[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
                  COORDINATED CARE OPTIONS FOR SENIORS

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 29, 1997

                               __________

                             Serial 105-75

                               __________

         Printed for the use of the Committee on Ways and Means




                     U.S. GOVERNMENT PRINTING OFFICE
58-338 CC                    WASHINGTON : 1999




                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky                WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Health

                   BILL THOMAS, California, Chairman

NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
JOHN ENSIGN, Nevada                  GERALD D. KLECZKA, Wisconsin
JON CHRISTENSEN, Nebraska            JOHN LEWIS, Georgia
PHILIP M. CRANE, Illinois            XAVIER BECERRA, California
AMO HOUGHTON, New York
SAM JOHNSON, Texas


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of April 22, 1997, announcing the hearing...............     2

                               WITNESSES

LifePlans, Inc., and Institute for Health Policy, Brandeis 
  University, Stanley S. Wallack.................................    19
Meiners, Mark R., University of Maryland Center on Aging.........     5
Metropolitan Jewish Health System, and Elderplan, Eli Feldman....    53
Municipal Health Services Program: Cities of Cincinnati, OH; 
  Baltimore, MD; Milwaukee, WI; and San Jose, CA; and Cincinnati 
  Department of Health, Malcolm Adcock...........................    76
National Chronic Care Consortium, Richard Bringewatt.............    65
National PACE Association, and Palmetto Senior Care Program, 
  Richland Memorial Hospital, Judith Pinner Baskins..............    41

                       SUBMISSIONS FOR THE RECORD

Genesis Health Ventures, Inc., Kennett Square, PA, Bruce D. 
  Thevenot, statement............................................    97
National Kidney Foundation, New York, NY, statement..............   100


                  COORDINATED CARE OPTIONS FOR SENIORS

                              ----------                              


                        TUESDAY, APRIL 29, 1997

                  House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:37 a.m., in 
room B-138, Rayburn House Office Building, Hon. Bill Thomas 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE

April 22, 1997

No. HL-12

                      Thomas Announces Hearing on

                  Coordinated Care Options for Seniors

     Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health 
of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on coordinated care for beneficiaries 
eligible for coverage under both the Medicare and Medicaid programs. 
The hearing will take place on Tuesday, April 29, 1997, in room B-318 
Rayburn House Office Building, beginning at 9:30 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    As many as six million Americans, known as ``dual eligibles,'' are 
enrolled in both the Medicare and Medicaid programs, and an additional 
three to four million Americans are eligible for both programs. For 
these dual eligibles, Medicaid may help pay Medicare premiums and 
deductibles, or cover services Medicare does not provide, such as 
hearing aids, prescription drugs, and long-term nursing home stays.
      
    Most dual eligibles are poor and many have chronic illnesses or 
complex acute illnesses and are in need of long-term care services. 
Dual eligibles comprised about 16 percent of the Medicare population 
but accounted for about 30 percent of total Medicare expenditures in 
1995. Similarly, dual eligibles made up 17 percent of the Medicaid 
population and accounted for approximately 35 percent of Medicaid 
payments in the same year. Because the fragmentation in today's health 
system is exacerbated when people are covered by both the Medicare and 
Medicaid programs, many believe that better coordination of care for 
dual eligible individuals can save tax dollars while improving the 
quality of care for this population.
      
    Currently, there is not a generally available comprehensive 
integrated care benefit available to people eligible for both Medicare 
and Medicaid. However, there have been two major demonstration projects 
that have attempted to better coordinate care for some dual eligibles: 
Programs of All Inclusive Care for the Elderly (PACE) and Social Health 
Maintenance Organizations (SHMO). The PACE and SHMO programs, which 
currently cover about 23,000 elderly people, combine Medicare, Medicaid 
and private funds to provide integrated acute and chronic care services 
to target populations. In addition, several States, including 
California, Florida, Massachusetts, Ohio, Wisconsin, Minnesota, and 
Arizona have begun to explore ways to improve quality and reduce costs 
by managing and coordinating health care for dual eligibles.
      
    In announcing the hearing, Chairman Thomas stated: ``I strongly 
support expansion of innovative coordinated care programs, such as PACE 
and SHMOs. At the same time, I believe we need to look for ways to move 
beyond existing models to make coordinated care networks a permanent 
competitive option for all beneficiaries.''
      

FOCUS OF THE HEARING:

      
    The purpose of the hearing is to examine the PACE and SHMO 
programs, and other efforts to coordinate care for beneficiaries who 
may be eligible for coverage under both the Medicare and Medicaid 
programs.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit at least six (6) 
copies of their statement and a 3.5-inch diskette in WordPerfect or 
ASCII format, with their address and date of hearing noted, by the 
close of business, Tuesday, May 13, 1997, to A.L. Singleton, Chief of 
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515. If those 
filing written statements wish to have their statements distributed to 
the press and interested public at the hearing, they may deliver 200 
additional copies for this purpose to the Subcommittee on Health 
office, room 1136 Longworth House Office Building, at least one hour 
before the hearing begins.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
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but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be typed in single space on legal-size paper and may not exceed a total 
of 10 pages including attachments. At the same time written statements 
are submitted to the Committee, witnesses are now requested to submit 
their statements on a 3.5-inch diskette in WordPerfect or ASCII format.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
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    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, full address, a telephone number where the witness or the 
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    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
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in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
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materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                


    Chairman Thomas. The Subcommittee will come to order.
    I want to welcome you to today's hearing on coordinated 
care systems under the Medicare Program. The health care system 
generally and the Medicare and Medicaid Programs in particular 
are characterized by conflicting Federal and State rules and 
payment policies which reinforce, unfortunately, isolated 
administrative, clinical, and financial incentives for 
individual providers instead of focusing on what we are all 
supposed to be doing, and that is the needs of chronically ill 
patients.
    These problems can lead to fragmented care, repeated and 
lengthy hospital stays, family stress, premature nursing home 
placement, and impoverishment for the 6 million so-called dual 
eligibles enrolled in both the Medicare and the Medicaid 
Programs who have chronic illnesses or complex acute illnesses.
    It is pretty obvious, based upon the evidence presented by 
witnesses and other sources, that this fragmentation also 
leads, unfortunately, to excessive costs. While dual eligibles 
comprise about 16 percent of the Medicare population and 17 
percent of the Medicaid enrollees, they account for about one-
third of both Medicare and Medicaid spending. Moreover, as the 
baby boom population ages, the number of chronically ill 
Americans is projected, unfortunately, to grow by as much as 25 
percent.
    We need to remove administrative and financial barriers to 
coordinated care and provide incentives for providers to work 
together to care for chronically ill patients. Notwithstanding 
the testimony and the arguments which, I believe, are very good 
of a number of our witnesses for various approaches, yesterday, 
I introduced, along with Representatives Pete Stark, Ben 
Cardin, and the Chairman of the Commerce Health Subcommittee, 
Mike Bilirakis of Florida, the PACE Coverage Act of 1997, which 
would grant permanent provider status to the program for all-
inclusive care for the elderly.
    I do not mean to send a signal that other approaches are 
not worthy or appropriate or, in fact, would not be renewed 
before their termination date. It is just that there are items 
that need to be cleared up and/or vehicles other than stand-
alone bills which might be appropriate to deal with some of the 
other concerns that we have, because although PACE is not the 
only solution to problems facing frail older Americans, it has 
been shown to provide high-quality services at a reduced price 
to both Medicare and Medicaid. We will also hear testimony, as 
I said, about other creative coordinated care options for dual 
eligibles, such as the social health maintenance organizations, 
SHMOs, and others.
    At the same time, I do look forward to ideas that are going 
to be presented, especially in creating coordinated care 
networks that provide a continuum of care that is focused on 
the patient and their needs rather than on the bureaucratic 
structure, which I believe to be the current system.
    Does the gentleman from Wisconsin wish to make any opening 
remarks?
    Mr. Kleczka. Very briefly, Mr. Chairman. I look forward to 
the testimony by the various panels today. One of the programs 
we will be talking about will be the municipal health services 
program, which, I should add, in my district, Milwaukee, is 
part of the pilot, along with Baltimore, San Jose, and 
Cincinnati, and hopefully, as we develop legislation or review 
the legislation introduced by the Chairman, we can not only 
provide for continuance but also make sure that it is serving 
the population that it is intended to do.
    Thank you, Mr. Chairman.
    Chairman Thomas. I thank the gentleman.
    I would ask Dr. Meiners and Dr. Wallack to come forward at 
this time. I want to thank both of you for coming. I know you 
both have written statements and they will be made a part of 
the record, without objection. You can address us in any way 
you see fit in the time that you have available to inform us.
    Dr. Meiners, if you will begin, and then we will go to Dr. 
Wallack.

   STATEMENT OF MARK R. MEINERS, PH.D., ASSOCIATE DIRECTOR, 
             UNIVERSITY OF MARYLAND CENTER ON AGING

    Mr. Meiners. Thank you. Mr. Chairman and Members of the 
Subcommittee, my name is Mark Meiners. I am based at the 
University of Maryland Center on Aging. I am an Associate 
Professor there. As part of my duties, I have worked quite a 
bit with the Robert Wood Johnson Foundation and I wanted to 
take my time today to chat with you about a couple of programs 
we are working on.
    One is the Partnership for Long-Term Care, which is a long-
term care insurance program, which may not seem obviously 
relevant to the immediate topic, but I think it is. The other 
is the Medicare-Medicaid Integration Program. Both of these are 
State-based programs and a lot of my work with the Johnson 
Foundation has been involved in program development related to 
health and aging issues.
    States, as you know, are hungry for workable models to deal 
with their long-term care responsibilities. There is a general 
recognition of the need to improve health care delivery 
systems, particularly for those with chronic care needs. A 
commonly accepted premise is that to make progress, we must 
improve the integration and coordination of acute and long-term 
care, and to do this, we must experiment with new systems of 
care and financing.
    While Medicaid's early involvement with managed care has 
focused on families and children, State policymakers are 
increasingly interested in enrolling all Medicaid beneficiaries 
into some form of managed care. The expansion of managed care 
for aged and disabled populations inevitably raises the 
question of how Medicare's acute care services can be 
coordinated with Medicaid's long-term care services.
    The integration of acute and long-term care is important to 
the development of a coordinated managed care system that 
provides the flexibility and incentives to manage the full 
array of care for aged and disabled.
    Now, as you know, the problem of fragmentation between 
Medicare and Medicaid is not new. Since the mideighties, 
policymakers have been looking for ways to end the 
fragmentation that seems to be inherent in the fee-for-service 
system. Beginning with the Channeling Project and On Lok in the 
eighties and continuing with the PACE Program and the Social 
HMOs, a variety of efforts have been made to create the 
necessary incentives for managed care providers to integrate 
acute and long-term care.
    More recently, the Robert Wood Johnson Foundation has made 
a grant to the State of Minnesota to plan a managed care 
program that integrates acute and long-term care services. The 
Minnesota Senior Health Options Program received Federal 
approval last year to proceed with a demonstration program to 
enroll and capitate health maintenance organizations and other 
health plans.
    One thing to note is that the Minnesota Senior Health 
Options Program is much more broadly based than either the SHMO 
or the HMO option. It includes a wider range of people at risk 
as well as those who are healthy.
    Further development is likely to build on the efforts of 
the Social HMO and the PACE projects. Though these are few in 
number, they really have provided many good lessons for us in 
terms of how we work out the integration of acute and long-term 
care.
    Unfortunately, I think that demonstrations like those of 
the PACE and SHMO have received complaints from both extremes 
in the policy debate and part of it is that people have grown 
tired of demonstrations, they want action, and the other part 
of it is that people really are afraid that the demonstrations 
are simply a foot in the door to greater benefit packages.
    I think realistically, though, we need more efforts like 
those that we have had. They provide us with great learning 
experiences and, I think, have served to a great extent to help 
the Health Care Financing Administration sort out some of its 
own confusion about how Medicare and Medicaid ought to 
integrate.
    I wanted to touch on the Partnership for Long-Term Care, a 
long-term care insurance program, partly because this 
Subcommittee had a hand in grandfathering the four States who 
are doing that program, but also at the time of that OBRA 1993 
language, there were some restrictions placed that have really 
inhibited the development of the long-term care insurance 
partnership program.
    Why I think that is important is because I think links 
between that partnership program and managed care are quite 
possible and need to be explored and States are interested in 
doing that. So, I would encourage you to take a look at some of 
my written testimony in that regard because I do not think we 
will be as successful as we want to be with the notions of 
Medicare-Medicaid integration on the public side unless we have 
equally strong programs on the private side. Medicaid, of 
course, is not available for everyone, so we need to encourage 
that gap to be filled with private long-term care insurance. 
There are some creative efforts going on to link PACE with 
long-term care insurance products and I will be happy to 
explore those with you further.
    [The prepared statement follows:]

Statement of Mark R. Meiners, Ph.D., Associate Director, University of 
Maryland Center on Aging
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[GRAPHIC] [TIFF OMITTED] T8338.163

      

                                


    Chairman Thomas. Thank you. I will have a question or two 
on that.
    Dr. Wallack.

