S. HRG. 111–25

ROUNDTABLE DISCUSSIONS ON COMPREHENSIVE

HEALTH CARE REFORM

HEARINGS

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

ON

IMPROVING QUALITY AND REDUCING COSTS, EXPANDING COVERAGE,

AND FINANCING OF COMPREHENSIVE HEALTH CARE REFORM

APRIL 21, MAY 5, AND MAY 12, 2009

(

Printed for the use of the Committee on Finance

ROUNDTABLE DISCUSSIONS ON COMPREHENSIVE HEALTH CARE REFORM

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48–952—PDF 2009

S. HRG. 111–25

ROUNDTABLE DISCUSSIONS ON COMPREHENSIVE

HEALTH CARE REFORM

HEARINGS

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

ON

IMPROVING QUALITY AND REDUCING COSTS, EXPANDING COVERAGE,

AND FINANCING OF COMPREHENSIVE HEALTH CARE REFORM

APRIL 21, MAY 5, AND MAY 12, 2009

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

BILL NELSON, Florida

ROBERT MENENDEZ, New Jersey

THOMAS R. CARPER, Delaware

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

JOHN ENSIGN, Nevada

MICHAEL B. ENZI, Wyoming

JOHN CORNYN, Texas

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

(III)

C O N T E N T S

APRIL 21, 2009

OPENING STATEMENTS

Page

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

on Finance ............................................................................................................ 2

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 3

PANELISTS (PREPARED STATEMENTS)

Diaz, Paul J., J.D., President and CEO, Kindred Healthcare Inc., Louisville,

KY .......................................................................................................................... 247

Hackbarth, Glenn M., J.D., Chairman, Medicare Payment Advisory Commission, Washington, DC .......................................................................................... 279

Korn, Allan M., M.D., Senior Vice President, Chief Medical Officer, Office

of Clinical Affairs, Blue Cross Blue Shield Association, Washington, DC ...... 413

Lee, Peter V., J.D., Executive Director, National Health Policy, Pacific Business Group on Health, San Francisco, CA ......................................................... 424

McClellan, Mark B., M.D., Ph.D., Director, Engelberg Center for Health Care

Reform, Brookings Institution, Washington, DC ............................................... 432

Morris, Lewis, J.D., Chief Counsel to the Inspector General, Office of Counsel

to the Inspector General, Washington, DC ........................................................ 439

Naylor, Mary D., Ph.D., FAAN, RN, Marian S. Ware Professor in Gerontology,

University of Pennsylvania School of Nursing, Philadelphia, PA .................... 445

Ness, Debra, President, National Partnership for Women and Families, Washington, DC ............................................................................................................. 456

Opelka, Frank G., M.D., FACS, Vice Chancellor for Clinical Affairs, Professor

of Surgery, Office of the Chancellor, Louisiana State University, Health

Science Center, New Orleans, LA ....................................................................... 476

Steele, Glenn, Jr., M.D., Ph.D., President and CEO, Geisinger Health System,

Danville, PA .......................................................................................................... 562

Tooker, John, M.D., MBA, FACP, Executive Vice President/CEO, American

College of Physicians, Philadelphia, PA ............................................................. 581

Umbdenstock, Richard J., FACHE, President and CEO, American Hospital

Association, Washington, DC .............................................................................. 591

Williams, Ronald A., Chairman and CEO, Aetna Inc., Hartford, CT ................. 611

MAY 5, 2009

OPENING STATEMENTS

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

on Finance ............................................................................................................ 57

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 59

Kerry, Hon. John F., a U.S. Senator from Massachusetts:

Public testimonials ............................................................................................... 341

PANELISTS (PREPARED STATEMENTS)

Butler, Stuart M., Ph.D., Vice President, Domestic and Economic Policy Studies, The Heritage Foundation, Washington, DC ................................................ 216

Castellani, John J., President, Business Roundtable, Washington, DC ............. 224

Page

IV

Claxton, Gary, Vice President and Director, Health Care Marketplace Project,

Henry J. Kaiser Family Foundation, Washington, DC ..................................... 233

Danner, Donald A., President and CEO, National Federation of Independent

Business, Washington, DC .................................................................................. 241

Hansen, Jennie Chin, R.N., M.S., FAAN, President, AARP, Washington, DC .. 302

Ignagni, Karen, President and CEO, America’s Health Insurance Plan, Washington, DC ............................................................................................................. 312

Josten, R. Bruce, Executive Vice President, Government Affairs, U.S. Chamber of Commerce, Washington, DC ..................................................................... 337

Nichols, Len M., Ph.D., Director, Health Policy Program, New America Foundation, Washington, DC ...................................................................................... 466

Pollack, Ron, J.D., Executive Director, Families USA, Washington, DC ............ 485

Praeger, Sandy, Commissioner of Insurance, State of Kansas, and Chair,

Health Insurance and Managed Care Committee, National Association of

Insurance Commissioners, Washington, DC ...................................................... 501

Rosenbaum, Sara, J.D., Chair, Department of Health Policy, George Washington School of Public Health and Health Services, Washington, DC ........... 507

Rowland, Diane, Sc.D., Executive Vice President, Henry J. Kaiser Family

Foundation, and Executive Director, Kaiser Commission on Medicaid and

the Uninsured, Washington, DC ......................................................................... 517

Scheppach, Raymond C., Ph.D., Executive Director, National Governors Association, Washington, DC ...................................................................................... 531

Serota, Scott, President and Chief Executive Officer, Blue Cross and Blue

Shield Association, Washington, DC .................................................................. 537

Stern, Andrew L., International President, Service Employees International

Union, Washington, DC ....................................................................................... 571

MAY 12, 2009

OPENING STATEMENTS

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

on Finance ............................................................................................................ 114

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 116

PANELISTS (PREPARED STATEMENTS)

Altman, Stuart H., Ph.D., Sol C. Chaikin Professor of National Health Policy,

Heller School for Social Policy and Management, Brandeis University, Waltham, MA .............................................................................................................. 169

Antos, Joseph R., Ph.D., Wilson H. Taylor Scholar in Health Care and Retirement Policy, American Enterprise Institute, Washington, DC ........................ 176

Reponses to questions from committee members .......................................... 186

Baicker, Katherine, Ph.D., Professor of Health Economics, Harvard School

of Public Health, Cambridge, MA ....................................................................... 190

Reponses to questions from committee members .......................................... 199

Burman, Leonard, Ph.D., Director, Tax Policy Center, Urban Institute, Washington, DC ............................................................................................................. 202

Greenstein, Robert, Ph.D., Executive Director, Center on Budget and Policy

Priorities, Washington, DC ................................................................................. 256

Gruber, Jonathan, Ph.D., Professor of Economics, Massachusetts Institute

of Technology, Cambridge, MA ........................................................................... 273

Reponses to questions from committee members .......................................... 278

Jacobson, Michael F., Ph.D., Executive Director, The Center for Science in

the Public Interest, Washington, DC .................................................................. 322

Reponses to questions from Senator Bunning ............................................... 333

Klein, James A., President, American Benefits Council, Washington, DC ......... 352

Kleinbard, Edward, Chief of Staff, Joint Committee on Taxation,

Washington, DC:

‘‘Background Materials for Senate Committee on Finance Roundtable

on Health Care Financing,’’ Joint Committee on Taxation staff report,

May 8, 2009 (JCX–27–09) ................................................................................ 364

Shea, Gerald M., Assistant to the President for Governmental Affairs, AFL–

CIO, Washington, DC .......................................................................................... 546

Page

V

Sheils, John, Senior Vice President, The Lewin Group, Falls Church, VA ........ 553

Wilensky, Gail R., Ph.D., Senior Fellow, Project HOPE, Bethesda, MD ............ 600

Wojcik, Steven E., Vice President, Public Policy, National Business Group

on Health, Washington, DC ................................................................................ 624

COMMUNICATIONS

AARP ........................................................................................................................ 635

Access Community Health Network (ACCESS) .................................................... 645

American Cancer Society Cancer Action Network (ACS, CAN) .......................... 648

American Medical Rehabilitation Providers Association (AMRPA) .................... 655

American Society of Association Executives (ASAE) ............................................ 664

Badger, Hugh and Robbie ....................................................................................... 666

Baker, Steven ........................................................................................................... 667

Ballenger, Cecil L. ................................................................................................... 668

Brenner, Harriet ...................................................................................................... 669

Cevasco, James J. .................................................................................................... 670

Consumers Union .................................................................................................... 671

Divided We Fail ....................................................................................................... 674

Healthcare Leadership Council (HLC) ................................................................... 677

Hewitt Associates LLC ............................................................................................ 686

HIV Health Care Access Working Group (HHCAWG) ......................................... 701

HIV Medicine Association and the Ryan White Medical Providers Coalition .... 704

Judd, James and Mary ............................................................................................ 709

Koons-Graff, Andy ................................................................................................... 710

Kortie, John and Bethanna ..................................................................................... 717

Magee, Jennifer ....................................................................................................... 718

Mayfield, Armelia L. ................................................................................................ 719

McKnight, Dallas ..................................................................................................... 720

National Association of Community Health Centers ............................................ 721

National Health Law Program (NHeLP) ............................................................... 727

National Medical Association ................................................................................. 736

Ott, Rosalie ............................................................................................................... 742

Out of Many, One (OMO) ........................................................................................ 743

Pearce, Jean ............................................................................................................. 749

Physicians for a National Health Program ........................................................... 750

Premier Healthcare Alliance ................................................................................... 754

Princeton Task Force on National Health Care .................................................... 765

Racial and Ethnic Health Disparities Coalition (REHDC) .................................. 774

Stringer, Darcy ........................................................................................................ 781

URAC ........................................................................................................................ 782

Talbot-Henn, Pamela ............................................................................................... 790

Thomas, Lisa ............................................................................................................ 791

Waters, William C., III, MD, MACP ...................................................................... 792

Williams, Ronald A. ................................................................................................. 799

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ROUNDTABLE ON IMPROVING QUALITY

AND REDUCING COSTS IN THE

HEALTH CARE DELIVERY SYSTEM

TUESDAY, APRIL 21, 2009

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The roundtable was convened, pursuant to notice, at 10:12 a.m.,

in room SH–215, Hart Senate Office Building, Mr. John Iglehart

(moderating).

Present: Senators Baucus, Conrad, Bingaman, Kerry, Lincoln,

Wyden, Schumer, Stabenow, Cantwell, Nelson, Menendez, Carper,

Grassley, Hatch, Snowe, Kyl, Bunning, Crapo, Ensign, Enzi, and

Cornyn.

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; Liz Fowler, Senior Counsel to the Chairman and Chief Health Counsel; Tony Clapsis, Associate; Shawn

Bishop, Professional Staff Member; Kelly Whitener, Fellow; Toni

Miles, Fellow; Catherine Dratz, Health Policy Advisor; Chris Dawe,

Professional Staff; and David Schwartz, Health Counsel. Republican Staff: Kolan Davis, Staff Director and Chief Counsel; Mark

Hayes, Republican Health Policy Director and Chief Health Counsel; Nick Wyatt, Tax Staff Assistant; Michael Park, Health Policy

Counsel; Terri Postman, Detailee; Susan Walden, Health Policy Advisor; and Jill Kozeny, Communications Director.

Panelists:

John Iglehart, Founding Editor, Health Affairs;

Paul J. Diaz, J.D., President and CEO, Kindred Healthcare Inc.,

Louisville, KY;

Glenn M. Hackbarth, J.D., Chairman, Medicare Payment Advisory

Commission, Washington, DC;

Allan M. Korn, M.D., Senior Vice President, Chief Medical Officer,

Office of Clinical Affairs, Blue Cross Blue Shield Association,

Washington, DC;

Peter V. Lee, J.D., Executive Director, National Health Policy, Pacific Business Group on Health, San Francisco, CA;

Mark B. McClellan, M.D., Ph.D., Director, Engelberg Center for

Health Care Reform, Brookings Institution, Washington, DC;

Lewis Morris, J.D., Chief Counsel to the Inspector General, Office

of Counsel to the Inspector General, Washington, DC;

2

Mary D. Naylor, Ph.D., FAAN, RN, Marian S. Ware Professor in

Gerontology, University of Pennsylvania School of Nursing,

Philadelphia, PA;

Debra Ness, President, National Partnership for Women and Families, Washington, DC;

Frank G. Opelka, M.D., FACS, Vice Chancellor for Clinical Affairs,

Professor of Surgery, Office of the Chancellor, Louisiana State

University, Health Science Center, New Orleans, LA;

Glenn Steele, Jr., M.D., Ph.D., President and CEO, Geisinger

Health System, Danville, PA;

John Tooker, M.D., MBA, FACP, Executive Vice President/CEO,

American College of Physicians, Philadelphia, PA;

Richard J. Umbdenstock, FACHE, President and CEO, American

Hospital Association, Washington, DC; and

Ronald A. Williams, Chairman and CEO, Aetna Inc., Hartford, CT.

[The prepared statements of panelists can be found in the appendix.]

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The Committee will come to order.

Hubert Humphrey said, and I quote him, ‘‘Freedom is hammered

out on the anvil of discussion, dissent, and debate.’’

Today, the Finance Committee holds the first of three roundtable

discussions. We hope that these discussions might be the anvil on

which we hammer out health care reform.

The Committee has spent a significant amount of time laying the

groundwork for comprehensive health reform. In the past year, we

held a dozen hearings, held a day-long health reform summit just

across the street at the Library of Congress.

Now, the time for action approaches. These roundtable discussions will preview many of the policies that the Committee will

consider in its June markup.

We will follow up today’s roundtable on delivery system reform

with another on expanding health coverage to all Americans on

May 5, and then we will have our third roundtable on financing

health reform on May 14.

Why is delivery system reform such a critical part of comprehensive health reform? Because our current system falls short. It falls

short in terms of the value that we get for the dollars that we

spend. We spend more than any other country in the world, yet the

U.S. health system scores 65 out of 100 on indicators of health outcomes, quality, access, equity, and efficiency. And we know from

previous research that adults receive recommended care only about

half of the time in our country.

We have the opportunity to modernize our outdated payment systems, and today’s payment systems encourage delivery of more care

rather than better care.

We have the opportunity to improve quality. We can encourage

care coordination. We can promote integrated, patient-centered delivery of health care.

Each of our participants brings an important voice to the discussion. They are experts, or stakeholders, or both. Among our guests

are folks from the hospital and physician communities; we have

3

consumer and business representatives; we have voices for chronic

care management, current and former government officials, and experts in health care fraud and abuse.

Forgive me for not taking the time to introduce each person. We

have distributed a biographical sketch and a brief statement for

each part icipant.

Before today’s session, we gave each participant some questions

that will help start our dialogue, and beyond that, I anticipate a

fruitful discussion.

So let’s get started with our discussion. Let’s start hammering

out health care reform.

I personally believe that this is a terrific, wonderful opportunity

that we have, not only in the health care community but also in

America. Not many times like this pass by. I think it is very important, it is exciting, in fact, that we have the opportunity here to

come together and to come up with health care delivery that makes

sense for Americans so more Americans have higher quality health

care at an affordable cost and access to our health care system in

a way we all know that it should be.

We also must remind ourselves that if we do not act now—that

is, this year—the consequences will be dire. The alternative to not

passing significant health care reform is dramatically increased

costs in health care for consumers, for business, for governments,

and it will be very difficult later on to pass the kind of health care

reform that we know is needed. It will be harder to do that later

on, so we have a terrific opportunity now. It is going to take a little

work, but anything worthwhile takes a little bit of work. And I just

feel very, very good and very excited that the time has now come,

the stars aligned, where we are going to do meaningful health care

reform in America. And today is going to mark the beginning of

that effort, and you are all part of it, and thank you so much for

being here today to help us move along that path.

Now I would like to turn to my partner here, Senator Grassley.

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Thank you, Mr. Chairman, and thanks to all

of you who are going to participate today, as well as the members

who are going to have to spend so much time on this issue over

the next 2 or 3 months as we work to put this bill together.

This is the toughest issue and most needed issue that Senator

Baucus and I have ever been involved in, and it is not just talking

about health care. It is talking about things that affect 16 percent

or 17 percent of our gross national product.

Most everybody agrees that our health care system is not performing as efficiently as it should. We have escalating costs, an inefficient delivery system, and 47 million people lacking health insurance. We need to make significant improvements in our delivery

system, and we must make these reforms in a fiscally responsible

way.

A job this big and this important requires everybody to be working together. During the last year, the Finance Committee has held

a series of hearings on health care reform. We have heard many

witnesses tell us what is wrong with the system and how they beVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 48952.XXX SFIN1 PsN: SFIN1
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lieve health care delivery can be improved. Indeed, some health

care providers deliver high-quality care at lower cost. We want to

learn from people who are doing things well, take the best ideas,

and apply them where we can.

Each and every one of you plays an important role in the health

care system. If we are to succeed in making real changes that benefit millions of Americans, all of us are going to have to listen and

consider many ideas. Now is the time for innovation and for reform.

I urge all of us to roll up our sleeves and help us figure out how

to make these proposals work. Everyone will have to be willing to

recognize strengths, improve upon weaknesses, and find common

ground.

I am very appreciative that all of you have come here today to

help with this process. Working together, we can make a difference

and we can improve our health care system.

Thank you.

The CHAIRMAN. Thank you, Senator.

In an effort to ensure the most productive conversation, I urge

all my colleagues, all of us, and panelists to be quite brief. There

are many of us here, and there is not a lot of time. So I urge each

of us to get straight to the point, get straight to the heart of the

matter in your comments, and that will be most productive.

Mr. John Iglehart will moderate. We discussed this in advance,

John and I. The thought is that John might give a few ground

rules. Then he will begin asking questions of panelists. You all

have questions in advance anyway. Our thought is that Senators

could then jump in any time they want, but I would ask Senators

and panelists who wish to speak to just raise your hand, and John

will then recognize you.

Again, let’s be brief in our comments, and if I personally think

that someone is speaking a little bit too much, you will hear this

little sound. [Gavels.] That means it is time to cut it off. Okay.

Thanks a lot.

We are very honored to have John here. John moderated an earlier discussion over at the Library of Congress and did such a great

job that we thought we would invite him back. John, thank you

very much.

Mr. IGLEHART. Thank you, Senator Baucus.

The panelists, too, given my position at the table here, if you do

have a comment or a question you would like to make or ask, if

you would put your ID cards in a vertical position, I would be able

to see that a little better than if not. And, of course, I will entertain

questions from Senators, or comments, any time their raise their

hand.

We will begin questions with Dr. Glenn Steele, who is the CEO

of the Geisinger Health System in Pennsylvania. And the question

I would ask him or the comment I would start with, anyway, is

that Geisinger Health System nationally has been recognized as an

innovative system that has tried a number of things to focus on improving quality, increasing the efficiency of its plan, and the like.

And given that, Dr. Steele, the first question I would ask you is:

As the Congress works on health care reform, what are the key lesVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 48952.XXX SFIN1 PsN: SFIN1
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sons that the Congress should take away from the Geisinger experience?

Dr. STEELE. Thanks. First of all, it is an honor to be here. I am

privileged to be a part of this august group.

I think the Geisinger experience is a remarkable way of framing

the issue. We are able to take our insurance leadership and we are

able to take our clinical leadership, the docs and the nurses, and

focus on the patient groups that we think get the least good care.

There would be the chronic disease patients. This would be the patients with the greatest variation for hospital-based therapy. It

would be the end-of-life patients.

What we start with in the discussion, since we are in this integrated health system, insurance and provider, is: What is the end

result we would like to get with that group of patients? How would

we like to go from where we are now to where we want to be? And

then we back out from the correct incentives.

So we do not start with a negotiation that is based on getting

more units of pay for a particular piece of work. What we start

with is: Where do we want the patients ideally to be in 3 or 5

years? And then how do we get the reimbursement aligned

throughout our doctor group, throughout our doctors and the hospitals, to get there?

I think what we have shown—and, again, the question is: Is it

scalable, is it generalizable to other markets and other non-integrated systems? But what we have shown, John, is that when you

increase quality for these groups of high-utilizing patients, you are

also decreasing cost. So increased quality and decreased cost actually will cohabitate.

That would be my answer.

Mr. IGLEHART. Let me follow up and ask you, many of your patients in some of your system are located in rural areas in Pennsylvania. What are the challenges presented in terms of care coordination, more efficient delivery, when it comes to serving patients in

rural settings?

Dr. STEELE. Well, the obvious issue is access to primary care, access to a series of small hospitals that, you know, are very challenged in terms of their operating costs and access to capital. And

one of the things that we have done is to try to take responsibility

for that. We have established a huge number of primary care physicians out in 43 counties. We attempt to take care of as many of

our Geisinger patients as possible in non-Geisinger hospitals, many

of which account for half of their admissions—those very small

rural hospitals. And we have found ways actually to extend our

capital access to these hospitals in order for them to get up to snuff

in very expensive technology.

So I think the other advantage in rural areas—everybody always

bemoans rural areas, but actually we have a very stable population, and that gives us an advantage because we can see the effects of what we do not just over 30 days or 6 months, but over

many years. We have stable families, sometimes multigenerational,

and we can use that asset to help take care of a lot of these chronic

disease patients without having to have them, schlep into the

emergency room.

6

So the rural issue actually cuts both ways, and there are some

real advantages we have found. We couldn’t do it without electronics. We couldn’t do it without Health Information Technology

(HIT) throughout our entire geography. It would be impossible because of the physical distances.

Mr. IGLEHART. Now, you describe the Geisinger system as an integrated system, which it certainly is. But the patients come from

the channels of payment derived from several different channels.

And in a recent paper that Health Affairs published that you coauthored, you talked about the sweet spot of one-third of Geisinger

patients for whom you are financially and clinically responsible,

and then the other 70 percent or so of Geisinger patients come

through, as I understand it, a fee-for-service payment channel.

Can you describe either differences in costs or differences in efficiency between this sweet spot cohort of one-third of the patients

and the other 70 percent?

Dr. STEELE. You know, I am going to be a little circuitous on this

one. Seventy percent of our payer is Capital Blue Cross, Highmark,

Northeast Blue Cross, and Coventry, and governmental payors and

30 percent, as you say, is our own insurance company. So for that

30 percent where we are both giving care for patients and we are

insuring them, that is where we have committed our major innovation, because as I said, we can have our insurance leaders and our

docs and nurses in a different conversation than we have with Capital Blue Cross, Highmark, Coventry, and Northeast. That conversation is the old-fashioned ‘‘we are trying to get the best rates

we possibly can per unit of work we do,’’ and that is high yield for

us.

Now, when we create an innovation, whether it is our

ProvenHealth Nagivator—an advanced medical home program—or

whether it is the ‘‘warranty’’ we have developed that takes cost out,

it is obvious that we do that for all the patients, regardless of who

the payer is. So it benefits all the patients. And because our insurance company is relatively small and is competing with big, big insurance companies, the way that insurance company sells its commercial product is to take some of that value and give it back

through lowered premiums to the small commercial buyers.

Mr. IGLEHART. And then one last question. Do you have a problem hiring or retaining under contract primary care doctors in your

plan, Doctor?

Dr. STEELE. We do not, John, because we pay them better than

market, and we pay them better than market because we crosssubsidize from our specialists. That is part of our social contract.

Our specialists basically understand how important it is to have

the entire continuum of care, and our commitment is to having primary, secondary, specialty, non-hospital, and hospital based. So it

is a cultural and very important social contract that allows us to

get those folks.

It is a tough market, obviously, and one of the other things that

is very important is the re-engineering of our primary care. We

have a lot of physician assistants (PAs) and nurse practitioners

now doing things that used to be assigned only to primary care

physicians. So we can recruit them, but we are also re-engineering.

7

The CHAIRMAN. John, if I might ask both Glenn and also Mr.

Hackbarth, your recommendation of how we can transfer, transport

what you do to nationwide—that is, through Medicare or however?

You know, to be honest, all these concepts, I think, are pretty much

all agreed upon as good delivery system reform. And some sectors

of the economy are doing it. Some hospitals, some docs, some specialties are doing this. Certainly Geisinger is. So the real question,

for me anyways, is your advice on how we transfer it, how we

transport it to the country as a whole, maybe using Medicare or

whatnot. Just what advice do you have and what problems do you

see going along the way, and how would you iron out those kinks?

Dr. STEELE. Well, the first thing I would do is to redesign CMS.

I think CMS needs to be an engine of innovation, not a stultifying

bureaucracy. I think that part of the redesign should be based on

a patient focus, and I would start with the patients that are probably the highest cost and probably have some of the poorest continuity of care. And then I would back out—after you decided

where you wanted to go with that group of patients, I would back

out how you paid for that care.

Now, going from where we are in our structure to where we

would want to be in medical home or bundled payments or what

have you is not going to be easy to get perfect straightaway. So I

think there is going to have to be some sort of a learning network

or some sort of an ability where you take the demonstration

projects and you really make a much more rapid cycle time so that

you are not waiting 5 to 8 years for each demonstration project to

give you some innovative approach.

Mr. IGLEHART. Senator Stabenow?

Senator STABENOW. Thank you very much. Thank you, Mr.

Chairman, and thank you to each of you. I guess my question——

The CHAIRMAN. If I might, I am just curious. Glenn did not get

a chance to answer that question. I asked the same question of

Glenn. If he could just answer that question, because MedPAC has

a lot of thoughts on that, too, I would guess. I am sorry, Senator.

Mr. HACKBARTH. Thank you, Senator Baucus.

Geisinger is a terrific organization. My own professional experience in health care management is in Geisinger-like organizations,

but as you say, most of American health care is not currently organized that way, and so we will need to start with building blocks

and move in measured steps towards better coordination, better integration of care.

I would like to identify two opportunities in Medicare. One is to

change how we pay physicians, with particular emphasis on both

increasing the level of payment for primary care and changing the

method of payment for primary care, not just paying fee-for-service

but also paying a lump sum per patient, as is embodied in the medical home idea.

We have abundant research that shows that strong primary care

is essential for a well-functioning, high-performing health care system. As you know all too well, primary care in the United States

is weak and, unfortunately, getting weaker. So that is a key priority.

A second major opportunity that we see both for improving care

and reducing cost as well as starting to build some organization in

8

the health care system is a focus on readmissions. As you know,

Senator, Medicare has a very high readmission rate. About 18 percent of Medicare patients are readmitted within 30 days of a hospital discharge at a substantial cost financially and some cost in

terms of pain and suffering and risk for the patients involved as

well.

What is striking about those numbers is there is a very large

variation in readmission rates across hospitals, and so we see in

that an opportunity for the high readmission rate hospitals to improve by learning lessons from their peer hospitals.

We think that there are two types of changes that Medicare

ought to make in order to encourage a focus on readmissions. One

would be to feed back data to hospitals and their medical staffs on

how their readmission rates compare to their peers’ and then follow

that with a penalty on excessive readmission rates.

Concurrent with that, we think that Medicare ought to invest in

pilots of what we refer to as bundling, whereby Medicare would

make a single payment covering all of the cost of the admission

and perhaps post-acute care as well, so it would cover the hospital

inpatient care, physician services provided inpatient, plus potentially post-acute providers. And so if there is a single payment,

there will be a strong incentive for all of the participants—the physicians, hospitals, and post-acute providers—to focus on how we

can reduce the readmission rate.

A secondary advantage of that is that providers that heretofore

have acted in silos independently of one another will need to come

around the same table and say, ‘‘How do we solve this problem?’’

The CHAIRMAN. Good. Thank you.

Mr. IGLEHART. Senator?

Senator STABENOW. Thank you.

Dr. Steele, I wondered if you could speak a little bit more about

your ability to focus on chronic diseases and be patient focused as

an integrated system? Because as I understand it, you own your

own hospitals; you have home care; you have nursing homes. And

that is a different delivery model than we have in other areas. You

have your own insurance company that is covering a third of your

patients. To what extent does that—if you could speak more to how

that affects your success in doing what we all want, which is to be

creating a system that is more patient focused?

Dr. STEELE. Senator, I think it is critical, and, you know, we

could talk about the blocking and tackling, but the main reason

that folks with congestive heart failure end up being admitted and

readmitted and/or readmitted—in our experience—is they do not

take their medicines at the right time or correctly. I mean, it is just

that simple.

Now, solving that problem is an immense and complex series of

blocking and tackling issues that we have accomplished in different

ways. We put nurses in our community practice sites, and the

nurses take care of 125 of the sickest patients on a 24/7 basis, so

it is kind of like concierge care for the sickest, not the richest. And

it basically helps to redesign the practice, so the primary care physicians are able to do something else if the nurses are really

triaging those sickest patients.

9

The real question is: What are the lessons for scaling and generalizing to the rest of the country? And I do not have simple answers for that. But I think if in Medicare you are able to focus on

that as a 3- to 5-year goal: number one, I bet you would cost it out

through CBO and it would be a huge savings; and, number two,

you know, if you could create some sort of an innovation engine

that would allow other systems that were like ours or virtual systems to try to solve for us, because we are not going to be able to

come up with the perfect generalized solution.

Now, if you don’t get there, then maybe there should be a Plan

B, and the Plan B would be something that would be a lot more

onerous, you know, than 3 to 5 years of innovation and trying to

get there. So that would be my response.

Senator STABENOW. Thank you.

Mr. IGLEHART. Senator Conrad?

Senator CONRAD. Just following up on Dr. Steele, and I pose this

to the panel because I do not know—perhaps, Mr. Iglehart, you can

direct the question. The statistic that jumps out at me is 5 percent,

roughly 5 percent of Medicare beneficiaries—Dr. McClellan would

know this—use half of the budget. Five percent use 50 percent of

the money, and they are the chronically ill. And we do a very poor

job of coordinating their care. The result is we get weaker health

care outcomes than we should, and it costs far more than is necessary.

Have you, Dr. Steele, in your organization found that coordinating the care for those chronically ill does get better health care

outcomes, does save money? And what is the empirical evidence

that tells us that?

Dr. STEELE. We are going to turn a paper in with an experience

of about 35,000 Medicare patients and about 3,000 to 5,000 commercial patients—with chronic disease, and hopefully it will get accepted in a nice peer-reviewed journal and we can talk about it.

But I can tell you that from our original experiment, which started

about 4 or 5 years ago, where our insurance company put these

nurses into the community practice sites to help re-engineer the

practice and focused on that group of patients you are talking

about, the return on that for the patients was incredible. It was in

a number of our sites over a 50-percent decrease in rehospitalizations, you know, in a year, and that has been durable.

Now, most of the financial benefit of that in our system comes

back to our insurance company. But because we are an integrated

system, we can do internal transfer pricing and get a lot of those

rewards, financial rewards, back to the folks that actually deliver

the improved care. And, you know, we would have to innovate as

to how to do that in non-integrated health systems. But we have

got pretty hard data that, when you redesign, you really do benefit

the patient, and quality goes up while cost goes down. They are not

inversely related.

Mr. IGLEHART. Dr. McClellan, do you want to respond?

Dr. MCCLELLAN. Yes, Senator, just to pick up on your question,

there is no double that for many of these Medicare beneficiaries,

most of whom have a chronic condition, they are experiencing complications and higher costs, worse health because we are not doing

nearly all we could to help them get better outcomes. And Dr.

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Steele has talked a lot about the activities that the Geisinger clinic

has undertaken, and, by the way, some of those were supported by

payment reforms in Medicare to support those kinds of coordination of care activities. But the problem for most of the physicians

in your States—and I am sure you hear about this from all of them

all the time—is that they know steps that they could take that

could help patients comply with their medicines better, that could

help them manage their diseases better. They just do not get any

support for that in most of our current payment systems. They get

paid on a fee-for-service basis, and what Medicare typically does

when costs go up is you squeeze down the payment rate so it gets

harder and harder to spend time with patients. Things like having

a nurse practitioner help care for the most complex patients; things

like actually taking the time and effort to put information into an

electronic system so that it can be shared; things like spending

extra time educating a patient about why certain drugs or certain

dietary or activity changes are needed—none of that gets reimbursed. So it is very hard for providers today, outside of integrated

systems like Geisinger’s where they are actually now supported in

doing this, to provide the kinds of care that would really help improve the outcomes.

The problem on the other side, of course, is that if you talk to

some of the budget experts at CBO and the Medicare actuaries and

so forth about just simply taking steps like starting to pay for all

these things that we do not pay for now, there is a real concern

that that could add to health care costs if it does not really result

in changes in care that get those better outcomes and that reduce

health care spending.

So that is why I think some of the movement in this direction

that your staffs are supporting—and I really commend the bipartisan effort here—is to move away from just relying on fee-for-service payments, but instead of simply paying more for more or other

kinds of stuff, move towards having some accountability around

better results, reducing these complications, as Dr. Hackbarth

mentioned, reducing the readmissions, getting costs down, improving patient outcomes in measurable ways. That is the general direction that we are trying to move in, and the big challenge, of

course, is how can we do it in a way that is not too disruptive for

care today, most of which is not integrated at all, yet still is going

to give us some assurance that we are getting real meaningful

change quickly. And I think there are a number of proposals that

your staffs are working on that people on this panel have suggested

that can be put together to create a vision to get there.

The CHAIRMAN. John, I must interrupt here. We have a little

business to conduct which will help health care reform, and that

is to confirm Kathleen Sebelius as Secretary of HHS.

[Recess.]

The CHAIRMAN. We will turn back to our business. John?

Mr. IGLEHART. Mr. Hackbarth, I would like to get back to your

days as an executive at the Harvard Community Health Plan and

the Harvard Vanguard Plan, because you administered a plan that

had capitation payments and fee-for-service payments, as does

Geisinger. And the question I have is really the relative efficiency

that you recognized during that period of time. Fee-for-service

11

seems to be, if not universally recognized as kind of the problem

or the major problem, or one of them, certainly, of the current system, and I would like to get your thoughts on the relative value

and efficiency of those two kinds of payment channels.

Mr. HACKBARTH. Well, at Harvard Vanguard, which is a 500-physician, multi-specialty group practice in Boston, we were about twothirds prepaid global capitation covering all services from the most

basic to the most complex, so we would get a lump sum per patient

payment per month, and then about one-third was fee-for-service.

And to be blunt, fee-for-service was a pain in the neck to deal with,

and we were able to provide the sort of care that we thought patients needed by using the global capitation payments.

The key is that we—and I say ‘‘we’’ meaning the clinicians of the

group—have the flexibility to allocate resources where they see the

most benefit for the patient; whereas, under fee-for-service you only

get paid if you check certain boxes and you do certain activities,

and some of the most critical activities in health care are not paid

for by fee-for-service.

So from our perspective, the global capitation was a much more

effective system, and we used those payments to improve care for

our fee-for-service patients. It is not just an issue of the payment

level in fee-for-service. It is what is not paid for is the crux of the

problem.

Mr. IGLEHART. Taking the experience of the last 9 years as

chairing MedPAC, and recognizing that earlier experience, and also

recognizing Senator Baucus’ earlier question about how you take

experiences and scale them up to some national level, what

thoughts or recommendations might you have based on MedPAC’s

work about moving to a more efficient payment system?

Mr. HACKBARTH. You know, I think we need to look at both ends

of the provider continuum. We do have some organizations that

have the potential to be Geisingers of the future, and I think if

Medicare combined with private payers offer payment methods

that reward the effective integration of care, we will get more of

those organizations. And so I am sure that Mark McClellan will

talk later on about an idea that he and colleagues have developed

called accountable care organizations, and basically it is a way,

within the context of fee-for-service Medicare, of rewarding organized, integrated delivery of care. We think that concept has potential, although it is quite tricky to figure out the precise payment

method within Medicare to make it work.

So we need to work that end of the continuum, foster more organized, integrated delivery organizations. But having said that, as

I said in response to Senator Baucus, there are going to be large

parts of the American health care system that are not ready for

that, and so we need to start smaller with them, build up our primary care base through higher payments for primary care, different methods of payment, and then we think around hospital admissions there is another opportunity to begin bringing providers

together—physicians, hospitals, and post-acute providers—to better

organize and integrate care. So work both ends of the provider organization continuum.

Senator WYDEN. John?

Mr. IGLEHART. Yes, go ahead, Senator.

12

Senator WYDEN. A question on this point. We have been at it

maybe 20, 25 minutes, and this panel has already done a very good

job, it seems to me, of showing we are spending a lot of money on

health care. It is $2.5 trillion this year, but we are not spending

it in the right places. And, clearly, that started with Glenn’s comments and has been echoed.

So I wanted to ask and maybe direct this to you, Dr. McClellan:

It is clear that of that $2.5 trillion, well over $700 billion of it is

spent in areas that are of modest or no value. That is what Peter

Orszag said at CBO. Lew Morris at the Inspector General said $60

billion is out the door on fraud. The Center for Medicare & Medicaid Services says $10 billion goes for inaccurate payments.

Why don’t you start by saying how we could better spend that

$700 billion in a way that we might actually show the American

people would wring some savings out of that $2.5 trillion sometime

in the next few years? Because that is what I think they are waiting to hear. They have got bailout fatigue. They are not going to

support spending trillions of dollars in new money. But if you and

your colleagues can show us how we can wring out some savings—

and I, for example, am very attracted to Glenn Steele’s idea. I am

pretty much ready to say we ought to go to a warranty approach—

a warranty approach that involves the doctors and good quality.

That is a way to generate some savings. But, Mark, how do we

start with that $700 billion plus and show the American people we

are squeezing some savings there before we ask them for more

money?

Dr. MCCLELLAN. Senator, this is a core question. I am sure the

other panelists have some views on it that will, I think, reinforce

some of the things that I am saying. But as you pointed out, our

health care system is doing a pretty good job of showing us the

money, and we know where the money is going. But we are not getting what we should in terms of the results. We are not showing

the results.

A lot of the comments that you have heard so far have all been

focusing in the direction of emphasizing getting better results for

patients. And as you heard just a minute ago from Dr. Hackbarth,

giving providers more flexibility in how they get there rather than

just micromanaging them by paying for certain services, not paying

at all for others, is very important for doing that, but that needs

to go along with some accountability for what we really want our

health care system to produce.

That is what the American public wants to see. They want to be

healthier. They want to see these gaps in preventable complications

close. But also, if you look at surveys—and I know you have since

you have spent so much time and effort on finding a way forward

on health care reform—they are also very concerned about disrupting the kind of care that they get now. The very important relationship they have with their doctors and their other health care

professionals is really important to them.

So as we make these changes, we need to make sure to do it in

a way that is not too radical and too disruptive, especially for the

vast majority of Americans whose doctors cannot even get, if they

wanted to, timely information on whether the prescriptions are

13

being refilled or what other specialists are being seen or whether

their patient has been admitted with a complication.

In the short term, there are a number of proposals, like medical

home payments, like health IT payments, like moving towards bundled payments for admissions, that could move us in the direction

of showing that we are getting better results and we are doing a

better job of supporting doctors and patients in doing good care,

and over time we need to put more emphasis on the fact that we

are actually getting better outcomes and lower costs.

So that is how I think this can fit together, and I think it is very

important for this Committee on a bipartisan basis to, as you did,

point out the problems that we have in our health care system

today, but also a path that is not too radical and disruptive but

that can over time get us to some fundamentally better outcomes

at a lower cost. And I do not see another way to get there besides

measuring the outcomes that we really care about and starting to

build that into our payment systems and benefit designs and all aspects of our health care system, much as Geisinger has already

started to do.

Mr. IGLEHART. Senator Cornyn?

Senator CORNYM. Thank you. It has been widely observed that

we do not really have a health care system, we have a sick care

system. And I want to ask, perhaps playing off of Senator Wyden’s

questions, how we can save some money, but also by encouraging

or providing incentives for individuals to take some personal responsibility to do some of the things that will keep them healthier

and well longer, thus avoiding costly and perhaps painful, health

care conditions.

I am aware—and no doubt the panel is, too—of some instances

where various companies are trying to control their own health

care costs. Safeway, which—Mr. Steve Burd, who has, I know, consulted with a number of us on a bipartisan basis, has really kind

of a fascinating program at his company, which perhaps is duplicated elsewhere, which provides a financial incentive to the employees to do things like quit smoking, lose weight, get exercise,

control their blood pressure, control their cholesterol, get a

colonoscopy on a periodic basis—the kinds of things that will keep

them healthy longer or perhaps diagnose conditions early on when

they are less costly and less dangerous to treat.

What kind of delivery system are we going to design for Medicare

or other public tax dollar-supported programs to provide some incentive for individuals to take some responsibility for their own

health care and to stay well and healthy longer?

Mr. IGLEHART. Mr. Lee?

Mr. LEE. Senator, Peter Lee with the Pacific Business Group on

Health, and I just want to affirm the question in that many large

employers are investing a lot of money, time, and effort in engaging

their employees in staying well. And we talked about, Mark, the

spectrum on the provider side. We need to look at the spectrum on

consumer side of engaging folks that are well to stay well. And I

think that the lessons from the private sector should be brought

over to Medicare, which is to encourage people that are well to engage in healthy habits, but also for people with chronic disease to

have incentives to be engaged in disease management programs.

14

The issues on the treatment side need to be married with the consumer side.

I think also, though, we have a challenge with Medicare. Medicare is often seen as one size fits all as opposed to being tailored.

And I think we need to really look at how Medicare can implement

consumer-facing programs such as do we have networks within

Medicare for centers of excellence that you encourage people with

information and incentives to say this center is doing a better job.

This is a challenge, but we need to look at lessons from the private

sector that can be brought in, consumer facing on the public sector

as well.

Mr. IGLEHART. Senator Bingaman?

Senator BINGAMAN. Thank you. I was just struck by Dr. Steele’s

point when he was asked what could be done to take the practices

that you have got at Geisinger and expand them. I thought his answer was redesign CMS to be an engine of innovation.

I would just be interested in Dr. McClellan’s view as to what the

obstacles are to us getting that done. It seems to me, you know,

Congress is way into the weeds on health care reform and writing

these laws and trying to understand the intricacies of this business. Why can’t CMS be given a broader mandate—or maybe they

have a broader mandate—to implement many of these practices

that I think everybody around here says make a lot of sense and

save us a lot of money and improve care?

Dr. MCCLELLAN. Let me start by saying a word of praise for the

staff at CMS that have an enormously, impossibly complex job,

very limited resources to do it. They are overseeing the largest

health care programs in the world for the most difficult populations

and the most vulnerable populations in terms of coverage. So with

their limited budget, they frankly need a lot more resources, would

be the number one thing, and I think would help get more done.

But as you pointed out, the way that Medicare is managed now

does not leave a whole lot of room for discretion in implementing

the kinds of reforms that we have been talking about today—moving away from payment on a fee-for-service basis, promoting

wellness, and new steps to help patients with chronic disease manage their disease at a lower cost.

Congress, in due respect to this Committee, you all set the payment rates for each and every Medicare service in each and every

county around the country.

Now, you have also given CMS a lot of demonstration authority,

and Dr. Steele mentioned this. In fact, while I was at CMS, we implemented a demonstration program with Geisinger to pay them

more when they demonstrated that they were getting better outcomes at a lower overall cost for their patients. I think that program has helped motivate and implement the kinds of steps that

Dr. Steele talked about over the last couple of years.

It would be very helpful to enable CMS to engage and support

more pilot programs like that. You heard a minute ago about the

cycle time for trying out new approaches in payment or in benefit

design being much slower than it should be if we want to see timely and effective impacts on health care costs and the health of

Americans. That is going to take more resources, and it is going to

15

take at least a clear authority for CMS to pilot and test out these

new approaches.

In the Medicare Modernization Act, there was a pilot program for

Medicare Health Support, a kind of disease management program.

It ended up not in most cases delivering the savings that had been

hoped, but at least it could be tried out on a large scale, and at

least successful programs could be expanded quickly. That might

be a model to look at more widely as you are considering these reforms.

The CHAIRMAN. I might ask, though, Dr. Steele, what did you

have in mind when you say reform of CMS? Three minutes.

[Laughter.]

Dr. STEELE. I have the ability to speak without any knowledge

at all.

The CHAIRMAN. You are not alone. [Laughter.]

Dr. STEELE. Again, I do not think we are going to get it right for

all of these changes straightaway, and yet I think we have huge

leverage through Medicare, and also through Medicaid. We have

not talked about Medicaid either. That is another incredible lever.

And I think if we are interested in getting closer to an integrated

system, whether it is a real one or a virtual one, if Congress could

set the big rules—here is where we want to go in 3 years or 4

years; you folks figure out how to get there. And by the way, if you

do not get there in improving this quality of care and decreasing

this cost, then we will have a Plan B—I have a feeling that

ramping up from our small experiments to maybe, I do not know,

three, four, five million out of the 40 million would be the next step

in looking at scalability, with much more feedback, much more

ability to change on the fly.

A lot of what we did was accomplished because we were able to

change on the fly. There were a lot of unanticipated consequences

for things that we did that we could respond to. That is at a

35,000-foot level, it is without working specifically with CMS, you

know, so it is easy to make these pronouncements.

The CHAIRMAN. Thank you.

Mr. IGLEHART. Senator Snowe?

Senator SNOWE. Thank you. I held some listening sessions in

Maine over the recess, and many of the issues that you raise here

today with respect to primary care being instrumental and improving the quality of care and lowering costs is exactly what I heard

at home. And one of the issues that was raised, however, was the

crisis that exists with physician shortages, particularly in primary

care. And if you look at the number of studies that have been released on this question, I think it is all the more evident that we

have a dearth of physicians with respect to primary care. Americans lack access, almost a third of Americans of working age lack

access to primary care providers. Seventy percent, I was told, of

health care needs can be met in primary care. And yet we have a

lack of primary care providers across the spectrum. And, in fact,

we will have a serious crisis by the year 2025, and even more so

if changes are made to the system.

So I would like to ask you, Dr. Tooker and Mr. Hackbarth, and

anybody else who cares to comment on this question, how do we

reverse that? And what is the timetable for reversing it? Because,

16

obviously, it is going to take some time to, you know, turn this ship

around with respect to primary care physicians and nurse practitioners and physician assistants across the spectrum, which is a

critical problem, even more so when only 2 percent indicated an interest in even going into the primary care field, which I think is

all the more troubling given the fact that I think the emphasis on

prevention and early diagnosis is going to be key in transcending

from a system that responds to a crisis and rather trying to design

a system that is to prevent the illness in the first place.

So, Dr. Tooker, would you care to comment?

Dr. TOOKER. I would be delighted. Thank you, Senator Snowe,

and thank you, Chairman Baucus and Ranking Member, for this

opportunity.

As Senator Snowe has said, I think on the one hand the value

of primary care is highly recognized as a critical part of a high-performing health system. But that value is not translated into valuing primary care providers, including physicians, in this country.

The disparity in payment across specialties of primary care compared to other specialties is wide, and the first recommendation

would be to restore those primary care physicians who are providing care right now, quickly, immediately, with improvements in

reimbursement for primary care physicians now.

Related to that, though, and I think a critical part of this notion

of the funding for primary care, including new models of care, such

as the patient-centered medical home, is funding the infrastructure

to provide the care that these patients need. As Glenn Steele has

said, Geisinger helped to reform primary care at Geisinger, both by

improving the compensation for primary care physicians so that

they do not have difficulty recruiting primary care physicians to

those practices, but also in providing the infrastructure for those

physicians and the team-based care that they provide to be able to

provide the care—for example, care coordination. Thinking about

our Medicare population in particular, about a quarter of Medicare

patients have five or more chronic conditions. They will see lots of

physicians over the course of a year, 40 or more outpatient visits

in a year, hospitalizations, et cetera.

There is an enormous amount of information that has to be managed for each individual patient, and that does require infrastructure. It requires the people with the skills, such as advanced practice nursing, which in team-based care is invaluable, but also requires—and Glenn mentioned you cannot do this without the electronics—the need for practices to be able to acquire health information technology, and obviously that has been a big part of the stimulus package as well.

I think we also at the same time need to recognize that the demand for these services is only going to increase with an aging population, and to your point about prevention, I think Senator

Cornyn made the same point, that at the present time primary

care, population health, and preventive services are not reimbursed, so there is not time for the physician and the team to provide those services now. In a medical home model with team-based

care, with adequate compensation for the care coordination, those

services can be provided. I am not, though, saying that if you were

to score this 1 year from now that you would be able to document

17

savings—funding primary care would have to be a long-term proposition.

The last point I want to make in response to your question, Senator, is that while I am a huge admirer—I am from Pennsylvania

now, formerly from Maine. I am a huge admirer of Geisinger, but

we have to recognize that the vast amount of this care in this country is provided in practices of five or less now, 80 percent or so.

And we are talking about in the range, in the 2006 National Inventory Care Study, of 900 million ambulatory visits in the course of

a year. So the vast amount of this is taking place in small settings,

and there is this big divide between the electronics that Geisinger

has and what a two- or three-person practice has. And while we

might want it some other way, that is the reality which we are

dealing with right now.

So I think there has to be frank recognition of the fragmentation

of health care in this country, and Maine is a good example of that

right now.

On the other hand, Maine is also leading in the sense of innovation of developing a primary care medical school with Tufts to try

to solve some of these problems that you were talking about.

Thank you.

Mr. IGLEHART. Mr. Hackbarth?

Mr. HACKBARTH. Two quick additional points, Senator Snowe. In

addition to the medical home, MedPAC has recommended that

Congress provide for a bonus payment basically for clinicians that

are focused on primary care practice. So this is an additional payment on top of the standard fee-for-service payment that would go

to clinicians that are in certain specialties and through their pattern of practice demonstrate a commitment to primary care.

In addition to that, we have made several recommendations

about the process by which Medicare sets the fees for different

types of services, the relative values, and we think that that process is skewed in a way that is detrimental to primary care.

The last point that I would make is that, you know, even if we

do all of these things—medical home, primary care bonus, change

the RVU-setting process—the unfortunate reality is that we are

going to face a shortage of primary care clinicians in the future. We

are going to have too many older people with complex illnesses and

not enough people coming through the pipeline. And so I think another part of, if not a solution, another part of addressing the problem is increased use of advanced practice nurses. In Harvard Vanguard Medical Associates, my old group, we made extensive use of

advanced practice nurses to complement the efforts of physicians,

and I think the health care system needs to do that more broadly.

Mr. IGLEHART. Dr. Korn, do you have a quick comment?

Dr. KORN. Yes. I am with the Blue Cross and Blue Shield Association, and I think I can weave together some of the suggestions

made by Senators into a recommendation. What can CMS do?

You know, the Blues are somewhat unique. We are national, but

we are also very, very local. And so as CMS thinks through any

number of innovations and/or pilots, you might consider partnering

locally with successes that have been achieved. And we are beginning to emulate the Geisinger model in a fee-for-service environment. I am sure you know in Iowa that we have a model where

18

nurse case managers work for the individual physicians’ offices

rather than the plan, and care management is directed to those patients whom the physicians suggest are most ill.

Montana a number of years ago innovated with a remarkable

program to control the use of unnecessary radiologic procedures.

Massachusetts has now put together a program where, in a feefor-service sector, using a very unique contracting strategy, they

are beginning to emulate the incentives and loyalties that a

Geisinger system has.

