U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

61–611—PDF 2008

S. HRG. 110–1082

ALIGNING INCENTIVES: THE CASE FOR

DELIVERY SYSTEM REFORM

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

SEPTEMBER 16, 2008

(

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

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

JOHN ENSIGN, Nevada

JOHN E. SUNUNU, New Hampshire

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

C O N T E N T S

OPENING STATEMENTS

Page

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

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

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

WITNESSES

Miller, Mark E., Ph.D., executive director, Medicare Payment Advisory Commission (MedPAC), Washington, DC .................................................................. 5

Steele, Glenn, Jr., M.D., Ph.D., president and chief executive officer,

Geisinger Health System, Danville, PA ............................................................. 7

Berenson, Robert, M.D., senior fellow, The Urban Institute, Washington, DC .. 8

Campbell, Eric G., Ph.D., associate professor, Harvard University School of

Medicine, Cambridge, MA ................................................................................... 10

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

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

Berenson, Robert, M.D.:

Testimony .......................................................................................................... 8

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

Campbell, Eric G., Ph.D.:

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 41

Grassley, Hon. Chuck:

Opening statement ........................................................................................... 3

Letter from Senator Grassley to James W. Wagner, dated September

16, 2008 .......................................................................................................... 45

Miller, Mark E., Ph.D.:

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

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

Steele, Glenn, Jr., M.D., Ph.D.:

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 73

Responses to questions from Senator Rockefeller .......................................... 84

COMMUNICATIONS

Advanced Medical Technology Association (AdvaMed) ........................................ 91

American Academy of Pediatrics ............................................................................ 95

New York Academy of Medicine ............................................................................. 100

Zimmer Holdings, Inc. ............................................................................................. 105

(III)

(1)

ALIGNING INCENTIVES: THE CASE FOR

DELIVERY SYSTEM REFORM

TUESDAY, SEPTEMBER 16, 2008

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

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

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

(chairman of the committee) presiding.

Present: Senators Wyden, Grassley, Hatch, and Snowe.

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; Billy Wynne, Health Counsel; Neleen

Eisinger, Professional Staff; Susan Hinck, Fellow; Renee Carter,

Fellow; Matt Kazan, Intern; and Elise Stein, Detailee. Republican

Staff: Mark Hayes, Health Policy Director and Chief Health Counsel; Michael Park, Health Policy Counsel; Emilia DiSanto, Special

Counsel and Chief Investigator; Kristin Bass, Health Policy Advisor; Chris Armstrong, Investigator; and Lyndsey Arnold, Intern.

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The committee will come to order.

John Donne wrote, ‘‘No man is an island entire of itself. Every

man is a piece of the continent, a part of the main.’’ But the way

that America pays for health care is driving health care providers

to become islands unto themselves. Fee-for-service payments encourage more patient encounters, and those are driving doctors and

hospitals to become so many separate islands in a far-flung archipelago of care.

Patients are largely left at sea. Patients are left on their own to

navigate between providers. As a result, patients receive duplicative tests, they receive inadvisable prescriptions, they undergo surgeries costing thousands of dollars, only to be ignored after they

leave the hospital.

As a result, Americans waste more than 30 cents of every health

care dollar in unnecessary and poor quality care. That amounts to

more than $600 billion a year, and that is one-third more than we

spend on the entire Medicare program. That waste is simply unacceptable. It is unacceptable to American taxpayers, unacceptable to

employers, and it is unacceptable to patients who expect more for

their hard-earned dollars.

We need to focus our system and our dollars on coordinating patient care. In patients’ many trips between separate caregivers on

their isolated islands, money is being cast away. Today we look at

2

promising approaches to better integrate health care providers into

a system that is truly patient-centered, and we consider how the

ways that we pay for health care could help to bring about the reforms that we seek.

I have seen great successes in my home State of Montana. For

example, the Billings Clinic is part of the Medicare Physician

Group Practice Demonstration Program. This program is testing

the payment method that measures and rewards quality, and it

shares with providers the savings that they have achieved through

better care coordination.

The program recently released the results of its second year. All

10 participants demonstrated improved quality, and most participants generated savings through disease management and other

techniques. I am glad that Dr. Glenn Steele is here today because

the Geisinger Health System is also a part of that program. The

Billings Clinic and Geisinger demonstrate that we can achieve real

system integration, even in rural areas.

Another strategy to improve integration is to take forceful steps

to reduce avoidable hospital readmissions. Readmissions are occurring at an alarming rate. For example, nearly 1 in every 5 Medicare patients discharged after treatment for heart failure returns

to the hospital within 30 days. Those readmissions cost Medicare

and the American taxpayer nearly $1 billion a year. Reducing the

number of these potentially avoidable hospitalizations would greatly benefit patients and it would yield substantial savings as well.

Another area of concern is access to primary care. The Dartmouth Atlas tells us that areas of the country with higher proportions of primary care physicians spend less on health care, and patients get the same or better care.

Barbara Starfield of Johns Hopkins University has reported that

people with a primary care physician have one-third lower costs of

care, and they are nearly one-fifth less likely to die from their conditions. People are dying because they do not have a primary care

doctor.

Unfortunately, when it comes to supply of primary care doctors,

America lags well behind other industrialized nations. Only 36 percent of our physician workforce is primary care; in Australia, 56

percent is. So it is not surprising that Australia spends about half

as much per person on health care as we do, and yet Australians

can expect to live more than 3 years longer than Americans.

Fortunately, there is some cause for hope. Physician groups, the

business community, and more recently patient and consumer

groups, have worked diligently on proposals that reward highquality delivery of primary care. Doctors offices can help achieve

the kind of coordinated care that patients need. They can do so by

adopting health IT, they can employ mid-level practitioners who

can follow up with patients, they can implement clinical registries,

and they can employ other strategies that work as well.

MedPAC has endorsed the testing of the patient-centered medical home model, and MedPAC would further recommend paying

more for primary care services delivered by primary care providers.

We need to increase the value that our health care places on primary care.

3

Today we will also explore the relationship between doctors, drug

companies, and other manufacturers. Doctors provide an important

service by assisting with the development of clinical protocols and

researching new drugs and devices but, when physicians have financial relationships with manufacturers and facilities, it can compromise their independence and objectivity. Payers, plans, patients,

and the general public deserve to know of these potential conflicts

of interest, and additional information to be gathered to examine

the effect that these conflicts may have on the referral patterns

and the volume of services.

So let us find ways to connect health care’s separate islands. Let

us stop casting dollars on the waves as patients travel along the

far-flung archipelago of care. Let us see if we can land on a system

that centers health care where it belongs, with the patient.

Senator Grassley?

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Thank you, Chairman Baucus. I thank our

witnesses for their time that they put into this. We can all agree

that any discussion of health care reform must include an examination of our health care delivery system. We have all heard that our

health care delivery system has much room for improvement.

We can talk about rising costs, we can talk about little or no access for millions of people, we can talk about the need for improving quality, but if we do not examine the shortcomings in how the

system actually delivers health care to people, we would be missing

an essential part—and maybe some people would say the most important part—of the picture.

For example, patients do not receive the recommended care often

enough, and they too often receive unnecessary care. This, of

course, is the failure in how our care is delivered. Furthermore, for

people who have coverage, volumes of health care services are provided in our system. This is quite evident by the amount that we

spend on health care, but that does not necessarily mean that patients are receiving high quality or showing improved outcomes.

That, too, is a result of how our system of health care delivery is

organized.

When we look at the way health care is delivered in the United

States, it explains quite a bit. Words commonly used to describe

how our health care is delivered in America include words like

‘‘silo’’ or ‘‘fragmented’’ for a description. You also hear phrases like

‘‘lack of coordination,’’ ‘‘lack of accountability.’’ I have said it before:

we should not be calling our health care delivery system a system

in the first place.

But the system does not act this way just on its own. The way

that we pay for health care drives the manner in which it is provided. This is a key point. Most of the problems with how health

care is delivered today are the result of the payment system. Look

at Medicare. The way Medicare pays providers creates incentives

for quantity rather than the quality of health care, so we get a lot

of quantity, but with quality suffering.

Here is another example. We all talk about how we need better

coordinated care, but there are no incentives in the payment sysVerDate 11-MAY-2000 14:20 Oct 20, 2010 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 61611.000 TIMD PsN: TIMD
4

tem for providers to coordinate the patient’s care with other providers. Since each type of Medicare provider is paid pursuant to a

separate payment system, these payment silos result in fragmented

delivery.

