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82–181 2013

STRENGTHENING MEDICARE FOR SENIORS: 

UNDERSTANDING THE CHALLENGES OF 

TRADITIONAL MEDICARE’S BENEFIT DESIGN 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

APRIL 11, 2013 

Serial No. 113–28 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

(II) 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

RALPH M. HALL, Texas 

JOE BARTON, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

Vice Chairman 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Missouri 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

BEN RAY LUJAN, New Mexico 

PAUL TONKO, New York 

(III) 

SUBCOMMITTEE ON HEALTH

JOSEPH R. PITTS, Pennsylvania 

Chairman 

MICHAEL C. BURGESS, Texas 

Vice Chairman 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

CATHY MCMORRIS RODGERS, Washington 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

RENEE L. ELLMERS, North Carolina 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

JOHN D. DINGELL, Michigan 

ELIOT L. ENGEL, New York 

LOIS CAPPS, California 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

GENE GREEN, Texas 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

HENRY A. WAXMAN, California (ex officio) 

(V) 

C O N T E N T S 

Page 

Hon. Joseph R. Pitts, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 1 

Prepared statement .......................................................................................... 3 

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

New Jersey, opening statement .......................................................................... 4 

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

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

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 6 

WITNESSES

Glenn Hackbarth, J.D., Chairman, Medicare Payment Advisory Commission .. 7 

Prepared statement .......................................................................................... 10 

SUBMITTED MATERIAL

Document entitled, ‘‘Ideas for Reforming the Medicare Benefit Design: A 

Historical Year Review of Bipartisan Support,’’ submitted by Mrs. Ellmers .. 54 

Statements for the record, submitted by Mr. Pallone 

USW ................................................................................................................... 56 

CHA, CMA, and MRC ...................................................................................... 62 

UAW .................................................................................................................. 72 

NAHCH ............................................................................................................. 75 

NCPSSM ........................................................................................................... 86 

(1) 

STRENGTHENING MEDICARE FOR SENIORS: 

UNDERSTANDING THE CHALLENGES OF 

TRADITIONAL MEDICARE’S BENEFIT DESIGN 

THURSDAY, APRIL 11, 2013 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HEALTH, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 10:01 a.m., in room 

2322 of the Rayburn House Office Building, Hon. Joe Pitts (chairman of the subcommittee) presiding. 

Present: Representatives Pitts, Burgess, Blackburn, Gingrey, 

Cassidy, Guthrie, Griffith, Bilirakis, Ellmers, Pallone, Dingell, 

Matheson, Green, Christensen, Sarbanes, and Waxman (ex officio). 

Staff present: Matt Bravo, Professional Staff Member; Steve Ferrara, Health Fellow; Julie Goon, Health Policy Advisor; Brad 

Gantz, Policy Coordinator, Oversight and Investigations; Sydne 

Harwick, Legislative Clerk; Robert Horne, Professional Staff Member, Health; Katie Novaria, Professional Staff Member, Health; 

John O’Shea, Professional Staff Member, Health; Monica Popp, 

Professional Staff Member, Health; Andrew Powaleny, Deputy 

Press Secretary; Heidi Stirrup, Health Policy Coordinator; Phil 

Barnett, Democratic Staff Director; Alli Corr, Democratic Policy 

Analyst; Amy Hall, Democratic Senior Professional Staff Member; 

Elizabeth Letter, Democratic Assistant Press Secretary; Karen 

Lightfoot, Democratic Communications Director and Senior Policy 

Advisor; and Karen Nelson, Democratic Deputy Committee Staff 

Director for Health. 

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF PENNSYLVANIA 

Mr. PITTS. The time of 10 o’clock having arrived, the subcommittee will come to order. The Chair will recognize himself for 

an opening statement. 

Nearly 50 million seniors rely on the Medicare program for their 

health care. It is important for us to understand Medicare’s current 

benefit structure and look at ways to modernize it to better serve 

beneficiaries and protect them from catastrophic costs. 

When it was created in 1965, Medicare’s benefit design was modeled on private insurance products available at the time. However, 

while the private insurance market has undergone dramatic 

2 

changes in the last half century, Medicare’s traditional benefit 

structure has remained essentially unchanged. 

Unlike most private insurance today, which has a single deductible for all medical services, Medicare has separate deductibles for 

Part A, hospital services, and Part B, physician and outpatient 

services. While the Part A deductible is rather high—$1,156 in 

2012—the Part B deductible is relatively low—$140 in 2012. 

Medicare fee-for-service also has a complex and sometimes confusing copayment structure. In addition to the Part A deductible, 

beneficiaries also pay daily copayments for stays at hospitals and 

skilled nursing facilities. Depending on how many hospital stays a 

senior incurs in a year, he or she may owe more than one hospital 

deductible for a year. In addition to the Part B deductible, beneficiaries also pay a monthly Part B premium, and generally pay 20 

percent of most charges for outpatient and physician services. 

As Medicare’s current benefit structure has no cap on how much 

out-of-pocket spending a beneficiary can incur, seniors are left open 

to considerable financial risk and uncertainty. They don’t know 

what they will have to pay when they go in for a procedure or test, 

and ultimately this uncertainty threatens every senior with the potential of medical bankruptcy. Due to this financial uncertainty, 

and the lack of comprehensive coverage in fee-for-service, almost 90 

percent of beneficiaries purchase or receive supplemental insurance. 

Everything about our health care system has changed dramatically since the 1960s as health care has become more and more 

complex. The models and standards of care, tests, treatments, 

drugs, and medical breakthroughs that we enjoy today were unknown when Medicare was enacted. In 1965, insurance protected 

us against hospital costs from conditions that were most likely 

fatal—heart disease, cancer, and stroke. Today, we use insurance 

to help manage chronic illnesses and treat diseases, allowing beneficiaries to live for decades and to stay in home and community settings for much longer. 

The only part of our health care system that has not evolved 

since Medicare’s inception is Medicare’s fee-for-service benefit design itself. We don’t give our seniors 1960s medical care—in many 

cases that would be considered malpractice today—so why do we 

continue to give them a 1960s insurance product? 

We have an obligation to modernize Medicare and standardize its 

cost-sharing structure. We should have a single deductible for 

Parts A and B, and we should streamline benefits so that fewer 

seniors will have to purchase supplemental coverage with money 

from their own pocket. We should institute a catastrophic cap on 

out-of-pocket spending to protect seniors from the threat of medical 

bankruptcy. And with Medicare’s unsustainable financial footing— 

according to its trustees, Medicare will be insolvent by 2024, and 

as soon as 2017—we need to expand means testing for higher-income beneficiaries, in order to protect the most vulnerable seniors. 

Let us bring Medicare into the 21st century. 

I would like to thank MedPAC Chairman Glenn Hackbarth for 

agreeing to testify today. In recent years, MedPAC has made many 

recommendations on how to improve the Medicare program, and 

we are eager to hear about some of them. 

3 

[The prepared statement of Mr. Pitts follows:] 

PREPARED STATEMENT OF HON. JOSEPH R. PITTS

The Subcommittee will come to order. 

The Chair will recognize himself for an opening statement.Nearly 50 million seniors rely on the Medicare program for their health care. It is important for us to 

understand Medicare’s current benefit structure and look at ways to modernize it 

to better serve beneficiaries and protect them from catastrophic costs. 

When it was created in 1965, Medicare’s benefit design was modeled on private 

insurance products available at the time. 

However, while the private insurance market has undergone dramatic changes in 

the last half century, Medicare’s traditional benefit structure has remained essentially unchanged. 

Unlike most private insurance today, which has a single deductible for all medical 

services, Medicare has separate deductibles for Part A, hospital services, and Part 

B, physician and outpatient services. 

While the Part A deductible is rather high—$1,156 in 2012, the Part B deductible 

is relatively low—$140 in 2012. 

Medicare fee-for-service (FFS) also has a complex and sometimes confusing copayment structure. 

In addition to the Part A deductible, beneficiaries also pay daily copayments for 

stays at hospitals and skilled nursing facilities. Depending on how many hospital 

stays a senior incurs in a year, he or she may owe more than one hospital deductible 

for a year. 

In addition to the Part B deductible, beneficiaries also pay a monthly Part B premium, and generally pay 20% of most charges for outpatient and physician services. 

As Medicare’s current benefit structure has no cap on how much out-of-pocket 

spending a beneficiary can incur, seniors are left open to considerable financial risk 

and uncertainty. They don’t know what they will have to pay when they go in for 

a procedure or test, and ultimately this uncertainty threatens every senior with the 

potential of medical bankruptcy. 

Due to this financial uncertainty—and the lack of comprehensive coverage in 

FFS—almost 90% of beneficiaries purchase or receive supplemental insurance. 

Everything about our health care system has changed dramatically since the 

1960s as health care has become more and more complex. 

The models and standards of care, tests, treatments, drugs, and medical breakthroughs that we enjoy today were unknown when Medicare was enacted. 

In 1965, insurance protected us against hospital costs from conditions that were 

most likely fatal—heart disease, cancer, and stroke. Today, we use insurance to help 

manage chronic illnesses and treat diseases, allowing beneficiaries to live for decades, and to stay in home and community settings for much longer. 

The only part of our health care system that has not evolved since Medicare’s inception is Medicare’s fee-for-service benefit design itself. 

We don’t give our seniors 1960s medical care—in many cases that would be considered malpractice today—so why do we continue to give them a 1960s insurance 

product? 

We have an obligation to modernize Medicare and standardize its cost-sharing 

structure. We should have a single deductible for Parts A and B, and we should 

streamline benefits so that fewer seniors will have to purchase supplemental coverage with money from their own pocket. 

We should institute a catastrophic cap on out-of-pocket spending to protect seniors 

from the threat of medical bankruptcy.And with Medicare’s unsustainable financial 

footing—according to its Trustees, Medicare will be insolvent by 2024, and as soon 

as 2017—we need to expand means-testing for higher-income beneficiaries, in order 

to protect the most vulnerable seniors. 

Let’s bring Medicare into the 21st century. 

I’d like to thank MedPAC’s chairman, Glenn Hackbarth, for agreeing to testify 

today. In recent years, MedPAC has made many recommendations on how to improve the Medicare program, and we are eager to hear about some of them. 

