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MEDPAC’S ANNUAL MARCH REPORT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

MARCH 11, 2008

Serial No. 110–74 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

CHARLES B. RANGEL, New York, Chairman 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

ALLYSON Y. SCHWARTZ, Pennsylvania 

ARTUR DAVIS, Alabama 

JIM MCCRERY, Louisiana 

WALLY HERGER, California 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

JERRY WELLER, Illinois 

KENNY HULSHOF, Missouri 

RON LEWIS, Kentucky 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PAT TIBERI, Ohio 

JON PORTER, Nevada 

JANICE MAYS, Chief Counsel and Staff Director 

BRETT LOPER, Minority Staff Director 

SUBCOMMITTEE ON HEALTH 

FORTNEY PETE STARK, California, Chairman 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

RAHM EMANUEL, Illinois 

XAVIER BECERRA, California 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

RON KIND, Wisconsin 

DAVE CAMP, Michigan 

SAM JOHNSON, Texas 

JIM RAMSTAD, Minnesota 

PHIL ENGLISH, Pennsylvania 

KENNY HULSHOF, Missouri 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 


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C O N T E N T S 

Page 

Advisory of March 4, 2008, announcing the hearing ............................................ 2 

WITNESS 

Glenn M. Hackbarth, Chairman, Medicare Payment Advisory Commission, 

Bend, Oregon ........................................................................................................ 6 


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MEDICARE PAYMENT ADVISORY 

COMMISSION’S ANNUAL MARCH REPORT 

TUESDAY, MARCH 11, 2008 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

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

Room 1100, Longworth House Office Building, the Honorable 

Fortney Pete Stark [chairman of the subcommittee] presiding. 

[The advisory announcing the hearing follows:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943 

March 04, 2008 

HL–21 

Stark Announces a Hearing on MedPAC’s 

Annual March Report with MedPAC Chairman 

Glenn M. Hackbarth 

House Ways and Means Health Subcommittee Chairman Pete Stark (D–CA) announced today that the Subcommittee on Health will hold a hearing on the Medicare Payment Advisory Commission’s (MedPAC) annual March report on Medicare 

payment policies with MedPAC Chairman Glenn M. Hackbarth. The hearing will 

take place at 10:00 a.m. on Tuesday, March 11, 2008, in the main committee 

hearing room, 1100 Longworth House Office Building. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from the invited witness only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

MedPAC advises Congress on Medicare payment policies. MedPAC is required by 

law to submit its annual advice and recommendations on Medicare payment policies 

by March 1, and an additional report on issues facing Medicare by June 15. In its 

reports to the Congress, MedPAC is required to review and make recommendations 

on payment policies for specific provider groups, including Medicare Advantage 

plans, hospitals, skilled nursing facilities, physicians, and other sectors, and to examine other issues regarding access, quality, and delivery of health care. 

In announcing the hearing, Chairman Stark said, ‘‘The Congress relies heavily 

on MedPAC’s expertise when crafting Medicare legislation. MedPAC’s recommendations help Medicare remain a reliable partner to providers, while 

also assuring that beneficiaries and taxpayers are getting the best value for 

their money.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on MedPAC’s March 2008 Report to Congress. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘110th Congress’’ from the menu entitled, 

‘‘Committee Hearings’’ (http://waysandmeans.house.gov/Hearings.asp?congress=18). 

Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 


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and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business Tuesday, 

March 25, 2008. Finally, please note that due to the change in House mail policy, 

the U.S. Capitol Police will refuse sealed-package deliveries to all House Office 

Buildings. For questions, or if you encounter technical problems, please call (202) 

225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. f 

Chairman STARK. If our guests could find a seat, we will begin 

our annual hearing on the MedPAC March report. Please join me 

in welcoming Glenn Hackbarth, the chairman of the Medicare Payment Advisory Commission, affectionately known as MedPAC. We 

appreciate, Glenn, all the work you and your commission do to advise us, and thank you for your leadership. 

We rely on MedPAC’s analysis and recommendations when—we 

did rely on it when we wrote the Children’s Health and Medicare 

Protection Act last year. And your recommendations helped shape 

our legislation as it pertained to Medicare Advantage, physician reimbursement, long-term care hospitals, skilled nursing facilities, 

home health agencies, dialysis. And I am glad to see that some of 

our policy ideas to improve benefits for low income beneficiaries 

have been embraced as MedPAC recommendations. 

I would just interject here, I have always felt that this subcommittee—I am not sure all the Members agree with me—but I 

think ought not to get in the position of recommending procedures 

or prices because I think if we did, the supplicants would form a 

line three times around this building as everybody came and asked 

us to make certain procedures available or set certain prices. 


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But having said that, we have to doubly rely on MedPAC and 

parts of CMS who make those decisions because they have professional staff who—I guess they can all speak Latin so they can understand what the procedures are. But it makes your work doubly 

important because we, I think, have to rely on it. 

Many in the provider community balked at some of the provisions in our CHAMP bill. But I would like to remind them that 

most of that bill was consistent with your recommendations, and 

in fact, some of our provisions were more generous than what you 

recommended. 

Too often we get twisted up in provider complaints that they 

can’t sustain a market basket shave, so it is good to have you remind us of how high some of the margins become, and that our job 

is to ensure that Medicare maintains access as well as being prudent purchaser. 

We will continue to grapple with the issue of physician reimbursement. I know in the past—and Mr. Camp can speak for himself—the 10 percent cut, as far as we are concerned, is not acceptable. But I am not sure we know how to change the reimbursement 

of physicians at this point, although I think we both agree that we 

have to find a better way to do it so we don’t run into this problem 

in the future. 

We will keep trying to enact your recommendations regarding 

Medicare Advantage, although the insurance lobby and others keep 

trying to stop us from that. Your latest projections tell us that we 

are overpaying Medicare Advantage plans by about 13 percent. 

I don’t want to steal your thunder, but your written testimony 

says that those overpayments worsen or get worse—or decrease the 

long-range financial sustainability of the Medicare program, and I 

couldn’t agree more. I hope that all those who share my concern 

for the future of the Medicare program as an entitlement will join 

me in reining in those overpayments. 

One rare area of bipartisan agreement in Medicare was concern 

over the special needs plans. And last year we passed the Medicare, Medicaid, and SCHIP Extension Act of 2007. The law established a moratorium on special needs plans so that we could have 

more time to determine how those plans differed from other Medicare Advantage plans and what if any additional value they provide. We appreciate MedPAC’s attention to these plans and will 

work to incorporate your recommendations into any of our special 

needs plan authorizations. 

As always, we continue to look to Medicare payments across provider types to make sure we are appropriately paying for those 

services. And I look forward to working with my colleagues in getting input and advice from Mr. Hackbarth and the MedPAC staff 

as we move through our agenda. Thanks again for being here. 

I would like to give Mr. Camp a chance to give his opening remarks, and then we will let you proceed, Glenn, in any manner 

that you would like. 

Mr. CAMP. Well, thank you, Mr. Chairman. And thank you, Mr. 

Hackbarth, for being here and for the work that you do. 

I can’t emphasize enough my concern about the financial situation of the Medicare program. MedPAC’s warning that Medicare is 


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on a financially unstable path is one that we can’t ignore. Significant reforms must be made, and time is of the essence. 

The Medicare trustees estimate that the hospital trust fund will 

go bankrupt in 2019, a mere 11 years from now. If we don’t take 

action to address the unaffordable increases in spending, Medicare 

expenditures will threaten our nation’s economy and put the program at risk, putting seniors and the disabled at risk. 

Congress must look to wholesale reforms of the Medicare program as, Mr. Hackbarth, you said in your written statement. The 

current payment systems and the structure of the delivery system 

make gains in value difficult to realize. If we continue to simply 

tinker around the edges, Congress will inevitably be forced to increase taxes, increase beneficiary costs, or cut payments to providers. And we can do much better. 

In the coming weeks, Congress will have the opportunity to begin 

addressing Medicare’s financial troubles. The administration has 

taken the first step by sending Congress a proposal in response to 

the 45 percent trigger. Their package curbs Medicare spending by 

improving the quality and efficiency of care, increasing transparency, encouraging adoption of health IT, and limiting taxpayer 

subsidies to ambulance-chasing trial lawyers. Frankly, even this is 

just tinkering. 

Congress must not let this opportunity pass. Simply burying our 

heads in the sand will make today’s problems much worse and far 

more expensive. We must put ideological differences aside in order 

to preserve a program that we all value. We must also move toward a system that pays hospitals and physicians based on the 

quality of care they provide, not simply on the number of services 

they order. We must also encourage providers to adopt health information technology that reduces medical errors, saves lives, and 

save taxpayer money. 

Some members today will selectively focus on how MedPAC again recommends cutting more than $150 billion from the Medicare Advantage program. These cuts would leave 22 states without 

a single senior enrolled in Medicare Advantage. Those select few 

who are still fortunate enough to have a plan participating in their 

area would see their benefits slashed and out-of-pocket costs increase. According to CBO projection, these cuts would reduce Medicare Advantage enrollment by seven million. 

MedPAC’s stated belief that ‘‘financial neutrality’’ will foster efficiency and innovation is also off-base. The suggestion that plans in 

Miami, Florida are somehow four times as efficient as plans in 

Midland, Michigan defies logic. To presume this to be true is irresponsible and harmful to the seniors I represent. 

It is unfair to single out Medicare Advantage and the nine million beneficiaries who depend on the program for their health care 

to address all of the financial problems facing Medicare. I want to 

be clear that I am not suggesting that we shouldn’t look at savings 

opportunities in the Medicare Advantage arena, including adjusting the benchmarks to recognize true market forces. 

