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89–473 2016

MEDPAC’S ANNUAL 

MARCH REPORT TO CONGRESS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

MARCH 15, 2013 

Serial No. 113–HL02 

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 HEALTH 

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 March 15, 2013 announcing the hearing ........................................... 2 

WITNESS 

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

SUBMISSIONS FOR THE RECORD 

Center for Fiscal Equity, statement ....................................................................... 50 

George Mason University, statement ..................................................................... 57 


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(1) 

MEDPAC’S ANNUAL 

MARCH REPORT TO CONGRESS 

FRIDAY, MARCH 15, 2013 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 9:32 a.m., in Room 

1100, Longworth House Office Building, Hon. Kevin Brady [Chairman of the Subcommittee] presiding. 

[The advisory announcing the hearing follows:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1721 

Friday, March 15, 2013 

HL–02 

Chairman Brady Announces Hearing on 

MedPAC’s Annual March Report to Congress 

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

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

Medicare Payment Advisory Commission’s (MedPAC) annual March Report to the 

Congress which details the Commission’s recommendations for updating Medicare 

payment policies. The Subcommittee will hear from MedPAC’s Chairman, Glenn 

Hackbarth. The hearing will take place on Friday, March 15, 2013, in 1100 

Longworth House Office Building, beginning at 9:30 a.m. 

In view of the limited time available to hear the witness, oral testimony at this 

hearing will be from the invited witness 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. 

BACKGROUND: 

MedPAC advises Congress on Medicare payment policy. The Commission is required by law to submit its annual recommendations on Medicare payment policy 

by March 15. In its March Report to Congress, MedPAC is required to review and 

make recommendations on payment policies for specific provider groups, including 

hospitals, skilled nursing facilities, physicians, and Medicare Advantage plans. 

In announcing the hearing, Chairman Brady stated, ‘‘MedPAC provides critical 

information to policymakers about the adequacy of provider payments in 

the Medicare program. With its Hospital Insurance Trust Fund set to go 

bankrupt as early as 2023, it is clear that Medicare is facing significant financial challenges. This hearing will afford Members the opportunity to 

understand where Medicare payments can be adjusted in a way that is fair 

to providers and taxpayers, while protecting seniors’ access to care.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on MedPAC’s March 2013 Report to the Congress on Medicare payment policies. 

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 Friday, March 29, 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. 


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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. Good morning everyone. I want to welcome 

everyone to the second hearing of the Subcommittee on Health for 

the 113th Congress. 

Today we will be hearing from the Medicare Payment Advisory 

Commission, MedPAC, on the recommendations in their March 

2013 report on Medicare payment policies. We heard from MedPAC 

during our Medicare structural reform hearing 2 weeks ago. It was 

insightful to hear the Commission’s recommendations for improving the design of Medicare in a way that is less confusing for seniors, limits their out-of-pocket costs, and provides financial incentives to seek the most appropriate care in the most appropriate setting. It is my hope that the Committee can work together in a bipartisan way to advance these much-needed structural reforms to 

save Medicare for the long haul. 

Today, however, we are hearing from MedPAC on the topic of 

Medicare payments to providers. We are pleased to have the Commission here to discuss the recommendations in its report, which 

was released this morning, for updating payments in a way that 

ensures Medicare families have access to high-quality care while 

also being fair to local healthcare providers and the American taxpayers. The insight and guidance we receive from MedPAC is very 

important as we seek ways to reform the Medicare program—for 

instance, improving the accuracy of provider payments. 

The MedPAC recommendations also focus on payment system 

changes that encourage accountability by local healthcare providers 

to deliver high-quality care at the most affordable cost. These are 


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important discussions as we move toward payments that reward 

providers for the quality they provide rather than the quantity of 

what they have done. I really appreciate the point that Ranking 

Member Jim McDermott made in our first hearing. To paraphrase, 

he said we need to bring value over volume to the Medicare program. The challenge, of course, is to find common ground as we 

seek these solutions. 

One payment system I want to mention specifically is the physician payment system that is governed by the sustainable growth 

rate formula, or SGR. Democrat or Republican, the truth is; enough 

is enough. This year, right now, we have a golden opportunity to 

eliminate the long, problematic SGR once and for all and reform 

how Medicare pays physicians. I know that MedPAC has put significant thought into this topic. I look forward to hearing more 

about those ideas today. 

Structural changes to the program and payment systems that are 

accurate and provide the right incentives are complementary 

pieces. I applaud the MedPAC Commissioners and staff for the 

work they have done in this area, but, as I mentioned last hearing, 

I respectfully ask you to do more. 

It is abundantly clear Medicare is on an unsustainable path. In 

fact, two independent agencies, the Congressional Budget Office 

and the actuaries at the Department of Health and Human Services, estimate that Medicare’s Part A trust fund will be bankrupt 

by 2023. Additionally, CBO projects that by 2222 Medicare spending will top $1 trillion. That is 90 percent more than we currently 

spend. If these trends continue, we can’t save Medicare for every 

generation or guarantee a sustainable future. Finding solutions to 

these problems now is our challenge. 

The President’s healthcare law didn’t actually lower healthcare 

spending. Congressional Budget Office Director Elmendorf recently 

testified that it could not attribute any particular factor to explain 

the recent lower healthcare spending other than, of course, the 

economy. Additionally, CBO estimates that ObamaCare delivery 

changes will yield a miniscule $14.7 billion in savings. That barely 

registers. 

But regardless of how we feel about the new healthcare law, the 

glaring fact remains: Medicare’s hospital insurance trust fund will 

go bankrupt in 10 years. We have to act now; the clock is ticking. 

And today’s hearing will help us address our challenges. MedPAC’s 

analysis is invaluable in helping us better understand when growth 

in Medicare spending is appropriate and when Medicare payments 

need to be adjusted. 

We also look forward to receiving MedPAC’s next report to Congress in June, which will highlight additional opportunities for reform beyond just changes in the payment system. We rely on 

MedPAC’s recommendations because they are based on strong data 

analysis. That is a key element in designing policies that improve 

the Medicare program and save it over the long term. 

So I welcome our invited witness, MedPAC Chairman Glenn 

Hackbarth. Thank you for joining us today, and I look forward to 

hearing your testimony. 


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So 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. 

Mr. MCDERMOTT. Where is your St. Paddy’s Day tie? 

Chairman BRADY. I am in trouble. 

Mr. MCDERMOTT. You know it is coming. 

Chairman BRADY. In a serious way, I am in trouble. 

Mr. MCDERMOTT. Mr. Chairman, I am grateful for your calling 

this hearing today. It is one of our regular reports from CMS. And 

it is important that we actually have people come in and make 

these reports and give us a chance to ask questions. 

And I appreciate Mr. Hackbarth coming back. You were here the 

other week. We won’t always agree on the recommendations that 

MedPAC makes, but it does good work and it takes seriously its 

charge to ensure appropriate payment and access. 

Government oversight keeps people accountable to the interests 

of the people and to the experts of our field. It is sometimes easy 

for us, sitting up here, to stand on our respective sides screaming 

at each other across the aisle, but your agency can help us to find 

common ground and to cut through the self-serving claims of the 

special interests. Our offices are filled with them. 

Today’s discussion will also be useful as we look at the Affordable Care Act’s opportunities to explore innovative payment and 

delivery systems, some of which are based on MedPAC’s work. 

With the freedom to think in new ways about how to pay for services, aligning the needs of providers and patients, and deliver care, 

I believe we can continue to improve cost and quality for everyone 

while still protecting benefits. 

I appreciate MedPAC’s commitments to evidence-based data. I 

am one of those that believes that you can have whatever opinion 

you want, but you can’t have your own facts. And I like the fact 

that you are a fact agency. This agency has proved itself to be credible, nonpartisan, and committed to transparent and well-founded 

methodologies and results. MedPAC’s efforts to take a comprehensive look each year at the underlying economics of each sector drive 

thoughtful recommendations rooted in reality. We share your goals 

in ensuring that payments are both appropriate and adequate. 

