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S. HRG. 110–352

MEDICARE PAYMENT FOR PHYSICIAN SERVICES:

EXAMINING NEW APPROACHES

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 1, 2007

(

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

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

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 ................................................. 12

WITNESSES

Hackbarth, Glenn M., J.D., chairman, Medicare Payment Advisory Commission (MedPAC), Washington, DC ........................................................................ 3

Orszag, Peter R., Ph.D., Director, Congressional Budget Office, Washington,

DC .......................................................................................................................... 7

Wilson, Cecil B., M.D., chairman, board of trustees, American Medical Association, Winter Park, FL ...................................................................................... 9

Thames, T. Byron, M.D., member, AARP board of directors, Orlando, FL ........ 10

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

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

Bunning, Hon. Jim:

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

Grassley, Hon. Chuck:

Opening statement ........................................................................................... 12

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

Hackbarth, Glenn M., J.D.:

Testimony .......................................................................................................... 3

Prepared statement with attachments ........................................................... 38

Responses to questions from committee members ......................................... 59

Orszag, Peter R., Ph.D.:

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

Prepared statement .......................................................................................... 67

Responses to questions from committee members ......................................... 87

Thames, T. Byron, M.D.:

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

Prepared statement .......................................................................................... 91

Responses to questions from committee members ......................................... 110

Wilson, Cecil B., M.D.:

Testimony .......................................................................................................... 9

Prepared statement .......................................................................................... 115

Responses to questions from committee members ......................................... 129

COMMUNICATIONS

American Academy of Family Physicians .............................................................. 139

American Occupational Therapy Association, Inc. ............................................... 148

(III)

(1)

MEDICARE PAYMENT FOR PHYSICIAN

SERVICES: EXAMINING NEW APPROACHES

THURSDAY, MARCH 1, 2007

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10:03 a.m., in

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

(chairman of the committee) presiding.

Present: Senators Wyden, Stabenow, Salazar, Grassley, Hatch,

Smith, Bunning, and Roberts.

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

In 1976, the President of Memorial Sloane-Kettering said, ‘‘The

great secret of doctors, still hidden from the public, is that most

things get better by themselves. Most things, in fact, are better in

the morning.’’

Unfortunately, health care costs are not one of those things.

Health care spending is growing at roughly twice the rate of inflation. Since the year 2000, Medicare spending on physician services

has grown nearly 10 percent a year.

Health care costs will not just get better in the morning. Health

care costs’ growth has not been uniform across the country. There

are wide variations in the volume of services provided to comparable patients. These variations appear both across geographical

regions and among physician specialties.

The evidence also strongly suggests that patients are not reaping

better health outcomes in exchange for this extra spending. In fact,

some evidence suggests that more services may equate with worse

health outcomes.

Another thing that will not just get better in the morning is the

way that Medicare pays doctors. In 1997, Congress created the system that we have now. Congress created a thing called ‘‘Sustainable Growth Rate’’—SGR. It was meant to control what Medicare

spends on doctors.

But the SGR is not working. If Congress had not intervened, the

SGR would have produced steep cuts in physician payments since

2002. If Congress does not intervene, the SGR will continue to

produce steep cuts for the foreseeable future. But every year since

2003, Congress has intervened to avert these cuts. The SGR will

not just get better in the morning.

2

We need to establish a sound, predictable system. That is why,

in early 2006, Congress asked MedPAC to examine a variety of alternative mechanisms for controlling physician expenditures under

Medicare. This morning, MedPAC released its report, and I am

looking forward to hearing the Commission’s chairman, Glenn

Hackbarth, explain what MedPAC found.

Whatever path we choose, we need to ensure that only appropriate evidence-based services are being provided to Medicare beneficiaries. We must strive for a system that demands the highest

quality and most efficient use of resources.

Yes, we must defer to the clinical expertise of doctors and other

providers in caring for patients, but we must also realize we have

a responsibility to control the growth in volume of services so that

the Medicare program can be sustained in the future.

Our experience with the SGR has demonstrated that a targetbased system that cuts payment rates may not be a very effective

way to control the volume of services or overall spending. For some

time, MedPAC has encouraged Congress to adopt a variety of

measures that will create incentives for quality and efficiency, and

many of those recommendations are included in this report, along

with some new ones. We will move forward on many of these fronts

this year.

Any honest discussion about reforming the current SGR system

must also address the elephant in the room: the budget baseline.

The budget baseline assumes that Congress will not suspend SGR.

Thus, modifying the system in a way that achieves some payment

equity over the long term will be extremely costly.

That is why it is important to hear from Peter Orszag, the Director of the Congressional Budget Office. We must be realistic and

cost-conscious in mapping our way forward.

Another key question relates to the experience of Medicare beneficiaries. The beneficiaries, after all, are the reason that we are

here today. We need to ensure that seniors remain able to get good

medical care.

Doctors in my home State of Montana tell me they are committed

to serving these patients, and recent studies by MedPAC, GAO,

and others suggest that our seniors are not having much difficulty

seeing a doctor.

But I do hear reports about doctors in some parts of the country

refusing to see new Medicare beneficiaries. They claim that the

cost of treating them exceeds their reimbursement. I am concerned

that a new generation of doctors is coming of age that may not be

as willing to see Medicare beneficiaries. We need to take steps now

to ensure that that does not happen.

The challenge of the SGR in health policy is something like that

of the AMT in tax policy: they are both three-letter words. [Laughter.] They both stand for real problems that Congress has been

ducking for years.

So let us roll up our sleeves. Let us get to work. It is my hope

that the MedPAC report will give us a new launching pad for intense discussion of these issues. Let us find reforms that will ensure the efficient use of Medicare dollars. Let us find reforms that

will maintain beneficiaries’ access to high-quality services, and let

3

us do more than just ‘‘take two aspirin,’’ only to find we have the

same problem in the morning.

So, thank you, all who are here. Senator Grassley is almost always here, Johnny-on-the-spot, on time. He is delayed this morning

because he is introducing the mayor of Des Moines at a very important occasion, and he will be here very shortly.

But in the meantime, let us now turn to our panelists. We will

hear, first, from Glenn Hackbarth, the chairman of MedPAC. He

will present the Commission’s report on alternatives to SGR, which

was requested by Congress in the Deficit Reduction Act of 2005.

He will then be followed by Peter Orszag, the Director of the

Congressional Budget Office, who will describe the budgetary outlook of the SGR and implications of reforming it.

We will hear from Dr. Cecil Wilson, chairman of the AMA board

of trustees, who will discuss challenges posed by the current payment system and the impact of potential reforms.

Finally, Dr. Byron Thames, a member of AARP’s board of directors, will provide insight regarding Medicare beneficiaries’ perspective on the current system and potential reforms. Actually, I do not

want to say what they are all going to say, because clearly each

is going to say what each one wants to say, and I encourage you

to do that.

But thank you all for coming, very, very much. There is a light

in front of you. Basically it turns red when your time expires. We

are going to try to honor that light as much as we possibly can.

Chairman Hackbarth?

STATEMENT OF GLENN M. HACKBARTH, J.D., CHAIRMAN,

MEDICARE PAYMENT ADVISORY COMMISSION (MedPAC),

WASHINGTON, DC

Mr. HACKBARTH. Thank you.

The CHAIRMAN. And I might say, we have agreed to give you 10

minutes rather than the standard 5 so that you can have time to

say what you want to say.

Mr. HACKBARTH. I appreciate that. Thank you, Mr. Chairman,

Senators. I appreciate the opportunity to discuss our report on alternatives to Medicare’s Sustainable Growth Rate system.

As requested in the Congressional mandate, MedPAC has analyzed the pros and cons of expenditure targets in general, as well

as the five specific options included in the mandate, namely targets

based on geography, separate targets for multi-specialty group

practice, targets based on hospital medical staffs, targets based on

type of service, and outliers.

In our report, we present two alternative policy paths for your

consideration. One of those paths does not include an expenditure

target and the other does include an expenditure target.

As you know, MedPAC is a 17-member Commission. We have a

wide variety of backgrounds and experiences represented on the

Commission: we have clinicians, and health care executives, and

academics, and former government officials.

Despite the diversity of the Commission, we have generally been

very successful in forging a consensus in our recommendations to

Congress. For example, in our March 2007 report to Congress,

4

* For additional information on this subject, see also, ‘‘Report to the Congress: Assessing Alternatives to the Sustainable Growth Rate System,’’ MedPAC, March 2007, available at http://

www.medpac.gov/documents/Mar07—SGR—mandated—report.pdf.

which is being separately transmitted to you today, we have nine

recommendations to Congress.*

On those nine recommendations, there were only two ‘‘no’’ votes

and one abstention. There were 120-some ‘‘yes’’ votes. That is typical of past MedPAC reports. So we take pride in the fact that we

are able to take a wide variety of perspectives and forge them into

one consensus position to help guide you.

Alas, in this particular case, the SGR, it has not been possible

for us to forge a consensus within the Commission about what to

do, at least with regard to some aspects of this problem.

So what I have done, to help you understand where Commissioners agree and where we disagree, is to try to break the SGR

problem into four dimensions. Before you, you have two pieces of

paper, the first of which is labeled ‘‘Four Dimensions of the SGR

Problem.’’ I am going to be using that as the framework for my

comments, so I would ask you to refer to it.

The CHAIRMAN. Yes. We have that here. I think, at least I do.

Do other Senators have it? Good. All right.

Mr. HACKBARTH. All right.

So let me begin with the first bullet there: ‘‘Encourage Efficiency

in the Delivery of Health Care.’’ Obviously that is an important

goal. Let me start by defining what we mean by ‘‘efficiency.’’ By ‘‘efficiency,’’ we mean maximizing the benefit to patients for any given

level of expenditure.

In other words, it is not just about reducing costs. If you just reduce cost, and at the same time reduce quality, we do not consider

that increasing efficiency. So the objective for the Medicare program is not just cost reduction, but reducing the amount of money

we have to spend to get any given level of improvement for Medicare beneficiaries.

There is unanimous agreement within MedPAC that expenditure

targets by themselves, target systems like the SGR, do not establish appropriate incentives for efficiency. Indeed, by only constraining the amount paid for individual units of service, an expenditure target may, in fact, induce inappropriate cost-increasing

behavior that does not contribute to the benefit of Medicare beneficiaries.

