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85–451—PDF 2013

S. HRG. 113–106 

DELIVERY SYSTEM REFORM: 

PROGRESS REPORT FROM CMS 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

FEBRUARY 28, 2013 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

AMBER COTTLE, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

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

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

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 3 

WITNESS 

Blum, Jonathan, Acting Principal Deputy Administrator and Director, Center 

for Medicare, Centers for Medicare and Medicaid Services, Baltimore, MD .. 5 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

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

Prepared statement .......................................................................................... 27 

Blum, Jonathan: 

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

Prepared statement with attachments ........................................................... 30 

Hatch, Hon. Orrin G.: 

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

Prepared statement .......................................................................................... 50 

COMMUNICATIONS

National Association of Chain Drug Stores (NACDS) .......................................... 53 

National Association for Home Care and Hospice (NAHC) ................................. 59 

National Transitions of Care Coalition (NTOCC) ................................................. 61 

Premier healthcare alliance .................................................................................... 64 

Service Employees International Union (SEIU) ................................................... 67 

(III) 

(1) 

DELIVERY SYSTEM REFORM: 

PROGRESS REPORT FROM CMS 

THURSDAY, FEBRUARY 28, 2013 

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

The hearing was convened, pursuant to notice, at 10:40 a.m., in 

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

(chairman of the committee) presiding. 

Present: Senators Wyden, Stabenow, Cantwell, Nelson, Carper, 

Cardin, Brown, Bennet, Casey, Hatch, Grassley, Enzi, Thune, and 

Burr. 

Also present: Democratic Staff: Mac Campbell, General Counsel; 

David Schwartz, Chief Health Counsel; Tony Clapsis, Professional 

Staff Member; Karen Fisher, Professional Staff Member; and Matt 

Kazan, Professional Staff Member. Republican Staff: Chris Campbell, Staff Director; Stephanie Carlton, Health Policy Advisor; and 

Kristin Welsh, Health Policy Advisor. 

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The hearing will come to order. 

President Abraham Lincoln once said, ‘‘The best way to predict 

your future is to create it.’’ In 2009, we did not like the future we 

saw for a health care system based on a fee-for-service payment 

model. 

Doctors and hospitals were getting paid for the amount of care 

delivered instead of how well they delivered care to patients. So, 

with the Affordable Care Act, we created new and better ways to 

deliver health care, save taxpayers dollars, and improve patient 

care. 

Medicare and Medicaid, in partnership with the private sector, 

are now working to create the road map for the future of health 

care delivery, and we are here today to make sure they are on the 

right track. There is a clear slow-down in health care spending, but 

we need to do more and to do it faster to change the way Medicare 

and Medicaid pay for health care. 

At a hearing we held Tuesday on how to boost the country’s economic outlook, we learned from leading economists Douglas HoltzEakin and Bob Greenstein that the number-one way to reduce 

health care spending is to end fee-for-service. Everyone agrees that 

fee-for-service drives volume, excesses, and waste. 

We know this way of paying for health care encourages the 

wrong things, and that is why health care reform changed incenVerDate Nov 24 2008 21:00 Nov 12, 2013 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 R:\DOCS\85451.000 TIMD
2 

tives for providers. Medicare and Medicaid are testing different 

programs to determine which work best. 

In October, Medicare rolled out a program with a simple yet revolutionary premise: Medicare is going to pay hospitals to get the 

job done right the first time. Hospitals are penalized if patients are 

readmitted too soon after being discharged. Communities from 

Montana to Maryland are rising to the challenge. In Missoula, MT, 

the local Aging Services Agency is partnering with Medicare on 

care transitions. 

Under this program, patients at high risk for readmissions to one 

of the two local hospitals in Missoula will get extra help making 

the transition from the hospital back to the community. Today we 

will hear about new data showing a significant first step in bending 

the curve on Medicare hospital readmissions. 

The rate for Medicare patients returning to the hospital for treatment has fallen by more than a full percent over the past several 

months after being firmly stuck for years or decades. Medicare and 

Medicaid also implemented a new program in October that pays 

hospitals more for delivering better care and penalizes them financially for poor outcomes. 

For those outside of health care, this idea will not sound revolutionary. It makes sense that when you take a car to the repair shop 

to get the brakes fixed and they break the windshield, you should 

not have to pay for the broken windshield. 

Starting in October, hospitals can be penalized if you go in with 

a heart attack and the hospital is responsible for giving you a surgical infection. Hospitals can be rewarded for good customer service 

and patient care. 

That means doctors and nurses share information and tests, explain medications, and develop a plan of coordinated care for a patient leaving the hospital. We need to get more value out of each 

taxpayer dollar spent. We also need to help providers work better 

together and coordinate care. 

Medicare and Medicaid need to reimburse hospitals, doctors, and 

nursing homes to keep patients healthy. Accountable Care Organizations are starting to make this happen. Almost 300 Accountable 

Care Organizations, including in Billings, MT, have teamed up to 

serve more than 4 million beneficiaries. 

In these organizations, doctors, hospitals, and other providers 

work together to give patients coordinated care. The providers 

make talking to each other a priority, and they work to ensure patients get the right care at the right time. 

Medicaid has also come to the table to provide new solutions to 

the cost challenges facing States. Medicaid beneficiaries in Minnesota will be among the first to participate in a new integrated 

care model that will link patient outcomes and experience to payments. Providers will be held accountable by sharing in the savings 

and losses for the total cost of care. 

My State of Montana started a program to lower diabetes and 

cardiovascular disease in its Medicaid population. The goal is to 

help participants lose weight and keep it off, which makes them 

healthier and reduces costs in the Medicaid program. We need 

Medicare and Medicaid to support these State efforts and offer 

flexibility to test innovative ideas. 

3 

I look forward to examining the progress Medicare and Medicaid 

have made, learning what has worked, and finding out where we 

can do more. So let us listen to President Lincoln and realize that 

we are in charge of creating our future. Let us do more to lower 

costs and improve quality within Medicare and Medicaid and create the future of health care delivery. 

[The prepared statement of Chairman Baucus appears in the appendix.] 

The CHAIRMAN. Senator Hatch? 

OPENING STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. Thank you for 

convening this timely and much-needed hearing this morning. 

Now, last week Time magazine ran a thought-provoking article 

that was in fact the longest article in the publication’s history. It 

was an exploration of the high costs of medical care in this country 

and what these costs mean for patients. It was a fascinating article, and it got me thinking. 

Over the last 5 years, we have spent a lot of time here in Congress talking about health care. Obamacare was signed into law 

nearly 3 years ago and was supposed to make health care more affordable for patients and consumers. 

Now, the so-called Affordable Care Act did a lot of things, but as 

far as I can tell it has done very little to address the biggest 

health-related concern that people have: the actual cost of care. I 

hope that at some point we can take a serious look at the drivers 

of health care costs in the U.S. I think it would be well worth the 

committee’s time to do so. 

Today, however, we are here for a different reason. The Finance 

Committee held a hearing last year where we heard from providers 

and third-party payers in the private sector who have come together to do some interesting things to try to improve care while 

reducing costs. 

While I believe the private sector can and will make great strides 

in this area, we cannot forget that Medicare is the Nation’s largest 

health care payer. That being the case, if we are serious about reducing costs, our efforts to encourage innovation must include 

Medicare. Now, I have been very clear about my opposition to 

Obamacare. My concerns about the adverse impact of this law on 

family premiums and our national health spending continue to 

grow with every passing day. 

However, the chairman and I agree that health care providers 

and payers of all shapes and sizes need to work together to provide 

patients with higher quality, better coordinated care. According to 

the Medicare Payment Advisory Commission’s most recent report 

in 2010, individuals, government and businesses spent a total of 

$2.6 trillion on health care. Today, about 45 percent of all health 

care spending comes from government. 

In 2014, when the Medicaid expansions begin, that share will 

rise to 50 percent. The Congressional Budget Office projects that 

by 2021, just 8 years from now, spending on Medicare and Medicaid will grow to $1.6 trillion. 

