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89–472 2016

EXAMINING TRADITIONAL MEDICARE’S 

BENEFIT DESIGN 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

FEBRUARY 26, 2013 

Serial No. 113–HL01 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

ALLYSON SCHWARTZ, Pennsylvania 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON TRADE 

KEVIN BRADY, Texas, Chairman 

SAM JOHNSON, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

JIM MCDERMOTT, Washington 

MIKE THOMPSON, California 

RON KIND, Wisconsin 

EARL BLUMENAUER, Oregon 

BILL PASCRELL, JR., New Jersey 


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C O N T E N T S 

Page 

Advisory of February 16, 2013, announcing the hearing ..................................... 2 

WITNESSES 

Glen M. Hackbarth, Chairman, Medicare Payment Advisory Commission ........ 6 

A. Mark Fendrick, M.D., Director, University of Michigan Center for ValueBased Insurance Design ...................................................................................... 31 

Tricia Neuman, Senior Vice President and Director, Kaiser Program on Medicare Policy, Kaiser Family Foundation .............................................................. 39 

SUBMISSIONS FOR THE RECORD 

AARP, letter ............................................................................................................. 81 

AFL–CIO, statement ............................................................................................... 84 

AFSCME, statement ................................................................................................ 89 

Alliance for Retired Americans, statement ............................................................ 93 

American Academy of Actuaries, statement .......................................................... 97 

California Health Advocates, statement ................................................................ 107 

Center for Fiscal Equity, statement ....................................................................... 117 

Council for Affordable Health Insurance, statement ............................................ 121 

Leadership Council of Aging Organizations, letter ............................................... 126 

National Alliance on Mental Illness, statement .................................................... 128 

National Association for Home Care and Hospice, statement ............................. 133 

National Committee to Preserve Social Security and Medicare, statement ....... 143 

UAW, statement ...................................................................................................... 145 

USW, statement ....................................................................................................... 148 


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EXAMINING TRADITIONAL MEDICARE’S 

BENEFIT DESIGN 

TUESDAY, FEBRUARY 26, 2013 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The subcommittee met, pursuant to call, at 10:26 a.m., in Room 

1100, Longworth House Office Building, the Honorable Kevin 

Brady [chairman of the subcommittee] presiding. 

[The advisory of the hearing follows:] 


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HEARING ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

Chairman Brady Announces Hearing on 

Examining Traditional Medicare’s Benefit Design 

Washington, Feb. 2013 

House Ways and Means Health Subcommittee Chairman Kevin Brady (R–TX) 

today announced that the Subcommittee on Health will hold a hearing to review the 

current benefit design of the Medicare Fee-For-Service program and consider ideas 

to update and improve the benefit structure to better meet the needs of current and 

future beneficiaries. The hearing will take place on Tuesday, February 26, 

2013 in 1100 Longworth House Office Building, beginning at 10:30 a.m. 

In view of the limited time available to hear from witnesses, oral testimony at 

this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for 

consideration by the Committee and for inclusion in the printed record of the hearing. A list of witnesses will follow. 

BACKGROUND: 

Created in 1965, the Medicare benefit was originally modeled on the Blue Cross 

Blue Shield plans that were prevalent throughout the nation at that time. However, 

the last half-century has seen significant changes in how health care benefits are 

designed and delivered. Yet Medicare retains the original bifurcated system of hospital and physician services, and has an array of confusing deductibles and coinsurance levels that neither creates incentives for beneficiaries to make better decisions 

about their health care needs nor protects beneficiaries from unexpected health 

costs. Not surprisingly, many beneficiaries purchase additional coverage to bring 

more certainty and clarity to their out-of-pocket costs. 

To address these and other concerns, the Medicare Payment Advisory Commission 

(MedPAC) made recommendations in its June 2012 Report to Congress to redesign 

the traditional Medicare benefit package. In this report, MedPAC suggested improving and updating Medicare’s current cost sharing structure, by maintaining on aggregate the same level of cost sharing as the traditional benefit, but redistributing 

cost sharing through the use of tiered copayment, coinsurance and a new combined 

deductible for Medicare Parts A and B. MedPAC also recommended providing an 

out-of-pocket maximum for beneficiaries in traditional Medicare, protection that is 

currently required of Medicare Advantage plans or obtained by beneficiaries through 

the purchase of supplemental insurance. A number of other bipartisan commissions 

have recommended similar changes to traditional Medicare’s benefit design. 

In announcing the hearing, Chairman Brady stated, ‘‘There is bipartisan recognition that the current structure of the Medicare benefit is outdated, 

confusing, and in need of reform, and taking steps to improve the current 

array of confusing deductibles, copayments and coinsurance is long overdue. This hearing will enable the Subcommittee to investigate the limitations, inefficiencies and inadequacies of traditional Medicare’s cost sharing 

structure and identify ways to bring the Medicare program into the 21st 

Century.’’ 

FOCUS OF THE HEARING: 

The hearing will review the current Medicare benefit design and examine ways 

to improve it. 


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DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you 

would like to submit, and click on the link entitled, ‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance 

with the formatting requirements listed below, by the close of business on Tuesday, March 12, 2013. Finally, please note that due to the change in House mail 

policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call 

(202) 225–1721 or (202) 225–3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word format and MUST 

NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised 

that the Committee relies on electronic submissions for printing the official hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://www.waysandmeans.house.gov/

f 

. 

Chairman BRADY. The subcommittee will come to order. Welcome to the first hearing of the Health Subcommittee for the 113th 

Congress. Today we will review the outdated and confusing benefit 

design of the traditional Medicare program, the structure of which 

is essentially unchanged from its inception in 1965 it maintain separate programs and benefits for hospital and physician services, 

and doesn’t coordinate care between the two. 

Because of the outdated structure of the Medicare benefit, today’s 

beneficiaries are inundated with an array of confusing deductibles, 

coinsurance and copayments with no protection from high 

healthcare costs unless they enroll in a private plan. As a result, 

over 90 percent of seniors must obtain some type of supplemental 

coverage, whether a purchase on their own, through an employer 

or from Medicaid. 


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Despite vast improvements and innovations in the healthcare 

sector that have transformed how care is delivered, Medicare has 

lumbered through the past half century on the same trajectory. 

Can you imagine a world where someone has to buy hospital and 

nursing home coverage from one insurance company, physician office coverage from another insurance company, prescription drug 

coverage from yet another company, and likely supplemental coverage from a fourth insurance company? Yet this is exactly how the 

current Medicare benefit is designed. No private insurance company in its right mind would design and offer a benefit that looks 

like this. And given a choice, most seniors wouldn’t accept it. 

The need to reform the outdated Medicare benefit is long overdue. I appreciate the work of the nonpartisan Medicare Payment 

Advisory Commission and bipartisan groups like the Bowles-Simpson Commission and Bipartisan Policy Center to further this issue. 

Their effort to dig into this complicated topic and advance longoverdue reform has been critical. 

Updating the Medicare benefit design will bring the program into 

the 21st century and meet the needs of current and future seniors. 

It will bring the traditional Medicare benefit in line with the types 

of benefits and cost sharing that one in four beneficiaries currently 

enjoy from Medicare Advantage plans. These plans are able to offer 

predictable copayments versus coinsurance, protection against high 

out-of-pocket costs, and are often able to incentivize beneficiaries to 

receive care in high-quality and efficient settings. 

However, as we will hear today, because of changes included in 

Obamacare and regulations developed by the Centers for Medicare 

and Medicaid Services, Medicare Advantage plans have fewer opportunities to design the benefit packages that beneficiaries want. 

Instead of promoting this model, the President’s new healthcare 

law is pulling these plans and the 13 million beneficiaries enrolled 

in them back into the 1960s. 

For the sake of our seniors, we need to break down barriers and 

give these plans greater flexibility to continue to innovate and offer 

affordable coverage while improving patient outcomes. This is 

something traditional Medicare has not been able to do. Moving 

from Medicare’s half-century old design to one that provides beneficiaries with rational cost sharing and protection from high 

healthcare costs will be challenging, but it is necessary. Simply 

maintaining the current outdated, confusing and inefficient structure while the program remains on a quiet path to insolvency, is 

not the answer. Instead we have to move forward to improve this 

critical program, providing greater protections for seniors and placing the program on sound financial footing. 

It is my hope that this hearing will be the start of efforts to work 

in a bipartisan fashion to modernize the Medicare program for all 

seniors and people with disabilities. 

Before I recognize Ranking Member McDermott for the purposes 

of an opening statement, I ask unanimous consent that all Members’ written statements be included in the record. Without objection, so ordered. 

Chairman BRADY. I now recognize Ranking Member McDermott 

for his opening statement. 


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Mr. McDERMOTT. Thank you, Mr. Chairman. I look forward to 

this process. And I was just sitting up here thinking that Mr. Johnson and I were the only two people who sit on this committee who 

remember the last time this committee tried to reform the benefit 

package. That was 1988. It was a catastrophic—it was called the 

Medicare Catastrophic Coverage Act. It had an outpatient prescription drug benefit and a cap on beneficiaries’ out-of-pocket costs. 

And my first vote in the Congress in 1989 in this committee was 

to vote against the repeal of that change. So I think that as we 

move forward into this area, we really ought to keep in mind what 

happened then. 

Republicans often assert that Medicare is outdated and needs reform, and I agree. No social program could ever be designed that 

anticipates what is going to happen 50 years later, or 60 or 70 

years later, but they ignore that substantial progress has already 

been made to strengthen the essential program. 

The ACA reduces Medicare spending, extends its solvency, and 

brings growth to per-patient costs to record lows. Preventive services are now free of charge to beneficiaries, and we finally have laid 

the groundwork to reward treatment value over volume. 

Yet further improvements are needed, but much of the current 

Republican proposal does more harm than good, in my view. Benefit restructuring specifically to generate savings, whether in the 

name of deficit reduction, paying for other initiatives, or simply 

masquerading as reform, is bad policy and bad politics; 1989. It 

may be tempting when running the numbers and calculating the 

averages, but it is all too easy to lose sight of the very real people 

whose lives and well-being hang in the balance. 

For example, we long sought to add catastrophic coverage to 

Medicare, and I have talked about that. If it is combined with a 

unified deductible to offset the change, it inevitably will mean raising the costs to roughly four out of five beneficiaries. Moving to a 

combined deductible of $500 or more will triple the current Part B 

deductible. A surprising number of beneficiaries have costs below 

$500 and so would pay monthly premiums for benefits they never 

use. Meanwhile, the catastrophic cap almost certainly will be set 

at such a high level that it will benefit only a few, probably 5 percent or so, of the beneficiaries. 