For example, increases in the volume and intensity of service,

perhaps as a result of many physicians investing in imaging equipment and then using that equipment more than necessary, can increase costs without commensurate improvements in quality of

care. In addition, payments that are too low as a result of an expenditure target may well impede access to quality care for Medicare beneficiaries.

To establish proper incentives to improve efficiency, Congress

must pursue a broader agenda. That agenda is briefly summarized

in the second handout before you labeled ‘‘Increasing Value and Efficiency in the Medicare Program.’’

Let me briefly describe the four items here. By ‘‘Pricing Accuracy,’’ we mean trying to set rates for all types of providers, not

5

just physicians, accurately to reflect the type of patients cared for

and the services provided.

There are important reforms that MedPAC has recommended in

the physician payment system, the hospital payment system, and

the post-acute payment systems to improve pricing accuracy, but

much work remains to be done.

The second item, ‘‘Coordination of Care,’’ refers to assuring that

patients have appropriate continuity of care over time, especially

patients who have chronic illnesses and perhaps multiple chronic

illnesses.

That involves education of patients, communication with patients

between visits, and a variety of supports, as well as sharing information among clinicians about the care given to a given patient.

The third bullet, ‘‘Accountability,’’ includes such items as pay for

performance and helping physicians understand how their use of

resources compares to their peers.’

Then the last bullet, ‘‘Information,’’ refers to providing both clinicians and patients better information on risks and benefits of treatments, including comparative effectiveness of treatments. So, there

is a lot behind these bullets, and I would be happy to delve further

into it during the question and answer session.

The important thing right now is for you to understand that the

Commission is unanimous in believing that these are the sort of

steps necessary for Medicare to improve value and efficiency in

health care delivery.

The Commission is also unanimous in believing that this value

and efficiency agenda is urgent and requires a much, much larger

investment in CMS’s capability to develop, implement, and refine

payment systems.

CMS has important projects under way in this regard, some at

the specific request of the Congress, but frankly the process is far,

far too slow because we are not investing adequately in the improvement effort.

Now let me turn to the next bullet, the second bullet of the four

dimensions of the SGR problem, and that is ‘‘Encouraging Fiscal

Discipline in Policy Making.’’ Well, if expenditure targets, by themselves, do not establish proper incentives for efficiency, what are

they good for? What role could they play in the system?

Some Commissioners—and this is one of the issues where we are

not in unanimous agreement—believe expenditure targets are useful in encouraging fiscal discipline in the policy-making process. So

they are not useful in changing behavior of providers in a constructive way.

To be real blunt about it, they are useful in disciplining the Congressional process and the executive branch process of setting policy and budgets. To be specific and blunt, some Commissioners believe that expenditure targets make it more difficult to grant large

rate increases to providers. Moreover, they may create the political

leverage to force providers to accept reforms that they might otherwise resist.

While acknowledging these potential benefits, the other Commissioners who do not like expenditure targets believe that these benefits would come at too high a price.

6

Now let me go to the third of the four dimensions of the SGR

problem, ‘‘Increasing Equity Among Regions and Providers.’’ This is

another area where we have widespread agreement within the

Commission, and that is on the point that the existing SGR is highly inequitable in very important respects.

Let me give a few examples of that. If the target under the SGR

is exceeded, all physicians are punished equally regardless of their

individual performance. In addition, all regions of the country are

treated equally, even though there is abundant evidence that

health care delivery is more efficient in some parts of the country

than others. As you know, there is more than a 2-fold difference

in per capita spending at the State level.

Finally, the SGR is inequitable in that it targets only physicians,

when in fact, from the Commission’s perspective, we have not just

a physician cost problem in Medicare, we have a total cost problem

in Medicare that includes hospitals and post-acute providers, and

everybody else in the system.

So if Congress elects to retain an expenditure target, we believe

it would be both fairer and more effective to apply that target to

total Medicare costs, not just physician costs, to apply greater pressure in high-cost regions of the country than low-cost regions, since

they are the ones contributing more to the overall cost problem,

and, in addition, it would be important to allow an opportunity for

groups of providers—voluntary groups of providers—to band together in what we refer to as Accountable Care Organizations.

Those groups of providers would then be entitled to a separate assessment of their performance relative to the targets established by

the Congress.

Make no mistake: making an expenditure target system more equitable—and it would never be wholly equitable—is not an easy

task. It would take time—and by ‘‘time’’ I am talking years, not a

few months—years of effort, patients’ determination, and investment in systems, information systems in particular, to guide the

workings of the system. Without tying patients’ determination and

investment, the risk of failure and unintended consequences will

increase dramatically.

So why make these investments? Why run the risk? Well, the

proponents within the Commission of expenditure targets believe

that Medicare’s cost problems threaten not only the Federal budget, but also the entire health care system by reinforcing a style of

health care that is increasingly unaffordable to Americans.

The last of the four dimensions.

The CHAIRMAN. You will need to wrap it up a little bit here.

Mr. HACKBARTH. I am at the last part.

The CHAIRMAN. Thank you.

Mr. HACKBARTH. And I appreciate your forbearance, Senator.

So the last part of this challenge, as you mentioned, is the budgetary impact of changing the SGR. I know this is where you most

wish we had an easy answer for you, but, in fact, I do not.

I would say, however, that in our March report which we have

sent you today, there are a number of proposals that could substantially reduce Medicare expenditures over the long run, and we

would ask you to give serious consideration to those proposals.

Thank you very much.

7

The CHAIRMAN. Thank you very, very much.

[The prepared statement of Mr. Hackbarth appears in the appendix.]

The CHAIRMAN. I will now turn to Dr. Peter Orszag.

STATEMENT OF PETER R. ORSZAG, Ph.D., DIRECTOR,

CONGRESSIONAL BUDGET OFFICE, WASHINGTON, DC

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

Grassley, and members of the committee.

My testimony this morning makes four points. First, the Sustainable Growth Rate method entails a target level of expenditures and

a method for adjusting physician payment rates over time in an attempt to bring expenditures in line with the targets.

The first chart that I have shows that, because of relatively rapid

growth in covered expenditures since 1997, spending covered by the

SGR method has been above the targets established by the formula

since 2002. You can see that in the solid blue line which is above

the dotted blue line beneath it.

In 2006, expenditures covered under the SGR method——

The CHAIRMAN. And I might add, you have copies here, right?

Dr. ORSZAG. Yes.

The CHAIRMAN. Slides here. We all have the same slides, right?

Dr. ORSZAG. They are the same slides.

In 2006, expenditures counted under the SGR method totaled

$95 billion, which was $13 billion more than the $81.7 billion expenditure target for that year.

There is also a cumulative target. Total spending since the SGR

method was put in place in 1997 now stands at about $43 billion

above the system’s cumulative target. You can see that in the bottom solid line, which is, for 2006, above $40 billion.

As a result of these expenditures being above the targets, the

SGR mechanism, if implemented as currently specified, will substantially reduce payment rates for physician services over the next

several years.

In particular, CBO estimates that fees for physician services

under the SGR will be reduced by about 10 percent in 2008, and

around 5 percent annually for at least several years after that.

You can see that occurring because the top blue line falls beneath the dotted line at the top. Similarly, the cumulative spending

falls back towards zero, which is the whole point of the SGR mechanism.

If fully implemented, payment rates could decline by a total of

around 40 percent in nominal terms by 2015 if physicians continue

to provide services at the current rate, and by much more than

that in real or inflation-adjusted terms.

Second, legislation has prevented the reductions called for by the

SGR mechanism from taking effect in recent years, and the Congress may choose to override the SGR mechanism again or may

choose to change or replace it in the future. However, doing so will

entail budgetary costs.

My testimony provides figures on the budgetary implications of

different examples of changing the SGR mechanism. For example,

one policy change would override the scheduled reduction for 2008

8

and hold overall payment rates under the physician fee schedule

constant.

In 2009 and subsequent years, payment rates would be determined by the SGR formula, under which the maximum adjustment

factor of –7 percent would apply. According to CBO’s estimates,

this option would increase net Federal outlays by $34 billion over

the next 10 years.

As another example, and perhaps underscoring the scale and

magnitude of the issue involved here, repealing the SGR mechanism—this is my next slide—and allowing updates in line with the

Medicare Economic Index each year would increase expenditures

by an estimated $262 billion over the next 10 years.

Furthermore, that change would increase Part B premiums and other expenditures for beneficiaries by about $70 billion, which is

netted out of the $262 billion. So in other words, if you wanted to

hold beneficiaries harmless from the increase in payment rates for

physicians, the total cost would be something more like $330 billion

over the next 10 years.

The third point in my testimony is that the SGR issue provides

an important illustration of the powerful role played by incentives

in the health sector. Changes in fees will affect the behavior of physicians. For example, evidence suggests that fee reductions would

result in a partially offsetting increase in the volume and intensity

of services provided by physicians.

Another behavioral response is that, especially if the large reductions in fees called for under the SGR mechanism were fully implemented, it would be very likely that physicians would impair access

to Medicare Part B beneficiaries.

Finally, and perhaps most fundamentally, the task of setting

payment rates for Medicare services must be addressed in the context of challenging long-run budgetary trends, my final chart.

Policymakers face both a challenge and an opportunity in addressing projected health care cost growth. The challenge is that,

over long periods of time, cost growth per beneficiary in Medicare

and Medicaid has tended to track cost trends in private sector

health markets.

Many analysts, therefore, believe that significantly constraining

the growth of costs for Medicare and Medicaid is likely to occur

only in conjunction with slowing cost growth in the health sector

as a whole.

The opportunity is that a variety of evidence suggests the possibility of constraining health costs without adverse health consequences. Moving the Nation toward capturing this opportunity is

essential to putting the country on a sound long-term fiscal path.

It is the central long-term fiscal problem facing the United States.

In that context, it seems particularly useful to examine options

for using the payment system to encourage the health system to

deliver high value and cost-effective care. Former CMS Administrator Mark McClellan refers to this as moving from a fee-for-service system to a fee-for-value one.

Systems for shifting incentives toward higher-value care will

likely require two changes to the underlying health infrastructure.

The first is an information infrastructure to collect data on patients’ conditions, the services ordered by physicians, and health

9

outcomes, and then to distribute information back to individual

doctors or groups, basically a significant investment in health information technology.

The second is an adequately funded institution, whether inside

the government or outside it, to analyze the data, evaluate comparative effectiveness, and perhaps design and implement payment

systems that reward the more efficient practice of medicine.