Thank you, and I yield the remainder of my time to Rep. 

—————————————————. 

Mr. PITTS. At this point I will recognize the ranking member, Mr. 

Pallone, for 5 minutes for opening statement. 

4 

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

Mr. PALLONE. Thank you, Chairman Pitts, and I am very pleased 

that you have decided to consider today’s topic. Improving and 

strengthening Medicare for generations to come is a primary goal 

of mine. In fact, I have dedicated time to ensure seniors have access to affordable health care options and the safety nets that they 

need to age with dignity and respect. 

It is no exaggeration to say that Medicare alone is the most successful health care and anti-poverty program ever, and this is why 

Medicare should be protected and improved, not left vulnerable to 

cuts in the years to come. 

The Affordable Care Act begins those improvements. It reduces 

Medicare spending, extends solvency, and brings growth in per-patient costs to record lows. In addition, preventive services are now 

free of charge to beneficiaries, and we finally have laid the groundwork to reward treatment value over volume. 

I believe more can be done, however. The fact is, we are faced 

with an inevitable reality that our Nation’s baby boomers are aging 

into the program at very high rates, higher rates than we have 

seen in the past. In fact, 11,000 new seniors become eligible for 

Medicare every day. So I think we need to explore the option of 

modernizing the Medicare benefit design. Right now, some beneficiaries already pay too much out of pocket, and for years, my colleagues and I have explored the need for some type of catastrophic 

cap for seniors, in addition to the fact that Part A and Part B have 

such divergent cost sharing and deductibles might seem arbitrary 

and confusing. Why shouldn’t Medicare be more seamless and simple? 

Given that the average beneficiary makes only $22,500 annually 

and already spends disproportionately more on health care than a 

younger person makes this very challenging territory. When you 

change one side of the ledger, it has an impact on the other side, 

and any reform must be done without significant cost shifts to seniors. 

But what Republicans want to do when they talk about reform 

is to cut the structural foundation of Medicare, turn the whole 

thing over to insurance companies, and I can tell you right now 

that that option is simply a nonstarter. In addition, any proposals 

must be carefully examined not by how they might save money but 

how they will benefit beneficiaries, providers and the system as a 

whole. We can’t restructure the program for the sake of generating 

savings, whether that is in the name of deficit reduction or to help 

pay for the SGR fix, because that is bad policy. We must modernize 

the program because it is good for the very real people that it 

serves and will serve for generations to come. We have to modernize because we recognize that perhaps it is not designed the 

most efficient or affordable way, and I stand ready to explore those 

options, but I will not stand by while others lose sight of the importance of Medicare to our Nation’s seniors, and I yield back the balance of my time. I don’t know if any of my colleagues want time. 

Then I will yield back the balance of my time. 

5 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the vice chairman of the subcommittee, Dr. Burgess, for 5 minutes 

for a statement. 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. I thank the chairman for the recognition. 

We have heard it several times this morning already. The 12,000 

new beneficiaries added to Medicare every day put pressure on the 

system and does move it closer towards insolvency. In its current 

form, Medicare will not be able to meet the promise it has made 

in a few short years. It is not a surprise. We expect a program designed in 1965 to adapt to the needs and usage pattern of beneficiaries in the 21st century. Medicare’s current benefit design 

needs to be reformed in a way that more adequately reflects the 

needs and expectations of today’s seniors. 

The first step in moving toward a higher-performing Medicare 

program must be the elimination of the flawed Sustainable Growth 

Rate formula. Last-minute fixes to the formula certainly have burdened this committee, but it has been devastating to beneficiaries 

and providers, producing an unpredictable payment environment 

and has risked beneficiaries’ access to care. Last week, the majority 

along with the Ways and Means Committee released the second 

draft of a proposal to repeal or replace the broken Sustainable 

Growth Rate formula. The proposal realizes that the key to reforming the system is to enable providers to have flexibility to participate in payment and delivery models that best fit their practice. 

There will always be areas where providers choose or need to 

practice in a fee-for-service model. We must also continue to seek 

out innovative models that can adapt to changes in clinical guidelines and best practices, but the heart of the issue remains the beneficiary—the patient. As cost pressures increase, we risk the ability 

to provide access to services for our patients. We must seek reforms 

that provide patients with greater control of their health care. If 

we ask a beneficiary to participate in their health care through cost 

sharing, we are obligated to provide them with transparent cost information so that they can plan for their future needs. It is hard 

to plan for what 20 percent coinsurance means when you don’t 

know what 20 percent is part of. Enabling patients to be more involved in their care not only allows them greater control of their 

health care spending but provides greater protections for patients 

and moves an outdated program into the future. 

We have neglected these problems for far too long. We know the 

structural and fiscal problems in the health care system. The only 

question now is how long will Americans tolerate Congress staring 

at these problems without actually fixing them for future generations. 

I am very grateful to see Mr. Hackbarth back with us this morning. He has been before our committee several times. MedPAC has 

recommended a range of different policies over the years to reform 

Medicare’s benefit structure. I certainly look forward to hearing 

more of these ideas in Mr. Hackbarth’s testimony, and I would now 

like to yield to the gentleman from Georgia, Dr. Gingrey. 

6 

Mr. GINGREY. Mr. Chairman, I thank the vice chairman for yielding to me. 

As a physician for over 30 years, it was my job to engage with 

patients and offer them a straight answer no matter the seriousness of the prognosis, and I think at this point it is incredibly important for Congress to do the same thing, to engage seniors on the 

urgency of Medicare’s fiscal situation and work to explain how 

changes to the current Medicare benefit can decrease personal risk 

and increase the solvency of the program. 

I don’t think that anyone here would disagree that the Medicare 

program of today is in trouble. The hospital trust fund is to set to 

run out somewhere between 2017 and 2024, whoever you believe, 

but clearly it is coming. What will happen once this point occurs 

is anybody’s guess. The looming fiscal disaster must certainly be 

addressed before the fund is exhausted lest we leave beneficiaries 

with unacceptable costs or lack of access to care, or both. 

Mr. Chairman, we must look for ways to improve the Medicare 

benefit not only for our current seniors but to ensure those benefits 

are there for future generations. We have a system that was created in the 1960s, as Dr. Burgess was just mentioning, very few 

adjustments since then. The way we practice medicine today has 

changed, and it is time for the way we pay for medicine to reflect 

that, and I thank you, Mr. Chairman, for calling this hearing. I 

look forward, as I know my colleagues do, to hearing from Mr. 

Hackbarth. He has been with us, as has been said, a number of 

times, and his suggestions for restructuring the benefits and incentives to improve Medicare for this country’s beneficiaries are welcome. So I thank Dr. Burgess, and I will yield back. 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the ranking member of the full committee, Mr. Waxman, 5 minutes 

for opening statement. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. WAXMAN. Thank you, Mr. Chairman. 

For more than four decades, Medicare has been a critical program for ensuring the health and the financial well being for senior 

and disabled people. I appreciate the opportunity to talk about 

ways we can continue to improve the program by broadening the 

protections for beneficiaries and improving the value of the program for both beneficiaries and taxpayers. 

I welcome our witness from MedPAC, Mr. Hackbarth. I appreciate your coming back to our committee. The recognition by 

MedPAC that we should improve beneficiary benefits by putting a 

limit on out-of-pocket catastrophic spending, rationalizing 

deductibles, and making coinsurance and copayments more predictable makes sense, but with any policy, the devil is in the details. 

The median income for Medicare beneficiaries is only $22,500 a 

year. A lot of people think that the elderly are the wealthiest, and 

there are wealthy elderly but the median income is $22,500. Medicare beneficiaries already pay more out of pocket for health care 

than individuals under 65. So any proposal to redesign Medicare 

7 

that leaves beneficiaries holding the bag is not one that I could endorse. 

That is why I am glad to see that a key element of MedPAC’s 

proposal is that it is ‘‘beneficiary liability neutral’’. That is, on average, beneficiary out-of-pocket payment should not increase, and at 

the same time, we need to keep in mind that there will inevitably 

be winners and losers within the Medicare population. 

There are other elements of MedPAC’s redesign option that I believe need more careful scrutiny. MedPAC also recommends adding 

a charge for supplemental insurance policies, whether provided by 

employers or purchased by individuals, to offset the financial impact to Medicare of first-dollar coverage. I think there are two important points to be made here, one, that these are not separate 

proposals. The proposal to reform supplemental coverage is linked 

and not severable from improving beneficiary benefits. This is important because I would hate to see some of my colleagues who are 

more concerned with cutting costs than securing benefits try to do 

one without the other. We also need to carefully assess the impact 

this could have on the near poor, who do not qualify for Medicare 

extra help for their out-of-pocket costs and may not have the means 

to afford any additional costs. 

My second point has to do with the unintended consequences 

that eliminating first-dollar coverage could have on necessary utilization. The problem is that the relationship between cost sharing 

and service utilization is not the same in low-income and elderly 

populations, especially sick, elderly populations, as it is in younger, 

healthier populations. The Medicare population is older, poorer, 

with 50 percent of beneficiaries at or below 200 percent of the federal poverty level, and sicker, with 40% having three or more 

chronic conditions, than the general population. As a result, if we 

make supplemental insurance less affordable or reduce the level of 

coverage, Medicare beneficiaries are at greater risk of deferring not 

only unnecessary care, but necessary care, negatively impacting 

their health. 

As we think about opportunities to improve the benefit package 

in Medicare, we must add protections for beneficiaries and at the 

same time be careful not to generate both predictable and unintended consequences. We must continue to protect our most vulnerable seniors. Finally, we must make sure that we are not using 

program redesign as a pretext for reducing spending by shifting 

costs onto those beneficiaries. 

Thank you, Mr. Chairman. I yield back the time. 

Mr. PITTS. The Chair thanks the gentleman. That concludes the 

opening statements of the members. 

We have one witness today, and our panel today we have Mr. 

Glenn Hackbarth, Chairman of the Medicare Payment Advisory 

Commission. Thank you for coming. You will have 5 minutes to 

summarize your testimony, and your full written testimony will be 

placed in the record. At this point you are recognized for 5 minutes. 

