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95–588 PDF 2004

S. HRG. 108–605

THE BURDEN OF HEALTH SERVICES REGULATION

HEARING

BEFORE THE

JOINT ECONOMIC COMMITTEE

CONGRESS OF THE UNITED STATES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

MAY 13, 2004

Printed for the use of the Joint Economic Committee

(

(II)

JOINT ECONOMIC COMMITTEE

[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

SENATE

ROBERT F. BENNETT, Utah, Chairman

SAM BROWNBACK, Kansas

JEFF SESSIONS, Alabama

JOHN SUNUNU, New Hampshire

LAMAR ALEXANDER, Tennessee

SUSAN COLLINS, Maine

JACK REED, Rhode Island

EDWARD M. KENNEDY, Massachusetts

PAUL S. SARBANES, Maryland

JEFF BINGAMAN, New Mexico

HOUSE OF REPRESENTATIVES

JIM SAXTON, New Jersey, Vice Chairman

PAUL RYAN, Wisconsin

JENNIFER DUNN, Washington

PHIL ENGLISH, Pennsylvania

ADAM H. PUTNAM, Florida

RON PAUL, Texas

PETE STARK, California

CAROLYN B. MALONEY, New York

MELVIN L. WATT, North Carolina

BARON P. HILL, Indiana

DONALD B. MARRON, Executive Director and Chief Economist

WENDELL PRIMUS, Minority Staff Director

(III)

CONTENTS

OPENING STATEMENT OF MEMBERS

Senator Robert F. Bennett, Chairman ................................................................... 1

Representative Pete Stark ...................................................................................... 2

WITNESSES

Conover, Christopher J., Ph.D., Assistant Research Professor of Public Policy

Studies, Terry Sanford Institute of Public Policy, Duke University, Durham,

NC ......................................................................................................................... 4

Mulholland, Dan, J.D., Horty, Springer & Mattern, Pittsburgh, PA .................. 6

Hyman, Professor David A., M.D., J.D., University of Maryland School of

Law, Baltimore, MD ............................................................................................ 8

Gottlich, Vicki, J.D., L.L.M., Center for Medicare Advocacy, Inc., Washington,

DC .......................................................................................................................... 10

SUBMISSIONS FOR THE RECORD

Prepared statement of Senator Robert F. Bennett, Chairman ............................ 31

Prepared statement of Representative Pete Stark, Ranking Minority Member 32

Prepared statement of Christopher J. Conover, Ph.D., Assistant Research

Professor of Public Policy Studies, Terry Sanford Institute of Public Policy,

Duke University, Durham, NC ........................................................................... 33

Prepared statement of Dan Mulholland, J.D., Horty, Springer & Mattern,

Pittsburgh, PA ...................................................................................................... 59

Prepared statement of Professor David A. Hyman, M.D., J.D., University

of Maryland School of Law, Baltimore, MD ....................................................... 70

Prepared statement of Vicki Gottlich, J.D., L.L.M., Center for Medicare

Advocacy, Inc., Washington, DC ......................................................................... 94

ADDITIONAL SUBMISSIONS

Responses to questions submitted by Senator Bennett from:

Dr. Conover ....................................................................................................... 54

Mr. Mulholland ................................................................................................. 67

Dr. Hyman ........................................................................................................ 89

(1)

THE BURDEN OF HEALTH SERVICES

REGULATION

THURSDAY, May 13, 2004

UNITED STATES CONGRESS, JOINT ECONOMIC COMMITTEE, Washington, DC

The Committee met, pursuant to notice, at 10:05 a.m., in room

SD-628 of the Dirksen Senate Office Building, the Honorable

Robert F. Bennett, Chairman of the Committee, presiding.

Senators present: Senator Bennett.

Representatives present: Representative Stark.

Staff present: Tom Miller, Donald Marron, Colleen J. Healy,

Mike Ashton, Nancy Marano, Wendell Primus, John McInerney,

and Deborah Veres.

OPENING STATEMENT OF SENATOR ROBERT F. BENNETT,

CHAIRMAN

Senator Bennett. The hearing will come to order.

We want to welcome you all to today’s hearing where we will explore how regulation of health care services affects their cost, quality and availability.

Health care is the most intensively regulated sector of our economy. It’s also one of the largest, accounting for more than 15 percent of GDP. Significant attention has been paid to the relative

costs and benefits of regulation in other industries, as well as for

the economy as a whole. But the costs and benefits of health care

regulation have often been overlooked. We need to learn more

about the impact of the complex web of rules and regulations that

govern how we spend and use more than $1.7 trillion annually.

Health care is certainly a vital item in all our lives, and regulations can improve its quality and reduce its costs. However, there’s

a significant risk that the promised benefits of health service regulations will fall well short of their costs.

One challenge is that some proponents of regulation are often not

the ones who bear its ultimate burden. This disconnect can lead to

excessive regulation. A related challenge is that many regulatory

costs are less visible than spending outlays and higher taxes. As

a result, the political calculus may tilt toward using less visible

regulatory means to accomplish objectives that would lack sufficient support if they required a more transparent commitment of

public funds.

There’s often another disconnect in which people do not appreciate how the burdens of regulation are ultimately borne. Many

consumers believe that insurers or employers pay the extra costs

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that result from tighter regulations, required expansions in covered

services, et cetera, when in reality, those costs eventually come out

of their own pockets in one form or another.

Today, we plan to examine whether health services regulations

are delivering sufficient benefits to justify their costs. This is a new

and developing area of research with important policy implications.

Patients, consumers and taxpayers are the ones who bear their ultimate costs of unnecessary regulation. Excessive regulatory burdens can also harm our most vulnerable individuals, such as the

uninsured and lower-income health care customers.

I have some personal experience on that, as I will undoubtedly

be moved to relate as the hearing goes forward, based on some

members of my family who have been caught up in some excessive

regulations.

Now much health care regulation is premised on the judgment

that most health care consumers don’t know, don’t want to know,

and cannot know enough to make important decisions for themselves.

I don’t know if that’s true often enough to justify the level of

health regulations that we have, but we hope to find that out today

because we have a panel filled with people who all have their own

experience examining the costs and benefits of health services regulation and how our regulatory system works.

I will introduce the panel one by one after we’ve heard from the

Ranking Member, Mr. Stark.

[The prepared statement of Senator Bennett appears in the

Submissions for the Record on page 31.]

OPENING STATEMENT OF REPRESENTATIVE PETE STARK,

RANKING MINORITY MEMBER

Representative Stark. Mr. Chairman, thank you. I must, as I

don’t often do, take issue with the premise of today’s hearing—The

Burden of Health Services Regulation—because it assumes that

regulations are simply useless impediments to economic efficiency

and prevent the lowering of health care costs.

Many regulations are created or borne from the abuse of human

beings and the degradation of their fundamental rights. Simply

put, many regulations protect people’s lives. So there can be no rational debate, it seems to me, about doing away with health care

regulations writ large for the sake of efficiency and thrift.

We’ve seen, unhappily, the prisoner abuse scandal in Iraq and

what happens when regulations break down—in this case, military

regulations. But the human toll that followed that breakdown was

unacceptable.

Countless examples of regulations that curb abuses in health

services exist. In the good old days, hospitals routinely turned

away poor women in labor until Congress intervened and enacted

MCOLA, which prohibited this practice and guaranteed access to

emergency care to all people, regardless of their ability to pay.

Ms. Gottlich will give us her account of how nursing home regulations have reduced patient neglect and mistreatment that was

widespread before consumer protections were put in place.

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Right now, CMS claims it’s heavily regulating the Medicare prescription drug discount cards because there are already instances

across the country of seniors being defrauded.

Regulations at the FDA ensure that the drugs that are sold and

the devices we use are safe and efficacious. Should we roll back

those and should we let whatever that new pill is be sold without

any regulation?

There’s a bit of concern there.

So I’d like to challenge our witnesses to pinpoint a group of regulations that would save a great deal of money without unleashing

disastrous consequences.

We’ll hear a lot about reigning in Medicare malpractice costs, a

popular example this year—talking about untold savings in health

care. But the Congressional Budget Office has found that malpractice insurance and legal fees have a negligible effect on overall

health care costs.

In fact, CBO estimates savings of less than one-half of 1 percent

if liability limits were enacted and the President’s budget shows no

savings from such caps.

Now, ironically, Dr. Conover shares this vision and advocates

regulating the malpractice tort system. So I guess that regulation

is okay. It’s just other regulations we don’t like.

I’m troubled that we’re having this hearing focusing on some

very complex and preliminary calculations of costs and benefits,

where no detailed documentation supporting of various analyses

exists.

These studies aren’t widely accepted or recognized among a

broad range of health economists. And even more disturbing is that

in some instances, zero benefits have been assigned to important

sets of regulations where, clearly, the benefits are not zero.

Eliminating regulations will do nothing to increase access and affordability of health care, as some witnesses have argued. There’s

no guarantee that money ostensibly saved from less regulation

would be put towards covering the uninsured.

The likely result would be that insurance companies, doctors,

hospitals and pharmaceutical companies would merely pocket any

savings.

So I think that the premise of rolling back regulations is foolish.

It won’t lower costs. It won’t increase access or affordability. And

it may very well kill some innocent people, which is the bottom line

of what we ought to be careful about in what we’re hearing today.

But I look forward to hearing the witnesses and being able to

challenge these assumptions.

[The prepared statement of Representative Stark appears in the

Submissions for the Record on page 32.]

Senator Bennett. Thank you very much. I think you’ve highlighted the issues in the debate and maybe that’s the reason we’re

having the hearing, to find out exactly where it comes on.

I don’t come into it with any pre-conceptions one way the other,

except, as I say, some anecdotal information. And each of us is the

prisoner of his own experience. And the hearing, maybe, can help

us break out of that particular prison.

Professor Christopher Conover of Duke University has worked

for several years to develop an initial set of estimates of the net

4

burden of health services regulation as a whole, as well as that of

its primary components. If there’s a regulatory elephant in the

room that’s increasing the cost of care and reducing its quality and

availability, Dr. Conover may be able to provide us with some initial measurement of its size and scope.

