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MAKING HEALTH CARE WORK FOR AMERICAN 

FAMILIES: SAVING MONEY, SAVING LIVES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

APRIL 2, 2009 

Serial No. 111–27 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 


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COMMITTEE ON ENERGY AND COMMERCE 

HENRY A. WAXMAN, California, Chairman 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

Vice Chairman 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANE HARMAN, California 

TOM ALLEN, Maine 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

JOHN BARROW, Georgia 

BARON P. HILL, Indiana 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

CHRISTOPHER S. MURPHY, Connecticut 

ZACHARY T. SPACE, Ohio 

JERRY MCNERNEY, California 

BETTY SUTTON, Ohio 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

JOE BARTON, Texas 

Ranking Member 

RALPH M. HALL, Texas 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOHN B. SHADEGG, Arizona 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

PARKER GRIFFITH, Alabama 

ROBERT E. LATTA, Ohio 

(II) 


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(III) 

SUBCOMMITTEE ON HEALTH

FRANK PALLONE, JR., New Jersey, Chairman 

JOHN D. DINGELL, Michigan 

BART GORDON, Tennessee 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

JAN SCHAKOWSKY, Illinois 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

JANE HARMAN, California 

CHARLES A. GONZALEZ, Texas 

JOHN BARROW, Georgia 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

CHRISTOPHER S. MURPHY, Connecticut 

ZACHARY T. SPACE, Ohio 

BETTY SUTTON, Ohio 

BRUCE L. BRALEY, Iowa 

NATHAN DEAL, Georgia, 

Ranking Member 

RALPH M. HALL, Texas 

BARBARA CUBIN, Wyoming 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

STEVE BUYER, Indiana 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 


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C O N T E N T S 

Page 

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

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

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

opening statement ................................................................................................ 2 

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 4 

Hon. John Shimkus, a Representative in Congress from the State of Illinois, 

opening statement ................................................................................................ 5 

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

opening statement ................................................................................................ 5 

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

of Pennsylvania, opening statement ................................................................... 6 

Hon. Phil Gingrey, a Representative in Congress from the State of Georgia, 

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

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

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

Hon. Marsha Blackburn, a Representative in Congress from the State of 

Tennessee, opening statement ............................................................................ 8 

Hon. Kathy Castor, a Representative in Congress from the State of Florida, 

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

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

Texas, opening statement .................................................................................... 9 

Hon. Janice D. Schakowsky, a Representative in Congress from the State 

of Illinois, opening statement .............................................................................. 9 

Hon. Bruce L. Braley, a Representative in Congress from the State of Iowa, 

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

Hon. Tammy Baldwin, a Representative in Congress from the State of Wisconsin, opening statement ................................................................................... 10 

Hon. Betty Sutton, a Representative in Congress from the State of Ohio, 

opening statement ................................................................................................ 11 

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

California, prepared statement ........................................................................... 149 

WITNESSES

Jonathan Skinner, Ph.D., Professor of Economics, The Dartmouth Institute 

for Health Policy and Clinical Practice .............................................................. 12 

Prepared statement .......................................................................................... 15 

Christine K. Cassel, M.D., President and CEO, American Board of Internal 

Medicine and Abim Foundation .......................................................................... 24 

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

John Goodman, Ph.D., President and CEO, National Center for Policy Analysis ......................................................................................................................... 34 

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

Bruce Sigsbee, M.D., M.S., President Elect, American Academy of Neurology .. 44 

Prepared statement .......................................................................................... 46 

Dennis Smith, M.P.A., Senior Research Fellow in Healthcare Reform, The 

Heritage Foundation ............................................................................................ 53 

Prepared statement .......................................................................................... 56 

Jerry Avorn, M.D., Professor Of Medicine, Harvard Medical School .................. 67 

Prepared statement .......................................................................................... 70 

Paul Ginsburg, Ph.D., President, Center for Studying Health System Change . 93 

Prepared statement .......................................................................................... 96 

Regina Herzlinger, Ph.D., Professor of Business Administration, Harvard 

Business School .................................................................................................... 104 


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VI 

Regina Herzlinger, Ph.D., Professor of Business Administration, Harvard 

Business School—Continued 

Prepared statement .......................................................................................... 106 

Ronald Bachman, F.S.A., M.A.A.A., Senior Fellow, Center for Health Transformation ............................................................................................................... 132 

Prepared statement .......................................................................................... 135 

Diane Archer, J.D., Director, Health Care Project, Institute For America’s 

Future ................................................................................................................... 137 

Prepared statement .......................................................................................... 139 

SUBMITTED MATERIAL

Article entitled, ‘‘Study Finds Many on Medicare Return to Hospital,’’ April 

2, 2009, The New York Times, submitted by Mr. Pallone ................................ 155 

Letter of April 1, 2009, from the State of South Carolina to Mr. Deal, submitted by Mr. Deal ............................................................................................... 157 

Statement of the National Home Infusion Association, April 2, 2009, submitted by Mr. Engel ............................................................................................. 159 

Statement of CHRISTUS Health System, April 2, 2009, submitted by Mr. 

Deal ....................................................................................................................... 164


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MAKING HEALTH CARE WORK FOR AMERICAN FAMILIES: SAVING MONEY, SAVING 

LIVES 

THURSDAY, APRIL 2, 2009 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HEALTH, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 10:07 a.m., in Room 

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

(chairman) presiding. 

Members present: Representatives Pallone, Dingell, Green, 

DeGette, Capps, Schakowsky, Baldwin, Matheson, Castor, Sarbanes, Sutton, Braley, Deal, Shimkus, Shadegg, Pitts, Burgess, 

Blackburn, Gingrey, and Barton (ex officio). 

Staff present: Karen Nelson, Deputy Staff Director for Health; 

Karen Lightfoot, Communications Director; Jack Ebeler, Senior Advisor on Health Policy; Stephen Cha, Professional Staff Member; 

Tim Gronninger, Professional Staff Member; Purvee Kempf, Counsel, Anne Morris, Legislative Analyst; Virgil Miller, Legislative Assistant; Camille Sealy, Detailee; Miriam Edelman, Special Assistant; Lindsay Vidal, Special Assistant; Alvin Banks, Special Assistant; Allison Corr, Special Assistant; Brandon Clark, Minority Professional Staff Member; Marie Fishpaw, Minority Professional Staff 

Member; Clay Alspach, Minority Counsel; Melissa Bartlett, Minority Counsel; and Chad Grant, Minority Legislative Analyst. 

OPENING STATEMENT OF HON. FRANK PALLONE, JR. 

Mr. PALLONE. The meeting of the subcommittee is called to 

order. 

Today we are having our final hearing in this series on marking 

healthcare work for American families, and today we will examine 

how to get more value out of our healthcare dollars by improving 

quality and lowering costs. Earlier this week the Department of 

Health and Human Services issued a report on rising healthcare 

costs and the impact these costs are having on American families, 

businesses, and the Federal Government. According to this report 

the U.S. spent $2.2 trillion on healthcare in 2007, or $7,421 per 

person, and this comes to 16.2 percent of the gross domestic product, which is nearly twice the average of other developed nations. 

If healthcare costs continue to grow at the current rate, they will 

account for 25 percent of GDP in 2025, and 49 percent in 2082. 

Clearly, this level of healthcare spending is simply not sustainable. 


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So we need to figure out to change the trajectory of healthcare 

costs. Bending the cost curve even the slightest degree will help 

mitigate further growth and generate significant savings to our 

healthcare system. The difficult part is figuring out how, and that 

is why we are here today. 

Part of the problem is how we pay for healthcare services. There 

is an old saying that you get what you pay for. In this country we 

pay for the quantity of healthcare services provided, not the quality 

of the service. So it should come as little surprise that as utilization rates increase, healthcare costs rise and quality suffers. 

But this isn’t the story across the board. There is a lot of variation in the delivery of healthcare throughout our Nation. In parts 

of the country certain healthcare services are seeing tremendous 

growth and utilization. Yet in other parts there are concerns that 

patients aren’t receiving enough of recommended care. So we need 

to understand better what explains this variation and how it is impacting our healthcare system in terms of both cost and quality. 

Significant work has been done in this area by researchers at 

Dartmouth, including Dr. Jonathan Skinner, who we will hear from 

today. I think it is also important to note that these problems are 

prevalent throughout the healthcare system. A lot of people like to 

point to public programs like Medicare and Medicaid and use them 

as a scapegoat for healthcare costs run amuck, but the challenges 

we face with costs and quality aren’t endemic to just public programs. Private insurers and employers must also begin to rethink 

the way they pay for healthcare services. Changes to Medicare payment policies can help drive that change. 

And finally, I want to mention that we will also be examining the 

role of transparency when it comes to the delivery and purchasing 

of healthcare services. This has been a priority for our Ranking 

Member, Mr. Deal. I agree that consumers have the right to know 

what they are paying for when they see a doctor or enter a hospital, but that right also extends to other areas such as purchasing 

healthcare coverage. I think we need to be cognizant that transparency, while certainly a good thing, does have its limits. It is not 

realistic to expect transparency to be a panacea to controlling 

healthcare costs. Some, if not most, patients simply won’t be in the 

position to use this information or shop around for the best 

healthcare. 

I want to thank our witnesses for being here today. I am looking 

forward to your testimony. 

And I now recognize Mr. Deal for the purposes of his opening 

statement. 

OPENING STATEMENT OF HON. NATHAN DEAL 

Mr. DEAL. Thank you, Mr. Chairman. I want to thank you, and 

I want to thank the witnesses in both panels today for your appearance. 

Certainly the first panel today will raise a number of issues facing Congress. Chronic care is consuming a larger share of 

healthcare spending, treatment remains uncoordinated and oftentimes duplicative as a result of fragmented care and escalating 

costs threaten the coverage of millions of American families. 


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I am particularly appreciative that the chairman is willing to 

hold a panel hearing today on the second panel relating to 

healthcare transparency. As most of you know, I am currently 

making final revisions to my legislation Healthcare Transparency 

Act of 2009, which seeks to address many of the issues stemming 

from the exorbitant cost of medical items and services. My legislation addresses a core problem in our healthcare delivery system, 

which affects millions of American families. 

Medical bills remain the leading cause of personal bankruptcy in 

this country, and with these concrete hard facts in mind it bears 

asking why anybody would want to inhibit more transparent fair 

price healthcare market, fair prices in the healthcare market. 

I have some charts, and I am going to ask if someone would put 

those charts up while I make a few more statements. The first reaction of many people in Washington would be to create thousands 

of pages of new pricing regulations to help solve the problem. I 

want to make it clear that I believe the best solution would be to 

simply follow President Obama’s call for increased transparency 

and require any healthcare provider receiving federal funding to 

publicly disclose the price they charge to uninsured, to under-insured, and other self-pay patients. Given the efficiency created in 

today’s internet-based marketplace, particularly as the healthcare 

industry makes dramatic steps towards wide adoption of HIT and 

EMR technologies, the task would be simple and would empower 

millions of Americans with critical information about the cost of 

their healthcare. 

Another equally important component of the proposal would be 

to require health insurance companies to provide more information 

to patients before services are rendered. As you know, there are a 

number of factors which affect reimbursements provided by insurers such as deductibles, co-pays, and co-insurance rates and whether or not the provider is established as an in-network or out-of-network provider. And I think people should know before they receive 

the services exactly what those services are going to cost. 

Now, the charts that you see here are pictures made by staff 

members on a trip to Tanzania, Africa, and they are in Tanzanian 

shillings, and one United States dollar equals approximately 1,300 

Tanzanian shillings. Now, the brown chart there is taken at a community hospital in Tanzania, and it is in, the chart is located in 

the front of the reception area at the hospital. As you might be able 

to translate there, ultrasound there is the equivalent of costing four 

U.S. dollars. Now, that is a little deceiving because the GDP and 

the gross domestic product of Tanzania is very low. 

The white chart is a list taken outside the outpatient ward at a 

community health clinic. Now, it seems a little bit surprising to me 

that in what we would definitely call a third-world country their 

people going to their health providers have the right to know what 

the cost of their services are going to be, and they are publicly posted. I challenge you to find very many comparable environments in 

the United States where these prices are posted for the public to 

know before they receive the services, and think that is a shame 

and something that should be addressed, and we hopefully in this 

healthcare reform that we will undertake will have the opportunity 


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to do that. We shouldn’t criticize third-world countries when they 

have greater transparency than we do. 

So thank you, Mr. Chairman. I appreciate your indulgence, and 

thank you for having both of the panels here today. 

I yield back. 

Mr. PALLONE. Thank you, Mr. Deal. Our Chairman Emeritus, 

Mr. Dingell. 

OPENING STATEMENT OF HON. JOHN D. DINGELL 

Mr. DINGELL. Thank you, Mr. Chairman, and I commend you for 

holding today’s hearing. 

In the healthcare reform debate which we are now engaged everybody can agree on at least two things; we must reduce the cost 

of our healthcare system so that it doesn’t bankrupt our families 

and businesses and even government at all levels, and we must increase the quality of care so that we can get a better value for our 

dollar. This means a way must be found to see to it that we can 

control these costs and reduce the acceleration in growth of the 

costs that is moving forward. 

The cost of our healthcare system is an unsustainable path, and 

we must now act to bend the cost curve before it is too late. We 

have created a system that makes money by running more tests, 

doing more surgeries, prescribing more drugs, even if the data 

doesn’t back up the particular course of treatment, and of course, 

it involves buying large amounts of enormously expensive equipment as essentially a business promotion device. 

One of our primary goals in drafting healthcare reform legislation will be to provide ways to incentive value of care over volume 

of care. We must reform our healthcare system in a way that rewards providers for quality healthcare, reduces the number of hospital re-admissions, incentives primary care, and moves providers 

in the direction of creating integrated healthcare systems. And 

wellness must be a concern of ours as we go about this business. 

We must recognize the need for consideration of evidence-based 

data in determining treatment plans in an effort to highlight treatments which are most cost effective. We should not be led to believe that only the most complex and most expensive procedures 

are the most effective. Most times this is not the case. 

Studies show that standardizing certain procedures can save 

lives. For example, training staff on a simple matter like proper 

hand-washing procedures is still one of the best ways to prevent 

hospital-caused infections. Marking surgical sites on the patient’s 

body is another way to reduce medical errors, and this committee 

has had to address questions involving amputation of the wrong leg 

or removal of the wrong breast from patients in treatment errors 

of the most outrageous sort. 

Pre- and post-surgical checklists ensure that patients are receiving the best practices as developed by the medical community instead of invariability and quality of care are a necessity. 

Finally, we must create transparency in the healthcare marketplace. Transparency efforts must include a wide variety of information that allows patients, consumers to make well-informed decisions about insurance plans, services, and providers. A national 

health insurance exchange could be a very helpful event in this reVerDate Mar 15 2010 04:16 Apr 13, 2012 Jkt 067824 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 E:\HR\OC\A824.XXX A824

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gard. Such an exchange which would offer a range of private insurance options in addition to a public insurance plan could simplify 

paperwork and make the difference among plans, including costs 

and services offered more transparent to the advantage of the patients and to the advantage of the system. 

I look forward to hearing the testimony of our witnesses today 

about how we can improve the quality of our healthcare system, 

while also reducing the overall costs. Their incitement will be valuable in our meeting of the challenges ahead of us. 

I thank you, and I yield back the balance of my time. 

Mr. PALLONE. Thank you, Chairman Dingell. 

The gentleman from Illinois, Mr. Shimkus. 

OPENING STATEMENT OF HON. JOHN SHIMKUS 

Mr. SHIMKUS. Thank you, Mr. Chairman, and one thing great 

about, especially this subcommittee is we have active members who 

are in the healthcare profession, doctors, we have got Lois, who is 

a nurse, and they really bring a great benefit of actually practitioners versus us who are just laypeople trying to figure out this 

very complex process. So I do—I have said it a couple of times, it 

is really a joy to be back on this subcommittee. 

The—I think there is a new concern. Mr. Deal in his opening 

comment talked about, you know, government forcing transparency 

because we are in the process of being a big payer, and as you see 

with the TARP and Wall Street bailout and GM now with the Administration being able to tell the CEO to leave, I would expect 

more of that for anybody who gets government money of any size, 

shape, or form. I am not sure this is good for the country, but we 

are in a new era. And so if you are getting government money, expect government to start making decisions all the way down as to 

one of the bills we had on the floor last night said that we may 

be able to determine the salary of the janitor in a corporation that 

accepted TARP money. 

So figure out how that is going to affect healthcare in this for the 

Medicare and Medicaid, and I think you have to look at it, because 

as most people say, Medicare and Medicaid is a driving factor on 

health insurance reimbursements. So you can’t discard the underpayment by the government on these two provisions. 

I am not sure how much time—I don’t know if I have gone that 

quickly, but if it is then I will yield back if—unless—if you hit the 

timer. 

Mr. PALLONE. Thank you. 

Mr. Green. 

OPENING STATEMENT OF HON. GENE GREEN 

Mr. GREEN. Thank you, Mr. Chairman. I want to thank you for 

holding this hearing today on the health reform and access to care. 

Currently there are 47 million uninsured in our country. Overall 

healthcare is consuming an ever-increasing amount of our resources. Healthcare estimates are now 16 percent of our GDP, and 

this rate could hit 20 percent by 2017, and as our chairman said, 

25 percent later. Current estimates show that we are spending approximately $8,000 per person on healthcare per year. Unfortunately, we are paying more for the cost of healthcare but individVerDate Mar 15 2010 04:16 Apr 13, 2012 Jkt 067824 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 E:\HR\OC\A824.XXX A824

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uals are receiving less care for their money. Even though we have 

access to the most advanced technologies, fewer individuals seek 

treatment due to costs. 