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

MEDICARE PAYMENT ADVISORY COMMISSION 

Mr. HACKBARTH. Thank you, Chairman Pitts and Ranking Member Pallone and Vice Chairman Burgess and Ranking Member 

8 

Waxman. I appreciate the opportunity to talk about MedPAC’s recommendations on redesigning the Medicare benefit package. 

In our view, the current Medicare benefit package is both inadequate and confusing. It is inadequate in the sense that it lacks 

catastrophic coverage, that is, a limit on the maximum out-of-pocket costs that can be incurred by a patient. It is confusing with its 

bifurcated Part A and B structure and a complex system of patient 

cost sharing, a mixture of copayments and percentage coinsurance. 

In our view, the status quo, the current benefit package, is not 

good for Medicare beneficiaries nor for taxpayers. 

Because of the inadequate and confusing nature of the Medicare 

benefit package, many beneficiaries are induced to buy supplemental coverage, often at a very high price. Taxpayers in turn 

must pay for the increased costs resulting from supplemental coverage that often covers even the first dollar of out-of-pocket expense. In our view, the principal winners from the status quo are 

the insurance companies that sell supplemental coverage. It is a 

lose-lose proposition for Medicare beneficiaries and for taxpayers. 

With these inadequacies in mind, MedPAC has recommended redesigning the Medicare benefit package consistent with five principles. First, there should be no increase the average Medicare beneficiary liability for out-of-pocket costs. In other words, the benefit 

package should not be reduced in its actuarial value. We don’t believe that Medicare currently is too rich a benefit package. If anything, it is too lean, given the population served. Second, we believe 

that a redesigned Medicare benefit package should include an outof-pocket limit, that is catastrophic coverage. Third, we believe that 

wherever possible, the Medicare benefit package should be simplified, for example, by substituting fixed dollar copays for percentage coinsurance. Our research with beneficiaries shows that fixed 

dollar copays are much more readily understood and provide some 

comfort to beneficiaries about what their costs will be for particular 

services. Fourth, we believe that Congress should give the Secretary of HHS the authority to modify the Medicare benefit package consistent with the principles of value-based insurance design. 

That means that the Secretary should have the authority to reduce 

out-of-pocket payments for beneficiaries for services that are established by scientific evidence to be of high value to patients. Conversely, the Secretary should be able to increase copayments for 

services that evidence shows are of low value to patients. Finally, 

we recommend that Congress institute a charge on supplemental 

coverage. The purpose of the charge would be to ensure that beneficiaries who elect to buy supplemental coverage share at least a 

portion of the additional costs that that private decision results in 

for the taxpayers and the Medicare program. The premium that a 

beneficiary pays for supplemental coverage only covers a fraction of 

the additional costs that the program incurs as a result of supplemental coverage. 

Let me conclude with three points that I think bear particular 

emphasis. One is that patient cost sharing is an imperfect method 

of controlling costs, albeit a necessary one in the context of a free 

choice of provider, largely fee-for-service insurance program. We 

don’t believe that patient cost sharing should be the only or even 

the principal method of trying to control costs. Indeed, most of 

9 

MedPAC’s work focuses on changing how we pay providers, providing better incentives for high-value care. 

The second point I would like to emphasize is that by giving the 

Secretary the authority to institute value-based insurance design, 

we can improve the targeting of cost sharing, making it less likely 

that cost sharing will have an adverse effect on quality and outcomes. 

Finally, I would like to emphasize that we would not prohibit 

Medicare beneficiaries from buying supplemental coverage, even 

first-dollar coverage, if they so desire. We only think that Medicare 

beneficiaries should face some of the additional costs that decision 

imposes on the Medicare program and the taxpayers. I should also 

emphasize that the supplemental charge we would envision only as 

part of an overall package. All of these recommendations we see as 

an integrated package, not isolated recommendations. 

With that, Mr. Chairman, I welcome your questions. 

[The prepared statement of Mr. Hackbarth follows:] 

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Mr. PITTS. Thank you, Mr. Hackbarth. The Chair recognizes himself for 5 minutes for questioning. 

Mr. Hackbarth, many experts have noted that traditional Medicare is an outdated form of health insurance coverage and needs 

to be modernized. In 1999, AARP’s Public Policy Institute published a paper entitled ‘‘The Effects of Merging Part A and B of 

Medicare.’’ They said, ‘‘Medicare’s two-part system continues to 

mirror the structure of private insurance at the time of Medicare’s 

inception in 1965, a structure that often included separate insurance for hospital and physician care.’’ Do you agree with the AARP 

that Medicare’s separate hospital and physician benefits closely resemble the type of insurance available to consumers in the 1960s? 

Mr. HACKBARTH. Yes. 

Mr. PITTS. Medicare Advantage, a more modern type of coverage 

signed into law in the late 1990s, is also modeled closely after the 

types of insurance available to consumers at the time. Do Medicare 

Advantage plans use separate insurance for hospital and physician 

care? 

Mr. HACKBARTH. No, not to my knowledge, sir. 

Mr. PITTS. Medicare drug plans are even more modern, having 

been passed into law by Congress in 2003. Do Medicare drug plans 

have catastrophic coverage caps? 

Mr. HACKBARTH. Yes. 

Mr. PITTS. Is the traditional Medicare benefit the only type of 

comprehensive coverage in Medicare that does not have a catastrophic coverage cap? 

Mr. HACKBARTH. Yes. 

Mr. PITTS. And for the record, is it MedPAC’s position that Congress should update traditional Medicare fee-for-service to include 

a catastrophic coverage cap, among other reforms, because these 

reforms would benefit seniors. 

Mr. HACKBARTH. Yes. 

Mr. PITTS. Thank you. Nearly 50 years have passed, and Medicare’s model has become outdated. Seniors deserve a modern product that meets their needs and helps them control cost. I think it 

is time for Congress to strengthen and save Medicare, making sure 

that current beneficiaries get what they need and also that future 

retirees can count on the program being there for them one day. 

Now, AARP’s Public Policy Institute paper also states that ‘‘A 

third criticism of two systems of financing for Part A and Part B 

has hindered management of the original fee-for-service Medicare. 

Integrating all of Medicare’s funding sources into one pool of money 

would enhance management of health resources and improve accountability for health spending in FFS Medicare.’’ Can you tell us 

your thoughts on what impact this antiquated two-tiered financing 

system within traditional Medicare has on CMS’s ability to manage 

health spending appropriately, and do you believe it is possible 

that the antiquated manner in which traditional Medicare fee-forservice is financed might be contributing to the amount of waste, 

fraud and abuse lost each year? 

Mr. HACKBARTH. So you are asking about the financing, separate 

financing of A and B with payroll tax used to finance Part B and 

premiums and general revenues for Part B? 

Mr. PITTS. Yes. 

33 

Mr. HACKBARTH. We have not specifically looked, Chairman 

Pitts, at the financing mechanisms and what the implications 

would be for fraud and abuse. We have focused on the benefit design and payment methods for providers primarily. 

Mr. PITTS. Now, you state in your testimony one key purpose of 

insurance is to reduce the financial risk posed by catastrophic medical expenses. To avoid such risk, individuals should be willing to 

pay a higher premium than the average cost of care they might 

face. Can you expand on that idea for us? 

Mr. HACKBARTH. Well, probably the single most important feature of any insurance program is a limit someone can incur. Now, 

the medical expense is that most of it is unpredictable. So any 

given beneficiary in any given year might pay a premium but not 

use the insurance, may not use the catastrophic cost yet you pay 

the premium against the risk that it might be your year to have 

a very serious illness and incur high bills. That is the nature of insurance. A lot of people pay an amount, don’t use the full amount, 

they pay premiums higher than their actual incurred expenses so 

that when their day comes and unfortunately they suffer a severe 

illness, the protection is there for them. 

Mr. PITTS. My time is expired. Thank you. The Chair recognizes 

the ranking member of the subcommittee, Mr. Pallone, for 5 minutes for questions. 

Mr. PALLONE. Thank you, Mr. Chairman. 

Mr. Hackbarth, I am just following up to some extent on what 

the chairman just said. While MedPAC included a unified deductible combining the Part A and B deductible into one unified deductible, in your illustrative scenario you did not actually recommend 

a unified deductible. So why is that? Can you talk about the pros 

and cons of a unified deductible? 

Mr. HACKBARTH. You are correct, Mr. Pallone. We did not specifically recommend a unified deductible. We felt that the precise 

structure of the cost sharing is a decision that ought to be delegated to the Secretary in keeping with the principles of value-based 

insurance design. The argument for a combined deductible is that 

it is simpler and that it is more in keeping with the basic principles of insurance where you want to provide the most protection 

to patients that have the highest cost. The current structure, as 

you well know, has a relatively low deductible on Part B and a significantly higher—— 

Mr. PALLONE. So what is the downside then? 

Mr. HACKBARTH. The downside of moving to a combined deductible is the impact on beneficiaries who use only Part B services in 

any given year. They would have a higher deductible than the current $147 that they have in Part B deductible. 

Mr. PALLONE. All right. Let me ask about SGR reform. I appreciate the fact that MedPAC continues to lead and support SGR reform and I share the sentiment of the commissions that it is past 

time to take action. I also appreciate the recognition that we need 

to move delivery systems and payment systems reform to more 

value-based systems that were included in the ACA like the medical homes and accountable care organizations. But with regard to 

SGR reform, is my understanding correct that MedPAC is not recommending that costs be shifted to beneficiaries? 

34 

Mr. HACKBARTH. Well, we have recommended in benefit design, 

as I said in my opening comment, that the average liability for 

beneficiaries not be increased. 

Mr. PALLONE. OK. So just to clarify further, MedPAC has not 

recommended that an SGR fix be offset within Medicare. Is that accurate? 

Mr. HACKBARTH. We did not recommend that. We believe that is 

Congress’s decision to make. What we have tried to do is offer options for offsetting the cost within Medicare if Congress elects to 

fully offset SGR within Medicare. 

Mr. PALLONE. But you are not recommending that be offset within Medicare? 

Mr. HACKBARTH. We have not. 

Mr. PALLONE. Now, I am concerned that some people are eyeing 

this idea of Medicare benefit redesign as a way to simply get budgetary savings by shifting more costs onto the backs of beneficiaries. 

However, in looking at your redesign recommendations, I notice 

that you recommend beneficiary liability remains neutral, that 

overall beneficiary cost-sharing levels stay the same in aggregate. 