The Congressional Budget Office will be examining both of these

potential steps in future reports. Even with these systems in place,

shifting provider incentives will necessarily be an iterative process

in which both innovative medical interventions and payment mechanisms are tried, evaluated, and recalibrated.

Thank you very much, Mr. Chairman.

The CHAIRMAN. Thank you very much. That is very helpful.

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

The CHAIRMAN. Dr. Wilson?

STATEMENT OF CECIL B. WILSON, M.D., CHAIRMAN, BOARD OF

TRUSTEES, AMERICAN MEDICAL ASSOCIATION, WINTER

PARK, FL

Dr. WILSON. Thank you, Mr. Chairman.

My name is Cecil Wilson. I am chair of the board of trustees of

the American Medical Association. I am also an internist from Winter Park, FL.

The AMA wants to thank Chairman Baucus, Senator Grassley,

and members of the committee for your efforts under H.R. 6111,

the Tax Relief and Health Care Act of 2006, to stop the 5-percent

Medicare physician pay cut in 2007 and to allocate $1.35 billion to

help offset the projected 10-percent cut in 2008.

However, the Medicare physician payment system is broken.

Over the last 6 years, as you have heard, MedPAC has recommended physician payment updates consistent with increased practice costs, while Congress has not adopted those recommendations.

The result has been that payment rates have fallen well below

medical inflation.

Since 2002, the physician community has had to work with Congress each year to achieve 11th hour interventions to ward off

steep payment cuts and preserve patients’ access to care.

As long as spending targets remain in place, this annual cycle

has no end in sight. This is no way to do business and no way to

treat Medicare patients. It is time to replace the underlying cause,

the SGR, and protect the Medicare program, especially as the baby

boomers begin enrolling in 2010.

MedPAC recommends that Congress provide a 1.7-percent payment update for 2008. We strongly agree. MedPAC has also identified SGR alternatives. One is to repeal the SGR, along with adopting methods to assure appropriate use of service. The AMA agrees.

In fact, this is a first priority on joint recommendations that the

AMA has developed, along with 77 organizations representing physician specialties and other health professionals.

These recommendations, attached to our written testimony, also

provide mechanisms by which the medical profession would work

to assure appropriate use of medical care. This would include analyzing utilization and quality by condition, type of service, episodes

10

of illness, region, and specialty. We are committed to working with

Congress, CMS, and MedPAC to develop these mechanisms.

As a second alternative, MedPAC suggests expanding the spending target to all Medicare services and providers. The AMA does

not support an expanded target. No amount of tinkering can fix

what is broken beyond repair.

In fact, MedPAC previously concluded that expanding the SGR

to other Part B providers is unworkable and would extend SGRdriven pay cuts. In addition, spending targets are incompatible

with physician adoption of health information technology and quality initiatives.

The reason is, quality initiatives often encourage greater utilization of physician care, including aggressive strategies to manage

chronic diseases that increase physician visits, imaging, lab tests,

and drug therapies. This can reduce more expensive hospital admissions, but it increases spending under the SGR, leading to additional payment cuts.

Payment cuts make it impossible for physicians to make the significant financial investment needed for health information technology and quality initiatives. The SGR has trapped physicians and

policymakers in a vicious cycle.

Now, spending targets also presume that physicians alone control the utilization of Part B health care services. The reality is,

many other factors contribute to volume growth for Part B.

These include the increased prevalence of chronic conditions, government benefit expansions, new life-saving technologies, and an

aging population. Because of this, spending targets are ineffective.

Finally, I would like to respond to concerns that Medicare physician payments will increase Part B beneficiary premiums. Premium increases are due, in part, to increases in payment for physician services, but also for other services covered by Part B, including, for example, hospital outpatient services, Medicare Advantage

plans, and other providers; in fact, spending for physician services

accounted for only 14 percent of the 2007 premium increases.

The AMA asks that Congress ensure that physicians are treated

like hospitals and other providers by repealing the SGR and enacting a payment system that provides updates to keep pace with increases in medical practice costs. We, in turn, are committed to

helping to assure appropriate use of services, and thank you for the

opportunity of being here today.

The CHAIRMAN. Dr. Wilson, thank you very much.

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

The CHAIRMAN. Dr. Thames?

STATEMENT OF T. BYRON THAMES, M.D., MEMBER, AARP

BOARD OF DIRECTORS, ORLANDO, FL

Dr. THAMES. Mr. Chairman, members of the committee, I am Dr.

Byron Thames of the AARP’s board of directors. Thank you for inviting AARP to testify today.

AARP believes that the time has come to move Medicare towards

a payment system that encourages physicians to provide greater

value for the health care dollar. AARP recently conducted a survey

asking older Americans—current, former, and future Medicare

beneficiaries—about their experience with physicians.

11

The vast majority of those surveyed report good access to, and

high level of satisfaction with, their physicians. But for many, the

cost of care remains a concern. The AARP members surveyed are

among the over 43 million Americans who rely on Medicare for

health care coverage. Physicians are central to the delivery of that

health care.

While we believe physicians who treat Medicare patients should

be paid fairly, we have learned from our members the program

must be affordable as well. Determining how to balance these two

needs is a complex, yet critical, policy problem that must be solved

for the Medicare program to remain strong for future generations.

The Sustainable Growth Rate system, which has been widely recognized as flawed, does not distinguish between doctors who provide Medicare beneficiaries with high-quality care and those who

provide unnecessary or inappropriate services.

Moreover, the SGR has not been effective at controlling the volume or intensity of services, leading to higher Medicare spending

and greater out-of-pocket costs for beneficiaries.

The monthly Medicare Part B premium, set at 25 percent of Part

B spending, has doubled since 2000. Beneficiaries also face increased cost-sharing obligations—higher deductibles—when Part B

expenditures rise. There does not seem to be an end in sight to

these out-of-pocket increases. Using existing SGR methodology,

physician fees are expected to be reduced each year, at least until

2012.

Under this scenario, we can expect to continue the now-annual

cycle of physician groups lobbying Congress to avoid payment cuts,

doctors threatening to stop taking Medicare patients, and Congress

overriding the SGR at the last minute.

We must find a better approach. AARP believes that, ultimately,

the SGR should be replaced with a system that encourages physicians to provide beneficiaries in the Medicare program with greater

value for the health care dollar.

Medicare beneficiaries need, and expect their doctors to provide,

effective treatment. Payment incentives should encourage high

quality, not unnecessary quantity. A truly sustainable payment

system would be built on a foundation that emphasizes four key

elements: (1) information technology; (2) greater use of comparative

effectiveness; (3) performance measurement, including physician

resource use; and, (4) enhanced care coordination.

My written statement details each of these. But before any

changes to the SGR are made, there are a number of factors to consider. First, ultimately repealing the SGR would be, and will be,

quite costly. A transition to a value-based purchasing framework

must not be financed at beneficiary expense.

Second, we need to make sure beneficiaries are protected from

extraordinary out-of-pocket expenses as the system is reformed.

One such protection could be a cap on Part B premium increases.

Another potential option is to limit total Part B out-of-pocket costs.

Third, elimination of the SGR cannot be viewed as carte blanche

for physicians to maximize revenues through uncontrolled volume.

Rather, a new payment system should be designed to encourage appropriate care.

12

Congress cannot continue to avoid the current problem in the

Part B payment system. Each year we wait, the problem only gets

worse. We believe the time to act is now. AARP stands ready to

work with Congress and the physician community to develop a

workable solution.

Thank you, Mr. Chairman.

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

The CHAIRMAN. Thank you all very much.

I would like to turn to Senator Grassley, who unfortunately was

detained at the beginning. He would like to make an opening statement.

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Yes. What I want to do here, Mr. Chairman,

is I want to put my statement in the record right after your statement, and I just want to highlight some points.

It is obvious from what everybody said here today that we are

working with a formula that is fundamentally flawed and obviously

is not working the way it was intended to do. Maybe we did not

have an understanding of that 20 years ago, but we sure know it

now.

One of the key questions being examined today already is to improve value in Medicare and to reward that higher quality and

more efficient care. In order to do this, we have to do away with

a system that rewards over-utilization and inefficiency.

That is how we are paying people today. But this method of

spending has little bearing on quality, even though you and I have

been working in that direction with people in the previous Congress leading the Ways and Means Committee. We are just barely

making baby steps that might lead us to that point, and we have

confidence it will, but we may come to the conclusion that it is taking an awful long time, too.

There is no doubt that most physicians care deeply about the

quality of care that they provide their patients, but the system does

not have the right incentives that are going to foster improvement

of care, so we need to change the equation and identify better

ways.

One way that Senator Baucus and I have worked on in the last

Congress was the Medicare Value Purchasing Act, and obviously it

was just introduced and has not moved. I look forward to talking

to the Chairman about a possible reintroduction of that bill.

So today in this hearing under new leadership, we face the challenge of developing that long-term solution to the physician payment formula. We have to ensure that physicians and other health

care providers can afford to practice medicine at the same time we

are trying to make these changes.

But we also have to preserve Medicare beneficiaries’ access to

physicians. Now, in urban areas that may not be a major problem,

but in Montana—and maybe more so in Montana than even in

Iowa—it is a very major problem. And, of course, to do all of this

is a very tall order that the Chairman is taking on, but it is something we have to do.

13

One point that I want to make that just came to my mind was

not in my printed statement. Now, you folks may consider all of

Iowa rural, even including Des Moines of 250,000 people, but let

me tell you, when you get out into the county seat towns and I

have my town meetings, doctors are so busy, they do not come to

every meeting.

But when doctors do show up and they talk about the SGR, you

really feel a morale problem among doctors in rural areas. You

even feel it more strongly from the spouses who come along with

their husbands and express it. I think we have to keep that in

mind if we are going to have quality health care delivery in rural

America, primarily.

Thank you.

[The prepared statement of Senator Grassley appears in the appendix.]

The CHAIRMAN. Thank you very much, Senator.

I would like to do a couple of things here. First, I want to just

establish how deep of a hole we are in with the SGR and how intractable it really is.

Dr. Orszag, if you could just give us a sense of what the formula

is doing to the budget and, therefore, the problems that we have

facing us with respect to it.

