THE NEED TO MOVE BEYOND THE SGR 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MAY 5, 2011 

Serial No. 112–46 

( 

Printed for the use of the Committee on Energy and Commerce 

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THE NEED TO MOVE BEYOND THE SGR 

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THE NEED TO MOVE BEYOND THE SGR 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MAY 5, 2011 

Serial No. 112–46 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

JOE BARTON, Texas 

Chairman Emeritus 

CLIFF STEARNS, Florida 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

Vice Chair 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

BRIAN P. BILBRAY, California 

CHARLES F. BASS, New Hampshire 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

MICHAEL F. DOYLE, Pennsylvania 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

JANICE D. SCHAKOWSKY, Illinois 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

SUBCOMMITTEE ON HEALTH

JOSEPH R. PITTS, Pennsylvania 

Chairman 

MICHAEL C. BURGESS, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

TIM MURPHY, Pennsylvania 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

JOHN D. DINGELL, Michigan 

EDOLPHUS TOWNS, New York 

ELIOT L. ENGEL, New York 

LOIS CAPPS, California 

JANICE D. SCHAKOWSKY, Illinois 

CHARLES A. GONZALEZ, Texas 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

HENRY A. WAXMAN, California (ex officio) 

(II) 

(III) 

C O N T E N T S 

Page 

Hon. Joseph R. Pitts, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 1 

Prepared statement .......................................................................................... 3 

Hon. Michael C. Burgess, a Representative in Congress from the State of 

Texas, opening statement .................................................................................... 5 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 6 

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 6 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

opening statement ................................................................................................ 7 

Prepared statement .......................................................................................... 9 

Hon. Joe Barton, a Representative in Congress from the State of Texas, 

opening statement ................................................................................................ 12 

Hon. Phil Gingrey, a Representative in Congress from the State of Georgia, 

opening statement ................................................................................................ 12 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 13 

Hon. Marsha Blackburn, a Representative in Congress from the State of 

Tennessee, prepared statement .......................................................................... 167 

WITNESSES

Mark B. McClellan, Director, Engelberg Center, The Brookings Institution ..... 23 

Prepared statement .......................................................................................... 26 

Cecil B. Wilson, President, American Medical Association .................................. 33 

Prepared statement .......................................................................................... 35 

David B. Hoyt, Executive Director, American College of Surgeons ..................... 53 

Prepared statement .......................................................................................... 55 

Harold D. Miller, Executive Director, Center for Healthcare Quality and 

Payment Reforms ................................................................................................. 69 

Prepared statement .......................................................................................... 72 

Michael E. Chernew, Professor of Health Policy, Harvard Medical School ........ 90 

Prepared statement .......................................................................................... 93 

M. Todd Williamson, Coalition of State Medical and National Specialty Societies ....................................................................................................................... 101 

Prepared statement .......................................................................................... 103 

Roland A. Goertz, President, American Academy of Family Physicians ............ 120 

Prepared statement .......................................................................................... 122 

SUBMITTED MATERIAL

Letter, dated May 4, 2011, from Nancy LeaMond, Executive Vice President, 

State and National Group, AARP, to subcommittee leadership, submitted 

by Mr. Waxman .................................................................................................... 16 

Letter, dated May 4, 2011, from Joe Baker, President, Medicare Rights Center, to subcommittee leadership, submitted by Mr. Waxman .......................... 20 

Statement, dated May 5, 2011, of Garrison Bliss, Chief Medical Officer, 

Qliance Medical Group, submitted by Mr. Cassidy ........................................... 152 

Letter, dated April 28, 2011, from the Alliance for Integrity in Medicare 

to subcommittee leadership, submitted by Mr. Pitts ........................................ 168 

Letter, dated March 10, 2011, from AMDA, et al., to House leadership, submitted by Mr. Pitts .............................................................................................. 170 

Page

IV 

Letter, dated April 26, 2011, from Michael D. Maves, Executive Vice President and Chief Executive Officer, American Medical Association, to Mr. 

Upton, submitted by Mr. Pitts ............................................................................ 174 

Memo, dated April 14, 2011, American Medical Association staff, to House 

Republican leadership, Majority Ways and Means and Energy and Commerce Committees staff, submitted by Mr. Pitts ............................................... 183 

Letter, dated April 26, from Michael D. Maves, Executive Vice President 

and Chief Executive Officer, American Medical Association, to Mr. Pitts ...... 190 

Letter, dated April 29, 2011, from Ron Moy, President, American Academy 

of Dermatology Association, to committee leadership, submitted by Mr. 

Pitts ....................................................................................................................... 199 

Letter, dated April 27, from Bruce Sigsbee, President, American Academy 

of Neurology, to committee leadership, submitted by Mr. Pitts ....................... 204 

Letter, dated April 29, 2011, from American Academy of Nurse Practitioners 

to subcommittee leadership, submitted by Mr. Pitts ........................................ 207 

Letter, dated May 2, 2011, from Michael Repka, Medical Director for Governmental Affairs, American Academy of Ophthalmology, to Mr. Upton, submitted by Mr. Pitts .............................................................................................. 208 

Letter, dated April 26, 2011, from Daniel J. Berry, President, American 

Academy of Orthopedic Surgeons, to Mr. Upton, submitted by Mr. Pitts ....... 211 

Letter, dated April 27, 2011, from David R. Nielsen, Executive Vice President 

and Chief Executive Officer, American Academy of Otolaryngology–-Head 

and Neck Surgery, to John O’Shea, committee Majority Professional Staff 

Member, submitted by Mr. Pitts ......................................................................... 219 

Letter, dated May 5, 2011, from O. Marion Burton, President, American 

Academy of Pediatrics, to Mr. Upton, submitted by Mr. Pitts ......................... 221 

Email, dated April 12, 2011, from Lawrence W. Jones, American Association 

of Clinical Urologists, to John O’Shea, committee Majority Professional 

Staff Member, submitted by Mr. Pitts ............................................................... 222 

Letter, dated March 28, 2011, from committee and subcommittee leadership 

to Ralph Brindis, President, American College of Cardiology, submitted 

by Mr. Pitts ........................................................................................................... 223 

Letter, dated April 6, 2011, from David R. Holmes, Jr., President, and Jack 

Lewin, Chief Executive Officer, American College of Cardiology, to committee and subcommittee leadership, submitted by Mr. Pitts ......................... 225 

Letter, dated April 28, 2011, from Susan Schneider, President, American 

College of Emergency Physicians, to Mr. Upton, submitted by Mr. Pitts ....... 227 

Letter, dated April 26, 2011, from Virginia Hood, President, American College 

of Physicians, to subcommittee leadership, submitted by Mr. Pitts ................ 230 

Letter, dated April 29, 2011, from David Borenstein, President, American 

College of Rheumatology, to committee leadership, submitted by Mr. Pitts .. 232 

Letter, dated April 28, 2011, from L.D. Britt, President, American College 

of Surgeons, to Mr. Upton, submitted by Mr. Pitts ........................................... 235 

Letter, dated April 28, 2011, from Richard N. Waldman, President, American 

Congress of Obstetricians and Gynecologists, to Mr. Upton, submitted by 

Mr. Pitts ................................................................................................................ 238 

Letter, dated April 25, 2011, from Sharon A. Brangman, President, and 

Jennie Chin Hansen, Chief Executive Officer, American Geriatrics Society, 

to subcommittee leadership, submitted by Mr. Pitts ........................................ 241 

Letter, dated April 28, 2011, from Karen J. Nichols, President, American 

Osteopathic Association, to subcommittee leadership, submitted by Mr. 

Pitts ....................................................................................................................... 246 

Letter, dated April 30, 2011, from R. Scott Ward, on behalf of American 

Physical Therapy Association, to committee leadership, submitted by Mr. 

Pitts ....................................................................................................................... 252 

Letter, dated April 29, 2011, from John E. Tomaszewski, President, American 

Society for Clinical Pathology, to Mr. Upton, submitted by Mr. Pitts ............. 255 

Letter, dated April 27, 2011, from M. Brian Fennerty, President, American 

Society for Gastrointestinal Endoscopy, to committee leadership, submitted 

by Mr. Pitts ........................................................................................................... 259 

Letter, dated April 29, 2011, from Mark A. Warner, President, American 

Society of Anesthesiologists, to Mr. Upton, submitted by Mr. Pitts ................ 262 

Letter, dated April 29, 2011, from Edward J. Holland, President, American 

Society of Cataract and Refractive Surgery, to subcommitte leadership, 

submitted by Mr. Pitts ......................................................................................... 264 

Page

V 

Letter, dated April 27, 2011, from George Sledge, President, and Allen 

Lichter, CEO, American Society of Clinical Oncology, to subcommittee leadership, submitted by Mr. Pitts ............................................................................ 268 

Letter, dated April 28, 2011, from J. Evan Sadler, President, American Society of Hematology, to committee leadership, submitted by Mr. Pitts ............. 273 

Letter, dated April 30, 2011, from Phil Haeck, President, American Society 

of Plastic Surgeons, to Mr. Upton, submitted by Mr. Pitts .............................. 275 

Letter, dated April 28, 2011, from Datta G. Wagle, President, American 

Urological Association, to Mr. Upton, submitted by Mr. Pitts ......................... 279 

Letter, dated April 28, 2011, from Jordan J. Cohen, Chairman, Board of 

Trustees, Arnold P. Gold Foundation for Humanism in Medicine, to John 

O’Shea, committee Majority Professional Staff Member, submitted by Mr. 

Pitts ....................................................................................................................... 284 

Letter, dated April 28, 2011, from Darrell G. Kirch, President and Chief 

Executive Officer, Association of American Medical Colleges, to committee 

leadership, submitted by Mr. Pitts ..................................................................... 286 

Letter, dated May 12, 2011, from Charles N. Kahn III, President and Chief 

Executive Officer, Federation of American Hospitals, to committee leadership, submitted by Mr. Pitts ............................................................................... 288 

Letter, dated May 10, 2011, from James Hughes, President, Infectious Diseases Society of America, to committee leadership, submitted by Mr. Pitts ... 290 

Letter, dated April 28, 2011, from William F. Jessee, President and Chief 

Executive Officer, Medical Group Management Association, to Mr. Upton, 

submitted by Mr. Pitts ......................................................................................... 292 

Letter, dated April 30, 2011, from Greg Przybylski, President, North American Spine Society, to Mr. Upton, submitted by Mr. Pitts ................................ 296 

Letter, dated April 29, 2011, from Jeffrey Wiese, President, Society of Hospital Medicine, to Mr. Upton, submitted by Mr. Pitts ...................................... 303 

Letter, dated April 29, 2011, from Dominique Delbeke, President, Society 

of Nuclear Medicine, to committee leadership, submitted by Mr. Pitts .......... 305 

Letter, dated May 2, 2011, from Michael J. Mack, President, Society of 

Thoracic Surgeons, to Mr. Upton, submitted by Mr. Pitts ............................... 307 

Letter, dated April 29, 2011, from Yehuda Handelsman, President, American 

Association of Clinical Endocrinologists, to committee leadership, submitted 

by Mr. Pitts ........................................................................................................... 313 

Letter, dated May 5, 2011, from Michael Weinper, President and Chief Executive Officer, PTPN, to subcommittee leadership, submitted by Mr. Pitts ....... 315 

(1) 

THE NEED TO MOVE BEYOND THE SGR 

THURSDAY, MAY 5, 2011 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 10:04 a.m., in room 

2123 of the Rayburn House Office Building, Hon. Joseph R. Pitts 

(chairman of the subcommittee) presiding. 

Members present: Representatives Pitts, Burgess, Murphy, 

Gingrey, Lance, Cassidy, Guthrie, Barton, Upton (ex officio), 

Pallone, Dingell, Capps, Baldwin, and Waxman (ex officio). 

Also present: Representatives Harris and Christensen. 

Staff present: Allison Busbee, Legislative Clerk; Paul Edattel, 

Professional Staff Member, Health; Julie Goon, Health Policy Advisor; Debbee Keller, Press Secretary; Ryan Long, Chief Counsel, 

Health; John O’Shea, Professional Staff Member, Health; Heidi 

Stirrup, Health Policy Coordinator; Stephen Cha, Democratic Senior Professional Staff Member; Alli Corr, Democratic Policy Analyst; Tim Gronniger, Democratic Senior Professional Staff Member; 

Karen Lightfoot, Democratic Communications Director and Senior 

Policy Advisor; Karen Nelson, Democratic Deputy Committee Staff 

Director for Health, and Mitch Smiley, Democratic Assistant Clerk. 

Mr. PITTS. The subcommittee will come to order. The chair recognizes himself for 5 minutes for an opening statement. 

OPENING STATEMENT OF JOSEPH R. PITTS, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA 

The system that is currently used to pay physicians for providing 

services to beneficiaries in the Medicare System is broken and has 

been for some time. The dilemma that currently threatens doctors 

and Medicare beneficiaries alike is all too familiar. 

According to the most recent Congressional Budget Office estimate if nothing is done physicians will see reimbursement for services provided to Medicare patients cut by 29.4 percent on January 

1, 2012. This will have a disastrous effect on access to care for 

Medicare beneficiaries. According to surveys by the American Medical Association faced with cuts of this magnitude as many as 82 

percent of physicians say that they will need to make significant 

changes in their practices that will affect access to care. 

We have been here before. In fact, we have been in this situation 

for almost a decade. Since 2002, Congress has acted repeatedly to 

avert scheduled fee cuts. In 2010 alone Congress passed one—two 

2 

1-month overrides, two 2-month overrides, one 6-month override, 

and most recently for 2011, Congress passed a 1-year override. All 

this was done without resolving the underlying problem. 

Meanwhile, the cost of fixing the problem continues to grow. In 

March the Congressional Budget Office estimated that the price 

just to wipe out the accumulated debt and return to the baseline 

would be $298 billion. This staggering price tag is just one side of 

the physician payment reform problem. The current payment system is fundamentally flawed, and keeping the current system or 

making minor adjustments is no longer a viable option. Even maintaining the current system with 0 percent updates through 2020, 

would cost $275.8 billion. 

Too often the discussion around physician payment reform has 

focused on the deficiencies of the current system and the urgent 

need to move away from the sustainable growth rate formula without a clear vision of the kind of system we want to replace it with. 

Essentially, all of us agree on the need for a new payment system, and there are a lot of good ideas about what an ideal payment 

system should look like. The witnesses that are participating in today’s hearing bring a wealth of knowledge on this issue, and some 

of them have personal experience in design and administration of 

innovative systems. 

I want to thank the distinguished panel of experts that have 

taken the time to testify today. I am encouraged that this hearing 

will go beyond merely describing the deficiencies of the current 

SGR System and will lead to a productive discussion of how we 

move to a system that reduces the growth in healthcare spending, 

preserves access to care for Medicare beneficiaries, and pays providers fairly based on the value, not the volume of their services. 

[The prepared statement of Mr. Pitts follows:] 

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Mr. PITTS. And I yield the remaining time to the vice chair, Dr. 

Burgess. 

OPENING STATEMENT OF MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. Well, thank you, Mr. Chairman, and actually I 

really mean this. Thank you for holding this hearing. It has been 

way too long. As I was telling one of our witnesses I was 20 pounds 

lighter and a lot less gray the last time we held a hearing on Medicare physician payment. 

I am also so relieved that we have five doctors on the panel. It 

seems like every time we have done this in the past all we have 

are economists and lawyers, so doctors, welcome, and we know it 

is past time for action. I want to do my part to ensure that Medicare beneficiaries can continue to see their doctor, but it is just not 

going to happen if we don’t fix this problem. 

Repeal is expensive, so stipulated, but it is also critical to the future for America’s patients. Let us all accept the premise that it 

has—the SGR has to go, and this morning we are here to hear our 

witnesses focus on their solutions. 

I have always thought you start with a relatively simple question, what does it cost to—for a doctor to provide the service, and 

then you build in a reasonable profit for participation and coordination. But today we send all the wrong messages to our doctors. We 

say work harder and faster, deal with weekly expansions of services and regulations of the CMS, none-physician bureaucrats will 

tell you how to practice and will do more so, in fact, under the 

President’s new healthcare law, we are going to hold your checks, 

but we need you to take more patients. Practice costs are rising but 

don’t expect us to help you meet your costs, and oh, by the way, 

a 30 percent pay cut in December. 

Is it any wonder that the country’s physicians are fed up? We do 

need a true path forward. There may be three congressional committees who have a say on this issue, but it is this committee, the 

Committee on Energy And Commerce and the Subcommittee of 

Health, where the solution needs to come to life. 

I am a fee-for-service doctor. I always practiced that way. I will 

admit it has its problems but so does linking payment rates to definitions of quality set by non-physicians. You need only look at the 

ACO regulations that recently came out of CMS. We have been 

testing models for years, and we have had multiple demonstration 

projects, but, look. Here is the bottom line. If we get to December, 

and we are doing an extension, that is a failure on our part. We 

need a permanent solution that is predictable, updatable, and reasonable for this year, and nothing else will do. 

Thank you, Mr. Chairman. Before I yield back my time can I ask 

unanimous consent that Dr. Harris, who is not a committee member, be allowed to sit at the—— 

Mr. PITTS. Without objection. 

Mr. BURGESS. Thank you. 

Mr. PITTS. So ordered. The chair thanks the gentleman and recognizes the distinguished ranking Member of the subcommittee, 

Mr. Pallone, for 5 minutes. 

