U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

44–037 PDF 2008

GETTING BETTER VALUE

IN HEALTH CARE

HEARING

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

HEARING HELD IN WASHINGTON, DC, JULY 16, 2008

Serial No. 110–37

Printed for the use of the Committee on the Budget

(

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/budget/index.html 

(II)

COMMITTEE ON THE BUDGET 

JOHN M. SPRATT, JR., South Carolina, Chairman 

ROSA L. DELAURO, Connecticut, 

CHET EDWARDS, Texas 

JIM COOPER, Tennessee 

THOMAS H. ALLEN, Maine 

ALLYSON Y. SCHWARTZ, Pennsylvania 

MARCY KAPTUR, Ohio 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL BLUMENAUER, Oregon 

MARION BERRY, Arkansas 

ALLEN BOYD, Florida 

JAMES P. MCGOVERN, Massachusetts 

NIKI TSONGAS, Massachusetts 

ROBERT E. ANDREWS, New Jersey 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

BOB ETHERIDGE, North Carolina 

DARLENE HOOLEY, Oregon 

BRIAN BAIRD, Washington 

DENNIS MOORE, Kansas 

TIMOTHY H. BISHOP, New York 

GWEN MOORE, Wisconsin 

PAUL RYAN, Wisconsin, 

Ranking Minority Member 

J. GRESHAM BARRETT, South Carolina 

JO BONNER, Alabama 

SCOTT GARRETT, New Jersey 

MARIO DIAZ–BALART, Florida 

JEB HENSARLING, Texas 

DANIEL E. LUNGREN, California 

MICHAEL K. SIMPSON, Idaho 

PATRICK T. MCHENRY, North Carolina 

CONNIE MACK, Florida 

K. MICHAEL CONAWAY, Texas 

JOHN CAMPBELL, California 

PATRICK J. TIBERI, Ohio 

JON C. PORTER, Nevada 

RODNEY ALEXANDER, Louisiana 

ADRIAN SMITH, Nebraska 

JIM JORDAN, Ohio 

PROFESSIONAL STAFF

THOMAS S. KAHN, Staff Director and Chief Counsel 

AUSTIN SMYTHE, Minority Staff Director 

(III)

C O N T E N T S

Page 

Hearing held in Washington, DC, July 16, 2008 .................................................. 1

Statement of: 

Hon. John M. Spratt, Jr., Chairman, House Committee on the Budget ..... 1

Hon. Paul Ryan, ranking minority member, House Committee on the 

Budget ............................................................................................................ 2

Hon. Adrian Smith, a Representative in Congress From the State of 

Nebraska, prepared statement of ................................................................ 3

Peter Orszag, Director, Congressional Budget Office .................................... 4

Prepared statement of ............................................................................... 6

Issue Brief, dated June 5, 2008, requested by Mr. Smith of Nebraska 40

Jeanne M. Lambrew, Ph.D., associate professor, Lyndon B. Johnson 

School of Public Affairs, University of Texas at Austin ............................ 14

Prepared statement of ............................................................................... 17

David Gratzer, M.D., senior fellow, Manhattan Institute ............................. 22

Prepared statement of ............................................................................... 25

(1)

GETTING BETTER VALUE IN HEALTH CARE 

WEDNESDAY, JULY 16, 2008

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE BUDGET, 

Washington, DC. 

The committee met, pursuant to call, at 10:10 a.m., in Room 210, 

Cannon House Office Building, Hon. John Spratt [chairman of the 

committee] presiding. 

Present: Representatives Spratt, Schwartz, Kaptur, Becerra, 

Doggett, Berry, Scott, Etheridge, Moore of Kansas, Ryan, Conaway, 

Alexander, and Smith. 

Chairman SPRATT. I call the hearing to order. 

Good morning and welcome to the House Budget Committee’s 

hearing on Getting Better Value Out of Health Care. We have 

three outstanding witnesses with us today to help us understand 

what needs to be done to ensure that our money is spent wisely 

and well on health care both in the private and public sectors. 

CBO’s Director Peter Orszag has made a great contribution towards helping us in Congress understand better the issues and levers that are available to us in the arena of health care. I can’t understate how much we appreciate his advice and input. 

Jeanne Lambrew is a health policy expert now at the University 

of Texas, a constituent of Lloyd Doggett, but we know her from 

years past for her excellent advice and participation in these issues 

as well. 

Dr. David Gratzer is a physician who has practiced in Canada 

and the United States, which gives him a special perspective to 

bring to the table today. I thank all three witnesses for coming and 

we look forward to your testimony. 

Health care spending has outpaced U.S. economic growth for 

quite some time and, frankly, is expected to continue doing so. This 

overall trend has significant implications for our Federal budget. 

CBO projects its spending for Medicare and Medicaid under current law could more than quadruple as a percent of GDP over the 

next 75 years, growing from 4.1 percent of GDP today to 18.6 percent of GDP by 2082. CBO also projects that based on current 

trends and policy preferences, the gap between Federal spending 

and revenues over the next 75 years is 6.9 percent of GDP. 

To address this long-term fiscal imbalance, everything will have 

to be on the table and everyone will have to be at the table, but 

it is also clear that these budget decisions cannot be made in a vacuum. Putting the budget on a sustainable path inescapably involves the need to address the growth trends in overall health care 

spending. 

2

We have held a number of hearings on this subject, and we will 

hold more. Today’s hearing gives us a chance to delve a bit deeper 

into some of the challenges and opportunities in health care. 

We do not know with any certainty today how much society can 

or should spend for the health care we all desire, but we do know 

it makes no sense to spend money on health care that is ineffective 

or potentially even harmful to patients. 

Dr. Orszag has noted in previous testimony that there are significant opportunities to reduce health care costs without harming 

health care outcomes. It is critical that we begin to explore these 

opportunities, especially in connection with a system-wide look at 

both public and private health care. Today’s hearing gives us just 

that opportunity. 

Before turning to our witnesses for their testimony, let me go to 

Ranking Member Ryan and ask him for any opening statement he 

would like to make. 

Mr. Ryan. 

Mr. RYAN. Thank you, Mr. Chairman. As usual, another great 

hearing. A very timely topic and fantastic witnesses. 

Access to quality, affordable medical care is critically important 

to all Americans, and that is why this hearing is so timely. The 

problem is, we are spending more than $2 trillion a year on health 

care, and that number continues to skyrocket. But we still have 47 

million people without health insurance, and many others are 

afraid they might lose their coverage because costs are rising too 

fast for them to keep up with it. 

We can and we must get control of health care costs, and there 

are a number of steps we can make to improve this situation, some 

of which we are going to be discussing here today. But we need to 

be sure that we start in the right place, and that would be the argument I would make. 

The real cornerstone of health care is the relationship between 

the individual patient and their doctor. So whatever we do, we 

ought to aim to strengthen and reinforce that relationship. 

We can achieve that goal by removing the distortions in the 

health care marketplace to make it more competitive and more 

cost-effective. That was one of the guiding principles in the health 

care component of a plan I introduced in May that I call a Roadmap for America’s Future. I believe that some of the elements of 

my plan will be consistent with some of the recommendations of 

our witnesses here today, so I will briefly just note a few. 

First, we need to recognize that the current third-party payment 

arrangements promoted by the Federal tax exclusion for employerbased health insurance and by the structure of Medicare and Medicaid themselves remove patients from the decision-making process 

and hide the true costs of services. The tax treatment also discriminates against workers and families who do not have employer-sponsored health insurance. 

Placing the tax benefit in the hands of individuals and families 

will lead to better competition, which will spur greater options and 

higher-quality services to meet the diverse needs of Americans, just 

as it does in all the other sectors of the U.S. economy. 

Second, making price and quality data available to everyone is 

critical. It is critical to the success of an effective health care marVerDate 0ct 09 2002 14:04 Aug 29, 2008 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 J:\DOCS\HEARINGS\110TH\110-37\44037.TXT HBUD1 PsN: DICK
3

ketplace. Individuals and families must have a better sense of what 

they are expected to pay for health care and what they are going 

to get for their money. 

Third, just as individuals ought to be able to own their own 

health care coverage, they should also own their own health care 

records. This can be done by making medical records electronic and 

portable. 

Finally, we have got to recognize that we will never get ahold of 

overall medical costs without also addressing the structure of Federal health entitlements. We know this all too well on this committee. Medicare and Medicaid make up one-third of all health care 

spending nationally, so clearly this has a huge impact on the overall health care financing network. 

As I said at the start, because Americans want quality, affordable medical care, we will always spend a large share of our economic resources to get it. But we can certainly get more value for 

what we spend today, and I look forward to hearing from our witnesses on how we just do that on this critical issue. 

Thank you, Mr. Chairman. 

Chairman SPRATT. I ask unanimous consent that all members be 

allowed, if they wish, to submit an opening statement for the 

record at this point. 

Without objection, so ordered. 

[The prepared statement of Mr. Smith follows:]

PREPARED STATEMENT OF HON. ADRIAN SMITH, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF NEBRASKA

Good morning. Thank you, Mr. Chairman, for convening this hearing today on 

Getting Better Value in Health Care. Thank you also to our distinguished panel of 

witnesses. 

With Medicare, Medicaid, and Social Security consuming 8.4% of the federal budget, and expected to grow to 18.9% by 2050, we cannot hope to balance the budget 

if we do not find ways to encourage more efficient use of health care dollars. Collecting and sharing data on the effectiveness of various treatments is one way we 

could encourage better decisions. By doing so, we would be able to demonstrate to 

both providers and patients the most common or expensive course of treatment is 

not always the most effective, and begin encouraging better use of Medicare’s limited funds. 

We must remember, however, that doctors and patients, not politicians, are best 

equipped to determine the proper course of treatment. While comparative effectiveness data can be a useful tool in saving lives and money, patients have unique 

needs, and this information should not be used to mandate treatment for anyone. 

Not only do patients react differently to treatment, but often the best course of 

treatment for seniors in large cities with ready access to health care facilities may 

not be right for a senior in rural Nebraska who must travel 50 to 100 miles or more 

round trip to see a specialist for the same condition. 

We must remember comparative effectiveness is not a panacea. We must also pursue any number of other solutions to encourage the smart, efficient use of health 

care dollars if Medicare is going to be around for our children and grandchildren. 

Thank you again, Mr. Chairman and panelists. I am looking forward to learning 

much more this morning about how we can more efficiently provide health care to 

our seniors.

Chairman SPRATT. Let’s begin our witnesses today with Dr. 

Orszag. 

Dr. Orszag and all of our witnesses, you should be on notice that 

your entire statement will be made part of the record so that you 

can summarize it as you see fit. But the floor is yours to take as 

much time as you need to explain your points today. 

Let’s begin, as I said, with Dr. Orszag. 

4

Thank you, sir, for coming. We look forward to your testimony. 

STATEMENT OF PETER ORSZAG, DIRECTOR, CONGRESSIONAL 

BUDGET OFFICE 

Mr. ORSZAG. Thank you, Mr. Spratt, Mr. Ryan, members of the 

committee. 

Health care contains, in my opinion, the largest inefficiencies in our economy. Credible estimates suggest that as much as $700 billion a year in health care services delivered do not improve health 

outcomes. That is 5 percent of our national income. There is no 

other inefficiency that I can identify that comes close to it. 

Health care costs are also the key to our fiscal future, as the first 

chart shows—or is about to show—with very rapid growth in Medicare and Medicaid being the dominant force in spending over the 

long term. 

It is also the case, as an illustration of the inefficiencies that I 

mentioned, that health care costs vary quite substantially across 

different parts of the United States, as the second chart shows, for 

reasons that cannot be explained based on the severity of illnesses 

in different parts of the country or the prices of building a hospital 

or paying a doctor in different parts of the country. And the darker 

blue areas of the country—I should probably say that sometimes 

this graph is presented in red and sometimes in blue; today it is 

blue. The darker blue parts of the country have significantly higher 

costs mostly because of more intensive treatment patterns—not because things cost more there, but rather because there is more 

done there. 

The interesting part is as you look at the next chart, there is no 

additional benefit that you seem to get from the higher spending 

areas. So the higher spending is not associated with better health 

outcomes or higher quality than lower spending areas. And we see 

that even at our leading medical centers, where there are significant variations in the cost of treating a patient across our top medical centers that don’t correlate or do not seem to generate improvements in health outcomes. I think that is perhaps the most 

telling illustration of this significant inefficiency. 

So what do we do about it? It seems to me like there are three 

steps that are crucial to any plan to attack this problem. 

The first is, we need much more information on what works and 

what doesn’t. Far too much of the medical care delivered in the 

United States is not backed by specific evidence that it works better than anything else, and much of that additional intensity in the 

higher spending regions is of low or zero value apparent care, again 

because it is not backed by any specific evidence that it works better. 

In order to get that information on what works and what doesn’t, 

we likely will need a more universal system of health information 

technology. And I would just immediately say if you were serious 

about getting there, rather than providing small subsidies for hospitals and doctors to adopt health information technology, which 

would only affect those entities that were close to adopting voluntarily, you could very quickly get to nearly universal health information technology if you said to hospitals and doctors, you have 3 

or 4 years to adopt a health IT system that meets the following 

5

qualifications, and after that you won’t be reimbursed under Medicare unless you have such a system in place. 

If you did that, I am very certain we would have nearly universal 

health IT very quickly. 

In addition, you need some system for using the information and 

evaluating what is coming out of the health IT system through 

some sort of comparative effectiveness research entity or entities. 

So that is more information. 

Secondly, we need to change the incentives in health care. Right 

now we have financial incentives for more care rather than better 

care, and we are not going to get better care unless we create incentives for that. What that means is basically paying more for the 

stuff that works and not paying for or paying less for the stuff that 

doesn’t. We can talk more about that. 

I also think we need to be doing a lot more on healthy living and 

helping people live the kinds of lives that most people say they 

want to. On that point, I would say I feel like I was mistrained as 

an economist, and we are learning from behavioral economics and 

psychology that a lot of personal behavior is driven by social norms, 

by the way things are presented, by what the default is, what happens automatically, and that financial incentives can matter, but 

they matter often much less than those other things. So the purely 

rational Economics 101 perspective, which is at the heart of a lot 

of public policy, is very limited in terms of how effective it is in affecting personal behavior. 

I would just close by noting, I think one of the significant impediments that we face is a political economy one, which is that most 

workers don’t seem to appreciate how much health care costs are 

actually bearing on them because the costs are hidden in the form 

of employer contributions for health insurance; and even though all 

of the evidence suggests that workers do bear those costs through 

reduced take-home pay, it is not salient. People don’t focus on that, 

and most people I think don’t recognize how much the system is 

actually costing us. 

Secondly, there are questions about whether our political system 

deals well with gradual, long-term problems like this one, gradually increasing costs. On that point, I would note there may be 

process changes that could help. There have been ideas floated for 

a Federal health board, which we could discuss in more detail. And 

also, unlike some other long-term challenges that we face, this one 

has things that are happening today. As I have already said, workers’ wages are being reduced to a degree that perhaps is underappreciated and unnecessarily large. 

At the State level, Medicaid costs are crowding out State support 

for higher education and thereby raising public tuition today. And 

your taxpayer dollars are financing care at UCLA Medical for 

Medicare beneficiaries in the last 6 months of life that cost an average of $50,000 a year, and at the Mayo Clinic for Medicare beneficiaries in the last 6 months of life $26,000 a year; and I cannot 

tell you what we are getting in exchange for the extra money. 

Thank you very much, Mr. Chairman. 

Chairman SPRATT. Thank you, Dr. Orszag. 

[The prepared statement of Peter Orszag follows:]

6

NOTE.—This statement reprises a presentation given at the Senate Finance Committee’s 

‘‘Health Reform Summit,’’ in Washington, DC, on June 6, 2008.


hc-1.eps
7


hc-2.eps
8


hc-3.eps
9


hc-4.eps
10


hc-5.eps
11


hc-6.eps
12


hc-7.eps
13


hc-8.eps
14

Chairman SPRATT. Now Dr. Lambrew. 