4 

By virtue of its sheer size, Medicare has an important influence 

on the overall health care delivery in our country. Clearly, with the 

right policies in place, Medicare can be a driver of change. Now, 

that being said, I also question whether the program can be as 

nimble as the private sector in making systemic improvements. 

Mr. Blum, I hope that you will be able to reassure us that it can 

be. As most health care providers will tell you, in addition to the 

rapid aging of our population, we have to contend with an increasing number of patients with chronic diseases, such as diabetes or 

heart disease. These patients are sicker and more expensive to 

treat. While providers are doing their best to manage these patients, oftentimes our health care system is not structured to allow 

care to be easily coordinated. 

Currently, we have a system of isolated silos. Patients receive 

care in a variety of settings: doctors’ offices, hospitals, nursing 

homes, et cetera. It is not uncommon for a health care provider to 

have an incomplete picture of a patient’s overall care. 

In addition, provider incentives created by potential malpractice 

liability, and patient incentives created by insurance choice mechanisms, are not well-aligned to put the proper focus on better results 

and lower costs. 

We can certainly continue to tinker around the edges of delivering care in new ways, but providers continue to tell me that fear 

of lawsuits drives the volume of services. Of course, our fee-forservice system provides little financial incentive to manage care 

properly. As a former medical defense lawyer, I have to say it was 

bad back then more than 37 years ago, and it is even worse today. 

When talking about delivery system reform, our goal should be 

to ensure that patients receive the right care in the right place at 

the right time. There is an appropriate role for both the private 

payers and the Federal Government to put pressure on providers 

to reduce costs and provide better care and better health outcomes. 

Now, I know that Rome was not built in a day and big changes 

will take time, but I think we have to move beyond simply reporting what providers are doing to holding them more accountable for 

health care outcomes. 

In my own home State of Utah, we are privileged to have some 

of the best, most efficient health care providers in the country. But 

not all providers are created equal. Much of our health care system 

is fragmented, and often the right hand does not know what the 

left hand is doing. Unfortunately, the patient is caught in the middle with very little coordinated care. 

Now, I am anxious to hear from you, Mr. Blum, about any real 

progress CMS has made in moving towards greater care coordination. We know that many errors and costs can be avoided when 

providers focus on care transitions. Lately there has been a lot of 

attention paid to the flourish of activity coming from the Center for 

Medicare and Medicaid Innovation, also known as CMMI. 

Like many of my colleagues, I remain concerned that CMMI has 

an enormous budget and very little accountability. I am hopeful 

that we will hold another hearing this spring that focuses exclusively on CMMI and the results of the $10 billion in taxpayer 

money that was given to them to advance the cause of higher quality, lower costs, and more efficient care. 

5 

And so, Senator Baucus, thank you for convening this hearing 

today. I look forward to hearing from Mr. Blum. I am hopeful that 

he will have some good news to share with us on the progress CMS 

is making to help bend down the cost curve. 

The CHAIRMAN. Thank you, Senator. 

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

The CHAIRMAN. I might tell some of my colleagues and friends 

here that Mr. Blum is no stranger to the Finance Committee. He 

was on my staff for a while, and he was also the principal advisor 

down at the witness table on MMA not too long ago. It is hard to 

resist the temptation to explain what a bright person Mr. Blum is. 

I do not think I have met anybody brighter and smarter, certainly 

in health care, ever. This guy is good. So I am glad you are here, 

Jon. 

As an introduction, Jonathan Blum is the Acting Principal Deputy Administrator at the Centers for Medicare and Medicaid Services and Director for the Center for Medicare. It is great to have 

you back here, Jon. It is good to see you. You know the rules here. 

Your statement will be in the record, and speak for about 5 or 6 

minutes. 

STATEMENT OF JONATHAN BLUM, ACTING PRINCIPAL DEPUTY ADMINISTRATOR AND DIRECTOR, CENTER FOR MEDICARE, CENTERS FOR MEDICARE AND MEDICAID SERVICES, 

BALTIMORE, MD 

Mr. BLUM. Chairman Baucus, Ranking Member Hatch, committee members, thank you for the opportunity to discuss our 

progress to strengthen the Medicare program and transform the 

delivery of care. In the 3 years since passage of the Affordable Care 

Act, I am pleased to report on our progress. 

We have put in place many new programs and policies following 

the goals of the health reform law. For the first time, we can say 

we are paying for value, not simply the volume of care. Quality is 

improving, and costs are growing more slowly. Simply put, Medicare’s cost curve has been bent downward. 

Over the last 3 years, CMS has put in place new payment mechanisms to reward hospitals for the overall quality of care. CMS has 

finalized regulations to define what it means to provide accountable 

care, the so-called ACO regulations. We have transformed our physician payment system to shift its emphasis towards primary care 

services and care coordination. 

We have established a new Center for Innovation, which is currently testing more than 35 new programs and is working with 

over 50,000 health care providers and over 3,700 hospitals. We 

have shifted the business model for private plans competing in 

Medicare. Before the Affordable Care Act, plans competed on low 

premiums and extra benefits. Today, they compete on low premiums, extra benefits, and the quality of care they provide their 

members. 

CMS has transformed our framework to respond to fraud and 

abuse, to stop fraud before it happens rather than chasing down 

providers for payments after they occur. CMS has overhauled the 

payment model for durable medical supplies and home health care, 

6 

dramatically lowering spending without compromising quality of 

care. 

Over the next several months, CMS will focus on several new 

areas. We are working with hundreds of hospitals and health care 

providers to test how to bundle fee-for-service payment together in 

new ways to figure out the best way to pay for a total episode of 

care. 

We will continue to work to implement the value modifier policy 

to continue to shift our physician payment system to reward topperforming physicians and providers. We will continue to partner 

with States to test ways to best provide and coordinate care, including to vulnerable populations such as the dual-eligibles. 

Given our work to date, we can now provide this committee data 

that begins to demonstrate that the strategies put in place over the 

past several years are working. There are four data points that I 

believe should give us great optimism. As Senator Baucus said, we 

have more than 250 ACOs operating within the traditional fee-forservice Medicare program, serving more than 4 million Medicare 

beneficiaries. This tells us that providers and physicians are stepping forward to participate in new payment and delivery models. 

Data point number two: after more than 5 years of holding 

steady, the rates for all-cause hospital readmissions are starting to 

trend downward. 

Point number three: 37 percent of Medicare beneficiaries who 

have chosen a private Medicare plan are in a 4-star/5-star plan, 5- 

star being the highest quality. This is up from 16 percent 4 years 

ago. Quality of care is improving. 

Data point number four is the most exciting: the rate of growth 

in per capita Medicare spending—per capita Medicare spending— 

has been at historic low rates for 3 years in a row. This is tremendously exciting from our perspective. 

To be sure, we have more work to do, but the work to date and 

the data that we are seeing should give us great hope that we can 

bring Medicare to a sustainable financial footing and to improve 

the quality of care. 

I will be happy to answer your questions. 

The CHAIRMAN. Thank you, Mr. Blum. 

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

The CHAIRMAN. My first question is about the degree to which 

you are coordinating all this with the private sector. It is one thing 

for Medicare and CMS to put together an Accountable Care Organization, but clearly, if this is going to work, you have to be talking 

with, working with, coordinating with, the private sector too to get 

some of the same agreed-upon incentives for results. 

If you could just describe a little bit how successful that has 

been, the degree to which you are working with the private sector, 

with companies and insurance companies, et cetera, and the progress you are making. 

Mr. BLUM. Sure. There are a couple of ways to answer your question, Senator. The first is that we study very carefully best practices and talk to private payers, talk to State Medicaid programs, 

to really understand what they are trying to implement so we can 

repeat or build off of best practices. There are some very exciting 

programs within private payers to foster medical homes, for examVerDate Nov 24 2008 21:00 Nov 12, 2013 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 R:\DOCS\85451.000 TIMD
7 

ple. So we try very hard to understand how the private sector is 

creating new financial incentives. 