  STATEMENT OF STANLEY S. WALLACK, PH.D., EXECUTIVE DIRECTOR, 
INSTITUTE FOR HEALTH POLICY, BRANDEIS UNIVERSITY; AND CHAIRMAN 
  OF THE BOARD AND CHIEF EXECUTIVE OFFICER, LIFEPLANS, INC., 
                     WALTHAM, MASSACHUSETTS

    Mr. Wallack. Thank you. Good morning, Mr. Chairman and 
Members of the Subcommittee on Health.
    My testimony today reflects my experiences in the two 
domains in which I work. First, I am on the faculty of the 
Heller Graduate School at Brandeis University, where I direct 
the Institute of Health Policy.
    And second, I am the founder, chairman, and chief executive 
officer of LifePlans, a for-profit long-term care risk and care 
management company. LifePlans was founded in 1987 with its 
mission to help develop a credible private sector long-term 
care financing alternative to Medicaid. I had the privilege of 
speaking before this Subcommittee as the chairman of the 
Coalition for Long-Term Care Financing.
    I want to acknowledge and thank this Subcommittee for 
leading the way with Federal tax clarifications, and I think 
these will be very important in terms of individuals taking 
responsibility for themselves and reducing the financial 
demands on Medicare and Medicaid in the future. I am a little 
bit concerned about how the act will be implemented, perhaps 
making the benefits very restrictive, and so we may end up with 
the qualified plans being less consumer friendly than many of 
the current policies on the market.
    At the Institute for Health Policy at Brandeis, I 
developed, along with my colleagues, the Social HMO when HCFA 
asked me in 1979 to propose an alternative to fee-for-service 
Medicare, particularly for the older and frail elderly. The 
demonstration of the Social HMO concept did not start until 
1985, requiring the cooperation of over a dozen foundations and 
actually an act of Congress.
    The Social HMO, which was demonstrated at four sites, 
offered expanded benefits, in particular, prescription drugs 
and a limited personal care benefit with a dollar maximum. As 
you know, the Social HMO benefits occurred at no additional 
cost to the Federal Government. The Social HMO model has proven 
viable and a number of TEFRA HMOs are evolving and moving 
toward it.
    I really have three points I would like to make today to 
this Subcommittee. They are, first of all, that I think we have 
evidence about coordinated care and that it can work in terms 
of improving health status and reducing costs.
    Second, I think the Social HMO is a model that can work for 
the vast majority of elderly.
    And finally, that although I support the PACE Program and 
legislation that would allow it to become a permanent provider, 
there are many other programs worthy of being innovated in the 
United States and I think we need much more general legislation 
to do that.
    First of all, with regards to coordinated care, I think it 
is clear that we see in the acute care sector that coordinated 
care works. The substitution of preventive services, primary 
care services for hospitalization is evident. On the long-term 
care side, we see the same thing, we can keep people out of the 
nursing home, as we did in the SHMO by expanding home care 
benefits.
    When it comes to linking or coordinating the long-term care 
system and the acute care system, I think we have evidence that 
if we focus on those who are disabled and bring medical 
management to them, whether it is in their home, whether it is 
in an adult day care center, whether it is in an assisted 
living environment or a nursing home, we, in fact, can avoid 
expensive hospitalization and emergency room visits. And by 
keeping people out of the hospital, we avoid them becoming more 
debilitated, and, we avoid a variety of other losses, 
particularly around physical functioning.
    The key to coordinated acute and long-term care is really 
having a physician, perhaps a geriatrician on one side, the 
long-term care or the care manager on the other side, and a 
case manager in between them. Now, we can integrate them or 
coordinate them. There are various ways of doing it. The Social 
HMO, used more of a coordinated approach.
    The point I would like to make to this Subcommittee, to 
really underscore it today, is that when we start talking about 
alternatives to Medicare, we have so few to consider. We have 
the Social HMO, done by an act of Congress. We have PACE, which 
was done by waivers. Why do we have so few? That is because we 
have to go through a very cumbersome research waiver process, 
which today is very foolish and time consuming.
    The Social HMO can serve the vast majority of older people, 
well over 85 percent, and I think we have learned a great deal 
about how to help people--help people recover from short-term 
disability and care for them during transitions.
    Another key finding of the Social HMO, which I hope this 
Subcommittee would consider, is that what we have learned, that 
a limited Medicare extended care benefit, home care, can deal 
with what Medicare was intended to deal with, that is to keep 
people from becoming permanently disabled and to help them when 
they come out of institutions.
    What I find fascinating is this expansion of TEFRA HMOs in 
the last few years really parallels the tremendous growth in 
postacute benefits under Medicare. It was really with the 
double payment for subacute and acute care and the explosion in 
home care that we started to see HMOs, in fact, really grow in 
this market. And, whereas in 1989 half of the TEFRA HMOs could 
have lost money and half won money under the AAPCC, today, you 
can hardly lose under the AAPCC and that is related to the 
expansion in postacute benefits.
    I think we can deal with this issue through benefit 
design--and I think in a fee-for-service market that is 
uncontrolled, you have to look at benefit design. The SHMO 
experience tells us that a limited home care benefit, 150 
visits, 200 visits, would, in fact, be adequate to take care of 
almost all Medicare beneficiaries. If you did that, you would 
not only have short-term savings under Medicare, you would also 
be reducing the payments you are making to HMOs.
    I know this Subcommittee is considering reducing the AAPCC 
payment, but it seems to me a much better way is realigning and 
controlling the growth in the Medicare Program in an 
appropriate way. You actually can fix both things--Medicare 
costs and excess HMO payments--at the same time.
    When it comes to the permanently disabled, I think we have 
a lot of alternatives. Clearly, PACE is one that merges 
Medicare and Medicaid. I think the Social HMOs is one. As Mark 
said, with HMOs and private long-term care insurance, we can 
take care of the vast majority of people. I think modifying the 
Medicare Program to allow programs targeted on the frail, 
elderly and disabled like EverCare. I assume,Mr. Chairman, you 
are familiar with EverCare, which is a program focused on those 
Medicare beneficiaries who are in the nursing home where medical 
management in the nursing homes saves acute care dollars by reducing 
hospitalizations. If we modify Medicare Programs like PACE, EverCare 
and social HMOs, we can get tremendous savings in cost.
    Now, I know, as you said, you have already introduced PACE 
legislation, and I certainly hope that the SHMO legislation 
would soon follow. As you mentioned in your press release, 
there were 23,000 people under the PACE and Social HMO projects 
today. Twenty-thousand-plus of them are in the SHMOs, and it 
seems to me appropriate that if you are going to legislate for 
PACE, you should be doing the same for SHMOs.
    But I believe you should go much beyond that, Mr. Chairman 
and Subcommittee. I think we should look for ways through 
legislative changes that would allow managed care programs that 
voluntarily enroll elderly and disabled, both in generalized 
and specialized care programs, to be instituted without having 
to go through this research waiver process. I think HCFA can 
contract with responsible plans and I have three specific 
recommendations to change the statute that will allow the 
innovative programs that really are directed to the frail 
elderly and disabled to evolve.
    One is we should delete from the statute the requirement 
for statewideness under HMOs. The uniformity of services would 
be number two. And, finally, the 50-50 rule. Right now, as you 
know, an HMO can only have 50 percent of its enrollment in 
Medicare and Medicaid. If we want to design programs for 
Medicare people and disabled people, we have to get rid of that 
50-50 rule. I cannot overstate the importance of that.
    I do not think we have should continue to rely on 
structural requirements for who can participate as an HMO. I 
think we know a lot today about the operations of HMOs and 
their outcomes. We should base our decisions on who is eligible 
by their performance.
    By removing these restrictions I mentioned, you would allow 
long-term care or personal care providers, both not-for-profit 
and for-profit, who have a greater awareness of the personal 
and social needs, the continuum of needs of the frail and 
disabled population, to develop innovative and cost effective 
solutions.
    Thank you, Mr. Chairman, for allowing me to testify.
    [The prepared statement follows:]

