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42–811—PDF 2007

S. HRG. 110–428

EXAMINATION OF THE

MEDICARE ADVANTAGE PROGRAM

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

APRIL 11, 2007

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

(III)

C O N T E N T S

OPENING STATEMENTS

Page

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee

on Finance ............................................................................................................ 1

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 3

WITNESSES

Orszag, Dr. Peter R., Director, Congressional Budget Office, Washington,

DC .......................................................................................................................... 5

Hackbarth, Glenn M., Chairman, Medicare Payment Advisory Commission

(MedPAC), Washington, DC ................................................................................ 7

Draper, Dr. Debra A., associate director, Center for Studying Health System

Change, Washington, DC .................................................................................... 8

Udvarhelyi, I. Steven, M.D., senior vice president and chief medical officer,

Independence Blue Cross, Philadelphia, PA ...................................................... 10

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statement ........................................................................................... 1

Draper, Dr. Debra A.:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 41

Responses to questions from committee members ......................................... 50

Grassley, Hon. Chuck:

Opening statement ........................................................................................... 3

Prepared statement .......................................................................................... 53

Letter to members of the Medicare conference committee, dated September 30, 2003 ............................................................................................. 55

‘‘The Facts: Medicare Advantage,’’ jointly prepared factsheet by members

of the Health Policy Consensus Group ........................................................ 57

Hackbarth, Glenn M.:

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 67

Responses to questions from committee members ......................................... 80

Orszag, Dr. Peter R.:

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 84

Responses to questions from committee members ......................................... 106

Smith, Hon. Gordon H.:

Prepared statement .......................................................................................... 108

Thomas, Hon. Craig:

Prepared statement .......................................................................................... 110

Udvarhelyi, I. Steven, M.D.:

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 111

Responses to questions from committee members ......................................... 125

COMMUNICATIONS

AARP ........................................................................................................................ 127

Champaign County Health Care Consumers ........................................................ 132

National Association for Home Care and Hospice (NAHC) ................................. 134

(1)

EXAMINATION OF THE

MEDICARE ADVANTAGE PROGRAM

WEDNESDAY, APRIL 11, 2007

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10:02 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senators Rockefeller, Bingaman, Kerry, Lincoln, Wyden,

Stabenow, Cantwell, Salazar, Grassley, Hatch, Snowe, Thomas,

Crapo, and Roberts.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order. I want to welcome everybody to today’s hearing.

Medicare did not have any private plans when it first started in

1965, but in the early 1970s, Congress began down a path that

would allow private plans to play a large role in Medicare. The goal

was to offer choices that could improve the health of beneficiaries

and reduce their out-of-pocket costs, while saving Medicare money.

The vision was a promise of integrated and efficient health plans

providing high-quality, comprehensive care to consumers.

Here we sit some 30 years later, and it is time to take stock of

where we are. Congress has been lax in its oversight of how private

plans are working for Medicare beneficiaries, and we are here to

change that.

One of the questions I hope that we will all keep in mind today

is whether the promise of efficient and effective managed care has

been realized. Do plans coordinate care? Do they improve the

health of their enrollees? And do they lower health care costs? Do

they add value to the program? And are they worth what we are

paying?

My understanding of Medicare Advantage is that it has had a

long, but rocky history. Until 1993, enrollment in Medicare private

plans was largely stagnant; then it tripled from 1993 to 1997. In

an effort to define the role of private plans in Medicare, Congress

then created the Medicare+Choice program in the Balanced Budget

Act of 1997.

At that time, the Congressional Budget Office projected that

nearly one-third of all people with Medicare would enroll in private

plans.

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But the new law’s effect was the opposite of what Congress intended: plans dramatically reduced their service areas, and some

plans left the program altogether. Enrollment and plan access declined significantly.

In 2003, Congress acted to stabilize and revive Medicare+Choice

through the Medicare Modernization Act. I supported that act because it provided a prescription drug benefit, which I thought was

long overdue. That act also added much-needed resources for rural

providers, and I also supported the MMA because of the provisions

to stem the rapid decline in Medicare+Choice.

The Medicare Modernization Act renamed Medicare+Choice

Medicare Advantage. It increased Medicare Advantage payment

rates across the country. It also allowed new types of Medicare Advantage plans to enter the program—that is, regional preferred

provider organizations and special needs plans.

Seniors who enroll in MA plans may be able to receive extra benefits that the traditional Medicare program does not provide. For

example, they could receive lower copayments for doctor visits, better coverage of prescription drugs, vision care, and gym memberships. These extra benefits vary widely. MA plans often do not

charge a premium for these additional benefits.

Over the last 3 years, there has been explosive growth in the

number of plans and the number of beneficiaries choosing them.

Today, beneficiaries in every part of the country have access to at

least one Medicare Advantage plan. Nearly one in five Medicare

beneficiaries gets care through a private plan rather than the traditional fee-for-service program. Four years ago this number was

one in ten.

In my home State of Montana, about one in ten Medicare beneficiaries has opted for Medicare Advantage. Most of them receive

benefits through a ‘‘private fee-for-service plan’’ rather than an

HMO. That means 89 percent of Montana beneficiaries remain in

traditional Medicare, and I suspect that that percentage is comparable to the percentage participation in other rural States. The

vast majority are happy with the program, and we can never lose

sight of their needs as well.

The recent changes we have seen in the Medicare Advantage program have touched millions of beneficiaries. But they are not without controversy. MedPAC and CBO tell us that, on average, plans

are paid 12 percent more than fee-for-service. This difference varies

significantly by plan and by region of the country.

For several years, MedPAC has recommended that Congress set

payment for plans equal to fee-for-service. The Congressional Budget Office estimates that such a policy could generate a significant

savings, that is, $54 billion over 5 years, and $149 billion over 10

years. Paying Medicare Advantage plans at fee-for-service rates

could, however, also result in many plans leaving the program and

mass disruptions to beneficiaries yet again.

Plans can provide services that traditional Medicare does not

cover—such as calls or visits from nurse practitioners to help beneficiaries manage chronic illness. Plans can coordinate care across

providers to improve patient health outcomes and lower costs. We

are here today to find out if they really do, and if these strategies

really do lower health care costs.

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We will hear more on these points from our witnesses, but I

want to emphasize this hearing is not simply about payment or

extra benefits. Plans have the potential—and the resources—to do

more than just receive Medicare payment and pay providers.

In order for Congress to assess the impact of such proposals, it

needs more information about how specific geographic areas would

be affected. I cannot stress enough how important it is for Congress

to have accurate, timely data from its congressional support agencies. Often, national data are all that we need, but in this case, we

need a more detailed or disaggregated picture.

Our job today will be to listen, ask questions, and learn so that

we can decide whether Medicare Advantage brings value to beneficiaries and to American taxpayers.

Again, I thank our panelists for coming today.

Senator Grassley?

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Before I thank you and all that sort of stuff,

I want to bring emphasis, before I forget it, to something you just

said, because it takes us back to the days when you and I were sitting through 2 or 3 months of negotiating with the House of Representatives, and one of my goals that you were a part of was to

do just what you said here to make sure that we got plans all over

the country. And we succeeded in doing that because I know, except in one of the 99 counties in Iowa—the one county that had it

was Pottawattamie across from Omaha; they were in a Medicare

Advantage—the other 98 counties did not have it. And one of the

things that I was intent upon doing and we got done was to make

sure that throughout the country people had the same choice in

Montana and Iowa as they had in California, Washington, Oregon,

Texas, New York, New Jersey, Florida, States like that. And we got

it done. So thank you for bringing that to my attention, and I

wanted to emphasize that, because we do have that choice for

Medicare Advantage now for people all over the country. And that

is a matter of fairness.

Well, it is very important that you do hold this hearing, and I

am glad this hearing is called, so I thank you.

As Chairman Baucus has said, health plans have served Medicare beneficiaries for a long time, going way back to the 1970s. But

until not long ago, only beneficiaries in urban areas had health

plan choices. I often heard from Medicare beneficiaries in my own

State, ‘‘How come I do not have the same type of choices that they

have in Florida, New York, and Pennsylvania?’’ They would ask,

‘‘Why can’t I have the choice that would give me additional benefits?’’ They were learning about getting health club memberships.

They were learning about getting eyeglasses, et cetera, and even

lower costs in the process, and they wanted a part of that. I am

sure that other members of the Committee heard the same from

people in their State.

In large part, low payments were the primary reason that choice

was either limited or non-existent in rural parts of the country.

These payments, as we all know, are set on a county-by-county

basis. A decade ago, before the Balanced Budget Act of 1997, the

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highest-paying county was more than 3 times greater than the lowest-paying county. Beginning with the Balanced Budget Act of

1997, Congress took a number of actions—actions that had support

from members on both sides of the aisle—to reduce that disparity

in payment and to promote availability of health plan choices.

As I indicated in my comment to Senator Baucus, he and I

worked during the conference committee to do that. At that hearing

we received a letter that I am going to ask to be put in the record,

signed by 18, 19, 20 Senators, something like that, members of this

Committee—John Kerry, Senator Smith, Senator Bunning, Senator

Schumer, Senator Wyden, Senator Cantwell—wanting to make

sure that we improve payments in that.

It said here, ‘‘We are writing to ask you, as a member of the

Medicare conference committee, to ensure that the final Medicare

bill includes a meaningful increase in Medicare+Choice funding.

. . . While the Senate bill makes a modest step toward this goal,

we hope that the stronger provisions in the House bill will be preserved in conference.’’

The CHAIRMAN. Without objection, it will be included.

[The letter appears in the appendix on p. 55.]

Senator GRASSLEY. This prescription drug bill included these provisions, the increased funding as well. And so today beneficiaries

across the Nation have health plan choices. Beneficiaries can

choose among plans that provide additional preventive benefits,

such as cancer screening, physical exams. Beneficiaries can choose

a plan that lowers their cost sharing compared to fee-for-service,

and they can choose plans that have catastrophic caps on their outof-pockets. And just to be clear, there is no catastrophic cap in feefor-service Medicare. So that means that beneficiaries in traditional

Medicare face potentially unlimited liabilities for the health care

costs.

According to CMS, the average value of these additional benefits through Medicare Advantage is $86 a month, but many plans offer

these additional benefits for no additional premium or maybe a

small additional premium. For a beneficiary living on a fixed income, that protection from catastrophic costs can bring great peace

of mind. These and other facts about the Medicare Advantage program are laid out clearly in a document called ‘‘The Facts: Medicare Advantage,’’ and I would ask that that document also be included in the record.

The CHAIRMAN. Without objection.

[The document appears in the appendix on p. 57.]

Senator GRASSLEY. Studies also have shown that in many cases

Medicare Advantage plans outperform traditional Medicare on a

number of quality measures, including delivery of preventive services such as immunizations, and, during deliberation of that 2003

act, there was a lot of interest in trying to promote better coordination of beneficiaries’ care. Medicare Advantage plans have this capacity. Plans have special programs for beneficiaries with chronic

illnesses, such as diabetes and congestive heart failure, and I am

looking forward to hearing from our witnesses on the type of care

coordination services that can be offered. All of these improvements

are the benefits that we often cite as much needed improvements,

and we already have those in Medicare Advantage.

5

Now, I know some folks want to compare spending in the traditional fee-for-service program to payments of Medicare Advantage.

They then want to equalize Medicare Advantage to fee-for-service

spending, and we are going to hear from Mr. Hackbarth from

MedPAC about this. That sounds like an easy thing to do, but I do

not think that it is as simple as it seems. That is a very precise

instrument.

It would undo policies supported by members on both sides of the

aisle to promote availability of Medicare coverage choices, especially for beneficiaries in rural areas. Beneficiaries now have

choices that can provide them with lower out-of-pocket costs and

benefits not otherwise available in traditional Medicare.

Medicare Advantage plans can better coordinate the beneficiaries’ health care, and that leads to better outcomes. We should

be doing everything we can to offer beneficiaries better Medicare

choices, not eliminating or cutting them back.

Now, I have been watching these programs unfold since 2003. I

know that there has been a lot of growth, particularly in private

fee-for-service plans and special needs plans. So I would not be one

to say that we should not take a close look at how this program

is evolving. In fact, we should. Like many things we do in Congress, this is a work in progress. Improvements can always be

made, and we should be working to do that. But we do need to be

careful and deliberate in how we do it and understand how the program is changing. This will help better inform any discussions that

may occur about the need for further change.