Medicare is an entitlement to a defined set of benefits. It is not 

an entitlement to specific reimbursement for providers or plans. 

While we need to ensure that hospitals and doctors and others earn 

enough off of Medicare to preserve access, sometimes people lose 

sight of the program’s purpose, which is to serve the people. We, 

likewise, have an obligation to taxpayers to ensure that the payments are appropriate and not too high. 

That said, given Medicare’s size and the health needs of the 

Medicare population and our reimbursement rates, many in the 

healthcare sector have made and will continue to make a very pretty penny off the program. I remember when doctors didn’t have a 

certain way to get paid when they saw old people. They had to rely 

on the children of or the collection agencies or bags of potatoes or 

whatever. 


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So when people come in to cry poverty over a proposed regulation 

or piece of legislation, we would all be well-advised to take such 

claims with a grain of salt. And then we should pick up the phone 

to call MedPAC to find out just how pressed the group in question 

is. 

Even so, while data are important, we mustn’t let ourselves lose 

sight of the people behind the numbers. As health economist Uwe 

Reinhardt noted, you can put a person on a hot stove and another 

one on a block of ice. On average, sure, they are a comfortable temperature. Individually, they might disagree. 

With that in mind, I hope that we will receive the recommendations in the context of our current environment and consider the 

challenges of the year ahead. In the time since these recommendations were voted on, the sequester has been implemented, with no 

end in sight. Republicans failed to address this in the budget. Instead of replacing blunt, across-the-board cuts with more justifiable, targeted proposals, they kept the sequester and they added to 

it. 

These recommendations are a healthy and timely reminder that 

there are still plenty of well-justified potential provider savings 

that should be pursued before asking patients to pay more. 

And I thank you again for joining us, and we look forward to 

your testimony. 

Chairman BRADY. Thank you, Mr. McDermott. 

And today Glenn Hackbarth, the Chairman of MedPAC, joins us. 

Mr. Hackbarth is no stranger to the Subcommittee, having served 

as MedPAC’s Chairman for more than 11 years and having appeared before the Subcommittee numerous times. 

We are pleased to have you with us, Mr. Chairman. As you 

know, we have reserved 5 minutes for your opening statements. 

Your entire written statement will be made a part of the record. 

You are recognized. 

STATEMENT OF GLENN M. HACKBARTH, CHAIRMAN, 

MEDICARE PAYMENT ADVISORY COMMISSION 

Mr. HACKBARTH. Thank you, Chairman Brady and Ranking 

Member McDermott. I appreciate your kind words about MedPAC. 

Since there are some new Members of this Subcommittee, I 

thought I would take just a second to introduce MedPAC a little 

bit further. 

We are a nonpartisan advisory body to the Congress. We have 17 

Commissioners appointed by the GAO. Six of our current Commissioners have clinical training either as physicians or as nurses; five 

have experience as hospital executives; five as leaders of integrated 

delivery systems; four in health plan management; two former 

presidents of the National Rural Health Association; three with 

high-level government experience; as well as several eminent academics. And, of course, some of us have more than one of these credentials in our background. 

By law, our March report presents to the Congress our update 

recommendations for the various Medicare payment systems. Our 

statutory assignment from you is to recommend rates that are consistent with the efficient delivery of services to Medicare beneficiaries. 


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Our analysis of payment rates considers the supply of providers, 

their access to capital, their financial performance, and the quality 

of care they provide. In considering an update recommendation, we 

start with zero—in other words, keeping the rates at the current 

prevailing level. And then any increase in the rates or decrease 

needs to be justified with evidence in one of the categories I just 

mentioned. 

Our March report this year includes a total 19 recommendations, 

including 4 related to special needs plans under Medicare Advantage. Across those 19 recommendations, there were a total of 302 

‘‘yes’’ votes from MedPAC Commissioners, 5 ‘‘no’’ votes, and 3 abstentions. So there is a substantial consensus in the Commission 

in favor of the recommendations in our report. 

If I could highlight just one thing in my opening statement, it 

would be our recommendation to repeal the SGR system, the sustainable growth rate system, in the Medicare physician payment 

program. As you well know, CBO recently re-estimated the cost of 

repeal, and it is dramatically lower than it has been in recent 

years. From our perspective, SGR repeal is now on sale, and the 

sale price may not last. And so we urge you to take advantage of 

this opportunity. 

We also urge you to include in the repeal legislation two other 

things: One is provisions aimed at rebalancing payments between 

cognitive and procedural services, with particular emphasis on primary care; and, second, provisions designed to encourage movement toward new payment systems. 

As we see it, payment reform—that is, moving away from fee-forservice to new payment models like accountable care organizations, 

bundling around episodes of care, or medical home—movement to 

payment reform is the single most important step to improve quality for Medicare beneficiaries while minimizing taxpayer burden. 

Payment reform is essential because it encourages and supports 

delivery system reform, whereby clinicians and other providers accept joint responsibility for both the quality of care and the total 

cost of care. Medicare’s current payment systems, which are siloed 

payment systems based on provider type, in fact facilitate, if not 

encourage, fragmented care delivery and inhibit collaboration 

across providers and inhibit the smooth flow of resources to where 

clinicians think they can do the most good for Medicare payments. 

So those are my opening comments, Mr. Chairman, and I look 

forward to answering your questions. 

[The prepared statement of Mr. Hackbarth follows:] 


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Chairman BRADY. Thank you, Mr. Chairman. 

Let’s start at the beginning. The report acknowledges what we 

all know, which is Medicare will be broke in 10 short years. How 

urgent is it for us to act now to make that program solvent over 

the long term? 

Mr. HACKBARTH. Yeah, so, as I indicated in my comment, the 

most important thing for us to accomplish is to support reform and 

care delivery. That is where the action is. 

And the sort of changes that we are talking about—for example, 

moving to accountable care organizations or bundling around episodes—require providers to develop new relationships with one another. And we believe those relationships are important to quality 

of care, let alone cost. 

But they will take time to develop. And so moving in that direction now allows us to have the necessary delivery system reform 

in time to help us, you know, 5 or 10 or 15 years down the road. 

Chairman BRADY. In your view, is it possible to make Social Security solvent for the long haul without reforming fee-for-service? 

Mr. HACKBARTH. No. We think reforming fee-for-service is an 

essential part of the effort. 

Chairman BRADY. In the report, you make two recommendations generally: one on the principles of SGR reform, breaking the 

link between expenditures and updates, and you outline some principles. Then you talk about offsets. Once we get the replacement 

right, which tells us the price, we have to do the hard work on the 

offsets. 

Mr. HACKBARTH. Right. 

Chairman BRADY. So can you talk for the Committee about 

some key principles on SGR reform in your mix of offsets for once 

we get that replacement right? 

Mr. HACKBARTH. Yeah. So the major principles I touched on in 

my opening statement: repeal, rebalance payments within the physician fee schedule, and encourage movement to new payment systems. 

In terms of offsets, in October 2011 we sent this Committee and 

the other committees of jurisdiction a letter with almost $300 billion in offsets. Actually, let me just clarify that. We had about $200 

billion in offsets and $100 billion in suggested changes in the physician fee conversion factor. So, at the time, the total cost to repeal 

was about $300 billion, and we had a package that would roughly 

achieve that goal. 

Since that time, as I indicated, the cost of repeal has fallen dramatically, so not all of the things on that list would be required. 

We do have roughly $100 billion worth of current unenacted 

MedPAC recommendations before this Committee and the Congress. 

We would also think that it would be appropriate to have some 

balance between physicians and other participants in the Medicare 

system. In our October 2011 letter, we had the balance one-third 

physicians, two-thirds from all of the other participants in the 

Medicare system. There is no magic to that split, but it might be 

still a reasonable approach. 