So even though some beneficiaries will see their costs go up and 

some will see their costs will go down, the overall out-of-pocket 

costs for the average beneficiary will stay the same. So am I reading that correctly, that MedPAC doesn’t envision or propose any 

savings from benefit redesign itself? 

Mr. HACKBARTH. From the redesign itself, no, sir. 

Mr. PALLONE. So in your proposal, isn’t it true that the savings 

come from the tax on first-dollar supplemental coverage? 

Mr. HACKBARTH. That is correct. 

Mr. PALLONE. And was keeping beneficiary liability neutral an 

important principle for the commission? Did you want to comment 

on that? 

Mr. HACKBARTH. Yes, it is a very important principle from our 

perspective. As I said in my opening comment, we don’t think the 

current benefit package is too rich. If anything, it is too lean. Our 

principal concerns about it are its inappropriate structure. It is not 

well designed for the needs of the Medicare population, and we 

think it should be restructured. 

Mr. PALLONE. Can you share with us why not cost shifting to 

beneficiaries was felt to be so important? Do you want to comment 

on that as well? I know you have to some extent. 

Mr. HACKBARTH. Well, as I say, we think for the population 

served, which is an older obviously somewhat higher-risk population, this is not a rich benefit package compared to what employment-based coverage offers, for example, and so rather than try to 

achieve savings by cutting benefits, we thought it was better to redesign them. Now, it is possible that if we have a simpler design 

and one that includes catastrophic coverage that some beneficiaries 

will choose to forego supplemental insurance over time, and if that 

happens, we would expect that that might result in lower utilization because there would be most cost sharing at the point of service but it would be the beneficiary’s choice to do that. 

Mr. PALLONE. All right. Thank you so much. Thank you, Mr. 

Chairman. 

35 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the vice chairman of the subcommittee, Dr. Burgess, for 5 minutes 

for questions. 

Mr. BURGESS. Thank you, Mr. Chairman. 

Mr. Hackbarth, let me just ask you, in a Medicare Advantage 

system, would a patient buy supplemental insurance for Medicare 

Advantage? 

Mr. HACKBARTH. Typically, they would not. Medicare advantage 

is offering a different set of tradeoffs, so typically patients have 

lower cost sharing at the point of service in exchange for agreeing 

to perhaps network limitations that they are steered to particular 

providers by the insurer or their benefits are subject to utilization 

management, you know, prior authorization or other management 

controls, so that is the tradeoff: lower cost sharing, more management. 

Mr. BURGESS. I guess I am having a hard time understanding. 

It seems like if someone buys a supplemental insurance policy as 

they enter into Medicare, they are doing the responsible thing by 

putting some of their own dollars into their future health care by 

covering against what would be excessive out-of-pocket costs if they 

get sick. So they are—it looks to me from a physician’s standpoint, 

they are doing the prudent thing. Now, I honestly can’t tell you 

that I ever got a reimbursement check from a Medigap policy, so 

I don’t know. Maybe those dollars never go where they are supposed to. But it looks like the patient is doing the prudent thing 

with doing that, but you seem to articulate a different opinion. 

Mr. HACKBARTH. Well, our view is not for or against the purchase of supplemental insurance. We believe that beneficiaries 

should have the option of buying supplemental insurance, even 

first-dollar supplemental coverage, if that is what they wish. We do 

think that they ought to see more of the costs that result from that 

private decision. The premium that they pay for supplemental insurance reflects only a fraction of the additional costs that result 

from that decision. 

Mr. BURGESS. But ultimately that is why someone buys insurance, correct, so they are not hit with the entire cost of whatever 

the event might be that they are insured against. 

Mr. HACKBARTH. Yes, but even insuring against this event, they 

are underpaying for that cost. The right price for insurance should 

reflect the full cost of the purchasing decision. In the case of supplemental insurance, it does not. It reflects only a fraction of the 

cost. 

Mr. BURGESS. Let me interrupt you because my time is going to 

run. I don’t want to say whose fault is that, but why penalize the 

poor person who is trying to do the right thing and buying supplemental coverage with their own hard-earned dollars? It doesn’t 

make sense to me to penalize or tax that person additionally if you 

want them to be bringing some of their own dollars to the system 

to keep the system solvent. 

Mr. HACKBARTH. But we only want for beneficiaries to see more 

of the cost of the decision that they make. 

Mr. BURGESS. I don’t disagree with you. I mean, I think we have 

anesthetized people as to what health care really costs, and that 

is the argument for the entire health savings account third-party 

36 

payment mechanism that is ubiquitous in health care, and perhaps 

we can talk about that at another time. 

When President Obama was doing his charm offensive up here 

a couple of weeks ago and met with House Republicans down in the 

basement, I have got to tell you, several years ago in one of the 

SGR fixes that I have introduced since coming to Congress, and 

there have been several, but one of them actually did away with 

Part A and Part B and melded them together. I got a lot of 

pushback when I introduced that. So I was surprised to hear the 

president say sort of one of the throwaway lines in answer to a 

question was, we could combine Part B and Part B. I guess as I 

further understand it, that was combining the deductibles. But is 

that a rational approach to dealing with some of these difficulties? 

Mr. HACKBARTH. Well, again, we in our recommendation did not 

specifically recommend a combined deductible. We did recommend 

catastrophic covers both A and B. On the issue of the combined deductible, we think that actually that is a decision that ought to be 

part of an overall redesign of the cost sharing in keeping with the 

principles of value-based insurance design. 

Mr. BURGESS. We do of course end up with some people who 

don’t participate in Part B. They have their Part A coverage because of the payroll deduction that they have contributed throughout their working lives. So it is not a completely universal population. 

Let me just ask you another question. Cardiologists in this country 4 to 5 years underwent a practice upheaval, and largely because of the administrative pricing brought to them by Medicare. 

In other words, to do an echo or a treadmill test in the office suddenly was undervalued and it was overvalued, in my opinion, to do 

that in the hospital, and as a consequence you have seen cardiologists leave their individual practices and be hired by hospitals and 

insurance companies so that the private practice, solo practice of 

cardiology has gone away and yet the technology is changing such 

that, I don’t know, NBC has a special on the other night where Dr. 

Snyderman interviewed Dr. Topol out of San Diego, and with a 

smartphone and a couple of little adapters, he was able to do an 

EKG, an echocardiogram and a continuous transcutaneous glucose 

monitoring. He was providing a lot of care at a very low cost in an 

office setting but we have kind of actually priced him out of business, have we not, with our administrative pricing in Medicare? 

Mr. HACKBARTH. Well, as you know, Dr. Burgess, one of the 

issues that we are working on currently is synchronizing the payment systems between the hospital outpatient departments and 

physician offices. So historically, there have been dramatically different prices paid for the same service based on the location, physician office versus outpatient department. That is the problem, and 

that is skewing incentives, and we think contributing to the migration of physician practices including cardiology practices from outpatient privately owned offices into hospital outpatient departments. 

Mr. BURGESS. But I think Medicare was the cause of that rather 

than the effect, your reimbursement. 

I realize my time is up, Mr. Chairman. I will yield back. 

37 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the ranking member emeritus, Mr. Dingell, for 5 minutes for questions. 

Mr. DINGELL. Mr. Chairman, thank you for holding this hearing 

and thank you for the recognition, and to our witness, thank you. 

You have given us very excellent testimony this morning. 

As you will recall, it is my practice to ask for yes or no answers. 

I invite you, if you can, to give us supplemental information as you 

might deem to be appropriate. 

Mr. HACKBARTH. I will try, Mr. Dingell. 

Mr. DINGELL. We very much appreciate that. 

My old friend Hubert Humphrey once said the moral test of a 

government is how the government treats those who are in the 

dawn in life, in the twilight of life and in the shadows of life. Medicare helps our country meet that moral test by ensuring that our 

sick and elderly have access to care in the time of need. My old dad 

was one of the architects of Medicare, and it has endured as one 

of the great and significant pieces of legislation. 

Now, Mr. Hackbarth, I want to again express my appreciate for 

your fine testimony this morning. You note in your testimony that 

the cost-sharing structure of fee-for-service benefit has remained 

unchanged since 1965. Is that correct? 

Mr. HACKBARTH. Literally, no, it has not. There have been some 

changes. 

Mr. DINGELL. Have there been any really significant changes? 

Mr. HACKBARTH. No. 

Mr. DINGELL. All right. Would you submit that for the record? 

The current fee-for-service benefit has significant cost-sharing requirements for beneficiaries. Is that correct? 

Mr. HACKBARTH. Yes. 

Mr. DINGELL. Almost 90 percent of fee-for-service beneficiaries 

have supplemental coverage. Is that correct? 

Mr. HACKBARTH. Yes. 

Mr. DINGELL. Do you agree that the beneficiaries may choose to 

have supplemental coverage due to cost-sharing requirements in 

the current fee-for-service system? 

Mr. HACKBARTH. Yes. 

Mr. DINGELL. MedPAC has proposed an additional charge on 

supplemental coverage on Medigap and employer-sponsored retiree 

plans. Is that correct? 

Mr. HACKBARTH. Yes. 

Mr. DINGELL. And you have proposed this charge because the 

commission believes that supplemental coverage leads to increased 

utilization and spending. Is that correct? 

Mr. HACKBARTH. Yes. 

Mr. DINGELL. And it would also be fair to say, as you have observed earlier, that it is necessary for us to recoup some of the additional burdens that that imposes on the Medicare trust fund. Is 

that right? 

Mr. HACKBARTH. Yes. 

Mr. DINGELL. Do you think that an appropriate charge would 

be—what do you think would be an appropriate charge on supplemental coverage? 

Mr. HACKBARTH. Can I—— 

38 

Mr. DINGELL. That is not a yes or no answer. 

Mr. HACKBARTH. Good. We modeled 20 percent, a 20 percent 

charge, but we did not recommend a specific number. 

Mr. DINGELL. I would appreciate if you would make some additional submissions to us on that point because it is a very important question. 

Who would be required to pay this charge? Now, we have some 

potentials here. Would it be individual policies? 

Mr. HACKBARTH. We would impose it on the insurance company, 

and then it could be passed through in the premium, depending on 

how the market sorts it out. 

Mr. DINGELL. Would it be on employer-sponsored retiree plans? 