Statement of Stanley S. Wallack, Ph.D., Executive Director, Institute 
for Health Policy, Brandeis University, and Chairman of the Board and 
Chief Executive Officer, LifePlans, Inc., Waltham, Massachusetts
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    Chairman Thomas. I thank both of you. Obviously, in the 
time you have, you could not go into the detail that you did in 
your written testimony. It is not only part of the record, we 
looked at it.
    My problem is that I can give a really good half-an-hour 
speech about the needs for continuum of care and the way in 
which it should be focused, but when you take a look at what we 
have got and what it is going to take to get there, saying it 
and doing it are two different things.
    Dr. Wallack, would you for just a minute expand on your 
argument about the number of home health visits, because, 
obviously, if we are dealing with integration of programs, we 
tend to look at the macro structure, but you mentioned briefly 
and focused on rethinking what we actually do, since there 
seemed to be an amazing parallel in terms of the benefits that 
were provided and the use structure that followed it.
    Mr. Wallack. Certainly. I know you know that what happened 
in 1988 as the result of a court action is that HCFA revised 
its administrative regulations. The court really required that 
HCFA could no longer talk about part time and intermittent. 
That meant you could not restrict people to home care who both 
needed less than 8 hours a day and 7 days a week. It went from 
and to or. You could either get it part time or you could get 
it intermittently.
    But that was not the big administrative change that 
occurred. That was not the change that really resulted in the 
explosion of home care services. What happened in the 
administrative changes is that they allowed a skilled nurse to, 
in fact, make a decision that somebody needed services and what 
could pursue from there was a whole variety of personal care 
services.
    So if you look at the home health benefits today and their 
explosion, it is really for those who are getting over 100 
visits or over 200 visits. We are starting to move home care, 
through administrative decisions and not legislative decisions, 
from an acute, postacute benefit to a custodial, long-term care 
benefit. If we are doing that, it seems to me Congress should 
say that is what we want to do. It was not the initial 
intention of Medicare.
    Chairman Thomas. I do not know that we want to do it and we 
got into it by a court action, but my question would be, as we 
are looking at new approaches to funding this rapidly growing 
area in home health care on a prospective payment basis, 
something as simple as a visit is not defined, and if we get 
into this whole structure without going after the definitional 
framework, I am afraid that we will have missed an opportunity.
    If we can get into the procedures that are involved or the 
time increments, except then that runs counter to the desire I 
think you have expressed, and I expressed very briefly, about 
getting away from the micromanagement aspect. Now, how do you 
reconcile the two?
    Mr. Wallack. I agree with you. Getting into what a visit is 
is very difficult and that is going to micromanagement. We do 
not know what a visit is and we do not have a real definition 
of home care.
    Chairman Thomas. Well, we are going to before we put in a 
prospective payment system.
    Mr. Wallack. You are going to have to, are you not?
    There are different ways of doing benefit redesign. I guess 
the point I was trying to make is that if you have an 
unrestricted fee-for-service system, the way you have to deal 
with this, is with benefit redesign. You have dropped benefit 
redesign from the debate, but I think that is what you have to 
use. You have restrictions on hospital days. You have 
restrictions on nursing home days. But somehow or other, you do 
not have it on home health care visits. It does not seem to me 
to make a lot of sense.
    If you do not want to deal with the visits, maybe another 
benefit redesign is dealing with the dollar amounts. What we 
are going to see now is the average payments perepisode is 
going to $8,000. My own view is you are going to have home health 
expenditures in a few years exceeding physician expenditures under 
Medicare.
    Chairman Thomas. That is what the growth lines look like.
    Mr. Wallack. So maybe it is a dollar benefit. Maybe you do 
not want to get into specific visits.
    Chairman Thomas. I am very interested in trying to promote 
private sector plan integration into the public dollars. We 
tried to offer some help in recent legislation with counting 
long-term care insurance and the actual costs of long-term care 
in the medical deduction structure. My problem is that if we 
had done that when the medical deduction was 2.5 percent of 
adjusted gross income, we might have had some impact, but when 
it is at 7.5 percent of adjusted gross income, even on lower 
incomes, that is a relatively high threshold.
    Have you seen any evidence, or we even allow personal 
opinions here, that would suggest that maybe as we are spending 
dollars in this area, one of the ways that we could get some 
fairly decent stimulation of private sector insurance 
coordinated with Federal programs would be to focus on that 7.5 
and maybe bring it down by one-third to 5 or even back to the 
original 2.5. Would that be useful at all, either Dr. Meiners 
or Dr. Wallack? And if you do not have an opinion, it is also 
acceptable not to have one.
    Mr. Meiners. I think it would certainly help with that 
specific problem. When it comes to subsidizing the market for 
long-term care insurance, I at this point am rather biased 
toward the partnership strategy because I think it is a way to 
target what moneys you might put toward supporting a market to 
those who are most at risk of spending down. It also is a 
subsidy that you do not give to everybody who buys a product, 
so it is more targeted in that way and, I think, more 
efficient.
    It is only when somebody buys a partnership product, goes 
into benefit, uses those up, that then the subsidy occurs. That 
subsidy occurs around the time that the benefits of avoiding 
people going on Medicaid also occurs. So if you think in terms 
of a present value of subsidizing, it is much more efficient.
    Chairman Thomas. Yes.
    Mr. Meiners. If I was to work on the next steps, it would 
be to make sure that that partnership opportunity was more 
available to States. I do not think States are going to give 
away the store, and so I think that is an important thing to 
have happen.
    Chairman Thomas. It is partly counterintuitive, though. 
Witness what we did in 1993 in terms of requiring people to 
exhaust their resources before we are willing to offer 
alternatives. The idea that would be a real incentive for 
people to husband and for a State coordination runs a little 
counterintuitive to a number of people in terms of what either 
they would be willing to vote for or could vote for because, in 
fact, they did vote for it.
    Mr. Wallack. Could I make a comment, please?
    Chairman Thomas. Surely.
    Mr. Wallack. First of all, you are right about the 7.5 
percent not being very powerful anymore with regard to the 
experience----
    Chairman Thomas. It is very powerful. Nothing happens.
    Mr. Wallack. Nothing happens. Right. You are absolutely 
right. Obviously, you can move to some kind of a credit, tax 
credit. But I think there are much more basic things.
    When I talked before you on tax clarification, I sort of 
played my role as an economist and talked to you about tax 
deductibility as price reductions, and that they will do a 
little bit to affect the demand. Effectively, a tax benefit 
reduces the price and you will increase demand. But what is 
much more important, it seems to me, is the attitude of people 
about taking responsibility. Economists call that a shift in 
demand and I think that can happen. I think you started it now. 
But you have to tell the American public in some way--it is the 
government they look toward--that this is how we are expecting 
to fund long-term care. The government cannot afford it. We 
could only fund Medicare and long-term care, but we have other 
things we want to do with Federal dollars.
    The other thing that got lost in your bill, which I think 
could be very important, we want to encourage saving for long-
term care earlier, people worrying about the costs of getting 
old when they are younger, when they are our age, I guess. The 
way to do that is through a savings account. I think you had an 
IRA approach that allowed people to put money in a dedicated 
program and, in fact, buildup their savings and then use it for 
long-term care. People are saving more. We have to come back to 
this perspective, start saving earlier for long-term care. I 
think this is an important thing to add.
    Chairman Thomas. I have had a super IRA bill in for some 
time with my colleague from Massachusetts. The problem is, when 
you go through the Congressional Budget Office, they write the 
expenses on the front 5 years of investing and they do not look 
at the long-term return of actually having people spend their 
own money rather than public money over a 20- or 25-year 
period.
    Let us establish the fact that the 50-50 rule, if either of 
you are in agreement, which may have been a useful substitute 
at some time, although I wonder why, for a quality measurement, 
in fact, works exactly opposite when you aretrying to build a 
coordinated structure that focuses on a particular group of folk, and 
that if you could not get fundamental agreement on the larger TEFRA 
risk HMOs, clearly, in the area that we are talking about, it makes no 
sense, we agreed, to----
    Mr. Wallack. Oh, I absolutely agree. I think I said that. 
But let me make a point, I think the Social HMO has a lot more 
potential. I mean, it is a much bigger potential program than 
PACE. If you target just on the disabled, a PACE-like program 
can meet the needs of those people who are disabled.
    The Social HMO, it seems to me, is a more appropriate 
Medicare HMO program. I have not changed my view in the last 20 
years. Having prescription drugs in the benefit makes a lot of 
sense to me, and some extended care package makes more sense 
for a Medicare Program.
    If you had a lot of dedicated HMOs, like Social HMOs, they 
would eventually develop very integrated programs like PACE for 
those that have become disabled, because when people become 
disabled, they need a greater integration of services and those 
would evolve, it seems to me.
    What we have really restrained, it seems to me, through 
these kinds of restrictions is the evolution of a lot of good 
plans. I think there are a lot of people out there who could 
help solve this problem if you would let them do it.
    Chairman Thomas. Part of the problem is that in looking at 
some of the changes that we are thinking about making, we will 
have Mr. Bringewatt later, but he has a Chronic Care Act of 
1997 which is a complete vision, including ready-made 
bureaucracies to review the structure, and he will have a 
chance to comment back later, I am sure.
    That is not going to be the solution, either, but when we 
sit here and get testimony from HCFA that they are only about 4 
years away from a prospective payment system out there that 
they have had 15 years to talk about how they are going to get 
there, and you talk about the Social HMO as something that 
needs to go forward and we cannot get HCFA to tell us after all 
the years of experience we have had what is an appropriate 
model structure, it is very, very frustrating because you reach 
a point of trust in which you have to rely on folks in a larger 
structure doing what is right and we have not seen that in the 
recent past. That is one of the reasons you have a 50-50 rule.
    So it is difficult to put a specific structure in place and 
it is probably impossible to get a trust structure in place, 
either.
    Mr. Wallack. When you think about where we are with those 
people that cost the most money and for whom we are 
responsible, it is discouraging that we have so few 
alternatives that have been tried. It is pretty remarkable. 
Particularly, when you compare it with the private sector and 
how they have evolved all sorts of alternatives in disease 
management. Just the kinds of things that are going on in the 
private sector now, are the kinds of things that would go on 
for Medicare beneficiaries if we loosened up these rules.
    I guess that is really what I have been saying--that is 
what I think you should be thinking about is not just I PACE, I 
know it is important, but I think there is a much bigger issue 
out there.
    Chairman Thomas. I know, Doctor, but you cannot say loosen 
up the rules.
    Mr. Wallack. No, the statute.
    Chairman Thomas. Rethink.
    Mr. Wallack. Rethink.
    Chairman Thomas. Loosening makes a lot of folks nervous.
    Mr. Wallack. OK.
    Chairman Thomas. But rethinking is what we need to do, 
especially when you have dollars coming from the Federal 
Government under the rubric of Medicare and dollars coming from 
the Federal Government under the rubric of Medicaid and there 
are conflicts which cost more money.
    One final question and I will turn it over to the gentleman 
from Wisconsin. There was also a discussion, especially in the 
Social HMOs, about the use of skilled nursing facilities, more 
nursing homes, and what I got out of it, and again, I will be 
corrected if I was wrong, was that there seems to be a general 
agreement that the nineties, 21st century high-tech hospital is 
way too expensive for doing a lot of things, but does it really 
make sense to recreate the fifties technology hospital in a 
skilled nursing facility to perform those functions. Maybe it 
makes sense to do so. But, you know, the lab work, the x rays, 
the stuff we used to get in what we used to call a hospital 
being done in a nursing facility rather than a hospital.
    Mr. Wallack. That is an interesting question. There are two 
parts to that subacute issue. One is the use of subacute after 
hospitalization. I believe the nursing home or the assisted 
living, places where people live are more appropriate than 
staying in a hospital. We should start bringing managed care to 
people rather than bringing people to managed care. This 
results in shorter hospital stays.
    I think, in nursing homes and other kinds of assisted 
living should, in fact, be a place where people get their acute 
care and thereby avoid going to the hospital. This results in 
fewer hospital admissions.
    So I view the nursing homes as probably a place where we 
really should see expansion in the subacute side. It is less 
expensive. I think the hospitals have tremendous overhead. So I 
would say, yes, for both going into the hospital as well as 
coming outof the hospital, and I think you really get two hits 
there.
    Chairman Thomas. Dr. Meiners, do you have any comment on 
that?
    Mr. Meiners. One of the things I just wanted to comment on 
was the fact that I think we are learning an awful lot, along 