At the same time, no provider should be above reform or scrutiny. I appreciate MedPAC’s thoughtful recommendations on the 

many Medicare providers that we will hear about today, not only 

how they should be reimbursed but how to improve quality in the 


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various sectors. I also appreciate MedPAC’s continued call to provide dialysis providers with an update, something I have long advocated for. 

And I thank the chairman, and yield back the balance of my 

time. 

Chairman STARK. If other members have opening statements, 

they will appear in the record in their entirety without objection. 

And Glenn, while normally we would ask a witness presenting 

to time limit their remarks, why don’t you proceed to summarize 

your testimony however you desire, and at the conclusion of that 

we will try and drill a little deeper with our inquiries. Why don’t 

you proceed. 

STATEMENT OF GLENN M. HACKBARTH, CHAIRMAN, 

MEDICARE PAYMENT ADVISORY COMMISSION, BEND, OREGON 

Mr. HACKBARTH. Thank you, Chairman Stark and Ranking 

Member Camp, other Members of the Subcommittee. I appreciate 

the opportunity to talk about our March 2008 report. I will keep 

my comments very brief so we can spend time on the issues that 

you want to discuss. 

Our March 2008 report includes 21 recommendations, seven related to payment updates under traditional Medicare, seven related 

to Medicare Advantage, specifically the SNP portion of MA, three 

related to the Medicare savings programs, two related to quality for 

skilled nursing facilities, one on indirect medical education, and 

one on Part D. 

For those 21 total recommendations, there were a potential 357 

total votes. Of those, 332 were yes votes and 5 no votes and 4 abstentions. So as in the past, we managed to achieve a high level 

of consensus within the commission about our recommendations. 

The one summary statement I would like to make, Mr. Chairman, is that the commission does share the growing concern about 

Medicare costs. We are not only concerned about the potential burden on taxpayers and on the next generation, we are also concerned that how Medicare pays contributes to cost growth in the 

whole health care sector. That is having a number of detrimental 

effects, including adverse effects on coverage. I wish—we all wish— 

that there were a silver bullet for all of this. But clearly there is 

none. 

For our part, MedPAC recommends a combination of restraint on 

fee-for-service updates in traditional Medicare, a reduction in Medicare Advantage payments, plus changes in how we pay providers— 

more accurate pricing, rewards for care coordination, bundling of 

certain types of services, et cetera. 

Because changes in payment systems are complex to design and 

sometimes even more complex to implement, not to mention uncertain in their effect, we believe it is important to start now, work 

aggressively to improve our payment systems, and fund CMS appropriately for that task. Meanwhile, in the short run, our focus is 

on restraint on the Medicare updates for fee-for-service providers 

and in Medicare Advantage. 

It is our believe that encouraging slowing cost growth and improving efficiency requires constant pressure on rates, both in traditional Medicare and Medicare Advantage. In a competitive marVerDate Nov 24 2008 23:56 Jul 21, 2011 Jkt 066250 PO 00000 Frm 00010 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\66250.XXX GPO1 PsN: 66250

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ket, the restraint on price, that pressure on price, is more or less 

automatic and relentless. The market provides it. In Medicare’s administered price systems, both on the Medicare Advantage side and 

traditional Medicare, that restraint must come from the Congress 

ultimately. And our goal is to help Congress understand the implications of the pricing policies and give you the best advice that we 

can. 

So that is my opening statement, Mr. Chairman, and I am happy 

to answer any questions about the report. 

[The statement of Glenn M. Hackbarth follows:] 


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Chairman STARK. Thank you. I guess on the Medicare Advantage issue, I am not sure that there is any question that we are 

overpaying relative to what the same procedures might cost us 

under the fee-for-service schedules, and that it is a lot of money. 

I don’t know, how many billion dollars a year are we overpaying? 

Five, $10 billion a year? I don’t know. 

Mr. HACKBARTH. Per year, it is about $10 billion. 

Chairman STARK. $10 billion a year? I want to go back just— 

we used to have something we called cost-based. How did we used 

to pay people like Kaiser? We had a term for it. 

Mr. HACKBARTH. Yes. Well, if you go way back, there were cost 

contracts. In fact, they still exist. 

Chairman STARK. Cost contracts. But basically, we were paying—let’s take Kaiser, which is in my district—on a cost contract 

formula for, just about as far as I know, the same services they are 

providing today. But in those days, we paid generally less than 100 

percent of fee-for-service. 

Now, what troubles me is how can I come to grips or what reason 

could there be when in the past we were paying somebody like Kaiser, a managed care plan, less than 100 percent—they never came 

to me and said they were about to go bankrupt or disappear—and 

all of a sudden we are paying them, I don’t know, what in Kaiser’s 

case may be 108 percent today for the same services they provided 

previously. What possible reason could there be for doing that? 

Mr. HACKBARTH. Well, let me just quickly talk about the history. The major change in how we paid private plans was—the first 

major change—was in 1982, in TEFRA, at which time I worked in 

the Reagan administration, and we were very excited about the opportunity for private plans to enter Medicare and participate in 

what were then called risk contracts. 

Chairman STARK. Risk contracts. That is right. 

Mr. HACKBARTH. Right. And so Kaiser and other participating 

plans were paid a fixed monthly payment set at 95 percent of the 

expected Medicare cost for the same population. And what made us 

excited about it in the Reagan administration was that we thought 

the private plans could contribute something to Medicare, that 

properly configured plans could add value for the program and 

Medicare beneficiaries. 

And so the 95 percent formula said, if you can do it for less, you 

are welcome to come into the program and help the program and 

help the beneficiaries. In a series of steps after that, of course, we 

left the 95 percent standard and adopted new payment formulas, 

which ultimately have led to us paying, on average, 113 percent 

more. 

The major concerns about that policy, paying 113 percent, are 

two. One, obviously, it increases outlays in the short run, strains 

the trust funds, and all of that. But from my perspective, perhaps 

an even bigger concern is that we are shaping the market. We are 

shaping the type of private plans that come into Medicare. The 

benchmarks that we use are a signal about what Medicare wants 

to buy. That is the function of prices in a marketplace. 

And basically what we are saying to the marketplace is that we 

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cally mimic Medicare. They offer fee-for-service coverage. They are 

not adding value. And that is the innovation that we want to buy. 

I think that is a luxury that the program can ill afford at this 

point. What we want is a payment system that encourages innovation, improvements in efficiency, and quality. Plans like private 

fee-for-service, which are prospering under the existing payment 

system, are not adding value to Medicare. Their existence, their 

rapid growth, is a sign the payment system is flawed. 

Chairman STARK. How do those private fee-for-service plans, if 

you will, for the committee—how do they differ from fee-for-service 

Medicare? What is the difference between a private fee-for-service 

plan and the old-fashioned standard Medicare fee-for-service? 

Mr. HACKBARTH. Well, in terms of what they are required to 

do, there is really not much difference at all. By statute, they are 

required to pay providers on a fee-for-service basis. They are not 

supposed to limit the beneficiary’s choice. They are not supposed to 

link payment to utilization, et cetera. So—— 

Chairman STARK. How about extra benefits? 

Mr. HACKBARTH. Well, they provide extra benefits out of the 

additional payments that they get over and above the cost of traditional Medicare. In fact, let me just share a couple figures on this. 

So in this slide—I assume you can see it—the bottom row there 

is—— 

Chairman STARK. It doesn’t show up, but that is our—is it in 

your—— 

Mr. HACKBARTH. Yes. Okay. So you have—oh, there we go. It 

is on the screen now. So I am looking at the bottom row, which is 

private fee-for-service. So on average, the payments to private feefor-service plans are 117 percent of what Medicare would have cost 

for the same beneficiaries. Their bids are 108 percent. And then 

the benchmarks are 120 percent, so they are focusing on areas 

where the benchmarks are high. And then rebates are 9 percent. 

So what this is saying is we are paying them 117 percent of traditional Medicare. Only 9 percent of that is going back into added 

benefits for Medicare beneficiaries. The other 8 percentage points 

is going into the higher cost for the plans, whether they be higher 

utilization rates or higher administrative costs, whatever. So only 

about half of the overpayment is actually making it to Medicare 

beneficiaries. 

Chairman STARK. And am I correct in assuming that none of us 

know what if any additional benefits are actually used by the beneficiaries? We know they are ‘‘offered,’’ but we have—there are no 

records, as I understand it—— 

Mr. HACKBARTH. Yes. 

Chairman STARK [continuing]. As to whether they are actually 

being consumed or used or have any costs to these private fee-forservice plans. 

Mr. HACKBARTH. Yes. Well, under the terms of the Medicare 

Advantage program, plans are only required to submit limited data 

that supports the risk adjustment system. They don’t have to provide detailed encounter data on all services provided. And without 

that encounter data, it makes it difficult to assess the value. 

Chairman STARK. If it was decided, whether we decided or it 

was recommended, that many of these extra benefits should be 


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added as basic benefits in Medicare, is there a more efficient way 

to provide them? 

Mr. HACKBARTH. Well, again, going back to the slide, that row 

on bids, what that 108 percent number means is that the plans 

themselves say it costs them 8 percent more than traditional Medicare to provide the basic Medicare Part A and B benefit package. 

So they are saying they cost more than traditional Medicare. 

So if the goal is to provide additional benefits to Medicare beneficiaries, a more efficient way to accomplish that goal would be to 

do it through traditional Medicare. 

Chairman STARK. It is my understanding MedPAC is working 

on the issue of how to revise the physician reimbursement plan. 

Mr. HACKBARTH. Yes. 