We also try to craft our regulations in a way that is open and 

transparent so private payers can copy—not copy, but to try to 

build off of—the CMS Medicare experience. For example, we hear 

from large private health plans that they are also working to establish ACOs for their contracted physicians, built off the ACO regulations that CMS has finalized. 

Finally, several of our new innovation models that are being tested really have an all-payer component to them—the Pioneer model, 

for example. In order to get the Pioneer contract for the ACO pilot, 

the Pioneers had to demonstrate that they also had risk-based contracts with private payers to demonstrate that they were not just 

working with the Medicare program, but working within the entire 

health care system. 

We have another pilot that is through the Innovation Center to 

test how to build primary care medical homes. That too has an allpayer concept where the providers who get the contract from CMS 

have to demonstrate that they are also working with private payers 

to ensure that we are all aligning and pointing in the same direction. 

We hear from others that they are building off the value-based 

purchasing strategies, so we are always trying to learn from best 

practices, trying to incent all payers to point in the same direction, 

but also to craft regulations that can serve as models for private 

payers. 

The CHAIRMAN. You have a lot of demonstrations going and set 

up. When are we going to see results? You have demonstrations, 

I think, aligned with CMMI. Senator Hatch referred to it. You 

mentioned the 250 ACOs. There are a lot of other demonstrations 

going on. When are we going to see some results? 

Mr. BLUM. Well, I think one result that we are seeing, which I 

believe is due to a combination of different factors, is the reduction 

in all-cause hospital readmissions. When you think about being 1 

percentage point lower than the previous 5 years, that translates 

roughly to 20,000 fewer readmissions per month. I believe that it 

is due to the payment policies, the new innovation models that are 

being created. So there are some results. 

The challenge now is how to assign cause and effect. Many of 

these models were started in the last 1 to 2 years. We expect that 

to fully see results, it will take 2 to 3 years. There are up-front 

costs for providers to build a model to create their data systems. 

I think we need to be cautious in looking at 1st-year results, but 

we are very much committed to sharing the data that we see. My 

boss, Secretary Sebelius, is very anxious to see results as well. Any 

model that is scalable, that can be scaled, has to go through the 

rigorous review of the Chief Actuary, but we are very much committed to share our learnings. 

But I think one positive learning is that providers are very eager 

to step up. We are overwhelmed by interest. I think there is some 

skepticism—— 

The CHAIRMAN. Do you have a system of interim results? 

Mr. BLUM. We set up very carefully, and we build every model 

with the assumption that it can be scaled. The law requires that 

8 

any model for the Innovation Center, in order to be scaled, has to 

pass that rigorous review by the Chief Actuary. 

So our team develops the data capabilities, the monitoring systems, really with the end point hopefully being that these models 

can be brought to scale, but they have to first pass that rigorous 

review. 

The CHAIRMAN. Yes. But does it make sense for you to share 

with us, at the appropriate time, the interim results too? Because 

we want to keep informed and, frankly, just keep your feet to the 

fire. 

Mr. BLUM. Absolutely. We are happy to work with you and your 

staff to figure out a way to best share results, to share data. That 

is our commitment to this committee. 

The CHAIRMAN. All right. Well, I would like to work out some 

system where that happens—— 

Mr. BLUM. Absolutely. 

The CHAIRMAN [continuing]. Where the results and the data are 

shared. Thank you. 

Senator Hatch? 

Senator HATCH. Thank you, Mr. Chairman. 

We are grateful for the work that you do, Mr. Blum. As described 

in your testimony, each payment reform initiative has different incentives or penalties attached to it. Are those proving to be strong 

enough to actually change provider behavior? 

Mr. BLUM. I think so. Clearly we have to continue to study the 

trends that we are seeing, but the trends that we are seeing are 

moving in the right direction. I think one of the exciting trends 

that we are seeing is hospitals that traditionally operated within 

silos are now establishing ties to the community, to post-acute care 

providers, to physician networks. 

I think one of the most exciting transformations that we are seeing is what you described: the goal of better integrating the silos 

of care that we have within the traditional fee-for-service program. 

So we need to continue to evaluate whether or not we have strong 

incentives, but I believe the trends we are seeing are due to the 

combination of payment policies, but also the continuous push by 

the Congress and by CMS to better integrate care. 

Senator HATCH. Are there delivery system reform initiatives 

under way in which CMS has not waived Stark or anti-kickback 

rules? If so, what are those initiatives, and why are the rules not 

waived? 

Mr. BLUM. I would have to double-check for you, Senator, which 

demonstrations have waived Stark and anti-kickback and which 

have not. With the ACO program, we really worked hard with the 

oversight agencies, the Federal Trade Commission, Department of 

Justice, to review ways to relax those requirements, but at the 

same time still uphold the oversight principles that we have. 

We have come into the framework temporarily that is going to 

continue to go through review that, if providers can demonstrate 

clinical integration, that working together in new ways really improves the clinical model, then we are comfortable relaxing some 

of those requirements. We have in the ACO regulations a timelimited period. 

9 

We will continue to monitor whether we are seeing any behaviors 

that are troubling, but I think the goal really is, not just to look 

at the payment but the entire oversight framework, to ensure that 

we can best integrate care for true clinical improvement. But I 

would have to get back to you, to your question. 

Senator HATCH. All right. We would appreciate it, if you would. The Patient Protection and Affordable Care Act cut $306 billion 

out of the Medicare Advantage program to create a new entitlement. Now, this is especially concerning, since currently more than 

one in four seniors, including a significant number of low-income 

and minority beneficiaries, have come to rely on the better benefits, 

enhanced care coordination, and higher quality coverage offered 

through the Medicare Advantage program. 

According to external estimates, the combined effect of the sequester, PPACA’s cuts, and higher taxes and other harmful new 

policies, will result in at least an 8-percent cut to the Medicare Advantage program for calendar year 2014. 

Now, I understand that some of the rates and policies announced 

on February 15th in the advanced notice are governed by the statute, but CMS does have considerable discretion over many of the 

policies that have been announced. 

Towards that end, I want to clarify where you have discretionary 

authority regarding the rate notice. As we both know, CMS has 

historically chosen to develop MA rates based on the assumption 

that Congress will not patch the scheduled physician payment cuts, 

and therefore payment rates to MA plans are artificially low. 

Do you believe that the statute prevents CMS from assuming 

more realistic payment rates, especially given the fact that Congress has fixed the SGR for the last 11 years? If you could answer 

that in a simple ‘‘yes’’ or ‘‘no,’’ I would appreciate it. 

Mr. BLUM. There are many elements to your question, and I will 

try my best to answer all elements to your question. 

Senator HATCH. All right. 

Mr. BLUM. We have been tremendously pleased to see the dramatic growth in Medicare beneficiaries choosing private plans since 

passage of the Affordable Care Act. Beneficiaries who are in private plans are at an all-time high, nearly one-third. At the same 

time, premiums have come down dramatically, 10 percent in 2012. 

Our goal is to do two things at the same time: to ensure that 

beneficiaries continue to have strong choices to plans, but at the 

same time make sure that our payments are accurate. Our rate notice that is proposed has proposed some changes to our payment 

methodology. 

One of the reasons why the rates are proposed to be lower is the 

fact that overall Medicare spending is lower, so it is a very good 

new story for the overall Medicare program. We have also taken 

our discretion to propose changes to the risk adjustment model that 

we use for plans, and that is an area where CMS does have discretion. 

It is CMS’s long-term practice not to assume the costs for the 

SGR fix that always happens after the rates are finalized to our 

rate notice. We have received comments for us to take a second 

look. But I think the best way for us to stabilize the MA program 

is for a long-term fix to the SGR. 

10 

Senator HATCH. My time is up, but I have another question on 

this on the arbitrary price controls known as total beneficiary cost 

thresholds. I will submit that in writing, but I hope you will answer that for us as well. 

Mr. BLUM. Sure. Of course. Thank you, Senator. 

Senator HATCH. Thank you. 