Professor David Hyman of the University of Maryland has written extensively about health care regulation, most notably in the

areas of managed care, emergency room treatment, and mandated

benefits. He’s also coordinated recently 2 years of hearings on

health care competition conducted jointly by the Federal Trade

Commission and the Department of Justice.

Dan Mulholland is a senior partner at Horty, Springer &

Mattern. He is one of the nation’s leading health care attorneys

and serves as chair of the credentialing and peer review practice

group of the American Health Lawyers Association.

And Vicki Gottlich, who is an attorney in Washington as well,

she’s in the Washington, DC office of the Center For Medicare Advocacy, where she provides legal assistance, research, consultation,

and litigation support regarding Medicare and employer-sponsored

health benefits.

We appreciate all of your willingness to be here with us and we

will hear from you in the order in which I’ve introduced you.

So Dr. Conover, if you would go first.

STATEMENT OF CHRISTOPHER J. CONOVER, PH.D., ASSISTANT

RESEARCH PROFESSOR OF PUBLIC POLICY STUDIES, TERRY

SANFORD INSTITUTE OF PUBLIC POLICY, DUKE UNIVERSITY, DURHAM, NC

Dr. Conover. Mr. Chairman, and Members of the Committee, it

is a great privilege to testify today.

How much of the phenomenally high level of health costs in the

U.S. can be attributed to health services regulation and how many

uninsured might be covered were we to reduce this sizable regulatory burden? My remarks today will provide some tentative answers to both questions based upon the preliminary results of more

than 2 years of research conducted in part under contract to the

Department of Health and Human Services. My comments this

morning are my own and not intended to represent the views either of the department, my university, Coach K or the Duke Blue

Devils.

[Laughter.]

We used two approaches to determine the net impact of regulation. The first was a top-down approach that relied on extrapolations from other industries. If we take the percent of costs due

to regulation in other industries such as airlines, telecommunications and the like, and apply these to health services, we find

that health regulation could have imposed an annual cost of at

least $28 billion, but it may have been as high as $657 billion.

The sizable difference between our lower and upper bounds illustrates neatly the limitations of this approach. Moreover, it is easily

possible that the regulatory burden in health care is even higher

than a simple extrapolation from other industries would suggest.

That is why it is worth investing effort in our second, much more

fine-grained, bottoms-up approach.

5

We examined the literature for nearly 50 different kinds of federal and state health services regulation, including regulation of

health facilities, health professionals, health insurance, pharmaceuticals and medical devices and the medical tort system. These

cover the gamut from mandated health benefits to state certificate

of need requirements for hospitals and nursing homes.

We systematically tallied both the benefits and costs associated

with these regulations and found that the expected costs of regulation and health care amounted to $340 billion in 2002 alone. As

shown in the bottom of my first chart, our estimate of the benefits

from this was $212 billion, leaving a net cost of $128 billion.

Three areas account for the lion’s share of this net burden. The

medical tort system, including litigation costs, court expenses, and

defense of medicine, totals $81 billion. FDA regulation adds another $42 billion. And health facilities regulation adds $29 billion.

This suggests that the states and Federal Government both have

important roles to play in finding ways to trim regulatory excess.

If we could get the next chart.

The $32 billion in net benefits from health insurance regulation

arises from one simple fact. It includes $46 billion in savings due

to ERISA. Recall that ERISA protects self-insured plans from having to comply with state benefits mandates, premium taxes, and

other insurance regulations. If we left ERISA out of our analysis,

the net cost of regulation would rise to $174 billion, as shown in

my second chart.

It was not the purpose of our study to make recommendations on

specific regulatory reforms to be pursued, either in medical torts or

any other domain. Instead, we were trying to provide something

that has never been achieved previously—a big-picture view of the

overall impact of health services regulation with the intent of identifying broad areas where regulation may be excessive, while sizable health care regulatory costs should be put into context.

For example, our analysis has ignored entirely tax policy as it relates to health care. Yet, federal and state tax subsidies for employer-provided health care in 2004 will exceed $210 billion.

Thus, there are areas apart from health regulation where Americans could get much more bang for the buck.

More than a decade ago, some pioneers in estimating regulatory

costs stated: We believe that improving and disseminating better

information is likely to induce decision-makers to scrutinize the

costs and benefits of regulation more carefully. We hope that this

increased care will lead to more efficient decisions. The estimates

in our synthesis, as uncertain and incomplete as they may be, have

been assembled with the same motivation.

How do all these numbers relate to the uninsured?

Our bottoms-up look found that the net cost of regulation imposed directly on the health industry itself is 6.4 percent, meaning

that health expenditures and health insurance premiums are at

least that much higher than they would be absent regulation.

Based on consensus estimate about the impact of higher prices

on how many would be likely to drop health insurance, this increased cost implies a 2.2 percent reduction in the demand for coverage. This translates into 4 million uninsured whose plight arguVerDate 03-FEB-2003 14:25 Oct 18, 2004 Jkt 095588 PO 00000 Frm 00009 Fmt 6601 Sfmt 6601 D:\DOCS\95588.TXT SSC1 PsN: SSC1
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ably could be attributed to excess regulatory costs, or roughly one

in 11 of the average daily uninsured.

In these calculations, we have simply assumed that all regulatory costs are spread relatively evenly across all payers in the

system, but some forms of regulation such as state insurance regulation, tend to be more narrowly focused on individuals and small

groups.

So were we to more finely calibrate our estimates of net impact

and look at the impact on small firms, for example, we would find

that it would be greater than the 6.4 percent average effect. But,

of course, there’s a different way to look at this burden as well.

Admittedly, our estimates are still preliminary and we are now

engaged in a process of careful review of all of them. But it seems

unlikely that the adjustments yet to come would alter this central

conclusion.

The net burden of health services regulation likely exceeds the

$48 billion annual cost of covering all 44 million uninsured by a

considerable margin. So a legitimate policy question is whether the

benefits of excess regulation outweigh the benefits of coverage for

all Americans?

With 18,000 uninsured dying every year due to lack of coverage,

is maintaining our current regime of excess health regulation

worth letting that continue?

This is a question worthy of serious consideration, especially during ‘‘Cover The Uninsured Week.’’

Thank you for your time.

[The prepared statement of Dr. Conover appears in the

Submissions for the Record on page 33.]

Senator Bennett. Thank you very much.

Mr. Mulholland we’ll do you next. We’re not capable of moving

around. We have to go in linear fashion up here.

So, even though I introduced Dr. Hyman before you, let’s just go

down in the order in which you’re sitting.

STATEMENT OF DAN MULHOLLAND, J.D.,

HORTY, SPRINGER & MATTERN, PITTSBURGH, PA

Mr. Mulholland. Thank you, Mr. Chairman. I’m not Dr.

Hyman, but I play him on TV.

Senator Bennett. Yes, that’s right.

[Laughter.]

Mr. Mulholland. Mr. Chairman, Representative Stark, thank

you very much for the opportunity to speak to the Committee

today.

My name is Dan Mulholland. I’m an attorney with the law firm

of Horty, Springer & Mattern in Pittsburgh, Pennsylvania. Our

firm practices exclusively in the area of health care law. We provide legal representation as well as educational opportunities to

hospitals, their boards, management and physician leadership

across the country. I’ve been with the firm since 1976.

Our firm and the nature of our practice put us in a unique position—to directly observe both the effects and the workings of the

health care regulatory system in this country.

And I’m here today to tell you that it’s not pretty.

7

There are a number of disturbing practical effects that come from

over-regulation of health care. Patient care sometimes takes a

backseat to paperwork. The ability of people in health care to simply make decisions based on common sense is often trumped by bureaucratic rules and fiat.

But most disturbing is the fact that some of the major federal,

as well as state, regulatory initiatives in the past 20 years that

were designed to address legitimate problems and to come up with

workable solutions for those problems have had a lot of unintended

negative consequences and in some cases, have actually worked to

destroy the trust and the teamwork that’s necessary in health care

to deliver quality services to patients. All of us are affected by that.

Professor Conover described the quantitative effects of this regulatory structure on health care. But I’d like to address this effect

from a qualitative standpoint.

A lot of times when hospitals and doctors are faced with regulations, the level of complexity has grown to the point where they

really don’t understand or fully comprehend how those regulations

can affect them. And this has one of three effects.

In most cases, hospitals, doctors, nurses, others in health care do

the best they can to try to comply with these health care regulations. But because they are so complicated, because these regulations continue to proliferate and because sensible laws sometimes

are implemented in a less-than-sensible fashion with complicated

regulations, the people who are involved on the front lines of health

care often don’t know that they’re violating a particular law until

after the fact.

This can be compounded by the fact that almost every decision

that a hospital board makes, that a physician makes, that hospitals

and physicians make together, can be second-guessed at one level

or another, either by a whistle-blower, by a plaintiff’s attorney, or

by a regulatory agency.

And the way in which these laws are implemented, the way in

which the laws are applied, is anything but even. That’s caused a

lot of people to simply adopt a cynical attitude towards government

in general and towards the regulatory system in particular.

It’s caused some people to try to look for ways around the law

and not only spend a lot of unneeded resources in terms of consultant and legal fees, which from my perspective, isn’t that bad of a

thing, but from the perspective of society, is not a good thing at all.

It also allows unscrupulous individuals to come up with schemes

to not only avoid the regulatory structures that apply to them, but

actually engage in conduct that any reasonable person would think

to be improper.

Finally, you have a situation where a lot of people, good volunteers on hospital boards, non-profit community hospitals, physicians who have long served their communities as practicing clinicians, nurses, and other people involved in providing health care,

have simply thrown up their hands and said, it’s time for me to

cash in my chips and leave.

In the case of the volunteers, they have no chips to cash in. They

simply get worn down by having to deal with one new regulatory

problem after another, and the best and the brightest in health

care, who we all rely on for our daily health care needs and in

8

some cases, place our lives in their hands, are deserting the health

care industry.