with HCFA, in the demonstrations we are doing. It has become 
very clear to me as we work with HCFA that they have had a 
Medicare focus for many, many years and their focus on Medicaid 
has only been emerging in the few past years. How Medicare and 
Medicaid have worked together is something that is a very new 
focus for HCFA.
    You also have a disconnect between the States which are 
looking for what HCFA will let them do to integrate Medicare 
and Medicaid so that it will not be so difficult to get the 
waivers while HCFA is basically in the mode of receiving 
applications and going over them to see if they meet the law 
without really necessarily having a clear vision of what the 
States could or should do. So they are not talking to each 
other very clearly and comfortably.
    It is not like there is one or several models that you can 
use easily to integrate Medicare and Medicaid. Part of HCFA 
that is focused on doing demonstrations and a demonstration 
means that you may actually do one such program and no more. 
However, when a waiver approach gets approved, the States want 
to use it as a model that they can replicate without a 
difficult approval process. For a variety of very technical 
reasons HCFA is not comfortable with this as yet.
    We need to work through that. I know HCFA is working hard 
to do that, but it is still a very troubling process to the 
States who really are under duress to make integrated care 
work. I think directions from HCFA that supports states 
integration of Medicare and Medicaid systems is something we 
need to work on in a positive way to make it happen would be 
very helpful. Even then progress will be difficult because when 
you get down into the details, absolutely, there are laws and 
rules that get very tricky, like the 50-50 rule.
    Some of those rules and restrictions we can do away with, 
but beyond those that Stan mentioned there are a whole host of 
others and we simply need the opportunity to work on with more 
of a mindset of can do, need to correct them. States are not 
out there asking for waivers to give away the store financially 
by any means. That is why I emphasized this Partnership for 
Long-Term Care in the OBRA language as part of my testimony. 
States need the chance to have those debates on their own home 
turf without Congressional limits. That is a very helpful 
debate to have, and oftentimes leads to bright ideas, good 
ideas.
    But if you stand in the way and say, no, you cannot do any 
more of those type programs, that is not very helpful. It takes 
away the one laboratory of experimentation, which is the 
States, that is really very active out there and has great 
potential.
    Chairman Thomas. We are hopeful that the mental side of 
HCFA has undergone a change, and I think evidence of that is 
their attempt to restructure and bring managed care into more 
of a core arrangement, which will allow for a closer in-house 
observation of the inconsistencies rather than two separate 
groups not talking to each other. Maybe that is the positive 
spin I can give it, but to the degree we can oversee that, as 
well, I think it will help.
    The gentleman from Wisconsin?
    Mr. Kleczka. Thank you, Mr. Chairman.
    Dr. Wallack, in your statement, you talk about individuals 
accepting more financial responsibility rather than assuming 
Medicare and Medicaid will pay. However, you have come before 
us wearing two hats and the flip side to that is, and, by the 
way, I am chief executive officer of LifePlans. I would like to 
sell you a policy. Is there any conflict here? I am having a 
little problem with this.
    Mr. Wallack. I should like to respond.
    Mr. Kleczka. The first goal is laudable. The second one 
is----
    Mr. Wallack. Well, no, in terms of addressing a social 
problem, I basically worked here in Congress for the 
Congressional Budget Office, where I headed up the health and 
welfare area, and I tried at one point----
    Mr. Kleczka. You are an insider. You know how we score 
these things.
    Mr. Wallack. Yes. I know how you score these things. Idid a 
Part C of Medicare and looked at its costs and benefits. Once you are 
outside of Washington, you start to think about other financing 
alternatives. As a researcher at Brandeis, I realized that the private 
sector can respond to this and my own view is that we should let the 
private sector go as far as it possibly can and have Medicare dollars 
or Medicaid dollars focus on poor people and really be targeted, 
because we cannot afford everything.
    So is there a conflict? I do not really think there is. I 
think you can do good social policy from the private sector as 
well as from the public sector.
    Mr. Kleczka. What type of experience have you had in 
selling long-term health policies?
    Mr. Wallack. We do not sell. What we have done----
    Mr. Kleczka. What is LifePlans, then?
    Mr. Wallack. What LifePlans does is help companies design 
products. I mean, we became involved back in 1987, when, 
basically, long-term care insurance was a postacute benefit. We 
have helped develop the product so it has moved to a very 
flexible product that you can use in any site. It has really 
improved, that is, the value of the product. It has moved from 
a medical criteria for benefits to a disability criteria for 
benefits. So I was involved in a lot of product development. We 
were involved a lot in the development, and now we help 
companies----
    Mr. Kleczka. Then for companies who are selling these 
policies, what type of activity have they seen?
    Mr. Wallack. Basically, what we do as a company is we help 
companies assess people for insurability. We help to assess 
people when they are eligible for benefits and then we help 
manage them if they go into benefits. So we are a risk and care 
management company in long-term care.
    Mr. Kleczka. There was an article or a story on the local 
news a day or two ago about long-term policies. Are these 
basically designed for individuals with a lot of assets, that 
should something occur, that they could possibly protect those 
assets for these purposes?
    Mr. Wallack. I think you can make that argument, but not 
for very wealthy people. They can pay themselves. I think long-
term care is a problem for most of us who I would call the 
middle-income, upper-middle-income people, who have----
    Mr. Kleczka. Certainly not the poor. They----
    Mr. Wallack. Certainly not the poor. I mean, it would be 
foolish for a poor person.
    Mr. Kleczka. They depend on Medicaid.
    Mr. Wallack. That is right. We have Medicaid, and that is 
what Medicaid should do. It should deal with poor people.
    But a lot of us sort of have some savings, have some 
assets, and I think we do want to protect them, but that is not 
the primary reason people buy long-term care insurance. If you 
ask them why they buy long-term care insurance, they buy it to 
remain independent. They do not want their kids to be 
responsible for them. They want to have choice. And right now, 
the policies allow them to be at home or to be wherever. The 
policies are very flexible. It gives them the opportunity to 
get what they want in terms of----
    Mr. Kleczka. Let me turn real quickly to home health care. 
We have seen a real explosion in the cost of that program. 
Outside of a definition of visits and possibly some limitation, 
one of the administration budget proposals is to shift the cost 
of part B but not apply any premium to that or copay. What is 
your view of trying to restrain costs in home health care, 
which, as you know, is going out the window? I would like both 
gentlemen to comment.
    Mr. Wallack. Would you like to go first?
    Mr. Kleczka. Maybe you could cite some real abuses that we 
should be looking for, because they clearly are there.
    Mr. Meiners. I have tracked that a little bit, as much 
through the articles that we have seen about it, and, frankly, 
I am not sure whether it is--my understanding is that there has 
been movement between part A and part B over the years. It is 
very confusing. It would result in people contributing some 
premium to the cost of home care, which they would not be doing 
under part A.
    Mr. Kleczka. The proposal, as I recall it, and I may be 
corrected by my colleagues, is that it would be picked up by 
part B but not be applicable to the premium. Is that not 
correct?
    Mr. Wallack. And there is no copay. Can I----
    Mrs. Johnson. The current proposal is no copay, but it is a 
reform of the way we pay for home health, eventually ending up 
in a payment per episode.
    Mr. Wallack. Eventually, as you said. Let me comment on 
that, on the question. The part A to part B is the way it once 
was--I guess that is fine, if you want to do it. I think there 
are a number of people who get home care as a result of coming 
out of the hospital. There are a number of people in the 
community that need some to avoid going into the hospital.
    I think, however, given that this program has absolutely no 
restrictions on it, it is completely supply driven. It is the 
worst of the fee-for-service we could imagine, unlimited 
benefits, absolutely no copays. You have to approach this, 
again, from what I call a demand side or a benefits design 
approach. I think, personally, there should be benefit 
restrictions that are reasonable, and very generous in terms of 
really trying to do what Medicare was designed to do, but 
copays certainly makes sense. You have to deal with the demand 
side of the equation a little bit. Therefore, copays in that 
program like we have in other programs make a lot of sense to 
me.
    Mr. Meiners. From a State perspective on the Medicaid side, 
filling in the deductibles and copays, is an extra unfunded 
liability the way things work now. That would be a major 
concern to States.
    Mr. Kleczka. Thank you.
    Mrs. Johnson [presiding]. Mr. McCrery.
    Mr. McCrery. Dr. Wallack, in your recommendations at the 
conclusion of your written testimony, you say, ``Rather than 
create a special status for the PACE Program in statute, I urge 
the Committee to take the necessary steps that would allow 
these and other worthy programs to develop,'' and then you say 
that these programs ought to be able to be initiated without 
having to go through the waiver process.
    How would these programs be recognized by HCFA and how 
would the payment be made?
    Mr. Wallack. I think if we, again, deleted from the statute 
some of those restrictions, like the 50-50 rule, they could 
apply to HCFA much like TEFRA HMOs do now and HCFA would have 
all the ability, it seems to me, to decide that these programs 
have the appropriate knowledge base to do the care, they have 
the appropriate geriatric care, they have the right delivery 
system, they have the right financial wherewithal. HCFA would 
contract with them. It is a contracting mechanism, much like we 
do with the private sector in HMOs. So you would have HCFA 
being able to contract like it does right now. They would 
become, or fall under some kind of a TEFRA system. There is 
nothing different there.
    I think we have to come to a point, with 5 million people 
in HMOs and given the system and where it is going, there will 
be a lot more, that we are going to have to deal with this 
thing through effective contracting and oversight. You know, 
just as in these demonstrations, we look at them, we evaluate 
them. By making a law, HCFA should not end doing oversight. 
Oversight should go on continually, to look at all the 
programs.
    So we need to view this as a continual change in HCFA 
rather than a research project, which you hire academics like 
myself that can rip them all apart. This is the way we have to 
start things in motion and we have to have an ongoing process 
of evaluating what works and what does not work and make the 
necessary changes.
    Mr. McCrery. Would it be a capitated payment to these----
    Mr. Wallack. We could get into a long discussion about 
capitation. I do not know if you want to do that.
    Mr. McCrery. I do.
    Mr. Wallack. You do? What would you like to know, then?
    Mr. McCrery. I only have 5 minutes, but I am just curious. 
Do you envision these other types of organizations being paid 
on a capitated basis?
    Mr. Wallack. Absolutely. I mean, absolutely. If the 
Congress decides that the option to fee-for-service is full 
capitation, absolutely, they should get paid full capitation, 
and, clearly, like the PACE model, they can deal with that. You 
can deal with it just from Medicare capitation, which I think 
is possible. I think you could take care of people in assisted 
living or in nursing homes or other places just with a Medicare 
capitation because you can avoid expensive hospitalizations.
    I think the way you sort of pay people, the AAPCC now needs 
to be rethought so that people of certain health status or 
disability status, whether they are in an institution or not in 
an institution, need to be reimbursed at a higher level. I 
think we should change some of the rate cells. But I absolutely 
think, yes, the answer could be capitation.
    Mr. McCrery. Dr. Meiners, do you have any comments on that 
subject of capitation and how we would pay for these types of 
organizations that are kind of providing an array of services, 
from acute care to subacute care to----
    Mr. Meiners. Well, I think that capitation probably is the 
way to jar loose the kind of system changes that we want to 
see. You talk about expanding the continuum of care. I think 
that is going to happen when you are better able to meld the 
dollars from Medicare and Medicaid both under capitation. You 
can certainly do subcapitationss on a lot of populations, which 
basically is what PACE and SHMO are. EverCare is a 
subcapitation. There is really nothing wrong with those, but 
they are pieces of the bigger puzzle.
    I think whenever you have subcapitations and then some 
component, reimbursed on a fee-for-service basis, then there 
are cost-shifting incentives. More problematic is that if you 
have pieces of the care system under managed care, they had 
better be under the same managed care system or you may have 
two case managers doing different things and working against 
each other.
    So that is one of the things that I think the innovations 
of the Minnesota Senior Health Options Program has really 
learned from SHMO and PACE and developed a capitation 
arrangement that includes Medicare and Medicaid dollars for all 
elderly and disabled populations, not just those in nursing 
homes, not just those at risk in the community, but healthy as 
well as at-risk and nursing home populations, and that reduces 
some of that cost shifting that can occur.
    Mr. Wallack. I would like to add one comment that as Mark 
was talking I thought about. Really, I think it is unfortunate 
that we have now made synonymous capitation and managed care. 
That is not what a lot of us--I was involved going way back in 
the HMO Act when I was here in Washington. We really meant care 
management. That is what we were really talking about. All of a 
sudden, it just becomes this fixed payment, and I really 
believe you can get managed care, or what I believe is managed 