Mr. HACKBARTH. Yes. 

Mr. DINGELL. And would it be applied only to new beneficiaries? 

Mr. HACKBARTH. No. 

Mr. DINGELL. Would it be applied to everybody? 

Mr. HACKBARTH. Yes. 

Mr. DINGELL. I know the Administration seems to be saying that 

these charges will be applied only to new beneficiaries after 2017. 

Mr. HACKBARTH. Yes. 

Mr. DINGELL. Do you agree that the supplemental charge would 

cause Medicare beneficiaries to face additional cost sharing? Now, 

you have some comments on that. Do you want to amplify on that? 

Mr. HACKBARTH. Could you just repeat it again? 

Mr. DINGELL. OK. Do you agree that the supplemental charge 

would cause Medicare beneficiaries to face additional cost sharing? 

Mr. HACKBARTH. Well, certainly the supplemental charge itself 

would be an additional cost. How beneficiaries would respond to 

that is difficult to predict. What we think would happen is, the current beneficiaries may not change their choice of policies as significantly as new beneficiaries coming into the program over time. 

Mr. DINGELL. Now, you have indicated that you don’t intend to 

increase the burden on the population of beneficiaries generally. 

Am I correct in that? 

Mr. HACKBARTH. In our benefit redesign? 

Mr. DINGELL. Yes. 

Mr. HACKBARTH. No. We went to hold that constant. 

Mr. DINGELL. Now, do you agree that the supplemental charge 

could cause some beneficiaries to drop or reduce their supplemental 

coverage due to the additional charge? 

Mr. HACKBARTH. We that it may cause some beneficiaries to 

change their choices. As you well know, there are a wide range of 

supplemental plans. Some have front-end cost sharing; some do 

not. So there might be a move from first-dollar supplemental coverage to policies that have some cost sharing at the point of service. 

Mr. DINGELL. Now, I have to think that a charge on supplemental coverage could result in Medicare beneficiaries not seeking 

out the services and care they need or delaying treatment or care 

until it is too late. I think that is a potential risk but first, is it 

a risk, and second, what do we do about it? 

Mr. HACKBARTH. It is a risk, and this is why we think it is very 

important to give the Secretary to the authority to adjust cost sharing based on the principles of value-based insurance design. In 

other words, reduce cost sharing for services of proven high value 

39 

to patients and perhaps increase cost sharing for low-value services. 

Mr. DINGELL. So you are suggesting the Secretary should have 

authority to adjust those charges but that should be subject again 

to requirements in law that would say he can’t necessarily change 

the overall structure to create a disadvantage to the population. Is 

that right? 

Mr. HACKBARTH. Exactly. 

Mr. DINGELL. Mr. Chairman, I have gone over time. 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the gentleman from Virginia, Mr. Griffith, 5 minutes for questions. 

Mr. GRIFFITH. Thank you, Mr. Chairman. 

I was intrigued with your testimony in regard to secretarial authority to alter or eliminate cost sharing based on the evidence of 

the value of services, and I was wondering if you could expand on 

that because one of my concerns would be, I understand if something has a high benefit, lowering that cost pay, but you could 

theoretically raise the copay so high that people couldn’t afford it, 

even if they really wanted to do that, and I am concerned that for 

a particular patient and a particular doctor, they may make a decision that perhaps universally might not have great benefit but 

could to that patient. I was wondering if you could expand on that. 

My thought was, maybe put caps on the high end. 

Mr. HACKBARTH. So as you know, a number of private insurers 

and employers have been moving towards the idea of value-based 

insurance design. Typically, the focus has been on reducing patient 

copays for services of high proven value. An example would be having low copays for services provided to diabetics or patients with 

multiple chronic illnesses to make sure that they get the care they 

need to prevent worsening of their health and potentially higher 

bills as a result of that. There has been less done in terms of increasing copays for low-value services, probably for the obvious reason that there is more controversial than reductions are. So I 

would anticipate that at least initially most of what the Secretary 

might do with this authority is lower copays. That said, there are 

services that sometimes can be quite expensive but are of low value 

to patients, and rather than prohibit access to those services and 

say oh, you are a Medicare beneficiary, you can’t have that service 

at all, the idea would be to say oK, you can have it but you are 

going to pay a bit more of the cost of that service if it is a proven 

low-value service. 

Mr. GRIFFITH. And I don’t come from a medical background. Can 

you give me an example of one of those that across the country 

would have low benefit and might need to have the fee raised? 

Mr. HACKBARTH. Since I am not a physician either, I would be 

reluctant to do that. What I would say is that, you know, this 

should be done thoughtfully and will be done as part of a notice 

and comment rulemaking process so the Secretary would have to 

publish the evidence to support this low-value assessment, and all 

relevant parties would have the opportunity to contest that evidence and respond to it, and I think that is the way it ought to 

be decided by experts, not by people like me. 

Mr. GRIFFITH. As a representative of the public, and while I generally think experts do a pretty good job, sometimes I have big disVerDate Nov 24 2008 12:37 Sep 17, 2013 Jkt 037690 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-28 CHRIS
40 

agreements with them and I would just have to say that while I 

kind of like the idea, Mr. Chairman, I would want to see—if we 

were to authorize the Secretary to do that, I would want to see 

some kind of a cap on the top of the—as a top number so that you 

wouldn’t be in a position where suddenly a procedure is completely 

voided because the cost is just so horrendous that nobody can justify it except for the extremely rich. So I do appreciate that. 

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

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the gentleman from Utah, Mr. Matheson, 5 minutes for questions. 

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

Hackbarth, for being here today. 

It seems to me that one of the outcomes of your suggested change 

in this benefit design has something to do with overutilization and 

trying to address that issue in terms of having the individual patient have a little more of a consumer orientation. Is that a fair assumption? 

Mr. HACKBARTH. That is part of it, Mr. Matheson, but the most 

important part from our perspective is to improve the benefit package for beneficiaries including catastrophic coverage. 

Mr. MATHESON. I wanted to talk a little bit about a particular 

component of overutilization. I may be getting a little off the specific benefit design topic of this hearing, but I know in your 

MedPAC March report you identified some specific geographic 

areas where there is a strong reason to believe that certain inappropriate billing practices are at play in the home health care industry, and I have seen some data that is pretty phenomenal in my 

mind. I compare my State to Miami-Dade County. I got 190,000 

Medicare beneficiaries in Utah. There are about that many in 

Miami-Dade County. However, there is 700 home health care providers in Miami-Dade County and about 100 in Utah. Home health 

services in Utah cost Medicare a lot less than the services performed in Miami-Dade. The average cost per enrollee in Utah is 

$560. The average cost in Miami-Dade County per enrollee is over 

six times that amount of $3,500. It strikes me that the vast majority of providers in the home health care industry in Utah are doing 

the right thing, and it strikes something is going on in Miami-Dade 

County that doesn’t pass the smell test, and it seems to me that 

it is an important issue for us to look at in how we try to seek out 

these pockets of geographic areas where there is this huge overutilization going on and instead of doing a policy that may affect 

all providers including those that are doing the right thing that we 

target those who aren’t. So in the instance of home health care, I 

was wondering, would it be better for Medicare in terms of saving 

money and decreasing overutilization to scrutinize the issue of new 

provider numbers or to look at reasonable limits on episodes of care 

in these high utilization areas like Miami-Dade County? 

Mr. HACKBARTH. There are two types of problems in home health 

care as we see it, but before I focus on the problems, let me emphasize that we think that good home health care is an essential part 

of good quality care for Medicare beneficiaries. 

Mr. MATHESON. And I agree. 

Mr. HACKBARTH. So in no sense are we against home health care, 

but there is, as you say, evidence that in some parts of the country 

41 

we have extraordinary levels of use and extraordinary number of 

home health agencies and we think indications of fraud and abuse, 

and we have made recommendations for targeted efforts to deal 

with those problems including limits on the number of new agencies in those problem areas, so we think that is an important thing 

to do. 

Having said that, though, across the country, we believe, even in 

the low-use States we are paying too much for each episode of 

home health care. So even where there isn’t that fraud and abuse, 

we believe the rates are too high relative to the costs incurred. 

Mr. MATHESON. In terms of this situation where you have got 

some certain geographic locations where there appears to be extremely high overutilization compared to a peer comparison elsewhere, is it reasonable to assume that this situation is occurring 

in other aspects of Medicare services in this country outside of 

home health care? 

Mr. HACKBARTH. Well, quite possibly, yes. Another area where 

we see extreme variation is durable medical equipment. So post 

acute care in general which includes home health care and DME 

account for a significant portion of the geographic variation that is 

the focus of so much attention in Medicare. 

Mr. MATHESON. We feel like in our State, we practice medicine 

in a way that if the rest of the country did it, we would be saving 

a lot of money with outcomes just as good, and so I think this is 

something, Mr. Chairman, I know it is a little outside of the benefit 

structure of this hearing today but this issue of disparate discrepancies in utilization across different geographic areas is something 

I think is worthwhile for us all to take a look at and provide some 

real opportunity for some savings. With that, I will yield back. 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the gentleman from Kentucky, Mr. Guthrie, 5 minutes for questions. 

Mr. GUTHRIE. Thank you, Mr. Chairman, and I would like to follow up a little bit on what my friend from Utah was talking about, 

because you have talked about and you mentioned again the high 

margins in home health, and I know home health, in my understanding, has been cut, what, 21 percent since 2010 and for publicly traded home health—that is the information I was able to 

get—before tax margins in 2009 were 13.4 percent, in 2012, 3.9 

percent. I think there is four publicly traded. And after tax margin 

in 2012 was 2.5 percent. So it seems like if you had more in Miami, 

you would get better competition, so it is kind of counterintuitive 

how that works. 

And I guess my question is, you have a report that had the margins. What was your methodology in that report? 

Mr. HACKBARTH. We used Medicare cost reports, so in contrast 

to the publicly traded companies, what we are looking at is Medicare-specific profit margins whereas for a publicly traded company, 

we would be getting a combination of Medicare margins and margins on private insurance as well. 

Mr. GUTHRIE. OK. 

Mr. HACKBARTH. So it is an apples-to-oranges comparison. 

