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62–708—PDF 2009

S. HRG. 111–828 

PRESIDENT’S FISCAL YEAR 2010 

HEALTH CARE PROPOSALS 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MARCH 10, 2009 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

KENT CONRAD, North Dakota 

JEFF BINGAMAN, New Mexico 

JOHN F. KERRY, Massachusetts 

BLANCHE L. LINCOLN, Arkansas 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

CHUCK GRASSLEY, Iowa 

ORRIN G. HATCH, Utah 

OLYMPIA J. SNOWE, Maine 

JON KYL, Arizona 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

JOHN ENSIGN, Nevada 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

RUSSELL SULLIVAN, Staff Director 

KOLAN DAVIS, Republican Staff Director and Chief Counsel 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

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

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

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 2 

WITNESS 

Orszag, Hon. Peter, Director, Office of Management and Budget, Washington, 

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

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

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

Grassley, Hon. Chuck: 

Opening statement ........................................................................................... 2 

Orszag, Hon. Peter: 

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

Prepared statement with attachments ........................................................... 47 

Responses to questions from committee members ......................................... 85 

COMMUNICATIONS

American Health Care Association and National Center for Assisted Living .... 99 

Senior Citizens League ............................................................................................ 102 

(III) 

(1) 

PRESIDENT’S FISCAL YEAR 2010 

HEALTH CARE PROPOSALS 

TUESDAY, MARCH 10, 2009 

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 10:04 a.m., in 

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

(chairman of the committee) presiding. 

Present: Senators Rockefeller, Lincoln, Wyden, Schumer, Stabenow, Cantwell, Nelson, Carper, Grassley, Hatch, Snowe, Kyl, 

Bunning, Crapo, Roberts, Ensign, and Enzi. 

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; Elizabeth Fowler, Senior Counsel to the 

Chairman and Chief Health Counsel; Yvette Fontenot, Professional 

Staff; Shawn Bishop, Professional Staff; and Chris Dawe, Professional Staff. Republican Staff: Rodney Whitlock, Health Policy Advisor; Andrew McKechnie, Health Policy Advisor; and Jim Lyons, 

Tax Counsel. 

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The committee will come to order. 

On February 24th, President Obama said, ‘‘Nearly a century 

after Teddy Roosevelt first called for reform, the cost of our health 

care has weighed down our economy and the conscience long 

enough. So let there be no doubt: health care reform cannot wait, 

it must not wait, and it will not wait another year.’’ 

I could not agree more with our President. Our next objective is 

health care reform. Comprehensive health reform is no longer simply an option, it is an imperative. If we delayed, the problems that 

we face today would grow even worse. If we delayed, millions more 

Americans would lose their coverage. If we delayed, premiums 

would rise even further out of reach. And, if we delayed, Federal 

health care spending would soak up an even greater share of our 

Nation’s income. 

Senator Grassley and I have laid out a schedule to do just that. 

Our schedule calls for the committee to mark up a comprehensive 

health care reform bill in June. We should put a health care bill 

on the President’s desk this summer. 

The President’s budget makes a historic down payment on health 

care reform. Over the next 10 years, the President’s budget invests 

$634 billion to reform our health care system. Reforming health 

care means making coverage affordable over the long run, it means 

2 

improving the quality of care, and it means expanding health insurance to cover all Americans. 

Given our current economic situation, this becomes more important than ever. According to the Center on Economic Progress, the 

number of uninsured people grows by 14,000 every day. We need 

fundamental reform in cost, in quality, and in coverage. We need 

to address all three objectives at the same time. They are interconnected. If you do not address them together, you will never really address any of them alone. 

Costs grow too rapidly because the system pays for volume, not 

quality. Quality indicators like lifespan and infant mortality remain low because too many are left out of the system. Families do 

not get coverage because health costs grow faster than wages. 

Without coverage, health insurance costs increase because providers shift the cost of uncompensated care to paying customers. It 

is a vicious cycle; each problem feeds on the others. We need a comprehensive response. 

Today it is my pleasure to welcome the Director of the Office of 

Management and Budget, Peter Orszag, to discuss the health care 

proposals in the President’s budget. Peter and I have met many 

times to talk about health care reform. He is one of the brightest 

and hardest-working folks in the administration, and we all appreciate him very much. 

Today we will explore the President’s proposals to help offset the 

cost of health care reform, and today we will also explore any feasible proposals that the administration has left out. Our goal is to 

offset the cost of health care reform, so we need to think creatively 

about proposals that will both improve quality and reduce the 

growth of health care costs in a 10-year budget window. 

As Dr. Orszag has said, the path to fiscal responsibility must run 

directly through health care. Our country’s economic sustainability 

depends on health care reform. I look forward to working with the 

administration toward that goal. 

So let us, at long last, deliver on the dream of reform that Teddy 

Roosevelt called for nearly a century ago. Let us, at long last, lift 

the burden of health care costs on our economy and on the conscience of our Nation. Let us, at long last, enact health care reform 

this year. 

Senator Grassley? 

OPENING STATEMENT OF HON. CHUCK GRASSLEY, 

A U.S. SENATOR FROM IOWA 

Senator GRASSLEY. Thank you, Mr. Chairman. 

The President released his budget last month and made it very 

clear that health care reform is a top priority. I share his commitment, and I am glad that we are taking a closer look at some of 

the health care reforms that are being proposed in this 2010 

budget. 

Health care reform is important, but it will not fix all the problems with our economy, nor will it solve the entitlement crisis. Fixing health care is necessary, but not sufficient. Still, we have a 

great opportunity before us, and it is an opportunity we are taking. 

The health care system, if you want to call it a system, is in desperate need of reforms. We spend twice as much on health care as 

3 

other developed nations, and even with all that spending our 

health care outcomes are often half as good. Millions live in fear 

of losing coverage, and 45 million do not have coverage. 

Last week, Senator Baucus and I joined other members of Congress and various stakeholders at the White House forum. In bringing everybody together, it was clear that we agree on a lot of 

issues, and yet still have a long ways to go on others. But overall, 

I left the White House knowing that Republicans and Democrats 

share a commitment to expanding health insurance and improving 

the way care is paid for and delivered in the country. 

On the same day as the White House forum, Senator Baucus and 

I announced an ambitious, but I think achievable, schedule for developing bipartisan health reform proposals. I feel positive about 

how we are starting this process. Let me also say that we have a 

long ways to go, and there is a lot of heavy lifting. 

At this point, I have not heard from any Republican Senators 

that we should not be working on health care reform this year. We 

have not had to make any difficult decisions yet, but no one has 

said to me that we should not be trying to pass health care reform. 

Right now, Republicans and Democrats are able to agree on a variety of broad issues, but the true test of this bipartisan process 

will be how we handle those details, particularly the few tough details to work out. I do believe that by working together we can face 

this challenge and get the job done. 

So that brings me to today’s topic, the President’s budget. The 

President’s budget contains a number of bold proposals that interest me. However, it was also lacking in detail, so I hope to have 

you, Dr. Orszag, today, shed some light on details of this budget 

proposal, how the administration will approach health reform. 

We all see the Nation’s fiscal situation getting worse by the day. 

The current administration inherited a $1-trillion deficit, and they 

promptly added another $1 trillion to our National debt with the 

economic stimulus bill. The stock market has fallen another 20 percent just since the President took office. 

Now the Obama administration is proposing a $634-billion 

health reform reserve fund which they say is merely a ‘‘down payment.’’ While fixing our health care system has to be a priority, so 

is financing it responsibly. We have an obligation to make sure 

that any changes we are considering in health care are financed 

and developed responsibly so that we do not make the situation 

worse. 

We must be very wary of the idea that we have to spend more 

up front to reap savings down the road. I am not saying that that 

is totally wrong, but too much emphasis on that can be misleading. 

Too often with the Federal Government, the up-front spending happens, but I have seen long-term savings never materialize. 

In his former position, our witness, Dr. Orszag, at CBO, was 

clear about the reforms that reduce costs and the ones that do not. 

As we consider the President’s proposal and move forward on 

health reform, I hope that we can all maintain that clarity. If done 

correctly, prevention and health IT proposals can improve this system, but CBO has been very clear that they are not the cost-savers 

that some would think. 

4 

As for specific reforms in the budget proposal, I was pleased to 

see a commitment to delivery system reforms. We need to change 

how we pay for services with Medicare, making it more efficient, 

rewarding quality, and reducing waste, fraud, and abuse. The 

President has also proposed changes in Medicare Advantage. While 

there are very few details at this point, I have serious concerns 

about the level of proposed cuts and the rate at which those cuts 

go into effect. 

A competitive bidding proposal may be an effective way to increase competition in Medicare Advantage and reduce overall 

spending, but I believe, if it is not done carefully, it can do harm 

to choice that we want to have for our seniors. I cannot support a 

proposal that will ultimately jeopardize coverage of the 10 million 

current enrollees, or limit access for future Medicare beneficiaries. 

If almost all of Iowa’s seniors lose their Medicare coverage that 

they have now or lose their ability to choose their own plan in a 

so-called reform, we will not have done a good job. 

As Congress considers the President’s budget and broader health 

reform efforts, I hope Republicans and Democrats can agree on four 

principles. First, health reform should be done through regular 

order, not reconciliation, and be done in a fiscally responsible manner. The schedule and process that Chairman Baucus and I have 

developed would follow regular order, and so we are off to a very 

good start in that regard. 

Second, next, our top priority should be to bring health care costs 

under control. We must provide affordable coverage to 45 million 

uninsured, but it does not do anyone any good if Congress expands 

coverage but does not address out-of-control health care costs. 

Third, we must also uphold the promise that, if you like the coverage you have, you ought to be able to keep it. President Obama 

made this promise time and time again during the campaign, and 

we owe it to Americans to make sure that we all help him keep 

that promise. 

Fourth, and last, whatever changes Congress makes to our 

health care system, we must ensure that, at the end of the day, 

health care decisions are made by two people, the patient and the 

doctor. I support making sure that patients and doctors have upto-date and effective information, but I would not support reforms 

that allow some government bureaucrat to interfere with a doctor’s 

ability to practice medicine. We should not put the government in 

charge of your health care decision about what doctor you might 

want to go to and what treatments that doctor might suggest. 

Dr. Orszag, thank you for coming. I hope to hear some rebuttal 

to my suggestions, as well as answers to my questions. 

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

Our witness today is a regular, Dr. Peter Orszag, only this time 

in the capacity of Director of the Office of Management and Budget. 

As a member of our frequent witness program, Dr. Orszag, we 

very much appreciate your being here again. As you know, your 

prepared statement will be included in the record, and I would 

urge you to proceed. 

5 

STATEMENT OF HON. PETER ORSZAG, DIRECTOR, OFFICE OF 

MANAGEMENT AND BUDGET, WASHINGTON, DC 

Dr. ORSZAG. Thank you very much, Mr. Chairman, Senator 

Grassley, members of the committee. 

‘‘The link between health care costs and the economy is undeniable. In 2009, Congress must take up and act on meaningful health 

reform legislation that achieves coverage for every American, while 

also addressing the underlying problems in our health system. The 

urgency of this task has become undeniable.’’ Those are not my 

words, those are direct quotations from the document that the Senate Finance Committee put together last fall, and I would just say 

‘‘amen.’’ 

Building on the health forum that we held last week—and I 

thank the chairman, ranking member, and other members of the 

committee who participated in that—at which there was strong bipartisan support for getting health reform done this year, I am 

looking forward to working with all of you to accomplish that goal 

of leading to a more efficient health care system, expanding coverage, improving quality, and bringing down costs. 

The President has announced his intention to nominate Governor 

Sebelius as Secretary of HHS. My understanding is that she will 

be up visiting with Senators this week, and I hope and urge that 

the Senate will confirm her quickly so that we have the Secretary 

in place as we begin this process. 

In addition to that, Nancy-Ann DeParle, who is the White House 

Coordinator on Health Reform, will be up meeting with you and 

your staffs this week to begin the process of working with you on 

legislation to get health reform done this year. 

On that, let me just note immediately, so that perhaps we can 

avoid the typical Washington game of ‘‘gotcha,’’ that the administration has been very clear. We have put a significant down payment on the table, but with regard to benefits and coverage, we 

want to leave everything on the table at this point to allow the 

process to play out. So you should not expect, and you will not be 

receiving, definitive answers from me on exactly what the administration does or does not favor on the benefits and coverage side of 

health reform. 

As is now, I think, well appreciated, health care costs are the key 

to our fiscal future. You have a packet in front of you. Slide 4 (p. 

66) shows projections of Medicare and Medicaid, Social Security, 

and other parts of overall government spending. Just to pick up on 

something that Senator Grassley said, it is clear that there are 

long-term fiscal problems in Social Security and in the rest of the 

government. But if you look at that graph, it is also clear that 

those two health programs are absolutely core to our long-term fiscal difficulties. I think it is undeniable, based on that graph, that 

health care reform is entitlement reform, simply looking at the 

numbers. 

Health care reform, though, is not just a long-term problem. 

There is a more immediate saliency to it. Health care costs are reducing workers’ take-home pay today to a degree that is unnecessarily large, and perhaps under-appreciated. Health care costs 

today are crowding out other priorities for State governments, including support for higher education. 

6 

Your taxpayer dollars today are financing variations in Medicare 

costs across different parts of the United States, across hospitals 

within a region, and across doctors within a hospital that do not 

seem to correspond to better outcomes and higher quality for the 

higher-cost approaches. 

I have shown this graph repeatedly before this committee, but on 

page 6 of your packet you have that variation in health care costs 

across the United States. It is just worth emphasizing over and 

over and over again, we have such substantial variation across different parts of the United States that cannot be explained by how 

sick the patients are in the higher-cost areas, by the cost of building a hospital, by doctors’ salaries. 

The explanation is that, in those parts of the country with higher 

costs, there are more procedures done, more days in hospital, more 

tests and what have you, none of which seems to actually improve 

health outcomes. That is the key take-away. If you look at outcomes and quality, the higher-cost States, the higher-cost hospitals, 

the higher-cost doctors do not produce better outcomes than the 

more efficient providers. 

Researchers at Dartmouth College have taken these data and 

suggested that, if we can move the practice norms in the darkercolored parts of the country towards those in the lighter parts of 

the country, we could reduce health care costs by $700 billion a 

year without harming health outcomes. There is nothing else that 

even comes close in terms of opportunities to improve the efficiency 

of our economy. 

Now, what are we doing to capture that opportunity? Several 

things. First, the Recovery Act was the most aggressive movement 

towards universal health information technology in the history of 

this country. It includes $19 billion to put us on a path of universal 

health IT. 

Second, the Recovery Act also provides funding for an expanded 

comparative effectiveness effort so that your doctor and your hospital have more information about what works and what does not 

in recommending treatments to you. 