The CHAIRMAN. Thank you, Senator. Thank you, Mr. Blum. The 

last question the Senator asked is an important one. We are going 

to have to find a solution here. 

Mr. BLUM. All right. I understand. 

The CHAIRMAN. Senator Wyden? 

Senator WYDEN. Thank you, Mr. Chairman. Welcome, Mr. Blum. 

I have long known of your good work. 

Let me ask you about your response to the fact that Medicare reimbursement varies dramatically across the country. A number of 

us—I see my colleagues Senator Cantwell, Senator Grassley, a 

number of us—on a bipartisan basis have focused on the fact that 

our States really get clobbered by the Federal Government for 

doing a good job. We essentially get penalized for giving good quality and holding costs down. 

Now we are starting a very good model, one we like: the question 

of a shared savings approach to incentize quality. Our concern is, 

what are you going to be able to do to address the fact that lowcost States like ours are going to be disadvantaged at the get-go 

because we start off with this lower reimbursement rate? 

Mr. BLUM. I agree with you, Senator, that fee-for-service payments and quality vary dramatically across the country. We have 

some parts of the country that operate at very high quality levels 

at low cost. I think our overall goal, and I believe this is the goal 

of the Affordable Care Act, is to develop policies that promote more 

parts of the country—hopefully all parts of the country—to operate 

the highest quality level at the lowest cost, total cost of care. 

But you also see tremendous variation, not just between regions 

of the country but within regions, so you can have the lowest cost 

part of the country and have dramatically—— 

Senator WYDEN. Your approach then to make sure we do not get 

penalized is to say that somehow we will just use our region as a 

measuring rod because—— 

Mr. BLUM. No. 

Senator WYDEN. Go ahead. 

Mr. BLUM. Sorry. I am sorry to cut you off. 

Senator WYDEN. Yes. We just want to know how we are not disadvantaged at the outset. 

Mr. BLUM. I believe that the best payment strategy for the traditional fee-for-service program is for us to create incentives at the 

hospital level, at the physician practice level, to reward highquality care and lowest-cost care. That is why I believe that our 

value-based purchasing program for hospitals is so important, because over time it will reward hospitals not just for better quality 

of care, but lower total cost of care. 

The value modifier physician proposal that we are working to implement is also vitally important to the strategy, but I think the 

overall goal should be to create the incentive structure, not at the 

regional level, but at the provider level, the physician practice 

11 

level, because even in low-cost regions there is still tremendous 

variation within that region. 

Senator WYDEN. I certainly support the goal and where you are 

trying to go. I am just not sure we are going to get there very fast 

unless we root out what is a baked-in discrimination against a lot 

of parts of the country that have given good quality and have been 

penalized for it. So, we will be following up with you on that. 

I want to ask you one other question about chronic care, which, 

as you know, is where most of the Medicare dollar goes. It is 70 

percent of the Medicare dollar: heart, stroke, cancer, diabetes. It 

just continues to escalate, if you look where Medicare was in 1965 

when it began and today. Senator Hatch noted it in terms of that 

article in Time magazine. That is where the Medicare dollar goes. 

So I looked at the two models in Medicaid and Medicare, with 

respect to chronic care. It looks like you all are working on a very 

effective model with respect to Medicaid and the role of the States. 

The health home specifically targets coordinated care for those who 

have these chronic conditions. It does not seem to me that Medicare is doing that. 

In fact, the Medicare program has a different name, as you 

know, but it looks like it is mostly about realigning payments for 

doctors and primary care. It does not put the same focus, particularly given the growth of Medicare, as it relates to chronic care. 

I want to shore that up. What else can be done, in your view, 

consistent with the statute or other ideas, to give us a chance to 

target in on where most of the Medicare money goes? We deal with 

that 70 percent, and you are a long way from dealing with the demographic tsunami and our big challenges. 

Mr. BLUM. Those are great questions, Senator. The first wave to 

our work with the Innovation Center was really around building 

the accountable care model and strong primary care medical homes 

within Medicare. That was phase 1 to our work with the Center for 

Innovation. 

But we are hearing from physician specialty societies, for example oncologists, that want to shift to a different model, that want 

to be accountable for the total quality, total cost of care. The same 

is true for cardiology. 

So I believe that phase 2 of our work within the Innovation Center will be to really build upon the shared savings models that we 

have within the ACO context, but then to start to channel the energy that we are hearing from physician specialty societies to build 

payment models specific to chronic conditions—oncology, cardiology 

issues—and that I think is the promise for the next wave for the 

Innovation Center. 

Senator WYDEN. I know my time is up. 

Senator HATCH. Senator Grassley? 

Senator GRASSLEY. Yes. 

Senator HATCH. Thank you, Senator. 

Senator GRASSLEY. Say, you know, Mr. Blum, it is always good 

to see a former Finance staffer triumphantly come to one of those 

chairs you are in. 

Mr. BLUM. It was always easier to sit behind you than to sit in 

front of you. [Laughter.] 

12 

Senator GRASSLEY. Well, good. I think, like a lot of my colleagues, I have grown to have serious concerns about Medicare’s 

fee-for-service payment system. Referring to your testimony, you 

outline all the ways that Medicare is trying to improve care coordination. I appreciate the steps that you are making, and you are 

going to continue forward on that. 

I want to focus on the system that you are stepping away from. 

So is there any defense—with emphasis upon any—for Medicare or 

fee-for-service where a provider is paid based on the quantity of 

service provided without any regard for the outcome or quality of 

care provided, or any responsibility to coordinate care with other 

providers? 

Mr. BLUM. I believe that we should work—and Congress has 

given us this charge—so that every fee-for-service payment system 

that CMS maintains is tied to quality: quality of care outcomes and 

the total cost of care. 

We are further along within the hospital payment system, and 

that payment system is increasingly tied to the outcomes and the 

total cost of care, not just the care that is provided within those 

four walls of the hospital. Over time, CMS is authorized and 

charged to transform all these payment systems to achieve the 

same goals. We have to make sure that we have the right measures; we have to make sure that we do not create perverse incentives. 

But I agree with you, Senator, that we need to work together, 

and CMS is committed to do this with this committee to make sure 

that all of our payment systems begin to adopt the same principles 

that Congress has authorized for the hospital payment system. 

Senator GRASSLEY. Yes. So there is not any defense of Medicare 

fee-for-service anymore. We are working away from it, so there is 

no defense for it. Thank you very much. 

In reference to the chart here, since you mentioned coordination 

between Medicare and Medicaid, I would like to bring up something with you that I discussed with Melanie Bella when she came 

to testify recently. The chart shows the most expensive Medicare 

beneficiaries. 

These are the people with multiple chronic conditions and functional impairments: 57 percent are eligible for Medicare only; 43 

percent are dually eligible. The current duals demonstration appears to be focused on giving States greater control over acute care 

for these most expensive beneficiaries. 

[The chart appears in the appendix on p. 47.] 

Senator GRASSLEY. Some rhetorical questions, then I am going 

to ask you for your comment. Why are we splitting up these two 

groups? These are two groups of similarly situated individuals. 

They all have need for improved, better coordinated care. They 

have multiple conditions that are expensive. Why do we tell some 

people, you have income, so you get Medicare; you do not have 

enough income, so you get solely Medicaid? 

Why is it a good idea to give States control over low-income beneficiaries? Why should low-income beneficiaries get one of any 50 

different models to coordinate their care, and people with income 

get Medicare? So, I would like to know what you think, because I 

13 

am very concerned about splitting these individuals. The splitting 

of these individuals makes no sense. 

Mr. BLUM. Well, as the person who oversees the Medicare program within CMS, I believe that the models that we are testing to 

better integrate dual-eligibles do not take away any rights or benefits that dual-eligible beneficiaries are entitled to in the Medicare 

program. In fact, the models that Melanie Bella is leading to set 

up will strengthen Medicare, will have more oversight, will have 

more control. I think most dual-eligible beneficiaries are in the feefor-service Medicare program that you described. The care is uncoordinated. 

