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21-243 PDF 2005

EXAMINING PAY-FOR-PERFORMANCE MEASURES

AND OTHER TRENDS IN EMPLOYER-SPONSORED

HEALTHCARE

HEARING

BEFORE THE

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE 

RELATIONS

OF THE

COMMITTEE ON EDUCATION 

AND THE WORKFORCE 

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

May 17, 2005

Serial No. 109-17

Printed for the use of the Committee on Education and the Workforce

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

or 

Committee address: http://edworkforce.house.gov 

(II)

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN A. BOEHNER, Ohio, Chairman

Thomas E. Petri, Wisconsin, Vice Chairman 

Howard P. ‘‘Buck’’ McKeon, California 

Michael N. Castle, Delaware 

Sam Johnson, Texas 

Mark E. Souder, Indiana 

Charlie Norwood, Georgia 

Vernon J. Ehlers, Michigan 

Judy Biggert, Illinois 

Todd Russell Platts, Pennsylvania 

Patrick J. Tiberi, Ohio 

Ric Keller, Florida 

Tom Osborne, Nebraska 

Joe Wilson, South Carolina 

Jon C. Porter, Nevada 

John Kline, Minnesota 

Marilyn N. Musgrave, Colorado 

Bob Inglis, South Carolina 

Cathy McMorris, Washington 

Kenny Marchant, Texas 

Tom Price, Georgia 

Luis G. Fortun ̃ o, Puerto Rico 

Bobby Jindal, Louisiana 

Charles W. Boustany, Jr., Louisiana 

Virginia Foxx, North Carolina 

Thelma D. Drake, Virginia 

John R. ‘‘Randy’’ Kuhl, Jr., New York 

George Miller, California 

Dale E. Kildee, Michigan 

Major R. Owens, New York 

Donald M. Payne, New Jersey 

Robert E. Andrews, New Jersey 

Robert C. Scott, Virginia 

Lynn C. Woolsey, California 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Ron Kind, Wisconsin 

Dennis J. Kucinich, Ohio 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Susan A. Davis, California 

Betty McCollum, Minnesota 

Danny K. Davis, Illinois 

Rau ́l M. Grijalva, Arizona 

Chris Van Hollen, Maryland 

Tim Ryan, Ohio 

Timothy H. Bishop, New York 

John Barrow, Georgia

Paula Nowakowski, Staff Director 

John Lawrence, Minority Staff Director 

SUBCOMMITTEE ON EMPLOYER–EMPLOYEE RELATIONS 

SAM JOHNSON, Texas, Chairman

John Kline, Minnesota, Vice Chairman 

John A. Boehner, Ohio 

Howard P. ‘‘Buck’’ McKeon, California 

Todd Russell Platts, Pennsylvania 

Patrick J. Tiberi, Ohio 

Joe Wilson, South Carolina 

Marilyn N. Musgrave, Colorado 

Kenny Marchant, Texas 

Bobby Jindal, Louisiana 

Charles W. Boustany, Jr., Loiusiana 

Virginia Foxx, North Carolina 

Robert E. Andrews, New Jersey 

Dale E. Kildee, Michigan 

Donald M. Payne, New Jersey 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Betty McCollum, Minnesota 

Rau ́l M. Grijalva, Arizona 

George Miller, California, ex officio 

(III)

C O N T E N T S 

Page

Hearing held on May 17, 2005 ............................................................................... 1

Statement of Members: 

Andrews, Hon. Robert E., Ranking Member, Committee on Education 

and the Workforce ......................................................................................... 3

Johnson, Hon. Sam, Chairman, Subcommittee on Employer-Employee Relations, Committee on Education and the Workforce ................................ 2

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

Statement of Witnesses: 

Galvin, Dr. Robert, Director of Corporate Health Care and Medical Programs, General Electric, Fairfield, CT, on behalf of the Human Resources Policy Association ............................................................................ 21

Prepared statement of ............................................................................... 23

Hanson, Jeffrey R., Regional Health Care Manager, Verizon Communications, President, Bridges to Excellence, Portland, ME .............................. 34

Prepared statement of ............................................................................... 36

Ignagni, Karen, Chief Executive Officer, America’s Health Insurance 

Plans, Washington, DC ................................................................................. 5

Prepared statement of ............................................................................... 7

Rosenthal, Dr. Meredith B., Assistant Professor of Health Economics 

and Policy, Harvard School of Public Health, Boston, MA ........................ 27

Prepared statement of ............................................................................... 29

(1)

EXAMINING PAY-FOR-PERFORMANCE MEASURES AND OTHER TRENDS IN EMPLOYERSPONSORED HEALTH CARE 

Tuesday, May 17, 2005

U.S. House of Representatives 

Subcommittee on Employer-Employee Relations 

Committee on Education and the Workforce 

Washington, DC 

The subcommittee met, pursuant to call, at 2:02 p.m., in room 

2175, Rayburn House Office Building, Hon. Sam Johnson [chairman of the subcommittee] Presiding. 

Present: Representatives Johnson, Kline, Boustany, Andrews, 

Kildee, Payne, Tierney, Holt and McCollum. 

Also Present: Representative Norwood. 

Staff Present: Kevin Frank, Professional Staff Member; Ed 

Gilroy, Director of Workforce Policy; Aron Griffin, Professional 

Staff Member; Richard Hoar, Staff Assistant; Jim Paretti, Workforce Policy Counsel; Molly McLaughlin Salmi, Deputy Director of 

Workforce Policy; Deborah L. Emerson Samantar, Committee 

Clerk/Intern Coordinator; Kevin Smith, Senior Communications 

Advisor; Jody Calemine, Minority Counsel, Employer-Employee Relations; Margo Hennigan, Minority Legislative Assistant/Labor; and 

Michele Varnhagen, Minority Labor Counsel/Coordinator. 

Chairman JOHNSON. A quorum being present, the Subcommittee 

on Employer-Employee Relations of the Committee on Education 

and the Workforce will come to order. We are holding this hearing 

today to hear testimony of Examining Pay-For-Performance Measures and Other Trends in Employer-Sponsored Health Care under 

committee Rule 12(b). 

Opening statements are limited to the chairman and ranking minority member of the subcommittee. Therefore, if other members 

have statements, they will be included in the hearing record. With 

that, I ask unanimous consent for the hearing record to remain 

open for 14 days to allow member statements and other extraneous 

material referenced during the hearing to be submitted in the official hearing record. 

Hearing no objection, so ordered. 

2

STATEMENT OF HON. SAM JOHNSON, CHAIRMAN, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE 

Chairman JOHNSON. Good afternoon to you all, and thank you for 

being here. 

Employers serve as the backbone of health insurance in the 

United States, voluntarily providing health coverage to nearly twothirds of Americans with health insurance under the age of 65. 

Without their commitment to keep their employees healthy, the 

population of the uninsured would surely change dramatically. 

This afternoon’s hearing will focus on ways that employers are 

moving and, in some cases, dragging the health care industry into 

the 21st century. The fact is, even with all of today’s technology, 

all too often people are getting the wrong care at the wrong time. 

Most of us have heard what the Institute of Medicine inferred, 

based on available data in 1999, that as many as 98,000 people die 

in hospitals each year because of preventable medical errors. 

I can’t think of a single industry where it is standard business 

practice to pay the same rate to people who provide good services 

as to people who provide bad ones. 

Mr. ANDREWS. Major League Baseball. 

Chairman JOHNSON. He said Major League Baseball. Well, 

maybe we can all get on steroids, and we all won’t have to worry 

about it. 

That is the way the government and purchasers of other health 

care do business, which does not provide much of an incentive to 

improve care. Shouldn’t we reward doctors and hospitals for delivering high-quality results for patients, rather than paying them the 

same amount regardless of how well they deliver services to patients? 

Some innovative employers and insurers decided to do just that, 

to become better purchasers of their health care and to seek out 

the providers that had figured out how to increase quality while 

keeping costs at a minimum. Our witnesses today will tell us about 

a few of the programs that came out of that decision to become 

smarter shoppers. It is worth mentioning that this move toward 

better purchasing comes at a crucial time in the development of 

consumer-driven health insurance products. 

Since we put the spotlight on quality, we found out that hospitals 

that spend more money aren’t necessarily those that are the highest quality. In fact, more money is a pretty good indication of a lack 

of efficiency. Our consumers need to know information like that in 

order to get the most out of their ability to choose. 

The best thing about pay for performance, though, is not that it 

saves money, it saves lives. 

Medicare is one example of the success of improved quality—improvement. Mark McClellan, the man responsible for making sure 

Medicare and Medicaid are working properly—and that is not an 

enviable job—recently announced that all of the 270 hospitals participating in their pay-for-performance demonstration program reported improved quality of care. That is just in the first year. 

Today we want to hear from a few of the pioneers of pay for performance and find out what your experience has been, including 

any predicted or unforeseen challenges that you face. 

3

I now yield to the distinguished ranking minority member of the 

subcommittee, Mr. Andrews, for whatever opening statement you 

wish to make. 

[The prepared statement of Chairman Johnson follows:]

Statement of Hon. Sam Johnson, Chairman, Subcommittee on Employer–

Employee Relations, Committee on Education and the Workforce 

Good afternoon. Thanks for being here today. 

Employers serve as the backbone of health insurance in the united states, voluntarily providing health coverage to nearly two-thirds of Americans with health insurance under the age of 65. 

Without their commitment to keep their employees healthy, the population of uninsured would surely change dramatically. 

This afternoon’s hearing will focus on ways that employers are moving—and in 

some cases dragging—the health care industry into the 21st century. 

The fact is, even with all of today’s technology, all too often people are getting 

the wrong care at the wrong time. Most of us have heard what the institute of medicine inferred based on available data in 1999: 

As many as 98,000 people die in hospitals each year because of preventable medical errors. 

I can’t think of a single industry where it’s a standard business practice to pay 

the same rate to people who provide good services and people who provide bad ones. 

But that is the way the government and other purchasers of health care do business—which does not provide much of an incentive to improve your care. 

Shouldn’t we reward doctors and hospitals for delivering high quality results for 

patients, rather than paying them the same amount regardless of how well they deliver services to patients? 

Some innovative employers and insurers decided to do just that—to become better 

purchasers of their health care, and to seek out the providers that had figured out 

how to increase quality, while keeping costs at a minimum. 

Our witnesses today will tell us about a few of the programs that came out of 

that decision to become smarter shoppers. 

It is worth mentioning that this move towards better purchasing comes at a crucial time in the development of consumer-driven health insurance products. 

Since we’ve put the spotlight on quality, we’ve found out that hospitals that spend 

more money aren’t necessarily the ones with the highest quality. 

In fact, more money is a pretty good indication of a lack of efficiency. Our consumers need to know information like that in order to get the most out of their ability to choose. 

The best thing about pay-for-performance, though, is not that it saves money. It 

saves lives. 

Medicare is one example of success of improved quality improvement. 

Mark McClellan—the man responsible for making sure medicare and medicaid 

are working properly (not an enviable job!)—recently announced that all of the 270 

hospitals participating in their premier pay-for-performance demonstration program 

reported improved quality of care. 

And that’s just in the first year. 

Today we want to hear from a few of the pioneers of pay-for-performance and find 

out what their experience has been—including any predicted or unforeseen challenges that you’ve faced. 

STATEMENT OF ROBERT E. ANDREWS, RANKING MEMBER, 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

Mr. ANDREWS. Thank you, Mr. Chairman. 

I wish to thank the witnesses for their preparation today and for 

what will no doubt be an informative and lively discussion and like 

to thank you for calling us together. 

We are in the midst of a productivity revolution in our economy. 

A handful of people are now able to do the work that dozens or 

even hundreds used to do. The advent of technology has made 

down time or dead time almost nonexistent in many occupations. 

4

We are able to measure quality and progress in ways that we could 

not before. I think that across the board we benefited from that in 

manufacturing, in telecommunications, medicine and education. So 

I think this hearing is timely as a way of understanding how this 

productivity revolution can be brought in the most effective and humane way to the healing arts and to the medical arts. 

One of the other things that we have learned in this productivity 

revolution is that a technology or a process can either be a tool or 

a weapon. If it is used properly, it empowers a better result. It benefits the entire community because we invest relatively fewer resources for a relatively better result. 

But if the tool is misused and used as a way to exploit a situation or to unfairly characterize a situation, it can have negative results for all those involved. 

I think with this concept, for which I have great sympathy, with 

respect to the issue of pay for performance and health care, I think 

the key issue is designing measurements that are fair and comprehensive. I think that is a uniquely apolitical exercise. I think it 

has political consequences, but the exercises itself should be apolitical. 

We ought to be able to draw together the best thinkers—which 

I believe we have this afternoon—to help us think through the 

problem of how we can devise fair, comprehensive and accurate 

measures of quality and productivity improvement and then use 

those in such a way that they empower the provider of health care 

services, the payer for health care services and, most importantly, 

the recipient of health care services, the patient. 

So whether it is health club memberships that help deal with the 

obesity problem or whether it is sessions that would help people 

see the early warning signs of mental illness or substance abuse or 

whether it is regular screenings for malignancies, there are already 

examples of this productivity revolution already happening in 

America. It makes perfect sense for us to find a way in the marketplace to link the intelligent use of those methods with better outcomes and reward people for doing so. 

So I look forward to hearing from the witnesses this afternoon. 

I approach this enterprise in the spirit of understanding ways that 

we can fashion tools that help us bring this beneficent productivity 

revolution to healers and patients and payers. 

I thank you for this opportunity. 

Chairman JOHNSON. Thank you, Rob. 

We have got a distinguished panel of witnesses before us today, 

and I thank all of you for being here. 

We will hear from Ms. Karen Ignagni—is that correct? 

Ms. IGNAGNI. Close. 

Chairman JOHNSON.—CEO of America’s Health Insurance Plans 

located right here in Washington. 

Following her will be Dr. Robert Galvin, Director of Corporate 

Health Care and Medical Programs at General Electric. Dr. Galvin 

will be testifying on behalf of the Human Resources Policy Association today. 

Next, Dr. Meredith Rosenthal, Assistant Professor of Health Economics and Policy at Harvard School of Public Health. 

5

Finally, from Mr. Jeffrey Hanson, President of Bridges to Excellence, a group of employers, physicians, health plans and patients, 

the purpose of which is to create programs that realign health incentives around higher quality. 

I want to thank you all for being here. If you understand our 

light system, green is go; yellow is watch out, you got a minute; 

and red, we would like for you to get it closed off if you can. 

Chairman JOHNSON. With that, Ms. Ignagni, you are welcome to 

begin. 

STATEMENT OF KAREN IGNAGNI, CHIEF EXECUTIVE OFFICER, 

AMERICA’S HEALTH INSURANCE PLANS, WASHINGTON, DC 

Ms. IGNAGNI. Thank you, Mr. Chairman, Mr. Andrews, members 

of the subcommittee. We appreciate the opportunity to testify 

today. 

My written testimony focuses on four areas, and I would like to 

briefly summarize them now. 

First, rising health care costs are placing a growing burden on 

employers, small and large, State governments, the Federal Government and consumers and making it difficult to address the 

growing problem of the uninsured. 

A significant contributor, as the committee has already identified, to this cost problem is the fact that we are devoting a greater 

share of resources, payroll, personal savings and State and Federal 

budgets to a system that has uneven quality across the country 

and where only 55 percent of treatments are in accordance with 

best practice. We think there are opportunities to give purchasers 

and consumers a value for their investment by redesigning payment mechanisms and also by focusing government policy on this 

objective. 

There is broad recognition that paying for health care services 

without measuring their effectiveness and efficiency has prevented 

the health care system from performing optimally. In other words, 

paying the same for good quality and bad quality has provided little incentive for the system to do better. This approach has rewarded over-utilization and misuse of service and resulted in higher payments when health care complications arise. 

Our written testimony outlines numerous examples of initiatives 

our members have launched, including financial rewards to physicians in the form of increased payments or nonfinancial rewards—

also equally important—in the form of public recognition, preferential marketing or streamlining administrative procedure. 

Additionally, some members are offering consumers reduced copayments, deductibles and premiums in exchange for using providers, leading to higher quality based on specific performance 

measurements. 

Lessons learned. I apologize, Mr. Chairman, for the voice. I have 

allergies. It is the time of the year. So please——

Chairman JOHNSON. You need some health care——

Ms. IGNAGNI. No, I have excellent health care, I assure you. I 

just need the weather to change. 

Chairman JOHNSON.—and treat that. 

Ms. IGNAGNI. We have shared with the committee key principles 

approved by the board of directors in terms of lessons we have 

6

learned to encourage the transition to a quality based system. I 

would like to highlight several. 

First, a critically important issue in the development of pay for 

performance is a uniform, coordinated strategy for measuring, aggregating and recording a provider performance. If we continue the 

proliferation of measurement systems, there will be no clarity or 

consistency in what is done. I believe both of you in your opening 

statements indicated that you are concerned about this. 

As a member of the Ambulatory Care Quality Alliance, AQA, 

AHIP has been working with other stakeholders, particularly the 

American College of Physicians and the Academy of Family Physicians. We recently reached consensus on a common set of 26 ambulatory care performance measures as a starter set. It is a beginning, targeting conditions on which significant resources are spent, 

including heart disease, diabetes and depression; and more measures are now being adopted and will be ready in the future. 

AQA has also worked on the plan to combine public and private 

data. This is particularly important because it would provide stakeholders with a more comprehensive view of performance across 

marketplaces. 

Such an initiative would have three positive results: It will give 

the consumers more clout, because they will be allowed to make 

more informed decisions about their health care treatments. It will 

insure fairness for clinicians, because they would be evaluated 

based on their entire practice, not simply patients covered by a particular insurer. It will focus attention on health care outcomes, 

raising the quality bar and allowing physicians to be recognized for 

good results. 

In addition, involvement of physicians, hospitals and other 

health care professionals and the design and implementation of 

programs that reward quality is essential, in our view, to their feasibility and sustainability. Our members believe these programs 

need to be transparent, and they need to be predictable. Reporting 

of reliable, aggregated performance information will promote accountability for all stakeholders and facilitate informed consumer 

decisionmaking. 

Indeed, the importance of these principles is highlighted by a recent physician survey showing an overwhelming majority of physicians supporting pay for performance if the performance measures 

are developed by physicians in that particular medical specialty, if 

they are communicated ahead of time to physicians so that the 

rules are clear and that the performance measures are often based 

and grounded in science. 

Finally, I would like to briefly identify a number of additional 

steps our members support as part of a broad-based strategy for 

further improving quality and efficiency in the U.S. health care 

system. Let me highlight several. 

First, Mr. Chairman, as you know, Mr. Andrews, the Nation now 

spends roughly $30 billion in the most robust health care research 

apparatus in the world through the National Institutes of Health. 

We spend only $300 million in terms of our investment in health 

care effectiveness analysis through AQHR, through the Agency for 

Quality Healthcare and Research. So $30 billion versus $3 million, 

this is an R&D issue that I believe both of you were probing. We 

7

do need to do more in terms of shedding a spotlight on what works 

under what conditions and when. 

Second, there is a diffusion issue. Notwithstanding that robust 

expenditure through the National Institutes of Health, there is 

very little organized and effective approaches to translate that 

quickly into practice. So physicians at the bedside are asking for 

more help in getting access to information that is developed 

through clinical trials quickly and effectively. 

Third, there is a need, in our view, to develop the framework for 

evaluating technology for effectiveness and efficiency. We are on 

the verge of a brave new world in pharmaceuticals, in devices, in 

bios. There is a great deal to celebrate, but without a mechanism 

to assess the usefulness of these procedures, again, under what 

conditions and at what time, employers and consumers will be left 

in the dark in terms of how to proceed. So we think that is an important issue that should be teed up as we go forward with moving 

a delivery system to a quality-based system. 

Fourth, encouraging the development of a connected health care 

system. The committee has done a great deal of work and probing 

in that regard. We think it is very important to have uniform 

standards with respect to an interconnected health care system so 

we can look across the country and, again, have uniformity with respect to rules, with respect to the transmission of data, to be sure 

that consumers being treated in one region are getting the same 

level and effectiveness of care as would be the case in another region and that doctors and hospitals and other clinicians in those 

different regions can confer with one another. 

Finally, overhauling the medical liability system. There has been 

a great deal of discussion in this Congress about the need to do 

that. We firmly believe in that. We are spending $30 billion on direct liability expenses and another $100 billion on defensive medicine, which goes hand in hand with reducing defensive medicine, 

moving the system toward an outcome-based, quality-based system. 

So I hope, Mr. Chairman, this short version of our testimony has 

been helpful to the committee. Again, I apologize for the voice, and 

I appreciate your indulgence in that regard. Thank you. 

Chairman JOHNSON. Your voice sounds fine to us. Thank you, 

Ms. Ignagni. 

[The prepared statement of Ms. Ignagni follows:]

Statement of Karen Ignagni, Chief Executive Officer, America’s Health 

Insurance Plans, Washington, DC 

I. INTRODUCTION 

Good morning, Mr. Chairman and members of the subcommittee. I am Karen 

Ignagni, President and CEO of America’s Health Insurance Plans (AHIP), which is 

the national trade association representing nearly 1,300 private sector companies 

providing health insurance coverage to more than 200 million Americans. Our members offer a broad range of health insurance products in the commercial marketplace 

and also have demonstrated a strong commitment to participation in public programs. 

We appreciate this opportunity to testify about initiatives that reward health care 

providers for quality performance. Our member companies have demonstrated 

strong leadership by designing and implementing a range of provider payment arrangements—often referred to as pay-for-performance programs—that are promoting high quality and efficiency throughout the U.S. health care system. 

Our members’’ experiences clearly indicate that paying for quality is a promising 

strategy for improving overall wellness and advancing evidence-based medicine, 

8

1The Lewin Group LLC, Managed Care Savings for Employers and Households: 1990 through 

2000; 1997 2Strunk, B., & Ginsburg, P. (December 2004). Tracking Health Care Costs: Spending Growth 

Slowdown Stalls in First Half of 2004. Center for Studying Health System Change. Issue Brief 

No. 91. Washington, D.C. 

which translates into better health outcomes and greater value for employers and 

consumers. To provide context for a discussion of these innovative programs, our 

testimony today will focus on four broad areas: 

• The challenges posed by rising health care costs and uneven quality throughout 

the health care system and how redesigned payment mechanisms can be an integral part of improving the value that purchasers and consumers receive; 

• The importance of pay-for-performance programs as part of a broad-based strategy for meeting the cost and quality challenges; 

• Examples of pay-for-performance initiatives our members individually have chosen to implement and a core set of principles AHIP’s Board of Directors has embraced to provide ideas for aligning payment incentives with quality; and 

• Parallel steps that should be taken in several other areas—in addition to payfor-performance programs—to further improve the quality and affordability of 

health care. 