Another example is how the financial incentives affect the system. It is very disturbing, the reports showing the dwindling percentage of medical students who plan to become primary care physicians, perhaps as few as 2 percent of current medical students according to a new study by The Journal of the American Medical Association. Lack of sufficient financial incentives for primary care is

a significant factor in this whole decline.

Financial relationships between health care providers and industry are another example of how financial incentives in our system

affect delivery. There have been alarming reports of inappropriate

financial relationships between pharmaceutical and medical device

manufacturers and physicians.

Some industry-physician relationships do play a legitimate role

in the development and dissemination of information on drugs and

devices, particularly new ones. However, there are many questionable practices that result in inappropriate financial relationships

between industry and physicians. Very few of these physician–

industry relationships are transparent. They are hidden in the system. These inappropriate financial relationships can provide incentives for physicians to provide inappropriate health care.

In health care, like with most other things, you get what you pay

for. If we want to make the system work better, then we must

change the way health care delivery is financed. We have to change

the financial incentives that are in the system until they are

aligned with better care. We need incentives that will make our

health care delivery system, in fact, a real system. These incentives

should reward high quality and efficient care instead of simply

more services, and some of questionable value.

These incentives should promote greater emphasis on primary

care so that patients have better access to a provider who can coordinate care. These incentives should encourage providers like

doctors and hospitals to work together to coordinate the care of patients as they transition from one setting to another. These incentives should make all providers involved in the care of patients accountable across the entire episode of care, and they should encourage physicians to involve the patient in his or her own care.

The Medicare Payment Advisory Commission—MedPAC, as we

know it—recently made a number of recommendations to Congress

on the system. Many of these reforms are currently being tested in

both the public and private sector, and of course we ought to look

forward to learning more about these reforms, and even doing it at

today’s hearing.

I would also like to hear about the successes and challenges of

those innovators who are testing reforms, and I would especially

like to learn more about what Congress could do to foster their development. We also look forward to hearing about drug and device

industry and physician financial relationships, and implications

that these relationships have on the health care delivery system.

So I believe then that public disclosure is the best safeguard

against inappropriate financial relationships between the drug and

5

device industry and physicians. That is why I proposed the Physician’s Payment Sunshine Act. So I am especially interested in hearing more about these relationships and what effect public disclosure might have on health care delivery.

Before closing, Mr. Chairman, I would also like to place a letter

in the record that relates to the practice of medicine and medical

research.

The CHAIRMAN. Without objection.

[The letter appears in the appendix on p. 45.]

The CHAIRMAN. Thank you, Senator.

I would now like to welcome our witnesses. First, we will hear

from Dr. Mark Miller, executive director of the Medicare Payment

Advisory Commission, otherwise known as MedPAC. Next, Dr.

Glenn Steele is the president and CEO of Geisinger Health System.

The third witness is Dr. Robert Berenson, a senior fellow at The

Urban Institute. Our final witness will be Dr. Eric Campbell, who

is associate professor at Harvard University School of Medicine.

All of your statements will be automatically included in the

record, and I encourage you to limit your remarks to about 5 minutes.

We will start with you, Dr. Miller.

STATEMENT OF MARK E. MILLER, Ph.D., EXECUTIVE DIRECTOR, MEDICARE PAYMENT ADVISORY COMMISSION

(MedPAC), WASHINGTON, DC

Dr. MILLER. Chairman Baucus, Ranking Member Grassley, distinguished committee members, thank you for inviting the Medicare Payment Advisory Commission here today to discuss delivery

system reform ideas.

As we consider our policy advice to Congress, we keep certain

principles in mind: assuring beneficiary access to quality care, paying providers fairly, and assuring that taxpayer dollars are spent

wisely.

All of you are aware that Medicare is not sustainable on its current path. Medicare is growing faster than the budget, the economy, and beneficiary incomes. This increase in spending is not consistently accompanied by improvements in quality.

Our past reports have made recommendations related to payment updates, to improving the fairness of fee-for-service payments, rationalizing managed care payments, pay-for-performance

policies, and developing comparative effectiveness information. All

of these policies are important, but they are not sufficient.

Our current payment systems are part of the problem: they reward volume; they do not reward coordination, quality, or cost constraint. The commission’s current thinking has led to recommendations on payment policies that would change the organization and

delivery of care to achieve these goals.

I will highlight four recommendations from our most recent report. The first refers to rewarding primary care. Our fee-for-service

system discourages primary care providers by under-valuing their

services and rewarding volume. This has the upstream effect of discouraging students from choosing primary care, although obviously

there are other parts of that decision.

6

There is evidence that a higher mix of primary care providers in

our current supply of physicians can lower costs and improve quality. Our June report recommends redistributing a share of Medicare physician payments to services provided by clinicians who

focus on primary care, and I can discuss that in the questioning.

The second idea is developing medical homes. A medical home is

a clinical setting that serves as a central resource for a patient’s

ongoing care. The commission considers this idea worthy to be explored. Accordingly, the June report recommends that Medicare establish a voluntary pilot program to test whether beneficiaries with

medical homes have better coordination, better quality of care, and

lower cost. The report discusses the payment strategies and the

medical home criteria, and I can take these on during questioning.

The two points I would like to emphasize with you are: it is imperative that this pilot be large enough to produce results in a

short period of time, and it should focus on beneficiaries with multiple chronic conditions and medical homes that meet stringent criteria. This is necessary to provide a good proof of concept for the

medical home idea.

The third idea I want to discuss is discouraging hospital readmis- sions. Medicare spends $15 billion annually on readmissions within

30 days. Not all of these are avoidable, but there is evidence to suggest that during the hospitalization and at discharge, there are opportunities to improve care and avoid these readmissions.

There are wide variations in the rates of readmissions among

hospitals, and there are strategies to avoid the readmissions. To

this end, we have recommended a policy to reduce payments to hospitals with high risk-adjusted readmission rates for selected conditions. The commission recommends that this payment change be

made in tandem with a previous recommendation we made on gain

sharing, that is, change the rules to allow the hospitals to incent

physicians to participate in reengineering inefficient care processes.

The commission also recommends providing these hospitals and

physicians with information that allows them to compare their readmission rates to other providers.

The fourth idea is a payment bundled around the hospitalization.

That is, a single payment to cover the cost of the hospital, the physicians in the hospital, and providers of care following the hospitalizations, for example, for a 30-day period. The objective is to

get a strong alignment of the incentives among the providers of

care involved in the hospitalization and the immediate follow-up

care.

Bundled payments can raise a host of implementation issues,

and the commission has recommended that CMS conduct a pilot

project here to test the bundled payment around the hospitalization

for selected conditions.

In closing, I would like to make a couple of points. The commission believes that the sustainability of the Medicare program depends in part on changing the payment system that is built around

fragmented care and generating service volume. The tough nut is

that the status quo is organized around the current payment system. Ideas like those put forward by the commission here today are

designed to align the incentive of the providers to produce better

coordination and improve quality of care for patients and cost reVerDate 11-MAY-2000 14:20 Oct 20, 2010 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 61611.000 TIMD PsN: TIMD
7

straint for the taxpayer. It is urgent that the Congress press forward on delivery system changes, and I look forward to your questions.

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

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

The CHAIRMAN. Dr. Steele, you are next.

STATEMENT OF GLENN STEELE, JR., M.D., Ph.D., PRESIDENT

AND CHIEF EXECUTIVE OFFICER, GEISINGER HEALTH SYSTEM, DANVILLE, PA

Dr. STEELE. Mr. Chairman, Senator Grassley, members of the

committee, thank you for the opportunity to testify today.

My name is Glenn Steele. I am the CEO and president of

Geisinger Health System. Geisinger is an integrated system which

includes physicians, hospitals, outpatient health care facilities and

programs, as well as a health care plan. We are located in central

and northeastern Pennsylvania and serve a predominantly rural

population of 2.6 million. We have a fully integrated electronic

health record, and we lead our area’s regional electronic health network.

Geisinger serves a population that is older, poorer, and sicker

than the national average. Most of our patients have multiple

chronic diseases: diabetes, high blood pressure, coronary artery disease, lung disease. We have been working aggressively over the

past several years and committed significant resources to identifying ways to better care for this population and to reduce the

costs.