Chairman BRADY. Final question is really advice for the Committee. As we look at this, it sort of reminds me of Parade magaVerDate Sep 11 2014 13:10 Jul 01, 2016 Jkt 089473 PO 00000 Frm 00026 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\89473.XXX 89473

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zine every year does an edition on what do people earn, you know. 

And you sort of thumb through it to find out what average people 

make. 

You are tempted, in looking at this report, to look at the margins 

to sort of—in the past, it has been who is ripe for picking in provider cuts going forward. But that has been part of the problem. 

We are really not focused on quality, reforming this process so it 

is not so reimbursement-driven. 

How should we as a subcommittee use this as a tool in designing 

a permanent, reliable, quality-driven SGR or replacement for the 

SGR? 

Mr. HACKBARTH. Yeah. Well, as you say, we don’t think that 

you only look at the margins. In fact, we think sometimes looking 

at average margins is deceptive. What you have asked us via our 

statute is to recommend rates consistent with the efficient delivery 

of service. And sometimes the average margins don’t help you understand what the efficient level of payment is. 

So we tend not to base our recommendations solely on average 

margins. That is just one input. In addition, we look at quality of 

care, the entrance and exit of providers in a particular area. 

Within our recommendations, there are, however, certain provider groups, namely skilled nursing facilities and home health 

agencies, where we have seen persistently very high margins for a 

long period of time, double-digit margins. And, in those cases, we 

have recommended an actual rebasing of the rates. In other words, 

don’t just update from the current rate; lower the current rate so 

that it is more appropriate given the cost of delivery. 

So those are two areas where we think in particular there is an 

opportunity—skilled nursing facilities and home health agencies. 

Chairman BRADY. Thank you, Chairman. 

Mr. McDermott. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

One of the issues that we hear about, all of us go to various 

events, people come up and say, I can’t find a doctor and I am on 

Medicare. 

I know you do an annual survey. I would like you to talk about 

what you have found in that survey. 

Mr. HACKBARTH. Yes. So each August, September we do a survey of 8,000 people—4,000 Medicare beneficiaries and 4,000 people 

who are just prior to Medicare eligibility by age and are privately 

insured. And we ask a series of questions about their access to care 

and then also ask them about their ability to find a new physician 

if, in fact, they are seeking a new physician. 

On the issues about their satisfaction with access to quality of 

care, Medicare beneficiaries have consistently reported higher satisfaction with their access to care than the privately insured patients just under age 65. The differences aren’t huge, but the pattern has been pretty consistent over time. 

On the questions related to finding a new physician if you are 

seeking one, Medicare beneficiaries report about the same level of 

difficulty as the privately insured patients. Those numbers have 

bounced around a little bit in recent years, but they are basically 

the same. 


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Mr. MCDERMOTT. Is that basically the question of finding a 

primary care physician? 

Mr. HACKBARTH. Yes. Actually, we ask questions on both. We 

ask if you are looking for a new primary care physician and then 

a separate question, if you are looking for a new specialist. The 

challenges, both in Medicare and in private insurance, tend to be 

in terms of finding a new primary care physician. 

Mr. MCDERMOTT. So as we take on 30 million new people 

under the Affordable Care Act, we are going to be in some difficulty 

with primary care physicians? 

Mr. HACKBARTH. We have not looked specifically at the implications of the Affordable Care Act, but we do see indications, particularly in some portions of the country, finding a new primary 

care physician is difficult, again, for both Medicare and privately 

insured patients. 

This is the reason why, in talking about SGR repeal, I emphasized the importance of increased payment for primary care. That 

is where we see the potential access problems for Medicare beneficiaries. 

Mr. MCDERMOTT. Could I ask a question about Medicare Advantage programs? They cover everything that traditionally Medicare covers. Are they allowed to play with co-pays and other things 

to make a difference in how they are used or to limit the risk or 

make people say, well, I think I am going to get out of here because 

I have something that isn’t covered, or it costs too much, or—— 

Mr. HACKBARTH. Yeah. So they do have some flexibility around 

the benefit design. And for the reasons that we discussed in the 

hearing a couple weeks ago on benefit design, we think some flexibility is appropriate. In fact, we would like to see them have a bit 

more flexibility than they have currently in some areas—for example, having tailored co-pays for particular patients with particular 

illnesses. That is the idea behind value-based insurance design. 

Having said that, though, you need to take care that benefit design is not used to enroll a favorable selection of risk and discourage the higher-risk patients. So that flexibility needs to be within 

a regulatory framework that protects against risk selection activity. 

So we are trying to strike a balance: flexibility for a more valuebased insurance design without skimming behavior—— 

Mr. MCDERMOTT. Tell me about the spread. If I am in one plan 

and my diabetes is taken care of and it costs me $100 and in the 

other one it costs $40, is that spread possible between two Medicare Advantage programs and co-pays? Or is it a $5 difference? Or 

what are we talking about here? 

Mr. HACKBARTH. Well, I can’t answer that question off the top 

of my head, Dr. McDermott. I would be happy to respond to that 

in writing afterward. 

Mr. MCDERMOTT. As a final thing, I notice in today’s paper the 

FTC is suing a hospital in Idaho for buying a doctor’s practice 

under the noncompetitive questions. 

Mr. HACKBARTH. Uh-huh. 

Mr. MCDERMOTT. Some of the things in the ACA, the Affordable Care Act, these accountable care organizations, it seems to me 

that there are a lot of problems out there about how you control 

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ent in the law. I would like to hear you say a little something about 

that. 

Mr. HACKBARTH. Yeah. Well, this is another challenging area. 

In general, we believe that developing formal relationships 

among different types of providers is a good thing and a necessary 

part of trying to improve the value of care. When providers of various types work independently without coordination, we know what 

the results are. That is the experiment we have run for the last 40 

or 50 years. We get a high cost and uneven quality. So we favor 

some integration combinations. That doesn’t always have to be in 

terms of a formal merger or ownership. There are a lot of different 

ways that configuration can happen. 

Having said that, there is a fear that as these combinations develop, that they will have undue market power and be able to, 

using that market power, get very high rates of payment from private payers, if not from Medicare. And so there is a balance to be 

struck. And, you know, we don’t want complete consolidation, but 

we do need some reorganization of care. 

You know, this is one of the reasons why I personally favor physician-led ACOs. If all of the ACO development is hospital-focused, 

you tend to get more consolidation, more market power that can 

lead to higher prices for private payers. Having physician-led ACOs 

I think can be consistent with a more competitive system. 

And so I am encouraged to see that, in fact, roughly half of the 

ACOs that have now been approved by CMS are, in fact, physicianled ACOs. I think that is a good sign. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

Chairman BRADY. Thank you. 

Mr. Johnson. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

Mr. Hackbarth, how many on your board are actually in private 

practice? 

Mr. HACKBARTH. In private practice. It is going to be hard for 

me to do a quick count off—— 

Mr. JOHNSON. But you do have some? 

Mr. HACKBARTH. Yes, we do. 

Mr. JOHNSON. And not a preponderance, though, I would guess. 

Mr. HACKBARTH. Well, as I said, in our current membership, 

we have six clinicians. For example, one, Tom Dean, Dr. Tom Dean, 

practices in a small town in South Dakota and brings to us the experience of a family practice physician in that environment. 

Mr. JOHNSON. Good. 

As you know, ambulatory surgery centers’ payment updates are 

based on Consumer Price Index–Urban, which reflects inflation in 

the entire economy. MedPAC previously said CPI–U is a poor proxy 

for input price increases. 

Since there is no empirical evidence to suggest that ASC inflationary challenges differ from hospitals—they both have to hire 

and retain nurses and purchase similar medical supplies— 

shouldn’t their payment updates reflect the outpatient hospital 

market basket? 

Otherwise, payments between the two sectors will continue to diverge over time, as CPI tends to lag market basket by about a percentage point. 


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Mr. HACKBARTH. Yeah. Well, as you indicated, Mr. Johnson, 

we don’t think that the CPI–U is an appropriate adjustment factor 

for ASCs. 

