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Hearing of the House Committee on the Ways and Means - Health Reform in the 21st Century: Reforming the Health Care Delivery


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REP. RANGEL: The committee would come to order. This is the second hearing that we've had. I want to thank Pete Stark who serves on the subcommittees and many, many more -- and the members of the Republicans and Democrats that have worked together on this complex subject matter.

As most people know, in the House, Education and Labor as well as Energy and Commerce share jurisdiction over this very complex subject matter. I am convinced that -- since I've been in the Congress, I've never seen such an effort, bringing in all of the stakeholders as President Obama has, to bring business and doctors and insurance companies and top politicians and members of all of the committees in the House and Senate together, where a commitment was made to work together and to do these things.

And so -- especially, I want to thank our witnesses. My written remarks that without objection would be placed in the record indicate that I should be sharing with you the crisis that we face. But quite honestly, you know better than I do the solution to some of the problems that clearly the whole country is aware that we are spending too much and providing too little. And we are making a commitment to improve the quality, reduce the cost, and to make certain in our great nation that everyone has access.

To me, even though we are going through a fiscal crisis, an educated healthy workforce, a strong and vibrant middle class is the heart beat that what makes our country so strong and so great that allows us all to be confident, that at the end of the day we will be a stronger nation.

Let me yield to Pete Stark for the balance of my time. And then I would like to recognize Dave Camp before we get to the witnesses.

REP. FORTNEY PETE STARK (D-CA): Thanks Mr. Chairman. I'd just like to echo your comments that reforming our delivery system is a key component of reforms. And in order to provide affordable quality health care we have to address cost growth.

The hearing today will help us find ways where we can begin. Our first panel is designed to allow us to hear from experts in the health care arena who have been studying ways to achieve significant reforms in the delivery system.

First is Glenn Hackbarth, Chairman of the Medicare Payment Advisory Commission, affectionately known as MedPAC. And he will enlighten us with work that MedPAC has been doing on the Medicare delivery system reforms. And I want to make special note that Glenn has been willing to break protocol. Probably it's a credit to the other witnesses, but to appear on a panel with non-government witnesses is something that MedPAC generally doesn't do and he bent the rules to accommodate us this morning and I want to thank him for that.

Second, Dr. Elliott Fisher, a professor of Medicine at the Community and Family Medicine, at Dartmouth. He is also the coauthor of the Dartmouth Atlas of Health Care which tracks the geographic variation in Medicare spending. And in addition to his other work, Dr. Fisher has helped develop a framework designed to encourage physicians to provide efficient high quality care known as "Accountable Care Organizations."

Final witness of this panel is Dr. Bob Berenson, who is a Senior Fellow at the Urban Institute. And Dr. Berenson has devoted many years to the Medicare program serving as director of the Center for Health Plans and Providers of what was then known as HCFA, now CMS. He is a well known expert in payment delivery policy extensively, the importance of primary care, and the need to improve the value of health care, and ways to improve the Medicare program.

The second panel, who I'll introduce later, is made up of providers who have actually implemented some of the ideas being put forth by Panel I. Their testimony will help us understand the challenges to implementing these delivery system reform proposals in the real world as well as the potential benefits of doing so.

I want to thank each of our witnesses for appearing before the committee today, and I look forward to hearing their comments on reforming our health care delivery system. Thank you.

REP. RANGEL: The Chair now recognizes David Camp who has been working very closely with the Subcommittee on Health.

REP. DAVE CAMP (R-MI): Well, thank you. And thank you very much for yielding, Mr. Chairman. But it's hard to believe that Dan Rostenkowski and Bill Archer were sitting in these chairs the last time Congress undertook comprehensive health reforms. But as we know back then Congress and the administration were not even close to agreeing on a path forward.

But more than the people sitting in these chairs has changed over the last 16 years. We now have prescription drug benefit under Medicare. We added preventative procedures to Medicare like cholesterol screening and an entry level physical and other cancer screenings.

We created health savings account that has given over 7 million Americans a historical level of control over their own health care. And Medicare advantage brought coordinated care, prevention, and treatments not found in traditional fee-for-service Medicare to millions of American seniors.

And today there is also broad agreement on the principles health care reforms should encompass. As I told the president during the White House health care summit, any successful health reform must lower cost, increased access, ensure portability, and focus on prevention and wellness among other things.

And in this hearing we have the opportunity to address many ways to lower cost and improve care by reforming the health care delivery system in this country. It's an area where, I think, we will find broad agreement. The question however, is not whether these reforms save money. They do. But rather how do we best implement these reforms. Is it through continued private sector innovation, or is it through greater government involvement in health care decisions.

The larger question the American people are asking is this. Will Congress and the president get it right this time? Will we focus on what we agree on, and will we help improve the American health care system or will we focus on what divides us?

Mr. Chairman, the witnesses before us today will tell us how they have taken upon themselves to improve care and cost for their patients. I want to commend them for developing innovative solutions to the difficult challenge of improving the delivery of health care. It is in this vein, Mr. Chairman, that I hope we too can work together to develop innovative solutions and produce real results for the American people.

And with the little time I have left, I would like to yield to the ranking member of the Health Subcommittee, Mr. Herger, if he has anything to add.

REP. WALLY HERGER (R-CA): Thank you Mr. Camp for yielding. Mr. Chairman, I anticipate that we will agree on much of what is discussed here today and I'm grateful that you called this hearing. This morning, we are going to hear about significant payment problems in the U.S. health care system and specifically about those in Medicare.

Republicans believe, as do most every witness here today, that the Medicare payment system is broken, that the payment silos and fee- for-service reimbursements discourage coordination and quality. The private health care system is far from perfect, but it has developed numerous advances that the government-run health programs haven't adopted.

Mr. Chairman, I'm concerned that if health reform means that a 120 million Americans are forced out of private coverage and into a government-run health plan, our health care system will lose its ability to innovate. The current government-run programs are slow to adopt delivery reforms and they reward volume over value.

Dr. James describes this phenomenon in his testimony, specifically how the fee-for-service delivery model discourages high quality care for pneumonia patients. Fortunately, Dr. James and Intermountain Health Care did the right thing, treated to best practice guidelines, and saved lives. But doing so resulted in a $0.5 million loss to their reimbursements. This is a perverse incentive and it must be changed.

I believe the key to higher quality and lower cost is enacting delivery and payment reforms like those implemented by Feather River Hospital in Paradise, California in my district, as part of the premier hospital quality incentive demonstration. I'm concerned that if we focus entirely on expanding coverage to all as quickly as possible, we may be putting the cart before the horse.

In a recent story on the universal coverage plan in Massachusetts, the New York Times reported that rising costs are threatening the viability of the program. In part because lawmakers had decided to punt on payment reforms in order to avoid alienating various interest groups. If we don't commit the payment reforms we will lose much of the power that current health reform movement offers us.

Mr. Chairman, I look forward to the testimony and subsequent discussion with the witnesses and yield back the balance of my time.

REP. RANGEL: Thank you. Before I yield to Chairman Stark, I want to yield to Robert Etheridge who has been one of the leaders in the Congress in improving the quality of education in our great country, and an example of his concern he will be introducing to us guests for this hearing and the chair yields to my friend Mr. Etheridge.

REP. BOBBY ETHERIDGE (D-NC): Thank you, Mr. Chairman. And let me thank you for yielding and we are honored today to have a group of young people led by a number of outstanding teachers in North Carolina, Mr. Currin from Triton, who has been an advisor for years. We have about 50 close-up students, Mr. Chairman, in the back who have come to join us for a while today.

They have spent the whole week, this week in Washington learning about their government. Who knows there may be future leaders there, and Mr. Chairman, maybe one of them may be looking for your seat one day in the future.

REP. : You bet.

REP. CAMP: I'm glad it's the chairman's and not mine.

REP. RANGEL: Mr. Stark.

REP. STARK: Leading off our panel today will be Glenn Hackbarth; proceed Glenn, as you like.

MR. HACKBARTH: Thank you Mr. Stark, Chairman Rangel, and Ranking Member Camp, members of the committee; it's a pleasure to be here today, especially to testify alongside my colleagues Elliott Fisher and Bob Berenson.

Let me begin with a simple definition of health reform, what it means to me. I think health reform equals expansion of coverage plus lower cost growth while maintaining or improving quality of care. The focus of the Medicare payment advisory commission is on the latter part of that equation. The lower cost growth while maintaining or improving quality.

Being a Medicare Payment Advisory Commission, we focus principally on using payment policy as a lever to improve the efficiency and effectiveness of the care provided to Medicare beneficiaries. And this is sometimes labeled as trying to move the system towards a higher level of performance.

The good news is that the U.S. health care system is blessed with tremendous resources, most importantly, talented, and caring professionals with whom I've had the privilege to work. The problem, as you well know, is that Medicare's payment systems and those of most private insurers as well, reward more care, more complex care without regard to the value of that care.

Equally important, those payment systems enable what we refer to as siloed practice, whereby individual clinicians and provider organizations, act independently of one another, even while caring for the same patient. Too often, efforts at coordination and integration of care are sporadic and where they do occur, their testimony to the professionalism of providers, coordination is not in any sense built into the system, nor is it properly rewarded.

The end result is care that is frequently fragmented, duplicative, and plagued with gaps, and on occasion, even conflicting as in the case of adverse drug interactions. Care of this sort is not only expensive; it can be dangerous for patients, especially for patients with multiple complex illnesses, which as you know is a common situation for Medicare patients.

In the last several years, MedPAC has recommended changes in Medicare that we believe would help move the health care system to higher levels of performance. Let me list some of those recommendations.

First is; increased payment for primary care and perhaps a different method of payment for primary care as well. For example, a lump sum for patient payment in addition to fee-for-service. Abundant research shows that a strong system of primary care is critical for a high performing health care system.

A second recommendation is for confidential episode-based feedback to physicians, so that they can better understand how their practice patterns compare to those of their peers in the same specialty, in the same local area. A third recommendation is for the Congress to authorize physician and hospital gain sharing to encourage collaboration in reducing cost and improving quality.

Fourth is that we recommended value-based purchasing, where quality and efficiency in care is rewarded better than under the current system. Fifth, we recommend reduced payment for hospitals experiencing high levels of potentially avoidable re-admissions. About 18 percent of all Medicare hospital admissions are followed by a re-admission within 30 days at a cost of about $15 billion per year.

Sixth, we've recommended a pilot of bundling whereby payment for hospital and physician services provided during an admission would be combined into a single payment and perhaps combined with payment for post-acute services as well.

Seventh, we recommended reform of the Medicare Advantage program, so that participating private plans are engaged with Medicare in promoting high performance. We believe that well-structured private plans can help in that task. Instead, however, under the current payment methods we fear that we are encouraging more plans -- if it simply mimicked traditional Medicare except at a much higher cost.

Eight, we've recommended significant public investment and comparative effectiveness research. At a meeting, next week, MedPAC will also be considering the potential for accountable care organizations in Medicare -- accountable care organizations as Elliot will discuss further. Organizations will assume clinical and financial responsibility for a defined population.

Let me conclude, Mr. Chairman, with two quick cautionary notes. First is; the changing payment systems, especially doing so with some speed where it requires more resources than CMS now has.

A second caution is that while striving to reform payment, and we believe that's a very important mission, we believe we must also apply steady, if not increasing pressure on unit prices under Medicare's current payment systems.

Thank you, Mr. Chairman, and I look forward to your questions.

REP. STARK: Dr. Fisher, would you like to enlighten us?

DR. FISHER: Thank you, Mr. Chairman, and Ranking Member Camp, distinguished members of -- oh, mike

Is that better? I just lost four seconds. Anyway --

Mr. Chairman, Ranking Member Camp, distinguished members of the committee, thank you for the opportunity to join you today and I want thank Glenn for letting us be here with him.

Variations in per-capita spending, if I can get my slides to work, are pretty well recognized now. Less well known is that growth in spending has also varied dramatically across the United States. The differences may appear small in growth rates, but compounding makes a difference.

If all U.S. regions grew at the rate over the next 15 years that has been observed in San Francisco, over the last 15, Medicare would be about $1.5 trillion dollars better off than is now predicted.

What explains higher spending? Almost all of the differences in spending across regions or across academic medical centers are due to the greater use of what we refer to as "supply-sensitive services," things that are used more frequently when those resources are available.

Medicare beneficiaries in higher-spending regions are hospitalized more frequently for avoidable conditions where outpatient treatment would equally be feasible. They see physicians more frequently overall. They are referred to specialists much more frequently. They have a much smaller proportion of their visits to primary care physicians, and they have many more different physicians involved in their care.

And more care isn't always better for patients. Patients in high-spending regions themselves report lower quality of care. Physicians describe greater difficulty -- with communication with their patients and with each other. The safety and reliability of care is actually slightly worse in higher spending regions than in lower spending regions. And health outcomes, such as survival following a heart attack, are no better or in fact perhaps slightly worse in the higher spending regions.

What is going on? We believe that it's largely a consequence of a payment system that reinforces fragmentation, rewards the growth of profitable, but unnecessary services, and ensures that existing and new capacity is fully utilized. Most medical decisions are judgment calls; otherwise you wouldn't send us to medical school.

Physicians are therefore able to adapt their practices to the local availability of medical specialists and hospital beds. Income pressures on both physicians and hospitals motivate them to purchase new, profitable technologies, to refer more complicated patients to other physicians, or to admit them to the hospital. And the poor quality we see in high spending regions, we believe it is a direct consequence of the fragmentation in care and the poor coordination that happens especially for the most vulnerable patients.

If we are to improve quality and slow spending growth, we think three principles are particularly important. Foster the development of integrated and organized care systems with a strong primary care foundation. Move rapidly toward performance measures that can reassure the public that better care is consistent with lower costs.

And third, shift payment system towards methods that reward what we want, value in medicine, better care, better health, and lower costs. We have proposed the development of Accountable Care Organizations as a transitional approach toward meeting these goals. An Accountable Care Organization is a local network of providers that can manage the full continuum of care for their patients.

They must be big enough to allow for accurate measurement of quality and costs. Examples of current organizations that might play this role include primary care or multispecialty networks, such as independent practice associations or physician-hospital organizations, hospitals that employ their own physicians or integrated delivery systems such as academic medical centers.

Our own research has shown that the formation of ACOs would require little disruption of current practice pattern and referral patterns within most markets within the United States, meaning that almost all physicians and hospitals could participate in such networks.

The payment reform has two key elements. First, we need to be able to set a target along with private payers, CMS and private payers, would establish a spending benchmark by predicting what it would cost to take care of these patients in that particular ACO.

Then if the quality standards were met and actual costs in that second year were below the spending benchmark, the savings would be shared between the providers and the payers. The approach does not require any change to current fee-for-service reimbursement administrative systems. It does not require patients to be locked-in to specific providers. And the proposal builds directly on early work that CMS has led in terms of its, such as its Physician Group Practice demonstration.

Congress has an important opportunity to align performance measurement and payment initiatives to support accountability. Performance measurement and payment reforms already underway should be supported and strengthened while shifting the emphasis toward enhancing coordination, improving health outcomes, and reducing overall costs. For many physicians currently in solo or small group practice, we should provide support and incentives for them to come together in networks.

And finally, for those already in networks, or integrated systems, CMS should quickly establish criteria for participation in ACO-shared savings systems that could reward better quality and lower costs.

Thank you very much.

REP. STARK: Thank you. Dr. Berenson.

DR. BERENSON: Thank you Mr. Chairman, Chairman Rangel, Mr. Camp, members of the committee. Although health care spending remains a challenge for all payers, Medicare's track record has been better than that experienced by self-funded employers and commercial insurers while offering universal provider participation.

Medicare is well positioned to take the initiative preferably in collaboration with other public and private payers to produce additional delivery system changes in response to current challenges. For all the dire estimates that health care costs will consume, the entire gross domestic product in Medicare and Medicaid the entire federal budget, in fact we only need to reduce spending by about 1.5 percent per year to maintain the share of the nation's economy in the federal budget devoted to health care. That is achievable.

Policy makers are just beginning to realize the implications of beneficiaries living longer with chronic illness, particularly multiple chronic diseases. The 20 percent of Medicare beneficiaries with five or more chronic conditions account for two-thirds of Medicare spending, see about 14 different physicians a year, and have 40 office visits.

Yet Medicare and other insurance program designs for the most part ignore the importance of chronic illnesses in generating demands on the health care system and escalating health care costs. We have clear need for a different health profession workforce.

In general, a much greater supply of primary care physicians, primary care nurse practitioners, and physician assistants, and specifically more geriatricians. Yet, current physician payment policies in Medicare ignore these workforce needs and instead disproportionately reward the provision of niche specialty services, such as imaging and performance of minor procedures.

Whatever the blue print for delivery system reform, and it's likely to fail, unless immediate steps are taken to address the likely collapse of the primary care physician workforce infrastructure in many parts of the country.

There are many challenges in figuring out how to better care of patients with chronic conditions and geriatrics syndromes, but this is precisely where there is the biggest bang for the buck in terms of beneficiary well-being and bending the health spending curve.

Based on current work being conducted by colleagues at the Urban Institute, I would not focus as much policy attention on geographic variations in care. Our findings cast some doubt on both the magnitude of the geographic spending variations and the source of the variations that Elliott and other Dartmouth researchers have found.

We will need to reconcile these different results. However, happily, policy recommendations like you've just heard Elliott present; particularly those fostering the development of accountable care organizations have merit and do not rely primarily on the geographic variations finding for their support.

Our share preferred approach to sorting out how best to serve the diverse and complex needs of patients with an array of chronic and acute care needs would be to develop and implement an improved payment model to support integrated delivery systems, which would have the size, scope and resources to sort out themselves how best to serve the patients they care for, rather than having payers doing it from far away.

It is time to move away from a one-size-fits-all payment system relying just on a Medicare fee schedule, for physicians and prospective payment based on diagnosis-related groups for hospitals, but rather build on the shared-savings approach used in the PGP demo to provide a payment model appropriate for these organizations.

In closing, I would like to emphasis the importance of permitting individuals satisfied with their private insurance plans to stay with them in health reform. It is also important in my opinion to have a public plan, patterned on Medicare, but separate from it, as an option for those seeking care.

Some would restrict the ability of a public plan to control costs by altering prices in payment schedules. However, differentiating so- called price controls from all the other tools, a value-based purchaser, public or private, would use is both arbitrary and unworkable, because in practice, pricing services is inextricably linked to the other approaches recommended.

As in Medicare, the public plan would balance spending growth restraint with the duty to preserve access to needed quality care. If the public plan moved too aggressively on cost containment, individuals would likely migrate to a private plan. Further, it would face the risk of causing hospital closures, slowing down the introduction of desirable new treatments, and for some specialties, reducing the availability of physician services.

So as this debate proceeds, I think it is important to try to establish a level-playing field competition between public and private plans. I think that's achievable, and I would urge the committee to give that a high priority.

Thank you, very much.

REP. STARK: Thank you, and I'm about to recognize, chairman of the committee to inquire that this comment does not apply to him or Mr. Camp. But I think in fairness to the witnesses, and the second panel who will be waiting patiently, and the large number of members who are here, it would be my plan to limit questions and answers to five minutes today.

So if you want to use your five minutes, making a statement, then we will have the answers in writing later. And that will move things along. As I said, we have a couple of exceptions to this rules about limits. Mr. Rangel.

REP. RANGEL: First, let me thank all of you for your expertise and possible solutions. Dr. Berenson had indicated that a public plan would give options to the beneficiary. I don't know, Dr. Hackbarth as the Chairman of the Medicare payment advisory commission, whether or not that's the political question which you may be in an awkward position.

But the fact is that we have a sharp difference within our parties and certainly with the other House, where most of us believe that we can't get a bill out in House without having this public plan.

Dr. Hackbarth, do you feel comfortable in giving your opinion whether it's official or unofficial as to having that the opposition would indicate that this is putting your foot in the door to take over the insurance companies. And of course, we wouldn't want them to be there to be competitive with the insurance company and have options for the beneficiary. What's your thoughts?

MR. HACKBARTH: Mr. Chairman, we have not considered the specific issue of a public plan in health reform. We have our hands full dealing just with the --

REP. RANGEL: That is excellent. So now I can get just your individual, unofficial, view --


-- where clearly you haven't checked with the commission or the administration, but -- and this is just to see what we are up against or what kind of support would the experts -- because you do this every day. We don't. And we just want to make certain that we have the highest quality, efficient costs -- cost efficient. And so, what do you think about having a public --

MR. HACKBARTH: What I would say Mr. Chairman is that MedPAC believe, and here I can't speak for the commission as a whole, is that we need both public and private plans. And here I'm talking about Medicare, but let's think about that context for a second.

We think that public and private plans each bring something to the table. In the case of a public plan, you've got a relatively low administrative cost and you've got pricing power.

On the other hand, private plans have greater flexibility in their payment methods and thus the potential for innovation. And in addition to that they have the ability to identify efficient providers and try to steer patients to those providers.

What we see in Medicare Advantage or what we would like to create in Medicare Advantage is a level playing field for competition between those two models and then let the patients chose between them. That's what we've been striving for in the context of the Medicare program. Again, we haven't looked at the broader issue of a public plan in health reform.

REP. RANGEL: Is there any one thing that you see in Medicare that could explain the slowness in growth. Of course, in competition with the private sector that you can say that this is where we get most of our savings?

MR. HACKBARTH: Well, if you look at the long-term picture, Mr. Chairman, Medicare's lower cost growth seems to have come about largely as a result of Medicare moving towards various perspective payment systems, like the perspective payment system for hospitals.

The only period in the last 15 years or so, where the private sectors had lower rate of growth and costs was the height of managed care in the mid 1990s, when private plans were aggressively using new payment methods, models to try to change the patterns of care.

For a variety of reasons, they backed away from that as we moved into year 2000 and beyond. And they have been less aggressive and less effective in controlling costs in more recent years.

REP. RANGEL: I hope that we find some way, Mr. Chairman, to get the benefit of MedPAC without violating any of the political rules. But you are on the role to making a more efficient system, you should feel very proud of the job that you've done. We've tried to adopt most every reform that you've suggested to us. And I think that the providers and the patients believe that it does work.

And as we embark on this revolutionary concept, we have to find some way without doing violence to the -- your job and our job, to get the benefit of your thinking on these things and I'm certain that we can do it.

I want to thank you Mr. Stark for the time.

REP. STARK: Thank you Mr. Chairman. Mr. Camp would you like to inquire?

REP. CAMP: Thank you, Mr. Stark. Thank you all for testifying. There was actually a lot of good in all of your written testimonies, and -- but I have a couple of questions, and Dr. Hackbarth, you sent a statement to the committee last month, I think on the day of the hearing, questioning the findings in the report of a witness who was about to testify.

And that report concluded that because Medicare and Medicaid underpaid physicians in hospitals, the providers charge those as private insurance more for their services -- The Milliman report.

But you didn't mention in your statement the cost shift from Medicare is underpayment to physicians. Do you think physicians are being paid adequately in Medicare and Medicaid?

MR. HACKBARTH: We believe Mr. Camp that in the aggregate, there is more than enough money in the Medicare payment system to pay physicians adequately. We do think that the money is not properly allocated at this point.

REP. CAMP: So they are not receiving an adequate amount?

MR. HACKBARTH: We think that some physicians should be increased in their payments, and some servicers should be reduced in their payments.

REP. CAMP: And do you think there is an underpayment in Medicaid?

MR. HACKBARTH: Well, we don't look specifically at Medicaid.

REP. CAMP: And certainly that distortion in Medicare, that you mentioned, do you think that has no effect on insurance rates?

MR. HACKBARTH: Well, just to be clear, the -- now, distribution of payments, that we believe exist in Medicare actually exists in most private plans as well. Indeed many, many private insurers use the Medicare system of relative values to pay physicians.

REP. CAMP: So your answer is, no? You don't believe that there is any effect on private insurance from the public system at all?


REP. CAMP: On insurance rates, you don't think there is any effect at all? I mean, because we've had many witnesses, in fact even Dr. Berenson in his testimony says that there is quite a cost shift that, he says in his testimony that, hospitals and physician groups have demanded higher prices from insurers.

So we've had numbers of witnesses coming before this committee saying just the opposite. So you are actually alone if that is in fact your position -- with that position.

MR. HACKBARTH: Well, let me state our position clearly.

REP. CAMP: Because maybe I don't fully understand that.

MR. HACKBARTH: Well, let me address that. Clearly, Medicare pays less than most private insurers. We don't believe that the Medicare payment rates are inadequate. We believe that in many instances private insurance payment levels are too high. So --

REP. CAMP: But the inadequacy of the payment still doesn't address the distortive potential. That's my question to you?