One problem we have been tackling has to do with the great paradox in health care: getting paid for making mistakes. It does not

mean that we intentionally make mistakes, but we are frequently

rewarded financially when an outcome is not beneficial to the patient. For example, with few exceptions, if a patient develops a

complication following surgery that might have been avoided by optimal care, we may receive more reimbursement than for comparable care without a complication. This does not happen in other

industries. Purchase of a car, a computer, or even a home typically

includes a warranty. Why should health care services be an exception?

In 2006, we started transforming care by testing and rewarding

how we provided elective cardiac surgery, what is known as coronary artery bypass. We reviewed the American Heart Association

and American College of Cardiology guidelines for cardiac surgery

and we translated them into 40 verifiable process steps that could

be implemented with each patient.

These behaviors were imbedded into our electronic health records

so that we would be prompted or forced to meet each identified step

or document the specific reason for an exception. We established

one set price that included all the associated costs—pre-operative,

operative, post-operative, and rehabilitation—and we did not

charge for mistakes.

With our cardiac surgery outcome already well above the national average, implementing this program led to greater improvements in patient care. There was a reduction in complications of

21 percent, sternal infections were down 25 percent, readmissions

8

fell by 44 percent, and costs for treatment fell as well. Our average

length of hospital stay decreased by half a day. Recently we have

included hip replacement, cataract surgery, obesity surgery, care

for babies from conception to birth, and heart catheterization. To

date, we are showing success in each of these areas.

A second major problem has to do with the complexities a patient

experiences in navigating through any health care problem. To address this, we have invested in programs and staff to support each

patient’s journey, placing dedicated nurses in targeted outpatient

clinics.

Our version of medical home is called Proven Health Navigator,

and our nurses are assigned to get to know their patients and their

families, follow the patient’s care, help them get access to specialists and social services, follow them into the hospital, follow them

out of the hospital, contact them to confirm that they are taking

the appropriate medications, and be available for advice 24/7. In

our pilot program, initial hospital admissions for our sickest chronic disease patients were down by 24 percent, and our readmissions

were down by 19 percent.

The pay-back on the resource investments for the health plan occurred within the first year; the benefit to the patients avoiding

multiple hospital admissions and emergency department visits was

priceless. Because this program has had such tremendous initial

success, we have now expanded it to 35,000 additional Medicare

patients.

In summary, we have unusual attributes that help us test and

apply new methods of health care delivery, but what we are doing

is not unique. Application of best practices can be shared and used

by others. What we need to do is reward good clinical practice and

not reward bad practice. Paying for readmitting a patient for an infection that should have been prevented is unacceptable.

National policies that address these reimbursement issues, particularly for Medicare patients, should be changed. Programs like

medical home need to be recognized for their value and reimbursed

appropriately. As we struggle together with adopting the right

health care reform plan, at Geisinger we would be pleased to support your efforts in any way that we can.

Thanks again for the opportunity to testify.

The CHAIRMAN. Thank you very much, Doctor.

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

The CHAIRMAN. Dr. Berenson?

STATEMENT OF ROBERT BERENSON, M.D., SENIOR FELLOW,

THE URBAN INSTITUTE, WASHINGTON, DC

Dr. BERENSON. Chairman Baucus, Senator Grassley, members of

the committee, I very much appreciate the opportunity to provide

testimony to the committee as it undertakes an important inquiry

into the crucial topic of incentives to promote health care delivery

reform.

It is a subject that I have been deeply involved with through

most of my professional career as a general internist who practiced

20 years, a senior CMS official, and now as a senior fellow with

The Urban Institute.

9

For more than 30 years, I have been in and around discussions

of health care system reform. The idea of organizing physicians,

hospitals, and other professionals and providers into integrated organizations better able to manage the complexity of patient needs

has usually assumed the policy high ground. Integrated delivery

systems can promote collaborative team-based care to better serve

patients’ complex care needs; promote adoption and quality enhancement of electronic health records; and sustained, systematic

quality improvement in patient safety efforts.

Yet, research has found that in recent years physicians have

been much more active in forming single specialty groups than in

organizing and joining multi-specialty groups. Specialty consolidation provides more negotiating leverage with health insurers and

permits the requisite organizational size and scope so that physicians can own and self-refer lucrative ancillary services, such as

MRIs and PET scans.

Further, collaboration between hospitals and particular physician

specialties has focused on developing and promoting profitable

service lines rather than efficiently meeting the challenges of caring for an aging population.

A major problem is that, because they are dependent on current

payment approaches, organizations are often penalized financially

for undertaking activities that actually reduce costs. Incentives

must be created to encourage physicians, other professionals, and

institutional providers to become part of accountable care organizations, and then incentives must be created for those organizations

to improve value for patients and purchasers.

Delivery system reform will not succeed if hospitals continue to

be rewarded for increasing the volume of inpatient admissions and

penalized for working with physicians and other clinicians to avoid

hospitalizations for large numbers of patients with so-called ambulatory care-sensitive conditions.

We start with the problem of preventable readmissions, which

MedPAC has estimated to cost as much as $12 billion a year. Hospitals could administer dramatically improved discharge planning

and patient education, assure that hospitals communicate with patients’ regular practices, promptly push out discharge summaries to

patients’ physicians, and follow up with discharged patients by

phone or in home visits shortly after the discharge to help coordinate patients’ return to their home and community.

A crucial part of this enhanced transition planning needs to include detailed medication reconciliation. There are few policy initiatives that at the same time can improve the quality of care, enhance patient experience with care, and decrease system costs; reducing avoidable readmissions is one. Learning how to get these incentives right will help policy makers learn how to make more systematic payment changes to promote and enhance provider performance.

Value-based purchasing, which this committee has taken a lead

on, should not only try to improve the quality and efficiency of provided services, but also try to change the kind and mix of services

that patients receive. Medicare needs more geriatric care and, I

would argue, fewer imaging services.

10

The Medicare Physician Fee Schedule, which is also used by

most private plans, produces the wrong mix of services for patients

being served. The result is that public and private fee schedules reward niche specialists disproportionately well at the expense of

physicians who provide evaluation and management services or

core surgical services.

Thus, distorted fee schedule prices not only contribute to shortages of primary care physicians, but to shortages of general surgeons as well. One result of the payment disparities is that medical

students are advised to follow the ‘‘ROAD’’ to success—the road

stands for the specialties of Radiology, Orthopedics (or Ophthalmology, depending on who’s telling the tale), Anesthesiology, and

Dermatology—which, in addition to being highly remunerative, also

support gentler lifestyles, usually without emergencies outside of

regular work hours.

Fee schedule distortions not only result directly in excess spending related to a number of specific services, but also alter physician

behavior to increase the volume of profitable services that do not

overtly harm patients in order to increase practice revenues. A substantial body of evidence documents that countries and parts of the

U.S. which rely more on primary care produce higher quality at

lower cost than those with more reliance on specialty care.

Health delivery reform requires a stable primary care workforce,

willing and able to take on the challenge of providing care to the

growing share of the population with serious chronic conditions.

Because of the long pipeline required to train physicians, Congress

should address this issue immediately. Thank you.

The CHAIRMAN. Thank you very much, Doctor. I appreciate that.

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

The CHAIRMAN. Next, Dr. Campbell?

STATEMENT OF ERIC G. CAMPBELL, Ph.D., ASSOCIATE PROFESSOR, HARVARD UNIVERSITY SCHOOL OF MEDICINE,

CAMBRIDGE, MA

Dr. CAMPBELL. Chairman Baucus, Senator Grassley, members of

the committee, I am honored to testify today. My remarks today

are related to physician–industry relationships.

A physician–industry relationship exists whenever a physician

accepts anything from a pharmaceutical or device company, such as

dinners in fancy restaurants, pens, drug samples, lunches, trips,

and paid consultancies. These relationships create a tendency towards increased use of company procedures and high-cost drugs,

sometimes with marginal benefits to patients. These relationships

create hidden incentives to use procedures unnecessarily, thus potentially increasing the costs and threatening the quality of care.

Also, some forms of industry relationships can threaten the quality of the scientific literature, which in turn undermine the entire

concept of evidence-based medicine and quality of care.

In the next few minutes, I would address four key points: first

is that these relationships are highly prevalent; second is that they

can have benefits and risks; third is that disclosure of industry relationships is highly variable; and fourth, increased disclosure of

these relationships is advisable.