Beneficiaries balance between different care settings, and we 

want to make sure that we are using the best of the Medicare program, the best of the Medicaid program. So, in my view, I do not 

believe that the dual-eligible demonstrations are ceding that control to States, but rather they are building a very powerful Federal/ 

State partnership to take the best of the programs, to have even 

better benefits, more coordinated care for these beneficiaries. 

But I think, really, the goal should be to make sure that these 

beneficiaries have better care, more coordinated care, and to reduce 

the duplication that you described during your first question. 

Senator GRASSLEY. Thank you, Mr. Blum. 

Thank you, Mr. Chairman. 

Senator HATCH. Well, thank you. 

Senator Stabenow? 

Senator STABENOW. Thank you very much. Welcome, Mr. Blum. 

It is good to have you before the committee. 

I just want to start by reiterating what I think is important news 

of what you have been saying today. We all know that we have 

many challenges around health care costs. That has been our focus 

as we have looked at how we put in place health care reform that 

works for people with quality, but also brings down costs, and how 

we actually reduce costs and not just shift them around, which is 

what the health care system has done when somebody cannot see 

a doctor and they go to the emergency room. It costs a lot more 

money. How do we make sure we are actually not just shifting 

costs around? 

But, if I understood you right, you were saying right now we 

have 250 Accountable Care Organizations so far. The rate of hospital readmissions is going down, quality is going up, rate of cost 

growth per capita is going down. The Medicare Advantage program 

has seen a 10-percent premium reduction as well as, I have seen, 

a 28-percent increase in enrollment, something like that. So we 

know that part of that is bringing down the overpayments in Medicare Advantage, which is significant savings under Medicare. 

I wonder if you could speak a little bit more to Accountable Care 

Organizations. We have a number of things happening in Michigan 

that are actually very exciting in terms of the possibilities. 

The Detroit Medical Center has been working with a group called 

At Home Support to help the sickest patients get advanced support 

at home and prevent hospital readmissions so that if you have, as 

an example, an 87-year-old patient with stage 4 heart disease who 

wakes up in the middle of the night and they would normally, if 

they have concerns, go to the hospital emergency room, be in the 

14 

hospital, come out, go to a skilled nursing facility, and so on, all 

of which costs tens of thousands of dollars and certainly is not the 

way they would like to spend their time, under this, the same 

woman would get at-home services, be able to call the nurse in the 

middle of the night, be able to get help and possibly be able to stay 

at home rather than go through everything at the hospital. 

Could you talk a little bit more about the ACOs and how you see 

them expanding in the importance of really making sure those 

kinds of things are successful? 

Mr. BLUM. Sure. But we have been very surprised and pleased 

with the response that CMS received to the ACO program. The program has 250 ACOs, and we expect that number to continue to 

grow. The program was authorized by Congress to have an annual 

process to allow more organizations. What is really exciting about 

the ACO program is they are being started by physician practices 

in large part, so it is not necessarily just hospitals that are developing ACOs, but physicians are beginning to step forward. 

We created different tracks. The Pioneer model, for the most advanced organizations, is really to show us what is possible, to build 

more advanced accountable care models, but also to teach others 

who are coming into the game for the first time. 

But to your point, Senator, the ACO model really is about making sure that care is paid for in non-face-to-face settings, that physicians have greater resources to coordinate care, to manage care, 

to build the infrastructure of nurse practitioners, nurses, other 

health care professionals, to watch patients navigate through the 

health care system. 

But I think the ACO model really is one of our most promising 

models to transform fee-for-service, to give the incentives for the 

care coordination, and to reward providers for the non-face-to-face 

time that happens to best manage patients through the health care 

delivery system. 

Senator STABENOW. We have more to do, but it is certainly optimistic right now as we get started in this. I wonder if you might 

also speak to another type of demonstration project, the Strong 

Start initiative, which is focused on pre-term births, basically premature births, that put both moms and babies at risk. This is included in maternity care home demonstrations. In fact, a number 

of us are working on legislation we are re-introducing today called 

the Quality Care for Moms and Babies Act to increase quality 

standards as well. 

But we have three of those projects in Michigan. One is run by 

Meridian Health Plan and Legions Hospital, and it is focused on 

being able to reduce premature births, which are costing the country about $26 billion a year, not to mention what is happening to 

children. I wonder if you might talk a little bit more about the 

progress in those kinds of areas and what we are learning from 

preliminary results there. 

Mr. BLUM. Sure. Well, I think, Senator, the goals of the project 

really are to reduce the number of pre-term births. That is potentially harmful, both for mothers and for children. 

We have just begun this demonstration. We are watching the results very carefully. We will be sure to bring information. But really the premise behind the demonstration is to take evidence-based 

15 

protocols and to disseminate those to care providers to create the 

message that pre-term birth is potentially harmful in many cases. 

But we will pledge to share results as soon as we receive them, but 

we are very excited about this project. 

The CHAIRMAN. Senator Thune? 

Senator STABENOW. Thank you. 

The CHAIRMAN. Thank you. 

Senator THUNE. Thank you, Mr. Chairman. 

I wanted to get in one question quickly about delivery of health 

care in rural areas, and that has to do with the 2009 CMS ruling, 

or policy, I guess I should say, regarding direct physician supervision of outpatient therapeutic services. 

Hospitals, physicians, and rural health care organizations recognize this change as a burdensome and unnecessary policy change, 

but CMS characterized the change as a ‘‘restatement and clarification’’ of existing policy in play since 2001. 

In its attempt at clarification, CMS retroactively interpreted the 

policy to require that a physician privileged by the hospital provide 

supervision and be physically present in the same outpatient department at all times when outpatient therapeutic services are furnished, when historically that has not been the practice. 

I am concerned that CMS’s ‘‘clarification’’ is instead a significant 

change in Medicare policy that would place considerable burden on 

hospitals, especially on facilities in rural areas. I am also concerned 

that the panel convened to advise on this issue is not sufficiently 

considering the input from rural critical access hospitals. My question is, will you agree to return to the pre-2009 interpretation of 

this policy? 

Mr. BLUM. Well, in 2009, you are correct, CMS made some, what 

we call policy clarifications, but I believe the critical access hospital 

community may have interpreted them as fundamental changes. 

We heard a lot of concerns; we heard a lot of complaints. 

In 2010, I traveled through North Dakota—not South Dakota, 

but North Dakota—to meet firsthand with critical access providers, 

and we heard tremendous concern regarding the challenges that 

our clarification would provide critical access hospitals. We decided 

to back down, to slow down, to create this physician-hospital provider review panel to help us understand which services do not require direct physician supervision. That is the framework that we 

are moving. 

My understanding is that it is working better from the critical 

hospital’s perspective, but we would love to hear your views of how 

we can improve that. But I believe that we are working to address 

the concerns that we heard during 2009, and seeing the hospital 

care first-hand was very helpful for me to understand how to work 

together with the hospital community to solve this issue. 

Senator THUNE. I am glad you went out and got some of that 

perspective, and we would be happy to provide the feedback that 

we get from providers in our part of the country, because it is a 

really important issue in terms of delivery of health care. 

Mr. BLUM. Absolutely. 

Senator THUNE. Your testimony outlines a long list of initiatives 

that CMS is implementing with the goal of improving health outcomes and lowering costs. The question is, if these proposals are 

16 

going to sufficiently lower health care costs for taxpayers and patients, why is the Independent Payment Advisory Board necessary? 

Mr. BLUM. Well, the independent board is outside of CMS, is my 

understanding, so I cannot speak to it directly. What I can say is, 

from the person operating the Medicare program, it is tremendously helpful to have pressure from Congress, from outside 

boards, to keep spending low. 

We work in CMS to ensure that we are building policies to keep 

spending low, to ensure quality is improving at the same time. But 

having that system of checks is tremendously helpful to ensure 

that we are pushing out all of our payment systems in a way to 

maximize quality but to reduce total cost of care. 

Senator THUNE. But it does not sound like it is all that necessary 

for you to accomplish the initiatives and the things that you are 

trying to accomplish here. Those are things that CMS is doing on 

its own. 

