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EXPLORING OPTIONS FOR

IMPROVING THE MEDICARE

PHYSICIAN PAYMENT SYSTEM

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 6, 2007

Serial No. 110–13

(

Printed for the use of the Committee on Energy and Commerce

energycommerce.house.gov

COMMITTEE ON ENERGY AND COMMERCE

JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, JR., New Jersey

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

DIANA DEGETTE, Colorado

Vice Chairman

LOIS CAPPS, California

MIKE DOYLE, Pennsylvania

JANE HARMAN, California

TOM ALLEN, Maine

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

G.K. BUTTERFIELD, North Carolina

CHARLIE MELANCON, Louisiana

JOHN BARROW, Georgia

BARON P. HILL, Indiana

JOE BARTON, Texas

Ranking Member

RALPH M. HALL, Texas

J. DENNIS HASTERT, Illinois

FRED UPTON, Michigan

CLIFF STEARNS, Florida

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

SUE WILKINS MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

PROFESSIONAL STAFF

DENNIS B. FITZGIBBONS, Staff Director

GREGG A. ROTHSCHILD, Chief Counsel

SHARON E. DAVIS, Chief Clerk

BUD ALBRIGHT, Minority Staff Director

(II)

(III)

SUBCOMMITTEE ON HEALTH

FRANK PALLONE, JR., New Jersey, Chairman

HENRY A. WAXMAN, California

EDOLPHUS TOWNS, New York

BART GORDON, Tennessee

ANNA G. ESHOO, California

GENE GREEN, Texas

Vice Chairman

DIANA DEGETTE, Colorado

LOIS CAPPS, California

TOM ALLEN, Maine

TAMMY BALDWIN, Wisconsin

ELIOT L. ENGEL, New York

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

JOHN D. DINGELL, Michigan (ex officio)

NATHAN DEAL, Georgia,

Ranking Member

RALPH M. HALL, Texas

BARBARA CUBIN, Wyoming

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

STEVE BUYER, Indiana

JOSEPH R. PITTS, Pennsylvania

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

SUE WILKINS MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

JOE BARTON, Texas (ex officio)

(V)

C O N T E N T S

Page

Hon. Frank Pallone Jr., a Representative in Congress from the State of

New Jersey, opening statement .......................................................................... 1

Hon. Nathan Deal, a Representative in Congress from the State of Georgia,

opening statement ................................................................................................ 3

Hon. Anna G. Eshoo, a Representative in Congress from the State of California, opening statement ........................................................................................ 4

Prepared statement .......................................................................................... 4

Hon. Michael C. Burgess, a Representative in Congress from the State of

Texas, opening statement .................................................................................... 5

Hon. Diana DeGette, a Representative in Congress from the State of Colorado, opening statement ...................................................................................... 6

Hon. Lois Capps, a Representative in Congress from the State of California,

opening statement ................................................................................................ 7

Hon. Darlene Hooley, a Representative in Congress from the State of Oregon,

opening statement ................................................................................................ 8

Hon. Tim Murphy, a Representative in Congress from the Commonwealth

of Pennsylvania, opening statement ................................................................... 9

Hon. Gene Green, a Representative in Congress from the State of Texas,

opening statement ................................................................................................ 10

Prepared statement .......................................................................................... 11

Hon. Tammy Baldwin, a Representative in Congress from the State of Wisconsin, opening statement ................................................................................... 12

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 13

Hon. Tom Allen, a Representative in Congress from the State of Maine,

opening statement ................................................................................................ 14

Hon. Jim Matheson, a Representative in Congress from the State of Utah,

opening statement ................................................................................................ 15

Hon. Hilda L. Solis, a Representative in Congress from the State of California, opening statement ........................................................................................ 15

Hon. Barbara Cubin, a Representative in Congress from the State of Wyoming, prepared statement ................................................................................... 16

WITNESSES

Glenn M. Hackbarth, chairman, Medicare Payment Advisory Commission ...... 17

Prepared statement .......................................................................................... 20

A. Bruce Steinwald, Director, Health Care, Government Accountability Office,

Washington, DC ................................................................................................... 62

Prepared statement .......................................................................................... 65

Elliott S. Fisher, M.D., professor, medicine and community and family medicine, Dartmouth Medical School ......................................................................... 74

Prepared statement .......................................................................................... 76

T. Byron Thames, M.D., member, Board of directors, American Association

of Retired Persons ................................................................................................ 92

Prepared statement .......................................................................................... 94

(1)

EXPLORING OPTIONS FOR IMPROVING THE

MEDICARE PHYSICIAN PAYMENT SYSTEM

TUESDAY, MARCH 6, 2007

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON HEALTH,

COMMITTEE ON ENERGY AND COMMERCE,

Washington, DC.

The subcommittee met, pursuant to call, at 9:35 a.m., in room

2123 of the Rayburn House Office Building, Hon. Frank Pallone,

Jr. (chairman) presiding.

Members present: Representatives Eshoo, Green, DeGette,

Capps, Allen, Baldwin, Solis, Ross, Hooley, Matheson, Dingell,

Deal, Hall, Wilson, Shadegg, Murphy, Burgess, and Barton.

Staff present: Robert Clark, Yvette Fontenot, Amy Hall, Christie

Houlihan, Jodi Seth, Bridgett Taylor, Brin Frazier, Chad Grant,

Ryan Long, Katherine Martin, Melissa Bartlett.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY

Mr. PALLONE. I would like to call the meeting to order. Today we

are having a hearing on exploring options for improving the Medicare physician payment system, and I am glad to see that Mr.

Hackbarth—we have two panels. The first is just Mr. Hackbarth.

And I will recognize myself now for an opening statement. Since we

are talking about physician services today, I figured I would try to

couch my statement in medical terms so I am going to begin with

a diagnosis. For the past several years physicians participating in

Medicare have been threatened with payment cuts and these payments cuts are the result of the complex formula used to reimburse

physicians, specifically physician payments are tied to an expenditure target known as a sustainable growth rate or SGR.

As spending for physician services exceeds this spending target

then payments are reduced. Congress, however, has stepped in

each time to prevent these cuts from taking place and instead we

have provided physicians with a freeze in payments or slight increase depending on the year. At the same time we are grossly

overpaying managed care plans that participate in Medicare. According to the MedPAC report released last week payments to

Medicare Advantage plans are 12 percent higher than payments for

physicians in traditional fee for service. These overpayments

haven’t bought us much either. There is no discernible difference

in the quality of care or health outcomes for beneficiaries enrolled

2

in private plans versus those who are enrolled in traditional fee for

service.

If the current system is left unchanged the prognosis is grim in

my opinion. Physicians are already slated to receive annual payment cuts over the next 10 years. Each year that Congress steps

in to avert these payment cuts from going into effect that increases

the size of the cuts that doctors face in later years. As a result of

previous interventions doctors will face a cut of 10 percent in 2008

and additional cuts over the next 10 years. The predicted payment

cuts could have serious implications for beneficiaries, including

jeopardizing their access to medical services, and while doctors

don’t seem to be refusing Medicare patients yet, I have little doubt

that if Congress were to allow these payment cuts to go into place

many doctors would drop out of the program altogether.

Furthermore, if we do not correct the payment inequities between Medicare Advantage plans and traditional fee for service

seniors are going to be forced into private managed care where

their choice of doctors and their access to services will be severely

constrained. We must preserve in my opinion the right of beneficiaries to select a doctor of their choosing which has been the hallmark of the Medicare program since it was created over 40 years

ago. Beneficiaries will face access problems also if they can no

longer afford the growing cost of their part B premium. Our seniors

have already faced 3 years of record premium increases under

Medicare. Currently, the part B premium is $93.50 per month. I remember when people would complain about it being $40 or $50. In

2008 the part B premium is expected to increase by approximately

$15 to $109.40 per month. These increases are eating up a larger

share of senior Social Security checks and forcing them to make

tough choices between medical care they need and other necessities.

So what is the course of treatment now that we have the diagnosis and the prognosis, what is the course of treatment, and first

and foremost we need to level the playing field between Medicare

Advantage plans and traditional fee for service Medicare by establishing neutral payment systems. We should also eliminate the

slush fund used to provide extra payments for preferred provider

organizations. These two steps alone will go a long way at reducing

unnecessary costs in the program and preserving access for seniors.

The harder part is deciding how to fix the payment structure. The

MedPAC report that we will hear about today will hopefully provide us with a good starting point as we examine our options.

From what I have seen so far, I think there are some good ideas

included in this report, and I am eager to learn more about them

from Mr. Hackbarth. I think it is important to note, however, that

the task before us is a difficult one. We all know that. The commissioners themselves admit that they could not agree on a single approach or how to fix the problems associated with the SGR and

that should be some indication of the challenges that Congress

faces as we attempt to come up with a solution.

Needless to say, we have our work cut out for us but that

shouldn’t deter us. I have said before, and I will say again, that

we need a permanent solution to this problem. We should no longer

settle for short-term fixes that simply kick the can down the road.

3

In sum, we need to roll up our sleeves and get to work. I am looking forward to hearing from our witnesses today and working with

all interested parties including my colleagues on both sides of the

aisle to find a solution. I think that is important. It is really important for us, I believe, to work in a bipartisan fashion on this issue.

I think we all want to provide physicians with a stable and predictable payment system as well as preserve beneficiaries access to

care. I think I would just end by saying that I think the worse

thing is when we have a reimbursement rate or system that is not

based on what is actually happening out there when the government doesn’t look at things practically in terms of what the real

costs are and comes up with systems that are not really related to

actual costs then we get into trouble, and that is what we need to

fix. So thank you again. I will now recognize the ranking member

for an opening statement.

OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA

Mr. DEAL. Thank you, Mr. Chairman. Medicare physician payment has been an issue that has come before this committee several times over the last several years. In fact, I think we had two

hearings that related to the subject during the last Congress. I am

glad to see what we are looking at possible reforms again today because I do think that is something that we have to wrestle with.

I think the report of MedPAC and the lack of consensus among the

commissioners themselves indicates how complex this issue really

is and how difficult it is to arrive at a solution that will satisfy everybody, and I am hopeful that we can use this as a springboard

for coming to more long-term solution.

I personally would have hoped that maybe MedPAC could have

given us a little more definitive guide path but there again I think

that fact recognizes the complexity of the issue and the difficulty

of the commissioners themselves to come to consensus. The incentives in the existing payment system reward those physicians

whose practices see a high volume of cases while paying much less

attention to the quality of the services performed. This has led to

the dramatic growth that we have seen in certain services. And

here I think lies the significant weakness of the SGR because while

it takes automatic action to check the cost of the service provided

it does little to address the number of time that service is provided.

Both of the components, the volume of services and the price

paid for the service, must be considered during reform of physician

payment. As the MedPAC report notes beneficiaries that receive

more services do not necessarily experience better quality of care

or better outcomes. I think this dynamic between the growth and

the number of services and how much is paid for the service is why

it is so important that the committee focuses on reforms which emphasize that patients receive high quality care. I believe we took

a step in the right direction last year by providing a bonus payment for those physicians that voluntary report quality measures

this year, and I hope that we can expand upon it again during this

Congress. I thank you, Mr. Chairman.

4

Mr. PALLONE. Thank you. And then we will continue with the

opening statements. I recognize the gentlewoman from California,

Ms. Eshoo.

OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. ESHOO. First, Mr. Chairman, thank you for holding this

hearing. We have had hearings before. We know we have a very

large issue facing us that I hope we will finally address. Physicians

and patients are deeply affected by this across the country. I could

go member by member here. My staff has given me the numbers

affecting each one of our congressional districts, the members that

are here, and that really is a microcosm for the rest of the Congress. It is costly, and I think that is why the now minority really

didn’t get to address it.

Every year there is a rush and a push on Congress to do something about physician reimbursements and we have come up with

very temporary fixes, and this really calls for all of us putting our

heads together. And I look forward to asking questions today, and

I will place my statement in the record. But thank you for having

this hearing. I think it is going to be instructive, and hopefully it

will be a guide for how we can reform. Thank you.

[The prepared statement of Ms. Eshoo follows:]

PREPARED STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF CALIFORNIA

Mr. Chairman, this committee has held many hearings examining the Medicare

physician payment system over the last several years. We’ve waited far too long to

act on this issue and physicians and their patients have suffered as a result.

I hope today’s hearing will be different from those of the past and that Congress

will use this hearing as a guide for drafting, introducing and passing legislation that

is long overdue. So thank you again, Chairman Dingell, for making this issue a priority for the committee in the 110th Congress.

Last week, MedPAC released a report to Congress analyzing the current state of

Medicare physician payments. Although the report did not contain a specific recommendation for how we ought to fix this problem, it did recommend two things:

payment accuracy for physicians must be improved. To do so, the sustainable

growth rate (SGR) payment formula should be abandoned in its current form.

If we continue to use expenditure targets, they must involve two new themes:

they must apply to all Medicare expenditures (hospitals in addition to physicians);

and they must be applied at a smaller geographical scale, rather than the current

SGR formula which is applied at the national level.

With respect to the SGR, serious reforms are necessary and they’re needed now.

Last year many of my colleagues and I recommended that we eliminate the SGR

and replace it with the Medicare Economic Index (MEI). The MEI is an index based

on actual medical practice costs. It is used to reimburse all other providers in the

Medicare program (including hospitals, health plans and nursing homes). MedPAC

and many State medical associations have been supportive of past proposals to

eliminate the SGR payment formula and adopt the MEI for physician payments.

The SGR, however, is inappropriately tied to a non-medical index, the Gross Domestic Product (GDP), which has resulted in proposed physician payment cuts of

more than 4 percent each year since 2003. If Congress doesn’t act now, Medicare

physician payment rates will be cut by roughly 10 percent on January 1, 2008. Congress scrambles every year to enact a last-minute fix. What we really need is a permanent fix, and replacing the SGR with the MEI will do this.

MedPAC’s recommendation to scale expenditure targets to geographic areas leads

me to raise a related issue of considerable concern to me, that of the Geographic

Payment Locality. Despite major demographic changes across the country since

1966, the Geographic Payment Locality hasn’t been updated in any meaningful way.

The result is that physicians in 32 states and 174 counties are currently inacVerDate 11-SEP-98 13:45 Oct 07, 2008 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 Q:\DOCS\110-13 SCOM1 PsN: SCOM1
5

curately underpaid by up to 14 percent per year. Although the geographic payment

locality is not a national problem, it’s a huge problem for the affected localities.

For example, in Ranking Member Deal’s district, Pickens County physicians were

underpaid by 12 percent in 2006. In Ranking Member Barton’s district, Ellis County

physicians were underpaid by 7.5 percent. In Chairman Dingell’s district, physicians

in Monroe and Livingston Counties were underpaid by 5.4 percent last year.

And in my district, Santa Cruz County physicians are underpaid by 10.2 percent.

As of June 1 of last year, physicians in Santa Cruz County are no longer accepting

new Medicare patients. This means that patients in Santa Cruz must travel at least

25 miles to neighboring Santa Clara County to receive care, if they are lucky enough

to find a doctor who will accept new Medicare patients.

We have to be careful moving forward: it makes absolutely no sense to even consider applying new expenditure targets to 41-year-old geographies. We must first reform the payment localities, and the locality-based payment levels so they reflect

actual real costs in the geographic units that we’re developing. Otherwise, we’ll only

compound an already overwhelming problem.

I urge you, Mr. Chairman, and members of our committee to listen carefully to

the expert opinions of our witnesses today and make a commitment to reform the

Medicare Physician Payment system before the summer recess.

We’ve spent far too long investigating this issue. It’s time to act.

Mr. PALLONE. Thank you. I recognize the gentleman from Texas,

Dr. Burgess.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. BURGESS. Thank you, Mr. Chairman. In anticipating I won’t

get through all of this in 3 minutes, I am going to claim the time

of everyone who is not here on my side. Alan Greenspan right before he retired as Chairman of the Federal Reserve Board came

and did a victory lap around the Hill last January, and he met

with a group of us on my side of the aisle, and sure enough the

questions came up are we going to be able to sustain Medicare

spending, the same sort of things we hear David Walker, the comptroller, talk about.

Alan Greenspan was saying, he said I think ultimately you will

be able to solve those problems. It will be difficult but you will be

able to do it. My bigger concern, said Mr. Greenspan, is there will

be no one there to deliver the services by the time you get there.

And I share Mr. Greenspan’s concern. I am very anxious to hear

from our witnesses today. Before we go home for the Easter break,

I will be reintroducing legislation much as I did last year in Congress to deal with this program. Since MedPAC has not addressed

a solution to the SGR problem, I will fill the void.

But let me just go through with the committee today some of the

principles that I think we must have in that legislation when it

comes forward at the end of the month. Congress must develop a

physician work force incentive that will insure future beneficiaries

accessibility and keep doctors in the game. This has got to be complimentary to Medicare physician payment reform. The current

Medicare physician payment system exacerbates negative physician

work force trends. Therefore, the SGR ultimately cannot be reformed. It is just simply going to have to be eliminated or replaced

with something else. I vote for MEI.

Reimbursement must fairly compensate physicians who provide

services covered by Medicare. Any new system must be able to adjust for growth and services but also be agile enough to determine

what constitutes appropriate growth and service volume and when

6

growth results in better patient outcomes that is recognized. That

was the issue that Charlie Norwood brought up last year and hammered home when we had a similar panel to this last fall. Since

Medicare is an integrated program the measure of appropriateness

should take into account the growth in certain service resulting in

the decrease or avoidance of other services covered elsewhere in the

Medicare program.

We keep loading stuff onto part B. We expand the premium for

senior citizens. We cut the reimbursement rate to physicians but

this is money that we are no longer having to spend in part A, part

C, and part D. Medicare truly should be, if it is an integrated program, it should be reflective of that fact and not punitive to part

B and ultimately punitive to seniors and to physicians who are involved in the part B program, so Congress must de-link any future

cost containment to trends in the economy that are completely external to medicine.