The reason I am somewhat passionate about this is because age

65 is an artificial designator. The payer changes, but the delivery

system does not. And so if there is some way for those of us who

care about these things and finance this care to learn from one another and benefit from one another’s experience and even use one

another’s capabilities in reasonable relationships, I think there is

a real opportunity. And the Blues are prepared to collaborate and

share with all of you in any way we can.

Thank you.

The CHAIRMAN. I see that Senators Cantwell and Carper have

been trying to seek recognition for a while. I do not want to get in

your way here, John, but I just know they have been——

Senator CANTWELL. Well, I wanted to jump in there on the primary care shortage issue and just ask or emphasize more about the

education system, about incentives for getting those to go into primary care with more loan forgiveness, more focus on medical residency support, and more on the structure—I mean, obviously, we

have to quit disincenting from a structural perspective primary

care service, but we also, as you said, have to deal with the shortage, and I think we need to be much more aggressive.

I am hearing from my hospitals in Spokane—and I know,

Umbdenstock, you just came from there, running the association—

patients are now coming back to the emergency room for their primary care. It is not just the cost of going to the emergency room.

People are using the emergency room as their primary care physician, and it is costing us. And so we have to deal with this demand

wave that is coming in for the population and match it up with

education programs. So I wondered if you supported those kinds of

incentives.

Mr. HACKBARTH. MedPAC has just recently begun looking at

medical education and Medicare’s role in financing medical education to see if there are ways that we can use the leverage of that

financing to influence the output. We have not yet made specific

recommendations. We may well this coming fall. But among the

issues that we have identified are, of course, the mix of people

being trained is not what we would want from the perspective of

a high performance health system, and conceivably—and this is not

a MedPAC recommendation, but conceivably, you could imagine

Medicare saying, you know, we are going to skew our payments to

reward more primary care training than others.

You could imagine Medicare or the Federal Government more

broadly establishing special programs of expanded loan forgiveness

for clinicians who commit to primary care activities.

There are also some more technical issues in how Medicare pays

for residents that actually get in the way of proper ambulatory

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training. The training is skewed towards inpatient hospital and

away from ambulatory settings.

So there are a number of levers that we think Medicare might

be able to influence that could change the output in constructive

ways.

Mr. IGLEHART. Senator Hatch?

Senator HATCH. Well, thank you. Now, in my opinion, just along

the same lines, we have access to the finest facilities and technology in health care, but their effectiveness will always be limited

if we do not have well-trained professionals. The workforce shortage in our health care system is reaching crisis proportions, in my

opinion, and is a multifaceted and complex problem that ranges

across the entire cross-section of the medical profession, from

nurses to primary care physicians to emergency room doctors.

Now, to truly understand this problem—and I have been very

impressed with some of the things you have said, Mr. Hackbarth,

and MedPAC. But to truly understand this problem across this

broad spectrum of issues, I would like to suggest maybe the formation of a medical or health care workforce shortage commission to

not only study the several efforts already underway, but to provide

Congress with a blueprint of recommendations to better coordinate

these efforts and suggest new strategies to drastically reduce, if not

completely eliminate health care workforce shortages.

So I am very interested in hearing your various perspectives on

that suggestion and see if that is a worthwhile thing to do. Dr.

Tooker, we will start with you.

Dr. TOOKER. Yes, thank you very much. I think that builds on

the comments from you, from Senator Snowe, and also the testimony that we had originally provided.

To me, there is, unless the market is going to fix itself first in

the sense that primary care is competitive in the market, it will not

be enough just to try to fix medical school and graduate medical

education, and by the market, I mean that we need to value primary care as highly as we value every other critical service that

is provided to our patients now.

I think it is important—and that is why I mentioned the primary

care medical school in Maine—to have innovation where medical

students are specifically encouraged to practice a certain kind of

medicine in a certain geographic area. Maine is unique, or northern

New England is unique, and I think that there, that is a potential

benefit. For example, loan forgiveness, because the debt of medical

students now is in the range of $160,000. They are making rational

decisions to pursue careers that are going to reimburse them higher.

But I think sometimes we are not talking enough about how and

where they are trained, and we, of course, have very impressive

academic medical centers in this country, and in GME we have

hundreds of other community programs that are developing our

trainees now. But I would say—and I am certainly a part of it,

coming from a major academic medical center in Philadelphia—

that primary care is not valued in academic medical centers the

same way that other tertiary and quaternary services are. Academic medical centers are ranked by the number of NIH grants

20

that they get, how specialized their services are, not for primary

care.

So I would tend to agree with Senator Hatch that we need independently to look at workforce from the point of view of what is the

best workforce to provide care for the patients in this country as

opposed to other models which are disincenting our young people

to go into primary care.

Now, to their credit, the AAMC, the Association of American

Medical Colleges, has been out front in the sense of a patient-centered medical home model in which they have committed as a matter of policy to providing the appropriate training for the patientcentered medical home. But a lot of that training is difficult to provide in typical academic medical centers, and as Glenn Hackbarth

has said, we need to expand funding to making payment available

for community-based training for these types of physicians.

Senator HATCH. Well, I appreciate those comments. Can I ask a

follow-on question, Mr. Iglehart?

Dr. Brent James of Intermountain Health Care in Salt Lake, one

of the top quality experts in the country, often says that the United

States is number one in providing ‘‘rescue care.’’ Rescue are is saving accident victims, premature babies, heart attack victims, transplant patients, and dialysis patients, just to name a few. The good

news perhaps is that no other country comes close to the United

States in providing rescue care.

Unfortunately, rescue care has little or no impact on the general

population and on more effective approaches to place a stronger

emphasis on primary care and preventive medicine.

Now, how do we as a country go from providing the best rescue

care in the world to providing our citizens with better primary care

and preventive medicine? Anybody who cares to answer.

Mr. IGLEHART. Dr. Opelka from the surgical community,

thoughts on that? And also your workforce perspective, if you

would, please.

Dr. OPELKA. Thank you very much, and Chairman Baucus and

Senator Grassley and the rest of the Committee members, we appreciate the opportunity to be here on behalf of the American College of Surgeons.

If I could, Senator Hatch, first to the workforce issues, they are

complex and we are starting now to see some actual shortages in

surgery areas. We have got about a 16-percent reduction in general

surgeons over the last 10 years. We are now reaching the point

where we are losing general surgeons in aggregate, and in other

areas of surgery, like urology and ophthalmology and orthopedics,

the number per 100,000 is dropping year after year.

Now, perhaps some of that is right-sizing in surgery, but perhaps

some of it is not. And certainly in general surgery, and particularly

in the rural areas, if we think about the medical home—and we are

highly supportive of the concept of the medical home—the general

surgeon actually is the first responder for the entire medical home

community. And with a shrinkage of that general surgery support,

it supports all the rest of the acute care in a hospital. When you

start to lose your general surgeons in a hospital, you start to lose

your hospitals. It is very difficult for rural communities to actually

support other activities in a hospital if they do not have the genVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 48952.XXX SFIN1 PsN: SFIN1
21

eral surgeon. And we will actually see an erosion of some of the

trauma support that we currently have and established at a very

high level.

In other specialty areas, you can leave Boston and Worcester,

Massachusetts, and start heading to the west and you will not find

another neurosurgeon until you get to New York. So when you

have major trauma injuries, head injuries, transporting those patients, if you do not have the general surgeon to stabilize them in

those communities and they cannot get them to a neurosurgeon in

a timely fashion, we are going to have other major issues.

Now, the real problem with the workforce and the reason I think

your idea is such a great idea is that it takes a long time to develop

these surgeons in their specialty areas. It is 6 or 7 years before

they complete their training after medical school, and then to truly

flourish and develop that expertise is another 3 to 5 years as they

mature as a surgeon.

So the queue is very long. The pipeline is a long push. When we

are behind in general surgery, it is going to take us years to catch

up. So we need programs to address these workforce shortages and

to incentivize people to go into those areas.

Lastly, then, to address your issue, I think switching our focus

is probably not to switch our focus on the excellence that we have,

but to truly hit into these chronic care diseases where even the surgical specialties are on board that we need better primary care, we

need better coordination of care with our primary care colleagues

to take care of not an isolated silo of care, but to take care of a

continuum of care. How do we deliver the best care not for this moment for this patient but over this life for this patient for that disease condition?

Senator HATCH. Thank you.

Mr. Chairman, I presume we are able to submit questions to the

panel, because this is an excellent panel.

The CHAIRMAN. Absolutely.

Senator HATCH. I just want to compliment them for taking the

time to be here.

The CHAIRMAN. I might just put a little bug in Senators’ ears,

and even the panelists, that we may want to, because this is so important, come back this afternoon, too, and just keep going here,

because there are not many opportunities like this, and this might

be the appropriate thing to do. But yes, questions——

Senator HATCH. Mr. Chairman, I have a lot of questions, but I

have to, like all of us——

The CHAIRMAN. We all do.

Go ahead, John.

Mr. IGLEHART. Senator Nelson?

Senator NELSON. Thank you. I want to throw out a couple ideas

and get you all to respond.

Number one, the advantage of Medicare Advantage, a Medicare

HMO having a 14-percent differential, should we put that on a

competitive basis? Because it was originally set up to save costs,

and, of course, it did not save costs.

And the other one, dealing with the workforce, Medicare supports residency slots. Well, that was all frozen in 1998 with the reVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 48952.XXX SFIN1 PsN: SFIN1
22

sult that your growth areas are way underfunded now in the

growth States for residency slots.

So maybe if we could start with Mr. Williams, that you could address the Medicare HMO.

Mr. WILLIAMS. Thank you, Senator, and it is a pleasure to be

here and have an opportunity to share our point of view.

I think it is fair to say that there are opportunities for meaningful cost savings from the Medicare Advantage program. I would,

however, ask us to recognize that the base Medicaid Advantage

benefit that is exactly comparable to Medicare is well delivered

with innovative programs that really do improve quality and improve the quality of care that patients do, in fact, receive. And I

think Aetna as well as the industry are open to a variety of approaches to understanding that with a couple of suggestions.

One is we need to recognize and avoid sudden shocks to the 10

million Medicare beneficiaries who entered this particular program.

And as we figure out how to get from where we are to where we

go, we need an appropriate slope so that the health care delivery

system can collaborate in right-sizing and readjusting its whole

mechanism to be certain that we maintain the right value for the

beneficiary and avoid those sudden shocks—with the understanding that there is an opportunity to make some meaningful

changes there.

I think also we need to keep a focus on providing incentives to

the providers for improving quality both in Medicare Advantage

and base Medicare.

And, finally, whatever we do, I would encourage us to keep it

simple but, most importantly, keep it predictable.

Senator NELSON. Would you be in favor of competitive bidding?

Mr. WILLIAMS. Well, I think like most ideas, I think we are open

to all ideas. We do not really understand exactly what specifically

competitive bidding means.

Senator NELSON. So that the plans would be based on their cost

instead of a government-set rate.

Mr. WILLIAMS. Well, I think we are open to any change in the

system that results in a predictable slope, minimal impact to beneficiaries, and a way to create value for Medicare beneficiaries and

for the Government.

Senator NELSON. And the graduate medical education?

Mr. UMBDENSTOCK. I want to thank you, Mr. Chairman, and the

members of the Committee for the chance to be here today. I am

Rich Umbdenstock from the American Hospital Association. And

we would be very supportive of increasing the number of residency

slots, Senator Nelson. We have heard the estimates, and we know

the shortages on the front lines. So looking forward, you know,

something of at least a substantial number of new residency slots

in the 15,000 range or something, because some of the estimates

and requests have gone as high as 25,000 and 30,000, but a huge

new opportunity is necessary.

As my colleagues have said, being sure that we focus those new

slots or the residency program in general toward what we need in

the primary care area is very important, but also to Senator

Hatch’s concerns, looking beyond residencies to the workforce and

the shortages we face overall equally important. We struggle with

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the nursing shortage and the continuing projections there in the

hundreds of thousands of nurses that we are going to need, that

we just are not able to accommodate today. So we would be very

supportive on both counts.

Mr. IGLEHART. Mr. Umbdenstock, a question. If the number of

GME positions that Medicare funds was increased, what guarantee

would the Federal Government have that those increased positions

would go into primary care specialties?

Mr. UMBDENSTOCK. Well, John, I think it is all in how you design

both the program and the rewards so that both the incentives for

medical students to look toward primary care and the way in

which, again, as Dr. Tooker said, we make that an attractive career

path, not just in the residency realm but also in the market realm,

coming out the other end, that, in fact, there is a viable—not just

profession but a viable business model. So it has really got to be

thought of in connection between both the educational sphere and

the real world that those physicians will enter upon completion of

those residencies.

Mr. IGLEHART. Okay. Senator?

Senator MENENDEZ. Well, thank you very much. Very informative, and I appreciate your willingness to come and your service,

and, Mr. Chairman, for putting an excellent panel together.

I have two questions that I would like to pursue. One is I want

to echo my colleagues who have talked about the primary care

issue. We are 48th in New Jersey relative to the number of primary care physicians to families, and so that is an issue. And for

those of us in the minority communities, we are concerned about

the disparity that further is enhanced by that reality.

Mr. Hackbarth, you mentioned the 10 percent that MedPAC has

talked about as a bonus. While that is certainly worthy, is that sufficient to draw what we need in terms of the primary care community? You might be looking at keeping a universe but, obviously, it

seems to me that may not be enough, and what else you would be

doing. And, secondly, a different question—and I would like to hear

your answers—to Ms. Ness, this whole issue of the medical home

concept is one that has a lot of promise to it. I would be interested

in your thoughts on how that model works for women’s health care

in this context. As we all know, many women consider their ob/gyn

as their primary health care physician, and when you look at the

array of services from pregnancy to specific cancer care, it is a pretty wide range of services.

Do the current medical home demonstration projects adequately

address these women’s unique health needs? If they do, fine. Tell

me how they do that. If they do not fully, is it something that we

should be considering looking at a women’s health medical home?

Those are the two things I would like to hear some responses to.

Mr. HACKBARTH. Senator, we do not think that a 10-percent

bonus by itself is sufficient. We have recommended that as part of

a broader package. So, in addition to the bonus, we have talked

about ways that the process by which relative values are set, the

fees for individual services are set, can be changed in ways that we

believe will increase payment for primary care. We also, as I said

earlier, believe that the medical home idea is an important part of

that package.

24

I would mention that there have been some steps already taken

in the Medicare payment system that have increased payment for

evaluation and management services, many of which are provided

by primary care clinicians. I will not get too far down into the

weeds, but in combination, steps taken in the last couple years

have increased payment for those services by 10 or 11 percent. So

it would be that 10 or 11 percent, a 10-percent bonus on top of

that, some changes in the price-setting mechanism, medical

home—that is the sort of package that we think may be sufficient

in scale to have a meaningful effect. It is not just one piece.

Mr. IGLEHART. Ms. Ness?

Ms. NESS. Thank you, and I really appreciate the opportunity to

be here, Senators. I am really encouraged by the conversation that

I have been listening to because as an organization that has been

representing the interests of women and families for more than 35

years, I can say that the urgency is very great. People want us to

transform this delivery system. They get that it is broken. They get

that it is not working as well as it should. They want better quality

care. They want it to be more affordable. And they also get that

we need to get better value for our health care dollars. They know

we need to make changes to make this all sustainable over time

so we can ultimately get to coverage for everyone.

And one of the most exciting things, I think, about this conversation today has been the amount of focus on what is needed for the

patient. And Dr. Steele said something very profound when he

started us off. He said at Geisinger they started first by looking at

what the patient’s needs were, and then they designed delivery and

the way they were going to pay for it around those patient needs.

And if there is one message I would like to deliver, it is that I

think we need to think about delivery system reform, payment reform, from the perspective of: is it going to get us to making a more

patient-centered system? Will it meet the needs of patients? And

will it meet the needs of the highest-risk, most vulnerable patients,

the ones who are falling through the cracks the most, but the ones

who are also costing us the most money?

We know that the folks with multiple chronic conditions are costing us at least 75 percent of our health care dollars, and that is

only going to get worse. The population is aging. The number of

chronic conditions people have is escalating. And from a women’s

perspective especially, women who are reaching those middle years,

the baby-boomer generation of women who are now just beginning

to deal with their own chronic conditions, also facing the caregiving

responsibilities of dealing with aging relatives who are living

longer with more complex conditions than ever. Their struggle with

the shortcomings in this fragmented, uncoordinated delivery system is just going to be off the charts.

So the conversation today about shifting to primary care, shifting

our payment system so it incentivizes us to move toward better integrated, more coordinated, shared accountability, that all makes

sense. I would like to just put a spin on that, if we look at that

from the patient perspective, some of the same things, what it

takes us to.

For example, we talked about needing to really move from acute

care focus to focus on managing chronic conditions and more focus

25

on primary care. Well, we have to value primary care more and differently than we do today, but we also probably need to think differently about how we go about that valuation process. Right now,

we look at resource costs, and we assign values. Well, we do not

look at the values to patients. And what would happen if you included a patient voice in how we establish the payment decisions

around what is valued and revaluing primary care?

The medical home model moves us in the right direction. It is the

right idea. But as it stands now, it will not meet the needs of the

most vulnerable patients, those folks with the multiple chronic conditions, those folks with geriatric syndrome.

Senator Lincoln, you have legislation that gets at the importance

of geriatric assessment, for example. Senator Wyden, you have legislation that looks at the importance of making sure we can deliver

care to people at home.

Right now, the medical home is not there. We need to evolve it.

So we need to think about this as getting to primary care payment

that pays for the right services based on patient needs, which probably means some kind of a risk-adjusted model that is matched to

patient complexity and covers those things like geriatric assessment and care at home and making sure we have the link to community-based services. So putting the patient lens on some of these

things I think helps steer us in the right direction.

With respect to your question, Senator Menendez, about women

having particular needs, that is another example of us needing to

ensure that we are matching what we pay for to the actual patient

needs. And I think the important thing here is that we want patients to be able to choose where they get their care, and for many

women an ob/gyn is their provider of choice. But we then need to

make sure that those ob/gyns are providing the full range of primary care services or linking to those services so women get the

full range of services that they need.

So I think there are ways we can move in the direction of ensuring that women in their peak reproductive health years that have

a range of needs have those needs met in the context of getting

comprehensive primary care.

I want to reinforce what folks——

Mr. IGLEHART. Yes, we better move on.

Ms. NESS. Sure.

Mr. IGLEHART. I want to ask Dr. Naylor to follow up. Her team

at the University of Pennsylvania has done a lot of work targeting

the chronically ill elderly population. What lessons can we learn

from the research that you and your team have done, Dr. Naylor?

The CHAIRMAN. Dr. Naylor, you might remind us who you represent.

Dr. NAYLOR. I represent the University of Pennsylvania School of

Nursing.

The CHAIRMAN. Okay. Thank you.

Dr. NAYLOR. And I have had the great fortune to work with a

terrific multidisciplinary team based at Penn from the schools of

nursing and medical school and Wharton, et cetera, on testing a

model designed explicitly to look at the challenges and issues

around the 20-percent of older adults who are waking up each day

with multiple chronic conditions, often complicated by cognitive imVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 48952.XXX SFIN1 PsN: SFIN1
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pairment, depression, and for whom we have not yet figured out

how to well serve them. So we have been testing and refining an

approach. It is called transition care, and it targets this high-risk

group as they are at their most vulnerable, as they have acute episodes of illness, explicitly designed to interrupt this chronic illness

trajectory that constantly brings these elders in and out of the hospital. And across multiple multi-site studies, we have demonstrated

consistently the capacity of this approach to care to improve their

outcomes, to improve their function, quality of life, to improve, obviously, their satisfaction with the care experience, as well as their

family caregiver’s satisfaction, to significantly reduce hospital readmissions and to save health care dollars. In our last clinical trial,

we were able to improve outcomes and reduce readmissions

through 52 weeks post after the index hospital discharge at a

means savings per Medicare beneficiary of $5,000.

So what are the lessons learned and how can some of what we

have learned contribute to this conversation today?

Well, the first is that I think we have a great opportunity here

to target this 20 percent who are not well served by our current

care system. I think we have a great opportunity to apply evidence

built over many years to apply to this population. Across our work

and across many other studies, we have learned that delivering

services to this population is a team sport. It requires the input of

nurses, physicians, mental health specialists, therapists, social

workers, pharmacists, and it requires continuity of care.

Consistently across clinical trials, we have demonstrated that

nurses have been most successful in directing this approach in patients’ homes, in the emergency department, in the hospitals, wherever it is that their needs are, and making sure that all the physicians, all the other team players are on board with a rational,

streamlined plan of care.

We think that in terms of lessons learned it would be very appropriate for us to focus on the development of new measures, process

and outcome measures, that are much more closely aligned with

the needs of these people. Quite frankly, most elders do not what

their hemoglobin A1c is. They want to know that people have prepared them for their next site of care. They want to know that they

have a person that they can point to when they have questions or

concerns, et cetera, so we know what the process measures are that

are important to these individuals.

In terms of outcomes, they are concerned about function. They

are concerned about quality of life. And we need to be thinking

about the development of measures that, therefore, support the development of team approaches to get at these.

Finally, let me say that we do need a different payment system.

In order to accomplish the goals that we have outlined on top of

our fee-for-service system, we really need to target a transition care

benefit that would enable this approach to care to be available to

Medicare beneficiaries who are at high risk, who require much

more than we currently provide, again, in order to interrupt this

cycle that we are clearly able to do, our evidence has shown us.

Mr. IGLEHART. Senator Grassley, please.

Senator GRASSLEY. Only if you are done discussing what you

wanted to discuss. Right after that I——

27

Mr. IGLEHART. Well, I would just ask Senator Baucus’ question

about is this scalable, your model.

Dr. NAYLOR. First of all, I think this model is highly complementary to great primary care, to great chronic care, to the independence at home initiative, to the chronic geriatric assessment and

chronic efforts approach, et cetera. We have worked in collaboration with Aetna and with Kaiser Permanente to translate this

model into the real world of clinical practice and have demonstrated its capacity to replicate both clinical and economic outcomes.

We have developed tools of translation, web-based training modules to prepare nurses and other providers throughout the country

to deliver this, clinical information systems that house the evidence

that make it available to colleagues in Maine and Iowa and every

other State across the country. We have created quality improvement tools and strategies to make sure that we continue to invest

in building the team’s capacity to do this.

We place a high premium, though, on providing and preparing

family caregivers to do this because, in fact, they are the primary

deliverers of care in this country, and we have not paid enough attention to their needs. So we have provided tools also for these

family caregivers in order to make sure. So it is absolutely scalable.

Mr. IGLEHART. Senator Grassley?

Senator GRASSLEY. Yes, I want to bring up an issue that I have

to get some comfort with over the next 2 or 3 months as we try

to put together a bipartisan package, and it is the irony of, on the

one hand, people saying we have to spend more on health care and

the other one, as has been evidenced here, that we are wasting a

lot of money, like Senator Wyden said, $700 billion; like was just

said by Ms. Ness, better value for health care; like Dr. Steele said,

we can increase quality, reduce costs. You have heard Senator Baucus and this Senator say on so many occasions that if they practiced medicine in the rest of the country like they do for Michigan

over to the Pacific Northwest, from Kansas north to Canada, we

would save one-third of all the money we are spending on Medicare

as an example.

So this is what I would like to point out and get any two or three

of you to respond. And I do not call on anyone to respond. I would

like to point out the irony that we are talking about all the unnecessary and inefficient spending that we have while also looking at

increases in spending even more on health care reform during this

debate as we try to put together a bill.

How long will it take to set a course to improve delivery? And

are we being bold enough and particularly on delivery reform? In

other words, how do we make sure that we are really tackling delivery reform? Because if we do not, we are really setting ourselves

up to make the costs worse, not better. And I do not call on anyone.

Whoever feels that they can address it. But it is something I have

got to get some comfort with.

Mr. IGLEHART. Mr. Williams?

Mr. WILLIAMS. Yes, I would start out by saying that it all starts

with the notion of starting where we are and working with what

we have, and I think we have an enormous amount of capability

in the system to improve quality and reduce cost. By that, what I

28

mean specifically is that the employer-based system has been a

huge source of innovation, and many of the things we have talked

about this morning about Medicare and disease management have

proven models that the employer community has embraced which

have significantly slowed down the rate of increase for certain employers, and at the same time improved quality, and let me give

you just a few examples.

One is if we can find ways to apply the irrefutable science based

as published in peer-reviewed journals by tapping into the information that we have in the system already—claim data, which actually is much richer than many people think, the pharmacy data,

the lab values. At an individual patient level at Aetna, we have

sent out to physicians 480,000 care considerations based on data

we know about the patient, with the patient’s consent, and checking that against the irrefutable science base. In the large percentage of those cases, those considerations have resulted in identifying

gaps in care, identifying procedures that should be—screenings

that should be conducted.

And so I think what we have done—and we are not the only ones

who are doing some of these things. Others are. There is a huge

opportunity to apply the strengths of the employer-based system to

really help improve and slow down the rate of increase both in

Medicare as well as in the current system.

So I think those would be some of the things that I would suggest.

Mr. IGLEHART. Dr. Steele?

Dr. STEELE. Senator, I think the leverage is in Medicare, and I

believe that if you instruct some sort of patient-focused goals on

the highest utilization areas, which, as I have mentioned before,

are generally the areas where we do least well in carrying, and you

give discretionary capability, much more discretionary capability to

some aspect of CMS to innovate for an evolution—and it has got

to be done carefully, but you set a time limit, and that time limit

is obviously your discretion. And if you do not get where you want

to go, which is patient focused, in that time limit, then there is a

Plan B. And I think that Plan B would be—you know, that is for

you, but it should be pretty motivating.

The CHAIRMAN. And what would some of the components be of

Plan B?

Dr. STEELE. I am not willing to say right now. [Laughter.]

The CHAIRMAN. That is why we are meeting.

Dr. STEELE. I am interested in pushing Plan A. Plan A is innovation. It is taking advantage of the market-based approaches. But

it is insisting that for those four or five major utilization cohorts,

we actually achieve some obvious metrics of significant improvement on both quality and value, and then we could talk about Plan

B later.

The CHAIRMAN. Well, sometimes a very sobering Plan B will encourage a Plan A.

Senator GRASSLEY. Can I just follow up? And this is more of a

comment, but it is also in the form of a question. Can this Senator

just for himself assume, since I have not heard anybody on the

panel suggest we need to spend more money, that maybe that is

29

your conclusion, that we do not need to spend more money? Can

I conclude that?

The CHAIRMAN. No. [Laughter.]

Senator GRASSLEY. Well, then, I think somebody ought to tell me,

yes, we have got to spend a lot more money.

Senator BINGAMAN. I thought Dr. McClellan said we do need to

spend a lot more money in Medicare and Medicaid. Wasn’t that

your testimony?

Dr. MCCLELLAN. Well, let me clarify this in two ways.

One is if you are going to ask CMS to do more and more quickly

to drive the kinds of reforms in health care that Dr. Steele has

talked about, let’s face it, they are going to need more support.

They already have a very, very big job to do for a very sensitive

and vulnerable set of 90 million-plus Americans, and that is going

to take some more support for the agency.

I do not think that is really the kind of big dollars that you are

talking about, though. You are talking about numbers like $700

billion.

And just to be frank, Senator Grassley, I think some of the proposals that you have heard about today do mean more spending,

at least in the short term, like you did with health IT in the stimulus bill, like some of the additional payments for primary care,

medical home that you have talked about today. I do not see any

way to do that, to take those steps meaningfully, without spending

more at least in the short term.

That said, as Senator Wyden said, we have got to show some results to the American public around closing these huge gaps in

quality of care and reducing these unnecessary and potentially excessive costs.

So if you were to link some of these reforms that might have

some costs in the short term will real steps towards accountability

for getting the results, sort of like you did for health IT, you are

going to have this additional spending, but it is tied to meaningful

use, which still needs to be worked out. But I would argue that

that ought to be an actual impact, demonstrated impact on improving outcomes, patient-level outcomes, like Debra Ness talked about,

and reducing overall costs. You have that same kind of model applied elsewhere, I think you could get to the point, with good measures, with accountability, get to the point where you are saving significant amounts of money over time and demonstrating to the

American public that they are getting better health care as a result

of these reforms.

Mr. IGLEHART. Senator Baucus, there are a number of Senators

who have questions. I might ask these folks if they could write in

their responses—is that all right?—so we can get to the Senators’

questions.

The CHAIRMAN. Yes. I do think it is more important at this point

that Senators ask their questions, frankly. We will play it by ear

and see how this moves along.

Mr. IGLEHART. Senator Lincoln?

Senator LINCOLN. Great. Thank you. Well, thanks to all of you

for being here.

30

There has been an awful lot of talk about medical home and talk

about how much we are going to spend and how much we are going

to save——

The CHAIRMAN. I wonder, Senator, because Mr. Hackbarth, while

we are on this subject of investment in returns, if he just might

spend a second to—MedPAC has got some thoughts, I am quite certain, on how you spend a little bit to save more down the road.

Mr. HACKBARTH. Yes. Well, I largely agree with what Mark

McClellan said. I do think that you are going to need to make some

targeted investments, and health IT being the classic example.

The CHAIRMAN. What else besides health IT?

Mr. HACKBARTH. Well, we have also been strong advocates of

comparative effectiveness and to provide better information.

The CHAIRMAN. Right. What else?

Mr. HACKBARTH. Those are the two big investments, in addition,

of course, to universal coverage, which is beyond Medicare’s purview.

You know, we very much agree with the premise of what Senator

Grassley said, that the task here is to level down. We have got

huge variation in health care spending, low spending per Medicare

beneficiary in Iowa and Montana and my home State of Oregon,

and dramatically higher spending in other parts of the country.

The task before us is not to figure out ways to bring up spending

in Iowa and Montana and Oregon so it is closer to Florida in the

name of equity. What we need to do is bring Florida down closer

to the other States. No offense intended to Florida or any other

State, but I think that is the fiscal challenge we face.

One other lesson I think is important to note. The way health

care is delivered varies a lot in the Western quadrant of the United

States that Senator Grassley referred to. There is not one single

right way to deliver efficient health care. It can be done a lot of

different ways. And so we need to respect that.

One other finding is that the resources we put into the health

care system, the mix of specialists and the like, and where they locate has a huge impact on spending patterns in locales.

So to go back to Senator Cantwell’s point, the training process

and the sort of people we are putting out into the health care system and where they locate will have a huge influence on local

spending levels.

Mr. IGLEHART. Senator Kerry?

Senator LINCOLN. Well, I did not get to ask my question.

The CHAIRMAN. Senator Lincoln gets to go next.

Senator LINCOLN. Thank you. We have just talked about the

medical home, and when we talk about it, we have got a medical—

I do not know. I never came in here thinking we were not going

to have to make an investment of spending in order to realize the

savings that we want down the road. We are moving from an

acute-care system to a chronic management system, and it is going

to take resources.

When we talk about the medical home, one of the problems is

that about 85 percent of Medicare beneficiaries would qualify. To

me, it seems like what Dr. Steele is saying, that we may not get

everything right off the bat, but let us focus on the group that will

31

bring us the greatest savings and the greatest example of the savings that we can have.

If you think about it, you know, we could do a much better job

if we could capture the real complex and expensive patients with

multiple chronics if we also deal with the cognitive impairments as

well.

So if you think that roughly about 20 percent of Medicare beneficiaries have five or more multiple chronic conditions, but they account for 85 percent of our spending. So if we do some—and we are

working with the Committee, Dr. Naylor, in those transitions like

you are talking about in a model that would, I think, encompass

a lot of what I have talked, what Ron has talked about, and others,

where we would use all of those models to reach that 20 percent

that are 85 percent of the costs through a plan like we are talking

about.

I just think that we have to be realistic about the steps that we

take in order to get everyone covered. When you talk about cost,

I mean, we have got to make an investment. There are other countries out there that are covering a lot more people with a lot less

percentage of their GDP than what we are.

So I hope that we will look incrementally at how we take the

steps to get to where we need to be, but without a doubt, I appreciate Ms. Ness and Dr. Naylor bringing up the issue in terms of

how we deal with these chronic care management schemes as well

as the fact that when you are looking at cognitive impairment, that

is a huge part. Those patients are 3 times more costly in the Medicare system, and that is going to be important.

The thing is I did a tour much like Senator Snowe in taking a

pulse on rural America and their health care, and to the issue that

Senator Nelson brought up in terms of the need for more primary

care physicians, there is a critical need out there, but it is not

going to just come by paying them more. I got to tell you, when you

go into these small communities—and I am full of them in Arkansas—it is quality of life, it is education for their kids, it is jobs for

their spouses. It is not just a reimbursement system. We have got

to look at that, and the best way to look at it is to grow your own.

If we get residents into a residency program at the University of

Arkansas Medical School, they are much more likely to stay in Arkansas than they are to ship in doctors from New York or Chicago

or anywhere else to come practice in these small communities.

Growing your own is the best way you can do it.

So I do not know if any of you all have comments on that, but

I appreciate the chronic care issue, because I think for States like

ours that are disproportionately elderly, disproportionately low-income, and disproportionately in rural areas where they are difficult

to serve, it is going to be critical.

Dr. NAYLOR. Let me also add that the level of satisfaction of

health care workers, providers that work in teams and complement

each other is tremendously important, too. So physicians love the

capacity to work in partnership with advanced practice nurses and

others to complement the skills that they bring to serve these people. It is not going to happen by any one provider doing it alone.

So we have to really foster a primary care system that is based on

32

capitalizing on the expertise of health professionals as well as community workers and the family caregivers.

The CHAIRMAN. I might say, if I might, that Senator Carper and

Senator Kerry have been seeking recognition for quite some time,

and they both have time constraints. So I do not know who wants

to go first between the two of you, but I know they have both been

seeking recognition for some time. I know Senator Carper was a

long time ago. I think you were ahead of Senator Kerry, actually.

Senator Carper?

Senator CARPER. I will be brief. Thank you so much for being

here, and it is good to see some of you again and others to have

a chance to hear from you for the first time.

Senator Cornyn mentioned Safeway, supermarket people out in

California. I was there last Thursday, and I had a chance to talk

with them about what they are doing in order to be able to basically provide health care costs for 200,000 employees in 2008 at the

same level as they provided in 2004. And a lot of it is what they

figured out how to do was to harness market forces to incentivize

their employees to do certain things to ultimately maintain or level

off their health care costs but provide better outcomes.

I studied a little economics—not enough, probably—as an undergraduate and in graduate school, but I have always been intrigued

by the notion of how do we harness market forces, how do we

change behavior by harnessing market forces and incentivizing

folks.

Like several of my colleagues, over the recess period that we just

concluded, I held a series of listening sessions around the State of

Delaware—all three counties, mind you. [Laughter.]

Senator CARPER. It did not take all that long, but they were good

sessions.

One of the things I will share is that the folks at the sessions

were talking about market forces, and I used a different example

than medical care, and I just want to share it with you. We have

been trying to figure out how to mitigate against home foreclosures. A lot of people, millions of people are facing home foreclosures. How do we do that? How do we get the mortgages to be

modified in order that folks can stay in their homes, lower interest

rates, whatever, stretch out their mortgage payments?

We found that one of the keys in all this is a person called a

‘‘servicer,’’ the people that we send our mortgage payments to, and

they then take that money and they send it out to investors, the

people buying these mortgage-backed securities around the world.

And we are trying to push for foreclosure mitigation, and we found

out that the mortgage servicers did not want to help modify mortgages to help folks out. Why not?

Number one, they did not get paid for it. Number two, if they did

it, they get sued by the investors.

Now, if you are thinking about how to harness market forces to

get things done and the key person is a servicer and they know if

they are going to help you modify a mortgage they will get sued

and they are not going to get paid for it, why should they get involved?

At one of our listening sessions, we started talking about fee-forservice. If you are physician, you get paid for doing more proceVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 48952.XXX SFIN1 PsN: SFIN1
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dures. You get paid for maybe ordering more tests, especially if you

own a facility. You get paid for maybe having more lab work done,

more MRIs, more, x-rays. But the other thing that kind of drives

that behavior, aside from fee-for-service, if you do not do those

things and there is a problem, somebody gets hurt, somebody dies,

you get sued. You get sued.

What we did with the servicers in the mortgage foreclosure deal

is we provided them a safe harbor. We provided them a safe harbor

in order to try to take care of that. We also gave them money up

front out of the TARP fund, as I recall, to actually pay them for

doing the work, and then we said if you do this work and you help

work out mortgages, we will make sure that you are in a safe harbor situation.

Some people who screw up and kill people in hospitals and who

do serious harm, they ought to be sued. They ought to be sued, no

question. A lot of people die. We know all that. But in terms of a

safe harbor and the idea of trying to work on this market force deal

where we incentivize people to do more services, more procedures

and so forth, and by doing that to protect themselves from being

sued, how do we balance that out? And this safe harbor idea, is it

something that might be extended to health care?

Mr. IGLEHART. Any comments? Yes, Peter.

Mr. LEE. One, 160 million Americans are covered through their

employers. Employers believe in the market. And I think you have

heard a lot of examples about payment changes that move to get

the market to work. So it is not fee-for-service. We are bundling.

We are sort of bringing payments together. Doing that, though, I

think we need to have a market that actually brings together the

public and the private sectors. We do not have enough of a market

signal for many providers when they are dealing with many different health plans, CMS, and so how do we align payments so the

market is working because we have aligned signals? So that is one.

The second thing I would note—and I really cannot agree enough

with Senator Grassley’s note about needing to be bold, because employers and Americans are being crushed by health care costs. So

we do need to be bold. We need to take some rapid steps. But part

of the challenge is we do not in many areas have enough of the

right measures to say who is really doing the right job. Which doctor is using resources most effectively? Which one is doing a better

job for patients in terms of getting outcomes? And so we need investments in having better measures so we know what we are rewarding.

And, last, if I could, Senator, I think that your idea with regard

to medical malpractice is a very important one. We should look at

if you are a doctor that is following the guidelines, do you get a

safe harbor. Again, we should be looking and encouraging doctors

to follow the evidence, to have the tools to do a better job with market forces. I think there are tools we can use.

Mr. IGLEHART. Senator Cantwell?

Senator CANTWELL. Yes, on this question of efficiencies and savings, isn’t there a big opportunity in cost savings in the area of

long-term care and shifting our focus to community-based care,

particularly when this dual-eligible Medicaid/Medicare population

is something like 44 percent of the Medicaid spending and 25 perVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 48952.XXX SFIN1 PsN: SFIN1
34

cent of the Medicare budget? Mr. Diaz or somebody. I mean, it is

something like States that have implemented community-based

care programs have saved like 7.9 percent or seen a decrease, and

those States that do not have those programs have actually seen

an increase in cost?

Mr. DIAZ. There is no question that there are still significant opportunities to take advantage of home and community-based services. At the same time, I want to echo some of the comments we

heard earlier. I think that in order to better navigate the transitions in health care—and we see in our own experience almost 47

percent of the patients going through our long-term acute-care hospitals and our nursing and rehab centers accessing home care. It

is about navigating the transitions, and the investments that have

been talked about, particularly in physician-directed nurse managers, that is where we see the greatest opportunity, to bring an

interdisciplinary team together to manage these transitions, prevent avoidable hospital readmissions.

I do think that it is not a zero-sum game, though, I mean, that

the different sites of service, properly managed, with the right—

you know, improved regulation and certification, can help us reduce costs and move patients through the system and keep patients

from re-entering the system whenever possible.

But at the heart of it I think is a physician and a care manager,

and there is plenty of evidence out there from Hopkins and others

that there is a great opportunity to do that.

Dr. MCCLELLAN. Let me just add to this. Washington State has

some experience with putting more emphasis on home and community-based care leading to measurably better outcomes for patients.

They are more satisfied, their caregivers are more satisfied, and

lower cost per person. And this is an area where Medicaid programs around the country, including in Washington, have led the

way in making these reforms. What they generally do, though, is

not just focus on community care but focus on the person, give the

individual person with the long-term care needs and their caregivers more control over how resources are spent on their behalf,

and then they choose the best way to get their care. Maybe it is

at home, maybe it is a group home arrangement or something like

that.

This is harder to do when the Medicare program is involved because, for people who are on both Medicare and Medicaid, it is separate funding streams. It is one stream that comes through Medicare with all the Medicare services, and another one that is managed primarily by the States through Medicaid.

There are some good examples there of programs that have put

it all together, including a program called Evercare that was actually started by some nurses because they were so frustrated with

all of the preventable hospitalizations and complications and medication overuse and misuse that was happening for this very vulnerable population. They put it all together. They demonstrated that

they are delivering better care.

So the experience from long-term care services and supports is

that if you give people more control and have good measures and

accountability around the outcomes that you want—reducing comVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 48952.XXX SFIN1 PsN: SFIN1
35

plications, avoiding hospitalizations, getting overall costs down—

you can get much better results.

Senator CANTWELL. Well, if the savings for Washington State

have been in the hundreds of millions, wouldn’t it be in the billions

nationwide if we implemented the same system?

Dr. MCCLELLAN. Absolutely could be.

The CHAIRMAN. Senator Ensign, you have been seeking recognition for a long time here.

Senator ENSIGN. Yes, thank you. Thanks, Mr. Chairman.

I want to go back a little bit, because it really has not been emphasized. A couple of Senator did, but the panel really has not addressed it that much. Ms. Ness, when you talked about patient-centered care, one of the things that really has not been talked a lot

about is patient accountability; in other words, the patient having

skin in the game financially. A couple of people have kind of

touched on it; but that is really, I think, what Safeway and other

private, basically self-insured companies have discovered. And you

have mentioned some up-front costs that later get return on you.

Well, Safeway’s experience was they actually saved almost 12 percent the first year. It was not a long-term savings because they actually had the patient put something in the game. And I actually

believe that we can model even some of our Medicare reforms along

the lines of putting the patient in the accountability loop, especially

because of the idea of information technology and putting transparency in the system, both on costs as well as outcomes.

We understand there are huge differences between what one

colonoscopy costs 3 miles away from what another colonoscopy

costs, and an MRI versus an MRI, or a whatever. But there are a

few diseases that take up most of the health care costs, and we can

focus on them—you do not have to focus on 500 diseases. You can

focus on a few of them, and that is what Safeway did. They focused

on basically four areas: obesity, smoking, heart disease—especially

hypertension—and diabetes. Even if you have something like that,

if you manage it properly, you can save huge costs. If you are a hypertension person and you are taking all the proper drugs on the

hypertension case, you can, if the patient has the incentives, the

financial incentives—the skin in the game, so to speak—they can

manage that, and not only is it better for them, but it is also better

for the system. So I actually would argue that we do not need more

money in the system. We need to spend our money more properly

and have the incentives.

A couple other points to make on this, and then anybody who

wants to comment on this can. Obviously, obesity is one of the biggest problems we can have in our children. The massive obesity

rates that we see in our children are going to hugely explode medical costs as these folks get older if we do not get control of it. But

in all of the adult population, I think the statistics are something

like 40 percent of Americans are considered obese—not just overweight but actually obese. You know, those numbers are startling,

and it contributes to all of the other factors.

We only allow 20 percent of the current premium cost to be

incentivized through—or the total of the premiums to be

incentivized as positive incentives. We need to raise that so that we

can truly reflect what it costs to insure a smoker. Incentivize them

36

to quit smoking. What it costs to actually insure somebody who is

overweight. Not to penalize somebody who is genetically predisposed to that, but incentivize them to get on weight loss programs and exercise programs. All of these preventative things, it

was always told to us these are long-term benefits. Safeway has

proven, and other companies have proven actually the short-term

costs are there, and we need to talk to CBO and some of the other

people about scoring this thing properly so that we can put these

incentives in our private health care system as well as Medicare

and Medicaid too. Long term and short term, save total costs for

the system so we actually will have the money to be able to take

care of the uninsured.

I believe that that is what Safeway has discovered, is harnessing

those market forces through incentives, once again, for the patient—this is patient directed, but it is also patient responsibility,

and I think that both of those things need to be in our health care

system, along with a lot of the other reforms that you folks have

been talking about today.

Ms. NESS. Senator, I could not agree more that a key component

here is getting to real patient engagement in managing their

health and making better decisions about their health care. And

you identified the three operative things that we have to have in

place. We have to have the right information and tools for consumers, and that gets directly to transparency. It gets to what

Peter Lee was saying about having measures that are meaningful

to consumers and that help them be able to make judgments about

which providers they should see. It also gets to the importance of

comparative effectiveness research so we know what works and

what does not. We need to be able to give patients the information

that would enable them to make better decisions, to see the differences. That is part of engaging them.

A second thing is we need to make sure that we give them the

right benefit design so the incentives are there, and incentives to

engage in healthy behaviors is one type of incentive. Incentives to

be able to better manage your chronic condition is another set of

incentives. And we know there is experience out there of plans that

have designed benefits that, for example, reduce co-pays for the

kinds of medications that help people with chronic conditions manage their condition. Compliance goes up; people stay out of the hospital. So the right benefit design is critical here as well.

One other thing I want to say is that we are now learning how

valuable shared decision making tools can be. These are tools, informational tools, which tell people for their condition what are the

range of options, what are the pros and cons, and allows them with

their health care clinician to make a decision that weighs those and

is consistent with their values and preferences. And guess what?

When people use those kinds of tools, they tend to make decisions

that are more conservative. They tend to get better outcomes, have

higher satisfaction and lower costs.

So patient engagement is a great thing. We need to make sure

we give people the right information and tools.

Mr. IGLEHART. Senator Cornyn?

Senator CORNYM. I have a question for Mr. Morris and responding or reacting to a question by the Ranking Member, which some

37

have addressed, whether the United States is spending enough

money to deliver health care.

As I think the Chairman pointed out, we spend more as a percentage of our gross domestic product than any other country in

the world. My hope would be that before we spend more money, we

look at the money we do spend and see whether it gets spent on

the target, whether it is effectively spent delivering health care, as

opposed to, for example, the $60 billion that the Washington Post

has reported is lost to Medicare fraud each year. That is just Medicare. According to the Centers for Medicare & Medicaid Services

last fall, 10.7 percent additional is lost through Medicaid fraud,

waste, and abuse.

So, in light of the fact that Medicare and Medicaid are the mainstays on the Government Accountability Office’s list of high-risk

programs, would you be concerned that any new public plan option

or perhaps Medicare for All, so to speak, would be vulnerable to

waste, fraud, and abuse? And what do you think you need and

what kind of tools does the Department of Justice need in order to

root out this kind of waste that does not go into the delivery of

quality health care for the American taxpayer?

Mr. MORRIS. Senator, first let me say that we in the law enforcement community very much appreciate being part of this discussion. I do not pretend to be a health care policy wonk, but I do

know from the perspective of law enforcement that building and reforming this program has to recognize that waste, fraud, and abuse

not only takes money out of needed health care, but promotes cynicism on the part of the taxpayer who believes we are wasting their

dollars.

We begin with the premise that how you build a system will define how the unethical will cheat it. So, for example, if you operate

on a pay-for-service basis, the incentive is to overutilize. If you operate on a capitated system, the incentive is to underutilize.

So to address the current system as well as to think about how

to effectively protect an expansion of the health care benefit to

make Medicare a system for all, to use your suggestion, we believe

there are five principles that should be brought to the analysis, and

there are a series of recommendations that stem from each of

those. Let me hit those five very briefly.

First, we think that we need to scrutinize the individuals and entities that want to participate as providers and suppliers before we

allow them to enroll in the program. We need to move from thinking about participating these programs as a right to considering it

a privilege. This means scrutinizing who they are, looking at their

backgrounds, making sure they are accredited and can perform the

services that we are allowing them in to treat our beneficiaries and

have access to our trust fund dollars.

Second, we think we have to establish payment methodologies

which are reasonable and reflect changes in the marketplace. In

my written testimony, I give just one example of the many audits

and inspections we have discovered that we pay way too much for

services. Oxygen concentrators—we pay $7,200 for the rental of an

oxygen concentrator that you can buy for $600. Not only is that a

waste of taxpayer dollars, but beneficiaries are paying excessive coVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 48952.XXX SFIN1 PsN: SFIN1
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payments. So this is impacting not only the program, but the very

beneficiaries we are trying to help.

In addition to saving dollars, we think having methodologies that

are responsive to changes in marketplace reduce abuse. It has been

our experience that many of those who come into Medicare and

Medicaid to commit fraud see these enormous dollars and actually

use some of those excess profits to generate kickbacks to produce

more referrals. Perversely, they are using our money to generate

further schemes.

Third, we need to assist health care providers and suppliers in

complying with our program requirements. It is a complicated set

of programs. The vast majority of providers and suppliers are honest. They want to comply with the program, and they need all the

help we can give them. Part of that, we believe, means requiring

that as a condition of participation, providers, suppliers, and practitioners have compliance programs in place. These should be tailored to the particular type of practitioner or supplier and should

be tailored to the sort of risk that they present. But we think it

is incumbent on those who are going to participate in our program

to have internal controls to ensure they are doing it right.

Fourth, we think it is critical that we do a better job of vigilantly

monitoring the programs for evidence of waste, fraud, and abuse.

This requires better data systems. This requires us to be able to

better sense how claim patterns and trends are occurring. It requires that we have a better sense of who the problematic providers are and the we build large adverse-provider databases so we

know who is coming into our system and where they have been before.

Finally, we think we need to do a better job of responding swiftly

to detected frauds, imposing sufficient punishment, and promptly

remedying program vulnerabilities. We have in place, with our

partners in the Department of Justice and U.S. Attorneys’ Offices,

strike forces throughout the country which are going in and targeting target-rich environments, like Miami, Los Angeles, Houston

and Detroit, where criminal elements and organized crime have

come in and prey on our program. Through effective use of prosecution and investigation, we are putting a stop to it.

Now, a question has been raised throughout this panel is: Will

it take resources? I think it will. I think in order to build effective

databases, in order to more effectively monitor the system and respond promptly to these vulnerabilities will require resources. But

I will also tell you that I believe that there will be a tremendous

return on that investment.

By way of example, over the last 3 years, for every dollar spent

on the Inspector General’s office to combat waste, fraud, and abuse,

we brought back $17 to the Medicare trust fund. So I would submit

to you that it is a good investment.

The CHAIRMAN. I might follow up on that, if you do not mind. I

would say the question that Senator Cornyn asked is: Where is the

waste? Jack Wennberg says there is a lot of waste. CBO says there

is a lot of waste, and that 700 figure is a CBO number. Senator

Cornyn asked the question about waste, fraud, and abuse, and the

question is: How much of the waste is fraud, waste, and abuse and

how much of the waste is other inefficiencies in the system?

39

My sense is that there is waste, and partly because practice patterns vary significantly all across the country. I remember when

Uwe Reinhardt testified before this Committee, from Princeton, oh,

maybe a few months ago, he said he checked with three different

hospitals in New Jersey to see how much each spent in the last 6

months at the end of life in three different hospitals. I have forgotten the ratio, but it was wildly different between the most expensive and the least expensive. And he called them all up and asked

them why: ‘‘Why do you spend three times’’—or whatever it was—

‘‘what the other hospitals spend?’’ The answer is, ‘‘That is just the

way we do it.’’

My sense is that there is a lot of waste, therefore, in addition to

fraud, waste, and abuse, which we have now discussed. And Mr.

