Interview with Eric Hargan

DealFlow’s upcoming DTC Healthcare Conference, set for April 28 in New York City, will feature a presentation by The Hon. Eric D. Hargan, who served as U.S. Deputy Secretary of Health and Human Services from October 2017 to January 2021. In this exclusive interview, Hargan discusses the rise of DTC healthcare, where it’s going and some of the challenges it poses to consumers, healthcare professionals and government regulators.

DealFlow: Please share a broad, high-altitude view of the federal perspective on the rise of direct to consumer healthcare. What is the mindset right now?

Hargan: So, direct to consumer has traditionally been a challenge, at least at the federal level from an FDA point of view, because you’re always looking to protect the public health and protecting consumers. It has always presented a real concern about patient protection, because you have these two somewhat opposed goals of the FDA protecting but also promoting public health. And so those pull you in two different ways. One, bringing new products, advancing the science, advancing products that are available to everybody. Then on the other hand, making sure that they’re safe with respect to things that are put into the consumer’s hands. You’ve got to be aware of how they’re going to be used, how they’ will be marketed, what’s the likelihood of harm coming from something that’s given to the consumer. These traditional concerns are always going to be there for the government when it’s looking at anything that’s DTC as opposed to something where there’s a mediator – a physician or some other healthcare professional that stands between the product and the consumer or patient.

DealFlow: DTC oversight must be more stringent?

Hargan: Yes. The government is going to want more evidence, or they’re going to want a claim that the possibility of harm is much lower for the consumer. This runs the gamut from traditional issues about drugs and biologics, and into the world of devices and digital health as well. There were very great concerns around medical apps. There still are in terms of how people are able to take care of themselves, diagnose themselves and be able to provide care for themselves. That’s to one side. But then on the other hand, you have a recognition that the science and the technology is advancing in this area, and consumers and patients want medicine to be brought closer to them. 

The undermining of that mid-century notion of medicine as a centralized distribution – there’s his big hospital downtown, everyone goes to the hospital, gets their care there, and leaves – it’s almost like a factory that you would have seen during the Industrial Revolution. People centralized production for efficiency. The same model happened with offices. The same model happened with hospitals. The same model managed for a lot of things about centralization. 

That model has been decaying for a long time, under a lot of different pressures, cost pressures, but also just the fact that information and the ability to manage things in a decentralized way has been going on for some time. Obviously the accelerator for this happened with COVID 19 and the rise of telehealth and the fact that patients were worried about going into hospitals and local governments shut them down.

So at that point, really you saw there having to be these workarounds that happened very quickly in American medicine to decentralize care. And that really put really a great amount of gas to the engine on the development of more decentralized medicine, which ultimately makes it more direct to consumer. 

It’s not going back to where it was. People are now used to it as a component of care. And that is a central example of DTC healthcare. It’s not the only thing. Obviously a lot of things have developed over time, particularly for chronic conditions. It’s all now part of a really a slow moving revolution in healthcare that’s resulted in really serious changes, good changes for how I think we’re going to practice medicine in the coming decades.

DealFlow: Building on that, from what you have seen thus far, particularly in the last couple of years, does DTC afford the opportunity to improve the overall quality of health in our society? Recent studies have shown a large portion of the population is reluctant to go see a physician in person or go to a hospital out of sheer terror of what type of bill is going to arrive in the mail in 30 days.

Hargan: Yeah, absolutely. I mean, the finance issue is one thing. Also access, time and transportation, all the things that surround people not getting access to care, because all those barriers, cost being one of them, surround a hospital. So there’s cost. Time to care, which involves people being homebound, as well as the increasing age of people in our society. Direct to consumer devices and apps and information systems and all of these things are able to provide access in a way that we have not seen heretofore. I hope that in the future, what we’re doing now looks crude. I hope we get better and better at these things. But you can go to places like Alaska, where people have been doing a lot of this for a long time because it’s been imposed by necessity – areas that are very remote. Alaskans in some ways were kind of pioneers in being able to provide consumer-level healthcare because they had to. So you come into an area where there’s chronic conditions, and they’ll say, “Here’s a digital scale, here’s a pulse app that you can use at home where the monitor, the feeds are coming in and coming out directly to a doctor who is very far away.” It’s a matter, I think, of people becoming habituated to them and developers looking for more and more creative ways to bring more types of healthcare direct to the consumer. 