Thank you, Mr. Chairman.

[The prepared statement of Senator Grassley appears in the appendix.]

The CHAIRMAN. Thank you, Senator, very much.

Now I would like to welcome our panel. First we will hear from

Dr. Peter Orszag, Director of the Congressional Budget Office; second, Mr. Glenn Hackbarth, the Chairman of the Medicare Payment

Advisory Commission (MedPAC); third, Dr. Debra Draper, who is

the associate director, Center for Studying Health System Change;

and, fourth, Dr. Steven Udvarhelyi, senior vice president and chief

medical officer for Independence Blue Cross.

Dr. Orszag, why don’t you begin? I might urge you all to stay to

5 minutes, and your full statements will be included.

STATEMENT OF DR. PETER R. ORSZAG, DIRECTOR,

CONGRESSIONAL BUDGET OFFICE, WASHINGTON, DC

Dr. ORSZAG. Mr. Chairman, Senator Grassley, members of the

committee, thank you for having me in this morning to discuss the

Medicare Advantage program. My testimony makes four basic

points.

First, as has already been noted, Medicare Advantage plans are

growing rapidly. In 2004, they accounted for 13 percent of Medicare

enrollment. They are now up to 19 percent of enrollment, and CBO

projects that by 2017, under current law, they will hit 26 percent

of Medicare beneficiaries. That projected increase is driven largely

by CBO’s expectation of continuing rapid growth in private fee-forservice plans within the Medicare Advantage program. Private feefor-service plans added almost 500,000 beneficiaries in January

6

2007 alone, and CBO projects that enrollment in such plans will

reach 5 million members by 2017. Almost all of that projected increase from today is accounted for by private fee-for-service plans.

The second point is that Medicare’s payments to beneficiaries enrolled in Medicare Advantage plans are higher on average than

what the program would spend if those beneficiaries were in the

traditional fee-for-service part of the program. As a result, shifts in

enrollment out of fee-for-service and into Medicare Advantage increase net Medicare spending and increase Part B premiums for all

beneficiaries and also somewhat adversely affect Part A trust fund

financing.

For 2007, CBO calculates that benchmarks will be 17 percent

higher on average than projected per capita fee-for-service costs nationwide. Net payments to plans, which are reduced by a quarter

of that differential of that 17 percent, are thus expected to be approximately 12 percent higher than local fee-for-service costs this

year across the Nation on average. CBO’s estimates are basically

in line with MedPAC’s estimates.

I would also note that that 12-percent differential is greater for

private fee-for-service plans than for other types of Medicare Advantage plans, and the continuing growth in private fee-for-service

plans is likely to put some upward pressure on that differential in

coming years.

My third point is that the cost differential underscores a number

of policy options that would reduce Medicare spending. For example, in my testimony I provide you with the figures for reducing

payments to Medicare Advantage plans to 100 percent of local feefor-service costs, which, as has already been noted, would reduce

Medicare spending by $54 billion over the next 5 years and $150

billion over the next 10 years.

Those cost reductions and the lower payments to Medicare Advantage plans would reduce the ability of Medicare Advantage

plans to offer supplemental benefits and reduce premiums to beneficiaries and, as a result, lead both some plans to withdraw from

the market and beneficiaries not to take up the benefit that might

be offered. As a result, by CBO’s estimates, enacting this policy

would reduce enrollment in Medicare Advantage by about 6.2 million beneficiaries in 2012, which is about 50 percent of projected

enrollment at that time.

I do want to emphasize there has been some confusion about that

figure. It is not 50 percent lower than today. It is 50 percent lower

than in 2012, the projected level. So basically it is sort of taking

away the projected growth, plus a little bit, instead of reducing by

half relative to today.

Other options are also possible. We provide estimates for reducing local benchmarks to 110 or 120 percent of local per capita feefor-service spending, for example. I would note, the fact that there

is any cost saving at all from moving to, say, 140 percent of local

fee-for-service costs, or 150 percent, suggests that there are some

counties where the differential is that large; in other words, there

is a 40- or 50-percent differential in some counties.

My final point is that one possible benefit of the Medicare Advantage program is the higher quality of care that beneficiaries may

receive through more disease management, care coordination, and

7

preventative care than under the fee-for-service program. However,

current data sources and reporting requirements do not provide

sufficient information to assess whether health plans are delivering

better health outcomes than in the traditional program, and the

limited information that does exist, if anything, suggests that the

private plans are no better than the fee-for-service program and,

thus, on a cost-effectiveness basis, based on that limited information, they are less cost-effective because of their higher costs.

I would also note that the most rapidly growing component of

Medicare Advantage, the private fee-for-service plans, are exempt

from many of the reporting requirements that do exist, and as a

result, we have much less information about their efficacy than

other types of Medicare Advantage plans.

Thank you very much, Mr. Chairman.

The CHAIRMAN. Thank you, Dr. Orszag. Very interesting.

[The prepared statement of Dr. Orszag appears in the appendix.]

The CHAIRMAN. Mr. Hackbarth, good to see you again.

STATEMENT OF GLENN M. HACKBARTH, CHAIRMAN, MEDICARE PAYMENT ADVISORY COMMISSION (MedPAC), WASHINGTON, DC

Mr. HACKBARTH. Thank you, Chairman Baucus, Senator Grassley, members of the committee. I have been a proponent of private

plans in Medicare for a long time, since I first joined the Reagan

administration in 1981. Senator Baucus and Senator Grassley well

summarized the reasons I have been a long-time believer in the

idea of private plans in Medicare. I think potentially they have the

opportunity to provide a higher-value, distinct product to Medicare

beneficiaries that not only can reduce costs but improve care.

When I left the Reagan administration in 1988, I became an executive at Harvard Community Health Plan in Boston and then

subsequently CEO of Harvard Vanguard Medical Associates. I

think most people will tell you these are two of the very best managed care organizations in the United States. In my decade in Boston, I saw firsthand the potential of true managed care and what

it can do for patients of all types, including Medicare beneficiaries.

Despite this background, or perhaps because of this background,

I am concerned about the current state of Medicare Advantage. Between mid-2006 and February, 2007, 75 percent of the growth in

Medicare Advantage enrollment was in private fee-for-service

plans. To me, this is a warning light. Medicare beneficiaries are not

enrolling in well-run managed care plans like Harvard Community

Health plan or its successor, Harvard Pilgrim Health Care, but,

rather, in plans that largely duplicate traditional Medicare, except

that they have higher costs, including higher administrative costs.

Well, how could it be that such plans are prospering in a marketoriented system like Medicare Advantage? Private fee-for-service

plans are thriving because of improperly set administered prices,

not market prices. Those administered prices are known as benchmarks. In addition, private fee-for-service plans can compel hospitals, physicians, and other health care providers to accept Medicare payment rates—Medicare’s administered prices. They are not

market prices. In short, private fee-for-service plans are prospering

8

not because of their intrinsic value but because they take advantage of government-set rules.

I am focusing on private fee-for-service because it is the most

rapidly growing portion of the program, but it is not the core problem in Medicare Advantage. It is but a symptom of an overly generous payment system.

Proponents of the current Medicare Advantage system present a

number of arguments in its defense. Two are particularly important, and they have been mentioned already: the extra payments

are being used to fund added benefits for Medicare beneficiaries, in

particular low-income beneficiaries; and, second, the Medicare Advantage payment systems correct imbalances in traditional Medicare under which States with efficient health care systems are penalized.

I do not have time in my opening statement to give these arguments their due attention, but I hope I will during the questionand-answer session. For now, let me just close with an observation

about the fiscal context for this policy discussion.

As you know all too well, Medicare’s resources are limited, especially now that we have 77 million baby boomers ready to hit 65

within 4 short years. Whatever your policy goals—support for lowincome beneficiaries, redressing regional imbalances, increasing

payments to physicians that have been held down due to the SGR

system, funding SCHIP—whatever your policy goals, MedPAC

would like to help you find ways to pursue them as efficiently as

possible.

One concern about Medicare Advantage is that it is being used

to pursue legitimate goals that I think we can all identify with, but

in an especially costly way, thus depriving you and the country of

the resources needed to address other problems that we face. I

wish I could tell you that we have a painless solution to this problem, but we do not. Peter has outlined some of the possibilities. I

can say this, however: that solving this problem will only get more

difficult over time as more and more Medicare beneficiaries enroll

in these plans, in particular, private fee-for-service plans.

Thank you very much.

The CHAIRMAN. Thank you.

[The prepared statement of Mr. Hackbarth appears in the appendix.]

The CHAIRMAN. Dr. Draper?

STATEMENT OF DR. DEBRA A. DRAPER, ASSOCIATE DIRECTOR, CENTER FOR STUDYING HEALTH SYSTEM CHANGE,

WASHINGTON, DC

Dr. DRAPER. Chairman Baucus, Senator Grassley, and members

of the committee, thank you for the opportunity to testify today.

My name is Debra Draper, and I am a health services researcher

and the associate director of the Center for Studying Health System Change. The Center is an independent, nonpartisan health

policy research organization funded principally by the Robert Wood

Johnson Foundation and affiliated with Mathematica Policy Research. My testimony today will focus on three key points.

9

First, although our research has not specifically looked at Medicare Advantage plans, we have seen a growing trend among commercial health plans offering more care management activities.

Second, while many commercial health plans offer care management activities, there is considerable variation across plans as to

what is specifically offered and to whom.

And, third, there is limited evidence to date as to what impact,

if any, the care management activities that commercial health

plans offer have on cost, quality, and outcomes.

There is considerable variation among health plans as to specific

care management activities they offer. Much of this has to do with

how they package, brand, and market the activities that they offer,

which is often a way in which they differentiate themselves within

the marketplace.

Health plans provide care management activities through internal capacity, through external vendors, or some combination of the

two. Some of the larger national health plans have subsidiary companies that actually specialize in these services.

There are many health plan activities that can be broadly construed as care management. Today I am going to be focusing on the

following activities.

Case management and coordination activities target enrollees

with conditions that put them at risk for incurring large medical

expenses. These activities are individually customized and may include care planning, coordination of follow-up care, and telephonebased support and assistance.

Disease management activities target enrollees with certain conditions such as asthma and diabetes and encourage enrollees’ adherence to standardized treatment guidelines in self-care and generally are facilitated by mail and telephone contact.

Health promotion and wellness activities target enrollees irrespective of disease status or health utilization. These activities encourage enrollees to pursue healthy behaviors. They also provide

support to enrollees interested in changing unhealthy behaviors

such as smoking.

Nurse advice lines provide enrollees with telephone access to registered nurses and typically operate 24 hours a day, 7 days a week.

Nurses provide enrollees with education and advice on health conditions and self-care, as well as triage services to assess symptom

acuity to determine next steps.

Utilization management encompasses a range of activities that

health plans use to manage the use of health care services, including activities to prevent medically unnecessary services.

Health plans typically identify enrollees for more care management through an analysis of medical and pharmacy claims data.

Health plans often apply technologies to model the data to predict

future health expenditures of enrollees, and based on these results,

enrollees are often stratified by projected risk level, which allows

health plans to better tailor their care management activities to

the individual enrollee.

Another tool that health plans are increasingly emphasizing to

identify potentially at-risk enrollees is a health risk assessment.

This is a questionnaire, often available online, that collects information provided by the enrollee on items such as personal and

10

family medical history and health behaviors such as diet, physical

activity, and tobacco and alcohol use.

Once an enrollee has been identified as potentially benefitting

from more care management, it can often be a challenge getting

and keeping that enrollee engaged. Participation in most health

plans’ care management activities is voluntary, and many believe

that some type of incentive is necessary, such as a cash payment,

to get enrollees involved and to keep them engaged.

There is considerable potential for health plans to apply many of

their care management activities to Medicare, particularly if they

find them to be effective. These activities may be even more beneficial for a Medicare population where chronic illness and other

high-cost conditions are more prevalent. But current evidence of

their impact is sparse for a number of reasons, including the newness of many of these efforts as well as the complexity of quantifying and measuring their effectiveness.

So the question for Medicare is: to what extent is it willing to

support experimentation, and does this justify any of the extra payment to Medicare Advantage plans? Since health plans are pursuing these activities in their commercial products, Medicare’s role

in experimentation is less clear. But if Medicare does want to pay

for experimentation, there are a number of other questions that are

important to address, including whether it should pay directly for

selected activities rather than paying higher overall rates.