Dr. ORSZAG. Well, again, one metric for that is to look at what

would happen if you repealed the SGR mechanism, and over the

next 10 years that would entail another $262 billion in expenditures for the Federal Government, plus another $70 billion in higher costs for Part B beneficiaries. If you held the Part B beneficiaries harmless from that increase, the total net cost to the Federal Government would be $330 billion.

The CHAIRMAN. So the formula is presenting a great problem for

us.

Dr. ORSZAG. That is a significant expenditure, yes.

The CHAIRMAN. Right.

I would like to just ask all of you if you agree with the basic view

that, if we are going to address health care costs—we are now talking about physicians, but it probably is true for other health care

costs—we have to get at the underlying reason why Medicare costs

are going up so much, the underlying reason why Medicaid costs,

health care costs, both public and private sector, are going up so

much.

Unless somebody indicates to the contrary, I am going to assume

that you all agree that that is probably the fundamental direction

that we should be pursuing. Is that correct? Dr. Wilson, do you

agree?

Dr. WILSON. Absolutely. One of the problems with the SGR, it is

the meat axe, it is not the surgeon’s scalpel. As you have heard,

it does not tell us how much of that volume is appropriate and how

much of it is inappropriate, and that is where we need to look.

The CHAIRMAN. Right. Right.

Now, the next question. If we all agree generally on that point,

the next question is, obviously, what do we do about it? Which

measures are going to be most effective in the near term and which

measures might be more effective in the long term? Some have sugVerDate 11-MAY-2000 14:46 Apr 28, 2008 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 41472.000 SFIN1 PsN: SFIN1
14

gested health information technology, for example, and comparative evidence.

Let us go to pay-for-performance, for example. I would like to

kind of go down the table here and have each of you give the measures you think that we should be pursuing here that you think are

most efficient to get at underlying health care costs.

Mr. HACKBARTH. The crux of the problem is the incentives in the

fee-for-service payment system. So if you want to change how the

system works, the mix of care provided, you have to begin changing

fee-for-service payments. There are a lot of different components

for doing that, but let me just highlight a couple.

The CHAIRMAN. We do not have a lot of time here. Just hit the

highlights.

Mr. HACKBARTH. Just to give one example.

The CHAIRMAN. Sure.

Mr. HACKBARTH. One example is to pay physicians differently to

better reward primary care and better reward care coordination,

especially for patients with expensive illnesses.

The CHAIRMAN. But how do we get there when the specialty doctors do not like that? Basically, they do not want to give up what

they have.

Mr. HACKBARTH. Well, I thought the original question is, what

needs to be done.

The CHAIRMAN. Right. [Laughter.]

Mr. HACKBARTH. None of these changes are going to be easy, either from a technical standpoint or a political standpoint. The alternative is the path that we are on. A system that does not work

to change behavior in a constructive way ultimately will threaten

access to Medicare beneficiaries and blow a hole in the Federal

budget.

The CHAIRMAN. How do we address over-utilization?

Mr. HACKBARTH. Well, there are multiple ways, but an example

is effective primary care and care coordination for patients with serious illness. A lot of money goes to a small number of Medicare

beneficiaries with multiple chronic illnesses.

The evidence shows that many of those patients are receiving

more services than they need, in fact, in some cases so many services that they are harmful.

The CHAIRMAN. That is correct. So what do we do about that?

Mr. HACKBARTH. Change the payment system.

The CHAIRMAN. How?

Mr. HACKBARTH. There are a variety of different steps that we

have discussed, and will be discussing in the future, that would

change payment, increase payment for primary care, and a number

of different alternatives we are looking at for encouraging and rewarding care coordination.

The CHAIRMAN. Thank you.

Dr. Orszag?

Dr. ORSZAG. I think I have two basic messages for you. First, in

health care we get what we provide incentives for. So we currently

provide lots of incentives for advanced technologies and high-end

treatments, and we get a lot of that. We provide very little incentive for preventative medicine, and we get very little of that. So

that is the first theme.

15

The second theme is, given the scale of the problems that we

face, we need to be trying lots of different things and recalibrating

all the time, so we need to get into a mode of experimenting, trying, and readjusting.

Again, I would come back to two steps that I think are necessary,

but not sufficient. We do not have the evidence base yet across a

variety of treatment practices and technologies to know exactly

what is over-utilization in all cases and what is appropriate care.

We need to build that evidence base before you can design a broader system for altering incentives.

So I think, again, the two key steps are, we need some institution, whether inside the government or outside the government,

like the National Institute for Clinical Excellence in the U.K., that

examines the data on comparative effectiveness and that is accepted by the medical profession as defining best practices.

Second, we need an HIT backbone in order to provide the necessary information to that body to conduct those kind of analyses

and then to push information back to physicians, doctors, and other

providers. If those two steps were taken, you would at least have

put in place an infrastructure to start making the hard decisions

that will have to be made.

The CHAIRMAN. I appreciate that. My time has expired, but I am

going to come back to this theme the next round and ask all of you

the degree to which you agree or disagree with Dr. Orszag’s basic

approach.

Senator Grassley?

Senator GRASSLEY. Thank you very much.

I want to make clear something maybe I left out when I talked

about morale among doctors in rural areas. I think it comes, as I

hear it expressed to me, it is not just the level of payment or a formula that probably does not make sense. It is mostly related to the

uncertainty of it as much as it is the formula itself.

It is also related to the fact that all this time, costs are going up

for doctors at the same time that they might be taking a cut, at

the same time that they do not know whether they are going to get

an increase. That is the morale problem that I was speaking of.

Now, unrelated to that, I want to get to Dr. Wilson about one of

the fundamental recommendations of MedPAC. It is for a differential update to providers, and that would be based upon quality of

care.

Does the AMA support a physician payment system that will pay

some physicians more and some physicians less based upon quality

of care delivered? Then would Dr. Thames listen so I can get your

reaction?

Dr. WILSON. Thank you, Senator. I think the important thing

here is to say that the system we have is not working, and we are

in agreement on that. The other important thing to say is that we

believe that we should provide the best care possible.

I would also say to you that when I get up in the morning and

go to serve patients, I want to do the best job that I can. The best

way that I can do that is to know what is the best thing to do.

So the quality measures that we have been involved with for the

past 7 years are an effort to look at the latest in terms of science

and then to educate physicians about that.

16

I think the jury is still out about whether an incentive for doing

certain things like that is going to make a difference, and I think

we do not know that.

Senator GRASSLEY. All right. So then your answer is that you

cannot, right now, say whether you are willing to take a position

on more pay for some doctors, less pay for some other doctors,

based upon quality. You just do not know at this point.

Dr. WILSON. That is correct.

Senator GRASSLEY. Dr. Thames? Maybe you cannot comment on

it since he did not really take a position, but I still would invite

your comment.

Dr. THAMES. Sir, I was a practicing physician for 41 years doing

family practice, so I am very concerned about what is going to happen. I would say I fully support the AARP position that we should

move towards evidence-based medicine and pay for quality performance, and pay less for people who do not provide quality performance.

We believe that you made a great step last time in paying for reporting so that we can develop an accurate assessment of what is

quality care that we ought to be paying for.

We believe that the study of the outliers mentioned by MedPAC

is only one way of looking at where people are getting care that

seems to be as good for life expectancy, hospital admissions, and

so forth, for much less cost in some areas of the country and much

less frequency of visits, much less medication, whereas those costs,

for instance, in Miami, FL—and remember, I am from Orlando, FL

so I know how it is in Miami and Florida as a whole—where those

costs for the same kinds of services are considerably greater and

the amount of services is greater.

Senator GRASSLEY. And I think you are very clear that you do

think that there would be a good system if there were some doctors

paid more, some less, based upon quality.

Dr. THAMES. Yes, sir.

Senator GRASSLEY. All right.

Now, if I could go to Dr. Orszag. This is in regard to the same

outlier issues that have been brought up. CMS announced that it

would target outliers to determine if there was fraud or abuse.

So my question to you, too, do you think that this outlier and auditing system would alter physicians’ behavior? If so—and this is

probably more important than the first part of the question—would

you expect that you could measure savings for people like Senator

Baucus and me to figure out just exactly what things cost and how

much savings we have, et cetera? Go ahead.

Dr. ORSZAG. Again, there is significant evidence of very substantial variation in costs per beneficiary, for example, across different

regions and across different providers within the Medicare system.

I think that financial incentives do affect behavior, so changing financial incentives will affect behavior.

For example, if you move towards paying for quality or paying

for value rather than just fee-for-service, whether the net effect is

a reduction in cost or an improvement in quality is a little bit harder to tell, but either way you are getting a better return on your

taxpayer dollars. So the sign of the cost effect is more ambiguous

than an improvement in efficiency per dollar.

17

Senator GRASSLEY. All right.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much.

Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman. Thank all of you.

Mr. Hackbarth, we are proud that you are from Oregon and you

know a lot about our predicament, where we have good-quality

medicine and we, in effect, get penalized for it. We are anxious to

work with you on your recommendations there.

I want to talk about what largely has been missed this morning,

and that is preventive medicine. If you are going to keep seniors

out of hospitals, then you hold costs down. It seems to me you do

that by rewarding prevention.

The private sector is doing this like crazy, companies like

Safeway saying their premiums are going down 12 percent, largely

because of prevention. Somehow, Medicare has missed the whole

prevention revolution, something I am trying to change.

You may know, in my legislation, Mr. Hackbarth, I have given

the Secretary of Health and Human Services the legal authority to

discount the outpatient premiums for seniors who lower blood pressure, cholesterol, engage in good health practices.

What incentives have you all looked at for what I think is at the

heart of this debate: rewarding good behavior as a way to hold

down health care costs?

Mr. HACKBARTH. We would certainly agree that preventive services of the sort that you mentioned make common sense and they

tend to be relatively low-cost interventions that can avoid much

more costly problems later on.

We have not looked at specific mechanisms to finance and reward that behavior. Our focus has been a little further upstream,

if you will, in looking at care, for example, for people who already

have chronic illnesses, and how you assure that those illnesses do

not get worse, that they do not experience unnecessary complications and the like.

Senator WYDEN. So why not do what the private sector is doing,

which is to get at it earlier? I mean, it seems to me, so much of

what the Federal Government does lags behind the revolution in

the private sector.

Mr. HACKBARTH. Yes.