We have recommended that cost data be collected from ASCs, 

one of the purposes of which would be to develop a more appropriate index for ASCs. Although there are some similarities in the 

services and inputs used by ASCs and hospitals, the mix is significantly different. So even the hospital inflator wouldn’t be tailored 

to ASC patterns. 

Mr. JOHNSON. Well, how do you all adjust for those differences? 

Mr. HACKBARTH. Well, as I said, right now, without cost data, 

it is very difficult to do that. And that is one of the reasons why 

we think ASCs should be required to submit some cost data to 

Medicare. 

Mr. HACKBARTH. And they don’t do that now? 

Mr. HACKBARTH. They do not. 

Mr. JOHNSON. Okay. 

In the report, the Commission found the current system undervalues primary care and overvalues specialty care. I agree primary 

care physicians are different. I am also aware of potential primary 

care shortages. Over half the doctors in Texas aren’t taking new 

Medicare patients. 

However, is MedPAC concerned about the access to cognitive specialists, who bill a lot of office visits but would face cuts under your 

recommendation? 

Mr. HACKBARTH. Well, so we have made over the years a series of recommendations about how the relative values are calculated in the physician fee schedule. In general, those recommendations would increase the value for what we refer to as 

cognitive services, nonprocedural services. 

So specialists who provide a lot of those services actually could 

benefit from our recommendations, whereas those that are doing 

procedures or imaging would tend to be paid less. 

Mr. JOHNSON. Okay. Well, thank you very much. 

Mr. Chairman, I yield back. 

Chairman BRADY. Thank you. 

Mr. Kind. 

Mr. KIND. Thank you, Mr. Chairman. 

Mr. Hackbarth, thank you again for your testimony today and 

the work that MedPAC does. 

You are probably familiar with CBO’s recalculation of Medicare 

spending between now and 2020. It just came out in February. 

They updated their baseline from just last August. This is what 

they found: They found a reduction in Medicare spending during 

that time period of 31⁄2 percent, or $382 billion, which is significant, which tells me something is happening out there, something 

is churning. And it may be a little bit too early to tell what exactly, 

but it does, I think, give many of us hope that have been working 

with MedPAC throughout the years, as far as the recommendations 

you have been making to this Committee and to this Congress in 

regards to delivery system and payment reform, which was included in the healthcare bill. 


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And I don’t know if you were familiar with the article that came 

out in USA Today last week on March 4 entitled, ‘‘Healthcare 

Spending is Transferred Out of ICU.’’ 

And, Mr. Chairman, I would ask unanimous consent to have this 

article inserted in the record at this time. 

Chairman BRADY. Without objection. 

[The information follows:] 


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Mr. KIND. The article states, and I quote, ‘‘Cost-saving measures 

under the healthcare law appear to be helping keep medical prices 

flat, according to healthcare providers and analysts. Also, weak demand may linger from the recession, which ended in June 2009, especially for optional care, such as cosmetic surgery.’’ 

And then later in the article, Dan Mendelson, who is the CEO 

of Avalere Health, which advises healthcare companies and investors, was quoted as saying, ‘‘We are beginning a long period of adjustment in health care. Institutions are taking both cost control 

and quality improvement more seriously.’’ 

And a little bit later in the article, it states, ‘‘In the 4 years leading to the expanded health insurance, the government has used authority in the Patient Protection Affordable Care Act,’’ the ACA, ‘‘to 

try to reshape the economics of health care through regulation and 

financial incentives. That appears to be keeping a lid on medical 

costs.’’ 

And then later in the article, Peter Person, the chief executive 

of Essentia Health, a 13,000-employee hospital system up in Duluth, Minnesota, was quoted as saying, ‘‘It all goes back to the Affordable Care Act and how it is changing so many components of 

the way we do business. The language I use now in the healthcare 

business is completely different from the language I used even 5 

years ago.’’ 

And, again, there is more to the article in that. 

So there is something happening that is starting to gain traction 

right now. And, obviously, we listened closely to what MedPAC was 

recommending throughout the years and included virtually all of 

the delivery system reforms that MedPAC was making and the 

payment reforms in order to help drive the system to better quality, better access, at a better price. And now CBO is saying almost 

a $400 billion savings in Medicare over the next 8 years. And the 

verdict is still somewhat out as far as what is driving that. 

Mr. HACKBARTH. Uh-huh. 

Mr. KIND. But these are all, I think, signs of hopefulness with 

where the healthcare system is going. And, in fact, the ACOs that 

you were talking about a little bit earlier, medical homes is moving 

forward, trying to reduce preventable hospital readmissions as part 

of ACA, wider testing, the bundle of payments and that. 

What hope do you see as far as the implementation of these delivery system and payment reforms in regards to finally starting to 

bend the cost curve within the healthcare system and whether or 

not that might be sustainable in the long term? 

Mr. HACKBARTH. Yeah. Well, I am hopeful. I think there is 

change afoot. It is hard to go around the country and talk to physicians and hospital executives and other providers without being 

convinced that there are changes, meaningful changes, happening. 

As to what share of the change in the trend is attributable to 

those real changes in care delivery versus temporary factors like 

the economy, I don’t know the answer to that. As you know, there 

is a robust debate about that issue. 

I would say, though, that even if you believe, as I do, that there 

are real changes happening, that is not quite the same thing as 

saying that they will be sustained in the long run. 

Mr. KIND. Right. 


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Mr. HACKBARTH. In the 1990s, I was a private health plan executive and then the CEO of a large multispecialty medical group. 

That was, as you will recall, the period of managed care. Real 

changes were happening in healthcare delivery in the 1990s, too. 

And, in fact, we saw a significant slowing of the rate of increase 

in healthcare costs. 

That did not last, that was not sustained, in part because those 

changes in delivery, that change in healthcare spending provoked 

a reaction. 

Mr. KIND. Uh-huh. 

Mr. HACKBARTH. Whenever we try to bend the cost curve, 

there will inevitably be some winners and some losers. And we 

know that the losers will push back at some point. 

Mr. KIND. Mr. Chairman, I would hope that in the future 

MedPAC might offer some recommendations on how we can accelerate some of the financial incentives or payment reforms, given 

the track record that is being established. That might be helpful 

for the Committee to consider, as well. 

Chairman BRADY. Yes. And I think SGR reform is the perfect 

opportunity for us to start making those changes together. 

Mr. Roskam. 

Mr. ROSKAM. Thank you, Mr. Chairman. 

Mr. Hackbarth, thanks for your time today. 

Back in your 2007 report, and now it is reiterated in this current 

report, you raise concerns about the ease with which critical access 

hospitals could manipulate the Medicare hospital wage index system by converting to a prospective payment system hospital and 

pull national Medicare dollars into one State entirely. 

Since enactment of the Affordable Care Act, this very scenario 

has occurred and is referred to as the ‘‘Bay State boondoggle.’’ Can 

you give us a sense of this, how real is it, why it is that you are 

concerned about it? 

Mr. HACKBARTH. Yeah. So in our hospital payment system, we 

adjust the payments for local wages across the country since there 

is so much variation. And that is an appropriate thing to do. 

The problem that we have had, Mr. Roskam, is that over the 

years there have been a lot of ad hoc changes in that system for 

adjusting wages—special rules, special categories created. And 

what we saw in Massachusetts, the case that you refer to, is one 

of those special rules being manipulated for the purpose of increasing Medicare payment. 

We recommended in 2007, as you know, a complete overhaul of 

the wage index system, including wiping out all of these special 

rules that are subject to manipulation. Recently, the Institute of 

Medicine was asked by the Congress to look at the same issue and 

came up with recommendations quite similar to the ones that we 

made in 2007. 

So we need to get away from these special provisions that are 

sort of rifle-shot additions to the law, because they are subject to 

manipulation. 

Mr. ROSKAM. Because this is a zero-sum game, right? 

Mr. HACKBARTH. Right. 

Mr. ROSKAM. So when these things are manipulated—and I 

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nipulation—when they are manipulated, they are manipulated for 

benefit of one at the demise of another hospital or the demise of 

another State. Is that right? 