Chairman STARK. And we will hear from you about that later 

on? 

Mr. HACKBARTH. Yes. Mr. Chairman, could I just add one 

other point on Medicare Advantage? 

Chairman STARK. Sure. Yes. 

Mr. HACKBARTH. I do want to point out that, you know, I am 

focusing on the bottom row there, on private fee-for-service. If you 

look at the HMO row, there are some private plans that provide 

the services for less than Medicare’s costs. And so the average 

HMO bid is 99 percent of Medicare costs. 

Chairman STARK. Ninety-nine? 

Mr. HACKBARTH. Ninety-nine percent. And so in that case— 

and some HMOs do substantially better than that. So in that case, 

the private plans are more efficient at providing the additional benefits. I just wanted to make sure that was clear. 

Chairman STARK. Can you differentiate at all, I mean, between 

those that are bidding at par or less with those who are bidding 

more? I mean, is there any—— 

Mr. HACKBARTH. What type of plan? 

Chairman STARK. Yes, or how they operate. Is there a way you 

can distinguish statistically how they differ? 

Mr. HACKBARTH. I would point to a couple things. One is that 

there are geographic differences, as Mr. Camp alluded to. In some 

areas of the country, the traditional Medicare costs are very high 

and private plans are able—many private plans are able to bid less 

than the traditional Medicare costs. 

In other parts of the country, the traditional Medicare costs are 

significantly lower and it becomes more difficult for a private plan 

to bid less than the Medicare fee-for-service costs. So geographic 

differences are important. 

Also, plan type is important. More tightly organized systems like 

Kaiser Permanente, generally speaking, have lower costs than 

looser systems like private fee-for-service or large network HMOs. 

Chairman STARK. Let me just get one more question in here, 

and I want to yield to Mr. Camp. He has been patient with my inquiries. 

In the area of comparative effectiveness, it is my understanding 

that we are perhaps one of the few industrialized nations in the 

world in that doesn’t have some form of comparative effectiveness 

studies, certainly for pharmaceuticals if not for medical procedures. 


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We came fairly close on a bipartisan basis to—I think we came 

together on a bipartisan basis that it would be useful for us to have 

a comparative effectiveness program. My understanding is that we 

came apart on Blue Cross complaining that if they were going to 

pay anything, they wanted to control the system. And I personally 

felt that it had to be at least a private/public partnership. 

And in a way to pay for it, we had suggested that the government should pay some and the insurance companies, who would 

benefit from the use of this data, should pay—I think it was two 

bucks a year per insured, which hardly seemed—considering how 

much money they make—a burden for them. 

Can you give us an outline of what you would suggest as how 

we would set up a body to ensure independence, that the effectiveness research had a stable funding source and could maintain its 

independence? Have you got—I mean, this is what I think MedPAC 

does, although we pay the full freight, the taxpayers do. How would 

you suggest we set that up? 

Mr. HACKBARTH. Yes. We will actually address this issue in 

some more detail in our June 2008 report. So it is an issue that 

is currently under active discussion within the commission. 

What we have said to this point is that we think it is critically 

important that the entity be perceived as independent. The whole 

idea here is to have an entity that exists to produce the best available information, not just for payors but also for patients and physicians. And given the sensitivity of the topic, it will only be credible and useful if it is seen by all parties as independent. 

Second, we believe it is very important that the organization 

have a secure, stable flow of funds and not be subject to having to 

ask various parties for money each year. That would limit its effectiveness, limit its ability to invest in major research. 

As to the specific mechanism for financing, we have not made a 

recommendation on that. But it does seem to us that it ought to 

come from the people who benefit from the research, which includes both the public and private payors. Now, there are various 

ways that that might be accomplished. 

Chairman STARK. Is your board close to unanimous in its agreement with those principles, or are—— 

Mr. HACKBARTH. Yes. 

Chairman STARK. They are? 

Mr. HACKBARTH. We are. 

Chairman STARK. Well, I am happy to hear that, and look forward to, in your report to us in June or any sooner, that you could 

let us know what your deliberations decide. 

Mr. HACKBARTH. Yes. And I might add that within the commission, it is some of the physician commissioners who have been 

most articulate about this. As practicing clinicians, they feel that 

the quality and the amount of information that they get about 

what works for their patients is less than they would desire, less 

than they need. 

Chairman STARK. Thank you very much. 

Mr. Camp. 

Mr. CAMP. Thank you. 

Mr. Hackbarth, the Medicare Modernization Act in 2003 had a 

number of provisions to improve Medicare Advantage payments. 


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Have these changes stimulated growth, particularly in the underserved rural areas? And so have they actually succeeded in providing rural seniors with more options? 

Mr. HACKBARTH. Absolutely. 

Mr. CAMP. The MedPAC report found that Medicare Advantage 

plans were paid about 13 percent more than traditional fee-forservice. Did you take into account the value of extra services like 

dental and vision care, preventive services like annual physicals, 

free annual physicals, that Medicare Advantage plans provide? 

Mr. HACKBARTH. Well, what we are looking at in that number, 

the 113 percent, is the amount of the payment as opposed to the 

additional benefits provided. 

Mr. CAMP. That is just a raw score. So it does not take into account the issue of benefits? 

Mr. HACKBARTH. Well, in the slide that I have up, Mr. Camp, 

the additional benefits that the plans are providing over and above 

the basic Medicare benefit package would be reflected in the rebate 

column. So they are providing services estimated to be 9 percent 

above the traditional Medicare benefit package, but they are receiving payments equal to 117 percent. 

Mr. CAMP. Did you include the value of the assistance Medicare 

Advantage plans provide in helping beneficiaries with lower co-payments and deductibles as well? 

Mr. HACKBARTH. That would be in the rebates, yes. 

Mr. CAMP. You also say in your statement that we are not receiving value for the additional money in Medicare Advantage. 

However, GAO found that beneficiaries in traditional Medicare pay 

$800 more per year than those in Medicare Advantage. And the 

Kaiser Family Foundation report found that while beneficiaries 

save—all beneficiaries save more money in Medicare Advantage, 

but on average, those with the highest health care costs save more 

than $4,000 a year by being in Medicare Advantage. 

Are you familiar with those findings? 

Mr. HACKBARTH. Yes. And I think I can explain how they fit 

into our analysis. 

Mr. CAMP. Would you describe those are receiving value, those 

individuals? 

Mr. HACKBARTH. Well, the same additional benefits could be 

provided by Medicare, traditional Medicare, that is, at a lower cost. 

The plans themselves say that their costs to provide the Medicare 

services are higher than traditional Medicare’s. 

Mr. CAMP. But traditional Medicare doesn’t provide those services. 

Mr. HACKBARTH. Apples to apples. 

Mr. CAMP. So you are assuming that then traditional Medicare 

would then continue to provide all of those services that we are 

finding in Medicare Advantage. 

Mr. HACKBARTH. Well, to the extent that what the plans are 

doing in their additional services is filling in deductibles, coinsurance, paying premiums, I think that is a reasonable assumption. 

Mr. CAMP. But also dental and vision care and other items. 

You mentioned reducing those Medicare Advantage payments 

also to spur efficiency and innovation. Are you suggesting that the 

health care delivery systems in North Dakota and Wisconsin are 


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ten times more inefficient than those in New York and Florida, 

particularly? 

Mr. HACKBARTH. Well, the states that have low traditional 

Medicare costs would tend to be more efficient, not less efficient. 

In fact, in many of the low-cost Medicare states, as you know—not 

all of them, but many of them—also tend to do quite well on quality measures. And so traditional Medicare is providing very good 

value in those low cost states. 

Mr. CAMP. Well, so that is—yes. Those with higher Medicare 

spending and utilization often have lower health and quality outcomes compared to areas that are—where utilization is much 

lower. I think that is what you are saying. 

Mr. HACKBARTH. I am sorry. Say that again? 

Mr. CAMP. I think what you are saying is that benchmarks vary 

widely across the country, and that you have found that regions 

with the highest Medicare spending and utilization rates often 

have health and quality outcomes similar or worse than those 

areas where utilization is much lower. 

Mr. HACKBARTH. Yes. That is correct. 

Mr. CAMP. Is that a fair statement? 

Mr. HACKBARTH. That is correct. 

Mr. CAMP. Are you exploring ways to ensure that seniors in 

states like Michigan will not continue to subsidize the over-utilization of services by paying higher monthly premiums and 

deductibles in Florida and other areas? 

Mr. HACKBARTH. Yes. Well, much of our work is aimed at trying to improve traditional Medicare so that it incorporates stronger 

incentives for efficiency and quality. So yes, that is what we spend 

most of our time trying to do. 

Mr. CAMP. Thank you. I see my time has expired, Mr. Chairman. Thank you. 

Chairman STARK. Mr. Doggett, would you like to inquire? 

Mr. DOGGETT. Thank you very much for your important, continuing work. 

I would like to direct your attention first to the section of your 

report captioned, ‘‘Part D Data Still Unavailable for Purposes 

Other than Payment and the Related Recommendation.’’ In that 

portion of your report, you say that in calendar year 2006, Medicare and Medicare beneficiaries under the prescription drug program paid out about $50 billion in premiums, but ‘‘because of gaps 

in available data, there are fundamental questions that cannot be 

answered about how Part D is operating.’’ 

I think this is a very troubling finding, and your recommendation 

to try to get CMS and HHS to do what they are charged under the 

law already, I believe, to do is very important. I have just been consistently amazed at this administration’s tolerance of waste, fraud, 

and abuse in the Medicare Advantage program. Apparently it is 

okay to have waste, fraud, and abuse in government programs as 

long as it fulfills an ideological imperative and benefits insurance 

companies. 