Senator WYDEN. What I am talking about costs no money. I am

talking about saying, under Part B of Medicare, this fast-growing

portion, simply give the Secretary the legal authority to say that,

when it is cost effective, it can provide discounts for the behaviors

that we know keep seniors out of the hospital.

Mr. HACKBARTH. Yes. We simply have not looked at that particular proposal. I am not saying that we would be opposed to it,

by any stretch. We just have not examined it and made a specific

recommendation on that. The underlying argument makes a lot of

sense.

Senator WYDEN. What is the Commission looking at in terms of

rewards, not just in prevention, but also in chronic care? Because

5 percent of the Medicare population, as we all know, consumes 50

percent of the health care dollar.

18

It seems to me, if we do nothing else but try to reward on the

preventive side and then make better use of the dollars on the

chronic care side, we are a long way to being able to make progress

here.

Mr. HACKBARTH. Yes.

Senator WYDEN. What incentives are being examined on the

chronic care side?

Mr. HACKBARTH. Well, we think that you would need a multipart approach to improving the incentives that are currently in the

system. One part of that approach would be to improve payment

for primary care services, because good primary care has been

shown to be critical in appropriate care for people with chronic illnesses, both in terms of improving quality and reducing cost.

Within that general heading of improving payment for primary

care, there are a variety of potential approaches that we have

looked at.

Senator WYDEN. How about incentivizing what is essentially

called the ‘‘health home,’’ where a physician in the chronic care setting would handle the various services that a person needs?

Mr. HACKBARTH. Yes. In essence, what that idea talks about is

paying a lump sum to a primary care physician to assume responsibility, clinical responsibility, for ongoing management. There is a

lot about that idea that appeals to us; it is a concept that appeals

to us.

The chief question that we have at this point is how to structure

it in as efficient a way as possible. That sort of ongoing management requires a couple of additional resources that many physicians in small practice do not have. One is non-physician staff to

do the ongoing interaction with patients, education of patients and

the like.

A second type of resource is information technology support.

What we want to come up with is a payment system that supports

physicians in building in those resources as efficiently as possible

to minimize the cost for the Medicare program, and that is what

we are examining.

Senator WYDEN. Keep your home in Bend. We are glad to have

you.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Senator.

Senator Roberts?

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

you for holding the hearing. Thank you to all the panelists.

I just want to let you know, last week I was traveling all across

Kansas, and I was meeting with many of our community hospitals

and local doctors. Their message was loud and clear; mine is loud

and clear; I think everybody on the committee’s is loud and clear:

fix the Medicare payment formula so our doctors can stop really

worrying about the uncertainty of the payments. You have already

testified to that. That is obvious.

Instead, focus on giving patients the care they need and deserve.

A 10-percent cut, if we do not do anything this year, 5.7 on hospitals. That is simply not acceptable.

So I noted in CQ, Mr. Chairman, you indicated that, despite our

best efforts, you do not think MedPAC has enough fleshed out

19

ideas on how we get this done. And I am not picking at MedPAC,

because it is a very, very difficult assignment or challenge.

But I also noticed that on page 2—all of a sudden I am Paul Harvey—one option would be to ‘‘scrap the formula and begin working

toward a new payment system based on doctors’ quality of care,

how well they coordinate care with other providers, and how efficiently they use resources such as lab tests and imaging scans.

Second, another option would be to keep the framework of the existing formula, but make the national measurement of physician

costs and payments more regionally based.

I am a little leery—actually, I am frightened to death—of the regional-based business in regards to the rural health care delivery

system after all of the problems that we have been through, and

being under-served areas. So mark me down, Mr. Chairman, as

being an advocate of the first alternative, if we can get there from

here.

Let me get to the questions, if I can. Mr. Hackbarth, your

MedPAC outfit, or your posse that you ride with— [Laughter.] We

need an appropriate balance between the urban and the rural interests. All right. Now, we have Witchita, Topeka, Oletha, other

places that are urban. We have a very fine health care system.

But you are 17:1. You have 17 people on one side, on the urban

side, one from Montana. Seventeen to one. That is like a game

pitched by Jim Bunning. [Laughter.] He was on the 17 side.

I would like to know how seriously MedPAC considered the difficulties that we face in our rural areas. And by the way, if we are

going to have CMS be the criteria on the objectivity, on the quality

of care, I have a little concern about that. That used to be HCFA,

then we changed the acronym to make it sound better. They do not

read all of the regulations and paperwork, they weigh them.

So we are going to add in more criteria to determine whether a

doctor out in Dodge City, KS, America is up to a certain quality,

when we cannot find doctors? Well, we can find them in Dodge

City, but on out, I am not too sure.

Senator Salazar knows exactly what I am talking about. So, I

have some real problems with that. But basically if you are going

to say we are going to measure the criteria on how long people live,

just move to the rural areas. We live longer.

Now, I just made a speech. My question to you was, basically,

how much attention did you pay—I am sure it is a lot—to our senior population in our rural areas with MedPAC, with a 17:1 ratio?

I am sort of picking on you.

Mr. HACKBARTH. Yes. The composition of the posse. Right?

Senator ROBERTS. Right.

Mr. HACKBARTH. I have been Chairman of MedPAC now for over

6 years.

Senator ROBERTS. And we thank you for your service.

Mr. HACKBARTH. Yes. Rural issues have been prominent in the

MedPAC agenda over that 6-year period. We have a number of

MedPAC commissioners who have extensive, longstanding interest

and experience with rural issues. You mentioned one, Dr. Nick

Walter from Montana.

In addition to Dr. Walter, Dr. Karen Borman from Mississippi.

Senator Dave Durenberger from Minnesota, who has a very deep

20

interest in rural health care in the upper Midwest region. Sheila

Burke, Senator Dole’s former chief of staff.

Senator ROBERTS. I am well-acquainted with Sheila. Right.

Mr. HACKBARTH. We have spent a lot of time in your home State

of Kansas on these issues. So I do not think it is fair to say that

we have one commissioner——

Senator ROBERTS. I will accept that. I need to get one more real

quick question in on primary care. I am out of time. I am down to

4 seconds. He gets just meaner than a snake. [Laughter.] He is

from Montana and they have big snakes. All right.

The CHAIRMAN. Senator Roberts has also mastered the art of giving his speech and, when there is only about 10 seconds left, asking

the questions.

Senator ROBERTS. Right. [Laughter.] It comes with the territory

in our under-served area, sir.

The CHAIRMAN. Right.

Senator ROBERTS. Which you so ably represent, and that of the

Ranking Member. And Senator Hatch as well.

The CHAIRMAN. Senator, take all of your time.

Senator ROBERTS. All right. Thank you. [Laughter.]

How are we going to give incentives to primary care? What was

the word you used? It was a big word. But are we going to pay primary care doctors an incentive to be primary care? Because we

have a lot of young people coming into the business, according to

everybody that I talk to in Kansas, getting into the specialties, and

that is nothing new, but very few into primary care.

You do not have that Grand Central Station, if that is the word

for it, or that one person who knows all of the variables of that individual’s maladies that could be very, very difficult.

My mother died because of this, and I have a lot of feeling about

it, and I blame myself for that because I did not really understand

what was going on. So how can we do that? I know there is no oneword answer to that.

Dr. Thames, for 41 years. Bless you, sir, for your service. If you

have any idea, how can we incentivize more primary care doctors?

I know there is not any one answer, but can you just——

Dr. THAMES. You are correct, there is no one. But there is no

question that the way to incentivize them is to find some way to

pay them for the services they provide.

If you have a medical home, whether it is a family physician or

general internist providing that medical home, and you pay for

them to coordinate the services—we talk about coordinating services—and prevent these interactions that come when we don’t do

that, and the poorer outcomes from chronic conditions because we

have a lot of physicians and no one looking at them, if you pay

them, whether it is slightly more to see them or on a monthly basis

to do that, you will attract more people to the specialty because

they will get paid better, and you will certainly want more people

to provide that service for your folks.

Senator ROBERTS. Well, it is a labor of good love, and we thank

you for your service.

Thank you for your patience, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Senator Stabenow?

21

Senator STABENOW. Thank you, Mr. Chairman. Thank you again

for an excellent hearing, to each of you.

I would just say to my friend from Kansas—and I share his feeling about this—that one of the important ways at least to start to

support primary care physicians is to make sure they do not get

a 10-percent cut next year, which is why I think this hearing is so

important.

Generally, I am hearing that SGR does not work. I share that,

as Dr. Wilson knows, having introduced legislation last year that

would eliminate the SGR and involve more physicians in what

should replace it.

A couple of questions, though. One, in looking at the numbers,

when we look at, Dr. Orszag, the numbers that you put up about

the cost of eliminating the SGR, one of the areas of interest to

many of us in Congress, and what we have heard from physicians,

is that including Part B drugs is really, first of all, not fair because

it is a part that is not controlled by physicians and it adds tremendously to the costs, and would add to the cost of the repeal.

So I am wondering, when you looked at this, do you know what

it would be if we took out the costs of the Part B drugs and instead

had the SGR replaced with an MEI update?

Dr. ORSZAG. Senator, the inclusion of Part B drugs, especially because there has been rapid growth in that component since 1997,

does have a very significant effect on the projections, and it is assumed in the figures I gave you that those drugs continue to be included in the formula. We can get you information about the estimated impact from taking them out, but I would say it is significant.

Senator STABENOW. I would appreciate that.

Mr. Chairman, I think that is an area to really look at. I would

ask that we look at the formula which now includes drugs as a part

of it, when it is really not a measurement of, in my opinion, the

physician piece. It is, the cost of drugs that have gone up, as we

know, and it is now driving a part of that.

My larger question raises something you have all been talking

about as well as a solution, which is health information technology,

which again, I share. I was very interested that each of you talked

in some way about that.

Dr. Orszag, you talked about the fact that we need an information system in place and that we need incentives to do that. Of

course, if we are looking at evidence-based information, as you

talked about, Dr. Thames, it seems to me we have to start by gathering the information in the most cost-effective way.

One of the challenges I see, and I guess I would welcome any of

you responding in terms of what you believe we should be doing

to incentivize health IT, because one of the challenges is, we say

to physicians, we are cutting your payments or we are freezing

your payments and, by the way, go out and invest in hardware,

software, and train people for health information technology, when

most of the savings ends up with us in the Federal Government

from Medicare and Medicaid, and so on, as well as the quality, dramatically increasing the quality for patients in terms of sharing information and more up-to-date information, and so on.