STATEMENT OF JEANNE M. LAMBREW, PH.D., ASSOCIATE PROFESSOR, LYNDON B. JOHNSON SCHOOL OF PUBLIC AFFAIRS, 

UNIVERSITY OF TEXAS AT AUSTIN, AND SENIOR FELLOW, 

CENTER FOR AMERICAN PROGRESS ACTION FUND 

Ms. LAMBREW. Thank you, Chairman Spratt, Ranking Member 

Ryan and distinguished members of the committee. I thank you for 


hc-9.eps
15

the opportunity to testify on the topic of value in health care. Arguably, few other topics are more important to your work. 

As Dr. Orszag just laid out, the long-run budget problems are 

largely driven by health care cost growth, and fiscal stability cannot be achieved without health reform. As such, it is both a health 

priority as well as a budget priority. In my testimony, I suggest 

how value in the care system can be enhanced and why the opportunity for doing so is on the horizon. 

To begin with, health care is complex, eluding simple rules. Technological advances in medicine tend to increase the need for highpaid specialists rather than improving productivity. Providers determine demand, as well as meet it, insurers have little incentive 

to promote value when enrollees come and go, and people believe 

that high-cost care equals high-quality care, despite evidence to the 

contrary. As such, no single simple plan can achieve value. Instead, 

I suggest that it requires an adaptable infrastructure through 

which changing information, best practices and incentives for use 

can be channeled. 

The first component of such an infrastructure is standards. Despite evidence on the benefits and trade-offs for many treatments, 

no authoritative synthesis of such information exists. Instead, different and sometimes conflicting standards are used across the Nation. This has resulted in low use of recommended care, high use 

of questionable care, and unnecessary complexity for doctors and 

patients. Creating a standard-setting process to guide health care 

decisions could improve value in the health care system. 

Second, dissemination is as critical as the development of these 

standards. Standards can only affect performance if they reach the 

remote parts of our health care system and vice versa. Information 

and expertise from all parts of the health care system are needed 

to set standards. Information networks can accelerate access to 

best practices and provide data to inform them. 

Third, knowledge is necessary, but not sufficient. Financial incentives for providers and patients should be steered towards 

value, not just costs. Public subsidies of private insurers could also 

leverage value-based coverage, and the delivery system itself could 

be redesigned to make high-value health care in coverage the easiest choice for individuals and providers. 

Such infrastructure to promote standards through dissemination 

and their use can undergird a number of different health reform 

proposals, although their efficacy is maximized in a seamless system with sustainable financing. In my testimony, I have described 

five policies that could lay the groundwork for value oriented 

health care. Here I list three. 

The first, echoing what Dr. Orszag just said, is investing in comparative effectiveness research. A prerequisite to assigning value is 

knowing the relative impact of the various health services and delivery modes. So-called comparative effectiveness research has support from a wide range of businesses, consumer groups and experts. 

Bipartisan legislation has been introduced, and the Congressional Budget Office estimated that that proposal could save the 

system up to $6 billion over 10 years. Congress should enact this 

16

legislation, since this information is the building block for a valuebased system. 

Second, policymakers could create a Federal Reserve-like board 

to set standards. This board would be an authoritative source of information on the value and trade-offs associated with health care 

services and delivery mechanisms. It could focus on high-cost services as well as new services and complement existing efforts. Its assessments of high-value health care would be accessible to payers, 

providers, patients and the public. 

Like the Federal Reserve System, it could also include regional 

health value boards to tap into local medical leadership. Such 

boards may be better able to gain the trust and change the behavior of local providers than a national board. This Federal health 

board system could be built on existing State and Federal efforts. 

Third, Medicare should become a leader in promoting value. Despite funding less than 20 percent of the health system, Medicare 

often sets the standards for the private sector. It could lead the 

shift to a value-based system as well. Congress could delegate authority to Medicare to adopt payment policies consistent with 

value-oriented standards. Such changes could be allowed within 

boundaries. 

For example, the authority could be limited to changes that 

would reduce spending within the budget window according to Congressional Budget Office or MedPAC or some authority. Congress 

could always override these changes, but the default would be 

flipped. Medicare would automatically adopt value-based policies 

rather than relying on Congress to do so. 

In addition, Medicare could use its capital financing to facilitate 

high-value care. For example, it could support computer-assisted 

reminder systems that have proven effective at improving use. It 

could also make the adoption of such practices part of its accreditation for hospitals and providers. 

This infrastructure—and in addition, in my testimony I talk 

about mandatory health information technology, which could be a 

part of this, as well as the importance of prioritizing prevention. 

There are considerable policies out there to figure out how we shift 

the emphasis from acute care to prevention, and those are detailed 

in my testimony. 

But this infrastructure for standards, information exchange, and 

tools for its use does not depend exclusively on a private or public 

insurance system. It could be put into place through incremental 

reform. But high-value health care cannot be initially or consistently applied when one in three Americans falls out of the system 

over the course of 2 years; and using public financing to leverage 

private, value-based care and coverage is necessary to meet the 

system’s potential. 

So, in closing, the imperative for improving the value in the 

health care system is strong, and the opportunity for doing so may 

be nearer. The next Congress and President face inescapable tax 

and budget decisions, and a number of expiring policies will be 

waiting on the doorstep. Tax and budget reform represent an opportunity for health reform, and I am encouraged by your focus on 

value today. 

Thank you for your attention. 

17

[The prepared statement of Jeanne Lambrew follows:]

PREPARED STATEMENT OF JEANNE M. LAMBREW, PH.D., ASSOCIATE PROFESSOR, 

LYNDON B. JOHNSON SCHOOL OF PUBLIC AFFAIRS, UNIVERSITY OF TEXAS AT AUSTIN

Chairman Spratt, Ranking Member Ryan, and distinguished Members of the 

Committee, I thank you for the opportunity to testify on the topic of value in health 

care. Arguably, few other topics are more important to your work. As the Congressional Budget Office Director has testified, the long-run budget problems are largely 

driven by health cost growth. Medicare, Medicaid, and other health program spending comprise about one-fourth of the Federal budget. Their rapid projected growth 

accounts for the entire long-run Federal fiscal deficit. It is an economic as well as 

a budget issue. Health spending accounts for 16 percent of our economy—more than 

housing or food. Its rapid growth poses challenges to businesses and individuals 

whose income is increasingly devoted to paying for health care. And, despite the 

enormous investment in health care, the quality of that care and its outcomes fall 

short by most standards. As the Federal Reserve Board Chair Ben Bernacke recently said, ‘‘Improving the performance of our health-care system is without a 

doubt one of the most important challenges that our nation faces.’’

In this testimony, I would like to suggest how value in the health care system 

can be improved and why the opportunity to do so is on the horizon. ‘‘Value’’ generally describes the perceived quality of care or benefit per dollar spent. Improving 

value is not necessarily synonymous with improving efficiency. Some aspects of care 

provision, such as its patient centeredness, are worthwhile to patients but not strictly efficient. Nonetheless, the United States spends an enormous amount on duplicative, low-utility, and even harmful health care, so that a high-value health system 

would be more efficient overall—and offer significant non-economic advantages as 

well. 

ELEMENTS OF A VALUE-ORIENTED SYSTEM

There is no ‘‘silver bullet’’ for improving value in health care, precisely because 

of the nature of health care. The exacting rules that govern fields like engineering 

and physics do not apply to human health. Illnesses and therapies evolve rapidly, 

with new diseases and cures introduced each year. Basic economic rules also fit 

some aspects of health care poorly. Technological advances that typically lower labor 

costs have instead raised them by increasing the reliance on highly-paid health care 

specialists. Mass production that has revolutionized other sectors has no real foothold in health; health care jobs now outnumber manufacturing jobs.1 Moreover, people still trust their doctors to define their demand (i.e., diagnose it) as well as fulfill 

it. People believe high-cost care equals high-quality care, despite evidence to the 

contrary. And, they undervalue disease prevention and overvalue disease ‘‘heroics’’ 

or intense medical interventions to reverse disease—reflecting the values and beliefs 

that also shape our health system. 

The nature of health care make it is impossible to draft a single, perfect health 

care system: it would not work for all providers and people, and even if it did, it 

would be obsolete quickly. It also means that classical market solutions do not neatly apply to health care. Demand is complicated, providers sit on both the supply and 

demand sides of the equation, and suppliers—primarily insurers—have little incentive to promote value when payers and enrollees come and go. What is needed instead, in my opinion, is a strong infrastructure though which changing information, 

best practices, and preferences can be channeled. This infrastructure consists of 

standards for high-quality, cost-effective care, networks for transferring these standards throughout the system, and policies for their adoption, described below. 

Standards for High-Value Health Care: In certain respects, the United States 

leads the world in health care. The National Institutes of Health, its universities 

and its private-sector labs have produced medical breakthroughs that have benefited 

millions and are used worldwide. Some insurers and payers of care have used this 

information to successfully shape the delivery of care. For example, most health 

plans use the Healthcare Effectiveness Data and Information Set (HEDIS) that 

measures plan and provider performance on key quality indicators, with proven success. And, some providers have developed feedback systems to inform both the basic 

research as well its adaptation for daily practice. For example, Kaiser Permanente’s 

monitoring of its own enrollees detected the increased risk of heart attacks associated with Vioxx and dropped its coverage of it—contributing to its withdrawal from 

the market. Despite evidence of the benefits and tradeoffs for many if not most 

treatment options, no authoritative synthesis of such information exists. Instead, 

different and sometimes conflicting standards are used across the nation, propaVerDate 0ct 09 2002 14:04 Aug 29, 2008 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 J:\DOCS\HEARINGS\110TH\110-37\44037.TXT HBUD1 PsN: DICK
18

gated by specialty societies, some government programs, insurers, consumer 

websites, and regional coalitions. 

The consequences of few standards for high-value health care and coverage are 

troubling. Lack of knowledge of recommended therapies likely contributed to their 

provision only 55 percent of the time.2 Another study found that only 41 percent 

of primary care doctors were familiar with national guidelines for blood pressure 

treatment, although awareness increased the probability of recommended action.3

Competing standards also affect performance. For example, a study by the Institute 

of Medicine found the six major Federal health programs had different quality 

standards, creating unnecessary confusion and burdens for providers.4 A typical doctor has public and privately insured patients, making the adherence to the different 

coverage and quality reporting onerous. And, as can be seen in the studies of practice patterns, the variability is greater for services with a weaker evidence base. For 

example, the landmark Dartmouth study that found no better quality or outcomes 

in high-cost areas attributed the excess costs to greater use of testing and evaluative 

services as well as use of the hospital as a site of care; use of major surgical procedures and minor non-discretionary services were not significantly different.5 In the 

absence of evidence on benefits and costs, people and often providers assume that 

more is better even when it may be wasteful or harmful. 

Creating a standard-setting process to guide health care decision making could 

improve value in the health system. This process could identify services and delivery 

system practices for which there is: (a) strong evidence for or against their use; (b) 

strong evidence on the tradeoffs of substitutes; or (c) weak evidence. It could also 

identify research gaps that should be prioritized to promote a high-performing 

health system. In particular, studies on the comparative clinical and cost effectiveness of different treatment options could be encouraged. These standards would neither constitute ‘‘cook-book medicine’’ nor the elements for a defined benefits plan. 

For example, the process would not weigh in on resource allocation and who pays 

for care. Instead, these standards would advance a common understanding of the 

state-of-the-art health care practices—the basic building block for improving performance. 

Information Exchange Networks: Dissemination is as critical as the development 

of standards. Standards can only affect performance if they reach the remote parts 

of our health system, and vice versa: information and expertise from all parts of the 

health system are needed to set the standards. Historically, knowledge among providers and managers has been shared through annual conferences, continuing medical education programs, journals, and specialty societies. Disease registries, where 

information is collected on certain types of patients and treatment protocols, have 

proven to assist in both education and adoption. The rapid evolution of information 

technology has also facilitated dissemination and adaptation at all levels of the 

health system. ‘‘Learning networks’’ and Regional Health Insurance Exchanges have 

been created to harmonize data collection and reporting at the local level. Provider 

and consumer decision support tools have proliferated. And the interest in implementing a nationwide electronic medical record is strong. 

Yet, rather than simplifying the system, the explosion of communication tools has 

sometimes increased chaos. Internet-based journals, physician and health plan resources, and consumer resources (e.g., WebMD) abound. A patchwork of registries 

and data bases has placed time-consuming and sometimes expensive demands on 

providers and organizations to participate. Entrepreneurs have entered the space, 

offering electronic health records, support systems, and feedback tools. Meanwhile, 

there is no evidence that these advances have shortened the years for a proven 

treatment to move from the lab bench to the bedside. And, a recent study found that 

only 4 percent of physicians used a complete electronic medical record, with an additional 13 percent using a basic system.6

One key step to increasing value in health care is creating a national, health information technology infrastructure to facilitate development and dissemination of 

best practices. Beyond its potential administrative savings, information technology 

could build in prompts, reminders, and error warnings at the point of service. The 

Veterans’ Administration health system has used technology in this way with positive results. In addition, a national, privacy-protected electronic health record would 

provide data for studies on the comparative effects of clinical and delivery system 

interventions on a wide-scale basis. This could make the health system more efficient over time by limiting the adoption of new therapies that offer less benefit than 

existing ones.7 Technology is an essential but not the sole source for the exchange 

of information. The heavy reliance on judgment and experience in health care delivery supports the idea of building regional peer networks. Like specialty societies, 

they would provide the latest research and data feedback, but would do so with an 

understanding of the local context, culture, and health system resources. 

19

Tools to Promote Adoption of High-Value Care: Arguably the greatest challenge 

to promoting value is ensuring that the participants in the system adhere to proven 

standards. Knowledge of these standards alone can help. But, evidence suggests it 

is not enough. Regular blood testing is a well-known standard of care for diabetics, 

yet only 24 percent of participants in a national study had three or more 

glycosylated hemoglobin tests over a two-year period.8 Conversely, there is little evidence supporting the use of CT scans for management of heart disease yet a recent 

article documented the rapid increase in their use and thus costs.9

Part of this pattern can be explained by reimbursement rates. Value is rarely 

taken into account when determining whether and what a provider gets paid.10 Payment rates usually only account for a service’s cost, not its benefits—promoting 

high-cost health care irrespective of its merit. This may explain why there is higher 

adherence to standards of care for procedures (which tend to have high reimbursement) versus counseling (which tends to go unreimbursed).11 Similarly, the amount 

that patients pay in cost sharing is typically pegged to a service’s cost rather than 

its value. Simply stated, financial incentives for providers and patients are misaligned. 

Beyond financing, the lack of organization of the delivery system diffuses the accountability for producing value. Studies have found that having an organizational 

culture that promotes quality results in high performance ratings for providers.12

Yet, most doctors still practice alone or in small groups and lack the critical mass 

to implement and connect to larger systems to improve the value of the care for 

their patients. Ideas to remedy this range from linking all providers to a hospital 

to forging ‘‘interdependent practice organizations’’ that assume responsibility for 

members’ performance.13 Beyond their ability to invest in system supports, organizations could also have a social network effect on provider behavior, which has recently been found to be powerful in reducing obesity and tobacco use.14

Lastly, an often-overlooked tool in improving value is making it the path of least 

resistance. A growing literature suggests that making the desired behavior the default improves the odds of achieving it.15 For example, the use of beta blockers after 

a heart attack is the standard of care. Research has found greater use of this drug 

among patients to whom it was prescribed in the hospital discharge orders—not 

leaving it to the patient to fill the prescription independently later. Moreover, some 

hospitals automatically prescribe beta blockers on the discharge order, allowing the 

doctor to take it off the order, but asking for an explanation why. This system reduces the required steps needed to achieve the desired result. Across the board, payment and delivery systems could be designed so that high-value care is the easiest 

choice for individuals and providers.16

POLICIES TO CREATE THE INFRASTRUCTURE FOR A VALUE-ORIENTED SYSTEM

This infrastructure—standards for value, information exchange networks, and 

tools for its use—could undergird different mixes of public and private insurance. 

It does not depend on either an exclusively public or private insurance system to 

work. As such, it could be incorporated into a number of different health reform 

plans. However, a key to achieving a high-value health system is seamless coverage 

for all Americans: high-value care cannot be initially or consistently applied when 

one in three individuals falls out of the system for at least a month over a two-year 

period.17 Similarly, inadequate coverage—a problem for 25 million insured Americans according to a recent study—results in cost-related barriers to care and coordination and communications problems which interfere with value-oriented care.18 As 

Henry Aaron has put it, ensuring adequate coverage for all Americans is, ‘‘a precondition for effective measures to limit overall health care spending.’’ 19

That said, some of the infrastructure for a value-oriented health system could be 

put into place in the context of incremental reform. These components are described 

below. 