Mr. GUTHRIE. Well, thanks for that. On the supplementals, so 

you were saying the number you have suggested—I know you 

42 

didn’t recommend it—is 20 percent, or looked at 20 percent should 

be actually added to the—you said charge to the insurer but the 

premium should be 20 percent higher to reflect the true cost to the 

taxpayer for buying supplemental—— 

Mr. HACKBARTH. Yes, so the example that we modeled was a 20 

percent charge that would be imposed on the insurance. How that 

would affect the premiums would depend on, you know, market 

competition and different markets. In some cases, it might be all 

passed on. In other words, it might not be. 

Mr. GUTHRIE. So the additional cost that you are trying to capture is what the supplemental policy does in terms of utilization? 

Mr. HACKBARTH. Increased utilization, so our analysis shows that 

beneficiaries that have supplemental coverage use about one-third 

more services after adjusting for differences in age and risk, etc. 

Mr. GUTHRIE. Because the more likely you are to use the system, 

the more you—so the sicker you are, the more likely you are to buy 

a supplemental policy? 

Mr. HACKBARTH. But in our analysis, we adjust for risk. 

Mr. GUTHRIE. Well, thanks. I yield back my time. 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the gentleman from Texas, Mr. Green, for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

Mr. Hackbarth, thank you for appearing today, and again, thank 

you for a lot of the information we worked on for many years. 

MedPAC’s proposal for benefit redesign is careful to point out that 

aggregate beneficiary cost sharing would be kept the same. You 

point out in your testimony that the reason for this is the commissioners’ judgment that traditional Medicare’s benefit structure is 

not too rich, especially for the population covered. One of your 

goals is to protect the beneficiaries against high out-of-pocket 

spending while not reducing the actuarial value of the benefit package. Can you explain what you mean by the benefit package not 

being too rich? 

Mr. HACKBARTH. Right. So a way to judge the richness of a benefit package is, what percentage of a patient’s costs are paid 

through insurance as opposed to out of pocket. Using that as the 

standard, we don’t think that the percentage paid by Medicare of 

total beneficiary costs is too high. In fact, if anything, it may be 

too low. So we accepted as a starting point that we ought not be 

cutting the amount paid by Medicare that would put too much of 

a burden on beneficiaries. We felt like there were a lot of things 

we could do to make the package better including providing catastrophic coverage and making it simpler. We thought that those 

changes in turn might cause some beneficiaries to say, you know, 

I don’t need to pay $175 or $200 a month for supplemental insurance, which is a big burden on many beneficiaries as well. 

Mr. GREEN. Frankly, in our area, $175 or $200 a month is pretty 

small. I have seen some quotes for that. 

Now, switching gears. A lot of attention has been given to supplemental insurance plans like you just mentioned in Medicare, 

particularly those provided by employers or Medigap plans purchased by individuals. There is a lot of concern about Medicare patients not having enough skin the game, so to speak, because their 

supplemental policies often pick up deductibles, copays and coinVerDate Nov 24 2008 12:37 Sep 17, 2013 Jkt 037690 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-28 CHRIS
43 

surance. As I understand your proposal, charging or paying a premium for this first-dollar supplemental insurance is intended to offset the cost of some of the other benefit design changes? 

Mr. HACKBARTH. Well, the overall package that we modeled including the catastrophic coverage and the new structure of copays 

would have resulted in a modest increase in Medicare expenditures, about 1 percent, and so in our package we combined that 

modest increase with this 20 percent charge on supplemental insurance and the net result of those two things would be a modest 

reduction in total Medicare expenditures of about one-half of 1 percent. 

Mr. GREEN. I understand that correctly. Is it true that cost sharing reduces both necessary and unnecessary care? 

Mr. HACKBARTH. Yes. That is what the evidence shows, and that 

is why we think that giving the Secretary the authority to do 

smarter cost sharing, not just across the board but targeted based 

on value is so important. 

Mr. GREEN. And I understand that we want patients more active 

in their decisions on their care but that may work for some of us 

that are younger elderly patients but a lot of our older patients 

how are sicker, they just may take a more passive role in their care 

and their decision making, and Mr. Chairman, I remember I was 

a State legislator in the 1980s and we had a Senator from Texas, 

Lloyd Bentsen, who worked on trying to do catastrophic and reform 

Medicare, and somehow the seniors got Congress’s attention, and 

I remember talking to Senator Bentsen at that time and he said 

we just went too far for what our seniors would accept, and it was, 

you know, a revolution by those under Medicare almost in the late 

1980s. 

Mr. HACKBARTH. In fact, I worked in what was then HCFA, the 

Health Care Financing Administration, during that period, so I remember it well. 

Mr. GREEN. And I understand, Mr. Chairman, there are some 

good parts of this but we need to look at it because a lot of seniors 

would like not to have to have that high monthly premium for their 

Medigap coverage, if we could somehow equal it out. 

Mr. HACKBARTH. And unfortunately, I think the current structure without catastrophic coverage almost compels seniors to pay 

that high monthly premium for supplemental insurance because 

the Medicare package does not offer them the most basic feature 

of a good insurance plan, an out-of-pocket limit. 

Mr. GREEN. Thank you, Mr. Chairman. 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the gentlelady from North Carolina, Ms. Ellmers, 5 minutes for 

questions. 

Mrs. ELLMERS. Thank you, Mr. Chairman. 

Mr. Hackbarth, I have a document here which is basically a list 

of bipartisan quotes from both conservative and progressive authors relevant to the proposals, many of which you are proposing 

today, and I will just say that drawing from it, President Obama’s 

National Commission on Fiscal Responsibility and Reform released 

in 2010 quoted—this is a quote taken from that bit of information: 

‘‘Currently, Medicare beneficiaries must navigate a hodgepodge of 

premiums, deductibles and copays that offer neither spending preVerDate Nov 24 2008 12:37 Sep 17, 2013 Jkt 037690 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-28 CHRIS
44 

dictability nor protection from catastrophic financial risk. The ability of Medicare cost sharing to control costs either under current 

law or as proposed above is limited. Do you believe—and I think 

you can probably just give a yes or no answer to this. Do you believe that MedPAC’s reforms ad they encourage more predictable 

out-of-pocket costs and limit on catastrophic costs may allow seniors to better plan for balance in their future health care and financial needs? 

Mr. HACKBARTH. Yes. 

Mrs. ELLMERS. Thank you. In 1995, Henry Aaron of the Brookings Institute and Robert Reischauer of the Urban Institute had 

this to say about combining Medicare Part A and Part B: ‘‘Whatever rationale may once have existed for the distinction between 

services and Part A and Part B medical technology, the development of new reforms and service delivery and new patient structures have rendered it obsolete.’’ I raise this point because we think 

it is important as part of the conversation today that we all understand that Medicare traditional benefits are obviously outdated and 

cause unnecessary harm for our seniors as a result. There again, 

in your opinion, yes or no, do you believe the concept of combining 

Part A and Part B is a good Medicare idea? 

Mr. HACKBARTH. Yes. As I said earlier, our recommendation is 

for a combined A and B catastrophic limit. We have not specifically 

recommended an A and B combined part. 

Mrs. ELLMERS. And do you believe that the concept of this can 

be characterized as a Republican idea? 

Mr. HACKBARTH. Well, this package that I have described today 

was unanimously recommended by the members of MedPAC, 17 

members of various political persuasion. 

Mrs. ELLMERS. So basically you would have to say no then? 

Mr. HACKBARTH. We are a nonpartisan agency and we really try 

to live up to that billing. 

Mrs. ELLMERS. To be bipartisan. OK. The AARP’s Public Policy 

Institute had this to say about the traditional Medicare benefit designed in 1999: ‘‘Medicare, widely considered to have been successful in improving access to care and lessening the financial burdens 

of health care for older Americans, is also viewed as a program in 

need of a more updated management structure. The two-part system that drives many of its payments and revenue policies almost 

certainly would not be adopted if the program were being designed 

today. The current design reflects some factors that while relevant 

when Medicare was initiated in 1965 are not now pertinent.’’ In 

your opinion, do you believe that the current design of Medicare 

traditional benefits reflects some factors that may have been more 

relevant in 1965 as opposed to now, 2013? 

Mr. HACKBARTH. Yes. 

Mrs. ELLMERS. Wonderful. I have a couple minutes. We are going 

to be taking part—Congresswoman Marsha Blackburn and I are 

going to be taking part in a committee idea lab, basically just 

bouncing some ideas and thoughts, after this hearing. Some of the 

proposals outlined by MedPAC will be included in our proposal and 

some of the questions we are going to be taking. I look forward to 

working with this committee over the next months to explore these 

ideas and push forward meaningful Medicare reforms that serve 

45 

the best interest of Medicare seniors, and at this time I would like 

to ask unanimous consent to insert into the record this piece of information that we have here, this review of bipartisan support. 

Mr. PITTS. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mrs. ELLMERS. Thank you, Mr. Chairman, and I yield back the 

remainder of my time. 

Mr. PITTS. The Chair thanks the gentlelady and now recognizes 

the gentlelady from Virgin Islands, Dr. Christensen, for 5 minutes 

for questions. 

Mrs. CHRISTENSEN. Thank you, Mr. Chairman, and thank you, 

Dr. Hackbarth, for coming back to the committee. I appreciate 

MedPAC’s recognition of the need for added protections, particularly with regard to the out-of-pocket spending caps in your benefit 

design proposal, and I think I understand but don’t necessarily 

agree with some of the ideas behind the proposed reform of supplemental or Medigap coverage, but I am very concerned with the 

level of support and protections for low-income seniors and that 

analyses done on the impact of seniors as a group may not adequate capture the impact on those that are most vulnerable. Every 

study that I have reviewed looking at the impact of the cost sharing on patients and patient behaviors concludes the same thing, 

that patients use less services but do not differentiate between necessary and unnecessary and that those that are poorer and sicker 

are the most cost-sensitive and would be the ones that would reduce the use of services the most. 

So as you know, the Medicare beneficiaries are poorer and sicker 

than the population at large. Twenty-three percent have a cognitive 

or mental impairment. Forty percent have three or more chronic 

medical problems. About half of the beneficiaries have annual incomes below 200 percent of poverty level, and one-quarter have incomes less than $14,000 per year. So these beneficiaries are very 

much the patient population that is at greatest risk for reducing 

the use of necessary medical services or deferring important care 

that results in a preventable hospitalization, and I know you have 

thought about these issues because your proposal builds in protections for those currently covered by Medicaid. What about the other 

low-income seniors and the ones, the 40 percent with multiple 

chronic diseases for whom we don’t really want to create additional 

barriers to care. 