The doctors who practice medicine in this country have no control over what we do up here in Washington that ultimately affects

the economy. Quality reporting, I am a big believer in it, but I will

tell you what, and I believe this to be true, if you drive out the

quality physicians, and I am talking about the doctors who are 45

to 65 years of age, if you drive those individuals out of the practice

of medicine for our senior citizens it is going to cost you a heck of

a lot of money to bring that quality back to speed and you will

never recover. The result is we will have the scope of practice

issues where we have people other than physicians delivering care

to arguably what are our most complex patients in this country,

our Medicare patients. I will yield back, Mr. Chairman.

Mr. PALLONE. Thank you, Doctor. Next I recognize the gentlewoman from Colorado, Ms. DeGette.

OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF COLORADO

Ms. DEGETTE. Thank you very much, Mr. Chairman. I would like

to add my thanks to the other committee members for you having

this hearing today. For the last few years we have an annual ritual

in my office, which is we answer all the phone calls from the doctors in my district begging me to fix the reimbursement problem,

and understandably they can’t understand or comprehend why we

come to the brink of significant reimbursement cuts every year only

to make minor increases on December 31. Most physicians at the

end of the day are small businessmen and women who need to

make their payroll and cover their rent, pay for equipment upgrades, and plan for the coming year.

They need the continuity of predictable reimbursement so that

they can adequately plan for the future and spend their time doing

what they are good at which is caring for patients. So in 2005 we

heard all these same pleas for help, and we decided to start down

the road to make changes. In the Deficit Reduction Act we called

upon MedPAC to examine alternative methods for reimbursing

physicians while also controlling levels of expenditures. I, like most

of my colleagues here on the committee, was hopeful that MedPAC

7

would be able to coalesce around a plan that could begin the process of developing a reimbursement system that made sense.

So that is why I was disappointed to learn that the result of the

study was not consensus but simply more discussion. It seems like

as we pull the physician reimbursement system away from the precipitous of cuts every year so too do we pull a long-term fix away

from successful development. And I think, Mr. Chairman, you and

the other members on this side of the aisle, and I think our colleagues on the other side too, will agree this has just simply got

to stop. In the absence of a concrete plan for fixing our physician

reimbursement system, I hope that our hearing today will start a

process that will eventually result in a usable model.

We have all spent a lot more time than we should have on this

issue, including the physicians, and it is time that we put patients

first, roll up our sleeves, and develop a system that rewards high

quality care at a reasonable price. Despite my disappointment over

not having a final solution to our problem, I am happy to see that

we are breaking the issue down to some important fundamentals.

I am looking forward to hearing discussion of a pay for performance model, and I also want to hear how a system can be constructed that supports coordination of care among providers and rewards achieving the best outcome, not necessarily the specific services that were provided.

Finally, I am interested in hearing how regional differences in

utilization can be better understood so we don’t just reward good

behavior but we try to replicate it nationwide. Mr. Chairman, despite my concerns, I do appreciate the work that has been done to

date, and I hope the discussion today generates ideas that will

eventually lead to plans to move forward. And I yield back any

time I might have. Thanks.

Mr. PALLONE. Thank you. I recognize the gentlewoman from

California, Mrs. Capps.

OPENING STATEMENT OF HON. LOIS CAPPS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Mrs. CAPPS. Thank you, Chairman Pallone. I believe we all agree

that there is a dire need to reform the current Medicare physician

reimbursement system. I am very pleased that early on in this session of Congress that you have called this hearing, thankful that

our witnesses are here. We have discussed this topic in this committee quite often over the past few years, and I think we all would

agree now that the first step is replacing the SGR formula. It is

fundamentally flawed, needs to be scrapped, so that we can develop

a better system. We need to set the stage for long-term solution

that does not rely on enacting last minute 1-year updates and

threatening long-term solvency concerns.

So that is one of the reasons I am very happy that we are starting this discussion early on in the 110th Congress. It should give

us time now at this time to really take some action as soon as possible. I hope that as we proceed with devising a solution to the

overall Medicare physician fee problem we will also consider another related subject that deserves its own hearings and its own fix

and that is a geographic adjustment issue. I brought this up before

many times in this committee, and I am going to continue to do so.

8

It is really something I would say almost every member who is

here today at this hearing and many others as well are very concerned about it because it affects our districts.

In fact, there are 175 counties in 32 States where physicians are

paid 5 to 14 percent less than the Medicare assigned geographic

cost factors because they are assigned to inappropriate localities. In

my own district physicians in Santa Barbara and San Luis Obispo

counties currently receive reimbursements much lower than the actual geographic cost factors in those counties. There are proposals

out there but none have been acted on, and I want to take this opportunity to stress how important a fix would be to our constituents. It is heartbreaking to hear physicians closing up shop, beneficiaries who can’t find a doctor who will take a new patient on

Medicare. It is such a common theme across this country.

Just a few days ago, I heard that the last psychiatry practice in

San Luis Obispo County had to close its doors. With each physician

who leaves a number of patients are left to find new doctors further away, wait longer for appointments, and this is a situation we

cannot allow to go on any longer. Congress needs to act quickly to

address the overall Medicare physician payment system as well as

the geographic practice cost index. I am sure we are going to hear

from our witnesses today and I agree with them that we cannot improve our health care delivery in this country when physicians cannot afford to sustain their practice and when patients are left with

inadequate access to care. With that, I will yield back the balance

of my time.

Mr. PALLONE. Thank you. The gentlewoman from Oregon, Ms.

Hooley, is recognized.

OPENING STATEMENT OF HON. DARLENE HOOLEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON

Ms. HOOLEY. Thank you, Mr. Chair. Good morning, Mr.

Hackbarth. It is particularly nice to welcome an Oregonian to this

committee. Medicare physician payment reform is a critical issue

for Congress to address this year. Physicians will face a 10 percent

cut in payment next year if Congress fails to act. The health of

Medicare cannot afford for Congress to keep relying on year-end

stop gap measures to address the physician payment shortfalls like

we did last year. Our dedicated physicians deserve better than to

be forced to wait until the last days of the year to find out if they

can afford to provide services to Medicare beneficiaries in the future.

I firmly believe that a long-term fix for the physician reimbursement system is absolutely critical. Cutting physician reimbursement rates put an increased burden on an already strained system.

Some seniors cannot get access to a physician because they have

stopped accepting Medicare patients, and again I think you will

hear this over and over again. There is a patient access issue, and

we cannot let the Medicare system and our seniors be put at risk

by failing to act on physician payment reform. Oregon’s physicians

provide care more efficiently than physicians in many parts of the

country. The alternatives to the SGR discussed in your report are

a good start toward addressing geographic disparities in how care

is provided.

9

It is important to assure that physicians who provide inappropriate level of care for their patients like the vast majority of physicians in Oregon benefit from the savings that they create in the

system. I also want to insure that physician payment reform will

not create a system under which providers with disproportionately

sicker patient population will be punished. Medicare beneficiaries

from underserved and rural areas are more likely to see patients

in worse health than beneficiaries elsewhere. Any move toward pay

for performance must insure that the providers are not punished

for taking on the tough cases. We need to encourage providers to

see the sickest patients as well as the healthy ones.

Although I appreciate MedPAC’s work in assessing alternatives

to the sustainable growth rate, I think that MedPAC has not done

enough to consider the impact of proposals on physicians practicing

in rural areas. I think this may be in part because the commissioners with real health backgrounds are under represented on

MedPAC. In the future I hope to see a more balanced representation of rural versus urban and suburban commissioners appointed.

Thank you, Mr. Chair, and I look forward to discussing these

issues more with you. Thank you for being here.

Mr. PALLONE. Thank you. I now recognize the gentleman from

Pennsylvania, Mr. Murphy.

OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

Mr. MURPHY. Thank you, Mr. Chairman, and thank you for your

high level of interest in helping to fix a number of things about

health care particularly because our health care system is broken

and must be reformed and fixing the system is not about who is

paying, it is about what we are paying for. A broken system is not

fixed only by shifting additional payments to seniors, families, employers or taxpayers. Affordability must begin with fundamental

reforms to quality and accessibility. Every year Congress steps in

to avoid a reduction in Medicare payments for our doctors. The two

alternatives identified by the Medicare payment advisory commission to fix this problems involve repealing formulas and implementing pay for performance under Medicare to all providers including

inpatient and outpatient hospital services, post acute care services,

and even part D services.

I am pleased MedPAC’s recommendations to reward high quality

care and reduce fraud and abuse is taking place. Whether the payment system remains unchanged or is replaced either change will

require significant increase in funding. While it is important to reduce waste, fraud, and abuse in our Federal health care programs

rather than simply reducing care and payment to our doctors, I

have identified and plan on introducing further legislation to

achieve over $300 billion in annual savings and a lot of lives. A few

of these examples of savings include $50 billion and 90,000 lives

saved annually by providing incentive payments to hospitals from

publicly reporting and reducing deadly health care associated infections, expanding the number of volunteer doctors at community

health centers to insure that every family has a neighborhood doctor since community health centers save about 30 percent of MedicVerDate 11-SEP-98 13:45 Oct 07, 2008 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 Q:\DOCS\110-13 SCOM1 PsN: SCOM1
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aid cases yielding an annual savings of about $17 billion, eliminating higher discriminatory co-payments under Medicare for our nation’s seniors for outpatient health care services and untreated

mental health services, which also save money.

Establishing collaborations and demonstration projects to improve the effectiveness of health information technology which can

save $162 billion annually by reducing redundant tests, medical errors and mis-diagnoses. We have so much work to do here and I

hope that this committee will work towards actually improving and

renovating our health care system and not just continue a pattern

that Congress has had for several decades of trying to find ways

to save money on health care by cutting payments. We want to

make sure that physicians and hospitals work effectively, but a

fundamental part of that should be the leadership that this Congress and this committee takes in showing how we can do it better,

more effectively, more efficiently save money and save lives in the

process by transforming our nation’s health care system. The Federal Government will be saving billions of dollars and thousands of

lives. Thank you, Mr. Chairman.

Mr. PALLONE. Thank you. Mr. Green is recognized.

OPENING STATEMENT OF HON. GENE GREEN, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. GREEN. Thank you, Mr. Chairman, for holding the hearing.

I would ask unanimous consent to place my full statement in the

record. It has been over a decade since a physician fee schedule

was put into place to help control increases in Medicare payments

of physicians. Unfortunately, payments for physician services

match the SGR and expenditure targets for only the first 5 years

since the actual expenditures exceeded the target by so much that

even Medicare trustees no longer consider the system realistic. We

also know that the system isn’t realistic on the physician level

since red flags about spending growth have done little to affect

physician behavior, and both physicians and the Medicare trustees

know that Congress will eventually enact stop gap measures to

prevent scheduled cuts making the system virtually irrelevant.

The budgetary reality is staring us in the face. They mandate

that we fix this system before we start to see serious access problems created in Medicare. The GAO has reassured us that beneficiaries generally enjoy good access to care but I worry about the

future where fewer doctors may be willing to treat Medicare beneficiaries simply because of the reimbursement problems. In areas

like mine that rely heavily on Medicare and Medicaid it probably

won’t be a situation where doctors will stop taking Medicare. Rather, we will see access problems created by attrition where the gap

created by physicians retirements are not filled by new crops of

doctors willing to take Medicare patients.

If we reach that point, Medicare will have failed in its mission

to provide quality and access to health care for all our seniors.

There is no question the system contains some inherent flaws that

must be addressed to insure the long-term viability of Medicare

and access to beneficiaries. While the current system essentially

penalizes physicians for increased service volume it does not distinguish between simple over utilization and increased utilization acVerDate 11-SEP-98 13:45 Oct 07, 2008 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 Q:\DOCS\110-13 SCOM1 PsN: SCOM1
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tually leads to better health outcomes. Unfortunately, the system

does not recognize its spending on certain physician services often

alleviates the needs for much more expensive inpatient services.

I am glad to hear that MedPAC discussed the idea of different

providers working together to devise a system that works for Medicare beneficiaries and Medicare providers. We have to facilitate

some movement between part A and part B and find some ways

to realize in the budget that costs that occur in part B can lead to

savings in part A, not to mention a better quality of life for our

beneficiaries who would prefer a doctor’s visit to a stay in the hospital any day. I am also glad MedPAC sees the need to improve

benefits for fee for service Medicare which had slowly begun to

offer some preventative benefits.

Mr. Chairman, I have a full statement I would like to put in the

record. And the frustration, I guess, is we would hope at least in

the odd-numbered years early in the year we would have a fix that

we could do permanently. But I understand our budget realizations, but I would like us to at least do the permanent fix as early

as possible so doctors and providers will be able to understand that

they don’t have to wait until maybe next February or March to

hear about it, that we can actually do it even before December of

this year. And I yield back my time.

[The prepared statement of Mr. Green follows:]

PREPARED STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF TEXAS

Thank you, Mr. Chairman, for holding this hearing on physician reimbursement

from Medicare.

It has been over a decade since the physician fee schedule was put in place to

help control increases in Medicare payments to physicians.

Unfortunately, payments for physician services matched the SGR and expenditure

targets for only the first 5 years.

Since then, the actual expenditures have exceeded the target by so much that

even the Medicare trustees no longer consider the system realistic.

We also know the system isn’t realistic at the physician level, since red flags

about spending growth have done little to affect physician behavior.

And both physicians and the Medicare trustees know that Congress will eventually enact stop-gap measures to prevent scheduled cuts—making the system virtually irrelevant.

The budgetary realities are staring us in the face, and they mandate that we fix

this system before we start to see serious access to care problems in Medicare.

The GAO has reassured us that beneficiaries generally enjoy good access to care,

but I worry about a future where fewer doctors may be willing to treat Medicare

beneficiaries simply because of reimbursement problems.

In areas like mine that rely heavily on Medicare and Medicaid, it probably won’t

be a situation where doctors stop taking Medicare.

Rather, we’ll see access problems created by attrition—where the gap created physician retirements is not filled by new crops of doctors willing to take Medicare patients.

If we reach that point, Medicare will have failed in its mission to provide equality

in access to health care for our senior citizens.

There is no question that this system contains some inherent flaws that must be

addressed to ensure the long term viability of Medicare and access to beneficiaries.

While the current system essentially penalized physicians for increased service

volume, it does not distinguish between simple overutilization and increased utilization that actually leads to better health outcomes.

Unfortunately, the system does not recognize that spending on certain physician

services often alleviates the need for much more expensive inpatient services.

I am glad to hear MedPAC discuss the idea of different providers working together.

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If we want to devise a system that works for Medicare beneficiaries and Medicare

providers, we have to facilitate some movement between part A and part B and find

some way to realize in the budget that costs incurred in part B can lead to savings

in part A—not to mention a better quality of life for our beneficiaries, who would

prefer a doctor’s visit to a hospital stay any day of the week.

I am also glad that MedPAC sees the need to improve benefits in fee-for-service

Medicare, which has slowly begun to offer some preventive benefits.

Congress has included some preventive benefits in Medicare and we want utilization of these benefits to be high.

Yet the irony is that the current payment system would penalize physicians at

the end of the year for actually utilizing these benefits.

I doubt the SGR is behind the 2 percent take-up rates associated with the Welcome to Medicare physical and the diabetes screening benefit, but the system has

to encourage the use of these benefits that are clearly cost-savers in the long run.

I agree with MedPAC that any new system we devise should encourage coordination of the care delivered under the Medicare program.

Two-thirds of Medicare spending goes to treat beneficiaries who suffer from five

or more chronic conditions.

If we are going to give these beneficiaries the quality care they deserve, we have

to find ways to move beyond the acute-care, condition-specific manner in which

health care is delivered and financed under this system.

For several Congresses now, Senator Blanche Lincoln and I have been working

on legislation to improve and coordinate Geriatric and Chronic Care under Medicare.

And we’re working to revamp that legislation to create the right incentives for

physicians so that Medicare beneficiaries can find a true medical home, where their

care will be comprehensive and coordinated.

I am glad to see that MedPAC has laid out some interesting options for us on

that front and others, as we try to solve this unavoidable problem.

And I appreciate our witnesses being here today to lend us their expertise.

With that, Mr. Chairman, I yield back my time.

Mr. PALLONE. Thank you. And that is our goal obviously so I appreciate what you said. And I now recognize the gentlewoman from

Wisconsin, Ms. Baldwin.

OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN

Ms. BALDWIN. Thank you, Mr. Chairman. I join my colleagues

who have spoken before in underscoring the importance of addressing this issue, and I really look forward to today’s witness testimony and discussion. Like many other members, I support enacting a long-term fix to the Medicare physician payment issue rather

than continuing to do the yearly or biannual fixes. These shortterm solutions, band-aids really, are unfair. They are unfair to the

physicians who at the end of the short-term fix are once again

faced with projected cuts. They are unfair to the Medicare beneficiaries who may face access issues if cuts are enacted and are unfair to taxpayers because the cost of providing a fix gets more and

more expensive with each passing year.

Put simply, the issue needs to be addressed. I welcome today’s

opportunity to focus on MedPAC’s recently released report, and I

am looking forward to exploring some of the newer options that the

report proposes. Being from Wisconsin, I am especially interested

in exploring MedPAC’s views on geographic disparities in Medicare

expenditures. Growth and volume of physician services has contributed to the increase in Medicare expenditures, which then leads to

the physician payment cuts. Wisconsin tends to have lower than

average volume of services and lower Medicare expenditures, yet

13

when the cuts are proposed they apply nationally so doctors in Wisconsin are being punished for the increased volume in services

being provided in high payment localities.

I think this is unfair and I am glad to see that MedPAC acknowledged this in their recent report. Lastly, I would like to emphasize

that this issue and what we choose to do regarding this issue has

huge ramifications for Medicare beneficiaries. If we do nothing

beneficiaries might face access issues. If we provide a fix without

protecting part B premiums from increases beneficiaries face unacceptably high premiums. And if we enact a fix that increases Medicare spending then we will potentially move up the date that we

reach the 45 percent trigger that was included in the MMA and

will have to cut Medicare spending. So while we tend to talk about

physicians when we consider this issue it has a huge impact on

Medicare beneficiaries.

I thank the witnesses for coming today. I look forward to your

testimony and our discussion that will follow. I yield back, Mr.

Chairman.