care, without going to full capitation, but still creating the 
proper incentives for the providers to be efficient.
    I think it is an impossibility for government to set by 
regulation the right price. Either we have to get off that 
system, or we have to go to something other than capitation, 
but please do not link managed care with capitation. They are 
different things.
    Mr. McCrery. So we could have capitation for seniors for 
either managed care or fee-for-service.
    Mr. Wallack. I think so. Well, I do, but I will take this 
opportunity----
    Mr. McCrery. I do, too. I am surprised to hear somebody 
agree with me.
    Mr. Wallack. Brandeis is trying to start a HCFA 
demonstration right now. It is, I think, a very exciting 
demonstration with regards to fee-for-service payment. It is 
called the group volume performance standard demonstration, 
where we deal with large medical groups in this country that 
are very interested in doing this. They are incented using the 
current total payments per unique beneficiary they are now 
seeing. The groups are paid on a fee-for-service basis and we 
give them an overall target per person and we increase that by 
the rate of increase in the AAPCC. If the cost stays below the 
target, HCFA shares in the gains, the savings, with that site.
    So it is a fee-for-service system. But the basic elements 
of managed care, which are very important, are there as well. 
You have to have care management of the person, utilization 
management, appropriate protocols. Second, you have to select 
preferred providers who you really think are good providers. 
And finally you have to provide incentives. The incentive does 
not have to be full capitation, but there does have to be some 
incentive on a population basis to, in fact, manage the people 
you care for in a better way.
    Mr. Meiners. I think you are absolutely right. I mean, at 
some level, once you have a new paradigm of care, you could buy 
it on a fee-for-service basis and have a case manager 
coordinate it.
    I think one of the concerns I have, though, is that is like 
leaping ahead of where we are in terms of understanding how to 
do that. To some extent, we need, I think I would argue, we 
need some of these incentives that came with capitation to 
force the integrated care systems to come together. That is not 
to say they cannot happen through a negotiated, coordinated 
fashion. I think they can. But I also do not think it is one 
approach or the other. I think we still need to find those 
better systems of care.
    Some of this discussion of home care and what we do about 
that and how much to provide really comes from, rather than 
thinking that we can define that up front, we need to provide 
an opportunity for the care givers to really define a level of 
care and hold them responsibly in sort of a satisfaction and 
quality approach.
    I think that is why HCFA is emphasizing quality assurance. 
That is why the States are emphasizing a quality approach. It 
is the outcomes that are important. But you need to have the 
resources pulled together at this point, it seems to me, and 
right now, they are not. Medicare and Medicaid are huge 
disconnects in so many different ways that I think the 
capitation mindset is almost necessary because it brings those 
two pools of dollars together, at least for the dual eligibles.
    Mr. McCrery. Thank you.
    Mrs. Johnson. Thank you.
    Actually, this has been a very interesting discussion, I 
think right on point. I think capitation in its most simplistic 
form has a lot of problems. We are not very good at solving the 
outlier problem under the DRG system and with smaller hospitals 
out there and shorter lengths of stay, we are seeing now a 
folly of DRGs with no accommodation for severity. So I am 
reluctant to, myself, see us move entirely in the direction of 
capitation.
    Yet, I do hear what you are saying about you will not get 
the level of integration if you do not put it out there hard. 
We certainly are seeing that in social services as a result of 
welfare reform. For the first time, I see the social services 
in my town sitting down at the same table. I chaired the Child 
Guidance Clinic for 12 years. We could not get the three family 
service agencies in town to think seriously about cutting 
overhead.
    So you do have to force the level of integration of 
services that we need, but ultimately, you have to do better 
than a flat capitation plan and I am not sure--this is a longer 
discussion, but I think we do need to have it. This is a big 
problem in the home health care area, and certainly if we do 
not come to some kind of rational decision about it this year, 
we will not generate the savings in that sector we need to.
    The President just shifts payment into the general fund. 
Well, that is just more competition for education and 
environmental protection. All discretionary spending is a sixth 
of the budget, so it is sort of dumb to put $40 billion more in 
to compete with everything else that we are having trouble 
funding.
    You each, though, did go through a useful list of 
legislative barriers to the integration of acute and long-term 
care services for dual eligibles. Would you lay out some of the 
solutions? What of the most important things to solve, and what 
is the way we could solve them?
    Again, having been very much involved in the VNA system, 
this dual eligible stuff has been extraordinarily costly to the 
system and the number of administrative dollars we are wasting 
and the chaos we periodically create in that area is really 
appalling. So would you like to point out the primary 
legislative barriers that you think we need to address and how 
we might address them this year?
    Mr. Wallack. You can go first on that one.
    Mr. Meiners. I think Stan did hit on some. That is why I 
was yielding to him, the 50-50 rule and the several others you 
mentioned.
    I think what comes to mind most readily for me is this 
issue with HCFA about choice under Medicare. I know that the 
States are very concerned about their ability to link onto the 
Medicare system because HCFA has been so adamant about the 
requirement of choice. Now, I will add that, chatting with my 
mother this weekend, she agrees with HCFA, so it is not an 
insignificant issue for seniors--she is 83 and lives in 
Wisconsin, by the way.
    But I do think that there are arguments that can be made 
and mechanisms that can be used to assure that people get good 
care, but how choice is viewed is a real stumbling block, as to 
whether the systems of care can be constructed through the 
gerry-rigged processes that the States are having to go 
through. That has been part and parcel to some of the 
difficulties of getting movement toward integration between 
acute and long term care systems. I think we need to work on a 
clear understanding of what choice means and how to really 
capture what is good about the elements of choice.
    I think Minnesota would argue that, to a great extent, the 
way they have done it that apparently is not going to be 
allowed in other States is not unlike a point-of-service 
situation, where if somebody goes out of network, they are 
responsible for paying some of the costs. Now, admittedly, for 
vulnerable populations who do not have a lot of resources, that 
is maybe not a very good answer.
    So that is one area we need to resolve. Whether that is a 
legislative fix or whether that is one that we continue to work 
on with HCFA, I am not sure. But my impression from discussions 
with States and what they have gone through in their waiver 
approval process is that it may well have to be a legislative 
fix. We always come back to this incredible learning process we 
are going through, making sure that the demonstrations that we 
are working on are able to go forward in a somewhat more 
sympathetic fashion so that we can learn what we can recommend 
to you with regard to that and not violate the important 
principles of choice for vulnerable populations in particular.
    Mrs. Johnson. On this particular issue, we did bring this 
up in our hearing last week at some length, and it is 
discouraging that the administration felt that allowing a 
point-of-service option, I think Ms. Buddo's comment was, it 
makes it too much like an insurance product. Well, if the 
government guarantees that the HMO delivers all Medicare 
services and oversees quality in that system if someone wants 
to buy a point-of-service option, they should be allowed to do 
so. They can now under Medigap, it just costs more.
    So it is a very constraining view that does not allow 
choice to develop within the system, although choice is there 
at a higher cost through Medigap alternatives. Would you say 
that was accurate?
    Mr. Meiners. Yes, I would. Minnesota is not the only place. 
We have had both Colorado and Florida are two other States that 
we are working with under the Medicare-Medicaid Integration 
Program that we have got going with the Robert Wood Johnson 
Foundation and they are doing things a little bit differently. 
They are both working with TEFRA HMOs, but both also are faced 
with special requirements regarding this choice issue.
    In the case of Florida, as we sort through a very difficult 
discussion, it almost seems like they are online to create what 
is almost like a shadow option out there so that choice exists, 
and it has gotten so confusing that it really gets in the way 
of implementing the programs. The waiver process can oftentimes 
take as much as 2 years, and when you think about these 
programs, it just eats up a lot of resources and energy before 
you ever get to implement.
    I think that is one of the reasons. There are two reasons 
why I think a lot of these social experiment programs that we 
have, like SHMOs, PACE, the Partnership Program, do not get as 
big as we would like them to. First, time, energy, and 
resources are eaten up so much in getting the programs off the 
ground, and second through that process, there is sort of an 
aura that it does not work or that there are problems with the 
programs. Finally when we give consumers the choice to opt in, 
they are at best confused, if not thinking that it is a bad 
thing. I think we need to turn that around because these 
programs really are useful and worthwhile for people to 
seriously consider but that message does not get to them.
    Mr. Wallack. I would add that one of the things I try to 
say in my testimony, which is somewhere in there, is that if we 
want to develop programs around the elderly, around the frail 
elderly, around the disabled, what we need are organizations 
that really have that as their service mission, to be involved.
    One of the problems we have is we are looking at HMOs, 
which are pediatric models of care and primary care models that 
are designed to take care of an elderly population and a 
disabled population. By dropping this 50-50 rule, by not 
loosening but by having more reasonable standards by which we 
can contract and some of these other service restrictions, so 
we can have flexibility in services, which HMOs do, by the way, 
under TEFRA. They can offer different kinds of services.
    What we will be able to do, though, is bring in the 
personal care systems, the VNAs. We will be able to bring in 
the long-term care providers. We will bring in people who are 
dedicated to serving older people and disabled people, and by 
doing that, we will open up the options, it seems to me, 
through the States who deal with those people and also through 
those providers that serve the Medicare/Medicaid population. We 
are missing those organizations that are focused and dedicated, 
and I think if we bring them in, we have a chance to make some 
real progress.
    Mrs. Johnson. I understand. Thank you.
    Thank you, Mr. Chairman.
    Chairman Thomas [presiding]. Let me ask you just one 
question about the financing, because, obviously, the 
administration has proposed over a 5-year period a 
gradualreduction on the TEFRA risk from 95 percent to 90. Given your 
payment structure at 100 percent of the AAPCC, does it seem possible 
that you could follow a reduction pattern, albeit at the appropriate 
distance, as we reduce regular HMOs, or not?
    Mr. Wallack. Do I think we could follow it? Yes, I think we 
could follow it. Again, it follows from my argument, what I 
told you before, why the AAPCC has gotten so high and such an 
easy target for HMOs is on this postacute side.
    Chairman Thomas. Is it also an easy target toward 
ratcheting down the HMOs?
    Mr. Wallack. Yes, it could be, sure. But I do not think it 
is the appropriate--I mean, ratcheting down the AAPCC does not 
seem to me the appropriate way to deal with this problem 
because it is the whole Medicare Program that is the issue 
here.
    Chairman Thomas. I understand that. But absent addressing 
the entire Medicare problem----
    Mr. Wallack. I would think you would have to keep the 
equity, yes.
    Chairman Thomas. If we get some commitment on equity, that, 
to me, argues for a desire to continue. You started your 
testimony off by saying that, so far, only PACE has a life and 
that you are interested in the others having a life and I am 
trying to build a case for the reasonableness of continuing 
these models and expanding them, so your testimony helps.
    Dr. Meiners, I assume you would agree that given the way in 
which we pay, that we could probably find some savings without 
destroying the program?
    Mr. Meiners. Yes. I definitely think that. I think these 
programs are really examples, sort of incremental steps that we 
need to take. They are not parts of the big fix, but, frankly, 
long-term care is a very local community type of issue. So I 
think programs like Social HMOs and PACE are good steps in the 
direction. I think the Minnesota Senior Health Options is 
another example.
    I think the point is that we are on the right track if we 
can get behind looking to these programs for what they can 
teach us, as Stan has suggested, working with the right players 
and helping them happen rather than standing in the way. This 
hearing, can contribute to that.
    Chairman Thomas. I appreciate your testimony. Are there any 
additional comments by any members? Thank you very much.
    The next panel, we will ask to come forward. It consists of 
Judith Baskins, president, National PACE Association and also 
director of Geriatric Services of the Richland Memorial 
Hospital in Columbia, South Carolina; Eli Feldman, executive 
vice president and chief executive officer, Metropolitan Jewish 
Health System and Elderplan, Brooklyn, New York; Richard J. 
Bringewatt, president and chief executive officer, National 
Chronic Care Consortium, Bloomington, Minnesota; and Dr. 
Malcolm Adcock, Commissioner of Health, Cincinnati Health 
Department, Cincinnati, Ohio, on behalf of the Municipal Health 
Services Program, including San Jose, California.
    I thank you all. Any written testimony that you have will 
be made a part of the record, and in the time that you have, 
you can address us in the way in which you see fit, starting 
with Ms. Baskins and we will work across the panel.