Morris did a terrific job in outlining some ways to address that.

My sense is that there are also other areas with a lot of waste

in the system, and I wonder if anybody else wants to comment on

that. Dr. Steele?

Dr. STEELE. All of the publicity on this single price that we have

gotten called a ‘‘warranty’’ is not the real substance of what we

have done. The substance is re-engineering our care, and the way

we did that was to get rid of all unjustified variation. And the way

we got rid of unjustified variation was to have our professionals either take consensus- or evidence-based best practice off the shelf or

by forcing them into arriving at an evidence- or consensus-based

themselves. And that is the method for increasing the quality and

decreasing the cost. You know, everything was publicized as the

warranty, but it was really going after that unjustified variation.

And so I could not agree with you more, and if you can find best

practice in many, many parts of the country, in many markets, in

different systems, and somehow get an engine to disseminate that

best practice, that would be a real way of making significant advances in these high-cost cohorts that we have been talking about

all day.

The other thing, Senator, is that the docs and the nurses get tremendous pride of purpose in leading these changes. It is not as if

you are forcing them to do it. They think it is cool, and there is

nothing like having a professional lead this if you want to get

something done.

The CHAIRMAN. Senator Stabenow?

Senator STABENOW. Well, thank you, Mr. Chairman.

Just to follow up on that point, I guess one of the questions—

I have had a couple of different questions in terms of how we get

to where we want to go in terms of quality, the comparative effectiveness and so on. How do we get from the lab bench to the patient’s bedside on this information? And I know that last year we

heard from the RAND Corporation that we only receive necessary

preventative care services and recommended care for acute health

problems a little more than half the time.

Now, in Michigan, we have had a wonderful program through the

Michigan Hospital Association, the Keystone Center, which is now

being expanded out through pilots. But I guess the first question

I would have is: How do we get from the lab bench to the bedside?

And, secondly, as we talk about pilots, I think several people mentioned the slowness of turning these things around. I know that in

40

talking to one of the demonstration projects that the University of

Michigan health care system was involved in, it was a Medicare

physician group practice demo, pay-for-performance project, authorized in the year 2000, did not start until 2005.

So, you know, how do we move these things? How do we make

these things happen?

Dr. OPELKA. Senator, thank you very much. Frank Opelka with

the American College of Surgeons.

I think that, you know, the way we look at this is—in the past

has been, at least for me, over almost 30 years practicing surgery,

I never knew what my results were. And it is only now that we

are actually starting to see some of the tools that are coming out

showing me what those results are.

I think we need—we have a lot of data, but it is claims data

alone, and we do not have a robust clinical data system that actually starts to drive this. And Glenn has piloted some of that in his

own programs by taking his data and looking at what he does. In

surgery, we have several tools that we do not have well disseminated across the country, and we need to get them disseminated.

Beginning in the VA in the mid-1980’s, they developed the National

Surgery Quality Improvement Program. That shows an enormous

improvement in the quality of care, decreased length of stay, better

overall outcomes for the patients. And it has a return on the investment, but it takes an initial investment to get out there for a

hospital to deploy that resource.

We have got a trauma system that actually is successful, but it

varies State by State, so we have our own variation in trying to implement a national trauma system. We need to put those systems

together, and we need to join a lot of these efforts with our chronic

disease management and how we actually create the coordination

of care across those disease management systems, taking something like the STS thoracic surgery/cardiac database and combining

that with the cardiology database, combining that with the claims

data so we have clinically enriched data sets. Our data systems are

all in silos, and we are not unified on looking at a problem together

and designing a solution.

That is an opportunity, I think, that the Senate can help pull all

that together to put things like the National Surgery Quality Improvement Program in every major hospital that is performing

every major type of surgery, to bring that together, to link the

trauma systems that we have and bring all that together, to combine our chronic disease issues and outline those together where

we need them.

It starts with the data, and I think physicians respond to data,

and then when they get the data, we have an opportunity to

change the culture. Right now our culture is ‘‘More is better,’’ and

whether we practice defensive medicine, whatever it is, we practice

a culture of ‘‘More is better,’’ and it is not. In fact, more may be

harmful to patients. It is the right care at the right time for the

right reason. It has to be data driven. Whether or not we have

true, bona fide, absolute evidence or whether we just have observational data, we have got to make these decisions in a more unified

manner.

Mr. IGLEHART. Mr. Umbdenstock?

41

Mr. UMBDENSTOCK. Could I piggyback on what Dr. Opelka has

just said? We have got two very specific examples, and, Senator,

you raise one of them, which is the Keystone Project around central

line infection prevention. And based on the success of that, starting

with knowing what works and having the results to prove it, we

have now leveraged that through a grant to our Health Research

and Education Trust to take out to ten States, and we have had

to turn States away, because they are so anxious for this information and this support in order to take care of that kind of problem.

So I think with the results and with the knowledge comes the

speed and the flywheel effect.

We have also seen it with the Hospital Quality Alliance where

hospitals now for 5 years have been publicly reporting against consistently defined and agreed-upon measures, and we are starting to

see that, in fact, the frequency with which patients receive the

agreed-upon process steps and care steps is increasing significantly.

So, again, with the information and with the knowledge that, in

fact, we are going to invest in something that is going to, in fact,

make it better for patients and providers alike, we see the flywheel

spinning much faster.

Mr. IGLEHART. Senator Wyden?

Senator WYDEN. On this point, because I think the Chairman is

right, I think we are getting close to wrapping up the morning session, to keep coming back to squeezing out the inefficiency and

squeezing out the areas where there are additional savings. I want

to put one other element into this discussion of efficiency.

If you watched the entire morning session, I think you probably

walk out of here and say, ‘‘What Glenn Steele has come up with

sounds like the greatest things since night baseball, and I want to

sign up for that Geisinger Steele program.’’

So then you unpack it through to today’s system. If you are lucky

enough to have employer-based coverage in this country, more than

half of you do not even get a choice about what your coverage is.

So more than half of the people would not even get a chance to go

to Geisinger. Then in that system, you do not get any financial reward under today’s system for choosing the Geisinger kind of approach, and I wanted to just wrap up with a question on this point

for Dr. McClellan and Peter Lee.

How important is it, in your view, to make sure that people have

more choices—by the way, everybody up on this panel has plenty

of choices. We have got plenty of choices of good-quality packages,

and I think the American people would like to have the kind of

choices the Members of Congress have and not just have one. But

how important is it to have more choices and then to get a financial reward for making the careful selection of a Geisinger-like

good-quality package? Dr. McClellan and Mr. Lee.

Dr. MCCLELLAN. Senator, I do think it is important, and Senator

Ensign highlighted the value of these kinds of choices as well. You

pointed out some critical elements. One is that you can save money

if you choose less expensive care, if you take steps in your own life

to bring costs down. And we have heard from the panel about the

importance going along with that, is good information and support

in comparing across these choices, making informed decisions about

42

your health. We do not do as good of a job as we should in supporting those kinds of decisions to promote this sort of effective

competition.

I think you really do need to take this holistic approach in the

end if these reforms are really going to work. Chairman Baucus

emphasized that, look, you know, even if we find ways to improve

specific aspects of care, the fact of the matter remains that there

are still these huge variations in overall costs and utilization. You

know, we can do a great job, and we should, of improving the efficiency of a hospitalization, reducing the complications during a hospitalization. But as you point out, hospitalization rates and hospitalization days vary two-, three-, four-fold around the country. So

there needs to be a further step that focuses at the level of the person around choices to enable them to find better care at a lower

cost, information to support those decisions, and then ways for

health care providers and insurers and new Internet companies—

you name it. Who knows where health care is exactly going to be

in 10 years from now? But supporting those kinds of reforms that

get people better care at a lower overall cost has got to be the bottom-line goal here, and choices, done right, are a very important

part of that.

Mr. LEE. Absolutely, choice is critical, and we have heard a lot

on this panel about the importance of choosing treatments, choosing lifestyles. But you have taken it up the level of choosing a

health plan. And some large employers actually have incentives to

pick that better plan. If you do not have a choice, though, you have

got nothing there.

And so I think what we have heard across this panel of needing

information to say which is better in terms of quality of care and

in terms of the cost-effectiveness, linked to incentives, linked to

tools to use it. And I think when we look at a delivery system, that

needs to also include choice of plans so people can make the choice

between which plan is the right one for them as well.

The CHAIRMAN. I think Dr. Hackbarth——

Mr. HACKBARTH. Yes, I just wanted to chime in on Senator Wyden’s point. I absolutely agree with you, Senator. In fact, I think

that was one of the cardinal lessons of the managed care backlash

of the 1990’s. Employers, at least many of them, restricted choice,

and they grabbed the savings for themselves as opposed to giving

their employees a choice, a cost-conscious choice of alternatives.

And I think it is very important as we try to change the health

care delivery system that the patients, the enrollees in health

plans, feel invested in the process, that they are making choices

and they are benefiting from the choice of more efficient alternatives. Otherwise, we will have another backlash, and things will

unravel on us.

The CHAIRMAN. I would like to focus a little more on CMS. What

investments, what changes are needed? Presumably we in the Congress cannot dot all these i’s and cross all these t’s in how all this

is implemented. I sense there is a lot of agreement in what the

general approach should be. But the question is how do we execute,

how do we implement, and CMS is a major player here. I think Dr.

Steele had at least an idea, you know, empower CMS to be more

43

flexible, empower them to come up with the solutions that we are

all talking about here.

So what changes and what investments are needed in CMS?

Mr. IGLEHART. Back down to the other end. Mr. Diaz?

Mr. DIAZ. Yes, thank you. I want to comment from the perspective of a multi-State provider. We operate in 40 States. We live in

a public and private world. We are in partnerships with private

plans and Medicare and Medicaid for some of the very chronic patients that we talked about today. And we talked earlier about the

potential for a broader mandate, and it seems to me that is part

of the opportunity here, that there are immediate savings and immediate benefits to patients by a broader mandate to—you know,

MedPAC’s authority. When we look at some of the dislocation and

managing the transitions of payments, we see that in the dislocation between the Medicare and the Medicaid program. And we see

that CMS, all the well-intentioned folks there typically regulate

and develop policy based on silos—long-term acute-care hospitals,

skilled nursing facilities—with very little study of the interrelationships and the opportunity to better coordinate care.

So I think there is an opportunity, consistent with many of the

comments we heard today, for a broader mandate of looking at how

we move past the silos, again, having physicians and care coordinators as the real drivers of the engine, and that there are immediate

opportunities to bring down those silos and give MedPAC and give

CMS a broader charter to look at those opportunities along with

looking at the opportunities with the private plans as well.

Mr. IGLEHART. Mr. Hackbarth?

Mr. HACKBARTH. I would say three things, Senator, and these

have been mentioned by other people. They need more money,

more resources, more people to do the tasks that they’ve been assigned. They need less detailed, less prescriptive legislation, more

latitude to make decisions—subject, of course, to proper oversight.

And, third, I think we need a different model of how we innovate

in the Medicare program.

Right now it takes 6 to 10 years for a new idea to sort of work

its way through the process. If it is a large-scale test, it needs Congressional authorization for the money, and it takes a couple years

to design, recruit participants, then you have 3 years of the project,

a couple years of evaluation. It goes back through the legislative

process. That way of developing new payment models for the Medicare program is way too slow for our needs. And so we need to look

at each step of that process and see if we can cut out steps in time.

And one idea that Glenn Steele has mentioned is the possibility of

sort of a standing network of providers that can pilot ideas on a

fast-turnaround basis. That would be one idea. There are others as

well.

The CHAIRMAN. Thank you.

Mr. IGLEHART. Dr. Korn?

Dr. KORN. Very briefly, Senator, agility. If Aetna and Independence Blue Cross were able to come together to support a medical

home model in Philadelphia, why isn’t Medicare at the table? Of

all the innovations that the insurers are rapidly using across the

United States, the combined market share and the impact of the

44

physician’s practice to rapidly share in these pilots and innovations

on a local basis would, I think, advance knowledge very rapidly.

Mr. IGLEHART. Mr. Lee?

Mr. LEE. Alignment of the CMS partnering with private plans is

incredibly important, but I would build on everything that Dr.

Hackbarth said in terms of the decision process to change who is

at the table. And Debra Ness noted this, but in terms of having

more agility, ability to rapid cycle authority that Congress needs to

grant in an appropriate ways that CMS can act, but then who

should be at the table? I come back to patient-centered, and we

have too many decision processes that has, with all due respect,

only those who are actually getting paid at the table, not having

those that are actually getting care, patients, consumers, as well as

those, employers and others, that are paying the bills.

Mr. IGLEHART. Ms. Ness?

Ms. NESS. And just very briefly, building on what Peter just said,

I think we need to make sure that the innovation, the demos, the

pilots, whatever it is we are doing, we do begin to integrate the private sector and the public sector components. We cannot have the

innovation going on in silos.

Mr. IGLEHART. Dr. Opelka?

Dr. OPELKA. One of the things that we learned with our other insurers is we sit down and partner over issues and try and come up

with innovative solutions together. We don’t do enough of that with

CMS, and I think there is a real opportunity to actually sit down,

put a problem on the table, and try and solve it more collegially

together and have the ability to move more nimbly than we currently move.

Total system redesign, because of the cost and the need to redesign chronic care, as Mary has said and as John has said, we totally support that within the college.

I think that we need to enhance how we do the value assessments on the outcomes-based care initiatives, like surgery, cardiology, other areas other than primary care. How are we looking at

what we are doing to know that we need to do those procedures

that are absolutely necessary, where the overuse is. We need to actually cut back on where we’ve got defensive medicine that is really

just running up a cost. And so the safe harbor concept, I fully support that.

And, lastly, preserving the key elements of the surgical workforce

is important. Trying to pull monies out of the surgical workforce

to start up and fund other initiatives could actually have a real deleterious effect on how we maintain the surgical workforce.

Mr. IGLEHART. Dr. Steele?

Dr. STEELE. You know, again, I think the narrative is important,

and if we focus on where we are now with some of these incredibly

poorly cared for, high-cost groups of patients, and you give direction that you want to get to another place over a period of time,

and you hold CMS responsible for creating the innovation to do

that as opposed to the much more specific granular kinds of instructions, then the only thing I would add is if you actually do this

health care reform——

The CHAIRMAN. We are going to do it.

Dr. STEELE. CMS——

45

Senator SCHUMER. He means it, too. He means it.

Dr. STEELE. Your goal should be to have CMS as the workplace

that everybody wants to be a part of, because you are going to be

dependent upon the human resource over there. And it should be

the place where people want to work if they want to work in government.

The CHAIRMAN. That is a good point. How do we accomplish

that?

Dr. STEELE. We can talk later.

The CHAIRMAN. Okay.

Senator SCHUMER. Mr. Chairman?

The CHAIRMAN. Anyone else want to address this one subject——

Mr. WILLIAMS. Yes, Mr. Chairman, I want to get a point in here,

if I may. Just a couple of points on CMS.

One, I think this notion of public-private partnerships is extremely important, and one of the things I would continue to encourage is the ability to share claim and clinical data between

Medicare and the private sector so that we enrich both the claim

database as well as the quality database, building on National

Quality Forum-approved data.

Innovation is fundamentally important. Two years ago, we had

zero members with the personal health record. We now have ten

million members who have their own personal health record that

they own, that they can take with them, that captures all of their

data.

The other point I would make is network-based products. You

take an area like bariatric care, bariatric surgery for weight loss.

We built networks and determined that by looking at those networks, the quality of care and cost was 15 percent lower a year

later for those physicians and institutions that were in the network, and they were selected on the basis of quality, good thorough

assessment, good counseling for the members. And it was 4 percent

higher than the average outside. The use of network-based products is a fundamentally important missing component and tool, and

I think that brings us back to public-private partnerships.

The other point I would make is just flexibility, the ability to innovate with things like value-based insurance design so that the

insurance products, whether it is a pharmacy or other benefit, really has the ability to adjust the co-pay based on that individual

member’s health circumstances. Prevention for you may be different than prevention for someone else, and we need the ability

to have variable definitions of prevention based on the clinical circumstances.

And, finally, there is a whole set of missing decision support tools

that give a member alerts on health screenings that they should

be having, an ability to give an alert to the member and an alert

to their physician, that there seems to be a gap in care based on

the evidence-based standards. All of those things represent standards that have been innovated in the commercial health care sector

that are readily available and that are unavailable in base Medicare today—all of which contribute to improving quality and reducing cost.

Dr. TOOKER. I just want to make a follow-up point—this is John

Tooker from American College of Physicians—about CMS. It looks

46

to us—to me, at least—that we are going to be trying to test multiple models of payment as well as multiple models of health care

delivery. And CMS is going to be crucial to the testing of those

models.

And it seems to me that there may be opportunities to improve

the relationship of Congress, the White House, and CMS so that

there are common expectations at the time that legislation is developed all the way to the implementation of programs through CMS.

Just looking at the Medicare patient-centered medical home demonstration project that was authorized in 2006, it is not yet started;

whereas, in the private sector at the State levels, both Medicaid

and the private insurers are well down the road of testing models

of the patient-centered medical home. And there are lessons to be

learned from partnerships of CMS with those State and private entities that in our opinion would help improve the ability of CMS

to implement.

Second is distinguishing between pilots and demonstration

projects and, where possible, to take the lessons learned from pilots

and implement them as soon as possible as opposed to having to

go back through an authorization after a demonstration project,

which takes an additional period of time.

Mr. UMBDENSTOCK. And, Mr. Chairman, just briefly, I would be

remiss if I did not suggest we look at the regulatory side as well

and the burden that that causes. The amount of regulation that

hospitals live under today really has to be examined and rethought

and redesigned.

In the case of CMS, it is additive, and I think we have to figure

out how to replace the old with the new. I will give one example

and be brief: the Hospital Quality Alliance. Terrific move to publicly report on nationally agreed upon measures. As I said earlier,

hospitals have signed on and are very anxious to get their data

back.

The agency has to be able to process that data in a realistic time

frame and get it back, so it needs the resources in order to do that.

It needs the resources in order to display that data if the public

is going to use it to make decisions.

At the same time, though, getting that data out of the hospital

and off to the data processors and to CMS has taken significant resources, especially nurses to comb through records where we need

that done. And we have not seen any relief on regulation on the

payment side or anyplace else. There is never a substitution of one

priority for another or one regulatory burden or cost for another.

Those substitutions we are trying to make every day at home on

the front lines. I think we need to think about how we can help

CMS think that way as well.

The CHAIRMAN. Okay. Senator Schumer?

Senator SCHUMER. Well, thank you, Mr. Chairman. First I want

to thank you. This has been a great morning. I have watched a little of it on the TV from my office and I have been here. I am sorry

I cannot be here the whole time.

I would like to focus on the public plan option, which has had

some discussion but nothing direct, and some of the witnesses here

today who have offered criticisms of the public plan option also

strongly support the new payment and quality initiatives—medical

47

home, accountable care organizations, bundled payments. And I do

not see—I think there is, at least in some places, almost a kneejerk saying you cannot do this, you cannot have a public option,

where it seems to me we should take the best of these ideas and

use them in a public plan option. A public plan option could be

formed in many different ways. There is a whole lot of rhetoric, you

know, on the public plan option, but we have not even defined what

the insurance product will look like, how it pays doctors, how it

pays hospitals, what part of the Federal Government will be running it. It could be in CMS. It might not be.

So I would first ask everybody to keep an open mind. We all

agree that reform must occur. We need higher quality. We need

better care. And I think a public plan option could help make that

happen.

To Dr. Korn, here is what I would ask you and then ask others

to comment. You criticized the concept of a public health plan in

the association’s recent advocacy, and I wonder if there is not a

way to work together on this important component of health care—

that is what my question is—or if the opposition that your association has is simply about protecting a monopoly over a small group

and individual market? If the field was level, the playing field was

level in rules and requirements that private plans and the new

public option plan had to live under in the new health exchange,

why would you oppose it? Competition is healthy, right?

Dr. KORN. Competition is healthy. We are always open to discussion, and I think that no door is ever slammed shut on increasing

competition among private insurers. However, some of the fundamental concerns with a governmental programs, though, that I

think we have to deal with realistically are that a federally sponsored program would not have to have reserves, would not pay

taxes. It is very hard to imagine what a level playing field would

look like when the ultimate competition is an economic proposal to

a potential purchaser. So there are many issues to be thought

through here before we can determine how that might work.

Certainly we do want everyone to be covered, and certainly there

are those who under no circumstance could afford any option, and

we think there is a role for the Federal Government in filling that

gap through existing programs, if possible, if they were not willing

to subsidize premiums to those of us who are in the commercial

sector.

So the level playing field is somewhat difficult to envision given

the requirements of private insurers, and I wonder if maybe Mr.

Williams would have any further reflections on that.

The CHAIRMAN. I might say, too, that the next session is going

to deal with coverage, which is a more appropriate forum for this

particular subject. It is fine to bring it up now, but this session is

designed more for delivery system reform. The next session is going

to be coverage in all various ways we cover Americans. But I am

glad you raised the point. We do not have the panel yet——

Senator SCHUMER. I know. But even——

The CHAIRMAN. And I might also say, as you are saying, Senator,

that my judgment is the public plan option should be on the table

along with everything else. Nothing is off the table, because we

have such a terrific opportunity here to move forward together.

48

One of the beauties of all this—it is tremendous when you think

about it—we are being strategic here. We are coming up with a

plan which will take several years to implement and to take effect

and help reduce cost and help improve quality of health care and

help improve coverage. Instead of Congress going down the usual

road of every year a little bit here, a little bit there, pushing the

balloon here and it bubbles up someplace else, this is exciting. This

is strategic. This is a whole new approach in health care reform

that we have taken in Congress for a long, long time. That is why

I want to keep everything on the table, everybody keep an open

mind. There is always a way to skin a cat. There is always a way

to work out something here. It is give and take everywhere. Then

the public option is clearly in that same category.

Senator SCHUMER. I appreciate that, Mr. Chairman. The point I

was making to Dr. Korn is it might be that for a private nonprofit

insurer or private for-profit insurer, a public plan might work to

your advantage. You know, I know everyone thinks, ‘‘Well, I am

going to get this segment of the market and this is the segment I

want.’’ But part of our job is to make sure you cover other—and

it is true, it is related to coverage. But it also is related to innovation and cost savings and things like that. And to me, at least, I

would never—there may be some people who say only have a public

plan. That makes no sense. But it equally makes no sense to sort

of push off the table, as the Chairman said, to have a public plan

even in your own self-interest. And, admittedly, our interests and

your interests are not always the same.

Do you want to say something to that, Mr. Williams?

Mr. WILLIAMS. At this point I would just say the Chairman has

spoken and we understand it is all on the table.

Senator SCHUMER. Everyone agree with that? [Laughter.]

The CHAIRMAN. Everything is on the table. Everything is on the

table with the single exception of single pay. I do not think single

pay is on the table. This country is not going to adopt single pay—

at least not this time. I do not think. But everything else is clearly

on the table.

I have a question on behalf of Senator Kerry. He was unable to

stay for the hearing. I would like to ask it on his behalf. He asks:

Medicare Part A and Part B have different payment structures

that often result in silos and discourage care coordination. Some of

you on the pane have discussed the need for bundled payments.

Can you elaborate on this concept? What else besides bundling can

be done to better coordinate care between services covered under

A and B?

We discussed that a little bit, but why doesn’t somebody just sum

up an answer to that? Anybody who wants to take a crack at that

on behalf of Senator Kerry.

Mr. IGLEHART. Mark?

Dr. MCCLELLAN. We have talked about a number of different approaches to try to payments aligned, better support, results, and

care at the patient level, this patient-centered care notion. The

medical home can help with that by giving primary care providers

more of an opportunity to bring together different pieces of health

care delivery, the bundled payments by bringing more alignment

between physicians and hospitals and post-acute providers. All of

49

these kinds of things move in the same—have the intent of moving

in the same direction.

I would add to that the notion of accountable care organizations,

which we have talked about. That is at a bit higher level, trying

to get some recognition of the importance of better results truly at

the person level, at the population level, and trying to get costs

down at that level as well.

As you heard from many of the providers here today, with hospitals, physicians all working in a very fragmented way today, you

have got to be careful about how you move in this direction, and

it may require some extra support in the short term to get there.

But it seemed like from this panel there is a lot of support for recognizing that if we can do a better job of having payments that

support coordination of care and person-level results, that will help

us get the kinds of delivery system changes that we want.

Mr. IGLEHART. Mr. Morris?

Mr. MORRIS. I also think we will need to look at the current

fraud and abuse laws to ensure that the effort to align the interests

of hospitals and physicians is not blocked by current laws, which

in many cases inhibit those sorts of changes. There are civil penalties, the Stark law, and the kickback statute all in play here, and

we will need to look at those to ensure that they are not inhibiting

positive innovation.

The CHAIRMAN. Right. I hear that.

Mr. UMBDENSTOCK. Three things, Mr. Chairman, quickly.

First of all, conceptually we understand where this is trying to

go and why it has not been tried broadly, demos just starting. I

think we need to learn a lot and bring it back to the Congress and

decide what needs to go forward, what is the best way to move.

Secondly, to underscore what Lew Morris just said, we need

some legal review, if not legal relief, so that hospitals and physicians can work together more closely, clinically integrate so that we

deliver on a higher-quality product, but understand that the legal

barriers have been lowered.

Thirdly, as we talk about bundling as it is presently being discussed around acute and post-acute, there is no common assessment tool to figure out where to put the patient in different postacute facilities. Work has begun on that. We need to know more

about that and how to do that properly for the patient’s point of

view but also the provider’s.

And, lastly, we have in that same realm in the post-acute numerous regulations that restrain or constrain where a patient can go

or how many patients can go to what type of facility from what

type of facility. We have got to think about lowering all of those

barriers if we are going to truly pay as one and operate as one, and

that is going to take—I think that has got to be considered as well.

The CHAIRMAN. Thank you.

Mr. IGLEHART. Dr. Naylor?

Dr. NAYLOR. On the idea that everything should be on the table,

I hope that we will consider in the payment options an opportunity

for accountable entities defined by local communities that are strategically targeted and designated to provide services to this 20 percent of Medicare beneficiaries who need more than the medical

home or the primary care services will provide and who will not

50

necessarily be well served by a bundled payment delivered to hospitals.

So I hope that we can think about what our evidence suggests

is an appropriate approach to improve the care, reduce the readmissions, and achieve health care savings.

Mr. IGLEHART. Mr. Hackbarth?

Mr. HACKBARTH. I want to take a little bit different tack. The

silos in health care delivery that we have talked about are not so

much a function of the separation between Part A and B but, rather, a function of the payment systems that we use within them. I

think the relevance of the A-B distinction is more at the financing

level, how the revenues raised to finance the program. And so, you

know, I think we need to bundle payment across A and B, but I

do not think the current A-B distinction is a barrier to doing that.

So I would urge you to think about A-B issues as matters of equity in financing. Is this the way we want to raise the revenues to

finance a Medicare program?

Mr. WILLIAMS. I think the one other point—a couple of points I

would make. One is as we think about the process of bundling, we

need to make certain that we do not lost sight of patient preference

as they go through a course of treatment, because as you bundle

the payment, the patient may at some point in that process choose

to have different ideas about where to get care or how to get care.

And so I think all that needs to be contemplated as this process

evolves. I think it is a very good process, but we need to not lose

sight of that.

I think the other thing I would say is to have flexibility in the

model. I think there is a question about is it a hospital model, a

physician model, or even a health plan model. And all of this is

going to require health information technology, software, data. For

example, biometrics could be a huge component of providing better

care outside of the hospital in collaboration with nurses and others

in the home, along with telemedicine and other capabilities.

And so I think if we want to explore this, we should have broad,

general ideas to give us an ability to figure out what works experientially.

Mr. UMBDENSTOCK. Mr. Chairman, as you know, how this plays

out in a rural community with differing arrays of service capabilities is something for us to think through as well.

The CHAIRMAN. That is right. When we talk about rural, I am

reminded there is rural and there is rural in this country. [Laughter.]

Anyway, rural in the East is an interesting concept. Rural in the

West is really rural.

Mr. IGLEHART. A number of the panelists have brought up the

subject of hospital readmissions, mostly in the context of expressing concerns about them. But I would like to ask Mr. Umbdenstock,

representing hospitals, to give us the AHA view of that in terms

of an issue and how to address it.

Mr. UMBDENSTOCK. I am sorry. We were finishing up on the last

topic. Can you——

Mr. IGLEHART. Readmissions, and what the AHA view is in terms

of how to address it.

51

Mr. UMBDENSTOCK. Well, first of all, a readmission is not a readmission is not a readmission. The way the term is being used

today, some apply as a readmission, a second admission off of a

common diagnosis or episode. Others are just talking about new

admissions within a specific period of time. And so our concern is

not over eliminating unnecessary or preventable readmissions. We

want to do that. But when everything gets lumped into the same

bucket, it becomes problematic.

We think that on the readmissions we really need to focus on

those that are related to the original admission and that were unplanned as part of the patient’s course of treatment. If we can focus

in on those and, like other subjects here today, focus in on those

that are most common for different types of patient conditions, we

think we can make some significant progress on that. But lumping

them all together as readmissions is a problem.

Secondly, the current proposal says that the bottom quartile or

top quartile, whichever direction you want to come from, but some

sort of quartile cut-off, there is always going to be a final quartile.

And so we have got to look at a better way, because even as we

improve on readmission rates, the notion that there is some continuing penalty hanging out there does not make a lot of sense to

us.

The CHAIRMAN. Mr. Diaz?

Mr. DIAZ. Yes, just one further point. I appreciate and I think it

is very important that post-acute care has been incorporated in the

discussion of potential bundling opportunities. I think that there

are great opportunities there. And I think it is the right goal to

talk about better care coordination and improving efficiencies—or

inefficiencies within the system.

I think, as has been suggested, that an incremental approach is

best. There is a lot yet we have to learn in terms of the comparative effectiveness, in terms of different post-acute sites. And I

would also say that part of what needs to be considered are which

entities, in addition to acute-care hospitals, are best vested with

that responsibility.

And, lastly, I think that, as has also been talked about, we need

to make sure that incentives are aligned to build that infrastructure that is necessary to operate in a bundled payment environment to assure quality, to assure care coordination, and that that

happens all across the country in rural communities as well as

metropolitan communities.

The CHAIRMAN. Dr. Steele?

Dr. STEELE. Yes, I think that the readmission is a metric that

you could easily apply to your goals for chronic disease management improvement. And I think that what would be a terrific engine for getting there is to go to systems that might not be the

usual delivery system and see what the best outcome is. And then

you essentially say how do we generalize into a much more fragmented system and work with the AHA and other communitybased organizations to figure out how to bridge the gaps that are

going to be there for quite a while, since everything does not look

like our integrated system. But I think that there are ways of getting there in a short period of time doing dissemination from best

practice.

52

The CHAIRMAN. This is very interesting. You know the game

whack-a-mole? Every once in a while, I see another card go up

here. [Laughter.]

Dr. NAYLOR. I just want to say from that patient and family caregiver’s perspective, a hospital readmission is a hospital readmission. It is an extraordinarily tremendous human burden to them.

And we have the capacity to reduce readmissions for Medicare

beneficiaries between a quarter and a third, avoidable readmissions. And I think we are only going to succeed when we realize

that the care needs of these people are much more complex. It is

not just about medical management. It is about managing the community services. It is about managing the inadequate social support—all of the factors that contribute to poor outcomes. We need

a comprehensive, holistic approach. We need a team model to get

there. And we have evidence to guide us.

The CHAIRMAN. I experienced a little of this. My mother was in

the hospital a few years ago—it was a colon matter—and we put

her in a post-acute facility, and she had to go back in the hospital

again because it got worse. And I know that a lot of it was because

she was not cared for when she left, with her meds and everything

under the sun. I could just feel the disconnect there when I was

visiting her. And so when people talk about all this—my mother is

real—it happens. She is fine now. She is great. But it was a bit——

Mr. IGLEHART. I have a final question, if you have any——

The CHAIRMAN. Sure.

Mr. IGLEHART. I think back a generation to the Republican administration of Richard Nixon and the proposal that he put forward

that really proved to be transformational: government support for

the creation of what was called ‘‘prepaid health plans’’ at the time

and then became known as ‘‘health maintenance organizations.’’

And, of course, it went on to evolve into managed care, and we all

know what happened to that.

But my question is really, based on the concerns of the Committee and the Congress about the unsustainability of Medicare

and Medicaid in the current cost trends, whether the proposals

that we have discussed today are broad enough, are fundamental

enough, to really address the magnitude of the problem. And I

would be interested in comments, or even written comments to the

Committee if time has elapsed.

The CHAIRMAN. Well, thank you, John. I think it is an excellent

question, and I would like panelists to think about that, frankly.

Before we get to that point, I want to give panelists an opportunity

to say anything that has not yet been said. Maybe somebody has

said something outrageous that needs to be addressed. Or maybe

there is a nagging little something in the back of your head that

you would kind of like to get out. Here is the opportunity now.

We are going to be going through something we call a ‘‘walkthrough’’ a week from tomorrow. It will not be a markup of legislation on this subject of delivery system reform. Again, we divided

this into three areas: delivery system is one, coverage second, and

payment is the third, how we pay for it is the third.

But on Wednesday, we are going to do something called a walkthrough; that is, the Committee will walk through tentative, sugVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 48952.XXX SFIN1 PsN: SFIN1
53

gested, potential legislation with respect to delivery reform. Then

we put all these three together in June, have a markup in June.

So during this next week, we will be talking to you, calling you

up for some follow-up, because you have given a lot of solutions and

a lot of suggestions here which I think make a lot of sense. But

you have also raised a lot of questions, at least in my mind. I made

notes on how to do this and how to do that and so forth. But I just

want to thank you very, very, very much. This has been one of the

most productive sessions I have ever participated in since I have

been in the Senate. Everybody was right on target, no grandstanding; nobody is playing to the crowd.

This is why we came here. We came here to do good, public good,

public service. I know I can speak for all the members of the Committee in saying so, and I know I can speak for all of you because

you are in a field providing service to people. And I just want to

compliment you very much.

As I said at the outset, I am very excited about this. We are

going to go somewhere. Something is going to happen here. And if

we are here at the take-off and just keep working, we are going to

be also all together on the landing, which will be hopefully a soft

landing, and one which will provide a lot of care at lower case, give

access to the American people, and make us all very, very proud.

So thank you very much. Unless somebody wants to finish some

comment, some statement, something that he or she thinks should

be addressed.

[No response.]

Mr. IGLEHART. Thank you, Mr. Chairman.

The CHAIRMAN. The Committee is adjourned. Thank you very

much.

[Whereupon, at 1:12 p.m., the roundtable was adjourned.]

(55)

ROUNDTABLE ON EXPANDING

HEALTH CARE COVERAGE

TUESDAY, MAY 5, 2009

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The roundtable was convened, pursuant to notice, at 10:07 a.m.,

in room SD–106, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senators Conrad, Bingaman, Kerry, Lincoln, Wyden,

Schumer, Stabenow, Cantwell, Nelson, Menendez, Carper, Grassley, Hatch, Snowe, Kyl, Bunning, Crapo, Roberts, Ensign, Enzi,

and Cornyn.

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; Liz Fowler, Senior Counsel to the Chairman and Chief Health Counsel; Cathy Koch, Chief Tax Counsel;

Tiffany Smith, Tax Counsel; and Bridget Mallon, Detailee. Republican Staff: Kolan Davis, Staff Director and Chief Counsel; Mark

Hayes, Republican Health Policy Director and Chief Health Counsel; Susan Walden, Health Policy Advisor; and Kevin Courtois,

Health Staff Assistant.

Panelists:

Stuart M. Butler, Ph.D., Vice President, Domestic and Economic

Policy Studies, The Heritage Foundation, Washington, DC;

John J. Castellani, President, Business Roundtable, Washington,

DC;

Gary Claxton, Vice President and Director, Health Care Marketplace Project, Henry J. Kaiser Family Foundation; Washington,

DC;

Donald A. Danner, President and CEO, National Federation of

Independent Business, Washington, DC;

Jennie Chin Hansen, R.N., M.S., FAAN, President, AARP, Washington, DC;

Karen Ignagni, President and CEO, America’s Health Insurance

Plan, Washington, DC;

R. Bruce Josten, Executive Vice President, Government Affairs,

U.S. Chamber of Commerce, Washington, DC;

Len M. Nichols, Ph.D., Director, Health Policy Program, New

America Foundation, Washington, DC;

Ron Pollack, J.D., Executive Director, Families USA, Washington,

DC;

56

Sandy Praeger, Commissioner of Insurance, State of Kansas, and

Chair, Health Insurance and Managed Care Committee, National

Association of Insurance Commissioners, Washington, DC;

Sara Rosenbaum, J.D., Chair, Department of Health Policy, George

Washington School of Public Health and Health Services, Washington, DC;

Diane Rowland, Sc.D., Executive Vice President, Henry J. Kaiser

Family Foundation, and Executive Director, Kaiser Commission

on Medicaid and the Uninsured, Washington, DC;

Raymond C. Scheppach, Ph.D., Executive Director, National Governors Association, Washington, DC;

Scott Serota, President and Chief Executive Officer, Blue Cross and

Blue Shield Association, Washington, DC; and

Andrew L. Stern, International President, Service Employees International Union, Washington, DC.

[The prepared statements of the panelists can be found in the appendix.]

The CHAIRMAN. The committee will come to order.

[Interruption from the audience.]

The CHAIRMAN. The comments from the audience are inappropriate and out of order. Any further disturbance will cause the

committee to recess until the police can restore order.

[Interruption from the audience.]

The CHAIRMAN. The committee will be in order. The committee

will stand in recess until the police can restore order.

[Whereupon, at 10:07 a.m., the roundtable was recessed and resumed back on the record at 10:08 a.m.]

The CHAIRMAN. Today the Finance Committee hosts the second

of three roundtable discussions on health care in America.

[Interruption from the audience.]

The CHAIRMAN. The committee will be in order.

[Interruption from the audience.]

The CHAIRMAN. The committee will stand in recess until the police can restore order.

[Interruption from the audience.]

The CHAIRMAN. The committee will stand in recess until the committee can restore order.

[Whereupon, at 10:08 a.m. the roundtable was recessed and resumed back on the record at 10:10 a.m.]

The CHAIRMAN. The committee will come back to order. Let me

try something else here.

[Interruption from the audience.]

The CHAIRMAN. For all those who are listening, and especially for

those in the audience here——

[Interruption from the audience.]

The CHAIRMAN. And especially those—sir? Sir? Sir? Sir, if you

would let me just say something. Sir?

[Interruption from the audience.]

The CHAIRMAN. The committee will come to order.

[Interruption from the audience.]

[Whereupon, at 10:10 a.m. the roundtable was recessed and resumed back on the record at 10:12 a.m.]

57

Senator KERRY. Is there anybody in the audience who did not

come to——

[Laughter.]

The CHAIRMAN. Let me say this. I think I speak for everybody

on the committee and everybody in the Congress, that we deeply,

deeply respect the views of all members of the audience and all

Americans who feel deeply about health care reform, especially

those who are worried about the single-payer system or a public option, who really do fervently believe that that is the proper result.

That is a view that many people have. It is a view which I respect.

There are other approaches to health care reform, which I also respect.

The whole point of this hearing, and other hearings, is to try to

determine the best route, the best option in determining how to

best reform our country’s health care system. So for those of you

who remain in the audience who may be inclined to stand up and,

out of order, state your views, I encourage you not to do so because

I want you to know that I personally care deeply about your views.

I deeply respect your views. I hear what you say. I talk to a lot

of people in my home State of Montana who have the exact same

views. I represent 900,000 of the world’s best bosses, Montanans,

and many of them have the very same view.

But we are going to get the best result here the more we can

have an orderly discussion as to how we should best reform our

health care system. So I want to say to everyone, and especially

those of you who might be inclined to stand up, that I urge you not

to so that we can proceed with the hearing—holding your views

also deeply in mind as we proceed. Thank you.

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. Today the Finance Committee hosts the second

of three roundtable discussions on health care in America. The

committee has spent a significant amount of time laying the

groundwork for comprehensive health care reform, and now the

time for action approaches. This roundtable discussion will preview

many of the policies that the committee will consider in a walkthrough session next week, and depending upon comments from

Senators on the committee, in a markup in June.

The week before last, we had a roundtable on delivery system reform. Today we are here to discuss how to provide health coverage

to all Americans. Next week, we will hold our third, and final,

roundtable on financing health care reform.

As we discuss policy options for coverage, it is important to keep

several facts in mind. First, the United States is the only developed

country without health coverage for all of its citizens. Approximately 87 million people, 1 in 3 Americans, went without health

insurance for some period during 2007 and 2008, and the situation

is only getting worse.

Second, the economic climate has caused even more people to become uninsured. According to the Kaiser Family Foundation, for

every 1 percent increase in the unemployment rate, Medicaid and

CHIP enrollment increases by 1 million, and the number of uninsured Americans increases by 1.1 million.

58

In today’s economy, that means a lot of folks are affected. In

March, 2009, the unemployment rate rose to 8.1 percent, and according to the Center for American Progress, 14,000 more people

lose their health insurance coverage every day.

Third, why is covering all Americans so critical? It is because

people without health insurance generally experience poorer health

and worse health outcomes than those who are insured. The Urban

Institute reports that 22,000 uninsured adults die prematurely

every year because they lack access to care. In addition to the uninsured, another 25 million Americans are under-insured. They do

not have enough coverage to keep their medical bills manageable.

Despite their insurance coverage, medical debt keeps these

Americans from feeding their families, paying their rent, or heating

their homes. Finally, the uninsured affect those who have insurance. When the uinsured who cannot pay health care providers

shift those costs to those who can, those who have insurance. This

cost shift accounts for roughly 8 percent of the average health insurance premium. That is $1,100 per family, or $410 per individual

in 2009.

We have an opportunity to make sure that all Americans have

a fair chance at good health, make sure that no family goes bankrupt due to medical costs, to make sure that the insured no longer

have to bear the costs of the uninsured. The cost of inaction is too

high. It is too high for individuals, for families, businesses, and

State and Federal Governments.

Each of our participants today brings an important voice to the

discussion. They are experts, stakeholders, or both. Among our

guests are folks from the insurance and business communities, we

have labor and consumer representatives, we have experts in insurance markets and public programs.

As we proceed with today’s discussion, I urge everyone to keep

in mind that coverage is one part of health reform. We must also

address rising health care costs and must find responsible and sustainable ways to finance reform.

Forgive me for not taking the time to introduce each person here

today. We have distributed a biographical sketch and a brief statement for each participant. Before today’s session we gave each participant and Senator on the committee some questions to help start

our dialogue, and beyond that, I anticipate a fruitful discussion. So,

let us get started.

Before I introduce Senator Grassley, though, a couple of points

here. Number one, I will recognize Senators as they seek recognition. I ask Senators just to raise their hand. I would also encourage

all participants who wish to speak spontaneously or in reaction to

some outrageous statement that was made, raise your hand so I

will recognize you as well.

I am going to try to keep the discussion flowing, subject per subject. That is, if we are on the individual market and some of the

problems in the individual market, I just encourage Senators to

stay on that subject. But of course, we never constrain Senators.

Senators may want to speak on any subject that they might. But

we will do our very best to try to make this as significantly on

point as we can.

59

Unfortunately, I think we are going to have a vote around 11:00,

so we might have to break and come back. But I will do my very

best just to keep things flowing.

I would now like to introduce my colleague, Senator Grassley.

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Yes. Thank you, Mr. Chairman. And thanks,

all of you, who are on our panel, for participating in this roundtable. The first roundtable was very, very successful. I think this

one will be, too. The subject that we are dealing with today is a

little more difficult than the previous subject and they probably get

more difficult as time goes along. So, you are participating in one

of the more difficult decisions that this committee has to make.

Most everyone agrees that our health care system is in need of

fixing. The American health care system, if you can even call it a

system—and I would rather not use the word ‘‘system’’—is in desperate need of reforms. We spent twice as much on health care as

other developed countries, but even with all of this spending our

health care outcomes are not as good as in other countries.

We have escalating costs, inefficient delivery systems, 47 million

people lacking health insurance, millions more live in fear of losing

coverage. Our responsibility is how to get affordable coverage to everyone, and we must make these reforms in a fiscally responsible

way. We need to bring costs under control.

In March, Senator Baucus and I joined other members of Congress and other stakeholders at a White House Conference on

Health Care. In bringing everyone together, it was clear that we

agree on many issues and still have a long ways to go on others.

But overall, I left the White House knowing that Republicans and

Democrats share a commitment to expanding health insurance coverage and improving the way that care is paid for and delivered.

Last week we had our first roundtable on delivery system reforms. It went very well. Now we are moving on to tougher issues.

There are more controversial issues when it comes to coverage. I

will not name them all, but individual mandates, government-run

public plan, and Federal health boards are just some of those

issues that will come up. There are no easy issues when it comes

to coverage.

We are here today to share ideas and to weigh in on all the coverage issues that we need to tackle. If we are to succeed in making

real changes that benefit millions of Americans, all of us are going

to have to listen and consider many ideas.

On all of these tough issues, we need to find solutions that work.

Everyone needs to work together to find common ground. I am very

appreciative of all of you who have come together to help with this

process.

Mr. Chairman, I yield.

The CHAIRMAN. We have a quorum here. I apologize to the experts here, the panelists, but we now have to conduct a little bit

of business and will make it as expeditious as possible.

[Whereupon, at 10:21 a.m., the roundtable was recessed to enter

into Executive Session.]

[After recess—10:22 a.m.]

60

The CHAIRMAN. All right. Let us get to business. I want to start

out by talking about the individual market. I want to ask Gary

Claxton, Karen Ignagni, and Sandy Praeger, can you tell me a little

bit about the current factors used in determining premiums in the

current individual market and a bit about the current state of the

market as on open for obtaining health insurance? Just focus a bit

on the individual market, its strengths, its weaknesses, the problems, and how we begin to reform the individual market.

I will start with you, first, Gary Claxton.

Mr. CLAXTON. Thank you, Senator. Thank you very much. Rates

are currently set in the individual market based on health status,

age, gender, geography, whether or not someone smokes, and, of

course, benefits. There are also some other practices in the market

that are a little bit less apparent.

Some insurers will vary the rates that people are charged based

by their duration in the policy, for instance, how long they have actually had it. This allows insurers to offer the lowest possible prices

when the policy is first issued, but then people get higher increases

each year than they would normally get. Unfortunately, it is the

kind of practice that is not disclosed.

Another factor that can affect rating at renewal is whether or not

the insurer is still accepting new business into the policy. Closed

blocks of business tend to have much higher rates of increase from

year to year than policies that are still being offered.

If you look at the market and want to characterize it in terms

of its ability to offer people good coverage options, the market is basically characterized by policies with low actuarial value and high

administrative costs, so the policies tend to have high cost sharing,

a lot of coverage limits, and the sort of administrative cost of selling these policies is pretty high, in part because of the turnover in

the market and also because of the commissions that are paid to

people.

The lack of tax subsidies for this market make it much less attractive than group insurance, so people do not tend to choose nongroup coverage unless they do not have a group option. Because

they are paying the entire cost and because they do not get any

help through the Tax Code like group insurance does, people tend

to buy policies which are much less valuable.

The CHAIRMAN. Cutting to the quick here a little bit, is there

anybody on the panel who agrees with the statement that the individual market needs significant reform? Is there anyone who disagrees with that statement, that the individual market needs significant reform?

[No response.]

The CHAIRMAN. Seeing no objections, we will establish that as a

predicate here. All right.

Now, I want to ask somebody, how are we going to form the individual market? Ms. Ignagni, I will ask you, and also ask Sandy

Praeger, a former NAIC president and current Kansas Insurance

Commissioner.

Ms. IGNAGNI. Thank you, Senator. First of all, thank you for convening this forum. We very much appreciate the opportunity to

participate. I think Gary has made important observations which

61

caused us in the health insurance arena to step back and consider

what was not working.

In our proposals, we have recommended a full-scale reform and

a complete overhaul of the rules associated with the individual

market. In fairness, just for a little context, it is important to note

that, with the exception of Massachusetts, there never was a law

passed that requirede everyone to participate in the market, so

health insurance rose and developed practices similar to life insurance, property and casualty, et cetera. The problem is, people in

the individual market generally wait until they need insurance to

purchase, so we stepped back and said, how do we solve this problem and how do we provide health security to people, which is the

fundamental question you are asking?

Our proposals are as follows, simply: guarantee issue, that everyone gets insurance; two, nobody falls through the cracks because of

preexisting conditions; three, no health status rating so that no one

would be discriminated against or penalized because of their prior

health care status, requiring them to pay more. This would level

the playing field.

We are proposing Federal guidelines that could be implemented

and executed at the State level, so there is no inherent benefit of

living in State A, B or C. This would be a whole-scale reform,

would solve the underlying problems that Gary articulated very

well, and that you implied in your opening statement. We are fully

supportive of this whole-scale reformation.

We also are fully supportive of Federal regulations. We are not

proposing voluntary efforts, we are talking about uniform guidelines that would be specified in legislation so that everyone could

understand there is transparency, there is effectiveness, and there

would be regulatory accountability.

The CHAIRMAN. Jim? Senator Bunning?

Senator BUNNING. Yes. I do not disagree with you, I just would

like to find out who is going to pay for that from the present setup that we have, the many different, various payors, whether you

are in a group policy or whether you are in a single coverage policy,

or whether your employer furnishes you benefits. That does not

cover about 47 percent of the American people. How do we get

enough money in the system to take care of that?

Ms. IGNAGNI. Senator, would you like me to respond?

The CHAIRMAN. Go ahead.

Ms. IGNAGNI. There are three answers, very quickly, Senator, to

your question: one, there is no question that health reform will require additional resources; two, there are efficiencies that can be

applied if you bring everyone into a system versus having people

fall through the cracks because they have high health care costs or

previous health care status, as you know.

Senator BUNNING. I understand that.

Ms. IGNAGNI. Three, we strongly believe, as part of health care

reform, and this committee has done considerable talking about the

third point, which is, as part of reform, we have to bend the cost

curve so that we can free up resources that can be applied, either

through changes in reimbursements, through other kinds of emphasis on prevention and wellness. There are many strategies that

can help you bend the cost curve.

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Senator BUNNING. Or does that mean that those of us who are

presently covered and paying are going to have to ante up more to

make sure that everybody is covered?

Ms. IGNAGNI. Well, you are now, frankly. There is a surcharge

that is being paid on health insurance because people are not——

Senator BUNNING. I understand that. But I am talking about a

significant amount. When I look at Sweden and I look at Canada

and I look at the United Kingdom, where we have single payor and

government single payor, we have a tax rate of 60 percent or higher in those countries. So can you give me a ballpark figure?

The CHAIRMAN. If I might, Senator, we are going to take up financing, how we pay for all this, in the next session. That is an

excellent question you are asking. It is a question on everybody’s

mind. The past session, as you know, was on delivery system reform.

Senator BUNNING. All right. I will wait.