Specifically, for over eight months I have been trying to determine whether all of $100 million was wasted or just a large part 

of it in this program to provide prescription drug assistance to people who weren’t told in a timely way they were entitled to get it, 


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and the refusal of CMS to go back and take a look at whether all 

that $100 million was wasted or just a large part of it. 

I asked in this room in June. I asked in October. I asked when 

Secretary Leavitt was sitting where you are, when he came to testify about the President’s budget. I asked again last week in the 

Budget Committee. CMS continues to refuse to explain what happened to that $100 million for low income beneficiaries. 

Let me ask you: As a nonpartisan research organization with no 

political agenda, the Medicare Payment Advisory Commission, has 

the administration—formally or informally—been willing to provide 

you with the facts that you need concerning either this $100 million payment or the overall experiment with Part D, $50 billion? 

And if not, has that refusal to provide data impaired your work to 

ensure accountability? 

Mr. HACKBARTH. Well, I am not sure about the $100 million 

issue, Mr. Doggett. But in general, we have been concerned that we 

haven’t been able to get claims level data on Part D so that we can 

answer basic questions about how the program is functioning—for 

example, which drugs are the most frequently used, and how many 

beneficiaries are entering into the coverage gap, and those sorts of 

issues. And without that information, we feel we can’t advise the 

Congress on how well the program—Part D, that is—is working. 

So we have recommended that Congress pass legislation requiring CMS to provide claims level data to MedPAC and other congressional support agencies, and also executive branch agencies 

that have health and safety responsibility, like FDA. 

Mr. DOGGETT. And you believe they could provide you that data 

right now; but given their attitude, you feel a mandate is necessary? 

Mr. HACKBARTH. Well, my understanding is that there are at 

least people who believe that they don’t have the legal authority to 

do that right now, which is why we have couched it as a recommendation that Congress enact legislation to make it perfectly 

clear that CMS is not just authorized but required to give us the 

data. 

And obviously, it ought to be done so in a way that protects confidentiality to beneficiaries. And we have a fairly good track record 

of dealing with confidential information. 

Mr. DOGGETT. If you had that data already, certainly you have 

mechanisms within your committee to protect confidentiality. 

Mr. HACKBARTH. Oh, yes. 

Mr. DOGGETT. You would have protected it had you been supplied the data you need to do your job. You have, even without that 

data, been able to do a great deal of research on the windfall subsidies that Medicare Advantage plans enjoy. They of course don’t 

just go to low income individuals. They go to people of all income 

ranges. 

Do you believe that Medicare Advantage is the best way to assist 

poor folks, low income individuals, with their health care costs? 

Mr. HACKBARTH. No, we don’t. We believe that there are other 

ways that are more targeted and would therefore be more effective 

at achieving the goal of providing support to low income people. 


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Mr. DOGGETT. I believe the latest estimate we have is that we 

will waste about $150 billion over the next ten years on Medicare 

Advantage over delivering it through traditional Medicare. 

Just one last question, if I may, in another area, Mr. Chairman. 

And that is with regard to not so much these recommendations as 

the meeting that you had last week to begin exploring again this 

question of bundling hospital and physician payments for services 

around a hospitalization. 

As you know, when we had the so-called wrap DRG, there was 

a concern about bundling radiology, anesthesiology, pathology services all together. Could you just give us a general idea of where you 

think MedPAC is going with this new bundled payment pilot, and 

perhaps tell us what type of select conditions might come into play, 

whether it is high volume, or just generally what are the conditions 

for which quality has been a persistent problem but for which 

standard protocols are not available? 

Mr. HACKBARTH. Yes. Well, a couple points. 

Mr. DOGGETT. Or are available. 

Mr. HACKBARTH. First is that we have not made a recommendation yet. We discussed a draft recommendation at our 

March meeting last week, and we will take up a recommendation 

in April. But I don’t want to prejudge that the commission will endorse that. 

The concept that we have talked about is starting with a select 

number of DRGs, focusing on particular conditions that are high 

volume and, for example, where there is a lot of variation around 

readmission rates and the like—focusing on those DRGs and then, 

for those conditions, bundle together in a single package not just 

the hospital payment but also the inpatient physician fees, subsequent hospital readmissions within a given window like 30 days 

after the first admission. And the ultimate goal would be to have 

a single fixed payment that goes to an organization that then divides it among the physicians and hospitals and others participating in the care. 

So that is the basic concept. To get to that true bundled payment, we are likely to recommend some transitional steps that 

would move us gradually in that direction. 

Mr. DOGGETT. Thank you. 

Chairman STARK. Mr. Johnson, would you like to inquire? 

Mr. JOHNSON. Thank you, Mr. Chairman. 

You indicated that rural access has improved beneficiary choice 

to Medicare Advantage. And what would your proposed cuts do to 

Medicare Advantage to current beneficiaries’ access? Is that going 

to impair them? 

And you need to know that the seniors in my district have asked 

me not to mess with their Medicare Advantage plans, and I know 

that Mr. Stark’s percentage is way up there on numbers of people 

in your district who take Medicare Advantage. Compared to mine, 

you are about five times as many. 

Mr. HACKBARTH. Clearly, as I said in response to Mr. Camp, 

the additional payments that are being made to private plans are, 

at least some of them, going into added benefits for Medicare beneficiaries. And of course we understand that that is very popular. 


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But if the goal is to provide added benefits to Medicare beneficiaries, we believe that there are more efficient ways to do that 

than to funnel the money through—— 

Mr. JOHNSON. Yes. You made that statement before. You keep 

saying there are other ways. What are the other ways? Would you 

care to discuss—— 

Mr. HACKBARTH. If Congress wants to expand the Medicare 

benefit package, Congress can do that and it would be at a lower 

cost than doing it through Medicare Advantage. 

Mr. JOHNSON. How can you be sure it would be a lower cost? 

Mr. HACKBARTH. The plans tell us so. Again, looking at the 

table before you, the plans say that it costs them more than traditional Medicare to provide the Medicare benefit package. 

Mr. JOHNSON. Well, but you also made the statement that it 

varies across the country. And how do you equalize that? 

Mr. HACKBARTH. Well, let’s just go through some of the numbers here. On average, for all Medicare Advantage plans across the 

country, all types of plans, the average bid is 101 percent of traditional Medicare. 

For the private fee-for-service plans, which are, as you know, the 

most rapidly growing and the most prevalent form in the rural 

areas, the plans say that it costs them 108 percent of Medicare’s 

cost to provide the traditional Medicare package. So there certainly 

is variation. 

But in the rural areas, the private plans say it would cost us 

quite a bit more than traditional Medicare to provide these benefits. That is what the plans say. That is what their bids say. So 

if we want to provide more benefits to Medicare beneficiaries, it is 

more efficient to do it through traditional Medicare than through 

private fee-for-service plans. 

I would also add that if the goal is to improve geographic equity, 

if people feel like traditional Medicare is unfair to parts of Texas 

or to Michigan relative to Florida, the place to fix that is in traditional Medicare, not in paying additional money to private plans in 

those areas. 

When traditional Medicare pays a lot more for—or when Medicare pays a lot more for private fee-for-service in Texas or in Michigan or in South Dakota, a lot of that money is going into higher 

administrative costs and profit for plans. It is not going to the 

health care providers in those states that have produced those low 

traditional Medicare costs. It is going to insurance companies. 

So if we want to improve geographic equity in traditional Medicare, fix traditional Medicare. If we want to provide more benefits 

to Medicare beneficiaries, provide them through traditional Medicare. It is lower cost. It is more targeted. 

Mr. JOHNSON. So what you are saying is the government is a 

better insurer than private industry? 

Mr. HACKBARTH. No. Actually, I am not saying that. 

Mr. JOHNSON. Yes, you—— 

Mr. HACKBARTH. Well, this is a critical issue, Mr. Johnson, so 

I want to be really clear on it. 

Is traditional Medicare lower cost, more efficient, than private 

fee-for-service plans? Yes. The data say so. The data submitted by 

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ficient than all private plans? No. Some of them bid less. HMOs, 

on average, bid less than the cost of traditional Medicare, and some 

HMOs significantly less than traditional Medicare. 

Some private plans are efficient. Others are not. The problem 

with this payment system is we are rewarding inefficient private 

plans. In fact, we are encouraging growth in inefficient private 

plans. 

Mr. JOHNSON. Well, I think—would you agree that 75 percent 

of the people use HMOs? 

Mr. HACKBARTH. Seventy-five percent of the enrollment? Yes. 

Mr. JOHNSON. Can you tell us? Is that true? 

Mr. HACKBARTH. Yes. But the most rapidly growing piece of 

this is the private fee-for-service. 

Mr. CAMP. Would the gentleman from Texas yield just for a 

point of clarification? 

Mr. JOHNSON. Yes. Sure. 

Mr. CAMP. Mr. Hackbarth, are the coordinated care plans in a 

different position than the private fee-for-service? Are those still— 

I mean, your own data suggests they are providing services more 

efficiently, yet your testimony seems to lump everybody together. 

And if you could just clarify those points, I would appreciate it. 

Mr. HACKBARTH. Yes. Sure, Mr. Camp. And believe me, I am 

doing my best to be clear on this. Not all private plans are the 

same. There is a lot of variation. We tend to, for analysis purposes, 

group plans into broad categories—private fee-for-service, coordinated care plans, regional PPOs, and the like. 

There are variations across those categories. Clearly, private feefor-service is the least efficient option among the broad categories. 