The current economic times highlight the fact that more individuals are uninsured simply because their companies cannot afford 

health insurance or the employees cannot afford the premium. Premiums are high because we have a reimbursement rate policy, including SGR, which does not accurately cover the cost of treatment. 

We also have a fee for services to reimburse physicians for volume, 

which often rewards physicians who perform more procedures instead of focusing on better outcomes. 

As we work to improve our healthcare system we hope we will 

finally address our payment system to encourage better health outcomes and treatment. I believe this is the root of our high-cost 

healthcare and unfortunately prevent individuals from having access to quality and affordable healthcare. 

I want to thank our witnesses for appearing today, and I look 

forward to the testimony. I would also like to submit on behalf of 

my colleague, Representative Engel, written testimony for the 

record from the National Home Infusion Association, Mr. Chairman, and I yield back my time. 

Mr. PALLONE. So ordered without objection. 

The gentleman from Pennsylvania, Mr. Pitts. 

OPENING STATEMENT OF HON. JOSEPH R. PITTS 

Mr. PITTS. Thank you, Mr. Chairman, for convening this hearing. 

As we discuss healthcare reform, I can, I think we can all agree 

that patients should be more involved in their own care and treatment, but we will never drive down the out-of-control costs of 

healthcare if individuals do not take personal responsibility for 

their choices and behavior. 

Too often, though, individuals’ hands are tied. In many cases 

they do not have the one tool that might arguably be most important for driving prices down and quality up, to helping them make 

the very best decisions for their own lives and that is information. 

What is the true cost of an emergency room visit or CT Scan? 

What about the same CT Scan in the country next door? Of the two 

hospitals nearest my home, which has a lower hospital-acquired infection rate or a lower error rate during surgery? If I am a selfpaid patient, what am I paying compared to the person next to me 

who has private health insurance? None of us would accept this 

lack of transparency in other areas of our lives. I can pick up items 

in a supermarket, compare them using nutrition labels, all the information I need to decide which item is healthiest is right there. 

We all know that knowledge is power, and that is why I commend 

Ranking Member Deal on his draft legislation, the Healthcare 

Transparency Act, designed to get consumers the information they 

need to make informed choices about their healthcare. 

Mr. Chairman, I look forward to hearing the thoughts and testimony of the witnesses and thank you and yield back. 

Mr. PALLONE. Gentlewoman from Colorado, Ms. DeGette. 

Ms. DEGETTE. Mr. Chairman, I think this is a very important 

hearing, and I will waive my opening statement in order to get 

more time on questioning. 


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Mr. PALLONE. Gentleman from Georgia, Mr. Gingrey. 

OPENING STATEMENT OF HON. PHIL GINGREY 

Mr. GINGREY. Thank you, Mr. Chairman. We have heard a lot of 

testimony over these past few weeks concerning the critical problems our healthcare system is currently experiencing. 

Healthcare costs are rising faster than inflation and wages, and 

those costs create barriers to care for many, both insured, underinsured, uninsured, and of course, including lower-income families 

and those with chronic illness and the disabled. 

We do need to fix healthcare so that everyone has the ability to 

see a quality doctor or to receive life-saving treatment. We also 

need to reform long-term care, pay providers based on quality of 

care they give patients and not just volume. We need the in defense of medicine through meaningful reform and support the creation of a complete system of electronic health records. I think this 

goes hand and glove with my colleague from Georgia, Ranking 

Member Deal, on his Healthcare Transparency Act. 

This Congress is now on the verge of considering legislation that 

could fundamentally change the way we access healthcare in this 

country. Both sides of the debate want to make our current system 

of healthcare better. One side, though, believes that reform should 

happen through direct government control. The other side, our side, 

believes that in order to make our system better, we need to fundamentally strengthen what works in healthcare and strengthen 

the doctor-patient relationship. 

My hope is that this Congress works together in a bipartisan 

way to achieve meaningful reform that strengthens the doctor-patient relationship for every American and makes healthcare accessible and affordable for every American. 

Thank you, Mr. Chairman. I yield back. 

Mr. PALLONE. Thank you. 

Subcommittee Vice Chair, Ms. Capps. 

OPENING STATEMENT OF HON. LOIS CAPPS 

Ms. CAPPS. Thank you, Chairman Pallone, and welcome to all of 

our witnesses, and thank you for taking the time to be with us. 

Today’s hearing is particularly important because it asks the 

question that is at the heart of our health reform debate. How do 

we improve the health of Americans while decreasing the skyrocketing costs of healthcare? The answer lies in how we define 

and reward healthcare delivery. 

We must stop persisting with a complicated, cobbled-together 

system that really basically treats illnesses. Instead, we need to 

create a streamlined and comprehensive system which at its core 

strives to prevent illness and maintain health. 

In order to make that change in healthcare we so desperately 

need, information-based, coordinated care that finds some way to 

reward prevention is important. This, I believe, is absolutely essential and a way to bring down costs as well. 

So I look forward to hearing from our witnesses today, and I 

yield back. 

Mr. PALLONE. Thank you. 

The gentlewoman from Tennessee, Ms. Blackburn. 


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OPENING STATEMENT OF HON. MARSHA BLACKBURN 

Ms. BLACKBURN. Thank you, Mr. Chairman. This has been an interesting, very interesting series of five hearings, and so you all are 

the ones that are going to finish this up for us today, and we welcome you all. I especially would like to welcome Mr. Smith, who is 

on the first panel and has been so diligent in helping me with 

healthcare issues in Tennessee, and I appreciate that. And Dr. 

Herzlinger, who has also been someone I have gone to for advice 

through the years. 

Because in Tennessee we have had the system of TennCare, and 

as many of you know and have heard me say during this series of 

hearings, the mismanagement, very serious mismanagement issues 

that surrounded this program have caused some serious financial 

budgetary implications for our State. And I am one of those that 

as we have worked through this hearing it has reaffirmed to me 

how important it is that we have consumer empowerment, transparency, increased accountability, and the healthcare delivery systems. Without that we are going to see continued mismanagement 

of programs such as the TennCare Program. 

Mr. Chairman, I will have to tell you the hearing title was curious to me, saving money, saving lives. I wish we had said, saving 

lives while saving money and expecting better outcomes in 

healthcare delivery. 

Welcome to you all, and I yield back. 

Mr. PALLONE. Gentlewoman from Florida, Ms. Castor. 

OPENING STATEMENT OF HON. KATHY CASTOR 

Ms. CASTOR. Thank you, Mr. Chairman, and welcome to all the 

witnesses. 

You know, there is this great new technology that is available to 

members of Congress and others where we can hold telephone town 

hall meetings, and I did that Monday night, and the call goes out 

to everyone in your district, and they can just stay on the line or 

they can hang up if they are busy. We did it on the economy because folks are really struggling right now, and in my community 

where unemployment is over 10 percent and we have a very high 

foreclosure rate, I answered question after question on healthcare. 

The affordability, and we did this online poll where people can just 

press a button. Where do you get your healthcare, and we had one, 

we had about, we had over 4,000 people on the line, and it wasn’t 

very scientific but most receive their healthcare through their employer, employer-based health insurance, but every question was 

we just can’t afford it any longer. It is out of control. 

The parent who had healthcare through the employer but their 

son was blocked, prevented because of a pre-existing condition from 

participating, left them out, just completely out in the lurch. The 

retired school teacher who still has benefit through the school district is struggling with how to pay for prescription drugs, and that 

really hit home because that morning I was at a community health 

center with a pharmacy that had 340B pricing lowest, and I could 

not, I can’t rationalize the difference there. 

So this is the front burner issue, and I look forward to your expert testimony and how we make healthcare more affordable for 

Americans. Thank you. 


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Mr. PALLONE. Thank you. 

Gentleman from Texas, Mr. Burgess. 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS 

Mr. BURGESS. I thank the chairman. We do have really a distinguished panel, two panels before us this morning. Of course, Dr. 

Goodman from down in North Texas, being a representative from 

Fort Worth, I won’t say Dallas, but nevertheless I am so glad to 

see you here, because I think your wisdom will be great. Dennis 

Smith, obviously has been a great help to me in crafting some of 

these things. Dr. Cassel, we have crossed paths numerous times before and certainly appreciate your testimony this morning. Dr. 

Herzlinger, Ron Bachman, appreciate you being here as well. 

I support transparency and competition. I think our efforts must 

not drive behavior into the shadows but should truly try to better 

our care and empower the patient. If we want to move into a robust system of consumer-directed healthcare, clearly transparency 

is going to be a critical issue. 

I had introduced legislation on this in the last Congress and perhaps will do so again. I realize it is a somewhat contentious task 

when you are dealing with all the stakeholders, but I do believe it 

is worth the effort. 

Just a word on comparative effectiveness, I think we need to be 

realistic about how we use comparative effectiveness. Realistically, 

we need to use it as a reference for how physicians treat their patients, but it should not supplant the individual physician’s judgment as a hard and fast rule for healthcare delivery. 

Let us not forget when Medicare was introduced some—in 1965, 

that in the statute itself it said nothing in this legislation, shall 

construe that the Medicare legislation will interfere with the doctor’s ability to treat the patient. I think we would be wise to keep 

that in mind today as we go through this. 

I will yield back the balance of my time. 

Mr. PALLONE. Thank you. 

Gentlewoman from Illinois, Ms. Schakowsky. 

OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY 

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. 

I just wanted to point out that no longer is the problem of the 

cost of healthcare, access to healthcare a reserve for the 47 million 

people that don’t have health insurance but is really affecting so 

many more. 

First, we know that only giving someone an insurance card is not 

going to fix our healthcare problems. The Commonwealth Fund estimates that 25 million insured people can’t afford the gap between 

what their insurance covers and what their medical bills demand, 

and that number is growing exponentially every day. 

Second, in 2007, healthcare accounted for 17 percent of our GDP, 

but our healthcare system ranked last or next to last on five dimensions of a high-performance health system; access, efficiency, 

equity, quality, and healthy lives. And so we have to be starting 

to pay for quality care. 

And finally I want to talk about transparency. With all our current technological advances there is no reason why we cannot acVerDate Mar 15 2010 04:16 Apr 13, 2012 Jkt 067824 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 E:\HR\OC\A824.XXX A824

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cess information about insurance practices. As Diane Archer will 

outline in her testimony, it is impossible to hold insurers accountable without knowing, for example, how they calculate premiums 

and other cost-sharing requirements, their denial rates, loss ratios, 

their prescription drug rates, the in-network versus out-of-network 

care rates. My office recently met with a group of insurance agents 

who complained of being unable to get this type of insurance from 

insurance plans. That was insurance agents. How can insurance 

agents accurately represent and sell insurance products if they 

don’t have all the relevant information consumers need to make 

coverage decisions. 

We can create a system that is not only accessible, one that is 

efficiently and properly focused on providing quality care. 

Thank you, Mr. Chairman. I yield back. 

Mr. PALLONE. Thank you. 

Gentleman from Iowa, Mr. Braley. 

OPENING STATEMENT OF HON. BRUCE L. BRALEY 

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

on the issues of cost and value in our healthcare system. 

Creating a healthcare system that emphasizes quality of care 

over quantity of patients seen has been a long-standing priority of 

mine. Studies regularly show that the State of Iowa ranks right at 

the top of our Nation in terms of quality of care, but Iowa 

healthcare providers receive some of the lowest Medicare reimbursements in the country. The current fee for service system 

incentivizes the quantity of patients seen over quality of care, 

which results in higher costs and an emphasis on the bottom line 

rather than patient outcomes. 

A system that provides clearance centers for quality of care 

would also improve access to care for patients in rural America. 

Despite the well-documented success of Iowa’s healthcare system, 

Iowa healthcare providers lose millions of dollars due to outdated 

geographic practice indexes. These antiquated figures ensure that 

some parts of the country receive drastically-lower Medicare reimbursement rates than other parts and have led to a shortage of doctors and medical personnel in rural America. There is already a 

physician shortage in Iowa, and the existence of these gypsies provides further disincentives for treatment of those who need it most, 

Medicare patients. 

We need a system that emphasizes quality, efficient care with 

value-based measures. This will reduce costs and improve America’s quality of care. 

And I yield back. 

Mr. PALLONE. Thank you. 

The gentlewoman from Wisconsin, Ms. Baldwin. 

OPENING STATEMENT OF HON. TAMMY BALDWIN 

Ms. BALDWIN. Thank you, Mr. Chairman. I really want to commend you, Mr. Chairman, for this series of hearings that you have 

held, making healthcare work for American families. We have 

touched on a wide array of issues of great importance as we look 

at national healthcare reform. 


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Over a period of a few months President Obama during the transition invited Americans to host and participate in healthcare community discussions to talk about how to reform healthcare in 

American, and these discussions showed us, showed that more than 

anything Americans are worried about costs. And it is no matter 

whether they have insurance or not. The financial burden of 

healthcare is a daily concern. It is something that keeps them up 

at night. 

This situation obviously cannot persist, and we have this tremendous opportunity in front of us right now to reform our system and 

rebuild it for the next generation. 

And Mr. Chairman, I look forward to the opportunity to work 

closely with you over the coming months to produce comprehensive 

healthcare reform legislation that addresses these very significant 

concerns of our constituents. So thank you for this series of hearings and our hearing today. Thank you to our witnesses. 

Mr. PALLONE. Thank you. 

Gentlewoman from Ohio, Ms. Sutton. 

OPENING STATEMENT OF HON. BETTY SUTTON 

Ms. SUTTON. Thank you very much, Mr. Chairman, and thank 

you for holding this important series of hearings. 

Today’s hearing, saving money, saving lives, will address the cost 

of healthcare and transparency in our healthcare system. You 

know, we have all, we are all aware that American healthcare is 

the most expensive in the world. The Kaiser Family Foundation’s 

March, 2009, report on healthcare costs notes that the U.S. spends 

90 percent more than any other industrialized country on 

healthcare. 

With such high costs one would think that our healthcare system 

would be exceptional, but as indicated in previous hearings there 

are serious access issues in this country resulting in 47 million 

Americans without healthcare. Families USA estimates that each 

day in Ohio two Ohioans die because they lack health coverage. 

I look forward to hearing from our panel today as they address 

ways in which our healthcare system can cut down on costs while 

maintaining and even enhancing quality. I also look forward to 

hearing from our panelists as they address the role of transparency 

in our healthcare system, and I thank you, again, Mr. Chairman, 

and yield back my time. 

Mr. PALLONE. Thank you. 

Our Ranking Member, the gentleman from Texas, Mr. Barton. 

Mr. BARTON. Mr. Chairman, I am just going to submit my statement for the record, but how can we oppose a hearing entitled, 

‘‘Making Healthcare Work for American Families: Saving Money 

and Saving Lives?’’ Can’t get any better than that. 

Mr. PALLONE. Thank you for a compliment on our message. 

Mr. BARTON. Glad to be here, and I want to especially welcome 

Mr. Goodman, who is a good friend of mine, and we are glad to 

have a conservative viewpoint on this panel. 

Thank you, Mr. Chairman. 

Mr. PALLONE. I think that concludes opening statements by 

members of the subcommittee. 


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We will now turn to our panel. A word of warning. We might 

have a vote and have to interrupt but hopefully we will get, you 

know, we will get through the whole panel. 

Let me welcome you and also introduce each of you. Starting on 

my left is Dr. Jonathan Skinner, Professor of Economics at the 

Dartmouth Institute for Health Policy and Clinical Practice. And 

then we have Dr. Christine Cassel, who is president and CEO of 

the American Board of Internal Medicine and the ABIM Foundation. Dr. John Goodman, who is President and CEO of the National 

Center for Policy Analysis. Dr. Bruce Sigsbee, President Elect of 

the American Academy of Neurology. Dennis Smith, who is Senior 

Research Fellow in Healthcare Reform at the Heritage Foundation. 

And Dr. Jerry Avorn, who is Professor of Medicine at Harvard 

Medical School. 

We have—each of you, we ask you to give 5-minute opening 

statements, which obviously become part of the record, and then 

when you are done, we will have questions from our members 

again. 

Dr. Skinner. 

STATEMENTS OF JONATHAN SKINNER, PH.D., PROFESSOR OF 

ECONOMICS, THE DARTMOUTH INSTITUTE FOR HEALTH 

POLICY AND CLINICAL PRACTICE; CHRISTINE K. CASSEL, 

M.D., PRESIDENT AND CEO, AMERICAN BOARD OF INTERNAL 

MEDICINE AND ABIM FOUNDATION; JOHN GOODMAN, PH.D., 

PRESIDENT AND CEO, NATIONAL CENTER FOR POLICY 

ANALYSIS; BRUCE SIGSBEE, M.D., M.S., PRESIDENT ELECT, 

AMERICAN ACADEMY OF NEUROLOGY; DENNIS SMITH, 

M.P.A., SENIOR RESEARCH FELLOW IN HEALTHCARE REFORM, THE HERITAGE FOUNDATION; AND JERRY AVORN, 

M.D., PROFESSOR OF MEDICINE, HARVARD MEDICAL 

SCHOOL 

STATEMENT OF JONATHAN SKINNER 

Mr. SKINNER. Thank you, Mr. Chairman, and distinguished 

members of the committee for the invitation to join you today. 

Variations in per capita healthcare spending are now well recognized. 

Mr. PALLONE. We will have you speak and then we will have to 

break after you. So please continue. 

Mr. SKINNER. Less well known is that growth in spending has 

also varied dramatically across the United States as we have 

shown in slide one. 

[Slide shown.] 

Had Miami Medicare spending during 1992, to 2006, been as restrained as San Francisco’s, its cumulative savings would have 

been enough to buy a new Cadillac Escalade for every elderly person in Miami, thus solving both the problems of Medicare and the 

problems of the auto industry. 