The CHAIRMAN. Today’s is on coverage, various ways of coverage.

The third, is how we are going to pay for all this.

Senator Kerry?

Senator KERRY. Thank you, Mr. Chairman.

Ms. Ignagni, you said that you agree that there ought to be reform of the individual market, and particularly that you are not

rating on health status.

Ms. IGNAGNI. Yes, sir.

Senator KERRY. But I have introduced legislation today, which I

hope will actually become part of this ultimately, but if it is not we

should pursue it, I think, and that is that you do rate gender. Gender rating is a pretty common insurance practice, and women are

charged higher premiums than men for identical coverage.

The National Women’s Law Center says that a 25-year-old

woman can pay up to 45 percent more than a 25-year-old man for

the same coverage; a 40-year-old woman pays 48 percent more than

the 40-year-old man for the same coverage; and a 55-year-old

woman pays 37 percent more than a 55-year-old man. So it seems

to me that is insurance discrimination and I would like you to address whether that should also be eliminated.

Ms. IGNAGNI. Yes, sir. We do not believe that gender should be

a subject of rating.

Senator KERRY. But it is, correct, in many places?

Ms. IGNAGNI. It is, sir. And in our reforms we have not recommended that that be continued. We recommend that it be discontinued.

Senator KERRY. So do you recommend that we actually create a

prohibition?

Ms. IGNAGNI. Yes, sir. And to add credence to your point in terms

of the data, what it says is the following: women tend to incur

higher costs in their childbearing ages versus men, and then that

flips around 50 to 55 and men incur higher costs later in life. So

our thought was that it does not make sense, as we are thinking

aboute a reform system with everyone participating, and subsidies

to help people make sure that the care is affordable. So, we agree

with you.

Senator KERRY. Well, I am glad to hear that.

Thank you, Mr. Chairman.

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The CHAIRMAN. Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman.

I think Senator Bunning touches on the key question and the relationship of coverage to finance. I think you are absolutely right,

Mr. Chairman, in saying that finance is a topic for another time.

I think there is a way to get at this issue that keeps it primarily

on coverage.

If you go out on the streets of this country and you talk about

coverage, it is almost a no-brainer issue. People want coverage like

their members of Congress have. That is what you hear again and

again and again. I think we know that there are some ways to do

that, a variety of different ways, including ways that are budgetneutral.

The key is individual choice. I think that is central to the reform

issue. In fact, 85 percent of the firms that offer health benefits in

this country offer only one health plan type, so you have got most

Americans not having the kinds of choices that members of Congress have.

My question is for you, Mr. Nichols, and for Stuart Butler. I

think Stuart is down at the end. Is not the key in terms of health

care reform containing costs and satisfying the public to make sure

that our people have these choices like members of Congress have?

They are part of a big group so that they can have the benefits of

cost containment when you spread the cost and the risk, they do

not get discriminated against, they do not get cherry-picked. Is that

not the key to reform, is having those kinds of individual choices

as part of a big group, Mr. Nichols?

Dr. NICHOLS. Well, Senator Wyden, it is certainly true that—it

is kind of interesting. There is almost a parallel. If you think about

your last roundtable where a lot of discussion was on patientcenteredness, insurance really ought to be about individualcenteredness. That is, how do we give all people in the United

States the same kind of choices that people in very large groups

get? Certainly members of Congress and the people who work for

the Federal Government are one group. A lot of large firms also

offer a very large set of choices. What we really want to do, it

seems to me, is bring the efficiencies of very large-group purchasing to everyone.

When you do that, it turns out you can then afford fairness because then you can have the rules that Karen just talked about,

that fundamentally if you have a big pool, then the overall pool is

the population that is healthy so you do not have to worry about

all the things that the individual insurers had to worry about when

the purchase was voluntary, et cetera.

But the key to making competition work—and I think that is

really what this committee is most focused on here—is making sure

that the insurers have to satisfy the individual preferences. Now,

you know there are 300 million Americans who have a couple of

different preferences about how you want to have your arrangement set up.

If you just have a situation where they have to sell to one owner

or to one HRVP or somebody who is picking a plan for a bunch of

other people, then that is not as good as allowing individuals their

own choice. It forces the insurers to reflect those different choices,

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and I think, in fact, they are quite willing to do that because the

last thing they want is a straightjacket on exactly one type of plan.

What they want is to have those preferences meet in the marketplace. But the key is changing their business model. Fundamentally, in the past, before they have been willing to do away with

the kinds of procedures that Gary described and that Karen is now

skewed, basically they made money by selecting risk, by making

sure that they prevented some from being insured with the others.

What we want is a system where everybody is covered, and

where they make money by helping us find value in the health care

system. Again, that is how it is linked to what you did last week,

that it is about finding value in the health care system. Individual

choice will drive you there.

The CHAIRMAN. I have a question for Mr. Castellani, the employer’s perspective in all this. We are talking about the individual

market. What is businesses’ view on its role here, from your perspective?

Mr. CASTELLANI. Thank you, Senator. Clearly, from business’

standpoint, and particularly the larger businesses that the Business Roundtable represents, having everybody in the market is

very important. We think the insurance reforms that Karen

Ignagni laid out are absolutely essential, if we can bring everybody

into the market because that is one of the key starting points.

For large employers, we tailor our benefit programs to match the

needs of our employee bases and their families. One of the most

important things that helps us do that and do it in an affordable

way, is ERISA, so one of the biggest concerns we have is, while we

open the market and while we have everyone covered, that large

employers still have the protection of ERISA so that they do not—

while they can provide choice, which the Senator is pointing to, and

they do indeed provide choice—have to have 50 different programs

to provide those choices.

They can have a single-employer program that covers all of their

employees and their retirees, if they cover retirees. That is how we

gete the kinds of cost efficiencies that will allow, in our case, 35

million lives to be covered from just the 160 companies of the Business Roundtable, and then overall, the 177 million Americans that

currently get their health insurance from their employer.

The multi-state employers both support the kind of health insurance market reforms that are necessary to get everybody in, but

also would urge that you keep in mind the efficiencies that ERISA

gives us as multi-State employers to be able to have an affordable

product that is tailored to our employees.

The CHAIRMAN. I see Senator Stabenow is seeking recognition.

Before I do that, Senator, might I just ask the small business perspective? Mr. Danner, your view?

Mr. DANNER. Sure. We certainly agree very strongly in the need

for, as Mr. Nichols said, large-group efficiencies. We have supported for a long time creating larger marketplaces, like an exchange. We think that is important for both individuals and small

businesses. We certainly agree that both individuals and small

businesses need more choices in the marketplace. Of the small

businesses that do provide health care, it was mentioned earlier,

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about 80 percent of them only provide one plan. So their employees

would need, and would like to have, more choices.

We also agree that there needs to be, in both the small group

and individual market, added additional competition. The small

businesses want a competitive marketplace that gives them added

options for choices to quality plans.

The CHAIRMAN. I know there are lots of Senators seeking recognition. Let me ask, do you favor the basic provisions in the white

paper, that is, the exchange concept, and also the requirement that

everyone have health insurance? Does that help small business,

those two points?

Mr. DANNER. We do very much favor an exchange system, some

kind of added marketplace in an individual mandate. I think we

are open to the idea. Our members support some kind of individual

responsibility.

The CHAIRMAN. All right.

Senator Stabenow?

Senator STABENOW. Thanks, Mr. Chairman.

To follow up on Mr. Danner’s point in terms of whether or not

there is enough competition in the marketplace, the American Medical Association has published reports on the current insurance

marketplace, indicating that they believe it is very anti-competitive

at this point. Results of mergers and acquisitions since 2000 have

resulted in insurance companies controlling over one-third of the

national market for commercial health insurance and they found

anti-competitive markets in 94 percent of their metropolitan statistical areas. I would take my question a little different way, and I

would like Dr. Nichols to comment, and then others as well. Ron

Pollack, if you want to comment as well.

When we look at the current situation, let us argue for a moment

that there is a consumer plan option. Some folks have called it a

public option, but the idea of a consumer-driven public option that

would negotiate rates, and, Dr. Nichols, as you indicated, across

the board, no special treatment, no connections to Medicare, just

straight across-the-board competition. Would that not help us improve access, coverage, and cost in the current marketplace that we

have today?

Dr. NICHOLS. Well, I think it would, Senator Stabenow. I think

it really speaks to Mr. Danner’s point, that a lot of what—and we

have all been workong on these issues for quite some time, trying

to find a way to solve the small business problem. They often do

find that they do not have much competition in their local markets.

I would say, all health care markets are local and so the national

market share, while I respect the AMA and their work, is not really relevant to what the real businesses in real life see.

It sort of varies quite a bit across the country. But it is unambiguously true. I have been in hearings where Senator Snowe was the

chairwoman, and Senator Kerry too, where the businesses talked

about how little competition there was in their spot. So, there is

no question that that is a major issue. I think a well-designed plan,

as you put it, is consumer-driven public plan. We will go with that

name for the day. That is a great one, maybe better than the one

I came up with.

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That is about two things. It is about restoring the trust that,

with all respect, the insurance industry has lost from a lot of people, some of whom were screaming when we began today. But people have lost the faith that their insurer is going to be on their

side. A lot of what public policy is about is making rules so that

the self-interest is channeled into public interest. That is what reform is all about. Karen has now accepted those principles, and I

think we can move on, but there are still people that do not trust.

So, that is number one.

Number two, it is about a benchmark. Because we do not trust,

we want to see, is it indeed sort of fair, what we are being told?

That lack of trust feeds into the need for the benchmark, so the

benchmark can provide, in essence, an actuarily fair price. I agree

completely with everything you have said. It has got to be a level

playing field. If it is not, it will not earn the trust of everybody else.

It, too, has to be essentially allowed to compete. It has got to be

allowed to fail. It has got to compete for business. It has got to earn

the trust of the people. But if it does that, I could not agree more,

it will be a very useful benchmark as long as the field is, indeed,

level. So, I would agree.

The CHAIRMAN. Mr. Pollack? I think she asked you to respond as

well.

Senator STABENOW. Yes. Thank you.

Mr. POLLACK. I like your term, and I support that direction.

There seem to be two arguments that are made in opposition to

such a plan. One, is that it is not good enough, it is going to provide lousy service, it is going to ration care. The other argument

is, consumers are going to perceive it is too good, and as a result

more and more people are going to join this consumer-driven plan

and leave their current private insurance plan.

It seems to me it is the latter concern that needs to be addressed.

I think Len Nichols described, I think, the key component of this

accurately, namely, we have got to have a level playing field in

terms of the rules that are created. If you have a plan that in effect

competes with others, it is hard to say that at the same point it

should be the referee as well. So if we can separate those two functions, then I think the greatest concern that has been expressed

can be dealt with.

The CHAIRMAN. Thank you, Senator.

Senator STABENOW. Thank you.

The CHAIRMAN. Senator Roberts, I think you were next.

Senator ROBERTS. Yes. Thank you, Mr. Chairman. Thank you for

your perseverence in regards to the outbursts earlier. Those folks

were undoubtedly from the House. That is just the way they are.

[Laughter.]

I just mark them down as ‘‘undecided.’’ [Laughter.]

This is a very unusual way of doing it. We have 18 people and

a Senator. Not that the Senator is not a ‘‘people.’’ Sorry. An awful

lot of talk gets into what I call health care policy gobbeldy-gook.

I do not mean to make that a pejorative in regards to what anybody has said.

I have a question for Scott Serota from the Blue Cross people,

one of those dreaded health insurance folks. I like your beard,

Scott.

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There was an article in the Wall Street Journal April 17 that I

think made a heck of a lot of sense, and I think it dovetails into

what we are talking about. But it raises another point. It says,

health insurance does not automatically lead to health care. With

more and more doctors dropping out of one insurance plan or another, especially government plans, there is no guarantee that you

will be able to see a physician, no matter what coverage you have.

Thirty-eight percent of primary care doctors in Texas took new

Medicare patients last year. The statistics in New York State are

about 25 percent. The problem is even worse in Medicaid, 50 percent. The same thing with HMOs. Now, Scott, I am going to get

to my question here pretty quick, but I just have a few comments

first.

This so-called public plan option has been described as simply offering a consumer another choice or increased competition. Everybody is for that. I think the Chairman mentioned that, boom, right

off the bat. But I am concerned that it could, in fact, eliminate

most private insurance and leave us with a government-rationed

health care system. I am going to underline the ‘‘rationed’’ part.

Basically, the worry is that the public plan, to some, is only one

step in the larger strategy of simply eliminating private health insurance. If this is the case, the one thing that we talk about, patient choice, patient access, it is patient access to health insurance

that will really suffer. Medicare pays hospitals 30 percent less and

physicians 20 percent less than private insurers in Kansas. Sandy,

you know this. Our hospitals have lost over $1 billion in the past

several years due to Medicare under-payments.

Scott, my question to you is: what are your views on the potential for reduced access to care under the proposed government

plan? And before you answer that, I want to give you an example.

Two weeks ago today I had a knee operation. Should have had it

a long time ago. I consulted with I do not know how many doctors,

finally found the time to do it and got it done. I am in recovery.

I awoke to six doctors looking over me. This was my doctor, the

head of surgery, four other doctors, the anesthesiologist—who was

hoping I would recover—and there were six doctors. I thought, my

God, they have operated on the wrong leg or something.

They wanted to know about the single-payor plan, Mr. Chairman, and they wanted to know about bundling, and they wanted

to know about all of the things that we talk about here. I think the

basic conclusion was that if this happens, they are gone. Now, they

were a little long in the tooth in regards to their experience; most

of them have been practicing doctors for 25 years.

What I want to know is, especially in a rural area, who is going

to do that knee operation and how long are they going to have to

wait? I do not see anybody here that can do it. I trust Sandy to

do it, and you, too, Scott. I really worry about the availabilty of

health care providers, as we have seen today that we are rationing

health care. Here we are talking about superimposing this big plan

over the current plan. Not that I do not want reform. You always

have to have a ‘‘while I’’ in there.

So I guess my question to you is: what are your views on the potential for reduced access to care under the proposed government

plan, and especially in our rural areas?

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The CHAIRMAN. Sounds like all those doctors liked all of that

bundling, though.

Senator ROBERTS. That is right.

The CHAIRMAN. Mr. Serota?

Mr. SEROTA. Thank you, Senator. First, you would not want me

to operate on your knee, trust me. I am not equipped, nor have the

appropriate credentials for that. If the government plan pays providers the way it does under Medicare and Medicaid at the same

time that we try to expand coverage for an additional 47 million,

I think there will be negative consequences on access, clearly, in

the delivery system.

According to the Lewin report, hospital and physician net income

could decline by as much as approximately $70 billion under a government plan. Over time, a government-controlled system, if we

take the assumption that was put forth, that eventually it would

move toward a single-payor outcome, I think you would find delays

for major surgeries, delays for MRIs, lack of access.

The number of primary care physicians—we are already at a crisis stage with the number of primary care physicians and primary

care access points—diminished even further. I think you could expect longer wait times, which could lead to lower quality of care

and reduced access, a lack of capital in the system which would

allow institutions to reinvest in their physical plants and other

things, some of which are in need in a number of areas.

So a government-run plan that is based on reimbursement levels

which exist today, I think, would have a tremendously potentially

devastating effect on access and the existing delivery system, causing terrific problems and a reduction in quality.

Senator ROBERTS. Well, thank you for your answer. That gets

back to Senator Bunning’s question on, how on earth do we pay to

make sure that that does not happen? Does anybody have a contrary view, or a similar view, or any view? Yes, sir? Dr. Nichols?

Dr. NICHOLS. Well, Senator, I would certainly agree with Mr.

Serota, that if we paid Medicare rates nationwide tomorrow it

would be a bad idea. But I do not think that is necessarily what

a public plan has to do. If you will remember how Senator

Stabenow phrased it——

Senator ROBERTS. Yes.

Dr. NICHOLS. We envision a world in which they would pay market rates. They would have to negotiate precisely in those rural

areas where, if they do not pay what those clinicians—I grew up

in rural Arkansas, by the way. I know something about having to

drive 80 miles for surgery. I think fundamentally it is about paying

what the market will bear, and that means paying what the market demands, so they have got to negotiate like everybody else. So

I think, in fact, you could design a public plan that would be competitive. That is what a lot of States have done, and that is basically, in my view, the proof of concept that you could do it.

The CHAIRMAN. All right. I would like to just keep on this subject

if I could for a second.

Mr. Stern, you might have a view on the public plan and what

its consequences might be, I suppose, depending upon how it is formulated.

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Mr. STERN. I mean, first of all, if we start with certain assumptions we obviously get certain results. If we start with the assumption we are going to pay Medicare rates we are going to get to one

set of results. If we start where Senator Stabenow started, we will

get to a different set of results where there is more of a level playing field. I think it is important just to repeat: 94 percent of markets, according to the AMA, are not competitive.

People, as Senator Wyden said, do not have choices when they

work for their employer, necessarily. They may get one choice. If

you are a worker in Maine or New Hampshire, where if you are

a State worker particularly where your rates are disproportionately

higher for the same benefits that other State workers get in other

States because there is a lack of competition, I think the question

is, are we going to have excessive regulation to try to make all the

insurance companies comply with the laws—and I am not for excessive regulation—or are we going to enhance competition?

I think enhancing competition along the lines as Senator

Stabenow said is a much better way than trying to figure out all

the different regulations we can create to try to make sure there

is a level playing field and fair competition.

So if you look at costs today, where there is a lack of competition,

if you look at the fact that there is not enough competition—I am

a big fan of increasing competition on a fair set of rules and letting

the consumers choose which is the plan that they want and not

having necessarily anyone else choose but the individual.

The CHAIRMAN. I see Senator Bunning. Senator Cornyn, I think

you are next. I would like to stay on this subject for a minute or

two more, if we could.

Senator Cornyn, is your question on this topic?

Senator CORNYN. Yes.

The CHAIRMAN. All right. Senator Cornyn?

Senator CORNYN. Thank you, Mr. Chairman.

My question is for Ms. Ignagni regarding the so-called ‘‘public

plan.’’ It is interesting how this public plan is now called a consumer-oriented health plan. I think it is more descriptive to say it

is a Washington-directed unfair competition plan, because the government is not a fair competitor. The government price fixes. It

tells how much it is going to pay and you take it or leave it. That

is the problem now with Medicare and Medicaid because there is

a promise of coverage, but no access, because you cannot find doctors who will accept that price that the government is willing to

pay.

So I agree with you, Mr. Stern, about the importance of competition. I think the best evidence that competition works is Medicare

Part D, the prescription drug plan, which has come in under cost

and actually has a lot of people engaged in offering plans. But I

do not know how you can have competition unless you have transparency as to price and outcomes to let consumers get the information they need in order to make the right choices, because otherwise I am unaware of any other way to try to contain costs, other

than the Federal Government saying, this is how much we are

going to pay, take it or leave it. So how do we increase transparency as to price and as to outcomes in a way that will allow for

competetion to take place?

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Ms. IGNAGNI. Senator, I think you have framed this very importantly, in the sense that I believe that Len Nichols has done a very

valuable piece of research here. What it demonstrates is how hard

it is to actually achieve these objectives that Len thoughtfully lays

out. Government does not have the infrastructure to negotiate

rates right now.

Imbedded in Len’s paper, very importantly, they talk about how

it would take a while to set up this particular structure. It also

would take a significant amount of resources on the eve of a Medicare trustees’ report that we know the trust fund is going to look

at lot worse today than it did this time last year. So what you

would ultimately be doing is replicating what the private plans do,

so you are either going to be negotiating global budgets—bundling

is essentially global budgets—episodes.

What you drop back to, is to solve the Medicare reimbursement

problem you would have to drop back to some administered pricing

system that might be 10 percent over Medicare or 20 percent over

Medicare, leaving still the private sector to absorb the cost shifting

from the under-funding of the current Medicare and Medicaid programs. That would lead to a declining number of employers who

would want to stay in that system moving over. Therein is our concern.

For us, we think that notwithstanding Dr. Nichols’ very important research, that I think when the public program was developed

and the concept of public program was developed, I think nobody

expected that the private sector would step up and say, yes, there

is a problem here and it needs to be solved. So we are not asking

individuals—the people who spoke this morning, Mr. Chairman, I

think made an important point, and you did, too, imbedded in your

remarks.

We are not asking any individual to trust us, we are asking them

to trust the government, because we are proposing very aggressive,

comprehensive government regulations where we would be accountable, where it would be transparent and the rules would be fundamentally changed. That is the type of competition we are talking

about, which is imbedded in the Federal Employees Health Benefit

Program and imbedded in many of the countries in Europe, and it

works very well, very satisfactorily. But this is a whole-scale

change in the rules.

The CHAIRMAN. I see Senators Bunning, Menendez, Hatch, and

Snowe seeking recognition. Do any of you want to stay on this subject here?

Senator BUNNING. Yes. This is to the subject.

The CHAIRMAN. To the subject? All right. Then you are next.

Senator BUNNING. Mr. Josten, you made a point in your written

testimony about the creation of a public plan, and I hope that you

would expand on. You said that costs to employer plans are increased due to the cost shifting from Medicare and Medicaid, and

that assurances that a new public plan would not cost shift ring

hollow, particularly in light of unfunded liabilities under these two

programs currently. Can you elaborate on that? Would you like to

expand on that?

Mr. JOSTEN. Senator, cost shifting seems to be indemic to the

current delivery system. Our memberse, for years, have felt that

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the under-reimbursement of both Medicare and Medicaid is shifted

back at the hospital level to the one place that they can really shift

it to, which are to the premium payers on the employer side of the

ledger. The employers then end up shifting some of that cost downstream to their employees. We need to fix that part of the system

and that gets to our concern about a public plan.

We think once you have the government, basically, as the team

owner and the referee, and recognizing, as Karen just pointed out,

that both of these plans are already severely underfunded and are

going to be more seriously underfunded going forward, the government itself has a huge interest here in reducing costs, which is the

central issue, I think, for everybody sitting at this side of the table,

where we do need to bend the cost curve to address getting more

people into the system. But we think a public plan, in addition, will

inherently destabilize the employer-based system, which today is

covering roughly half of all Americans with health insurance coverage at a cost of $500 billion a year.

Senator BUNNING. Thank you.

The CHAIRMAN. Senator Menendez?

Senator MENENDEZ. Thank you, Mr. Chairman.

Mr. Serota, let me ask you, in your written statement to the committee and in advocacy that the association has been promoting recently, you have criticized this concept of a public health insurance

plan. I am wondering exactly what is the principal position in the

opposition that the association has.

I have heard that it is because you have a lot of individual and

group market and you are concerned that the public plan could

overtake the business. But if the playing field was level in the

rules and requirements that private plans and this new plan had

to live under in the health exchange, why would you oppose it?

Is competition not healthy if the playing field is level, all the

rules and requirements that you have to live under, a private plan

would have to be lived under by this consumer-driven public plan,

would that not be something that would be good? Would it not be

competitive? Do your plans really think that if the rules for all

were the same, that you would not be able to continue to be competitive in the marketplace?

Mr. SEROTA. Thank you, Senator. I think that I would make a

couple of points. First, I think it is a mischaracterization to indicate that the markets are not competitive today. According to the

Government Accountability Office, the median number of small

group insurers competing in State markets today is 27, so there are

sufficient competitors today in the marketplace to create a competitive market.

Further, with the regulations that we have advocated, I think

that the marketplace, as indicated by Karen, will become an extremely vibrant and competitive marketplace. So my concern with

regard to the public program is similar to the comments that the

previous speaker made, and that is that inevitably, regardless of

the intentions, I think, what has happened, at least historically, is

a movement toward government rate setting by fiat as opposed to

competition. If you look back at history, in 1965 the Medicare program was supposed to pay market rates. That is how it was introduced, that is what was passed.

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Senator MENENDEZ. But I think we are not talking apples and

apples here. I am saying, if the rules and requirements were all the

same for this consumer-driven public entity as your companies,

why would you be at a competitive disadvantage?

Mr. SEROTA. Well, we would have to see. I would have to see

what the program looked like. The idea of the government competing on a level playing field is one that is hard for me to conceive, so I guess I would have to see the particulars and——

The CHAIRMAN. I am going to have to interrupt you. We have

about three minutes left on this vote. Senator Carper, do you wish

to proceed? We have three minutes left on this vote. Or you can

come back.

Senator CARPER. Yes. If we could just pick it up when we come

back.

The CHAIRMAN. We will recess and come back. As soon as Senator Grassley comes back, though—he has already voted—then he

will reconvene. We will stand in recess until Senator Grassley returns. Thank you.

[Whereupon, at 11:03 a.m., the roundtable was recessed.]

[After Recess—11:05 a.m.]

Senator GRASSLEY. The meeting will come to order on the authority that I get from Senator Baucus. [Laughter.]

Thank you all very much for putting up with these votes and the

confusion that always goes on in the Congress at voting time.

I want to continue the discussion and ask a question of Karen

and Stuart Butler on this point. I do not want just those people to

answer. I would like to have reaction, because some of you on the

panel might obviously have a difference of opinion.

Some have said that a government-run plan is needed to keep

private insurers honest. In the absence of a—Karen is not here.

Stuart, in the absence of a public plan, do you think aggressive rating reforms and requiring insurers to take all applicants would go

a long ways towards ‘‘keeping insurers honest?’’

Dr. BUTLER. Well, I think it would, Senator. There is complete

agreement that we have got to have more effective competition and

choice, and we have got to hold plans accountable. That is not really a point of disagreement. The issue is whether you can, in fact,

set up a level playing field with a public plan as the instrument

to make sure there is that situation.

I think the very fact is that you as a member of Congress, and

Congress itself, will be held responsible, both for setting the rules

and the public plan will be your plan. Everybody will see it that

way. So I think it is impossible to imagine a true level playing field

in that circumstance.

As far as how you can actually achieve the objective that is put

forward for a public plan, I would point out that in the Federal employees’ system, which does cover over 10 million people, the same

issues arise: how do you get effective competition; how do you hold

plans accountable; how do you make sure people have true available plans wherever they are in the country, and you achieve that

through an exchange, through setting broad rules, and also

through negotiating with particular private plans on a national

basis to make sure they are available everywhere.

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You do not need, in the FEHBP, a public plan. I do not believe

you need it generally. I think you should look at the way you structured the FEHBP system to achieve the very objectives that have

been purported as being only achievable through a public plan. I

think it is a combination of appropriate rules and requirements,

and expectations and objectives. I think it is also recognizing that

you do not have to lay down very specific benefits. You set categories of benefits, as you do in the FEHBP, so I think you can,

in fact, achieve those objectives.

Senator GRASSLEY. Ms. Ignangi, would you respond, please?

Ms. IGNAGNI. Yes, sir. I apologize for not being here. I took a facility break.

Senator GRASSLEY. Did you hear the question?

Ms. IGNAGNI. Yes, I did.

Senator GRASSLEY. All right.

Ms. IGNAGNI. The answer to your question depends on whether

or not individuals believe in government regulation, because what

we are proposing is a whole-scale change and a complete overhaul

of existing regulation, so it would be set out at the Federal level,

clearly, transparently, hitting the mark with respect to, no one falls

through the cracks, no one is discriminated against because of preexisting conditions, and no one has to pay according to health status.

There would not be gender differentiation. That essentially is the

thrust of what folks have quite correctly talked about as something

that needs to be done. We squarely support it, we have proposed

it, and we stand behind it. We are ready to be accountable to those

rules.

In fairness, it is important contextually to remember that, with

the exception of Massachusetts, no one passed a rule, ever, saying

that everyone should be participating in the system, so the health

insurance arena grew up similar to life, property and casualty, and

other insurance products in our system today.

Now, as we think about health reform, there are new opportunities. So, no, I do not accept the premise that to keep the plans honest you need a public program. Moreover, I think the discussion

this morning thus far has demonstrated how difficult it is to actually achieve that elusive goal of leveling the playing field. Government does not have the infrastructure to negotiate rates with providers.

To set that up it would completely replicate what the health

plans do today. Governmenet has been unable to do disease management, or care coordination, or real pay-for-performance, or the

kinds of other strategies that we have implemented within private

health plans that are getting results. So we accept the premise that

the system is not working today. It needs to be reformed and, in

fact, we need very clear, specific, and effective government regulations.

Senator GRASSLEY. Yes. Go ahead, please.

Ms. PRAEGER. Yes, Senator. Sandy Praeger, and I am represeting

both my State—Kansas—as the Insurance Commissioner, but also

the National Association of Insurnace Commissioners.

I would like to make a couple of points. One, on the issue of the

public plan competing with the private plans, many State employVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00083 Fmt 6601 Sfmt 6601 48952.XXX SFIN1 PsN: SFIN1
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ees have, in fact, a choice between a public plan, self-insured by the

State, and a private plan. So I think as long as the rules are the

same—and that point has been made, I think, by several folks—

I think you can make that kind of a system work. I think what you

do not want is the ability to segment the market and have, with

different rules, the ability to choose one over another because the

rules encourage, in a sense, an adverse selection.

Let me, if I could, make another point, too, because it is about

the way the current markets in our States function. We have seven

States that do not allow rating based on health status. Also, let me

just comment, we have a great opportunity here to, I think, get rid

of one of the most onerus aspects of the current system, and that

is rating based on health.

The people who need health insurance are sometimes absolutely

just priced out, especially in the individual market. But you cannot

do that without requiring that everybody have coverage, otherwise

you will just wait until you are sick and then buy the coverage.

That is where we do need rules set at the national level so that

all of the States are functioning under the same system.

Now, as we move towards phasing in a new system with Federal

national rules, I think we have to be careful to recognize that those

States that do currently allow rating based on health have a very

wide variance between the young/healthy and what they pay and

the older/sicker and what they pay. So phasing in a plan, gradually

phasing in some age rating factors, for example, and narrowing the

rating bands, I think will make this more doable, leaving the oversight of that phase-in to the States who currently provide that kind

of oversight. So those are just a couple of points that I wanted to

make.

Senator GRASSLEY. Ms. Hansen?

Ms. HANSEN. Thank you, Senator. I would also want to concur

with Ms. Praeger on that issue because one of the populations I

think that I will probably have a chance to speak to a little bit

later are the people who are between 50 and 64, so this age rating

component is highly significant just because it is one thing to include people under the tent, but if that becomes a barrier, having

them under the tent but not being able to afford it, becomes no access. So I just want to make sure that we keep that clearly in mind

and understand that there is a gradual rating process in order to

make this affordable at the same time. Thank you.

Senator GRASSLEY. Mr. Claxton?

Mr. CLAXTON. Just to add on to your point about market reform,

while guaranteeing issue and making sure that health status rating is eliminated is important, I have been doing insurance regulation and insurance stuff a long time and worked on many Medigap

and other guaranteed issue rules. You do have to do more to make

sure that coverage is truly available. Insurers can selectively market still in these kinds of arrangements by where the producers

are, where they choose to set up their—what parts of the country

or what parts of an area they choose to serve.

So you really need to make sure the coverage is available to everyone, maybe through an exchange or something, but you need

something where you can go and get coverage without having to

work too hard at it, something like the website for Part D, for inVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00084 Fmt 6601 Sfmt 6601 48952.XXX SFIN1 PsN: SFIN1
75

stance. Everyone could go there and get coverage, and that is one

way to eliminate some of the risk selection behaviors that can still

exist.

Senator GRASSLEY. I know a couple of other people want to chime

in here, but Senator Hatch has to leave right away. Let him ask

his questions and then we will go back to you two.

Senator HATCH. Thank you. Thank you, Mr. Ranking Member. I

appreciate it very much, Mr. Vice Chairman.

I want to go back to the public plan option. So I ask this question

of Mr. Serota, and also Ray Scheppach, if I can, to get your ideas

on this. A lot of our discussion has been rightly focused on the concerns related to creating a new public plan option. However, at the

same time I am concerned about the extensive Medicare and Medicaid expansions that some people are talking about.

Let me put it in perspective. My State is currently at approximately 74 percent of the Federal poverty level, and nationally expanding Medicaid to 133 percent, which PhRMA and Families USA

endorsed recently, will almost double the size of the program and

thus cause significant market crowd-out.

Another big concern is cost. Simply expanding it to even 100 percent—which New York is at 100 percent. If you just go to 100 percent in Utah, that will cost the Federal Government, and all the

other States, would cost them somewhere between $500 and $700

billion over 10 years, and the State government, $24 billion in 2009

alone, as we view it.

In the same vein, expanding Medicare to the early retiree population—that is 55 years or older—will also cause significant strain

on the program that is already under tremendous financial stress,

and that is Part A.It would probably go bankrupt by 2015. To me,

a combination of Medicaid, Medicare, and SCHIP expansion, which

we have already done, has much the same intended effect as a public plan.

Now, let me ask the two of you, I would like your thoughts on

my concerns here, because I am very concerned about this.

Dr. SCHEPPACH. In terms of back-of-the-envelope estimates, Senator, our sense is that the Medicaid expansion, up to about 100

percent of poverty, would cost in the neighborhood of $65 to $75

billion. Now, some of that, about $24 billion, is actually for the new

population, but our assumption is that the current reimbursement

rates, where States average about 72 percent, would probably have

to go up close to the Medicare rates to do that and that would drive

the cost of the existing population up. So you are probably in the

ballpark of $65 to $75 billion. You would pick up an extra, I think,

$11 million people taking Medicaid, from probably $54 million to

$65 million.

Senator HATCH. Over 10 years, I am estimating $500 to $700 billion.

Dr. SCHEPPACH. Well, States clearly cannot finance that. Governors would oppose it as unfunded mandates. Just to give you an

order of magnitude, States are already struggling with sustaining

the current Medicaid and that is over 10 percent of the general

fund revenues of the States currently. So, it is a huge increase.

Senator HATCH. Thank you.

Scott, do you agree with that?

76

Mr. SEROTA. Yes. Senator, I agree with the previous comments.

Senator HATCH. How about my comments?

Mr. SEROTA. Oh, absolutely. I think the Medicaid program and

the current Medicare program cover significant numbers of Americans already, and expanding those programs have created a de

facto public program in place today.

Senator HATCH. That is great.

I have a question for Mr. Castellani, and also Bruce Josten. Did

you want to make a comment, Mr. Pollack?

Mr. POLLACK. Thank you, Senator. As the Baucus white paper

makes clear, 37 percent of the uninsured have incomes below 100

percent of the Federal poverty level. Now, for a family of three,

that is precious little income, $18,310. If we are going to do something for the low income, we have got to do something, frankly, to

upgrade the Medicaid program. The Medicaid program today is

presumed by a lot of people to cover anybody who is poor. In fact,

of course, that is not true.

Let me just take two populations. For parents, the median income eligibility standard among the 50 States is only 67 percent of

the Federal poverty level. Only 16 States reached the Federal poverty level. For adults who have no dependent children, literally, in

43 States you can be penniless and you are ineligible for Medicaid

coverage.

So if we are going to be serious, I think, about covering people

who need care the most and who are least able to get it, we are

going to have to upgrade Medicaid and create a national floor. My

hope is that the national floor, as we in PhRMA had suggested,

would go to 133 percent of the Federal poverty level. But there

needs to be a national floor so that nobody can fall through. Medicaid provides some very important services.

Senator HATCH. Well, let me just interrupt you there. I understand about helping low-income Americans. I want to do that. But

I would personally use more innovative processes or approaches,

like low-income subsidies for private coverage instead of simply expanding Medicaid, which, once it is expanded, you cannot change

that or turn that around. We could have a lot of flexibility to do

this coverage another way.

So, I understand the problem and we have got to solve that problem. I do not want to ignore what you are saying, but I would prefer doing something like that which gives us more flexibility, and

maybe even more ability to do it, and to do it within certain constraints.

Mr. POLLACK. Senator, there are some things that Medicaid provides that you just do not get in the private sector, and very important for low-income populations. For example, for children, there

are very important protections so that they get early screening and

treatment for virtually any condition that they have; if they have

got a hearing problem, a vision problem, a dental problem, that is

going to be taken care of.

There are other services which are important in a State like

Utah, particularly for those people who live in rural communities

who may not be able to get to a health facility. The Medicaid program provides them with transportation services which they are

going to need in order to see a physician. They will get home- and

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community-based care, which they do not get today in the private

sector. So I would urge that you give serious consideration about

expanding Medicaid, at least for those people at the lowest income

levels.

And one other thing, Senator. The Medicaid program provides

certain kinds of cost protections that simply do not exist in the private sector. For those, for example, below the poverty level, no premium is charged. For those people who seek services, either prescription drug services or other kinds of services, there is only

nominal cost sharing. As numerous studies have showed, if you

charge any significant amount of cost to those people at these very

low-income levels, they are not going to get the care that they very

much need.

Senator HATCH. I understand.

I just had one other question to Mr. Castellani and Mr. Josten.

The CHAIRMAN. Did you want Ms. Rosenbaum and Ms. Rowland’s

response, too?

Senator HATCH. If you would like to, sure. Go ahead.

The CHAIRMAN. You want them to?

Senator HATCH. Yes, if you do not mind me asking the other

questions later.

The CHAIRMAN. Fine. Go ahead.

Senator HATCH. Ms. Rosenbaum had a comment.

The CHAIRMAN. Ms. Rosenbaum, and also Ms. Rowland.

Senator HATCH. And Ms. Rowland, yes.

Ms. ROSENBAUM. Thank you, Senator. I would just like to add to

Mr. Pollack’s statement. The other thing that I think is notable

about the low-income population is that their underlying health

conditions are so serious. Interestingly, the severity of health conditions, whether it is children or adults, does not abate at the Federal poverty level. There is a tremendous burden of illness well

into, actually, moderate income levels.

If we are focused on health reform, I think as we should be, not

only about the act of covering but also about bringing down disparities in health care and health status, the Medicaid program as the

sponsor of the coverage probably has a lot more experience in designing the internal workings of coverage to deal with children and

adults with severe health burdens. Issues such as childhood asthma or adult mental illness, conditions that, even if they are not so

fully disabling so that you are not on Social Security Disability

benefits, create a burden of health problems that private insurers,

even when they are very good and very thorough, simply do not

have the experience managing.

Now, this is not to say that greater efficiencies cannot be brought

to how Medicaid affectuates the coverage or arranges delivery systems. But, in terms of having to weigh this very important issue

that you put your finger right on, which is which people will get

their subsidies through Medicaid versus which people will get their

subsidies in a more commercial or traditional insurance-oriented

exchange system, my own recommendation would be that, in order

to advance the equally important goals related to the reduction of

health disparities, you actually rely more on Medicaid for the direct

sponsorship of the coverage, while looking to align Medicaid and

the exchange in how delivery of care actually takes place. That is

78

where you can get efficiencies that each sponsor, buying alone, may

not be able to.

Senator HATCH. All right. Ms. Rowland?

The CHAIRMAN. Ms. Rowland?

Ms. ROWLAND. Senator, I just wanted to add that when we look

at the uninsured population, unfortunately a substantial share of

them are below the poverty level. What we have seen in the Medicaid program is the ability for the program to provide a broad

range of benefits, and we have heard today a lot about provider

participation issues.

But when we look at how the population on Medicaid compares

to those with private insurance who are low-income, the Medicaid

population actually does better on many access measures. So I

think building on an operational program and minimizing the need

for transitions may help bring some of the lowest income uninsured

into a system and not overburden the exchange, which a subsidy

program might do.

Senator HATCH. Well, thank you. I think I am quite a bit of

time——

The CHAIRMAN. Well, let me get to Senator Ensign. Do you have

one more question?

Senator HATCH. I have one more.

The CHAIRMAN. All right. Go ahead, Senator Hatch.

Senator HATCH. For Mr. Castellani and Mr. Josten. As much as

I am worried about the employer penalty under a play-or-pay mandate, I am more worried about what employers will be required to

offer to avoid this penalty. All signs are pointing to the fact that

some want the more expensive—very expensive—Blue Cross Federal coverage for anyone. According to the National Bureau of Economic Research, even asking employers to provide a $9,000-peryear package will cause per-hour wages to decline by more than $3

and cost us more than 220,000 jobs.

Now, that is not all. The administration is also taking a look at

eliminating corporate deferral as a potential pay-for. We already

have the second highest corporate tax rate in the world, second

only to Japan. Now, this will ensure that every multinational company will relocate abroad—at least that is what the leaders have

told me—causing irreversible harm to our economy.

Now, all these policies, as the sum of their whole, look to me like

they are going to have a devastating impact on our economy. So

what I am asking the two of you is, is my assessment wrong on

this or is my assessment of these policies accurate?

Mr. CASTELLANI. Senator, you make a very good point. It is the

cost issue that brings employers to this table. Again, all of our

members provide health insurance. They want to continue to provide health coverage for their employees because, quite frankly, it

both enhances productivity, as well as provides a good way to recruit and retain key skilled employees, good-quality employees. We

want to be in this game, but it is the single biggest cost pressure

that we face day in and day out. It took oil at $150 a barrel to even

tie it.

In an increasingly international marketplace where we are competing against companies who reside in countries that have a different model, a different tax model, a different health care cost

79

model, or where we are competing against companies that do not

provide health care, this cost burden for U.S. corporations, particularly ones who participate in the global marketplace, is really

unsustainable.

So if the answer here is not to improve the delivery of the system, to improve the coverage of the system so that we bring the

cost trajectory down, but rather increase the costs either through

what is happening with health care costs well above GDP or what

is happening with our tax system, then U.S. companies cannot

compete.

So our premise here: we want to continue to provide health care

coverage but we have to be able to do so in a way that allows us

to compete in the international marketplace. And that is why we

need the kind of efficiencies that this committee has talked about,

that you have all talked about, and a level playing field so that we

can compete and we can create jobs.

Senator HATCH. Mr. Josten?

Senator GRASSLEY. We have talked a lot today about medicaid

expansion. There are a few points I want to make sure are made

today about that idea: (1) Expanding Medicaid will be a tremendous financial challenge for States. We should not ignore that, no

matter how easily some folks say ‘‘let’s just expand Medicaid’’ or

‘‘yes we can’’; (2) access is a serious problem in Medicaid. Ray

Scheppach of NGA argued that States will need to increase reimbursement rates to Medicare levels to truly provide access to care.

That will not be cheap; and (3) Sara Rosenbaum testified that Medicaid can be the sponsor of overage while private insurers deliver

coverage. I think it is very important we don’t build a high wall

between Medicaid and private insurance. People should be able to

move seemlessly without changes in their coverage or providers—

particularly children.

The CHAIRMAN. Senator Enzi? I am sorry. Senator Ensign.

Thank you. Senator Ensign?

Senator ENSIGN. People get us confused all the time. They call

us twins. [Laughter.]

The CHAIRMAN. I apologize. I apologize.

Senator ENSIGN. I would make a quick comment. It was an interesting discussion we had earlier when we were talking about the

public plan, and Mr. Stern talked about more choices. I think a lot

of folks talked about more choices. I cannot remember the Senator

that pointed out about Medicare Part D, and that there are a lot

of different choices offered under that plan.

One observation to think about is, why do the individuals have

the choices? Well, one of the reasons is because the benefit goes to

the individual. In our Tax Code, the benefit goes to a company. It

does not go necessarily—indirectly it goes to the individual, but it

does not go directly to the individual. In other words, you get your

tax deduction for your health insurance only through an employer.

The individual, if you are self-employed or if you are out there

without insurance and you want to buy it in the individual market,

you do not get the tax deduction yourself. So if we want to have

all of those various choices and we truly want to have a bunch of

different market forces coming into play, I think there are two really critical aspects that we have to have.

80

One, is that the individual needs to get the benefit, the tax benefit, whether it is a deduction, whether it is a credit, depending on

your income level. You could do probably even a hybrid system between those two. If we want to have the universal coverage you

could do it through a combination of those two things. Then if you

wanted to set up the delivery system where you had the competition between the plans, those people could be able to then choose

between those various plans that are out there.

The question, though, that I want to bring up has to do with—

and I have talked a lot about this. I think Wal-Mart has done a

lot on that, I know Safeway, Steve Byrd, has been up here and

talkd to a bunch of us—basically encouraging healthy choices. A lot

of the plans out there today do not encourage healthy choices, they

just do not. There are not the proper incentives for people to have

healthy choices. There are not the financial incentives. Most of the

plans are really not set up for that, to be able to do that. You may

give incentives here and there, but it is not the same way as, like,

an employer could be able to do that.

Safeway has figured out, with four different conditions, that certain conditions cost more money to insure various people. They basically focused on smoking, obesity, controlling hypertension, and

controlling their cholesterol, and had pretty good results with it,

being able to lower their health care costs by about 40 percent compared to the rest of the country over the last 4 years. I would say

that is a faily significant result.

My question has to do with that. Right now, they are only allowed to incentivize up to 20 percent of the premium. Maybe Ms.

Ignagni and Mr. Castellani, if you could comment on this. Should

that be raised? Safeway has been saying that they could do a lot

more if you could raise the amount of that premium, the percentage of that premium, say up to 50 percent. If anybody else on the

panel wants to comment on that, if that would encourage more people to do more healthy choices, which would then in effect lower

the cost of health care in the United States.

Ms. IGNAGNI. I think, Senator, you are probing an important

area and I would answer it in two ways, make two points. One, the

Safeway example is very interesting because they have done this

in cooperation with the UFCW, the union, and I think that that

speaks to the breadth and depth of the proposals that have been

on the table. You are quite right, that if you participate in disease

management you get an incentive for doing that, you pay less, if

you stay with it and hit certain markers.

We do believe, in our laundry list of proposed reforms that we

talked with the Chairman about just a little while ago, one of the

issues that we have flagged is to have a discussion with all of you

in the Congress at large about a permissible set of circumstances

in which we could encourage this type of behavior more broadly,

number one. So we agree with you very strongly.

On the other hand, we would want to have a very important,

transparent conversation so that everyone is clear about the incentives, where they might be applied, where they should not be applied, et cetera, so that we have the rules of the road very clearly

established, number one.

81

In the Safeway-UFCW situation that you are probing, I think

there is reason to think about giving them more room. There are

employee benefits managers that can actually work on both sides,

on the labor and the management side, and I think they could

teach us quite a lot about what is possible. There is a safety valve

there for workers so that people are protected, and employers and

the union are working together very well. So I think that is a good

example.

There are other companies where there is not a collective bargaining situation who are also doing very provocative and productive things. So I do think where you have benefits managers that

can take responsibility for coordinating that, there is a reason to

really think about, in the corporate setting, giving more room. I

think we could do that quickly, find out some real experience that

could be applied broadly. But we would very much like, across the

board, to be able to do this. The reason I am hesitating a little in

saying yes broadly to your question about, why not expand it for

everyone, in a small business situation, which Don Danner talked

about, for example, one of the most important things we have to

do is set up the infrastructure where they can have more choices.

Senator ENSIGN. Right. If you did it through small business

health plans you could get to the size where you could make these

incentives work.

Ms. IGNAGNI. Yes. Well, that is right. You have more choices if

you set up portals the way they have done in Massachusetts, where

small business knows what is offered. Now it is very hard to find

out, et cetera, et cetera. So, we are strongly supportive of that. I

think in those arenas, where there was interest, there might be

some real opportunities there as well. But we would offer them,

from an insurance perspective, a fully developed package that

would not depend on a small business having to have an employee

benefits manager.

The CHAIRMAN. The following Senators have sought recognition—

I will read the list—in this order: Senators Menendez, Cantwell,

Snowe, Stabenow, and Kerry.

Senator Menendez?

Senator ENSIGN. Senator Baucus, I had asked Mr. Castellani to

comment on that.

The CHAIRMAN. Fine. Go ahead.

Mr. CASTELLANI. Senator, you are getting at one of the key

things that we hope that is part of this debate, and that is that

we provide as much incentive for wellness and prevention as we

provide for disease management. That is very, very critical to

avoiding the kinds of costs that do cripple the entire system. When

we look at our membership, about 82 percent of our members already offer disease management programs; 74 percent offer tobacco

cessation programs; 85 percent have weight management programs.

All of these, and others, are key to avoiding the kinds of costs

that burden the system. We believe it will make an important difference and we want to have the kinds of incentives that we are

providing for our employees to engage in those programs so that

they have ownership for their own success.

Senator ENSIGN. Thank you.

82

Thank you, Mr. Chairman. You know, one of the things we

should look at as the committee as well, because some of these incentives are in the private sector, is can we provide some of these

incentives in Medicare or Medicaid? For instance, we know with 40

percent of our country being obese, and it contributes to every single disease, can we provide incentives for people who are on these

public plans to be able to choose healthier behaviors as well?

The CHAIRMAN. That is a very good question, one I have been

pondering for some time. Larger companies who are self-insured, I

think, can more easily manage in negotiations with their insurance

companies and providers and so forth. It is a little more difficult

on the public side. But that is an excellent point, and clearly we

should work very hard to try to find ways to build in those same

incentives because that clearly is going to bring down health care

costs. I appreciate your line of inquiry.

Senator Menendez, you are next.

Senator MENENDEZ. Thank you, Mr. Chairman.

I want to return to Mr. Serota, and then Dr. Nichols for comparison here just so I can see if I am not missing something. We were

sort of cut off by the vote. My sense of it is that you were saying—

correct me if I am wrong—that you cannot envision a public plan

that somehow would be on a level playing field and competitive,

and therefore you reject it out of hand. Then you were making the

case that there is plenty of competition in the marketplace.

So, I look at the AMA’s study and they found anti-competitive

markets in 94 percent of metropolitan statistical areas. I look at six

States that they list in which the top two insurers have anywhere

between 62 and 87 percent of the market. I look at the Commonwealth Fund’s information in which they have, by way of example,

16 States in which there is anywhere between 70 and 100 percent

of the market by a limited number of insurers. I am trying to figure out why, out of hand, there is a rejection without knowing the

specifics of what that public plan would be, especially if the proposition is that it can be on a level playing field with the same set

of circumstances.

Dr. Nichols, I think in your testimony you have a different view

as to the possibility of that. As a matter of fact, one of the things

I heard in New Jersey when I conducted listening sessions was not

the universe who has no insurance, although that is 1.2 million

people in New Jersey, it is the universe that has insurance that

talks about the endless time on the phone, the run-around, the denials, the whole process of the appeals. I heard horror story after

horror story. I think you referred to that, Dr. Nichols.

So am I right, Mr. Serota, about my understanding of what your

answer to me was? If I am wrong, tell me where I am wrong. Dr.

Nichols, tell me why it seems like you have a somewhat different

view.

Mr. SEROTA. Well, Senator, I think you accurately characterized

part of my concern, and that is that I cannot conceive of a government program competing on a level playing field. I think you

mischaracterized that where you said I have dismissed it out of

hand. What I think I said is, I have not seen it.

But it is very difficult for me to conceive of a government program that is overseen by Congress, developed by Congress, and

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regulated by Congress, competing on a level playing field in the

private market. I mean, you become a competitor and a regulator

in the same environment, and a financer. I think that that creates

an unlevel playing field. It is hard for me to conceive of how, in

fact, that could work and that could be a level playing field.

The CHAIRMAN. Dr. Nichols, do you seek recognition?

Dr. NICHOLS. Sure. I would just hasten to add that I understand

Mr. Serota’s concern. It does not happen very often, but I will show

two examples and then get to specifically, sir, your specific question, Senator Menendez.