II. CHALLENGES FACING THE U.S. HEALTH CARE SYSTEM 

As we enter the 21st Century, the U.S. health care system faces a number of significant challenges. Rising health care costs are threatening to make health coverage unaffordable for more Americans, and are complicating efforts to meet the 

needs of the uninsured. One of the factors contributing to this cost problem is the 

serious concern that health care quality and patient safety are not optimal for many 

consumers. Moreover, traditional payment systems in some instances have created 

disincentives to control costs and improve quality. 

We believe bold, but thoughtful strategies are needed to directly address the root 

causes of these problems. Before offering our recommendations, we would like to review the background of these cost and quality issues. 

Rising Costs 

The most recent data from the Department of Health and Human Services (HHS) 

project that national health care spending increased by an estimated 7.5 percent in 

2004. Although this is the lowest rate of increase since 2000, health care costs still 

are growing faster than the overall economy and, as a result, large and small employers are finding it more difficult to provide or maintain coverage for their employees. 

AHIP and our members are encouraged about what we can do in the private sector to reduce growth in health care spending. From 1994 through 1999, national 

health expenditures were in line with overall economic growth, because health insurance plans implemented a variety of tools to constrain costs. This had a direct 

impact on the ability of employers to purchase affordable coverage for their employees. Indeed, the Lewin Group estimated that up to 5 million people 1 who otherwise 

would have been uninsured were able to receive coverage as a result of these costs 

being restrained. 

More recently, as the policy debate shifted away from containing costs, legislative 

proposals at both the federal and state levels focused on rolling back the mechanisms that were keeping health care affordable. This led to a new cycle of accelerating health care costs that has had an impact on purchasers and consumers. 

Recognizing this challenge, our members have developed a new generation of cost 

containment tools that already are having a positive impact and showing promise 

for the future. For example, the rates of increase in pharmaceutical expenditures 

have significantly declined as a result of our members’’ implementation of programs 

to encourage greater use of generic drugs and other measures that encourage case 

management of chronic conditions. The Center for Studying Health System Change 

has reported 2 that growth in prescription drug spending fell to 8.8 percent in the 

first half of 2004, down from almost 20 percent in the second half of 1999. 

The Center also has noted that hospital prices continue to be a major factor behind increased spending, accounting for almost half of the annual rate of increase 

in health care expenditures. At the same time, innovative drugs, devices and other 

therapies—while they can provide undeniable benefits in life expectancy and improved quality of life—are significant cost drivers. Without any organized way to assess the impact of this technology or compare the effectiveness of various therapies, 

employers and their employees are absorbing these higher costs without information 

about what works and the conditions under which certain therapies are effective. 

9

3 ‘‘To Err is Human,’’ Institute of Medicine, 1999

4 ‘‘The Quality of Health Care Delivered to Adults in the United States.,’’ Elizabeth A. 

McGlynn, RAND, June 25, 2003 5 Center for the Evaluative Clinical Sciences, Dartmouth Medical School, The Dartmouth 

Atlas of Health Care, ‘‘The Quality of Medical Care in the United States: A Report on the Medicare Program,’’ 1999 6Fisher, E., Health Affairs, October 7, 2004

As purchasers assess the impact of these rising health care costs, they also are 

questioning whether they are receiving the best value for their health care investment. 

Quality Concerns 

Through its landmark reports released in 1999, To Err is Human, and in 2001, 

Crossing the Quality Chasm, the Institute of Medicine (IOM) focused the nation on 

the critical need to improve health care quality and patient safety, coordinate chronic care, and support evidence-based medicine. Variation in medical decision-making 

has led to disparities in the quality and safety of care delivered to Americans. The 

1999 IOM report 3 found that medical errors could result in as many as 98,000 

deaths annually, and a 2003 RAND study 4 found that patients received only 55 percent of recommended care for their medical conditions. 

A wide range of additional studies indicate that Americans frequently receive inappropriate care in a variety of settings and for many different medical procedures, 

tests, and treatments. Such inappropriate care includes the overuse, underuse or 

misuse of medical services. Studies also show that patterns of medical care vary 

widely from one location to another, even among contiguous areas and within a single metropolitan area—with no association between higher intensity care and better 

outcomes. For example: 

• The Dartmouth Atlas of Health Care 5 documents wide variation in the use of 

diagnostic and surgical procedures for patients with coronary artery disease, 

prostate cancer, breast cancer, diabetes, and back pain. For example, the rates 

of coronary artery bypass graft (CABG) surgery were found to vary from a low 

of 2.1 per 1,000 persons in the Grand Junction, Colorado hospital referral area, 

to a high of 8.5 per 1,000 persons in the Joliet, Illinois region. The Atlas’’ most 

recent findings 6 reveal wide variation in hospital care and outcomes for chronically ill Medicare patients. For example, the length of hospital stays varied—

depending on a patient’s geographic location—by a ratio of 2.7 to 1 for cancer 

patients and by a ratio of 3.6 to 1 for congestive heart failure patients. Other 

examples of wide-ranging variations in care are illustrated in the visual below. 


21243.005
10

7Dr. Bodenheimer, T., The New England Journal of Medicine, Vol. 340, No. 6, pp. 488–492, 

19998 NCQA, The State of Health Care Quality: 2004, 2004

9 ‘‘National Survey of Physicians Regarding Pay-for–Performance,’’ Ayres, McHenry & Associates, Inc., September/October 2004

• The longstanding nature of quality problems in the U.S. health care system is 

evidenced by a 1999 article 7 in The New England Journal of Medicine, which 

stated: ‘‘A number of studies have demonstrated overuse of health care services; 

for example, from 8 to 86 percent of operations—depending on the type—have 

been found to be unnecessary and have caused substantial avoidable death and 

disability.’’

• The National Committee for Quality Assurance (NCQA) 8 documents the state 

of health care quality annually, reporting in 2004 that ‘‘enormous ‘‘quality 

gaps’’’ persist as ‘‘the majority of Americans still receive less than optimal care’’ 

with between 42,000 and 79,000 avoidable deaths occurring each year. While 

health care quality is improving in some areas, the health care system remains 

‘‘deeply polarized, delivering excellent care to some people, and generally poor 

care to many others.’’

These research findings clearly indicate the need for innovative strategies to improve quality and efficiency throughout the U.S. health care system. Decisive action 

is needed to address these wide-ranging variations in medical decision-making, as 

well as the overuse, underuse and misuse of health care services. 

Traditional Payment Models 

Having reviewed the challenges posed by cost and quality concerns, we now turn 

to the issue of payment arrangements. 

In general, health care practitioners have not been paid based on the quality of 

care they deliver. Until recently, clinical outcomes, patient satisfaction, and improvements in processes typically have not been rewarded. Instead, reimbursement 

has been based on the volume and technical complexity of services rendered. This 

approach has rewarded the over-utilization and misuse of services, and resulted in 

higher payments when health care complications arise, creating disincentives to improve quality and efficiency. 

Physicians have expressed concerns about not being recognized and rewarded for 

providing high quality care. A 2004 survey 9 of 400 primary care and specialty physicians, conducted on behalf of AHIP by Ayres, McHenry & Associates, found that 

86 percent of physicians are concerned that the current payment system does not 

reward practitioners for providing high quality medical care. Other findings of this 

survey indicate that 71 percent of physicians favor payments based in part on the 

quality of care they provide, and 62 percent believe that information on the quality 

of care provided by a physician should be made available to the public. 


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III. MEETING THE COST AND QUALITY CHALLENGES BY 

REWARDING QUALITY PERFORMANCE 

Health insurance plans have long been at the forefront of developing innovative 

payment arrangements that have promoted population-based health care, improved 

care for the chronically ill, and emphasized systematic investment in prevention. 

Many of our members currently are offering financial awards to physicians in the 

form of increased per-member-per-month payments or non-financial rewards in the 

form of public recognition, preferential marketing or streamlined administrative procedures. Additionally, some plans are offering consumers reduced co-payments, 

deductibles, and/or premiums in exchange for using providers deemed to be of higher quality, based on specific performance measures. The categories of performance 

measures most commonly reported include clinical quality, utilization experience/efficiency, patient satisfaction, and information technology infrastructure. 

Common Features of Programs That Reward Quality Performance 

Based on the experiences of our member companies, we know that programs for 

rewarding quality performance have a number of common features: • Reason for Implementation: To enhance and sustain clinical quality, facilitate 

excellence across provider networks, and improve and promote patient safety. • Role of Clinicians: Nearly all plans indicate that clinicians are actively involved 

in key aspects of rewarding quality performance programs, including program 

development, selection of performance measures, and determination of how rewards are linked to provider performance. 

• Emphasis on Specific Measures: In rewarding quality performance programs for 

physicians and medical groups, achieving clinical quality goals plays the most 

significant role in the formula for determining financial rewards. In programs 

for hospitals, utilization experience/efficiency and patient safety objectives tend 

to play equivalent roles. 

• Consumer Incentives: Efforts are being launched to encourage consumers 

through reduced co-payments, deductibles, and/or premiums to use providers 

that are achieving quality performance. 

IV. SPECIFIC INITIATIVES AND PRINCIPLES FOR REWARDING 

QUALITY PERFORMANCE 

To provide a better understanding of pay-for-performance initiatives in the private 

sector, we are providing brief examples of programs being implemented by our members across the country. 

• Aetna has launched a network of specialist physicians who demonstrate effectiveness based on certain clinical measures, such as hospital readmission rates 

over a 30-day period, reduced rates of unexpected complications by hospitalized 

patients, and efficient use of health care resources. Consumers who choose these 

specialists benefit through lower co-payments, and providers benefit through increased patient volume. The Aexcel network, which is currently available in 

nine markets across the country, includes physicians in twelve medical specialties—cardiology, cardiothoracic surgery, gastroenterology, general surgery, obstetrics/gynecology, orthopedics, otolaryngology, neurology, neurosurgery, plastic 

surgery, vascular surgery, and urology. 

• HealthPartners has implemented an Outcomes Recognition Program that offers 

annual bonuses to primary care clinics that achieve superior results in effectively promoting health and preventing disease. Since 1997, this program has 

awarded more than $3.95 million in bonuses to primary care groups that meet 

performance goals focusing on diabetes, coronary artery disease, tobacco cessation, generic prescribing, and consumer satisfaction. 

• Highmark Blue Cross Blue Shield has adopted a Quality Incentive Payment 

System that rewards primary care physicians for demonstrating improvement 

in measures for preventive screenings, treatment of chronic conditions, and 

other quality and service issues. In the tenth year of the program (2003), more 

than $12 million in bonuses were paid to primary care physicians who exceeded 

the average performance measure on various indicators. 

• Independent Health uses a Quality Management Incentive Award Program that 

involves a physician advisory group in developing performance targets for key 

issues such as patient satisfaction, emergency room utilization/access, office visits, breast and colorectal screening, immunizations, and treatment for diabetes 

and asthma. In addition to paying bonuses to physicians who exceed these targets, this program has documented significant improvements in clinical care for 

enrollees. 

• PacifiCare Health Systems has developed a Quality Index’’ profile that uses 

clinical, service, and data indicators to rank medical groups. Enrollees pay 

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lower co-payments for office visits if they select physicians from a ‘‘value network’’ of higher quality, lower cost providers. Additionally, PacifiCare’s Quality 

Incentive Program incorporates a subset of the Quality Index profile and has 

demonstrated an average improvement of 20 percent in 17 of 20 measures, with 

rewards to high performing physicians exceeding $15 million in the past three 

years. • WellPoint’s quality programs provide increased reimbursement to hospitals and 

physicians based, in part, on achieving improved quality measures. For example, hospitals selected for Anthem Blue Cross and Blue Shield’s Coronary Services Centers program in Indiana, Kentucky, and Ohio must meet stringent clinical quality standards for patient care and outcomes for certain cardiac procedures. Anthem Blue Cross and Blue Shield of Virginia’s Quality-in–Sights Hospital Incentive Program (QHIP) rewards hospitals for improvements in patient 

safety, patient health, and patient satisfaction. The 16 hospitals that participated in the first year of QHIP in 2004 are receiving a total of $6 million for 

actively working to implement nationally recognized care and safety practices 

that can save lives. Blue Cross of California has a comprehensive physician payfor-performance program that paid $57 million in bonus payments to 134 medical groups based on quality criteria in 2003. Blue Cross of California also has 

a PPO Physician Quality and Incentive Program (PQIP) that allows more than 

4,000 physicians in six counties in the San Francisco area to receive financial 

bonuses for superior performance on clinical quality, service quality, and pharmacy measures. 

Importance of Uniform Performance Measurement, Data Aggregation and Reporting 

A critically important step in moving forward with programs that reward quality 

performance is the development of a uniform, coordinated strategy for measuring, 

aggregating and reporting clinical performance. Disseminating information derived 

from aggregated performance data—which provides stakeholders with a more comprehensive view of performance across marketplaces—would yield benefits on several levels. Consumers would be allowed to make more informed decisions about 

their health care treatments. Physicians, hospitals and other health care professionals would be better able to improve the quality of care they provide. Purchasers 

would receive greater value for their investment in health care benefits. Health insurance plans could continue to develop innovative products that meet consumer 

and purchaser needs. 

AHIP has been working with the American College of Physicians (ACP), the 

American Academy of Family Physicians (AAFP), the Agency for Healthcare Research and Quality (AHRQ), the Centers for Medicare & Medicaid Services (CMS), 

and other stakeholders to identify what should be measured for ambulatory care 

and how, and develop an effective and efficient data aggregation model that would 

comprehensively assess provider performance. 

The collaborative effort now called the Ambulatory Care Quality Alliance (AQA) 

recently reached consensus on a common set of 26 ambulatory care performance 

measures. These measures are grouped under eight separate categories: (1) prevention; (2) coronary artery disease; (3) heart failure; (4) diabetes; (5) asthma; (6) depression; (7) prenatal care; and (8) overuse or misuse of medical services. Many of 

the measures under these categories are ‘‘bundled’’ measures—i.e., multiple measures which if used collectively, have the potential to more comprehensively and accurately assess physician performance and provide improved outcomes for patients. 

These measures are intended to serve as a ‘‘starter set’’ that will provide clinicians, consumers, and purchasers with a set of quality indicators that can be used 

for quality improvement, public reporting, and pay-for-performance programs. This 

starter set will be expanded in a multi-phase process, resulting in a more complete 

set of measures which address a wide range of additional quality indicators addressing efficiency, patient experience, sub-specialties and other key areas. 

In addition to working toward a strategy for performance measurement, AQA is 

developing a uniform data aggregation strategy. The aggregation model developed 

by this alliance would include the following key attributes: 

• trusted, third party data aggregator(s) capable of maintaining appropriate restrictions on privacy and confidentiality; 

• an independent governing structure that would establish rules, policies and 

standards for data aggregation; 

• a process that allows provider performance to be compared against both national and regional benchmarks; 

• collection of both public and private data so that physician performance can be 

assessed as comprehensively as possible; 

13

• standardized and uniform rules associated with measurement and data collection; 

• transparency with respect to framework, process and rules; 

• protection of privacy and confidentiality of data while ensuring necessary access 

to appropriate stakeholders; and 

• systems or processes to share, collect, aggregate and report quality and efficiency performance data that are affordable and that minimize burdens. 

Lastly, AQA is exploring strategies for reporting reliable and useful quality information to consumers, providers and other stakeholders. The Alliance recently developed two sets of fundamental principles for reporting. The first set of principles, 

which addresses reporting to consumers and purchasers, aims to facilitate more informed decision-making about health care treatments and investment. The second 

set of principles, which addresses reporting to physicians and hospitals, is designed 

to facilitate quality improvement and informing providers of their performance. 

The AQA will continue to move forward in the areas of measurement, aggregation 

and reporting, and encourage various stakeholders to become involved in this important effort to improve health care quality and patient safety. 

Principles for Rewarding Quality Performance 

AHIP’s members are committed to working with stakeholders across the health 

care community, particularly health care professionals who work on the frontlines 

every day, to develop a strategy that accounts for the quality of care delivered to 

patients. In November 2004, AHIP’s Board of Directors demonstrated this commitment by approving principles for guiding the development and implementation of 

programs that advance a quality-based payment system. They include eight key elements: 

• Programs that reward quality performance should promote medical practice 

that is based on scientific evidence and aligned with the six aims of the IOM 

for advancing quality (safe, beneficial, timely, patient-centered, efficient, and equitable). 

• Research is urgently needed to inform clinical practice in priority areas currently lacking a sufficient evidence-based foundation. 

• The involvement of physicians, hospitals and other health care professionals in 

the design and implementation of programs that reward quality performance is 

essential to their feasibility and sustainability. 

• Collaboration with key stakeholders, including consumers, public and private 

purchasers, providers, and nationally recognized organizations, to develop a 

common set of performance measures—process, outcome and efficiency measures—and a strategy for implementing those measures will drive improvement 

in clinically relevant priority areas that yield the greatest impact across the 

health care system. 

• Reporting of reliable, aggregated performance information will promote accountability for all stakeholders and facilitate informed consumer decision-making. 

• The establishment of an infrastructure and appropriate processes to aggregate—across public and private payers—performance information obtained 

through evidence-based measures will facilitate the reporting of meaningful 

quality information for physicians, hospitals, other health care professionals, 

and consumers. 

• Disclosure of the methodologies used in programs that reward quality performance will engage physicians, hospitals, and other health care professionals so 

they can continue to improve health care delivery. 

• Rewards, based upon reliable performance assessment, should be sufficient to 

produce a measurable impact on clinical practice and consumer behavior, and 

result in improved quality and more efficient use of health care resources. 

Significantly, these principles recognize the views that physicians have expressed 

on pay-for-performance. The physician survey we previously noted—conducted by 

Ayres, McHenry & Associates in September/October 2004—included additional findings showing that an overwhelming majority of physicians would support pay-forperformance programs if the performance measures were developed with physicians 

in that particular medical specialty (87 percent), if the performance measures were 

clearly communicated to physicians before they were used in payment arrangements 

(84 percent), and if the performance measures were evidence-based and grounded 

in science (83 percent). 

V. OTHER ELEMENTS OF A QUALITY IMPROVEMENT STRATEGY 

While programs that reward quality performance can go a long way toward address cost and quality challenges, this is only one component of a broad-based strategy for transforming the health care system. Policymakers should at the same time 

14

encourage and pursue a variety of other programs and initiatives to further advance 

quality and efficiency. 

Invest in Cost Effectiveness and Translational Research 

While the federal government invests heavily in clinical research, it makes only 

modest investments in research that compares the relative effectiveness of existing 

versus new therapies that are designed to treat the same condition. The federal government should assign a high priority to this kind of research and also direct more 

funding to promote the widespread adoption of best practices and reduce the overuse and misuse of health care. 

A National Center for Effective Practices should be created to ensure that the results of cost effectiveness research are translated into usable information for providers and consumers. This new entity could identify and make publicly available 

the latest advances in evidence-based medical practices, and also shed light on procedures determined to be less effective. 

Develop a Framework for Evaluating Technologies for Effectiveness and Efficiency 

To address the rapid development of new procedures, devices and other technologies, a public-private framework should be established to evaluate and compare 

the effectiveness and efficiency of these technologies. Moreover, new post-marketing 

surveillance models should be developed to assess the appropriate use and long-term 

value of certain breakthrough drugs, devices and biologicals. 

Encourage the Development of an Interconnected Health Care System and Uniform Standards 

The delivery of health care in America is complex with individuals seeking care 

from a variety of physicians, hospitals, and specialists. The ultimate goal of modernizing the health care system is to improve personal health and the delivery of care 

by providing meaningful personalized information to consumers and providers in a 

usable form and in a timely manner. To achieve this aim, we need uniform, national 

standards that enable the exchange of health information by and between clinical 

electronic health record (EHR) systems and consumer-centric individual health 

records. 

Overhaul the Medical Liability System to Ensure Effective Dispute Resolution 

and Promote Safety and Value 

The flaws in the current medical liability system should be addressed with reforms that place reasonable limits on health care litigation. Additionally, patient 

safety legislation is needed to establish legal protections for medical error information reported by health care providers, and to permit the aggregation of data that 

can be used to determine the causes of medical errors and develop strategies for improving patient safety. Also needed is a uniform, national administrative process to 

resolve malpractice disputes between patients and health care providers in a fair 

and efficient manner, thus avoiding the need for litigation as often as possible. 

Modernize and Maximize the Effectiveness of the Regulatory System. 

• Encourage choice with uniform rules in the small group market: A common set 

of rules would encourage competition, enhance consumer choice, and provide 

greater predictability for employers. The solution is not to waive all requirements for particular groups, but to establish an appropriate and consistent 

framework for all participants to ensure that small employers have maximum 

options to meet their needs. This means that the federal and state governments 

need to work together to encourage ‘‘best practice’’ regulation. This process has 

begun with the development of draft legislation—known as the State Modernization and Regulatory Transparency (SMART) Act—that would promote 

uniformity in plan processes, particularly internal and external review of coverage disputes, speed-to-market and market conduct standards. 

• Encourage prompt product approval and consistency in regulatory processes. 

Steps should be taken to ensure that states adopt a mechanism by which health 

insurance plans can bring innovative products to the market in a timely manner. Ideally, the federal government should encourage states to be forthcoming 

regarding their standards for policy rate and form filing requirements and to 

abandon unwritten ‘‘desk-drawer rules.’’ This ultimately will create oversight 

mechanisms that allow companies to provide consumers with the products they 

need in a timely manner. 

• Establish an independent advisory commission to evaluate the impact of mandates on health care costs and quality. Such a commission could advise policymakers on the safety and effectiveness of proposed and existing mandated 

15

10 Employee Benefit Research Institute, Small Employers and Health Benefits: Findings from 

the 2002 Small Employer Health Benefits Survey, January 2003

health benefits, and assess whether proposed mandates result in improved care 

and value. The commission’s findings also could inform public program coverage 

and decision-making to ensure that evidence-based standards are applied consistently in Medicare, Medicaid, and other public programs. 

Provide Funding for High–Risk Pools 

AHIP’s Board of Directors approved a statement in June 2004 indicating support 

for federal funding for state high-risk pools to cover individuals who have unusually 

high health care costs. This legislation fits within the parameters of what Congress 

is able to accomplish from a budgetary standpoint at this time. This initiative is one 

of the next steps Congress should take as part of a long-term strategy for strengthening our nation’s health care safety net. 