Mr. PALLONE. Thank the gentlewoman, and I would recognize

our chairman of the full committee, Mr. Dingell.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

Mr. DINGELL. I thank you, and I commend you for these hearings

today. They are very much needed. I want to applaud the vigorous

and wise way in which you are conducting the business of the committee. I welcome Dr. Hackbarth, the chairman of the Medicare

Payment Advisory Commission, here. And also Mr. Steinwald from

the Government Accountability Office and Dr. Fisher from Dartmouth University who have all thought greatly about the question

at hand. Also to Dr. Thames from AARP, I thank him for bringing

wise counsel and a good beneficiary perspective to this discussion.

As we know, physicians are facing a 10 percent cut in their Medicare payments in 2008, as well as continued reductions in later

years. No one can operate a business in that kind of environment.

If your employer presented you with the prospect of a large pay cut

for 10 years in a row, I am certain you would not continue in that

line of work. More importantly, these payment reductions make

running a quality health care practice difficult at best. At worse

they provide the wrong incentives for the kind of care that Medicare beneficiaries should receive. Our goal should be to align the

payment incentives so the patients are getting the right care at the

right time. While I am not an advocate of pay for performance systems, we do need to create the right incentives for providers to incorporate technology into the practice of medicine to improve care

outcomes and efficiency, and although we know we must insure the

ultimate incentive it remains to us to decide what is the best way

of delivering the care that is best for the patient.

The perplexing problem in reforming Medicare physician payments is what to do about identifying services that are growing inappropriately. Clearly, the current system or global cap is not

working. A variety of factors can cause appropriate service growth.

For example, payment may not be aligned with the actual cost of

14

providing service. Providers may not be clear of which treatments

are most appropriate for the service to be provided. This indicates

that there is a problem that will have to be addressed delicately

but not with a hatchet or a sledge hammer. One possibility that we

hear about today is comparing doctor practice patterns with their

peers and identifying and working collaboratively with those who

when adjusting for the relative health status of their patients have

practice patterns that fall outside the norm.

Again, there are ways to do things like this correctly and ways

to do them in ways that would cause harm to the patient. Clearly,

the latter must be avoided. This is what we must flush out in today’s hearings and in future hearings in discussions on the matter.

Changes to the Medicare physician payment system are long overdue. We will work hand-in-hand with the provider community and

beneficiary representatives to protect Medicare fee for service for

generations to come.

I look forward, Mr. Chairman, to working closely with you as

well as Mr. Barton and Mr. Deal to craft a successful conclusion

to this problem. I want to again commend you for what you are

doing in holding these hearings today. I want to point out that this

is an enormously important question that simply must be addressed not just in the interest of the doctors or the Medicare system but also in the needs and the concerns of the patients who

after all the reason that this system has been set up. Thank you,

Mr. Chairman. I yield back the balance of my time.

Mr. PALLONE. Thank you, Chairman Dingell, and I know that

you have introduced legislation and have been trying to address

this for several years so thank you again. I would recognize the

gentleman from Pennsylvania, Mr. Pitts.

Mr. PITTS. No statement.

Mr. PALLONE. OK. Mr. Allen is recognized.

OPENING STATEMENT OF HON. TOM ALLEN, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF MAINE

Mr. ALLEN. Thank you, Mr. Chairman, for convening this hearing to take a serious look at the Medicare physician payment system and the effect future reductions will have on patients access

to care. Although Congress was able to block the scheduled 5.1 percent Medicare payment cut this year physicians are facing a 10

percent reimbursement cut next year if we don’t act. I am disappointed that the President’s fiscal 2008 budget does not provide

any funds to deal with this problem. Maine and other rural States

face unique challenges in attracting and retaining qualified physicians and insuring access to specialists. Insufficient payment by

both Medicare and Medicaid is a major disincentive to providers in

our State who are caring for a disproportionate share of elderly

citizens.

Seventeen percent of Maine’s population is on Medicare, and we

have 17 practicing physicians per 1,000 beneficiaries. This is a

below average ratio of physicians to Medicare beneficiaries. In addition, our physician population is older than the national average.

Forty-six percent of our doctors are over 50, and many have chosen

to reduce their patient case loads. Congress must evaluate the current reimbursement system and create a more sound financial

15

foundation for physician payment rates. Only by doing so will we

avoid what has become an annual race to avert a financial crisis.

Our goal must be to replace the current funding formula with one

that accurately reflects physicians practice costs, new technology,

and the age and health of the patient population being served. I

look forward to hearing from our distinguished panel and yield

back the balance of my time.

Mr. PALLONE. Thank you. I recognize Mr. Matheson of Utah.

OPENING STATEMENT OF HON. JIM MATHESON, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF UTAH

Mr. MATHESON. Thank you, Mr. Chairman. While I am a new

member of the Health Subcommittee, I have long argued that the

current formula used for determining physician payment rates is

flawed and should be reformed. During my first 6 years in Congress, I have heard from hundreds of Utah physicians regarding

this issue. They provided me with many examples of the disconnect

that exists between the formula and the actual cost of providing

services. They have raised compelling concerns about reduced access to health care if the formula is allowed to be implemented, and

many of them have also provided suggestions regarding ways to fix

the problems associated with the current payment calculation.

As a result, I co-sponsored legislation at the last Congress that

would reform the formula to more accurately reflect the cost of

practicing medicine. Unfortunately, these reforms were not enacted

prior to the end of last year’s Congress. In fact, during my tenure

in office Congress has always waited until the very last minute to

pass a temporary fix to the problem. This creates uncertainty in

the marketplace and is simply a case of avoiding the fundamental

issue. I would also like to highlight the fact that last year’s fix did

include language allowing physicians who voluntarily report certain qualify measures to receive bonus payments of 11⁄2 percent beginning July 1, 2007. I think that this was a good step forward and

I am pleased to see that MedPAC is also interested in working

with the Congress and with CMS on this aspect of reform.

Mr. Chairman, I hope the committee will be able to tackle the

issue this year because I believe the physicians need to be able to

provide seniors the access to care that is so desperately needed.

Thank you. I yield back the balance of my time.

Mr. PALLONE. Thank you. I recognize Ms. Solis of California.

OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. SOLIS. Thank you, Mr. Chairman, and good morning. Thank

you for holding this very important hearing. Medicare was enacted

to provide affordable health insurance to older Americans and is

important to address the sky rocketing cost of health care and access especially to quality affordable health care and especially in

critical communities, minority communities, communities of color

since these populations often encounter greater burdens of disease.

Seniors in California, as you know, are struggling, and I have

heard from my constituents that some California physicians have

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bursements. We find this in areas in east Los Angeles where I have

heard from many of our medical providers and doctors and physicians who are already losing a lot of money by being there but continue to do so but have continuously told me, ‘‘Congresswoman, we

need to do more to help provide for a greater rate of reimbursement’’.

So they stay in our communities because there are a low number

of these physicians that are actually continuing to provide services

in our much needed area. And earlier MedPAC reports stated that

the percentage of physicians taking new Medicare patients has decreased. More than 62,000 seniors live in my district, and I wonder

where those seniors are going to go if these doctors aren’t receiving

adequate payment. Sixteen percent of Medicare beneficiaries in

California, by the way, happen to be Latino. Latinos already face

many barriers in accessing medically necessary health services,

and a MedPAC report published in 2006 stated that 7.1 of Latino

Medicare beneficiaries delayed getting care due to cost.

Less access to care in my opinion will result in further health

care disparities in our communities. I believe that Medicare beneficiaries should receive equal access to physicians who provide

quality care. The rapidly increasing costs of health care are problems for residents in my district. The current payment system has

not solved the problem of higher Medicare spending and out-ofpocket costs for our seniors as well. Instead, some seniors are receiving unnecessary and expensive services that do not provide additional health benefits, and I am concerned about safety net providers, our clinics, who are already struggling to care for their patients.

We need to insure that our physicians continue to care for our

seniors and a physician payment system should emphasize prevention, primary care, and especially since today’s seniors are living

longer suffering from serious and costly chronic diseases such as diabetes and heart disease. I hope that any proposed physician payment system reimburses our doctors fairly for the vital services

they provide and keeps health care affordable for the millions of

seniors whom we represent, and we know they rely very heavily on

Medicare. I look forward to hearing your recommendations and

working with you to protect our seniors health care system. Thank

you.

Mr. PALLONE. Thank you. And that, I believe, concludes our

opening statements by the members of the subcommittee.

Any other statements for the record will be accepted at this time.

[The prepared statement of Mrs. Cubin follows:]

PREPARED STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF WYOMING

Thank you Mr. Chairman. On January 1, 2007, America’s physicians were scheduled to receive a 5 percent cut in Medicare reimbursement if Congress did not step

in to provide a one-time bonus payment in the Tax Relief and Healthcare Act of

2006.

I was pleased to support this important intervention on behalf of Wyoming’s

70,000 Medicare beneficiaries. The negative physician fee schedule, based on the

flawed sustainable growth rate, most certainly presents an unacceptable situation

not just for Wyoming’s beneficiaries, but for the physicians they rely on.

These doctors are also small businesses. They are saddled with high malpractice

premiums. They practice in rural areas, and in some cases are the only providers

17

in their communities. If just one Medicare provider shuts his or her doors in Wyoming, a whole community could be affected. But every time we act to stave off the

cuts mandated by the sustainable growth rate, we are not only delaying the inevitable, we are making it worse.

In 2006, we faced an eventual 5 percent cut in 2008. We may have stopped the

2007 cuts, but now we face a nearly 10 percent cut in 2008, with more to follow

several years thereafter. Facing cuts of this magnitude, we cannot simply rely on

physicians’ generosity to treat Medicare patients regardless of the reimbursement

rate.

The sustainable growth rate formula was enacted to reduce the overutilization of

Medicare services and control the growth of the Medicare program. While it has by

many indications failed in respect to these goals, we cannot lose sight of them. The

Centers for Medicare and Medicaid Services Office of the Actuary estimates that national health expenditures will double to $4 trillion over 6 years. Like the everpresent threat of physician payment cuts, this is a harsh realization we need to face

head on.

The Republican-led Congress faced this realization when it directed the Medicare

Payment Advisory Commission, or MedPac, to look at alternatives to the sustainable growth rate in the Deficit Reduction Act of 2005.

Today we have the opportunity to explore MedPac’s long-term recommendations,

with the goal of minimizing the cost of a long-term physician payment fix. I hope

today’s panelists will shed light on how this can be accomplished while at the same

time taking steps to ensure quality and appropriate care to our Nation’s Medicare

beneficiaries.

I thank our panelists for joining us and look forward to their testimony.

Mr. PALLONE. We will now turn to Mr. Hackbarth. Let me say

that Mr. Hackbarth is the chairman of the Medicare Payment Advisory Commission. Your statement becomes part of the hearing

record, and of course at the discretion of the committee you can

submit additional brief and pertinent statements in writing for inclusion in the record. And I would now recognize you for a 5-

minute opening statement. Thank you for being here.

STATEMENT OF GLENN M. HACKBARTH, CHAIRMAN,

MEDICARE PAYMENT ADVISORY COMMISSION

Mr. HACKBARTH. Thank you, Chairman Pallone, and Ranking

Member Deal. I appreciate this opportunity to talk about

MedPAC’s recommendations on alternatives to Medicare sustainable growth rate system. As requested in the congressional mandate, MedPAC has analyzed the pros and cons of expenditure targets in general as well as the five options specifically included in

the mandate. We present two alternatives paths for your consideration, one that includes continuation of an expenditure target and

one that does not.

As you know, MedPAC is a 17-member commission with diverse

participation including clinicians and health care executives and

academics and former government officials. Despite the diversity of

the commission, we generally are able to reach consensus on even

complicated issues as has been discussed. That has not been possible on all dimensions of the SGR problem. To help you understand where the commissioners do agree and where we disagree, I

have divided the SGR problem into four dimensions which are here

on the screen. The first of those encourage efficiency in the delivery

of health care. Let me begin with a quick definition of efficiency.

Improving efficiency is not just about reducing cost. Efficiency is

about maximizing the benefit for the patient for any given level of

expenditure. There is unanimous agreement within MedPAC that

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propriate incentives for efficiency. Indeed, by only constraining the

amount paid for each individual physician service and expenditure

target may actually increase, induce an appropriate or cost increasing behavior. Moreover, payments that become too low relative to

the cost of delivering care may ultimately impede access to care.

To establish proper incentives for efficiency, Congress must pursue the agenda briefly described on the second slide. There are a

lot of very complicated stuff included under these broad headings

so I won’t take time in my opening statement but I would be happy

to go back and talk about the specific ideas within each of these

categories. So there is unanimous agreement that these sorts of

policy changes are what are needed to in fact improve the efficiency

of the Medicare program. The commission is also unanimous in believing that this agenda for increasing value and efficiency in Medicare is urgent and requires a much larger investment in CMS in

order to speed its ability to develop, implement, and refine payment systems.

Some progress to be sure is being made but that progress is far

too slow. The second bullet here, as you can see, is encouraging fiscal discipline in policy making. Its expenditure targets like SGR

don’t by themselves establish proper incentives for efficiency. What

might they be good for? And it is here that the commissioners disagree. Some commissioners believe that expenditure targets are

useful for encouraging fiscal discipline in the policy-making process. To be clear, they don’t establish appropriate incentives for providers but they may alter the dynamics of the policy-making process and result in more constraints, lower updates for providers.

Some commissioners think that is a good thing. In addition, expenditure targets may create the political leverage to force providers to accept reforms they might otherwise resist. Other commissioners, while acknowledging these potential benefits, agree that

they come at far too high a price, and hence the disagreement within the commission. The third bullet, increasing equity among regions and providers. Here is another point on which there is substantial although not complete consensus within MedPAC. The existing SGR system is highly inequitable in important respects. If

the target is exceeded all physicians are punished equally regardless of their individual behavior.

In addition, all regions of the country are treated equally even

though there is abundant evidence that health care delivery is

more efficient in some places than in others. And finally the SGR

system as it exists currently targets only physicians when in fact

Medicare has a total cost problem, not just a physician cost problem. Thus, if Congress elects to retain an expenditure target in

some form it would be fairer and more effective to apply that target

to total Medicare cost, not just physicians, to apply greater pressure in high cost regions than low cost regions and allow an opportunity for groups of providers to band together in what we refer to

as accountable care organizations to receive their own performance

assessment against the targets established by Congress.

Making expenditure targets more equitable will not be an easy

task. Time, patience, determination, and investment would be required and without these the risk of failure and unintended consequences will increase dramatically. Now let me turn finally to the

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last bullet here, minimizing or offsetting the budget score of fixing

the SGR system. As you know all too well, proposals to repeal or

modify SGR often carry a very large budget score as a result of the

difference between the assumed payment rates and the base line

and what are realistic rates to assure access to care. MedPAC nor

anyone else for that matter has a simple magic solution to fill that

gap. We do believe, however, that MedPAC’s proposals can make

a very, very substantial contribution to filling that budget gap.

CBO has estimated that the 10-year cost of repealing SGR and replacing it with an alternative system is somewhere over $200 billion.

According to CBO going to financial neutrality for Medicare Ad- vantage plans as MedPAC has proposed would save about $160 billion. Couple that with restraints on updates for other providers

which MedPAC recommends. Couple that with the value and efficiency agenda that I alluded to earlier and you have a very substantial contribution towards filling that $200 billion plus budget

gap. With that, Mr. Chairman, I will conclude my opening comment, and I look forward to questions.

[The prepared statement of Mr. Hackbarth follows:]

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Mr. PALLONE. Thank you, Mr. Hackbarth. I am just going to recognize myself for 5 minutes initially. You mentioned a much larger

investment in CMS to achieve the goals and you obviously talked

about the role of CMS so that is my first question. It seems likely

that the key to any change in physician payments is CMS’ ability

to implement the change. And so my question really two fold, can

CMS implement any of your recommendations without legislation,

and, second, what kind of resources and time are they going to

need?

Mr. HACKBARTH. If you could put up the second of the two slides.

Let me just quickly go through this agenda and talk about where

the various pieces stand. Beginning with pricing accuracy, what

this refers to is trying to establish prices that reflect the cost of

providing high quality efficient care. It is an issue not just with the

physician payment system but with all of Medicare’s payment systems for hospitals and post acute providers as well as physicians.

MedPAC in recent years has made numerous recommendations

about how those systems can be refined and made more accurate.

There is a lot of work underway in CMS currently. No new legislative authority is generally required. The issue is really the speed

at which that refinement work occurs and that is often affected by

available resources.

Mr. PALLONE. What do you think we need in terms of resources

and then what would the time line be depending if they were available?

Mr. HACKBARTH. Making a specific recommendation about how

much of the resources should be increased is beyond where

MedPAC has gone at this point, and frankly a little beyond our expertise. Those are operational questions and require very detailed

knowledge of CMS operations. What we are reflecting is that we

talk to them about these issues and often they agree in principle

with what we are recommending but the pace at which they can

churn out the refinements is slower than it needs to be.

Mr. PALLONE. If you can’t be more specific then I think I am

going to move on. OK. I also wanted to ask about the HMOs because you mentioned how you can save a significant amount of

money by looking at this differential in payment with the HMOs.

In your update on the Medicare private plans you report that Medicare HMOs are paid 112 percent of traditional Medicare on average. In other words, for every beneficiary who chooses to enroll in

a Medicare HMO the Medicare program pays 12 percent more than

if they were to remain in traditional Medicare. So if you could just

comment briefly on the commission’s recommendations related to

Medicare private plan payments. I know you did.

Mr. HACKBARTH. Yes.

Mr. PALLONE. But do you believe that they pose a threat to the

traditional Medicare program, and if you want to go into a little

more detail about how we are going to save money in terms of that

overall. I know you mentioned 160 versus 200.

Mr. HACKBARTH. MedPAC has often stated that we believe having private plans as an option for beneficiaries is a good thing. We

believe that many private plans may be able to offer something of

value to Medicare beneficiaries through their efficiency, through

their ability to deal with providers in ways that Medicare itself

40

finds difficult to do. So having that option is very important. However, we think that that option ought to be on a financially neutral

basis so if private plans can achieve efficiency and as a result of

that efficiency have savings to share with Medicare beneficiaries in

the form of added benefits and the like that is a terrific thing and

we are all in favor of it.