Within a category, like coordinated care plans, that includes HMOs 

and local PPOs, as I recall, there are variations among HMOs in 

terms of their efficiency. Some of them are much lower cost than 

traditional Medicare. Some are highest cost than traditional Medicare. So the labels are—— 

Mr. CAMP. Do you have a conclusion as a category, though? 

Mr. HACKBARTH. On average, the HMO category provides the 

traditional Medicare benefits for less than traditional Medicare. 

Mr. CAMP. Thank you, sir. I yield back. 

Mr. JOHNSON. Thank you. 

Chairman STARK. Ms. Tubbs Jones, would you like to inquire? 

Ms. TUBBS JONES. Thank you, Mr. Chairman. 

Good morning, sir. How are you? 

Mr. HACKBARTH. I am doing well. 

Ms. TUBBS JONES. My name is Stephanie Tubbs Jones. I come 

from Cleveland, Ohio. And I am concerned, and I have kind of 

looked through this report and I am not sure that it is included in 

that: You are familiar with all the research that shows that there 

are significant health disparities, particularly in the delivery of 

health care for minorities, are you not, sir? 

Mr. HACKBARTH. Yes. 

Ms. TUBBS JONES. Is there any place in this report where you 

address the issue of health disparities? 

Mr. HACKBARTH. Well, there are places that we take care to 

look at differences. For example, in—— 


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Ms. TUBBS JONES. Can you refer me to somewhere in the report to do that? 

Mr. HACKBARTH. Yes. For example, in looking at dialysis facilities and closure rates, one of the things that we look at is the impact on different populations, including African Americans. 

Ms. TUBBS JONES. And what were your findings? 

Mr. HACKBARTH. Well, in that case we found that among the 

closing dialysis facilities, they were somewhat more likely to be facilities that have a disproportionate share of African Americans. It 

is not a huge disparity, but something that bears watching, we 

think. 

Ms. TUBBS JONES. And the reason you are focusing on that is 

because end stage renal disease predominates in African Americans and other minorities. Is that correct? 

Mr. HACKBARTH. Yes. It is a particular problem. 

Ms. TUBBS JONES. And so what do you propose we do to address that particular issue, sir? 

Mr. HACKBARTH. Well, in this case, as I said, we found a slight 

difference and think that it is something that bears watching. We 

don’t think that there is evidence of an overwhelming problem at 

this point that requires—— 

Ms. TUBBS JONES. But if you are looking at a population in 

which it predominates, the slight difference could have a disproportionate impact on that group of folks. 

Mr. HACKBARTH. All of the other statistics that we look at in 

terms of access to care for African Americans in general, the 

growth in services, et cetera, they all are in line with the needs of 

the population. So the number that I am saying is a little bit, 

something that bears watching, is the closure of facilities. Are the 

ones that are closing disproportionately facilities that serve African 

Americans? 

Ms. TUBBS JONES. So are you saying to me that in terms of 

health care disparity, the only issue is the closing of end stage 

renal disease facilities? 

Mr. HACKBARTH. We don’t look at every issue with an eye towards disparities. No, we don’t. 

Ms. TUBBS JONES. Is that something you could do? 

Mr. HACKBARTH. We would be happy to look at particular 

issues, yes. 

Ms. TUBBS JONES. I mean, I think that in light of the fact that 

every research is showing that health care disparities predominate, 

delivery of care to minorities is a big issue for minority communities. It would only make sense that you, who do the report to 

Congress on Medicare payment policy, would include that in your 

research. 

Could you see that that is something you include moving forward 

in the future? 

Mr. HACKBARTH. Yes. We can take a look at that. 

Ms. TUBBS JONES. You are aware, in fact—I am encouraging 

you to do so. And I am going to stay on this health care subcommittee counting on you to provide that kind of leadership for 

us. 

You are aware that the committee—not the committee, the chair 

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ease and the impact bundling would have on end stage renal disease? 

Mr. HACKBARTH. Yes. 

Ms. TUBBS JONES. Is there anything in your research that 

speaks to that issue? 

Mr. HACKBARTH. To bundling? 

Ms. TUBBS JONES. Yes. The bundling of Epogen and the impact that it would have on minority communities? 

Mr. HACKBARTH. Well, the commission has recommended bundling of ESRD-related services. And we have recommended that 

when that is done, that there be careful attention paid to incorporating measures of quality. 

Ms. TUBBS JONES. But when you made that recommendation, 

did you have any study upon which you based that it would have 

any disparate impact on minority communities? 

Mr. HACKBARTH. No. We don’t have information to show—— 

Ms. TUBBS JONES. Could you, please—again, I am asking on 

behalf of the minority communities across this country in whom 

end stage renal disease predominates—do some research in and 

around that? 

Mr. HACKBARTH. Yes. 

Ms. TUBBS JONES. And when we receive this GAO study that 

we have frequented, that you take a look at that to determine the 

impact, what impact your decision could have based on the study 

that they have done? 

Mr. HACKBARTH. Yes. Of course we would be happy to do that. 

I would add, though, that we recommend bundling for ESRD services because we think that that system can produce better quality 

for all Medicare beneficiaries within end stage renal disease. 

Ms. TUBBS JONES. But let me—— 

Mr. HACKBARTH. The goal is to enhance quality as well as improve efficiency. 

Ms. TUBBS JONES. Exactly. But the question I have is: Do you 

believe that doctors recommend drugs in order to make money 

versus standing in the stead of doing the job that they are supposed to do, which is to do no wrong? 

Mr. HACKBARTH. Some doctors do that, and many do not. 

Ms. TUBBS JONES. So upon what do you base that answer that 

some doctors do that? 

Mr. HACKBARTH. That some doctors—— 

Ms. TUBBS JONES. Do that, what you just—that is what you 

just said. 

Mr. HACKBARTH. I am saying that there are doctors who will 

do things due to financial motivation, and many who do not. 

Ms. TUBBS JONES. And upon what do you base that statement? 

Mr. HACKBARTH. You can look at variation in utilization of 

services, and look at things like how ownership affects utilization 

recommendations. 

Ms. TUBBS JONES. So do you have a research report that says 

doctors make that kind of recommendation, for profit, versus looking out for the interests of their patient? 

Mr. HACKBARTH. Again, I don’t know if I am misunderstanding 

your question. Are there physicians who recommend more because 


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they are influenced by financial incentives? I say yes, there are 

some physicians. 

Ms. TUBBS JONES. And I am asking you, if you have physicians 

that do that, do you have a report that shows that they do that? 

Mr. HACKBARTH. There is abundant research that shows that 

there is a relationship between financial incentives and physician 

utilization decisions. There is research that shows there is a relationship between physician ownership of facilities and their decisions about utilization of those services. We don’t produce every bit 

of research ourselves. We rely on work done by other researchers. 

Ms. TUBBS JONES. I would be interested in having someone 

from the folks that are with you giving me the research that says 

that doctors would over-prescribe a drug of purposes of profit 

versus looking out for the interests of their patient. And I am out 

of time, so I am looking for you to send that to me. 

Mr. HACKBARTH. Well, again, the point is that physicians respond to incentives. 

Ms. TUBBS JONES. I don’t know if anybody in the physician 

community is sitting out there listening to these blanket statements that you are making, but I am confident by the end of the 

day you are going to hear from a whole bunch of them. 

Mr. HACKBARTH. Well, we have got physicians on MedPAC 

who would agree with that statement. 

Ms. TUBBS JONES. Send it to me. If you have it, I would love 

to read it. But I am telling you, by the end of the day I am confident you are going to hear from a lot of physicians who agree 

with that blanket statement you are making about their practice 

of medicine. 

Mr. HACKBARTH. And in fact, just so the record is clear, I did 

not make a blanket statement. What I said is that some physicians 

do; most do not. 

Ms. TUBBS JONES. I will let the physicians argue with you. 

Thank you, Mr. Chairman. 

Chairman STARK. You are welcome. 

Mr. Kind. 

Mr. KIND. Thank you, Mr. Chairman, and thank you, Mr. 

Hackbarth. I appreciate your testimony today, and also MedPAC’s 

work in the report that you submit. Obviously, you give us a lot 

of policy issues to chew on in the course of the report. 

Skilled nursing facilities/home health: I am very concerned about 

their status back in Wisconsin. Obviously, MedPAC is recommending zero percent. 

Mr. HACKBARTH. Right. 

Mr. KIND. And that is based on what the Medicare margins are 

right now, is my understanding. The problem we are facing, however, is the state funding issue, which many of us believe has been 

inadequate, especially in Wisconsin, for too long. And yet they keep 

coming to us seeing if there is any type of help or relief in light 

of the funding shortfall that is occurring at the state level. 

You probably weren’t paying attention, but a couple of weeks ago 

we just passed reauthorization of the Higher Education Act, which 

had a maintenance of funding language in it, basically telling the 

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duce funding for higher education, don’t expect the Federal Government then to come up and make up for the shortfalls in that. 

I am just wondering whether or not something like that might 

be necessary in order to address the skilled nursing facilities and 

home health issues since Medicare’s margins are above and beyond, 

and yet the state funding seems to suffer each year as we go forward, and then jeopardizing that care back home. 

Mr. HACKBARTH. Yes. 

Mr. KIND. Did MedPAC look at anything like that? 

Mr. HACKBARTH. Well, what we have said is that using Medicare funds to offset Medicaid shortfalls is a mistake. 

Mr. KIND. Right. 

Mr. HACKBARTH. For two reasons. One, if the Federal Government says, we will assume responsibility for the bottom line of 

nursing homes and home health agencies, that is the reason for the 

state and other payors to say, oh, we will reduce the amount we 

pay because the feds will make up the difference. And that is the 

issue you are getting at. 