One of the interesting things that we found in HHS early on was that we looked at the claims that were coming into Medicare. I would get summaries of what areas were being billed, what kind of claims were coming in. We’d see these claims coming in on telehealth, and I noticed one of the high claims was podiatry. Why are we seeing so many of these claims? 

Behavioral health, mental health, those areas really were able to take advantage of telehealth. Then it turns out the rise in podiatry was because of diabetic neuropathy. People were showing the doctor their feet to see whether they had developed neuropathy and whether there were cuts or developing infections on their feet. That can be very serious for somebody that has nerve issues because of diabetes. So we saw the rise of things like that, the unexpected places where medical professionals had learned how to use this, uh, because people were not visiting the doctor. I suspect it’s going to go way beyond these early indications of telehealth. 

For the past few decades medical care has been moving from acute disease states to chronic disease states. Part of that is demographics, we’re changing and aging, we have lots of good food available to us. But on the other hand, it has imposed costs on us. We’ve been able to turn many acute diseases into chronic conditions. Many types of cancer are now chronically cared for. Many types of diseases are now chronic conditions, which is just what we want, right? We’d rather manage them, but that imposes greater costs over longer periods of time.

So how do we deal with this ultimately good situation for ourselves, which is managing chronic rather than acute disease? A lot of that’s going to have to be done at the patient level by necessity. Somebody with a chronic disease can’t be popping into a central hospital every day. They can’t be constantly in front of their doctor. It will just overwhelm our system. We have to move to DTC technology because these kinds of diseases are best cared for by a lot of high-tech tools.

The other consideration is, from a reimbursement point of view, how are we going to pay for all this? 

DealFlow: That might serve as an apt segue into the business of direct to consumer care.

Hargan:  The superstructure of building out a new medical environment isn’t just telehealth, right? There was an explosive growth of this during the pandemic. And it’s natural that people are going to adjust their investments when the need for that explosive growth subsides. If we had had a long term pandemic environment, God Help us, where we were closing hospitals down, and 80% of all of our encounters were through telehealth, well, guess what? We’d spend 80% of our money on telehealth. But that would be a world we devoutly do not want to have happened, right? We’re glad we reopened society. We’re glad for those investments early on. But also there’s all kinds of stuff with interoperability, medical apps, all kinds of direct to consumer functions that aren’t specifically telehealth, right? There’s tons of little things going on. Like AI itself. People promise revolutionary things, but a lot of the areas where it’s impacting the most are places like scheduling software. It’s changing a lot of things behind the scenes. You’re not seeing a lot of it because it’s in a lot of other areas that are moving forward at the same time, but which are leading to the same place, which is that more interactions directly between the patient and their own care, and allowing them to provide their own care, which I think is kind of an inevitable part of the world we’re in.

With the shortage of doctors and nurses, that inevitably leads us to where we are. We’re not going to have a cadre of professional caregivers doing everything about our chronic conditions. That won’t happen.

So where does that lead us in the kinds of technologies that are DTC? We’ve got to take a look at reimbursement issues, which are definitely a threat here. DTC is threatened by the current reimbursement landscape, but again, long term, as we keep moving slowly to value-based care and outcomes-based care for rewarding people for healthcare, we will be moving away from fee for service slowly. That means that the world of DTC will, I think, get larger.

One of the things we enabled in our reforms was the kickback rule to allow people to go into value-based arrangements so that they could give technology to patients to enable them to care for themselves at home, and to make that not be a kickback or an inducement so that people could do that legally without being worried about getting a knock from your friendly official saying that was a kickback. At a regulatory point of view, it’s trying to enable value-based care, which can lead you to even the providers and hospital systems giving out technology. DTC technology as part of an overall value-based arrangement that they’re paid for, keeping the patients healthy, and DTC is a way to do that without them having the cost of people coming in the hospital.