Again, these costs cannot be quantified. But they are very real.

We see them every day, day in and day out in our practice when

we represent hospitals, their boards and their physician leadership.

And what we would urge the Committee to consider is that any

new regulatory initiative should be carefully vetted to make sure

that it will not have these unintended consequences and would be

absolutely necessary, rather than reacting to a particular problem

that gets a lot of media attention and then coming up with a solution that causes more problems than it solves.

I’d be happy to answer questions after the other witnesses have

given their statements.

Thank you very much for your time.

[The prepared statement of Mr. Mulholland appears in the

Submissions for the Record on page 59.]

Senator Bennett. Thank you, sir, for your comments.

Dr. Hyman.

STATEMENT OF DAVID A. HYMAN, M.D., J.D., UNIVERSITY OF

MARYLAND SCHOOL OF LAW, BALTIMORE, MD

Dr. Hyman. Mr. Chairman, and Representative Stark, thank

you for inviting me to testify before you today.

The last time I testified before the Senate was just over 10 years

ago in front of the Senate Finance Committee, when Daniel Patrick

Moynihan was presiding.

It took me 10 years to recover. I’m hoping it won’t be as long between my next appearance.

[Laughter.]

I’m currently a Professor at the University of Maryland School

of Law. I’m also currently serving as special counsel to the Federal

Trade Commission. I’m here only in my academic capacity. None of

my remarks, whether written or oral, should be imputed to the

commission or any of the individual commissioners. Much of what

I’m going to say today is drawn from a series of articles I’ve written

over the last decade on the regulation of health care.

Generally speaking, although I have submitted extensive written

testimony, my remarks are drawn from regulatory theory and

things that I’ve written about mandates, including the Patient Bill

of Rights.

First, I want to commend the Committee for considering these

issues. The impact of regulation of health care is a matter of vital

importance because it affects the cost, quality and availability of

medical services. Regulation has both benefits and costs. And we’re

focusing today on costs, but it’s important to appreciate that benefits matter as well. You can’t have a system to deliver services that

doesn’t have regulation constraining and addressing misconduct by

a whole range of participants.

For obvious reasons, we tend to focus on the benefits of regulation. But regulation has costs as well and you have to carefully factor in those costs when deciding whether you’re making things better or making things worse.

Excess regulation, as the two previous speakers have noted,

makes health care more expensive and at the margins, makes

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health care coverage unaffordable, leading to an increase in the uninsured.

It’s economically inefficient to adopt regulations whose costs exceed their benefits. And it’s a difficult challenge to quantify both

sides of the equation, but there is plenty of evidence to suggest that

we routinely do exactly that in health care.

Such regulation is often popular. But that doesn’t change the fact

that it wastes our scarce resources and worsens the straits of the

poorest and least powerful among us—those who the regulations

are often sold as protecting.

The problem has been studied at considerable length by lots of

scholars. Just to briefly summarize some of the difficulties, when

you’re enacting legislation, it’s difficult to have both the time and

the training to weigh the conflicting evidence on costs and benefits.

Evidence on cost is often unavailable. Estimates are subject to considerable uncertainty. The timeframe for regulating is days, weeks

and months. The timeframe for studying the problem as academics

need to arrive at a broad-based assessment of costs and benefits,

is more on the order of months, years, and so on. When one enacts

regulation, it’s important to recognize that it comes on top of a

whole series of prior attempts to regulate the field. And every time

you go back, you look at the lowest-hanging fruit and try and address that problem. And obviously, at some point, all the low-hanging fruit is gone and you have to climb higher in the tree. To strain

the metaphor unnecessarily, the risks of falling out of the tree start

to go up the higher you have to climb.

There’s also a real problem with the drafting of legislation because providers have their own interests at heart and lobby heavily

for solutions that reflect their interests rather than those of beneficiaries or the general public. When you couple all of those things

with the emotional overlay of health care issues, the off-budget feature of lots of the regulations and the extensive scope of pre-existing regulation, it shouldn’t come as a big surprise that health care

is particularly prone to regulatory over-reach.

The consequences for the nation’s health are quite significant.

Higher prices make it more difficult for Americans to obtain health

insurance and needed care. Lots of small employers don’t offer

health insurance at all. When employers do offer health insurance,

price increases that can result from regulation such as mandates

result in limitations on coverage, employees refusing to sign up,

and employers dropping coverage. There are a range of estimates

of the elasticity of health insurance purchasing decisions, but I

don’t think anybody believes that increasing prices above their current level is going to result in more people purchasing insurance.

And there are a number of studies—there are volumes of studies

establishing the adverse consequences that result from not having

health insurance.

Stated more broadly, non-costworthy regulation is likely to have

a systemic adverse effect on the quality of care actually provided

to the population as a whole. A policy of quality above all else can

price the standard of care beyond the budget of many Americans.

And we should not place the poor and less fortunate in a position

of choosing between nothing but the best and nothing when it

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comes to health care coverage. But excessive regulation will do exactly that.

This concludes my prepared remarks.

[The prepared statement of Dr. Hyman appears in the

Submissions for the Record on page 70.]

Senator Bennett. Thank you very much.

Ms. Gottlich.

STATEMENT OF VICKI GOTTLICH, J.D., L.L.M., CENTER FOR

MEDICARE ADVOCACY, INC., WASHINGTON, DC

Ms. Gottlich. Good morning. I’m Vicki Gottlich, an attorney

with the Center for Medicare Advocacy. I’m presenting the testimony along with my colleague, Toby Edelman, who got the better

end of the deal and is giving a speech in Florida this morning to

nursing home ombudsmen.

[Laughter.]

We thank you for the invitation to testify before the Committee

on behalf of health care consumers and their advocates.

From our perspective, representing the rights and interests of

older people and people with disabilities for more than 25 years, we

do not think that health care regulations are the cause of high

health care costs. And we do not think that reducing regulations

will, per se, reduce savings.

Without laws and regulations mandating specific conduct, health

care providers may not provide adequate care or a safe environment. Laws and regulations are frequently enacted to correct problems and bad outcomes that have already occurred after they have

occurred. And when fully and effectively implemented, laws and

regulations can both improve care and reduce costs.

We use examples related to nursing home residents in our testimony today because, by definition, nursing home residents are

among the most vulnerable populations and the benefits to them

from standards and regulations are well documented.

Recent experiences with fires in nursing homes show that, too

often, facilities will not provide a safe environment for residents if

the rules allow them to do otherwise.

While sprinklers are recognized as the best mechanism to avoid

deaths from fire, the rules grandfather in older facilities and allow

them to use less effective measures with predictable results.

Last September, a fire broke out in a Tennessee facility. Eight

residents were killed in the fire. More died later. And 80 residents

were sent to the hospital. After the fire, the nursing home corporation committed itself to installing sprinklers in 16 of its facilities

that did not have any, at an estimated cost of $10 million, approximately $625,000 per facility. The state began considering legislation to require sprinklers and the National Fire Protection Association called for all nursing homes nationwide to be equipped with

sprinklers. Regulations followed disaster. They tried to correct

problems that have already happened.

For this nursing home corporation, the costs of installing the

sprinklers after the fact were much greater than the costs would

have been had they installed sprinklers originally.

There have been lots of hearings in the Senate about the cost of

poor care. Nearly 13 years ago, the Subcommittee on Aging of the

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then-Labor and Human Resources Committee, issued a report describing the high cost of poor care in nursing homes. Avoidable incontinence, avoidable pressure sores, and avoidable restraints were

all found to cost the health care system billions of dollars, as it

tried to undo avoidable damage to residents.

The Nursing Home Reform Law of 1987 and its implementing

rules are a prime example of laws that improve the quality of care

for residents in important respects, while being cost-effective in

savings billions of dollars. When the reform law was enacted, nursing practice and the nursing home industry generally believed that

restraints would protect residents from injuries and falls. As a result, in the late 1980s, an estimated 41 percent of all residents

were physically restrained. The law and its regulations changed

that paradigm.

In 2003, 8.79 percent of residents were physically restrained, a

dramatic reduction in a relatively few years. The Institute of Medicine report on long-term care quality in 2001 called the reduction

in restraints the greatest improvement in nursing home care and

credited what were then HCFA’s regulations in oversight.

Being restraint-free is clearly better for residents, both physically

and psychologically, and cheaper for government payers as well.

The other example involves the minimum data set which was developed by HCFA through an intensive public process that involved

all sectors of long-term care.

An evaluation in 1996 found that the MDS resulted in more positive outcomes. More residents had hearing aids and were involved

in activities and fewer negative outcomes. Fewer residents had

catheters. Hospitalizations were reduced by 26 percent, reflecting

an annual estimated savings to the Medicare program of $2 billion

in hospital costs in 1992 alone.

As we describe in our written testimony, clinical staff and administrators continue to resist using the MDS, even as they acknowledge that it gave them better information about residents and

helped them to provide better care.

Unfortunately, as we describe in our testimony, and as the GAO

and IOM have documented, the government is often too timid in

exercising its rule-making authority and overly deferential to

health care providers.

However, strong Congressional oversight and the Clinton Administration’s nursing home initiative in 1998, helped redirect CMS’s—

what was then HCFA’s—approach, making the enforcement system

more consistent with federal law and more likely to achieve its goal

of assuring prompt correction of deficiencies and sustained compliance by facilities.

Nevertheless, many beneficiaries have been hurt by what the

GAO described as the lax and overly tolerant enforcement system

that the federal agency at first created in deference to the nursing

home industry.

I know I’m over time, but I’d like to end with one current example of the misunderstanding about the burden of regulations.

Currently, CMS in January implemented a new fast-track appeals process for HMO appeals when care is terminated from home

health agencies and other agencies.