11

First, industry relationships are highly prevalent. A study published in the New England Journal of Medicine in 2007 found that

94 percent of all practicing physicians had some form of relationship with industry. These ranged from accepting food and beverages, gifts, to various kinds of payments. The study also found

that 35 percent of physicians received payments for travel, and

more than 25 percent received payments for consulting services.

In terms of their impact, the research has shown that certain relationships, especially research relationships between physicians,

researchers, and industry, can and do facilitate the development of

new drugs and medical devices. Many of the drugs and devices that

are currently available to patients today would not exist had it not

been for close relationships between physicians and industry.

At the same time, these relationships can have negative effects.

For example, physicians who accept gifts from companies are more

likely than those who do not accept gifts to prescribe company

products. Gifts may also result in physicians prescribing higherpriced brand name drugs instead of cheaper, equally effective alternatives. This practice likely results in substantial increases in the

cost of care. Free drug samples may further reinforce this behavior

and perhaps stimulate the off-label use of medications, a behavior

which often raises issues about patient safety.

Also, several leaders in medicine have suggested that industry

support of academic research has led to substantial bias in the research literature, which is the yardstick by which we measure

evidence-based practice and quality of care. Presently, the disclosure of industry relationships is highly variable. The most extensive disclosure systems are in medical schools and teaching hospitals; however, the vast majority of physicians do not practice in

these settings.

Thus, there are no comprehensive data regarding the nature and

extent of relationships between community-based physicians and

industry. Several States have laws that require disclosure; however, these State-based systems are limited in number and there

is concern regarding the quality of the data these systems produce.

Finally, increased disclosure of industry relationships is advisable. Without comprehensive data on physician–industry relationships, it is not possible to assess the overall impact that these have

on the cost and quality of care that doctors provide and patients

receive. Clearly, a comprehensive database that is linkable to

claims and prescribing records would be a valuable asset for research and policy making.

For example, consider the use of radiologic services. Physicians

vary in the extent to which they use expensive imaging equipment

like MRIs. There are many possible reasons for why this variation

exists. One potential explanation is that physicians who order

MRIs at extremely high rates do so because they have an ownership position or other financial interest in a local imaging facility.

Similar studies could be conducted related to the use of expensive

surgical procedures and high-cost medications.

In conclusion, I believe that physician–industry relationships are

ubiquitous in medicine. Because of the incomplete disclosure of relationships, there is a limited ability to scientifically study their

overall impact on the care that patients receive. This knowledge

12

would be beneficial when considering which types of industry relationships should be allowed to continue at current levels, which

should be constrained, and which should be eliminated. Failure to

address these issues could overlook an important mechanism to

controlling health care costs and improving quality of care in the

future.

Thank you. I will answer any questions.

The CHAIRMAN. Thank you.

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

The CHAIRMAN. Dr. Campbell, I want to start off by asking if

there is any disagreement generally among the panelists that we

should move toward two subjects, one is a medical home concept,

and the second question is, is there any disagreement among the

panelists that we should move toward more bundling in our payment system?

If there is not a lot of disagreement on the concept, then my

question is going to be, how do we get there most expeditiously?

Is there anybody who disagrees in any significant way with the

medical home concept or with moving toward—the problem is definition—bundling? Dr. Miller?

Dr. MILLER. No disagreement. Our point is, though, the concept

just has to be tested before it goes wall-to-wall in Medicare.

The CHAIRMAN. Right. That is my question. My question is, how

do we get there most expeditiously? I will begin with you, Dr.

Steele, since you are doing a lot of this.

Dr. STEELE. Well, I think we have to look at our outcome. Right

now, we have expanded to 30-some sites on our medical home

version. That would be 35,000 Medicare patients. We have to ask

questions. Is the effect that we have seen on the hospitalization

rates going down, and the rehospitalization, is it durable? Have we

just pent up demand? Have we pushed the patients into nursing

homes?

So far we have seen no evidence of that, but it is an early experiment and it looks very, very promising. The other issue is, can we

take this into a commercial product? There is certainly an age

range pre-Medicare where a lot of us are facing the same kind of

chronic diseases that we treat through the Medicare program. A

big question for us, which I think is probably pertinent to Mark,

is can we do this outside of the Geisinger-employed physician

group?

In other words, is there a way of incenting this same kind of redesign of the practice with the insurance company having paid for

a nurse to be imbedded into the practice outside of a Geisingeremployed community practice site? There are a lot of questions

that hopefully will be of importance to Mark as he expands demonstration projects.

The CHAIRMAN. But what are your thoughts along those lines?

How much can it be expanded, and what are some of the considerations we should address to get there?

Dr. STEELE. Well, first of all, I think we need electronic health

records. I do not think that this could be done very easily without

an electronic health record. The typical patient is 74, with four

chronic diseases—a typical chronic disease would be type II diabeVerDate 11-MAY-2000 14:20 Oct 20, 2010 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 61611.000 TIMD PsN: TIMD
13

tes, congestive heart failure, hypertension, or reactive depression—

and is taking 15 to 20 medications.

So this is blocking and tackling, Senator. If you can get to that

patient before they get into florid failure, before they end up in the

emergency room having to be admitted and given diuretics inpatient, what have you, and all of this has to do with knowing the

information in real time. It is not waiting for the phone, waiting

for the usual appointment. We think electronic health records are

important. We think that redesigning the practice is important. We

pay for it. We pay for it through the insurance company which is

part of Geisinger, and pay for the provider group which is the other

part of Geisinger.

The CHAIRMAN. Dr. Berenson, your thoughts?

Dr. BERENSON. Yes. I wanted to make a point about whether we

should be equating the patient-centered medical home with chronic

care management. My own view is that everybody should be in a

patient-centered medical home. I want to give you an example. We

have actually just recently published a paper in Health Affairs sort

of reviewing the different definitions of patient-centered medical

homes. One of my colleagues has given me permission to just very

briefly recount something that happened while we were doing our

work. She and I were at a conference together. She turned to me

and said, I have leg pain. Why do I have leg pain? I gave her a

curbside consult, suggested maybe she was developing early phlebitis.

What ensued over the next 3 weeks? She called her physician

long-distance, had six phone call interactions and a number of

missed calls, six e-mail interactions. Her physician arranged, on an

emergency basis, to get to the vascular lab to diagnose her phlebitis. She had multiple anticoagulation tests and phone calls to go

over it, and one office visit during that whole period. Her physician

received reimbursement for one office visit, was functioning as a

patient-centered medical home, provided impeccable care to my colleague.

Many physicians would not have done that under current payment models. So, there are physicians today who no longer take

calls at night, they put an answering machine on at 5 o’clock at

night and patients wind up going to the emergency room and getting admitted. Other doctors are up at 3 o’clock in the morning

while wondering what people are doing at 3 o’clock in the morning.

Some doctors are with their patients or are talking to the ER.

I think that may be about a medical home or it may be about

flaws in our fee-for-service payment system. I do not think we can

just reimburse for every e-mail or every phone call. It goes to

thinking about more innovative approaches to paying, particularly

in primary care. So I would urge us to think fairly broadly about

this topic, not just equate it—and I agree with Dr. Steele. It is essential for improving care for chronic care management, but I think

it has broader application.

The CHAIRMAN. Thank you very much.

Senator Grassley?

Senator GRASSLEY. Dr. Campbell, you noted that currently there

is no national database of relationships between industry and physicians, no sunshine on these relationships and publicly available

14

data on industry relationships. So what are the risks caused by

this lack of transparency and what effect does it have on health

care delivery?

Dr. CAMPBELL. I think, first of all, the risks are that it is impossible for institutions to manage what they do not know about.

Health plans and hospitals, if they do not know about these relationships, cannot manage these things. I think they create the

risks I talked about before, about increased incentives towards

over-use. It creates waste. It is possible that some portion of the

variation in physician use of expensive medical procedures may in

fact be related to the conflicts of interest or industry relationships

that those physicians have. That was the first part.

Could you repeat your second part, Senator?

Senator GRASSLEY. Well, what effect would it have on the health

care delivery system because of the lack of transparency?

Dr. CAMPBELL. Well, like I said, I think it is very difficult to

manage what you do not know about. The other thing that it is

doing, there is a very limited ability to study the impact of these

things. If you do not have a database, you cannot do the research,

which is essentially linking the relationships to the actual care that

physicians provide to get a better understanding of their potential

impact on the cost and quality of care.