MR. HACKBARTH: Well, repeat your question. I'm not sure --

REP. CAMP: Is there a distortion in the payments to providers, because of the payment rates. You are saying they are different in private and public, in Medicare and in private insurance.

MR. HACKBARTH: What we fear is that overtly generous private payment is in fact increasing cost for Medicare program. And we see evidence of that in two types of data, Mr. Camp. First of all, if you look at the relationship between private payment levels to hospitals and Medicare margins over time, you see years of high private payment levels result in low Medicare margins.

In addition, if you look at a cross-section of hospitals, we see evidence that hospitals that are under significant financial pressure, because they don't have generous private payment, are able to reduce their cost, and do so in a way consistent with high quality --

REP. CAMP: Well, let me ask this another way. Are the private payments overtly generous as you say, private insurance payments, to compensate for the lack of payments in Medicare?


REP. CAMP: In your opinion.

MR. HACKBARTH: Let's just talk about --

REP. CAMP: Many witnesses have testified that's the case.

MR. HACKBARTH: Yeah, let's talk about that dynamic between say, a hospital and a private payer. If a hospital is able to dictate rates to a private insurer, as the cost-shifting model assumes, they can only do that if they've got leverage in that negotiation, if they have market power, so that the private payer can't just walk away. They are compelled to pay this higher rate.

What are the policy implications of that market power? If that hospital has that market power, there is no reason for us to believe that an increase in Medicare rates would be followed by a reduction in rates for private payers. If they've got the market power, they will use it after the increase in Medicare rates just as they used it before.

REP. CAMP: Well, we've had reports from Milliman, which obviously found that the price controls in Medicare and in Medicaid, which I realize you are not going to comment on, but they are said -- I think both important programs, we can't just look at one and not understand the other, are so low that physicians and hospitals are forced to charge those with employer-based insurance more for their services. You call that an overpayment.

But I think if you look at a physician's or a hospital case mix they have both. And so that's I think a dynamic that occurs, but I think you -- your comment that a government-run plan could use price controls to control cost frankly, and that really is needed to counter the ability that hospitals and some physician groups have developed to demand higher prices from insurance. I actually -- I think that's Dr. Berenson's testimony.

But isn't it possible, I guess, I still don't have an answer to my question that physicians and hospitals are demanding higher prices because they have to offset the underpayments in Medicare.

MR. HACKBARTH: Again, if they have the ability to compel private payers to pay more, there is no reason to believe that if Medicare were to reduce or increase its rates that they would reduce the amount they charge to private payers. They have market power, they have leverage in the negotiation. For-profit hospitals exist to maximize profits, not-for-profit hospitals exist to maximize revenues, so they can provide more services.

REP. CAMP: Yeah, I see my time has expired. Thank you.

REP. STARK: Well, I would give Dr. Fisher and Dr. Berenson a chance to weigh in on that. Many people say that Medicare is outdated, it's cumbersome. And on the other hand many of us think it's an important tool of the delivery system.

Could you both discuss how you see Medicare as a driver of change in our health care delivery system that you think will be better able to effectuate delivery system reform if those changes happened in the care provided to the non-Medicare population by making a public Medicare-like plan available to the under-65 population?

And you could also discuss if you'd like the different question that is, is Medicare too low, or our private payer is too high, which is a half-empty, half-full --

Dr. Fisher, do you want to take the first lead at that?

DR. FISHER: Sure. Sure, thank you very much Congressman Stark.

I think, you know, Medicare has an -- has a very important opportunity to lead because of its size within the country. And I think many of the innovations that are already underway within Medicare around value-based purchasing, around demonstrations on pay- for-performance give them a powerful leverage to help us learn how to do better and how to -- and how to do better.

On the public plan question, I think, having -- if Medicare and the public plan start to adapt the kind of careful payment reforms that we've -- that we all need to improve the efficiency of care that could enhance competition. If we have the Medicare program continuing as it is, with essentially fee-for-service payments that are not moving toward value-based purchasing, I don't think it will be constructive.

That the public plan would be a help in terms of improving the quality and efficiency of care. So I'm relatively agnostic on the public plan. I'm very strong about the characteristics of whatever plan we have, whether it's Medicare or the private sector.

In question of -- on the question to -- of the relative -- the question about the cost shift, there, I think it's pretty clear that the issue should not be just prices. That the real problem we have in the Medicare program is on the volume of services. And we have no, no current good tools to focus on the volume of services.

Now, the current model is very much like giving a contractor a -- you know, a per square foot price for the house, but not caring about whether it's 5,000 square feet or 50,000 square feet. You're going to get a mansion if they are allowed to decide how much -- you know how many square feet your house has.

So moving toward incentives that promote integration, coordination, and lower costs, regardless of the price, actually helps them have an incentive to be flexible and you can almost step back and ignore the price, which I think is why we're so encouraged by this notion of accountable care organizations.

REP. STARK: Dr. Berenson, you want to weigh-in on this?

DR. BERENSON: Yes, I would be happy to.

As I indicated in my testimony, I think there is some countervailing pressures on Medicare, and a would-be public plan about how they would use their market power to set rates. Clearly the payer has to assure access to care. And indeed if there are private plans at least some providers would be able to give preference to the private plans if in fact they were not getting adequately paid in Medicare.

Medicare has strived to pay the average reasonable -- average reasonable cost. And for the most part, if you look over, you know, a long enough period, it sometimes pays a little more, sometimes currently a little less than reasonable cost, but attempts to pay reasonable cost.

I don't think that is true in all. I mean, I can say something about Medicaid. Not all Medicaid agencies are trying to do that. There is huge variation across the states in which -- in some cases Medicaid is paying well below cost and in others they are attempting to pay nearer to cost.

So I just -- I guess what I'm suggesting here is that Medicare really does have to find a balance -- MedPAC always provides annual surveys to assure and provide some satisfaction that beneficiaries have continued access to care that providers aren't dropping beneficiaries.

And then the -- on the cost-shifting issue specifically, it's very complex. I think it's probably a mixture. To some extent, hospitals in particular, would attempt to cost shift on to private payers if Medicare had a huge price increase -- decrease, I'm sorry. But for the most part, the hospitals that are able to get high prices from plans, here I agree with Glenn, would do so regardless of what Medicare was paying.

And indeed there are some hospitals who year after year are able to generate huge end-of-the-line profits whether they are for-profit technically or not, because they do have that kind of localized market power regardless of what Medicare payments are doing.

REP. STARK: Thank you.

Mr. Herger, would you like to inquire?

REP. HERGER: Yes, thank you very much, Mr. Chairman.

Dr. Berenson, you state that a government-run health plan, quote, "Would have a -- have to balance spending-growth restraint with the duty to preserve access to needed care," close quote. In my state of California, the Medicaid program pays less than $0.50 on the dollar; it is virtually impossible for low-income people enrolled in Medi-Cal to find specialists who are willing to see them.

And that didn't stop the state government from trying to cut payments rates an additional 10 percent in the most recent budget crisis. It took a federal judge to block that attempt. This isn't just a California problem. We all remember the tragedy of Demonte Driver, the 12-year-old Maryland boy who died of a tooth ache, because his family couldn't find a dentist who would take Medicaid patients.

Medicare has historically done better, but recently, I've begun hearing from physicians in my district who are no longer accepting new Medicare patients, because of the constant threat of payment cuts.

Isn't it true that our current government-run programs are already failing the preserving access test for many of our most vulnerable citizens? And why should we believe that a new government run health plan would improve on this sorry records?

DR. BERENSON: Well, again I would distinguish Medicare and Medicaid. And as I said in my previous comment, there are some Medicaid states, and California is one of them that I think doesn't pay adequately for those inner city hospitals without a good payer mix. I think Medi-Cal rates are too low.

Medicare is a different story. And indeed a former administrator of Medicare somewhat facetiously wrote that Medicare has become a provider entitlement program rather than a beneficiary entitlement program, because the payment rates in fact are relatively generous. As you've commented and I commented, currently there is a -- beginning to dip a little bit below reasonable cost.

But that's corrective. I'm aware of primary care physicians who don't want to participate in Medicare right now. We need to correct that. So I'm not saying that there are not at times needs for corrections, but a national program, and that's the importance of having a national program. And one modeled on Medicare, I think, you have to get it right.

The public would not tolerate that if it were their basic option, and as I said in my testimony, when patients started moving into private plans as their alternative that would be immediate feedback that the Medicare, I mean, that the public plan payment rates were inadequate.

REP. HERGER: Of course, there is -- Dr. Berenson, our concern is, if we have this -- when you choose between the government plan and the community plan, and a private plan, the community plan can subsidize and under-price. And there won't be any private plans around at a tune of a 120 million right off the bat is one of our concerns.

So my concern is with the well-meaning government programs wherever they are and the health care plans whether they are here in the United States or in Canada, or in Europe where we see that -- you mentioned they have to get it right. But we see more times than not, the rules tends to be that they don't get it right. And just a follow-up question is wouldn't you agree that the Medicaid failed the preserving access test for Demonte Driver. And would you agree that Medicare is failing the preserving access test for seniors in my district who cannot find a primary care physician?

DR. BERENSON: Well, again, I won't comment on Medicaid. I'm not -- I don't study that as much. I don't think Medicare is failing. There is broader provider participation in Medicare than in most private plans. And a MedPAC survey suggests that even though there are pockets where there is access problems; overall, nationally, there is still excellent access to physician services.

And we look every time there is some suggestion that Medicare is failing. This committee and other committees try to find out why and authorize corrections to it. So it is possible that there are some state Medicaid that are failing, but as a model for health reform, I think, Medicare is a good one.

REP. STARK: Thank you.

Mr. McDermott, would you like to inquire?

REP. JIM MCDERMOTT (D-WA): Thank you, Mr. Chairman.

I think I will start by saying that Mr. Herger is creating the impression that when we talk about a public option we're talking about Medicaid. The federal government made a mistake in 1964 in setting up the Medicaid program and saying that the 50 states you can all do whatever you want.

And of course, they should have made a national program in 1964, that's why we're here today. And I want to ask a question of Mr. Fisher -- Dr. Fisher and Dr. Berenson. Fundamental change in the system is going to be a change in manpower and womanpower who deliver health care. If you read Dr. Berenson's testimony on pages three and four, and I recommend all members of the committee you read that.

The emphasis is always on primary care. Every body talks about primary care, but nowhere do you see in these proposals there is a way in which you're going to deal with primary care. And I have one on the table that I'd like you to comment.


I believe that every state medical school ought to offer a median tuition to any student coming into that school who would guarantee they'll serve four years of primary care when they come out the other side. I put it in the beginning, because I want to get them thinking about primary care from the beginning.

I want to change medical school education from that leading to specialties and rather than going to primary care. And I want to be committed right straight through, so that you get the person trained to do what we need, what everybody says we need. You -- Dr. Berenson says we have 70 percent specialists, 30 percent primary care people.

We will never change the cost problems in this country as long as we put medical students out on the street at 24 years old with a ($)150,000 or ($)250,000 or $350,000 of debt. What they do, according to using the MedPAC payment schedule is figure out what specialty they could go into, that you can make that kind of money to pay for it.

So I'd like to hear what you think would happen if we had 45,000 primary care physicians coming through the public medical schools in this country, Dr. Berenson, or Dr. Fisher, either one of you.

DR. FISHER: I think it's a strong idea. We do need to improve primary care. You know, loan forgiveness, I would probably add serve and under-served areas if I had my choice, but I think the second real problem, and I teach in a medical school is that -- primary care -- that medical students move through medical school looking at the current work experience of physicians in primary care.

And one of the observations that I think we'll hear about in the second panel is that when you move to integrated delivery systems that have some incentives to improve care and lower cost, even without special payments for a medical home or special payments for primary care physicians, they actually start to think about performing and enhancing their primary care workforce within the system.

This is already happening at Dartmouth. We are a member of the Physician Group Practice demonstration because we have the opportunity for shared savings. We've invested in expanding our primary care and supporting our primary care physicians. So I think primary -- medical students need to see something at the end of the pathway that makes the work look like fun, and be reasonably compensated.

And so in parallel with loan forgiveness I would be working hard -- or tuition supplements, however, you want to do it. I would be looking at graduate medial education and how to get residents involved in primary care so they have local role models. And I would be thinking about delivery system reform that would again provide demand for primary care physicians.

REP. MCDERMOTT: What's the percent of Dartmouth students that go into primary care?

DR. FISHER: Oh, it's vanishingly small. You know, it's, you know, 10 percent.

REP. MCDERMOTT: So if you sign them up when they went in, and they guarantee they'd give four years on the other end, you would have a whole different stream.

DR. FISHER: I think we would, but I -- you know, I share -- I know having counseled medical students who come in saying they'd love to do it, part of it is the loan burden. But part of their decision, you know, in third year medical school to say I'm going to become a surgeon or I'm going to become a radiologist, is lifestyle and is the current practice.

They might go out there for four years and do your primary care, but I worry that if we don't create a good work environment for them, you'll have them saying at the end of four years I'm going back and do my cardiology training.

REP. MCDERMOTT: Dr. Berenson.

DR. BERENSON: Yeah, I would share that one of the purposes of working through the details of trying to get this Patient-Centered Medical Home concept correct, not only is to be more relevant for the current problems that patients have, which need much more coordination, et cetera, is to provide better work environments for those primary care physicians.

So the current life of a primary care physician has been described as being hamsters on a treadmill, just sort of careening around, not really having any control over their lives, and therefore not being able to do the kinds of support to patients that is needed. So we need to build an infrastructure.

The one thing that hasn't come up, you suggested that, we need very specific proposals. This committee, I think, was instrumental a couple of years ago when specific provisions in the CHAMP Act, which would modify how we set fees.

I think the most immediate thing we could do is change how the RBRVS based payment system, fee for service -- we all want to reform fundamentally, move away from fee for service. But we need to do a better job of getting our fee for service schedules correct.

For one reason, for no other reason, than those are the building blocks for all these bundle payments that we were talking about. So if we continually pay much more -- if the rewards are much more for doing a minor procedure than for talking to a patient, we will then compound that when we move to a bundle payment or an aggregate payment for a group. So I think there -- we should re-look at that and make some improvements, but definitely as part of health reform improve the process for setting relative values.

REP. STARK: Thank you.

Mr. Johnson, would you like to inquire?

REP. SAM JOHNSON (R-TX): Thank you, Mr. Chairman. I appreciate it.

And I agree with you doctor, thank you for you beliefs. You know, my opinion is that the primary care physicians need more, not less. And the bundling of money the way we do it, and as you've talked Mr. Hackbarth, into bundles if you will, for each type of payment, i.e., hospital, doctor, medicine, et cetera, doesn't allow for any change in the way the payments are made.

And the primary care physicians are a primary source of doctor, and I feel like that, I don't know if that's what you are, or not, but I feel like that profession has been let down on the apart of our government, because they are not being paid properly.

And I think it's important to look just beyond the need of reform and focus on what type of reform is good enough for our constituents and our families for generations to come. I recently met with several individuals in my district, in fact, just last week to hear their thoughts on health care reform, and amazed how every senior in the room told me how hard it was for them to get access to a doctor in the Medicare program.

They can't find a primary care physician anymore. Mr. Hackbarth, in the MedPACs report this year the committee-side of the study that also showed this to be true for Medicare beneficiaries looking for a new primary doc, and in briefings I've had with MedPAC recently, it's been suggested that the access to primary care docs is tied to inadequate payments by Medicare. Is that an accurate statement?

MR. HACKBARTH: Well, Mr. Johnson, what we have found is that overall access for Medicare beneficiaries actually compares favorably to access for privately insured patients in the near Medicare-age group being 55 to 64. So access for Medicare beneficiaries as reported by the patients themselves is better for Medicare beneficiaries than for privately insured patients.

Now, you've focused on one particular question, which is for patients seeking a new primary care physician, for example, because they've moved into a new geographic area, we found that roughly a quarter of Medicare patients seeking a new primary care physician, and this represents about 6 percent of the total Medicare population --

REP. JOHNSON: When was that study you're saying?

MR. HACKBARTH: This was 2008.


MR. HACKBARTH: And so about a quarter, say, that they experience a problem finding a new primary care physician. The number for privately insured patients is modestly lower, but the difference between the two is not statistically significant.

REP. JOHNSON: Well, I think you need to talk to the people out there.

MR. HACKBARTH: Well, this is the beneficiary survey. We do talk to the people.

REP. JOHNSON: Well, I know the expertise of MedPAC. And we've all heard the horror stories where children have literally died from a toothache. Even though they had a health insurance, Medicaid, they didn't have access to a doc. It seemed obvious to me, when Congress discusses ways to reform health care, we can't talk about universal access without addressing how we pay for it.

And if access to docs in the Medicare program is tied back to inadequate payments, can you speak to that and tell us how reform in the manner which we've been talking about, i.e., an expanded role of government health insurance -- how does that make the access problem any better?

MR. HACKBARTH: Well, again, in Medicare, we do not see problems of reduced access. We see access for Medicare patients being as good or better than access for privately insured patients.

REP. JOHNSON: Okay. Well, I think you got some problems with payment. And I don't know how you get rid of those bundles of pay that you talk about --


REP. JOHNSON: -- but it seems to me they ought to all be coordinated together.

MR. HACKBARTH: Yeah. And just for the record, Mr. Johnson, I would agree with your initial statement about primary care. MedPAC has advocated increasing payment for primary care services. We think that's important for the reasons that have already been discussed.

REP. JOHNSON: Thank you, Mr. Chairman.

REP. STARK: Thank you, Mr. Johnson.

Mr. Lewis, would you like to inquire?

REP. JOHN LEWIS (D-GA): Thank you very much, Mr. Chairman. And I want to thank you, Mr. Chairman, for holding this hearing today.

Let me just ask members of the panel. I'm deeply concerned that -- and really worried that so many people had been readmitted to the hospitals so soon after their first hospital stay. We should be able to fix this problem.

And I'd like to know what are the -- what percentage of the hospital readmissions are avoidable and how much do we currently spend on them. I think you indicated that we are spending maybe ($)20 (billion) or $15 billion.

Why are we putting people out so soon and then readmitting them?


REP. LEWIS: How can we fix it?

MR. HACKBARTH: Our estimate, Mr. Lewis, is that about 18 percent of Medicare patients are readmitted within 30 days at a cost of about $15 billion.

REP. LEWIS: Well, would it be better to keep people in?

MR. HACKBARTH: Yeah. Well, the reasons for a readmission --

REP. LEWIS: Would it be cheaper.

MR. HACKBARTH: -- for readmissions are complex. Not all of them are avoidable. We believe a significant portion of readmissions are avoidable, but not all of them.

And if you look at the data, take a common Medicare diagnosis, like patients with chronic obstructive pulmonary disease, a very common Medicare admission; you see roughly a three or four fold difference in readmission rates between the hospitals that are in the top end of the profile, versus those at the bottom end. So there is a big variation.

That statistic causes us to believe that there are, in fact, interventions that hospitals can make to reduce readmission rates. In fact, there are a number of hospitals that -- other hospitals could learn from. It takes specific interventions and it can be done.

REP. LEWIS: Other members of the panel care to respond?

DR. BERENSON: Yeah, let me jump in on this as well. It just happens, coincidently my New England Journal of Medicine this week came in last night, and it has new data even suggesting now 20 percent readmission within 30 days. It is a major issue.

Half of the time, according to this new study, the patient who is discharged from a hospital did not see a physician in the interval between the discharge and the readmission. In other words, the patient was sick enough to be in the hospital, but somehow dealt through the cracks on the transition back to home.

I think there is a real opportunity to take a number of steps to improve this situation, to improve the coordination and the transition of care for those beneficiaries. But ultimately, I think we need to take a real hard look at the incentives in the hospitals. I know you have a witness in the second panel, Brent James, who I think has presented data -- that documents the perverse incentive related to the hospitals.

If the hospital works hard on a better discharge, hires some, what are now called, health care coaches, to go into the patient's home, so that they get their medications correct and do the other things that will prevent a readmission, that results in a decrease readmission and decrease revenues to the hospital.

I think we need to fundamentally re-look at this sort of perverse financial incentive on hospitals to keep beds full. And there are some ideas around; MedPAC has presented some of them as to what we could do about this issue.

REP. LEWIS: Dr. Fisher, you'd care to respond?

DR. FISHER: Yeah. I'd just like to add one thing and that there is a strong relationship at the regional level between initial admission rates and readmission rates. These are regions that have learnt to rely on the hospital to some extent in communities.

I think both Bob and Glenn have mentioned this notion of the importance of care coordination after discharge, but it's equally important before admission. So I think the challenge we all face in the payment reforms is how to foster the integrated and coordinated care that can prevent unnecessary admissions on the front end as well.

So that -- this is about the system of care for allowing a diabetic patient towards worsening diabetes to be managed safely as an outpatient whether it's worsening just after discharge or before discharge. It will take some work to get hospitals and physicians to work together more effectively, but I think that's what all three of us are saying when we talk about moving toward bundle payments or integration.

REP. LEWIS: My time has run out. Before moving, if I can go back to the issue raised by Dr. McDermott and Mr. Johnson? Many studies show that community with a greater percentage of primary care doctors have high quality localized care, yet our system seems to undervalue or devalue primary care, why?

DR. FISHER: There is a long answer --

REP. STARK: I think I'll --

DR. FISHER: -- it is the history of our system.

REP. STARK: -- get that answer later, Mr. Lewis, or in writing, if you don't mind.

REP. LEWIS: Well, if it's possible, can you get me an answer in writing.

REP. STARK: Thank you.

REP. LEWIS: The chairman is being very strict today. That's all the time I get.

REP. STARK: Yeah. True, that's because I have to recognize Mr. Neal. And I'm going to make sure he pays his rent on time.

REP. LEWIS: Well, thank you, Mr. Chairman.


REP. RICHARD E. NEAL (D-MA): Thank you, Mr. Chairman.

I know, Dr. Fisher that you've spent many years studying geographic variation in Medicare spending and you know that's a huge deal in Massachusetts.

DR. FISHER: Thank you.

REP. NEAL: The studies indicate that most variation in spending can be attributed to differences in utilization and it can be traced to practice patterns and in the supply of things like hospital beds, hi-tech equipment, and MRI machines. Might you explain what other factors might be behind the geographic variation in Medicare spending?

What the picture looks like when all health care spending is taken into consideration instead of just Medicare spending? And does it automatically follow from studies that spending in high-spending areas should be decreased and spending in low-spending areas should be decreased?

You know, I'm going with this given Massachusetts and those hospitals that, for all of us in that part of the country, it's what Boeing means to the Pacific Northwest. So this is the most significant issue.

DR. FISHER: Sir, I think there is -- there are dramatic differences across regions in the use of services. Some of them are related to the supply of hospital beds. You know, if you look at hospitalization rates or underlying hospitalization rates for medical conditions, they are correlated.

Certainly, supply, as Dr. Berenson has shown, does not explain all of the variations across communities. Actually, the most important factor we found in our recent research are sort of -- are physician's decisions about how -- in discretionary settings where there is uncertainty about how to treat someone.

They are highly correlated within regions docs are -- docs who say it's more -- docs who tend to be interventional, tend to be clustered in these high-cost regions. And it's in these gray areas about when to admit a patient with heart failure.

The question about whether we want to definitely bring spending down in the high-spending regions or up in the low-spending regions, I think what we've learned is that there are -- if you look at where the money is going, there is plenty of room to slow the growth of spending in high-spending regions. And keep it flat for a long -- as you know, you keep it growing at 1 percent per year, it would not require putting out of work, you know, the third of the work -- health care workforce within Massachusetts.

The real opportunity here is to get everybody to grow at the 1, you know, 1-1/2 percent rates we see in San Francisco, in Pittsburg, in Atlanta, in the New England Journal article we published before.

And when you look within Massachusetts, there are substantial differences in both growth and per capita spending within Massachusetts. The -- I could give you a longer answer about the -- whether spending in the under-65 and over-65 populations are correlated. There is an issue about what prices different organizations pay for their services.

When you look at utilization within California, within Michigan, within where we've done this quite carefully, you see that there are high correlations in utilization rates between the under-65 population and the over-65 population. And then it depends whether those systems like in some places are able to jack up their prices very high. Does that answer your question?

REP. NEAL: It does. I guess you could maybe succinctly address it by answering this question. Have you ever referred a patient of Massachusetts for care?

DR. FISHER: Have I ever referred a patient to Massachusetts for care? Certainly.

REP. NEAL: That's my point.

DR. FISHER: I would think about going there myself.

REP. NEAL: Yeah, that's my point. That is exactly my point.

DR. FISHER: The question -- but the question for Massachusetts residents --

REP. NEAL: Right.

DR. FISHER: -- is whether most of the increased utilization in Massachusetts is not by the out-of-state, you know, it's not due to out-of-state utilization.