12

The home health agencies complain that the notice requirements

in this new process are overly burdensome because they have to

give notice two days in advance before home health services are

terminated. The real issue in this situation is not the notices, but

the HMOs themselves are only approving one or two home health

visits at a time, rather than the 60-day care plan required in the

traditional Medicare program. As a result, the home health agencies are having to give a notice at every single visit.

What we’ve really discovered in this instance, and the home

health agencies agree, is that the Medicare beneficiaries are not

getting the home health services to which they’re entitled.

We also know, based on a lot of litigation that we’ve done, when

individuals don’t get notice of their appeal rights, they don’t appeal

and they don’t get care to which they’re entitled.

We further know that when our clients don’t get the home health

care services to which they’re entitled, their conditions deteriorate,

they often get placed in nursing homes, and we have unfortunately

seen too many of our clients die in this situation.

From our perspective, the regulations that are issued really are

issued to protect the beneficiaries. The regulatory process, as found

through what happened in the nursing home reform law, reflects

the practices of the industry itself. And when regulations reflect

the best practices of the industry, they are not burdensome. They

are instead implementing good quality of care.

Thank you for holding the hearing and thank you for inviting me

to testify.

[The prepared statement of Ms. Gottlich appears in the

Submissions for the Record on page 94.]

Senator Bennett. Thank you very much. I appreciate your comments. And you do give me the opening to talk about the anecdote

that I hope is not controlling my approach here, but that I think

is perhaps instructive, and it occurred in a nursing home.

I have a daughter of whom I’m very proud—I’m proud of all of

my children. But this one in particular that I’m talking about got

her master’s degree in speech therapy from George Washington

University, and her first job was in a nursing home.

You have to know this daughter to understand that she is not

very patient. She gets quite passionate about things. She had been

there, I think, about a week before we got a phone call late one

night and she said, ‘‘Dad, you’re a Senator. You’ve got to fix Medicare. Medicare is a disaster.’’ I said, ‘‘Now calm down, Heather. Tell

me about it.’’

This was the example that occurred to her. She was called in—

here’s a woman in a nursing home who is having swallowing problems. The doctor said, get the speech therapist. She’s the expert in

these kinds of things.

And so, Heather shows up all excited. Examines the woman,

makes a diagnosis—this is what you need to do. And says that she

needs this kind of treatment.

The woman’s family says, ‘‘Not on your life. You’re not touching

our grandmother until we find out whether or not this is covered

by Medicare, because we won’t pay for it. If it’s covered by Medicare, you can go ahead and do the treatment. But if it’s not, we

won’t pay for it.’’

13

Well, Heather says, ‘‘Fine.’’ And she naively says, ‘‘Is this covered

by Medicare?’’ I think it was 3 days later, the woman in the nursing home whose assignment it is to cull through the Medicare regulations to determine what is covered and what is not, came up with

an answer.

And back to my daughter, she says, ‘‘Dad, do you know who the

highest-paid person in this nursing home is? It’s the woman who

handles the Medicare regulations. That skill is in such small supply that we pay her more than we pay the administrator of the hospital or any of the doctors or any of the nurses, and she controls

the nursing home. Because until she says yes or no, nothing can

happen.’’

And unfortunately, for an impressionable, idealistic young

woman fresh out of college, she had some patients die as she was

waiting to get the word from this woman who handled the Medicare regulations as to whether or not she could, in fact, provide the

treatment.

She said, ‘‘I can’t tell any of my coworkers here at the nursing

home that my father is a Senator because they’re all so mad about

Medicare and how it gets in the way of our providing treatment

with the labyrinthine regulations.’’

And then came the final one, which I probably shouldn’t say in

public, but will anyway, removing any names.

A doctor said to her, ‘‘Heather, go ahead and do it. I will prescribe a procedure that is covered by Medicare so that we can be

paid. And just don’t tell anybody that you’re not performing that

procedure. You are, in fact, performing the procedure that the patient needs.’’ Highly illegal, and the potential for abuse is enormous.

I resonate with what Mr. Mulholland said when he said these

impenetrable regulations run the risk—and indeed, if I heard you

correctly, produce the result of disrespect and disregard for the law

as people on the firing line see them getting in the way of providing treatment.

Now with all due respect to Dr. Conover, whose research I think

is tremendously valuable, I’m with Mr. Stark on this issue. I’m less

concerned with the dollars than I am with the treatment.

I’m less concerned with an economic analysis that says it costs

us this many dollars and yes, we could use those dollars elsewhere

and so on.

If the case can be made, however, that you’re getting better

treatment and it’s impossible to put a dollar value on what that

treatment might be, I’m willing to accept higher costs.

But the driving experience here is that the regulations produced

worse care. And I think I heard Mr. Mulholland say the same kind

of thing from his experience as a lawyer handling cases connected

with this, that the regulatory burden, costs aside—and really, Dr.

Conover, I’m not trying to put down your research because I think

it’s very valuable and I appreciate your sharing it with us. But

costs aside, there is a care problem here.

I accept your analysis of the restraints and obviously, the sprinkler thing—that’s easy. That’s very clear. Anybody can say, putting

sprinklers in outmoded facilities is the right thing to do. And a

mandate that that be done clearly makes some sense.

14

Ms. Gottlich. Senator, can I——

Senator Bennett. Yes. The experience at least in this one nursing home, if my daughter is telling me accurately, everybody in the

nursing home, except perhaps the woman in the corner office who

is making the decisions as to who can do what, is thoroughly frustrated in their ability to provide care by the complexity of the regulations.

Now, yes, I’d like to have your response.

Ms. Gottlich. Actually, I have had similar experiences in a variety of different payment systems. So what I wanted to share with

you was a situation in a self-insured plan where an individual was

trying to get coverage for a child who had been severely injured in

a car accident and needed continued therapy.

He couldn’t get the information from his self-insured plan, which

is not subject to regulation. And it took so long. And it was clear

that if the child didn’t get the therapy, his condition was going to

deteriorate. So what the family ended up doing was applying for

Medicaid for that child.

I was really troubled by that situation because the care decision

affected, quite frankly, not only the child, but it affected me because the child suddenly became somebody on Medicaid.

I think a lot of these issues are not necessarily determined based

on regulations, but they’re cost mechanisms because the way our

health care system is devised, it’s better for the health payer, regardless if it’s Medicare, Medicaid, or private ERISA plan, if they

don’t pay for health care.

I think a lot of the regulations are designed to actually limit

rather than provide the care that the doctor in your daughter’s situation felt was medically necessary.

I think that it’s a bad situation. There are lots of issues going

on with Medicare in terms of some of the complexity.

But I think that it happens in other payment systems as well.

Senator Bennett. I don’t dispute that for a minute, that Medicare is not by any means the only culprit.

Mr. Stark, I think as we’ve done in the past, you take your question period here, and then the six of us will simply have a roundtable and go back and forth.

Representative Stark. I apologize to the witnesses. Pollen

seems to be not well-regulated and my ears are stuffed up as a result. So I don’t know whether I’m shouting or whispering and I

apologize for that.

Let me ask a couple of questions. First of all, the principal regulations—somebody did a chart between federal and state.

If you take Medicare off the table, you haven’t got much beef

with the Federal Government other than HCFA, right?

We don’t regulate torts. We regulate pharmaceuticals. I would

love to have you there when we argue with my constituents who

want to bring their pharmaceuticals in from Canada.

Would any of you object to allowing that without regulation? It

would save a lot of money. Does anybody find that a regulation

that we ought to keep?

Ms. Gottlich. Well, of course, you know that we would support

the importation of drugs from Canada.

15

Representative Stark. I wonder if the other three witnesses

would, too.

Mr. Mulholland. Representative Stark, I think you can argue

on both sides of that.

But I think your observation earlier was correct that, in large

part, the regulatory problems that have been caused as a result of

federal regulations are ultimately tied to the Medicare program,

which again gets tied to the costs.

Representative Stark. Okay.

Mr. Mulholland. And that creates——

Representative Stark. But Conover here is talking about $600 billion or some figure. We only spend approximately $300 billion on

Medicare. How are you going to save—if you take that off the table

and you guys are in the wrong forum? You ought to go back to the

states—Maryland or North Carolina.

[Laughter.]

States are the ones who—they regulate doctors. They regulate

lawyers, right?

Should we do away with the bar exam?

Mr. Mulholland. I’ve already passed, so it wouldn’t matter to

me.

Representative Stark. That’s right.

[Laughter.]

Then NOLO would take over the legal profession.

At some point, we spend your money, the taxpayers’ money. We

have some obligation to make sure that it’s spent fairly.

Now the Defense Department doesn’t care. They’ll give Boeing

whatever they need, as long as they get kickbacks. But that’s not

what we try to do in Medicare. We spend—we have, admittedly, 14

percent of Medicare money is spent incorrectly. About half of that

is fraud and about half of that is just mistakes.

I’ll bet you that Blue Cross doesn’t do any better. Because as a

matter of fact, it’s Blue Cross who administers Medicare under contract, so I suspect for the private market—and then if you walk

around and you’re under 65, like the witnesses are, you can do anything you want.

The doctors can treat you. The doctors aren’t under any—there

are the privacy regulations, but, again, that has nothing to do with

Medicare. That has to do with the whole general issue of privacy

in this country. And there are people who are concerned about that

and civil libertarians are concerned—I hope. Scalia and Thomas

and Ashcroft, the great civil libertarians of all time. But you’re

beating a dead horse here.

You want to go home. Talk to your state legislators about this.

California, we’ve already passed tort reform. So don’t talk to us.

Let the rest of the states pass it if they think it’s the right thing

to do. Has Maryland got tort reform?

Dr. Hyman. That would be for me. Yes. And my friends who are

plaintiffs’ lawyers complain bitterly about it.

Representative Stark. Yes, but they have it, right? So you

don’t care whether we have federal or not. Correct?

Dr. Hyman. I actually was talking earlier about insurance mandates, which are both federal and state level.

Representative Stark. Where?

16

Dr. Hyman. It’s also important——

Representative Stark. Whoa.