22

But how do we get there? How do we incentive those who need

to be doing this so we can reap that and we can measure? If we

are going to have pay-for-performance, it seems to me we need to

start with a pay-for-use, or incentives-for-use so we can get the information, so we can then do the evidence-based quality analysis.

We are stuck at the moment because we do not have the health IT

and the information system to be able to do that.

Yes?

Dr. ORSZAG. Senator, I think you put your finger on the most important thing, which is to reward the use of information technology. There is a ton of money in the American health care system. We find the money to invest in all sorts of new imaging equipment, tests, and all sorts of capital investments.

Why do people spend money on that stuff and not on clinical information technology? Because there is the return on the investment in the new scanner and there is not a direct return on investment in information technology. So we need to pay for performance,

pay for the quality produced by information technology, and you

will start to get more of it.

We think that is a far better approach than saying, well, let us

just make grants to everybody to buy information technology. You

will get lots of boxes in offices but not necessarily a lot of constructive use from what is in the boxes if you just give money. Reward

the performance and that will encourage the investment.

Senator STABENOW. Thank you.

The CHAIRMAN. Thank you very much.

Senator Bunning?

Senator BUNNING. Thank you, Mr. Chairman.

I thought Senator Wyden really hit the nail on the head: preventive medicine. In Kentucky, if we had a system where we could go

into rural Kentucky with some kind of preventive medicine information, whether it be information technology that is able to keep

up with that—we spend, as he said, 50 percent of our money with

5 percent of our recipients.

The SGR system is a non-working system, that is all there is to

it. It does not work. I have tried since I got on this committee to

include a permanent fix for SGR. There is no permanent fix because it is a broken system.

I would like to ask, we talk about things. I want to ask a question, because I do not have much time. I am very concerned about

the increase in entitlement spending. We should not look at the

physician payment issue in a vacuum.

In fact, the President’s budget proposed reducing the Medicare

growth rate from 6.5 to 5.6 percent over 5 years. For Medicaid, the

growth rate is reduced from 7.3 to 7.1 percent. Everybody says,

well, that is a cut. How important is it for us to consider overall

Medicare reform—Medicare reform—including the physician payment issue, this year instead of putting it off to sometime down in

the future?

Dr. WILSON. Senator, I would like to respond. The answer is, it

is very important. We have been kicking this can down the road

for the last 5 years. I think certainly this committee, and Congress,

understands it is not going to get any easier.

23

Senator BUNNING. By 2012, it is down the road to the point

where we cannot do it any more.

Dr. WILSON. Exactly. Yes. I did want to respond a little bit to the

issue of prevention, primarily from the standpoint of early detection, because I can tell you, as an internist, a lot of my patients

understand the value of increased activity and diet.

They also understand the value of early detection, so mammograms and immunizations. The test of whether they get those is

not whether they know they ought to get them, it is whether they

are covered. So the reality is that a lot of coverage decisions do

make a difference in patients’ behavior in some very important

ways.

Senator BUNNING. Absolutely.

Dr. WILSON. I guess, maybe to extrapolate from that to say there

are benefits there in terms of less hospitalizations. There are also

benefits to society at large in terms of a healthier society. So I

think, as we think about the cost of this, we need to sort of think

about the bigger picture in terms of the value that we get.

Senator BUNNING. All right.

Several of you mentioned in your testimony that current physician formulas might actually encourage more spending by doctors

as they increase the intensity and volume of services provided.

Briefly, what are some of the ways we could avoid this in the future if we change the formulas? Go ahead.

Dr. THAMES. Well, I will take a shot at it, Senator.

Senator BUNNING. Go.

Dr. THAMES. I think one of the ways we can do that is to look

at the best practices and evidence-based medicine. We are now

working with the medical community to get those best practices

and determine what ought to be done, let us say, for diabetes, hypertension, and other things.

Then we ought to be tracking those, as you are trying to do now

with your reporting. Then we ought to be paying those people who

follow those guidelines that are based on evidence-based medicine

to show that they are cost-effective and do the tests.

We also know how many lab tests, and what kind, ought to be

done. Those who are doing more of those should not be paid as

well, and those who are not doing the ones that are necessary

should not be paid as well.

Senator BUNNING. Well, I sincerely believe, if we can early on detect the costs as we go down the road—I can use my mom as an

example, diabetic, discovered at age 81. That is the first time they

discovered that she was diabetic. In 2 years, she was gone. But the

fact of the matter is, she was reluctant to go see doctors. She hated

to go see doctors. Maybe it was mistrust, or whatever it might be.

But early detection is a key to the cost factor. I would appreciate

us doing something now rather than later. I think I even put it in

a couple of bills, that we should stop kicking the can down the

road.

Thank you for your time.

The CHAIRMAN. Thank you, Senator. That is very important.

Thank you very much.

Senator Salazar?

24

Senator SALAZAR. Thank you very much, Chairman Baucus and

Senator Grassley, for your leadership on this very important issue.

Thank you to the excellent panel for being here and sharing your

thoughts with us on this very difficult and seemingly so complex

and intractable problem.

The manner in which Medicare reimburses physicians and other

medical providers has enormous implications on the access to, and

delivery of, health care services to the beneficiaries of the program.

It is clear to me from listening to patients, doctors, and providers

in Colorado, that the manner in which Medicare compensates physicians is, in fact, flawed.

The Sustainable Growth Rate fails to foster adequate health care

delivery systems in rural towns and communities, fails to reward

physicians who provide quality efficient care to its beneficiaries,

fails to punish physicians who waste valuable resources and provide poor care, and fails to control the unprecedented program

growth and spending that places a very significant burden on the

American taxpayer.

Moreover, the SGR has seriously threatened beneficiary access to

critical medical services by mandating significant annual physician

payment cuts. The impact of the SGR’s payment cuts on rural

health care is particularly alarming to me, as it is to Senator Roberts, Senator Baucus, and others who have already spoken on this

issue.

Approximately one in every four Medicare beneficiaries lives in

rural America. Rural physicians serve a critical role in towns and

communities in my State of Colorado, and across the Nation, where

the nearest health care facility of providers may be 4, 5, 6, 7 hours

away. In my State of Colorado, 15 counties out of 64 have two or

fewer physicians providing patient care for the entire county.

Many rural physicians and providers have higher costs than physicians in urban areas and face significant challenges in recruiting

staff and maintaining enough patients to break even. My point

here is, there is a huge issue in terms of rural health care and the

provision of Medicare services there.

I have a question. I do not want to use all my time in giving you

a speech, so I have a question that is a follow-up to Senator Baucus’s question. I will ask that you respond, and take 1 minute

apiece.

First to Dr. Wilson, second to Dr. Thames, and then to Chairman

Hackbarth. When Dr. Orszag was responding to Senator Baucus,

he said there were two things that we could do to deal with overutilization of health care costs.

Dr. Orszag said we could do a National Institute for Clinical Excellence so we could start developing the database, and then invest

in an IT database where we can develop the evidence that we need.

I would like each of your responses to that suggestion, because

it seems to me that we need to start somewhere, and those are two

suggestions that made sense to me.

Dr. WILSON. Well, thank you, Senator. What I would do is say

that I agree that those are the things we need. I think the question

is how to do those. I would just remind the committee from my testimony that the AMA, since 2000, along with over 100 specialties

25

in the country, has been developing state-of-the-art performance

measurements.

[Audio interruption.]

Senator HATCH. So we spent an awful lot of money on this. So

I guess what I am asking each of you here today, from 2001 to

2002, Medicare imaging services grew at 9.4 percent, and tests at

11 percent.

Now, within these two classes of services, the volume of nuclear

medicine, CT scanning, MRIs, laboratory tests, and others, and

minor procedures grew at 20 percent. Now, what do you believe accounts for the astonishing rate of growth of these services? Would

you each give me your opinion of what the costs to society are from

these frivolous medical liability suits?

We found that a high percentage of them were frivolous, in other

words, suits that should never have been brought. This is something we are going to have to face sooner or later, and we are going

to have to get both parties to face it.

But give me your opinion on both the high price of these nuclear

medicine approaches and tests and what you think the impact of

medical liability litigation adds to the high cost of medicine. I will

start with you, Chairman Hackbarth, and go right across.

Mr. HACKBARTH. We have not looked specifically at the magnitude of the impact.

Senator HATCH. But you suspect that what I am saying is pretty

accurate?

Mr. HACKBARTH. I have no doubt personally that it is a factor

that influences how physicians make decisions, what they prescribe, and in particular, the type of tests.

Senator HATCH. But it is a cost factor as well. A huge cost factor.

Mr. HACKBARTH. It increases costs.

Senator HATCH. The reason we told doctors you have to do this

defensive medicine, we told them, you want to have your history

of that patient ruling out every possibility, even though you know

that it may just be a common cold, to just choose one malady.

Mr. HACKBARTH. Now, having said that, I do not think that medical liability, or fear of medical liability, is the only reason that

these costs are going up.

Senator HATCH. I do not either.

Mr. HACKBARTH. Of course, one is just new technology. There are

more sophisticated pieces of equipment. Much of what is done is

truly marvelous.

Senator HATCH. But you have also indicated that utilizing new

technologies is there. It is expensive. They have to pay for it, and

the way to pay for it is by utilizing it.

Mr. HACKBARTH. Right. And so that leads me to two other factors. One is just the inherent incentives in the fee-for-service system. We now pay physicians more for doing more as opposed to

producing good results for patients. That is why we think that Senators Baucus and Grassley have been absolutely right to be in leadership on pay-for-performance as an issue.

The second thing that has not been discussed today that we

think is important, is how prices are set for individual physician

services. It is an arcane topic, but nevertheless an important one.

26

We have this elaborate fee schedule that says, this is how much

we pay for things relative to one another. We think that there are

some significant distortions in that system and, as a result of those

distortions, some of these services are far more profitable than others.

Physicians know which ones are more profitable, so their investment is sucked into those services. We think the imaging area is

one area in particular where there is some significant mispricing.

Senator HATCH. Mr. Chairman, I would like to hear from each

of them if I can. It is that important, I think.

The CHAIRMAN. It is very important. But briefly, please, because

there are other Senators who want to inquire.

Senator HATCH. If you could speak briefly, I would like to have

each of you take a crack at these.

The CHAIRMAN. We also have another round, too, if you want to

wait and address it in the next round.