The two examples—let us just take a step away from health for

a moment and remember the post office. The post office, last time

I looked, is a government entity. The post office came under some

competition pressure.

The CHAIRMAN. Yes. A lot. FedEx, UPS.

Dr. NICHOLS. Exactly. What I remember, sir, because I grew up

in rural Arkansas, there was this concern that we would not be

able to keep mail going to the small towns because they ‘‘needed

a subsidy’’ of the money they were earning in the cities. But we figured out a way—and I think there is a complicated story there, but

it actually makes a lot of sense, and believe it or not, Senator, I

think it is relevant to health care. I will come back to that later—

to allow competition to eventually flourish, and in fact, now, we

have very robust competetion between UPS, DHL, FedEx, PitneyBowes, all that stuff, and the post office is still doing some. So, that

is one example.

But back to health care. Let us go back to these 34 States that,

in their own wisdom of organizing how they want to buy for their

employees, 34 States have created a plan that is self-funded—that

is, the State bears the insurance risk, the State picks the managers, the State has, frankly, no interest in driving the other insurers out of business, the State has an interest in preserving competition, enhancing competition for their own workers, and for many of

these States they have been doing this kind of competition for over

15 years.

So I just think we have got to look in a couple of places. I would

offer to meet with Scott’s able staff and talk about the post office,

but also about these State plans because I do think, indeed.

The question, it seems to me, is why do we need it if we have

the rules? I think that is a fair question. I think, for the people in

this room, it probably is kind of hard to imagine. But for people

who do not trust private insurance, the ones that Senator Menendez talked to in New Jersey, they wonder why we do not see the

obvious, and that is that they have been, in some sense, treated

badly in the past and they have a hard time accepting that it

would work in the future. I certainly would agree in the long run

we may not need it, but let us let it try and let us preserve that

trust and let the competition flourish, which I think we could do.

Senator MENENDEZ. Mr. Chairman, could we let Mr. Pollack——

The CHAIRMAN. We are going to come back to this subject a little

later, but Senator Cantwell is next in line.

Senator CANTWELL. Thank you, Mr. Chairman.

The CHAIRMAN. I do not want to keep Senators waiting.

Senator CANTWELL. Thank you, Mr. Chairman.

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To go back to the question or the discussion about efficiencies,

particularly as it relates to Medicaid—and I wonder whether Ms.

Hansen or Mr. Stern could address this—but it is back to this

question where we are looking at a public plan. To me, the question is, what are we going to do to improve the efficiency of the system and focus it more on community- and home-based care?

If you are talking about 57 percent of overall Medicaid spending

being on long-term care and chronic care, why should we not be

incenting States with our Federal program to move more towards

community- and home-based care as a way to drive down these incredible costs that we are going to see at the Federal level? So I

do not know whether Ms. Hansen or Mr. Stern wants to address

that.

Mr. STERN. I would just say, Senator, that seems like such an

obvious way we need to go here. I mean, Dorothy, I think it was,

said in The Wizard of Oz, ‘‘There’s no place like home.’’ I think for

most Americans, being in their home and supporting them staying

in their home is not only a way to control costs, it is also a way

to provide people the real choice they want at different times of

their life when they are unable to do other things. So I think all

the incentives should be to keep people where they want to be,

which is in their home, to provide them the community-based support that they need.

I appreciate that you, Senator Kerry, and Senator Grassley have

been all working on these issues and I think it would be a real

missed opportunity if we did not use this moment of history to really push people to where they want to be—not push people, allow

people to be where they want to be and give them the support they

need to be there.

Senator ROBERTS. Mr. Chairman, could I ask a question on top

of that?

The CHAIRMAN. Briefly, because I have Senators lined up here.

Senator ROBERTS. I am sorry. I am sorry.

The CHAIRMAN. All right.

Senator Snowe, you are next. Do you want to be added to the

list, Senator?

Senator ROBERTS. Sure.

Senator SNOWE. Thank you, Mr. Chairman. I want to thank all

of you for being here today. I want to follow up on some of the

issues concerning the small business health insurance reform,

which I think is essential. I cannot believe that it would not be included in the broader reform that we anticipate to address in June

here in the committee, and also in the Help Committee.

As former Chair, and right now Ranking, of the Small Business

Committee, I know this is a huge crisis for the small business community across the country, particularly now where insurance premiums have now risen more than 89 percent since 2000. Market

consolidation clearly has occurred. In fact, the GAO issued a report

at my request, and Senator Lincoln and Senator Bond’s, talking

about further consolidation of the market that virtually leaves very

little competition in small markets.

The five largest carriers in the small group market, according to

GAO, when combined, represent three-quarters more of the market

in 34 of 39 States, which has actually increased in terms of consoliVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00094 Fmt 6601 Sfmt 6601 48952.XXX SFIN1 PsN: SFIN1
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dation, and they represented 90 percent or more in 23 of these

States, including my State of Maine. So I think it underscores the

fact that there is very little competition, which of course means either people are left out of the market or have insurance policies for

virtually catastrophic coverage, which is certainly what has happened in my State. So I hope that small business health insurance

reform will be included in the broader reform.

Senator Durbin, Senator Lincoln, and I have introduced legislation today called the Small Business Health Insurance Option Program, which we think think goes a long way. I know that Mr.

Stern and Mr. Danner have supported this legislation; Mr. Pollack

has as well. We have had help from the National Association of Insurance Commissioners on the rating questions, which we think

are really critical to addressing some of these issues.

We addressed the health status, basically phasing it out over 5

years. We allow pooling on a national basis, and also have Statebased plans as long as they have conformed to certain criteria. We

also allow the self-employed to be part of this group market that

otherwise is left out. If we exclude the small business markets,

then clearly we are going to leave out 52 percent of the uninsured

because they are the ones that work for small businesses or depend

on someone who does.

Now, one of the issues is not only including in the broader reform, but then, secondly, the number of employees it should apply

to in terms of defining a small business. Now, I have heard it range

from 10 employees—I think, Ms. Ignagni, you referred to as just

having micro-businesses, 10 employees. Our SHOP Act includes

100 because basically the 52 percnet of the uninsured working for

small businesses are those working in businesses of 100 or fewer.

Ms. Rosenbaum, I think you mentioned 200 in your testimony.

So I would like to address that issue in terms of, what should

be the definition of small business? Two, should we include small

business health insurance reform in the broader reform, not just

the individual market? What benefit would there be to leaving out

a group like small businesses that clearly are going to be critical

in this process?

I mean, there is a big difference between 26 million people being

part of this process, or if you have 10 employees, Ms. Ignagni, then

you are talking far fewer. I do not know how many are in that uninsured pool, but we know that 26 million are represented for

working firms of 100 or fewer.

So Mr. Danner, would you begin on this question? Yes.

Mr. DANNER. Obviously we are very supportive of the SHOP bill.

We appreciate your efforts and the efforts of Senator Bond and

Senator Durbin to get there. We strongly believe that the principles

embodied in the SHOP bill need to be included in broader legislation. Small businesses are half the economy, but they are also half

of the uninsured. Small business members and their employees are

half the uninsured. So we certainly hope that the principles of

broad pools, of tax equity, the things in the SHOP bill, need to be

included in broader legislation.

We also support the 100 and below employee level in the SHOP

bill. We think it is very important that many businesses above 100

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are able to self-insure and most businesses under 100 do not. So

we think that is a good cut-off point.

Senator SNOWE. Anyone else to comment on that? Yes, Ms.

Ignagni?

The CHAIRMAN. We have got a lot of Senators here. Maybe one

more comment. Frankly, we have too many people here.

[Laughter.]

The CHAIRMAN. So we are just going to have to do the best we

can with what we have got here. This is becoming a difficult problem logistically to manage. But if you could ask one more panelist,

Senator, then we will go on.

Senator SNOWE. Just one other comment.

The CHAIRMAN. I would ask everybody, get straight to the point.

Senator SNOWE. Dr. Nichols? And thank you for your help in

drafting this. You have been a great resource in this as well.

Dr. NICHOLS. Well, Senator Snowe, I would just offer this definition of, ‘‘how small is small?’’ If you think about the one market,

in my view——

The CHAIRMAN. Briefly.

Dr. NICHOLS. One area that is working well today is the very

large self-insured employers. So the small should be defined as the

size at which you can self-insure safely. I think we can argue about

what that number might be, but I think it is more like 300. I will

just stop there.

Senator SNOWE. Thank you.

The CHAIRMAN. Senator Stabenow?

Senator STABENOW. Thank you, Mr. Chairman.

To follow up on that, I want to talk for a moment and ask some

input regarding those large employers. The majority of people

recieve their insurance through their employer, and frankly some

of our best cost efficiencies, our cost savings have come from large

employers, many of them in my State who have focused on using

generic drugs, using preventative measures, other kinds of efforts.

A couple of different questions. Well, first, an observation. The

reality is today that while most people get their insurance through

their employer, as people are losing their jobs—and more and more

of them are—they are losing, therefore, their insurance or they are

paying more premiums, more co-pays because of just the nature of

the cost and what is happening for employers. I could spend a lot

of time on the competitiveness issues around the globe and how

poorly we have designed this for employers.

A couple of questions. One, is that more and more we are seeing

people who are 55 or older who are being asked to take that early

out or are retiring, whatever, finding themselves losing that employer-based coverage and not qualifying for Medicare. There are

creative financing options. We have now seen things like Voluntary

Employee Benefit Associations, VEBAs, and so on, to try and make

up the difference.

I would ask panelists what you would suggest, because this is

certainly the highest cost for employers as well as people who are

older. What about those who are early retirees? The Chairman’s

white paper suggests something possibly to look at like Medicare

buy-in or something that would transition. So one thing is, what

about older people?

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Then, second, whatever we do in reform is going to take time to

implement and I am wondering about a bridge to transition for employers right now to help employers in terms of insurance, and any

kind of good-guy credit for the folks that have been doing the right

thing for a long time. So, early retirees, and then what about helping employers right now?

The CHAIRMAN. You have to pick a panelist, Senator. Pick who

you want.

Senator STABENOW. Well, first, I would ask Ms. Hansen, from the

retiree standpoint, and then Ms. Ignagni, would you respond?

Ms. HANSEN. Right. Thank you, Senator. This is a major concern

and initiative for AARP and the concern of not only these 55 and

older, but we are finding people who are perhaps losing their jobs

at 50. So I think the whole aspect of affordability is there and some

creative ways to look at subsidies to make it possible, because I

think one of the things we were talking about earlier is the concern

that as you do get more health care issues as you get older, the

insurability aspect—even if people, again, are all included, the cost

side is going to be extremely high.

We are finding in certainly the stories that we are hearing from

people who are either let go from work or, by health, have to leave

work or find that they are in a situation that they just do not have

the ability to get a job. The affordability component and access is

just absolutely critical for some people who are not even retiring,

at that age.

Senator STABENOW. Do you support some kind of Medicare buyin?

Ms. HANSEN. I think that has been one of the discussions here.

I think we are looking at your leadership collectively to take a look

at what the implications are for coverage, and that there are probably many ways to get there. We would want to make sure that

we have an opportunity to discuss that.

The CHAIRMAN. Senator Kerry?

Senator STABENOW. I am sorry. Ms. Ignagni had raised her hand.

The CHAIRMAN. All right, but very briefly because we have lots

of Senators who wish to speak here.

Ms. IGNAGNI. I will be very quick, Mr. Chairman.

Senator, I think you have asked an important strategic question.

Quickly, the answer is the following: you have a strategic choice to

make in terms of designing the rules. If we design rules where the

insured are subsidizing each other, even with bands and so on,

there will be higher costs, as Ms. Hansen observed, for older workers.

One of the things I think was learned in the California experience most recently. They did not pass their legislation, but they

had a provision that people over 55 would not have to pay more

than 10 percent of income for health insurance coverage. I think

you could marry the two. So think about rating and subsidization

in tandem, and there are many different choices. Thank you.

The CHAIRMAN. Senator Kerry?

Senator KERRY. Thank you, Mr. Chairman.

Let me try to be quick on this. I want to get more precise with

respect to the answer on part of the question that was asked by

Senator Cantwell, and I direct this to Andy Stern and/or Ms. HanVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00097 Fmt 6601 Sfmt 6601 48952.XXX SFIN1 PsN: SFIN1
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sen and Ms. Rowland if you want to contribute to this, if you

would.

Senator Grassley and I have introduced the Empowerment at

Home Act, which seeks to create greater flexibility for the delivery

of home care, which is what we were talking about. We have got

about 9 million people today who need home care. It is going to go

up to about 21-plus million over the course of the next 25, 30 years

as the aging population grows and as more people need it. Currently, we spend about $100 billion in Medicaid on that. Medicaid

pays for about 49 percent, Medicare pays for 21 percent, private insurance pays for only about 7 percent.

My question to you is, in our Act, Senator Grassley and I use

sort of an extended waiver process, et cetera, to try to expand the

opportunity for care. Should we be more specific here? Should we

change the percentage? Do we need to be more arbitrary? I mean,

currently, 75 percent of the weight of Medicaid reimbursement goes

to institutional care and only 25 percent goes to home care. Does

that need to change? Can you adequately get at this and get the

cost reduction in home care increase you want through the waiver

process? What is the best way to structure this, bottom line?

Mr. STERN. Senator, that is a good question. What I would say

is, what we cannot do is structure a payment system that rewards

institutional care and have no compensation for people who want,

and are able, to live in their home. I think that is what we do too

much now, which is, we provide money to do certain things and do

not provide money to do other things, and lo and behold we get the

result you might expect.

So I think whether it is a waiver process, whether it is redoing

the payment system to have the least restrictive care that people

are able to operate in, whether it is having Medicare provide more

support or the private insurance being required to provide more

support for home care, something has to be done if we want to

drive down costs.

The CHAIRMAN. All right.

Senator KERRY. Ms. Hansen?

Ms. HANSEN. Yes. I do think there is a great opportunity right

now to redistribute that mix. In fact, we are finding that——

Senator KERRY. With specificity, in other words?

Ms. HANSEN. With specificity.

Senator KERRY. We should target the percentage differnetly?

Ms. HANSEN. It can be much more focused. Some States have already done that. There is also an alternative that actually, in Senator Grassley’s own State, has the ability to build it into the State

plan. I think that is the only State right now that has been able

to achieve that. Once you build it in, then the shift will occur. Some

of the States in the past have taken this lead earlier. Senator

Cantwell’s State and Oregon have done this and we do find a much

better mix. It meets Mr. Stern’s comment about people wanting to

stay at home.

Senator KERRY. Great. Thank you, Mr. Chairman.

The CHAIRMAN. I am sorry I am going to have to limit it right

now. We can come back. There will be a wrap-up here.

Actually, Senator Grassley has a statement to make.

89

Senator GRASSLEY. I am not going to ask questions. I would like

to discuss this for 10 minutes, but I just want to take a minute and

say two things, kind of in the form of a question, but as something

for people to think about. If some of you want to respond, please

do it for the record later on, do not do it now.

In the first place, in regard to lack of competition in some States,

I think it is true that the lack of competition in some markets is

due to the fact that some States have, through the community rating rules and through the limits on preconditions and all those

sorts of things, have kind of messed up their insurance markets

and a lot of the competition has just pulled out. They were not

going to do it, so what is left is very, very expensive and very limited competition. So I accept some of that, but I believe that government has created a situation in some States for that to be the

case.

The second point I would make would be in regard to people that

want to expand Medicaid. Now, in my State, the State pays 62 percent, so doctors are not taking Medicaid people. So you want to

load Medicaid down with more, with less people willing to take it.

So you get back to, how do we get in this condition that Medicaid

pays 62 percent, in my State as an example, and in other States

it would obviously vary? This gets back a little bit to the government-run option. It has been mentioned, the fact that when Medicare was created it was designed to pay private rates, but over

time the government realized that they could save money by just

setting lower payment rates.

Some would create a government-run plan, with the best of intentions, but how do you know that the government will not, in the

future, do like they did in Medicare, or more frequently with Medicaid, and just lower rates and give the public plan an unfaire advantage when we need a little extra money?

I yield the floor.

The CHAIRMAN. Thank you, Senator.

Actually, I am going to change the order a bit because Senator

Carper, who has left, wanted to be recognized. That is why he was

not recognized earlier.

Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman.

A question for you, Mr. Castellani. Health costs are hitting all

of our businesses like a wrecking ball. I want to ask you a question

about how we might unify your position and Don Danner’s position

for the small business folks. Here is what Don Danner said in his

testimony: ‘‘Our research suggests that employees are better off

choosing their own insurance plans rather than leaving the decision to their employers. No matter how smart and well-intentioned

the employer, the employee has a better grasp of his or her family’s

needs and desires. The best approach is to give individuals the option to use employer contribution dollars to pick the plans of their

choice.’’

Now, here is my question for unity between you and the small

business folks. Supposing we said that we would do what Mr. Danner is talking about, but the worker could, in effect, use their dollars with your plan, one; you tread softly on ERISA, which I think

you made a good point to the Chairman on; and second, you would

90

continue all the incentives for prevention that you and your members have wanted.

If that was done, clearly there are going to be some challenges,

like risk adjustment in terms of how to do it. But would that not

be one way to unify the big businesses and the small businesses

so that all employers can come to Chairman Baucus and Senator

Grassley and say, we can be on the same page in terms of holding

costs down?

Mr. CASTELLANI. Well, Senator, you make a very good point. As

you know well, we have really enjoyed and benefitted from the discussions and your focus on the issue. The answer is, in part yes,

but in part no, because here is the concern we have. We need small

business and people employed by small business to be covered. If

this system is going to work, everybody has to be covered.

What we have to be concerned about is that we do not lose a

large segmente of our population that we currently have in our insurance programs. As large employers that might be—for example,

one of the issues that was just lightly touched on with an optional

public plan—the young and healthy. And then you get stuck with

old people like me. We have to have a broad enough pool so we

make sure that it is affordable and we can be competitive.

So the concern I would have is, yes, you are right, we want the

small business people to be covered because we are subsidizing

those who are not covered now, but we cannot have it at the expense of the affordability of large employers because we need the

broad spectrum of the risk pool to make it affordable.

Senator WYDEN. Can I follow that up, Mr. Chairman?

The CHAIRMAN. Yes.

Senator WYDEN. I understand that and I think everybody understands that risk adjustment is going to be a challenge under any

proposal. But it seems to me you can have those big pools that you

want and still have the consumer preference that Don Danner is

talking about. If we do that, then the business community comes

out unified and, in particular, the country walks away with the

prospect that all Americans can have choices like their members of

Congress, and then you eliminate some of the police fight over the

public option.

Mr. CASTELLANI. Well, we certainly want everybody in the system.

Senator WYDEN. Thank you for your thoughtfulness, Mr. Chairman.

The CHAIRMAN. Senator Bingaman?

Senator BINGAMAN. Thank you all for being here.

Let me ask about oral health care. In my State, one of the big

health care problems when you look at quality of health care, is

lack of adequate oral health care for a lot of citizens. I am just

wondering, what do you believe should be included in a health care

reform proposal that might come out of this committee to deal with

that problem? Is this just a question of expanding Medicaid or is

this a question of doing something else? Is there any way that we

can accomplish a solution to this problem as part of a more comprehensive health care reform effort?

Ms. Rosenbaum, you have written about this subject. What are

your thoughts?

91

Ms. ROSENBAUM. Thank you very much, Mr. Senator.

First of all, I think that there is probably not a more important

health condition than oral health. It is universal. It can be deadly,

as we have seen now in this part of the country. I think back to

my early years as a legal services lawyer and the first thing that

I noticed about my clients was the state of their teeth. It was not

just the cosmetic dimension of it—t was a crippling condition.

I think that oral health also poses a real challenge to Congress

because it does not lend itself in some ways to insurance theory.

It is the kind of care you want to finance for people. You want to

help them buy the dental care they need. Dental care is expensive.

So the models that have developed over time are in a program like

Medicaid where we simply pay for necessary health care for people.

We do not worry about the kinds of insurance principles that you

have heard a great deal about today, and it makes Medicaid actually a very strong source of coverage for oral health. I would note,

in relation to Senator Grassley’s earlier question, that one of the

reasons why Medicaid payments are so low is because its coverage

is broad, which causes tension.

I think that for people who derive their coverage through pathways other than Medicaid, having an oral health component will be

critical. This is particularly true and certainly for women of childbearing age because of the relationship between oral health and

pregnancy outcomes. It is also an area where, going back to your

last hearing, you are going to have to think about health system

reform, and about encouraging the expansion of programs like

health centers in the core to build up capacity in underserved

areas.

Senator BINGAMAN. Mr. Chairman, Ms. Hansen wanted to comment. Is there time for that?

The CHAIRMAN. Go ahead.

Senator BINGAMAN. Please.

The CHAIRMAN. Go ahead, Senator. Yes, go ahead.

Ms. HANSEN. Thank you, Senator. I would just offer, on the other

end of the spectrum, my previous work before becoming a volunteer

for AARP was starting the original program of all-inclusive care to

the elderly. That is a program now in 30 States. Within that model,

oral health is included; dental care, eyeglasses, things that would

help individuals stay more independent.

So, clearly the evidence of physical health being affected by, say,

poor oral health, with cardiology problems does require a different

framing of looking at health well-being. So that is something where

I know there are some programs that are integrating Medicare and

Medicaid and do then include oral health.

Senator BINGAMAN. Thank you, Mr. Chairman.

The CHAIRMAN. All right. Senator Carper has returned. Do you

want to speak, Senator? You have been with us for some time now.

Senator CARPER. I appreciate it. Do I have to sit back in my own

seat or can I sit here for a minute?

The CHAIRMAN. You may sit wherever you wish to sit.

Senator CARPER. Thank you. I am used to sitting with the press

over there. This is nice to sit here closer to Chuck Grassley.

[Laughter.]

The CHAIRMAN. Yes. Right.

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Senator CARPER. Thanks very much.

The point I wanted to make earlier—and I have been drawn into

other discussions. We just had a tidal wave of folks from Delaware

here today, just one right after the other. People, when they come

from Delaware, they expect to see us, so I try to oblige them.

This goes back to some earlier conversations we were having

about the public plan, whether we should have a public plan or not.

I have not, frankly, focused a lot of time on that. But I have

thought a lot about the role of government in issues like the one

that we are discussing here today, and we thank you all for being

here.

I like the thought that the role of government—thank you. I

might get comfortable here.

The CHAIRMAN. Do not get too comfortable.

Senator CARPER. I will not. I will not. I will not. [Laughter.]

I will not. The role of government is to steer the boat, not to row

the boat. If you look at the Federal Employees Health Benefit Program, the role of government is really kind of to steer the boat, not

to row the boat.

We use the private sector, we use private insurers. Folks get to

choose their doctors, and that kind of thing. But the government

helps to steer the boat. I think when you look at the Medicare Part

D program, it is similar. We do not have necessarily a public plan.

We have a lot of private insurers. They have the opportunity to

participate and we let the market decide.

There was a lot of concern early on whether we already have a

Medicare Part D, especially the way it was structured. It is not the

way I would have structured it, but it has got an 85 percent approval rating from the people who use Medicare Part D. As I understand it, we have been doing this for about 4 years or so under

Part D, and I think each year the price comes in at budget or below

budget, which in my business, that is pretty good. I have a pretty

decent approval rating; I can assure you, it is not 85 percent.

But to what extent, in terms of thinking about a public plan,

could we use the philosophy that the role of government is to steer,

not to row? Look at FEHBP as maybe a model. Look at Medicare

Part D maybe as a model. I would just welcome your comments,

anybody who wants to speak up on that.

Dr. BUTLER. Well, I would like to maybe make a comment on

that, Senator. I think you are exactly right, that the idea of the

government steering or acting as the umpire is very different from

doing that and also trying to run one of the plans. I think the

FEHBP is absolutely instructive on that. It is precisely what the

government does, and that is why you do not have the concerns

about the role of government in that area that you do with the idea

of a public plan.

That is why I do think that you could certainly pick up on what

Ms. Ignagni said, and others, that you can envision the government

steering and also leaning on, or negotiating with, some of the private plans to provide the kind of safe harbor that the large national plans do in the FEHBP. I mean, it does work. If you have

a system that does work, it seems to me that trying to create something else, with all the issues associated with joint custody of running the plan itself and trying to set the rules, you can avoid that

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with an example that clearly works well. It is what members of

Congress have. It is what President Obama says he wants to have

for the rest of the country. I think it is the perfect model.

Senator CARPER. All right. Good. Thank you.

Ms. Ignagni?

Ms. IGNAGNI. Senator, thank you for the opportunity. I think,

metaphorically, you need a bigger oar in terms of what the government needs to do, take more control, create uniformity, and do

more by way of regulating. So, that is very clear.

I think Ms. Praeger said something very important.

Senator CARPER. We need a bigger oar or a bigger rudder?

Ms. IGNAGNI. Actually, I was thinking more the oar because you

have got to do a little more up front, and then the rudder as well.

But we did not want to go too far.

Senator CARPER. Who should be manning the oar? [Laughter.]

Ms. IGNAGNI. I wanted to say something that I suspect may be

somewhat unpopular, but I think it needs to be put out there in

terms of the architectural discussion. The Federal Government setting up the rules of the road here is extremely important. We believe State enforcement—Ms. Praeger made a very good point.

They have the infrastructure to do the consumer protection. Where

we have gone wrong, there are two models of HIPPA: one is where

the Federal Government sets minimums and the States do more,

the other is where the Federal Government sets the rules of the

road, without getting into the details of which is which.

The point is, if you get to the situation where the States are

going to do more, you do run into the problem, the number-one

problem that small businesses are facing today, where they have

mandates that are developed at the State level that block out small

businesses from actually purchasing insurance and designing packages that are appropriate for their workforce?

Similarly, we can go on and on, but that is just one example. I

know the Chairman wants to move, so I think, as you think

architecturally about this, it is very, veyr important to create no inherent disadvantage of living in State A versus State B. If we move

to a system where it is HIPPA 1, where it is minimum and then

the States move on and do additional things, then I do think you

risk tremendous inequities.

Senator CARPER. All right. Thanks. Thanks so much.

The CHAIRMAN. Senator Roberts? Thank you. Senator Roberts?

Senator ROBERTS. Excuse me, Mr. Chairman. I grew a beard

since the last time you recognized me. Rather amazing. [Laughter.]

Mr. Stern and everybody on the panel who has expressed great

support for something called a community-based incentive, more

especially for people who have chronic disease, and I am interested

also in Senator Ensign’s comments. So obviously this kind of a plan

or this kind of a concept would include wellness things for blood

pressure, for obesity, for smoking, and cholesterol, everything that

your grandmother said that you should not do and should do. Everything in moderation.

I want to know, who is going to do all this? Because if I go out

to Syracuse, Kansas, or Tribune, or St. Francis, or Matter, Kansas,

the border out there next to Colorado—Sandy has been there and

she knows what I am talking about. It is not the end of the earth,

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but you can see it from there—I do not know who does this. In

other words, I do not know how you get a community incentive program implemented with the personnel that is going to be involved,

with a provider that is going to be involved.

I would just like some help here because I just jotted down who

would be doing this. Obviously there would be a member of AARP

who would do the best that he or she could. There is the Area

Home Health Care Agency, which is a 1-800 number that is always

busy, and good luck on that. These people work very hard at it, but

the number of people out there just is very scarce. You have got

the Meals on Wheels people, and sometimes they are the only people that visit somebody that is a senior with a chronic condition.

You have got, obviously, the home health care provider who not

only provides it and the durable medical equipment, but many

times they are the only person that goes out there to visit Fred,

who is 6 miles out of town and 4 miles to the east. Then you have

got the preacher in the church, and you have got the pharmacist.

Do not forget him, because he is the guy who really operates the

Medicare Part D. We ought to make him a GS–15. I do not know.

What are the incentives for a doctor? Number one, we do not

have a doctor. But number two, we have doctors and nurse clinicians, and they try very hard. What would be the incentive to take

that doctor and actually make them have house calls out there in

our rural population?

I am all for this, you understand. But I am just having trouble

seeing what the infrastructure is all about. Sandy will tell you that

basically States have about 2,000 mandates with Medicare and

Medicaid and State mandates. Some States have got their mandates so high that they have priced their program, or their plan,

out of any kind of possibility here. So, that is a problem.

Who is going to do this?

Mr. STERN. Well, I think we just had a discussion about, what

is the role of government. I think what we are seeing is the market

and the payment system not working very well, for all of the reasons you have just appropriately said.

Senator ROBERTS. Right.

Mr. STERN. So I think State needs a plan. I think they need the

options, the choices that allow people to stay in their home. I think

every State is going to be fundamentally different. In California,

there are 300,000 people that provide this service in the smallest

rural areas that provide certain parts of the service.

But clearly, if we are going to build a system that deals with the

aging population and deals with the growing desire of people to

stay in their homes, we are going to have to have States find an

integrated way to do that and the Federal Government is going to

have to give them the flexibility and the resources to do those different things. Right now we incentivize people in nursing homes.

I do not think that is what we want for our citizens, I do not think

that citizens want for themselves.

Senator ROBERTS. No. That is a warehouse situation. If anybody

else would like to help me out on this, we have got about three or

four people raising their hand. Sandy, do you want to respond?

Ms. PRAEGER. Senator, thank you. One of the issues I know the

committee is going to take up is the payment mechanism. I do

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think we need to create incentives for good primary care—and they

currently do not exist—so the primary care physician is rewarded

for providing that good preventive care that right now is not a reimbursable event.

So shifting the incentives away from fee-for-service where we pay

for volume of care to a value-based system where you are paying

for value and create some incentives to encourage people to do primary care and to go into primary care, I think is critically important.

The CHAIRMAN. And I might say, Senator, that is the thought in

delivery system reform that tends to get at your question there. I

think it is a very good one.

Senator ROBERTS. I appreciate that.

The CHAIRMAN. It is not an easy one to answer.

Senator ROBERTS. I think more people want to say something.

The CHAIRMAN. But you have got your finger on the basic point.

Mr. POLLACK. I just want to say that infrastructure is probably

going to follow payment incentives. RIght now, all the payment incentives are towards institutionalization, not for keeping people in

homes and in their communities.

The Medicaid program is the primary payor of long-term care

today. For years, we have said that institutional care is a mandatory service under Medicaid. On the other hand, home- and community-based services essentially have to go through the waiver

process, which is fairly laborious. So if we created a payment system in Medicaid that treated home- and community-based care on

an equal plane as we do institutional care, it will not solve the

problem overnight, but as money becomes available I think you are

going to see greater incentives for infrastructure being developed.

Senator ROBERTS. Well, I would remind you of the statement

that I said at first: a 2005 Community Tracking Phyisicians Survey

showed that only 50 percent of physicians accept Medicaid now,

and this doctor says he does not take it. He realized a few years

ago that it was not worth the money to file the paperwork for the

25 bucks or less that he received from an office visit. This is at the

office, this is not going out to make a house call. So, something

would have to change very dramatically. It is a big challenge.

Mr. POLLACK. And right now under Medicaid, actually it is the

States that set these rules.

Senator ROBERTS. I understand that.

Mr. POLLACK. And so as we now have an opportunity for health

care reform, the Federal Government can play a strong role to

make sure that payment levels for providers are adequate so that

when people have a Medicaid card, they actually can receive the

service.

The CHAIRMAN. Senator Lincoln?

Senator ROBERTS. This could be an expensive proposition.

The CHAIRMAN. Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman. And thanks to so

many of you that have worked with us in trying to come up with

the solutions. I know I have worked for years with Senator Snowe

on really how to focus on the small businesses and the self-employed. In our State, we know that there are well over 50 percent

not only of our working families, but also in terms of those that are

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uninsured, or certainly under-insured. So, I am grateful for all of

the input that you all have provided us through the years on what

we have been trying to do.

As much as what was mentioned here with Senator Carper, we

did use FEHBP as a model, looking at how, in its infinite wisdom,

the government did see that they could do a better job of providing

greater coverage, more meaningful coverage to Federal employees

at a lower cost when they pooled them all together and pooled that

risk. So, it has been helpful.

I would just like to ask a couple of questions. I think we have

got a great model in the SHOP bill to begin with. I know that there

is probably places that we can always improve, but really with the

input that so many of you all have made, I think we have been able

to make an awful lot of improvements in terms of both availability,

looking at some of the issues of making sure that States maintain

their regulation of what we do, but still being able to allow State

and national pools or exchanges, or within the same exchange together to be able to provide that competitive nature.

One of the things is about rural health care. I very much appreciate the fact that Dr. Nichols grew up in rural Arkansas, just as

I did, in terms of that availability. I guess my first question would

be, how robust is the insurance market in rural areas? I know that

having traveled across the State of Arkansas during our 2-week

break and listening to people, it is extremely difficult for small

businesses and self-employed people out there to access anything in

the private marketplace, not to mention their access to health care.

I would, on top of that, not only talking about how robust is the

insurance market in rural areas and do those individuals and small

businesses have affordable options for some kind of comprehensive

coverage, I would also like any comments you all may have about

how we balance the high cost of health care with providing a plan

that is meaningful.

In most of those sessions that I had with people in Arkansas,

they said that they may have had access to one or two health insurance options, but none of them were meaningful in terms of

what they needed, the high premium, plus the high deductibles,

the co-pays, resulting basically in their out-of-pocket costs that

were just simply cost prohibitive.

So touching on a little bit about those high costs of health care,

providing a plan that is meaningful, it provides things—one of the

things we did in SCHIP that was so meaningful was the dental

wrap-around. Senator Bingaman brought up the issue of dental

and how important it is, particularly in rural America where you

have less access to dental care, but more importantly people that

are just not able to afford it in a plan that is going to be so costly.

So, anything of those two—I know the Chairman is going to cut me

off, but anything on those two that——

The CHAIRMAN. No, no, Senator. Go right ahead.

Senator LINCOLN. Yes?

Ms. IGNAGNI. Senator, I think there are three issues, and they

go together. In terms of the reforms that we are recommending,

having a full-scale reformation of the existing market and setting

out the rules very clearly and creating portals at the State level,

which would be a place where, with one click, small businesses, inVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00106 Fmt 6601 Sfmt 6601 48952.XXX SFIN1 PsN: SFIN1
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dividuals could go on a system and clearly see whether it is—in the

Massachusetts arena, it is gold, silver, bronze. You could use a different set of structures, but it should be synergistic across the

States and we should figure out the best way to do it and help the

States and provide the software so it can be similarly designed

across the country.

Senator LINCOLN. Just like our Plan Finder with FEHBP.

Ms. IGNAGNI. Exactly. Exactly.

Senator LINCOLN. And in SHOP, we do. They just click on their

State.

Ms. IGNAGNI. You do. In fact, you have done a great job of thinking about that. So, that would help considerably, number one.

Number two, the cost. We have talked to a considerable amount

of small businesses around the country. I was just recently in Albuquerque and spent a great deal of time in rural New Mexico, and

this is the same sort of situation you are talking about. Our plans

do not have the ability—for those small employers, whether they

are restaurants, whether they are service providers, they want to

customize their products. We cannot do that because of the mandate barriers.

We would like to be able to do that. We can do that for large

businesses, we cannot do it for small. So that is why we have to

think about, what will be an essential benefit package that everybody has access to across the country, and it is offered by all providers?

Then the third issue that we have been talking about quite a lot

today is the care. We were just talking about the home- and community-based care. This is a very important issue in rural America.

People should have the ability to have care plans and government

should not make a decision about how people seek access. So the

Medicaid situation is a great case in point where it is old-fashioned. It grew up that way because institutional care was the thing

that was done when Medicaid was provided. That should not be the

case. We should look.

Individuals should make the decision on the places that are appropriate for them. So, we have done a lot of thinking about: (A)

those care plans; (B) how to get the services to people, and there

are fascinating things, as you know, going on in rural America

where our health plans have been able, through a great deal of

equipemnt, for example, to do off-site monitoring hooked up to computers.

Senator LINCOLN. Oh, yes.

Ms. IGNAGNI. Do the kinds of disease management that we were

never able to do before. So I think the three go together and we

can make some real progress.

Senator LINCOLN. Well, we have talked a lot about it in the previous panel on guided care and some of the other kind of institutional things.

The CHAIRMAN. Ms. Rowland, you wanted to respond?

Ms. ROWLAND. Senator, I think you also have to recognize, given

the lower levels of income and especially the high rates of

uninsurance in rural areas, that what you do in terms of subsidizing coverage and what that coverage is will be very critical.

98

I think you pointed out very adequately that people do not want

to have a low premium for a policy they do not think is really

worth the coverage. So that is why, in many rural areas, I think

investing in a very substantial subsidy for a comprehensive benefit

package, and for the poorest of the population, continuing to build

on the kind of coverage that Medicaid can provide in terms of providing transportation and additional assistance. In fact, it is Medicaid that provides those wrap-around benefits for home- and community-based services that are generally not available in any private health insurance plan, and I doubt will be covered by many

of the plans in the exchange.

Senator LINCOLN. Well, should there be something that provides

an incentive to States that have large populations of, say, children

or Medicaid-eligible individuals who are not enrolled?

Ms. ROWLAND. Yes. There should certainly be a way to try and

reach out and get some of those individuals, and that is, in fact,

a very important look at the State level too at who the workforce

is for that population. Many States—Massachusetts, for example,

knowing that it has a problem with dental access, has expanded

the Medicaid reimbursement so that dental hygienists can bere imbursed directly without having to go through a dentist. So, I think

there are a whole variety of ways in which you can really look at

both improving the supply of providers and the access to coverage

in rural areas.

The CHAIRMAN. Mr. Danner, do you want to speak?

Mr. DANNER. Yes, sir. Senator, certainly you have hit on what we

hear daily from small businesses, particularly in rural areas, and

that is that the current marketplace does not work for them. It is

broken. It is difficult to navigate, it is hard to understand, and specifically it lacks competition. They pay more for less than our large

counterparts do. Changes in health status can cause an individual

employer with one employee to have to drop coverage, so that

needs to be addressed.

That is why we appreciate all you have done on the SHOP Act.

We really think there needs to be larger pools, regional or national,

that small businesses can participate in to have lower cost, more

choice in particular, and more options for them as they purchase

for their employees.

Senator LINCOLN. And tax incentives.

Mr. DANNER. And tax incentives.

Senator GRASSLEY. If we are trying to imporve competition in the

insurance market, it seems to me that one of the keys is to increase

the amount of information available to consumers. This could be an

important function of health insurance exchanges. If the government is setting new rules and insurers start competing more on

cost and quality instead of risk selection, exchanges could be a very

important tool for consumers to shop around, compare plans, and

pick the one that best meets their needs. Ms. Ignagni mentioned

an essential benefit package in her last answer. I just want to

make a quick point. I often here people calling for a really comprehensive essential benefit package—but it has to be affordable.

I want consumers to have the choice between a wide variety of

plans—some less generous and others more generous. But we need

to keep in mind that if the government sets an essential benefit

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package that is too high, it will limit choices and be unaffordable

and people who need coverage.

The CHAIRMAN. Senator Schumer?

Senator SCHUMER. Thank you, Mr. Chairman. I want to thank

all of our panelists, and you, Mr. Chairman. This is extraordinary,

what we are doing here, and I think it is great. But it meets an

extraordinary need, so it is the right thing to do.

I would like to focus a little more on the public plan option. I

guess I would sum it up. Some of you said you do not want the

public plan to have an unfair advantage. I would agree. But just

as bad as a public plan with an unfair advantage is a proposal with

no public plan at all. I know my colleague from Kansas said people

do not want the government involved.

Well, let me tell you, they have problems with the government

sometimes, but they have a lot more problems with private insurance companies. The bottom line is, you need somebody who is not

a private insurance company to be in the mix. There are many of

us who feel very strongly about that.

We want to work with you—and I appreciated Ms. Ignagni’s comments—to try and see that the playing field is level, because I do

not think a public plan should have an unfair advantage. But it

would be giving all of you in the insurance industry an unfair advantage not to have a public plan, particularly given the fact that

in so many States we do not have real competition.

My State is one of the three that does. We have a lot of insurance companies fighting. But you look at the statistics—and no one

has refuted them other than to say they do not believe them—and

they are overwhelmed that you have two, three companies having

the majority of the market.

Just one other point, then I want to outline something here and

ask your thoughts. I met somebody years ago who was from the

railroad industry. He said, one of the problems that the railroad industry had—he worked for the old New York Central—was that

they did not know the cost it took to ship a car of coal from the

Pennsylvania coal fields to Baltimore. So I began by asking, what

is the cost of treating someone who has a particular condition, and

who does it better, Medicare or private insurance? No one knows

the answer. We can say, on this procedure Medicare pays less.

We might say, and I heard some of you say at our previous

panel, that you folks, the private insurance industry, are more

adept at figuring out who to use. But if you take two people who

have, let us say, the same condition of tuberculosis, just to pick

one, who are in decent health and they are both cured, who ultimately charges more for that being cured? No one knows the answer.

For anyone to say that we should not have a public plan when

we cannot answer that question is just being, in my opinion, closedminded because we do not know which one is better, at best. Some

of us think private is better, some of us think—myself—public

might be better. But no one knows. And to not have the competition the way the Chairman has set it up in the white paper and

let them compete, I think, is closed-minded, maybe self-interested.

Just as people should not say there should not be a private plan,

I think it is just as unfair to say there should not be a public plan.

100

So I would like to focus on trying to make the public plan fair,

if you will, so it is a fair competitor as opposed to having an unfair

advantage. There are five or six points. I have put together a little

document here that I will distribute, that talks about five or six

points that might make it ‘‘fair.’’ Even if it is not ideally what I

would do, I am trying to get some kind of consensus here so we will

have a public plan as competition.

We call our blueprint here Plan USA. It is a consumer-driven

public health plan. I will get some details. This is just the public

option. But here are some of the rules, and I would like to ask people what they think: (1) the public plan must adhere to the same

rules as all other plans in the exchange. That includes actuarial reporting, community rating, and guaranteed issue; (2) the government should not serve as both the player and the umpire.

In other words, the public plan should not be administered by

the same entity that runs the exchange; (3) the public plan must

be self-sustaining, just as a private plan would have to be; (4) the

government cannot use existing programs like Medicare as a stick

to compel providers to participate in the public plan. The public

plan must be required to provide the same minimum benefit design

as the other insurers competing in the exchange; (5) government

subsidies for low-income individuals must be uniform, whether

they are public or private.

So those would be some principles to try to create a level playing

field. But I have to tell you, the model that says we are not making

a profit, that we are going to be automatically transparent, that we

are going to provide, always, their recourse, should be in the mix.

All right. Who would like to comment? Ron Pollack.

The CHAIRMAN. Mr. Pollack, go ahead.

Senator SCHUMER. I am sorry, Max.

The CHAIRMAN. Mr. Pollack, go ahead.

Mr. POLLACK. It strikes me that there are three differences in

terms of advantages and disadvantages, public plan versus private

plan, one of which we talked about earlier today where I think your

rules about having a level playing field make absolute sense. That

is, what do we pay providers? To the extent that public plans pay

less to providers, that should be changed. I think that is essentially

what you are driving at when you are talking about creating a

level playing field.

But there are two other ways in which there is a difference that

tends to inure to the benefit of a public plan, and I do not think

that is something we should try to avoid. One, is that there are certain expenses that are associated with a private plan that generally

do not exist with respect to a public plan.

For example, private plans typically will do a whole lot more in

marketing and advertising and paying agents’ fees, and many of

them are in the business for making a profit. Some are nonprofit

entities. But that is an advantage. I am not sure we need to create

a level playing field with respect to that.

And there is yet another difference where I also do not think we

need to create a level playing field, and that is, a public plan is

probably going to do somewhat better in terms of economies of

scale. You are going to probably get somewhat larger enrollment in

a public plan than you will in any single private plan, and that

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achieves economies of scale. I do not think that is something we

should discourage.

Now, it is interesting. We keep on talking about a level playing

field, but we have seen something exactly the opposite with respect

to the Medicare program. We do not have a level playing field. As

we have learned from MedPAC, the payments to the private plans

in Medicare Advantage are considerably larger than it would be for

somebody who stayed in traditional Medicare.

So I think your principles make a great deal of sense. I think

they address some of the kinds of concerns that we are hearing.

But there are some benefits in a public plan which I think make

sense to continue, and it deserves offering people that choice.

The CHAIRMAN. Who else wants to address Senator Schumer?

Yes, Dr. Scheppach?

Dr. SCHEPPACH. Let me just say that unless you are willing to

add a sixth point, which comes and forces the industry to publish

prices and quality measures, I do not think you are going to go

very far in terms of actually creating competition in these marketplaces. You may change a very little bit with respect to administrative costs, but that is it. You are not going to transform the system

unless you really go to that other step.

Senator SCHUMER. Yes, we do that. I think Senator Baucus, in

his exchange, involves that too and implies that as well. So, I assume there is going to be transparency.

Dr. SCHEPPACH. I am going to walk into a doctor’s office, and on

the wall, the prices are going to be listed?

Senator SCHUMER. Well, it is something to think about, sure. I

would be happy to do that. The more transparency, the better.

Dr. SCHEPPACH. I am just saying, I think you need tehat for not

only wehat you are buying in insurance, but what insurance is buying from labs, hospitals, and doctors. Until you are willing to make

that step——

Senator SCHUMER. Just one of the goals of the public plan, which

will have total transparency, is to see actually what is going on to

begin to answer that question about the railroad car, if you will.

Dr. BUTLER. I think, Senator, you do raise exactly the kind of criteria that would have to be in place for people to be comfortable

with the idea of a public plan. I think that, in itself, raises a question about, to what extent those are realistic criteria. For example,

the one I particularly emphasize, you say whoever is controlling

the public plan has to be a completely separate entity from those

that are actually in some way setting the rules of the game.

Ultimately, of course, it is Congress who is going to be determining both. You are going to be responsible and have oversight

over that public plan and over the rules. I think when you think

also about, as you said at the very beginning, that it is very difficult to know exactly what the cost of something is and who is actually paying the bill for a particular procedure, it gets murkier

and murkier to really imagine this level playing field, as you well

know.

In this discussion of contracting out government services, for example, there are lots of questions about where the costs really are

and what is actually cheaper. I think, as Mr. Pollack said, that one

of the concerns with the Medicare program right now in terms of

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the private Medicare plans is, are they overpaid? Did the previous

Congress and the previous administration try to rig the game in

favor of them? You can answer that either way, but at least that

was a risk, which I think is a concern. So I think there are a lot

of issues here that, in a broad sense, make it easy to say there

have to be these criteria.

But then you have got to think, how does the political system actually deliver that? I think that is what the concern is and why I

particularly favor the model you do have in the FEHBP, of saying

let us keep everything private, let us have the government steering, negotiating, and so on, but do not mix up who has oversight

over a particular plan.

Senator SCHUMER. But then you would be losing the goods and

the competition that Dr. Pollack talked about.

Dr. BUTLER. Well, I think you can get at that in other ways. I

think you have certainly a lot of competition in the FEHBP. I do

not think you would argue that the FEHBP system that is devoid

of competition or answerability or transparency, or that the government does not set reasonable rules, and so on. But it is very different from what you laid out as your plan.

The CHAIRMAN. Ms. Ignagni, you sought recognition, as have several others. This is an important question, so we will stay on it for

a short while.

Ms. IGNAGNI. Thank you, Mr. Chairman.

Senator Schumer, we appreciate how thoughtful you are working

to try to reconcile all these different views, so let me start there

because it needs to be said. Second, there is a significant amount

of capital requirments that we hvae to meet. Medicare would fail

the capital test right now, so that is a very significant dollar figure

that would have to be imbued into this plan, and I knowe you have

thought about that.

The third issue is the payment issue, and that is where I want

to spend a quick point here. Because right now, it would take a

very long time for government to develop the infrastructure to negotiate with physicians. Government does not have networks, cannot put together networks. The disease management program

failed in traditional Medicare, and we all know why, because there

is no predictability with respect to who is coming in the doors of

the physicians’ offices, et cetera, et cetera.

So you would drop back, understandably, solving one problem by

saying we are not going to use Medicare rates, say we are going

to go to 100 percent just for purposes of discussion. So we go from

Medicare paying 80 cents on the dollar on average, and will go to

100. So, it is still an administered pricing system.

Right now, and in our testimony we provided some California

data, the one thing that should be done as part of health care reform, we should be able to have the same data we can get in California, and every State in the country so we know exactly what is

being paid by the payor. So you see government, now, paying

roughly 80 percent—a little less, on average—in California. The

private sector is paying anywhere from 130 to 140.

So if you set up a new system where government is paying 80

and we are still subsidizing at the 130, 140, that immediately takes

more people there, moving every employer, whether they are small

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or large, using great economic sense to say, well, why do I have to

pay that subsidy? It does not make sense. I am migrating to the

plan. I want you to know that as we thought about our recommendations to this committee and this Congress, we did not rule

out anything.

We looked at everything, which is why we have been so farreaching in our market reforms, to try to create a situation that

would solve the problems that consumers have, the trust factor. So

again—you were out of the room—we are not asking people to trust

us, but to trust government and to do that very transparently. You

are talking about a lot of disclosure, you are talking abour rules.

We are very comfortable with that. That is the way FEHBP works,

it is the way Switzerland works, Germany, the Netherlands.

I think we could actually provide a great deal of help to the committee in structuring something that solves that trust issue. We accept that proposition. You are right, we need to do more, we have

to have a complete overhaul of the rules, but I hope that helps give

you a window into what we are very concerend about.

The CHAIRMAN. I see Dr. Nichols wants to speak and Mr.

Castellani wants to speak.

Doctor?

Dr. NICHOLS. Just very briefly. First, Senator Schumer, I would

like to applaud you on the principles that you outlined. I mean, if

what Robert Pare wrote was half of what you have in mind, we are

moving in the right direction here. I definitely agree that the key

is, can we structure a truly level playing field so that competition

would be fair? I think we are all in that boat. I think, in fact, what

you have heard today is a lot of willingness to continue to think

about this with you and others as we——

Senator SCHUMER. Which is very heartening. It is.

Dr. NICHOLS. But I would just say that I think it is unambiguously true that 34 States are doing something like this now. They

manage to contract with providers, partly because they typically

hire a network either that is already existing or they ask another

health plan to help them go out and do that, and they basically

piggy-back on the contracting that is there.

It is really kind of a daily make-or-buy decision, and 34 States

have decided to keep that public option, that self-insured option

alive and viable, not because States enjoy paying more for health

care or because clearly States are not trying to drive competition

away, they are trying to preserve that competition.

What I understand in my colleagues’ comments is that they fear

that government will allow the competition to be fair. I think it is

kind of interesting, though, when you think about market advocates afraid of competition. The burden is on you, sir, and us to

make sure that the public policy actually does create a level playing field and protect that competition, but it seems to me that commitment is very much part and parcel of where you are going. So,

I applaud you.

The CHAIRMAN. All right. Mr. Castellani?