Third, we need to reform the financial incentives facing providers. Currently, we have incentives for more care rather than 

better care, and that is exactly what we get. The budget includes 

significant changes that will create stronger incentives for better 

care; a hospital quality incentive program so that hospitals will pay 

for better care rather than more; penalties for high readmission 

rates, because 18 percent of Medicare beneficiaries are readmitted 

to a hospital within 1 month after being discharged, many of which 

are unnecessary, both driving up costs and harming beneficiaries. 

Who wants to go back into the hospital right after being discharged, without it being necessary? Incentives for doctors, bonuseligible organizations so that doctors have stronger incentives to 

provide higher quality care—I could continue. We also invest in 

prevention and wellness. The Recovery Act provides $1 billion for 

a historic effort at improving prevention and wellness. 

All in all, the budget provides $634 billion in the down payment 

to begin the process of health care reform this year, to expand coverage, reduce costs, and lead to a more efficient health care system. 

I, and the rest of the administration team, looks forward to workVerDate Nov 24 2008 11:52 Feb 01, 2011 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 R:\DOCS\62708.000 TIMD
7 

ing with this committee and other policymakers to get this done 

this year. 

Thank you very much, Mr. Chairman. 

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

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

The CHAIRMAN. Could you just tell us what the cost of doing 

nothing is? Life is alternatives. You do something, or you do something else, you do nothing. It is alternatives, it is choices. What is 

the cost of doing nothing? 

Dr. ORSZAG. The cost of doing nothing is a fiscal trajectory that 

will lead to a fiscal crisis over time. The cost of doing nothing is 

perpetuating a system in which workers’ take-home pay is unnecessarily reduced because of an inefficient health care system. The 

cost of doing nothing is 46 million uninsured people who do not receive adequate health care. 

The cost of doing nothing is a burden on State governments that 

is causing lots of unanticipated effects. For example, lots of families 

are experiencing higher tuition at public universities. Research 

very clearly connects those higher tuitions to rising costs for health 

care in State government budgets, which then means they do not 

have room to support public higher education to the degree they 

did in the past. 

In area after area after area, we see excessively high health care 

costs burdening workers, State governments, and the Federal Government. I am going to come back again: Dartmouth College, a 

$700-billion opportunity to reduce health care costs without harming quality. How can we perpetuate a system that contains that 

large an inefficiency? 

The CHAIRMAN. Now, based upon the Dartmouth College analysis, which many of us point to and which is very graphic, as you 

have demonstrated, if you could prioritize one, two, or three actions 

that this Congress, you think, could take to help address that disparity. As you point out when you, in an earlier life, were at CBO, 

I think it is a 29-percent geographic disparity. As you say, it is 

about $700 billion. 

Prioritize one, two, or three items that you think the Congress 

should take to start to address that disparity, recognizing there are 

politics here. Some of the States that are getting a lot of money are 

not going to want to give it up, but we have to figure out a way 

where we are working together to prevent that disparity. 

Dr. ORSZAG. I think this budget and what you have already 

signed into law is the most aggressive set of steps to try to capture 

that $700 billion that the Congressional Budget Office, the Institute of Medicine, and others have come up with. 

Let me be more specific. Too much of the medical care delivered 

in the United States is not backed by specific medical evidence that 

it works better than an alternative. Take prostate cancer, for example. We have dramatically different ways of treating prostate cancer, from proton-beam treatments to other interventions. There is 

no evidence that exists on what the benefits are relative to how 

much that is costing us for the different kinds of treatment. 

In different areas, there are just different norms. Sometimes 

proton-beam treatment is much more likely or much more prevalent; in other areas, not so much. To get at that, we need much 

8 

more information not only on what is done to a patient, which we 

already have through insurance claims, but what the result is, 

what happens to your blood pressure, and your cholesterol, and 

what have you, so that your doctor can then have more information 

about effective interventions. 

The CHAIRMAN. You are talking about evidence-based medicine. 

Dr. ORSZAG. Evidence-based medicine. Yes, sir. 

The CHAIRMAN. You are talking about that. So how do we get the 

evidence? 

Dr. ORSZAG. We get the evidence by moving the health sector to 

something that has been pervasive throughout the rest of our economy, but the health system has lagged behind, which is, information technology. It is stunning that in health care, unlike other 

areas, we still have to, when we go to the doctor, fill out paper 

forms every time you go to see a new doctor. 

The CHAIRMAN. But that is not evidence-based medicine. 

Dr. ORSZAG. Well, no, but it is an input. It is necessary, but not 

sufficient. It is an input into evidence-based medicine. 

The second thing we need to do is have the medical profession 

much more aggressively be examining what works and what does 

not. That is the comparative effectiveness effort. Then in addition, 

providers should not be penalized. It is stunning. Under our current system, providers are often financially penalized for doing the 

right thing, which is to say, delivering more efficient care. We have 

such strong incentives for more care that, if you deliver care more 

efficiently, you are often actually financially penalized rather than 

helped. That makes no sense. 

The CHAIRMAN. Does it not take some time, though, to get the 

evidence on which to have more of an evidence-based practice? Is 

there a data bank, is there a repository, is there something so that, 

when a doctor diagnoses a certain condition and he or she wants 

to go and look to see, what is the best evidence-based treatment 

here, in addition to, what does my gut tell me, what was I taught 

in medical school? 

Dr. ORSZAG. Right. 

The CHAIRMAN. So how do we get to the point where the doctor 

then has the availability to look—it is very significant evidencebased data. 

Dr. ORSZAG. One of the other benefits of a health IT system is 

that, not only does it give more information about what works, it 

also provides a platform for the Institute of Medicine or other respected bodies to deliver best practice guidelines, or guideposts, 

back to practicing physicians. 

So that, if I am sitting at my doctor’s office and I have a problem, 

the doctor could immediately pull up not only the sort of recommendation from the medical profession on what works or what 

does not, but then, if he or she is interested, click through to the 

underlying evidence so that more of the recommendation is based 

on that evidence. Then not only that, but again, that doctor should 

not be financially penalized, but instead should be facing strong incentives for that best practice care. If we do not do that, we are 

coming back to perpetuating the system that exists. 

The CHAIRMAN. I got you. Thank you. My time has expired. 

Senator Grassley? 

9 

Senator GRASSLEY. Yes. Dr. Orszag, after I ask my first questions I am going to leave, but I want to come back for a second 

round, so I hope you will still be here. 

Dr. ORSZAG. I will stay. 

Senator GRASSLEY. All right. 

On June 28, 2007, CBO’s Economic and Budget Issue brief from 

your staff had this quote about Medicare Advantage cuts: 

‘‘. . . would cause some plans to leave the program.’’ The brief went 

on to say, ‘‘Rural areas would be affected more than urban ones.’’ 

So, we have in this budget a cut of $176 billion in Medicare Advantage through competitive bidding. 

Question. If we take $176 billion out of this Medicare Advantage 

program through planned bidding, how many of the 10 million 

beneficiaries enrolled in Medicare Advantage do you estimate 

would lose their current coverage? Also, how much of the $176 billion in savings comes from decreased Medicare Advantage enrollment versus reduced payments to plans? 

Dr. ORSZAG. I do not have the enrollment data, but let me again 

just step back and say two things. First, I know many people believe that capitalism is founded on private markets, and it is. But 

I very firmly believe that capitalism is not founded on excessively 

high subsidies to private firms. That is what this system delivers 

right now. For every Medicare beneficiary in Medicare Advantage, 

the Federal Government pays $1,000 more than covering the same 

beneficiary under traditional fee-for-service. 

In addition, it is true that Medicare Advantage plans then take 

part of that extra payment and deliver it in the form of either additional benefits or lower premiums to beneficiaries. But the data 

also suggest that every dollar of additional benefits costs the Federal Government $1.30 in costs. So what we are doing is, we are 

all paying $1.30 in order to deliver $1.00 to a subset, 20 percent, 

of Medicare beneficiaries. I do not think that is competition, I think 

that is an unwarranted subsidy. 

Senator GRASSLEY. Well, you are going to take half of my time 

lecturing me on capitalism. 

Can you answer my question about how many of the 10 million 

beneficiaries enrolled, would you estimate, would lose? If you cannot give me a figure on the savings, how much comes from less enrollment versus less expenditures? At least tell me how many of 

the 10 million you think will go. Because in 2007, the agency that 

you headed at that time said that it would cause plans to leave the 

program and it would affect my area of the country, rural America, 

more than urban America. So I want to make sure, if we have a 

national system of health care, it is going to deliver the same thing 

in Iowa as it does in California, because for 40 years it did not. 

Dr. ORSZAG. I do not have the enrollment figures with me. I 

would be happy to provide them in writing to you. 

I would note two things. One is, this proposal is not the same 

as what was previously discussed by the Congressional Budget Office. We are not simply reducing payment rates administratively, 

but instead introducing competitive bidding, which is a different 

proposal and will have different regional effects. But I will get you 

the enrollment figures in writing. 

10 

I would note, even under the Congressional Budget Office projections, what the impact was, was there was dramatic growth in 

Medicare Advantage that was projected, and the proposal would reduce that growth, as opposed to reducing current enrollment. 

Senator GRASSLEY. All right. I will await your written answer. 

[The information appears in the appendix on p. 91.] 

Senator GRASSLEY. In the 1 minute and 8 seconds I have left, 

maybe you can answer one question for me. 

Dr. ORSZAG. Sure. 

Senator GRASSLEY. We see a commitment to program integrity in 

the budget. Every dollar spent on program integrity ought to 

produce a return on investment. A challenge that we faced in the 

past was having CBO recognizing the savings that program integrity efforts and other legislative proposals produced because of scoring rules. Being former CBO Director, you are in a unique position 

now as OMB Director. The budget recognizes savings and mandatory spending from increased discretionary funding for program efforts. My question to you is whether CBO should, in fact, recognize 

these savings. 

Dr. ORSZAG. I think the short answer is, the current scorekeeping 

rules, as you are aware, mean CBO does not recognize those savings, even though they are based on hard evidence that they would 

occur. It struck me when I was CBO Director, and it continues to 

strike me, that some revisiting of those rules would be warranted. 

So the group of scorekeepers that needs to get together to discuss 

the rules, I think that would be a good thing to do. 

Senator GRASSLEY. Yes. My time is up, but I would ask the chairman if I could have maybe an extra minute on my second round 

because I was lectured on capitalism, and I studied that in economics. 

The CHAIRMAN. Senator, why don’t you take that minute right 

now? 

Senator GRASSLEY. All right. 

Dr. ORSZAG. No more lectures. 

Senator GRASSLEY. During the campaign, President-elect Obama 

often promised that under his health care reform proposal, ‘‘If 

you’ve got a health plan you like, you can keep it.’’ I am concerned 

this might not be true if we have a public plan paying government 

rates, competing with private insurers. I have heard some estimates, and I think they were from Lewin, that predict that 118 

million people may lose their current coverage and 130 million will 

end up on government-run public plans. 

Does President Obama intend to keep his promise that, if you 

like the coverage you have, you can keep it? Also, would he support 

a public plan that could crowd these 118 million out of the plan 

that he said they could keep if they wanted it? 

Dr. ORSZAG. Senator, as I said at the beginning, we are trying 

at this point in the process to keep everything on the table. The 

President’s campaign plan had a public option in it. There are obviously different ways of designing a public plan that would have different effects. One of the things that we would look forward to 

working with you on is, if there is a public plan, how to minimize 

some of the concerns that you have identified. 

11 

Senator GRASSLEY. All right. Thank you very much, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Rockefeller? 

Senator ROCKEFELLER. Thank you, Mr. Chairman. 

I thought it was very interesting. The President, in various statements that he has made about health care policy, has said, $634 

billion. It is not going to do it all, but it is the best start we have 

ever had in history, and I want you in the Congress to figure it out. 

But he has also said, in sort of subclauses, that we are going to 

be watching very closely. I have a health care plan that I care 

about. The idea is, if we do not come up and do the job right, he 

has plenty of people who are willing to step in and exercise judgment and muscle. 

Question. Two questions. One is, how do you coordinate Federal 

efforts to define quality? I mean, you have the Agency for Health 

Care Research and Quality, you have the National Quality Forum. 

CMS—that is, Medicare and Medicaid—has Quality Improvement 

Organizations, the QIOs. There are a variety of ways, plus all of 

our judgments and all the rest of it. How does this get defined on 

a Federal basis? 

Dr. ORSZAG. Well, Senator, I think, as you, Senator Baucus, and 

others have pointed out, one of the issues is the process through 

which many of these things occur currently. I know you have an 

idea with regard to strengthening MedPAC. Senator Baucus has 

ideas on a Health Institute. One of the roles that such a body could 

play is to coordinate more strongly the various different quality indicators and quality efforts that are currently under way. 

Senator ROCKEFELLER. So using those and others as advisory approaches. 

Dr. ORSZAG. Correct. There are a lot of efforts under way. I 

should say, a lot of progress has been made to better measure quality. For example, the Premier Program for Hospitals under Medicare has shown to be effective in improving quality in hospitals. 

That is just one example. There have been a variety of examples 

in which we are moving towards higher quality, but we are not 

where we need to be. 

Senator ROCKEFELLER. The second question is what you have already mentioned. That is, it has always bothered me, in the system 

of lobbying that we have in this country, and particularly on this 

subject—I do not know how many thousands of health care lobbyists there are. I think there were 14,000 at the end of the Clinton 

effort; higher-paid, more niche-oriented now. So you get these 

heads of all these huge organizations saying, we are going to be different. We are going to be different. We are going to cooperate this 

time, which I guess means that their lobbyists will stop lobbying 

and they will just rely on the facts. I think that the best way to 

take politics out of all of this is to take Congress out of the setting 

of reimbursement for doctors under Medicare and Medicaid, and for 

hospitals, because those are a group of 17—it could be whatever 

number—completely dispassionate people. I think one of the major 

problems you have in your $700 billion of wasted money every year 

is the fact that there are too many political judgments made, beVerDate Nov 24 2008 11:52 Feb 01, 2011 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 R:\DOCS\62708.000 TIMD
12 

cause there is too much lobbying. Congress, unless they are all 

health care experts, can fall victim to that. 

So the idea of MedPAC having the power to set those fees, reimbursement fees, to me is enormously attractive. It takes politics 

right out of it and takes Congress right out of it. Thoughts? 

Dr. ORSZAG. Well, as I said, I think there are changes to the current process that would be beneficial in terms of moving towards 

a more efficient health care system. Your idea of, I think we have 

referred to it as MedPAC on steroids, or a much more powerful role 

for a body that is widely respected, is one approach. A related approach is the one that Senator Baucus has put forward. You mentioned some of the outside groups. I just came from America’s 

Health Insurance Plans’ annual meeting. They have an idea that 

is similar also. 

So one of the things that I am hoping that we can explore, as 

legislation is put forward this year, is whether some change in the 

process could again help to improve decision-making for the reasons that you specified. 

Senator ROCKEFELLER. Mr. Chairman, let me just end with one 

thought. Along with what I suggested about MedPAC, you would 

then have to get substantial amounts of new money in order to do 

the research that they will need to do, because right now they have 

no authority to do anything. CMS has all the authority. 

Thank you. 