These challenges become even more complicated if cost sharing 

is reconfigured by creating new copays or increasing coinsurance 

for current services like hospital visits and home health care. And 

given the average beneficiary makes only about $22,500 and already spends disproportionately more on health care than a younger person, additional premium cost is done at some risk. 

At a minimum, benefit redesign would require a substantial expansion of the Medicare Savings Program to ensure affordability 

for low-income Medicare patients. And with all but 12 percent of 

Medicare participants receiving supplemental coverage that insulates them from potential changes, the question is, why do it? The 

answer is because some want to prohibit or discourage first-dollar 

coverage in supplemental plans. 

Then the tradeoffs get even more tricky. Do you want to dictate 

terms of private insurance? Do you instead penalize beneficiaries 

for choices they made in the free-enterprise system? Do you tell 


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employers what retiree benefits they can or cannot offer? What do 

you say to people who have already traded lower wages for better 

retiree coverage? 

Now, we are all searching for the ever-elusive health policy holy 

grail that promotes value over volume and quality over quantity, 

but there isn’t a simple answer. Our ability to reliably measure 

quality and value is in its infancy, and there is much work to be 

done. Even with good information, purchasing health care is different from making other expenditures. Few patients can shop 

around for bargains when their health is on the line, nor should 

we expect it of them. 

On a final note, I want to express my optimism that bipartisanship will enable the committee to move forward on the SGR reform. 

We are all tired of doing the SGR patch. The recent Republican 

outline leaves plenty of room for agreement if people want to find 

it. If done smartly, this issue could reshape our entire health economy for the better, but costs can’t just be hoisted onto the backs 

of the beneficiaries. There are better options with stronger policy 

justifications to pay for the needed SGR policy changes. 

With that, I look forward to discussing the many tradeoffs inherent in reconfiguring Medicare’s benefit package with today’s expert 

witnesses. 

Thank you, Mr. Chairman. 

Chairman BRADY. Great. Thank you, sir. 

Chairman BRADY. Today we will hear from three witnesses: 

Glenn Hackbarth, Chairman of the Medicare Payment Advisory 

Commission; Dr. Mark Fendrick, director of the Center for ValueBased Insurance Design at the University of Michigan; and Tricia 

Neuman, senior vice president of the Kaiser Family Foundation 

and Director of the Foundation’s Program on Medicare Policy. 

Thank you all for being here today. I look forward to your testimony. You will be recognized for 5 minutes for the purposes of an 

opening statement. 

Mr. Hackbarth, we will begin with you. 

STATEMENT OF GLENN M. HACKBARTH, CHAIRMAN, 

MEDICARE PAYMENT ADVISORY COMMISSION 

Mr. HACKBARTH. Thank you, Chairman Brady, Ranking Member McDermott, and members of this Health Subcommittee. It is a 

pleasure to be here to talk to you about the Medicare benefit design. 

Mr. McDermott, I am also one who has very sharp memories of 

catastrophic insurance. In 1988, I was the Deputy Administrator of 

the Health Care Financing Administration, so I join you and Mr. 

Johnson in those recollections. 

The current Medicare benefit package is both inadequate and 

confusing. It is inadequate because it lacks catastrophic coverage, 

one of the most important features of any insurance program, and 

it is confusing for all of the reasons that Mr. Brady mentioned in 

his opening statement; Part A and B, and various deductibles, and 

use of coinsurance instead of copayments. Given that, it is not surprising that many Medicare beneficiaries, in fact the vast majority, 

want to have supplemental coverage to augment Medicare. 


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MedPAC has recommended redesign of the Medicare benefit 

package using five principles as guideposts. First of all, there 

should be no increase in average liability for Medicare beneficiaries. We believe the existing Medicare benefit package is not 

too rich. If anything, given the population served, it may be too 

lean, and so we recommend no reduction in the actuarial value of 

the benefit package. 

Second, we recommend that an out-of-pocket limit be added to 

the program, catastrophic coverage. 

Third, we recommend that design of the benefit be simplified so 

it is more readily understood and more predictable for Medicare 

beneficiaries. 

Fourth, we recommend that the Secretary of HHS be given broad 

authority to modify cost sharing, both reduce and increase cost 

sharing, based on the value of the services provided, and that assessment, of course, should be based on scientific evidence. 

And finally, we recommend a charge on supplemental insurance. 

When a beneficiary buys supplemental insurance, that increases 

the cost of care incurred by the Medicare program. The premium 

paid by the beneficiary only covers a fraction of that added cost. We 

think it is appropriate for there to be a charge on that supplemental insurance to reflect, in effect, the implicit subsidy from the 

taxpayer for supplemental coverage. 

I want to emphasize that we do not recommend prohibiting various types of supplemental coverage. If a beneficiary wishes to buy 

first-dollar coverage, he or she should be able to do that, but they 

ought to face more of the added cost to the Medicare program resulting from that private choice. 

Whenever you talk about patient cost sharing, two types of concerns are raised. In fact, during MedPAC’s discussion of this issue, 

we spent a lot of time on each of these questions. The first concern 

is that cost sharing reduces the use of both appropriate and inappropriate services. The evidence is pretty clear on that. So if our 

supplemental charge were to cause Medicare beneficiaries to stop 

having first-dollar coverage and face more cost sharing, there 

would be the risk that some appropriate services would be stopped 

as well as inappropriate services. 

The fear, of course, is that when that happens, two bad things 

can occur. One is the total cost of care could increase. If patients 

don’t get needed care, they could end up with hospitalizations that 

cost more. In addition, they could end up with a worse outcome, 

which none of us want. This is why it is so important to give the 

Secretary of HHS authority to modify copayments based on the 

value of the services provided. If a service is shown to be a very 

high value for patients, we ought to seek to lower the cost sharing. 

If the value is low, we ought to seek to increase the cost sharing. 

The second concern that is often raised when patient cost sharing 

is discussed is the effect on low-income beneficiaries, and that 

would be true, of course, also with our charge on supplemental insurance. If the concern is protection of low-income beneficiaries, as 

well it might be, we think a targeted approach is preferable. 

For example, expansion of the Medicare Savings Program, the 

program for qualified Medicare beneficiaries that pays cost sharing 

for low-income beneficiaries. That sort of a targeted approach is 


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preferable to this implicit subsidy that is offered for supplemental 

coverage that is available to beneficiaries of both low and high incomes. So target our response to these problems. 

With that, Chairman Brady, I look forward to your questions. 

Chairman BRADY. All right. Thank you, Mr. Hackbarth. 

[The prepared statement of Mr. Hackbarth follows:] 


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Chairman BRADY. Dr. Fendrick. 

STATEMENT OF A. MARK FENDRICK, M.D., DIRECTOR, UNIVERSITY OF MICHIGAN CENTER FOR VALUE-BASED INSURANCE 

DESIGN 

Dr. FENDRICK. Good morning, and thank you, Chairman 

Brady, Ranking Member McDermott and Members of the Subcommittee. I am Mark Fendrick, a professor at the University of 

Michigan. I address you today as a primary care physician, medical 

educator, and a public health professional. 

Mr. Chairman, I completely agree with your statement that the 

current structure of the Medicare benefit is outdated, confusing, 

and in need of reform. Moving from a volume-driven to a valuebased system requires both a change in how we pay for care, and 

how we engage consumers to seek care. 

With some notable exceptions, most U.S. health plans including 

Medicare implement cost sharing in a ‘‘one size fits all’’ way, in 

that beneficiaries are charged the same amount for every doctor 

visit, every diagnostic test and every prescription drug. As Mr. 

Hackbarth just mentioned, asking Americans to pay more for all 

services results in decreases in both non-essential and essential 

care. While this blunt approach may reduce short-term expenditures, noncompliance with high-value services often leads to adverse health outcomes and higher overall costs. This is penny wise 

and pound foolish. Conversely, asking Americans to pay less for all 

services can lead to the overuse of harmful services and those that 

provide little value. The concept that medical services differ in the 

health benefits they produce is referred to as clinical nuance, and 

clinical nuance should be utilized in the reallocation of medical 

spending. 

Mr. Chairman, does it make sense to you that my Medicare patients pay the same copayment for a life-saving cancer drug as a 

drug that will make their toenail fungus go away? Due to the lack 

of appropriate incentives, Medicare beneficiaries use too little highvalue care, and too much low-value care. It is common sense; when 

barriers to high-value treatments are reduced and access to lowvalue treatments is discouraged, we obtain more health for every 

dollar spent. 

Medicare is a key component to our Nation’s commitment to our 

elderly and disabled, and it must be sustained. Even with the recent advantage regarding preventive services, as Mr. McDermott 

mentioned, traditional Medicare allows little flexibility to implement clinically driven benefits. Specifically program administrators 

cannot lower cost-sharing levels for services recommended in clinical guidelines, and they are also limited in the amount they can 

increase coinsurance rates for a harmful procedure. 

Since changes to traditional Medicare are difficult, an interim 

step could be to legislate changes to Medicare Advantage. Today 

the tools available to MA are also blunt instruments. Legislative 

and regulatory restrictions prevent clinical nuance in MA, including the lack of flexibility to steer patients to high-performing providers in a very rigid benefit design. 

To this I recommend the following recommendations: First, MA 

plans should have the flexibility to vary cost-sharing for a parVerDate Sep 11 2014 10:44 Jun 28, 2016 Jkt 089472 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\89472.XXX 89472

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ticular service according to where the service is provided and by 

whom. The Commonwealth Fund recently estimated that nearly 

$200 billion in savings would accrue to Medicare over the next decade if we were to ‘‘develop a value-based design that encourages 

Medicare beneficiaries to obtain care from high-performing systems’’. Currently MA plans use provider networks, but they are 

limited in how they may vary cost-sharing within that network. 

This restriction forces MA plans to either exclude low-performing 

providers completely or permit complete access to them. There is 

no intermediate step. 

Second, MA plans should have the flexibility to impose differential cost sharing based on evidence. There are evidence-based services that I beg my patients to do, such as critical treatments for 

asthma, diabetes, and depression. There are also other services 

that are harmful or unnecessary, and according to the literature, 

these services account to nearly 20 percent of Medicare expenditures. 