Mr. BLUM. What I would say, Senator, is this focus needs to continue. The pressure needs to stay on. There are multiple ways to 

receive that pressure, but having that pressure is the best way, in 

my judgment, to continue the focus that has been there for the past 

several years. 

Senator THUNE. The last question has to do with electronic 

health records and the rate at which CMS is implementing the 

stage 1. In the last 6 months, I think stage 1 has been implemented. They published a final rule for stage 2 and are already 

seeking feedback on stage 3. There are still a lot of reports out 

there that question the effectiveness of EHR adoption. 

My question is, do you believe that CMS is conducting appropriate data review before accelerating into stage 2 and stage 3 to 

ensure that that program is on an appropriate path towards interoperability between unaffiliated health systems or providers? 

Mr. BLUM. I think there are a couple of ways to answer your 

question, Senator. We are pleased with the rates of adoption of hospitals and physician practices to respond to these new incentives. 

One of the things that we hear from entities that are participating 

within our new delivery models like ACOs is that the model would 

not be possible but for a strong electronic medical record. 

So I believe that we have to evaluate the impact to the EHR program, not just the program itself, but the total changes that we 

were seeing within the health care delivery system. So, hospital readmissions coming down, that is a sign to me that health care silos 

now are talking to each other better to reduce the lack of care coordination. 

We are committed to overseeing the program. We are happy to 

work with you and your staff to understand how we can best oversee. We are also concerned about some of the reports that EHRs 

may lead to inappropriate spending or services. We take that concern very seriously. But we are committed to ensuring this program continues to expand, while also preserving the integrity of 

the programs. 

The CHAIRMAN. Thank you. 

Senator THUNE. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Cantwell? 

17 

Senator CANTWELL. Thank you, Mr. Chairman. Again, thank you 

for having this hearing and many of the hearings that you are having on this subject of the implementation of the Affordable Care 

Act. I think it is of the utmost importance, given the size and scale 

of its impact to our economy, that the agency is held accountable 

during this process. 

I certainly appreciate the reminder that Mr. Blum used to be a 

member of the staff here, so maybe he could become an extraordinary emissary to the agency as it relates to its communications, 

because I can think of many things that many members here have 

shown a level of frustration about on the implementation of the Affordable Care Act. 

I wanted to follow on with my colleagues, Senators Wyden and 

Grassley, about the value index for physician payment. You talked 

about what has happened with hospitals. The physician payment, 

I think Mr. Elmendorf said it was probably one of the most costsaving provisions of the bill. I want to get an update on the progress. 

I actually have three questions for you, so hopefully I can get 

through all that in 5 minutes. But talk about the progress of that 

value index as it relates to physicians and why we do not just put 

out a global rate: if you fall below that, you are rewarded, and, if 

you fall above that, you are penalized. And some progress on the 

rebalancing from nursing home care to community-based care—do 

you see that as a big cost saver? 

So, if you could start with those two. 

Mr. BLUM. Sure. Thank you for the questions. I believe that the 

value modified physician payment change that was authorized in 

the Affordable Care Act has the potential to be one of the most significant changes to the fee-for-service Medicare program. It is also 

one of the hardest—probably the hardest—policy that we are working to implement, from a couple of different perspectives. 

The challenge is, Medicare beneficiaries who have many chronic 

conditions see many physicians. They can see 12, 15 different physicians in the course of a year. How you can assign the accountability for the patient’s total care is very challenging when they are 

seeing multiple primary care physicians, multiple specialists. So we 

have chosen to phase in the value modifier by first starting with 

large physician groups that have over 100 professionals, because 

we have the greatest confidence that we can assign value and quality to that large practice. 

We are very much committed to the policy. We are committed to 

the schedule that was outlined by the Congress, but this is the 

hardest policy, and we are going to need all the advice we can get 

from this committee and the physician community. But we have 

started the process that will take effect in 2015, and you will see 

more rulemaking for policy this year to continue the phase-in. 

Senator CANTWELL. I think it starts in 2013 and is not fully implemented until 2017, or something of that nature. So I think we 

have lots of time, so it is good to hear that you think it is one of 

the biggest cost savings. 

I wanted to ask you about the basic health plan. One of the 

issues here is saving dollars within the Medicare budget, because 

Medicare is going to take everything that we have, just because of 

18 

the aging population and living longer, so we want to get it right. 

But in the Affordable Care Act we have two provisions of the basic 

health plan, which are annual costs and premiums a lot lower than 

what we would face on the exchange, and then the population, if 

we could see that chart for a second. Put it over here. 

[The chart appears in the appendix on p. 48.] 

Senator CANTWELL. This particular population is a very narrow 

population on the exchange, but somehow the agency seems to be 

very anxious, instead of implementing the law in 2014 as called for 

by the Affordable Care Act, it seems to be anxious that somehow 

giving this population just above the Medicaid rate a more affordable benefit plan as outlined in the first chart is somehow against 

the interests of the overall Act. If you could shed any light on that, 

I would certainly appreciate it. 

Mr. BLUM. I have a couple of ways to respond, Senator. I have 

not personally worked on this issue, so I cannot speak to the 

decision-making behind it. I do understand that Marilyn Tavenner 

has promised to provide you a schedule of how we plan to implement this provision, but we are happy to work with you and to help 

best answer those questions. 

Senator CANTWELL. Well, Ms. Tavenner definitely will not have 

my support. I am not interested in how she is going to implement 

the Act. I am interested in the commitment of the administration 

to live up to the way the Affordable Care Act says the provisions 

should be implemented. 

Right now I cannot get anybody at CMS to own up to the fact 

that States, under the law, could receive 95 percent of the tax credits to provide cheaper care, as the first chart showed, to the beneficiaries instead of making them out-of-pocket expenses. 

So I am not interested in having the schedule of what date it is 

going to get implemented, I am interested in the agency making 

sure that it does not thwart a more cost-effective solution to somehow save the exchange when that is really a false issue, in my 

viewpoint. So, thank you so much. 

Mr. BLUM. I understand. 

The CHAIRMAN. Thank you, Senator. 

Senator Cardin? 

Senator CARDIN. Thank you, Mr. Chairman. 

Mr. Blum, thank you for being here, and thank you for what you 

do. It is impressive that you have a 3-year record of bringing per 

capita costs down. Delivery system reform is clearly the best hope 

we have of continuing that trend, so this hearing is particularly important. 

I want to talk about a recent decision that was made in regard 

to the Affordable Care Act’s pediatric dental benefits, which has me 

concerned. We are at the 6-year anniversary of the death of Deamonte Driver, a 12-year-old who died in my State because timely 

dental care was not available. We have made a lot of progress in 

the last 6 years through the Children’s Health Insurance Program 

Reauthorization Act and the ACA, and I really applaud the efforts 

that have been made. 

It is my understanding that you are now allowing for a separate 

out-of-pocket limit for coverage through stand-alone dental plans. 

I am concerned that you are implementing discriminatory policies 

19 

similar to those that were put in place decades ago for mental 

health services—policies that say this is 2nd-class health care rather than part of the essential benefit package, which was our intent 

in the Affordable Care Act. 

Can you share with me what leadership has done at CMS to 

make sure that there is reasonable coordination of benefits so that 

our intent of providing pediatric dental care will in fact be a reality, particularly where the Federal Government is establishing 

exchanges? 

Mr. BLUM. Well, I think one of the lessons that we learned within the Medicare program is that, when the care is siloed or our 

benefits are not fully integrated, that can often lead to worse total 

health care consequences. 

I can pledge to get back to you with direct answers to your questions, but I do agree with your general principle that, when benefit 

design is broken up and care is not coordinated, it can often lead 

to bad quality of care. So, I will be happy to get back to provide 

direct answers to you. 

Senator CARDIN. I appreciate that. The Federal Government will 

be playing a key role in many States by setting up the insurance 

exchanges, so I think there is a real opportunity for you, as the exchanges are set up, to show leadership, and I look forward to you 

getting back to me. 