The variation in growth rates may appear small, ranging from 5 

percent in Miami to 2.3 percent in Salem, Oregon, but 

compounding makes a huge difference. If all U.S. regions scaled 

back their growth rates by just over 1 percentage point as San 


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Francisco already has done, the Medicare Program would save 

more then $1 trillion by 2023. 

What explains higher spending? Almost all of the differences in 

spending across both regions and academic medical centers are due 

to the greater use and what we refer to as supply-sensitive services. 

[Slide shown.] 

Next slide. Medicare royalties in higher-spending regions are 

hospitalized more frequently for conditions that could be treated 

outside the hospital, see physicians more frequently, are referred to 

specialists more often, and have more physicians involved in their 

care. 

And more care isn’t always better care. Patients in high-spending 

regions report being less satisfied. Physicians describe greater difficulty communicating with other physicians or maintaining adequate continuity. Health outcomes such as survival following a 

heart attack are no better or worse, or sometimes worse in highspending regions. 

What is going on? We believe that the lower-quality care is largely because the payment system reinforces the fragmentation of 

care. Many medical decisions are in the gray area where judgment 

is required and physicians follow local norms. Income pressures on 

both hospitals and physicians motivate the purchase of new, profitable technologies and the referral of more patients to specialist or 

to the hospital. 

To discourage these expensive treatments with little benefits, it 

is important to get the prices right. But it is also important to pay 

attention to quantities. Until the Dartmouth Atlas came along, no 

one knew that an in Elyria, Ohio, the rate of cardiac stents, a common and expensive procedure to reduce blockage in the heart, was 

three times the rate in neighboring Cleveland and seven times the 

rate in Pueblo, Colorado. 

On average Medicare enrollees at the NYU Hospital spend more 

than a month of their last 6 months in a hospital bed compared to 

just 15 days at the University of Rochester. The current Medicare 

system is like contracting with a new homebuilder, agreeing on the 

price per square foot, but letting him decide whether to build you 

a mansion or a cottage. 

What is the solution? I think a necessary first step is the formation of accountable care organizations or ACOs. An ACO is a local 

network of providers that can manage the full continuum of care. 

It must be sufficiently large to accurately measure quality and expenditures, yet small enough to be manageable. Primary care or 

multi-specialty networks and intergraded delivery systems are all 

examples of shovel-ready ACOs. Our research has shown that the 

formation of ACOs would require little disruption of current physician referral patterns and that almost all physicians and hospitals 

could feasibly participate in such networks. 

My colleague, Elliott Fisher, has written about the path forward 

in creating these networks. I want to talk about the potential of 

ACOs in extracting some of that $700 billion in estimated waste for 

U.S. spending on healthcare. 

The obvious sources of savings are the high-cost regions where 

per capita Medicare expenditures are nearly double the national 


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average. One could cap payments for a small number of outlier hospitals with off-the-charts expenditures or cut reimbursements for 

high-cost providers who don’t participate in ACOs. I expect few 

hospitals will find these restrictions binding since there are so 

many avenues for high-cost hospitals to scale back spending and 

thus avoid penalties. 

Another approach is to restrain the growth rate in spending. 

Elsewhere, we have described a plan to share savings with ACOs 

able to ratchet back growth in healthcare costs. This approach encourages cost-saving technology and discourages investment in 

gray area healthcare with high-profit margins and uncertain benefits. These policies have the advantage of not penalizing even highcost providers, but they do not deliver cost savings until future 

years. 

In sum, I believe that accountable care organizations are central to claiming some of that $700 billion in wasted healthcare spending. While I recognize the practical challenges, it is hard to see any 

other approach generating the magnitude of savings we need. 

[The prepared statement of Mr. Skinner follows:] 


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Mr. PALLONE. Thank you, Dr. Skinner. 

We have three votes, so probably about half an hour. Five? Five. 

OK then. We are talking about probably at least 45 minutes, 

maybe even an hour. Maybe even an hour. But obviously we need 

you to stay here, so we will reconvene after the five votes. 

The subcommittee stands in recess. 

[Recess] 

Mr. PALLONE. The subcommittee will reconvene. We left off with 

the—and I apologize. I thought an hour but it ended up being more 

like an hour and 15 minutes, I guess. We heard from Dr. Skinner, 

so next is Dr. Cassel. 

STATEMENT OF CHRISTINE K. CASSEL 

Dr. CASSEL. Thank you, Chairman Pallone and Ranking Member 

Deal. I really appreciate the invitation to testify about approving 

healthcare value. My name is Christine Cassel. I am a board-certified internist and geriatrician and president of the American 

Board of Internal Medicine and ABIM Foundation. 

ABIM certifies about one-third of all practicing physicians in the 

United States. We have the largest of the 24 certifying boards that 

constitute the American Board of Medical Specialties. The certifying boards are independent, non-profits that do not accept industry funding. We test, monitor, and certify that individual physician 

specialists have the knowledge and skills required to practice in 

their designated specialty. 

Because growing research demonstrates that higher standards 

for doctors means better quality for patients, board certification 

standards are recognized as an important component of the accountability frameworks of both public and private payers. 

So I very much appreciate the committee’s leadership in examining the link between quality, cost, and value in our healthcare 

system. I want to make three points in my testimony today. 

First, while there are abundant opportunities to improve value 

across the healthcare system, the gap is widest and most distressing among those with multiple chronic conditions and those 

facing the end of life. Second, well-designed delivery system innovations can help to close that gap, and third, the success of delivery 

system innovations stands or falls in large part on the shoulders 

of highly-trained and accountable physicians and teams of 

healthcare professionals. 

More than half of Americans have at least one chronic illness, 

and chronic diseases as this committee knows accounts for a third 

of the years of potential life loss before age 65 and is the single biggest challenge in our growing elderly population. As we know, the 

problem is not the lack of spending. More than 75 percent of our 

$2 trillion healthcare bill is spent on chronic disease care. Too often 

the problem is failure to deliver the right care at the right time 

and importantly, to coordinate care across the complex care needs 

involving multiple providers and settings in a patient-centered 

way. 

In fact, according to MedPAC, Medicare could save $12 billion a 

year by reducing unnecessary hospital readmissions, improving 

care transitions and care coordination, and enhancing primary 

care. A more patient-centered approach, especially to palliative and 


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end-of-life care could also contribute greater value to our 

healthcare systems. Research shows that when patients’ needs and 

preferences are the focus of care decisions, fewer resources are 

spent on aggressive and futile technical interventions. Patients receive more timely referrals to hospice care, and patients and their 

families have better quality of life in the days that remain. 

Payment reform needs to support the physician who has the 

skills, the evidence base, and the relationship to make this happen. 

As this committee also knows models to improve care for patients 

with chronic conditions and those at the end of life are now being 

developed and tested, and we are hearing about some of those 

today. 

In 2008, the American Board of Internal Medicine, along with 

ten other specialties, began recognition of a new specialty of medicine in palliative and hospice care so that patients and payers 

could be more confident of the provider’s skills. Patient-centered 

medical homes also hold out the potential to simultaneously reduce 

costs and improve quality. The concept promotes efficient use of office practice design as well as professional recognition and remuneration of the primary care physicians and geriatricians who are 

needed to manage and lead such practices. 

However, these very same professionals are in very short supply. 

A study last year showed that 2 percent of graduating medical 

schools, graduating medical students expressed interest in seeking 

careers in primary care internal medicine. Given this reality medical homes and related models are going to need to make the very 

best use of the generalist physician skills that we can get to manage these complicated patients and to use the talent and experience 

of other members of the clinical team to support prevention and coordination. Those team skills are also not in common supply in our 

medical world or in our medical—or taught well in our medical 

schools. 

The medical home model to date has focused mostly on systemlevel improvements like health information technology. These are 

necessary, but they are not sufficient. For the medical home concept to deliver on its promise, the designers have to create incentives for long-term relationships and effective utilization of care between the highest-need patients and their physicians. 

Primary care and geriatric physicians will need the tools, both 

incentives and accountabilities, skills, and experience to support 

care coordination beyond the confines of their practices. The seven 

to ten to 15 other specialists that the patient is also seeing also 

need incentives to share the information that they have with that 

medical home, and the medical home also needs two-way communication, not just with physician specialist, but with hospitals, 

nursing homes, rehab centers, and other community resources. 

Finally, I would like to suggest that specialty board certification 

and maintenance certification offers a way to enhance, improve the 

physician’s skills and to ensure that they can continue to keep up 

to date to manage complex patients. What we require of physicians 

to maintain their certification includes regular, formal skills testing, practice monitoring, and self-evaluation and quality improvement, including tests of diagnostic skills, clinical judgment, systems management, and the translation of medical knowledge and 


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evidence into practice. All of these tools use national quality forum 

endorsed measures where they exist. 

Now all leading health plans put a premium on physicians who 

participate in this process in their reward and recognition programs. We have also been involved recently in discussions with 

Senate staff to recognize this process of maintenance and certification in the pathways within the Medicare PQRI Program, and we 

look forward to working with you and would ask the House leadership to give this idea similar consideration as a way of reducing the 

burden on doctors of redundant measurement requirements and a 

way of enhancing evidence-based approaches to setting levels for 

quality of care. 

So in conclusion stronger infrastructure, better connectivity, and 

physician payment reform are all essential elements of the patient 

center medical home, as well as effective healthcare reform. But at 

the end of the day my message to you is that the quality and value 

of healthcare for complex patients also rests in great part on the 

skills and judgment of the physician in relationship with the patient. 

Thank you very much. 

[The prepared statement of Dr. Cassel follows:] 


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Mr. PALLONE. Thank you, Dr. Cassel. 

Dr. Goodman. 

STATEMENT OF JOHN GOODMAN 

Mr. GOODMAN. Thank you, Mr. Chairman, members of the committee. I promise to stay on time. 

All bureaucratic systems tend to show a similar pattern, whether 

it is the National Health Service in Britain or Medicare in Canada 

or the Texas Public School System or the U.S. Healthcare System. 

In all these systems what you tend to find is a sea of mediocrity 

punctuated by little islands of excellence. 

In healthcare people point out that if everyone in America went 

to the Mayo Clinic for his healthcare, we could cut the national 

healthcare bill by a fourth, and quality would go up. If everyone 

went to the Intermountain Hospital System in Utah, we would cut 

spending by one-third, and quality would go up. 

So invariably in all these systems people ask, well, why can’t everybody else be like the islands of excellence. There are two characteristics of these islands. Number one, they tend to be randomly 

distributed, and that is because there is no reward for excellence 

and no penalty for mediocrity, and two, whatever makes them good 

is originating on the supply side of the market and not on the demand side. And the problem for us is that we don’t understand why 

the good organizations are good, we don’t know how to replicate 

them, and we don’t have any model that tells us how to manipulate 

them. 

Now, despite this fact there is huge interest in pay for performance systems in Washington elsewhere around the country, and yet 

we have been doing this in education for almost 2 decades now, certainly in my State of Texas we have been doing it, and I can’t see 

that we have had any positive results. 

Now, if it is true that everything that anybody can point to that 

they like in healthcare is originating on the supply side of the market and no one can point to any example where a demand side reform is causing any commendable response, then it would seem to 

me that we ought to focus on how we get these kinds of supplyside changes, and I have three recommendations. 

First, we should stop penalizing what we like. When Mayo Clinic 

saves money for Medicare, it is losing money for itself. Same for 

Intermountain. When the Geisinger Health System, which was in 

the Washington Post just this week, offers a warranty on its heart 

surgery so that the buyer doesn’t have to pay again if they screw 

up and there’s a readmission to the hospital, Geisinger is saving 

money for Medicare, but it is losing money for itself. 

So we need to turn this around. Medicare ought to be willing to 

say at least we will pay 50 cents on the dollar when you are saving 

us money. So that is reform number two. 

The second thing Medicare needs to do is tell all the other hospitals what it has done. We want other hospitals to know that we 

have rewarded innovations that improve quality and reduce costs, 

and then invite all those other hospitals not to copy what Geisinger 

has done because we don’t know that Geisinger is really doing it 

the best way, but to come forward with their own suggestions for 

repackaging and repricing their services. 


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And number three, we need to extend this offer to every hospital, 

every doctor, everybody on the provider side. Medicare ought to be 

open for business. It ought to be open to hear from any provider 

who suggests a different way of being paid with three rules. Number one, cost to the government cannot go up, the quality of care 

to the patient cannot go down, and they need to tell us 6 months 

out or 12 months out how we are going to measure all this to make 

sure we have abided by rule one and two. 

This is a totally different approach then that pay-for-performance 

approach. What I am suggesting is let the supply side of the market which knows far more than anybody on the buyer’s side, let 

them to decide and propose how we improve quality and reduce 

costs and every doctor in America can think of ways that you can 

reduce costs and eliminate waste. It is just under the current system they have no incentive to do so. 

Both in education and healthcare we have the same fundamental 

problem. The entity that pays the bills is not the entity that benefits from the services, and that is the source of the inefficiency that 

we find. In healthcare wherever there is not a third party, wherever there is no Medicare, no Blue Cross, no employer, things actually work pretty well. If we look at those markets like cosmetic surgery, lasik surgery, the walk-in clinics in shopping malls, tele-doc, 

which does telephone consulting, the concierge stocks, medical tourism, and all these markets where it is just patient and doctor and 

no third-party payer. You always find price transparency, you often 

find quality transparency, you have cost control, you frequently 

have electronic medical records, electronic prescribing. Doctors 

often are using telephone, e-mail. In other words, doctors dealing 

with patients on their own tend to deal with patients the way other 

professionals; lawyers, engineers, accountants, and so forth, deal 

with their clients. We need to open up the supply side of the market and encourage this. 

This morning, Mr. Chairman, I have talked about freeing the 

doctor in this system. We also need to free the patient, and I have 

written about that elsewhere. Thank you. 

[The prepared statement of Mr. Goodman follows:] 


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Mr. PALLONE. Thank you, Dr. Goodman. 

Dr. Sigsbee. 

STATEMENT OF BRUCE SIGSBEE 

Dr. SIGSBEE. Good morning, Mr. Chairman, Ranking Member 

Deal, and members of the committee. I am here to talk about this 

morning or actually now this afternoon about how realigning incentives within the healthcare delivery system will lead to better quality of medicine and will service the Medicare population. 

As an introduction, I am a practicing neurologist. I am also medical director for a nearly 50-physician multi-specialty group and responsible for quality in that group, and I am also incoming president of the American, president elect of the American Academy of 

Neurology. 

Right now as many have already pointed out this morning we 

have misaligned incentives within the healthcare delivery system 

and payment structure. And in a very real sense we have procedure-centered care, not patient-centered care. And the focus should 

be on what is important for the patient, for the individual patient. 

I am not suggesting that we cut payment for proceduralists, but 

what I am suggesting is that we need to adjust the payment system so we have a balanced workforce. 

There are certain consequences of the current incentives that 

have been reviewed before, and I am sure you have heard testimony on, but at least from my own perspective as a neurologist 

where we are responsible for taking care of diseases that are important to the Medicare population such as Alzheimer’s, ALS, Parkinson’s, stroke, we are suffering the same workforce crisis that 

primary care is suffering. 

Also, intrinsic in the current fee schedule is actually not just a 

lack of incentive but barriers to quality. Certainly it is not all valued by the payment structure. I have had physicians tell me that 

they did not want to get involved with quality efforts because it 

took them away from revenue generated at activities. 

And also, if you look at it, ambulatory quality systems are still 

in their infancy. Unlike hospital quality systems that have developed over the last several decades, we are still trying to figure it 

out. It takes a great deal of effort and energy to make these systems work. And they also are quite costly. Health information technology is an important tool. You also need healthcare coordinators 

and others to really make it work. 

PQRI in my view is an abject failure. Pay for performance as it 

currently exists does not encourage, as it is viewed as ineffective 

quality measure, but quality can be done very effectively, and I 

would like to give you at least my own personal story on this. I am 

a member of a three-physician neurology group. We have a joint 

commission stroke center at our hospital. Before we went through 

the certification process, we thought we were doing a great job of 

taking care of stroke patients until we actually started measuring 

what we were doing, and we were not doing as well as we thought 

or expected of ourselves. By placing the quality systems in place, 

by constantly monitoring, by developing a system of care that includes EMTs out in the field, all the way through rehabilitation, we 

are taking very good care of those patients. We consistently exceed 


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national stroke center benchmarks in terms of the quality of care 

that we provide. And it is that kind of in-the-community effort that 

is really required for effective health, for quality measures. 

And as far as an example, and to really look at a payment structure and at least in terms of the incentives, what is really important, and you have heard about accountable healthcare organizations, medical home, but what you are really trying to do is create 

a system where you are trying to incent the behaviors that are 

really important for patient care. Certainly productivity is important, not sort of the hamster mill of turning but you need certainly 

enough physician work to have access for the Medicare population. 

Quality is critical, patient satisfaction and really a good experience 

with the healthcare delivery system and confidence in the care that 

they are getting, but also you need to encourage the physicians to 

work on improving the systems of care. Care is no longer just one 

physician and one patient. It is across the whole system of care. 

For example, the stroke center, we have trained the EMTs so they 

can recognize stroke and deal with it appropriately. 

So you really have to have a whole system involved, and it has 

to be patient-centered care. And how do you create those incentives? There is a lot of discussion about healthcare delivery systems. In fact, in the last four or five years there has been a great 

deal of experience with creating physician compensation systems, 

which we are really talking about, and creating a balanced way of 

trying to incent physicians to do exactly the kinds of things that 

I am talking about. 

In fact, they have developed and most places that now employ 

large groups of physicians have moved to what they call a blended 

compensation system, which includes both a salary component as 

well as an at-risk component that can be determined not based on 

only productivity but also on quality, patient satisfaction, and also 

what is termed citizenship, which is contributing to healthcare delivery systems. 