6 

OPENING STATEMENT OF FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. Thank you, Mr. Chairman. I am pleased we are 

having a hearing in the Health Subcommittee on something other 

than repealing the Affordable Care Act, so I commend you for that 

initially. I would also like to thank you for your willingness to approach today’s critical issue in a bipartisan manner, and it is my 

hope that we move forward in a bipartisan manner in the future 

on this issue. 

Today’s hearing is appropriate because we really must move beyond the sustainable growth rate in Medicare’s payment policy. It 

is unstable, unreliable, and unfair, and we really must move beyond legislating SGR policy in month-long intervals. You know, I 

know last December when we passed the 1-year fix it was the 

twelfth time we had passed a patchwork bill in the last decade and 

the sixth time in 1 year alone. 

So I am not saying whose fault that is, but the fact of the matter 

is we need to stop kicking the can down the road. It is not fair to 

our Nation’s seniors, and it is not fair to our Nation’s doctors. It 

is a game of chicken that I think drives physicians out of Medicare 

and makes it harder for seniors to see a doctor. 

So the question remains how do we fix it. The Democrats made 

an attempt when the House of Representatives considered and 

passed H.R. 3961, the only bill intended to permanently eliminate 

the large cuts required under the SGR that was ever passed by either body of Congress since the creation of the SGR in 1997. That 

bill would have reset the spending targets of the SGR and eliminated the accumulated deficit that generates the large annual cuts. 

It also would have set more realistic growth targets and promoted 

coordinated care by incentivizing accountable care organizations to 

control costs, a concept that was also embraced in the Affordable 

Care Act. 

Now, I am not saying that that bill was the perfect approach because nothing is perfect, but it certainly was a solution. Unfortunately, we couldn’t get it passed into law, signed by the President. 

So I don’t have a perfect answer, but I know that getting a Medicare program with security and reliability for our seniors is a high 

hurdle. 

In that regard I would like to commend all the provider groups 

for their thoughtful responses to the committee’s requests for comments. If this going to get done, we all need to be engaged, committed, and open-minded, and I look forward to today’s hearing and 

finally tackling this problem, as I said, on a bipartisan basis once 

and for all. 

I would yield now the remainder of my time to the gentleman 

from Michigan, our ranking Member emeritus, Mr. Dingell. 

OPENING STATEMENT OF JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. DINGELL. Mr. Chairman, I thank the gentleman, and I commend you for holding today’s hearing. We address an intolerable 

situation that is only going to get worse as time passes. 

7 

Each year since 2002, Congress has had to come in and at the 

eleventh hour prevent cuts to provider services and fees under 

Medicare. Due to our failure to fix this fatally-flawed payment system, doctors and all other providers have been unable to plan for 

the future, and the price tag has grown each year, and it is going 

to continue to do so. 

It is very clear to anyone who looks at it that we can no longer 

kick the can down the road. Last Congress the House passed legislation I introduced, H.R. 3961, which would have repealed the SGR 

formula, ending the cycle of short-term patches and permanently 

improving the way Medicare pays its physicians and other providers. While I happen to think that my bill that passed the House 

last year was a good piece of legislation, I think we should explore 

all possible proposals, but we should keep in mind we have to get 

this miserable situation fixed. 

I am committed to working with my colleagues on both sides of 

the aisle, and I look forward to passing a solution to this problem 

again this Congress. I hope that this time it will become law, because the situation has become intolerable, and we are going to 

lose both the advantages and the benefits of Medicare as well as 

the cooperation, the goodwill, and the services of the different providers who are adversely affected by this miserable current situation. 

And I yield back to the gentleman from New Jersey the 49 seconds I have. 

Mr. PALLONE. Thank you, Mr. Chairman. I don’t know if any of 

my other colleagues would want the time. 

If not, I will yield back. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the full committee chairman, Mr. Upton, for 5 minutes. 

OPENING STATEMENT OF FRED UPTON, A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. UPTON. Well, thank you, Mr. Chairman. The opening paragraph of the original 65 Medicare legislation promised that the 

Federal Government would not interfere in the practice of medicine. This promise extended to government control over the administration of and compensation for medical services. 

Today we know the Federal Government through Medicare sets 

irrational spending targets and administers the prices for more 

than 7,000 physician services. That is a long way from the original 

promise. 

In spite of the government interference and micro-management, 

spending in Medicare has continued to grow at a rate that threatens to make the program financially insolvent. In ’09, fee-for-service Medicare spent about $64 billion on physician and other health 

professional services, accounting for 13 percent of total Medicare 

spending and 20 percent of Medicare’s fee-for-service spending. 

Clearly something has got to change. Although we cannot afford 

the current rate of spending on physician services, we also know 

that if the pending 29.4 percent fee cuts are allowed to go into effect, a large good number of doctors will be forced out of Medicare, 

and a large number of Medicare beneficiaries will lose their access 

to care. We are all well aware of the inadequacies of the sustainVerDate Aug 31 2005 08:34 Aug 28, 2012 Jkt 037690 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 C:\PROGRA~1\WS_FTP\74195.TXT WAYNE
8 

able growth formula as a payment policy, and we are also aware 

of the budgetary burden that is failing to fix the problem it has 

caused. 

Unfortunately, given the opportunity the President decided that 

this issue, arguably the greatest threat facing Medicare, if not the 

entire healthcare system, would be left out of his health reform legislation. Today we begin the chance to correct the omission. 

I thank our witnesses for taking time out of their busy schedule. 

We look forward to your testimony, and I yield my time to Mr. Barton. 

[The prepared statement of Mr. Upton follows:] 

9 


74195.003
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12 

Mr. BARTON. Thank you, Chairman Upton, and we welcome Congressman Harris to the committee. He looks good here and maybe 

one day he will be here permanently. 

OPENING STATEMENT OF JOE BARTON, A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF TEXAS 

Thank you, Chairman Pitts and Ranking Member Pallone for 

holding this hearing today. I remember very well back in 2006, 

when I had—we had lost the majority on the Republican side, but 

we were in a lame duck session, and Congressman Dingell and 

Senator Baucus came to me as the chairman at that time and said, 

let us work right now in the lame duck to fix the SGR. And knowing how difficult it was to do, I said no to that because I wanted 

them to have the fun of having to fix it. 

In retrospect, I should have taken them up on their offer and 

gone to then-Speaker Hastert and said ‘‘Let’s get this done while 

we can,’’ because the problem has only grown worse in the intervening 4–1/2 years. The current system is broke, and you cannot 

fix it no matter how much we tinker with it. 

As Chairman Upton just pointed out, we are going to see a decrease in reimbursement of over 29 percent by next year if we do 

nothing. The deficit now in the SGR is at approximately $300 billion. That is a big number, even in Washington where we have $3.5 

trillion budgets and $1.5 trillion annual deficits. But it is a fixable 

problem if we really mean it when Mr. Dingell and Mr. Pallone and 

Mr. Waxman say the same general things as Mr. Upton and Mr. 

Pitts and people like myself. 

So, Mr. Chairman, it is good that you are having this hearing. 

The last time we had a hearing of this sort I was chairman of the 

full committee. The problem was big then. It is bigger now, but if 

we work together, we can fix it, and I hope that in this Congress 

on a bipartisan basis we can do that. 

With that I want to yield the balance of my time to Dr. Gingrey. 

He has some comments he would like to make. 

Mr. GINGREY. Mr. Chairman, I thank the former chairman of the 

committee for yielding to me. 

OPENING STATEMENT OF PHIL GINGREY, A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF GEORGIA 

On the first day of 2012, physicians face a 30 percent cut if we 

don’t fix the current Medicare Physician Payment System. This is 

a problem that Congress created, and this is a problem that I expect Congress, not Republicans, not Democrats, but Congress to fix. 

Dr. McClellan, in the past you have been gracious enough to offer 

your insight on this issue to the GOP Doctors’ Caucus. Several of 

us on this panel are members. Dr. Murphy is and I am, and we 

co-chair this caucus. We want to thank you for those efforts. 

As you know, the GOP Doctors’ Caucus has been discussing potential SGR reform since the last Congress. We continue to explore 

ideas that might help solve the problem, including private contracting, allowing more flexibility in physician payment models, 

and encouraging greater quality measurements so that we might 

lead to a greater outcome for patients. 

13 

We look forward to continuing that work and working relationship with you and all of our witnesses today. 

I also want to thank personally my good friend, Dr. Todd 

Williamson from the great State of Georgia, in fact, former president of the Medical Association of Georgia. Todd, it is great to see 

you as a witness before the committee again today, and with that, 

Mr. Chairman, I yield back. 

Mr. PITTS. The chair thanks the gentleman. 

I now recognize the ranking member of the full committee, Mr. 

Waxman, for 5 minutes. 

OPENING STATEMENT OF HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. WAXMAN. Thank you, Mr. Chairman. I would like to start by 

acknowledging and welcoming the bipartisan interest in addressing 

the ongoing problem Medicare has in providing stability to support 

patient access to doctors. Too often we have been forced to the edge 

of the brink only to scramble at the last minute to avoid drastic 

cuts that would jeopardize access for Medicare beneficiaries and 

the military families under TRICARE. This is unacceptable to our 

physicians, to their patients, and to Medicare, and we have to find 

a better way. 

Whatever virtues the SGR had when it was created 14 years ago, 

and even then I didn’t see much in it, I voted against it, it is clear 

that they have vanished. Six times in the last 2 years the Congress 

has had to pass legislation blocking fee cuts of up to 21 percent or 

more, and cuts of that magnitude go to the very core of the program and would threaten the ability of seniors and persons with 

disabilities to see their doctors. 

Democrats in the last Congress, in the House, passed the only 

bill ever by either body that would permanently solve the SGR 

problem. It did not become law. That is why we repeatedly worked 

to pass short-term patches to block the SGR. But that is not the 

way to solve the problem. It is essential that we find another way 

to get this done. 

But it is not enough to fill in the budgetary gap created by the 

SGR. We must work towards a new way of paying for care for physicians and all providers that encourages integrated care. We want 

patients to trust that their physicians are talking to each other, 

they are talking to their pharmacy, hospitals, and other providers 

about how to take care of the problems that exist and to prevent 

problems before they even arise. 

We want to achieve all three of the goals Dr. Berwick talks 

about; improving care for individuals, improving care for populations, and reducing costs. Right now the way we pay for care 

doesn’t always support these goals. 

The Affordable Care Act makes major strides to improve the way 

Medicare deals with physicians and other providers. New care models are supported by the ACA, including accountable care organizations and medical homes. Value-based purchasing is pursued across 

the continuing providers in Medicare, and because we don’t know 

what the payment system of the future will look like, the ACA 

opens an arena to innovative experimentation and cooperation with 

the private sector to identify the best path forward. 

14 

Many of the physicians associations responded to our request for 

comments, noted that the Affordable Care Act’s opportunities for 

innovation and expressed a desire to pursue those opportunities in 

our effort to move beyond Medicare’s current fee-for-service system. 

And I would like to thank them as did Ranking Member Pallone 

in suggesting different alternatives for us to look at. 

I hope that this hearing will not focus narrowly on options that 

would shift our problems paying for the SGR onto beneficiaries. I 

know that we do not have any beneficiaries on this panel. I don’t 

know if we have any lawyers. I am pleased we have some doctors, 

but the beneficiaries have some concerns as well, and I would like 

to ask unanimous consent to submit for the record a letter from the 

AARP and the Medicare Rights Center commending the committee’s work on the SGR but opposing proposals that would increase 

cost sharing under the guise of ‘‘private contracting.’’ 

I hope this hearing will be the beginning of a process that will 

lead to a permanent solution to provide both stability and better 

care for Medicare beneficiaries. I earnestly hope we can work together on a bipartisan basis to solve this issue this year. 

And, Mr. Chairman, I thank you for this opportunity to make 

this statement, and I would like that that unanimous consent to 

put those letters in the record. 

Mr. PITTS. Let me see the letters. Do you have a copy of the letters? Let’s just take a look at them. The chair thanks the gentleman and would like to thank the witnesses for agreeing to appear before the committee this morning. Your willingness to take 

time out of your busy schedules underscores just how important 

this is to all of you as it is to all of us. 

On March 28, 2011, the Energy and Commerce Committee sent 

a bipartisan letter to 51 physician organizations asking for input 

on reforming the Medicare Physician Payment System. The chair 

will introduce the responses from the following organizations as 

part of the permanent record: The American Association of Clinical 

Endocrinologists, The American Academy of Dermatology Association, the Association of American Medical Colleges, the American 

Academy of Otolaryngology, AARP, the American College of Obstetricians and Gynecologists, the American College of Rheumatology, 

the Alliance for Integrity in Medicine, the American Medical Association, the American Academy of Ophthalmology, the American 

Geriatrics Society, the American Physical Therapy Association, the 

American Society of Clinical Oncology, the American Society for 

Clinical Pathology, the American Society of Cataract and Refractive 

Surgery, the American Society of Gastrointestinal Endoscopy, the 

American Society of Hematology, the American Society of Plastic 

Surgeons, the American Urologic Association, the American Academy of Neurology, the American College of Surgeons, the Medical 

Group Management Association, the American College of Cardiology, the Society of Hospital Medicine, the Society of Nuclear Medicine, and the Society of Thoracic Surgery. 

Now, we received a lot of letters the last couple of days. As they 

are received they will be entered into the record. Have you finished 

looking at that? 

[The information appears at the conclusion of the hearing.] 

15 

Without objection your two letters will also be entered into the 

record. 

[The information follows:] 

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Mr. PITTS. Let me introduce our panel at this time. The first witness is Dr. Mark McClellan. Dr. McClellan is former Administrator 

for CMS, currently the Director of the Engelberg Center for Health 

Policy Studies at the Brookings Institution in Washington, DC. The 

next witness is Dr. Cecil Wilson. Dr. Wilson is the current President of the American Medical Association. Next, Dr. David Hoyt is 

the Executive Director of the American College of Surgeons. Harold 

Miller is the Executive Director for the Center for Healthcare Quality and Payment Reform in Pittsburgh, Pennsylvania. Professor 

Michael Chernew is a Professor of Health Policy at Harvard Medical School, Dr. Todd Williamson is a practicing neurologist and 

representative of the Coalition of State Medical and National Specialty Societies, and our final witness is Dr. Roland Goertz. He is 

the current President of the American Academy of Family Physicians. 

Your testimony will be entered, written testimony will be entered 

into the record. We ask that you summarize your statements in 5 

minutes, and Dr. McClellan, you may begin. 

STATEMENTS OF MARK B. MCCLELLAN, M.D., PH.D., DIRECTOR, ENGELBERG CENTER, BROOKINGS INSTITUTION SENIOR FELLOW; CECIL B. WILSON, M.D., PRESIDENT, AMERICAN MEDICAL ASSOCIATION; DAVID B. HOYT, M.D., EXECUTIVE DIRECTOR, AMERICAN COLLEGE OF SURGEONS; HAROLD D. MILLER, EXECUTIVE DIRECTOR, CENTER FOR 

HEALTHCARE QUALITY AND PAYMENT REFORM; MICHAEL E. 

CHERNEW, PH.D., PROFESSOR OF HEALTH POLICY, HARVARD MEDICAL SCHOOL; M. TODD WILLIAMSON, M.D., COALITION OF STATE MEDICAL AND NATIONAL SPECIALTY SOCIETIES; AND ROLAND A. GOERTZ, M.D., MBA, PRESIDENT, 

AMERICAN ACADEMY OF FAMILY PHYSICIANS 

STATEMENT OF MARK B. MCCLELLAN 

Mr. MCCLELLAN. Thank you, Chairman Pitts, Representative 

Pallone, and distinguished members of the subcommittee. I very 

much appreciate this opportunity to speak with you on the critical 

issue of Medicare physician payment. Physicians and the health 

professionals who work with them are the linchpin of our 

healthcare system. 

Unfortunately—— 

Mr. PITTS. Is your microphone on? 

Mr. MCCLELLAN. It is on. Maybe I am not speaking quite—— 

Mr. PITTS. Pull it a little closer. 

Mr. MCCLELLAN. Is that better? 

Mr. PITTS. Yes. That is better. 

Mr. MCCLELLAN. I will get right up to it. 

Unfortunately, finding a better way to both pay physicians adequately and address Medicare’s worsening financial outlook has 

been very difficult. Frequent fixes to the sustainable growth rate 

formula for physician payment have meant that theoretical savings 

have not materialized and that physicians can’t reliably plan ahead 

or fully cover their rising practice cost, let alone make needed investments in better ways to provide care that could also save 

money. 

24 

The result is a frustrating gap for physicians between the care 

they are able to deliver while making ends meet in their practice 

and the care that should be possible in a more-effective payment 

system. This is not a new problem. I testified before many of you 

on this distinguished subcommittee 5 years ago about the same 

issues, but it has become a more ordinate problem, as many of you 

noted, from the standpoint of both quality of care for beneficiaries 

and the physical challenges facing Medicare. 

As Congress considers how to address this problem, I urge the 

subcommittee to look beyond approaches that remain tied to the 

existing formula simply by delaying it again or by resetting baselines to higher spending levels. This is an opportunity to provide 

better support for physicians who lead in improving care, and the 

best starting point for doing so are the many practical ideas to improve quality and lower costs already being developed and implemented by physicians and other health professionals around the 

country, often in spite of Medicare payment rules. 

Payment reforms in the Medicare Modernization Act and the Affordable Care Act provide a foundation for this as do many payment reforms being implemented now in States and in the private 

sector. But success in Medicare will require more than good ideas 

about payment reform. It will require real physician leadership. No 

one knows better where the best opportunities are to improve care 

and avoid unnecessary costs for their Medicare patients, and no 

one else will be trusted by Medicare beneficiaries. 