Senator GRASSLEY. Let us go to Dr. Miller and Dr. Berenson, following on a little bit of what Senator Baucus has already talked

about, because everybody seems to be talking about medical home

being an answer to everything.

What I want to know is, how do we know it is not just the latest

fad, much as gatekeepers were 10 years ago who were supposed to

be doing the same thing?

Dr. MILLER. I think we do not know. I think what we are trying

to push here is a test to make sure it does not become just a fad.

Just to pick up with your question and some of the things that

were said here, we feel very strongly that it may be that in the

long run a medical home is the right solution for every patient, but

the first step, in our view, is to prove that the concept works and

to focus first on high opportunity—so, chronic conditions where you

can do things like avoid hospitalizations, have criteria for the medical home such as things that were mentioned.

IT, something that Bob was talking about. Twenty-four hour access for the patient. Having a care management team. If you meet

those criteria, then you get a per-member, per-month payment to

help defray some of the costs that Bob was talking about that do

not get covered—phone calls, e-mails.

But then the last component is to show that the performance actually has an impact. If this is working, then the medical home’s

panel of patients will have better quality and lower cost. If it is not

working, then the idea should be pushed to the side and other solutions looked for. But if it does work the way some experience shows

and some early research suggests, we could have something that

would work here. But the idea is to test it so it is not just a fad.

I am sorry, just one last thing. What we have to resist is the notion that people will say, we are doing this now, just pay us. There

is a lot of evidence that there are many practices that are not like

the one that Bob is talking about. I am sorry, I will stop.

15

Senator GRASSLEY. Dr. Berenson?

Dr. BERENSON. Very briefly, I basically agree. We need to test a

lot, and that is why I think it is important not to assume that we

are going to solve—I would call it a crisis in primary care, given

the kind of data that the chairman was talking about, how few

physicians are going into primary care fields. We have to take that

one on separately.

I mean, I think there are flaws in the Medicare Physician Fee

Schedule which, as I said, is adopted by private plans as well. We

need to deal with that as a separate action that needs to be addressed while we are understanding how the patient-centered medical home works and can be promoted.

Senator GRASSLEY. Dr. Miller, a short answer to this question:

we have many examples where Medicare has led the private sector

in delivery system changes. For example, the private sector stopped

paying for ‘‘never’’ events and some hospital-acquired infections

only after Medicare. Does Medicare have to take the lead in the delivery system reform?

Dr. MILLER. Yes.

Senator GRASSLEY. All right.

Dr. MILLER. And I have had many conversations with people in

the private sector over the years. They have said, you need to lead

on pay-for-performance so that we can follow. You need to lead on

comparative effectiveness so we can use that information. I hear

this all the time. I think Medicare should lead. The only thing I

would add is, we should also set up structures that reward people

who have already stepped in and started to try to make these

changes, and certainly not stand in their way, the innovators in the

system.

Senator GRASSLEY. Yes.

Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman. I think it has been

an excellent panel. I would only say, with respect to the health care

home, what we have done in the Healthy Americans Act is we

made it an option for the patient and the consumer. In other

words, it is not going to be drilled down their throat against their

will, but plans would have to make it an option. I think, Dr. Miller,

that is along the lines of what you want to have. Let us have some

options, let us have some flexibility and make sure that this is

tested.

Obviously what has emerged from this panel and our previous

hearings is that the incentives that drive American health care

today work against quality. I mean, Medicare in effect pays for

quantity mostly rather than quality, and that is certainly true of

the tax code as well. If you are really offering crummy quality

health care in the United States in the private sector, do not sweat

it because the private sector is going to get subsidized through the

tax code for inefficiency.

So, as I look at the tools for rooting out a lot of the poor-quality

care and driving down the cost, it seems to me we have to make

it easier for patients to comparison shop. I would like to maybe

start with you, Dr. Miller, and then you, Dr. Berenson. I do not

think it is very easy for patients to comparison shop, either in

16

Medicare or in the private sector, for quality and cost. Do you agree

with that?

Dr. MILLER. I agree. It is very difficult for a patient to look at

information on a provider and make those kinds of choices. I have

another thought behind this, if I can.

Senator WYDEN. Please.

Dr. MILLER. I think that there is some thought at the commission that says that this information does not just go to the patient.

The information on quality and use of resources should also go to

the provider so that they can see how they practice differently from

one another, and then, if our payment systems put the right types

of incentives in place, they can lead the patient in those decisions.

But to your original question, there is probably a lot of work that

needs to be done to synthesize this information to a form that patients can understand.

Senator WYDEN. Dr. Berenson?

Dr. BERENSON. I agree. Right now quality is not transparent to

patients. I am quite skeptical that in the near term we are going

to be able to have a robust set of measures that patients will be

able to rely on. That is why I think a necessary strategy for delivery system reform is to encourage the Geisinger clinics to form, to

have Billings Clinics and Geisinger Health Systems, I guess is

what they are now called, so that you can have peer-on-peer quality improvement that may not be transparent as easily to consumers, but clearly you can get substantial quality improvement

because the organization has a commitment. It is also, I would add,

easier to array data at an organizational level than it is at a

physician-by-physician level.

Senator WYDEN. Well, that really gets to my question for you, Dr.

Steele, because I think that an approach like Geisinger which values quality rather than just in effect spending their time trying to

shed bad risk, is going to flourish under the Healthy Americans

Act. For example, what we do in this legislation is we create a

website where consumers—all consumers, Medicare, private sector—can secure quality and cost information by zip code.

So what that means is, Medicare patients and, say, a worker

with an employer-based package can look at all the alternatives.

The worker can keep their employer package if that is what they

want, but they would also be able to look at the alternatives.

So my question to you, Dr. Steele, is would it not be useful in

delivery system reform to include changes that provide incentives

to the consumer to comparison shop for private coverage?

Dr. STEELE. Yes. And I believe, as we develop our system, it is

a combination of having the information available. If you go on our

website, you can actually find our quality data. You can find our

patient satisfaction data for each of our platforms, and it is not all

good. I mean, we are constantly working to try to get things up to

optimal.

But my experience with the citizens out there is, they get inundated by information and misinformation, so we are betting on the

fact that you have to have access to the information and a trusted,

long-term relationship. I think it is that combination, that is, the

information and a trusted, long-term relationship, whether it is

with a nurse, a doctor, or a PA, somebody that is living in their

17

community. That is the key engine, I believe, that is going to allow

the right choices to be made.

Senator WYDEN. Thank you. I look forward to working with you,

Doctor.

Thank you, Mr. Chairman.

Senator GRASSLEY. Senator Hatch?

Senator HATCH. Well, it is easier said than done, I have to say,

but I appreciate the efforts that all of you are making.

Let me go to you, Dr. Campbell. Most drugs are administered either orally or intravenously. The information needed by physicians

in administering a drug is fairly straightforward and can adequately be addressed through package labeling.

Now, on the other hand, the safety and effectiveness or outcome

for most high-risk devices, particularly implants, is highly dependent on the physician being properly trained to use the specific device. In fact, the FDA takes into consideration physician training

when approving many high-risk devices.

Do you feel that there should be a distinction between the valid

education and training that needs to occur for devices versus

drugs?

Dr. CAMPBELL. I think—for example, I saw the instruction manual for programming a pacemaker and a defibrillator, and it was

about that thick and read like a textbook at MIT. I think there is

absolutely no doubt that complex medical devices require intense

periods of training, which require interactions between physicians

and the company representatives to ensure that those devices are

implanted safely and used safely. That may not be so with less intensive drugs. It may be so with more complex forms of chemotherapy and so on.

Senator HATCH. I agree.

Dr. Steele, I find Geisinger’s Proven Care program refreshing

and the results regarding patient outcomes thought-provoking.

Now, what you said makes a lot of sense to me. I agree with you.

I think you are on to something. However, I do have one question.

How did Geisinger determine which complications were preventable? To me, there would have to be instances when medical issues

would arise that were unavoidable and not the fault of the medical

provider.