Mr. PALLONE. Are you concerned that if we don’t achieve that

neutrality that they are going to be a threat to the traditional

Medicare program?

Mr. HACKBARTH. Our concern is that if you pay more than Medicare’s cost what you start to do is attract plans into Medicare that

aren’t adding value, that aren’t more efficient than traditional

Medicare and are only driving up the cost of the program. And we

have particular concern about the private fee for service plans,

which are in fact the most expensive of the plan types offered

under Medicare Advantage. They offer relatively little value but

they become very attractive to Medicare beneficiaries for obvious

reasons, more benefits, no restrictions of any type on free choice,

and so there is very rapid growth under the private fee for service

plans, and they are much more expensive so that has put us on a

path that could be dangerous for the program.

Mr. PALLONE. Thank you. Thank you very much. Mr. Deal.

Mr. DEAL. Thank you. Mr. Hackbarth, in your testimony and in

your report, you outline two basic paths. I want to talk to you

about the second path. In your testimony just a few minutes ago

you said that if we retain the overall spending targets that one of

the ways we could make it more effective is to apply it across all

providers. Let me ask you just a very simple question to begin with

and then I am going to ask you to explain it. Now by that, I would

assume you are talking about including hospitals within the overall

provider group.

Mr. HACKBARTH. Yes.

Mr. DEAL. Now obviously we have part A and part B of Medicare

funded differently. Would you explain to me how if we were to

adopt that approach how do we reconcile the different part A and

part B components, and is that a problem or is it not a problem?

Would you explain how you would envision that incorporation?

Mr. HACKBARTH. Well, the basic idea is to say this is our target

for total expenditures for Medicare beneficiaries, and then to the

extent that we miss that target it would affect the updates provided not just to physicians but to hospitals and all the providers.

As to how that would interact with the different financing of the

various trust funds, we have not looked at that in detail but rather

focused on the basic idea of constraining updates across the board

and not just for physicians. And one of the reasons we think, some

commissioners, think that that would be a better thing to do is that

we don’t have just a physician cost problem. We have a total cost

problem.

And as some of the members of the committee have pointed out,

if you focus just on physician cost and constrain only that when in

fact there is potential substitution of services, growth in physician

services to avoid hospital costs, a system that focuses only on physicians is really unfair.

41

Mr. DEAL. That is part of the complaint the physician community

has had for a long time is that actions that they have taken to restrain overall costs have inured to the benefit of hospitals and their

reimbursement formula but has penalized the physician community.

Mr. HACKBARTH. We want growth some places. Some types of

services we want more in order to reduce other places, hopefully

more expensive services. And so a total expenditure target in that

sense would be fairer and more effective.

Mr. DEAL. You mentioned the regional discrepancies of costs and

quality of care. Could you rather quickly sort of outline some examples of that?

Mr. HACKBARTH. I would be happy to do so. We have got the expert on that on the next panel, Dr. Fisher, and he could do it far

better than I. But briefly what we see is at the State level more

than two fold variation in Medicare expenditures per beneficiary

after adjusting for differences in the populations, differences in the

risk characteristics and the like. If you go to smaller geographic

areas and States then the variation is even higher than two fold

variation. We also have found that higher expenditures per beneficiary does not necessarily mean a better quality. In fact, many of

the lower cost States fare very well in terms of their quality measures.

So the idea behind regionalizing the expenditure target is to say

if Congress decides we have got a Medicare cost problem it doesn’t

make any sense to apply the pressure equally to all States. Some

States are demonstrably contributing more to that problem than

others so if we got a cost problem we ought to apply the pressure

differentially, apply the greatest pressure to the areas of the country that contribute most to the problem and less correspondingly to

the lower cost areas, and in that sense it would be more equitable

than the current SGR.

Mr. DEAL. In my closing seconds, I want to thank you for in your

report addressing the specific issues that the DRA asked you to do.

I think you have done a pretty good job of addressing those, and

there are some areas such as the outliers that I think we have to

explore in much greater detail, but thank you for being here.

Mr. PALLONE. Thank you. The gentlewoman from California, Ms.

Eshoo.

Ms. ESHOO. Thank you, Mr. Chairman. Thank you, Dr.

Hackbarth. I have a lot of questions. Let me see how I can summarize them. The Deficit Reduction Act required MedPAC to look at

alternatives and targets and other ways of reconfiguring the existing SGR and improving on the performance. And I appreciate the

work that has gone into your report but I don’t find that you have

provided Congress with any recommendation to remedy the situation. Now maybe I missed it somewhere but I don’t see any clear

recommendation. Do you agree with that description?

Mr. HACKBARTH. No.

Ms. ESHOO. All right. Well, in 2001 MedPAC concluded that the

SGR should be eliminated, physicians should be subject to the inflation-based update system that the commission uses for other

provider groups. Now has your position changed since then or is it

the same?

42

Mr. HACKBARTH. Our position has changed somewhat for two

reasons.

Ms. ESHOO. And tell us why you abandoned it. Would you tell us

the new recommendations?

Mr. HACKBARTH. Our positions changed somewhat for two reasons. One is, as you know, the composition of the commission

changes over time, and so we have a different set of commissioners

than we had in 2001 with a somewhat different perspective. The

second thing that has changed is, and I think this applies to all

commissioners, a growing sense of urgency about Medicare’s cost

problem and the health care system in general, its problem with

costs. We are 5, 6 years further along on a path that the commissioners believe is ultimately unsustainable——

Ms. ESHOO. So just succinctly what is your new recommendation?

I have to tell you that looking at this is—well, I think it is one of

the skimpiest things I have ever seen. This is increasing value and

efficiency in Medicare, pricing accuracy, coordination of care, accountability. The one that I love the most at the bottom is information. This is a commission that was put together by the Congress,

instructed that it should be put together, and I know I am being

a little hard but that is hardly any meat on the bones, I have to

tell you. If this is what MedPAC is coming up with, I think you

got to go back to the drawing boards. I mean this is really sophomoric what is up on the board.

Mr. HACKBARTH. We literally have hundreds of pages explaining

those proposals in detail, and I would be happy to spend as much

time as you would like——

Ms. ESHOO. But when you are here, you need to summarize it

but I think that you need to summarize and have some meat on

the bones. I really have had trouble understanding what you have

recommended to us in these key areas.

Mr. HACKBARTH. Well, the point that I hope the committee will

understand is that we don’t think that there is a single solution to

this problem, that in fact there is unanimous agreement within the

commission that a long series of changes need to be made to encourage efficiency in the Medicare program and follow——

Ms. ESHOO. Now did MedPAC take a look at the geographic payment locality issue?

Mr. HACKBARTH. Not in this particular report, no, but we have

previously.

Ms. ESHOO. And when did you last take a look at that?

Mr. HACKBARTH. I think it was 2 years ago.

Ms. ESHOO. Well, that was developed more than 40 years ago,

and many areas in the country have changed and changed dramatically, and it seems to me that a commission that looks at or is responsible for reviewing how Medicare is delivered and to whom and

by whom, I think this really cries out for review but maybe you

have so much work to do that you can’t take a look at it. Do you

have a work plan that says that you are going to review this and

make a recommendation to the Congress?

Mr. HACKBARTH. As I said, we looked at the issue 2 years ago

and, no, we don’t have any immediate plan to take——

Ms. ESHOO. Does MedPAC think that Congress has done something it and that is why you are not reviewing it?

43

Mr. HACKBARTH. No. What we have said is that we think that

there needs to be a system of geographic adjustment, that there are

some problems, isolated problems, with the existing system, that

the lines can be redrawn, should be redrawn in some States, including California, that those changes ought to be done on a budget

neutral basis within the State, and that CMS ought to respect the

fact that at least some States have elected to have a single area

for the whole State. We don’t run the Medicare program.

Ms. ESHOO. I didn’t suggest that you did, but you have the clear

responsibility in terms of making I think clear and concise recommendations to Congress. I am having a hard time drawing

them. I think my time is up. Thank you, Mr. Chairman.

Mr. PALLONE. Thank you. Dr. Burgess.

Mr. BURGESS. Thanks, Mr. Chairman. One of the issues that I

think we have to most seriously address is the issue of quality reporting and I have always felt very strongly that there actually

ought to be a platform of several quality reporting mechanisms

available to doctors and that they not be punitive, that they be additive. And yet when we heard some of the other opening statements people talked about how grateful they were we were able to

add an update in the bill that we passed right before the end of

last year. But I have some data from Scott and White Hospital,

from Dr. Rohack, who is the cardiologist there on the clinical faculty, on the medical school faculty, also I think a board member

from the AMA, and they did a calculation for the last 6 months of

2006, their clinic part B allowables. Running that calculation it actually cost them $298 per physician to do the paperwork in order

to capture the monies that are going to be made available to them,

I believe at the end of this year if CMS does indeed come up with

those recommendations in June, and they jump through all of the

hoops that they are required to jump through.

So that hardly seems like an additive benefit. In fact, most physicians will look at that and simply shrug their shoulders and throw

that into the file. They are not going to participate in a quality

measure that in fact doesn’t bring them additional revenue but

ends up costing them revenue just to calculate what they are owed

under the new formula. How do you see us getting around that

type of problem because to me the critical aspect of quality reporting is that it has to be an additional payment in addition to what

is available, whether it be under MEI or SGR, what is your feeling

on that?

Mr. HACKBARTH. As you know, we favor the concept of not just

quality reporting but also pay for performance, but we have also

said that doing it for physicians presents some unique challenges

for a couple of reasons. One is that there is a much higher degree

of specialization among physicians than hospitals, for example. The

infrastructure, the informational infrastructure, is less in small

physician practices than it is in hospitals. And so there is some

concern within the commission about just indiscriminately saying

more quality reporting is better for physicians and the more measures the better.

Mr. BURGESS. Yes, I would just point out that Scott and White

Hospital does enjoy already a good reputation for quality. I think

they are number ranked No. 14 in the Nation, and they are not a

44

small organization. They have 320 physicians in their central unit

and another 180 physicians in their outlying areas. So a significant

problem that we have created for them in our efforts to help them,

and it just underscores how difficult and sometimes how awkward

this process can be. With that in mind, what you described in your

report with the ACO is a virtual care organization of some type.

How do we insure that that does what it is intended to do and is

not just simply a virtual organization to absorb dollars and not deliver any benefit?

Mr. HACKBARTH. The basis for supporting the idea of accountable

care organization is that patients can benefit from more organization, systematic organization.

Mr. BURGESS. We have already seen the application at least in

Dr. Rohack’s case ended up being a detriment to their rather sizable quality practice in central Texas.

Mr. HACKBARTH. But I am not familiar with what is happening

at that clinic right now. Are they in the group practice demonstration?

Mr. BURGESS. I am not sure whether they are in——

Mr. HACKBARTH. I don’t know if they are or not. I don’t think

that they are.

Mr. BURGESS. But the figures that were given by CMS is what

they anticipate the bonus to be so it was back of the envelope calculation to be sure but I wanted to get an idea, did we help Dr.

Rohack when we passed this bill at the end of the year, and it

looks at least at first blush we didn’t help a bit. In fact, we cost

them money if they put their actuaries to work on trying to collect

the bonus to which they would be entitled by doing their quality

reporting. Let me just point out to you additionally probably one

of the worse days of my life as a practicing physician was when

RVRBS came on the scene. Is there a better way to calculate the

cost of differing services and differing practices and differing areas.

Mr. HACKBARTH. If I could, Mr. Burgess, I would just like to go

back to the previous question for a second. When we are talking

about accountable care organizations what we are talking about is

a model whereby you would look at the total cost for beneficiaries

within, for example, this clinic, and then share with the clinic the

savings to the extent that they are able to hold costs below the target levels, so it is very different than the quality pay for performance model that was in the Tax Act. This is the model that is being

tested now in the group practice demo. That is what we are referring to as accountable care organizations, and there the benefit

might be much larger.

Mr. BURGESS. When will you be able to make this data available

to us?

Mr. HACKBARTH. Well, the group practice demo is underway as

we speak at 13 different locations across the country.

Mr. BURGESS. So when will we have the data available?

Mr. HACKBARTH. It is a 3-year demo, and we are like at the second year now.

Mr. BURGESS. Obviously that is a long time in this trajectory

where we are catching up every year and trying to do something

to prevent the total collapse.

45

Mr. PALLONE. We got to move on. You were over a minute.

Thanks. I recognize Ms. DeGette.

Ms. DEGETTE. Thank you, Mr. Chairman. Mr. Hackbarth, we are

all kind of concerned over here about the MedPAC recommendations because Congress has been looking for a long time at how we

can find a long-term fix for the physician reimbursement problem,

and in reading your written testimony and listening today it is virtually impossible for us sitting up here to figure out what your recommendations are, and in fact in your written testimony you say

that Congress must decide between two paths. One path repeals

the SGR and doesn’t replace it with the new expenditure target.

Congress accelerates development and adoption of approaches for

improving incentives. Alternatively, the Congress could replace the

SGR with a new expenditure target system. And it seems to me,

No. one, these two alternatives are both a little bit nebulous. The

second, it is two alternatives that we thought we created you to

make a recommendation, so my question to you following up on

what Ms. Eshoo said is if you were us and you had to pick one of

the two alternatives, what would you do?

Mr. HACKBARTH. The commission is split on it. You can ask people who have expertise on these issues what they think. What they

think is there is a disagreement. The commission is split down the

middle on whether expenditure targets are useful in Medicare.

Ms. DEGETTE. So if the commission, who are the experts, are

split on what to do how do you think Congress should go about trying to figure out a solution, a long-term solution?

Mr. HACKBARTH. Again, you can ask people what they think and

you can’t generate agreement where it doesn’t exist. There is agreement on a very broad agenda and a very detailed agenda that falls

under these broad headings.

Ms. DEGETTE. Right. As Ms. Eshoo points out to me just now,

we can get information. I don’t mean to belittle your efforts but

what we are struggling to try to do is come up with solutions which

we have been doing for some years and why we created you guys.

Mr. HACKBARTH. I would be happy to come and meet with you

individually to talk about the specifics under these items and what

it means by information in that bullet.

Ms. DEGETTE. I respect you, and I know that there are many

pages of information that support those four points, but the bottom

line is there are still two recommendations, neither of which are

flushed out in detail, somehow leaving it up to us to try to pick and

choose, and for us as Mr. Green said, it just kicks the can down

the road a little bit more.

Mr. HACKBARTH. Well, let us talk about the two paths and the

difference in thinking between them. As I said in my initial comments the people who believe that expenditure targets should be

preserved in some form believe they feel a great sense of urgency

about the cost growth in the Medicare program and they believe

that it is appropriate to take some risk, frankly, to maintain expenditure targets in order to establish fiscal discipline in the program. Ultimately, the Congress is the judge of how urgent that

problem is and how concerned you are about the drain on resources

for other important programs.

46

Ms. DEGETTE. So would you say then that that is the approach

that Congress should take only if we think that the fiscal pressures

are great but that the other approach would be preferable?

Mr. HACKBARTH. The other approach focuses on trying to change

payment systems at a very detailed level to improve the fairness

of those systems and to encourage greater efficiency in the delivery

of care. It is a complicated agenda. It is not an easy agenda. But

in the long run if you want to improve fairness and efficiency these

are the things that you need to do and there are literally dozens

of steps under this agenda and all the commissioners agree on that.

Ms. DEGETTE. This agenda could also be cost effective if implemented correctly.

Mr. HACKBARTH. Absolutely. And the commission is unanimous

on that. There is no disagreement about that.

Ms. DEGETTE. Mr. Chairman, with all due respect, I think that

we should either disband this commission and get a new one that

will give us clear recommendations or we should send the existing

commission back to come up with a clear choice for us so that we

can actually use this information. And I do appreciate Mr.

Hackbarth coming today to talk to us but I think that the work

product is unfinished and that we need much more information.

Thank you for your indulgence, Mr. Chairman.

Mr. PALLONE. Thank you, Ms. DeGette. I would just point out

again though that a lot has to do with what you were tasked to

accomplish. I mean obviously we can ask you to do certain things

and we can be more specific too in what we task you to do. And

I think part of the concern is what exactly you were tasked to do.

I am not going to get into that now but that is always the question

is how specific we get in what we ask you to do. I would like to

now move to recognize Mr. Murphy from Pennsylvania.

Mr. MURPHY. Thank you, Mr. Chairman. I thought I was further

down the list. I just want to focus on some of the questions about

waste and get some sense from you and some more details of how

much do you think is currently within the Medicare system, the

payment system, in terms of the waste that is taking place. Do you

have some concrete assessments of that?

Mr. HACKBARTH. No. That is a very difficult question to answer

including what you mean by waste.

Mr. MURPHY. Some of that would be just the efficiency of the system, health care system.

Mr. HACKBARTH. The problem in U.S. health care is not necessarily lots and lots of zero benefit care being provided but rather

care being provided that adds only a little bit to better outcomes

for patients at a very high cost. So there is some pure waste, no

benefit care. In fact, there is some care provided that is actually

harmful to patients but the big problem in U.S. health care is a

lack of efficiency, care provided of only marginal benefit at great

expense.

Mr. MURPHY. Well, one of the points that you may have heard

me making in my opening statement had to do with the infection

rate in hospitals in America. I know to their credit many hospitals

are working diligently on this and many have provided significant

or seen significant decreases in, for example, post-operative infection rates through many things including giving antibiotics at the

47

right time before and after surgery but in some of them the low

tech high turnout of outcome so even washing their hands, sterilizing or cleaning up before and after procedures, et cetera, and yet

Medicare still pays for infections people get in hospitals. As I mentioned, I introduced a bill that would require hospitals to publicly

state their infection rates.

And what I would also like to see us do is actually take some of

the cost savings from that and use it as grants to hospitals that

are able to lower the infection rates to zero. Are these things that

you think are doable, that we can really use the clout of Medicare’s

payment system to say this is something we ought to really be

looking at and not continue to pay for that?