For example, oncologists have noted how much Medicare payments are tied to the volume and intensity of chemotherapy they 

provide. As Medicare reimbursement rates have been squeezed, the 

margin between what it costs to obtain chemotherapy drugs and 

what Medicare pays to administer them has become more important in covering their practice costs. At the same time, oncology 

practices get relatively little support for time spent working out a 

treatment plan that meets these individual patients’ needs, for 

managing patients’ symptoms, for coordinating care with other providers. 

Some oncologists have partnered with private insurance to 

change this so they can get more support for the care that reflects 

the needs of their patients. They still get paid for cost-related 

chemotherapy, but instead of having to support their practice off 

chemotherapy margins, they receive a bundled payment that is no 

longer tied to giving more intensive chemotherapy. Instead the 

bundled payment provides support for the treatment protocols that 

the physicians determine are most appropriate. 

In this example the physicians were willing to take on more accountability for the quality of their care and for avoiding preventable complications and costs since it would allow them to focus 

more on what they are trained and professionally determined to do 

to get their patients the care they most need. 

There are many other examples of this, including in surgery and 

primary care and in many other areas of the delivery of care to 

Medicare beneficiaries. They all have some things in common that 

should be part of any payment reform legislation. They require a 

foundation of better data and meaningful, valid quality and cost 

25 

measures. Most important is providing timely information on Medicare beneficiaries to providers. 

It is also important to take more steps to align Medicare’s existing incentive programs with these clinical improvement efforts, like 

Medicare’s Meaningful Use Payments for Health Information Technology and Medicare’s Quality Reporting Payments, as well as reforms affecting hospitals and crosscutting reforms like Accountable 

Care Organization payments. If they are aligned, these payments 

could add up to much more support for the investments of money 

and time needed to improve care. 

Medicare should also support promising payment reforms already being implemented successfully by private plans and States. 

In all of these efforts more physician leadership is critical. These 

reforms will succeed not because we got the actuarial analysis right 

or we came up with the right names for all these complicated payment reforms but because Medicare beneficiaries are seeing that 

their healthcare providers are getting more support to provide 

them with better care at a lower cost. 

Thank you, again, Mr. Chairman, for the opportunity to testify 

today, and I look forward to assisting the subcommittee in addressing the difficult but critically-important challenges of reforming 

Medicare physician payment. 

[The prepared statement of Mr. McClellan follows:] 

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Mr. PITTS. Thank you, Dr. McClellan. 

Dr. Wilson, you are recognized for 5 minutes. 

STATEMENT OF CECIL B. WILSON 

Mr. WILSON. Thank you, Mr. Chairman. My name is Cecil Wilson. I am the President of the American Medical Association and 

an internist in Winter Park, Florida. The AMA thanks the members of the subcommittee for your leadership in addressing the 

needs to move beyond the SGR, and we look forward to collaborating with the subcommittee and Congress to develop Medicare 

physician payment reforms that strengthen Medicare. 

The SGR is a failed formula. The longer we wait to cast it aside 

the deeper the hole we dig. It is past time to replace the SGR with 

a policy that preserves access, promotes quality, and increases efficiency. 

The AMA recommends a three-pronged approach to reforming 

the Physician Payment System. First, repeal the SGR. Second, implement a 5-year period of stable Medicare physician payments, 

and third, during this 5-year period test an array of new payment 

models designed to enhance care coordination, quality, and appropriateness and reduce cost. 

In addition, Congress should enact H.R. 1700, the Medicare Patient Empowerment Act. This bill would establish an additional 

Medicare payment option to allow patients and physicians to freely 

contract without penalty while allowing patients to use their Medicare benefits. 

The first prong of the AMA’s approach repealing the SGR is critical. Since 2002, and you have alluded to this, Congress has had 

to intervene on 12 separate occasions to prevent steep cuts. But 

more than repeal is needed. Because of the uncertainty wreaked by 

the SGR over the past decade, a time of fiscal stability is imperative. So the AMA recommends 5 years of positive payment updates 

from 2012, through 2016, and I want to be clear. This would not 

be a 5-year temporary delay of SGR cuts but 5 years of statutory 

updates should be in conjunction with repeal of the SGR. 

This would allow time to carry out demonstration and pilot 

projects that would form the basis of a new Medicare Physician 

Payment System, and a replacement for the SGR should not be a 

one-size-fits-all formula. Instead, a new system should allow physicians to choose from a menu of new payment models including 

shared savings, gain sharing, payment bundling programs across 

providers, and episodes of care. 

Additional models are needed to embrace a wide spectrum of 

physician practices, including models focusing on conditions for 

specific capitation, warranties for inpatient care, and mentoring 

programs. While these models are being tested we also need evidence on how to properly structure and implement models which 

show the most promise while addressing complex issues such as effective risk adjustment and attribution. 

To assist with this process the AMA is working with specialty 

and State medical societies to form a new physician payment and 

delivery reform leadership group. This group will include physicians who are participating in payment and delivery innovations 

and by sharing expertise and resources physicians can then assess 

34 

the models that will improve patient care, and they can be implemented across specialties and practice settings. They can also learn 

how to get the programs off the ground, address challenges, and assess the impact of these reforms on patient care and practice economics. And the lessons learned can be widely disseminated to physician practices across the country as we move toward reform. 

The AMA recognizes that reforming the Medicare Physician Payment System is a daunting task. We are eager, however, to work 

with the subcommittee and all members of Congress to lay the 

groundwork for reform so that we can achieve the mutual and fundamental goal of strengthening the Medicare program for this generation and many generations to come. 

So thank you for the opportunity to be here today, and I look forward to your questions. 

[The prepared statement of Mr. Wilson follows:] 

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Mr. PITTS. The chair thanks the gentleman. 

Just a quick announcement. We are in our first series of votes 

for the day. We will take one more witness and then briefly recess 

at that time, reconvene immediately following those two votes. 

Dr. Hoyt, you are recognized for 5 minutes. 

STATEMENT OF DAVID B. HOYT 

Mr. HOYT. Chairman Pitts, Ranking Member Pallone, and Members of the subcommittee, I am David Hoyt, a trauma surgeon and 

the Executive Director of the American College of Surgeons. On behalf of the more than 75,000 members of the College, I want to 

thank you for inviting the American College of Surgeons to testify 

today. 

The College recognizes that developing a long-term solution to 

the failing Sustainable Growth Rate formula for Medicare payment 

is an enormous undertaking, particularly in light of the need to 

limit the growth in healthcare spending. 

The College understands that the current fee-for-service model is 

unsustainable and maintains that any new payment should be part 

of an evolutionary process that achieves the ultimate goals of increasing the quality of patient care, reducing the growth of 

healthcare spending. We assert that these two are directly related 

objectives. 

The first to reforming, the step toward reforming Medicare payment formula is to immediately eliminate the SGR and set a realistic budget baseline for future Medicare payment updates. The 

new baseline should fairly reflect the costs of providing quality 

healthcare, preserve the patient-physician relationship, and ensure 

that patients have continued access to the physician of their choice. 

Following the elimination of the SGR, we believe it is essential to 

provide a transition period of up to 5 years to allow for testing, development, and future implementation of a wide range of alternative payment models aimed at improving quality and increasing 

the integration of care. 

To that end the College is currently analyzing the role of creating 

bundled payments around surgical episodes of care. The primary 

goal of the bundled payment model is to improve the quality and 

coordination of patient care through the alignment of financial incentives for surgeons and hospitals. One approach to bundled payments combines payments to surgeons and hospitals for an episode 

of inpatient surgery into a single fee. 

The ideal surgical procedures to bundle include elective, high volume, and/or high expenditure operations that can be risk-adjusted 

and for which relevant evidence-based or appropriateness criteria 

exists. In order for a bundled payment to be successful, certain 

safeguards must be included, such as ensuring quality patient care 

and physician-led decision-making about how and whom—to whom 

the bundled payments are distributed. 

With the right approaches we can improve both quality of patient 

care and at the same time reduce healthcare costs. The American 

College of Surgeons has been able to significantly improve surgical 

quality for more than 100 years in the specific fields of trauma, 

bariatric surgery, cancer, and surgery as a whole. These initiatives 

54 

reduce complications and save lives, which translates into lower 

costs, better outcomes, and greater access. 

Based on the results of our own quality programs such as the 

National Surgical Quality Improvement Program or ACS NSQIP, 

we have learned that four key principles are required to measurably improve the quality of care and increase value. They are setting the appropriate standards, building the right infrastructure, 

using the right data to measure performance, and verifying the 

processes with external peer review. 

The first, the core process that must be followed in any quality 

improvement program is to establish, follow, and continually reassess and improve best practice. Standards must be set based on scientific evidence so that surgeons and other healthcare providers 

can choose the right care at the right time given the patient’s condition. It could be as fundamental as ensuring that surgeons and 

nurses wash their hands before an operation, as urgent as assessing and triaging a critically-injured patient in the field, or as complex as guiding a cancer patient through treatment and rehabilitation. 

Secondly, to provide the highest quality care surgical facilities 

must have in place appropriate and adequate infrastructures, such 

as staffing, specialists, and equipment. For example, in emergency 

care we know that hospitals have to have proper staff, equipment 

such as CT scanners, and infection prevention measures. If the appropriate structures are not in place, patients’ risks increases. 

Third, we all want to improve the quality of care we provide for 

our patients, but hospitals cannot improve quality if they cannot 

measure quality, and they cannot measure quality without valid, 

robust data which allow them to compare their results to other 

similar hospitals or amongst similar patients. It is critical that 

quality programs collect risk-adjusted information about patients 

before, during, and after their hospital visit. Patient clinical charts, 

not insurance or Medicare claims are the best sources of this type 

of data. 

And then finally the final principle is to verify quality. Hospitals 

and providers must allow an external authority to periodically 

verify that the right processes and facilities are in place, that outcomes are being measured and benchmarked, and that the hospitals and providers are doing something to address the problems 

they identify. The best quality programs have long required that 

processes, structures, and outcomes of care be verified by an outside body. Emphasis on external audits will accompany efforts to 

tie payment to performance and rank the quality of care provided. 

The Patient Protection and Affordable Care Act is intensifying 

the focus on quality. We believe that complications and costs can 

be reduced and care and outcomes improved on a continuous basis 

using these principles that I have outlined and should be the basis 

for payment reform. 

The College welcomes the heightened focus on quality. The evidence is strong. We can improve quality, prevent complications, 

and reduce costs. Most of all this is good news for patients. 

Again, thank you, Mr. Chairman, for the opportunity to share 

our College comments. 

[The prepared statement of Mr. Hoyt follows:] 

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Mr. PITTS. The chair thanks you, Dr. Hoyt, for your recommendations, testimony. 

The committee will stand in recess until 10 minutes after the 

second vote. 

[Recess.] 

Mr. PITTS. The recess having expired we will reconvene with the 

testimony, and we are up to Mr. Miller. You are recognized for 5 

minutes. 

STATEMENT OF HAROLD D. MILLER 

Mr. MILLER. Thank you, Mr. Chairman and Members of the committee. It is nice to be here with you today. 

I think the fundamental challenge that you as a committee and 

Congress are facing is the issue of how to control healthcare costs, 

and there is three fundamental ways that you can do that. 

One is you can cut benefits or increase costs for the beneficiaries, 

which obviously you don’t want to do. Second is to cut fees for physicians and hospitals, which is obviously inappropriate and hasn’t 

worked, and the third way is to change the way care is delivered, 

and that is really what I think we need to be focusing on is how 

to change care in a way that will reduce costs without rationing, 

and there is three basic ways that you can do that. 

One is by helping to keep people well so that they don’t have 

healthcare costs at all. Second is that if they do have something 

like a chronic disease, to help them manage that in a way that 

avoids them having to be hospitalized, and if they do have to be 

hospitalized, to make sure that they don’t get infections, complications, and readmissions. And all of those things save money, but 

they also are improvements for patients, and I think the patients 

would find desirable. 

The problem that we have today and the reason why we are talking about payment reform is that the current payment system goes 

in exactly the opposite direction. Doctors and hospitals lose money 

whenever they prevent infections. We don’t pay for many of the 

things that will help patients stay out of the hospital, and in 

healthcare nobody gets paid at all when the patients stay well. So 

the incentives go in exactly the opposite direction. 

So there are ways to fix that. You don’t fix it by changing the 

fee levels, you don’t change it by adding more and more regulations. You do it by putting in fundamentally different payment 

models, and the two fundamental changes that are needed is, first 

of all, to be able to pay for care on an episode basis rather than 

on a service-by-service basis, having a single price for all the care 

associated with an episode of a patient’s treatment, and also including a warranty against not charging more for when infections 

or complications occur. This is the same way that every other industry in America charges for its products and services, a single 

price with a warranty, and it would be appropriate for healthcare, 

too. 

The other approach is to have what I like to call comprehensive 

care payment, which is to have a single payment for a physician 

practice for all of the care that a patient needs to manage their— 

the particular conditions that they have. Paying in that way provides the flexibility for physicians to decide exactly what the right 

70 

way is for care to be delivered to that patient as well as the accountability for overall costs, and where these programs have been 

tried they have worked. 

Now, the myth that has developed is that only large integrated 

health systems can do this, and because of the visibility of a number of large systems that have tried these things, I think that is 

where the myth has come from, but the truth is that there are 

small physician practices around the country that are also operating under these kinds of programs very successfully, and I think 

like, again, like in every other industry where small business have 

been the innovators, I think that there is also a very important opportunity here for small physician practices to be the innovators in 

this if we provide the right kind of support. 

Now, I have talked to physicians all over the country, and whenever they have the time to be able to understand them, I have 

found that they actually embrace these models. But they need the 

time to be able to transition, and they need support to be able to 

get there, and there is really four kinds of support that they need. 

First of all, they need data and analysis of that data. Physicians 

today generally don’t even know whether their patients are being 

hospitalized, whether they are going to the ER, or how many duplicate tests they are getting. So in order to manage that they have 

to have that kind of support. 

Second, they need training and coaching to be able to change the 

way they deliver care. That kind of reengineering is not taught in 

medical school, and it is very challenging to do it while you are still 

trying to deliver care. 

Third, physicians need transitional payment reforms so that they 

can start taking accountability for the things that they can take accountability for without risking bankruptcy in the short run as 

they evolve towards these broader payment models. 

And forth, physicians need to have all payers, Medicare, Medicaid, and commercial payers, paying them the same way. Otherwise they are spending more time trying to administer different 

payment systems. 

Now, the best way to organize this, I don’t think, is through a 

one-size-fits-all federal program. I think it needs to be done at the 

community level because care is structured and delivered differently in every community. And in a growing number of communities around the country there are now entities called Regional 

Health Improvement Collaboratives. These are non-profit, multistakeholder entities. They don’t deliver care, they don’t pay for 

care, but they help to provide the kind of data and analysis and 

technical assistance to physician practices to be able to evolve in 

this direction. 

And I think that Congress can help these regional collaberatives 

in three key ways. One is by providing them data. Today it is impossible to get data from Medicare to know how you are doing for 

Medicare patients if you want to change that. Second, you can give 

them some modest federal funding to support what they are doing, 

and when I say modest, I am talking millions, not billions, and 

third, you can encourage or require Medicare to participate in the 

cases where they have developed multi-payer payment reforms already at the local level. The big thing that they are missing is havVerDate Aug 31 2005 08:34 Aug 28, 2012 Jkt 037690 PO 00000 Frm 00078 Fmt 6633 Sfmt 6633 C:\PROGRA~1\WS_FTP\74195.TXT WAYNE
71 

ing Medicare at the table, and I think that is going to be a very 

important strategy to support that. 

So I appreciate the opportunity to be here today, and I would be 

happy to answer any questions or provide any help. 

[The prepared statement of Mr. Miller follows:] 

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Mr. PITTS. Thank you for those excellent recommendations. 

Dr. Chernew, 5 minutes. 

STATEMENT OF MICHAEL E. CHERNEW 

Mr. CHERNEW. Thank you, Chairman Pitts, Ranking Member 

Pallone, and Mr. Miller for putting my mike on, and members of 

the Subcommittee on Health for inviting me to testify on innovative Physician Payment Systems that might be useful alternatives 

to the Sustainable Growth Rate System that ironically has proven 

not to be sustainable. Before I commence with my substantive remarks, I would like to emphasize that my comments reflect solely 

my beliefs and do not reflect the opinions of any organization I am 

affiliated with, including MedPAC. 

Critiquing the SGR is easy, yet identifying a viable alternative 

to the SGR is difficult. There is unlikely to be a perfect solution, 

and any path to a solution will take time. That said, I think that 

increasingly the private sector has developed promising alternatives. I will discuss one option I consider particularly promising 

today, the alternative quality contract implemented by Blue Cross 

Blue Shield of Massachusetts known commonly as the AQC. 

But before launching into a description of the AQC I would like 

to speak broadly about payment reform. First, it is important to 

distinguish between the form of payment, fee-for-service versus 

bundled, and the level of payment. The form of payment creates incentives that influence behavior, but even the best payment system 

can function poorly if payment rates are set too low or even too 

high. 

Second, while I recognize that I have been asked to discuss physician payment, the question presupposes a fragmentation of payment that I think is detrimental. Specifically, the existing Medicare 

System, including the SGR, structures payment by provider type. 