Investing in Comparative Effectiveness Research: A pre-requisite to assigning 

value in health care is knowing various services’ relative impact. ‘‘Comparative effectiveness research’’ is the rigorous assessment of the relative safety, effectiveness, 

and cost of treatments or approaches for addressing the same condition. This type 

of research has been funded by the Agency for Healthcare Research and Quality’s 

(AHRQ’s) appropriations, but at a fraction of the amount authorized in the Medicare 

drug law enacted in 2003. Proposals to significantly increase comparative effectiveness research funding and ensure its independence have support from a wide range 

of businesses, consumer groups, and experts, including the health advisor to George 

H.W. Bush.20 Bipartisan legislation has been introduced by Representatives Allen 

and Emerson and a version of it was included in the Children’s Health and Medicare Protections Act of 2007 that passed the House but was vetoed by President 

20

Bush. The Congressional Budget Office estimated that this provision, which created 

a trust fund seeded by public and private funding, would save the system $6 billion 

over 10 years and reduce Federal spending by the tenth year.21 The 111th Congress 

should enact this legislation since this information is essential to setting standards 

for value. 

Creating a Federal Reserve-Like Board to Set Standards: Another policy to consider is the creation of an independent board to promote high-value health care.22

Composed of experts with long terms, this board would be modeled on the Federal 

Reserve Board which has succeeded in making crucial decisions with greater credibility than most Federal agencies. This board would be an authoritative source of 

information on the value and tradeoffs of health care services and delivery mechanisms. Because of the breadth of health care, the board would focus on high-cost 

and new services. To ensure it complements rather than replaces existing efforts, 

it could give its imprimatur to publicly and privately-developed standards (e.g., U.S. 

Preventive Services Task Force guidelines; the AHRQ’s Evidence-Based Practice 

Centers; the National Quality Forum; specialty societies’ protocols). Its assessments 

of high-value health care would be accessible to payers, providers, patients, and the 

public. 

The board would also assess the optimal mode for delivering high-value care. This 

function may be best carried out regionally. The Federal Reserve has twelve district 

banks whose governance includes key stakeholders as well as experts. They are responsive to their regional resources and climate—features that could be valuable in 

promoting value given the geographic variation in health care. Regional ‘‘health 

value’’ boards could tap into medical leadership to tailor their work to region-specific 

problems. They could gather data, analyze it for patterns, and feed the results back 

to providers and facilities with comparisons to local, regional and national process 

and outcome measures. They may be better able to gain the trust and change the 

behavior of local providers than a national board. Several states have already developed regional consortia to promote quality and efficiency.23 These boards could also 

be built from the current Quality Improvement Organizations in Medicare. Medicare 

could support regional boards by providing data as well as incentives (or requirements) that providers participate in them. 

Accelerating the Use of Health Information Technology: This Congress may succeed in enacting legislation that creates standards, privacy protections, and funding 

for the implementation of electronic health records (EHRs). The bipartisan legislation is necessary but probably not sufficient to yield rapid adoption of EHRs in a 

short period of time. Physicians may still be resistant given their inability to capture the return on the investment; private plans may worry about losing a competitive edge; and the benefits that result may make it more of a public good that private commodity.24 Congress should consider making the President’s aspiration that 

most Americans have an EHR by 2014 a deadline. It could enforce this requirement 

in a number of ways, including lower or no Medicare payment to providers who do 

not comply. Loans and grants would likely be needed to assist in meeting this deadline. The ongoing activity to set standards for interoperability and privacy and create data exchanges to support EHRs would need to be stepped up. Other nations 

have already made the switch from paper-based to electronic systems; it is feasible 

as well as essential to optimizing health system performance. 

Allowing Medicare to Align Policies with Value: Even though it funds less than 

20 percent of the health system, Medicare’s policies have often set the standard for 

the private sector. The shift to a new standard based on value could be led by Medicare as well. Congress could delegate authority to Medicare to adopt payment policies that the Medicare Payment Advisory Commission recommends based on the 

value-oriented standards set by the new board. These changes could include adopting successful ‘‘pay for performance’’ models, creating bundled payments across providers and/or services, and adjusting patient cost sharing to promote high-value care 

and discourage low-value care. Such changes could be allowed within boundaries; 

for example, the authority could be limited to modifications that reduce spending 

within the budget window according to the Congressional Budget Office. The Medicare Trustees might also take a bigger role in program operation, having to approve 

the policies recommended by the program administrator. Congress could always 

override the changes, but the default would be flipped: instead of having to wait for 

Congress to align payments with value, Medicare would do so unless Congress 

blocked it. 

In addition, Medicare payment systems build in some funding for capital improvements; this funding could be directed toward system design to facilitate high-value 

care. For example, Medicare could incentivize hospitals to develop or adopt computer-assisted reminder or default order systems that have proven effective at improving adherence and outcomes. It could also add the use of effective, simplifying 

21

systems as a condition of accreditation; arguably, they are as important to safety 

and the system as a facilities’ cleanliness or doctor attendance at medical staff meetings. 

Prioritizing Prevention: Lastly, the gravity of the problem of preventable disease, 

coupled with the inadequacy of the existing system, suggests that a new model is 

needed to prioritize wellness. To be effective, it should strive to make preventive 

services valued by individuals and providers, available, and affordable. It should elevate wellness within the health system and complement it with new delivery systems. Payment for prevention should be designed to leverage behavioral change and 

widespread use. Finally, it should be universal, providing recommended prevention 

services irrespective of individuals’ insurance status. 

A Wellness Trust is one approach for structuring an effective prevention system.25

Under this model, preventive services would be carved out of the health insurance 

system and financed through a new independent agency. The Wellness Trust would 

set national priorities for prevention, employ unconventional systems for delivering 

services, use payment policy to drive results, and integrate prevention with the 

health care system through information technology. Congress could lay the groundwork for this approach by creating the Trust, assessing prevention spending, reviewing priorities, and developing a prevention workforce. 

OPPORTUNITY

The imperative for improving value in the health system is strong, and the opportunity to do so may be near. The next Congress and president face inescapable tax 

and budget—as well as health policy—decisions. A number of expiring policies will 

be waiting on the doorstep. These include: the 2001 and 2003 tax cuts, the escalating taxes due to the Alternative Minimum Tax problem, and a budget that will 

likely be unresolved in 2008. Tax and budget reform represents an opportunity for 

health reform. Responsible tax policy to replace the expiring Bush tax cuts could 

build in revenue to fund up-front health system changes. Modifying while maintaining the tax break for employer health benefits could redirect high-income tax breaks 

to low-income tax credits.26 And, the cost savings inherent in health reform are essential to long-run budget stability. 

No doubt, enacting health—and budget and tax—reform is hard. Yet, the only 

thing harder may be turning a blind eye while our nation’s health and economic 

prospects fade. Incremental reform can lay the groundwork for a high-quality, efficient, equitable health system; the policies described here take steps toward it. But 

small changes may take as much political capital as big ones. A strong infrastructure must be combined with coverage in a seamless system supported by sustainable 

financing to achieve the potential of a high-value health system. 

ENDNOTES

1For a discussion of labor costs and the health sector, see, for example, J. Hartwig. (March 

2006). What Drives Health Care Expenditures? Baumol’s Model of Unbalanced Growth Revisited. KOF Swiss Economic Institute, ETH Zurich, Working paper number 06-133. http://

www.kof.ethz.ch/publications/science/pdf/wp—133.pdf 2 E. McGlynn et al. (2003). ‘‘The Quality of Care Delivered to Adults in the United States,’’ 

New England Journal of Medicine,348 (26): 2634-45. 3D.J. Hyman and V.N. Pavlik. (2000). ‘‘Self-Reported Hypertension Treatment Practices 

Among Primary Care Doctors,’’ Archives of Internal Medicine,160: 2281-86. 4 J. Corrigan, J. Eden, B.M. Smith. (2003). Leadership by Example: Coordinating Government’s Role in Improving Health Care Quality. Washington, DC: National Academies Press. 5 E.S. Fisher et al. (2003). ‘‘The Implications of Regional Variation in Medicare Part I: The 

Content, Quality, and Accessibility of Care,’’ Archives of Internal Medicine,138: 273-87. 6 C.M. DesRoches et al. (July 3, 2008). ‘‘Electronic Health Records in Ambulatory Care: A National Survey of Physicians,’’ New England Journal of Medicine, 350:50-60. 7For a discussion of the potential impact of health information technology on cost, see Congressional Budget Office. (May 2008). Evidence on the Costs and Benefits of Health Information 

Technology. Washington, DC: CBO. 8 E. McGlynn et al. (2003). ‘‘The Quality of Care Delivered to Adults in the United States,’’ 

New England Journal of Medicine,348 (26): 2634-45. 9 A. Berenson and R. Abelson. (June 29, 2008). ‘‘The Evidence Gap: Weighing the Costs of a 

CT Scan’s Look Inside the Heart,’’ The New York Times,A1. 10 Value is not a component of public program payment systems, and a recent survey found 

few employers use it. See: M.B. Rosenthal et al. (2007). ‘‘Employers’ Use of Value-Based Purchasing Strategies,’’ JAMA, 298(19): 2281-88. 11 E. McGlynn et al. (2003). ‘‘The Quality of Care Delivered to Adults in the United States,’’ 

New England Journal of Medicine,348 (26): 2634-45. 12See, for example, S.M. Shortell et al. (2005). ‘‘An Empirical Assessment of High-Performing 

Medical Groups: Results from a National Study,’’ Medical Care Research and Review, 62(4): 407-

34. 

22

13See, for example, E.S. Fisher et al. (2007). ‘‘Creating Accountable Health Care Organizations: The Extended Hospital Medical Staff,’’ Health Affairs, 26(1): w44-w57; S.M. Shortell, L.P. 

Casalino. (2008). ‘‘Health Care Reform Requires Accountable Organizations,’’ JAMA, 300(1): 95-

97. 14 A recent article discussed several of the emerging studies: R. Stein. (May 26, 2008). ‘‘Social 

Networks’ Sway May be Underestimated,’’ Washington Post, A06. 15For a discussion of behavioral economics and its possible application to health care, see P. 

Orszag. (2008). ‘‘Health Care and Behavioral Economics: A Presentation to the National Academy of Social Insurance,’’ Washington, DC: Congressional Budget Office. 16For a commentary on how this might be done, see B. James. (2001). ‘‘Making It Easy to 

Do It Right,’’ New England Journal of Medicine, 345: 991-93. 17 J.A. Rhoades and S.B. Cohen. (August 2007). ‘‘The Long-Term Uninsured in America, 2002-

2005,’’ Rockville, MD: U.S. DHHS, AHRQ, Statistical Brief #183. 18 C. Schoen et al. (2008). ‘‘How Many Are Underinsured? Trends Among U.S. Adults, 2003 

and 2007,’’ Health Affairs, WebExclusive, 27(4): w298-309. 19 H. Aaron. (2007). ‘‘Budget Crisis, Entitlement Crisis, Health Care Financing Problem—

Which Is It?’’ Health Affairs, 26 (6): 1622-33. 20G.R. Wilensky. (2006). ‘‘Developing a Center for Comparative Effectiveness Information,’’ 

Health Affairs, 25(6): w572-85. 21See P. Orszag. (September 7, 2007). ‘‘Letter to Chairman Pete Stark,’’ Washington, DC: Congressional Budget Office, available at: http://www.cbo.gov/ftpdocs/85xx/doc8598/09-05-

ComparativeEffectiveness.pdf 22This idea is the subject of a book: T. Daschle, with S.S. Greenberger and J.M. Lambrew. 

(2008). Critical: What We Can Do About the Health Care Crisis. New York: St. Martin’s Press. 23See, for example, Minnesota’s SmartBuy Alliance. A coalition of purchasers accounting for 

60-70 percent of the State’s population, its members use uniform performance standards, cost 

and quality reporting requirements, and technology. S. Silow-Carroll and T. Alteras. (2007). 

Value-Driven Health Care Purchasing: Case Study of Minnesota’s Smart Buy Alliance. New 

York: The Commonwealth Fund. 24 Congressional Budget Office. (May 2008). Evidence on the Costs and Benefits of Health Information Technology. Washington, DC: CBO. 25For details, see: J.M. Lambrew and J.D. Podesta. (2006). Promoting Prevention and Preempting Costs: A New Wellness Trust for the United States. Washington, DC: Center for American Progress; and J.M. Lambrew. (2007). A Wellness Trust to Prioritize Disease Prevention. 

Washington, DC: The Brookings Institution, The Hamilton Project. 26For a discussion of financing options, see M. Seshamani, J.M. Lambrew, and J.R. Antos. 

(2008). Financing the U.S. Health System: Issues and Options for Change. Washington, DC: Bipartisan Policy Center.

Chairman SPRATT. Dr. Gratzer. 

STATEMENT OF DAVID GRATZER, M.D., SENIOR FELLOW, 

MANHATTAN INSTITUTE FOR POLICY RESEARCH 

Dr. GRATZER. Thank you, Mr. Chairman, ranking member, members of the committee. 

I have provided you with written testimony which provides some 

thought on these topics. I would emphasize that though I am a 

Senior Fellow at the Manhattan Institute, the views I express in 

that written testimony, as well as today, are my views and my 

views alone, and don’t necessarily reflect those of the Manhattan 

Institute. 

Mr. Chairman, health care can be enormously personal. I think 

it is perhaps one of the reasons we are discussing it here today. Besides, obviously, the budgetary implications, there are other aspects 

of public policy that are enormously important, but perhaps none 

quite as personal as health care. Let me open then by talking personally about some of my experiences with American health care 

and then maybe drawing some larger lessons. 

It was the best of American medicine, the worst of American 

health care. My wife hurt her back. I would emphasize my wife 

tells this story slightly differently than I do. For the sake of our 

marriage, I have that disclosure. 

I was invited to a conference out in the Rockies. They very generously agreed to pay for my ski ticket and the airfare. All I had to 

do was buy a pass for my wife. She ended up on a ski slope and 

hurt her back. 

23

I would emphasize she tells this story differently than I do. 

My version of events involves a Bunny Hill, a ski school—perhaps the Snoopy Dog Ski Camp or something august like that—

with a lot of 5-year-olds, who, by the way, were absolutely marvelous skiers. And my wife fell a lot. 

She tells this story involving a large mountain, gale-like winds 

of about 70 miles per hour, and a small furry mammal that had 

to be avoided, perhaps a squirrel or something of this sort. But the 

long and the short of it is, my wife ruptured a disc in her back. 

My wife is an emergency doctor, and she went from living an extraordinarily active life to lying on her back hours a day because 

of the pain. Of course, there was the numbness in her foot which 

made work very difficult. 

She needed a procedure. We are two doctors. At the time, for a 

variety of reasons, we were living in West New York and we 

weren’t insured, and we were trying to find the best care we could. 

Well, we are tech-savvy people. We went to Yahoo. We are not 

super-tech-savvy people because we would have Googled, I suspect, 

but we Yahooed, and the top 10 sites were pornographic. 

Finally, we found a neurosurgeon we were comfortable with. We 

were interested in outcomes. We couldn’t find any on the Internet. 

He couldn’t provide us with any. We had a choice of two hospitals 

for this procedure. We decided, not being able to get any quality 

data, to choose the one with ‘‘saint’’ in the title, because, as you 

know, Mr. Chairman, nothing bad can happen to you at a hospital 

with ‘‘saint’’ in the title. 

These are some of the frustrations we experienced. 

We also experienced frustrations around the bill. At the end of 

the day we were sent a bill that was a foot-and-a-half long, and it 

was my medical opinion that they didn’t know what they were talking about. I called up the top administrator of the hospital, and I 

said, I have never not paid a bill in my life, but this seems outrageous for a day procedure. She responded by telling me that this 

is simply the starting point of our negotiations. 

I don’t know anywhere else in American society where you get 

a bill from somebody and they fully acknowledge that they themselves don’t take the bill seriously. 