REP. NEAL: Right.

DR. FISHER: What we want to do is promote wonderful systems --

REP. NEAL: For a complicated procedure --

DR. FISHER: Wonderful --

REP. NEAL: For a complicated procedure doctors always send patients to Massachusetts.

DR. FISHER: And to the Mayo Clinic and --

REP. NEAL: Right, I understood, right.

DR. FISHER: And so the opportunity, you know, for Massachusetts to improve --

REP. NEAL: And my colleague Mr. Lewis tells me that when he was assaulted in Selma, he went to Massachusetts as well.

DR. FISHER: We all would like to come to Massachusetts. My best friend is in Massachusetts.

REP. NEAL: Well, all you need is say -- Dr. Berenson.


Your testimony means, Mr. Fisher, that if you're going to get sick, it better be in Massachusetts.

Mr. Berenson.

DR. FISHER: I did not say that.


DR. BERENSON: You want me to comment on the same --

REP. NEAL: Please.

DR. BERENSON: -- on the same set of issues. In my testimony, I indicated that we were doing some research at Urban, which is finding that at least some of the geographic variations, at least in our research, is more explained by individual characteristics, health status, socioeconomic characteristics, but there remains even after that, geographic variation.

It's important -- I don't think we know all of the causes for it. Supply is probably some of the cause, but the implications of what we're saying and what Elliott is saying is that there is -- I think that there is plenty of room to find the 1-1/2 percent. That's all we're talking about, is 1-1/2 percent bending the cost curve.

We don't have to argue whether there is 30 percent waste or 15 percent waste. Virtually, all communities can find that 1-1/2 percent. And it's probably easier to find in Massachusetts, frankly, than in some other places.

REP. NEAL: Lastly, you recall during the Clinton health care debate one of the most confusing aspects of it was the whole notion of the purchasing alliances coupled with the fact that the other suggestion that was made during the Clinton health care debate was that the teaching hospitals were no longer going to necessarily be the magnet for those reimbursements. They were going to be treated as other hospitals were treated across the country. And for those of us who value that reputation, that's a non-starter.


Mr. Brady, would you like to inquire?

REP. KEVIN BRADY (R-TX): Yes. Thank you, Chairman.

Mr. Neal should get an award from the Massachusetts Chamber of Commerce for promoting the state in this positive fashion.


REP. NEAL: A more cosmopolitan view of the world on occasion.

REP. BRADY: Our family has Blue Cross Blue Shield, that is expensive, but we have two little ones; it seems like we're at the doctor every other week with something wrong. And I think even those with insurance, there is a worry, I think, a general concern about health care, whether you're a patient receiving it, or provider providing it, or business struggling to pay for it, there is a real concern. So discussions like this, I think, are very helpful.

Last year, we did an initiative called 50 Ideas to Improve Health Care, where we spent basically most of the summer touring Southeast Texas including the medical center in Houston asking people what they would do to improve our health care system in America. And many issues that they brought up have been echoed today.

And one of the points was the problem isn't that we don't have enough money in our health care system. It's how we allocate it, that's the problem. And they mentioned chronic care and the cause that go to not doing a good job of managing chronic care. They talked about the alignment, Dr. Fisher, between the patient and the providers; I want to ask you a question about in a moment.

But there was, I think, a general agreement in practice overwhelming that there is cost shifting that is occurring in our system today. And it's very costly.

Everyone knows there are three different or four different prices for any treatment depending on who's paying for it. And somewhere it gets -- getting shifted usually onto those who have private insurance.

But I want to talk, Dr. Fisher -- and there is a recognition that government is the single largest buyer of health care, and that our procedures-based reimbursement system has really fractured our -- fractured our health care system in a very bad way. You've got physicians pitted against hospitals, against lawyers, against the patients, and none of it seems to be aligned toward the patient.

And so, Dr. Fisher, your comments about reforming the payment system, bringing the alignment toward the patient, and bringing all parts in the health care system toward that direction, it can produce not only a higher quality care, but lower stabilized cost as well. I think that's a critical point as we sort of go off on different tangents on health care. I think yours may be the most central point of all.

My question is have you followed the design and the implementation of Medicare's gain-sharing pilot program, where they've selected a number of hospitals around or are in the process that could put these alignment practices in place, so that we can measure the types of cost issues, the type of quality issues that we have the potential of doing if we really aligned toward the patient.

DR. FISHER: The one I'm most aware of is the Physician Group Practice Demonstration.


DR. FISHER: I understand the others are still in design. And I'm not quite sure.

REP. BRADY: Yeah, I think it is too. We have some local hospital major system working to that. I don't know the --

DR. FISHER: So the one I'm most aware of is the Physician Group Practice Demonstration, which is very much what we've modeled, Mark McClellan and I have modeled, this notion of accountable care organizations around, where when you reach critical mass and the numbers of patients who are enrolled in it, you actually create and support innovation and integration among the providers even though they remain in the fee-for-service system because they are rewarded for savings that they achieved while maintaining quality.

A very interesting story from Park Nicollet in Minneapolis was presented at our conference that we held on accountable care organizations, where they described -- because they have both an under-65 shared savings program and an over-65 shared savings program, they've reached critical mass.

They have decided on their own, under fee-for-service, to support integration and care coordination within their system. They reduce readmission rates and closed the hospital -- closed three hospital wards, I understand.

They have now started to think about which patients they will send to Massachusetts or other places where there is actually -- where the specific service, such as bone marrow transplantation could be provided at higher quality with lower cost. Because now they have an incentive with good performance measures that protect the patients from stinting, but a benefit to the providers of savings if they divide better care at lower cost. It gets them all under the same page about providing better quality at lower cost, and thus we think create those incentives. So there are some promising stories out there.

REP. BRADY: I think that's an important part of reform. And any way, one thing we haven't gotten too much today is the role of an informed consumer in lowering -- in raising quality, lowering cost. And I think until we pull back that mystery on medical pricing, we will not get there.

Mr. Hackbarth, I am going to submit in writing, to stay with the Chairman's request on time, a number of questions dealing with physician-owned hospitals. I'd like to get your response from, if you don't mind.


REP. BRADY: Great. Thanks, Mr. Chairman.

REP. STARK: Doggett, would you like to inquire?

REP. LLOYD DOGGETT (D-TX): Thank you, Mr. Chairman.

And thank you for the testimony that each of you have offered. I see this hearing as a way to learn not only about how to improve the existing public plans, but how we can learn from the experience with the plans that we already have to fashion the best public plan alternative in the national health reform that is at the top of our agenda for this year.

You can look at the problems, the deficiencies in our existing public health alternatives as a reason to do nothing about the millions of Americans who have no insurance. Or you can look at them as ways to learn from that experience and craft an improved plan.

I think that Dr. McDermott has already pointed to the tremendous success, that is, Medicare, as a public plan, and the problems we've had when we delegated that out to states like mine whose approach to Medicaid is to do just as little as possible for the health care needs of our poorest Texas.

Having said that, however, I want to focus on some of the problems that you have identified and I'd begin with you, Dr. Berenson. Well, Congressman Johnson and I have very different approaches to this problem and very different districts. We're a couple of 100 miles apart in Texas.

And my constituents got the same problem that he was outlining. The Austin American Statesman, my local paper, did a front page story about this problem of not having enough primary care doctors.

My daughter is one. I'd like her to have a little more competition out there. She's actually focused on delivering care to the uninsured and rather than in private practice. But I know MedPAC has recommended, as far as Medicare, we increase the reimbursement by 5 to 10 percent for primary care doctors.

Dr. Berenson, could you just comment on what you think we ought to be doing, whether it's that or something more. We know from the Massachusetts experience that would be under a national health care reform, a public plan option much greater demands on primary health care physicians. How do we get them for all of Texas and all of America?

DR. BERENSON: Yeah. Well, I think it's going to take a number of people bringing in different aspects of it. What -- who gets into medical school, I think, is a factor. I entered about 35 years ago, and my -- I've actually sat on an admissions committee at that time as a senior medical student.

And it was real clear that those of us who were going into primary care, were the minority. We didn't -- we were different people, we were different personalities. I basically got lucky, I didn't fail organic chemistry, I should have.

So one is who gets into medical school, what are they going into medicine for. I think that is one of the projectors of who wants to go into medical school. Then the medical education -- I'm impressed by Dr. McDermott's suggestion that we give strong incentives about subsidizing education for those going into primary care.

The graduate medical education subsidies to teaching hospitals, I think, we need to look at that, because that reinforces the specialty and subspecialty orientation of what happens in teaching schools. They need the financial support perhaps for those slots, but we need to be more creative.

And I know MedPAC is looking at that issue specifically about GME. And then what we can do tomorrow or at least this year is change payments to send a signal out to the current primary care physicians as well as to medical students that society is going to start valuing what this is all about lots more than it has been. It's really multifactorial.

REP. DOGGETT: You've mentioned the problems that chronic disease pose for Medicare.

And really, the folks that don't have insurance, the millions of Americans and a growing number of Americans in the age of 55 to 65, for example, they don't come to Medicare and all develop those diseases after they get there magically at 65.

They have these problems and an inability to manage them with no access to insurance and health care in the decade prior to coming to Medicare. Doesn't the chronic disease problem that burdens Medicare really make a good argument for why we need national health insurance reform to cover all Americans?

DR. BERENSON: Yeah, in fact, there is even some data suggesting that those who had not had a health insurance who come into Medicare have higher health care needs than those who did have coverage. So, in fact, there are some offsets, which I hope CBO is going to score in terms of providing coverage. We do read -- it's not a dollar for dollar, but there is other savings in the system if we covered everybody.

REP. DOGGETT: Thank you.

REP. STARK: Thank you very much.

Mr. Pomeroy, would you like to inquire, sir?

REP. EARL POMEROY (D-ND): I would like to inquire. Thank you, Mr. Chairman.

I want to pick at this issue of "is more better?" I think that is a fundamental question as we evaluate health reform. And looking at practice patterns across our country, there is really some astonishing geographic variations.

And one that I would just illustrate involves the contrast between Bismarck, where I live, Bismarck, North Dakota, and Miami, Florida. In Miami, the number of days a Medicare decedent is hospitalized during the final two years of their life is double that of Bismarck, double. The physician visits in Miami compared to Bismarck is also more than double with the folks in Miami having a 105 doctor visits versus about 48 in Bismarck.

The same population group those Miami Medicare decedents, this is MedPAC data as far as I know, see 10 times 10 or more doctors, 50 percent of Medicare decedents in Miami see 10 or more doctors during their last two years of life versus less than 20 percent in Bismarck. And the average number -- the average Medicare decedent in Miami will see 11 different doctors versus less than 6 in Bismarck.

Now, in thinking about more is better you think, well, thank goodness for the care provided in Miami. But on a -- and you know, you ought to pay for something like that, so the average cost in Miami is $77,000 versus $31,000 in Bismarck, all more than a two to one variation. Yet on the quality assessment, the quality actually scoring higher in Bismarck, 90.8 compared to 87.5.

Now, Dr. Fisher, I'm not going to ask you to talk to, you know, the specifics of Miami versus Bismarck. But I do want you to just illuminate, how can this be. Twice as many hospitalizations, twice as many doctors, twice as much money spent, and you're getting a better result in the low-intense place. How can that be?

DR. FISHER: We think most of the likely cause of the worst quality that we see in the higher spending regions, the higher intensity regions is related to the fragmentation that you're describing. So that the fact that there are much more likely to be 10 or more different physicians involved in the same kind of patients care makes it much harder for those physicians to know who is responsible at the time of discharge for the medications that the patient will be on after they leave the hospital.

It makes it much harder to coordinate care among all of the physicians who are engaged. It is just easier when there are five of them. The question about why mortality rates might be higher in the places where people spend more time in the hospital is that we all know similar patients, unnecessary time in the hospital. Hospitals are dangerous places to be, if you don't need to be there.

The hospital acquired infections, the likelihood of falls. And as Bob and Glenn were both pointing out, this terrible problem of care coordination when you're discharged from the hospital and you have to -- the family has to figure out what kinds of medications they're on.

It is important to recognize that certainly our work does not say more is always worse. More is sometimes not better. It depends tremendously on what kinds of care you're talking about.

When you're talking about extra visits, extra specialist consultations, extra time in the hospital for similar patients, there is no evidence that more is better for similar patients. When you're talking about, you know, needed procedures, bypass surgery for a patient who is well-informed and understands the risks and wants the procedure, it can markedly improve their quality of life, hip replacements.

But those differences in procedure rates for things that we know make a difference in terms of patient's experiences and patient's quality of care and their outcomes those do not explain the differences in spending across geographic regions. The waste is in unnecessary care. Getting at it is going to require the kinds of reforms that all three of us have been talking about, trying to create incentives that align the interest of providers to provide more efforts to deliver more efficient care.

REP. POMEROY: The -- you're talking about -- well, I also think, by the way, it's a patient quality-of-life issue. I mean, spending double the time in a hospital, seeing double the number of doctors, I've an 80-year-old mother. I mean, that's not something that she wants to fill her time with in the final years of her life. But that's another issue.

Is an ACO and HMO, that would -- I see that my time has elapsed, but --

REP. STARK: Go ahead.

DR. FISHER: In negative five seconds, that's going to be tough to do. But I -- so I'm at the discretion of the chair when he would like to interrupt me. They are not the same. The notion of an ACO is that it is not locking patients in. They initially certainly should be voluntary for providers so that they can come together.

Many of them, we'll hear about shortly, already are integrated at some level, I mean, in the second panel. And third and most important, related to almost all the questions we've had is that this will be a period when we want really good performance measures that let us know that patients' experiences in these systems are great, that the outcomes are really good.

If you were given the choice between a system which has higher cost and worst outcomes, and one that has lower cost and better outcomes, I think most Americans would choose the lower cost system that has better outcomes. But we need that performance measurement which we did not -- which we failed to do in the early 1990s.

REP. STARK: Thank you.

Mr. Tiberi, would you like to?

REP. PATRICK J. TIBERI (R-OH): Thank you, Mr. Chairman. Thank you for having this hearing.

Dr. Fisher, you mentioned payment reform. In my district in Columbus, Ohio, we have an outstanding children's hospital -- a nationwide children's hospital. They tell me 30 percent of pediatric provider claims and 50 percent of pediatric hospital claims are paid by Medicaid. Knowing this, what can be done to ensure payment reforms and focus of quality of care will also benefit those in our pediatric role today?

DR. FISHER: Having spent most of my life studying the Medicare population, I have limited knowledge of exactly how to fix the Medicaid program. But I think the models that we're talking about where you move toward integration, you move toward making providers accountable for the overall costs of care, and rewarding them for better quality will give every provider group the opportunity to do better by providing better care to their populations.

I think it's possible if we started to think.

You know, if we started to think about the reforms as a way of ensuring, if you will, that all payers are sort of on the same page giving a common set of incentives to providers will have much -- they will be able to focus on improving care and not saying I don't want to take care of Medicaid patients anymore. I want to take care of well- insured patients anymore.

REP. TIBERI: Dr. Berenson, your thoughts?

DR. BERENSON: Well, one of the goals of health reform would be clearly the narrow the payment differentials from whether it's cost shifting or not, clearly private payers are paying a lot more than Medicare and in many states Medicare -- Medicaid is paying a lot less.

If we cover the uninsured or most of the uninsured, I think there will be an opportunity to narrow these -- this difference so that providers don't have to, in a sense, do a valid biopsy to figure out who is the winner and who is the loser. But again, I think we need to distinguish Medicaid from Medicare in this regard.

Some states have specific objectives -- policy goals now of raising their fees to try to mainstream the care for the Medicaid population and think that it may pay for itself. If that -- and we need to understand more, I mean, sometimes price cuts is pennywise and pound foolish.

REP. TIBERI: Thank you.

DR. BERENSON: And I think that we need to understand more about that.

REP. TIBERI: Mr. Hackbarth, you mentioned -- I think this is a direct quote I wrote down when Mr. Camp was questioning you, Medicare payments are adequate. Wow, I almost fell off my chair. Let me tell you. From my district in Columbus, Ohio, I haven't met a doctor, a hospital executive, and medical students.

The medical students who I talked to every year say to me, you know, Congress, you got to do something about Medicare reimbursements and Medicaid reimbursements because we're concerned about going into this field when we are not being reimbursed or we won't be reimbursed adequately.

I was in the hospital with my baby, who is 10 weeks old, in the NICU unit and the doctor said, turn to me -- and I was talking to him about this baby that was on a ventilator across -- just across the hall. And I said, you know, technology is incredible, and he said, it is. It's absolutely incredible. That baby, his mom is on Medicaid.

You're paying for that through your private insurance. The cost shifting is apparent. In every hospital of my district I go to, is apparent with every doctors I talk to and yet you say Medicare payments are adequate. How can that be?

MR. HACKBARTH: We look at the evidence and we are driven by the evidence and I described it earlier. We believe the problem in U.S. health care is not that Medicare payments are too low. We believe often private payments are too high, overly generous. And we think that we --

REP. TIBERI: Mr. Hackbarth, did you talk to actual physicians, to hospital administrators, and non-profits who are struggling every day?

MR. HACKBARTH: It is perfectly natural for people to want more money. The issue that we focus on is, is the Medicare payment level consistent with the efficient delivery of health care services, which is our charge from the Congress.

We look at the data and we find that, in fact, there are institutions, under institutions that don't have generous private payment that have markedly lower cost than the average, about 10 or 11 percent lower.

We've also looked at the institutions that have that level of cost and high quality of care so that two are not consistent, low cost and high quality. We ought to pay at levels consistent with that efficient delivery, not pay whatever providers would like.

REP. TIBERI: Well, Mr. Chairman, you know, I would love to have some medical students come in here and talk to us as well, and I don't know if Columbus, Ohio is maybe different from the rest of the nation. But these hospital administrators and doctors are dying on the vine.

I've talked to physicians who have stopped talking Medicare and Medicaid patients. I'm talking to other ones who are considering not taking Medicare and Medicaid patients.

REP. STARK: Listen, we'd love to have them come in if they bring their tax returns with them.


We might be able to identify where poverty ends and wealth begins.

Mr. Thompson, would you like to inquire?

REP. MIKE THOMPSON (D-CA): I would, Mr. Chairman and thank you very much.

I have a question for the two doctors. I believe that we really need to increase preventive health care as part of our health care reform, and that has got to be the central part of any reform that we do, and it really pays tremendous dividends by reducing the cost of health care and making people healthier as a result.

And I'd like to just ask the two doctors, what impact on health care outcomes and on health care cost containment do you think preventive -- an aggressive preventive health care component would provide?

DR. BERENSON: This is a -- hard to give a simple answer because my understanding is that it really varies a lot based on what kind of preventive intervention you're talking about. Vaccines, vaccinations for kids or even for adults has a huge return on investment, 10, 20, 100 times, I don't know exactly to prevent a pneumonia even in a senior for a straightforward vaccine.

Some of the other screening tests, routine screening for certain kinds of cancers, have a much slower return as sort of cost effectiveness. One of the troubles in the analysis is that in some cases it looks like it's a cost to the health care system actually to do that prevention.

But the savings are elsewhere in society. It's a healthier workforce. There may be less job absences. There may be less payment for disability down the road by somebody else. We have a -- we don't have a good way to account for the savings.

So in some cases, you can make a strong case that is there is a major cost effectiveness formula analysis. In other cases, it's the right thing to do regardless because it produces a healthier workforce.

DR. FISHER: Yeah, I would agree that the -- agree on the evidence. I think there are some places where it works and has real cost savings. I think we should be conscious that under the current payment system, we at Dartmouth would say we're quite skeptical of whether even although there may be real health benefits and we would improve the health of the population through some of these services as Bob has suggested.

Only if we reduce utilization by the amount of that which health is improved will you actually save money. So in a payment system that continues to reward hospitals for staying full and physicians for keeping their offices full, it's not clear that you'll be able to capture those savings.

REP. THOMPSON: Well, I guess the follow-up would be should we incorporate it into both public and private plans. And if the answer is yes, how do we do it to make sure that we get the type of preventive health care that would lead to cost containment and to better health outcomes, and should that -- should who provides that preventive service be part of that equation?

DR. FISHER: Yes, it's true. I mean, I think what you would like to do is figure out how do you get systems of care to be responsible from improving the health of the population they serve as much as possible while trying to slow the growth in spending.

And moving toward integrated delivery, as I'm sure we'll hear from some of the systems in the second panel, where they are accountable for an entire population, they started to think about how are we going to make these investments to make sure that the pregnant mothers come in, you know, early during, you know, during their pregnancy rather than late during their pregnancy.

How do you make sure diabetics are part --

REP. THOMPSON: And the subsequent child as well.

DR. FISHER: Exactly. So I think there are tremendous opportunities to improve preventive services. And those can improve health while giving them an incentive not to, you know, to expand capacity and recruit further specialists as opposed to more primary care physicians which is what we need.

DR. BERENSON: And the only other think I'd add is that over the years, Medicare has been increasing its prevention services, recently the coverage of screening for aortic aneurysms as an example.

Ideally we would be able to have this not have to come through Congress every time so that you are not weighing the evidence. But CDC and the other experts in this area would -- through the prevention task force that they have, would -- they are doing this kind of research. And there should be, I think, an ability for Medicare, for a public payer, for private plans to using that evidence.

As one of the goals of comparative effectiveness I think is to have more real-time evidence and be able to put those prevention services in. I mean, specifically, you have to be a little skeptical. Right now, the major challenge for -- in prevention is really obesity which leads to diabetes and everything else.

You want to look -- you can't just cover everything related to obesity. You want to look at the evidence that it actually has an impact, but that should be just the high priority and should happen without having to take the years to come back and have the Congress legislate that.

REP. THOMPSON: Thank you.

REP. STARK: Mr. Blumenauer, would you like to inquire?

REP. EARL BLUMENAUER (D-OR): I would indeed, Mr. Chairman. But first I would like to thank you and Mr. Rangel for this hearing. I think it's been extraordinarily productive and I think we're looking at areas where there can be broad agreement to be able to squeeze more value out of our health care system, improve outcomes and patient satisfaction.

I would like to associate myself with the comments from my good friend from North Dakota about cost effectiveness. I mean, on the chart that Dr. Fisher provided, at the other end from Miami is little Salem, Oregon. I will say not in my district.

But I have people in the metropolitan area who can reference that, where we have 35 percent of the physician visits; where we have less than half the rate of avoidable admissions; where we have almost twice as many -- the ratio between primary care to specialist is almost twice as high; and the percentage of people who are seeing 10 or more physicians is 18 percent rather than more than half.

So I want to say, Mr. Pomeroy, that you're highlighting something here that I think needs to be integrated into any approach that we have to reform. But I would like to zero in on one area that I think we all can agree on, dealing with end-of-life.

For most of us, that last year or six months is when we receive most of our lifetime health care, but there are radical differences in terms of what happens to patients around the country in those last six months or that last year of life.

Some, I think, would try and dismiss it. Well, at -- that you know, that people in some parts of the country are just sicker. I dismissed the notion that people, in the last six months of life, are sicker in Miami than they are in Portland, Oregon or Bismarck, North Dakota.

I'm also concerned about the quality of care that people get. I was talking to my friend, the good doctor from Louisiana, Dr. Boustany, who for 20-some years was a cardiac physician, I believe, surgeon, who oftentimes only saw these patients a few days or in some cases a few hours before, and was forced to have conversations with patients and their families that should have occurred upstream about consequences and opportunities, and it shouldn't be a cardiologist. It should be a primary care physician who actually interacts with people.

I would ask maybe that you would address two questions. One, we find that -- again, not meaning to be parochial, but in the State of Oregon, we are often referenced as a state with low end-of-life care spending. And not so much of the invasive activity that actually deteriorates the quality of life, interferes with opportunities for patients to enjoy those last few hours, or days, or weeks, and work with their family to be able to understand what their preferences may be.

I'm wondering if you can comment a little bit on this Oregon experience if there's something that can be learned. And this week I plan on introducing legislation that would make, for the first time, a Medicare reimbursement for these end-of-life consultations, not a seven minute on the fly, but for heaven sakes, sit down and permit a primary care physician to take an hour for a patient, for a family, tell them what they're looking forward to, what they can expect, what their choices are, and help guide them.

Any comments or observations?

DR. FISHER: Sure. I think what's -- what we've observed in Oregon over the last 20 years since you started conversations at the state level around care for seriously ill patients and issues about rationing is that the conversations have gone on very well in Oregon around how to improve care for seriously ill patients.

There are a number of interventions that you've adopted, post the physician orders for life sustaining treatments, a way of ensuring that when patients do have preferences they are followed through by the providers, another very important initiative.