In addition, how difficult would it be for a national health care

program like Medicare and Medicaid to implement such a program

nationwide for, for instance, coronary artery bypass, grafts, hip replacements, or even cataract surgery? How would we be able to create a disease prevention model similar to the one you described in

your testimony nationally? I appreciate your ideas regarding medical homes, but do you have any other suggestions or advice for

members of the Finance Committee? I would like you to continue

to work with us because I think we could benefit a great deal from

your experiences.

Dr. STEELE. The first question is easier to answer than the second. What we started with, Senator, was a high-volume, high-cost,

inpatient procedure-based treatment that already had the discipline, both on the cardiology and the cardiac surgery side, having

defined what optimal outcomes should be.

18

So we basically took off the shelf what the metric should be,

where we would say, we will not accept anything less than that,

any complications. We avoided, for at least the near term—we have

now added some high-volume procedures like, for instance, the care

of the gastric bypass patients, where we have to determine on our

own what’s in or what’s out in terms of complications. But we

started with what was already consensus or evidence-based practice and looked at that metric.

Then we went back historically and looked at our complication

rates and how we did against that metric, and our pricing strategy

was to do a 50-percent discount from our historical complication

rate. So we had to do twice as good in order to break even in the

deal that we made with our own insurance company, and we were

betting on the reengineering getting us above that in order to

break even. That was kind of a financial incentive to get us where

we wanted to go in terms of quality improvement.

Now, the second part of your question. I mean, I am not going

to be able to give you a short answer. I think that there are areas

of innovation that probably we should learn from. I do not think

we are going to be able to do anything nationally through MedPAC

that would get us immediately where Geisinger is. We have this

unique anatomy, this unique culture, unique market. The rural

market actually allows us some real advantages.

Senator HATCH. You remind me a lot of Intermountain Health

Care.

Dr. STEELE. Exactly.

Senator HATCH. Very similar.

Dr. STEELE. Intermountain is a cohort. Intermountain is in our

cohort. We are extraordinarily proud of being compared to them

from time to time. They are superb, as you know.

Senator HATCH. Yes.

Dr. STEELE. But, I mean, I think how we translate our experience into an evolution—one thing that we think is terrific about

the changes in the MedPAC incentives right now is moving towards episodes, moving in terms of bundled reimbursement. So I

think that is moving in the right direction.

Senator HATCH. Well, thank you. I think my time is up.

The CHAIRMAN. I am kind of wondering how we pay for all this.

We want to give more incentives in the right direction. We also

know that in the next couple of years, at least, the Medicare trust

fund costs are just going through the ceiling. So to what degree do

we try to institute cost savings while removing—I know in the long

term this is going to probably reduce costs. At least, that is the

hope, with bundling, with medical home, comparative effectiveness,

and other actions that we are taking.

I know a lot of people talk about giving greater reimbursement

to primary care doctors and maybe changing the SGR system along

those lines. The trouble is, the specialties are not going to want to

give up what they have. They are going to fight tooth and nail on

this, and so forth. So I am just trying to figure out how we squeeze

all this together in a constructive way.

I do not know quite what my question is, except, how do we sort

of get from here to there? I mean, we are paying so much on Medicare right now. Let us just start with Medicare. We want to give

19

more incentives in the direction that we think make more sense

and encourage people to do things they should be doing. But how

do we cut back in other areas? Dr. Steele, you seem to be thinking

about this.

Dr. STEELE. We were taught a number of years ago that there

was a choice between quality over here and cost reduction over

here. I remember that discussion back in 1993, 1994. We are starting to get a hint that quality and value may actually cohabitate.

Now, would that not be wonderful? I mean, if we assume that 50

percent of what we are doing, if you read the McGlynn articles and

some of the other articles, is not based on best practice. If somehow

you could move the system, incent the system to have less of that,

conceptually you have to save some money somewhere.

Now, the other thing we found in our medical home which is interesting is, if you look at our costs per-member, per-month, there

is a huge difference between the patients who are on medical home

and the patients who are not on medical home. But some of that

difference is mitigated, is neutralized by increased pharma costs.

So my guess is—we are going to look at this—that we are getting

better compliance with those patients taking the pills that they

should take, so there will be a trade-off. But I believe, if we are

moving toward incenting the way the patient has the best chance

of a good outcome, that we are actually going to find out that some

of this quality and value cohabitates.

The CHAIRMAN. What do you think about that, Dr. Miller?

Dr. MILLER. Relative to some of the ideas that we have talked

about today, in primary care, we are talking about something there

that is budget-neutral, shifting dollars. Bob and I have had these

conversations about whether we are paying too much for certain

procedures within the fee schedule and the need to, at a minimum,

reallocate those dollars.

The CHAIRMAN. Are you talking about cutting down the payment

to the specialties?

Dr. MILLER. You know, I am sorry, yes.

The CHAIRMAN. How do you get them to either buy in or, if they

do not buy in, are you just saying, let them squawk and that is just

tough for them?

Dr. MILLER. Well, I would hope that some of the other ideas that

we are talking about here, that when you have something that is

more of an episode basis, which would include all of the providers

that are involved in the chain of care for a given episode, if they

have this incentive and they dig out the efficiencies that Glenn is

talking about here, then all of the providers can participate in that

outcome.

But to the point about whether we need to shift dollars within

the Physician Fee Schedule, I am sorry, the blunt answer is, we are

talking about taking it from one set of services and moving it to

another.

The other thing you asked is, where does some of this money

come from? It is not an answer, but also the philosophy behind the

readmission policy is, we should not be paying for bad care. So the

notion of taking the dollars out when that kind of care is provided

is another strategy, and that is one——

The CHAIRMAN. Dr. Berenson, your thoughts?

20

Dr. BERENSON. Yes. I have done work with MedPAC. I guess my

response would be, everybody is going to squawk when their fees

are frozen or reduced. But there are flaws in how the relative value

scale is developed which result in over-payment in the sense of

payment far in excess of the production costs, which is supposed to

be the basis for the RBRVS system in Medicare.

For example, imaging services had double-digit increases for

many years. It is now beginning to moderate a little bit. Essentially, the volume of advanced imaging services like MRIs and CT

scans doubled in a 5- to 6-year period. The fixed cost of the equipment is now being spread over a much larger volume of cases that

they are doing, and yet the fees did not respond to that. Essentially, we were not getting the prices right.

So I understand the political dynamic, and that does not help

your situation. But I think MedPAC has now identified, and CMS,

I think, knows, a number of the technical areas that could be improved which would cause some redistribution within the fee schedule, not draconian cuts to anybody, but some redistribution.

The CHAIRMAN. All right. Thank you.

Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman.

Dr. Steele, I think the exchange you just had with the chairman

was very insightful, because clearly we have to find a way to pay

for these kinds of things. I want to ask you what I asked the head

of the Congressional Budget Office, Dr. Peter Orszag, because I

think that your comments indicate you are moving in that same direction. What Dr. Orszag has said to us when he has come up to

testify in the past is that something like a third of all the health

care spending today goes for treatments and services that are of little or no value. They are really not particularly good quality. That

means it would be upwards of $700 billion this year.

So I asked Dr. Orszag specifically this question. I said, Dr.

Orszag, it seems to me that the only way to bend the cost curve

down is to take two steps. The first is to demonstrate to our citizens how much all this inefficiency costs, particularly in terms of

their take-home pay. The second is to put in health reform legislation incentives for them to select care on the basis of value. Dr.

Orszag answered that question ‘‘yes.’’ He said, that is the way you

are going to bend the cost curve downward.

As a general rule, would you agree with what Dr. Orszag said?

Dr. STEELE. Absolutely. Our advantage, obviously—we are focused on an extraordinarily small universe, you are focused on the

entire country. Our advantage is, we can sit down with our insurance leader over here, our provider leaders over here, and we can

say, what is it we have to do to redesign our system and to incent

to get the best possible outcome for either an acute problem that

we handle with a patient coming in, with a citizen who is not sick

yet, or with a patient with multiple chronic diseases? We can be

very innovative.

Now, obviously what we want to do for Mark and his associates

and for you all is to show whether those innovations actually create

increased quality and decreased cost. So, I mean, my answer is yes.

I feel our obligation is to be an engine of innovation that could be

utilized, along with Intermountain, along with Billings, along with

21

a number of other committed, unusual systems to show whether

these results are potentially scalable.

Senator WYDEN. Dr. Miller, were you stretching or did you want

to comment on that?