I also want to emphasize, though, that this was the best of American medicine. Fifty years ago somebody like my wife would have 

hurt her back and would have lived out the rest of her life with 

chronic pain and some significant morbidity. Twenty years ago I 

suppose she would have had a spinal fusion, which is a very complicated procedure. 

Today, or a few years ago, she got a procedure that lasted under 

half an hour, an incision that was less than an inch, and she is up 

and about and living her life as she wants to. We had our second 

child a year ago and life is good. That is the best of American medicine. We can never forget that when we have these discussions. 

These are always feel-bad discussions. 

I don’t feel badly about American medicine and I don’t feel badly 

about the future because we have done so much in the last 60 

years—tamed polio, made depression treatable, allowed people like 

my wife to return to the workforce—and I look very much forward 

to what we will do over the next 60 years. Part of the reason we 

24

were able to do these things is that we have certain values in 

American health care that we should preserve even when we talk 

about what is wrong with it. 

First and foremost is that we value the doctor-patient relationship. Secondly is that we recognize that not all decisions should be 

driven by dollars and cents, that health care also has some intuitive value. And thirdly, perhaps a point slightly underappreciated, 

is the best way of spending money often is keeping people out of 

the health care system, by which I mean keeping them healthy in 

the first place. 

There are undoubtedly enormous problems with American health 

care. Costs keep rising year after year. My colleague and cowitness 

has given a very nice summary of some of the macro implications. 

I like to think of things in terms of its implications in the American family. As you know, every year for the last 7 years the median family income has dropped by about 1,000 bucks a year because of rising health costs, even though wages are up. 

These are enormous problems. What should we do to get better 

value in American health care? Well, I put forward a number of 

ideas. But, again, I think back to my wife and that black box of 

American health care that we dealt with, and I think forward to 

some basic ideas. 

First of all, we need to move decisions closer to families. Too 

much of American health care, for historic reasons, is paid by 

someone else, usually employers, and, of course, as you are well 

aware also, the Federal and State governments. I like experiments 

like health savings accounts. I like Medicaid experiments like those 

going on in South Carolina and Florida, again bringing decisions 

closer to the individual. 

Transparency is, I think, something we can all agree has enormous value. I would point out, though, that even though the Federal Government sits on such a wealth of information, relatively little of it is revealed. 

I would also suggest that if we are talking about the government 

pushing the private sector in more of the right direction, we could 

talk about better disclosure by hospitals, clinics and doctors in 

terms of fee schedules and the like. 

We need better information on quality, and I think that is a 

thorny issue. Often it is difficult for us to judge how to do that. 

Certainly, with surgeries, one can look at complications, and that 

is relatively straightforward. But I am a psychiatrist, and sometimes I wonder how one judges who is a good psychiatrist and who 

isn’t. 

I think some of this information is going to come from the public 

sector. I think about the New York State report cards on cardiac 

surgery. Some of it will come from the private sector, such as the 

Leapfrog Group and their work. 

Finally, I believe in five-sixths of the general economy, we have 

discovered that the best way of improving quality and value is 

through competition and choice, and too often in health care, governments have been eager to regulate first and ask questions later. 

It deprives individuals of choice, innovation suffers, and I think, ultimately costs rise. 

25

I would suggest to you those are some basic commonsense ideas 

we can employ with health care to move us forward so that people 

like my wife and I can have better information on quality before 

we make a decision, people like my wife and I and you and your 

spouse and your constituents. 

Thank you very much. 

Ms. SCHWARTZ [presiding]. Okay, and thank you for your testimony. 

[The prepared statement of David Gratzer follows:]

PREPARED STATEMENT OF DAVID GRATZER, M.D., MANHATTAN INSTITUTE

I am honored to testify today in these hearings on ‘‘Getting Better Value in 

Health Care’’ before the Committee on the Budget. My name is David Gratzer. I 

am a physician and a senior fellow at the Manhattan Institute in New York. The 

views I present are my own and do not necessarily represent those of the Manhattan Institute. 

Before speaking directly to the topic at hand, I wish to put forward an important 

anecdote. The daughter of a friend of my family will start elementary school in the 

fall. Of course, there doesn’t seem much remarkable about the above statement—

millions of children across the United States are starting grade 1 in a couple of 

months. But my friend’s daughter is a cancer survivor. Just a couple of years ago, 

she was diagnosed with leukemia. After a series of treatments, however, she’s fine. 

Actually, she’s more than fine. She’s bright, energetic, full of life. And why shouldn’t 

she be? 

But not that long ago, of course, a diagnosis of childhood leukemia was a death 

sentence. Today, the vast majority of children under the age of 12 with this illness 

are cured. That’s not to suggest that life isn’t without complications—recent studies 

peg their SAT scores at lower than average for their age cohort—but these challenges seem minor compared to battling cancer. 

We’re talking today about ‘‘getting better value in health care.’’ At a time when 

health costs are spiraling up, it would be difficult to think of a more timely or relevant topic. But as we consider what’s wrong with American health care and what’s 

to do, it’s important to remember what’s right. People like my friend’s daughter get 

excellent health care. 

Before discussing better value, we should note our values in making it possible 

for people like my friend’s daughter to thrive: (1) American health care is built on 

the doctor-patient relationship; (2) health care isn’t just about dollars and cents, but 

about improving lives; (3) the best way of saving money is to keep people out of the 

health care system by keeping them healthy in the first place. 

We live in challenging times. My co-witness Peter Orszag provided macro-numbers pointing out the high cost of health care. Let me bring things back to the 

household level: Median family income has dropped by a thousand dollars a year 

every year since the beginning of the decade because of rising health costs. 

Why? The central problem is the way Americans pay for their care. Rather than 

paying directly, most people get their health insurance from their employer (or the 

parent’s or spouse’s employer). Someone else foots the bill. This odd financing arrangement developed because of World War II wage controls. Employers began to 

provide health benefits as a disguised form of income, and their incentive to do so 

only increased when the IRS ruled that, unlike income, these employer-provided 

benefits would not be taxed. 

The resulting accidental system is wasteful and bureaucratic. With Americans 

paying directly just 13 cents for every health dollar they spend, there is much incentive to spend first, and ask questions later. Health managers, meanwhile, create bureaucratic hurdles in an attempt to constrain patient choice (and thus costs). During 

the 1990s-heyday of managed care, for instance, HMOs attempted to dictate whether and when their patients were tested. HMOs have fallen away—the economic 

problem they attempted to address continues. 

There is hope: the Miami Herald ran a story on a Fort Lauderdale woman who 

shopped around for physiotherapy—and saved herself a thousand dollars a session. 

Obviously, not every health service can be ‘‘shopped for.’’ That said, there are some 

basic steps that we should take with health care to make it easier for patients and 

providers to seek out excellence and value: 

26

MOVING DECISIONS CLOSER TO FAMILIES

Innovative health insurance products like health savings accounts encourage 

Americans to think more about the financial consequences (and the value) of the 

health services they receive. Medicaid experiments in South Carolina and Florida 

also attempt to reward better decisions. 

TRANSPARENCY

For practically everything other than health care, Americans are able to access 

good pricing information before making a decision. That’s not true with health care. 

HHS has started to reveal more information—an important if small step. The federal government should make its pricing information available and encourage hospitals, clinics, and doctors to do the same. 

BETTER INFORMATION ON QUALITY

While some aspects of health care remain difficult to measure, surgical outcomes, 

complication rates, and a raft of other information is available—except to patients. 

Ultimately, better quality information should be developed, which probably will 

come from both public sector sources (e.g., the New York State report cards on cardiac surgery) and private sources (e.g., the Leapfrog Group). 

MORE COMPETITION AND CHOICE

For 60 years, the federal and state governments have heavily regulated health 

care. The end result is that patients are deprived of choice, innovation suffers and 

costs ultimately rise. New regulations ought to be carefully considered in terms of 

their impact on choice; existing regulations should be reviewed. 

Some have suggested that a centralized board should oversee health-care decisions. While the idea is tempting—who wouldn’t want a defining authority to push 

America to better value in health care?—the international results are at best mixed. 

The euphemistically named NICE in Britain, as an example, is slow to approve 

drugs for funding (often taking up to 2 years) and tremendously biased against new 

or cutting-edge cancer treatments, which partially explains the poor outcomes found 

in that country. 

American medicine has never been better. American health care, though, is at a 

cross-roads. Some see utility in pushing down the path to greater government involvement. In five-sixth of the economy, however, we value individual choice, competition, and responsibility. The prescription for American health care is thus clear.

Ms. SCHWARTZ. I guess I have the discretion of the Chair, which 

is kind of neat, so I think I was first in line to ask questions anyway, so if my colleagues will indulge. 

I did want to thank you again very much for your testimony. I 

think one of the themes that came out in all of your testimony was 

the issue of quality. That has come up. I particularly wanted, 

though, to focus my question on something else that two of you 

mentioned, which is the issue of health IT. 

We had a very good win I think for Medicare and for the country 

last evening when we passed the Medicare bill, which included ePrescribing, an initiative of mine that I know all of you know 

about, that is a great first step in using health information technology, moving doctors and hospitals to use that technology to reduce errors, to save lives and to save money. 

So what I would like you to do is elaborate, if you will. And I 

know there was some work—Peter Orszag, you particularly have 

done some study of this. 

But I wanted to also ask, Jeanne Lambrew, if you will comment 

on the potential for improving quality, improving health outcomes 

for Americans, if we were to scale up in a very aggressive way the 

use of information technology, particularly electronic medical 

records; and specifically how we might do that other than just your 

suggestion of mandating it, which I guess is one possibility. 

27

But my question very clearly is, what do you believe we should 

do right away on information technology and electronic medical 

records in particular? And how could that impact both savings in 

the health care system, the public and providers, and improve outcomes? 

Dr. Orszag, if you would start, that would be great. 

Mr. ORSZAG. Sure, Chairwoman, I will elaborate a little bit. 

Let me say first that health IT has substantial potential to help 

reduce costs and improve quality in health care if—if—it is part of 

a system in which the information is used to evaluate what works 

and what doesn’t, and if it is part of a system in which there are 

financial incentives for the stuff that works. 

But just by itself, plopping a health IT system into a fragmented 

system with distorted financial incentives and no way of using the 

information in general doesn’t generate the kinds of results that 

many people would hope for. 

Ms. SCHWARTZ. So does that involve, Federal standards have to 

come first, or be a part of it, as to how they will be used? 

Mr. ORSZAG. There are questions about interoperability and what 

have you, and I will leave that aside for a second. 

What I meant was the evidence on health IT actually generating 

improvements in efficiency or some combination of higher quality 

and lower costs are more impressive for more integrated systems 

where the information that’s coming out of a system is used to 

evaluate the procedures and then to push back down to the practitioners some guidance on what works and what doesn’t. 

In an isolated hospital setting or an isolated physician setting, 

we have much less opportunity to do that, unless the information 

is then garnered or used for some broader comparative effectiveness kind of effort. 

Ms. SCHWARTZ. Certainly systems that use it say that, in and of 

itself, the use of electronic medical records, particularly if they are 

interoperable, actually do help alleviate the fragmentation, basically help to coordinate care, because your doctor can see work that 

has been done last week by another doctor, your emergency room 

can see your test results from your doctors the week before. 

So it actually forces, if you want to call it that, a better integrated system. I don’t know if you want to comment on that, or 

Professor Lambrew. 

Go ahead. 

Mr. ORSZAG. I would just say—I guess she is deferring to me for 

a second—on the fragmentation, the problem is really the financial 

incentives and the way in which care can be delivered in multiple 

settings. Yes, you can get some benefit from seeing the tests that 

were done somewhere else, but that is not the most salient or problematic aspect of fragmentation. 

The biggest problem associated with fragmentation is that you 

have financial incentives for multiple care being done in multiple 

places without the kind of unification that doesn’t come just from 

seeing the other tests that were done. 

Ms. SCHWARTZ. You are saying, even if they see the MRI from 

yesterday, they are still going to repeat it because there is no financial disincentive. 

28

I am not sure that is true, by the way, but that is what you are 

saying, isn’t it? 

Mr. ORSZAG. You assumed, also, full interoperability. In many 

cases that is not the case. So unless you have full interoperability 

and then, again, some system for—it is not just whether they repeat the MRI, but whether the MRI is used. 

When the MRI is done or not done could be informed by, how 

many times for that kind of patient does the MRI change the diagnosis. And unless you have some structure in place for evaluating 

that kind of information, just stringing together lots of different 

outpatient settings where there are MRIs done and letting them 

see each other’s MRIs is not going to change that basic dynamic. 

Ms. SCHWARTZ. But, again, the issue is also the software that 

suggests you ought to order the MRI or you don’t need to. You 

haven’t mentioned that, but that is also part of this, that there is 

also the opportunity. 

And maybe this is the chance, Dr. Lambrew, to jump in to actually be able to say it matters to do an MRI or it matters to talk 

to somebody at this point about other testing or other kinds of behavior. It is also something that could be part of electronic medical 

records, based on evidence-based medicine, obviously. 

Ms. LAMBREW. I would just say, if we think about the potential 

benefits of all electronic health records, there are four different levels. There is the basic administrative paperwork savings and reductions, which is important—not necessarily a major driver of our 

costs, but an important component. 

Second, is this information sharing to reduce duplication and to 

ensure, when possible, coordination? I have to say, as somebody 

who has tried to gather my medical records because I moved recently, it is not easy. It is not easy to go every third Tuesday to 

a doctor’s office to collect your medical records and pay $25. 

So I do think there is more potential to that information sharing 

than not. 

Third is——

Ms. SCHWARTZ. The point is well taken. It is information sharing 

not only between the providers, but also with the patients and consumers as well. 

Ms. LAMBREW. A third level is this idea of using information 

tools, because in that waterfall of medical information that comes 

out, physicians and patients, it is hard to figure out what is the 

right information, how to use it, and do you have it at the bedside 

at the right moment for both the patient and provider. And using 

the tools that are available through an information basis or a platform could be significant when we again decide what is high-value 

care and promoting it. 

Lastly—and I feel very strongly about this as a researcher—are 

the feedback loops. It is trying to figure out how we get the information to feed back in to figure out what is high-value care. You 

look at two examples of organizations that have used it, the Veterans Administration and Kaiser Permanente. Kaiser discovered 

Vioxx earlier than anybody else, the problems with it, because it 

had a system that it could monitor what was going on and pick up 

and detect things that it wasn’t necessarily looking for. 

29

So I think these four levels are the potential for it, and I would 

argue that we can’t get to a system using the word ‘‘system’’ without this basis. 

So it is necessary, but not sufficient, to use a cliche. 

Ms. SCHWARTZ. Just take another minute to make a comment. 

Dr. GRATZER. These comments have been pretty innocuous. I 

think we would all agree that there is something wrong with a 

health care system whose basic information infrastructure harkens 

back to the days of the Pony Express. 

Looking internationally, there are countries that have done far 

more in terms of information technology experimentation. In Canada, Alberta, one of the largest and most affluent provinces, in fact, 

puts practically all health records now online. You see your family 

doctor, the tests go on your record; you cross the street and go to 

the hospital, and it is there and accessible. 

In Denmark, they have gone so far as to put the health records 

online, and it is accessible, in fact, to patients. And patients can 

even track things like their own cholesterol levels and glucose levels. I think these things are definitely worth thinking about. 

I think, again, by the way, some of this will begin in the United 

States through the private sector. I wonder about Google medicine 

and Google health. I think it is worth for Congress to weigh these 

things as well. 

I would point out, though, in both the Canadian and Danish experiments, you don’t quite get the cost savings that people have 

suggested you would. I think this might be a step in the right direction. I don’t think anyone would argue it is a panacea. 

Ms. SCHWARTZ. All right. I would say that what a couple of you 

are suggesting is that, while it may not be a panacea, it is a tool 

that we ought to really look seriously at. 

There are some conditions set and there are a number of bills 

moving through Congress thinking about this. But I think we 

would all really appreciate hearing the conditions that have been 

suggested as important to this, in and of themselves. 

It only matters if we actually do it right, and that is true for just 

about everything we do. But it is a tool we have not used in any 

elaborate way. I think less than about 5 percent of American doctors use full electronic medical records. The suggestion is, if done 

right, it could actually affect both quality outcomes and costs. 