DealFlow: There’s a huge concern around a lot of these technologies related to the issue of patient data privacy. Are the regulatory mechanisms in place and are they sufficient to address the potential for data breaches from DTC technology? We’re living in a world where North Korean hackers are breaking into hospital computer IT systems and holding them hostage for ransom to finance, the North Korean regime. In another situation, the FTC levied a hefty fine on an online pharmaceutical company for basically selling patient data.

Hargan: We’re going to have to grapple pretty soon with the issues around the interoperability rule. It’s coming in the next couple years, full blossom, and will allow every patient to get their entire longitudinal health record from all of their providers on their app for free. So you can have it on your phone everywhere. And they can’t block the information from getting to you. That’s going to be a massive amount of patient data flowing through the system. I think it could be transformative. The concern is how do you deal with the issue of consent? How do you deal with the issue of privacy and consent? Do people really understand that they could turn over all their medical information very easily? What should you do? How do we alert people that they’re about to release their medical data on a phone app? Do we play a song or make it a loud siren blaring on your phone if you’re consenting? Do we put it in flashing lights or a big font? What do you do to alert people to the fact that they’re sharing data that really can’t be called back? This is really imponderable, because who else should decide other than the patients themselves? A law was passed six years ago to address the issue of consent. And the rules to guide it are in place. But the technical infrastructure is not the issue. It’s the trust issue. And those issues involve how do we use the data and how do patients consent to having it used?

As for the issue of hackers, Ireland’s National Health Service was hacked and frozen for months a couple of years ago. The whole national health system was just shut down. It was targeted and taken out. Now, in the United States, we have an incredibly decentralized healthcare system, which makes it easier to go after individual hospitals, but hard to go after the entire system. Because we’re all over the place in the United States, so it’s hard to hit a central node and really take us down all at once. I think that would be pretty difficult in our system. 

One thing we are going to have to deal with is how we manage all that information, information about where we live, what we eat, how we travel, all that. Really clever data miners can figure out an awful lot about our healthcare without having HIPAA information per se. And I think that there’s an entire world of data out there that we haven’t really grappled with as an item of privacy. That itself is an issue because people can figure out what’s in that protected box, even without hacking it in many ways. They can figure it out from all kinds of things outside that box. Data and privacy issues are going to rise to the fore in terms of how we de-identify data and get it where it needs to be or re-identify it.

We’re also going to have to grapple with the fact that people in our society have really different ideas about medical privacy. My late mother, she couldn’t have cared less about medical privacy. She wanted to share everything if it could be used by anyone to advance medicine. She just wanted everyone to have it. And she couldn’t have cared less about it. It just didn’t mean anything to her. But there are many people on the opposite end of the extreme. Everybody’s going to be on a spectrum on this issue. I don’t think that there’s a single answer here, because I don’t think we have a social understanding or consensus about what privacy is and what it should be. How do you make a rule when we don’t really have a consensus on what’s going on here? 

We haven’t really had that long conversation for a while. We started some HIPAA reforms under our administration. They’re working on things now, but it’s not something where we’ve had the kind of conversation we had decades ago with the beginning of HIPAA and high tech. We have not had those conversations yet, in any real serious way about what we intend to do here. 

Now there are maybe people thinking they want to set up hospital systems with the Internet of Things at scale and have AI running entire hospital wards. Maybe you have patients with monitoring devices at home that are connected to a hospital or their doctor’s office. Well, what happens if there’s a hack of those things? You could literally turn machines on or off, change monitors, stop them from monitoring, kill people. In terms of getting to these and other problems, we’re not there yet because we’ve had what I think could be called accidental privacy. Records in paper form stored in file cabinets, decentralized. We’re getting to the point where we’ve got to make a conscious choice about privacy, which we haven’t had to make yet because the information has been so decentralized and inaccessible in a real way, for good or bad.

The Hon. Eric Hargan is founder and CEO of The Hargan Group, a consulting firm to the healthcare industry. He was a partner at the law firm of Winston & Strawn, where he specialized in corporate law, mergers and acquisitions, securities, and venture capital transactions. He later served as Deputy General Counsel of HHS for the George W. Bush administration before returning to practice law with McDermott Will & Emery and later with Greenberg Traurig. He has also served as a professor at Loyola University Chicago School of Law, teaching healthcare regulations and administrative law.