So, to conclude, intuitively, health plan activities aimed at improving the quality and efficiency of care are a good thing. However, it is difficult to justify financial support unless care management activities will eventually yield results that justify the investment. And to the extent, too, that care management activities save

money, they are self-financing and may not require extra support.

Thank you.

The Chairman. Thank you very much, Dr. Draper.

[The prepared statement of Dr. Draper appears in the appendix.]

The CHAIRMAN. Dr. Udvarhelyi?

STATEMENT OF I. STEVEN UDVARHELYI, M.D., SENIOR VICE

PRESIDENT AND CHIEF MEDICAL OFFICER, INDEPENDENCE

BLUE CROSS, PHILADELPHIA, PA

Dr. UDVARHELYI. Thank you, Mr. Chairman, Senator Grassley,

members of the committee. I appreciate the opportunity to testify

this morning about the Medicare Advantage program.

My company, Independence Blue Cross, is strongly committed to

the long-term success of the Medicare Advantage program, and our

Medicare Advantage plans offer many services and innovations

that are not included in the Medicare fee-for-service program, and

they serve a critical role in providing comprehensive, coordinated

benefits for many seniors and disabled Americans, including lowincome and minority beneficiaries who cannot afford the high outof-pocket costs they would incur under the Medicare fee-for-service

program.

One of the fundamental differences between Medicare Advantage

plans and the fee-for-service program is that the former have an

established infrastructure for improving health care quality on an

ongoing basis, and this is critical because it is well-documented

11

that we have significant shortcomings in the quality of health care

under our general system, but also in the Medicare program in particular. Medicare Advantage plans focus on identifying members

with important clinical needs, including those not receiving preventive care, those who are frail, those with chronic illness, and there

is a proven track record of these plans making a positive difference

in the lives of Medicare beneficiaries.

For example, in 2005, approximately 94 percent of Medicare

beneficiaries in Medicare Advantage plans received beta blocker

drugs, which are life-saving drugs administered after a heart attack. Nine years earlier, that number was close to 60 percent, and

that increase has not been matched in the Medicare fee-for-service

population.

One of the principal ways that Medicare Advantage plans have

improved care for Medicare beneficiaries is through chronic care

initiatives and other innovations designed to improve care and

overall quality of life, and these initiatives are important since at

least one study suggests that over 80 percent of Medicare beneficiaries have at least one chronic condition.

At Independence Blue Cross, we offer a variety of programs, and

I would like to provide the committee with a few examples.

Our Connections Health Management program provides members with information about their health conditions, with assistance and guidance on making difficult treatment decisions, with

tools to help them and their physicians improve the management

of chronic disease, and with coordination of care.

We use predictive modeling, a sophisticated data-mining technique, to identify members who are at high risk for future health

care events and who have specific gaps in care. And what I mean

by that is, for example, a congestive heart failure patient who is

not on appropriate medication, or a patient with heart disease who

has an elevated cholesterol level that is not being treated, or a diabetic who is either not getting appropriate monitoring of their blood

sugar or who has a known elevated blood sugar level that is not

being treated.

Specifically trained health coaches, typically nurses, are available to these members 24/7, and they perform telephonic outreach

to members to address their gaps in care, to help them understand

their physician’s treatment plan so that they can improve selfmanagement.

The health coaches also contact the member’s physician, and

these physicians receive a comprehensive registry that lists each of

their patients with chronic illness and what specific gaps in care

exist for each patient. The results of this program I believe are impressive: 87 percent of the participants were satisfied, 90 percent

would recommend the program to others—and I may say parenthetically that when we launched this program in 2003, in the

very first week we got 300 unsolicited phone calls from Medicare

beneficiaries telling us that this is the best program they had ever

had in health care—69 percent of the participants with chronic conditions stated that the program helped them better manage their

condition, and 90 percent stated that the program improved the

quality of their care.

12

Through the prevention of complications and relapses of chronic

illnesses, there was a 10- to 15-percent reduction in the use of hospital services and of professional services such as doctor visits, and

overall medical cost trends came down 1.5 to 2 percent in the first

year and 3 to 5 percent in the second year. And there were also

specific increases in quality-of-care measures for each of those conditions.

We also offer another program in our Medicare Advantage plans

which we call the Physician Home Visit program, and this is a program targeted for homebound members. It arranges for a physician

to conduct a proactive home visit, or a ‘‘house call,’’ to assess that

member’s needs, and then that physician actually provides followup care in the home. The physician coordinates with the member’s

primary care physician and specialist physicians, and it is designed

to improve the control of chronic illnesses and reduce the use of

emergency services for these frail members who cannot keep appointments with their doctors due to their homebound status.

We also provide Medicare Advantage members with access to

care coordination throughout their health care experience, and I

would be happy to give examples of that later on this morning.

Finally, in addition to improving patient care for chronic illnesses, the Medicare Advantage program provides many additional

benefits that are not included in the Medicare fee-for-service program. According to CMS, the Medicare Advantage plans are providing enrollees with, on average, savings of more than $1,000 annually through both improved benefits and lower out-of-pocket

costs. Research studies indicate that these additional benefits are

particularly important to low-income and minority Medicare beneficiaries, especially those who fall short of qualifying for Medicaid.

Beneficiaries in the lower-income categories are less likely to have

employer-based coverage, and those with incomes in the range of

$10,000 to $20,000 are generally not eligible for Medicaid, meaning

that Medicare Advantage is their primary option for comprehensive, affordable coverage.

I would like to highlight one important role that these benefits

play by quoting from a study, a bipartisan survey that was released by America’s Health Insurance Plans on March 20th: 35 percent of seniors overall but, more importantly, 62 percent of lowincome seniors said if they were not enrolled in their Medicare Advantage plan, they would forego treatment they are receiving

today. They would skip medically necessary services, if their option

of having a Medicare Advantage plan went away.

So, in closing, I thank you for considering our perspective of the

Medicare Advantage program. We urge the committee to continue

to support adequate funding for this system of competition, choice,

and innovation that is delivering savings and value to more than

8 million Medicare Advantage enrollees.

Thank you.

The CHAIRMAN. Thank you very much, sir.

[The prepared statement of Dr. Udvarhelyi appears in the appendix.]

The CHAIRMAN. Thank you very much, sir.

I would like to ask Mr. Hackbarth first and also Dr. Orszag to

respond to the same question, and it is a ‘‘What if?’’ What if we

13

were to lower the payment rates to the Medicare Advantage plans

to fee-for-service or significantly in that direction? What would the

result be? What would plans do? Would they leave? Dr. Orszag, you

testified that many would leave and beneficiaries would not be able

to participate. So the question is: What would plans do, in your

judgment? Would that force efficiencies or not? Would plans lower

their bids in order to maintain benefits? Would the impact vary according to geography, you know, in some parts of the country

versus others? And would the response vary according to plan type,

that is, private fee-for-service or HMO, or whatnot?

I am just asking a ‘‘What if?’’ question, if you could give us your

best judgment as to what would happen.

Mr. HACKBARTH. Well, you asked a lot of questions there.

The CHAIRMAN. Right.

Mr. HACKBARTH. If I miss some key parts, remind me.

The CHAIRMAN. Would they lower their bids? Does it vary by geography, and also according to plan type?

Mr. HACKBARTH. Peter is in a better position to address the effect

on overall enrollment. They do estimates of that. Certainly there

would be a decline in projected enrollment. I think in all likelihood

the decline in enrollment would be particularly large in private feefor-service plans as opposed to tighter, more tightly run coordinated care plans.

The effect would be disproportionate in some parts of the country, namely, those parts of the country where the benchmarks are

highest relative to fee-for-service costs.

The CHAIRMAN. Would it create efficiencies?

Mr. HACKBARTH. Well, that was going to be my next point. I am

a believer in markets, and that is one of the reasons why I have

supported this program for a long time. Prices send signals, information about what customers want. Right now Medicare is sending

the signal that we want private plans, even if they cost substantially more than traditional Medicare.

I think what we need, not just in Medicare but in the country

more broadly, is to send the signal that we want plans that more

effectively manage care.

The CHAIRMAN. That are more efficient, that could result in some

efficiencies.

Mr. HACKBARTH. Right, and we are not doing that now.

The CHAIRMAN. My time is about to expire. Dr. Orszag?

Dr. ORSZAG. Sure. As I said in my oral remarks and in my written testimony, we estimate that moving to 100 percent of local feefor-service costs would reduce enrollment in 2012 by about half.

That would be disproportionately in areas with currently low feefor-service costs because those are the areas where the differential

is largest. Those are disproportionately in rural areas, and if you

look at a map of the country, those are sort of not on the coasts

and tend to be disproportionately rural.

I agree that the effect would be disproportionate on private feefor-service, in part because they are the plans that are operating

disproportionately in those areas. The other effect that I think is

important to remember, though, is that there would be an impact

not just on Medicare Advantage beneficiaries but on all other Medicare beneficiaries, because the cost reductions that would result

14

would reduce Part B premiums and also affect Part A financing in

a beneficial way for everyone else.

So there is sort of a trade-off between the directly affected

beneficiary——

The CHAIRMAN. Right. But would there be any efficiencies,

though, under the Medicare Advantage plans?

Dr. ORSZAG. I do think that there may be efficiencies for the following reason: the fastest-growing component of Medicare Advantage and the one where most of the growth is occurring is in private fee-for-service. The types of things that we were talking

about—disease management, care coordination—are much less salient and much less prevalent in private fee-for-service. The theory

behind it is it is a lot different than in HMOs and PPOs within

Medicare Advantage.

The CHAIRMAN. Thank you very much. My time has expired.

Senator Grassley?

Senator GRASSLEY. Yes, I want to follow on the discussion we

just had, but I would ask you if you could be a little more specific

in regard to the disproportionate rural areas. But I would like to

point out that they might not all be rural, and some of it is based

on what we think would happen, and we think that Seattle, Portland, Minneapolis, parts of New Mexico, parts of Arizona, and

parts of upstate New York would be very definitely hit if we were

to cut too much—or maybe cut at all. I do not know exactly at what

level.

I would like to know if you have studied it that precisely, if you

could verify what I have just said, or speak around it and be a little more definitive than you have, instead of just saying disproportionately rural. That is to the both of you.

Mr. HACKBARTH. The effect would not be solely on rural areas.

I do not know all of the cities that you mentioned, but I certainly

know that Portland, OR is a place that is a floor area, so the Medicare Advantage payments are well above the existing traditional

Medicare costs. And so there are urban areas like the ones you

mentioned that would be affected as well as rural areas.

Senator GRASSLEY. All right. Dr. Orszag?

Dr. ORSZAG. I cannot give you an exact answer, but what I can

tell you is that, again, the effect is disproportionately in areas with

fee-for-service costs that are lower; so, low fee-for-service cost

areas, and that we do have information on from the Dartmouth

Atlas. In fact, because the differences are so huge, I walk around

with a little chart of where fee-for-service costs are regionally with

the dark——

The CHAIRMAN. Is that in your testimony?

Dr. ORSZAG. No. I just walk around with it. [Laughter.]

The CHAIRMAN. Well, we would like to have it in the record.

Dr. ORSZAG. All right. Well, we can do it. It is from the Dartmouth Atlas of Health Care.

The CHAIRMAN. We will put that in the record.

[The chart appears in the appendix on p. 105.]

Dr. ORSZAG. But the point is the darker areas—I can show you

what else I walk around with, too. [Laughter.] The darker areas

are the ones with higher fee-for-service costs. The lighter areas are

the ones with lower fee-for-service costs. And you can see that

15

there is a particular pattern to the colors, and it is in the lighter

areas where the effect of reducing Medicare Advantage payments

would be disproportionately large.

Senator GRASSLEY. All right. That map will help us very much.

Then if we want to do further research, go to those areas where

the benchmark is highest for fee-for-service. I think you said that.

You said you could not name specifically, but we could go by what

you said.

Mr. HACKBARTH. In general, the effect would be greatest where

the difference is largest between the benchmark and fee-for-service

costs.

Senator GRASSLEY. Well, I think you folks have contributed

greatly to this debate, for those of us in rural areas who want to

make sure that we have the same choice they do in cities, but I

think some of you also pointed out that there are some cities that

are going to be hurt as well. So we need to take a very close look

at the impact of what we do in this area, if we do anything.