The CHAIRMAN. Thank you, Senator. 

Senator Wyden, you are next. 

Senator WYDEN. Thank you very much, Mr. Chairman. 

Dr. Orszag, few people inside or outside government have dug 

more thoroughly into this subject than you, and I think that is why 

you are getting the tough questions, and we appreciate your being 

here. 

Here is my take on where things are. With the economy sucking 

hundreds of billions of dollars out for these bailouts, Americans 

want to know why the $2.5 trillion that is sloshing around this 

year in American health care should not be spent more efficiently 

first before you go to talking about hundreds of billions of dollars 

of new taxes in order to fund health care reform. So what I want 

to ask you about are three significant cost savers for either individuals or government that you can get out of the $2.5 trillion that 

is being spent today. 

The first is insurance market reform. The system is broken. It 

is all about cherry-picking and just taking healthy people, sending 

sick people over to government programs more fragile than they 

are. The people who are really getting clobbered are the 17 million 

in the individual insurance market. We have to find a way to get 

them into bigger groups so they have some clout. That is cost-saver 

number one out of $2.5 trillion. 

The second big cost-saver involves these tax rules. They are the 

third biggest program in American government today. They are regressive. Making them progressive will help our people now, and 

it uses existing money. 

The third involves personal responsibility. Over 10 million people 

in this country with incomes over $60,000 a year are uninsured, 

and it seems to me there ought to be some personal responsibility 

13 

rather than just having all these inappropriate emergency room 

visits. 

So my question to you is, you have talked about everything on 

the table. If we can get those three significant cost-savers for individuals or for government in a Baucus-Grassley bipartisan health 

reform package, are you going to object? 

Dr. ORSZAG. Again, at this point, I think everything, including 

those three, most firmly, should remain on the table. 

Senator WYDEN. What else should we be doing to get them off 

the table and into the bill? 

Dr. ORSZAG. That is up to you. 

Senator WYDEN. I have outlined three areas. They are in Senator 

Baucus’s white paper. They are ones that have bipartisan support. 

We have Senators of both political parties in favor of them. I think 

what the country wants to see is getting these savings out of the 

system today first before you start talking about new money, particularly new money that comes from taxes unrelated to health 

care. 

So what else can you say about getting savings out of the system 

first before you go to new money? 

Dr. ORSZAG. Well, let me again say there are significant savings 

to be had. The Dartmouth College numbers perhaps are the most 

dramatic example of the opportunity. But in general, capturing at 

least part of those savings, or all of them, or some of them, is going 

to take some time. We talked before about the practice variation 

that exists across regions, across hospitals, across doctors. It is not 

going to change like that. 

Senator WYDEN. But that is why the savings that I pointed out 

are savings you can get next year, if we get them in legislation that 

has White House support. So I am not going to prolong this, but 

I hope that you are going to support those three major cost-savers 

for individuals and government, because you get those savings 

quickly, you help the American people, and it is not going to be 

credible to go on out and ask for hundreds of billions of dollars 

more without first showing you are getting the savings that are in 

the system. 

The second area I want to ask you about, quickly, is the 

employer-based system. The White House, to its credit, has said it 

wants people to be able to keep the coverage they have, while helping to promote portability, which I think is absolutely key. The typical worker changes their job, now, 11 times by the time they are 

40. With all these layoffs, it is becoming even more important. 

How would you envision people being able to keep the coverage 

they have, while making health coverage in this country more portable? 

Dr. ORSZAG. Well, there are lots of different approaches for doing 

that. I know that you and Mr. Bennett have an approach that 

would accomplish that; the chairman, in the white paper, has another approach. 

One point worth making about employer-sponsored insurance is, 

there is often a concern about crowding out. That is, as you add 

other insurance options, do employers drop or scale back their offering? If you look at the Massachusetts experience, instead of 

crowding out there was actually crowding in. That is to say, 

14 

employer-sponsored insurance actually went up after Massachusetts reformed its system, which would be the opposite of what you 

would predict. I think the reason is, workers went to their firms 

and said, you know what? I really think we would like health insurance through you, and more health insurance was delivered 

through employers as a result. 

Senator WYDEN. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Roberts? Are you going to ask about TO? 

Senator ROBERTS. I beg your pardon, sir? 

The CHAIRMAN. Are you going to ask about TO? 

Senator ROBERTS. No, that was the Trade Representative. 

The CHAIRMAN. Oh, that was his question? 

Senator ROBERTS. That was Secretary Kirk, who I wished to ask 

if the trade of TO to Buffalo was a wise one on behalf of our trade 

interests in the United States. But obviously from the response 

from the public, they do not know what I am talking about. 

[Laughter.] 

The CHAIRMAN. It is a health care group. 

Senator ROBERTS. Please do not take this out of my time. This 

was your question. [Laughter.] 

The CHAIRMAN. The clock has not even started. 

Senator ROBERTS. Turn it back on five. 

The CHAIRMAN. There we go. You are on five. 

Senator ROBERTS. Peter, thank you very much for coming. Thank 

you for the job that you do. 

I have one question, and the answer is yes. [Laughter.] According 

to the President’s budget proposal, there appears to be support efforts to allow Americans to buy drugs from other countries. You 

know all about that. Tremendous populist move in the Congress. 

I understand that. 

But last year, contaminated blood thinner from China caused 

hundreds of Americans to have allergic reactions, and some deaths. 

The World Health Organization noted that drug counterfeiting is 

now a $32-billion-a-year business, and growing rapidly. As the 

former chairman of the Senate Intelligence Committee, Senator 

Rockefeller probably shares the same concern. This is very concerning for me. If any one country wanted to launch a particular 

attack in a particular area, this would be a powerful way to do it. 

Would you agree that, before we move forward with any proposal 

to allow Americans to buy drugs from other countries, we certainly 

also must demonstrate that we can do so safely, without increasing 

the chances that Americans may get a contaminated or potentially 

dangerous or counterfeit medication? Would you also agree that, if 

such a proposal were to move forward, we should demand that any 

drug imported into the U.S. meet the same high safety and efficacy 

standards of our FDA, including bio-equivalency standards? 

Dr. ORSZAG. Yes. 

Senator ROBERTS. Thank you. 

Dr. ORSZAG. Obviously there are different ways of valuing that. 

Senator ROBERTS. Yes. I understand that. I understand that. I 

just want to say that I hope that Congress stays involved. Senator 

Rockefeller wants to turn it over to a different group that hopefully 

would shine the light of truth into competitive darkness. But if it 

15 

was not for this committee putting off for 18 months some of the 

Lizzie Borden cuts that CMS was making on virtually every provider in the health care providing world, it seems to me we would 

have had a much bigger problem of rationing health care and people dropping off the Medicare rolls because the medical profession 

simply would not do that. 

I have heard that in April the administration is likely to spell 

out the fact that they intend to give CMS least-costly alternative 

authority—the acronym for that now is LCA—which would essentially give CMS the ability to pay only for the least-costly alternative product within a specific product category. 

CMS has done this with durable medical equipment for years, 

but when they have tried to do it with drugs they were sued, and 

they lost the court decision. I am told reliably that the administration intends to give them clear LCA authority, and you can see how 

they might use this, basically deciding that a group of drugs, or 

two drugs, are similar and should be paid the same, or they should 

only pay for the cheaper one. 

It gives CMS the authority to be the arbiter of clinical value, 

even though they have absolutely no expertise to make these kinds 

of judgments. The interplay between comparative effectiveness research—everybody on the committee ought to understand certainly 

comparative effectiveness research. That is the golden ring, that is 

the tablet coming down from Mt. CMS. The least-costly alternative 

authority is obvious. See here, our study can say that one product 

is better than another, and then CMS can invoke LCA authority 

to make the reimbursement decisions. 

Will this not lead to continuing rationing of health care? How 

can we ensure that care, and not cost, is the only over-riding factor 

in comparative effectiveness research? How will CMS and FDA coordinate their efforts? I am very concerned about CMS replacing 

the FDA, which conducts some of the most rigorous clinical trials 

in the world, as the primary gatekeeper for medical drugs and devices. 

Dr. ORSZAG. Well, let me comment on that final question first. 

One of the difficulties in the current system is the FDA testing is 

solely about safety and not about relative effectiveness compared to 

alternatives. So, for example, it is good to know that Drug A is safe 

relative to a placebo. It would be better to know how much more 

effective Drug A was compared to Drug B, and especially how 

much more effective Drug A was relative to other interventions, 

like surgery, or this or that. We do very little of that kind of comparison, and that is one of the things that comparative effectiveness research is intended to pursue. 

Senator ROBERTS. Well, Peter, I understand that. It gets to better 

practices. 

Dr. ORSZAG. Right. 

Senator ROBERTS. You are going to have a design coming out 

from comparative research, the golden ring, and CMS, and issuing 

out to all of the doctors and all of the health care providers that 

they do this. But how can you really know this? Are all patients 

not different? There may be a situation where one doctor knows 

one patient, they tried a particular drug or a particular procedure 

16 

that did not fit in the better practices situation, and it takes away 

that decision from the patient and doctor. 

In addition, if you do do the reimbursements in the way that I 

think that is going to be coming down, you are going to have many 

providers simply opting out. That is what has been happening out 

in our rural areas. That is what your map shows, that basically you 

have a pharmacist, a clinical lab, home health care provider, doctor, hospital, saying I am not serving Medicare any more. 

Now, you are achieving a lot of cost savings that way, but you 

are leaving a lot of people out there without health care. I guess 

that would be my closing comment. I am over time. I apologize to 

my colleagues. 

The CHAIRMAN. Thank you very much, Senator. 

Dr. ORSZAG. Could you indulge me for 30 seconds? 

The CHAIRMAN. Yes. Sure. 

Dr. ORSZAG. Just very quickly. 

The CHAIRMAN. Sure. 

Dr. ORSZAG. Because I think this is crucially important. 

The CHAIRMAN. It is. It is a very important subject, I agree. Go 

ahead. 

Dr. ORSZAG. The intent of comparative effectiveness research is 

to allow your doctor and your hospital to have better information 

about what might help you. Obviously there has to be individual 

variation and idiosyncratic and sort of a one-on-one relationship 

with your doctor. But for me as a patient, I would like my doctor 

to have better information about what might help a middle-aged 

marathon-running male than he currently has. So one of the goals 

here is to expand the information base so that your doctor and your 

hospital have the information, that it may not be perfect, but it is 

better than currently exists. We often lack information about what 

works and what does not. I mean, a great example is prostate cancer. There are hugely different treatments. 

The CHAIRMAN. Right. 

Dr. ORSZAG. And we do not know which ones work better. I am 

sorry. Yes? 

Senator ROBERTS. How about a middle-aged non-marathon running man? [Laughter.] Or a more mature? You get the drift? 

Dr. ORSZAG. That is exactly the point. 

Senator ROBERTS. The chairman has a bill on this, and he will 

emphasize health care as well as cost in the Lizzie Borden tactics 

by CMS. Pardon my bias. 

The CHAIRMAN. Senator Stabenow? 

Senator STABENOW. Thank you, Mr. Chairman, and Dr. Orszag. 

It is always wonderful to see you here, and I appreciate your efforts 

and understanding of health care, and also your advocacy around 

health information technology, which I believe, as you know, is a 

critical part of this, as you have indicated. 

First, let me just say more broadly, I think when we talk about, 

how do we get our arms around all of this in terms of health care, 

what makes this different than other areas of insurance is that you 

can choose not to get car insurance and not to have an automobile, 

you can choose not to have home insurance and not to buy a house. 

You cannot choose not to get sick. So whether you have health insurance or not, you will get sick anyway. So it creates a different 

17 

dimension that makes it, I think, difficult also to apply a strictly 

private sector model to this when you look at the fact that our 

choices as human beings do not include getting older, getting sick, 

and so on. So, it changes the dynamics for it. 

On evidence-based practice, one area I just wanted to raise that 

we really have already started doing, is in the area of e-prescribing. 

Under the chairman’s leadership, our work on the Medicare bill 

with e-prescribing goes, I believe, to more evidence-based practice. 

We have over 2,500 physicians in southeastern Michigan who have 

been doing a pilot, even before this, working with General Motors, 

the UAW, and Blue Cross and so on for e-prescribing, that has allowed them to get evidence. 

Through the software package, we see the information. When 

they choose or decide to give someone a prescription, they see what 

else they are on. The program brings up whether or not there are 

allergic reactions between medicines, whether or not there is some 

other contraindication. The project in southeastern Michigan has 

shown that 30 percent of the time, based on evidence, based on information, the physician has actually changed the prescription. So 

that is just one example, I think, in a narrow sense of how we can 

make a difference, save money, save lives. 

On prescription drugs, I want to commend you for talking about 

better access to generic drugs and the savings that come from 

there. I wondered if you might speak more to that. We have multiple agencies, HHS, FDA, FTC, dealing with a number of anticompetitiveness agreements between brand-name and generic companies. 

I am wondering to what extent you have undertaken analysis up 

to this point on how much money would be saved, looking at a 

number of areas, whether it is authorized generics, what FDA is 

doing, the FTC, and so on, to really fully calculate what we might 

save as it relates to more competition through using generic drugs. 

Dr. ORSZAG. Well, as one example, we do have almost $20 billion 

in this health reserve fund that comes from more cost-effective delivery of pharmaceuticals. So that is obviously a significant part of 

the overall effort to capture the efficiencies in our health system. 

Senator STABENOW. And have you made any determinations in 

terms of specific legislation that the administration will be supporting around any of the issues on generic drugs in order to get 

biologics to the marketplace, dealing with authorized generics, or 

closing loopholes as it relates to bringing generic drugs into the 

marketplace? 

Dr. ORSZAG. Yes. And, in fact, as part of the reserve fund, we 

have a proposal for a follow-on biologic pathway to get approval, 

which we could discuss in more detail if you would like. 

Senator STABENOW. All right. 

Dr. ORSZAG. But it is included in the package. 

Senator STABENOW. Thank you. 

And, finally, I wonder if you might just speak for a moment on 

the question to which—when we look at international competitiveness or lack of competitiveness, having a number of global businesses in Michigan that provide health insurance to millions of 

people and seeing the lack of competitiveness, the loss of jobs that 

result from the inability to have a level playing field because we 

18 

fund health care differently than other countries. We spend twice 

as much as they do, and so on. Could you speak at all to that, as 

part of the economic challenge? 

Dr. ORSZAG. Yes. Absolutely. Health care costs, again, are eating 

into workers’ paychecks to a much greater degree here than 

abroad, and that is one of the forces that is weighing down on 

American families. I am going to come back again. That $700 billion opportunity, even if you think the Dartmouth College estimates are too high by a factor of 2, so let us say it is only $350 

billion, that is a $350-billion drag on our economy that is not improving health outcomes. 

The CHAIRMAN. Senator Nelson? 

Senator STABENOW. Thank you. 

The CHAIRMAN. Thank you, Senator. 

Senator NELSON. Thank you, Mr. Chairman. 

