble, or Target, and we told them, “You know what? Every time somebody walked in your store, we would have a record of everything they bought, when they bought it, why they bought it, what they bought before it, what they bought after it, what it was related to.”

That’s what you have in healthcare. We have over a billion claims a year of every time you go to a pharmacy, every time you go to a hospital, every time you go get a lab done. That can all be arrayed in ways that I think are very, very useful. I think the great news is, we have said quite clearly that we are going to put all this information out in public use files. We put out all of the nursing homes in the country, and we rate them according to the quality of the nursing homes.

We’re trying to lead the way. I think the challenge for all of us over the next few years, is too many people view the data that they have as their own proprietary business asset. If you’re an electronic medical records company, or if you’re a hospital, or if you’re an insurance company, you feel like your data has value, and you feel like you don’t want to share that value. We have to break these silos up.

Individuals feel like their data is quite personal. And we’re getting to the point where your own genetic information is now germane to your care. At least in the Valley, there’s a strong belief that we’re very close to cracking some very large problems. Are we being too optimistic about that?

I don’t think so. You can’t help but feel optimistic. You can’t help but see the promise of what can be done as you can get closer and closer to matching the treatment with the conditions that people have. It’s a whole new world for us, and we’re going to have to figure out how to improve it, make sure it’s safe, get it done rapidly, pay for it, all of those things.

Can you tell us what MACRA is, and how it relates to ACA, and to this new regime?

I’ve been trying so hard not to use any acronyms, because healthcare is just plagued with acronyms, but what you’re referring to is actually quite interesting. It’s a piece of bipartisan legislation. I’ll repeat that, bipartisan legislation.

That doesn’t happen very often.

We don’t see that a lot. Last year (it) overwhelmingly passed both houses. It actually took the way we pay physicians in our country and it said, “We’re going to change the paradigm.”

We’re going to change the paradigm from, “You do this, I pay you for this, you do that, I pay you for that,” to a paradigm which allows physicians more freedom to practice the kind of medicine they want, and get rewarded based upon being able to deliver a better outcome.

There’s a number of different kinds of examples, but one example would be essentially to say, if you go in to have hip surgery, there’s 15, 20 people that are going to be responsible for you having a good experience, and a good outcome.

The people that take your blood beforehand, the people that make sure you’re ready for the surgery, the anesthesiologist, the surgeon, and then very importantly, the post-acute rehab facilities, the physical therapists, etc.

Any one of those things goes wrong, you could have a bad medical event. What MACRA does is it essentially says, “Let’s change the game so that we create one payment for this team. Let’s bonus it if we have a good outcome, and then let’s find a way to share it.”

What happens when you do that is the bad physical therapists, or the people that keep you in a rehab facility for too long when you could be home, start to get less business. The relationships with the community start to focus on the things that we’re measuring. We’re at the beginning of, I think, a pretty exciting journey.

This is a policy that is changing people’s behaviors through economic incentive.

Right. I think it’s a potential to be a truly landmark change, to not just the way Medicare works, because Medicare is really the 300 pound gorilla in healthcare. When Medicare changes its payment policies, commercial health plans tend to follow. Medicaid health plans tend to follow.

I think it’s an enormously exciting opportunity. It’s about how we execute it. It’s filled with great promise. You could also argue it’s filled with great peril because you get something a little bit wrong, and you really run a lot of risks.

You are a political appointee. As of January 21st, when the administration turns over, you’ll be leaving. I don’t want to get you in any trouble, but I’m curious. Now that you’ve spent a few years in government, what is your greatest frustration with it?

On a great day, you can do seemingly small things that change people’s lives forever. There was a program in Massachusetts that was changing the way people on disability in the community lived. It needed a little more time to be successful. It needed a little bit more money. We’re talking like $10 million, five more years.

The ability to do that changed people’s lives forever. Up until next week, people who would go into nursing homes could be forced to sign arbitration, binding arbitration upon being admitted to a nursing home, which really was not a good thing for a lot of people.

We changed that, and so there’s a lot of things that don’t make the news that you could do every day, and that’s great. That’s a part about the job that I’ve loved, and I think it’s been great.

What’s a bad day look like? A bad day is when there is an opportunity for a real dialog, for real progress, and yet you have tried and true forces in Washington. The people in Washington have got a pretty good skill at trying to kill things that aren’t in their interest, because there’s so much money involved in this industry, the opportunity to find win/wins are real, but when you have industries or groups that come in and say, “You know what? If I can just kill this for two more years, it’s better than a dialog.” You have those moments as well.

The people in Washington have got a pretty good skill at trying to kill things that aren’t in their interest, because there’s so much money involved in this industry

When you have a trillion-dollar-budget, there’s going to be a lot of people who are interested in insuring that their piece never goes away.

That’s right. I think you’ve got to be very careful about a couple things. One is, if you’re going to make a policy decision, it’s important to me that the people on our team get a 360 degree view. If they’re meeting with the pharmaceutical industry, I also need to know that they’re meeting with consumer advocates.

Our team needs to go out and really get closer to where care is practiced. Otherwise, I think Washington would rightly be accused of losing touch.

Do you have any idea what you’ll be doing after January 21st?

I’ve had the luxury to not think about this until after I leave.

If you would go back 30 years to your 20-year-old self, what advice would you give yourself?

I think you can’t go wrong if you make other people successful. Every time, in my career, when I forgot about the role I was playing, and thought about the work and the people that were doing the work, whether they were above me in an organization, below me, or outside the organization, if I made them successful, that really helped.

I think the second part of that is, it’s the power of relationships. I don’t mean it in a sentimental way, but the power of the ability to have people you trust, people who you can have difficult conversations with, and to learn to be able to do hard things.

I’ll tell you, when we went to do the turnaround for, I called friends in Silicon Valley. I called venture capital folks I knew. I called the CEOs of major technology companies. When people can pick up the phone in a couple rings and say, “What do you need?” You get a lot more done.

That was really a pretty remarkable moment in government history, that this SWAT team emerged, and became the USDS, right?

You’ve written about the US Digital Service. We had them as part of our MACRA launch. I actually think it will be one of the most underrated accomplishments of the President, starting the US Digital Service, for a couple reasons.

One is to completely the rethink the speed and capability with which you can take on technology. That’s critical, but also it’s planted a new model inside the federal government. I think there is this perception that federal civil servants are not the same quality and caliber of people in the private sector. I can tell you from my two years in the government, that’s not true. I would hold up my colleagues against anybody who works with the private sector.

What about this role you’re going to miss come January 21st?

The visibility of the role, at least in DC and in the healthcare community, is that it’s a policy-making role. What I came to discover is that it’s also an operating job.

The first thing I do every day — like a lot of people — I look in my email. As I mentioned we have a 140 million people we serve. I made a decision, some might say unwisely, to have a single email account where my public and my private address are the same.

Any beneficiary in the country can email me. I go to bed at night thinking about the needs of these folks. I wake up to realize that they’ve gone to bed thinking about me in some respect too, because my email is usually filled with very common situations that really ground you in this job.

Someone can’t get a battery for a wheelchair and therefore they’re stuck in their home for three days. Someone’s daughter is in an institution, and they’re moving, and they can’t get the daughter released. Those are the things that are just an incredible part of the job.

Unlike a company where you can pick a segment of people and make that segment of people happy, my job is defined by, “Is the least happy, least successful person dealing with the healthcare system going to get what they need?”

I don’t have a problem with 67-year-olds that have three Fitbits and jog every day. I’ve got problems with people who have to take three buses to a dialysis facility. And in that part of the job there is pure joy.

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