Mr. HACKBARTH. Yes. We do think that substantial progress can

be made both through public reporting and pay for performance,

and there is just no reason why we should have the level of infection rates that we have. We agree with that and there are steps

that can be taken.

Mr. MURPHY. Let me ask another area, and that is with preventative care. Do you believe that Medicare should be reimbursing

doctors for some preventative care services? And another area is

patient care management. Let me explain a little bit about that.

You probably are aware of this but I know that a couple studies

done in Pittsburgh hospitals, one was following diabetics, and we

recognize about 80 percent or so of health care costs of those were

chronically ill. And a substantial portion of those are folks who we

used to call it hospital non-compliant patients, we realize better

now that a lot of that was from chronically ill patients who have

very complicated cases. It is nearly impossible for them to monitor

and do all the right things from their diet, their medication, their

insulin, their exercise, their mental health, all those things that

are so very, very important.

One hospital found that just by monitoring the care of these patients and calling them on a weekly basis to ask them a few simple

questions actually with diabetic patients reduced re-hospitalization

rates by 75 percent. Another hospital reduced hospitalizations of

those with heart disease by 50 percent. These are massive savings.

And yet my understanding is the Medicare system for diabetics will

reimburse or pay the hospitals for providing hospital care or amputations, et cetera, but do not pay for a nurse to make a 5-minute

call or for a doctor to set up an e-mail system. What kind of

changes do you think realistically we can make there?

Mr. HACKBARTH. So what you are doing, Mr. Murphy, is actually

going through the items on this list, and what you are talking

about falls under the heading of coordination of care. And Medicare

does not properly pay for coordination of care by primary care physicians, and MedPAC has recommended a number of ways that

that might be altered. In addition to that, CMS is now testing different models for encouraging coordination of care. There is the

health support pilot project that is looking at patients with chronic

illness including diabetes, and we think potentially that is a very

helpful model.

In addition to that, there is a medical home demonstration that

is now in the process of being established which basically increases

payments for physicians for that ongoing relationship, counseling,

48

education of patients, following up on their care, following up on

specialist visits and the like. We think there is huge opportunity

there.

Mr. MURPHY. I appreciate it. Mr. Chairman, I hope this is an

area we can look further at because the cost savings on this are

pretty massive so I thank you for dealing with this issue. Thank

you, sir.

Mr. PALLONE. I understand. Thanks. Mrs. Capps.

Mrs. CAPPS. Thank you, Dr. Hackbarth. And I have two different

topics I would like to get into so keep in mind that this question

I am about to address having to do with the geographic price cost

index is but the first half. I am deeply concerned as you might

know about the current GPCI, if we can call it that, formula currently in place. And I think it is interesting that you in your recommendations have highlighted the need to revisit. You have a

proposal to establish expenditure targets based on geographic regions but I am wondering how you can do this. You said the last

time the commission discussed GPCI was 2 years ago, but doesn’t

this proposal to deal with geographic regions highlight the need to

revisit how we reimburse physicians based on their location because of the inequities in the current system and those inequities

have become a huge barrier to access, and so many of counties

across the country in my district.

So I am asking you about how we update the current classification of geographic localities even as we devise a new system for

Medicare physician reimbursements. I am worried that if we adopted the model of establishing expenditure targets without first revisiting GPCI classifications we would only be further compounding

the existing problem. After all as I mentioned in my opening statement the bottom line is insuring access for all beneficiaries. The

failure to account for these fatal flaws in the current price cost

index is going to further exacerbate any kind of proposal you are

going to make, and I am just asking you now have you taken into

account these current inequities as you have formulated suggestions for updating the overall payment system?

Mr. HACKBARTH. As I said in my response earlier on the specific

issues of GPCIs in California, we have said that we think there are

some problems, and we do think that there are ways to correct

them but that it ought to be done on a budget neutral basis within

California.

Mrs. CAPPS. Well, it is actually among 135 or so counties across

the country, this inequity exists, so it is not just our region although I am certainly going to acknowledge that.

Mr. HACKBARTH. I wouldn’t say that it exists only in California.

I am not sure I would agree with 135 either. I don’t know how that

is calculated.

Mrs. CAPPS. We can give you that information and maybe you

can correct it if it is wrong.

Mr. HACKBARTH. Yes, but it is on a national basis a relatively

isolated problem that we think can be corrected.

Mrs. CAPPS. OK. I am just suggesting before I move on that in

order to carry out the recommendations you are making now that

we can’t do it on the back of a very flawed system. We have to do

more than one thing at the same time if we are going to make any

49

progress. Maybe we need to revisit the actual mandate that you

were given to deal with on this whole fix. But let me talk about

another topic because it also is very relevant to the Deficit Reduction Act, and that has to do with imaging procedures. We have discussed this many times last year but I am still concerned about

how these cuts have been proposed.

MedPAC continues to cite the volume of imaging services as

growing at a faster rate than all fee schedule services. But I don’t

believe you are taking into account the fact that over the last few

years many imaging services have moved from hospitals to physician offices as a cost saving to health care both to the patients and

to the providers of health care. It is less expensive if you do this

in an outpatient or an office-based setting. That should be a good

thing also for the sake of preventive health services. Preventive

health care is by far the least expensive way to provide health care

with the best outcomes. I would hope you would agree with that.

So I am wondering if you have done any further analysis of the

growth and imaging services since our hearing in July, 2006 to

take into account the shifts in the site of service. I think it is safe

to argue that early diagnosis of disease can be identified by imaging procedures. Early diagnosis produces much more savings in the

long run but if we continue on the current path of this disparate

discrepancy in reimbursement for office-based services we are going

to see physicians stopping to do this and it is going to end up increasing the cost again.

Mr. HACKBARTH. As we discussed last time, imaging is——

Mrs. CAPPS. Well, let me ask you, have you discussed this further

since that time?

Mr. HACKBARTH. MedPAC has not taken up imaging since our

last conversation on this. Let me just review some points because

I think we agree on some of this. Imaging is tricky because there

are important technological advances. We can do great things for

patients.

Mrs. CAPPS. Yes.

Mr. HACKBARTH. And we are all in favor of that. In some cases

potentially growth in imaging can avoid the need for other more

costly services.

Mrs. CAPPS. We all agree with that.

Mr. HACKBARTH. In some cases moving things from a hospital

base to a physician base can be a good thing, and so I think we

agree on that. We don’t think that from hospital base to a physician base explains all of the growth in imaging. We have looked at

that, and we think it is just a substitution effect.

Mrs. CAPPS. I have to finish by saying that you are throwing the

baby out with the bath water by hesitating to allow physicians to

or giving them some guidelines showing the ways that they can do

this that will be cost savings. And I would strongly urge that this

needs to be dealt with in the earliest possible time frame——

Mr. PALLONE. We need to move on.

Mrs. CAPPS. Thank you.

Mr. PALLONE. OK. Next we have Mr. Pitts of Pennsylvania is recognized for 8 minutes.

Mr. PITTS. Thank you, Mr. Chairman. A couple of questions for

you, Mr. Hackbarth, to continue this line of questioning on the imVerDate 11-SEP-98 13:45 Oct 07, 2008 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 Q:\DOCS\110-13 SCOM1 PsN: SCOM1
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aging. I think that we can all support the need within Medicare to

reward providers for an efficient use of resources. In this report,

MedPAC continues to cite the growth in imaging as being a problem, yet ultrasound-guided breast biopsies save Medicare $1,000

per patient, and decrease the risk of infection, speed the time to

diagnosis, and have better cosmetic results. However, ultrasound

guided breast biopsies mean that two ultrasound are performed

that would not be performed if the surgeon performed an open surgical biopsy.

My first question, would MedPAC not consider this an efficient

use of services, ultrasound services, where comparative effectiveness information has played a role in increasing ultrasound services related to breast biopsies while providing a better outcome for

all parties? Second, is it clear from MedPAC’s examination of the

SGR by type of service included, that is, imaging lab services, et

cetera, that the growth within the physician’s fee schedule is not

appropriate? I would assume that with Medicare beneficiaries living longer, increased incidents of disease change and clinical practice guidelines, shift in site of service and the screening benefits

that Congress has enacted over the last several years that the

growth found by MedPAC could be a result of the health care system being more efficient with the care going to the site of service

with the lowest overhead and greatest beneficiary access.

Mr. HACKBARTH. We think that some of the growth is imaging

is appropriate and to the benefit of patients and may even reduce

other Medicare costs. We don’t believe that applies to all of the

growth in imaging. We think that part of the growth in imaging

may in fact be driven by distortions in the Medicare payment system where we overpay for some types of services. Providers know

that we over pay. They know they are profitable and so they increase the volume of those services. So it is a mixture, and I know

that is frustrating to the committee but rarely these things have

black and white answers. MedPAC has never recommended that

we try to cut imaging across the board.

The thrust of our recommendations has been for much more targeted, sophisticated approach than that because we recognize that

there are benefits from some imaging.

Mr. PITTS. And perhaps demographics of the Medicare population, the migration from invasive to non-invasive diagnostic tool.

Mr. HACKBARTH. Those are part of the reason for the rapid

growth but we don’t think that they explain all of it.

Mr. PITTS. Well, MedPAC continues in this report to cite the volume of imaging services as growing at a faster rate than all fee

schedule services over the last few years. Many imaging services

have moved from hospitals to physician’s offices. Has MedPAC

done any further analysis of the growth and imaging services to

take into account the shifts in site of service since our hearing in

July 2006 and was MedPAC able to look at both the hospital outpatient fee schedule data and the physician fee schedule data combined over time to account for this site in service shift or are we

again without real data regarding what is the true new growth in

each of these types of services?

Mr. HACKBARTH. We have not looked as a commission at the

issue since the last hearing but at that hearing the numbers that

51

we talked about, we did look at the substitution issue and whether

the growth in fee schedule expenditure and imaging was solely due

to substitution, and we did not find that to be the case. We don’t

think that substitution of physician services for hospital services

explains all the growth and imaging. There are a lot of different

factors that go into it.

Mr. PITTS. Your analysis only used Medicare physician fee schedule database, is that correct, therefore, the MedPAC has not adjusted the growth rate to count for that shift in the site of service?

Mr. HACKBARTH. We have tried to look at whether movement

from hospital-based imaging to physician-based imaging explains

the growth and we don’t think it explains all the growth, no.

Mr. PITTS. And what about my first question, the efficient use of

services?

Mr. HACKBARTH. Well, as I said earlier there are new types of

imaging that can be more efficient. They can improve patient outcomes and reduce the need for other services that are higher cost.

And that is good. We want to preserve that. We don’t believe that

is all that is happening in the growth imaging. We think some of

the growth is for care of marginal benefit to patients at a high cost.

We think some of the growth is due to inaccurate pricing and unusual profit opportunities. You go to physician conferences and you

can see the imaging manufacturers selling their wares, talking

about what a great profit opportunity this is, so that is a factor in

this complicated picture as well.

Mr. PITTS. Thank you, Mr. Chairman.

Mr. PALLONE. Thank you. I recognize Ms. Hooley of Oregon.

Ms. HOOLEY. Thank you, Mr. Chairman. I have three questions.

I am going to ask you all three of them, and then we will have a

chance to discuss them. MedPAC concluded in its report to Congress that Medicare beneficiaries do not suffer from a lack of access

to physicians. However, that is not what Medicare beneficiaries tell

me in Oregon. That is not what they say. It is not what the doctors

say. And I used to jokingly say to my friends that are about ready

to retire if your doctor is older you better find a younger doctor,

otherwise, you are not going to be able to get a doctor if you are

retired and are on Medicare.

I used to say it jokingly. I now am dead serious when I say that.

You are from Oregon. I want to know if you have heard the same

problems in Oregon or what is happening in Oregon that may be

unusual in terms of the rest of the country. The second question

is Oregon provided health care at a very reasonable cost. We were

very efficient. We had a high penetration of managed care. And because of that we had been penalized over and over again for low

reimbursement rates. And in rural areas where you have a high

percentage of Medicare beneficiaries than in other parts of the

country you combine that with a high number of beneficiaries and

a low reimbursement rate, and frankly you can’t find doctors to

serve in the rural areas because they simply can’t make a living

doing it, and the question is has that been taken into account.

And then the third question is MedPAC noted in its report that

adjusting payments based on physicians participating in a group

practice would be difficult to implement in rural communities because few if any rural providers can join multi-specialty practices.

52

I was very pleased to see that you recognized that. However, that

is the only thing in your report that you really pay attention to the

impact of MedPAC on rural providers. And my question is why

doesn’t MedPAC’s report give more attention to highlighting the

differences and how various proposals would impact rural communities versus other communities?

Mr. HACKBARTH. OK.

Ms. HOOLEY. Are we different in Oregon?

Mr. HACKBARTH. I don’t know about different in Oregon in general but there are places within Oregon where there might be unusual access issues. Let me just start with the big picture. When

we ask both beneficiaries and physicians about access to care in the

case of physicians willingness to accept new patients, in the case

of beneficiaries their satisfaction with access on a national basis

things look pretty good on both beneficiaries and physician front.

Access compares pretty well to what exists for privately insured,

non-Medicare patients.

Ms. HOOLEY. They may be fine nationwide but I am telling you

it is a problem.

Mr. HACKBARTH. Now having said that, obviously the picture can

differ in particular communities. Take mine of Bend.

I think that there are somewhat greater access issues for Medicare beneficiaries in Bend than in most other parts of the country.

Are those the result of Medicare payment rates and Medicare payment rates alone? I don’t think so. One of the issues that fast-growing communities face is that there can be an imbalance between

the number of patients and the supply of physicians. I think that

is true in Bend. We have had very rapid growth in a retiree population and that has grown faster than the supply of physicians.

That is not just a matter of Medicare payment rates. There are

broader issues involved there.

Ms. HOOLEY. But Salem, an area, capital city, there are literally

no doctors taking Medicare patients.

Mr. HACKBARTH. I don’t know what the data are in Salem in particular but we do know on a national basis the access continues to

be pretty good. It wouldn’t necessarily stay that way as Chairman

Pallone mentioned in his statement if we had successive years of

cuts in rates. We do believe that would affect access but we are not

seeing that in the national picture right now. As for the second

question about low cost states being penalized to some extent, let

us put it this way, they are not rewarded under Medicare for their

efficiency and systems like SGR that cut across the board, hurt the

low cost states maybe more than others. That is why some commissioners think that we ought to go to a geographically-based system

of targets that applies the greatest pressure in the high cost states,

not the low cost states like Oregon.

Ms. HOOLEY. I am talking about Oregon in general, not just my

district, you have places in rural communities because of the high

number of beneficiaries there, and the low reimbursement doctor’s

offices are closing. There is one doctor’s office in the area. I mean

they just simply can’t afford to take another Medicare patient, and

it is interesting because if you look at the rest of Oregon it is amazing, and that is why I tell my friends you better get a young doctor

is if they have other insurance they seem to be able to get accepted

53

into that doctor’s practice but if they have Medicare they don’t get

accepted into the doctor’s practice.

Mr. PALLONE. I am going to have to stop you guys. I know you

only got into the second of the three questions but I will just ask

you to respond to complete the second and get to the third in the

record because we are just over, that is all.

Mr. HACKBARTH. On this issue of access in rural areas, I think

it is a critical question.

Mr. PALLONE. OK. Just if you could summarize because we already went over almost 2 minutes.

Mr. HACKBARTH. What doctors tell us is that almost 60 percent

of rural physicians say they accept all new Medicare patients. That

is what physicians tell us.

Mr. PALLONE. And, Mr. Hackbarth, if you could just finish the

rest of it in a written response, I would appreciate it. Thank you.

Ms. HOOLEY. Thank you.

Mr. PALLONE. Next we have our ranking member, Mr. Barton, of

Texas.

Mr. BARTON. Thank you, Mr. Chairman. We are going to disagree

a number of times this year on solutions but I think we have bipartisan agreement that this particular issue is a huge problem trying

to find a way to adequately reimburse our physicians while at the

same time not bankrupting the Medicare trust fund and the part

B premium payers. The recipients, our Medicare beneficiaries, is an

ongoing problem. I wrestled with it. Mr. Tauzin wrestled with it.

Now you and Mr. Dingell are wrestling with it. So some time this

year when we get to the solution stage, we are certainly going to

be vigorous probably in debating solutions but we don’t disagree

that this is a problem.

Did your group prepare the table that lists all the costs of the

proposed solutions or is that something that CBO has done? It has

15 different alternatives from a freeze payment rate in 2008 and

hold future updates at current law levels. That cost $4.2 billion.

And then No. 15 is an automatic MEI update that replaces the

SGR and holds the premium payers harmless, and that is $330 billion. Is that your table?

Mr. HACKBARTH. That is CBO’s. It is not ours. My guess is it is

a CBO table.

Mr. BARTON. OK. Have you seen that table?

Mr. HACKBARTH. The $330 billion figure is not the one that I

have seen. The one I have seen is I think $260 billion, $270 billion

for repeal and replaced with MEI.

Mr. BARTON. Do you have a cost estimate for whatever MedPAC

has said is the solution?

Mr. HACKBARTH. We don’t do cost estimates, Mr. Barton. That

is——

Mr. BARTON. That is convenient.

Mr. HACKBARTH. Well, that is CBO’s institutional responsibility.

We are both congressional support agencies and that is their responsibility, not ours.

Mr. BARTON. Well, what is your policy recommendation or recommendations then?

Mr. HACKBARTH. Well, what we have recommended is not just in

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tions to improve pricing accuracy and to encourage efficiency in

Medicare, and I would be happy to go through it but I have a feeling that I am not going to have a chance to.

Mr. BARTON. So you don’t have a recommendation on this chart

that CBO has put out about a specific recommendation like the 1

percent update in 2008 and 2009 or an MEI update in 2008?

Mr. HACKBARTH. On this specific issue, Mr. Barton, of what the

annual increase should be for physicians what we recommend is

that that not be set in legislation but that the Congress look at it

year by year to determine what the appropriate increase is so——

Mr. BARTON. Do you advocate abolishing the SGR?

Mr. HACKBARTH. That is the issue on which the commission is

divided, Mr. Barton.