We are looking for savings wherever we can get them, and if we 

can improve quality at the same time, it certainly seems worthwhile. 

But having taken my time, I would like to move on and ask Mr. 

Ryan if he chooses to inquire. 

Mr. RYAN. Thank you, Ms. Schwartz. First, let me start off. 

Dr. Orszag, you are taking about an hour out of your day, and 

the rest of the day you are going to be spending on the GSE issue, 

Fannie and Freddie. 

Mr. ORSZAG. I am viewing this hearing as a welcome respite from 

that. 

Mr. RYAN. I am sorry about that. I am going to ask a GSE question, a very brief one, and then I want to get into health care. It 

is just so topical right now. 

30

I am reading in the Business section of The New York Times 

today this article that more or less implies that because Treasury 

is asking for unlimited limits on explicit debt or line of credit or 

ability to go purchase instruments, that there might not be any 

score attributed to that. 

You are in the middle of trying to score all of this. I am not going 

to ask you to give specifics because you are probably still figuring 

this out. But whatever we do on the GSEs, your granting the 

Treasury more authority, is it not going to score? And if there is 

no limit to Treasury’s ability to go and do this, that is going to 

score a lot, is it not? 

So can you just give me your sense of the wisdom of the implication in this New York Times article? And what should we begin to 

expect on scores coming from CBO with respect to these ideas we 

are looking at that we very well could be voting on as early as, I 

think, Wednesday or something like that. 

Mr. ORSZAG. I guess my response would be, that was not news 

that was fit to print. 

Mr. RYAN. The New York Times put that out. 

Mr. ORSZAG. Correct. 

Mr. RYAN. Okay. Thank you. 

Mr. ORSZAG. And that the absence of a limit on the ability of the 

Treasury to inject funds, either as equity or debt in loans into the 

GSEs, does not mean in any way that there would be no cost associated, no score associated with the activities. And CBO will be 

issuing a cost estimate for the legislation in the near term. 

Mr. RYAN. All right. I won’t ask you any more details, because 

I am sure you are still figuring that out. 

Mr. ORSZAG. Thank you. 

Mr. RYAN. I want to, but I won’t. Let’s go to health care. 

There is a bipartisan issue out here that we can get done, and 

it is IT and it is transparency. So let’s explore how we should go 

about doing this. America is sort of behind the times when it comes 

to these issues, especially on technology. 

First, let me put a pitch in for a bill I have with Dennis Moore 

on health IT. Right now, the system that works today, you have the 

marketplace basically putting up silos. You’ve got McKesson, Epic, 

Cerner, GE and, I think, Siemens as the main providers of health 

IT software and hardware, who by their own very designs have 

these stovepipes where they can’t talk to each other. So, by design, 

they are not interoperable systems. 

When you get into this issue, we are concerned about privacy, 

about the property, who houses these records, individual medical 

privacy, but also interoperability. So I hope Dennis will take time 

in his questioning to go into this. 

But this is something we are really going to have to look at with 

respect to how these medical records are housed, where they are 

housed, who has them, and how do we drive interoperability. 

I think, Dr. Orszag, you have given us some good ideas about 

how to get this going and get it off its feet. 

Let me get to the more sticky issue of transparency. In my roadmap plan, I pursue a legislative course, which I will be doing an 

independent bill on soon, to try to get at real transparency on cost, 

on price and value and best practices. 

31

And here is the basic question: What is the best way to go about 

this? Should we have the Federal Government, HHS, CMS, design 

the metrics on price, design the metrics on quality, design the 

metrics on best practices; and basically tell physicians how to practice medicine, and we are going to pay you for this or we are going 

to pay you for that? 

The reason I urge caution on this is, from being on the Ways and 

Means Committee for the last decade, this then becomes politicized. 

There are just no two ways about it. What you will have are various provider groups, various interest groups come to the Ways and 

Means Committee and say, pick us as the winner, pick us as favorites; and we nonphysicians will inject ourselves into the practice of 

medicine in the marketplace. The professionals won’t be the decision-makers, it will be the bureaucrats and the politicians. 

I think there is probably a better way. And the way we are advocating, and I would like your response to, is, instead of having 

CMS design and police all of this—which will be behind in the 

times, it will be behind in innovation—let’s look at areas where 

similar ideas have worked better. 

Financial markets: After the Great Depression, we created the 

Securities and Exchange Commission to sort of police corporate 

books and make sure this is working. 

We have the FASB, the Federal Accounting Standards Board, 

which is not a government agency, but a public-private partnership 

of all the various stakeholders, the academics, the consumers, the 

CFOs, the Big Three or Four accounting firms—I don’t remember 

how many are left—to basically come up with promulgating standards and metrics on accounting which innovate with the time. And 

if you cook the books and don’t follow the standards, the SEC 

comes and gets you with government enforcement. 

So what I am proposing is taking AHRQ, taking it outside of 

CMS, using it as a stand-alone agency, calling it the Health Care 

Services Commission, to also set up a board of standards of all the 

stakeholders, so that you have a standard-setting agency that designs the metrics. But it is the market designing it, more or less 

with the enforcement mechanism of a health care SEC, if you cook 

the books. 

So when we are designing best practices on how to replace a hip, 

it is the College of Orthopedic Surgeons that are in the room helping design those standards as technology continues to innovate. So 

when we are designing metrics on how to measure price on per episode of care, on what does the entire bypass surgery cost, you have 

got the hospitals in the room saying, here is how we ought to do 

it. When you are talking about quality standards, you have the actual specialist in the room saying, here is the best way to risk adjust, putting a drug-coated stent versus a non-drug-coated stent; 

you have the cardiologist doing that. 

The point I am trying to make is, this industry innovates very 

quickly. Health care innovates very fast, faster than government 

can possibly promulgate regulations. So why not have a system like 

we have for the financial services sector, which innovates with that 

sector, in health care, where you have the government saying, if 

you cook the books, if you deviate, you are going to be penalized. 

But you have the industry itself, along with consumers, along with 

32

all the various stakeholders, government included, designing the 

metrics on price, designing the metrics on quality, designing the 

metrics on best practices, putting them out on an apples-to-apples 

basis, standard metrics, so the market can respond, so consumers 

can see, so people can shop for value, so employers can reward outcomes, so the payers can actually see what they are getting for 

their money. 

Is that not a better model going forward, than having CMS dictate the terms of all of this stuff, and penalize or reward providers 

based on what CMS thinks is the best way to practice medicine? 

I will start with Peter and go down the road. Would you care to 

respond to that notion? 

Mr. ORSZAG. Do I have an option? 

No, I didn’t think so. Why don’t I phrase it this way? 

In the current structure of our public health insurance programs, 

Medicare and Medicaid, there are decisions that the government 

needs to reach on what should be reimbursed and what have you. 

So in a sense you are asking a far larger question about the structure of those programs. 

But given those programs, structured roughly like they are, there 

is a further question which is, can the decision-making process be 

improved through which reimbursement rates and what-have-you 

are set? And I think, on that, Dr. Lambrew mentioned—and I know 

it has come up on the Senate side during hearings—this idea of 

trying to create some other structure that takes many more of the 

decisions away from the Ways and Means and Finance Committees 

and puts them in a Federal Reserve-like structure, both for technical competence and for political insulation. 

I would say that CBO will be doing a report on options for that 

kind of Federal health board which should be out later this year. 

Mr. RYAN. All right. 

Jeanne? 

Ms. LAMBREW. I think there are a lot of analogies with what I 

discussed and what you just said, and I am excited to have this discussion. 

I would say the question becomes how much you want to separate out what I will call ‘‘the standard generation’’ from its use. 

And I think that what I described here—and I work with with Senator Daschle, who has been thinking a lot about this idea—what 

we both are thinking is, you would create the standard-setting 

board with experts—doctors, economists, people who are pure experts—to figure out: is there strong evidence that something is 

high value or low value? Is there real evidence on trade-offs, 

whether this one has a marginal impact on quality, but this has 

an impact on cost? Real trade-offs. Or is there no real evidence, so 

we have to basically let other people figure out what to do with 

this? 

So our idea is, you have one body create the standards. Then you 

have other people, because when you start figuring out resources 

and price, that gets into value judgments, societal judgments, political judgments. So we would separate out the standard development from the use of it. 

What I propose in my testimony is, we basically allow MedPAC 

and the board of trustees for Medicare and other public programs, 

33

for example, to use that information, in a devolved way, to act, so 

it doesn’t have to be decided by the Ways and Means Committee 

and the Energy and Commerce Committee. You basically say, here 

are the standards, here are your experts who say how to employ 

that, and then let Medicare do that without the process of coming 

to Congress every single time. 

I think it has to be kind of a trade-off, because having the standard-setting board also say, here is an aggressive way to pay for it, 

may be, probably, a different set of expertise. That is why we separate them out. 

But there are many different models for how you allocate these 

functions, with the bottom line being—and I firmly agree with 

this—we need to find a new way for decision-making processes in 

health policy and trying to move it into the sort of processes I set 

forward. 

Mr. RYAN. We definitely want to get to the same place. That is 

pretty clear. 

Just from being jaded, being in the middle of the committee that 

oversees this stuff and seeing how politicized this gets, how slow 

the bureaucracy moves, it is a cautionary tale of how to proceed 

going forward. 

Dr. Gratzer. 

Dr. GRATZER. I know that you have drawn heavily in your thinking from the work of Professor Regina Herzlinger, who does talk 

about a Securities and Exchange Commission for health care. I 

have enormous respect for Professor Herzlinger. As you know, she 

also has an affiliation with the Manhattan Institute, and I think 

she has written probably the second best book on health care to be 

published in the last half decade. 

I am not quite as bullish on all aspects of this as perhaps she 

is. 

Undoubtedly, we have an issue with transparency. We can talk 

about pricing; that is the tip of the iceberg. We are not just interested in how much each orthopedic surgeon charges. We are interested in how good are they at it. 

Mr. RYAN. Without the quality, you can’t get the value established. 

Dr. GRATZER. Well, a starting point is to look at pricing, because 

one finds extraordinary things when one looks at that alone. It is 

very difficult to get pricing. As you know, the Bush White House 

has attempted to do that, and different people have been approached. And the hospital industry argues that they don’t actually 

have prices, it is the insurance industry; and the insurance industry argues it is the hospital industry. 

We know also there have been some experiments with legislation, like in California where hospitals are required to release all 

their pricing information; and unfortunately, most of what they release is nonsense because they don’t really expect to receive the list 

pricing. So one hears there that blood testing can be $300 at a hospital, but they don’t actually get that. Certainly they don’t get that 

from Medicare or Medi-Cal, and they don’t get that from the private sector. 

So some sort of fair play organization, modeled after the SEC, 

where you would have more information on pricing, more discloVerDate 0ct 09 2002 14:04 Aug 29, 2008 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6602 J:\DOCS\HEARINGS\110TH\110-37\44037.TXT HBUD1 PsN: DICK
34

sure of complication rates and low-hanging fruit we can all agree 

on. I think that might be reasonable. 

I am hesitant in pushing forward and saying that such a body 

could then turn around and identify best practices and so on. I am 

worried about the politicization that would come from it. I am worried also about other things. 

That is not to say that I don’t think there is an enormous role 

for the Federal Government in facilitating information. Let me give 

you an example, as a practicing psychiatrist. 

There are new drugs coming to the market all the time. I treat 

schizophrenic patients. What is the best antipsychotic? There is no 

drug company that is going to fund a head-to-head comparison with 

another on-patent drug. NIMH funded a beautiful study done by 

psychiatrists at different centers, called CATIE, that gives you 

great information. Those are the sorts of initiatives I think the 

Federal Government could do and the sort of research that NIMH 

and NIH could do. 

Again, I am just a little bit hesitant in how much further you 

want to push. You suggest bringing in the experts and bringing in 

the orthopods and discussing what are best practices. 

But, you know, they do actually have clinical guidelines come out 

of those bodies. I am not sure there is as much discrepancy in 

terms of best practices as some would suggest, or that there is as 

much a role for the Federal Government as some would advocate. 

Mr. RYAN. Dr. Gratzer, you practice both in Canada and the 

U.S., correct? 

Dr. GRATZER. Now I am not practicing in the United States. 

Mr. RYAN. You practiced in Canada; is that correct? 

Dr. GRATZER. That is correct. 

Mr. RYAN. I want to ask you one final question. 

In the year 2000, the World Health Organization said the French 

health care system was the best health system in the world. The 

next year, France declared the system bankrupt. 

President Sarkozy now—he won his election on many issues, 

chief among them saying people are going to have to pay more for 

their health care expenses out of pocket. 

Give us just your top few ideas on lessons learned from the Canadian system and lessons we ought to learn before we overhaul 

our system, and what we ought to avoid going forward, so that we 

can learn from your experience and the mistakes that may have 

been made in Canada, rather than repeating them. 

Dr. GRATZER. Sure. 

The WHO study is often cited. I fear it is probably not worth the 

paper it is written on. International comparisons are enormously 

difficult to do. If you actually look at their data set—and it has 

been some time since I looked at it—they put a huge emphasis on 

things like equity and relatively little emphasis on things like timeliness of care. 

I would point out that the United States and—for that matter, 

Canada—finished behind Morocco and Colombia, and I don’t think 

the experts at the WHO, as august and intelligent as they are, 

really pack their kids up in the morning if they have a cough and 

fly them to Bogota for care. So I think one has to be enormously 

cautious about international comparisons. 

35

I think if you look right across the Western world and not just 

at Canada, as you suggested—the country of my birth—but France 

and Sweden and Great Britain, you find that these countries are 

dealing with similar things that we are dealing with right here in 

the United States, an aging population, the full impact of the hightech, high-expense medical revolution, the fact that value doesn’t 

necessarily come with higher expenses. 

I would also suggest to you that many of those countries, countries with public systems that some in the United States seem to 

idolize, we see that they haven’t found a cure-all. Which isn’t to say 

that there aren’t ideas there that are relevant in the United States 

or there aren’t things that we could learn about, for instance, information technology. But in the overall scheme of things, often what 

they have ended up doing is simply rationing care. 

If you see a doctor in Canada or Britain or Sweden, I don’t think 

they have access to the best practices much more than in the 

United States or other countries. And I think part of the way they 

have saved money—and let’s emphasize those systems are much 

less expensive than the American system as a percent of GDP—

people just have much less access to care. 

There is a news item in The Globe and Mail, which is a major 

newspaper in Canada, kind of like I suppose The New York Times 

is in the United States. They are talking about a town in Newfoundland, Gander, where they have an annual lottery, and the 

people who win the lottery get access to the family doctor. 

Again, I want to emphasize, there are things we can learn right 

across the board from these countries, but there is no country we 

can point to and say, they have gotten everything right and we just 

need to plagiarize. 

Mr. ORSZAG. Could I make a very quick point? I would urge that 

we dial down a bit the cross-country comparisons, and dial way up 

the comparisons across parts of the United States. There is so 

much variation within the United States, within a single payment 

system under Medicare, where I think we could be learning a lot 

about ways of improving efficiency. 

And the cross-country comparisons are useful for some purposes, 

but there are lots of problems associated with them. They get way 

more than attention than the regional variation within the United 

States, and I think we should try to flip that on its head. 

Mr. RYAN. What is helpful with cross-country is policy design decisions. 

I think you are right, what is helpful is—look at Louisiana—I 

think their prices are twice or three times what we have in Wisconsin; you factor utilization in and exempt out for that, it is still 

a huge, huge delta. 

And that is why—correct me if I am wrong, Peter, Dr. Orszag—

IT is a big deal, IT and best practices, and seeing very clearly what 

value you get and then rewarding based on outcomes. 

I think we all agree, that is clearly the way to go after where 

a lot of the waste is in the system. Is that not your point? 

Mr. ORSZAG. I think there is substantial inefficiency, and one of 

the key ways of capturing it is to have a more expansive health IT 

system that is then used for that purpose. 

36

Ms. LAMBREW. Just a quick note. Thinking about Medicare, we 

do have significant variations in Medicare when you can argue 

there shouldn’t be that much. But it is still less than what we see 

more generally, and part of the reason is that providers operate in 

local contexts. So you know from Wisconsin that your private payers and your Medicare payers generally have lower prices and 

lower costs than other areas of the country. 

