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Hearing Of The Oversight Subcommittee Of The House Ways And Means Committee-Pricing Practices Of Hospitals

Location: Washington, DC

Federal News Service

June 22, 2004 Tuesday

Headline: Hearing Of The Oversight Subcommittee Of The House Ways And Means Committee

Subject: Pricing Practices Of Hospitals

Chaired By: Representative Amo Houghton (R-Ny)

Witnesses Panel I: Nancy Kane, Professor, Harvard Business School; Paul Ginsburg, Ph.D., President, Center For Studying Health System Change; Peter V. Lee, President And Ceo, Pacific Business Group On Health; Karen Davis, President, The Commonwealth Fund; Regina E. Herzlinger, Nancy R. Mcpherson Professor, Harvard Business School;

Panel II: David Bernd, Chair, American Hospital Association Board Of Trustees; Randy Sucher, Executive Vice President And Coo, Southern Medical Health System; Richard Morrison, Regional Vice President, Florida Hospital For Government, Regulatory And Public Affairs; Harold A. Cohen, Ph.D., Consultant, Hal Cohen, Inc. Location: 1100 Longworth House Office Building, Washington, D.C.



REP. PAUL RYAN (R-WI): What was the question? I too represent Milwaukee, Milwaukee County and seven suburbs in Milwaukee, and I would argue that there's a different story behind these specialty hospitals. The MRI center in question, they're providing a service to the Milwaukee area residents, same MRIs, same GE, General Electric MRI device, some kind of skilled MRI radiologists, and they're doing it at lower costs.

They're actually on radio and TV saying, if you want an MRI and you want it today if you need it, or if you want it the next day or the day after, we'll give it to you instead of having to have the long waits that you have at hospitals, and we'll do it at a fraction of the cost.

REP. KLECZKA: Will the gentleman yield?

REP. RYAN: I only get five minutes, so, no, sorry, Gerry, not this time.

REP. KLECZKA: I'll tell you the rest of the story when you're done.

REP. RYAN: Okay. Well, the point is that that is injecting competition into the marketplace, and those people in the Milwaukee area who have these consumer directed plans are actually saving money. And what we're finding with HSAs, one of our big Milwaukee insurance companies has shown that is selling these things, is 42 percent of the people who bought their HSAs, many of whom are from Wisconsin, are people that didn't have health insurance before.

We're finding that people care about costs because they now have products that allow them to save money, and then we have competition in the marketplace where we're getting the same quality or better quality delivered to people at a faster timeframe at lower costs. So this form of competition is actually walking and we see it in Milwaukee.

But I didn't want to give a speech, I wanted to ask a question. Ms. Davis, I wanted to ask you a quick question and then Dr. Herzlinger. You stated that other countries had a greater role for the government in establishing hospital budgets for pay rates. Moreover, other countries had done more to rationalize costs than the U.S. has, as you mentioned.

You know, I've seen so many cases in the UK and Canada where we see these global budgets in place, we see rationalized costs, but they're accompanied with long waiting lists and higher mortality rates and lower quality care. Could you comment on that?

MS. DAVIS: In terms of waiting lists, you're right. Waiting times for elective procedures in the U.K. are much longer than in other countries, they're longer in Canada and the U.S is very low on waiting times for surgery, elective procedures.

In terms of quality and outcomes, we just recently released a report that was put together by an international working group and quality indicators, and they looked at 21 different quality indicators across the U.K., Canada, Australia, New Zealand and the U.S. The U.S. was kind of in the middle, it's better on some things and worse on other things. We're 13 percent better-we're the best on breast cancer of those five countries and 13 percent better than the U.K. on five year survival rates.

For kidney transplantation Canada is the best, the U.S. is the worst, Canada's 14 percent better than the U.S. So it's a narrow difference, 10, 15 percent. We're usually in the middle, better on some things, not on everything. But certainly convenience and waiting times for hospital care we're better. On waiting times for physician care we're actually not better, it's the U.S. and Canada are toward the bottom.

And other places you can get in the same day, if you're sick and need care here you wind up waiting, you know, a week, two weeks to get --

REP. RYAN: Well, is it not true that the average waiting time in Canada is six weeks for a primary care and seven weeks for a specialist on top of that?

MS. DAVIS: But the U.S. waiting times for physician appointments are also-surprising to me --

REP. RYAN: In HMOs or PPOs, or every instance?

MS. DAVIS: Well, for most of the non-elderly population, they would be in managed care.

REP. RYAN: Okay, just because I'm running out of time.

Ms. Herzlinger, I want to ask you, you know, I think one thing that we're all probably agreeing on here, and Congressman Stark had a hearing on this in our other committee, the Joint Economic Committee, is transparency on price. I think that's something that everybody here, every witness from all different sides of this debate spectrum agreed, let's have transparency on price.

That's something that I think we can get consensus on and I've always said to my hospital friends that either they're going to come up with a way of doing it or unfortunately the government's just going to have to do it for them. I would hope that the industry would figure out a way of doing it.

But my question to you, Ms. Herzlinger, is, does the current lack of price transparency benefit hospitals? And since this is a tax status hearing, how does that play into their hands on pricing strategy if it does at all? Could you comment on that?