Mr. HACKBARTH. So Dr. Christensen, I agree basically with your 

summary of what the evidence shows about cost sharing, and so I 

want to emphasize again, our goal is not to increase the average 

level of cost sharing but redesign the benefit to make it better for 

Medicare patients and perhaps reduce the need for them to buy 

supplemental coverage. We think that using value-based insurance 

design is very important to get at some of the issues you have identified. We don’t want to increase cost sharing on really high-value 

services, for example, for chronically ill patients. In fact, we may 

want to reduce cost sharing on those. 

With regard to the impact on low-income people, we think that 

there are targeted approaches to dealing with that issue that are 

better than what we now have. Right now, what we have is a system whereby in effect the taxpayers are providing an implicit subVerDate Nov 24 2008 12:37 Sep 17, 2013 Jkt 037690 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-28 CHRIS
46 

sidy for the purchase of supplemental coverage because the taxpayers pick up most of the bill for the added cost. That subsidy 

goes to all beneficiaries rich and poor alike. If the particular concern is low-income beneficiaries as well at might be, a more targeted way to deal with that issue would be to expand eligibility for 

the Medicare savings programs. So right now Medicare beneficiaries that have incomes less than 100 percent of poverty qualify 

to get their Part B premiums and cost sharing paid under Medicaid, but above that level, there is no contribution for offsetting 

cost sharing. Up to 135 percent of poverty, there are subsidies for 

the Part B premium but you still have to pay the cost sharing. So 

if Congress is concerned about low-income people and the impact 

of this on low-income people, a much more targeted approach 

would be to change eligibility for the Medicare savings programs, 

and I would note that the low-income subsidy under Part D has 

higher income thresholds for eligibility than we have in the Medicare savings programs for Part A and B, so there is already a 

precedent, if you will, for higher levels of eligibility. 

Mrs. CHRISTENSEN. Thank you for that. That gives us some idea 

of where to go. 

You talk a lot about giving the Secretary flexibility to set copays 

for high value versus low value, and I have been following the Patient-Centered Outcome Research we created in the Affordable 

Care Act, and I am wondering, do you see that as being helpful, 

their work as being helpful to identify high volume, low value in 

that process? 

Mr. HACKBARTH. Yes. A number of years ago, before the PatientCentered Outcome Research Institute was created, we recommended to Congress that such an organization be created and 

that the federal government support the development of better information for physicians and patients about what works, and so to 

the extent that PCORI can increase the knowledge base that we 

have, that is information that could be used in value-based insurance design. 

Mrs. CHRISTENSEN. Thank you. Thank you, Mr. Chairman. I 

yield back. 

Mr. PITTS. The Chair thanks the gentlelady and recognizes the 

gentlelady from Tennessee, Ms. Blackburn, 5 minutes for questions. 

Mrs. BLACKBURN. Thank you so much. We appreciate that you 

are taking the time to be here, and as Ms. Ellmers said, we are 

going to be spending some time looking at how you do help with 

the solvency, and I want to ask you just one thing. My class, when 

we came into Congress, we were focused on waste, fraud and 

abuse. We did an entire project, Wasteful Washington Spending, 

and of course, Medicare spending continued to come into that picture, and we had example after example of wasteful and fraudulent 

spending and the abuse of just millions of dollars. So do you think, 

in your opinion, do you think that the antiquated method, the feefor-service method, is something that continues to make it possible 

for this continuation of waste, fraud and abuse every year and difficulty in running the traps on this and rooting it out? 

Mr. HACKBARTH. Yes. We think that waste, fraud and abuse is 

a significant problem, particularly in some areas of the program. 

47 

Earlier we were talking about home health care is an area where 

there is a lot, and where Medicare payments are really generous, 

and we think they are generous for home health care, that is almost an invitation to people who want to make a quick buck on 

Medicare. 

Mrs. BLACKBURN. A lot of quick bucks, it seems like. 

Mr. HACKBARTH. A lot of quick bucks, and durable medical equipment is another area where we think there has been a fair amount 

of waste, fraud and abuse, and in part that is triggered by very attractive payment rates that bring in people who are more focused 

on making money than serving patients. 

Mrs. BLACKBURN. What would you say is the percent of expenditures that are going out the door, those payments going out the 

door? What percent do you think are fraudulent payments? 

Mr. HACKBARTH. We really haven’t looked at that issue. I think 

the Government Accountability Office has made estimates that—— 

Ms. BLACKBURN. Right. They have. I just didn’t know if you kind 

of lined up with them or if you had another opinion of that. 

Let me ask you, looking at that same thought and thinking about 

the solvency and the financing mechanisms, AARP has done reports going back 1998, 1999 looking at merging A and B and then 

looking at the financing end of that. Where do you stand with those 

knowing that people are concerned? We hear about it every day— 

tell me what you know is going to happen with Medicare, are we 

really in danger of going bankrupt. And so as you put your reforms 

forward today, what do you think they will do in helping with the 

solvency? If we did your reforms, how long would it encourage the 

solvency of Medicare? How many more years would we get out of 

this? 

Mr. HACKBARTH. Well, that is a question better directed to the 

Medicare actuaries. What we have outlined is a package that would 

have a modest net reduction in Medicare spending on the order of 

about one-half of 1 percent so that, you know, $2.5 or $3 billion a 

year, $25 or $30 billion over 10 years. Now, what that assumes is 

a 20 percent charge on supplemental insurance and that nobody 

modifies their decisions, beneficiaries don’t change their decisions 

about purchasing supplemental insurance. If in fact beneficiaries 

start to say, oh, this new redesigned benefit means I don’t have to 

buy supplemental insurance or they buy one that doesn’t have 

first-dollar coverage, then those savings may increase and you 

might go from $2.5 to $3 billion a year to $5 or $6 billion a year. 

Ms. BLACKBURN. Well, yes, and that is always kind of the discussion we get into with whether we are using the static or the dynamic scoring ad the basis that people make their decisions on. 

I have one other question, but in the interests of time, Mr. Chairman, I will yield back my time and submit my third question. 

Mr. PITTS. The Chair thanks the gentlelady and now recognizes 

the gentleman from Maryland, Mr. Sarbanes, for 5 minutes for 

questions. 

Mr. SARBANES. Thank you, Mr. Chairman. Thank you, Mr. 

Hackbarth. 

Could you just talk a little bit about the relationship between the 

proposed benefit design change that would impose a higher costsharing impact on a patient for a lower-value service and a lower 

48 

cost share for a higher-value service, the relationship of that proposal to the change in reimbursement methodology vis-&-vis the 

providers of care, which is another place where we are looking at 

this high-value, low-value dynamic? In other words, you have services now that a primary care physician might be prepared to offer 

but there is really no meaningful reimbursement for it so there is 

no incentive to do it so you can envision a situation where there 

is a service that is not getting covered at all by Medicare and 

maybe want to re-look at that but then at the same time we want 

to examine then what the cost sharing with Medicare’s new obligation would be. It seems to me those have got to be interrelated to 

some degree. 

Mr. HACKBARTH. So we think there are issues on both the patient cost-sharing side and the provider payment side, and I think 

at the SGR hearing a few weeks ago, the two of us talked about 

primary care services, which we think are high-value services that 

are often are underpaid under the existing Medicare fee schedule. 

So in the case of a primary care who has taken responsibility, for 

example, under a medical home to manage patients with multiple 

chronic illnesses, you know, ideally what you might have is lower 

cost sharing for really high-value services for the patient and richer 

payment for the physician for taking on this very important task 

of managing complicated patients. Right now, Medicare has fallen 

short on both the provider and the beneficiary side. 

Mr. SARBANES. In that sense, it is kind of a double investment 

in redirecting or transitioning the emphasis of where the care happens and has to be premised on the idea that even that increased 

investment, which is a combination of higher reimbursement to the 

physician and lower cost sharing on the part of the patient, that 

we are going to see, it is going to yield savings down the road that 

justifies both of those investments we are making. 

Mr. HACKBARTH. Yes. Ideally, we are working both sides, the provider payment and the beneficiary benefit structure, and doing it 

in a synchronized way. That is how we get the maximum impact. 

Mr. SARBANES. Thank you. 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the gentleman from Louisiana, Dr. Cassidy, 5 minutes for questions. 

Mr. CASSIDY. Hi, Mr. Hackbarth. I will kind of scoot over so we 

can see each other. 

I always enjoy your testimony. I always consider it very thoughtful. 

Now, there does seem to be, though—I always make the point 

that people in Washington have kind of a centrally planned economy view of how we do things, and if you will, as great as your 

work is, it truly is trying to anticipate lots of very unique situations coming up for rules that with that anticipation work to very 

unique situations. The very premise seems untenable. Do you see 

my point? 

Mr. HACKBARTH. Well, yes and no. On the one hand, I do believe, 

and I think we have talked about this in the past, that giving 

Medicare beneficiaries options, for example, to enroll in a Medicare 

Advantage plan, a private health plan, is a very important thing 

to do, and I think you agree with that as well. On the other hand, 

49 

I must confess, when I hear people criticize Medicare for its administered price system, it sets me a little bit on edge because I know 

better than most people the problems with administered prices. I 

have spent many, some would say too many hours working on 

these issues in my career. But when I look at Medicare pricing 

compared to pricing in the private sector, our system looks pretty 

good. 

Mr. CASSIDY.No, believe me, I am not defending the private sector, and I actually like your proposal that if you put these physicians at two-sided risk with some sort of accountability as to outcomes and have the quote, unquote, activated patient, that is the 

better way to go. My concern is that if there is an innovation which 

is disruptive, it gives you a better outcome at a lower cost. It will 

be 3 years later before that may be priced accordingly or even 

given a code. 

Mr. HACKBARTH. And, you know, overall, my goal is to decentralize decisions, put as many decisions as possible in the hands of 

physicians and patients, provided that there is accountability for 

the results, both quality and cost. 