This is why I think we have to go beyond doing solutions one 

program by one program, figure out how to develop a standard, figure out a system to transmit those standards to all parts of the 

system, public and private; and then—and I think we can’t underscore this enough—come in with financial tools, systems to make 

it the priority, because just having the information out there isn’t 

sufficient. 

Chairman SPRATT [presiding]. Thank you very much. 

Mr. Becerra. 

Mr. BECERRA. Thank you, Mr. Chairman, and thank you to the 

panelists for their testimony. Dr. Orszag, a quick question. You mentioned the $700 billion 

that doesn’t seem to get us anything more than we already had. 

That seems to indicate that we have quite a bit of room to make 

improvements and dollars to use to make the system much more 

efficient and successful in its outcomes towards America’s health 

care. 

Mr. ORSZAG. I think there are huge opportunities for improving 

efficiency. The difficulty is how to capture that opportunity. 

Mr. BECERRA. If we could capture it, that is $700 billion we could 

put into the system in more efficient ways. 

Mr. ORSZAG. Yes. It is a lot of money, but a big ‘‘if.’’

Mr. BECERRA. They are both big, both big. 

Dr. Gratzer, a question for you: I don’t think anyone disagrees 

with you with regard to trying to move towards a health system 

that places the decisions closer to the home, to the family, to provide them that choice. 

The difficulty I think I would have with what you say is that 

chances are your family, my family, would have far better choices 

than, say, most of the folks who live in my congressional district 

in the city of Los Angeles. 

The average income in my district, the median income of a family 

in my district is about $34,000. That is probably about what I 

make in 3 or 4 months as a Member of Congress, and I guarantee 

it is probably somewhere around what you make—maybe you make 

more than I do, as a physician as well. But I think it would be very 

difficult for a lot of these families to have the choice that your wife 

had with regard to her back surgery. That is what makes it difficult. They would love to have that choice, to stay closer to home. 

The problem becomes affordability. 

So what Mr. Ryan was saying, and I think what you were saying 

with regard to the markets—and I am not sure if I would want to 

use the markets necessarily these days to try to talk about a better 

role model for our health care. If you look at the financial markets 

recently, the ups and downs, they would probably cause quite a bit 

for chaos for health care if people had to depend on a pure marketbased system. 

37

Supply and demand works well if it is a pure system. But if your 

wife demands surgery for her back, if my wife demands surgery for 

her back, we probably can find it and find a good physician to provide that surgery. I doubt that most of the people who live in my 

congressional district could make that demand and follow through. 

So supply and demand is great so long as, on the demand side, 

you have the ability to follow through. 

At the same time, there is the issue of choice. You are a physician, your wife is a physician, my wife is a physician. I will bet if 

I told you to make sure that your wife didn’t have to go to the hospital to get that surgery in July, you would understand why I was 

saying that. 

My wife and a lot of her colleagues always joke and say, if you 

are ever going to become seriously ill or injured, make sure it is 

not in July, because you don’t want to go into a hospital in July. 

Why? That is when most medical students who graduated start 

their residency program in teaching hospitals or in hospitals that 

take residents. 

So the last thing you want is to be severely injured or ill and 

have to go to the hospital and the person who is treating you firsthand is a resident, a first-year resident. 

I suspect you have probably admonished people the way my wife 

has admonished me and others that, if you are going to see a physician, make sure the physician you are going to see is board certified. I have got some 20 years of education under my belt, 4 as 

undergraduate, 3 as a law student. I wouldn’t have known to ask 

that M.D., by the way, are you board certified in that particular 

field? But now I do because I happen to have a physician as a 

spouse who says to me, make sure that physician you are going to 

see is board certified. 

These are all choices we get to make, but some people have better information than others do, and some have a better ability to 

make choices and make the demands than others do. And so I 

think if we could figure out how to make better use of the $700 billion that is out there and then be able to give everyone in America, 

including those 47 million Americans who don’t have health insurance, a choice so they can make a demand, to make sure the supply 

meets the demand, then I think we would be there. But at this 

stage we still have so many people who don’t have even basic access to health insurance that the choice your wife gets to make, my 

wife gets to make, that we get to make is not yet there. 

And I thank all of you for your testimony. I don’t really have a 

question, but I think it is important to note that there are good 

ideas out there. It is just a matter of making sure that we match 

the good ideas to the good intentions to make sure everyone in 

America can make good use of those ideas. 

Mr. Chairman, I yield back the balance of my time; and I thank 

the panel for their time as well. 

Chairman SPRATT. Thank you, Mr. Becerra. 

Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman. 

I guess, Dr. Gratzer, if you wouldn’t mind, what is the availability of information? Let’s just say, most basic, for a patient wishing to know how much a procedure will cost before they undergo 

38

the procedure, can they call? What is the likelihood of being able 

to find out the cost before it is done? 

Dr. GRATZER. That is a surprisingly complicated question. If you 

asked me what is the price of a Toyota Camry in different places 

in the United States, it is a pretty easy question to answer. It is 

very difficult for individuals to get pricing information. 

Now, again, it depends if they are in the public sector or the private sector in terms of their insurance. As you know, HHS has 

been trying to release more data. 

As you know, different companies like Aetna and so on have experimented with better disclosure of how much, say, specialists in 

Cincinnati are compensated for consults. But, for the most part, it 

is very difficult to get that sort of information available. Which I 

think also suggests some of the enormous problems that people 

who champion consumer driven health care face, because there is 

not that much consumerism to be had if you don’t have good information available. 

So I think wherever you sit on this debate, though, one can appreciate that we need more information, both on pricing and, ultimately, on pricing and quality. 

Ms. LAMBREW. I think that we need to be careful about more 

versus better. Because the reality is that we do have a fair amount 

of information on things that we potentially can’t use. In fact, there 

has been some studies that are interesting that say sometimes 

there is too much information for effective decision making. The 

classic study being that if you give people many, many choices of 

ice cream they choose chocolate, vanilla and strawberry, versus you 

give them 10 choices they can digest them and choose across a 

broader range of that. 

So I think that we need to look at the type of information that 

people should have. People want to know the information on their 

doctor so they can make a choice to a degree. I think it is always 

a little bit more about word of mouth and other factors, but they 

want to choose their doctors, they want information on their plans, 

and then they want information at the point of service when there 

is a real choice. 

I think we need to figure out how to structure the information 

around those types of choices so it is useful, effective and promotes 

high value, and take some of the other information, when there is 

a clearly effective service or a clearly better way to deliver health 

care, to adopt it. Because we can’t reduce that variation without at 

some point saying, this does work. Let’s use every tool that we 

have to promote it. 

Mr. ORSZAG. Can I just add two quick points? 

In the written testimony, there is a little discussion of this. 

I think there are two things to remember about the price transparency for individual transactions, for medical services, this surgery, that surgery, et cetera. First is such a large share of health 

costs are insured, something like 80 percent or so, which obviously 

diminishes the incentive to kind of shop around, if you will. 

And then, secondly, that many health care markets are local, and 

many of those local health care markets are quite concentrated. 

And evidence from other sectors suggests when there is more price 

transparency with that kind of industrial organization setting, 

39

where there is only a limited number of competitors, basically, the 

effect can be to facilitate collusion. So if you are thinking about two 

hospitals in an area and you start publicizing prices for individual 

transactions, the effect in other sectors has been not to reduce the 

average price but to increase it because of collusion. 

Mr. SMITH. So there is evidence that through more disclosure of 

price that that leads to price fixing or a collusion? 

Mr. ORSZAG. Yes, there is. And so that would be a concern that 

would need to be very carefully attended to with more price transparency in local health markets. 

Mr. SMITH. So I guess what I am getting at is what is the incidence of a patient needing to pay for an office call with the provider before they know how much it is going to cost? 

Mr. ORSZAG. Oh, I am not denying there is very little transparency that exists currently in terms of how much things actually 

cost. If you were quoted a price, that, as was already mentioned, 

is often not the final price but rather just a starting point for negotiation anyway. 

But the question I was trying to answer is what if we had a lot 

more transparency about the underlying cost or price of the doctor 

visit or the MRI or the surgery. And I think in our heads we all 

think that will lead to significant reductions in cost because we will 

be a bunch of very savvy consumers shopping around. And there 

is a limit to the degree to which that will happen to the extent you 

are insured and therefore don’t have much incentive to shop 

around, first. 

And then, secondly—and that’s on the beneficiary side. And on 

the provider side you could be facilitating collusion and moving towards more monopoly pricing, rather than competitive pricing, 

which is just a concern that would need to be again sort of very 

carefully monitored by antitrust and other authorities. 

Mr. SMITH. Absolutely. I would speculate that it would be easier 

to detect collusion with more information available to the public, 

getting more people chatting about it and perhaps—I mean, there 

will always be that risk with more information, but, to me, it would 

be a greater opportunity for detection. 

Mr. ORSZAG. Let me just pin in, focus in on that. What you would 

expect with more transparency is that, currently, there is some distribution of prices basically, and that it would collapse. It would—

you know, there would be much less variance in the prices. But 

whether that collapses to a higher or lower average price depends 

on the provider behavior in addition to beneficiary behavior, and 

that is where it can get a little dicey. 

We put out a policy brief on this topic a few months ago which 

I will get to you with examples of other sectors where this has actually led to higher rather than lower prices. 

[The information follows:]

40


cbob-1.eps
41


cbob-2.eps
42


cbob-3.eps
43


cbob-4.eps
44


cbob-5.eps
45


cbob-6.eps
46


cbob-7.eps
47

Mr. SMITH. Okay. Thank you, Mr. Chairman. 

Chairman SPRATT. Mr. Doggett. 

Mr. DOGGETT. Thank you, Mr. Chairman; and thank you for the 

testimony that each of you have offered. 

Dr. Orszag, if I understand your testimony, it is that we have 

$700 billion of waste in our health care system and one of our goals 

is to try to reduce or eliminate that waste. 

Mr. ORSZAG. Let me rephrase it carefully. Credible estimates 

suggest that as much as $700 billion a year is delivered in health 

care services, surgeries, MRIs, doctor visits that don’t improve 

health outcomes. That is a lot of money. 


cbob-8.eps
48

Mr. DOGGETT. If they don’t improve health care outcomes, they 

are wasteful expenditures. 

Mr. ORSZAG. They are wasteful in terms of improving health outcomes. The providers may not view them as wasteful. 

Mr. DOGGETT. Well, and that goes to the heart of how we address 

the problem. 

You have also said—and there has been kind of a suggestion 

among some of these questions—that if we have the truth it will 

set us free. And I think you have pointed out that just having information, just having disclosure is not a panacea, that in fact it 

will only add cost to the health care system and be of academic interest unless you link that disclosure specifically to comparative effectiveness and have financial disincentives so that you are not rewarded for waste. 

Mr. ORSZAG. I think that’s right. 

Just to focus on the fact, while I think in general for consumer 

behavior the Econ 101 perspective is exaggerated, on the provider 

side, we do need to remember financial incentives matter; and to 

a first approximation in health care we get what we provide financial incentives for providers to provide. And unless you are going 

to change the payment methodology, you are not going to wind up 

with a more efficient health care system. 

Mr. DOGGETT. You have also suggested that if you really want 

to have comprehensive information technology where all health 

care providers use it, just providing financial incentives will only 

encourage those who are about to adopt it anyway and that what 

we need to do, ultimately, is to set a timeline by which if you don’t 

adopt the technology you don’t get a penny of government money. 

Mr. ORSZAG. Yeah, let me come back to that. Because that had 

come up earlier. 

So one approach is to provide some tax credit or a payment or 

subsidy for adopting health IT. The problem with that is the folks 

who already view it as beneficial for their own operations to adopt 

will have done so, and there will be more of them over time even 

without Federal intervention. 

And so what are you doing? You are flipping those people who 

were sort of close to the line, who from their own perspective were 

pretty close. And if you want to keep the fiscal costs contained, you 

are not going to have a huge subsidy. 

I was asked earlier, what else could we do? Well, you know, it 

is either the carrot or the stick. That is kind of the carrot and then 

there is the stick approach. In e-prescribing and other approaches, 

you can combine both of them. You could provide a small subsidy 

up front during a 3- or 4-year transition and say, thereafter, you 

won’t receive Medicare reimbursement unless you’ve adopted. 

I’d also note that is not a perfect system. The Medicare approach, 

for example, pediatricians and others who might fall outside of the 

bulk of the Medicare system may require some other kind of approach. 

Mr. DOGGETT. I want to involve Dr. Lambrew in this, also. 

If the goal here is just get the government out of the way and 

turn all of this over to those who have a financial interest in the 

outcome, let PhRMA decide pharmaceuticals, let some kind of surVerDate 0ct 09 2002 14:04 Aug 29, 2008 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6602 J:\DOCS\HEARINGS\110TH\110-37\44037.TXT HBUD1 PsN: DICK
49

geon decide what kind of surgery we will reward, that certainly 

won’t eliminate that $700 billion of waste, will it? 

Ms. LAMBREW. I don’t think so. I think that, going back to the 

car analogy, because that is what we usually do in health care——

Mr. DOGGETT. Better than a financial services analogy. 

Ms. LAMBREW. Exactly. It is not as though trying to pick a drug 

or picking a doctor is like buying a car. It is more analogous to trying to say people should be buying the parts for their car and putting it together themselves. 

We have to think through systems. We know that thinking 

through choice of organizations where you get care, because the organizations then have the infrastructure, the multiple specialists, 

nurses, the other components of a high-functioning health care system matters. 

We also know that having somebody help structure the choices 

for health insurance matters. Employers do these days really make 

discriminating decisions on behalf of many people to figure out 

what is a high-value health insurance plan. Unfortunately, there is 

often not as many choices as they would like. We see a real consolidation of the insurance industry. 

I did a study about 5 years ago in which we asked people, which 

would you rather have, the money your employer pays and go out 

and buy insurance on your own or a set of a couple of choices, three 

to five choices of health insurance plans? And, by far, people wanted their employers to help them. 

Health care is complicated. They want choices, but it’s a narrow 

set of choices, and we need to figure out not only how to focus in 

on the right types of choices for individuals that promote value in 

their own preferences but also make sure everybody has those 

choices. 

I need to underscore the point that you made earlier. We have 

to have everybody have those choices. It is not fair to have a system where one in three Americans is out of the system at some 

point in time over 2 years. We have to get everybody in to make 

sure that this is a high-functioning as well as a fair system. 

Mr. DOGGETT. Let me just say, in closing, Mr. Chairman, the 

suggestion that has been made this morning, not by the witnesses, 

that we need our health care system to follow the example of the 

Securities and Exchange Commission and the regulation of the financial market seems to me to be particularly ill-timed, because we 

have had the idea of government gets out of the way, no regulation 

of the sub-prime market, and we have a disaster. 

I think to follow the notion that we will just turn it over to those 

that know best and government with get out of the way and Congress won’t pay attention or be involved, everything well work out 

fine—we only need to look at the economic crisis we face today to 

know that approach does not and will not work. 

Chairman SPRATT. Thank you, Mr. Doggett. 

Mr. Berry. 

Mr. BERRY. Thank you, Mr. Chairman. 

Mr. Gratzer, I believe that you in your opening remarks spoke 

of HSAs and how you thought that was one of the good things that 

had been done. Do you have information that says how much 

50

money they save or do they get better outcomes, why you think 

that is a better deal? 

Dr. GRATZER. Thank you, Mr. Congressman. 

We are in the early stages of experimenting with health savings 

accounts. I think that there have been a plethora of studies that 

have come out. To really satisfactorily study this issue, we will 

need far more data over many years. 

I think that there is early evidence, certainly some from insurance companies, some from organizations, suggesting that when 

people are given more financial incentives they do tend to make 

better decisions. I think we have some early evidence that, and of 

course we are all very worried about this, people aren’t sacrificing 

care and thus sacrificing their own health in the long run. 

As you know, there is one landmark study from the 1970s, one 

of the largest social science experiments in human history, the 

RAND Health Insurance Experiment, where a thousand families 

were put on a free-for-all system, not unlike perhaps what one 

would get in a country like Canada. A thousand families were put 

on a user-fee system, and there was no discernible health outcomes 

except in the poorest of the poor. 