Mr. CASTELLANI. Senator, just a point or two. We share your concern in terms of what you are trying to accomplish and what this

discussion is trying to accomplish. We want everybody to be covered. There is one rule that you did not include, and that is a reaVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00113 Fmt 6601 Sfmt 6601 48952.XXX SFIN1 PsN: SFIN1
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sonable return on the capital that is employed by the taxpayers

which the private sector has to provide in order to be viable and

raise capital.

Our concern is, without that, which cannot be in a government

system, you are going to have a public plan that is so attractive

that we will lose a substantial portion of those people that we currently cover now and be left with a problem that is more expensive

and unsustainable. That is the big concern. We would rather see

that we can achieve the same thing through insurance market reform and then see who is not covered.

Senator SCHUMER. All right. Now, just a couple of quick points.

I thank the Chairman for his indulgence. I know that you and Ms.

Ignagni and others have a lot of faith in market insurance reform

and that these rules can make everything work. There are many

of us, both on this side of the table and that, who are not so sure

it does. The present system—admittedly imperfect—has not proven

that by any stretch of the imagination, although I would admit that

some progress has been made.

The second point I guess I would make to you is, we do not want

the public plan to be exactly the same as the private plan. There

are certain advantages that the public side has. There are also certain advantages—we have heard it from many of the private side

people, the gentleman from the Blues, Ms. Ignagni, and others—

over the public. They do it more efficiently.

In Medicare, as I said, the cost may be less for the specific service or the specific visit, but the private sector will claim, we get you

to the right person more quickly so you do not have extra things

that you do not need. The private sector will still have that in this

competition. It is sort of as if you are saying, well, the public advantages we should get rid of, but the private advantages we

should keep. Let them compete.

I do think, Mr. Chairman, we will sort of move to have the private sector be required to do some public goods, to put some public

goods into the way they operate, and the public plan required to

put some private goods into the way they operate, but it is still a

real competition that could show us something because, frankly,

the first thing I learned when I started studying this—and I do not

know close to as much as the Chairman, or Senator Wyden, or Senator Stabenow, who have studied this for so long—that we do not

have all that much information.

Again, it is confounding to me that while we can measure little,

discrete parts, we do not know whose coverage is more cost-efficient. The only way to find it out is transparency, which a public

plan will bring about, although you probably could put in transparency, I would say to the NGA gentleman, without it. But it is

much better to have it with it. But there is also competition to find

out. The private sector will have some advantages, and we cannot

just get up and say, well, the public advantages we should get rid

of in this competition, but the private sector advantages we should

not.

To Ms. Ignagni’s point, yes, a good public plan, our Plan USA,

would have to make some investments. They would not have profits and they would not have marketing, but they would sure have

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to make some investments in paying systems and IT and things

like that that you would have already done.

The CHAIRMAN. All right. We have to move on here.

Senator Wyden?

Senator WYDEN. Thank you. Thank you, Mr. Chairman. Just one

last topic, and I will be quick. The most heart-wrenching health

care coverage in this country for families, the most heart-wrenching issue, is end-of-life care. We saw that during the Terry Schiavo

debate. I went to the floor of the Senate and said, I am objecting

here. I do not want the U.S. Senate to become a medical Court of

Appeals.

I think I will start with you, Ms. Hansen, on this. There are a

host of issues that relate to policy. AARP has been interested in an

area that a number of us care about, the idea that you would not

have to give up the prospect of a cure in order to get hospice care.

I think we will have support for that. But the big issue is the ethical framework for dealing with these very tough end-of-life issues.

I think what the country said during that Terry Schiavo debate

is that families want to be able to make the choices themselves

rather than to have government drive those decisions. As we move

to the end of this discussion, can you give us your thoughts with

respect to what you think the ethical framework ought to be for

end-of-life so that particularly we can empower people so they will

get the sense that they get to make the choices, these very difficult

choices, rather than to have the government and Washington, DC

dictate instructions to them?

Ms. HANSEN. Well, thank you, Senator. This is a significant, both

personal individual family issue, but it is also a cost issue to society. I think one of the things that we encourage, and it is an initiative on which I know we have some support, is the ability for families to talk about this early on and have some clarity of what their

wishes are and have that kind of establishment.

So having a framework that allows that kind of guided discussion

at a time that is not an emergency—these emergencies occur and

what happens is, there is no ethical framework, there is an action

framework. The framework is to get into the care system and get

many services, and oftentimes in a situation where there really is

not great quality of life. The angst that family members go through

is a major issue. So, I think one of the frameworks is discussing

what regular people want to do.

We have research to show that the majority of people probably,

if they could not achieve their level of performance or competency

at a certain functional level, oftentimes want more supportive, palliative care. That actually is what would be more ethical, both for

the individual and for society, so that we do not end up spending

what amounts to, as shown in the study by Hogan in 2001, onequarter of Medicare spending on end of life issues.

So if we could do it from a personal value discussion early on and

have some tools for physicians and others, it would make a huge

difference for individuals, for families, and for practitioners who do

not get caught in a legal battle at that partiuclar time, which adds

to cost, and it creates, oftentimes, services of suffering, frankly,

that are not right for people if we had a better framework early.

Senator WYDEN. Thank you, Mr. Chairman.

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The CHAIRMAN. Thank you, Senator.

I have got a question, a transition question. I think a lot of members of Congress are going to be quite concerned about the impacts

of policies we are discussing today on their own States, especially

their insurance commissioners in their States generally.

In my State of Montana, for example, we have no regulation of

the individual market, none. There are many States in that same

situation. As we implement an exchange in which we will make

certain decisions, that gets into questions of design, for example,

and benefits, the question is, how do we transition here?

I would just be curious as to what some of the States’ reactions

would be. About 14 percent of Montanans purchase coverage

through the individual market and half of those are between 19

and 29 years of age. About 76 percent of the young people in Montana are below 400 percente of poverty. That is going to have certain impacts on States, too.

I also want to talk a little about rating, community rating or rating bands, because the thought is that insurance companies cannot

deny coverage based on health status or preexisting conditions. I

guess the next question is about rating, community rating and rating bands. Maybe the Federal Government sets some basic parameters, but then States can then implement that, those State bands,

whatever the bands are. That begs the question: what should the

bands be? But then there is the question of, how do you avoid redlining?

What happens if we delegate to States the authority to set geographic boundaries within States, say, how do we make sure that

there is no red-lining? I know those are a lot of questions, but the

basic question is, as we transition, what is the proper way to transition and what should the role of States be, and how do we deal

with some of these questions that I just raised?

I am going to ask Ms. Praeger, first, to answer that question.

Ms. PRAEGER. Thank you, Mr. Chairman.

The CHAIRMAN. Both questions. Sorry.

Ms. PRAEGER. As I mentioned earlier, I think allowing the States

to retain the authority to regulate and to transition from rating

bands or modified community rating, whatever system they currently have. If they have no rating rules, the impact of imposing

those is going to be more dramatic, especially on younger, healthier

individuals, and of course it is going to benefit those older individuals who currently are paying more.

So transitioning in and eliminating those current rating systems

over a period of time and perhaps allowing for, still, age rating and

family status—I mean, I think those are appropriate rating methodologies to have in place, getting away from rating based on

health status. But even with age, I would encourage the committee

to think about beginning at a 5:1 and gradually transitioning down

to a tighter rating band on age.

We do not want to negatively impact those younger, healthier individuals who currently may not be paying as much, if they are in

the system at all, but if we have an individual mandate, require

that they come in. These are people just getting started in their careers. They are not making the kinds of incomes that perhaps some

of the older population is making.

107

So allowing for some transitioning in is important, especially for

age factors. I think you want to keep some system of age rating in

this, especially in the individual market. If we are going to bring

young people in there have to be some advantages for their younger age and healthier, in general, status. So, transitioning over time

I do think if we get rid of health status, which I think would be

a very important step in health reform, you have to have a mandate that everybody have coverage. Otherwise there is too much opportunity for gaming.

The CHAIRMAN. Mr. Claxton, could you answer that, please?

Mr. CLAXTON. Surely. The kinds of reforms you are talking about

for the non-group market are really quite transformative because

you are not only changing the insurance rating rules, you are putting in substantial subsidies.

The CHAIRMAN. Correct.

Mr. CLAXTON. You are talking about changing the level of coverage.

The CHAIRMAN. Correct.

Mr. CLAXTON. There are probably more uninsured people who

will come into this market than there are existing market participants, so you really have to think about, during the transition,

what kind of market are you providing for all of these new people

who are getting subsidies, as well as what are you doing for the

people who currently have coverage?

One way you could think about it is for all the people who are

coming into the market with new subsidies and for the people who

are in the market now who might want to move because they will

get some subsidies, they might want to find better coverage than

they are able to get today, let them come into a new market that

has the exchanges you have laid out, that has no health status rating.

For the people who now have insurance that they like, which

might be much cheaper because they have very high deductibles or

because they were underwritten and so they are healthy, and

where the rate impact of the reform market would be a fairly big

impact on them, let them keep their own policy in sort of a

grandparenting idea for a while.

You could let the State determine how long that is appropriate.

Then gradually transition them into the new benefit standards and

the new rating standards. You are still probably going to have

plenty of people in the market because the subsidies and the encouragement of the requirement to have insurance is going to bring

a lot of new people into the market. You want to have a place

where they can buy in in the competitive system you have been

talking about.

Senator WYDEN. Mr. Chairman?

The CHAIRMAN. Just a second. Mr. Scheppach, I wanted you to

answer first.

Dr. SCHEPPACH. Yes. I think you have got to think in terms of

a 5- to 7-year period, not only for the transition in terms of the

market reforms, but I think it will take time—Medicaid probably

should be phased in over a period of time so that you move up to

60 percent of poverty, 75 at certain particular dates until you get

up to 100 percent. I think in terms of State alliances it is probably

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important to bring in the individual market and the small firm

market first, then perhaps your subsidized other population. You

probably ought to give States some flexibility at some point to

bring in the Medicaid, or portions of the Medicaid population, State

employees, and then other firms.

We are beginning to put together a plan but it would involve

some up-front planning money, some certification by Governors

when they believe that the systems are ready for enrollment. But

as indicated, I think we are going to have to think in terms of a

5- to 7-year period to do it efficiently.

The CHAIRMAN. Senator Wyden?

Senator WYDEN. Mr. Chairman, I think you are exploring a very

good area and I just wanted to see if I heard something right. Ms.

Praeger, did you say that in the transition you could allow seniors

to pay up to five times as much as younger people? I was not sure

if I heard it right, and if I heard it right, then obviously Ms. Hansen’s stomach lining is going to be bubbling here. I think the Chairman is asking a very important issue, and I want to work with the

Chairman on it.

The transition area is invariably where things blow up, so if you

could just kind of unpack this and make sure I even understand

it. If you are talking about what I thought I heard, then I think

we probably would all benefit from hearing from Ms. Hansen. So,

take us through it.

Ms. PRAEGER. Currently, I would venture to say the age rating,

in the individual market especially, is higher than 5:1, so this

would be, even at a 5:1, an improvement. I just think it is important in the transition to recognize the winners and losers that you

are going to create when you require everyone to have coverage. I

think you can go to 3:1. You will be requiring, then, those younger,

healthier individuals to pay more. If they are currently in the market they will be paying significantly more than they currently are.

Senator WYDEN. It does not have to be that way. I think that is

what we are going to all be working for, and I think the Chairman

is right to be asking this question.

The CHAIRMAN. All right. Does anybody else want to address the

question I asked? Yes, Ms. Rowland?

Ms. ROWLAND. Mr. Chairman, I think it also involves who you

put into that individual reform market and who you do not. So if

you look at the lowest-income population, people below poverty, significantly higher amounts of chronic disease and illness, which

would in fact drive up the costs in the new market.

So during a transition, I would urge that you build on the appropriate coverage that is already available through Medicaid for the

lowest-income populations so that at least the population in poverty during a transition is not put in and added on to the complexity of building the new market.

The CHAIRMAN. All right.

Dr. Nichols?

Dr. NICHOLS. Mr. Chairman, I would just respectfully add that,

in addition to all of the good advice you have just gotten, the most

important thing in a transition is to define where you are going because it turns out, if you lay down the market and say ‘‘this is

where we are going and we are going to all get there as gently and

109

as wisely and humanely as we can,’’ you will be amazed at the private sector’s inventiveness in getting you there faster, but you have

got to specify.

The CHAIRMAN. Good point. Good point.

Ms. Ignagni?

Ms. IGNAGNI. Yes, sir. Thank you. I was going to make exactly

that point. I also think, to Senator Schumer’s point, if we are going

to hit the mark on trust, varying this State to State is not going

to leave people satisfied. So the rules of the road should be established uniformly across the country, and 30 States have nothing at

all right now, as Ms. Praeger observed, and so we would want to

avoid rate shock.

We have a number of ideas about how to vary subsidies, how to

get people to that end point sooner rather than later, and we have

begun to share them with the staff. We would be happy to talk

more about that.

The CHAIRMAN. All right. It is interesting, this whole conversation. It has been assumed—I think it has been assumed—that everyone agrees that everyone should have health insurance and

there should be an individual responsibility on the individual that

every individual must have health insurance. If anybody disagrees,

I would like him or her to speak up now.

[No response.]

The CHAIRMAN. I think that is agreed to unanimously all the way

around. Most of us who think about this subject do believe that.

I have another question about benefits and benefit design. Who

in the world is going to put this package together and what is

going to be in the package? There are a lot of trade-offs there. One

question is, who decides? There are some over the last couple, three

years—more than that—who have suggested some kind of a medical board that will make some of these decisions to insulate members of Congress from the onslaught from every group under the

sun that wants to be covered and design the package. Others say,

no, no, no, no, that is too much big government, that is socialism,

and so forth. We cannot let that happen. Which means if we go

down the latter road, I guess maybe Congress is going to decide

what is in the benefit package, just lay it out.

So I would like someone to give us some suggestions, some ideas

on who decides and how those decisions should be made. Ms.

Rosenbaum?

Ms. ROSENBAUM. Thank you, Mr. Chairman. I think that because

the question of insurance benefit design is so complex, as there are

9 or 10 moving parts to just the question of how the coverage operates, I think that it is very important for Congress to set a topmost

direction. If you look at Congress’——

The CHAIRMAN. What do you mean, ‘‘topmost direction?’’

Ms. ROSENBAUM. In other words, there are certain, as Ms.

Ignagni has talked about, rules of the road that I think Congress

must address. For example, there may be certain parts of a benefit

design that you allow the concept of actuarial fairness to apply to,

or actuarial substitution.

There are other parts of benefit design that serve such an important public health/health care/social function that even if portions

of a benefit package can vary in the implementation by what is

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paid for by variable cost sharing, by the range of covered procedures that will be recognized, there are certain bottom lines that

I think only Congress can set.

So, for example, whether or not, in making decisions about what

is in and what is out of benefits, insurers have to use a standard

of coverage for children that prohibits them from discerning between children with developmentally-based conditions and children

with acute-onset conditions. It is something that only really, I

think in the end, Congress can say whether or not there will be a

range of coveraged benefit classes as opposed to simply medical

care, hospital care, ancillary services.

The CHAIRMAN. Right. Right.

Ms. ROSENBAUM. That is what is important. So I think it is those

top levels of decision-making that are very important for Congress

to make, as has happened over the years with Medicare and Medicaid, then a very large delegation of powers, either to the Secretary in the case of Medicare, or to the States in the case of Medicaid, to fill in a lot of the detail.

The CHAIRMAN. Who else wants to address design package and

how that decision is made? Mr. Stern?

Mr. STERN. I would just say, there is both a question of policy

and politics.

The CHAIRMAN. Right.

Mr. STERN. And I think we do better on policy than politics if we

keep it out of this august body’s decision-making process, so I am

in for subcontracting the decision to anyone other than people here,

because I think it is an incredibly important decision and politics

should not play a significant role in it.

The CHAIRMAN. Dr. Butler?

Dr. BUTLER. Well, I sort of agree with that, although maybe with

a slightly different way of approaching it. I certainly think it would

be very dangerous to get into the business of detailed benefit packages, either by the Congress or by in some way delegating that to

some body, like a board, that you do not have any control over. If

you did have control over that board you would be ultimately setting that anyway, but another approach might be what you do

under your own system, which is to set very broad categories of

benefits.

I would certainly include, obviously, pharmaceuticals in addition

to what you have under the FEHBP, to say, well, we will set these

broad categories. We may insist on some very minimum, very specific things that anybody can agree on, and then to use an actuarial

test in terms of saying, well, is it actually insurance? Is it really

protecting people in a financial way?

I think that is another way of going rather than trying to wrestle

over who is going to make very detailed decisions over what I have

to have, or somebody else has to have. I think as you try to do that

and you try to pick somebody, you are not going to find anybody

that everybody in this room would agree on.

The CHAIRMAN. Mr. Pollack?

Mr. POLLACK. There are many layers to this question. I want to

pick one of them. That is, I think where Congress really needs to

play a more active role is on the question of out-of-pocket costs and

what the limits are. I would separate two different things, what is

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in the benefit package and what kind of cost sharing are people

going to have to experience with respect to the benefit. It is my

hope that Congress plays a more robust role with respect to the latter so that it protects the affordability, particularly for populations

that currently cannot afford health care coverage.

With respect to the former, those are decisions often left to scientific analysis, and I think that is best left outside of the hands

of the Congress and left for an administrative body.

The CHAIRMAN. Dr. Nichols?

Dr. NICHOLS. Mr. Chairman, I would certainly echo what has

been said, but I would also say there are two dimensions of affordability: one is for people and the other is for all of us, for the government. Your happy task in this committee is to weigh those two.

So I would submit, in a sense, to agree with Sara, what you have

got to do is pick a level. I would say something like the Federal

employees’ plan, or some percentage of that, but then leave the details to, I would say a combination of a delegated body, the industry.

Then remember, at least I think what your white paper envisions

and what a lot of us are assuming will come to be, an exchange,

or maybe a bunch of exchanges, maybe exchanges in different

States, whatever. Those marketplaces will have at some level executive directors, board of directors. They will have people who will

make decisions about what is appropriate to be sold in this place.

That is where I think the industry input, the analytic input. But,

your actuarial value pick will then be determinative and prevent

the kind of things we are talking about. I take Ron’s point, it would

be smart to do both cost sharing and benefits separately.

The CHAIRMAN. You think basically, to use your words, some actuarial value pick?

Dr. NICHOLS. I think that is the right thing for you to—you have

got to decide how much we can afford, sir, as a Nation, and then

other people can go make it so.

The CHAIRMAN. So business today is—what, 73, 75 percent of

health care costs are picked up by insurance? Is that right, Mr.

Castellani?

Mr. CASTELLANI. Yes.

The CHAIRMAN. Is that in the ballpark actuarial value——

Dr. NICHOLS. Well, I think you would have to take it to a specific

policy that they can write down and you have got to pick a number.

You have got to say 100 percent of FEHBP, Blue Cross Standard,

or 70 percent of that, or 120 percent of that, or something concrete,

and then they can go make it happen.

The CHAIRMAN. Mr. Serota?

Mr. SEROTA. I guess, Senator, my comment in this regard would

be that an appropriate role would be to set a minimum benefit

package, and if we have effective transparent State-level insurance

marts, the ability for individuals to purchase greater benefits, then

that would be transparent and the benefits would be clearly articulated in the marketplace so everybody would understand what they

were buying and what they were getting. But, there would be a

minimum that everybody would be required to, or encouraged to,

whatever words we want to use, to purchase so we had uniform,

universal coverage that was meaningful in the marketplace.

112

But as long as we are transparent in what the benefits are, and

it is clearly articulated in a State-level insurance mart, I think people can make choices about the trade-offs that they want to make

with regard to their coverage.

The CHAIRMAN. Well, I am going to wrap up here, but I want to

thank all of you very, very, very, very much—unless Senator

Wyden has more questions—for your extraordinary contribution

and for your extraordinary patience. This has been an extremely

important subject. It is really complex. We are all kind of delving

into the briar patch to try to figure out the answers to all this. But

I want to thank you all very, very, very much.

Senator Grassley has some questions that were submitted for the

record, Senator Nelson did as well.

[The questions appear in the appendix.]

The CHAIRMAN. Before we do wrap up, because of the kind of unruly nature of all this today, does anybody have something to say

that he or she feels must be said? That is, did somebody say something so outrageous that it deserves a response? Is there some little

nagging thought in the back of one of your minds that you would

like to say at this point? I am open. I mean that.

Yes, ma’am?

Ms. HANSEN. Yes. I just wanted to pick up where Senator Wyden

said I might have stomach churn.

The CHAIRMAN. Yes. I caught that, too.

Ms. HANSEN. Yes. I think the importance of—again, if we all

agreed that we want health insurance coverage, we cannot be penalizing people for the fact that they happen to be at an older age

or the fact that there is a natural kind of life-cycle change that you

have conditions. So we are looking to your leadership as an entire

leadership team to understand, again, what the benefit package is,

and meaningful affordability and benefits combined together.

Thank you.

The CHAIRMAN. Thank you very, very much.

I see Mr. Castellani. All right.

Mr. CASTELLANI. Senator, in the thinking, there are some of us

here that have worked a long time. Everybody here has worked a

long time to make it safe for the U.S. Congress and the public policy process to come back and address this issue. So on behalf of

those of us, we want to thank you, this committee, and the leadership that you have provided for taking on this very important issue

and driving us toward it.

The CHAIRMAN. Well, thank you very much for that statement.

Clearly we are all in this together, so it is for all of us to find a

solution.

Thank you all very much. The hearing is adjourned.

[Whereupon, at 1:18 p.m., the roundtable was concluded.]

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ROUNDTABLE ON FINANCING

COMPREHENSIVE HEALTH CARE REFORM

TUESDAY, MAY 12, 2009

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The roundtable was convened, pursuant to notice, at 10:06 a.m.,

in room SD–106, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senators Conrad, Bingaman, Lincoln, Wyden, Schumer,

Stabenow, Cantwell, Nelson, Carper, Grassley, Hatch, Snowe, Kyl,

Bunning, Crapo, Enzi, and Cornyn.

Also present: Democratic Staff: Russ Sullivan, Staff Director; Bill

Dauster, Deputy Staff Director and General Counsel; Liz Fowler,

Senior Counsel to the Chairman and Chief Health Counsel; and

Cathy Koch, Chief Tax Counsel. Republican Staff: Kolan Davis,

Staff Director and Chief Counsel; and Mark Hayes, Republican

Health Policy Director and Chief Health Counsel.

Panelists:

Stuart H. Altman, Ph.D., Sol C. Chaikin Professor of National

Health Policy, Heller School for Social Policy and Management,

Brandeis University, Waltham, MA;

Joseph R. Antos, Ph.D., Wilson H. Taylor Scholar in Health Care

and Retirement Policy, American Enterprise Institute, Washington, DC;

Katherine Baicker, Ph.D., Professor of Health Economics, Harvard

School of Public Health, Cambridge, MA;

Leonard Burman, Ph.D., Director, Tax Policy Center, Urban Institute, Washington, DC;

Robert Greenstein, Ph.D., Executive Director, Center on Budget

and Policy Priorities, Washington, DC;

Jonathan Gruber, Ph.D., Professor of Economics, Massachusetts Institute of Technology, Cambridge, MA;

Michael F. Jacobson, Ph.D., Executive Director, The Center for

Science in the Public Interest, Washington, DC;

James A. Klein, President, American Benefits Council, Washington,

DC;

Edward Kleinbard, Chief of Staff, Joint Committee on Taxation,

Washington, DC;

Gerald M. Shea, Assistant to the President for Governmental Affairs, AFL–CIO, Washington, DC;

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John Sheils, Senior Vice President, The Lewin Group, Falls

Church, VA;

Gail R. Wilensky, Ph.D., Senior Fellow, Project HOPE, Bethesda,

MD; and

Steven E. Wojcik, Vice President, Public Policy, National Business

Group on Health, Washington, DC.

[The prepared statements of the panelists can be found in the appendix.]

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The committee will come to order.

Before we get started, I want to say a few words about hearing

each other out. The reason we are getting together here today is

so that we can hear each other out. This works because we treat

each other’s views with respect. I respect the views of everyone

here, including everyone in the audience. And that respect, in turn,

means listening and not interrupting when others are speaking. I

sincerely hope that everyone here today, including our guests—especially guests in the audience—will afford these proceedings with

that level of respect.

The novelist Edith Wharton said, ‘‘The only way not to think

about money is to have a great deal of it.’’ Today we host the third

of our three roundtable discussions on health care reform. This one

thinks about money. With any luck, we will have a great deal of

it.

This roundtable discussion will preview many of the revenue and

savings options that the committee will consider in a walk-through

session next week, heading into our mark-up next month. The committee has spent a good deal of time laying the groundwork for

comprehensive health care reform. We have discussed days to reform the health care delivery system, we have talked about ways

to provide health coverage to all Americans. Now it is time to think

about money. It is time to talk about how to finance health care

reform.

I am committed to comprehensive reform of our health care system, but I also recognize that we need to pay for it. The proposals

that we have discussed in our previous roundtables and the walkthrough will not come easily and the reforms we are planning will

not be cheap. But Americans already spend $4.5 million on health

care every minute of the day; that is $2.5 trillion a year. Without

reform, over the next 10 years, America will spend more than $33

trillion on health care.

The Federal Government alone spends nearly $700 billion a year

on Medicare and Medicaid, and the Federal Government forgoes almost $300 billion a year in Federal tax revenue and health care tax

expenditures. The costs of health care are high for families, for

businesses, and for the Federal Government and States alike. To

make the system more affordable and provide coverage for all, we

need to look at where we spend money on health care today. When

it comes to the government, we need to look at both spending and

tax expenditures.

The first place we should look for savings is within health care

itself. We should reform the health care delivery system to bring

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higher quality and greater efficiency to all Americans. We discussed a range of reforms during the walk-through on delivery system reform, and we will discuss additional savings options today.

We should also look at the current tax treatment of health care.

I know that there is some controversy about doing so. Some do not

want to modify the current unlimited exclusion for employer-provided health care, and I agree that we are not going to eliminate

that exclusion.

But the current tax exclusion is not perfect. It is regressive and

often leads people to buy more health coverage than they need.

[Applause from the audience.]

The CHAIRMAN. We should look at ways to modify——

[Applause from the audience.]

The CHAIRMAN. We should look at ways to modify the current tax

exclusion so that it provides the right incentives, and we should

look to ways to make it fairer and more equitable for everyone.

We also need to look at other tax benefits for health care. Among

these are tax-preferred health savings accounts and the itemized

deduction for health expenses. We should try to make sure that

those benefits are structured fairly and efficiently. Because of the

cost of comprehensive health care reform, we will need to look at

other options among those as the President’s proposal to limit

itemized deductions. All of these ideas deserve close and careful

scrutiny and discussion.

Finding money that we can all agree on will not be easy, but few

worthwhile things are. Achieving comprehensive health care reform

is important enough that we must find a way to succeed. This

roundtable will begin the discussion of how we can responsibly finance health care reform.

At next week’s walk-through we will look at the menu of options

for financing reform. We need to keep all the options on the table

and everyone has to give and take to make this work, and I hope

that my colleagues here will keep an open mind as we start this

discussion.

Together we can find the money that we will need to finance

comprehensive health care reform. It will not be easy. This roundtable is an important part of those discussions. Each of our participants today brings an important voice to the discussion; they are

experts, stakeholders, or both. Once again, forgive me for not taking the time to introduce every participant. We have, however, distributed a biographical sketch and a brief statement for each participant.

As we did before, we gave each participant and Senator some

questions that will help start a dialogue, and beyond that, I look

forward to a very fruitful discussion. So let us get started. Let us

see if we can advance the effort of comprehensive health care reform.

Senator Grassley?

[Interruption from the audience.]

The CHAIRMAN. The committee will be in order. Comments from

the audience are inappropriate and out of order. Any further disruption will cause the committee to recess until the police can restore order.

[Interruption from the audience.]

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The CHAIRMAN. The committee will be in order. The committee

will stand in recess until the police can restore order.

[Interruption from the audience.]

[Off the record.]

Senator GRASSLEY. Mr. Chairman——

[Interruption from the audience.]

The CHAIRMAN. The committee will be in order.

[Interruption from the audience.]

The CHAIRMAN. The committee will stand in recess until the police can restore order.

[Off the record.]

The CHAIRMAN. Let me just speak a few minutes.

[Interruption from the audience.]

The CHAIRMAN. Sorry. The committee will be in order.

[Interruption from the audience.]

The CHAIRMAN. The committee will recess until order can be restored. The committee will be recessed until the police can restore

order. Will the police please come more expeditiously?

[Off the record.]

[Interruption from the audience.]

The CHAIRMAN. The committee will stand in recess until the police can restore order.

I will say to everybody else out in the audience who may be similarly inclined, believe me, we hear you. We deeply respect the

views of everyone here. We have got an extremely open process,

and I just urge everyone to respect the views of others by not interrupting those who are speaking. There will be plenty of time to

meet with everybody. This is a long, involved process.

So those of you in the audience who are not panelists and wish

to be heard, I urge you just to contact my office and we will figure

out a way to talk to you. I will figure out a way to listen to you.

I will be there personally to listen to you. So I urge you to take

that option rather than to interrupt and be rude to our panelists

here, who have come a long distance and spent a long time trying

to make very thoughtful presentations to the committee. But I will

meet with anybody who wants to meet with me. All right.

Senator Grassley?

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Right or wrong, politics often is driven by

polls: some follow them and some do not. I will bet if you polled

every member of Congress, asking them what they think would be

the hardest part of health care reform, they would probably say

something like we are doing today, trying to figure out how to pay

for it. If I were asked, I would say something along the same lines.

So here we are, Mr. Chairman, as the top tax writers of the Senate. It appears that we have our work cut out for us. I thank you

for your leadership in trying to answer this tough question.

To start this important process, I have some questions of my

own: what are the most appropriate financing tools available to us?

Should we look at non-health related measures or should we stick

to health-related measures? Consistent with our interests in looking at all of the options out there, I think it is appropriate to look

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at both. But I will emphasize that I do not agree with all the nonhealth related measures that we will be examining, and some of

those have been put forth recently by the President, but this does

not mean that we cannot talk about them.

Yesterday, we had a White House gathering between the White

House and industry folks that would lead some to believe that we

do not even need this roundtable. Our money problem is somehow

solved with $2 trillion of savings from better efficiencies and so

forth. While I am sure that we will be waiting for some time before

this fairy dust becomes real gold, the Washington Post mentioned

similar promises were made in the 1970’s. But look at what it got

us: not much.

But the meeting yesterday does emphasize something that I

wanted to emphasize. President Obama is going to be a key player

in health care reform. I guess he has to be because it is this sort

of leadership that is going to help us find a way to pay for health

care reform.

For example, Mr. Chairman, there are maybe some financing

measures that the Senate may agree on, but we have found evidence that there is a great difference between the House and Senate on how you might pay for them, so it may come down to presidential leadership.

The President’s leadership is not only essential in finding ways

to pay for health care reform, but the President’s leadership is

going to be key to health care reform generally. So, I thank you for

this important meeting and I look forward to our expert panelists

in helping us solve some of these problems.

The CHAIRMAN. Thank you, Senator.

I am going to just recognize Senators as they seek recognition.

There is no early-bird rule here today. So when any Senator wants

to speak or ask a question, just raise your hand. The same goes for

panelists. Some panelists may want to jump in and say something.

Maybe—perish the thought—some Senator said something that deserves a response. So, feel free to take advantage of the opportunity. Just raise your hand so I can recognize you so that you can

proceed as well.

Senator GRASSLEY. I would lead off, Mr. Chairman, if you want

me to.

The CHAIRMAN. Go ahead.

Senator GRASSLEY. All right. IRS has historically granted tax exemption to hospitals because they operated for the benefit of the

poor. Over the last 40 years, with the creation of Federal and State

insurance programs such as Medicare and Medicaid and the

growth of private insurance, it has been increasingly difficult to

distinguish the activities of for-profit hospitals from the activities

of charitable hospitals.

It appears that tax-exempt hospitals are more likely to provide

services for those with insurance than for the poor and indigent.

Federal tax breaks for charitable hospitals amount to billions of

dollars each year and include Federal income tax exemption, as

well as the ability to raise capital through tax-exempt bonding and

financing of charitable hospitals.

So, a series of questions along this line to Mr. Kleinbard, or Mr.

Elmendorf, or Mr. Burman, or Gruber, or anybody that wants to

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jump in. If, as a result of health care reform, everyone has health

insurance, presumably hospitals should see a steep decline in, or

the elimination of, uncompensated care. This trend appears to be

occurring in Massachusetts. Given this trend, does it make sense

to retain tax-exemption for hospitals?

The CHAIRMAN. Who are you going to address that to?

Senator GRASSLEY. Well, I suppose Mr. Kleinbard would be one

to address it to.

The CHAIRMAN. Kleinbard?

Senator GRASSLEY. Kleinbard.

Mr. KLEINBARD. Senator Grassley, thank you. There is some good

data that has been developed by the Congressional Budget Office

and by the Internal Revenue Service. Those data are consistent

with the point that you have made, that charity care within nonprofit hospitals receiving tax-exempt status is only about one-half

of 1 percent greater as a percentage of revenues than is the case

for for-profit hospitals, so about 4.7 as opposed to 4.2 percent.

That would suggest as well that if coverage becomes broader and

broader, the number of uncompensated care cases will go down.

Therefore, if you were to choose to retain tax-exempt status for hospitals, you would need, I think, to ask the question, what is the

mission that makes those tax-exempt entities unique? Could that

mission be repurposed?

Today, the value of the tax-exemption, all aspects of it, we outline in our pamphlet, runs in the neighborhood of $6 billion a year.

So the question would be, are there other charitable purposes beyond the so-called charity care case to which the tax-exempt institutions could be directed as the condition of their tax-exempt status?

The CHAIRMAN. Dr. Gruber, you are raising your hand there.

Dr. GRUBER. Yes. I would like to speak to the experience in Massachusetts where, you are exactly right, Senator, that we have seen

a large decline in our uncompensated care since our health reform

law was passed. I very much agree with the spirit of the question

that this raises, the question of the mission of nonprofit providers

and what role they play.

I will say that there will be, under any reform, some remaining

need for uncompensated care. About a third of uncompensated care

today goes actually to the insured who do not pay their co-payments or deductibles, and the number of uninsured is not going to

go to zero; it will not in Massachusetts, it will not in the Nation

as a whole.

So I think we can definitely move to a more rationalized system,

but it has to be a system that recognizes that there will still be

some need for uncompensated care, even in a universal coverage

world.

The CHAIRMAN. Might I ask, so how much will nonprofits make

up with losing uncompensated—let us say we had universal coverage. One-third of uncompensated care, as you say, are insured,

and other people get paid. Assuming we had universal coverage,

how much would hospitals save? Maybe Mr. Kleinbard or somebody

has a figure. Do we have a number on how much that would be,

roughly? Dr. Altman?

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Dr. ALTMAN. Well, there is a tremendous variation in the hospitals’ use of uncompensated care. Many of our public/private hospitals can have 12, 15 percent; the average is much closer to 4 percent, 3 or 4 percent. So I think the issue here is going to be, for

the average community hospital, the uncompensated care, as I

said, runs between 2 and 4 percent of their revenue, but for some

it could be 15 percent.

So the issue is not going to be that part, it is going to be the

extra payments that we now give these institutions, disproportionate share. Those, I do agree with Senator Grassley, we need to

substantially look at it. But I would argue, for what it is worth,

that the benefit of the hospital deduction gives community benefits

far in excess of just the issue of uncompensated care. So just like

for educational institutions, I think it would be a mistake to totally

wipe it out, but we can substantially reduce it.

The CHAIRMAN. Dr. Burman, are you seeking recognition?

Dr. BURMAN. Yes. One aspect of tax-exempt hospitals is that they

qualify for tax-exempt bond financing, and that is a really inefficient way to subsidize anything. A large share of the benefits actually goes to the bond holders rather than to the entities that are

issuing the bonds. So it would certainly make sense to rein that in

or convert it into some kind of direct cash subsidy, in which case

you could target it to the places that need help.

The CHAIRMAN. Dr. Wilensky?

Dr. WILENSKY. I would like to continue the targeting notion. I

agree with the comment that no matter what expansions in coverage we have, there will be some people who will slip through the

cracks and remain uninsured. The question is whether or not we

would be better served to use the safety net hospitals, the public

hospitals as the providers of last resort and otherwise use more

targeted subsidies if there are specific functions we would like hospitals to take on. But the mass tax-exempt for all nonprofit hospitals seems to be reflective of an era that has long since lapsed.

The CHAIRMAN. All right. One more on this subject, Mr. Shea?

Then I have a little bit of business to conduct.

Mr. Shea?

Mr. SHEA. Thank you, Mr. Chairman. I think the overall point

that the difference between for-profit and nonprofit hospitals has

been shrinking, as Dr. Wilensky says, it was a different era, is absolutely true. The distinctions you see today mostly, or generally,

is between public hospital provision of uncompensated care and private, whether they are for-profit or nonprofit. However, as others

have said, this is not all the same and there are some nonprofit

hospitals that still adhere to the basic mission of providing care, regardless of whether or not people have the ability to pay.

But let me just make a point that has not been made here on

this, which is, we are concerned about the destabilizing effect of

this kind of tax change at the same time as we are asking enormous change from the hospital industry in terms of restraining

cost. I would suggest to you, we ought to focus on that and later,

perhaps, once we have universal coverage, look at this question and

not try to do the two things together.

The CHAIRMAN. Why? Why not together?

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Mr. SHEA. Because I am afraid it really would destabilize the

basic delivery system.

The CHAIRMAN. All right. I appreciate that.

[Whereupon, at 10:25 a.m., the meeting was recessed to enter

into executive session.]

[After Recess—10:27 a.m.]

The CHAIRMAN. Senator Bingaman, I think you were seeking recognition.

Senator BINGAMAN. I wanted to ask, one of the obvious issues we

are going to have to make a decision on is whether or not to deal

with this employer exclusion as a way to help pay for health care

reform, whether to cap it, whether to deal with it at all, eliminate

it. I would be interested in any of the witnesses giving us their

views.

I know this is an interesting issue. The President has not endorsed this. I believe Senator McCain did strongly endorse it when

he was seeking the presidency, so I am not sure where the politics

of this issue are, but I would be interested in whether or not it

works.

Mr. Klein?

Mr. KLEIN. Thank you, Senator. My thanks to the committee for

the opportunity to be here on behalf of the American Benefits

Council.

I think that, speaking on behalf of our members, we believe that

the exclusion, which is really an employee exclusion, is fundamentally important in order to maintain, and hopefully expand upon,

the employer-based system.

In answer to your question, I have to take issue with one point

that the Chairman noted in his opening remarks, in saying that

this exclusion is somehow regressive. In fact, I think we would be

hard pressed to find aspects of the Tax Code that are more progressive when one considers that it is very common practice for employees at all income levels to be afforded the same employer-based

coverage.

There is a very interesting report that just came out from The

Commonwealth Fund, demonstrating that in fact the value of the

expenditure is much greater for lower and middle income individuals than for higher income individuals and it represents a much

greater percentage of their overall income. Of course, the fact that

it is also exempt from Social Security tax means that it is very important for them as well, since they are fully subject to that.

Two other very quick points. The other argument that is often

made for limiting the exclusion is that it will have cost savings. In

fact, I think that employers and employees would agree that there

are no more incentives that are needed to try to contain costs.

Costs of plans are not necessarily high because the plan is excessive. In fact, a plan may be more costly than one that does not provide as comprehensive coverage because of the age of the group of

people who are covered, the geographic location where they are located that may be a higher health care cost area, and so forth.

And the last point is one of enormous complexity. Congress examined this issue back during the Tax Reform Act of 1986 and it

chose not, at that time—wisely chose not—to cap the exclusion.

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What they did do in place was establish a provision called Section

89 of the Internal Revenue Code.

In order for any tax exclusion to work and to be equitable for

workers, it would require an extraordinary amount of valuation to

ensure that what would be reported on a person’s W–2 form would

take into account some of these regional differences, would take

into account the type of coverage they have, single, single plus

spouse, single plus spouse and children, et cetera. What was created in Section 89 was a very complex proposal that ultimately had

to be repealed because it was unmanageable.

Senator BINGAMAN. Dr. Gruber, did you have a perspective on

that?

Dr. GRUBER. Yes. Thank you, Senator. My perspective differs in

some fundamental ways from the one that was just presented. Let

me just point out the three reasons why I think this is a problem

in our Tax Code and a natural place to look to finance the kind of

health reforms we are talking about.

The first, is this is a large amount of dollars we are talking

about. It is about $250 billion as of a year or two ago, making it

the second largest Federal health care program in America. It is

regressive. The statement that was made is incorrect. It is a benefit which, the higher your tax rate the more benefit you get from

this exclusion, so by definition it is regressive. And it is inefficient,

because people are buying health care with tax-subsidized dollars.

When they have a decision between, should I get paid in wages or

should I get health insurance that does that mean that much to

me, I will get the health insurance because it is tax-free, where the

wages are taxed.

In terms of the comments that were made just now about

regressivity, that is just wrong. It is a highly regressive benefit.

And in terms of complexity, we have to remember the world is very

different now than it was. The Section 89 experience was a bit of

a fiasco in many ways. We have to remember a fundamental difference with the world today, which is now every employer who is

self-insured has to have a COBRA benefit that they report. What

that means is that for an employer to report their benefit for tax

purposes, if they are insured they get a bill that they can report.

If they are self-insured, they have a COBRA premium that they already by law have to calculate that they can report.

So the fundamental problem that bogged us down in 1986, which

was calculating premiums for self-insured employers, is not a problem anymore. So administratively there is not a major problem

here. This is very doable. It is exactly the right place to go to finance health care reform. It is really the win-win solution. We both

make our health care system work better and we raise the money

we need to cover the uninsured.

The CHAIRMAN. This is a big subject. I have Senators seeking

recognition. I would like to stay on this subject, frankly, and explore it. I see you all raising your hands; we will get to you. But

I see Senators seeking recognition, too. Senator Stabenow, I think

you were first.

Senator STABENOW. Thank you, Mr. Chairman.

The CHAIRMAN. But let us stay on this subject.

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Senator STABENOW. Yes. Absolutely. I think this is one of the

major questions for us. Dr. Gruber, to follow up on your testimony,

and I know a number of you mentioned—Mr. Sheils, you have spoken about this, and many of you have spoken about this. But in

your testimony you said that the right reason to worry about the

erosion of the employer subsidy is that sick and older individuals

are treated much more fairly in employer groups today. So I wondered if you might just talk about that a bit, and then if Mr. Shea,

from an employee standpoint.

I know there are issues or concerns that have been raised as well

about that. I would just say as a comment ahead of time, it seems

to me that there are two very different approaches. One is to look

at the value of the benefit, in which case it may very well be—I

mean, these are negotiated benefits where people have given up

wage increases to take health care packages that are important to

them based on regional differences, or the age of the employees and

so on. That is one thing versus capping based on income for higher

individuals. So, I would welcome, Dr. Gruber, your thoughts in relationship to your comments about the right reason to worry about

doing this.

Dr. GRUBER. Thank you very much, Senator. I think the context

in which the tax exclusion is tackled is very, very important. There

is no health expert who, if setting up a system today, would include

the tax exclusion for employer-provided health insurance. That

does not mean that we would all favor getting rid of it in a vacuum, because if you get rid of it in a vacuum you do have the problem that there are many people who are older and sicker who

would have trouble finding health insurance in the non-group market. That is why it is very important that it be part of a package

of reform, and part of the kind of reform they are talking about

here today.

If you move to a new system of the kind that has been outlined

by Senator Baucus’s white paper or by President Obama, a system

where there is reformed insurance markets with guaranteed issue

and non-discrimination based on health, where there are new exchanges where people can fairly purchase health insurance, then

we do not have to worry about these issues any more.

Then basically we get away from the unfair discriminatory world

we have now have in insurance markets towards one where people,

even if they are not getting insurance through their employer, can

get health insurance in a fair way that does not discriminate

against the sick. So that is why taking it away in a vacuum is a

problem for that exact reason, but doing it in the context of reform

is all right because you deal with that problem.

I think the other issue you mentioned which is important is the

notion about, what about employees and employers who negotiated

packages? They gave up wages in return for health benefits. That

is why I think, if there is one lesson I think I have learned from

Massachusetts on the negative side, it is, you need to phase this

kind of reform in. This is a fundamental change.

The notion of doing it right now, while it is urgent, it is urgent

to pass a law, I think, and to get steps in place. I think we do need

a phase-in period so that people who negotiated contracts under

the old rules have time for those contacts to play out and so that

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everybody is working under a new set of rules that is well understood in advance.

The CHAIRMAN. Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman. Mr. Chairman, I

think this highlights the point that the country is spending enough

on health care, but we are not spending it in the right places and

these tax rules really illustrate it.

Now, on first glance the tax rules clearly look like a sweet deal

for the typical middle class person. That middle class person says,

hey, health care is not going to be taxed for me and my employer

gets a deduction. But what looks sweet actually has some very sour

consequences for that typical middle class person.

Mr. Sheils, I want to walk you through an example to highlight

this question. If you are middle class, and say you have a modest

package from your employer, what you are facing today are more

co-payments and your coverage keeps going down, so that middle

class person needs more money to make ends meet. But instead of

putting more money in your pockets, the Federal Tax Code takes

it away from you to subsidize a deluxe health plan held by somebody who, for example, says they want to go out and get a designer

smile.

My question to you, Mr. Sheils, is, is it not possible to convert

this unfair tax system into a new one that cuts the waste and still

protects the middle class family from getting taxed on their health

care?

Mr. SHEILS. Yes. Thank you, Senator. You and I have certainly

worked on that in developing your bill. Senator Enzi has a bill

which would make some of the changes you are describing. In both

cases, it really would turn out that most individuals would actually

see a net increase in their tax benefit, not a reduction.

It is because in those bills, or certainly in your bill, it was decided the idea was not so much to raise revenues, it was to change

the incentives people face, to create incentives for people to go to

plans that are perhaps lower cost and better managed; integrated

delivery systems like HMOs I think are a good example.

What we found was that it is possible to do it in a way where

almost everybody really was better off, at least initially. The middle class and higher income people—well, lower middle income people, those individuals in those groups more or less would come out

ahead. I think in your bill it was an average of about $150 a family, if I remember correctly. So you can design this thing. You can

purpose build it in a way that will give you the changes in incentives that you want to make, while at the same time not hurting

most of the taxpayers out there.

Senator WYDEN. Mr. Chairman, can I just follow that up with

Mr. Kleinbard, very briefly?

The CHAIRMAN. Yes. Sure.

Senator WYDEN. Mr. Kleinbard, my understanding is that you

found that something like 70 percent of the American people have

health expenses of under $15,800. So hypothetically, if someone

gave a generous deduction to the middle class, say $17,000,

$18,000, take a sum like that, would that not be a way to convert

the system today that seems, at least to me, so inequitable to a system that would protect the middle class and honor President

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Obama’s campaign pledge and still have some extra money left

over in order to start the process of health reform?

Mr. KLEINBARD. Yes, sir. What we found in our data is that for

someone who is insured, for a family who is insured, the value of

the insurance premium at the 70th percentile is in the neighborhood of the $15,800 number that you gave, and that means that

if you were to, on the one hand, take away the employer-sponsored

insurance exclusion that benefits employees, and on the other hand

replace it with a standard deduction of the magnitude you say, you

would leave that family at that 70th percentile of premiums with

the same pre-tax income tax case as they would have been with the

employer-sponsored insurance. So, our numbers, taking all taxes

into account, would suggest that at that kind of level a majority of

Americans would actually end up with no increase in taxes.

The CHAIRMAN. I appreciate that. Frankly, to be honest, I do not

think we are going to repeal the exclusion, which Senator Wyden’s

bill does. That is just not going to happen. We have got health care

reform in front of us right now and we have to, in my judgment,

work with what we have got and make what we have work better.

We cannot go to a totally new system. Some want to go single pay.

I do not think that is going to work in this country. Some want to

go the Senator Kyl approach, which is totally different. I do not

think that is going to work in this country.

With all due respect, some want to repeal the exclusion for other

reasons. I do not think that is going to work either. There are ways

to enact health care reform that bend the cost curve in a very significant way that provides health insurance reform, which this

country desperately needs, and also to cover all Americans. I very

modestly suggested the white paper that we published last November was a very large step in that direction.

Sure, it is not perfect. It needs lots of improvements, but that is

our current system. America is a battle ship. We are an ocean

liner. We are not a PT boat. We are not a speed boat. We cannot

turn on a dime. Americans have expectations about what they have

and do not have. It is the devil you know versus the devil you do

not know. I just humbly submit, let us work with the system that

we have. We are going to really make it a lot better and that is

the way we are going to be able to bend the cost curve in a very

significant way.

I want to get one more Senator on this subject and then I am

going to go over here. Senator Bunning, on the same subject? The

same subject?

Senator NELSON. The same subject.

The CHAIRMAN. I would like to ask one Senator on the same subject first and then move on. All right.

Senator Nelson?

Senator NELSON. Well, then what do you do, Mr. Chairman?

The CHAIRMAN. Sorry?

Senator NELSON. What do you do if you cannot touch the tax-favored treatment of employee-sponsored? What are you suggesting?

The CHAIRMAN. First of all, I am suggesting we do not repeal it.

We are not going to repeal it.

Senator NELSON. All right.

The CHAIRMAN. We are going to modify it.

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Senator NELSON. So how do you modify it?

The CHAIRMAN. Well, that is what our options are all about. You

can put a limit on income, you can put a limit on benefits. You

have a combination of limits and/or benefits. That is what this is

all about here. That is what this roundtable is all about. Let us try

to figure out, what is the best way? Is there a way that is better

than others? I am against repeal of the exclusion. I do think it

makes eminent sense to closely examine the exclusion to see the

degree to which it can be improved.

Senator NELSON. All right. So would you take a certain income

level and eliminate the exclusion above that particular level?

The CHAIRMAN. That is an option.

Senator NELSON. Would you go at the 70 percent level that they

were talking about?

The CHAIRMAN. Well, again, we can dial this any way we want.

Basically, my understanding is that the average in business is

about the 75th, 76th percentile of actuarial value that companies

now provide for their employees.

Mr. Shea, you have been waiving your hand there. Then I will

go over here.

Mr. SHEA. Thank you, Mr. Chairman. Your point about this

being a radical change is absolutely right. I cannot resist the opportunity to say, if we are going to do a radical change, I think single

payor is really the way to go and we could cut out all of this——

The CHAIRMAN. You have a lot of supportive demonstrators here.

[Laughter.]

Mr. SHEA. All of my members, yes. All of this mechanical folderol. But I just wanted to make a couple of points, really going

back to Senator Stabenow’s issue. I asked our unions what their

experience was in terms of the cost of benefits in similar situations.

Let me give you one example.

A construction trade fund, two different funds in western States.

I have got the following example. Plan A. These are average 50-

year-old, similar demographics, rural and urban. Plan A, the cost

is $16,600. Plan B, the cost is $10,046. You might think that

$16,000 has the better benefit package; it does not. It has higher

deductibles, higher co-pays than Plan A. The difference is simply,

as it was explained to me by the actuaries, the health experience—

that is, the claims experience—of those two funds and the size of

the funds.