Mr. CASSIDY.Now, a conversation just to revisit we have probably 

had before, the ACO, I think you rightly put the physician-patient 

relationship at the center of our ability to improve outcomes and 

control costs. But I see a lot of what we are proposing are actually 

on the suprastructure, if you will. Here is the patient, physician, 

but here is the administrative cost and here is the ACO, etc., and 

that actually seems to be insulating or denying responsibility for 

this integral relationship. Any thoughts on that? 

Mr. HACKBARTH. Well, so let us use ACOs as a potential framework for decentralizing decisions to physicians and patients, and as 

you know, from prior conversations, I believe in that. You know, 

right now we have got an ACO structure which I think is a step 

in the right direction but has some problems with it, and one that 

I would highlight in this context is, Medicare beneficiaries don’t 

share in any of the savings from an ACO. All of the talk is about 

how the physicians, the hospitals and the government share in the 

savings but there are no real rewards for Medicare beneficiaries. 

We think across the board we need to work on improving provider 

payment and bringing Medicare beneficiaries appropriately into 

those discussions and allowing them to share in savings when they 

go to high-value providers. 

Mr. CASSIDY.And we are totally in agreement on that. I think one 

thing I would also point out is that if we are going to bring this 

down to the smaller practice, I am not quite sure how an ACO 

would work for a four-person practice in a rural area, if only because you are only going to get settled up on the positive things 

you have done 2 years after you have done it. If you are in a cashflow-dependent practice, you probably don’t have the wherewithal 

to wait 2 years to have a settling up. 

Mr. HACKBARTH. Although one of the ACO models does involve 

an advanced payment for just that reason, the physician-sponsored 

ACOs. You know, I think it is too early to predict exactly how 

ACOs will develop, especially in sparsely populated areas like rural 

areas, but about half of the current ACOs involve either Critical 

50 

Access Hospitals or Community Health Centers and deal with relatively challenging care delivery systems. 

Mr. CASSIDY.I accept that, but we are going so far down the road 

in terms of planning and implementing political and bureaucrat 

capital in putting these in place. Not knowing where they are going 

to go and seeing that there are flaws inherent in them makes me 

troubled. I mean, is that unique relationship going to be preserved 

when, again, we just don’t know where it is going. 

Mr. HACKBARTH. Well, we certainly believe that preserving that 

relationship is really important, vital, essential, and I may be a little bit more optimistic than you are that in fact the movement is 

in the right direction, but I think we have to be vigilant about it. 

Mr. CASSIDY.I am out of time. I yield back. Thank you. 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the gentleman from Florida, Mr. Bilirakis, 5 minutes for questions. 

Mr. BILIRAKIS. Thank you, Mr. Chairman. I appreciate it very 

much. 

Mr. Hackbarth, your testimony really touches on the importance 

of transparency and predictability in pricing and out-of-pocket expenses for seniors in the Medicare program. No other industry I 

know of would facilitate customers not knowing the cost of service 

until after it has been performed. Can you explain your thoughts 

on the importance of out-of-pocket predictability as it relates to the 

reforms you have presented here today or even for future reforms 

to the program? 

Mr. HACKBARTH. Well, Mr. Bilirakis, the most important thing is 

that we know from focus groups with beneficiaries that they find 

the current benefit structure confusing and more than a little bit 

frightening because they don’t feel like they can predict what is 

going to happen, what the bill is going to be if they get sick or even 

when they go to a physician office because, as Dr. Burgess said, it 

is 20 percent of what. We don’t know. And so what we have advocated is a focus on simplification and protection against overall 

costs, and we think that that will be very reassuring to Medicare 

beneficiaries and perhaps over time will influence their decisions 

about whether they need supplemental insurance and, if so, what 

kind they buy, and that would be a good thing for Medicare. 

Mr. BILIRAKIS. And you of course agree that seniors should be 

more active participants? 

Mr. HACKBARTH. Absolutely. 

Mr. BILIRAKIS. Thank you. You reference in your testimony, and 

I think the gentlelady from the Virgin Islands referred to this, but 

your testimony, the suggestion that Congress should consider giving the power to the Secretary to reduce cost sharing on services 

if evidence indicates that doing so would reduce Medicare spending 

or lead to better health care outcomes, and vice versa. Can you 

elaborate on that? 

Mr. HACKBARTH. Well, I am not sure I have a whole lot new to 

say on that, but we do think that services are of different value to 

patients. Certainly we know that some services are really important for beneficiaries with chronic illness, and we don’t want cost 

sharing at the point of service to be a barrier to that care because 

patients will be worse off with worse health outcomes, and Medicare will incur higher long-run costs. And so as opposed to a crude 

51 

approach to cost sharing which just says same rate for everything, 

you know, 20 percent across the board, we think we can do better 

than that and be smarter about it and have better results for patients. 

Mr. BILIRAKIS. Thank you very much. I yield back, Mr. Chairman. 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the gentleman from New Jersey, Mr. Lance, 5 minutes for questions. 

Mr. LANCE. Thank you, Mr. Chairman. I would be happy to yield 

my time to Dr. Burgess. 

Mr. BURGESS. I thank the gentleman for yielding. 

Mr. Hackbarth, just a couple of follow-up things, and thank you 

for mentioning HCFA. It brought back memories of when I thought 

HCFA was a four-letter word when I was in practice. Back in the 

1990s with the passage of the Kennedy-Castelbaum bill, that behemoth that gave us HIPAA, but it also allowed for the first time the 

sale in this country of medical savings accounts, but if I recall correctly, they were very careful to keep that type of insurance out of 

the Medicare system. Is that correct? 

Mr. HACKBARTH. Yes, I think that is correct. 

Mr. BURGESS. Well, here is my question, and I still have a problem with the concept that—and let me very honest with you here. 

I have got someone in my household who is going to turn 65 this 

year, and we are just deluged with stuff from people wanting to sell 

a supplemental policy. So I can certainly sympathize with the person who looks at all of this information, and oh, my god, I want 

to do the right thing, I want to be prepared for bad things that 

could happen so I will make this investment. It is hard for me to 

believe that that is an erroneous activity for that person for them 

to be engaged in that. You kind of indicate in your testimony that 

a lot of times what they are paying in for that supplemental is far 

in excess of anything they would get from a benefit from the supplemental payment. Why don’t we make it easy to put additional 

dollars away for their health care in a Medicare health savings account that would be available them to draw on and need if there 

were costs over and above what the Medicare benefit would provide 

them? 

Mr. HACKBARTH. Dr. Burgess, we haven’t looked specifically at 

the issue of medical savings accounts for Medicare beneficiaries, so 

I don’t have a MedPAC view on that. 

Mr. BURGESS. Let me just offer you an observation. We talk 

about 10,000, 12,000 people a day entering Medicare. There are 

going to be more and more people who enter Medicare with a 

health savings account that actually has cash in it that was not 

used prior to the time of entering into Medicare. Are you looking 

over the horizon at all and trying to figure out how do you deal 

with—Bill Cassidy called them the activated patient. That is exactly right. Governor Mitchell Daniels when he provided his 

Healthy Indiana program to State employees essentially was a 

high-deductible health plan coupled with a health savings account, 

he made the observation that something magic happens when people spend their own money for health care, even if it wasn’t their 

own money in the first place. But you have got these people arrivVerDate Nov 24 2008 12:37 Sep 17, 2013 Jkt 037690 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-28 CHRIS
52 

ing into Medicare, aging into the Medicare system with a large 

health savings account that they are holding. Why not allow them 

to participate in their care? 

Mr. HACKBARTH. Well, this is an issue of personal interest since 

I am going to be 62 and actually my wife and I have a health savings account. We have been insured under a high-deductible plan 

for quite some time now. So it is an important issue. It is not one 

that we have looked at at this point. 

Mr. BURGESS. Let me just make another observation. I mean, I 

know fee-for-service gets a bad name and a bad rap in a lot of 

ways, and Dr. Cassidy referenced the small practice in rural setting. I always allude to the solo practitioner in Muleshoe, Texas, 

who really can’t participate in an ACO. Yes, they can be acquired 

by a network. But, you know, every time I think of accountable 

care organizations, I have to ask myself, accountable to whom, because as Dr. Cassidy correctly pointed out, there are significant— 

because of the risk factor, there is a significant cash amount that 

needs to be available that is generally not available to the small 

and individual practice so that there is someone else who is going 

to have to be, if you will, a financial or fiscal partner in that endeavor. So it just begs the question, accountable to whom? Is it accountable to the hospital? If the doctor is accountable to an accountable care organization, is that really accountable to the hospital or to the government or to a health plan? It kind of begs the 

question, are they still accountable to the patient, and just speaking from a professional standpoint, I am worried about the direction in which that is going. 

Mr. HACKBARTH. Well, there are to be sure lots of complicated 

issues that need to be examined and resolved around the development of ACOs. I think it is a step in the proper direction. I say that 

because I really am looking for structures that decentralize decisions so that clinicians and patients can make them together subject to accountability on quality and cost. Now, exactly how you set 

the cost and all the issues about the flow of the money, those are 

really important things, and I don’t mean to diminish their importance, but if the goal is getting the federal government out of intrusion into medical practice, structures like this I think need to be 

part of the solution so let us focus on making them better as opposed to undermining them. 

Mr. BURGESS. Thank you, Mr. Chairman. I will yield back, and 

I thank the gentleman from New Jersey for yielding the time. 

Mr. PITTS. The Chair thanks the gentleman. We have a unanimous-consent request. 

Mr. PALLONE. Mr. Chairman, I ask unanimous consent to submit 

for the record various statements from the United Steel Workers, 

California Health Advocates, testimony on behalf of the UAW, a 

statement from the National Association of Home Care and Hospice, and a statement from the National Committee to Preserve Social Security and Medicare, and I believe you have all these. 

Mr. PITTS. Yes. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. PITTS. That concludes the round of questioning. We have 

some members who have additional questions. I remind members 

they have 10 business days to submit any additional questions for 

53 

the record, and I ask the witness to please respond to the questions 

promptly. 

Thank you very much for your time, your testimony this morning. And members should submit their questions by the close of 

business on Thursday, April 25. 

Thank you, and without objection, the subcommittee is adjourned. 

[Whereupon, at 11:39 a.m., the subcommittee was adjourned.] 

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Æ 


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