Senator HATCH. I understand.

The CHAIRMAN. Why don’t you go ahead?

Senator HATCH. I think it is important.

Dr. ORSZAG. I will be brief. First, with regard to technology,

clearly it is one of the key cost drivers in the health care system.

The key question is evaluating where, say, an MRI scan is appropriate and may affect the course of treatment and where it is unnecessary. It is getting at exactly that kind of decision point that

will be crucial to containing cost growth without impairing health.

With regard to malpractice expenses, there is a direct effect on

the Sustainable Growth Rate formula because that is part of the

relative value that plays into covered expenses, but that share is

very small in terms of a direct effect. CBO has written, and I will

send you the report, more broadly on medical malpractice and its

effects on health care costs.

Senator HATCH. I would be glad to have it.

Dr. Wilson, I have given you a home run ball here, and now I

expect you to hit it.

Dr. WILSON. Thank you. Thank you, Senator.

The CHAIRMAN. Briefly. Briefly.

Dr. WILSON. Yes. The remarks about the climate of fear that does

result in defensive medicine and whatever number, it is in the billions. I would like to demur a little about the incentives.

It is clear now that a CAT scan will increase your accuracy of

diagnosing acute appendicitis from 95 to virtually 100 percent.

When I order a CAT scan, I do not get paid any more. What I get

is a patient who does better. So let me just suggest that what physicians order is not always to their benefit.

When I order an X-ray for a fractured ankle, I am not the one

who does that X-ray, nor who benefits from that X-ray. So I am a

little concerned about the haste to suggest that physicians order

only because of the incentives. They really do order because they

think it is in the best interests of the patient.

Senator HATCH. I am not suggesting that.

Dr. WILSON. I understand. Thank you.

Senator HATCH. I am talking about unnecessary medicine.

Dr. WILSON. Right.

27

Senator HATCH. And malpractice. Could you address that, the influence on malpractice insurance?

Dr. THAMES. I am going to just echo what has been said about

the fact that we can over-utilize technology, and somebody is getting paid. The person that reads it, Dr. Wilson is correct, is frequently not the physician who is ordering it.

I do want to say, on the medical malpractice system, Senator,

this is another system that is seriously flawed. The person who has

a minor injury, but affects the quality of their life for only a few

months or so and not permanently, frequently cannot even get

their case taken.

On the other hand, it is a lottery system for other people, and

the payout is too great. Obviously, the better system would be one

which is not a jury system that is a lottery. But it is going to be

a long time in this country before we see it.

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

Senator Smith?

Senator SMITH. Thank you, Mr. Chairman. I want to make note

that Chairman Hackbarth is an Oregonian, and I thank him for his

service and his presence here today.

I was here when we did the balanced budget agreement as a

Congress with President Clinton. Ever since that time, the SGR

system and its formula have been roundly criticized in every town

hall that I have been in.

As I recall, it is regarded as inequitable and unworkable, since

it treats all physicians alike. It does not distinguish between ‘‘desirable’’ and ‘‘undesirable’’ growth in volume, and it fails to reward

physicians for better care and better quality, or to take away from

those who offer less than that.

Yet, it does strike me that we are at a point where we are putting a Band-Aid, one Congress after the next, on this problem. We

have growth in the category of entitlements, and here is obviously

Medicare. Then we are looking at a demographic tsunami. It seems

to me that this Band-Aid will break just as soon as we apply it.

I wonder if any of you have thought more deeply as to, what is

the real answer here? Is it some kind of a basic package that is

available? What do we need to do? I doubt we will do it in the

110th Congress, but I suspect in the next decade we will have no

other choice. Our history is, we do not make the hard decisions

until we have no other option.

Any thoughts on that? Where are we going with health care and

what is our solution for the American people and the economic future of our Nation?

Dr. THAMES. Senator, if I could, may I remind you that with

AARP, along with the Business Roundtable and the Service Employees’ International Union, one of our two major priorities this

year is health care reform. That is, to look at providing some basic

underlying health care for every citizen in America. It is time for

that debate to happen again.

As far as we can, with our allies, we are going to promote that

that come up at least by the 2008 elections, that people will try to

get a bipartisan group to work on that. We cannot solve this problem intermittently, whether it is for Medicare, when we leave all

28

the rest of the people uninsured who are not on Medicare, and the

children who need services. So, it is time we did that debate.

Senator SMITH. Dr. Wilson?

Dr. WILSON. Yes, Senator. I would like to follow on. Dr. Thames

was referring to the Health Coalition for Covering the Uninsured,

of which the AMA is a part as well, and has been working with

over the past 2 years. I think the bottom line is to say, it is the

old case of the balloon: you squeeze it in one place and it balloons

in another area.

This is a part of comprehensive reform. As long as we have the

40-plus million of our citizens who are uninsured and, therefore, at

increased risk of being ill and dying sooner, who get care in the

most expensive ways, people who cannot carry their insurance with

them from job to job, with job lock, with the liability issue, the

Medicare payment issue, those have to be a part of a comprehensive look at our health care system.

Senator SMITH. Because, in truth, we are spending more on

health care with really no better results than any other Nation. Is

that not a fact?

Dr. WILSON. We are spending more and not getting as good results as we would hope. I would not want to compare us with the

whole world in that regard.

Senator SMITH. Yes. Dr. Orszag?

Dr. ORSZAG. Senator, over the next 40 years, if health care costs

continue to exceed economic growth by the same amount as they

did over the past 40 years, the Federal share of Medicare and Medicaid alone will be 20 percent of the economy, which is the entire

Federal Government today. This is the central problem facing the

Federal Government.

CBO is going to be providing more analysis and options to you

about what could possibly bend that curve so that you can evaluate

possible steps. What I would say is, the opportunity is, there is at

least the potential, given the scale of this problem—and it is quite

important, given the scale of the problem—to take cost out of the

system without harming incentives for innovation or without harming Americans’ health. That is the potential that we need to grab.

But obviously the difficulty is exactly how to do it. Earlier we

were discussing two sort of intermediate steps that might at least

set up the infrastructure that would allow you to start moving in

that direction.

Senator SMITH. Chairman Hackbarth, my mailbox gets fuller and

fuller with letters from Oregonians who are on Medicare who cannot find a physician. It does seem to me that it is a looming crisis

for the government, but it is an immediate crisis for them.

Do you have any thoughts on where we need to go as a country?

Because it seems to me if we fix this, patch this one more time,

it will just break by the 111th Congress.

Mr. HACKBARTH. I would suggest to you that there are three

parts to this. One is, as we have discussed at great length now, we

need to, in Medicare, change how we pay for services if we want

to get a more efficient system. I bore people with my arcane detail

about that, but that is critically important. It is not, by itself,

enough.

29

A second thing that we need to do is look at the long-term financing eligibility and benefit structure of the Medicare program. Those

are very, very difficult questions. You know far better than I how

difficult they are. They are only going to get more difficult over

time.

If people have an opportunity to plan for future retirement and

they know Medicare is going to be different than it is today, then

they can react and save more and accommodate those differences

more easily. If we put this off, put this off, the changes will be

more painful than they need to be.

The third item that I would suggest to you is, we need a concerted effort to bring public payors like Medicare together with private payors in important areas so that we are pushing in the same

direction. Peter has mentioned one of those: comparative effectiveness.

All payors, public and private, as well as the clinicians, service

the patients, and the patients themselves need—deserve—much

better information about what works and how alternative treatments compare to one another.

Then payors can begin to use that information to structure benefits, structure payment policies, and the like. It is a public good in

the truest sense of the word that requires a public investment in

collaboration across the public and private sectors to make it happen.

Senator SMITH. Thank you very much.

Thanks, Mr. Chairman.

The CHAIRMAN. Thank you, Senator. That was very, very informative.

What I would like to do is ask all four of you to just indicate to

me which of these would be most efficient and effective in helping

us get a handle on the basic question here, the basic question being

health care costs, utilization, et cetera.

I am going to list five of these. Tell me which ones you think are

most important.

First, just pay for quality. Figure out how we do that better.

Two, trying to address, in areas where it occurs, over-utilization by

providing some kind of feedback to physicians on their resource

use. Third, how to expand comparative effectiveness research.

What is the best way to do that? Where? How? Fourth, how do we

best encourage primary care and care coordination with the payment system? Also, how do we incentivize the appropriate and

greater investment in health information technologies? I am assuming that those are five areas that tend to get at this. I am sure

there are others.

I would like, anybody who wants to. We need not go down the

line here. Just, why does somebody not just raise his hand if he

wants to start talking and just kind of create a little discussion

here, get us talking.

Dr. ORSZAG. And we are not allowed to say all five?

Dr. WILSON. Well, thank you, Mr. Chairman. That is exactly

what I was going to say. It would be nice if we had the luxury of

just one thing on the plate and one magic, silver bullet. We do not.

I think all the things you have mentioned are things that need to

be worked on, and they need to be worked on at the same time.

30

The CHAIRMAN. All right. But now, if I might ask, how do we go

the next step, though, how to work on it? What suggestions do you

have that we start addressing them? I think most people tend to

agree, those are some of the major ones we have to work on. I am

trying to drive us to the next position, like, what is it we do to advance the ball while we are working on it?

Dr. WILSON. Let me just mention a couple of things. First is to

say the medical profession is already working on the issue of quality of care and performance measures. For the last 5 to 6 years, we

now have performance measures which represent the best and the

state-of-the-art in terms of science. We need to continue to do that.

The second—and actually it is in response a little bit to Senator

Stabenow’s comment about, why are we not adopting HIT—the

question one might ask is, had we solved the SGR problem 5 or 6

years ago and physicians had been able to count on, as business

people, an increase in payments which reflected the increased cost

of providing care, maybe they could have introduced that earlier

than they have now. So I think that the way we pay for what we

are doing does have an effect on all these important things as well.

The CHAIRMAN. Who else wants to jump in here?

Mr. HACKBARTH. An item that we have not talked much about

is CMS. These are complicated changes to make in the Medicare

program.

The CHAIRMAN. Yes, they are.

Mr. HACKBARTH. One of the most important bottlenecks is CMS

and its capabilities. There are a lot of good ideas. The problem is

translating the good ideas into action and the new payment system.

The CHAIRMAN. Right. That is what I am trying to get at here.