Let me ask you a question about minority health. The Affordable 

Care Act put a high priority on health equity by establishing several HHS Offices for Minority Health to deal with racial and ethnic 

disparities. We have made some progress in closing the gaps. In 

looking at cancer death rates released yesterday by the American 

Cancer Society, generally there has been progress made, but with 

regard to colon cancer and breast cancer, two diseases for which 

screening and treatment are critical to proper care, the disparities 

are growing. 

What is CMS’s commitment to dealing with minority health 

issues to reduce such disparities? 

Mr. BLUM. The commitment is tremendous. I believe the Affordable Care Act, which is now established, requires CMS to set up 

a separate office to focus on minority health to make sure our programs are coordinated and responding to the challenges. 

One of the things that we have done, particularly with the flu 

vaccine, is, now that we have the capability within CMS to track 

claims, pinpoint zip codes, pinpoint geographic areas so we can target resources, I think the best strategies we can employ to ensure 

that screenings are taken advantage of is to use this technology to 

build community programs. 

We are working much closer with public health organizations, 

really to help all beneficiaries, and particularly to focus on the 

pockets of the country where we see screening use lower than the 

national average. But we are happy to continue to hear ideas, but 

I agree with your statement. 

Senator CARDIN. If you would keep my office informed as to the 

resources being devoted to these efforts and the progress that is 

being made, we would very much appreciate it. There are seven offices in key Health and Human Services agencies that are positioned to help close the gaps in quality and access, and we believe 

20 

it is essential to coordinate, track, and measure the efforts that are 

being made. So, if you would keep us informed, I would deeply appreciate that. 

One last question on the Medicare outpatient rehabilitation therapy caps. As the author of legislation since 1998 to repeal this misguided policy, I believe we all hope to get a permanent policy on 

the therapy caps so we do not have to deal with it every year. In 

the wisdom of Congress, we imposed a new requirement in 2011 for 

manual medical review of higher-cost cases. I am not so sure how 

wise that was, and I am concerned that we are creating yet another bureaucratic hurdle for patients and providers. I am told that 

there is inconsistency in how the various Part B fiscal intermediaries are handling the new process, leading to confusion across 

the Nation. Beneficiaries and the therapists who treat them need 

predictability, and they deserve a sound policy that reimburses 

based on the patients’ need, rather than on arbitrary limits. 

Can you share with us, either now or later, how you plan to implement the new policy in a way that will not lead to additional 

problems for providers? 

Mr. BLUM. Sure. I think whenever we have policies that suspend 

in 12 months and have to be reauthorized, that creates challenges 

for providers and creates challenges for beneficiaries. I think the 

principle should be that beneficiaries should know what their benefit levels are and that providers should see predictable payment. 

I think one of the ways to address the therapy cap long-term is 

to ensure that we pay appropriately for therapy services. This is an 

area where we see abuse, particularly in certain parts of the country. We have tried to improve the payment policies by paying for 

services provided together at the same time. 

So I think a combination of smarter payment policies targeting 

the bad actors—not all therapists provide fraudulent care—but I 

think a combination of better payment policy, and disciplined fraud 

and abuse approaches, will hopefully relax the need for Congress 

to continue to have to reauthorize this policy. 

Senator CARDIN. Thank you. 

Senator CARPER. Thank you. 

Senator Casey? 

Senator CASEY. Thank you so much. We are grateful for your testimony and your presence here, and obviously your public service 

and the ways that our office has engaged with yours. I am grateful 

for that. This is very difficult to tackle, these issues that relate to 

delivering better care at a lower cost. But it seems like you are beginning to unlock that door, so to speak. 

I want to ask you, based on what you know already—and I know 

in some ways it is still in the early stages, but you are already seeing some good results—is there anything that you have learned, or 

at least begun to ascertain, about the delivery system results in 

Medicare that you might be able to apply to Medicaid? 

Mr. BLUM. Well, I think one of the lessons that I have taken is 

that, when providers see complete data on their beneficiaries, it 

opens up many new opportunities for better care coordination. I 

think one of the major benefits that the ACO participants have 

now is the ability not just to see their own claims information, but 

Part A, Part B, and prescription drug claims information. That can 

21 

yield clues about lack of care coordination or beneficiaries falling 

through the cracks. So I think just having that information and 

helping providers create the management structures to see data, to 

understand it, to respond to data, is tremendously powerful. 

For the providers that are participating within the new bundled 

payment initiative—the hospital, combining with physicians and 

post-acute—they are telling us that they had no idea that their patients were going to 10 different skilled nursing facilities, and that 

certain skilled nursing facilities had higher readmission rates than 

others. Just seeing that data, I think, is the most powerful, or one 

of the most powerful, changes that is occurring. 

Senator CASEY. I want to ask you as well, because your testimony had a lot of analysis and summary of the way you are doing 

this, and it is very helpful to us as we learn more about it, but I 

was looking in particular on two pages of your testimony, I guess 

page 4 and page 8. 

There are two things that struck me about the whole challenge 

of reducing hospital readmissions, which everyone knows is a 

health issue because people are sicker. When they have a readmission, that means by definition they are in some kind of jeopardy, 

but it also is a huge cost implication for all of us. 

But on page 4, the last paragraph, you said, ‘‘The Affordable 

Care Act established the hospital readmission program.’’ Then later 

in the paragraph you say, ‘‘We measure the readmission rates for 

three very common, very expensive conditions for Medicare beneficiaries: heart attack, heart failure, and pneumonia.’’ 

Then later on page 8, you talk about the National Partnership 

for Patients aiming to save 60,000 lives, which just leaps off the 

page, I think for anyone, and you do that by ‘‘averting millions of 

preventable hospital-acquired conditions.’’ 

I wanted to get your sense of how that is going, how successful 

you are being at reducing the hospital readmissions. It is selfevident that it is both a better health outcome for a patient or their 

family as well as a huge cost saver. 

Mr. BLUM. One of the things we have set as one of our primary 

measures for assessing how successful we are within CMS with the 

payment reform strategies is the rate of hospital readmissions. We 

track, month to month, the rate of all-cause Medicare readmissions. 

In the last 12 months or so, we have started to see a consistent 

downward trend in that number. 

I think there are many policies that are being deployed—penalties, technical assistance through our Partnership for Patients— 

but I think one of the most powerful statements that happened is 

that Congress acted and said that quality of care is now being assessed through readmission rates, which has transformed the business model for health care delivery systems. I used to hear, personally, providers say it was impossible to reduce those, that there are 

too many community factors at play or the health care systems 

were not built to do this. 

But now I hear that it is possible, that they are seeing results 

in our data. We still see tremendous variation across the country 

in hospital readmission rates. The current rate is roughly 17.8 percent, but there are some parts of the country that are much lower 

than 17.8 percent. 

22 

So we know it is possible to drive this average down further, but 

I think the most fundamental change that happened was that the 

Congress acted and said that we are going to assess quality of care 

in part through these readmission rates. 

Senator CASEY. Well, thanks so much. I appreciate it. 

Senator CARPER. Mr. Blum, how are you doing? 

Mr. BLUM. Yes. It is good to see you again. 

Senator CARPER. Very nice to see you. Thanks so much for coming to Delaware and for the time that you spent with us at 

Christiana Care. 

I think it was Senator Hatch who raised the issue of SGR and 

trying to fix the SGR problem. I just want you to share with us, 

if you will, a thought or two. We hear so much from health care 

providers that, without a permanent solution for SGR, doctors and 

hospitals are not going to be able to fully participate in reforming 

our health care system. 

I have heard it often, and I believe them, so we have a responsibility here to try to figure this out. I just want to ask you, wearing 

your old hat when you sat behind these guys over here and your 

hat today, what kind of payment policies do you think might be 

good candidates for replacing the existing payment system? 

Mr. BLUM. Well, I agree, Senator, that the annual crisis that is 

created when we face the physician payment cut creates tremendous havoc for the physician community, for our beneficiaries, and 

for health plan payment systems that are tied to the physician payment system. It is a tremendous challenge to manage the programs 

through this continuously looming cut. 