And no matter what system you involve, if you don’t implement 

the proper incentives in that system, it will not really be an effective way and really incurs the kind of healthcare that we would 

like. So based on this experience I am recommending that no matter what system we move ahead with that there be a blended payment structure that includes the right incentives which not only 

will be good in terms of cost control but will be good for patients. 

Thank you. 

[The prepared statement of Dr. Sigsbee follows:] 


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Mr. PALLONE. Thank you, Dr. Sigsbee. 

Mr. Smith. 

STATEMENT OF DENNIS SMITH 

Mr. SMITH. Thank you, Mr. Chairman. It is a great pleasure to 

be with you again. First let me hasten to say new views, my testimony are my own. They don’t represent the position of my current 

and certainly not the position of my former employer, the Federal 

Government. 

I do perhaps have a little bit different perspective than my colleagues here on the panel in terms of the experience of actually 

running these programs for the last 10 years or so of my life. It 

gives me perhaps a different perspective seeing Medicare and Medicaid, two government health plans, up close and personal. 

And one of the things that I think is striking to me is that they 

have to be part of the equation as well. Medicare and Medicaid account for approximately 45 percent of healthcare spending today. 

They are going to go up to 50 percent. So any idea that we can do 

this without involving, reforming the entitlement programs would 

seem to me it doesn’t work. 

It has been 15 years since Washington tried this sweeping types 

of reform that is being currently discussed today, but in that time 

states have been trying to do this. We have states as diverse as 

California, Massachusetts, Oregon, Tennessee, Hawaii, Maine, and 

Washington have all struggled with universal care. I suggest that 

we learn from them since they have already tried it and see what 

lessons there are, and then certainly we have Medicaid itself, the 

experience of the last several years in dealing with the great 

growth in eligibility and Medicaid, et cetera. So there is a great 

deal to learn from. 

I think one of the things also is the expectations. Right now and 

I think in all of these states the promise was being made to the 

people not only those who were uninsured but the people who were 

insured as well. The promise to them was this was going to be 

cheaper for everybody, and everybody’s going to save. We are hearing that today. The President has made the promise that the average family is going to save $2,500 on average. That is $2 trillion 

over a 10-year period of time. In recent, the last few weeks and 

months we have made commitments to spend another trillion dollars over 10 years on healthcare, so it seems to me right off the 

bat we are $3 trillion apart from where the American people think 

we should be in terms of addressing the issues of healthcare. 

Again, I think we need to try an approach of lowering the cost 

first then it will become more attractive to people and that they 

will actually purchase it. I think the experience especially in California and Tennessee are very important lessons of the day. 

First, dealing with the issue of mandates, what does that do to 

the cost of care. I think the discussion in California was very reflective since we have that in recent memory where you started off 

with mandates, mandate participation, then you were mandating a 

particular type of coverage, then you were also mandating how 

much people were actually going to spend on it. You became, you 

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ing the price tag even higher yet. And I think that that in itself 

contributed in large part to why reform in California failed. 

Tennessee as well. Tennessee, the story of TennCare was not 

started as a healthcare issue. It was started as a budget issue, and 

accordingly, TennCare from the very beginning I think was crippled and doomed to failure. It took a lot of years. It spent a lot of 

money before the program itself was dramatically changed. 

So in terms of solutions, where do we look? From my way of 

thinking look at what model is actually being very successful in 

getting people covered, although in recent years we have had some 

struggle, but the dynamics anyway of employer-sponsored health 

insurance. What advantages do they have? First, they have the advantage of the tax code in which individuals have a tax advantage 

to buy it through the employer. So level the playing field between 

the individuals buying it on their own and individuals who are buying it through employers. 

Secondly, the dynamics of group purchasing. Individuals when 

they go to the marketplace on their own, they are all on their own. 

They are all by themselves. Well, in group purchasing, in employer 

sponsored, you are in a group. You get the discounts that is offered 

to the group, and you do not have the underwriting that goes on 

in the group setting. 

The entitlement reforms themselves, as I said, Medicare and 

Medicaid in my mind have to be a large part of it. My colleague 

at the end of the aisle talked earlier about the disparance in Medicare payments between Florida and hospitals, between Florida and 

San Francisco, but he didn’t say why. The reason why is government actually interferes in the marketplace. We see time and time 

again in Medicare and in Medicaid where government artificially 

steps into the market, allows one hospital, for example, to leap 

three counties away so they get the higher reimbursement of an 

MSA from a higher payer. 

So we are interfering in the market all the time is part—so I 

think part of the solution is resisting that temptation. We have 

plenty of quality initiatives in Medicare. We have got I think in 

many respects the things that we are discussing today have been 

discussed for a great, for a long period of time. There is in many 

respects nothing new under the sun in types of those issues, but 

I think the one thing that would be particularly helpful is transparency. 

People should know what they are actually paying for, what they 

are actually buying. We tried this in the Deficit Reduction Act of 

2005, where we tried to bring transparency to prescription drugs 

and ended up being sued by the pharmacy community who didn’t 

want those drugs to become public. So the transparency itself I 

think is a great advantage, a very important element that is absolutely missing. 


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And finally I think the long-term care in Medicaid, we are unnecessarily paying, spending too much on long-term care for services 

that people don’t really want. Talking to people with disabilities, 

they want to be in their own homes, in their own communities, not 

in institutional care. So we have to fix the F-map in Medicaid to 

rebalance the system. 

Thank you very much. 

[The prepared statement of Mr. Smith follows:] 


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Mr. PALLONE. Thank you, Mr. Smith. 

Dr. Avorn. 

STATEMENT OF JERRY AVORN 

Dr. AVORN. Mr. Chairman, members of the committee, thank you 

for the opportunity to testify today at this very important time for 

the Nation’s healthcare system. My name is Jerry Avorn. I am a 

professor of medicine at Harvard Medical School, and for nearly 30 

years my research has focused on the effectiveness, safety, and affordability of prescription drugs and how those drugs are used by 

doctors and by patients. I have taught and practiced geriatrics and 

primary care internal medicine at several of the Harvard teaching 

hospitals since 1974, and I am the author of the book, ‘‘Powerful 

Medicines,’’ which deals with many of these concepts. 

We doctors badly need more information about the drugs we prescribe. Our ability to take the best possible care of our patients is 

severely hampered by a lack of this information. There is also a 

need for our patients to be astute consumers of the medical choices 

available to them, and the Nation increasingly expects those who 

pay for healthcare to be able to make the smartest possible choices. 

The information gap I will discuss today limits decisionmaking on 

all of these fronts. 

My history and by law the FDA is not mandated to evaluate new 

drugs or devices against other treatment options. Its enabling legislation requires it to approve a drug for marketing if the manufacturer demonstrates effectiveness, which may simply mean that it 

works somewhat better than a dummy pill. 

But I have never had a patient say to me, Dr. Avorn, please prescribe me something that is a little better than nothing. Patients 

and doctors want to know the best treatment for a particular condition, but that isn’t the evidence that the pre-approval testing system was ever designed to collect. Many observers feel that changing the legal standards for the drug approval process would be infeasible, and many others argue that it would be undesirable. 

In any case, once a product is marketed, important new information about its safety or effectiveness could be collected, which would 

be very important for doctors and patients to know about but which 

is beyond the purview of the initial approval process itself. Once a 

new product is on the market its manufacturer is likely to launch 

a massive sales campaign. The pharmaceutical industry spends 

much more of its revenues on marketing and on promotion than it 

does on research and development. The most costly new products 

are the ones that are most aggressively advertised to doctors and 

to patients whether they represent a real advance or not. A timetested generic drug may be the most effective treatment for conditions like high blood pressure or diabetes, and generics often have 

the most well-established safety records as well and are likely to 

be the best value economically by a long shot. 

But the profit margins on generics are wafer thin, so their manufacturers don’t have the resources to take out expensive ads on the 

evening news or to send perky salespeople to doctors’ offices to offer 

us free meals and gifts to persuade us to prescribe those drugs. 

This skews the use of medications as well as other interventions 

towards the costliest choices, even when they are no better than 


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the alternatives and may even be worse. Other economic incentives 

can take hold when expensive treatments or tests like chemotherapy or MRI testing become profit centers of their own for the 

doctors who prescribe them or order them. 

The manufacturers of drugs and devices are investor-owned companies, not public health agencies. That is not a moral judgment. 

It is just an economic fact. Given these companies’ responsibility to 

maximize return to their shareholders, you would be naive to expect these companies to be a good source to fund and disseminate 

studies which could sink one of their products. 

There is a clear and embarrassing track record of drug makers 

actually suppressing the results of research if it showed problems 

with their products. This has happened with anti-depressants like 

Paxil, the cardiac surgery drug Trasylol, the cholesterol medication, 

Bacol, and many others. And there are examples of this problem 

from nearly every field of medicine. 

At the beginning of this decade my own research group wanted 

to study the apparent link between Vioxx and heart disease while 

that drug was still on the market. We had to seek funding for the 

research from its manufacturer, Merck, since there was so little 

federal support available to do this research. When our study found 

a clear link between Vioxx and heart attack well over a year before 

it was taken off the market, Merck tried to persuade us to deemphasize some key results, take a co-author off the paper, and then 

they dismissed the very methods that they had previously supported. Clearly this not the ideal way to fund studies of drug safety 

and comparative effectiveness. 

Until now it has not been anyone’s job to determine how well alternative treatments work and how safe they are compared to each 

other. We are often totally in the dark as doctors when we try to 

choose between several drugs for the same condition since those 

studies are rarely done. Our patients probably think that we are 

playing with a fuller deck than we are. Perhaps members of Congress think so as well. We are not. As bad as the situation is for 

drugs, this informational gap is even worse for other kinds of 

healthcare intervention. A new medical device like a pacemaker or 

defibrillator or artificial hip mostly needs to show that it is not 

dangerous. Not how well it works or whether it is better than existing products. And new surgical procedures or new imaging studies 

like MRIs and CAT Scans don’t have to show that they benefit patients at all. 

The worst consequence of this information deficit is that it prevents us from taking the best possible care of our patients. But at 

a time when the Nation can’t afford to provide healthcare for all 

of its citizens and even people with insurance as we heard earlier 

have problems paying for that care, the economic aspect of this 

problem is also quite important. 

The U.S. as you heard earlier today has per capita healthcare 

costs that are the highest in the world by a great deal. Yet our 

medical outcome data are overall no better than those of many 

other industrialized countries and often much worse. In these 

rough economic times when more and more people have to pay for 

healthcare out of pocket, high costs can mean no care at all, and 

for Medicare and Medicaid not knowing which treatments work 


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best and which have the best value and which are safest leads to 

patient outcomes that are worse than they need to be and costs 

that are increasingly unaffordable for the Federal Government and 

therefore the taxpayer as well as for the states. 

There is a solution for this problem. It is based on the same concept that underlies all of modern medicine, and it is the reason 

that we are not still using leeches and purgatives to treat most diseases. It is the idea that well-conducted scientific studies can show 

us which treatments work best for a given medical problem and are 

the safest. This information can be gathered through well-established methods of randomized trials, as well as observational studies. The latter kind of research, which my group at Harvard performs, can review the clinical experiences of millions of people to 

learn how well similar patients did with different treatments. 

These kinds of observational studies can also enable us to ask 

questions about special sub-groups of patients such as minorities or 

children or the very old; the very groups that are often under-represented or even excluded in the clinical trials that drug manufacturers perform to win FDA approval. 

This kind of research is a public good like clean air and good 

highways, which needs to be supported by government. The private 

sector is simply not going to do the research to identify drugs that 

are absurdly mis-priced or toxic any better than the private sector 

was able to identify financial instruments that were absurdly mispriced or toxic. 

This kind of applied research is not something we should fold 

into the missions of the National Institute—— 

Mr. PALLONE. Dr. Avorn, I am sorry. 

Dr. AVORN. Yes, sir. 

Mr. PALLONE. You are 2 minutes over, so if you could kind of 

summarize. 

Dr. AVORN. OK. I will wrap it up. 

There is a way that we can get this information to physicians as 

well as make sure that it is out there in the literature. For a number of years my colleagues and I have been doing a process called 

academic detailing, in which we bring information to doctors much 

as sales reps do for the drug companies. The idea is that the states, 

in this case several states in the northeast, support nurses, pharmacists to go to doctors’ offices and bring information that is not 

about sales but is just about the best possible way of taking care 

of patients. And we have shown over the years that this is a way 

of improving care and actually paying for the program’s cost. 

In summary, there are ways in which we think that we as physicians can take better care of our patients and save money for the 

healthcare system at the same time. Sandra Cole on the Senate 

side has introduced a bill to support this academic detailing outreach to doctors. I am pleased that members of this committee, 

Representative Waxman and Pallone, have also introduced a bill 

that would do the same thing on the house side. The goal is to get 

us doctors the information we need to take better care of patients, 

improve those outcomes, and save money at the same time. 

Thank you. 

[The prepared statement of Dr. Avorn follows:] 


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Mr. PALLONE. Thank you, Dr. Avorn. Thank all of you. 

We will take questions and start with myself. In each case we 

have 5 minutes. 

My questions actually are of Dr. Skinner. I am trying to get two in here; one about the—his startling statistic about $700 billion in 

healthcare spending each year is wasted, which is about the size 

of the economic recovery package that we enacted, and it represents about a third of all health spending. Now, my understanding is when you talk about $700 billion it is 

money spent on services that are not effective or that may even be 

harmful. But if I you would explain. Where does this estimate come 

from, what do you mean by wasteful spending, and why is this so 

large? 

Mr. SKINNER. Thank you. That is a great question. That is a big 

number. We had done some studies at, from Dartmouth that looked 

at outcomes of say heart attack patients, hip fracture patients, a 

very large number across the country where we had very good detailed information on how sick they were when they arrived. Heart 

attack patients are—everybody is admitted to the hospital, you 

have some good information on how well they are doing, and what 

we observed some areas spent 60 percent more on these patients, 

but they didn’t do any better. If anything, they did a little bit 

worse, and so we added up the number and came up with a number between 20 and 30 percent for the Medicare population. 

We extended that to the general population, the under 65 population, which—and also we, we also viewed this as sort of a lower 

bound in some way because probably even the most, what we found 

to be the most effective, cost-effective areas could also probably improve a little bit as well. So—— 

Mr. PALLONE. So it is private as well as public? It is not—— 

Mr. SKINNER. Yes. We don’t have direct information on private, 

but we made inferences based on the Medicare population. 

Mr. PALLONE. Now, what do you suggest we do to avoid this 

waste in passing health reform? I mean, I know you talk about the 

creation of ACOs, Accountable Care Organizations, that would reward physicians and hospitals for effective management and costs 

and quality. How would that address the problem? Is that your answer? 

Mr. SKINNER. Well, I think of ACOs in some way as a very flexible approach that enables whatever kind of health reform that 

comes in to at least get at what we see is the fundamental problem 

in healthcare, which is nobody is accountable in the system, that 

primary care physicians are overworked, they get patients, they 

send them to the ER if they are, you know, if they can’t deal with 

them in their offices. There are one or two patients. There is a lot 

of fragmentation. All of these problems basically are allowed to 

grow and to cost us money and to result in bad care, and the ACOs 

are ways to try to solve that. 

Mr. PALLONE. And how would they solve it? Because, you know, 

I don’t want just another managed care organization. How are they 

going to help us? 

Mr. SKINNER. Absolutely. I think the last thing we want is to live 

through the 1990s again with the problems of managed care. I 

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ple of providers, highly-skilled physicians and other providers 

working together to try to basically sit down, maybe this primary 

care physician that I mentioned earlier who may not have admitting privileges at the hospital in sending their patients to the ER, 

they could actually get together with the people at the ER and figure out more effective ways, more cost, you know, ways to save 

money when they get difficult patients that come into their door. 

Mr. PALLONE. But are you going to do it by changing the payment system or—I mean, what is the mechanism? What is the enforcement mechanism? 

Mr. SKINNER. Yes. No. It is two things. One is you have to get 

the prices right. This is easy for me to say as an economist, but 

you also have to pay for the right things. Right now we are paying 

per MRI, we are paying on the basis of quantities, and so basically 

Medicare pays whatever people decide to do. What we need to do 

is pay on the basis of—is reward on the basis of total expenditures. 

That is prices and quantities. 

Mr. PALLONE. You know, there was an article, I am going to ask 

unanimous consent to put this in the record. It is an article that 

is today’s New York Times about this study that finds that many 

on Medicare return to hospitals. 

Without objection so ordered. 

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

Mr. PALLONE. But are you familiar with that? I mean, is that an 

example of how we could—that is something that needs to be addressed obviously. Right? 

Mr. SKINNER. Yes. I mean, right now, I mean, another example— 

that is a very good example. Another example was when a hospital 

figured out that when people came in with back pain, that if they 

sent them to see a nurse practitioner, rather than send them home 

and have them wait to go see the surgeon, then, in fact, most of 

them, most of the back pain suffers got better and went back to 

work. But the problem was that the hospital was losing so much 

revenue because it wasn’t doing as much back surgery. And so they 

actually—— 

Mr. PALLONE. The bottom line is you are going to have to create 

some sort of financial incentive. I mean, this article talks about a 

financial incentive for hospitals that, where the person, where they 

don’t have such a return rate. 

Mr. SKINNER. Yes. 

Mr. PALLONE. And you would do the same thing with doctors and 

group practices and all that? 

Mr. SKINNER. Exactly. 

Mr. PALLONE. All right. Thank you. 

Mr. Deal. Dr. Burgess. Oh, you want to see it? Sure. Yes. Sure. 

Go ahead. It was in today’s New York Times, and it is, basically 

says that, you know, that there are a lot of hospitals where they 

have a high readmission rate under Medicare because they don’t 

give people proper services when they leave so they come back. And 

one way of addressing it is to, you know, create a financial disincentive for that, for the hospitals. 