Expand Tax Credits to Encourage the Purchase of Health Care Coverage 

To address the needs of working Americans who are uninsured and ineligible for 

public programs, Congress can help make health coverage more affordable by expanding tax credits for low-income persons. This approach will be particularly helpful to Americans who do not have access to employer-sponsored coverage and to 

those who decline such coverage because of the high cost. Moreover, tax credits 

could prompt more small businesses to offer employee health benefits. The Employee Benefits Research Institute (EBRI) 10 has reported that among small employers that do not offer employee health benefits, 71 percent would be more likely to 

seriously consider offering health benefits if the government provided assistance 

with premiums. 

VI. CONCLUSION 

It is increasingly clear that the U.S. health care system faces significant quality 

challenges that are further heightened by rising medical costs. Taken together, 

these factors create an urgency for stakeholders to work collaboratively to improve 

the quality, safety and efficiency of the health care system. Programs that recognize 

and reward quality performance should be an important part of this effort. 

We applaud the subcommittee for focusing on the value of payment arrangements 

that align reimbursement with quality performance. 

Rewarding Quality Performance: Health Insurance Plan Examples 

Aetna 

Hartford, Connecticut 

In January 2004, Aetna launched a network of specialist physicians developed 

based on quality and efficiency indicators. The new Aexcel SM network was created 

by identifying medical specialties associated with a large portion of health care 

spending and features specialists who demonstrate effectiveness against certain 

clinical measures such as hospital readmission rates over a 30-day period, and reduced rates of unexpected complications by hospitalized patients; volume of Aetna 

enrollees’’ cases; and efficient use of health care resources. Aexcel SM benefits consumers through lower copayments for seeking services from more efficient providers, 

and providers benefit through increasing the volume of patients to their practices. 

Physicians in six medical specialties—cardiology, cardiothoracic surgery, gastroenterology, general surgery, obstetrics/gynecology, and orthopedics—who have met 

the established measures were designated to participate initially in the network option. Aetna also recently expanded its network to include additional six specialties 

(e.g., otolaryngology, neurology, neurosurgery, plastic surgery, vascular surgery, and 

urology). The Aexcel SM network is currently available in the nine markets of Atlanta, Houston, metropolitan Washington DC, Los Angeles, Connecticut, metropolitan New York/New Jersey, Dallas/Fort Worth, North Florida and Seattle/Western 

Washington. Additional geographic regions will be added over the next two years. 

Blue Cross Blue Shield of Michigan and Blue Care Network 

Detroit, Michigan 

Blue Cross Blue Shield of Michigan (BCBSM) and Blue Care Network (BCN) have 

designed and implemented a number of provider incentive initiatives and are continuing to expand and evolve these efforts. 

The BCBSM Hospital Incentive Program rewards hospitals that demonstrate 

achievement in three major categories: clinical quality, patient safety, and community health. Through this program, hospitals can earn up to an additional four perVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 H:\DOCS\21243 NNIXON
16

cent on their inpatient payments. BCBSM’s participating hospital agreements establish the incentive program; up to four percent is added to each Diagnosis Related 

Group (DRG) payment, based on each hospitalization or admission, if the standards 

are met. The actual amount a hospital earns is based on its individual performance. 

Hospital performance has improved each year the program has been in place. In 

2004, performance in the program has earned participating hospitals an average incentive payment of over three percent, the average incentive, which is added to the 

DRG payment. 

The BCBSM Cardiac Centers of Excellence program established in 1996 helps enrollees make informed decisions when selecting a hospital to meet their cardiac 

needs. Ten Michigan hospitals currently meet the quality criteria for this program. 

As a result of this initiative, BCBSM has observed lower mortality rates, fewer unplanned coronary artery bypass grafts, fewer heart attacks, and fewer cases of kidney failure requiring dialysis. These improvements are associated with approximately $8 million in annual savings. 

The BCBSM Physician Group Incentive Program rewards physician groups for 

their ability to: create registries for patients with particular medical conditions; provide performance feedback to individual physicians; promote consistent delivery of 

care according to evidence-based guidelines; refer to care management programs; 

and demonstrate improvement in generic drug prescribing and cost-effective prescribing. A pay-for-performance pool is distributed quarterly to selected medical 

groups. The share of the incentive pool for each group is based on the numbers of 

enrollees served and in meeting performance expectations. Ten physician groups 

were selected to participate in 2004 and two more joined in 2005. 

Blue Care Network Performance Recognition Program (PRP) and Blue Reward’’ 

programs reward primary care physicians and medical groups for surpassing quality 

and patient satisfaction benchmarks and for other focused short-term performance 

improvements. From 2001–2003, BCN has rewarded approximately 80 percent of 

nearly 3,000 eligible primary care physicians for performance improvements each 

year across the state of Michigan. The rates of breast cancer screening, cervical cancer screening, childhood immunization, smoking cessation, and patient satisfaction 

all increased through the PRP program. The innovative Blue Reward’’ program 

(short term, focused) has also recorded early successes with Prilosec OTC’’ and electronic referral initiatives. 

CIGNA HealthCare 

Hartford, Connecticut 

CIGNA HealthCare of California participates in the Integrated Healthcare Association’s (IHA) quality incentive program. CIGNA uses IHA’s common measurement 

set to evaluate performance. CIGNA then rewards the top 50 percent of contracted 

physician groups for meeting each of the IHA clinical and member satisfaction 

metrics. Fifty-percent of the overall pool is being rewarded to providers for meeting 

HEDIS/clinical measures, such as breast cancer screening, cervical cancer screening, 

and appropriate medications for asthma; 40 percent for enrollee satisfaction; and ten 

percent for the adoption and implementation of health information technology. Topperforming groups in all components of the Rewards Program are eligible to receive 

a minimum of $1.60 per member per month. Payment is based upon the total annual member months of the group’s population. In the first year of the program, the 

payout in California for IHA was $4 million. 

CIGNA also uses other non-financial strategies to recognize their network providers. Participating physicians and hospitals that have met certain quality criteria 

are recognized in its online Provider Excellence Recognition Directory. Physicians 

are recognized for being certified by the National Committee for Quality Assurance 

for providing high quality diabetes or heart/stroke care. Hospitals are highlighted 

for meeting the Leapfrog Group’s three patient safety standards (e.g., Computer 

Physician Order Entry systems, Intensive Care Unit Physician Staffing, and Evidence-based Hospital Referrals). 

Harvard Pilgrim Health Care 

Wellesley, Massachusetts 

Harvard Pilgrim Health Care (HPHC) implements a multi-faceted Provider Network Quality Incentive Program that includes a Physician Group Honor Roll, a 

Quality Grant Program, and a Rewards for Excellence program. These activities are 

highlighted below. 

HPHC participating physician groups are eligible for inclusion in the Harvard Pilgrim Physician Group Honor Roll by exceeding performance levels in clinical areas, 

such as breast cancer screening, appropriate diabetes care, and childhood immunizaVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6621 H:\DOCS\21243 NNIXON
17

tions. On an annual basis, HPHC publishes the names of all Primary Care Physicians affiliated with the physician groups that have achieved Honor Roll or Honorable Mention in print and online physician directories. 

HPHC’s Quality Grant Program provides support to local physician offices to implement quality improvement interventions that may face particular challenges in 

achieving high performance targets. These grants help practices to address important issues, such as geographic access to needed services, language or cultural barriers, and outreach and other services to disadvantaged populations. These practices, in turn, support Harvard Pilgrim Health Care’s mission to improve the health 

of its members and the community at large. In 2003 and 2004, a total of 2.5 million 

dollars was granted for 34 grants. 

Another component of the Provider Network Quality Incentive Program is Rewards for Excellence. This initiative recognizes and rewards the exemplary performance of local quality efforts. HPHC has identified a subset of areas of focus. These 

areas targeted include key Health Plan Employer Data and Information Set 

(HEDIS) performance measures where effective clinical interventions have been 

identified and/or where current levels of performance—nationally, regionally, and 

within Harvard Pilgrim—are less than clinically optimal. Current measures include 

such measures as eye exams and kidney screening for people with diabetes, appropriate anti-depressant medication management, asthma management, and 

chlamydia screening. HPHC offers its providers financial rewards for achieving excellent levels of performance in the defined target areas. In 2003, Harvard Pilgrim 

rewarded 55 out of 66 eligible practices. 

HealthNet 

Woodland Hills, California 

HealthNet is an active participant in the Integrated Health Association initiative, 

a quality incentive program in California with six participating health insurance 

plans and 215 medical groups, representing 45,000 physicians. A common measurement set across all health insurance plans is used to evaluate provider performance. 

The measurement set includes quality indicators for both preventive and chronic 

care, such as breast cancer screening, and appropriate medications for asthma, patient satisfaction, and the investment and adoption of health information technology. Each health insurance plan then uses its own methodology and formula to 

calculate the physician group bonus. Collectively, health insurance plans paid approximately $50 million to physician groups in its first year. 

HealthNet has seen the following results from this initiative: increasing numbers 

of contracted medical groups eligible for such rewards (70 groups in 2004 as compared to 30 groups in 2003); and HEDIS rate increases on average of two percent 

for all paying for performance program measures. 

HealthPartners 

Minneapolis, Minnesota 

HealthPartners’’ Outcomes Recognition Program (ORP) offers annual bonuses to 

primary care clinics that achieve superior results in effectively promoting health 

and preventing disease. Eligible primary care groups are annually allocated a pool 

of bonus dollars that is awarded if a group reaches specific performance targets. 

Measures focus on important clinical issues, such as diabetes, coronary artery disease, tobacco cessation, generic prescribing, and consumer satisfaction. ORP bonus 

awards are an addition to the standard provider payment for primary care provider 

groups. In 2004, eligible clinics were able to earn financial rewards ranging from 

$90,000 to $290,000, depending on the size of their HealthPartners’ enrolled populations and the number of measurable targets reached. In 2004, 19 of the 26 eligible 

primary care groups received a total of $656,250 in ORP bonus awards. Since 1997, 

ORP bonus awards have totaled over $3.95 million. 

Highmark Blue Cross Blue Shield 

Pittsburgh, Pennsylvania 

Highmark Blue Cross Blue Shield’s Quality Incentive Payment System (QIPS) rewards physicians in 20 counties in Western Pennsylvania for improvements in 

measures based, in part, on the Health Plan Employer Data and Information Set 

(HEDIS) for preventive screenings and treatment for chronic conditions. Additional 

quality and service performance measures include generic versus brand prescribing 

patterns, electronic submission of claims, and the use of Highmark’s provider portal. 

Highmark’s QIPS rewards are for Primary Care Physicians (PCPs) who participate 

in Highmark’s HMO/POS product lines with panel sizes of at least 300 patients. 

18

These physicians are eligible for a bonus in addition to capitation. Scoring is based 

on meeting or exceeding the Highmark network average for each indicator. 

In the tenth year of the program (2003), primary care physicians were reimbursed 

$12.3 million for 12.6 million member months or approximately $0.98 per member 

per month. Over time, ninety-eight percent of the participating PCPs have met or 

exceeded some of the clinical indicators being evaluated and fifty percent of the eligible physicians meet the benchmarks for each quarter for all clinical indicators. 

Later this year, Highmark plans to expand this program to its PPO product line 

and to central Pennsylvania. 

Since 2001, Highmark has also worked with its hospitals within its network to 

improve quality. Individual hospitals work with Highmark in its QualityBlue SM 

program to develop projects that focus on medication safety, patient safety, and infection control and meet their individual facility needs. Baseline improvement goals 

are established at the onset of the program to evaluate the hospital performance. 

A portion of the hospital’s contracted reimbursement is placed at risk based on their 

performance. The participating hospitals represent over 50% of Highmark’s total 

hospital claim payments. 

Currently operating in 29 western Pennsylvania counties, participating hospitals 

in the QualityBlue SM program have achieved remarkable results in their indicators. Some of the achievements have been reducing or eliminating infections in targeted hospital units, preventing medication errors though implementation of technology, reducing readmissions for cardiac patients, and reducing or eliminating patient identification errors. 

Independence Blue Cross (IBC) 

Philadelphia, Pennsylvania 

Independence Blue Cross (IBC) offers a quality of care incentive payments system 

(QIPS) to both PCPs and hospitals. The PCP QIPS program, for HMO capitated primary care practices, promotes both quality of care, including member satisfaction, 

and quality of service goals of the Plan. The program began in 1992, and was redesigned in 2002 to include clinical quality measures of effectiveness of care, such as 

screening rates for women’s health issues, care of patients with diabetes, members 

with asthma, and selected cardiac conditions, and service measures of extended office hours, appropriate use of generic drugs, electronic connectivity, and the use of 

that connectivity for referrals and encounters. PCPs in approximately 1,350 locations caring for about 870,000 members are eligible for quality of care payments; 

85% received payments as high as $2.30 Per Member Per Month over and above 

their regular capitation rate. 

A hospital quality incentive payment system was designed in 2002 that currently 

includes one system with six hospitals. Hospitals agree to base a significant part 

of their annual rate increase on performance against agreed-upon quality indicators. 

Indicators are based on third party measures broadly accepted as good barometers 

of quality from organizations such as the Pennsylvania Health Care Cost Containment Council, the Joint Commission on Accreditation of Healthcare Organizations, 

the Leapfrog Group, the Agency for Healthcare Research and Quality, and others. 

Since 2002, a number of hospitals in the system have improved on several measures. 

Independent Health 

Buffalo, New York 

The goal of Independent Health’s Practice Excellence program has been to improve enrollee health through improved access/timeliness of care, preventive screening, and adherence to evidence-based guidelines for the treatment of chronic conditions. 

A physician advisory group has helped to develop key program elements and has 

helped establish ‘‘performance targets’’ in areas such as patient satisfaction, emergency room utilization, access/office visits, breast and colorectal screening, immunizations, and treatment for diabetes and asthma. 

Physicians earn an award based on their level of performance: high, average and 

below average. Unique to the Independent Health model, the diabetes and asthma 

adherence to guideline components are awarded based upon participation and active 

engagement in the program only (not performance-based). The overall award 

amount is based upon an additional per member per month reimbursement for the 

level of performance and participation achieved. Primary care physicians can earn 

up to $2 PMPM for high-level performance in all five areas. 

Independent Health’s Practice Excellence program has a continued record of success, with significant improvements in preventive health services and double-digit 

19

improvement in over twenty performance metrics associated with diabetes and asthma. 

Oxford Health Plans 

Trumbull, Connecticut 

Oxford Health Plans created the Best Practices Program (BPP) for diabetes to recognize and reward quality performance among physicians. Oxford’s BPP initiative 

is designed to reach those individuals who are not engaging in the appropriate activities (e.g., diet, exercise and regular visits to specialists) to manage their conditions. Oxford works collaboratively with providers within their network to motivate 

members to: 1) become actively engaged in the care they receive; 2) modify behaviors to appropriately manage their health conditions; and 3) be accountable for personal health outcomes. 

Currently, more than 380 high-risk members with diabetes have been referred to 

endocrinologists in Oxford’s BPP initiative for diabetes. Of those members with confirmed visits to specialists, Oxford has seen an average decrease in A1C levels of 

about 8%. In addition, over 60% of members enrolled in the program improved their 

A1C results by the second physician visit. 

In the initial phase of this program, Oxford selected high-quality endocrinologists 

or endocrinology groups across seven counties in New York to participate. These 

endocrinologists have achieved or have agreed to apply for the Diabetes Physician 

Recognition Program co-sponsored by the American Diabetes Association and the 

National Committee for Quality Assurance that measures the physician’s ability to 

meet certain measures of diabetes care. A cross-functional team was developed to 

provide outreach calls to program participants to arrange appointments with a participating endocrinologist. 

PacifiCare Health Systems 

Cypress, California 

PacifiCare Health Systems has adopted a comprehensive and integrated strategy 

to improve quality and affordability through Quality Index’’ profiles, value networks, 

a quality incentive program, health and disease management programs, and consumer rewards. Since 1998, PacifiCare’s semi-annual Quality Index’’ profile of Medical Groups has used clinical, service, and data indicators to rank medical groups. 

The measures are sorted into five categories: Staying Healthy (e.g., includes cervical 

and breast cancer screening, chlamydia screening and childhood immunizations); 

Appropriate Care (e.g., appropriate care for diabetes care and coronary artery disease); Patient Safety (appropriate use of antibiotics and cholesterol-lowering drugs); 

Service & Satisfaction (e.g., satisfaction with medical groups or primary care physicians, and Primary Care Physician communication); and Affordability. PacifiCare 

profiles the medical groups and then posts the results as ‘‘report cards’’ on its Web 

site and includes a summary in its provider directory to members. 

In addition, in 2003, PacifiCare began publishing an annual Quality Index’’ of 

Hospitals which serves as a report card on the relative performance of contracted 

hospitals on 56 measures of risk-adjusted complication rates and mortality rates, 

patient safety measures, utilization and patient satisfaction related to common medical, surgical, obstetrical, orthopedic and pediatric conditions. The profiles are available on PacifiCare’s public website. 

Enrollees who select physicians from PacifiCare’s ‘‘value network’’ of higher quality, lower cost providers, also may pay $10 per visit for their primary care physician 

and $20 per visit for a specialist, whereas co-payments for office visits using physicians and specialists in the ‘‘standard network’’ may double those amounts. Furthermore, PacifiCare’s Quality Incentive Program (pay for performance) incorporates a 

subset of the Quality Index(r) profile and has demonstrated an average improvement of 25 percent in 17 of 20 measures, with rewards exceeding $15 million in the 

past three years to better-performing providers. 

Regence BlueShield 

Seattle, Washington 

Regence BlueShield’s Clinical Performance Recognition Program acknowledges 

primary care providers who exhibit strong performance in both clinical quality ‘‘adherence to evidence-based guidelines and cost-efficiency ‘‘reducing condition-specific 

cost variation over the course of patient care. To be recognized, providers receive 

aggregate quality and efficiency scores, with each area given equal weight, and then 

each clinician’s percentile rank is averaged. Only clinical specialties with at least 

20 participating physicians are eligible for recognition. Clinicians within the top ten 

percent of the composite metric are acknowledged for their performance. To introVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6621 H:\DOCS\21243 NNIXON
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duce their program, Regence awarded $5,000 to 200 primary care physicians who 

met these performance criteria. 

In addition, Regence and The Boeing Company have implemented a Hospital 

Safety Incentive program. The program is intended to encourage members of 

Boeing’s largest unions to use hospitals that meet the Leapfrog Group patient safety 

standards. Patients requiring any of six procedures, such as Coronary Artery Bypass 

Graft and Abdominal Aortic Aneurysm repair must use a network hospital that 

meets the Leapfrog Group’s Evidence–Based Hospital Referral volume standard in 

order to receive the incentive. For all other hospital services, patients must use a 

hospital that meets the Leapfrog Group’s standards for Computerized Physician 

Order Entry as well as the Intensive Care Unit staffing requirements. Patients 

seeking care from hospitals that meet the required standards receive 100 percent 

coverage after their deductible (compared to 95 percent if they receive care from 

hospitals that have not met these standards). 

Rocky Mountain Health Plans and Mesa County Physicians IPA 

Grand Junction, Colorado 

Rocky Mountain Health Plans (RMHP) and the Mesa County Physicians IPA 

jointly developed a three-year pilot project in late 2002-early 2003 to reward primary care physicians for performance in the management of chronic illnesses. The 

project uses a three-part strategy to recognize quality performance through strong 

outcome measures and support of quality improvement efforts of physicians. First, 

the project creates an opportunity for providers to share in the benefits of improving 

chronic illness outcomes through timely performance payments from the IPA. Second, practices can opt to access guidance and assistance, without charge from 

RMHP, in implementing a system for improved outcomes (‘‘chronic care model’’). 

Third, RMHP provides ongoing support for offices implementing the model through 

monthly collaborative educational lunches and a quarterly case management fee 

payment. 

A physician committee established the clinical outcome measures used based on 

peer-to-peer comparisons. Initially, all measures are being equally weighted. Eligibility for physician rewards is based on levels of participation in the program: 

• If no data is submitted, physicians are not eligible for performance payments. 

• If data is submitted on an approved flow sheet or report, physicians are eligible 

for performance payments. 

• If data is submitted on an approved flow sheet or report and criteria has been 

met for a chronic care office meeting, physicians are eligible for performance 

payments and quarterly case management fees per diseased member. 

Within the first twelve months of the project, 100 percent of the primary care physicians in Mesa County who have RMHP members with diabetes were submitting 

data quarterly on nearly 1800 members. Approximately 50 percent of the primary 

care physicians are using an improved process for delivering care to their entire 

population with diabetes or asthma. 

Significant improvement is being seen in diabetes clinical outcomes in all lines of 

business. There is also early evidence of the anticipated cost saving trend in the 

commercial line of business. Documented first year savings in the commercial line 

of business is about $41,500. 

WellPoint Inc. 

Indianapolis, Indiana 

WellPoint’s quality programs provide increased reimbursement to hospitals and 

physicians based, in part, on achieving improved quality measures. Below are several examples of proven quality programs at WellPoint: 

Approximately 15,000 physicians in Anthem Blue Cross and Blue Shield networks 

receive a portion of their reimbursement through bonuses for improving care to 

health plan members. For example, hospitals selected for Anthem Blue Cross and 

Blue Shield’s Coronary Services Centers program in Indiana, Kentucky, and Ohio 

must meet stringent clinical quality standards for patient care and outcomes for certain cardiac procedures. Examples of quality standards used for evaluation include: 

Cesarean-section rates, the percentage of patients who were prescribed betablockers after discharge, the number of discharged heart failure patients prescribed 

ACE inhibitors, and adoption of patient safety as a strategic goal. Since the program’s inception in Ohio more than 10 years ago, participating hospitals in the state 

have seen a 38-percent decrease in mortality rates, and improved rates for beta 

blocker use after heart attacks. 

Anthem Blue Cross and Blue Shield of Virginia’s Quality-in–Sights Hospital Incentive Program (QHIP) rewards hospitals for improvements in patient safety, paVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6621 H:\DOCS\21243 NNIXON
21

tient health, and patient satisfaction. The 16 hospitals that participated in the first 

year of QHIP in 2004 are receiving a total of $6 million for actively working to implement nationally recognized care and safety practices that can save lives. Hospitals are measured on such indicators as the adoption of JCAHO patient safety 

goals, implementation of computerized physician order entry systems, administration of beta blockers after heart attack, pneumococcal vaccination, and rates of serious complication following diagnostic cardiac catheterization. Hospitals can earn up 

to an additional one percent from Anthem, with the reward added to reimbursements going forward. In 2005, 45 Virginia hospitals are participating in QHIP. 