I think the notion of improving discussions with primary care physicians around end-of-life care is one that needs to start long before we think patients are actually at the end of life. All patients need to be having those discussions that support those --

REP. BLUMENAUER: I see my time has expired, but would you gentlemen support amending our Medicare procedure so that this would be something that would be reimbursable, probably wouldn't even cost money, may even save money, but at least allow this to be fully reimbursable?


DR. BERENSON: Yeah, let me just comment briefly. Clearly there are some differences in end-of-life care because of religious or cultural beliefs, and some of that variation is inevitable and should be respected. But there was an important study over a decade ago called the SUPPORT study funded by Robert Wood Johnson Foundation that documented that people's own wishes for how they wanted to spend their last months of life were often not respected and they got more care than they wanted.

Many people don't get the level of care that they want. So it is important to do just what you're suggesting. I think there should be specific what are called CPT codes that compensate for the time. I know that there is an organization that does palliative care that has been seeking reimbursement for many years for that. And they've come up against roadblocks. I think it's a good idea.

(Sounds gavel)

REP. BLUMENAUER: Thank you. Thank you, Mr. Chairman.

REP. STARK: Thank you. Thank you.

Ms. Brown-Waite?

REP. GINNY BROWN-WAITE (R-FL): Thank you very much Mr. Chairman. I want to thank Chairman Rangel and you for holding this hearing.

I would ask all three of the panelist if you believe that a system that rewards quality performance is better than a system that panelizes those who do not perform.

Let me give you an example. My husband had medical problems. They didn't know what was wrong. He had a CAT scan, which was totally misread.

Let me tell you, he was on Medicare and when I continued to see the radiologist who misread the CAT scan, we paid by Medicare. I am very, very supportive of a system that pays for quality, obviously, because nothing angered me anymore than seeing those statements come in.

Because had the radiologist not made the mistake, he could have had surgery and radiation. By the time the second CAT scan was done, it was too late. But seeing the radiologist who performed the first CAT scan, who by the way, got screamed at by everybody else who saw the -- who saw the actual CAT scan saying how could you miss this, I think there should be a plan there that pays for quality, that pays for good performance.

But again, I would ask each of you to respond on the carrot versus the stick approach.

MR. HACKBARTH: Yeah, I've -- I agree that high quality needs to be rewarded better than it is in the current system. In fact in the current system, it's often punished. Broadly speaking, there are two paths to take. One is to specifically adjust payments for, say, a hospital admission to reflect the quality of care. You will hear some more about of that approach in the next panel. That is an idea that MedPAC has supported.

Another path -- and these are not mutually inconsistent. But another path is to move, as Elliott has advocated, to broader payment bundles where organizations are accountable for their total cost of a population for a period of time. As you --

REP. BROWN-WAITE: But let me --

MR. HACKBARTH: As you move in that direction, there is a benefit from doing it right the first and not having excessive readmissions --

REP. BROWN-WAITE: Let me ask you a question.


REP. BROWN-WAITE: Over 40 years, CMS has been paying -- Medicare has been paying blindly without any attempt at incentivising quality of care. Why do you think it's taken so long when the private sector, the private insurers have done exactly that? Why is it taken Medicare so long?

MR. HACKBARTH: Well, first of all I would be cautious about the extent to which this is done in a private sector. It is done on a small scale by some insurers and where it happens, I'm all in favor of it. And it's an example of what I mentioned earlier about the flexibility of private insurers that we think is important for the system. If I give a --

REP. BROWN-WAITE: Well, again, sir, why hasn't Medicare stepped up to the plate?

MR. HACKBARTH: The issues often are around redistribution of payments. We think that the appropriate way to do a quality reward in Medicare would be to reduce all payments by some amount and then use that pool of dollars to fund payments to the high performing institutions. That means less payment for those who don't quality.

I mean, obviously, there is resistance to redistribution of payments.

REP. BROWN-WAITE: I appreciate that. I'd like to hear from the other members.

DR. FISHER: Sure. I think there is a -- paying for quality is a great idea. And one of the reasons we've had such a hard time over the last -- it's taken 40 years is that we've only been learning how to measure quality reliably recently.

The measures have gotten better and better, more reliable, more accurate, and providers are starting to acknowledge those. The challenge is of creating incentives to that help local providers become accountable for each other that perhaps that physician, you know, read some prior CTs incorrectly.

I mean, that would only be known by their local providers. The second challenge with the individual ascertainment of the quality of a given encounter is that it's very administratively complex when you start to get into the details of clinical practice and saying well, this was a good decision, this was a bad decision by this provider.

That's why we think it's a more efficient path to move toward broader measures of accountability for quality and cost that are measured in terms of health outcomes where that would have been picked up in need of a strong incentive to try to avoid it as a group of providers.

DR. BERENSON: And I would pretty much agree with that. I think it is a major challenge for any third party payer, whether it's Medicare, Aetna, CIGNA, WellPoint, it doesn't matter, to be able to make a judgment from some central office as to whether a radiologist correctly read an X-ray.

And that's why you want organizations on the ground in that community or physicians if they find that there is a pattern of error with a radiologist, one should perhaps not include that radiologist in their network. Two, if it's a real pattern, go to the licensing boards and have local action taken that could be going on.

REP. BROWN-WAITE: Sir, can you just tell --

DR. BERENSON: And it's very hard for an insurer to have that kind of precision.

REP. BROWN-WAITE: Sir, let me tell you, going to a licensing board is a very lengthy process that very often does not go in favor of the patient.

I yield back the balance of my time.

REP. STARK: Thank you.

Mr. Kind, would you like to inquire?

REP. RON KIND (D-WI): Yeah, thank you, Mr. Chairman.

I'll thank the witnesses for your every helpful testimony, very important testimony here today.

And Dr. Fisher, let me just go back to you because just pick up on something that you recently said. And that is that it wasn't until recently we've gotten the lot better in measuring quality of care which to me is very exciting in the context of the whole health care reform debate.

As you know, I've been a disciple of the Dartmouth Atlas study for some time because I hail from Western Wisconsin and La Crosse is one of the lower reimbursed areas in the entire nation. In fact compared to the three highest areas, we're spending on average roughly 46,000 less per patient than the three higher areas around the rest of the nation.

And yet we have one of the highest quality result of care in the nation too. So I think there is a lot of validity to the studies that you and Dr. Weinberg have been able to publish year after year that is receiving wide acceptance now in the professional community.

OMB, CBO is citing it, even value-based purchasing that MedPAC is advocating is all based on moving to a public and private reimbursement system that starts rewarding quality over quantity.

And I think that's where some great savings. When I hear you and Dr. Berenson talk about just bending that curve by 1.5 percent, I think you are underestimating the real potential that exist if we can get to a value-based, evidence-based health care system at the end of the day. And I think it's going to be very important.

And that's the why the built-on HIT is going to be very important, something that we included in the Recovery and Reinvestment Act, making sure we get the interoperability standards done quickly this year, making sure we go forward on the comparative effectiveness studies where we have 1.1 billion in the Recovery Act.

And I'd like to have each of you just quickly address the importance of how we do comparative effectiveness studies based on value as opposed to cost and what that is going to mean to overall health care reform that hopefully we're going to be able to move forward on this year?

Maybe starting with you, Dr. Hackbarth?

MR. HACKBARTH: Well, Mr. Kind, we've talked about this before very recently in fact in another hearing, and MedPAC has strongly supported the idea of a major public investment in comparative effectiveness. Now we do think that it can be a tool, not just for insurers, but for physicians and patients as well to move towards a higher value standard of practice driven by evidence which is what we all should strive for.

We think that the information alone is useful, but we believe it's also important to supplement that with changes in payment systems that reinforce, encourage people to use the information to improve patterns of care.

DR. FISHER: Yeah. I also strongly support -- the large recent investments you've made and continue investment in comparative effectiveness research. I know there is lots of concerns that have been raised that this might lead to rationing. But our work is much more consistent with the notion that there is lots of care that's being provided that is not effective.

And the first challenge we face is to identify the ineffective care and that's already being provided that could be better for patients and better for society by not providing it. Examples would include hormone replacement therapy for women that was provided for many years because we thought it was going to be beneficial in preventing heart disease, and it turned to be harmful.

Same thing with the autologous bone marrow transplantation for breast cancer, again a therapy that was initially seemed to be expensive and we decided not to cover it, because it was -- there were questions about its cost effectiveness, but we assumed effectiveness.

And it turned out to be ineffective and we harmed many, many women because we provided an ineffective treatment. So comparative effectiveness research can provide a very important foundation for improving care, improving decisions by physicians.

REP. KIND: Dr. Berenson?

DR. BERENSON: Yeah, I would make two points and again the importance of why we're talking about payment reform. You'd mentioned HIT as another one of the initiatives in the Recovery Act. That and comparative effectiveness makes the point. A lot of the savings from HIT assume, like an electronic health record, that there would be a dramatic reduction in redundancy.

If there was an MRI done last week at a reputable place and I can actually see the results, why would I repeat it? But on a fee-for- service system, you have every reason to repeat it, and so you need to combine and the same thing with comparative effectiveness.

If you find out this is the right way to do it and yet it doesn't generate the same revenues, I might be more reluctant to follow that evidence than if I were in a payment system in which there'd be a built-in reason to do so. And the final point I would make in comparative effectiveness, the focus has been almost solely on drugs, devices, services --

REP. KIND: Right.

DR. BERENSON: -- specific procedures. We don't know a lot about just how the -- how to deliver a health care and which way is better. For example, over 15 years, hospitalists who didn't exist 15 years ago are now in every hospital. It is the predominant way that we provide hospital care. And there is actually not very much good evidence right now as to, is this better, worse, or the same.

We think it probably produces a more efficient hospital stay. Does it lead to discoordination of care that has untoward effects? So as part of comparative effectiveness, high in the agenda should be how do we organize and deliver care, should be part of that.

(Sounds gavel)

REP. KIND: Couldn't agree with you, and just in conclusion, let me just state we can avoid, but --

(Sounds gavel)

REP. STARK: I'm sorry, but your time has expired.

REP. KIND: -- we can avoid the --

REP. STARK: Ms. Berkley could inquire.

REP. KIND: Thank you, Mr. Chairman.


REP. SHELLEY BERKLEY (D-NV): Thank you. (Laughs.) Thank you, Mr. Kind.

Thank you, Mr. Chairman and thank the panelist for being here. I appreciate it.

I said this on numerous occasions during hearings and behind closed doors that the way we do health care in this country, in my opinion, is bassackwards.

We spend very high percentage of our health care dollars in end- of-life care and precious little of our resources in early detection, prevention, education -- educating our fellow citizens on how to maintain their health and lead healthier lives.

The incentives in our current system is stacked towards providing acute care leading more doctors into specialty care, and too few into primary care and family medicine. However, in my state of Nevada, we do not just have a shortage of primary care providers, we also have a serious shortage of specialists. And I've said this before too in the interest of full disclosure.

My daughter is a primary care physician, my husband is a nephrologist. So I see it from both ends. Now with all due respect, Dr. Fisher, Dr. Richard Cooper were from the Watson School at the University of Pennsylvania recently emailed me some information.

And the first sentence is "As you will see, Shelley, there are two Nevadas, the dark myth one and the real one that you live in." So I'm going to share with you the real one that I live in. While more care is not always better care, if we're going to provide coverage to millions of Americans who are currently uninsured in the state of Nevada, 20 percent of the people in Nevada are uninsured. If you pull out the Medicare, 65 in average, you're talking 33 percent of the people that live in Nevada have no health insurance.

We're going to need to make significant investments in our health care workforce. I know how hard my daughter works, and I also know that my husband belongs to a nephrology group with 12 nephrologists. They had 140 patients in the hospital this weekend. He was on call.

I'm sure he didn't think in medical school that in his 60s he still be taking call on the weekends, but that's the reality of the situation when you don't have enough nephrologists to care for the population that you're living in.

I think that my home state of Nevada is a good example of the kind of outcomes and level of quality that can be expected if sufficient health care providers of all types are not present.

Nevada has the fewest number of health care workers per capital in the continental -- per capita in the continental United States.

While Nevada ranks above average per capita Medicare spending, it is 43rd in total health care spending. Unfortunately for many Nevadans, this low level of investment has left them without access to needed health care.

We rank 44th in health care quality. We also have a population that we're dealing with. Now I don't know if they're sicker in Bismarck than they are in Vegas at the end of life. However, we have a high degree of obesity, not everybody looks like a showgirl in Las Vegas. They -- we've got a very, very high percentage of our population that smokes and leads very unhealthy lifestyles including the serious stress factors.

I -- given these statistics, and here's the question. But I wanted before you answer it, given the situation in Nevada right now where we can't -- we don't have enough health care providers in any specialty from primary to nephrology, you name it, how --

I'm in favor -- I'm a great proponent of expanding health care services to all of our citizens. Nobody should be without health insurance. How we're going to provide for this? If we don't have enough doctors, we could pass all the laws we want. We're not going to be able to provide for them. I do not think medical students decide that they are going to go into a specialty because the pay is more.

There seems to be a commonality of interests which Dr. Berenson mentioned. When I go to the -- my husband's renal physician meetings I'm amazed at how much they all remind me of my husband. They're very cerebral, they're very serious, they are very balding, and they are very Jewish.


And that's just what it is. I also don't think it's a good idea to be asking for health -- for tax returns. I know my daughter is starting her medical practice with $100,000 worth of debt. And so that's going to be a while before she's in the black.

What are we going to get more physicians in the pipeline? I'm a great believer in GME slots and debt forgiveness. But we've got a serious crisis on our hands. And if we make it too much more difficult to -- and we do not provide sufficient reimbursement we're not going to get the doctors that we need. We don't have them now.

What do you think?


REP. STARK: -- be able to answer that in writing.

And I'll recognize Mr. Davis of Kentucky.

MR. : Happy to.

REP. GEOFF DAVIS (R-KY): Thank you, Mr. Chairman. While folks are comparing their various expertises on the panel, I would say this, I'm not a doctor but one of my former opponent's sons played one on television. That gives me some more credibility here.


I agree with your assessment, Mr. Hackbarth, regarding many of the reforms discussed today that we can't overcome strong incentives inherent in fee-for-services to increase volume and that -- nor will they cut across these various payment silos that focus on providers rather than patients.

He's moving into the realm of reform, and I look at traditional Medicare and I got to navigate the system in 2007, early 2008 prior to the death of my mom and really see it from the inside, from the customer's perspective as well. And what I saw were lots of dedicated public servants but a very -- an overly complicated system with disparate databases which begs a bigger question.

And I guess my question is this, if we really want to break down the barriers and address payment silos that focus on how to pay providers effectively rather -- and -- or pay -- focus on paying providers versus holistic treatment, but -- to hit that middle ground, do you think we should be discussing Medicare reform and simplification, be really reforming the process itself to get it more integrated?

MR. HACKBARTH: You're talking about the organization of CMS --


MR. HACKBARTH: -- and the programs --?

REP. DAVIS: I'm not speaking so much organizationally but looking at things systemically, if we have disparate information, billing systems, it creates a lot of redundancy.


REP. DAVIS: Would it make sense to -- for a more holistic approach to the patient to actually integrate these programs together?

MR. HACKBARTH: Yeah, I think that we have, for a period of many years now, underinvested in CMS and its predecessor organization, HCFA, in a lot of different areas, information systems being one of them but certainly not the only one. And that long-term underinvestment has hampered our ability to improve how we pay providers, for example. We're asking people to do too much with way too little in the way of resources. So I do think that there are improvements that can be made, must be made on that side of the ledger as well as changing payment systems.

REP. DAVIS: The reason I bring this up is from the standpoint of overall cost. In many cases we're cutting payments to providers but we're not turning so much to the internal mechanics. I know there have been some excellent quality initiatives inside the CMS that have been implemented. But I come back to the -- many of the issues that we faced in other agencies in the government. But the baseline system architecture is really a 1960s system architecture in a 21st century economy where much of the medical world is running with integrated network databases, regional information organizations that are -- bring HIT up on the cutting edge.

I guess my follow-on to that would be, if we don't do these reforms now before moving into potentially a public system as the discussion is here, throwing 120 more million more people into this process, what do you think -- do you think that there would be dramatic problems as a result of that increased costs, of overburdening a system that's moderately functional --

(Cross talk)

MR. HACKBARTH: Well, if you add more people into this system I don't think you necessarily make the existing problems worse. But I think we're missing huge opportunities to improve how Medicare works and huge opportunities to improve our payment systems that will result in higher value for Medicare beneficiaries and the taxpayer. I know this issue's not in the Ways and Means Committee jurisdiction of how CMS is funded or how much money it gets. But I think it's a critical need for the Medicare program as it stands today, let alone for a larger program.

REP. DAVIS: I'll just -- I'll close with this one comment and if any one of the other panelists would like to comment, feel free. But I found in industry, implementing enterprise integrated resource planning systems, integrated single database systems in very large multi-site organizations that actually found they've reduced their overhead cost; in some cases, in excess of 10 percent of overall sales. And when you put that into the billions of dollars that we're investing in health care that could be a lot of money either saved to reinvest or give back to the taxpayers.

DR. BERENSON: Let me offer just one thing for the record that CMS -- the contractors who administer Part A and Part B of Medicare are now undergoing a major consolidation. Over a period of a few years the number of contractors will have been reduced from over 50 to something like 14. So I think there is currently a -- an activity which is causing some dislocation in some places to try to move towards much more consolidated administration of the program.

I think one of the major challenges is the information system.

Medicare is using data not in real time, it's 18 months old. I think there is real opportunities to do the Dartmouth Atlas kind of analysis in real time to identify outlier -- to make some real management decisions. And that's a real opportunity that doesn't happen today I think, again, related to resources availability for the agency.

REP. DAVIS: Thank you.

REP. STARK: Thank you.

Ms. Schwartz, would you like to inquire?

REP. ALLYSON Y. SCHWARTZ (D-PA): Thank you, Mr. Chairman, and thank you for this hearing. I think what is most important about this hearing is the attention to the delivery system and the payment system as a part of -- a very important part of the way we actually make sure that we contain costs and improve quality and outcomes from -- for Americans and then expand access. And I appreciate very much all of the panelists really speaking very positively about Medicare and how actually effective it has been, and important it has been, of course, to our seniors but also as a, you might want to say, a driver in the system.

And it can be and should be -- I think, Mr. Hackbarth, you actually suggested that what we do in Medicare does have an effect on the private system. There are sometimes models that get used in that way. It was interesting that so much of this hearing and so many of the questions really were about the trend away from primary care, not having adequate number of primary care providers, what we can do in terms of payment reform, and other incentives potentially to improve the number of primary care providers. And I would say physicians has been the focus, of course, our nurse practitioners, nurses, other health care providers are very important in that too.

What I want to do -- because you've answered that question in a number of ways is to see if we get a little more specific about how we do this. And I think generally speaking many of us are very concerned about this. I have legislation that I'm redrafting before I reintroduce this session to provide loan forgiveness for primary care physicians, to support -- improve reimbursements for primary care physicians. But also to suggest that there is role for primary care physicians in not only, again, just that one interaction, one encounter with the patient, but for ongoing care.

And so the notion that's been talked about is providing extra payments, if you're willing to do that. We've called it a "medical home." I think there probably are other ways to do that. There's been some discussion which I think hasn't come up yet about primary -- about chronic disease management. We know in Medicare the fact is that there are, what, four or five diseases that really are the drivers in terms of cost. A simple example is that if we can actually help a diabetic be able to -- well, be healthier and not end up in renal dialysis, that's a huge cost saver for us as well as, of course, improved life expectancy and quality of life for that patient.

So I really wanted you to speak, if you would, and maybe we could start with Mr. Hackbarth, about your reaction to, and you mentioned this, medical home, reimbursement for medical home for primary care providers, as well as how we might be able to provide payment for chronic disease management that means -- and how we might do so, to want to incentivize better communication between the primary care provider and specialist and a more integrated delivery system, without actually dictating a single model. Because I think we've actually suggested that there are different geographic differences, there are styles of delivery of care that are different. We're not looking to say that there's only one that works for us in this country. There's going to be a variation.

How we do without making a decision about which one is absolutely the only one that can work, but in fact, makes it very clear that we are going to want to pay for and expect improved management and -- of chronic disease, and of course, improved access to primary care.


REP. SCHWARTZ: With that -- why don't we start with Mr. Hackbarth?

MR. HACKBARTH: Okay. What MedPAC has recommended is a multi- pronged approach. We think that the way the relative value units are calculated in the Medicare system needs to be changed. And I can go into that in more detail. But there are, in fact, some changes underway. In fact, there's been about 10 percent increase in the relative values of -- for evaluation and management services over the last couple of years which we think is a positive development but not far enough.


MR. HACKBARTH: Second is that we've advocated that there be basically a bonus for primary care physicians of 5 or 10 percent. So this would in addition to changing the relative value units.

Third, we've advocated a large-scale pilot of the medical home idea. And as you know the new feature of that is that in addition to fee-for-service payment --


MR. HACKBARTH: -- physicians would receive a lump sum payment. And we think that lump sum payment is important both to help cover the cost of the infrastructure, staff, and systems needed for a really robust system of primary care. In addition it's a way of paying for activities that are important in improving patient care but not -- don't currently have a code associated with them.

REP. SCHWARTZ: So a nurse calling a patient to say, have you taken your medication --


REP. SCHWARTZ: -- how are you doing?


REP. SCHWARTZ: There's no reimbursement for that now.

MR. HACKBARTH: Following up with a specialist to make sure that the information from a specialist referral is integrated into the patient's care. The last thing I'd mentioned on this is that as you know Medicare has done several different types of demonstrations trying to get at the issue of improving chronic care.


MR. HACKBARTH: And I think one of the findings that we're getting out of that work is that third party efforts that don't actively engage the physician, especially, a primary care physician in activity, are not likely to be effective. We need to engage the primary care physician in active management of chronic illness and -- if we're going to make progress.

REP. SCHWARTZ: Okay. And then --

REP. STARK: Thank you.

Mr. Etheridge, would you like to inquire?

REP. SCHWARTZ: Oh, I'd love to hear more from you. I'll -- maybe after that -- after --

(Cross talk)

REP. ETHERIDGE: Couple of minutes, Chairman, and thank you very much. And let me thank you and Chairman Rangel for holding the hearing and for our panelists for being here.

Mr. Hackbarth, let me come to you first because we've talked about what Medicare has done and previous Congress has put in place with the administration and has really made a difference in the lives of a lot of our seniors in this country and taken a lot of people literally out of poverty. And we're at another point in history with that.

And it really has been a leader in efforts to improve delivery and payment systems. That being said though, there are -- have been some significant missteps along the way, as I think we all will acknowledge, when we're trying to get the same ends of a better quality from the system.

As an example, in the pharmacy area Congress has had to step in to delay the implementation of the AMP as it relates to pharmacists and established manufacturing process and changes to the delivery system for durable medical equipment, have really had an awful lot of problems as you all know.

So my question is this, the reforms that need to expand access and reduce costs, but many times those changes to the structure can have unintended impacts as we all will admit. So my question is how would you recommend that we implement --

MR. HACKBARTH: Admit to what?

REP. ETHERIDGE: You suggested reforms because you put a number of reforms --

(Cross talk)

REP. ETHERIDGE: And at the same time make sure to the extent possible that we don't have those problems pumping up again that literally create a lot of problems, you know.

MR. HACKBARTH: Yeah. Well, we're talking about changes in a very complex system both in terms of the Medicare system and the health care delivery system that one interacts with.


MR. HACKBARTH: And you know from time to time there are missteps and things happen that we wouldn't like. That's not unique to Medicare though. You know, having worked both in private health plans as well as in Medicare those sorts of problems crop up on both sides, the public and the private side of the ledger.

You know, for example, I have been reading in the newspapers, as I'm sure you have, about hearings on the Senate side recently about how private insurers calculate payments for out-of-network care and the controversies that have arisen there. So this is complicated stuff. And my bottom line would be what I said earlier -- we need to invest more money in the infrastructure in CMS so as to minimize avoidable mistakes.

REP. ETHERIDGE: Let me interrupt at this point. I do -- because I want to get to another question. If I understand you correctly, just moving and removing, whatever we may do to implement, whether it be in the jurisdiction of this committee or another one, we need to have the infrastructure in place and we need to have enough timeline to make sure that we don't overload the system in the process of getting there. Is that -- would that be what you're telling me?

MR. HACKBARTH: Yeah. We do -- I would just want to be clear though I believe we do have an infrastructure in place that's functioning well today in Medicare. We've got a successful program. It can be better and we'll need to invest to support that effort at improvement.