Last, MA plans should have the flexibility to set enrollee cost 

sharing based on clinical information, such as diagnosis. MA plans 

are currently constrained by non-discrimination rules that prohibit 

different benefits for targeted subgroups of beneficiaries. Even 

though the clinical appropriateness of a specific service may vary 

widely among MA enrollees, cost sharing for any service must be 

the same for everyone. The flexibility to enroll cost sharing based 

on scientific evidence and clinical information is a crucial element 

to the safe and efficient allocation of Medicare expenditures. 

So as you consider changes to Medicare benefits, it is my hope 

that you will take the commonsense step to allow MA plans to vary 

cost sharing on the amounts of health produced. Despite the urgency to bend the cost curve, Congress should avoid blunt changes 

that reduce quality of care. Using benefit design to encourage utilization of high-value services and deter access to low-value services 

can improve health, enhance personal responsibility, and reduce 

costs. 

I look forward to your questions. 

Chairman BRADY. Thank you, Doctor, very much. 

[The prepared statement of Dr. Fendrick follows:] 


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Chairman BRADY. Ms. Neuman. 

STATEMENT OF TRICIA NEUMAN, SENIOR VICE PRESIDENT 

AND DIRECTOR, KAISER PROGRAM ON MEDICARE POLICY, 

KAISER FAMILY FOUNDATION 

Ms. NEUMAN. Thank you, Chairman Brady, Ranking Member 

McDermott, and distinguished Members of the Subcommittee. I appreciate the opportunity to testify at a hearing examining the traditional Medicare benefit design. 

Since the 1970s, the idea of simplifying benefits under traditional 

Medicare has been under discussion, but proposed solutions have 

typically involved very difficult tradeoffs. A change in the benefit 

design could streamline and simplify benefits, could provide greater 

financial protections to people with significant expenses, and minimize the need for supplemental insurance, but as structured to 

produce Medicare savings, such a change could also be expected to 

increase costs for the majority of beneficiaries. 

Medicare provides highly valued health insurance for 50 million 

people, Americans, many of whom have significant medical needs 

and modest incomes. Four in ten have at least three chronic conditions; one in four has a mental or cognitive impairment; half live 

on an income of less than $23,000. 

As noted in your announcement for today’s hearing, Medicare 

has a complicated benefit structure. It also has high cost-sharing 

requirements and no limit on out-of-pocket spending for services 

covered under Parts A and B. 

As a result people on Medicare tend to have relatively high outof-pocket costs, including cost-sharing requirements for Medicare, 

but also premiums for Medicare, premiums for supplemental coverage and for uncovered services. Health expenses now account for 

nearly 15 percent of Medicare household budgets. On average that 

is three times the share for non-Medicare households. 

Proposals to change the traditional Medicare benefits design can 

have different goals which have direct implications for beneficiaries 

and for program spending. Proposals to change the benefit design 

could simplify benefits, encourage the use of highly valued services 

as you have just heard, improve benefits, or trim them back. 

Achieving Medicare savings could be a high priority or not. 

Several recent proposals would simplify benefits, set a limit on 

cost-sharing obligations, and also reduce Federal spending. The 

Kaiser Family Foundation, with Actuarial Research Corporation researchers, examined an option to simplify the benefit design and 

achieve Medicare savings based on an approach specified by the 

Congressional Budget Office in their budget options report in 2011. 

That option includes a $550 unified deductible for Parts A and B, 

a uniform 20 percent coinsurance, and a new $5,500 limit on cost 

sharing. This approach would be expected to reduce spending for 

a very small share of the Medicare population, but generally people 

who are very sick with high costs. 

Five percent of beneficiaries in traditional Medicare are expected 

to have lower out-of-pocket costs than they would under current 

law, and they would receive substantial savings on average. This 

would affect, for example, people with multiple inpatient stays, or 

a lot of postacute care, so it would be helped by the limit on outVerDate Sep 11 2014 10:44 Jun 28, 2016 Jkt 089472 PO 00000 Frm 00043 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\89472.XXX 89472

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of-pocket spending. But most, and the analysis estimated 71 percent, would be expected to face higher costs. So seniors in relatively 

good health who may go to the doctor or see a couple of specialists 

in a year would see their deductibles triple from current levels to 

$550. And that illustrates the tradeoff. 

This particular benefit redesign could be modified in a number 

of ways. Lowering the cost-sharing limit would help more people, 

but could also lead to higher Medicare spending. Raising the limit 

would help even fewer people and generate additional savings. 

Another modification also described by the Congressional Budget 

Office would include restrictions in supplemental coverage along 

with a benefit design. It would prohibit Medigap from covering the 

unified deductible by limiting Medigap coverage beyond that point 

to a certain extent. This approach would increase the Medicare savings, mainly because people who have Medigap would be expected 

to use fewer services when confronted with higher cost sharing. 

Under this option nearly a quarter of people on Medicare would see 

costs decline, mainly due to lower Medigap premiums, but half 

would be expected to pay more; again, a difficult tradeoff. 

Another modification would incorporate stronger protections for 

low-income beneficiaries in conjunction with a benefit design. Such 

an approach would simplify the program for all beneficiaries, protect those with limited means, but could diminish Federal savings, 

if not result in higher Federal spending. 

Mr. Chairman, Medicare today enjoys strong support among seniors. Finding an approach that will streamline benefits, encourage 

beneficiaries to use highly valued services, and provide greater protections to those with high out-of-pocket expenses, all without shifting undue costs onto beneficiaries, remains a challenge, particularly in a deficit-reduction environment. 

And I thank you, and I look forward to working with you and answering your questions. 

Chairman BRADY. Great. Thank you. 

[The prepared statement of Ms. Neuman follows:] 


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Chairman BRADY. All three witnesses are very helpful. 

Mr. Hackbarth, for seniors listening today, besides just simplifying it and making it less confusing to handle all of the 

deductibles, copays, everything that goes with that, are the two 

biggest benefits to modernizing the design that, one, a cap on that 

out-of-pocket cost so that you sort of have that peace of mind that 

if you are one of those who hits the high-cost health care, and 

many seniors do, you know you are limited to what damage that 

might do? And secondly, looking at copays, which is a fixed dollar 

amount, versus coinsurance, again on that very expensive health 

care again, that too many seniors fear, for seniors are those the two 

biggest benefits of redesigning the system, and how many seniors 

will be impacted by that over their lifetime? 

Mr. HACKBARTH. Yes. Chairman Brady, those are, I think, the 

two big benefits. 

With regard to how many people benefit from catastrophic coverage, it is important to look at that over time. So in any given 

year, we estimate the number of beneficiaries that exceed $5,000 

in out-of-pocket costs is about 6 percent. But if you look at a 4-year 

time horizon, that number doubles. And obviously, over the duration in Medicare of the typical Medicare beneficiary, the percentage 

grows and grows over time. So it is important to look at that value 

not 1 year at a time, but over the course of participation in Medicare. 

Chairman BRADY. Yeah. And this is what I want to ask Ms. 

Neuman. One, I appreciated reading your analysis and testimony. 

Did you look at—is your analysis done over the lifetime of a Medicare senior or someone on disabilities, again, who is likely to face 

higher costs over a lifetime? 

Ms. NEUMAN. No. We looked at a—we did a 1-year analysis of 

what the effects would be, and I don’t disagree with Mr. 

Hackbarth. I think for a catastrophic benefit, there would certainly 

be more people who would benefit from a spending limit over time. 

Whether they perceive their lifetime risk is a different question, 

but we did not look at that. We looked at a single year. 

Chairman BRADY. Can you do that? And here is why. One, the 

analysis was very interesting to read, and helpful, but, looking at 

1 year of Medicare is like looking at the cost of 1 year of auto insurance, the year you didn’t have an accident. Yeah, the price looks 

pretty high, but spread over time, and the difference here being everyone is likely to get sick. Many are likely to be seriously ill. Most 

are going to drive up some pretty healthy costs. So while on the 

front end there may be higher monthly premiums, deductibles, 

copays, over time that could be a significant savings for a senior. 

And Kaiser Health Foundation has a great reputation. Would you 

consider redoing that analysis and looking at it so we could look 

at a senior’s healthcare costs over a longer period? 

Ms. NEUMAN. We would certainly be happy to take a look at 

that. 

Chairman BRADY. That would be very helpful. Thank you. 

And, Dr. Fendrick, I read your testimony, but it was in four-point 

type, and so for us old geezers, you might consider making that a 

little bigger in the future, for those of us who are struggling to read 

these days. 


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The design that both encourages the use of value-based—I mean, 

the services you really need to make sure a senior wouldn’t skip 

health care that they really need, how would you design—as we 

simplify it and unify it, how would you design it to make sure that 

we are encouraging seniors into those essential value services? 

What would be the key ingredient? 

Dr. FENDRICK. First off, I would make sure—— 

Chairman BRADY. Can you hit that microphone? 

Dr. FENDRICK. First thing I would recommend, no copayment 

for you to see your eye doctor so you could read my testimony. 

I think the nice thing about the three witnesses, we all agree 

that the discussion should go beyond how much we spend on Medicare, but instead how well. In this concept of clinical nuances, you 

mentioned some good services which are highly recommended by 

professional societies, other organizations, are those that we would 

immediately identify and have already done in hundreds of organizations in the private sector to say these services are so important 

that patients should not pay a substantial out-of-pocket for them. 

As Mr. McDermott mentioned, that is currently the case for preventive services in most public and private plans, and we are, in 

fact, trying to extend these services for common chronic diseases 

for doctor visits, diagnostic tests, and drugs that have been identified by professional societies as the things that should be performed. And that would be the basic premise for us to move forward on the carrot side, or the high-value side, of value-based insurance design. 

Chairman BRADY. On a scale of 1 to 10, how difficult is it now 

that—what we know today versus half a century ago? 

Dr. FENDRICK. Given that almost all of your expenditures in 

Medicare are in chronic diseases, and most of those chronic diseases can be lumped into about 14 of them, and the fact that there 

are guidelines that are evidence based in most of those conditions, 

I would say that that is fairly straightforward. 

Chairman BRADY. All right. 

Well, thank you all very, very much. This was helpful. 

Dr. McDermott. 

Mr. McDERMOTT. Thank you, Mr. Chairman. I don’t think— 

there is general agreement across this dais, I am sure, on the need 

for catastrophic limit. I don’t think that is the question. The question really is, how do you pay for it? Now, we tried once in 1989, 

and maybe we will do better this time, but that is really the issue 

here. And, Mr. Hackbarth, I—or Dr. Hackbarth, I guess. 