So there is evidence that if you separate out smaller items in 

health care—checkups, X-rays for sprained ankles and so on—from 

larger items, like, God forbid, one of us is hit by a bus, that people 

are able to make decisions again. Early evidence from health savings accounts does prove somewhat supportive of this. 

Mr. BERRY. Either one of you have a comment? 

Ms. LAMBREW. I would just say that I think there are downside 

risks to this approach, and they are kind of trying it out. One of 

which is we do have a sense from the research that people are not 

good at discerning necessary from unnecessary use, so they maybe 

equally likely to skip the chronic disease medications or the early 

detection of a disease that does cost as much as other services. So 

I think there is a risk of losing valuable services as well as wasteful services in the process. 

And the second is that, to the extent that people have low income 

and we’re not figuring out a way to address that, we are really creating financial barriers to access to care. And most of the surveys 

we have seen of these different products are indeed they do increase people’s awareness of cost, but they also increase people’s 

self-reported access problems and financial problems associated 

with those deductibles. 

Mr. BERRY. I am curious, as this discussion has taken place, 

there has been—most of the discussion has been about IT, it seems 

to me. And I don’t discount the value of that. I think we are going 

to have to do something that improves all that. 

I am a little bit surprised that no one has mentioned the value 

of larger health care pools. I don’t believe I have heard it. Maybe 

it happened when I was out of the room. Or the cost of prescription 

medicine in, actually, what I consider to be a wacky way that prescription medicine is priced to the American people. 

Have you all looked at any of those things as they reflect the cost 

of health care? And if anybody knows the value of PBMs, I’d like 

to know what it is, because I have never understood it. 

Mr. ORSZAG. Okay, why don’t I take a crack at that? 

51

By the way, I should first say I actually have a health savings 

account myself. 

On your former question and the discussion—Mr. Ryan looks 

surprised by that——

Mr. RYAN. Pleasantly surprised. 

Mr. ORSZAG. The discussion we were having before about lack of 

information about the value of different procedures and what have 

you, the lack of comparative effectiveness is quite salient because 

it is often very difficult as a non-medical professional to determine 

what is or is not valuable. 

Let me turn to pharmaceuticals. I think it is they get a lot of attention, but it is important to remember that pharmaceutical 

spending is about 10 percent of the total health care spending. And 

that, therefore, there is sort of an inherent limit in some sense to 

the traction that you get from bending the overall curve through 

changes in pharmaceutical spending. And in fact there is often 

some offset in the sense of more pharmaceutical spending may reduce inpatient and other spending. 

On pharmaceutical benefit management firms or that technique, 

we have seen a very dramatic shift towards generics and away 

from branded drugs, which, by the way, is the primary explanation 

for why Part D in Medicare is costing a lot less than was projected 

initially. The shift towards generic drugs that has occurred overall 

means that overall pharmaceutical spending is much lower than it 

was projected to be at the time of enactment of Part D. And that 

has carried through over to Part D, also. So there is no sort of 

magic to the fact that Part D spending is lower than was projected. 

That is occurring in drug spending overall, where there has been 

much less rapid growth than was projected in, say, 2001, 2002, 

2003. 

Mr. BERRY. Could that savings not have been achieved just by 

using the pharmacist and his knowledge or her knowledge or by a 

Medicare-run plan? 

Mr. ORSZAG. There are lots of ways of achieving savings. 

Again, the question is you need to make sure that the entities 

that you are hoping will achieve savings have financial incentives 

to do so. And you mentioned PBMs, they have incentives to achieve 

those savings. 

Ms. LAMBREW. I would like to address your other issue about 

pools, and I think that was a neglect on my part in my testimony. 

Because I do think we have heard today the discussion about 

health care, and it is just not a normal economic good. So the question, if we have price transparency leading to higher collusion on 

prices, that is not your typical market. So the question becomes, if 

we do have this different type of system where we have some of 

this collusion going on, how do we best reduce that? That was a 

question I think Representative Jordan asked earlier. 

And I would argue that trying to have individuals out there 

shopping for different providers to hopefully lower the price is not 

a viable option. Having large pools, pool purchasers, sophisticated 

buyers, insurers trying to figure out how they can, for blocks of 

people, negotiate down rates, figure out better systems of care, 

would be more effective, to say nothing of the marketing costs, adVerDate 0ct 09 2002 14:04 Aug 29, 2008 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 J:\DOCS\HEARINGS\110TH\110-37\44037.TXT HBUD1 PsN: DICK
52

ministrative costs of taking apart our employer-based system today 

where 60 percent of the people get coverage. 

So I would argue that there is fairly significant evidence that if 

you have large groups of people, not monopolies per se, but large 

groups of people in purchasing pools that are dealing with a complicated health care system that is fairly consolidated, supply-oriented, you might be able to achieve the kinds of value-oriented 

health care that we discussed. 

Mr. BERRY. Thank you very much. 

Dr. GRATZER. I wanted to add, in two or three sentences you 

have raised some of the biggest issues in health care, obviously 

going beyond just what we’ve discussed so far. Pooling is an issue, 

and the way we buy health insurance right now is very relevant. 

There are some questions as to whether a 1940s model of employerbased health care is relevant in a day and an age when people are 

turning over jobs and moving from workplace to workplace. That 

is a topic for another day. 

The other issue, of course, is that prescription drugs often is 

brought up; and people often get very excited about it. It is only 

really about 10 percent of overall health spending. It is probably 

not nearly as fast in growing as a percentage of health spending 

as, say, hospitals are at this point in time. 

It is one area, by the way, where we have seen better information and better pricing availability for people make a difference in 

that people increasingly choose generics, which probably are more 

cost-effective for more individuals. That might be one of the very 

few success stories we can clearly identify, both in Part D and in 

the private sector. 

Chairman SPRATT. Mr. Etheridge. 

Mr. ETHERIDGE. Thank you, Mr. Chairman. Thank you for this 

hearing. I thank our panelists. 

I think we all do share the goal of having a health care system 

that buys high quality and the costs are affordable. We struggle 

with both those, unfortunately, especially today. 

We talk about it—but what we are really talking about is a system last year in the United States we spent about $2.3 trillion, and 

we are hearing that CBO projections that health care spending will 

go up to roughly, over the next 75 years, and may increase 10 

times. And we’re looking at about $28 trillion, which is a number 

that is so big we can’t really comprehend at this point. 

Each of you have spoken about the importance of controlling 

health care costs. Yes, it is what we are about today. How do we 

do that? 

We talked about IT as one of those areas. And just yesterday 

Congress passed the Medicare Improvement Act, which includes 

provisions on electronic prescriptions, which I think is a great step 

forward. I know when I get a prescription from my doctor, his 

handwriting looks about as bad as mine; and I really wonder how 

the pharmacist figures it out. But I guess he does so that we get 

the right kind of medication and the prescription is done, and that 

is a step in the right direction. Number one, it won’t get lost; and, 

number two, we get the right stuff. So I won’t ask you the question 

on IT because I think we have pretty well beaten that dog to death. 

53

The issue I guess that I do hope you’ll cover when I get to the 

next question is, we have to find a way, I think, in health care how 

IT can improve our understanding of the system. Because I think, 

to get the results we want, we really have to understand the problem first—I am not sure we do—that will lead to better care. 

And I think consolidation is one of those issues across the country as we look to the charts, hospitals advertise, and if I am sick 

I want to go to the very best one. I think that is true of everyone 

else. 

You have talked about that through your wife. And that’s what 

happens. We start to do selections. And in the process it is the cost 

of the increased equipment we buy that we get to. 

So I guess the question I want to ask is, one of the curious things 

about health care is that people don’t always have the time, they 

don’t always have the knowledge to wade through all the options. 

Prime example was the Medicare option as it relates to prescription 

drugs. 

We came out—in North Carolina, I think we had 37 different 

plans we could go through. Now I have some knowledge of stuff, 

and my mother-in-law, I was trying to help her, and finally we just 

decided we weren’t going to change. We had an insurance plan. It 

was so complicated that you had to go to so many different areas 

to find out whether they covered the drugs she was in. 

That is the question. I hope you’ll comment on that. 

But as we look at the enrollment, people tend to save if they are 

automatically enrolled and have to opt out. You touched on that 

earlier. Health care plans, I would be interested in that. Are there 

ways that we can develop policies that harness this power to improve Medicare or medical efficiencies? Because I think we give too 

many choices, the first option is not to choose at all, unfortunately, 

either on the provider or on the consumer side. 

Mr. ORSZAG. Yes. Absolutely. And I think this is one of the largest untapped areas of improving health. So, for example, that if you 

are trying to get someone to get vaccinated next week, saying you 

should go get vaccinated, you get very low take-up rates. If you say, 

you should go get vaccinated and here is where you should go and 

give them a map, higher level. If you automatically make an appointment which they can then cancel, you get extraordinarily 

higher take-up rates. And, again, you are not imposing anything on 

anyone because they can always opt out. So you still have the freedom of choice about what happens. 

But making it easy for people to do things I think is an extraordinarily powerful thing that we have not tapped across a whole 

array of policy topics. 

And in terms of healthy living, I think what we learn is that if 

there are even small impediments to exercise or eating well generate very large differences in how much people actually exercise 

or what they eat. And that is the same story as retirement savings. 

Just a small impediment, that you have to read through the forms 

and then sign on the dotted line, that is a big deal in terms of participation rates. We need to be making it easy and simple for people to be eating right and to be exercising, and in the health care 

system we can be using that same insight. 

54

You mentioned Medicare. In Medicare, for example, one of the 

things that would pay off, people are always asking me, what can 

we do that would actually save money in a 5- or 10-year window? 

E-prescribing actually was scored as saving money. 

Another thing that would save money is if we got flu vaccination 

rates for Medicare beneficiaries up to closer to 100 percent. That 

would save money in the short run. There is not universal takeup. You could probably get towards universal take-up because most 

beneficiaries touch a medic or see some Medicare provider during 

the flu vaccination season. If it were the default that when you 

went to see a Medicare provider you would receive the flu vaccine 

unless you opted out—so there are lots of things that you could do. 

Ms. LAMBREW. I just would build on it by saying that we also 

have to figure out ways like that that move beyond the medical 

system. Because so much of the types of prevention and wellness 

and behaviors that we need to address are outside of the boundaries of our medical system. 

And one study found that if we had a typical physician with 

2,500 patients provide the recommended preventative services to 

that patient group, 7 out of 8 hours of the day would be spent providing prevention. So I do think that part of our challenge in 

health care is thinking about how we use less costly ways of delivering it in schools, in the workplace. Pharmacists we talked about 

earlier. Pharmacists see a lot seniors. Why not build pharmacists 

into these systems to try to ensure immunizations and other good, 

preventative practices? 

So much of prevention is asymptomatic without diagnosis and 

could be delivered in less costly and more ubiquitous ways, and I 

think that we need to figure out ways to explore that as well. 

Dr. GRATZER. I think we can all agree that one of the easiest 

ways of saving money is to keep people out of the system in the 

first place because they are healthy. 

Long-term projections always need to be taken with a grain of 

salt, but people have looked at rising obesity rates in the United 

States and suggested, between now and 2020, in one study 20 percent of all new costs would be associated with obesity-related illnesses. As you know, that is an entirely avoidable condition. Unfortunately, more and more Americans now qualify as obese. I know 

the last statistical analysis suggested that maybe we had plateaued 

out, something like one in five Americans qualify as obese; 40 percent are overweight. 

I think, though, when we look at public health—and this is an 

area of extraordinary interest to me—we have to be a little bit cautious. Life isn’t as easy as it was in the 1960s. As you know, in the 

early 1960s, before the greatest public health revolution of the 20th 

century, two-thirds of Americans actually thought there was no 

connection between tobacco use and cancer. Because of the Surgeon 

General’s report and because of the government’s efforts on educating, by the end of the 1960s the vast majority of people saw that 

obvious connection. 

Today, people are actually extremely informed. There was a 

study recently done by an economist suggesting that tobacco users, 

cigarette smokers in fact tended to overestimate the risk to their 

health. 

55

So it is one thing to say, look, prevention is good. We have to 

deal with prevention, though, through the challenges of our time, 

which are that people are more educated than ever before and 

more informed on health issues more than before. 

Why is it that they continue to make bad decisions? Well, there 

are economic factors. There are cultural factors. 

But that is equally relevant I think to these discussions. How 

can we save money with health care over the long term? Have 

more healthy Americans. 

Mr. ORSZAG. Can I just add one more really quick comment, 

which is that we are seeing—smoking is a good example where the 

reductions in smoking rates that occurred disproportionately occurred among higher-income, better-educated people and did not 

occur to the same degree at the bottom of the socioeconomic distribution. 

One of the consequences relative to that kind of change is that 

we are seeing literally an explosion in life expectancy inequality, 

where life expectancy is going up on average, but it is going up way 

faster at the top of the socioeconomic distribution, and it is flat or 

by some measures may even be declining slightly at the bottom. 

One of the things that may be the consequence of changing defaults and changing social norms and what have you is to kind of 

retilt that a little bit. That is what happens in retirement savings. 

What happens when you make retirement saving automatic is that 

you get low- and moderate-income workers participating at rates 

that are close to those for higher-income workers which no other 

policy intervention seems to be able to accomplish. 

Mr. ETHERIDGE. Thank you, Mr. Chairman. I yield back. 

Chairman SPRATT. Mr. Moore. 

Mr. MOORe of Kansas. Thank you, Mr. Chairman; and thanks to 

the three panelists for being here. 

Dr. Orszag, you emphasized in your opening statement that our 

health care system’s use of electronic medical records would be of 

benefit, I think—establishing a system. As I provided you a copy 

of the Dear Colleague letter that Mr. Ryan and I have circulated 

to our colleagues in support of such a system. And I understand 

and I appreciate your comment back, and we will review the study 

that you mentioned there and certainly correct it if it needs correcting as far as the information. 

But we have introduced the Independent Health Record Trust 

Act, which would establish a modern, market-driven, nationwide 

health information technology network by providing for the creation of nonprofit health record trusts in this country. Under this 

system, persons would have—the individuals would have the option 

of signing up for an account to be managed by a health record trust 

similar to the way banks offer to maintain credit card accounts. 

Right now, patients walk into a hospital or a physician’s office 

and the first thing they are handed is a history form to be completed and provide information about medical history. Sometimes 

the patients get it right, and sometimes they don’t. 

And I think I read into what—at least what I heard you say Dr. 

Orszag, that we could benefit from these miraculous little devices 

called computers now and bring maybe the health care delivery 

system into the 21st century. 

56

I am not trying to be facetious here, but I am just saying I think 

there is a lot of opportunities for errors when patients are asked 

every time they check into a medical facility or a doctor’s office to 

complete this patient history form. And, again, they may or may 

not have the correct information, and the information could be compiled and could be distributed with the authority of the patient. 

My wife is a practicing nurse for more than 20 years, and she 

says patient confidentiality and protecting patient’s information is 

very important. And we certainly understand that and agree with 

that as well. In fact, she says a woman who goes in for a skin condition to a dermatologist, the dermatologist probably, probably does 

not need to see her OB/GYN records, and she should have the authority to make that decision. 

But our point is that—and I would like you and the other panelists, if you have thoughts about this, to comment on how much 

benefit we could derive—our country could derive and especially 

our people could benefit from the establishment of this kind of system. Because, again, we want to get it right, but we want to provide information to the caregivers with the authority of the patients. 

A CBO study of health information technology released in May 

laid out some of the improvements in efficiency that can be captured through health information technology, but the analysis, in 

my opinion, seemed to downplay some of the health and safety benefits of the health information technology and that the full value 

of adoption of such a system can only be realized through the system-wide change like we proposed here. 

And I guess I just—do you think the widespread, integrated implementation of a national health information network, particularly 

one that protects the privacy and security of an individual’s 

records, is a critical component of any effort to control the growth 

of health care costs and improve the efficiency and effectiveness of 

our system? 

And the last thing I want to ask—and will stop and you can 

talk—is somebody—I think it was you, Dr. Orszag, but whomever—mentioned the Veterans Administration system; and I’ve 

heard from many people that they have a pretty good system overall. And I guess I would like you just to give any additional comments you might have there. 