Mr. HACKBARTH. That is correct. The wage index system is a 

zero-sum game. It is an index, and it redistributes a fixed amount 

of dollars. 

Mr. ROSKAM. Let me just shift gears to the rehab side. As we 

all know, our former colleague and my Senator, Senator Kirk, had 

an incredibly difficult health experience in that he suffered a 

stroke. But we have all been heartened by the story of his recovery 

and now his return to the Senate. He gives an incredible amount 

of credit to an institution in Chicago, the Rehabilitation Institute 

of Chicago. 

I have a sister institution out in the suburbs called Marianjoy. 

And I want to get to this question of the 60 percent rule and how 

this is—or the 75 percent rule and the 60 percent drama. 

Mr. HACKBARTH. Right. 

Mr. ROSKAM. Congressman Hyde, my predecessor, served in his 

last days at Marianjoy. And so it is an institution that has a great 

reputation, but they are under incredible downward pressure. 

Mr. HACKBARTH. Uh-huh. 

Mr. ROSKAM. And when I spoke to the president of Marianjoy, 

she said that they evaluated in the previous year more than 7,400 

patients, only admitting 2,400 patients, which means that 2 out of 

3 were turned away. 

Mr. HACKBARTH. Uh-huh. 

Mr. ROSKAM. It is a selective admission process. And their argument is, look, this shows that the system isn’t being abused and 

so forth. 

Can you speak to this 60 percent rule—— 

Mr. HACKBARTH. Sure. 

Mr. ROSKAM [continuing]. And what happens if it moves to 75 

percent? Because there is a number of us that have real concerns 

if we move in that direction. 

Mr. HACKBARTH. Yeah. So in the post-acute portion of Medicare, we have several different types of providers. We have the inpatient rehab facilities, we have long-term care hospitals, we have 

skilled nursing facilities, and home health agencies. And patients 

requiring services after a hospital admission can end up in any one 

of those four places. And what we see in the data is that patients 

with the same diagnosis, the same clinical problem can often wind 

up in any one of the four. 

The challenge is that the payment rates for those four different 

settings are dramatically different. 

Mr. ROSKAM. Right. 

Mr. HACKBARTH. And so, in the case of in-patient rehab facilities in particular, they are very important institutions for patients 

with a particular set of needs, that really need intensive rehabilitative therapy, but it is an expensive place to send patients who 

could be cared for just as well in a skilled nursing facility or home 

health. The cost is much higher in the in-patient rehab facility. 

And so the 60 percent rule or the 75 percent rule is a crude attempt to assure that the in-patient rehab service, an intensive 

high-cost service, is focused on the patients who really need it and 


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not on patients who could be cared for just as well in a skilled 

nursing facility. 

It is an arbitrary rule, it is a crude rule, and it is the sort of rule 

that you need to impose when you don’t have an accountable party, 

a clinician, making that choice on where to send a patient, coupled 

with responsibility for cost and quality. 

So the direction that we want to move is away from these arbitrary rules like the 60 percent or 75 percent to systems where a 

clinical organization would say, this patient with a hip replacement 

can go to a skilled nursing facility, this patient with a more complicated problem really needs to go to an in-patient rehab facility. 

And that person is accountable for the cost and quality of care. In 

a siloed payment system, there is no accountability. 

Mr. ROSKAM. Thank you. 

I yield back. 

Chairman BRADY. Thank you for raising that issue. The whole 

challenge on post-acute care and the reimbursements in those settings is clearly going to be a focus of the Subcommittee going forward. So thank you. 

Mr. Blumenauer. 

Mr. BLUMENAUER. Thank you, Mr. Chairman. 

Dr. Hackbarth, I must say that you may be 17 unelected bureaucrats, but I think MedPAC has over the years served us very well. 

It is too bad there isn’t a mechanism for Congress to be required 

to respond to your recommendations. The healthcare system would 

have been better off, and we would have saved a lot of money. 

Mr. THOMPSON. Is that a motion? 

Mr. BLUMENAUER. Just an observation, and not a political 

comment. 

There are three areas that I would appreciate your helping me 

with. One, you highlight in your report that we are overpaying 

some of the very low-performing Medicare Advantage programs; 

that, on balance, there was a concept of reward good ones, penalize 

poor ones. We have seen some improvement, but could you comment briefly about that problem that you see with the overpayment 

of the underachievers? 

Mr. HACKBARTH. Yeah. So, in general, as I have said before 

this Committee many times, I believe, we believe that having private plans as an alternative, a choice for Medicare beneficiaries is 

an important thing, because often they can do things that traditional Medicare finds difficult to do in the current siloed payment 

systems, like coordinate and integrate care for chronically ill patients. So that is a good thing. 

But that doesn’t mean that all private plans are equally good and 

perform equally well at those activities. Some are truly exemplary 

and among, you know, the people that everybody points to as the 

very best in the country. But, in fact, there is a huge range of performance among Medicare Advantage plans. 

One context in which this came up recently was the CMS demo 

for quality bonuses. And what they did in this demonstration 

project was extend the bonuses for quality basically to, like, 90 percent of all the plans participating in Medicare. 

We had two objections to that. One is, 90 percent probably don’t 

deserve quality bonuses. But even more important than that, this 


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demo, in effect, overrode the decisions made by the Congress in 

PPACA on how to structure a Medicare quality bonus for MA. So 

we thought the money was being spent indiscriminately. 

Mr. BLUMENAUER. And I am hopeful that we will be able to 

return to that because we really do want to coax more capacity and 

quality. All Medicare Advantage programs aren’t the same. 

You also referenced hospice care—— 

Mr. HACKBARTH. Yes. 

Mr. BLUMENAUER [continuing]. And some difficulties you see 

there. This is an area that I would deeply appreciate some brief 

comments here, but perhaps being able to follow up with you, because—— 

Mr. HACKBARTH. Sure. 

Mr. BLUMENAUER [continuing]. We are seeing such dramatic 

advances in palliative care, that we are watching that people who 

choose this option in some instances actually have not just a higher 

quality of life but they actually live longer—— 

Mr. HACKBARTH. Right. 

Mr. BLUMENAUER [continuing]. In that setting. And, coincidentally, it costs less than keeping people in intensive care or extreme procedures. 

Do we need to be reevaluating our principles of hospice, do some 

fine-tuning so we are not having areas of abuse but we capture the 

potential of higher-quality and lower-cost care for others? 

Mr. HACKBARTH. Yeah. It is, I think, safe to say that the current MedPAC Commissioners and all the Commissioners that I 

have served with in my tenure at MedPAC believe that the hospice 

benefit is extremely important for Medicare beneficiaries. And we 

are heartened by the fact that if you look back over the last 10, 

15 years, in fact, utilization of the hospice benefit has increased 

over time. And we think that is a good thing, so long as that is 

what the beneficiaries want. 

We do have some concerns about the hospice payment system, 

however. And we believe that the current payment system is subject to manipulation. And the form that manipulation takes is very, 

very long hospice stays, in fact, often multiple recertifications of eligibility for hospice. And our concern is that is what the payment 

system currently rewards. And so we have made some recommendations about how to address that problem. 

So let me stop there. And I would welcome the chance to talk in 

more detail about that. 

Mr. BLUMENAUER. Mr. Chairman, I think this is an area that 

is worthy of some consideration of the Committee. There may be 

adjustments that need to be made clearly in the payment system, 

but, by the same token, the definition that we started with was in 

a different era in terms of palliative care and what we know. 

And I am hopeful that there is a way that we can get a little 

deeper into this, maybe with the help of MedPAC or others, that 

both assures the integrity of the program but targets it in a way 

to maximize the benefit and minimize some gaming of the system. 

Chairman BRADY. Right. 

Mr. BLUMENAUER. Thank you very much. 

Chairman BRADY. Thank you, Mr. Blumenauer. My pleasure. 

Dr. Price. 