This creates numerous inequities and paradoxes that makes managing the system and improving coordination of care across settings 

difficult. 

A more bundled system that pays for an episode of care or provides a global budget can allow more flexibility for providers and 

limit the need for purchasers such as Medicare or private insurers 

to micromanage payment systems. In a bundled payment model the 

relevant question is not how do we pay physicians, but instead how 

do we pay for care. 

Implementing a bundled system is not easy but innovative systems do exist, and at a minimum our experience demonstrates 

their feasibility, and I believe promise. The AQC is one such system. 

Briefly, the AQC is integrated into the Blue Cross Blue Shield 

HMO product and rests on three fundamental pillars. First, a global payment in which providers’ systems receive a budget to cover 

the cost of providing all of an enrollee’s care. Second, the AQC incorporates a comprehensive pay-for-performance system that rewards provider groups for performance on 64 quality measures 

ranging from process measures to outcome measures, from clinical 

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sician groups which helps them identify areas to target for improvement and training and other things as well. 

The AQC differs from the capitation plans of the 1990s because 

the contract extends for 5 years and because of the robust quality 

program and data support. 

The model has several strengths. Most importantly it creates a 

business case for improving quality and efficiency. In contrast, the 

fee-for-service systems innovative programs that reduce the use of 

unnecessary or inefficient care are profitable under the AQC. The 

global budget also provides stability and predictability of spending 

growth, and the 5-year contract duration and the requirement that 

patients designate a physician greater facilitates management and 

accountability. 

Global payment systems in the past have raised several concerns. For example, many have worried that they would lead to a 

lower quality of care. The AQC is designed to prevent this by setting the global budget at least equal to the prior year payment so 

no provider group will be forced to reduce access to care and by incorporating the quality bonus system. Early evidence suggests that 

these features have led to an increase, not decrease in the quality 

of care delivered. 

Further, many observers have noted that not all physician 

groups are capable of functioning in a global budget environment. 

Certainly this is true, but just because all groups are not ready for 

bundled payment does not mean we should abandon it, and I would 

support a multiplicity of approaches. 

Moreover, I tend to have a free market orientation that suggests 

providers will adapt. In fact, if we do not believe such transformation is possible, no amounts of payment reform or other policy 

changes will solve our problems, and we are doomed to a system 

that operates far below our aspirations. 

Moreover, many solo and small practices participate in the AQC 

as part of the larger independent practice associations, which demonstrate that the model can succeed outside of large integrated 

group practices. 

The AQC is not without its weaknesses. For example, the AQC 

is not tied to benefit design, and I believe a greater integration 

with value-based insurance design would be an improvement. Second, while I am a big believer in markets, any private sector model 

must contend with issues of provider market power. Because of its 

size Blue Cross Blue Shield may be better positioned to do this 

than other smaller plans. 

So far the agency has passed the test of the market with enrollment growing from 26 percent to 44 percent of Blue Cross Blue 

Shield HMO membership as more provider groups have chosen to 

join. Some AQC principles are already evident in the recently-proposed Accountable Care Organization regulations and in several 

other bundled payment demonstrations. 

Broad application of such models would be facilitated in Medicare if beneficiaries were incented or required to designate a physician without giving up existing benefits or rights regarding choice 

of provider. 

In summary, a fee-for-service physician system for Medicare, 

SGR or not, generates inherent problems. Bundled payment sysVerDate Aug 31 2005 08:34 Aug 28, 2012 Jkt 037690 PO 00000 Frm 00099 Fmt 6633 Sfmt 6633 C:\PROGRA~1\WS_FTP\74195.TXT WAYNE
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tems such as the AQC offer considerable promise as a way forward. 

These systems are comprehensive and give autonomy to providers 

which ultimately will be preferable to other strategies to control 

spending. 

Thus I urge you to support ongoing bundled payment demonstrations and others like them which will create a more rational and 

effective payment system that allows our expectations and aspirations to be met in a fiscally-sustainable manner. 

[The prepared statement of Mr. Chernew follows:] 

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Mr. PITTS. Thank you, Doctor. 

Dr. Williamson, you are recognized for 5 minutes. 

STATEMENT OF M. TODD WILLIAMSON 

Mr. WILLIAMSON. Good morning. My name is Todd Williamson. 

I am a Board-certified neurologist, and I treat patients every day 

in my office in Lawrenceville, Georgia, just northeast of Atlanta. I 

would like to express my sincere thanks to Chairman Pitts and 

Ranking Member Pallone and the members of this committee for 

the opportunity to address the critical issue of Medicare’s broken 

Physician Payment System. 

As background, I had the honor of serving as the President of the 

Medical Association of Georgia in 2008, and 2009. I currently serve 

as the spokesman for the Coalition of State Medical and National 

Specialty Societies, which includes 16 associations representing 

nearly 90,000 physicians from across the country. The full membership list is in our written statement. 

Medicare is the Nation’s largest government-run healthcare program, and it represents the most glaring example of the need for 

change. As everyone in this room knows the current SGR System 

is failing to serve our Nation’s seniors and physicians. As the gap 

between government-controlled payment rates and the cost of running a practice grows wider, physicians are finding it increasingly 

difficult to accept Medicare patients. Our coalition is, therefore, 

convinced that the key to preserving our Medicare patients’ access 

to quality medical care is overhauling the flawed Medicare payment system. 

To address this problem our coalition supports the Medicare Patient Empowerment Act as an essential part of any Medicare reform. This legislation would establish a new Medicare payment option whereby patients and physician would be free to contract for 

medical care without penalty. It would allow these patients to 

apply their Medicare benefits to the physician of their choice and 

to contract for any amount not covered by Medicare. Physicians 

would be free to opt out or in of Medicare on a per-patient basis, 

while patients could pay for their care as they see fit and be reimbursed for an equal amount to that pay to participating Medicare 

physicians. 

Patients and physicians should be free to enter into private payment arrangements without legal interference or penalty. Private 

contracting is a key principle of American freedom and liberty. It 

serves as the foundation for the patient, physician relationship, 

and it has given rise to the best medical care in the world. It 

should, therefore, be a viable option within the Medicare payment 

system. 

Private contracting will help the Federal Government achieve fiscal stability while fulfilling its promise to Medicare beneficiaries. A 

patient who chooses to see a physician outside the Medicare System should not be treated as if they don’t have insurance. Medicare 

should pay its fair share of the charge and allow the patient to pay 

any remaining balance. 

Private contracting is also the only way to ensure that our patients can maintain control over their medical decisions. The government has the right to determine what it will pay towards medVerDate Aug 31 2005 08:34 Aug 28, 2012 Jkt 037690 PO 00000 Frm 00109 Fmt 6633 Sfmt 6633 C:\PROGRA~1\WS_FTP\74195.TXT WAYNE
102 

ical care, but it does not have the right to determine the value of 

that medical care. This value determination should be ultimately 

made by the individual patient. 

While private contracting would allow physicians to collect their 

usual fee in some instances, it would also allow them to collect less 

in others. It is reprehensible for a physician to be subject to civil 

and criminal penalties if he or she doesn’t collect a patient’s co-payment as is now the case. It is irrational for a senior who wants to 

see a doctor outside the usual Medicare System to be forced to forfeit their Medicare benefits. This simply isn’t fair to someone who 

has paid into the Medicare System their entire working life. 

The day the Medicare Patient Empowerment Act becomes law 

every physician will become accessible to every Medicare patient. 

Private contracting is a sustainable patient-centered solution for 

the Medicare Payment System that will ensure our patients have 

access to the medical care they need. 

In summary, Medicare patients should be free to privately contract with the doctor of their choice without bureaucratic interference or penalty. This will empower individual patients to make 

their medical care decisions while providing the Federal Government with more fiscal certainty. 

Thank you for the opportunity to comment today. 

[The prepared statement of Mr. Williamson follows:] 

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Mr. PITTS. The chair thanks the gentleman and recognizes Dr. 

Goertz for 5 minutes. 

STATEMENT OF ROLAND A. GOERTZ 

Mr. GOERTZ. Chairman Pitts, Mr. Pallone, and members of the 

subcommittee, I am Dr. Roland Goertz from Waco, Texas, President 

of the American Academy of Family Physicians. Thank you for the 

opportunity to testify today on behalf of over 100,000 members of 

the AAFP. I commend your bipartisan commitment to finding a solution to this critical problem. 

Congress understandably is most concerned with controlling federal expenditures for healthcare, especially the rising cost of Medicare. There is growing and compelling evidence that a healthcare 

system based on primary care will help control these costs, as well 

as increase patient satisfaction and improve patient health. 

We recommend reforms that eventually include a blended payment model that consists of the following three elements. 

One, some retention of fee-for-service payment, two, a care coordination fee that compensates for expertise and time requirement 

for primary care activities that are not now paid for, and three, 

performance bonuses based on quality. 

Simply reforming the fee-for-service system which undervalues 

primary care preventative health and team-based care coordination 

cannot produce the results that Congress and patients require. The 

solution to our dilemma of rising healthcare costs and stagnating 

quality will be complex, but it must include greater use of transformed team-based primary care. 

The evidence for the value of primary care and restraining costs 

and improving quality is very clear when that care is delivered in 

a team-based, patient-centered medical home. Growing evidence 

with PCMH and coordinated systems, particularly those that emphasize improved access to primary care teams, shows that they 

can reduce total costs, total overall costs by 7 to 10 percent, largely 

by reducing avoidable hospitalizations and emergency room visits. 

We believe that as a policy goal Congress should invest in Medicare reforms that increase primary care payments so they represent approximately 10 to 12 percent of total healthcare spending, 

particularly if done in ways that improve access to a broader array 

of services. 

Currently primary care is just 6 to 7 percent of overall total 

Medicare spending, so medical home projects went implemented recoup the entire cost of that implementation. To produce the savings 

Congress requires primary care cannot remain unchanged. AAFP 

has already taken the lead in urging its members practices to 

change but such transformation will take time. That is why we recommend a 5-year transition period. This will provide an opportunity to examine what works and to allow physicians to adopt 

those best practices that use a blended payment. When this transition is complete, fee-for-service should be a much less significant 

portion of physician payment. 

Meanwhile, it is important to increase the primary care incentive 

payment to 20 percent and maintain the support for making Medicaid payments for primary care at least equal to Medicare’s payments for the same services. Both of these programs, along with 

121 

the mandated payment updates that are 2 percent higher for primary care, will help stabilize current practices that have been— 

seen so much financial turmoil in the past few years and will allow 

them to begin the process of redesign to the patient-centered medical home model. 

During the 5-year period of stability, it will be crucial to encourage as much innovation as possible. The new CMS Center for Innovation needs to be a key focus of this effort. We believe that this 

center can help CMS cerate market-based, private sector like programs that can significantly bend the healthcare cost curve. We 

recommend that CMS Innovation Center coordinate the various 

healthcare delivery models to ensure comparability and completeness of data. 

The physician community has always believed strongly in the 

value of evidence, and it is the responsibility of the Innovation Center to provide credible, reliable, and usable evidence for health system change. When implementation data becomes available, we 

would encourage Congress to engage in another discussion with the 

physician community with public and private payers, with consumers to determine not just what works but what is preferred. 

In the final analysis healthcare is such an important part of the 

economy and everyone’s lives that we should try to find general 

agreement in what becomes the final replacement for the current 

physician payment model. 

Mr. Chairman and members of this subcommittee, thank you for 

the opportunity to share the view of family medicine with you 

today. 

[The prepared statement of Mr. Goertz follows:] 

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Mr. PITTS. The chair thanks the panel for their opening statements, and I will now begin the questioning and recognize myself 

for 5 minutes. 

Dr. Williamson, you advocate allowing physicians to privately 

contract with beneficiaries above Medicare payments. One concern 

with this arrangement is that sick patients may be at a disadvantage entering into a contract without sufficient knowledge about 

what they need or about the quality of care they are contracting 

for. 

Is there a way to structure this so that patients have more information about what they are contracting for? For example, could 

you combine private contracting with quality measurement and reporting or other tools such as shared decision making? Would you 

respond to that, please? 

Mr. WILLIAMSON. Thank you for the question, and that is a great 

question. I understand those concerns, and I would point out several items about that Medicare Patient Empowerment Act. 

Number one, there is a lot of openness in this act. Patients have 

to agree upfront what they are agreeing to before any care is delivered. 

Number two, this is merely an option within the current existing 

Medicare System, so this would not change any of the current ways 

that Medicare is financed otherwise. There are sufficient protections we believe already existing in the current Medicare Patient 

Empowerment Act as written so that urgencies or emergencies as 

currently defined under Medicare would be exempt from private 

contracting and also dual eligible patients, those patients that are 

most impoverished that are eligible for Medicaid, would not be eligible for private contracting. 

In terms of linking private contracting with quality measures 

and the other items that you outlined, this is something that physicians are trained to do, and I would say with respectful disagreement to some of the things that were said today, physicians are 

taught in medical school how to control costs. They are taught how 

to communicate with their peers. They are taught how to analyze 

data. This is something that we are taught from the very first day 

of medical school. I took a course called analytical medicine, and 

these things are already integral. Could we do more to emphasize 

these things? Absolutely, but I think within the Medicare Patient 

Empowerment Act there are sufficient protections to address your 

concerns. 

Thank you. 

Mr. PITTS. Thank you. Dr. Hoyt, your organization has done a lot 

of very good work on quality measures. Can you give us an assessment of where we are today in terms of measuring quality? Are we 

just measuring processes, or can we also measure outcomes? How 

close are we to being able to come up with a metric that will help 

us decide how to pay for quality? 

Mr. HOYT. Thank you. Yes. I think the way to characterize quality programs today is that probably the best example would be the 

National Surgical Quality Improvement Program or NSQIP, where 

outcomes in addition to processes of care can be measured. 

A very specific example. The implementation of that program in 

112 hospitals over a 3-year period reduced complications, major 

135 

surgical complications by about one complication per day per hospital. If you ascribe about $10,000 to an average complication, 

which is probably a low figure, and multiply that out that turns out 

to be a savings of about $2.5 million per hospital. If you roll that 

kind of program across all 4,000 hospitals, you are talking potentially billions of dollars each year save one program. You add to 

that comparative effectiveness, you add to that other cost reduction 

strategies, and I think that physicians can bring a lot. 

But the quality program tool, if you will, is proven. 

Mr. PITTS. Thank you. Dr. McClellan, there are several moving 

parts to this puzzle. On the one hand there are a number of forces 

pushing providers away from traditional fee-for-service towards the 

newer payment and delivery system such as ACOs and bundling 

payment agreements and medical homes, even capitation models. 

Yet on the other hand it seems that fee-for-service will continue 

to have a role at least for the foreseeable future. As we put the effort into developing these newer payment and delivery systems, 

what can we do to fee-for-service to make it less inflationary and 

more value based? 

Mr. MCCLELLAN. Mr. Chairman, I agree with you. I think fee-forservice and Medicare is going to continue to play a significant role 

for some time. I think what you have heard from the panel today, 

there are a lot of ways, including proven ways, to help make feefor-service work more effectively with these other kinds of reforms, 

and, you know, if you—some of the reforms that you mentioned 

that are taking place in hospital payments and other parts of the 

Medicare Program, the episode payments involving hospitals, the 

accountable care payments, it would be very helpful if physicians 

could get better financial support in their own payment system to 

enable them to lead all of those efforts. And right now with fee-forservice staying the way it is, they are staying behind. 

So I think there are some real opportunities for alignment. We 

are not talking about, you know, radically changing the system, 

discarding all fee-for-service payments now, but, again, especially 

if these efforts can start with physician identified and physicianled efforts like you just heard about from Dr. Hoyt, they have the 

performance measures. These are things that Medicare could be 

paying to report on as part of its quality reporting payments instead of some of the other approaches that are being used now. It 

would be much more in line with where physicians are telling us 

we can improve care and save money, ideas that they already know 

how to do. 

Mr. PITTS. Thank you. My time has expired. 

Recognize the ranking member for 5 minutes for questioning. 

Mr. PALLONE. Thank you, Mr. Chairman. I have three questions 

to three different people, so I am going to try to rush through 

them, and I hope you will bear with me. 

Some of the ideas that were mentioned today by the panel reminded me of the bill which I mentioned in my opening that the 

House passed I guess last year or the year before, which addressed 

the SGR problem in a larger sense. That was the Medicare Physician Payment Reform Act of 2009, H.R. 3961. 

Now, I am not suggesting we simply go back to that now because 

the Affordable Care Act creates a lot of new opportunities for fixing 

136 

the SGR that we should build off today. But that bill, H.R. 3961, 

would have fixed the problem, and so I would like to get Mr. 

Goertz’s thoughts on, you know, on it. 

As you may recall, it provided a guaranteed update during a 

transition to a new payment system, it would have created fairer 

growth targets by eliminating items not paid under the physician 

fee schedule, it would have provided an extra growth allowance for 

primary care services, and allowed ACOs to opt out of the spending 

targets. So I just wanted to ask Mr. Goertz about your thoughts on 

this legislation, what you like about it, and what maybe we could 

do better now that we are post Affordable Care Act? 

In about 1 minute. 

Mr. GOERTZ. I might be able to give you a 1-minute response, but 

it won’t cover all those topics. 

Mr. PALLONE. I know. I know. 

Mr. GOERTZ. Our organization, I don’t remember the exact position on that legislation that we took, but if it satisfies the three elements that I mentioned because fee-for-service has inerrant 

positives and negatives. The positive is that it incents you work 

harder. The negatives is that it is inherently inflationary. 