Mr. HACKBARTH. Mr. 

Mr. McDERMOTT. Mr., did MedPAC in their looking at this, at 

the redesign, expect any savings to come out of the redesign of the 

way the payment was made? 

Mr. HACKBARTH. From the redesign of the benefit package, no. 

As I said in my comments, we think the existing benefit package 

is not too rich, and so we were looking at a restructuring of the 

benefit package while holding average beneficiary liability at the 

current level. 

Mr. McDERMOTT. If you shift the cost to beneficiaries, how does 

that get paid for? 


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Mr. HACKBARTH. So the other major feature of our proposal 

was the charge on supplemental insurance. And if you have a 

charge on supplemental insurance set at about 20 percent, then 

you generate additional revenues that can be used to either reduce 

federal spending or to cover additional benefits. 

Mr. McDERMOTT. What did you assume was too high a supplemental coverage when you put that 20 percent surcharge on? 

Mr. HACKBARTH. Well, we don’t say that you can’t have a particular type of supplemental coverage. 

Mr. McDERMOTT. You could have it—— 

Mr. HACKBARTH. You could have it—— 

Mr. McDERMOTT [continuing]. But if you have a certain income, 

you are going to pay a surcharge? Is that the way it works out? 

Mr. HACKBARTH. Yeah. What we modeled was everybody pays 

a surcharge under supplemental insurance. Then there is the question if you want to provide adequate protection to low income beneficiaries, how do you do that? Rather than having no surcharge, we 

think the way to do the low income protection is through something 

like the Qualified Medicare Beneficiary Program. 

Mr. McDERMOTT. I remember in the Simpson-Bowles proposal, 

there was a lot of talk about this whole issue, and they said broadbased entitlement reform should include protections for vulnerable 

population. So I think it is generally accepted by everyone that 

whatever manipulation you do, you have to take care of the people 

at the bottom. Is that fair to say? 

Mr. HACKBARTH. Yes. 

Mr. McDERMOTT. And it is true that any proposal needs to be 

packaged with additional financial insurance—assurance for those 

in need, including not just people at 135 percent of poverty, but up 

to 200. Would you say? 

Mr. HACKBARTH. Well, we have not made any recommendations on exactly where to set that level. Under the Qualified Medicare Beneficiary Program, the level is set at 100 percent of poverty 

level. 

Mr. McDERMOTT. Is that high enough? 

Mr. HACKBARTH. Again, if your goal is to protect low income 

beneficiaries, that number ought to be increased. Now, we do have 

some additional Medicare savings programs that go a little bit 

higher, but they are focused on paying the Part B premium as opposed to cost sharing at the point of service. 

Mr. McDERMOTT. Ms. Neuman, you are probably aware of the 

National Association of Insurance Commissioners that reviewed the 

literature and produced a letter that says that they were unable to 

find evidence that cost sharing encouraged appropriate use of 

health care service. Are you aware of that? 

Ms. NEUMAN. Yes, I am. 

Mr. McDERMOTT. I ask unanimous consent to have that letter 

put into the record, Mr. Chairman. 

Chairman BRADY. Without objection. 

[The letter follows:] 


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Mr. McDERMOTT. What does that mean in terms of using 

copays as a way of getting people to make decisions about their— 

I mean, if you are in an automobile accident and the ambulance 

comes and picks you up, do you shop at that point for which emergency room to go to? 

Ms. NEUMAN. Cost sharing can be a blunt instrument. In some 

cases, for example, in the Part B drug benefit, it is a little bit more 

straightforward with generics versus brand name drugs. And even 

at the pharmacy, there is some—— 

Mr. McDERMOTT. I will give you drug benefit. Now, tell me 

some—— 

Ms. NEUMAN. But beyond that—— 

Mr. McDERMOTT. Give me some other area where people 

shop—— 

Ms. NEUMAN. Beyond that point, this is where I was heading, 

it gets—— 

Mr. McDERMOTT. Do people shop for artificial knees? 

Ms. NEUMAN. I don’t think so. 

Mr. McDERMOTT. Well, I mean, one of my colleagues just had 

his knee replaced. Do they go around and ask the doctor, how 

much do you charge and how much do you charge? And I am going 

to take the cheaper one? 

Ms. NEUMAN. It is generally very difficult for patients to do 

that, and often patients are motivated to do what their doctors tell 

them to do. That is why a lot of the work that has been done has 

been focused more on the providers side to give providers information to drive people to more value-based services, because in theory, the doctors have more information to sift together in order to 

advise their—advise consumers, so they don’t use services that are 

not needed. 

Mr. McDERMOTT. My point is, Mr. Chairman, patients don’t 

shop, they follow what doctors tell them to do. 

Chairman BRADY. Hence the problem. Mr. Johnson, you are recognized. 

Mr. JOHNSON. Thank you, Mr. Chairman. I would like to follow 

up on his question, because you didn’t answer it. If you break a leg 

or something and an ambulance comes, you don’t have a choice of 

where to go or what doctor to see, generally speaking. They take 

you to the emergency room of some close hospital, or the county 

hospital if it happens to be close by. So how do you explain fixing 

that charge in Medicare? Any of you. Hackbarth, you have addressed that before. 

Mr. HACKBARTH. Yeah. So I agree that when a person is in an 

automobile accident and they need to go to the emergency room, 

there is zero opportunity for shop, and nobody is thinking about 

which emergency room to go to and what the cost is. But there are 

decisions that beneficiaries make where they do make a decision 

about whether cost matters or not. For example, a decision about 

how many times to see a physician, or decisions about some tests. 

You hear from physicians all the time about patients saying, well, 

you know, I want the extra test, I want to be really sure. If there 

is some cost sharing on those decisions, patient decisions change, 

and so it is at that end of the spectrum, not the catastrophic illness 


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end. We all agree that we need complete coverage for really sick 

patients. 

Mr. JOHNSON. Well, you know, I just experienced one with a 

hospital right here in Washington. They ordered some x-rays, and 

for crying out loud, you go in the x-ray room and they don’t x-ray 

what the doc tells them to x-ray. They x-rayed about 10 or 15 other 

things, and they are going to charge you for it. 

Dr. FENDRICK. If I could—— 

Mr. JOHNSON. And you are a doctor. Tell me how you avoid 

that? 

Dr. FENDRICK. No. If I may, I think the very important point 

that is emerging, as Ms. Neuman said, that most of the initiatives 

that have come out both in the private and public sectors have 

been how to change how we pay and manage care on the supply 

side. 

I think the important discussion, as we talk about reforming 

Medicare’s benefit design, is to absolutely make sure that the patient and the doctors are aligned and, in fact, there is no conflict. 

The example, Mr. Johnson, I will give you is as I practice in a medical home, I am given a financial bonus to get my patients’ diabetes 

under control and get their eyes examined. At the same time, cost 

sharing to get their insulin and to get their eyes examined have 

gone up. So the important alignment of provider and consumer incentives is critical. 

And as a physician I will tell you, the emergency example is one 

reason why there is no recommendation in value-based insurance 

design to lower or raise cost sharing, because it is not a patientsensitive issue, but the decision to get your fourth endoscopy or to 

see your seventh specialist, I think there are many situations 

where we could use soft paternalism and cost sharing to get patients to make better informed decisions, to A, get the high value 

care they need and, maybe more importantly, to cut the 20 percent 

waste that is driven by reasons that are not really understood. 

Mr. JOHNSON. You know, it is kind of hard to get all the docs 

on the same page all across this country, too, because of the differences in where they live and how they operate. That is a real 

problem. 

You know, Mr. Hackbarth, I appreciate your work to figure out 

which approach can improve the coordination of care in our fragmented system, but I reject the notion that the bureaucrats in 

Washington can tell providers how to care for patients, and I am 

interested in how you think that using payment policies to—reward 

good outcomes, and how do you approach that system with the docs 

and hospitals? 

Mr. HACKBARTH. Yeah. So our thinking about payment reform, 

Mr. Johnson, is that we want to put more decision-making authority in the hands of clinicians as opposed to in the hands of bureaucrats. So one payment reform that moves those decisions out, but 

when you do that, there needs to be accountability for results both 

on total cost and quality. If we don’t have that sort of payment reform, what I fear is increasing intrusion, defining the rules about 

what qualifies for fee-for-service payment and the like. So I think 

we are in accord on what the objective should be. 

Mr. JOHNSON. Thank you, sir. Thank you, Mr. Chairman. 


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Chairman BRADY. Great. Thank you, sir. Mr. Thompson is recognized. 

Mr. THOMPSON. Thank you, Mr. Chairman. Thank you for 

holding this very important hearing. 

Ms. Neuman, is Medicare really as popular as those of us who 

go back to our district every weekend hear from our constituents? 

Do you have data or polling information? 

Ms. NEUMAN. Yeah. I mean, our polling shows that Medicare 

is not only popular with the general—with seniors, but also very 

popular with the general public. Seniors like the way it works and 

say it is working well for them. 

Mr. THOMPSON. So as complicated as it is, what is it about 

Medicare that makes it so popular with the general populace as opposed to a big corporate plan? 

Ms. NEUMAN. Medicare gives people peace of mind when they 

get—have a disability or when they get older that they will have 

most of their health expenses covered. 

Now, Medicare, as we have been talking about, has high costsharing requirements, but a lot of people have supplemental coverage. A lot of people who are retirees have gotten retiree health 

benefits from their former employers, others have MediGap, the 

very low income have Medicaid, so a lot of people have a pretty full 

package of benefits. That is not to say they don’t pay for the services they receive in many instances, but they do have supplemental 

coverage. 

Mr. THOMPSON. Thank you. As we deal with the whole issue 

of benefit redesign, it seems to me that that is going to—whenever 

you reform something, you are disrupting the current system, so 

you are going to have some beneficiaries who end up paying more 

and some who end up paying less. And I guess my question to all 

of you is how is that going to be perceived in the beneficiary community? Is it going to disrupt the popularity of Medicare? Will 

beneficiaries think it is a fair redistribution of the benefit? And we 

could start with you, Mr. Hackbarth. 

Mr. HACKBARTH. Yeah. I think, Mr. Thompson, the commune—— 

Mr. THOMPSON. I can’t hear you. 