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Mr. PRICE. Thank you, Mr. Chairman. 

Welcome, Mr. Hackbarth, back. We appreciate your testimony, 

and appreciate your report. 

I want to touch very briefly on the comment you made on feefor-service, that we ought to be moving away to a different model. 

It is not in your testimony, however, is it, that fee-for-service ought 

to be outlawed? 

Mr. HACKBARTH. Not outlawed, but we do think that we ought 

to be encouraging movement to new payment systems. And, you 

know, there is so much talk about how they can reduce cost. 

Mr. PRICE. Yeah. 

Mr. HACKBARTH. I really want to emphasize that we think 

that the new payment systems increase quality for Medicare beneficiaries. 

Mr. PRICE. But you wouldn’t outlaw fee-for-service. You 

wouldn’t recommend that. 

MedPAC looks at utilization, correct? 

Mr. HACKBARTH. Correct. 

Mr. PRICE. You look at overutilization, whether or not things 

are being—tests are being ordered too much, procedures are being 

done—— 

Mr. HACKBARTH. Uh-huh. 

Mr. PRICE [continuing]. Too often. And you do that because increased utilization increases costs, right? 

Mr. HACKBARTH. Uh-huh. 

Mr. PRICE. Do you look at the practice of defensive medicine? 

Mr. HACKBARTH. We have in the past. 

Mr. PRICE. What kind of estimates do you have about how much 

that adds to costs? 

Mr. HACKBARTH. Well, we don’t have an independent estimate 

of that. We have looked at the literature on that. 

My own view on that is that there may be too much emphasis 

on trying to calculate precisely what increment it adds to cost. 

Having worked with physicians as CEO of a very large group, I 

think that those estimates sort of understate the impact it has on 

medical practice. 

Mr. PRICE. There are some estimates that it may be as much 

as 1 out of every 3 or 4 healthcare dollars. Is that—which is—— 

Mr. HACKBARTH. Well, again, we—— 

Mr. PRICE [continuing]. Hundreds of billions of dollars. 

Mr. HACKBARTH. Yeah. We have not tried to calculate—— 

Mr. PRICE. Wouldn’t that be wise, to look at that? 

Mr. HACKBARTH. Well, it is a very difficult estimate to make, 

and I am not sure that we would be able to do it better than the 

various people that have tried to do that. 

Mr. PRICE. I think it would be wise for MedPAC to begin considering that. I think it is hundreds of billions of dollars of waste in 

our system. And when you talk about the kind of need for providing coverage for folks and the need for more resources, this is 

an area where I think we could make great progress. 

I want to shift to the treatment of patients, the incentive for 

treatment of patients in certain settings. And I am confused by 

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procedure, that same exact service being provided in a hospital outpatient setting, why those payments are different. 

Your report last year, I believe, looked at the potential—— 

Mr. HACKBARTH. Yes. 

Mr. PRICE [continuing]. For equalizing those payments. 

Mr. HACKBARTH. Yes. 

Mr. PRICE. And what was your conclusion or what were your 

thoughts about moving in that direction? 

Mr. HACKBARTH. So we have already made recommendations 

to move toward equalizing the payment for evaluation of management services. And we are in the process of looking at other services beyond that initial group where we ought to move toward 

equalizing the payments. 

It does not make sense to us to pay dramatically different rates, 

as you know, for the same service simply based on what name is 

over the door. And right now, given the transitions that are under 

way in medical care organization, the program is at risk and Medicare beneficiaries are at risk for much higher costs even when they 

go to the same physician—— 

Mr. PRICE. Exactly. 

Mr. HACKBARTH [continuing]. Just because of changes in ownership. 

Mr. PRICE. Have you looked at combining the fee schedules? 

Mr. HACKBARTH. Pardon me? 

Mr. PRICE. Have you looked at combining the fee schedules? 

Mr. HACKBARTH. Well, what we have done, consistent with our 

assignment from the Congress is we want to set the payment levels 

at the level of the efficient provider. So if the physician office is the 

efficient provider of a service, we think we ought to be paying at 

the physician office level. 

Now, there are some services where we think that the right level 

might be between the physician office level and the hospital outpatient department level. We are looking at some of those services 

right now. 

Mr. PRICE. What are your metrics for efficiency? 

Mr. HACKBARTH. So right now, in this particular example, if 

we can get an adequate supply of a particular service and physician office under the physician fee schedule, that is the efficient 

provider. Adequate supply at this rate. Why should we be paying 

more in a hospital outpatient department for the exact same service? 

Mr. PRICE. And how much do you think you could save by 

equalizing payment? 

Mr. HACKBARTH. Well, again, we looked initially at our recommendations on evaluation and management services. And maybe 

Mark can—yeah, so $900 million. About $200 million of that would 

accrue to the Medicare beneficiary from our past recommendation. 

Mr. PRICE. That is just for E&M. 

Mr. HACKBARTH. That is E&M alone. Now we are looking at 

additional groups of services beyond E&M that potentially would 

add to that number. 

Mr. PRICE. Great. Thank you. 

Thank you, Mr. Chairman. 


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Chairman BRADY. Did I hear that right? Site-neutral reimbursement on office visit evaluation would be about $900 million, and of 

course then obviously to the senior themselves? 

Mr. HACKBARTH. Yeah, $200 million to the beneficiaries, $900 

million total. 

Chairman BRADY. Great. Thank you. 

Mr. Thompson. 

Mr. THOMPSON. Well, thank you, Mr. Chairman, and thank 

you for holding the hearing. 

Mr. Hackbarth, thank you for being here. 

I want to talk about access to primary care. And you cover this 

in your testimony. Is it as difficult for Medicare folks as it is for 

private insurers? Is it difficult for both? Or is it just a Medicare 

thing? 

Mr. HACKBARTH. No, this is a general problem beyond Medicare. It is Medicare and private. 

Mr. THOMPSON. Yesterday, I had a visit from a constituent 

who is a med student. And his concern was that when today’s med 

students get out of school, they are carrying considerable debt. And 

I think this is a problem for all students, but for medical students 

it tends to be a little bit more. He told me that he didn’t think 

there was anyone in his class, unless they were going through 

school as part of the military that would leave without at least 

$200,000 in debt. 

And his feeling was that high debt would, in turn, help those students determine what field of medicine they want to pursue and, 

because primary care is historically low reimbursement, it stands 

to reason that there is going to be a shortage of docs. 

Is it your belief and MedPAC’s belief that the cost of medical 

school is a factor in this? 

Mr. HACKBARTH. It is a factor. It is not the only reason that 

people elect to go into specialty care, but it is a factor. 

Mr. THOMPSON. And, no, it is probably not; you are probably 

right. But I would assume that there are folks who want to go into 

primary care but, once they get over the sticker shock, that it 

pushes them over the edge into going into—— 

Mr. HACKBARTH. Right. 

Mr. THOMPSON [continuing]. A type of medicine that maybe 

they didn’t set out to go into. Maybe they wanted to be primary 

care docs, but once they come to the realization they are going to 

have a pretty hefty bill to pay, then that causes them to go into 

specialty? 

Mr. HACKBARTH. Yes. 

Mr. THOMPSON. Are there other professions, medical professions, nurse practitioners and things of that nature that because of 

the cost of care, they tend to go into areas with a higher reimbursement than in primary care? 

Mr. HACKBARTH. So you are asking whether we have evidence 

that nurse practitioners, for example, elect to engage in specialty 

care versus—— 

Mr. THOMPSON. Correct. 

Mr. HACKBARTH [continuing]. Primary care? I don’t know the 

answer to that. 


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Mr. THOMPSON. Is that something that you look at or should 

look at? 

Mr. HACKBARTH. We have not looked at that in the past. You 

know, we can try to do that. I don’t know what issues might be 

raised in doing that analysis. 

Mr. THOMPSON. It might be worth looking at, because especially now with the distribution of labor and what nurse practitioners and physician’s assistants and the likes are doing, I am assuming it would have some impact on primary care. 