I am going to speak to Dr. Udvarhelyi and ask you—I want to

state that from your testimony I think it is clear that Independence

has invested a lot of resources into care coordination and care management programs, and I want to point out that this was one of

the goals that we had in some of the things that we did in the

Medicare Modernization Act.

My question is simple. Do you have quality measures so that you

know how these programs work?

Dr. UDVARHELYI. Senator, yes, we do.

Senator GRASSLEY. In other words, do you know they are working?

Dr. UDVARHELYI. Yes, Senator. For example, we do track for

chronic conditions trends in specific quality measures. So, for example, because of extensive data collection efforts, for example, in

diabetes, we can actually track the percentage of beneficiaries that

have poor control in diabetes with the percentage of beneficiaries

who are not having their cholesterol managed with heart disease.

And we have seen significant improvement year over year in those

measures. At the same time we are seeing overall moderation in

health care cost inflation.

Senator GRASSLEY. Dr. Orszag, following on that, in your testimony you suggest that plans should submit more information on

health outcomes to measure quality and to help determine what

impact coordination activities have. What type of data do you think

plans should submit? And how quickly do you think we could have

plans reporting data?

Dr. ORSZAG. Well, I would imagine it could happen relatively

quickly, if you demanded it. I should say CBO would be happy to

work with the committee on options for expanded health outcome

reporting, but very basically the things you are interested in are

mortality, morbidity, and overall health care costs, and then within

some of those categories you would want to measure some specific

contributors to overall health care costs, like whether disease management reduces overall costs, et cetera. And you would want that

at a fairly fine level of detail so that you could see whether this

program was producing that kind of result.

16

In a sense, what one can imagine is we are spending public funds

on these programs, and they are doing various different things, and

yet we as the Federal Government do not really know the results

of what is working and what is not. I think the point is that you

could get a lot more information on those various different experiments, if you want to think about it that way, with expanded reporting.

Senator GRASSLEY. Yes. Dr. Draper, you are kind of cynical, I

think as I read your testimony, about these measurements. How do

you react to what Dr. Orszag or Dr. Udvarhelyi said?

Dr. DRAPER. Well, I think what we have seen in our experience

is that, as I mentioned in my testimony, there are a lot of care

management activities that health plans are pursuing, and these

seem to be increasing in recent years. However, identifying, specifically tracking costs, quality, and outcomes related to these individual initiatives is difficult, and there is not really credible evidence broadly related to the effectiveness of these different initiatives. And I think the important thing is, when you have initiatives

that you are able to track, whatever the outcome that you are

tracking effectiveness of related to quality, cost, and outcomes, that

you are able to track it specifically to that particular initiative that

you are instituting. So there could be other things that are affecting some of the things, the changes that you are seeing. So I think

it is important to collect—claims data is a wealth of information to

be able to track to collect data. It provides good information on

service utilization. It provides good information on gaps in related

services which could identify some potential quality issues. And I

think also gathering information from the enrollees that are impacted by these, like, you know, changes in their health status and

changes in their knowledge about their conditions and satisfaction

with the quality of care and their quality of life and satisfaction

with overall care.

So I think there are a lot of things that still need to be proactively done to really get a sense of how well these initiatives are

progressing.

Senator GRASSLEY. Thank you.

The CHAIRMAN. Thank you very much, Senator. Thank you, Dr.

Draper.

According to our early-bird list, the next five Senators in order

are Senator Wyden, Senator Crapo, Senator Cantwell, Senator Roberts, Senator Thomas—I will keep on going here—Senator Bingaman, Senator Rockefeller, Senator Hatch, Senator Stabenow, and

Senator Salazar.

Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman.

Mr. Hackbarth, great to have an Oregonian back, and it seems

to me what we have learned is, not all Medicare Advantage plans

are cut from the same mold. Up and down the West Coast, for example, we have plans like Kaiser with lots of low-income subscribers, lots of minorities, low administrative costs, and that is

pretty different than these private fee-for-service plans, as you

have pointed out.

In addition, if Medicare Advantage is not addressed properly, we

will be hit by a double whammy because, as you know, our proVerDate 11-MAY-2000 14:50 Jul 11, 2008 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 42811.000 SFIN1 PsN: SFIN1
17

viders have historically not been reimbursed in a reasonable fashion.

My question to you is: most of the data we have on Medicare Advantage is national data. Isn’t it going to be necessary to beef up

the Medicare Advantage data by region in order to really get our

arms around trying to address this responsibly so you do not hurt

a lot of people that, for example, Senator Cantwell and I represent

on the West Coast?

Mr. HACKBARTH. Senator, there are some types of data we do

have by region. With regard to the Medicare payment rates, the

differentials between the Medicare Advantage rates and private

fee-for-service, we do have that at local levels. There are other

pieces of data that we do not have on a localized basis. For example, we do not know a lot about how private plans’ cost structures

vary by geographic region, and so that would be a hole, if you will,

in the database.

Senator WYDEN. My concern is that, except for a handful of isolated examples, we really do not have any sense per region how to

proceed. I am concerned that the national data, in effect, is masking what is really going on in Medicare Advantage.

Can you further flesh out what kind of information you think

would be necessary here?

Mr. HACKBARTH. I could maybe try to approach it from a different direction. If you think I am unresponsive, let me know.

We have talked before in this committee about the regional disparities in Medicare payments per capita, and some parts of the

country, including our State of Oregon, have much lower Medicare

fee-for-service costs. Other parts of the country have dramatically

higher costs. That then plays through the Medicare Advantage payment system.

In the long run, the challenge for us in Medicare is to bring down

total costs for the program because of the baby-boom generation retiring.

The basic policy question that we face is: Do we lower the highcost States or do we increase the low-cost States? I am proud of

what Oregon does, but I do not think for the long run we should

be about trying to lift Oregon’s payments to Florida’s level. What

we ought to be doing is trying to drive Florida’s payments down to

Oregon’s level. That is what the fiscal situation requires.

Senator WYDEN. I think, again, we have some questions about

the adequacy of the data. I know our staff has some questions

about whether the data is adequate. I think that this question of

just regional competition is somehow masking what we have to do

if you look at the demographic tsunami. We have to make decisions

that work for Senator Stabenow, for Senator Wyden, and everybody

else. And if we do not have adequate data by region, we are not

going to be able to do it. I have tried to follow this as closely as

I can, and I actually asked CRS, the Congressional Research Service, to give us some additional information because we did not even

have good numbers of how many people and who is in these programs. So we are going to want to follow up with you on this.

Mr. HACKBARTH. I would be happy to do that, Senator.

Senator WYDEN. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

18

Senator Crapo is not here. Next is Senator Cantwell.

Senator CANTWELL. Thank you, Mr. Chairman, and I thank the

panelists.

Mr. Hackbarth, I am sure that there are Medicare Advantage

issues we should be looking at, but it seems like your proposal is

a pretty blunt instrument, particularly as it relates to the State of

Washington. We rank 35th in the Nation in Medicare fee-for-services per beneficiary. So our payments are about 25 percent lower

than the rates of the top five States in the Nation. So if you just

look for an example, compared to States at the top of the list, Medicare payments are $2,500 lower per beneficiary.

You are making a proposal that would significantly—and we are

hearing from CBO how it would impact us—impact the good work

that is being done by HMOs in that region that are providing coordinated care, reporting on quality outcomes, and doing all of the

things that produce efficiencies. And you are throwing the baby out

with the bath water with this recommendation. Shouldn’t we be

looking at the overall fee-for-service reimbursement rate and the

lack of efficiencies in the delivery of fee-for-service?

Mr. HACKBARTH. My concern about Medicare Advantage is——

Senator CANTWELL. You do agree that this would be a great disadvantage? I think the numbers indicate it could reduce current

Medicare Advantage enrollment by 1.8 million. I do not have the

numbers for Washington State, but you agree that people in Washington State could be significantly impacted, losing coverage and

care?

Mr. HACKBARTH. I do not know the numbers for Washington

State off the top of my head. It is quite possible, as in the case of

Oregon, that the fee-for-service traditional Medicare costs are low

in Washington and, thus, the impact might be greater there. I do

not know that for sure, but that is quite possibly the case.

Medicare Advantage, increasing Medicare Advantage payments

is a very inefficient way to achieve the goals that you are talking

about. By increasing payments indiscriminately for good plans—

and there are many of them, as Steve has described, but there are

many plans that are low-value plans as well. What we are doing

is spending a lot of money that we do not need to spend.

Private fee-for-service plans, which we are promoting through

this payment system, cost more than traditional Medicare, and

only about a half of that additional cost is going to beneficiaries.

It is not going to added benefits for Medicare beneficiaries. It is

going to higher company costs, higher administrative costs, and

that is the problem with just saying let us increase Medicare Advantage payment rates. We are avoiding bad as well as good.

Senator CANTWELL. I am trying to draw the point of differentiating between private fee-for-service and HMOs. Your proposal,

which strikes at the good work that HMOs do in providing Medicare Advantage, is a pretty blunt instrument. Dr. Orszag, am I getting this right as it relates to the impact? Is that your number, 1.8

million people could be reduced?

Dr. ORSZAG. Our number is for 2012, and there would be a reduction of roughly 6 million then off of a base of over 12. So you may

be comparing where you would wind up in 2012 to today, which is

19

a little bit over a 1 million reduction or so, a million and a half,

something like that.

Senator CANTWELL. My assumption is what the Congress was

originally trying to do in the Balanced Budget Act was to make

sure that there was coverage. Now, I am not saying that there are

not problems with Medicare Advantage, but it seems like we ought

to be focusing on what is working efficiently, and coordinated care

through HMOs and reporting of quality outcomes work well, I

would think. What is not working well is some of the other aspects

of private fee-for-service.

Mr. HACKBARTH. Senator, I am a proponent of HMOs. As I said

earlier, that is my background. But not all HMOs are created

equal. Let me just give you some figures on quality measures of

performance.

As Steve said, on average, plans are improving quality. But on

some basic, very basic, simple measures of quality, there is a huge

range in performance. For example, on flu shots, providing flu

shots when needed, the range is from 89 percent in the best plan

to 15 percent in the lowest plan. These are HMOs. Mammograms:

89 percent in the highest plan; 35 percent in the lowest plan. Eye

exams for plan members with diabetes: 87 percent for the best

plan; 8 percent for the lowest plan.

So the label, HMO—there are good ones, there are terrific ones,

and there are not-so-good ones. So it is not as simple as saying,

well, we just want to lop off private fee-for-service, and all HMOs

are good.

Senator CANTWELL. I am simply trying to get you to recognize

the already disadvantaged delivery of health care in Washington

State. We have lower utilization and higher efficiency in delivering

traditional Medicare, and we continue to be disadvantaged by that

payment system. Your particular proposal disadvantages us even

more.

I know my time is up, Mr. Chairman, and we will look forward

to continuing to discuss this issue.

The CHAIRMAN. You bet. Thank you very much, Senator.

Senator Roberts, you are next.

Senator ROBERTS. Thank you, Mr. Chairman. I do not know

whether to go first with my rant or my questioning. I guess my

rant should go first.

The CHAIRMAN. Why don’t you try something different this time?

[Laughter.]

Senator ROBERTS. All right. I will do that. Thank you.

My first question is very straightforward to Dr. Udvarhelyi.

What will happen to my 25,000 Medicare Advantage beneficiaries

in Kansas and the thousands that your program serves in Pennsylvania, especially in rural areas, if Congress cuts payments to the

MA plans? And I am talking about no cost sharing, protection

against out-of-pocket costs, preventive screening, comprehensive

drug benefits, vision, dental, hearing benefits, house calls—amazing, house calls in today’s health care world. What will happen to

these folks? It is a 426-percent increase since the inception of this

program, by the way.

Dr. UDVARHELYI. Senator, I think as has been stated today, one

of the intents that Congress had through the Medicare ModernizaVerDate 11-MAY-2000 14:50 Jul 11, 2008 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 42811.000 SFIN1 PsN: SFIN1
20

tion Act was to expand access, and I think that has been achieved.

Almost 100 percent of Medicare beneficiaries now have access to a

Medicare Advantage plan.

I think that access would be compromised with funding reductions, and there was a study done by Ken Thorpe at Emory University that suggests that as many as 3 million beneficiaries would

lose the coverage they have under Medicare Advantage today. And

as I stated in my testimony, when that happens they will forego

necessary treatments that they are receiving today. So I think the

quality of their care will go downhill.