Mr. HACKBARTH. I am sorry. I think that communication is 

really important. The nature of insurance is a lot of people pay a 

little so that a smaller number of people are protected, and so the 

fact that a redesign might mean that a lot of people pay a little 

bit more to provide catastrophic coverage for the most seriously ill, 

that is just basic principles of insurance. 

What people don’t often take into account is the issue we discussed earlier. Don’t think of this on a 1-year basis; think of this 

on the basis of your full time in Medicare as a beneficiary. The 

likelihood that you are going to benefit from that back-end protection grows dramatically over the course of your time as a Medicare 

beneficiary. That is not well understood, and it needs to be communicated. 

Dr. FENDRICK. Mr. Thompson, I will just say two things: First, 

the movement toward free or low cost preventive care, both in public and private programs is universally accepted and one of the 

most important and well received aspects of healthcare reform. 


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As we have done focus groups in both commercial populations 

and in seniors, the idea of explaining to them about this one-sizefits-all system and giving them the comparison as opposed to paying the same for a drug that will save your life as one that is so 

dangerous, you wouldn’t give to your dog, and instead set up a system that will encourage you to get the services that are recommended by their own doctors and their professional societies, 

and make it a little bit harder to get those services that are recommended by those same societies in an initiative called Choosing 

Wisely is almost universally accepted. 

It is the communication piece that Mr. Hackbarth mentions that 

is so important in explaining to them the system that does not delineate your benefit design at all on what makes you healthier and 

what makes you harmful. And you can imagine with the right communications techniques, this is something in our focus groups that 

is seen almost universally as positive. 

Ms. NEUMAN. Mr. Thompson, I think it would be a massive 

communication effort that would be required. In at least our polling, people, seniors are—— 

Mr. THOMPSON. To preserve the popularity and—— 

Ms. NEUMAN. To preserve the popularity of the program with 

what people perceive to be our increases in cost sharing. You know, 

for good or for bad, the public is pretty resistant to increases in 

cost sharing, perhaps because they are sensitive to the costs that 

seniors are already incurring. 

So a catastrophic benefit, while very important for financial protection and would help more people if you look at it over a life 

span, it may be difficult to convince the public of that in the short 

term. And I am mindful of the experience of the catastrophic coverage program, which would have provided a catastrophic benefit, 

but it was a very tough sell and it was a very tough repeal, and 

despite efforts at communications, it just didn’t work out. 

Mr. THOMPSON. Thank you. 

Mr. HACKBARTH. Could I just mention one other point on this 

I think may be useful to the committee? What we found in focus 

groups was that people who are not yet Medicare beneficiaries, 

may be in their 40s or 50s, early 60s seem to have different attitudes about redesign than current Medicare beneficiaries. The 

younger people are more receptive to the idea of, oh, I pay a little 

bit more at the front end in exchange for a better protection at the 

back end. So that may be something to consider also. 

Chairman BRADY. Thank you, sir. Mr. Roskam is recognized. 

Mr. ROSKAM. Thank you, Mr. Chairman. You know, I was interested in the exchange, Ms. Neuman, between you and Mr. Thompson a minute ago in that you were describing the popularity of 

Medicare, which I agree with, but it is sort of the smooth ride as 

we are going towards the cliff and then, yeah, the road can be 

smooth and you can’t maybe perceive the problem, but 12 years out 

when insolvency is upon us, that is a stark reality that this committee, I am sure you appreciate, has to deal with. So popularity 

notwithstanding, there is a real challenge there in terms of the reality. 

The other thing was, I sensed from you a little bit of an admonition and a word of caution about a massive effort being required 


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in terms of large changes, and yet at the very beginning of this 

hearing, Mr. McDermott pointed out there is going to be a massive 

effort and we were told to gird up in terms of the calls and so forth 

into our district offices as it relates to the implementation of the 

Affordable Care Act. So Congress hasn’t shied away in the past 

from some massive efforts and it is upon us, but I think the reality 

is that these things are here. So I don’t expect a reply, but just a 

word about the exchange. 

Mr. Hackbarth, question. In your testimony, or in your report, 

you highlighted how a lot of the durable equipment doesn’t have 

a copay, and that is basically a thing of the past. Could you elaborate on that? Or it should be a thing of the past? 

Mr. HACKBARTH. Well, durable medical equipment does have 

a copay under the—— 

Mr. ROSKAM. I am sorry, home health. 

Mr. HACKBARTH. Yes. Home health services is one of the few 

services under the current benefit that does not have any copay. A 

year or so ago, we recommended the addition of a copay on home 

health services. Again, we think part of any fee-for-service insurance program is to have modest, appropriate copays. 

Mr. ROSKAM. And what is your hope and your expectation of 

having that? 

Mr. HACKBARTH. Well, you know, we have seen very rapid 

growth in the number of home health episodes. And we are talking 

about not people being admitted to home health after hospital admissions, but admissions from the community. And that care is, to 

some degree, discretionary care, and so we think it is appropriate 

for the beneficiary to pay some contribution to that so they think 

carefully about whether this is needed versus other alternatives 

they might have. 

Mr. ROSKAM. A minute ago you were referencing some of the— 

shifting gears—you were referencing some of the attitudes of 

younger—— 

Mr. HACKBARTH. Yes. 

Mr. ROSKAM.—future beneficiaries. Could you speak to that? 

Could you give us a sense of sort of the range of their tolerance 

for change? The earlier you implement the change, sort of is there 

an arc to it, is there a science to it? Did you come to any conclusions? 

Mr. HACKBARTH. Well, our information is based on focus 

groups, so it doesn’t lend itself to quantifying this dynamic, but it 

was a pretty clear one that the younger population is used to 

thinking about these trade-offs, they have experienced change in 

their employer-based coverage perhaps, where, they have been 

asked to pay more front end copays in exchange for something else. 

So it is just more familiar, they are more receptive to it. They don’t 

have the same reflex reaction that some existing beneficiaries 

might have. 

Mr. ROSKAM. Thanks. And then, just another observation. It 

seems in the discussion that the three of you had a minute ago 

with Mr. Johnson, you know, there is this feeling that we have got 

a system essentially where it is very difficult to interact and get 

answers about price from a consumers point of view. 


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Dr. Fendrick, you used the phrase ‘‘soft paternalism,’’ which 

makes us all very nervous, and, you know, sounds like slight discomfort during a medical procedure, but there is an inability on the 

part of a lot of patients to find out just sort of clear information. 

And we have—all of us are complicit in creating a health care system where asking a physician the cost of the procedure is almost— 

is a taboo question. And you can imagine going in, hey, doc, what 

is this going to run me? It is like, well, I don’t—I don’t know. It 

is almost as if we have asked, you know, how much does your 

spouse weigh or something. It is that kind of question. And we are 

admonished, no, you got to go to talk to the front office. I don’t deal 

with this. 

That is unsustainable, and that, I think, is one of the factors that 

is driving part of our challenge today. And I think that is why I 

appreciate the chairman having a hearing focused in on redesign 

with an idea of patient empowerment, setting aside the weaknesses 

of a market that isn’t highly functional in some areas, but is highly 

functional in others. 

And I see the red light, so I will yield back. 

Chairman BRADY. Thank you. 

Dr. FENDRICK. I will just briefly say that in this issue of deciding about clinical nuance or not, in a typical branded drug copayment system, you pay the same out of pocket for insulin, depression drugs, critically important drugs for health as you would for 

drugs for allergies and male pattern baldness and other types of 

things. 

And terminology notwithstanding, when we talk to Medicare 

beneficiaries and ask them do they understand inherently that 

some physician visits are more important than others, that some 

medications that they take are more important than others, they 

universally say yes. And when asked, would you prefer to have 

your insulin and your depression drugs and your anti-seizure drugs 

to be lower cost because they are more important, as opposed to the 

current system that make them lower cost because they are lower 

cost and even though they might make you healthier, is almost 

universally accepted. 

Chairman BRADY. Right. 

Dr. FENDRICK. And I think that is why we have seen clinical 

nuance in terms of cost sharing recommended by all three of the 

witnesses and from management and labor and a number of organizations who see that one size fits all is truly archaic. 

Chairman BRADY. Thank you, Doctor. Mr. Roskam, my favorite 

is, ‘‘You may feel a pinch with this.’’ That means get ready for searing pain coming your way. Mr. Kind. 

Mr. KIND. Thank you, Mr. Chairman. And I want to thank our 

panelists today. But just to stay on the line of questioning about 

benefit redesign and greater cost sharing, Ms. Neuman, I think you 

are exactly right. I think there will be great resistance with current 

Medicare beneficiaries for any increased cost sharing that might be 

asked of them. I was taken aback a little bit with the stats that 

you were reading off at the beginning of your testimony. One half 

of current Medicare beneficiaries are surviving on $23,000 or less 

in the system? So to be talking about greater cost sharing with 


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that population is going to be met with fierce political resistance, 

I would predict. 

And, Mr. Hackbarth, it is not surprising that the younger population might be more amenable to some changes and greater cost 

sharing or benefit redesign, but they are not the problem. I mean, 

if we continue to exempt current Medicare beneficiaries to any 

changes or the 55-and-above population, which is the Baby-Boom 

generation, we are really not advancing the ball that well and addressing the huge health care cost issue that we face with the 

budget. So to me it tells me we have got to continue today to move 

forward on delivery system and payment reform today with the eye 

towards cost saving while still enhancing quality and not jeopardizing access. 

Dr. Fendrick, I understand your laudable goal of trying to drive 

consumer decisions to more value-based care and less low value 

care and have a price commensurate with that, but I have always 

found that the health care field is different. We do have asymmetrical information out there. I think the providers are the experts. 

I am reasonably astute when it comes to health care decisions, but 

when I go into a doctor’s office, I don’t know if I need a CT scan 

or an MRI and I don’t know what the best course of treatment is 

going to be for me. 

So at lot of this is going to have to be provider-driven, which 

means they are going to need information on what makes and what 

doesn’t work, which brings us back to comparative effectiveness research. Do you think that is something we need to continue to go 

forward on, doing comparative effectiveness research and driving 

that into the hands of doctors and patients alike so they know 

what the most effective treatment option is? 

Dr. FENDRICK. So obviously as an academic, I support research 

that will tell us the services that help patients and the services 

that harm patients. I think that we have to think very hard about 

this decision in understanding the asymmetry of information, but 

it is possible. The enormous popularity of the free preventative 

services in Medicare and in health care reform justify that. 