 STATEMENT OF JUDITH PINNER BASKINS, PRESIDENT, NATIONAL PACE 
  ASSOCIATION, AND DIRECTOR, GERIATRIC SERVICES, AND PALMETTO 
  SENIOR CARE PROGRAM, RICHLAND MEMORIAL HOSPITAL, COLUMBIA, 
                         SOUTH CAROLINA

    Ms. Baskins. Good morning, Mr. Chairman and Members of the 
Subcommittee. My name is Judy Baskins and I am the director of 
the Palmetto Senior Care Program, which is a PACE Program 
operating in Columbia, South Carolina, since 1990, under the 
auspices of Richland Memorial Hospital, which is a 649-bed 
regional community teaching hospital.
    PACE, as you know, is the acronym for Program of All-
Inclusive Care for the Elderly. I am also president for the 
National PACE Association and am pleased to testify today on 
behalf of its members, the community, and the public 
organizations that have been committed to meeting the unique 
medical and social services needs of the frail elderly.
    I also would like to introduce Ms. Jennie Chin Hansen, who 
is the executive director of On Lok Senior Health Services on 
which the PACE Program is based, and Ms. Chris Van Reenen, who 
is the executive director of the National PACE Association.
    On Lok originated the essential components of the program 
in 1972, and today, 11 of the 12 PACE Programs across the 
country oversee and essentially provide the entire spectrum of 
health and long-term care services to enrollees without limits 
as to duration or dollars. Since 1983, PACE Programs have 
served a total of approximately 6,000 frail older people.
    Before I explain a little bit more about PACE, I would like 
to express our appreciation for the strong bipartisan support 
of Congress for PACE over the last 15 years, including 
concerned support from many of the Members of this 
Subcommittee, especially Congressman Thomas. I would like to 
thank you, Congressmen Stark, Cardin, and Bilirakis for the 
introduction of H.R. 1464. We greatly appreciate your efforts 
in moving this forward.
    PACE Programs differ from other managed care entities and 
long-term care providers in the following way. PACE enrolls 
only individuals who meet their State's eligibility criteria 
for nursing home level of care, thereby totally focusing on 
serving a very frail high-cost subset of the elderly 
population. PACE provides a comprehensive range of primary, 
acute, and long-term care services, and our ability to weave 
the medical and social services into a comprehensive health 
care delivery system allows individuals to remain within the 
PACE Program regardless of their changing needs and to continue 
to receive much of their care from providers with whom they 
have developed a longstanding, trusting relationship.
    Interdisciplinary teams consisting of physicians, nurses, 
social workers, physical, occupational and recreational 
therapists; dieticians; and home care workers integrate the 
delivery of acute and long-term care. Within PACE, integration 
of services is achieved through the daily face-to-face 
interaction between program enrollees and the professionals and 
para-professionals who provide their care. The PACE approach 
allows for health professionals to respond immediately to the 
changes in enrollees' conditions, which are frequent, sudden, 
and often serious in the case of frail elderly.
    PACE Programs receive capitated payments from Medicare and 
Medicaid and private pay sources. These payments are pooled at 
the program level, allowing health care providers enormous 
flexibility in developing treatment plans that respond to the 
enrollees' needs rather than the reimbursement regulations.
    PACE Programs assume total financial risk and 
responsibility for all medical and long-term care without 
limitations and without copayments and deductibles.
    Often in large health care systems, the individual patient 
is lost within that system. In contrast, in PACE, the intimate 
relationship between the health care providers, the 
participant, and their families allows for autonomy and 
decisionmaking about health care issues, ranging from 
polypharmacy to end-of-life decisions.
    PACE can legitimately be called a creature of Congress. In 
1986, Congress initiated an authorization of waivers for up to 
ten nonprofit community-based demonstration sites with the 
objective of determining whether On Lok's experience in San 
Francisco could be replicated nationally. The number of 
authorized demonstration sites was increased to 15 in 1990. 
Together, the 11 programs now under Medicare and Medicaid 
waivers have accumulated more than 60 years of operating 
experience. Here is some of what the experience has been and 
what it has taught us.
    In short, the demonstration has proved that the successful 
replication of the On Lok Program based in San Francisco is, 
indeed, possible. Among more specific findings, PACE 
participants experienced lower rates of hospitalization 
admissions and overall utilization of nursing home and hospital 
care than they do for comparatively frail individuals outside 
of PACE.
    A dramatic example of PACE's efficiency is hospital 
utilization among PACE participants as measured by hospital 
days per 1,000 per annum in PACE, which is quite comparable to 
that of the general Medicare population, at approximately 2,400 
days per 1,000 per annum. This is astonishing, considering the 
level of frailty and medical complexity of the PACE population 
in relation to the general Medicare population.
    In South Carolina, with one of the frailest PACE 
populations currently enrolled, we have reduced hospitalization 
rates among our enrollees to less than 1,000 days per 1,000 per 
annum and we have done this by substituting community-based 
services for traditional care that is usually provided in 
hospitals. This has substantially improved the quality of care 
and the quality of life while maintaining clinical and 
functional outcomes comparable to, if not better than, the 
traditional institutional management.
    The quality of care provided by PACE enrollees to date has 
been high. It is never sacrificed in pursuit of lower cost. In 
South Carolina, a recent survey was conducted by the South 
Carolina Department of Health and Human Services that revealed 
that 83 percent of the respondents found their health care 
provided by Palmetto Senior Care to be very good or excellent. 
But more importantly, they found that 87 percent of the 
participants believe that their quality of life has improved as 
the result of enrollment in the PACE Program.
    To assume that PACE Programs maintain quality of care and 
quality of life experienced by participants and their care 
givers at its current level, the National PACE Association is 
developing standards of care for the PACE Program.
    In terms of cost effective of PACE relative to Medicare and 
Medicaid, a recent study commissioned by the National PACE 
Association concluded that PACE generates approximately 12 
percent savings to Medicare relative to Medicare's expenditures 
for a comparable population for the fee-for-service system. 
States estimate savings of 5 to 15 percent relative to current 
per capita long-term care expenditures. None of the dollar 
savings measure the enhanced quality of life in terms of 
improved function and the ability to remain in the community.
    Building upon the years of experience and findings of the 
demonstration, it is time to expand the availability of PACE 
services to many more qualified frail elderly individuals 
throughout the United States. We request your support of H.R. 
1464 that would make PACE available to those Medicare and 
Medicaid beneficiaries who could benefit from these services. 
H.R. 1464 proposes a thoughtful, deliberate approach toward 
expanding PACE, one which builds upon the lessons learned over 
the course of the 11-year history of the demonstration.
    Although we clearly realize that PACE is not the only 
answer to meeting the needs of frail elderly beneficiaries, it 
is one of just a handful of operational programs which 
integrate the entire spectrum of acute and long-term care 
services and it has withstood the scrutiny that comes with a 
high degree of visibility. We strongly believe that the efforts 
to expand PACE should be built directly upon the demonstration 
experience.
    We must retain the distinguished characteristics of the 
PACE model that have been successfully addressed. They include 
a staff model in which PACE staff deliver the majority of the 
services provided to the enrollees.
    A community-based orientation for programs, not only with 
respect to the location in which services are delivered, but 
equally important, the active participation of community 
representatives from governing bodies in key committees of PACE 
Programs, such as ethics committees. PACE Programs serve frail 
elderly individuals who are expected to die within three to 4 
years of enrollment. It is essential that program operations be 
visible and accountable to members of the local community and 
subject to public scrutiny.
    The absolute distinction between service allocation 
decisions and financial considerations at the individual care 
planning level should be a strong part of this. Care planning 
decisions must be made focusing on patient needs and not 
financial considerations.
    Capitated financing, which places the provider at risk for 
all services. Unless the provider is required to assume risk 
for all services, the incentive always exists to utilize 
services for which one is not financially responsible, thereby 
shifting cost.
    We appreciate the interest that the Subcommittee has 
expressed in PACE over a period of years. We also appreciate 
the commitment to PACE by the administration and HCFA. That 
commitment was evidenced most recently by the inclusion of 
language to expand PACE in the administration's current budget.
    PACE, we hope, creates an opportunity to work together to 
improve the delivery of services to a subset of the most needy 
Medicare and Medicaid beneficiaries.
    Thank you.
    [The prepared statement and attachment follow:]
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    Chairman Thomas. Thank you, Ms. Baskins.
    Mr. Feldman.