Mr. BARTON. So there are some that say it should be and some

that say it shouldn’t be?

Mr. HACKBARTH. Yes. Roughly half the commission would like to

see a system of expenditure targets retained although not applied

only to physicians but rather to all providers.

Mr. BARTON. Now what we did last year was put some quality

measures and put some bonus payments and we just did a very—

not a permanent change but created a small incentive program for

the next year or so. Does MedPAC support that?

Mr. HACKBARTH. We support the general idea of quality reporting and of rewarding that.

Mr. BARTON. But on the issue of the cost your group doesn’t try

to cost any of these alternatives out?

Mr. HACKBARTH. No. CBO does the cost estimate.

Mr. BARTON. Mr. Chairman, I am going to yield back and look

forward to working with you and Mr. Deal and Mr. Dingell to try

to find a way out of this mess.

Mr. PALLONE. I appreciate that. Thank you.

Mr. Green of Texas.

Mr. GREEN. Thank you, Mr. Chairman, and following our former

chairman of the committee, I know last year he told me many

times he wanted to have a permanent fix to it, and we are in the

same situation, and even in the odd numbered years like I said

earlier as well as in the even numbered years. Mr. Hackbarth, we

often hear from physicians who describe their payment situation

under Medicare when they are comparing it to hospitals, specifically we hear that hospitals get annual updates with no global target or automatic cuts if the volume grows too much. Can you speak

to the differences in the payment systems for the physicians and

the hospitals?

Mr. HACKBARTH. Well, again this is the issue that I referred to

earlier. There are some commissioners who believe that treating

hospitals and physicians differently in this regard is inequitable,

and Medicare has a total cost problem, not just a physician cost

problem. And so if there is an expenditure targeted it ought to be

applied equally to hospitals and physicians.

Mr. GREEN. OK. Physicians get paid for each service they provide

while hospitals get paid on the episode or group of services, and

could Medicare group those services together and pay physicians

for a whole episode rather than a service by service fee, and in your

opinion would this payment practice encourage care coordination?

55

Mr. HACKBARTH. We have recommended that Medicare begin

looking at physician resource use on an episode basis so how much

does it cost to care for a patient with say diabetes as opposed to

just looking at office visits and imaging, everything separate. Our

recommendation is that in the first instance we provide that information to physicians on how their patterns and practice compare

to their peers and do it on a confidential basis. As we develop the

tools and experience with them then the analysis might be used

with payment rates and higher updates, for example, for physicians

that are consistently efficient in their episodes, so that is a direction that we think we ought to go.

Mr. GREEN. Thank you. Mr. Chairman, I would hope that we can

look at, for example, whether diabetes patients or something else

instead of one treating each visit, it is actually the episode of visits

similar with the hospitals. Since my co-sponsor on the bill on imaging, Congressman Pitts, asked a question about—highlighted

MedPAC’s comments about the importance of imaging in primary

care and care coordination, and Ms. Capps mentioned how nowadays there is lots of imaging being done in doctor’s offices compared to hospitals, let me ask you a different question. Two-thirds

of Medicare spending goes for individuals with more chronic conditions, and I agree with your recommendation that we should encourage care coordination and more emphasis on primary care.

However, the Medicare system is designed both in delivery and

financing health care to address acute condition specific problems.

Can you discuss how this element of the Medicare system serves

as a barrier to effective primary care and care coordination, and

would it take a fundamental change in the system either through

CMS or through statute to insure that proper delivery of primary

care and the care coordination, again this fits in with the first

question, but do we need the structural change to do that?

Mr. HACKBARTH. Yes. There is going to need to be a structural

change in all likelihood. A big part of it is going to require legislation to do. There are some things that can be done without legislation but, for example, the medical home idea where we pay a primary care physician to work with a patient over time, particularly

a patient with chronic illness, that requires a new payment method

that will have to be legislated. We are looking at different models

for how best to do that and have demonstration projects underway

that will hopefully give us guidance.

Mr. GREEN. Does MedPAC have a time frame for that study and

those models?

Mr. HACKBARTH. Well, the demos of course are being run by

CMS, and each has its own schedule. The one that is most advanced at this point is the Medicare health support pilot that was

initiated I guess under MMA. Some of the other demonstrations

are still in the developmental stage.

Mr. GREEN. Thank you, Mr. Chairman. I yield back my time but

again I would urge—hopefully our committee would look at that because again I think it might end up hopefully saving money but it

also makes sure that physicians know that patient is with him and

the whole episode of their illnesses particularly the chronic, the

numbers that we saw. Thank you, Mr. Chairman.

56

Mr. PALLONE. Thank you. And you raise some very important

questions that we have to look into, so thanks again. Mr. Shadegg

of Arizona.

Mr. SHADEGG. Thank you, Mr. Chairman, and I appreciate your

holding this hearing. It is yet one more in a series that I have participated in what continues to puzzle me. I must begin by saying,

Mr. Hackbarth, that I sympathize with you. As I hear my colleagues complain about not liking your product, it seems to me that

the next thing we need to do, and I want to make sure this is understood to be tongue in cheek, is create a commission to study

your commission. I think you have been given an impossible task.

In my tenure in Congress, I have watched Medicare funding. I have

watched the SGR system fail year in and year out. I have watched

the Congress do what I think I just heard you recommend which

is look at each year and try to figure out the appropriate level of

funding.

What I think you are charged with doing is price fixing or setting

prices appropriately for the entire health care industry and I quite

frankly think that is an impossible task. I also think, and I have

said it here before but I want to say it again, that it is a scandal

that the United States Congress creates a program, promises

health care to a category of people, then discovers that it doesn’t

have enough money to pay the providers to deliver that health care

and so it says, well, we won’t scale back the promised benefits,

what we will do is, quite frankly, cheat or under pay the providers.

I guess that gives me some sense of understanding why the providers then naturally gain where some portions of the SGR have overcompensated some categories of work and others under compensate, and so providers are drawn to the areas where they overcompensate.

Let me ask you first, as I understand your testimony what you

have been able to come up with is two different alternatives, I

gather in part because the commission is partially divided. One is

to repeal the SGR, not replace it, but go to some form of alternative

which I gather would be pay for performance, is that the so-called

path one?

Mr. HACKBARTH. Pay for performance would be part of it but not

the whole thing. Care coordination would be part of it as we just

discussed with Mr. Green. Resource measurement episode based

analysis would be part of it. There are many different pieces to it.

Mr. SHADEGG. The second piece of it as I understand it would be

to actually replace the SGR with a new price setting mechanism

that would apply to all care providers in the hope that that would

reduce the untoward incentives in the current system which has

the SGR just setting position rates, is that correct?

Mr. HACKBARTH. Generally speaking, right.

Mr. SHADEGG. To the extent that pay for performance were to be

a part of the first path, who would decide which physicians had

performed or not performed? How do you envision that decision

being made?

Mr. HACKBARTH. One of the things that we have looked and will

come back to is how to institutionalize the process of developing

performance measurements. I think physicians and all providers

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ency in that process and that it be done in accordance with the best

available evidence as opposed to be done in a bureaucratic process.

Mr. SHADEGG. That is the available evidence. Are you envisioning that it would then be—or maybe you haven’t gotten to this

point. My bottom line question is, is physician performance going

to predominantly be measured by patient satisfaction, patients saying we were satisfied, or by external measures other than the expression of patient satisfaction?

Mr. HACKBARTH. I think it needs to be both. It needs to be incorporated in the framework with patient satisfaction and technical

measurements of quality based on best available evidence.

Mr. SHADEGG. I have deep concerns about any system which is

not predominantly driven by patient satisfaction, and I would encourage you if you are going to look at this to look at making—

while I understand there are professional evaluations my cardiologist in whose hands I have put my life knows the other good cardiologists in town and knows the good practices. At the same time

I believe that patient evaluation as it should be, must be a huge

component of this. Let me ask you another question. With regard

to an alternative to SGR you have been asked to look at its failure

and to recommend alternatives. Have you considered or could you

consider in the future a big picture evaluation, that is to say perhaps doing away with government price setting in Medicare altogether, and instead providing people with essentially a stipend or

a fixed amount of money, a tax credit, if you will, and allowing the

consumers of Medicare services to spend that for Medicare services

the way they deem appropriate so that you wouldn’t need a top

down government price setting mechanism but you could use a

Medicare patient driven system because I personally believe that in

all of health care where we have gone wrong is by taking patients

out of the driver’s seat, and I don’t see patients being put back into

the driver’s seat. Is that an issue you could look at?

Mr. HACKBARTH. What we have said is that Medicare needs some

of each, that we believe that there should continue to be the traditional Medicare program but that private options ought to be available to Medicare beneficiaries and that there ought to be a financially neutral choice between the two so private plans can do it

more efficiently and if beneficiaries want to choose them they ought

to have that opportunity to do so. What we object to is paying private plans more than traditional Medicare.

Mr. SHADEGG. My time has expired. But let me just conclude by

saying I am not suggesting necessarily private plans. I am suggesting that—and I would accept this as one portion, one alternative,

putting the money in the hands of the patients and letting them

spend it where they thought it was appropriate so that you use

them to set prices even as a demonstration project. I thank you,

Mr. Chairman.

Mr. PALLONE. Thank you. Ms. Baldwin.

Ms. BALDWIN. Thank you, Mr. Chairman. I have two sort of directions for my questions. Both have been touched on already, but

I hope that you can perhaps explore these a little bit more deeply

with me. The first relates to reimbursement practices in primary

care, and the second goes back to this area of the concept of the

geographical disparities. So first on primary care, I have had the

58

opportunity, as I am sure many of my colleagues have, to meet

with physicians engaged in primary care practices and also to talk

a little bit about the number of medical students who are choosing

to specialize rather than go into primary care practices, and the

trend is of concern certainly away from primary care, family practice or internal medicine studies.

I visited a clinic in my district during our last recess where the

Medicare payment trends were of great concern. It is a physician

group that is only primary care, and the percentage of Medicaid

and Medicare patients that they have and the low reimbursement

rates are such that they have unsustainable losses that they are

experiencing that are increasing in each year. They don’t have any

specialty doctors in their practice with which they could do some

sort of cross subsidy or cost shifting, and in fact they even broke

down in charts that they provided to me the per physician per year

cost to subsidize basically the Medicaid and Medicare services that

they are providing.

And it was very distressing to me to wonder how long they can

sustain such a practice. And so I would ask you how can our payment policies as we look at this, look at a long-term fix, what sort

of hope can I give these primary care physicians, and also with regard to students entering medical school, how can our payment

policies impact this very problematic trend that we are seeing with

regard to the number of students going into primary care.

Mr. HACKBARTH. Improving payment for primary care involves

work on three paths. One is we think there are problems in how

the relative values are set for different physician services that lead

to underpayment of some primary care services, and we have made

some recommendations on that. We think that Medicare might also

look at adding some new codes to the system specifically directed

at rewarding time spent in educating counseling patients, basic primary care activities. Finally, as we discussed already, there are

demonstrations underway that look at rewarding care coordination

specifically through an added payment, a per patient payment, to

cover the cost of care coordination, especially for those with serious

chronic illness, so there are multiple different approaches to improving primary care payment.

As for the supply issue certainly the low income potential for primary care relative to other specialties is a deterrent for some medical students. People who are deeply involved in that process and

medical education, working with medical students, tell me though

that income isn’t the only factor, that other factors that discourage

people from going into primary care are the lifestyle compared to

some of the specialties. It is a harder lifestyle. And finally it seems

as having less intellectual challenge than some of the sophisticated

sub-specialties. So in short we favor increasing payment for primary care in various ways. We shouldn’t have any illusions though

about how easily it will change the supply of primary care physicians.

Ms. BALDWIN. I would love to explore that more deeply. I am

going to not do so because I want to quickly get in a question about

the geographic disparities. We talked a bit about this and I guess

two questions. One is the extent to which MedPAC and CMS has

measured the differences in volume of services provided in different

59

localities so how much of that data exists. And, second, in your report you discuss the option of reimbursing physicians based on subnational geographic areas. I wonder what you mean by that is what

is the most feasible unit of measurement, states, portions of states

or groups of states.

Mr. HACKBARTH. Yes. On the first piece the available evidence on

variation, Dr. Fisher, who is on the next panel, is the expert on

that question so maybe I will let him address it in detail for you.

As opposed to the appropriate geographic unit, roughly half the

commission likes the idea, first of all. We didn’t talk about what

the right geographic unit would be. There is a trade off. As you go

to smaller units you get more precision in the targeting but with

smaller units you get some problems like variability with small

numbers, instability in the numbers from year to year, a risk that

people will start to cross borders to receive their care or physicians

will change location of practices.

And so there is not a clear right answer that I can offer you as

to the right geographic unit, but we can go into that more at another time if you wish.

Mr. PALLONE. We are running out of time. Thank you. OK. I recognize Ms. Wilson of New Mexico.

Ms. WILSON. Thank you, Mr. Chairman. I think I join my colleagues on both sides of the aisle here in agreeing that this sustainable growth formula is unsustainable, and it should be permanently fixed. But I also don’t think it is reasonable to try to mandate consensus among experts if a consensus isn’t really there. I

recognize it is a very difficult problem that thoughtful people and

thoughtful people can disagree. So I appreciate your input. Really

two areas of questions that I wanted to focus on. And the first has

to do with incentives. You highlight a number of areas of possible

incentives or ways to change the system so there are incentives for

providing high quality care and so forth.

Do you think there are any savings inherent in those approaches

or is the recommendation of the commission to put those incentives

in place and allow or indeed encourage those funds to be kept in

patient care?

Mr. HACKBARTH. We do believe that there are savings. We do believe that the better incentives will change patterns of care and

make care more efficient. They are not the sort of savings that are

readily scored by CBO though because they involve behavioral

change over a long period of time.

Ms. WILSON. I also, like some of my colleagues from other rural

states, I am always concerned when people talk about changing the

formulas and making different formulas for sub-national geographical areas, and we saw in the managed care formulas, for examples,

significantly disadvantaged rural areas, and a lot of the formulas

the way they are set up pay much less in rural areas, and I can

understand where the cost of space or the cost of energy may be

different in different regions of the country but the cost of a physician’s time should not depend on where they live. And the value

and the increasing value of their time should not depend on where

they live.

When you talk about sub-national geographic areas, if we were

to do this, have you all done any modeling on which areas or type

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of areas of the country would be winners and which would be losers?

Mr. HACKBARTH. We have not. Again, the commission has not

agreed on that issue of doing sub-national geographic targets, and

we have not made a recommendation to do that, and as a result

we haven’t tried to figure out all of the variations within that category.

Ms. WILSON. So you haven’t gone back and looked at data and

done modeling and said if we had done this what would have happened?

Mr. HACKBARTH. In response to previous requests from Congress

looked at variation by state and how Medicare expenditures vary

by state. Dr. Fisher has looked at it based on hospital service areas

and I couldn’t characterize simply who the winners are and who

the losers are. We can provide a list of the states and who has low

cost and who has high cost. I would be happy to do that.

Ms. WILSON. I appreciate that. I worry that when we start doing

that you immediately start to put pressure on rural areas, and I

have seen it happen in other formulas here, and I also know the

reality is that concentrated population centers in America have

more votes in the House of Representatives, and that is a reality

but it is something I am very concerned about.

Mr. HACKBARTH. The proponents of geographically based expenditure targets believe that that system would be fairer to the low

cost states, many of which have large rural components. Many of

the states that are highest cost have very large urban areas and

so the intent certainly is not to disadvantage rural areas, and in

fact it may benefit many rural areas, many rural states.

Ms. WILSON. If you have any further data on that that you are

able to share or information on it that would help us to expand our

understanding on what that might mean, I would very much appreciate it. Thank you, Mr. Chairman.

Mr. PALLONE. Thank you. Ms. Solis.

Ms. SOLIS. Thank you, Mr. Chairman. I know we don’t have a

lot of time. I did want to touch base regarding the geographic payment locality issue as well. I am not sure what statistics or information you have about Los Angeles County in southern California,

but I am very concerned because as I said earlier in my opening

statement we are losing the ability to attract doctors to come in to

low income underserved areas. And the county of Los Angeles if we

use say a median income or a median formula to pay for reimbursements could actually end up penalizing communities that are

unincorporated, which are part of Los Angeles County, as an example, but have the highest number of seniors that really require and

would be eligible for this type of assistance. So I am anxious to

hear at some point, if not now, to get that information from you.

And then also you mentioned earlier that there might be some

type of attempt to try to compensate physicians that have to do a

little bit more counseling. One of the things that has come up in

the course of my being here on the hill is trying to figure out how

we can help provide for incentives for doctors who do have to spend

more time translating information to immigrant populations to seniors from diverse backgrounds and the notion that they should be

given some additional pay because they are spending more time to

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technically go through and actually explain and interpret every little detail as to the care for that patient.

And then lastly how do we bridge the gap for disparities because

we have so many underserved African-American, Asian and Latino

communities where they typically are not being, for example, given

the same kinds of testing or examinations or vaccinations like influenza. And I have a real concern with that because our communities are being overlooked so if you could please touch on those

three items.

Mr. HACKBARTH. On the issue of the geographic adjusters in

California maybe the most efficient way to deal with that would be

to have a follow-up conversation and provide a letter for you about

Los Angeles County. I don’t know the facts off the top of my head

so we would have to do some research on that. On the issue of the

cost of translation that is not an issue that we have looked at specifically one way or the other.

Ms. SOLIS. It has never come up?

Mr. HACKBARTH. Translation specifically, no, it has not.

Ms. SOLIS. Even the demographic challenges and the case load

that is increasing in the Hispanic population? I find that rather

surprising. I would urge the commission to strongly consider that.

Mr. HACKBARTH. Yes, that is fair enough.

Ms. SOLIS. Disparities, and how do we have kind of a across the

board health examination for communities that typically don’t get,

for example, influenza vaccinations as readily as say the traditional

population.

Mr. HACKBARTH. Yes. Certainly there are disparities in access.

Our focus has been on trying to assure fair payment for all types

of providers. How to change that issue is not something that we

specifically talked about the disparities.

Ms. SOLIS. That is a big issue in our district.