So there has got to be some control on that. So we believe that 

if you put a patient coordination fee element into that that allows 

us to increase the things that we don’t get paid for in communication with patients and the rest of the other physicians and team 

members that are needed, it will work. It will work. 

Now, the way the current model works it just simply puts everybody in one pool and treats them all the same way. The quality 

measures are mainly process right now, but we are making big 

strides in getting to the outcome decisions that are necessary for 

that, and what mix of those three things eventually evolve I think 

are going to be very interesting to watch. I don’t know what the 

answers are, but all three work synergistically to have a better system than any one of them by themselves. 

Mr. PALLONE. Well, thank you. Now, you mentioned fee-for-service. Let me ask Dr. McClellan the second question. 

Are there examples where physicians or provider-led organizations have stepped up to do the right thing, you know, under feefor-service and the payment system has hurt them from doing 

that? You suggested that there might be cases, but, you know, give 

me an example of maybe where physicians were actually financially punished for doing the right thing, and, you know, I mean, 

that is the last thing I would like to see happen. 

Mr. MCCLELLAN. Lots of examples. One of the first meetings I 

had as CMS Administrator was with the leaders of a number of 

group practices that were doing things like working with nurse 

practitioners and pharmacists to do support for adherence medication, forming transition teams to help prevent readmissions. Point 

out that Medicare pays for none of that, and to the extent that it 

works they could bill less for the things that Medicare does pay for. 

Another good example is Virginia Mason Medical Center in Seattle that implemented some steps to lower costs and improve outcomes for patients with common problems like back pain. They 

were penalized financially and has made it very difficult for them 

to sustain their programs. 

137 

Mr. PALLONE. All right. Well, thanks. 

Now, last, Dr. Wilson, you, you know, I want to commend your 

proposal. It is clear that the AMA and the two other societies seated with you today took our request seriously and put some time 

into the response. 

But I am wondering if you could just attempt to give us your 

view of the consensus amongst the physician community, if any, 

and what we should do about the problems with the Physician Payment System? Is there a consensus at this point would you say? 

Mr. WILSON. In a general sense—— 

Mr. PALLONE. I don’t know that that mike is on. 

Mr. WILSON [continuing]. I would say yes, and I think you heard 

that this morning that around certain principles, and that is we 

have a payment system that does not work. We need to get rid of 

it. We need to have a period of stability as we move to a different 

way of delivering care and paying for care, and you have heard a 

variety of options about models that might be effective. I think 

there is a great deal of consensus around there. 

Now, when we get down to the fine ink, fine print, clearly we will 

all have differences about what will work, but I think we should 

also have a realization that what will work in one part of the country will not work in another part of the country, and that is why 

we have continued to talk about a variety of options, not picking 

a one size that we expect will fit all. I can take you to my home 

State of Florida where what works in the Pan Handle doesn’t work 

in Central Florida where I live and doesn’t work in South Florida. 

So I think we need to keep that in mind. 

There is a temptation to feel like we ought to figure out one rule, 

and that solve it all. This system is so complex that we need to preserve that, and as a matter of fact, the Affordable Care Act in talking about accountable care organizations, I think, recognize that. It 

talked about a variety of models for those structures that would 

work. I think we need to keep that in mind, but I am impressed 

also as I go around the country talking to physicians. They understand there are ways that this can be done better, and they want 

to be involved in the process. 

Thank you. 

Mr. PALLONE. Thank you, gentlemen. Thank you, Mr. Chairman. 

Mr. PITTS. The chair now recognizes the distinguished chairman 

of the full committee, the gentleman from Michigan, Mr. Upton, for 

5 minutes. 

Mr. UPTON. Well, thank you, Mr. Pitts, and again, I just want 

to reiterate from this committee’s viewpoint that I very much appreciate all of the input, not only from you today but the dozens 

of organizations that responded to the letter that was bipartisan 

that Mr. Waxman and I and others signed looking for information. 

This is on our short list of getting things done really this summer. 

Got a number of different things that are there, but this is an issue 

that we need to grapple with. It is time. We are way too late, and 

I appreciate the expertise, the questions of particularly Dr. Burgess, the vice chair of this subcommittee in addition to Mr. Pitts, 

Mr. Pallone, Mr. Waxman, and others. 

Personally I like the idea of taking the time, a number of different years, to look at a whole number of different models and see 

138 

what might work best. I know from my district’s perspective I have 

got some pretty urban areas in terms of Kalamazoo with two great 

hospital facilities with lots of physicians, Borgess and Bronson, as 

well as Lakeland Hospital in the county that I live in, and I have 

got some counties that frankly are very rural, some that don’t even 

have a four-lane road practically. And so it is—we are a diverse 

Nation and different healthcare, and we need to look at those different priorities that are there for sure, and I just want to—again 

appreciate your time today. 

The question that I have and I want to focus this first to Professor Chernew but others might want to comment, you know, the 

IPAB was created by the Affordable Care Act as we all know. A 

number of folks on both sides of the aisle have expressed concern 

about the board and how it functions. For one thing as we know 

that the board sets expenditure targets, imposes spending cuts 

based on those targets, and we know that beginning 2018, the target will be based on GDP. 

Sounds a lot like SGR which we are trying to get rid of, and 

since hospitals are exempt from IPAB cuts through the rest of the 

decade, it seems that the IPAB has the potential to undermine any 

serious efforts a physician payment reform. 

And I would like to get your comments as it relates to that. So 

we will start with Professor Chernew and anyone else that would 

like to comment would be great. 

Mr. CHERNEW. First let me say, Go Blue. 

Mr. UPTON. Yes. Absolutely. 

Mr. CHERNEW. Having been in Michigan for 15 years but—— 

Mr. UPTON. We lost a basketball guy this week. I don’t know if 

you heard. 

Mr. CHERNEW. I think the IPAB is yet an unknown quantity. I 

think in its best it could be supportive of all the things that one 

does here and at its worst it could create problems that you discussed, and I think the challenge like much of aspects of the ACA 

is how to implement the proposals. What you have heard here 

around the table about payment reform I think is a stunning consensus about both the problems of the SGR. I heard from the chairman and the others who spoke and the notion that reforming payment is going to have some basic principles, and you mentioned 

some. The others mentioned the transition and stuff, and I would 

like to think that the IPAB can be used as a tool to backstop if 

problems arise in those, but I certainly think that if one isn’t careful in various ways there would be concerns. 

And so like most things the devil is going to be in the details and 

how to make it work is a bigger question than one can address in 

the time that we have here. 

Mr. UPTON. Anybody else like to comment? 

Mr. WILLIAMSON. Our coalition has opposed the IPAB for a number of reasons, some have been stated. We have concerns about the 

fact that it is comprised of non-elected officials with minimal accountability and the fact that its recommendations would automatically become law if the Congress didn’t act within a fairly short period of months. So our coalition has opposed that entity. 

Mr. WILSON. Thank you, Mr. Chair. The AMA from the start has 

said that this—the Affordable Care Act is a big step forward to 

139 

health system reform, but it is just a step, and there is some challenges associated with it. There are things that were left out, and 

that is medical liability reform as well as a fix for the Medicare 

physician payment. And there is some things in the bill that we 

have problems with, and one of them is the Independent Payment 

Advisory Board, the IPAB. As it is presently structured. We do not 

support it. 

Our concern is and maybe this would be a good place to float 

this, and that is 20 years from now we might be sitting here, some 

of us, talking about how to correct the problems associated with it. 

So it is not impossible that it could serve a function, but as presently constituted we could—we see it basically another target for 

physicians to meet, potential double jeopardy with an SGR as well 

as the pronouncements from this body. 

So we believe significant changes need to be made. 

Mr. UPTON. Great. I know my time has expired. I just want to 

add the Tort Reform is also on our short list of getting things done. 

So thank you very much. 

Mr. PITTS. The chair thanks the gentleman, and now recognizes 

the distinguished gentleman from Michigan, the ranking Member 

emeritus, Mr. Dingell, for 5 minutes for questions. 

Mr. DINGELL. Mr. Chairman, I thank you for your courtesy, and 

I would like to direct my attentions to Dr. Wilson, Dr. Goertz, and 

Dr. Hoyt, and I would like to do this against the background of getting their helpful and necessary advice on how we will proceed to 

solve a problem that is going to cost more every year. 

Now, gentlemen, like all of you I believe we have to change or 

repeal the seriously flawed SGR formula. Each of you seems to be 

in agreement that a 5-year stability period is needed for Medicare 

physician payments to allow providers to plan ahead as well as to 

allow demonstration projects of different payment models. 

Is a 5-year stability period an adequate amount of time to phase 

out SGR and for physicians to prepare for a new payment system? 

Yes or no? In other words, is 5 years enough time to do the job? 

Mr. WILSON. Well, Mr. Chair—— 

Mr. DINGELL. If you want to qualify that I will be glad to receive 

that for the record. 

Mr. WILSON. I will qualify it. We think the 5 years because we 

do think we are going down a different road. This is going to be 

a challenge. It will not be easy. 

On the other hand, we don’t want an indefinite period of time. 

We think there is an urgency about moving forward, and we also 

believe that as things come—— 

Mr. DINGELL. Doctor, I hate to be discourteous, but I have got 

a lot of questions. If I get yes or no, I will get through them. 

Mr. Goertz, Dr. Hoyt? 

Mr. GOERTZ. We would commit to a 5-year period to do everything possible to make the transition. 

Mr. DINGELL. Dr. Hoyt. 

Mr. HOYT. I would agree. 

Mr. DINGELL. All right. Now, we have heard from many of you 

about the need for demonstration projects. How many demonstration projects would be necessary to determine the effectiveness of 

a new system? Starting with Dr. Wilson. Just horseback answer. 

140 

Mr. WILSON. Thank you, Mr. Chair—Congressman. The—it depends on how they work out. 

Mr. DINGELL. True. 

Mr. WILSON. And if we are fortunate that the first project works 

out, then we are there, and that is why we are doing demonstration 

projects. We don’t know how it is going to turn out. 

Mr. DINGELL. The other two panelists, please. 

Mr. GOERTZ. Well, I would posit to you that at least for the elements that I am talking, have referred to, the patients in a medical 

home, I think there are more than enough demonstration projects 

that already show the benefit of that. Now, if you are talking about 

overall change, I think you are going to have to have enough demonstration projects that represent all the regions of the country, all 

the demographic variations that are appropriate, but I don’t think 

that has to be an onerous number. 

Mr. DINGELL. Thank you. Doctor. 

Mr. HOYT. And I don’t know the number, but particularly in surgery we would need demonstration projects to fulfill the needs of 

surgeons practicing in already integrated health systems like 

Geisinger or Kaiser. Then we have 55 percent of our members that 

are still practicing in solo or small group practice, and solutions for 

them are needed as well. 

Mr. DINGELL. Thank you. Now, the same panelists, if you please. 

I introduced in the prior Congress H.R. 3961. That included reforms that may offer some solutions to the current payment problems. As you are well aware, next January Medicare physicians are 

facing a 29.5 percent cut if the SGR problem is not addressed. 

Do you have any that H.R. 3961 would have prevented the 29.5 

percent cut we are expecting in January? Yes or no? 

Mr. WILSON. Yes. 

Mr. DINGELL. Doctor? 

Mr. GOERTZ. Yes, it would have definitely helped. 

Mr. DINGELL. Doctor? 

Mr. HOYT. Yes. 

Mr. DINGELL. One of the proposed reforms included in H.R. 3691 

or rather 3961 was creating two categories of physician services; 

one for evaluation management and preventative services and the 

second to cover all other services. Primary and preventative services would be permitted to grow at GDP plus 2 percent while other 

services would be allowed to grow at the rate of GDP plus 1 percent. 

Do you think this is a good idea? Yes or no? 

Mr. WILSON. That is one of the challenges of prescriptive formulas and that is to know that you got it right, and I think the 

answer would be I do not know. 

Mr. DINGELL. Thank you, Doctor. 

Doctor? 

Mr. GOERTZ. We certainly ascribe to the rebalancing that the primary care elements would have done. The overall I don’t know 

also. 

Mr. DINGELL. Now, we have a whole series of problems here, one 

of which is we are putting target limits on all kinds of services 

being paid for by Medicare. Should we limit spending targets to 

141 

physician services, or should we cover all other kinds of services? 

Starting with Dr. Wilson, if you please. 

Mr. WILSON. Thank you. I think if we are going to have targets, 

then they should include everyone. 

VOICE. Microphone. 

Mr. WILSON. I am sorry. I think if we are going to have targets, 

they should include the health system in general. I think what we 

are understanding dealing with the SGR that targets are not a 

very effective way to do what we want to do. 

Mr. DINGELL. Thank you. Dr. Goertz. 

Mr. GOERTZ. Unless you consider the overall healthcare system, 

you can’t make it efficient. 

Mr. DINGELL. I note, Mr. Chairman, I am over my time. Thank 

you for your courtesy. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

distinguished vice chairman of the subcommittee, the gentleman 

from Texas, Dr. Burgess, for 5 minutes. 

Mr. BURGESS. Thank you, Mr. Chairman. So much to ask. We always do reserve the right to submit questions in writing. I will not 

get through the list of things in front of me, and I know that these 

are not yes or no questions. 

Dr. Wilson, Dr. McClellan, whoever feels most comfortable answering this or both of you, actually, Dr. McClellan, your old boss 

at Department of Health and Human Services, Mike Leavitt, had 

a demonstration project that the physician group practice demonstration project that now has moved into the ACO realm, and 

many of us were somewhat excited about the concept of ACOs, and 

a lot of the Medicare payment reform perhaps could have been tied 

to the ACO. But then a couple of weeks ago we got the rule out 

of the Center for Medicare and Medicaid Services, with which you 

are intimately familiar, and it was almost unreadable and certainly 

unworkable, so now that everyone knows what a unicorn is, I don’t 

think any exist in practice, do they? 

Mr. MCCLELLAN. Well, as you know, the regulatory process involves stats and especially in new areas like this one there are 

going to be lots of comments on whatever the agency puts out first, 

and I have heard some statements recently from some of the leadership at CMS that they are definitely listening closely to the comments, and they want to address on the issues that have been 

raised about the proposed regulation. 

I don’t think that like many of the other ideas that we have 

talked about here today, though, that we are just talking about 

unicorns in terms of doing reforms and payment that support physician leadership and improving care and lowering costs. There are 

a number of ACO-like programs in existence now. Dr. Chernew 

talked about the Massachusetts Blue Cross Alternative Quality 

Contract. That has a lot of new kinds of support for physicians for 

the kinds of delivery reforms that we have talked about. Dr. Hoyt 

talked about a lot of experience with Episode and statements that 

have helped surgeons. 

Mr. BURGESS. Let me interrupt you for a moment because I know 

you know so much about this, and I am going to ask you to respond 

to part of this in writing, but under the rule that came out I don’t 

know that they could exist, and perhaps they could respond to me 

142 

in writing about whether or not their programs could continue to 

exist. 

Dr. Wilson, you talk a little bit about physician leadership, and 

this is going to be so critical. Whatever evolves as the answer to 

this conundrum it is going to take physician leadership, and what 

are you doing now as the head, the consummate insider of organized medicine in the free world? What are you doing to recruit 

that physician leadership? 

We all know whatever it is doctors don’t like anything moving in 

their cage, we don’t like change, but when it happens, it is going 

to take champions within the profession to lead that change. 

How are you preparing for that? 

Mr. WILSON. Well, thank you, Congressman. I assume that 

means in addition to praying. The AMA is actually devoting a great 

deal of its resources to trying to provide information to physicians 

through papers on this subject, through webinars, through information on our Web site, through seminars around the country to help 

physicians understand what an ACO might look like and understanding that the definition is fluid and that what is in the private 

sector may look different than that in the Medicare sector. 

So we are committed to that. Just the week before last I did a 

webinar just looking at the proposed rules. So we think that is an 

important part of what the AMA needs to do, and I would just 

state—— 

Mr. BURGESS. Let me just interrupt you for a second. That would 

include other payment models other than just the ACO? 

Mr. WILSON. Absolutely. Absolutely, and I would just say that as 

I have gone around the country and looking at physician organizations, they are onboard and trying to do that as well. So they are— 

this is a big job, there are a lot of people who are involved, and 

we think it is important, and we agree with that. 

Mr. BURGESS. Well, and I would just point out, I mean, I have 

already gotten some criticism, the twitter verse, for acknowledging 

that there were so many doctors on the panel. We had never had 

doctors on the panel when we were doing healthcare reform. I just 

do need to point that out, and I thought we needed you when we 

were doing healthcare reform, but there is not a day that goes by 

that I don’t hear from some doctor or some group who has some 

idea about—I dare say you can’t go into a surgery lounge anywhere 

in the country where this problem wouldn’t be solved within 15 

minutes with time for coffee. 

Now, Dr. or Mr. Miller and Dr. Chernew, I need to ask you in 

what limited time I have left, both of what I heard you describe 

what you were proposing, I will admit getting a very cold sensation 

because it sounded so much like capitation under the HMO model 

of the 1990s. 

How are each of you different from capitation? 

Mr. MILLER. Well, it is different from capitation in a number of 

critical ways. First of all it is risk adjusted so that you don’t get 

penalized for having sicker patients. There are limits on the 

amount of risk that you would take. So if you get a usually expensive patient, you don’t end up having to pay for that all out of the 

same amount of money. That gets covered, and there are quality 

143 

bonuses attached to it so that you don’t end up being rewarded for 

delivering low-quality care. 