Dr. Hyman. The Pregnancy Discrimination Act of 1976, the

Newborns and Mothers Protection Act. I can list a number of the

mental health parity requirements that are found in HPPA. There

are federal mandates. The disproportionate percentages are at the

state level.

Representative Stark. But you like ERISA.

Dr. Hyman. I think ERISA serves its function quite effectively.

Actually, when I started, I said that——

Representative Stark. I get the sense that you guys are picking and choosing here the regulations that——

Dr. Conover. But the reason that ERISA saves money is because it exempts plans from——

Representative Stark. But it’s a regulation, though, isn’t it?

It’s a regulation that keeps lawyers like these other guys——

Dr. Conover. It’s a very funny regulation in that regard.

Representative Stark. Wait a minute. It’s a regulation, right?

Dr. Conover. It’s a regulation that exempts——

Representative Stark. You like it, don’t you?

Dr. Conover [continuing]. Exempts plans from a lot of other

regulation, yes.

Dr. Hyman. Representative Stark, I don’t think—I didn’t hear

anyone at the panel to say that all regulations are bad.

I thought the point of the testimony was that regulations can be

good, except to the extent that their costs exceed their benefits.

Representative Stark. But Dr. Conover over here doesn’t have

any benefit in any of his analysis, right? You’ve got zip for benefits.

Dr. Conover. No, that’s not right at all.

Representative Stark. Wait a minute. You told me—you don’t

show any benefits in your analysis.

Dr. Conover. If you look at that chart, you can see we’re show- ing $207 billion worth of benefits.

Representative Stark. In nursing homes, it’s zero. Right?

Dr. Conover. In that particular one, we didn’t find literature

that showed——

Representative Stark. You’ve got to find literature.

Dr. Conover. That showed a cost.

Representative Stark. You can talk to lawyers here and they’ll

tell you that there’s some kind of a system for determining the

value of life. I don’t know how you guys figure that, but I’m sure

that you’ll find some literature that will tell you that life has some

value. Do you believe that?

Dr. Conover. I do believe that life has some value, yes. Absolutely.

Representative Stark. Okay. Can you quantify it?

Dr. Conover. Well, in our estimates, we were using a value of

life of $4.4 million.

Representative Stark. Okay. And you can’t find any cost benefit in regulating nursing homes?

Dr. Conover. In the evidence that we went through, we did not.

Representative Stark. Ever been in a nursing home?

Dr. Conover. Well, yes. I’ve visited people in a nursing home.

Representative Stark. Ever had a relative in one?

17

Dr. Conover. My granny was in one for a while.

Representative Stark. As I say, I find this highly selective.

You think that reimportation shouldn’t be regulated, right? Or not.

I’m not getting an answer.

Mr. Mulholland. I really haven’t formed an opinion on that,

Representative Stark. But I think your point about Medicare being

responsible for a lot of the regulations to some extent underscores

what Professor Conover was talking about because Medicare is the

largest payer by far in the country for health care——

Representative Stark. Whoa, whoa, whoa. We paid $300 billion

out of about $1.4 trillion spent on health care services in this country. Now, c’mon. Do your math. If you’ve got your shoes and socks

off, you can do that math.

Mr. Mulholland. I’m not saying it’s the majority of payment,

but it’s the largest payer. There’s no other payer that’s as big as

Medicare in terms of being a single source of payment.

Representative Stark. Okay.

Mr. Mulholland. If Professor Conover’s figures are right, $128

billion net cost of regulations, that would mean that Medicare is

bearing approximately a third of that based on the numbers that

you had just given, Representative, which mean that the regulatory

system, the Federal Government has imposed on the system, on

the health care system, actually is costing the Federal Government

more money.

So it becomes a self-fulfilling prophecy. More payment, more regulation, more cost.

Representative Stark. That’s the wackiest thing I’ve ever

heard, I’ll tell you.

Okay, guys. As I say, libertarianism is alive and well in the

world. And the Cato Institute and the American Enterprise and the

Club For Growth, God help us if they were ever to provide medical

care to our indigent.

Mr. Chairman, they’re all yours.

[Laughter.]

Senator Bennett. Well, let me make the same point that I

think was trying to be made.

I certainly do not believe that all regulations should be repealed.

Nor do I believe that the regulatory scheme, the careful regulatory

scheme is not absolutely essential.

I think everybody will agree that we have a responsibility at both

federal and state level to provide a sensible scheme of regulation.

Having conceded that, I would trust that you would concede that

such a scheme of regulation should be reviewed from time to time

to see if there are some regulations that don’t make sense, that do

in fact end up costing the system more than the benefits, and, in

the exchange that Ms. Gottlich and I had, actually reduce the level

of the quality of care, that the regulations get in the way of providing intelligent care.

I’m satisfied that Medicare has reached that point, that it has become so labyrinthine to try to find your way through the Medicare

regulations and come up with an understanding of what Medicare

really does require and does not require, has reached the point

where it’s appropriate for the Federal Government, particularly

18

those of us who pass the laws, to say it’s time to take a long, hard

look at this. It’s getting in the way of providing quality care.

But I will certainly join with you that regulation is essential.

And I don’t think there’s anybody on the panel that would disagree

with that.

Representative Stark. Let me——

Senator Bennett. Yes.

Representative Stark. My name was taken in vain in some of

this testimony, but it was taken in vain long before that by whichever administration was in when we wrote what are called, obscenely, I think, the Stark Laws.

It’s important—I think Dr. Hyman raised the issue of the Stark

Laws, right?

Mr. Mulholland. I believe I did.

Representative Stark. You did. Okay. The Stark Laws were

written at the behest of a Republican administration, okay, initially

over my objection. I said, what the hell. These guys ought to be

able to go make money any way they can. Well, they finally showed

me, some place in Florida and the AMA finally came around, that

there was very excessive utilization because of kickbacks, basically.

But the initial law—and I’m not a lawyer, but I have to paraphrase it, about a paragraph. And it says, and correct me if I’m

wrong, Mr. Mulholland, but the original federal law said, whomsoever will taketh or receiveth or generate a kickback, a spiff, a commission, in cash or in kind for referring a service to another under

Medicare or Medicaid, will do 5 years or $50,000. That was it.

That’s all it was.

I was told that the prosecutors wanted a clear line to prove intent. What did I know? I’m just a politician. I don’t know law. I

am not a lawyer. But I said, all right. We’ll have a line. And we

wrote the bill and then the regulations came. And you know what?

Those regulations just became a set of instructions for you, Mr.

Mulholland, to draw loopholes, to say, now to my clients, aha, here

are the clear lines. And you can get around them by this and this

and this.

So when they came back, we had to have Stark 2. The more the

lawyers dreamed up loopholes, the more we had to have regulations to close the loopholes.

I would go back to the original bill. That’s just one paragraph,

if I had my way, and then you’d have to tell all these docs, you’d

better be careful, doc, because they could come after you for criminal activity. But I don’t know. And being able to say I don’t know

to the doc would probably have as good an effect as this big stack

of regulations.

So I’ll make a deal with you. Let’s go back to that original. But

then let’s put a few docs—you’ve got some guys who are good criminal guys in your law firm? Let’s put one or two in jail for doing

what we probably both agree is wrong, and you wouldn’t need all

the regulations.

But it’s just like the tax law. We write laws to close the loopholes

that you guys get paid big money to get them through. So the lawyers, Mr. Chairman, share equally in this blame for regulation.

Right?

19

Mr. Mulholland. Representative Stark, I’m prepared to shake

on that deal right now.

[Laughter.]

Representative Stark. Okay.

Mr. Mulholland. And that was exactly the point I was trying

to make in my written remarks. That original law, the anti-kickback law, is still on the books and the reasoning behind the first

‘‘Stark Law’’ is let’s make it a little bit simpler, draw a little bright

line.

I don’t quibble at all with that. But it’s the complexity of the regulations. Once you start thinking, well, what about this, what

about that—you’ve gotten to the point now where hospitals are

worried that if they serve a meal that costs $25.25 to their doctors,

that a whistle-blower can come after both of them and recover literally millions of dollars in false claims actions.

So there is some question about proportionality. But I’d love to

have that.

Representative Stark. We got our limit up to $50 in Congress.

So you could buy us a meal. I think $50 is the limit.

Mr. Mulholland. We once had——

Senator Bennett. It’s $50 in the Senate. I don’t know what it

is in the House.

[Laughter.]

Mr. Mulholland. We once had the Chief Counsel for the Office

of Inspector General visiting the health lawyers in Pittsburgh and

we wanted to give him something. But he said, I’m subject to this,

too.

So we got him a $100,000 Bar and said, here, take this home to

your kids. But that’s the level of complexity that’s happened. When

an otherwise legitimate statute has grown out of control, it’s metastasized—and you’re right. It’s almost not sporting to blame lawyers. Lawyers are responsible for some of this, too.

On the other hand, this has served like a millstone around doctors and hospitals.

Actually, we represent a lot of people in this. We give a lot of

educational programs. In fact, we’re giving a series of audio conferences on the new Stark regulations. You’d be more than welcome

to join if you want to be a guest star on it, Representative.

But this is something that——

Representative Stark. It’s out of control. It’s like a virus.

Mr. Mulholland. My partner and I were giving a little talk on

this about two weeks ago and we started explaining it. And we suddenly had a very frightening revelation.

We understood those regulations. And we thought about seeking

some mental health counseling as a result.

[Laughter.]

So if there’s anything you can do to simplify the regulations or

get back to the basics, I think that would be welcomed with open

arms because then, only the truly unscrupulous would have something to worry about.

Now the people who want to follow the law are burdened down

with worries about compliance, and there are still crooks who are

bilking the Medicare system for billions.

20

Representative Stark. At least what I see is that there are

areas in which those of us who are powerless need some protection,

which laws can turn out to be regulations, the complexity of which

will drive you nuts.

I concur in that. I am subject to it, as the Chairman is. Apply

for a building permit in Maryland, just once, I urge you. I’m now

in my third year of the same permit. So I’m sympathetic.