Dr. Orszag, I am curious where your proposal—one specific that 

you do mention is that you want to have the discount for Medicaid 

drugs increased from 15 to 22 percent. Now, that saves money. 

Why would you not want to have a similar discount for the purchase of drugs for the Medicare system? Not necessarily the same 

percentage. 

Dr. ORSZAG. First, with regard to the Medicaid proposal, yes, we 

are proposing a movement from 15 to 22 percent of the average 

manufacturer’s price. We also have some other changes, applying 

the discounts to managed care organizations within Medicaid. 

With regard to Medicare, one of the things that perhaps could be 

discussed as part of overall health reform is changes to the prescription drug program as part of Medicare. We did not put forward a similar proposal for Medicare at this point, but I know that 

there is interest in that topic, and it is one of the things that we 

will be leaving on the table as we go forward. We were clear that 

the reform package that we put together was a down payment, but 

not the full deal in terms of health reform, and that more effort 

would be necessary. So we are eager for other people to come forward with their ideas, and I know that is one that many people 

have put forward. 

Senator NELSON. Well, what is your opinion that negotiations to 

award a discount in Medicare under Part D could achieve savings? 

Dr. ORSZAG. Well, it would depend on how it was done. If all that 

occurred was that authority was given to the Secretary to negotiate, the impact would depend on how aggressive the Secretary 

was in negotiations, and the Secretary may not have as much leverage as one would like. If, instead, an approach as is embodied 

in the Medicaid program was adopted, that would have more teeth 

to it, but the consequences in terms of the pharmaceutical market 

would also be more significant. So there are obviously different 

ways of doing it and trade-offs across the different options. 

Senator NELSON. One, as you point out, is negotiations. Another 

is putting a discount into law. Well, on the issue of negotiations, 

what has been the experience of lowering the cost of drugs over the 

past couple of decades in the Veterans Department? 

Dr. ORSZAG. The Veterans Administration has done a good job of 

obtaining pharmaceuticals in a cost-effective way. Now, that is for 

a few reasons. One is that they have access to the government’s 

19 

best price system, as does Medicaid. Second, that they have a formulary, so that they do guide beneficiaries towards particular 

drugs and away from others, which helps them then negotiate better prices with the manufacturers. 

Senator NELSON. Do most private health insurance plans have a 

formulary? 

Dr. ORSZAG. Yes, sir. 

Senator NELSON. The one thing that you did include, another 

specific recommendation in saving money, is to support efforts to 

buy drugs from other countries. Now, I have been—this particular 

Senator, because we have so many folks in my State who buy drugs 

from Canada who have been involved in this, I am curious as to 

what you think your savings would be with regard to the purchasing from other countries. 

Dr. ORSZAG. What the budget includes is some money to begin 

the planning process for doing that, coming back to what I discussed with Senator Roberts. Obviously it needs to be done in a 

way that protects the safety of Americans. I think the evidence 

suggests that there are ways of doing that, but the savings will depend on exactly how it is done. This is the beginning of the process 

rather than the end. 

Senator NELSON. All right. So this is just saying you would like 

to discuss that. You do not have a specific idea of savings? 

Dr. ORSZAG. Correct. And more than just discuss it, that we 

think it is a good idea and we will be pursuing that path. We have 

funding to begin the process of fleshing out exactly how it could be 

done. 

Senator NELSON. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Kyl, earlier, said to me that he would very much like to 

be here, but he has to attend another meeting. 

After Senator Kyl, next is Senator Schumer. 

Senator SCHUMER. Thank you, Mr. Chairman. Thank you, Dr. 

Orszag. I would like to follow up. Senator Stabenow, my colleague, 

was beginning to ask about biologics, biogenerics, and I would like 

to follow up on that. It is an issue that I have been active in for 

a while. It is a major priority. 

Now, your folks estimated that the savings was $9.2 billion over 

10 years. Most people seemed to think that was a bit low, that 

there would be more savings than that, a little less than $1 billion 

a year. Could you discuss those assumptions? 

Dr. ORSZAG. Sure. The cost savings depend sensitively on not 

only the flow of biologic drugs and when they are coming off patent 

and what have you, but also things like the period of exclusivity 

that—— 

Senator SCHUMER. How much did you assume? 

Dr. ORSZAG. Seven years. 

Senator SCHUMER. Seven. 

Dr. ORSZAG. So one possibility is that one could adjust that. You 

could tighten up on collateral settlements. There are a variety of 

other behaviors that affect cost savings that could be explored if 

you wanted to dial that up, but again, I want to just come back 

and say we went through a policy process. We thought this was the 

20 

best balancing of competing interests, and that is why it is included 

in the package in the form that you see. 

Senator SCHUMER. Right now, of course, there is no generic competition, and so the biotech companies, understandably, price their 

drugs in a way that assumes no competition, which means basically, an economist would tell you, they charge monopoly prices indefinitely. 

That is why I thought maybe your estimates were too high. Did 

you assume the price—not just the price—— 

Dr. ORSZAG. Too high or too low? Sorry. That our estimates were 

too high or too low? 

Senator SCHUMER. Too low in terms of savings. 

Dr. ORSZAG. All right. Right. Yes. 

Senator SCHUMER. Too high in terms of how much they would 

charge. 

I mean, again, 7-year exclusivity and only $9.2 billion, that is 

about the most conservative estimate I have had. Did you assume 

that the price of most biologics would come down? 

Dr. ORSZAG. Yes. I am sure we could get you more detailed information about the assumptions, but the evidence from the simple 

molecule market, where there already is generic competition, does 

suggest that, as drugs come off patent, prices come down significantly. 

Senator SCHUMER. Right. Except the simple generic market. 

They know that is going to happen, and so they price it differently 

to try to preserve more market share and things like that. 

Dr. ORSZAG. Correct. 

Senator SCHUMER. I do not think that happens. I also do not believe you need a very long exclusivity period. 

Now, let us say we did it 3 or 4 years, just to pick a number. 

How much more would the government save? 

Dr. ORSZAG. I do not have a specific figure. I am sure we could 

provide estimates. 

Senator SCHUMER. Would it about double, approximately? I am 

not asking you to—— 

Dr. ORSZAG. I do not—it is not necessarily linear or easy to figure 

out because it will depend on the flow of the current stock of biologics and when they are coming off patent, and what have you. 

Senator SCHUMER. Right. And how about this: will a requirement 

for the FDA to publish guidance before a biogeneric can be improved significantly impact savings? 

Dr. ORSZAG. Yes. One of the issues is the sort of evergreening 

process—— 

Senator SCHUMER. Yes. 

Dr. ORSZAG [continuing]. Of reinventing the drug by slight modifications. So there are regulatory things that could constrain that 

and add to savings. 

Senator SCHUMER. Yes. And how about this one: a requirement 

for biogenerics to have different names than the reference product. 

How does that impact savings? It makes therapeutic interchange 

more difficult, let alone interchangeability, right? 

Dr. ORSZAG. That is correct. 

Senator SCHUMER. So all of these things, if they were put in the 

bill, would cut back on our savings, if they were put in the law? 

21 

Dr. ORSZAG. Would increase? 

Senator SCHUMER. Yes. Would increase our savings and cut back 

on the price. 

Dr. ORSZAG. Yes. Correct. Correct. 

Senator SCHUMER. All right. 

My point here is that this is an area where there is bipartisan 

agreement in some of these. We had that last year. We are about 

to get that this year. I would just urge all of my colleagues, but 

the administration as well, to get as strong a biologic bill as possible, not only from the point of view of the consumer, which is the 

number-one reason—generics have saved us probably more money, 

the consumer more money and the government more money than 

just about any other medical change or advance, and we should do 

the same with biologics. 

Can we have your cooperation in trying to get as strong a bill 

as possible? 

Dr. ORSZAG. Absolutely. And let me just say, I mean, the reason 

we put forward what we did, there obviously are trade-offs. I know 

you are aware of this. One needs to balance the savings that you 

get against the incentives for the biologic drugs in the first place, 

and that is the balancing act reflected in our proposal. But clearly, 

other people may have alternatives. 

Senator SCHUMER. Yes. And these companies are very, very profitable under present law, we know that. 

The CHAIRMAN. Senator Bunning? 

Senator BUNNING. Thank you, Mr. Chairman. 

Since $630 billion is the down payment for health care reform, 

how much more will you need? 

Dr. ORSZAG. That will depend on the structure of benefits and 

coverage. There are different plans out there. I cannot give you a 

precise estimate because the plans vary. It depends on what is 

done. But under any of the proposals that are out there, whether 

it is the chairman’s, or what the President spoke about in the campaign, or others that are floating around, it is clear this is a very 

substantial down payment. 

Senator BUNNING. Substantial? 

Dr. ORSZAG. Correct. 

Senator BUNNING. In other words, half ? 

Dr. ORSZAG. I guess I do not want to sort of get in this game 

of—— 

Senator BUNNING. All right. 

One of your suggested changes to Medicare is changing the way 

post-acute care is paid for. The budget suggests providing hospitals 

with a bundled payment for a patient’s hospital-based care, and 

also any post-acute care they may need, like a rehabilitation hospital or long-term care hospital. 

Can you give us more details about this? One, does a bundled 

payment mean that some of CMS’s current payment policies, like 

the 75-percent rule for rehabilitation hospitals, still apply if hospitals get a bundled payment? 

Dr. ORSZAG. I am told, again, the motivation here is to provide 

a more efficient system. That level of detail has not been determined. We would have to work with you as legislation is written. 

22 

Senator BUNNING. Neither one of those two things has any details, neither the bundled payment or the 75-percent rule? You 

have not got any details on either one? 

Dr. ORSZAG. No, wait. So on the 75-percent rule, you mean with 

regard to readmission rates? 

Senator BUNNING. No. I am talking about payment. Bundled payments. 

Dr. ORSZAG. Right. That is a detail that we will need to work 

with you on as legislation is drafted. 

Senator BUNNING. You have a cost saving in your budget document of almost $18 billion for bundled payments for hospitals. You 

have to have some detail of how much you came up with to get to 

that number. 

Dr. ORSZAG. That is correct. And again, we have a broad policy. 

In any policy proposal that you put forward, there is always going 

to be a super-structure and then there will be details. I am being 

told by the professional staff that we do not have a definitive answer to the 75-percent rule, and I am assuming, therefore, that it 

does not have a substantial effect on the score. 

Senator BUNNING. In other words, the $18 billion that you are 

saving? 

Dr. ORSZAG. Again, I am being told that that is a technical detail 

and interaction that is not—— 

Senator BUNNING. Every year you do it in your budget document. 

Every year. So you have some experience that you are dealing 

with. This is not a guess. 

Dr. ORSZAG. That is correct. One of the things that happens during a transition year is, we have 8 weeks to put together a document that normally takes 8 months. In April, there will be the full 

thing that you do not want to drop on your foot, and there will be 

more details provided at that point. I apologize, but I am being told 

that at this stage we do not have that degree of detail about this 

proposal. 

Senator BUNNING. You cannot answer the question? 

Dr. ORSZAG. I am sorry? 

Senator BUNNING. You cannot answer the question? 

Dr. ORSZAG. At this point I cannot answer the question. 

Senator BUNNING. All right. 

I have been very supportive of Medicare Advantage over the 

years because it gives the seniors in my State options for coverage. 

In the 120 counties in Kentucky, only 20 counties are covered by 

other than Medicare Advantage. So I have 100 counties that Medicare Advantage is the only Medicare that we can get. In the old 

Medicare+Choice program, the vast majority of counties in Kentucky did not have a managed care option under Medicare. These 

seniors could only use fee-for-service Medicare. 

Your budget has proposed using competitive bidding in Medicare 

Advantage. What assurances can you give me that, should Congress change Medicare Advantage like you have suggested, beneficiaries in rural areas will have managed-care options under Medicare? 

Dr. ORSZAG. Well, the whole theory of the case behind competitive bidding is that, if running a managed care or Medicare AdvanVerDate Nov 24 2008 11:52 Feb 01, 2011 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 R:\DOCS\62708.000 TIMD
23 

tage plan is more expensive in rural areas than in urban areas, 

that will be reflected in the bids. 

Senator BUNNING. So Medicare Advantage will still—— 

Dr. ORSZAG. This is not moving just to 100 percent of local feefor-service. There is going to be variation. 

Senator BUNNING. I would love to have the options in those 100 

counties of something other than Medicare Advantage, but that is 

the only option these people have, fee-for-service or the Medicare 

Advantage. 

Dr. ORSZAG. Right. Fee-for-service is still available. 

Senator BUNNING. Oh, yes. 

Dr. ORSZAG. And Medicare Advantage, under this competitive 

bidding—— 

Senator BUNNING. But you know, in fee-for-service and Medicare 

Advantage, there is quite a difference. 

Dr. ORSZAG. Yes, sir. 

Senator BUNNING. All right. I have 15 seconds. 

Your budget recommends increases in the Medicare drug rebate 

from 15 to 22 percent. 

Dr. ORSZAG. Correct. 

Senator BUNNING. In a time when many drugs and biotech companies are facing tough economic times, what is your justification 

for increasing the rebate? 

Dr. ORSZAG. A couple of things, sir. First, again, as was mentioned before—— 

Senator BUNNING. I heard. 

Dr. ORSZAG. All right. Pharmaceutical costs are one of the most 

rapidly rising parts of the health care system. Medicaid already 

has this rebate, and we believe that more efficiencies are possible, 

which is why we proposed an increase. 

Senator BUNNING. So we will have to wait until we see what the 

final plan is. 

Dr. ORSZAG. No. There, it is very clear: we are increasing the rebate from 15 percent of average manufacturer price to 22 percent. 

Senator BUNNING. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. Thank you, Senator. 

Senator Enzi, you are next. 

Senator ENZI. Thank you, Mr. Chairman. 

I had some other questions, but I want to go back to something 

that you were discussing with Senator Nelson. That is, the veterans’ competitive bidding. Maybe it was—from your explanation, 

maybe it was comparative effectiveness, because you said that you 

were trying to channel people into specific drugs. 

Does it not more than channel people into specific drugs? When 

we were doing Medicaid Part D, I was interested in having as 

many people in Wyoming signed up for it as possible, so I did a 

whole series of town meetings around senior citizens’ homes. Invariably, at those I would have somebody who would show up and 

they would be really upset. They would say, under this I cannot get 

the drugs I want. All I had to say was, you are a veteran, are you 

not? They would say, yes, how did you know? I would say, well, 

Veterans does this competitive bidding process that eliminates 

things from the formulary. If you change to Medicare Part D, you 

24 

can get those. So, isn’t this bidding process an elimination of some 

of the potential drugs that people can have? 

Dr. ORSZAG. The way formularies work, both in VA and in many 

private health plans, is that there are a set of preferred drugs that 

are on the formulary. Non-preferred drugs are either not covered 

at all, or the beneficiary has to pay more for them. That is the way 

formularies work. 

Senator ENZI. Yes. But it excludes veterans from getting what 

they want to have, but they can get it under Part D. 