Senator ROBERTS. I appreciate that. I also want to agree with

your commentary in regards to focusing on preventive health care

rather than focusing just on treating patients when they are sick.

And I could not agree more with that.

Mr. Chairman, I think it was 12 years ago I was sitting at a joint

Senate-House session over in the House, and Bill Thomas was in

charge, which tells you a lot, and we were going through the Medicare program and talking about strengthening and preserving

Medicare. And this whole subject came up again about what benefits people have in city areas as opposed to rural areas, and I would

identify with the comments made by the distinguished Senator

from Iowa.

I know we have to make things efficient. I know we must have

better facts. Senator Wyden made an excellent point. I would introduce you to Aunt Harriet out in St. Francis, KS. Now, if she did

not have this program, she would be in a world of hurt. And I just

think that, as opposed to efficiency, we have to consider rationing;

we have to consider discrimination. I know those are harsh words.

I intend them to be. There has been a lot of talk about the 12-percent increase in cost. That does not take into account the 6-percent

budget neutrality funding that Congress already cut starting in

2007, this year; the 1-percent underestimate from the doc fix; 3-

percent medical education costs excluded by MedPAC. And it was

the intent of Congress to spend more money, to invest more money

in the rural health care delivery system.

How many times do we have to go through—how many decades

do we have to go through with less service in rural areas? And by

rural areas, I mean western Kansas and starting with Senator

Salazar’s area out there in terms of eastern Colorado. It is not the

end of the world, but you can see it from there. And these people

deserve and merit at least the same kind of service that other people are getting.

My Lord, I do not know how many hospitals with 50 beds or less

that we have now—I think it is over 100 in Kansas—that had to

put up with HCFA, now CMS, and everything else. And we finally

got a program where we at least were on par, and there is a whole

chart here that I have in terms of services. And it jumped up 426

percent—and that was the intent of Congress to do that—and

25,000 people.

So I would just like to register my concern with this approach

to my colleagues on this committee. Actually, it is not concern. I

am opposed to it. The chairman is not here, so I will just talk to

Jeff. Jeff, I am opposed to this. John, I am opposed to this.

21

I enjoyed your program, by the way, last night with Newt.

[Laughter.]

I enjoyed your program with Newt. I am not going to buy your

book. I might, you know, get it on loan or something. But at any

rate, I just do not think this is right. What part of ‘‘no’’ do you not

understand in regards to Congress’s intent so at least to make this

an equitable Medicare program in terms of the benefits that people

receive? And, again, I do not think the 12 percent is accurate.

And I am quitting with 17 seconds to the good. That is a record

for me.

Senator BINGAMAN [presiding]. I am advised Senator Thomas is

the next person to ask questions. Go right ahead.

Senator THOMAS. Thank you. I was going to ask about the rural

aspect, but I think my friend from Kansas has covered that pretty

well. We have had some difficulties, and you can see it in your

chart, Dr. Orszag, that was passed around.

To the gentleman on the end, you are a proponent of this program, I assume. What are the extra benefits? We have been awfully detailed here, but, in general, what are the benefits from the

Medicare Advantage plan as opposed to traditional Medicare?

Dr. UDVARHELYI. Senator, the benefits obviously vary by plan,

but the types of benefits include reduced cost sharing, which I

think is an important benefit because, as I mentioned in my testimony, that cost sharing, particularly for low-income beneficiaries,

can be a barrier to care. There are expanded benefits for preventive

care. There are expanded benefits for wellness and prevention.

So, for example, in our plan we have a substantial number of

seniors, including those with chronic illness, who actually take advantage of a fitness program that gets them to maintain a more active lifestyle. And, interestingly enough, those seniors actually have

a higher completion rate of the target wellness objectives for fitness

than our commercial members. Once they have enrolled, sir, they

appear to be a much more motivated population.

Senator THOMAS. By commercial members you mean what?

Dr. UDVARHELYI. I mean under 65, the under-65, so the employer-sponsored programs we have, the 45-year-old individual.

So there is a wide range of those benefits, and then our perspective would be that many of the programs that I have described—

which do not exist in the fee-for-service market—are a benefit to

those beneficiaries. And if you would allow me just to give an example of what would happen to an individual: we had a 73-yearold member who went into the hospital to get a total knee replacement. It appeared to be routine. As is our normal course, we do discharge planning before the patient goes into the hospital.

The orthopedic surgeon, however, on discharge forgot to write an

order for the blood thinner that the patient was on when they came

in, and they had blood clots in their leg. Had our case manager not

called them—which is a routine practice—48 hours after discharge

and identified the fact that their medications they were on before

surgery had been omitted, called the surgeon, said, ‘‘You forgot to

write this,’’ and they said, ‘‘You are right, I did; it was an oversight,’’ and put that patient back on, that patient would have been

rehospitalized with a complication from that blood clot.

22

That just does not exist in the fee-for-service arena. We think

that is a benefit.

Senator THOMAS. I see. How do Medicare Advantage plans benefit low-income seniors who make too much money to qualify for

Medicaid but do not make enough to purchase Medigap supplemental coverage?

Dr. UDVARHELYI. Thank you, Senator. For those beneficiaries,

our programs are really a critical safety net because they allow

them to enroll in the plan. That reduces their out-of-pocket expenses and provides them with those comprehensive benefits. If

they were left without that option and they simply had the standard fee-for-service program, they would not have the enhanced benefits, and they would have substantially higher cost sharing.

So that is how it benefits that group that is in, again, as I said, sort of that $10,000 to $20,000 income range, and we believe that

we serve a very large percentage of those members.

Senator THOMAS. Why do you think we are here? What is the

controversy now with respect to this program?

Dr. UDVARHELYI. I think the controversy appears to be centered

on several things. One is whether the financing levels are appropriate and whether or not——

Senator THOMAS. They need to be higher than regular Medicare?

Dr. UDVARHELYI. Well, I would comment as follows. The details

of financing are obviously not my area of expertise, so I would be

happy to follow up with you and others on that. But I am not sure

that the fee-for-service payment level is necessarily the correct

benchmark, and I would say that for a couple of reasons.

One, it is well documented that we are not necessarily providing

the necessary care to individuals in our traditional fee-for-service

system. For example, a RAND study showed that only 55 percent

of individuals are getting services that anyone in medicine would

agree are clearly recommended for them to get. And I believe even

a recent MedPAC study also showed that there were substantial

shortfalls in the necessary services.

So that fee-for-service benchmark does not necessarily include all

the care that people ought to be getting today.

Senator THOMAS. All right. My time has expired. Thank you.

The CHAIRMAN. Thank you, Senator Thomas.

Senator Bingaman?

Senator BINGAMAN. Thank you all very much. Let me just cite

three things that occur to me as areas we ought to try to move and

make progress on, and you can then tell me if I am missing the

boat on any or all of these three, or which of them makes sense.

From what I have picked up here, it sounds as though expanding

health care outcome reporting requirements for private fee-for-service plans is a good thing to do; that we do not have the same kind

of reporting requirements, health care outcome reporting requirements, in private fee-for-service that we perhaps do in HMOs.

First, do you have any reaction to that, Dr. Orszag?

Dr. ORSZAG. I would agree with that, but I would also say that

even for HMOs and PPOs there is expanded outcome reporting that

would be beneficial. But it is more glaring with regard to

private——

Senator BINGAMAN. Mr. Hackbarth, do you have a view?

23

Mr. HACKBARTH. I agree, Senator. The other thing I would add

is that Medicare beneficiaries ought to be able to know the quality

results for traditional Medicare in their area so that they can compare that to the private plans available.

Senator BINGAMAN. So we should require these health care outcome reporting requirements, expand those for all, everything that

Medicare is funding.

Second, to what extent do we need to do a better job of differentiating between those Medicare Advantage plans that are providing

high-quality health care, as I gather we are hearing testimony on,

and those that are not? What do we need to put in the law to reflect the fact that we are willing to pay for high-quality care, we

are not willing to pay more for low-quality care?

Mr. HACKBARTH. Pay for performance is what I would do and

what MedPAC has recommended before. It is not as simple as saying, you know, private fee-for-service is bad, HMOs are good, PPOs

are somewhere in the middle. There are good plans and bad plans

in all——

Senator BINGAMAN. So you have to get back to these health care

outcome——

Mr. HACKBARTH. Pay for results. Pay for results. Pay more for

demonstrable quality, not for labels.

Senator BINGAMAN. All right. Yes, go ahead.

Dr. ORSZAG. And, Senator, the variation that Mr. Hackbarth already alluded to with regard to what even HMOs are doing opens

up the possibility that you could tie payments to performance along

the Healthcare Effectiveness Data and Information Set (HEDIS)

measures or other measures, so you are basically only paying for

the things that we think work and not for the things that do not.

Senator BINGAMAN. All right. And then the final thing, which I

know is a very big subject, but it strikes me, you know, the main

job we would have here is to restructure traditional Medicare so

that the same high-quality care that is being talked about in some

of these HMOs is available to everybody who is participating in

Medicare. I do not really see why traditional Medicare should not

be held to that same standard. If any of you have comments on

that, I would be glad to hear them.

Dr. ORSZAG. Senator, I think that is the central fiscal challenge

facing the United States over the long term. Medicare and Medicaid are the biggest fiscal problems facing the country. The rate

at which health care costs grow determines to a first approximation

the entire fiscal ball game over the long term. And moving towards

more effective care is the most important thing that we could do,

and there are lots of steps that I think would help.

Senator BINGAMAN. And one of those important preliminary steps

is getting much better information on health care outcomes from

everybody that is paid through Medicare. Mr. Hackbarth?

Mr. HACKBARTH. I agree with that, Senator, and I would just add

that, as we have discussed in this committee before, there are a

number of very important pilots and demonstrations under way in

Medicare, testing how to incorporate some of these ideas into the

traditional program. There is a disease management pilot. There

are a number of different demonstrations under way on coordinated

care and the like.

24

So I think you are absolutely right that we ought to be trying

to introduce some of these into traditional Medicare as well.

Senator BINGAMAN. Why are we so tentative that we are just

doing these by pilot? Why do we not just go ahead and require

some of these improvements to be integrated into health care more

generally?

Mr. HACKBARTH. Well, Dr. Draper may also want to address this.

Some of them have yet to be well established as working effectively. Disease management is an idea that has been around for a

while. It sounds compelling. It makes sense. It is intuitively reasonable. But the evidence, such as it is at this point, is somewhat

mixed on how effective it is in improving care for patients. And we

are starting to see some of that in the pilot, the Medicare pilot.

There are some questions about whether, in fact, it is really working all that well.

So we have to get beyond the labels and ideas that sound good

to really find out what works, and pilots and demonstrations are

useful in that process.

Senator BINGAMAN. I think my time is up, Mr. Chairman.

The CHAIRMAN. Thank you very much. That is a very interesting

line of questions, and, frankly, I think it is the key to what we

have to do here, what the committee has to do. I thank the Senator

for raising those questions, because it will determine later on the

decisions we make in this committee.

Senator Stabenow?

Senator STABENOW. Thank you, Mr. Chairman. I appreciate all

of you being here, and this clearly is not a one-size-fits-all. There

are a number of different pieces to this puzzle.

But if I could just back up a moment and look at the big picture,

I think it is important we do not lose sight of the fact that originally under Medicare+Choice the rate that was put into place was

95 percent of fee-for-service because of the argument of competition

and it could be done more efficiently and so on. And then it went

up to 111 percent when Medicare Advantage was put into place,

and now we see a chart from CBO that even if we capped this at

150 percent, we would save money. That is a big difference. That

is a really big difference.

So I hope when we are looking at this and when we hear that—

and, Mr. Hackbarth, I believe you said that in some other plans,

50 percent actually goes towards beneficiaries and 50 percent towards not only overhead but I assume profit, I assume a number

of other things.

And so I guess my question—Senator Bingaman was talking

about the challenge of wanting to increase assistance for all beneficiaries so that everyone is getting access to good care. If the theory is that providing 150 percent of payment provides people with

more care, more benefits, help with the doughnut hole on prescription drugs or lower cost copays for doctors, why would we not just

say then everybody should do that?