And then I realize that I’m probably the person who caused those

problems, or my colleagues, in the first place. But it is frustrating.

Senator Bennett. We’ll be glad to blame you specifically.

[Laughter.]

Representative Stark. I can’t quite accept the quantification as

a way to say, we’re going to pay for—I would agree with you that

we should review our regulations. Our oversight functions should

be more thorough. We should listen to Mr. Mulholland and get the

advice of experts, who agree with us.

It’s a problem that ought to be resolved. How do we do it? I’m

with you. But the idea that a regulation, as a systemic problem in

the world, if it’s any different with medical care than it with pharmaceuticals or flying an airplane and running an airline, or running a bank.

These are there and generally not—because the Chairman and I

sit back here and say, what kind of a regulation could we dream

up today to make Dr. Conover’s research exciting and make Dr.

Hyman’s life awful.

We don’t do that. We hear from people that had something bad

happen to them. And we say, well—and then we find out that

maybe more bad things are happening to people and we, somehow

in our enthusiasm, try to put a stop to it.

Does that often become burdensome? Yes. Does it save lives?

Many times.

So I don’t know how we can get to a happy medium.

Senator Bennett. Well, I do think it’s useful for us to have

some kind of economic analysis of cost. I agree that the cost should

not be the controlling factor in the decision we make.

But it’s one thing for Ms. Gottlich and me to exchange anecdotes—and I can prove that Medicare, Medicare regulations and

their complexity, has caused delivery of health care problems in a

particular nursing home, and arguably, contributed to some deaths.

But I have no idea in the universe how expensive that is.

I can intuit that there’s an expense connected with it, but I can’t

come up with anything.

So in defense of Dr. Conover, I think these kinds of studies are

helpful and useful because they give us a guideline as to how big

the problem is.

I don’t think we’re ever going to get to the point where all of the

regulations are understandable or all of the regulations are easily

enforced. Human nature is such that you don’t get there.

But I think that we ought to recognize that there is a lot of

money tied up in this and therefore, a lot of opportunity to, Ms.

Gottlich, improve care and improve safety, and Dr. Conover, save

some money at the same time. And that strikes me as a win/win.

Dr. Conover. Right. I wanted to talk about the 48-hour maternity stay mandate because that’s a good example of regulation that

21

came about because of a concern about a problem. And we crafted

a solution and it imposes a cost on the system.

And yet, when you look at the clinical evidence about whether

that saves lives, there really isn’t any. So it’s an example where

there was this impulse to put regulation on the books, and we

didn’t have any evidence about—there was just a supposition that,

well, gee, if women get discharged too quickly, that’s going to be

a problem for quality.

And so, we put this regulation on the books and, retrospectively,

we’ve now done the clinical studies to look at whether it made a

difference or not. In terms of outcomes, it appears not to have. But

once it’s on the books, it’s sort of there forever.

So we’re continuing to incur the annual cost of that. But we’re

really not getting a health benefit that would be commensurate

with that cost. And that’s problematic. And that’s an example of

how regulation sort of accretes onto the system.

Ms. Gottlich. But I’d like to address that, as the only person in

this discussion to whom that applies.

There’s a quality of life issue. From personal experience, having

gone through this twice, there are definitely people who want to go

home immediately and there are definitely people for whom 48

hours is not going to save their lives. But it means that they’re

going to be better able to cope.

And so, the other things that we have to look at are post-partum

depression, how they’re able to deal with their kids, what systems

do they have in place.

So it’s more than the really adverse outcomes. Benefits sometimes are just not measurable.

What does it mean for a nursing home resident to be able to

have her breakfast at 9:00, as opposed to 6:00 in the morning?

That’s certainly a burden on a nursing home that improves the

quality of life of the resident. I could tell you my extra day in the

hospital after my second child was born really did a lot for my second child and me because I didn’t have to deal with my first child.

That’s an anecdote.

Representative Stark. My most recent two children were twins

who were born within the past 3 years. And I want to tell you, I

wanted to stay the extra day at the hospital with my wife and the

twins, regardless of what she might have wanted.

[Laughter.]

May I?

Senator Bennett. Yes. For the record, our last children were

twins as well. And when the nurse asked my wife, ‘‘Do you have

any more children at home?’’, and she said, ‘‘there are four.’’ ‘‘Oh,

you poor thing. You poor thing,’’ the nurse kept repeating over and

over again.

But that’s just one of the things that bonds us—you have twins

and so do I. Go ahead.

Representative Stark. Dr. Conover, I gather you feel that the

zero benefit for nursing homes may change.

Dr. Conover. They may change, right. That’s why we’re going

through all of these, yes.

Representative Stark. In the acute care area, you have a zero

benefit for—is that just for the accreditation?

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Dr. Conover. For hospital accreditation and licensure.

Representative Stark. Now I’ll let you and Dr. Hyman get into

this. I’ll just start an argument and stand back and watch you

guys.

[Laughter.]

Representative Stark. I would say that, and this is an area of

pure economics, that in some states—the best state in the country,

I might add, is the State of Maryland in terms of regulating hospitals.

They have one of the best hospitals in the world. They come in

by law at 10 percent below the national average for Medicare rates.

They’ve never had a hospital go broke because they won’t let them.

But we’ve recently come up with this issue of, if you don’t control

the market, are you apt to cause the demise of a hospital? And is

that something to be regulated?

In this case, I don’t have an opinion. But in every state except

the State of Maryland, we’re seeing boutique hospitals appear in an

effort for doctors to make some extra money because they participate through a loophole in the Stark Law, in the profits of those

boutique hospitals.

And again, I don’t get morally indignant about that, but it’s tending to cause some real problems with community or broader acute

care hospitals, who find profit centers being taken away by the cardiologists or the eye surgeons or whatever, and leaving our community hospitals with just the expensive stuff that doesn’t have much

profit.

That’s not an area really that I see us regulating unless the hospital industry decides that maybe there’s a reason like accreditation to decide whether we need hospitals on an economic basis.

Now do you think that’s something that the state should get into

or not?

I don’t know as we will—I don’t want to unless the hospital association comes almost unanimously and says, look, this ought to be

controlled or you’re going to cannibalize the structure under which

hospitals have grown over the last 50 years in this country.

And if we suddenly take that apart, we may have some fiscal

problems that we’ll get called on to solve. Is that an area that we

should regulate?

Dr. Conover. Well, when you talk about accreditation, I think

of that as quality regulation. And I guess I’m not aware that the

specialty hospitals are creating——

Representative Stark. Well, there’s also the certificate of need.

Dr. Conover. The certificate of need.

Representative Stark. Which is accreditation.

Dr. Conover. Okay. But certificate of need is something that

I’ve studied a fair amount. And when you look at the evidence

about certificate of need, we generally find that it doesn’t do what

it was intended to do, which is to save costs. And almost half the

states have gotten rid of certificate of need because of that.

Representative Stark. Yes.

Dr. Conover. But the states that continue with certificate of

need defend it on either access or quality grounds.

And on the access issue, I think any community would have to

ask the question, if you basically reduce competition, and we know

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that if you reduce competition, you’re going to end up with higher

prices in an area——

Representative Stark. What about accreditation just then on

federal standards? Don’t you think that there is a benefit to having

some minimal standards under which you, say, put a stamp of approval on this thing and say, this qualifies as a hospital?

In other words, you and I could go out and buy a Motel 6, paint

a red cross on the side and say, ha, we’ve got a hospital, and up

our rates from $39 a night to $500 a night.

Dr. Conover. Well, accreditation historically has been a state

responsibility.

Representative Stark. Yes.

Dr. Conover. I’m not sure I would be in a position to argue why

the Federal Government could do that better than state governments could.

Representative Stark. Well, the only reason we do—I don’t

know if we do it better—is that Medicare pays hospitals in all 50

states.

So that if we are going to say, you meet our standard for collecting from Uncle Sam, you’ve got to meet these standards. And

there’s no reason that we should go easy on California and be

tough—Maryland gets a waiver because they’re good guys.

So that’s the reason, possibly we should leave it to the states. We

leave it to the states with regard to doctors.

Dr. Conover. Right.

Senator Bennett. Is ‘‘good guys’’ a term of legal art?

Representative Stark. Yes.

[Laughter.]

Senator Bennett. Yes. Okay.

Dr. Conover. So what you’re describing is the very reason that

Medicare gets involved in all of this. And that’s why I wasn’t sure

I understood——

Representative Stark. Well, I’m just saying, is there a cost—

you say there’s zero benefit to it. And I’ve got to think there’s some

benefit, whether it’s a state regulation that gives them the seal of

approval or federal.

Dr. Conover. The issue is what would happen otherwise absent

regulation. Would a hospital go into business and provide shoddy

care and start killing people?

Representative Stark. Try Tenet. Try Tenet in Redwood, California, where they killed 167 people through outrageous cardiological practices that were giving people heart transplants when

they were healthy. And hopefully, some of the Tenet officials go to

jail because of this.

Yes. The answer is, yes, indeed, there are scalawags in any area.

There are even some of our colleagues who have gone to jail on occasion.

But what I’m suggesting is that, yes. It’s worse in the nursing

homes where we can have 6-packs and mom and pop can decide to

take six people in like Jim Jones did in Guyana. Yes, there are people who will prey on those who are susceptible.

Dr. Conover. Regulation is a continuum. There’s zero regulation

and then there’s what we’ve got now. I’m not arguing to go back

to zero, okay?

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Representative Stark. Okay.

Dr. Conover. What I’m saying is, let’s look at the areas where

it looks like regulations’ costs are disproportionate to any benefits

and dial back to that level.

Representative Stark. No quarrel.

Dr. Conover. In most domains, it doesn’t mean it’s going to be

zero regulation. But I think we’ve heard lots of testimony today

about the extent to which regulation has gone beyond the point of

being—where the benefits are now less than the costs that are

being imposed on the system. We need to look at that.

Representative Stark. What about, Dr. Hyman—do you like

Maryland’s hospital system, the all-payer system?