The second aspect of it is that if we use Medicare rates to crosssubsidize for low Medicaid payment, the skilled nursing facilities, 

for example, that are going to get the most money are the ones that 

have the highest Medicare case loads and the lowest Medicaid case 

loads. And so the money is not going to go to the right people. 

So if you want to fix low Medicaid rates, you have got to fix Medicaid, not do it through Medicare. As to how to fix Medicaid, that 

is beyond the scope of the Medicare Payment Advisory Commission, 

so we have not made a specific Medicaid recommendation. 

Mr. KIND. Now, let me just relay the sense of frustration again 

that many of the providers feel back in my district in western Wisconsin. High quality care. One of the lowest reimbursement regions 

in the entire country. Now, if we were to move forward aggressively, getting e-prescribing, HIT in place with quality of care 

standards, and move to an outcome or performance-based reimbursement system, how much cost savings do you think that would 

bring the Medicare system in light of the solvency issues that have 

been highlighted here today? 

Mr. HACKBARTH. From HIT in particular? 

Mr. KIND. Yes. From HIT, but also going to a performance-based 

type of reimbursement system that also deals with the utilization 

variances from regions. 

Mr. HACKBARTH. Yes. I don’t know, Mr. Kind, exactly what the 

number would be. You know, people have looked at some pieces of 

that. The Rand Corporation, for example, tried to look at the potential long-term savings from HIT. MedPAC specifically has not 

looked at those issues. But potentially the savings are quite large 

from improved efficiency. 

Mr. KIND. And you are probably familiar with the type of provider initiative that is taking place in Wisconsin, where they are 

trying to—this new quality collaborative initiative that all the providers have bought into in the state in trying to establish standards, increasing transparency, and getting that data available, 

which I think makes a lot of sense as long as you can get that type 

of integration and cooperation across the providers. 


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But naturally, we do have a solvency issue. But one of the issues 

coming up this year was going to be the 45 percent trigger issue. 

Does MedPAC have any thoughts about that 45 percent trigger? 

Mr. HACKBARTH. Well, we have not made any recommendation 

on the 45 percent trigger per se. I would say that, as I said in my 

opening statement, the commission is very concerned about the solvency of the program and feels a growing sense of urgency about 

that. So to the extent that the 45 percent trigger reflects the same 

sense of urgency, that is good news. 

The problem with the trigger is that, as you know, it focuses on 

the portion of the program that is financed through general revenues. And so it is just looking at a piece of the financial picture, 

not the overall cost of the Medicare program. 

And so in that sense, the 45 percent trigger is inadequate to deal 

with our big picture issue, which is the total cost of the program, 

whether it is financed from general revenues or the HIT. 

Mr. KIND. Right. What are your thoughts on these so-called efficiency payments, trying to incentivize increased efficiencies and 

cost savings and the delivery of health care? Are they going to be 

effective? Are they going to—— 

Mr. HACKBARTH. We have got to move in that direction. We 

need to move in that direction with care. We need to make sure 

that the system includes quality measures to assure that we aren’t 

hurting quality as we try to lower costs. 

We need to take care that there is appropriate adjustment for patient case mix and severity of illness so there aren’t incentives to 

avoid the sickest patients. But the direction is the direction we 

need to move. We just need to move there with care and thought. 

Mr. KIND. Great. Thank you. Thank you, Mr. Chairman. 

Chairman STARK. Mr. Pomeroy, would you like to inquire? 

Mr. POMEROY. I do have a few questions. I would first like to 

pick up on my colleague’s comments about the skilled nursing 

home care reimbursement issue. Now, MedPAC is an advisory committee for Medicare, so maybe MedPAC only needs to look at the 

Medicare component of reimbursement under CMS. But I believe 

the responsibilities on us, as members of the Ways and Means 

Committee, needs to be a little broader even though Medicaid jurisdiction falls principally on the Commerce Committee. 

But what we have for the nursing home in North Dakota providing services, much of which is paid for by federal programs, 

Medicare or Medicaid, is negative margins. They are getting negative margins because they are losing their short on Medicaid reimbursements being below costs, and they have been able to crosssubsidize a little bit with the margin, a favorable skilled nursing 

care margin on Medicare reimbursements. 

So simply to, without attending in any way to the underpayment 

on Medicaid, hammer now the margins on Medicare, at the end of 

the day, for the institution we demand provide quality care to the 

senior in that home, we are only making the job much more difficult. 

And I believe that you can even look at it a little more expansively as a Medicare problem as well. If the institutions are, in aggregate, in negative margins because of a federal program, it seems 

to me we had better be somewhat tempered in what we do on the 


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Medicare side lest we drive the quality or the availability of care 

in the nursing home area to where we can’t get acceptable outcome 

for the Medicare reimbursements that we make. We have that as 

a higher priority personally in the year ahead as we look at this. 

But I want to ask you about a few different things. The growth 

we are seeing in the Medicare Advantage is all in the private feefor-service side in North Dakota. An awful lot of aggressive marketing has produced some substantial enrollment change recently. 

And I just don’t see much quantification of the private fee-forservice return for the 17 percent we pay over the cost of Medicare, 

paying for the benefit on the fee-for-service basis. Is that substantially MedPAC’s view as well? 

Mr. HACKBARTH. Mr. Pomeroy, again I would refer you to the 

table that is on the screen. So that last column, the rebates, that 

is the amount of money that goes back to Medicare beneficiaries in 

the form of added benefits, reduced premiums. 

So of the 117 percent payment, overpayment, 9 percentage points 

of that 17 is going to the beneficiaries in the form of added benefits. The remaining 8 percent out of the 17 is going into higher plan 

costs for administration, profit, et cetera. So some of it is making 

it to beneficiaries, but only about half. 

Mr. POMEROY. Yes. For whatever enhanced benefit we want, 

we are paying $2 to get a buck’s worth of good out there. 

Mr. HACKBARTH. Yes. Right. Exactly. 

Mr. POMEROY. There ought to be a more efficient way of doing 

that one. 

There is a book I would commend to you, if you haven’t read it, 

‘‘Overtreated: Why Too Much Medicine Is Making Us Sicker and 

Poorer,’’ written by Shannon Brownlee. The New York Times called 

it the number one economic book in 2007. And it talks about vast 

differential in practice patterns not reflected to improved outcomes, 

in fact potentially inversely related to preferred outcomes, adding 

costs that the author estimates to be $500 to $700 billion a year. 

Now, as a system, is Medicare incapable of responding to a practice pattern in one place that is carving people up at a rate that 

is totally unmatched in other parts of the country without any better outcomes to show for the cost and the trauma to patients? 

Mr. HACKBARTH. Well, one of the tools that Medicare has at 

its disposal is in fact to use private plans. Traditional Medicare has 

some strengths. It is large. It can get good rates from providers because of its size. It has low administrative costs because of its size. 

Traditional Medicare’s weakness historically has been its inability 

to change practice patterns and deal with this sort of issue. 

And so part of the original thinking around Medicare Advantage 

was, well, if we allow private plans to come in and they can selectively contract, they can better coordinate care, and the like, they 

can deal with some of these inappropriate utilization patterns 

maybe more flexibly than traditional Medicare. 

I still believe that is true. The problem with Medicare Advantage 

is the payment system that we are using rewards inefficiency as 

well as efficiency. 

Mr. POMEROY. All right. Thank you, Mr. Chairman. 

Chairman STARK. Thank you. 

Mr. Thompson, would you like to inquire? 


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Mr. THOMPSON. Thank you, Mr. Chairman. I would. Thank 

you, sir, for being here today and helping us work through these 

vexing issues. 

In the administration’s budget, they were silent on the issue of 

addressing the impending physician rate cuts, which I take to be 

a silent endorsement of the cuts. And it is interesting because 

CMS’s own actuaries seem to recognize that cuts of this magnitude 

will impact access to care. As a matter of fact, they said that it 

would substantially reduce beneficiary access to physician care. 

Does MedPAC agree that cuts in the range of 10 percent would 

have an impact on beneficiaries’ access to care? And do you have 

any comments as to how you think Congress should deal with it? 

Mr. HACKBARTH. Yes. It is quite possible that a cut as large 

as 10 percent would start to affect access to care, in particular in 

some markets. MedPAC’s recommendation is for an increase in 

physician fees equal to the increase in their input prices minus a 

productivity factor. It works out to about 1.1 percent. 

Mr. THOMPSON. And that would avert any reduction in care 

to—— 

Mr. HACKBARTH. Yes. We think a modest increase in the payments is appropriate. 

Mr. THOMPSON. I would like to follow up on something our colleague Ms. Tubbs Jones mentioned, and that is the issue of bundling of Medicare payment rates for dialysis. And she said one 

thing that—she asked you one question that I was somewhat perplexed by your comments, and that is the fact that—the closing of 

these facilities. 

And I didn’t hear any mention on your part that there is a nexus 

between reimbursement rates and the ability of some of these facilities to stay open. And I think that was something that—maybe 

it is intuitive, but it is important to note that. 

It is more than just the reasons that you stated for folks to stay 

open and continuing to be able to provide care. If they are not getting the reimbursements they need to keep the doors open, they 

are going to close. 

Mr. HACKBARTH. Yes. But could I comment on that, Mr. 

Thompson? 

Mr. THOMPSON. Sure. 

Mr. HACKBARTH. Just to be clear, the number of facilities closing in any year is quite small. And maybe somebody can get that 

number. 

Mr. THOMPSON. Well, and the number—— 

Mr. HACKBARTH. And so I didn’t mean to overstate the closure 

problem. But I was giving it as an illustration of where we have 

looked in particular at a disproportionate impact on certain communities, like the African American community. 