Because we’ve just got to get this right. It just seems like we are 

not delivering the best health care to people if the physicians and 

the people who are providing the treatment and the hospitals don’t 

have all the correct information they need. Again, with these devices, that should be kind of something that shouldn’t require a lot 

of thought. 

Thank you. 

Mr. ORSZAG. Sure, let me just first say health information technology in my view is necessary but not sufficient. So it is critical 

to improving the efficiency of the health system, but by itself, if 

that’s all you did, it wouldn’t be sufficient to capture the $700 billion opportunity that we were discussing before. 

The VA system, through its Vista health IT system, does have 

one model. And we actually came out with a preliminary report. 

57

We are going to have a fuller report on the VA system and what 

we can learn from it out I think later this year. 

You have to remember that that system basically is contained. 

It’s not a fully integrated system, but it is closer than the rest of 

the health system to the sort of full array of things of what you 

would want. There are incentives for higher-value care. The information is processed in terms of what is coming out. It’s not just the 

health IT systems. It is a health IT system in a structure that 

makes sense. 

The analogy that Laura Adams, who runs the Rhode Island 

Quality Institute uses, is: getting more efficiency out of the health 

system is like waiting for toast to come out of the toaster. And 

some people say we need to plug the toaster in. That is like health 

IT. Other people say we have to go to the store and we have to buy 

the bread. And other people say you have to put the bread in the 

hole and press the lever down and wait for it to come back up. You 

need to do all of those things, obviously; and just plugging the 

toaster in by itself is not going to get the bread to come out. And 

that is my point. 

Mr. MOORe of Kansas. Thank you very much. 

Any other comments? 

Thank you. 

Chairman SPRATT. Ms. Kaptur. 

Ms. KAPTUR. Thank you, Mr. Chairman, very much; and, again, 

thank our long-suffering panelists here for being with us and for 

the great work that you do. 

I wanted to ask, Dr. Orszag, in your testimony on page 3 you 

have included a map and it is entitled, Medicare Spending per Beneficiary in the United States, by Hospital Referral Region. I would 

be very interested and I am sure all the members would be in our 

own regions, since these maps don’t reflect congressional districts 

and what that might say about our respective regions. 

Are those dollar amounts merely a reflection that we have more 

elderly or is it the system that is operating in the area and the way 

it expends dollars? And if so, if it is the second, then could you 

comment on the areas that are in the top category and what those 

higher costs might reflect? 

Mr. ORSZAG. Yes. Most of that variation is occurring because of 

the intensity with which Medicare beneficiaries are treated. In 

those areas that are at the top of the cost curve that are darker 

in this map, there is a lot more stuff that happens to you. 

So if you get sick, you are much more likely to be hospitalized—

for any given condition, you are much more likely to be hospitalized. You are much more likely to spend a lot more time in the hospital. You are much more likely to see lots of specialists. You are 

much more likely to have lots of tests done to you. And when there 

is ambiguity about what should happen, you’re much more likely 

to have an expensive procedure undertaken. 

So the more intense service is provided. But the kicker is it 

doesn’t look like that greater intensity actually buys you anything 

in terms of better health outcomes. 

Ms. KAPTUR. That is what I want to know. One of the sentences 

that you have in your testimony is some of the highest cost areas 

58

are concentrated around the top U.S. medical centers. Now that is 

very interesting. 

One of the issues that we face in our region is the ability to keep 

attracting good doctors and research-related doctors, because they 

go off to where these medical centers are where they can do more 

intensive research and where there is a broader array of physicians. And I see—just as with airline deregulation and you have 

these mammoth, big airports in certain places, I see what is happening in our health care system, these mammoth health systems 

that are creating, rearranging the way we have doctors arrayed in 

this country, for example, and it is a great concern. I was wondering what that map is really telling us. 

Well, let me ask this question. Do you see any correlation, Dr. 

Orszag, in work that you have done between the cost of medical 

care and pharmaceuticals? And one of my big questions there is, 

when a pharmaceutical comes off patent, are there studies that 

show that prices go down? 

Mr. ORSZAG. Yes. 

Ms. KAPTUR. Is it by drug? 

Mr. ORSZAG. What you see is—the patterns around when something—a brand new drug goes off patent are actually often quite 

interesting, but let me actually—we can raise—there is legislation, 

for example, for so-called follow-on biologics which would create a 

pathway for FDA approval of complex molecules, complex drugs, 

not simple molecular drugs but complex molecular drugs to get 

FDA approval. 

We have scored savings to that legislation because having that 

follow-on biologic, which is sort of a generic type thing, enter the 

market would help, once a brand-new drug came off patent, drive 

down the price. I mean, basically, the mechanism is, once something is off patent and generics are a more prominent part of the 

market, there is price pressure on the old, branded drug, but then 

consumers are shifting towards this generics——

Ms. KAPTUR. You can’t watch television without seeing 15 ads in 

an hour. I mean, if you weren’t sick before you started watching, 

you will be sick after. So the amount of money it takes to do that 

across this country, unbelievable. 

I am interested in pharmaceuticals and the rising cost of health 

care in this country. Any studies, any information you have would 

be most interesting, especially when most of those pharmaceuticals 

are made offshore. 

Let me give you an example. Heparin—not a new drug. I don’t 

know what the prices of heparin are. I would be interested if there 

is a study that tells me. But we had lots of people die in this country taking heparin that was manufactured in China. 

I would like to know, if you can tell me, what it would cost to 

manufacture that right here in this country? What is the cost advantage to the company to manufacture in China? 

And we have people in my district that died taking that in full 

faith that it was examined and so forth. How can that happen? It 

is a formula that is well-known. It is a very old drug. I don’t know 

how much it costs. What should it cost? And what happened that 

we can’t make that in this country? Is it a complicated formula? 

And, if it is, maybe we should be making it here. Can you comment 

59

on the heparin situation and how that could have possibly have 

happened in the year 2008 in this country? 

Mr. ORSZAG. I am going to stay away from talking about a specific drug, but let me come back to your broader question. There 

is no question that pharmaceuticals play some role in rising health 

care costs. But I do think it is important to remember they seem 

to receive an amount of attention that is disproportionate to their 

role either in cost growth or in cost. They are about 10 percent of 

total health care spending. Most of that $700 billion inefficiency that I was mentioning before occurs because of variations in—that we were talking about in 

this map—occurs because of variations in hospitalizations and surgery rates and MRIs and other imaging and what have you. So 

pharmaceuticals are part of the puzzle, but relative to their actual 

contribution they receive way more media and policy attention 

than their sort of numerical contribution would suggest. 

Ms. KAPTUR. Well, I know my time is up, Mr. Chairman. But I 

would be very interested in, Dr. Orszag, on the map if you could 

take the 9th Congressional District of Ohio and tell me—because 

you can’t really tell where it is on here—if you could go down to 

that level and tell me what those numbers mean for us. What does 

that translate into our particular region—I am sure other members 

on the committee would be similarly interested. 

And then, on the pharmaceutical issue, I would be very interested in anybody on the panel, if you know where I would find this, 

I would like to know the cost accounting of manufacture of heparin. 

I would like to know how much it costs, I would like to know where 

it is manufactured, and I’d like to know what it would take to manufacture it in this country. 

Incidentally, all the heparin cases are being referred to a Federal 

court in my district, so I have a really special interest in this. 

What are the economics of driving that production offshore? I 

don’t know if you have access to studies on that or if you could 

refer me somewhere, but I am very, very—because that is not the 

only one. That is one I am really paying close attention to. 

Why can’t we make that here? What are the economics that are 

driving that offshore? And then I want to know what it costs if you 

go off and you buy it through Medicare, let’s say. You must have 

access to data. Do any of you feel comfortable in referring me to 

sources on that? 

Ms. LAMBREW. I will say one of the interesting experiences that 

I had in the ’90s when I worked in the Clinton administration was 

we were all debating the Medicare drug benefit at that point and 

looked into how do we understand the relative prices of a set of a 

basket of drugs. And it is very difficult to try to go in and try to 

look at who pays what from wholesale price to retail price to Medicaid price to the cost of manufacturing. And we found our study 

concluded that we don’t have the systems in place to know. 

So I think it is a very hard question that you have asked. I am 

not sure there is information on that. 

I would put in a plug for trying to ensure at least that the data 

support agencies that you have—CBO, GAO, CRS—get access to 

some of the drug data that we are getting through Medicare. I 

mean, Medicare is now a major payer for prescription drugs in the 

60

United States of America. Yet we—you all in government don’t necessarily have the types of scrutiny of the data that we are getting 

to figure out what is working, what is not working and what are 

the costs of the different drugs. So I think that there is some improved information sharing that could happen with the new Medicare drug benefit to begin to feed into a larger system to help answer some of these questions. 

Ms. KAPTUR. Thank you. 

Thank you, Mr. Chairman. 

Chairman SPRATT. Just two questions and then Mr. Ryan has a 

question to close. 

Going back to this variegated map of the United States and costs 

per capita. Dr. Orszag, you said it can’t adequately be explained. 

I understand we are trying to discern the reasons for these different patterns of expenditure. But, number one, what can we do 

to better discern and speed up the effort to determine what is at 

the root cause of these differences in per capita costs? 

And, secondly, how do we disseminate that information? How do 

we institutionalize it and disseminate it? Would it be worthwhile 

to consider the creation of an institute at NIH for the delivery of 

health care in order to develop information in a package form that 

can be systematically disseminated amongst physicians, practitioners all over the country? 

Mr. ORSZAG. Let me answer that in two stages. 

First, with regard to the regional variation, CBO came out with 

a report a couple months ago looking at what is known. There is 

ongoing work about getting at the cause. There is a group up at 

Dartmouth, the Wennberg Center, that is exclusively devoted to 

this kind of regional analysis. 

And CBO is currently expending a lot of internal resources, putting together two significant volumes that will be out at the end 

of this year to present policymakers and others with options for improving the efficiency of the health care system, among which will 

be options to try to get at this regional variation. 

The second part of your question had to do with ways of disseminating information, and I think we have touched upon a Federal 

health board idea. There are related ideas about some comparative 

effectiveness entity or entities beyond the existing AHRQ that is 

part of HHS. 

It is crucial to—coming back to the basic point, just having information floating out there is not going to do the trick. In order for 

information to matter, it has to affect the way medicine is practiced. And in order to affect the way medicine is practiced, you 

need to be getting the information especially to medical professionals and doctors. And then you need to be giving them incentives to, again, move towards better care. 

So I do think there are institutional gaps in our ability to do both 

of those things right now, and that is why there are discussions 

about whether some change in institutional forms would be beneficial. 

Chairman SPRATT. Thank you. 

Mr. Ryan. 

Mr. RYAN. I will follow up on that. 

61

I guess at the end of the day the different approaches we may 

look at come from sort of a bottom-up market-based approach or 

sort a of top-down government-based approach. But I think we are 

all coming to consensus on the need on some of the design features, 

and then we will squabble over a few other details. But this is a 

productive debate going in the right direction, nonetheless. 

Dr. Orszag, you said something when I stepped out which was 

interesting. Unless you change the payment system, you are never 

going to have a more efficient health care system. Obviously, I 

think that is totally accurate. 

Let me ask you this. The trustees of Medicare are telling us we have a $34 trillion unfunded present value liability with respect to 

Medicare. Can you change the payment system without spending 

more money? And can you change the payment system that actually saves more money? And, if so, can you quantify that? 

Mr. ORSZAG. There is no question that—first of all, I will try to 

avoid only saying interesting things when you are not here. But 

there is no——

Mr. RYAN. The HSA comment was the most interesting. 

Mr. ORSZAG. There is no question that you could save money 

through payment methodology changes within Medicare today——

Mr. RYAN. Net. 

Mr. ORSZAG. Net. That is not hard. Because, you know, simplistically, you could ratchet payments down. 

The key question is, can you change the payment methodology in 

a way that not only saves money but is sustainable over time and 

that changes the way medicine is practiced so that you are bending 

the curve not only for Medicare but for the health system as a 

whole? Because, if not, you are just going to create the kind of 

issue that we have with the sustainable growth rate formula and 

other artificial constraints that operate just on Medicare. If you are 

not affecting the overall rate of health care spending over time, all 

you would create with ratcheting down Medicare reimbursement 

rates is an access problem. 

Mr. RYAN. That is basically why I asked the question. 

If anybody else wants a stab at that, please have at it. 

Ms. LAMBREW. You also asked the question of can you save without spending. I think the question depends, can you get these types 

of bending-the-curve systems without an up-front investment. And 

I would argue that we do need to consider investing in health information technology, investing in the research to undergird this system, getting people into insurance arrangements so that they have 

the same choices and benefits that we all have. 

I could make a case—and I will just say one more thing. Of that $700 billion that Dr. Orszag has suggested is out there, remember 

that is not all public. A good proportion of that is private savings. 

Trying to figure out how we capture and redirect in a system is 

hard to do at the Federal level. 

Mr. RYAN. Do these investment costs have to be borne by the taxpayer or could they be borne by the market? 

Ms. LAMBREW. I would make a case that if the goal is to figure 

out where the Federal Government invests in public goods, then I 

would argue HIT and comparative effectiveness are public goods. I 

would argue trying to help low-income people afford health insurVerDate 0ct 09 2002 14:04 Aug 29, 2008 Jkt 000000 PO 00000 Frm 00065 Fmt 6633 Sfmt 6602 J:\DOCS\HEARINGS\110TH\110-37\44037.TXT HBUD1 PsN: DICK
62

ance is not something the markets can do. I think there needs to 

be an up-front Federal investment. 

I can make a case that that up-front Federal investment should 

and potentially could yield systemic, if not Federal, savings within 

a budget window. And that is our challenge, is to figure out how 

academics and policymakers can come together to say, let’s invest 

now but ensure that that investment yields long-run savings. That 

is our challenge. 

Mr. RYAN. Yeah, and scoring it. 

Ms. LAMBREW. That’s his challenge. 

Chairman SPRATT. Could I add one final question? 

If we want to disseminate the information and have this diffusion of knowledge on a more equal basis and have information 

technology, latest technology, wouldn’t it make sense for the government simply to develop this software, this program and maybe 

develop it on an open source basis so that it is changed, upgraded 

from time to time? It would mean that everybody was operating 

with the same system. 

Mr. ORSZAG. Well, the Federal Government has sort of tried that 

in the sense of almost basically giving away a health IT system. 

I think it may turn out to be more productive for the Federal 

Government to set certain standards regarding interoperability and 

privacy and then let the market develop for the specific systems 

that can fulfill those standards, that the history of government innovation in technology is not marked by substantial successes. So 

the approach of kind of saying, here is what we need the system 

to do. 

And, again, coming back to our earlier discussion, if your system 

doesn’t do that, you are not going to get paid under Medicare, may 

wind up being the most auspicious approach. 

Chairman SPRATT. Well, I think one of your studies noted part 

of the problem is there are still a lot of small-sized practices, and 

these practices find it difficult to spread the cost of expensive software over the relatively small volumes of businesses that they do. 

If the government was bearing much of the cost of development of 

the software like this, you would be able to have these smaller 

firms take advantage of it. 

Mr. ORSZAG. Yeah. But the problem is it is often not just the purchase of the software that is the cost, it is that you are disrupting 

your operations for some period of time while people learn how to 

use it. And all the other sort of process changes that are involved. 

So just even giving away software will not get you universal takeup among small practitioners. 

Mr. RYAN. I think, if you take a look at the market, you have 

five or six basic big players doing the software systems out there. 

A couple of them are from Wisconsin, GE and Epic. And if the government simply requires interoperability, it patches on these programs so that they can talk to each other, that in and of itself is 

a step in the right direction. But the market continually innovates, 

continually competes and meets the needs without the government 

designing the software systems because you already have private 

firms doing the design. 

The question is, are they going to be done in the stovepipe fashion that they are today or will the government be a flattener so 

63

that these things can talk to each other and then the market can 

continue to innovate and provide these benefits? That is where I 

think we can make a difference. That is what Dennis and I are trying to achieve in our bill, among some other things. 

Chairman SPRATT. Let me thank all three of our witnesses for 

coming today, for your presentations. We very much appreciate it, 

and we think we will probably revisit this topic from time to time 

in the future. Thank you very much for your participation today. 

[Whereupon, at 12:07 p.m., the committee was adjourned.]

Æ