And I think that when we talk to physicians about this, I was 

just in Colorado this past weekend, had 100 doctors, we actually 

had them sort of be inside the payment model, and to talk about 

how they would change care because of the greater flexibility that 

they would have, and at the end we said, so, which would you rather be in? These new payment models or the existing payment 

model, and it was about 99 to one people said I would like to be 

in the new payment model because of the opportunities it gives me 

to be able to deliver better quality care. 

Mr. BURGESS. Mr. Chernew, just very briefly. 

Mr. CHERNEW. I would just add—— 

Mr. BURGESS. All right. Are you finished your answer? All right. 

Mr. CHERNEW. Apparently. 

Mr. PITTS. Did you have something—— 

Mr. BURGESS. I was just wanting Dr. Chernew to respond to the 

issue of capitation. 

Mr. CHERNEW. A 5-year—I agree with everything Dr. Miller said 

and the 5-year duration of the contract makes a big difference, because if you are effective in lowering costs, they can’t come in the 

next year and just lower and lower your capitation rate. The rates 

always go up, the capitation. I think that is an important fact. 

Mr. PITTS. OK. Thank the gentleman and now recognize the distinguished ranking member of the full committee, the gentleman 

from California, Mr. Waxman, for 5 minutes. 

Mr. WAXMAN. Thank you very much, Mr. Chairman. I know we 

try to be liberal on time, and I will try to stay within the 5 minutes, but knowing the President I am sure I could go over. 

I have always been a supporter of allowing managed care choice 

for Medicare beneficiaries. My district, Kaiser Permanente, Kaiser 

Health Plan and Permanente Medical Group, have been leaders in 

providing high-quality care at a reasonable cost. 

In many cases, however, managed care gets out of control, loses 

its bearings, patients have been denied necessary treatments and 

care, has been rationed by some private plans. 

Dr. Chernew, I want to address this question to you because your 

testimony describes the alternative quality contract of Blue Cross 

Blue Shield Massachusetts is pursuing. Can you tell whether and 

how that model guards against the incentives for doctors that deny 

needed treatment to their patients? 

Mr. CHERNEW. Very briefly there is—the rates are set so that 

they don’t go down so no organization is forced to reduce access to 

care. The rates go up at a slower rate than they otherwise might 

have. There is the quality bonus system that protects against care 

which includes outcome measures as well as process measures, includes patient experience measures, as well as just process measures, and our preliminary evidence suggests, in fact, the quality 

has risen under the AQC, and again, it tends to be a more doctororiented system where the doctors have autonomy to do what they 

were trained and want to do as opposed to insurer micro-managing 

the care. The doctors have much more flexibility as Mr. Miller emphasized than you might have in other systems. So I think it is a 

very doctor-leadership friendly design. 

144 

Mr. WAXMAN. In Medicare, of course, we are pursuing some similar projects in the form of accountable care organizations and other 

shared savings arrangements. Can you draw any lessons for Medicare from the Blue Cross Blue Shield Massachusetts experience to 

date? 

Mr. CHERNEW. I do think there is a lot of similarities. I think 

some of the advantages that Blue Cross has had is, for example, 

you have to choose a physician, designate a physician. I think that 

is similar to the contracting that Dr. Williamson mentioned. You 

have to pick a physician that helps—it works. There is an up side 

and down side risk as some of the ACL regulation gets out, so I 

do think there are broader lessons in the AQC, the performance 

measures, but we would have to have a longer conversation to go 

into all the things. But there are parallels, and I do think it speaks 

well of where some of the innovations are going. 

Mr. WAXMAN. Many of the physician groups that responded to 

our letter, bipartisan letter, seeking comment asked that Medicare 

allow physicians to choose from a menu of options for different payment models in the future. Do you agree that Medicare needs to 

be able to deal with physicians and hospitals in a more personalized, specific way, less of a one-size-fit-all approach? 

Mr. CHERNEW. I do think that multiple approaches will be useful. 

I think they have to be structured in a way to avoid aspects of selection across the different programs, but subject to those caveats 

I think there is unlikely to be a one-size-fits-all solution. 

Mr. WAXMAN. As we look at the ways to change the incentives 

in order to truly fix the payment system, we have to be sure we 

do no harm the quality of care in the process and hopefully rebuild 

incentives that actually improve the quality of care. 

So Dr. Miller, I was very interested in your ideas on regional 

health collaberatives. During my time as chairman of the Oversight 

Committee, separate committee from this one, one of the most 

striking things we learned was about—was a project in Michigan 

that was implementing a checklist to reduce healthcare-associated 

infections. Many people took away from that the idea that we 

ought to have checklists, but what we also heard and maybe more 

importantly at this hearing was the importance of people coming 

together to improve care. The checklist was only a tool to allow for 

collaboration at the local level. 

MedPAC has recently begun a discussion about ways to improve 

quality of care. They are contemplating changes to the Medicare 

Quality Improvement Organizations and heard testimony from a 

regional health collaborative. 

Dr. Miller, do you think that the QIOs should be significantly 

modified to allow for more entities to participate, and can these 

collaboratives play a more direct role in payment reform aside from 

the critical role of improving quality? 

Mr. MILLER. Well, I think the collaboratives are already doing 

around the country things that we want to see happen. They are 

measuring and reporting on quality long before Medicare was doing 

that. They have been working to work with both hospitals and physicians to help them be able to restructure the way they deliver 

care. Pittsburgh Regional Health Initiative in Pittsburgh was doing 

those infection reduction projects back in the 1990s. 

145 

What everybody kept running into was the problem that the way 

the payment system was structured actually either didn’t support 

the care changes that they had found would work or would penalize them for doing that, and so that is why we now see a number 

of the collaboratives around the country that are working on payment reform efforts and have brought together the commercial 

health plans and Medicaid plans to agree on different approaches 

to payment. The biggest thing that is missing is Medicare being at 

the table. 

I think the QIOs in a number of communities, some of the QIOs 

are operating as regional health collaboratives, and I think that in 

other cases they are working together. I think there is plenty to be 

done to be able to improve the way the healthcare system works 

and rolls for everybody. I think the issue is to have that local focus 

and to be able to have the kinds of improvement customized to 

what are the specific problems and the specific needs in that particular community, and that is what we don’t have right now is a 

good system for being able to support that local customization. 

Mr. WAXMAN. Thank you. Thank you, Mr. Chairman. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

gentleman from Kentucky, Mr. Guthrie, for 5 minutes. 

Mr. GUTHRIE. Thank you very much, Mr. Chairman. I guess, Dr. 

McClellan, I will ask you this since you were at CMS in the 2000s. 

I have been looking at the Sustainable Growth Rate. I got elected 

2 years ago, so I am new at this, and I don’t like to go back and 

say, well, there is a problem in the past. We have to fix it, but it 

would be kind of nice to know since we are trying to come up with 

a new system, were you there when the Sustainable Growth Rate 

was designed? Because looking at the map of it, it ties, essentially 

ties it to the gross domestic product, which even the gross domestic 

product drops. People don’t quite go into the positions, so it seemed 

like a bad model to begin with, and I don’t know if—did people 

come together and say, you may not have been here, but just history of it, this was the right thing to do and now we are here 10, 

12 years later going, we have to do something different? 

Because my question gets to whatever we do is going to have to 

save costs in the system, and so whatever system we have it going 

to save the costs of at least the growth. Right now it is cut, it is 

not trying to slow growth, it is cutting, which is wrong, but I just 

want to know the history of the SGR and why you think it was 

supposed to work and didn’t. 

Mr. MCCLELLAN. Well, I will try to give you a brief history. I 

wasn’t there back in the days of the Balanced Budget Amendment 

or Balanced Budget Act that established the SGR more than a decade ago. It was driven exactly as you said, by concerns about rising 

costs in the Medicare Program and the need to find a way to take 

costs out, and you know, unfortunately, the traditional thing that 

we do when we can’t figure out the direct way to save money while 

improving care is when all else fails, just cut the payment rates, 

and that is what was built into the formula. 

So I wasn’t here when that started. I was here 5 years ago at 

CMS as you mentioned when this subcommittee was also having 

hearings about the challenges of reforming the SGR, and I think 

what has happened in the 5 years since is a couple of things. 

146 

One is the concerns about rising costs and the sustainability of 

the Medicare Program have increased a lot, along with the cost 

about the affordability of our healthcare system overall, and the 

second is we have a lot more evidence and a lot more leadership 

from physicians as has come up repeatedly today on ways to do it 

better so that you don’t depend on crossing your fingers that some 

statutory formula is actually going to be implemented, and you do 

depend on the people who are in the best position to do something 

about this problem, and that is physicians. 

So the steps that we have talked about today, I think it is time 

to begin implementing them to move away from the SGR and save 

money at the same time. 

Mr. GUTHRIE. I agree, agree completely. I just wanted to kind of 

figure—we were sitting here a dozen years ago saying this is going 

to fix the problem, but I guess people must have thought even 

when they did it, this really isn’t going to fix the problem. So when 

you do—things come as gimmicks, and this is not going to work. 

You have got to have sustainable changes into that. 

The thing on quality of care, a lot of times we talk about teachers, and they say, we want to be paid for the quality of instruction 

and how do you measure it. I mean, the measurables come into 

play because the teacher says, well, if I am in a school with a certain demographic, then I may—and I am with a school of a different demographic, I am being compared to each teacher. And so, 

I mean, how do you—because if you have a less-healthy population 

you are treating, you are going to have less outcome just by nature 

than if you have a healthy group. 

So how do you determine—anybody want to talk? How about Dr. 

Hoyt? 

Mr. HOYT. Yes. I think that is a great question, and the way you 

do that is, first of all, through statistical risk adjustment of patient 

population so you are comparing apples to apples, physician to physician, practice to practice. 

Mr. GUTHRIE. Another formula? 

Mr. HOYT. And then secondly, you really need to pick matrix that 

are going to be relevant to improving the patient care process, and 

I think by having leadership models like people have talked about 

we are actually training leaders to become qualitologists or quality 

leaders in organizations by having these inter-State collaboratives 

so that we share best practice. And then what you individually do 

with the database is you array against a particular complication, 

let’s say surgical infection, all of the providers. That can be hospitals or that could be an individual physician, and what you then 

get is the performance of all those providers across that complication. You are going to have some outliers that are doing well, some 

outliers that are doing poorly. 

What happens is those people get together, and they improve, 

and that is the affect we are trying to get to. 

Mr. GUTHRIE. I only have 30 seconds, but the surgical infections 

is what the hospital is doing there. What about some of the behaviors that—what the patient brings to it like someone who is pregnant. So—— 

Mr. HOYT. That needs an additional—— 

147 

Mr. GUTHRIE. And I know you want to incentivize having better 

prenatal care, but are there doctors that that is what you want to 

do is say you kind of really manage that. A lot of times it will be 

different for different physicians based on the way their patient 

populations react. And how do you account for that? 

Mr. HOYT. Well, I think that is an additional strategy. You know, 

in my field, trauma, the way we do that is you work on road traffic 

safety initiatives, you work on gun control or whatever because you 

are trying to go upstream from the problem, and every aspect of 

medicine has preventative areas that are essential. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

gentlelady from California, Ms. Capps, for 5 minutes for questions. 

Mrs. CAPPS. Thank you all for being here. I have long been a 

supporter of fixing the SGR problem. It is an issue that causes difficulty for providers and consumers alike. In addition, providers 

who are able to keep their patients healthier and lower overall 

costs are often penalized even more. 

But the conversation often stops at the crisis point—how do we 

make it to the next fix?—and rarely moves onto one where we can 

discuss our vision for healthcare system in the future and how to 

get there. That is why I thank Chairman Pitts and Ranking Member Pallone for engaging in this important topic today, and I have 

two—an idea to bring before Dr. McClellan and Mr. Miller. 

There has been so much talk about the role of doctors in the 

healthcare system, but if we are really going to move to a more 

comprehensive, prevention-focused system of care, I believe it is 

important to acknowledge the role that other healthcare providers 

bring to the table in keeping our Nation healthy, including nurses, 

nurse practitioners, physicians’ assistants, and many new kinds of 

models of delivering care. 

This hearing and many before it have drawn our attention to the 

needs to move away from volume-based medicine and toward a 

more holistic model where the rewards are for providing great care 

for a patient rather than a lot of tests and procedures. As a nurse, 

I can tell you that nurses and nurse practitioners get that. In previous hearings we have heard about how many successful programs—we have heard about some successful programs, for examples, the Guided Care Program at Johns Hopkins and how they 

rely on nurse managers or nurse practitioners to provide the complex services that frail Medicare and Medicaid patients often need. 

In addition, nurses have patient education skills that can help to 

manage chronic diseases for many people. 

So, Dr. McClellan, will you talk briefly about the possibilities for 

nurse practitioners, physicians’ assistants, and other non-physician 

practitioners in some of these new care models like medical homes 

or accountable care organizations, please? Then I will turn to 

you—— 

Mr. MCCLELLAN. Every single one of these reforms has involved 

more reliance on other health professionals. I can’t think of any, 

not medical homes, not these episode-based programs, improve surgical outcomes and reduce complications, not programs for palliative and supportive care for patients with complex illnesses. They 

don’t rely much more than we have in the past on nurse practitioners, nurses, pharmacists, and other allied health professionals 

148 

in delivering care. And that gets back to the core problem we have 

been talking about today, which is that Medicare’s traditional feefor-service program doesn’t do much to pay for these other forms 

of care in order to target these services to the right patients, 

though, you need physicians working with these other health professionals making decisions. You need more flexibility for them to 

lead, and that is hopefully where these payment reforms will take 

us. 

Mrs. CAPPS. And so that is one of the areas where you want to 

see us go forward. 

Mr. MCCLELLAN. Absolutely. 

Mrs. CAPPS. OK, and of course, underlying all of this is the shortage of primary docs, and everyone is fixated on that. There are— 

we need more incentives for people to rise to those kinds of primary 

care services from these other professions as well. I am seeing you 

nod so I think you agree. 

Mr. MCCLELLAN. I think so, and just to go back to the example 

in Massachusetts that Dr. Chernew was talking about, one of the 

features of that alternative quality contract is a lot more resources 

for primary care doctors to coordinate care, and some of them who 

I have talked to said they feel this is more like concierge’s medicine 

almost. They are able to really spend the time managing the patients’ problems and aren’t being reimbursed just on a short, you 

know, 5-minute visit basis. 

Mrs. CAPPS. Good. OK. Maybe Mr. Miller, and if there is time, 

Dr. Chernew, you may want to chime in, too. 

Mr. MILLER. I organized and ran a project in Pittsburgh over the 

past 3 years focused on reducing hospital readmissions for patients 

with chronic disease. We made a lot of changes in various procedures, but the most important single thing that we did was that 

we hired two nurses to work with those chronic disease patients to 

help them, educate them to go into their homes to figure out what 

they needed to be able to manage their care better. We had to use 

a foundation grant locally to pay for them because they could not 

be paid for by—— 

Mrs. CAPPS. There is no funding stream right now. 

Mr. MILLER. My instructions to the nurses when we hired them 

was your job is to keep 13 people out of the hospital in the next 

year because that will actually pay for your salary, and they beat 

that target by a significant amount. We reduced readmissions by 

44 percent in the course of 1 year, and we ended up having to lay 

off one of those nurses at the end because there was no way to continue her under the current healthcare payment system. In the 

other case, fortunately, the hospital was willing to pick her up to 

put her on salary to continue to do that work to help the patients 

stay out of the hospital. 

Mrs. CAPPS. Great example. So the results are pretty short-term. 

Mr. MILLER. The results at quick, they are dramatic, and the 

intervention is very simple. It is simply—it is a perfect example of 

something where the current payment system does not pay for 

that. Now, whenever you do pay for it, you want to have them focusing on a specific target—— 

Mrs. CAPPS. Right. 

149 

Mr. MILLER [continuing]. that will actually save you some money 

and not have that nurse diverted into doing all kinds of other 

things that might be desirable but will not save the program 

money. That is why whenever we did the program we said the 

focus is specifically on keeping, reducing readmissions of patients, 

and they were able to do that, and it was actually a very empowering thing for the nurses and for the physicians to be able to have 

that resource that they could use for their patients and be able to 

use it for the patients that they knew needed help but that they 

didn’t have the time to be able to provide for them. 

Mrs. CAPPS. And I have run out of time, but I will look for your 

written testimony, Dr. Chernew. If you would like to submit—if 

you want to zero in or boar in on the way that this impacts in the 

Massachusetts Program as well, I would appreciate that. 

I will yield back. 

Mr. PITTS. The chair thanks the gentlelady and now recognizes 

the gentleman from Louisiana, Dr. Cassidy, for 5 minutes for questions. 

Mr. CASSIDY. Dr. Wilson, I am also a member of the AMA, and 

I like all your suggestions except that I don’t see how we pay for 

them. In fact, one of the—I was disappointed as many members of 

the AMA were in the AMA support of PPACA because frankly the 

low-hanging fruit of savings in Medicare didn’t go to shore up 

Medicare or to fix the SGR. It went to create another entitlement, 

which arguably is going to make our situation worse. 

So do you have any—I don’t see inherent in your testimony now 

that the savings for Medicare have been used outside of Medicare 

how we pay for this. 

Mr. WILSON. Well, one of the challenges of the whole healthcare 

system is that the costs are multi-factorial, and we have not in this 

hearing because it is not a part of this hearing talked about the 

biggest driver for cost in this country in healthcare, we spend 78 

percent of what we spend on healthcare on chronic disease. And 

so—and most of that preventable. So that is another area we need 

to be involved with. 