Nationwide, I am finding that people are not realizing what anything less than a half a trillion dollars is. That is just change. Even 

in Wyoming, I was disturbed to find that, because of the emphasis 

that we have placed on health care reform—and I am glad that we 

are placing that emphasis on health care reform—I have a significant number of people who think it is all going to be free, free not 

just to the poor, but free to the middle class as well. That is an 

impression that we are giving out there. Part of it is this $634- 

billion reserve fund that we have that is not in the budget. Again, 

that gets above the level of change, because that is more than half 

a trillion dollars. 

Then we say that it is just a down payment. That will probably 

help on that impression out there. But how did you come up with 

that exact number of $634 billion? I assume it is from the chart 

that you have, I think it is on page 15, that actually shows $633.8 

billion. 

Dr. ORSZAG. Yes. We rounded. 

Senator ENZI. Those exact numbers, you rounded. I wish you would have rounded to $700 or $800 or $500. 

Dr. ORSZAG. Actually, on page 128 it is shown as $633.759. 

[Laughter.] 

Senator ENZI. I hope the calculations can be that exact, where it 

is kind of a guesstimate, is it not? 

Dr. ORSZAG. Well, I guess there are two different questions. One 

is why, roughly, that level? Again, that was a judgment call. That 

was a very substantial down payment relative to any of the plans 

that are out there. Should it have been $615 or $645? Obviously 

there is variation, that that is possible. 

Senator ENZI. Yes. 

Dr. ORSZAG. I guess I will leave it at that. 

Senator ENZI. I understand the difference between the budgeting 

and using all of the decimal places and everything, but in the 

statements that we are making to the public, when we use something as exacting as $634 billion, they think that there is an exact 

proposal out there that will do something already. I would suspect 

that some of my colleagues think that, too. That is not the case, 

is it? 

Dr. ORSZAG. Well, there are proposals that will generate $634 billion to be devoted to health reform. The question then becomes, 

how are those resources used to expand benefits, coverage, and 

other aspects of the health care system? So there is a lot of specificity, like in slide 6, about where the $634 billion comes from. 

What we are trying to work with the committee and others on is 

where it then goes. 

Senator ENZI. All right. 

25 

I want to shift gears here. I have met with a number of people. 

I have been working on health IT, probably since I got here, but 

more specifically with Senator Kennedy over the last 4 years. We 

had a bill that even passed the Senate unanimously. Our focus on 

that bill was to get interoperability. We have improved interoperability. 

I have been talking to the software manufacturers across the 

country, and they have been real pleased with the progress on getting the interoperability. They see that as the biggest challenge. 

Now, in the stimulus, we had $19 billion. I am interested in how 

we are distributing that $19 billion, but I was a little distressed because, from talking to them they said, no, if we can get the interoperability, the money will be there. How are we distributing that 

$19 billion at this point? 

Dr. ORSZAG. There are a variety of mechanisms. The $19 billion 

actually includes both mandatory and discretionary spending. It is 

likely to involve significant reliance on State governments. I would 

note that it is not just interoperability that is a concern. I think 

security and privacy is also a significant concern. Actually, there 

are ways of doing, as you know, health information technology that 

not only protects privacy, but also dials it up, because with paper 

records I have no idea who is accessing them. 

Senator ENZI. I understand that, because we just passed a bill 

where the security is so good—— 

Dr. ORSZAG. Right. I know. 

Senator ENZI [continuing]. People will not be able to look at their 

own records, let alone have their doctor look at them. 

I know my time has expired. 

The CHAIRMAN. Senator Cantwell? Thank you, Senator. Senator 

Cantwell? 

Senator CANTWELL. Thank you, Mr. Chairman. Dr. Orszag, good 

to see you. Yesterday, I think I had 1 minute to ask three questions of Ron Kirk, so the fact that I have 5 minutes to cover four 

topics here, I appreciate. 

Dr. ORSZAG. All right. 

Senator CANTWELL. But if you could help me get through those 

four and just give some general comments on them, I would appreciate it. 

My whole framework is really about the efficiency that we see in 

Washington State and as we look at reforms nationally. I am trying 

to understand how we will be affected and what we can do in carrying some of those out. So your thoughts in general, because we 

have a low utilization / high outcome State. 

Dr. ORSZAG. You look good on this map. 

Senator CANTWELL. Yes. So what can we do to further advance 

the medical home and coordination in this system of reform you are 

talking about? 

Second, your thoughts on long-term care to promote efficiency. 

We radically changed our system in the 1990s so that we were focusing more on home-based care. I think you say it is two-thirds 

more expensive to put those Medicaid patients in a nursing home 

than it is to focus on community-based care, so we have covered 

more people, kept the costs down. So I want to know what your 

budget reforms look like in promoting efficiency in that manner. 

26 

I just want one more reiteration on the Medicare Advantage, the 

low fee-for-service cost States, that you are going to make sure that 

those areas are protected, that we are not going to lose that opportunity. Then I will come back after you have addressed that. 

Dr. ORSZAG. Sure. So in reverse order, first, on Medicare Advantage, there will be much different effects from the competitive bidding process that we have put in place across different regions than 

simply going 100 percent of local fee-for-service in different areas. 

So the whole goal of competitive bidding is to reflect the costs of 

private providers for providing that coverage in different areas. 

With regard to long-term care: clearly a significant issue, especially for Medicaid, but not just for Medicaid, for family members, 

and what have you. One of the things that will need to be addressed, and I know the Finance Committee’s white paper highlighted, is long-term care costs as part of overall health reform. 

Then, finally, with regard to coordinated care, we had an earlier 

discussion, and there are still a few details to be ironed out, but 

one of the motivations behind bundling post-acute care and hospital payments is precisely to provide more coordinated care. One 

of the motivations behind the bonus-eligible organization proposal 

that we have is to better coordinate care. I think the evidence from 

the Institute of Medicine and elsewhere is that more integrated 

systems, where there is more care coordination, are more efficient 

and that should be—— 

Senator CANTWELL. But you would think we would see an 

evening out across the country then, so not the disparity between 

various States? 

Dr. ORSZAG. One of the ways in which we could narrow the differences is through more care coordination. It is not the only way. 

Even in more fragmented systems, I think there are ways of moving practice norms towards more efficient outcomes. But the evidence is pretty strong that the more integrated health systems do 

better on the combination of lower cost and better quality than 

fragmented systems. 

Senator CANTWELL. All right. 

And if I could, on a different subject, but it is about health in 

general, health of our economy, I saw press reports this morning 

that the administration might be delaying for 5 years the procurement of a tanker air fueling system. If that is correct and you are 

thinking about delaying it, will you do a cost / benefit analysis on 

the cost of delay versus build? Because the maintenance costs of 

those planes are costing us a lot of money, and I think that would 

give us a better idea of the choices that we might face there. 

Dr. ORSZAG. Let me be very clear, because I saw those press reports also: decisions about the tanker, or frankly other procurement 

decisions, are going to be made by the Defense Department—in 

this case by the Air Force and the Defense Department—and the 

tone of some of those press reports with regard to the role of OMB, 

for example, are off not only with regard to the stage of the process 

at which we are at, but frankly the role of OMB, period. 

Senator CANTWELL. But do you think it would be wise to do a 

cost / benefit analysis if that was the proposal by DoD? 

Dr. ORSZAG. I am going to defer to Secretary Gates in terms of 

the decision-making process, but presumably in deciding what to do 

27 

with the tanker and other procurement decisions, one is evaluating 

the costs and benefits of different approaches. 

Senator CANTWELL. So that would be good to do, in general. 

Dr. ORSZAG. Again, I am going to defer to Secretary Gates. 

Senator CANTWELL. All right. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator, very much. 

Senator Snowe, you are next. 

Senator SNOWE. Thank you, Mr. Chairman. 

Welcome, Dr. Orszag. One of the initiatives that is being discussed has been the whole idea of reforming the employersponsored coverage through a uniform tax cap. The concerns have 

been raised, and I certainly raised this last week with Dr. Elmendorf on this question, that there are significant regional disparities 

in terms of providing care in States across this country, and whether or not a uniform tax could reflect those disparities in terms of 

higher costs in delivering health care in particular regions. 

For example, in our State we have, as you have said before, low 

Medicaid spending, but our costs are much greater in delivering 

those services. There is a difference between the spending and the 

costs that are required in order to provide that service. In the last administration, there was a proposal of a $15,000 tax 

cap for employer-sponsored coverage. In Maine, for an individual 

family to purchase health insurance, it would cost $24,000. So, it 

would be extremely inequitable. 

What are your thoughts on that? Is there a way of indexing or 

phasing it out at certain income levels to reflect those disparities? 

Second, the equitable treatment for self-employed, for example, 

who are denied any tax benefits as a result of providing their own 

health care coverage. Is there a way of assuming cost savings, including them in providing tax benefits? 

Dr. ORSZAG. I need to preface this again by saying the administration does not have a proposal in this area. It is not part of the 

reserve fund that we put forward. We have noted that more will 

be necessary. One of the ideas that other people have put on the 

table is the one that you mentioned, changes in the current exclusion for health insurance. 

If there were changes made, there are lots of different possibilities about how it would be done. It could be done either on the individual side, or on the employer side, for example. There could be 

variation regionally, as you have noted, although I would point out 

that the tax system does not tend to differentiate, at least explicitly, in regional variation like that. 

So I guess I would just come back and say, there are lots of different ways of doing it. If it were put on the table as part of health 

reform, there are lots of things that would need to be worked out. 

Senator SNOWE. Do you acknowledge that there is a problem by 

providing a uniform tax cap? 

Dr. ORSZAG. One of the things that happens with any uniformity 

in our tax code—our tax code currently has a standard deduction 

that does not vary by State, even though the cost of living varies 

by State. So we have decided as a Nation to have a uniform tax 

system, and there is a certain awkwardness if there are changes 

to the tax code to move away from that general principle. But on 

28 

the other hand, as you have noted, health care costs do vary across 

States, which is clearly the case. 

Senator SNOWE. On another subject concerning comparative 

practices and their effectiveness, we, as you know, put in the stimulus plan $1.3 billion, very limited savings. I asked Dr. Elmendorf 

last week why we could not have achieved greater savings by implementing this study that is part of the stimulus savings. He said 

that you have to employ the practices. You cannot just make assumptions about what savings might be achieved, you actually 

have to employ those practices. 

Is there a way of establishing a process by which we do employ 

these practices so we can achieve greater savings using Medicaid 

and Medicare? I mean, obviously there must be a better way to discern how we can achieve the best standards, perhaps. And maybe 

they are less costly. There is no way of learning that at this point 

because there is no mechanism for doing so and having an independent evaluation. 

Dr. ORSZAG. Let me say three things. First, and just assume that 

there is some medically established best practice that exists. How 

does that translate then into the actual practice of medicine? One 

is, I think the establishment of a best practice, by itself, does have 

some effect because doctors obviously would like to be doing the 

right thing. 

The second is, you can create incentives for that best practice to 

be followed. So, for example, insurance firms can create incentives 

for doctors. You get a larger payment, for example, if you follow the 

best practice and a somewhat smaller payment if you do not, as an 

example. 

The final thing is, there can be other changes. An example is 

medical malpractice. A safe harbor or defense against medical malpractice suits could be, I followed the best practice guidelines that 

the Institute of Medicine and the American Medical Association— 

or whatever body puts forward the guidelines—that I was following 

that. 

Senator SNOWE. Well, do you think that a Center for Comparative Practices should be established as a way of doing it? 

Dr. ORSZAG. There are different ways of moving forward aggressively with comparative effectiveness research. What I think is crucially important is that we do so. I know there are concerns about 

exactly how that center would be structured, and it is important 

to have medical professionals at the heart of it. But again, I think, 

clearly, more is necessary and there are different ways of doing it. 

I would hope that we could move forward on an even more aggressive approach to getting more information about what works. 

Senator SNOWE. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Lincoln? 

Senator LINCOLN. Thank you, Mr. Chairman. 

Dr. Orszag, we are glad you are here today as OMB Director, 

and certainly understand that there are many intricacies and opportunities and challenges in health care reform. We are pleased 

to be working with you. 

29 

I am also pleased that President Obama has recognized the dire 

need for health reform by including in his budget the reserve fund 

for health reform. We know that real reform means increasing access to affordability and access to health care, as well as bending 

the growth curve, and that is what we are about. We also know 

that health care is so intricately linked with what is going on in 

our economy. 

A lot of my questions have been asked, and I appreciate your responses to many of those. One that I do not think has been brought 

up was home health. One of the areas that is slated for cuts in the 

budget is home health, a freeze in the market basket payment, the 

case mix adjustment, and the re-basing of payments, to the tune 

of about $37 billion. 

I have been a long-time supporter of home health care as an option for seniors. I think it is cost-effective and it is patientpreferred. It would be my understanding, and certainly witnessing, 

that because of home care, more patients are getting rehabilitation 

services, they are gaining independence, and they are staying out 

of more costly institutional care. 

How has OMB assessed the impact of these cuts on access to 

home care, especially in rural areas, States like mine that are predominantly rural? We are getting estimates that 56 percent of 

home health agencies in my State will have a negative margin by 

2010, and 73 percent have a negative margin by 2011, if the President’s proposed cuts go through. 

I understand the need to be fiscally responsible here and tightening our belts. We all have to do that. But is there some way that 

we can ensure that these changes will not adversely affect patient 

access or that the policy will not have the opposite of the intended 

effects, with higher cost to Medicare due to beneficiaries that are 

going to be moving to something more costly? 

Dr. ORSZAG. Yes. And let me just say, again, some belt-tightening 

is necessary in the health system. If you look at MedPAC and other 

recommendations with regard to home health, while they do provide quality care, margins are also significantly higher than in 

other parts of the health system. For example, freestanding home 

health agency margins, on average, were 16 percent from 2003 to 

2007, and even this year they are projected to be as high as 12 percent. I think there are lots of businesses in the United States that 

would love a profit margin of 12 percent this year. 

So, in looking at areas where some belt-tightening is possible, we 

look to areas that seem to have, or sectors of the health system 

that seem to have, disproportionately high margins currently, and 

home health is one of those areas. 

Senator LINCOLN. Well, CMS made a 2.75 percent across-theboard rate reduction for home health services in 2008, 2009, and 

2010, and a reduction again projected for 2011. The provision was 

estimated to reduce outlays for home health by over $6 billion. 

That reduction is based on an allegation by CMS that case mix 

weights have increased without attendant changes in patient characteristics that were referred to by CMS as the ‘‘case mix creep,’’ 

they called it. 

Dr. ORSZAG. Right. 

30 

Senator LINCOLN. Did OMB take into account what CMS learned 

during their comment period on the rule or the impact of that 2007 

case mix adjustment? 

Dr. ORSZAG. I believe the answer to that is yes. One of the reasons that the budget includes another 5.5-percent case mix adjustment for home health is evidence of that case mix creep, if you will. 