You are OK? All right. I didn’t hear you. I am sorry. Dr. Deal. 

Mr. DEAL. Thank you. Well, you all have been interesting, and 

you all have indicated the complexity of the issue that we face by 


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the diversity of the subject matter that you have addressed, all of 

which was within that umbrella of healthcare reform, and I thank 

you for your testimony. 

But it is hard for us to get a handle on all of this, as I think 

you all understand. I think part of it is that we are trying to figure 

out objective standards to apply against subjective matters. For example, we have interfered with the private marketplace to the extent that in the private marketplace a patient used to go to the 

doctor because they knew what his reputation was. You know, he 

was a better doctor than the other doctor who was in town, and so, 

therefore, they gravitated to him. 

Nowadays, there—and this is the transparency issue in another 

format, nowadays patients don’t know what their Medicare doctor 

got paid, they get those billing forms, they can’t decipher that. 

Even in the private insurance market all they really know is what 

their co-pay was and what their deductible might be for the whole 

year. Nobody knows what providers are being paid for. They have 

no objective matter of judging the results, and what we are doing 

is we are saying we are going to transfer the ability to make those 

judgments to either the government through Medicare, Medicaid, 

and modifications of the reimbursement system based on results. 

Certainly I think results ought to be what—good results is what we 

all ought to be looking for and trying to achieve. 

Now, in that regard, Mr. Smith, you referred to the fact the 

President says we are going to save every family $2,500 a year in 

their healthcare costs. How do we do that? 

Mr. SMITH. Mr. Deal, I think it means moving backwards from 

where we are because I think what we are—the approach thus far 

that I have been hearing about is actually going to increase costs 

rather than lower costs. But I think to start with that a pledge of 

$2,500, which I think is, that is what is getting the American families interested in healthcare, and I think they expect to deliver on 

that. 

I think we have to change the dynamics of our current entitlement programs. I think that we have to bring about the changes 

that left to the market will help lower those costs. 

As I said earlier, so many times we actually interfere in the market. One of the things, for example, is the tremendous growth in 

Medicaid and in SCHIP. We have actually taken healthy families 

and money out of the market. When we did that, we raised the cost 

for the people who were left in the market. This is the crowd-out 

affect that we talked so much about in SCHIP. 

So I think part of that is to return people back into the market 

rather than segmenting people off. The beneficiaries I think would 

benefit that, from that in terms of the continuity of care. I think 

we unnecessarily drive up costs when you get on Medicaid for the 

first time, for example, then a child is supposed to go for a checkup. 

No matter that he just had a checkup a month ago. We are going 

to insist that we actually drive up the cost of care. 

So I think that is a large part of it, and in Medicaid, I mean, we 

are talking about 45 million lives to put that back into, to put those 

lives back in the market I think would be at least a stabilizing affect on the market. 


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Mr. DEAL. Let me ask Dr. Goodman. Would you comment about the same thing? How do we save every family $2,500 a year? 

Mr. GOODMAN. Well, all of the proposals that I heard from the 

healthcare advisors, President Obama, all the items they mentioned have been costed out by the Congressional Budget Office, 

and CBO says there will not be savings in these programs. These 

are all to my opinion demand-side attempts to try to change how 

doctors practice medicine. As I said in my testimony, I don’t believe 

you can have great savings coming from the demand side of the 

market. We need to free the doctors and the hospitals. They know 

where the waste is. They know how efficiency improvements can be 

made, and we need to give them an incentive to do so. 

And that, I think what that means is empowering the secretary 

to allow every hospital to come to Medicare and have a different 

deal, have a different arrangement. Readmissions—let the hospital 

have a warranty and so Medicare doesn’t pay for the readmission. 

But we have to pay more for the initial surgery, and we should be 

willing to do that because a warranty is worth something. 

Mr. DEAL. Are some the stark anti-kickback provisions an impediment to doing exactly some of those things? 

Mr. GOODMAN. They are huge impediments. They may be doing 

some good, but they do a lot of harm, and so if we are going to renegotiate and let the providers come forward and say we want to 

be paid a different way, there has to be a way of getting around 

those stark restrictions. 

Mr. DEAL. Thank you. 

Mr. GOODMAN. That is essential. 

Mr. PALLONE. Thank you. 

The gentlewoman from Florida, Ms. Castor. 

Ms. CASTOR. Thank you, Mr. Chairman. 

Dr. Skinner, your data that shows the variations by region is astonishing, and I am very sensitive to it coming from the State of 

Florida. South Florida is just infamous. So that we have highspending regions and low-spending regions, and we can’t really explain this by the difference in illness or prices. There is no guarantee the folks in south Florida are getting, you know, much better 

quality of care. 

So I am particularly interested in your finding that the lowerspending regions rely on primary care physicians to a greater extent. Can you give us a few examples of this and why do you think 

primary care is more available, or is it more widespread in those 

regions? Is it simply that in those regions people need more, they 

have access to a better workforce? Could you lay that out in some 

detail? 

Mr. SKINNER. Great question. I think understanding where physicians settle is—and where they decide to live and decide to practice is a fascinating but as yet somewhat not well understood question, because there is a free market in where physicians go. 

But it seems to be that in, I guess it seems to be that the approach of the primary care physician is to look at an individual and 

to think there may be, for example, for chronically-ill patients, 

there may be different organs which are failing, but let us think 

about how we can coordinate that care and think about treating 

the individual. 


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Whereas I think sometimes the emphasis of a specialist is on 

that part of the body to which they are most highly trained to understand, and in many cases you want to have a specialist on the 

job, but I think it can also lend to a large number of—in regions 

with lots of specialists you can get many, many people treating the 

same—many different physicians treating the same patient. And 

there are these what economists actually call network externalities 

in which I may be doing something as a physician which I think 

is best for my patient, but I don’t know what all of the other physicians are doing as well, and sometimes the things I do may interact 

with what they day, resulting in not better outcomes. 

And so I think that is the best way I can think of to explain why 

in some areas, even within Florida, which is sort of a microcosm 

of these variations, you can find some regions where lots of people 

are being treated by multiple physicians, but they don’t seem to be 

doing any better. 

And obviously there is a balance. You need to have specialists in 

any system, but, on the other hand, in some sense you also want 

this idea of a medical home where somebody is coordinating all of 

that care. 

Ms. CASTOR. And Dr. Cassel, I have met with a number of physicians, and they will share cases where a patient has come in and 

gotten a diagnosis and gotten tests, but they want a second opinion, so they go into another physician, they get another set of tests. 

They go another place. Is there—there must be some answer to 

controlling, you know, if we are going to have, encourage a medical 

home but you still want patients to have some flexibility, but there 

must be something we can do in cost structure and reimbursement 

structure. 

What do you recommend? 

Dr. CASSEL. Well, thank you for that question. There is, indeed, 

and the medical home concept and the accountable care organization actually are linked, because they have to do with giving somebody the accountability to make sure that that coordination happens. 

So, for example, the patient with many complicated illnesses who 

is seeing ten different specialists, and those specialists don’t communicate with each other, could be taking medications that interact, they could be missing major things, you could end up in unnecessary hospitalizations and readmissions, et cetera. So, you know, 

you can actually make a patient sicker by too many doctors. 

Now, on the other side of the coin, the point that you point out, 

which is that the informed patient, it is a good thing that patients 

are asking for second opinions in my opinion. I think that is what 

we want patients to do to be asking of a surgeon how many of 

these procedures have you done and what is your complication 

rate, et cetera. And particularly in the diagnostic arena to making 

sure that they get the right diagnosis. I believe physicians ought 

to be open to that, and they ought to welcome that. 

In a well-functioning system, though, you would have an electronic record, and you would have relationships with those specialists where you wouldn’t need to do the same test over again just 

to get another doctor’s opinion. You would share your records with 

the other doctor, and why should they have to order the same test 


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all over again? Put the patient not only to the expense but to the 

risk that every medical intervention entails. 

So I think you can create an accountability system around this. 

Part of the problem with both of these notions we are trying to 

solve is that 50 percent of the physicians in the United States don’t 

practice in Geisinger or Mayo. They practice in single, solo practice 

or very small practices where they don’t have that connectedness 

with their colleagues. We need to create some incentives for them 

to do that and to share records and to share the wellbeing of the 

patient around organizing that patient’s care. 

Mr. PALLONE. Thank you. 

Gentleman from Pennsylvania, Mr. Pitts. 

Mr. PITTS. Thank you, Mr. Chairman. 

Dr. Goodman, as you know, I am sure many large employers are 

feeling the brunt of ever-rising healthcare costs, and many companies such as Safeway among others have created innovative ways 

to lower costs and improve health. 

Unfortunately, because many small employers fall under HIPAA 

requirements they are not able to take advantage of this same opportunity. I would like to know your thoughts on this. Should we 

change HIPAA to let small businesses take advantage of these opportunities? If so, you know, how would you change the law? 

Mr. GOODMAN. I think we should, and in particular I think we 

need some pretty important changes in how we deal with the 

chronically ill, because that is where most of the money is spent. 

And we need to be able to—employers need to be able to make risk 

adjustment deposits to the accounts of the chronically ill so the diabetic patient, for example, can manage his own money or the asthma patient can manage his money. A lot of care can be managed 

by patients in their homes. A lot of care can be self-managed, but 

if we are going to ask patients to manage their own care, they need 

to be managing the dollars. 

To make that possible you need for the employer to be able to 

give different amounts of money to different employees, depending 

on their condition. And we also need a change in health savings account rules so we can get rid of this idea of a deductible. We need 

to just carve out areas of care and say the patient is going to be 

responsible for certain things. We are going to put money in the 

account so he can do it. 

And the model for this, interestingly enough, comes from the 

Medicaid Pilot Program, Cash and Counsel, which is, I think, now 

in all 50 states. It is hugely popular; patients like it, and I haven’t 

heard a single criticism of it. 

So that needs to be done, and we need clarification from Congress on what employers can do, the large ones as well as the small 

ones. 

Mr. PITTS. You also advocate making insurance portable. I believe—how would you or how would allowing people to purchase insurance across state lines at cost, do you believe that, you know, 

the people can choose the plan that best fits their needs or they 

need help? How would you change it? 

Mr. GOODMAN. Well, I do think we need a national market for 

health insurance, and of the two questions you asked that is the 


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easier one. Just let insurance sell across state lines the same way 

life insurance sells across state lines. 

The harder issue and the far more important one is how do we 

make health insurance portable, because I think that is the next 

really big issue is healthcare, and in some ways for employers the 

sick patient is like a game of musical chairs. And it is intolerable 

for the employer, it is not good for the employee. 

So much better if employers could make a fixed dollar contribution to a plan that is owned by the employee, which he takes with 

him from job to job. It travels with him through the labor market, 

and we proposed a way to do this for the State of Texas, Blue Cross 

of Texas, and we think it is one way to do it nationwide. Probably 

I would let the states experiment with ways to convert the small 

business, small group market into a market for portable care, but 

that is really, really important, and I think portability is maybe the 

most important healthcare issue that you all are you looking at. 

Mr. PITTS. How about risk pooling? 

Mr. GOODMAN. Well, you know, the risk pool is there because we 

are failing on affordability side, and we are always going to need 

a risk pool if somebody falls through the cracks and for some reason doesn’t have insurance, has health problems, and so that is a 

way to get health insurance to those people. 

But if you are in a system where you are insured, and you stay 

insured, and you take your insurance with you, you don’t—you will 

never need the risk pool. So the risk pool should be there, but they 

should be used infrequently. 

Mr. PITTS. Thank you. 

Mr. Smith, could you speak as to the issue of government plans 

competing along with private plans and your thoughts on that? 

Mr. SMITH. Yes, sir. I think it is an oxymoron. Government plans 

can’t compete against the private plans because sooner—then eventually there will be no private plans, because the government plan 

will eat them all up. There is—it is not a level playing field between government being a competitor in there where it can control 

benefits, it can control how much somebody is paying, et cetera. All 

of the advantages are on their side of it. They clearly would want 

to advantage itself, and it would create the rules to do so. 

So eventually the private plans would not be able to compete. So 

we would end up later, if not sooner, under a government plan, 

which I think would be a huge mistake. We have seen experiences 

of government plans, and I think that the private sector—and 

when there is real competition and I had mentioned earlier, I think 

part of our problem is we keep interfering with the competition and 

say we don’t want competition in many respects. Whether it is specialty hospitals to where doctors can go out and form a group and 

provide a superior process, government comes along and says, no, 

we don’t want you to do that. In many respects we don’t want competition against our community hospitals, so we change the rules 

and bend the rules to advantage somebody else. 

So fundamentally I think there is not a level playing field when 

a government plan is involved. 

Mr. PITTS. Thank you. I see my time is up. 

Ms. CAPPS [presiding]. Thank you. 

Now I turn to Mr. Sarbanes of Maryland for your questions. 


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Mr. SARBANES. Thank you, Madam Chair. Thank you all for your 

testimony. There are two geriatricians I think at the table. I spent 

18 years working with seniors in the healthcare arena, and so I am 

very focused on that. Also, I have a district that includes one of the 

most rapidly aging populations in the country in one portion of it. 

So on the question of the workforce, specifically today if you were 

trying to encourage somebody to go into that line of work, what are 

three or four or five things that you would offer them, that you 

would change that you think would incentivize them to pursue that 

kind of a career? 

Dr. Cassel and Dr. Avorn. 

Dr. CASSEL. Thank you, Congressman Sarbanes. Great question 

and particularly at this time where all of these models of reform 

are based on the idea of not just better outcomes but also more efficiency. You are going to have to have somebody who really understands that complexity of the science based and the evidence base 

and all the skills of working with a team that, as you know well, 

geriatric medicine involves. 

Right now—so the answer is how do you create those incentives? 

I would say value, respect, and doability, and so value really is reimbursement. I mean, there is—geriatric medicine is now the only 

subspecialty I know of internal medicine, you know, we have internists who train and they become cardiologist, and they become critical care specialists, and every time they get an additional training, 

they make more money. In geriatrics after you do your internal 

medicine training, you get more training in geriatrics, and you 

make less money than the internist makes. And so it is amazing 

anybody does it at all. But the few dedicated people who do it do 

it because they really find huge rewards in that, and it makes 

sense to them that the aging population needs this. 

So we have to find a way in the payment reform discussions to 

appropriately value that additional training and that additional 

skill, and I think there is lots of ways that we can do that, and I 

would be happy to talk with you and the committee staff more 

about that. 

And the second is respect, and you might find it odd that I put 

that in there, but I think Dr. Avorn can reinforce this that within 

the medical profession part of how you are respected is kind of by 

what the public thinks and what you are paid and that value 

equals something, some combination of that. And if other specialists really believe that what you bring to the table adds value, then 

that adds a lot to the respect. Right now it is such a small and in 

some ways embattled specialty that most specialists don’t have any 

experience of working with a geriatrician, they don’t know how, 

what that can value. The people who understand this now are 

aging baby boomers who have gone through this now with their 

parents, and if they can find a geriatrician, they say, oh, my God. 

I didn’t know they made doctors like that. 

Mr. SARBANES. Uh-huh. 

Dr. CASSEL. So we somehow need to create systems, an accountable care organization might be one example of that, where there 

would be a defined role for that person really taking advantage of 

their skills, taking care of the most-difficult patients and the most 

challenging patients. So that is the second thing. 


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And the third is doability, and this gets back to delivery redesign 

as well, because right now in the fee-for-service system, in order to 

actually even just make the expenses of your practice and take 

home a reasonable salary to support a family, most geriatricians 

who are in private practice are doing things like Botox and you 

know, laser skin surfacing, because of what Medicare pays them for 

that complicated coordination of care, helping that patient and 

family find ways to stay out of the hospital, stay out of the nursing 

home, keep themselves as functional as they can with their Parkinson’s Disease and all of their conditions, nobody pays them to do 

that. 

Mr. SARBANES. Right. Right. 

Dr. CASSEL. So instead they are wasting all that training doing 

Botox. So that is a real misuse it seems to me, so I think it actually 

wouldn’t be that hard to do within some of the things that I know 

the committee is considering within the payment reform. 

Mr. SARBANES. Thank you. We just have a few seconds left, Dr. 

Avorn, if you want to add anything. 

Dr. AVORN. Yes, sir. Just very briefly, my answers are exactly 

parallel to Dr. Cassel’s. It has a great deal to do with reimbursement. Students come into medical school wanting to be primary 

care doctors, take care of the elderly, deal with chronic disease, and 

they come out of medical school looking for residencies in dermatology and plastic surgery. It is because they see their role models 

and the people who are doing well and being rewarded by the system, both public and private, are the folks who are doing procedures. And the doctors who are simply taking care of chronicallyill people are reimbursed in a manner that makes it virtually 

unaffordable to do that kind of work. 

So I think Medicare and Medicaid, as well as the private systems 

could do a great deal in moving from a procedure-based reimbursement system, particularly invasive procedures, and toward a comprehensive care of the patient kind of system. And we have heard 

about that for a number of ways today. 

And then the last point is it also would help if we had a 

healthcare delivery system that was structured so that the geriatrician like the primary care doctor didn’t feel that he or she was out 

there waving in the breeze. If there was some integration of the 

system so that one was really part of the care network as opposed 

to somebody out there in left field, that would also make it a little 

bit easier to do what is probably the hardest job in medicine and 

the least paid, well paid. 

Mr. SARBANES. Thank you. That is a great point, and I know 

Congresswoman Capps and I are very focused on school-based 

health centers with respect to children, but there is also delivery 

models you can pursue with respect to seniors, community-based 

clinics, where do we reimburse, et cetera, that I think can advance 

the ball so—— 

Dr. AVORN. Absolutely. 