MS. HERZLINGER: I think lack of transparency in a market always hurts consumers. If people don't know what something costs, they're not going to be good shoppers. And when they're not good shoppers we have misallocation of resources. So whether it hurts or helps hospitals, I don't know, but it certainly hurts consumers. If I needed to have a mastectomy I would know more about my tomato sauce, my car, my pantyhose than about the quality and the cost of the surgeon and hospital in which that mastectomy is to be done right now.

MR. GINSBURG: I'd like to add something. I'm certainly in favor of consumers having as good, accurate and as accessible price information as possible when they have incentives to choose lower cost providers, but we have to realize that in most markets there's a lot of concentration on both the insurer and the hospital's side. This is oligopoly and oligopoly. And it's not clear that actually announcing the results of negotiations between large insurers and hospitals is necessarily going to be better for the consumer.

You know, if you think of cartel theory, public prices, it's a way of having-it facilitates the workings of a cartel. So we need to be very careful that while we do want to provide a lot of relevant price information to the consumers we don't want to also broadcast it around to make negotiations come out differently.

REP. RYAN: Thank you, that was insightful.

REP. HOUGHTON: Okay, thanks, Mr. Ryan.


REP. RYAN: Are we doing a full round?

REP. HOUGHTON: Please, second round. Go ahead.

REP. RYAN: Okay, we are. Okay.

Let me see if I can widen the focus here a little bit from the beginning statements of this hearing. Do we have good measurement as to the value attributed to this tax status? Obviously I think everybody agrees we do not have that. Do we think that public value comes from this tax-exempt status? I think so. What is the measurement of that? Who knows. Does that measurement-is it so great that the costs do not outweigh the benefits? We don't know the answer to that question. Perhaps with better available data we will get the answer to that question. It's a question that ought to be asked of all of us for the public good.

I guess the question is, you can't get away from the whole uninsured question when you talk about this. I mean, if we were talking about the system today where we have to rely on the public charity of nonprofit organizations to cross-subsidize in order to pick up those who don't have insurance, that's the system we're working in today. So is this a rational delivery system within this use of this tax expenditure to get the care to those who are uninsured, or should we try and focus on getting insurance into the hands of those who do not have insurance so that this method of redistribution and cross- subsidization is not necessary.

So I would like to ask you to sort of pull that focus back a little bit and answer it this way. Are we better served quantitatively, economically, by fixing this uninsured problem we have in this country so you can focus on competition, on transparency, on making the market work. Or is the current system of using a tax expenditure on an ad hoc individual hospital-by-hospital basis, cross- subsidizing and picking up the slack better than fixing this uninsured problem? Let me ask it that way. And start left to right. My left, Dr. Kane, and then to the right.

MS. KANE: I think probably the obvious answer is it would be great if everybody was insured. This was something I think-didn't Harry Truman suggest that? I mean, I'm trying to think of how far back-I mean, that was before I was born actually.

REP. RYAN: But we have to --

MS. KANE: But I agree that --

REP. RYAN: -- focus on direction of public policy.

MS. KANE: Absolutely, we would love to see everybody insured in some type of universal coverage. But I don't think you dare leave out the interim steps that we have in place for the safety net, because we haven't gotten there yet. And I think in 1969 the IRS and whoever set the laws misunderstood the impact of Medicare and Medicaid, thinking it would eliminate the uninsured.

And guess what, they've come back. So I think we always have to be aware that even-you know, until we are truly universal, we really will have people who are at risk who are not covered, and that we do need a safety net for those people. But, yes, absolutely. The bulk of public policy in my mind should be towards insuring everybody.

MR. GINSBURG: It's really inconceivable that someone can be seen as having access to medical care today without having insurance. And that should be the first priority. What I would say is that what we're seeing as our healthcare system becomes more competitive, it's becoming more difficult to continue the cross-subsidies that we've historically depended on to serve uninsured people or low-income people. And as Nancy Kane says, we still have to do it, but in a sense I think the priority for taking steps to expand health insurance is that much greater today because our cross-subsidy mechanisms are breaking down.

MR. LEE: Congressman Ryan, I think the first step back point is the tax benefit relative to covering uncompensated care. It distracts a little bit from the fact that most hospitals, for-profit or nonprofit, are compensated for that care from commercial private payers. And this is one of the dysfunctions of our payment system. We have a vicious cycle caused by uninsured and under-insured cost in hospitals being picked up by employers, by those that have insurance, driving those prices up, driving to more uninsured.

REP. RYAN: Let me ask you this. You're saying that it's the private dollars from the purchasers of healthcare that are paying for those uninsured, not the tax expenditures that are going through.

MR. LEE: I'm saying it's both. And I don't know the quantity of which is bigger, but it is absolutely a huge portion which is hard dollars being paid by insured Americans, which is picking up a substantial portion of the uncompensated care cost in hospitals. So the question of much of this hearing is focusing on the status, the tax status. But the issue underlying of the driving hospital cost is part of a vicious cycle that is encouraging or discouraging small employers from stepping up to the plate and getting insurance because it costs more. So that's an important observation, I believe. The other is in terms of is it an either/or --

REP. HOUGHTON: Would you please be quick on this because we've got another panel.

MR. LEE: That's my main observation on that question.

REP. HOUGHTON: Fine. Thanks very much.


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