I think, given the numerous studies that show the large amount 

of waste in the system, I have to go on record that I would like to 

see increased cost sharing for harmful care. And if—the initiative 

called Choosing Wisely, which I mentioned forward, is over 20 medical specialty societies, not bureaucrats, but physicians themselves 

saying that there are services that individuals should talk with 

their doctors very carefully about, because the evidence would suggest that not that we are not sure, which I am totally happy leaving the value-based cost sharing outside, but for those services 

where the evidence is of harm, I do believe that this is a conversation that we—all of the stakeholders are willing to engage in. 

Mr. KIND. Well, Dr. Fendrick, I mean, we had some bruising 

battles, you know, discussing this over the last few years or so, 

whether it was funding for comparative effectiveness research 

under the American Recovery Act, under ACA. We actually instituted the Patient Center Outcome Research Institute to help sponsor clinical studies out there so we can get better information into 

the hands of providers. Do you think that was a good idea to move 

forward on? 


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Dr. FENDRICK. Research to answer the tough questions about 

how to spend our health care dollars are important, both from the 

private and public sector, but I think, Mr. Kind, what is really important to say is that our own work shows that even in the setting 

of solid scientific evidence, without the appropriate incentives for 

both patients and their providers, the best possible care is not provided. There are these no-brainers. You know, we are not talking 

about in the middle. There are these no-brainers: diabetic eye 

exams, physical therapy that people don’t—— 

Mr. KIND. Doctor, you got me on that. 

Dr. FENDRICK. Okay. 

Mr. KIND. I am in complete agreement. This is where we need 

to be going as far as health care decisions and that, but I am you 

a little surprised that in the course of today’s hearing and the questioning, the R word hasn’t been mentioned yet, because we are 

really talking about rationing. I mean, if you are talking about 

changing the cost incentives within the system and that and driving people to high value care and away from less value care, that 

is a form of rationing, which I get, I understand. We need smart 

rationing within the health care system, because you don’t want to 

be spending money on stuff that doesn’t work or leave patients 

even worse off when they go in. 

So I don’t think we should be necessarily scared or frightened 

from that concept, yet it is such a political bludgeon around here. 

When you start talking about comparative effectiveness research 

and making smart decisions, suddenly it becomes rationing, and 

that is a big bugaboo that we can’t approach and that. 

So, you know, I commend your message and what you have been 

working on, but there are political minefields that, you know, all 

this too that I just caution you about. 

Dr. FENDRICK. All I will say, is very quickly, is that the option 

that we have before us is whether the benefit design should be 

nuanced or not. And if you feel that Medicare beneficiaries should 

spend equal out-of-pocket amounts for things that hurt them and 

things that incredibly well benefit them, then I would keep the status quo. 

What we have seen both in public and private plans thus far is 

that people really do prefer a nuanced approach, working from the 

edges for the things we are really certain on the things that help 

and the things that harm, and avoid the contentious issues that 

your committee and the public have dealt with over decades. 

Mr. KIND. Okay. 

Chairman BRADY. The time has expired. Mr. Price. 

Mr. PRICE. Thank you, Mr. Chairman. And I want to thank you, 

congratulate you on chairing the Health Subcommittee and look 

forward to working with you, and I want to thank you for this most 

important hearing today, and I look forward to having many more. 

People ought to be sitting up and taking notice as we use terms 

like ‘‘soft paternalism’’ and ‘‘rationing’’ within almost the same 

paragraph. 

The real question is how does this affect patients? As a physician 

who took care of patients for over 20 years, I can tell you that 

when they felt that somebody else was making the decision that 

potentially adversely affected what their doctor could do for them, 


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that is when they said that this isn’t the system I want to participate in. We need to be very, very careful in what direction we head. 

The home health was talked about, I think, by Mr. Roskam. The 

current design of a new benefits package for home health is now 

in phase 2 by CMS. And I would suggest to you that it is harming 

patients, making access to home health care more difficult for patients. Is it going to cost less? Yeah. You know, we will pound our 

chests up here and say how wonderful it is because it costs less, 

but it is hurting people. And that is the challenge that we have, 

is to design a system that doesn’t hurt people. 

So then you have to ask the question, okay, well, who is going 

to decide whether it hurts or not? And that is where the whole 

issue of one-size-fits-all really gets to the heart of the issue. 

Dr. Fendrick, you talked about the current system being onesize-fits-all, and it is. Do you have any concern that we trade one 

one-size-fits-all system that doesn’t necessarily work for everybody 

for another one-size-fits-all system that doesn’t necessarily work for 

everybody but may work better for government? 

Dr. FENDRICK. My consideration is the Medicare beneficiary. 

And I look at exorbitant amounts, billions of dollars that could be 

spent on services that would improve the quality and length of life 

of those beneficiaries that are instead being wasted on things for 

which medical societies say harm patients. 

So I understand that there are issues and challenges, but all I 

can tell you, the popularity among patients and physicians to see 

cost sharing removed for services that save lives, whether they be 

preventive services or management of chronic diseases, seems to 

me like something that we move forward in. And almost all the implementations thus far of clinically-nuanced benefit designs have 

been around subsidies of high value services. Because most high 

value services, as you well know, tend to increase costs in the short 

term instead of lower them, the fiscal pressures that we have confronted has required us to look at not just the motivation for me 

to get into this is to make the high value services more accessible 

to patients and their providers, but also understand this waste 

problem. And it is MedPAC and other organizations that continue 

to tell us the billions of dollars that are spent on harmful care. 

And I think as—having some fiscal responsibility, we need to understand that we could reallocate these funds, maybe not perfectly, 

but in a better way than we currently are with no clinical oversight. 

Mr. PRICE. Let’s talk about the patient that we come up with 

this grand design for a new benefits package for folks and a system 

that is going to work better than the current system, and we say 

to our senior population, you have got to see do this, should there 

be any flexibility in that? Should a senior be allowed to, I don’t 

know, opt out of that system? 

Dr. FENDRICK. You are the legislator, I am not. All I am going 

to say is another—— 

Mr. PRICE. No. For the patient. You are talking about the patient. 

Dr. FENDRICK. I think the important point that I may have 

glossed over is that these type of benefit designs never decide what 

is covered and what is not. And for you as a physician as well as 


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a congressman know that there is a multiplicity of small print in 

cost sharing, both in Medicare as well as in private plans. So this 

idea of confusion is going on already. And my simple point is instead of using profits or the cost of a service to generate how often 

it is done, that we think about taking advantage of the points that 

were made by a number of you moving from volume to value, and 

value must include clinical nuance. 

Mr. PRICE. My time is short, but the concern that many of us 

have is that value is quality over cost. And quality is in the eye 

of the beholder, so what is quality for you as a patient, what is 

quality for me as a patient or another patient may be something 

completely different. That is not to say that there ought not be 

comparative effectiveness research, because there ought to be. As 

scientists, we all understand that you have got to—that you want 

to know the best thing to do for a patient. But at the end of the 

day, it is patients and families and doctors that ought to be making 

these decisions about what kind of care they receive, and not anybody else. 

Dr. FENDRICK. I agree. 

Mr. PRICE. Yield back. 

Chairman BRADY. Thank you, sir. Mr. Blumenauer. 

Mr. BLUMENAUER. Thank you. I find this very interesting and 

very helpful. I guess my concern is that we have a situation that 

too often it is not so much dictating services, we have a system 

where nobody decides, where we kind of are a captive of the original program design, add-ons that continue. I don’t know about soft 

paternalism or hard paternalism like just cutting you off with 

money, or just going along till we run out, or somebody figures out 

how to game the system. And what I hear you saying is there may 

be some ways that we can do a better job of incenting everybody 

to make the right decisions, and I am comfortable with that. 

We have had experience on this committee where people would 

not agree to allow the results of comparative effectiveness research 

to be used in determining how much the government is going to 

pay for what. Seems kind of goofy, but that is the political process. 

And the complexity that some people want is just going to add 

costs and water down the ability to deliver overall high quality 

service, which is, I think, in microcosm, why we pay more than 

anybody else in the world for results that are mediocre on average. 

And so I am intrigued with the—Mr. Chairman, with your bringing 

the witnesses here and for us to think about benefit structure and 

how it impacts it. 

I want to just go back to something, Dr. Fendrick, you had when 

you talked about infusing clinical nuance into Medicare Advantage. 

That was the bold print that was 6-point type. But I wonder, Mr. 

Hackbarth, I don’t think you referred to Medicare Advantage in 

your testimony. Would you react to that for a moment? I mean, this 

is kind of a grand experiment that we have had. We have found 

out that not all Medicare Advantage programs are equal. Some are 

hopeless rip-offs, where we found some people who figured out how 

to game the system. We had in the Affordable Care Act some incentives to try and reward better programs, and we are slightly 

ratcheting down the premium. 


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I am old enough to remember when Medicare Advantage was 

supposed to deliver the same quality and quantity of health care 

and it was supposed to be able to do so for 5 percent less, using 

the magic of private sector and unshackling. Didn’t quite work out 

that way, but we are ramping down the subsidy and we are seeing, 

at least the conversations I am having, that some people are starting to take advantage of that platform. 

But can you speak to ways from MedPAC that Medicare Advantage might be an area where we could make some adjustments to 

inject a little more nuance into the program and not sacrifice either 

quality or, again, lose cost control? 

Mr. HACKBARTH. Yeah. We think that Medicare Advantage, offering a choice of private plans to the Medicare beneficiary is an 

important part of patient engagement. So beneficiaries ought to be 

able to go in that direction if they wish. 

We do think that private plans have the opportunity to do some 

things that traditional Medicare finds difficult to do; for example, 

identify high value providers and steering beneficiaries to those 

providers, which is one of the points that Dr. Fendrick made. The 

regulations, we need to look at those regulations, make sure that 

they provide appropriate flexibility to private plans to identify high 

value providers. Similarly, they need to have appropriate discretion 

to vary the benefit structure. 

So recently one of our recommendations was that rather than 

having chronic care SNPs, special needs plans, that are focused on 

particular chronic illnesses, what we ought to be doing is give all 

Medicare Advantage plans the opportunity to adjust their benefits 

for diabetics versus asthmatics versus patients with cardiovascular 

problems. And, again, I think that is something that Dr. Fendrick 

recommended. 

Mr. BLUMENAUER. Thank you very much. Thank you, Mr. 