Mr. THOMPSON. The actual number is less important to me 

than the fact that people who need this care—I mean, it is very, 

very important—have the ability to do it. I don’t know where you 

live, you know, if you live in the city, or maybe it is easy to get 

to them. But I represent a district that is largely rural, and it is 

tough for people to drive—especially to undergo this type of treatment—to drive any great lengths. 


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And I will stipulate that bundling probably does save money. But 

I think it is important also to point out that it is more than just 

saving them money. There is a quality to health care, a quality of 

health care, an access to that quality of health care issue that I 

think has to be put in place. 

And I am hearing rumors that, given the support for the bundling, that there may in fact be something along those lines. But 

I think we need to do some better tests than the tests that have 

been proposed so far. 

And I think that those pilots or tests or whatever you are going 

to—the matrix that you are going to set up to determine the impact 

that this is going to have on very real people with very serious 

health problems, that it take into consideration not just the savings 

associated with this but also the impact it has on someone’s access 

to quality health care. And I would like to see something come out 

of MedPAC that would address that issue. 

Mr. HACKBARTH. We agree that designing the system so that 

it doesn’t just preserve quality but I think can even enhance quality, that should be the objective. 

Mr. THOMPSON. We just need to make sure we do the work on 

the ground so we are not modeling after urban facilities. We need 

to take into consideration the impact this is going to have on 

rurals. 

And then one last question. The administration held Medicare 

Advantage Plus harmless, and this has been talked about a little 

bit already, but in the budget that cut the rates for almost every 

other provider group. 

And it seems to me that in your work, you suggest that the Medi- care Advantage plans take up about $10 billion more for beneficiaries enrolled in those plans. And my question to you is: Without reform, do you see the MA reimbursement rates continuing to 

tread upward in comparison for fee-for-service? And what can you 

suggest that beneficiaries are getting that make this extra expenditure worthwhile? 

Mr. HACKBARTH. Well, so long as we keep the current payment 

system, we expect that enrollment will continue to grow. And each 

new beneficiary is costing traditional Medicare more. So the cost of 

the program will grow with that additional enrollment. And that 

is one of the reasons we think it is important to act on this as soon 

as possible. 

Mr. THOMPSON. So $10 billion today? 

Mr. HACKBARTH. It will be bigger in the future so long as you 

leave these payment incentives in place. 

Mr. THOMPSON. Pretty soon we are talking about real money. 

Mr. HACKBARTH. Yes. We are at risk in the extreme of taking 

large portions of the country where traditional Medicare’s costs are 

relatively low and quality relatively high, and moving all those 

beneficiaries into higher cost fee-for-service plans that add no value 

over traditional Medicare. And the price tag for that will be very 

large. 

Mr. THOMPSON. And as far as what these beneficiaries are getting for this $10 billion extra? 

Mr. HACKBARTH. Well, again, the table that we have discussed 

summarizes the data. In the case of private fee-for-service—which 


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has basically doubled in size; it is the most rapidly growing—doubled in size of the last year; it is the most rapidly growing piece 

of Medicare Advantage—only about half of the overpayments are 

going into additional benefits for Medicare beneficiaries. 

Mr. THOMPSON. Thank you very much. 

Chairman STARK. Mr. Becerra, would you like to inquire? 

Mr. BECERRA. Yes, Mr. Chairman. 

Mr. Hackbarth, thank you for being with us again. And once 

again, thank you for the report, your testimony, and the good work 

that the commission has been doing. 

I would like to focus my first question on some of your recommendations pertaining to trying to increase the participation 

rates by modest income Medicare beneficiaries in the Medicare savings program and in the low income drug subsidy program as well. 

You make some specific recommendations, which I think you 

have made in the past. I know I have heard you say this. One is 

that the Secretary of Health and Human Services should increase 

the funding for outreach to low income Medicare beneficiaries that 

participate in the state health insurance assistance program. 

Two, you call on Congress to raise the Medicare savings program 

income and asset test to conform to the low income drug subsidy 

criteria that we have, so that you bring them together and let low 

income folks who happen to have some modest assets still qualify 

without having to become so poor before they are able to get some 

assistance to get their Medicare benefits. 

And you also talk about Congress changing the program requirements so that the Social Security Administration would be able to 

screen low income drug subsidy applicants for the federal Medicare 

savings program to see if they are eligible, and if they are, to be 

able to enroll them; in essence, a one-stop shop. So that if the state 

is finding out that these folks qualify, or the SSA is finding out 

that they qualify for one thing, chances are they will qualify for the 

other. And rather than have them not know the other, we get them 

into the boat getting their health care right away. 

Mr. HACKBARTH. Exactly. 

Mr. BECERRA. You have made these recommendations before. 

Our bill, the CHAMP bill last year, tried to implement them. We 

have not gotten there. Why do you keep making these recommendations? Beyond the social desire of trying to get folks who 

qualify, who are eligible for these benefits to know about them, is 

there a financial savings as well? 

Mr. HACKBARTH. Well, I am not sure that there would be a financial savings, at least not in the first instance. These increase 

outlays—— 

Mr. BECERRA. To the overall—— 

Mr. HACKBARTH [continuing]. It is money well spent. 

Mr. BECERRA. Right. To the overall system, I guess I should 

say. 

Mr. HACKBARTH. Yes. No, frankly, the context in which we 

took on these issues was influenced by the Medicare Advantage debate. A lot of people said, well, Medicare Advantage is providing 

support for low income beneficiaries. It is making it so that they 

can get added benefits. 


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And that is a worthy, important goal. And so we said, well, there 

are other ways to achieve that goal more efficiently without just 

sort of spreading money all over the country. Let’s target it to low 

income people. We have vehicles in place, namely, the Medicare 

savings programs. Let’s change the rules there so that they are 

more effective. 

Mr. BECERRA. So we could be more efficient if we were able to 

target it through these programs that already exist? 

Mr. HACKBARTH. Yes. That is our thought. 

Mr. BECERRA. Let me ask another question. I know there is a 

constant debate about the issue of the high deductible health plans, 

and the health savings accounts that the President has really promoted for quite some time really provide resources for those who 

are in these high deductible health plans. 

These plans, my understanding is, run the risk of being attractive to individuals who, for the most part, are healthy or wealthy. 

But when you take into account that 80 percent of our health care 

costs are for 20 percent of the population, it seems to me that the 

20 percent that is at most risk of needing health care, they are the 

folks that are least likely to go into these health savings accounts 

and these high risk deductible plans because their up-front costs 

would be too tremendous for them to be able to afford that type of 

an insurance program. 

Any comments? 

Mr. HACKBARTH. Well, we have not looked specifically at the 

issue of the high deductible plans. We do refer to some research in 

our report that has been done by other people that suggests that, 

yes, maybe there is a selection effect here, that they are most attractive to people who have relatively high incomes and who are 

relatively healthy. I would note, though, that it is pretty early in 

the development of the idea. And so it is probably premature to 

draw definitive conclusions. 

From my own personal perspective, I guess the big question that 

I have about the effectiveness of the high deductible plans, having 

been in one myself, actually, is: Are they going to help us deal with 

the health cost problem, which as you say is that 20 percent of the 

population that uses 80 percent of the resources. 

The people who have multiple chronic illnesses are going to blow 

through these deductibles. And once they are through the deductible, they basically have first dollar comprehensive coverage. So 

what is the incentive to reduce costs in the case of the people who 

use all the money? So are they going to solve our health cost problem? It is hard for me to see how they will do that. 

Mr. BECERRA. Well, I thank you for the report because it seems 

to me you are trying to target these efficiencies that we can inject 

into the system. And I appreciate that because one of the things 

we are finding is that we may have disagreements about how to 

do health care, but I think if we know we can save money and still 

provide health care, most of us in this Congress would be supportive of that. 

So we appreciate the reports and the recommendations that we 

have gotten from MedPAC. Thank you for your time. 

Mr. HACKBARTH. Thank you. 


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Chairman STARK. Thank you. I had a couple of questions, 

Glenn. 

You continue to recommend a bundled payment for dialysis providers. Do we need to do a demonstration first before moving to a 

bundled payment system, or do we have enough information to proceed? 

Mr. HACKBARTH. I think there is probably enough information 

to proceed as is, Mr. Stark. I don’t think another demo is needed. 

Having said that, of course, it is very important to take care in the 

design of a bundled payment to include appropriate case mix adjustment and quality measures. 

Chairman STARK. So that would take into account adjustments 

for minority populations or for rural settings? All those issues that 

my colleagues have raised today would be taken into account in 

setting up a bundled payment system, and you have enough information, you feel, to do that? 

Mr. HACKBARTH. Well, I think it can be designed to address 

the legitimate concerns that have been raised. 

Chairman STARK. In the area of the for-profit skilled nursing facilities, you project Medicare margins of 11 percent in 2008 in the 

for-profit groups. Is there a variation in margins between the forprofit and not-for-profit skilled nursing facilities? 

Mr. HACKBARTH. Yes. The average Medicare margin for the 

freestanding facilities I think is projected to be 11 percent. And the 

margin for the for-profits—this is actually the 2006 data. So the 

overall average is 13 percent, and the for-profit was 16 percent, 

and the not-for-profit was 3 percent. 

Chairman STARK. Why is that, and what should we do to perhaps bring them closer together? 