Dr. Hyman. No.

Representative Stark. You don’t?

Dr. Hyman. No.

Representative Stark. Why? The hospitals do.

Dr. Hyman. Well, it’s not an accident that the hospitals do,

which is alone a reason to be skeptical about it as a taxpayer.

Representative Stark. They fought it when it went in.

Dr. Hyman. I know. But then it turned out, like lots of these

things, to reward them. It’s not an accident, as you observe, that

there’s only one state left in the union that has rate-setting. And

that’s because the history of rate-setting, like the history of certificate of need, does not bear close examination.

It does—rate-setting, like certificate of need, can be used to

maintain safety-net institutions. Sometimes those institutions

should be maintained. Often direct, overt subsidies are a better

way of doing that than embedding it in the price and pretending

that there isn’t a cost associated with it.

But sometimes hospitals shouldn’t be kept open. And the ratesetting system, which takes as its mandate—keep every hospital

open forever—doesn’t discipline that process.

Representative Stark. I think that’s unfair with Maryland.

What they have done is to—yes, they do set rates. But so does

everybody. I don’t know that there’s a hospital around that gets the

sticker price, unless you just walk in with cash.

Blue Cross sets rates. Aetna sets rates. Medicaid sets rates in

various states. That’s not uncommon.

It’s just that the net effect in Maryland was to set the rates on

a hospital-specific basis. They recognized, for example, that Johns

Hopkins, as a teaching institution, perhaps had a need for a different rate structure than a smaller rural hospital.

But that smaller rural hospital also had some needs because of

a lower population and having fewer services. But what they cut

out was the discounting and the uncompensated care. So that, basically, every patient who came through the door paid the rate, the

same rate, including Medicare and Medicaid.

So the issue of not wanting to take Medicaid patients because

they pay less, in California, was off the table. And then if a hospital was going broke, rather than just keep it alive, they might

have paid a neighboring hospital a little extra to take that hospital

under its wing and provide the services.

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As an observer from far away, I’ve always felt that the Maryland

system was one that states should look at because, in terms of

price and quality, it’s come out with a pretty good mix.

Dr. Hyman. Again, I think this is one of these things that, if you

have perfect information and good incentives, rate-setting, if it

were done by angels, it would probably work well. It’s not.

And again, it’s no accident that a whole series of states experimented with rate-setting and then, with the exception of Maryland,

everyone else has walked away from it.

Like certificate of need, there are problems with information and

incentives that mean, in the real world, it doesn’t work as expected

to in the journals written by academics.

Representative Stark. Would you suggest that we shouldn’t

rate-set in Medicare?

Dr. Hyman. Well, let me just be clear. There’s a difference between rate-setting and payers saying, here’s what we’ll pay and

vendors saying, here’s what we’ll take.

Rate-setting is everybody pays sticker price and nobody can discount. And it has a series of distributional consequences.

The question that you should ask yourself is, if it’s good for hospitals, why shouldn’t it be good for Wal-Mart and hardware stores

and everything else? The state ought to say, the right number——

Representative Stark. There’s a very good reason, Doctor.

Dr. Hyman. Well——

Representative Stark. You and I—I’d challenge the panel to

take the test. The Chairman’s taken it with me and we’ve both

failed.

We don’t know what it is we’re purchasing as consumers. We

can’t spell it. We hurt. Often we’re not in a mental state, because

of pain, to make a reasonable decision.

We take the advice of a professional. And we take that advise—

we swallow the bait whole.

Now with the Internet, we may get a little bit more information.

But, basically, it isn’t like shopping for a digital camera where we

can’t go to Consumer Reports. You can go to U.S. News & World

Report and figure it’s a good hospital.

But I’ve often challenged my witnesses to say that I have this

special arrangement with Georgetown Hospital because I’m such a

good guy, they love me. And I can arrange for all four of you this

afternoon—I’ll give you my business card and I’ll write your name

on the back and you can go over and get a proctoscopic examination or a pap smear at half price if you go there today between 2:00

and 3:00.

Now I’ve never had anyone take me up on that. This isn’t what

we buy. It isn’t like going to Wal-Mart and shopping. That’s a long

argument with the people who say, let the market—let people decide how to buy medical care. They can’t. It’s not like buying a

Chevrolet or a Ford.

Dr. Hyman. Representative Stark, if you view the problem as an

informational deficit, then the sensible strategy is to try and get

more information out and have people be more effective agents for

patients.

But rate-setting is not going to be the strategy you’re going to

employ to address that problem.

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I certainly agree with you. Lots of patients have difficulty knowing what’s going on. Although, people who have chronic illnesses,

not surprisingly, are much better at this than patients with an

acute attack of something that happens once and never again.

But regardless of your views on how severe or minimal that problem is, you wouldn’t use rate-setting to fix that problem. It doesn’t

synchronize with the problem that I think you’ve accurately identified.

Mr. Mulholland. If I could just turn to two things that you

talked about.

That’s an example of regulations that are fairly benign. They’re

not as complex as a lot of state hospital licensing regulation.

For the most part, they make sense. They say that you have to

have a board, you have to have a medical staff, and you have to

have nurses—common sense. The problem there is how they’re enforced. And again, it’s because various regulations have accreted

over the years that drive the enforcers in a manner that they have

no control over.

I’ll give you an example.

Most complaints about violations of conditions of participation

fall in one of two areas for hospitals. One is restraints and I think

that some of the more forward-thinking restraint regulation reforms that Ms. Gottlich talked about are good. People shouldn’t be

tied up in strait-jackets.

But sometimes people need to be restrained for their own good.

There can be a difference of opinion. Somebody complains to the

government. That’s all well and good. That’s everybody’s right.

At that point, they respond to what could be a fairly easily resolvable situation—talking to the doctor, the nurses, the patient,

family—and turn it into a huge federal case because they’re required to do a complete resurvey of the hospital—not just with restraints, not with respect to this issue, but with respect to everything.

Not only that, the government is then required by their own regulations to put a notice in the paper that unless the hospital corrects everything within 60 or 90 days, that they’re going to be excluded from the Medicare program.

That happened once in New Orleans a couple of years ago where

a very well respected institution was being subjected to an investigation. This notice got out. And senior citizens went berserk.

They were very frightened that their hospital was not going to be

open for them. And it’s still taken well over a year to settle down

the public relations nightmare that that hospital faced. But more

importantly, the kind of consternation it forced on all of those senior citizens.

So even common sense regulations can be applied in a way that

create a lot of unintended results and a lot of negative results.

Also, once that happens, the hospital is then going to be resurveyed by the joint commission, the private accreditation body that

Medicare relies on——

Representative Stark. Questionable——

Mr. Mulholland. One could raise questions about any of these

agencies. But that’s the second one.

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Then the office of inspector general will come in and see what

the joint commission did to make sure that it’s fulfilling its deem

status responsibility.

So what would be a relatively easy to resolve situation results in

three separate major investigations that completely ties up the

nursing administration.

Using an anecdote, Senator, similar to yours, my cousin runs a

nursing home in New Jersey. She right now, because of all the assessment requirements that came with the prospective payment

system for skilled nursing care, has a situation where if someone

is in the nursing home for 6 months, they’re going to get at least

eight separate, federally-mandated assessments.

Now the concept of looking at a patient’s needs again makes

sense. But these are multi-page forms that are very complicated,

take a lot of time to resolve. And she has to pull her best nurses

off of clinical duties to do this.

Her nurse administrators do nothing but handle paperwork. And

that’s one of the things contributing to the nursing shortage.

The other thing you mentioned, Representative Stark, was specialty hospitals.

There was the moratorium imposed last year which was an

amendment to one of the exceptions in the so-called ‘‘Stark Law.’’

CMS is studying this issue.

But one of the problems hospitals have is that they’re dealing

with this in a competitive marketplace with one hand tied behind

their back. One of the things that the doctor-owners who are

threatening the viability of a lot of community hospitals by pulling

out well-paying cases into these specialty hospitals, and then

dumping, if you will, Medicaid and indigent patients on the hospital, one of the things that they’re concerned about is, well, maybe

the hospitals say, we don’t want you around here at all any more.

It would be like me going to my law firm and saying, hey guys,

I want an office. I want secretarial help. I want a computer. But

I’m going to be working for the law firm down the street, and

there’s nothing you can do about it because if you did, that would

be called economic credentialing.

So I think that the market could deal with that problem just as

effectively, if not more so, than regulation if hospitals and doctors

were able to compete on an even playing field, and the hospital

saying to the doctor, you have a conflict of interest. Now you have

to leave.

Representative Stark. Several hospitals have, haven’t they?

Mr. Mulholland. They have done so and several courts have

upheld it.

But there is this strange case in Little Rock, Arkansas about 2

months ago where the court said that if a patient wants to be

treated by any particular doctor in any hospital, regardless of the

circumstances, the hospital has to let the doctor in.

And that would apply theoretically even if the doctor was proven

to be incompetent or disruptive.

I think that, to the extent that Congress can resist the impulse

that now is being applied to several state legislators, to outlaw this

so-called economic credentialing, which is nothing more than protecting physicians who have these ownership interests, I think that

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would be a big plus as well. Simply letting the market operate in

some areas can provide more efficient solutions. Certainly not in

every solution.

And I’m not suggesting that all regulations should be destroyed.

But Congress and state legislators need to consider carefully the

unintended consequences of addressing one problem and creating

five more.

And they also need to see how the enforcement agencies apply

the laws that might make sense, but in a way that wouldn’t make

sense.

Representative Stark. Let me follow—may I?

Senator Bennett. Sure.

Representative Stark. There is a question about JCAHO and

their ability to regulate, particularly because they’re paid by the

guys they regulate, which may create some odd incentives.

I am a strong believer in regulating by the spirit of the law rather than by the letter of the law.

But I believe that when you regulate with the spirit of the law,

you need some well-trained, highly-qualified regulators.