Chairman. 

Chairman BRADY. Thank you. Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman. And thank you to our 

witnesses here today. 

Dr. Fendrick, I know you are obviously well studied on a lot of 

things relating to Medicare Advantage and current limitations. 

Would you have specific recommendations on how to break down 

some of the barriers to flexibility perhaps that would end up improving care? 

Dr. FENDRICK. I do. And I would just add on to what Mr. 

Hackbarth just said. I think they come into two most elemental 

buckets; is the first, the ability to allow the flexibility in MA plans 

to alter cost sharing, depending on the provider that chooses or 

where that is done. An example might be, for instance, a highly 

recommended service for individuals over 50 is colonoscopy. You 

could get a colonoscopy in a number of settings, as shown in the 

Pacific Northwest, at a cost between $700 and $7,000. And I think 

to be able—in those situations, when most people do believe that 

colonoscopy is performed at reasonable, same quality in most 

places, that you might wants to encourage people to go to the lower 

cost centers that provide the same quality as those that are high. 

So provider and venue is the first, but the second and most important is this issue of allowing Medicare Advantage to alter cost 


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sharing for specific services based on clinical information. And to 

follow up on what Mr. Hackbarth said, I think that one of the easier things to say, given the comments about the size of my testimony type, is the recommendation of a diabetic to see an eye professional on an annual basis. 

In Medicare Advantage, their current abilities now are to make 

eye exams either low cost or high cost regardless of your clinical 

condition. I would like to see a plan that offers annual low cost eye 

exams to diabetics but not offer that same benefit design for someone without that condition. 

Mr. SMITH. Ms. Neuman. 

Ms. NEUMAN. Medicare Advantage really could be an opportunity to learn more about benefit design changes that are being 

talked about today, because plans do have flexibility, not quite as 

much as might work, but there could be opportunities to learn 

more, and it may be something—the committee might want to consider perhaps giving the highly rated plans greater flexibility to 

modify the benefit design and use that as a learning opportunity 

to see what changes drive people to high value services and perhaps lower costs for the program. 

Mr. SMITH. Sure. And I realize that, you know, the term ‘‘flexibility’’ is very vague and oftentimes even misunderstood, but the 

fact is representing a rural constituency, I know that things are 

done differently in rural America, and oftentimes more efficiently, 

but, you know, a supply of health care means mere access in rural 

areas and it means more competition in urban areas. And so in trying to balance many of those things, I was wondering if, Chairman 

Hackbarth, if you could reflect a bit on the impact to rural communities, rural health care in terms of, you know, recognizing some 

of those differences that are out there. 

I mean, it amazes me how we empower medical professionals to 

make very intricate decisions based on their expertise, and yet in 

other areas of health care, we don’t allow the judgment to be utilized of the very same medical professions. 

Mr. HACKBARTH. So you are talking, Mr. Smith, more broadly 

about Medicare as opposed to just within Medicare benefit design—— 

Mr. SMITH. Right. 

Mr. HACKBARTH.—how do we—Well, as you well know, Medicare has a large number of special provisions related to rural providers. It tries to address the particular, the unique needs of rural 

providers, for example, ensuring access to care for beneficiaries in 

isolated areas through the Critical Access Hospital Program. 

One of the areas that we have started to look into a little bit, 

based on the interest of one of our commissioners who practices in 

South Dakota, is that medical professionals and staff are used differently in isolated rural facilities than they may be in an urban 

facility. And—— 

Mr. SMITH. And it would seem to me that oftentimes that is undermined given a one-size-fits-all approach coming from Washington. 

Mr. HACKBARTH. Exactly. So I think that is one area to look 

at, and we have just begun to pay some attention to that, but we 

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cumstances that exist in, say, an isolated rural hospital and how 

they configure their staff and how they make decisions. 

Mr. SMITH. Okay. Thank you. And, Mr. Chairman, I yield back. 

Chairman BRADY. Thank you. Mr. Pascrell. 

Mr. PASCRELL. Thank you, Mr. Chairman. Ms. Neuman, can I 

just get a clarification, if I may, on policy and demographics, particularly on the issue of home health copays? Who are these people? 

Ms. NEUMAN. People who use home health services tend to be 

old, frail women. These are the oldest, the frailest that Medicare—— 

Mr. PASCRELL. The most vulnerable? 

Ms. NEUMAN. Yes, sir. 

Mr. PASCRELL. Would you use that word? 

Ms. NEUMAN. Yes. I think that is fair. 

Mr. PASCRELL. Okay. Look, you have heard it many times: 

health care reform is entitlement reform. You may not agree with 

it, some folks here. Not only did it reduce costs for Medicare, but 

it also reduced costs for beneficiaries. That is what we know. 

The attempts to repeal reform and turn Medicare into some kind 

of other program will hurt the beneficiaries, that is my conclusion, 

because they have to pay more money out of their pocket. That has 

to be clarified. So I am not going to be disillusioned about the kinds 

of income seniors make. You mentioned in your testimony that the 

beneficiaries have an average income of close to $23,000, below 

$23,000, actually. They already spend 15 percent of their incomes 

on health care. And when you add that into how many people are 

living on their Social Security check and how that is increased over 

the last 10 years, paying more out of pocket is just not an option 

for many of our seniors. Would you agree with that? 

Ms. NEUMAN. I would. And I want to come back to Mr. 

Hackbarth’s comment when he talked about expanding coverage for 

the low income population and doing that in a targeted way. You 

know, while some with very low incomes do qualify for Medicaid, 

many low income Medicare beneficiaries are not on Medicaid—— 

Mr. PASCRELL. That is right. 

Ms. NEUMAN [continuing]. Either because they are not eligible 

based on their assets or their income, but there are many people 

who would feel directly any change in cost sharing. So a lot of the 

proposals have talked about protecting the low income, but more 

work needs to be done on how that would be done and what vehicle 

would be used and who be helped. 

Mr. PASCRELL. Now, your organization, the Kaiser Foundation, 

found that 70 percent of Americans prefer Medicare’s guarantied 

benefits to any other kind of plan. I think that it provides a clear 

picture of how our Nation values the program. The average Medicare beneficiary has an annual income of $22,500. 

So, Ms. Neuman, can you talk about these higher rates to some 

seniors that they have to pay disproportionate or whatever as you 

concluded? 

Ms. NEUMAN. Well, there are certainly some people on Medicare who are wealthy by standards that—— 

Mr. PASCRELL. Right. 


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Ms. NEUMAN [continuing]. Generally would be considered 

wealthy, but only 5 percent of people on the program have incomes 

of $85,000 or more. So for people with modest incomes, an increase 

in out-of-pocket costs would be a real issue. 

And what the research has shown is that it is people with lower 

incomes and people in poorer health who are disproportionately affected by increases in cost sharing, because higher people can probably absorb to pay more if it is worth to them. 

Mr. PASCRELL. Or possibly leave the program. You may raise 

the rates on those higher income seniors, which is a relative term 

when we look at what they are making, they may move—leave the 

program altogether. What is that going to result in? 

Ms. NEUMAN. Well, the issue there, I think, has to do with the 

Part B and Part D premiums—— 

Mr. PASCRELL. Right. 

Ms. NEUMAN [continuing]. And the income-related premiums. 

And already today, people with higher incomes are paying higher 

premiums, and there is some discussion about expanding income 

premiums to cover more people. 

Mr. PASCRELL. What do you think about that? 

Ms. NEUMAN. What do I think about that? Well, I think, you 

know, the public certainly prefers to ask higher people to pay more 

than everybody else, but depending on what the policy looks like, 

it could scale back and start to hit middle income people. 

Mr. PASCRELL. But when you talk about higher income, that is 

a relative term in terms of the seniors that we are talking about 

who are very vulnerable. It is a different kind of situation than we 

are talking about when we refer to our tax policies, general tax 

policies. It is a very different situation altogether. 

We need to be very careful here about who we are helping and 

then what are the consequences of helping a few, and many people 

getting really hurt. So thank you, Ms. Neuman, for your testimony. 

Ms. NEUMAN. Thank you. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

Chairman BRADY. Thank you. Ms. Schwartz. 

Ms. SCHWARTZ. Thank you. And I appreciate the invitation of 

the chairman to join you on this important discussion. And I do 

have to say, I have had some of these discussions a bit about redesign, benefits redesign, and I appreciate some of the work that you 

have done on this. And actually, the notion of simplifying the way 

we actually do this to make it more understandable is certainly important to include beneficiaries in this really very important debate 

we have about making sure that seniors have access to the benefits 

that they expect and they need, and doing it in the right way. 

Everyone knows that I have done a lot of work on redesign of the 

way we pay physicians and providers as key to this, and potentially 

I think maybe more important, because as we have all heard this 

morning, it really is very much in the—if your doctor recommends 

it, you are sort of inclined to do it, and you should be, and the potential of having copays get in the way of necessary services, something that many of us are very concerned about, and yet the—and 

you talked about it earlier, we have to protect poorer seniors so 

that they actually don’t—so they are able to get the care they need. 

And maybe $50 a copay is enough to say, I can’t get it now. And 


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I am sure, Doctor, you have seen that. That we want to protect primary care. We have talked about already doing that; that we want 

to protect access to care of chronic—those with chronic diseases so 

they don’t get sicker; that we also want to protect the sickest. 

So we are starting to include a whole lot of seniors in this. We 

are narrowing the window of who we are actually asking to pay 

more. 

So really my question and the real discussion I would want to 

have is how we really don’t pay doctors to sit down and really talk 

to their patients about what they shouldn’t get. I mean, I think Dr. 

Price said let’s not get in the way of the doctor-patient relationship, 

but right now there is somewhat of an incentive to say, here is a 

prescription, because that is quicker than the conversation about, 

you know, you really don’t have to take this and you can call me 

in 3 days if you are not better, than just giving them a prescription, which they may or may not fill, of course, or some of the 

other—or go have this test, and somebody might come in and say, 

I heard that it is really important for me to get an EKG every 

month. 

Now, I don’t know if that is true or not. I just made it up. I am 

not a physician. But, you know—but, in fact, maybe that is not 

such a necessary thing, and it may not be harmful, but it certainly 

is a cost to all of us. But taking time to say, no, here are the things 

that you ought to do instead of having these extra tests really does 

take more time. 