Blue Cross of California (BCC) is implementing comprehensive physician pay-for- performance programs. In 2003, BCC paid $57 million in bonus payments to 134 

medical groups based on quality criteria. The quality indicators evaluated within 

the HMO program include member satisfaction, compliance with preventive 

screenings, such as mammograms, appropriate treatment of asthma, and smoking 

cessation. BCC is also a member of a coalition of six health insurance plans that 

awarded $50 million in bonus payments to 215 physician groups in 2004 based on 

clinical benchmarks. 

In October 2002, Blue Cross of California also expanded these programs to include 

a PPO Physician Quality and Incentive Program (PQIP). The payment rewards are 

currently limited to six counties in the San Francisco area. Over 4,000 physicians 

located in six counties in the San Francisco area are eligible to participate in the 

Physician Recognition Program and receive a financial bonus for superior performance on clinical quality (e.g., breast cancer screening, childhood immunizations, and 

eye exams and Hemoglobin A1C testing for diabetes), service quality (e.g., enrollee 

complaints) and pharmacy measures (e.g., generic substitutions). Nearly $3 million 

in bonuses were distributed to close to 2,000 physicians in Spring, 2004 based on 

first year PQIP performance. Going forward, PPO physicians could be eligible for 

a fee schedule increase up to 14 percent above the plan’s standard PPO fee schedules. 

Chairman JOHNSON. Dr. Galvin, you are welcome to begin. 

STATEMENT OF DR. ROBERT GALVIN, DIRECTOR OF CORPORATE HEALTH CARE AND MEDICAL PROGRAMS, GENERAL ELECTRIC, FAIRFIELD, CT, ON BEHALF OF THE 

HUMAN RESOURCES POLICY ASSOCIATION 

Dr. GALVIN. Good. Thank you, Chairman Johnson, Congressman 

Andrews and other distinguished members of the subcommittee. 

Thank you for asking me to testify on the challenging issue of employer-sponsored health benefits. 

My name is Robert Galvin, and I am the Chief Physician of Global Health Care for General Electric. I am appearing today on behalf of the H.R. Policy Association, where I am serving as director 

of Health Care Value initiatives. 

In my position at GE, I am responsible for the design and operation of GE health benefits. To cover over 350,000 U.S. employees 

and retirees costs the company $2 billion annually, growing at a 

rate that is three or four times faster than the CPI. Like most 

large companies, GE believes healthy employees and families contributes to our success as a company. We remain committed to 

helping our employees staying healthy and providing them access 

to highest-quality treatment when they are ill. 

However, I cannot overestimate or stress enough the level of concern both to GE management and to GE employees about the relentless increase in health costs. H.R. Policy Association, a group 

representing chief human resource officers from more than 25 large 

employers, and the Business Roundtable, an organization representing CEOs of large employers, have declared that health costs 

are the biggest issue facing senior leadership. This shows how this 

has reached the radar of top leadership of American corporations. 

22

In 2003, the H.R. Policy Association Board of Directors created 

the health care Policy Roundtable to use the collective buying 

power of the 20 million workers employed by HRPA companies to 

leverage health care reforms within existing policies. Two privatesector initiatives by the Roundtable that are relevant to the discussion today are explored in greater detail in my written statement, 

called the National Health Access and the Regional Health Care 

Quality Reform initiatives. 

The most important trend, I think, going on among employers 

today is that, in response to both the unpopularity of managed care 

in the last decade and the new research, which Ms. Ignagni mentioned, showing the serious gaps in quality and the variation, employers have moved from a focus purely on cost to one based on 

value. What we mean by value is the highest quality and quality 

first at the best price. 

To be able to buy value, employers believed two fundamental 

changes are needed and that without these fundamental changes 

it won’t be possible to move forward. First, comprehensive information about the performance of doctors and hospitals needs to be 

publicly available as quickly as possible. Second, existing financial 

incentives which currently drive the wrong behaviors need to be 

changed. 

Let me give you a real-world example of how our current system 

plays out for employees and patients. 

Last month I got a call from a very concerned employee seeking 

advice about whether the place that a primary care doctor had recommended she get treated was really the best place for her to go 

for a diagnosis of cancer. 

Despite searching every data base I could find, I was unable to 

answer this person’s question. I called a colleague who collects this 

kind of data, and I asked him if he could help. He replied that he 

would like to help but that the doctors and hospitals that agreed 

to send him data only if he refused to reveal their individual performance. I asked if he were willing to help the patient and me by 

doing the following. 

As I mentioned possible treatment sites, would he cough once as 

I mentioned the best one and would he cough twice when I mentioned the second best. I quickly named the facilities and hearing 

first a single cough, then two coughs, I realized what he was telling 

me. I then had a long discussion with the employee and her family 

to help them make the decision. 

In this case, it turned out that she went to an alternative center 

from where she was going because they had much more experience 

in treating her kind of cancer. So as strange as it my be to hear 

that true story in our information rich country in the year 2005, 

it is also true and equally strange that the best facility and the 

worst facility get paid exactly the same. 

Employees also do not have incentives around their choices. Our 

data at GE shows that in every metropolitan area where we are, 

which is most of them in the country, among the hospitals with the 

highest quality costs differ by 30 percent. Yet in almost every benefit design that employers have created—and employers pay the 

same whether they choose the most expensive option or the one 

with the best value—a recent analysis we just did of GE data 

23

shows that our employers are going to the highest quality doctors 

and hospitals best judged by available measures only 30 percent of 

the time. If those employees were to go to the best providers all the 

time, GE would save at least $100 million annually, and our employers would get improved quality. 

In a recent survey, 80 percent of our employees told us that they 

would change doctors and hospitals if they had the data they trusted, just like the employee I mentioned a minute ago. A majority of 

doctors with whom we have spoke have told us that getting rewarded for quality not only seems fair but would help them save 

to have more money to invest in important improvements like having computer-based medical records. 

Programs like Leapfrog and Bridges to Excellence, which you will 

hear about in a couple of minutes, are examples of what health 

care can do. Our employees in Louisville, Kentucky, where we 

make refrigerators, now know that there are 40 doctors recognized 

to have superior performance in treating diabetes, when they had 

no such knowledge a couple of years ago, all due to this program 

Bridges to Excellence. 

The question now is how to increase the momentum. Since all 

significant change in health care creates controversy, it is important that public and private sectors work together. The most important steps that the Federal Government would take would be, one, 

to support the recommendations of the March, 2005, MedPath report to immediately integrate performance-based payment into 

Medicare; and, two, to become value-based purchasers yourself in 

your own programs, by which I mean the program you have for 

Federal employees and the one that the DOD provides through 

TRICARE for employees of the Department of Defense. 

Partnership between private sector employers and the public sector would be a powerful message that I believe would not only 

begin to change our system to get better, but it will help us preserve an employer-based system. 

Thank you for the time. 

Chairman JOHNSON. Thank you, sir. We appreciate your testimony. 

[The prepared statement of Dr. Galvin follows:]

Statement of Dr. Robert Galvin, Director of Corporate Health Care and 

Medical Programs, General Electric, Fairfield, CT, on behalf of the 

Human Resources Policy Association 

Chairman Johnson, Congressman Andrews, and other distinguished members of 

the Subcommittee, I am Dr. Robert Galvin. I appreciate the opportunity to share 

the employer perspective on the topics of the day: pay-for-performance measures 

and other trends in employer-sponsored health care. This is an important issue and 

I applaud the Subcommittee for creating a forum for Members of Congress and the 

public to learn more. I am Director, Global Health, for General Electric. I also serve 

as Director, Health Care Value Initiatives for HR Policy Association’s Health Care 

Policy Roundtable. In my position at GE I am responsible for the design, operations 

and financial performance of the health benefits GE offers its employees, family 

members, and retirees as well as for the overall health of this population. Our population totals about a million people with an annual expenditure exceeding two billion dollars. 

HR Policy Association represents the chief human resource officers of more than 

250 large employers. The Chairman of the Association is William J. Conaty, Senior 

Vice President of Corporate Human Resources for GE. The number one concern 

among HR Policy members is the unsustainable increases in health care costs and 

deficiencies in health care quality that threaten the viability of our nation’s health 

24

care system. In 2003, the HR Policy Association Board of Directors created the 

Health Care Policy Roundtable to take decisive action using the collective influence 

of America’s largest private employers to address health care cost and quality issues 

that plague both private employers and government payers. The Roundtable is 

chaired by J. Randall MacDonald, Senior Vice President of Human Resources for 

IBM. Its strategies are premised on the recognition that companies, which employ 

more than 20 million employees worldwide, can use their collective buying power 

to leverage health care market reforms within existing public policies. In turn, these 

reforms may provide guidance to policymakers in addressing needed changes in U.S. 

health care policy. 

Two private sector initiatives being undertaken by HR Policy’s Roundtable are 

relevant to the discussion today—the National Health Access program and the Regional Health Care Quality Reform Initiatives. National Health Access is a program 

created by a coalition of 60 companies within the Association to create improved 

health insurance options for workers without access to employer provided coverage, 

and simultaneously drive two key market principles: transparency, meaning the 

public release of measures of performance about doctors and hospitals, and pay-forperformance. The program has the potential to affect 3 million individuals and will 

launch with the first round of employers this fall. The efforts of the Roundtable’s 

Regional Health Care Quality Reform Initiatives, which are chaired by John D. Butler, Executive Vice President, Administration and Chief HR Officer of Textron, Inc., 

are a critical component of the Roundtable’s reform agenda and are directly in line 

with the focus of today’s hearing. The Roundtable has worked with a number of 

companies and organizations in specific regions to accelerate the measurement, reporting, and dissemination of health care provider quality and efficiency data. I will 

describe the early efforts of one of these initiatives in Phoenix in more detail later. 

The Problem 

Many of us are too familiar with the problems that plague our health care system. 

Purchasers, providers, and patients of health care services can no longer accept the 

status quo. The U.S. spends significantly more on health care, both in terms of dollars per capita and as a percentage of Gross Domestic Product, than any of our trading partners, yet it is difficult to make the case that sufficient value is being derived 

to justify the enormous cost. At the same time it is large employers, the private sector, who bear a significant portion of the financial burden for this difference with 

our trading partners, and for that we suffer the competitive consequences. Health 

care purchasers face double digit increases each year with no sign of a decline in 

costs or more manageable inflation in the foreseeable future. As such, health care 

is crippling America competitively and draining our federal budget. 

Of equal concern is the fact that the huge resources we plow into our health care 

system do not provide access and high quality care for all. It is estimated that 45 

million Americans are without health insurance coverage. Simply layering our existing, opaque, health care system across 45 million uninsured Americans is not the 

solution. This would increase overall cost without addressing the systemic flaws in 

our health care system. In addition to a coverage gap, there is a serious quality gap. 

A recent study by the RAND Corporation found that adults received recommended 

care only about 55 percent of the time. Clearly meaningful reform is needed. Fundamental components of the solution to these quality deficiencies lies in greater transparency and disclosure about cost and quality throughout the system, engaging consumers who have a stake in the financial as well as clinical outcome, and basing 

payment to doctors and hospitals on performance. 

Focus of Testimony 

I am fortunate to share the panel with two individuals who are very knowledgeable about pay-for-performance measures. In particular, Jeff Hanson of Verizon is 

an expert on the topic and as President of Bridges to Excellence, he is heading a 

successful practical application of a pay-for-performance model. As a result, I will 

focus my testimony on other efforts that employers are collectively and individually 

undertaking to create incentives for doctors and hospitals to improve patient care 

and patient outcomes. Specifically, I’ll describe three emerging trends among employers: 1) purchasing aimed at finding providers that provide the best clinical outcomes at the best value; 2) efforts to inject greater transparency about the clinical 

effectiveness and efficiency of providers into the health care system accompanied by 

a payment that rewards performance; and 3) increasing involvement of business 

leaders at the corporate executive level in health care purchasing. I’ll also provide 

some examples of these trends. 

25

Employers Are Shifting to Value Based Purchasing in Health Care 

Employers recognize that the purchase of health care is unique and personal for 

a company’s workforce. There has to be a sense of trust between those making decisions on benefits and those for whom the use of the benefits is critically important. 

Therefore, there cannot be a perfect comparison between purchasing health care and 

selecting a supplier for other services. However, the basic premise of demanding 

high standards and holding suppliers (health care providers in this instance) accountable is transferable to health care purchasing. 

It was not too long ago that the dominant employer model for purchasing health 

care focused on finding the lowest unit cost of care. This short-sighted approach may 

have resulted in short-term savings for a limited time, but did nothing to improve 

the overall health of our workforce. In addition, as demonstrated by the double-digit 

increases in health care premiums that employers have faced over the last several 

years, it is clear this approach failed to lower health care inflation for any appreciable time. Employer purchasing of health care is no longer simply a matter of finding the cheapest deal. This would be a disservice to employees and do nothing to 

address deficiencies in the system. 

Employers are moving from purchasing based on cost to purchasing based on 

value, meaning health care that delivers optimal clinical outcomes in the most efficient manner. Experts have continuously demonstrated that there are significant 

differences between doctors and hospitals in how well and how efficiently they deliver medical care. At GE, our analysis shows that in every major market that we 

have employees the same level of quality is available at prices that differ by 30–

40 percent. Our data shows that less than 35 percent of our hospital admissions 

occur at hospitals that score highest on both cost and efficiency. Large employers 

are beginning to demand more and hold providers and health plans accountable for 

delivering high quality care. They are sending the message that it is no longer tolerable to accept these deficiencies. 

Transparency is the Foundation of Meaningful Efforts to Lower Costs and Improve 

Quality 

GE, along with the members of HR Policy’s Health Care Policy Roundtable, believe a fundamental component of the solution to quality deficiencies lies in greater 

transparency and disclosure about cost and quality throughout the system, and engaging consumers who have a stake in the financial as well as clinical outcome. 

True market reforms can’t occur when purchasers and consumers have no idea what 

the true cost of certain health care services and products are. Employers and employees must be exposed to the real net cost of the product or service. At a minimum, health care purchasers and consumers want to lift the veil to find out who 

the best health care suppliers are—including hospitals and physicians—for specific 

procedures. This information can then be used to provide incentives to consumers 

to use high performing providers and the best treatment alternatives and to pay 

providers differentially based on their performance. 

A major positive advance over the past decade has been the development of 

metrics that can measure quality at the level of doctors and hospitals. While it is 

true that these measures are still being perfected, most private sector employers 

and employer organizations like the Health Care Policy Roundtable, as well as 

many physicians, believe that they are accurate enough for public release. Recent 

efforts to develop a standardized set of these measures have been successful, including the Ambulatory Quality Alliance, a collection of professional trade organizations 

which recently agreed on a starter set of measures acceptable to organized medicine 

and health insurance companies, and the HR Policy Association which developed a 

more complete core set of measures. Although there is little scientific data to cite, 

it is common sense in the business world that what is measured is managed, and 

that making public the performance of doctors and hospitals will spur improvement. 

Injecting greater transparency into the system is even more important as more 

employers and employees shift to designs that give consumers more control over 

their health care decisions. Health savings accounts and high deductible health 

plans are based on the premise that patients as consumers will be more sensitive 

to costs when using these products, and therefore more engaged in demanding value 

for their health care. At GE, when we ask our employees, over 80 percent say they 

want the kind of information that can be provided through available metrics and 

will use it to make decisions about who to see and where to go for treatment. Without transparency, consumers are denied the ability to make informed choices about 

the care they receive. Needed reform must have the support of both government and 

private payers. The business community is pleased that some government leaders, 

such as Mark McClellan who heads the Centers for Medicare and Medicaid Services, 

are embracing these concepts. 

26

Health Care Has Gained the Attention of Corporate Executives 

The experiences of the Roundtable’s various Regional Health Care Quality Initiatives is an eye-opener as to what it takes to address some of the problems of our 

health care system. The effort has evolved to recognize that deficiencies will not be 

addressed unless the payers force a solution, which can only be done if they work 

together and exercise their leverage to achieve improvements. Health care has been 

the number one concern of chief human resource officers for the past several years 

and is likely to remain a priority concern for several years to come. However, until 

now, the prevailing model has been for senior executives to delegate involvement in 

collaborative efforts to those at a lower level within the company. Those individuals 

are critical to the success of such efforts. They are skilled and knowledgeable about 

the specifics of benefit design and employee communications. However, without the 

involvement of key strategic decision-makers, there are limits to what they can accomplish. 

The kind of collaboration and long range planning that is needed is unlikely to 

occur if left exclusively to corporate benefit managers whose primary focus is meeting the company’s benefits needs in the year at hand and putting something workable in place for the following year. They often lack the decision-making authority 

to institute strategic change at their companies. It is essential, therefore, that chief 

human resource officers and other senior executives become much more involved in 

setting benchmarks for the purchase and delivery of health care on a broad collaborative basis, ensuring that those standards are followed, evaluating and ensuring 

the proper execution of market reform strategies, and creating a climate of accountability to focus all players on the objectives of lowering costs and improving the 

quality of care purchased for employees. The ultimate solutions for fixing the health 

care system will involve setting a vision for the purchasing community, reaching 

consensus on objectives, and executing a collaborative strategy. This can only be 

achieved by the direct involvement of those at the highest levels among purchasers. 

Just as the overall direction of the company is set by those at its highest level, the 

company’s role in the future direction of health care must also be shaped at that 

level as well. The ultimate goal is to drive the health care system toward the ‘‘Six 

Sigma’’ standards that GE and many employers have embraced within their own organizations. 

Though the Roundtable’s Regional Health Care Quality Reform Initiatives has focused its efforts at the regional level, where an immediate impact is most feasible, 

coalition members understand that it is important to not lose sight of the importance of maintaining a national perspective as well. The reality is that, while 

change is often a great deal more achievable at the local level, the broad structure 

of our health care system—currently an employment-based model—will still likely 

be a national paradigm, enormously influenced by how federal dollars are collected 

and spent. For this reason, members of the Roundtable believe it is equally important that senior human resource executives play a role at that level as well. These 

senior executives plan for their involvement not to be simply reactive, but to entail 

the shaping of a vision of the ideal future role of employers in the health care system with the formulation and promotion of federal policies that achieve that ideal. 

Examples of Existing and Emerging Successes in Health Care Purchasing 

Individual company and collaborative efforts that incorporate the three trends described above are emerging. Some hold the promise of producing needed reform, and 

others that have already demonstrated considerable success. At GE, while we have 

not found a ‘‘silver bullet,’’ we are proud of our progress in addressing deficiencies 

in the health care system through our internal purchasing system. We have learned 

that a combination of flawless execution of purchasing basics plus a willingness to 

be innovative, using purchasing clout to address fundamental problems in our 

health care system, yields optimal results. 

The Leapfrog Group. Employers have learned that through united efforts they can 

successfully catalyze change. The progress achieved by private and public sector 

purchasers through The Leapfrog Group is an example. The Leapfrog Group is a 

coalition of more than 165 Fortune 500 companies and other large private and public sector purchasers of health benefits. Its members work to trigger ‘‘leaps’’ in the 

safety, quality and affordability of healthcare by supporting informed health care 

decisions and promoting high-value health care through incentives and rewards. 

Leapfrog has identified and refined four hospital quality and safety practices: computer physician order entry; evidence-based hospital referral; intensive care unit 

(ICU) staffing by physicians experienced in critical care medicine; and quality index 

of measures of safe practices. 

Leapfrog members work to trigger ‘‘leaps’’ in the safety, quality and affordability 

of healthcare by supporting informed health care decisions and promoting highVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 H:\DOCS\21243 NNIXON
27

value health care through incentives and rewards. Leapfrog’s strategy is for each 

of its members to insist on transparency and pay-for-performance in its contracts 

with health plans. Leapfrog recently launched its Hospital Rewards program, which 

is essentially a private sector version of the highly successful CMS Premier Hospital 

Incentive Program. If enough purchasers include the Leapfrog language in their contracts and insist that plans participate in the Hospital Rewards Program, health 

plans will then change their contracts with doctors and hospitals, insisting on data 

release and paying for performance. 

Phoenix Project. One of the Regional Health Care Quality Reform Initiatives 

being undertaken by the Health Care Policy Roundtable in Phoenix, Arizona is just 

getting off the ground, but holds great promise. Several HR Policy Association member companies with a significant number of employees and/or retirees in the Phoenix 

region, such as GE, IBM, and Honeywell, have teamed up with health plans and 

health care improvement organizations to enhance the depth of information about 

provider quality and efficiency available to employers and consumers. Major partners in the endeavor include CIGNA, The Leapfrog Group and Bridges to Excellence. CIGNA’s decision to publicly release information on a core set of performance 

measures, moving away from a proprietary model for measuring quality, is a 

groundbreaking approach that will advance transparency greatly. Recently, St. 

Luke’s Health Care Initiatives, an Arizona-based nonprofit dedicated to improving 

community health, and other national health carriers in the region have expressed 

interest in joining the effort. 

Working together, the organizations will broaden access to standardized quality 

and efficiency measurements and to make that information publicly available to patients and purchasers. Phoenix partners have agreed to take the project on two 

paths. First, they will pursue a short-term goal of promoting pay-for-performance 

through existing programs such as Bridges to Excellence and The Leapfrog Group. 

At the same time, the stakeholders involved will work toward a more ambitious 

longer-term goal of aggregating data across health plans and employers on provider 

efficiency and quality, and making that information publicly available. 

All comers are welcomed to this initiative, including additional health plans, regional coalitions and employers of all sizes. The more companies and organizations 

that are on board, the better our chances are for success. The Phoenix project creates a powerful and comprehensive approach to regional quality reform for care that 

can be emulated in other markets across the country. Though the Phoenix project 

will begin as a local endeavor, it can serve as a model for the sharing of data and 

information among employers, consumers and other health plans. 

Conclusion 

Consistent and dedicated efforts by employers can achieve significant improvements to our health care system despite the formidable challenges that we face. GE 

and the Health Care Policy Roundtable are examples of the business community’s 

dedication to ensure that our nation’s workforce receives the highest quality health 

care, and that health care purchasers and consumers have access to important quality information about doctors and hospitals upon which to make important decisions. Only then can purchasers begin to pay providers differentially based on the 

quality of care delivered. We are encouraged that the federal government, particularly through innovations in quality improvement and an examination of moving toward pay-for-performance in the Medicare program, is taking a lead on these important issues. We welcome efforts to partner with the government to move our nation’s 

health care in the right direction. 

Chairman JOHNSON. Dr. Rosenthal, you have got quite a varied 

experience. Please begin. 