The reason that you go by the letter of the law is you’ve got guys

who really may not understand all the details of how to operate a

nursing home or whether a lawyer has been unethical or not. So

they just go down a checklist. That’s easier than the person who

has to reason it through and then say, well, maybe we should have

done it a little bit this way and not so much that way, which takes

some reasoning ability.

Savings and Loans in California are regulated by the letter of the

law and it may have led to our disaster some years ago.

National banks, however, are pretty much by the spirit of the

law. Bank regulators who come in have wide latitude to make

changes in the bank, suggest that board members are changed, get

rid of executives. And their enforcement is just to stay there until

the bank goes along.

And I find it better and we’ve had a better record in regulating.

I would like to see that type of regulation in the hospital area. I

would like to see people come in and rather than having to go

through each medical record, fly speck at a time, be able to look

at the hospital administrator and say, look, you’re 3 weeks or

you’re 3 months behind in getting these forms filled out, without

even talking about how well they’re filled out, and say, I’m going

to come back in two weeks and if they’re not done, you’re not going

to take any more patients for a while.

But I’d feel more comfortable with that type of situation. That’s

hard to legislate, Mr. Mulholland.

Mr. Mulholland. Absolutely.

Representative Stark. To legislate kindness and sympathy and

all those things, it’s difficult to get into words.

Mr. Mulholland. But the more you micro-manage through regulations that proscribe every single thing, the more you invite exactly what you’re trying to avoid.

Representative Stark. We don’t. With the exception of the Internal Revenue Code, which I spend a lot of time with, our laws

are generally quite general.

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It is the regulation process and the ability for people to review

those and complain, and the bureaucracy, for better or for worse,

that leads to this.

Now it’s our job to change it, perhaps, and review it. But as all

of you who have either studied or been involved with it, these regulations don’t come out of what we see on the floor.

Thank you.

Senator Bennett. Yes. The time is going by. When the Ranking

Member said, no quarrel, I was ready to end the hearing instantly

because we very seldom come to that point.

But I think, Mr. Stark, you’ve put your finger on the issue. I

don’t know how this shows up in the record, but we pass laws like

this [indicating].

They go to the regulators, who write regulations like this [indicating bigger].

And then, all too often, the people in the field administer them

like this [indicating bigger still], as if they have all the power in

the world and things happen that Congress does not intend.

But we come back again to the item that is intriguing me in this

whole thing.

If the total burden in dollars that comes as a result of this excessive regulation, and we will stipulate it is not our fault—we’ve

managed to do that. If the total burden that is put on the system

of this regulation absorbs something like the dollars that Dr.

Conover has laid out, those are dollars that could in fact be going

to the less visible victims, the ones who do not get into the nursing

home because they do not have any kind of insurance.

Well, okay, they get in there if it’s Medicare if they’re old

enough.

But if they have other kinds of problems, they don’t get what

they need because the system is paying too much for this over-regulation.

I will stipulate, Dr. Conover, that your numbers are wrong. But

I don’t know whether they’re wrong on the high side or the low

side. And I think you provided a service to us by indicating that

whatever they are, they’re significant in size.

And this is something that all of us ought to be concerned about

and see if we can find some remedy for.

With that, let me thank you all for your participation. We appreciate the effort that went into your preparing your testimony.

If you have written testimony, it will of course be included in the

record in full.

The hearing is adjourned.

[Whereupon, at 11:40 a.m., the hearing was adjourned.]

(31)

Submissions for the Record

PREPARED STATEMENT OF SENATOR ROBERT F. BENNETT, CHAIRMAN

Good morning and welcome to today’s hearing where we will explore how regulation of health care services affects their cost, quality, and availability.

Health care is the most intensively regulated sector of our economy. It is also one

of the largest, accounting for more than 15% of GDP. Significant attention has been

paid to the relative costs and benefits of regulation in other industries, as well as

for the economy as a whole, but the costs and benefits of health care regulation have

often been overlooked. We need to learn more about the impact of the complex web

of rules and regulations that govern how we spend and use more than $1.7 trillion

annually.

Health care is certainly a vital item in all our lives, and some regulations can improve its quality and even reduce its cost. However, there is a significant risk that

the promised benefits of health services regulations will fall well short of their costs.

One challenge is that proponents of regulation are often not the ones who bear

its ultimate burden. This disconnect can lead to excessive regulation. A related challenge is that many regulatory costs are less visible than spending outlays and higher taxes. As a result, the political calculus may tilt toward using less visible regulatory means to accomplish objectives that would lack sufficient support if they required more transparent commitments of public funds.

There is often another disconnect in which people do not appreciate how the burdens of regulation are ultimately borne. Many consumers believe that insurers or

employers pay the extra costs that result from tighter regulations, required expansions in covered services, etc., when in reality those costs eventually come out of

their own pockets in one form or another.

Today, we plan to examine whether health services regulations are delivering sufficient benefits to justify their costs. This is a new and developing area of research,

with important policy implications. Patients, consumers, and taxpayers are the ones

who bear their ultimate costs of unnecessary regulation. Excessive regulatory burdens can also harm our most vulnerable individuals, such as the uninsured and

lower-income health care consumers.

Much health regulation is premised on the judgment that most health care consumers don’t know, don’t want to know, and cannot know enough to make important

decisions for themselves. I don’t know if that’s true often enough to justify the level

of health regulation we have, but we hope to find that out today.

Today we have a panel filled with people who all have their own experience examining the costs and benefits of health services regulation, and how our regulatory

system works.

Professor Christopher Conover of Duke University has worked for several years

to develop an initial set of estimates of the net burden of health services regulation

as a whole, as well as that of its primary components. If there’s a regulatory elephant in the room that is increasing the cost of care and reducing its quality and

availability, he may be able to provide us with some initial measurements of its size

and scope.

Professor David Hyman of the University of Maryland has written extensively

about health care regulation, most notably in the areas of managed care, emergency

room treatment, and mandated benefits. He also recently coordinated 2 years of

hearings on health care competition, conducted jointly by the Federal Trade Commission and the Department of Justice.

Dan Mulholland is a senior partner in Horty, Springer & Mattern. He is one of

the nation’s leading health care attorneys and serves as Chair of the Credentialing

and Peer Review Practice Group of the American Health Lawyers Association.

We’ll also hear from Vicki Gottlich, an attorney in the Washington, DC office of

the Center for Medicare Advocacy, Inc. where she provides legal assistance, reVerDate 03-FEB-2003 14:25 Oct 18, 2004 Jkt 095588 PO 00000 Frm 00035 Fmt 6601 Sfmt 6621 D:\DOCS\95588.TXT SSC1 PsN: SSC1
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search, consultation, and litigation support regarding Medicare and employer-sponsored health benefits.

We welcome you here today and look forward to your testimony.

PREPARED STATEMENT OF REPRESENTATIVE PETE STARK,

RANKING MINORITY MEMBER

Thank you, Chairman Bennett. I have to take issue with the premise of today’s

hearing—‘‘The Burden of Health Services Regulation’’—because it implicitly assumes that regulations are simply useless impediments to economic efficiency and

lowering health care costs.

In fact, many health care regulations are borne of the abuse of human beings and

the degradation of their fundamental rights. Simply put, these regulations protect

people’s lives. So there can be no rational debate about doing away with health care

regulations writ large for the sake of efficiency and thrift.

We’ve seen with the prisoner abuse scandal in Iraq that when regulations break

down—in this case military regulations—the human toll that follows is simply unacceptable.

Countless examples of regulations that curb abuses in health services exist. Hospitals routinely turned away poor women in labor until Congress intervened and enacted the Emergency Medical Treatment and Active Labor Act (EMTALA) which

prohibited this practice and guaranteed access to emergency care to all people, regardless of their ability to pay. Ms. Gottlich will give us her account of how nursing

home regulations have reduced patient neglect and mistreatment that was widespread before consumer protections were put in place.

Right now, the Centers for Medicare and Medicaid Services claims it is heavily

regulating the Medicare prescription drug discount cards, because there are already

instances across the country of seniors being defrauded. The Bush Administration

has admitted that they have to keep a close eye on the private companies that are

providing drug cards, in order to prevent seniors from being fleeced. Not withstanding these regulations, I still doubt that these cards will be able to provide

much value to the elderly—but these concerns stem from loopholes in the underlying statute.

Regulations at the Food and Drug Administration ensure that the drugs we are

sold and devices we use are safe and efficacious. Do we want to roll back those protections? I support re-importation from selected countries as a method to lower prescription drug costs and think we can do so in a manner that preserves important

safety measures, but in this case many on the other side of the aisle oppose doing

so precisely because they claim it might undermine our regulatory structure.

I think our witnesses will be hard pressed to pinpoint a group of regulations that

would save a great deal of money without unleashing disastrous consequences. Reining in medical malpractice costs is the popular example of untold savings in health

care, but the Congressional Budget Office has found that malpractice insurance and

legal fees have only a negligible effect on overall health care costs. In fact, C$O estimated savings of less than one-half of 1 percent if strict liability limits were enacted, and the President’s budget shows no savings from such caps.

Ironically, Dr. Conover shares this vision and also advocates regulating the malpractice tort system by limiting damages patients and consumers can collect from

providers and companies—so apparently regulation isn’t all bad.

I am also troubled that we are having this hearing focusing on some very complex

and preliminary calculations of the costs and benefits of health services regulations.

There is no detailed documentation supporting the analysis by Dr. Conover. The

study is not widely recognized or accepted among a broad range of health economists. But even more disturbing is that in some instances zero benefits have been

assigned to important set of regulations where clearly the benefits are not zero.

Let’s be clear. Eliminating regulations will do nothing to increase access and affordability to health care, as some of our witnesses have argued. There is no guarantee that money ‘‘saved’’ from less regulation would be put toward covering the uninsured. Indeed, the likely result would be insurance companies, hospitals, doctors,

and pharmaceutical companies pocketing the savings.

Rolling back regulations is foolish because it won’t lower costs, and it won’t increase access or affordability to health care. More importantly, it’s just too dangerous to our health.

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