So we don’t reimburse very well, except under patients in medical homes to do that, but can you speak to how important it is for 

patients to, yes, take some responsibility in this and not demanding more from their doctors than they necessarily need, but for that 

communication between the doctor and patients, and for us to 

incentivize providers to take that time to really provide what is important and necessary, not more than important. 

And right now, while Dr. Price will say, you know, one size 

doesn’t fit all, right now we pay for everything, more or less, and 

that is what you are sort of trying to get to: how can we get the 

doctor and patient to actually engage in that conversation when in 

fact it is very difficult for patients to really know whether, in fact, 

they are asking for more than what is appropriate or less than is 

appropriate. It really is very much on the part of the provider. 

I believe strongly we should pay providers differently under this, 

under Medicare, and we ought to do it, but could you speak to that, 

about whether we—the risk of redesign of benefits really putting 

the burden on beneficiaries who really have a difficulty making 

this judgment and really need that relationship with their provider, 

it may be a doctor, may be a nurse practitioner, and really having 

the information not just about a cost, but really more about the appropriateness of services and the utilization, excessive utilization 

potentially of some services. 

And maybe, Mr. Hackbarth, do you want to start with that? 

Mr. HACKBARTH. Sure. So I want to emphasize that we think 

that it isn’t enough just to reform the Medicare benefit package. 

You also need to reform how physicians and other providers are 

paid. 

Ms. SCHWARTZ. Yes. 


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Mr. HACKBARTH. And one dimension of that—— 

Ms. SCHWARTZ. Maybe first, even? I mean, do you think one 

comes before the other? 

Mr. HACKBARTH. I think it has to happen simultaneously. I 

wouldn’t put an order on it. And one dimension of that you have 

touched on, Ms. Schwartz, which is we need to pay physicians for 

communicating with patients. And there have been some positive 

developments in that recently. Some new codes have been added 

for transitional care, a big part of which is communication with patients as they make a very difficult transition from a hospital admission to the community. So I think that is a very important complement to this. 

Other approaches you have alluded to are like medical home, 

where we are not even using the fee-for-service payment model exclusively, we are adding additional payments. They go hand in 

hand. It is not either/or, it is both are required. 

Ms. SCHWARTZ. Okay. Thank you. Do we have time for others 

to comment? 

Dr. FENDRICK. Yes. Briefly I will just say that the most important part is that we make sure that whatever is happening with 

the incentives on the physician side and the provider side, they 

must be aligned with the consumer side, because what I see in both 

the public and private programs, often they are in parallel, but 

often moving in the wrong direction. 

Conceptually, though, speaking about it from the patient side, 

cost sharing is an insurance tool to encourage beneficiaries to think 

twice or thrice about things they may not need. So when we think 

about home care or hospitalizations or visits, it requires me to 

pause and think why would there be cost sharing on something 

that is absolutely essential for the patient’s health, which is the entire motivation for clinical nuance. 

So thus, I would like to close where I started, is that, I do believe 

that cost sharing has a role in Medicare and I think cost sharing 

should have a substantial role on those services that don’t make 

beneficiaries any healthier. 

Ms. SCHWARTZ. Well, it seems to me we have a fairly high 

threshold on what is harmful or not. I mean, right now it is not 

absolutely clear, we don’t have all the information—— 

Dr. FENDRICK. I will just say—— 

Ms. SCHWARTZ.—about what is actually too much or—— 

Dr. FENDRICK. Very quickly, and why to the chairman’s credit, 

this initiative called Choosing Wisely, which I suggest the staff 

learn about, is a physician-specialty society motivated initiative to 

identify services that may be overused. So this is a very important 

step not only for us to identify the services that we should make 

less expensive for which the evidence is strong, we also now have 

a physician-driven movement to identify those services that we 

may do less of. 

Ms. SCHWARTZ. I agree that is important. 

Chairman BRADY. Thank you. Dr. McDermott has asked for a 

question, and he is recognized. 

Mr. McDERMOTT. Thank you, Mr. Chairman. And I want to say 

I have appreciated your slow gavel so that we could allow the witnesses to finish what they have to say, and I think the committee 


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is really interested in what happens. And one of the issues that I 

would like to ask a further question about is the whole question 

that you just raised, Dr. Fendrick, and beyond that, I would like 

for the committee, that you would submit to us, all of you, if you 

have it, evidence that backs up the theory that people go to the 

doctor more often than they need to, and if we put a copay on, they 

won’t go. 

And I want to give you an example to let you—and there are 

thousands of examples. Everybody who is anticoagulated, who is on 

Heparin or on Coumadin is supposed to go back in to the doctor 

and get a checkup as to whether they are at the proper level, too 

high or too low or just right. There are problems on being too high, 

there are problems on being too low. The patient has no sense of 

what that is. They don’t feel anything particularly until they have 

got a problem. 

So the idea that I have to pay $10 to go back in and put my finger out and have it stuck and have them then read it on a machine 

and tell me, yep, you are right in the right place, when I didn’t feel 

anything, why would I do it if it is going to cost me 10 bucks? 

And so what I am looking for is how you think you can design, 

and is there any evidence, is there any across-the-board—same way 

with—the Time magazine this month has tuberculosis on the front 

page. And taking pills, in my experience personally, and I think 

probably for everybody in this room, you take pills when you feel 

bad; when you don’t feel bad, you stop taking them, whether the 

doctor said you should take all 10 days doesn’t make any difference. Every drug cabinet in every bathroom in this country has 

half finished ten packs, or Z-Paks. 

So what I am getting at is how do you—where is the evidence 

that people go to the doctor just because they don’t have anything 

to do on Wednesday afternoon? That is really what I am looking 

at. 

Dr. FENDRICK. I will just start briefly by, your comment basically hits the essence of clinical nuance, that someone on Warfarin 

must be not only be discouraged, but must be encouraged to follow 

the protocol to maximize the health of that beneficiary. I am not 

so sure that someone not on Warfarin should have the same ability 

to go to see the doctor to have their blood checked to see how thin 

their blood is. And that is, as I said, the essence of clinical nuance. 

There is a lot of evidence that we are happy to supply to the committee, but one of the best examples in Medicare is The New England Journal of Medicine paper examining the impact of increases 

in cost sharing on ambulatory visits in Medicare Advantage. 

As you might expect, Mr. McDermott, beneficiaries went to the 

doctor less often. Those beneficiaries who went to the doctor less 

often, went to the ER more and were hospitalized more, and, in 

fact, total costs went up, which is why our proposal is that primary 

care visits in Medicare Advantage and in Medicare should be free. 

Now, there are other services actually where the money is, as 

Mr. Hackbarth knows better than anyone. It is not in primary care 

visits and it is not in prevention. It is in hospitalizations and the 

management of chronic diseases, for which—to respond to the 

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ly certain in the services that should be encouraged for which cost 

sharing should be minimal or not at all. 

Mr. HACKBARTH. So what I would highlight, Mr. McDermott, 

is the importance of doing both payment reform and appropriate 

cost sharing for patients. So one piece of evidence that we have 

that is relevant to your question is the prevalence of repeat testing 

of various types. There is a lot of it, a lot of it that exceeds all clinical guidelines, and there is huge variation across the health care 

system. Probably the most important reason for that is not patients 

demanding repeat testing, but physicians have incentives to do repeat testing. We need to change that, but when we change the physician incentive and they say, oh, well, maybe you don’t need to be 

tested so often, you don’t need so many return visits, we want the 

patient also to be aligned with that. We don’t want the patient to 

say, well, I like the old pattern of, you know, I am going to come 

every month or every 2 months, whatever. If there is a modest appropriate copay, then the physician and patient are talking the 

same language. 

I believe physicians care about their patients and will modify the 

recommendations if the patient has some cost sharing involved, 

and will recommend things differently than if it is absolutely free 

to the patient. 

Ms. NEUMAN. Well, I would agree that there is a lot of evidence 

on the side that says if you increase cost sharing, it has an effect 

on utilization. I don’t know about the evidence on decreasing utilization and whether there is, for example, too much of preventative 

services. And that might be something that one could take a look 

at, but it would be hard to imagine an effect like that in the literature, but we could take a look at it. 

I also agree on areas of where there is evidence of overutilization, 

there are a number of ways to attack the issue, one of which is cost 

sharing. And even then, in the example of home health, there are 

different ways of doing that that would have different effects on 

people depending on how—whether it is, for example, a copayment 

or a co-insurance, which would disproportionately affect the sickest 

of the sick. But if the issue is that there are too many people using 

too many services, then I would also agree on going at it, going 

around and going at the provider side, the supplier side and think 

about how to make changes that would slow the growth in this 

benefit without necessarily asking beneficiaries to parse out whether or not they need a service that their doctor has told them they 

needed. 

Mr. McDERMOTT. Thank you, Mr. Chairman. 

Chairman BRADY. No. Thank you. I would like to thank all of 

our witnesses for their testimony today. Obviously there is a—the 

current structure of Medicare benefit design needs a hard look at, 

has its challenges. I hope we continue to work together in a bipartisan way, to explore how we can try to limit those out-of-pocket 

costs, make a little more rational sense out of the design, but just 

as Mr. Hackbarth has asked Ms. Neuman,—go back, and I will 

send a letter to this effect, take a look at again the changes of the 

design over the life of a Medicare senior I think is very important. 

The other area, we sort of looked at one side of the ledger, okay, 

if you unify, A and B it may raise costs and some others, but what 


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we didn’t explore is what is the impact of MediGap, you know, do 

you need it? Does it have a different side? Does it carry a different 

cost that offset some of that? Any information any of you all have 

to that regard would be very helpful. 

As a reminder, any member wishing to submit a question for the 

record will have 14 days to do so. If any questions are submitted 

to the witnesses, I request you answer them as promptly as possible, please. 

With that, the subcommittee is adjourned. 

[Whereupon, at 12:02 p.m., the subcommittee was adjourned.] 

[Submissions for the record follow:] 


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Letter of the AARP 


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Statement of the AFL–CIO 


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Statement of the AFSCME 


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Statement of the Alliance for Retired Americans 


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Statement of the American Academy of Actuaries 


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Statement of the California Health Advocates 


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Statement of the Center for Fiscal Equity 


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Statement of the Council for Affordable Health Insurance 


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Letter of the Leadership Council of Aging Organizations 


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Statement of the National Alliance on Mental Illness 


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Statement of the National Association for Home Care and Hospice 


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Statement of the National Committee to Preserve Social Security and 

Medicare 


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Statement of the UAW 


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Statement of the USW 


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