Ms. CAPPS. Thank you. 

Dr. Burgess for 5 minutes. 

Mr. BURGESS. Thank you, and thank you all really. It has been 

a fascinating discussion this morning. I have got a number of questions I want to ask. If I interrupt you during your answer, it is not 


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because I am being rude, but I do have a lot of things I want to 

get through. 

First, Dr. Skinner, I want to talk just a little bit about the accountable health organizations. I spent a fascinating morning in 

December down at the Center for Health Transformation talking to 

four of the clinics that have participating in the physician group 

practice demonstration project where they are talking about things 

that sound very similar to the accountable care organizations. In 

fact, one of the things that came up on the discussion was rehospitalizations and giving someone a hospital, I mean, a doctor’s appointment with a primary care physician within 5 days of their discharge from hospital for decompensated congestive heart failure, 

resulted in an almost disappearance of the rehospitalization. So a 

very low-cost activity with a very high yield on the other end. So 

clearly these are areas that it is incumbent upon us to explore. 

One of the things that came up, you know, how do we force doctors into these types of practice models, and I am not a big one for 

forcing, so I put forth another idea, and I would just like to get 

your thoughts on it. 

Medicare, of course, is a federal program. It is not a state program. It runs across the country. If we have groups that conform 

to all of the parameters set forth for accountable care organizations 

and granted, this will be flexible, and this will change over time, 

but if we have groups that are willing to do that, the doctors within 

that group, could they, if they were offered protection from liability 

under the Federal Claims Act like we might do with a federallyqualified health center, it seems to me that is a way to bring doctors into that type of practice. In fact, you might see accountable 

care organizations set up just to see Medicare patients so that they 

would be provided that cushion from liability. 

Do you think there is, that that is an idea worth exploring? 

Mr. SKINNER. Absolutely. I think that that is a win, win. I think, 

I don’t like to think about forcing doctors into ACOs, but I think 

there is also this, that many physicians are concerned about SGR 

payment cuts, and that is another way to incentivize maybe making it worth physicians’ while to start thinking seriously about 

whether there is a potential for an ACO in their area as well. 

But the more that these organizations grow up, spring up out of 

existing physician hospital networks the better. 

Mr. BURGESS. Let me go on. Dr. Cassel, I wanted to ask you just 

a couple of questions. Actually, it relates to some testimony Dr. 

Skinner gave about the high cost of end-of-life care, the amount of 

money we spend within the last few weeks of a person’s life with 

not really being certain that we are doing much to provide value. 

Now, Dr. Smith talked about how we do sometimes do things, 

and we make ourselves do things that aren’t necessarily a good return on investment. When we did the Medicare Modernization Act, 

we required that everyone coming into Medicare now have an EKG 

on their welcome to Medicare physical, even if they have had an 

EKG just a year or two before for—in conjunction with a surgical 

procedure. 

What if we were to offer, not require, but offer an educational 

module on advanced directives on that welcome to Medicare physical. We could do it right after the EKG, in fact. The patient is 


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there, putting their clothes back on, and could have this educational module. Sure, pay the doctor, pay the gerontologist for 

their expertise in proving this education, maybe even incent the patient with some sort of break on the part B premium or some other 

thing of value that we could return to them. 

But what do you think about exploring that as an opportunity for 

getting more people into thinking about planning for what happens 

at end-of-life care? 

Dr. CASSEL. That is a very interesting idea, Congressman Burgess, and I think I would like to consider it with you. I think that 

it is—I could imagine the physicians not exactly liking that idea for 

most healthy, you know, let us remember the Medicare age group 

between 65 and 85—— 

Mr. BURGESS. It is the new 40. 

Dr. CASSEL [continuing]. Most are very healthy. 

Mr. BURGESS. Well, they are getting the Botox. 

Dr. CASSEL. And yes. They are the ones there for the Botox. That 

is right. So they might be kind of put off by that, like why are they 

doing, why are they making me look at this. 

Mr. BURGESS. Again, it is not a requirement but an offer. 

Dr. CASSEL. Right, but an offer, there are very good models of 

shared decision making, and, again, the group at Dartmouth has 

been very involved in these and others as well that show that when 

patients have all of the information and interact with their caregiver around that information, they make, they almost always 

make more conservative choices about their care. 

Mr. BURGESS. I am going to interrupt you, but I have one last 

thing I want to get to, and I do want to work with you on that concept 

Dr. CASSEL. So it is a good idea. 

Mr. BURGESS. What about the concept, we had some other testimony earlier in the past couple of weeks regarding Alzheimer’s Disease, and if you look at the numbers, if people are correct in some 

of their projections, the numbers are just absolutely staggering 

from a public health cost. You talked about the gerontologist being 

out there kind of on their own and sometimes it is a lonely existence. 

But with the interconnected world in which we live and we are 

constructing, what would be the—would there be an opportunity 

for creating essentially a virtual center of excellence for the longterm management of the Alzheimer’s patient, perhaps even considering some early diagnostics with things perhaps we can do with 

genomics, the monoclonal antibodies offering some, perhaps some 

real choices for early treatment. 

Is there a place in what we are looking at in the road ahead for 

developing this type of virtual center of excellence so that the practitioner is not kind of left out there by themselves on this? 

Dr. CASSEL. So this is, this would be a clinical center, not necessarily a basic research center? 

Mr. BURGESS. Well, certainly you could have a physical basic research center, but a lot of practitioners who are in medium-sized 

communities may have a population of say Alzheimer’s patients 

within their larger sphere of patients. 


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If they could link in with other practitioners in a virtual center 

of excellence, Alzheimer’s patients are not likely to require surgery 

to improve their condition—— 

Dr. CASSEL. Yes. 

Mr. BURGESS [continuing]. But the medical management, the 

long-term management is really so critical. 

Dr. CASSEL. And much of the reason is that geriatricians as Mr. 

Sarbanes pointed out are not widely available, so you don’t even 

have that expertise, and many physicians don’t know what to do, 

they don’t pick up early symptoms of Alzheimer’s Disease, and you 

know, so—and if they do, they are not sure what to do about it. 

Mr. BURGESS. Right. 

Dr. CASSEL. So—and they may prescribe medication unnecessarily, et cetera. So I think it is a wonderful idea. As you may 

know, I was part of the Alzheimer Study Group with Newt Gingrich and Bob Carrey and Justice O’Connor and others. 

Ms. CAPPS. Dr. Cassel. 

Dr. CASSEL. And that was one of our recommendations was that 

there be resources for community providers. 

Mr. BURGESS. Right. 

Ms. CAPPS. Thank you. 

Mr. BURGESS. Let us work on this. Thank you. 

Ms. CAPPS. Thank you. And I recognize myself now for 5 minutes. 

I will start with you, Dr. Avorn. Because you speak a great deal 

about comparative effectiveness, and it has been a pretty hot topic 

around here. I am particularly interested in your comments about 

translating information into better patient care decisions, and I 

wondered if you would mind using my piece of legislation, a bill I 

have introduced, as an example. 

It is called the—and it is an acronym, Heart for Women Act, and 

among other things it would require the FDA to collect and make 

available information about how drugs and devices work differently 

in patients of different sex, race, ethnicity, so forth. The goal being 

that a health professional could determine which drug might be 

most effective in their particular patient. 

Could you explain how this might be helpful for effective, comparative effectiveness research and why it is important that we 

have a data collection or information like this for quality of care 

and outcome? 

Dr. AVORN. Sure. Right now we have a perhaps efficient, perhaps 

skimpy approach to approving drugs such that if it is better than 

let us say a dummy pill over a brief period of time in healthy or 

people that we know will take it in achieving perhaps a lab test 

change instead of a clinical change, the drug gets approved. That 

leaves kind of in the dark patients who may be excluded from those 

trials. Often they are minorities, often they are women, often they 

are other vulnerable groups, and the elderly, for example, and the 

doctor faced with trying to care for those people does not have the 

information from the clinical trials that we would like to be able 

to really make a scientifically-based decision for that patient, not 

the patients who are like the ones in the clinical trial. 

And so where comparative effectiveness research would help 

would be that it would make it possible to fund studies that would 


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zero in on particular at-risk groups. Let us say a group of scientists, physicians, consumers would say, we don’t really know 

enough about the management of let us say congestive heart failure in blacks or atherosclerosis in women or how Asians metabolize 

drugs differently. And we would identify on the basis of the medical need for the information, studies that could be done—— 

Ms. CAPPS. May I interrupt to just—I want to move to another 

topic as well, but would you kind of locate such a place at FDA or 

it might even be multi-disciplinary in terms of different—— 

Dr. AVORN. The FDA’s job is to approve new drugs and—— 

Ms. CAPPS. Right. 

Dr. AVORN [continuing]. We should have—— 

Ms. CAPPS. Where would you locate this? 

Dr. AVORN. I would locate this in a trans NIH, AHRQ setting, 

that is a healthcare research, biomedical research entity that 

would then be able to make recommendations scientifically. 

Ms. CAPPS. I hope we can follow up on this topic. 

Dr. AVORN. I would be happy to. 

Ms. CAPPS. Just opened it up, I know. 

I want with the rest of my time to address you, Dr. Cassel, because you spoke a great deal about the importance of coordinating 

care and the role of the entire clinical team in providing preventative care. That is a very important topic to me. 

But so many people talk about a medical home, which is in itself 

a fairly new phenomenon or label. I would like to propose that we 

discuss it and talk about it as a health home. When we think of 

the word, medical, we think of medical doctors and medicine and 

techniques. Rather I believe we could be talking about the health 

of the patient as the sort of core, and all of the panoply of health 

professional involved. 

And I wondered if you would sort of give a couple of ideas of how 

this might work. I am a nurse, and so I am thinking of the different participants on this team and how that might be coordinated, but I also want to have you close by talking about the structure, how the reimbursement would work in such a model. 

I am aware that in oncology there is a whole team already, oncology nurses, who deliver much of the care, for which there really is 

no designation. 

Dr. CASSEL. Thank you, and first of all, I completely agree with 

you. I think that the term medical home grew up in this model 

from pediatrics, which you are probably familiar with, which was 

where it first began. And it is to my mind unfortunate because particularly from the perspective of a geriatrician, it is all about the 

team and things like care coordination function I don’t think can 

actually be done by a solo physician or two physicians in an office 

with a medical assistant. I actually think—I can’t imagine how 

they could actually effectively do that unless they outsourced it 

something like that. 

So to my mind you actually need this larger team to qualify for 

being a medical home. Now, that is not in the Medicare demo legislation. There is a lot of reasons why you want to be able to have 

those small doctor practices. 


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Ms. CAPPS. If we—I only have a few seconds. If we can demonstrate that this is important, how, I mean, it only will work if 

people get reimbursed. 

Dr. CASSEL. I think there has to be some kind of bundled or global payments rather than—because right now Medicare pays for 

doctor, and you couldn’t have Medicare pay every different health 

professional and still have that add all out to everybody being accountable for working as a team. We know this from private industry. If you want to have people work as a team, you pay them as 

a team, and then you have the team figure out a lot about the reimbursement. So some mixed model that involves some degree of 

global payment would be my answer. 

Ms. CAPPS. Thank you. 

Mr. SHIMKUS. Madam Chairwoman, I would like to defer to my 

colleague, Mr. Shadegg, and then I will take the next one. Thank 

you. 

Mr. SHADEGG. I thank the gentleman for deferring, and I thank 

the Madam Chairman. 

Dr. Goodman, I would like to begin with you. You spent a lot of 

time in your prepared testimony discussing with how the system 

isn’t working well for doctors, patients, employees, employers, people in the non-traditional workplace, insurers, the uninsured, and 

I tend to agree with you, and I want to kind of explore that. I want 

to explore—first of all, I assume the reason that it is not working 

very well is the structure isn’t suited to make it work very well for 

those people. Is that correct? 

Mr. GOODMAN. Yes. It is an institutionalized, bureaucratic, system. It doesn’t work like a normal marketplace, and therefore, people don’t have the opportunities to improve services and lower costs 

and raise quality the way they would do in say the market for 

other professional services. 

Mr. SHADEGG. Indeed, it certainly doesn’t operate like a normal 

marketplace, because in this marketplace the consumer of the good 

doesn’t buy the good. That is kind of bizarre, isn’t it? I mean, I am 

the consumer of my healthcare, I am the guy that goes and sees 

my doctor, I did over the Christmas break, went and saw a doctor, 

but I didn’t hire that doctor, and I didn’t hire the plan that hired 

that doctor. I just signed up to work here at the Congress. Is that 

a part of the distortion of this marketplace, and is there even a 

marketplace in healthcare? 

Mr. GOODMAN. Well, that is the fundamental cause of the distortion. As I said earlier in my testimony, it is also the fundamental 

cause of the distortion of the education market, which has many 

of the same problems. The entity that benefits is not the entity 

that pays the bill. There are, if I can just say, there are emerging 

healthcare markets where third parties aren’t involved; cosmetic 

surgery, lasik surgery, the walk-in clinics, the concierge’s doctors. 

All of those areas are where the market is working well. You have 

price transparency, you have price and quality competition. 

So if we contrast those two markets, you can see radial differences. 

Mr. SHADEGG. I would argue the problem we have in the current 

healthcare market for most Americans is that it is all controlled by 

third parties. I am a ploy or one just kind of pawn being moved 


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around, and my doctor is one also, and the whole thing is being 

controlled by my employer, who doesn’t really care too much about, 

you know, he would like me or she would like me to have a good 

healthcare but that is about it. And then by the plan that my employer buys. 

I sent my staff an e-mail a little while back where I said, oK. Let 

us assume that going to work in Congressman Shadegg’s office 

meant that Congressman Shadegg was going to provide you free 

lunch every day. And I supposed that for one of my employees I 

would go buy him a ham sandwich every day, and for another one 

I would go buy them a salad. The problem is that the employee 

that I bought the ham sandwich for actually hates ham, and the 

employee for whom I bought the salad can’t stand salads. 

That is kind of the way the market, the so-called healthcare market works, isn’t it? 

Mr. GOODMAN. Well, that is why I entitled those sections free the 

doctor, free, the patient, but also free the employer. He is not 

happy with this either. 

Mr. SHADEGG. He is not happy with it. We have a situation—I 

think the problem in healthcare in America today really comes 

down to two things. The uninsured, and I think we need to cover 

them all, every single one, and I have drafted a bill to do that, and 

cost, and costs are spinning out of control. 

I kind of drew this up. Here are the costs of inflation in our society, and here are the costs of healthcare or health insurance. 

Health insurance is rising exponentially faster or health costs or 

rising exponentially faster than any other area. Right? 

Mr. GOODMAN. Twice as fast as income growth. And by the way, 

it is not just the U.S. problem. That is happening all over the developed world. 

Mr. SHADEGG. Including places, other places where they have divorced the consumer from—— 

Mr. GOODMAN. Everywhere all over the—— 

Mr. SHADEGG. I just have a question for you. In auto insurance 

I happen to note that I can’t go home one evening and watch TV 

and not see two, three, four, five auto insurance commercials where 

the little gecko comes on and says he wants my business or the 

State Farm guy comes on and says he wants my business. But I 

note that I never see a commercial like that from United 

Healthcare or any of the healthcare companies. 

Is that related to this problem? 

Mr. GOODMAN. Well, I do see some insurance commercials, but 

these are commercials for buying insurance in the individual market. They are not commercials for group insurance. 

Mr. SHADEGG. And what percentage of the American people get 

their healthcare in the individual market? 

Mr. GOODMAN. Well, less than 10 percent. 

Mr. SHADEGG. And what does the government tax policy do to 

those people? 

Mr. GOODMAN. It discriminates against them. If you are self-employed, you get to deduct your premium, but you don’t get relief 

from the payroll tax, and if you are just off on your own, you get 

virtually no tax relief. 


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Mr. SHADEGG. You get smacked. You get smacked right in the 

face. You get told, well, you can buy health insurance, and we 

think you should because we really don’t want you to show up at 

the emergency room where you can get free care, but since we have 

told you we want you to go get health insurance, we are only going 

to charge you one-third more for it, roughly one-third more for it, 

because you got to buy it with after-tax dollars. Right? 

Mr. GOODMAN. Yes. The uninsured who happen into an emergency room more often than not get charged more than any other 

payer in the emergency room. 

Mr. SHADEGG. How well does a system of that type and the fact 

we have now where you have divorced the payer from the consumer, and you put these people in-between them, how much 

would that be helped by substituting the government for where the 

employer and the insurer or the plan is right now? Instead of having the plan, how much by contrast would it be helped if we made 

a direct connection between consumers and providers, hospitals or 

doctors, by allowing people to have the money they need to buy the 

plan that suited their need? 

Mr. GOODMAN. Well, not very much help by the government, because in my opinion the private insurances is almost as bad as government insurance. Half the people in the country are on a government plan and—— 

Mr. SHADEGG. Fifty-seven percent I hear. 

Mr. GOODMAN [continuing]. The private plans pay the same way 

the government plans pay. So there is really not all that much difference. The markets where you really see a lot of difference are 

the emerging markets where there are no third-party payers at all, 

and those are working remarkably well. 

Mr. SHADEGG. Kind of like auto insurance where people can buy 

directly from the auto insurer and get their car repaired. 

Mr. GOODMAN. Yes, but I was thinking of markets where people 

pay directly for care. 

Mr. SHADEGG. Good enough for me. Thank you very much. My 

time has expired. 

Ms. CAPPS. Mr. Shimkus for 5 minutes, please. 

Mr. SHIMKUS. Thank you. 

Dr. Avorn and I am not sure who else talked, and I can get very 

deeply in this, but I am concerned about this cost-effectiveness 

issue, and it was raised earlier. What in a cost-effectiveness ratio 

fighting aggressive cancer for 10 months or allowing the person to 

die because they have aggressive cancer in 2 weeks? If that was 

scored out budgetarily, what would cost more? 