Now, obviously, I am not suggesting that. We do not have the resources to do that. But if the theory is we need these more dollars

because we can give people better care, I think that is an interesting debate given what we often hear from folks about the quesVerDate 11-MAY-2000 14:50 Jul 11, 2008 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 42811.000 SFIN1 PsN: SFIN1
25

tion of health care. So I just wanted to make that statement, that

the argument is being made: more dollars, more care can be given.

But at the same time, we are also in another hat, and MedPAC

is suggesting we do away with the Sustainable Growth Rate (SGR)

for physician payments because it is not fair, and I happen to agree

with that. But we are seeing physician payments being frozen. So

one of the concerns I have in rural Michigan is that fewer physicians are able to take Medicare as a result of what we have done

under fee-for-service in some cases.

So I am just suggesting there is a broad picture here to look at,

and when we look overall about whether we continue with some

folks getting 150 percent, or 140 or 130, versus others seeing their

fees frozen, physicians seeing their fees frozen, the bigger question

is: Is it fair to say that these overpayments, first of all, will advance the date when the Medicare Part A trust fund becomes insolvent? Dr. Orszag, is that a fair statement?

Dr. ORSZAG. Yes, it would.

Senator STABENOW. And that curbing the overpayments would

move back the date of insolvency?

Dr. ORSZAG. That is correct.

Senator STABENOW. And also that the overpayments actually increase the premiums for folks under fee-for-service, which you have

indicated. Is that correct?

Dr. ORSZAG. That is correct, and I think that highlights a very

key point, which is these additional benefits or reduced premiums

for a select number of beneficiaries are being paid for by the rest

of the beneficiaries and then workers through the Part A contribution. So it is not free.

Senator STABENOW. So would you then say it is fair to say that,

if we were to, in a reasonable fashion, understanding there are differences in plans and so on, if we were to cap or roll back, that we

would then be able to provide services to more people, potentially,

or at least redistribute the dollars and certainly cap the premium

increases that the majority of people are finding themselves receiving as a result of this program?

Dr. ORSZAG. That would be one way that you could use the funds

that were——

Senator STABENOW. Or we could go back into solvency, certainly

looking at other things. But the point is a small program versus—

while everybody else sees their premiums going up, correct, to pay

for it and in some cases only 50 percent of those dollars are actually going to the beneficiary. So I think there is a different kind

of picture that can be painted here than some of what has been

talked about, and it is one that concerns me greatly, Mr. Chairman, when we look at the dollars overall. Dr. Orszag, do you want

to comment?

Dr. ORSZAG. I was just going to say I think what you are raising

is, is this the most efficient way of delivering benefits of a certain

type, and that is obviously a question for you to consider.

Senator STABENOW. That is the big question, yes.

Thank you very much.

The CHAIRMAN. Thank you, Senator.

Senator Salazar?

Senator SALAZAR. Thank you, Mr. Chairman.

26

Let me just ask two quick questions, and I would like Dr. Orszag

and Mr. Hackbarth to answer the question.

The first is, Peter, on the chart that you sent around, which now

we have copied but we do not have the color, it is incredible to me

that in some places of our country—Colorado, for example—we

have what appears to be a $3,000-per-year disparity in terms of

Medicare spending per capita from what we do in most of the internal part of our country, most of the Mountain West, the rural areas

of Kansas and Montana, versus what is being spent in places along

the coast and in the Southeast. So I would like to know, give me

the top three quick reasons as to what explains that disparity in

terms of spending. So that is one question.

The second question that I want you to answer is, give me the

top three reasons as to why. You know, your conclusion in your report, Peter, is Medicare payments for beneficiaries in the Medicare

Advantage plans are higher than traditional fee-for-service. That is

what we have been discussing here. But why is that? Give me the

top two or three reasons why Medicare Advantage ends up being

more expensive than the fee-for-service program under Medicare?

So why do you not take a couple of minutes on that, Peter, and

then, Glenn, why do you not take a couple of minutes on that as

well.

Dr. ORSZAG. Sure. This variation, I think, is critically important

and deserves a lot of scrutiny, the variation in fee-for-service costs

across the country. It does not seem to correspond to improved

health outcomes. In other words, the higher-spending regions do

not generate better health outcomes than the lower-spending regions. And, if anything, it goes in the wrong direction.

Senator SALAZAR. Has anybody taken a look at it?

Dr. ORSZAG. Yes. There is a lot of work, and, in fact, CBO will

be—MedPAC has a group, Dartmouth has—CBO will be doing a lot

more work on this.

What I would say is you can tie it to specific things like rates

of readmission to hospitals following incidents, but a lot of the variation is arising in areas where we do not know what works and

what does not, and, therefore, doctor norms become dominant.

For example, if you look at hip fracture surgery, when you fracture your hip, you are going to get surgery. There is very little variation. Follow-up costs to hip fracture surgery—I cannot tell you

whether you should go see a doctor twice a month or four times a

month following that. There is a lot of variation in the follow-up

costs, and that is because in some areas, you know, there is a norm

to do it a lot, and in other areas not. And that additional cost does

not buy you anything.

Senator SALAZAR. I would like to find out a lot more about that,

and I am sure it is going to be a continuing conversation.

On my second question, why do we have this disparity in terms

of fee-for-service as in Medicare Advantage? Why is there that disparity there? Give me the top three reasons for that disparity.

Mr. HACKBARTH. What causes the Medicare Advantage rates to

be higher than fee-for-service?

Senator SALAZAR. Yes.

Mr. HACKBARTH. There are a few basic elements. One is what is

known as the floors in the rates. By statute, Congress established

27

floors on the Medicare Advantage rates in some parts of the country, lifting the payments to Medicare Advantage above fee-for-service costs.

The second issue is how indirect medical education costs are paid

for, and basically they are double-counted, as we see it.

Then the third major element here I am forgetting. Those are the

two biggest.

Senator SALAZAR. So if Congress were to do something with the

floors, we could address that issue.

Mr. HACKBARTH. Yes, that is where it comes from. Principally

the floors are the single biggest item.

Senator SALAZAR. In terms of some of the concepts, I think about

the 150,000 or so people—many of them in rural areas, many of

them low-income—in my State who receive great benefits from the

Medicare Advantage program. I am in a position, like Senator Roberts, where I care a lot about those people out there in the rural

parts of my State, and I do not want them to be in a place where

we end up having such a disparity in terms of the health care that

they receive. And when I look at some of the coaching programs

and sort of the comprehensive health care under Medicare Advantage that is provided to those people, I am concerned about what

happens if we go to a fee-for-service for them as well.

Mr. HACKBARTH. Yes. Well, I think Senator Stabenow had it just

right. The question is, how we do this most efficiently. I think a

lot of us would agree with the goal of providing better support for

low-income people. Do we accomplish that most efficiently through

high payments, overpayments in my view, for Medicare Advantage

plans and then only a fraction of that finds its way to beneficiaries

and only a fraction of that finds its way to low-income beneficiaries? Or do we do more targeted support to low-income beneficiaries, as we have in the Part D program, as we have in the

Medicare program more broadly?

If the goal is to target low-income beneficiaries and support

them, we know how to do that much more efficiently than we do

it through Medicare Advantage.

Senator SALAZAR. My time is up, and I thank you both and the

entire panel for your answers and testimony today.

Senator LINCOLN [presiding]. Well, apparently, I am acting and

it is also my turn to ask questions, so thanks to the panel. We appreciate so much your input on this really critical issue of health

care delivery. So many questions and so little time. I will try to get

to the first part of mine.

Dr. Orszag, you raised a very important point in your testimony

about considering the rapid growth of Medicare Advantage and

how critical it is that we determine whether or not the program is

really providing the kind of high quality and cost-effective care.

I know that Mr. Hackbarth also brings up the payment for more

measurable results, making sure that there is a pay-for-performance type movement so that we are actually getting that quality of

care, which in turn saves us money in the long run.

I have certainly been a long-time advocate of chronic care management, having seen through our Center on Aging that when you

deal with multiple diseases and the care of those chronic disease

initiatives, particularly in our aging population, you get much betVerDate 11-MAY-2000 14:50 Jul 11, 2008 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 42811.000 SFIN1 PsN: SFIN1
28

ter results in the end in terms of both quality and cost. But I know

that we also find that the results of chronic care management are

very difficult to measure.

One of the problems we have here—and it is an important note,

I think—is that when CBO scores a bill for us—I have introduced

a bill in the past and will introduce it again on chronic care management—the benefits of the chronic care management may not

fully be realized within a 5- or 10-year budget window. So considering the realities of chronic disease prevalence in America and its

impact on our health care utilization, do you think that maybe at

some point CBO will have to adapt to some kind of dynamic scoring

methodology or some consideration? We never get any scoring

through CBO that indicates whether the use of prescription drugs

is helpful in terms of bringing down costs, making sure of access,

a host of different things.

Is that going to play a role? Can we see a role in that?

Dr. ORSZAG. What I would say, Senator, is CBO—and I personally am very interested in providing qualitative information to you

about the things that may help bend the curve over the long term.

The budget scoring window is defined by Congress, and so, you

know, we are implementing your rules. So in many cases—and disease management is among them—there are two questions: one is

when would any savings occur; and then, secondly, to what degree

are those savings based on solid evidence and information?

With disease management, we have written that certain programs in selective cases that are targeted seem to produce savings,

but, in general, the literature on that actually—and I think this

was mentioned in one of the other testimonies—is not as robust

and rigorous as one would have hoped, and so we are actively

searching for continued information and more information on disease management. But based on what has been done so far in a

rigorous fashion, the examples of cost reductions are selective rather than general.

Senator LINCOLN. Well, it is interesting because you mentioned

the follow-through and the ability to be able to determine, you

know, the methodology of actually the practitioner. I am thinking

of issues like therapy caps and other things. Where the hip fracture

happens, you have the surgery, and then what is the next step and

how do those things—how many of those types of things play into,

again, the quality of care and the sustainability of the kind of

chronic conditions that maybe we are creating as opposed to the

savings we could be realizing if we implemented things that could

be predictable, like removing therapy caps? We certainly know that

the elderly, without a doubt, if they get that physical therapy, they

are much more likely to become more independent and certainly

deal with a better quality of life later on. There are things there

that perhaps we could do a lot more in.

Dr. ORSZAG. Senator, there is a wide variety of evidence suggesting, consistent with this variation that does not correspond to

improved health outcomes, that you could take cost out of the system without harming health. And I think the central challenge is

finding out how to do that.

One step that would be beneficial is, we need to expand the set

of activities so that we are actually measuring what works and

29

what does not, so various people are talking about comparative effectiveness organizations or creating an entity to do or expand that

work. It seems to me like we need to substantially expand the

share of medical costs where we know what works and what does

not, move much more towards the clear guidance on hip fracture

surgery, much less from who knows how many times you should

go and see a doctor following that surgery.

Senator LINCOLN. Well, we appreciate your work and certainly

want to continue to work with you on how we can be more effective. And if we need to do something up here, I am certainly game.

Mr. Hackbarth—the prescription drug program. I supported it,

worked my tail off when I got home to Arkansas to ensure that as

many of my constituents as I could were educated on how we move

forward on that. We know its implementation has not been without

problems, and despite the incredible outreach we were able to demonstrate in Arkansas, working through multiple organizations in

the community, we still have a lot of confusion among our seniors.

It is a complex program, and one of the problems that has been

brought to my attention since the implementation is that some seniors are enrolling in Medicare Advantage plans without really understanding what they are. I do not know. This may have been

brought up by others, particularly those who are mentioning the

rural aspects of things or who have low-income populations. They

thought they were getting a prescription drug plan, and they did

not realize that they were getting out of traditional Medicare and

into a Medicare Advantage. And once they discovered what had

happened—usually there is some problem. Their normal provider is

not covered, what have you, and they want to switch back. According to our caseworkers in our office, re-enrolling them back into

traditional Medicare is an administrative nightmare.

So I am just looking at this problem twofold. First, MA plans

need to be 100 percent clear in their marketing on how they compare to the traditional Medicare; and, secondly, if a senior inadvertently or without full understanding enrolls in a plan that is inappropriate for his or her needs, there should be a way to remedy

that situation without undue burden.

Have you come across this problem during your review of the

Medicare Advantage program? And do maybe any of the other

panel members have comments on it?

Mr. HACKBARTH. Only anecdotal evidence, Senator Lincoln. It is

not something that we have systematically collected data on.