Mr. HACKBARTH. We may come back to that.

Ms. SOLIS. And maybe I could just mention quickly that we have

a tri-caucus that exists in the House; Black Caucus, Asian Caucus,

and Hispanic Caucus, and we are going to be introducing legislation on health care disparities of which many of our seniors are impacted heavily with respect to how to tackle chronic illnesses particularly in the area of diabetes treatment, stroke, cancers, things

of that nature, and would love to share with you that information.

And then something that one of my colleagues brought up that

I have to also touch on is the fact that it is hard to attract physicians and incoming interns, medical interns, into low income service areas. And I understand the need to have more available in

rural areas, particularly on Indian reservations and other low income areas. But in the areas that I represent it is very hard to attract young students and beginning that process early on, not at

their senior year and not at the college level, and what incentives

might we be able to look at since we see this increasing changing

demographic population in the senior community that is going to

live longer, that is going to look a lot different than what we normally have provided treatment to in the last 40 years, and if

maybe there is an incentive or there is initiatives that we could put

forward through the Congress to help you in that manner to help

promote that.

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Mr. PALLONE. Did you want to comment? Do you agree?

Mr. HACKBARTH. In principle but we just have not studied it so

I don’t have anything to offer on behalf of the commission.

Ms. SOLIS. Thank you.

Mr. PALLONE. Thank you. And last but not least is the gentleman

from Texas, Mr. Hall.

Mr. HALL. Mr. Chairman, thank you. As you know, I have two

Energy and Commerce subcommittees working, the Energy Subcommittee on the third floor, and I have been there and not knowing the questions that have been asked, I won’t take his time. I am

sure that the chairman is going to allow us to submit questions

and they will give us answers, and we will do that. But I thank

Chairman Hackbarth for his time and the time of preparation and

the time in appearing here, and the good services you render this

country. I appreciate it, and I am sure this committee and this

chairman appreciates it. I yield back my time.

Mr. PALLONE. Thank you, Mr. Hall. Let me reiterate that we do

appreciate what the commission has done, and I thought it was a

very thorough analysis today. You have taken a lot of questions

here for the last couple hours or so, so thank you so much for all

that you do. And, you know, again I always say we can only expect

you to do what we task you to do. That is always the issue here.

So thanks again.

I would ask the next panel to come forward.

I will start by introducing Mr. Bruce Steinwald, who is Director

of Health Care for the Government Accountability Office, and then

we have Dr. Elliott Fisher, who is a professor of Medicine and of

Community and Family Medicine at Dartmouth Medical School,

and I know that your mom has been ill so I did want to thank you

for coming down here to testify today even despite that situation

with her. I hope that she is getting better and that everything

works out. Thank you.

Dr. Thames, we have seen you many times. Thank you for coming back again. He is Dr. Byron Thames, member of the Board of

Directors of the American Association of Retired Persons. I guess

we will begin with Mr. Steinwald.

STATEMENT OF A. BRUCE STEINWALD, DIRECTOR, HEALTH

CARE, GOVERNMENT ACCOUNTABILITY OFFICE

Mr. STEINWALD. Thank you, Mr. Chairman, Mr. Deal, and members of the subcommittee. Thank you for having me here today. I

am going to briefly summarize the findings of a recently completed

GAO study, but before I do I wanted to speak directly into the

microphone and give you a little pictorial summary of how we got

into the situation we face today. Very briefly, these are the years

covered by the SGR on that exhibit. The bars that are up there

now show the annual increases in the Medicare economic index,

which is about 21⁄2 percent per year, not a great deal.

The next chart shows the annual updates in physician fees under

the SGR system. You can see the updates in the early years of the

SGR were in excess of inflation and the cost of running a medical

practice until 2002 when there was the 1-year decline, and subsequent to that modest updates by result of an act of Congress overriding the scheduled negative updates that the SGR called for. All

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of that was related to increases in Medicare spending for part B

services per beneficiary. You can see in the years 2000 and 2001,

those spending amount increases per beneficiary far exceeded the

updates in the MEI. It is those spending increases that led to the

decrease in 2002, and you can see subsequent to then the spending

increases have far exceeded either the MEI or the update.

And let me point out and emphasize those spending increases

that have occurred in the first half of this decade have both yielded

additional revenue to doctors above the update factor and yielded

additional co-payments on the part of beneficiaries. So with that as

a back drop, let me go on to the current study. We have done two

studies in response to mandates in the Medicare Modernization

Act. The first was a study on the sustainable growth rate itself.

The second was a study that directed us to look at physician compensation generally, and when we consulted with Hill staff and

others about how we might make best use of this direction, we decided to address what are the principle criticisms of the SGR, ones

that we share.

It is a very blunt instrument. It treats all doctors the same. It

doesn’t discriminate between efficient and inefficient medical practices, and it doesn’t provide incentives that operate at the individual physician level. And so we embark on a study that would try

to get out those deficiencies of the SGR. These are generally what

we did up there on the screen. The first thing we did was we

looked at what some health care purchasers, not Medicare, but outside of Medicare are doing to encourage efficiency in medical practice. We looked at a wide range of purchasers. Some of them are

private insurance companies, some of them were provider organizations, and some were government directed including one Canadian

province.

They all do several things, one of which is they look at the

spending of the physicians’ patients, not just for physicians’ own

services but for a full range of services. They create bench marks

for efficiency to try to gauge and identify the doctors who appear

to be practicing medicine inefficiently. They all measure quality as

well as efficiency and have performance measures that combine

quality with efficiency, and they all try very hard to bring their

physicians on board and explain to them what they are trying to

accomplish. And what is listed on the chart are some of the things

that these purchasers do with that profiling information once they

collect it.

They range from simply educating physicians, providing information on how they stack up compared to their peers all the way to

more stringent arrangements including directing patients to receive

care from the doctors who score high on performance measures up

to and sometimes excluding inefficient physicians from provider

networks. By having seen what some provider organizations do, we

then embarked on an examination of Medicare claims data to see

if we could devise a methodology that could identify efficiency in

Medicare and could we do what some of these providers do, and we

selected 12 metropolitan areas in which to conduct this study.

First, we identified patients who appear to be overly expensive

given their health status. It is very important to correct for health

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status because obviously expect patients who have multiple illnesses to consume more services.

Second, we measured not just what these patients were spending

for doctor services but a full range of services and then we drew

a threshold, we tried to see whether these overly expensive patients tended to cluster among certain doctors or were they randomly distributed. In all of the 12 areas that we studied, we found

that there was some clustering of these overly expensive patients

among a relatively few doctors. There was more clustering in some

areas than others. In the Miami metropolitan area, for example,

there was a great deal of clustering over the overly expensive patients.

And then finally having gone through this exercise, we asked

ourselves, well, what is the applicability of the kinds of things that

the other purchasers are doing to Medicare, and we find that there

are some important strengths and differences. Medicare has tools

available to do this kind of identification of efficient practices. They

have a comprehensive claims database on patient consumption of

health care services. They are several hundred thousand physicians

that participate in Medicare so that in almost every community you

can form meaningful comparisons among doctors, and they have

experience in using methods to account for differences in patient

health status.

Mr. PALLONE. I just want you to wrap up because we are going

over.

Mr. STEINWALD. I am wrapping up right now. We are sending a

report to CMS later this week for their review. We don’t think that

this approach is a panacea and it is not going to be the solution

to the SGR problem, but the primary virtue of this kind of approach is that it does get at the problem of SGR being such a blunt

instrument and so inequitable. We hope that CMS will work with

you and others to see if this is one approach that could be included

in a package of reforms to help reform Medicare payment for physicians. Thank you very much.

[The prepared statement of Mr. Steinwald follows:]

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Mr. PALLONE. Thank you, Mr. Steinwald. Dr. Fisher.

STATEMENT OF ELLIOTT S. FISHER, M.D., M.P.H., PROFESSOR,

MEDICINE AND COMMUNITY AND FAMILY MEDICINE, DARTMOUTH MEDICAL SCHOOL

Dr. FISHER. First I would like to thank you for your expression

of concern about my mother. I think she will be fine. It is a wonderful example of the challenges of care coordination that are faced

by Medicare beneficiaries and their children. Mr. Chairman, Congressman Deal, and remaining members of the committee, the recently released report assessing alternatives to the sustainable

growth rate system provides an outstanding analysis of the key

issues and challenges confronting Congress as it considers both

how to reform payment approaches in a period of serious budget

constraints.

The report outlines a broad array of policy approaches that Congress and CMS could and probably should pursue to improve the

quality and cost of Medicare beneficiaries. I agree with almost all

of their principles and many of the specific recommendations. I am

going to focus on the relevance of my own research to the implications for reform and what I believe are some of the principles that

you should pursue. Two full differences in Medicare spending exist

across U.S. regions and across the populations cared for by hospitals and major academic medical centers. These aren’t due to differences in patient needs or the prices of services. Rather they are

due to the volume of care, differences in the amount of care provided to similar patients.

The differences are largely due to what Jack Wennberg and I

have now termed supply sensitive services, things like the frequency of physician visits, use of specialists in lieu of primary care

physicians, use of the acute care hospital as a site of care for patients who might otherwise be cared for elsewhere, and the frequency of diagnostic tests and imaging. Our work has shown convincingly that higher spending regions, higher spending hospitals,

those with higher volume do not provide better care. On the contrary the evidence suggests that higher spending is associated with

lower quality, and more recently that U.S. regions that grew fastest fell further behind in their quality and outcomes.

The research highlights the magnitude of the opportunity to improve the value of Medicare services. It said a little bit with tongue

in cheek recognizing that it would be hard to do but if all U.S. regions could safely adopt the practice patterns of the most conservative regions Medicare spending would fall by 30 percent. The research also provides support for several key payment reform principles that are imbedded in the commission’s pathway two. First,

insuring that incentives to control spending growth apply to all

providers whether through expenditure targets or other means.

Second, striving to reduce regional disparities in spending by applying greater pressure on currently high spending regions. And finally our research provides strong support for the importance of

fostering what the commission refers to as accountable care organizations. These are locally integrated delivery systems that would

have the following key attributes. First, they are large enough to

support comprehensive and effective performance measurement.

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Second, they can provide or manage with others the full continuum

of care, patient care, provided to Medicare beneficiaries. And, third,

they could participate in shared savings approaches to payment reform as an interim step toward fundamental reform of the Medicare payment system.

Accountable care organizations should be a key element of payment reform for the following four reasons. First, most physicians

actually already practice within the context of an existing virtual

multi-specialty group practice. Most physicians make their referrals to other physicians within a local network. Most physicians

admit their patients to a single hospital and work within the context of that hospital and the local physicians who are practicing

with them. Therefore, modest incentives that could prompt physicians to come together around either the hospital or medical groups

would neither disrupt the physician’s current practice patterns nor

disrupt their patients’ experience of care.

These virtual multi-specialty group practices are described in the

commission’s report and currently exist in almost all communities

of the United States. ACOs could be given incentives to control

total Medicare payments allowing budgetary savings with smaller

relative impact on individual provider incomes. Third, performance

measurement at the level of an accountable care organization

would be much more trackable in the near term than any other efforts to measure performance. I have served on the Institute of

Medicine performance measurement committee that reported to

Congress a year ago. We have in the testimony that I submitted

examples of the kinds of performance measurement that could be

readily implemented at the level of an accountable care organization or local entity.

Finally, most physicians continue to practice in one or two physician practices, in small group practices. Accountable care organizations, whether it is large physician groups or built around hospitals, would have the capacity to invest in electronic health

records, improve care management protocols, coordination of care,

the issues that are highlighted as the major problems that we face

in U.S. health care today. We have found that growth in spending

on physician services varies dramatically across these virtual medical specialty groups, and data that is included in the written testimony we have shown that within these groups within the United

States growth rates over the last 4 years ranged between 2.4 percent per year in the slowest growing fifth of current physician practices, so almost 10 percent per year in the highest growing fifth of

physician practices.

We can therefore now identify the ACOs that are most responsible for growth in spending and they should be held accountable

for their contribution to growth in spending but we can also offer

to identify those groups, those who are growing at 2.4 percent per

year or less that offer us a path toward improved value for Medicare. Thank you very much for the opportunity to testify.

[The prepared statement of Dr. Fisher follows:]

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Mr. PALLONE. Thank you, Dr. Fisher. Dr. Thames.

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

DIRECTORS, AMERICAN ASSOCIATION OF RETIRED PERSONS

Dr. THAMES. Mr. Chairman, Mr. Deal, thank you very much for

inviting AARP to testify today. AARP believes that the Medicare

physician payment system should be changed from one that rewards quality to one that rewards quality. AARP recently conducted a survey of our members, current and future Medicare beneficiaries, about their experience with physicians. The vast majority

report good access to and high levels of satisfaction with their physicians but for many the cost of care remains a concern. These

AARP members represent the nearly 43 million Americans who

rely on Medicare for their health care coverage.

Physicians are central to delivery of that care. While we believe

physicians who treat Medicare beneficiaries should be paid fairly.

Our members tell us the program must be kept affordable as well.

Determining how to balance these two needs is a complex yet critical policy problem that must be solved for the Medicare program

to remain strong for future generations. The sustainable growth

rate system which has been widely recognized as flawed does not

distinguish between doctors who provide Medicare beneficiaries

with high quality care and those who provide unnecessary or inappropriate services. Moreover, the SGR has not been effective at controlling the volume or intensity of services leading to higher Medicare spending and greater out of pocket cost for beneficiaries.

The monthly Medicare part B premium set at 25 percent of part

B spending has doubled since 2000. Beneficiaries also face increased cost sharing obligations and higher deductibles when part

B expenditures rise. There doesn’t seem to be an end in sight for

these out-of-pocket increases. Using existing SGR methodology physician fees are expected to be reduced each year at least until 2012.

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

cycle of physician groups lobbying Congress to avoid payment cuts,

doctors threatening to stop taking Medicare patients, and Congress

overriding the SGR at the last minute.

We must find a better approach. AARP believes that ultimately

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

value for the health care dollar. Medicare beneficiaries need and

expect their doctors to provide respective treatment. Payment incentives should encourage high quality, not unnecessary quantity.

A truly sustainable payment system will be built on a foundation

that emphasizes four key elements; one, information technology;

two, greater use of comparative effectiveness research; three, performance measurement including physician resource use; and, four,

enhanced care coordination.

My written statement details each of these but before any

changes to the SGR are made there are a number of factors to consider. First, ultimately repealing the SGR will be quite costly. A

transition to a value-based purchasing framework must not be financed at beneficiary expense. Second, we need to make sure beneficiaries are protected from extraordinary out-of-pocket expenses as

the system is reformed. One such protection would be a cap on part

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B premium increases. Another potential option is to limit the total

part B out-of-pocket costs. Third, elimination of the SGR cannot be

viewed as carte blanche for physicians to maximize revenues

through uncontrolled volume.

Rather, a new payment system should be designed to encourage

appropriate care. Congress cannot continue to avoid the current

problem in the part B payment system. Each year we wait the

problem only gets worse. AARP stands ready to work with Congress and the physician community to develop a workable solution.

Thank you, Mr. Chairman.

[The prepared statement of Dr. Thames follows:]

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Mr. PALLONE. Thank you, Dr. Thames. I will start off recognizing

myself for 5 minutes of questions, and I wanted to ask Mr.

Steinwald a couple questions. You mentioned how in the GAO

study you were judging doctors against their peers in the community, and obviously medicine traditionally follows that local standard of practice. In other words, doctors are judged against their

peers in the community. But when you compare doctors in the community did you still find significant variations in the use of services

for similar beneficiaries?

Mr. STEINWALD. Yes, we did, Mr. Chairman. We divided all beneficiaries into 31 different risk categories so we were really trying

to hold their health status constant. And then within each one of

those categories we took the top 20 percent of beneficiaries who

were spending the most holding risk constant, and we do find variations within the community on how those patients are treated. As

I said before, we found that there tends to be clustering of those

expensive patients among a subset of doctors in the community.

The amount of clustering varies from one metropolitan area to another.

Mr. PALLONE. Now what areas had the most of the outliers, the

doctors that were providing extra care or whatever prescribing

more services than is normal, what areas did you find had the most

of those?

Mr. STEINWALD. Well, we selected 12 metropolitan areas so we

don’t have a survey of the entire country. Of the 12 Miami metropolitan area is what was by far the most extreme, and I think second was Baton Rouge. And then there are others. As I say, all had

some of these doctors but others were less than those two.

Mr. PALLONE. Did you find that there were any characteristics

that the outliers had in common across the 12 regions that you

studied or those 12 metropolitan areas?

Mr. STEINWALD. I should have said that we were only looking at

generalists, not specialists in that study.

Mr. PALLONE. OK.

Mr. STEINWALD. And we don’t have measures of how they differ

from one another. We do have some measures of how their patients

differ though. And, for example, we found that the patients of these

doctors tend to me more frequently hospitalized and especially

more frequently hospitalized multiple times in a year.

Mr. PALLONE. OK. In your testimony you note that CMS has the

tools to identify the outliers, but I mean if they have those tools

why are they doing it? Is it a legislative barrier? Is it something

that Congress has to do to help them move forward?

Mr. STEINWALD. CMS currently has tools that it uses principally

in its program integrity efforts to detect fraud and abuse. What we

are suggesting that they think about doing goes far beyond just detecting fraud and abuse, and if they were in fact to consider doing

some of the things that the other payers I mentioned do, they

would almost certainly need new legislative authority for that purpose.

Mr. PALLONE. OK. Thank you. Thank you, Mr. Steinwald. I want

to ask Dr. Fisher, in your opinion what role does information play

in insuring proper utilization and accurate payment rates? In other

words, should we be alerting physicians who are outliers with reVerDate 11-SEP-98 13:45 Oct 07, 2008 Jkt 000000 PO 00000 Frm 00117 Fmt 6633 Sfmt 6633 Q:\DOCS\110-13 SCOM1 PsN: SCOM1
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gard to the utilization use? Should that information be public or remain private? I know these are touchy issues but what is your

opinion on it?