 STATEMENT OF ELI FELDMAN, EXECUTIVE VICE PRESIDENT AND CHIEF 
   EXECUTIVE OFFICER, METROPOLITAN JEWISH HEALTH SYSTEM, AND 
                 ELDERPLAN, BROOKLYN, NEW YORK

    Mr. Feldman. Thank you, Mr. Chairman.
    Mr. Chairman, I appreciate the opportunity to testify for 
all Social HMO sites on an innovative model of care. In 
addition to Elderplan, there are two other first generation 
sites, including Medicare Plus Two, sponsored by Kaiser 
Permanente, which serves residents in Oregon and Washington 
States, and Scan Health Plan of Long Beach, California.
    The SHMO model should be of great interest to the Committee 
for several reasons. First, it provides a cost-effective 
alternative for serving high-cost populations, such as the 
aged, the disabled, and dually eligible.
    Second, it represents a more rational approach to cost 
containment than across-the-board rate reductions. SHMOs 
restructure benefits and service delivery design and realign 
provider and payor financial incentives. Further, SHMOs use 
health risks adjustors in structuring payment levels.
    Third, it offers the States a model for developing a 
Medicaid managed care program for seniors and reducing spending 
on the dually eligible population.
    Social HMOs integrate the full spectrum of primary, acute, 
and long-term care services for seniors. Beyond traditional 
part A and B benefits, SHMOs cover, for example, eyeglasses, 
hearing aids, prescription drugs, and up to $1,000 per month in 
home and community-based services.
    The SHMO programs have achieved several important goals 
since their inception. They have produced a model for 
integrating the full range of primary, acute, and community-
based long-term care services to more closely parallel the 
needs of our aging population. They have enhanced coordination 
of seniors' health services through uniform care management 
policies and geriatric care protocols, simplifying seniors' 
access to a broader range of more appropriate services.
    And, they have produced Medicare and Medicaid cost savings 
in several ways, by eliminating duplication of function across 
multiple provider settings, through better coordination of 
care, by improving health outcomes through high-risk screening 
and appropriate followup interventions, and through a flexible 
benefit design which allows SHMOs to substitute lower cost 
services.
    For example, Kaiser research shows that a home and 
community care benefit produces savings by delaying or 
preventing long-term nursing home admissions and reducing 
nursing home lengths of stay. For every month we delay nursing 
home entry in New York City for a dually eligible person, 
Elderplan saves the government about $5,700. Instead, we spend 
about one-tenth that amount in home and continuing care benefit 
services under Elderplan's chronic care benefit. If we delay 
admission for 1 full year, the public sector achieves net 
savings of about $68,000 annually.
    Additional savings could be produced by more effectively 
integrating Medicaid long-term care services under managed care 
financing arrangements. The SHMOs collectively have encountered 
regulatory barriers in this area.
    For example, since New York State's managed care waiver 
currently is limited to the Aid for Dependent Children 
population, there is no mechanism for Elderplan to receive 
Medicaid capitation for long-term care benefits. Accordingly, 
we must continue to provide Medicaid long-term care services 
under a separate fee-for-service structure.
    SHMOs can serve as the bridge to link acute and long-term 
care benefits for dually eligible persons under managed care 
arrangements. The Federal Government already has made a 
substantial investment in developing Medicare managed care 
options under the TEFRA Program and has produced an effective 
infrastructure for integrating acute care services and 
financing.
    To achieve systemwide savings, however, Medicaid long-term 
care benefits need to be integrated fully into the structure, 
as well. SHMOs provide the model for bridging the Medicare, 
Medicaid, and acute care long-term care gaps in the current 
system.
    Waiver authority for the SHMO demonstration will expire at 
the end of this year if no further action is taken by Congress 
or the administration. We are currently awaiting a 1-year 
administrative extension from HCFA. In addition, the President 
included a 3-year legislative extension in his fiscal year 1998 
budget proposal. While we remain hopeful that the 
administrative extension will be enacted by the end of the 
year, this is obviously only a stopgap measure.
    Mr. Chairman, as you develop your Medicare budget 
proposals, we request that you give serious consideration to 
the following recommendations. First, at a minimum, extend SHMO 
waiver authority for 3 years, to December 31, 2000. Second, as 
part of a larger Medicare restructuring initiative, grant SHMOs 
permanent provider status and extend this option to other 
Medicare beneficiaries nationwide. And third, identify 
incentives encouraging States to fully integrate Medicaid long-
term care benefits with Medicare HMO acute care benefits for 
the dually eligible population to maximize integration efforts 
and cost savings potential.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]
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    Chairman Thomas. Thank you, Mr. Feldman.
    Mr. Bringewatt.

STATEMENT OF RICHARD BRINGEWATT, PRESIDENT AND CHIEF EXECUTIVE 
    OFFICER, NATIONAL CHRONIC CARE CONSORTIUM, BLOOMINGTON, 
                           MINNESOTA

    Mr. Bringewatt. Mr. Chairman and Members of the 
Subcommittee on Health, I appreciate the opportunity to testify 
at today's hearing regarding the need for greater coordination 
of health care and related services for seniors.
    Nowhere is the need for coordination more evident than for 
persons with chronic diseases and disabilities. People with 
chronic conditions, such as Alzheimer's disease, heart disease, 
strokes, and hip fractures, represent health care's highest 
cost and fastest growing service group.
    In 1995, nearly 70 percent of the nation's personal health 
care expenditures were for direct medical costs of persons with 
chronic conditions. Chronic illness cost our country about $660 
billion in 1995 [sic], $425 billion in direct medical expense 
and the remainder in lost productivity. The dually eligible 
which account for about 6 million people, represent an 
expensive subgroup of this population. Their health care costs 
represent about 30 percent of Medicare and 35 percent of 
Medicaid expenditures.
    These high costs can be attributed in large part to four 
factors. First, we develop policies in managed care as if the 
problems of Medicare and Medicaid beneficiaries are acute 
rather than chronic. We focus on issues of cure more than care, 
on issues of disease more than disability, and with a 
significant focus on institutional services and a successive 
use of high-cost technology.
    Second, we develop policies in managed care around 
settings, such as hospitals, physicians, nursing homes, and 
care providers instead of around the ongoing problems of people 
whose problems require care that crosses time, place, and 
profession. We look at cost and quality one piece at a time 
without a sense of their cumulative cost or care effects. We 
fail to recognize that care for people with chronic conditions 
requires the involvement of multiple care providers working 
together to achieve common quality and cost objectives over an 
extended period of time.
    Third, we finance care only after a problem has reached a 
crisis proportion with few incentives for preventing, delaying, 
or minimizing the progression of disease or disability over 
time.
    Fourth, we develop policies in managed care as if there 
were little or no relationship between Medicare and Medicaid 
and a host of other public and private programs. We establish 
rules and regulations under each payment source one program at 
a time without regard to issues of cost shifting or the cost of 
duplicative and conflicting requirements.
    As a foundation for addressing the problems in Medicare and 
Medicaid over the long term, we recommend that Congress 
consider legislation which would lay a foundation for 
containing the accumulation of Medicare and Medicaid costs 
while maintaining America's commitment to quality. NCCC's model 
legislation would establish a national policy agenda for 
chronic care that would recognize the relationship among 
programs and payors serving the chronically ill and the 
importance of controlling chronic disease cost to preserving 
the Medicare Trust Fund.
    The Chronic Care Act also would streamline oversight for 
Medicare and Medicaid by establishing a simplified and uniform 
set of rules and regulations for governing administration, data 
collection, care management and planning functions, reporting, 
quality assurance, and so forth.
    Third, it would enable payors and providers to move beyond 
demonstrations and establish new methods of operations in the 
marketplace with incentives for functioning as part of an 
integrated network of care with special capabilities for 
serving people with chronic disease and disabilities.
    During a 3-year period, PSOs and dedicated providers of 
chronic care services would be subject to specific capacity 
criteria and would be evaluated on their ability to meet cost 
and quality objectives. Those who do would be designated as 
qualified chronic care networks, operating under a uniform set 
of oversight rules and paid under shared risk financing 
arrangements involving health status adjustments representative 
of the high-risk population being served.
    Fourth, the Chronic Care Act would enable the public and 
private sectors to redirect existing research and technical 
assistance resources to help transform existing structures to 
better serve people with chronic disease and disability. 
Examples would include developing capabilities to better track 
and analyze financial and clinical data for chronic disease and 
the management of care; assisting in restructuring financing 
approaches, using risk-based adjustment payment that recognized 
the high cost of chronic care; and identifying and 
disseminating best practice tools that can help expedite the 
use of more cost-effective care technologies.
    If America is going to preserve the Medicare trust over the 
long term, it is critical that we establish a foundation for 
national health policy built upon the problems of the future 
rather than problems of the past and problems of people rather 
than problems of providers. It is critical that we move beyond 
demonstrations to creating real incentives for a fundamental 
transformation under marketplace conditions with cost 
containment and quality treated as interdependent objectives.
    Thank you.
    [The prepared statement follows:]
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    Chairman Thomas. Thank you very much.
    Dr. Adcock.