Mr. HACKBARTH. Right. And we have to invest way more money

in CMS and that infrastructure. We are trying to run the program

on the cheap, and that will not work when you are trying to innovate at the same time.

The CHAIRMAN. And additional CMS resources, you suggest,

would be spent how and where?

Mr. HACKBARTH. For things like speeding up the cycle time on

demonstrating new ideas. We have some very promising demonstrations under way, but it takes us forever to get them developed and placed, the results examined and translated into policy.

That cycle time needs to come way, way down.

Then once we have specific policy proposals, our ability to implement those systems and refine them and maintain them is compromised by an under-investment, not just in staff in CMS, but information systems. We need a 21st-century approach to managing

the Medicare program. We are trying to do it on the cheap.

The CHAIRMAN. Yes. All right.

Anyone else? Dr. Thames?

Dr. THAMES. You know, if we look for the quickest bang for the

buck and try to lower the cost, out of the things you mentioned to

us, I think it would be comparative effectiveness studies, to be completed within a reasonable period of time. We already have some

that are there, and to get them to enforce those and pay to see that

people use those, and care coordination, particularly for the chronic

diseases that take up so much of our budget. If we got a better

31

handle on those, we could drop the care. Now, I agree that quality,

accountability, and others are important.

The CHAIRMAN. Who should do those studies?

Dr. THAMES. Beg your pardon? Who should do those studies?

The CHAIRMAN. The comparative effectiveness studies.

Dr. THAMES. People like the Institute of Medicine. People like

MedPAC should be looking at those for us. CMS certainly should

be able to give the information to groups. But quality groups. Physician groups are working on those.

The CHAIRMAN. NIH. Is NIH in there? Should NIH be part?

Dr. THAMES. Yes.

The CHAIRMAN. Others? How do we do this?

Dr. THAMES. I do not know who else. I may not have heard you,

quite.

The CHAIRMAN. I am just curious. I mentioned NIH.

Dr. THAMES. Oh. NIH. Yes. I am sorry. NIH, certainly. It is one

of the premier institutions that does those kind of studies. But, yes.

Some of those studies have been done. We need to better use them.

Others need to be under way right away.

The CHAIRMAN. Well, I am suggesting we certainly do that with

respect to prescription drugs, a comparative analysis of which

drugs work and which ones do not, et cetera.

Dr. THAMES. Yes.

The CHAIRMAN. I am sure that could be transferred into a lot of

other areas as well.

Dr. THAMES. Absolutely. Like on whether or not coronary artery

bypass surgery is better than stents, for instance. Pretty expensive.

And which one is really better? So, there are procedures as well as

drugs for comparative studies on effectiveness that would greatly

affect the costs.

The CHAIRMAN. Right.

Anybody else want to comment on my list of five? Dr. Orszag?

Dr. ORSZAG. I would just say, just on this immediate discussion,

that the institutional organization of comparative effectiveness

studies is both very important and is sort of not yet advanced

enough in the policy debate.

There has been, to my knowledge, one article in Health Affairs

about different organizational structures for doing this. Policymakers need to think carefully about, should that thing be inside

the government, outside the government, quasi-public/private?

The CHAIRMAN. Right.

Dr. ORSZAG. CBO will be presenting options for you.

The CHAIRMAN. Great. I appreciate that very much. My time has

expired.

Senator Grassley?

Senator GRASSLEY. Yes. Thank you.

This is a very, very good panel, and very central to things that

Senator Baucus and I have been working on for a long period of

time, and have still a ways to go, quite obviously.

Dr. Hackbarth, I am going to refer to a chart that is in the AMA

testimony. The chart shows payment updates for different providers, so that would be Medicare Advantage, hospitals, nursing

homes, and physicians, showing physicians being very low.

32

But the number shown, 7.1 percent for Medicaid Advantage

plans in 2007, is a gross percentage applied to the rates, not to the

increase in the actual plan payments.

I think it is important for people to understand the distinction

between the 7.1 percent and the increase in actual payments to the

plan. So could you briefly explain how you get from the growth rate

to the actual plan payments, and tell us the average increase in

payments to plans in 2007?

Mr. HACKBARTH. Yes. Senator, I cannot do that off the top of my

head, but I would be happy to have the MedPAC staff look at those

data and give you a reconciliation and tell you how that process

works.

Senator GRASSLEY. All right. Let me ask my staff if we would

like to have a staff briefing or have that in writing. Could we put

it in writing, please?

Mr. HACKBARTH. Sure.

Senator GRASSLEY. Thank you.

[The information appears in the appendix on p. 61.]

Senator GRASSLEY. Then let us go to Mr. Hackbarth again. You

mentioned how various performance management tools could help

improve the quality of care. However, lack of information sharing

and a low level of investment in information technology is one of

the major contributing factors to the high cost of health care.

Health IT still has a long way to go. However, we have some

good initial steps in place to measure quality. Would wider options

of information technology in health care improve our ability to

measure quality?

Mr. HACKBARTH. Yes, unquestionably.

Senator GRASSLEY. All right.

I want to turn to you again on rural health care and associate

myself with the remarks of Senator Roberts. But in addition, one

of the alternatives applies expenditure targets for physicians’

spending to rural areas. As a part of the analysis, you point out

that there could be wide payment disparities in neighboring regions.

Today, the physician workforce in Iowa and other rural areas is

already disadvantaged by Medicare with lower payments. Will the

establishment then of regional updates reshuffle where providers

practice and drive them from, or attract them to, rural areas like

my State, or I suppose it would apply to Senator Baucus’s State as

well?

Mr. HACKBARTH. Right. We have not looked specifically at how

a regional system would affect particular States like Iowa or Montana, but the concept—and again, roughly half the Commissioners

are supportive of expenditure targets.

Among those who support expenditure targets, they believe that

a regional target could be used to apply pressure where pressure

is most needed, those parts of the country that have dramatically

higher Medicare costs per beneficiary, without the quality results

to match the expenditure.

In general, I think Montana and Iowa, if I remember the data

correctly, tend to be at the low end of the spectrum in terms of cost

per beneficiary, and relatively high on the quality measures.

Senator GRASSLEY. Absolutely. Absolutely right.

33

Mr. HACKBARTH. And so the idea is, let us apply a system that

applies pressure not to Montana and Iowa, but to the States with

very high expenditures. If we need to get X billion dollars of budget

savings, let us not take it out of the low-cost, high-quality States,

let us take it out of the high-cost, low-quality States. That is the

concept.

Senator GRASSLEY. All right.

In the March, 2000 report of MedPAC, it considered expanding

the SGR spending target to include ambulatory care facilities. At

the time, MedPAC concluded that an expanded target was unworkable because there was no way to predict and adequately adjust

shifts in the site of service with the rigid formulas such as SGR.

The option under path two includes a new system of expenditures that will be applied to all providers. Why does MedPAC’s

thinking on this now differ from what it concluded in the March,

2000 report?

Mr. HACKBARTH. Yes. The March, 2000 report pre-dates even me,

so I cannot speak exactly to that recommendation and the thinking

behind it. I can speak to the thinking about having a total cost target as opposed to Part B only.

The reason for doing that is precisely what you are talking about.

There is substitution of services. What we want to do is exert pressure on the system without getting in the way of appropriate substitution of services over time as new technology develops, and the

like.

If you just cap part of the system the way we do now, you create

problems when services move from one location to the other. If you

say, what we are concerned about is not just Part B expenditures

but total costs, you can have a more fluid system where the dollars

go to where they are most efficiently spent.

We would get all providers at the table saying, how can we get

the most benefit for our patients within this aggregate dollar expenditure, not just worry about, well, we have to control Part B expenditures. That is not Medicare’s problem. It is total costs, not

just physician costs.

Senator GRASSLEY. Thank you.

The CHAIRMAN. Dr. Orszag, could you give us an idea as to how

we can formulate comparative effectiveness provisions, say as a

part of the SGR update, in a way that you can give us a good

score? [Laughter.]

The problem we have, clearly—you know better than I—is that

we tend to agree that these are good ideas. If we are going to start

spending some money on them, you are going to say it is a cost,

and it is going to make it much more difficult under this pay-go

regime that we have ourselves in right now. So what can we do?

How do we write some of these provisions—and there are a lot of

ideas here—in a way that they do not cost very much?

Senator GRASSLEY. Can I reinforce what he said from this standpoint? [Laughter.] And it is more generic than the question he

asked. But you are new to this job. Of course, you know all about

your job, but for a long time I have been saying, you are just like

God. Whatever you say. And if you want to know how much you

are God, everything you say, if Congress wants to override it, is

going to take 60 votes, at least in the Senate. Sixty votes.

34

So be careful what you say. Do not make our job any harder than

you can, because there are 99 Senators, and any one of them can

raise a point of order, and then you become more powerful than

ever. Now, maybe I should not let you think you are so powerful.

[Laughter.] But the fact is, you are.

Dr. ORSZAG. I did not realize I had been elevated to that status.

[Laughter.] Let me say two things. One is, I think there are lots

of steps, including HIT, including comparative effectiveness, that

offer at least the potential—not the guarantee, but the potential—

to help bend that curve over the long term, but the cost savings

may not show up in the next 10 years. That is just the way it is.

I could advertise that we just put out a budget options volume

that has lots and lots of possible offsets for you over the next 10

years, and I understand that things that have up-front costs that,

under the pay-go rules, need to be offset and long-term benefits

present special challenges. But if that is often the case, making an

investment now can pay off long-term, but not immediately.

The CHAIRMAN. Well, why can’t we go the other direction? Why

can’t you tell us some of the things we are doing now—how can I

say this? You say that a cost now is a cost now, even though it has

future benefits.

But why can’t you also—and I am speaking facetiously here, obviously—come up with a proposal or a way to help us say that

something, now, is not a benefit? Or if not a benefit, later on it will

be. I am not saying it the right way. I am trying to do the reverse

of what you are doing on the other side of the ledger.

Dr. ORSZAG. Well, again, the budget scoring rules are what they

are, and I guess even God cannot change them. [Laughter.]

The CHAIRMAN. But you are God. [Laughter.] We are asking you

to change them. No. I appreciate that. But if you could, in the

meantime, give us some guidance as to how we write this stuff in

the direction that we all agree we want to go, in a way that does

not cost too much, so that we can get there more quickly.

Thank you very much. The hearing is adjourned.

[Whereupon, at 11:58 a.m., the hearing was concluded.]

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