Dr. FISHER. The role of information is absolutely critical. I highlight two areas that you haven’t mentioned, the need for comparative effective research and performance measurement, but focusing

specifically on the kinds of individual provider profiling that are

being discussed and were highlighted in the GAO report. I think

the key question is around the validity, accuracy, and meaningfulness of the measures that are used to profile the physicians. When

those measures are meaningful and can be fed back to physicians

that provide useful information to physicians and there is good

data from a variety of studies over the last 30 years then physician

feedback and performance information is a useful way to help physicians move toward the middle.

It will not, however, address the problem of underlying increases

in health care costs. It will help improve physician practice. It may

bring physicians back toward the middle of the mean but the problems between Miami and Minneapolis is the mean is that they are

different in the averages, and most of the clinical decisions that

physicians are making are subject to substantial clinical judgment,

cannot be specifically judged to be inappropriate, so the challenge

is how to guide local delivery systems to improve the overall efficiency of care.

If there were one hypothesis I would have about why physicians

or high cost physicians are clustered together is we know well from

our work comparing academic medical centers across the country

that the patients who were cared for by some academic medical

centers within Los Angeles or within Miami are treated very differently by the physicians who work within that particular system,

and what we believe is the driver of the differences in cost between

a high cost hospital and Miami and the lower cost health system

is Miami in terms of per beneficiary cost is the relative capacity of

that system, how many hospital beds they have or beneficiaries

they serve because physicians and hospital physicians will rely on

the beds if they can get their hands on them because it is easier

for us to manage our patients when we have access to a hospital

bed.

Mr. PALLONE. So you wouldn’t want to draw any broad conclusions about how or what information we should provide to physicians or whether we should make information public or remain private. You have to look at a lot of different situations.

Dr. FISHER. I think feedback to physicians with good measures

is very important. I think public release of that information at the

individual physician level is not likely to be helpful. Neither

MedPAC nor the Institute of Medicine was willing to talk about release of information. It depends a lot on the information that you

are releasing, information on how patient-centered care, how effective a physician is at providing patient-centered care. That may

well be important to release at the individual physician level, who

has got good manners, who listens to their patients.

Resource use measures are much more complicated than the

technical issues around those, and measurement and attribution at

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the individual physician level remain a controversial measurement

issue that I think is not yet ready for public release.

Mr. PALLONE. OK. That is helpful. Thank you. Mr. Deal.

Mr. DEAL. Thank you. I am going to try to see if I can put together some pieces of what everybody has said here and see if we

can come up with some general idea of where we can head if we

have the courage to approach designing a new system. And I guess

I would start with the four ingredients that Dr. Thames has outlined briefly, information technology, greater use of comparative effectiveness research, performance measurements including physician resource use, and enhanced care coordination. The other two

gentlemen, do you both agree that those are essential ingredients

of whatever we try to design?

Dr. FISHER. Sure.

Mr. STEINWALD. Yes.

Mr. DEAL. And I think that is also consistent with what we

heard from MedPAC as to the general categories of that. Now when

we go beyond that we have some real problems with how we design

something, and let me focus in on that. Dr. Fisher, you said volume

of services is one of the primary ingredients of driving costs up,

and this is pretty self-explanatory, I think. If we go to a system

like an accountable care organization, I presume the idea would be

that if we are going to set spending targets that instead of it being

a national spending target we would begin to segment that down

into the minutia of even these accountable care organizations having a set target for themselves, would that be sort of the concept?

Dr. FISHER. MedPAC has talked about a concept that would have

the target at a regional level with shared savings models for the

accountable care organizations within those and others subject to

the expenditure target.

Mr. DEAL. We would probably have to do it that way to start

with anyway.

Dr. FISHER. Yes, but I think the fundamental notion of trying to

have the incentives aligned so that accountable care organizations

could benefit from doing all of those four things and reducing the

cost of care that they would receive some of the savings when they

achieved that. That is the fundamental notion.

Mr. DEAL. But it is this cohesiveness and coordination of care

that we are trying to emphasize. Now in that regard if we return

to looking at getting into health IT that we did not finalize last

year one of the big sticking points was the grants and how big the

grant program is going to be, et cetera. It would seem to me that

if we want to do something here that implements that then maybe

in the grants for health IT they ought to be centered in organizations such as this that would give you an overall arching information base rather than just piecemealing it out into pieces that are

disjointed. Does that have some sense to it?

Dr. FISHER. I would certainly agree with that.

Mr. DEAL. Because that is one of the key ingredients that we sort

of all agree to is information technology. OK. Obviously in whatever we set as goals, we have to balance the cost versus quality of

care and the great irony as your study shows is that you don’t

reach the conclusions that you would normally expect that greater

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site of that. Let us then try to take what GAO looked at in the private sector with regard to what they do, and I presume these are

PPOs, these are managed care organizations, and so forth, is that

right?

Mr. STEINWALD. Yes, a wide range of organizations ranging from

traditional insurers to some government-sponsored programs.

Mr. DEAL. OK. But if we are going to begin with these accountable care organizations, them being the umbrella organization that

sort of manages and has responsibility for containing cost and insuring quality of care, are some of the principles that Mr.

Steinwald said that the private sector is doing applicable to them,

and the ones that sort of jumped out at me was giving the enrollees

some financial incentive to see physicians in particular tiers that

meet certain criteria. Now I don’t know how you do that, but is

that something that could be translated into this sector, Dr. Fisher? I suppose I will ask you.

Dr. FISHER. I believe it could. I would probably set it up if I were

a health care czar so that you had several accountable care organizations within a community and patients would be given information about the quality and cost of care there which might influence

both their part B premiums and might encourage them to choose

the higher quality and lower cost systems.

Mr. DEAL. Incentivizing.

Dr. FISHER. Incentivize.

Mr. DEAL. If it is going to affect their premiums, is it going to

affect their premiums in the aggregate which is the way we compute premiums now or are we going to approach the concept of premium allocations based on the efficiencies within an area.

Dr. FISHER. That is a question I probably can’t answer. I can’t

think quickly enough to give you an intelligent answer.

Mr. DEAL. Mr. Steinwald.

Mr. STEINWALD. Well, the payers that we looked at were mostly

tiering for co-payment purposes so the co-payment might be less

when they go see a doctor that is gauged to be high on performance

measures than if they saw other doctors.

Mr. DEAL. Could we make that work in a Medicare system?

Mr. STEINWALD. I think every idea ought to be on the table because the situation that you face is serious enough. It couldn’t be

done under current law but I think it could be considered. And let

me add one thing. It is hard to find much good news in this discussion and from the previous panel as well, but one thing that Dr.

Fisher pointed out that I think could be viewed that way is that

quality and efficiency are not enemies. You can’t have only one of

them. His research and his organization has shown that very often

good quality and efficient care go together. The question is how do

we encourage more within our health care system.

Mr. DEAL. Let me take probably the most difficult of what the

private sector does and ask if it could be applied to a reformed

Medicare system and that was excluding inefficient physicians from

the network. We have concentrated our concerns about doctors who

are voluntarily leaving the system because the inadequacies and

inequities of the current system put those pressures on the good

doctors and many of them are the ones that are leaving. Can we

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rection like the private sector does of saying that if you don’t meet

certain criteria you don’t qualify to serve Medicare patients.

Dr. FISHER. It seems to me there are two parts to that question.

The technical part is that it is feasible to do it. With good measures

it will be feasible to define those providers who could be limited

and are restricted and not allowed to participate in the Medicare

program. The second problem is a political problem and that would

not be one that I could easily answer and that you would have to

address.

Mr. DEAL. It also means that you got to make the Medicare program financially incentivized enough so that doctors want to stay

in the system and it is something they want to participate in.

Thank you, Mr. Chairman, for being lenient with me.

Mr. PALLONE. Thank you. Dr. Burgess.

Mr. BURGESS. Well, just very briefly, either Mr. Steinwald or Dr.

Fisher, to carry Mr. Deal’s logic a little bit further, is there a risk

of driving out the good physicians if these types of principles are

applied unevenly or in an non-even handed fashion where you only

ended up with the poor performers?

Mr. STEINWALD. Well, you certainly want to have good, credible

measures, and it is one thing to do a statistical analysis of the kind

that we did, but if you were going to take that information and

really apply it more stringently than the program currently does,

I think you would want to supplement it with additional information at the individual physician level. So it is essential that the

measures be good, credible, and fair.

Mr. BURGESS. Since I can’t always count on the chairman giving

me the extra minute that he gave Mr. Deal, let me go kind of

quickly. Mr. Steinwald, you talked about insuring that the incentives applied to all providers. Were you speaking strictly of physician providers or were you talking about all parts of what should

be an integrated Medicare system where hospitals, HMOs, part D

pharmaceuticals would all be considered as part of that financial

landscape?

Mr. STEINWALD. Our approach was different from the one that

MedPAC adopted. What we were suggesting is that physicians be

profiled but not just for services that they provide themselves but

for a full range of services. Research generally has shown about 20

percent of spending is for physician services but they control something like 90 percent so it is their decisions to admit to the hospital

and refer to other services accounts for that other spending.

Mr. BURGESS. Just briefly on the ACOs, Dr. Fisher, you said in

some cases that may be a hospital in a medium size community.

If you are going to use the ACO to help you with the technology

platforms that are going to be available, how do you get around the

star clause? We wrestled with that last time and never really got

past go with that.

Dr. FISHER. There are a number of serious barriers to moving

forward with ACOs, among them the legal barriers to collaboration

among hospitals and physicians. Those would have to be addressed

and Gayle Lewinsky has written a nice piece in Health Affairs

about some of the challenges around addressing gain sharing, and

the importance of doing so in order to improve care collaboration

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ously some legal changes would have to take place if you were to

have independent physicians collaborating with hospitals under the

current legal model.

Mr. BURGESS. If that were the model in a medium sized community where I practiced for over 25 years was a community of 60,000

with an HCA hospital right in the middle of, so presumably that

by default would be looked to as the ACO. How is the accountability then governed?

Dr. FISHER. I think the challenges of defining the legal structures

of the physician organization are substantial but there are models,

physician hospital organization which emerged in the early 1990’s

and then quickly died as capitation was eliminated, independent

practice association models where the physicians could——

Mr. BURGESS. And that was not without financial pain, let me

just underscore.

Dr. FISHER. I understand. But the notion of trying to create some

form of physician group accountability and shared opportunity to

gain——

Mr. BURGESS. And that is exactly the point. Does that accountability derive from the HCA hospital in the middle of the community?

Dr. FISHER. There are models and some of them are discussed in

our testimony and in the Health Affairs article, and I would be

happy to provide those, where hospitals own physician groups,

where physician groups——

Mr. BURGESS. I don’t think you can do that in Texas, that we

have a lot of corporate practice of medicine. But if the hospital is

the notice of that accountability then the physicians surrounding

the hospital while, yes, they make up the medical staff, and, yes,

they are responsible for the bulk of the decisions about what medical services to utilize it is ultimately the hospital answerable to its

owners and boards off site that is going to be the entity to which

Medicare is responding for that accountability. That is, if a bonus

is paid it is paid to the hospital, not necessarily to the physicians

that surround the hospital if their network is so loose that there

is not an identifiable physician’s organization.

Now if there is an identifiable physician’s organization we also

get into some difficulty with the anti-trust statutes as they exist

today because as you know we are not allowed to talk to each other

about what we would or wouldn’t accept as fair and reasonable

compensation for a medical service or hauled up before the FTC

downtown, and while we will eventually get off it costs us $250,000

in legal fees and we are all scared to death of taking that on. Is

that something that you are looking at with the development of the

ACO model?

Dr. FISHER. We are talking with a number of people about how

to try to move it forward effectively, and there are lots of legal barriers, technical barriers and social and cultural barriers to moving

it forward but our general sense is that among all of the strategies

that are out there for improving both the quality and costs of care

fostering better collaboration and coordination among physicians

and between physicians and other providers within the community,

not just hospitals but also nursing homes is an important one to

consider.

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Mr. PALLONE. Dr. Burgess, we are going to do a second round.

We are going to come around again so one more time.

Mr. BURGESS. My minute over isn’t up yet.

Mr. PALLONE. I know, but you will have another 5 minutes so let

us move on. This will be the last round. We haven’t asked you, Dr.

Thames, too many questions so I want to ask you a question. You

are aware CMS has embarked on a voluntary pay for performance

system for physicians in Medicare, and this program asks all physicians to report on a number of measures intended to measure and

improve quality. Of course, now we have the financial incentive to

do so but this did exist, this system previously, and the results so

far have been paltry due to lack of participation. That might

change maybe with the financial incentive. But I wanted to ask

from your perspective, are there certain modifications that AARP

believe should be made to CMS’ current pay for performance efforts

with regard to how they are focused?

Dr. THAMES. Well, sir, we think that the measures that are going

to be used ought to be vetted where particularly say vetted through

the national quality forum because it not only has providers but it

has purchasers and it has consumers so that the measures that you

get are valid. Now we are going to have to see since it is a new

program and I understand not starting very well now whether before the end of the year those incentives really get you the information that you need.

Mr. PALLONE. You want it changed and refocused, if you will, on

these high cost, highly prevalent conditions for which you have the

valid——

Dr. THAMES. Yes. We want it focused on those chronic diseases

that cost the most money in order to get the information that is

most valuable to us sooner.

Mr. PALLONE. OK. I was just going to ask him but I see you are

kind of twitching there. Did you want to say something, Dr. Fisher?

Dr. FISHER. I am nodding my head saying I agree.

Mr. PALLONE. All right. Thank you. That is all I have. Mr. Deal.

Mr. DEAL. Let me revisit one of the other things that, Dr. Fisher,

I think your research indicates, and that is that just as nature abhors a vacuum in the medical field empty beds abhor a vacuum,

new imaging equipment abhors a vacuum when it is not being

used, and specialists abhor a vacuum when their services are not

being called on, so your high cost is in part attributable to those

areas that have more bed space in the hospitals, more specialists

in the community, and I presume if we were to branch it on out

into the imaging more high cost imaging equipment in the community. All of that leads to an escalation of cost, is that correct?

Dr. FISHER. That is correct.

Mr. DEAL. OK. How do we get a handle on that part? I want to

give you a specific example. My state has been a certificate of need

state in Georgia. My legislature is in serious debate right now as

to whether or not to repeal it in its entirety or at least partially,

and I don’t know how to predict what the outcome of that will be.

In looking at the chart even though mine is a black and white

chart, and the color coding I have a little bit of difficulty deciphering, I still think we are probably one of those high cost states even

with out certificate of need law.

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Now we allowed the moratorium on specialty hospitals to expire

last year. I was not one of those who favored allowing that to happen because I think we will see this vacuum that I just alluded to

probably increase as more specialty hospitals come on line. Do you

have any of you have any suggestions as to how should we approach that? Should we take a hands-off approach, which now appears to be pretty much what we are in the posture of doing, and

as we see more states do like mine of taking a hands-off approach

too, aren’t we going to see an escalation of this phenomenon?

Dr. FISHER. I believe you are. I think the challenge we face is

that physician incomes and the incomes of providers within the

current delivery system depend upon through put, depend upon

staying busy, and as fees are cut whether it is in the private market or by Medicare the way to maintain your income is to increase

the volume or adopt new practices such as a specialty on a hospital

or an outpatient facility or an imaging device that the physician

owns themselves. The key to the puzzle, I believe, is in fostering

accountability for future costs. One of the advantages of a model

that is either regional or ideally accountable so that the physicians

have to stare at each other eyeball to eyeball when they are making their decisions the notion of an accountable care organization

is that the best way with a shared savings model even under fee

for service the most effective way to have your incomes be increased in the future is to reduce the recruitment of new physicians to avoid buying new technologies and perhaps to let physicians who are doing too much health services research to remain

competent physicians to step down and stop practicing, as my colleagues have recommended to me.

But the notion of professional birth control is a future strategy

for physicians to be able to maintain their incomes or for hospitals

to control their future growth of services is the way even for the

high cost areas to gain from a shared savings model and slow the

growth of total health care spending.

Mr. DEAL. My concern is how do we put the adequate mechanism

in place to allow that to happen because just as Dr. Burgess is concerned about the physician who may be in effect trapped by the

hospital, I can see a situation where you have competing factions

within this ACO in which somebody who is being responsible is

being penalized because one component within the ACO is not

being responsible. What kind of discipline measure do you have

other than the discipline that we have got the problem with now

of the good actor suffering with the bad? How do you differentiate

even with an ACO even though you break it down into smaller

components? You still have that human nature at play. How would

you address that?

Dr. FISHER. Well, this is not a simple problem. We are in a complicated problem in the Medicare system right now and in health

care in general in the United States. The strategy I think is clear

of moving towards models of accountability for both quality and

cost. A prospective payment system would be much more effective

but it took us 5 years to design the DRG payment system and 6

years to do the RBRBS. The current examples from the physician

group practice demonstration that was mentioned by Chairman

Hackbarth this morning at least the preliminary data talking with

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many of those groups is that they look as though they are doing

the things that you would hope they would do to improve the quality and the cost of care because the potential gains from shared

savings at the large group are quite substantial when you have

large enough groups, so it depends a little bit on how the incentives

and how they play out, so I can’t predict the future but those would

be my thoughts.

Mr. DEAL. On a related subject, does gain sharing in which a

hospital would allow a gain sharing arrangement with a doctor or

a doctor’s group, does it have any liability in terms of minimizing

these creative of maybe extraneous service components?

Dr. FISHER. I believe that well-designed gain sharing arrangements which could avoid the creation of a competing hospital, specialty hospital, and increase in local capacity could be very important.

Mr. DEAL. Mr. Chairman, I want to thank all of these gentlemen.

They have been very helpful to us. Thank you.

Mr. PALLONE. And I also want to thank all of you. I thought this

was very helpful today, and we appreciate your being here and

sharing your thoughts with us. Thanks again. I would also remind

members that you may submit additional questions for the record

to be answered by the relevant witnesses so you may get additional

questions, and those are submitted to the committee clerk within

the next 10 days. And without objection, this meeting of the subcommittee is adjourned. Thank you.

[Whereupon, at 12:45 p.m., the subcommittee was adjourned.]

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