Dr. MILLER. I wanted to comment, if you have the time. But the

thing I would follow in that response is, he said sit down with the

providers to see if you can create a product that is more efficient

that you offer to the beneficiaries. So I am not saying no to your

point, but I am just reinforcing, if we do not focus on how we pay

providers and on information for providers, I do not think we can

offer the choice to the beneficiary. I do not mean to put words in

your mouth.

Senator WYDEN. I understand.

Can I just do one bit of clean-up with you, Dr. Berenson? You

highlighted the need to improve the primary care workforce in your

testimony. What we did in the Healthy Americans Act was include

a care management fee for the primary care physicians as a way

to kind of boost it, in effect. We legislated only two reimbursement

increases, one for primary care and a second for chronic care coordination.

Any other ideas that you can think of with respect to boosting

the primary care side of the ledger?

Dr. BERENSON. Yes. It is my observation—and I am not sure

there is a lot of data, but I keep hearing anecdotes to suggest that

one of the reasons for unnecessary health care spending is the absence of the patient’s regular physician, usually the primary care

physician, between the hours of about 9 p.m. at night and 7 a.m.

in the morning. When the patient is going to the emergency room,

the regular physician is not part of the decision-making. The ER

doctor wants to clear the ER, and now there is a hospitalist who

is more than happy to admit that patient to the hospital.

I think we should be providing increased payments to primary

care, but one of the things we should be getting is a guarantee that

those primary care physicians, through call relationships—they do

not have to personally be on all night, but through reasonable call

relationships—are going to be responsive during that important period of time. It works a lot easier in a larger organization, where

you can even have nurses and others taking up some of that. It

would work better if there was a link to an electronic health record

so that that doctor at night knew what was going on, but we have

absentee doctors during that time period. I just think that needs

to be improved.

Senator WYDEN. It sounds too logical.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Hatch?

Senator HATCH. Thank you, Mr. Chairman.

Dr. Berenson, I read with interest your testimony advocating integrated health care systems. As you probably know, and I have

been mentioning it here, Intermountain Health Care, which is

headquartered in my own hometown of Salt Lake City, UT, specifically Dr. Brent James, whom I think everybody recognizes, has

been quite involved in examining issues associated with health care

quality. He has told me over and over again that 55 percent of

health care expenditures may be attributable to waste.

22

In addition, IHC is one of the top-performing integrated health

care systems in the country. Reimbursements for health care services are some of the lowest in the country, yet IHC has some of the

best health care outcomes in the country. In contrast, Nevada,

which is right next to Utah, has much higher reimbursement rates,

yet some of the worst health care outcomes.

Last week our committee had a hearing on quality performance,

and the witnesses talked about the advantages and disadvantages

of pay-for-performance. I would like to have your thinking about

pay-for-performance. Would it improve health care outcomes in an

integrated health care system like Geisinger or Intermountain

Health Care?

That is the question. I am simply not convinced that paying a

provider more or less for providing health care services will make

a significant difference. I would just like to know what your thinking is on this issue. After we hear from you, if there is time, I

would also like to hear the opinions of, especially Dr. Steele.

Dr. BERENSON. It is a complicated topic.

Senator HATCH. Yes, it is.

Dr. BERENSON. I think there is a role for pay-for-performance

but, for the most part, the way it has been conceived is to identify

generally primary and secondary prevention activities and provide

some marginal payments for performance of those. One can get

some improvement in that area. What a marginal payment does

not accomplish is changing the basic behavior, and especially addressing issues of overuse and misuse of services.

So, going back to my imaging example before, if you are paying

a full payment for doing perhaps an unnecessary imaging procedure and 2 percent for not doing it, the provider is going to do it.

We need to somehow have different incentives imbedded in the

basic payment system, not just in the marginal payment.

So what I have heard Brent James say, and what I have heard

others say, is that they undertake a program, one of the results of

which is to reduce the need for hospitalization, and then the system loses revenue because you only get revenue during a hospitalization.

That is why I think an important first step—and Dr. Steele has

some experience—is the PGP demo model, the physician group

practice demonstration model that CMS has, which shares the savings with the organization if they are able to achieve savings. It internalizes to the organization the benefits of efficiency as opposed

to letting a third-party payer benefit from the efficiency while you

lose yourself.

So I think pay-for-performance has its role. I could use that rubric to describe what I am talking about, which is, for example,

paying hospitals a reduced rate for readmissions within 30 days.

Just do not pay a full DRG, pay a significantly reduced DRG. That

imbeds the incentive in the basic payment system. It can be payfor-performance, but it is not just using marginal payments.

Senator HATCH. All right. Would you care to add anything, Dr.

Steele?

Dr. STEELE. Well, it is very complex. Just to add a little flesh on

what Bob was mentioning, for our community practice commitment

to taking better care of type II diabetic patients, coronary artery

23

disease patients, what have you, our practitioners themselves have

decided that up to slightly less than 20 percent of their total cash

compensation will be based on them achieving their goals for improving the care of these patients.

So their compensation has nothing to do then, up to that 20 percent level, with seeing more patients or doing more tests. It has to

do with an actual performance metric which we are looking at to

see if there is a connection to better outcome for those patients. So

it has to be a significant incentive, not a marginal incentive.

The second thing is, we found that the doctors have to buy into

it. The doctors, the nurses, the clerks, and all the people who are

working have to be a part of this. There is a tremendous pride of

purpose. But if you somehow combine the incentive with the pride

of purpose and the professional, you get a lot out of it. If it is simply an intermediate marker that you define as a pay-for-performance metric, it can be gamed, and I think that is what we are all

objecting to.

Senator HATCH. Mr. Chairman, can I ask just one other question

that I would like to get out?

The CHAIRMAN. Sure.

Senator HATCH. Part of my prior life was defending in medical

liability cases. Naturally, when they did away with the standard of

practice in the community and came to the current changes in laws

which made doctors have to explain every possible outcome in advance, which is impossible to do, and not every case goes to the

jury, we spent a lot of time teaching doctors how to do everything

they possibly could to have in their history that they literally took

every precaution there was. We had to give that advice under those

circumstances.

In the process, naturally we all want defensive medicine, but

how is the medical liability litigation in this country impacting and

creating a lot of unnecessary defensive medicine? Has that affected

you, and how does that affect the total costs of these matters? We

will go right across the board. Dr. Miller?

Dr. MILLER. I am not sure I can give you much of an answer. My

sense of the literature on the defensive medicine broadly across the

country is that it has an impact, but it is not a large explanatory

variable like in the geographic variation that you see across the

country. It is not a large factor in——

Senator HATCH. The AMA, basically, a number of years ago, estimated about $60 billion a year. Now if the AMA estimates $60 billion a year, can you imagine what it must really be? But you are

saying you do not have a measurable——

Dr. MILLER. But to the extent there was some work done by the

Dartmouth folks on looking at geographic variation, they did not

think it was a large factor in explaining differences in the level of

care across areas. They thought it had an impact, but a small impact.

Senator HATCH. I will talk to the practitioners here. Dr. Steele?

Dr. STEELE. Well, the biggest impact it has on us—you under- stand, let us just get to the core here. It costs us about $145,000

per obstetrician for MedMal in Pennsylvania. You cannot have

small practices with a small volume of deliveries in the small

towns. Those practices closed down. So that is how it affects us. So

24

people have to go 30 miles from Tunkhannock down to WilkesBarre in order to deliver, even though there is a P&G plan up outside of Tunkhannock. That is how it affects us.

Senator HATCH. Some have to go farther than that.

Dr. STEELE. They have to go father away, and those practices

close down. The small hospitals that are dependent upon those

practices are in deep stress.

The CHAIRMAN. So what are you saying?

Dr. STEELE. I mean, that is the main problem.

The CHAIRMAN. No. What are you saying about what, what is

your practice with Geisinger? How do you incorporate those high

MedMal premiums?

Dr. STEELE. Well, we subsidize. We cross-subsidize. I mean, we

are doing well enough that we can keep those small practices

going, even if they lose $300,000 to $400,000, if we decide that it

is important to the community, important for the overall regional

care that is delivered there. But I agree with Mark, there is no evidence that we have that that MedMal in itself and defensive practice leads to variation. There are other reasons for that variation

which is much more important.

The CHAIRMAN. Thank you.

Senator HATCH. Dr. Berenson?

Dr. BERENSON. I was going to use a similar example to talk

about the difficulties of trying to put a number on defensive medicine.