Senator LINCOLN. Yes. All right. Well, I appreciate it. I would 

just urge us that we proceed with caution, because in terms of the 

long-term costs that could come from other institutionalized situations, I think home health care does provide a good quality in that. 

The chronic care coordination you all have talked about a little 

bit. You have talked a little bit, but can you kind of discuss the 

leap that CBO has to make to determine the impact of avoiding the 

high cost of hospital readmissions, medical error, patient noncompliance, other duplicative services that are currently prevalent 

in our health care system? How hard is it for you to show that 

something has been prevented from happening, which is, I guess, 

what that does? 

Dr. ORSZAG. Well, it is difficult, but I want to again just come 

back. If you look at readmission rates, for example, they are too 

high. Eighteen percent of Medicare beneficiaries being readmitted 

within 30 days, when many of those readmissions could be avoided—my view is, it makes sense to create stronger incentives for 

hospitals to avoid those readmissions, and also to build out the information infrastructure so that hospitals have more information 

about what works to avoid those readmissions in the first place. 

Senator LINCOLN. Well, one of the things on chronic care coordination that we have offered up in the bill that I have been working 

on for several years is that we would first target the subset of 

Medicare beneficiaries who are likely to benefit most from coordination of care so that those who are more likely to be in that readmission or other things, because they have multiple chronic diseases that they are dealing with, that chronic care makes better 

sense for those folks. So, I do not know. It is something I hope we 

will look at in terms of cost savings. 

The CHAIRMAN. Senator Kyl, you are next. Senator Kyl? 

Senator LINCOLN. Thank you. 

The CHAIRMAN. Thank you. Thank you, Senator. 

Senator KYL. Thank you, Mr. Chairman. 

Dr. Orszag, you seemed very well prepared to answer the chairman’s first question about the cost of doing nothing. You have been 

around a long time. Can you name a member of the House or Senate who you know has advocated doing nothing in this area? 

Dr. ORSZAG. No, which is why I think we are going to get health 

reform done this year. 

Senator KYL. Thank you. 

On your comment that the medical profession should not be penalized for being more efficient, I think we would all agree with 

that. Would it not logically follow that one of the first efforts that 

we should engage in to make sure that they are not penalized for 

being efficient is to adopt serious meaningful tort reform to preclude the medical profession from having to engage in the defensive 

practice of medicine? 

31 

Dr. ORSZAG. What I would come back and say, again, is many 

health care professionals, and doctors in particular, point to the 

medical malpractice system as a problem. I think there are various 

ways of reforming it. One of the steps that would be beneficial in 

having more information about what works is—the defense could 

be, instead of, I am doing what the guy down the hallway did, defensive medicine, I am following what, again, the Institute of Medicine or the American Medical Association, or what have you, suggested was the right way forward. So there could be a much stronger safe harbor for best practice guidelines within the medical malpractice system. 

Senator KYL. Since there seems to be such a central point, I find 

it odd that it has not been noted in any of the presentations. I realize we do not have the full written budget of the administration, 

but do you think it is a significant enough factor that it ought to 

be included? 

Dr. ORSZAG. I think it is inevitable as part of health reform, that 

medical malpractice will be examined. I would note that—and I 

used to give a ‘‘yes,’’ ‘‘no,’’ ‘‘yes’’ answer to this question—there are 

significant differences of opinion between doctors and academic researchers about the impact of medical malpractice laws, both on 

the variation in costs across the United States and about cost increases. 

Senator KYL. Well, do you have an opinion yourself as to whether 

or not medical malpractice reform should be part of our solutions 

here to, as you say, ensure that physicians are not penalized for 

engaging in efficient practice? 

Dr. ORSZAG. I am not allowed to have personal opinions anymore. 

[Laughter.] 

Senator KYL. Much has been made of the comparative research 

funding in the budget. The concern that Senator Grassley expressed, and I am sure you have heard from others, is, of course, 

that the Federal coordinating council, if there should come to be 

such a thing, would use such information to make coverage decisions or to make reimbursement decisions. 

Do you believe that it should be used for that purpose? If not, 

would you support creating a firewall between the work of the 

council and the comparative research and those kind of decisions? 

Dr. ORSZAG. Let us separate two things here: one is comparative 

effectiveness research and the second is the kind of institute, 

board, or body that Senator Baucus and Senator Rockefeller and 

others have put forward. Comparative effectiveness itself, even 

within the existing system, could be used by doctors, by—— 

Senator KYL. It is today. Right. 

Dr. ORSZAG. It is. All right. So let us leave that to the side. The 

second question becomes, you are deciding today what the reimbursement rate is for durable medical equipment and for wheelchairs, and for what have you. I think some of the proposals that 

are out there to change that decision-making does not change—the 

fact of the matter is, someone has to decide. The only question is, 

is it the Finance Committee or this other institute or board that 

would be making those decisions? 

32 

Senator KYL. So the answer to the question is that you believe 

this research would be used to make coverage determinations. The 

only question is by whom? 

Dr. ORSZAG. No, I do not believe so. At the extreme, if something 

is shown not to be effective, it could simply not be covered. But 

there also are a lot of less extreme ways of guiding medical practice, for example, simply paying more for the things that work than 

the things that do not, creating penalties and what have you if you 

have high readmission rates, for example. So it does not need to 

be a simple on / off switch. 

Senator KYL. No. Sure. But creating penalties for certain situations. You can make it virtually impossible for someone to use a 

particular method or treatment if you do not want to pay for it. Do 

you think that the coordinating council that has been contemplated 

here should be making those kinds of decisions? 

Dr. ORSZAG. Again, I think, look, there are different proposals. 

Senator KYL. I know it is up to us to make the decision. 

Dr. ORSZAG. Right. 

Senator KYL. Is that a personal opinion that you cannot hold? 

Dr. ORSZAG. I would say that that is an issue that needs to be 

addressed as part of overall health care reform. 

Senator KYL. Does the administration have a position on that? 

Dr. ORSZAG. Not at this point. 

Senator CARPER. Dr. Orszag, I have been at a lot of hearings before, and I have seen a lot of witnesses who have water at their 

table. All the times I have heard you testify as CBO Director, and 

here as OMB, I thought, boy, this guy is smart. I remember, we 

had a big Lincoln celebration in Delaware a month or so ago, celebrating his birthday, his 200th birthday. 

I am reminded of a story about President Lincoln and Ulysses S. 

Grant, who was his top general. Some of the people who worked 

for Lincoln did not much like Ulysses S. Grant, and they were always calling on Lincoln to get rid of him. They called Grant an alcoholic. They said, get rid of him, he is no good. At the time, Grant 

was actually doing a pretty good job of leading the troops, the 

Union troops. Lincoln apparently said to his top advisor, ‘‘Find out 

what Grant is drinking and make my other generals drink it, too.’’ 

[Laughter.] 

We need to find out what you are drinking. 

Dr. ORSZAG. I hope this is not product placement, but this is Diet 

Coke. Apparently there is a big controversy that has broken out between Diet Pepsi and Diet Coke and what members of the administration drink what. But this is Diet Coke. 

Senator CARPER. Do you go back and forth, or are you just a 

straight Diet Coke drinker? 

Dr. ORSZAG. No. I am a Diet Coke guy. 

Senator CARPER. All right. I am glad we got that on the record. 

Dr. ORSZAG. All right. 

Senator CARPER. The second question. A little more serious question. When the administration was rolling out their team at OMB, 

one of the names that they announced was that of Nancy Killefer 

as Chief Performance Officer. I have huge respect for her. I 

thought, what a great appointment. She withdrew, for reasons that 

we are aware of, but I lament the fact that she is not on your team. 

33 

Have you filled that position with someone else? 

Dr. ORSZAG. We have not. I am hoping that there will be an announcement or an appointment to fill that position within the next 

few weeks, and we have been actively interviewing and recruiting 

people. I am, like you, saddened by the absence of Ms. Killefer, who 

I think would have done a terrific job. 

Senator CARPER. I would urge you as you go forward in this administration, if you have an opportunity to go back to her to ask 

her to find a time or willingness to serve, I would urge you to do 

that. 

At the budget summit hosted at the White House a week or two 

ago, one of the issues that I raised in our breakout session dealt 

with improper payments. We have this improper payments law, all 

the Federal agencies are supposed to report improper payments. 

Most do, now. We know that improper payments last year were 

right around $72 billion, mostly overpayments, but some underpayments. We do not do a very good job. We are doing a much better 

job of actually figuring out what improper payments are. We still 

do not do a very good job of going out and recapturing and recovering the monies that have been improperly paid or overpaid. 

About 3 years ago we began doing that with respect to Medicare, 

and I think we did a demonstration project in three States: California, Texas, and Florida. The first year out of three of the postrecovery, we did not collect much money. The second year, we collected a little bit. Last year, I am told we collected about $600 million. I believe there is the inclination to roll this out in the other 

47 States with respect to post-audit recoveries for Medicare. 

Can you confirm that for us? One of the other things that came 

up in our discussion, our breakout session at the budget summit, 

was, if we can actually recover all this money for Medicare, maybe 

we can do something like this for Medicaid. Can you address that? 

Dr. ORSZAG. Absolutely. I think this is crucially important. This 

budget invests substantial resources in program integrity, that is, 

making sure that the right person gets the right benefit at the 

right time, or the right provider gets the right payment at the right 

time. As a result of hard evidence from pilot projects and other 

things, the budget projects $50 billion in savings over 10 years 

from avoiding erroneous payments, not only in Medicare, but 

through the Social Security Administration and through the tax 

code. That is $50 billion that would just go to the wrong person or 

provider, unwarranted, improper, and we need to be doing a much 

better job of protecting taxpayer dollars by investing in things that 

work to make sure program integrity is maximized. 

Senator CARPER. All right. Good. Thanks. 

Well, my other question is, expanding health insurance will only 

deal, I think, with one part of our health care challenge in this 

country. We also have to ensure that we are making every effort 

to keep Americans in good health as they become seriously unwell. 

I think the President’s budget pointed out that over a third of all 

illness is the result of poor diet, lack of exercise, and smoking, all 

of which are preventable. 

Can you just talk for a moment with us today about strategies 

currently used by Medicare and the Medicaid programs to emphasize wellness, to emphasize chronic disease management and obeVerDate Nov 24 2008 11:52 Feb 01, 2011 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 R:\DOCS\62708.000 TIMD
34 

sity reduction, and more importantly, ways that we can improve 

upon what is currently happening? 

Dr. ORSZAG. Well, there are some efforts, but they are not where 

they need to be. So the budget proposes to build upon the billiondollar prevention and wellness fund that is in the Recovery Act, yet 

more investment in that area because well-designed, preventative, 

and disease management programs can help to improve health outcomes. 

Another example is, the evidence is very clear that flu vaccines 

for Medicare beneficiaries help not only to reduce costs, but also 

help them. We have strong incentives in this budget to increase flu 

vaccines for Medicare beneficiaries, in part because it keeps them 

healthier and in part because it saves Medicare dollars. 

Senator CARPER. All right. Thank you, sir. Thanks very much. 

Senator ENSIGN. Thank you. A couple of quick questions. One 

quick comment on comparative effectiveness. Others have raised 

the concern, if we end up with a Federal board making the decisions, even if it is made up of medical professionals, we will regret 

ever doing that, simply because of a bureaucracy that is set up like 

that that is government controlled, making changes—medicine 

changes so rapidly and bureaucracies do not change. They do not 

change rapidly enough. 

To make the kind of quality updates that will need to be made, 

I would just caution anybody against doing that. Keep it in the private sector. Keep it in the colleges, American College of Surgeons, 

Cardiologists, whatever. They are the ones who actually stay the 

most current with the research and are the most nimble. 

I have a couple of questions, though. One of the proposals out 

there is to have an FEHBP-type of a model, and then also have a 

government plan. It seems to me, and you have mentioned it before, whether we are setting the prices on durable medical equipment, at-home oxygen, whatever it is, we all acknowledge there are 

pricing problems. So what do we do? We look at home health. You 

mentioned this with Senator Lincoln. Home health. We go, all 

right, they are making too much money, so we can cut there. It is 

a very inefficient system, pricing, how much to pay a doctor for 

whatever. Do we not run into those problems with a government 

plan? 

Dr. ORSZAG. Well, you run into that difficulty in any system. 

What I would emphasize is, I agree with you that—— 

Senator ENSIGN. With a government plan, the government ends 

up with that problem. 

Dr. ORSZAG. The problem exists regardless. The question becomes—— 

Senator ENSIGN. The question is, who is the most efficient at 

doing it? 

Dr. ORSZAG. And how can we move toward a system that rewards quality and not more. 

Senator ENSIGN. Correct. 

Dr. ORSZAG. And I think we are going to need changes to Medicare to get there, but we are also going to need changes in the private system. A lot of the private system is still based on a fee-forservice mentality also, and that needs to change. 

35 

Senator ENSIGN. Well, a lot of this happened simply because of 

first-dollar coverage. The first-dollar coverage was one of the biggest problems that we ever ended up with because it took a lot of 

the market forces out of medical decision-making. It destroyed— 

and that is the reason HMOs came into being. We can go through 

the whole history. It just seems to me that the more you take it 

toward a more centralized decision-making process, the more you 

are going to end up with problems with pricing. 

I only have a very short time. What do you foresee doing? There 

are about 12 million people who are here in this country illegally. 

A lot of them do not have health insurance. They use our emergency rooms for getting their health care today. 

What does the administration plan on doing with the people who 

are here illegally? Are you going to give them health insurance? 

What exactly is going to be done? Because there is no immigration 

policy on the table today. 

Dr. ORSZAG. The President’s campaign plan did not cover unauthorized immigrants. Again, I am not going to comment on the specifics of the legislation that you all are putting together, but I 

would imagine that there will be important protections against covering unauthorized immigrants as part of any legislation. 

Senator ENSIGN. All right. And one fundamental question I keep coming up with, the $634 billion in new cost as a down payment, 

we know it is going to be north of that based on your estimates. 

Senator Wyden and Senator Bennett had a proposal last year that 

the Lewin Group—they made some changes, but the score I saw 

from the Lewin Group is that it saved $1.5 trillion. Now, there is 

a big difference between saving $1.5 trillion and costing north of 

$600 billion. 

I guess I am having a little problem. Is there enough money in 

the health care system, and maybe it is being distributed wrong, 

or do we need to spend a lot more money on our health care system? There seems to be two competing arguments here: the Wyden 

proposal seems to save a lot of money; your proposals that you are 

supporting seem to cost a lot of money. 

Dr. ORSZAG. Well, no. I think actually the motivation is quite 

similar. The Congressional Budget Office analyzed the WydenBennett legislation. I happen to know the former director of CBO, 

so I have some familiarity with that analysis. What it found was 

that, once it was fully phased in, it would net to approximately 

zero, it would be budget-neutral. That is the goal of health reform 

from our perspective also. We have a reserve fund, but the overall 

effort should be deficit-neutral. The Wyden-Bennett proposal includes a source of revenue that is then returned to beneficiaries, 

but a source of revenue by changing the existing tax preferences. 