REP. ETHERIDGE: All right. In my little time I have left let me ask each of the three of you a question because many of the studies, including those that the Dartmouth Atlas has conducted, Dr. Fisher, show that, as we've been talking about this morning, across the country depending on where you are primary care versus specialist care et cetera.

But the bigger question then that was touched on a few moments ago, and I hope you'll expand on it, is that we are facing a critical crisis in this country in primary care. Many of the primary care physicians are nearing retirement. Many folks aren't going into primary care for a variety of reasons; one is pay, the other may be you don't have the luxury of shorter hours.

I'd be interested in your very quick thoughts on number one, what are the incentives we put in other than pay? That's one of the things, but how do we make a system work whether be in the jurisdiction of this committee or another one? Because I remember growing up that's what we had, and yet, today if you're in primary care you want to move from rural areas to the urban areas where all the other amenities are there. I'd be interested in your thoughts on that, maybe, forgiveness of some debt as it relates to that or otherwise.

DR. FISHER: Sure. Quickly a couple of things, first many of the ideas, loan forgiveness, addressing GME, I do think on the -- in the -- you need to make the systems that are providing care supportive of primary care physicians as well. My guess is you'll hear in the second panel from systems that actually have invested in strengthening primary care, as our own has, under the kind of demonstration that has been supportive of the -- this physician group practice demonstration.

REP. ETHERIDGE: I see my time is up. But I hope each of you that didn't get to answer will give us something in writing on that. I think this is sort of the heart of where we've got to get to.

Thank you, Mr. Chairman. I yield back.

REP. STARK: Thank you.

Mr. Reichert, would you like to inquire?

REP. DAVE G. REICHERT (R-WA): Yes, sir. Thank you, Mr. Chairman.

Well, we appreciate your time today. Thank you for being her. We are -- I think most of us today are in agreement that we need to make some changes in our health care system to provide more efficient quality care to the people of this nation.

We need to look at reforming payments in the delivery system and disease management, rewarding those providers that do a good job. So we're all ready to go that way. It's just how do we get it done. I think that's certainly the discussion today.

And I get a little nervous not being a medical professional in my previous life, some of the terminology that we used today, and kind of toss around, and hope that the American people, sort of, understand and can grasp this issue at some point. When you start talking about supply-sensitive services, you know, what does that really mean to me at home? Are you going take something away from me? How does this affect me personally? You start talking about volume of services, and payment reforms, and over-utilization of some things. Now, you know, I'm taking care of myself. I'm not sure I want you talking about me being a part of that problem, you know, over-utilization, supply- sensitive services I've mentioned.

And then the -- that the whole idea of comparative effectiveness, you know. Boy, that sounds like a big deal is going to affect me. When you're talking about a government-run committee, if I understand that language in the stimulus package correctly, of 15 members who have no medical experience, and they are going to be making decisions about my health care that if I'm going under Medicare, Medicaid that my doctor and I should be making.

Kind of reminds me when I was the sheriff I had a shooting where I was at, three people dead, two in critical condition. I'm at the scene. I'm going to make a decision. We've got to do something. I've got five cops pinned down, two cars full of -- riddled with bullet holes. And I have another police department with a sniper team on the scene.

And I give an order that we're going to have to shoot this guy to save lives. But you know what they have to do? They have to go through a pyramid of decision-making first to their administration who is nowhere near the scene seeing the patient that I'm seeing. And they are going to be the ones that provide input to me as to how I am going to make a decision as to save -- how I'm going to save lives here. And it just doesn't make any sense to me, this comparative effectiveness thing, layered over other medical professions or medical facilities that already have that system in place.

Can you respond, Doctor?

MR. HACKBARTH: MedPAC has advocated a large-scale investment in comparative effectiveness research as was done in the Economic Recovery Act. Our view has been that the federal government must play a role in funding that research.

How the research is used ought to be on -- those decisions ought to be made on a decentralized basis.

So the information becomes available to physicians and patients for their evaluation and to support their decision-making. We envision --

REP. REICHERT: Now, let me just interrupt you there. You know why this is scary? In 2006 the British used the same system to -- the comparative effectiveness to say that elderly patients with macular degeneration had to wait until they were blind in one eye before they were able to get a costly, quote, "costly" new drug. That's scary to people.

MR. HACKBARTH: Yeah. The British system is not the same as what we've advocated and what I think is included in the Economic Recovery Act. Congress has created an information organization to fund research. The research itself will be done by people like Elliott and researchers out there in the medical profession.

REP. REICHERT: But who makes the decisions?

MR. HACKBARTH: Well, in what we've had --

REP. REICHERT: -- board of 15 people with no medical background?

MR. HACKBARTH: Well, the purpose of the board, as I understand the legislation, is to identify priority areas for research, not to make decisions about appropriate practice of medicine. Those are different activities. The decision-making about how to use the information is decentralized.

REP. REICHERT: But they are focused on cost effectiveness and medical effectiveness, right?

MR. HACKBARTH: Well, my recollection of the legislation is that it funds comparative effectiveness research.

REP. REICHERT: Which is looking at the cost of --

MR. HACKBARTH: It's looking at the results, which approach, A or B.

REP. REICHERT: It has nothing to do with cost at all?

MR. HACKBARTH: This legislation does not. Then private insurers could elect to provide -- use that information to determine, we're going to pay for this and not for that.

REP. REICHERT: So this government bureaucratic board that you're talking about will have no -- they won't consider the costs whatsoever?

MR. HACKBARTH: Under the legislation, as I understand it, the board is not involved in those --

REP. REICHERT: It's going to be evidence medically-based decisions made by people who have no medical background.


REP. STARK: The gentleman is exactly right. As Mr. Hackbarth has indicated and as we wrote the legislations there is -- it is -- cost is not a factor in this, that will be determined --

REP. REICHERT: Thank you, Mr. Chairman.

REP. STARK: Thank you very much.

Mr. Yarmuth, would you like to enquire?

REP. JOHN A. YARMUTH (D-KY): Thank you very much, Mr. Chairman. I really appreciate this discussion today because we have, I think, reached a lot of agreement on kind of the general standards and goals that we are trying to achieve as we reform the system.

And I guess, I would put them all under the broad category, we're trying to achieve the best value possible for the money that goes into the system -- best quality of care, accessibility, cost effectiveness, and so forth. And one of the things that Mr. Hackbarth and I had a conversation about this in the context of home health care a couple of weeks ago, because MedPAC has made a basic conclusion that health -- in home health care the margins that they earn are too large.

And my -- I differ with him. I don't think that's a relevant factor in deciding any of these value questions. And to take it out of the realm of home health care in my district, and I'm sure in many others, we have a growing number of free-standing medical facilities that do things like provide colonoscopies at half to a third of the cost that that same procedure is performed in a hospital, same type of physicians, so forth.

And there is a substantial cost saving. And my argument would be well, if they're making $100 on their $600 charge and the hospital's making a $100 on their $1,500 charge we ought to have a system that encourages the lesser payment even though the margin is higher at the lower cost facility.

But my general question, and I'm going to shut up, is the whole question of profitability because we have -- we want to encourage, I would think, in our system, whatever we devise, enough incentive for innovation so that somebody who has the idea to go out and save half -- 50 percent of the cost of a particular procedure has the incentive to do it. So my question to all of you -- and I'll start with Dr. Fisher and Dr. Berenson, and you can respond if we have time, where is the role of profitability in reform measures and how much should we be concerned with providing incentives for innovation?

DR. FISHER: I think we want to be very concerned about providing incentives for innovation. I mean I -- and I think the challenge is when you're focusing only on the price of the specific service, you run into all sorts of troubles about trying to figure out what's the best care for a patient with a particular illness over a number -- over a year or over two years. So that's why, you know, in our work we're trying to say, let's try to figure out how to get to some level of accountability for the overall cost of care, and reward the providers for innovating on how to provide that care at lower cost and better quality.

The real danger of the kinds of innovations of the lower cost colonoscopy center outside the hospital is it's not clear what that does to the hospital in terms of their decision to see other patients and do more frequent colonoscopies or maintain their facilities fully occupied. At least our data from the 1990s, 1980s when we looked at the growth of for-profit hospitals and we compared communities that shifted from one -- from either -- from not-for-profit to for-profit, the regions that were dominated by for-profit hospitals had higher cost growth. The regions not published in the study but part of the analysis, communities that had two hospitals competing, had higher cost growth than those that had a single hospital because of the way we reimburse on a -- hospitals are competing to be able to provide in this medical arms race all possible services.

The anecdote I told earlier about Park Nicollet where under a global payment incentive they actually decided that they want to contract with people outside their system because the services could be at lower cost, is I think, exactly what we want. You want to support innovation. If there's a lower cost way of doing it, reward the providers for that kind of innovation. It will take us a while to get there but that's where I would focus some of your attention on trying to get that global accountability for cost that does reward innovation.

DR. BERENSON: I would just make a brief comment. Earlier we were talking about cost shifting and how prevalent it is. There's, in a sense, a different form of cost shifting that probably does occur to the extent that hospital outpatient departments are losing a lot of business to innovative, high quality physician-run facilities. They -- that is no longer supporting their fixed overhead and they are then raising their prices back through their in-hospital per diems, et cetera. It's a crazy economy in health care.

In fact a study I did recently related to, especially, hospitals where we interviewed health plan executives. And they wound up saying even though they should be in favor of this kind of innovation and competition, they basically said the docs forming some of these specialty hospitals are "cherry-picking" the patients and taking off the easier cases and self-referring, an issue that Mr. Stark has talked about over the years.

And the hospital has lost that business but then is raising their prices on everything else. And we wind up paying twice.

And so I think it's a very important issue you raise about innovation but with understanding that we have screwed up economics in health care.

REP. YARMUTH: Thank you.

REP. STARK: Before I recognize Dr. Boustany, I yield to the chairman for a moment.

REP. RANGEL: I have to run before the next panel comes but I cannot thank all of you enough for sharing the expertise that you have developed over the years. Each of you are so good in terms of the moving part that you've testified to or we've asked. But I wonder whether any of you have either written or could share with us what you would believe under the circumstances would be the best way for us to move forward?

The reason I ask that question is that, as you know, we're dealing with three different committees of jurisdiction. And the Senate -- and God knows what they are going to come up with. And we won't be able to staple you to the conference to say, what do you think about this? It would be so helpful, if you could share with us some of the pitfalls that you see and send them officially to me and the committee because we're just asking you questions that we have enough intelligence to ask and every question is a problem question.

But I know that you know that for each possible solution to those questions, we're raising other things that right now, as politicians, we may be creating more darn problems in trying to resolve, in our way, politically, than you know what the nature of the services and the demands. So I can't thank you enough, you've been terrific, and don't be surprised if we don't call you again, without the mikes, to work with us. Thank you so much.

Thank you, Mr. Chairman.

REP. STARK: Thank you, Mr. Chairman.

Dr. Boustany, would you like to enquire?

REP. CHARLES W. BOUSTANY, JR. (R-LA): Yes, Mr. Chairman, thank you very much.

Thank you, gentlemen, for your testimony. I really appreciate it. As a lead cardiac surgeon at a top 100 hospital back in the 1990s, I was at the forefront of dealing with a lot of these issues, building out an integrated delivery system, alignment of incentives and all of these -- these other things you've mentioned as well as health IT.

And I do agree, primary care access is a real problem, it's a very complicated problem because there are many factors involved here. But I'll also submit that before we focus solely on primary care, we've got shortages in other key specialties, such as cardiac surgery, neurosurgery and general surgery, which are also going to have a severe impact on our delivery system.

And I would submit that the disparity in the ratio of primary care to specialists and the shortages is largely due to the -- to this payment system that we have. I want to -- I'd just throw a question out to you, Mr. Hackbarth, do you know what a cardiac surgeon makes on a case now, global fee for triple coronary bypass?

DR. HACKBARTH: I do not, sir.

REP. BOUSTANY: Okay. Today, Medicare pays $1,800 for that, that's the global fee, that's the evaluation in management of the patient -- evaluation of the patient, review the angiograms, the discussion, the operation, the ICU care, the post-operative care in the hospital and a 30-day period afterwards, $1,800. Do you know what it -- do you know what that fee was in 1978?

DR. HACKBARTH: No, but I'm pretty sure it was higher than this.

REP. BOUSTANY: It was $4,000. Four thousand, and yet the costs have risen precipitously, whether you're talking about just normal business costs, running a practice, insurance costs, malpractice costs. In that cost structure, $1,800 for that fee, you have to pay the perfusion technologist; you have to pay the first assistant, often times a nurse. You have to pay a nurse assistant who'll see patients outside.

So to suggest that Medicare reimbursements are adequate really troubles me and I think we really need to dig into this much further before making those kinds of assertions. Now clearly, there maybe enough money in the system if we get efficiencies as you all have suggested.

Dr. Berenson, you've talked about the importance of a public -- or a government system to compete with the private sector. And these reimbursement problems are very real and if we drive the private insurers out of the market because they cannot compete with price controls with a government system, then what are we going to be left with, what's going to happen with innovation. And do you advocate -- you've advocated price controls, do you advocate price controls now with medical technology?

DR. BERENSON: I'm not sure I -- well, what do you mean by medical technology?

REP. BOUSTANY: Medical technology would be anything from an IV system, you know, just basic things all the way up to sophisticated equipments --

DR. BERENSON: I guess -- let me two points. One is in my testimony, I emphasize that the payment system is -- we have problems not only in primary care, but in some other specialties and I specifically identified general surgery. We have a disproportionate reimbursement for these niche subspecialties, not the doctor who's taking care of you at three in the morning in an emergency room.

So I'm very sympathetic to the first part you made. I would say that -- well, so that's number one. I think we put the sort of the RBRVS payment system sort of on automatic pilot for a long time and its time to take it off automatic pilot. And the second point is, I guess I would say, I would love to have a different payment system that that wasn't paying for 7,000 individual services and then more for the IT --

REP. BOUSTANY: Well, yes sir I agree with that --

DR. BERENSON: But the point is the private plans are using the same payment system. They are using the same -- nobody has figured out a better way other than paying for individual services using price schedules. And it would be much better if we could pay an organization a fixed amount and let them figure that out.

REP. BOUSTANY: Well, I'm concerned that with the -- the burgeoning of medical technology out there that has largely been responsible for the advances in medicine in my time in medicine. I mean are we going to take that next step? Are you advocating the next step of imposing price controls on technology because right now reimbursement doesn't cover costs often times in Medicare. A simple pacemaker generator, the cost of that exceeds the entire hospital encounter. So those kinds of disparities are rampant throughout the system and it's a serious problem. So would you advocate government controlling the cost of --

DR. BERENSON: No, no, right now I would -- the more we can move to prospective payment for the most part if that pacemaker is embedded within a DRG, the hospital is trying to -- is sorting out how much to pay the vendor who's producing the pacemaker and that's one of the merits of these gainsharing ideas, so that the cardiac surgeons and the hospital can get together and agree on using some market clout to get a better deal and to agree on, here's the pacemaker we're all going to use. I mean those are the incentives we would want to put into the system. I would much rather have the hospital under a DRG payment system making that decision than having the government.

REP. BOUSTANY: But if we move -- if everything moves toward a government plan there is no negotiating clout among the providers, and so when you have a disparity between the cost of the supplies and the reimbursement, then the next step is to move into price controls for the -- all the supplies.

DR. BERENSON: And again my assumption is that we're not going to have a single payer and I don't think we're advocating it, I'm not advocating that. We're talking about having a public plan in parallel with the private plans that --

REP. BOUSTANY: Do you honestly believe that a -- that private plans will be able to compete with a public plan?

DR. BERENSON: Certainly, a number of private -- the ones that are alternative delivery systems, the Kaiser Permanentes, the ones that offer something quite different would absolutely be able to compete if its sort of a Medicare look-alike, it's a network they're using the Medicare fee schedule, we are paying more, they're not doing very much in the way of innovation.

I'm not sure those plans would succeed, but I'm not sure that would be a loss. Clearly, there would be a major role for plans that innovate it, because some has -- I mean you can only do so much from a central -- from Baltimore, in terms of redoing the delivery system. I think private plans could compete. I would hope so.

REP. STARK: Thank you. Before I recognize Mr. Heller, I would just point out that if you choose to review the dollars paid to physicians, and not-for-profit organizations and pull the schedules as I have, from the 990s. I have one here from one of the institutions that will be testifying that out of the top five payments, three were physicians, one making north of ($)2 million, one making ($)1.5 million, one making ($)1.25 million. That's difficult for me to be overly sympathetic to the fact that we're talking about piecework, when we ought to be talking about the aggregate reimbursement. And I think that's where we have -- what we have to look at a little bit more than just what each individual procedure might cost.

REP. BOUSTANY: Mr. Chairman, I understand that, but I also recognize that this is a pretty complex area and we need to make sure that we really are looking at facts as we go forward.

REP. STARK: Okay. Mr. Heller.

REP. DEAN HELLER (R-NV): Mr. Chairman, thank you very much and I want to thank the gentlemen that are here. I have waited three hours, as you guys have discussed this for three hours, and I certainly do appreciate your expertise and again your patience.

I want to make a few comments and then I have a couple of questions. And just one thing to keep in mind, my congressional district is 105,000 square miles, so most of my issues will be related to more rural areas as we discuss some of these Medicare and health care issues.

But to begin with health care reform is obviously a priority in this country and in this committee and Mr. Chairman, thank you for bringing this issue in front of us. I want you to know that I'm committed to working with you and towards the system that truly works for the American people.

That said, I want to raise a point, I continue to hear from my constituents. Many Nevadans are concerned of Washington's definition of reform as simply spending more of their hard-earned money.

Pouring taxpayer funds into the existing system is not reform, I think, it is business as usual. Our recent experience with this nation's financial services sector proves that government spending is not the solution. I want to make sure that this committee and the American people understand that real reform in our health care system means real change in the parts of our systems that are clearly broken, especially the Medicare payment scheme that has been subject to so much discussion today.

Speaking more generally for a moment, I think we would do well to start with reforming our medical liability system, which we know cost providers and patients billions each year clearly impacts the quality of our health care delivery system, but that's another discussion for another day. The other side of this coin is ensuring that we do no harm, when it comes to what does work well in our current system.

The federal government should not break the good parts of the health care system in the name of reform that will hurt everyone in the long run. More than 220 million Americans receive health care through private insurance. And believe me these folks are vary about moving to a government-run plan.

Americans are understandably skeptical if the same government that allows traditional Medicare to waste billions in fraud and abuse and often prevents the most effective new treatments from reaching -- reaching patients, thanks to the CMS bureaucracy, won't provide the highest quality care in a timely fashion.

In short, this committee and this Congress must ensure that current programs are performing at the highest level possible before expanding publicly funded health care. Anything less cannot be responsible -- responsibly labeled health care reform. Having mentioned earlier that my district is 105,000 square miles, it takes me about 15 hours to drive from one side to the other. And I will tell you that I'm concerned about, in this district, rural care and quality care in rural areas.

And we've discussed medical homes, bundled payments, initiatives that rely on health information technology and that concern relates to many physicians and other medical professionals who practice in rural areas maybe put at a disadvantage.

So the two questions that I would like Mr. Hackbarth and Dr. Fisher is what sort of challenges would rural practitioners and patients face if the initiatives we discussed today are implemented. And second, would more practitioners be tempted to relocate to areas where technology was more readily available or perhaps even dropout of Medicare?

DR. HACKBARTH: Over the years, Medicare has made a large number of adjustments in its payment systems to address the unique circumstances of rural providers. For example, in the hospital side of the payment system we've got a variety of special payment categories to take into account those special needs, so community hospitals, critical access hospitals, Medicare dependant hospitals and so on.

Even within the prospective payment system for hospitals a number of changes have been made many based on MedPAC recommendations over the years that have increased payment for rural hospitals relative to urban hospitals. And I'm happy to say that our most recent estimate is that rural hospitals actually have higher margins under Medicare than urban hospitals do. Now, have we solved every problem related to rural health care? No, clearly we haven't. And there are issues of the same sort in private insurance as well. They're not at all unique to Medicare.

I come from Central Oregon, sort of, the north part of the Great Basin Desert, so I'm pretty familiar with wide-open spaces only sparsely populated. You know there are some basic realities that wouldn't -- we are never going to -- and in fact it wouldn't be desirable to have the same sort of health care system in the most distant parts of your district or the most distant parts of Central Oregon.

If we tried to build that, it would be incredibly wasteful and perhaps even dangerous for patients. So what we need is a support system that allows immediate access to necessary care and then referrals to other institutions in larger urban areas.

(Cross talk)

REP. HELLER: -- Dr. Fisher to answer this, we're running out of time and if it's okay with the chairman to just get a quick feedback.

DR. FISHER: Sure, just very quickly. I think it's incredibly important to support rural communities. There are some models that we've been working on that I can share with you. Rural areas developing innovative approaches to the medical home -- where the physician's office, for example, is not large enough to support the necessary care team, but having a network of, you know, central nurses and the health educators who can support all of the primary care physicians in that community. Vermont is moving very hard to try to address the issues of rural, distant providers, nothing like the spaces that you face.

REP. HELLER: I understand. I'd like to see that information. Mr. Chairman, thank you very much and I yield back. Thank you.

REP. STARK: I want to thank the panel again very much. You've been patient and very forthcoming and very informative.

We are anticipating votes in the next 15 minutes, four votes. So, if it's agreeable with my Republican ranking member, I think, perhaps why don't we recess until 1:30 or immediately after the last vote. And we'll seat the second panel at that time. Give them a chance to stretch and get something to eat before we grill them.


So with that in mind, 1:30 or after the last vote, we'll recess. Thank you.

(Sounds gavel)


REP. STARK: The - I apologize for the peregrinations of the House, but we're done voting for a while, and I'm pleased to thank the second panel for their patience. I hope you got something to eat.

Our second panel includes Dr. Glenn Steele, who's president and CEO of Geisinger Health System serving over 2.5 million patients in Central and North East Pennsylvania. And the Geisinger Group is often cited as a model integrated delivery system including its use of electronic medical records and a warranty program for hospital procedures, just like General Motors.

Dr. Lawrence Smith is chief medical officer of North Shore Long Island Jewish Health System in Great Neck, New York. North Shore is part of Medicare's premier hospital quality initiative demonstration program aimed at rewarding hospitals that can demonstrate meaningful improvements in quality and outcomes.

Dr. Allen Dobson is chairman of the board for North Carolina Community Care Networks and in his current position, Dr. Dobson helps to run a program that makes investments in primary care prevention and care coordination across small and medium sized practices throughout North Carolina.

Dr. Brent James is chief quality officer of Intermountain Healthcare, which is the largest health system in the Intermountain West. Dr. James has been involved with numerous quality improvement efforts in Intermountain including advanced training programs. Half the people in Utah belong to your system?

DR. JAMES: (Off mike.)

REP. STARK: That's pretty good. Half the people in Oakland belong to Kaiser, but that isn't as big as Utah.

We'll start. I'll hear your testimony, gentlemen, in the order I introduced you. Dr. Steele, would you like to begin.

DR. STEELE: Thank you very much, Mr. Chairman, members. It's an honor to testify before you this afternoon. As Mr. Stark said, I'm the president of Geisinger Health System, which is an integrated health care organization including insurance and providers in Central and North East Pennsylvania. We serve 43 out of Pennsylvania's 67 counties. We've had an electronic health record implemented 14 years ago, with now, more than 3 million individual patient records.

We also lead our area's regional Health Information Exchange, which includes both Geisinger and non-Geisinger hospitals and physicians. We hold ourselves to high standards of assuring quality outcomes in serving our patients. If we've a patient that's readmitted to our hospital after a procedure or an inpatient stay, we believe we've failed that patient.

Consequently, we've committed significant resources and have worked aggressively to bring value to health care and eliminate failures as much as we possibly can. I'd like to spend a few minutes today talking about some of our innovations, which include bundle payments for acute care procedures, enhanced support for primary care physicians and their care teams, and better managed chronic disease and the transitions of care for patients going from caregiver to caregiver.

These innovations have produced significant cost savings and quality improvements. I believe that what we've accomplished at Geisinger can be adopted nationally and we'll achieve similar cost savings and improve quality. One of our earlier innovations involved bundled payments for acute care, hospital-based. We started this in 2006, when we tackled how we provided elective cardiac surgical care.

We identified 40 verifiable best practice steps that could be implemented with each patient undergoing this surgery. These steps were hardwired into our electronic health record, we developed only a single charge for the entire episode of care including any related complications. As a result of implementing this program, our patient care was better and these improvements were achieved even though our cardiac surgery outcome was already ranked very high nationally.

Costs for treatment fell as well as our average length of hospital stay decreasing by half a day. We now have adopted this so- called warranty program for hip replacement, cataract surgery, obesity surgery, prenatal care for babies and their mothers, heart catheterization and centrally-managed evidence-based use of high cost biologicals, such as erythropoietin.