The area of tort reform CBO has suggested that a cap of $250,000 on non-economic damages would reduce the federal budget by $54 billion over the coming years. So we think they have a 

variety of things in this legislation that will start to address that, 

and that is where we need to look, but it is a variety of things. 

There are parts of this legislation that look at the whole area of 

simplification, administrative simplification, insurance forms, 

things that don’t contribute to health—— 

Mr. CASSIDY. Let me interrupt just because I have such limited 

time. I always say, though, anything that creates according to the 

CBO enumerable boards, bureaucracies, and commissions does not 

decrease administrative costs. 

But Dr. Chernew, now, I am very interested in what you described Blue Cross doing in Massachusetts. But on the other hand, 

Massachusetts, which is kind of a forerunner of PPACA, has the 

highest, I mean, literally, the highest private insurance premiums 

in the Nation, and so my concern is that, again, the forerunner of 

PPACA has resulted in the highest private insurance premiums in 

the Nation. So how has the program you described, which is incredVerDate Aug 31 2005 08:34 Aug 28, 2012 Jkt 037690 PO 00000 Frm 00157 Fmt 6633 Sfmt 6633 C:\PROGRA~1\WS_FTP\74195.TXT WAYNE
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ibly intriguing, thwarted that, contributed to that? I mean, it 

seems kind of a discordance where you have high premiums and 

yet you have what is on paper seems like an effective intervention. 

Mr. CHERNEW. Right. I am not prepared to defend all of Massachusetts and the differences of Massachusetts healthcare. We could 

discuss it at greater length, but I think the easy answer to your 

question is the AQC wasn’t designed initially to save money in the 

first years. As I mentioned in response to an earlier question, it 

doesn’t lower the amount of money that any physician group gets 

paid, and in fact, the physician groups are more efficient. A lot of 

that is captured by the physicians. It is not captured by the plan. 

The goal of the AQC has been to give physicians the power to 

control that trend through say, for example, a very primary care 

center the way Dr. Goertz described, and so the evaluations of 

what it is going to do are ongoing but ultimately its impact on 

spending and trends are specified in the 5-year trajectory and relative to what had been projected in Massachusetts, which had been 

growing at about the same rate, it was designed to save money off 

of trend, not to lower fees. 

And so in the end what matters is how much you allow the—— 

Mr. CASSIDY. Is there an initial indication that it is saving money 

on the trend? 

Mr. CHERNEW. There has only been 1 year of experience so—— 

Mr. CASSIDY. And then let me ask you another because I have 

such limited time. Now, the medical loss ratio, is that 15 percent 

in Massachusetts? 

Mr. CHERNEW. I am not aware of what the medical loss ratio is 

in Massachusetts. 

Mr. CASSIDY. And the only reason I ask that is because clearly 

there is an informational infrastructure required of the insurance 

companies. 

Mr. CHERNEW. Yes. 

Mr. CASSIDY. Now, on the other hand if you have high premiums, 

again, if you have the highest in the Nation, 15 percent of something high gives you something pretty high. Fifteen percent in a 

lower State which doesn’t have this sort of precursor PPACA which 

may be lower, that absolute dollar is less. 

Can you incorporate this with an artificial medical loss ratio of 

15 percent? 

Mr. CHERNEW. I agree with the premise of your question that 

there is going to be some spending that is not countered in the 

medical loss ratio that is very important to control spending, and 

you want to make sure that medical loss ratios don’t impede your 

ability to innovate, and if that is the gist of your question, I agree 

with you. 

Mr. CASSIDY. OK. Fantastic. Dr. McClellan, now, I got to tell you, 

I see my New England Journal of Medicine article which shows 

that ACOs and these demonstration projects which are picked to 

succeed, that they typically don’t succeed in terms of saving money, 

and when everybody says we are going to save money with ACOs 

and yet the best analysis from the best demonstration project show 

that they don’t, how can we hang our hat on this, particularly after 

that incomprehensible rule put out by CMS? 

151 

Mr. MCCLELLAN. Well, setting aside the rule I think the New 

England Journal you are referring to summarized the experience 

under a demonstration program that we started while I was there, 

and what it found was that out of the ten groups that participated 

every single one of those physician groups significantly improved 

the care for their beneficiaries. They led to significant overall savings in Medicare costs, and five out of the ten got to levels of savings of 2 percentage points per year, which is in the kind of realm 

that would make Medicare—— 

Mr. CASSIDY. Now, if I may quote, ‘‘It seems highly unlikely that 

the newly-established, independent practices would be able to average the necessary 20 percent of return on their investment.’’ I am 

quoting from the article. ‘‘The main investment of’’—I could go on, 

but it actually disputes a little bit your assertations. 

Mr. MCCLELLAN. Well, I think what the article is pointing out is 

that for physicians to change their practices in ways that improve 

care takes an investment upfront, and if all they are getting is this 

shared savings on the backend, that by itself may not be enough, 

and that is essentially one of the core concerns that people have 

raised about the proposed regulation, and I agree. 

We need to be looking at reforms that give enough support upfront to enable the kinds of backend savings to bend the cost curve. 

What we are seeing in a lot of the private insurers who have implemented ACOs is a combination of approaches. They don’t just like 

pick one and do that for 5 years and then wait and do something 

else. They are trying to comprehensively work with providers to 

solve this problem. 

So they do something like medical home payments upfront as we 

talked about before, more resources for primary care. 

Mr. CASSIDY. Let me interrupt. The chairman has been very generous, but we are already a minute, 20 over. I appreciate that. I 

would appreciate your complete response—— 

Mr. MCCLELLAN. I would be delighted to follow up with you. 

Mr. CASSIDY [continuing]. And I would like to submit for the 

record something that Dr. Goertz would agree with from Qliance 

regarding the direct medical home, for the record. 

Mr. PITTS. Without objection, so ordered. 

[The information follows:] 

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Mr. PITTS. Thank—the chair thanks the gentleman and now recognizes the gentlelady from Wisconsin, Ms. Baldwin, for 5 minutes 

for questions. 

Ms. BALDWIN. Thank you, Mr. Chairman, and I also want to extend my gratitude to the panel for being here and also to add my 

comments to those who mentioned earlier that it is great to see the 

bipartisan leadership of this subcommittee and full committee 

working together on this critical issue. 

As we talk today about the importance of repealing the Sustainable Growth Rate, we also have to focus on replacing the Medicare 

Fee-For-Service Payment System with a model that has some better incentives aligned rewarding quality, controlling costs, and I 

would like to sort of add the new layer of incenting us to involve 

patients as partners in their healthcare, something I haven’t heard 

a lot about, but of course, we have a panel of physicians, and I am 

sure later in this session as we dig down in this issue that we will 

hear from patient groups and that role, too. 

We are all representatives, we all represent certain geographical 

areas of this country, and as such we tend to follow closely what 

is happening in our home turf. I happen to represent South Central 

Wisconsin in the U.S. Congress, and I think based on what I have 

learned from some of my home State practitioners, there is a lot 

we can learn from what is going on in the State of Wisconsin. 

Providers there have been at the forefront of adopting innovative 

models that have demonstrated high quality and value. They have 

proved that implementing a system where there is a high level of 

integration and where doctors are responsible for managing patient 

populations can produce high quality and low cost care. 

I guess I want to focus a little bit on one such delivery model 

that has produced successful outcomes in Wisconsin, and Dr. 

Goertz has talked about it extensively in his testimony, the patient-centered medical home. That model focuses on the productive 

roll a primary care physician can play in providing and coordinating care, and we know how important the primary care field is 

in improving healthcare outcomes. They recommend preventative 

measures, help patients manage chronic conditions, and keep patients out of high-cost emergency room settings. 

I know all of you know that in a medical home model the practice-based care team takes collective responsibility for a patient’s 

ongoing care, and this team coordinates the patient’s care across 

care settings and fields and maintains a personal relationship, the 

patient, with their personal care physician. 

One system in my district, Dean Health System, has tested the 

patient-centered medical home model, and when establishing this 

model, they hit an initial roadblock which was basically finding 

that the fee-for-service model and Medicare, i.e., rewarding volume, 

is inherently contradictory to the patient-centered medical home 

model. This model relies on primary care providers carrying out 

and providing a significant number of tasks that improve quality 

and enhance efficiency, but these tasks are not reimbursable 

through the relative value unit-based compensation model. 

What Dean did instead was to establish its own reimbursement 

model to ensure sufficient reimbursement for this primary care 

model. Their innovative approach has really paid off. The quality 

157 

of care in the systems medical homes has improved notably, and 

these models have achieved considerable improvements in efficiency measures. 

Today all of Dean’s pilots have been certified by the National 

Committee for Quality Assurance. But, furthermore, there has been 

great patient feedback in terms of their happiness and satisfaction 

with this model. Their perception of access and satisfaction are 

higher for these patients who receive care through their medical 

home model. 

But perhaps the most notable achievement is that by embracing 

these innovative models Dean has achieved significant cost savings. 

Overall the system saw medical costs increase by only 2 percent in 

2010, compared to the national average of 10.5 percent. Also, their 

pharmacy costs did not increase at all in 2010, while pharmacy 

costs across the Nation increased 9 percent last year. 

The successes that they had and other providers in Wisconsin 

have achieved would not have been possible in this sort of fee-forservice construct. For this reason up to this point the medical home 

model has really been limited to the private sector to the greatest 

extent. 

So, Dr. Goertz, could you elaborate a little bit on how moving 

away from the fee-for-service model and expanding the patient-centered medical home to public payers like Medicare could help realize the goal of providing this high quality care for lower costs but 

also this increased potential of involving patients in managing and 

in partnership with their physicians and nurses in managing their 

own care? 

Mr. GOERTZ. Thank you for that question. One of the interesting 

things about the patients in the medical home is when we evolved 

that in the early 2000s, we took in a lot of information from patients themselves about what they wanted and designed it, and to 

the chagrin of our members we designed it without caring about 

how it was going to be paid for. And then we turned around and 

said, how are we going to pay for this model that we designed to 

give the care for patients the way we know it can be done and still 

have the resources to run the practices. 

So my response is the commercial payers and the models that 

they have already put in place show it works, but it takes looking 

at the entire spectrum where costs are laid in the system, and until 

you allow us to look at the entire panorama of where costs are, you 

are never going to fix it. You just can’t, and that—the patient-centered medical home seeks to have the patient get the care where 

they need it by the right people in the team without regard to 

those other pieces, and it seeks to involve the patient in how care 

is given. 

Mr. PITTS. The chair thanks the gentlelady and recognizes the 

gentleman from Pennsylvania, Dr. Murphy, for 5 minutes for questions. 

Mr. MURPHY. Thank the panel. It is good to see some of you here 

again. 

Back in the 1990s when I was a State Senator I authored and 

we passed into law, actually got bipartisan support, a Patient Bill 

of Rights Law, and much of that was dealing with at that time the 

problems of managed care, where we found out it was more about 

158 

managing money from people outside the doctor’s office and with 

insurance companies than it really was about managing care. 

So I am wondering, Mr. Miller, if you could elaborate a little bit 

more on this. You and I have had conversations in the past, but 

if you could give, and I apologize I couldn’t do some of this before. 

I had run into other things. Give me an example or two of how this 

actually works and we make sure the incentive is not to not provide services because the breakdown before of managed care was 

if somebody had a pool of money in their account, they kept that 

money by not providing care. 

Could you tell us how it actually works to make sure they are 

providing better care? 

Mr. MILLER. Well, in several ways. First of all, I think that it is 

important that this be controlled by physicians, not by health 

plans, and I think that is really the promise of whatever the unicorn ultimately looks like when you talk about accountable care organizations is that those really need to be controlled by the 

healthcare providers, the physicians, the nurses, et cetera, not by 

outside health plans. So that is number one because I think they 

will be very reluctant to deliver poor quality care. 

The second thing is to actually have good measurement of the 

quality of care so that they know how they are doing and the public 

knows how they are doing, and that is happening in a number of 

communities around the country that are reporting on the quality 

of care so that patients can make good choices. 

I think the second thing, third thing is that there needs to be 

choices about where patients can go which is why it is very important to not have requirements and regulations that only limit this 

to being very large organizations or that encourage consolidation of 

entities into one large monopoly but to be able to let small practices be able to participate in this particular fashion. 

And I think that is what we—there are models like that around 

the country where physician practices are taking capitation payments, risk adjusted or otherwise, and are delivering very highquality care to their patients, and they are in control. 

Mr. MURPHY. As this becomes an issue, I know one of the battles 

we had was the issue of any willing, qualified provider, and I always felt that if you eliminated people from being able to—providers from being able to compete by quality for service, they were 

out of the loop, and those—once they had locked in a contract, it 

was actually a disincentive for them because they didn’t have the 

competition anymore. Is that what you are referring to by allowing 

patients actually to have some choices? 

Mr. MILLER. Yes. That is right, and patients having choices 

based on both what the cost and the quality of the care is rather 

than either being locked into a particular provider because of what 

an insurance company determines or essentially having no choice 

because of the nature of the organization and the community. So 

to have a maximum number of opportunities to choose their provider I think helps to support that. 

Mr. MURPHY. I mean, this is an area that dealing with actual 

disease management is such a huge issue in healthcare in America, 

and yet I am still amazed that the way that Medicare and Medicaid work, designed in 1965, and I would venture to guess that 

159 

none of us as healthcare providers would want to brag to our patients, by the way, I bought no equipment since 1965, haven’t read 

a single medical journal, or been to continuing education credits 

from 1965, and proud of it, but that is how our system works. You 

only get paid if you poke, prod, push, pull, or pinch someone but 

not if you make them better. 

A secondary I just want—this whole panel can help. I think it 

is the absurdity, so I am correct in understanding that if someone 

is on Medicare, and a physician is taking, you know, balanced billing, and they say to the patient, you know, look. I understand you 

are low income. I will just take whatever Medicare pays me, and 

I will leave it at that. They are not allowed to do that? Is that correct, panel? 

Mr. WILLIAMSON. That is correct. That is correct. 

Mr. MURPHY. So as a doctor I am saying, you know, I am just 

going to waive this. ‘‘Here. You baked a pie for me, good enough, 

thank you, Mrs. Smith. You can walk away.’’ Then that doctor is 

committing a crime? 

Mr. WILLIAMSON. Civil and criminal penalties. Yes, sir. 

Mr. MURPHY. And how big is the penalty? 

Mr. WILLIAMSON. I don’t have that number. I am sorry. 

Mr. MURPHY. But it is big. Civil and criminal penalty. 

Mr. WILLIAMSON. It gets the attention of doctors. 

Mr. MURPHY. And if a doctor also says, you know, I think I can 

do this better by managing, by making calls to you, making sure 

you are taking your medication. It is like 75 percent of prescriptions aren’t taken correctly from beginning to end. If a doctor decides to have a nurse in the office manage that call and take care 

of those things and actually keep that person out of the hospital 

but doesn’t even bill for that providing a service, does this also go 

under the category of they are doing something illegal? They are 

providing a service and care without billing for it? 

Mr. GOERTZ. That is not illegal. You just don’t get any compensation for helping the patient. 

Mr. MURPHY. Oh, well, that is—OK. But it still comes down to 

so if—it is absolutely amazing, and Mr. Chairman, I hope we get 

more into this, because the Medicare and Medicaid systems in my 

mind are so hopelessly outmoded that the old tool, when everything 

looks like a hammer, everything—when the only tool is a hammer, 

everything looks like a nail, and all Congress knows how to do is 

giveth and taketh away. We spend a dollar, we take away a dollar. 

But on this issue to have spent nearly almost half a century of 

time using the same system without fixing this is preposterous, 

and I believe it is imperative to the physicians’ abilities to work on 

these things to change the system. 

So I hope we can get back to this in the future. Thank you. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

gentleman from New Jersey, Mr. Lance, for 5 minutes for questions. 

Mr. LANCE. Thank you, Mr. Chairman. Good afternoon to this 

distinguished panel. Following up on Congresswoman Baldwin’s 

questioning which I found very interesting, Mr. Miller, in your testimony to do mention the accountable medical homes as being a 

type of transition payment system, and in your comments you disVerDate Aug 31 2005 08:34 Aug 28, 2012 Jkt 037690 PO 00000 Frm 00167 Fmt 6633 Sfmt 6633 C:\PROGRA~1\WS_FTP\74195.TXT WAYNE
160 

cuss developing specific targets for reducing utilization of 

healthcare services outside the physician practice. 

How would these targets be developed, and are they ready to be 

employed in the near term? 

Mr. MILLER. Yes. In fact, the State of Washington and the Puget 

Sound Health Alliance have been working on this and are implementing that program this month where a group of small primary 

care practices around the State have done that. 

Now, getting there was a challenge because, first of all, you have 

to have the data to be able to determine what your current rates 

of ER visits and hospitalizations are, and that was a real challenge 

to primary care practices to even think about it because they don’t 

have that data right now. Surprising enough it was even difficult 

for some of the health plans to deliver that data to them, but once 

we were able to get it, it made clear that there were fairly high 

rates of emergency room utilization for non-urgent reasons. 

And so the idea was to give the primary care practices some 

flexible resources that they could use to hire a nurse, to have 

longer office hours, et cetera, and to—and we calculated that with 

the kinds of reductions, just to take ER visits, the kinds of reductions in ER visits that many of the medical home programs that 

Dr. Goertz talked about have achieved, that they would be able to 

save more money for the health plans and the amount of flexible 

resources that they were getting upfront. 