We have a slightly different approach for putting revenue on the 

table. The goal, again is—— 

Senator ENSIGN. It is deficit-neutral, but if that is the goal, then 

why would you put a $634-billion cost in the reserve fund? 

Dr. ORSZAG. The $634 billion in savings. If all we did was the stuff that we have already put on the table, that is minus $634 billion. 

Senator ENSIGN. All right. Thank you. 

The CHAIRMAN. Thank you very much, Senator. 

36 

Senator Hatch? 

Senator HATCH. Well, thank you. I know you have been asked a 

question, but along with Henry Waxman, the author of HatchWaxman, that would save consumers at least $10 billion every year 

since 1984, I am naturally very concerned about having a biosimilar bill or follow-on biologics bill that works. 

A little over a year ago, Senators Kennedy, Enzi, Clinton, Schumer, and I agreed that we should put the bill in the HELP Committee through. Now, that bill is estimated at $5.9 billion, if I recall it correctly, in savings, actual savings, if we put that bill 

through. That had 12-year data exclusivity, which is probably the 

most important part of the bill. 

Hatch-Waxman was—the real name of it is the Drug Price Competition Patent Term Restoration Act. In other words, we had to 

balance the two sides. I remember the battles over that between 

Pharma and the generics. The generics were very upset about it, 

but in the end, they were about 16, 18 percent of the business at 

that time. Today, they are over 60 percent, and Hatch-Waxman is 

one of the reasons why they are. Now, here is our problem. You have a savings, you think, of $9.2 

billion, but that is based upon data exclusivity protection of only 

7 years, which will not work, when we had agreed to 12 years. 

Dr. ORSZAG. Right. 

Senator HATCH. Now, I have to admit, the innovative companies 

wanted much more than 12 years; the generic companies wanted 

much less than 12 years. But that is what we arrived at, and we 

all agreed to that. I thought with that agreement, with those very 

heavy stakeholders, that we could get this through. It is one of the 

most important bills in history because, like Hatch-Waxman, it 

would save trillions of dollars over the years, and it would be the 

innovation that we need to really bring bio-similars to the marketplace, not only in an innovative way, but also in a cost-savings way 

through the generics when time goes on. 

So, I hope you will re-look at that, because I just do not think 

you can do it on a 7-year data exclusivity, and I do not know anybody who does. We will never get a bill through if that is the way 

the administration sticks. It would be one of the tragic things that 

you could do, because this bill, along with—and I was pleased with 

the President signing the executive order yesterday on all forms of 

stem cell research, but especially embryonic stem cell research. 

Coupled with that, we may be able to ultimately save tremendous 

amounts of health care costs by finding treatments and / or cures 

that we will never otherwise find unless the incentives are in the 

program. 

So I hope you will take this back to the administration and to 

the OMB and think this through, because we arrived at those figures because we knew that is what it was going to take, to have 

the innovation, and yet still get that innovation ultimately to the 

generic companies who could bring the costs down even more— 

drug price competition, but also patent term restoration that gives 

the incentives to do the innovative work. 

I just wanted to make that point with you. But let me just ask 

you this question. The President’s budget says that the administration plans to build on the already $1.1 billion included in the ReVerDate Nov 24 2008 11:52 Feb 01, 2011 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 R:\DOCS\62708.000 TIMD
37 

covery Act for comparative effectiveness research. Now, I agree 

with the value and merits of doing comparative effectiveness studies. However, in terms of looking at clinical effectiveness and either 

making treatment and coverage decisions because there is too 

much variability from patient to patient that directly affects the 

treatment outcomes, on page 70, the last sentence in the comparative effectiveness section states, ‘‘The findings can thereby enhance 

medical decision-making by patients and their physicians.’’ 

Now, I take that to mean that comparative effectiveness research 

will be used to solely look at clinical effectiveness and not for making treatment and coverage decisions. Based on what is written in 

the President’s budget, is this a fair assessment? Do you agree? It 

is based on what you previously stated of how important it was for 

you and your physicians to make the treatment decisions. 

Dr. ORSZAG. Well, again, I am going to come back and say I think 

we need much more information on what works and what does not. 

There are a variety of ways of using that information to affect the 

way medicine is practiced, and that has to be the goal. 

Senator HATCH. Now, remember, that word ‘‘clinical’’ is very, 

very important not only to me, but I think anybody who looks at 

this, if you want to make a comparative effectiveness system work. 

You are key here, so I am counting on you really looking at this. 

Dr. ORSZAG. Thank you, Senator. 

Senator HATCH. Plus the bio-similar thing. That is very important. 

The CHAIRMAN. Thank you, Senator, very much. 

Dr. Orszag, I have a series of questions on long-term savings I 

would like to ask you. Many of us believe that, if we do health care 

reform right, that we can achieve significant cost savings in the 

years beyond the usual budget windows. Do you think that is 

right? 

Dr. ORSZAG. Yes, sir. 

The CHAIRMAN. If that is true, should we not try to recognize 

those savings as much as possible? Find a way to recognize the 

savings? Quantify them as best we can and recognize them? 

Dr. ORSZAG. The best we can, recognizing that many of these 

things are going to be difficult to quantify precisely. 

The CHAIRMAN. I did not say it would be easy, but I said we 

would try to recognize it. 

Dr. ORSZAG. Try. Yes. The effort is worthy. 

The CHAIRMAN. All right. It is ‘‘try to recognize.’’ 

Dr. ORSZAG. The effort would be a worthy one. 

The CHAIRMAN. That is good. All right. 

And if so, would it not be a mistake to focus unduly on paying 

for health care reform in the first 6 years? 

Dr. ORSZAG. Well, I think there are a variety of considerations. 

Again, the administration has said we believe that health care reform should be deficit-neutral, even over the medium term. Then 

over the long term, a key is bending the curve on health care costs, 

which many of the things that are in your white paper will help 

to do. 

The CHAIRMAN. But if we are going to get there, do you not think 

we have to pay? Do we not have to invest up front to get savings 

later? 

38 

Dr. ORSZAG. We do have to invest to get savings later. But again, 

given our medium-term fiscal trajectory, we think the best way of 

moving forward is to invest in a deficit-neutral way. 

The CHAIRMAN. And how do you define the medium term? 

Dr. ORSZAG. Five to 10 years. 

The CHAIRMAN. So you want to be neutral in that period? 

Dr. ORSZAG. Yes, sir. 

The CHAIRMAN. And savings begin to significantly be arrived at 

when? 

Dr. ORSZAG. That is correct. 

The CHAIRMAN. When? When, savings? 

Dr. ORSZAG. Savings will build over time. One of the frustrations 

is, there has not been enough research done on quantifying the 

things that we are talking about. I believe we have done everything 

that CBO, the Institute of Medicine, MedPAC have suggested in 

terms of being the most auspicious to bending the curve on health 

care costs over the long term: health IT, comparative effectiveness, 

changes in incentives, prevention, wellness, and what have you. It 

is very difficult to then say, in 2072 the impact on health care 

spending will be this. 

But just as an illustration, if we could reduce the rate of health 

care spending growth by 1 percent a year, which may not sound 

like a lot, but it will be difficult to do—if we could, the power of 

compound interest is so strong that, after 50 years we would reduce health care spending as a share of the economy by 20 percent 

or so of GDP. Huge amount. One percent a year, 20 percent of 

GDP. That is what we need to be focusing on as we move through 

this effort. 

The CHAIRMAN. And so, do you think that that goal of 1 percent 

a year can be achieved? If so, when? What would be a reasonable 

target date? 

Dr. ORSZAG. Well, again, I was intrigued to hear that America’s 

health insurance plans have put forward an effort to achieve exactly either 1 to 1.5 percentage-point slower growth over the next— 

I think Karen Ignagni said 5 to 10 years. They hope to do their 

part. Different parts of the system will also have to do their parts. 

I think I do not want to set a specific goal, but as an illustration 

of the impact that different growth rates will have over the long 

term because of the power of compound interest, I was just trying 

to illustrate how big an impact—if we could achieve that, what the 

impact would be. 

The CHAIRMAN. But is it a reasonable goal to have health care 

costs at no greater rate than the CPI? 

Dr. ORSZAG. That would be an incredible accomplishment. I 

guess I would just leave it at that. I think if we could reduce—look, 

on average, over the past 4 decades, health care costs have been 

rising 2 to 2.5 percentage points faster than income per capita each 

year. If we could reduce that rate of so-called excess cost growth 

to 1, 0.5, something like that, it would still be above inflation, you 

would achieve significant reductions in the out-years in overall 

health care spending, and that would be a very good first step. 

The CHAIRMAN. Right. But the question is, how do we get there? 

That gets to what steps we are taking to recognize those cost savings and the degree to which OMB, for example, is working to estiVerDate Nov 24 2008 11:52 Feb 01, 2011 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 R:\DOCS\62708.000 TIMD
39 

mate those cost savings, say either beyond 6 or beyond 10 years, 

and how you can help us identify them so that we can write legislation. 

Dr. ORSZAG. Well, I would look forward to working with you, as 

we have over the past several years. I think your white paper includes basically those key elements of a more efficient health care 

system, which again have been identified as the most auspicious 

approaches to reducing the growth rate. 

The CHAIRMAN. Right. But we just need OMB, or CMS actuaries—a lot of different outfits that have a lot more data—to help 

us the best we can, given the lack of data that exists. 

Dr. ORSZAG. Right. And we look forward to doing that with you, 

yes. 

The CHAIRMAN. And to sit down in the next couple of days. 

Dr. ORSZAG. And again, Nancy Ann deParle will be coming up, 

and I know Governor Sebelius will be making visits, too, this week. 

The CHAIRMAN. She is. I have appointments with both of them. 

That is fine. That is great. I would like to meet the wonderful ladies. I understand that. But we have to go to work. I just say, she, 

both the secretary and—— 

Dr. ORSZAG. We are all ready to roll up our sleeves, Senator. 

The CHAIRMAN. Good. I know you are. That is the key right here. 

Thanks. 

Senator Wyden? 

Senator WYDEN. Thank you, Mr. Chairman. Mr. Chairman, this 

has been an excellent hearing, and you have summed it up in 

terms of having our sleeves rolled up and ready to go. I just have 

one additional question for Dr. Orszag. It again goes to this question of finding savings now within the current system, and it involves the role of the individual. Very often, this is called the socalled ‘‘skin in the game’’ kind of issue. 

The way I approach this is, if you have a low-income person and 

they need health care, the last thing you ought to do is heap additional costs on that person. They have no money and they are not 

going to be able to take care of their family if you put more of a 

burden on them. I do think changing the private health insurance 

market to reward people for a careful selection of their coverage is 

very much in line with finding savings from the existing sums that 

are now being spent. I would be interested in your thinking on 

that. 

Dr. ORSZAG. I do think that having beneficiaries pay attention— 

as many do, and should—to the cost of care makes sense. I would 

just come back, and this is something that had come up earlier. 

While that is helpful, we do have to remember 25 percent of beneficiaries account for 85 percent of cost. It is really the very highcost beneficiaries who drive most of the overall cost of health care. 

For them, making sure that the providers—the hospitals and 

their doctors—have incentives for efficient care seems to me to be 

key, because someone who is on the way to the hospital in the ambulance is not likely to be choosing which hospital to go to based 

on how much it will cost. 

Senator WYDEN. There is no question that that is right. I think 

there is strong support for reimbursement increases in two areas. 

One of them is the area you have talked about, which is trying to 

40 

make sure that there is better coordination of care for those individuals, and the other is primary care. 

I just know, and I am holding mine up—not to sell any private 

health insurance—all of us who are members of Congress, we have 

a choice of our coverage. So, if you make a careful selection of your 

coverage, you are in a position to save some money. Most Americans, even those who are lucky enough to have private health insurance coverage, do not get a choice. You have written and talked 

on this subject on a number of occasions, and I hope that we will 

see bipartisan support for that as well, because sending a message 

that you get rewarded for a careful selection of your private coverage makes a lot of sense. 

To me, the other area, picking up on what Senator Carper talked 

about with prevention, is it is time to start giving financial rewards—actual financial rewards—for practicing prevention. As you 

know, Safeway and other companies are doing this. It seems to me 

that, if you lower your blood pressure and lower your cholesterol 

and you are on Medicare, you ought to get a lower Part B premium. How do you feel about the question of actual financial rewards for practicing prevention? 

Dr. ORSZAG. They do seem to work. A variety of private firms, 

including the one that you mentioned, have moved forward. There 

are lots of ways to motivate change, and especially when it comes 

to health behavior. That is crucially important. So, financial incentives through insurance schemes or through bonuses for accomplishing your goals help. 

I would note on a personal basis, I once had to accomplish a personal health goal and signed up on a website where a contribution 

would have automatically gone to a charity I did not support if I 

failed to meet the goal, and that worked beautifully. 

Senator WYDEN. You are a poster child for my point. 

Here is my last question. On Medicare Advantage, on which we 

are going to have obviously a spirited discussion, I come to this by 

way of saying that I do not think all Medicare Advantage is created 

equal. We have some in our part of the United States that has been 

very good, been very sensitive to consumer needs, and I want to be 

careful and make sure that those programs are not put out of business for doing good work. There are other Medicare Advantage programs, some of these private fee-for-service. Chairman Baucus has 

tried to reign them in, and others. But they are still out there, and 

a lot of that private fee-for-service is not worth a whole lot more 

than the paper it is written on. 

Are you open to the idea of looking at the Medicare Advantage 

reforms almost like an insurance equivalent of pay-for-performance? If you are doing a good job and you meet a number of specific 

health-oriented objectives, you would not face some of these cuts, 

but if you are not meeting those kinds of tests, that is where you 

would see the budget axe fall. Are you open to that kind of idea? 

Dr. ORSZAG. There are lots of ideas on the table. One of the concerns with Medicare Advantage, especially with private fee-forservice, has been inadequate attention and reporting of quality. 

Senator WYDEN. Thank you, Mr. Chairman. 

Senator GRASSLEY. I have just three questions, so I am not going 

to keep you here all day. 

41 

Dr. ORSZAG. All right, Senator. 

Senator GRASSLEY. Now, the first question comes on something 

that you would think, why bring this up when you are talking 

about health care? But money is fungible, so I want to bring up 

something about the cap-and-trade tax. 

We had Secretary Geithner here last week who told us that the 

cap-and-trade ‘‘does increase the cost of energy.’’ He also told us 

that ‘‘if there are additional resources beyond what we have laid 

out in the budget, then they will be devoted also to help compensate for those higher costs.’’ Moreover, there is a footnote in 

your budget regarding the cap-and-trade tax that says, ‘‘All additional net proceeds will be used to further compensate the public.’’ 

So the question is, how much more revenue than the $646 billion 

laid out in the budget do you expect to raise from the cap-and-trade 

proposal? If you cannot provide a precise estimate, please provide 

a ballpark figure or range. Please specify: what is the maximum 

amount of total revenue collected under the President’s cap-andtrade tax proposal? 