Another innovation, we've adopted involves our patient-centered medical home that combines traditional medical home models with patient engagement. We understand that navigating through the complexities of any health care system is not easy, so we've invested in programs and staff to help support each patient's journey, placing dedicated nurses in our outpatient clinics.

These nurses along with our primary care physicians are expected to know the patients and their families, to follow all of their care, help them get access to specialists and social services as necessary, follow them when they're admitted to hospital, contact or see them when they're sent home to confirm that they're taking the appropriate medication and dosages and be available for advice 24 hours a day.

We've achieved remarkable results for the 33,000 individuals currently participating in this medical home program. In our best primary care sites patient admissions have decreased 25 percent, days in hospital decreased 23 percent, and readmissions following discharge are down by over 50 percent. We believe that if this program were adopted nationally the savings to large payers particularly Medicare would be substantial.

In conclusion, I have several recommendations for your consideration. First, establish a simple, understandable set of national goals, so we can hold ourselves accountable together for improving the quality and value of health care. Second, change reimbursement to reward positive outcomes, not units of work. Pay for episodes of care forcing all providers to work together across physician and hospital boundaries to achieve optimal outcome.

Pay more for delivering high value primary care. Fund innovation to create real or virtual integrated systems of care. Consider capitation payments linked to quality outcome measures for prevention and chronic care services. Help fund enabling information technology, but insist on non-proprietary interoperability. And finally, help hospitals and communities establish transitions of care programs to reduce unnecessary admissions and readmissions.

Thank you again for this opportunity to testify and I look forward to your questions.

REP. STARK: Thank you very much.

Dr. Smith, would you like to inform us?

REP. RANGEL: Let me, if you'd yield.

REP. STARK: I'd be happy to yield, Mr. Chairman.

REP. RANGEL: I just want to personally thank my constituent and a person that's gained quite a reputation in the medical field and we welcome all of you and I just want to personally welcome you to the panel. I've just been thinking with all the wonderful ideas and suggestions that you have based on experience rather than the fact that we just read a lot of papers, hold a lot of hearings and talk with each other, but there has to be a way that we're going to, Mr. Chairman, get these innovative ideas incorporated one way or the other in the bill.

As I told the previous panel please be patient with us because we have three to four chairmen.

Three, four subcommittee chairmen, the speaker and the other body that has to come together with one bill. And that's before we even get to the substance -- (laughs) -- so we're going to need your help, we'll be calling back on you, but thank you for giving me the opportunity to work with Dr. Smith.

REP. STARK: Proceed, Dr. Smith.

Would you turn your mike on? There is a button there, somewhere.

DR. SMITH: Okay.

REP. STARK: Got you.

DR. SMITH: Thank you, Chairman Rangel, Chairman Stark, and the members of the committee for the opportunity to testify today. I myself, am the chief medical officer for the North Shore-LIJ Health System, one of the largest health systems in the region. We have 14 hospitals, three of which are large teaching hospitals, many are smaller community hospitals. We are the predominant caregivers in the borough of Queens, the most ethnically diverse area perhaps anywhere, as well as Staten Island and Nassau County.

We serve a wide patient demographics, patient needs. We have fulltime physicians, but most of our hospitals are staffed by voluntary community-based physicians. And with this wide array of hospitals, patients, doctors, nurses and diversity we undertook participating in the premier demonstration in the health quality incentive program. This was an opportunity for 250 hospitals over six years to look at common medical problems and see if with benchmarks based in strong data, we could in fact radically improve care.

Why did we do this? Well, a part of it was to reinforce our sense of a quality culture throughout our health system. It gave us an opportunity for the first time to galvanize the many physicians and hospitals into a uniformed effort that's a continuous problem. It's hard to get people to work together and this was all about delivering good care with an incentive behind it.

You'll see -- you'll see the results of the -- what really was an experiment that in fact over the course of the first five years there was dramatic improvement in every measure. In fact, by the last -- by the end of the study, the very bottom performers were performing better than the top performers at the beginning. In our own health system, you can see that we've reproduced this data almost exactly.

Small hospitals with limited resources, with large amounts of Safety Net patients, did just as well as the large teaching hospitals with more resources. You can see this in the first two, heart failure and pneumonia. How did we accomplish this? Well, mostly we brought people together. We aligned the physicians in the hospitals with a strong focus on the patient and best care. We set system goals, but allowed all the local smaller hospitals to find local solutions.

We did not accept any excuses. Our goal was best care and we created processes to ensure that best care happened and metrics that helped to reinforce when people were progressing in the right direction. So what did we learn that we can transmit to this committee? First and foremost, this could not have happened without unified leadership being behind the initiative.

Alignment is critical. If physicians and hospitals work at cross purposes, we could never ever have accomplished the kind of improvements in quality that we did. You have to have trusted data. The minute anyone doesn't believe that the data has integrity you can't get them to follow the data and continue to improve. And you need quick turnaround time.

You heard that many times data available at the federal level takes months to years to come back. Well, we found that in fact you had to turn data around to the physician caregivers within days or you didn't see an affect. And that was probably the biggest change we had to -- we had to create in the health system -- was a way to monitor data and get it back to the caregivers in real time.

We need to find the local change agent. The doctors who really were the leaders at each and every community hospital in our system and these doctors led the way. We also learned, we had to involve everyone nurses, interns and residents, physicians and everyone else that was part of the caregiver team. And once again it couldn't be said more often, you had to keep the focus on better care for the patient.

It wasn't simply about any bonus money that was available that was a nice incentive, but in fact what really motivates caregivers is delivering better care. I think that you'd get very few people really who would sustain an effort simply just because of the bonuses, this was a combination of the two.

And I think that what we noticed was that there was clearly this spillover. This was a Medicare project, but every patient in our system benefited from it. You can't fix your processes and fix your care for one group of patients. So whether it was the commercially insured patients or the Medicaid patients or the patients without insurance everyone improved as this project rolled out.

Not only that, it broke the ice and in fact we've tackled many other quality projects because this really got our feet wet and got us into the process where we understood that we actually could change care and change models of care and put in processes that ensured that best care got to every patient.

So again my prospects for the future, to encourage people not to be afraid of alignment. I think it's critical that everyone work in the same direction, that metrics be well tested, simple, transparent and that there be a unified set of metrics so that health systems and doctors don't have to try to figure out which organizations they have to please on a given day.

But if there are metrics for pneumonia or metrics for heart failure, it should be one set of metrics, tried and true, based on real data that everyone can live with and believe it actually correlates with better outcomes for the patient.

Areas, I think, desperately need to tackled by our health system, coordination of care and transitions of care. And I think those are perfect models for bundling demonstrations, where we take on either pieces of time in an illness, or the entire organizational structure that we force people to manage through, are usually quiet confused and really try to add sense, alignment and simplicity to their care.

Once again, thank you very much for the privilege of testifying.

REP. RANGEL: Thank you, Dr. Dobson.

DR. DOBSON: Thank you, Mr. Chairman and other distinguished members of the committee. I appreciate the opportunity to be here today and to share with you the work of Community Care, North Carolina as you deliberate on how to best reform our health care system. I'm particularly proud, as a Medicaid director, this is an example of public-private partnership of what states can do to innovate.

Now is the time for health care reform and you clearly heard that just providing insurance alone to everyone will not be economically sustainable without an overhaul of our current fragmented and volume driven system. And certainly the foundation of any reform effort has to start first with an investment in a solid primary care system. The values and principles outlined by the patient centered medical home and primary care must be the first and foundational of our future health care system.

Community Care of North Carolina is an example of the value of just such an investment in North Carolina. Community Care is a public-private partnership between the state of North Carolina and 14 not-for-profit networks that are comprised of the majority of the local health care providers. It is built around primary care it includes hospitals, particularly our public Safety Net hospitals, health departments, social service agencies and Safety Net organizations.

Together this partnership delivers the key components of a medical home to Medicaid, SCHIP and other low-income adults and children in our state. Community Care has now over 3,500 primary care physicians in 1,200 medical homes covering the entire state, and we manage almost 1 million citizens in North Carolina.

Community Care basically delivers improved quality and cost savings to the state through three critical elements. First, we have primary care access and physicians that serve as a medical home for patients. Second, we have created these not-for-profit networks that serve as virtual integrated health care systems, partnerships among providers that links the medical home and patients to the rest of the health care system and support agencies.

These networks provide the needed physician leadership, local leadership, and local collaboration in order to get things done to improve quality and save money. It also provides a flexible structure that actually is very adaptable in rural areas as well as urban areas. It's based on local needs and local resources. And the third, the state actually funds this whole program through -- by funding the medical home with additional payment, as you heard of through the patient centered medical home, but also funds the network to provide the additional needed local resources such as case managers, care coordinators, clinical pharmacists, part-time medical directors, and a local quality improvement infrastructure to work with those medical homes to move the ball forward on quality and cost. This assures optimal supports are provided to patients and we get results.

We have shown significant cost savings along with quality and certainly have grown significantly since we are now state wide. The physicians are key to this, because they lead the quality effort and come up with what -- in partnership with the state -- what we need to work on.

What we've found is documented cost savings by Mercer of over $100 million a year since 2003 by expanding this program and moving into different areas out of our Medicaid budget. In short, North Carolina successfully managed the cost of our Medicaid programs through this clinical management strategy rather than a payment reduction and regulation. It's now the centerpiece strategy for North Carolina and is enthusiastically accepted by patients and providers; it is a value-added proposition.

We've been mandated to move into SCHIP and include mental health in our networks. We are also seeking a Medicare demonstration waiver to serve the dually eligible Medicare/Medicaid recipients as well as at risk Medicare recipients. It is the platform for a major quality outpatient initiative and is helping North Carolina address such concerns as health disparity prevention, uninsured, childhood obesity and child development.

We believe Community Care can serve as an important national model for health reform particularly around the local infrastructure that will work both in the urban and rural areas and in the public and private settings. Clearly, the path forward in the U.S. health care system can be informed by our most integrated health systems and some of the excellent work we've seen around the country.

However, we have to understand the majority of health system in the U.S. is still providing communities where there is no system at all. And so lessons learned from Community Care can, I think, be valuable related to building a primary care system and how do you organize around cost and quality.

And I'd be remiss if I didn't say that we really need to address medical education and the training for -- to make sure we had an adequate supply of primary care physicians in the future. In summary, while investing in IT and payment reform and expansion of health coverage are central components of reform, I think a sustained effort about reorganizing the health system, as you are addressing today, is absolutely essential to get access, quality and efficiency goals.

So Community Care, I think, will at least provide an example of the flexibility you can build into the system to meet those needs. And I thank you for the opportunity here.

REP. RANGEL: Thank you very much.

Dr. James.

DR. JAMES: Thank you, Mr. Chairman, members of the committee, for this opportunity to visit with you today. Intermountain Healthcare is a not-for-profit system with 23 hospitals, more than 100 outpatient clinics and a health insurance plan that provides payments for about 20 percent of the care we deliver. About three quarters of our facilities are rural, a little above 95 percent of the care that we deliver happens in nine big urban hospitals.

We supply more than half of all the care delivered within the state of Utah and supply tertiary services to citizens of six surrounding states. We've been identified by external evaluators as one of the highest quality most efficient care delivery systems in the United States, or for that matter in the world. For example, the Dartmouth Atlas has asserted that if the rest of the country delivered the same sort of care that is found within Intermountain, the national Medicare costs would fall by more than 30 percent and our clinical outcomes are significantly improved.

In addition to lower health care costs, just as a principle in passing, our rates of medical cost to inflation are among the lowest in the nation. Those two go together, low rates and inflation and low total costs. In fact, medical cost inflation in Utah is about at consumer price index inflation rates. This is based on a body of work, in fact, you have been hearing it from all of us, we all use it -- there is a body of theory developed by W. Edwards Deming called quality improvement theory.

Back in the late 1980s, we were introduced to that, we were the first group, I think, or certainly one of the first to prove Deming's theories in clinical care delivery. He had a key idea; in most circumstances, managing processes to increase quality will significantly reduce production costs.

And just to illustrate, I thought I would show you a real clinical example. The single largest process we execute inside Intermountain is pregnancy, labor and delivery. We deliver about 32,000 children a year.

At the end of a pregnancy as it comes to term, it's very uncomfortable for most women to be pregnant. On top of that, there are obstetricians who like to be able to plan their day and schedule their life. And you know, we have a high tech solution that we can offer to them. It's called Pitocin, a drug if administered that will electively induce labor.

The American College of Obstetricians and Gynecologists, ACOG, has published evidence-based guidelines to identify those circumstances in which elective induction is safe for both mother and baby. Chief among those criteria is something called gestational age, a minimum of 39 weeks gestational age or 40 weeks is full term.

A second important indication is something called the Bishop's score. It's a 4-part physical exam that determines if the woman's body is ready to deliver. A high Bishop's score over 10 is the usual professional criterion. It's directly associated with much shorter lengths of labor, and much lower unplanned cesarean section rates. Well, we built those into the clinical workflow within our hospitals.

As we did that, we saw inappropriate elective induction rates, on the basis of gestational age, fall from 28 percent to less than 3 percent. At 3 percent, it's about on the limits of the protocol by the way is what it really reflects. We watched inappropriate elective inductions in first deliveries, the really tough ones fall from about 15 percent to less than 3 on the basis of the Bishop's score.

In direct conjunction with that, we watched our overall c-section rates fall. Today, Intermountain has a rate of just under 20 percent, the nation as a whole runs to well over 30 at about 33 to 34 percent. We also eliminated about 45,000 minutes, that's the way we measure it, in labor out of our system. That means that we can deliver about 1,500 more infants per year without adding a single additional nurse or a single additional labor and delivery suite.

It totals to about $10 million per year in variable cost savings for the mothers and babies who come to our facilities just from that one example. Well, multiply that in Intermountain by almost one hundred.

I've a very long list to examples that I could show you. Just a few, management of community acquired pneumonia, appropriate discharge medications for patients with heart disease -- that one saved about 450 lives per year while reducing hospitalizations by about 900 per year -- management of diabetes mellitus, reduction in patient harm associated with adverse drug events, post operative wound infections, treatment of respiratory distress syndromes and in term newborns it's really quite a long list.

With one little hooker. We estimate that we took about $100 million out of our cost of operations through those clinical improvements. Deming had it right when he said higher quality drove lower costs. Here's the trick, back to the labor and delivery example. For a normal delivery, when it's funded by commercial insurance, we make a margin of $282 per delivery. We lose about $130 for every Medicaid case we deliver, just in passing. The trouble is an unplanned C-section generates about $651 in operating margin.

Dropping our unplanned C-section rate by 2 percentage points cost Intermountain hospitals about $1.8 million in operating margin. Now, it saves the insurers about $8 million including Medicaid. I guess that falls in the category that no good deed goes unpunished.


We analyzed that carefully seven months ago, about three quarters of the time, under current payment system, significant improvements in clinical outcomes to reduce costs are punished financially and quite significantly. Clinical quality improvement that saves money by better care is the paved road to financial ruin in today's payment environment. Lessons learnt, the rest of these gentlemen had it right, this is the province of groups, it takes a group to pull this off, some sort of an organized care delivery system. It rationalizes electronic medical records.

The big one though, current government payment methods are actively perverse, providers are paid when we do more harm. You pay us to harm our patients you realize. And we are penalized when we improve care and reduce costs. We have very strong financial incentives to deliver more care, even when the added tests, images (ph) hospitalizations and other treatments of questionable benefits for our patients.

Thank you Mr. Chairman, the committee, and I will stand ready for your questions.

REP. STARK: Thank you. Mr. Chairman, shall I would you like to inquire?

REP. RANGEL: It's amazing. Why isn't this type of reform, as all of you have proven that it can done, contagious with our medical community? You attend conferences, you share these views as the epitome of what doctors would want to work in terms of an environment. It gives them more of an opportunity to work with the patients to see success, to see efficiency, we can't legislate what you people have been talking about.

DR. JAMES: Can I just comment? It's happening. It's important to recognize that this is happening. The healing professions, as a body, are in the midst of a once-in-hundred sea change in how we see ourselves and our work.

REP. RANGEL: Well, I recently got out of a hospital and the doctors told me that the worst place that a guy that is getting well should be is in the hospital, so that -- you just got to get out of here, because you can walk. And so a lot of it has to do with reputation, I know. I had a hospital in my community 20 years ago. People who said, "Congressman, if I get hit and I'm near death, don't you let them take me near that hospital." Today, it's one of the best hospitals we've got.

People are talking to each other, they are smiling, they are overwhelmed with their success, and it works because people -- they want to make it work. We can't legislate the spirit and we are not saying that we know better than the providers, but you guys have shown what you can do.

On another subject, how does Cuba do so well with their doctors? I mean their whole foreign policy is sending doctors into countries that are in distress. Is there any magic in Spanish or something that that allows them to do this? Talk to me.

DR. JAMES: There's -- if Dr. Deming were here he would say that aim defines the system. It turns out the U.S. system has three possible aims. One is total health, how long and how well you live. It turns out that care delivery is very weakly associated with total health. It's mostly driven by first, behaviors, about 40 percent of how long and well you live is based upon behaviors. About 30 is your genetics, how wise you were in selecting your parents; a little over 20 percent is public health, control of epidemic infectious disease through immunization, sanitization, health care delivery at best, 5 to 10 percent.

Well, total health is very strongly associated with medical home, primary care networks, effective prevention very strongly associated. Primary care networks are also very strongly associated with high satisfaction. It turns out that when you ask patients that's the number one thing that they seek in a caring relationship, is the caring. The U.S. system focuses on what I like to call rescue care. Dr. Fisher this morning called it a supply-induced demand and preference-induce demand. Rescue care --

REP. RANGEL: Say that again, I --

DR. JAMES: It's called the rule of rescue, do something, Jim, she's dying. A guy named Johnson defined it in 1986 as "the imperative we feel to help people who are suffering or facing death." The best example we probably have is end of life care. You get these spectacular saves, where in one case or another you really do save a life, the trouble is that's for every save that makes a newspaper, you probably have a hundred or even a thousand cases where they got no benefit, perhaps even small harm.

And when you sum across populations, the total amount of benefit from rescue care is small or even negative of these big, high tech specialist based interventions. But it's very, very appealing emotionally at almost a population or a political level, you see.

The Cubans heavily emphasize primary care. They have no specialty care infrastructure. The main reason that the U.S. health care system is so expensive is because of rescue care, frankly. That's what we are investing in, if your aim is rescue care, which does have some value to people we are perfect, we top the world. If your aim is total health for satisfaction, we ought to be looking in a different place.

REP. RANGEL: Does this panel have any assurances that your ideas will be incorporated in the bill that we are working on?


DR. : Mr. Chairman, unless you assure us there will be.


REP. RANGEL: Well, to be honest with you, unless you give me assurances that you will undertake the next step and to track this because no one is going to challenge what you are saying --

DR. JAMES: Right.

REP. RANGEL: -- except that we have a way of doing business, sometime when we are close to concluding, and tell the staff to work it out. You know, what I'm talking about. And than we tell the Senate to work it out. And when the bill comes back I don't know whether we can go over this testimony and see whether you are there. But I assure you that if you stick with me and stop, when we are drafting, if you have the audacity to say, where's my stuff, we would feel the obligation for what you have already done to make certain, at the end of the day, if it's not there, we tell you why we couldn't do it. Fair enough?

Let me thank you for what you have done all of the -- over the years, and I look forward to us all reading from the same page at the conclusion of this legislative process. Thanks again.

DR. : Thank you.

REP. STARK: Thank you.

I have a couple of questions but I have a curiosity.

You, gentlemen, all run a system -- hospital or a system or -- and I am -- I would think that one of the important things is that the physicians perhaps the other providers go along with you. Now, I'm going to just ask you quickly, Dr. Steele, I presume that your system is a staff model?

DR. STEELE: We are -- we have 800 employed but we also deal with a huge number of non-Geisinger who also -- who give care at our hospital.

REP. STARK: So the guys who are on the payroll got to do what you say, how do you --

DR. STEELE: Well, that's yeah, well that was nice --

REP. STARK: How do you feel was the consultants or whatever you call them, outside the system --


REP. STARK: If they want to continue to do business with you they have to conform?

DR. STEELE: No, first of all, if I send an e-mail to my clinical leaders and say you got to do what I say, or you are out of here, it doesn't work, it really doesn't work. The innovations that we have been talking about and that we are very proud of, could not have been done without our men and women who are the clinicians or the nurses --

REP. STARK: So they are part of the process?

DR. STEELE: They are -- well, they are not only part of the process they are leading, they are leading the process.

REP. STARK: Dr. Smith, how do you -- do you contract with providers, and -- group practices or --

DR. SMITH: We have a small group of fulltime physicians but most of the doctors run their own offices, they are totally independent practitioners, and that --

REP. STARK: And do they contract with you in any way or -- okay.

DR. SMITH: No. And to get them to buy into something like this demonstration project really had to focus on delivering best care and making it easy for them to do that.


DR. SMITH: Not making it frustrating, not making another hurdle for them and getting the whole system, the nurses and everyone who helps them do their work every day, be the heart of the program.

REP. STARK: Dr. Dobson, with the clinics and people dealing with a large poverty population, how do you relate to your physician providers?

DR. DOBSON: Well, it's a collaborative effort between the state and in all our local communities and physicians so they have been called to a kind of a common purpose of helping manage the Medicaid program and the patients in the communities --

REP. STARK: But they are not contracting with you in a --

DR. DOBSON: There's a standard Medicaid contract and it's a fairly loose thing but I will comment that it requires physician leadership and I think, still out there in the health system, is a desire to move the system forward. And I think, given the right policy decisions and framework you can align people to do great work.

REP. STARK: Dr. James, you have a lot of rural small clinics. How do you relate to your doctor providers?

DR. JAMES: Our core physician group is about 1,700 physicians, 750 of whom are employed. Frankly, employing a physician does not give you the ability to control them in any way, shape or form. On the other hand, what burns in the heart of any true clinician and this is true of the vast majority is a true commitment to patient care. It's hard for a human being to live with themselves if they know they are harming people. That's how you do it, you put those professional values on top, that's what everybody was saying --

REP. STARK: Are you saying these physicians are on a fee-for- service basis or --

DR. JAMES: It' the mixed model, a little bit of capitation, a lot of fee-for-service, a lot of per case --

REP. STARK: Mixed together?

DR. JAMES: Mixed together.


DR. JAMES: But it sure helps if you can align the financial incentives to the professional values; we emphasize professional values. That's where you hook physicians every time.

REP. STARK: Thank you. The -- when we extend, Dr. Steele, the delivery system reform to nonintegrated systems, I mean you've done -- you've made major changes but most care in this country is, unlike the plans, here small, un-integrated practices that don't resemble you gentlemen very much, can these types of reforms work in other parts of the country where the systems aren't so integrated?

DR. STEELE: Well, I can tell you that we are rural and post industrial in our part of Pennsylvania and we have 19,000 non- Geisinger physicians who are part of us on the insurance side, and we have taken these innovations out to non-Geisinger physicians, some small practices, some without electronic health record, and so we will be able to tell whether it works or not.

REP. STARK: Okay. Thank you.

Dr. James, you have an integrated information technology system, which I hope if it isn't now will be interoperable and so you and Geisinger can share information and transfer pictures in a digital way and all that. You mentioned your success in a variety of areas, but do you consider what we are going to call evidence based medicine that that could lead to rationing, we've heard that question raised on both sides of the aisle.

I don't agree with it, but because I think we can only improve quality by making sure that physicians and patients have the best information to make the various decisions we have to make as patients and providers, are you concerned that whatever we do in an evidence based system will be a hindrance?

DR. JAMES: There's a small difference between evidence based medicines, some of its aspects, and some cost effectiveness research but evidence-based medicine is the key to this whole thing --

REP. STARK: So if we don't deal with costs, you're comfortable with it?

DR. JAMES: The way that we deploy this was evidence-based medicine, that was the vehicle that we used -- we call them shared baselines. I can prove that you can't write a protocol that perfectly fits any patient.

Humans who come to doctors are just different or genetically different, different responses to treatments, different circumstances. On the other hand we've found that if we establish an evidence-based best practice guideline and make it the lowest energy state, easiest way to do things -- make it the rut that people fall into and then not just allow, but kind of demand that they adapt it to individual patient needs, that's produced those major improvements in care outcomes.

REP. STARK: Thank you, gentlemen.

Mr. Herger, would you like to enquire?

REP. HERGER: Yes, thank you very much, Mr. Chairman. And Dr. James, thank you for your enlightening testimony. The experience of high quality integrated health systems like Intermountain is incredibly helpful as we examine the broader health care reform.