So in terms of the practical application of this, I do not think you

could possibly do it without building an even much more complicated situation. But the bottom line is, this is the Willy Sutton

rule being applied, with all due respect. There is an awful lot of

money here, as Dr. Gruber said, so it is natural to look at it. But

going back to my comment on the charitable hospitals, this would

really destabilize the system.

The CHAIRMAN. Yes.

Mr. SHEA. It would also, I would just say, undermine support for

health reform. If you have talked with any of your constituents,

certainly when I talked with workers about this, they are just flabbergasted at the idea that somebody would tax the benefits they already paid for, because as Senator Stabenow pointed out, this is

simply deferred wages.

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The CHAIRMAN. Well, there are a lot of banks here. I will recognize Senator Bunning. But in partial answer to Senator Nelson,

there are lots of options on the table and modification of the employer-provided exclusion is just one of many, many options. I do

not want to leave the impression that that is the only one. It is not

the only one. There are many, many, many other options that we

are looking at.

Senator Bunning?

Senator BUNNING. Yes. I have a couple of questions for Dr.

Greenstein and Michael Jacobson. Both of you seem to favor an increase in the alcohol tax. Are you aware that there has been a loss

of 540,000 jobs in the hospitality industry over the last year, and

that unemployment in the hospitality industry is now at 11.4 percent? Would it surprise you to learn that indexing alcohol tax for

inflation would cause an additional 160,000 jobs to be lost in the

hospitality industry?

Both of you speak as if alcohol tax increases would have small

impact on the price of alcohol. Are you aware that Federal, State,

and local taxes combined already account for 59—59—percent of

the cost of the bottle of alcohol? Are you aware that Federal revenues from alcohol taxes have actually declined following the last alcohol tax increase in 1991? This meant that Congress collected

about $2.4 billion less than expected for the first 5 years of the tax

increase. If this is the case, how can this be viewed as a stable way

to raise revenue for health care? Either, or.

Dr. GREENSTEIN. I would be happy to start. Could I just, before

I do, as the Chairman—as you know there are a number of us who

also wanted to make comments on the employer exclusion.

The CHAIRMAN. Sure. Right. Fine. Sure, Dr. Greenstein. If you do

not mind, Senator, if he speaks on that subject, too.

Senator BUNNING. You go right ahead. Just so you answer my

question.

Dr. GREENSTEIN. I can answer his question, and Dr. Jacobson

can answer it. I am just suggesting, after we do, that I——

Senator BUNNING. Because I only have a few minutes.

The CHAIRMAN. Senator Bunning has the floor, so it is his choice.

Dr. GREENSTEIN. All right.

Senator BUNNING. Go ahead and answer whatever you want to

first.

Dr. GREENSTEIN. Virtually every major industry in the country

has lost a lot of jobs in the past year. We are in the deepest recession since the end of World War II. I do not know that there is

something particular here. My assumption is that health care reform of the magnitude that we are talking about will take several

years to implement, and certainly I, and I would presume other

panel members, who have various recommendations that include

recommendations involving the Tax Code, are not suggesting that

these changes be immediately instituted now while we are in the

middle of the recession. We are talking about what would be instituted several years from now, hopefully when the economy is in a

good recovery and when changes in health care reform are instituted.

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With regard to alcohol taxes, I would note that in real terms the

Federal excise tax on alcohol has fallen 85 percent since 1951, and

37 percent since 1991. The kind of change that——

Senator BUNNING. Can I interrupt you for just a second? Even

though there was a major increase in the alcohol tax in 1991?

Dr. GREENSTEIN. There was an increase, but the tax is X amount

per gallon. If you have a sales tax at the State level, that is a percentage tax. As the price of goods and services rise, the sales tax

rises. The excise tax on alcohol is a given number of cents or dollars per gallon, as a result of which, as inflation over time raises

the price of all goods and products, including alcohol, the excise tax

falls in real terms and falls as a percentage of total sales. Federal

alcohol excise taxes, some years ago, were about 12 percent, I think

in 1980, of the gross alcohol sales; they are now about 6 percent.

The main recommendation in my testimony is merely to put in

real terms the excise tax on alcohol back to where you put it in the

1990 Deficit Reduction agreement, and in terms of the impact that

would have, it would increase the tax on a bottle of beer by 4 cents,

on a glass of wine by 3 cents. If you, like myself, following doctors’

recommendations, have a drink every night—which I do. I have a

glass of wine every night. [Laughter.]

Senator BUNNING. Can I get an answer out of that?

Dr. GREENSTEIN. It would cost me $10.95 over the course of the

year if I had a drink every single day of the year. I do not think

that is a crushing tax burden or something that is going to cause

big dislocation.

Senator BUNNING. So, we had local State taxes increase prior to

our discussion here at the national level.

Dr. Jacobson, would you mind answering the question also?

Dr. JACOBSON. I think there are a lot of questions about the various figures you used.

Senator BUNNING. Really?

Dr. JACOBSON. We can provide you with some details about

those.

Senator BUNNING. Thank you. Would you do that for me?

Dr. JACOBSON. I would be glad to.

[The information appears in the appendix on page 333.]

Dr. JACOBSON. But I think Mr. Greenstein hit an obvious point,

that inflation, every year, erodes the value of the taxes, these excise taxes. Also, our society pays a tremendous toll because of the

heart disease, cancers, and other health problems posed by alcoholic beverages that a strong alcohol tax increase would help pay

for health reform and marginally reduce these expenses caused by

alcoholic beverages. So it should not be, and we are not advocating

putting all the costs of health reform on the alcoholic beverage industry.

Senator BUNNING. Just a bit.

Dr. JACOBSON. But as part of a suite of prevention measures, it

makes absolute sense. When Alaska raised its alcohol taxes they

saw an almost immediate decline in mortality.

Senator BUNNING. All right. I have one more question.

The CHAIRMAN. All right. Then we will go on to Senator Cornyn.

Senator BUNNING. One more question. Joseph Antos, lifestyle

taxes. Dr. Antos, would the lifestyle taxes supported by some of our

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witnesses be progressive or regressive? In other words, would increased excise taxes on alcohol or soft drinks tend to hit low-income

families more harshly than upper income families?

Dr. ANTOS. Thank you, Senator. Yes, they tend to be regressive.

They tend to hit lower income families, not just alcohol taxes, but

also, taxes on cigarettes. In fact, that is a particularly good example. The middle class has largely overcome its cigarette addiction,

but lower income people, for various reasons, do not have necessarily the access to the kinds of assistance that the rest of us

have and may have difficulties in life, and frankly a cigarette helps

that.

So the fact is that raising taxes in these matters is not going to

have a gigantic impact on health style or health care costs simply

because the problem is much bigger than that. If we want to deal

with this as a health issue then we have to take public health

steps.

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

The CHAIRMAN. Next, Senator—on the same subject? Briefly.

Dr. BURMAN. Just a very brief comment.

The CHAIRMAN. Briefly, because I want to recognize Senator

Cornyn.

Dr. BURMAN. Thank you. Thank you, Mr. Chairman. I think for

all of these proposals you need to think about the whole package

together. I mean, anything you do to raise revenues is going to

raise taxes on some people. Some of these things might seem regressive, but if you use the revenue raised to cover low-income people, as a group they would be much better off. Thirty-five percent

of people with incomes under $10,000 do not have any health insurance.

The CHAIRMAN. Senator Cornyn?

Senator CORNYN. Thank you, Mr. Chairman. The administration proposed $600 billion as a down payment on an estimated $1.5 trillion health system overhaul. To me it seems

counter intuitive that you spend more money in order to save

money, to say the least. But I would like to ask Dr. Baicker to talk

about what the economic evidence shows, because to me it seems

like that is very fundamental to what we are doing here. We cannot make unjustified assumptions that by spending $1.5 trillion we

are actually going to bend the cost curve, where now we spend 17

percent of our Gross Domestic Product on health care.

Associated with that, I want to ask Dr. Antos to comment. Yesterday we saw a press conference at the White House where stakeholders said that they would save a lot of money, $2 trillion, over

the next 10 years by voluntarily—and I could not find any kind of

enforcement mechanism there—reducing their rate of increase in

health care costs over the next 10 years.

Can you tell me—Dr. Antos, would you comment on whether you

think that is a realistic assumption? Dr. Baicker, first.

Dr. BAICKER. Thank you. I think an exclusive emphasis on how

much money measures save can be misleading in that a lot of

things we might spend money on would get us a lot better health

outcomes and would be well worth the money spent, and a lot of

things that might reduce costs might do so at a cost in health that

is larger than we want to bear.

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So I would focus instead on measures that improve the value

that we get from the health care system, and in truth many of

those measures are unlikely to accrue budgetary savings in a narrow window. We should invest in them because we think they promote health in an effective way and may save money over the long

haul, but not necessarily because they would solve any short-term

budget issues.

That brings us back to the employer exclusion. There are not

that many opportunities to change the tax treatment of anything

in a way that both makes the system more progressive and improves the value that we get from it. I would agree with what Jon

Gruber said, that the current system is regressive, not only because

the value is worth more to people in higher income tax brackets,

but because, as Dr. Burman noted, people in lower income tax

brackets are less likely to have access to any employer insurance

at all, and when they do are likely to have a policy that has a lower

premium.

So by changing that tax treatment you could move towards higher value care by aligning incentives to provide not just more care

and not just more expensive insurance, but higher value care that

produces more health. We should be looking to improve value, not

just lower costs.

The CHAIRMAN. I see a lot of hands here.

Senator CORNYN. Mr. Chairman?

The CHAIRMAN. Yes?

Senator CORNYN. My question went to Dr. Antos. If he could just

follow up on the second part of that, please.

The CHAIRMAN. Right.

Dr. ANTOS. Thank you, Senator. The ideas that were presented

yesterday were certainly voluntary. These are ideas that we have

heard for the last 20 or 30 years. They are fine ideas, but the fact

is that most of these—and these are ideas. These are not proposals.

As you said, there is no enforcement mechanism, and in fact, no

specific steps suggested in the letter yesterday as to how we would

achieve savings at any level, much less $2 trillion. So these are fine

ideas. We have been talking about them for a long time. We need

to continue to work on them. This letter will not suddenly trigger

a change in the health care system that we desperately need to

promote efficiency. Now, a better question, or a bigger question is, even if this $2

trillion were achieved, what impact would that have on the Federal

budget, which I think is the issue really before this committee? The

answer is, a very, very small part of that would end up as savings,

at least in the first 10 years of the Federal budget. To give an example, the Congressional Budget Office estimated, with regard to

the stimulus package, that there would be approximately threetenths of 1 percent reduction in health care spending, Federal

health care spending, because of what they say is $32 billion spent

on health information technology. Three-tenths of one percent. We

have a long way to go to get to $2 trillion.

The CHAIRMAN. Well, I think the point is, a lot of this is incremental. Over time we can start to bend the curve a little bit here.

One more, then I am going to go to Senator Conrad, on the same

subject. All right. Dr. Wilensky?

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Dr. WILENSKY. A point was raised that I want to emphasize, and

that is that there is a distinction between how to raise the money

to expand coverage estimated may at $1.5 trillion for the 15 percent who do not have coverage now, and $635 billion that was suggested by the administration. But the harder question that this

committee has wrestled with goes to the other 85 percent of us who

have coverage, and that is: what do we do to be able to sustain the

spending for Medicare, for Medicaid, and to improve the value,

making sure that when you look at how you get the money to expand coverage, whether or not that is helping us improve value for

the rest of us or, just as a revenue raiser, becomes very important.

I would like to echo my support for the committee’s considering it

in whatever way it thinks is politically feasible to alter the current

tax treatment of employer-sponsored insurance. I appreciate the

problems of changing it completely, but to the extent that you can

limit it in some way will both raise money and drive some better

outcomes in terms of the kind of health insurance that people are

likely to choose.

The CHAIRMAN. All right. I am sure we will get back to some of

you again. Just do not forget if you want to say something. But I

have Senators to recognize, too. The budget question, I think, is a

good segue into recognizing the chairman of the Budget Committee,

Senator Conrad.

Senator CONRAD. Thank you, Mr. Chairman. And again, thank

you for this roundtable, and thanks to each of you for participating.

I have got a question I would like to pose to three or four of the

panelists, and that is a question of, if they were to give two or

three of their best ideas for financing health care reform, what

would those two or three ideas be? I would start with Dr. Wilensky,

then Mr. Sheils, Dr. Gruber, and Mr. Greenstein. If I could ask the

four of you, if you were to give us your two or three best ideas for

financing health care reform, what would they be? Dr. Wilensky?

Dr. WILENSKY. The first one, not to be a broken record, is to go

after the tax treatment of employer-sponsored insurance. It is regressive, it is inefficient, and it is a lot of money. How you replace

it in terms of how you decide to subsidize, whether moving it to

credits, doing it directly to subsidies, will influence how much

money you get. I do not think you can avoid taking that on.

Second, I am very appreciative of the work that you and Mr.

Baucus did last August in terms of your comparative clinical effectiveness bill. I believe that represents an important way to slow

down spending, first investing in the money and then recognizing

that we have got to drive change so that we use it.

Concepts like value-based insurance, where you vary the co-payment toward the most clinically appropriate use of care, valuebased reimbursement where you reimburse more to the institutions

and clinicians that provide good quality and efficient care, can

make a large difference. That will take several years, at best, to

generate the information and to implement. You will have to

change the ability of CMS to make use of these kinds of concepts

in terms of how they reimburse. It is an area the private sector can

do on its own if it wishes to—you might learn something—but statutory change will be needed for CMS.

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Number three is, you have got to go after how we reimburse physicians. The current system is the most broken part of Medicare.

We spend a lot of money. We are doing badly for the physicians

that are trying to practice in a conservative manner. They have

had no fee increases over the decade, and yet we see 10 to 12 percent spending increases, which is unsustainable and unfair. Many

of you are from States that take this particularly hard in terms of

the current reimbursement under Medicare.

Senator CONRAD. Mr. Sheils?

Mr. SHEILS. Thank you. In the testimony we prepared we actually looked at a few ideas. I guess I would have to say that I am

really interested in these ideas that both raise revenues and

change incentives for individuals when it comes to health care and

their health. For example, the tax exclusion for health benefits. If

we were to cap that at, say, the average amount per worker right

now, we would raise that, plus a phase-out that is described. You

would raise about $700 billion in revenues over 10 years. The

health spending would go down by over $300 billion as well, and

the reduction in health spending has to do with the fact that we

have created incentives for individuals to go into plans that are

going to be more efficient.

The second thing we looked at was the tobacco tax. It seems kind

of mundane, and everybody points to it, but we played with it a little bit more. We looked at a $2-per-pack cigarette tax. We raised

about $250 billion in revenue and we also got almost $200 billion

in savings, reduced health spending, some of which went to the

Federal Government in Federal programs.

The last thing I looked at was, again, with the mundane. We

looked into recovering Federal money that is now in the safety net,

and that includes Medicaid disproportionate share hospital funds,

the Medicare DSH payments, there is funding for FQHCs, and so

on. We heard today that it is important to maintain the safety net

system because we are still going to have uninsured people, but if

we were to take, perhaps, half of that back in the context of a

major expansion that covers almost everyone, you would be able to

raise another $130 billion.

Now, I am trying to remember these numbers off the top of my

head, but basically we got to $1.2 trillion in Federal revenues,

about half a trillion dollars in savings and spending throughout the

system. Well, we did analyze the President’s proposal during his

campaign and at that time we estimated his proposal would cost

about $1.2 trillion. So, it pretty much pays for it. But you are going

to get 19 different ideas and they are all good.

Senator CONRAD. All right.

Dr. Gruber?

Dr. GRUBER. I like Dr. Wilensky’s broken record analogy because

this is a wonderful opportunity to see the degree of consensus

among a wide array of experts on the win-win nature of using reform of the tax exclusion to finance health care reform. That is at

the top of my list as well because it is exactly the right thing to

do to finance health care reform, for the reasons I have given, for

the reasons others have given.

What I want to do is just talk for one minute about what that

means. Senator Baucus has raised the issue of, you can reform, but

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there are lots of moving pieces. I think we should talk for just a

minute about what the moving pieces are. There is the cap. We

talked about, you can cap at a certain level. You could do it incomerelated. There is also the issue of the rate at which you inflate that

cap. So for example, just to give ideas, if you, starting in 2012,

capped the exclusion at the 50th percentile, I estimate you would

raise about $500 billion.

Now, alternatively you could say, well, that is not fair because

that hits everyone with taxes. So, let us say we did something else.

Let us say we said that we are not going to touch the exclusion for

families below $125,000 of income. We are then going to cap it between $125,000 and $250,000 of income and then get rid of it, but

only for families above $250,000 of income. So, that is a progressive

cap that raises just the same amount of money without touching

families below $125,000 of income.

There is a lot of money there that you can use, that you can get

at in very progressive and different kinds of ways, many of which

get you the kind of efficiency savings and progressivity that we

want to get out of the system. So, I think that is the number-one

place to look, and I am thrilled to hear the general support for it

today.

I think the second place to look, I just would really echo Dr.

Wilensky, on looking at value-based adjustments to the system. I

think this is the harder one. I cannot give you numbers; I think

it is hard to give numbers on how much different packages can deliver, but obviously thinking about the kind of reforms that she discussed are important.

But I would also echo what Mr. Sheils said. I think we really

need to think about lifestyle-based changes, both in taxes and insurance prices. In the State of Massachusetts, a fundamental part

of reform was, for the first time, insurers were allowed to rate people’s health insurance prices based on smoking status. We need to

think about setting up the right kind of incentives for people, both

through the prices they pay for the goods and the prices they pay

for their insurance, to try to induce healthier lifestyles and raise

revenues at the same time.

Senator CONRAD. Dr. Greenstein?

Dr. GREENSTEIN. I think this is a key question. I think the first

point is, there is no single mechanism you can pass that can get

you all the way, that can probably get you even half of the way towards financing the whole package. So that leads to the conclusion

that you are going to have to put together an array of items on

both the spending and the revenue side of the equation if this bill

is going to be paid for.

Let me start with the spending side. I would absolutely start

with the types of reforms in Medicare that the President proposed—I know you discussed a number of them in your delivery

roundtable several weeks ago—ranging from reigning in overpayments in Medicare Advantage to raising premiums on affluent

Medicare beneficiaries. Some of these have been opposed on one or

the other side of the aisle. We are going to need all of them to deal

with this important priority of health care reform.

Those kinds of Medicare changes—bundling of payments,

changes in hospital readmissions—you really get a triple benefit

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from them. They can help finance the bill. A number of them will

get picked up by private insurance and will help slow the rate of

growth in private sector health care costs as well, and they will

help shore up Medicare financing for the long term.

We are going to get a bad report at 2:30 this afternoon from the

trustees on Medicare financing. Medicare reforms can do all three,

and I would supplement them with some additional reforms in

terms of pharmaceutical pricing in Medicaid, as well as Medicare,

that can yield some additional savings.

Second, deal with the employer exclusion. Senator Stabenow

raised some important issues. But again, I do not see how you can

put a package together that is going to get you to fully paying for

this unless you touch the exclusion. I would agree that you do not

want to eliminate it. I think we need stronger employer-based coverage, not weaker.

However, a well-designed cap, as part of well-designed health

care reform, can actually increase employer-based coverage. If you

combine it with an individual mandate and perhaps a pay-or-play

mechanism like Massachusetts has, you are going to end up, even

with a cap, I think, having more people enrolled in employer-based

coverage, not fewer.

There were three particular issues that have often been raised.

What about people who were sicker? Part of your health care reform plan, I believe—I hope—will have a prohibition on insurers

charging higher prices for sicker people than for healthier people.

The CHAIRMAN. It does. Right.

Dr. GREENSTEIN. What about regional variation in cost in firms

that have older workforces? I would recommend you have a cap

that builds in an adjustment for regional differences in health care

costs and an adjustment for the age of the workforce of the firm.

You can have an adjustment built into the cap itself.

The third item I would mention is other tax treatments of health

care. By the way, I presume that you are going to have subsidies

for low- and moderate-income workers, and you are probably, I presume, going to deliver that through a tax credit. So I think it is

a mistake to just think of these as tax increases. The goal, really,

is to redesign the Tax Code’s treatment of health care costs in a

much more efficient way. So right now we spend money on flexible

spending accounts, which increase health care costs. They are useit-or-lose-it.

We all have had the experience. At the end of the year you rush

out—I did it on March 15th myself. I spent an hour in the CVS

loading up on things I did not need because it was use-it-or-loseit. You also can use your FSA for all kinds of low-priority, elective,

unnecessary medical procedures that no insurance would cover.

Now, we do not necessarily need to get rid of FSAs, but they were

put into place to help people afford coverage in the absence of national health care reform.

In the presence of national health care reform, FSAs should be

reformed—and by the way, they really ought to be incorporated

into any cap you have, otherwise you could have employer contributions that were over the cap. If the employer reduces them to the

cap level and the employee takes the additional amount he or she

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pays and puts them all through an FSA, you really have not effectively changed very much in terms of the tax treatment.

The CHAIRMAN. All right.

Dr. GREENSTEIN. Finally, the lifestyle taxes: alcohol, sugared soft

drinks, we have talked about. I would hope you would not totally

rule out looking at the issue of the itemized deductions. I know the

President’s proposal is not really still on the table in the form he

presented it.

The CHAIRMAN. Yes, it is. It is one of the options.

Dr. GREENSTEIN. All right. Then as sub-options you could look at

excluding charitable contributions, or alternatively the criticism

has been that people deduct at 35 percent today if they are in the

top bracket. What happens if they deduct at 28 percent? Our analyses suggest there would not be a big impact that would cripple

charities, but I will put that analysis to the side. My point is, simply, you could deduct at 35 percent. If the top rate goes back to

39.6, that is in the baseline, you get savings just from holding the

deduction rate at 35.

The CHAIRMAN. Thank you very much.

Senator Snowe, then Senator Cantwell are on my list here.

Senator Snowe?

Senator SNOWE. Thank you, Mr. Chairman.

Dr. Gruber, I wanted to get back to the single national cap on

tax exclusion as well. I know Dr. Greenstein just sort of addressed

the question of making regional adjustments. There are marked

geographical variations among States in terms of cost. Now, some

obviously can be addressed and we are going to be reforming the

health care system. Perhaps some changes or drivers of cost are

not amenable to change.

So I would like to have you address if you have given any

thought to how we could structure such a cap that includes those

variations. For example, in my State of Maine it costs $16,000 for

a family plan, versus the average nationally of $12,400. That is a

$3,600 difference, almost $4,000. In the individual market, it is

$24,000 for a family of four.

Now, there are some real cost differences and economies of scale,

obviously, for rural areas particularly. So I am wondering if you

have given any thought to incorporating some kind of adjustments

that include criteria for those costs indexing the cost of coverage,

indexing the subsidy to make sure that people have adequate coverage, depending on which State they live in. Obviously we do not

give people more than they need, but we do not want to give them

less than they require to access this coverage as well.

And Dr. Greenstein, if you have anything in that regard on how

you would make those adjustments for regional I would appreciate

it. Then there is one other question I have. Thank you.

Dr. GRUBER. I think, Senator Snowe, you are raising a very important issue. There are large variations in the cost of health insurance across the Nation. Part of those will be compressed as part

of national health care reform, particularly in non-group markets.

You mentioned the higher non-group price in Maine versus other

States. A lot of that will go away with reform, but a lot of it will

not. So I would personally advocate that we have a cap that is adjusted, at least initially, for premium differences across States.

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So, for example, what you could do is you could say in the first

year you have a cap which is adjusted fully for premium differences

across States, but over time that should phase out to recognize that

some of those premium differences are not due to cost of living differences, they are due to inefficiencies in the way medical care is

delivered.

So in the long run you could move to a cap which varies just by

the underlying cost of living, so you could say, for example, if the

cost of living in Maine is 10 percent higher than in Mississippi, the

long-run cap would be 10 percent higher.

But if the cost of premiums in Maine is 50 percent higher, you

would start at 50 percent higher but over time, giving Maine time

to adjust, you would then eventually move down to something that

is just reflecting cost of living differences.

That is something which reflects the true cost of living differences that drive your health care costs but which forces States

which are higher cost to take the steps towards efficiency that we

would all like as a Nation. So, that is the kind of step that I would

strongly endorse.

Senator SNOWE. I appreciate that.

Dr. Greenstein?

Dr. GREENSTEIN. I would agree that probably different regional

variations in insurance costs is probably the best way to do the adjustment. We have not really looked at the question Dr. Gruber

just mentioned about what you do over time. I hope it would be

possible over time to limit the adjustment to differences in cost of

living. As he suggests, I am not sure it would be possible to go that

far.

But certainly in terms of constructing the cap, I think not just

for the first year, but for the whole first period, you would want

to vary it by differences in insurance costs. And hopefully as various reforms work their way through the insurance system, one

hopes that the variations in insurance costs across regions would

themselves compress and that a cap adjustment, therefore, naturally would narrow because the differences in cost, one would hope,

would narrow.

Senator SNOWE. So a time frame would obviously be important

in this, whether it be 5 years, 10 years, or something in phasing

it in of some kind.

Another question, Dr. Greenstein.

Senator HATCH. Before you move on, Senator Snowe.

Senator SNOWE. Yes?

Senator HATCH. Could I just ask a question on this precise point?

Senator SNOWE. All right.

The CHAIRMAN. Senator? Sorry?

Senator HATCH. If you would let me——

Senator SNOWE. Yes. I will yield. I have one more question after

this point.

The CHAIRMAN. All right. Why do you not go ahead?

Senator HATCH. If I could on this precise point, because I am

concerned about it. Under the Sixteenth Amendment, ‘‘The Congress shall have power to lay and collect taxes or income. . . .’’

The CHAIRMAN. On this point, right, Senator?

Senator HATCH. On this point, yes.

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The CHAIRMAN. All right.

Senator HATCH. ‘‘. . . from whatever source derived, without apportionment among the several States and without regard to any

census or enumeration.’’ That is the exact language.

Now, in Mr. Kleinbard’s testimony he points out that the Tax

Code does not adjust for variation in cost of living between regions,

and some types of variation may be considered unconstitutional.

Now what I would like to know is, in the view of the various folks

here, would a geographic variation on capping the exclusion based

upon the State you live in be unconstitutional?

Now, such an idea seems unprecedented but, in fact, even though

the higher cost of living in certain areas is usually accompanied by

higher wages, would such a geographical variation mean that people in some areas of the United States would be subsidizing health

care for people who are located elsewhere in the United States?

Mr. KLEIN. If I may, Senator. Thank you so much. I have to

leave it to constitutional scholars to answer the question as to

whether or not it would violate the Constitution, but your question

and Senator Snowe’s question underscores just one of the challenges that would be involved in capping the employee exclusion.

Whether or not it is unconstitutional, I do not know, but I can tell

you it would be extraordinarily complex. The geographic variations

account for some of the differences in the cost, as does the age of

the workforce, as does the claims experience, and so on and so

forth. This walks you right back into the Section 89 experience,

which should not be underestimated.

I dug out of my filing cabinet yesterday this little button calling

for the repeal of Section 89. Some of you may remember the hundreds, if not thousands, of workers and small business people and

benefits professionals who marched up to Capitol Hill when they

had to deal with this incomprehensible challenge of trying to value

this different coverage.

With all due respect to Dr. Gruber, and just in general what I

would say—I do not have the sterling qualifications of the academics on the panel who are supportive of capping the exclusion—

so I am disadvantaged by the need to sort of tell you how employers and employees will behave in practice rather than in theory.

But I must say that the notion that somehow we are in a different place because of COBRA than we were 20 years ago is simply wrong. It is one thing to make a rough justice approximation

of the value of the health benefit in order to know what to charge

a former employee toward the premium. It is quite another to be

fair to people in terms of the way you are reporting some taxable

benefit on their W–2 form.

Senator HATCH. Mr. Kleinbard brought it up.

Mr. KLEINBARD. Yes. If I could, I have some data that I think

is relevant to your question, and then I would like to come to the

specific problem. The first, the insight that Senator Snowe began

with of regional variations is absolutely correct. In our data we discovered, in fact, that variations across regions are larger than variations across income levels. You would think that higher income

employees have much more generous plans than lower income employees.

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In fact, the variation across income levels—at least when you go

by quartiles, which may be too rough a cut, but that is all the data

we have—shows less than a 10-percent variation between the bottom quartile and the top quartile of incomes in the value of the insurance premiums. We see a significant larger variation when we

look at costs across regions. So the problem is there, there is no

question about it.

Then you turn to solutions, and there are two issues that you

need to think about. The first, is that the Internal Revenue Service

today does not really, frankly, care very much where you live within the United States. Very little turns on whether you are a resident of Maine or you are a resident of Boston with a summer house

in Maine.

When we go to regional variations, that is going to matter a lot.

That is something that the IRS does not really police today. There

are a couple of places in terms of, where is your principal residence

or things like that, but as a general matter, the whole question of

how we will define who is in which region and how will the IRS

police that is going to be a significant issue and we should not

overlook the administrative burdens that that will put on the Internal Revenue Service.

The second question you raised is the constitutional one. The

issue is the uniformity clause of the Constitution which requires

that excises and other taxes be levied uniformly across the States.

It is my belief—although there is a good deal more research to do.

The great thing about the Constitution is you never get to the end

of the research—based on our preliminary research, we believe that

one could design regional variations that are constitutional.

It would require, however, a more sophisticated definition than

simply going State by State. For example, New York State has

some very, very high-cost areas and some relatively low-cost areas.

So we do think that you could work with the constitutional constraint, but it would require a more sophisticated approach, which

in turn adds further to some of the administrative burdens. But the

problem is real, as I have said. There are very substantial variations.

The CHAIRMAN. All right. Senator Grassley, you are asking on

geographic variation, correct?

Senator GRASSLEY. No.

The CHAIRMAN. Not on this subject? All right. More on geographic variation? All right. Senator Cantwell?

Senator CANTWELL. I know we are talking about geographic variation. I want to go back to Dr. Wilensky’s point about Medicare reform and geographic variation because before I am interested in

talking about new sources of revenue, I am interested in talking

about how we are going to make this system more cost-effective.

Washington State is one of those that you have referred to as a

high health outcome State with relatively low cost.

What I do not understand is why this Dartmouth study is not

carrying more weight in explaining the transformation that can

happen. For example, Washington State beneficiaries, per spending

average for a year, is $6,200. So for the U.S. it is $7,400, so roughly

a $1,200 difference. For New Jersey, it is $8,512. For Florida, it is

$8,462, $2,200 more per Medicare beneficiary.

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Now, why should we keep paying for that? Why should we in

Washington State keep paying for that? If the entire country went

to the general State rate that Washington had per beneficiary rate,

we would save close to $55 billion a year. So why is it that we cannot use this study to break through that there are systems

throughout the country that are higher outcome, lower cost, and

before we spend another dime raising someone’s revenue somewhere else we had better implement those efficiencies?

The CHAIRMAN. Good question. Who wants to take it?

Dr. WILENSKY. I would like to respond.

The CHAIRMAN. All right.

Dr. WILENSKY. It actually goes to a point that Senator Hatch

made, of are we asking people in one part of the country to pay for

health care in another. Of course, in Medicare we do that all of the

time. Your State residents pay the same Medicare taxes into the

system, but as you have pointed out, Medicare pays very differently

according to the practice style and how health care is delivered in

these areas.

The differences can be a matter of three-fold, according to some

of the estimates that MedPAC and other commissions have done.

There is not an association with higher health outcomes or more

response to patient preferences in the higher spending areas. They

vary within States, as somebody just mentioned. It is not enough

to just say one State does this and another one does that. California is an even bigger example. The Los Angeles area is incredibly expensive, and the northern California area is much less so.

There are mechanisms you can use to try to drive spending down

in the high-cost areas that have little health value. It would require arming CMS with very different tools in terms of how they

reimburse clinicians and institutions rather than paying the same

amount with only an adjustment for cost of living.

It will be, if not to CMS, delegating to some other group a lot

more authority in terms of how you set up reimbursement systems.

I believe it will be very difficult, no matter what tax increases you

use, to sustain health care spending and improve the value unless

you take on these broader issues.

The CHAIRMAN. Dr. Baicker?

Dr. BAICKER. Thank you. This highlights, I think, the importance

of thinking beyond just the insurance structure. I have done some

research in the area that you are discussing and the variation that

you see is among the people who are all on Medicare fee-for-service,

so it is not that people have different types of insurance paying for

their care. In fact, in the parts of the country where we spend the

most on Medicare beneficiaries, they are the least likely to get

high-quality, low-intensity interventions like diabetic eye exams,

flu shots, mammograms.

That kind of care may fall through the cracks when people are

seeing a lot of specialists and not seeing a lot of general practitioners, and when there is not an integrated infrastructure of information so no one is saying to the patient, ‘‘gee, it is time for your

flu shot,’’ in between all the specialist visits.

We would like to find a way to promote that low-intensity but

high-value care by reforming the payment system such that providers are reimbursed for providing high-quality care, not just more

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care—where there is an opportunity to do higher value interventions, providers are reimbursed for phone calls and for answering

e-mails, where coordination of care is encouraged, not just through

doctors’ office visits, but through hospitals and through episodes of

care.

Managing a disease like diabetes or hypertension requires coordination across a wide array of providers, and right now we are just

reimbursing more for more care and that seems to drive that relationship between higher spending and lower quality care, even in

a program where everybody has the same insurance product.

The CHAIRMAN. This is a very important subject. This Dartmouth

study has been referred to many, many times by many, many people. CBO did an analysis of it and concluded that there would be

a 29 percent savings, $700 billion, roughly.

So I have a couple of questions about it. First, is there any reasonable justification for geographic variation? I mean, I am assuming the Dartmouth study adjusted for lots of different factors to try

to get a true sense of the disparity in health care spending versus

outcomes.

But my first question is, what justification is there for it? Second,

what is the cause? What is the main cause of geographic variation?

I think you, Dr. Baicker, started to touch on some of the causes.

Third, what are some of the better solutions to attack it? My assumption is that some of the delivery system reforms contained in

the white paper will help get at that problem, with health IT, comparative effectiveness, and reimbursement based on quality, and so

on and so forth. So I would like just a little discussion on, is there

any justification for it? Because it is sure talked about a lot. Second, what are the main causes? Third, what do we do about it?

Dr. Wilensky?

Dr. WILENSKY. This year’s report particularly highlights how the

variations can impact spending. There is a chapter that looks at

the treatment of chronic disease, and also end-of-life care. It compares the Los Angeles area and northern California, Sutter, Intermountain Healthcare, and the Mayo Clinic, and indicates that

there are some parts of the country, like the Los Angeles area, that

even their lower spending areas are way more than other parts

that are not very far geographically. We call it practice style differences.

There is discussion about how you begin to drive change so that

the more aggressive interventionists change some of their behavior.

It takes a lot of different activities—financial, but also having good

data, that the outcomes, in fact, are not improved. The first response, according to other earlier work that Wenburg and others

at Dartmouth have done, is that physicians will say, I am different,

my patients are different. My patients are sicker, I am having better outcomes.

It is only if you can have good data to show that the patients are

not different, that you do not get better outcomes, that you can

begin to try and drive change, in addition, having it backed up by

financial rewards to those who have good clinical outcomes and

practice conservatively.

Very different end-of-life care in terms of how medicalized the

last 6 months of life are. Within small areas, it means that it will

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require more than just crudely taking a State or multiple States

and labeling them ‘‘high spending,’’ and that is why I have used the

California area—you all have talked about this because you come

from States that tend to be quite low-spending.

The CHAIRMAN. Right.

Dr. WILENSKY. And have been appropriately frustrated that you

do not see this recognized in a payment.

The CHAIRMAN. Right.

Dr. WILENSKY. But it will mean redefining how we reimburse

under Medicare if you want to capture those savings and reward

the kind of behavior you want to see.

The CHAIRMAN. All right.

Mr. Sheils?

Mr. SHEILS. Thank you. We have looked into this and have done

some research on it. We first got involved in it when we were looking at the question of establishing a comparative effectiveness institute. The question we were faced with was, well, how effective

will it be to generate new guidelines? One of the things we found

in the literature reviews is that physician adherence to guidelines,

medical practice guidelines, evidence-based medicine, is actually

quite low. Only about 55 percent of physicians are found to be adhering to the guidelines that apply.

The CHAIRMAN. And why is that?

Mr. SHEILS. Studies have tried to look at that. Some of it is that

they do not know about the guideline. That is number one. Number

two, they may not agree with the guideline. They may feel that it

is wrong. The third, it is always very politely put, but it is difficult,

with a guideline, to alter the practice of medicine with a physician.

What they found is that things like publishing the guidelines do

not really make much difference. They found that doing, what do

they call these? Conferences and so on, presenting papers, does not

do very much.

The one thing they found was really effective was, as Dr.

Wilensky was saying, is when they did profiling to find physicians

who seemed to be operating out of bounds and then went in, with

a physician, to educate that physician with what is known about

it. That was shown to change medical practice. The study we

looked at, though, showed that the cost of doing that is about

$7,200 per physician, so this is a costly item.

I think the conclusion we came to, and I think CBO sort of is

here on this as well, is that generating the information is necessary, but not sufficient, to fix the problem of variation in medical

practice. We need changes in incentives that accompany that, and

there might have to be some fairly stiff incentives like paying physicians less for doing care that is not indicated under the guidelines. Without incentives, we probably are not going to get very far

with it.

The CHAIRMAN. Mr. Klein?

Mr. KLEIN. Yes. I could not agree more. In answer to your question, why does this occur, it is because we have a misalignment

here between outcomes and what we pay. Health care may be the

only product or service provided in this country where, as a matter

of routine, we pay as much, if not more, for poor quality as we do

for good quality. So in terms of your initial question about——

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The CHAIRMAN. Because we reimburse on basic quantity.

Mr. KLEIN. That is one big part of it, and without regard sometimes to quality whatsoever. I think what you outlined in your

white paper are precisely the kind of measures that need to be

taken to address this. I just would sort of add the point as well,

very briefly, that comparative effectiveness is an area that deserves

more attention and it is absolutely essential that these kinds of

changes be part of the overall reform effort.

The CHAIRMAN. All right.

Dr. Altman?

Dr. ALTMAN. Yes. One of the things I want to support Senator

Cantwell on. One of the major differences that goes on in the State

of Washington, the State of Oregon, in Minneapolis, is the organized delivery system, the integrated delivery systems you have

there. So I would totally support what I have heard before. In that

white paper you are moving towards those integrated delivery systems, and I would support my colleagues. But it is how the system

is organized, and we have big differences. Those three States that

I would focus on, Washington, Oregon, Minneapolis, and parts of

even Massachusetts, are where integrated delivery systems are

playing out.

So I would support what others have said. We need to change the

incentives. We need to move away from fee-for-service towards integrated bundled payments and we need to sort of penalize those

institutions and providers that continue to practice low-quality,

high-volume care. You can say, fine, if you are going to continue

to practice that way we do not have to pay you the same rates. So

what Senator Cantwell was saying is absolutely correct.

The CHAIRMAN. All right.

Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman. I just wanted to go

back a little bit to the geographic variation, in that cap. I think it

is correct that where wages adjust in regions to account for variations, that when cost of living is higher, pay is higher also, usually, in those areas, appropriately, in some ways to compensate the

workers. But I guess what I would like to kind of add onto—I cannot remember which one of you all made the comment, but the

variances in health care costs across regions exist for a number of

reasons, not just higher costs.

I know, Mr. Kleinbard, you had some of that in your testimony.

But is it possible that some of those regional variances result from

behavior in practice, as you have mentioned, that could and should

be corrected? That is something that we obviously have to look at.

Are we rewarding certain regions for less efficient or more expensive health care? Is that a part of the conversation?

To Mr. Kleinbard, I would ask you, do we adjust anywhere else

in the Tax Code for geographical variances?

Mr. KLEINBARD. I can address that last part of your question;

with respect to practice issues, I would defer to the health economists. Essentially, we do not in the Tax Code. We do make differentiations, of course, on the Medicare spending side, but in the

Tax Code we essentially do not make any kind of regional variations. The nearest thing you can see to that would be, for examVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00151 Fmt 6601 Sfmt 6601 48952.XXX SFIN1 PsN: SFIN1
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ple, some of the special benefits for the Gulf Opportunity Zone or

something like that. But as a general matter, no.

Dr. BURMAN. But actually there are some. Low-income housing

credit allocations vary by State. The sales tax deduction varies by

State.

Mr. KLEINBARD. No, the consequences vary by State, Len, I agree

with that.

Dr. BURMAN. No. But they are actually designed to vary by State

in those cases.

Mr. KLEINBARD. No. The sales tax——

Dr. BURMAN. The sales tax deduction, the tables vary by State.

Low-income housing credit allocations are based on population. I do

not think there is any reason why, if you had an objective measure

to define differences in costs across States, that you could not—and

I think you said this in your answer before. For example, the ideal

thing would be if you could design an efficient health insurance

plan and figure out what costs would be in each State and tie a

cap to that, that would be the ideal cap. A second-best measure

might be to take something like the lowest-cost plans in the Federal Employees Health Benefit Program, which vary across States,

and you could tie the cap to that. So I do not think there would

be a problem with that kind——

Mr. KLEINBARD. As I said before, I do not disagree, Len, with the

ultimate constitutional question. I do think it is fair to say that we

do not, in fact, as a general matter, impose different tax rates

based on cost of living. If in fact you have higher income in a State

or region that has a higher cost of living, you are paying at a higher marginal rate. We do not give a special adjustment to keep you

at the same rate as you would have been had only you been earning less in a lower-cost region. That is my point.

Dr. BAICKER. But your question also is predicated on the distinction between differences between States that we want to take into

account and differences between States that we do not want to take

into account. Some of those differences are because medicine is

practiced in some areas in a much less efficient way, and do we

want to continue to subsidize that through the Tax Code by saying

the more inefficient you are practicing medicine here the higher the

tax benefit your residents will get? I think those are the kind of

distinctions we would like the Tax Code to smooth out over time.

The question then is, in the first year that you implement this,

do you want to penalize the people who are living in those highcost areas by having them take a much bigger hit in year one? I

would agree with Jon Gruber that you want to smooth it out a little bit over time, especially because contracts have been negotiated

and because people do not have control over this, especially in the

short run. But in the long run, I do not think the Tax Code should

be promoting wildly different bundles of health care in different

parts of the country.

Senator LINCOLN. But if your cost of living is so much lower because you live in a poorer area, but all of a sudden you are going

to be carrying a heavier part of that burden, because there are

other areas where the cost of living is higher for whatever reason,

those people in those States are compensated normally by a higher

income. So, I mean, my concern is, because I come from a State

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that has disproportionately low-income people, but I also have

lower-cost plans, if in fact they are going to share a greater burden

of covering those States that have higher-cost plans because they

have a higher cost of living in those areas. I am already in the

tank.

Dr. BAICKER. And that seems like a much bigger tax policy question that, in a way, is not specific to health care. There are a few

provisions in the Tax Code that seem to take into account differences in cost of living, but by and large the Tax Code does not

adjust for the fact that some parts of the country are just more expensive to live in, whether or not wages keep up commensurately.

That is going to be true of health care as well.

So whether you want to just take the cost of living component

into account seems like a broad tax policy question.The excess costs

above and beyond the cost of living that are driven by differences

in the quantity and quality of health services consumed, those are

the differences in costs that I think we would want to stop subsidizing over time.

Dr. ALTMAN. Do you need to use the Tax Code? What I think

many of us are saying, is you do not need to use the Tax Code. As

a matter of fact, what you need to do is change the way Medicare

pays for these providers and you can make a major change on that

without getting into the tax issues. That is where the dollars will

flow directly back into the Federal Government.

Senator LINCOLN. I think that is a good point, but I think it is

going to take both.

Dr. BURMAN. But again, if you had a cap that varied by region

and you used the money you raised from that to cover low-income

people, the people in Arkansas might well be better off. I mean, the

current subsidies really provide next to nothing for low-income people, no matter how much you are paying for health insurance.

The CHAIRMAN. All right. Senator Grassley?

Senator GRASSLEY. Yes. Dr. Baicker, on this issue, we have been

talking about regional variations. Do you think a flat national cap

would achieve the downward pressure on insurance that you discussed?

Dr. BAICKER. Yes. I think if we were to reform the current tax

treatment in a way that did not provide a subsidy for more and

more expensive plans, that would exert a downward pressure on

the cost of insurance and the cost of care more broadly, but would

also encourage the kind of value-based insurance that was talked

about before where you would want people to see out insurance

policies that delivered the highest value care for each dollar of premium they were paying. That incentive is dulled right now by a

system that subsidizes more and more and more insurance regardless of the marginal improvement in health it produces.

Now, how you can do that in a way that does not involve a potential degeneration of risk pooling in the employer market would be

through a complementary policy I would not want to just reform

the tax treatment alone. I would also want to provide an alternative mechanism for risk pooling, such as risk adjusted payments

between insurers or risk adjusted vouchers for health insurance,

where higher-cost enrollees generated more revenues for insurers

so they would not seek to avoid high-cost enrollees, but the enrollVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00153 Fmt 6601 Sfmt 6601 48952.XXX SFIN1 PsN: SFIN1
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ees themselves would not have to bear that cost. There would be

a social insurance component like the one that we are currently delivering in a really inefficient way through the employer system.

We could, rather, deliver that social insurance component

through an alternative mechanism that would create an incentive

for insurers to seek out high-cost enrollees and provide them with

higher-value care. For example, you could have insurance companies that specialized in diabetes disease management—rather than

trying to shed their diabetic enrollees—because they were paid

enough to make it worthwhile to insure them. They would strike

to provide the most efficient, coordinated diabetic care available,

and people would seek out that plan if there were appropriate incentives for them to get high-value care. We do not have right now.

Senator GRASSLEY. Thank you.

The CHAIRMAN. Senator Bingaman?

Senator BINGAMAN. Let me just go back to what I believe Dr. Altman said, just to clarify in my own mind. You are saying the most

direct way for us to deal with some of these geographic disparities

and to essentially reward lower cost, more efficient delivery of care,

is to do it through the Medicare system and instead of doing a regular across-the-board reduction in Medicare benefits, adjust those

reductions to reflect the geographic differences that currently exist,

and do that over a period of time.

Is that what you were saying?

Dr. ALTMAN. That is what I was saying. I think trying to get at

it by putting a cap—I would support some form of a cap on the employer exclusion, but to make it the major item and to sort of push

down hard on it beyond a certain point so that we could turn

things around, I think is the wrong way to go. The better way to

do it is to go into the payment system, to reward the value-based

payments, to move towards an integrated delivery system, and to

sort of penalize those that continue to practice fee-for-service highcost, low-value care. You can make it out much faster.

Senator BINGAMAN. All right. Dr. Antos?

Dr. ANTOS. Stuart’s suggestion is really a top-down kind of an

approach, and certainly we should move in many of those directions. But we should also not forget that people still make decisions

about health insurance based largely on what they think they are

paying for health insurance. Apparently the latest surveys suggest

that they think they are paying $100 a month. So we do have to

deal with the tax treatment of health insurance.

There is a way to smooth that transition that has not been suggested, although many suggestions have been very valid and, I

think, worth working on. That is, why not give people a choice?

Why not let people choose between a capped tax exclusion and a

tax credit? With a tax credit you do not run into all of the problems

that may exist with legal issues and you can risk adjust it in terms

of both the person’s income, the person’s health status, and the

overall cost of health care in that area, applying some pressure

where it seems overly expensive. But if you give people that choice,

they will make the right choice and it will not necessarily drive

people out of employer coverage. They can stay if they want, they

can use their tax credit where they want.

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Mr. SHEA. Senator, can I comment on this from a different perspective? The point has been well made how complex trying to provide equity within the tax system is if you were to go this route.

But there is no question that we could improve the practice of medicine. The Institute of Medicine number is, 30 percent or two of our

$2.5 trillion a year is for care that does not really help people.

The beauty of what you have done in your options report the

other week about delivery system reform, is you are in tune with

what is going on in the health professions and the health field.

This has been a long time coming, but people believe that we can

do a lot better. We have learned that there are ways to do this.

People—physicians, for instance—have become much more comfortable with this.

I would just suggest to you, going way back to Senator Cornyn’s

question, there was real significance in yesterday’s announcement.

I understand we ought to take it with a few grains of salt, and

really what you need is to get this stuff in scorable numbers. But

the significance, I would submit to you, is that the trade associations, which are not necessarily thought leaders but really represent everybody, they are comfortable enough with the idea of big

system change because their constituents are ready for that.

I think that is the lesson of the work that has been done over

the last 10 years among consumers, purchasers, physician groups,

hospitals, and insurers, and goes on today. It is a very, very vigorous and robust enterprise. I think that is the right moment here.

It is not nearly as explosive as taxation, believe me.

Senator BINGAMAN. Could I ask a follow-up question, Mr. Chairman? Let me just ask—yesterday’s announcement, I applaud that.

But my understanding is that much of the increase in the cost of

health care is related to technology improvement. It seems to me

if that is the case, then it makes it all the more important that if

we are going to reduce the growth in health care costs, that we

pursue this comparative effectiveness effort. There is no other way

we are going to make the kinds of savings that were talked about

yesterday or today that the President was championing. We are not

going to make them real unless we really get serious about comparative effectiveness. Is that right or wrong?

Mr. SHEA. I think that is absolutely right, Senator. I think,

again, the professions are ready for this. There are some outliers.

People have to be assured that it is going to be done fairly, but I

think people are ready for this. I would suggest to you also that,

looking forward, we have to go way beyond comparative effectiveness because, as you mentioned technology, we have a system that

has developed a model of competition among providers that is

based on more, and more, and more technology. The new heart institute across town begets another heart institute on the other side

of town. This is what competition is among providers. It is dysfunctional in the extreme. So we have to go beyond that comparative

effectiveness, but that is one of the first places to start because I

think people are ready for it.

The CHAIRMAN. Mr. Wojcik?

Mr. WOJCIK. Yes. Thank you. One of the things that the business

community does is look at the pipeline of the new medical technologies, medical interventions that are coming down the road, and

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that is one of the reasons why, for the past decade and longer, the

business community has been very concerned. Because we are seeing what is coming down the road in the next few years in terms

of the cost of new medical interventions being applied to common

conditions, chronic conditions, cardiovascular disease, diabetes,

asthma, many of these which are becoming more and more prevalent.

So we definitely need a strong, vigorous comparative effectiveness effort and more evidence-based medicine, more focus on primary care, more value in the Medicare system and other payment

systems for evaluation and management, care coordination, and the

hand-offs between hospital care and other settings.

If I can talk a little bit about the tax exclusion. My observation,

in listening to the discussion about the geographic adjustments

that would have to be made if we capped the tax exclusion, that

has major implications for the employer system because right now,

especially if it is an employer that is in multiple States, we pride

ourselves on having the same benefit for the same employees no

matter where they live, and we would have to deal.