Dr. AVORN. First I think it is important to distinguish between 

collecting the information about what works and what is safe for 

patients and what is a good buy, on the one hand, versus coverage 

decisions which are really quite separate so that one can imagine 

collecting the data about which treatments are the safest and the 

most effective versus their price. That is separate from what Medicare or Medicaid or a private insurer may choose. 

Mr. SHIMKUS. Well, let me tell you why I mention this, and because I was, you know, I, like everybody does, we meet with folks, 

we may have personal relationships of things that are going in everybody lives like this. I talked about my concern of a rationed care 


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system developing under cost. I was, again, at a student forum, 

and one of the students popped up and said, you know, well, it 

doesn’t make sense to fight aggressive cancer for 10 months. The 

cost benefit analysis doesn’t score out. 

So for us to say that that is not part of a debate which I think 

eventually we move to—if we don’t keep private insurance as a 

very important option in this country, if we move to a public option 

which destroys the private insurance, you know, provision and then 

we go to a one-payer system, that is my concern; a rationed care 

system which will decide when you get care based upon budgetary 

aspects. And that is why those of us who are—comparative analysis, cost effectiveness, that is where our concern comes from, and 

I just wanted to throw that out to talk about that. 

And let us just kind of segue, and this will be—I think the chairman submitted this for the record, the New York Times article. Is 

that correct? On—so my question is going to be related to the Medicare and really segue into Medicaid. One of the provisions that is 

being discussed here is Medicare for all. And now if you believe 

this article, doctors are opting out of Medicare, and if you go 

around your Congressional districts and talk to physicians, this is 

what we know is occurring. With this growing access to care issues, 

if we add millions of people to the Medicare system, a Medicare for 

all, does that help or hurt this problem of doctors fleeing? 

Anyone want to comment? Dr. Goodman. 

Mr. GOODMAN. It hurts it. What happens now is Medicare is paying below market, let us say 30 percent below market, but not everybody can get below market. If you are a doctor, the first patients 

you want to see at the beginning of the day are the ones who pay 

market, and Medicare would be next, and Medicaid, which pays 

below Medicare, would be at the end of the line. 

If you try to put everybody into a system that is underpaying, 

then you exacerbate the supply side, and yes, it will make the rationing problems worse, and rationing by waiting is not access to 

care. 

Mr. SHIMKUS. Anyone else want to comment? Mr. Smith. 

Mr. SMITH. Yes, and in my opening remarks I did suggest that 

people look at the experience of Medicaid over the past several 

years which resorts at the end of the day very much to price controls, to where you have access, real access problems for the Medicaid population. One-third of all Medicare ambulatory visits are to 

the emergency room to an outpatient hospital facility. 

So this is where a single payer system ultimately drives you to 

because you have now overburdened the system. As we have seen 

in the states, then the reaction to that is to squeeze back against 

the providers to try to lower the cost that way. 

Mr. SHIMKUS. I am sure, did the Medicaid question get asked? 

Does anyone want to swap their current insurance policy for Medicaid? Did that get asked of the panel? Can we go through Dr. 

Skinner all the way down? Who would—let us start with Dr. Skinner, and I will end with that question. Would any of you opt out 

to go to Medicaid over the insurance product that you currently 

have? You don’t need to direct him, Dr. Cassel. Let Dr. Skinner 

ask—answer. 


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Mr. SKINNER. I happen to have a pretty good plan, so I was 

not—— 

Mr. SHIMKUS. So you would not accept Medicaid as an alternative. 

Mr. SKINNER. Everybody is so fortunate. 

Mr. SHIMKUS. Dr. Cassel. 

Dr. CASSEL. I am not sure why, what is the background of that 

question. 

Mr. SHIMKUS. The question is the debate of if we have uninsured 

and we provide them access to Medicaid—— 

Dr. CASSEL. Uh-huh. 

Mr. SHIMKUS [continuing]. As an option. Would you personally be 

willing to give up your current insurance product for a Medicaid— 

the question is is that a good deal? 

Dr. CASSEL. Well—— 

Mr. SHIMKUS. But the real question I am posing is with the insurance—— 

Dr. CASSEL. Right. 

Mr. SHIMKUS [continuing]. That you personally have, would you 

trade that if offered Medicaid in a trade? 

Dr. CASSEL. No. If I were uninsured—— 

Mr. SHIMKUS. OK. Thank you. 

Dr. CASSEL [continuing]. You bet I would. 

Mr. SHIMKUS. Dr. Goodman. 

Ms. CAPPS. I don’t think we are going to make it through the end 

of the line. 

Mr. SHIMKUS. Well, I think we will. If they would answer the 

question. 

Mr. GOODMAN. Of course not and I wouldn’t try to—— 

Mr. SHIMKUS. Thank you. 

Dr. SIGSBEE. I am going to be distinctly different. I would. In my 

area—— 

Mr. SHIMKUS. We had one last week that said they would. 

Dr. SIGSBEE. And Medicaid pays for all medications. You don’t 

have to have anything out of pocket, so that I would actually. From 

a provider standpoint, though, Medicaid pays below the cost of providing the service. So it would be—— 

Mr. SHIMKUS. You might have some access issues then with doctors not wanting to—— 

Dr. SIGSBEE. Right. You would have some serious access problems, and it would be unsustainable to be in medical practice. 

Mr. SHIMKUS. Mr. Smith. 

Mr. SMITH. No. In Medicaid there are 56 different Medicaid programs, and in due respect to my colleague here, I mean, there are 

states that say you can have four prescriptions a month. So you 

don’t have unlimited access to prescription drugs. 

Mr. SHIMKUS. Dr. Avorn. 

Dr. AVORN. There are 47 million Americans who would say absolutely yes. 

Mr. SHIMKUS. No. The question is you. 

Dr. AVORN. Well, I happen to be an affluent American who has 

good—— 

Mr. SHIMKUS. So your answer is? 

Dr. AVORN. I would not want—— 


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Mr. SHIMKUS. Thank you very much. 

Ms. CAPPS. And now it is time to say thank you very much. 

Your—the panelists have been amazing in your forbearance of all 

the questions, but also your testimony is valuable as we go about 

making some very important decisions in Congress affecting 

healthcare. Thank you very much. 

We will excuse you and give you a break and ask for our second 

panel to take places at the table. 

In the interest of time we have three of our four panelists, and 

one will be here shortly. I will introduce the three and then we will 

ask you to begin, Dr. Ginsburg, and I will introduce Mr. Bachman 

when he arrives. 

We are pleased that you are here with us this afternoon. Paul 

Ginsburg, President of the Center for Studying Health System 

Change, to be followed by Dr. Regina Herzlinger, Professor of Business Administration at Harvard Business School. I will jump over 

to Diane Archer, Director of the Health Care Project, Institute for 

America’s Future. 

And Dr. Ginsburg, you may begin your 5 minutes of testimony. 

STATEMENTS OF PAUL GINSBURG, PH.D., PRESIDENT, CENTER 

FOR STUDYING HEALTH SYSTEM CHANGE; REGINA 

HERZLINGER, PH.D., PROFESSOR OF BUSINESS ADMINISTRATION, HARVARD BUSINESS SCHOOL; RONALD BACHMAN, 

F.S.A., M.A.A.A., SENIOR FELLOW, CENTER FOR HEALTH 

TRANSFORMATION; AND DIANE ARCHER, J.D., DIRECTOR, 

HEALTH CARE PROJECT, INSTITUTE FOR AMERICA’S FUTURE 

STATEMENT OF PAUL GINSBURG 

Mr. GINSBURG. Thank you, Madam Chairman, Mr. Deal, and 

members of the subcommittee. 

Ms. CAPPS. You might want to turn on your microphone and pull 

it a little—there. 

Mr. GINSBURG. Appreciate the invitation to testify on price and 

quality transparency of healthcare services. 

In theory, more information on provider prices and quality can 

lead to lower prices and higher quality. Those consumers who 

choose differently will benefit, and if enough people make different 

choices, providers will be motivated to reduce their prices and increase their quality, extending the benefits beyond those acting on 

the information. 

But today the reality does not line up well with the theory. Few 

consumers use such information to make choices. The tools to 

measure and communicate price and quality information are primitive at this point, and most consumers are not incentivized to consider price and not aware of the variation in quality among providers. 

Focusing first on price transparency, the key factor limiting the 

potential impact today is the lack of incentives in today’s insurance 

benefit designs. There is little reward for choosing lower-priced providers, and this is even a problem in high-deductible plans with 

savings accounts. Much of the information that is available to consumers is not in forms that they can use. Hospital care is not 


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priced in units that are meaningful to patients such as per stay or 

per episode. Some information now provides ranges per episode, 

which is progress. 

The same issue with physicians. Fee levels do not provide insight 

into what services will be provided, and information that state governments and the Federal Government has provided are not reflective of people’s health insurance. Also, there is a legitimate unwillingness by consumers to choose providers on the basis of price 

when they have little, if any, information on provider quality. 

There are some risks of unintended consequences of additional 

price information. For one, if the information discloses contracts between hospitals and insurers, this risks driving up prices. This is 

an accepted perspective and anti-trust policy throughout the world 

that when markets are highly concentrated, disclosure often leads 

to higher prices. 

And another unintended consequence is that some consumers, 

particularly those who don’t have incentives to look for lower 

prices, will use price as an indicator of quality and go to the higher-priced providers. 

There are opportunities to do better. If we reform provider payments, this would create much more meaningful prices for consumers to respond to. Now, insurer high-performance networks can 

be seen as a first step in this direction, although success has been 

limited by the use of different measures by difference insurers and 

lack of engagement of physician leaders. Information on charges by 

out-of-network providers and on what insurers pay for these services can be helpful. There are large differences in what patient 

pays between in-network and out-of-network providers, and the 

database to be developed in the State of New York will support an 

important increase in transparency about out-of-network care. 

Now, quality transparency is much more challenging than price 

transparency. The measurement is very complex. Much of the 

measurement of quality these days is based on processes rather 

than outcomes because of such limited data on outcomes, and processed measures of quality are inevitably going to be limited by our 

lack of knowledge about effectiveness. We need to know what processes really do improve outcomes. 

Providers are a key audience for quality information so that even 

if consumers don’t use it, there is a lot of potential with providers. 

They are highly responsive to quality measurements, and they take 

steps to improve quality even if there is no pressure from consumers. And the example that Dr. Sigsbee on the first panel mentioned in his practice is a great example of the phenomenon. 

There are important roles for governments in advancing quality 

transparency in addition to the reporting that governments are 

doing now. They can convene provider leaders and insurants who 

agree on common measurements. This would enhance the credibility of measures to providers and also avoid excessive burden on 

providers from multiple reporting requirements. 

Sponsoring effectiveness research to strengthen, will strengthen 

the ability to assess quality, and there is potential for the private 

sector to analyze and communication the public data such as trusted not-for-profit organizations like consumers’ union or commercial 

data vendors like Web MD. 


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In conclusion, transparency has the potential to increase the 

value from our underperforming healthcare system, but benefits 

are probably very small now, but there is potential to increase in 

the future. But we could lose in pursuing transparency by overselling its potential and deluding ourselves that other steps to increase the value in healthcare are not needed. 

Thank you very much. 

[The prepared statement of Mr. Ginsburg follows:] 


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Ms. CAPPS. Thank you. 

And now we turn to Regina, Dr. Herzlinger. 

STATEMENT OF REGINA HERZLINGER 

Ms. HERZLINGER. Thanks so much, Madam Chairwoman, Ranking Member. 

Ms. CAPPS. Is your microphone on? 

Ms. HERZLINGER. Thanks so much, Madam Chairwoman, Ranking Member Deal. I am used to screaming in a classroom, so I 

thought I was all right. I am honored to be here. 

What does healthcare reform mean? Sure, most people want to 

buy reasonably-priced health insurance policies, especially if they 

are threatened with unemployment as sadly we are in this economy, but many people don’t want government to control the process. So I think there is going to be a lot of wrangling as these two 

opposite points of view get sorted out. 

But there is a healthcare reform that can be much more readily 

implemented, and that is transparency. Everybody wants the government to help them make buying decisions by providing good information. They like FCC data about corporate financial performance, EPA data about cars’ pollution, and USDA and FDA data 

about whether our chuck roast is prime or choice grade and the 

cleanliness of the supermarket. 

Expert clear communicators help consumers interpret these 

sometimes arcane data ranging from consumer reports for cars to 

media business gurus for stocks. When it comes to our troubled 

healthcare sector, Americans want government to provide information, too. Why do we know more about the quality and prices of our 

chuck roasts and supermarkets than about our surgeons and the 

hospitals in which they practice? Americans do not want the government to use these data to evaluate the cost effectiveness of 

products or to buy on their behalf. 

Franklin Delano Roosevelt, the great president, understood the 

distinction between government-enabling information and government making decisions on our behalf when he opted for transparency to cure the stock market’s collapse during the depression. 

FDR was advised by his counselors that the government evaluate 

all securities. He rejected that advice. Instead he created the Securities and Exchange Commission. He called it the Truth Agency. It 

was going to tell the truth about the corporate sector to require corporations to disclose their results using that which were audited by 

independent, certified public accountants. 

The FCC armed the—was armed with hefty enforcement power. 

The FCC has been a miserable failure in its regulatory function, 

but extensive academic research demonstrates how successful its 

truth-telling mission has been. Transparency has lowered the cost 

of capital because when investors are uncertain about performance, 

they require high returns. Transparency helps protect against misappropriation of shareholder returns by managers. You see it right 

now with the current outcry against CEO compensation. Most importantly, it enabled appropriate allocation of our resources. Investors reward productive, socially-responsive firms more than others. 

In contrast, we know virtually nothing about the quality and cost 

of medical providers or about the performance of our hospitals and 


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our insurance. Transparency would enable a woman who is contemplating a mastectomy to know the death and disability rates of potential surgeons, infections, clots, medical errors like leaving a 

sponge, rates of readmission, infection rates, and the prices they 

charge for similar kinds of patients. 

Transparency would also enable consumers to better evaluate 

their insurance firms through information, for example, about the 

number and types of complaints the firms receive from irate customers or medical care providers and their responsiveness to them. 

This kind of transparency will enable properly-informed consumers to reform healthcare by selecting the providers and insurers that give them the best value for the money. Some contend that 

transparency leads to price collusion. If this were true, every yogurt on your supermarket shelf would bear the same price. It 

doesn’t, because the yogurt industry is highly competitive. Collusion is possible only in the highly-concentrated allagopolistic markets. Transparency facilitates the government’s prosecuting price 

fixing competitors in these industries. 

You are all too young to remember the NASDAQ scandal where 

dealers rounded up to the nearest eighth of a penny. The reason 

that we know about that scandal is that information was transparent and academic researchers found the collusion that led to a 

$1 billion payout by the colluding allagopolistic securities firms. 

Voluntary disclosure dose not work. How do I know that? We 

have no information. As demonstrated elsewhere in our economy 

transparency through a truth agency will go a long way to reforming healthcare. Representative Deal’s bill captures the essence of 

what this kind of health reform is all about. 

Thank you. 

[The prepared statement of Ms. Herzlinger follows:] 


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Ms. CAPPS. Thank you very much, and I would like to welcome 

to the panel Mr. Bachman, Ronald Bachman, Senior Fellow at the 

Center for Health Transformation. You are recognized for 5 minutes. 

STATEMENT OF RONALD BACHMAN 

Mr. BACHMAN. Thank you. Ron Bachman, Senior Fellow at the 

Center for Health Transformation, and my mission in life is to 

solve the uninsured problem, and so the transparency issue before 

us today is very much a part of that in my opinion. 

Transparency means the public disclosure of honest, meaningful 

decision making information. Clearly the public has a right to 

know key information to maintain their health and safety. When 

up to 98,000 patients die each year from hospital errors, citizens 

have a right to know where these are occurring. When 9,000 deaths 

occur from medication errors each year, the public has a right to 

know the facts. When hospital-created complications and providerinduced viruses are more deadly than the original medical conditions, patients have a right to know. 

The best way for the public to change poor business behaviors is 

to improve—and to improve quality and lower costs is for the guilty 

businesses to lose customers. Unfortunately, in healthcare the consumer is rarely the customer. The consumer is the one who uses 

the service. The customer is the one who buys the service and pays 

the invoice. In healthcare the customer is usually the third-party 

payer, the insurance company, the HMO, or the group plan. 

New generation health plans are financially empowering health 

consumers and transforming them into health customers. To become an effective health customer, one has to have both a financial 

stake in purchasing and the information to make informed decisions. You cannot have a quality healthcare in any system without 

both. 

Financially-empowering plans with savings options increase 5 

percent in 2007, and 8 percent in 2008. Employers with three to 

200 workers are the fastest growing group, up 13 percent. With account-based plans individual worker premiums are 40 percent less 

than other plans. Family premiums are 30 percent lower. The average employer account funding was over $800 for an individual and 

over $1,500 for family coverage each year. In 2008, 71 percent of 

employers offered incentives for health and wellness or disease 

management programs up from 62 percent in 2007. The incentives 

averaged $192 per person per year. 

Account-based plans are not just for the healthy and wealthy. In 

2009, young families, 25 to 40, had balances averaging over $7,000 

in these accounts. By the end of 2008, the average savings accounts 

total over $8,000 for individuals and over $10,000 for families. The 

newest products are developing more information to help individuals make informed choices with those dollars. 

Historically transparent cost and quality information has been 

hard for plans and the public to access. Providers have maintained 

the argument of confidentiality, proprietary needs, and competitive 

advantage. With empowered individuals these arguments rapidly 

dissipate. National insurers, some providers, especially vendors and 

state governments, have been taking the lead in requiring discloVerDate Mar 15 2010 04:16 Apr 13, 2012 Jkt 067824 PO 00000 Frm 00138 Fmt 6633 Sfmt 6633 E:\HR\OC\A824.XXX A824

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sure of provider cost and quality information. Each insurer or hospital has limited data. States differ on the reporting requirements. 