Senator HATCH. I am talking about unnecessary defensive medicine now.

Dr. BERENSON. Well, there is unnecessary defensive medicine. I

still remember when I was an internist, going to my liability insurer seminar and being told, even if you know that your patient’s

rectal bleeding is from the hemorrhoids you can see, you need to

refer that patient to a specialist for a colonoscopy because maybe

there was an occult neoplasm. That is unnecessary. I ignored that

advice. I basically said, I am going to continue to make that diagnosis and not refer. But different doctors make different decisions.

The example I was going to use was high-risk pregnancies. There

is no question that in some jurisdictions community-based OBs no

longer are doing those services and the patients are going to specialized high-risk pregnancy centers. On the one hand that is disrupting relationships, on the other hand perhaps the costs are coming down if the patients are now going to high-risk centers. Perhaps the costs are going up because those are more expensive centers to maintain. We do not know. I would agree with the overall

assessment that there is a cost with the defensive medicine, but it

is probably not anything like what the AMA had been putting out.

Senator HATCH. Dr. Campbell, you do not have any comment on

it?

Dr. CAMPBELL. No.

Senator HATCH. I just wanted to ask that question because I

think it is a much higher cost.

The CHAIRMAN. I have a question. Thank you, Senator, very

much.

Dr. Miller said that hospitals with excessively high readmission

rates should be penalized. The basic question I have of all of you

25

is, how do we implement ways other than that—maybe including

that—to lower inappropriate readmission practices? I mean, I guess

part of the incentive of the hospitals is, once they get their DRG

they kick it out, kick the patient out. But as you said, Dr. Steele

or Dr. Berenson, I have forgotten which, maybe the readmission

DRG could be at a lower level, is one way. Then the question is,

how do you coordinate with doctors and other providers once they

are in the hospital, and also out of the hospital to lower the successive readmission?

Dr. MILLER. So in addition to the hospital penalty, is what your

question is?

The CHAIRMAN. Yes.

Dr. MILLER. Yes. I think there are a couple of things that you

can think about here. We have made recommendations elsewhere,

and I am going to get you a silo solution, or at least a plan, and

then get you to a bundled plan.

We have made recommendations, for example, to have impacts

on the skilled nursing facilities payments when they have high readmission rates, so you have the actor who is sending the patient

and the actor who is receiving the patient both at risk for a readmission, and you can kind of begin to implement things like that

in a siloed system.

We did not do it in this particular recommendation, but the physicians in the hospital, their payments can also be considered if the

readmission rates are very high. I already mentioned in the opening statement the notion of gain sharing as another mechanism to

bring the physician into it, but then the objective, and I think what

the commission is thinking about is, if you have a bundled payment

that runs across those providers in the hospitalization—the hospital; the physician; in the first 30 days post-acute care, the physicians who see the patient—then you have all of their incentives

going in the same direction in that they all want to avoid that readmission and they all want to avoid unnecessary services, consultations, that type of thing. That is kind of the thinking.

The CHAIRMAN. Dr. Steele?

Dr. STEELE. Yes. We deal with 17 non-Geisinger hospitals. These

are small hospitals. I am sure you are familiar with the small hospitals in rural communities. One of the things that we are noticing

now as our readmission rate dives down with our version of medical home, is stress on these small hospitals. They are important

to us. We do not want to acquire them, but we want them healthy

because we are trying to give as much care close to where patients

live in the small towns of rural Pennsylvania as we can. It is a

tough one. We are continuing to work with them because they are

going to have to redefine themselves, and that is not easy to do.

But I think that will be a very complex part of anything that successfully treats these patients.

The CHAIRMAN. And how will they have to redefine themselves,

why, and in what way?

Dr. STEELE. Well, if they have fewer admissions, they are going

to have to give care in a different manner, and they are going to

have to actually probably look at their fixed cost structure. Now,

as you are well aware, a lot of these hospitals are the largest generator of employment for the small towns.

26

The CHAIRMAN. Right.

Dr. STEELE. So, it is not easy. I think the key thing, though, is

to do the right thing for the patients and to be sensitive about the

effect that it has on some of these wonderful, but very small, very

close to the margin, rural community hospitals.

The CHAIRMAN. Dr. Berenson?

Dr. BERENSON. Yes. I have a suggestion about how small hospitals can redefine themselves, and that is by essentially becoming

the locus for the chronic care management activities. Small practices, I do not think, will have the capability of doing what

Geisinger does in terms of developing collaborative teams, having

dedicated nurse managers for specific chronic conditions, having a

very active social service activity. We want to have those doctors

doing primary care, availability/access to care for their medical

care.

It is the hospital, in my view, that can help organize that support

activity to house the disease management nurses, to get a part of

the chronic care management. So, instead of a health plan contracting with a disease management company and being on the

phone three States over or in some call center somewhere, you actually locate it in the community.

The North Carolina Medicaid program has that kind of model,

where you have primary care physicians in a medical home, but

they support community-based nurses either at hospitals or in

health departments to do the coordination so that they, in effect,

have virtual teams. I think that community hospitals could be

doing some of that activity.

The CHAIRMAN. Your thoughts about CMS and implementing

some of these demonstrations or pilot projects and so forth. I think

to some degree next year, in our health care reform legislation, we

are going to be delegating a lot to CMS to implement some of these

changes. It is an open-ended question. Just, what guidance do you

have for this committee in dealing with CMS so that CMS does

what it should be doing?

Dr. MILLER. At least a couple of things I think are imbedded in

our testimony and the report, and my comments. On the medical

home and on the bundled payments plus 30 days, I chose this word

carefully, but it is subtle and so it may be missed, is the notion of

a pilot so that you set standards for what the success rate is, for

the success of the test. If the test is successful, then you can roll

out another wave and kind of move forward. That is one thought.

A second thought on the medical home is, and I will be very direct about this, we think more money should be devoted to testing

that concept so that you can get results quickly and figure out

whether this thing is going to work or not outside of a network environment like Glenn has going there.

So we would encourage more money and the notion that, if you

set the standards high for multiple chronic conditions and some of

the conditions for the medical homes that we talk about in the testimony, you can get a good test and then figure out what is needed

going forward. So pilot concepts, a little more money on the medical home, and then set the criteria fairly high to get the thing

tested.

27

The CHAIRMAN. Do you think the medical home should focus on

chronic care as opposed to everybody?

Dr. MILLER. I would say initially to test this concept, absolutely,

yes. If you are going to see an impact, you are going to see it there,

in multiple chronic condition patients where you can avoid the hospitalization, which I think is where the money is.

The CHAIRMAN. All right. Other thoughts about what we tell

CMS.

Dr. BERENSON. Well, I just wanted, having been a senior official

at CMS for 3 years at the last part of the Clinton administration,

I am very sensitive to how overworked and understaffed CMS is.

There is data that suggests the complement of staff is about the

same now as it was 25 years ago, with many more responsibilities.

It is simply stretched.

So my understanding third-hand—well, when we say, to be a

value-based purchaser, not just putting a formula into the Federal

Register, but actually doing what is required for things like the durable medical equipment competitive pricing, involves enough staff,

and with some new skills sets, to be able to handle something like

that. I just do not think right now, if we really want to seriously

move to being a much more nimble value purchaser, that CMS has

adequate staff or skill sets, and that needs special attention.

The CHAIRMAN. Dr. Steele?

Dr. STEELE. Yes. I think you start where the money is. We have

all heard the 80/20 rule: 20 percent of the patients are using 80

percent. That is where, I think, Mark, you and I agree. George

Halvorson has been talking about it for a long time out of Kaiser.

We are experimenting with that group. So I would say, what would

be the ideal outcome for that cohort of patients that has the highest utilization, and then how do we get there? How do we incent

for that?

The other thing, quite frankly, is that, in 1966 when the Medicare law was written, it starts out by saying that we do not want

to influence the care that is given throughout our country. We have

come a long way.

The CHAIRMAN. We sure have.

Dr. STEELE. That is the original sin, so we have to get through

that.

The CHAIRMAN. Thank you all very much. This has been a very

constructive hearing. I appreciate it.

[Whereupon, at 11:31 a.m., the hearing was concluded.]

(29)

A P P E N D I X

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

(91)

COMMUNICATIONS

92

93

94

95

96

97

98

99

100

101

102

103

104

105

106

107

108

Æ