I think there are two ways to break down the SGR issue. The 

first issue is that we have an artificial baseline built into current 

law that continuously assumes a 25- or 28-percent cut, so, in my 

analysis, there is no way around that baseline correction that 

needs to be made to the total Medicare program that only Congress 

can authorize. 

At the same time, the second issue is that we need to figure out 

continuous ways to improve how we pay for physician payments, 

to incent greater care coordination, and to incent chronic disease 

management to pay for those services that happen outside of the 

face-to-face interaction. We are testing a variety of models. We will 

continue to expand the focus to figure out how to incent this care 

model that I believe we all want to see, but that will not substitute 

for the baseline issue that Congress has to authorize. 

Senator CARPER. All right. Thank you. 

One of the major drivers, as you know, of health care in this 

country, of health care costs, is obesity. Another one is improving 

medication adherence. We were hearing very large numbers on 

both of those in terms of what they are costing us in health care. 

Could you just give us an idea of what CMS is doing, (1) to combat obesity? How can we help you do a better job? Also, any comments you would care to make on improving medication adherence 

and how we can help you do a better job. 

Mr. BLUM. One of the things that Congress did through the Affordable Care Act was add many new preventive benefit services to 

the traditional fee-for-service program. The annual wellness visit, 

I think, is one of the greatest opportunities that we have to conVerDate Nov 24 2008 21:00 Nov 12, 2013 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 R:\DOCS\85451.000 TIMD
23 

tinue to tie beneficiaries more to their primary source for primary 

care. The ACO program really is the same notion. So a continued 

emphasis on primary care and wellness, I think is our best strategy 

to address obesity. 

We are also seeing very promising results in our Part D program 

as we create voluntary incentives to better manage poly-pharmacy 

medication management. And we are starting to see some signs 

that better management of prescription drugs leads to overall lower 

costs and hospital spending or other traditional medical spending 

channels. So I think more emphasis on better managing and coordinating prescription drugs is one of our best strategies to reduce 

total cost of care. 

Senator CARPER. All right. Thank you. 

The last question. Delaware is one of 10 States that has, I think, 

fewer than 10 percent of our Medicare population that participates 

in Medicare Advantage. I think in our State we really do not have 

any good choices, I think most people would say. That is true in 

some other States as well. 

What should we be doing to expand Medicare Advantage in a 

cost-efficient way that ensures that seniors in all 50 States have 

a meaningful choice between high-quality Medicare Advantage 

plans and traditional Medicare? 

Mr. BLUM. Well, I think sometimes the challenges to expand 

managed care—and I cannot speak for Delaware, but sometimes 

the challenge is not payment policy, but it is due to provider contracting. Health plans cannot establish sufficient networks because 

one dominant health care system might not want to contract with 

the health plan. 

So I do not believe simply paying plans more will necessarily 

lead to better choices or higher quality choices. Really, sometimes 

you have to figure out what is happening at the provider contract 

level to understand why health plans cannot come into the program in a strong way. 

But I think that underscores what our strategy has been, to 

make sure that the traditional fee-for-service program is as strong 

as possible and to create ACOs that really bring the best of managed care to the traditional fee-for-service program, but also to 

make sure that our managed care program is as strong as possible 

to incent plans to go to quality. 

So that has been our strategy: to make sure both programs are 

as strong as possible so, even if beneficiaries do not choose managed care or do not have all the choices that other parts of the 

country have, they can still receive the same care coordination and 

good managed care principles that high-quality managed care plans 

can provide. 

Senator CARPER. Thanks so much. 

The CHAIRMAN. Thank you very much. 

Senator Nelson? 

Senator NELSON. Well, Florida is the opposite of Delaware, because upwards of 40 to 50 percent of Florida is on Medicare Advantage. So let us talk about that. Now, the insurance companies are 

screaming bloody murder, but should they not have known that the 

whole idea of the changes in Medicare Advantage was to cut out 

24 

that 14-percent bump that they had over and above Medicare feefor-service as a result of the 2003 prescription drug bill? 

Mr. BLUM. Before the Affordable Care Act, we estimated that the 

plan average subsidies were about 14-percent greater than fee-forservice on average. We estimate, today in 2013, that difference now 

is 4 percent and will be phased down even further. Many told us, 

and I think told this committee—— 

Senator NELSON. Is that 4 percent given the reductions that you 

have just announced or that you are planning to announce? 

Mr. BLUM. That is current rates. 

Senator NELSON. Oh, it is? 

Mr. BLUM. So the 2014 reduction is still proposed, but today, on 

average, we are paying 4 percent. So the reduction has been taken 

from 13 percent down to 4 percent. At the same time, we have seen 

double-digit growth in the MA plans. We have seen double-digit decreases in the premiums. 

Quality is improving, and that is a great sign that we can reduce 

the payment rate to incent quality and to continue to see growth 

in the program. We have proposed rates for 2014 that I believe you 

are hearing about. There are many reasons for that reduction, but 

again, we have proposed rates, we are listening to comments, but 

our goals are to ensure the program remains strong, quality continues to improve, and beneficiaries continue to have strong 

choices. 

Senator NELSON. All right. Here is the question then: for the senior citizens, the premiums have come down, the popularity is going 

up, and therefore the enrollment among seniors is up because it is 

more popular. We are now reducing what I call the subsidy to insurance companies over and above what Medicare fee-for-service is, 

which was part of the reforms in the health care bill that we implemented to try to save Medicare. 

In part, we were going to do that with a quality rating system 

called the Stars. So the theory is, the higher quality you have, the 

more stars you have for your plan. Seniors are going to be able to 

vote with their feet because they will choose the better-quality 

plan. That will weed out the poor plans. 

What in fact is happening? 

Mr. BLUM. Well, we are seeing, due to the incentive structures 

that have been created, many more beneficiaries choosing to be in 

4-star, 5-star plans. This is happening for two reasons. One is that 

plans have made the business decision that they will do better if 

their star rating goes up. For plans that are at 4 stars, 5 stars, irrespective of payment changes over time, they will have a great financial model in the program. 

Senator NELSON. So they get more people signing up in their 

plan the better quality they are, plus they get a financial incentive 

from Medicare. 

Mr. BLUM. Correct. 

Senator NELSON. Then why are the insurance companies screaming bloody murder, that you are squeezing out that excess that 

they used to have? 

Mr. BLUM. Well, some plans have not yet made the transformation to 4-star, 5-star, and we want to help those plans continue to make that transformation. Our demonstration will conVerDate Nov 24 2008 21:00 Nov 12, 2013 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 R:\DOCS\85451.000 TIMD
25 

tinue in 2014, but I think those plans that are below 4 stars are 

facing, given our proposal—again proposed—the greatest payment 

challenge. But I believe that plans that have made the transformation to provide 4-star, 5-star care will have a strong business 

model within the Medicare program. 

Senator NELSON. So your goal, to summarize, would be that you 

want to have all plans 4 and 5 stars, and that, if insurance companies get to that quality level, they will be making money, the senior 

citizen will be very happy, and the overall cost to the taxpayer is 

lower. Is that the goal? 

Mr. BLUM. That is precisely the goal. Our goal is for every Medicare beneficiary who chooses the MA program to have the opportunity to seek out a 4- or 5-star plan. 

Senator NELSON. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Casey? 

Senator CASEY. I had my round. I am good. 

The CHAIRMAN. Good. 

Senator CASEY. Thank you, Mr. Chairman. 

The CHAIRMAN. Thanks, everyone. Thanks, Mr. Blum. Clearly 

you are making progress. Clearly we have a lot more progress 

ahead of us, but thank you very much. 

Mr. BLUM. Thank you, Senator. 

The CHAIRMAN. And if you could get back to us soon about interim information, that would be helpful. 

Mr. BLUM. Absolutely. 

The CHAIRMAN. Thank you very much. 

[Whereupon, at 12 p.m., the hearing was concluded.] 

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