Dr. James, could you tell me how do Medicare and Medicaid reimbursements to physicians in hospitals compare to the rates paid by your health plan?

DR. JAMES: I was having an ongoing conversation with Glenn Hackbarth in the break. What I know is -- this is on our internal data. We run an activity based cost accounting system that very accurately measures our true cost of care. We are recognized as one of the most efficient care delivery systems in the nation. Medicare currently pays us 14 percent less than our true cost of care across all hospital based Medicare services and we definitely shift costs on the commercial insurers. Now, we run budgets where we are trying --

REP. HERGER: Did you explain that to him?

DR. JAMES: We decided that we needed to understand how he's measuring it versus how we are measuring it because we are getting very different answers.

REP. HERGER: Now that's very interesting because we went around and around and around when he was here but as a result of the low Medicare and Medicaid reimbursements are you forced to charge private health plans more for your services in order to survive financially, I think you've just answered that, but --

DR. JAMES: We think that we roughly double our commercial increases each year because of Medicare, Medicaid shortfalls. So we actually run, we plan to run 2.5 to 3 percent margins, which is survival level and we do that as a community service. We are controlled by a community board of trustees and they say our goal is the best medical outcome at the lowest necessary costs and lowest necessary cost is important so that people have access to care. But it means that our commercial insurance rates are roughly twice as high a share as they would be if Medicare were paying for the actual costs of care within our system. Glenn argues what we just need to more efficient in some way as yet to be identified.

REP. HERGER: What would happen to the Intermountain Healthcare system if 120 million Americans were forced out of the private health coverage and into a government run plan that reimbursed your providers at Medicare/Medicaid rates?

DR. JAMES: This would not just be Intermountain, I've had this conversation with a number of my colleagues in other systems, the one that springs to mind is Mayo Clinic we would not be financially viable without some, I don't know how we would do it, we would have some very major changes to try to survive in that circumstance. I think we would ration care probably is what we would actually do.

REP. HERGER: That's interesting. And that is very important to our debate today, as you know. So I appreciate your testimony again --

(Cross talk)

DR. JAMES: -- sir, could I take just a moment to describe what's already happening?

REP. HERGER: Certainly.

DR. JAMES: We haven't done it. The conversation has come up. A number of our for-profit competitors in Utah, most of the rest of the state is for-profit health systems, Columbia/HCA particularly. What they're doing is prioritizing their care. They start in order of payment with the commercial insurers who pay best, work their way down the list and then if they have time at the end of the day, they will bill the Medicare patients.

We have a series of conditions that we currently treat under Medicare, where the shortfall is not 14 percent, the shortfall is 60 percent. And then the question becomes do you limit the number of those cases that you do within your system in order to survive financially to serve the larger population. Now that hasn't happened to us I suspect that it probably won't. And I think that the country as a whole is a lot smarter than that but I see some for-profits already doing that.

REP. HERGER: In your testimony you mentioned that quote, "Current government payment methods are perverse and that providers are paid more when they harm patients and less when they improve patient results and produce cost savings," close quote. Could you please elaborate further on why this is the case?

DR. JAMES: I showed you the example. It has to do with the rescue based care that when I -- do high-end care associated with a complication, for example, nearly always my margins are higher. And you have to understand, live or die, at least for not-for-profit health system is around the margins. And so you're trying to protect the margins.

I think the example I used was community acquired pneumonia. When we got the antibiotics right we saved about 70 lives a year but we pulled a large number of patients out of complicated DRGs under Medicare. The most common was DRG 475, long-term ventilator support.

At that time we were paid about $16,400 per case by Medicare for patients who fell into that class. Our cost of operations was about ($)15,600 so we were making about an $800 margin. By improving the care we pulled them back into DRG 89, a much lower intensity of care. Back, kind of, toward the primary care side almost. Our true cost of operations was $4,800 per case, our true reimbursement was $4,400.

So we went from a positive $800 margin to a negative $400 margin in that subset of cases, where the improved care changed their outcome; changed their costs. The trick is, is all that we needed to do is maintain the $800 margin so that we could deliver care into the future. If you had paid us ($)5,600 so we could maintain the margin on those cases. We would have still been willing to give more than $10,000 per case back to the federal government and still been whole.

That's what I mean by a perverse payment mechanism. This is a holdover from an earlier age. Fee-for-service medicine does not fit the way that we deliver care today very well. Now, my argument is, is that that I understand I think I feel the same imperative that we need to provide appropriate health services to very American.

I am just really worried that if we don't get our cost structures in line first that that could be deadly for the entire system. We certainly have to do it in parallel to achieve that shared goal, I think, that we really want to provide help to everyone in true need.

REP. HERGER: Thank you, Dr. James.

Mr. Chairman, thank you.

REP. STARK: Thank you.

Mr. McDermott, would you like to enquire?

REP. MCDERMOTT: Thank you, Mr. Chairman.

Mr. Dobson, in 1971, North Carolina, Washington State both started a MEDEX program at the same time. So I'm not surprised that North Carolina is here with a creative program. What I want to understand and you may have heard me earlier suggest that all medical schools, state medical schools ought to put people through tuition free so when they come out they are not in debt.

To fund -- to make your system work, where do you get your primary care physicians? Do you get them from the state medical school in North Carolina, or do you get them from Duke, do you get them from around the country. Why would anybody come to your system if they are $150,000 in debt? How do you pay them? Do you payoff their debt, do you -- give me -- give me the nuts and bolts. I'm a new doc, I'm just out of medical school, and I'm $200,000 in debt. Why should I go to work for your primary care system?

DR. DOBSON: Well, thank you for the question. I don't think we have the answer but we have a lot of pieces in place and historically have in North Carolina; one, we have some very good medical schools. So we do a good job training physicians. We have two public institutions UNC and ECU who have a higher percent of people who do go into primary care because it's part of their mission.

REP. MCDERMOTT: High percentage meaning, 30 percent, 50 percent?

DR. DOBSON: Thirty percent and one in -- a little higher than the other but it runs around 30 percent, I believe. And we also have a very solid system of community-based training programs through our AHIC system for primary care physicians. We also have the office of rural health for some loan forgiveness, and I --

REP. MCDERMOTT: Tell me about the loan forgiveness. How do you work it?

DR. DOBSON: It's a -- we have not only state funding but also some of our foundations have funded, the Medical Society Foundation to do what we call the North Carolina -- practitioner program, where we will forgive loans for people serving in areas of need.

The state's program is limited to the primary care and now psychiatry. The medical society's program, on the other hand, is limit -- is not limited by specialties. It's limited by the communities' need so they can actually fund, you know, specialists in some of our rural areas.

So that's the foundational piece that we have. But I think even beyond that on primary care -- when we talk about community care, when you're talking about primary care physicians practicing they want several things, they want to be relevant, they would like to be paid adequately not, you know, it's not about -- all about the money but --

REP. MCDERMOTT: But tell me. You are trying to get me to work for you. How much am I going to make?

DR. DOBSON: It's variable. You know, it's variable across the state. We suffer from the same reimbursement problems but I will tell you in North Carolina --

(Cross talk)

REP. MCDERMOTT: -- serving. They are not -- they are not going on salary in these -- this system at all --

DR. DOBSON: Unless they work for health --

(Cross talk)

REP. MCDERMOTT: -- they are simply fee for service system.

DR. DOBSON: Right, absolutely. But North Carolina pays 95 percent of Medicare for primary care or for all our physician services. And we pay the primary care physician an additional PMPM payment, which makes it almost the same as Medicare for the primary care. Is that enough? No. But it does make it sustainable for now.

And I think that people are attracted to come to practice in North Carolina because they are relevant. They are helping to make the citizens and move the quality and the costs forward. It is a shared partnership with the state to manage our Medicaid budget. And there is a -- incredible amount of pride among the physician communities across the entire state of playing a part in helping us meet those budgetary targets.

REP. RANGEL: Tell him how much he's going to make. He graduated with honors, he doesn't know up from down. He has just got out of medical school. I know it varies, but tell him how much he's going to make?

DR. DOBSON: He is going to make probably between ($)120,000 and ($)150,000 a year.

REP. RANGEL: He can make it?

REP. MCDERMOTT: How do the rest of you get your primary care physicians -- or Dr. James --

DR. JAMES: We do -- you mentioned a couple things. I know a number of these other systems do as well. We employ people especially in rural communities to give them sufficient income and also call coverage, number one. Number two, this idea of embedding care management nurses and practices with very good electronic medical records, today we call it medical home. It's been --


DR. JAMES: -- around for a while, it produces demonstrably better outcomes. And a better --

REP. MCDERMOTT: I understand medical home because University of Washington has a big operation.

DR. JAMES: It is a big one. It is a big one. We directly invest in particularly primary care residency programs and nursing programs. So we actively train, understanding the people who train in our system are likely to stick in our system. So while we suffer from a lack of primary care and nursing just as everyone else does, ours is not nearly so bad. We've been investing heavily in that for literally decades.

REP. MCDERMOTT: How are you going to help me get rid of my $200,000 in debt? Why should I come work for you?

DR. JAMES: The first thing is this, that I might be able to allay that debt during your residency to some degree. It's the first thing. If you are an employed physician, we very often directly help just to make it possible for you to work with us. It varies based upon individual circumstances it is a negotiated rate.

REP. MCDERMOTT: What's the most -- I had my $200,000 in debt coming out of medical school. So --

DR. JAMES: Yeah.

REP. MCDERMOTT: -- I've already got it before the residency. So what kind of a deal would you give me to help me reduce that ($)200,000?

DR. STEELE: If you are employed, especially, in one of our rural hospitals, where we have the most profound need. We will help allay your debt overtime.

REP. RANGEL: Would the university help at all in negotiating this?

DR. STEELE: I don't believe the university does. I don't believe that they are structured to do that. But philosophically work together very, very well but I don't believe that they are actively engaged in rural healthcare as we are.


DR. SMITH: Sir, first I am a primary care physician. And in practice, most of my life, as a general internist. In our area, we are doing the experiment of what happens to health care when there are no primary care physicians. In the New York metropolitan area the primary care physician is simply vanishing.

And the business plan doesn't work. If you graduate with that kind of debt, and interestingly you will make less money than in Utah in the New York metropolitan area as a primary care doctor, it's very, very difficult. So our health system is really, at this point, ready to support primary care because we believe that the region cannot sustain any kind of reasonable model of health care without primary care doctors, and no one else is stepping up to actually pay them a reasonable income.

And so I -- we see no other way except to begin to actually hire primary care physicians and support a baseline salary and then let them do fee-for-service on top of that so they can have a reasonable income, but it's not just primary care physicians. We've a shortage of obstetricians, of general surgeons, of general pediatricians, of psychiatrists there is a significant group of specialties that are the victims of the payment system, which is very, very difficult to survive.

Twenty percent of our primary care physicians' total compensation is based on things other than ordering tests or seeing patients. It's based on achieving a lot of these innovations. So we value our primary care physicians quite differently than the market. Sixty thousand dollars approximately per primary care physicians comes from other aspects of our system to cross subsidize.

So we're making up for the fact that society has decided that they should be paid too little.

And our specialists understand that that's part of the deal when they join us because they view our primary care physicians as so important in all of these continuity of care things that we've been talking about. And then we have our own training programs as well.

REP. MCDERMOTT: Thank you, Mr. Chairman.

REP. STARK: Mr. Blumenauer, would you like to --

REP. BLUMENAUER: Thank you very much.

Dr. James you skipped over a part of your testimony. You came back to -- you talked about a rescue care, which I think is an extraordinarily useful concept. One that I must confess -- I wasn't familiar with, maybe I should have been but I think this is the first time I've heard it today but I've seen examples of what you described.

And in the earlier the panel -- I don't know if you were here -- when I talked about the end of life, you skipped over your testimony where you identified that as being a classic example of rescue care and its tradeoffs. You have, in your testimony, the example where you spent approximately $12,000 per patient who dies in your care but in Los Angeles it's almost five times more. But what is so important -- and I almost wish you didn't put the numbers in --


REP. BLUMENAUER: Because I don't think this should be a discussion about dollars and cents because you point in, in many instances this represents care that the patient did not want. In fact care the patient explicatively instructed their family to avoid. And you talk about the approaches that you've done to try and deal with it.

I am mindful of what the chairman said a few minutes ago when, you know, are you guys going to be with the program, you know, are the things that you are talking about going to be reflected in our legislation. And I guess what I wonder is whether there is some merit for us to be able to pick out some elements about which there is almost no controversy. And not just run it up the flagpole but just try and do it now.

For instance, I am introducing legislation tomorrow that would establish a code for reimbursement for a Medicare physician -- a physician under Medicare to be reimbursed to sit down and have an hour long discussion with the patient and their family as they enter into this last year or last six months or last six weeks of life.

Your evidence suggests that it wouldn't cost us anything but it might tailor care that people want rather than rescue care.

DR. JAMES: Yeah.

REP. BLUMENAUER: Do you think there is any merit to actually to any members of the panel that we just drive ahead with some things that make sense that aren't perverse that help families so that, maybe, we start moving in the right direction, any thoughts on this?

DR. JAMES: You know, we just had the second largest newspaper in the United States, the Star-Ledger from Newark, New Jersey out to visit. It was exactly this end of care issue, the end-of-life care issue. They'd had a series of adult children who had overseen their parent's passage from this life, and they were angry. They were frustrated. Their parents died in an ICU with a tube coming out of every orifice and a number of extra orifices that the medical system had created.

They saw it not as attempting to save life, but extending death. They saw it as being tortured to death pretty darn close. The reason they came is because of those systems. I wish I could say I led it. People like Dr. Terry Clemmer and Vicki Spuhler led it for us. But my parents are both in their 80s. Their primary care physician, Cherie Brunker sat down with them. It took about an hour for her staff to go through all of the technologies you might use, and the circumstances, it's a grid.


DR. JAMES: Then we had to build to a system so that was stored, so that if my parents were hospitalized it comes forward. We build in to our rounds, what we call "period of care rounds," it's built into our electronic medical records so that every visit -- every time we see those patients morning or the night we're thinking about these mechanisms to keep the family onboard. We have one of the highest hospice rates in the United States of America associated with this.

REP. BLUMENAUER: Yeah, Doctor --

DR. JAMES: And it's not just that they're cheaper deaths, they're better deaths.

REP. BLUMENAUER: Yeah, Dr. James, I don't mean to interrupt, but my time is winding down, and I do want to see if there are other comments from our witnesses.

DR. : Yeah, I would love to comment on it. I think you are exactly right. Over the last decade we've become more and more fragmented. I'm a family physician. I practiced in a rural area for 25 years; still live there.

And it has to do with policy and what we value. And if you just take the practical example, if patients of primary care physicians they may have taken care for 20 years or more, go to the hospital, because we don't go to the hospital anymore, they see strangers.

And when you get to -- you can have these discussions outside, but when you're in the hospital, and sick -- dealing with the dying parent, or dying loved one, it's something that the health care should provide is someone who is familiar and is trusted to help guide them through that decision.

So you know, I applaud you because we really need to provide an incentive for our physicians to go back over and hold families hands through death. It's not that we can't do things for people, it's should we do things for people.


DR. : Let me just quickly comment that if you look at the areas where the cost of care during the last six months are the lowest, they have the highest proportion of patients dying in their own home. And it's almost an exact correlation. If you look at much of America, people die in long-term care facilities, and they tend to be intermediate in the costs. And if you look at the rare places where most people die in the hospital, those are all the areas with astronomic costs in those last six months.

And I think we should question what is the difference. One may be that the support structures that allow people to stay in the home, and stay in the long-term care facility are more robust in those areas. But my guess is that in addition you need one doctor in charge. Not a team of rotating faces, not a group of organ-based specialists, but one doctor.

REP. BLUMENAUER: Mr. Chairman, I apologize for -- but I would --

REP. STARK: Mr. Roskam, I think has been waiting to inquire.

REP. PETER J. ROSKAM (R-IL): Thank you, Mr. Chairman.

Dr. James, you mentioned the experience with Pitocin, and really it kind of opened my eyes, and I think a lot of other people's eyes, just as it relates to that innovation. And Chairman Rangel sort of asked the rhetorical question, why isn't this contagious?

And sort of in your defense, could you comment on what are the obstacles -- you know, here we are, Congress, right, trying to come together with some sort of a plan, some sort of an overarching approach that is going to sort of unleash the creativity within the private sector, and yet somehow it seems like we've developed this blindness to the weaknesses of the very programs the Congress over a long period of time has put in place.

So could you comment sort of more broadly about what it is -- what are some of those obstacles that you've observed as it relates to creativity?

DR. JAMES: I think there are three main ones. The first is the philosophy of how we practice as physicians and nurses.

That's called the "craft of medicine." It's the idea of every physician, every nurse, as a standalone, independent expert, stands upon a little soapbox and says, in my experience, and that becomes the definition of best care.

We know that that doesn't work in today's complex environment. When I talked about that sea change in the healing professions that's it. Our leading groups have already made the transition, were way past the tipping point, and the rate of change is rapidly accelerating.

And we are moving to team-based care around a coordinated medical home. That's where we are moving as a profession.

REP. ROSKAM: And I'm leading you a little bit, but you've made that transition notwithstanding Congress, right? I mean, it's -- you've made that on your own and it's based on sort of that innovation and that ingenuity --

DR. JAMES: That's right.

REP. ROSKAM: -- that's out there professionally.

DR. JAMES: More than that, if you just watch this space regardless of what Congress does, we're far enough along in the profession that this is going to happen. It will take a while to play out. It's a big change. It's a literally once-in-a-100 year change, but it's well under way.

REP. ROSKAM: Okay, so -- I interrupted you. Second point.

DR. JAMES: Second big thing, data systems. Definition of true transparency; transparency -- you see, most patients rely upon a relationship with the physician to understand their course through the system, or another health professional, it might be a nurse.

It's not a single decision of choosing a physician or a hospital, it's a series of decisions that you make as you move through a case. It's not just the patients who need good data about what this choice means, it's the physicians and nurses who advise them. In fact, I can make an argument they need it more so that they're good advisers.

We've invested very heavily in tracking intermediate and final medical costs through this outcome, so that when our physicians advise the patient, when they say in my experience, I just want it to be "in my measured experience," so that they can accurately advise. That's the second biggest.

Just in passing, there's a real chance that we'll mess up electronic medical records badly at a point in time when we have a wonderful opportunity to create a real breakthrough around this particular principle, with EMR investment. This is where they work, and work well.

The third thing, in my book at least, is the fact that you're punished financially for doing what's right. What it means that you get a group that philosophically is committed. You make the change, you take the hit.

You try to cross-cover it from other ways. It means you don't have resources to do the next project. That's what it means, because it punishes you financially when it should, well, reward you so that you can do the next one.

REP. ROSKAM: You know, it just strikes me that is the great challenge is here we are -- and I commend the chairman for having this hearing, and for inviting you all just incredibly impressive witnesses and individuals, professionally in your backgrounds. Because Congress as you know, well, you wouldn't say this, but -- and I could say this -- you know, Congress is sort of the classically underperforming institution, shall we say.

And there is I think one obstacle after another. You know, Congress is not a leader as it relates to improvement, but sort of a lagging indicator on improvement. And I think those sorts of examples that you've given are very, very instructive.

And I think it's important that before we drive towards what everybody agrees, you know, increasing access and all of those things that are so laudatory. Got to make sure that we do this right, and that we don't create these unintended consequences of ironic obstacles, the very sort of change -- that sort of sea change, that once-in-a-generation or two type of change, that you articulated.

And I think that that sort of a word to the wise those of who are listening on the committee, we need to be very measured and very sobered by this challenge as you said. You know, you mentioned the medical records deal.

That can either be a great thing, right, or it can be completely messed up, and I think this Congress will have a lot to say about that. Thank you, I yield back.

REP. STARK: Now, I've been around here a long time, Mr. Roskam, and I'll accept your characterization. But if you've been around here as long as I have, you'll know that Mr. Davis of Illinois doesn't fit that.


REP. STARK: He is a leader, and I'm going to ask him to inquire.

REP. DANNY K. DAVIS (D-IL): Well, thank you very much, Mr. Chairman.

You know, gentlemen, as I've been thinking about health care reform, I've been wondering why don't we try and really move more towards a health care delivery system, rather than what I call our sickness care system, which I think we do quite well in terms of taking care of sickness.

I agree with you, Dr. Dobson, in terms of at the base of a system, there ought to be a good, solid primary care system. And I happen to like the community health centers, the Migrant Health Centers, the rural health centers.

I think to a real degree they serve sort of at the base. What I'm wondering though is how do we weave into our system health awareness, health education, health promotion? Why is it that we don't hear much about dental health? When I like to think of health, I like to try and think comprehensively, or as comprehensively, but we don't hear much about dental health.

But I think if you've got a toothache -- (laughs) -- you might be pretty sick, and you need to be taken care of. We don't hear much about mental health. We don't hear much about nursing home care, or respite care, as was just being mentioned.

Is it just too costly to try and think about these things? Are we just talking about expanding Medicare a little bit, expanding Medicaid a little bit, and then saying we have -- maybe put a little money into training, some more personnel, and we've reformed health care? I mean --

DR. : Let me tackle that. I think that the old model of health care, and especially of doctoring, was the patient comes to you, you close the door of that exam-room, and you take care of that patient as best you can. I think the new model has to be that we are responsible for the communities we live in.

And health promotion starts even before the primary care doctor. I mean, it starts in the community, and the doctors and the health assistants being able to truly assess the needs of the community, and then taking that obligation for community benefit, and actually doing something that changes the health of that community.

It's a whole different model of what we're really, truly responsible for. But I think it's the only way we can go forward.

DR. DOBSON: I would agree. I mean, this -- at least what we've tried to do in North Carolina, and I think fairly successfully is, this is about building a local community system. And I'm not just going to say health, because what -- our networks of some -- have done is they've brought in all types of partners, whether it's the schools.

It requires public health, but it's now brought in mental health, social support agencies, and yes, in some of our networks they've tackled some dental issues. In fact, one of the programs I'll just mention is that because we don't have many pediatric dentists in North Carolina, in dental -- you know, we don't have enough dentists in North Carolina, the dental school requested our primary care physicians to learn how to screen and do fluoride varnish in children.

And so we've made that a state-wide effort, and actually have lowered -- you know, cavities in school-aged children by again wrapping the services around the community. The question is how do you pay for that?

But the reality is if we make the health system work as a system locally, there is plenty of money to start shifting into other areas. And I'm a big fan of the community health centers as well, and we helped actually serve on the first board and start one in our community when we were -- didn't have enough physicians to meet the needs for the uninsured.

But one thing that makes them work is that they have a mission. Any funding stream that's aligned properly to meet the comprehensive needs of their patients, that's in their mission. Our current system doesn't reward that, and doesn't expect that quite frankly. And I think that's what we have to check.

REP. DAVIS: Dr. Steele?

DR. STEELE: Thank you. Let me just mention PTSD. We have an epidemic of PTSD that's going to be occurring amongst our citizen soldiers in our part of Pennsylvania, extending out into Kentucky, West Virginia, and probably in some of your areas as well. And there's not any adequate resource to diagnose and treat them outside the VA system.

And I think that's something you need to keep in mind. We need to figure out how to disseminate that expertise out of our hubs towards our community practices. And you can do it with telemedicine, you can do it by training some primary care folks. But we are doing that now on our own, and it would be good for you to keep that in mind in terms of this reform.

REP. STARK: Mr. Etheridge, would you like to inquire?

REP. ETHERIDGE: Thank you, Mr. Chairman, and yes, thank you for this hearing. Let me thank all of our panelists for being here.

And Dr. Dobson, it's good to see you again. Thank you for being with us. I might just remind my colleague from Chicago here that we do have the dental health in one of our rural centers, if you remember correctly, it's in my county.

DR. DOBSON: We do.

REP. ETHERIDGE: Down in Sampson County. I used to have a dental clinic adjacent to the rural health clinic staffed by the students from Chapel Hill School of Dentistry.

DR. DOBSON: And we've just opened one in Greenville, in the --

REP. ETHERIDGE: So there are areas to do it. But one thing that as we talk here, I sort of feel like we sort of leave a gap in, we haven't touched it. You've alluded to it, haven't touched on it, and I hope you will. And that is the disparity between some of our rural areas, when you're talking clinics by and large, and really our urban communities in terms of delivery of health care.

And that's part of the problem with the primary care physicians too, because they're leaving the rural areas. But my question to you is that through the medical homes that you've described, would you elaborate on how these programs help doctors in small practices link together, so they don't feel isolated, and they're able to really expand it?