That would be another administrative complexity that self-insured employer plans would have to deal with. Especially, the more

States or the more regions you have people in, you are going to

have to be making all these adjustments and raising all these equity issues, people doing the same job for the same pay, some of

whom will be taxed, depending on where they live, on their health

benefits, others who will not. So, I just want to make that point,

that it is a major complication for the self-insured employer system

as well.

The CHAIRMAN. One thing that has always struck me is the testimony of Uwe Reinhart, whom all of us know of, not in this room

but in this committee, which pointed out that even in the State of

New Jersey, if I recall correctly, he looked at the end-of-life costs

in the last 6 months at three different hospitals in New Jersey and

found a variation of three-fold. I think one hospital spent three

times what another hospital spent in his own State, New Jersey.

So he called them up and asked them, hey, what is going on

here? Why are you spending three times more than the other hospital? Answer? That is just the way we do it, just practice patterns

and so forth. My guess is that that explains a lot of the disparity

around the country: that is just the way we do it here. For whatever reason, that is just the way we do it.

So we are trying to get at that, with all of the things we are talking about here with delivery system reform, health IT, comparative

effectiveness, value-based purchasing, and more emphasis on primary care doctors, and so forth, trying to bend the stovepipe so

there is more collaboration and bundling, and some integrated care

and things like that. But I am just astounded at the variation in

the country based on practice patterns, which to me indicates that

it must explain a lot of the waste that occurs in the current system.

Dr. ALTMAN. You know, Senator, I think the single biggest difference between the United States and other countries is in just

what you just said. When you just look at the high cost of dying

in this country—and of course it is geographically different—and

you just looked at that, and we have looked at it and compared it

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to Canada, England, and places like that; that is where the big differences in our spending patterns are. It has to do with the organized way we deliver care.

The CHAIRMAN. Right. Now, this is a question that many of us

have thought about, and Senator Wyden sometimes raises this very

question. It is delicate, it is sensitive, but it is important. I would

like any of the panelists to address what this country might do

about the high cost of end-of-life care. Dr. Wilensky, you raised

your hand first, so you are getting called on first.

Dr. WILENSKY. We should not fool ourselves that this is going to

help as much as it might sound. I say that because the percentage

of Medicare dollars spent on individuals during their last 12

months of life has been pretty constant over the last several decades. About 28 percent of the Medicare dollars are spent in the last

12 months.

Now, that is not to say that there are not strategies that can be

used to try to encourage care that meets what the family and the

individual wants, that reduces some of the medicalization. I mentioned this year’s Dartmouth Atlas showed a three-fold difference

in the last 6 months of life between spending in Los Angeles hospitals, northern California, Intermountain, and Mayo. That, along

with the other variations, is very important.

The Congress has tried to encourage advanced directives that

people say how they want to be treated. That is important. Making

hospice more available, shared decision-making, where there is

more discussion between the families and the physicians is very

important, making sure these benefits are available. But when you

look at it within the whole context, these variations occur all across

the life scale in all kinds of health care, only some of which is related to the last 6 months.

The CHAIRMAN. All right. Any other points on the last 6 months?

Dr. ALTMAN. Yes. First, Gail’s comment about the same percentage really sort of hides what has really happened. Remember, our

population is aging. At the very, very elderly, the costs go down,

so that percentage should be falling and it is not. Second, the cost

of care is growing by so much, so the same percentage is worth a

lot more.

So let us go back to the issue of comparative effectiveness, which

we are supporting. That is where that can have a big impact. It is

not only there, but that is where the waste is. That is where people

are using technologies that really either do not work at all or keep

people alive for very limited and very high costs.

Hospice is one option, but we do need to take account of the cost/

benefit of some of the things we do, and either we can do it directly

or we can do it by bundling payments and let the delivery system

deal with it. So it is a combination of the delivery system dealing

with it and/or you providing more information for people to make

the right decisions, both for themselves and for the care.

The CHAIRMAN. Before I go to Senator Carper, does anybody else

want to reply?

Mr. KLEIN. Yes, Mr. Chairman.

The CHAIRMAN. Mr. Klein?

Mr. KLEIN. Thank you. You will not hear me saying this often,

but this is one area that I think does call out for Congress to comVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00157 Fmt 6601 Sfmt 6601 48952.XXX SFIN1 PsN: SFIN1
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mission a study. I honestly think that the realm within which the

questions are raised here are in the realm of ethics and faith and

other factors that are outside the province of tax policy and health

policy.

In order to ensure that we do have patients and caregivers and

health care providers better informed about the different options,

that is just going to take more time than would be able to be done

as part of the very important health care reform initiative that you

are under.

But how that links into the technology issue is what sort of gave

rise to this. I just have to put in a plug on behalf of technology,

since the number of people have identified it here as a reason for

increased costs, particularly at the end of life.

Technology can be our friend. I think what you have called for

in your white paper in terms of promoting health information technology is the perfect example of that, and I think we only need to

look, for example, I will say in closing, at the experience following

Hurricane Katrina, where literally overnight hundreds of thousands of people were separated by hundreds of miles from their

medical records that were on paper, that were either inaccessible

or destroyed.

All these people knew was, gee, in the morning I take a pink pill

and in the afternoon I take a yellow pill. If this kind of information

were available digitally we would not have that. The health care

sector lags seriously behind almost every other industry in this

country in terms of its adoption of health care information technology.

The CHAIRMAN. Senator Carper?

Senator CARPER. Just as a segue, the folks that happen to be veterans and those in that part of the country during Katrina who

were hospitalized in VA hospitals or in VA nursing homes who

were moved out of harm’s way to other facilities inland, when they

arrived in those new VA facilities the people receiving them knew

what medications they were taking, they knew what their medical

conditions were, they knew about their lab tests or MRIs, and provided excellent care.

I have a son that goes to MIT, who is a lot smarter than his dad,

and he is on this triathlon team there. He was out there riding his

bike just before Christmas and he wiped out on some black ice outside of town and really screwed up his hand pretty good. He went

to the doctor’s office—actually, the hospital there—and had X-rays

and so forth. He came home for Christmas a couple of days later

and we took him to a hand specialist there.

He went out and worked in San Diego for the month of January

and he visited another hand specialist out there. He went to all

three of them. Every one of them never talked to the other two

physicians. They all took their own X-rays and there was just no

way to really figure out what kind of care he had gotten and see

if there are any conclusions. There was just no communication.

That sort of thing goes on all the time, I think. It goes on all the

time. I was not planning on getting into health information technology. In Delaware we have been standing up something called

the Delaware Health Information Network. We have been working

on it for a number of years, starting when I was Governor. The

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idea is to link our hospitals, our doctors’ offices, medical labs, and

so forth, and to use some of this stimulus money to really

incentivize doctors’ offices, especially the smaller offices, to move

toward medical electronic health care records. I think we are getting a pretty good uptake on this sort of thing.

Do you all have any specific advice for us as it pertains to effec- tively using stimulus money? There is $19 billion that has been set

aside for harnessing information technology. But I would welcome

your thoughts as to how we might spend that money effective. Dr.

Wilensky?

The CHAIRMAN. Dr. Wilensky?

Dr. WILENSKY. The VA has been able to demonstrate how important it is to be able to at least pull up records and read what is

there. During Katrina, that was a clear example. One of the issues,

as you are going forward—there are really two areas that States

that are trying to promote health IT need to focus on, as we do in

this country. One is interoperability, but the second is standards

and terms that are used within the medical records themselves.

The VA and the DoD represent our two most advanced areas of

electronic medical records, but they have been struggling mightily

for the last decade and a half to learn how to talk to each other.

Senator CARPER. I understand they are under orders right now

from Bob Gates to work on that.

Dr. WILENSKY. They have been under orders from many——

Senator CARPER. I think this time it is for real.

Dr. WILENSKY [continuing]. From the Congress for basically the

last two decades. But trying to make sure before you start, or while

you are early, that there is an agreement both about interoperability—but we have talked about comparative effectiveness, and if

we are going to make use of the natural variation that occurs in

how care is provided—maybe more than we would like but that is

occurring—and to try to see the clinical outcomes that occur with

that natural variation. It means that not only do you need to be

able to look at the record so you do not repeat the test, but researchers need to be able to do a deep dive into the record to be

able to see if you treat cardiac disease differently with angioplasty,

or with bypass surgery, or medically, and you stage the illness, are

you having different clinical outcomes? Getting that kind of decision-making early rather than after you have already invested billions of dollars will be very important and it will be much harder

to fix it after the fact.

Senator CARPER. All right. Yes, sir?

Dr. ANTOS. This also drives home the point that there has to be

a business case for the use of health IT and for doctors and hospitals to cooperate with each other. Outside of certain kinds of

health systems such as Kaiser Permanente, which clearly there is

a business reason because the doctors are generally employees, in

most of health care in America it is a fee-for-service, atomistic kind

of a system. There are, in fact, strong business reasons to not cooperate.

Hospitals do not want to lose—not so much the patients, they do

not want to lose the admitting physicians. If it is too easy to move

patient records from one hospital to another, from one insurer to

another, it is too easy to lose market share. So, that is a big, big

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problem. There has to be a business reason. Medicare is providing

a little bit of a business reason by imposing a penalty if unspecified

standards are not met in a few years, but that is not a positive incentive, that is a negative incentive.

Senator CARPER. I just have one other issue. I do not know if

anybody has talked at all about health savings accounts. I think

they are being used in a couple of other countries, along with our

own. Among the things I found attractive about the health savings

accounts is that they had the potential for reigning in the growth

of health care costs and they encouraged individuals to make better

health-related choices. Are they the end all, be all? Not at all. But

as we look at the context of health care reform overall, what place

is there, or what can we learn from health savings accounts going

forward? Yes, sir? Dr. Gruber?

Dr. GRUBER. First of all, I am glad your son chose wisely for college and I am very impressed. I have trouble enough walking on

that black ice. I am impressed he was out biking.

Senator CARPER. I was a junior at Ohio State before I could spell

MIT. [Laughter.]

Dr. GRUBER. I think it is very important to separate the concept

of a high deductible health plan from a health savings account. I

think that as we as a Nation move towards a more rationalized

health care system, part of that which we have not really talked

about today, is going to be putting more of a burden on patients

to make cost-conscience decisions about their health care and highdeductible health plans can play a role in that. That does not mean

that we should have a large, regressive tax subsidy attached to

them to promote them.

The right way to promote high-deductible health accounts is exactly by saying the U.S. Government will not subsidize excessively

generous insurance. They will subsidize a general level of insurance, and that is a level which can be readily met by things like

high-deductible plans. But to in some sense say, all right, to make

you get a high-deductible plan we are now going to give you an

extra tax break, that is what I call two wrongs trying to make a

right. It does not work that way. If we want to promote high-deductible health plans, the right way to do it is to stop the subsidies

we give that cause people to get excessively generous insurance

rather than to try to bribe them with a highly regressive tax break

to get those high-deductible plans.

The CHAIRMAN. Do you agree with that, Dr. Greenstein?

Dr. GREENSTEIN. Excuse me?

The CHAIRMAN. Do you agree? Because this subject is going to

come up quite a bit, HSAs.

Dr. GREENSTEIN. I very much agree with what Dr. Gruber just

said. There actually are aspects of HSAs that promote unnecessary

and excessive health care spending. A couple of examples. First,

HSAs can be spent on a very broad array of health expenses, all

sorts of things that are not covered by a health insurance plan.

Now, there is more justification for that at the present time, but

if you have a reformed health care system where you have some

kind of creditable minimum benefit standard, maybe that an exchange sets, or some other body sets, then the notion that you are

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going to allow all sorts of tax deductibility into an account for all

kinds of additional health insurance, health spending is a concern.

There is a second issue, which was when health savings accounts

were first enacted in 2003 there was a rule that the amount that

an individual could put in an account in any year was limited by

the lower of some very high amount or the deductible for your

high-deductible plan.

In 2005 or 2006, the law was changed in, I think, a very unwise

way, so that now you can put an amount in up to the maximum

amount specified in law, even if that is way over your deductible.

So for a family plan, family coverage, a deductible plan of $2,300

qualifies you to use an HSA, but you are allowed to put in, on a

tax-deductible basis, $5,950. Well, the extra $3,650 is a huge tax

shelter.

So I would recommend, first, that you go back to not having an

amount be able to be put in on a tax-deductible basis that exceeds

the deductible for the plan. Second, I really think you need to deal

with the fact that one aspect of HSAs has nothing to do with

health, it is really to provide a tax shelter for high-income people

in retirement and to evade the limits on IRAs you have put in, because in retirement you can withdraw money for health, you can

withdraw it for non-health expenses—if it is non-health it is taxable—and there are no income limits at all on it. So when you put

all these features together you have created an incentive for highincome people to use HSAs as one hell of a tax shelter.

The CHAIRMAN. Senator Wyden? I am sorry, there are Senators

seeking recognition, too. Senator Wyden?

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

also say, I really appreciate what you are doing on regional disparities and end-of-life care. I am looking forward to working with you

on it.

On this question of choice, and I think Gerry Shea touched on

it, and now we are on the HSA issue, it is very clear to me that

with 85 percent of those lucky enough to have health coverage but

not getting any choice among plans, that it is going to be critical

to reform to give people choices, in effect, with a menu like members of Congress have.

So Mr. Sheils, the question for you is, is it not true that it is a

vital cost containment tool that people have a range of choices with

at least a standardized minimum package so that insurers and others have to compete for their business and people get rewarded for

smart selection?

Mr. SHEILS. Yes. It really would be pointless to create new incentives for people to go into lower-cost plans if they do not have that

option available to them, if it is not available to them at work. Lots

of people, you might be surprised—myself included—do not have

access to an HMO at work. If we are interested in maybe making

a step in that direction for purposes of controlling costs, those options, those lower-cost options—HSAs, for example, as well, have to

be available to people.

How do you do that when you are dealing with, say, small

groups, for example? I have always thought it would be interesting

to create the exchanges, as Senator Wyden proposed, and similar

to what they have in Massachusetts. Also, I have toyed with the

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idea of perhaps asking insurance agents and brokers to present a

multiple offering to each employer where there is a choice of health

plans. Perhaps that is a way of getting choice to these people. But

it would really be, in many cases, fruitless to improve increased incentives to be cost-conscious if people do not have that option to

jump to in response to the incentive.

The CHAIRMAN. Would you modify ERISA plans? Companies who

are self-insured who provide insurance for their employees, but

they are self-insured. Would you delve into that arena and require

more choice for the employees?

Mr. SHEILS. Well, I think that requiring—let me put it this way.

Many health reform proposals originate in the notion that we have

to give choice to people and we have to present them with financial

incentives that will get them to make those choices. If we are not

going to put everybody in a system where there are exchanges and

so on that everybody must go through, we have to look for a second

best.

I would think that even self-funded plans have the potential to

benefit here on a cost basis providing a range of options to their

workers. So the struggle is, particularly if you change the tax incentive, the question is, how are we going to make sure that people

have options available to them? With an exchange that is an option

to the employer, some people would be——

The CHAIRMAN. Would you require the self-insured to participate

in the exchange? That is my question.

Mr. SHEILS. Yes.

The CHAIRMAN. You would?

Mr. SHEILS. I think that one could provide a range of options

without having to forfeit the self-funded status, for some of the

large employers.

The CHAIRMAN. Senator Stabenow, I think you are next.

Senator STABENOW. Thank you, Mr. Chairman, very much for another very thoughtful discussion.

I need to ask, I guess, a fundamental question, particularly of

our business representatives, and with Mr. Shea as well, just to

have it out on the record. I have been involved for about 30 years,

I hate to say, in health care policy. I started when I was 5 years

old. [Laughter.]

Senator SCHUMER. When you went to the doctor.

Senator STABENOW. Yes. Yes. For years now, particularly coming

from a State with a large number of large employers providing

quality health care, we have talked about losing jobs to international competitiveness issues because health care is on the back

of business. For years I have said we have got to get health care

costs off the back of business to be more competitive internationally.

As we come to this very important discussion now, we are now

hearing from business that is not what is desired. I mean, there

are multiple options, from a Medicare kind of system, to taking the

employer tax treatment, giving it totally to the employee and addressing issues of choice and so on. But we are now hearing that

employers want to be in the business of health care.

I have heard the discussion around that, but for the record, I

think, with all of you here, distinguished individuals here, I would

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like to have a discussion, or at least comments, regarding the fact

that even in light of the international competitiveness issues, it is

a desire to build on the employer-based system rather than to

choose a different direction.

Mr. WOJCIK. If I could start, if I may. The employer-based system, as you well know, has many merits and provides many advantages to merit the tax treatment. Employer-based plans achieve

economies of scale so they can provide health care coverage at a

lower transaction cost level and lower administrative cost level to

more and more employees.

Senator Stabenow, you had mentioned earlier the concern about

the older employees. Employer-based plans cross-subsidize coverage

so that the younger and the healthier employees, as you know, subsidize the sicker and the older workers. Also, employer plans, depending on how large they are in the health care markets where

they have employees, can leverage that purchasing power on behalf

of employees to provide lower health care costs and many quality

improvements and innovations, and they have the power to do that

for their employees. If employers have the resources, they want to

provide health benefits to employees. There are lots of, obviously,

health benefits to the employees, productivity benefits, and other

reasons for employers offering coverage.

Mr. KLEIN. If I may, Senator, an excellent question. But I

think—I know—that the vast majority of employers, certainly

major multi-state employers, do not want to abdicate their role in

the delivery of health care coverage. We do want the kinds of reforms that have been talked about this morning and this afternoon

around ensuring a better alignment of cost and quality and the

other ideas that have been put forward. But we believe that it is

critically important, both from the employer and from the employees’ perspective, that we build upon the employer-sponsored system.

The employer-sponsored system allows large, multi-state employers like my own members to ensure that they are providing benefits equitably to their workforce wherever they may live or work.

And we should not gloss over the fact that we have talked a lot

about the problems that still exist in the health care system. But

where there have been improvements in innovations, those have

largely been driven by strong employer engagement. I do not think

as a Nation we want to lose that.

Senator STABENOW. Excuse me. I am sorry. Did someone else——

Dr. BURMAN. Can I make just one comment?

The CHAIRMAN. One of the two of you.

Senator STABENOW. I just want to make sure we hear from our

employee end as well.

Dr. BURMAN. It is no surprise that large employers like the current system because they can provide health insurance relatively

cheaply. Small employers may have to pay twice as much for the

same health coverage. Because of the way we tax this, basically

they can provide a large share of compensation in tax-free form,

where small employers who cannot afford to offer health insurance

are all paying compensation as cash wages.

So I think that is a major reason why small employers often do

not offer insurance. It is not because they would not like to be able

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to provide the benefit, but because they cannot afford it. It actually

creates a distortion by favoring large employers over small employers in the Tax Code. That is probably where we get the biggest efficiency cost. It is not so much that employers have to pay for health

insurance—employees pay for it though reduced wages—it is that

we are basically tilting the playing field in favor of large employers.

The CHAIRMAN. Mr. Shea? Then we will go to Senator Schumer.

Mr. SHEA. Senator, thank you. What employers want—and not

just employers, but workers too—is cost containment, is relief from

the high costs. Believe me, I can tell you, for 25 years unions and

employers have worked together. It has been nothing but damage

control. We may have had unlimited tax-preferred treatment. We

have not increased benefits. It has maybe been a tiny bit on the

margin. We have seen costs go up and up and up, despite the tax

deferred.

So I really want to just make a point, without going into detail,

I think we have not talked much about the behavior part of the tax

treatment and I really just want to suggest, you need to look long

and hard about whether or not you are going to get the desired outcome that a lot of people want to theorize will happen: if you tax

benefits, therefore you will reduce costs in the system. I do not

think that is true.

But cost containment is what we need and there are two structures on the table that really would add to that. One, is the exchange mechanism. If you look at the exchange, John Sheils’ data

that he did for, I think, The Commonwealth Fund, shows that the

administrative costs in the exchange for small business is like onehalf the cost in administration for groups of 20 or under, and it is

like one-third if it is 10. So it is really a very substantial saving.

Then the other is the public health insurance plan option. What

employers say to me is, we want choices. We want real competition

in the insurance market, because all of the work that people do,

even in very large employers, to restrain costs are not going to

work. They will tell you that, down the line, they are not going to

work without some national assistance. One piece of that, I would

suggest to you, is the public health insurance plan option. The

other is what we have been talking about, and where business have

been leaders, in fact, and that is on the delivery reform work. They

have been a very, very positive force in that.

The CHAIRMAN. Senator Schumer?

Senator SCHUMER. Well, thank you. I agree with you on the public option, Mr. Shea. I have just one question, actually, of you. We

are looking for cost savings here today. I saw that whole group at

the White House yesterday.

Well, one place for cost containment which could make a significant difference is a pathway for biogeneric drugs, something that

myself and others have worked on on this committee. The estimates of cost savings are almost always too low in this area. I worried that yesterday the estimates of cost savings might have been

too high or too ephemeral. When Ronald Reagan signed the chemical generics law he said it would save a billion dollars over 10

years. A recent study found that generic utilization saved Americans $734 billion over the 10 years from 1999 to 2008.

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So what do you think of putting this in the bill? This would not

be our jurisdiction, it would be the Help Committee. But still, while

we are on cost savings, I figured I would ask you, and then whatever any of the other panel thinks. That is my only question.

Mr. SHEA. Thank you, Senator. Thank you for your work on this.

I think it is an important area to deal with. Whether it is union

funds or employers, they now pay for biopharmaceuticals and we

are going to have more and more of this, as you know, because of

the science. It is great science, but we have to get them into the

generic market as soon as possible. We know from the drug market

that the Hatch-Waxman Act has been very effective in this area.

When you look at the experience with Medicare Part D, the reason that that has been successful has been because of the entry of

generics. So this is really a crucial area. We need to be careful to

encourage innovation, but these prolonged periods of exclusivity, I

do not think make any sense from our point of view. If that is the

price of innovation, we could wind up in the poorhouse, frankly.

The CHAIRMAN. I was interested in your earlier comment—I

think it was you, Mr. Shea—talking about the effective, proper way

to sort of bend the cost curve. We are here today on this whole subject in large part because health care costs are rising at such a

rapid rate. So we are trying to figure out some way to, fancy term,

bend the cost curve.

So the question is, what is the most appropriate way, the two or

three more important mechanisms sensitive to the quality of health

care, that you can come up with that appropriately will start to

bend the curve? Now, when you spoke earlier you did not think

that limiting benefits in the employer exclusion would have much

effect, if I recall correctly.

I also heard you say that maybe the public option would be an

enforcer, at least on the insurance companies. But I would just like

to ask the panelists here the two or three most effective ways, because this is really where a lot of this is at, is how in the world

are we going to begin to get control of the rate of increase in health

care costs in this country? Again, in a sensitive way, in an appropriate way, but that also addresses the need for quality and coverage.

Dr. Altman, I see you raised your hand first.

Dr. ALTMAN. Yes. I would like to turn us to Massachusetts. We

in Massachusetts did do a two-phase approach, one coverage, and

now with seriously looking at cost containment. So we are your

guinea pig. We are your poster child. I know the State is taking

this very seriously. Where they are pushing and where I would like

to suggest that the national should push, is to move towards global

payments, bundled payments, and to do it in the context of States,

some State systems.

Again, if I could repeat what I said, we need to change the delivery system to support what Senator Cantwell and others said. By

doing that, we can also slow down the cost growth without imposing wage and price controls. Wage and price controls just simply

limit prices and wages for the existing system. We need to move

towards value-based payments.

The CHAIRMAN. All right. Right.

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Dr. ALTMAN. Unfortunately, the current balance of power between the hospitals and doctors on the one side and the payors on

the other just is not there to do that.

The CHAIRMAN. All right.

Dr. ALTMAN. I am concerned about the public system because I

am concerned about Medicare. Medicare has been a real problem

in this area. I mean, I am a big supporter of Medicare. I love Medicare. I am on Medicare. [Laughter.]

But I cannot put that up as the number-one insurance model

when it comes to redesigning the delivery system.

The CHAIRMAN. Because of administrative pricing and so forth?

Dr. ALTMAN. Well, it is administering pricing fee-for-service, so

Medicare needs to get into the act in a really big way. So my suggestion for the number-one cost containment over time is to change

the delivery system and squeeze it enough to get out the inappropriate care.

The CHAIRMAN. Dr. Jacobson?

Dr. JACOBSON. Well, I think a major thing is to keep people out

of the medical system. I think a major goal, and as you said, the

cornerstone of health reform, should be prevention, keeping people

out of the medical system. That would save huge amounts of money

and it can be done partly through your committee, partly through

the Senate Committee on Health, Education , Labor, and Pensions,

through things like lowering the sodium levels in food. According to Rand Corporation, that would save about $20 billion

a year in direct medical costs. Getting rid of trans-fat would save

the government a couple of billion dollars a year. The taxes, we

have talked about. Somebody mentioned tobacco taxes, sugarsweetened beverage taxes, alcohol taxes would raise a lot of money

and help keep people healthier, and reduce obesity in the case of

soft drink taxes. Then, more sensible modes of treatment. Then it

gets into the comparative effectiveness.

The CHAIRMAN. All right. I guess one part of the calculus here

is what is politically palatable, too, in addition to, what is the efficiency and what is the right public policy.

Mr. Sheils?

Mr. SHEILS. I think we know what works in cost control: it is

capitation, putting people in situations where they have got a fixed

sum of money to work with and they have to maximize efficiency

within it. DRGs were a form of capitation. We saw dramatic drops

in the length of stay almost instantaneously, way before anyone expected. In 1989, the average rate of growth in spending for employer coverage was 18 percent a year. Employers just freaked and

made a tremendous investment in managed care.

Many people were in HMOs, but they made a big transformation

in the delivery system, emphasizing those plans where there is a

capitated payment and people have to work within it. By 1996, the

average rate of growth in health care dropped to eight-tenths of 1

percent for employer coverage. Adjusting for inflation, there was an

actual reduction in health spending.

With our own Medicare Part D program, this emphasized competition in market forces and Medicare Part D came in, I believe

it was, 37 percent under budget. Whoever heard of a Federal program on health that came in under budget? We know what works.

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We know capitation works, we know markets can work. This is

what I think about what occurs to me when we talk about changes

in incentives. Putting people in integrated delivery systems where

they have the right set of incentives to control costs rather than

just crank up volume is the answer, and anything that moves in

that direction, I think, is important.

The CHAIRMAN. Dr. Gruber?

Dr. GRUBER. We have talked about the role of employers and the

role of providers. I think we do need to return to the role of the

consumer, which is one other place we have real evidence, is making individuals price sensitive to their use of medical care. We talk

in Massachusetts about the example of the pregnant woman who

drives by the North Shore Medical Center where the doctor has 30

years experience delivering babies to go to the downtown academic

medical center and have a 25-year-old resident deliver her baby at

three times the price. There is no incentive for her not to do that.

What we need to do, is we need to both bundle payments and do

the other things that Dr. Altman and others have talked about on

the provider side, and we also need to make patients sensitive to

these cost differentials. We have to make them aware of the cost

differentials through our information, but we have to make them

sensitive to those cost differentials through, when their incomes

are high enough, bearing some of those cost differences themselves.

We know that works. We know we can lower health care costs

without sacrificing health by making patients more cost sensitive,

and I think that is an important part and has to be something we

cannot lose sight of as well.

The CHAIRMAN. All right. Mr. Klein?

Mr. KLEIN. If I could just add three other quick ones that have

not been previously mentioned, and associate myself in support of

many of the ones that have been, since comparative effectiveness

and so forth. But first, I think some safe harbor protections for

both providers and payors who render care consistent with practices that are evidence-based. We get back to that issue of ensuring

that we are paying for good quality.

Second, there is one important lesson that we can take from the

Medicare system which has been discussed earlier, and that is,

Medicare has rules with respect to the non-payments for so-called

‘‘never’’ events. These are preventible errors, procedures that

should not have occurred in the first place. Frankly, all payors

should follow that practice. I also think that health care providers

should be required to report all of those medical errors as a condition of payment by Medicare.

Then lastly, one of the very positive things that employers and

others have been doing is the promotion of wellness, how to reduce

costs, keep people healthier. There are issues that arise where Congressional clarification would be very helpful. For example, when

employers want to conduct a health care risk assessment to help

determine whether or not assistance can be provided to individuals

because they may have some genetic predisposition to some disease

or some other condition of that sort. Employers right now need

some guidance that being able to collect that information, while

protecting the privacy of the worker, does not violate the Genetic

Information Non-Discrimination Act. Those are some very practical

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things that need to be done in order to support the kind of efforts

we are talking about.

The CHAIRMAN. Mr. Shea?

Mr. SHEA. I think the integrated care area direction is where we

are going. We do not talk about capitation any more because of the

problem of the late 1980’s and early 1990’s, but we do talk about

integration, and bundled care is a move in that direction. There are

just great examples of what high-performance systems, whether

they be Mayo, Geisinger, or Intermountain, or Kaiser, can deliver

through an integrated system and coordinated team work, and

using IT. You have got to put all these things together. You can

get a lot there.

But Dr. Gruber raises a point that has not been talked about and

I was hoping it would come up, and that is consumer engagement.

I have spent 25 years working with employers about, how do you

get individual workers in the game on this? I will tell you, it is a

very humbling experience, Mr. Chairman, because people like the

idea of getting information, but they have not seen it come in a

form that really is very usable for them yet.

Based on my experience, I am convinced that we need to approach this a little bit differently, and that is, bake it into the doctor-patient relationship. We hear from our doctors suggestions

about what we should do; we largely follow them. It is a rare person who says, well, excuse me, I printed out this web page with the

Medicare data on quality, and could we review it. That is not what

most of us do when we think we need some attention.

But if you had a system that built into it regular education,

health education through the doctor-patient relationship and you

started this in a way or you got close to it with your delivery system reform where you said, to deal with readmissions you would

pay for the people in the physicians’ office who did that work, it

is extra money. You are not asking the physician to go and do that.

I think that idea is worth exploring.

I am sure it is worth exploring in terms of consumer engagement. There has been a lot of work done on this by employers and

we are pleased to have been part of that. I think it is key to cost

containment. I think we are finally at a point where we can have

a real discussion, where people will not simply take it as cost shifting, because we are talking about system reform. I mean, that is

the beauty of the announcement yesterday. These trade associations are stepping up and saying, we are going to save $2 trillion.

Well, of course you have got to pin them down on it, but even

if it is $1 trillion, that is a serious investment. It raises then the

question for consumers—it is something that we, for instance,

would be happy to say, well, we are achieving the cost containment

that we need, let us talk about what our end of this bargain is.

The CHAIRMAN. While you are on the subject, there is so much

to cover here. That is the groups that met with the President. They

are going to get significant benefits with universal coverage. I

mean, the pharmaceutical industry will. Hospitals will, with less

charitable care, for example. Insurance companies will sell more

policies and so forth.

So I would kind of be interested in, what are some of your ideas

if we tell them where they could save? Those were nice-sounding

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words yesterday, as somebody said, but there is not much on enforcement. The question is, what is the follow though and followup? They are going to get big benefits with universal coverage: insurance companies, pharmaceuticals, hospitals, and so forth. So

where should they pony up? Where should they show savings? I

will start with you, Dr. Wilensky.

Dr. WILENSKY. Let me say, the first thing you ought to do is to

have CBO or others do a scrub for all the specific payments we

have put in over the years. We have referenced the disproportionate share payments, uncompensated care, bad debt, et cetera.

And there are a lot of specific programs in HHS, some of which

may still be important, but some of which may not, or not in their

present form in terms of the level of support for specific populations, the maternal and child care, various programs, some of the

special population supports.

Again, I am not suggesting this as just a blanket cut, but they

ought to be reconsidered as to whether the amounts are appropriate, whether they need to be more targeted, particularly the

payments that are going for bad debt and uncompensated care.

As you go forward, people have talked about the importance of

moving toward more integrated delivery systems and bundling

care. I am very supportive of that notion. Remembering to learn

from the mid-1990’s experience, people respond much better if they

feel the insurance plan is their choice. The kind of backlash we saw

to managed care in 1997 and 1998 did not seem present with the

Federal employees in Washington because they knew every November they could choose another plan.

Making sure, as much as we think we are moving toward good

systems, we want to engage consumers in a complete way, that is,

not only reward and encourage better health behavior—and I support a lot of the statements made about trying to both push and

pull better behavior from individuals—but if they can have a choice

about these health care plans they are much more likely to be forgiving of some changes they might not like because they are able

to respond and pick differently.

One final comment. Stuart Altman was emphasizing that Medicare now, although it does many things well in terms of providing

access to care, is a very old-fashioned, out-of-date, inappropriate

delivery system. It is almost all the things we have talked about

needing to be changed: atomistic, a ́ la` carte, fee-for-service, no reward for quality and efficiency. That means a lot of change, and

having the Congress decide who will be comfortable directing that

change and providing very different authorities than have what

traditionally happened will be part of the going-forward mechanism

if you are going to try to change how health care is delivered in

the Medicare system.

The CHAIRMAN. Dr. Gruber?

Dr. GRUBER. Yes. I think on the provider side it does hearken

back to Senator Grassley’s original point about how we reimburse

providers for the uncompensated care they deliver in a much more

targeted approach to doing so. But I want to more comment on the

insurer’s side, which is, I do not think it has to be a system which

causes big wins for insurers because I think a key part of the sysVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00169 Fmt 6601 Sfmt 6601 48952.XXX SFIN1 PsN: SFIN1
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tem has to be a much more rigorous, competitive environment

among insurers.

In Massachusetts we set up this connector mechanism where insurers compete on a web portal that is very transparent, and we

have really gotten prices down. In our Commonwealth Care program, which provides care for low-income populations, we have had

a very aggressive bidding strategy among five Medicaid managed

care organizations to provide care, and we actually have a zero percent cost increase for our Commonwealth Care program this year

because of an aggressive competitive bidding strategy.

So I actually think that this does not have to be a situation

where there are lots of extra resources going to insurers in particular if we do this in a way which maximizes the competitive

forces in the insurance market.

The CHAIRMAN. Dr. Greenstein?

Dr. GREENSTEIN. Let me just take one area of those that you

mentioned, which would be pharmaceutical companies. So I think

you could start with two measures that the Senate passed on a bipartisan basis in 2005, but that were not enacted. One would have

increased the minimum rebate in the Medicaid program.

On a related front, in Medicaid, drug manufacturers are not required to pay rebates for drugs prescribed for beneficiaries in managed care. The theory here was that managed care would negotiate

good enough prices on its own. The evidence shows that has not

happened. In 2005, you passed legislation that would extend the rebate to managed care.

In addition to those, too, some loopholes have developed whereby

manufacturers of brand-name drugs can get around the provision

in the law that says that if the average manufacturer’s price rises

faster than the CPI, that is supposed to be reflected in a higher rebate. There are loopholes that can be closed there. There is a CBO

option in the CBO Options Book on that. The HHS Inspector General proposed as well that manufacturers of generic drugs no longer

be exempt from the adjustment in the rebate if their manufacturer

price rises faster than the CPI.

There is not also one in Medicare. The assumption when the

Medicare drug benefit was established in 2003 was that the private

plans offering the drug coverage in Medicare would be able to negotiate as low, or lower, drug prices for the dual eligibles, who as you

know were shifted from Medicaid drug coverage to Medicare. The

assumption was Medicare would get low or lower drug prices than

Medicaid did.

Medicare is paying, in some cases, 20 to 30 percent more than

Medicaid did because Medicaid had the rebate that I just referred

to, and the private plans did not get similar economies in Medicare.

You could require that for the dual eligibles, that the prices under

the Medicare drug benefit matched what they would be had those

people still been in Medicaid and the Medicaid rebate were in effect.

Finally, and I know this is a little controversial, but if we are

talking about the pharmaceutical companies, and particularly if

you could not get some of those other measures I just mentioned,

I think you could look at some of the international tax reforms.

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President Bush’s IRS Commissioner Mark Everson warned, in

2006, that there was growing evidence of the pharmaceutical companies shifting growing amounts of profits overseas. Their share of

sales and of assets that are overseas are about 40 percent of their

sales, 40 percent of their assets, but they show on the books 70 percent of their profits overseas, even though drug prices for the same

drugs are lower overseas than here. They are engaging in totally

legal practices to move a lot of their profits overseas to avoid corporate income tax. They are going to make a lot of money out of

universal coverage.

The CHAIRMAN. That is a big one.

Dr. GREENSTEIN. So here is a whole menu of things to look at

with regard to pharmaceuticals.

The CHAIRMAN. Thank you. You have been thinking. Thank you

very much.

Senator Grassley?

Senator GRASSLEY. Yes. I think this question fits in with what

was just discussed, but maybe at a little higher altitude. Dr.

Wilensky, Dr. Antos, and Dr. Gruber, we have discussed the need

to bend the growth curve of health care spending. We already

spend 16 percent of GDP on health care, more than any other country. A statement made, now probably two hours ago, seemed to

suggest that we do not need to be as concerned about the new

spending or up-front costs.

What is your view on this, and how do we make sure that we

do not make things worse instead of better from an economic

standpoint?

Dr. WILENSKY. That is a large question. Not making them worse

from an economic standpoint, to my mind, is to ignore the cost of

funding the expansion and not have it as a funded item. Massachusetts has shown us how quickly coverage can be expanded. In a

very admirable way, they have very close to universal coverage

now. They had some sources of money that, unfortunately, are not

available to the Federal Government, a Medicaid waiver that was

about to expire, a pool of money that was previously used for uncompensated care.

So to my mind the challenge will be making good on our commitment to make sure everyone has access to health insurance and

coverage, and deep coverage, but recognizing it is a big cost and we

need to make sure that our funding is able to match the expansion.

But the second thing is to take advantage of what seems to be

widespread agreement by provider communities, payors, and your

policy advisors here that reimbursement needs to fundamentally

change: bundled payments, trying to reimburse for quality and efficiency, going after the geographic variations that we have talked

about for at least the last decade, and using payment reform, along

with better information to drive the kind of behavior change, recognizing it is going to take several years to implement these changes

and we need to monitor as we are going out to not put ourselves

in a very big fiscal bind. We need to be concerned about what is

going on at an aggregate level to the deficit and to move as fast

as we can, but not faster than we are able to fund.

Senator GRASSLEY. Dr. Antos?

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Dr. ANTOS. Yes. Thank you, Senator. CBO points out the overall

question of how quickly health care spending is perhaps the single

determining factor on our country’s fiscal balance over the long

term, so it is a very, very serious question.

Perhaps the most important thing we need to do is to make sure

that we size the reform right. We do not want to get the promises

out ahead of our ability to pay for it and ahead of our willingness

on the part of people to be taxed or to make other sacrifices to

make all of this happen.

Unfortunately, Medicare is an excellent example of how that has

not worked out. You look at what we are doing now with the sustainable growth rate for physician payment. What is that all about?

That is, having extended promises to individuals—and to physicians, in this case—for payments and Congress says, well, we want

to pull some of that back. We all know how difficult it is to pull

back a promise after you have made it. It is almost impossible.

So I think the most important thing we could do is to take a step

back and ask, of the various options that we have to promote greater efficiency, how quickly will they come online? What will it take

to get them moving, and how does that comport with our willingness to tax ourselves and to make expansions in the availability of

health care? What that really calls for is a phase-in. If we jump

into this with both feet, then we are going to have serious, serious

economic problems, not just now, but over the foreseeable future.

Senator GRASSLEY. Dr. Gruber?

Dr. GRUBER. Yes. I think that is really a fundamental question.

Let me offer three points in response. I think the first point is, the

way we do reform has to be in the kind of competitive environment

that is going to make sure we take advantage maximally of what

we are adding to the system, as I mentioned in my last answer, to

make sure that we recognize that we are throwing resources into

the system and use a competitive solution that redistributes those

resources not just to the providers and insurers, but back to consumers.

I think the second feature is to make sure that we use payment

structures for this reform that are as win-win as possible. We focused on two today, reforming the tax exclusion and pricing more

expensive lifestyle choices. I think that basically those are win-win

solutions that we can use to pay for things.

But the fundamental, most important point that I would make

is, perhaps a bit in contrast to Dr. Antos, is not to be afraid to do

coverage first. I think that to recognize that fundamentally if we

are going to reform health care costs in America, the first step is

to get everyone covered.

The first step is to get all of us pulling in the same direction

rather than some of us fighting for coverage, some of us fighting

for cost control, to say, all right, let us move to an equitable system

where everyone in America has health insurance, and then let us

all work together to make that affordable.

We have a great example of that in Massachusetts, which is, in

Massachusetts we had a bill which did not even pretend to be

about cost control. I would highly recommend the Congress consider a bill that has much more cost control in it than MassachuVerDate 11-MAY-2000 11:39 Jul 02, 2009 Jkt 000000 PO 00000 Frm 00172 Fmt 6601 Sfmt 6601 48952.XXX SFIN1 PsN: SFIN1
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setts did. But nonetheless, it was a bill that was about coverage.

We did that bill.

We got everyone covered, and then everyone sat back and said,

wait a second. How are we going to make this sustainable? We

have to get costs under control. The result, as has been mentioned

by a couple of speakers here, was a fundamental cost control bill

passed through our legislature that set up a payment reform commission to look seriously at the over-payments of many of our providers in the State.

It was a bill that would not have been possible—literally would

not have happened—if we did not first move to universal coverage

and first get everyone to get that topic off the table and get everyone focused on cost control. So, I think the most important lesson

is that you can do coverage first, that that is a critical step towards

the long-run solution we need of getting costs under control.

Senator GRASSLEY. Dr. Wilensky, you asked to be recognized?

Dr. WILENSKY. I would like to make an important distinction. I

agree with not holding coverage expansion hostage until you get

cost control, but we do have to worry about how we fund the expansion. Massachusetts funded their expansion through the Medicaid

waiver and also with the uncompensated care pool. What I am trying to encourage you is to remember, we have got to fund the expansion and then we are going to figure out how to make the

spending sustainable.

I am concerned, and for me the big economic worry is not yet another unfunded major program, large program. That would, I think,

be a very serious economic mistake. So do not hold it hostage until

you get cost containment in place, but you have got to figure out

where the money is going to come from for the 15 percent expansion.

Senator GRASSLEY. If you want to talk on it, that would be fine.

Mr. SHEA. Thank you, Senator. The very, very high-altitude people—I think there is broad agreement that we have to go to evidence-based medicine as opposed to the practice pattern variation

that is really driving up costs so much. The question is how you

take that and bring it down to actual cost savings.

I would just say to you, your sense of urgency that this committee has had and the President has had is absolutely on target.

When you look at the employer-based system, which is what we

want to base the expansion of health coverage on, this system is

not collapsing, but it is really in serious danger because of high

health costs.

I would just suggest to you two mechanisms. One, develop a payment authority within the Federal Government structure that is

not CMS that could test out some of these payment cages so you

tie quality to payments, but do it in a rapid-cycle kind of way. We

do not have years and years and years to do pilots and tests and

come back to you and report. I just do not think we have the time.

So I think you need a different structure to tie payments to reform.

Then, second, I do think you need the competition of a strong

public plan. I would disagree to some extent with my colleagues,

Dr. Altman and Dr. Wilensky, about Medicare. They are not the

right sort of delivery model, but they have led the way in terms of

getting hospitals to report on quality measures. They have led the

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way in saying we are not going to pay for some of these things.

That was Secretary Thompson, followed by Secretary Leavitt, who

did that sort of thing. They showed that hospitals could report on

quality measures. They showed that the hospitals’ performance improves when they report on quality measures. No private employer

was able to do that. We are all kind of scratching around trying

to get to that. We need the leadership of a strong, robust public

program.

Mr. KLEIN. Senator Grassley, I could not disagree more strenuously with Dr. Gruber. I think it would be a grievous mistake and

a tremendous missed opportunity if the Congress were only to focus

on one of the three essential components of health care reform,

that being coverage. We are all in favor of addressing the issue of

coverage and the American Benefits Council support everyone

being covered, not simply access to it, but everyone being covered.

But the cost and the quality initiatives that we have talked

about today are just as essential, and Congress is frankly up to the

job. I think to sort of relegate that and say it needs to be dealt with

later is to sell short your own efforts and initiatives, and frankly

to potentially exacerbate the problem by not coupling improved coverage, universal coverage with these cost and quality issues.

Lastly, we are only going to get health care reform in this country if the public believes that it is a winning proposition for them.

This is a rare moment to be captured. If I may return to the point

made earlier about the tax exclusion as it relates to this, there are

over 160 million Americans who receive coverage through their employer-provided plans. The notion somehow that the exclusion on

employer-provided coverage is regressive is completely upside

down.

Of course higher income people who pay at a higher rate and pay

greater dollars in taxes will enjoy a benefit from a tax preference.

That is true of any preference: the mortgage interest deduction,

charitable contributions, deductions for State and local taxes.

But as a percentage of their overall income, this exclusion dramatically benefits lower and middle income people and you do not

want to make the political mistake of the Medicare Catastrophic

Act where people felt that they were losing something in the short

term and any benefits to them were perhaps somewhere off in the

distant future. You do not need to do it that way and it would be

unfair to the very people that you are hoping to serve.

The CHAIRMAN. Mr. Kleinbard, then Senator Wyden.

Mr. KLEINBARD. Thank you. I just would like to respond on the

progressivity point to just give some numbers, give some data here.

It may be that the savings are a smaller percentage of very highincome individuals’ total after-tax income, but that simply reflects

the fact that that person has lots of income. As I said earlier, medical costs, the amount actually spent on insurance premiums, does

not go up proportionately with income.

So, for example, when you look at the savings per tax return you see that people who, say, have a $25,000 a year income might save,

on average, $1,900 a year. Somebody at $100,000 income is saving

$4,500 a year. So of course the system today is regressive. It is regressive in the sense that someone with the same health plan is

getting, in effect, a larger subsidy, even though she is richer and

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has a higher income. That is the fundamental upside down nature

of the subsidy today. That is inescapably correct. It is also the case

that it is not required that a subsidy have that characteristic. A tax

credit does not. A tax credit is a lump sum.

Now, it is up to you all what to do with it, but the data are that

there is, in fact, a very substantial benefit that goes up with income and, in turn, it is a feature of current law but it is not required of a Federal subsidy.

The CHAIRMAN. Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman. Mr. Chairman, I just

want to ask one last question about something that you put on my

radar that I think is absolutely key, and that is the transition period, the whole question of sort of what we have today and moving

into a very different kind of system.

The President clearly started that in the campaign. He made it

clear that everybody in the United States would have a chance to

keep the coverage they have. It is going to be written into law and

100 Senators are going to vote for that. He also said that middle

class people are not going to get taxed. Gerry Shea has made the

point, I think, very eloquently on that point about why that is so

important.

So then the question becomes, how do you start moving to a transition to a modern system? Much of today’s health care, the question we have gone back and forth on on the Tax Code, comes from

the 1940’s. So the question then is, how do you, for example, reform

the Tax Code so it is fair to the large employers—we have got to

be very sensitive about ERISA—but also convert it to something

that is modern? I think that is a generous deduction.

There are other changes, administrative cost reductions. Certainly if you have big pools of people, that will hold administrative

costs down. Sign up with your employer, the employer wants to do

that. Administrative cost reduction is part of the transition. Then

most of the ideas that you all have been talking about today: rewarding prevention, buying value, dealing with geographical disparities.

So I think there is a sense of what needs to be done in this transition period, and I thought I would close with you, Dr. Wilensky,

because of your background. I am particularly struck by the fact—

and you and I have talked about it—you advised John McCain in

the campaign, but you have been very supportive of a lot of the

ideas of President Obama. I think that is exactly the kind of effort

we are going to need to bring the country together.

Why do you not, at least from my standpoint, give us a little bit

more insight about how the country can transition from a system

that largely came out of the 1940’s, and we can pick up on the

Chairman’s very good point about actually getting from there to

here and reforming health care.

Dr. Wilensky?

Dr. WILENSKY. Thank you. Like all of the people in this room and

at this table, I most want to see these problems addressed. I want

to see people have insurance coverage and I want to try to help develop a health care system that improves value and rewards quality. There is some debate, as you get down to the specifics, about

how you go about doing it.

166

But during the campaign people like Jonathan Gruber and I, and

David Cutler and I, and David Blumenthal and I, who were sharing many podiums, commented about how much similarity there

existed in terms of the kinds of changes that needed to happen in

terms of better promotion, more focus on chronic disease, health IT,

et cetera.

I am a little concerned about the expectations. Somebody mentioned earlier of trying to manage expectations now. It is important

that we make some aggressive, significant moves. You could actually say you have already done some moves when you reauthorized

and expanded the Children’s Health Insurance coverage, subsidized

COBRA, strengthened Medicaid, but you need to make some other

significant expansions with regard to coverage, provided you can

pay for them.

I am sympathetic with the politics of the tax exclusion changes.

I would hope you can do some of the ones that Jonathan Gruber

raised of limiting—just flat limiting—the amount of the deduction,

doing it for specific income groups, or otherwise targeting more

who you want to have that deduction. Mostly it will depend on how

you index it over time. As long as it is not indexed to medical expenditures it will begin to have more impact over time.

You need to decide who you would be comfortable with to help

redesign the reimbursement under Medicare. I am appreciative

that CMS and HCFA might not be your choice—I do not have any

allegiance there to tell you to direct that—but you need to decide

how to change the delivery of health care and the reimbursement

system under Medicare and to start it quickly, however you can do

it, through pilots, as Gerry Shea said, and to recognize, while you

will probably move faster on the expansion of coverage, that these

are going to take a period to fold in all of these reimbursement and

delivery system changes, and that people need to start saying that

out loud to help try to not have a sense of disappointment.

So I think there is a tremendous momentum here, and the fact

that you had the group yesterday indicates not just for self-protective reasons, but a real agreement that we need to change, and

there are a lot of things we can do to make it better. It is figuring

out how to harness that energy and to not lose that momentum,

but to monitor the expectations. I am a little afraid that one is

going to be harder for you as people who have to report back to

your constituency.

Senator WYDEN. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Frankly, I think that is a good point to wrap up with. We are,

I think, making history here. You certainly all are. You have spent

so much time thinking about how we reform our system. I do think,

and it has been said by others, that the stars are pretty well

aligned this time to finally accomplish our objective, which is getting control over the increased costs, second, to reforming the

health insurance market, and third, is providing coverage for all

Americans. It will not be easy—nothing worthwhile is easy—but

we are going to get there. I cannot thank you all enough for all of

your work and your help.

I suspect this is not the last time we are going to be conversing

on this subject. This is going to take many more weeks, months,

167

and into the next several years too as we put this together. But my

job is to keep the momentum going. My job is to keep people working together as long as we possibly can. My job is just to help all

of us together, with no ideological axe to grind, just to get a really

good, solid, American health reform put together here.

We need a uniquely American solution here. We are not some

other country, we are the United States of America. We are noted

for our ingenuity, we are noted for our imagination, we are noted

for our can-do spirit, and we are going to put this together in a way

that really makes sense. That is certainly my objective, and I know

it is all of you, too. I cannot thank you enough for coming and

spending about three hours here trying to undertake these next

steps.

So, thank you very much. The committee is adjourned.

[Whereupon, at 1:09 p.m., the roundtable was concluded.]

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