Mr. HACKBARTH. Yeah. And I would say that I believe that 

nurse practitioners and physician assistants are a necessary part 

of dealing with our primary care issues. I think we have not taken 

full advantage of the capabilities of non-physician practitioners, 

and, frankly, I think we are going to have to. 

Mr. THOMPSON. I agree with you. 

Mr. HACKBARTH. Even if we decided today to increase the 

number of primary care physicians trained, it takes a long time for 

that pipeline to produce physicians. 

Mr. THOMPSON. Well, given the fact that these reimbursement 

rates are affecting the delivery of health care, particularly as it applies to primary care, the Commission’s proposal on the SGR 

freezes the existing reimbursement rates. 

How do you square that with what you just told me? 

Mr. HACKBARTH. Yeah. So the proposal that you are referring 

to is our October 2011 letter to this Committee and others. The 

context for that letter was, at that point, SGR repeal cost $300 billion over 10 years. And since we knew that the cost of repeal was 

the single biggest reason why SGR had not been repealed, we felt 

obliged to come up with a package to cover that $300 billion cost. The only way that we felt we could get there was to take $200 

billion from hospitals and other participants in the system and 

about $100 billion worth of the cost out of the physician fee schedule. That necessitated cuts in the conversion factor for specialty 

physicians and a freeze on primary care. 

Now that the cost of repeal is much larger, you know, you would 

have a different set of options for how to structure that, thankfully. 

And, potentially, you could elect to have some increases for primary 

care if you so desired. 

Mr. THOMPSON. Well, I think it is important that we get something back, Mr. Chairman, on that. Because if, in fact, part of any 

proposal would be to freeze primary care, when we all acknowledge 

that the lack of primary care is one of the reasons that the 

healthcare costs, you know, are where they are and that this is one 

way to lower or bend that cost curve and provide a more sensible 

delivery of medicine, I would think that we wouldn’t want to miss 

that point. 

Mr. HACKBARTH. Right. So, you know, there are two ways to 

look at this. One is, you know, how much it costs to go to medical 

school and the like. And, in that context, a freeze obviously is not 

helpful to future primary care physicians. 

The other way to look at it is the relative fees paid to primary 

care versus specialty care. And our proposal in October 2011 said, 

if you are constrained on the number of dollars you have, maximize 

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stant. If you have more money available, though, it would obviously 

be desirable to increase primary care. 

Mr. THOMPSON. Thank you, Mr. Chairman. 

Chairman BRADY. Thanks, Mr. Thompson. 

Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman. 

And thank you, Mr. Hackbarth, for sharing your perspective and 

insight on some very important issues today. 

It is my understanding, and I think this topic was touched on 

briefly, but there are various factors that are perhaps leading to 

more and more provider consolidation. Could you elaborate more on 

that and perhaps share what you see as the impact to insurance 

premiums as a result? 

Mr. HACKBARTH. Yeah. Well, I would say there are basically 

two. One, there is consolidation that is aimed at developing new organizations that are better able to effectively care for Medicare patients and other patients. So they are integrating in a way that 

they collaborate to better coordinate and integrate care. That is the 

good type. 

Then there is the other type that is basically aimed at maximizing market power. And so there have been a lot of what antitrust lawyers would refer to as horizontal mergers where, you 

know, hospitals are joining together. They are not integrating with 

physicians, they are just building hospital systems that have more 

leverage vis-a ́-vis insurance companies. That is more problematic. 

Now, the tricky part is that some of the good type of integration 

also leads to market power that can lead to higher prices for private parties. 

Mr. SMITH. And I can appreciate a lot of things about how differently health care is delivered across the country, certainly, representing a very rural area. And I think there is still some consolidation out there, too, for various reasons. So I appreciate that. 

Now, shifting gears a bit, in terms of reimbursement, I notice 

that the Commission has recommended steps that Medicare can 

take to make sure that it is paying accurately for each individual 

physician service. And without getting into the details too much 

here, why would you say it is important that the determinations 

are accurate? And what are the implications, perhaps, for getting 

them wrong? 

Mr. HACKBARTH. Yeah. Well, there are two types. One we just 

discussed a minute ago. If the prices are wrong, it can influence the 

physician pipeline for the future. So if we consistently underpay for 

primary care, in the long run we will have too few primary care 

physicians. And we fear that is happening. 

The other type of problem is that if you overpay for certain services, you are likely to get more of them. And an example of that, 

we believe, would be around imaging services, where we think 

Medicare has paid too much. We have encouraged a lot of investment in imaging equipment to take advantage of that mispricing. 

And once the equipment is in place, the profitability goes up dramatically. And you want to use that equipment more, more, more 

because the marginal cost of using it is low. 

So you can have two types of ill effects. One is on supply of physicians, and one is on the type of services rendered. 


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Mr. SMITH. And so could you elaborate on how we shift to a system that more accurately reflects the actual costs and how we may 

not have a Federal policy that tends to put things out of balance? 

Mr. HACKBARTH. Yeah. So the physician fee schedule, as it is 

constructed, is focused on what are the costs involved in providing 

a particular service. There are 7,000 different services under the 

fee schedule, and relative values are established for each of these 

services. And the goal is to accurately measure the inputs and costs 

that go into producing those services. 

We think there are errors in those measurements, and not small 

occasional errors but pretty broad errors in those measurements. 

So we have made a series of recommendations both to the Congress 

and to the Secretary about correcting those errors. 

The other less discussed challenge in the physician schedule is 

that it focuses only on measuring the input costs. In the market 

for all other goods and services in the country, prices not only reflect the input costs, they reflect the value of the product, and they 

also move to reflect imbalances in supply and demand. The construct of the Medicare physician fee schedule pays no attention to 

the value of the service to the patients nor to imbalance in supply 

and demand. 

The latter is why we have recommended and Congress has enacted a primary care bonus. It is a way of dealing with that value 

and supply part of the equation that the fee schedule ignores. 

Mr. SMITH. Okay. Thank you. 

And thank you. I yield back. 

Chairman BRADY. Thank you. 

Mr. Gerlach. 

Mr. GERLACH. Thank you, Mr. Chairman. 

Mr. Hackbarth, thank you very much for testifying today. 

I want to focus on the home health agency issue, if I can. 

Mr. HACKBARTH. Uh-huh. 

Mr. GERLACH. First, I want to offer you a constituent case that 

we experienced a few years ago and get your reaction to that. And 

then, also, I want to focus on a couple of your recommendations 

from a few years ago in this area. 

On the constituent matter, we had a constituent that came to us 

after having 3 days of home health care, and the home health 

agency billed $1,500 for that care. It was submitted to the Medicare program, and the reimbursement back to the provider was actually double that, $3,000. So the reimbursement was actually double what was billed by the home health agency, and the explanation from CMS was that, well, we base our reimbursements on 

a 30-day episode of care; based on the nature of the care over 3 

days and a 30-day episode, that was what the reimbursement 

amount is. 

Is that a particular issue you are aware of, that we would pay, 

reimburse a provider double what was actually billed? And, if so, 

what would be your recommendation on how best to deal with that 

situation? 

Mr. HACKBARTH. Yeah. Actually, Mr. Gerlach, we exchanged 

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So in the home health area and many of the other Medicare payment systems, we pay on a per-episode basis, and do so recognizing 

that some episodes will cost less, some will cost more, but those differences will tend to average out. 

The reason for paying on an episode basis is that it creates an 

incentive for effective management of the services. You eliminate 

the incentive to do more home health visits by paying on an episode basis. So that is—— 

Mr. GERLACH. So, in this instance, paying double what was 

billed incentivizes who to do what? Wouldn’t it incentivize providing more care because you are going to get reimbursed more 

than what your actual, in essence, retail billing would be for that 

service? 

Mr. HACKBARTH. So in some cases the episode payment will be 

higher than the costs incurred, but in other cases it will be less 

than the costs incurred. And, as I say, the idea is—— 

Mr. GERLACH. Over a spectrum of service, you are saying? 