At various points in time the Commission has talked about the

daunting complexity of the choices that Medicare beneficiaries now

face——

Senator LINCOLN. Particularly dual eligibles.

Mr. HACKBARTH [continuing]. With Medicare Advantage and the

prescription drug program and so on, and they clearly struggle. We

looked at it fairly closely, did some focus groups and the like, specifically around the Part D program, and heard firsthand how difficult it was for many beneficiaries.

So, generally speaking, I agree that there are challenges, and we

do not provide nearly enough support to beneficiaries to help them

navigate their way through this increasingly complex——

30

Senator LINCOLN. We were using Sunday school classes and Rotary Clubs. They could not get the assistance they needed from the

Government.

Mr. HACKBARTH. Yes.

Senator LINCOLN. Well, any further information you have on how

we do better on that, I would certainly appreciate it.

The CHAIRMAN. Thank you, Senator.

Senator Snowe?

Senator SNOWE. Thank you, Mr. Chairman.

Dr. Draper, reviewing this book that is issued by CMS on ‘‘Medicare and You,’’ obviously the way in which it describe which plans

people should join or encouraging them to join, it certainly in the

descriptions would indicate that the way in which it is described

for Medicare Advantage, it becomes much more attractive. In the

original Medicare plans, your costs may be higher than in Medicare

Advantage plans. Under Medicare Advantage, it says your costs

may be lower than the original Medicare plan, and you may get

extra benefits.

I am wondering, do you have a profile of those who have joined

the Medicare Advantage plans? Do we know who has joined these

plans? For example, in my State there are only 800 Medicare beneficiaries who have joined a Medicare Advantage plan. So do we

know exactly who has been attracted to this plan?

Dr. DRAPER. We have not done any work specifically on that, and

maybe some other folks can comment on that. But we really do not

have profiles on individuals who have joined the Medicare Advantage plans.

Senator SNOWE. Dr. Udvarhelyi, do you know?

Dr. UDVARHELYI. I do not recall off the top of my head, but we

could get that information to you. I think that we could give you

some information of the types of individuals who joined.

Senator SNOWE. I think just a cursory review of this, and it then

goes on further. ‘‘When you look at the Medicare Advantage plan,’’

it goes on to say, ‘‘they generally offer extra benefits. Many include

Part D coverage, in many cases your costs for services can be lower

than the original Medicare plan.’’ Medicare pays an amount of

money for your care every month to these private health plans

whether or not you use services.

Dr. DRAPER. One thing I will say, though, we do know that—and

I think it has come up quite a bit in the conversation this morning—there is a lot of variation from plan to plan.

Senator SNOWE. That is a very attractive description for anybody

who is, you know, giving it a cursory examination, not to mention

the book is overall, I think, very indefinite and could be somewhat

confusing to anybody in terms of sorting it out. But if they were

to look at the initial description, then obviously the Medicare Advantage would be a very attractive plan.

Dr. DRAPER. Right, but you have to look specifically as to what

specific added benefits may be provided by plans.

Senator SNOWE. Dr. Orszag?

Dr. ORSZAG. There is information available through, for example,

the current beneficiary survey, access to care files that we could

provide to you on the types of beneficiaries who are taking up

Medicare Advantage.

31

Senator SNOWE. Well, it would be interesting to know, because

obviously we are dealing with a distortion and an inequity in the

overall Medicare plan, and making the distinction between, you

know, plans in terms of what services are being offered, particularly on prevention, which has been, you know, lagging certainly in

the traditional fee-for-service. And at the same time, we are looking

at the acceleration of enrollment when we are looking at the numbers for the future, not only in the costs that are estimated to be

$194 billion over the next 10 years in terms of the subsidy for

Medicare Advantage, but also an acceleration in terms of overall

enrollment and growth in the program.

That brings me to the next question. What about the hold-harmless provision that is phased out in 2011, Mr. Hackbarth? Is that

something that we should do anything with in advance of 2011?

Mr. HACKBARTH. As you know, Senator, the hold-harmless payments are designed to protect plans from lower payments due to

the implementation of a risk adjustment system. I think everybody

agrees that we need to risk adjust the payments and that that system is going to reduce payments for some plans. So hold-harmless

tries to protect plans against lower payments.

MedPAC’s view—and we last took this up several years ago—was

that those payments ought to be phased out as quickly as possible.

We made a recommendation then to Congress that that be written

into statute. The schedule that you refer to is the schedule that

was written into law at that point. So we are in favor of getting

to zero on that number as quickly as possible.

Senator SNOWE. Dr. Orszag?

Dr. ORSZAG. I would just add one thing, which is that another

component of the risk adjustment system is the, not evil, but just

natural incentives facing private plans relative to the traditional

program for classification of risk. There are upcoding incentives for

the private plans to make sure that beneficiaries are coded in perhaps the appropriate but the highest-risk category possible that is

not present in the traditional program, and that could be adjusted

for in the payment structure but is not currently.

Senator SNOWE. I see. Well, I think the point is here, too, you

can be building in inefficiencies in the program given the level of

subsidies and the way in which this is designed.

And for my final question, Mr. Hackbarth, you stated that private fee-for-service obviously is the fastest-growing part of the

plan. At the same time, program payments on behalf of private feefor-service are 19 percent of the traditional fee-for-service in Medicare, but only half of that excess amount is used to finance extra

benefits. Exactly what is the other amount going for? Do we have

a breakdown of how the increased amounts are being distributed?

Mr. HACKBARTH. Yes, Senator, actually there is a table in my

testimony, if you have that in front of you, that may be helpful. It

is on page 4, Table 2. Let me just focus on the last column. Do you

have that?

Senator SNOWE. Yes. Which page?

Mr. HACKBARTH. Page 4, Table 2. Let me just tell you what those

numbers means in the last column.

For private fee-for-service plans, the average bid for Medicare

Part A and B services—page 4, Table 2, Senator.

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The CHAIRMAN. Page 5, I think. Table 2, page 5.

Mr. HACKBARTH. The version you have is a more recent one.

The CHAIRMAN. Thank you.

Mr. HACKBARTH. So Table 2, the average bid for private fee-forservice plans is 109 percent of what it costs traditional Medicare

to provide those same benefits. The total payment going to private

fee-for-service plans, as Senator Snowe said, is 119 percent of traditional Medicare’s costs. Of that 119 percent, 10 percent goes into

what we refer to as the rebate. That is the added benefits for beneficiaries. The rest of the money the plans keep to cover the fact

that they have a higher cost structure.

Now, in that 10 percent that goes into the rebate for beneficiaries, a piece of that is also due to plan administrative costs and

profit, executive salaries and the like, so it does not all get into the

hands of beneficiaries. So, again, the general point is, if we are trying to help, say, low-income beneficiaries and this is the vehicle we

are using to do it, a lot of the money is not making its way to lowincome beneficiaries. It is going to other purposes. A lot of this

money goes to high-income beneficiaries. Even the piece that gets

through to beneficiaries at all is going to high-income, not just lowincome.

Senator SNOWE. Thank you very much.

The CHAIRMAN. Thank you very much, Senator.

Senator Kerry?

Senator KERRY. Thank you very much, Mr. Chairman.

Thank you, folks. A lot of questions have been asked here, but

I am still troubled by a couple things which I want to try to get

at.

The question is, how do you get at the efficiency here? Currently,

in Massachusetts I think about one out of five people is in the Advantage, in the private, somewhere in that vicinity. Now, if their

service is being repaid at whatever it is, 115 percent, 120 percent

in some cases in the privates, the difference is being picked up by

the folks in Part B, correct?

Mr. HACKBARTH. Part of it.

Senator KERRY. That is being spread to them in a higher premium.

Mr. HACKBARTH. Yes, so Medicare beneficiaries in general pay a

higher Part B premium to help the——

Senator KERRY. To pick up the additional on the upside of what

is being paid.

Mr. HACKBARTH. Right.

Senator KERRY. So that, in and of itself, on its face, sort of seems

inefficient, number one.

Number two, the original figure—this is an article in the Tampa

Tribune a few weeks ago: ‘‘Tom Scully, who masterminded the shift

of billions of Medicare dollars into private HMOs, admitted Friday

that he overdid it. As Director of the Centers for Medicare & Medicaid Services from 2001 to 2003, he said he funneled extra money

into Medicare Advantage plans. He knew the plans would have to

spend the extra money on their members, offering zero-premium

plans, eyeglasses, hearing aids, gym memberships, and other

freebies. It was done to ‘prime the pump’ and get people to go back

to HMOs, but it is a much bigger subsidy than we intended.’’

33

Obviously, you agree with that, and I think it is important to get

a threshold beginning place here.

But the question, again, is sort of this issue of efficiency. What

would happen if everybody opted for Medicare Advantage? I assume we would have a serious financial problem.

Dr. ORSZAG. Yes, and just coming back to your previous line of

questioning, about half of the additional cost is paid through higher

Part B premiums and about half comes out of the Part A trust

fund, basically. So if you expanded the program and expanded the

payments going into the program, there would be more pressure

put on a dwindling share of people left in the traditional side of it.

Senator KERRY. But does that not in and of itself—and perhaps

you all want to weigh in, doctors—say something about the efficiencies here? Our job is to try to get the efficiencies and to try to

have a system that is paying—I mean, there is a certain stupidity

in paying out a whole bunch extra to private folks who may not be

as efficient as what we are trying to achieve. Is that not correct?

Dr. UDVARHELYI. Senator, if I could comment, I think one of the

fundamental differences I mentioned is that there is no infrastructure in the private and in the traditional fee-for-service Medicare

arena to do some of the interventions that I described. It just does

not exist. So they will not happen there. So you need an infrastructure and that——

Senator KERRY. Describe that to me.

Dr. UDVARHELYI. The infrastructure that I am talking about includes all the care management, disease management, but one of

the fundamental differences is we do not just interact with the beneficiary; we also interact with the physician. We have a relationship with the physicians and the hospitals and with the member.

And so it is that relationship—which takes people to do—that is a

part of that infrastructure, is a part of our administrative costs. We

think it provides value, and I think the data do show that in——

Senator KERRY. And what you are saying is, if you went down

to the level of the standard Medicare fee, in effect, you are going

to be losing that, and that is, in effect, losing a quality. Now, is

that a quality that we are not measuring somehow appropriately?

Mr. HACKBARTH. You know, I agree with Steve to a point. But

I think it was before you came, Senator. The other side of this story

is that not all of the plans are doing the things that Steve talks

about. And even among some who say they are doing it, they are

not producing results.

Senator KERRY. Right. Understood.

Mr. HACKBARTH. But we treat them all, we pay them all the

same amount as if they are all doing good things. And they are not.

Senator KERRY. So the fix here, our job, is rather than to have

this one-size-fits-all fix, to think of a middle ground that, in effect,

comes up with standards? Maybe you already went over this. I am

not sure. But is it to come up with standards that, in effect, guarantee what is happening to that dollar and still provide the options

to people?

Mr. HACKBARTH. Yes. Before you arrived, Senator Bingaman was

actually sort of walking through this and saying some of the building blocks are things like we need data on all types of plans, and

we do not get data on all types of plans and how they perform.

34

Another potential building block is pay for performance. If we

want to reward good care coordination of disease management, let

us pay for it where it produces results and not where it is just a

slogan or it does not exist at all.

Senator KERRY. That is fair and, therefore, I would ask the question: Does the current payment system for Medicare Advantage reward efficiency and does it reward quality? And if we were to find

a way to put those two elements in there, would you skin this cat

more effectively?

Mr. HACKBARTH. As currently structured, I do not believe it rewards either efficiency or quality.

Senator KERRY. That would be my judgment, too.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Senator.

Continuing on this point here, Mr. Hackbarth earlier today said

there are excessive costs—I think those are your words—in Medicare Advantage plans, so one question is really what are those

costs, if you could identify what you regard as ‘‘excessive.’’ But that

gets to the points we all kind of grapple with here, namely, it is

efficiencies and how do we separate the wheat from the chaff. That

is, how do we separate the good plans from the not-so-good plans?

How do we know? We do go back to data to some degree to answer

that question, and if that is your sole answer, what data do you

really need? But if that is not your sole answer, how do we separate the wheat from the chaff? How do we make that separation?

I will ask Dr. Orszag first and then Mr. Hackbarth that same question.