STATEMENT OF DR. MEREDITH B. ROSENTHAL, ASSISTANT 

PROFESSOR OF HEALTH ECONOMICS AND POLICY, HARVARD SCHOOL OF PUBLIC HEALTH, BOSTON, MA 

Ms. ROSENTHAL. Thank you. 

Thank you, Chairman Johnson, Congressman Andrews, members 

of the subcommittee. Thank you for inviting me here to discuss pay 

for performance and health care. 

The most recent estimates suggest that there are more than 100 

new pay-for-performance programs in the U.S. health care sector. 

28

Variously, these programs reward physicians, medical groups and 

hospitals for health care quality goals. Typically, providers are 

evaluated and rewarded based on a set of quality measures which 

usually capture problems of underuse. 

For example, physicians may be rewarded based on providing 

cholesterol screening to their patients with coronary artery disease. 

Hospitals are also sometimes rewarded based on outcomes measures, including complication rates and in-hospital mortality rates. 

Pay for performance has significant positive potential in the 

health care sector, where reimbursement has traditionally been 

based only on the utilization of services and patients are often not 

in any position to distinguish high-quality providers from low-quality providers. Financial incentives for quality are new, however, 

and payers face a number of challenges in implementing these programs. 

My review will highlight three key issues for policy. First, there 

is insufficient evidence to inform the design of pay-for-performance 

programs; second, there is a need for coordination across payers; 

and, third in its current form pay for performance is not positioned 

to deliver relief from the spending trend facing health benefit purchasers. 

Let me describe briefly each point. 

First, despite concurring enthusiasm for pay for performance, 

there is remarkably little evidence in the literature for purchasers 

of health plans to reference when they set out their pay-for-performance programs. Moreover, an existing analysis of pay-for-performance programs indicates that there are opportunities to improve the cost-effectiveness of these programs and to increase the 

likely gains in quality for all consumers. 

For example, with few exceptions, pay-for-performance programs 

reward the best performers, either by reference to a fixed benchmark or by comparison to one another by ranking providers. Economic theory, however, would suggest that rewarding all providers 

for improvement would generate more improvement for a given 

fund. 

In addition, there may also be concerns that if rewards only go 

to the top providers based on, again, the level of performance, there 

will be a downward spiral among the lower quality providers who 

may be serving vulnerable populations, populations who already 

have poor access to health care. There is simply no evidence as to 

the practical importance, the magnitude of these potential negative 

consequences. 

Going forward, purchasers in health plans need timely evaluations of a broad range of programs, including assessments of negative, unintended consequences, as well as targeted decision support 

to help them sort through research findings and make appropriate 

tradeoffs. Congress could facilitate progress toward this end by enhancing the capacity of the agency for health care research and 

quality, which has played a critical role in this area. 

My second point concerns the need for coordination among payers on the clinical domains and specific quality measures to target. 

As you have heard earlier, the issue is that if only a few of the 

many payers that a provider contracts with are paying for performVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6602 H:\DOCS\21243 NNIXON
29

ance, or if they are all paying based on difference sets of measures, 

the effects will be deluded. 

Some private sector employers—two on either side of me—have 

already begun aligning their efforts through coalitions such as the 

Leapfrog group Bridges to Excellence and a number of others, 

which sets standards for measurement and reporting, among other 

activities. 

CMS’s leadership role in this area will also go a long way toward 

this goal as private payers have historically emulated the CMS in 

terms of their payment reforms, including the respective payment 

system. CMS could also support pay-for-performance programs by 

further contributing deidentified—sorry, provider identified, 

deidentified data to these pooled efforts to profile providers using 

all pair data. 

The third and final issue is that, despite the hopes of some benefits purchasers, the current generation of pay for performance is 

not designed to reap cost savings. This is in large part due to the 

fact that the greatest performance measurement has so far been on 

measures of underuse. Therefore, if we improve quality in that 

way, we will lead to increased use. 

There is some indication, however, that pay for performance is 

being reoriented toward cost efficiency metrics. Along these same 

lines, payers could greatly benefit from a public investment in the 

development of quality measures that capture the negative consequences of overuse. 

To summarize, there several ways in which Federal policymakers 

could enhance private sector pay-for-performance efforts. 

First, increase the capacity of the agency for health care research 

and quality to support evaluation and dissemination of research on 

pay for performance, including research on the unintended strategies of particular strategies. Second, encourage the CMS to continue to take a leadership role in quality measurement and pay for 

performance. Third, facilitate the sharing by CMS of patientdeidentified provider-identified data to an all-patient base data set. 

Fourth, through AQHR or CMS, support efforts to approve the 

measurement of cost efficiency and overuse. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you. We appreciate your testimony. 

[The prepared statement of Ms. Rosenthal follows:]

Statement of Dr. Meredith B. Rosenthal, Assistant Professor of Health 

Economics and Policy, Harvard School of Public Health, Boston, MA 

Chairman Johnson, distinguished Committee members, thank you for inviting me 

to discuss pay-for-performance in health care. In my remarks, I will describe recent 

efforts by health plans and employers to reward physicians and hospitals for providing high value health care and discuss the economic incentives inherent in the 

design of these programs. My comments derive from my research in this area over 

the past several years, which has been funded by the Agency for Healthcare Research and Quality, the Commonwealth Fund, and the Robert Wood Johnson Foundation’s Health Care Financing and Organization initiative. The views expressed in 

my testimony are, of course, my own and should not be attributed to any of these 

funding agencies. 

Pay-for-performance has significant positive potential in the health care sector, 

where reimbursement has traditionally been based only on utilization of services 

and patients are often not in a position to discern high quality from low. In this 

environment, incentives to deliver high value health care are often absent or even 

negative (e.g., preventing a hospital admission will generally reduce the net reveVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6621 H:\DOCS\21243 NNIXON
30

nues of a health system that includes a hospital). Pay-for-performance is still new 

to health care, however, and payers face a number of challenges in implementing 

these programs. 

First, there is little guidance in the literature for purchasers and health plans to 

reference when they set out to design their pay-for-performance programs. An analysis of the features of the first generation of programs indicates that there are opportunities to improve the cost-effectiveness of pay-for-performance and increase the 

likely gains in quality and value. To help them design more effective pay-for-performance programs, purchasers and health plans need timely evaluations of a broad 

range of programs and targeted decision support. Congress could facilitate progress 

towards this end by enhancing the capacity of the Agency for Healthcare Research 

and Quality (AHRQ), which has played a critical role in this area. 

Second, coordination among payers on the clinical domains and specific quality 

measures to target is desirable. If only a few of the many payers that a provider 

contracts with are paying-for-performance or if each payer focuses on a different 

measure set, the effects of pay-for-performance may be diluted. Some private sector 

employers have already begun aligning their efforts through health care quality improvement coalitions such as the Leapfrog Group, Bridges to Excellence, and others, 

which offer standardized programs of performance measurement, reporting, and reward. CMS’’ leadership role in this area may go a long way towards this goal as 

private payers have historically emulated many of Medicare’s more significant payment reforms, such as the Prospective Payment System. CMS could also support 

pay-for-performance efforts further by contributing de-identified data to an all-payer 

data set from which more reliable performance evaluation could be conducted (because of larger denominators). 

Finally, despite the hopes of some benefit purchasers, the current generation of 

pay-for-performance is not designed to reap cost savings, particularly since most of 

the quality measures it targets are measures of under use. In my view, it would 

be desirable to enlist pay-for-performance in the service of enlightened cost control 

in order to preserve the availability of private insurance coverage. There is some 

indication that pay-for-performance is being reoriented towards cost savings with 

the incorporation of increasingly robust cost-efficiency metrics, which are being refined by a number of researchers. Along these lines, payers could also greatly benefit from a public investment in the development of quality measures that capture 

the negative consequences of over use. 

Pay-for-performance should be viewed as one element of the set of strategies that 

employers, health plans, and government programs are undertaking to improve the 

value of health care spending and make insurance coverage more affordable. Other 

promising tools that are taking hold alongside pay-for-performance include public 

reporting of quality and cost information, tiered benefit designs that give consumers 

incentives to choose higher quality and lower cost providers and treatments, shared 

risk payment models such as the one being evaluated under the Centers for Medicare and Medicaid Services Provider Group Practice demonstration, and disease 

management. All of these approaches to cost control and quality improvement are 

evolving and come with their own set of advantages and disadvantages. Because 

there is very little evidence base that can be drawn upon to inform the design and 

implementation of these efforts, it is critical that the natural experiments being undertaken by both public and private insurers be evaluated and the results disseminated effectively to key decision makers. 

Payers Increasingly Align Financial Incentives with Quality Goals 

During the past three years, numerous employers, purchasing coalitions, and 

health plans in the U.S. have announced new efforts to pay providers for performance on quality and cost-efficiency measures. The most recent estimates suggest 

that there are more than 100 individual pay-for-performance efforts underway in 

the U.S. health care sector. These programs vary along a number of dimensions including (among others) the type of sponsor, the size of the bonus, the formula for 

determining the bonus allocation, and the clinical areas targeted. I describe several 

examples to illustrate the diversity of approaches and then highlight the most prevalent program features and their economic and policy implications. 

In California, seven health plans are coordinating pay-for-performance programs 

under the auspices of the Integrated HealthCare Association (IHA), a multi-stakeholder coalition. The seven plans, which constitute more than 60% of the commercial 

market for physician services in the state, are awarding bonuses to large, multispecialty physician groups based on clinical process measures such as rates of childhood 

immunizations and cholesterol screening, patient satisfaction, and investments 

made in technology and infrastructure. While the performance measures are common across the seven IHA health plans, the structure of the bonus varies. Most 

31

plans have opted to reward the top performers only (e.g., the top deciles or quartiles) using a bonus that is proportional to the number of the plan’s patients cared 

for by the group. 

Similarly, Anthem’s New Hampshire Blue Cross/Blue Shield plan pays bonuses to 

physicians who screen patients for breast, cervical, and prostate cancer and high 

cholesterol, help patients manage diabetes, and provide other recommended preventive health care. Anthem’s performance bonus was $20 per patient for the top quartile of physicians and about half of that for physicians ranked between the 50th and 

75th percentile. Physicians were also eligible for an additional payment of $20 per 

patient for participating in the plan’s disease management program. 

Another noteworthy physician reward program is Bridges to Excellence, a growing 

collaborative effort started by several large employers including General Electric 

and Verizon Communications. The program offers $100 per diabetic patient to physicians who become certified by National Committee for Quality Assurance/American Diabetes Association’s provider recognition program. A similar program for cardiac care has also been launched. Finally, doctors can receive $55 per patient for 

establishing clinical information systems in their offices that aid in regular follow 

up in the care of chronically ill patients, and implementing patient education programs. Many of the measures within each of the areas targeted by Bridges to Excellence are structural in nature (i.e., they catalogue the existence of specific elements 

of infrastructure or capacity such as an electronic medical record), although both 

process and outcome measures are also featured in the scorecards associated with 

each area of focus. 

Finally, as you may know, the Centers for Medicare and Medicaid Services (CMS) 

have been actively developing their own pay-for-performance programs. In July 

2003, CMS and Premier, Inc., a nationwide organization of not-for-profit hospitals, 

announced a demonstration project to provide quality bonuses for hospitals based 

on performance related to treatment in five clinical areas that are particularly critical for Medicare’s elderly population: heart attack, heart failure, pneumonia, coronary artery bypass surgery, and hip and knee replacements. Performance measures 

include both process and outcome measures. For example, the set of measures for 

coronary artery bypass surgery includes rates of aspirin prescribed at discharge, inpatient mortality, and post-operative hemorrhage or hematoma. Hospitals are 

scored and ranked on the measures condition by condition and any hospital in the 

top 10% for a given condition will receive a 2% bonus on their Medicare payments; 

hospitals in the next 10% will receive a bonus of 1 percent. In the third and final 

year of the demonstration, the hospitals with the worst performance (those that fall 

below a predetermined threshold) will be financially penalized. Early results disseminated by CMS suggest that substantial improvement has occurred among the 

participating Premier hospitals in the targeted clinical domains.( See http://

www.cms.hhs.gov/media/press/release.asp?Counter=1441) In addition to the Premier 

demonstration, the CMS has incorporated pay-for-performance features into its Provider Group Practice and Health Support demonstrations. For example, in the 

Health Support program, disease management contractors have guaranteed savings 

to CMS and will also be made financially accountable for a variety of performance 

measures including patient satisfaction. 

Common Themes among Pay-for–Performance Programs 

The majority of pay-for-performance arrangements target both measures of clinical quality and patient experience. Particularly for physicians, clinical quality 

measures are typically rates of preventive care and other ‘‘process measures’’ that 

can be easily extracted from administrative data. Nearly all of these process measures address problems of under use—they measure the rate of use of recommended 

care for specific population groups. The focus on process measures reflects the state 

of quality measurement (particularly our ability to account for underlying patient 

differences across physicians and hospitals) rather than priorities for quality improvement. Thus, in the current context, paying-for-performance almost always 

means rewarding physicians and hospitals for delivering more services, for which 

they may also be able to bill (depending upon the reimbursement system). Perhaps 

in recognition of the cost implications of correcting under use through pay-for-performance, as pay-for-performance programs have evolved payers are also increasingly providing incentives for performance on cost-efficiency metrics. (Baker and 

Carter, 2004) 

Almost without exception current pay-for-performance programs reward the best 

providers—all those either above a specific threshold or percentile ranking. Quality 

improvement is not explicitly required for the receipt of a bonus so that in practice 

the incentives to improve will vary with baseline performance. Particularly with an 

absolute performance threshold (e.g., an 80% childhood immunization rate), physiVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 H:\DOCS\21243 NNIXON
32

cians or hospitals that already meet the standard need only to maintain the status 

quo to receive payment. Similarly, for bonuses that are tied to the use of information technology or other ‘‘structural’’ measures of quality (such as having a patient 

registry) payments will go not only to those providers that improve their infrastructure, but also to every provider that already conforms to the standards. Most payers 

understand this very clearly and believe that it is important to reward providers 

that deliver the best quality care even if the rewards do not provide incentives for 

change. 

It is also noteworthy that among pay-for-performance programs in the U.S., few 

payers put at risk more than 5% of payments. Moreover, because of the small market shares of some pay-for-performance program sponsors, the percent of a physician’s overall revenue that is at stake can be much less than 5 percent. From an 

economic standpoint, the gain from quality improvement must counterbalance the 

cost, so if the quality improvement goals we set for providers are costly to achieve 

the current levels of payment may be insufficient to generate the desired response. 

What is Known About the Effectiveness of Pay-for–Performance? 

Two recent reviews document the scarcity of evidence to support the effectiveness 

of pay-for-performance in health care (Rosenthal and Frank In Press; Dudley et al. 

2004). These reviews identify only seven evaluations in the health care literature 

that are pertinent (Amundson 2003, Fairbrother et al. 1999; Geron 1991; Hillman 

et al. 1998; Hillman et al. 1999, Kouides et al; 1998; Roski et al. 2003), one of which 

offered no interpretable results (Geron 1991). Among the other six studies, three 

(among which were those with the strongest research designs) yielded null results 

(Hillman et al. 1998; Hillman et al. 1999; Fairbrother et al. 1999). Two other controlled studies found modest improvements with pay-for-performance (Kouides et al. 

1998; Roski et al. 2003) while the sixth study demonstrated substantial performance 

improvement but no evidence with regard to how much of this was due to the program rather than secular trends. (Amundson et al. 2003) Five of these six studies 

involved interventions targeting only a single dimension of care such as childhood 

immunizations (Fairbrother et al. 1999; Geron 1991; Hillman et al. 1998; Hillman 

et al. 1999, Kouides et al; 1998; Roski et al. 2003) and most of these provided only 

small rewards. In one of the two studies with positive findings linked to pay-forperformance, it was found that most of the gain in performance was achieved 

through better documentation of immunizations provided outside the physician’s 

practice rather than improvements in immunization rates per se. While improved 

documentation may be valuable, it was certainly not the main goal of the program. 

Outside of the health care sector, there are a variety of studies of similar incentive programs, the results of which are relevant to health care (Rosenthal and 

Frank, In Press.) Pay-for-performance programs have been used in schools and several recent experiments have documented improvements in test scores and other 

outcomes under these programs (Lavy 2002; Clotfelter and Ladd 1996; Hanushek 

and Jorgenson 1996.) One of these studies, by Lavy (2002), also demonstrated that 

pay-for-performance was more cost-effective (produced a larger impact for the same 

expenditure) than direct subsidies for new programs and additional staff time. Payfor-performance has also been incorporated into Federal contracts for job training 

programs. Studies examining these programs found that pay-for-performance had a 

positive impact on the rate of job placement and average earnings, even after accounting for gaming on the part of contractors. 

Empirical evidence regarding the existence of unintended consequences of pay-forperformance both inside and outside of health care is relatively well-established. 

Gaming has been shown to occur with pay-for-performance systems among returnto-work programs and schools, largely in the form of selecting trainees and students 

with the highest ex ante probability of success. In health care, both physicians and 

hospitals have been found to attempt to select healthier patients under prospective 

payment to maximize net revenues. Other possible negative effects of targeted incentives including reductions in quality of care in areas not targeted for financial 

rewards, which may be a particular concern in primary care because of the broad 

scope of practice, have simply not been evaluated empirically. 

Key Policy Issues 

Through the lens of economic theory and empirical evidence, my review of current 

pay-for-performance programs yields three key policy issues. First, there is little 

guidance in the literature for purchasers and health plans to reference when they 

set out to design their pay-for-performance programs. An analysis of the features 

of the first generation of programs indicates that there are opportunities to improve 

the cost-effectiveness of pay-for-performance and increase the likely gains in quality 

of care. To help them design more effective pay-for-performance programs, purVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6621 H:\DOCS\21243 NNIXON
33

chasers and health plans need timely evaluations of a broad range of programs and 

targeted decision support. Congress could facilitate progress towards this end by enhancing the funding capacity of the Agency for Healthcare Research and Quality, 

which has played a critical role in this area. 

Second, coordination among payers on the clinical domains and specific quality 

measures to target is desirable. If only a few of the many payers that a provider 

contracts with are paying-for-performance or if each payer focuses on a different 

measure set, the effects of pay-for-performance may be diluted. Some private sector 

employers have already begun aligning their efforts through health care quality improvement coalitions such as the Leapfrog Group, Bridges to Excellence, and others, 

which offer standardized programs of performance measurement, reporting, and reward. CMS’’ leadership role in this area may go a long way towards this goal as 

private payers have historically emulated many of Medicare’s more significant payment reforms, such as the Prospective Payment System. CMS could also support 

pay-for-performance efforts further by contributing de-identified data to an all-payer 

data set from which more reliable performance evaluation could be conducted (because of larger denominators). 

Finally, despite the hopes of some benefit purchasers, the current generation of 

pay-for-performance is not designed to reap cost savings, particularly since most of 

the quality measures it targets are measures of under use. In my view, it would 

be desirable to enlist pay-for-performance in the service of enlightened cost control 

in order to preserve the availability of private insurance coverage. There is some 

indication that pay-for-performance is being reoriented towards cost savings with 

the incorporation of increasingly robust cost-efficiency metrics, which are being refined by a number of researchers. Along these lines, payers could also greatly benefit from a public investment in the development of quality measures that capture 

the negative consequences of over use. 

Pay-for-performance should be viewed as one element of the set of strategies that 

employers, health plans, and government programs are undertaking to improve the 

value of health care spending and make insurance coverage more affordable. Other 

promising tools that are taking hold alongside pay-for-performance include public 

reporting of quality and cost information, tiered benefit designs that give consumers 

incentives to choose higher quality and lower cost providers and treatments, shared 

risk payment models such as the one being evaluated under the Centers for Medicare and Medicaid Services Provider Group Practice demonstration, and disease 

management. All of these approaches to cost control and quality improvement are 

evolving and come with their own set of advantages and disadvantages. Because 

there is very little evidence base that can be drawn upon to inform the design and 

implementation of these efforts, it is critical that the natural experiments being undertaken by both public and private insurers be evaluated and the results disseminated effectively to key decision makers. 

References 

Amundson, G., L.I. Solberg, M. Reed, E.M. Martini, and R. Carlson. 2003. Paying 

for Quality Improvement: Compliance with Tobacco Cessation Guidelines. Joint 

Commission Journal on Quality and Safety, 29(2):59–65. 

Baker, G. and Carter, B. 2004. The Evolution of Pay for Performance Models for 

Rewarding Providers, Introduction to Case Studies in Health Plan Pay-for–Performance. Atlantic Information Services. Washington DC. 

Clotfelter, C.T., and H.F. Ladd. 1996. Recognition and rewarding success in public 

schools. In Holding schools accountable: performance-based reform in education, 

edited by H. F. Ladd. Washington: Brookings Inst. 

Dudley et al .2004. Strategies To Support Quality-based Purchasing: A Review of 

the Evidence. Agency for Healthcare Research and Quality, Technical Review 

10. 

Fairbrother, G. , K.L. Hanson, S. Friedman, and G.C. Butts. 1999. The impact of 

physician bonuses, enhanced fees, and feedback on childhood immunization coverage rates. Am J Public Health 89 (2):171–5. 

Geron, S.M. 1991. Regulating the behavior of nursing homes through positive incentives: an analysis of Illinois’ Quality Incentive Program (QUIP). Gerontologist 

31 (3):292–301. 

Hanushek, E.A., and D.W. Jorgenson, eds. 1996. Improving America’s schools: The 

role of incentives. Washington, D.C.: National Academy Press. 

Hillman, A.L., K. Ripley, N. Goldfarb, I. Nuamah, J. Weiner, and E. Lusk. 1998. 

Physician financial incentives and feedback: failure to increase cancer screening 

in Medicaid managed care. Am J Public Health 88 (11):1699–701. 

34

Hillman, A.L., K. Ripley, N. Goldfarb, J. Weiner, I. Nuamah, and E. Lusk, 1999. 

The Use of Physician Financial Incentives and Feedback to Improve Pediatric 

Preventive Care in Medicaid Managed Care. Pediatrics 104 (4):931–35. 

Kouides, R.W., N.M. Bennett, B. Lewis, and J.D. Cappuccio. 1998. Performancebased physician reimbursement and influenza immunization rates in the elderly. The Primary–Care Physicians of Monroe County. American Journal of Preventive Medicine 14 (2):89–95. 

Lavy, V. 2002. Evaluating the effect of teachers’ group performance incentives on 

pupil achievement. Journal of Political Economy 110 (6):1286–1317. 