And at the same time, is it possible that the community care clinics that you're talking about in North Carolina, could they be a model that fit the type of accountability organizations that was advocated, if you remember, by Dr. Fisher in the first panel? Because I remember you were seated here and heard him. And I'd be interested in that relationship.

DR. DOBSON: Yes, I think that what -- the strength of community care is it's adaptable to the rural areas. Because if you're looking East or North Carolina, as you're aware, I mean, you may have counties where the health care system in that county is two doctors and a pharmacist, and the health department is shared with another county. And so you have to take the existing resources and support them.

If you're a physician practicing in an area, you are almost overwhelmed with needs. And so what community care does in a multi- county area is be able to bring to that practice shared case management, a clinical pharmacist. And we've actually funded some collocation of mental health providers in clinics in rural areas.

So it provides an infrastructure locally to be able to build a health system around the resources you have, and a funding stream to be able to do that. So that's absolutely true. I think Elliott, and also Mark McClellan, when he was at the CMS, we had that discussion about accountable organizations and shared savings.

In fact, I would say that Community Care of North Carolina is basically a statewide accountable organization. We have 14 organizations who are accountable to State of North Carolina for the Medicaid program.


DR. DOBSON: Cost and quality; and so extension to Medicare or any other is what that is about, and in fact our proposal to Dr. McClellan, when he was at CMS, was to let us take a whack at the duly eligible in Medicare, and see if we could do a better job managing them in a shared-savings model, much like Dr. Fisher described.

REP. ETHERIDGE: Let me jump to another subject, because North Carolina, as you well know, rates fifth among the states with the highest diabetes rate, as you're aware. And in your testimony, you've described how Community Care has improved that, by assuming control by -- for 25 percent of the patients in a pilot project.

I guess my question is what is the road to wider implementation? Because this is not only just a problem in North Carolina, it is a growing problem nationally. And if we don't get our arms around this, we are going to be in deep trouble real fast.

DR. DOBSON: I think one of our limitations, we've built Community Care without information technology. I mean, this is still pen and ink, looking at claims. This is very much a rudimentary organization of -- you know, of getting physicians and doctors together.

We've gotten extraordinary results by just doing that. And I think our next step really is the implementation of meaningful technology and then trying to drive best practice throughout the state. We have -- as like in any intervention, you have the earlier adopters who are out there and showing great results.

And that's with our networks, and our physician groups. One of our, you know, our goal for this next year is to really start going back in, and one of -- we have a major quality initiative in this multi-payer. And we are sending practice improvement specialists. You know, it's helped every practice in these networks based on their performance to help them reorganize their office to be prepared for, you know, quality reporting and improving performance.

REP. ETHERIDGE: Mr. Chairman, thank you. And just one issue if I may say, if you'll bear with me for 30 -- 15 seconds, is one of the critical issues I think that we are facing as a nation. And if we don't get our arms around it, we won't have enough money in this health care system to really deal with it, if we don't do the early intervention and change some habits real quick.

Thank you, Mr. Chairman. I yield back.

REP. STARK: Thank you. Mr. Tiberi, would you like to inquire?

REP. TIBERI: Thank you. Thank you, Mr. Chairman.

Dr. James, in your written testimony, you talk about health IT. Children have a unique health care. You have unique health care in AIDS and our -- as they continue to grow and develop, those needs change and because of those differences, children require special focus when -- I would believe when designing a health care system.

That's what I'm being told by my children's hospital in Columbus, Ohio. Can you talk about what you have done with your health care systems to include pediatric functionality in your health IT system?

DR. JAMES: I think the key principle is you have to understand that children are not just small adults. They behave physiologically differently. Health IT actually started in or around 1963. When I was a surgical resident and rotated through LDS Hospital back in -- this would have been 1975 we were using an electronic medical record way back then.

And we learned early on that when you applied that in our primary children's medical center, the rough equivalent of Cincinnati Children's, for example, that you had to build particularly decision support logic around children's physiology. So we had to build a separate effort for that.

Critical element, once you build it for one children's hospital, I think you have a very useful tool for other children's hospitals as well. And we collaborate with other institutions across the country to understand medicine at that level. The same tool infrastructure works. It's just the content has to be fairly different.

REP. TIBERI: Thank you.

Dr. Dobson, in your written testimony, you state, I'll quote, "Reform that only focuses on providing health insurance to all will clearly be economically unsustainable without an overhaul of our current fragmented and volume-driven health care system."

Can you expand on that with respect to our payment system or payment reform system?

DR. DOBSON: Well, I think ultimately federal governments and industry, and the state government, all have the same issue as that with health care costs climbing at double the rate of the GDP, or your revenue growth as a state, that means that it's taking more and more from somewhere else.

So ultimately you've got to get inflationary control over health care. And the missing piece, I'm kind of simpleminded sometimes with this finance stuff, it's who you're covering, how much you pay for, how much is utilized, and then what you -- and then the cost.

And what we haven't done is figure out how to manage utilization appropriately, right care, and that is tied to quality and systems. And so ultimately if we're going to make this work, if we need to cover everyone, and it still grows at double the inflation rate, we're going to not be able to pay for it in 5 or 10 years.

I think Massachusetts is worried about that with their health plan, and certainly other folks who have tried to do expansion of public programs even are having trouble paying for it.

So the -- if we redesign the delivery system and get some efficiencies, we may actually discover that we can redirect some of this money into other things, and to be able to expand health care.

What I would say is that in North Carolina how we made Community Care is we had a commitment from our legislature as we got savings, they put money back into the program to reinvest it, so they could get more savings and expand it into other areas.

And from a budgetary standpoint, on a biennium budget that's a little -- that's little out-of-kilter, what we normally do, invest this biennium to get savings in the next biennium.

REP. TIBERI: I'm moving far west. Dr. James, what would be your take on that from your perspective?

DR. JAMES: That the key principle is utilization rates. We've been reducing payment per unit and physicians have made it up by increasing the number of units. And ironically --

REP. TIBERI: Have they also been making it up by -- but also by cost-shifting?

DR. JAMES: Yeah, we cost-shift to some degree. Utilization is the main mechanism probably by which it works --


DR. JAMES: -- over-utilization, and appropriate utilization. I run this big training program; trained about 3,200 senior physicians, nurses, health care executives in clinical quality improvement down through the years, quite a number of them from international countries.

The one I find most shocking is the group of Canadians that have been coming down mostly from Saskatchewan, Alberta, and British Columbia, they have exactly the same problem in the Canadian system. What's happening in it is that their primary care network gets paid the same for a 10-minute visit as they get paid for a half-hour visit. And so what the primary care folks are doing is more and more of this fast, shove them out the door kind of visits to get nothing done, and referring them to specialists where there are long queues to get into specialists.

Barry Sanderson (ph) who is the head of the Northern Alberta health system, described this as his biggest current problem, you see. So the question is how do you build a payment mechanism that rewards people for the right care, not for more care.

REP. TIBERI: Thank you.

Thank you, Mr. Chairman.

REP. STARK: Mr. Johnson, would you like to inquire, sir?

REP. JOHNSON: Thank you, Mr. Chairman, appreciate it.

You know, you guys are talking about health care, and talking about how we really need to overcome the problems we've got. I appreciate primary care guys that are out there.

In discussing this with my primary care guys in my district Dallas, which is pretty well automated as you know, they claim the problem is too much paperwork and too much bureaucracy.

And just to write a prescription for crying out loud, you've got to go through 8,000 pieces of paper, and sometimes you've got to justify why you're prescribing a medicine.

Is that true, Dr. Dobson?

DR. DOBSON: Yes, sir.


DR. DOBSON: In our attempt -- it is a fragmented system, multiple insurers, we've tried to create bumps in the road to control utilization, and what we've done is layered more and more cost in the middle that -- to try to manage the system. In reality, because we don't really have it coordinated in the incentives a lot, a part of --

REP. JOHNSON: You mean you don't get paid for it?

DR. DOBSON: Right, and it's just additional work, and overhead in the offices, and throughout the system, and --

REP. JOHNSON: Well, one of the primary care guys I talked to said he had hired three extra people just to take care of the paperwork. Is that true too?

DR. DOBSON: I think that's probably true. We've had to -- there's a lot of --

REP. JOHNSON: And the nurses?

DR. DOBSON: Well, it's a principle, because we are so siloed.

We look at hospitals, we look at drugs, we look at physician fees, and we'll go do an intervention in this silo, thinking -- and think we have done a great job. And we haven't looked at what it did to this silo over here. And so we may push here and get more cost over here, versus looking at the global cost of care.

REP. JOHNSON: And you know, Mr. Hackbarth this morning testified about that and said those silos are primarily responsible for the inability to coordinate care.

And Dr. James, can you comment on why you think private integrated health systems are able to deliver health solutions, while government-run programs like Medicare and Medicaid can't? And talk to me about the silos, because -- or should we make docs in hospitals one number or do we need to keep them separate?

DR. JAMES: You know, we're an integrated system, and so we really believe that it's a single group that's tied together, that it works best when it's coordinated at that level.

For us the element that we add is that electronic medical record, which turns out to be absolutely critical for pulling this thing off on a broad scale, properly done. Again, frankly we've been able to greatly reduce some of that burden on our docs by using the EMR appropriately.

I couldn't agree with Dr. Dobson more though on terms of the real impact that it has at that level. What happened is as we started to experiment with team-based care, and we started to get some real innovations, including improved patient outcomes on a broad scale.

We then looked back and said how do we align financial incentives? The fact of the matter is that we couldn't negotiate with Medicare. We could negotiate with our commercial payers, and we've worked out many of those circumstances. Frankly, as with Geisinger, our first stop was our own health plan.

REP. JOHNSON: Well, that intrigues me. Why couldn't you negotiate with Medicare?

DR. JAMES: They basically say this is the regulatory payment rate. That's it; no talk, no discussion, no further comments.

REP. JOHNSON: They won't discuss it with you?

DR. JAMES: Huh-uh.

REP. JOHNSON: Do you hear that, Mr. Chairman?


DR. JAMES: Well, we had talks at long length. It just never resulted in anything changing within frankly the bureaucracy that drives Medicare internally.

REP. JOHNSON: Would either of the other of you like to comment on it?

Dr. Steele?

DR. STEELE: No, I think the most we can do with innovating right now within Medicare is through the demonstration projects. And we've been part of the Physician Group Practice demonstration project, but that's not a negotiation, that's a -- that's an interesting innovation. And I think when we move forward to this health reform, we've got to figure out ways through your good graces, and compromises, and what have you, of getting this innovation built into the program.

DR. : Let me point out another unintended consequence of all that bureaucratic hassle. It's not just intentional roadblocks to slow everyone down. When you force people to go through those hoops, you send a message that no one trusts anyone else in the system.

And eventually that complete loss of trust in the culture really poisons people working together. And so every doctor has felt assaulted that if they don't document it, if they don't document it 10 times, if they don't fill out the forms, if they don't call for the approval, no one trusts their judgment.

It's as if every doctor comes to work everyday to scam the system, when in fact every doctor comes to work everyday to do the best care for their patients. I think we have to return trust.

REP. JOHNSON: Thank you.

Thank you, Mr. Chairman.

REP. STARK: You're welcome.

Dr. Boustany, did you want to inquire?

REP. BOUSTANY: Thank you, Mr. Chairman. I walked in late, and I apologize. I had another meeting, but -- I wanted to pursue something with you all. And after reading your testimony, you've all worked in integrated health care systems and developed them.

And there's a lot of talk about bundling payments and gain- sharing. But there's a lot -- it's nice to talk about those things in theory, but I'm sure you all have experiences with how difficult it is to construct something like that with physician groups.

And I want to ask if you would maybe discuss some of that. And I did walk in on the tail-end of Mr. Johnson's discussion, and questioning about the lack of negotiation in health care. There is no negotiation. That was my experience in the '90s.

It's take-it-or-leave-it, certainly with the CMS, and even with the private insurers for the most part. There's very, very little leeway unless you have some mass in the market. So if you could address those two issues, I'd be appreciative. Thank you.

DR. STEELE: As far as the bundling is concerned, Dr. Boustany, we've got this unusual anatomy in -- as an integrated health system. So it's a lot easier for us once we get clinical leadership on the doctor's side and then we can mark up --

REP. BOUSTANY: And that's the hard part.

DR. STEELE: That is, but once we have that, and we've got a good patient, a patient -- compelling patient quality improvement reason to move ahead, then our hospital leadership, you know, is there. They are there, because they work for us essentially.

And we've got a very unusual situation, because our insurance companies already -- I mean, they are there too. So we basically say how can we work together to get a better outcome?

And then the insurance company says what do we have to do in terms of the incentives, what do we have to do as administrators in terms of enabling to put it all together? And if the patients do better, it doesn't matter who wins in our system financially, because we can do the internal transfer pricing.


DR. STEELE: Now, the question is can we take that outside of our system to the non-Geisinger, non-employed physicians. And we have, as opposed to Kaiser, we've got the ability to actually try that, and we are in the midst now of trying it.

It's not easy, but it's a work-in-progress and what I worry about is if we're not given the latitude of kind of changing on the fly, which we do in our system, there could be really significant collateral consequences. Because we don't have all the answers.

REP. BOUSTANY: Thank you.

DR. DOBSON: I would agree. I think clearly in our most highest functioning integrated systems, you know, doing bundled payments, and doing a different model is certainly an option. I think Community Care offers a potential platform for the -- places where you don't have a integrated system.

You know, I worry about if we only -- there's not one size that will fit all, because, you know, I know that a lot of hospital systems have a long way to go to get to a Geisinger, or an Intermountain and some of the -- you know, the thought leaders in the country.

So I think that we've got a -- we have to have a framework which would allow us to innovate within that box, that allows the best health systems to help pull people across, but also have some local innovation around physician groups, and collaborations that are more loosely held, and where there is some shared savings, and reinvestment based on, you know, outcomes that need to happen for Medicare and Medicaid.

DR. : I personally like the idea of bundled payments properly structured. We've been collaborating a bit with Geisinger and frankly we think will adopt a similar sort of a guaranteed price model here in the near future. It just fits our system.

Len said it just right. When you've gotten the physicians onboard and leading -- now, you've to understand it's not all of them, there's a subgroup who don't like it at all, but it's enough of us that it's going to move ahead, focus it on best patient care.

In that circumstance, bundled payment means that when we generate savings, we get most of them to reinvest within our system. Now, we have a big health plan, but because of our size in the community, our community board of trustees does not allow us to transfer funds.

I think we went through four years, when we turned about $40 million a year back in rebates toward our insurance plan purchasers. But it just takes one year. Because when we renegotiate contracts for that following year, we're going to be taking a look at those data, and saying how do we handle this for the next year?

We try to build in pieces for the physicians. Now, frankly one of the things that happens with physicians in this kind of a model is physicians become much more productive. In the earlier panel, some folks were saying how do we get more physicians into this system.

This is my personal belief; I believe we may already have too many. Believe it or not, if you achieve the kinds of efficiencies in physician practice that these kinds of models can produce in that kind of integrated care, to the extent that that's true, the way that you defend physicians' salary is by increasing their productivity, not giving them some sort of a special payment along the way.

Better care, cheaper care; that works for patients, it works for the payers, and works for the professionals involved. I think that's what comes out of this kind of an approach. And the last thing I really have to say, you don't have to look to Canada, you don't have to look to Sweden, or to Great Britain, or to France, or to Germany -- I have students in all of those countries, we run training programs there, so I can see how the systems work.

They have exactly the same set of problems at the core that we have. We have good examples of what care for the future should look like here in the United States, a long experience actually. I think we would be very wise to learn from that experience.

REP. BOUSTANY: Thank you.

REP. STARK: I guess I had one final question if the panel can bear with me a minute or two. This deals with primary care, and an approach that I guess I've been noodling around and some of us are thinking about. In the revision of the system for reimbursing physicians which has to come up this year, the idea of suggesting -- and we have heard from a lot of guys who want to sell software and services, mostly who aren't physicians, and they want to sell us a medical home service, and I say, I don't think so.

But the thought is that if we -- and we could only do it through Medicaid and Medicare, but my guess is that others might follow along. And I'm going to just pick numbers, I don't -- I would presume that a primary care physician could -- with the proper support, could handle 2,000 patients. Is that --

DR. : We could. We could.

REP. STARK: So what if we said, okay -- and this is to the guys in medical school who'd have to learn something new -- we're going to give you a $100 a pop for 2,000 patients, and we've got to make sure that Dr. Steele or Dr. James don't grab that $100 and put it in their pocket. It goes to the physicians, guys, okay?

And they're going to -- the primary care doc becomes the medical whole. Now, he may need -- or she may need a nurse practitioner to call me at night, and say, did you take your Zocor (ph), Stark, have you been weighing yourself, how's -- you know, but they are charged with being in-charge of these 2,000 people.

I guess my question to you -- and then they would get fees on top of that. If they had to do some kind of complicated procedure, who were fee-for-service, or if they were getting their $125,000 salary from -- I don't know, Dr. James, or Dr. Steele, they continue to get that.

But in addition you would give the primary care doctor more responsibility, and perhaps make the practice more intriguing -- certainly financially more intriguing. Does that work for you guys?

REP. : Could I add one thing, Mr. --?

REP. STARK: Sure, anything you want. I just --

REP. : Ask them to show you over a period of time that there is a decreased re-hospitalization rate.

REP. STARK: Okay. Okay.

REP. : So in other words there's got to be a deliverable that is quality --

REP. STARK: Quality.

REP. : -- that is better for the patients.

REP. RANGEL: Right. Right.

REP. : And I would add that I think what you've heard in all four testimonies is that it's not again -- let's not create another silo. Absolutely, primary care is extremely important. We need to pay them. We need to pay them for something outside of care.

We need to pay them to think about the patient outside the office visit, and do what's necessary. But I think we also ought to provide the incentive -- they participate in some integrated system, where -- with their hospital, or a community care like structure, that has a community goal and accountability for Medicare and Medicaid, beyond just what's inside their walls.


REP. : Because a lot of the savings has to do with that care coordination and things that go on outside the typical primary care thing, talking to the specialists, going to the nursing home, going -- dealing with end-of-life care.

And so that's on -- those kind of discussions can only happen at a community level, and I think part of the incentive needs to be to create those physician leaders that you've heard about that are necessary to move the quality agenda forward.

REP. STARK: Work in your organization, Dr. James? Something like that?

DR. JAMES: In ours we would think we are already creating that, frankly.

REP. STARK: You are already doing it?

DR. JAMES: Yeah.


DR. JAMES: I agree with the deliverable --

REP. STARK: Well, somebody like Kaiser does --

DR. JAMES: -- system.

REP. STARK: -- just because that's the way they operate. But I'm thinking of --

DR. JAMES: No, but the thing for us, a large number of the doctors who are highly integrated are not employed. But we provide their own medical home, I guess, as opposed to the patient where they're part of really an integrated group practice, even though they're financially independent out on the side.

You know, we're just getting ready to publish a little study we're doing with Mayo. We showed that the degree of practice integration which relies upon these primary care based conversations to specialists is usually really good electronic data dominates insurance design in terms of utilization rates.

And we're going to publish that here pretty soon too. Oh, another thing I better say too. I chaired for 12 years Intermountain's information security committee. So my task was to protect patient privacy.

There are ways in which we need to use group level patient data to drive that kind of an environment that are very sensitive to privacy legislation.

REP. STARK: Precisely.

DR. JAMES: And we need to be very careful about how we protect patient privacy, an obvious goal. I think we don't disagree on that. But if we don't do it about the right way, we could completely destroy that goal.

REP. STARK: Dr. Smith?

DR. SMITH: I just want to point out that at least for the three years, and for the near future, we are only replacing one in three retiring primary care physicians in this country.

REP. STARK: Would this attract them? Something like this?

DR. SMITH: I think it would, but I also want to point out the urgency of this


DR. SMITH: Because it's not just that the population is growing and aging, but we're not replacing the retiring physicians. We used to do this.

REP. STARK: Well, if any of you would care to write out for me just what the rules might be? We've got this kind of a problem; if I have a primary care, an internist, who is my medical home, but then I need to go into -- I have kidney failure, and I have to do into dialysis; my guess is that I'd want kind of a disease management person there.

How would you make -- I mean, there is a lot of detail in here that I don't think this committee would presume to write out.

But where would you go? Go to the AMA, go to the CMS? Somebody to design for us the details of how this system might work, and I think it might go slowly rather than -- but any help you could give us would -- in addition to the help you have given us today, would be deeply appreciated.

And I thank you for your patience and waiting all afternoon while we were over making a bunch of votes.

Do you have a question?


REP. STARK: Yes, go ahead.

REP. MCDERMOTT: Thank you, Mr. Chairman, for the second question. I didn't ask you the question I asked the first panel; my proposal in H.R. 1411 is that every state medical school would receive from the federal government a median tuition payment, which in this country is about $20,000 per student.

And that any student signing up in their first year for primary care would get a scholarship through medical school, and would at the end have four years of responsibility to pay it back in some kind of underserved area, either urban, or rural, or whatever situation the state might decide.

Is there anything wrong with that principle of giving those kinds of scholarships upfront, and getting the commitment from the student at the front, rather than sort of National Health Service Corps plan, where you've gone through medical school, you've piled up the debts, and then you say, I think I'll go into National Health Service Corps.

So I'd like to hear your response to that -- just the panel, I'd appreciate it.

DR. : You know, you already have it. Quite a number of the young people that I counsel with as they go into medical school, go to military programs.

REP. MCDERMOTT: Yes, well --

DR. : It's exactly that circumstance.

REP. MCDERMOTT: I'm aware that the military has done this at the Military Medical University. So that's where --

DR. : I know they also do it at other medical schools.

(Cross talk)

REP. MCDERMOTT: I'm not aware of -- I know it's in South Carolina, and I know there is several other states that have done it, but I don't know if it's done nationally.

DR. : I see no downside to that. But I think when they're finished, we've got to have a good practice venue for them --


DR. : -- which is very different --


DR. : -- than what we got with fee-for-service service right now.

REP. MCDERMOTT: And that's what -- but Mr. Stark has -- you'd have to develop --

DR. : Two together, right.

REP. MCDERMOTT: That together.

DR. DOBSON: And I would agree. I mean, we've got some experience in North Carolina with Office of Rural Health in different models of incentives for physicians in getting them to rural areas. And we did find that actually it was more effective at the end because it was hard to predict what people went in at the beginning.

Even if they took the money, a lot of them ended up paying back their loans, because they decided not to go into primary care. But I will tell you that that would be welcome relief, because I think that it will make -- it will be an incentive for medical schools to choose people who could fit that model.

Right now, our selection process is not geared towards -- as it should be to produce primary care doctors.

DR. : Right. And I don't know why you would restrict it to state medical schools. I think that would be a great program for all medical schools across the board.

REP. MCDERMOTT: Well, I did it because I looked at the 45,000 students we put into state medical schools and multiplied it by $20,000. That's $900 million. I figured if I could get $1 billion out of the president's $635 billion pot for this idea --


-- I'd get it started. But I -- people have to come to me and said, why not nurses? Why not medics people? Why wouldn't you do the same for them?

And private medical schools, I guess the only problem I'd have there is if the tuition is $45,000 to go to a private medical school; we'd give them the basic $20,000 if that would help them, and they would commit to the primary care.

That's the real question. Because I think it's -- when you go into medical school, as I remember myself going in; I knew I was going to be a psychiatrist when I went. And I never really varied through -- I sort of suffered through a lot of stuff that you have to suffer through.

And I think that if you go into medical school thinking you're going to be a primary care physician, you will at least think about it before, as you may in the end to pay it off and go into a specialty. But I think you're more likely to get them to go out and spend the time.

Our experience in WWAMI, with Washington, Alaska, Montana, Idaho, and Montana -- and Wyoming, we put the people out in the rural areas, and trained them, but at the end, the debt gets them. And they stay in Seattle, and stay in Portland, and stay -- that's what I'm trying to figure out how to work through --

DR. : And also if you have them go out and practice and they see unhappy primary care physicians who are overworked, I mean, that's an issue. So I think clearly we also need incentives for medical schools so you can make going to primary care special, versus, being you know, being an afterthought of what you do.

Special programs, we at one point had a Rural Health Scholars program. We identified people early on, they -- gave them special things through the medical school special experiences. Those kind of programs would be certainly open for federal type help.

REP. MCDERMOTT: A quarter abroad in Africa dealing with AIDS or something or that sort of thing.

Thank you very much, Mr. Chairman.

REP. STARK: Thank you. And if there are -- oh.

REP. : No, I'm actually done now, but I want to make one comment. With nursing, one of the limiting -- rate- limiting factors in getting more nurses out today are the lack of instructors, and that's something we ought to look at. And I'll yield back.

REP. STARK: I thank the members. Again, thanks to the panel, and the hearing is adjourned.


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