Dr. ORSZAG. I think it is obviously a critical question, and I think

there are ways of tying payments to Medicare Advantage plans to

the performance on specific measures, like the ones that have already been mentioned. Then, furthermore, going beyond that, starting to tie payments to actual outcomes, which would be the ideal

situation, outcomes in terms of both quality and in terms of mortality and morbidity and what have you.

We need to be moving the Medicare Advantage system towards

that objective aggressively if you want to move towards highervalue health care, but we cannot leave out the rest of Medicare either. Even in 2017, remember, under our projections, the vast bulk

of beneficiaries are going to be in the——

The CHAIRMAN. Right. That is right.

Mr. Hackbarth, your thoughts on that question.

Mr. HACKBARTH. I think that there are three basic levers that

you can pull. One is plan type. Although I have said several times

that not all HMOs are created equal, I think we can point to private fee-for-service and say it inherently has the least potential——

The CHAIRMAN. That is the one that has more latitude.

Mr. HACKBARTH [continuing]. And it has the least potential to

alter patterns of care in constructive ways.

The CHAIRMAN. Right.

Mr. HACKBARTH. Second, we need to, on an ongoing basis, improve the measurement of quality, and Peter has addressed that,

so I will not dwell on it further.

35

Then the third piece is to start linking payment to quality, pay

for performance, which I know you have advocated, in traditional

Medicare as well.

I think those are three levers to try to improve the efficiency of

what we are buying here, get more bang.

The CHAIRMAN. Let me ask Dr. Draper and Dr. Udvarhelyi that

same question. Your thoughts, either of you?

Dr. UDVARHELYI. Well, Senator, just one observation. I think one

of the challenges we have is that, while we would advocate for, you

know, accountability in the system and improved information on

outcomes, the challenge we have right now is that the best data we

have are in HMOs and in some cases PPOs. We really have the

least data in the traditional fee-for-service environment.

So I do not really think we know what that comparison would

be, and there is room for improvement across the board. But I do

not think we really understand——

The CHAIRMAN. Who can design that comparison? Who can design the data that we want? What outfits?

Dr. UDVARHELYI. Well, some of the work is——

The CHAIRMAN. They are doing that, but it seems to me it is a

fundamental question.

Dr. UDVARHELYI. Some of that work is ongoing. For example, we

and others, there are about 125 organizations now participating in

AQA, which has produced 121 measures of quality. There are demonstration programs going on with CMS in six cities right now to

get that information. And it is not just for purposes of measuring

performance that could lead to pay for performance, not only at the

health plan level but also at the physician and hospital level, but

to give members, individuals, better information about how to

make their health care decisions, where they would want to go and

seek care.

The CHAIRMAN. Dr. Draper?

Dr. DRAPER. I also think it is a value proposition. Are you paying

for value, and how do you define value? And to define value you

really have to have, you know, accountability and ways to really

measure that. And I think on the commercial side we see that, as

employers are requesting plans to demonstrate that, they are providing value. And I think it is the same question on Medicare as

well. What are you paying for?

The CHAIRMAN. To what degree does the cost structure in Medicare Advantage plans, that is, in salaries and administrative costs

and so forth—because they are private outfits—outweigh or is less

than the additional quality of care given, whether it is managed

care, whether it is immunizations, and all the extra things that we

are talking about here?

Dr. ORSZAG. Senator, in my written testimony, we tried to address that question. Unfortunately, the lack of reporting means

that we cannot definitively answer. The limited information we

have suggests that the quality of care delivered through private

plans is not better than in the traditional program and, therefore,

on a cost-effectiveness measure, it is not better.

The CHAIRMAN. Does anybody disagree with that or want to modify that statement?

36

Mr. HACKBARTH. Well, what I would say is that, again, the performance of private plans varies greatly. Peter is referring to an

average, which is a blend of a lot of different plan types with very

different——

The CHAIRMAN. On average, would you agree?

Mr. HACKBARTH. Let me put it this way: I would not disagree.

I have not looked specifically at their calculations. But some private plans—and here I would be with Steve. Some private plans

demonstrably are better than traditional Medicare.

The CHAIRMAN. So I am asking the same question. How do we

identify those plans?

Mr. HACKBARTH. We have crude measures, and I would be the

first to admit that they are limited at this point. This is not just

an issue for Medicare or Medicare Advantage. This is an issue for

society as a whole. A lot of effort is being invested in a lot of different forums in improving our ability to measure quality of care,

in private plans, in traditional Medicare, everywhere. I am cautiously optimistic that we can continue to improve those measures.

Frankly, more support from the Congress could help advance

that cause of better quality measurement. But, you know, it is not

something we are going to get to the goal, you know, 2 years from

now or 3 years from now. It is going to be an evolutionary process.

The CHAIRMAN. We need to start.

Mr. HACKBARTH. We do, absolutely.

The CHAIRMAN. Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman. I just have one last

question.

Mr. Hackbarth, I continue to believe that there are significant regional implications in this issue, and that for the Finance Committee to really get its arms around what to do, certainly in the

short term, we have to get information on these plan bids that is

below the national level, that essentially is at the State level.

My understanding is that you all have that information. If that

is correct, can you give us within a week—this committee, the staff

of the Finance Committee, you know, both sides—that information

so we can look at it?

Mr. HACKBARTH. Well, first of all, the information that we have

is the information that we get from CMS, and in that information,

as I understand it, the plan bids are not broken down by geographic area. They are not required to do that.

Senator WYDEN. I understand that. Is there anything then below

the national level? Remember, you already told me that there was

valuable information below the national level. Is there or is there

not such information?

Mr. HACKBARTH. I do not mean to be difficult, Senator. I am really trying to answer your question. The information that we have

at a much more granular level is about the Medicare side of this

proposition, how Medicare payments vary geographically. What we

do not have at the same granular level is how private plan costs

vary geographically. That is because they are not required to report

it.

Senator WYDEN. What I am being told is that that is not accurate. I think I will ask it this way: I would like to have from your

organization all of the information, whether it is county or State,

37

all the information you have below the national level, because we

have to see that to get our arms around it. You have heard a number of Senators talk about it. It goes right to the heart of the efficiency question as well.

Mr. HACKBARTH. And I am eager to support you, Senator.

Senator WYDEN. So you will get that to us? Can we have that

within a week?

Mr. HACKBARTH. I cannot make that commitment, because I do

not know.

Senator WYDEN. But my understanding is, hasn’t the Finance

Committee been talking to you about getting that information for

some time?

Mr. HACKBARTH. There have been discussions at the staff level,

and——

The CHAIRMAN. The answer is yes. According to our staff, the answer is yes.

Mr. HACKBARTH. Yes. And so——

Senator WYDEN. Would the people at CBO want to say something?

Dr. ORSZAG. Yes, I would. This may help clarify it. I do not know.

What we have, or at least what I know we have at the regional or

the State level is the benchmark and the local fee-for-service costs.

So we have that ratio. That is different from the bid that the plans

put forward, and it is an important element in how much Medicare

pays the plan. So we have enrollment and we have those benchmarks relative to fee-for-service.

Senator WYDEN. I would like both of your organizations—you,

Mr. Hackbarth, and the people at CBO—to give us all of the information you have on these plans that is below the national level.

We have to see everything you have, and can we have that within

a week? Because we have been asking for it for some time. This

is obviously an issue, as you know, Mr. Hackbarth, of great importance in our State. And what I am concerned about is we are just

going to go to this one-size-fits-all, cookie-cutter approach. And a

place like Oregon that has already been hammered for doing the

right thing—being innovative, holding costs down, reducing volume—is going to get hit again. So I need to see this information,

and that is my request to both of you, that we have everything you

have below the national level to the Finance Committee staff within a week.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman. Just a couple of

final questions.

Dr. Udvarhelyi, you quoted I think in your testimony, talking

about higher rates of satisfaction among beneficiaries enrolled in

Medicare Advantage plans, and then you go on to quote the

MedPAC report where you tell us that care coordination is more

difficult to do in fee-for-service programs because it requires managing patients across settings and over time, neither of which is

supported by current payment methods or organizational structure.

My understanding is that MedPAC reports on what is and not

necessarily what will be, but I am hoping that you and Mr.

Hackbarth can help me better understand why we cannot coordiVerDate 11-MAY-2000 14:50 Jul 11, 2008 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 42811.000 SFIN1 PsN: SFIN1
38

nate under fee-for-service. And maybe you might consider for a moment that payment methods and organizational structure are starting to evolve to better account for changes in demographics and

clinical needs for the beneficiaries and moving more towards caresetting, neutral methodologies. And if that is the case, then, you

know, would you support efforts to improve chronic care management under fee-for-service? Which I think is an important move in

the right direction.

Dr. UDVARHELYI. Senator, I would support efforts to improve

chronic care management because I think it is critically important,

particularly in the Medicare population.

But to give an example of why I think there are challenges in

the fee-for-service Medicare arena, now that we have Part D coverage, let me just give you an example from prescription drugs

about what a plan like ours has, and I think this is true for other

Medicare Advantage plans.

When a physician is seeing a patient in their office, they know

the drugs they are prescribing. They do not know whether the patient filled them at the pharmacy. They do not know what drugs

their colleague down the street prescribed. And even if they have

total electronic medical records with instant access, they will not

know that.

What we will know is, we will know what prescriptions were prescribed by that physician, all other physicians that are seeing that

patient, what those drug-drug interactions may be if they are dangerous for that patient, and whether, in fact, the patient actually

filled the prescription. And that is the type of coordination that we

can provide both to the physician and the member that makes a

difference.

As I said before, that takes an infrastructure, and that infrastructure—which is what Medicare Advantage plans are providing

today—does not exist in the fee-for-service environment.

Senator LINCOLN. Well, the reason I say that is because to me

it seems that the bang for the buck that we save is really more in

the fee-for-service if you have chronic care management there, as

opposed to what you were already doing. So if what we are looking

to do is manage our Medicare dollars in a better way, we get a better bang for our buck in doing it through Medicare fee-for-service.

Dr. UDVARHELYI. That may be true, but I think it was mentioned—I think Mr. Hackbarth mentioned it—that some of the

early results for the pilots in the fee-for-service arena may not be

showing some results. I would suggest to the committee that,

maybe the reason for that is there really is not the same integrated

infrastructure by just overlaying a simple sort of ‘‘disease management lite’’ would be my term for it, on top of a traditional fee-forservice environment. The relationships with the physicians, the

hospitals, the integration there, and, more importantly, the investments in data management——

Senator LINCOLN. That goes to my second question, which is the

IT issue and the whole investment that needs to be made in terms

of providing—I do not really necessarily understand your answer of

why electronic records would not provide better information for

that physician practicing and realizing that what other physicians

39

are prescribing may have a conflict of interest in terms of what

that physician might be doing.

We are seeing in our State one of our corporate citizens who is

providing now to their health care beneficiaries and their company

an option of electronic records that I think will be setting a stage

for a tremendous infrastructure of where the patient himself can

begin to go towards electronic.

Of course, we have a lot of bugs to work out in that in terms of

interoperability and merging of records. I know my most recent

visit to a physician was one that had upgraded and gone to IT and

electronic records, but they had had to go back to an old system

because incoming patients had to be duped into the system in a

way that it would be useful.

But I think the infrastructure investment in IT is going to be

critical if we are ever going to get all of this data that you all keep

telling us does not exist.

Mr. HACKBARTH. Senator, I am hopeful that we can improve

Medicare, traditional Medicare fee-for-service and figure out ways

to better reward care coordination and the like. It is not a slamdunk, but I think it can be done.

There are, as Steve says, limits to what can be accomplished in

traditional Medicare by virtue of its structure, and this sort of

brings us full circle to Senator Baucus’ opening statement. The

original reason for this program was the conviction, which I shared,

then and now, that private plans can do some things better than

traditional Medicare, especially when they are working with defined networks of providers with whom they have close relationships, maybe linked by special information systems and the like.

The point, though, that I am making about Medicare Advantage

is, it is not just rewarding those plans doing those good things. The

money is being paid out indiscriminately and rewarding poorperforming plans just as much as the good plans.

Senator LINCOLN. That is a point well taken.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator, and thanks to everybody

here. I appreciate it very, very much. This has been very constructive. I think at some point we need a hearing on health IT, frankly,

so we move that ball as efficiently and as productively as possible.

But this has been very, very helpful. Thank you very, very much,

all of you.

The hearing is adjourned.

[Whereupon, at 12:07 p.m., the committee was adjourned.]

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