Dr. ORSZAG. I do not have a specific answer for you, in part because what the President has said is that he wants to reduce carbon dioxide emissions 14 percent below 2005 levels by 2020, but 

there are lots of different paths or ways of getting there. How much 

revenue is raised will depend not only on that path, but also on details of, is it upstream or downstream, how does the system work? 

The President has not put forward a specific proposal that fills in 

those details at this point. 

Senator GRASSLEY. Well, would you be able, not now but when 

you get back to the office, or have your staff work on something 

that could tell us, under various scenarios, what more might come 

in? I mean, we are working on a budget for the next 10 years here. 

If this is going to raise more—and the possibility is more because 

people in the administration have stressed that—we ought to have 

some idea what we are talking about. 

Dr. ORSZAG. I think we could certainly provide an analysis of the 

plans that are out there and different proposals that are out there. 

Sure. 

Senator GRASSLEY. All right. Well, please do that, then. 

Second, I want to deal with disclosure and transparency of the 

cost of employer-sponsored health insurance. During a June 17 

hearing last year before this committee, then as Director of CBO, 

you said, ‘‘The economic evidence is overwhelming, the theory is 

overwhelming, that when a company pays for a worker’s health insurance, the worker actually pays through reduced take-home pay. 

I don’t think workers realize that.’’ And then, ‘‘Making the underlying cost associated with employer-sponsored insurance more 

transparent might prove to be quite important in containing health 

care costs.’’ 

So my question: do you still believe that disclosing the amount 

of health insurance coverage an employer pays on behalf of a worker could help control health insurance costs? And, two, do you believe President Obama should include a proposal to disclose the 

cost of employer-sponsored health insurance coverage to workers in 

a comprehensive health care reform package? 

42 

Dr. ORSZAG. I would say, as I said then, that I do think, when 

I said health care costs are reducing workers’ take-home pay to a 

degree that is unnecessarily large and underappreciated—I believe 

I said that even today—the underappreciated part is, I think, because there is not as much transparency as could exist about the 

pass-through to take-home pay from employer-sponsored insurance. 

Many firms are already moving aggressively in this direction to 

provide this information to workers, so one of the things that could 

be discussed as part of health reform is whether yet more needs 

to be done or whether the voluntary efforts that private firms are 

already taking is sufficient, because there has been a significant increase in private firms that provide that information to people already. 

Senator GRASSLEY. This is something that, at least last year, and 

I doubt if he has changed his mind, that Senator Wyden has also 

been very much interested in. 

Then my last question. In 2006, MedPAC stated, ‘‘The strongest 

incentives in the Medicare program to coordinate care are through 

the Medicare Advantage program. Because CMS pays Medicare Advantage plans a capitated amount for all of the enrollees’ care, the 

plan has an incentive to ensure that beneficiaries with complex 

needs are well managed across the setting and over time.’’ 

Question: do you agree that a capitated payment system like the 

ones used in Medicare Advantage provide greater incentives for 

care coordination and prevention than the fee-for-service payment 

system? 

Dr. ORSZAG. Again, I think bundling of payments does create 

stronger incentives. That is one reason why we moved or we proposed bundling post-acute care and hospital payments. It is another reason why we were proposing the bonus-eligible organization proposal. That bundling within Medicare helps to promote care 

coordination. 

Senator GRASSLEY. Senator Baucus is coming back, I have just 

been told by staff. So, I want to ask you another question until he 

comes back then. 

Dr. ORSZAG. Absolutely. 

Senator GRASSLEY. The budget proposes a number of delivery 

system reforms that would require providers to collaborate in order 

to coordinate the care of patients. As we explore delivery system 

reform, are there any statutory barriers to this collaboration that 

we should consider addressing? 

Dr. ORSZAG. I am sorry. Collaboration between who? 

Senator GRASSLEY. Between health care deliverers, providers, 

bringing about the coordinated care of patients. 

Dr. ORSZAG. There are some statutory restrictions. But I think 

one of the most important ways that we can move towards more 

coordinated care is to create incentives for doing so. Again, without 

repeating myself, I will just say we have a variety of proposals included in the budget intended to move in that direction. 

Senator GRASSLEY. Medicare payment accuracy has long been a 

priority for both Senator Baucus and this Senator. In light of increasingly scarce Medicare dollars, it is even more important that 

these dollars are spent as accurately as possible. 

43 

The budget contains a vague proposal to use private sector mechanisms in Medicare to ensure Medicare pays accurately. In the 

past, Congress required that they use private sector mechanisms 

such as recovery audit contractors. What are these private sector 

enhancements that the budget proposes to ensure that Medicare 

pays accurately? 

Dr. ORSZAG. Well, there are a variety of proposals in the budget. 

For example, we do propose more frequent recertification of providers under Medicare so that it is much less likely that a Medicare payment goes to an entity that is not even a Medicare provider, and also enhanced auditing capability so that even legitimate Medicare providers are not being paid for things that they do 

not do. 

Under your leadership and others’, we are trying to do that not 

only with regard to Medicare, but also with regard to the Social Security Administration where problems also exist, and with regard 

to the tax code, where the tax gap is a significant issue that needs 

to be reduced. 

The CHAIRMAN. Thank you, Senator. 

Dr. ORSZAG. Before Senator Grassley leaves—— 

The CHAIRMAN. Go ahead. Sure. 

Dr. ORSZAG [continuing]. Can I also just say, I appreciate the fact 

that we held this hearing and that we are beginning the bipartisan 

process, and I look forward to working with you throughout. I appreciate it. Thank you. 

Senator GRASSLEY. I will look forward to it in the same way. 

The CHAIRMAN. Thank you, Senator. 

Dr. Orszag, I would like to talk a little bit about universal coverage, individual mandates, and so forth. I believe that for us to 

achieve meaningful comprehensive health reform, everyone has to 

be covered. All Americans should be covered. There are lots of ways 

to approach that. Massachusetts has its approach, et cetera. 

But the real question is, how do we get everybody covered? I 

know the President did not suggest an individual mandate during 

the campaign. He did suggest, however, a mandate for children, 

but not for all Americans. 

So if we could just talk a little bit about how we get there, how 

we get from here to there. Without getting into what the President 

supports and does not support, I would just like us to have a little 

discussion on how we get universal coverage and get everybody in 

the system. What are the ways to do it? I think it is necessary to 

address cost-shifting that otherwise would occur if we do not. It 

helps us focus on prevention and wellness efforts much more effectively if everybody is covered. It is kind of a no-brainer to me that 

costs over time would come down if everybody was in the system. 

So it would help me a little bit if you could give me your thoughts 

on how we get universal coverage, and also, how would one implement, and execute, and enforce an individual mandate, if that were 

in the law? 

Dr. ORSZAG. All right. Clearly, there are different ways in which 

one can move to expanded coverage. A key is to start bringing 

down the cost of coverage so that it is more affordable. That will 

help. In addition to that, providing health insurance in an easy and 

simple way. One of the reasons why employer-sponsored insurance 

44 

is so popular is that it is really easy. It is not very complicated to 

sign up. The employer helps you with your choice of plans, and 

what have you. We need to recognize that making it easy and simple is crucial. 

In addition to that, you have mentioned there are different ways 

of encouraging further enrollment. Some people talk about heavy 

subsidies, others have talked about automatic enrollment with an 

opt-out approach, and then there is also a mandate, which is a possibility. The impact of a mandate will depend not only on how 

deeply subsidized the coverage is, but where and how the mandate 

is enforced and what the social norms are around not having 

health insurance. 

I want to just come back for a second on the importance of coverage. In the chart pack that I gave you at the beginning, on slide 

9 you see this very dramatic difference between insured beneficiaries and uninsured people in things like mammograms and 

colo-rectal cancer screening on the right. 

The CHAIRMAN. Right. 

Dr. ORSZAG. Very dramatic. 

The CHAIRMAN. Right. 

Dr. ORSZAG. And these have been shown. These are preventative 

measures that have been shown to be quite effective. Lack of insurance means people are not obtaining them at the same rate as 

those who are insured, and that causes problems over the medium 

to long term. 

The CHAIRMAN. Right. So my question is, what about the people 

who are unemployed, who are self-employed, small group coverage? 

It is one thing if you work for a big company. 

Dr. ORSZAG. Right. 

The CHAIRMAN. That is pretty easy. Let us put that off to the 

side for a moment. Now we want to make sure everybody else is 

covered. So how do you get everybody else covered if they are not 

working? If they are out of the workforce, just in and out of the 

workforce, how do we cover them? 

Dr. ORSZAG. Sure. Well, there are lots of different approaches. I 

know your white paper, for example, proposed that Medicaid would 

cover everyone under 100 percent of poverty. That is one approach. 

Massachusetts has another approach in which the health exchange, 

the Connector, provides a mechanism. The Wyden-Bennett plan 

has yet another kind of approach that is at least similar in spirit 

to that kind of exchange approach. There are lots of different ways 

of getting there, but it is clear we need to get there. 

The CHAIRMAN. But if we had individual mandates, your 

thoughts on how that would be enforced. How do you enforce it? 

Dr. ORSZAG. There are different approaches to enforcement. 

Again, not to belabor the point, but I am not saying, mandate, yes 

or no. We are just—— 

The CHAIRMAN. No. I am playing the ‘‘what if ’’ game. 

Dr. ORSZAG. The ‘‘what if ’’ game. And I would play that to a limited degree. A ‘‘what if ’’ game. Mandates could be enforced in different ways. There could be enforcement through the tax code, 

through financial penalties. The evidence does suggest that enforcement mechanisms are important. For example, if you look at the 

difference between the share of people who buckle their seatbelts— 

45 

very high—and the share of people who obey speeding limits—a little bit lower—I think you can see in both cases there is a set of 

rules, but the enforcement mechanism is different. One of the reasons is that the social norm has shifted, in a sense that, if you currently get in a car and you do not put on your seatbelt, I think the 

other people in the car sometimes say, what are you doing? 

The CHAIRMAN. Right. 

Dr. ORSZAG. And getting to that kind of point, which appears to 

be what happened in Massachusetts—Massachusetts has accomplished something like 97-percent coverage, even before the penalties on the mandate have kicked in. That, I think, is because not 

only did the system deliver effective insurance—— 

The CHAIRMAN. But how is the social norm conveyed? 

Dr. ORSZAG. In Massachusetts, there was a huge outreach effort, 

a public outreach effort, to basically say, you should be insured and 

it is in your self-interest to be insured, and here is how you can 

do it. That appeared to have worked. 

The CHAIRMAN. What was the nature of that outreach effort? 

Dr. ORSZAG. I think you could not go anywhere in Massachusetts 

without reading newspaper stories or seeing advertisements for the 

effort under way. It was one of the biggest things that happened 

in Massachusetts in recent history, and so in a sense everyone 

knew what was happening and what was expected of individuals. 

The CHAIRMAN. Is that costly? Was there a cost? 

Dr. ORSZAG. In fact, there has been a lot of controversy over the 

costs in Massachusetts. The costs are only slightly higher than 

originally projected and it is almost entirely because they have succeeded much more rapidly than they thought in getting people into 

the system. In other words, they thought that what would happen 

is, coverage would rise slowly. Instead, it has basically jumped up 

to something like 97-percent coverage very quickly. 

The CHAIRMAN. Now, intuitively we all know—in fact, your chart 

shows it, it is not intuitive at all, it is demonstrated—that with certain wellness and preventive measures, that over time costs are 

lower. How do we value wellness? How do you put a cost savings 

to wellness and prevention efforts? 

Dr. ORSZAG. Well, this is an area where I will give you two answers. I think the more important one is, let us take off the green 

eyeshades. I think all of us as people value our health. 

The CHAIRMAN. Right. 

Dr. ORSZAG. The ultimate goal of health care, after all, is to improve people’s health. So steps like prevention and better exercise 

programs and what have you that achieve better health just make 

us better off, period. 

Now, with regard to—put the green eyeshades back on—cost, it 

has long been noted that such a large share of costs come from 

both very high-cost beneficiaries and from at least partially preventable diseases that, if we could figure out a way of helping people live healthier lives, there is at least the strong possibility that 

we could reduce costs over the long term, while also again having 

healthier lives, which is the ultimate objective here anyway. 

The CHAIRMAN. Right. But do you target who gets the immunization shot? Do you target who gets certain wellness preventive procedures? It seems that up front there is a cost if everybody gets evVerDate Nov 24 2008 11:52 Feb 01, 2011 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 R:\DOCS\62708.000 TIMD
46 

erything, when some are much more likely to achieve better health 

care than others. 

Dr. ORSZAG. Well, presumably things will vary. I mean, take the 

flu vaccine as an example. It is actually not that expensive to administer. 

The CHAIRMAN. Right. 

Dr. ORSZAG. And it has been shown to reduce costs even over a 

very short period of time, while also improving the health of beneficiaries. That is one of the reasons why the budget includes a proposal to increase flu vaccination rates among Medicare beneficiaries. In other areas, more targeting will be necessary. I mean, 

for example, it does not make any sense to target an anti-smoking 

campaign or effort for a population that is not smoking or that is 

not likely to smoke, as just one example. 

The CHAIRMAN. We have a very ambitious mark-up schedule 

here in this committee, as I have already announced, with the 

breaking into three subjects. We have roundtable discussions, our 

walk-throughs, et cetera. 

Dr. ORSZAG. Yes. 

The CHAIRMAN. We need some help. This is not easy. I am just 

curious about getting cost estimates, for example, from the Office 

of the Actuary at CMS. I am wondering if you could help in that 

regard. 

Dr. ORSZAG. I would be glad to help. Again, I am ready, as I said 

before, to roll up my sleeves and help you accelerate this process, 

because we want to get it done this year. 

The CHAIRMAN. I appreciate that. When you say ‘‘we,’’ I guess we 

talk to everybody who seems relevant at the other end of Pennsylvania Avenue. But I am thinking about HHS Secretary-to-be 

Sebelius, and Nancy-Ann deParle, and yourself. Whom would we 

talk to? How do we coordinate this? 

Dr. ORSZAG. I think, from the White House, Nancy-Ann will be 

up this week to meet with you, and she should be the direct point 

of contact. Obviously it would be beneficial to have the nominee for 

Secretary of HHS confirmed as soon as possible so that she can 

play a role. 

This is such a huge undertaking that a collaborative teamwork 

approach is going to be necessary, so I think you are going to be 

seeing many of us from the administration actively involved, as 

should be the case given the magnitude of what we are trying to 

accomplish. 

The CHAIRMAN. Is there anything off the table as far as the administration is concerned? 

Dr. ORSZAG. Not to my knowledge, no. Everything is on the table. 

The CHAIRMAN. All right. This is a great, big table, and it is 

stacked pretty high. 

Director Orszag, thank you so much. I deeply appreciate your enthusiasm, your dedication, and your intelligence. It is going to be 

needed and utilized when we get across the finish line. 

Thank you very much. 

Dr. ORSZAG. Thank you, sir. 

[Whereupon, at 12:35 p.m., the hearing was concluded.] 

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