Budgets limit the expansion of publicly-funded information access, 

and inertia of the status quo slows progress in meeting patient information needs. 

The Federal Government can advance the cause of empowering 

individuals with the information by passing basic national standards for provider and insurer transparency. Congressman Nathan 

Deal’s legislation is on the right path. 

A governor of Georgia once said that that to have better prisons 

we needed better prisoners. Today that parallel may be to have better health and lower costs we need better patients. The CDC tells 

us that behaviors determine 50 percent of health. By far the individual turns out to be the most important variable in the 

healthcare cost equation. It is not doctors, hospitals, pharmaceuticals, or other care providers. Access to care has only a 10 percent impact on health status, genetics, 20 percent, environment, 20 

percent make up the remaining factors. 

Congress is a powerful legislative body, but you cannot change 

the laws of human nature. You cannot make recalcitrant patients 

take medications or comply with physician orders. You cannot 

make citizens eat properly, exercise regularly, or seek preventative 

care. The bottom line is you cannot legislate personal responsibility. 

Congress can, however, create an open, transparent informationrich environment that supports greater engagement by individuals 

in their own health and healthcare decisions. In general, individuals will not take care of themselves just for the sake of good 

health. If that were true, we would not see the rampant growth in 

obesity and epidemic of diabetes. We are typically American. We 

want to be paid to do the right thing. We want incentives, rewards, 

and recognition. We want some financial control, and we need information and help with making the right decisions. 

Blue Cross, Blue Shield studies show that patients with financial 

and information support have more than three times the number 

of members engaged in smoking cessation, more than three times 

the number of members engaged in stress management programs, 

more than double the number in diet nutrition education programs, 

and nearly two and a half times more likely for those patients to 

be in exercise plans. 

A major interest in Congressman Deal’s legislation is the disclosure of self-pay charges. When I started to negotiate provider network reimbursements back in the early 1990s, the expected discount from hospital charge masters, their so-called retail price, was 

typically 5 to 15 percent. The discount game had led to artificiallyhigh retail price lists where discounts are now 80 to 90 percent off 

of those charges. No one pays the retail prices except the uninsured. Those most vulnerable and least able to pay are charged the 

list rates. Many who cannot or do not pay these artificial charges 

are hounded by collection agencies for monies that are ten times 

or more above the cost of actually providing the services. 

As with the Georgia governor’s call for better prisoners, it is time 

to free consumers from the dark prison of ignorance. You can make 

information easier to find and easier to understand. You can elimiVerDate Mar 15 2010 04:16 Apr 13, 2012 Jkt 067824 PO 00000 Frm 00139 Fmt 6633 Sfmt 6633 E:\HR\OC\A824.XXX A824

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nate arbitrary price discrimination against the uninsured. The 

need is to pull back the curtain of secrecy on costs and quality. 

Congress can make a difference in saving lives and saving money 

by supporting the individual’s right to know. 

While the country debates reform of healthcare, on one fact you 

should all agree. The need for transparency is critical to the outcome in that debate. 

[The prepared statement of Mr. Bachman follows:] 


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Ms. CAPPS. Thank you, Mr. Bachman. 

And now we turn to Diane Archer for 5 minutes, please. 

STATEMENT OF DIANE ARCHER 

Ms. ARCHER. Madam Chairwoman, Mr. Deal, thank you for inviting me to testify about transparency in the private health insurance system and how it can help American families. 

At the Institute for America’s Future we studied the issue extensively and concluded that the private healthcare system will never 

work well for American families without significant changes in the 

current disclosure practices with the private insurance industry. 

Here is why. If you wanted to buy a car, you would have a vast 

array of public information about differences among them, from 

fuel efficiency to annual maintenance costs to crash test performance. But what can you find out about the various makes and models of private health plans? Practically nothing it turns out. 

So what is the value of having so many choices? Even the most 

sophisticated among us have little idea what we are paying for 

when we buy insurance. Does it cover Tamoxifen if I am at risk for 

breast cancer? How much is the average out-of-pocket cost for typical prenatal care? What percentage of total claims were denied 

last year? What will a particular service cost me? 

Private insurers in sharp contrast with the public Medicare Plan 

have been able to keep confidential claims, costs, and quality data 

on the ground they are business trade secrets. We can’t find out 

what specific services will be covered and when or average out-ofpocket costs for typical conditions, let alone which insurers deliver 

the best value for our premium dollars. 

Informed consumer choice is a myth. To build an efficient 

healthcare system we need insurance company performance information. I have spent the last 20 years helping people navigate both 

Medicare and private insurance, for a long time as president of the 

Medicare Rights Center. I want to take you briefly through the 

structural issues that may preclude needed transparency from the 

private insurance industry, the data we need from private insurers, 

and how healthcare reform can address these issues. 

In America today people can’t compare health plans based on 

value. The health insurance market is broken. In a competitive 

market insurers would be marketing to healthcare users, demonstrating why they deliver the best value healthcare for people 

with cancer, diabetes, and heart disease. Their message would appeal to the 20 percent of the population who consume 80 percent 

of healthcare dollars. 

Instead, if they deliver great care to people with costly needs, 

they don’t want people to know. Twelve years ago in a New York 

Times magazine cover story that I keep by my side, Helen Darling, 

now president of the National Business Group on Health, made 

this point very succinctly. ‘‘I have been sworn to secrecy by one 

plan that has the best AIDS program in the world. They don’t want 

people knowing about it. They couldn’t handle the results. Ideally, 

if we lived in a wonderful world, we would want to plan to win 

prizes for their wonderful care, but in reality that would kill them.’’ 

To maximize their profits health plans compete for enrollees least 

likely to use their product. Therefore, health plans do not advertise 


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to specific treatments and tests covered but conditions under which 

they are covered or the crisis services. 

This is precisely the information we need to know. Different private plans offer different value healthcare. The best of them help 

ensure doctors deliver good care, yet coverage decisions are largely 

considered proprietary and unknown. And we don’t know whether 

insurers are adding value or simply increasing their profits. 

A New York State Medical Society survey revealed that 90 percent of doctors said they have had to change the way they treat patients based on restrictions from an insurance company, and 92 

percent said insurance company incentives and disincentives regarding treatment protocols, ‘‘may not be in the best interest of patients.’’ Are insurers spending our premium dollars wisely? Are 

they helping to ensure that our doctors provide us reasonable and 

necessary care? We don’t know. 

What data is needed to evaluate health plans and help people 

make informed healthcare choices? The kind of data we get from 

the public Medicare Plan, the specific services they cover, and the 

amounts they pay, claims data and denial rates. Members and perspective members also need to know the average out-of-pocket costs 

for treating different conditions. This data will help give us meaningful choice, and over time will help us in efforts to compare 

health outcomes for people with different conditions in different 

health plans. 

As important, disclosure of this data would promote better insurer behavior. Right now the countless reports of insurer abuses 

suggest that the lack of transparency allows insurers to delay and 

deny care and reimburse inadequately for services renders, seemingly arbitrarily. 

Up until now we have bought into an opaque and inefficient private health insurance model that has not met our healthcare 

needs. Regulations will never address the insurer’s obligation to 

put profits first, but we can drive accountability if we require far 

greater transparency from the insurers. 

A public health insurance option is also essential. A public health 

insurance option sets a benchmark for coverage, drives competition 

among insurers to reign in costs, and through its willingness and 

ability to be transparent and accountable can promote the value 

and system-wide change that is needed to guarantee everyone in 

America quality, affordable healthcare. 

Thank you. 

[The prepared statement of Ms. Archer follows:] 


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Ms. CAPPS. Thank you, and now we—and I thank each of you for 

this interesting panel. 

Mr. Deal, why don’t you begin with your 5 minutes of questioning. 

Mr. DEAL. Thank you, and thank you to all of you for waiting 

this long to be here for this. Obviously, as you know, transparency 

is an issue that is of importance to me. 

You know, almost every other thing in life we know what the 

cost of it is. Healthcare we don’t know. We don’t know the results. 

We don’t know what the effectiveness is of hospitals or of individual practitioners within the medical community. So transparency on all of those fronts I think is an important ingredient. 

For those who would say that just because people don’t pay for 

things out of their pocket that doesn’t mean that—it means that 

they are not concerned about the cost, I would like for them to 

have been in conversations where family members, when they have 

a relative who has been transported to the hospital, the one thing 

that they always complain about is the $700 ambulance fee 

charged to transport their loved one for less than a mile. Now, you 

can believe they focus in on those kind of things, and they want 

to know why public programs are paying what they consider to be 

exorbitant prices. The trouble is they don’t know those kind of 

things in their healthcare in general. 

So I appreciate the testimony that we have received. 

I think, Mr. Bachman, you almost sounded like I wrote your 

speech for you there. I think I agreed with virtually everything 

that you said. How do we deal, though, with this question of disclosure of pricing, price transparency? How do we get a handle on 

that? How do we best accomplish that objective? 

Mr. BACHMAN. Well, there are a number of areas. First, I would 

like to say that the transparency that I believe is appropriate goes 

beyond even what has been suggested in your bill here. I think 

transparency on service costs, how well you are being treated, the 

time in the waiting room, bedside manner, things that are not clinical but are more service oriented is important disclosure. 

The way we get at it is a couple of things. One of the issues that 

was not mentioned in the earlier panel, I didn’t mention it, and I 

hadn’t heard the words here is the internet. We are now seeing a 

tremendous growth in what is called web2.0, people talking to 

other people about their experiences with providers and physicians. 

So we are having people talking to other people that is creating a 

disclosure. That is one thing. 

The second thing is the growing interest, it is slow, but there are 

vendors out there that are beginning to encourage providers to create package pricing so that you have one price. How much is it 

going to cost to treat my diabetes for the next 12 months? And that 

way if there is a package pricing, it is sort of a combination of the 

old capitation rates and fee for service mainly, but it is where the 

provider says I can take care of you for this amount of money, and 

the services don’t have to fall into the traditional CPT codes or 

ICD9 or DRGs. It is what the hospital can show and demonstrate 

will work best, and employers are buying into that. But that is only 

at the beginning stages. 


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The third area that is going to push that is that is what is actually happening. I think your chart showed a third-world country. 

Well, that is actually happening today in most of the areas like 

Singapore and other countries that are getting medical travel and 

medical tourism, if you will, and hundreds of thousands of people 

are going across the ocean in order to get services that are onetenth the cost at better hospitals, more modern hospitals, many of 

them managed by the major brand-name facilities in this country, 

and they are being treated by doctors that are trained in the 

United States as well. So—and they are being approved by quality 

organizations that approve quality hospitals in the United States 

as well. 

So I think there is a gathering of a number of forces to push this 

in the right direction. 

Mr. DEAL. Dr. Herzlinger, we heard Dr. Ginsburg talk about 

pricing on a per-episode basis, and I think we are hearing a lot of 

talk about how do we refigure compensation for services and episode-based, you called it package pricing. I presume it is sort of the 

same concept. 

Dr. Herzlinger, how as we, I think we will certainly look at that 

issue very closely because it appears to be coming from a variety 

of sources, how do we make that kind of pricing information available, not just the fact that the services are being bundled but the 

costs associated with that bundling? 

Ms. HERZLINGER. If you are asking about the administrative 

model—— 

Mr. DEAL. Yes. You suggested something similar to the FCC, I 

think. 

Ms. HERZLINGER. Yes. Well, the most transparent market in the 

world is the financial market, and it has led to what is called deficiency in the markets. It doesn’t mean that it is perfect. We know 

it is not perfect, but it is the most transparent market. There are 

countries all over the world that are adopting the FCC model, and 

the reason they are adopting it for their own financial markets is 

that that model creates the best transparency. 

The FCC model has two parts. One is the Iron Fist. That is the 

FCC. The FCC has tremendous enforcement power. The Velvet 

Glove is an organization that is now called the FASBE, and that 

is a group of stakeholders. They are experts in measurements, accountants, people from the business community, CFOs of companies, and consumers. And then Velvet Glove is the one that actually determines what should be measured. 

Companies have to comply with these standards. If they don’t, 

the Iron Fist, the FCC, comes along. It has been a fantastic model 

that countries all over the world emulate. We should use it for 

healthcare. It works. 

Mr. DEAL. Madam Chairman, I know my time is out, but I would 

ask unanimous consent to include a letter from the executive 

branch of the State of South Carolina supporting the concept of 

transparency. 

Ms. CAPPS. Without objection, so ordered. 

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

Ms. CAPPS. And now I allow myself 5 minutes to ask my questions, too, and as you may have noticed, the buzzer rang, and we 


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do have votes on the floor at the same time. We can wrap this up, 

but we won’t be able to go to a second round, which is unfortunate. 

Dr. Ginsberg, you testified that one of the key barriers to making 

price transparency work is the lack of transparency on quality of 

care. It is clear that hospitals’ prices may be low because they are 

understaffed or they use cheap medical devices and so on and so 

forth. As you have pointed out, consumers may assume that highpriced providers are high-quality providers, an assumption that 

may have no basis in fact. 

So where do we stand, this is a large question for a short amount 

of time, in producing information on provider quality that could be 

accurate and usable by consumers. If we require quality transparency tomorrow, would there be any standard? Would there be 

information available, and what should we be doing now or taking 

some steps in this direction as we seek to reform healthcare? 

Mr. GINSBURG. Well, in the case of hospitals we do have 

some—— 

Ms. CAPPS. You may turn on your—— 

Mr. GINSBURG. Yes. I think it is on. In the case of—— 

Ms. CAPPS. OK. 

Mr. GINSBURG [continuing]. Hospitals we do have some quality 

data. I think a lot has been accomplished when the Medicare Program offered an incentive to hospitals. If you would report on these 

measures, we will pay you a little bit more. Virtually all the hospitals have done this. 

I don’t think consumers are making much use of it now. It is 

pretty fragmented, but when it comes to the hospitals themselves, 

everything that they are reporting to Medicare or to the Joint Commission they are focusing on improving. An example we had on the 

first panel about when physicians and hospital leaders see low 

quality in their practice, they are very motivated to do something 

with it. 

So I think in the next few years we can get a lot of mileage out 

of quality reporting and transparency just from the provider reaction to it, even if consumers using it I think is many years down 

the road. 

And as far as price transparency, I don’t have, you know, problems with it in general. I think there is potential for it definitely 

down the road, and my main caution was that we shouldn’t get too 

wound up in how much it will accomplish in the short run. There 

are a lot of other things that have to be done to improve our 

healthcare system. 

Ms. CAPPS. Thank you. I know there is more follow up because 

I am also interested in how consumers can benefit by this as they 

make their decisions and out into the community settings, clinics 

and so forth, which is where a lot of decisions get made. 

But I want to turn because there are just a couple of minutes left 

to you, Ms. Archer. You—a key feature that consumers are interested in for most products is the warranty or guarantee. They want 

to know if something goes wrong there is a way to get the problem 

resolved. In the health insurance market, we have heard story 

after story about denial of claims, some very egregious appeals 

rights in place on paper but really not very effective. 


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The problem is consumers don’t even know about their rights before they purchase health insurance. Can you describe what information about appeals and grievance procedures would, should be 

there, available to consumers in language they could understand? 

And do you think that more transparency on appeals and grievance 

procedures will be—is the way we should go in terms of ensuring 

that consumers, that insurers will do the right thing? 

Ms. ARCHER. Yes. Thank you for that question. Actually, we have 

a big lesson to learn from Medicare on this front. The way Medicare works, its data about what it covers, and under what circumstances are all on the web, and if a doctor performs a procedure that is medically unreasonable or unnecessary and delivers it, 

it is the doctor who actually gets stuck holding the bill, because the 

doctor can go online and find out in advance what is covered. 

If the doctor thinks it is really necessary, the doctor can tell the 

patient, yes, I think you should have it, but Medicare won’t pay for 

it and have the patient sign in writing that he or she is willing to 

pay privately. If Medicare doesn’t pay, the patient can then appeal 

and has gotten a written notice about it. 

So the patient isn’t stuck with a lot of bills from insurer denials 

that often patients in the private insurance marketplace face because no one knows, including the doctor in many instances, ahead 

of time whether the insurer is going to cover the claim or not. 

So I think that model is a model that could easily be adopted to 

the under 65 population to help patients in terms of protections financially. If a service a doctor wants to give on this—— 

Ms. CAPPS. Could this be accepted by the private sector? 

Ms. ARCHER. It should be accepted by the private sector, because 

it is the fairest way to protect the patient from receiving medicallyunreasonable and unnecessary care from a doctor. Why should the 

patient receive the service if it really is unnecessary? Everybody is 

on notice that is what the insurer thinks. If the insurer is wrong, 

if the outside world says the insurer is wrong, the insurer is going 

to come under attack, under public scrutiny, and will have to 

change its practices. If it is appropriate and what the doctor is 

doing is inappropriate, then the patient shouldn’t be absorbing the 

cost of the care. 

Ms. CAPPS. I wish I had time to ask others what you think, but 

you believe, Ms. Archer, that Medicare does provide at least some 

kind of model for doing this. 

Ms. ARCHER. An excellent model. And then I think, just to your 

second question, I think the denial and grievance information 

needs to be public so that, again, it can be scrutinized and people 

can understand what insurers are doing. 

Ms. CAPPS. Thank you again very much all of you. This is abrupt 

because of our call to the floor, and I appreciate very much your 

testimony. The reason the microphone is needed is that this is part 

of our record now, and we appreciate that as I state, we go about 

making some important decisions. 

[Whereupon, at 2:30 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 


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