Rosenthal M.B. and Frank R.G. In Press. What Is The Empirical Basis for Paying 

for Quality in Health Care? Medical Care Research and Review. 

Roski, J., R. Jeddeloh, L. An, H. Lando, P. Hannan, C. Hall, and S.H. Zhu. 2003. 

The impact of financial incentives and a patient registry on preventive care 

quality: increasing provider adherence to evidence-based smoking cessation 

practice guidelines. Preventive Medicine 36 (3):291–9. 

Chairman JOHNSON. Mr. Hanson, you may begin. 

STATEMENT OF JEFFREY R. HANSON, REGIONAL HEALTH 

CARE MANAGER, VERIZON COMMUNICATIONS, PRESIDENT, 

BRIDGES TO EXCELLENCE, PORTLAND, ME 

Mr. HANSON. Mr. Chairman, Congressman Andrews and members of the subcommittee, my name is Jeffrey Hanson; and I am 

the regional health care manager for Verizon Communications and 

President of the Bridges to Excellence initiative. I want to thank 

you for giving me the opportunity to testify on what private companies such as Verizon are doing in the area of pay for performance. 

Verizon provides health care coverage to nearly 800,000 employees, retirees and their family members at an annual cost to the 

company of more than $3.2 billion. The quality of health care received by our employees, retirees and covered family members is of 

paramount importance to Verizon. One of the cornerstones to obtaining real transformation of our health care system is provider 

quality differentiation, quality data transparency and realignment 

of the provider payment system based on quality performance. 

The number of pay-for-performance programs has increased rapidly over the past few years, numbering now over 100 programs 

across the country. Verizon participates either directly or indirectly 

in many of these programs. We are a founding player in two of the 

more prominent initiatives, Bridges to Excellence and the Leapfrog 

hospital incentives and rewards program. Bridges to Excellence is 

a physician-based program, and the Leapfrog program is a hospital-based pay-for-performance program. 

These two initiatives found their genesis in two very high-profile 

reports generated by the Institute of Medicine, Crossing the Quality Chasm and To Err is Human. These reports grabbed the attention of senior executives in corporations coast to coast. It was literally a call to action. 

Bridges to Excellence is a not-for-profit organization organized to 

create significant advances in the quality of health care by developing reimbursement models that encourage the recognition of 

health care providers who have implemented changes in their delivery of health care to achieve better patient outcomes. 

There are three components of this program. The Physician Office Link component enables physician office sites to qualify for bonuses based on their implementation of specific processes to reduce 

35

errors and increase quality. They can earn up to $50 per year for 

each patient covered by a participating employer or health plan. 

In addition, a report card for each physician office describes its 

performance on the program measures and is made available to the 

public. 

The Diabetes Care Link portion of the program enables physicians to achieve 1-year or 3-year recognition for high performance 

in diabetes care. Qualifying physicians receive up to $80 for each 

diabetic patient covered by a participating employer or plan. In addition, the program offers tools to help diabetic patients get engaged in their own personal care, achieve better outcomes and 

identify local physicians that meet the high-performance measurements. 

Finally, the Cardiac Care Link portion of the program enables 

physicians to achieve 3-year recognition of high performance in cardiac care. Qualifying physicians are eligible to receive up to $160 

for each cardiac patient covered by a participating employer or 

plan. 

Bridges to Excellence programs are currently in progress in four 

markets, Cincinnati, Louisville, Boston and Albany, New York. In 

addition, we are looking to implement Bridges to Excellence in several new markets in the coming months, including Houston, Phoenix and Omaha, to name only three. 

To date, the results of our program have been very encouraging. 

We have 282 recognized physicians in our pilot markets who qualify for the Diabetes Care Link program and 571 physicians who 

qualify for our Physician Office Link program. We have distributed 

over $1.5 million in physician rewards to these physicians. Early 

program analysis shows that physicians rewarded through our diabetes care program are approximately 10 to 15 percent more efficient than the nonrecognized diabetes physicians. In the Physician 

Office Link program, rewarded physicians are approximately 10 

percent more efficient than those not recognized. 

The Leapfrog group, formed in 1998 by Verizon, along with other 

employees, was brought about to focus on hospital patient safety. 

Leapfrog now has over 160 member companies and organizations, 

both private and public. Together, we spend over $64 billion annually on health care and cover over 34 million individuals in all 50 

States. 

Leapfrog is now augmenting its patient safety measurement 

function with a new initiative, the Leapfrog hospital incentive and 

rewards program. This program measures hospitals on both quality 

and efficiency and creates incentives and rewards for performance 

improvement. This program is currently being launched in Albany, 

New York, in partnership with the Bridges to Excellence program. 

As described above, the private sector has begun to use its leverage as a purchaser to provide incentives to physicians and hospitals to install quality improvements in their operations, much as 

we have in our daily business activities. 

The government, with its power as a purchaser for Medicare and 

to some extent Medicaid services, should work with the private sector on these initiatives to securitize efforts to reward the same 

quality improvement objectives. 

36

In an age of rapidly rising health care costs, combined with little 

or no system accountability for outcomes, there is a greater risk 

than ever for purchasers, providers and especially patients to find 

their interests at odds. This is unacceptable. Peoples lives are at 

risk. We need to work to solve these systemic problems. 

Verizon has recognized this and is involved. We hope you will 

join this effort. Taking steps now to encourage better performance 

and reduce inefficiencies will pave the way for a better system of 

care, one that provides better outcomes for patients as well as 

meets the goals of purchasers and providers. 

I want to thank you, Mr. Chairman, Mr. Andrews and members 

of the subcommittee, for the opportunity to discuss these important 

initiatives and would be pleased to answer any questions. Thank 

you. 

Chairman JOHNSON. Thank you. 

[The prepared statement of Mr. Hanson follows:]

Statement of Jeffrey R. Hanson, Regional Healthcare Manager, Verizon 

Communications, President, Bridges to Excellence, Portland, ME 

Mr. Chairman and members of the Committee, my name is Jeffrey Hanson, and 

I am the Regional Healthcare Manager for Verizon Communications, as well as the 

President of the Bridges to Excellence initiative. I want to thank you for giving me 

the opportunity to testify on what private companies are doing in the area of Payfor–Performance. 

Verizon provides health care coverage to nearly 800,000 employees, retirees, and 

their family members, at an annual cost to the company of more than $3.2 billion. 

The company subsidizes approximately 80 percent of the health plan costs for management employees and 99 percent for associates. The rising cost of care challenges 

a company’s bottom line. 

Verizon works aggressively to preserve quality health care while trying to curtail 

costs. However health care spending is increasing at a rate faster than company 

revenues. Cost shifting from medical providers, health care disparities, untapped 

technology options and rising health care industry prices contribute to the problem. 

The quality of healthcare received by our employees, retirees and covered family 

members is of paramount importance to Verizon. 

• Inadequate quality of care from medical providers requires corporations to pay 

twice: once for the expensive but less-than-optimal care, and then again for decreased productivity, i.e., time not worked and increased costs for sick pay and 

disability pay. 

• Inappropriate treatments force patients to suffer longer. In 2003, the Rand Corporation found that 45% of the time, on average, patients did not receive the 

recommended care required for their condition. 

• Studies by the Institute of Medicine and others estimate the nationwide annual 

costs of inappropriate care is in the $300–$500 billion range, or one third of national expenditures on health care. To a large degree ‘‘the system is broken.’’

As one of the largest employers in the country, Verizon is committed to ensuring 

that the people we cover, and all Americans, have access to quality, innovative and 

affordable health care options. Therefore, Verizon has taken a leadership role to advance a proactive public policy agenda for health care reform. Pay-for-performance 

is an important cornerstone in our efforts to advance the quality improvement imperative. And it is an important part of a long-term cost reduction strategy for employer health benefits. Plan design and administrative changes produce only shortVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6621 H:\DOCS\21243 NNIXON

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term, temporary savings. The identification and rewarding of higher quality, more 

efficient healthcare will produce long-term value for employers and employees alike.

Pay-for-Performance 

One of the cornerstones to obtaining real transformation of our healthcare system 

is provider quality differentiation, quality data transparency, and realignment of the 

provider payment system based on quality performance. Quality measures encompass several areas including process systems, clinical systems and outcomes. The 

number of pay-for-performance programs has increased rapidly over the past two 

years, now numbering over 100 programs across the country. Verizon participates 

either directly or indirectly with many of these programs. 

Verizon advocates for the agenda set for by the National Health Information Infrastructure, including: 

• Deliver high quality, safer care through rewards around common sets of metrics 

for use of interoperable Electronic Health Records and data standards through 

NHII and outcomes from their implementation with a view to accelerate the 

transformation of care processes and increased accountability. 

• Reform reimbursement to incent appropriate use of health IT including care coordination, disease/care management, data sharing, publishing/subscribing performance accountability and quality. 

• Equitable payments by all payers for the ongoing use of and improved outcomes 

from HIT. 

We are a founding player in two of the more prominent national initiatives, 

Bridges To Excellence and the Leapfrog Incentives & Rewards Program, both of 

which provide incentives to the provider community based on nationally recognized 

quality metrics. Bridges To Excellence is a physician-based program and the Leapfrog program is a hospital-based program. 

These two initiatives found their genesis in two very high-profile reports generated by the Institute of Medicine, To Err is Human and Crossing the Quality 

Chasm. These reports grabbed the attention of senior executives in corporations 

coast-to-coast. It was literally a ‘‘call-to-action.’’

Bridges To Excellence 

In the 2001 report, ‘‘Crossing the Quality Chasm’’, the IOM identified six key attributes around which the health care system should be redesigned. They said the 

system needs to be more: Safe, Timely, Effective, Efficient, Equitable, and Patientcentered (STEEEP). 

Redesigning the healthcare system around these attributes will not be easy. In 

fact, it will require changes at every level, including: 

• Environments such as insurers, purchasers and regulators; 

• Organizations such as hospitals and medical groups; 

• Micro-environments such as office practices and hospital units; 

• Individual clinicians; 

• And at the center, the patient. 

In one major recommendation, the IOM said payments for care should be redesigned to encourage providers to make positive changes to their care processes. 


21243.002
38

Ideally, this shift will begin with purchasers and insurers, and filter down through 

the delivery system to help encourage improvements at all levels. 

In response to this challenge, a group of employers, physicians, health plans and 

patients have come together to create Bridges to Excellence. Bridges to Excellence 

is a not-for-profit organization with a Board composed of representatives from employers, providers and plans. The Corporation is not formed for pecuniary profit or 

financial gain. The Corporation is organized to create significant advances in the 

quality of health care by: 

• Providing tools, information and support to consumers of health care services, 

• Conducting research with respect to existing health care provider reimbursement models, 

• Developing reimbursement models that encourage the recognition of health care 

providers who demonstrate that they have implemented comprehensive solutions in the management of patients and deliver safe, timely, effective, efficient, 

equitable and patient-centered care which is based on adherence to quality 

guidelines and outcomes achievement. 

Guided by three principles, its purpose is to create programs that will realign everyone’s incentives around higher quality: 

• Reengineering care processes to reduce mistakes will require investments, for 

which purchasers should create incentives; 

• Significant reductions in defects (misuse, underuse, overuse) will reduce the 

waste and inefficiencies in the health care system today; 

• Increased accountability and quality improvements will be encouraged by the 

release of comparative provider performance data, delivered to consumers in a 

compelling way. 

Three programs guided by these principles are already underway: Physician Office 

Link, Diabetes Care Link and Cardiac Care Link. 

Physician Office Link enables physician office sites to qualify for bonuses based 

on their implementation of specific processes to reduce errors and increase quality. 

They can earn up to $50 per year for each patient covered by a participating employer or plan. In addition, a report card for each physician office describes its performance on the program measures and is made available to the public. 

Diabetes Care Link enables physicians to achieve one-year or three-year recognition for high performance in diabetes care. Qualifying physicians receive up to $80 

for each diabetic patient covered by a participating employer and plan. In addition, 

the program offers a suite of products and tools to help diabetic patients get engaged in their care, achieve better outcomes, and identify local physicians that meet 

the high performance measures. The cost to employers is no more than $175 per 

diabetic patient per year with savings of $350 per patient per year. Cardiac Care 

Link enables physicians to achieve three-year recognition for high performance in 

cardiac care. Qualifying physicians are eligible to receive up to $160 for each cardiac 

patient covered by a participating employer and plan. In addition, the program offers a suite of products and tools to help cardiac patients get engaged in their care, 

achieve better outcomes, and identify local physicians who meet the high performance measures. The cost to employers is no more than $200 per cardiac patient per 

year with savings up to $390 per patient per year.

39

Bridges To Excellence programs are currently underway in four markets, Cincinnati, Louisville, Boston and Albany. These programs are all employer-driven and 

reward monies being paid to the physicians are paid by the employer participants. 

Recently health plans have expressed interest in the program and we are working 

with them to launch BTE in several new markets including, Phoenix, Houston, and 

Omaha, to name only three. In addition, BTE is coordinating efforts with CMS as 

they implement the MCMP (Medicare Care Management Project) in four markets 

around the country. We are working collectively to align our provider quality measures to promote all stakeholders working to transform the healthcare system do so 

using mutually-developed standards.

BTE Results to Date 

• 282 DPRP recognized and 571 PPC recognized physicians in pilot markets 

• Distributed over $1.5M in physician rewards 


21243.003 21243.004
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• DPRP physicians are approximately 10–15% more efficient that non–DPRP physicians 

• PPC recognized physicians are approximately 10% more efficient than non–PPC 

recognized physicians 

Leapfrog Incentive & Rewards Program 

In 1998 a group of large employers, including Verizon, came together to discuss 

how they could work together to use the way they purchased health care to have 

an influence on it’s quality and affordability. They recognized that there was a dysfunction in the health care market place. Employers were spending billions of dollars on health care for their employees with no way of assessing its quality or comparing health care providers. 

Leapfrog now has over 160 member companies and organizations, both private 

and public. Together they spend over $64 billion annually on healthcare, covering 

over 34 million individuals in all 50 states. 

A 1999 report by the Institute of Medicine, To Err is Human, gave the Leapfrog 

founders an initial focus—reducing preventable medical mistakes. The report found 

that up to 98,000 Americans die every year from preventable medical errors made 

in hospitals alone. In fact, there are more deaths in hospitals each year from preventable medical mistakes than there are from vehicle accidents, breast cancer, and 

AIDS. The report actually recommended that large employers provide more market 

reinforcement for the quality and safety of health care. The founders realized that 

they could take ‘‘leaps’’ forward with their employees, retirees and families by rewarding hospitals that implement significant improvements in quality and safety. 

The Leapfrog Group and its members work to initiate breakthrough improvements in the safety, quality and affordability of health care for Americans. Research 

has shown that patients receive recommended health care only 55% of the time, and 

30% of health care costs are due to poor care. Poor quality also means up to 98,000 

deaths per year due to medical mistakes. 

The Leapfrog Incentive and Rewards Program: 

• Inspired by the current CMS–Premier demonstration program 

• Measure both effectiveness (quality) and efficiency (cost) 

• The primary goal is to create incentives for performance improvement, both on 

quality and cost 

• Purchasers and plans can make this work in their current environments 

• Hospitals can participate with very minimal additional reporting 

• All aspects of the program were reviewed by experts and vetted by stakeholders 

This program is being launched currently in Albany, NY in partnership with the 

Bridges To Excellence program, already underway in that market. In it another example of bringing together stakeholders from across the healthcare system in a concerted effort to drive quality reform using common sets of standards and measures. 

Recommendation 

As described above, the private sector has begun to use its leverage as a purchaser to provide incentives to physicians and hospitals to install quality improvements in their operations, much as we have in our daily business activities. The federal government with its power as a purchaser for Medicare and to some extent 

Medicaid services should work with the private sector on these initiatives to synchronize efforts to reward the same quality improvement objectives. 

Summary 

In an age of rapidly rising health care costs, combined with little or no system 

accountability, there is a greater risk than ever for purchasers, patients and providers to find their interests at odds. This can lead to intractable gridlock and the 

creation of few, if any, solutions to systemic problems. 

Taking the steps now to encourage better performance and reduce inefficiencies 

will erase this gridlock and pave the way for a better system of care—one that 

meets the goals of purchasers, providers and patients alike. Implementing systems 

to support physicians is a great place to start. We hope you will join us in this effort. 

I thank the Committee for the opportunity to discuss these important initiatives 

and would be pleased to answer any questions. 

Chairman JOHNSON. Let me ask you one. Just because it is more 

efficient, does that make it better? 

Mr. HANSON. It is a step to making it better. Efficiency——

41

Chairman JOHNSON. What do you mean by efficiency? I mean, 

you know, does that require more nurses or better or what? 

Mr. HANSON. No, I think the statement was made well earlier 

that efficiency really is the best value, is value. It is the best care 

at the best price. 

Chairman JOHNSON. So if you go in for heart surgery, for example, if they roll you right into the operating room, they are more 

efficient, does that make it better? 

Mr. HANSON. No, that is not our definition of efficiency. 

Chairman JOHNSON. OK, tell me what it is. 

Mr. HANSON. No, our definition of efficient is that you deliver the 

best-quality care at the best price. 

Chairman JOHNSON. How do you measure that? I guess it falls 

back to CMS—and all of you are welcome to answer this question. 

How many of you think they are doing the right job and can we 

do better through them? Because, really, they are the ones that 

have contacts with all the hospitals and doctors in the country. 

Go ahead. 

Mr. HANSON. I think currently——

Chairman JOHNSON. How many do you think are doing a good 

job? Let me ask you that question. 

Mr. HANSON. Do you think they are doing a good job? 

Chairman JOHNSON. No. I asked you that question. Are they? 

Mr. HANSON. I think we are all trying to do a better job, and that 

is why we are sitting here at the table. 

Chairman JOHNSON. Karen—you don’t mind me calling you that? 

Ms. IGNAGNI. No, sir, please. 

Chairman JOHNSON. I think I remember that. 

Ms. IGNAGNI. I was going to give you an allergy example on your 

efficiency question. 

But on CMS I think they are. They have set out specific goals. 

They have met each one of the goals. They have put quality on the 

table. They have put the whole effectiveness and value issue on the 

table. So I think they deserve to be commended, and they are 

bringing stakeholders in to participate in a strategy, in designing 

a strategy to get it right. 

In terms of the answer to the efficiency point that I think Mr. 

Hanson made very well—and bringing it back to an allergy example, a simple concept. For me, an asthma patient, for example, 

what is not an efficient expression of health care utilization is for 

me to end up in the hospital emergency room. So as part of a disease management program to understand my medicines, to understand when I should take them and to have someone, my physician, looking over the shoulder to advise on the appropriate combination, that is a good example of efficiency. 

Dr. GALVIN. I think CMS is doing a good job, and I think most 

people in the private sector feel that way, I think for many of the 

reasons Karen mentioned. They have reached out to do partnership. They are really leaders in this idea of they are using all in 

their power to be a purchaser, not just a regulator. That has really 

resounded. I think they are doing a fabulous job. 

Chairman JOHNSON. Go ahead. 

Ms. ROSENTHAL. I have to agree that the main thing that CMS 

has done that has been really important is improving the transVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6602 H:\DOCS\21243 NNIXON
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parency of performance across their providers, which is pretty 

much all of the providers in the United States, but through the 

hospital quality alliance, other public reporting interventions that 

they have done. 

On the payment side, that is mostly in the demonstration stage. 

But there are, through the provider group, practice demonstrations, 

for example, working with trying to reorganize the reimbursement 

system to reward efficiency in the sense of—again, getting to a certain outcome at the least cost, including all kinds of costs that 

might be in the future, for example, getting to the least cost 

through the reimbursement system. They are well targeting performance improvements on the quality of care side, including patient experience, patient satisfaction. So I think they are moving in 

the right direction. 

Chairman JOHNSON. Do you all see any resistance from doctors? 

Ms. ROSENTHAL. I suspect there will be significant resistance 

from physicians. Because, again, this is all about measurement and 

transparency. No one necessarily wants to have their grades posted 

on the Web. 

Chairman JOHNSON. You are getting it from patients, too, because they don’t want to put their stuff on a computer, you know. 

Dr. GALVIN. To the question about physicians, what I have 

learned is there is no one physician response. So I think organized 

medicine has a lot of hesitations and are really concerned about 

this. 

We have found tens of thousands and collectively more than that 

of physicians who really get it, who think that being measured 

makes them better. 

There is a great example in this Bridges to Excellence program. 

A doctor in Louisville actually treats inner city—it is not a doctor 

that treats GE patients—agreed to join the program. His comment 

was, you know, I thought I was doing a 100 percent great job. I 

got my actual measures back, and it turns out I was only doing the 

right thing about 60 or 65 percent of the time. His attitude was, 

that is great. Now how do I get better? So I feel there is variation 

among doctors about this. 

Chairman JOHNSON. That is good, and don’t try to rank us up 

here. 

Yes, ma’am. 

Ms. IGNAGNI. Mr. Chairman, a great example of the doctors coming to the table. Washington is full of examples of strange bedfellows. Our organization has been working for 9 months with the 

College of Physicians, the family physicians, and now the AMA is 

involved, to get a number of employers and consumers to try to 

wrestle with this idea of how do you create uniformity in measurement. CMS has been involved. ARC has been involved. It has been 

a great example of physicians leading the conversation—and with 

their colleagues—about what is the right thing to measure under 

what circumstances. It is a great example of partnerships between 

public and private entities. 

Chairman JOHNSON. Thank you. 

Mr. Andrews. 

Mr. ANDREWS. Thank you. 

43

I want to thank you for your testimony, and I wanted to ask Mr. 

Hanson about the Bridges to Excellence program. My understanding is you are coming up on 2 years of experience in Cincinnati or Louisville. 

Mr. HANSON. That is correct. 

Mr. ANDREWS. There are about 200,000 lives in the program? 

Mr. HANSON. Across all four markets, yes. 

Mr. ANDREWS. It says that 7,000 are in the diabetes section. Explain to me how that works. If I understand it correctly—or study 

a certain set of materials. Then if that physician does, then he or 

she is identified in the program as sort of a diabetes person, or get 

some kind of Good Housekeeping Seal of Approval. 

Mr. HANSON. We work collaboratively. One you are specifically 

talking about is a diabetes recognition program, which was collaborative with the American Diabetes Association, which is producing 

outcomes or the right kind of thing. 

Mr. ANDREWS. Presumably that educates that physician with 

how to deal with diabetes. They get paid for it? They get a certain 

amount per patient per year? 

Mr. HANSON. Correct. 

Mr. ANDREWS. I know it is early, but what kind of incidence are 

there on reduced strokes or heart attacks or bad outcomes for those 

diabetes patients? 