Mr. HACKBARTH. Yes. We have been concerned for several 

years now about the system used to pay skilled nursing facilities, 

and didn’t feel like it was appropriately recognizing differences in 

some types of patients. And there are two particular components 

that have been troubling to us: how the system pays for non-therapy ancillary expenses, as they are known, which is like drugs and 

respiratory therapy, things like that; and then how it pays for 

physical therapy, occupational therapy, and the like. 

In the one case, the non-therapy ancillaries, we think the existing system underpays. So these are often complicated patients that 

we think are not getting enough money from Medicare. On the 

other hand, the existing system provides very strong incentives to 

do lots of therapy, and there may be too much profit in that end 

of the business. 

We are looking at a recommendation and we talked about a draft 

recommendation last week that would change the payment system 

for non-therapy ancillaries and therapy, and would have the effect 

of changing these margins. So margins at the for-profit skilled 

nursing facilities would fall. Profits at the not-for-profit skilled 

nursing facilities would increase. I would also add that the financial performance of hospital-based skilled nursing facilities would 

also improve under our recommendation. 

Chairman STARK. And you won’t get me crosswise with Mr. 

Pomeroy in saying that we won’t be disadvantaging rural providers 

or inner city providers? 


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Mr. HACKBARTH. No, I won’t. We think it is a fairer payment 

system that more accurately reflects the needs of the patients being 

served. 

Chairman STARK. Mr. Camp, did you—— 

Mr. CAMP. Yes. I just had a follow-up to the question you had. 

Obviously, MedPAC has recommended in past reports a bundled 

payment for dialysis services combined with quality monitoring. So 

this is not a new recommendation. 

Mr. HACKBARTH. Right. 

Mr. CAMP. But what is new is that CMS has just completed 

their final report on a potential model for an ESRD bundled payment. In that, I understand there are a number of case mix adjusters. 

Are any of those including race? 

Mr. HACKBARTH. I don’t know. I think the CMS report came 

out like a week ago. 

Mr. CAMP. Yes. I believe none of them. There are 22 case mix 

adjusters, and none of them are including race. 

Do you believe the model that CMS has developed can be used 

to implement a bundled payment system nationwide that accounts 

for both individual patient characteristics as well as the smaller dialysis facilities? 

Mr. HACKBARTH. Because the report is a recent one, we are 

still in the process of looking at it. But as you point out, we have 

said for a number of years now we think a bundled payment is the 

way to go. 

Mr. CAMP. And rather than a pilot program, do you believe a 

transition might be more appropriate to phase in a bundled payment, similar to the transitions to reform patients to inpatient hospitals, skilled nursing facilities, long-term care hospitals, inpatient 

rehab facilities? 

Mr. HACKBARTH. Yes. In fact, that is a quite common thing in 

the Medicare program, where you are making a significant change 

in a payment system to allow a gradual transition. Yes. 

Mr. CAMP. And would it also not be suitable to provide a regular 

update that is built into the baseline, much like other providers? 

Mr. HACKBARTH. I am sorry. You are saying a statutory update? 

Mr. CAMP. Yes. To provide a regular statutory update that is 

built into the baseline, which is similar to what other providers receive? 

Mr. HACKBARTH. Well, as you know, MedPAC’s stock in trade 

is to look at a variety of different factors to make an update recommendation, things like margins, access to capital, access to care 

for beneficiaries, et cetera. And those variables change over time. 

They change year to year in some cases. 

And so our basic approach on all updates is that you ought to 

do an analysis each year to determine an appropriate update, as 

opposed to writing a baseline that says, oh, they are going to get 

X percent every year into the future. So if anything, we would like 

to see everybody on the same footing as dialysis facilities, which is 

no automatic increases. 

Mr. CAMP. So you are suggesting we remove the built-in baseline update for other providers? 


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Mr. HACKBARTH. We think that determining the appropriate 

rate increase is something that ought to be done year by year. 

Mr. CAMP. And how does that—if that is completely open year 

to year, doesn’t that make long-term planning somewhat difficult, 

particularly in hospital settings and other large concerns that have 

a variety of business decisions to make as well as the care of patients? 

Mr. HACKBARTH. Well, most businesses don’t have guaranteed 

updates. They have prices set by competitive markets. And they 

still manage to plan. They make assumptions about what it is 

going to be. They respond to changes in prices by improving efficiency. The norm—— 

Mr. CAMP. There is also more choice available in the private sector in many cases than there is in the heart sector. We don’t always have the comparable choices available. But I understand the 

point you are trying to make. I do think it is a little different when 

there is a sole provider, a community hospital, to say that they are 

just like the three auto parts stores that are in town. I think there 

is a bit of a difference there. 

Mr. HACKBARTH. Yes. And in cases where there is a sole provider and it is a critical access institution, there aren’t readily 

available alternatives, we ought to target those institutions in particular, as you folks have, and set up special payment systems for 

those isolated providers. But where there are alternatives, I think 

that living without price guarantees is the way the economy works 

in general. 

Mr. CAMP. Well, I think in many large cities you have lots of 

alternatives. But in most of America, there aren’t lots of alternatives. So yes, if you live in a large urban setting like Washington, D.C., you have got lots of choices. But even in parts of the 

city, you have to travel a ways to get to those choices. 

So anyway, I appreciate the chairman’s time. Thank you. 

Chairman STARK. Just one more issue on this dialysis thing. According to your report, we are spending about 26,000 bucks a year 

for each patient. Right? I think that is in your report somewhere. 

Mr. HACKBARTH. Okay. I don’t have that number in my head. 

Chairman STARK. And the for-profit, there are two big for-profit 

chains, and their average margin is 7.6 percent. Everybody else is 

around 2 percent margin. 

Is there that big a disparity in quality between the non—those 

that aren’t the two big chains? 

Mr. HACKBARTH. As you know, the payment system isn’t at all 

based on quality. 

Chairman STARK. No, no. I just wondered if you know. Is there 

any reason—— 

Mr. HACKBARTH. Yes. Not that I know of. I don’t know that 

there is a quality advantage in the big chains. 

Chairman STARK. So we are paying these guys three and a half 

times as much, and you don’t think there is three and a half times 

better quality. 

I was just looking the other day, and in most every other country 

in the world, dialysis is done through hospitals. What if—and assuming that we would have to keep the patients happy by having 

little clinics all over hell’s half acre, but the hospitals could run 


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those, just as they often run outpatient—what if we just—I mean, 

we are talking about this huge margin. And the hospitals are— 

none of them have margins near 7 percent. On average, most of our 

hospitals—what if we just gave this extra money to the hospitals 

and said, you guys run it? Some hospitals do it as a part of their 

service. What would be wrong with just turning the whole dialysis 

program over to our not-for-profit acute care hospital system and 

give them the margin? 

Mr. HACKBARTH. Well, in general, we favor having choices for 

beneficiaries and competition in the belief that that can make 

things—— 

Chairman STARK. But they have a choice—in many areas, they 

have a choice of hospitals. In some areas where—— 

Mr. HACKBARTH. Right. But to designate a particular provider 

type as the only one who can provide a service, particularly what 

is basically an outpatient service like this one, wouldn’t be the approach that MedPAC would normally take. What we try to do is 

devise payment systems that are neutral to provider types. 

Chairman STARK. But this is the only service that we pay for 

everybody. In other words, if America—I mean, this is socialized 

medicine. Dialysis is the only procedure that we pay for everybody, 

and the government pays the whole freight, so that it arguably is 

a different procedure. And if we are going to set the price, maybe 

we could set the setting. 

And we are also worried about the financial health of the hospitals. And I just suggest that maybe this would be a way to give 

them a little extra revenue. They certainly have the extra—and in 

many cases they do do it in hospital settings. It sounds to me like 

it is some low-hanging fruit that might help our hospital system 

provide competition, provide access, all those things that—I would 

be curious to see what you think. See if you can sell that to your 

board. 

Mr. HACKBARTH. It might be a tough sell. 

Mr. CAMP. If I might just follow up on one question. There is 

a different patient mix in the small rural providers and the large 

dialysis chains, is there not? They are not comparable patient populations, is my understanding. 

Mr. HACKBARTH. Well, I honestly don’t know—— 

Mr. CAMP. So the margins would reflect the different population 

mix and payment mix of those two groups, would they not? 

Mr. HACKBARTH. Yes. I don’t know that there is a difference, 

Mr. Camp. Maybe one of my colleagues—— 

Mr. CAMP. Yes. I think before we draw offhand conclusions on 

the margin differences between the larger chains and the smaller 

chains, I think we need to understand is there a different patient 

mix in those two types of facilities. And I believe you will find there 

is. 

Mr. HACKBARTH. We can provide you a more detailed answer. 

Mr. CAMP. Yes. I would appreciate that. 

Mr. HACKBARTH. But there might be some differences, small 

differences, in the patients served among the different types at this 

point. 

The second point I make is—— 


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Mr. CAMP. One may have a larger percentage of Medicare patient, and the other may have other payment? There could be quite 

a difference there. 

Mr. HACKBARTH. Ideally, what you want—— 

Mr. CAMP. I appreciate the information. 

Mr. HACKBARTH. In a bundled payment system, you want a 

case mix adjustment that deals with difference in patient need. 

Chairman STARK. Glenn, thank you. Thank your staff, Mark 

and the rest, all of you, for helping us through these thorny problems. We will look forward to June report. 

Mr. HACKBARTH. June report. 

Chairman STARK. Do we get it in June or July? June? 

Mr. HACKBARTH. Get it in June, yes. About the 15th of June. 

Chairman STARK. Great. Look forward to it. Thank you very 

much. 

Mr. HACKBARTH. Thank you. 

[Whereupon, at 11:44 a.m., the subcommittee was adjourned.] 

[Questions for Record follow:] 


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