So a number of practices have signed up to do that this year 

through the payment, and the challenge locally was to get eight different health plans and Medicaid to agree, and Medicare is not at 

the table. 

Mr. LANCE. And in your judgment why is that the case? Why is 

Medicare not at the table? 

Mr. MILLER. Because Medicare does not have a payment model 

now that would support that. In fact, Washington applied to be in 

the multi-payer advanced primary care demonstration and was not 

selected. And so they will be actually, they will be saving Medicare 

money because they will do it for all of their patients, not just their 

Medicaid and commercial patients, but they won’t get the money 

to be able to support that at the level that they really need. 

Mr. LANCE. Thank you. In your remarks, Dr. Chernew, in your 

prepared remarks you state, and I am quoting now, ‘‘Just to give 

one example, a colonoscopy performed in a physician’s office costs 

Medicare on average about half of the cost if it is performed in a 

hospital outpatient setting. This largely reflects different treatment 

of the technical fee for providing the service, which may be justified, but it is difficult to assess the appropriate fee differential, if 

any because case mix and other factors are hard to observe.’’ 

Could you elaborate for me a little bit on that? 

Mr. CHERNEW. Sure. So fee-for-service systems are incredibly unwieldy, and ours is particularly unwieldy, and the amount you get 

paid for something depends on where it is done, because, remember, there is payments to the physician, but there is also payments 

to a facility. And so if you move the service from one setting to another setting, in some cases the physician is getting both the professional and the technical fee, and in other cases the physician is 

just getting the professional part. The technical part is going someVerDate Aug 31 2005 08:34 Aug 28, 2012 Jkt 037690 PO 00000 Frm 00168 Fmt 6633 Sfmt 6633 C:\PROGRA~1\WS_FTP\74195.TXT WAYNE
161 

where else, but those technical fees aren’t fixed. It differs based on 

what is in the physician fee and what is in say the hospital setting. 

And so there is differences, and that is just one example of where 

the difference is. 

It is easy to say that, well, we should set them the same, technical should be the same, and what people in the hospital would 

tell you is, yes, but the patients that we are seeing in the hospital 

have a whole series of other comorbidities, it is more difficult to 

treat them for one reason or another. Our technical fee, albeit higher, is justified because of some aspect of the patient or the care we 

deliver that is different than the care that is delivered if you are 

doing the same procedure in a physician’s office. 

If you knew what that cost difference was, if someone came down 

from on high and told you this was what the cost difference was, 

you might be able to manage that reasonably well. 

Mr. LANCE. So we have a responsibility working together on a bipartisan capacity with experts such as the distinguished panel here 

to try to overcome that to make it less expensive. 

Mr. CHERNEW. So my view is we will be hopelessly mired in the 

morass of fee management if we stay for too long in a basically feefor-service system. 

Mr. LANCE. Yes. 

Mr. CHERNEW. And so moving away from the system in my view 

is a long-run solution. We have to mitigate the problems in the 

short run no doubt, but I am not a believer in the government’s 

ability or anyone’s ability to micromanage these crazy fee schedules 

all that well. 

Mr. LANCE. Thank you, and I hope we not hopelessly mired in 

the system. Thank you very much, Mr. Chairman. 

Mr. PITTS. The chair thanks the gentleman. That concludes the 

first round of questions, and we will go now to follow up. I will 

yield first to Dr. Burgess for questions. 

Mr. BURGESS. Thank you, Mr. Chairman. 

Dr. Goertz, if I could ask you because this has come up several 

times on, I think Dr. Wilson mentioned the 78 percent of the people 

in Medicare who suffer from chronic disease. So the universe of 

people that are dual eligibles and I think Dr. Williamson said he 

would exclude those from the direct contracting, but honestly, that 

may be the group where you want to focus the direct contracting. 

If you provided each of the dual eligibles with a concierged physician, a navigator, a facilitator that could be with them through all 

this, maybe a doctor, maybe a nurse practitioner, we could argue 

about that, but it seems like that is, you know, Willie Sutton used 

to rob banks because that is where the money was. I mean, Dr. 

Berwick has told us this is where the money is. Dr. Wilson reaffirmed today that this is where the money is. Eighty percent of 

Medicare, which is a lot, is spent by 20 percent of the patients. 

What do you think about that? 

Mr. GOERTZ. Our organization is in favor of any innovative model 

that addresses coordination and information sharing among all the 

team members who need to take care of that patient. 

Mr. BURGESS. But here is the problem. Mr. Miller told us that 

Medicare has no payment model for that type of activity. Is that— 

did I understand that correctly? 

162 

Mr. GOERTZ. In our opinion it does not. 

Mr. BURGESS. So really all the smart people at the table if you 

will tell us how to construct that demonstration project where we 

can demonstrate that level of savings, I mean, I will be happy to 

take that to Dr. Berwick and spend some time with him and see 

if we cannot either administratively or legislatively make that 

change happen because, I mean, truly that is the low-hanging fruit 

that we should be talking about. Is that not correct? Does anybody 

disagree with that? 

So, again, we have offered a challenge to the panel assembled 

here today. Help us craft that as a, whatever you want to call it, 

demonstration project or whatever, and let’s see if we can do so in 

a way. We have got to be careful because Dr. McClellan worked 

very hard on the physician group practice demonstration project 

with Secretary Leavitt, and now, of course, we have got a series of 

rules that are unworkable. 

So it is, there is a problem in our system, and we have all identified it, but this is one that I would be anxious to work with you 

all on this and even, you know, Dr. Williamson, I thank you for 

bringing the idea forward that, oK, we would separate this group 

of patients out of direct contracting, but really if we are going to 

save the money, we won’t call it direct contracting because that upsets too many people, but let’s help that group of patients navigate 

the system and spend dollars more efficiently. That is where we 

could perhaps do the most good, not on the margins of the people 

who might, in fact, be in a direct contracting type of world. 

Yes, sir. 

Mr. MILLER. I just say quickly, the models that we talked about 

can help with that, but it is also an example of how you can’t have 

one size fits all, because some of those patients who need much 

more intensive help need to have a payment model that supports 

that, and it may be a lot of money for different things than they 

are getting now with the opportunity to save a lot of money on the 

other side. 

And there has been a lot of attention recently, for example, the 

Boeing model on the West Coast has focused on some of those highly-complex patients, project in New Jersey is focused on those kind 

of patients and showing very significant savings. 

But you also have to have some very significant reach change in 

the way care is delivered and a payment model to support that. 

Mr. BURGESS. Yes, and I would not quarrel with that. You know, 

one of the things that I have heard over and over again today when 

Ms. Capps was in here talking about nurse practitioners, very frustrating. I mean, again, Dr. McClellan and Secretary Leavitt working on the Medicare Advantage Program in the mid 2000s, which 

we, of course, robbed in the Patient Protection Affordable Care Act 

and now given a waiver, but this was the whole idea if I remember 

correctly. It was a disease-management care coordination, electronic health records, you do all these things in return for perhaps 

a little bit more reimbursement in the Medicare Advantage System. 

Dr. McClellan, do I recall that system correctly? 

Mr. MCCLELLAN. Yes. There have been a number of steps to try 

to get even specialized Medicare Advantage Plans or dual eligibles 

163 

and people with complex illnesses, and those programs can work, 

but you are right. This is the population that could benefit the 

most from well-coordinated care and has the most fragmented payments. So it is a lot of obstacles to overcome. 

Mr. BURGESS. Well, could we use that leverage and pivot, you 

know, perhaps our discussion of SGR reform to actually get to a 

more sensible system for those patients that are involved with 

spending the most money in the Medicare System? I mean, would 

that not be a correct approach to take? 

Mr. MCCLELLAN. I agree, and I think it, again, highlights the importance of this effort focusing on clear opportunities to improve 

care for particular kinds of patients, particular types of medical 

care and recognizing that the physician payment system can make 

a big difference in that, but there are other changes that are going 

on and other opportunities in Medicare today to reinforce and support those changes through steps like the measures used in the 

Medicare Advantage Program and the way the Medicare Advantage Program is set up. 

So those are all feasible. 

Mr. BURGESS. Well, let me just say just as a wrap-up, Dr. Wilson, 

I really want you to concentrate on the maintenance of professionalism within our profession. As we see more of these things develop, ACOs, whatever the system is, there is an inherent danger 

for the doctor not to be the advocate for the patient, and historically we know that is correct relationship for the doctor to have 

with the patient. The health plan can’t advocate for the—adequate 

advocate for the patient, the hospital can’t be an adequate advocate. It has to be the physician. There has to be the maintenance 

of the professionalism within the profession, and I thank you for 

taking on that task. 

Mr. PITTS. The chair thanks the gentleman. We are voting on the 

floor. We are going to try to wrap this up. 

I will recognize Mr. Pallone for follow up and then Dr. Gingrey. 

Mr. PALLONE. I just wanted to ask either Dr. Chernew or Dr. 

Miller, you can both respond if you want, the idea that Medicare 

should abdicate its responsibilities to protect seniors from exorbitant cost sharing in the name of private contracting, the idea that 

Medicare shouldn’t place limits on the cost of care has been floated 

in a bill that was introduced by Representative Price and supported by some physician witnesses before the committee. 

The idea of unlimited balanced billing, of course, is not new, but 

it is one of the oldest requests of providers in Medicare to be able 

to charge whatever you want. But I want talk about the beneficiary 

impact. We don’t have any beneficiary representatives on the panel 

here today, which is a shame, but I note that ARP in a letter 

strongly opposes efforts to increase beneficiary costs through private contracting. As I understand it this idea of balanced billing is 

not something that is very common in private sector networks. 

So maybe I will ask Dr. Chernew, in your work observing private 

health plans have you noticed a trend towards allowing physicians 

to bill enrollees in network, whatever they like, and if Mr. Miller 

wants to respond, too. 

Mr. CHERNEW. I have not noticed that trend, and I will save 

longer responses if you want. 

164 

Mr. MILLER. I think that the key thing is that there is no one 

change that is either desirable or necessary that will fix the system, that multiple things have to be done simultaneously, and that 

keeping the current fee-for-service structure and simply trying to 

fix it with one change may not do the kind of thing that you want 

and may lead to other kinds of problems. 

I do think that it makes sense, though, that patients have more 

sensitivity to the cost of services and that physicians and providers 

not be constrained as to whether they can deliver care based on 

what Medicare decides to pay them. 

So mechanisms that would enable them to set the right price as 

Dr. Chernew said earlier, as well as what the payment structure 

is, are going to be very important. But I think that you have to 

have a comprehensive set of reforms that changes the way the payment is made as well as what the patients’ responsibility is. 

Mr. PALLONE. I mean, I just wanted to mention, you know, 

choices beneficiaries would be forced to make in this situation because they are just overwhelming. I asked my staff to look at what 

a patient would need to consider by way of prices and in negotiation with a physician over a course of several treatment options for 

prostate cancer, for instance, and just to read a few, and maybe I 

will enter it into the record, extensive prostate surgery which there 

are five variations listed for Medicare with prices ranging from 

$1,100 to $1,700, removal of prostate, three variations ranging 

from $900 to $1,100, intensity modulated radiation therapy, 

seven—$567 per dose, but the number of doses required varies significantly from person to person. The dose plan for that therapy, 

$400 to $2,100. I mean, just to give you some examples. 

Dr. Chernew. 

Mr. CHERNEW. I guess what I would say broadly is the concern 

that I would have with these types of programs for starters—actually, let me say for starters, I believe in markets. I am an economist. I like markets as much as the next guy, in fact, probably 

more so. I am concerned in this case about market power. I am concerned that while I believe consumers can drive down prices for 

iPads, I am not so sure they can do that in healthcare for some of 

the reasons that you say. 

In Ann Arbor there was a situation where the faculty, I have 

been told anecdotally lobbied to get dental coverage for routine 

care. It was $60. They got the coverage for $60 per visit. The prices 

went up to $120. 

So I think if there is competition, you can solve these problems. 

I am not so sure there always is, and you have to be worried about. 

I think it is particularly hard in the Medicare population because 

you have a lot of people, at least like my grandparents, that are 

cognitively impaired, and so there is a concern about their ability 

to do some of these things, and obviously there is issues of disparities. 

My biggest concern would be that it would give you all frankly 

a path to keep Medicare rates lower than they otherwise would be, 

and I think that you shouldn’t have an excuse for under-funding 

Medicare, and I worry that this might give you that excuse. 

165 

But on the other hand I haven’t studies this particular issue, and 

I don’t have a particular position on it, but I do have the concerns 

that I outlined going forward in such a way. 

Mr. PALLONE. Thank you. Thank you, Mr. Chairman. 

Mr. PITTS. The chair thanks the gentleman, and we are running 

out of time. Dr. Gingrey, you are recognized for questioning. 

Mr. GINGREY. Mr. Chairman, thank you very much, and I will 

try to get right to it. 

Dr. McClellan, I have got a letter in my hand that was actually 

sent to the House GOP Doctors’ Caucus, April 15, 2011, subject: 

Reforming the Medicare Physician Payment System. The letter advocates new payment model options, including pay for performance, 

bundle payments to groups of physicians, or even blending elements of multiple models. The letter states that allowing Medicare 

to create multiple care models is important because there is no onesize-fits-all payment model that will achieve physicians and policymakers objectives for improved care and affordability. I am kind of 

quoting from the letter. 

What are your thoughts on the value of multiple care models as 

a solution to the SGR problem? 

Mr. MCCLELLAN. Well, Dr. Gingrey, you heard today there are a 

lot of models that can help support better care. I think what unifies 

them is not the jargon but the fact that they all can be linked to 

specific, meaningful steps to give patients better care that the surgeons have identified, the primary care physicians have identified, 

that all of these leaders from Madison have identified. And by focusing the reforms that this committee undertakes on actually 

achieving those improvements in care, I think we can target them 

more effectively. 

I would emphasize that that not only means leadership for physicians on identifying specific kinds of payment reforms but especially leadership on identifying how they can make care better by 

changing the payments because Medicare doesn’t support all this 

now, and then accountability for doing that. You know, the quality 

impact, we have talked a lot about measures, and the cost impact, 

too, and that is a challenge, but we know so much more than we 

did a few years ago about this. There is so much more physician 

leadership now on these questions and especially with so many 

physicians in the House hopefully we can have—— 

Mr. GINGREY. Yes. We got 21 now. 

Mr. MCCLELLAN. Right. 

Mr. GINGREY. Yes. I saw—I will stick with you just for a second, 

in your opinion does the solution to the SGR, Sustainable Growth 

Rate, lie simply in reforming how providers are paid, or do you believe a review of how Medicare benefits are structured, whether— 

we have talked about concierge care, even the private contracting 

I know has come up a number of times this morning might help 

bring about meaningful reform in physician payments. 

Mr. MCCLELLAN. Benefit reforms would really help and would 

emphasize that a lot of these private sector implementations of 

payment reforms go along with benefit reforms to actually save 

beneficiaries money by giving it more financial support to stay with 

their meds, to take their meds, to stay out of the hospital. 

166 

Mr. GINGREY. Well, I know Dr. Williamson also talked about that 

in his testimony, and, Todd, I will go to you on this. You cite the 

benefits of private contracting within Medicare including the ability 

for the physicians to charge seniors less than they pay today in 

their out-of-pocket costs. As a medical provider of neurology why 

can’t you charge a poor senior less than the Medicare-required 

rate? 

Mr. WILLIAMSON. We would subsequently be subsequent to penalties, criminal and civil as I said, and you know, I can tell you doctors want to do that a lot, but they can’t. That is one thing that 

we frequently hear from our practice managers is you can’t do this. 

And, you know, our premise is that doctors and patients should 

be free to define the value of their interaction. You know, the government has the responsibility to fulfill its promise to Medicare recipients. It was suggested earlier that private contracting might get 

the government a pass to not fulfill that promise. That is not what 

the Medicare Payment Empowerment Act is about. It wouldn’t 

change any of the existing benefits that patients now have under 

Medicare. What it would allow is patients to have the option, if 

they could afford and they chose to, to spend their own money on 

their medical care, and it would not require them to forego their 

Medicare benefits if they want to see a doctor outside the Medicare 

System as they have to do now, which we think is wrong. And we 

think it is wrong for a doctor to have to opt out of Medicare for 2 

years if he or she provides care and accepts payment for that care 

to a Medicare patient. 

Mr. GINGREY. I had another part to that, but Mr. Chairman, I 

know we have got about a half a minute left on the vote, so I will 

yield back and just say thank you to all seven of our witnesses. You 

all have been fantastic today. We really appreciate it. Thank you. 

Mr. PITTS. The chair thanks the gentleman. 

This has been an excellent hearing, excellent testimony, and I 

think we have taken a big step today in moving beyond previous 

discussions of the deficiencies of the Sustainable Growth Rate System to an examination of the kind of payment and delivery system 

we need and how to get there. 

First of all, I want to thank all of the groups that responded to 

the committee’s bipartisan letter asking for their suggestions. Their 

input has been very valuable, and I want to thank this distinguished panel of experts who took the time to testify here today in 

an effort to help solve this difficult but extremely important problem. 

I want to remind the members that they have 10 business days 

to submit questions for the record. I ask that the witnesses all 

agree to respond promptly to those questions. 

With that the subcommittee is adjourned. 

[Whereupon, at 12:58 p.m., the subcommittee was adjourned.] 

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