Mr. HACKBARTH. Yeah, over all of the patients that a home 

health agency cares for. Some they will make money, some they 

will lose some money, and it will tend to average out. And the reason for using that approach is to create incentives to not provide 

more visits than are necessary. 

Now, a problem that we have in the home health—— 

Mr. GERLACH. Wouldn’t it make more sense, though, if a home health agency bills for, say, the $1,500, that the formula for reimbursement ought to be the lesser of what that episode of care was 

under the current formula or what is billed, whichever is less? 

Wouldn’t that make more sense? 

Mr. HACKBARTH. Well, I suspect that over time what you 

would have is that all of the people who have fewer visits in the 

episode would start to gravitate up, saying, well, we want to maximize the payment, and so we will just increase the number of visits 

until we get to the limit. 

Mr. GERLACH. Okay. 

Mr. HACKBARTH. And so that is why Medicare avoids that. 

But there is a very important issue in home health, and that is 

that the payments are way too high, on average. 

Mr. GERLACH. Yeah, and that is where I was going. Back in 

March 2011, it was recommended that the Secretary should implement new authorities to suspend payment in the enrollment of new 

providers if they indicate significant fraud. What has been the 

progress from your recommendation 2 years ago that you can see 

from your position at MedPAC? What progress has been made at 

CMS to address that particular problem? 

Mr. HACKBARTH. Well, I can’t provide a quantitative answer to 

that, but there has been a fairly intense focus on fraud in home 

health in particular areas of the country, like south Florida. 

Mr. GERLACH. Yeah. Yeah. 

Mr. HACKBARTH. And I think there is probably more that 

needs to be done there, but it is increasingly the focus of attention 

at HHS. 

Mr. GERLACH. Uh-huh. Okay. 

And then real quickly, you also recommended 2 years ago a perepisode co-pay for home health episodes that aren’t preceded by 


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hospitalization or post-acute-care use. What is that rationale for 

that recommendation? 

And, in particular, for low-income beneficiaries—and I visited a 

number of those types of homes in the last few years—I can’t foresee some of these individuals being able to provide any co-pay for 

the services they are getting in their home. What is the rationale 

for your recommendation? And what do you think the impact would 

be if a co-pay was established, particularly for low-income individuals? 

Mr. HACKBARTH. So, under our proposal, the duly eligible 

Medicare beneficiaries would not be subject to the co-pay. So if we 

used that as the definition of low-income, they would be protected. 

We think having a co-pay for all services is important in a feefor-service insurance program like Medicare. That is one of the only 

tools that is available to manage costs. 

With regard to home health in particular, as you noted, our recommendation focuses on what we refer to as admissions from the 

community. So these are not patients coming out of a hospital or 

a skilled nursing facility; these are patients who are just admitted 

from the community. There are not clear clinical guidelines about 

when that community-initiated home health service is necessary 

and appropriate. It is a gray area, kind of like some medical services. 

And, in fact, in the last hearing, Mr. McDermott and I had an 

exchange about this. You know, you don’t worry about the patient 

initiating demand when the service is something that is painful or 

risky. Nobody wants to undergo that. But home health is different. 

There is no risk involved. There is no inconvenience involved. In 

fact, it often lightens the burden on family members and friends, 

so it is very attractive in that regard. And if it is a free service, 

you know, why not use it? 

Mr. GERLACH. Uh-huh. 

Mr. HACKBARTH. And so what we have recommended is quite a modest co-pay, like $150 per admission. For the average home 

health episode, that works out to about $8 a visit, which we think 

is an appropriate sort of check for people to say, is this really something that I need? 

Mr. GERLACH. Uh-huh. Okay. Very good. Thank you, Mr. 

Hackbarth. 

I yield back. 

Chairman BRADY. Thank you, Mr. Gerlach. 

We are not going to do a second round, but I would like to recognize the Ranking Member for a comment and question and then 

Dr. Price for the final question. 

Mr. McDermott. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

I just want to take a second to enter into the record, or ask unanimous consent to enter into the record, an article from The Washington Post by Sarah Kliff dated today. And it is called, ‘‘Want to 

debate Medicare costs? You need to see this chart first.’’ 

It shows that hospital readmissions in Medicare are dropping, 

and it shows that the percent of GDP in the future, if you use what 

has gone on in the last few years, is going to stay level rather than 

continue to rise to 0.7. 


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I think you are familiar with these numbers. 

Mr. HACKBARTH. Yes. 

Mr. MCDERMOTT. And I think Members of the Committee 

ought to be aware of this particular article that shows that the 

ACA is already having an effect before these things go into impact, 

or before they went into impact last year. 

Mr. HACKBARTH. Uh-huh. 

Chairman BRADY. Without objection. 

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Chairman BRADY. Dr. Price. 

Mr. PRICE. Thanks, Mr. Chairman. I appreciate the indulgence, 

and just a few quick questions. 

This whole issue of post-acute care and the venue for care and 

the differential treatment, I think you mentioned that it ought to 

be a clinical organization that ought to be making the decision 

about the venue of treatment for a patient. You wouldn’t consider 

MedPAC a clinical organization? 

Mr. HACKBARTH. No, no. I am referring to a provider. 

Mr. PRICE. Great. I just wanted to make that clear. 

And I want to visit home health for just a second, because a lot 

of issues are about overpayment in home health and the like. Isn’t 

it true, though, that if you look at the number of counties in this 

country and where the real challenges are, it is like 25 counties out 

of 3,000 or something like that? 

Mr. HACKBARTH. Yeah. So the patterns of home health use 

vary dramatically. In fact, the variation in home health is much 

greater than the variation—— 

Mr. PRICE. Yes. 

Mr. HACKBARTH [continuing]. In almost any other service. 

Mr. PRICE. Shouldn’t we be looking at those targeted counties? 

Mr. HACKBARTH. We should look at those areas in particular. 

But across the whole country, we are still overpaying for home 

health services. 

Mr. PRICE. And let me just touch on that, if I may, very briefly. 

The margins that you have talked about—and I think that your 

margin analysis comes from methodology of the HCFA era, really, 

right? 

Mr. HACKBARTH. No. This is our own methodology. 

Mr. PRICE. But what margins—refresh my memory on the margins that you believe—the proper margins that they are making? 

Mr. HACKBARTH. For home health, we are projecting for 2013 

around 11, 12, 13 percent. 

Mr. PRICE. Are you familiar with an Avalere study, analysis, 

2013 study, that uses financial reports that are filed with the SEC 

that put the margin—and take into account significantly greater 

information than I think your methodology—that puts the margin 

at around 2.5 to 3.5 percent? 

Mr. HACKBARTH. I am not familiar with that report. Keep in 

mind, the information that we are using is the information supplied on cost reports by home health agencies. 

Mr. PRICE. Great. 

Well, maybe we can follow up on that, Mr. Chairman, and see 

if we can’t get more accurate data. Because this is a real concern. 

Because if we lower, if we allow the lowering of reimbursement for 

home health, then we may significantly adversely incentivize movement of those individuals into actually higher-cost venues. And I 

think that is probably the last place we want to go. 

Mr. HACKBARTH. Yeah. Well, I would agree that we don’t want 

to do that. And I would be happy to follow up in detail with you 

on this. We don’t think that there is a risk of that by lowering the 

home health base rate. 

Mr. PRICE. Thank you. 

Chairman BRADY. Thank you, Dr. Price. 


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Thank you for this hearing. There is a lot in this report to digest. 

I know there will be followup questions from the Members. We 

have 14 days to submit questions, and I am sure there will be a 

number of them, including related to what are driving some of the 

lower costs, including the economy, the shift into Medicaid by a 

number of patients, issues like that. And I would ask if questions 

are submitted by the Members that you respond promptly, as you 

have in the past. 

With that, this Subcommittee is adjourned. 

[Whereupon, at 10:50 a.m., the Subcommittee was adjourned.] 

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