Mr. HANSON. The level of that data we are just getting to. I have 

a feeling, when I talked about there is more efficiency in the system, 10 to 15 percent, we think a lot of that is part of the reduction 

and the ER visits that you mentioned. I think that is a level of the 

data that we are just now beginning to analyze. 

Mr. ANDREWS. I would assume the way we would approach this 

study is to say, all right, among these 7,000 people, if they behave 

like their cohorts, given their age and demographic profile, we 

could expect X numbers of strokes, Y number of attacks, Z number 

of emergency room visits and other problems in a 2-year period. 

Are you then going to measure how these 7,000 people did against 

those expected norms? 

Mr. HANSON. Right. We use a data base that includes people that 

are not taking part in the controlled program. 

Mr. ANDREWS. Is there, in fact, going to be such a systematic 

evaluation? If so, who will do it? 

Mr. HANSON. We currently work with a number of companies 

who specialize in this kind of thing to work with the right data and 

get the right data base. 

Mr. ANDREWS. When will they get their assessment? 

Mr. HANSON. They are in the process of doing the initial assessments now. 

As I say, we are 2 years into the program. We are going to do 

assessments every year. We will actually look at trending. You 

know, how do these people trend from year to year? Is the same 

amount of savings from there? Is it exponential every year? If we 

see X amounts of savings this year if we continue to see a certified 

doctor, is that savings? 

Mr. ANDREWS. Will those data be publicly available on the script 

of their proprietary or personal criteria? With specific reference to 

the diabetes study in the Cincinnati-Louisville markets, what perVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 H:\DOCS\21243 NNIXON
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centage of physicians have become diabetes certified, to use my 

term? Do you know? 

Mr. HANSON. Well, I think it is probably a very low percentage, 

the reason being that physicians that get rewarded are those physicians or employees and family members of the companies that are 

participating in the program. 

Mr. ANDREWS. That is a lot, 200,000 people. I think there aren’t 

many physicians that don’t see the employees of those companies. 

Mr. HANSON. Well, but you are talking over four different markets. 

Mr. ANDREWS. Two hundred thousand out of 4 million people or 

something. 

Mr. HANSON. Yes. 

Mr. ANDREWS. I see. Will there be an effort to recruit more employers into the BTE program? 

Mr. HANSON. There is an effort. We had a couple of new employers join recently in the Boston program. We are already a year in. 

It is a 3-year program. My point is, in Cincinnati and Louisville, 

we are starting up on the third year. We wouldn’t look to recruit 

a new employer at this point in time. We are looking to evaluate——

Mr. ANDREWS. The question I have for any of the panel—you can 

supplement your answer in writing, because it is a longer issue. Do 

you see any embedments in the ERISA law that would retard 

progress in this field? 

Let us assume that the study that is done by BTE comes back 

the way we hope it does. It says that there are significant quality 

improvements in the outcomes, we have fewer strokes, fewer ER 

visits, fewer heart attacks, a lot of healthier people and that this 

worked—and that more companies then, more employers want to 

join a program like this, and they voluntarily do so for good, sound 

business reasons. 

I am not aware of any, but are there any problems or limitations 

in the ERISA statute that would retard against that progress? Or, 

conversely, are there changes in the ERISA statute you would 

make that you would think would enhance and facilitate that kind 

of access? 

Again, anybody could answer it, but I would be interested in the 

written comments that any of you would make on that. 

Dr. GALVIN. I would be happy to take a swing at it, if you like. 

Mr. ANDREWS. Sure??????? 

Dr. GALVIN. Just to get back to a prior question about more employers joining, Mr. Hanson was right. Part of the strategy was 

also to go to health plans and to have them license. We actually 

developed the licensing for this product. 

So over the past about 8 months, we have had some leading 

health plans—United Health Care with about over 20 million covered lives. They have Humana with about 8 million or 10 million 

covered lives. We have CareFirst in Maryland. So we have about 

30 or 35 million covered lives under these health insurers who 

cover multiple employers who have the capacity now to do Bridges 

to Excellence. So the expansion strategy is both other employers individually, and I think it is a much better multiplier to go to health 

plans who have millions of covered lives. 

45

In terms of the ERISA, we didn’t get a formal assessment, but 

our own counsel looked this over, and ERISA itself did not seem 

to either be an impediment or really affected positively or negatively, so we didn’t see the ERISA statute either way. 

Mr. ANDREWS. That would be my assumption as well. But I want 

to be sure in the subcommittee’s jurisdiction that we think about 

that issue and the terms of that statute. 

Ms. IGNAGNI. Mr. Andrews, we haven’t looked at that specifically. 

We will now and get back to you. My sense now is the same as Dr. 

Galvin’s, but I want to make sure that I am right about that. 

Mr. ANDREWS. Thank you. Thanks very much. 

Chairman JOHNSON. Thank you, Mr. Andrews. 

Mr. Boustany, do you care to question? 

Mr. BOUSTANY. Thank you, Mr. Chairman. I have a few questions. 

Let me start by saying that pay for performance is an important 

step in health care. I am a physician, a cardiac surgeon. I had one 

of the busiest practices in Louisiana. I led the effort to bring in a 

national data base on cardiac surgery in all hospitals where I work. 

I took a lot of criticism from my colleagues, but we did it nonetheless. As a cardiac surgeon and a physician, I make decisions for 

my family on health care issues based on anecdote. That is a side 

indictment of our system. 

I am on the board of the hospital and sit on some of the numerous committees at the other hospitals. Again, my decisions are 

based on anecdote. I have sat down and shared my data with two 

of the largest insurers in our State and asked to see their data and 

compared notes. The quality of their data was deplorable. It was 

again an indictment of our system. We have got serious problems, 

but I think we are on the right track with that this. 

A few questions. One, is this a potential tool to just enhance profits without providing education to physician groups? Certainly we 

do need to make sure that we provide proper transparency. Because I am convinced in health care, if we are going to create competition, to bring down costs and enhance quality, we have got to 

provide information with transparency to the consumer, ultimately. 

We need to provide choices to the consumer, and we need accountability. 

So I want to make sure that there is going to be a proper dialog 

in all of this with physician groups, hospitals and so forth, so that 

we are all measuring the right things and going about this properly. 

Ms. IGNAGNI. I think that you have made a very important point 

about the issue of transparency, and it starts before we get to consumer transparency. You need to have transparency with respect 

to clinicians. They need to be involved in the development of the 

standard. They need to be not only involved in the development of 

the standard, they need to be confident that it is the right proxy, 

the right measure. Otherwise, we are not going to move to a quality-based system. 

This is why, in our view, it is key for physicians to lead this conversation, to help point us in the right direction, to have a consensus about uniformity of measure, so that when the standards 

are developed then the physicians have confidence in them. They 

46

will be very strong advocates for their colleagues to follow those 

standards, and we will quickly shrink the kind of variation and 

practice patterns that now exist across the country. 

We have provided some evidence of that in our testimony. There 

have been legions of articles about it. 

So we couldn’t agree with you more about the importance of 

transparency. It starts with the clinicians. It starts with the partnership between insurer, health plan and physician to then move 

out to get the kind of measurement and trust that consumers can 

rely upon. But, most importantly, the clinicians can trust and feel 

that they are, in fact, in charge of creating a system that best represents their talent. 

We go out and talk to physicians. This is what we—in talking 

with the chairman and Mr. Andrews, this is what we found in our 

partnership with the key physician groups, that they feel very, very 

excited about the possibility to get this right and to move in a direction that finally rewards the best physicians and the best care, 

which I think is a testimony to the point that I think you have 

made very compellingly. 

Dr. GALVIN. On the comments you made, I just wanted to add 

a couple of things. I think that—let us assume that we can get the 

right measures that are agreed upon by everyone. You have raised 

another point, which is, is there an education point? Some of the 

things we have heard in the Bridges to Excellence program were 

two things that weren’t in our original planning. 

First, all the physicians wanted a chance to win. In other words, 

they didn’t want the bar so far from where they were, or they 

didn’t want to be demoralized from the beginning. 

Second, particularly individual doctors in individual practices 

asked if we could help think through some way to help them improve. Because let us say when this doctor I mentioned in Louisville got his numbers back, he was only scoring 60 or 65 percent 

when he thought it was 100. What he then looked for, is there 

someone to help me figure out how I can improve? Do I need to 

change the system? What do I need to do? 

So I think those two, everyone having an opportunity to win, second, thinking through how to support physicians if we get the 

measures right, which I think we will, I think are important issues 

also. 

Mr. BOUSTANY. The other issue will be dealing with the information technology gap that we have in health care. It is a real critical 

problem. Payers have somewhat of a gap. It is clearly evident on 

the side of the providers, both hospitals and physician practices. So 

somehow we are going to have to bridge that gap. 

Then the other issue would be the dynamic state of outcomes 

analysis right now. Because it is not static. With new technology 

rapidly coming upon us, new drug therapies, measuring outcomes 

and keeping up with it and coming up with some sanity to the 

whole process is going to be quite challenging. 

I applaud what you are doing. I know you are all experts in the 

field. I have read some of your work. I thank you for your testimony. 

Chairman JOHNSON. Mr. Kildee, do you care to question? 

Mr. KILDEE. Thank you, Mr. Chairman. 

47

First of all, Dr. Rosenthal, my son attended the Harvard School 

of Public Health and got his Master’s Degree in health care finance, so he advises me regularly. He knows far more about it than 

I do, however. 

Ms. ROSENTHAL. Excellent. Well, I would expect a graduate of 

our program to know quite a bit. 

Mr. KILDEE. Certainly more than any of us here. So thank you 

for being here today. 

I have a question of Dr. Galvin. What should we do in the Congress or the government to improve on the coughing method of determining quality of performance? What—really, what type of legislation might help discover really and reveal to people where quality 

can be found? 

Dr. GALVIN. I would answer there are two things. The first 

wouldn’t be legislation. I think the first would be something that 

I mentioned in my final couple of sentences, which is you, as purchasers through the Federal employees and their families, that is 

9 million covered lives; through TRICARE and the Department of 

Defense, it is another 9 million covered lives. Eighteen million covered lives. That is about 18 times the size of what GE covers. 

Yet really none of these programs have any of these fundamentals we are talking about. There is no insistence that the health insurers with whom they can track can show this information about 

doctors and hospitals. There is no requirement in their contracts 

that they start paying based on performance. So they are really 

neutral. So that is not statutory. It is just a practice. But that is 

18 million covered lives in our system, is a very big deal. 

In terms of the statutory, I think the immediate opportunity is 

what is going on in physician payment. I think kind of the dilemma 

that you are facing with the SGR and what to do about physician 

payments and Medicare is an opportunity to do something. Because 

what I am told by CMS is they don’t think they have authority, existing authority, to really move pay for performance or performance-based payments out of demonstration into the core of fee-forservice Medicare. Trying to integrate that pay for performance into 

whatever update you do with physicians I think is an opportunity 

that will take immediate statutory change. 

Mr. KILDEE. Can we possibly anticipate civil action when certain 

medical providers are not listed among the quality providers? 

Dr. GALVIN. I think that is an excellent question. We have not 

faced that yet. I would have to think that through. It is something 

we worry about. 

We did that with Leapfrog, where basically we listed the hospitals that met these safety leaps, meaning the ones that we 

thought were the most likely to do the best job. We did not have 

any civil action. But I would think it is something you would have 

to think about. If you were a provider and you were not listed and 

you lost businesses as a result of it, I would think that would be 

an issue you would have to think about. 

Mr. KILDEE. It would seem to me to be a fundamental consideration. 

Ms. IGNAGNI. I think this is a very important question you are 

probing. I know that the specialty borders, as they reevaluate and 

recredential essentially specialty physicians and primary-care phyVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6602 H:\DOCS\21243 NNIXON
48

sicians, are now beginning to move in the direction of baseline 

standards with respect to quality performance. I think that is a 

very important start as well. 

So I think were there someone here from the specialty boards it 

would be to compellingly talk about the shift that is going on—

which is a very important shift—and this is post the Institute of 

Medicine report directly aimed toward those improvement aims 

that were enumerated in that report. 

Mr. KILDEE. Thank you very much. 

Mr. Chairman, thank you for assembling a such great panel. It 

has been very, very good. Thank you very much. 

Chairman JOHNSON. Thank you, Mr. Kildee. 

Mr. Kline, do you care to question? 

Mr. KLINE. Thank you, Mr. Chairman. 

I thank all the panelists for being here, a really, really great 

panel. We often get great panels here, but this is perhaps extra 

special. 

I am a little bit intrigued by the one-cough, two-cough method. 

I thought that was a great example. We didn’t determine if there 

was any head turning involved. 

It seems to me that I am looking at a couple of projects in my 

district that are moving forward very rapidly and well, I think, 

with electronic medical records. There is an opportunity there to 

prevent an awful lot of mistakes and lower costs, provide better 

care, at least in my judgment. 

When you are looking at places to go, either in the BTE or from 

your roundtable or something, if you are—if you could put in your 

list those clinics and hospitals that have such a system, that would 

be a way of sort of stepping out toward paying for performance, if 

you will, in the sense of the hospital and clinic and not be an individual evaluation. Is that something you are already in the mix? 

Dr. GALVIN. I can comment that the Leapfrog group that Mr. 

Hanson mentioned, it was called that because it came up with 

three initial leaps to make quality much better. The first of those 

leaps was to have those kinds of computerized systems in hospitals, 

particularly focused on drug ordering. 

So this was—we found the most avoidable errors that were occurring in hospitals had to do with drugs. Either the physician’s writing was illegible, or physicians can’t remember 100,000 facts, and 

so they might have prescribed a dose that wasn’t right for the patient on that day. So that was actually the No. 1 that we put out. 

Now what is interesting is that, although all the urban hospitals 

in the country—we asked if they would fill it out—only 1,000 out 

of the 3,000 or so non-rural hospitals agreed to fill it out. So one 

of the challenges we have is that, as long as it is voluntarily, and 

completely voluntary, it is difficult. Because now the 2,000 that 

didn’t fill it out—many of them were in the same town where some 

did and some didn’t—we didn’t know the quality of their value. So 

I think it is a challenge. 

Mr. KLINE. Let me just follow up on that. It seems to me we are 

looking for a way—and we would ask the question a number of different ways up here if it is something we can do in legislation or 

policy. But if you have clinics or hospitals that have the electronic 

medical records—and we will just stick with that one example—it 

49

would seem to me that the insurers and perhaps the different programs that we are talking about here would reward that, right, because they are on the list. 

You have such an electronic medical record you are going to be 

rewarded because the patients are going to be referred there. That 

would be some incentive for them to move with even more alacrity 

to get that in place. 

So I am a little confused. Why would it be in somebody’s interest 

to not be forthcoming? So they will not be rewarded? 

Dr. GALVIN. I agree. I think up till now there haven’t been rewards. I think, in the absence of that, it isn’t quite as compelling, 

the Leapfrog project hospital program that Mr. Hanson talked 

about that was just launched. In fact, we have a workshop on Friday with 150 employers to explain it to them. That will be actually 

the first time we start our rewarding based on having computerized systems. Now employers need health plans. 

The partnership is particularly important. Because even as big 

as GE and Verizon are, we are not nearly as big as most of the 

health plans. So we will work very hard through our contracts and 

through our bidding process to try to move business to those health 

plans that also think this is a good idea, and we will begin to institute this. 

Mr. HANSON. Can I——

Mr. KLINE. We will try to do both in the seconds. 

Ms. Ignani. 

Ms. IGNANI. Thank you, sir. 

One of the things you will see in our testimony is we have given 

the examples of where a number of our health plans are incorporating incentives from the conversion from paper to electronic, 

both in the physician level as well as the hospital level. And I 

think you will see more of that. 

The way we have approached it is to set—develop a consensus 

with the providers with respect to what is measured, what the outcomes are, and, as part of achieving those outcomes, then moving 

to an electronic-based system is often very desirable. 

So rather than simply reward the technology in a silo with no 

connection to the outcome or the goal, establish the goal, recognizing that the technology is a part of that. And we would be glad 

to submit more information for the record if that would be useful 

to the committee. 

Chairman JOHNSON. Thank you. 

Mr. HANSON. I would just like to echo what Karen has said, and 

that is that it isn’t so much just having the technology, but how 

you use it. There is evidence out there now that even hospitals who 

have computerized physician order entry, only 25 to 30 percent of 

the physicians at that hospital are using that technology. 

So I think, to throw out a caution, is that while it is admirable 

that people are adopting technology, the benchmark really is, as 

Ms. Ignani has said, is how do you use that technology, and what 

kind of outcomes are you getting with it, and what are you looking 

for? So it is a bigger picture than just going out and purchasing 

your technology and having it in place in the long run. 

Chairman JOHNSON. Thank you. 

50

Ms. ROSENTHAL. Can I just contribute two quick points on that? 

First, on the issue of getting hospitals to actually report their capabilities and their quality measures, the CMS had a very successful 

initiative that you may be aware of. They had a voluntary hospital 

reporting system, and in the second year you could volunteer to 

give up half a percent of your revenues. And surprise, surprise, all 

the hospitals reported in the second year. So I do think having 

CMS can very much take strong action if they asked hospitals to 

do CPOE——

Mr. GALVIN. Statutory. 

Ms. ROSENTHAL. Yes, statutory. But that is an example of how 

it could be done in any case. And the second thing is being on the 

Leapfrog Website in and of itself may not be a reward, because as 

much as we all think that consumers should be motivated to use 

this information, should choose hospitals on that basis, most of 

them don’t. And even when the information is made available to 

them, to date they are a little reluctant to use quality information. 

We need to think of better ways to get them to understand the 

information and why it is important to them and make decisions 

on that basis. 

Mr. KLINE. Thank you. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Mr. Tierney, care to question. 

Mr. TIERNEY. Yes, I would, Mr. Chairman, thank you. Thank the 

members of the panel for the questioning. 

In Massachusetts there have been some concern among some at 

the Mass Medical Society. They are skeptical. They say they are 

skeptical of the current methods that are employed to gather the 

physician performance data. I am sure you have this before. Those 

that don’t yet have an electronic medical recordkeeping system 

think that evaluating it on claims forms isn’t fair to them. 

Can you just discuss that a little bit if it is appropriate? Is it fair 

to them, and should we be doing that without the electronic recordkeeping data? How do we move more quickly through the electronic 

data? 

I know there has been a few experiments, one in my district up 

in Newbury Port, up in other places around the country, as well 

as my State. Who pays for it? What is the incentive for somebody 

who is, say, in a small practice to undergo that risk and the cost? 

Dr. GALVIN. I know a lot of licensed physicians still in Massachusetts, and I trained there, so I will take the answer first. 

There is a lot of concern among physicians everywhere, in Massachusetts as well. I think there are two issues. I think the first is 

really the original kind of chicken and egg; in other words, I think 

from the purchaser of health care point of view, we are wondering 

when we will be able to start publishing this data. When will we 

give this woman I talked about actual information about where she 

should go to get her cancer treated? So some of it is the physicians 

rightfully say, wait a minute, be careful, the claims forms aren’t 

perfect, we don’t have it. We say we have been talking to you for 

about 30 years. When will the time be right? 

So I think we have moved ahead with some trepidation, because 

we don’t want to alienate the physicians, but we feel we had to get 

things started. 

51

I do agree with you that the answer, or part of the answer, is 

to get this information technology much more established in offices. 

A couple of many issues, one is kind of the coding, but the other 

one is who pays for it. 

One of the Bridges to Excellence’s modules actually has extra 

payment if you have a computer in your office, and you show that 

you have better outcomes for it. That is one way we have tried to 

build it into the rewards is to help pay for the technology. 

Mr. TIERNEY. Can I ask you something? Is that working? 

Dr. GALVIN. So far it is working. I think 600 doctors have signed 

up. 

Mr. TIERNEY. They are willing to take the risk if they know down 

the line they will get something back? 

Dr. GALVIN. Mainly in Boston, if I am right. 

Mr. HANSON. Mainly in Boston. Boston market is the biggest 

market for the program. Just to echo, too, I think the way Bridges 

to Excellence is structured is that the first year you will get 100 

percent if you qualify to be recognized in the program. You are 

going to get 100 percent. And you may have an Excel spreadsheet 

that happens to be the disease registry for your office. 

Our hope is that the incentive reward that you get that first 

year, then you will capitalize on that, invest in the technology, because the second and third years we are going to be looking at how 

has your office improved to actually reach the top benchmarks. So 

there is some built-in, which I think is a critical issue—built-in improvement steps for offices to take. 

Mr. TIERNEY. I am pleased to hear that. I am just surprised, because the physicians that have been visiting my office all seem very 

reluctant to make the outlay themselves. They were looking at 

some of the different directions. Some of the smaller practitioners 

thought that that was just too large. Some told me it was a few 

thousand dollars. Others said it was 10- to 15- to 20,000, depending 

on what the size of your practice was. 

Mr. HANSON. In Bridges to Excellence, actually, we cap the 

amount an individual physician can earn in rewards, and that is 

$20,000, because that seems to be about what it might take to capitalize, to invest and bring your office up to the infrastructure and 

process infrastructure that it would take. So it reimburses them for 

all that investment almost 100 percent. 

Ms. IGNANI. Mr. Tierney, Dr. David Brailer has launched a whole 

conversation at the Department about connectivity with respect to 

health care, and they are having very productive discussions, and, 

in our, view a very solid approach to moving forward. 

We hope that one of the things—that as this work comes 

through, not only will we be talking about the standards, how do 

we create uniformity with respect to the exchange, and how do we 

create uniformity across the country, but also at the same time 

how do we deal with the financing question. 

We think that there can be things done very productively in the 

reimbursement system, but with employers appropriately 

telegraphing that there is a great deal of stress, there is a competitiveness issue, then that is a serious issue, and it is—we think that 

that could be joined, the issue of—in the conversation about 

connectivity, could be joined with financing to maybe begin thinkVerDate 0ct 09 2002 15:07 Nov 28, 2005 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 H:\DOCS\21243 NNIXON
52

ing about tax credits, in terms of R&D, there is a productivity enhancement here. 

And we think you can draw a direct line in the research between 

a tax credit for this kind of purchase, and it could be done over 

time, and the productivity that would result. 

And the Chairman started talking about the conversation—you 

framed the conversation in terms of productivity. So we think that 

there is some opportunity here to bring all of these things together, 

not in one-stop shopping or one size fits all, but various components that could be looked at together. 

Mr. TIERNEY. They already get a tax break. That is a business 

expense. It is a business expense. They are already getting a sizable tax break. 