  STATEMENT OF MALCOLM ADCOCK, PH.D., COMMISSIONER OF HEALTH, 
 CINCINNATI HEALTH DEPARTMENT, CINCINNATI, OHIO; ON BEHALF OF 
               MUNICIPAL HEALTH SERVICES PROGRAM

    Mr. Adcock. Thank you, Mr. Chairman and members of the 
Health Subcommittee. I am Malcolm Adcock. I am the Health 
Commissioner for the City of Cincinnati. I appreciate this 
opportunity to present this testimony on behalf of the City of 
Cincinnati as well as the three other cities that participate 
in the Municipal Health Services Program, those being 
Baltimore, Maryland; Milwaukee, Wisconsin; and San Jose, 
California.
    My colleagues are with me today from Baltimore and San 
Jose. Also, Dr. Graham Atkinson, who performed the cost study 
on our programs, is here. They can certainly answer questions 
at your request.
    The MHSP, or Municipal Health Services Program, is a 
forerunner of managed care programs which increases access to 
preventive care and ancillary services in a coordinated and 
cost-effective manner. We believe the Municipal Health Services 
Program is a common sense approach to health care which has 
demonstrated cost savings and a better level of care for the 
inner-city poor, underserved individuals that are eligible for 
our program. Therefore, we are requesting that the Subcommittee 
authorize an extension of the Municipal Health Services Program 
rather than allow this program to expire in December, as it 
would without Congressional action.
    By way of historical background, the MHSP was established 
in 1978 to address the unique health care needs of vulnerable 
populations, underserved, low-income, and urban communities. 
HCFA, in fact, grants waivers of certain reimbursement 
limitations for Medicare beneficiaries to encourage a managed 
care approach.
    The Municipal Health Services Program delivers cost-
effective, coordinated managed care to individuals who 
otherwise would depend on emergency rooms and hospital 
outpatient care for basic medical services. In fact, that was 
part of the original mandate under an initiative through the 
Robert Wood Johnson Foundation.
    Neither HCFA, in our opinion, nor the emerging managed care 
market have responded to the primary care needs of this elderly 
population which is served by our programs.
    With regard to the overall control and management of the 
program, HCFA requires operational guidelines which are 
strictly adhered to through contractual arrangements. They 
require quarterly reports detailing patient utilization, 
coordinated care activities, quality assurance, and marketing 
activities. There are program guidelines which include service 
definitions, reimbursement procedures, and claims processing, 
cost reporting, among other mandated operational requirements. 
Through these efforts, HCFA maintains careful control over our 
programs.
    There is an expanded set of benefits available to the 
beneficiaries under this program, which include primary and 
preventive care, prescription drugs, podiatry, comprehensive 
dental services, optometry, routine eye exams, laboratory, 
hypertension management, and other services. The copayments, 
except for eyeglasses, and the deductibles, are waived, 
encouraging use of the services. Transportation is provided, if 
needed.
    Convenient access to routine health care services allow 
providers to manage care at an affordable cost. We believe it 
allows us to better manage chronic disease and other illnesses 
through routine primary care which saves costs on the inpatient 
and long-term care side of the equation.
    The eligibility requirements are, again, strictly laid out 
by HCFA. Participants must be residents of the city in which 
the program operates, and must be eligible for Medicare part B. 
The services are provided in the clinics in which we operate.
    The client profile certainly includes elderly, of course, 
and minorities, people who live alone, subsist on a fixed 
annual income, and, in short, are at increased risk for chronic 
disease and other illnesses and also likely to postpone care.
    We believe that the justification for the extension of this 
program is that the services are needed to manage chronic and 
other age-specific illnesses. We believe that termination of 
this program could mean increased dependence on emergency room 
and other outpatient services, which would increase costs.
    Which HCFA and Congress are potentially moving toward a 
managed care environment for Medicare, but as we stand here 
today, the HMOs in our localities do not target our urban low-
income seniors and, in fact, we tend to think that they cherry 
pick the healthiest individuals for inclusion in their 
networks. To date, the HMOs that are operating in our locales 
have been unwilling to contract for provider-based contracts 
for our facilities.
    As indicated in Dr. Atkinson's study, we believe the 
Municipal Health Services Program ultimately saves money. We 
disagree strongly with the cost estimates from HCFA that the 
program will cost $79 million in fiscal year 1997. We, in fact, 
believe that Dr. Atkinson's study is correct that the Municipal 
Health Services Program will save Medicare $27.4 million in 
1996, an additional amount in 1998, and potentially $128 
million over the course of a 4-year extension. On average, we 
believe the program saves Medicare almost $500 per user.
    So, basically, what we are saying is that this program has 
a long history and a lot to teach us about managed care for 
this underserved population, and, we believe, this information 
has not been taken advantage of to this point. We also believe 
that these programs represent a critical provider network which 
will be required in any event if managed care is to move into 
the inner cities. We believe that a lot could be gained from 
looking closely at this program as we begin to look at how 
managed care could operate in that environment.
    I would be happy to answer any questions.
    [The prepared statement follows:]
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    [The report of Mr. Atkinson follows:]
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    Chairman Thomas. Thank you, Doctor. Yes, we will have some.
    Ms. Baskins, one of the differences between H.R. 1464 as we 
have introduced it and the administration's proposal is that 
the administration includes additional payments from the 
Federal Government for operational losses in the startup years. 
We do not include that in our legislation because I am trying 
to figure out how that would work as an incentive, given the 
structure of the program, and if you do not have it coming to 
the program, how additional payments for losses would produce 
it in the startup years. So, it just made no sense to me.
    As someone who is involved in the program, do you have any 
comment on whether or not it was appropriate that we left the 
startup loss coverage out of the bill?
    Ms. Baskins. In the initial demonstration, the risk 
mechanisms were important to us because we really were not sure 
what we were doing. We had small numbers changing effectively 
how a provider provides care under this system. It was a 
learning curve for us, and that risk reserve did give us some 
protection from that.
    Now that sites have started up PACE Programs in a different 
way, they begin now as capitated for the Medicaid component 
only and then move into bringing the Medicare dollars down, 
those sites have been much stronger. Their learning curve has 
been on the Medicaid side, preparing and building the 
infrastructure necessary to manage the burden and 
responsibility for Medicare and I think the need for risk 
reserve has been less under that developmental phase.
    But I am not sure how the provider legislation creates the 
opportunity to move immediately into dual waivers and the risk 
reserve may be needed as sites begin in their infancy to put 
all these pieces together.
    Chairman Thomas. It is hard for me to talk about the 
willingness to move toward a permanent program. If you still 
need all of the nurturing startup protections, then you 
probably are not mature enough to move into an ongoing program. 
Obviously, we can sit down and think it through, but, as I say, 
it seems to me somewhat incongruous or inconsistent to do both 
of those. If it is a demonstration program and it is not ready 
for prime time, then I understand that.
    I just have a difficult time, and I will just say this as 
an aside, Dr. Adcock, and I will get to you with questions, 
that if you have had a demonstration since 1979, at some point 
you have to say, this thing either works or it does not. The 
longer you need a structure for a number of reasons, you begin 
to wonder whether you just let them sink or swim. We had 
testimony earlier about the sink or swim and that is going to 
be one of my broad questions to all of you in a minute.
    The other thing that I am trying to resist, given the 
differences notwithstanding similar populations we are serving, 
but the differences between States, since you have to deal with 
match-ups, willingness of States to go forward, how much sense 
does it make if these folks are ready for prime time that we 
just let them go through the State regulatory approval process 
rather than creating a separate structure at the Federal level?
    Ms. Baskins. I think the ability to bring the Medicare 
dollars down is critical and that is going to require 
Congressional legislation. Being able to merge those two 
funding sources in one that is very flexible is key.
    Chairman Thomas. But if you create the structure that makes 
it work in terms of the licensure aspect of a program, do we 
also need to deal with that at the Federal level or can we deal 
with it at the States?
    Ms. Baskins. I think licensure can be dealt with at the 
State level, yes.
    Chairman Thomas. Mr. Feldman, I guess this is for 
everybody, but you focused on it. First of all, the first panel 
indicated that perhaps for Social HMOs--they may have been more 
academic, you have to deal with the bottom line maybe a little 
bit more--that instead of the 100 percent reimbursement, if we 
are moving TEFRA risk down from the 95 to 90 or some similar 
reduction, how uncomfortable would you be for the Social HMOs 
to follow a similar parallel reduction pattern?
    Mr. Feldman. In speaking for the Social HMOs, I think that 
the issue of moving to 95 percent of the AAPCC is not as much 
an issue as the significant variations that take place in the 
AAPCC at the various locations.
    Chairman Thomas. Sure.
    Mr. Feldman. But we have discussed it and we feel 
comfortable that within a certain process, I think that the 
AAPCC could be reduced to 95 percent and the efficiencies that 
we have learned over the years can be applied to produce what 
we need to do.
    Chairman Thomas. Yes. Obviously, the differential in the 
counties through the AAPCC does not make a lot of sense to us. 
We have examined it. We have talked about ways in which we can 
change it. Many of them simply make it worse. So, it is one of 
those situations where it is a lousy structure but we do not 
have a better one right now. Obviously, if we could get a risk 
assessment model and begin plugging those kinds of components 
in, as was indicated in terms of a desire for a data based 
system, and Mr. Bringewatt talked about that and I am very 
interested in computerized patient profiles and others that can 
get us some good statistical data as we move forward, but that 
is for the future.
    If you are willing to accept what is in essence now a TEFRA 
risk payment, what else do you folks need other than for us to 
say, forget the demonstration category. If you have to put the 
package together and you do it differently than someone else, 
why should we care?
    Mr. Feldman. I think the issue is the nursing home 
certifiable component of the population, which is the unique 
component. We have 15 percent of our subscribers who are 
enrolled, nursing home certifiable that would normally have 
qualified to be in the nursing home and we care for them in the 
community.
    We receive an additional adjustor for that population that 
is unique and we think that a 95 percent TEFRA with an adjustor 
for that particular group would probably work adequately at 
most of the sites. But the 95 percent of the AAPCC will not 
cover the service component for the long-term care and 
community-based benefits that are currently being provided 
purely through the 95 percent of the AAPCC.
    Chairman Thomas. Even with the obvious individual 
adjustor----
    Mr. Feldman. With the current adjustors but without the 
nursing home certifiable.
    Chairman Thomas. Is this more New York specific as a 
problem or is it pretty general?
    Mr. Feldman. I think it is general as a problem and I think 
that most projects, including the PACE projects, they have 
adjustors that are specific to certain types of populations 
that would not normally be included under a general capitation 
arrangement.
    Chairman Thomas. My concern is that I think we need fewer 
demonstrations that stretch out over decades and more fish or 
cut bait in terms of programs so that we can simply go out and 
see what happens.
    Mr. Bringewatt, would you agree basically with that in 
terms of the 95 percent, coming down from 100? I know your 
testimony focused on that----
    Mr. Bringewatt. Yes.
    Chairman Thomas [continuing]. And I know you want a 
complete legislative package which covers everything. It is an 
interesting experiment, but given the realities, if we reduce 
the money and structure it in a way that provided for that mix, 
I assume everybody here would love to move out of the 
demonstration category and into the sink or swim.
    Dr. Adcock, I do not understand why since 1979 we do not 
know how many users there are in Milwaukee. There may be a very 
good reason for why they could not determine it, but it kind of 
amazes me.
    Mr. Adcock. I am not sure of the answer to that and I do 
not believe anyone is here from Milwaukee today that can speak 
to that.
    Chairman Thomas. Well, they may be, based upon the way they 
count.
    Mr. Adcock. But I do not have the answer to that question.
    Chairman Thomas. OK. Why does the only minimally successful 
area, again, since 1979, appear to be Baltimore? They have 
26,000 folk, Cincinnati 1,800, Milwaukee 4,000 to 6,000, San 
Jose 6,000, according to the structure in your testimony.
    Mr. Adcock. The sizes of the program were really dictated 
at the outset by virtue of how we started. The growth was 
really constrained by HCFA's requirements that we not expand 
beyond the fixed sites involved. We had strict constraints on 
advertising and so on. So it was a fairly controlled program at 
sites involved with the program.
    Chairman Thomas. If HMOs had a cost-based reimbursement for 
non-Medicare-covered health care services, do you think they 
would move into the area and serve the population?
    Mr. Adcock. I think that is a possibility, although, a 
risk-based adjustment and capitation could also provide 
incentive. It is ironic. We feel that we have one of the 
longest cost histories going for doing just that in our sites, 
and so we would certainly invite HCFA to use our cost-based 
information to do that. We have successful programs. We feel 
that that information could be used to provide incentives.
    Chairman Thomas. Notwithstanding that, we have some studies 
that say it saves money and then we have a study that says it 
costs money. That concerns me in terms of reconciling 
methodology, because when you have that big of swing, something 
is going on that does not give us an immediate ability to 
understand the dynamics of this demonstration program.
    Mr. Adcock. I understand, but the study that was done for 
HCFA essentially concluded that our programs were actually 
saving money and keeping people out of the hospital. They then 
did an adjustment on the study outcome assuming sicker 
populations, thereby causing it to appear that our cost was 
increasing. We never did agree with that and we never 
understood it.
    Chairman Thomas. The gentlewoman from Connecticut?
    Mrs. Johnson. Thanks. I would like to pursue this point a 
little further. Why do you think HCFA would study your program 
and say it cuts costs and then what did they do to the study to 
change the outcome?
    Mr. Adcock. They did a study in 1993, at least that is when 
it was released, to look at the overall cost of the program. 
Basically, what they found was that through our program, there 
was less hospital-based care and less specialty-based care. 
Therefore, the patients under our program were effectively 
costing less than nonusers of a comparable control group.
    They then also concluded that the patients in our program 
were less sick than nonusers, and, in fact, they even made a 
statement that that might have been attributable to the managed 
care approach that we took. But the bottom line was they 
adjusted the illness severity for our group with another group 
and then concluded that, presumably, if our group was as sick 
as the other group, it might cost more. In fact, the group that 
we had under our care was not as ill and we believe it was 
because of the managed care approach.
    After all, if we do not believe that managed care saves 
money, I think we are all going in the wrong direction here.
    Mrs. Johnson. That really is quite interesting. Is there 
any more objective way of looking at the base population, a 
sense, before care?
    Mr. Adcock. You could certainly probably do it on a 
prospective basis, and, in fact, I guess that to a certain 
extent, the first study that was done on the program attempted 
to do some of that and also concluded that the program saved 
dollars. So we believe that there is a fairly sound basis in 
making that statement.
    Clearly, I think it will depend on the risk of the 
population that you are dealing with to begin with.
    Mrs. Johnson. Dr. Adcock, why will not plans contract with 
you? How many managed care plans do you have competing in 
Cincinnati, because it seems to me that if you save money, 
managed care plans are going to want to contract with you 
because they need to have a certain volume of patients to be 
successful.
    Mr. Adcock. That is one of the things that we are trying to 
get through to them now. In fact, we are discussing with them 
and attempting to contract with them for service to transition 
this program. The minute a person joins an HMO, they are no 
longer eligible for this program.
    We believe that the HMOs that operate in Cincinnati, and I 
believe there are two at this point, do not understand. They 
believe that the inner-city poor represent a higher risk 
population and they do not understand what we have done to 
control that risk. They simply do not understand that.
    I guess there is no reason for them to understand it, given 
the fact that inner-city poor do have a higher incidence of 
chronic disease and other illnesses.
    Mrs. Johnson. These are HMO risk contractors?
    Mr. Adcock. Yes.
    Mrs. Johnson. If you have any suggestions as to how wecan 
assure that HMO contractors under Medicare do not cherry pick, we would 
certainly be interested in that, because, frankly, if they are serving 
that region and they are not contracting with you, then they are not 
covering many people in that part of town.
    Mr. Adcock. Right.
    Mrs. Johnson. Maybe we want to look at HMO risk contractors 
to see what number of Medicare and Medicaid individuals they 
serve as just an indicator of possible skimming. I would be 
interested in your thoughts on that.
    Mr. Adcock. That would certainly be one way. The other way 
would certainly be to work through the historical data, at 
least in our case, with them through HCFA to make sure that 
they understand what the risk is with our populations because I 
really do not think they understand it.
    Of course, the other issue is if they perceive that the 
capitation is not going to cover their risk, then, clearly, 
they are not going to be amenable to moving into that market.
    Mrs. Johnson. I think there is some urgency in trying to do 
what the Chairman wants to do, that is, move what you all are 
doing into, in a sense, the mainstream HMO contracting 
structure, because last year, we did pass premium deductibility 
for long-term care insurance, and as that takes hold, employer 
deductibility, as that takes hold, say in 10 or 15 or 20 years, 
you are going to have people who are frail elderly and who are 
low income but who have long-term care insurance. So you are 
going to need a more flexible system that can target those 
populations in the cities and recognize their low-income status 
but also a variety of payor options.
    Mr. Adcock. We absolutely agree and we are fully prepared 
as individual cities to move forward and transition toward 
that. Like I say, we are attempting to contract with the HMOs 
in Cincinnati. In fact, we sat down with them again this past 
week. I think we are beginning to make some inroads, but it is 
a tough sell at this point because they just do not seem to 
understand the situation with our MHSP Program.
    Mrs. Johnson. But you also are sitting down with HCFA?
    Mr. Adcock. We are attempting to, yes. Yes.
    Mrs. Johnson. Thank you. Any other comment? My time is 
expired, actually. The red light is on.
    Chairman Thomas. That is right. Let me see if the gentleman 
from Louisiana----
    Mrs. Johnson. While we are waiting for him, perhaps you 
could answer this question that I posed to the preceding panel. 
You have talked about a lot of barriers, and I know there are a 
lot of barriers, and what are the one or two we should focus on 
this session?
    Ms. Baskins. To reiterate, the 50-50 rule, I think, is an 
important one that needs to be resolved and addressed.
    Mrs. Johnson. Would you all agree that the 50-50 rule is 
really the biggest problem?
    Mr. Bringewatt. I would agree. I would also like to 
underline the importance of while we do some of these very 
important things in the short term, that we lay the groundwork 
for doing some things differently as we evolve over the next 
few years.
    For example, moving away from the structure oversight 
relative to each piece of the system, whether it is the 
hospital, the nursing home, the home health agency--a 
micromanagement approach toward the process of simplifying how 
we approach regulation, moving more toward an outcome-based 
approach to monitoring and toward structures that finance care 
in relation to problems of people rather than simply costs 
associated with care provided in a specific setting.
    Mrs. Johnson. Thank you.
    Chairman Thomas. Mr. Bringewatt, this may be hard for you 
to deal with mentally, but I want you to try it. If the Federal 
Government were a business and we were test marketing a product 
and we have done this now for 12 years on Social HMOs, first of 
all, the decision is, should we now go to market with product.
    What should be done in terms of the process, the timing, 
and the decisionmaking to get a climate for these innovative 
products or at least get them out on the shelf without 
continuing to incubate them in demonstration projects? What is 
the downside risk for the taxpayers if we maximize the 
innovative process, coordinating with States as I believe Dr. 
Meiners said in terms of the laboratories of the States.
    Yes, we will have some failed programs, but my problem is 
that given the mental set, and maybe I am more trusting than 
some others may be, but when we go back to the 50-50 rule, it 
is into the early seventies. I mean, you are dealing not only 
with a different mindset in the ordinary TEFRA risk but, 
frankly, when you spend any time at all with people who are 
involved in Social HMOs and with the PACE Program, these are 
not folk out there for a fast buck. They are desperate for an 
ability to put together programs that are more seamless and 
actually meet real needs rather than bureaucratically dictated 
box checking.
    So what would be the downside if we just said, no more 
demonstrations. Go out there. Explain to us how we could 
facilitate the coordination of Federal Medicare dollars and 
Federal Medicare incentivizing the States for the State 
Medicaid portion, and most importantly, what do you think we 
need to do to get the private sector more participating in 
providing initial support, wrap-around, phase-in, any other 
kind of structures that are necessary? Obviously, this is 
available to anybody else.
    Mr. Bringewatt. There are a number of pieces that I want to 
try to fold in here. One is, as a next step, I think it is 
critical that we do exactly what you are suggesting being done 
in terms of the demonstrations that we have already--that is, 
in fact, moving them forward into the mainstream as they are 
proposed. But----
    Chairman Thomas. But the thing that bothers me about HCFA 
is that we do not ever create a methodology which is a basic 
screening process that if met, you get the demonstration up and 
running. You create structure-specific demonstrations which, I 
think, have very limited value and, frankly, apparently are 
designed to maintain an umbilical cord structure. Witness this 
20-year structure on a demonstration. So I have a very 
difficult time with the fundamental conceptual and 
methodological approach of HCFA on what they call demonstration 
projects but which I do not think would ever grow to a 
realistic use model. That is my problem.
    Mr. Bringewatt. We at the Consortium would fully agree with 
that, and to put in place 3-year structures of demonstrations 
that have 2- or 3-year time lags for evaluation and then the 
time is already past and in the marketplace, changes occur 
increasingly in shorter cycles rather than longer cycles.
    So our recommendation is that HCFA look toward making 
opportunities for providers who demonstrate certain 
capabilities to move forward with a 3-year transition period, 
where they would define their structure as it relates to 
serving a certain group of targeted organizations, and where 
the Federal Government's role would be in relation to defining 
a limited amount of expenditures that would be paid in relation 
to care that is either equal to or less than what is available 
under other arrangements and to monitor quality in order to 
ensure people do not get hurt.
    Chairman Thomas. If it is not costing any more money 
relatively, then your only other concern should be quality.
    Mr. Bringewatt. Exactly.
    Chairman Thomas. And my problem is, we have no tool to 
measure quality except we want to make sure that it is not 
worse than what they are getting otherwise and I just think it 
is a priori not going to be worse with a good chance of being 
better. But at the same time, we are not moving toward a 
computer-based patient record so that we could begin to, at 
least on a comparative basis, measure quality. Instead, they 
place quality structures which are hampering devices inside the 
demonstration which do not allow you to give it a good 
demonstration.
    So maybe we are just sharing frustration, and that used to 
be the case when we were in the minority. Now that we are in 
the majority, I am interested in getting rid of some of my 
frustrations and we are going to----
    Mrs. Johnson. It turns out not to be easy.
    Chairman Thomas. It turns out not to be easy, but it also 
turns out not to be impossible.
    I want to thank you all for your testimony. I want to 
underscore the fact that notwithstanding the fact that we moved 
now with a stand-alone PACE bill, my biggest problem is I do 
not think we need necessarily narrow enabling legislation in 
other areas. I just think we ought to mainstream as much as 
possible, and so I would like to have staff and others talk 
with you about what changes we need to make so we're sure you 
have the maximum chance for surviving in a mainstream area.
    Dr. Adcock, my biggest problem with your structure is not 
that we do not want to meet the needs of those inner-city folk 
but that what we need to do is figure out a glide path so that 
structures are available for them, whether they need to be 
innovative or not, but to maintain under a demonstration for 
two decades a cost-plus reimbursement halfway house model does 
not make a lot of sense to me, especially if you are hamstrung 
with your ability to grow so that you can prove your model to 
be successful or not. I guess what I am saying is, we may pull 
life support but we are going to make sure that there are 
alternatives available.
    Thank you very much. The Subcommittee stands adjourned.
    [Whereupon, at 11:29 a.m., the hearing was adjourned.]
    [Submissions for the record follow:]

Statement of Bruce D. Thevenot, Vice President, Government Relations, 
Genesis Health Ventures, Inc., Kennett Square, Pennsylvania



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