Ms. IGNANI. There could be other things that have been done in 

the past in certain R&D areas that could encourage the purchase 

and do it more swiftly. 

Mr. TIERNEY. Do we run a risk of having a lot of people implement this electronic recordkeeping before you have the standards 

for connectivity, either statewide or nationwide? 

Ms. IGNANI. We think the standards are absolutely essential. 

They need to be on a fast track. They need to be laid down so that 

physicians from the standpoint do not make a purchase that is not 

useful to them, No. 1——

Mr. TIERNEY. Is it already too late, though? 

Ms. IGNANI. No. It is not too late at all. 

And you asked the question about is the Department doing a 

good job? This is an area in which they are launching a series of 

activities to get to the question of standards, to talk about how 

they get developed and how they get developed quickly and uniformly. And we think that is just the right conversation. 

Chairman JOHNSON. Mr. Holt, do you care to question? I think 

your time has expired. 

Did someone have an answer that wanted to answer out there? 

Dr. GALVIN. Just one other comment, if I may, and that is when 

you go back to your physicians in Massachusetts, I just want to 

make sure that if you represent what I said that—you know, I 

don’t get a phone call—but I do think the standards are a big deal. 

It reminds me very much of those of us who remember VHS or 

Betamax, and if you chose wrong, it was a big deal. We are still 

in that era. So it really is an the issue, and Karen is right that we 

need to expedite that. 

And the second is Bridges to Excellence isn’t enough. The funding in many of the creative ways she talked about from the Federal 

side also needs to be a big part of the solution, so——

Chairman JOHNSON. Go ahead. 

Mr. HANSON. In answer to the same thing, I know the Commission on Systemic Interoperability which has been set up, and Ivan 

Seidenberg, CEO of Verizon, is sitting on that, is dealing with this 

very issue of connectivity, interoperability, funding sources. And I 

know that report is due out in October. As Ms. Ignani says, it can’t 

come soon enough. 

There are several trains moving down the track, and right now 

we are pretty much in sync, but we are looking forward to that report. 

53

Mr. TIERNEY. Thank you all. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Mr. Holt, you are recognized. 

Mr. HOLT. Thank you, Mr. Chairman, and I thank the witnesses. 

I apologize if I go over some ground that has already been covered 

here, but I guess I need to pursue a little bit this issue of kind of 

the faith in the market to straighten things out here. 

First of all, the rewards that would be provided for good performance, is this new money, or is this taken out of the system? And 

then, I guess, a fundamental question is by rewarding the good 

performers—and we could have some questions, and maybe there 

will be time for that, to talk about how the benchmarks are actually set to determine who is a good performer—don’t we end up, if 

we carry this to its extreme, with a small number of good performers in the system and everybody else out of business? Have we 

found some way to improve the performance of the bad performers 

rather than just threatening or punishing them, you know, and the 

floggings will continue until morale improves? 

So let me throw out those two questions, and if there is time, I 

have a few others. 

Ms. ROSENTHAL. May I? Just to start out, as an economist I have 

to—even though I know you print money around here, I think 

there is no such thing as new money. And even, with all due respect to everyone, if the employers and health plans say that this 

is new money, it will eventually come out of the old money. 

There are no places where that is just—you know, as it is we are 

spending $1.7 trillion on health care, as you know. Do we need to 

spend more to get the right quality care? 

And so, I think fundamentally it is going to be a redistribution, 

and that does raise the question if we are redistributing moneys 

from some providers to others, is that desirable? And, of course, the 

whole point is to redistribute money to the best providers, so some 

of that must be desirable. But there are ways probably of doing 

that to improve the quality more across the board. Cost savings 

have to come out of somewhere. If we are not going to be driving 

some providers out, it must mean that we have to find cost savings. 

And I suggested in my remarks that they are not built into these 

pay-for-performance programs yet. They could be. 

I do think there are lots of ways to try to provide technical assistance to poorly performing providers. And like Bridges to Excellence provides steps so that even providers who are starting at a 

relatively low level, they have some opportunity to make small improvements and get some of the resources to make larger improvements. And I think it is very important to consider that. 

Chairman JOHNSON. Let me add that the dollars are not being 

cut. You know, there is a steady increase out of Medicare, and that 

is where those dollars are coming from. All they are saying is they 

are going to reward the guys that do a better job. And docs aren’t 

going to get out of business. They can improve. That is what she 

is talking about, I believe. 

And by looking at the docs that are doing a good job, maybe they 

can change their techniques or their performance to improve. And 

I will give you some more time. Go ahead. 

54

Mr. HANSON. I would just like to build on the statements just 

made, and that is that clearly one of the efforts in the Bridges to 

Excellence program is not from a punitive standpoint. I can’t imagine that if we have 100 docs in the Boston market who qualify for 

the program, that we are going to be able to shift an enormous 

amount of capacity to those doctors. Our goal is to build in these 

step processes so that even doctors who think they may not qualify 

have some level of entry into the program, and at which step it becomes a step process. 

And I think that is going to be true with the Leapfrog incentives 

and rewards program, that although a hospital may not meet all 

the standards when they come out of the chute and apply initially 

for the program, there is some effort to reward those that have 

some minimal qualification to the program and show some signs 

that over time they have a plan to get there. 

We have to raise the benchmark for the entire system. We can’t, 

as you say, have a lot of docs go out of business, and I don’t think 

that is the intent of any of these pay-for-performance programs. 

Mr. HOLT. In the short time that is remaining, let me ask one 

more question then. Will doctors and hospitals avoid taking on 

high-risk patients? Will the good performers be the ones who have 

been smart enough to choose good patients? 

Dr. GALVIN. I think that is a major concern. I think you are really kind of accurately hitting some of the big challenges, because no 

change is without these challenges. I think you are accurately hitting them, and either—certainly through surveys and anecdotal 

kind of experience, the idea that that will happen, and I think built 

into the system has to be some audit of that, or some kind of 

guarding against that. In other words, I think we would be naive 

and be going down the wrong road if we just assumed that that 

wouldn’t happen. So I think the tendency will be to game it, and 

that would be one of the ways. 

And I just think we have to be smart enough to anticipate it. 

And I think it is really an audit kind of technique we are going to 

have to build in to guard against that. 

Ms. IGNANI. One of the things that I think that stands out here 

in our conversation this afternoon, politics is local. But if health 

care is local, you get into trouble. And we are now moving from a 

system that has been based primarily on the way it has always 

been done to one that is moving to a more objective, scientific, evidence-based system. But we are not going to leap there overnight. 

And so what we have tried to do through our health plans is we 

go across the country and work with physicians to reorient the incentives, is to start with the positive. 

You asked the question, positive versus negative, and in deference to the very important point that Dr. Rosenthal made, if you 

incent physicians and reward them for best practices, according to 

the science, and if they are confident in the data that are chosen, 

and they have participated in that choice, then we are going to 

begin to move the system in a way that is productive for all. 

So, to the extent that—and that also gives us an opportunity to 

evaluate the issues that you probe quite correctly, how do you deal 

with risk adjustment? How do you deal with not intentionally—the 

unintentional consequences of having a particular physician who is 

55

isn’t appropriately recognized for complications that he or she may 

treat? 

So as you move in a critical path fashion, systematically as opposed to trying to do everything overnight, that allows for the kind 

of collaboration that is necessary to make this tectonic shift, if you 

will, but at the same time will allow us to get the kinds of results 

that I think all of you expect and that employers, the purchasers 

and ultimately the consumers expect as well. So in our view, that 

is how systematically we are approaching it. 

Mr. HOLT. Thank you, ladies and gentlemen. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. You bet. 

Mr. Payne, you are recognized. Do you care to question? 

Mr. PAYNE. Yes. Thank you very much. 

I came in, I was a little bit taken aback by the terminology ‘‘pay 

for performance.’’ In New Jersey there is a pay to play. So I didn’t 

know whether this was in New Jersey or whatnot, we New Jersey 

people. So that is—they get it; you all don’t. 

But let me just say, I am sorry that I missed your testimony. I 

have been quickly looking through the material, but I do have a 

question that, when looking at pay for performance, and any of you 

respond, has anyone looked at a system problem? For example, in 

rewarding good performance, what I mean by that is, for example, 

one standard imposed on many hospitals is what they call the 4-

hour rule, where a patient should receive antibiotics for pneumonia, for example, within 4 hours of walking into an emergency 

department. 

Now, oftentimes in urban areas, where emergency rooms are, you 

know, used as a physician’s office because of the lack of accessibility to health care, oftentimes the emergency department is overcrowded, and therefore it actually prevents a patient from being 

seen and diagnosed by a provider for more than 6 hours, which is 

sometimes common. 

So my question is, you know, so this is the example that is the 

hospital penalized due to a more widespread health care system 

problem to access to care, and how can you kind of break that 

down? 

Ms. ROSENTHAL. May I? That goes somewhat to Mr. Holt’s question as well. I do think the issue is that one size does not fit all, 

and there will be some providers, particularly safety net providers, 

who are already stretched thin, have very few resources, and we 

don’t want to drag those providers into a worse situation by reallocating resources away from them. And I think that we need to be 

very conscientious of those problems as private payers thinking 

about developing these programs, and making sure that technical 

assistance, again, or, perhaps some kind of different program, is 

tailored for providers such as the one that you have described. 

I do think it is a real problem, and we don’t know the extent to 

which these pay-for-performance programs are going to exacerbate 

existing strains on the system. And it is something that needs to 

be monitored. 

Mr. PAYNE. Thank you. 

I just have a general question. I know the whole question is trying to contain the escalating cost of health care, but I wonder is 

56

this pay for performance, do you see it actually being the method 

to control health care costs, increases or to limit it, or do you think 

that it might just slow the increase down? Will it provide better 

health care? Will it make, therefore, funds available for all of those 

shut-out people? That is a whole different subject. What would you 

like to see achieved, if you could, say, maybe in a couple of sentences? 

Ms. IGNANI. I think, Mr. Payne, one of the most compelling 

pieces of data now in the health care arena suggests that only 55 

percent of what is done is best practice. So clearly we have a long 

way to go. And the incentive through the reimbursement system 

has been to pay pretty much the same for good practice, bad practice, mediocre practice. We haven’t differentiated. 

With this movement toward setting goals and objectives, rewarding clinicians who meet those objectives, that can be a powerful incentive to improving the value that we are all getting out of the 

health care system. 

The conversation has been very relatively simple with respect to 

health care costs. It has been about the trajectory of the cost curve. 

That is serious enough. But when we look at the amount of money 

going into the system, and we match it with the data that suggests 

that only 55 percent of what is done is best practice, then it indicates there is a great deal of room to reorient and refocus health 

care resources and do a much better job. 

So I think as the committee has opened up this conversation, we 

appreciate very much the thoughtfulness and the breadth of the 

conversation because it really does go to that issue of value: Are 

we getting value for our health care investment? 

Mr. HANSON. Just to add to that, it is a complex issue. I don’t 

think it is the silver bullet, but I think it is part of what the health 

care system needs to transform itself into. 

There is a whole lot of consumer behavior involved with mitigating the costs of health care. I see this as only one part. It is an 

important part, but it is only one part of an enormous, complex 

transformation. 

Mr. PAYNE. Thank you very much. 

Earlier this morning we had a hearing on education, and two 

Governors, one from Iowa and one from Massachusetts, said the 

same thing, that we have to somehow differentiate pay for poor 

teachers that get the same pay as good teachers. I think that is 

sort of what you put your finger on. So thank you very much. 

Chairman JOHNSON. Ms. McCollum, do you care to question. 

Ms. MCCOLLUM. Thank you, Mr. Chair. 

I am from Minnesota where we have done a few things a little 

differently. We have not-for-profits and all kinds of things, and now 

we are ranking our hospitals. And from what I am starting to see 

kind of get shifted out on that is the health insurance companies, 

when faced with some tough questions about is this really comparing apples to apples, is comparing a teaching hospital, a teaching hospital that also does indigent care, a hospital that handles 

pediatrics primarily, are we really—are we really ranking all this 

pay for performance accurately? And after all the names were published pretty much, in ranking, in the local papers, you started sifting through the next year or two, and there were a few like little 

57

whoops. So I think we need to be careful when moving forward 

with this, and I think there is a lot of things that have to be taken 

in account. 

In reading through here, one of the things is diabetic care. I 

couldn’t agree more that there should be, you know, a standard for 

performance for diabetic care. But how does this work for a physician who maybe has multiple insurers, and one group of insurers 

is going to pay for test strips and everything; oh, and we will pay 

for your how to live with diabetes class, and we will make sure it 

is offered at a time that is flexible for you to take off of work, 

versus a doctor who has another patient who has bare-bones insurance that doesn’t really cover too much of anything, to be supportive of that diabetic? So I am confused as to how this is going 

to work for doctors with multiple insurance. 

And then when we start looking at protocol, protocol still isn’t 

really shifted out based on gender and the way drugs interact with 

women. There is even still challenges for the pediatrics. I believe—

and I served on a the State Medical board for a while. I believe 

there are physicians and nurse practitioners and a whole lot of people who can do a whole lot better. I also believe that there is a lot 

of people out there working really hard with a lot of different systems in place. 

And so when you start putting all these things together, if there 

isn’t one standard protocol for diabetes that is going to be nationwide, and then we start judging the physician, how they are doing 

on that, not even taking into account the patient responsibility on 

the end of it, I am wondering how do we really get there in a way 

that is just, and a way that is fair to the physician; to blow the 

whistle on someone who is not doing a good job, but not to penalize 

somebody because either their patient isn’t cooperative, or they 

have 12 different insurance plans with all different kinds of menus 

with how to handle, and I will use diabetes as the example. 

Ms. IGNANI. You have asked a 20-minute question, but I am 

going to give you a succinct answer. But I would like to follow up, 

if that would be appropriate, because I don’t want to give the short 

shrift. 

First, you should be, and I know you are, proud of what is going 

on in Minnesota. All of our health plans in partnership with the 

medical society and the hospital association have done some things 

that haven’t been replicated in other States. So it is a great laboratory for best practice. 

What we have learned in Minnesota, and also other places, and 

that—and this is one of the reasons that we have placed so much 

emphasis on the question of uniformity of protocols and selection 

of measures, is that it is very important that a physician who may 

be treating a subset of the community not be disadvantaged because they may have the individuals who are the least healthy, 

they have the most chronic conditions, comorbidities, et cetera. 

So one of the things we have been working hard to do is to get 

consensus about what is measured, but also that is only part one; 

deal with the issue that you raised quite rightly, which is how do 

you put these data together so we can get a sense of—across all 

of the patients that the physician is treating of how they perform, 

as opposed to necessarily the patients that are just hooked to a 

58

particular insurer. That would give equity inherently in the system 

for physicians, and we have been working with a number of physician groups we talk about in our testimony, and I would like to 

provide more data on that. 

We have gone a long way on the measures, step 2. We are moving forward; we are moving forward rapidly. We are not completely 

there yet. But it is going to be very important not only to put the 

private sector data, but the public sector data so we can look together at the entire population that the physicians and the hospitals are treating. 

So I think you have opened up a very important series of compelling questions that, Mr. Chairman, I would like to provide more detail on, because it really deserves a more thoughtful answer than 

I think in the time we have today. But this is very important. 

The bottom line is I think we can feel hopeful that because of the 

way this is being rolled out, that we are doing positive incentives 

as a first step to try to elicit all of the issues, get them on the table, 

and see what needs to be done to do this right. It is a much more 

responsible way to proceed than go the other way. 

Ms. MCCOLLUM. Mr. Chair, I appreciate that, but—and I look 

forward to seeing what you have to say. One thing that comes into 

this argument that I don’t know, I didn’t see it being discussed in 

the testimony, and I didn’t hear every word of the testimony, is you 

are getting to patients’ right to privacy. And we have been struggling with that at the legislative State level when your medical 

records start becoming part of a group medical record, starting to 

become part of analysis issues, having your medical records, your 

right to privacy and who is looking at what. 

So that is, if we are going farther on this, Mr. Chair, I would 

suggest to tackle that in a hearing earlier on so that you are not 

confronted with it on the floor of the House, because it is a very 

sticky wicket, to use a colloquial term. 

Chairman JOHNSON. You had another, Doctor, did you want to 

make. 

Dr. GALVIN. If I could, I wanted to just respond to your initial 

concern about kind of where was the patient in the process, and 

were they engaged. And I think that is an awfully important question. 

When Leapfrog and Bridges to Excellence were formed, employers did it because we couldn’t get any health insurance plans to do 

it. But we could not get the system moving a number of years ago. 

It is good to see that a few of them are starting to move in that 

direction. 

And one of the things we learned from managed care in the last 

decade was that who got excluded were the two most important 

players in the system, which were the doctors and the patients. 

And so when we started out to create these, it was we are going 

to have them at the table, and we are going to kind of only develop 

a plan if it meets their needs. 

And just in terms of the consumer, a very interesting thing happened in Bridges to Excellence, which is we were moving down trying to figure out what a reward was, what the measures were, and 

at one point the physician said, you know what? We are not going 

to participate unless you also build in incentives for our patients, 

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because I can do the best thing, I can draw my blood sugars, I can 

do everything right, and if the patient then goes out and goes to 

McDonald’s or doesn’t follow what I, you know, have prescribed, I 

don’t want to be disadvantaged for that. 

And so there are pretty significant consumer incentives for basically living a healthy lifestyle. I just want to make it clear that I 

do think it is awfully important that consumers get engaged. 

Chairman JOHNSON. Thank you. 

In regard to your idea of sending us some more information 

based on your own opinions, we would appreciate that, and we 

would dutifully accept anything that you send to us and have it put 

in the record, and I thank you for the offer to elaborate. 

I would carry on with that idea of how do we necessarily protect, 

you know, the docs and hospitals and the privacy issue that she is 

talking about personally. 

You know, I know we have wrestled with that in other committees. I happen to be on the Medicare committee, too, and I think 

that with today’s, he and I were talking about eye scan. We use 

that in the airports now to get through. There isn’t any reason why 

you can’t use something like that to identify patients. But her 

question, more to the point, was how do you prevent people using 

them for analysis publicly? Have you got protections figured out? 

Anybody think about that? 

Ms IGNANI. Mr. Chairman, we have thought a great deal about 

this, and one of the ways to begin to get to—from a physician 

standpoint—and we have spent a lot of time talking about this this 

afternoon, it is very important to have not simply a snapshot of the 

patients that he or she is treating associated with a particular 

health plan, but to have their entire practice looked at from the 

standpoint of equity, to make sure that we are dealing with the 

high risk, low risk, medium risk, et cetera. In doing that, as you 

aggregate data, it is less important to know who I am personally. 

It is much more important to know what was done given my condition to ensure that certain objectives are met. 

So in statistics we talk about deidentify data. It is a great deal 

of you just—it means you don’t have to have the patient associated 

with that particular analysis. 

And there has been a great deal of work done in the context of 

disease management and a number of other strategies with respect 

to care coordination that are going on that we think can inform 

this very productively. But clearly, this is new territory. It needs 

to be proceeded with caution. There needs to be a cautious path followed. 

But we think that there are ways to address the issues of equity, 

but at the same time protect the patients. But where you put the 

balance point is an important thing to talk about prospectively as 

opposed to in retrospect, or retrospectively. 

Chairman JOHNSON. Thank you. I appreciate it. 

Yes, sir. 

Dr. GALVIN. I agree it is an awfully important issue, and I think 

we, again, as large employers, address it early on because we all 

have a policy that we don’t want to know any specific information 

about any of our employees. So it is something that we delegate to 

our health plans to do. 

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That all being said, we don’t make any step in this pay for performance without having a council of our own employees and have 

our privacy committee at the company look at it, because I think 

these are delicate issues. 

I think, as Karen said, we are kind of plowing new ground, and 

so I think that having it built into the structure from the beginning 

with the right people at the table is our best way to address it moving forward. 

Chairman JOHNSON. Thank you. 

Mr. Andrews. 

Mr. ANDREWS. I again want to express my pleasure to the members of the panel for a very edifying, interesting testimony today. 

And I share Mr. Johnson’s desire that you supplement the record 

with further thoughts. I think that is an excellent idea. 

Mr. Kildee and I were talking during the testimony that—this 

discussion is reminiscent of a discussion that was held in this room 

and others over the last couple years over the No Child Left Behind Act. We started out with a concept that we wanted to articulate meaningful and high standards for every public school and 

every student, and we went about the business of trying to build 

measurements that would animate those goals. The jury is very 

much out on whether the standards that we—or the tools that we 

created successfully do that or not. 

One of the other issues that is reminiscent of No Child Left Behind is something Mr. Payne brought up, and that is about the 

need for remedial investment when an institution is failing to meet 

a standard not because it doesn’t know how to or won’t, but can’t 

because of resource limitations. And I would urge in your written 

comments to think about this problem. 

I have several hospitals in my district, one in particular that is 

in an urban area, where probably 85, 86 percent of the revenue 

stream is either Medicare, Medicaid, what we call Uncompensated 

Care in New Jersey, which is a State fund for the uninsured. And 

probably this hospital is not following practices in certain areas 

that would be generated out of a study like this not because they 

are not aware of them, not because they are resistant to the 

change, because they don’t have the resources. And we do want to 

be careful that, in identifying practices and areas that are not 

meeting the standard, that we discriminate or distinguish between 

institutions that can meet the standard but won’t, and institutions 

that would meet the standard but can’t because of resource allocation problems. 

And whether we address that through graduate medical education, reimbursement for teaching hospitals, whether we address 

it through some kind of supplemental Medicare payment or what 

have you, it is a very serious consideration, because it is true that 

the driving concept here is to take dollars you are already spending, as Dr. Rosenthal said, and allocate them more wisely. But in 

some cases, even wise reallocation of those dollars won’t cover what 

needs to be done because of gunshot wounds, and HIV problems in 

huge numbers, and low-birth-weight babies, and kids with lead poisoning, and lots of other things that these kind of hospitals deal 

with. 

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So I don’t know the answer to that question, but it is a question 

that I would like you to take into account when you think this 

through. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you. He is right; all hospitals aren’t 

the same. So we need to think about that. 

I want to thank you all for your valuable time and your testimony. You are a very good panel. And I want to thank the members for their participation as well. 

I would encourage you to tell your cancer patient M.D. 

Anderson is a good place. 

Dr. GALVIN. That is a one-cough hospital. 

Chairman JOHNSON. That is it. And I think you will make your 

plane, Dr. Rosenthal. 

Thank you all for being here. If there is no further business, this 

committee stands adjourned. 

[Whereupon, at 3:43 p.m., the subcommittee was adjourned.]

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